<PAGE>   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, 1999
                                              --------------
                         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 83 pages.
<PAGE>   2
                                      -2-


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.
<TABLE>
<CAPTION>

                                                         Outstanding as of
                                                  ---------------------------------
             Title of Class                       March 31, 1999    March 30, 1999
             --------------                        (Japan Time)     (New York Time)
                                                  -------------     ---------------

<S>                                               <C>               <C>
  Common Stock - 50 yen par value per share       2,062,344,774

  American Depositary Shares, each
    representing 10 shares of common stock                             4,622,187
</TABLE>

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

Indicate by check mark which financial statement item the Company has elected to
follow. Item 17. X    Item 18.  .
                ---           ---
All information contained in this Report is as of March 31, 1999 or for the year
ended March 31, 1999 (fiscal 1999) 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 21, 1999 was 118.25 yen =
U.S.$1.


Cautionary Statement Regarding Forward-Looking Statements
---------------------------------------------------------

Any statements in this Annual Report, other than those of historical fact, are
forward-looking statements about the future performance of Matsushita and its
Group companies, which are based on management's assumptions and beliefs in
light of information currently available, and involve risks and uncertainties.
Actual results may differ materially from these forecasts.

Potential risks and uncertainties include, but are not limited to, domestic and
overseas economic conditions, such as consumer spending and private capital
expenditures, particularly given the continuing sluggish economy of Japan and
other Asian countries; currency exchange rate fluctuations, notably with the
yen, U.S. dollar, Asian currencies, the euro and other currencies, in which
Matsushita operates its international business; direct and indirect restrictions
imposed by other countries; fluctuations in market prices of securities in which
Matsushita has substantial holdings; and Matsushita's ability to maintain its
strength in many product and geographical areas, through such means as new
product introductions, in a market that is highly competitive in terms of both
price and technology, pertinent to the industry to which the Company primarily
belongs.
<PAGE>   3
                                      -3-



                                     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 (TV) sets and refrigerators. Matsushita continued to
grow during the following decades by expanding its product range to include
color TV sets, hi-fi components, air conditioners, video tape recorders,
industrial equipment and information and communications equipment, as well as
electronic components. Overseas sales and production expansion was also a
significant factor for the growth in these decades.

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 placed increasing emphasis on technological development
and the use of advanced electronics technology in every phase of life, thus
steering the Company to achieve further growth in the next century. In
particular, the Company has been expanding its development activities in such
areas as next-generation audiovisual (AV) equipment, multimedia products, and
advanced electronic components and devices, many items of which are
incorporating digital technology. Its priority product areas include optical
discs (such as DVDs), mobile communications equipment, display devices and
semiconductors. In early 1998, "next-generation digital TV systems" was added as
the fifth mid-term priority area.

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

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

In June 1995, the Company sold an 80% equity 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 minority interest.
<PAGE>   4
                                      -4-



In April 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 household equipment,
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.

In March 1998, the Company announced a package of new management initiatives
aimed at better sharing interests with shareholders. As part of this package,
management implemented with approval at the annual shareholders' meeting in late
June 1998, repurchase of 50 million shares of the parent company's common stock
from the stock market for retirement, spending approximately 99 billion yen of
retained earnings during fiscal 1999. At the same time, as an incentive to Board
members and employees toward the enhancement of corporate value, the parent
company granted stock option rights (exercisable from July 1, 2000 to June 30,
2004) to 32 Board members and four select senior executives, at amounts ranging
from 2,000 to 10,000 common shares each, and established a stock-price-linked
remuneration plan, under which a modest amount of cash payment will be offered
once a year in addition to ordinary salary and bonus payments to approximately
11,000 employees of manager-level or above (effective through fiscal 2001).

In May 1999, management again announced another stock option plan (exercisable
from July 1, 2001 to June 30, 2005) for the current 32 Board members and four
select senior executives. The amounts and conditions are approximately equal to
those granted last year.


                                SALES CATEGORIES
                                ----------------

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

<TABLE>
<CAPTION>

                                                     Yen (billions)
                                    ------------------------------------------------
                                               Fiscal year ended March 31,
                                    ------------------------------------------------
                                        1999              1998              1997
                                    ------------     -------------     -------------
<S>                                 <C>      <C>     <C>      <C>      <C>       <C>
Consumer products
     Video and audio equipment      1,895     25%     1,885    24%      1,804     24%
     Home appliances and
       household equipment          1,394     18      1,474    18       1,638     21
                                    -----    ---      -----   ---       -----    ---
             Subtotal               3,289     43      3,359    42       3,442     45
Industrial products
     Information and communi-
       cations equipment            2,150     28      2,264    29       2,021     26
     Industrial equipment             717     10        701     9         701      9
                                    -----    ---      -----   ---       -----    ---
             Subtotal               2,867     38      2,965    38       2,722     35
Components                          1,484     19      1,567    20       1,512     20
                                    -----    ---      -----   ---       -----    ---

             Total                  7,640    100%     7,891   100%      7,676    100%
                                    =====    ===      =====   ===       =====    ===

</TABLE>
<PAGE>   5
                                      -5-



Note:    From fiscal 1998, Matsushita reclassified its product categories for
         sales breakdown reporting purposes, whereby overall Company sales are
         divided into three major sectors: Consumer Products, Industrial
         Products and Components. The new categories are classified by type of
         product and customer, rather than by product group as was previously
         the case. Prior year figures have been restated to reflect this change.


Consumer Products
-----------------

Consumer products is Matsushita's traditional and primary business area, in
which the Company maintains a high competitive edge in Japan and overseas
markets. Sales in this category, consisting of video and audio equipment and
home appliances and household equipment, totaled 3,289 billion yen, representing
43% of total Company sales in fiscal 1999. Major products in this category are
as follows.

Video and Audio Equipment

The Company's largest revenue source in the video and audio equipment field is
home-use videocassette recorders (VCRs), including VCR decks, camcorders and
related products. The Company's home VCR decks range broadly from high-quality
picture and sound units, such as S-VHS VCR models, including those with
satellite broadcast tuners and those compatible with the 16:9 wide aspect ratio
(wide-screen) TV format, to easy-to-operate units. In camcorders, Matsushita
offers a variety of compact models, including VHS-C, S-VHS-C and digital
camcorders. Since introducing the industry's first digital camcorder in 1995,
the Company has been consistently launching new advanced digital models,
including palm-sized and other more compact models, that can be linked to
printers and/or personal computers (PCs) for multiple video image
processing/storage or still image printing.

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, mainly in Japan, on flat-screen models, notably a new
series of TVs introduced during fiscal 1999 called "Tau." The latest "Tau"
features Matsushita's originally developed Semi-Stretched Tension (SST)
flat-surface CRTs with higher picture quality. Matsushita meets the burgeoning
demand for multi-channel, multi-functional digital TV broadcasting by
manufacturing and selling set-top boxes (STBs) to receive digital satellite TV
broadcasts in Japan. This was followed by introduction of STBs and TVs to
receive digital terrestrial TV broadcasts commenced in the United States in late
1998.

Matsushita has taken an active role in promoting DVD products, introducing the
industry's first DVD players in fiscal 1997, and the world's first portable DVD
players in early 1998. In fiscal 1999, Matsushita further enhanced this
product's range by adding an even lighter and more compact portable model with
longer playback time. Matsushita also provides supports for disc production and
software development.

Matsushita's product range of video equipment also includes color TV/VCR
combination units, large-screen projection TV systems, and such flat screen TVs
as liquid crystal display (LCD) TVs and plasma TVs (TVs using plasma display
panels (PDPs)).

In the area of audio equipment, Matsushita produces a large variety of products,
such as compact disc (CD) and Mini Disc (MD) players, radio receivers, CD radio
cassette recorders, tape recorders and portable headphone players, as well as
stereo hi-fi equipment and electronic musical instruments.
<PAGE>   6
                                      -6-


In response to growing market demand for compact digital audio equipment in
recent years, Matsushita has been strengthening such product lines as CD and MD
players with several outstanding features: In fiscal 1999, the Company
introduced in the domestic market, the world's smallest and lightest portable MD
player, featuring the industry's longest continuous playing time with batteries.
In overseas markets and Japan, the Company also achieved success with a new
compact stereo component system, incorporating a 5-CD changer. The Company
further plans to introduce new industry-leading DVD-Audio equipment during
fiscal 2000.

This category also includes prerecorded video and audio tapes and discs.

To maintain its competitive edge in the future, Matsushita is currently
emphasizing development of advanced AV products focusing on better linkage to
digital networks (digital broadcasts, the Internet, etc.).

Home Appliances and Household Equipment

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

Matsushita maintains its position as a leader of the Japanese home appliance
industry, consistently supplying innovative and energy-efficient products that
satisfy the needs of highly discerning Japanese consumers, including their
growing concern for environmental issues and energy conservation.

Recent examples include the world's first centrifugal force washing machine for
home use, which cleans the laundry by flowing water rapidly through fabric, the
industry's quietest vacuum cleaner, and a triangular-shaped air conditioner
featuring a space-saving design and improved cooling and heating efficiency.

In the household equipment area, the Company also seeks to provide user-friendly
products that meet market needs, with environmental, health and hygienic
concerns in mind. Successful examples in recent years include new kitchen
fixture systems featuring pull-down shelves and a bathroom shower-with-chair
unit for use by the aged and the disabled.

To strengthen its established position in the industry, Matsushita is increasing
its product development efforts to address energy-saving and eco-friendly
requirements being set by Japanese and foreign governments, while also exploring
digital networking of various household electric and electronic products to
create a more comfortable and convenient lifestyle.

Industrial Products
-------------------

Industrial products, comprised of information and communications equipment and
industrial equipment, has been the Company's fastest growth area during the last
several years, although this growth began to slow from around the middle of
fiscal 1998 due mainly to a setback in private capital investment in Japan and
Asia and falling price levels of several information and communications
products. Sales in this category in fiscal 1999 totaled 2,867 billion yen,
representing 38% of total Company sales. Major products are as follows.
<PAGE>   7
                                      -7-



Information and Communications Equipment

This line mainly includes information equipment, such as personal computers
(PCs), word processors, printers, copying machines, PC displays, hard disk
drives, CD-ROM, DVD-ROM and DVD-RAM drives; communications equipment, such as
facsimile equipment, telephones, cellular telephones, other mobile
communications equipment and digital private branch exchanges; and other systems
equipment, such as CATV systems, broadcast- and business-use AV systems and
equipment, large-screen visual equipment, communications network equipment, and
traffic-related systems and equipment. Of these, Matsushita maintains a high
competitive edge worldwide in particular lines of products, such as hard disk
and optical disc drives, facsimile equipment, broadcast-use digital VCR
equipment and airline inflight AV systems, while also enjoying a leading
position in the Japanese cellular phone industry.

In anticipation of the digital networking age, Matsushita is currently
strengthening its lines of multimedia-related equipment and systems: Among them,
emphasis is placed on optical disc systems and mobile communications equipment.
The advancement of the former is being propelled by the Company's fast expansion
of DVD-ROM drive production, marketing of thin DVD-ROM drives (for notebook PCs)
and DVD-RAM drives, all meeting the needs for large-capacity information storage
devices. In mobile communications equipment, the Company during fiscal 1999
consolidated its position as one of the leading manufacturers in GSM-standard
markets such as Europe and Asia. The Company is also accelerating its
development of the third-generation mobile communication system, called W-CDMA.

Matsushita is also expanding its multimedia- or digital network-related
businesses, mainly in Japan. These include various on-demand information systems
to municipal, business and other customers, and participation in a number of
development projects guided by government agencies, including next generation
traffic systems called ITS (Intelligent Transport Systems), Internet-related
services, and new digital territorial and satellite broadcast systems. In
addition, Matsushita received orders for a large-scale satellite network system
to link post offices nationwide. To reinforce its ability in these multimedia
system businesses, the Company established a Systems Solutions Division in Tokyo
in April 1999.

Industrial Equipment

Matsushita's product range of industrial equipment encompasses factory
automation (FA) equipment, welding machines, electric power distribution
equipment, commercial air conditioning equipment, vending machines and medical
equipment. This category also includes car AV equipment, such as car audio and
car navigation equipment.

In FA equipment, Matsushita is an industry leader in electronic-parts-mounting
machines, and is also a major producer of industrial robots and electronic
measuring instruments. Building on this strength, the Company has been launching
innovative products to meet ever-more sophisticated customer requirements,
including the world's fastest chip mounter, a unique Stud Bump Bonding
semiconductor-mounting machine, a precision assembly robot equipped with
Matsushita's own compact motors for precise work in small spaces, and DVD disc
production systems built around the Company's expertise in the optical disc
field.

In car AV equipment, Matsushita is one of the world's leading manufacturers.
While serving Japanese automotive manufacturers, the Company is also reinforcing
deliveries to car dealers and automotive product dealers, as well as to overseas
auto manufacturers and dealers. For the expanding domestic market for car
navigation systems, in fiscal 1999 Matsushita launched the world's first DVD
car-navigation model featuring voice control and DVD video playback functions.
<PAGE>   8
                                      -8-





Components
----------

Matsushita produces a wide range of electronic and electric components and
devices. Major products included in this category are semiconductors, general
electronic components, display devices, electric motors, compressors and
batteries, for use by Matsushita and other manufacturers. Sales of components as
a whole in fiscal 1999, excluding in-house consumption, totaled 1,484 billion
yen, accounting for 19% of the Company total.

Recognizing that components and devices hold the key to innovation and
advancement, as well as competitiveness, of finished products and systems in the
digital networking age, Matsushita currently places significant priority on the
development of electronic components' technology and business, with special
emphasis on semiconductors and display devices.

The Company's range of semiconductors is primarily made up of integrated
circuits (ICs), such as MOS LSIs and bipolar ICs, discrete devices and CCDs. The
Company has been strengthening development of single-chip multifunctional LSIs,
called System LSIs, which form the basis of digital-network related AV
equipment. Successful results included Media Core Processors, MPEG-2 encoder
chips, 32-bit microcontrollers with embedded DRAMs, single-chip decoder LSIs for
digital TV receivers, and system LSI chip sets for DVD-ROM drives. Matsushita is
at the forefront in optical pickup semiconductors for DVDs, CCDs for video
camcorders, and gallium-arsenide power modules for cellular phones. The Company
in fiscal 1999 closed its U.S. semiconductor plant reducing production of the
general-purpose DRAMs, which accounted for a relatively small portion of
Matsushita's semiconductor output, to minimize any negative effects due to
declining prices.

In display devices, Matsushita has been a global leader in cathode-ray tubes
(CRTs) to which Matsushita further added high technology SST flat-surface CRTs
during fiscal 1999. The Company also produces a variety of LCD panels, ranging
from STN types to TFT types, including low temperature polysilicon models.
Matsushita is also strengthening its plasma display panels, offering 42-inch and
32-inch wide-screen models with the industry's highest brightness levels.

