1
SECURITIES AND EXCHANGE COMMISSION
Form 20-F
ANNUAL REPORT PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1997
Commission file number 1 - 6784
MATSUSHITA DENKI SANGYO KABUSHIKI KAISHA
(Exact name of registrant as specified in its charter)
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
(Translation of registrant's name into English)
Japan
(Jurisdiction of incorporation or organization)
1006, Oaza Kadoma, Kadoma City, Osaka, Japan
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each class Name of each exchange on which registered
American Depositary Shares* New York Stock Exchange and Pacific Stock Exchange
Common Stock** New York Stock Exchange and Pacific Stock Exchange
* American Depositary Shares evidenced by American Depositary Receipts. Each
American Depositary Share represents ten shares of Common Stock.
** Par value 50 Japanese yen per share.
Securities registered or to be registered pursuant to Section 12(g) of the Act.
None
(Title of Class)
Securities for which there is a reporting obligation pursuant
to Section 15(d) of the Act.
None
(Title of Class)
This form contains 69 pages.
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Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report.
Outstanding as of
--------------------------------
March 31, 1997 March 30, 1997
Title of Class (Japan Time) (New York Time)
-------------- ---------------
Common Stock - 50 yen par value per share 2,111,156,851
American Depositary Shares, each
representing 10 shares of common stock 1,808,508
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___.
Indicate by check mark which financial statement item the registrant has elected
to follow.
Item 17. X Item 18. ___.
All information contained in this Report is as of March 31, 1997 or for the year
ended March 31, 1997 (fiscal 1997) 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, 1997 was 116.13 yen =
U.S.$1.
PART I
Item 1. Description of Business
GENERAL
Matsushita Electric Industrial Co., Ltd. (hereinafter, unless the context
otherwise requires, "Matsushita" or the "Company" refers to Matsushita Electric
Industrial Co., Ltd. and its consolidated subsidiaries as a group) is one of the
world's leading producers of electronic and electric products.
The Company was incorporated in Japan on December 15, 1935 under the laws of
Japan as Matsushita Denki Sangyo Kabushiki Kaisha as the successor to an
unincorporated enterprise founded in 1918 by the late Konosuke Matsushita. Mr.
Matsushita led the Company with his corporate philosophy of contributing to the
peace, happiness and prosperity of mankind through the supply of quality
consumer goods. The Company's business expanded rapidly with the recovery and
growth of the Japanese economy after World War II, as it met rising demand for
consumer electric and electronic products, starting with washing machines,
black-and-white television sets and refrigerators. Matsushita continued to grow
during the following decades by expanding its product range to include color
television sets, hi-fi components, air conditioners, video tape recorders,
industrial equipment and information/communication equipment.
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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 several trademarks, including "Panasonic," "National,"
"Technics," "Quasar," "Victor" and "JVC."
In the 1990s, Matsushita is basing its growth on technological advancement and
the use of electronics technology in every phase of life. The Company has been
expanding its development activities in such areas as next-generation
audiovisual equipment, multimedia products, and advanced electronic components
and devices. Its priority product areas include optical discs (such as DVDs),
mobile communications equipment, display devices and semiconductors.
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 (Philips)
terminated their joint venture company, Matsushita Electronics Corp. (MEC), and
the Company acquired Philip's 35% equity share in MEC for 185 billion yen, thus
making MEC a wholly-owned subsidiary.
In April 1995, the Company merged with Matsushita Housing Products Co. Ltd., a
wholly-owned subsidiary engaged in the manufacture and sale of housing-related
products.
In June 1995, the Company sold an 80% interest in MCA, now named Universal
Studios, Inc., to The Seagram Company Ltd. for approximately U.S.$5.7 billion,
leaving the Company with a 20% interest.
Effective April 1, 1997, the Matsushita parent company established a new
organizational structure, setting up four internal divisional companies -
responsible for AVC (audiovisual and computer products), home appliances and
housing electronics, air conditioners, and electric motors - by grouping a
majority of its some 50 product divisions. This step was taken in order to
facilitate strategic planning, speed decision making and more efficiently
allocate resources across a broader range than that afforded by each single
product division.
SALES CATEGORIES
The following table shows Matsushita's sales by major product categories for the
last three fiscal years:
(Billions of yen)
---------------------------------------------------------
Fiscal year ended March 31,
---------------------------------------------------------
1997 1996 1995
---------------- ---------------- ---------------
Video Equipment 1,343 18 % 1,225 18 % 1,272 18 %
Audio Equipment 576 8 518 8 555 8
Home Appliances 1,026 13 914 13 916 13
Communication and
Industrial Equipment 2,493 32 2,013 30 1,797 26
Electronic Components 1,056 14 1,020 15 893 13
Batteries and Kitchen-
Related Products 472 6 405 6 374 5
Entertainment - - - - 611 9
Other 710 9 700 10 530 8
----- --- ----- --- ----- ---
Total 7,676 100 % 6,795 100 % 6,948 100 %
===== === ===== === ===== ===
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Note: In June 1995, the Company sold an 80% equity interest in MCA.
Accordingly, beginning in fiscal 1996, MCA is no longer treated as
a consolidated subsidiary. As a result of the exclusion of MCA's
revenues from consolidated sales, the proportion of
"Entertainment" revenues has become insignificant. Therefore,
other entertainment revenues have been combined into the "Other"
category, beginning in fiscal 1996.
Video Equipment
Matsushita is a world leader in the production of home-use videocassette
recorders (VCRs) and related products. The Company's home VCR line ranges
broadly from high-quality picture and sound units, such as "S-VHS" VCR decks and
camcorders and those compatible with the 16:9 wide aspect ratio (wide-screen) TV
format, to easy-to-operate models, such as VHS VCR decks with fewer control
buttons. Building upon its advanced digital technology, the Company launched the
world's first home-use digital camcorder in September 1995, and further
introduced a new type of slim and light digital camcorder equipped with a 4-inch
liquid crystal display (LCD) during fiscal 1997. Matsushita is also
strengthening its professional VCR business, increasing deliveries of its
DVCPRO, a compact digital video system to the world's major broadcasting
companies and other professional users, complementing its renowned 1/2-inch D3
and D5 VCR systems for broadcast use. Sales of VCR products during fiscal 1997
amounted to 727 billion yen, or nearly 10% of total Company sales.
Matsushita's broad range of television receivers is designed to meet demand in
all segments of the Japanese and international markets. Increasing emphasis has
recently been placed, especially in Japan, on models that offer larger screens
and enhanced picture quality, including wide-screen and high-definition
television (HDTV) sets. Matsushita also produces color TV/VCR combination units,
liquid crystal color TVs, large-screen color projection TV systems, laser disc
players, satellite broadcast receivers and communications-satellite-related
equipment. In November 1996, the Company introduced DVD players to the market
ahead of most other companies, together with an enhanced-definition wide-screen
TV (Wide Clear Vision) equipped with a built-in DVD player. In anticipation of
the burgeoning demand for multi-channel digital satellite TV broadcasting in
Japan, Matsushita also began marketing set-top boxes during fiscal 1997 for such
broadcasts. Sales of television receivers and other video equipment for fiscal
1997 were 616 billion yen, or 8% of total Company sales for the period.
Audio Equipment
Matsushita produces a large variety of audio equipment, such as radio receivers,
cassette tape recorders, radio/cassette stereos, portable headphone players and
compact disc (CD) and Mini Disc (MD) players, as well as stereo hi-fi and
related equipment, electronic musical instruments, car audio equipment and car
navigation equipment. The Company also produces video CD players, which combine
video functions into audio products.
Although competition in the audio equipment market is increasingly intense,
Matsushita has been gaining strength in such fields as portable headphone
players and CD players by offering a number of attractive models, including
those that attained a long continuous playing time through the use of compact
high-performance batteries and those with unique design and sturdy body suitable
for outdoor use. In the growing line of car navigation equipment as well, the
Company has been in the forefront of new product introduction primarily in
Japan, offering models compatible with the VICS (a real-time communication
service offering traffic information through visual images and text) and those
with the DVD-ROM and a wide-screen LCD.
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Home Appliances
Matsushita's vast array of home appliance products includes refrigerators and
freezers, air conditioners and electric fans, home laundry equipment (such as
washing machines and dryers), dishwashers, vacuum cleaners, electric irons and
steamers, cooking equipment (such as microwave and other ovens, blenders,
juicers, food processors, rice cookers, induction heating cookers and home
bread-making machines) and electric and kerosene heaters.
Matsushita is constantly introducing innovations in its appliance line to
satisfy the needs of highly-discerning Japanese consumers. Recent examples
include refrigerators equipped with inverter-driven compressors that allow low
power consumption and featuring greater storage capacity, air conditioners with
improved energy consumption and dehumidification using compact scroll-type
compressors, washing machines that remove chlorinated lime from tap water to
prevent the discoloration of clothing, and room air purifiers that remove even
pollen and germs which cause hay fever. To meet growing concern for a safe and
clean environment, Matsushita has also expanded its lineup of home-use garbage
disposal units, and marketed refrigerators which employ a CFC substitute with an
ozone-depletion coefficient of zero, as a refrigerant.
Communication and Industrial Equipment
This category encompasses information and communication equipment, as well as
factory-automation and other industrial equipment. Information equipment
includes personal computers (PCs), word processors, PC displays, hard disk,
CD-ROM, PD and other optical disc drives, other computer peripherals, and plain
paper copiers. Major products in communication equipment are facsimile
equipment, telephones, cellular telephones, pagers, digital private branch
exchanges, municipal and community radio systems, CATV systems, communication
network equipment, teleconference systems, traffic control systems, electronic
educational systems, professional audiovisual equipment, and office- and
home-security systems. Furthermore, the Company has been strengthening its
multimedia-related equipment and systems business: During fiscal 1997, it
marketed personal digital assistants (PDAs), DVD-ROM drives and a PC with a
built-in DVD-ROM drive. While currently expanding deliveries of its multimedia
information providing systems and PC LAN systems to municipal, business and
other customers, the Company has also decided to participate in such new
ventures as DirecTV Japan, a digital satellite broadcast operator, and British
Interactive Broadcasting Ltd.
In factory-automation equipment, Matsushita is an industry leader in
electronic-parts-mounting machines, and is also a major producer of industrial
robots and electronic measuring instruments. Other industrial equipment includes
welding equipment, CO2 laser processing machines, power-distribution equipment,
vending machines, commercial air-conditioning equipment, refrigerated showcases,
and compressors.
Electronic Components
Matsushita produces a broad range of semiconductors, including integrated
circuits (ICs), such as MOS LSIs and bi-polar ICs, discrete devices and charge
coupled devices (CCDs), as well as cathode-ray tubes (CRTs) and magnetrons, for
use by Matsushita and other manufacturers. Matsushita also manufactures
incandescent, fluorescent, mercury and sodium lamps, electric motors, micro
motors, TV tuners, resistors, capacitors, multi-layered circuit boards,
speakers, ceramic components, magnetic recording heads, LCDs, plasma display
panels (PDPs), sensing devices and other electronic parts.
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Recognizing that components and devices will become an increasingly important
factor for the innovation and advancement, as well as competitiveness, of
finished products and systems in the multimedia/digital network age, Matsushita
currently places the greater-than-ever priority on the development of the
electronic components technology and business, with special emphasis on
semiconductors and display devices. In semiconductors, the Company is striving
to expand the multimedia-related devices field, including single-chip
multifunctional LSIs called System LSIs, digital signal processors, MPEG (Moving
Picture Experts Group) chips and semiconductor lasers. In display devices, the
Company is strengthening its global CRT production and supply network,
increasing its LCD production capacity, and developing a high quality 42-inch
wide-screen PDP in collaboration with the U.S.-based Plasmaco, Inc., which
Matsushita acquired in early 1996.
Batteries and Kitchen-Related Products
Matsushita is one of the world's leading battery manufacturers and produces many
types of batteries, such as manganese, alkaline, lithium, solar, silver-oxide
and zinc air cells, nickel-cadmium, nickel-metal-hydride, lithium-ion and sealed
lead-acid batteries and storage batteries for automotive use, as well as various
battery powered appliances. Among these, production of compact, high-performance
rechargeable batteries, such as nickel-metal-hydride and lithium-ion cells, has
been expanding in recent years, as these batteries are increasingly used in
compact electronic equipment and applied to a variety of other product areas.
In response to environmental concerns, Matsushita has replaced almost all of its
domestic and overseas production of manganese and alkaline batteries with
no-mercury-added cells. Matsushita is also active in developing high-performance
batteries for environmentally-friendly electric vehicles (EVs). During fiscal
1997, the Company's nickel-metal-hydride rechargeable batteries were installed
in Japan's first functional EV marketed by Toyota Motor Corporation, and a new
joint company was also established with Toyota to develop, produce and sell
these batteries.
This category also includes kitchen sinks and cabinets, integrated
kitchen-fixture systems, gas appliances, gas and kerosene hot-water supply
systems, and bath and sanitary equipment.
Other
Other includes bicycles, cameras and flash units, electric pencil sharpeners,
water purifiers, a variety of imported materials and products, such as
non-ferrous metals, paper and medical equipment, and prerecorded video and audio
tapes and disks, as well as revenue from miscellaneous services.
SALES AND DISTRIBUTION
Set forth below is a sales breakdown by geographical markets:
(Billions of yen)
----------------------------------------------------------
Fiscal year ended March 31,
----------------------------------------------------------
1997 1996 1995
---------------- ---------------- ----------------
Japan 4,046 53 % 3,727 55 % 3,455 50 %
North and South America 1,249 16 1,067 16 1,597 23
Europe and Africa 836 11 721 10 667 9
Asia and Others 1,545 20 1,280 19 1,229 18
----- --- ----- --- ----- ---
Total 7,676 100 % 6,795 100 % 6,948 100 %
===== === ===== === ===== ===
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Sales and Distribution in Japan
The strength of the Company's sales organization has been a significant factor
in its growth over many years. Domestic sales have traditionally been handled by
four major divisions organized according to the type of customer, i.e.,
consumers, corporate and government, manufacturing industry and
housing/construction industry, respectively.
In order to meet the ever-diversifying needs of consumers and various
industries, the Company implemented a major reorganization of these sales
divisions in July 1995, restructuring them into 11 new divisions more precisely
aligned with specific customers and products. These new divisions include
Consumer Products Sales Division, Housing Equipment Sales Division, Electrical
Supplies Sales Division, Public Systems Sales Division, Private Institution
Sales Division, AV & CC Systems Sales Division, Industrial Sales Division,
Factory Automation Sales Division and Automotive Electronics Sales Division. In
addition, a Semiconductor Sales Division was established, effective April 1,
1997, to enhance the Company's ability to meet the sophisticated customer needs
in this strategically important business area.
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 203 companies in 44 countries outside of Japan, including
four regional headquarters, 47 manufacturing/sales companies, 94 manufacturing
companies, 39 sales companies, 9 research organizations and four finance
subsidiaries. International marketing of Matsushita's products is conducted
through the Company's sales subsidiaries and affiliates and also through
independent distributors. In addition, certain products are sold in foreign
markets on an OEM basis and marketed under the brand names of third parties.
In order to promote global business development, as well as to counter currency
fluctuations, Matsushita continues to expand and strengthen its overseas
production. In addition to its established overseas production capacity for TV
sets, audio equipment, batteries and other traditional products, Matsushita is
increasing overseas production bases and capacity for VCRs, air conditioners,
microwave ovens, electronic components and communication and industrial
equipment. The Company currently places emphasis on building production and
sales networks in newly developing markets, such as the People's Republic of
China and India.
Overseas sales, including products manufactured outside Japan and those exported
from Japan, represented approximately 47% of the Company's total consolidated
sales in fiscal 1997.
Customers
The largest markets for Matsushita's products have traditionally been consumers
and households. Since the 1980s, the proportion of sales to non-consumer
customers, such as governments, commercial and industrial corporations and other
institutions, including large customers such as electric and electronic
equipment manufacturers, automobile manufacturers and various other machinery
makers, has been rising as Matsushita places increasing emphasis on industrial
and commercial products and electronic components. In the year ended March 31,
1997, sales of communication and industrial equipment and electronic components
accounted for approximately 46% of Matsushita's total sales,
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rising from 34% of the total (36% of total excluding MCA) in fiscal 1992.
Matsushita's business is not materially dependent upon any single customer.
RESEARCH AND DEVELOPMENT
Matsushita considers research and development (R&D) to be a key factor in its
success and essential to the achievement of its corporate goals. To bolster its
capacity to transform new technologies into commercially viable products, the
Company effected a major reorganization of its R&D structure in February 1994.
The reorganization mainly involved replacing the corporate engineering divisions
with two new core divisions: the Corporate Research Division and the Corporate
Product Development Division. The Company further reorganized the Corporate
Product Development Division in October 1995 to strengthen the audiovisual and
computer-integrated equipment field. The Corporate Research Division operates
four research laboratories, including the Central Research Laboratories, and
engages primarily in basic research and environment- and energy-related research
and development. The 1995 reorganization involved replacing the Corporate
Product Development Division with five product development centers, including
the Multimedia Development Center and Optical Disk Systems Development Center.
