UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

FormWashington D.C. 20549

FORM 20-F

ANNUAL REPORT PURSUANT TO SECTIONS 13 ORor 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended March 31, 2000
2003

Commission file number 1 - 67841-6784

MATSUSHITA DENKI SANGYO KABUSHIKI KAISHA

(Exact name of registrantRegistrant as specified in its charter)

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.

(Translation of registrant’sRegistrant’s name into English)

Japan

(Jurisdiction of incorporation or organization)

1006, Oaza Kadoma, Kadoma-shi, Osaka 571-8501, Japan

(Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act.

*		American Depositary Shares evidenced by American Depositary Receipts. Each American Depositary Share represents ten sharesone share of Common Stock.
**		Par value 50 Japanese yen per share.

Securities registered or to be registered pursuant to Section 12(g) of the Act.

None

(Title of Class)

None

(Title of Class)

Securities for which there is a reporting obligation pursuant

to Section 15(d) of the Act.

None

(Title of Class)

None

(Title of Class)

This form contains 87143 pages.

CONTENTS

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1

Indicate the number of outstanding shares (excluding treasury stocks) of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

Indicate by check mark whether the Company (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes   [X]x     No  [  ].¨ .

Indicate by check mark which financial statement item the Company has elected to follow.

Item 17.  [X]x    Item 18.  [  ].¨.

All information contained in this Report is as of March 31, 20002003 or for the year ended March 31, 20002003 (fiscal 2000)2003) unless the context otherwise indicates.

The noon buying rate for yen in New York City as certified for customs purposes by the Federal Reserve Bank of New York on July 17, 2000August 25, 2003 was 108.53117.43 yen = U.S.$1.

Cautionary Statement Regarding Forward-Looking Statements

Any statements with respect to Matsushita’s current plans, estimates, strategies and beliefs in this Annual Report, other than those of historical fact, are

This annual report includes forward-looking statements about(within the future performancemeaning 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 which(the Matsushita Group). To the extent that statements in this annual report do not relate to historical or current facts, they constitute forward-looking statements. These forward-looking statements are based on management’sthe current assumptions and beliefs of the Matsushita Group in light of the information currently available to them, and involve known and unknown risks, uncertainties, and uncertainties. Actual eventsother factors. Such risks, uncertainties and other factors may cause the Matsushita Group’s actual results, may differperformance, achievements or financial position to be materially different from those anticipatedany 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 annual report (September 2003). Investors are advised to consult any further disclosures by Matsushita in these statements.its subsequent filings with the U.S. Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934 and its other filings.

Potential

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The risks, uncertainties and uncertaintiesother factors referred to above include, but are not limited to, economic conditions, such asparticularly consumer spending and privatecorporate capital expenditures; trendsexpenditures in major economies in the world, including Japan, the United States, Europe, Japan and other Asian countries; volatility in demand for electronic equipment and components from business and industrial customers, as well as consumers in many product and geographical markets; currency exchange rate fluctuations, notably between the yen, the U.S. dollar, the euro, Asian currencies and other currencies in which the Matsushita Group operates its businessbusinesses, or in which Matsushita’s assets and liabilities of the Matsushita Group are denominated; direct and indirect restrictions imposed by other countries; fluctuations in market pricesthe ability of securities in whichthe Matsushita has holdings; and Matsushita’s ability to maintain its strength in many product and geographical areas, and Matsushita’s abilityGroup to respond to rapid technological changes through such means asand changing consumer preferences with timely and cost-effective introductions of new product introductions,products in a marketmarkets that isare highly competitive in terms of both price and technology, which is characteristictechnology; the ability of the industryMatsushita Group to realize expected benefits of various restructuring activities in its business and organization; 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; any changes in the Matsushita Group’s financial and operational position or business environment due to its business restructuring; current and potential, direct and indirect restrictions imposed by other countries over trade, manufacturing, labor and operations; and fluctuations in market prices of securities and other assets in which the Company primarily belongs.Matsushita Group has holdings, as well as future changes or revisions to accounting policies or accounting rules.

- 3 -About the Company

PART I

Item 1. Description of Business

GENERAL

Matsushita Electric Industrial Co., Ltd. (hereinafter, unless the context otherwise requires, “Matsushita” or the “Company” refers to Matsushita Electric Industrial Co., Ltd. and its consolidated subsidiaries as a group), best known for its “Panasonic” brand name, is one of the world’s leading producersmanufacturers of electronic and electric products for a wide range of consumer, business and industrial uses, as well as a wide variety of components. Based in Osaka, Japan, the Company recorded consolidated net sales of approximately 7,402 billion yen for fiscal 2003. Over the past eight decades, the Company has grown from a small domestic household electrical equipment manufacturer into a comprehensive electronic and electric equipment, systems and components manufacturer operating internationally. Of the fiscal 2003 net sales, nearly one-half was represented by sales in Japan, with the rest by overseas sales.

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PART I

Item 1.    Identity of Directors, Senior Management and Advisers

Not applicable

Item 2.    Offer Statistics and Expected Timetable

Not applicable

Item 3.    Key Information

A.    Selected Financial Data

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B.    Capitalization and Indebtedness

Not applicable

C.    Reasons for the Offer and Use of Proceeds

Not applicable

D.    Risk Factors

Primarily because of the business areas and geographical areas where it operates and the highly competitive nature of the industry to which it belongs, Matsushita is exposed to a variety of risks and uncertainties in carrying out its businesses, including, but not limited to, the following:

Weakness in Japanese and global economies may cause reduced demand for the products of Matsushita

The Japanese economy has experienced a prolonged recession since the early 1990s, which has become increasingly serious. In addition, the global economy has taken a downturn, concurrently with setbacks in the global information technology industry. These recessionary conditions have resulted in sluggish consumer spending and weakened corporate capital expenditures in many industries. For example, the markets for information and communications equipment, such as PC peripherals, mobile communications equipment and related components and devices, on which Matsushita is dependent for its growth in part, have been hard hit during the year ended March 31, 2002. Due to these conditions and restructuring expenses under its mid-term Value Creation 21 plan, Matsushita incurred a significant net loss for fiscal 2002. Although Matsushita achieved an improvement in its business performance for fiscal 2003, the Company currently does not foresee a rapid turnaround in the Japanese or global economy in the near term. These conditions may continue in the short- to mid-term, thereby further negatively affecting Matsushita’s businesses.

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Matsushita’s mid-term business plan, Value Creation 21, may not produce the expected results

At the same time as the above-mentioned conditions in the Japanese and global economies, the business environment in which Matsushita operates has also evolved dramatically in recent years, so that Matsushita’s traditional business model, namely having each product division and subsidiary operate independently in each product area, does not necessarily provide as many advantages as it once did. In response to these problems, starting in April 2001, Matsushita implemented its mid-term business plan called Value Creation 21. The plan consists of two key elements: structural reforms with an emphasis on the pursuit of higher management efficiency for customer satisfaction, and the pursuit of a new growth strategy. Matsushita, however, may not be successful in achieving all of the goals set out in the plan or in realizing the benefits that it expects from implementing the plan because of external and internal factors.

The restructuring of Matsushita’s businesses may not bring the improved efficiency, cost reductions and growth that Matsushita aims for

Under the Value Creation 21 plan, Matsushita implemented various management innovations and restructuring initiatives, such as: closing or integrating its manufacturing bases in Japan and overseas; reforming its consumer sales and distribution structure in Japan; innovating manufacturing and R&DD (R&D and design); and implementing employment restructuring initiatives. As another major restructuring measure, Matsushita implemented share exchanges with five of its majority-owned subsidiaries to transform them into wholly-owned subsidiaries of Matsushita, effective October 1, 2002, followed by the creation in January 2003 of a new business domain-based organizational structure over the entire Matsushita group in place of the traditional, single product-oriented divisional management system. Under the new management structure, Matsushita seeks to conduct its consolidated Groupwide businesses speedily and efficiently, and to achieve synergies expected from such business restructuring. Matsushita may not, however, be able to improve efficiency and reduce costs and realize growth through these measures due to unexpected additional reorganization or restructuring expenses, improper allocation of operational resources or other unpredictable factors.

Matsushita’s business is, and will continue to be, subject to the risks generally associated with international business operations

The Value Creation 21 plan includes expanding Matsushita’s businesses in markets outside of Japan. In many of these markets, Matsushita may face risks generally associated with international manufacturing and other business operations, such as political instability, economic uncertainty, cultural and religious differences and labor relations, as well as foreign currency exchange risks. Matsushita may also face barriers in commercial and business customs in foreign countries, including difficulties in timely collection of accounts receivable or in building and expanding relationships with potential customers, subcontractors or parts suppliers. Matsushita may also experience various political, legal or other restrictions over investment, trade, manufacturing, labor or other aspects of operations, including restrictions on foreign investment or the repatriation of profits on invested capital, nationalization of local industry, changes in export or import restrictions or foreign exchange controls, and changes in the tax system or rate of taxation in countries where Matsushita operates businesses. With respect to the products exported overseas, tariffs, other barriers or shipping costs may make Matsushita’s products less competitive. Expanding its overseas business may require significant investments long before Matsushita realizes returns on such investments, and increased investments may result in expenses growing at a faster rate than revenues.

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Matsushita is subject to intense competition in areas in which it operates, and this may adversely affect its ability to maintain its gross margins

Matsushita produces a broad range of products and therefore faces many different types of competitors, from large international companies to relatively small, rapidly growing, and highly specialized organizations. Matsushita may choose not to fund or invest in one or more of its businesses to the same degree as its competitors in those businesses do, or it may not be able to do so in a timely manner or at all. These competitors may have greater financial, technological, and marketing resources available to them than Matsushita has in the respective businesses in which they compete.

Rapid declines in product prices may adversely affect Matsushita’s financial results

While some of the factors that drive competition vary by product area, price is a factor relevant in substantially all of Matsushita’s businesses. For the year ending March 31, 2004, Matsushita expects prices in many product areas in which it deals to decline continuously as, or more rapidly than, in recent fiscal years. Matsushita believes that this trend will affect its businesses, especially those in the area of its AVC Networks category, which represented 59% of its net sales for fiscal 2003, and its Components and Devices category, which represented 21% of its net sales during the same period.

Matsushita may not be able to keep pace with technological changes and develop new products and services in a timely manner to remain competitive

Matsushita may fail to introduce new products and services in response to technological changes in a timely manner. Some of Matsushita’s core businesses, such as consumer digital electronics and key components and devices, are concentrated in industries where technological innovation is the central competitive factor. Matsushita continuously faces the challenge of developing and introducing viable and innovative new products. Matsushita must predict with reasonable accuracy both future demand and new technologies that will be available to meet such demand. If Matsushita fails to do so, it will not be able to compete in new markets and this could adversely affect Matsushita’s financial results and growth prospects.

Matsushita may not be able to develop product formats which would prevail as de facto standards

Matsushita has been forming alliances and partnerships with other major manufacturers to strengthen the development of product formats, such as next-generation home and mobile networking products, data storage devices, and software systems. Despite these efforts by Matsushita, its competitors may be the ones who develop the de facto standards for future products. If that happens, Matsushita’s business in those business areas, and its financial conditions or results of operations, could be adversely affected.

The alliances with, and strategic investments in, third parties undertaken by Matsushita may not produce positive results

Matsushita develops its business through forming alliances or joint ventures with, and making strategic investments in, other companies, including investments in venture companies. Matsushita’s reliance on the strategy of partnering with third parties is increasing. Such partnerships are crucial to Matsushita’s goal of introducing new products and services, including those using digital network or display devices technologies. Matsushita does not, however, control these partners, who may make decisions regarding their business undertakings with Matsushita which may be contrary to Matsushita’s interests.

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Matsushita may be subject to product liability or warranty claims that could result in significant direct or indirect costs

There is a risk that defects may occur in Matsushita’s products and services. Many of Matsushita’s products and services are for so-called “mission-critical” uses—where the consequences of defects would be severe—exposing Matsushita in some cases to greater risks than those posed by ordinary retail products. The occurrence of defects could make Matsushita liable for damages caused by the defects, including consequential damages even if some damages are to be covered by insurance. Negative publicity concerning these problems could also make it harder for Matsushita to market its products and services. In some cases, Matsushita’s reputation and corporate and brand image may be adversely affected.

Currency exchange rate fluctuations could adversely affect Matsushita’s financial results

Matsushita is exposed to risks of foreign currency exchange rate fluctuations. Matsushita’s consolidated financial statements, which are presented in Japanese yen, are affected by foreign exchange rate changes. These changes affect Matsushita’s international business transactions and costs and prices of Matsushita’s products and services in overseas countries in relation to the yen. They can also affect the yen value of Matsushita’s investments in overseas assets and liabilities. Although Matsushita is taking measures to reduce or hedge against foreign currency exchange risks, foreign exchange rate fluctuations may hurt its businesses, financial conditions or results of operations. Most typically, if the yen strengthens, Matsushita’s domestically manufactured products become less attractive to foreign purchasers in terms of price.

Matsushita may not be able to successfully recruit and retain skilled employees, particularly scientific and technical personnel

Matsushita may fail to recruit skilled employees, particularly scientific and technical personnel, who are limited in number. Matsushita’s future success depends largely on its ability to attract and retain certain key personnel, including scientific, technical and management personnel. Matsushita anticipates that it will need to hire additional skilled personnel in all areas of its business. Industry demand for skilled employees, however, exceeds the number of personnel available, and the competition for attracting and retaining these employees, especially scientific and technical employees, is intense. Because of this intense competition for these skilled employees, Matsushita may be unable to retain its existing personnel or attract additional qualified employees in the future. If Matsushita is unable to retain skilled employees and attract additional qualified employees to keep up with its future business needs, this may adversely affect its business and results of operations.

Matsushita is dependent on the ability of third parties to deliver parts, components and services in adequate quality and quantity in a timely manner

Matsushita’s manufacturing operations depend on obtaining deliveries of raw materials, parts and components, equipment and other supplies in adequate quality and quantity in a timely manner. Since the products Matsushita purchases are often complex, it may be difficult for Matsushita to substitute one supplier for another or one component for another in a timely manner or at all. Some components are only available from a limited number of suppliers. Although Matsushita believes that it selects reliable suppliers, shortages could occur in critical materials due to interruption of supply or increased industry demand and may adversely affect Matsushita’s operations.

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Matsushita may fail to protect its proprietary intellectual property or face a claim of intellectual property infringement by a third party, and may lose its intellectual property rights on key technologies or be liable for significant damages

Matsushita’s success depends on its ability to obtain patents, licenses and other intellectual property rights covering its products and product design and manufacturing processes. The proceedings for obtaining intellectual property protection can be long and expensive. Patents may not be granted on currently pending or future applications or may not be of sufficient scope or strength to provide Matsushita with enough protection or commercial advantage. In addition, effective copyright and trade secret protection may be unavailable or limited in some countries, and Matsushita’s trade secrets may be vulnerable to disclosure or misappropriation by employees, contractors or others. Competitors or other third parties may also develop technologies that are protected by patents and other intellectual property rights, which make such technologies unavailable or available only on terms unfavorable to Matsushita. Litigation may also be necessary to enforce Matsushita’s intellectual property rights or to defend against intellectual property infringement claims brought against Matsushita by third parties.

Matsushita is exposed to the risk that its customers, including those to whom it has provided vendor financing, may encounter financial difficulties

Matsushita may incur losses if some of its customers encounter financial difficulties. Matsushita provides vendor financing to its customers. As more businesses utilize vendor financing, Matsushita may also provide increased vendor financing in the future. In addition, many of Matsushita’s customers purchase products and services from it on payment terms that do not provide for immediate payment. If customers to whom Matsushita has extended or guaranteed vendor financing, or from whom it has substantial accounts receivable, encounter financial difficulties and are unable to make payments on time, Matsushita’s business, financial condition and operating results could be adversely affected.

Governmental regulations may limit Matsushita’s activities or increase its operating costs

Matsushita is subject to governmental regulations in Japan and other countries in which it conducts its business, including environmental laws and regulations, governmental approvals required for conducting business and investments, laws and regulations governing the telecommunications businesses and electric product safety, national security-related laws and regulations and export/import laws and regulations, as well as commercial, financial, antitrust, patent, product liability, consumer and business taxation laws and regulations. But to the extent that Matsushita cannot comply with these laws and regulations, Matsushita’s activities would be limited. In addition, these laws and regulations could increase Matsushita’s operating costs.

Interest rate fluctuations may adversely affect Matsushita’s financial results

Matsushita is exposed to the risk of interest rate fluctuations, which, despite the measures taken by Matsushita to hedge a portion of its exposure to interest rate fluctuations, may affect its overall operational costs, interest income and the value of its financial assets and liabilities.

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The decrease in the value of Japanese stocks may adversely affect Matsushita’s financial results

Matsushita holds Japanese stocks as part of its investment securities. The value of most of these stocks, however, dropped substantially over the past several years due to the stagnant Japanese economy. For example, Matsushita recorded a loss of 53 billion yen in its results of operations for fiscal 2003 related to other than temporary declines in its investment securities. The decrease in the value of Japanese stocks may also reduce stockholders’ equity in the balance sheet, as unrealized holding gains (losses) of available-for-sale securities are included as part of accumulated other comprehensive income (loss).

