Matsushita Reports First Half Favorable Operating Results

Matsushita Electric Industrial Co., Ltd. (Matsushita (NYSE:MC)) today reported its consolidated financial results for the second quarter and first half, and non-consolidated (parent company alone) results for the first half, ended September 30, 2007, of the current fiscal year, ending March 31, 2008 (fiscal 2008). Consolidated Second-quarter Results Consolidated group sales for the second quarter increased 1% to 2,285.8 billion Yen (U.S.$19.88 billion), from 2,252.6 billion yen in the same three-month period a year ago. Explaining the second quarter results, the company cited sales gains in all product categories except JVC (Victor Company of Japan, Ltd. and its subsidiaries)1. Of the consolidated group total, domestic sales decreased 1% to 1,109.8 billion yen ($9.65 billion), from 1,118.2 billion yen a year ago. Overseas sales increased 4% to 1,176.0 billion yen ($10.23 billion), from 1,134.4 billion yen in the second quarter of fiscal 2007. During the second quarter under review, the electronics industry faced severe business conditions in Japan and overseas, due mainly to rising prices for crude oil and other raw materials and continued price declines caused by ever-intensified global competition, mainly in digital products. Under these circumstances, in fiscal 2008, the first year of the new mid-term management plan GP3, Matsushita is implementing initiatives to accelerate steady growth with profitability. As part of such efforts, the company continues to strengthen a new series of V-products, as a core of its growth strategy, to capture leading market shares and make a significant contribution to overall business results. In overseas businesses, Matsushita is implementing initiatives to strengthen marketing activities tailored to regional characteristics. In addition, Matsushita is striving to transform itself into a manufacturing-oriented company—one that combines all the business activities of the Group toward the launch of products, thereby contributing to the creation of customer value. Matsushita is promoting wider collaboration across business fields and operating regions in order to reinforce product design and quality, procurement, logistics, overseas sales and other areas of its operations. Regarding earnings, operating profit2 for the second quarter was up 3%, to 146.1 billion yen ($1.27 billion), from 142.3 billion yen in the same period a year ago, despite the effects from rising raw materials prices and ever-intensified global price competition. This improvement was due primarily to sales gains and the cost reduction efforts including materials costs and fixed costs, as well as the effects of a weaker yen. In other income (deductions), the company recorded 14.9 billion yen ($129 million) as expenses associated with the implementation of early retirement programs and also incurred expenditures on product quality. These factors, as well as the previous year’s gains of 27.3 billion yen on the sale of the investments regarding cable broadcasting business and proceeds from tangible fixed assets, led to pre-tax income of 103.7 billion yen ($902 million), down 34% from 157.1 billion yen in the previous year’s second quarter. Net income was also down 17% to 65.8 billion yen ($572 million), as compared with 79.3 billion yen in the previous year’s second quarter. Consolidated First-half Results Combining the second quarter results with those of the first quarter, consolidated group sales for the first fiscal half ended September 30, 2007 increased 3% to 4,525.3 billion yen ($39.35 billion), compared with 4,389.5 billion yen in the same six-month period a year ago. Explaining the first half results, the company cited sales gains in all product categories except JVC. Domestic sales amounted to 2,187.8 billion yen ($19.02 billion), a slight increase from a year ago, while overseas sales increased 6% to 2,337.5 billion yen ($20.33 billion) from 2,209.4 billion yen in the previous year’s first half, due mainly to favorable sales overall. For reasons similar to those given for second quarter results, the company’s operating profit for the first fiscal half increased 6% to 220.0 billion yen ($1.91 billion), from 207.4 billion yen in the comparable period a year ago. In other income (deductions), the company recorded 15.8 billion yen ($138 million) as expenses associated with the implementation of early retirement programs, and expenditures on product quality. These factors, as well as the previous year’s gains of 27.3 billion yen on the sale of the investments regarding cable broadcasting business, led to pre-tax income of 187.6 billion yen ($1.63 billion), down 19% from 232.5 billion yen last year. Net income was also down 9% to 105.1 billion yen ($914 million), as compared with 115.1 billion yen in the first half of the previous year. The company’s net income per common share was 49.32 yen ($0.43) on a diluted basis, versus 52.38 yen in the first half of last year. Consolidated First-half Sales Breakdown by Product Category The company’s first-half consolidated sales by product category, as compared with prior year amounts, are summarized as follows: AVC Networks AVC Networks sales increased 8% to 1,920.2 billion yen ($16.70 billion), from 1,777.7 billion yen in last year’s first half. Sales of video and audio equipment increased 6% from the previous year’s first half, due mainly to favorable sales in digital AV products such as flat-panel TVs and digital cameras. In information and communications equipment, strong sales of automotive electronics and mobile phones led to a 10% increase overall. Home Appliances Sales of Home Appliances increased 8% to 641.8 billion yen ($5.58 billion), compared with 596.2 billion yen in last year’s first half, due mainly to double-digit sales growth in white goods such as air conditioners, compressors and microwave ovens. Components and Devices Sales of Components and Devices were also up 5% to 586.0 billion yen ($5.10 billion), compared with 558.4 billion yen in the same period of the previous year. Favorable sales were recorded mainly in general electronic components, thereby achieving an overall increase in sales in this category. MEW and PanaHome Sales of MEW and PanaHome increased 5% to 849.1 billion yen ($7.38 billion), from 811.8 billion yen last year. At Matsushita Electric Works, Ltd. (MEW) and its subsidiaries, sales gains were recorded in electrical construction materials and electronic and plastic materials. At PanaHome Corporation, sales maintained the same level as the previous year’s first fiscal half. JVC Sales of JVC (Victor Company of Japan, Ltd. and its subsidiaries) totaled 180.5 billion yen ($1.57 billion). Other Sales of Other totaled 347.7 billion yen ($3.02 billion), up 7% from 323.8 billion yen in the same period a year ago. Sales increases were recorded in factory automation equipment within this category. Consolidated Financial Condition Net cash provided by operating activities in the fiscal 2008 first half amounted to 181.7 billion yen ($1.58 billion). This was due mainly to cash inflows from net income and depreciation. Net cash provided by investing activities amounted to 15.5 billion yen ($135 million). Capital expenditures for tangible fixed assets were 219.0 billion yen, mainly consisting of manufacturing facilities for priority business areas such as plasma display panels (PDPs) and semiconductors, while the company recorded a decrease in time deposits of 188.2 billion yen and proceeds of 123.3 billion yen from the sale of fixed assets from the end of fiscal 2007 (March 31, 2007). Net cash used in financing activities was 106.9 billion yen ($930 million). Major factors included the repurchase of the company’s common stock and the payment of cash dividends. In addition to all these activities, cash and cash equivalents decreased 93.4 billion yen ($812 million), since JVC and its consolidated subsidiaries became Matsushita’s associated companies under the equity method from consolidated subsidiaries in the first fiscal half. Accordingly, cash and cash equivalents amounted to 1,222.5 billion yen ($10.63 billion) at the end of the first fiscal half, down 14.1 billion yen from the end of the last fiscal year (March 31, 2007). The company’s consolidated total assets as of September 30, 2007 decreased by 329.7 billion yen as compared with the end of the last fiscal year, to 7,567.3 billion yen ($65.80 billion). This decrease was due mainly to the effect of the aforementioned change in JVC. Stockholders’ equity decreased 10.6 billion yen, as compared with the end of the last fiscal year, to 3,906.2 billion yen ($33.97 billion) as of September 30, 2007. This was due mainly to an increase in treasury stock on continued repurchases of the company’s own shares and a decrease in other comprehensive income, despite increases in retained earnings. Interim and Year-end Dividend The Board of Directors of the company resolved today to distribute an interim (semiannual) cash dividend of 17.5 yen per common share to shareholders of record as of September 30, 2007, payable November 30, 2007. This is an increase from last year’s interim dividend (15 yen). The company also plans to distribute a year-end cash dividend of 17.5 yen per common share (payable to shareholders of record as of March 31, 2008). If implemented, total dividends for fiscal 2008, including the aforementioned interim dividend of 17.5 yen per common share, will be 35 yen per common share. Outlook for the Full Fiscal Year 2008 The company expects the future business environment to remain severe in the second half of fiscal 2008, with uncertainty of the global economy centered on the United States, and further price declines, as well as increasing prices for crude oil and other raw materials. Considering these conditions, the forecast for the full fiscal year 2008, ending March 31, 2008, remains unchanged from the forecast announced on July 24, 2007. Matsushita Electric Industrial Co., Ltd., best known for its Panasonic brand products, is one of the world's leading manufacturers of electronic and electric products for consumer, business and industrial use. Matsushita's shares are listed on the Tokyo, Osaka, Nagoya and New York stock exchanges. For more information, please visit the following web sites: Matsushita home page URL: http://panasonic.net/ Matsushita IR web site URL: http://ir-site.panasonic.com/ Disclaimer Regarding Forward-Looking Statements This press release includes forward-looking statements (within the meaning of Section 27A of the U.S. Securities Act of 1933 and Section 21E of the U.S. Securities Exchange Act of 1934) about Matsushita and its Group companies (the Matsushita Group). To the extent that statements in this press release do not relate to historical or current facts, they constitute forward-looking statements. These forward-looking statements are based on the current assumptions and beliefs of the Matsushita Group in light of the information currently available to it, and involve known and unknown risks, uncertainties and other factors. Such risks, uncertainties and other factors may cause the Matsushita Group's actual results, performance, achievements or financial position to be materially different from any future results, performance, achievements or financial position expressed or implied by these forward-looking statements. Matsushita undertakes no obligation to publicly update any forward-looking statements after the date of this press release. Investors are advised to consult any further disclosures by Matsushita in its subsequent filings with the U.S. Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934. The risks, uncertainties and other factors referred to above include, but are not limited to, economic conditions, particularly consumer spending and corporate capital expenditures in the United States, Europe, Japan, China and other Asian countries; volatility in demand for electronic equipment and components from business and industrial customers, as well as consumers in many product and geographical markets; currency rate fluctuations, notably between the yen, the U.S. dollar, the euro, the Chinese yuan, Asian currencies and other currencies in which the Matsushita Group operates businesses, or in which assets and liabilities of the Matsushita Group are denominated; the ability of the Matsushita Group to respond to rapid technological changes and changing consumer preferences with timely and cost-effective introductions of new products in markets that are highly competitive in terms of both price and technology; the ability of the Matsushita Group to achieve its business objectives through joint ventures and other collaborative agreements with other companies; the ability of the Matsushita Group to maintain competitive strength in many product and geographical areas; the possibility of incurring expenses resulting from any defects in products or services of the Matsushita Group; the possibility that the Matsushita Group may face intellectual property infringement claims by third parties; current and potential, direct and indirect restrictions imposed by other countries over trade, manufacturing, labor and operations; fluctuations in market prices of securities and other assets in which the Matsushita Group has holdings or changes in valuation of long-lived assets, including property, plant and equipment and goodwill, and deferred tax assets; future changes or revisions to accounting policies or accounting rules; as well as natural disasters including earthquakes and other events that may negatively impact business activities of the Matsushita Group. The factors listed above are not all-inclusive and further information is contained in Matsushita’s latest annual report on Form 20-F, which is on file with the U.S. Securities and Exchange Commission. 1 Victor Company of Japan, Ltd. and its consolidated subsidiaries became associated companies under the equity method from Matsushita’s consolidated subsidiaries from August 2007. Accordingly, sales of JVC from August 2007 to September 2007 are excluded from the consolidated group sales. For more information, see Note 3 of the Notes to consolidated financial statements on page 16. 2 For information about operating profit, see Note 2 of the Notes to consolidated financial statements on page 16. (Note: Dollar amounts for the most recent period have been translated for convenience at the rate of U.S.$1.00 = 115 yen.) Matsushita Electric Industrial Co., Ltd. Consolidated Statement of Income * (Three months ended September 30)           Yen(millions)   U.S. Dollars (millions)   Percentage 2007/2006 2007   2006     2007     Net sales ¥ 2,285,800 ¥ 2,252,560 101 % $ 19,876 Cost of sales (1,637,523 ) (1,590,660 ) (14,239 ) Selling, general and administrative expenses (502,174 )   (519,626 ) (4,367 ) Operating profit 146,103 142,274 103 % 1,270   Other income (deductions): Interest income 8,653 7,742 76 Dividend income 684 187 6 Interest expense (5,274 ) (5,367 ) (46 ) Expenses associated with the implementation of early retirement programs **   (14,854 ) (3,764 ) (129 ) Other income (loss), net (31,639 ) 16,010     (275 ) Income before income taxes 103,673 157,082 66 % 902   Provision for income taxes (28,868 ) (61,843 ) (252 ) Minority interests (6,800 ) (17,393 ) (59 ) Equity in earnings (losses) of associated companies (2,197 ) 1,447     (19 )   Net income ¥ 65,808 ¥ 79,293   83 % $ 572     Net income, basic per common share 30.99 yen 36.16 yen $ 0.27 per ADS 30.99 yen 36.16 yen $ 0.27 Net income, diluted per common share 30.99 yen 36.16 yen $ 0.27 per ADS 30.99 yen 36.16 yen $ 0.27   (Parentheses indicate expenses, deductions or losses.)   * ** See Notes to consolidated financial statements on pages 16-17.   Supplementary Information (Three months ended September 30) Yen(millions) U.S. Dollars (millions)   2007   2006     2007     Depreciation (tangible assets): ¥ 71,601 ¥ 69,848 $ 623 Capital investment *** : ¥ 130,389 ¥ 137,778 $ 1,134 R&D expenditures: ¥ 141,013 ¥ 146,989 $ 1,226   Number of employees (Sep. 30) 309,037 331,557   *** These figures are calculated on an accrual basis. Matsushita Electric Industrial Co., Ltd. Consolidated Statement of Income * (Six months ended September 30)           Yen (millions) U.S. Dollars (millions)   Percentage 2007/2006 2007   2006     2007     Net sales ¥ 4,525,305 ¥ 4,389,494 103 % $ 39,350 Cost of sales (3,225,568 ) (3,085,049 ) (28,048 ) Selling, general and administrative expenses (1,079,743 ) (1,097,054 )   (9,389 ) Operating profit 219,994 207,391 106 % 1,913   Other income (deductions): Interest income 17,315 11,860 151 Dividend income 5,568 4,150 49 Interest expense (10,580 ) (10,193 ) (92 ) Expenses associated with the implementation of early retirement programs **   (15,839 ) (4,292 ) (138 ) Other Income (loss), net (28,817 ) 23,558     (251 ) Income before income taxes 187,641 232,474 81 % 1,632   Provision for income taxes (70,864 ) (99,673 ) (616 ) Minority interests (5,012 ) (17,932 ) (44 ) Equity in earnings (losses) of associated companies (6,643 ) 254     (58 )   Net income ¥ 105,122 ¥ 115,123   91 % $ 914   Net income, basic per common share 49.32 yen 52.38 yen $ 0.43 per ADS 49.32 yen 52.38 yen $ 0.43 Net income, diluted per common share 49.32 yen 52.38 yen $ 0.43 per ADS 49.32 yen 52.38 yen $ 0.43   (Parentheses indicate expenses, deductions or losses.)   * ** See Notes to consolidated financial statements on pages 16-17.         Supplementary Information (Six months ended September 30) Yen (millions) U.S. Dollars (millions)   2007   2006     2007     Depreciation (tangible assets): ¥ 136,500 ¥ 133,863 $ 1,187 Capital investment *** : ¥ 217,162 ¥ 206,123 $ 1,888 R&D expenditures: ¥ 279,916 ¥ 281,824 $ 2,434   Number of employees (Sep. 30) 309,037 331,557   *** These figures are calculated on an accrual basis. Matsushita Electric Industrial Co., Ltd. Consolidated Balance Sheet ** September 30, 2007 With comparative figures for March 31, 2007         Yen U.S. Dollars (millions)   (millions) Assets Sept. 30, 2007   March 31, 2007   Sept. 30, 2007   Current assets: Cash and cash equivalents ¥ 1,222,517 ¥ 1,236,639 $ 10,631 Time deposits 36,738 225,458 319 Short-term investments 87,768 93,179 763 Trade receivables (notes and accounts) 1,075,585 1,141,010 9,353 Inventories 934,967 949,399 8,130 Other current assets 544,954 553,164   4,739   Total current assets 3,902,529 4,198,849   33,935   Investments and advances 1,191,754 1,206,082 10,363 Property, plant and equipment, net of accumulated depreciation 1,578,424 1,642,293 13,726 Other assets 894,595 849,734   7,779   Total assets ¥ 7,567,302 ¥ 7,896,958 $ 65,803   Liabilities and Stockholders' Equity   Current liabilities: Short-term borrowings ¥ 97,053 ¥ 223,190 $ 844 Trade payables (notes and accounts) 881,976 934,977 7,669 Other current liabilities 1,577,442 1,583,700   13,717   Total current liabilities 2,556,471 2,741,867   22,230   Long-term debt 206,799 226,780 1,798 Other long-term liabilities 397,465 460,416 3,456 Minority interests 500,411 551,154 4,352 Common stock 258,740 258,740 2,250 Capital surplus 1,217,841 1,220,967 10,590 Legal reserve 90,020 88,588 783 Retained earnings 2,808,520 2,737,024 24,422 Accumulated other comprehensive income (loss) * 88,374 107,097 768 Treasury stock (557,339 ) (495,675 )   (4,846 ) Total liabilities and stockholders' equity ¥ 7,567,302 ¥ 7,896,958 $ 65,803   * Accumulated other comprehensive income (loss) breakdown:   Yen U.S. Dollars (millions)   (millions) Sept. 30, 2007   March 31, 2007   Sept. 30, 2007   Cumulative translation adjustments ¥ (96,649) ¥ (99,538) $ (841 ) Unrealized holding gains of available-for-sale securities 141,058 160,831 1,227 Unrealized gains of derivative instruments 1,052 862 9 Pension liability adjustments 42,913 44,942 373   ** See Notes to consolidated financial statements on pages 16-17. Matsushita Electric Industrial Co., Ltd. Consolidated Sales Breakdown * (Three months ended September 30)             Yen U.S. Dollars (billions) Percentage (millions) 2007 2006 2007/2006 2007   AVC Networks Video and audio equipment ¥ 445.3 ¥ 406.8 109% $ 3,872   Information and communications equipment 550.2 489.3 112% 4,785   Subtotal 995.5 896.1 111% 8,657   Home Appliances 301.9 286.3 105% 2,625   Components and Devices 301.3 288.3 105% 2,620   MEW and PanaHome 463.4 444.4 104% 4,029   JVC 45.2 171.4 26% 393   Other 178.5 166.1 107% 1,552   Total ¥ 2,285.8 ¥ 2,252.6 101% $ 19,876   Domestic sales 1,109.8 1,118.2 99% 9,650   Overseas sales 1,176.0 1,134.4 104% 10,226     (Six months ended September 30)   Yen U.S. Dollars (billions) Percentage (millions) 2007 2006 2007/2006   2007   AVC Networks Video