The Company's broad spectrum of general components encompasses electronic
circuit components, printed circuit boards, transformers, power supply
components, coils, capacitors, resistors, tuners, switches, speakers, ceramic
components, sensors and magnetic recording heads, all supporting Matsushita's
finished products as well as products of other manufacturers, including
electronics manufacturers and automotive makers.

Electric motors are also essential parts that underpin electronics and other
industries. Besides motors for consumer electronic and electric products, the
Company is intensifying business for industrial products. Particularly
competitive Matsushita motors include compact spindle motors for use in PC
peripherals and CD and DVD players, vibration motors for cellular phones, and
compact motors for FA equipment.

In the area of compressors, Matsushita is positioned as a world leader, offering
those primarily for air conditioners and refrigerators.
<PAGE>   9
                                      -9-



Matsushita is one of the world's largest battery manufacturers, producing a
comprehensive range of batteries, ranging from manganese, alkaline, lithium,
silver oxide and zinc air cells, to rechargeable batteries, such as
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 batteries, such
as the Company's long life alkaline batteries and lithium-ion batteries, has
been expanding in recent years, as they are increasingly used in compact
electronic equipment. In its latest technological breakthrough, Matsushita began
volume production of thin lithium-polymer cells in early 1999.

Matsushita is a major supplier of high-performance batteries for electric
vehicles (EVs), including hybrid electric vehicles (HEVs). Following the
introduction of nickel metal-hydride rechargeable batteries for EVs in fiscal
1997, Matsushita launched these batteries for HEVs in fiscal 1998, through an EV
battery joint venture with Toyota Motor Corporation.


                             SALES AND DISTRIBUTION
                             ----------------------

Set forth below is a sales breakdown by geographical markets:
<TABLE>
<CAPTION>

                                                     Yen (billions)
                             --------------------------------------------------------
                                         Fiscal year ended March 31,
                             --------------------------------------------------------
                                  1999                1998                  1997
                             -------------        -------------        --------------
<S>                          <C>       <C>        <C>       <C>        <C>        <C>
Japan                        3,752      49 %      3,891      49 %      4,046       53%
North and South America      1,513      20        1,458      19        1,249       16
Europe                       1,019      13          949      12          836       11
Asia and Others              1,356      18        1,593      20        1,545       20
                             -----     ---        -----     ---        -----      ---
             Total           7,640     100 %      7,891     100 %      7,676      100%
                             =====     ===        =====     ===        =====      ===
</TABLE>

Sales and Distribution in Japan
-------------------------------

Domestic sales are handled primarily by 12 sales divisions organized according
to the type of customer, i.e., consumers, corporate, government, manufacturing
industry, housing/construction industry and other respective industries, in
order to meet the specific and ever-diversifying needs of consumers and various
industries.

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 223 companies in 46 countries outside of Japan, including
five regional headquarters, 47 manufacturing/sales companies, 97 manufacturing
companies, 45 sales companies, 11 research organizations and five 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.



                                       9
<PAGE>   10
                                      -10-



Overseas sales, including products manufactured outside Japan and those exported
from Japan represented approximately 51% of the Company's total consolidated
sales in fiscal 1999.

In order to promote global business development and counter currency
fluctuations, Matsushita has expanded its overseas production covering not only
major consumer products, but also industrial products and components. In recent
years, the Company placed emphasis on building new manufacturing facilities in
newly developing areas, such as China, India and Eastern Europe.

Matsushita's current emphasis is placed on advancing localization of development
of products and technologies to enhance competitiveness of individual overseas
manufacturing sites, as well as that of the entire Group regionally. The Company
is also reviewing the functions of its R&D, production and sales bases worldwide
by respective product categories to achieve optimum efficiency of Matsushita's
global operations.

Customers
---------

The largest markets for Matsushita's products have traditionally been consumers
and households. However, 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, automotive 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, 1999, sales of industrial products and components accounted for
approximately 57% of Matsushita's total sales, rising from 48% of the total (52%
of total excluding MCA) in fiscal 1995. Matsushita's business is not materially
dependent 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 theme: to provide
utmost satisfaction to customers throughout the world. Under this theme, the
Company has been committed to "R&D that creates next generation businesses,
while at the same time supporting today's and tomorrow's products and
businesses." As part of this task, focus is also directed at the five priority
areas: next-generation digital TV systems, semiconductors, display devices,
optical discs and mobile communications equipment.

In pursuit of these goals, Matsushita operates future-oriented R&D at several
corporate R&D centers. The Advanced Technology Research Laboratories,
reorganized from the former Central Research Laboratories, engages primarily in
basic research aimed at developing advanced technologies to create new
businesses looking toward the year 2010. Other corporate R&D centers include the
Multimedia Development Center, the Optical Disk Systems Development Center, the
Display Device Development Center and the Human Environmental Systems
Development Center. They focus on the development of multimedia- and
network-related products and systems, optical disc-related equipment systems,
display devices, energy conservation technologies, and related key components
and devices.

In addition, several specialized R&D facilities operate independently, although
they cooperate closely with the aforementioned research laboratories and
development centers. These facilities include the Corporate Semiconductor
Development Division, which operates five 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.
<PAGE>   11
                                      -11-



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

Internal divisional companies, manufacturing divisions and principal
subsidiaries also maintain their own research facilities and/or departments,
engaged in specific research and development projects or engineering and design
improvements, and these work in close cooperation with the above-mentioned
corporate research organizations. Their current emphasis is placed on
development of "Product Firsts," which are outstanding products that incorporate
world- or industry-first technologies or features that inspire customers.

Total expenditures for research and development amounted to 435 billion yen, 481
billion yen and 500 billion yen for the three years ended March 31, 1997, 1998
and 1999, respectively, representing 5.7%, 6.1% and 6.5% of Matsushita's total
net sales for each of those periods.

The most significant technological developments in recent years include; DVD
products, including portable DVD players and DVD ROM drives featuring the
Company's twin focus pickup, DVD-RAM drives with single side recording capacity
of 4.7 gigabytes, and DVD discs employing a dual-layer disc bonding technology;
a high-density multilayered printed circuit board technology with an "any layer
interstitial via hole" structure, which enables development of compact and light
digital cellular phones and other multimedia products; an MPEG-2 video encoder
LSI that has integrated moving picture compression functions on a single chip,
facilitating development of compact, low power consumption DVD recorders and
video camcorders; an MPEG-2 decoder LSI applicable to 18 formats of the digital
terrestrial TV broadcasting which began in the United States in October 1998;
digital terrestrial TV tuner boards for use in PCs, jointly developed with a
major U.S. PC manufacturer; a single-chip digital TV System LSI, which processes
all digital signals received in radio waves and complies with most of the
world's digital TV services; a resource-efficient TV incorporating highly
recyclable magnesium alloy in its cabinet as an industry first and the Company's
low energy consumption transformer; and rapid bacteria concentration and
detection technology, which detects harmful bacteria that may cause food
poisoning, and which eliminates the culturing process.


                              CAPITAL EXPENDITURES
                              --------------------

Recognizing that building advanced technologies, equipment and processes is
essential to the cost-efficient manufacturing of sophisticated electronic
products and devices, the Company has been attentive in planning plant and
equipment investment to achieve higher competitiveness and investment
efficiency. Besides constant investment in production automation and
energy-saving facilities, increasing emphasis has been placed on expansion of
strategically-important business areas, including key components and devices and
mobile communications equipment. Total capital expenditures were 415 billion yen
and 474 billion yen for fiscal 1997 and fiscal 1998, respectively. The Company's
capital investment during fiscal 1999 totaled 352 billion yen, a decrease from
previous years, primarily due to more selective investment, especially in the
area of components and devices, including semiconductors and LCD devices.
<PAGE>   12
                                      -12-



                                   COMPETITION
                                   -----------

The markets in which the Company sells its products are highly competitive in
Japan, as well as abroad. Matsushita's principal competitors, across the full
range of its products, consist of several large Japanese manufacturers. In
particular categories of products it encounters additional competition from
companies in the United States, Europe and Asia. Matsushita also 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.

In addition, the emergence of several Asian countries as lower-cost production
sites has applied pressure to Japanese manufacturers, including Matsushita, in
terms of price competition in international markets. To minimize the effects of
these negative factors, the Company is devising various cost-reduction measures,
shortening production and logistics lead time, optimizing its overseas
production by emphasizing efficiency and competitiveness from a global
perspective, and also developing joint ventures and other cooperative agreements
with overseas partners.


                                   TRADEMARKS
                                   ----------

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


                            PATENT LICENSE AGREEMENTS
                            -------------------------

Matsushita holds numerous Japanese and foreign patents and utility model
registrations for its products and engages in mutual exchange 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 audiovisual products, computers, communications
equipment, semiconductors and other components. Matsushita has non-exclusive
patent license agreements, among others, with Thomson Multimedia Licensing Inc.
and Thomson S.A. covering a broad range of its products, the most important of
which are television receivers, VCRs , CD players and CD-ROM equipment.
Matsushita has non-exclusive patent cross-license agreements, among others, with
Texas Instruments Incorporated and International Business Machines Corporation,
both covering semiconductors, information equipment and certain other related
products. Matsushita Electronics Corporation (MEC), a consolidated subsidiary of
the Company, has non-exclusive patent license agreements with Koninklijke
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.
<PAGE>   13
                                      -13-



                       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. The
Company has also 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. 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.


                               EMPLOYEE RELATIONS
                               ------------------

As of March 31, 1999, Matsushita had approximately 282,000 employees. Most
regular employees in Japan, except management personnel, are union members,
principally of the Matsushita Electric Industrial Workers 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 semiannual bonuses. Matsushita also renews the
terms and conditions of labor contracts, other than those relating to wages and
bonuses, every other year.

In fiscal 1999, Matsushita introduced a stock-price-linked remuneration plan
(effective through fiscal 2001) for its employees of manager level or above
whereby a modest amount linked to the Company's stock price is paid once a year
to these employees.

For more than 20 years, Matsushita has experienced no major labor strikes or
disputes. The Company considers its labor relations to be excellent.


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 their current
production requirements.
<PAGE>   14
                                      -14-





The following table sets forth information as of March 31, 1999 with respect to
manufacturing facilities:
<TABLE>
<CAPTION>

           Floor Space
          (thousands of
Location   square feet)              Principal Products Manufactured
--------   ------------              -------------------------------


<S>         <C>        <C>
Osaka       9,471      VCRs, television receivers, DVD products, audio equipment,
                         washing machines, other home appliances, information
                         equipment, industrial equipment, components, batteries,
                         kitchen fixtures.

Kanagawa    4,227      Communications, information and measuring equipment, VCRs,
                         audio equipment, car AV equipment, compact discs,
                         CRT displays, refrigerators, batteries.

Shiga       3,567      Air conditioners, refrigerators, compressors, vacuum
                         cleaners.

Tochigi     2,058      Television receivers, TV picture tubes, information
                         equipment.

Nara        2,070      Home appliances, gas and kerosene equipment, compact discs
                         and DVD discs.

Okayama     1,864      VCRs, components, magnetic tapes and discs.

Kyoto       1,609      Semiconductors, components.

Ibaraki     1,068      Television receivers, magnetic tapes.

Shikoku     3,630      VCRs, television receivers, information equipment, audio
                         equipment, home appliances.

Kyushu      2,347      Information and communications equipment, home appliances,
                         components, industrial equipment.

North       6,322      Television receivers, home appliances, VCRs, car audio
 America                 equipment, communications equipment, compressors,
                         components, batteries.

Europe      3,779      VCRs, television receivers, audio equipment, car audio
                         equipment, home appliances, components, information and
                         communications equipment.

Asia       17,810      Television receivers, VCRs, audio equipment, air
                         conditioners, refrigerators, other home appliances,
                         components, semiconductors, information and
                         communications equipment, industrial equipment,
                         compressors, batteries.

Other      19,454      Home appliances, industrial equipment, components,
                         semiconductors, video and audio equipment, batteries,
                         information and  communications equipment.
           ------
   Total   79,276
           ======
</TABLE>

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 6.6 million square feet, research and development
facilities with an aggregate floor space of approximately 6.9 million square
feet, employee housing and welfare facilities with an aggregate floor space of
approximately 11.2 million square feet, and administrative offices with an
aggregate floor space of approximately 15.9 million square feet.

As of March 31, 1999, Matsushita leased approximately 12.9 million square feet
of floor space, most of which was for sales office space.
<PAGE>   15
                                      -15-





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 June 1999, the Federal Circuit affirmed the
district court's claim construction and its non-infringement decision.

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 judgment 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. MEC's tort
claim against Loral Fairchild and its parent, Loral Corporation, concerning
certain liability issues was denied by the District Court in August 1997. The
decision has not been appealed.

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 for 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 judgment and subsequently granted Matsushita's
motion for summary judgment in 1992. 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 October 1997, the Ninth
Circuit further reversed, holding that it should withhold full faith and credit
from the Delaware judgment because, as a matter of law, plaintiffs were not
adequately represented in Delaware. The Ninth Circuit reheard the case and, in
June 1999, withdrew its previous opinion and affirmed the district court's
decision of 1992.

Management is of the opinion that any outcome of these actions against
Matsushita will not have a material adverse effect on Matsushita's operations or
financial position.
<PAGE>   16
                                      -16-





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 results of operations or 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, 1999 is as follows:
<TABLE>
<CAPTION>

                                                           Number of    Percent
         Title of class    Identity of person or group   shares owned   of class
         --------------    ---------------------------   ------------   --------

<S>      <C>                <C>                           <C>            <C>
         Common Stock       Directors and Corporate       18,432,984     0.89%
                              Auditors -- 36 persons        shares

</TABLE>


  (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.
<PAGE>   17
                                      -17-



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:
<TABLE>
<CAPTION>

                              Tokyo Stock Exchange         New York Stock Exchange
                              --------------------         -----------------------
                               Price per Share of            Price per American
                               Common Stock (yen)       Depositary Share (dollars) (a)
                               ------------------       ------------------------------
       Calendar Period         High        Low                High           Low
       ---------------         ----        ---                ----           ---
<S>                            <C>         <C>              <C>             <C>
       1997
            1st quarter        2,000       1,670              166.00        142.88
            2nd quarter        2,320       1,890              206.00        153.25
            3rd quarter        2,520       2,070              211.00        170.00
            4th quarter        2,300       1,750              189.56        135.13
       1998
            1st quarter        2,140       1,820              163.94        143.06
            2nd quarter        2,280       2,025              171.00        147.88
            3rd quarter        2,375       1,800              170.00        130.50
            4th quarter        2,155       1,640              182.25        128.00
       1999
            1st quarter        2,355       1,878              195.00        157.50

</TABLE>

         Note:  (a) The prices of American Depositary Shares, each representing
                    10 shares of Common Stock, are based upon reports by the
                    NYSE, with all fractional figures rounded up to the nearest
                    two decimal points.

