<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, 1999
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Commission file number 1 - 6784
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MATSUSHITA DENKI SANGYO KABUSHIKI KAISHA
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(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
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(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
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(Title of Class)
Securities for which there is a reporting obligation pursuant
to Section 15(d) of the Act.
None
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(Title of Class)
This form contains 83 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, 1999 March 30, 1999
-------------- (Japan Time) (New York Time)
------------- ---------------
<S> <C> <C>
Common Stock - 50 yen par value per share 2,062,344,774
American Depositary Shares, each
representing 10 shares of common stock 4,622,187
</TABLE>
Indicate by check mark whether the Company (1) has filed all reports required to
be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Company was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
--- ---
Indicate by check mark which financial statement item the Company has elected to
follow. Item 17. X Item 18. .
--- ---
All information contained in this Report is as of March 31, 1999 or for the year
ended March 31, 1999 (fiscal 1999) 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 21, 1999 was 118.25 yen =
U.S.$1.
Cautionary Statement Regarding Forward-Looking Statements
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Any statements in this Annual Report, other than those of historical fact, are
forward-looking statements about the future performance of Matsushita and its
Group companies, which are based on management's assumptions and beliefs in
light of information currently available, and involve risks and uncertainties.
Actual results may differ materially from these forecasts.
Potential risks and uncertainties include, but are not limited to, domestic and
overseas economic conditions, such as consumer spending and private capital
expenditures, particularly given the continuing sluggish economy of Japan and
other Asian countries; currency exchange rate fluctuations, notably with the
yen, U.S. dollar, Asian currencies, the euro and other currencies, in which
Matsushita operates its international business; direct and indirect restrictions
imposed by other countries; fluctuations in market prices of securities in which
Matsushita has substantial holdings; and Matsushita's ability to maintain its
strength in many product and geographical areas, through such means as new
product introductions, in a market that is highly competitive in terms of both
price and technology, pertinent to the industry to which the Company primarily
belongs.
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PART I
Item 1. Description of Business
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GENERAL
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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.
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 placed increasing emphasis on technological development
and the use of advanced electronics technology in every phase of life, thus
steering the Company to achieve further growth in the next century. In
particular, the Company has been expanding its development activities in such
areas as next-generation audiovisual (AV) 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 June 1995, the Company sold an 80% equity 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 minority interest.
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In April 1997, the Matsushita parent company established a new organizational
structure, setting up four internal divisional companies - responsible for AVC
(audiovisual and computer products), home appliances and household equipment,
air conditioners, and electric motors - by grouping a majority of its some 50
product divisions. This step was taken in order to facilitate strategic
planning, 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 announced a package of new management initiatives
aimed at better sharing interests with shareholders. As part of this package,
management implemented with approval at the annual shareholders' meeting in late
June 1998, repurchase of 50 million shares of the parent company's common stock
from the stock market for retirement, spending approximately 99 billion yen of
retained earnings during fiscal 1999. At the same time, as an incentive to Board
members and employees toward the enhancement of corporate value, the parent
company granted stock option rights (exercisable from July 1, 2000 to June 30,
2004) to 32 Board members and four select senior executives, at amounts ranging
from 2,000 to 10,000 common shares each, and established 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 through fiscal 2001).
In May 1999, management again announced another stock option plan (exercisable
from July 1, 2001 to June 30, 2005) for the current 32 Board members and four
select senior executives. The amounts and conditions are approximately equal to
those granted last year.
SALES CATEGORIES
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Matsushita is engaged in the production and sales of electronic and electric
products in a broad array of business areas. The following table sets forth the
Company's sales breakdown by product categories for the last three fiscal years:
<TABLE>
<CAPTION>
Yen (billions)
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Fiscal year ended March 31,
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1999 1998 1997
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<S> <C> <C> <C> <C> <C> <C>
Consumer products
Video and audio equipment 1,895 25% 1,885 24% 1,804 24%
Home appliances and
household equipment 1,394 18 1,474 18 1,638 21
----- --- ----- --- ----- ---
Subtotal 3,289 43 3,359 42 3,442 45
Industrial products
Information and communi-
cations equipment 2,150 28 2,264 29 2,021 26
Industrial equipment 717 10 701 9 701 9
----- --- ----- --- ----- ---
Subtotal 2,867 38 2,965 38 2,722 35
Components 1,484 19 1,567 20 1,512 20
----- --- ----- --- ----- ---
Total 7,640 100% 7,891 100% 7,676 100%
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</TABLE>
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Note: From fiscal 1998, Matsushita 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. The new categories are classified by type of
product and customer, rather than by product group as was previously
the case. Prior year figures have been restated to reflect this change.
Consumer Products
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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 3,289 billion yen, representing
43% of total Company sales in fiscal 1999. 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. In camcorders, Matsushita
offers a variety of compact models, including VHS-C, S-VHS-C and digital
camcorders. Since introducing the industry's first digital camcorder in 1995,
the Company has been consistently launching new advanced digital models,
including palm-sized and other more compact models, that can be linked to
printers and/or personal computers (PCs) for multiple video image
processing/storage or still image printing.
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, mainly in Japan, on flat-screen models, notably a new
series of TVs introduced during fiscal 1999 called "Tau." The latest "Tau"
features Matsushita's originally developed Semi-Stretched Tension (SST)
flat-surface CRTs with higher picture quality. Matsushita meets the burgeoning
demand for multi-channel, multi-functional digital TV broadcasting by
manufacturing and selling set-top boxes (STBs) to receive digital satellite TV
broadcasts in Japan. This was followed by introduction of STBs and TVs to
receive digital terrestrial TV broadcasts commenced in the United States in late
1998.
Matsushita has taken an active role in promoting DVD products, introducing the
industry's first DVD players in fiscal 1997, and the world's first portable DVD
players in early 1998. In fiscal 1999, Matsushita further enhanced this
product's range by adding an even lighter and more compact portable model with
longer playback time. 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, and such flat screen TVs
as liquid crystal display (LCD) TVs and plasma TVs (TVs using plasma display
panels (PDPs)).
In the area of audio equipment, Matsushita produces a large variety of products,
such as compact disc (CD) and Mini Disc (MD) players, radio receivers, CD radio
cassette recorders, tape recorders and portable headphone players, as well as
stereo hi-fi equipment and electronic musical instruments.
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In response to growing market demand for compact digital audio equipment in
recent years, Matsushita has been strengthening such product lines as CD and MD
players with several outstanding features: In fiscal 1999, the Company
introduced in the domestic market, the world's smallest and lightest portable MD
player, featuring the industry's longest continuous playing time with batteries.
In overseas markets and Japan, the Company also achieved success with a new
compact stereo component system, incorporating a 5-CD changer. The Company
further plans to introduce new industry-leading DVD-Audio equipment during
fiscal 2000.
This category also includes prerecorded video and audio tapes and discs.
To maintain its competitive edge in the future, Matsushita is currently
emphasizing development of advanced AV products focusing on better linkage to
digital networks (digital broadcasts, the Internet, etc.).
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, electric and kerosene
heaters and electrically-heated rugs. The line of household equipment mainly
comprises kitchen fixture systems, electric, gas and kerosene hot-water supply
systems, and bath and sanitary equipment. This category also includes electric
lamps, bicycles, cameras and flash units, and fire extinguishers.
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 conservation.
Recent examples include the world's first centrifugal force washing machine for
home use, which cleans the laundry by flowing water rapidly through fabric, the
industry's quietest vacuum cleaner, and a triangular-shaped air conditioner
featuring a space-saving design and improved cooling and heating 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 a bathroom shower-with-chair
unit for use by the aged and the disabled.
To strengthen its established position in the industry, Matsushita is increasing
its product development efforts to address energy-saving and eco-friendly
requirements being set by Japanese and foreign governments, while also exploring
digital networking of various household electric and electronic products to
create a more comfortable and convenient lifestyle.
Industrial Products
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Industrial products, comprised of information and communications equipment and
industrial equipment, has been the Company's fastest growth area during the last
several 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 1999 totaled 2,867 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 DVD-RAM 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- and business-use AV systems and
equipment, large-screen visual equipment, communications 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 networking age, Matsushita is currently
strengthening its lines of multimedia-related equipment and systems: Among them,
emphasis is placed on optical disc systems and mobile communications equipment.
The advancement of the former is being propelled by the Company's fast expansion
of DVD-ROM drive production, marketing of thin DVD-ROM drives (for notebook PCs)
and DVD-RAM drives, all meeting the needs for large-capacity information storage
devices. In mobile communications equipment, the Company during fiscal 1999
consolidated its position as one of the leading manufacturers in GSM-standard
markets such as Europe and Asia. The Company is also accelerating its
development of the third-generation mobile communication system, called W-CDMA.
Matsushita is also expanding its multimedia- or digital network-related
businesses, mainly in Japan. These include various on-demand information systems
to municipal, business and other customers, and participation in a number of
development projects guided by government agencies, including next generation
traffic systems called ITS (Intelligent Transport Systems), Internet-related
services, and new digital territorial and satellite broadcast systems. In
addition, Matsushita received orders for a large-scale satellite network system
to link post offices nationwide. To reinforce its ability in these multimedia
system businesses, the Company established a Systems Solutions Division in Tokyo
in April 1999.
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
innovative products to meet ever-more sophisticated customer requirements,
including the world's fastest chip mounter, a unique Stud Bump Bonding
semiconductor-mounting machine, a precision assembly robot equipped with
Matsushita's own compact motors for precise work in small spaces, and DVD disc
production systems built around the Company's expertise in the optical disc
field.
In car AV equipment, Matsushita is one of the world's leading manufacturers.
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 expanding domestic market for car
navigation systems, in fiscal 1999 Matsushita launched the world's first DVD
car-navigation model featuring voice control and DVD video playback functions.
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Components
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Matsushita produces a wide range of electronic and electric components and
devices. Major products included in this category are semiconductors, general
electronic components, display devices, electric motors, compressors and
batteries, for use by Matsushita and other manufacturers. Sales of components as
a whole in fiscal 1999, excluding in-house consumption, totaled 1,484 billion
yen, accounting for 19% of the Company total.
Recognizing that components and devices hold the key to innovation and
advancement, as well as competitiveness, of finished products and systems in the
digital networking 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 is primarily made up of integrated
circuits (ICs), such as MOS LSIs and bipolar ICs, discrete devices and CCDs. The
Company has been strengthening development of single-chip multifunctional LSIs,
called System LSIs, which form the basis of digital-network related AV
equipment. Successful results included Media Core Processors, MPEG-2 encoder
chips, 32-bit microcontrollers with embedded DRAMs, single-chip decoder LSIs for
digital TV receivers, and system LSI chip sets for DVD-ROM drives. Matsushita is
at the forefront in optical pickup semiconductors for DVDs, CCDs for video
camcorders, and gallium-arsenide power modules for cellular phones. The Company
in fiscal 1999 closed its U.S. semiconductor plant reducing production of the
general-purpose DRAMs, which accounted for a relatively small portion of
Matsushita's semiconductor output, to minimize any negative effects due to
declining prices.
In display devices, Matsushita has been a global leader in cathode-ray tubes
(CRTs) to which Matsushita further added high technology SST flat-surface CRTs
during fiscal 1999. The Company also produces a variety of LCD panels, ranging
from STN types to TFT types, including low temperature polysilicon models.
Matsushita is also strengthening its plasma display panels, offering 42-inch and
32-inch wide-screen models with the industry's highest brightness levels.
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.
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Matsushita is one of the world's largest battery manufacturers, producing a
comprehensive range of batteries, ranging from manganese, alkaline, lithium,
silver oxide and zinc air cells, to rechargeable batteries, such as
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. In its latest technological breakthrough, Matsushita began
volume production of thin lithium-polymer cells in early 1999.
Matsushita is a major supplier of 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, Matsushita launched these batteries for HEVs in fiscal 1998, through an EV
battery joint venture with Toyota Motor Corporation.
SALES AND DISTRIBUTION
----------------------
Set forth below is a sales breakdown by geographical markets:
<TABLE>
<CAPTION>
Yen (billions)
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Fiscal year ended March 31,
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1999 1998 1997
------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Japan 3,752 49 % 3,891 49 % 4,046 53%
North and South America 1,513 20 1,458 19 1,249 16
Europe 1,019 13 949 12 836 11
Asia and Others 1,356 18 1,593 20 1,545 20
----- --- ----- --- ----- ---
Total 7,640 100 % 7,891 100 % 7,676 100%
===== === ===== === ===== ===
</TABLE>
Sales and Distribution in Japan
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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.
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
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Matsushita operates 223 companies in 46 countries outside of Japan, including
five regional headquarters, 47 manufacturing/sales companies, 97 manufacturing
companies, 45 sales companies, 11 research organizations and five finance
subsidiaries. International marketing of Matsushita's products is conducted
through the Company's sales subsidiaries and affiliates and also through
independent distributors. In addition, certain products are sold in foreign
markets on an OEM basis and marketed under the brand names of third parties.
9
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Overseas sales, including products manufactured outside Japan and those exported
from Japan represented approximately 51% of the Company's total consolidated
sales in fiscal 1999.