The five product development centers focus on the development of
multimedia-related products and systems, optical disc-related equipment systems,
displays devices, car electronics systems, and related key components and
devices.
Several specialized R&D facilities continue to operate independently, although
they cooperate closely with the aforementioned research laboratories and
development centers. These facilities include the newly expanded Corporate
Semiconductor Development Division, which operates four R&D centers, such as the
Advanced LSI Technology Development Center and the Microprocessor Development
Center, and the Production Engineering Laboratory, which engages in development
of new manufacturing technology and supports production activities at
Matsushita's domestic and overseas operating facilities.
Manufacturing divisions and certain subsidiaries also maintain their own
research facilities and/or departments, engaged in specific research and
development projects or engineering and design improvements, which work in close
cooperation with the above-mentioned corporate research organizations.
The most significant technological developments in recent years include; DVD
products including DVD players and DVD-ROM drives featuring the Company's twin
focus pickup, DVD-RAM drives with single side recording capacity of 2.6
gigabytes, and DVD discs employing a dual-layer disc bonding technology; DV
software codec that facilitates capture of video images from standard digital
video cameras and editing and playback of such video images on the PC; a
multimedia information providing system based on the Company's video server,
featuring easy creation and editing of multimedia files consisting of AV, text
and still-picture data and distribution of the data to multiple terminals; a
high-density multilayered printed circuit board technology with an "inner via
hole" structure, which enables development of compact and light digital cellular
phones and other multimedia products; a CMOS image censor LSI that has
integrated moving picture compression functions on a single chip, facilitating
development of compact, low power consumption digital video and digital still
cameras; a wafer level burn-in technology, which is designed to burn in all the
chips on a wafer at a time, thus improving the efficiency of wafer inspection at
LSI production facilities; the world's first direct-modulation type blue laser
with an output of 15-milliwatts, combining a high conversion efficiency SHG
waveguide and a tunable infrared semiconductor laser, with possible application
for the next-generation high definition DVD with a data storage capacity of 15
gigabytes per side of the disc; a new mounting technology for LSIs that
eliminates wire bonding by using a conductive adhesive to bond the
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protrusions on a semiconductor chip's electrodes directly to the circuit board's
electrodes, a technology contributing to the downsizing of equipment such as
sub-notebook PCs and digital video cameras; a catalytic technology that improves
thermal efficiency and reduces nitrogen oxide when applied to new gas-fired
appliances; an environmentally-friendly molded motor in which copper and iron
can be easily recycled; and ring-shaped dual-tube fluorescent lamps with longer
conduction paths, realizing increased brightness and greater energy efficiency.
Total expenditures for research and development amounted to 378 billion yen, 400
billion yen and 435 billion yen for the three years ended March 31, 1995, 1996
and 1997, respectively, representing 5.4% (5.9% excluding MCA), 5.9% and 5.7% of
Matsushita's total net sales for each of those periods.
CAPITAL EXPENDITURES
Recognizing that building advanced technologies, equipment and processes are
essential to the cost-efficient manufacturing of sophisticated electronic
products and devices, the Company has gradually been increasing investment in
plant and equipment in recent years. Total capital expenditures were 316 billion
yen, 381 billion yen and 415 billion yen for fiscal 1995, 1996 and 1997,
respectively. Besides constant investment in production automation and
labor-saving facilities, increasing emphasis has been placed on expansion of
strategically-important business areas, including semiconductors and other key
device area and mobile communications equipment, as well as overseas production
facilities.
COMPETITION
The markets in which the Company sells its products are highly competitive in
Japan, as well as abroad. Matsushita's principal competitors, across the full
range of its products, consist of a small number of large Japanese
manufacturers. In particular categories of products it encounters additional
competition from companies in the United States, Europe and Asia. In addition,
Matsushita competes with a large number of smaller and more specialized
companies. The Company expects that competition will continue to be intense both
in Japan and abroad.
Restrictive or protective measures imposed or negotiated by foreign governments
have impeded Matsushita's ability to compete freely in the market with foreign
producers. Additionally, the emergence of several Asian developing countries as
lower-cost production sites has applied pressure to Japanese manufacturers,
including Matsushita, in terms of price competition in international markets.
However, the Company has been endeavoring to minimize the effects of these
negative factors primarily by devising various cost-reduction measures,
increasing its overseas production with emphasis on local procurement of parts
and components, and developing joint ventures and other cooperative agreements
with overseas partners.
TRADEMARKS
Most of Matsushita's products are distributed throughout the world under the
"Panasonic" and "National" trademarks. Matsushita also sells a number of hi-fi
products under the "Technics" trademark. Some of the Company's products are sold
under other trademarks, the most important of which are "Quasar," "Victor" and
"JVC."
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PATENT LICENSE AGREEMENTS
Matsushita holds numerous Japanese and foreign patents and utility model
registrations for its products and engages in mutual exchange of technologies
with a number of Japanese and foreign manufacturers. Its technical assistance,
or licensing, to other manufacturers is increasing year by year.
Matsushita is a licensee under various license agreements which cover a wide
range of products, including television receivers, VCRs, components and certain
tubes and lamps. Matsushita has non-exclusive patent license agreements with
RCA-Thomson Licensing Corporation covering a broad range of its products, the
most important of which are television receivers, VCRs and related equipment.
Matsushita has a non-exclusive patent cross-license agreement with Texas
Instruments Incorporated covering semiconductors. Matsushita Electronics
Corporation (MEC), a consolidated subsidiary of the Company, has a non-exclusive
patent cross-license agreement with Philips Electronics N.V. covering most of
the items manufactured by MEC, including semiconductor devices, various lamps,
cathode-ray and electron tubes and certain other products.
Matsushita's license and technical assistance agreements are for three- to
ten-year periods, unless the agreements cover specific patents to be licensed
therein, in which case they are normally for the life of the patent.
The Company considers all its technical exchange and license agreements
beneficial to its operations.
RAW MATERIALS AND SOURCES OF SUPPLY
Matsushita purchases a wide variety of parts and materials from various
suppliers in Japan and abroad. The Company applies a multi-sourcing policy --
being not dependent upon any one source of supply for any essential item. Since
suppliers are selected on the basis of a fair and comprehensive evaluation, the
Company enjoys good business relationships with them and the sourcing is
properly assured. In recent years, the Company has been endeavoring to promote a
policy of global optimum purchasing by selecting the best qualified suppliers
from all over the world and buying the most competitive parts and materials.
EMPLOYEE RELATIONS
As of March 31, 1997, Matsushita had approximately 271,000 employees. Most
regular employees in Japan, except management personnel, are union members,
principally of the Matsushita Electric Industrial Labor Union, which is
affiliated with the Japanese Electrical Electronic & Information Union.
As is customary in Japan, the Company negotiates annually with the unions and
grants annual wage increases and bonuses which are paid twice a year. Matsushita
also renews the terms and conditions of labor contracts, other than those
relating to wages and bonuses, every other year.
In the last 20 years, Matsushita has experienced no major labor strikes or
disputes. The Company considers its labor relations to be excellent.
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Item 2. Description of Property
The Company's principal executive offices and key research laboratories are
located in Kadoma, Osaka, Japan.
Matsushita's manufacturing plants are located principally in Japan, other
countries of Asia, North and South America and Europe. The Company considers
that all its factories are well maintained and suitable for its current
production requirements.
The following table sets forth information as of March 31, 1997 with respect to
manufacturing facilities:
Floor Space
(thousands of
Location square fe Principal Products Manufactured
- - -------- --------- -------------------------------
Osaka 10,035 VCRs, television receivers, audio equipment, washing
machines, other home appliances, information
equipment, industrial equipment, components,
batteries, kitchen fixtures.
Kanagawa 4,388 Communication, information and measuring equipment,
VCRs, audio equipment, car audio equipment, compact
discs, CRT displays, refrigerators, batteries.
Shiga 3,531 Air conditioners, refrigerators, compressors, vacuum
cleaners.
Tochigi 2,378 Television receivers, TV picture tubes, information
equipment.
Nara 2,076 Home appliances, gas and kerosene equipment, compact
discs.
Okayama 1,866 VCRs, components, magnetic tapes and discs.
Kyoto 1,629 Semiconductors, components.
Ibaraki 1,068 Television receivers, magnetic tapes.
Shikoku 3,572 VCRs, television receivers, information equipment,
audio equipment, home appliances.
Kyushu 2,289 Information and communication equipment, home
appliances, components, industrial equipment.
North 6,096 Television receivers, home appliances, VCRs, car audio
America equipment, information and communication equipment,
compressors, components, semiconductors, batteries.
Europe 3,024 VCRs, television receivers, audio equipment, car audio
equipment, home appliances, components, information
and communication equipment.
Asia 15,877 Television receivers, audio equipment, air
conditioners, refrigerators, other home appliances,
components, semiconductors, information equipment,
industrial equipment, compressors, batteries.
Other 16,330 Home appliances, industrial equipment, components,
semiconductors, video and audio equipment, dry cell
batteries, information equipment.
--------
Total 74,159
========
In addition to its manufacturing facilities, Matsushita's properties all over
the world include sales offices located in various cities with an aggregate
floor space of approximately 6.2 million square feet, research and development
facilities with an aggregate floor space of approximately 6.0 million square
feet,
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employee housing and welfare facilities with an aggregate floor space of
approximately 9.6 million square feet, and administrative offices with an
aggregate floor space of approximately 14.3 million square feet.
Matsushita leased approximately 12.9 million square feet of floor space as of
March 31, 1997, most of which was for sales office space.
Item 3. Legal Proceedings
In November 1991, Loral Fairchild Corporation, a Delaware corporation, filed two
lawsuits in the United States District Court for the District of Virginia
against the Company, Matsushita Electric Corporation of America and 36 other
defendants. The suits were consolidated. All defendants were charged with
infringement of two U.S. patents by virtue of the production abroad and sale in
the United States of certain charge coupled devices (CCDs), which are used in
products such as video cameras and facsimile machines. In December 1991, this
action was transferred to the United States District Court for the Eastern
District of New York. The action seeks damages, attorneys' fees and a permanent
injunction. The Company has asserted that the patents are invalid and not
infringed upon by its products incorporating CCDs. This litigation has been
bifurcated between liability and damages and has been stayed as to all
defendants except one defendant. In a first liability trial involving this
defendant, a jury held that it infringed the two U.S. patents at issue. In July
1996, the court granted, among other things, its subsequent motion for judgment
as a matter of law, overturning the verdict. Loral Fairchild Corporation
appealed this decision to the Court of Appeals for the Federal Circuit and oral
argument was held in June, 1997.
In July 1992, Matsushita Electronics Corporation (MEC), which manufactures CCDs,
commenced a suit in the United States District Court for the Southern District
of New York seeking a declaration that MEC's CCDs and all end products
incorporating MEC's CCDs (collectively "products") are licensed under the two
U.S. patents at issue. In April 1993, the district court granted MEC's motion
for summary judgement and ruled that the products were licensed. The Court of
Appeals for the Federal Circuit affirmed the decision in September 1994, and
denied Loral Fairchild's petition for rehearing in November 1994. The MEC's tort
claim against Loral Fairchild and its parent, Loral Corporation, concerning
certain liability issues was tried to the court ending in October, 1996.
That decision is still pending.
Matsushita is a co-defendant in a class-action lawsuit relating to the
acquisition of MCA in 1990. Certain former stockholders of MCA who tendered
their shares to Matsushita in such acquisition brought actions in the United
States District Court of the Central District of California claiming, in part,
that the Company violated Securities and Exchange Commission Rule 14d-10 by
treating the then chairman and chief executive officer of MCA differently than
other MCA stockholders in such acquisition. The district court denied
plaintiffs' motion for summary judgement and subsequently granted Matsushita's
motion for summary judgement. The United States Court of Appeals, Ninth Circuit
(1995 WL 75487 (9th Cir. (Cal.))), reversed, in part, finding that the Company
violated Rule 14d-10 and remanded for further proceedings to determine damages.
The Company has since filed a petition for a writ of certiorari with the United
States Supreme Court. In February 1996, the Court reversed, finding that the
separate class-action settlement judgment rendered by the Delaware Supreme Court
is entitled to full faith and credit even though it released claims within the
exclusive jurisdiction of the federal courts, and remanded for proceedings
consistent with the Court's opinion. In April, 1996, the Ninth Circuit issued an
order requiring the parties to submit supplemental briefs setting forth the
class action issues remaining open on remand and stating their arguments with
respect to those issues. Briefing and oral argument is complete.
The matter remains pending in the Ninth Circuit.
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Management is of the opinion that any outcome of these actions against
Matsushita will not have a material adverse effect on Matsushita's operation and
financial position.
There are a number of other legal actions and administrative investigations
against the Company and subsidiaries. Management is of the opinion that damages,
if any, resulting from these actions will not have a material effect on
Matsushita's financial position.
Item 4. Control of Registrant
(a) Matsushita is not, directly or indirectly, owned or controlled by other
corporations or by the Japanese government or any foreign government.
(b) (1) To the knowledge of the Company, no person owns more than ten
percent of any class of the Company's common stock.
(2) The total number of the Company's voting securities beneficially
owned by the Directors and Corporate Auditors as a group as of
March 31, 1997 is as follows:
Number of Percent
Title of class Identity of person or group shares owned of class
-------------- --------------------------- ------------ --------
Common Stock Directors and Corporate 18,418,643 0.87%
Auditors -- 36 persons shares
(c) As far as is known to the Company, there is no arrangement, the
operation of which may at a subsequent date result in a change in
control of Matsushita.
Item 5. Nature of Trading Market
Common Stock, American Depositary Receipts
The primary market for the Company's Common Stock is the Tokyo Stock Exchange
(the "TSE"). The Common Stock is traded on the First Section of the TSE and is
also listed on seven other stock exchanges in Japan. In addition, the Company's
Common Stock is listed on the Amsterdam Stock Exchange in the form of original
Common Stock under the ASAS system, on the Frankfurt Stock Exchange and
Duesseldorf Stock Exchange in the form of co-ownership shares in a Global Bearer
Certificate and on the Paris Stock Exchange in the form of original Common Stock
of the Company. In the United States, the Company's American Depositary Shares
have been listed on and traded in the New York Stock Exchange (the "NYSE") and
the Pacific Stock Exchange in the form of American Depositary Receipts ("ADRs").
There may from time to time be a differential between the Common Stock's price
on exchanges outside the United States and the market price of the American
Depositary Shares in the United States.
ADRs are issuable pursuant to a Deposit Agreement dated as of April 28, 1970, as
amended and restated as of November 20, 1975 and as further amended as of
October 1, 1982 (the "Deposit Agreement"), among the Company, Morgan Guaranty
Trust Company of New York as Depositary (the "Depositary"), and the holders of
ADRs. ADRs evidence American Depositary Shares, each representing 10 shares of
Common Stock deposited under the Deposit Agreement with The Sumitomo Bank,
Limited, as agent of the Depositary, or any successor or successors to such
agent or agents.
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The following table sets forth for the periods indicated the
reported high and low sales prices of the Company's Common Stock on the TSE, and
the reported high and low sales prices of the Company's American Depositary
Shares on the NYSE:
Tokyo Stock Exchange New York Stock Exchange
-------------------- -----------------------
Price per Share of Price per American
Common Stock (yen) Depositary Share (a) (dollars)
-------------------- ------------------------------
Calendar Period High Low High Low
- - --------------- ---- --- ---- ---
1995
1st quarter 1,650 1,230 163.3/4 131.1/2
2nd quarter 1,440 1,200 172.1/2 144.00
3rd quarter 1,690 1,310 172.00 146.1/2
4th quarter 1,690 1,410 166.00 140.00
1996
1st quarter 1,790 1,640 171.00 157.1/4
2nd quarter 2,070 1,730 188.00 159.1/2
3rd quarter 2,050 1,790 187.1/2 163.3/8
4th quarter 2,010 1,810 176.1/2 159.00
1997
1st quarter 2,000 1,670 166.00 142.7/8
Note: (a) Based upon one American Depositary Share representing 10
shares of Common Stock.
As of March 31, 1997, approximately 8.14% of the Company's Common Stock was
owned by a total of 188 United States shareholders including the Depositary's
nominee, considered as one shareholder of record, owning approximately 0.88% of
the total Common Stock.
Item 6. Exchange Controls and Other Limitations Affecting Security Holders
(a) Japanese Foreign Exchange Controls
The Foreign Exchange and Foreign Trade Control Law of Japan (the
"Foreign Exchange Law"), and the cabinet orders and ministerial
ordinances thereunder govern certain aspects relating to the acquisition
and holding of shares by "non-residents of Japan" and by "foreign
investors" (as hereinafter defined).
"Non-residents of Japan" are defined as individuals who are not resident
in Japan and corporations whose principal offices are located outside
Japan. Generally, branches and other offices of Japanese corporations
located outside Japan are regarded as non-residents of Japan, but
branches and other offices of non-resident corporations located within
Japan are regarded as residents of Japan.