External economic conditions may adversely affect Matsushita’s pension plans

Matsushita has contributory, funded benefit pension plans covering substantially all employees in Japan who meet eligibility requirements. Effective April 2002, the Company amended its benefit pension and lump-sum payment plans to new systems as a means to reduce the adverse influence of economic conditions. However, even after the introduction of these new systems, a decline in interest rates may cause a decrease in the discount rate on benefit obligations. A decrease in the value of stocks may also affect the return on plan assets. As a result, the unrecognized portion of actuarial loss may increase, leading to a future recognized actuarial loss on an increase in future net periodic benefit costs of these pension plans.

Some long-lived assets may not produce adequate returns

Matsushita has many long-lived assets, such as property, plant and equipment, and goodwill, to generate returns. The Company periodically reviews the recorded value of its long-lived assets to determine if the future cash flows to be derived from these properties will be sufficient to recover the remaining recorded asset values. If these long-lived assets do not generate sufficient cash flows, impairment losses will have to be recognized, adversely affecting Matsushita’s financial conditions and results of operations.

Financial results and condition of associated companies may adversely affect Matsushita’s financial conditions and results of operations

Matsushita holds equities of associated companies. The values of these equities are determined by these companies’ financial condition and result of operations. Although some companies generated profits, others recorded losses. Matsushita can exercise influence over operating and financing policies of these companies. However, Matsushita does not have the right to make decisions for them since the companies operate independently. If these associated companies do not generate profits, Matsushita’s financial results may be adversely affected.

Changes in accounting standards and tax systems may adversely affect Matsushita’s financial results and conditions

Introduction of new accounting standards or tax systems and changes thereof, which Matsushita can not predict, may have a material adverse effect on its financial results and operations. For example, due to a revised local enterprise income tax law in light of a new pro-forma standard taxation system promulgated on March 31, 2003, Matsushita revaluated deferred tax assets and increased provision for income taxes by 22 billion yen, which became a factor for Matsushita’s net loss in fiscal 2003.

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Matsushita’s facilities and information systems are subject to damage as a result of disasters or some unpredictable events

Matsushita’s headquarters and major facilities including manufacturing plants, sales offices and research and development centers are located in Japan. In addition, Matsushita’s operations, including procurement, manufacturing, logistics, sales and research and development facilities are located all over the world. If major disasters such as earthquakes, wars, fire and floods, computer viruses and terrorist attacks and other similar events occur, Matsushita’s facilities and information systems may be damaged and Matsushita may incur expenses relating to such damages. As a result, Matsushita’s operating activities and financial conditions may be adversely affected.

Item 4.     Information on the Company

A.    History and Development of the Company

GENERAL

The Company was incorporated in Japan on December 15, 1935 under the laws of Japan as Matsushita Denki Sangyo Kabushiki Kaisha (Address : 1006, Oaza Kadoma, Kadoma-shi, Osaka 571-8501, Japan. Phone : +81-6-6908-1121 / Agent : Mr. Yukitoshi Onda, President of Panasonic Finance (America), Inc.) as the successor to an unincorporated enterprise founded in 1918 by the late Konosuke Matsushita. Mr. Matsushita led the Company with his corporate philosophy of contributing to the peace, happiness and prosperity of mankindhumankind through the supply of quality consumer electrical and electronic goods. The Company’s business expanded rapidly with the recovery and growth of the Japanese economy after World War II, as it met rising demand for consumer electric and electronic products, starting with washing machines, black-and-white television sets (TVs) and refrigerators. During the 1950s, Matsushita continuedexpanded its operations by establishing mass production and mass sales structures to grow duringmeet increasing domestic demand, while also creating subsidiaries, making acquisitions and forming alliances. During the following decades1960s, Matsushita expanded its overseas businesses, and its products started getting worldwide recognition.

During the global recession caused by the first oil crisis in 1973, Matsushita strengthened its structure and overseas business relations. The advent and popularity of the video cassette recorder (VCR) from the late 1970s enabled Matsushita to receive worldwide recognition as a global consumer electronics manufacturer. In the 1980s, Matsushita further worked to evolve from a consumer products manufacturer to a comprehensive electronics products manufacturer, expanding its product range to include color TVs, hi-fi components, air conditioners, video tape recorders,business in the areas of information and communications technology, industrial equipment and informationcomponents. Since the 1990s, Matsushita has been emphasizing technological development and communicationsthe use of advanced technology in every phase of life. In particular, Matsushita has been expanding its development activities in such areas as next-generation audiovisual (AV) equipment, as well asmultimedia products, and advanced electronic components. Overseas salescomponents and production expansion were also significant factors for the growth in these decades.devices, many of which incorporate digital technology.

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Matsushita currently offers a comprehensive range of products, systems and components for consumer, business and industrial use based on sophisticated electronics and precision technology. Most of the Company’s products are marketed under “Panasonic,”the “Panasonic” brand name worldwide, along with other product- or region-specific brand names, including “National” primarily for home appliances sold in Japan and “Technics” brand names, with somefor certain hi-fi products. Some of its subsidiaries usingalso use their own brand names, such as “Quasar,” “Victor” and “JVC.”

In To sustain the 1990s,future growth in the forthcoming “ubiquitous” networking age, Matsushita placed increasing emphasis oncontinues to emphasize technological development and the usecreation of advanced electronics technology in every phase of life, thus steering the Company to achieve further growth in the next century. In particular, the Company has been expanding its development activities innew businesses, concentrating on several priority areas, such areas as next-generation audiovisual (AV)digital AV networking equipment, multimedia products,mobile communications, data storage devices, environmental systems and advanced electronicrelated key components and devices, many itemsdevices. The Company is also striving to develop new service-oriented businesses, such as systems solutions and engineering services, as areas of which incorporate digital technology. Its current priority product areas include digital television systems, semiconductors, mobile communications equipment, optical discs and display devices, all of which formpotential growth over the basis for growth in the evolving digital networking age.mid-term period.

In December 1990, the Company acquired MCA INC. (MCA), a leading U.S. entertainment company, for approximately U.S.$6.1 billion.

In May 1993, the Company and N.V. Philips’ Gloeilampenfabrieken, now Koninklijke Philips Electronics N.V. (Philips), terminated their joint venture company, Matsushita Electronics Corporation (MEC), and the Company acquired Philips’ 35% equity share in MEC for 185 billion yen, thus making MEC a wholly-owned subsidiary.

In June 1995, the CompanyMatsushita sold an 80% equity interest in MCA now named(subsequently renamed Universal Studios, Inc.), which the Company purchased in December 1990, to The Seagram Company Ltd. for approximately U.S.$5.7 billion, leaving the Company with a minority interest.

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In April 1997, the Matsushita parent company established a new organizational structure, setting up four internal divisional companies — companies—responsible for AVC (audiovisual and computer products), home appliances and household equipment, air conditioners, and electric motors — motors—by grouping a majority of its some 50 product divisions. This step was takendivisions, in order to facilitate strategic planning, effective decision making and more efficient allocation of resources across a broader range than that afforded by each single product division.

In March 1998, the Company announced a package of new management initiatives aimed at better sharing interests with shareholders. As part of this package, management implemented, with approval at the annual shareholders’ meeting in late June 1998, the repurchase of 50 million shares of the parent company’sCompany’s common stock, from the stock market for retirement, spending approximately 99 billion yen of retained earnings during fiscal 1999. At the same time, as an incentive to Board members and employees toward the enhancement of corporate value, the parent companyCompany introduced stock option plans for Board members and select senior executives, granting them rights to purchase 2,000 to 10,000 common shares each (similar option plans have been implemented in fiscal 2000 and 2001), and established a stock-price-linked remuneration plan, under which modest cash payments arewere offered to be offered once a yearemployees of manager-level or above in addition to ordinary salary and bonus payments to employees manager-level or above (effective through fiscal 2001).payments. The Company has been continuing share repurchases in subsequent years.

In October 1999, EPCOS AG, a German electronic components joint venture of the Company and Siemens AG of Germany, had its initial public offering, listing its shares on German and U.S. stock exchanges. Following EPCOS AG’s public offering, Matsushita’s 45% (held by a subsidiary) and Siemens AG’s 55% holdings in EPCOS AG were reduced to nearly 12.5%, respectively. Matsushita realized a 59 billion yen gain from the sale of its shares in EPCOS AG.AG in fiscal 2000.

On

In April 1, 2000, the Company made two of its majority-owned subsidiaries, Matsushita Refrigeration Company and Wakayama Precision Company, into wholly-owned subsidiaries, by means of share exchanges. As a result of the share exchanges, the CompanyMatsushita issued a total of 16,321,187 shares of its common stock to shareholders of the respective companies.

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- 5 -“VALUE CREATION 21” PLAN

In June 2000, Kunio Nakamura, new President of Matsushita, began to establish the Company’s new three-year business plan, called Value Creation 21, which was formally implemented in April 2001. The Value Creation 21 plan was designed to take full advantage of the opportunities arising in the evolving digital networking society. As the plan’s theme “Deconstruction and Creation” indicates, its objective is to transform Matsushita into a company that meets the needs of the 21st century through structural reforms and growth strategies with emphasis on enhancing growth potential, profitability and capital efficiency, thereby ensuring the Company’s continued contribution to society.

During fiscal 2002, the Company implemented a series of structural reforms under this Value Creation 21 plan, including the restructuring of its domestic consumer sales and distribution structure, management initiatives through the use of information technology (IT) such as supply chain management (SCM), the selective integration of businesses and manufacturing locations, manufacturing reforms such as the introduction of cell-style production, the reform of the Companywide research and development (R&D) structure to concentrate development resources into strategic product or core technology areas, and employment restructuring initiatives including the regional-based employee remuneration system and early retirement programs. Expenses related to the implementation of these restructuring initiatives, combined with adverse economic conditions, caused a sharp decline in the Company’s earnings results in fiscal 2002.

In April 2001, the Company absorbed Matsushita Electronics Corporation (MEC), its wholly-owned subsidiary, by merger to implement unified operational management in such key devices areas as semiconductors and display devices. By establishing new internal divisional companies directly under the control of the parent company, namely the Semiconductor, Display Devices and Lighting companies, the development, manufacturing and sales functions that were previously disbursed between Matsushita and MEC for each of these strategic businesses have been integrated.

In April 2002, Matsushita and Toshiba Corporation (Toshiba) separated their respective liquid crystal display (LCD) panel operations and established a joint venture company, Toshiba Matsushita Display Technology Co., Ltd., for the development, manufacture and sale of LCD panels and next-generation display devices. The joint venture aims at becoming one of the world’s leading LCD panel manufactures, combining Matsushita’s fast-response LCD image processing technology, Toshiba’s technology in low-temperature polysilicon LCD panel manufacturing and both companies’ expertise in consumer products, personal computers and communications devices. Of the new company’s initial stated capital of 10 billion yen, 60% was invested by Toshiba and 40% by Matsushita.

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As a drastic structural reform aimed at achieving new growth under the Value Creation 21 plan, Matsushita implemented share exchanges on October 1, 2002 with five of its majority-owned subsidiaries (Matsushita Communication Industrial Co., Ltd., Kyushu Matsushita Electric Co., Ltd., Matsushita Seiko Co., Ltd., Matsushita Kotobuki Electronics Industries, Ltd. and Matsushita Graphic Communication Systems, Inc.) and transformed them into wholly-owned subsidiaries of Matsushita. Following the completion of the share exchanges, Matsushita implemented a comprehensive Groupwide business and organizational restructuring on January 1, 2003 via company splits, business combinations and business transfers among several Group companies, including the parent company’s internal divisional companies, whereby businesses or products with similar functions were reorganized into 14 new business domains as strategic units. This major reorganization was implemented with a focus on the elimination of duplicated business lines and counterproductive competition amongst the Group companies, the unification and concentration of R&D resources, and the establishment of a totally integrated operational structure from development and manufacturing to sales in each domain for full customer satisfaction.

As an extension of this Groupwide reorganization, Matsushita transformed two of its majority-owned subsidiaries, namely Matsushita Electronic Components Co., Ltd. and Matsushita Battery Industrial Co., Ltd., into its wholly-owned subsidiaries via share exchanges, effective April 1, 2003.

Also on April 1, 2003, Matsushita launched another joint venture company with Toshiba, upon dividing their respective cathode ray tube (CRT) businesses with the exception of domestic CRT manufacturing operations. The new company, Matsushita Toshiba Picture Display Co., Ltd., now positioned as the third largest TV-use CRT operation in the world, will differentiate itself through cutting edge technology, by integrating Matsushita and Toshiba’s advanced CRT technologies. The new company also brings together both companies’ product development and manufacturing capabilities to maintain a competitive position in the global CRT market. Of the new joint venture company’s stated capital of 10 billion yen, 64.5% is invested by Matsushita and 35.5% by Toshiba.

Upon the aforementioned Groupwide restructurings, in April 2003, to prepare a framework that enables each business domain company to implement autonomously responsible management, Matsushita established a new global consolidated management system that focuses on cash flows. Under this new management system, each business domain company aims to maximize not only growth, but also capital efficiency and cash flows through efforts to achieve a leaner balance sheet, attaining speedy management with accelerated asset turnover on a consolidated basis.

Since fiscal 2003, Matsushita has been shifting its focus from restructuring to growth, implementing the following initiatives:

To bring about a swift recovery in business results, Matsushita launched 88 “V-products” in fiscal 2003 as a driving force that can capture the top share in high-volume markets and contribute to the Company’s overall performance. As a result of a Groupwide commitment to this initiative, sales of V-products reached approximately 1 trillion yen in fiscal 2003, allowing Matsushita to achieve increased market share in many product categories. For fiscal 2004, Matsushita has selected 90 new V-products that will surpass last year’s models in both quality and quantity.

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The Company is taking various initiatives to strengthen overseas operations as an engine for overall corporate growth. This initiative has already shown positive results in fiscal 2003, as overseas operations recorded increased sales, with earnings increases achieved in all regions. For the mid-term, Matsushita is aiming at double-digit sales growth overseas, and profits from overseas operations amounting to at least 60% of the Company’s total. Specifically, the Company plans to accelerate operational expansion in China, aiming for a 1 trillion yen business there on a Groupwide basis in fiscal 2006.

In April 2003, Matsushita announced that it would position the “Panasonic” brand as a globally unified brand for overseas markets under the slogan of “Panasonic ideas for life.” The brand slogan represents the commitment of all the employees, from R&D and manufacturing to marketing and services, in supplying products and services with value-added ideas, which help enrich people’s lives and advance society. In the context of this slogan, the Company devotes itself to increasing its global presence based upon enhanced brand value.

Through selection of key technology areas, Matsushita has been accelerating strategic concentration of technological management resources, including engineering and development staff. By doing so, Matsushita has been focusing on the development of “black-box” or proprietary technologies that will set the Company apart from the competition.

Matsushita will leverage the benefits from these initiatives to increase competitiveness and profitability.

LATEST DEVELOPMENT

In late June 2003, Matsushita introduced an Executive Officer system*, for execution of business at various domestic and overseas Group companies, enabling the Board of Directors to carry out corporate strategies that integrate the Group’s comprehensive strengths. This system was adopted in view of the diversified scope of Matsushita’s business operations and to enhance management efficiency and corporate governance. The Board of Directors is now able to concentrate on corporate strategies and supervision of business domain companies, while Executive Officers, who are most familiar with the specifics of respective operations, take responsibilities related to day-to-day business. Upon the introduction of this system, the Board of Directors itself has been reduced in number, with their terms of office shortened to one year. While also strengthening the Company’s existing Corporate Auditor system, and through the business domain-based management system, the Executive Officer system and outside directors, Matsushita intends to continuously enhance the Group’s management efficiency and corporate governance according to its basic management philosophy.

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CAPITAL INVESTMENT

Recognizing that building advanced technologies, equipment and processes is essential to the cost-efficient and speedy manufacture of sophisticated electronic products and devices, Matsushita has been attentive in planning plant and equipment investment to achieve higher competitiveness and investment efficiency. Besides investment in production automation and energy-saving facilities, increasing emphasis has been placed on the expansion of facilities in such business areas as key components and devices, digital AV equipment and mobile communications equipment in recent years.

Total capital investment (excluding intangibles) amounted to 519 billion yen, 320 billion yen and 251 billion yen for fiscal 2001, 2002 and 2003, respectively. The decrease for fiscal 2002 and 2003 mainly reflects a severe business environment, as well as an increased management emphasis on cash flows and capital efficiency, as seen in an increased adoption of cell-style production, which allowed the use of smaller scale facilities. Matsushita did, however, selectively invest in facilities for those product areas that are expected to drive future growth, including such key areas as system large-scale integrated (LSI) circuits, plasma display panels (PDPs) and other strategic products.

For the current fiscal year ending March 31, 2004 (fiscal 2004), Matsushita expects its capital investment to increase to approximately 270 billion yen. This investment will be funded primarily through internal sources.

B.     Business Overview

SALES CATEGORIESBY PRODUCT CATEGORY

Matsushita is engaged in the production and salessale of electronic and electric products in a broad array of business areas. The following table sets forth the Company’s sales breakdown by product categoriescategory for the last three fiscal years:

Consumer Products

Consumer

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AVC Networks

Matsushita’s principal products is Matsushita’s traditional business area andin the Company maintains a high competitive edge in Japan and overseas markets. Sales in thisAVC Networks category consisting ofinclude video and audio equipment and information and communications equipment. Products in this category have been undergoing rapid technological changes on digitization and networking. Especially, the evolution of digital networks, such as the convergence of broadcasting and communications as well as the proliferation of the Internet, is creating a new business environment leading to a so-called “ubiquitous” network society. As a leading manufacturer in many product lines in the AVC Networks category, Matsushita has been seeking new growth by enhancing networkable digital products and interlinking them to develop and promote convenient home, appliancesoffice and household equipment, totaled 3,012 billion yen and represented 41% of total Company sales in fiscal 2000. Details of major products are as follows:mobile networking environments.