In order to promote global business development and counter currency
fluctuations, Matsushita has expanded its overseas production covering not only
major consumer products, but also industrial products and components. In recent
years, the Company placed emphasis on building new manufacturing facilities in
newly developing areas, such as China, India and Eastern Europe.
Matsushita's current emphasis is placed on advancing localization of development
of products and technologies to enhance competitiveness of individual overseas
manufacturing sites, as well as that of the entire Group regionally. The Company
is also reviewing the functions of its R&D, production and sales bases worldwide
by respective product categories to achieve optimum efficiency of Matsushita's
global operations.
Customers
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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, 1999, sales of industrial products and components accounted for
approximately 57% of Matsushita's total sales, rising from 48% of the total (52%
of total excluding MCA) in fiscal 1995. 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: next-generation digital TV systems, semiconductors, display devices,
optical discs and mobile communications equipment.
In pursuit of these goals, Matsushita operates future-oriented R&D at several
corporate R&D centers. The Advanced Technology Research Laboratories,
reorganized from the former Central Research Laboratories, engages primarily in
basic research aimed at developing advanced technologies to create new
businesses looking toward the year 2010. Other corporate R&D centers include the
Multimedia Development Center, the Optical Disk Systems Development Center, the
Display Device Development Center and the 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, energy conservation technologies, and related key components
and devices.
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 five 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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The Overseas R&D Promotion Center supports and augments the Company's global R&D
activities, such as development of a common global platform for digital TV
systems, strengthening the collaboration between corporate laboratories in Japan
and overseas R&D centers such as those based in North America and Europe.
Internal divisional companies, manufacturing divisions and principal
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 "Product Firsts," which are outstanding products that incorporate
world- or industry-first technologies or features that inspire customers.
Total expenditures for research and development amounted to 435 billion yen, 481
billion yen and 500 billion yen for the three years ended March 31, 1997, 1998
and 1999, respectively, representing 5.7%, 6.1% and 6.5% of Matsushita's total
net sales for each of those periods.
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 4.7 gigabytes, and DVD discs employing a dual-layer disc bonding technology;
a high-density multilayered printed circuit board technology with an "any layer
interstitial 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 began in the United States in October 1998;
digital terrestrial TV tuner boards for use in PCs, jointly developed with a
major U.S. PC manufacturer; a single-chip digital TV System LSI, which processes
all digital signals received in radio waves and complies with most of the
world's digital TV services; a resource-efficient TV incorporating highly
recyclable magnesium alloy in its cabinet as an industry first and the Company's
low energy consumption transformer; and rapid bacteria concentration and
detection technology, which detects harmful bacteria that may cause food
poisoning, and which eliminates the culturing process.
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 been attentive in planning plant and
equipment investment to achieve higher competitiveness and investment
efficiency. Besides constant investment in production automation and
energy-saving facilities, increasing emphasis has been placed on expansion of
strategically-important business areas, including key components and devices and
mobile communications equipment. Total capital expenditures were 415 billion yen
and 474 billion yen for fiscal 1997 and fiscal 1998, respectively. The Company's
capital investment during fiscal 1999 totaled 352 billion yen, a decrease from
previous years, primarily due to more selective investment, especially in the
area of components and devices, including semiconductors and LCD devices.
<PAGE> 12
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COMPETITION
-----------
The markets in which the Company sells its products are highly competitive in
Japan, as well as abroad. Matsushita's principal competitors, across the full
range of its products, consist of several large Japanese manufacturers. In
particular categories of products it encounters additional competition from
companies in the United States, Europe and Asia. Matsushita also 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.
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. To minimize the effects of
these negative factors, the Company is devising various cost-reduction measures,
shortening production and logistics lead time, optimizing its overseas
production by emphasizing efficiency and competitiveness from a global
perspective, and also 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 Thomson Multimedia Licensing Inc.
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 non-exclusive patent license agreements 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
-13-
RAW MATERIALS AND SOURCES OF SUPPLY
-----------------------------------
Matsushita purchases a wide variety of parts and materials from various
suppliers in Japan and abroad. The Company applies a multi-sourcing policy --
being not dependent upon any one source of supply for any essential item. The
Company has also been endeavoring to promote a policy of global optimum
purchasing by selecting the best qualified suppliers from all over the world and
buying the most competitive parts and materials. Since suppliers are selected on
the basis of a fair and comprehensive evaluation, the Company enjoys good
business relationships with them and the sourcing is properly assured.
EMPLOYEE RELATIONS
------------------
As of March 31, 1999, Matsushita had approximately 282,000 employees. Most
regular employees in Japan, except management personnel, are union members,
principally of the Matsushita Electric Industrial Workers Union, which is
affiliated with the Japanese Electrical Electronic & Information Union.
As is customary in Japan, the Company negotiates annually with the unions and
grants annual wage increases and semiannual bonuses. Matsushita also renews the
terms and conditions of labor contracts, other than those relating to wages and
bonuses, every other year.
In fiscal 1999, Matsushita introduced a stock-price-linked remuneration plan
(effective through fiscal 2001) for its employees of manager level or above
whereby a modest amount linked to the Company's stock price is paid once a year
to these employees.
For more than 20 years, Matsushita has experienced no major labor strikes or
disputes. The Company considers its labor relations to be excellent.
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 their current
production requirements.
<PAGE> 14
-14-
The following table sets forth information as of March 31, 1999 with respect to
manufacturing facilities:
<TABLE>
<CAPTION>
Floor Space
(thousands of
Location square feet) Principal Products Manufactured
- -------- ------------ -------------------------------
<S> <C> <C>
Osaka 9,471 VCRs, television receivers, DVD products, audio equipment,
washing machines, other home appliances, information
equipment, industrial equipment, components, batteries,
kitchen fixtures.
Kanagawa 4,227 Communications, information and measuring equipment, VCRs,
audio equipment, car AV equipment, compact discs,
CRT displays, refrigerators, batteries.
Shiga 3,567 Air conditioners, refrigerators, compressors, vacuum
cleaners.
Tochigi 2,058 Television receivers, TV picture tubes, information
equipment.
Nara 2,070 Home appliances, gas and kerosene equipment, compact discs
and DVD discs.
Okayama 1,864 VCRs, components, magnetic tapes and discs.
Kyoto 1,609 Semiconductors, components.
Ibaraki 1,068 Television receivers, magnetic tapes.
Shikoku 3,630 VCRs, television receivers, information equipment, audio
equipment, home appliances.
Kyushu 2,347 Information and communications equipment, home appliances,
components, industrial equipment.
North 6,322 Television receivers, home appliances, VCRs, car audio
America equipment, communications equipment, compressors,
components, batteries.
Europe 3,779 VCRs, television receivers, audio equipment, car audio
equipment, home appliances, components, information and
communications equipment.
Asia 17,810 Television receivers, VCRs, audio equipment, air
conditioners, refrigerators, other home appliances,
components, semiconductors, information and
communications equipment, industrial equipment,
compressors, batteries.
Other 19,454 Home appliances, industrial equipment, components,
semiconductors, video and audio equipment, batteries,
information and communications equipment.
------
Total 79,276
======
</TABLE>
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 6.6 million square feet, research and development
facilities with an aggregate floor space of approximately 6.9 million square
feet, employee housing and welfare facilities with an aggregate floor space of
approximately 11.2 million square feet, and administrative offices with an
aggregate floor space of approximately 15.9 million square feet.
As of March 31, 1999, Matsushita leased approximately 12.9 million square feet
of floor space, most of which was for sales office space.
<PAGE> 15
-15-
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 June 1999, the Federal Circuit affirmed the
district court's claim construction and its non-infringement decision.
In July 1992, Matsushita Electronics Corporation (MEC), which manufactures CCDs,
commenced a suit in the United States District Court for the Southern District
of New York seeking a declaration that MEC's CCDs and all end products
incorporating MEC's CCDs (collectively "products") are licensed under the two
U.S. patents at issue. In April 1993, the district court granted MEC's motion
for summary judgment and ruled that the products were licensed. The Court of
Appeals for the Federal Circuit affirmed the decision in September 1994, and
denied Loral Fairchild's petition for rehearing in November 1994. MEC's tort
claim against Loral Fairchild and its parent, Loral Corporation, concerning
certain liability issues was denied by the District Court in August 1997. The
decision has not been appealed.
Matsushita is a co-defendant in a class-action lawsuit relating to the
acquisition of MCA in 1990. Certain former stockholders of MCA who tendered
their shares to Matsushita in such acquisition brought actions in the United
States District Court for the Central District of California claiming, in part,
that the Company violated Securities and Exchange Commission Rule 14d-10 by
treating the then chairman and chief executive officer of MCA differently than
other MCA stockholders in such acquisition. The district court denied
plaintiffs' motion for summary judgment and subsequently granted Matsushita's
motion for summary judgment in 1992. The United States Court of Appeals, Ninth
Circuit (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 consistent with the Court's opinion. In October 1997, the Ninth
Circuit further reversed, holding that it should withhold full faith and credit
from the Delaware judgment because, as a matter of law, plaintiffs were not
adequately represented in Delaware. The Ninth Circuit reheard the case and, in
June 1999, withdrew its previous opinion and affirmed the district court's
decision of 1992.
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.
<PAGE> 16
-16-
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, 1999 is as follows:
<TABLE>
<CAPTION>
Number of Percent
Title of class Identity of person or group shares owned of class
-------------- --------------------------- ------------ --------
<S> <C> <C> <C> <C>
Common Stock Directors and Corporate 18,432,984 0.89%
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.
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.
<PAGE> 17
-17-
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>
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
2nd quarter 2,280 2,025 171.00 147.88
3rd quarter 2,375 1,800 170.00 130.50
4th quarter 2,155 1,640 182.25 128.00
1999
1st quarter 2,355 1,878 195.00 157.50
</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, 1999, approximately 9.10% of the Company's Common Stock was
owned of record by a total of 205 United States shareholders including the
Depositary's nominee, considered as one shareholder of record, owning
approximately 2.24% of the total Common Stock.
Item 6. Exchange Controls and Other Limitations Affecting Security Holders
------------------------------------------------------------------
(a) Japanese Foreign Exchange Controls
Effective 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 exceptions relating to inward direct
investments (which are not generally applicable to the Company's
shares), now subject to post transaction reporting requirements.
Acquisitions and dispositions of shares of Common Stock or American
Depositary Shares by non-residents of Japan (including foreign
corporations not resident in Japan) are generally not subject to this
reporting requirement. However, the Minister of Finance has the power to
impose a licensing requirement for certain transactions in limited
circumstances. Under the Foreign Exchange Law as currently in effect,
dividends paid on, and the proceeds of sales in Japan of, shares held by
non-residents of Japan may in general be converted into any foreign
currency and repatriated abroad.
<PAGE> 18
-18-
(b) Description of Common Stock
Set forth below is certain information relating to the Common Stock of
the Company, including brief summaries of certain provisions of the
Company's Articles of Incorporation and Share Handling Regulations, as
currently in effect, and of the Commercial Code of Japan relating to a
joint stock company (Kabushiki Kaisha) and certain related legislation.
General
-------
The authorized capital stock of the Company as of June 29, 1999 is
4,950,000,000 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 deposit with the sole
depositary under the system, the Japan Securities Depositary Center, all
certificates of shares of Common Stock elected to be put into this
system. If the holder is not a participating institution in the clearing
system, the elected shares should be deposited through a participating
institution such as a securities company or bank that has a clearing
account with the clearing house. In the Company's register of
shareholders, the deposited shares are registered in the name of the
clearing house. 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. For
the purpose of transferring the deposited shares, delivery of share
certificates is not required. In general, beneficial owners of deposited
shares registered in the register of beneficial owners are entitled to
the same rights and benefits as the holders of shares registered in the
register of shareholders. The registered beneficial owners may exercise
the rights attached to the shares, such as voting rights, and will
receive dividends (if any) and notices to shareholders directly from the
Company. The shares held by a person as a registered shareholder and
those held by the same person as a registered beneficial owner are
aggregated for these purposes. New shares issued with respect to
deposited shares, including those issued upon a stock split,
automatically become deposited shares. The beneficial owners are
required to file with the Company's transfer agent, principally through
the relevant participating institution, the same information as is
required from the registered shareholders. Beneficial owners may at any
time withdraw their shares from deposit and receive share certificates.
<PAGE> 19
-19-
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,
without prior shareholder approval, but subject to the limitations
described below.
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;
(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; and
(vi) 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.
In the case of interim dividends, the net assets are calculated by
reference to the balance sheet as at the last closing of the Company's
accounts, but adjusted to reflect any subsequent payment by way of
appropriation of retained earnings and transfer to legal reserve in
respect thereof, provided that interim dividends may not be paid where
there is a risk that at the end of the fiscal year there might not be
any excess of net assets over the aggregate of the amounts referred to
in (i) through (vi) above. In addition, 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.
<PAGE> 20
-20-
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.
Under its Articles of Incorporation, the Company is not obligated to pay
any dividends which are left unclaimed for a period of three years after
the date on which they first became payable.