Acquisition of Shares
Acquisition by a non-resident of Japan of shares of stock of a Japanese
corporation from a resident of Japan generally requires prior
notification by the acquiring person to the Minister of Finance. The
notification must be filed not more than 10 days prior to the proposed
acquisition.
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If, however, a party to the transaction is one of the Japanese
securities companies (or licensed branches of foreign securities
companies) which are designated by the Minister of Finance ("designated
securities companies") or if a designated securities company acts as an
intermediary (broker or agent) in such transaction, no prior
notification is required. The designated securities companies are
subject to reporting requirements to the Minister of Finance through
The Bank of Japan. The acquisition of shares by non-resident
shareholders by way of a stock split is not subject to any notification
requirements.
Notwithstanding the foregoing, if the proposed transaction falls within
the category of "inward direct investment" referred to below, the
transaction is subject to different regulations.
The term "inward direct investment" in relation to transactions in
shares means:
(i) acquisition by a "foreign investor" (a non-resident individual or
a corporation which was organized under the laws of a foreign
country or whose principal business office is located outside
Japan or a Japanese corporation a majority of whose shares are
owned, directly or indirectly, by non-residents and/or foreign
corporations or a majority of whose officers or officers having
the power of representation are non-resident individuals) of
shares of stock of a Japanese corporation whose shares are not
listed on any stock exchange (or registered with a securities
dealers' association as shares to be traded on an
over-the-counter market) other than acquisition of such shares
from other foreign investors;
(ii) acquisition by a foreign investor of shares of an unlisted
corporation from a non-resident who had held such shares since
the time when he was a resident; and
(iii) acquisition of shares of a listed corporation by a foreign
investor (whether from a resident, a non-resident or any other
foreign investor) the result of which would be such investor's
holding directly or indirectly 10% or more of the total
outstanding shares of such corporation or, if such foreign
investor already holds 10% or more of the total outstanding
shares of such corporation, acquisition of additional shares in
such corporation.
Except in limited cases prescribed by the law as requiring a prior
notification, whenever an inward direct investment was made, the foreign
investor who made such investment must make a post facto report to the
Minister of Finance and other Ministers having jurisdiction over the
business of the issuer of the shares within 15 days from the
acquisition.
Dividends and Proceeds of Sale
Under the foreign exchange regulations, dividends paid on, and the
proceeds of sales in Japan of, shares held by non-residents of Japan may
in general be converted into any foreign currency and repatriated
abroad.
Exercise or transfer of subscription rights
Acquisition by a non-resident shareholder of shares of common stock of
the Company upon exercise of subscription rights is subject to the same
formalities and restrictions as referred to under "Acquisition of
shares" above and such non-resident may in general exercise such rights
after filing a prior notification with the Minister of Finance as to
such acquisition. If a non-resident shareholder wishes to dispose of,
rather than exercise, any subscription rights, he may sell such rights
in or outside Japan without restriction. As to the transferability of
subscription rights by non-residents, see heading "(b) Description of
Common Stock - Subscription rights" below.
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American Depository Shares
Neither the deposit of shares of common stock of the Company by a
non-resident of Japan, the issuance of ADRs in exchange therefor, nor
the withdrawal of the underlying shares of common stock of the Company
upon surrender of ADRs is subject to any formalities or restrictions
referred to under "Acquisition of shares" above.
On May 23, 1997 the Foreign Exchange and Foreign Trade Control Law was
amended with effect from April 1, 1998. Pursuant to this amendment, the
title of the statute will be changed to the Foreign Exchange and Foreign
Trade Law and, with minor exceptions, all aspects of the foreign
exchange and foreign trade transactions which under the existing law are
subject to licensing or other approval or prior notification
requirements (including those relating to the acquisition of and other
transactions in shares of stock of Japanese corporations referred to
above, except for limited cases of inward direct investment) will be
substituted by the post facto reporting requirement. However, the
Minister of Finance will have the power to impose a licensing
requirement for certain transactions in limited circumstances. Detailed
implementing regulations have not yet been issued but are expected to be
made before the amendments' effective date of April 1, 1998.
(b) Description of Common Stock
Set forth below is certain information relating to the common stock of
the Company, including brief summaries of certain provisions of the
Company's Articles of Incorporation and Shares Handling Regulations, as
currently in effect, and of the Commercial Code of Japan relating to a
joint stock company (Kabushiki Kaisha) and certain related legislation.
General
The presently authorized capital stock of the Company is 5,000,000,000
shares, which may be issued with a par value of 50 yen per share or
without a par value. The Commercial Code requires that share be in
registered form. Under the Commercial Code shares are transferable by
delivery of share certificates, but in order to assert shareholders'
rights against the Company, the transferee must have his name registered
in the Company's register of shareholders. All of the presently
outstanding shares of the Company are of a par value of 50 yen per
share. The Company may, by a resolution of the Board of Directors,
convert per value shares into non-par value shares or vice versa.
Shareholders are required to file their names, addresses and seals with
The Chuo Trust & Banking Co., Ltd., the transfer agent for the Company,
and shareholders not resident in Japan are required to file a mailing
address in Japan or appoint a resident proxy in Japan. These
requirements do not apply to the holders of ADRs.
The central clearing system of share certificates under the Law
Concerning Central Clearing of Share Certificates and Other Securities
of Japan applies to the shares of common stock of the Company. Pursuant
to this system a holder of shares of common stock is able to choose, at
his discretion, to participate in this system and all certificates of
shares of common stock elected to be put into this system are deposited
with the central clearing system and all such shares are registered in
the name of the clearing house in the Company's register of
shareholders. Each participating shareholder is in turn registered in
the register of beneficial shareholders and treated the same way as
shareholders registered in the Company's register of shareholders.
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Dividends
The Articles of Incorporation of the Company provide that the accounts
shall be closed on March 31 of each year and that dividends, if any,
shall be paid to the shareholders of record as of the end of such fiscal
period. After the close of the fiscal period, the Board of Directors
prepares, among other things, a proposed allocation of profits for
dividends and other purposes; this proposal is submitted to the
Corporate Auditors of the Company and to independent certified public
accountants and then submitted for approval to the ordinary general
meeting of shareholders, which is normally held in June each year. In
addition to provisions for dividends, if any, and for the legal reserve
and other reserves, the allocation of profits customarily includes a
bonus to Directors and Corporate Auditors. In addition to annual
dividends, the Board of Directors of the Company may by its resolution
declare a cash distribution pursuant to Article 293-5 of the Commercial
Code (an "interim dividend") to shareholders who are registered in the
Company's register of shareholders at the end of each September 30,
subject to the limitations described below.
The Commercial Code provides that a company may not make any
distribution of profits by way of dividends or interim dividends for any
fiscal period unless it has set aside in its legal reserve an amount
equal to at least one-tenth of the amount paid by way of appropriation
of retained earnings for such fiscal period until the legal reserve is
one-quarter of its stated capital. Under the Commercial Code the Company
is permitted to distribute profits by way of year-end or interim
dividends out of the excess of its net assets over the aggregate of (i)
its stated capital, (ii) its capital surplus, (iii) its accumulated
legal reserve, (iv) the legal reserve to be set aside in respect of the
fiscal period concerned, and (v) the excess, if any, of unamortized
expenses incurred in preparation for commencement of business and in
connection with research and development expense over the aggregate of
amounts referred to in (ii), (iii) and (iv) above. If the Company has on
its balance sheet a number of shares of its common stock which the
Company has acquired for the purpose of transferring the same to its
employees pursuant to the amendments to the Commercial Code which took
effect on October 1, 1994 and June 1, 1997 but such shares are yet to be
transferred, the book value of such shares shall be deducted from the
amount available for payment of dividends. In the case of interim
dividends, the net assets are calculated by reference to the balance
sheet as at the last closing of the Company's accounts, but adjusted to
reflect any subsequent dividend and the legal reserve in respect
thereof, provided that interim dividends may not be paid where there is
a risk that at the end of the fiscal year there might not be any excess
of net assets over the aggregate of the amounts referred to in (i),
(ii), (iii), (iv) and (v) above, and, in addition to the deduction
referred to in the immediately preceding sentence, if the Company's
shareholders have adopted a resolution for the Company's purchase of
shares of its common stock for the purpose of transferring the same to
its Directors and/or employees or for the purpose of canceling the same,
the total amount of purchase price authorized by such resolution shall,
so long as such resolution has not expired, and whether or not such
purchase has been effected, be deducted from the amount available for
interim dividends.
The Commercial Code, currently in effect, does not provide for "stock
dividends." However, under the Code, the shareholders may by resolution
transfer any amount which is distributable as dividends to stated
capital and the Board of Directors may by resolution issue additional
shares by way of a stock split up to the aggregate par value equal to
the amount so transferred; thus, the same effect as a stock dividend can
be achieved.
In Japan the "ex-dividend" date and the record date for dividends
precede the date of determination of the amount of the dividend to be
paid.
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Transfer of capital surplus and legal reserve to stated capital and
stock splits (free share distributions)
When the Company issues new shares of common stock, the entire amount of
the issue price of such new shares is required to be accounted for as
stated capital, although the Company may account for an amount not
exceeding one-half of such issue price as capital surplus (subject to
the remainder being not less than the total par value of the new shares
being issued). The Board of Directors may transfer the whole or any part
of capital surplus and legal reserve to stated capital and grant to
shareholders additional shares of common stock free of charge by way of
a stock split, without affecting the par value thereof, with reference
to the whole or any part of the amount of capital surplus and legal
reserve so transferred to stated capital; such additional shares may
also be granted by reference to the amount representing the portion of
the issue price of shares of common stock in excess of the par value
thereof which has been accounted for as stated capital.
The Commercial Code permits the Company to make a partially free
distribution to shareholders by way of a rights issue at a subscription
price per share which is less than the par value thereof if (a) the
difference between the subscription price and the par value does not
exceed the amount of the stated capital minus the aggregate par value of
all outstanding shares, divided by the number of new shares to be issued
pursuant to such rights issue, (b) the sum of the net assets of the
Company (as appearing on the latest balance sheet) and the total
subscription price, divided by the number of the shares outstanding
immediately after the issue of the new shares, is at least 50 yen and
(c) the subscription rights are made transferable. In order to satisfy
the requirement mentioned in (a) above, the Board of Directors may
transfer the whole or any part of capital surplus or legal reserve to
stated capital.
General meeting of shareholders
The ordinary general meeting of shareholders to settle accounts of the
Company for each fiscal period is normally held in June each year in
Kadoma, Osaka, Japan. In addition, the Company may hold an extraordinary
general meeting of shareholders whenever necessary by giving at least
two weeks' advance notice to shareholders.
Notice of a shareholders' meeting setting forth the place, time and
purpose thereof, must be mailed to each shareholder having voting rights
(or, in the case of a non-resident shareholder, to his resident proxy or
mailing address in Japan) at least two weeks prior to the date set for
the meeting.
Voting rights
A shareholder is entitled to one vote per share subject to the
limitations on voting rights set forth in the following paragraph and
""Unit" share system - Voting rights of a holder of shares representing
less than one unit " below. Except as otherwise provided by law or by
the Company's Articles of Incorporation, a resolution can be adopted at
a general meeting of shareholders by a majority of the shares having
voting rights represented at the meeting. The Commercial Code and the
Company's Articles of Incorporation provide, however, that the quorum
for the election of Directors and Corporate Auditors shall not be less
than one-third of the total number of outstanding shares having voting
rights. The Company's shareholders are not entitled to cumulative voting
in the election of Directors. A corporate shareholder, more than
one-quarter of whose outstanding shares are directly or indirectly owned
by the Company, may not exercise its voting rights in respect of the
shares of the Company. The Company has no
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voting rights with respect to its own common stock. Shareholders may
exercise their voting rights through proxies provided that the proxies
are also shareholders holding voting rights. The Company's shareholders
also may cast their votes in writing.
The Commercial Code provides that in order to amend the Articles of
Incorporation and in certain other instances, including an increase in
the total number of shares authorized to be issued, a reduction of the
stated capital, the removal of a Director or Corporate Auditor,
dissolution, merger or consolidation of a corporation, the transfer of
the whole or an important part of the business, the taking over of the
whole of the business of any other corporation, any offering of new
shares at a "specially favorable" price (or any offering of convertible
bonds or debentures with "specially favorable" conversion conditions or
of bonds or debentures with warrants or rights to subscribe for new
shares with "specially favorable" conditions) to persons other than
shareholders or granting to Directors or employees rights to subscribe
for new shares which are to be permitted from October 1, 1997 by virtue
of the 1997 amendments to the Commercial Code, the quorum shall be a
majority of the total number of shares having voting rights outstanding
and the approval of the holders of at least two-thirds of the shares
having voting rights represented at the meeting is required.
Subscription rights
Holders of the Company's common stock have no pre-emotive rights under
its Articles of Incorporation. Authorized but unissued shares may be
issued at such times and upon such terms as the Board of Directors
determines, subject to the limitations as to the offering of new shares
at a "specially favorable" price mentioned above. The Board of Directors
may, however, determine that shareholders shall be given subscription
rights regarding a particular issue of new shares, in which case such
rights must be given on uniform terms to all shareholders as at a record
date of which not less than two weeks' public notice must be given. Each
of the shareholders to whom such rights are given must also be given
notice of the expiry thereof at least two weeks prior to the date on
which such rights expire.
Rights to subscribe for new shares may be made generally transferable by
the Board of Directors. Whether the Company will make subscription
rights generally transferable in future rights offerings will depend
upon the circumstances at the time of such offerings. If subscription
rights are not made generally transferable, transfers by a foreign
investor (as defined above under the heading "(a) Japanese Foreign
Exchange Controls") not resident in Japan will be enforceable against
the Company and third parties only if the Company's prior written
consent to each such transfer is obtained. When such consent is
necessary in the future for the transfer of subscription rights, the
Company intends to consent, on request, to all such transfers by such a
foreign investor.
Dilution
In the future it is possible that market conditions and other factors
might make a rights offering to shareholders at par or substantially
below the market price of shares of common stock desirable. If the
number of shares offered in a rights offering is substantial in relation
to the number of shares outstanding and the market price exceeds the
subscription price at the time of the offering, a shareholder who does
not exercise and is unable otherwise to realize the full value of his
subscription rights would suffer economic dilution of his equity
interest in the Company.
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Liquidation rights
In the event of a liquidation of the Company, the assets remaining after
payment of all debts and liquidation expenses and taxes will be
distributed among the shareholders in proportion to the respective
numbers of shares held.
Liability to further calls or assessments
All the Company's presently outstanding shares of common stock including
shares represented by the American Depository Shares are fully paid and
non-assessable.
Transfer agent
The Chuo Trust & Banking Co., Ltd. is the transfer agent for the
Company's common stock; as transfer agent, it keeps the Company's
register of shareholders in its office at 6-26, Kitahama 2-chome,
Chuo-ku, Osaka, Japan, and makes transfer of record ownership upon
presentation of the certificates representing the transferred shares.
Record date
March 31 is the record date for the Company's year-end dividends. The
shareholders who are registered as the holders of 1,000 shares or more
in the Company's register of shareholders at the end of each March 31
are also entitled to exercise shareholders' rights at the ordinary
general meeting of shareholders with respect to the fiscal period ending
on such March 31. September 30 is the record date for interim dividends.
In addition, the Company may set a record date for determining the
shareholders entitled to other rights and for other purposes by giving
at least two weeks' public notice.
The price of the shares generally goes ex-dividend or ex-rights on
Japanese stock exchanges on the third business day prior to a record
date (or if the record date is not a business day, the fourth business
day prior thereto), for the purpose of dividends or rights offerings.
Repurchase by the Company of its common stock
Except as otherwise permitted by the Commercial Code as set out below,
the Company or any of its subsidiaries cannot acquire the Company's
common stock except by means of a reduction of capital in the manner
provided in the Commercial Code. The Company may acquire, its common
stock in response to a shareholder's request for purchase of his shares
representing less than one unit. See ""Unit" share system - Right of a
holder of shares representing less than one unit to require the Company
to purchase such shares" below. Shares so purchased must be sold or
otherwise transferred to a third party within a reasonable period
thereafter.
The 1994 and 1997 amendments to the Commercial Code now enable the
Company to acquire its common stock for the following purposes, subject
to the authorization of shareholders at an ordinary general meeting (if
the Articles of Incorporation provide that the shares may be purchased
for the purpose of cancellation by resolution of the Board of Directors,
pursuant to the resolution of the Board of Directors): (1) for the
purpose of transferring the same to its Directors and/or employees; and
(2) for the purpose of cancellation thereof. Acquisition by the Company
of shares of its common stock for the purpose of (1) above is subject
to, among other things, the following restrictions: (a) number of shares
to be acquired does not exceed 10% of all issued and outstanding shares;
(b) total amount of purchase price does not exceed the amount of
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the retained earnings available for dividend payment minus the amount to
be paid by way of appropriation of earnings for the fiscal year and, if
any amount of retained earnings is to be capitalized, such amount (if
the purchase is made pursuant to the resolution of the Board of
Directors as referred to in the parentheses above, one-half of such
permitted amount); and (c) acquisition shall be made through a stock
exchange transaction or by way of tender offer.
