Matsushita Reports March 2005 Annual Results; Digital AV Products, Hom

Matsushita Reports March 2005 Annual Results; Digital AV Products, Home Appliances Contribute to Earnings Gains

    Business Editors

    OSAKA, Japan--(BUSINESS WIRE)--April 28, 2005--Matsushita Electric Industrial Co., Ltd. (Matsushita (NYSE symbol: MC)) today reported its annual financial results for the year ended March 31, 2005 (fiscal 2005).

    Consolidated Results(1)

    Consolidated group sales for fiscal 2005 increased 16%, to 8,713.6 billion Yen (U.S.$81.44 billion), from 7,479.7 billion yen in the previous fiscal year. Explaining fiscal 2005 results, the company cited sales gains in digital audiovisual (AV) equipment and home appliances, especially V-products, and the addition of Matsushita Electric Works, Ltd. (MEW), PanaHome Corporation (PanaHome) and their respective subsidiaries to the company's consolidated financial results. Of the consolidated group total, domestic sales increased 32% to 4,580.5 billion yen ($42.81 billion), compared with 3,477.5 billion yen a year ago. Overseas sales were up by 3%, to 4,133.1 billion yen ($38.63 billion), from 4,002.2 billion yen in fiscal 2004. Excluding the effects of currency translation, overseas sales increased 6% from a year ago on a local currency basis(2).
    During the first half of the fiscal year under review, the overall economic situation in Japan was favorable, characterized by increased consumer spending, due mainly to an unusually hot summer and demand related to the Athens Olympics. In the second half, however, concerns arose regarding a downturn in components and devices industries and price declines in digital products, as well as rising raw materials costs, including crude oil prices. Overseas, the global economy slowed somewhat in the second half. The U.S. economy, however, continued steady progress with strong consumer spending, mainly a result of an improved U.S. employment situation. Meanwhile, the economy in China also continued high growth. Accordingly, the global economic situation, as a whole, remained stable.
    As the first year of the new mid-term management plan Leap Ahead 21, fiscal 2005 was viewed as a time for the company to implement initiatives to achieve growth and strengthen management structures at each business domain company.
    Matsushita strived to enhance profitability in fiscal 2005 by launching a new line of V-products, expanding simultaneous global product introductions and increasing sales of home appliances. Meanwhile, through collaboration activities with MEW, the company integrated overlapping businesses and reformed distribution channels to establish an optimized, customer-oriented business structure. As a result, Matsushita will provide customers all over the world with solutions for comfortable living in the home and office. Other initiatives included the selection and concentration of management resources at each business domain company, the acceleration of business and organizational restructuring, company-wide cost reduction activities and the reduction of total assets, mainly inventories, all aimed at strengthening the company's financial condition.
    Regarding earnings, negative factors such as a strong yen, increased raw materials costs and intensified global price competition were more than offset by sales gains, comprehensive cost reduction efforts and other positive factors. As a result, consolidated operating profit(3) for the year increased 58%, to 308.5 billion yen ($2.88 billion), compared with 195.5 billion yen in the previous year. During fiscal 2005, the company incurred restructuring charges of 93.2 billion yen ($871 million), while recording a 31.5 billion yen ($295 million) gain from the transfer of the substitutional portion of the Employees Pension Funds (EPF) to the Government(4) in certain of the company's subsidiaries. These, and other factors, resulted in a pre-tax income of 246.9 billion yen ($2.31 billion), up 45% from 170.8 billion yen last year. Net income for the full fiscal year totaled 58.5 billion yen ($547 million), an increase of 39% from 42.1 billion yen in the previous year. Net income per common share for the fiscal year was 25.49 yen ($0.24) on a diluted basis, versus a net income per common share of 18.00 yen a year ago.

    Consolidated Sales Breakdown by Product Category

    Effective April 1, 2004, the company reclassified its previous five product categories (AVC Networks, Home Appliances, Components and Devices, JVC, and Other) into six new product categories to reflect the consolidation of MEW, PanaHome and their respective subsidiaries. The six new product categories are: AVC Networks, Home Appliances, Components and Devices, MEW and PanaHome, JVC, and Other.
    The company's annual consolidated sales by reclassified product category, as compared with prior year amounts, are summarized as follows:

    AVC Networks

    AVC Networks sales decreased 2% to 3,558.8 billion yen ($33.26 billion), compared with 3,624.1 billion yen in the previous year. Within this category, sales of video and audio equipment increased 5% from a year ago, as strong sales in flat-panel TVs, digital cameras, and other digital AV equipment were more than sufficient to offset sluggish sales in VCRs and audio equipment.
    Sales of information and communications equipment were down 6% from fiscal 2004. Although increased sales were recorded for PCs and automotive electronics, sales declines in cellular phones for overseas markets in addition to slow sales of telephones and facsimile machines led to an overall decline.

    Home Appliances

    Sales of Home Appliances increased 2% to 1,217.9 billion yen ($11.38 billion), compared with 1,189.1 billion yen in the previous year. Within Home Appliances, sales gains were achieved through unique products, such as new washer/dryers, while an unusually hot summer in Japan contributed to increased sales of air conditioners and compressors.

    Components and Devices

    Sales of Components and Devices decreased 3% to 1,112.5 billion yen ($10.40 billion), compared with 1,142.4 billion yen in the previous year. Sales in semiconductors, the key component in digital products, recorded solid gains for the full fiscal year, despite relatively weak sales in the second half. Meanwhile, sales in electric motors and batteries decreased, resulting in overall lower sales in this category.

    MEW and PanaHome

    Sales of MEW and PanaHome (MEW, PanaHome and their respective subsidiaries) totaled 1,497.6 billion yen ($14.00 billion).

    JVC

    Sales for JVC (Victor Company of Japan, Ltd. and its subsidiaries) totaled 717.8 billion yen ($6.71 billion), down 11% from 802.7 billion yen a year ago. Although sales in AV equipment increased in the Japanese domestic market, sales were down in the Americas and Europe, with sales of software also down from a year ago.