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.
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:
(i) 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;
(ii) 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
(iii) the subscription rights are made transferable.
In order to satisfy the requirement mentioned in (i) 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.
<PAGE> 21
-21-
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 or consolidation of the Company requiring
shareholders resolutions, the transfer of the whole or an important part
of the business, the taking over of the whole of the business of any
other corporation, any offering of new shares at a "specially favorable"
price (or any offering of convertible bonds or debentures with
"specially favorable" conversion conditions or of bonds or debentures
with warrants or rights to subscribe for new shares with "specially
favorable" conditions) to persons other than shareholders or granting to
Directors and/or employees rights to subscribe for new shares if the
Articles of Incorporation so permit, the quorum shall be a majority of
the total number of shares having voting rights outstanding and the
approval of the holders of at least two-thirds of the shares having
voting rights represented at the meeting is required (the "special
shareholders resolution").
<PAGE> 22
-22-
Subscription rights
-------------------
Holders of the Company's Common Stock have no pre-emptive rights under
its Articles of Incorporation. Authorized but unissued shares may be
issued at such times and upon such terms as the Board of Directors
determines, subject to the limitations as to the offering of new shares
at a "specially favorable" price mentioned 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 Commercial Code permits a company to provide in its articles of
incorporation that it may, by a special shareholders resolution, grant
to its directors and/or employees rights to subscribe for new shares if
there exists a justifiable reason. The 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. Existing shareholders' equity interest in the
Company will be diluted, if a substantial amount of stock option rights
for new shares is granted to the Company's Directors and/or employees
with the exercise price set below the market price.
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 Depositary Shares are fully paid and
non-assessable.
<PAGE> 23
-23-
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
(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.
Under the Commercial Code and the Special Retirement Law the Company may
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
conditions, the business and financial condition of the Company and
other factors, by the resolution of the Board of Directors):
(i) for the purpose of transferring the same to its Directors
and/or employees if there exists a justifiable reason; and
(ii) for the purpose of retirement thereof with retained earnings.
Acquisition by the Company of shares of its Common Stock for the above
purposes is subject to, among other things, the following restrictions:
(i) 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);
<PAGE> 24
-24-
(ii) 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
(iii) acquisition shall be made through a stock exchange
transaction or by way of tender offer.
The Company's shareholders gave, at the ordinary general meeting of
shareholders held in June 1998, an authorization for the acquisition of
not exceeding 120,000 shares of Common Stock for the purpose of
transferring the same to all its Directors then in office and certain
senior executives. Pursuant to such authorization, 113,000 shares of
Common Stock were purchased for such purpose. Further, the Company's
shareholders have, at the ordinary general meeting of shareholders held
in June 1999, given an authorization for the acquisition of not
exceeding 120,000 shares of Common stock for the same purpose.
The Company's shareholders gave, at the ordinary general meeting of
shareholders held in June 1998, an authorization for the acquisition,
during the period not later than the next ordinary general meeting of
shareholders, of 50,000,000 shares of Common stock for the purpose of
retirement thereof with retained earnings. Pursuant to such
authorization, 50,000,000 shares of Common Stock were purchased and
retired with retained earnings during such period.
In June 1998 the Company provided in its Articles of Incorporation 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 such purchase pursuant to a resolution of the Board of Directors may
be made after the conclusion of the ordinary general meeting of
shareholders for the fiscal year ending immediately after the Board
resolution. No Board resolution has been made for this purpose.
The 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 conditions,
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 (vi)
referred to under "Dividends" above and the amount of
interim dividends 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.
<PAGE> 25
-25-
"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).
A holder who owns ADRs evidencing less than 100 American Depositary
Shares will indirectly own less than a whole unit. Because transfer of
ADRs does not require changes in the ownership of the underlying shares
of Common Stock, holders of ADRs evidencing American Depositary Shares
that constitute less than one unit of Common Stock are not affected by
such restrictions in their ability to transfer such ADRs. However,
because transfers of less than one unit of the underlying shares of
Common Stock are normally prohibited under the unit share system, under
the Deposit Agreement relating to the ADRs, the right of ADR holders to
surrender their ADRs and withdraw the underlying shares of Common Stock
for sale in Japan may only be exercised as to whole units of Common
Stock. Although, as discussed below, under the unit share system holders
of less than a unit have the right to require the Company to purchase
their shares, holders of ADRs evidencing American Depositary Shares that
represent other than integral multiples of whole units are unable to
withdraw the underlying shares of Common Stock representing less than
one unit and, therefore, are unable, as a practical matter, to exercise
the right to require the Company to purchase such underlying shares. As
a result, access to the Japanese markets by holders of ADRs through the
withdrawal mechanism will not be available for dispositions of shares in
lots of less than one unit.
Rights 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 the Osaka Securities Exchange on the day when such request is
made or, if no sale takes place on the Osaka Securities Exchange on such
day, the last reported sale price on the Tokyo Stock Exchange on such
day, and if a sale takes place on neither of such exchanges on such day,
the price at which the first sale of the shares is effected on the Osaka
Securities Exchange thereafter, less applicable brokerage commission.
Other rights of a holder of shares representing less than 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;
<PAGE> 26
- 26 -
(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. A registered holder of fractional shares may request that a
company issue certificates therefor, unless its articles of
incorporation provide otherwise, in which case such holder may request
that the company purchase such fractional shares. Fractional shares
will not carry voting rights and, unless such company's articles of
incorporation provide otherwise, the entitlement thereof will be
limited and will not include the right to receive dividends.
(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.
A similar report must also be made in respect of any subsequent change
of 1% or more in any such holding with certain exceptions. For this
purpose, shares issuable to such person upon conversion of convertible
securities or exercise of share subscription warrants are taken into
account in determining both the number of shares held by such holder
and the issuer's total issued share capital. Copies of 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.
<PAGE> 27
- 27 -
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.
For purposes of this discussion, a "U.S. holder" is a holder that (i) is a
resident of the United States for purposes of the Convention, (ii) does not
maintain a permanent establishment or fixed base in Japan to which ADRs or
Common Stock are attributable and through which the beneficial owner carries on
or has carried on business (or in the case of an individual, performs or has
performed independent personal services) and (iii) is not otherwise ineligible
for benefits under the Convention with respect to income and gain derived in
connection with the ADRs or Common Stock.
Japanese taxation of Common Stock or 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 corporations to non-residents of Japan or
non-Japanese corporations 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.
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, 2001, 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, 2001, 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
<PAGE> 28
- 28 -
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.
United States taxation of Common Stock or ADRs
- ----------------------------------------------
Dividends received by an U.S. holder of ADRs or Common Stock will be includable
in income as ordinary 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, an U.S. holder of ADRs or Common
Stock of the Company will be entitled to a credit for Japanese tax withheld in
accordance with the Convention 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.
Item 8. Selected Financial Data
-----------------------
<TABLE>
<CAPTION>
Yen (billions),
except per share amounts and yen exchange rates
--------------------------------------------------------
Fiscal year ended March 31,
--------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Income Statement Data:
- ----------------------
Net sales 7,640 7,891 7,676 6,795 6,948
Income before income
taxes 202 356 332 77 232
Net income (loss) 14 94 138 (57) 90
Per common share:
Net income (loss):
Basic 6.48 44.32 65.39 (27.12) 43.15
Diluted 6.48 41.53 60.64 (27.12) 41.04
Dividends 12.50 13.00 12.50 12.50 13.50
($0.097) ($0.107) ($0.112) ($0.136) ($0.136)
Balance Sheet Data:
- -------------------
Total assets 7,938 8,564 8,696 8,012 8,202
Long-term debt 709 690 923 1,019 1,291
Minority interests 609 618 611 560 556
Stockholders' equity 3,533 3,770 3,696 3,398 3,255
Yen exchange rates per
- ----------------------
U.S. dollar:
------------
Year-end 118.43 133.29 123.72 107.00 86.85
Average 128.19 122.78 113.19 97.09 98.48
High 108.83 111.42 104.49 81.12 86.85
Low 147.14 133.99 124.54 107.29 105.38
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.
</TABLE>
28
<PAGE> 29
- 29 -
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.
3. Fiscal 1999 and 1998 net income represent amounts after
subtracting the impact of approximately 53 billion yen
and 33 billion yen, respectively, attributable to
adjustments of net deferred tax assets to reflect
reductions in Japan's corporate income tax rate.
Item 9. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
(a) Results of Operations
During the three-year period ended March 31, 1999 ("fiscal 1997,"
"fiscal 1998," and "fiscal 1999"), the Japanese economy turned from a
recovery phase to a recession. Whereas fiscal 1997 was marked by a
continued recovery from the previous recession in the early 1990s, the
Japanese economy experienced a setback in fiscal 1998. This was
triggered by a raise in the consumption tax rate and the failure of
several financial institutions, which collectively led to a decline in
private business sector demand and diminished consumer confidence. In
fiscal 1999, the sluggishness of the domestic economy deepened further,
as seen in lower corporate capital investment and consumer spending.
Outside Japan, economic conditions in North America and Western Europe
were generally favorable throughout this three-year period. Asian
economies, however, experienced a downturn in fiscal 1998 following an
outbreak of currency-related turmoil in Southeast Asia in the summer of
1997. In fiscal 1999, that turmoil spread to the Commonwealth of
Independent States (CIS) and Latin America. This, together with the
lingering recession in Asia, increased uncertainty in the global
economy.
Reflecting the aforementioned factors, Japan's Gross Domestic Product
in real terms increased 4.4% in fiscal 1997 and decreased 0.4% and 2.0%
in fiscal 1998 and fiscal 1999, respectively.
Inflation rates in Japan for the three-year period were low in terms of
the consumer price index with the wholesale price index showing a
deflationary trend in fiscal 1999. This trend, combined with
intensified worldwide price competition, caused price declines in
electronic products. This had a negative impact on the Company's
earnings especially in industrial products and components sectors, as
mentioned later. A large portion of the Company's overseas business is
conducted in low inflation areas, and operations in highly inflationary
environments were not material.
Because of the size of Matsushita's international business operations,
the Company is exposed to both translation and transaction risk
stemming from currency exchange rate fluctuations. Translation risk is
a risk with regard to consolidation of foreign currency denominated
financial statements of overseas subsidiaries. Depending on the
fluctuation of the exchange rate, the value of overseas subsidiaries
can differ from period to period when translated into yen. This is a
reporting consideration and does not affect business operations.
Transaction risk is a risk that occurs in export, import and other
transactions when two or more different currencies are
<PAGE> 30
- 30 -
involved. This is a risk that the currency structure of the Company's
sales and assets deviates from the currency structure of expenses and
liabilities during the transaction period.
The Company's business was favorably affected by the yen's depreciation
during the three-year period. In order to alleviate the effects of
currency-related transaction risk, Matsushita has traditionally used
several currency risk hedging methods, such as forward foreign-exchange
contracts and currency options contracts with leading banks. Matsushita
has also recently implemented matching of exports and imports exchange
contracts. As a basic countermeasure against currency exchange risk,
the Company has also been strengthening production operations outside
Japan to meet overseas demand, while reducing dependence on exports.
The Company does not have any material unhedged monetary assets,
liabilities, or commitments denominated in currencies other than the
operation's functional currency.
During this period, Matsushita focused its management efforts on
mid-term growth. In fiscal 1998 following the previous three-year
business plan, the Company implemented the four-year Progress 2000
Plan. The basic objective of the 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. The Progress 2000
Plan emphasizes enhancement of the Company's earnings ratios through
balanced growth in three primary business sectors -- consumer products,
industrial products and components -- along with balanced growth of
domestic and overseas operations. To this end, the Plan calls for
various structural reforms and strengthened product competitiveness.
The Plan specifies five priority businesses to propel the growth of the
entire Company, namely digital TV systems, semiconductors, display
devices, optical discs, and mobile communications equipment.
Matsushita's consolidated sales and earnings results during the last
three fiscal years, reflecting all the aforementioned external and
internal conditions, can be summarized as follows:
In fiscal 1997, net sales increased 13.0% to 7,676 billion yen. This
was attributable to a favorable economic environment and successful
management steps under the previous three-year business plan. Net
income climbed to 138 billion yen, compared to a net loss of 57 billion
yen in fiscal 1996, when the Company incurred a one-time non-operating
loss of approximately 164 billion yen primarily relating to the sale of
a controlling interest in MCA (currently Universal Studios Inc.).
In fiscal 1998, net sales increased 2.8% to 7,891 billion yen, helped
mainly by growth in overseas sales, notably in North America and
Europe. Net income decreased 32.1% to 94 billion yen, due mainly to
slowed demand in Japan and Asia and intensified price competition which
impacted operating profit. The Company also incurred a 33 billion yen
negative impact from 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%.
In fiscal 1999, net sales decreased 3.2% to 7,640 billion yen, mainly
reflecting the sluggish Japanese economy and worsened overseas economic
conditions, especially in Southeast Asia and the CIS. Net income
dropped 85.5% to 14 billion yen, primarily because of decreased sales
and price declines due to intensified worldwide competition negatively
impacting operating profit. The net income reduction was further
exacerbated by the negative effect of 53 billion yen adjustments of net
deferred tax assets reflecting a further reduction in Japan's corporate
income tax rate. Without the effects of these adjustments, net income
for fiscal 1999 would have decreased 47.7%.