"Unit" share system
Pursuant to the Commercial Code the Company has adopted 1,000 shares as
one unit of shares.
Transferability of shares representing less than one unit
Certificates for shares representing less than one unit may only be
issued in certain limited circumstances. Since the transfer of shares
normally requires delivery of the certificates therefor, fractions of a
unit for which no share certificates are issued are not transferable.
Shares representing less than one unit for which share certificates have
been issued continue to be transferable, but the transfer may be
registered in the Company's register of shareholders only if the
transferee is already a registered shareholder (whether in respect of
units or of shares representing less than one unit).
Right of a holder of shares representing less than one unit to require
the Company to purchase such shares
A holder of shares representing less than one unit may at any time
require the Company to purchase such shares at their last reported sale
price on the Osaka Securities Exchange on the day when such request is
made or, if no sale takes place on the Osaka Securities Exchange on such
day, the last reported sale price on the Tokyo Stock Exchange on such
day, and if a sale takes place on neither of such exchanges on such day,
the price at which the first sale of the shares is effected on the Osaka
Securities Exchange thereafter, less applicable brokerage commission.
The usual securities transfer tax is applicable to such transactions.
0ther rights of a holder of shares representing less than one unit
A holder of shares representing less than one unit has the following
rights in respect of such shares: (i) the right to receive dividends
(including interim dividends), (ii) the right to receive shares and/or
cash by way of a stock split or upon consolidation or subdivision of
shares or upon a capital decrease or merger of the Company, (iii) the
right to be allotted subscription rights with respect to new shares,
convertible bonds and bonds with warrants to subscribe for shares when
such rights are granted to shareholders, (iv) the right to participate
in the distribution of surplus assets in the event of the liquidation of
the Company, and (v) the right, to require the Company to issue
replacement share certificates for lost, stolen or destroyed share
certificates. All other rights, including voting rights, cannot be
exercised with respect to shares representing less than one unit.
Voting rights of a holder of shares representing less than one unit
A holder of shares representing less than one unit cannot exercise any
voting rights with respect to such shares. In calculating the quorum for
various voting purposes, the aggregate number of shares representing
less than one unit will be excluded from the number of outstanding
shares. A holder of shares representing one or more whole units will
have one vote for each such share, except as stated in "Voting rights"
above.
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Consolidation by operation of law of shares constituting one unit into
one share
The unit share system is intended to be an interim measure with a view
ultimately to achieve shares of a much higher denomination than at
present. On a date to be specified by separate legislation, the shares
comprising one unit will be deemed to be consolidated into one share.
Presently it is not known when the bill specifying such date will be
submitted to the Japanese parliament. If the consolidation takes place,
the holder of any fractional share constituting one-hundredth of one
share or any integral multiple thereof, which may result from such
consideration, will be registered as the holder thereof in the register
of fractional shares and the holder of any fraction representing less
than a whole hundredth of one share will be entitled to receive a cash
payment.
(c) Reporting of Substantial Shareholdings
The Securities and Exchange Law of Japan, as amended, requires any
person who has become, beneficially and solely or jointly, a holder of
more than 5% of the total issued shares of a company listed on any
Japanese stock exchange or whose shares are traded on the
over-the-counter market in Japan to file with the Minister of Finance
within five business days a report concerning such shareholdings.
A similar report must also be made in respect of any subsequent change
of 1% or more in any such holding. For this purpose, shares issuable to
such person upon conversion of convertible securities or exercise of
share subscription warrants are taken into account in determining both
the number of shares held by such holder and the issuer's total issued
share capital. Copies of each such report must also be furnished to the
issuer of such shares and all Japanese stock exchanges on which the
shares are listed or (in the case of shares traded over-the-counter) the
Securities Dealers Association of Japan.
Item 7. Taxation
Generally, a non-resident of Japan or a non-Japanese corporation is subject to
Japanese withholding tax on dividends paid by a Japanese corporation. Stock
splits in themselves (whether for the purpose of making a free distribution or
dividend in shares), subject as set out below, are not subject to Japanese
income tax. However, a transfer of retained earnings or legal reserve (but not
capital surplus) to stated capital (whether made in connection with a stock
split or otherwise) is treated as a dividend payment to shareholders for
Japanese tax purposes and is, in general, subject to Japanese income tax.
Under the Income Tax Convention between the United States and Japan (the
"convention"), the maximum rate of Japanese withholding tax that may be imposed
on dividends paid to a United States resident or corporation not having a
"permanent establishment" (as defined therein) in Japan is generally 15%.
For purposes of the convention and the U.S. Internal Revenue Code of 1986, as
amended, (the "Code"), U.S. holders of ADRs will be treated as the owners of the
Common Stock underlying the American Depositary Shares represented by the ADRs.
In the absence of any applicable tax treaty, convention or agreement reducing
the maximum rate of withholding tax, the rate of Japanese withholding tax
applicable to dividends paid by Japanese corporations to non-residents of Japan
or non-Japanese corporation is 20%.
23
- 23 -
Gains derived by a non-resident of Japan or a non-Japanese corporation from the
sale of Common Stock or ADRs outside Japan, or from the sale of Common Stock
within Japan by a non-resident of Japan or by a non-Japanese corporation not
having a permanent establishment in Japan, are in general not subject to
Japanese income or corporation taxes. Japanese inheritance and gift taxes at
progressive rates may be payable by an individual who has acquired Common Stock
or ADRs as a legatee, heir or donee.
Dividends paid with respect to ADRs and Common Stock will constitute foreign
source dividend income for purposes of the foreign tax credit provisions of the
Code to the extent paid out of current or accumulated earnings and profits of
the Company, as determined for U.S. federal income tax purposes. U.S. holders
will not be eligible for the dividends-received deduction otherwise allowed to
corporations.
Under the Code, the limitation on foreign taxes eligible for credit is
calculated separately with respect to separate classes of income. Dividends paid
by the Company with respect to ADRs and Common Stock will generally be within
either the "passive" income class or the "financial services" income class
depending on a particular holder's circumstances. Foreign tax credits allowable
with respect to each class of income cannot exceed the U.S. federal income tax
otherwise payable with respect to such class of income. The consequences of the
separate limitations will depend on the nature and sources of each U.S. holder's
income and the deductions appropriately allocated or apportioned thereto.
Item 8. Selected Financial Data
(Billions of yen, except per share amounts
and yen exchange rates)
--------------------------------------------------------
Fiscal year ended March 31,
--------------------------------------------------------
Income Statement Data: 1997 1996 1995 1994 1993
---------------------- ---- ---- ---- ---- ----
Net sales 7,676 6,795 6,948 6,624 7,056
Income before income
taxes 332 77 232 128 162
Net income (loss) 138 (57) 90 24 37
Per common share:
Net income (loss) 60.64 (27.12) 41.04 11.67 17.66
Dividends 12.50 12.50 13.50 12.50 12.50
($0.112) ($0.136) ($0.136) ($0.116) ($0.100)
Balance Sheet Data:
-------------------
Total assets 8,696 8,012 8,202 8,193 8,755
Long-term debt 923 1,019 1,291 1,260 1,201
Minority interests 611 560 556 558 678
Stockholders' equity 3,696 3,398 3,255 3,289 3,406
Yen exchange rates per
U.S. dollar:
Year-end 123.72 107.00 86.85 102.40 114.90
Average 113.19 97.09 98.48 107.13 123.98
High 104.49 81.12 86.85 101.10 114.90
Low 124.54 107.29 105.38 114.20 134.53
24
- 24 -
Notes: 1. Dividends per share reflect those paid during each
fiscal year. The dollar amounts of the dividends per share
have been computed at the exchange rates prevailing on the
respective payment dates.
2. Beginning with fiscal 1994, the Company adopted SFAS No.
109 (Accounting for Income Taxes), and accordingly, prior
year figures have been restated to reflect this change.
3. In June 1995, the Company sold an 80% equity interest in
MCA INC. (MCA). Accordingly, beginning in fiscal 1996, MCA,
now named Universal Studios, Inc., is no longer treated as
a consolidated subsidiary but as an associated company
whose results are reflected by the equity method in
Matsushita's consolidated financial statements. The Company
registered a one-time, non-operating loss on the sale of
its investment in MCA of approximately 164 billion yen in
fiscal 1996, primarily stemming from the realization of
foreign currency translation adjustments, which led to a
substantial decrease in income before income taxes and a
net loss.
Item 9. Management's Discussion and Analysis of Financial Condition and
Results of Operations
(a) Results of Operations
For the three-year period ended March 31, 1997 ("fiscal 1995," "fiscal
1996" and "fiscal 1997"), the Japanese economy experienced a moderate
recovery from the recessionary climate of the prior years. The signs of
a recovery first appeared in fiscal 1995 in such areas as housing
construction and consumer spending, helped by the individual income tax
cut, and became more noticeable in fiscal 1996 as a result of the
government's fiscal and monetary policies to stimulate the domestic
economy. The moderate pace of recovery continued in fiscal 1997, due
mainly to a solid increase in demand from the private sector, especially
corporate capital investment and consumer spending.
Overseas economic conditions were generally favorable during this
three-year period, with the solid economic expansion of Asian countries
(excluding Japan), continued strength of the United States economy, and
recovery in several European nations.
Reflecting the aforementioned factors, Japan's Gross Domestic Product in
real terms showed moderate growth of 0.7%, 2.4% and 3.0% in fiscal 1995,
1996 and 1997, respectively.
The inflation rates in Japan for this period were low and had no
substantial impact on the Company's operations. A large portion of the
Company's overseas business is conducted in low-inflation areas, and
operations in highly inflationary environments are not material.
The Company's business was adversely affected, in terms of export-price
competitiveness, by the yen's appreciation in fiscal 1995 and 1996, and
favorably affected by the yen's depreciation in fiscal 1997. To
alleviate the effects of currency exchange rate fluctuation, the Company
has been increasing production outside Japan to meet the increasing
overseas demand while minimizing its dependence on exports. The Company
is also using various currency risk hedging techniques. The Company does
not have any material unhedged monetary assets, liabilities or
commitments denominated in currencies other than the operation's
functional currency. Management has maintained a basic policy of hedging
currency risks by engaging in forward foreign-exchange contracts with
leading world-class banks.
25
- 25 -
During this period, the Company conducted a three-year Matsushita
Revitalization Plan to revitalize and strengthen its corporate structure
with emphasis on improving profitability. Under the plan, the Company
devoted its efforts to increase responsiveness to changing and
increasingly sophisticated customer needs through the development of new
products and technologies, the enhancement of service quality and the
reinforcement of its sales structure. The Company also worked to expand
its business in such strategic growth areas as digital audiovisual(AV)
and information/communication equipment and electronic components/
devices, while at the same time strove to lower manufacturing and
overhead costs. These cost-cutting efforts included the streamlining of
product design, the use of common components and parts for different
models, the reduction in manufacturing processes, and the improvement of
efficiency in its administrative and support departments. These efforts,
combined with the aforementioned economic factors, led to gains in the
Company's sales and earnings during the past three years, excluding the
effects related to the sale of the Company's equity interest in the U.S.
entertainment company, MCA INC. (MCA), as follows:
In fiscal 1995, sales and earnings increased, reflecting the modest
recovery of the Japanese economy, management efforts and the other
factors discussed above. Net sales increased 4.9% and net income rose
269.5% in fiscal 1995.
In June 1995, the Company transferred an 80% share of its equity
interest in MCA to The Seagram Company Ltd. for approximately U.S.$5.7
billion. Consequently, MCA, now named Universal Studio, Inc., is no
longer treated as a consolidated subsidiary but as an associated company
whose results are reflected by the equity method on Matsushita's
consolidated financial statements, beginning fiscal 1996. Due primarily
to the accounting treatments related to the sale of the Company's
controlling interest in MCA, as described in further detail below, the
Company reported a 2.2% decline in net sales and a net loss of 57
billion yen in fiscal 1996. If the effects related to MCA were excluded,
the Company's sales and earnings would have shown continued improvements
in fiscal 1996.
In fiscal 1997, net sales increased 13.0% to a record 7,676 billion yen,
reflecting a favorable economic environment worldwide and management
initiatives. The Company reported net income of 138 billion yen, as
compared with a net loss in fiscal 1996. Excluding the effects relating
to MCA discussed above, net income for fiscal 1997 would still have
shown solid growth.
Year ended March 31, 1997 compared with 1996
--------------------------------------------
(1) Sales
Consolidated net sales in fiscal 1997 reached 7,676 billion yen, up
13.0% from the previous years' 6,795 billion yen. This increase was
achieved in a generally favorable worldwide economic environment as
discussed above.
Domestic sales rose 8.5% to 4,046 billion yen, largely because of
continued strong demand for information and communication equipment, as
well as a steady growth in sales of video and audio equipment and home
appliances. Overseas sales grew 18.3% to 3,630 billion yen, due mainly
to sales growth in all major categories and the depreciation of the yen.
On a local currency basis, overseas sales increased 8.3%.
26
- 26 -
Sales by major product categories were as follows:
Video equipment sales increased 9.6% to 1,343 billion yen, due largely
to the solid growth of high-definition TVs and digital video camcorders
in Japan, as well as to increased sales of color TVs in overseas
markets.
Audio equipment sales rose 11.3% to 576 billion yen, led by strong
domestic and overseas sales of car audio and related products, and solid
growth of headphone stereos and CD players.
Home appliance sales grew 12.3% to 1,026 billion yen, with a steady
increase in demand for fully-automatic washing machines, vacuum cleaners
and microwave ovens, as well as lower-power consumption models of
large-sized refrigerators and air conditioners.
Communication and industrial equipment sales increased 23.9% to 2,493
billion yen, led by information and communication equipment,
particularly mobile communications equipment and computer peripherals
such as hard-disk drives and PC displays.
Electronic components sales rose 3.5% to 1,056 billion yen, as the
adverse effect of price declines in semiconductors was more than offset
by growth of general components, liquid crystal display (LCD) panels,
and cathode-ray tubes (CRTs) for computer displays.
Batteries and kitchen-related product sales increased 16.6% to 472
billion yen, with steady growth in demand for compact lithium-ion
rechargeable batteries and high-performance alkaline batteries.
Kitchen-related products also sold well, supported by increased housing
construction in Japan.
(2) Operating Profit
Despite the negative effect of worldwide price declines, operating
profit increased 41.4% to 374 billion yen, compared with the previous
year's 264 billion yen, due principally to the Company's efforts to
lower manufacturing costs and other expenses, the growth in sales, and
the favorable effects of the yen's depreciation.
(3) Other Income (Deductions)
Other income (net) registered a loss of 42 billion yen in fiscal 1997,
compared with a loss of 188 billion yen in fiscal 1996, when the Company
incurred a one-time, non-operating loss of approximately 164 billion
yen, primarily stemming from the realization of foreign currency
translation adjustments relating to the sale of the MCA equity interest.
During fiscal 1997, the Company recognized a loss of 107 billion yen
associated with impaired receivables related to NL Finance Co., Ltd.
(NLF), a financial subsidiary, along with an impairment loss of 46
billion yen related to the decline in value of real estate held for sale
which had been received by NLF in satisfaction of impaired receivables.
The Company recorded gross realized gains of 104 billion yen from the
sale of available-for-sale securities in fiscal 1997.
(4) Provision for Income Taxes
Provision for income taxes amounted to 155 billion yen. Its ratio to
income before income taxes decreased to 46.8%, compared with 150.7% in
fiscal 1996, when the Company incurred the aforementioned,
non-tax-deductible loss relating to the MCA equity sale.
27
- 27 -
(5) Minority Interests
Minority interests totaled 44 billion yen, compared with 22 billion yen
in fiscal 1996, reflecting the earnings improvement of several
subsidiaries.
(6) Equity in Earnings of Associated Companies
Equity in earnings of associated companies increased to 6 billion yen
from 4 billion yen in the prior year, due to the improvement in earnings
of certain associated companies.
(7) Net Income
Due to the factors stated in the preceding paragraphs, net income for
fiscal 1997 grew to 138 billion yen, compared with the prior year's net
loss of 57 billion yen. Its ratio to sales was 1.8%, compared with
(0.8%) in the previous year.
Year ended March 31, 1996 compared with 1995
--------------------------------------------
(1) Sales
Consolidated net sales in fiscal 1996 were 6,795 billion yen, down 2.2%
from the previous year's 6,948 billion yen, primarily owing to the
exclusion of MCA's revenues from fiscal 1996 consolidated results. Were
MCA's revenues excluded from the previous year's results, sales would
have risen in fiscal 1996.
Consolidated domestic sales rose 7.9% to 3,727 billion yen. Overseas
sales decreased 12.2% (11.6% on a local-currency basis) to 3,068 billion
yen, due mainly to the exclusion of MCA's revenues from consolidated
sales.