Video and Audio Equipment

This category includes home-use videocassette

Principal products in this sector include TVs, VCRs, camcorders, DVD players and recorders, (VCRs), camcorders, TVs, audio equipment, and newly expanding digital versatile disc (DVD) players. An establishedpre-recorded audio and video software. Matsushita maintains a leading share in the domestic and overseas markets for a number of major products in this field. During the two-year period ended March 31, 2002, sales in this category did not show marked growth due mainly to slow consumer spending, especially in Japan, and intensified global leader in VCRs,price competition. In the year ended March 31, 2003 (fiscal 2003), however, Matsushita hasaggressively introduced a series of competitive V-products and expanded sales.

For TVs, Matsushita produces a broad range of home VCRs including the S-VHS series with 5-times recording mode and the D-VHS, digital VHS VCR. In camcorders, the Company produces the VHS-C, compatible with VHS video players, and digital camcorder models along with hard disk editors for video editing, and video printers.

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Matsushita’s broad range of TVs is designed to meet demand in all segments of the Japanesedemand in domestic and international markets. The Company is currently expanding its TVs and set-top boxes (STBs), by concentrating onmarkets, ranging from cathode ray tube (CRT) models, to new flat-screen TVs, with high picture quality, such as the progressive-scanning flat-surface T(tau)-series compatible with Broadcast Satellite (BS) digital TV broadcasting, set to begin in December 2000 in Japan. Overseas, the Company supplies TVs and STBs for U.S. digital terrestrial TV broadcasting and, in Europe supplies interactive STBs to British Interactive Broadcasting Ltd. (BiB). The Company is also jointly developing, with OpenTV Corporation, multimedia hardware and software compatible with European interactive digital TV standards. Matsushita also produces liquid crystal display (LCD) TVs and plasma display panel (PDP) TVs. For CRT TVs, to cope with intensifying borderless competition, the Company has shifted production of conventional models from Japan to Southeast Asian and other overseas factories during the past several years, with domestic production now concentrated on flat-surface high-definition models. Meanwhile, the Company has been strengthening its lineup of fast-growing flat-screen TVs. Following the introduction of a 15-inch wide-screen LCD TV in fiscal 2000, Matsushita expanded its lineup of LCD TVs in the following years, and further added a 32-inch model in fiscal 2003. Regarding larger inch size PDP TVs, volume production began in fiscal 2001 at a newly established manufacturing joint venture in Osaka with Toray Industries, Inc. Matsushita introduced three new 9.9cm-thick PDP TVs in 37-, 42- and 50-inch models in fiscal 2003, which were the world’s first to integrate digital tuners for broadcast satellite (BS), communication satellite and terrestrial broadcasting. As PDP TVs and LCD TVs have entered a rapid growth phase in Japan and overseas, sharp sales increases in these flat-screen TVs were recorded in fiscal 2003. Matsushita is also active in the growing market for digital TVs. In fiscal 2003, the Company introduced several digital TV models offering high contrast, super fine picture quality and a TV-guide feature in the flat-surface CRT type, and also expanded the lineups of digital TV compatible models in LCD and PDP types. Furthermore, to promote the advantage of digital TVs in the networking era, Matsushita has recently begun offering various digital TV-based e-Net services in cooperation with other companies, while by itself introducing related equipment, such as a new Internet-capable digital TV that can be easily operated by a remote control unit instead of keyboards.

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In the VCR and video camera area, Matsushita has been expanding its range of digital camcorders and digital still cameras, which incorporate the secure digital memory card (SD Memory Card) for data storage and enhanced networking convenience. Of these, new models of digital still cameras, which benefit from the world-renowned optical technology of Leica Camera AG, achieved a market success in fiscal 2003. A new compact, easy-to-use SD Multi AV Recorder, capable of recording and playback of digital video, still images, audio and other content on an SD Memory Card, was also introduced during the same fiscal year.

As for DVDs, Matsushita offers a wide range of DVD players and DVD recorders. In June 2000, Matsushita a pioneer inlaunched DVD recorders, and has since strengthened this industry, boasts a product line ranging from standard to high-end progressive-scanning models, and expanded its portable LCD-equipped models by introducing the industry’s most competitively-priced model in June 2001, followed by the industry’s first DVD recorder with a wide-screen LCD TV/DVD combination unit with enhanced picture quality.built-in hard disk drive (HDD) in December 2001. The Company will alsocontinued to launch a series of new competitive models in fiscal 2003. At the advantage of their unique “simultaneous recording and playback” function, and cost competitiveness, the Company recorded significant sales growth, capturing the largest market share, in DVD video recorders and DVD-Audio players this summer. Leading the DVD disc production industry, Matsushita continues to expand its facilities and has established joint ventures with Universal Music Group and Eastman Kodak Company.during these years.

In the area of audio equipment, Matsushita produces a large variety of products, such asincluding compact disc (CD) and Mini Disc (MD) players, radio receivers, CD radio cassette recorders tape recorders and portable headphoneMini Disc players, as well as radio receivers, tape recorders, portable headphone players, stereo hi-fi equipment and electronic musical instruments.

Matsushita expanded its range of new audio equipment in recent years, with the launch of DVD-Audio players, and a series of products using the SD Memory Card, such as an ultra-compact portable headphone player. The postage stamp-sized SD Memory Card is supported by more than 500 corporate members of the Secure Digital (SD) Memory Card, an ultracompact mobile data storage device, was developedAssociation worldwide, and more than 900 SD-compatible products are manufactured by these companies.

To solidify its digital AVC networks business in cooperation with Toshiba Corporation and SanDisk Corporation.the years to come, Matsushita is currently marketing the wristwatch-shaped SD audio headphone player as the first SD applicationstriving to create new added value, through “interlinkage” of various digital products, with a particular emphasis on forming a value chain around 3D (digital TV, DVD and plans to introduce an array of diverse products incorporating the SD Memory Card.Card).

This category

Information and Communications Equipment

Information equipment includes products such as personal computers (PCs), PC displays, CD-ROM, DVD-ROM, DVD-RAM and other optical disk drives, HDDs, copying machines and printers. Communications equipment includes products such as facsimile equipment, cordless telephones, cellular phones, other mobile communications equipment and digital private branch exchanges. Products in this sector also includes prerecordedinclude other systems equipment, such as car audio and navigation equipment, cable TV systems, broadcast- and business-use AV equipment and systems, large-screen visual equipment and communications network-related equipment. Of these, Matsushita is a worldwide leader in such business lines as optical disk drives, facsimile equipment, broadcast-use digital VCR equipment and airline in-flight AV systems. It also maintains a leading position in the Japanese cellular phone industry.

After the fast growth in the 1990s through fiscal 2001, this category’s business has shown a slowdown due mainly to setbacks in the global IT and related industries and intensified price competition. Matsushita is currently striving to achieve a renewed growth on such opportunities as expanding broadband communications and next-generation mobile communications.

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With respect to PCs, Matsushita continued to upgrade its notebook models over the last several years, centered on AV-oriented slim, light-weight notebook PCs and ruggedized notebook PCs built to resist shock. In fiscal 2001, adding to its slim notebook series, Matsushita introduced a notebook PC that links easily to digital AV equipment to better meet the needs of the digital networking age. In fiscal 2002, Matsushita introduced the world’s lightest (960 grams) B5-sized notebook PC in Japan, followed by even smaller and lighter models during fiscal 2003.

In the area of PC peripherals, Matsushita has been focusing on upgrading its disk drive lineups. In optical disk drives, to solidify its range of slim models for notebook PCs, the Company introduced several new multiple disk drive models that gained popularity, including the industry’s slimmest and fastest DVD-ROM and CD-R/RW combination drive in fiscal 2001. In fiscal 2002, DVD multi drives compatible with DVD-RAM, DVD-R and DVD-RW formats, were also introduced. As for HDDs, the Company has become more selective in its product lineup during these years, focusing upgraded models using the hydro dynamic bearing spindle motors while substantially reducing production of conventional 3.5-inch HDDs.

In the area of mobile communications equipment, Matsushita has developed and introduced a number of new cellular phone products with focus on downsizing, ease-of-use and Internet connectivity, as well as third generation (3G) formats, in recent years. The Company’s business in this area expanded rapidly from the 1990s through fiscal 2001 on its success in downsizing and its early introduction in Japan of NTT DoCoMo Inc.’s popular i-mode cellular handsets in fiscal 2000. Matsushita’s sales of cellular phones experienced a setback in fiscal 2002, as a result of sharp declines in demand for cellular phones, especially in Japan and Europe, with additional negative effects of glitches found in certain models of the Company. To counter this unfavorable business environment, Matsushita launched new Internet-compatible slim folding cellular phones for NTT DoCoMo, with high picture quality, in January 2001 and in June 2002. Furthermore, the Company introduced new models with built-in cameras in the second half of fiscal 2003 in response to sharply rising demand for camera-equipped cellular phones. These models were well accepted and reestablished Matsushita’s reputation in the Japanese cellular phone market. In addition, Matsushita has been expanding its business in overseas markets, especially Europe and China, centered on GSM standard cellular models and, most recently, those with color LCDs and built-in cameras. Regarding the 3G cellular phones, in fiscal 2001, Matsushita began shipments of base transceiver stations for wideband code division multiple access (W-CDMA) cellular phone services that NTT DoCoMo commenced in Japan during fiscal 2002, followed by shipments of W-CDMA handsets, which permit the transmission of moving images and large volumes of data. The Company launched in fiscal 2003 a new model of W-CDMA handset which offers a rotating LCD screen for camcorder-style recording of video and audio tapesstill images, and discs in such formats as VHS, DVD and CD.

which expands standby time approximately four times longer than that of previous models. Matsushita intends to solidify its competitive position as a leader in this market.

In the area of fixed-line communications, Matsushita over the years has developed businesses in such products as facsimile equipment, cordless telephones, copiers and printers, primarily as stand-alone products. Beginning with the introduction of a new multifunction model, that provides facsimile, copier, printer, scanner and telephone functions in a single unit, in fiscal 2001, however, the Company has been placing an increased focus on integration of communications and digital imaging technologies. This move was further strengthenaccelerated by the merger in early 2003 of two major subsidiaries operating in this area. Toward the future, Matsushita intends to develop such areas as IpV6 technology-based products, using the synergies of the merger and the advantage of possessing both imaging and communications technologies.

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In the area of car AV equipment, Matsushita has continued to develop advanced car navigation systems for the domestic market, while further promoting global expansion in car audio equipment. Building on its linesuccess of car navigation systems incorporating DVD, Matsushita continues to launch upgraded car navigation systems, with the introduction in fiscal 2002 of a model that can receive various mobile information services and a further advanced model with a built-in HDD capable of processing large volumes of data in an instant. In order to develop advanced technologies, the Company has been expanding joint efforts with automotive makers. As a result of such efforts, in fiscal 2003 the Company began supplying an in-car multimedia terminal to a leading automobile company in Japan. In the related area of electronic toll collection (ETC) services, which were officially inaugurated in March 2001 as an integral part of Japan’s intelligent transport systems project, the Company began supplying not only the infrastructure equipment but also new in-vehicle terminals for the ETC system. As the Japanese government has been emphasizing to popularize the system, the Company expects to expand sales of these in-vehicle terminals.

In the area of broadcast-use AV equipment and systems, where digitization is progressing, Matsushita launched in April 2000 a series of digital networkable consumer productsvideo electronic news gathering systems called DVCPRO HD, building on the success of its predecessor light, compact digital DVCPRO series. In fiscal 2001, the Company supplied major BS digital TV networks in Japan with conditional access systems and an electronic program guide, both key systems for BS digital broadcasting. In preparation for terrestrial digital broadcasting, which is scheduled to create home networks interconnecting themcommence in Japan in late 2003, a new compact, light DVCPRO series of video systems not only for BS digital broadcasting but also for terrestrial digital broadcasting was introduced in fiscal 2003. Matsushita is also solidifying its leading position in the global in-flight AV systems market by delivering AV systems with each otherLCD monitors and with external public informationpersonal multimedia systems that allow passengers to enjoy in-flight entertainment and communications networks. The role of Digital TVs and STBs together with DVD and SD products as home gateways and servers is expected to increase, forming a strong basis for future growth.shopping from their seats.

Home Appliances and Household Equipment

Matsushita’s vast array ofprincipal products in this category include home appliance products includesappliances, such as refrigerators, air conditioners, home laundry equipment (such as washing machines, and dryers),clothes dryers, vacuum cleaners, electric irons, dishwashers, microwave ovens, rice cookers and other cooking appliances, electric fans, air purifiers, electric and kerosene heaters and electrically-heated rugs. The line ofrugs; and household equipment, mainly comprisescomprising kitchen fixture systems, electric, gas and kerosene hot-water supply systems, and bath and sanitary equipment. This category also includes healthcare equipment, electric lamps, bicycles, and optical cameras and flash units, and fire extinguishers.units.

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Matsushita continues to lead the Japanese home appliance industry, launching new technologically innovative models. The latest examples include a series of new floor space-saving refrigerators that do not sacrifice inner capacity. Such models feature high energy-efficiency levels and are a perfect fit in Japanese kitchen fixture systems. The Company also strengthened its line of centrifugal force washing machines by adding a new series equipped with an automatic detergent feeding system.

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Other recent product innovations include the Company’s compact rechargeable-battery-powered cordless vacuum cleaner employing a centrifugal force dust collection system and a new space-saving compact dishwasher that fits even on a small Japanese kitchen countertop.

In the household equipment area, the Company is meeting market needs by providing user-friendly products. Successful examples include easy-to-operate pull-down cabinet shelves, pull-out dishwashers and flame-free induction heating cookers, as well as Matsushita’s energy-efficient air conditioners.

From April 2000, Matsushita is further concentrating on the development of the following solution-oriented areas: living environments, healthcare, energy and food-related equipment and systems businesses. The Company is intent on creating new business models, such as automated electric and gas consumption inspection systems and home healthcare services.

Industrial Products

Industrial products is comprised of information and communications equipment and industrial equipment. This has been the Company’s fastest growth category in the last decade, led by mobile communications equipment and personal computer (PC) related equipment. However, in the last two years growth has slowed due mainly to the significant worldwide price declines in PC peripherals. Sales in fiscal 2000 totaled 2,757 billion yen for this category, representing 38% of total Company sales. Details of major products are as follows:

Information and Communications Equipment

The line of information and communications equipment includes information equipment, such as PCs, word processors, printers, copying machines, PC displays, hard disk drives, CD-ROM, DVD-ROM and DVD-RAM drives; communications equipment, such as facsimile equipment, telephones, cellular telephones, other mobile communications equipment and digital private branch exchanges; and other systems equipment, such as CATV systems, broadcast- and business-use AV systems and equipment, large-screen visual equipment, communications network equipment, and traffic-related systems and equipment. Of these, Matsushita maintains a high competitive edge worldwide in particular lines of products, such as hard disk and optical disc drives, facsimile equipment, broadcast-use digital VCR equipment and airline in-flight AV systems, while also enjoying a leading position in the Japanese cellular phone industry.home appliance market. Matsushita’s vision is to become a global, eco-friendly, technology-oriented leader that will contribute to the enhancement of the quality of life through products and services in clothing, food, and living environment fields, resulting in customers’ peace of mind, security and brand loyalty. In recent years, Matsushita has been emphasizing products with high value-added innovative features that respond to the Japanese consumers’ growing interest in health and the environment. For instance, the Company launched an upgraded model of the centrifugal-force washing machine which is clothing-friendly, and Japan’s industry-leading refrigerator using hydrocarbon refrigerant, which eliminates the use of ozone layer depletive refrigerants, in fiscal 2002. A new series of hydroflorocarbon-free, large inner-capacity refrigerators, that features the highest energy efficiency level in Japan, was marketed in fiscal 2003. The Company introduced an eco-friendly energy-efficient water heating system that employs a natural refrigerant heat pump and boasts an ozone-depleting coefficient of zero, as well as a lower running cost, in April 2002. During fiscal 2003, Matsushita also introduced a fully automatic clothes washer/dryer, featuring a unique “foam washing” system, a combination steamer/microwave oven that preserves moisture in food without the use of plastic wrap, and a vacuum cleaner that is comparable to a mop in the cleaning of hard-surfaced flooring. Furthermore, Matsushita introduced an air conditioner that offers the same oxygen concentration indoors as that found in the natural environment, and an oxygen concentrator, both of which utilize the Company’s proprietary oxygen enrichment membrane process. All these products were favorably accepted by consumers.

In addition to developing and introducing high-value-added products designed to stimulate the PC and related equipment field,saturated appliance market in Japan, Matsushita continued to improvehas also been strengthening its notebook PCs introducing ultraslim mobile models and adding featuresbusiness base by taking the lead in the newer, growth product areas, such as wireless communication. Thedishwashers, 200V induction heating (IH) cooking equipment and compact garbage processing units. Among others, the Company strengthened its CD-ROM, DVD-ROM and DVD-RAM drives and hard disk drive lineup, developing upgraded models to meet the need for greater data storage capacity and faster processing speed.