<PAGE> 31
- 31 -
Year ended March 31, 1999 compared with 1998
--------------------------------------------
(1) Sales
-----
Consolidated net sales in fiscal 1999 decreased 3.2% to 7,640 billion
yen, from 7,891 billion yen in the previous year. This decrease was
attributed primarily to lower demand in Japan and worsened overseas
market conditions, especially in Southeast Asia and the CIS.
Domestic sales declined 3.6% to 3,752 billion yen, reflecting sluggish
demand in product areas such as industrial products and components due
to slow corporate capital investments and price declines. Domestic
sales declined despite successful sales increases in the video and
audio equipment field and contributions from certain new home appliance
products. Despite solid sales growth in North America and Europe, led
by video and audio equipment, overseas sales fell 2.8% to 3,888 billion
yen, due mainly to depressed demand in Southeast Asia, the CIS, and
Latin America.
Sales by major product categories were as follows:
Sales of consumer products decreased 2.1% to 3,289 billion yen. In this
category, sales of video and audio equipment edged up 0.5% to 1,895
billion yen. Domestic sales of consumer products showed favorable
growth, led by digital AV products such as digital camcorders and DVD
players. Overseas, sales in North America and Western Europe marked
strong gains, with TVs and VCRs leading the way. However, this growth
was offset by drops in sales in Southeast Asia and the CIS. Meanwhile,
sales of home appliances and household equipment fell 5.4% to 1,394
billion yen. This decline was mainly due to sluggish demand in the
primary market, Japan, and decreased sales in overseas markets such as
Southeast Asia. This decline occurred despite favorable market
acceptance of industry-first products such as the centrifugal force
washing machine.
Sales of industrial products totaled 2,867 billion, down 3.3% from the
previous year. Of this, sales of information and communications
equipment decreased 5.1% to 2,150 billion yen, principally because of
worldwide price declines in computer peripherals, notably PC displays
and hard disk drives. Helped by overseas growth, sales of mobile
communications equipment, broadcast- and business-use video systems,
and printers expanded. Industrial equipment sales rose 2.3% to 717
billion yen, as robust sales of car AV equipment in and outside Japan
more than offset a fall in sales of FA equipment.
Sales of components decreased 5.2% to 1,484 billion yen, reflecting
sluggish sales of semiconductors and general electronic components due
to slow demand in Japan and other Asian markets, as well as global
price declines. However sales of compact batteries and electric motors,
chiefly for the information and communications industry, were favorable
especially in overseas markets.
(2) Operating Profit
----------------
Operating profit decreased 42.6% to 194 billion yen, from 338 billion
yen a year ago. Major factors for this decline were negative effects of
reduced sales in Japan, Asia, and emerging markets; worldwide price
declines, particularly in industrial products and components; and
increases in fixed costs, including R&D expenditures and depreciation.
<PAGE> 32
- 32 -
(3) Other Income (Deductions)
-------------------------
Other income (net) totaled 9 billion yen, down from 18 billion yen in
fiscal 1998. Major causes for this decrease included lower interest and
dividend income and other non-operating expenses such as loss on
liquidation of a U.S. joint venture for production of computer
peripherals components.
(4) Provision for Income Taxes
--------------------------
Provision for income taxes amounted to 175 billion yen. Its ratio to
income before income taxes climbed to 86.7% from 66.0% a year ago,
primarily owing to adjustments of net deferred tax assets at the end of
fiscal 1999. This reflects a reduction for the second consecutive year
in Japan's corporate income tax rate. (See Note 9 of the Notes to
Consolidated Financial Statements.)
(5) Minority Interests
------------------
Minority interests decreased to 8 billion yen, from 26 billion yen in
fiscal 1998, reflecting the earnings decrease of subsidiaries in
challenging economic conditions.
(6) Equity in Earnings (Losses) of Associated Companies
---------------------------------------------------
Equity in earnings (losses) of associated companies was a loss of 6
billion yen, compared with a loss of 1 billion yen in the prior year.
This aggravation was caused by increased losses of certain associated
companies, including the aforementioned U.S. joint venture for computer
peripherals components.
(7) Net Income
----------
As a result of all the factors stated in the preceding paragraphs, net
income for fiscal 1999 decreased to 14 billion yen, compared with 94
billion yen in fiscal 1998. Its ratio to sales declined to 0.2%,
compared with 1.2% in the prior year.
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> 33
- 33 -
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 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 FA equipment and car 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 4, 5 and 6 of the Notes to
Consolidated Financial Statements.)
(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 9 of the Notes to Consolidated Financial
Statements.)
<PAGE> 34
- 34 -
(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.
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.
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.
<PAGE> 35
- 35 -
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, 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.
(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.
<PAGE> 36
- 36 -
(b) Financial Position and Liquidity
The Company's consolidated total assets at the end of fiscal 1999
decreased to 7,938 billion yen, compared with 8,564 billion yen a year
ago. This drop was largely attributable to reductions in the aggregate
amount of cash and cash equivalents and in inventories. Stockholders'
equity at the end of fiscal 1999 also slid, to 3,533 billion yen, from
3,770 billion yen in the previous year, caused mainly by a decrease in
retained earnings reflecting retirement of treasury stock and the
negative effect of the yen's year-end exchange rate on accumulated
other comprehensive loss (translation adjustments).
The Company's capital investment during fiscal 1999 totaled 352 billion
yen, a fall from the previous year's figure of 474 billion yen. This
decline was primarily owing to more selective investment in the area of
components and devices, including semiconductors and LCD devices. In
contrast, depreciation during the year edged up to 366 billion yen,
compared with 360 billion yen in fiscal 1998.
Net cash provided by operating activities in fiscal 1999 amounted to
499 billion yen, down from 529 billion yen in the previous fiscal year,
chiefly owing to a fall in net income.
Net cash used in investing activities came to 378 billion yen, compared
with 431 billion yen in fiscal 1998. This decline was primarily
attributable to a smaller degree of increase in investments and
advances than in the previous year and to a cutback in capital
expenditures.
Net cash used in financing activities rose to 434 billion yen, from 224
billion yen a year ago, reflecting increased cash outflows, mainly for
greater repayments of long-term debt and repurchase of the Company's
common stock.
All these activities, compounded by the effect of exchange rate
changes, resulted in a net decrease of 372 billion yen in cash and cash
equivalents during fiscal 1999. Cash and cash equivalents at the end of
fiscal 1999 totaled 1,534 billion yen, compared with 1,906 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.
<PAGE> 37
- 37 -
Maturities and fair values of available-for-sale securities were as
follows at March 31, 1999 and 1998:
<TABLE>
<CAPTION>
Yen (millions)
---------------------------------------
1999 1998
----------------- ------------------
Carrying Fair Carrying Fair
amount value amount value
-------- ------ -------- ------
<S> <C> <C> <C> <C>
Due within one year 122,666 122,676 123,396 123,901
Due after one year
through five years 94,793 94,554 92,813 92,616
Due after five years 2 3 253 178
Equity securities 386,024 580,487 400,383 571,012
------- ------- ------- -------
603,485 797,720 616,845 787,707
======= ======= ======= =======
</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.
The following table provides the contract amounts and fair values of
foreign exchange contracts, primarily hedging U.S. dollar revenues, at
March 31, 1999 and 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 in
the table of "Interest Rate Risk."
<TABLE>
<CAPTION>
Yen (millions)
--------------------------------------
1999 1998
------------------ -----------------
Contract Fair Contract Fair
amount value amount value
------- ------ ------- ------
<S> <C> <C> <C> <C>
Forward:
To sell foreign currencies 312,453 (2,065) 419,806 (9,182)
To buy foreign currencies 62,371 596 132,567 200
Options purchased to sell
foreign currencies 3,670 (15) 7,620 (73)
Options purchased to buy
foreign currencies - - 2,378 55
Options written to buy
foreign currencies 3,873 36 - -
</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, 1999 and 1998 were not material.
<PAGE> 38
- 38 -
The following tables provide information about the Company's financial
instruments that are sensitive to changes in interest rates at March
31, 1999 and 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 (as of March 31, 1999)
------------------------------------------------------------------------------------
Average
interest There- Fair
rate Total 2000 2001 2002 2003 2004 after value
-------- ----- ---- ---- ---- ---- ---- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Long-term debt,
including current
portion:
Japanese yen
convertible bonds 1.5% 264,403 21,000 99,010 16,999 98,911 28,483 361,963
Straight bonds
issued by a
subsidiary 1.9% 20,000 5,000 5,000 10,000 19,795
U.S. dollar
unsecured bonds 5.8% 120,265 120,265 124,926
Unsecured yen
loans from banks
and insurance
companies and
others 1.9% 434,211 134,512 127,548 97,413 53,316 17,359 4,063 430,952
- ------------------------------------------------------------------------------------------------------------------------
Subtotal 838,879 134,512 148,548 201,423 190,580 121,270 42,546 937,636
Foreign exchange
contracts 4,717 4,717 4,888
- ------------------------------------------------------------------------------------------------------------------------
Total 843,596 134,512 148,548 201,423 195,297 121,270 42,546 942,524
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Yen (millions)
------------------------------------------------------------------------------------
Carrying amount and maturity date (as of March 31, 1998)
------------------------------------------------------------------------------------
Average
interest There- Fair
rate Total 1999 2000 2001 2002 2003 after value
------- ----- ---- ---- ---- ---- ---- ------- -----
<S> <C> <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> 39
- 39 -
(d) Regarding Environment
In June 1998, certain Japanese prefectural and municipal authorities
announced, based on the Company's 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
the Company's and a certain number of subsidiaries' factory sites.
These substances, known as volatile organic compounds, include
trichloroethylene, tetrachloroethylene and trichloroethane, and were
used in the past for washing metal parts and semiconductors. It is
believed that the underground water was contaminated by small
quantities of these substances sinking into the soil. Matsushita ceased
the use of such substances for the above purposes before the end of
1995 in all of its domestic factories. The Company has been taking
measures necessary to remove the excess substances at the factory sites
mentioned above. Moreover, to check the possibility that other sites
may also be contaminated, the Company conducted thorough inspections of
all 112 domestic manufacturing sites, including subsidiaries and
affiliates. For sites with any signs of contamination, the Company made
reports to the related prefectural and municipal authorities. The
Company is currently conducting appropriate removal and purification
processes in accordance with the Japanese Environment Agency's
guidelines and municipal recommendations.
With regard to overseas manufacturing sites, the Company will
completely cease the use of volatile organic compounds by the end of
1999, and will complete its inspection and analysis of manufacturing
sites worldwide by the end of fiscal 2000. The Company has to date
spent approximately 2 billion yen for all current remedial actions.
Over the next several years, the Company expects that it will incur
additional costs. However, such future costs cannot be estimated
precisely at this stage. The Company does not believe this will have a
material adverse effect on its liquidity, financial position, or
results of operations.
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 adverse effect upon its liquidity,
financial position, or result of operations.
(e) Year 2000 Issue
(1) Policy
------
The Company recognizes the importance of the Year 2000 issue from the
standpoint of its business continuity and customer service, and has
been pursuing corporate-wide initiatives to cope with this issue.
<PAGE> 40
- 40 -
(2) Project
-------
In July 1997, management issued a corporate release, Towards Readiness
for the Year 2000 Issue, and in June 1998, commenced the Matsushita
groupwide project, Groupwide Council Towards Readiness for the Year
2000 Issue headed by the Executive Vice President in charge of
planning, information systems, logistics, intellectual property and
corporate multimedia. In accordance with the project, the Council
investigates the state of the Company's products, internal information
systems, manufacturing facilities, suppliers of raw materials and
parts, infrastructure such as buildings and other facilities to
identify potential problems; collects information on the state of
readiness; implements and advances remedial measures; and regularly
reports to management on the status of progress. The Council confers
with management as to the appropriate measures to be taken and engages
in various educational activities both within the Matsushita group and
with related parties.
(3) State of readiness
------------------
In December 1998, the Company completed an identification and
assessment in respect of the potential impact of the Year 2000 issue on
the Company's products. By the end of March 1999, necessary notice to
relevant customers on required remedial measures was completed.
Remedial measures are being implemented in consultation with customers
and it is anticipated all necessary work will be completed by the end
of September 1999.
Remedial activities have been going on in stages in respect of internal
information systems; identification of potential problems and impact
analysis was completed by the end of 1996, and system adjustment and
installation of core systems such as accounting, production, sales and
distribution and other logistics will be completed by September 1999,
after verification tests.
The Company is also addressing the information systems and other
facilities of external vendors and other suppliers by obtaining
confirmation from them with tests being conducted wherever necessary.