Sales by major product categories were as follows:
Video equipment sales decreased 3.7% to 1,225 billion yen, due largely
to a shift in consumer demand to lower priced models, although unit
shipments of TVs and VCRs increased in both domestic and overseas
markets.
Audio equipment sales declined 6.7% to 518 billion yen, owing to
intensified competition and falling international price levels, although
unit shipments advanced both in Japan and abroad.
Home appliance sales were approximately the same as the previous year at
914 billion yen, as a result of firm demand for such products as
refrigerators and microwave ovens and seasonal products, such as air
conditioners and heating equipment.
Communication and industrial equipment sales increased 12.0% to 2,013
billion yen. Surging demand for mobile communications equipment (such as
cellular phones) and personal computers (PCs) in Japan and overseas
supported growth in the information and communication equipment field,
while increased capital investment by manufacturers of such equipment
boosted sales of factory-automation (FA) equipment.
28
- 28 -
Electronic components sales rose 14.3% to 1,020 billion yen, primarily
owing to strong domestic and overseas sales of semiconductors, CRTs and
general components for use in information and communication equipment,
such as PCs and cellular phones.
Sales of batteries and kitchen-related products grew 8.2% to 405 billion
yen. Batteries showed continued growth in domestic and overseas markets,
led by strong sales of compact, rechargeable batteries for use in
information, communication and audiovisual equipment. Kitchen-related
products also posted solid growth.
As a result of the exclusion of MCA's revenues, the proportion of
"Entertainment" revenues became insignificant. Accordingly, other
entertainment revenues were combined into the "Other" category,
beginning in fiscal 1996.
(2) Operating Profit
Despite adverse factors, such as intensified price competition and
appreciation of the yen's average rate, as well as the exclusion of MCA
from fiscal 1996 consolidated results, operating profit increased 1.6%
to 264 billion yen, compared with the previous year's 260 billion yen,
due mainly to sales gains and the Company's efforts of lowering
manufacturing costs and raising overall management efficiency.
(3) Other Income (Deductions)
Other income (net) registered a loss of 188 billion yen in fiscal 1996,
compared with a loss of 28 billion yen in fiscal 1995, due mainly to the
one-time, non-operating loss of approximately 164 billion yen relating
to the MCA equity sale.
(4) Provision for Income Taxes
Provision for income taxes amounted to 115 billion yen. Its ratio to
income before income taxes jumped to 150.7%, compared with 56.4% for the
previous fiscal year, due primarily to the aforementioned,
non-tax-deductible loss relating to MCA.
(5) Minority Interests
Minority interests were 22 billion yen, compared with 17 billion yen in
fiscal 1995, owing mainly to the earnings improvement of certain
subsidiaries.
(6) Equity in Earnings of Associated Companies
Equity in earnings of associated companies decreased to 4 billion yen
from the previous year's 6 billion yen because of the decreased earnings
of certain overseas associated companies.
(7) Net Income (Loss)
Due to the factors stated in the preceding paragraphs (in particular,
the non-operating loss relating to MCA), the Company registered a net
loss of 57 billion yen, compared with net income of 90 billion yen in
the previous year. Its ratio to sales was (0.8%), compared with the
previous year's 1.3%.
29
- 29 -
Year ended March 31, 1995 compared with 1994
--------------------------------------------
(1) Sales
Consolidated net sales in fiscal 1995 were 6,948 billion yen, up 4.9%
from the previous year's 6,624 billion yen. This positive result
reflected the moderate recovery in consumer spending in Japan and the
generally favorable overseas market conditions.
Consolidated domestic sales rose 2.8% to 3,455 billion yen, and overseas
sales rose 7.1% to 3,493 billion yen after translation into yen. On a
local currency basis, overseas sales increased 11.5%.
Sales by major product categories were as follows:
Video equipment sales decreased 2.6% to 1,272 billion yen, due largely
to a shift in consumer interest to lower-priced models and the adverse
effects of the strong yen, although sales of wide-screen TVs grew in
Japan.
Audio equipment sales grew 3.2% to 555 billion yen, supported by
increased overseas sales. In the domestic market, sales of portable CD
players rose and new models of mini-component systems were also
favorably received, but overall domestic revenues decreased due to a
general shift in consumer preference to lower-priced models.
Home appliance sales posted 9.3% growth, reaching 916 billion yen,
reflecting a sharp upturn in domestic sales of air conditioners and
refrigerators owing largely to 1994's record-hot summer. Sales of fully
automatic washing machines also remained firm.
Communication and industrial equipment sales increased 9.5% to 1,797
billion yen. In addition to increases in domestic sales of cellular
phones and personal facsimile machines, sales of hard-disk and CD-ROM
drives and other computer peripherals, as well as FA equipment, grew
substantially both in Japan and overseas.
Electronic components sales rose 7.7% to 893 billion yen, reflecting
strong domestic and overseas demand for semiconductors and a sharp
increase in overseas sales of general components.
Sales of batteries and kitchen-related products grew 7.9% to 374 billion
yen on account of an overall sales increase of batteries, in particular
nickel-metal-hydride rechargeable cells and alkaline batteries, as well
as expanding sales overseas.
Entertainment revenues rose 4.2% to 611 billion yen. U.S. dollar-based
sales of MCA grew substantially in such areas as film and music
entertainment, but were partially offset by the impact of the yen's
appreciation after translation into Japanese currency.
(2) Operating Profit
Despite adverse factors such as intensified price competition and the
yen's appreciation, operating profit increased 49.9% to 260 billion yen,
compared with the previous year's 174 billion yen, due mainly to sales
gains and the Company's efforts of lowering manufacturing costs and
raising overall management efficiency.
30
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(3) Other Income (Deductions)
Other income (net) registered a loss of 28 billion yen in fiscal 1995,
compared with a loss of 45 billion yen in fiscal 1994. The reduction in
the amount of the loss reflected a decrease in non-operating, other
expenses compared with the previous fiscal year when the Company
incurred a loss associated with uncollectible loan receivables of a
financial subsidiary, despite a decrease in interest income due to lower
interest rates.
(4) Provision for Income Taxes
Provision for income taxes amounted to 131 billion yen. Its ratio to
income before income taxes dropped to 56.4% compared with 77.9% for the
previous fiscal year, due primarily to the turnaround of certain
subsidiaries which showed losses in the previous year.
(5) Minority Interests
Minority interests were 17 billion yen in fiscal 1995 compared with 7
billion yen in fiscal 1994, owing mainly to the turnaround of certain
subsidiaries.
(6) Equity in Earnings of Associated Companies
Equity in earnings of associated companies increased to 6 billion yen
from the previous year's 3 billion yen, reflecting improved performance
of several associated companies.
(7) Net Income
Due to the factors stated in the preceding paragraphs, net income for
fiscal 1995 climbed to 90 billion yen from 24 billion yen in the
previous year. Its ratio to sales increased to 1.3% from the previous
year's 0.4%.
(b) Liquidity and Capital Resources
The Company's total assets at the end of fiscal 1997 increased to 8,696
billion yen, compared with 8,012 billion yen a year ago. Major factors
contributing to this rise were increases in cash and cash equivalents,
trade receivables, and property, plant and equipment. Stockholders'
equity increased to 3,696 billion yen, from 3,398 billion yen a year
ago, due mainly to an increase in retained earnings and the positive
effects of the yen's year-end exchange rate on cumulative translation
adjustments.
The Company's capital investment advanced to 415 billion yen, compared
with 381 billion yen in fiscal 1996. Capital investment increased
primarily in such areas as key components and devices, including
semiconductors and lithium-ion rechargeable batteries, as well as mobile
communications equipment. Depreciation grew to 345 billion yen, from 292
billion yen.
31
- 31 -
Net cash provided by operating activities in fiscal 1997 soared to 635
billion yen, from 255 billion yen in the previous year, due mainly to
increases in net income and depreciation and amortization.
Net cash used in investing activities was 448 billion yen, compared with
net cash provided by investing activities of 208 billion yen in the
previous year. This decrease is primarily owing to the fact that the
Company obtained proceeds from the sale of MCA in fiscal 1996 but not in
fiscal 1997.
Net cash used in financing activities decreased to 86 billion yen, from
238 billion yen a year ago. This decrease mainly reflected increases in
short-term borrowings and proceeds from long-term debt.
These activities, along with the effects of exchange rate changes,
resulted in a net increase of 176 billion yen in cash and cash
equivalents. Cash and cash equivalents at the end of fiscal 1997 were
2,025 billion yen, compared with 1,849 billion yen a year ago.
(c) New Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings
per Share," applicable for the fiscal year beginning April 1, 1997. This
statement establishes standards for computing earnings per share (EPS)
and simplifies the standards for computing EPS previously found in APB
Opinion No. 15, "Earnings per Share." It requires dual presentation of
basic and diluted EPS on the face of the income statement for all
entities with complex capital structures. Under this statement, EPS data
now presented will be disclosed as diluted EPS.
(d) Information by Segment
In accordance with the ministerial disclosure requirements under the
Securities and Exchange Law of Japan, the Company has reported sales,
operating profit, identifiable assets, depreciation and capital
investment by business segment and also has reported sales, operating
profit and identifiable assets by domestic and overseas companies.
Business segments correspond to categories of activity classified
primarily by markets and products. With insignificant adjustments,
"Audiovisual equipment & home appliances" includes video and audio
equipment for consumers, as well as home appliances, while
"Information/communication & industrial products" includes communication
and industrial equipment, and electronic components. Batteries and
kitchen-related products, and miscellaneous other products are allocated
between the aforementioned two segments.
Information by segment for fiscal 1997 and 1996 is shown in the tables
below.
32
- 32 -
By Business Segment:
(Billions of yen)
-----------------
1997 1996
---- ----
Sales:
Audiovisual equipment & home appliances:
Customers 3,549 3,250
Intersegment 7 10
----- -----
Total 3,556 3,260
Information/communication & industrial products:
Customers 4,127 3,545
Intersegment 449 425
----- -----
Total 4,576 3,970
Eliminations (456) (435)
----- -----
Consolidated total 7,676 6,795
===== =====
(Billions of yen)
-----------------
1997 1996
---- ----
Operating profit:
Audiovisual equipment & home appliances 162 109
Information/communication & industrial products 275 218
Corporate and eliminations (63) (63)
----- -----
Consolidated total 374 264
===== =====
Identifiable assets:
Audiovisual equipment & home appliances 2,473 2,257
Information/communication & industrial products 3,830 3,512
Corporate and eliminations 2,393 2,243
----- -----
Consolidated total 8,696 8,012
===== =====
Depreciation:
Audiovisual equipment & home appliances 79 74
Information/communication & industrial products 253 204
Corporate and eliminations 13 14
----- -----
Consolidated total 345 292
===== =====
Capital investment (including intangibles other than
goodwill)*:
Audiovisual equipment & home appliances 82 86
Information/communication & industrial products 335 294
Corporate and eliminations 7 13
----- -----
Consolidated total 424 393
===== =====
33
- 33 -
By Domestic and Overseas Companies:
(Billions of yen)
-----------------
1997 1996
---- ----
Sales:
Domestic companies:
Customers 5,322 4,919
Intersegment 815 735
------ -----
Total 6,137 5,654
Overseas companies:
Customers 2,354 1,876
Intersegment 328 250
------ -----
Total 2,682 2,126
Eliminations (1,143) (985)
------ -----
Consolidated total 7,676 6,795
====== =====
(Billions of yen)
-----------------
1997 1996
---- ----
Operating profit:
Domestic companies 359 247
Overseas companies 80 68
Corporate and eliminations (65) (51)
----- -----
Consolidated total 374 264
===== =====
Identifiable assets:
Domestic companies 4,880 4,670
Overseas companies 1,534 1,196
Corporate and eliminations 2,282 2,146
----- -----
Consolidated total 8,696 8,012
===== =====
Notes: 1. Corporate expenses include certain corporate R&D
expenditures and general corporate expenses.
2. Corporate assets consist of cash and cash
equivalents, marketable securities in short-term
investments, investments and advances and other
assets related to unallocated expenses.
* Intangibles mainly represent rights to public facilities and
patents.
34
- 34 -
Item 10. Directors and Officers of Registrant
(a) Matsushita's Articles of Incorporation as revised as of June 29, 1994
provide that the number of Directors of the registrant shall be three
or more and that of Corporate Auditors shall be three or more.
Directors and Corporate Auditors shall be elected by the general
meeting of shareholders. The Board of Directors has ultimate
responsibility for administration of the registrant's affairs.
Directors may, by resolution of the Board of Directors, appoint a
Chairman of the Board of Directors, a Vice Chairman of the Board of
Directors, a President and Director, and one or more Executive Vice
Presidents and Directors, Senior Managing Directors and Managing
Directors. The Chairman of the Board of Directors, Vice Chairman of
the Board of Directors, President and Director, Executive Vice
Presidents and Directors, Senior Managing Directors and Managing
Directors are Representative Directors and severally represent the
registrant. The term of office of Directors shall expire at the
conclusion of the ordinary general meeting of shareholders with
respect to the last closing of accounts within two years from their
assumption of office, and in the case of Corporate Auditors, within
three years from their assumption of office. However, they may serve
any number of consecutive terms.
The Corporate Auditors of the registrant are not required to be and
are not certified public accountants. However, at least one of the
Corporate Auditors should be a person who has not been a director,
general manager or employee of the registrant or any of its
subsidiaries during the five-year period prior to his election as a
Corporate Auditor. Each Corporate Auditor has the statutory duty to
examine the financial statements and business reports to be submitted
by the Board of Directors at the general meeting of shareholders and
also to supervise the administration by the Directors of the
registrant's affairs. They are entitled to participate in meetings of
the Board of Directors but are not entitled to vote.
The 1993 amendments to the Law concerning Special Measures to the
Commercial Code with respect to Audit introduced the Board of
Corporate Auditors system. The Board of Corporate Auditors has a
statutory duty to prepare and submit its audit report to the Board of
Directors each year. A Corporate Auditor may note his opinion in the
audit report if his opinion is different from the opinion expressed
in the audit report. The Board of Corporate Auditors is empowered to
establish audit principles, method of examination by Corporate
Auditors of the registrant's affairs and financial position and other
matters concerning the performance of the Corporate Auditors' duties.
The Corporate Auditors may not at the same time be Directors,
managers or employees of the registrant.
Set forth below are the names of Directors and Corporate Auditors
after the ordinary general meeting of shareholders held on June 27,
1997, their positions and offices with Matsushita Electric Industrial
Co., Ltd. and the periods during which they have served as Director or
Corporate Auditor.
Director/Corporate
Name Positions with registrant Auditor since
---- ------------------------- ------------------
Masaharu Matsushita Chairman of the Board of Directors 1944
Yoichi Morishita President and Director 1987
Kazuhiko Sugiyama Executive Vice President and Director 1996
Masayuki Matsushita Executive Vice President and Director 1986
Kazuo Ichikawa Senior Managing Director 1987
35
- 35 -
Director/Corporate
Name Positions with registrant Auditor since
---- ------------------------- -------------
Tsutomu Fukuhara Senior Managing Director 1988
Mikio Higashi Sinor Managing Director 1988
Kunio Nakamura Senior Managing Director 1993
Toshikatsu Yamawaki Managing Director 1991
Minoru Washio Managing Director 1992
Motoi Matsuda Managing Director 1993
Kazuo Toda Managing Director 1994
Reiji Sano Managing Director 1995
Atsushi Murayama Managing Director 1995
Osamu Tanaka Managing Director 1995
Kyonosuke Ibe Director 1979
Josei Ito Director 1994
Tsuneharu Nitta Director 1991
Masahiro Nagasawa Director 1992
Katsuro Sakakibara Director 1992
Seinosuke Kuraku Director 1994
Susumu Ishihara Director 1994
Yukio Shotoku Director 1994
Teruo Nakano Director 1996
Tokio Miyao Director 1996
Yoshinori Kobe Director 1996
Yoshitomi Nagaoka Director 1996
Hiroaki Enomoto Director 1996
Seiichi Wakino Director 1997
Sukeichi Miki Director 1997
Yoshio Hino Director 1997
Toshio Sugiura Director 1997
Hideo Takahashi Senior Corporate Auditor 1995
Mamoru Furuichi Senior Corporate Auditor 1997
Masaaki Arai Corporate Auditor 1974
Toshio Miyoshi Corporate Auditor 1994
(b) There are no family relationships between any Director or Corporate
Auditor and any other Director or Corporate Auditor of the Company
except as described below:
Masayuki Matsushita, Executive Vice President and Director is a son of
Masaharu Matsushita, Chairman of the Board of Directors.
36
- 36 -
Item 11. Remuneration of Directors and Officers
(a) The aggregate amount of remuneration, including bonuses, paid by the
Company during fiscal 1997 to all Directors and Corporate Auditors as
a group (42 persons) for services in all capacities was 1,291 million
yen.