In the mobile communications field, Matsushita continued to maintain its leading sharerecorded strong sales in the domestic cellular phone market with successof flameless IH cooking equipment during the last three fiscal years, due mainly to aforementioned consumer interest in new lines including its NTT DoCoMo i-mode handsets equipped with E-maileco-conscious, clean and Internet browsing capabilities. Currently, Matsushita and NTT DoCoMo, Inc.comfortable living environments.

Matsushita’s current efforts are developing a servicealso extended to the development of the home appliance business using digital networking technologies that will eventually allow userscreate safe, convenient and enriched living environments in the 21st century. In May 2001, Matsushita entered into a broad business alliance with Hitachi Ltd. in fields including home network appliances. The companies have been co-developing home network systems linking home appliances with public infrastructures, which is intended to download music tosave energy and improve living standards. Partly as a SD Memory Card using mobile communications devicesresult of these initiatives, in Japan. Expanding its scope of operations, the Company has also begun preparations in both handsets and base stations for W-CDMA, the next-generation mobile communicationsfiscal 2003, Matsushita developed a networked home appliance system that will commence inenables the spring of 2001 in Japan.

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In the broadcasting equipment field, Matsushita maintains a substantial share of the digital news gathering equipment market as it continuesuser to launch innovative video camera recording and editing systemscontrol home appliances, such as air conditioners, refrigerators, washing machines and microwave ovens, through wireless control from the DVCPRO HD (high-definition) series. home central terminal or from cellular phones. As another example in relation to networking systems, in fiscal 2002, Matsushita introduced a web-based tele-homecare system that allows patients to measure their vital signs and doctors to access remotely the patient’s information. The Ministry of Health, Labour and Welfare of Japan officially recognized the system to be introduced for medical use.

The Company is currently exploring futureworking on global expansion of its home appliance business expansionby strengthening overseas manufacturing bases, with the launch of Japan’s BS digital TV broadcasting in December 2000, developing various new digital broadcast equipment centered on the Company’s advanced conditional access systems and electronic programming guide technologies and establishing venturesan aim to establish a globally optimized operational structure for creation of new digital TV contents services with leading Japanese broadcasting companies. In business-use AV systems, the Company holds a large share of the in-flight AV systems global market and is continually increasing its surveillance cameras and Closed Circuit Video Equipment (CCVE) systems presence.greater overall growth.

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Industrial Equipment

Matsushita’s product range of industrial equipment encompasses factory automation (FA) equipment, welding machines, electric power distribution equipment, commercialventilating and air conditioning equipment, vending machines and medical equipment. This category also includes car AVIn addition to production and sales of hardware equipment, such as car audioMatsushita has been reinforcing its engineering services business, mainly for private enterprises and car navigation equipment.government agencies in Japan and overseas.

In the area of FA equipment, Matsushita is an industry leaderone of the world’s leaders in electronic-parts-mountingelectronic-parts mounting machines, and major producer ofalso produces industrial robots and electronic measuring instruments. TheWithin the mainstay electronic-parts mounting machines category, while developing and launching faster processing-speed machines, the Company reinforcedhas been building new core businesses by augmenting its lineuplineups of high-growth semiconductor mounters, smaller, lighter precision chip mounters and modular components mounters (modular mounters) in recent years. As part of this strategy, Matsushita launched modular mounters suited for flexible production such as cell-style production in fiscal 20002002, followed by concentrating on smaller, lighterthe introduction of the world’s fastest speed modular mounter in fiscal 2003. Furthermore, the Company also developed pharmaceutical support robots that feature unique image sensor and other high-precision technologies in fiscal 2003. In overseas markets, Matsushita has been expanding FA business in China which is becoming the world’s manufacturing base for many industries.

In the area of welding machines, andMatsushita introduced a new high-speed multifunctional chip mounter as well as an innovative laser processingfully digital carbon dioxide/metal active gas automatic welding machine, to satisfy demandthat allows for ultrafine, high-integration circuit boards. The Company also holdssuperior welds over a competitive positionvariety of materials, in DVD disc mastering and replication equipment, utilizing its advanced authoring and disc bonding technologies.

Car AV equipment such asfiscal 2002, followed by the car navigation system are taking on an increasingly expanding role.introduction of a fully digital welding robot in fiscal 2003. To meet increasingly sophisticated customer requirements, the Company is currently augmenting its efforts to become a total FA solutions provider in manufacturing process, offering designing, engineering and other services.

In the area of commercial-use ventilation and air-conditioning systems, Matsushita over the decades has been delivering in-tunnel dust collection and ventilation systems to Japan’s major expressways. Employing such expertise in the domestic market, needs, Matsushita continuesthe Company began construction on ventilation facilities for the Hai Van Tunnel in Vietnam in fiscal 2003. In the area of power distribution equipment, the Company commenced an energy management service in fiscal 2002 to introduce more advanced car navigation systems, such as DVD-equipped models that feature networking capabilities including E-mailenable remote management of power consumption and Internet browsing as well as interact with various newprovide potential energy-saving proposals for factories and business offices. Including these products and services, such as map and traffic information and Electronic Toll Collection systems. AllMatsushita’s focus in the above are an integral partIndustrial Equipment category is also directed to satisfying the growing needs of the development of the Intelligent Transport Systems (ITS) currently under way in Japan.environmental-conscious customers.

Components

Matsushita produces a wide range of electronicComponents and electric components and devices. Devices

Major products included in this category are semiconductors, general electronic components, display devices, electric motors, compressors and batteries, to support the Company’ssome of which are incorporated into Matsushita’s finished products and some of which are for sale to other manufacturers. Sales of components as a whole in fiscal 2000, excluding in-house consumption, totaled 1,530 billion yen, accounting for 21% of the Company’s overall sales.

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Recognizing that components and devices hold the key to innovation and advancement, as well as the competitiveness of finished products and systems in the digital networking age, Matsushita places significant priority on the development of electronic components’ technologycompetitive components and devices. Specifically, to secure growth and profitability in this business with special emphasiscategory, Matsushita concentrates on the business expansion centered on the strategic products that incorporate Matsushita’s own “black-box” or proprietary technologies and have the potential to achieve top global positions in their respective markets.

Matsushita’s semiconductors and display devices.

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The Company’s range of semiconductors isare primarily made up of integrated circuits (ICs), such as MOS LSIsmetal oxide semiconductor large-scale integration (LSI) circuits and bipolar ICs, discrete devices and CCDs. The Companycharge coupled devices (CCDs). Matsushita has been focusing on system LSIs, particularly those for use in four growth areas: optical disk-related products, digital TVs, mobile communications, and networks and SD Memory Cards. These operations support innovative and competitive products at the Company’s finished products divisions, and the success of these finished products support sales of system LSIs for external customers. In particular, Matsushita has been strengthening development of single-chip multifunctional LSIs, called System LSIs,system LSI circuits, which form the basis of digital-network relateddigital network-related equipment. Successful results in recent years included Media Core Processors, MPEG-2 encoder chips, 32-bit microcontrollers with embedded DRAMs, single-chip decoder LSIs for digital TV receivers, and system LSI chip sets for DVD-ROM drives.DVD players and recorders, MPEG-2 encoder chips and 32-bit microcontrollers with embedded dynamic RAM. Meanwhile, the Company commenced production of highly-integrated 0.13-micron system LSIs in April 2002. In fiscal 2003, Matsushita is at the forefront in optical pickup semiconductors for DVDs, CCDs for video camcorders, and gallium-arsenide power modulesdeveloped a power-efficient multi-codec system LSI, enabling extended continuous operating time for cellular phones. The Company is currently workingphones that provide video phone and other video content capabilities, and also developed a new system LSI for digital high-definition television (HDTV) broadcast receivers that accomplishes all back-end processing functions on a single chip. Other products of emphasis are image sensors, such as CCDs. Matsushita, as a major manufacturer, has been offering CCDs with higher image resolution, contributing to develop 0.13 micron process technology in an alliance with Mitsubishi Electric Corporation for future system LSIs for use inhigher performance and downsizing of such products as camcorders, digital networkable products.still cameras and camera-equipped cellular phones.

The Company maintains a broad spectrum of

Matsushita manufactures general components, encompassing electronic circuit components, printed circuit boards, transformers, power supply components, coils, capacitors, resistors, tuners, speakers, ceramic components, and various sensors. In fiscal 2000, the Company continued to introduceMatsushita has recently been focusing on smaller, more advanced components for equipment downsizing and performance improvementimprovement. As part of this effort, Matsushita has expanded its production of compact multi-layer printed circuit boards of its own design, as well as high frequency components for use in compact mobile communications equipment. In fiscal 2002, Matsushita augmented its range of specialty polymer aluminum electrolytic capacitors, while also developing a surface-mountedcutting-edge ultracompact, high-capacitance products in the field of multiplayer ceramic chip capacitors and film capacitors. Furthermore, in fiscal 2003, Matsushita developed three-dimensional integrated circuit module for Bluetooth, a short-range wireless networking protocol, formodules that are expected to downsize and enhance functionalities of mobile electronic devices and networked appliances. As another effort to achieve growth and enhanced profitability in the general components business, the Company has been concentrating resources into highly or potentially competitive products, mainly in such growth areas as mobile communications, digital home networking.AV and automotive electronics equipment.

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In the area of display devices, Matsushita expanded its flat-surface CRT product range to include a model with a brightness level 20% higher than conventional models. Strategically, Matsushita is concentratinghas been strengthening production of flat-surface CRTs for TVs. In fiscal 2001, Matsushita developed the then world’s thinnest 32- and 36-inch flat-surface CRTs for BS digital HDTVs. In order to make the CRT business more competitive, Matsushita and Toshiba Corporation integrated their global CRT operations, and launched a new company, Matsushita Toshiba Picture Display Co., Ltd. in Japan, while shifting productionApril 2003, combining the TV-use CRT product development capabilities and manufacturing technologies of traditional CRTs overseas. The Company also focused efforts on developing high-picture qualitythe two companies. Regarding LCD devices, Matsushita’s focus has been directed to high-picture-quality LCD devices with faster picture response and wider viewing angles. In this area as well, in order to strengthen competitiveness, Matsushita and Toshiba combined their respective LCD operations and jointly established Toshiba Matsushita Display Technology Co., Ltd. in April 2002, one year earlier than the inauguration of the above-mentioned CRT joint venture. The Companynew company has added new cutting-edge products, including low-temperature polysilicon LCD panels, to the existing product lineups succeeded to from Toshiba and Matsushita for PCs, cellular phones and TVs. Regarding PDPs, the market for which is further boostingexpected to grow significantly in the mid-term, Matsushita boosted its plasma display panel (PDP)product lineup with the developmentmarketing of 50-competitively-priced 37-, 42- and 60-inch units50-inch units. Matsushita has been strengthening its manufacturing structure through a number of initiatives, including the commencement of panels production at its PDP assembly plant in China in December 2002, followed by the construction of a new plant to add toincrease production capacity at its current 37- and 42-inch models.main manufacturing site in Japan.

In the area of electric motors, Matsushita augmentedin recent years has strengthened its FA equipment motor lineup, with the MINAS-A, a series offocusing on smaller, high-speed servomotors with greater energy efficiency compared tothan conventional models. AV and information and communications equipment motors lineups were also augmented with compact spindleRegarding motors for use in PC peripherals and DVD players andinformation equipment, the Company also enhanced the lineup of vibration motors for cellular phones. Furthermorephones and polygon mirror scanner motors for laser beam printers during fiscal 2002. Since fiscal 2003, the Company has been stepping up its selective approach in compressors, Matsushita is a world leader offering those primarily for air conditioners and refrigerators.this business area through concentration of resources into growth areas, such as HDD spindle motors using the hydro dynamic bearing technology.

Matsushita is one of the world’s largest battery manufacturers, producing a comprehensive range of batteries ranging from manganese, alkaline, nickel manganese, lithium silver oxide and zinc air cells, to rechargeable batteries, such as lithium-ion, nickel metal-hydride, nickel-cadmium and sealedvalue regulated lead-acid batteries and storage batteries for automotive use, as well as various battery powered appliances. Among these, Matsushita has increased production of compact, high-performance batteries, such as the Company’s long lifelong-life alkaline batteries and lithium-ion rechargeable batteries, has been expanding in recent years, as theythese batteries are increasingly used in compact electronic equipment. In addition, the Company introduced such new long-life compact batteries as nickel manganese batteries in fiscal 2003. To strengthen its competitive position in compact rechargeable batteries, the Company further expanded its lithium-ion battery plant in Osaka in fiscal 2003 to prepare for continued demand increases in the future. Matsushita is also at the forefront of nickel metal-hydride batteries for electric and hybrid electric vehicles. In fiscal 2000,vehicles, production of which has been expanding, as they are increasingly installed in the new cars of the leading Japanese auto manufacturers. Regarding fuel cells primarily for home co-generation systems, Matsushita launched the world’s thinnest (0.4 mm) manganese dioxide-lithium battery, knownhas been making steady progress in R&D through rigorous testing to develop this as the Paper Coin for use in IC cards for E-commerce.a new business.

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- 10 -MARKETING CHANNELS

SALES AND DISTRIBUTION

Set forthThe table below isshows a breakdown of Matsushita’s net sales breakdown by geographical markets:

Sales and Distribution in Japan

Domestic

In Japan, Matsushita’s products are sold through several sales are handled primarily by 12 sales divisions organizedchannels, each established according to the type of customer, i.e., consumers,products or customers: Sales of consumer and household products are handled or coordinated by relevant corporate government, manufacturing industry,sales divisions, such as the Corporate Marketing Division for Panasonic Brand and the Corporate Marketing Division for National Brand, while sales of general electronic components and certain other respective industries,devices to manufacturers are handled by the Corporate Industrial Marketing & Sales Division, in order to stay close to respective customers and meet thetheir specific and ever-diversifying needsneeds. For other products, there are also organizations under the direct control of consumersbusiness domain companies that conduct sales and various industries.marketing of their own products, mostly to non-consumer customers, such as industrial and business corporations, public institutions, construction companies and governments through their sales offices and subsidiaries or through outside agencies.

For

Of the above, the Corporate Marketing Division for Panasonic Brand and the Corporate Marketing Division for National Brand were established in April 2001 as part of Matsushita’s domestic consumer market,sales and distribution structure reorganizations, whereby the former corporate consumer products sales divisions, sales functions within individual product divisions and the Advertising Division were integrated into the two new corporate marketing divisions to provide greater customer satisfaction by shortening the distance between factories and consumers.

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Also, as part of such reorganizations, in October 2001, Matsushita maintains the industry’s most extensiveconsolidated its 22 regional consumer sales networks, supplying a large number ofcompanies throughout Japan, which handle distribution through local consumer electronics and appliance retailers, throughout Japan, and has also expanded to mass scale retailers.into a single company. Meanwhile, Matsushita’s sales structure for volume retailers through another single sales subsidiary is being strengthened by expanding supply chain management (SCM). In addition, also in October 2001, Matsushita’s credit sales subsidiary and leasing subsidiary were merged into one company, Matsushita Leasing & Credit Co., Ltd. By implementing these reforms and revitalizing its domestic consumer sales and distribution operations, Matsushita aimed at creation of an efficient structure that ensures speedy responses to customer needs and realizes a significant reduction in distribution costs and an increased market share.

Overseas Activities

Worldwide, Matsushita has 384 consolidated companies as well as 48 companies which are reflected by the Company is currently attempting on a limited scale an Internet based sales system, in which the Company will cooperate with retailers who handle product delivery, installations and after-sale services.

Sales to corporate and government customers are centered on information and communications equipment,equity method. International marketing and sales to the manufacturing industry are focused on industrial equipment and components.

With the exception of light bulbs and other inexpensive products, substantially all of Matsushita’s consumer products carry warranties which vary in duration from one to five years, in line with the normal practice of the industry. Service is provided by Matsushita and by approved service companies which obtain replacement parts from Matsushita and other suppliers.

Overseas Activities

Matsushita operates 222 companies in 44 countries outside of Japan, including five regional headquarters, 43 manufacturing/sales companies, 98 manufacturing companies, 46 sales companies, 12 research organizations and five finance subsidiaries. International marketing of Matsushita’s products is conductedare handled mainly through the Company’sits sales subsidiaries and affiliates located in respective countries or regions in coordination with business domain companies and alsoregional headquarter companies. In some countries, however, marketing and sales are handled through independent distributors. In addition,agents or distributors, depending on regional characteristics. Additionally, certain products are also sold in foreign markets on an OEM basis and marketed under the brand names of third parties. The Company has been gradually strengthening overseas sales channels for industrial products and components, aside from existing consumer products sales networks in many countries and regions. The Company also implemented supply chain management (SCM), working with several overseas mass-scale retailers to raise global operational efficiency.

Overseas sales including products manufactured outside Japan and those exported from Japan represented approximately 49%53% of the Company’s total consolidated sales in fiscal 2000.2003.

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In order to promote global business development and to counter currency fluctuations, Matsushita has expanded and continues to expandbeen expanding its overseas production covering not only major consumer products, but also industrial productsmanufacturing operations. The Company’s overseas manufacturing is conducted by overseas manufacturing subsidiaries and components.affiliates under the control of business domain companies in coordination with regional headquarter companies. In recent years, the Company placed an emphasis on building and expanding manufacturing facilities in newly developing areas,fast growing markets, such as China India and Eastern Europe, in addition to Southeast Asia. Specifically, Matsushita has focused on China as a large potential market and a production site to supply global markets. As such, the Company has been enhancing production capacity at its Chinese facilities for such borderless products as DVD players, microwave ovens, compressors and components, as well as Southeast Asia and Mexico.such new growth products as PDPs. Furthermore in April 2002, the Company entered into a basic agreement with TCL Holdings Co., Ltd., a Chinese electronics leader, to develop a collaborative relationship in this growth market.