(4) Costs
-----
Costs required for Year 2000 readiness measures with respect to
internal information systems and production facilities are extremely
difficult to calculate as they are mainly handled by the Company's
information systems department as part of their routine operations. The
Company's payment to outside sources in relation to modifications of
systems to deal with the Year 2000 issue and for the upgrade or
replacement of existing systems are estimated to amount to
approximately 19 billion yen, of which approximately 80% was accounted
for in the Company's financial statements for the year ended March
1999, or earlier. The Company does not anticipate the total costs for
these measures to have a material effect on its consolidated operations
and financial position.
(5) Contingency Plan
----------------
In order to prepare for a worst-case scenario, the Company has
established a contingency plan and a number of internal systems to
ensure a smoother transition for customers of the Company's products,
information systems, production systems, suppliers of raw materials and
parts, buildings and related equipment and others.
<PAGE> 41
- 41 -
(6) Risks
-----
As this issue involves a number of outside parties in diverse areas and
as the effect of possible failure by one party or segment is likely to
be widespread, many aspects of the Company's Year 2000 project are
outside its control. Furthermore, because the Company's operations
encompass many different countries, there is no guarantee that the Year
2000 issue will be addressed with the same degree of attention in
different parts of the world. Thus, unforeseen problems may arise in
different countries. These factors make it impossible for the Company
to ensure that it will avoid material effect on its operations or
business, or that it can insulate itself completely from third-party
liability arising from the Year 2000 issue.
(f) New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting
for Derivative Instruments and Hedging Activities," applicable for the
fiscal year beginning April 1, 2000. This Statement establishes
accounting and reporting standards for derivative instruments and for
hedging activities. SFAS No. 133 requires that an entity recognize all
derivatives as either assets or liabilities in the balance sheet and
measure those instruments at fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other
comprehensive income (loss), depending on whether a derivative is
designated as part of a hedge transaction and the type of hedge
transaction. The ineffective portion of all hedges will be recognized
in earnings. The Company has not yet determined the impact that the
adoption of SFAS No. 133 will have on the results of operations or
financial position.
In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use,"
applicable for the fiscal year beginning April 1, 1999. SOP 98-1
provides guidance on when costs for internal use computer software
should be capitalized or expensed as incurred. The Company does not
expect that the adoption will materially affect the results of
operations or financial position.
(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 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.
<PAGE> 42
- 42 -
Information by segment for fiscal 1999 and 1998 is shown in the tables
below:
By Business Segment:
<TABLE>
<CAPTION>
Yen (billions)
---------------------
1999 1998
------ ------
<S> <C> <C>
Sales:
Consumer products:
Customers 3,289 3,359
Intersegment 7 7
------ ------
Total 3,296 3,366
Industrial products:
Customers 2,867 2,965
Intersegment 8 5
------ ------
Total 2,875 2,970
Components:
Customers 1,484 1,567
Intersegment 761 768
------ ------
Total 2,245 2,335
Eliminations (776) (780)
------ ------
Consolidated total 7,640 7,891
====== ======
Operating profit:
Consumer products 91 100
Industrial products 154 222
Components 18 86
Corporate and eliminations (69) (70)
------ ------
Consolidated total 194 338
====== ======
Identifiable assets:
Consumer products 2,346 2,455
Industrial products 2,034 2,087
Components 1,681 1,754
Corporate and eliminations 1,877 2,268
------ ------
Consolidated total 7,938 8,564
====== ======
Depreciation:
Consumer products 82 78
Industrial products 90 84
Components 185 190
Corporate and eliminations 9 8
------ ------
Consolidated total 366 360
====== ======
Capital investment (including intangibles
other than goodwill)*:
Consumer products 84 81
Industrial products 97 111
Components 168 280
Corporate and eliminations 8 8
------ ------
Consolidated total 357 480
====== ======
</TABLE>
* Intangibles mainly represent rights to public facilities and patents.
<PAGE> 43
- 43 -
By Geographical Location of Companies:
<TABLE>
<CAPTION>
Yen (billions)
---------------------
1999 1998
------ ------
<S> <C> <C>
Sales:
Japan:
Customers 4,920 5,265
Intersegment 1,046 991
------ ------
Total 5,966 6,256
North and South America:
Customers 1,125 1,058
Intersegment 35 42
------ ------
Total 1,160 1,100
Europe:
Customers 736 614
Intersegment 31 28
------ ------
Total 767 642
Asia and Others:
Customers 859 954
Intersegment 474 428
------ ------
Total 1,333 1,382
Eliminations (1,586) (1,489)
------ ------
Consolidated total 7,640 7,891
====== ======
Operating profit:
Japan 194 326
North and South America 7 11
Europe 11 15
Asia and Others 51 52
Corporate and eliminations (69) (66)
------ ------
Consolidated total 194 338
====== ======
Identifiable assets:
Japan 4,703 4,781
North and South America 488 533
Europe 356 317
Asia and Others 681 762
Corporate and eliminations 1,710 2,171
------ ------
Consolidated total 7,938 8,564
====== ======
</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.
<PAGE> 44
- 44 -
Item 10. Directors and Officers of Registrant
------------------------------------
(a) The Articles of Incorporation of the Company provide that the number of
Directors of the Company shall be three or more and that of Corporate
Auditors shall be three or more. Directors and Corporate Auditors shall
be elected by the general meeting of shareholders. The Board of
Directors has ultimate responsibility for administration of the
Company's affairs. Directors may, by resolution of the Board of
Directors, appoint a Chairman of the Board of Directors, a Vice
Chairman of the Board of Directors, a President and Director, and one
or more Executive Vice Presidents and Directors, Senior Managing
Directors, and Managing Directors. The Chairman of the Board of
Directors, Vice Chairman of the Board of Directors, President and
Director, Executive Vice Presidents and Directors, Senior Managing
Directors, and Managing Directors are Representative Directors and
severally represent the Company. The term of office of Directors shall
expire at the conclusion of the ordinary general meeting of
shareholders with respect to the last closing of accounts within two
years from their assumption of office, and in the case of Corporate
Auditors, within three years from their assumption of office. However,
they may serve any number of consecutive terms.
The Corporate Auditors of the Company are not required to be and are
not certified public accountants. However, at least one of the
Corporate Auditors should be a person who has not been a director,
general manager or employee of the Company or any of its subsidiaries
during the five-year period prior to his election as a Corporate
Auditor. Each Corporate Auditor has the statutory duty to examine the
financial statements and business reports to be submitted by the Board
of Directors at the general meeting of shareholders and also to
supervise the administration by the Directors of the Company's affairs.
They are entitled to participate in meetings of the Board of Directors
but are not entitled to vote.
The Corporate Auditors constitute the Board of Corporate Auditors. The
Board of Corporate Auditors has a statutory duty to prepare and submit
its audit report to the Board of Directors each year. A Corporate
Auditor may note his opinion in the audit report if his opinion is
different from the opinion expressed in the audit report. The Board of
Corporate Auditors is empowered to establish audit principles, method
of examination by Corporate Auditors of the Company's affairs and
financial position and other matters concerning the performance of the
Corporate Auditors' duties.
The Corporate Auditors may not at the same time be Directors, managers
or employees of the Company.
Set forth below are the names of Directors and Corporate Auditors after
the ordinary general meeting of shareholders held on June 29, 1999,
their positions and offices with Matsushita Electric Industrial Co.,
Ltd., and the periods during which they have served as Director or
Corporate Auditor.
<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
</TABLE>
<PAGE> 45
- 45 -
<TABLE>
<CAPTION>
Director/
Corporate
Name Positions with registrant Auditor since
---- ------------------------- -------------
<S> <C> <C>
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 Senior Managing Director 1994
Osamu Tanaka Senior Managing Director 1995
Katsuro Sakakibara Managing Director 1992
Seinosuke Kuraku Managing Director 1994
Susumu Ishihara Managing Director 1994
Kazuhiro Mori Managing Director 1999
Yukio Shohtoku Managing Director 1994
Sukeichi Miki Managing Director 1997
Kyonosuke Ibe Director 1979
Josei Ito Director 1994
Tokio Miyao Director 1996
Yoshinori Kobe Director 1996
Yoshitomi Nagaoka Director 1996
Hiroaki Enomoto Director 1996
Seiichi Wakino Director 1997
Yoshio Hino Director 1997
Toshio Sugiura Director 1997
Haruo Ueno Director 1998
Takami Sano Director 1998
Susumu Koike Director 1998
Fumio Otsubo Director 1998
Toru Ishida Director 1999
Yoshiaki Kushiki Director 1999
Tameshige Hirata Director 1999
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> 46
- 46 -
Item 11. Remuneration of Directors and Officers
--------------------------------------
(a) The aggregate amount of remuneration, including bonuses, paid by the
Company during fiscal 1999 to all Directors and Corporate Auditors as
a group (42 persons) for services in all capacities was 1,403 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 1999 amounted to 269 million yen.
Item 12. Options to Purchase Securities from Registrant or Subsidiaries
--------------------------------------------------------------
In May 1998, the Board of Directors decided to implement the Company's first
stock option plan for Board members and select senior executives and to purchase
the Company's own shares for transfer to them under the plan, pursuant to
Article 210-2 of the Japanese Commercial Code. Upon the approval of shareholders
at the ordinary general meeting of shareholders held in June 1998 and subsequent
Board of Directors' resolutions, the stock options (rights to purchase common
shares) were provided to the then 32 Directors 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, the exercise price calculated by a formula approved by
shareholders at the said annual shareholders meeting. In order to cover these
options the Company in early July 1998 purchased on the Tokyo Stock Exchange a
total of 113,000 common shares with an aggregate purchase price of approximately
252 million yen.
At the ordinary general meeting of shareholders held in June 1999, the
shareholders approved another stock option plan for Board members and select
senior executives. As in the previous year, the 32 Directors currently on the
Board and four select senior executives were granted stock options at amounts
ranging from 2,000 to 10,000 shares each.
Under this stock option plan, the stock options are exercisable from July 1,
2001 to June 30, 2005, at 2,476 yen per common share, as determined in the same
manner as last year. Shareholders authorized the purchase of Common Stock up to
120,000 shares or a total value not to exceed 350 million yen to cover these
options.