(b) In accordance with customary Japanese business practices, a retiring
Director or Corporate Auditor receives a lump-sum retirement payment,
which is subject to approval of the general meeting of shareholders.
Retirement allowances provided for Directors and Corporate Auditors
for fiscal 1997 amounted to 335 million yen.
Item 12. Options to Purchase Securities from Registrant or Subsidiaries
None
Item 13. Interest of Management in Certain Transactions
None
PART II
Item 14. Description of Securities to be Registered
Not applicable
PART III
Item 15. Defaults upon Senior Securities
None
Item 16. Changes in Securities and Changes in Security for Registered
Securities
None
37
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PART IV
Item 17. Financial Statements
Index of Consolidated Financial Statements of Matsushita Electric Industrial
Co., Ltd. and Subsidiaries:
Page
number
------
Independent Auditors' Report 38
Consolidated Balance Sheets as of March 31, 1997 and 1996 39
Consolidated Statements of Operations for the years ended
March 31, 1997, 1996 and 1995 41
Consolidated Statements of Surplus for the years ended
March 31, 1997, 1996 and 1995 42
Consolidated Statements of Cash Flows for the years ended
March 31, 1997, 1996 and 1995 43
Notes to Consolidated Financial Statements 45
Schedule for the years ended March 31, 1997, 1996 and 1995:
Schedule VIII Valuation and Qualifying Accounts and Reserves for
the years ended March 31, 1997, 1996 and 1995 67
All other schedules are omitted as permitted by the rules and regulations of the
Securities and Exchange Commission as the required information is presented in
the consolidated financial statements or notes thereto, or the schedules are not
applicable.
Financial statements of nonconsolidated subsidiaries and affiliates 20% to 50%
owned are omitted because none of such subsidiaries and affiliates constitute a
significant subsidiary.
38
- 38 -
Independent Auditors' Report
The Board of Directors and Stockholders
Matsushita Electric Industrial Co., Ltd.:
We have audited the consolidated financial statements of Matsushita Electric
Industrial Co., Ltd. and subsidiaries as listed in the accompanying index. In
connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedule as listed in the accompanying
index. These consolidated financial statements and financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
Matsushita Electric Industrial Co., Ltd. and subsidiaries have not applied
Statement of Financial Accounting Standards (SFAS) No. 115 in accounting for
certain investments in debt and equity securities but have provided the
disclosures required by SFAS No. 115 as of March 31, 1997 and 1996, and for each
of the years in the three-year period ended March 31, 1997. The effects on the
consolidated financial statements of not adopting SFAS No. 115 are summarized in
Note 5 of the notes to consolidated financial statements.
The segment information required to be disclosed in financial statements under
United States generally accepted accounting principles is not presented in the
accompanying consolidated financial statements. Foreign issuers are presently
exempted from such disclosure requirement in Securities Exchange Act filings
with the United States Securities and Exchange Commission.
In our opinion, except for the effects of the departure from SFAS No. 115 in
accounting for certain investments in debt and equity securities discussed in
the third paragraph of this report, and except for the omission of the segment
information discussed in the preceding paragraph, the consolidated financial
statements referred to above present fairly, in all material respects, the
financial position of Matsushita Electric Industrial Co., Ltd. and subsidiaries
as of March 31, 1997 and 1996, and the results of their operations and their
cash flows for each of the years in the three-year period ended March 31, 1997,
in conformity with Untied States generally accepted accounting principles. Also
in our opinion, the related financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
KPMG PEAT MARWICK
Osaka, Japan
May 22, 1997
39
- 39 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 1997 and 1996
Yen (millions)
--------------
Assets 1997 1996
------ ---- ----
Current assets:
Cash and cash equivalents (Note 7) 2,024,830 1,848,779
Short-term investments (Notes 5 and 13) 157,919 98,581
Trade receivables (Note 7):
Related companies (Note 4) 30,769 25,007
Notes 144,931 145,869
Accounts 1,307,112 1,148,212
Allowance for doubtful receivables (60,810) (53,826)
--------- ---------
Net trade receivables 1,422,002 1,265,262
--------- ---------
Inventories (Notes 3 and 7) 1,079,435 1,013,927
Other current assets (Notes 5 and 9) 426,430 359,103
--------- ---------
Total current assets 5,110,616 4,585,652
--------- ---------
Noncurrent receivables (Note 6) 272,773 324,231
Investments and advances (Notes 5 and 13):
Associated companies (Note 4) 513,205 495,748
Other investments and advances 732,484 661,143
--------- ---------
Total investments and advances 1,245,689 1,156,891
--------- ---------
Property, plant and equipment:
Land 255,389 245,131
Buildings 1,118,338 1,036,003
Machinery and equipment 2,936,775 2,643,390
Construction in progress 89,610 102,087
--------- ---------
4,400,112 4,026,611
Less accumulated depreciation 2,871,755 2,651,389
--------- ---------
Net property, plant and equipment 1,528,357 1,375,222
--------- ---------
Other assets (Notes 5, 6 and 9) 538,470 569,836
--------- ---------
8,695,905 8,011,832
========= =========
See accompanying Notes to Consolidated Financial Statements.
40
- 40 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 1997 and 1996
Yen (millions)
--------------
Liabilities and Stockholders' Equity 1997 1996
------------------------------------ ---- ----
Current liabilities:
Short-term borrowings, including current portion
of long-term debt (Notes 7 and 13) 917,319 861,304
Commercial paper 81,743 62,910
Trade payables:
Related companies (Note 4) 19,121 14,999
Notes 62,549 57,647
Accounts 610,925 497,338
--------- ---------
Total trade payables 692,595 569,984
--------- ---------
Accrued income taxes (Note 9) 174,108 95,317
Accrued payroll 169,538 159,239
Other accrued expenses 565,179 493,311
Deposits and advances from customers 95,810 96,853
Employees' deposits 149,395 144,121
Other current liabilities (Note 5) 190,390 160,871
--------- ---------
Total current liabilities 3,036,077 2,643,910
--------- ---------
Noncurrent liabilities:
Long-term debt (Notes 7 and 13) 923,474 1,019,117
Retirement and severance benefits (Note 8) 427,300 388,903
Other liabilities (Notes 5 and 9) 1,873 2,041
--------- ---------
Total noncurrent liabilities 1,352,647 1,410,061
--------- ---------
Minority interests (Note 5) 611,472 560,264
Stockholders' equity (Note 5):
Common stock of 50 yen par value (Notes 7 and 10):
Authorized - 5,000,000,000 shares
Issued - 2,111,156,851 shares
(2,097,714,956 shares in 1996) 208,473 198,706
Capital surplus (Notes 7 and 10) 573,780 562,876
Legal reserve (Note 10) 81,663 78,817
Retained earnings (Note 10) 2,874,763 2,766,060
Cumulative translation adjustments (Note 1(g)) (42,970) (208,862)
--------- ---------
Total stockholders' equity 3,695,709 3,397,597
Commitments and contingent liabilities (Note 14)
--------- ---------
8,695,905 8,011,832
========= =========
See accompanying Notes to Consolidated Financial Statements.
41
- 41 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended March 31, 1997, 1996 and 1995
Yen (millions)
-----------------------------------
1997 1996 1995
--------- --------- ---------
Net sales:
Related companies (Note 4) 291,271 283,156 291,821
Other 7,384,641 6,511,696 6,656,338
--------- --------- ---------
Total net sales 7,675,912 6,794,852 6,948,159
Cost of sales (Note 4) 5,316,390 4,689,691 4,793,736
--------- --------- ---------
Gross profit 2,359,522 2,105,161 2,154,423
Selling, general and administrative expenses
(Note 11) 1,985,621 1,840,667 1,894,203
--------- --------- ---------
Operating profit 373,901 264,494 260,220
Other income (deductions):
Interest and dividend income (Note 4) 63,111 65,438 63,572
Interest expense (66,532) (76,270) (88,446)
Other, net (Notes 5, 6 and 11) (38,355) (12,841) (3,139)
Loss relating to sale of MCA INC. (Note 2) -- (164,198) --
--------- --------- ---------
(41,776) (187,871) (28,013)
--------- --------- ---------
Income before income taxes 332,125 76,623 232,207
Provision for income taxes (Note 9):
Current 223,187 141,418 153,202
Deferred (67,800) (25,931) (22,338)
--------- --------- ---------
155,387 115,487 130,864
--------- --------- ---------
Income (loss) before minority
interests and equity in earnings
of associated companies 176,738 (38,864) 101,343
Minority interests 44,391 22,423 16,955
Equity in earnings of associated companies
(Note 4) 5,506 4,416 6,106
--------- --------- ---------
Net income (loss) 137,853 (56,871) 90,494
========= ========= =========
Yen
-----------------------------------
Net income (loss) per depositary share, each
representing 10 shares of common stock
(Note 1(m)) 606 (271) 410
=== ===== ===
See accompanying Notes to Consolidated Financial Statements.
42
- 42 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Consolidated Statements of Surplus
Years ended March 31, 1997, 1996 and 1995
Yen (millions)
-----------------------------------------------
Cumulative
Retained Capital Legal translation
earnings surplus reserve adjustments
-------- ------- ------- -----------
Balance at March 31, 1994 2,794,852 565,866 70,919 (339,727)
Net income for year 90,494
Cash dividends (Note 10) (28,301)
Increase in capital surplus arising on
conversion of bonds (Notes 10 and 11) 1,335
Transfer to legal reserve (Note 10) (4,441) 4,441
Translation adjustments (Note 1(g)) (98,586)
---------- ------- ------ ---------
Balance at March 31, 1995 2,852,604 567,201 75,360 (438,313)
Net loss for year (56,871)
Cash dividends (Note 10) (26,216)
Increase in capital surplus arising on
conversion of bonds (Notes 10 and 11) 334
Transfer of ownership in MCA INC.
(Notes 2 and 11) (4,659) 136,504
Transfer to legal reserve (Note 10) (3,457) 3,457
Translation adjustments (Note 1(g)) 92,947
---------- ------- ------ ---------
Balance at March 31, 1996 2,766,060 562,876 78,817 (208,862)
Net income for year 137,853
Cash dividends (Note 10) (26,304)
Increase in capital surplus arising on
conversion of bonds (Notes 10 and 11) 9,765
Transfer of ownership arising on capital
transactions by consolidated and
associated companies (Note 11) 1,139
Transfer to legal reserve (Note 10) (2,846) 2,846
Translation adjustments (Note 1(g)) 165,892
---------- ------- ------ ---------
Balance at March 31, 1997 2,874,763 573,780 81,663 (42,970)
========== ======= ====== =========
See accompanying Notes to Consolidated Financial Statements.
43
- 43 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended March 31, 1997, 1996 and 1995
Yen (millions)
--------------
1997 1996 1995
---- ---- ----
Cash flows from operating activities (Note 11):
Net income (loss) 137,853 (56,871) 90,494
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 349,646 297,684 473,809
Loss relating to sale of MCA INC. (Note 2) -- 164,198 --
Net gain on sale of investments (98,554) (8,399) (23,874)
Provision for doubtful receivables 120,604 41,146 12,851
Deferred income taxes (67,800) (25,931) (22,338)
Impairment loss on other assets (Note 6) 45,800 -- --
Minority interests 44,391 22,423 16,955
Change in assets and liabilities net of effects
in 1996 from sale of MCA INC.:
(Increase) decrease in trade receivables (125,230) (149,852) (65,689)
(Increase) decrease in inventories (9,426) (116,537) (207,894)
(Increase) decrease in other current assets (22,096) (15,709) (9,626)
(Increase) decrease in noncurrent receivables (28,394) (1,033) 85,050
Increase (decrease) in trade payables 74,557 (20,491) 744
Increase (decrease) in accrued income taxes 75,653 (2,983) 32,688
Increase (decrease) in accrued expenses and
other current liabilities 96,600 82,358 72,075
Increase (decrease) in retirement and
severance benefits 34,605 24,144 18,946
Other 6,300 20,838 8,493
-------- -------- --------
Net cash provided by operating
activities 634,509 254,985 482,684
-------- -------- --------
Cash flows from investing activities (Note 11):
Proceeds from sale of MCA INC. (Note 2) -- 479,780 --
Proceeds from sale of short-term investments 434,186 262,075 284,652
Purchase of short-term investments (328,780) (173,396) (232,283)
Proceeds from disposition of investments and
advances 247,379 266,847 252,983
Increase in investments and advances (408,259) (261,883) (320,465)
Capital expenditures (405,595) (379,870) (324,280)
Other 12,836 14,109 (1,581)
-------- -------- --------
Net cash provided by (used in)
investing activities (448,233) 207,662 (340,974)
-------- -------- --------
(Continued)
44
- 44 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended March 31, 1997, 1996 and 1995
Yen (millions)
--------------------------------
1997 1996 1995
---- ---- ----
Cash flows from financing activities (Note 11):
Increase (decrease) in short-term borrowings 28,353 (39,660) 107,551
Increase (decrease) in deposits and advances
from customers and employees 4,231 54 (5,033)
Proceeds from long-term debt 228,360 125,676 319,843
Repayments of long-term debt (312,385) (291,353) (360,580)
Dividends paid (26,304) (26,216) (28,301)
Dividends paid to minority interests (8,613) (6,799) (9,347)
---------- ---------- ----------
Net cash provided by (used in)
financing activities (86,358) (238,298) 24,133
---------- ---------- ----------
Effect of exchange rate changes on cash and cash
equivalents 76,133 79,399 (13,803)
---------- ---------- ----------
Net increase in cash and cash equivalents 176,051 303,748 152,040
Cash and cash equivalents at beginning of year 1,848,779 1,545,031 1,392,991
---------- ---------- ----------
Cash and cash equivalents at end of year 2,024,830 1,848,779 1,545,031
========== ========== ==========
See accompanying Notes to Consolidated Financial Statements.
45
- 45 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1997, 1996 and 1995
(1) Summary of Significant Accounting Policies
(a) DESCRIPTION OF BUSINESS
Matsushita Electric Industrial Co., Ltd. is one of the world's
leading producers of electronic and electric products. The
Company currently offers a comprehensive range of products,
systems and components for consumer, business and industrial
use based on sophisticated electronics and precision
technology. Most of the Company's products are marketed under
several trade names, including "Panasonic," "National,"
"Technics," "Quasar," "Victor" and "JVC."
Sales in fiscal 1997 were categorized as follows: video
equipment -- 18%, audio equipment -- 8%, home appliances --
13%, communication and industrial equipment -- 32%, electronic
components -- 14%, batteries and kitchen-related products --
6%, and other -- 9%. A sales breakdown in fiscal 1997 by
geographical market was as follows: Japan -- 53%, North and
South America -- 16%, Europe and Africa -- 11%, and Asia and
Others -- 20%.
The Company is not dependent on a single supplier, and has no
significant difficulty in obtaining raw materials from
suppliers.
(b) BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS
The Company and its domestic subsidiaries maintain their books
of account in conformity with financial accounting standards
of Japan, and its foreign subsidiaries in conformity with
those of the countries of their domicile.
The consolidated financial statements presented herein have
been prepared in a manner and reflect the adjustments which
are necessary to conform with United States generally accepted
accounting principles.
(c) PRINCIPLES OF CONSOLIDATION (SEE NOTES 2 AND 4)
The consolidated financial statements include the accounts of
the Company and its subsidiaries. Significant intercompany
accounts and transactions have been eliminated on
consolidation.
Investments in certain associated companies in which the
Company's ownership is 20% to 50% are stated at their
underlying net equity value after elimination of intercompany
profits. The difference between the cost and underlying net
equity at acquisition of investments in subsidiaries and
associated companies accounted for on an equity basis is
allocated to identifiable assets based on fair market value at
the date of acquisition. The unallocated portion of the
difference, which is recognized as goodwill, is being
amortized over a ten- to forty-year period.
46
- 46 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(d) REVENUE RECOGNITION
Revenues from sales are recognized when products are shipped
to customers.
Revenues from the theatrical distribution of films are
recognized as the films are exhibited. Revenues from
television and pay television licensing agreements are
recognized in the year that the films are available for
telecast. Revenues from sales of home video products, recorded
music and books, net of provision for estimated returns and
allowances, are recognized upon shipment of the merchandise.
(e) LEASES
Certain subsidiaries of the Company lease machinery and
equipment. Leases of such assets are principally accounted for
as direct financing leases and included in "Trade receivables
-- Accounts" and "Noncurrent receivables" in the accompanying
balance sheets.
(f) INVENTORIES (SEE NOTE 3)
Finished goods and work in process are stated at the lower of
cost (average) or market. Raw materials are stated at cost,
principally on a first-in, first-out basis, not in excess of
current replacement cost.
Cost of completed theatrical and television films includes
production, prints, exploitation costs, and applicable
capitalized interest.
Film costs are amortized in the proportion that revenue
recognized during the year for each film relates to the
estimated total revenue to be received from all sources, under
the individual film forecast method.
Film costs are stated at the lower of unamortized cost or
estimated net realizable value as periodically determined on a
film-by-film basis.