Matsushita’s current

Matsushita also places an emphasis is placed on advancingpromoting localization of research and development of products and technologies to enhance competitiveness of individual overseas manufacturing sites, as well as thatsites. Such endeavors included establishment of the entire Group regionally. The Company is also reviewing the functions of itsa second R&D productionbase in China in fiscal 2003 to speed up local-based product development and sales bases worldwide by respective product categories to achievebuild an optimum efficiency of Matsushita’s global operations.R&D network.

Customers

The largest markets for Matsushita’s productsMatsushita have traditionally been consumers and households.consumer products. However, since the 1980s, the proportion of sales to non-consumer customers, such as governments, commercialindustrial and industrialbusiness corporations, governments and other institutions, including large customers such as electric and electronic equipment manufacturers, automotive manufacturers and various other machinery makers, has been rising as Matsushita places increasing emphasis on industrial and commercial products and systems and electronic components. In the year ended March 31, 2000, sales of industrial products and components accounted for approximately 59% of Matsushita’s total sales, rising from 48% of the total (52% of total excluding MCA) in fiscal 1995. Matsushita’s business is not materially dependent uponon any single customer.

RESEARCH

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SEASONALITY OF BUSINESS

The Company’s business has no significant seasonality in terms of sales or profits. However, for the consumer electronics business, the fiscal third quarter (October to December) is normally a peak because it falls in the year-end shopping season in Japan and many overseas markets. Additionally, seasonal appliances, such as air conditioners and refrigerators, have a different business plan cycle, in line with the normal practice of the relevant Japanese industry, which starts from October and ends in September. These do not have a material effect upon the Company’s overall operations.

RAW MATERIALS AND DEVELOPMENTSOURCE OF SUPPLY

Matsushita considers researchpurchases a wide variety of parts and developmentmaterials from various suppliers in Japan and abroad. The Company applies a multi-sourcing policy—not depending upon any one particular source of supply for any essential item. The Company has also been endeavoring to bepromote a key factor in its success and essential topolicy of global optimum purchasing by selecting the achievement of its corporate theme: to provide utmost satisfaction to customers throughoutmost qualified suppliers from all over the world through distinguished products and servicesbuying the most competitive parts and materials. In addition, an increased emphasis has been placed on the purchase of more environmentally-friendly and non-hazardous materials.

In an attempt to improve operational efficiency and to contribute toreduce parts and materials costs, Matsushita is further centralizing purchasing at its headquarters and at the progress and happiness of mankind. Under this theme, the Company has been committed to “R&D that creates next generation businesses,business domain companies levels, while at the same time supporting today’sreducing the number of suppliers by standardizing parts and tomorrow’s products and businesses.” As part of this task, focus is directed towards the five priority areas: digital TV systems, semiconductors, mobile communications equipment, optical discs and display devices.

Building on combined strengthmaterials for common use in these areas, Matsushita emphasizes the development of networkable consumer products that can be linked inside the home and with external public networks. Matsushita will also target a variety of mid-term growth areas, including broadband communications, Intelligent Transport Systems (ITS), education, healthcare, energy-related fields, Internet-related business and software. To make networkable consumer products and the Company’s mid-term growth areas a reality, Matsushita will aggressively pursue its research and developmentmany product divisions throughout Matsushita. Such efforts are coordinated by closely coordinating programs and efforts at the corporate R&D centers and at each divisional research center.

Principal corporate R&D centers include; the Advanced Technology Research Laboratories, which engages primarily in basic research aimed at developing advanced technologies to create new businesses looking toward the year 2010, the Multimedia Development Center, the Digital Network Development Center, the Optical Disk Systems Development Center, the Display Device Development Center, the Human Environment Development Center and the Corporate Semiconductor Development Division. The Corporate Production Engineering Division, which engagesCentralized Purchasing Center established in development of new manufacturing technology, supports production activities at Matsushita’s domestic and overseas operating facilities.April 2003.

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The Overseas R&D Promotion Center supports and augments the Company’s global R&D activities, such as development of a common global platform for digital TV systems, strengthening the collaboration between corporate laboratories in Japan and overseas R&D centers such as those based in North America and Europe.

At the divisional level, internal divisional companies and principal subsidiaries maintain their own research facilities and/or departments, engaged in specific R&D projects or engineering and design improvement in close cooperation with the above corporate R&D centers, as mentioned above.

Total expenditures for research and development amounted to 481 billion yen, 500 billion yen and 526 billion yen for the three fiscal years ended March 31, 1998, 1999 and 2000, respectively, representing 6.1%, 6.5% and 7.2% of Matsushita’s total net sales for each of those periods.

The most significant recent results from Matsushita’s R&D efforts include; DVD products including DVD-Audio and video recorders, portable players, ROM and RAM drives with large data storage or recording capacity and high speed performance; a single-chip digital TV System LSI, which processes a large array of digital signals received in radio waves and is compatible with most of the world’s digital TV services; System LSI chip sets incorporated in DVD-ROM and RAM drives; an ultracompact mobile storage device called the Secure Digital (SD) Memory Card, jointly developed with SanDisk Corporation and Toshiba Corporation, for various use including electronic music distribution and AV data storage; Internet-compatible cellular phones and PHS-linked terminals, equipped with E-mail and Internet browsing capabilities; a compact home co-generation system using fuel cells; large printed circuit boards using environment-friendly lead-free solders, used in the Company’s VCRs.

CAPITAL EXPENDITURES

Recognizing that building advanced technologies, equipment and processes is essential to the cost-efficient manufacturing of sophisticated electronic products and devices, the Company has been attentive in planning plant and equipment investment to achieve higher competitiveness and investment efficiency. Besides constant investment in production automation and energy-saving facilities, increasing emphasis has been placed on expansion of such business areas ranging from digital AV equipment and mobile communications equipment to components and devices.

Total capital expenditures were 474 billion yen, 352 billion yen and 338 billion yen for fiscal 1998, fiscal 1999 and fiscal 2000, respectively.

Capital expenditures have declined over the past three years as the Company concentrates and focuses its resources on such strategically important areas as key components and devices including semiconductors and LCD devices, while implementing selective investment in other operating areas.

COMPETITION

The markets in which the Company sells its products are highly competitive in Japan, as well as abroad. Matsushita’s principal competitors, across the full range of its products, consist of several large Japanese manufacturers and a large number of smaller and more specialized companies. In particular categories of products it encounters additional competition from companies in the United States, Europe and Asia. The Company expects that competition will continue to be intense both in Japan and abroad.

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In addition, the recent advancement towards a borderless economy, has applied pressure to Japanese manufacturers, including Matsushita, in terms of price competition globally. To minimize the effects of these negative factors, the Company is devising various cost-reduction and efficiency measures to enhance competitiveness from a global perspective, such as increasing overseas production and shortening production and logistics lead time through the introduction of SCM, and also developing joint ventures and other cooperative agreements with overseas partners.

TRADEMARKS

Most of Matsushita’s products are distributed throughout the world under the “Panasonic” and “National” trademarks. Matsushita also sells a number of hi-fi products under the “Technics” trademark. Some of the subsidiaries’ products are sold under other trademarks, including “Quasar,” “Victor” and “JVC.”

PATENT LICENSE AGREEMENTS

Matsushita holds numerous Japanese and foreign patents and utility model registrations for its products, and engages in mutual exchange ofshares technologies with a number of Japanese and foreign manufacturers. Its technical assistance, or licensing, to other manufacturers ishas been increasing year by year. For example, patents which are essential to MPEG2 technology are licensed through MPEC LA LLC. Patents which are essential to DVD technology are licensed as a part of the joint licensing program consisting of seven Japanese and U.S. companies. Furthermore, Matsushita’s patents relating to CD technology are licensed to many manufacturers.

Matsushita is a licensee under various license agreements which cover a wide range of products, including audiovisualAV products, computers, communications equipment, semiconductors and other components. Matsushita has non-exclusive patent license agreements, with among others, with Thomson Multimedia Licensing Inc. and Thomson Licensing S.A. covering a broad range of its products, including TVs, VCRs, CD players and CD-ROM drives. Matsushita has non-exclusive patent cross-license agreements, with among others, with Texas Instruments Incorporated and International Business Machines Corporation, both covering semiconductors, information equipment and certain other related products. Certain internal divisional companies as successors to Matsushita Electronics Corporation, (MEC), a consolidatedformer subsidiary ofnow merged into the Company, hashave non-exclusive patent license agreements with Koninklijke Philips Electronics N.V. covering most of the items manufactured by MEC,such divisional companies, including semiconductor devices, various lamps, cathode-ray and electron tubes and certain other products.

Most of Matsushita’s license and technical assistance agreements are for three- to ten-year periods, unless the agreements cover specific patents to be licensed therein, in which case they are normally for the life of the patent.

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The Company considers all of its technical exchange and license agreements beneficial to its operations.

RAW MATERIALS AND SOURCES OF SUPPLY

COMPETITION

The markets in which the Company sells its products are highly competitive. Matsushita’s principal competitors, across the full range of its products, consist of several large Japanese and overseas manufacturers and a number of smaller and more specialized companies. Advancements toward a borderless economy have also applied pressure to Japanese manufacturers, including Matsushita, purchasesin terms of global price competition, especially from Chinese and Korean manufactures. To counter this, the Company is devising various measures to enhance its competitiveness, with a wide varietyfocus on the development of partsdifferentiated products and cost reduction and efficiency improvements. Such measures include the development of products with Matsushita’s “black-box” or proprietary technologies, innovation of manufacturing processes through the use of information technology, increasing overseas production for optimum manufacturing allocation from a global perspective, and shortening production and distribution lead time through the expansion of SCM in cooperation with several overseas and domestic mass-scale retailers and the introduction of cell-style production, as well as developing joint ventures and other cooperative agreements with domestic and overseas partners.

Also, with the development of digital and networking technologies, competition in terms of the so-called “de facto” standard has become crucial. In response, Matsushita has been strengthening its efforts toward alliances with leaders not only in the electronics industry but also the software, devices, broadcasting, communications services and other diverse industries.

GOVERNMENT REGULATIONS

Since before the enactment of the Japanese Law for Recycling of Specified Kinds of Consumer Electric Goods (the Recycling Law) effective April 1, 2001, Matsushita has been a forerunner in the industry to set up an effective system that can fully utilize its existing infrastructure of recycling and transportation companies throughout Japan for collection and recycling activities. The Company also established the Matsushita Eco Technology Center Co., Ltd. not only for dismantling used products and recycling scrapped materials, from various suppliersbut also for research and development of recycling technology. Likewise, Matsushita, as the leader in the domestic home electric and electronic equipment industry, has been consistently working on environmental protection initiatives that appropriately meet or exceed the standards set forth in the Recycling Law or other relevant laws or regulations, including those regarding water and land-soil anti-pollution.

In January 2003, the Company announced that disposed electric equipment that contained polychlorinated byphenyls (PCB) might be buried in the ground of its four manufacturing facilities and one former manufacturing facility. The applicable law requires that equipment with PCB be appropriately maintained and disposed of by July 2016. The Company estimated the total cost of about 4 billion yen for necessary actions, such as investigating whether the equipment with PCB is buried at the facilities or the ex-facility, including excavations and purifications, which amount has been accrued since it represents management’s best estimate of the cost, but the payments are not considered to be fixed and reliably determinable. This amount does not include any costs that may be incurred to maintain and dispose of the equipment with PCB, if such equipment is discovered. These costs are currently not estimable, as the volume or amount of such equipment buried is unknown, and due to the lack of established technology applicable to disposal of such equipment.

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The Company is subject to a number of other government regulations in Japan and abroad.overseas, but overall, it presently manages to operate its business without any significant difficulty or financial burden in coping with them.

C.    Organizational Structure

In order to maintain production, sales and service activities effectively in broad business areas as a comprehensive electronics manufacturer, Matsushita has been operating under a decentralized divisional management structure with substantial delegation of authority to divisional companies and subsidiaries, with the headquarters focusing on Groupwide strategic functions. In January 2003, Matsushita launched a new organizational structure to eliminate duplication of businesses among the Group companies and clarify business domains as strategic business units. Under this new structure, each business domain company, either an internal divisional company of the parent company or a subsidiary, will integrate R&D, manufacturing and sales in its domain, thereby establishing an autonomous management structure that expedites self-completive business operations to accelerate growth.

Principal divisional companies and subsidiaries as of March 31, 2003 are as listed below:

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(3) Principal overseas subsidiaries:

D.    Property, Plants and Equipment

The Company’s principal executive offices and key research laboratories are located in Kadoma, Osaka, Japan.

Matsushita’s manufacturing plants are located principally in Japan, other countries in Asia, North and South America and Europe. The Company applies a multi-sourcing policy — being not dependent upon any one sourceconsiders all of supplyits factories well maintained and suitable for any essential item. current production requirements.

The Company has also been endeavoringfollowing table sets forth information as of March 31, 2003 with respect to promote a policymanufacturing facilities:

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Substantially all of global optimum purchasingthe above facilities and properties are fully owned by selecting the best qualified suppliers fromCompany.

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In addition to its manufacturing facilities, Matsushita’s properties all over the world include sales offices located in various cities with an aggregate floor space of approximately 8.0 million square feet, research and buying the most competitive partsdevelopment facilities with an aggregate floor space of approximately 6.2 million square feet, employee housing and materials. Furthermore, to improve its operational efficiency, the Company is currently establishingwelfare facilities with an Internet-based partsaggregate floor space of approximately 10.8 million square feet, and materials procurement system on a nation-wide scale. Since suppliers are selected on the basisadministrative offices with an aggregate floor space of a fair and comprehensive evaluation, the Company enjoys good business relationships with them and the sourcing is properly assured.approximately 19.9 million square feet.

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ENVIRONMENTAL PROTECTION

The Company actively promotes diverse environmental initiatives and harmonious coexistence with the global environment in every aspect of its business practices. Since establishing the Matsushita Environmental Charter in 1991, the Company has emphasized the development of eco-friendly products, such as audio equipment and VCRs with industry-first lead-free solders, reduced the environmental impact from its manufacturing activities, and is establishing recycling systems.

As part of Matsushita’s strong commitment to environmental protection, the Company attained ISO14001 certification at more than 200 production sites globally. Accordingly, Matsushita not only observes relevant environmental laws and regulations throughout the world, but also established its own stricter guidelines for the reduction and proper management of chemical substances. Additionally, in fiscal 2000 the Company commenced a Green Procurement Campaign, in which Matsushita gives priority to eco-friendly suppliers and materials.

In fiscal 1999, the Company spent approximately 2 billion yen in appropriate remedial actions for sites with any signs of contamination, including removal and purification of water and soil. Currently, the Company is not aware of any operational sites with serious environmental problems that may have a material adverse effect on its results of operations or financial position.

The Company is taking steps for compliance with proposed Japanese used electric appliance recycling legislation, set to begin in the spring of 2001. However, it is difficult to estimate related expenditures, due to uncertainties involved including the future status of the proposed legislation. Matsushita believes that capital expenditures and expenses incurred in complying with the new legislation will not have a material adverse effect upon its results of operations or financial position. Nevertheless, the Company is aware that costs associated with more stringent future environmental regulations will increase and is therefore placing a high priority on effective environmental cost management to achieve sustainable growth.

EMPLOYEE RELATIONS

As of March 31, 2000,2003, Matsushita leased approximately 17.5 million square feet of floor space, most of which was for sales office space.

Substantially all of Matsushita’s properties are free of material encumbrances and Matsushita believes such properties are in adequate condition for their purposes and suitably utilized. During fiscal 2003, there was no material problem, regarding both the productive capacity and the extent of utilization of the Company’s properties.

In terms of environmental issues, all of the Matsushita Group’s properties operate in compliance with governmental and municipal laws and regulations. Furthermore, the Company established a number of internal environmental guidelines which are stricter than those provided by the authority. In case any occasional non-compliance may take place, such as the previously mentioned PCB issue, Matsushita takes immediate and appropriate actions to meet the regulatory requirements and to ensure current good utilization standards.

For fiscal 2004, the Company will make a capital investment of approximately 270 billion yen, for the purpose of production of new products and enhancement of production capacity and efficiency with a focus on such areas as AV and information and communications equipment (approximately 55 billion yen), and electronic components and devices including semiconductors and PDPs (approximately 144 billion yen).

The investments stated above will be funded mainly through internal sources.

Item 5.    Operating and Financial Review and Prospects

A.    Operating Results

Overview

Over the last decade, the Japanese economy has been experiencing slow growth and stagnation. The continued general decline of Japanese real estate prices, a series of bank and corporate failures and the related instability in the Japanese financial system have increased economic uncertainty. Temporary recovery was seen in the year ended March 31, 2001, owing to government economic stimulus packages and a surge in demand for information technology (IT) and related products and services. From the end of that year through the following fiscal year, however, economic growth in Japan slowed again due to sluggish consumer spending and exports, along with setbacks in demand for IT and related products. In the first half of the year ended March 31, 2003, the Japanese economy showed signs of a pickup, with a revival in exports and consumer spending growth. The economic recovery, however, did not last long, and the second half of that year again met stagnant consumer spending and waned exports. Reflecting the aforementioned factors, Japan’s real gross domestic product showed instability, recording a 3.2% increase in fiscal 2001, a 1.2% decrease in fiscal 2002, and a 1.5% increase in fiscal 2003.