Item 13. Interest of Management in Certain Transactions
----------------------------------------------
None
<PAGE> 47
- 47 -
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> 48
- 48 -
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 49
Consolidated Balance Sheets as of March 31, 1999 and 1998 50
Consolidated Statements of Income for the years ended
March 31, 1999, 1998 and 1997 52
Consolidated Statements of Stockholders' Equity for the
years ended March 31, 1999, 1998 and 1997 53
Consolidated Statements of Cash Flows for the years ended
March 31, 1999, 1998 and 1997 55
Notes to Consolidated Financial Statements 57
Schedule for the years ended March 31, 1999, 1998 and 1997:
Schedule VIII Valuation and Qualifying Accounts and Reserves for
the years ended March 31, 1999, 1998 and 1997 81
</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> 49
- 49 -
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, 1999 and 1998, and for each
of the years in the three-year period ended March 31, 1999. The effects on the
consolidated financial statements of not adopting SFAS No. 115 are summarized in
Note 4 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, 1999 and 1998, and the results of their operations and their
cash flows for each of the years in the three-year period ended March 31, 1999,
in conformity with United 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
Osaka, Japan
May 18, 1999, except as to Note 16,
which is as of June 29, 1999
<PAGE> 50
- 50 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 1999 and 1998
<TABLE>
<CAPTION>
Yen (millions)
----------------------
Assets 1999 1998
------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents (Note 7) 1,533,585 1,906,226
Short-term investments (Notes 4 and 14) 124,327 130,204
Trade receivables (Note 7):
Related companies (Note 3) 22,364 25,245
Notes 98,513 115,213
Accounts 1,264,075 1,271,804
Allowance for doubtful receivables (63,649) (62,742)
---------- ----------
Net trade receivables 1,321,303 1,349,520
---------- ----------
Inventories (Notes 2 and 7) 1,018,663 1,101,613
Other current assets (Notes 4 and 9) 411,428 437,006
---------- ----------
Total current assets 4,409,306 4,924,569
---------- ----------
Noncurrent receivables (Note 5) 276,311 282,838
Investments and advances (Notes 4 and 14):
Associated companies (Note 3) 325,658 333,967
Other investments and advances 954,170 995,213
---------- ----------
Total investments and advances 1,279,828 1,329,180
---------- ----------
Property, plant and equipment (Note 6):
Land 223,040 223,806
Buildings 1,215,986 1,171,255
Machinery and equipment 3,053,600 3,026,070
Construction in progress 70,222 76,411
---------- ----------
4,562,848 4,497,542
Less accumulated depreciation 3,069,297 2,975,675
---------- ----------
Net property, plant and equipment 1,493,551 1,521,867
---------- ----------
Other assets (Notes 4 and 9) 479,252 505,058
---------- ----------
7,938,248 8,563,512
========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE> 51
- 51 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 1999 and 1998
<TABLE>
<CAPTION>
Yen (millions)
------------------
Liabilities and Stockholders' Equity 1999 1998
------------------------------------ ---- ----
<S> <C> <C>
Current liabilities:
Short-term borrowings, including current
portion of long-term debt (Notes 7 and 14) 577,321 887,841
Commercial paper 72,826 138,460
Trade payables:
Related companies (Note 3) 16,330 17,784
Notes 48,668 68,028
Accounts 570,353 593,687
--------- ---------
Total trade payables 635,351 679,499
--------- ---------
Accrued income taxes (Note 9) 84,688 94,585
Accrued payroll 160,568 171,428
Other accrued expenses 563,370 582,255
Deposits and advances from customers 102,242 102,407
Employees' deposits 151,679 150,343
Other current liabilities (Note 4) 242,894 223,400
--------- ---------
Total current liabilities 2,590,939 3,030,218
--------- ---------
Noncurrent liabilities:
Long-term debt (Notes 7 and 14) 709,084 689,581
Retirement and severance benefits (Note 8) 495,175 454,406
Other liabilities (Notes 4 and 9) 915 1,559
--------- ---------
Total noncurrent liabilities 1,205,174 1,145,546
--------- ---------
Minority interests (Note 4) 609,080 617,634
Stockholders' equity (Note 4):
Common stock of 50 yen par value
(Notes 7 and 10):
Authorized - 5,000,000,000 shares
Issued - 2,062,344,774 shares
(2,112,318,310 shares in 1998) 209,444 209,416
Capital surplus (Notes 7 and 10) 567,696 570,628
Legal reserve (Note 10) 86,112 84,039
Retained earnings (Note 10) 2,824,820 2,938,539
Accumulated other comprehensive income (loss)
(Note 4) (154,765) (32,508)
Treasury stock (Notes 10 and 16); 113,000
shares at cost (252) -
--------- ---------
Total stockholders' equity 3,533,055 3,770,114
Commitments and contingent liabilities (Note 15)
--------- ---------
7,938,248 8,563,512
========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE> 52
- 52 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Consolidated Statements of Income
Years ended March 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Yen (millions)
------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net sales:
Related companies (Note 3) 204,339 257,366 291,271
Other 7,435,780 7,633,296 7,384,641
---------- ---------- ----------
Total net sales 7,640,119 7,890,662 7,675,912
Cost of sales (Note 3) 5,346,914 5,494,746 5,316,390
---------- ---------- ----------
Gross profit 2,293,205 2,395,916 2,359,522
Selling, general and administrative expenses
(Note 12) 2,099,521 2,058,358 1,985,621
---------- ---------- ----------
Operating profit 193,684 337,558 373,901
Other income (deductions):
Interest and dividend income 64,295 68,164 63,111
Interest expense (62,083) (61,573) (66,532)
Other, net (Notes 4, 5, 6 and 12) 6,397 11,475 (38,355)
---------- ---------- ----------
8,609 18,066 (41,776)
---------- ---------- ----------
Income before income taxes 202,293 355,624 332,125
Provision for income taxes (Note 9):
Current 152,303 195,948 223,187
Deferred 23,147 38,901 (67,800)
---------- ---------- ----------
175,450 234,849 155,387
---------- ---------- ----------
Income before minority interests
and equity in earnings (losses)
of associated companies 26,843 120,775 176,738
Minority interests 7,632 25,777 44,391
Equity in earnings (losses) of associated
companies (Note 3) (5,670) (1,394) 5,506
---------- ---------- ----------
Net income 13,541 93,604 137,853
========== ========== ==========
<CAPTION>
Yen
------------------------------------
Net income per depositary share, each
representing 10 shares of common stock
(Note 11):
<S> <C> <C> <C>
Basic 65 443 654
Diluted 65 415 606
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE> 53
- 53 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended March 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Yen (millions)
------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Common stock:
Balance at beginning of year 209,416 208,473 198,706
Conversion of bonds (Notes 10 and 12) 28 943 9,767
---------- ---------- ----------
Balance at end of year 209,444 209,416 208,473
========== ========== ==========
Capital surplus:
Balance at beginning of year 570,628 573,780 562,876
Conversion of bonds (Notes 10 and 12) 28 944 9,765
Transfer of ownership arising on
capital transactions by consolidated
and associated companies (Note 12) (2,960) (4,096) 1,139
---------- ---------- ----------
Balance at end of year 567,696 570,628 573,780
========== ========== ==========
Legal reserve:
Balance at beginning of year 84,039 81,663 78,817
Transfer from retained earnings
(Note 10) 2,073 2,376 2,846
---------- ---------- ----------
Balance at end of year 86,112 84,039 81,663
========== ========== ==========
Retained earnings:
Balance at beginning of year 2,938,539 2,874,763 2,766,060
Net income 13,541 93,604 137,853
Cash dividends (Note 10) (26,304) (27,452) (26,304)
Transfer to legal reserve (Note 10) (2,073) (2,376) (2,846)
Retirement of treasury stock (Note 10) (98,883) - -
---------- ---------- ----------
Balance at end of year 2,824,820 2,938,539 2,874,763
========== ========== ==========
Accumulated other comprehensive income
(loss) (Note 4):
Balance at beginning of year (32,508) (42,970) (208,862)
Other comprehensive income (loss),
net of tax: Translation adjustments (122,257) 10,462 165,892
---------- ---------- ----------
Balance at end of year (154,765) (32,508) (42,970)
========== ========== ==========
</TABLE>
(Continued)
<PAGE> 54
- 54 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended March 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Yen (millions)
------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Treasury stock:
Balance at beginning of year - - -
Repurchase of common stock (Note 10) (99,135) - -
Retirement of treasury stock (Note 10) 98,883 - -
-------- -------- --------
Balance at end of year (Note 16) (252) - -
======== ======== ========
Disclosure of comprehensive income (loss):
Net income 13,541 93,604 137,853
Other comprehensive income (loss),
net of tax: Translation adjustments (122,257) 10,462 165,892
-------- -------- --------
Total comprehensive income (loss) (Note 4) (108,716) 104,066 303,745
======== ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE> 55
- 55 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended March 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Yen (millions)
--------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities (Note 12):
Net income 13,541 93,604 137,853
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 373,155 365,129 349,646
Net gain on sale of investments (14,198) (113,234) (98,554)
Provision for doubtful receivables 13,505 20,565 120,604
Deferred income taxes 23,147 38,901 (67,800)
Impairment loss on long-lived assets (Note 6) - 88,662 45,800
Minority interests 7,632 25,777 44,391
(Increase) decrease in trade receivables (37,724) 43,046 (125,230)
(Increase) decrease in inventories 36,587 (49,299) (9,426)
(Increase) decrease in other current assets (21,951) (24,041) (22,096)
(Increase) decrease in noncurrent receivables 6,527 (26,413) (28,394)
Increase (decrease) in trade payables 2,213 1,175 74,557
Increase (decrease) in accrued income taxes (7,743) (77,003) 75,653
Increase (decrease) in accrued expenses and
other current liabilities 29,994 84,834 96,600
Increase (decrease) in retirement and
severance benefits 42,231 29,178 34,605
Other 32,235 28,398 6,300
-------- -------- --------
Net cash provided by operating
activities 499,151 529,279 634,509
-------- -------- --------
Cash flows from investing activities (Note 12):
Proceeds from sale of short-term investments 376,174 488,887 434,186
Purchase of short-term investments (362,062) (348,350) (328,780)
Proceeds from disposition of investments and
advances 84,014 203,644 247,379
Increase in investments and advances (137,456) (322,790) (408,259)
Capital expenditures (359,037) (475,906) (405,595)
Other 20,612 23,166 12,836
-------- -------- --------
Net cash used in investing activities (377,755) (431,349) (448,233)
-------- -------- --------
</TABLE>
(Continued)
<PAGE> 56
- 56 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended March 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Yen (millions)
----------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from financing activities
(Note 12):
Increase (decrease) in short-term
borrowings (100,202) (85,660) 28,353
Increase in deposits and advances
from customers and employees 3,441 7,545 4,231
Proceeds from long-term debt 186,717 129,109 228,360
Repayments of long-term debt (388,233) (238,029) (312,385)
Dividends paid (26,304) (27,452) (26,304)
Dividends paid to minority
interests (9,998) (9,232) (8,613)
Repurchase of common stock
(Note 10) (99,135) - -
---------- ---------- ----------
Net cash used in
financing activities (433,714) (223,719) (86,358)
---------- ---------- ----------
Effect of exchange rate changes on
cash and cash equivalents (60,323) 7,185 76,133
---------- ---------- ----------
Net increase (decrease) in cash
and cash equivalents (372,641) (118,604) 176,051
Cash and cash equivalents at
beginning of year 1,906,226 2,024,830 1,848,779
---------- ---------- ----------
Cash and cash equivalents at
end of year 1,533,585 1,906,226 2,024,830
========== ========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE> 57
- 57 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1999, 1998 and 1997
(1) Summary of Significant Accounting Policies
------------------------------------------
(a) Description of Business
Matsushita Electric Industrial Co., Ltd. (hereinafter, the
"Company," including consolidated subsidiaries, unless the context
otherwise requires) is one of the world's leading producers of
electronic and electric products. The Company currently offers a
comprehensive range of products, systems and components for
consumer, business and industrial use based on sophisticated
electronics and precision technology. Most of the Company's
products are marketed under several trade names, including
"Panasonic," "National," "Technics," "Quasar," "Victor" and "JVC."
Sales in fiscal 1999 were categorized as follows: video and audio
equipment--25%, home appliances and household equipment--18%,
information and communications equipment--28%, industrial
equipment--10%, and components--19%. A sales breakdown in fiscal
1999 by geographical market was as follows: Japan--49%, North and
South America--20%, Europe--13%, and Asia and Others--18%.
The Company is not dependent on a single supplier, and has no
significant difficulty in obtaining raw materials from suppliers.
(b) Basis of Presentation of Consolidated Financial Statements
The Company and its domestic subsidiaries maintain their books of
account in conformity with financial accounting standards of
Japan, and its foreign subsidiaries in conformity with those of
the countries of their domicile.
The consolidated financial statements presented herein have been
prepared in a manner and reflect the adjustments which are
necessary to conform with United States generally accepted
accounting principles.
(c) Principles of Consolidation (See Note 3)
The consolidated financial statements include the accounts of the
Company and its subsidiaries. Significant intercompany accounts
and transactions have been eliminated on consolidation.
Investments in certain associated companies in which the Company's
ownership is 20% to 50% are stated at their underlying net equity
value after elimination of intercompany profits.
<PAGE> 58
- 58 -
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 2)
Finished goods and work in process are stated at the lower of cost
(average) or market. Raw materials are stated at cost, principally
on a first-in, first-out basis, not in excess of current
replacement cost.
(g) Foreign Currency Translation
Foreign currency financial statements are translated in accordance
with Statement of Financial Accounting Standards (SFAS) No. 52,
"Foreign Currency Translation," under which all assets and
liabilities are translated into yen at year-end rates and income
and expense accounts are translated at weighted average rates.
Adjustments resulting from the translation of financial statements
are reflected under the caption, "Accumulated other comprehensive
income (loss)," a separate component of stockholders' equity.
(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> 59
- 59 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(i) Short-term Investments and Investments and Advances (See Note 4)
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 4. This treatment was
approved by the United States Securities and Exchange Commission.
(j) Noncurrent Receivables (See Note 5)
Noncurrent receivables are recorded at cost, less the related
allowance for impaired receivables. A loan is considered to be
impaired when, based on current information and events, it is
probable that a creditor will be unable to collect all amounts due
according to the contractual terms of the loan agreement. When a
loan is considered to be impaired, the amount of impairment is
measured based on the present value of expected future cash flows
or the fair value of the collateral. Cash receipts on impaired
receivables are applied to reduce the principal amount of such
receivables until the principal has been recovered and are
recognized as interest income, thereafter.
(k) Income Taxes (See Note 9)
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and
tax credit carryforwards.
Income taxes have not been accrued for undistributed earnings of
foreign subsidiaries and associated companies, as these amounts
are considered to be reinvested indefinitely. Calculation of the
unrecognized deferred tax liability related to these earnings is
not practicable.
<PAGE> 60
- 60 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(l) Advertising (See Note 12)
Advertising costs are expensed as incurred.
(m) Net Income per Depositary Share (See Notes 7, 10 and 11)
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 year net income 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 13 and 14)
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> 61
- 61 -
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 6)
The Company accounts for long-lived assets in accordance with the
provisions of SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the
carrying amount of an asset to future net cash flows (undiscounted
and without interest charges) expected to be generated by the
asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the
carrying amount of the assets 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) Comprehensive Income (Loss)
The Company adopted SFAS No. 130, "Reporting Comprehensive
Income," in the fiscal year beginning April 1, 1998, except for
the effects on comprehensive income (loss) of the Company's
departure from the provisions of SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" (See Note 4).
Comprehensive income (loss) consists of net income and change in
foreign currency translation adjustments, and is presented in the
consolidated statements of stockholders' equity. SFAS No. 130
requires only additional disclosures in the consolidated financial
statements and does not affect the Company's consolidated
financial position or results of operations. Prior years
consolidated financial statements have been reclassified to
conform with the provisions of SFAS No. 130.
(r) 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.