47
- 47 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(g) FOREIGN CURRENCY TRANSLATION
Foreign currency financial statements are translated in
accordance with Statement of Financial Accounting Standards
(SFAS) No. 52, "Foreign Currency Translation," under which all
assets and liabilities are translated into yen at year-end
rates and income and expense accounts are translated at
weighted average rates. Adjustments resulting from the
translation of financial statements are reflected under the
caption, "Cumulative translation adjustments," a separate
component of stockholders' equity.
Foreign currency transaction gains and losses included in the
consolidated statements of operations for the three years
ended March 31, 1997 were not significant.
(h) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Depreciation
is computed primarily using the declining balance method based
on the estimated useful lives.
(i) SHORT-TERM INVESTMENTS AND INVESTMENTS AND ADVANCES (SEE
NOTE 5)
Marketable equity securities included in short-term
investments and in investments and advances are carried at the
lower of cost or market, cost being determined by the average
method. Other items included in short-term investments,
primarily marketable securities classified as current assets
and those included in investments and advances, are carried at
cost or less.
In May 1993, the Financial Accounting Standards Board (FASB)
issued SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," applicable for the fiscal year
beginning April 1, 1994. This addresses the accounting and
reporting for investments in equity securities that have
readily determinable fair values and for all investments in
debt securities. The Company decided not to apply SFAS No. 115
in the body of its consolidated financial statements in order
to maintain comparability to consolidated financial statements
prepared in accordance with accounting principles generally
accepted in Japan where such debt and equity securities are
reported at historical cost. The effects on the consolidated
financial statements of not adopting SFAS No. 115 are
summarized in Note 5. This treatment was approved by the
United States Securities and Exchange Commission.
48
- 48 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(j) NONCURRENT RECEIVABLES (SEE NOTE 6)
The Company adopted SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan," as amended by SFAS No. 118, "Accounting
by Creditors for Impairment of a Loan -- Income Recognition
and Disclosures," on April 1, 1995. Prior periods have not
been restated. These statements address the accounting by
creditors for impairment of certain loans. A loan is
considered to be impaired when, based on current information
and events, it is probable that a creditor will be unable to
collect all amounts due according to the contractual terms of
the loan agreement. When a loan is considered to be impaired,
the amount of impairment is measured based on the present
value of expected future cash flows or the fair value of the
collateral. Noncurrent receivables are recorded at cost, less
the related allowance for impaired receivables. Cash receipts
on impaired receivables are applied to reduce the principal
amount of such receivables until the principal has been
recovered and are recognized as interest income, thereafter.
(k) INCOME TAXES (SEE NOTE 9)
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards.
Income taxes have not been accrued for undistributed earnings
of foreign subsidiaries and associated companies, as these
amounts are considered to be reinvested indefinitely.
Calculation of the unrecognized deferred tax liability related
to these earnings is not practicable.
(l) ADVERTISING (SEE NOTE 11)
Advertising costs are expensed as incurred.
(m) NET INCOME (LOSS) PER DEPOSITARY SHARE (SEE NOTES 7 AND 10)
In computing net income (loss) per depositary share, the
average number of shares outstanding during each period has
been used, appropriately adjusted for the number of shares
issuable upon conversion of common stock equivalents.
(n) CASH EQUIVALENTS
Cash equivalents include all highly liquid debt instruments
purchased with a maturity of three months or less.
49
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MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(o) DERIVATIVE FINANCIAL INSTRUMENTS (SEE NOTES 12 AND 13)
Derivative financial instruments utilized by the Company and
its subsidiaries are comprised principally of foreign exchange
contracts used to hedge currency risk. Gains and losses on
derivatives used to hedge existing assets or liabilities
denominated in foreign currencies are recognized in income
currently, as are the offsetting foreign exchange gains and
losses on the items hedged. Gains and losses related to
qualifying hedges of firm commitments denominated in foreign
currencies are deferred and recognized in income when the
transaction occurs.
(p) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE
DISPOSED OF
The Company adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," on April 1, 1996. This Statement requires
that long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held
and used is measured by a comparison of the carrying amount of
an asset to future net cash flows (undiscounted and without
interest charges) expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to
be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets.
Assets to be disposed of are reported at the lower of carrying
amount or fair value less cost to sell. The adoption of this
statement does not have a material effect on the result of
operations or financial position.
(q) USE OF ESTIMATES
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and
liabilities and the disclosure of contingent assets and
liabilities to prepare these financial statements in
conformity with generally accepted accounting principles.
Actual results could differ from those estimates.
(r) NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, FASB issued SFAS No. 128, "Earnings per
Share," applicable for the fiscal year beginning April 1,
1997. This statement establishes standards for computing
earnings per share (EPS) and simplifies the standards for
computing EPS previously found in APB Opinion No. 15,
"Earnings per Share." It requires dual presentation of basic
and diluted EPS on the face of the income statement for all
entities with complex capital structures. Under this
statement, EPS data now presented will be disclosed as diluted
EPS.
50
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MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(2) Disposition
On June 5, 1995, the Company transferred an 80% share of its equity
interest in MCA INC. (MCA), now named Universal Studios, Inc., to the
Seagram Company Ltd. for approximately U.S.$5.7 billion. As a result
of this transaction, the Company registered a one-time, non-operating
loss on the sale of this investment of approximately 164.2 billion yen
primarily stemming from the realization of foreign currency
translation adjustments related to MCA. MCA, which had net sales of
491 billion yen and total assets of 1,075 billion yen in fiscal 1995,
was no longer treated as a consolidated subsidiary from fiscal 1996.
MCA's contribution, after amortization of goodwill, to the Company's
net income for fiscal 1995 was insignificant.
(3) Inventories
Inventories at March 31, 1997 and 1996 are summarized as follows:
Yen (millions)
-------------------
1997 1996
---- ----
Finished goods 547,494 514,087
Work in process 204,400 174,581
Raw materials 327,541 325,259
--------- ---------
1,079,435 1,013,927
========= =========
(4) Investments in and Transactions with Associated Companies
Certain financial information in respect of associated companies at
March 31, 1997 and 1996 and for the three years ended March 31, 1997
is shown below. The most significant of these associated companies are
Universal Studio, Inc. (Universal), included from the year ended March
31, 1996, and Matsushita Electric Works, Ltd. (MEW). At March 31,
1997, the Company has a 20.0% equity ownership in Universal and a
30.2% equity ownership in MEW.
Yen (millions)
-------------------
1997 1996
---- ----
Current assets 1,448,091 1,453,546
Other assets 2,331,167 2,075,894
--------- ---------
3,779,258 3,529,440
Current liabilities 896,764 756,063
Other liabilities 1,051,396 1,085,997
--------- ---------
Net assets 1,831,098 1,687,380
========= =========
Company's equity in net assets 440,048 415,458
========= =========
51
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MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) Investments in and Transactions with Associated Companies (continued)
Yen (millions)
-------------------------------------
1997 1996 1995
---- ---- ----
Net sales 3,062,556 2,740,359 2,514,235
Gross profit 816,730 688,230 600,712
Net income 46,217 41,564 56,597
Purchases and dividends received from the associated companies for the
three years ended March 31, 1997 are as follows:
Yen (millions)
-----------------------
1997 1996 1995
---- ---- ----
Purchases from 257,150 199,310 229,697
Dividends received 6,032 7,147 12,157
Retained earnings include undistributed earnings of associated companies in
the amount of 81,214 million yen and 75,159 million yen, respectively, as
of March 31, 1997 and 1996.
Investments in associated companies include equity securities which have
quoted market values at March 31, 1997 and 1996 compared with related
carrying amounts as follows:
Yen (millions)
--------------
1997 1996
---- ----
Carrying amount 274,070 271,034
Market value 340,238 372,437
(5) Short-term Investments and Investments and Advances
As discussed in Note 1(i), the Company does not apply SFAS No. 115 in the
body of its consolidated financial statements. The effects on the
consolidated financial statements of not adopting SFAS No. 115 are
disclosed in this note.
SFAS No. 115 requires that certain investments in debt and equity
securities be classified as held-to-maturity, trading, or
available-for-sale securities. The short-term investments and investments
and advances of the Company consist of available-for-sale securities. The
consolidated statements of operations for the three years ended March 31,
1997 were not materially affected by SFAS No. 115.
52
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MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) Short-term Investments and Investments and Advances (continued)
The effects on balance sheet items of the Company's departure from SFAS No.
115 as of March 31, 1997 and 1996 are summarized as follows:
Yen (millions)
----------------------
1997 1996
---- ----
Stockholders' equity as reported 3,695,709 3,397,597
Net increase in the carrying amount of:
Short-term investments 85,372 96,674
Investments and advances 223,327 467,817
Net decrease in deferred tax assets and
increase in deferred tax liabilities:
Current deferred tax assets (decrease) (38,304) (49,330)
Noncurrent deferred tax assets (decrease) (114,332) (156,610)
Current deferred tax liabilities (increase) (5,402) --
Noncurrent deferred tax liabilities (increase) (2) (83,071)
Net unrealized gain on securities held
by associated companies 4,556 9,494
Net increase in minority interests (9,162) (16,437)
--------- ---------
Total adjustments to stockholders' equity 146,053 268,537
--------- ---------
Stockholders' equity in accordance with
U.S. generally accepted accounting principles 3,841,762 3,666,134
========= =========
As a result of the above adjustments, total assets at March 31, 1997 and
1996 would increase by 160,619 million yen and 368,045 million yen,
respectively.
53
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MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) Short-term Investments and Investments and Advances (continued)
The carrying amount, fair value, gross unrealized holding gains, and gross
unrealized holding losses of available-for-sale securities included in
short-term investments and investments and advances at March 31, 1997 and
1996 are as follows:
Yen (millions)
--------------------------------------------------
1997
--------------------------------------------------
Gross Gross
unrealized unrealized
Carrying Fair holding holding
amount value gains losses
------ ----- ----- ------
Current:
Available-for-sale:
Equity securities 9,195 93,608 84,413 --
Japanese and foreign
government bonds 107,043 107,793 809 59
Convertible and straight
bonds 4,881 4,938 108 51
Investment trust 4,891 4,891 -- --
Other debt securities 31,909 32,061 306 154
------- ------- ------- -------
157,919 243,291 85,636 264
======= ======= ======= =======
Noncurrent:
Available-for-sale:
Equity securities 299,451 526,593 227,142 --
Japanese and foreign
government bonds 7,061 7,156 95 --
Convertible and straight
bonds 1,968 1,994 26 --
Investment trust 100,109 96,137 156 4,128
Other debt securities 15,935 15,971 36 --
------- ------- ------- -------
424,524 647,851 227,455 4,128
======= ======= ======= =======
Yen (millions)
-------------------------------------------------
1996
-------------------------------------------------
Gross Gross
unrealized unrealized
Carrying Fair holding holding
amount value gains losses
------ ----- ----- ------
Current:
Available-for-sale:
Equity securities 13,718 110,036 96,318 --
Japanese and foreign
government bonds 27,982 28,053 71 --
Convertible and straight
bonds 4,559 4,611 95 43
Investment trust 12,325 12,325 -- --
Other debt securities 39,997 40,230 278 45
------- ------- ------- -------
98,581 195,255 96,762 88
======= ======= ======= =======
54
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MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) Short-term Investments and Investments and Advances (continued)
Yen (millions)
----------------------------------------
1996
----------------------------------------
Gross Gross
unrealized unrealized
Carrying Fair holding holding
amount value gains losses
------ ----- ----- ------
Noncurrent:
Available-for-sale:
Equity securities 195,233 670,950 475,717 --
Japanese and foreign
government bonds 81,292 81,875 602 19
Convertible and straight
bonds 3,118 3,044 -- 74
Investment trust 87,972 79,477 251 8,746
Other debt securities 17,517 17,603 87 1
------- ------- ------- -------
385,132 852,949 476,657 8,840
======= ======= ======= =======
Maturities of short-term investments and investments and advances
classified as available-for-sale at March 31, 1997 and 1996 are as follows:
Yen (millions)
--------------------------------------------
1997 1996
--------------------- ---------------------
Carrying Fair Carrying Fair
amount value amount value
------ ----- ------ -----
Due within one year 142,671 143,630 69,704 69,984
Due after one year through
five years 127,456 123,784 199,856 192,974
Due after five years 3,670 3,527 5,202 4,260
Equity securities 308,646 620,201 208,951 780,986
--------- --------- --------- ---------
582,443 891,142 483,713 1,048,204
========= ========= ========= =========
The change in net unrealized holding gain on available-for-sale securities,
net of related taxes and minority interests, for the years ended March 31,
1997, 1996 and 1995 was a decrease of 122,484 million yen, an increase of
72,054 million yen and a decrease of 47,398 million yen, respectively.
Proceeds from sale of available-for-sale securities for the years ended
March 31, 1997, 1996 and 1995 were 652,504 million yen, 495,565 million yen
and 513,799 million yen, respectively. The gross realized gains for the
years ended March 31, 1997, 1996 and 1995 were 104,393 million yen, 21,416
million yen and 34,154 million yen, respectively. The gross realized losses
for the years ended March 31, 1997, 1996 and 1995 were 5,839 million yen,
13,017 million yen and 10,280 million yen, respectively. The cost of
securities sold in computing gross realized gains and losses is determined
by the average cost method.
55
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MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(6) Noncurrent Receivables
As discussed in Note 1(j), the Company adopted SFAS No. 114 and SFAS No.
118, effective April 1, 1995. The recorded investment in noncurrent
receivables relating to NL Finance Co., Ltd. (NLF), a financial subsidiary,
for which impairment has been recognized at March 31, 1997 and 1996 was
95,676 million yen and 162,327 million yen, respectively. Related allowance
for doubtful receivables at March 31, 1997 and 1996 was 63,171 million yen
and 68,910 million yen, respectively. The average recorded investment in
impaired receivables during the years ended March 31, 1997 and 1996 was
133,225 million yen and 184,480 million yen, respectively. Additions
charged to bad debt expenses for the years ended March 31, 1997 and 1996
were 107,302 million yen and 38,790 million yen, respectively. Write-downs
charged against the allowance for the years ended March 31, 1997 and 1996
were 113,041 million yen and 45,497 million yen, respectively.
The Company recognized an impairment loss of 45,800 million yen, included
in other (net) of other income (deductions), during fiscal 1997 related to
the decline in value of real estate held for sale (included in other
assets) which had been received by NLF in satisfaction of impaired
receivables.
(7) Long-term Debt and Short-term Borrowings
Long-term debt at March 31, 1997 and 1996 is set forth below:
Yen (millions)
-----------------
1997 1996
---- ----
Straight bonds, due 1996, interest 4.0% -- 100,000
Straight bonds, due 1997, interest 4.35% 99,650 99,650
Convertible bonds, due 1996, interest 1.4% -- 19,584
Convertible bonds, due 1999, interest 1.3% 198,370 198,370
Convertible bonds, due 2002, interest 1.3% 99,879 99,977
Convertible bonds, due 2004, interest 1.4% 99,932 99,992
Convertible bonds issued by subsidiaries, due 1996, 1997,
1999, 2000, 2002 and 2005, interest 0.35% - 4.3% 126,609 108,777
U.S. dollar unsecured bonds, due 2002, effective interest 5.8% 124,812 124,727
Euro medium-term notes issued by a subsidiary, due 1997 - 2000,
effective interest 5.3% in 1997 and 5.7% in 1996 17,374 28,715
Unsecured yen loans from banks and insurance companies,
principally by financial subsidiaries, due 1997 - 2005,
effective interest 3.0% in 1997 and 4.3% in 1996 392,307 378,247
Other long-term debt 1,490 2,684
--------- ---------
1,160,423 1,260,723
Less current portion 236,949 241,606
--------- ---------
923,474 1,019,117
========= =========
56
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MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(7) Long-term Debt and Short-term Borrowings (continued)
The aggregate annual maturities and sinking fund requirements of long-term
debt after March 31, 1997 are as follows:
Yen (millions)
--------------
Year ending March 31:
1998 236,949
1999 336,025
2000 71,211
2001 79,196
2002 156,087
As is customary in Japan, short-term and long-term bank loans are made
under general agreements which provide that security and guarantees for
future and present indebtedness will be given upon request of the bank, and
that the bank shall have the right, as the obligations become due, or in
the event of their default, to offset cash deposits against such
obligations due to the bank.
Each of the loan agreements grants the lender the right to request
additional security or mortgages on property, plant and equipment. At March
31, 1997 and 1996, short-term loans subject to such general agreements
amounted to 491,169 million yen and 499,566 million yen, respectively. The
balance of short-term loans represents borrowings under commercial paper,
acceptances and short-term loans of foreign subsidiaries. The weighted
average interest rates on short-term borrowings outstanding at March 31,
1997 and 1996 were 3.6% and 3.2%, respectively.
Acceptances payable by foreign subsidiaries, in the amount of 10,323
million yen and 18,872 million yen at March 31, 1997 and 1996,
respectively, are secured by a portion of the cash, accounts receivable and
inventories of such subsidiaries. The amount of assets pledged is not
calculable.