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Overseas, from around the middle of the year ended March 31, 2001, economic growth in the United States began to slow down. This slowdown coincided with setbacks in the global IT industry, which had approximately 290,000 employees. Ofpreviously enjoyed rapid growth in demand centered on personal computers (PCs) and cellular phones. Although the total, approximately 146,000 employees areU.S. economy showed signs of a recovery from the end of 2001 to the first half of the year ended March 31, 2002, its growth again slowed down from the second half of the year ended March 31, 2003, and this slowed growth in the U.S. had negative effects on Asian and European economies, with further instability caused by the war in Iraq.

During the three-year period ended March 31, 2003, sluggish consumer spending and capital investment, along with an increased inflow of products manufactured in low-cost countries, triggered deflation in Japan. The consumer price index in Japan declined 0.5% in the year ended March 31, 2001 and declined 1.0% again in the year ended March 31, 2002. In the year ended March 31, 2003, the consumer price index continued to fall, recording a decline of 0.6%. This deflationary trend has been reflected in the declining prices of goods and services in Japan, putting pressure on the earnings of Japanese businesses.

Foreign currency exchange rates fluctuated during the three-year period. In the year ended March 31, 2001, the Japanese yen strengthened against such major currencies as the U.S. dollar and the Euro. Conversely, in the following year, the Japanese yen weakened against these currencies. In the year ended March 31, 2003, it strengthened slightly against the U.S. dollar but weakened against the Euro. (See Selected Financial Data in Section A of Item 3 on page 3.) In order to alleviate the effects of currency-related transaction risks, Matsushita has traditionally used several currency risk hedging methods, such as forward foreign-exchange contracts and currency options contracts with leading banks. Matsushita has also implemented matching of export and import exchange contracts. As a basic countermeasure against currency exchange risk, the Company has been strengthening production operations outside Japan to meet overseas demand, while reducing dependence on exports from Japan. The Company does not have any material unhedged monetary assets, liabilities or commitments denominated in currencies other than the individual operation’s functional currency.

In the face of the aforementioned severe economic environment, Matsushita introduced, in April 2001, its mid-term business plan, Value Creation 21, which covers the three-year period ending March 31, 2004. Under the theme “Deconstruction and Creation” of the plan, the Company has implemented a variety of major restructuring initiatives to transform itself into a “lean and agile Matsushita” and, from the year ended March 31, 2003 (fiscal 2003), shifted its focus to growth strategies, which include the development and introduction of differentiated products, such as “V-products,” the launch of a business domain-based Groupwide organizational structure and the expansion of overseas operations as a “growth engine” for the entire Company. (For details of the Value Creation 21 plan, see Section A of Item 4.)

Matsushita’s consolidated sales and earnings results during the last three fiscal years, reflecting all of the aforementioned external and internal conditions, can be summarized as follows *:

In fiscal 2001, net sales rose 5.1% to 7,781 billion yen, due mainly to generally favorable economic conditions in Japan and overseas, as well as increased demand for IT-related products and components, especially in the first half of the fiscal year. Despite the positive effect of this sales gain and overall cost reduction and efficiency improvement efforts, net income declined 60.9% to 42 billion yen, largely because of restructuring expenses incurred to compensate employees in Japan subject to the new regional-based employee remuneration system and certain subsidiaries’ early retirement programs, both implemented as part of the Value Creation 21 plan. The absence of the previous year’s non-operating gain of 59 billion yen from the sale of EPCOS AG shares also adversely affected net income.

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In fiscal 2002, net sales declined 9.1% to 7,074 billion yen. Although sales of video and audio equipment in the AVC Networks category rose, reflecting steady growth in digital AV equipment, sales in almost all other sectors dropped from the previous year. Specifically, information and communications equipment in the AVC Networks category and products in the Components and Devices category were negatively affected by a worldwide downturn in IT-related industries. A global setback in corporate capital investment also caused a steep fall in sales in the Industrial Equipment category. In addition to these sales declines, the Company incurred various restructuring expenses under the Value Creation 21 plan, including 164 billion yen related to employment restructuring programs, such as additional retirement allowances for special early retirement programs, 86 billion yen related to business restructuring expenses, and a write-down of 92 billion yen on investments. Reflecting these adverse factors, along with corporate tax effects and a decrease in minority interests due to negative earnings of certain subsidiaries, the Company incurred a net loss of 428 billion yen.

In fiscal 2003, net sales increased 4.6% to 7,402 billion yen, led by video and audio equipment in the AVC Networks category and products in the Components and Devices category, largely on the success of V-products developed through integrations of Matsushita’s Groupwide technological resources. Despite the positive effects on earnings of this sales increase and the previous year’s employment and business restructuring, the Company incurred a net loss of 19 billion yen, due in part to a write-down on investment securities, equity losses caused by losses of certain associated companies and losses related to adjustments of net deferred tax assets necessitated by the introduction of a pro-forma standard corporate taxation system in Japan.

Details of operating and financial results during the last three fiscal years are as follows:

Year ended March 31, 2003 compared with 2002

(1)    Sales

Consolidated net sales for fiscal 2003 increased 4.6% to 7,402 billion yen from 7,074 billion yen in the previous year. The business environment during fiscal 2003 was characterized by slow economic growth and persistent instability. Amid such an environment, Matsushita introduced 88 strategic V-products in Japan and overseas. The Company also implemented comprehensive Groupwide business and organizational restructuring, launching a new business domain-based management structure in January 2003 to accelerate the Company’s growth strategy. As a result of these initiatives, consolidated sales marked gains, led by video and audio equipment in the AVC Networks category and products in the Components and Devices category, with both categories benefiting from the success of V-products. An upward turn in sales of the Home Appliances category was also a positive factor.

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Domestic sales increased 4.2% to 3,454 billion yen, with growth achieved in all major product categories except for Industrial Equipment. The AVC Networks category, especially video and audio equipment, and the Components and Devices category, especially devices for digital AV equipment, led the sales increases in Japan. Overseas sales were 3,948 billion yen, up 5.0% when translated into yen and up 4.3% on a local currency basis, with sales increases recorded in all major product categories, except for information and communications equipment of the AVC Networks category.

(2)    Other Revenues (Revenue excluding Net Sales)

Other revenues include interest income, dividends received and other income. Of these, interest income decreased 35.2% to 22 billion yen, and dividends received also decreased 45.2% to 5 billion yen. Other income increased 19.4% to 65 billion yen due mainly to a gain from the sale of Panasonic Disc Services Corporation.

(3)    Costs and Expenses

Despite the increase in net sales, cost of sales remained mostly flat, increasing only 0.2% to 5,324 billion yen, and selling, general and administrative expenses edged down 0.5% to 1,952 billion yen. Meanwhile, interest expense decreased 27.2% to 33 billion yen, owing to a reduction in the Company’s borrowings. Other deductions also decreased 70.2% to 116 billion yen, reflecting substantially reduced restructuring charges compared with the previous fiscal year. Other deductions in fiscal 2003 include 12 billion yen expensed as additional retirement allowances for early retirement programs of a domestic subsidiary and a write-down of 53 billion yen on investment securities. In the previous fiscal year, other deductions included 164 billion yen related to employment restructuring programs, such as additional retirement allowances for special early retirement programs, 86 billion yen related to business restructuring expenses, such as impairment losses and other expenses associated with the closure or integration of several manufacturing locations, and a write-down of 92 billion yen on investment securities.

(4)    Income (Loss) before Income Taxes

As a result of the above-mentioned factors, income (loss) before income taxes turned to an income of 69 billion yen, compared with a pretax loss of 538 billion yen in fiscal 2002.

(5)    Provision for Income Taxes

Provision for income taxes amounted to an expense of 71 billion yen, compared with a benefit of 53 billion yen in the previous year. Its ratio to income (loss) before income taxes increased to 103.4% of pretax income, from 9.9% of pretax loss a year ago. This increase is mainly due to adjustments of net deferred tax assets to reflect the reduction in the statutory income tax rate due to revisions to local enterprise income tax laws on the introduction of a new pro-forma standard taxation system in Japan, in addition to an increase in valuation allowance allocated to income tax expenses.

(6)    Minority Interests

Minority interests increased to 6 billion yen for fiscal 2003, compared with a negative 57 billion yen in fiscal 2002, reflecting the earnings improvements or a turnaround from losses of several subsidiaries.

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(7)    Equity in Earnings (Losses) of Associated Companies

Equity in earnings (losses) of associated companies decreased to a loss of 12 billion yen, from the previous year’s profit of 59 million yen, due mainly to losses of certain associated companies.

(8)    Net Income (Loss)

As a result of all the factors stated in the preceding paragraphs, the Company recorded a net loss of 19 billion yen for fiscal 2003, compared with a net loss of 428 billion yen in the previous fiscal year.

(9)    Results of Operations

Results of operations by business segment were as follows:

AVC Networks sales increased 3.8% to 4,396 billion yen, from 4,236 billion yen in the previous year. Within this category, sales of video and audio equipment grew 7.4% from the previous year to 2,100 billion yen, due mainly to sharp growth in sales of flat-screen TVs, such as PDP TVs, and DVD recorders, and increased sales of digital video camcorders and digital still cameras. Sales of information and communications equipment increased 0.7% to 2,296 billion yen. Although sales of PC peripherals waned, automotive electronics products such as car audio and car navigation equipment recorded increased sales. Strong sales overseas in cellular phones also contributed to improved sales overall.

With respect to this segment, profit increased from a loss of 38 billion yen for the year ended March 31, 2002, to a profit of 105 billion yen for the year ended March 31, 2003. The sharp increase in segment profit was mainly attributable to higher sales in video and audio equipment, particularly digital AV equipment, and the improvement in communications equipment, as well as positive effects of the previous year’s restructuring initiatives.

Sales of Home Appliances increased 2.7% to 1,211 billion yen. Weak consumer spending and lower housing investment led to falling overall demand and a generally severe market in Japan. However, through the introduction of new products, Matsushita recorded increased domestic sales. In addition, an upturn in overseas sales also contributed to the overall sales increase in this segment. By product line, refrigerators, vacuum cleaners and microwave ovens supported domestic growth, while overseas sales increases were led by growth in air conditioners and refrigerators.

Profit in this segment rose 42.6% from 38 billion yen for the year ended March 31, 2002, to 54 billion yen for the year ended March 31, 2003. This was mainly due to the successful introduction of new products and overseas sales increases, combined with the effects of various restructuring initiatives.

Sales of Industrial Equipment were 290 billion yen, down 1.9% from the previous year. Despite sales increases of factory automation (FA) equipment centered on electronic-parts-mounting machines, sales of other industrial-use equipment, such as air conditioning and ventilation systems and automatic vending machines, were below the previous year’s level.

With respect to this segment, a turnaround was achieved in profit from a loss of 44 billion yen for the year ended March 31, 2002, to a profit of 2 billion yen for the year ended March 31, 2003, owing to such factors as sales gains in the Asian and Chinese market and positive effects of restructuring initiatives.

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Sales of Components and Devices increased 12.6% to 2,253 billion yen. Sales of product lines, such as general electronic components and semiconductors, driven by V-products, showed strong growth in both the Japanese and overseas markets, and contributed to double-digit growth for this product category as a whole.

With respect to this segment, profit increased from a loss of 96 billion yen for the year ended March 31, 2002, to a profit of 38 billion yen for the year ended March 31, 2003, principally owing to increased sales of components and devices for digital AV-related equipment and mobile communications equipment, combined with the effects of restructuring initiatives implemented in the previous fiscal year.

Year ended March 31, 2002 compared with 2001

(1)    Sales

Consolidated net sales for fiscal 2002 were down 9.1% to 7,074 billion yen, from 7,781 billion yen in the previous year. The decline was mainly a result of negative effects of the recession in the global IT industry and weak economic conditions in Japan and overseas. The recession in Japan deepened with sluggish consumer spending and retracted capital investment, while overseas, the slowdown in U.S. economic growth, combined with the September 11, 2001 terrorist attacks, led to a weakening of Asian and European economies.

Domestic sales fell 17.1% to 3,314 billion yen. This decrease was mainly a result of slow sales of products in the AVC Networks category, particularly information and communications equipment. In the Components and Devices category, as well, setbacks in the information and communications-related industries resulted in depressed sales of general components, semiconductors and electric motors. Overseas sales were 3,760 billion yen, down 0.6% when translated into yen and down 7.8% on a local currency basis. Sharp sales declines of products in the Components and Devices category were a major factor in the overseas sales decline.

(2)    Other Revenues (Revenue excluding Net Sales)

Other revenues include interest income, dividends received and other income. Of these, interest income decreased 24.0% to 34 billion yen, while dividends received increased 19.4% to 8 billion yen. Other income also increased 4.5% to 54 billion yen.

(3)    Costs and Expenses

As net sales declined, cost of sales decreased 4.7% to 5,312 billion yen, and selling, general and administrative expenses also decreased 2.6% to 1,961 billion yen. Meanwhile, interest expense decreased 6.1% to 45 billion yen, owing to a reduction in the Company’s borrowings. However, other deductions increased 169.2% to 390 billion yen, including 164 billion yen related to employment restructuring programs, such as additional retirement allowances for special early retirement programs, 86 billion yen related to business restructuring expenses, such as impairment losses and other expenses associated with the closure or integration of several manufacturing locations, and a write-down of 92 billion yen on investment securities. Other deductions in the preceding year included restructuring charges, most of which was expenses of 100 billion yen associated with the implementation of the regional-based employee remuneration system and early retirement programs in several domestic subsidiaries.

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(4)    Income (Loss) before Income Taxes

As a result of the above factors, income (loss) before income taxes turned to a loss of 538 billion yen, compared with a pretax profit of 105 billion yen in fiscal 2001.

(5)    Provision for Income Taxes

Provision for income taxes generated a benefit of 53 billion yen, compared with an expense of 55 billion yen in the previous year. Its ratio to income (loss) before income taxes turned to 9.9% of pretax loss, from 52.1% of pretax income in fiscal 2001. This was mainly a result of an increase in the valuation allowance for deferred tax assets.

(6)    Minority Interests

Minority interests decreased to negative 57 billion yen for fiscal 2002, compared with 22 billion yen in fiscal 2001, reflecting depressed or negative earnings results of several subsidiaries.

(7)    Equity in Earnings of Associated Companies

Equity in earnings of associated companies decreased to 59 million yen, from the previous year’s 13 billion yen, due mainly to decreased earnings of associated companies.

(8)    Net Income (Loss)

As a result of all the factors stated in the preceding paragraphs, the Company recorded a net loss of 428 billion yen for fiscal 2002, compared with a net income of 42 billion yen in fiscal 2001.

(9)    Results of Operations

Results of operations by business segment were as follows:

AVC Networks sales declined 3.1% to 4,236 billion yen, from 4,374 billion yen in the previous year. Within this category, despite sluggish sales of VCRs, overall sales of video and audio equipment grew 6.9% from the previous year to 1,956 billion yen, due mainly to increased overseas sales of TVs and rapid worldwide sales expansion of DVD equipment and discs. Sales of information and communications equipment declined 10.4% to 2,280 billion yen. Although strong sales were recorded for car AV equipment and broadcast- and business-use AV equipment, a drastic decline in sales of mobile communications equipment, specifically cellular phones, and hard disk drives, resulted in an overall sales decrease within this category.

Profit in this segment decreased from 111 billion yen for the year ended March 31, 2001, to a loss of 38 billion yen for the year ended March 31, 2002. The sharp decrease in profit was mainly due to lower sales in mobile communications equipment, including cellular phones, and severe market price competition in video and audio equipment.

Sales of Home Appliances decreased 10.4% to 1,179 billion yen. Although microwave ovens and vacuum cleaners recorded strong sales overseas, weak domestic demand for refrigerators and washing machines, partly due to unusually high sales at the end of the previous fiscal year prior to the enactment of a new recycling law in Japan, worked to lower overall sales in this category.

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With respect to this segment, profit fell 30.4% from 55 billion yen for the year ended March 31, 2001, to 38 billion yen for the year ended March 31, 2002. The cost reduction efforts could not offset the adverse effect of the overall sales decrease.

Sales of Industrial Equipment were 296 billion yen, down 37.7% from the previous year. As orders from IT-related industries remained slow, domestic and overseas sales of FA equipment were negatively impacted, leading to a sharp sales decrease in this category.

Due to the significant decline in sales, profit for Industrial Equipment decreased from 18 billion yen for the year ended March 31, 2001, to a loss of 44 billion yen for the year ended March 31, 2002.

Sales of Components and Devices decreased 20.0% to 2,001 billion yen. This was mainly due to sharp declines in sales of general components, semiconductors, LCD devices and batteries, all mainly for cellular phone- and IT-related industries.

With respect to this segment, profit decreased from 89 billion yen for the year ended March 31, 2001, to a loss of 96 billion yen for the year ended March 31, 2002, principally owing to significantly declined sales and price reductions to meet customer demands.

B.    Liquidity and Capital Resources

Matsushita’s Liquidity Profile

The two tables below show Matsushita’s cash payment obligations and guarantees and other commercial commitments, broken down by the amount of payments due for each of the periods specified below, as of March 31, 2003:

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Letters of credit generally have contractual lives of less than one year. Loan guarantees are principally provided on behalf of employees, associated companies, customers and consolidated subsidiaries and generally have long-term contractual lives coinciding with the maturities of the guaranteed obligations. (For further details, see Note 19 of the Notes to Consolidated Financial Statements.)