    Other

    Sales for Other decreased 16% to 609.0 billion yen ($5.69 billion), from 721.4 billion yen a year ago. Although steady sales were recorded in factory automation (FA) equipment and industrial-use equipment, the reclassification of MEW products (those traditionally sold through the parent company) into a new product category (MEW and PanaHome) resulted in overall lower sales in this category.

    Non-Consolidated (Parent Company Alone) Results

    Parent-alone sales increased 2% to 4,145.7 billion yen, from 4,081.4 billion yen in the previous year. Strong sales of the company's V-products, particularly digital AV products and home appliances contributed to overall sales gains.
    Regarding parent-alone earnings, the increase in sales and various cost reduction initiatives resulted in a parent-alone operating profit of 88.4 billion yen, up 88% from 46.9 billion yen in fiscal 2004. Recurring profit increased 11% to 116.3 billion yen, compared with 105.2 billion yen in the previous year, mainly a result of an increase in dividend income, and increases in allowances for investment losses. The parent company recorded a non-recurring income of 20.3 billion yen related to the sale of securities, and a non-recurring loss of 34.9 billion yen in restructuring charges. These factors resulted in a parent-alone net income of 73.5 billion yen, up 23% from 59.4 billion yen for fiscal 2004.

    Consolidated Financial Condition

    Net cash provided by operating activities in fiscal 2005 amounted to 478.4 billion yen ($4.47 billion), primarily attributable to improved net income, an increase in depreciation, and reduction of inventories. Net cash used in investing activities amounted to 178.3 billion yen ($1.67 billion), due mainly to capital expenditures for tangible fixed assets of 352.2 billion yen ($3.29 billion) in priority business areas such as plasma display panel (PDP) TVs and semiconductors, despite an increase in cash resulting from the consolidation of MEW and PanaHome. Net cash used in financing activities was 419.5 billion yen ($3.92 billion). Major factors included repurchase of the company's common stock and repayments of long-term debt. All these activities resulted in cash and cash equivalents of 1,169.8 billion yen ($10.93 billion) at the end of fiscal 2005, whereby the company maintained a healthy cash balance.
    The company's consolidated total assets as of March 31, 2005 increased 618.9 billion yen to 8,056.9 billion yen ($75.30 billion), as compared to 7,438.0 billion yen at the end of the last fiscal year (March 31, 2004). The consolidation of MEW and PanaHome led to an increase in assets of 1,043.3 billion yen, while the company implemented initiatives to decrease assets, including reduction of inventories. Stockholders' equity increased 92.7 billion yen, as compared with the end of fiscal 2004, to 3,544.3 billion yen ($33.12 billion). This increase was due to an increase in retained earnings and accumulated other comprehensive income, owing to the return to the Government of the substitutional portion of the EPF that resulted in a decrease in minimum pension liability adjustments, despite an increase in treasury stock on continued repurchases of the company's own shares.

    Proposed Year-end Dividend

    Total dividends for fiscal 2005, including an interim dividend of 7.50 yen per common share paid in November 2004, are expected to be 15.00 yen per common share, as compared with 14.00 yen for fiscal 2004.

    Outlook for Fiscal 2006

    Regarding the business environment for the fiscal year 2006, ending March 31, 2006, the company currently expects to encounter severe conditions, such as ever-intensifying price declines and rising raw materials prices, including crude oil prices, as well as uncertainty regarding economic conditions in the United States, Europe and China. Under these circumstances, Matsushita views fiscal 2006 as critical to the success of its Leap Ahead 21 plan for the three-year period ending March 2007. Accordingly, Matsushita is making efforts to achieve the goals of the plan by enhancing product competitiveness and management structures. The company currently expects fiscal 2006 sales on a consolidated basis to total approximately 8,720 billion yen, mostly unchanged from the previous year. Consolidated operating profit is forecasted to increase by about 7% to approximately 330 billion yen. Consolidated income before income taxes(5) is anticipated to increase to approximately 290 billion yen, up 17%, with net income expected to improve to about 110 billion yen, an increase of 88% from the previous fiscal year.
    Similarly, on a parent company alone basis, Matsushita expects sales in fiscal 2006 to total 4,150 billion yen, approximately the same level as the previous year. Recurring profit is projected to increase by 16%, to approximately 135 billion yen, and net income is forecasted to increase 50% to approximately 110 billion yen.

    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, 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; 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; 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.

    (Financial Tables and Additional Information Attached)

(1) On April 1, 2004, Matsushita acquired a controlling interest in MEW. As a result, MEW, PanaHome and their respective subsidiaries became consolidated subsidiaries of the company. Fiscal 2005 consolidated results include the results of these subsidiaries on a full consolidated basis. For more information, see Notes 5 and 10 of Notes to consolidated financial statements on pages 13 to 15.

(2) 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.

(3) For information about operating profit, see Note 2 of Notes to consolidated financial statements on page 13.

(4) For information about the transfer of the substitutional portion of the EPF to the Government, see Note 6 of Notes to consolidated financial statements on pages 13 and 14.

(5) Factors affecting the forecast for other income (deductions) of 40 billion yen (the difference between operating profit and income before income taxes) include business restructuring charges of 35 billion yen and other expenses of 5 billion yen.

(Note: Dollar amounts for the most recent period have been translated for convenience at the rate of U.S.$1.00 = 107 yen.)