and audio equipment ¥ 847.7 ¥ 800.4 106% $ 7,371   Information and communications equipment 1,072.5 977.3 110% 9,326   Subtotal 1,920.2 1,777.7 108% 16,697   Home Appliances 641.8 596.2 108% 5,581   Components and Devices 586.0 558.4 105% 5,096   MEW and PanaHome 849.1 811.8 105% 7,383   JVC 180.5 321.6 56% 1,570   Other 347.7 323.8 107% 3,023   Total ¥ 4,525.3 ¥ 4,389.5 103% $ 39,350   Domestic sales 2,187.8 2,180.1 100% 19,024   Overseas sales 2,337.5 2,209.4 106% 20,326   *See Notes to consolidated financial statements on pages 16-17. Matsushita Electric Industrial Co., Ltd. Consolidated Sales Breakdown * (Six months ended September 30)             [Domestic/Overseas Sales Breakdown] (in yen only) Domestic sales Overseas sales Yen (billions) Percentage Yen (billions) Percentage 2007 2007/2006 2007 2007/2006 AVC Networks Video and audio equipment ¥ 225.4 103% ¥ 622.3 107%   Information and communications equipment 508.4 110% 564.1 109%   Subtotal 733.8 108% 1,186.4 108%   Home Appliances 332.9 100% 308.9 118%   Components and Devices 194.9 101% 391.1 107%   MEW and PanaHome 691.9 101% 157.2 124%   JVC 45.9 50% 134.6 58%   Other 188.4 95% 159.3 126%   Total ¥ 2,187.8 100% ¥ 2,337.5 106%   *See Notes to consolidated financial statements on pages 16-17. Matsushita Electric Industrial Co., Ltd. Consolidated Information by Segments * (Six months ended September 30)           By Business Segment: U.S. Dollars Yen (billions) Percentage (millions) [Sales] 2007   2006   2007/2006     2007     AVC Networks ¥ 2,059.6 ¥ 1,916.9 107 % $ 17,910 Home Appliances 667.0 610.0 109 % 5,800 Components and Devices 712.3 685.3 104 % 6,194 MEW and PanaHome 937.2 891.2 105 % 8,149 JVC 183.1 327.2 56 % 1,592 Other 765.2   751.1   102 %   6,654   Subtotal 5,324.4 5,181.7 103 % 46,299 Eliminations (799.1 ) (792.2 ) --   (6,949 ) Consolidated total ¥ 4,525.3   ¥ 4,389.5   103 % $ 39,350     [Segment Profit] **   AVC Networks ¥ 110.1 ¥ 101.9 108 % $ 957 Home Appliances 37.3 39.9 94 % 324 Components and Devices 49.5 50.6 98 % 431 MEW and PanaHome 41.1 32.5 126 % 357 JVC (9.7 ) (1.0 ) -- (84 ) Other 34.9   31.9   109 %   304   Subtotal 263.2 255.8 103 % 2,289 Corporate and eliminations (43.2 ) (48.4 ) --   (376 ) Consolidated total ¥ 220.0   ¥ 207.4   106 % $ 1,913       By Domestic and Overseas Company Location: U.S. Dollars Yen (billions) Percentage (millions) [Sales] 2007   2006   2007/2006     2007     Japan ¥ 3,373.0 ¥ 3,384.2 100 % $ 29,330 Americas 640.2 684.2 94 % 5,567 Europe 598.3 553.8 108 % 5,203 Asia, China and others 1,536.0   1,428.2   108 %   13,357   Subtotal 6,147.5 6,050.4 102 % 53,457 Eliminations (1,622.2 ) (1,660.9 ) --   (14,107 ) Consolidated total ¥ 4,525.3   ¥ 4,389.5   103 % $ 39,350     [Segment Profit]   Japan ¥ 190.0 ¥ 189.9 100 % $ 1,652 Americas 6.1 14.0 43 % 53 Europe 9.3 6.8 136 % 81 Asia, China and others 55.2   45.2   122 %   480   Subtotal 260.6 255.9 102 % 2,266 Corporate and eliminations (40.6 ) (48.5 ) --   (353 ) Consolidated total ¥ 220.0   ¥ 207.4   106 % $ 1,913     * **See Notes to consolidated financial statements on pages 16-17. Matsushita Electric Industrial Co., Ltd. Consolidated Statement of Stockholders' Equity * (Six months ended September 30, 2007 and 2006)             Common Stock   Capital surplus   Legal reserve   Retained earnings   Accumulated other comprehensive income (loss)   Treasury stock   Total stockholders' equity (Six month ended September 30, 2007) Yen (millions) Balances at beginning of period ¥ 258,740 ¥ 1,220,967 ¥ 88,588 ¥ 2,737,024 ¥ 107,097   ¥ (495,675 ) ¥ 3,916,741   Gain from sale of treasury stock 35 35 Increase (decrease) mainly in capital transactions   (3,161 ) (3,161 ) Transfer from retained earnings 1,432 (1,432 ) -- Cash dividends (32,194 ) (32,194 ) Disclosure of comprehensive income (loss) Net income 105,122 105,122 Translation adjustments 2,889 2,889 Unrealized holding gains (losses) of available-for-sale securities (19,773 ) (19,773 ) Unrealized gains (losses) of derivative instruments 190 190 Pension liability adjustments (2,029 ) (2,029 ) Total comprehensive income 86,399   Repurchase of common stock, net               (61,664 )   (61,664 ) Balances at end of period ¥ 258,740 ¥ 1,217,841 ¥ 90,020 ¥ 2,808,520 ¥ 88,374   ¥ (557,339 ) ¥ 3,906,156   (Six month ended September 30, 2006) Yen (millions)   Balances at beginning of period ¥ 258,740 ¥ 1,234,289 ¥ 87,526 ¥ 2,575,890 ¥ (26,119 ) ¥ (342,705 ) ¥ 3,787,621   Gain from sale of treasury stock 53 53 Transfer from retained earnings 816 (816 ) -- Cash dividends (22,095 ) (22,095 ) Disclosure of comprehensive income (loss) Net income 115,123 115,123 Translation adjustments 30,023 30,023 Unrealized holding gains (losses) of available-for-sale securities (7,468 ) (7,468 ) Unrealized gains (losses) of derivative instruments (1,188 ) (1,188 ) Minimum Pension liability adjustments (4,344 ) (4,344 ) Total comprehensive income 132,146   Repurchase of common stock, net               (41,458 )   (41,458 ) Balances at end of period ¥ 258,740 ¥ 1,234,342 ¥ 88,342 ¥ 2,668,102 ¥ (9,096 )   ¥ (384,163 ) ¥ 3,856,267   (Six month ended September 30, 2007) U.S. Dollars (millions)   Balances at beginning of period $ 2,250 $ 10,617   $ 771 $ 23,800   $ 931   $ (4,310 ) $ 34,059     Gain from sale of treasury stock 0 0 Increase (decrease) mainly in capital transactions (27 ) (27 ) Transfer from retained earnings 12 (12 ) -- Cash dividends (280 ) (280 ) Disclosure of comprehensive income (loss) Net income 914 914 Translation adjustments 25 25 Unrealized holding gains (losses) of available-for-sale securities (172 ) (172 ) Unrealized gains (losses) of derivative instruments 2 2 Pension liability adjustments (18 )   (18 ) Total comprehensive income   751   Repurchase of common stock, net               (536 )   (536 ) Balances at end of period $ 2,250 $ 10,590   $ 783 $ 24,422   $ 768   $ (4,846 ) $ 33,967       * See Notes to consolidated financial statements on pages 16-17. Matsushita Electric Industrial Co., Ltd. Consolidated Statement of Cash Flows * (Six months ended September 30)           Yen U.S. Dollars (millions)   (millions) Cash flows from operating activities: 2007   2006     2007   Net income ¥ 105,122 ¥ 115,123 $ 914 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 155,982 152,148 1,356 Net (gain) loss on sale of investments (2,446 ) (31,119 ) (21 ) Minority interests 5,012 17,932 44 (Increase) decrease in trade receivables (16,878 ) 30,129 (147 ) (Increase) decrease in inventories (84,362 ) (105,153 ) (734 ) Increase (decrease) in trade payables 10,416 (19,314 ) 91 Increase (decrease) in retirement and severance benefits (62,747 ) (59,093 ) (546 ) Other 71,590   96,998   623   Net cash provided by operating activities ¥ 181,689   ¥ 197,651   $ 1,580     Cash flows from investing activities: (Increase) decrease in short-term investments 697 26,540 6 Proceeds from disposition of investments and advances 88,063 56,817 766 Increase in investments and advances (92,141 ) (167,023 ) (801 ) Capital expenditures (219,019 ) (206,903 ) (1,904 ) Proceeds from sale of fixed assets 123,335 100,290 1,072 (Increase) decrease in time deposits 188,187 (170,117 ) 1,636 Purchase of shares of a newly consolidated subsidiary (50,465 ) -- (439 ) Proceeds from sale of shares of subsidiaries -- 40,548 -- Other (23,140 ) (23,219 ) (201 ) Net cash provided by (used in) investing activities ¥ 15,517   ¥(343,067) $ 135     Cash flows from financing activities: Increase (decrease) in short-term borrowings (21,546 ) (10,977 ) (187 ) Increase (decrease) in deposits and advances from employees (44 ) (13,507 ) (0 ) Increase (decrease) in long-term debt (20,613 ) (30,401 ) (179 ) Dividends paid (32,194 ) (22,095 ) (280 ) Dividends paid to minority interests (10,783 ) (9,412 ) (94 ) (Increase) decrease in treasury stock (61,629 ) (41,405 ) (536 ) Proceeds from issuance of shares by subsidiaries 39,866   --   346   Net cash used in financing activities ¥(106,943) ¥(127,797) $ (930 )   Effect of exchange rate changes on cash and cash equivalents (10,944 ) 13,523   (95 ) Effect of changes in consolidated subsidiaries (93,441 ) -- (812 ) Net increase (decrease) in cash and cash equivalents (14,122 ) (259,690 ) (122 ) Cash and cash equivalents at beginning of period 1,236,639   1,667,396   10,753   Cash and cash equivalents at end of period ¥1,222,517 ¥1,407,706 $ 10,631     *See Notes to consolidated financial statements on pages 16-17. Notes to consolidated financial statements:             1. The company's consolidated financial statements are prepared in conformity with U.S. generally accepted accounting principles (U.S. GAAP).   2. In order to be consistent with generally accepted financial reporting practices in Japan, operating profit is presented as net sales less cost of sales and selling, general and administrative expenses. The company believes that this is useful to investors in comparing the company's financial results with those of other Japanese companies. Please refer to the accompanying consolidated statement of income and Note 6 for U.S. GAAP reconciliation.   3. Victor Company of Japan, Ltd (JVC), a consolidated subsidiary of the Company, issued and allocated new shares of common stock to third parties on August 10, 2007 for a cash consideration of 35 billion yen. As a result, the Company’s shareholding in JVC decreased from 52.4% to 36.8%. JVC and its consolidated subsidiaries became associated companies under the equity method from consolidated subsidiaries from August 2007.   4. Comprehensive income was reported as a gain of 86,399 million yen ($751 million) for the first half ended September 30, 2007, a gain of 132,146 million yen for the first half ended September 30, 2006, and a gain of 289,270 million yen for the year ended March 31, 2007. Comprehensive income includes net income and increases (decreases) in accumulated other comprehensive income (loss).   5. Per share data (Year ended September 30) 2007 first half 2006 first half 2007 first half Net income (millions of yen) ¥105,122 ¥115,123 $914 million Average common shares outstanding (number of shares) 2,131,342,902 2,197,901,732 Dilutive effect: Stock Options 4,569 17,912 Diluted common shares outstanding 2,131,347,471 2,197,919,644 Net income per share: Basic 49.32 yen 52.38 yen $0.43 Diluted 49.32 yen 52.38 yen $0.43   6. Under U.S. GAAP, expenses associated with the implementation of early retirement programs at certain domestic and overseas companies are included as part of operating profit in the statement of income.   7. Regarding consolidated segment profit, expenses for basic research and administrative expenses at the corporate headquarters level are treated as unallocatable expenses for each business segment, and are included in Corporate and eliminations. 8.   The company's business segments are classified according to a business domain-based management system, which focuses on global consolidated management by each business domain, in order to ensure consistency of its internal management structure and disclosure. The company transferred its healthcare business to its consolidated subsidiary, Panasonic Shikoku Electronics Co., Ltd. on April 1, 2007. Accordingly, segment information for AVC Networks and Home Appliances of fiscal 2007 has been reclassified to conform with the presentation for fiscal 2008.   Principal internal divisional companies or units and subsidiaries operating in respective segments are as follows:   AVC Networks   Panasonic AVC Networks Company, Panasonic Communications Co., Ltd., Panasonic Mobile Communications Co., Ltd., Panasonic Automotive Systems Company, Panasonic System Solutions Company, Panasonic Shikoku Electronics Co., Ltd.   Home Appliances   Home Appliances Group, Lighting Company, Matsushita Ecology Systems Co., Ltd.   Components and Devices   Semiconductor Company, Matsushita Battery Industrial Co., Ltd., Panasonic Electronic Devices Co., Ltd., Motor Company   MEW and PanaHome   Matsushita Electric Works, Ltd., PanaHome Corporation   JVC   Victor Company of Japan, Ltd. (JVC and its consolidated subsidiaries became associated companies under the equity method from consolidated subsidiaries from August 2007.)   Other   Panasonic Factory Solutions Co., Ltd., Matsushita Welding Systems Co., Ltd.   9. Number of consolidated subsidiaries: 570 (10 companies were newly added, and 92 companies were excluded from consolidated companies. JVC and its consolidated subsidiaries are among the 92 companies.)   10. Number of companies reflected by the equity method: 141(72 companies were newly added, and 2 companies were excluded from the equity method companies. JVC and its consolidated subsidiaries are among the 72 companies.)   11. United States Dollar amounts are translated from yen for convenience at the rate of U.S. $1.00 =115 yen, the approximate rate on the Tokyo Foreign Exchange Market on September 28, 2007.   12. Each American Depositary Share (ADS) represents 1 share of common stock. Significant Accounting Policies:   1. Basis of Presentation of Consolidated Financial Statements The company's consolidated financial statements are prepared in conformity with U.S. GAAP. See Note 2 of Notes to consolidated financial statements on page 16.   2. Inventories Finished goods and work in process are stated at the lower of cost (average) or market. Raw materials are stated at cost, principally on a first-in, first-out basis, not in excess of current replacement cost.   3. Marketable Securities The company accounts for debt and equity securities in accordance with Statement of Financial Accounting Standards (SFAS) No.115, "Accounting for Certain Investments in Debt and Equity Securities."   4. Property, Plant and Equipment, and Depreciation Property, plant and equipment is stated at cost. Depreciation is computed primarily using the declining balance method.   5. Leases The company accounts for leases in accordance with SFAS No.13, "Accounting for Leases."   6. Income Taxes Income taxes are accounted for under the asset and liability method. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the fiscal year that includes the enactment date.   7. Retirement and Severance Benefits The company accounts for retirement and severance benefits in accordance with SFAS No. 87, "Employers' Accounting for Pensions" and SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans."   8. Derivative Financial Instruments The company accounts for derivative financial instruments in accordance with SFAS No.133, "Accounting for Derivative Instruments and Hedging Activities." Matsushita Group Outline of the Matsushita Group Described below are the Matsushita Group’s primary business areas, roles of major Group companies in respective businesses and relations between major Group companies and business segments. The Matsushita Group, mainly comprising Matsushita Electric Industrial Co., Ltd. and 570 consolidated subsidiaries, is engaged in manufacturing, sales and service activities in a broad range of electric/electronic and related business areas, maintaining close ties among Group companies both in Japan and abroad. Matsushita supplies a full spectrum of electric/electronic equipment and related products, which is categorized into the following five segments: AVC Networks, Home Appliances, Components and Devices, MEW and PanaHome, and Other. JVC and its consolidated subsidiaries became associated companies under the equity method from consolidated subsidiaries from August, 2007. Accordingly, JVC is not included in the business segments as of September 30, 2007. * Principal internal companies or units and subsidiaries operating in respective segments are shown on page 17.     Please Note: The following are financial statements on a parent company alone basis (provided in yen only), which are in conformity with Japanese generally accepted accounting principles, and should not be confused with the aforementioned consolidated results.       Matsushita Electric Industrial Co., Ltd. (Parent Alone) Statement of Income (Six months ended September 30)   Yen (millions)   Percentage 2007   2006   2007/2006     Net sales ¥ 2,423,895 ¥ 2,343,890 103 % Cost of sales (1,965,076 ) (1,886,029 ) Gross profit 458,819 457,861 Selling, general and administrative expenses (386,595 ) (387,296 ) Operating profit 72,224   70,565   102 % Interest income 4,805 2,262 Dividend income 62,427 42,652 Other income 24,066 11,612 Interest expense (3,421 ) (2,414 ) Other expenses (40,068 ) (47,143 ) Recurring profit 120,033   77,534   155 % Non-recurring profit 1,317 47,476 Non-recurring loss (2,492 ) (5,956 ) Income before income taxes 118,858 119,054 100 % Provision for income taxes Current (14,142 ) (10,378 ) Deferred (16,701 ) (35,901 )   Net income ¥ 88,015   ¥ 72,775   121 %     Notes to parent-alone financial statements:     1. Non-recurring profit for the first half ended September 30, 2007 includes a gain from the sale of securities, the sale of securities of certain affiliated companies and the sale of tangible fixed assets. Non-recurring loss for the first half ended September 30, 2007 includes expenses related to the structural reform, a loss on the sale of tangible fixed assets and impairment losses of securities.   2. Net income per common share: 2007     2006   41.30 yen 33.11 yen Matsushita Electric Industrial Co., Ltd. (Parent Alone) Balance Sheet * September 30, 2007 With comparative figures for March 31, 2007         Yen (millions)   Assets Sept. 30, 2007   March 31, 2007     Current assets: Cash and deposits ¥ 4,499 ¥ 172,879 Trade receivables (notes and accounts) 553,796 569,164 Inventories 210,082 194,276 Other current assets 1,063,494   917,667   Total current assets 1,831,871   1,853,986     Fixed assets: Tangible fixed assets 334,194 338,555 Intangibles 48,811 49,851 Investments and advances 2,573,457   2,574,287   Total fixed assets 2,956,462   2,962,693     Total assets ¥4,788,333   ¥4,816,679     Liabilities and Shareholders' Equity   Current liabilities: Trade payables (notes and accounts) ¥ 503,223 ¥ 487,713 Accrued income taxes 5,500 5,058 Other current liabilities 1,332,891   1,333,365   Total current liabilities 1,841,614   1,826,136     Long-term debt and employee retirement and severance benefits 306,281   326,130   Total liabilities 2,147,895   2,152,266     Net assets: Capital 258,740 258,740 Capital surplus 570,058 570,023 Retained earnings 2,202,246 2,146,425 Treasury stock (558,232 ) (496,568 ) Total shareholders' equity 2,472,812 2,478,620 Difference of valuation, translation and other adjustments 167,626   185,793   Total net assets 2,640,438   2,664,413     Total liabilities and net assets ¥4,788,333   ¥4,816,679     * See Notes to parent-alone financial statements on page 20. Matsushita Electric Industrial Co., Ltd. (Parent Alone) Statement of Changes in Shareholders' Equity * (Six months ended September 30, 2007)             Yen (millions)         Yen (millions) Shareholders' equity Capital surplus Retained earnings           Other retained earnings Capital Capital reserve Other capital surplus Total of capital surplus Legal reserve Reserve for advanced depreciation Reserve for dividends Contingent reserve   Unapprop-riated retained earnings Balances at beginning of period ¥ 258,740 ¥ 568,212 ¥ 1,811 ¥ 570,023 ¥ 52,749 ¥ 17,894 ¥ 81,000 ¥ 1,918,680 ¥ 76,102   Changes in the period Dividends from surplus (32,194 ) Net income 88,015 Repurchase of common stock Disposal of treasury stock 35 35 Net changes of items other than shareholders' equity                     Total changes in the period -- -- 35 35 -- -- -- -- 55,821   Balances at end of period ¥ 258,740 ¥ 568,212 ¥ 1,846 ¥ 570,058 ¥ 52,749 ¥ 17,894 ¥ 81,000 ¥ 1,918,680 ¥ 131,923       Shareholders' equity   Difference of valuation, translation and other adjustments   Total net assets Retained earnings                   Total of retained earnings Treasury stock Total of shareholders' equity Unrealized holding gains of available-for-sale securities, etc Deferred profit on hedges Total of difference from appreciation and conversion Balances at beginning of period ¥ 2,146,425   ¥ (496,568 ) ¥ 2,478,620   ¥ 170,507   15,286 ¥ 185,793 ¥ 2,664,413   Changes in the period Dividends from surplus (32,194 ) (32,194 )   (32,194 ) Net income 88,015 88,015 88,015 Repurchase of common stock (61,789 ) (61,789 ) (61,789 ) Disposal of treasury stock 125 160 160 Net changes of items other than shareholders' equity             (20,157 ) 1,990 (18,167 ) (18,167 ) Total changes in the period 55,821   (61,664 ) (5,808 ) (20,157 ) 1,990 (18,167 ) (23,975 ) Balances at end of period ¥ 2,202,246   ¥ (558,232 ) ¥ 2,472,812   ¥ 150,350   ¥ 17,276 ¥ 167,626 ¥ 2,640,438         * See Notes to parent-alone financial statements on page 20.