<PAGE> 62
- 62 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(s) New Accounting Pronouncements
In June 1998, FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," applicable for the fiscal
year beginning April 1, 2000. This Statement establishes
accounting and reporting standards for derivative instruments and
for hedging activities. SFAS No. 133 requires that an entity
recognize all derivatives as either assets or liabilities in the
balance sheet and measure those instruments at fair value. Changes
in the fair value of derivatives are recorded each period in
current earnings or other comprehensive income (loss), depending
on whether a derivative is designated as part of a hedge
transaction and the type of hedge transaction. The ineffective
portion of all hedges will be recognized in earnings. The Company
has not yet determined the impact that the adoption of SFAS No.
133 will have on the results of operations or financial position.
In March 1998, the American Institute of Certified Public
Accountants (AICPA) issued Statement of Position (SOP) 98-1,
"Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use," applicable for the fiscal year
beginning April 1, 1999. SOP 98-1 provides guidance on when costs
for internal use computer software should be capitalized or
expensed as incurred. The Company does not expect that the
adoption will materially affect the results of operations or
financial position.
(2) Inventories
-----------
Inventories at March 31, 1999 and 1998 are summarized as follows:
<TABLE>
<CAPTION>
Yen (millions)
----------------------
1999 1998
---- ----
<S> <C> <C>
Finished goods 540,173 588,660
Work in process 176,793 193,727
Raw materials 301,697 319,226
--------- ---------
1,018,663 1,101,613
========= =========
</TABLE>
(3) Investments in and Transactions with Associated Companies
---------------------------------------------------------
Certain financial information in respect of associated companies at
March 31, 1999 and 1998 and for the three years ended March 31, 1999 is
shown below. The most significant of these associated companies is
Matsushita Electric Works, Ltd. (MEW). At March 31, 1999, the Company
has a 32.2% equity ownership in MEW. On December 8, 1997, Universal
Studios, Inc. (Universal) issued new shares to the Seagram Company Ltd.
As a result, the Company's ownership interest in Universal fell below
20%. The financial information of Universal for fiscal 1998 and
thereafter is not included in the following.
<PAGE> 63
- 63 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Yen (millions)
----------------
1999 1998
---- ----
<S> <C> <C>
Current assets 945,218 1,092,931
Other assets 1,458,959 1,449,442
--------- ---------
2,404,177 2,542,373
Current liabilities 610,683 697,723
Other liabilities 858,707 846,485
--------- ---------
Net assets 934,787 998,165
========= =========
Company's equity in net assets 262,488 274,823
========= =========
</TABLE>
<TABLE>
<CAPTION>
Yen (millions)
----------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net sales 2,175,672 2,306,649 3,062,556
Gross profit 502,972 553,459 816,730
Net income (loss) (12,807) 23,690 46,217
</TABLE>
Purchases and dividends received from associated companies for the three
years ended March 31, 1999 are as follows:
<TABLE>
<CAPTION>
Yen (millions)
----------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Purchases from 258,881 259,451 257,150
Dividends received 10,995 9,875 6,032
</TABLE>
Retained earnings include undistributed earnings of associated companies
in the amount of 85,206 million yen and 85,889 million yen,
respectively, as of March 31, 1999 and 1998.
Investments in associated companies include equity securities which have
quoted market values at March 31, 1999 and 1998 compared with related
carrying amounts as follows:
<TABLE>
<CAPTION>
Yen (millions)
-----------------------------
1999 1998
---- ----
<S> <C> <C>
Carrying amount 257,924 270,312
Market value 343,236 366,585
</TABLE>
<PAGE> 64
- 64 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) 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 income for the three years
ended March 31, 1999 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, 1999 and 1998 are summarized as follows:
<TABLE>
<CAPTION>
Yen (millions)
---------------
1999 1998
---- ----
<S> <C> <C>
Stockholders' equity as reported 3,533,055 3,770,114
Net increase in the carrying amount of:
Short-term investments 6,596 18,314
Investments and advances 187,639 152,548
Net decrease in deferred tax assets and increase in
deferred tax liabilities:
Current deferred tax assets (decrease) (2,791) (4,135)
Noncurrent deferred tax assets (decrease) (78,545) (72,613)
Current deferred tax liabilities (increase) - (4,582)
Noncurrent deferred tax liabilities (increase) (69) -
Net unrealized gain on securities held by associated
companies 3,382 2,892
Net increase in minority interests (7,116) (8,856)
--------- ---------
Total adjustments to stockholders' equity 109,096 83,568
--------- ---------
Stockholders' equity in accordance with
U.S. generally accepted accounting principles 3,642,151 3,853,682
========= =========
</TABLE>
<PAGE> 65
- 65 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As a result of the above adjustments, total assets at March 31, 1999 and
1998 would increase by 116,281 million yen and 97,006 million yen,
respectively.
If the provisions of SFAS No. 115 had been applied, comprehensive loss
for the year ended March 31, 1999 would amount to 83,188 million yen,
compared with comprehensive income of 41,581 million yen and 181,261
million yen for the years ended March 31, 1998 and 1997, 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, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
Yen (millions)
-------------------------------------------
1999
-------------------------------------------
Gross Gross
unrealized unrealized
Carrying Fair holding holding
amount value gains losses
--------- ------- ----------- ----------
<S> <C> <C> <C> <C>
Current:
Equity securities 1,607 8,185 6,578 -
Japanese and foreign 80,767 81,002 235 -
government bonds
Convertible and straight 20,870 20,751 43 162
bonds
Investment trust 76 76 - -
Other debt securities 21,007 20,909 15 113
------- ------- ------- ---
124,327 130,923 6,871 275
======= ======= ======= ===
Noncurrent:
Equity securities 384,417 572,302 187,885 -
Japanese and foreign 5,144 5,159 15 -
government bonds
Convertible and straight 1,351 1,367 16 -
bonds
Investment trust 85,116 84,830 29 315
Other debt securities 3,130 3,139 9 -
------- ------- ------- ---
479,158 666,797 187,954 315
======= ======= ======= ===
</TABLE>
<PAGE> 66
- 66 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Yen (millions)
--------------------------------------------
1998
--------------------------------------------
Gross Gross
unrealized unrealized
Carrying Fair holding holding
amount value gains losses
-------- ------- ---------- ----------
<S> <C> <C> <C> <C>
Current:
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:
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>
Maturities of short-term investments and investments and advances
classified as available-for-sale at March 31, 1999 and 1998 are as
follows:
<TABLE>
<CAPTION>
Yen (millions)
-------------------------------------------
1999 1998
-------------------- -------------------
Carrying Fair Carrying Fair
amount value amount value
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Due within one year 122,666 122,676 123,396 123,901
Due after one year
through five years 94,793 94,554 92,813 92,616
Due after five years 2 3 253 178
Equity securities 386,024 580,487 400,383 571,012
------- ------- ------- -------
603,485 797,720 616,845 787,707
======= ======= ======= =======
</TABLE>
<PAGE> 67
- 67 -
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, 1999, 1998 and 1997 was an increase of 25,528 million
yen, a decrease of 62,485 million yen and a decrease of 122,484 million
yen, respectively.
Proceeds from sale of available-for-sale securities for the years ended
March 31, 1999, 1998 and 1997 were 434,082 million yen, 657,449 million
yen and 652,504 million yen, respectively. The gross realized gains for
the years ended March 31, 1999, 1998 and 1997 were 14,594 million yen,
118,370 million yen and 104,393 million yen, respectively. The gross
realized losses for the years ended March 31, 1999, 1998 and 1997 were
396 million yen, 5,136 million yen and 5,839 million yen, respectively.
The cost of securities sold in computing gross realized gains and losses
is determined by the average cost method.
(5) Noncurrent Receivables
----------------------
The recorded investment in noncurrent receivables relating to NL Finance
Co., Ltd. (NLF), a financial subsidiary, for which impairment has been
recognized at March 31, 1999 and 1998 was 6,829 million yen and 15,343
million yen, respectively. Related allowance for doubtful receivables
was not significant at March 31, 1999 and 1998. The average recorded
investment in impaired receivables during the years ended March 31,
1999, 1998 and 1997 was 13,126 million yen, 73,954 million yen and
133,225 million yen, respectively. Additions charged to bad debt
expenses were not significant for the year ended March 31, 1999, and
were 12,249 million yen and 107,302 million yen for the years ended
March 31, 1998 and 1997, respectively. Write-downs charged against the
allowance were not significant for the year ended March 31, 1999, and
were 74,897 million yen and 113,041 million yen for the years ended
March 31, 1998 and 1997, respectively.
(6) Long-Lived Assets
-----------------
As the prices of semiconductors, mainly DRAMs, 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 that had
been received by NLF in satisfaction of impaired receivables.
<PAGE> 68
- 68 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(7) Long-term Debt and Short-term Borrowings
----------------------------------------
Long-term debt at March 31, 1999 and 1998 is set forth below:
<TABLE>
<CAPTION>
Yen (millions)
----------------
1999 1998
---- ----
<S> <C> <C>
Convertible bonds, due 1999, interest 1.3% - 198,357
Convertible bonds, due 2002, interest 1.3% 99,010 99,021
Convertible bonds, due 2004, interest 1.4% 98,911 98,917
Convertible bonds issued by subsidiaries,
due 1999, 2000, 2002 and 2005,
interest 0.35% - 4.3% 66,482 101,725
U.S. dollar unsecured bonds, due 2002,
effective interest 5.8% 124,982 124,897
Euro medium-term notes issued by a
subsidiary, due 1998, effective
interest 5.6% - 5,284
Straight bonds issued by a subsidiary,
due 2001-2005, interest 1.38% - 2.15% 20,000 -
Unsecured yen loans from banks and
insurance companies, principally by
financial subsidiaries, due 1998 - 2005,
effective interest 1.9% in 1999
and 2.2% in 1998 434,158 421,249
Other long-term debt 53 83
------- ---------
843,596 1,049,533
Less current portion 134,512 359,952
------- ---------
709,084 689,581
======= =========
</TABLE>
The aggregate annual maturities and sinking fund requirements of
long-term debt after March 31, 1999 are as follows:
<TABLE>
<CAPTION>
Yen (millions)
--------------
Year ending March 31:
<S> <C>
2000 134,512
2001 148,548
2002 201,423
2003 195,297
2004 121,270
</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> 69
- 69 -
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, 1999 and 1998, short-term loans subject to such general
agreements amounted to 298,942 million yen and 325,109 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, 1999 and 1998 were 4.3% and 5.1%,
respectively.
Acceptances payable by foreign subsidiaries, in the amount of 794
million yen and 6,580 million yen at March 31, 1999 and 1998,
respectively, are secured by a portion of the cash, accounts receivable
and inventories of such subsidiaries. The amount of assets pledged is
not calculable.
The 1.3% convertible bonds maturing in 2002 are 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
61,117,000 shares of common stock at 1,620 yen per share.
The 1.4% convertible bonds maturing in 2004 are redeemable from 2000 at
the option of the Company at prices ranging from 103% of principal to
100% of principal, and are currently convertible into approximately
61,056,000 shares of common stock at 1,620 yen per share.
The convertible bonds maturing through 2005 issued by subsidiaries are
redeemable at the option of the subsidiaries at prices ranging from 106%
of principal to 100% of principal near maturity.
(8) 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.
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, 1999,
1998 and 1997 amounted to 49,306 million yen, 50,522 million yen and
51,714 million yen, respectively.
<PAGE> 70
- 70 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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, 1999, 1998 and 1997 amounted to 79,570 million yen,
60,071 million yen and 37,935 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, 1998 and 1997 with the latest information
available:
<TABLE>
<CAPTION>
Yen (millions)
-------------------
1998 1997
---- ----
<S> <C> <C>
Liability reserve 1,051,132 846,705
Fair value of plan assets, primarily
marketable securities and loans 1,058,554 850,072
--------- -------
Fair value of plan assets greater than
the liability reserve 7,422 3,367
========= =======
</TABLE>
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, 1998 and 1997 for the portion of
social security tax were 26,623 million yen and 22,756 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 20,587
million yen as of March 31, 1998 is being amortized over a seven- to
ten-year period. Contributions to amortize the past service costs for
the years ended March 31, 1998 and 1997 totaled 6,808 million yen and
2,576 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.
<PAGE> 71
- 71 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(9) Income Taxes
------------
Income before income taxes and income taxes for the three years ended
March 31, 1999 are summarized as follows:
<TABLE>
<CAPTION>
Yen (millions)
------------------------------
Domestic Foreign Total
-------- ------- -----
<S> <C> <C> <C>
1999:
Income before income taxes 153,047 49,246 202,293
Income taxes:
Current 117,925 34,378 152,303
Deferred 26,881 (3,734) 23,147
------- ------ -------
Total income taxes 144,806 30,644 175,450
======= ====== =======
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
======= ====== =======
</TABLE>
For the years ended March 31, 1999 and 1998, domestic income taxes,
deferred include the impact of 61,123 million yen and 37,423 million
yen, respectively, attributable to adjustments of net deferred tax
assets to reflect reductions in Japan's corporate income tax rate.