In fiscal 2002, Matsushita sold machinery and equipment, which are used to manufacture semiconductors for 108 billion yen. The assets were sold to a special-purpose entity, which in turn leased them back to Matsushita over a period of four years. Sumitomo Mitsui Banking Corporation provided to the special-purpose entity a loan with the same terms as those of the resulting leases. The loan paid for approximately 144,000 outside88% of the cost of the machinery and equipment. SMBC Leasing Company, Limited, an affiliate of Sumitomo Mitsui Banking Corporation, owns, through the special-purpose entity, an equity interest in the machinery and equipment, representing approximately 12% of the cost. Matsushita also entered into a similar sale-leaseback arrangement in the amount of 8 billion yen for machinery and equipment which are used to manufacture semiconductors in August 2002. In March 2003, these contracts were modified to change the lesser to SMBC Leasing Company. Matsushita also entered into another sale-leaseback arrangement directly with SMBC Leasing Company in the amount of 15 billion yen for machinery and equipment used for manufacturing plasma display panels in December 2002. These leases are classified as operating leases for U.S. GAAP purposes.

On October 1, 2002, Matsushita issued 309,407,251 shares for the exchange transactions described in Note 3 of the Notes to Consolidated Financial Statements. For the year ended March 31, 2003, 93,797,377 shares were repurchased for the aggregate cost of approximately 116 billion yen, primarily with the intention to hold as treasury stock to improve capital efficiency.

As discussed in Note 3 of the Notes to the Consolidated Financial Statements, Matsushita transformed Matsushita Communication Industrial Co., Ltd. (MCI), Kyushu Matsushita Electric Co., Ltd. (KME), Matsushita Seiko Co., Ltd. (MSC), Matsushita Kotobuki Electric Industries, Ltd. (MKEI) and Matsushita Graphic Communication Systems Inc. (MGCS) into wholly owned subsidiaries through share exchange transactions on October 1, 2002. Matsushita provided 309,407,251 shares of newly issued common stock and 59,984,408 shares of its treasury stock to minority shareholders of the five subsidiaries.

Matsushita’s Policy on Financial Position and Liquidity

As its basic policy, Matsushita has long placed emphasis on maintaining sound balance sheets, and on generating as much available funding as possible from internal sources through efforts to raise the operational efficiency or asset turnover ratios, so as not to overly rely on external fund raising. This conservativeness is exemplified in the tradition of maintaining the ratio of stockholders’ equity to total assets at a relatively high level and keeping a large cash balance. The ratio of stockholders’ equity to total assets as of March 31, 2003 stood at 40.6%, and the total of short-term borrowings and long-term debt was 922 billion yen as of March 31, 2003, down from 1,262 billion yen a year ago. Cash balance (the total of cash and cash equivalents of 1,167 billion yen plus time deposits with a maturity of more than three months of 396 billion yen) also remained at the relatively high level of 1,563 billion yen as of March 31, 2003, increasing from the year-earlier 1,460 billion yen (the total of cash and cash equivalents of 933 billion yen plus time deposits of 527 billion yen).

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With this cash balance, combined with generally high credit ratings from the world’s leading credit rating agencies, Matsushita believes that it has sufficient sources of liquidity for either working capital or long-term investment needs.

As of March 31, 2003, the outstanding balance of short-term borrowings totaled 334 billion yen, and long-term debt was at 588 billion yen. Matsushita’s borrowings are not significantly affected by seasonal factors. (For further details, see Note 10 of the Notes to Consolidated Financial Statements.) Most borrowings are at fixed rates.

In recent years, Matsushita has focused on raising capital efficiency upon review of its balance sheet. As a part of this move, the Company initiated an endeavor to achieve more efficient utilization of available cash resources held by subsidiaries and associated companies. This is achieved by lending such cash resources to other Group companies, as necessary, through a network of cash management systems at the corporate headquarters and financial subsidiaries located in each global region.

Furthermore, with the launch of the business domain-based Groupwide organizational structure in early 2003 as part of its mid-term Value Creation 21 plan, Matsushita has revised its system of evaluating the performance of operating divisions (now, business domain companies), effective April 1, 2003. The new system is based on two results-based standards, namely Capital Cost Management (CCM), which measures capital efficiency, and cash flows, which represents a company’s ability to generate cash. Both of these standards are applied to each business domain company’s performance on a global consolidated basis. The Company believes that this new management control system will contribute to a further streamlined balance sheet and higher liquidity.

Regarding the use of financial instruments for hedging purposes, see Item 11.

Fiscal 2003 Financial Position and Liquidity

The Company’s consolidated total assets as of the end of fiscal 2003 increased to 7,835 billion yen, compared with 7,768 billion yen at the end of fiscal 2002. The Company reduced inventories by 120 billion yen through the introduction of SCM and cell-style production. Property, plant and equipment (net) also decreased, by 195 billion yen, due to a substantial curbing of capital investment. However, the Company recorded 314 billion yen as goodwill, due to the transformation of five major consolidated subsidiaries into wholly owned subsidiaries, and this caused an increase in total assets of 66 billion yen.

Regarding liabilities, the balance of retirement and severance benefits increased, due to a decrease in the discount rate of benefit obligations, negative return on plan assets, and amendments to the employee retirement benefit and pension plans.

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With respect to minority interests and stockholders’ equity, due mainly to the above-mentioned transformation of five companies into wholly owned subsidiaries, minority interests decreased by 362 billion yen, while capital surplus within stockholders’ equity increased by 537 billion yen. Meanwhile, there was an increase in the minimum pension liability adjustments, owing to the aforementioned factors related to the retirement and pension programs. Combined with decreases in cumulative translation adjustments and unrealized holding gains of available-for-sale securities, this resulted in an increase in accumulated other comprehensive loss. In addition, the Company repurchased its own shares, as an integral part of Matsushita’s financial strategy to improve stockholder value. As a result of these factors, stockholders’ equity decreased to 3,178 billion yen, from 3,248 billion yen at the end of the previous fiscal year.

Capital investment (excluding intangibles) during fiscal 2003 totaled 251 billion yen, a decrease from the previous fiscal year’s total of 320 billion yen. In the current severe business environment, Matsushita curbed capital investment across all its business areas, in line with increasing management emphasis on cash flows and capital efficiency, and also as a result of the increased adoption of cell-style production, which allowed the use of smaller-scale facilities. Matsushita did, however, selectively invest in facilities for those product areas that are expected to drive future growth, including such key devices as system LSIs, PDPs and other strategic products. Depreciation (excluding intangibles) during the fiscal year also fell, to 283 billion yen, compared with 342 billion yen in the previous fiscal year.

Net cash provided by operating activities in fiscal 2003 amounted to 698 billion yen, compared with 113 billion yen in the previous fiscal year. This increase was attributable to, among other things, a significantly reduced net loss and an increase in trade payables resulting from extended payment terms, despite an increase in trade receivables. Net cash used in investing activities amounted to 11 billion yen, compared with 75 billion yen in fiscal 2002, owing to such factors as a decrease in time deposits and a reduction of capital expenditures. Net cash used in financing activities was 443 billion yen, compared with net cash provided by financing activities of 416 million yen a year ago, due mainly to a decrease in proceeds from long-term debt and an increase in repayments of long-term debt. All these activities, compounded by the effect of exchange rate changes, resulted in a net increase of 234 billion yen in cash and cash equivalents during fiscal 2003. Cash and cash equivalents at the end of fiscal 2003 totaled 1,167 billion yen, compared with 933 billion yen a year ago. These are primarily held in yen (72%) and U.S. dollars (12%).

Commitments for Capital Expenditures

As of March 31, 2003, commitments outstanding for the purchase of property, plant and equipment amounted to 11 billion yen.

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C.    Research and Development

Matsushita considers research and development (R&D) to be a key factor in its success and essential to the achievement of its corporate theme: to provide the utmost satisfaction to customers throughout the world through differentiated products and services and to contribute to the progress and happiness of mankind. Under this theme, Matsushita is committed to R&D activities that create next-generation businesses from a mid- to long-term viewpoint, while at the same time supporting current or ongoing products and businesses. Also, to address the 21st century’s needs for more convenient lifestyles around the evolving “ubiquitous” network society and for harmonious co-existence with the global environment, the main focus of Matsushita’s R&D activities has been increasingly directed to digital networks and environmental technologies. Matsushita has concurrently been strengthening its global R&D networks to meet the needs of its overseas business expansion.

In fiscal 2001 through 2002, as part of its Value Creation 21 plan, Matsushita conducted a thorough review of all corporate-wide R&D organizations spanning various product divisions in a decentralized manner. As a result of this review, and to enable concentration of R&D resources into strategic areas, Matsushita established a “Strategic Product Platforms” structure in December 2001. Matsushita also established a development center or development task force for each business domain, concentrating all relevant development resources. Concurrently, to develop the basic and common technologies that support these strategic products, Matsushita established corporate-level “Core Technology Platforms,” which are responsible for the following areas: multimedia software technology; semiconductor technology; devices, environment and production engineering technologies; and cutting-edge technologies.

In fiscal 2003, Matsushita accelerated the development of V-products that would propel a sharp recovery in business performance through R&D efforts conducted through the above-mentioned new R&D structure. In these efforts, the Company places an emphasis on creation of its own “black-box” or proprietary technologies which cannot be easily imitated by competitors. Matsushita also implemented the “Technology Business Plan” to further increase R&D efficiency and strengthen technology management. Based on this plan, Matsushita created a system that infuses management resources in areas of comparative strength through the introduction of a scientific R&D management approach and objective evaluations of the Company’s technological competitiveness. Furthermore, in an attempt to create important core technologies, Matsushita began comprehensive cooperative activities with several prominent universities in Japan for the development of key next-generation technologies. The Company has also continuously strengthened its global R&D infrastructure aimed at accelerating local-based product development in each overseas region.

Total expenditures for research and development amounted to 545 billion yen, 567 billion yen and 551 billion yen for the three fiscal years ended March 31, 2001, 2002 and 2003, respectively, representing 7.0%, 8.0% and 7.4% of Matsushita’s total net sales for each of those periods.

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D.    Trend Information

The slow growth and stagnation of the Japanese economy since the 1990s and generally slow economic growth of advanced countries overseas in recent years, along with lingering slow demand for the once booming IT-related products and intensifying borderless competition, have had a major negative impact on Matsushita’s results of operations. These factors, combined with a series of the Company’s major restructuring programs, led to unprecedented pretax and net losses in the Company’s performance in fiscal 2002.

The business environment during fiscal 2003 did not show a favorable turn. In the domestic market, economic recovery was impeded by such factors as a continuing deflationary trend, stagnant consumer spending and faltering capital investment, while overseas economies were negatively affected by slowed growth in the United States and increased uncertainty caused by the war in Iraq.

To counter such an adverse environment and ensure its long-term sustained growth, Matsushita implemented the Value Creation 21 plan, beginning in fiscal 2002. As part of this plan, the Company has effected various management reforms and restructuring initiatives as mentioned above. Also, under this plan, the Company commenced new growth strategies in fiscal 2003. These included the strategic development and introduction of competitive V-products and the launch of a new business domain-based Group organizational structure, both as mentioned earlier. Matsushita also embarked on a plan to strengthen overseas operations as a corporate growth engine.

As a result of these initiatives, Matsushita achieved a turnaround in pretax income on increased sales in fiscal 2003, although it still posted a net loss due partly to tax consequences and negative earnings of associated companies.

As a result of various management initiatives under Value Creation 21, the Company also achieved some improvements in its balance sheets and cash flows in fiscal 2003 as mentioned earlier. (See Matsushita’s Policy on Financial Position and Liquidity in this Item 5.)

Matsushita expects that the harsh business environment will continue in fiscal 2004, with such adverse factors as lackluster economies in Japan and the United States, the aftermath of the war in Iraq and Severe Acute Respiratory Syndrome (SARS) cases in China and neighboring countries. In this severe environment, the Company plans to work on its growth strategies, including the introduction of new V-products that will surpass fiscal 2003 models in both quality and quantity, and intensification of the overseas operations expansion strategy, with a focus on China. Matsushita aims to attain further improvement in earnings from a normal course of business on a moderate increase in sales in fiscal 2004, subject to external conditions including currency exchange volatility to be insignificant and the success of its growth strategies for the year.

Matsushita meanwhile expects that several of its business domain companies will implement further business or employment restructuring programs in fiscal 2004 in order to strengthen their management structure and cost competitiveness, in part prompted by the Company’s new evaluation methods (CCM and cash flows) applied to the business domain companies’ performance from the current fiscal year. Matsushita currently expects approximately 50 billion yen to be incurred as expenses or charges associated with these restructuring programs in fiscal 2004.

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E.    Off-Balance Sheet Arrangements

Not applicable

F.    Tabular Disclosure of Contractual Obligations

Not applicable

G.    Safe Harbor

Not applicable

H.    Accounting Principles

Critical Accounting Policies

The Company has identified the following critical accounting policies which are important to its financial condition and results of operations, and require management’s judgment.

Long-lived Assets

The useful lives of long-lived assets are summarized in Note 1(h) of the Notes to Consolidated Financial Statements included in this annual report and reflect the estimated period that the Company expects to derive economic benefit from their use. In estimating the useful lives and determining whether subsequent revisions to the useful lives are necessary, the Company considers the likelihood of technological obsolescence, changes in demand for the products related to such assets, and other factors which may affect their utilization of the long-lived assets. The effect of any future changes to the estimated useful lives of the long-lived assets could be significant to the Company’s results of operations.

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts of assets may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows (undiscounted and without interest charges) expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value less selling costs. Factors which may contribute to the need for future impairment charges include changes in the use of assets resulting from the Company’s restructuring initiatives, technological changes or any significant declines in the demand for related products.

Valuation of Investment Securities

The Company holds available-for-sale securities, equity method securities and cost method securities, included in short-term investments and investments and advances. Available-for-sale securities are carried at fair value with unrealized holding gains and losses included as a component of accumulated other comprehensive income (loss), net of applicable taxes.

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Individual securities are reduced to net realizable value by a charge to earnings for other than temporary declines in fair value. Management regularly reviews each investment security for impairment based on criteria that include the extent to which cost exceeds market value, the duration of that market decline and the financial health of and specific prospects for the issuer. Because such specific information may become available after the Company makes the impairment evaluation, and whether the impairment is other-than-temporary depends upon future events that may or may not occur, the Company may be required to recognize an other-than-temporary impairment in the future. Determination of whether a decline in value is other than temporary requires judgment. At March 31, 2003, the Company has recorded 289 billion yen of available-for-sale securities, 255 billion yen of equity method securities that have market values, and 477 billion yen of equity method securities that do not have market values, cost method securities and advances, part or all of which could be determined to be other-than-temporarily impaired in future periods, depending on changes to the current facts and assumptions.

For further discussion on valuation of investment securities, see Notes 5 and 6 of the Notes to Consolidated Financial Statements included in the annual report.

Valuation of Inventory

Inventories are stated at the lower of cost, determined on a first-in, first-out basis, or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make a sale. The Company routinely reviews its inventories for their salability and for indications of obsolescence to determine if inventories should be written-down to net realizable value. Judgments and estimates must be made and used in connection with establishing such allowances in any accounting period. In estimating the net realizable value of its inventories, the Company considers the age of the inventories and the likelihood of spoilage or changes in market demand for its inventories.

Warranties

The Company makes estimates of potential warranty claims related to its goods sold. The Company provides for such costs based upon historical experience and its estimate of the level of future claims. Management makes judgments and estimates in connection with establishing the warranty reserve in any accounting period. Differences may result in the amount and timing of its revenue for any period if management makes different judgments or utilizes different estimates.

Valuation of Accounts Receivable and Noncurrent Receivables

The Company reviews its accounts receivable on a periodic basis and provides an allowance for doubtful receivables based on historical loss experience and current economic conditions. In evaluating the collectibility of individual receivable balances, the Company considers the age of the balance, the customers’ historical payment history, their current credit-worthiness and adequacy of collateral.

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The Company records noncurrent receivables, representing loans from finance lease transactions, at cost, less the related allowance for impaired receivables. A loan is considered to be impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. When a loan is considered to be impaired, the amount of impairment is measured based on the present value of expected future cash flows or the fair value of the collateral. Cash receipts on impaired receivables are applied to reduce the principal amount of such receivables until the principal has been recovered and are recognized as interest income thereafter. Management’s judgment is required in making estimates of the future cash flows of an impaired loan. Such estimates are based on current economic conditions and the current and expected financial condition of the debtor.

Valuation of Goodwill

Goodwill is tested for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that the goodwill may be impaired, such as an adverse change in business climate. Impairment is recorded if the fair value of goodwill is less than its carrying amount. The fair value determination used in the impairment assessment requires estimates based on quoted market prices, prices of comparable businesses, present value or other valuation techniques, or a combination thereof, necessitating management to make subjective judgments and assumptions. These estimates and assumptions could result in significant differences to the amounts reported if underlying circumstances were to change. At March 31, 2003, the Company has recorded 411 billion yen of goodwill, part or all of which could be determined to be impaired in future periods, depending on changes to the current facts and assumptions. For further discussion on goodwill and other intangible assets, see Note 9 of the Notes to Consolidated Financial Statements included in the annual report.