Matsushita Electric Industrial Co., Ltd. Consolidated Statement of Income (a) -------------------------------------- (Year ended March 31) Yen U.S. (millions) Dollars ---------- Percentage (millions) 2005 2004 2005/2004 2005 ---- ---- --------- ---- Net sales Yen 8,713,636 Yen 7,479,744 116% $81,436 Cost of sales (6,176,046) (5,313,065) (57,720) Selling, general and administrative expenses (2,229,096) (1,971,187) (20,833) ------------- ------------- -------- Operating profit 308,494 195,492 158% 2,883

Other income (deductions): Interest income 19,490 19,564 182 Dividend income 5,383 5,475 50 Gain from the transfer of the substitutional portion of Japanese Welfare Pension Insurance 31,509 72,228 295 Interest expense (22,827) (27,744) (213) Restructuring charges (b) (93,170) (45,056) (871) Write-down of investment securities (16,186) (52,492) (151) Other income, net 14,220 3,355 133 ------------- ------------- -------- Income before income taxes 246,913 170,822 145% 2,308

Provision for income taxes (153,334) (98,535) (1,433) Minority interests (27,719) (19,618) (259) Equity in earnings (losses) of associated companies (7,379) (10,524) (69) ------------- ------------- -------- Net income Yen 58,481 Yen 42,145 139% $547 ============= ============= ======== Net income, basic per common share 25.49 yen 18.15 yen $0.24 per ADS 25.49 yen 18.15 yen $0.24 Net income, diluted per common share 25.49 yen 18.00 yen $0.24 per ADS 25.49 yen 18.00 yen $0.24

(Parentheses indicate expenses, deductions or losses.) (a)(b) See Notes to consolidated financial statements on pages 13-15.

Change in Retained Earnings (a) ------------------------------ (Year ended March 31) Yen U.S. (millions) Dollars ---------- (millions) 2005 2004 2005 ---- ---- ---- Balance at beginning of year Yen 2,442,504 Yen 2,432,052 $22,827 Net income 58,481 42,145 547 Cash dividends (35,251) (29,218) (329) Transfer from (to) legal reserve (4,663) (2,475) (44) ------------- ------------- -------- Balance at end of year Yen 2,461,071 Yen 2,442,504 $23,001 ============= ============= ========

(a) See Notes to consolidated financial statements on pages 13-15.

Supplementary Information ------------------------- (Year ended March 31) Yen U.S. (millions) Dollars ---------- (millions) 2005 2004 2005 ---- ---- ---- Depreciation (tangible assets) Yen 287,400 Yen 253,762 $2,686 Capital investment Yen 374,253 Yen 271,291 $3,498 R&D expenditures Yen 615,524 Yen 579,230 $5,753

Number of employees (Mar. 31) 334,752 290,493

Matsushita Electric Industrial Co., Ltd. Consolidated Balance Sheet (b) ------------------------------ (March 31, 2005)

U.S. Yen Dollars (millions) (millions) ---------- ---------- Assets March 31, 2005 March 31, 2004 March 31, 2005 -------------- -------------- -------------- Current assets: Cash and cash equivalents Yen 1,169,756 Yen 1,275,014 $10,932 Time deposits 144,781 170,047 1,353 Marketable securities 11,978 2,684 112 Trade receivables (notes and accounts) 1,251,738 1,067,667 11,699 Inventories 893,425 777,540 8,350 Other current assets 558,854 482,025 5,223 -------------- -------------- -------------- Total current assets 4,030,532 3,774,977 37,669 -------------- -------------- -------------- Noncurrent receivables 246,201 280,398 2,301 Investments and advances 1,146,505 1,237,427 10,715 Property, plant and equipment, net of accumulated depreciation 1,658,080 1,209,502 15,496 Other assets 975,563 935,708 9,117 -------------- -------------- -------------- Total assets Yen 8,056,881 Yen 7,438,012 $75,298 ============== ============== ==============

Liabilities and Stockholders' Equity ---------------- Current liabilities: Short-term borrowings Yen 385,474 Yen 290,208 $3,602 Trade payables (notes and accounts) 866,019 784,734 8,094 Other current liabilities 1,577,398 1,494,844 14,742 -------------- -------------- -------------- Total current liabilities 2,828,891 2,569,786 26,438 -------------- -------------- -------------- Long-term debt 477,143 460,639 4,459 Other long-term liabilities 710,654 827,896 6,642 Minority interests 495,941 128,115 4,635 Common stock 258,740 258,740 2,418 Capital surplus 1,230,701 1,230,476 11,502 Legal reserve 87,838 83,175 821 Retained earnings 2,461,071 2,442,504 23,001 Accumulated other comprehensive income (loss) (a) (238,377) (399,502) (2,228) Treasury stock (255,721) (163,817) (2,390) -------------- -------------- -------------- Total liabilities and stockholders' equity Yen 8,056,881 Yen 7,438,012 $75,298 ============== ============== ==============

(a) Accumulated other comprehensive income (loss) breakdown:

U.S. Yen Dollars (millions) (millions) ---------- ---------- March 31, 2005 March 31, 2004 March 31, 2005 -------------- -------------- -------------- Cumulative translation Yen (245,642) Yen (282,287) $(2,296) adjustments Unrealized holding gains of available-for-sale securities 72,608 88,104 679 Unrealized gains of derivative instruments 6,403 6,676 60 Minimum pension liability adjustments (71,746) (211,995) (671)

(b) See Notes to consolidated financial statements on pages 13-15.

Matsushita Electric Industrial Co., Ltd. Consolidated Sales Breakdown (a) -------------------------------- (Year ended March 31) Yen U.S. Dollars (billions) (millions) ------------ Percentage ---------- 2005 2004 2005/2004 2005 ---- ---- --------- ----

AVC Networks ------------------ Video and audio equipment Yen 1,482.6 Yen 1,418.1 105% $13,856

Information and communications equipment 2,076.2 2,206.0 94% 19,404

Subtotal 3,558.8 3,624.1 98% 33,260

Home Appliances 1,217.9 1,189.1 102% 11,382 ------------------

Components and Devices 1,112.5 1,142.4 97% 10,397 ------------------

MEW and PanaHome 1,497.6 -- -- 13,996 ------------------

JVC 717.8 802.7 89% 6,709 ---

Other 609.0 721.4 84% 5,692 ------

Total Yen 8,713.6 Yen 7,479.7 116% $81,436

Domestic sales 4,580.5 3,477.5 132% 42,809

Overseas sales 4,133.1 4,002.2 103% 38,627

(Domestic/Overseas Sales Breakdown) (in yen only)

Domestic sales Overseas sales Yen Yen (billions) (billions) ---------- Percentage ---------- Percentage 2005 2005/2004 2005 2005/2004 ---- --------- ---- --------- AVC Networks ------------------ Video and audio equipment Yen 466.7 113% Yen 1,015.9 101%

Information and communications equipment 1,046.2 97% 1,030.0 91%

Subtotal 1,512.9 102% 2,045.9 96%

Home Appliances 744.2 97% 473.7 111% ------------------

Components and Devices 446.4 96% 666.1 98% ------------------

MEW and PanaHome 1,280.2 -- 217.4 -- ------------------

JVC 207.8 85% 510.0 91% ---

Other 389.0 75% 220.0 107% -----

Total Yen 4,580.5 132% Yen 4,133.1 103%

(a) See Notes to consolidated financial statements on pages 13-15.

Matsushita Electric Industrial Co., Ltd. Consolidated Information by Segments (a) ------------------------------------- (Year ended March 31)

By Business Segment: -------------------- U.S. Yen (billions) Dollars -------------- Percentage (millions) (Sales) 2005 2004 2005/2004 2005 ---- ---- --------- ----

AVC Networks Yen 3,858.8 Yen 3,840.3 100% $36,064 Home Appliances 1,332.8 1,223.2 109% 12,456 Components and Devices 1,469.0 1,659.7 89% 13,729 MEW and PanaHome 1,556.1 -- -- 14,543 JVC 730.2 819.0 89% 6,824 Other 1,027.1 948.7 108% 9,599 ----------- ----------- -------- Subtotal 9,974.0 8,490.9 117% 93,215 Eliminations (1,260.4) (1,011.2) -- (11,779) ----------- ----------- -------- Consolidated total Yen 8,713.6 Yen 7,479.7 116% $81,436 =========== =========== ========

(Segment Profit)(b)

AVC Networks Yen 127.4 Yen 129.1 99% $1,191 Home Appliances 77.6 52.7 147% 725 Components and Devices 57.8 50.1 115% 540 MEW and PanaHome 63.9 -- -- 597 JVC 9.9 24.7 40% 93 Other 38.3 14.7 261% 358 ----------- ----------- -------- Subtotal 374.9 271.3 138% 3,504 Corporate and eliminations (66.4) (75.8) -- (621) ----------- ----------- -------- Consolidated total Yen 308.5 Yen 195.5 158% $2,883 =========== =========== ========

By Domestic and Overseas Company Location: ----------------------------------------- U.S. Yen (billions) Dollars -------------- Percentage (millions) (Sales) 2005 2004 2005/2004 2005 ---- ---- --------- ----

Japan Yen 6,620.0 Yen 5,511.1 120% $61,869 Americas 1,271.6 1,297.2 98% 11,884 Europe 1,072.6 1,027.3 104% 10,024 Asia, China and others 2,445.0 2,176.4 112% 22,851 ----------- ----------- -------- Subtotal 11,409.2 10,012.0 114% 106,628 Eliminations (2,695.6) (2,532.3) -- (25,192) ----------- ----------- -------- Consolidated total Yen 8,713.6 Yen 7,479.7 116% $81,436 =========== =========== ========

(Segment Profit)

Japan Yen 262.1 Yen 131.8 199% $2,450 Americas 20.8 23.3 90% 194 Europe 7.4 16.3 45% 69 Asia, China and others 75.3 89.7 84% 704 ----------- ----------- -------- Subtotal 365.6 261.1 140% 3,417 Corporate and eliminations (57.1) (65.6) -- (534) ----------- ----------- -------- Consolidated total Yen 308.5 Yen 195.5 158% $2,883 =========== =========== ========

(a)(b) See Notes to consolidated financial statements on pages 13-15.

Matsushita Electric Industrial Co., Ltd. Consolidated Statement of Cash Flows (a) -------------------------------------- (Year ended March 31) Yen U.S. Dollars (millions) (millions) --------- ---------- Cash flows from operating 2005 2004 2005 activities: ---- ---- ---- ------------------------- Net income Yen 58,481 Yen 42,145 $547 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 325,465 278,177 3,042 Net gain on sale of investments (31,399) (11,327) (294) Provision for doubtful receivables 4,963 3,154 46 Deferred income taxes 56,805 21,160 531 Write-down of investment securities 16,186 52,492 151 Impairment loss on long-lived assets 29,519 11,666 276 Minority interests 27,719 19,618 259 (Increase) decrease in trade receivables 61,207 35,248 572 (Increase) decrease in inventories 84,405 (37,016) 789 (Increase) decrease in other current assets 14,649 13,450 137 Increase (decrease) in trade payables (74,276) 87,226 (694) Increase (decrease) in accrued income taxes (3,422) 12,254 (32) Increase (decrease) in accrued expenses and other current liabilities (10,736) 10,782 (100) Increase (decrease) in retirement and severance benefits (99,499) (67,332) (930) Other 18,368 17,435 171 ------------- ----------- -------- Net cash provided by operating activities Yen 478,435 Yen 489,132 $4,471 ============= =========== ========

Cash flows from investing activities: ------------------------------------- Proceeds from sale of short-term investments 6,117 -- 57 Purchase of short-term investments (9,001) (702) (84) Proceeds from disposition of investments and advances 101,374 68,468 948 Increase in investments and advances (133,636) (207,869) (1,249) Capital expenditures (352,203) (275,544) (3,291) Proceeds from sale of fixed assets 78,131 113,008 730 (Increase) decrease in finance receivables 26,823 30,697 251 (Increase) decrease in time deposits 27,748 202,808 259 Inflows due to acquisition of additional shares of newly consolidated subsidiaries, net of cash paid 82,208 -- 768 Other (5,857) (16,311) (55) ------------- ----------- -------- Net cash used in investing activities Yen (178,296) Yen (85,445) $(1,666) ============= =========== ========

Cash flows from financing activities: ------------------------------------- Increase (decrease) in short-term borrowings (8,009) (39,577) (75) Increase (decrease) in deposits and advances from customers and employees (139,134) (15,787) (1,300) Proceeds from long-term debt 119,422 108,026 1,116 Repayments of long-term debt (251,554) (228,039) (2,351) Dividends paid (35,251) (29,218) (329) Dividends paid to minority interests (14,765) (4,675) (138) Repurchase of common stock (92,879) (69,394) (868) Sale of treasury stock 1,324 -- 12 Other 1,395 5,963 13 ------------- ----------- -------- Net cash used in financing activities Yen (419,451) Yen (272,701) $(3,920) ============= =========== ======== Effect of exchange rate changes on cash and cash equivalents 14,054 (23,442) 131 ------------- ----------- -------- Net increase (decrease) in cash and cash equivalents (105,258) 107,544 (984) Cash and cash equivalents at beginning of year 1,275,014 1,167,470 11,916 ------------- ----------- -------- Cash and cash equivalents at end of year Yen 1,169,756 Yen 1,275,014 $10,932 ============= =========== ========

(a) See Notes to consolidated financial statements on pages 13-15.

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 4 for U.S. GAAP reconciliation.

3. Comprehensive income was reported as a gain of 219,606 million yen ($2,052 million) for fiscal 2005, and a gain of 348,285 million yen for fiscal 2004. 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.

4. "Restructuring charges" in "Other income (deductions)" of the consolidated statements of income for fiscal 2005 and fiscal 2004 include expenses associated with the implementation of early retirement programs at certain domestic companies. Under U.S. generally accepted accounting principles, these charges are included as part of operating profit in the statement of income.

5. On April 1, 2004, the company acquired 19.2% of the issued common shares of MEW through a tender offer, of which the company had a 31.8% equity ownership until then, to obtain its controlling interest. This acquisition also resulted in another acquisition of controlling interest of PanaHome because both the company and MEW have 27% equity ownership. The acquired assets and assumed liabilities on April 1, 2004 are as shown below. As a result, the total assets at the beginning of the period increased 1,043,282 million yen, the balance that deducts 343,844 million yen, the company's new basis of investment in MEW and PanaHome upon the acquisition of additional shares, from 1,387,126 million yen, the total assets acquired.

Yen (millions)

Current assets Yen 658,544 Property, plant and equipment 440,584 Other assets 287,998 Total assets acquired 1,387,126 Current liabilities 335,899 Noncurrent liabilities 419,803 Total liabilities assumed 755,702 Minority interests 287,580 Net assets acquired Yen 343,844

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 fiscal 2005. The gain of 31,509 million yen for fiscal 2005 from the transfer of the substitutional portion of the Japanese Welfare Pension Insurance is reported as other income in the consolidated statement of income.

Matsushita Electric Welfare Pension Funds and Employees Pension Funds in the company's subsidiaries obtained approval from the Ministry for exemption from the past benefit obligation with respect to the substitutional portion and transferred it to the Government in December 2003. Income related to the transfer of the substitutional portion of the Employees Pension Funds is reported as other income of 72,228 million yen for fiscal 2004 in the consolidated statement of income.

7. On April 1, 2005, Matsushita transferred 2,707 thousand shares of Matsushita Leasing & Credit Co., Ltd. (MLC) to The Sumitomo Trust & Banking Co., Ltd. (STB) pursuant to a basic agreement regarding the equity ownership of MLC concluded between the company and STB. As a result of the transfer, Matsushita now owns 34% of MLC's total issued shares. MLC (scheduled to be renamed Sumishin Matsushita Financial Services Co., Ltd. on May 1, 2005) was changed from a consolidated subsidiary to an equity method company of Matsushita as of April 1, 2005.

8. With the aim of maximizing shareholder value, the Board of Directors today approved plans to increase total cash dividends per share and own share repurchases for fiscal 2006, ending March 2006. Also, the Board of Directors today decided to adopt a policy toward large-scale purchases of Matsushita shares (ESV(a) Plan). For fiscal 2006, Matsushita plans to increase total dividends per share to 20.00 yen, as compared with the planned 15.00 yen for fiscal 2005. The company will continue to repurchase the company's own shares, up to 120 million shares for a maximum of 150 billion yen in fiscal 2006, to enhance shareholder value per share. 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 Matsushita. The new rules require that (i) a large-scale purchaser provide 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. For further details, see separate press release issued today "Matsushita Announces Policy toward Large-scale Purchases of Matsushita Shares (ESV plan)."

(a) ESV stands for Enhancement of Shareholder Value

9. 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.

10. 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. MEW, PanaHome and their respective subsidiaries became consolidated subsidiaries of the company on April 1, 2004. Accordingly, a new segment, MEW and PanaHome, has been added to the company's business segment classifications from this fiscal year (fiscal 2005).

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, Matsushita Kotobuki Electronics Industries, 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., Matsushita Electronic Components 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 Industrial Information Equipment Co., Ltd.

11. Number of consolidated companies: 628

12. Number of companies reflected by the equity method: 66

13. United States Dollar amounts are translated from yen for convenience at the rate of U.S. $1.00 = 107 yen, the approximate rate on the Tokyo Foreign Exchange Market on March 31, 2005.

14. Each American Depositary Share (ADS) represents 1 share of common stock.

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 13.

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."

Matsushita Electric Industrial Co., Ltd. Consolidated Information of Marketable Securities (a) ---------------------------------------------------- (March 31, 2005)

Yen (millions) ----------------

March 31, 2005 ----------------- Gross unrealized holding Cost Fair 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 =========== =========== ===========

March 31, 2004 ----------------- Gross unrealized holding Cost Fair value gains (losses) ---- ---------- ------------- Current ------- Equity securities -- -- --

Bonds 1,000 1,001 1

Other debt securities 1,683 1,683 -- ----------- ----------- ----------- Sub-total Yen 2,683 Yen 2,684 1 ----------- ----------- -----------

Noncurrent ---------- Equity securities 217,470 398,425 180,955

Bonds 8,254 8,229 (25)

Other debt securities 10,071 10,071 -- ----------- ----------- ----------- Sub-total Yen 235,795 Yen 416,725 Yen 180,930 ----------- ----------- ----------- Total Yen 238,478 Yen 419,409 Yen 180,931 =========== =========== ===========

(a) 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."

    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 627 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 19.


    2. Business Domain Chart
    (Chart Omitted)


    Details of Product Categories

    AVC Networks

    CRT, PDP and LCD TVs, VCRs, camcorders, digital cameras, DVD players, DVD recorders, 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 disk 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, kitchen fixture systems, electric, gas and kerosene hot water supply equipment, bath and 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, electro-mechanical components, high frequency components, printed circuit boards, etc.), magnetic recording heads, electric motors, dry batteries, rechargeable batteries, etc.

    MEW and PanaHome

    Lighting fixtures, wiring devices, distribution panelboards, personal-care products, healthy-life products, exterior and interior furnishing materials, bathroom units, molding compounds, laminates, relays, connectors, housings, etc.

    JVC

    VCRs, camcorders, CRT, LCD and PDP TVs, stereo hi-fi and related equipment, car audio, DVD players, DVD recorders, CD radio cassette recorders, video projectors, motors, display components, AV software for DVD, CD and video tapes, recordable media, house furnishings, etc.

    Other

    Electronic-parts-mounting machines, industrial robots, electronic measuring instruments, welding equipment, power distribution equipment, elevators, escalators, bicycles, leasing and credit operations, imported materials and components, etc.

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 ------------------- (Year ended March 31)

Yen (millions) -------------- Percentage 2005 2004 2005/2004 ---- ---- --------- Net sales Yen 4,145,654 Yen 4,081,485 102% Cost of sales (3,368,926) (3,347,349) Selling, general and administrative expenses (688,335) (687,142) ---------- ---------- Operating profit 88,393 46,993 188% ---------- ---------- Interest income 2,529 5,662 Dividend income 63,593 64,634 Other income 38,914 32,240 Interest expense (8,499) (16,533) Other expenses (68,650) (27,795) ---------- ---------- Recurring profit 116,280 105,201 111% ---------- ---------- Non-recurring profit 28,970 17,601 Non-recurring loss (38,052) (38,733) ---------- ---------- Income before income taxes 107,198 84,069 128% Provision for income taxes Current 7,857 7,463 Deferred 25,888 17,107 ---------- ---------- Net income Yen 73,453 Yen 59,499 123% ========== ========== Unappropriated retained earnings at beginning of period 41,012 40,467 Interim dividend (17,284) (14,473) Unappropriated retained earnings at end of period 97,181 85,493

Notes to parent-alone financial statements: -------------------------------------------

1. From this fiscal year (fiscal 2005), amounts less than 1 million yen have been rounded to the nearest whole million yen amount in the accompanying parent-alone financial statement. Previously, amounts less than 1 million yen were omitted in parent-alone financial statements. Above figures for fiscal 2004 are based on the previous calculation method.

2. Similarly, in the descriptions on pages 5 and 22 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 fiscal 2005 includes 20,311 million yen related to the sale of securities, and 8,172 million yen as a result of the sale of certain fixed assets. Non-recurring loss for fiscal 2005 includes 34,915 million yen for business restructuring expenses such as losses associated with the employment structural reform of several domestic businesses.

4. From this fiscal year (fiscal 2005), the company changed its sales categories to five new categories: AVC Networks, Home Appliances, Components and Devices, MEW products, and Other, in line with the reclassification made to the consolidated sales breakdown upon the consolidation of MEW. Accordingly, sales of several MEW products which were previously included in the "Other" category have been transferred to the new "MEW Products" category.

5. On April 1, 2005, Matsushita absorbed Matsushita Industrial Information Equipment Co., Ltd. (MIIE), pursuant to a basic agreement regarding the merger between the company and MIIE.

6. On April 1, 2005, Matushita transferred building materials and equipment business of Corporate Housing Equipment Sales Division of Matsushita Home Appliances Company to MEW, pursuant to a basic business transfer agreement between the company and MEW. Furthermore, Matsushita absorbed MEW's sales functions of home appliances and other MEW products, pursuant to a basic business division agreement between the company and MEW.

7. Net income per common share: 2005 2004 ---- ---- Basic 31.90 yen 25.52 yen Diluted -- 25.18 yen

Net income per common share (diluted) for fiscal 2005 is omitted because the company does not hold any dilutive securities.

Matsushita Electric Industrial Co., Ltd. (Parent Alone) Balance Sheet (a) ----------------- (March 31, 2005)

Yen (millions) -------------- Assets March 31, 2005 March 31, 2004 ------ -------------- --------------

Current assets: Cash and deposits Yen 449,124 Yen 763,116 Trade receivables (notes and accounts) 512,017 576,008 Inventories 164,053 192,268 Other current assets 516,436 522,881 ------------- ------------- Total current assets 1,641,630 2,054,274 ------------- ------------- Fixed assets: Tangible fixed assets 391,514 400,744 Intangibles 27,577 29,788 Investments and advances 2,859,819 2,733,127 ------------- ------------- Total fixed assets 3,278,910 3,163,660 ------------- ------------- Total assets Yen 4,920,540 Yen 5,217,934 ============= =============

Liabilities and Shareholders' Equity ------------------------------------

Current liabilities: Trade payables (notes and accounts) 435,491 474,138 Accrued income taxes 3,427 670 Other current liabilities 1,246,183 1,410,907 ------------- ------------- Total current liabilities 1,685,101 1,885,715 ------------- -------------

Long-term debt and employee retirement and severance benefits 455,690 492,863 ------------- ------------- Total liabilities 2,140,791 2,378,579 ------------- ------------- Shareholders' equity: Capital 258,740 258,740 Capital surplus 571,848 571,623 Retained earnings 2,121,787 2,083,833 Unrealized holding gains of available-for-sale securities 83,817 88,976 Treasury stock (256,443) (163,817) ------------- ------------- Total shareholders' equity 2,779,749 2,839,355 ------------- ------------- Total liabilities and shareholders' equity Yen 4,920,540 Yen 5,217,934 ============= ============= (a) See Notes to parent-alone financial statements on page 20.

Matsushita Electric Industrial Co., Ltd. (Parent Alone) Proposed Allocation of Income (a) --------------------------------- (Year ended March 31)

Yen (millions) -------------- 2005 2004 ---- ---- Unappropriated retained earnings at end of year Yen 97,181 Yen 85,493 ------------ ------------ To be allocated as follows: Year-end dividends 16,938 17,967 (per common share) (7.50 yen) (7.75 yen) Directors' bonuses 240 230 Corporate auditors' bonuses 18 17 Reserve for advanced depreciation 199 2,267 Contingency reserve 36,000 24,000 ------------ ------------ Unappropriated retained earnings carried forward to next period Yen 43,786 Yen 41,011 ============ ============ (a) See Notes to parent-alone financial statements on page 20.

Matsushita Electric Industrial Co., Ltd. (Parent Alone) Sales Breakdown (a) ------------------- (Year ended March 31)

Yen (billions) Percentage 2005 2004 2005/2004 ---- ---- --------- AVC Networks ------------ Video and audio equipment Yen 802.4 Yen 725.9 111%

Information and communications equipment 977.0 1,088.6 90% ----------- ----------- Subtotal 1,779.4 1,814.6 98% ----------- ----------- Home Appliances 768.9 740.4 104% ---------------- ----------- -----------

Components and Devices 849.2 882.7 96% ---------------------- ----------- -----------

MEW Products 41.2 -- -- ---------------- ----------- -----------

Other 707.0 643.5 110% ---------------- ----------- ----------- Total Yen 4,145.7 Yen 4,081.4 102% =========== =========== Domestic sales 2,447.5 2,440.6 100%

Exports 1,698.2 1,640.7 104%

(a) See Notes to parent-alone financial statements on page 20.

    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 returns to shareholders, which historically emphasized a stable level of dividends, to a new policy which takes into consideration its consolidated business performance. Specifically, Matsushita will provide 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 will, in principle, distribute 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 will provide return to shareholders by enhancing shareholder value per share through a reduction, in effect, of the number of outstanding shares. This will be accomplished by repurchasing the company's own shares with surplus cash flows.

    In line with the policy described above, for fiscal 2005 Matsushita distributed an interim cash dividend of 7.50 yen per common share, and also plans to pay 7.50 yen per common share as the year-end cash dividend, subject to approval at the company's ordinary general meeting of shareholders to be held in June 2005. If implemented, total cash dividends for fiscal 2005 will be 15.00 yen per common share, or a dividend payout ratio of 47.0%.
    For details about own share repurchases and annual dividends for fiscal 2006, ending March 2006, see separate press releases issued today, "Matsushita to Execute Own Share Repurchase" and "Matsushita Announces Plans to Increase Dividends for Fiscal 2006."

    (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

    The Matsushita Group aims to achieve, through cutting-edge technologies, global excellence in 2010 by pursuing the two visions of contributing to the realization of a ubiquitous networking society and coexistence with the global environment. The company therefore views fiscal 2006 as critical to the success of the new management plan Leap Ahead 21 for the three-year period ending March 2007. Accordingly, Matsushita will make efforts aimed at achieving the goals of the plan by accelerating growth and building corporate strength.

    Major Activities Undertaken in Fiscal 2005

    As the first year of the mid-term plan, fiscal 2005 was viewed as a time for the company to strengthen management structures within each of the various business domains and implement initiatives that would result in sustainable growth. The following are results achieved in fiscal 2005.

--	Matsushita aggressively launched a new line of V-products to capture top shares in high-volume markets and make a significant contribution to overall business results. At the same time, the company strengthened company-wide marketing efforts for these products. Matsushita also increased global sales of digital AV equipment, notably PDP TVs and digital cameras, primarily through simultaneous global product introductions. In home appliances, such products as unique washer/dryers with a tilted drum and oxygen enriching air conditioners enjoyed steady sales gains in Japan.
--	Through collaboration activities with MEW, the two companies unified brands and product designs, opened joint showrooms and introduced a series of Collaboration V-products that incorporate black-box technologies of both companies. Matsushita and MEW also integrated overlapping businesses in the areas of electrical supplies, building materials and equipment, home appliances and industrial equipment, and reformed distribution channels to establish an optimized, customer-oriented operational structure. Through such collaboration, Matsushita will provide customers all over the world with solutions for comfortable living in the home and office.
--	The company carried out structural reforms through selection and concentration of management resources into priority areas and restructuring of locations. These reforms were carried out autonomously by each business domain company. Meanwhile, efforts to reduce material procurement costs and other expenses, including a company-wide Cost Busters Project, have enhanced profitability. Matsushita made all-out efforts to reduce inventories, thereby strengthening the company's financial condition.

    Principal Initiatives for Fiscal 2006

    1. Product Strategy

    Essential to Matsushita's overall product strategy are V-products. For fiscal 2006 Matsushita intends to continuously develop V-products with emphasis on the creation of black-box technologies, universal design concepts and eco-friendly innovations, with sales expected to reach 1.5 trillion yen in 67 product categories. The company will also expand simultaneous global product introductions to include more models in a wide variety of product categories. Furthermore, Matsushita will promote digital AV equipment such as flat-panel TVs, DVD recorders and digital cameras in global markets, while aggressively marketing unique washer/dryers and other high value-added products.

    2. R&D and Intellectual Property Strategies

    Matsushita places top priority on becoming a technology- and intellectual property-oriented company, where new products based on proprietary black-box technologies lead to enhanced business results. To this end, the company is concentrating management resources into technologies for the next decade, such as fuel cell co-generation systems and other cutting-edge fields. In fiscal 2006 Matsushita will significantly increase product development speed thanks to the new UniPhier(TM) system LSI. UniPhier(TM) is a unified platform that integrates hardware and software for a wide range of digital products. Matsushita expects this new platform to result in product R&D that is at least five times more efficient than traditional non-platform R&D. Regarding intellectual properties, the company will continue to strengthen the competitiveness of its businesses worldwide by strategically utilizing the results of R&D in the form of patent applications and patent rights on a global basis.

    3. Investment Strategy

    Matsushita will continue to focus investment into strategic businesses, including semiconductors, particularly advanced system LSIs, which are the key components in digital products, and PDP TVs, for which global demand is expected to increase significantly. 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 operations are expected to begin at the end of 2005. The company is also investing some 95 billion yen from fiscal 2005 in a new PDP factory in Amagasaki, Japan, where operations are expected to begin in autumn of 2005. Including the new factory, Matsushita's total PDP production capacity will increase to 4.8 million units per year by March 2007, thereby further augmenting one of the world's largest manufacturing operations.

    4. Overseas Strategy

    Matsushita will continue initiatives to strengthen overseas operations, which the company views as a "growth engine" contributing to overall enhanced profitability. China, in particular, is key to achieving growth overseas. In this market, the company aims for 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.

    5. Collaboration with MEW

    Through collaboration with MEW, Matsushita will strategically utilize the management resources of both companies. Specifically, Matsushita will provide customers with solutions for comfortable living through the successive launch of Collaboration V-products and the establishment of a systems solutions business, including security and energy control management, effectively integrating the technologies, products and services of both Matsushita and MEW.

    6. Strengthened Management Structure

    Matsushita will implement the Next Cell Production Project to improve cost competitiveness, while minimizing inventories, thus strengthening its management structure and increasing profitability through a Second Corporate Cost Busters Project to eliminate redundancies throughout all areas.

    (5) Corporate Governance, Concept and Initiatives

    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 its 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 group-wide 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 the 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. It also inaugurated regular "Group Auditor Meetings" to enhance their collaboration with the Corporate Auditors at Matsushita subsidiaries.


    Corporate Governance Structure (Chart 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 group-wide 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 March 2003, the company established a Corporate Compliance Committee chaired by the President, and composed of Directors and Corporate Auditors. It also compiled an in-house handbook, called the Corporate Compliance Guide, as a concise guidebook explaining the rules and regulations. Matsushita is making concerted efforts to increase awareness of these rules and regulations among all employees. With respect to information security, in January 2004, Matsushita established the Corporate Information Security Division as part of efforts to effectively manage information and ensure the proper education and training of all Directors, Executive Officers and employees.

    (Risk Management)

    Matsushita faces a wide variety of risks, and continues to reinforce its risk management capabilities accordingly. In April 2005, the company established the Global and Group (G&G) Risk Management Committee, thus reforming the framework for collecting and evaluating risk information across the group on a global basis. Under this framework, the company will establish a risk management committee to undertake the unified collection of risk-related information from each business domain company and regional headquarters. Matsushita will thus continue strengthening risk management to assure swift and appropriate responses to risk.

    (Internal Controls over Financial Reporting)

    Matsushita has documented appropriate systems and procedures in its operations, from the control environment up to actual internal control activities. In each business domain company, it has appointed "Internal Auditing Managers," who check 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. 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.

    (Establishment of Information Disclosure Structure and Execution of Accountability)

    To enhance transparency and ensure the accountability of its business, the company established the Disclosure Committee, consisting of 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, the annual report on Form 20-F and the annual report for all stakeholders, while confirming the appropriateness and effectiveness of disclosure controls and procedures.

    (Accounting Audit)

    As of March 31, 2005, the company has a contract with KPMG AZSA & Co., which is in charge of conducting accounting audits of the company. Names of the certified public accountants in charge of accounting audits of the company and the audit corporation they are employed by are as follows:

Name of certified public accountants in charge of accounting Name of Audit Consecutive audits of the company Corporation years of auditing ----------------------------------- ------------- ------------------- Designated Partner KPMG AZSA & Co. 1 year Engagement Partner Yasumi Katsuki ----------------------------------- --------------- ------------------ Designated Partner KPMG AZSA & Co. 10 years Engagement Partner Masahiro Mekada ----------------------------------- --------------- ------------------ Designated Partner KPMG AZSA & Co. 2 years Engagement Partner Tsuyoshi Takeuchi ----------------------------------- --------------- ------------------

Accounting audits of the company are performed by 31 certified public accountants, 30 junior accountants and 3 other staff members.

    3. Overview of Relationship among the Company, Outside Directors, and Outside Corporate Auditors in regard to Personal, Capital, and Business Relationships

    As of March 31, 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, Matsushita implements shareholder-oriented management. The company established a new policy regarding large-scale purchases of the company's shares in light of the protection of the interests of all shareholders. If a large-scale purchase of Matsushita shares is to be conducted, Matsushita requires the prospective large-scale purchasers to provide sufficient information and to grant Matsushita's Board of Directors a sufficient period of time to assess the information so provided. The Board of Directors will assess and examine the proposed large-scale purchase for the benefit of all shareholders of Matsushita, and carefully form and disclose its opinion. The Board of Directors will also provide shareholders with information as necessary so that they may make appropriate decisions in regards to the proposed large-scale purchase. In addition, Matsushita's Board of Directors may, as it deems necessary, negotiate with prospective large-scale purchasers to improve the terms of the proposal or offer alternative plans to shareholders.

    For further details, see separate press release issued today, "Matsushita Announces Policy toward Large-scale Purchases of Matsushita Shares (ESV Plan)."

    (6) Matters concerning the parent company

    Matsushita has no parent company.

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CONTACT: Matsushita Electric Industrial Co., Ltd. Media Contacts: International PR Akira Kadota (Tokyo) Tel: +81-3-3578-1237 or Panasonic News Bureau (Tokyo) Tel: +81-3-3542-6205 or Jim Reilly (U.S.) Tel: +1-201-392-6067 or Brendon Gore (Europe) Tel: +44-20-8899-2217 or Investor Relations Contacts: Makoto Mihara (Japan) Tel: +81-6-6908-1121 or Panasonic Finance (America), Inc. Akihiro Takei Tel: +1-212-698-1365 or Panasonic Finance (Europe) plc Norio Iino Tel: +44-20-7562-4400

KEYWORD: NEW YORK JAPAN INTERNATIONAL ASIA PACIFIC INDUSTRY KEYWORD: HARDWARE COMPUTERS/ELECTRONICS MANUFACTURING EARNINGS SOURCE: Matsushita Electric Industrial Co., Ltd.

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