<PAGE> 72
- 72 -
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 47.6% for the year ended March 31, 1999, and 51.2% for
the two years ended March 31, 1998.
The effective rates for the years differ from the normal tax rates for
the following reasons:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Normal tax rate 47.6% 51.2% 51.2%
Tax credit for increased research expenses (0.9) (1.0) (1.7)
Lower tax rates of overseas subsidiaries (9.6) (1.3) (4.9)
Expenses not deductible for tax purposes 7.6 4.3 5.1
Change in valuation allowance allocated to
income tax expenses 6.8 (1.7) (4.3)
Adjustments of deferred tax assets and
liabilities for enacted changes in tax laws
and rates 30.2 10.5 -
Other 5.0 4.0 1.4
---- ---- ----
Effective tax rate 86.7% 66.0% 46.8%
==== ==== ====
</TABLE>
The significant components of deferred income tax expenses for the three
years ended March 31, 1999 are as follows:
<TABLE>
<CAPTION>
Yen (millions)
----------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Deferred tax expense (exclusive of the effects
of other components listed below) (51,821) 7,342 (53,476)
Adjustments of deferred tax assets and
liabilities for enacted changes in tax laws
and rates 61,123 37,423 -
Increase (decrease) in the balance of valuation
allowance for deferred tax assets 13,845 (5,864) (14,324)
------ ------ -------
23,147 38,901 (67,800)
====== ====== =======
</TABLE>
<PAGE> 73
- 73 -
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, 1999 and 1998 are presented below:
<TABLE>
<CAPTION>
Yen (millions)
-----------------
1999 1998
------- -------
<S> <C> <C>
Deferred tax assets:
Inventory valuation 83,516 92,636
Expenses accrued for financial statement purposes
but not currently included in taxable income 132,477 146,890
Depreciation 121,689 143,741
Retirement and severance benefits 108,194 93,882
Tax loss carryforwards 62,864 52,006
Other 85,502 93,046
------- -------
Total gross deferred tax assets 594,242 622,201
Less valuation allowance 38,275 39,612
------- -------
Net deferred tax assets 555,967 582,589
Deferred tax liabilities:
Purchase accounting step-up of identifiable assets (2,761) (3,082)
Other (29,316) (30,348)
------- -------
Total gross deferred tax liabilities (32,077) (33,430)
------- -------
Net deferred tax assets 523,890 549,159
======= =======
</TABLE>
The net change in total valuation allowance for the years ended March
31, 1999 and 1998 was a decrease of 1,337 million yen and 15,407 million
yen, respectively.
At March 31, 1999, certain subsidiaries had, for tax reporting purposes,
net operating loss carryforwards of approximately 159,031 million yen,
which will generally expire between 2000 and 2014.
<PAGE> 74
- 74 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Net deferred tax assets and liabilities at March 31, 1999 and 1998 are
reflected in the accompanying consolidated balance sheets under the
following captions:
<TABLE>
<CAPTION>
Yen (millions)
-----------------
1999 1998
---- ----
<S> <C> <C>
Other current assets 251,189 263,560
Other assets 273,616 287,158
Other liabilities (915) (1,559)
-------- --------
Net deferred tax assets 523,890 549,159
======== ========
</TABLE>
(10) Stockholders' Equity
--------------------
In accordance with the Japanese Commercial Code, at least 50% of the
amount of converted debt must be credited to the common stock account.
The Company issued 26,464 shares, 1,161,459 shares and 13,441,895 shares
in connection with the conversion of bonds for the three years ended
March 31, 1999, respectively.
For the year ended March 31, 1999, 50,000,000 shares of the Company's
common stock were repurchased from the market and retired for an
aggregate cost of 98,883 million yen. The entire repurchase cost of
retired shares was charged to retained earnings in accordance with the
Japanese Commercial Code.
The Japanese Commercial Code provides that an amount equal to at least
10% of appropriations paid in cash be appropriated as a legal reserve
until such reserve equals 25% of stated capital. This reserve is not
available for dividends but may be used to reduce a deficit or may be
transferred to stated capital.
Cash dividends and transfers to the legal reserve charged to retained
earnings during the three years ended March 31, 1999 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 7.75 yen per
share, totaling 15,982 million yen, planned to be proposed in June 1999
in respect of the year ended March 31, 1999 or for the related
appropriation.
<PAGE> 75
- 75 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(11) Net Income per Depositary Share
-------------------------------
A reconciliation of the numerators and denominators of the basic and
diluted net income per depositary share computation for the three years
ended March 31, 1999 is as follows:
<TABLE>
<CAPTION>
Yen (millions)
-------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net income available to common
stockholders 13,541 93,604 137,853
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 13,541 96,168 140,430
====== ====== =======
</TABLE>
<TABLE>
<CAPTION>
Number of shares
----------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Average common
shares outstanding 2,089,988,449 2,112,052,091 2,108,067,837
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 2,089,988,449 2,315,786,133 2,315,858,213
============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
Yen
--------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net income per depositary share:
Basic 65 443 654
Diluted 65 415 606
</TABLE>
Approximately 197 million of the potential common shares were excluded
from the computation of diluted net income per share for the year ended
March 31, 1999, because their inclusion would have had an antidilutive
effect on net income per share.
<PAGE> 76
- 76 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(12) Supplementary Information to the Statements of Income and Cash Flows
--------------------------------------------------------------------
Research and development costs and advertising costs charged to income
for the three years ended March 31, 1999 are as follows:
<TABLE>
<CAPTION>
Yen (millions)
-----------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Research and development costs 499,986 480,539 434,874
Advertising costs 128,285 125,774 117,222
</TABLE>
Included in other (net) of other income (deductions) for the year ended
March 31, 1999 is a loss of 11,277 million yen related to liquidation of
a U.S. joint venture for production of computer peripherals components.
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 income for the years ended March 31, 1999 and 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, 1999 are as
follows:
<TABLE>
<CAPTION>
Yen (millions)
-------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
a) Cash paid:
Interest 70,672 77,254 86,244
Income taxes 160,046 272,951 147,534
b) Noncash investing and financing activities:
Conversion of bonds 56 1,887 19,532
Transfer of ownership arising on capital
transactions by consolidated and
associated companies 2,960 4,096 1,139
</TABLE>
<PAGE> 77
- 77 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(13) 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, 1999
and 1998 are as follows:
<TABLE>
<CAPTION>
Yen (millions)
-------------------
1999 1998
---- ----
<S> <C> <C>
Forward:
To sell foreign currencies 312,453 419,806
To buy foreign currencies 62,371 132,567
Options purchased to sell foreign currencies 3,670 7,620
Options purchased to buy foreign currencies - 2,378
Options written to buy foreign currencies 3,873 -
</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.
(14) 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> 78
- 78 -
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, 1999 and
1998 are as follows:
<TABLE>
<CAPTION>
Yen (millions)
---------------------------------------------
1999 1998
------------------- -----------------------
Carrying Fair Carrying Fair
amount value amount value
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Non-derivatives:
Assets:
Short-term
investments 124,327 130,923 130,204 148,518
Investments
and advances 799,937 988,304 806,756 959,564
Liabilities:
Long-term debt,
including
current
portion (838,879) (937,636) (1,056,366) (1,140,043)
Derivatives relating to
long-term debt,
including current
portion (4,717) (4,888) 6,833 12,077
</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> 79
- 79 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(15) Commitments and Contingent Liabilities
--------------------------------------
At March 31, 1999, commitments outstanding for the purchase of property,
plant and equipment approximated 17,838 million yen. Contingent
liabilities at March 31, 1999 for discounted export bills of exchange
and guarantees of loans amounted to approximately 85,691 million yen,
including 62,898 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.
(16) Stock Option Plans
------------------
The Company's option rights were allotted to 32 directors and four
senior executives on July 1, 1998, at amounts ranging from 2,000 to
10,000 common shares each. The stock option rights are exercisable from
July 1, 2000, to June 30, 2004. Shares repurchased for this purpose were
in aggregate to 113,000 common shares or approximately 252 million yen
in value for the year ended March 31, 1999.
The Company applies Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations
in accounting for its Stock Option Plans described above. Accordingly,
as the option price at the date of the grant exceeded the fair market
value of common shares, no compensation cost has been recognized in
connection with the Plan. If the accounting provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation" had been adopted, the impact
on the Company's net income for the year ended March 31, 1999 would not
be material. The effects of applying this statement for either
recognizing compensation cost or pro forma disclosures may not be
representative of the effects on reported net income for future years.
In accordance with the Japanese Commercial Code, there are certain
restrictions on payment of dividends in connection with treasury stock
repurchased for stock options. As a result of restrictions on the
treasury stock repurchased for stock options, retained earnings of
approximately 252 million yen as of March 31, 1999 are restricted as to
the payment of cash dividends.
On June 29, 1999, the annual shareholders' meeting approved that the
Company's stock option rights would be allotted to 32 directors and four
senior executives at amounts ranging from 2,000 to 10,000 common shares
each. This stock option rights are exercisable from July 1, 2001, to
June 30, 2005. Share purchases for this purpose will be limited in
aggregate to 120,000 common shares or 350 million yen in value.
<PAGE> 80
- 80 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(17) Quarterly Financial Data (Unaudited)
------------------------------------
Quarterly net sales, net income (loss) and net income (loss) per
depositary share for the two years ended March 31, 1999 are set forth in
the following table:
<TABLE>
<CAPTION>
Yen (millions), except per share information
--------------------------------------------------------
1999
--------------------------------------------------------
Net income Net income
Net (loss) per (loss) per
Net income depositary share: depositary share:
sales (loss) basic (yen) diluted (yen)
--------- ------ ----------------- -----------------
<S> <C> <C> <C> <C>
Quarter ended
-------------
June 30 1,875,846 11,116 53 51
September 30 2,015,996 (1,608) (8) (8)
December 31 1,938,354 20,295 98 92
March 31 1,809,923 (16,262) (79) (79)
</TABLE>
<TABLE>
<CAPTION>
Yen (millions), except per share information
-------------------------------------------------------
1998
-------------------------------------------------------
Net income Net income
Net (loss) per (loss) per
Net income depositary share: depositary share:
sales (loss) basic (yen) diluted (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)
</TABLE>
For the quarters ended March 31, 1999 and 1998, net loss includes the
impact of 52,768 million yen and 33,259 million yen, respectively,
attributable to adjustments of net deferred tax assets to reflect
reductions in Japan's corporate income tax rate.
<PAGE> 81
- 81 -
Schedule VIII
-------------
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Valuation and Qualifying Accounts and Reserves
(In millions of yen)
Years ended March 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Deduct
-----------------
Balance Add
at Add- Bad (deduct) Balance
beginning charged debts -cumulative at end
of to written translation of
period income off Reversal adjustments period
--------- ------- ------- -------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Allowance for
doubtful trade
receivables:
1999 62,742 13,505 8,781 2,454 (1,363) 63,649
1998 60,810 8,316 4,824 1,240 (320) 62,742
1997 53,826 13,302 6,887 956 1,525 60,810
Allowance for
doubtful
noncurrent
receivables:
1999 523 - 219 - - 304
1998 63,171 12,249 74,897 - - 523
1997 68,910 107,302 113,041 - - 63,171
</TABLE>
<PAGE> 82
- 82 -
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:
<TABLE>
<CAPTION>
Page
number
------
<S> <C>
Independent Auditors' Report 49
Consolidated Balance Sheets as of March 31, 1999 and 1998 50
Consolidated Statements of Income for the years ended
March 31, 1999, 1998 and 1997 52
Consolidated Statements of Stockholders' Equity for the years
ended March 31, 1999, 1998 and 1997 53
Consolidated Statements of Cash Flows for the years ended
March 31, 1999, 1998 and 1997 55
Notes to Consolidated Financial Statements 57
Schedule for the years ended March 31, 1999, 1998 and 1997:
Schedule VIII Valuation and Qualifying Accounts and Reserves for
the years ended March 31, 1999, 1998 and 1997 81
</TABLE>
(b) Exhibits
ARTICLES OF INCORPORATION as amended on June 29, 1999
(English translation)
<PAGE> 83
- 83 -
SIGNATURES
----------
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Company certifies that it meets all of the requirements for filing on
Form 20-F and has duly caused this annual report to be signed on its behalf by
the undersigned, thereunto duly authorized.
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
----------------------------------------
(Registrant)
Date: July 30, 1999 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 29, 1999)
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
<PAGE> 2
- 1 -
(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;
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;
<PAGE> 3
- 2 -
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.
ARTICLE 4. (Method of Public Notice)
Public notices of the Company shall be given in the "Asahi Shimbun"
published in Osaka City.
<PAGE> 4
- 3 -
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 four billion nine hundred and fifty million (4,950,000,000).
The amount of each share having par value shall be fifty yen (yen50).
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.
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.
<PAGE> 5
- 4 -
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.
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.
<PAGE> 6
- 5 -
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.
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.
<PAGE> 7
- 6 -
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.
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.
<PAGE> 8
- 7 -
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.
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.
<PAGE> 9
- 8 -
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.