The 1.3% convertible bonds maturing in 1999 are currently redeemable at the
option of the Company at prices ranging from 101% of principal to 100% of
principal near maturity, and are currently convertible into approximately
81,289,000 shares of common stock at 2,440.30 yen per share.
The 1.3% convertible bonds maturing in 2002 are redeemable from 1999 at the
option of the Company at prices ranging from 102% of principal to 100% of
principal, and are currently convertible into approximately 61,654,000
shares of common stock at 1,620.00 yen per share.
57
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MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(7) Long-term Debt and Short-term Borrowings (continued)
The 1.4% convertible bonds maturing in 2004 are redeemable from 2000 at the
option of the Company at prices ranging from 103% of principal to 100% of
principal, and are currently convertible into approximately 61,686,000
shares of common stock at 1,620.00 yen per share.
The convertible bonds maturing through 2005 issued by subsidiaries are
redeemable at the option of the subsidiaries at prices ranging from 107% of
principal to 100% of principal near maturity.
(8) Retirement and Severance Benefits
Upon retirement or termination of employment for reasons other than
dismissal, employees are entitled to lump-sum payments based on the current
rate of pay and length of service. If the termination is involuntary or
caused by death, the severance payment is greater than in the case of
voluntary termination. The plans are not funded.
Retirement and severance benefit liabilities in the consolidated balance
sheets are stated at the amount of the vested benefit obligation which
would exist if all employees voluntarily terminated their employment at
that date. Such liability exceeds the projected benefit obligation under
the plans. Pension costs charged to income represent benefit payments plus
or minus the change in the vested benefit obligation. Pension costs of
unfunded benefit pension plans for the years ended March 31, 1997, 1996 and
1995 amounted to 51,714 million yen, 49,838 million yen and 40,707 million
yen, respectively.
In addition to the plans described above, substantially all employees of
the Company and certain subsidiaries are covered by contributory, funded
benefit pension plans which include a portion of social security tax
calculated in accordance with the Welfare Pension Insurance Law. The
Company and certain subsidiaries contribute to the pension funds as well as
to the social security tax portion. The employees contribute only to the
social security tax portion. The pension funds do not account for
participants on an individual basis. Therefore, assets cannot be attributed
to each participant.
58
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MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(8) Retirement and Severance Benefits (continued)
The plans require that the actuarial liability reserve and annual
contributions be calculated by the open aggregate cost method for social
security tax under the Welfare Pension Insurance Law and by the open
aggregate cost method or the entry-age method for the companies. Pension
costs excluding social security tax portion for the years ended March 31,
1997, 1996 and 1995 amounted to 37,935 million yen, 25,642 million yen and
26,895 million yen, respectively.
The Company decided not to apply accounting for Single-Employer Defined
Benefit Pension Plans under SFAS No. 87 for those funded benefit pension
plans as the effects on the consolidated financial statements of the
implementation of SFAS No. 87 are immaterial. However, the following table
summarizes the funded status based on the actuarial funding method for the
contributory benefit pension plans of the Company at March 31, 1996 and
1995 with the latest information available:
Yen (millions)
-------------
1996 1995
---- ----
Liability reserve 798,418 724,962
Fair value of plan assets, primarily marketable
securities and loans 796,752 711,048
------- -------
Fair value of plan assets less than the liability reserve (1,666) (13,914)
======= =======
The assumed rates of salary increase, expected long-term rate of return and
discount rate for the above contributory pension plans were 2.7%-3.9%, 5.5%
and 5.5%, respectively. The contributions to these plans for the years
ended March 31, 1996 and 1995 for the portion of social security tax were
22,063 million yen and 21,764 million yen, respectively. Approximately half
of the portion of social security tax was contributed by the employees and
half was contributed by the companies. The balance of past service costs in
the amount of 14,082 million yen as of March 31, 1996 is being amortized
over a seven- to ten-year period. Contributions to amortize the past
service costs for the years ended March 31, 1996 and 1995 totaled 2,442
million yen and 1,889 million yen, respectively.
The companies are not required by regulation to report the actuarially
computed value of vested benefits, and such information, therefore, is not
presented.
59
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MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(9) Income Taxes
Income before income taxes and income taxes for the three years ended March
31, 1997 are summarized as follows:
Yen (millions)
---------------------------------------
Domestic Foreign Total
-------- ------- -----
1997:
Income before income taxes 234,255 97,870 332,125
Income taxes:
Current 193,369 29,818 223,187
Deferred (61,838) (5,962) (67,800)
------- ------- -------
Total income taxes 131,531 23,856 155,387
======= ======= =======
1996:
Income before income taxes 154,209 (77,586) 76,623
Income taxes:
Current 114,759 26,659 141,418
Deferred (25,038) (893) (25,931)
------- ------- -------
Total income taxes 89,721 25,766 115,487
======= ======= =======
1995:
Income before income taxes 152,720 79,487 232,207
Income taxes:
Current 117,199 36,003 153,202
Deferred (18,064) (4,274) (22,338)
------- ------- -------
Total income taxes 99,135 31,729 130,864
======= ======= =======
The Company and its subsidiaries are subject to a number of taxes based on
earnings which, in aggregate, resulted in an average normal tax rate of
approximately 51.2% for the three years ended March 31, 1997.
60
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MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(9) Income Taxes (continued)
The effective rates for the years differ from the normal tax rates for the
following reasons:
1997 1996 1995
---- ---- ----
Normal tax rate 51.2 % 51.2 % 51.2 %
Tax credit for increased research expenses (1.7) (2.5) (0.3)
Lower tax rates of overseas subsidiaries (4.9) (7.7) (5.9)
Expenses not deductible for tax purposes 5.1 28.5 13.3
Cumulative translation adjustment loss
relating to sale of MCA -- 87.7 --
Change in valuation allowance allocated to
income tax expenses (4.3) 5.4 1.8
Other 1.4 (11.9) (3.7)
---- ---- ----
Effective tax rate 46.8 % 150.7 % 56.4 %
==== ==== ====
The significant components of deferred income tax expenses for the three
years ended March 31, 1997 are as follows:
Yen (millions)
--------------------------
1997 1996 1995
---- ---- ----
Deferred tax expense (exclusive of the effects
of other components listed below) (53,476) (30,081) (26,397)
Increase (decrease) in the balance of valuation
allowance for deferred tax assets (14,324) 4,150 4,059
------- ------- -------
(67,800) (25,931) (22,338)
======= ======= =======
61
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MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(9) Income Taxes (continued)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at March
31, 1997 and 1996 are presented below:
Yen (millions)
--------------------
1997 1996
---- ----
Deferred tax assets:
Inventory valuation 97,253 88,228
Expenses accrued for financial statement purposes
but not currently included in taxable income 153,827 122,030
Depreciation 153,358 159,810
Retirement and severance benefits 91,381 77,005
Tax loss carryforwards 58,406 85,296
Other 139,509 114,508
------- -------
Total gross deferred tax assets 693,734 646,877
Less valuation allowance 55,019 83,116
------- -------
Net deferred tax assets 638,715 563,761
Deferred tax liabilities:
Purchase accounting step-up of identifiable assets (19,377) (21,156)
Other (33,843) (28,284)
------- -------
Total gross deferred tax liabilities (53,220) (49,440)
------- -------
Net deferred tax assets 585,495 514,321
======= =======
The net change in total valuation allowance for the years ended March
31, 1997 and 1996 was a decrease of 28,097 million yen and 8,321
million yen, respectively.
At March 31, 1997, certain subsidiaries had, for tax reporting
purposes, net operating loss carryforwards of approximately 128,334
million yen, which will generally expire between 1998 and 2012.
62
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MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(9) Income Taxes (continued)
Net deferred tax assets and liabilities at March 31, 1997 and 1996 are
reflected in the accompanying consolidated balance sheets under the
following captions:
Yen (millions)
--------------------
1997 1996
---- ----
Other current assets 279,573 228,188
Other assets 307,795 288,174
Other liabilities (1,873) (2,041)
------- -------
Net deferred tax assets 585,495 514,321
======= =======
(10) Stockholders' Equity
In accordance with the Japanese Commercial Code, at least 50% of the amount
of converted debt must be credited to the common stock account. The
increase in the common stock account resulting from conversion of bonds for
the respective fiscal years is as follows:
Fiscal Number of Common stock
year Nature shares Yen (millions)
---- ------ --------- --------------
1997 Conversion of bonds 13,441,895 9,767
1996 Conversion of bonds 458,126 333
1995 Conversion of bonds 1,578,272 1,338
The Japanese Commercial Code provides that an amount equal to at least 10%
of appropriations paid in cash be appropriated as a legal reserve until
such reserve equals 25% of stated capital. This reserve is not available
for dividends but may be used to reduce a deficit or may be transferred to
stated capital.
Cash dividends and transfers to the legal reserve charged to retained
earnings during the three years ended March 31, 1997 represent dividends
paid out during the periods and related appropriations to the legal
reserve. The accompanying consolidated financial statements do not include
any provision for the semi-annual dividend of 6.75 yen per share, totaling
14,250 million yen, planned to be proposed in June 1997 in respect of the
year ended March 31, 1997 or for the related appropriation.
63
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MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(11) Supplementary Information to the Statements of Operations and Cash
Flows
Research and development costs and advertising costs charged to income
for the three years ended March 31, 1997 are as follows:
Yen (millions)
-------------------------------
1997 1996 1995
---- ---- ----
Research and development costs 434,874 399,712 378,061
Advertising costs 117,222 104,967 175,506
Included in other (net) of other income (deductions) for the year ended
March 31, 1997 is a loss of 107,302 million yen associated with impaired
receivables of NLF, a financial subsidiary.
Income taxes and interest expenses paid and noncash investing and financing
activities for the three years ended March 31, 1997 are as follows:
Yen (millions)
-------------------------------
1997 1996 1995
---- ---- ----
a) Cash paid:
Interest 86,244 96,296 111,760
Income taxes 147,534 139,609 120,780
b) Noncash investing and financing activities:
Conversion of bonds 19,532 699 3,686
Transfer of ownership arising on capital
transactions by consolidated and
associated companies 1,139 -- --
Transfer of ownership in MCA -- 4,659 --
(12) Foreign Exchange Contracts
The Company and its subsidiaries operate internationally, giving rise to
significant exposure to market risks arising from changes in foreign
exchange rates. Derivative financial instruments are comprised principally
of foreign exchange contracts utilized by the Company and some of its
subsidiaries to hedge these risks. The Company and its subsidiaries do not
hold or issue financial instruments for trading purposes.
The Company and its subsidiaries are exposed to credit risk in the event of
nonperformance by counterparties to foreign exchange contracts, but such
risk is considered minor because of the high credit rating of the
counterparties.
64
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MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(12) Foreign Exchange Contracts (continued)
The contract amounts of foreign exchange contracts at March 31, 1997 and
1996 are as follows:
Yen (millions)
------------------
1997 1996
---- ----
Forward:
To sell foreign currencies 308,320 352,045
To buy foreign currencies 51,107 42,378
Options purchased to sell foreign currencies 33,877 7,445
Options written to buy foreign currencies 3,538 --
Options written to sell foreign currencies 1,180 --
The Company and its subsidiaries enter into forward exchange contracts and
options to hedge firm commitments expected to be denominated in foreign
currencies, principally U.S. dollars. The terms of these foreign exchange
contracts rarely extend beyond a few months.
(13) Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to
estimate that value:
Cash and cash equivalents, Trade receivables, Short-term borrowings, Trade
payables and Accrued expenses
The carrying amount approximates fair value because of the short maturity
of these instruments.
Short-term investments
The fair value of short-term investments is estimated based on quoted
market prices.
Noncurrent receivables
The carrying amount which is generally stated at the net realizable value
approximates fair value.
Investments and advances
The fair value of investments and advances is estimated based on the
quoted market prices or the present value of future cash flows using
appropriate current discount rates.
Long-term debt
The fair value of long-term debt is estimated based on the quoted market
prices or the present value of future cash flows using appropriate
current discount rates.
65
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MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(13) Fair Value of Financial Instruments (continued)
Derivative financial instruments
The fair value of derivative financial instruments, consisting
principally of foreign exchange contracts, all of which are used for
hedging purposes, are estimated by obtaining quotes from brokers.
The estimated fair values of financial instruments, all of which are held
or issued for purposes other than trading, at March 31, 1997 and 1996 are
as follows:
Yen (millions)
-----------------------------------------------
1997 1996
---------------------- --------------------
Carrying Fair Carrying Fair
amount value amount value
------ ----- ------ -----
Non-derivatives:
Assets:
Short-term investments 157,919 243,291 98,581 195,255
Investments and advances 552,393 777,088 516,968 985,116
Liabilities:
Long-term debt, including
current portion (1,159,256) (1,202,096) (1,241,596) (1,275,504)
Derivatives relating to long-term
debt, including current portion (1,167) (1,725) (19,127) (19,786)
Limitations
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instruments. These estimates are subjective in nature and involve
uncertainties and matters of significant judgements and therefore cannot be
determined with precision. Changes in assumptions could significantly
affect the estimates.
(14) Commitments and Contingent Liabilities
At March 31, 1997, commitments outstanding for the purchase of property,
plant and equipment approximated 42,704 million yen. Contingent liabilities
at March 31, 1997 for discounted export bills of exchange and guarantees of
loans amounted to approximately 74,015 million yen, including 50,982
million yen for loans guaranteed principally on behalf of associated
companies and customers.
There are a number of legal actions against the Company and certain
subsidiaries. Management is of the opinion that damages, if any, resulting
from these actions will not have a material effect on the Company's
consolidated financial statements.
66
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MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(15) Quarterly Financial Data (Unaudited)
Quarterly net sales, net income (loss) and net income (loss) per
depositary share for the two years ended March 31, 1997 are set forth
in the following table:
Yen (millions), except per share information
--------------------------------------------
1997
--------------------------------------------
Net income
Net Net per depositary
sales income share (yen)
----- ------ -----------
Quarter ended
-------------
June 30 1,719,590 18,545 83
September 30 1,884,858 24,091 107
December 31 2,032,365 45,321 198
March 31 2,039,099 49,896 218
--------- ------- ---
7,675,912 137,853 606
========= ======= ===
1996
-----------------------------------------
Net income
Net (loss) per
Net income depositary
sales (loss) share (yen)
----- ------ -----------
Quarter ended
-------------
June 30 1,527,458 (151,344) (721)
September 30 1,694,377 18,471 88
December 31 1,829,680 33,529 160
March 31 1,743,337 42,473 202
--------- -------- ----
6,794,852 (56,871) (271)
========= ======== ====
67
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Schedule VIII
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Valuation and Qualifying Accounts and Reserves
(In millions of yen)
Years ended March 31, 1997, 1996 and 1995
Deduct
---------------------
Bad Add (deduct)
Balance at Add- debt -cumulative Balance
beginning charged written Sale of translation at end
of period to income off Reversal Transfer MCA INC. adjustments of period
--------- --------- --- -------- -------- -------- ----------- ---------
Allowance for
doubtful
trade
receivables:
1997 53,826 13,302 6,887 956 -- -- 1,525 60,810
1996 153,558 30,303 26,452 1,495 (75,617) (27,899) 1,428 53,826
1995 143,791 53,038 37,518 2,669 -- -- (3,084) 153,558
Allowance for
doubtful
noncurrent
receivables:
1997 68,910 107,302 113,041 -- -- -- -- 63,171
1996 -- 38,790 45,497 -- 75,617 -- -- 68,910
68
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Item 19. Financial Statements and Exhibits
(a) Financial Statements
The following financial statements and schedules are filed in Part IV,
Item 17 of this report:
Consolidated Financial Statements of Matsushita Electric Industrial
Co., Ltd. and Consolidated Subsidiaries:
Page
number
------
Independent Auditors' Report 38
Consolidated Balance Sheets as of March 31, 1997 and 1996 39
Consolidated Statements of Operations for the years ended
March 31, 1997, 1996 and 1995 41
Consolidated Statements of Surplus for the years ended
March 31, 1997, 1996 and 1995 42
Consolidated Statements of Cash Flows for the years ended
March 31, 1997, 1996 and 1995 43
Notes to Consolidated Financial Statements 45
Schedule for the years ended March 31, 1997, 1996 and 1995:
Schedule VIII Valuation and Qualifying Accounts and Reserves for
the years ended March 31, 1997, 1996 and 1995 67
(b) Exhibits
ARTICLES OF INCORPORATION as amended on June 27, 1997
(English translation)
69
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SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant certifies that it meets all of the requirements for filing
on Form 20-F and has duly caused this annual report to be signed on its behalf
by the undersigned, thereunto duly authorized.
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
(Registrant)
Date: July 31, 1997 By /s/ Kazuhiro Kawata
-------------------------------------
Kazuhiro Kawata
President of
Panasonic Finance (America), Inc.
375 Park Avenue
New York, N.Y. 10152