Valuation of Deferred Tax Assets

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized based on available evidence. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment.

At March 31, 2003, the Company has recorded gross deferred tax assets of 1,248 billion yen with a total valuation allowance of 241 billion yen. Included in the gross deferred tax assets is 254 billion yen resulted from net operating loss carryforwards (NOLs) of 645 billion yen, which are available to offset future taxable income. In order to fully realize these NOLs, the Company will need to generate sufficient taxable income by the expiration of these NOLs. A substantial majority of these NOLs will expire by fiscal 2007. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of these deductible differences, net of the existing valuation allowance at March 31, 2003 based on available evidence. The Company could be required to increase the valuation allowance if such assumptions would change concluding that the Company would not be able to generate sufficient taxable income. For further discussion on valuation of deferred tax assets, see Note 12 of the Notes to Consolidated Financial Statements included in this annual report.

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Retirement and Severance Benefits

Retirement and severance benefits costs and obligations are dependent on assumptions used in calculating such amounts. The discount rate and expected return on assets are the most critical assumptions among others, including retirement rates, mortality rates and salary growth.

While management believes that the assumptions used are appropriate, actual results in any given year could differ from actuarial assumptions because of economic and other factors. The resulting difference is accumulated and amortized over future periods and therefore, generally affect the Company’s retirement and severance benefit cost and obligations.

The Company determines discount rates by looking to rates of return on high-quality fixed income investments, and the expected long-term rate of return on pension plan assets by considering the current and expected asset allocations, as well as historical and expected returns on various categories of plan assets.

A decline in market interest rates generally results in a lower discount rate and a decline in market stock values generally results in a lower expected rate of return on plan assets, both of which would result in an increase of future retirement and severance benefit costs and obligations.

Accounting for Derivatives

The Company has limited involvement with derivative financial instruments and does not use them for trading purposes. The Company uses derivative instruments principally to manage foreign currency risks resulting from transactions denominated in currencies other than the Japanese yen. As discussed in Note 1(o) of the Notes to Consolidated Financial Statements included in this annual report, the Company recognizes all derivatives as either assets or liabilities on the balance sheet at their fair values. Changes in the fair value of a derivative are reported in earnings or other comprehensive income depending on their use and whether they qualify for hedge accounting. The accounting for gains and losses associated with changes in the fair value of the derivative depends on its hedge designation and whether the hedge is highly effective in achieving offsetting changes in the fair value or cash flows of the hedged item. The Company evaluates and determines on a continuous basis if the derivative remains highly effective in offsetting changes in the fair value or cash flows of the hedged item. If the derivative ceases to be highly effective in offsetting changes in the fair value or cash flows of the hedged item, the Company discontinues hedge accounting prospectively. Because the derivatives the Company uses are not complex, significant judgment is not required to determine their fair values. Fair values are determined principally by receiving quotations from banks or brokers.

Loss Contingencies

Loss contingencies may from time to time arise from situations such as product liability claims, warranty claims, disputes over intellectual property rights, environmental remediation obligations, and other legal actions. Loss contingencies are recorded as liabilities when it is probable that a liability has been incurred and the amount of the loss is reasonably estimable. Disclosure is required when there is a reasonable possibility that the ultimate loss will exceed the recorded provision. Contingent liabilities are often resolved over long time periods. In recording liabilities for probable losses, management is required to make estimates and judgments regarding the amount or range of the probable loss. Management continually assesses the adequacy of estimated loss contingencies and, if necessary, adjusts the amounts recorded as better information becomes known.

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New Accounting Pronouncements

In June 2002, Financial Accounting Standards Board (FASB) issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity.” The provisions of this Statement are effective for exit or disposal activities that are initiated after December 31, 2002. The adoption of SFAS No. 146 did not have a material effect on the Company’s consolidated financial statements.

In November 2002, FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others, an interpretation of FASB Statements No. 5, 57 and 107 and a rescission of FASB Interpretation No. 34.” This Interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees issued. The Interpretation also clarifies that a guarantor is required to recognize, at inception of a guarantee, a liability for the fair value of the obligation undertaken. The initial recognition and measurement provisions of the Interpretation are applicable to guarantees issued or modified after December 31, 2002 and did not have a material effect on the Company’s consolidated financial statements.

In November 2002, FASB reached consensuses on EITF 00-21, “Revenue Arrangements with Multiple Deliverables.” EITF 00-21 addresses certain aspects of the accounting by a vender for arrangements under which it will perform revenue-generating activities and requires revenue be recognized separately for separate units of accounting. EITF 00-21 is effective for revenue arrangements entered into in fiscal periods beginning after June 15, 2003. The Company is currently in the process of assessing the impact of the adoption of EITF 00-21.

In January 2003, FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities, an interpretation of ARB No. 51.” This Interpretation addresses the consolidation by business enterprises of variable interest entities as defined in the Interpretation. The Interpretation applies immediately to variable interests in variable interest entities created after January 31, 2003, and to variable interests in variable interest entities obtained after January 31, 2003. For public enterprises, such as the Company, with a variable interest in a variable interest entity created before February 1, 2003, the Interpretation is applicable no later than the beginning of the first interim or annual reporting period beginning after June 15, 2003. The application of this Interpretation did not have a material effect on the Company’s consolidated financial statements in fiscal 2003 and is not expected to have a material effect in fiscal 2004.

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Item 6.    Directors, Senior Management and Employees

A.    Directors and Senior Management

The Articles of Incorporation of the Company, as amended on June 27, 2003 (hereinafter same), provide that the number of Directors of the Company shall be three or more and that of Corporate Auditors shall be three or more. Directors and Corporate Auditors shall be elected by the general meeting of shareholders. The Board of Directors has ultimate responsibility for administration of the Company’s affairs. Directors may, by resolution of the Board of Directors, appoint a Chairman of the Board of Directors, a Vice Chairman of the Board of Directors, a President and Director, and one or more Executive Vice Presidents and Directors, Senior Managing Directors and Managing Directors, as well as Representative Directors. The Chairman of the Board of Directors, Vice Chairman of the Board of Directors, President and Director, Executive Vice Presidents and Directors, and Senior Managing Directors are Representative Directors and severally represent the Company. The term of office of Directors shall, under the Articles of Incorporation of the Company, expire at the conclusion of the ordinary general meeting of shareholders with respect to the last closing of accounts within one year (or two years for the current terms, with regard to the Directors elected at the ordinary general meeting of shareholders in June 2002) from their assumption of office, and in the case of Corporate Auditors, within four years (or three years for the current terms, with regard to the Corporate Auditors elected at or prior to the ordinary general meeting of shareholders in June 2002) from their assumption of office. However, they may serve any number of consecutive terms.

The Corporate Auditors of the Company are not required to be, and are not, certified public accountants. However, at least one of the Corporate Auditors shall be a person who has not been a Director, corporate executive officer, general manager or employee of the Company or any of its subsidiaries during the five-year period prior to his or her assumption of office as a Corporate Auditor. After the conclusion of the ordinary general meeting of shareholders to be held with respect to the first fiscal year ending on or after May 1, 2005, at least half of the Corporate Auditors shall be required to be persons who have not been a Director, corporate executive officer, general manager or employee of the Company or its subsidiaries. Each Corporate Auditor has the statutory duty to examine the non-consolidated financial statements (and, after the conclusion of the ordinary general meeting of shareholders with respect to fiscal 2004, consolidated financial statements) and business reports to be submitted by the Board of Directors at the general meeting of shareholders and also to supervise the administration by the Directors of the Company’s affairs. The Corporate Auditors are required to attend meetings of the Board of Directors and express opinions, if necessary, at such meetings, but they are not entitled to vote.

The Corporate Auditors constitute the Board of Corporate Auditors. The Board of Corporate Auditors has a statutory duty to prepare and submit its audit report to the Board of Directors each year. A Corporate Auditor may note his or her opinion in the audit report if his or her opinion is different from the opinion expressed in the audit report. The Board of Corporate Auditors is empowered to establish audit principles, methods of examination by the Corporate Auditors of the Company’s affairs and financial position and other matters concerning the performance of the Corporate Auditors’ duties.

Corporate Auditors may not at the same time be Directors, managers or employees of the Company or any of its subsidiaries, or corporate executive officers of any of its subsidiaries.

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Under the Commercial Code of Japan (Commercial Code) and the Articles of Incorporation of the Company, the Company may, by a resolution of the Board of Directors, exempt Directors or Corporate Auditors from their liabilities owed to the Company arising in connection with their failure to perform their duties to the extent permitted by law. In addition, the Company has entered into liability limitation agreements with each of the outside Directors which limits the maximum amount of their liabilities owed to the Company arising in connection with their failure to perform their duties to the aggregate sum of the amounts prescribed in each item of Paragraph 19 of Article 266 of the Commercial Code.

Pursuant to the resolutions adopted at the ordinary general meeting of shareholders on June 27, 2003, the Company implemented in fiscal 2004 the reform of its corporate management and governance structure by (i) reorganizing the role of the current Board of Directors, (ii) introducing a Matsushita’s own Executive Officer system* in its Group and (iii) strengthening its Corporate Auditor system, all tailored to the Group’s new business domain-based, autonomous management structure. (For details of the Groupwide reorganization, see “Value Creation 21” Plan in Item 4, Section A.)

Matsushita’s Executive Officer system was introduced to address the diversity of business operations over the entire Group through delegation of authority and to help integrate the Group’s comprehensive strengths. The Board of Directors of Matsushita elects Executive Officers chosen mainly from the senior management of business domain companies, such as internal divisional companies and subsidiaries, as well as from management personnel responsible for overseas subsidiaries and certain senior corporate staff who guide the direction of the Group pertaining to important business matters. The Executive Officers assume responsibility as the Group’s executives regarding execution of business. The Executive Officers may be given such titles as Senior Managing Executive Officer, Managing Executive Officer and Executive Officer, depending on the extent of responsibility and achievement of each individual. The term of office of the Executive Officers shall be one year from their assumption of office. Each of the Executive Officers has the authority to operate businesses for which such Executive Officer is responsible, under the supervision and policy decisions of the Board of Directors.

The Board of Directors has, at the same time, been reformed in order to concentrate its role towards establishment of corporate strategies and supervision of implementation thereof by the Executive Officers. The Company has reduced the number of Directors to facilitate more effective decision-making, and shortened their term of office to one year to concentrate and clarify responsibilities. Taking into consideration the diversified scope of Matsushita’s business operations, the Company has chosen to hold its policy of having management personnel, who are well-versed in day-to-day operations at operational fronts, be members of the Board of Directors, while Outside Directors continue to be included in the Board of Directors.

To strengthen auditing functions at business domain companies, the Company has launched the Group Auditor Meeting to promote collaboration with corporate auditors of its subsidiaries and senior auditors at internal divisional companies, who are not corporate auditors but are appointed to be responsible for auditing such internal divisional companies.

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The following table shows information about Matsushita’s Directors and Corporate Auditors after the ordinary general meeting of shareholders held on June 27, 2003, including their dates of birth, positions, responsibilities and brief personal records.

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There are no family relationships between any Director or Corporate Auditor and any other Director or Corporate Auditor of the Company except as described below:

Masayuki Matsushita, Vice Chairman of the Board of Directors is the son of Masaharu Matsushita, Honorary Chairman of the Board of Directors and Executive Advisor.

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B.    Compensation

The aggregate amount of remuneration, including bonuses, paid by the Company during fiscal 2003 to all Directors and Corporate Auditors (34 persons) for services in all capacities was 762 million yen.

In accordance with customary Japanese business practices, a retiring Director or Corporate Auditor receives a lump-sum retirement payment, which is subject to approval of the general meeting of shareholders. Retirement allowances provided for Directors and Corporate Auditors for fiscal 2003 amounted to 263 million yen.

For details of the Company’s stock option plans for Board members and select senior executives, see Section E of this Item 6.

C.    Board Practices

For information on the Company’s Directors and Statutory Auditors, see Section A of this Item 6.

Pursuant to home country practices exemptions granted by the New York Stock Exchange, Matsushita is permitted to follow certain corporate governance practices complying with relevant Japanese laws and Japanese stock exchange rules, which are different from those required for U.S. domestic companies under the New York Stock Exchange’s listing standards. The New York Stock Exchange rules and Matsushita’s current practices relating to corporate governance have the following significant differences:

Audit Committee.    The New York Stock Exchange requires that a listed U.S. company have an audit committee consisting of at least three independent directors, and that the audit committee be charged with the responsibility of selecting, monitoring and communicating with the outside auditor of the company. Matsushita does not have an audit committee with functions called for U.S. domestic companies by the New York Stock Exchange rules. Under the Commercial Code of Japan, Matsushita has the Board of Corporate Auditors which is under a statutory duty to monitor, review and report on the administration of the affairs of the Company, as discussed in Section A of this Item 6.

Shareholder Approval Policy.    Pursuant to the amendment to the corporate governance standards that was approved by the Securities and Exchange Commission on June 30, 2003, the New York Stock Exchange requires, with limited exceptions, that shareholder approval be obtained with respect to any equity-compensation plan, which is generally defined as a plan or other arrangement that provides for the delivery of equity securities (either newly issued or treasury shares) of the listed company to any employee, director or other service provider as compensation for services. Matsushita follows relevant Japanese laws which, as discussed in Section B of Item 10, generally require it to obtain shareholder approval if stock options are to be issued with “specially favorable” conditions.

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The New York Stock Exchange also requires that, with certain exceptions specified in its rules, shareholder approval be obtained prior to issuance of common stock or securities convertible into or exercisable for common stock (1) to a director, an officer, a substantial security holder or a party related to any of them if the number of shares of common stock which are to be issued or are issuable upon conversion exceeds 1% of the number of common stock or voting power outstanding before the issuance, (2) in any transaction or series of transactions, if the voting power of the common stock is equal to or exceeds 20% of the voting power outstanding before the issuance or if the number of shares of the common stock is equal to or exceeds 20% of the number of shares outstanding before the issuance, and (3) that will result in a change of control of the issuer. Matsushita follows relevant Japanese laws which, as discussed in Section B of Item 10, generally require it to obtain shareholder approval with respect to the issuance of common stock or securities convertible into or exercisable for common stock only if common stock is to be issued at a “specially favorable” price or convertible bonds or debentures to acquire shares are to be issued with “specially favorable” conditions or stock acquisition rights to acquire shares are to be issued with “specially favorable” conditions.

On June 6, 2002, the Corporate Accountability and Listing Standards Committee of the New York Stock Exchange issued a report recommending that the Exchange adopt significant changes to its corporate governance listing standards. On August 16, 2002, the New York Stock Exchange filed with the Securities and Exchange Commission proposed changes to its corporate governance standards which reflect the findings of the Committee. The areas of corporate governance covered by the proposed changes include the definition and role of independent directors, committees under the board of directors, corporate governance guidelines, codes of business conduct and ethics, shareholder approval of equity-compensation plans, and annual certifications by principal executive officers. On June 30, 2003, the Securities and Exchange Commission approved the portion of the proposed corporate governance standards relating to shareholder approval of equity-compensation plans, which is described under “Shareholder Approval Policy” above. Also, in light of the promulgation by the Securities and Exchange Commission of Rule 10A-3 pursuant to Section 301 of the Sarbanes-Oxley Act, on April 4, 2003, the New York Stock Exchange filed with the Securities and Exchange Commission an amendment to the remainder of its proposed rule changes in order to reflect the requirements of Rule 10A-3. That portion of the proposed rule changes, as amended, will become effective upon the Securities and Exchange Commission’s approval.

The proposed rule changes, as amended, will generally continue to grant home country practices exemptions to non-U.S. companies listed on the New York Stock Exchange, including Matsushita, but, pursuant to the requirements of Rule 10A-3, those provisions of the amended corporate governance standards that implement the requirements of Rule 10A-3 will be applicable to listed non-U.S. companies. Among such requirements, a foreign private issuer listed on the New York Stock Exchange will be required to have an audit committee consisting of at least three directors all of whom must be independent under the standards set forth in paragraph (b) of Rule 10A-3, and the audit committee will be required to be directly responsible for the appointment, compensation, retention and oversight of the work of the accounting firm engaged (including resolution of disagreements between management and the auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the issuer, unless one or more of the exemptions set forth in Rule 10A-3 apply. Pursuant to paragraph (a)(5) of Rule 10A-3, the amended corporate governance standards of the New York Stock Exchange implementing the requirements of the rule will become applicable to foreign private issuers listed on the New York Stock Exchange on July 31, 2005.

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As described in Section A of this Item 6, Matsushita has a Board of Corporate Auditors which examines the financial statements and business reports of the Company which are submitted by the Board of Directors to the general meeting of shareholders, and who supervise the administration by the Directors of the Company’s affairs. Matsushita plans to avail itself of paragraph (c)(3) of Rule 10A-3, which as implemented by the New York Stock Exchange, will provide a general exemption from the audit committee requirements described above to a foreign private issuer with a trendboard of overseasstatutory (or corporate) auditors which satisfies the conditions set forth in that paragraph.

The rights of ADR holders, including their rights relating to corporate governance practices, are governed by the Amended and Restated Deposit Agreement (incorporated by reference to the Registration Statement on Form F-6 (File No. 333-12694) filed on October 4, 2000).

D.    Employees

The following table lists the number of consolidated full-time employees constantly increasing. of the Company as of March 31, 2003, 2002 and 2001: