| [October 28, 2005] |
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Matsushita Announces Financial Results; Matsushita Reports First Half Net Profit Increase; Strong Second Quarter Contributes to First Half Earnings Gains
OSAKA, Japan --(Business Wire)-- Oct. 28, 2005 -- (Note: Dollar amounts for the most recent period have been translated for convenience at the rate of U.S.$1.00 = 113 yen.)
Matsushita Electric Industrial Co., Ltd. (Matsushita (NYSE symbol: MC)) today reported its consolidated financial results for the second quarter and first half, and non-consolidated (parent company alone) results for the first half, ended September 30, 2005, of the current fiscal year, ending March 31, 2006 (fiscal 2006).
Consolidated Second-quarter Results
Consolidated group sales for the second quarter totaled 2,211.0 billion yen (U.S.$19.57 billion), mostly unchanged from 2,216.5 billion yen in the same three-month period a year ago. Explaining the second quarter results, the company cited sales gains in digital audiovisual (AV) products and MEW and PanaHome. Sales declines, however, were recorded in information and communications equipment, Home Appliances and Components and Devices. Of the consolidated group total, domestic sales were down 4% to 1,109.0 billion yen ($9.82 billion), from 1,150.1 billion yen a year ago. Overseas sales increased 3%, to 1,102.0 billion yen ($9.75 billion), from 1,066.4 billion yen in the second quarter of fiscal 2005. Excluding the effects of currency translation, overseas sales were up 1% from a year ago on a local currency basis.(1)
During the second quarter, the overall economic situation in Japan continued a moderate recovery trend, but consumer spending remained weak. Economic conditions in the United States were favorable, with steady growth in housing investment and consumer spending. However, there arose concerns about the prospects of the U.S. economy, including economic effects of recent hurricanes and risks associated with excessive housing investment. Meanwhile, the European economy remained in a relatively severe condition due to sluggish consumer spending. The economy in China maintained high growth, although factors such as overproduction, excessive capital investment and appreciation of the Chinese yuan have led to cautious optimism. The outlook for the global economy is quite uncertain due mainly to the adverse impact of rising crude oil prices on major world economies.
In the electronics industry, although a moderate recovery was achieved through further inventory adjustments of components and devices, a severe business environment continues due mainly to rising raw materials prices and intensified global competition. Under these circumstances, Matsushita is accelerating the implementation of growth strategies and strengthening management structures to achieve its target of an operating profit ratio of 5% or more for the year ending March 2007.
As part of such efforts, the company successfully launched a new series of V-products and promoted the simultaneous introduction of products such as flat-panel TVs in Japan, the United States and Europe, resulting in increased market share. Meanwhile, the company promoted collaboration activities with Matsushita Electric Works, Ltd. (MEW) to launch "Collaboration V-products," such as bathroom systems, which were developed through integrated black-box technologies from Matsushita and MEW. The two companies also established a new marketing organization. Furthermore, to strengthen management structures, Matsushita launched a Next Cell Production Project to achieve further reductions in inventories and improve cost competitiveness. Also, a Second Corporate Cost Busters Project was launched to enhance profitability by eliminating redundancies throughout the Matsushita group.
Regarding earnings, negative factors such as intensified global price competition and increased raw materials costs, including crude oil prices, were more than offset by comprehensive cost reduction efforts, the effects of restructuring initiatives implemented in the preceding fiscal year and other positive factors. As a result, operating profit(2) for the second quarter was up 11%, to 125.1 billion yen ($1.11 billion), from 112.8 billion yen in the same period a year ago. Pre-tax income totaled 87.9 billion yen ($778 million), up 55% from 56.8 billion yen last year. This improvement was due mainly to a decrease in expenses associated with early retirement programs to 20.6 billion yen ($182 million), compared with 45.7 billion yen in the previous year's second quarter. Net income increased 33% to 31.0 billion yen ($274 million), from 23.4 billion yen in the same quarter of the previous year.
Consolidated First-half Results
Combining the second quarter results with those of the first quarter, consolidated group sales for the first fiscal half ended September 30, 2005 decreased 1% to 4,259.2 billion yen ($37.69 billion), compared with 4,318.5 billion yen in the same six-month period a year ago. Explaining the first half results, the company cited sales gains in digital AV products, such as flat-panel TVs, and MEW and PanaHome. Such gains, however, were offset by sales declines in Components and Devices and JVC. Domestic sales decreased 1% to 2,173.7 billion yen ($19.24 billion), while overseas sales were also down 1% to 2,085.5 billion yen ($18.45 billion). Excluding the effects of currency translation, overseas sales decreased 2% from a year ago on a local currency basis.
For reasons similar to those given for second quarter results, the company's operating profit for the first fiscal half increased 9% to 171.1 billion yen ($1.51 billion), from 156.3 billion yen in the comparable period a year ago. Pre-tax Income for the six-month period increased 12% to 154.1 billion yen ($1.36 billion), compared with 137.3 billion yen a year ago. In other income (deductions), the company recorded a 10.3 billion yen gain from the sale of shares of Matsushita Leasing & Credit Co., Ltd. (MLC),(3) and incurred 20.8 billion yen as expenses associated with the implementation of early retirement programs. Net income was also up 15% to 64.4 billion yen ($570 million), as compared with 56.2 billion yen in the first half of the previous year. The company's net income per common share was 28.82 yen ($0.26) on a diluted basis, versus 24.26 yen in the first half of last year.
Consolidated First-half Sales Breakdown by Product Category
The company's first-half consolidated sales by product category, as compared with prior year amounts, are summarized as follows:
AVC Networks
AVC Networks sales totaled 1,747.4 billion yen ($15.46 billion), mostly unchanged from 1,746.0 billion yen in last year's first half. Sales of video and audio equipment increased 2% from the previous year's first half, because favorable sales in digital AV products such as flat-panel TVs and digital cameras exceeded declines in audio equipment and CRT TVs.
In information and communications equipment, the company recorded strong sales of PCs and automotive electronics, but sales downturns in cellular phones, facsimile machines and other products led to a 1% decrease overall.
Home Appliances
Sales of Home Appliances decreased 5% to 578.4 billion yen ($5.12 billion), compared with 609.4 billion yen in last year's first half. Although domestic sales of air conditioners were favorable, sales declines in compressors and household equipment resulted in overall lower sales.
Components and Devices
Sales of Components and Devices were also down 9% to 531.0 billion yen ($4.70 billion), compared with 582.5 billion yen in the same period of the previous year. Sales of semiconductors and general components decreased from last year's first half, although overseas sales increases were recorded in batteries.
MEW and PanaHome
Sales of MEW and PanaHome increased 6% to 752.4 billion yen ($6.66 billion), from 711.6 billion yen last year. At MEW and its subsidiaries, sales gains were recorded in electronic and plastic materials, due mainly to strong private capital investment, and sales of automation controls increased due to favorable sales in equipment for IT terminals. Meanwhile, sales gains at PanaHome Corporation were recorded in rental apartment housing and home remodeling.
JVC
Sales for JVC (Victor Company of Japan, Ltd. and its subsidiaries) totaled 333.7 billion yen ($2.95 billion), down 6% from 354.2 billion yen in the first half of the previous year. This result is due primarily to sluggish sales of consumer-use products overseas.
Other
Sales for Other totaled 316.3 billion yen ($2.80 billion), slightly up compared with the first half of the previous year. Sales increases in factory automation equipment were recorded in the Japanese domestic market and overseas within this category.
Non-Consolidated (Parent Company Alone) First Half Results(4)
First-half parent-alone sales increased 5% to 2,176.1 billion yen, from 2,071.3 billion yen in the same six-month period a year ago. Sales increases were recorded in AVC Networks, as well as MEW products, due mainly to collaboration activities with MEW.
Regarding parent-alone earnings, operating profit totaled 59.8 billion yen, up slightly from the previous year's first half. This increase was realized mainly by sales gains and various comprehensive cost reduction initiatives, despite price declines. Recurring profit increased 36% to 92.5 billion yen, from 68.1 billion yen in the previous first half. In addition to operating profit, the increase in recurring profit was attributable to dividend income from subsidiaries and provisions for losses on investments. Parent-alone net income also increased, up 90% to 95.7 billion yen, from 50.4 billion yen in the first half of last year, including a 21.0 billion yen gain from the sale of shares of a subsidiary and a 27.1 billion yen loss from restructuring.
Consolidated Financial Condition
Net cash provided by operating activities in the fiscal 2006 first half amounted to 192.0 billion yen ($1.70 billion). This was attributable to cash inflows from net income and depreciation, despite increased inventories caused by seasonal factors such as year-end sales. Net cash provided by investing activities amounted to 274.4 billion yen ($2.43 billion). Capital expenditures for tangible fixed assets of 196.5 billion yen, mainly consisting of manufacturing facilities for priority business areas such as plasma display panels (PDPs) and semiconductors, were offset by cash inflows associated with the sale of shares of MLC. Net cash used in financing activities was 189.4 billion yen ($1.68 billion). Major factors included a repurchase of the company's common stock and the repayments of long-term debt. All these activities resulted in cash and cash equivalents of 1,455.7 billion yen ($12.88 billion) at the end of the fiscal 2006 first half.
The company's consolidated total assets as of September 30, 2005 increased by 33.1 billion yen as compared with the end of the last fiscal year (March 31, 2005), to 8,090.0 billion yen ($71.59 billion). The increase was due mainly to the increased inventories caused by the aforementioned seasonal factors. Stockholders' equity increased 81.9 billion yen, as compared with the end of the last fiscal year, to 3,626.1 billion yen ($32.09 billion) as of September 30, 2005. This was primarily attributable to increases in retained earnings and accumulated other comprehensive income, despite an increase in treasury stock on continued repurchases of the company's own shares.
Interim Dividend
The Board of Directors of the company voted today to distribute an interim (semiannual) cash dividend of 10.00 yen per common share to shareholders of record on September 30, 2005, payable November 30, 2005. This is an increase from last year's interim dividend (7.50 yen), based on a new policy for profit distribution to shareholders (see pages 25-26).
Year-end Dividend
The Board of Directors of the company also voted today in favor of a plan to propose a year-end cash dividend of 10.00 yen per common share (payable to shareholders of record as of March 31, 2005) subject to approval at the company's ordinary general meeting of shareholders to be held in June 2006. If implemented, total dividends for fiscal 2006, including the aforementioned interim dividend of 10.00 yen per common share, will be 20.00 yen per common share (see pages 25-26).
Outlook for the Full Fiscal Year 2006
The company expects the future business environment to remain quite uncertain in the second half of fiscal 2006, with price increases in crude oil and other raw materials and continuing price declines due to fierce global competition. Considering these conditions, the forecast for the full fiscal year 2006, ending March 31, 2006, remains unchanged from the forecast announced on April 28, 2005.
Matsushita Electric Industrial Co., Ltd., best known for its Panasonic brand products, is one of the world's leading manufacturers of electronic and electric products for consumer, business and industrial use. Matsushita's shares are listed on the Tokyo, Osaka, Nagoya, New York, Euronext Amsterdam, and Frankfurt stock exchanges.
For more information, please visit the following Web sites:
Matsushita home page URL: http://panasonic.co.jp/global/
Matsushita IR Web site URL: http://ir-site.panasonic.com/
Disclaimer Regarding Forward-Looking Statements
This press release includes forward-looking statements (within the meaning of Section 27A of the U.S. Securities Act of 1933 and Section 21E of the U.S. Securities Exchange Act of 1934) about Matsushita and its Group companies (the Matsushita Group). To the extent that statements in this press release do not relate to historical or current facts, they constitute forward-looking statements. These forward-looking statements are based on the current assumptions and beliefs of the Matsushita Group in light of the information currently available to it, and involve known and unknown risks, uncertainties and other factors. Such risks, uncertainties and other factors may cause the Matsushita Group's actual results, performance, achievements or financial position to be materially different from any future results, performance, achievements or financial position expressed or implied by these forward-looking statements. Matsushita undertakes no obligation to publicly update any forward-looking statements after the date of this press release. Investors are advised to consult any further disclosures by Matsushita in its subsequent filings with the U.S. Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934.
The risks, uncertainties and other factors referred to above include, but are not limited to, economic conditions, particularly consumer spending and corporate capital expenditures in the United States, Europe, Japan, China and other Asian countries; volatility in demand for electronic equipment and components from business and industrial customers, as well as consumers in many product and geographical markets; currency rate fluctuations, notably between the yen, the U.S. dollar, the euro, the Chinese yuan, Asian currencies and other currencies in which the Matsushita Group operates businesses, or in which assets and liabilities of the Matsushita Group are denominated; the ability of the Matsushita Group to respond to rapid technological changes and changing consumer preferences with timely and cost-effective introductions of new products in markets that are highly competitive in terms of both price and technology; the ability of the Matsushita Group to achieve its business objectives through joint ventures and other collaborative agreements with other companies; the ability of the Matsushita Group to maintain competitive strength in many product and geographical areas; the possibility that the Matsushita Group may face intellectual property infringement claims by third parties; current and potential, direct and indirect restrictions imposed by other countries over trade, manufacturing, labor and operations; fluctuations in market prices of securities and other assets in which the Matsushita Group has holdings or changes in valuation of long-lived assets and deferred tax assets; future changes or revisions to accounting policies or accounting rules; as well as natural disasters including earthquakes and other events that may negatively impact business activities of the Matsushita Group. The factors listed above are not all-inclusive and further information is contained in Matsushita's latest annual report on Form 20-F, which is on file with the U.S. Securities and Exchange Commission.
(Financial Tables and Additional Information Attached)
(1) Sales on a local currency basis is not a measure conforming with U.S. generally accepted accounting principles (U.S. GAAP). However, the company believes that this measure is useful to investors in promoting understanding of the company's business conditions by excluding the influence of foreign currency exchange rate fluctuations.
(2) For information about operating profit, see Note 2 of Notes to consolidated financial statements on page 16.
(3) For information about the sale of shares of MLC, see Note 3 of Notes to consolidated financial statements on page 16.
(4) Non-consolidated (parent company alone) results are in conformity with Japanese generally accepted accounting principles. -0- *T Matsushita Electric Industrial Co., Ltd. Consolidated Statement of Income * ---------------------------------------- (Three months ended September 30) U.S. Yen Dollars (millions) Percentage (millions) 2005 2004 2005/2004 2005 ---- ---- --------- ---- Net sales Yen 2,211,052 Yen 2,216,510 100% $19,567 Cost of sales (1,548,264) (1,609,269) (13,701) Selling, general and administrative expenses (537,722) (494,368) (4,759) Operating profit 125,066 112,873 111% 1,107 Other income (deductions): Interest income 6,374 4,405 57 Dividend income 504 329 4 Gain from the transfer of the substitutional portion of Japanese Welfare Pension Insurance -- 3,999 -- Interest expense (6,388) (4,013) (57) Expenses associated with the implementation of early retirement programs ** (20,572) (45,690) (182) Other loss, net (17,067) (15,092) (151) Income before income taxes 87,917 56,811 155% 778 Provision for income taxes (49,697) (26,221) (440) Minority interests 2,278 (4,716) 20 Equity in earnings (losses) of associated companies (9,534) (2,513) (84) Net income Yen 30,964 Yen 23,361 133% $274 Net income, basic per common share Yen 13.94 Yen 10.10 $0.12 per ADS Yen 13.94 Yen 10.10 $0.12 Net income, diluted per common share Yen 13.94 Yen 10.10 $0.12 per ADS Yen 13.94 Yen 10.10 $0.12 (Parentheses indicate expenses, deductions or losses.) * ** See Notes to consolidated financial statements on pages 16-17. Supplementary Information ------------------------- (Three months ended September 30) U.S. Yen Dollars (millions) (millions) 2005 2004 2005 ---- ---- ---- Depreciation (tangible assets): Yen 67,468 Yen 74,821 $ 597 Capital investment*: Yen 70,363 Yen 76,214 $ 623 R&D expenditures: Yen 143,015 Yen 161,788 $1,266 Number of employees (Sep. 30) 332,548 339,607 * These figures are calculated on an accrual basis. *T -0- *T Matsushita Electric Industrial Co., Ltd. Consolidated Statement of Income * ---------------------------------- (Six months ended September 30) U.S. Yen Dollars (millions) Percentage (millions) --------- --------- 2005 2004 2005/2004 2005 ---- ---- --------- ---- Net sales Yen 4,259,213 Yen 4,318,537 99% $37,692 Cost of sales (2,957,166) (3,075,596) (26,170) Selling, general and administrative expenses (1,130,960) (1,086,607) (10,008) Operating profit 171,087 156,334 109% 1,514 Other income (deductions): Interest income 11,143 9,118 99 Dividend income 4,759 3,908 42 Gain from the transfer of the substitutional portion of Japanese Welfare Pension Insurance -- 31,509 -- Interest expense (10,233) (11,494) (91) Expenses associated with the implementation of early retirement programs ** (20,774) (49,609) (184) Other loss, net (1,871) (2,493) (16) Income before income taxes 154,111 137,273 112% 1,364 Provision for income taxes (85,428) (60,832) (756) Minority interests 6,596 (15,346) 58 Equity in earnings (losses) of associated companies (10,872) (4,916) (96) Net income Yen 64,407 Yen 56,179 115% $ 570 Net income, basic per common share Yen 28.82 Yen 24.26 $0.26 per ADS Yen 28.82 Yen 24.26 $0.26 Net income, diluted per common share Yen 28.82 Yen 24.26 $0.26 per ADS Yen 28.82 Yen 24.26 $0.26 (Parentheses indicate expenses, deductions or losses.) * ** See Notes to consolidated financial statements on pages 16-17. Change in Retained Earnings * ----------------------------- (Six months ended September 30) U.S. Yen Dollars (millions) (millions) --------- ---------- 2005 2004 2005 ---- ---- ---- Balance at beginning of year Yen 2,461,071 Yen 2,442,504 $21,779 Net income 64,407 56,179 570 Cash dividends (16,938) (17,967) (150) Transfer to legal reserve (725) (4,991) (6) Transfer to capital surplus due to merger of subsidiaries (48) -- (0) Balance at end of year Yen 2,507,767 Yen 2,475,725 $22,193 *See Notes to consolidated financial statements on pages 16-17. Supplementary Information ------------------------- (Six months ended September 30) U.S. Yen Dollars (millions) (millions) ---------- ---------- 2005 2004 2005 ---- ---- ---- Depreciation (tangible assets): Yen 132,339 Yen 138,668 $1,171 Capital investment*: Yen 159,444 Yen 145,643 $1,411 R&D expenditures: Yen 278,417 Yen 316,527 $2,464 Number of employees (Sep. 30) 332,548 339,607 * These figures are calculated on an accrual basis. *T -0- *T Matsushita Electric Industrial Co., Ltd. Consolidated Balance Sheet ** -------------------------- September 30, 2005 With comparative figures for March 31, 2005 U.S. Yen Dollars (millions) (millions) --------- ---------- Assets Sept. 30, 2005 March 31, 2005 Sept. 30, 2005 -------------- -------------- -------------- Current assets: Cash and cash equivalents Yen 1,455,714 Yen 1,169,756 $12,882 Time deposits 213,543 144,781 1,890 Short-term investments 16,252 11,978 144 Trade receivables (notes and accounts) 1,091,402 1,251,738 9,659 Inventories 1,006,422 893,425 8,906 Other current assets 527,454 558,854 4,668 Total current assets 4,310,787 4,030,532 38,149 Noncurrent receivables -- 246,201 -- Investments and advances 1,197,666 1,146,505 10,599 Property, plant and equipment, net of accumulated depreciation 1,635,462 1,658,080 14,473 Other assets 946,076 975,563 8,372 Total assets Yen 8,089,991 Yen 8,056,881 $71,593 Liabilities and Stockholders' Equity --------------- Current liabilities: Short-term borrowings Yen 359,033 Yen 385,474 $ 3,177 Trade payables (notes and accounts) 893,500 866,019 7,907 Other current liabilities 1,619,575 1,577,398 14,333 Total current liabilities 2,872,108 2,828,891 25,417 Long-term debt 429,250 477,143 3,799 Other long-term liabilities 680,427 710,654 6,021 Minority interests 482,089 495,941 4,266 Common stock 258,740 258,740 2,290 Capital surplus 1,231,516 1,230,701 10,898 Legal reserve 87,813 87,838 777 Retained earnings 2,507,767 2,461,071 22,193 Accumulated other comprehensive income (loss) * (131,855) (238,377) (1,167) Treasury stock (327,864) (255,721) (2,901) Total liabilities and stockholders' equity Yen 8,089,991 Yen 8,056,881 $71,593 * Accumulated other comprehensive income (loss) breakdown: U.S. Yen Dollars (millions) (millions) ---------- ---------- Sept. 30, 2005 March 31, 2005 Sept. 30, 2005 -------------- -------------- -------------- Cumulative translation adjustments Yen (182,182) Yen (245,642) $(1,612) Unrealized holding gains of available- for-sale securities 127,848 72,608 1,131 Unrealized gains of derivative instruments 8,704 6,403 77 Minimum pension liability adjustments (86,225) (71,746) (763) **See Notes to consolidated financial statements on pages 16-17. *T -0- *T Matsushita Electric Industrial Co., Ltd. Consolidated Sales Breakdown * ---------------------------- (Three months ended September 30) U.S. Yen Dollars (billions) Percentage (millions) ---------- ---------- 2005 2004 2005/2004 2005 ---- ---- --------- ---------- AVC Networks ------------ Video and audio equipment Yen 398.9 Yen 386.7 103% $ 3,530 Information and communications equipment 502.3 524.0 96% 4,445 Subtotal 901.2 910.7 99% 7,975 Home Appliances 270.0 292.1 92% 2,389 --------------- Components and Devices 279.4 291.9 96% 2,473 -------------- MEW and PanaHome 409.7 375.4 109% 3,626 ---------------- JVC 184.8 182.0 102% 1,636 --- Other 165.9 164.4 101% 1,468 ----- Total Yen 2,211.0 Yen 2,216.5 100% $19,567 Domestic sales 1,109.0 1,150.1 96% 9,814 Overseas sales 1,102.0 1,066.4 103% 9,753 (Six months ended September 30) U.S. Yen Dollars (billions) Percentage (millions) ---------- ---------- 2005 2004 2005/2004 2005 ---- ---- --------- ---- AVC Networks ------------ Video and audio equipment Yen 744.4 Yen 732.2 102% $6,588 Information and communications equipment 1,003.0 1,013.8 99% 8,876 Subtotal 1,747.4 1,746.0 100% 15,464 Home Appliances 578.4 609.4 95% 5,119 --------------- Components and Devices 531.0 582.5 91% 4,699 -------------- MEW and PanaHome 752.4 711.6 106% 6,658 ---------------- JVC 333.7 354.2 94% 2,953 --- Other 316.3 314.8 100% 2,799 ----- Total Yen 4,259.2 Yen 4,318.5 99% $37,692 Domestic sales 2,173.7 2,202.9 99% 19,236 Overseas sales 2,085.5 2,115.6 99% 18,456 * See Notes to consolidated financial statements on pages 16-17. *T -0- *T Matsushita Electric Industrial Co., Ltd. Consolidated Sales Breakdown * ---------------------------- (Six months ended September 30) (Domestic/Overseas Sales Breakdown) (in yen only) Domestic sales Overseas sales Yen (billions) Percentage Yen (billions) Percentage -------------- -------------- 2005 2005/2004 2005 2005/2004 ---- --------- ---- --------- AVC Networks ------------ Video and audio equipment Yen 227.0 101% Yen 517.4 102% Information and communications equipment 481.3 100% 521.7 98% Subtotal 708.3 101% 1,039.1 100% Home Appliances 336.7 92% 241.7 99% --------------- Components and Devices 198.2 87% 332.8 94% -------------- MEW and PanaHome 644.6 105% 107.8 107% ---------------- JVC 97.6 100% 236.1 92% --- Other 188.3 96% 128.0 108% ----- Total Yen 2,173.7 99% Yen 2,085.5 99% * See Notes to consolidated financial statements on pages 16-17. *T -0- *T Matsushita Electric Industrial Co., Ltd. Consolidated Information by Segments* ------------------------------------ (Six months ended September 30) By Business Segment: -------------------- U.S. Dollars Yen (billions) Percentage (millions) -------------- ---------- (Sales) 2005 2004 2005/2004 2005 ---- ---- --------- ---- AVC Networks Yen 1,881.8 Yen 1,883.6 100% $16,653 Home Appliances 603.7 660.4 91% 5,342 Components and Devices 680.8 792.4 86% 6,025 MEW and PanaHome 837.4 734.5 114% 7,411 JVC 336.3 360.3 93% 2,976 Other 618.8 539.3 115% 5,476 Subtotal 4,958.8 4,970.5 100% 43,883 Eliminations (699.6) (652.0) -- (6,191) Consolidated total Yen 4,259.2 Yen 4,318.5 99% $37,692 (Segment Profit) ** AVC Networks Yen 84.8 Yen 68.3 124% $ 750 Home Appliances 39.5 37.8 105% 350 Components and Devices 33.7 39.5 85% 298 MEW and PanaHome 28.5 24.6 116% 252 JVC (4.0) 4.6 -- (35) Other 28.7 16.1 178% 254 Subtotal 211.2 190.9 111% 1,869 Corporate and eliminations (40.1) (34.6) -- (355) Consolidated total Yen 171.1 Yen 156.3 109% $1,514 By Domestic and Overseas Company Location: ------------------------ U.S. Dollars Yen (billions) Percentage (millions) ------------- ---------- (Sales) 2005 2004 2005/2004 2005 ---- ---- --------- ---- Japan Yen 3,303.9 Yen 3,285.6 101% $29,238 Americas 669.6 643.6 104% 5,926 Europe 491.1 528.4 93% 4,346 Asia, China and others 1,344.4 1,261.6 107% 11,897 Subtotal 5,809.0 5,719.2 102% 51,407 Eliminations (1,549.8) (1,400.7) -- (13,715) Consolidated total Yen 4,259.2 Yen 4,318.5 99% $37,692 (Segment Profit) Japan Yen 160.9 Yen 126.0 128% $ 1,424 Americas 9.0 11.5 78% 80 Europe (0.4) 8.8 -- (4) Asia, China and others 44.0 50.6 87% 389 Subtotal 213.5 196.9 108% 1,889 Corporate and eliminations (42.4) (40.6) -- (375) Consolidated total Yen 171.1 Yen 156.3 109% $ 1,514 * ** See Notes to consolidated financial statements on pages 16-17. *T -0- *T Matsushita Electric Industrial Co., Ltd. Consolidated Statement of Cash Flows * ------------------------------------ (Six months ended September 30) U.S. Yen Dollars (millions) (millions) ---------- ---------- Cash flows from operating activities: 2005 2004 2005 --------------- ---- ---- ---- Net income Yen 64,407 Yen 56,179 $570 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 150,524 156,922 1,332 Net gain on sale of investments (19,054) (10,914) (169) Provision for doubtful receivables 2,732 6,083 24 Deferred income taxes 25,951 5,758 230 Write-down of investment securities 6,666 1,663 59 Impairment loss on long- lived assets 5,433 13,032 48 Minority interests (6,596) 15,346 (58) (Increase) decrease in trade receivables (6,265) 48,251 (56) (Increase) decrease in inventories (94,925) (104,660) (840) (Increase) decrease in other current assets (14,584) (11,941) (129) Increase (decrease) in trade payables 76,916 (16,389) 681 Increase (decrease) in accrued income taxes 3,047 3,178 27 Increase (decrease) in accrued expenses and other current liabilities 37,548 46,837 332 Increase (decrease) in retirement and severance benefits (35,187) (58,235) (311) Other (4,651) (4,653) (41) Net cash provided by operating activities Yen 191,962 Yen 146,457 $1,699 Cash flows from investing activities: ---------------- Proceeds from sale of short-term investments 7,341 1,506 65 Purchase of short- term investments -- (1,001) -- Proceeds from disposition of investments and advances 373,936 43,459 3,309 Increase in investments and advances (126,019) (33,867) (1,115) Capital expenditures (196,472) (134,586) (1,739) Proceeds from sale of fixed assets 90,381 32,421 800 (Increase) decrease in finance receivables -- 4,597 -- (Increase) decrease in time deposits 81,826 4,446 724 Inflows due to acquisition of additional shares of newly consolidated subsidiaries, net of cash paid -- 79,724 -- Proceeds from sale of shares of a financial subsidiary 62,948 -- 557 Other (19,560) (23,531) (173) Net cash provided by (used in) investing activities Yen 274,381 Yen (26,832) $2,428 Cash flows from financing activities: --------------- Increase (decrease) in short-term borrowings 27,321 5,111 242 Increase (decrease) in deposits and advances from customers and employees (5,230) (134,185) (46) Proceeds from long- term debt 30,653 69,968 271 Repayments of long- term debt (148,198) (48,297) (1,312) Dividends paid (16,938) (17,967) (150) Dividends paid to minority interests (9,638) (11,772) (85) Repurchase of common stock (72,214) (20,275) (639) Sale of treasury stock 88 -- 1 Other 4,725 -- 42 Net cash used in financing activities Yen (189,431) Yen (157,417) $(1,676) Effect of exchange rate changes on cash and cash equivalents 9,046 16,386 80 Net increase (decrease) in cash and cash equivalents 285,958 (21,406) 2,531 Cash and cash equivalents at beginning of period 1,169,756 1,275,014 10,351 Cash and cash equivalents at end of period Yen 1,455,714 Yen 1,253,608 $12,882 * See Notes to consolidated financial statements on pages 16-17. *T -0- *T Notes to consolidated financial statements: ------------------------------------------- 1. The company's consolidated financial statements are prepared in conformity with U.S. generally accepted accounting principles (U.S. GAAP). 2. In order to be consistent with generally accepted financial reporting practices in Japan, operating profit is presented as net sales less cost of sales and selling, general and administrative expenses. The company believes that this is useful to investors in comparing the company's financial results with those of other Japanese companies. Please refer to the accompanying consolidated statement of income and Note 5 for U.S. GAAP reconciliation. 3. On April 1, 2005, Matsushita sold approximately 2,707 thousand shares of Matsushita Leasing & Credit Co., Ltd. (MLC) to The Sumitomo Trust & Banking Co., Ltd. (STB) for cash proceeds of 27,756 million yen, and recorded a gain of 10,313 million yen, pursuant to a basic agreement regarding the equity ownership of MLC concluded between the company and STB. As a result of the sale, Matsushita now owns 34% of MLC's total issued shares. MLC (renamed Sumishin Matsushita Financial Services Co., Ltd. on May 1, 2005) was changed from a consolidated subsidiary to an equity method investee of Matsushita as of April 1, 2005. 4. Comprehensive income was reported as a gain of 170,929 million yen ($1,513 million) for the first half ended September 30, 2005, a gain of 191,419 million yen for the first half ended September 30, 2004, and a gain of 219,606 million yen for the year ended March 31, 2005. Comprehensive income includes net income and increases (decreases) in cumulative translation adjustments, unrealized holding gains (losses) of available-for-sale securities, unrealized gains (losses) of certain derivative instruments and minimum pension liability adjustments. 5. Under U.S. GAAP, expenses associated with the implementation of early retirement programs at certain domestic and overseas companies are included as part of operating profit in the statement of income. 6. Employees Pension Funds in certain of the company's subsidiaries obtained approvals from Japan's Ministry of Health, Labour and Welfare (the Ministry) for exemption from the past benefit obligation with respect to the portion of the Employees Pension Funds that certain of the company's subsidiaries operated for the Government (the so-called ''substitutional portion''), and transferred the substitutional portion to the Government in the first half ended September 30, 2004. A gain of 31,509 million yen from the transfer of the substitutional portion of the Japanese Welfare Pension Insurance is reported as other income in the consolidated statement of income for the first half ended September 30, 2004. 7. Regarding consolidated segment profit, expenses for basic research and administrative expenses at the corporate headquarters level are treated as unallocatable expenses for each business segment, and are included in Corporate and eliminations. 8. The company's business segments are classified according to a business domain-based management system, which focuses on global consolidated management by each business domain, in order to ensure consistency of its internal management structure and disclosure. *T -0- *T Principal internal divisional companies or units and subsidiaries operating in respective segments are as follows: AVC Networks ------------ Panasonic AVC Networks Company, Panasonic Communications Co., Ltd., Panasonic Mobile Communications Co., Ltd., Panasonic Automotive Systems Company, Panasonic System Solutions Company, Panasonic Shikoku Electronics Co., Ltd. Home Appliances --------------- Home Appliances Group, Healthcare Business Company, Lighting Company, Matsushita Ecology Systems Co., Ltd. Components and Devices ---------------------- Semiconductor Company, Matsushita Battery Industrial Co., Ltd., Panasonic Electronic Devices Co., Ltd., Motor Company MEW and PanaHome ---------------- Matsushita Electric Works, Ltd., PanaHome Corporation JVC --- Victor Company of Japan, Ltd. Other ----- Panasonic Factory Solutions Co., Ltd., Matsushita Welding Systems Co., Ltd. 9. Number of consolidated companies: 625 10. Number of companies reflected by the equity method: 71 11. United States Dollar amounts are translated from yen for convenience at the rate of U.S. $1.00 = 113 yen, the approximate rate on the Tokyo Foreign Exchange Market on September 30, 2005. 12. Each American Depositary Share (ADS) represents 1 share of common stock. *T -0- *T Significant Accounting Policies: -------------------------------- 1. Basis of Presentation of Consolidated Financial Statements The company's consolidated financial statements are prepared in conformity with U.S. generally accepted accounting principles. See Note 2 of Notes to consolidated financial statements on page 16. 2. Inventories 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. 3. Marketable Securities The company accounts for debt and equity securities in accordance with Statement of Financial Accounting Standards (SFAS) No.115, "Accounting for Certain Investments in Debt and Equity Securities." 4. Property, Plant and Equipment, and Depreciation Property, plant and equipment is stated at cost. Depreciation is computed primarily using the declining balance method. 5. Leases The company accounts for leases in accordance with SFAS No. 13, "Accounting for Leases." 6. Income Taxes Income taxes are accounted for under the asset and liability method. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the fiscal year that includes the enactment date. 7. Retirement and Severance Benefits The company and most of its domestic subsidiaries maintain defined benefit pension plans such as point-based benefits system and cash balance pension plans. Several of its domestic subsidiaries have lump-sum payment plans, while several overseas subsidiaries also maintain defined benefit pension plans. The company accounts for retirement and severance benefits in accordance with SFAS No. 87, "Employer's Accounting for Pensions." The transfer of the substitutional portion of Japanese Welfare Pension Insurance is accounted for in accordance with the Emerging Issues Task Force (EITF) Issue 03-2, "Accounting for the Transfer to the Japanese Government of the Substitutional Portion of Employee Pension Fund Liabilities." 8. Derivative Financial Instruments The company accounts for derivative financial instruments in accordance with SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." *T -0- *T Matsushita Electric Industrial Co., Ltd. Consolidated Information of Marketable Securities * ------------------------------------------------- September 30, 2005 With comparative figures for March 31, 2005 Yen (millions) -------------- September 30, 2005 ------------------ Fair Gross unrealized holding Cost value gains (losses) ---- ----- ------------------------ Current ------- Equity securities -- -- -- Bonds 14,221 14,223 2 Other debt securities 2,029 2,029 -- ----------- ------------- -------------- Sub-total Yen 16,250 Yen 16,252 Yen 2 ----------- ------------- -------------- Noncurrent ---------- Equity securities 223,641 486,099 262,458 Bonds 103,594 103,551 (43) Other debt securities 18,232 18,244 12 ----------- ------------- -------------- Sub-total Yen 345,467 Yen 607,894 Yen 262,427 ----------- ------------- -------------- Total Yen 361,717 Yen 624,146 Yen 262,429 ----------- ------------- --------------- Yen (millions) -------------- March 31, 2005 -------------- Fair Gross unrealized holding Cost value gains (losses) ---- ----- ------------------------ Current ------- Equity securities -- -- -- Bonds 5,035 5,035 -- Other debt securities 6,943 6,943 -- ----------- ------------- --------------- Sub-total Yen 11,978 Yen 11,978 Yen -- ----------- ------------- --------------- Noncurrent ---------- Equity securities 228,202 392,903 164,701 Bonds 71,844 72,104 260 Other debt securities 18,258 18,282 24 ----------- ------------- --------------- Sub-total Yen 318,304 Yen 483,289 Yen 164,985 ----------- ------------- --------------- Total Yen 330,282 Yen 495,267 Yen 164,985 ----------- ------------- --------------- * The statement of marketable securities represents (presented in yen only) marketable equity securities other than investments in associated companies and all debt securities in accordance with SFAS No.115 "Accounting for Certain Investments in Debt and Equity Securities." *T -0- *T Matsushita Group 1. Outline of the Matsushita Group Described below are the Matsushita Group's primary business areas, roles of major Group companies in respective businesses and relations between major Group companies and business segments. The Matsushita Group, mainly comprising Matsushita Electric Industrial Co., Ltd. and 624 consolidated subsidiaries, is engaged in manufacturing, sales and service activities in a broad range of electric/electronic and related business areas, maintaining close ties among Group companies both in Japan and abroad. Matsushita supplies a full spectrum of electric/electronic equipment and related products, which has been categorized into the following six segments: AVC Networks, Home Appliances, Components and Devices, MEW and PanaHome, JVC, and Other. * For major product lines in each segment, please refer to "Details of Product Categories" on page 21. 2. Business Domain Chart (GRAPHIC OMITTED) *T -0- *T Details of Product Categories AVC Networks ------------ Plasma, LCD and CRT TVs, DVD recorders, DVD players, VCRs, camcorders, digital cameras, compact disc (CD), Mini Disc (MD) and SD players, other personal and home audio equipment, AV and computer product devices, prerecorded AV software, broadcast- and business-use AV equipment and systems, PCs, CD-ROM, DVD-ROM/RAM and other optical disc drives, SD Memory Cards, other data storage devices, copiers, printers, telephones, cellular phones and other mobile communications equipment, facsimile equipment, car AVC equipment, traffic-related systems, communications network-related equipment, other information and communications equipment and systems, etc. Home Appliances --------------- Refrigerators, room air conditioners, washing machines, clothes dryers, vacuum cleaners, electric irons, microwave ovens, cooking appliances, dishwasher/dryers, electric fans, air purifiers, heating equipment, electric and gas hot water supply equipment, sanitary equipment, healthcare equipment, electric lamps, ventilation and air-conditioning equipment, car air conditioners, compressors, vending machines, etc. Components and Devices ---------------------- Semiconductors, general components (capacitors, resistors, coils, speakers, power supplies, electromechanical components, high frequency components, printed circuit boards, etc.), magnetic recording heads, motors, dry batteries, rechargeable batteries, etc. MEW and PanaHome ---------------- Lighting fixtures, wiring devices, distribution panelboards, personal-care products, massage loungers, modular kitchens, exterior furnishing materials, interior furnishing materials, bathroom and fixtures, molding compounds, laminates, relays, switches, sensors, connectors, detached housing, rental apartment housing, medical and nursing care facilities, home remodeling, land lots for housing, condominiums, residential real estate, etc. JVC --- LCD, rear projection, plasma and CRT TVs, camcorders, VCRs, DVD recorders, DVD players, MD/CD/DVD audio systems and other audio equipment, car AV systems, professional video surveillance equipment, professional audio equipment, professional video equipment, professional video projectors, motors, optical pickups, high-density multi-layer printed wiring boards, deflection yokes, AV software for CDs, DVDs and video tapes, recording media, furnitures, etc. Other ----- Electronic-parts-mounting machines, industrial robots, electronic measuring instruments, welding equipment, power distribution equipment, bicycles, imported materials and components, etc. *T -0- *T Please Note: The following are financial statements on a parent company alone basis (provided in yen only), which are in conformity with Japanese generally accepted accounting principles, and should not be confused with the aforementioned consolidated results. Matsushita Electric Industrial Co., Ltd. (Parent Alone) Statement of Income ------------------- (Six months ended September 30) Yen (millions) Percentage ------------- 2005 2004 2005/2004 ---- ---- --------- Net sales Yen 2,176,102 Yen 2,071,337 105% Cost of sales (1,750,430) (1,691,757) Selling, general and administrative expenses (365,863) (319,805) Operating profit 59,809 59,774 100% Interest income 490 1,952 Dividend income 72,790 36,481 Other income 13,322 16,718 Interest expense (3,090) (5,452) Other expenses (50,781) (41,353) Recurring profit 92,540 68,121 136% Non-recurring profit 40,160 6,018 Non-recurring loss (27,533) (12,817) Income before income taxes 105,167 61,322 171% Provision for income taxes Current (16,765) (11,206) Deferred 7,297 349 Net income Yen 95,699 Yen 50,465 190% Unappropriated retained earnings at beginning of period 43,787 41,011 Interim dividend -- -- Unappropriated retained earnings at end of period 139,486 91,477 Notes to parent- alone financial statements: -------------------------------------------- 1. For the above figures of the first half, ending September 30, 2005, amounts less than 1 million yen have been rounded to the nearest whole million yen amount in the accompanying parent-alone financial statement. While, for the above figures of the first half, ending September 30, 2004, amounts less than 1 million yen were omitted in parent-alone financial statements. 2. Similarly, in the descriptions on pages 5, 6 and 24 regarding parent-alone results and parent-alone sales breakdown, amounts less than one-tenth of a billion yen are rounded to the nearest whole billion yen amount. 3. Non-recurring profit for the first half ended September 30, 2005 includes 20,959 million yen related to the sale of shares of a subsidiary, 9,593 million yen related to the sale of securities, and 5,429 million yen as a result of the sale of certain fixed assets. Non-recurring loss for the first half ended September 30, 2005 includes 27,104 million yen for business restructuring expenses such as losses associated with the employment structural reforms at several domestic businesses and the reorganization of domestic consumer sales and distribution. 4. Net income per common share, basic 2005 2004 ---- ---- Yen 42.81 Yen 21.79 *T -0- *T Matsushita Electric Industrial Co., Ltd. (Parent Alone) Balance Sheet * --------------- September 30, 2005 With comparative figures for March 31, 2005 Yen (millions) ------------- Assets September 30, 2005 March 31, 2005 ------ ------------------ -------------- Current assets: Cash and deposits Yen 728,177 Yen 449,124 Trade receivables (notes and accounts) 525,350 512,017 Inventories 187,286 164,053 Other current assets 390,783 516,436 Total current assets 1,831,596 1,641,630 Fixed assets: Tangible fixed assets 368,739 391,514 Intangibles 28,267 27,577 Investments and advances 2,938,993 2,859,819 Total fixed assets 3,335,999 3,278,910 Total assets Yen 5,167,595 Yen 4,920,540 Liabilities and Shareholders' Equity ---------------------- Current liabilities: Trade payables (notes and accounts) Yen 471,625 Yen 435,491 Accrued income taxes 3,169 3,427 Other current liabilities 1,323,070 1,246,183 Total current liabilities 1,797,864 1,685,101 Long-term debt and employee retirement and severance benefits 534,095 455,690 Total liabilities 2,331,959 2,140,791 Shareholders' equity: Capital 258,740 258,740 Capital surplus 569,882 571,848 Retained earnings 2,200,292 2,121,787 Unrealized holding gains of available- for-sale securities 135,479 83,817 Treasury stock (328,757) (256,443) Total shareholders' equity 2,835,636 2,779,749 Total liabilities and shareholders' equity Yen 5,167,595 Yen 4,920,540 * See Notes to parent-alone financial statements on page 22. *T -0- *T Matsushita Electric Industrial Co., Ltd. (Parent Alone) Sales Breakdown * --------------- (Six months ended September 30) Yen (billions) Percentage -------------- 2005 2004 2005/2004 ---- ---- ---------- AVC Networks ------------ Video and audio equipment Yen 417.6 Yen 414.0 101% Information and communications equipment 495.1 456.6 108% Subtotal 912.7 870.6 105% Home Appliances 364.0 375.4 97% --------------- Components and Devices 387.0 440.6 88% -------------- MEW Products 87.2 19.4 450% ------------ Other 425.2 365.1 116% ----- Total Yen 2,176.1 Yen 2,071.3 105% Domestic sales 1,219.3 1,177.6 104% Exports 956.8 893.6 107% * See Notes to parent-alone financial statements on page 22. *T -0- *T Management Policy (1) Basic Policy for Corporate Management
Since its establishment, Matsushita has operated its businesses under its basic management philosophy, which sets forth that the mission of a business enterprise is contributing to the progress and development of society and the well-being of people through its business activities, thereby enhancing the quality of life throughout the world. Matsushita, as a public entity, is committed to its relationships with all stakeholders. (2) Basic Policy for Providing Return to Shareholders
Since the company's founding, Matsushita has managed its businesses in a manner reflecting the company's belief in the importance of profit return to shareholders. Historically, Matsushita has distributed dividends at a consistent level to shareholders. In fiscal 2005, ended March 2005, however, along with the implementation of a new mid-term growth strategy, Matsushita changed the company's policy regarding return to shareholders, which historically emphasized a stable level of dividends, to a new policy which takes into consideration consolidated business performance.
Specifically, Matsushita provides return to shareholders through dividend payments and own share repurchases, upon careful consideration of consolidated cash flows.
(1) Dividends: From the perspective of return on the capital investment made by shareholders, Matsushita, in principle, distributes profits to shareholders based on its consolidated business performance. Matsushita also aims for promoting stable and continuous growth of return to shareholders, while at the same time taking into consideration various factors including mid-term business performance, capital expenditure requirements and the company's financial condition.
(2) Own share repurchases: Matsushita provides return to shareholders by enhancing shareholder value per share through a reduction, in effect, of the number of outstanding shares. This is accomplished by repurchasing the company's own shares with surplus cash flows.
In line with the policies described above, for fiscal 2006, ending March 2006, Matsushita increased interim cash dividends from 7.50 yen per common share in fiscal 2005, to 10.00 yen per common share in fiscal 2006, and also plans to increase year-end cash dividends from 7.50 yen per common share in fiscal 2005, to 10.00 yen per common share in fiscal 2006, subject to approval at the company's ordinary general meeting of shareholders to be held in June 2006. If implemented, total cash dividends for the full fiscal year 2006 will be 20.00 yen per common share.
Regarding own share repurchases, Matsushita plans to acquire up to 120 million shares of its own stock for a maximum of 150 billion yen through the end of March 2006.
In principle, Matsushita intends to hold approximately 10% of total issued shares as treasury stock. Matsushita will strategically utilize treasury stock for such purposes as M&A activities to enhance shareholder value on a per share basis. (3) Company's Policy on Reduction of the Share Trading Unit Size
Amendments to the Japanese Commercial Code that took effect in October 2001 allow listed companies to reduce the number of shares per unit for trading ("share trading unit") on stock markets in Japan. Matsushita has given careful consideration as to whether or not it should avail itself to this eased restriction, but, as of today, the company believes it is too early to do so. Recognizing the importance of increased participation in capital markets by individual investors, Matsushita, over the years, has implemented various measures with individual shareholders in mind. Some of these include renewal of the company's investor relations website, more detailed business reports to shareholders and improved general shareholder meeting arrangements. Since Matsushita is aware that a reduction in the share trading unit size is an effective method for broadening its individual shareholder base, the company will continue to discuss and evaluate possible benefits resulting from a reduction in the share trading unit size. (4) Corporate Management Strategies and Challenges
Matsushita aims to achieve, through cutting-edge technologies, global excellence in 2010, or in other words, to become a leading company in all aspects of management and a company that is supported by its customers worldwide, by pursuing the corporate visions of contributing to the realization of a ubiquitous networking society and coexistence with the global environment, under the global brand slogan "Panasonic ideas for life," which represents a commitment to deliver "ease of use and convenience," "security and brand loyalty" and "inspiring" products and services.
Regarding the business environment for fiscal 2006, Matsushita expects to continue to encounter severe conditions, such as slowdown in growth in the electronics industry, ever-intensifying global price declines in digital products and rising raw materials prices, including crude oil prices. Under these circumstances, Matsushita views fiscal 2006 as crucial to the success of its Leap Ahead 21 plan for the three-year period ending March 2007. Accordingly, Matsushita is implementing various initiatives to achieve the goals of the plan, despite a severe environment. Principal Initiatives for Fiscal 2006 1. V-products For fiscal 2006 Matsushita intends to develop a new series of V-products to capture leading shares in high-volume markets and make a significant contribution to overall business results, with sales expected to reach 1.5 trillion yen in 67 product categories, exceeding the previous year's result. During the first half of fiscal 2006, V-products, including flat-panel TVs, digital cameras and air conditioners, among others, recorded sales of about 620 billion yen. Matsushita will continue to develop new products with emphasis on the creation of black-box technologies, environmentally friendly features, while incorporating universal design concepts. 2. R&D and Investment Strategy In order to develop a succession of new products, it is imperative to increase R&D efficiency. Matsushita developed a new Integrated Platform that integrates hardware and software for a wide range of digital products. In fiscal 2006, by utilizing this platform across multiple digital product categories, Matsushita hopes to raise R&D efficiency more than fivefold compared with traditional non-platform R&D. Matsushita will continue to focus investment into strategic businesses, including semiconductors, particularly advanced system LSIs, which are the key components in digital products, and plasma TVs, for which global demand is expected to increase significantly, as well as fuel cell co-generation systems for the home that contribute to the prevention of global warming. In semiconductors, Matsushita is investing approximately 130 billion yen from fiscal 2005 in a new factory for state-of-the-art system LSIs in Uozu, Japan, where commercial shipments started in October of 2005. The company is also investing some 95 billion yen from fiscal 2005 in a new PDP factory in Amagasaki, Japan, where operations started in September of 2005. With this new factory, Matsushita further augmented one of the world's largest PDP manufacturing operations. 3. Overseas Strategy Overseas operations serve as a "growth engine" for the entire Matsushita Group. China, in particular, is key to achieving growth overseas. In this market, Matsushita aims to record sales of approximately 1 trillion yen in fiscal 2007. To achieve this goal, Matsushita is developing and launching high value-added products, placing greater emphasis on sales at high-volume retailers and augmenting the company's IT infrastructures. Matsushita is also expanding simultaneous global product introductions to include more models in a wide variety of product categories. Furthermore, Matsushita is promoting cutting-edge digital AV equipment such as flat-panel TV, DVD recorders and digital cameras in global markets, while aggressively marketing unique washer/dryers with a tilted drum and other high value-added products. 4. Strengthened Management Structure Matsushita is implementing the Next Cell Production Project to improve cost competitiveness, while minimizing inventories. The company is also strengthening management structures and increasing profitability through a Second Corporate Cost Busters Project to eliminate redundancies throughout all areas of the company. 5. Collaboration with Matsushita Electric Works, Ltd. (MEW) Through collaboration with MEW that started in fiscal 2005, Matsushita strategically utilizes the management resources of both companies. Specifically, Matsushita provides customers with solutions for comfortable living through the successive launch of Collaboration V-products and the expansion of systems solutions businesses, including security and energy control management, effectively integrating the technologies, products and services of both Matsushita and MEW. (5) The Concept and Initiatives of Corporate Governance 1. Corporate Governance Structure (The Board of Directors and Executive Officer System) Under its basic philosophy of contributing to society as a public entity, Matsushita has long been committed to enhancing corporate governance. As such, it was one of the first Japanese companies to invite Outside Directors to serve on its Board of Directors, and also established an Advisory Board comprised of distinguished outside leaders. In fiscal 2004, ended March 2004, Matsushita implemented reforms to establish an optimum management and governance structure tailored to the group's new business domain-based organizational structure. Under the new structure, Matsushita has empowered each of its business domain companies through delegation of authority. At the same time, the company set up an Executive Officer System to provide for the execution of business at its various domestic and overseas group companies. This facilitates the development of optimum corporate strategies that integrate the group's comprehensive strengths. In addition, Matsushita realigned the role and structure of the Board of Directors to ensure swift and strategic decision-making, as well as the optimum monitoring of groupwide matters. Specifically, the Board of Directors can now concentrate on corporate strategies and the supervision of business domain companies, while Executive Officers handle responsibilities relating to day-to-day operations. Taking into consideration the diversified scope of its business operations, Matsushita has opted to maintain a system where Executive Officers, who are most familiar with the specifics of their respective operations, take an active part in the Board of Directors. To clarify the responsibilities of Directors and create a more dynamic organization, the company has limited the term of each Director to one year. (Corporate Auditors and the Board of Corporate Auditors) Pursuant to the Commercial Code of Japan and relevant laws and ordinances, Matsushita has established a Board of Corporate Auditors, which monitors the status of corporate governance and keeps abreast of the day-to-day activities of management, including the Board of Directors. Corporate Auditors participate in shareholder meetings and Board of Directors meetings, and have legal authority to receive reports from Directors, employees and accounting auditors. Full-time Senior Auditors also attend important management meetings and conduct checks in order to ensure effective monitoring. To augment the internal auditing functions in business domain companies, Matsushita has assigned Full-time Auditors at each internal divisional company. The company also inaugurated regular Group Auditor Meetings to enhance their collaboration with the Corporate Auditors at Matsushita subsidiaries. Corporate Governance Structure Functions of Board of Directors, Executive Officers, and Board of Corporate Auditors (GRAPHIC OMITTED) 2. Internal Control Structure (Corporate Business Ethics and Compliance) In 1992, Matsushita formulated its Code of Conduct, a set of guidelines explaining the company's business philosophy in an easy-to-understand manner. After a revision in 1998, the Code was again amended to the Code of Conduct of the Matsushita group in January 2005, making it more applicable to global and groupwide operations from the standpoint of corporate social responsibility (CSR). The Code now applies to all Directors, Executive Officers, and employees of the Matsushita group. Moreover, Directors and Executive Officers in charge of ensuring observance of the Code were appointed at each group company. In February 2004, the company established a Code of Ethics for Directors and Executive Officers. Matsushita also set up a Corporate Business Ethics Hotline, enabling employees to get advice on work-related and other matters. In addition, in July 2005, Matsushita established a system whereby the Board of Corporate Auditors can directly receive concerns from employees in regards to accounting or auditing irregularities. In March 2003, the company established a Corporate Compliance Committee chaired by the President, and composed of Directors, Executive Officers and Corporate Auditors. Matsushita also compiled an in-house handbook, called the Corporate Compliance Guide, as a concise guidebook explaining relevant rules and regulations. Matsushita is making concerted efforts to increase awareness of these rules and regulations among all employees. (Risk Management) In April 2005, Matsushita established the Global and Group (G&G) Risk Management Committee to evaluate risk information gathered across the Group's global network. In specific terms, Matsushita integrates and evaluates risk information collected from the risk management committees of each domain company and regional headquarters company and formulates appropriate countermeasures on a timely basis. With respect to information security, in January 2004, Matsushita established the Corporate Information Security Division to effectively manage and control confidential corporate and private individual information to promote compliance across the group's global network, and to reinforce audit functions and structures. (Internal Controls over Financial Reporting) Matsushita has documented its internal control system designed to ensure reliability in its financial reporting, ranging from the control infrastructure to actual internal control activities. In fiscal 2005, the company reinforced its internal controls by implementing self-checks and self-assessment programs, in addition to regular internal auditing, in each business domain company. Matsushita has also appointed an Internal Auditing Manager at each business domain company who audits the compliance status and effectiveness of internal controls. These activities are supervised by the Corporate Internal Auditing Group in order to ensure the reliability of each company's financial reporting. (Establishment of Information Disclosure Structure and Execution of Accountability) To enhance transparency and ensure accountability, the company established the Disclosure Committee, consisting of general or executive managers from departments that handle relevant information. The Committee checks the propriety of statements and descriptions in the company's annual securities report submitted to the Japanese regulatory authorities, and annual reports including Form 20-F, while confirming the appropriateness and effectiveness of disclosure controls and procedures. 3. Overview of Relationship among the Company, Outside Directors, and Outside Corporate Auditors in regard to Personal, Capital, and Business Relationships As of September 30, 2005, the company has two Outside Directors and two Outside Corporate Auditors. At present, there are no special interests between the company and those Outside Directors and Corporate Auditors. 4. Policy toward Large-scale Purchases of Matsushita Shares With the aim of maximizing shareholder value, in April 2005, the Board of Directors approved plans to proactively provide returns to shareholders and adopted a policy toward large-scale purchases of Matsushita Electric Industrial Co., Ltd. shares. Under the basic philosophy that shareholders should make final decisions regarding large-scale purchases of Matsushita shares, sufficient information should be provided through the Board of Directors to shareholders if a large-scale purchase is to be conducted. Under the above-mentioned basic philosophy, the Board of Directors decided to adopt a new rule applicable to large-scale purchasers who intend to acquire 20% or more of all voting rights of the company. The new rule requires that (i) a large-scale purchaser provides sufficient information to the Board of Directors before a large-scale purchase is to be conducted and (ii) after all required information is provided, the Board of Directors should be allowed a sufficient period of time during which it will assess, examine, negotiate, form an opinion and seek alternatives. In the event of non-compliance with such rules by a prospective large-scale purchaser, the Board of Directors may take countermeasures to protect the interest of all shareholders. For further details, please see the press release issued on April 28, 2005 entitled "Matsushita Announces Policy toward Large-scale Purchases of Matsushita Shares (Enhancement of shareholder value (ESV) plan)." (6) Matters concerning the parent company Matsushita has no parent company. *T
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