As of March 31, 1999, approximately 9.10% of the Company's Common Stock was
owned of record by a total of 205 United States shareholders including the
Depositary's nominee, considered as one shareholder of record, owning
approximately 2.24% of the total Common Stock.


Item 6.  Exchange Controls and Other Limitations Affecting Security Holders
         ------------------------------------------------------------------

  (a)   Japanese Foreign Exchange Controls

        Effective April 1, 1998 the Foreign Exchange and Foreign Trade Control
        Law was amended and the title of the statute was changed to the Foreign
        Exchange and Foreign Trade Law. Under the amended Law all aspects of
        regulations on foreign exchange and foreign trade transactions which
        were subject to licensing or other approval or prior notification
        requirements are, with minor exceptions relating to inward direct
        investments (which are not generally applicable to the Company's
        shares), now subject to post transaction reporting requirements.
        Acquisitions and dispositions of shares of Common Stock or American
        Depositary Shares by non-residents of Japan (including foreign
        corporations not resident in Japan) are generally not subject to this
        reporting requirement. However, the Minister of Finance has the power to
        impose a licensing requirement for certain transactions in limited
        circumstances. Under the Foreign Exchange Law as currently in effect,
        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.
<PAGE>   18
                                      -18-





  (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 Share 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 authorized capital stock of the Company as of June 29, 1999 is
        4,950,000,000 shares, which may be issued with a par value or without a
        par value. The Commercial Code requires that shares 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 par
        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's Common Stock,
        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 deposit with the sole
        depositary under the system, the Japan Securities Depositary Center, all
        certificates of shares of Common Stock elected to be put into this
        system. If the holder is not a participating institution in the clearing
        system, the elected shares should be deposited through a participating
        institution such as a securities company or bank that has a clearing
        account with the clearing house. In the Company's register of
        shareholders, the deposited shares are registered in the name of the
        clearing house. 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. For
        the purpose of transferring the deposited shares, delivery of share
        certificates is not required. In general, beneficial owners of deposited
        shares registered in the register of beneficial owners are entitled to
        the same rights and benefits as the holders of shares registered in the
        register of shareholders. The registered beneficial owners may exercise
        the rights attached to the shares, such as voting rights, and will
        receive dividends (if any) and notices to shareholders directly from the
        Company. The shares held by a person as a registered shareholder and
        those held by the same person as a registered beneficial owner are
        aggregated for these purposes. New shares issued with respect to
        deposited shares, including those issued upon a stock split,
        automatically become deposited shares. The beneficial owners are
        required to file with the Company's transfer agent, principally through
        the relevant participating institution, the same information as is
        required from the registered shareholders. Beneficial owners may at any
        time withdraw their shares from deposit and receive share certificates.
<PAGE>   19
                                      -19-





        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,
        without prior shareholder approval, but 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;

              (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; and

              (vi)   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 Directors and/or
                     employees but such shares are yet to be so transferred, the
                     book value of such shares.

        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 payment by way of
        appropriation of retained earnings and transfer to 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) through (vi) above. In addition, 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 retiring the same with retained
        earnings, 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.
<PAGE>   20
                                      -20-



        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.

        Under its Articles of Incorporation, the Company is not obligated to pay
        any dividends which are left unclaimed for a period of three years after
        the date on which they first became payable.

        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:

              (i)    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;

              (ii)   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

              (iii) the subscription rights are made transferable.

        In order to satisfy the requirement mentioned in (i) 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.
<PAGE>   21
                                      -21-





        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.

        Any shareholder holding at least 300 units of shares or 1% of the total
        number of outstanding shares for six months or more may propose a matter
        to be considered at a general meeting of shareholders by submitting a
        written request to a Representative Director at least six weeks prior to
        the date set for such 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 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 the Company requiring
        shareholders resolutions, 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 and/or employees rights to subscribe for new shares if the
        Articles of Incorporation so permit, 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 (the "special
        shareholders resolution").
<PAGE>   22
                                      -22-





        Subscription rights
        -------------------

        Holders of the Company's Common Stock have no pre-emptive 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 non-resident
        of Japan or a corporation organized under the laws of a foreign country
        or whose principal office is located in a foreign country 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 non-resident or foreign corporation.

        The Commercial Code permits a company to provide in its articles of
        incorporation that it may, by a special shareholders resolution, grant
        to its directors and/or employees rights to subscribe for new shares if
        there exists a justifiable reason. The Company's Articles of
        Incorporation do not so provide.

        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. Existing shareholders' equity interest in the
        Company will be diluted, if a substantial amount of stock option rights
        for new shares is granted to the Company's Directors and/or employees
        with the exercise price set below the market price.

        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 Depositary Shares are fully paid and
        non-assessable.
<PAGE>   23
                                      -23-



        Transfer agent
        --------------

        The Chuo Trust & Banking Co., Ltd. is the transfer agent for the
        Company's Common Stock; as such 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 and the Law of
        Special Exception to the Commercial Code Concerning Retirement of Shares
        (the "Special Retirement Law") 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.

        Under the Commercial Code and the Special Retirement Law the Company may
        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 retirement by resolution of the Board of Directors if the
        Board deems it especially necessary to do so in view of general economic
        conditions, the business and financial condition of the Company and
        other factors, by the resolution of the Board of Directors):

              (i)  for the purpose of transferring the same to its Directors
                   and/or employees if there exists a justifiable reason; and

              (ii) for the purpose of retirement thereof with retained earnings.

        Acquisition by the Company of shares of its Common Stock for the above
        purposes is subject to, among other things, the following restrictions:

              (i)  the number of shares to be acquired does not exceed 10% of
                   all issued and outstanding shares (except in the case of
                   purchase of shares for retirement pursuant to shareholders'
                   authorization);
<PAGE>   24
                                      -24-





              (ii)      total amount of purchase price does not exceed the
                        amount of the retained earnings available for dividend
                        payment minus the amount to be paid by way of
                        appropriation of retained 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


              (iii)     acquisition shall be made through a stock exchange
                        transaction or by way of tender offer.

        The Company's shareholders gave, at the ordinary general meeting of
        shareholders held in June 1998, an authorization for the acquisition of
        not exceeding 120,000 shares of Common Stock for the purpose of
        transferring the same to all its Directors then in office and certain
        senior executives. Pursuant to such authorization, 113,000 shares of
        Common Stock were purchased for such purpose. Further, the Company's
        shareholders have, at the ordinary general meeting of shareholders held
        in June 1999, given an authorization for the acquisition of not
        exceeding 120,000 shares of Common stock for the same purpose.

        The Company's shareholders gave, at the ordinary general meeting of
        shareholders held in June 1998, an authorization for the acquisition,
        during the period not later than the next ordinary general meeting of
        shareholders, of 50,000,000 shares of Common stock for the purpose of
        retirement thereof with retained earnings. Pursuant to such
        authorization, 50,000,000 shares of Common Stock were purchased and
        retired with retained earnings during such period.

        In June 1998 the Company provided in its Articles of Incorporation to
        purchase not exceeding 200,000,000 shares by resolution of the Board of
        Directors for the purpose of retirement thereof with retained earnings.
        No such purchase pursuant to a resolution of the Board of Directors may
        be made after the conclusion of the ordinary general meeting of
        shareholders for the fiscal year ending immediately after the Board
        resolution. No Board resolution has been made for this purpose.

        The Special Retirement Law was amended in March 1998 enabling the
        Company to acquire its own shares for the purpose of retiring the same
        with capital surplus by resolution of the Board of Directors if the
        Articles of Incorporation so provide and if the Board deems it
        especially necessary to do so in view of general economic conditions,
        the business and financial condition of the Company and other factors.
        The acquisition of shares under this authorization is subject to the
        restriction that:

              (x)    the total amount of the purchase price does not exceed the
                     total amount of capital surplus and accumulated legal
                     reserve minus the amount equal to one-fourth of stated
                     capital; and

              (y)    if the aggregate of the amounts of (i) through (vi)
                     referred to under "Dividends" above and the amount of
                     interim dividends distributed exceeds the net assets
                     appearing on the balance sheets as at the latest closing of
                     the Company's accounts, no purchase of shares for this
                     purpose can be made.

       The Company's Articles of Incorporation do not so provide.
<PAGE>   25
                                      -25-





        "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).

        A holder who owns ADRs evidencing less than 100 American Depositary
        Shares will indirectly own less than a whole unit. Because transfer of
        ADRs does not require changes in the ownership of the underlying shares
        of Common Stock, holders of ADRs evidencing American Depositary Shares
        that constitute less than one unit of Common Stock are not affected by
        such restrictions in their ability to transfer such ADRs. However,
        because transfers of less than one unit of the underlying shares of
        Common Stock are normally prohibited under the unit share system, under
        the Deposit Agreement relating to the ADRs, the right of ADR holders to
        surrender their ADRs and withdraw the underlying shares of Common Stock
        for sale in Japan may only be exercised as to whole units of Common
        Stock. Although, as discussed below, under the unit share system holders
        of less than a unit have the right to require the Company to purchase
        their shares, holders of ADRs evidencing American Depositary Shares that
        represent other than integral multiples of whole units are unable to
        withdraw the underlying shares of Common Stock representing less than
        one unit and, therefore, are unable, as a practical matter, to exercise
        the right to require the Company to purchase such underlying shares. As
        a result, access to the Japanese markets by holders of ADRs through the
        withdrawal mechanism will not be available for dispositions of shares in
        lots of less than one unit.

        Rights 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.

        Other 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;



<PAGE>   26
                                     - 26 -


                  (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.
         ---------------

         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. A registered holder of fractional shares may request that a
         company issue certificates therefor, unless its articles of
         incorporation provide otherwise, in which case such holder may request
         that the company purchase such fractional shares. Fractional shares
         will not carry voting rights and, unless such company's articles of
         incorporation provide otherwise, the entitlement thereof will be
         limited and will not include the right to receive dividends.


  (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 with certain exceptions. 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 Japan Securities Dealers
         Association.
<PAGE>   27
                                     - 27 -

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 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 U.S. and Japan (the "Convention"),
the maximum rate of Japanese withholding tax that may be imposed on dividends
paid to a U.S. 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 evidenced by the ADRs.
For purposes of this discussion, a "U.S. holder" is a holder that (i) is a
resident of the United States for purposes of the Convention, (ii) does not
maintain a permanent establishment or fixed base in Japan to which ADRs or
Common Stock are attributable and through which the beneficial owner carries on
or has carried on business (or in the case of an individual, performs or has
performed independent personal services) and (iii) is not otherwise ineligible
for benefits under the Convention with respect to income and gain derived in
connection with the ADRs or Common Stock.

Japanese taxation of Common Stock or ADRs
-----------------------------------------

In the absence of an applicable tax treaty, convention or agreement reducing the
maximum rate of withholding tax, the rate of Japanese withholding tax on
dividends paid by Japanese corporations to non-residents of Japan or
non-Japanese corporations is 20%.

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 tax. Japanese inheritance or gift tax at
progressive rates may be payable by an individual who has acquired Common Stock
or ADRs as a legatee, heir or donee.

If the Company purchases shares of its Common Stock by way of a tender offer for
the purpose of retirement with retained earnings as described under "Item 6.
Exchange Controls and Other Limitations Affecting Security Holders (b)
Description of Common Stock -- Repurchase by the Company of its Common Stock"
                               ----------------------------------------------
and so retires such shares, the selling shareholders are deemed to have received
a dividend in an amount equal to the selling price less the aggregate of the
stated capital and the capital surplus attributable to the shares so sold,
except that if such retirement is made on or before March 31, 2001, no such
dividend is deemed to have been received but the entire profits realized by the
selling shareholders from such sales are treated as gains realized from the
ordinary sales of the shares and is subject to income tax or corporation tax, as
appropriate. In addition, when shares acquired by the Company (whether by way of
a tender offer or otherwise) for the purpose of retirement with retained
earnings are retired by the Company with retained earnings, the shareholders
existing at the time of such retirement are deemed to have received a dividend
in an amount equal to the amount of the stated capital attributable to the
retired shares and calculated in proportion to each shareholder's shares at the
time of such retirement, except that if such retirement is made on or before
March 31, 2001, no income tax is payable with respect to such portion deemed as
a dividend. If the Company purchases shares of its Common Stock for the purpose
of retirement with capital surplus and so retires such shares, the entire
profits realized by the selling shareholders from such sales are treated as
gains realized from ordinary
<PAGE>   28
                                     - 28 -

sales of the shares and is subject to income tax or corporation tax, as
appropriate. In this case, no taxable event is deemed to accrue from such
retirement to the shareholders existing at the time of retirement.

United States taxation of Common Stock or ADRs
----------------------------------------------

Dividends received by an U.S. holder of ADRs or Common Stock will be includable
in income as ordinary income for U.S. federal income tax purposes to the extent
paid out of current or accumulated earnings and profits of the Company as
determined for U.S.
federal income tax purposes.

Subject to limitations set out in the Code, an U.S. holder of ADRs or Common
Stock of the Company will be entitled to a credit for Japanese tax withheld in
accordance with the Convention from dividends paid by the Company. For purposes
of the foreign tax credit limitation, dividends will be foreign source income,
but will constitute "passive" or "financial services" income.

Dividends paid by the Company to U.S. corporate holders of ADRs or Common Stock
will not be eligible for the dividends-received deduction.


Item 8.  Selected Financial Data
         -----------------------

<TABLE>
<CAPTION>
                                         Yen (billions),
                            except per share amounts and yen exchange rates
                        --------------------------------------------------------
                                    Fiscal year ended March 31,
                        --------------------------------------------------------
                            1999        1998        1997       1996        1995
                            ----        ----        ----       ----        ----
<S>                       <C>         <C>         <C>        <C>        <C>
Income Statement Data:
----------------------

Net sales                   7,640       7,891       7,676      6,795      6,948
Income before income
  taxes                       202         356         332         77        232
Net income (loss)              14          94         138        (57)        90
Per common share:
   Net income (loss):
      Basic                  6.48       44.32       65.39     (27.12)     43.15
      Diluted                6.48       41.53       60.64     (27.12)     41.04
   Dividends                12.50       13.00       12.50      12.50      13.50
                          ($0.097)    ($0.107)    ($0.112)   ($0.136)   ($0.136)

Balance Sheet Data:
-------------------

Total assets                7,938       8,564       8,696      8,012      8,202
Long-term debt                709         690         923      1,019      1,291
Minority interests            609         618         611        560        556
Stockholders' equity        3,533       3,770       3,696      3,398      3,255

Yen exchange rates per
----------------------
  U.S. dollar:
  ------------
   Year-end                118.43      133.29      123.72     107.00      86.85
   Average                 128.19      122.78      113.19      97.09      98.48
   High                    108.83      111.42      104.49      81.12      86.85
   Low                     147.14      133.99      124.54     107.29     105.38

         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.
</TABLE>



                                       28
<PAGE>   29
                                     - 29 -

                   2.   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. 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.

                   3.   Fiscal 1999 and 1998 net income represent amounts after
                        subtracting the impact of approximately 53 billion yen
                        and 33 billion yen, respectively, attributable to
                        adjustments of net deferred tax assets to reflect
                        reductions in Japan's corporate income tax rate.


Item 9.  Management's Discussion and Analysis of Financial Condition and
         ---------------------------------------------------------------
         Results of Operations
         ---------------------

    (a)  Results of Operations

         During the three-year period ended March 31, 1999 ("fiscal 1997,"
         "fiscal 1998," and "fiscal 1999"), the Japanese economy turned from a
         recovery phase to a recession. Whereas fiscal 1997 was marked by a
         continued recovery from the previous recession in the early 1990s, the
         Japanese economy experienced a setback in fiscal 1998. This was
         triggered by a raise in the consumption tax rate and the failure of
         several financial institutions, which collectively led to a decline in
         private business sector demand and diminished consumer confidence. In
         fiscal 1999, the sluggishness of the domestic economy deepened further,
         as seen in lower corporate capital investment and consumer spending.

         Outside Japan, economic conditions in North America and Western Europe
         were generally favorable throughout this three-year period. Asian
         economies, however, experienced a downturn in fiscal 1998 following an
         outbreak of currency-related turmoil in Southeast Asia in the summer of
         1997. In fiscal 1999, that turmoil spread to the Commonwealth of
         Independent States (CIS) and Latin America. This, together with the
         lingering recession in Asia, increased uncertainty in the global
         economy.

         Reflecting the aforementioned factors, Japan's Gross Domestic Product
         in real terms increased 4.4% in fiscal 1997 and decreased 0.4% and 2.0%
         in fiscal 1998 and fiscal 1999, respectively.

         Inflation rates in Japan for the three-year period were low in terms of
         the consumer price index with the wholesale price index showing a
         deflationary trend in fiscal 1999. This trend, combined with
         intensified worldwide price competition, caused price declines in
         electronic products. This had a negative impact on the Company's
         earnings especially in industrial products and components sectors, as
         mentioned later. A large portion of the Company's overseas business is
         conducted in low inflation areas, and operations in highly inflationary
         environments were not material.

         Because of the size of Matsushita's international business operations,
         the Company is exposed to both translation and transaction risk
         stemming from currency exchange rate fluctuations. Translation risk is
         a risk with regard to consolidation of foreign currency denominated
         financial statements of overseas subsidiaries. Depending on the
         fluctuation of the exchange rate, the value of overseas subsidiaries
         can differ from period to period when translated into yen. This is a
         reporting consideration and does not affect business operations.
         Transaction risk is a risk that occurs in export, import and other
         transactions when two or more different currencies are


<PAGE>   30
                                     - 30 -

         involved. This is a risk that the currency structure of the Company's
         sales and assets deviates from the currency structure of expenses and
         liabilities during the transaction period.

         The Company's business was favorably affected by the yen's depreciation
         during the three-year period. In order to alleviate the effects of
         currency-related transaction risk, Matsushita has traditionally used
         several currency risk hedging methods, such as forward foreign-exchange
         contracts and currency options contracts with leading banks. Matsushita
         has also recently implemented matching of exports and imports exchange
         contracts. As a basic countermeasure against currency exchange risk,
         the Company has also been strengthening production operations outside
         Japan to meet overseas demand, while reducing dependence on exports.
         The Company does not have any material unhedged monetary assets,
         liabilities, or commitments denominated in currencies other than the
         operation's functional currency.

         During this period, Matsushita focused its management efforts on
         mid-term growth. In fiscal 1998 following the previous three-year
         business plan, the Company implemented the four-year Progress 2000
         Plan. The basic objective of the Plan is to build a stronger management
         structure leading to the creation of an enterprise that provides the
         utmost in customer satisfaction in the 21st century. The Progress 2000
         Plan emphasizes enhancement of the Company's earnings ratios through
         balanced growth in three primary business sectors -- consumer products,
         industrial products and components -- along with balanced growth of
         domestic and overseas operations. To this end, the Plan calls for
         various structural reforms and strengthened product competitiveness.
         The Plan specifies five priority businesses to propel the growth of the
         entire Company, namely digital TV systems, semiconductors, display
         devices, optical discs, and mobile communications equipment.

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

         In fiscal 1997, net sales increased 13.0% to 7,676 billion yen. This
         was attributable to a favorable economic environment and successful
         management steps under the previous three-year business plan. Net
         income climbed to 138 billion yen, compared to a net loss of 57 billion
         yen in fiscal 1996, when the Company incurred a one-time non-operating
         loss of approximately 164 billion yen primarily relating to the sale of
         a controlling interest in MCA (currently Universal Studios Inc.).

         In fiscal 1998, net sales increased 2.8% to 7,891 billion yen, helped
         mainly by growth in overseas sales, notably in North America and
         Europe. Net income decreased 32.1% to 94 billion yen, due mainly to
         slowed demand in Japan and Asia and intensified price competition which
         impacted operating profit. The Company also incurred a 33 billion yen
         negative impact from adjustments of net deferred tax assets to reflect
         a reduction in Japan's corporate income tax rate. Without the effects
         of these adjustments, net income for fiscal 1998 would have decreased
         8.0%.

         In fiscal 1999, net sales decreased 3.2% to 7,640 billion yen, mainly
         reflecting the sluggish Japanese economy and worsened overseas economic
         conditions, especially in Southeast Asia and the CIS. Net income
         dropped 85.5% to 14 billion yen, primarily because of decreased sales
         and price declines due to intensified worldwide competition negatively
         impacting operating profit. The net income reduction was further
         exacerbated by the negative effect of 53 billion yen adjustments of net
         deferred tax assets reflecting a further reduction in Japan's corporate
         income tax rate. Without the effects of these adjustments, net income
         for fiscal 1999 would have decreased 47.7%.
<PAGE>   31
                                     - 31 -

         Year ended March 31, 1999 compared with 1998
         --------------------------------------------

         (1)  Sales
              -----

         Consolidated net sales in fiscal 1999 decreased 3.2% to 7,640 billion
         yen, from 7,891 billion yen in the previous year. This decrease was
         attributed primarily to lower demand in Japan and worsened overseas
         market conditions, especially in Southeast Asia and the CIS.

         Domestic sales declined 3.6% to 3,752 billion yen, reflecting sluggish
         demand in product areas such as industrial products and components due
         to slow corporate capital investments and price declines. Domestic
         sales declined despite successful sales increases in the video and
         audio equipment field and contributions from certain new home appliance
         products. Despite solid sales growth in North America and Europe, led
         by video and audio equipment, overseas sales fell 2.8% to 3,888 billion
         yen, due mainly to depressed demand in Southeast Asia, the CIS, and
         Latin America.

         Sales by major product categories were as follows:

         Sales of consumer products decreased 2.1% to 3,289 billion yen. In this
         category, sales of video and audio equipment edged up 0.5% to 1,895
         billion yen. Domestic sales of consumer products showed favorable
         growth, led by digital AV products such as digital camcorders and DVD
         players. Overseas, sales in North America and Western Europe marked
         strong gains, with TVs and VCRs leading the way. However, this growth
         was offset by drops in sales in Southeast Asia and the CIS. Meanwhile,
         sales of home appliances and household equipment fell 5.4% to 1,394
         billion yen. This decline was mainly due to sluggish demand in the
         primary market, Japan, and decreased sales in overseas markets such as
         Southeast Asia. This decline occurred despite favorable market
         acceptance of industry-first products such as the centrifugal force
         washing machine.

         Sales of industrial products totaled 2,867 billion, down 3.3% from the
         previous year. Of this, sales of information and communications
         equipment decreased 5.1% to 2,150 billion yen, principally because of
         worldwide price declines in computer peripherals, notably PC displays
         and hard disk drives. Helped by overseas growth, sales of mobile
         communications equipment, broadcast- and business-use video systems,
         and printers expanded. Industrial equipment sales rose 2.3% to 717
         billion yen, as robust sales of car AV equipment in and outside Japan
         more than offset a fall in sales of FA equipment.

         Sales of components decreased 5.2% to 1,484 billion yen, reflecting
         sluggish sales of semiconductors and general electronic components due
         to slow demand in Japan and other Asian markets, as well as global
         price declines. However sales of compact batteries and electric motors,
         chiefly for the information and communications industry, were favorable
         especially in overseas markets.

         (2)  Operating Profit
              ----------------

         Operating profit decreased 42.6% to 194 billion yen, from 338 billion
         yen a year ago. Major factors for this decline were negative effects of
         reduced sales in Japan, Asia, and emerging markets; worldwide price
         declines, particularly in industrial products and components; and
         increases in fixed costs, including R&D expenditures and depreciation.
<PAGE>   32
                                     - 32 -

         (3)  Other Income (Deductions)
              -------------------------

         Other income (net) totaled 9 billion yen, down from 18 billion yen in
         fiscal 1998. Major causes for this decrease included lower interest and
         dividend income and other non-operating expenses such as loss on
         liquidation of a U.S. joint venture for production of computer
         peripherals components.

         (4)  Provision for Income Taxes
              --------------------------

         Provision for income taxes amounted to 175 billion yen. Its ratio to
         income before income taxes climbed to 86.7% from 66.0% a year ago,
         primarily owing to adjustments of net deferred tax assets at the end of
         fiscal 1999. This reflects a reduction for the second consecutive year
         in Japan's corporate income tax rate. (See Note 9 of the Notes to
         Consolidated Financial Statements.)

         (5)  Minority Interests
              ------------------

         Minority interests decreased to 8 billion yen, from 26 billion yen in
         fiscal 1998, reflecting the earnings decrease of subsidiaries in
         challenging economic conditions.

         (6)  Equity in Earnings (Losses) of Associated Companies
              ---------------------------------------------------

         Equity in earnings (losses) of associated companies was a loss of 6
         billion yen, compared with a loss of 1 billion yen in the prior year.
         This aggravation was caused by increased losses of certain associated
         companies, including the aforementioned U.S. joint venture for computer
         peripherals components.

         (7)  Net Income
              ----------

         As a result of all the factors stated in the preceding paragraphs, net
         income for fiscal 1999 decreased to 14 billion yen, compared with 94
         billion yen in fiscal 1998. Its ratio to sales declined to 0.2%,
         compared with 1.2% in the prior year.


         Year ended March 31, 1998 compared with 1997
         --------------------------------------------

         (1)  Sales
              -----

         Consolidated net sales in fiscal 1998 reached 7,891 billion yen, up
         2.8% from the previous year's 7,676 billion yen. This increase was
         mainly attributable to growth in overseas sales, notably in North
         America and Europe, which more than offset a decline in domestic sales.

         Domestic sales decreased 3.8% to 3,891 billion yen, largely owing to
         sluggish sales of home appliances and household equipment, reflecting
         such factors as slow consumer spending and housing starts and
         unseasonable weather, which suppressed sales of seasonal products such
         as air conditioners, and slowdown of growth in the second half in other
         principal product lines such as information and communications
         equipment and components, due partly to price declines. Overseas sales
         increased 10.2% to 4,000 billion yen, owing to substantial expansion of
         sales in North America and Europe, led by video and audio equipment and
         information and communications equipment.
<PAGE>   33
                                     - 33 -

         Sales by major categories were as follows:

         Sales of consumer products, consisting of video and audio equipment,
         and home appliances and household equipment, decreased 2.4% to 3,359
         billion yen. Sales of video and audio equipment advanced 4.5% to 1,885
         billion yen, thanks mainly to strong gains by the Company's digital
         video camcorders in Japan and steady growth of VCR decks, TVs and audio
         products overseas. Sales of home appliances and household equipment,
         meanwhile, decreased 10.0% to 1,474 billion yen, due largely to the
         aforementioned decline in domestic sales of major appliances such as
         air conditioners, refrigerators and washing machines.

         Sales of industrial products, consisting of information and
         communications equipment, and industrial equipment, increased 8.9% to
         2,965 billion yen. Sales of information and communications equipment
         grew 12.1% to 2,264 billion yen, reflecting solid advances in overseas
         sales of PCs and PC peripherals, video systems for commercial and
         industrial use, and facsimile machines. Industrial equipment sales
         remained almost flat at 701 billion yen, as a moderate increase in
         sales of FA equipment and car AV equipment offset a decline in demand
         for other industrial equipment such as power distribution equipment and
         vending machines.

         Sales of components rose 3.6% to 1,567 billion yen. This result was
         principally attributable to firm sales of general components and
         semiconductors for use in information and communications equipment and
         digital AV equipment. Sales of electric motors and batteries, notably
         compact high-performance types, also advanced steadily.

         (2)   Operating Profit
               ----------------

         Operating profit decreased 9.7% to 338 billion yen, compared with the
         previous year's 374 billion yen, reflecting the adverse effects of
         decreased or negative sales gains in Japan and other Asian markets due
         to declining demand and intensified worldwide price competition.

         (3)   Other Income (Deductions)
               -------------------------

         Other income (net) registered a gain of 18 billion yen in fiscal 1998,
         compared with a loss of 42 billion yen in fiscal 1997, when the Company
         recorded impairment losses of 153 billion yen related to NL Finance
         Co., Ltd. (NLF), a financial subsidiary, along with gross realized
         gains of 104 billion yen from the sale of available-for-sale
         securities. During fiscal 1998, the Company recognized an impairment
         loss of 57 billion yen associated with the machinery and equipment of
         subsidiaries to manufacture semiconductors, of which the prices have
         significantly decreased, along with an impairment loss of 31 billion
         yen related to the decline in value of land held, and foreign exchange
         losses of 25 billion yen mainly related to currency devaluations in
         Southeast Asian countries. On the other hand, the Company recorded
         gross realized gains of 118 billion yen from the sale of
         available-for-sale securities. (See Notes 4, 5 and 6 of the Notes to
         Consolidated Financial Statements.)

         (4)   Provision for Income Taxes
               --------------------------

         Provision for income taxes amounted to 235 billion yen. Its ratio to
         income before income taxes increased to 66.0%, compared with 46.8% in
         fiscal 1997, mainly due to adjustments of net deferred tax assets
         during fiscal 1998 to reflect a reduction in Japan's corporate income
         tax rate. (See Note 9 of the Notes to Consolidated Financial
         Statements.)
<PAGE>   34
                                     - 34 -

         (5)   Minority Interests
               ------------------

         Minority interests totaled 26 billion yen, compared with 44 billion yen
         in fiscal 1997, reflecting the earnings decrease of several
         subsidiaries.

         (6)   Equity in Earnings (Losses) of Associated Companies
               ---------------------------------------------------

         Equity in earnings (losses) of associated companies was a loss of 1
         billion yen, compared with a gain of 6 billion yen in the prior year,
         due to increased losses of certain associated companies, including the
         one for production of components for PC peripherals which became an
         associated company during fiscal 1998.

         (7)   Net Income
               ----------

         Due to the factors stated in the preceding paragraphs, net income for
         fiscal 1998 decreased to 94 billion yen, compared with 138 billion yen
         in fiscal 1997. Its ratio to sales was 1.2%, compared with 1.8% in the
         previous year.


         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 year's 6,795 billion yen. This increase was
         achieved in a generally favorable worldwide economic environment.

         Domestic sales rose 8.5% to 4,046 billion yen, largely because of
         continued strong demand for information and communications 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%.

         Sales by major product categories, as restated in accordance with the
         category reclassifications effective in fiscal 1998, were as follows:

         Sales of consumer products increased 10.0% to 3,442 billion yen. Within
         this category, sales of video and audio equipment advanced 7.7% to
         1,804 billion yen, due largely to the solid growth of high-definition
         TVs and digital video camcorders in Japan, increased sales of color TVs
         in overseas markets, and solid growth of headphone stereos and CD
         players worldwide. Sales of home appliances and household equipment
         grew 12.7% to 1,638 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 mainly in Japan.

         Sales of industrial products increased 21.7% to 2,722 billion yen. Of
         this, sales of information and communications equipment increased 30.2%
         to 2,021 billion yen, led by mobile communications equipment such as
         cellular phones, and computer peripherals such as hard-disk drives and
         PC displays. Industrial equipment sales rose 2.3% to 701 billion yen,
         thanks mainly to increased demand for welding machines, air
         conditioning equipment and vending machines in Japan.
<PAGE>   35
                                     - 35 -

         Sales of components rose 5.7% to 1,512 billion yen, as the adverse
         effect of price declines in semiconductors was more than offset by
         growth in sales of general components, LCD panels, and compact
         lithium-ion rechargeable batteries.

         (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 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.

         (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.
<PAGE>   36
                                     - 36 -

   (b)   Financial Position and Liquidity


         The Company's consolidated total assets at the end of fiscal 1999
         decreased to 7,938 billion yen, compared with 8,564 billion yen a year
         ago. This drop was largely attributable to reductions in the aggregate
         amount of cash and cash equivalents and in inventories. Stockholders'
         equity at the end of fiscal 1999 also slid, to 3,533 billion yen, from
         3,770 billion yen in the previous year, caused mainly by a decrease in
         retained earnings reflecting retirement of treasury stock and the
         negative effect of the yen's year-end exchange rate on accumulated
         other comprehensive loss (translation adjustments).

         The Company's capital investment during fiscal 1999 totaled 352 billion
         yen, a fall from the previous year's figure of 474 billion yen. This
         decline was primarily owing to more selective investment in the area of
         components and devices, including semiconductors and LCD devices. In
         contrast, depreciation during the year edged up to 366 billion yen,
         compared with 360 billion yen in fiscal 1998.

         Net cash provided by operating activities in fiscal 1999 amounted to
         499 billion yen, down from 529 billion yen in the previous fiscal year,
         chiefly owing to a fall in net income.

         Net cash used in investing activities came to 378 billion yen, compared
         with 431 billion yen in fiscal 1998. This decline was primarily
         attributable to a smaller degree of increase in investments and
         advances than in the previous year and to a cutback in capital
         expenditures.

         Net cash used in financing activities rose to 434 billion yen, from 224
         billion yen a year ago, reflecting increased cash outflows, mainly for
         greater repayments of long-term debt and repurchase of the Company's
         common stock.

         All these activities, compounded by the effect of exchange rate
         changes, resulted in a net decrease of 372 billion yen in cash and cash
         equivalents during fiscal 1999. Cash and cash equivalents at the end of
         fiscal 1999 totaled 1,534 billion yen, compared with 1,906 billion yen
         a year ago.


   (c)   Market Risk Management (Item 9A)

         The Company is exposed to market risk, including changes of foreign
         exchange rates, interest rates and prices of marketable securities. In
         order to hedge the risks of changes in foreign exchange rates and
         interest rates, the Company uses derivative financial instruments. The
         Company does not hold or issue financial instruments for trading
         purposes. Although the use of derivative financial instruments exposes
         the Company to the risk of credit-related losses in the event of
         nonperformance by counterparties, the Company believes that such risk
         is minor because of the high credit rating of the counterparties.

         Equity Price Risk:

         The Company holds available-for-sale securities included in short-term
         investments and investments and advances. In general, highly-liquid and
         low risk instruments are preferred in the portfolio. Available-for-sale
         securities included in investments and advances are held as longer term
         investments. The Company does not hold marketable securities for
         trading purposes.
<PAGE>   37
                                     - 37 -

         Maturities and fair values of available-for-sale securities were as
         follows at March 31, 1999 and 1998:

<TABLE>
<CAPTION>
                                                Yen (millions)
                                    ---------------------------------------
                                           1999                 1998
                                    -----------------    ------------------
                                    Carrying   Fair      Carrying    Fair
                                     amount    value      amount     value
                                    --------   ------    --------    ------
<S>                                 <C>        <C>        <C>        <C>
     Due within one year            122,666   122,676    123,396    123,901
     Due after one year
       through five years            94,793    94,554     92,813     92,616
     Due after five years                 2         3        253        178
     Equity securities              386,024   580,487    400,383    571,012
                                    -------   -------    -------    -------

                                    603,485   797,720    616,845    787,707
                                    =======   =======    =======    =======
</TABLE>

         Foreign Exchange Risk:

         The primary purpose of the Company's foreign currency hedging
         activities is to protect against the volatility associated with foreign
         currency transactions. The Company primarily utilizes forward exchange
         contracts and options with duration of less than a few months. The
         Company also enters into foreign exchange contracts from time to time
         to hedge the risk of fluctuation in foreign currency exchange rates
         associated with long-term debt that is denominated in foreign
         currencies. Foreign exchange contracts related to such long-term debt
         have the same maturity as the underlying debt.

         The following table provides the contract amounts and fair values of
         foreign exchange contracts, primarily hedging U.S. dollar revenues, at
         March 31, 1999 and 1998. Amounts related to foreign exchange contracts
         entered into in connection with long-term debt denominated in foreign
         currencies which eliminate all foreign currency exposures, are shown in
         the table of "Interest Rate Risk."

<TABLE>
<CAPTION>
                                                Yen (millions)
                                    --------------------------------------
                                           1999                 1998
                                    ------------------   -----------------
                                    Contract    Fair     Contract   Fair
                                     amount     value     amount    value
                                    -------     ------   -------    ------
<S>                                 <C>         <C>      <C>       <C>
     Forward:
        To sell foreign currencies  312,453    (2,065)   419,806   (9,182)
        To buy foreign currencies    62,371       596    132,567      200
     Options purchased to sell
        foreign currencies            3,670       (15)     7,620      (73)
     Options purchased to buy
        foreign currencies                -         -      2,378       55
     Options written to buy
        foreign currencies            3,873        36          -        -
</TABLE>

         Interest Rate Risk:

         The Company's exposure to market risk for changes in interest rates
         relates principally to its debt obligations. The Company has long-term
         debt primarily with fixed rates. Interest rate swaps may be entered
         into from time to time by the Company to hedge cash flows of interests
         and fair values of debt. However, interest rate swaps utilized by the
         Company at March 31, 1999 and 1998 were not material.
<PAGE>   38
                                     - 38 -

         The following tables provide information about the Company's financial
         instruments that are sensitive to changes in interest rates at March
         31, 1999 and 1998. The table presents principal cash flows by expected
         maturity dates, related weighted average interest rates and fair values
         of financial instruments.

<TABLE>
<CAPTION>
                                                                      Yen (millions)
                                   ------------------------------------------------------------------------------------
                                                 Carrying amount and maturity date (as of March 31, 1999)
                                   ------------------------------------------------------------------------------------
                        Average
                        interest                                                                     There-       Fair
                         rate        Total       2000      2001       2002      2003        2004     after       value
                       --------      -----       ----      ----       ----      ----        ----    -------      -----
<S>                    <C>           <C>       <C>        <C>        <C>       <C>       <C>        <C>          <C>
Long-term debt,
 including current
 portion:
   Japanese yen
    convertible bonds      1.5%     264,403               21,000    99,010    16,999      98,911    28,483      361,963
   Straight bonds
    issued by a
    subsidiary             1.9%      20,000                          5,000                 5,000    10,000       19,795
   U.S. dollar
    unsecured bonds        5.8%     120,265                                  120,265                            124,926
   Unsecured yen
    loans from banks
    and insurance
    companies and
    others                 1.9%     434,211   134,512    127,548    97,413    53,316      17,359     4,063      430,952
------------------------------------------------------------------------------------------------------------------------
           Subtotal                 838,879   134,512    148,548   201,423   190,580     121,270    42,546      937,636
 Foreign exchange
  contracts                           4,717                                    4,717                              4,888
------------------------------------------------------------------------------------------------------------------------

           Total                    843,596   134,512    148,548   201,423   195,297     121,270    42,546      942,524
------------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
                                                                    Yen (millions)
                                  ------------------------------------------------------------------------------------
                                                Carrying amount and maturity date (as of March 31, 1998)
                                  ------------------------------------------------------------------------------------
                       Average
                       interest                                                                  There-       Fair
                         rate      Total     1999        2000     2001      2002        2003     after        value
                        -------    -----     ----        ----     ----      ----        ----     -------      -----
<S>                    <C>        <C>       <C>          <C>      <C>       <C>      <C>         <C>          <C>
Long-term debt,
 including current
 portion:
   Japanese yen
    convertible bonds     1.4%     498,020   233,600               21,000    99,021      16,999   127,400      576,152
   U.S. dollar
    unsecured bonds       5.8%     131,730                                              131,730                142,317
   Euro medium-term
    notes                 5.6%       5,284     5,284                                                             5,255
   Unsecured yen
    loans from banks
    and insurance
    companies and
    others                2.2%     421,332   121,068     75,451   120,570    74,592      23,986     5,665      416,319
-----------------------------------------------------------------------------------------------------------------------
           Subtotal              1,056,366   359,952     75,451   141,570   173,613     172,715   133,065    1,140,043
 Foreign exchange
  contracts                         (6,833)                                              (6,833)               (12,077)
-----------------------------------------------------------------------------------------------------------------------

           Total                 1,049,533   359,952     75,451   141,570   173,613     165,882   133,065    1,127,966
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>   39
                                     - 39 -


  (d)    Regarding Environment

         In June 1998, certain Japanese prefectural and municipal authorities
         announced, based on the Company's and its subsidiaries' reports, that a
         higher level of harmful substances than allowed by Japan's current
         environmental standards was detected in underground water taken from
         the Company's and a certain number of subsidiaries' factory sites.
         These substances, known as volatile organic compounds, include
         trichloroethylene, tetrachloroethylene and trichloroethane, and were
         used in the past for washing metal parts and semiconductors. It is
         believed that the underground water was contaminated by small
         quantities of these substances sinking into the soil. Matsushita ceased
         the use of such substances for the above purposes before the end of
         1995 in all of its domestic factories. The Company has been taking
         measures necessary to remove the excess substances at the factory sites
         mentioned above. Moreover, to check the possibility that other sites
         may also be contaminated, the Company conducted thorough inspections of
         all 112 domestic manufacturing sites, including subsidiaries and
         affiliates. For sites with any signs of contamination, the Company made
         reports to the related prefectural and municipal authorities. The
         Company is currently conducting appropriate removal and purification
         processes in accordance with the Japanese Environment Agency's
         guidelines and municipal recommendations.

         With regard to overseas manufacturing sites, the Company will
         completely cease the use of volatile organic compounds by the end of
         1999, and will complete its inspection and analysis of manufacturing
         sites worldwide by the end of fiscal 2000. The Company has to date
         spent approximately 2 billion yen for all current remedial actions.
         Over the next several years, the Company expects that it will incur
         additional costs. However, such future costs cannot be estimated
         precisely at this stage. The Company does not believe this will have a
         material adverse effect on its liquidity, financial position, or
         results of operations.

         The Company is not aware of any other incidents of this kind that may
         have a material adverse effect on its liquidity, financial position, or
         results of operations. It is difficult to estimate future environmental
         expenditures because of the many uncertainties involved, including the
         future status of the law, regulations and technology. However, the
         Company believes that capital expenditures and expenses to be incurred
         in complying with current laws and regulations for environmental
         protection will not have a material adverse effect upon its liquidity,
         financial position, or result of operations.


  (e)    Year 2000 Issue

         (1)  Policy
              ------
         The Company recognizes the importance of the Year 2000 issue from the
         standpoint of its business continuity and customer service, and has
         been pursuing corporate-wide initiatives to cope with this issue.
<PAGE>   40
                                     - 40 -

         (2)  Project
              -------

         In July 1997, management issued a corporate release, Towards Readiness
         for the Year 2000 Issue, and in June 1998, commenced the Matsushita
         groupwide project, Groupwide Council Towards Readiness for the Year
         2000 Issue headed by the Executive Vice President in charge of
         planning, information systems, logistics, intellectual property and
         corporate multimedia. In accordance with the project, the Council
         investigates the state of the Company's products, internal information
         systems, manufacturing facilities, suppliers of raw materials and
         parts, infrastructure such as buildings and other facilities to
         identify potential problems; collects information on the state of
         readiness; implements and advances remedial measures; and regularly
         reports to management on the status of progress. The Council confers
         with management as to the appropriate measures to be taken and engages
         in various educational activities both within the Matsushita group and
         with related parties.

         (3)  State of readiness
              ------------------

         In December 1998, the Company completed an identification and
         assessment in respect of the potential impact of the Year 2000 issue on
         the Company's products. By the end of March 1999, necessary notice to
         relevant customers on required remedial measures was completed.
         Remedial measures are being implemented in consultation with customers
         and it is anticipated all necessary work will be completed by the end
         of September 1999.

         Remedial activities have been going on in stages in respect of internal
         information systems; identification of potential problems and impact
         analysis was completed by the end of 1996, and system adjustment and
         installation of core systems such as accounting, production, sales and
         distribution and other logistics will be completed by September 1999,
         after verification tests.

         The Company is also addressing the information systems and other
         facilities of external vendors and other suppliers by obtaining
         confirmation from them with tests being conducted wherever necessary.

         (4)  Costs
              -----

         Costs required for Year 2000 readiness measures with respect to
         internal information systems and production facilities are extremely
         difficult to calculate as they are mainly handled by the Company's
         information systems department as part of their routine operations. The
         Company's payment to outside sources in relation to modifications of
         systems to deal with the Year 2000 issue and for the upgrade or
         replacement of existing systems are estimated to amount to
         approximately 19 billion yen, of which approximately 80% was accounted
         for in the Company's financial statements for the year ended March
         1999, or earlier. The Company does not anticipate the total costs for
         these measures to have a material effect on its consolidated operations
         and financial position.

         (5)  Contingency Plan
              ----------------

         In order to prepare for a worst-case scenario, the Company has
         established a contingency plan and a number of internal systems to
         ensure a smoother transition for customers of the Company's products,
         information systems, production systems, suppliers of raw materials and
         parts, buildings and related equipment and others.
<PAGE>   41
                                     - 41 -

         (6)  Risks
              -----

         As this issue involves a number of outside parties in diverse areas and
         as the effect of possible failure by one party or segment is likely to
         be widespread, many aspects of the Company's Year 2000 project are
         outside its control. Furthermore, because the Company's operations
         encompass many different countries, there is no guarantee that the Year
         2000 issue will be addressed with the same degree of attention in
         different parts of the world. Thus, unforeseen problems may arise in
         different countries. These factors make it impossible for the Company
         to ensure that it will avoid material effect on its operations or
         business, or that it can insulate itself completely from third-party
         liability arising from the Year 2000 issue.


  (f)    New Accounting Pronouncements

         In June 1998, the Financial Accounting Standards Board (FASB) issued
         Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting
         for Derivative Instruments and Hedging Activities," applicable for the
         fiscal year beginning April 1, 2000. This Statement establishes
         accounting and reporting standards for derivative instruments and for
         hedging activities. SFAS No. 133 requires that an entity recognize all
         derivatives as either assets or liabilities in the balance sheet and
         measure those instruments at fair value. Changes in the fair value of
         derivatives are recorded each period in current earnings or other
         comprehensive income (loss), depending on whether a derivative is
         designated as part of a hedge transaction and the type of hedge
         transaction. The ineffective portion of all hedges will be recognized
         in earnings. The Company has not yet determined the impact that the
         adoption of SFAS No. 133 will have on the results of operations or
         financial position.

         In March 1998, the American Institute of Certified Public Accountants
         (AICPA) issued Statement of Position (SOP) 98-1, "Accounting for the
         Costs of Computer Software Developed or Obtained for Internal Use,"
         applicable for the fiscal year beginning April 1, 1999. SOP 98-1
         provides guidance on when costs for internal use computer software
         should be capitalized or expensed as incurred. The Company does not
         expect that the adoption will materially affect the results of
         operations or financial position.


  (g)    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 geographical location of companies.
         Business segments correspond to categories of activity classified
         primarily by markets and products. "Consumer products" includes video
         and audio equipment, as well as home appliances and household
         equipment. "Industrial products" includes information and
         communications equipment and industrial equipment. "Components"
         includes electronic components, semiconductors, motors and batteries.
<PAGE>   42
                                     - 42 -

         Information by segment for fiscal 1999 and 1998 is shown in the tables
         below:

         By Business Segment:

<TABLE>
<CAPTION>
                                                             Yen (billions)
                                                          ---------------------
                                                           1999           1998
                                                          ------         ------
<S>                                                       <C>            <C>
         Sales:
          Consumer products:
            Customers                                      3,289          3,359
            Intersegment                                       7              7
                                                          ------         ------
                   Total                                   3,296          3,366
          Industrial products:
            Customers                                      2,867          2,965
            Intersegment                                       8              5
                                                          ------         ------
                   Total                                   2,875          2,970
          Components:
            Customers                                      1,484          1,567
            Intersegment                                     761            768
                                                          ------         ------
                   Total                                   2,245          2,335
         Eliminations                                       (776)          (780)
                                                          ------         ------

                Consolidated total                         7,640          7,891
                                                          ======         ======

         Operating profit:
             Consumer products                                91            100
             Industrial products                             154            222
             Components                                       18             86
             Corporate and eliminations                      (69)           (70)
                                                          ------         ------

                Consolidated total                           194            338
                                                          ======         ======

         Identifiable assets:
             Consumer products                             2,346          2,455
             Industrial products                           2,034          2,087
             Components                                    1,681          1,754
             Corporate and eliminations                    1,877          2,268
                                                          ------         ------

                Consolidated total                         7,938          8,564
                                                          ======         ======

         Depreciation:
             Consumer products                                82             78
             Industrial products                              90             84
             Components                                      185            190
             Corporate and eliminations                        9              8
                                                          ------         ------

                Consolidated total                           366            360
                                                          ======         ======

         Capital investment (including intangibles
         other than goodwill)*:
             Consumer products                                84             81
             Industrial products                              97            111
             Components                                      168            280
             Corporate and eliminations                        8              8
                                                          ------         ------

                Consolidated total                           357            480
                                                          ======         ======
</TABLE>

*    Intangibles mainly represent rights to public facilities and patents.
<PAGE>   43
                                     - 43 -


By Geographical Location of Companies:
<TABLE>
<CAPTION>
                                                               Yen (billions)
                                                           ---------------------
                                                           1999           1998
                                                          ------         ------
<S>                                                       <C>            <C>
         Sales:
            Japan:
              Customers                                    4,920          5,265
              Intersegment                                 1,046            991
                                                          ------         ------
                     Total                                 5,966          6,256
            North and South America:
              Customers                                    1,125          1,058
              Intersegment                                    35             42
                                                          ------         ------
                     Total                                 1,160          1,100
            Europe:
              Customers                                      736            614
              Intersegment                                    31             28
                                                          ------         ------
                     Total                                   767            642
            Asia and Others:
              Customers                                      859            954
              Intersegment                                   474            428
                                                          ------         ------
                     Total                                 1,333          1,382
            Eliminations                                  (1,586)        (1,489)
                                                          ------         ------

                   Consolidated total                      7,640          7,891
                                                          ======         ======

         Operating profit:
            Japan                                            194            326
            North and South America                            7             11
            Europe                                            11             15
            Asia and Others                                   51             52
            Corporate and eliminations                       (69)           (66)
                                                          ------         ------

                   Consolidated total                        194            338
                                                          ======         ======

         Identifiable assets:
            Japan                                          4,703          4,781
            North and South America                          488            533
            Europe                                           356            317
            Asia and Others                                  681            762
            Corporate and eliminations                     1,710          2,171
                                                          ------         ------

                   Consolidated total                      7,938          8,564
                                                          ======         ======
</TABLE>

         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.

<PAGE>   44
                                     - 44 -

Item 10.  Directors and Officers of Registrant
          ------------------------------------

  (a)    The Articles of Incorporation of the Company provide that the number of
         Directors of the Company shall be three or more and that of Corporate
         Auditors shall be three or more. Directors and Corporate Auditors shall
         be elected by the general meeting of shareholders. The Board of
         Directors has ultimate responsibility for administration of the
         Company's affairs. Directors may, by resolution of the Board of
         Directors, appoint a Chairman of the Board of Directors, a Vice
         Chairman of the Board of Directors, a President and Director, and one
         or more Executive Vice Presidents and Directors, Senior Managing
         Directors, and Managing Directors. 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 Company. 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 Company 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 Company 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 Company's affairs.
         They are entitled to participate in meetings of the Board of Directors
         but are not entitled to vote.

         The Corporate Auditors constitute the Board of Corporate Auditors. The
         Board of Corporate Auditors has a statutory duty to prepare and submit
         its audit report to the Board of Directors each year. A Corporate
         Auditor may note his 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 Company'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 Company.

         Set forth below are the names of Directors and Corporate Auditors after
         the ordinary general meeting of shareholders held on June 29, 1999,
         their positions and offices with Matsushita Electric Industrial Co.,
         Ltd., and the periods during which they have served as Director or
         Corporate Auditor.

<TABLE>
<CAPTION>
                                                                         Director/
                                                                         Corporate
              Name                  Positions with registrant          Auditor since
              ----                  -------------------------          -------------
<S>                             <C>                                      <C>
         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
</TABLE>
<PAGE>   45
                                     - 45 -

<TABLE>
<CAPTION>
                                                                         Director/
                                                                         Corporate
              Name                  Positions with registrant          Auditor since
              ----                  -------------------------          -------------
<S>                             <C>                                      <C>
         Tsutomu Fukuhara       Senior Managing Director                   1988
         Kunio Nakamura         Senior Managing Director                   1993
         Motoi Matsuda          Senior Managing Director                   1993
         Atsushi Murayama       Senior Managing Director                   1995
         Kazuo Toda             Senior Managing Director                   1994
         Osamu Tanaka           Senior Managing Director                   1995
         Katsuro Sakakibara     Managing Director                          1992
         Seinosuke Kuraku       Managing Director                          1994
         Susumu Ishihara        Managing Director                          1994
         Kazuhiro Mori          Managing Director                          1999
         Yukio Shohtoku         Managing Director                          1994
         Sukeichi Miki          Managing Director                          1997
         Kyonosuke Ibe          Director                                   1979
         Josei Ito              Director                                   1994
         Tokio Miyao            Director                                   1996
         Yoshinori Kobe         Director                                   1996
         Yoshitomi Nagaoka      Director                                   1996
         Hiroaki Enomoto        Director                                   1996
         Seiichi Wakino         Director                                   1997
         Yoshio Hino            Director                                   1997
         Toshio Sugiura         Director                                   1997
         Haruo Ueno             Director                                   1998
         Takami Sano            Director                                   1998
         Susumu Koike           Director                                   1998
         Fumio Otsubo           Director                                   1998
         Toru Ishida            Director                                   1999
         Yoshiaki Kushiki       Director                                   1999
         Tameshige Hirata       Director                                   1999
         Kazuo Ichikawa         Senior Corporate Auditor                   1998
         Mamoru Furuichi        Senior Corporate Auditor                   1997
         Masaaki Arai           Corporate Auditor                          1974
         Toshio Miyoshi         Corporate Auditor                          1994
</TABLE>

  (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.
<PAGE>   46
                                     - 46 -

Item 11.  Remuneration of Directors and Officers
          --------------------------------------

  (a)     The aggregate amount of remuneration, including bonuses, paid by the
          Company during fiscal 1999 to all Directors and Corporate Auditors as
          a group (42 persons) for services in all capacities was 1,403 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 1999 amounted to 269 million yen.


Item 12.  Options to Purchase Securities from Registrant or Subsidiaries
          --------------------------------------------------------------

In May 1998, the Board of Directors decided to implement the Company's first
stock option plan for Board members and select senior executives and to purchase
the Company's own shares for transfer to them under the plan, pursuant to
Article 210-2 of the Japanese Commercial Code. Upon the approval of shareholders
at the ordinary general meeting of shareholders held in June 1998 and subsequent
Board of Directors' resolutions, the stock options (rights to purchase common
shares) were provided to the then 32 Directors on the Board and four select
senior executives, at amounts ranging from 2,000 to 10,000 common shares each.

The stock options are exercisable from July 1, 2000 to June 30, 2004, at 2,291
yen per common share, the exercise price calculated by a formula approved by
shareholders at the said annual shareholders meeting. In order to cover these
options the Company in early July 1998 purchased on the Tokyo Stock Exchange a
total of 113,000 common shares with an aggregate purchase price of approximately
252 million yen.

At the ordinary general meeting of shareholders held in June 1999, the
shareholders approved another stock option plan for Board members and select
senior executives. As in the previous year, the 32 Directors currently on the
Board and four select senior executives were granted stock options at amounts
ranging from 2,000 to 10,000 shares each.

Under this stock option plan, the stock options are exercisable from July 1,
2001 to June 30, 2005, at 2,476 yen per common share, as determined in the same
manner as last year. Shareholders authorized the purchase of Common Stock up to
120,000 shares or a total value not to exceed 350 million yen to cover these
options.


Item 13.  Interest of Management in Certain Transactions
          ----------------------------------------------

         None
<PAGE>   47
                                     - 47 -

                                     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

<PAGE>   48
                                     - 48 -

                                     PART IV


Item 17.  Financial Statements
          --------------------

Index of Consolidated Financial Statements of Matsushita Electric Industrial
Co., Ltd. and Subsidiaries:

<TABLE>
<CAPTION>
                                                                           Page
                                                                          number
                                                                          ------
<S>                                                                        <C>
     Independent Auditors' Report                                           49

     Consolidated Balance Sheets as of March 31, 1999 and 1998              50

     Consolidated Statements of Income for the years ended
       March 31, 1999, 1998 and 1997                                        52

     Consolidated Statements of Stockholders' Equity for the
       years ended March 31, 1999, 1998 and 1997                            53

     Consolidated Statements of Cash Flows for the years ended
       March 31, 1999, 1998 and 1997                                        55

     Notes to Consolidated Financial Statements                             57

Schedule for the years ended March 31, 1999, 1998 and 1997:

     Schedule VIII  Valuation and Qualifying Accounts and Reserves for
                      the years ended March 31, 1999, 1998 and 1997         81
</TABLE>

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.

<PAGE>   49
                                     - 49 -


                          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, 1999 and 1998, and for each
of the years in the three-year period ended March 31, 1999. The effects on the
consolidated financial statements of not adopting SFAS No. 115 are summarized in
Note 4 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, 1999 and 1998, and the results of their operations and their
cash flows for each of the years in the three-year period ended March 31, 1999,
in conformity with United 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

Osaka, Japan
May 18, 1999, except as to Note 16,
which is as of June 29, 1999

<PAGE>   50
                                     - 50 -


                    MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
                                AND SUBSIDIARIES

                           Consolidated Balance Sheets

                             March 31, 1999 and 1998


<TABLE>
<CAPTION>
                                                               Yen (millions)
                                                           ----------------------
                          Assets                           1999              1998
                          ------                           ----              ----
<S>                                                     <C>               <C>
Current assets:
    Cash and cash equivalents (Note 7)                  1,533,585         1,906,226
    Short-term investments (Notes 4 and 14)               124,327           130,204
    Trade receivables (Note 7):
       Related companies (Note 3)                          22,364            25,245
       Notes                                               98,513           115,213
       Accounts                                         1,264,075         1,271,804
       Allowance for doubtful receivables                 (63,649)          (62,742)
                                                       ----------        ----------
               Net trade receivables                    1,321,303         1,349,520
                                                       ----------        ----------

    Inventories (Notes 2 and 7)                         1,018,663         1,101,613
    Other current assets (Notes 4 and 9)                  411,428           437,006
                                                       ----------        ----------

               Total current assets                     4,409,306         4,924,569
                                                       ----------        ----------

Noncurrent receivables (Note 5)                           276,311           282,838

Investments and advances (Notes 4 and 14):
    Associated companies (Note 3)                         325,658           333,967
    Other investments and advances                        954,170           995,213
                                                       ----------        ----------

               Total investments and advances           1,279,828         1,329,180
                                                       ----------        ----------

Property, plant and equipment (Note 6):
    Land                                                  223,040           223,806
    Buildings                                           1,215,986         1,171,255
    Machinery and equipment                             3,053,600         3,026,070
    Construction in progress                               70,222            76,411
                                                       ----------        ----------
                                                        4,562,848         4,497,542
    Less accumulated depreciation                       3,069,297         2,975,675
                                                       ----------        ----------

               Net property, plant and equipment        1,493,551         1,521,867
                                                       ----------        ----------

Other assets (Notes 4 and 9)                              479,252           505,058
                                                       ----------        ----------

                                                        7,938,248         8,563,512
                                                       ==========        ==========
</TABLE>


See accompanying Notes to Consolidated Financial Statements.


<PAGE>   51
                                     - 51 -


                    MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
                                AND SUBSIDIARIES

                           Consolidated Balance Sheets

                             March 31, 1999 and 1998


<TABLE>
<CAPTION>
                                                            Yen (millions)
                                                          ------------------
       Liabilities and Stockholders' Equity               1999          1998
       ------------------------------------               ----          ----
<S>                                                     <C>           <C>
Current liabilities:
    Short-term borrowings, including current
      portion of long-term debt (Notes 7 and 14)          577,321       887,841
    Commercial paper                                       72,826       138,460
    Trade payables:
       Related companies (Note 3)                          16,330        17,784
       Notes                                               48,668        68,028
       Accounts                                           570,353       593,687
                                                        ---------     ---------
               Total trade payables                       635,351       679,499
                                                        ---------     ---------

    Accrued income taxes (Note 9)                          84,688        94,585
    Accrued payroll                                       160,568       171,428
    Other accrued expenses                                563,370       582,255
    Deposits and advances from customers                  102,242       102,407
    Employees' deposits                                   151,679       150,343
    Other current liabilities (Note 4)                    242,894       223,400
                                                        ---------     ---------

                Total current liabilities               2,590,939     3,030,218
                                                        ---------     ---------

Noncurrent liabilities:
    Long-term debt (Notes 7 and 14)                       709,084       689,581
    Retirement and severance benefits (Note 8)            495,175       454,406
    Other liabilities (Notes 4 and 9)                         915         1,559
                                                        ---------     ---------

               Total noncurrent liabilities             1,205,174     1,145,546
                                                        ---------     ---------

Minority interests (Note 4)                               609,080       617,634

Stockholders' equity (Note 4):
    Common stock of 50 yen par value
      (Notes 7 and 10):
      Authorized - 5,000,000,000 shares
      Issued - 2,062,344,774 shares
       (2,112,318,310 shares in 1998)                     209,444       209,416
    Capital surplus (Notes 7 and 10)                      567,696       570,628
    Legal reserve (Note 10)                                86,112        84,039
    Retained earnings (Note 10)                         2,824,820     2,938,539
    Accumulated other comprehensive income (loss)
      (Note 4)                                           (154,765)      (32,508)
    Treasury stock (Notes 10 and 16); 113,000
      shares at cost                                         (252)           -
                                                        ---------     ---------

               Total stockholders' equity               3,533,055     3,770,114

Commitments and contingent liabilities (Note 15)
                                                        ---------     ---------

                                                        7,938,248     8,563,512
                                                        =========     =========
</TABLE>

See accompanying Notes to Consolidated Financial Statements.
<PAGE>   52
                                     - 52 -


                    MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
                                AND SUBSIDIARIES

                        Consolidated Statements of Income

                    Years ended March 31, 1999, 1998 and 1997


<TABLE>
<CAPTION>
                                                          Yen (millions)
                                                 ------------------------------
                                                 1999         1998         1997
                                                 ----         ----         ----
<S>                                            <C>          <C>          <C>
Net sales:
   Related companies (Note 3)                     204,339      257,366      291,271
   Other                                        7,435,780    7,633,296    7,384,641
                                               ----------   ----------   ----------
            Total net sales                     7,640,119    7,890,662    7,675,912

Cost of sales (Note 3)                          5,346,914    5,494,746    5,316,390
                                               ----------   ----------   ----------
            Gross profit                        2,293,205    2,395,916    2,359,522

Selling, general and administrative expenses
  (Note 12)                                     2,099,521    2,058,358    1,985,621
                                               ----------   ----------   ----------
            Operating profit                      193,684      337,558      373,901

Other income (deductions):
   Interest and dividend income                    64,295       68,164       63,111
   Interest expense                               (62,083)     (61,573)     (66,532)
   Other, net (Notes 4, 5, 6 and 12)                6,397       11,475      (38,355)
                                               ----------   ----------   ----------
                                                    8,609       18,066      (41,776)
                                               ----------   ----------   ----------

            Income before income taxes            202,293      355,624      332,125

Provision for income taxes (Note 9):
   Current                                        152,303      195,948      223,187
   Deferred                                        23,147       38,901      (67,800)
                                               ----------   ----------   ----------
                                                  175,450      234,849      155,387
                                               ----------   ----------   ----------
            Income before minority interests
              and equity in earnings (losses)
              of associated companies              26,843      120,775      176,738

Minority interests                                  7,632       25,777       44,391

Equity in earnings (losses) of associated
  companies (Note 3)                               (5,670)      (1,394)       5,506
                                               ----------   ----------   ----------

            Net income                             13,541       93,604      137,853
                                               ==========   ==========   ==========

<CAPTION>
                                                               Yen
                                               ------------------------------------
  Net income per depositary share, each
    representing 10 shares of common stock
    (Note 11):
<S>                                                    <C>         <C>          <C>
      Basic                                            65          443          654
      Diluted                                          65          415          606
</TABLE>

See accompanying Notes to Consolidated Financial Statements.
<PAGE>   53
                                     - 53 -


                    MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
                                AND SUBSIDIARIES

                 Consolidated Statements of Stockholders' Equity

                    Years ended March 31, 1999, 1998 and 1997


<TABLE>
<CAPTION>
                                                       Yen (millions)
                                             ------------------------------
                                             1999         1998         1997
                                             ----         ----         ----
<S>                                         <C>          <C>          <C>
Common stock:
   Balance at beginning of year               209,416      208,473      198,706
   Conversion of bonds (Notes 10 and 12)           28          943        9,767
                                           ----------   ----------   ----------

   Balance at end of year                     209,444      209,416      208,473
                                           ==========   ==========   ==========

Capital surplus:
   Balance at beginning of year               570,628      573,780      562,876
   Conversion of bonds (Notes 10 and 12)           28          944        9,765
   Transfer of ownership arising on
     capital transactions by consolidated
     and associated companies (Note 12)        (2,960)      (4,096)       1,139
                                           ----------   ----------   ----------

   Balance at end of year                     567,696      570,628      573,780
                                           ==========   ==========   ==========

Legal reserve:
   Balance at beginning of year                84,039       81,663       78,817
   Transfer from retained earnings
     (Note 10)                                  2,073        2,376        2,846
                                           ----------   ----------   ----------

   Balance at end of year                      86,112       84,039       81,663
                                           ==========   ==========   ==========

Retained earnings:
   Balance at beginning of year             2,938,539    2,874,763    2,766,060
   Net income                                  13,541       93,604      137,853
   Cash dividends (Note 10)                   (26,304)     (27,452)     (26,304)
   Transfer to legal reserve (Note 10)         (2,073)      (2,376)      (2,846)
   Retirement of treasury stock (Note 10)     (98,883)          -            -
                                           ----------   ----------   ----------

   Balance at end of year                   2,824,820    2,938,539    2,874,763
                                           ==========   ==========   ==========

Accumulated other comprehensive income
   (loss) (Note 4):
   Balance at beginning of year               (32,508)     (42,970)    (208,862)
   Other comprehensive income (loss),
     net of tax: Translation adjustments     (122,257)      10,462      165,892
                                           ----------   ----------   ----------

   Balance at end of year                    (154,765)     (32,508)     (42,970)
                                           ==========   ==========   ==========
</TABLE>


                                                                     (Continued)

<PAGE>   54
                                     - 54 -


                    MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
                                AND SUBSIDIARIES

                 Consolidated Statements of Stockholders' Equity

                    Years ended March 31, 1999, 1998 and 1997


<TABLE>
<CAPTION>
                                                          Yen (millions)
                                                  ------------------------------
                                                  1999        1998        1997
                                                  ----        ----        ----
<S>                                             <C>         <C>         <C>
Treasury stock:
   Balance at beginning of year                       -           -           -
   Repurchase of common stock (Note 10)          (99,135)         -           -
   Retirement of treasury stock (Note 10)         98,883          -           -
                                                --------    --------    --------

   Balance at end of year (Note 16)                 (252)         -           -
                                                ========    ========    ========


Disclosure of comprehensive income (loss):
   Net income                                     13,541      93,604     137,853
   Other comprehensive income (loss),
     net of tax: Translation adjustments        (122,257)     10,462     165,892
                                                --------    --------    --------

   Total comprehensive income (loss) (Note 4)   (108,716)    104,066     303,745
                                                ========    ========    ========
</TABLE>



   See accompanying Notes to Consolidated Financial Statements.
<PAGE>   55
                                     - 55 -


                    MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
                                AND SUBSIDIARIES

                      Consolidated Statements of Cash Flows

                    Years ended March 31, 1999, 1998 and 1997


<TABLE>
<CAPTION>
                                                                Yen (millions)
                                                           --------------------------
                                                           1999       1998       1997
                                                           ----       ----       ----
<S>                                                      <C>        <C>        <C>
Cash flows from operating activities (Note 12):
   Net income                                              13,541     93,604    137,853
   Adjustments to reconcile net income to net cash
     provided by operating activities:
       Depreciation and amortization                      373,155    365,129    349,646
       Net gain on sale of investments                    (14,198)  (113,234)   (98,554)
       Provision for doubtful receivables                  13,505     20,565    120,604
       Deferred income taxes                               23,147     38,901    (67,800)
       Impairment loss on long-lived assets (Note 6)           -      88,662     45,800
       Minority interests                                   7,632     25,777     44,391
       (Increase) decrease in trade receivables           (37,724)    43,046   (125,230)
       (Increase) decrease in inventories                  36,587    (49,299)    (9,426)
       (Increase) decrease in other current assets        (21,951)   (24,041)   (22,096)
       (Increase) decrease in noncurrent receivables        6,527    (26,413)   (28,394)
       Increase (decrease) in trade payables                2,213      1,175     74,557
       Increase (decrease) in accrued income taxes         (7,743)   (77,003)    75,653
       Increase (decrease) in accrued expenses and
         other current liabilities                         29,994     84,834     96,600
       Increase (decrease) in retirement and
         severance benefits                                42,231     29,178     34,605
       Other                                               32,235     28,398      6,300
                                                         --------   --------   --------
              Net cash provided by operating
                activities                                499,151    529,279    634,509
                                                         --------   --------   --------

Cash flows from investing activities (Note 12):
   Proceeds from sale of short-term investments           376,174    488,887    434,186
   Purchase of short-term investments                    (362,062)  (348,350)  (328,780)
   Proceeds from disposition of investments and
     advances                                              84,014    203,644    247,379
   Increase in investments and advances                  (137,456)  (322,790)  (408,259)
   Capital expenditures                                  (359,037)  (475,906)  (405,595)
   Other                                                   20,612     23,166     12,836
                                                         --------   --------   --------
              Net cash used in investing activities      (377,755)  (431,349)  (448,233)
                                                         --------   --------   --------
</TABLE>

                                                                     (Continued)

<PAGE>   56
                                     - 56 -


                    MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
                                AND SUBSIDIARIES

                      Consolidated Statements of Cash Flows

                    Years ended March 31, 1999, 1998 and 1997


<TABLE>
<CAPTION>
                                                  Yen (millions)
                                        ----------------------------------
                                        1999           1998           1997
                                        ----           ----           ----
<S>                                    <C>            <C>            <C>
Cash flows from financing activities
   (Note 12):
   Increase (decrease) in short-term
     borrowings                         (100,202)       (85,660)        28,353
   Increase in deposits and advances
     from customers and employees          3,441          7,545          4,231
   Proceeds from long-term debt          186,717        129,109        228,360
   Repayments of long-term debt         (388,233)      (238,029)      (312,385)
   Dividends paid                        (26,304)       (27,452)       (26,304)
   Dividends paid to minority
     interests                            (9,998)        (9,232)        (8,613)
   Repurchase of common stock
     (Note 10)                           (99,135)            -              -
                                      ----------     ----------     ----------
              Net cash used in
                financing activities    (433,714)      (223,719)       (86,358)
                                      ----------     ----------     ----------

Effect of exchange rate changes on
 cash and cash equivalents               (60,323)         7,185         76,133
                                      ----------     ----------     ----------

Net increase (decrease) in cash
 and cash equivalents                   (372,641)      (118,604)       176,051

Cash and cash equivalents at
 beginning of year                     1,906,226      2,024,830      1,848,779
                                      ----------     ----------     ----------

Cash and cash equivalents at
 end of year                           1,533,585      1,906,226      2,024,830
                                      ==========     ==========     ==========
</TABLE>


See accompanying Notes to Consolidated Financial Statements.
<PAGE>   57
                                     - 57 -


                    MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          March 31, 1999, 1998 and 1997


  (1)  Summary of Significant Accounting Policies
       ------------------------------------------

        (a)   Description of Business

              Matsushita Electric Industrial Co., Ltd. (hereinafter, the
              "Company," including consolidated subsidiaries, unless the context
              otherwise requires) 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 1999 were categorized as follows: video and audio
              equipment--25%, home appliances and household equipment--18%,
              information and communications equipment--28%, industrial
              equipment--10%, and components--19%. A sales breakdown in fiscal
              1999 by geographical market was as follows: Japan--49%, North and
              South America--20%, Europe--13%, and Asia and Others--18%.

              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 Note 3)

              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.


<PAGE>   58
                                     - 58 -


                    MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


              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.

        (d)   Revenue Recognition

              Revenues from sales are recognized when products are shipped to
              customers.

        (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 2)

              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.

        (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, "Accumulated other comprehensive
              income (loss)," a separate component of stockholders' equity.

        (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.



<PAGE>   59
                                     - 59 -


                    MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



        (i)   Short-term Investments and Investments and Advances (See Note 4)

              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 4. This treatment was
              approved by the United States Securities and Exchange Commission.

        (j)   Noncurrent Receivables (See Note 5)

              Noncurrent receivables are recorded at cost, less the related
              allowance for impaired receivables. A loan is considered to be
              impaired when, based on current information and events, it is
              probable that 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. 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.


<PAGE>   60
                                     - 60 -


                    MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



        (l)   Advertising (See Note 12)

              Advertising costs are expensed as incurred.

        (m)   Net Income per Depositary Share (See Notes 7, 10 and 11)

              The Company adopted SFAS No. 128, "Earnings per Share," in the
              fiscal year beginning April 1, 1997. This Statement establishes
              standards for computing net income per share and simplifies the
              standards for computing net income per share previously found in
              APB Opinion No. 15, "Earnings per Share." It requires dual
              presentation of basic and diluted net income per share on the face
              of the income statement for all entities with complex capital
              structures. All prior year net income per share data presented
              were restated to conform with the provisions of SFAS No. 128.

              Under SFAS No. 128, basic net income per share is computed based
              on the weighted average number of common shares outstanding during
              each period, and diluted net income per share assumes the dilution
              that could occur if convertible bonds or similar securities were
              converted into common stock or exercised to result in the issuance
              of common stock.

        (n)   Cash Equivalents

              Cash equivalents include all highly liquid debt instruments
              purchased with a maturity of three months or less.

        (o)   Derivative Financial Instruments (See Notes 13 and 14)

              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. Derivative
              financial instruments that do not meet the criteria for hedge
              accounting are marked to market.



<PAGE>   61
                                     - 61 -


                    MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



        (p)   Impairment of Long-Lived Assets and Long-Lived Assets to Be
              Disposed Of (See Note 6)

              The Company accounts for long-lived assets in accordance with the
              provisions of SFAS No. 121, "Accounting for the Impairment of
              Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
              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.

        (q)   Comprehensive Income (Loss)

              The Company adopted SFAS No. 130, "Reporting Comprehensive
              Income," in the fiscal year beginning April 1, 1998, except for
              the effects on comprehensive income (loss) of the Company's
              departure from the provisions of SFAS No. 115, "Accounting for
              Certain Investments in Debt and Equity Securities" (See Note 4).
              Comprehensive income (loss) consists of net income and change in
              foreign currency translation adjustments, and is presented in the
              consolidated statements of stockholders' equity. SFAS No. 130
              requires only additional disclosures in the consolidated financial
              statements and does not affect the Company's consolidated
              financial position or results of operations. Prior years
              consolidated financial statements have been reclassified to
              conform with the provisions of SFAS No. 130.

        (r)   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.


<PAGE>   62
                                     - 62 -


                    MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



        (s)   New Accounting Pronouncements

              In June 1998, FASB issued SFAS No. 133, "Accounting for Derivative
              Instruments and Hedging Activities," applicable for the fiscal
              year beginning April 1, 2000. This Statement establishes
              accounting and reporting standards for derivative instruments and
              for hedging activities. SFAS No. 133 requires that an entity
              recognize all derivatives as either assets or liabilities in the
              balance sheet and measure those instruments at fair value. Changes
              in the fair value of derivatives are recorded each period in
              current earnings or other comprehensive income (loss), depending
              on whether a derivative is designated as part of a hedge
              transaction and the type of hedge transaction. The ineffective
              portion of all hedges will be recognized in earnings. The Company
              has not yet determined the impact that the adoption of SFAS No.
              133 will have on the results of operations or financial position.

              In March 1998, the American Institute of Certified Public
              Accountants (AICPA) issued Statement of Position (SOP) 98-1,
              "Accounting for the Costs of Computer Software Developed or
              Obtained for Internal Use," applicable for the fiscal year
              beginning April 1, 1999. SOP 98-1 provides guidance on when costs
              for internal use computer software should be capitalized or
              expensed as incurred. The Company does not expect that the
              adoption will materially affect the results of operations or
              financial position.

  (2)   Inventories
        -----------

        Inventories at March 31, 1999 and 1998 are summarized as follows:

<TABLE>
<CAPTION>
                                             Yen (millions)
                                         ----------------------
                                         1999              1998
                                         ----              ----
            <S>                          <C>               <C>
            Finished goods               540,173           588,660
            Work in process              176,793           193,727
            Raw materials                301,697           319,226
                                       ---------         ---------
                                       1,018,663         1,101,613
                                       =========         =========
</TABLE>



  (3)   Investments in and Transactions with Associated Companies
        ---------------------------------------------------------

        Certain financial information in respect of associated companies at
        March 31, 1999 and 1998 and for the three years ended March 31, 1999 is
        shown below. The most significant of these associated companies is
        Matsushita Electric Works, Ltd. (MEW). At March 31, 1999, the Company
        has a 32.2% equity ownership in MEW. On December 8, 1997, Universal
        Studios, Inc. (Universal) issued new shares to the Seagram Company Ltd.
        As a result, the Company's ownership interest in Universal fell below
        20%. The financial information of Universal for fiscal 1998 and
        thereafter is not included in the following.


<PAGE>   63
                                     - 63 -


                    MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



<TABLE>
<CAPTION>
                                                    Yen (millions)
                                                   ----------------
                                                   1999        1998
                                                   ----        ----
<S>                                              <C>         <C>
            Current assets                         945,218   1,092,931
            Other assets                         1,458,959   1,449,442
                                                 ---------   ---------
                                                 2,404,177   2,542,373

            Current liabilities                    610,683     697,723
            Other liabilities                      858,707     846,485
                                                 ---------   ---------

            Net assets                             934,787     998,165
                                                 =========   =========

            Company's equity in net assets         262,488     274,823
                                                 =========   =========
</TABLE>




<TABLE>
<CAPTION>
                                                      Yen (millions)
                                           ----------------------------------
                                           1999           1998           1997
                                           ----           ----           ----
<S>                                      <C>            <C>            <C>
                Net sales                2,175,672      2,306,649      3,062,556
                Gross profit               502,972        553,459        816,730
                Net income (loss)          (12,807)        23,690         46,217
</TABLE>

        Purchases and dividends received from associated companies for the three
        years ended March 31, 1999 are as follows:

<TABLE>
<CAPTION>
                                                      Yen (millions)
                                            ----------------------------------
                                            1999           1998           1997
                                            ----           ----           ----
<S>                                        <C>            <C>            <C>
                Purchases from             258,881        259,451        257,150
                Dividends received          10,995          9,875          6,032
</TABLE>

        Retained earnings include undistributed earnings of associated companies
        in the amount of 85,206 million yen and 85,889 million yen,
        respectively, as of March 31, 1999 and 1998.

        Investments in associated companies include equity securities which have
        quoted market values at March 31, 1999 and 1998 compared with related
        carrying amounts as follows:

<TABLE>
<CAPTION>
                                                        Yen (millions)
                                                 -----------------------------
                                                 1999                     1998
                                                 ----                     ----
<S>                                             <C>                      <C>
                Carrying amount                 257,924                  270,312
                Market value                    343,236                  366,585
</TABLE>



<PAGE>   64
                                     - 64 -


                    MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



   (4)  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 income for the three years
        ended March 31, 1999 were not materially affected by SFAS No. 115.

        The effects on balance sheet items of the Company's departure from SFAS
        No. 115 as of March 31, 1999 and 1998 are summarized as follows:

<TABLE>
<CAPTION>
                                                              Yen (millions)
                                                             ---------------
                                                             1999       1998
                                                             ----       ----
<S>                                                        <C>        <C>
Stockholders' equity as reported                           3,533,055  3,770,114

Net increase in the carrying amount of:
      Short-term investments                                   6,596     18,314
      Investments and advances                               187,639    152,548
Net decrease in deferred tax assets and increase in
  deferred tax liabilities:
      Current deferred tax assets (decrease)                  (2,791)    (4,135)
      Noncurrent deferred tax assets (decrease)              (78,545)   (72,613)
      Current deferred tax liabilities (increase)                 -      (4,582)
      Noncurrent deferred tax liabilities (increase)             (69)        -
Net unrealized gain on securities held by associated
  companies                                                    3,382      2,892
Net increase in minority interests                            (7,116)    (8,856)
                                                           ---------  ---------
               Total adjustments to stockholders' equity     109,096     83,568
                                                           ---------  ---------

Stockholders' equity in accordance with
  U.S. generally accepted accounting principles            3,642,151  3,853,682
                                                           =========  =========
</TABLE>


<PAGE>   65
                                     - 65 -


                    MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements




        As a result of the above adjustments, total assets at March 31, 1999 and
        1998 would increase by 116,281 million yen and 97,006 million yen,
        respectively.

        If the provisions of SFAS No. 115 had been applied, comprehensive loss
        for the year ended March 31, 1999 would amount to 83,188 million yen,
        compared with comprehensive income of 41,581 million yen and 181,261
        million yen for the years ended March 31, 1998 and 1997, respectively.

        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, 1999 and 1998 are as follows:

<TABLE>
<CAPTION>
                                                   Yen (millions)
                                     -------------------------------------------
                                                        1999
                                     -------------------------------------------
                                                            Gross        Gross
                                                          unrealized  unrealized
                                     Carrying    Fair      holding      holding
                                      amount     value      gains       losses
                                     ---------  -------  -----------  ----------
<S>                                   <C>       <C>         <C>            <C>
      Current:
         Equity securities              1,607      8,185       6,578        -
         Japanese and foreign          80,767     81,002         235        -
          government bonds
         Convertible and straight      20,870     20,751          43       162
          bonds
         Investment trust                  76         76          -         -
         Other debt securities         21,007     20,909          15       113
                                      -------    -------     -------       ---

                                      124,327    130,923       6,871       275
                                      =======    =======     =======       ===

      Noncurrent:
         Equity securities            384,417    572,302     187,885        -
         Japanese and foreign           5,144      5,159          15        -
          government bonds
         Convertible and straight       1,351      1,367          16        -
          bonds
         Investment trust              85,116     84,830          29       315
         Other debt securities          3,130      3,139           9        -
                                      -------    -------     -------       ---

                                      479,158    666,797     187,954       315
                                      =======    =======     =======       ===
</TABLE>



<PAGE>   66
                                     - 66 -


                    MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


<TABLE>
<CAPTION>
                                                    Yen (millions)
                                    --------------------------------------------
                                                         1998
                                    --------------------------------------------
                                                           Gross        Gross
                                                         unrealized   unrealized
                                    Carrying    Fair      holding      holding
                                     amount     value      gains        losses
                                    --------   -------   ----------   ----------
<S>                                 <C>         <C>      <C>          <C>
         Current:
            Equity securities         3,754      21,550      17,796       -
            Japanese and foreign
              government bonds       85,783      86,205         470       48
            Convertible and
              straight bonds         16,269      16,258          10       21
            Investment trust            102         114          12       -
            Other debt securities    24,296      24,391         145       50
                                    -------     -------     -------     ----

                                    130,204     148,518      18,433      119
                                    =======     =======     =======     ====

         Noncurrent:
            Equity securities       396,629     549,462     152,833       -
            Japanese and foreign
              government bonds        2,946       2,998          52       -
            Convertible and
              straight bonds          1,355       1,375          20       -
            Investment trust         81,107      80,757          30      380
            Other debt securities     4,604       4,597           2        9
                                    -------     -------     -------     ----

                                    486,641     639,189     152,937      389
                                    =======     =======     =======      ===
</TABLE>

        Maturities of short-term investments and investments and advances
        classified as available-for-sale at March 31, 1999 and 1998 are as
        follows:

<TABLE>
<CAPTION>
                                                      Yen (millions)
                                    -------------------------------------------
                                            1999                    1998
                                    --------------------    -------------------
                                    Carrying     Fair       Carrying     Fair
                                     amount      value       amount      value
                                    --------    --------    --------    -------
<S>                                  <C>         <C>         <C>        <C>
            Due within one year      122,666     122,676     123,396    123,901
            Due after one year
              through five years      94,793      94,554      92,813     92,616
            Due after five years           2           3         253        178
            Equity securities        386,024     580,487     400,383    571,012
                                     -------     -------     -------    -------

                                     603,485     797,720     616,845    787,707
                                     =======     =======     =======    =======
</TABLE>


<PAGE>   67
                                     - 67 -


                    MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


        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, 1999, 1998 and 1997 was an increase of 25,528 million
        yen, a decrease of 62,485 million yen and a decrease of 122,484 million
        yen, respectively.

        Proceeds from sale of available-for-sale securities for the years ended
        March 31, 1999, 1998 and 1997 were 434,082 million yen, 657,449 million
        yen and 652,504 million yen, respectively. The gross realized gains for
        the years ended March 31, 1999, 1998 and 1997 were 14,594 million yen,
        118,370 million yen and 104,393 million yen, respectively. The gross
        realized losses for the years ended March 31, 1999, 1998 and 1997 were
        396 million yen, 5,136 million yen and 5,839 million yen, respectively.
        The cost of securities sold in computing gross realized gains and losses
        is determined by the average cost method.

   (5)  Noncurrent Receivables
        ----------------------

        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, 1999 and 1998 was 6,829 million yen and 15,343
        million yen, respectively. Related allowance for doubtful receivables
        was not significant at March 31, 1999 and 1998. The average recorded
        investment in impaired receivables during the years ended March 31,
        1999, 1998 and 1997 was 13,126 million yen, 73,954 million yen and
        133,225 million yen, respectively. Additions charged to bad debt
        expenses were not significant for the year ended March 31, 1999, and
        were 12,249 million yen and 107,302 million yen for the years ended
        March 31, 1998 and 1997, respectively. Write-downs charged against the
        allowance were not significant for the year ended March 31, 1999, and
        were 74,897 million yen and 113,041 million yen for the years ended
        March 31, 1998 and 1997, respectively.

   (6)  Long-Lived Assets
        -----------------

        As the prices of semiconductors, mainly DRAMs, significantly decreased
        during fiscal 1998, due to highly competitive market conditions, the
        Company projected that future business of subsidiaries manufacturing
        those products would result in a net operating loss. As a result of the
        comparison of future net cash flows expected to be generated by the
        machinery and equipment to manufacture those products and their carrying
        amounts, the Company recognized an impairment loss of 57,290 million
        yen, included in other (net) of other income (deductions), during fiscal
        1998.

        The Company recognized an impairment loss of 31,372 million yen,
        included in other (net) of other income (deductions), during fiscal 1998
        related to the decline in value of land held.

        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 that had
        been received by NLF in satisfaction of impaired receivables.


<PAGE>   68
                                     - 68 -


                    MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



   (7)  Long-term Debt and Short-term Borrowings
        ----------------------------------------

        Long-term debt at March 31, 1999 and 1998 is set forth below:

<TABLE>
<CAPTION>
                                                           Yen (millions)
                                                          ----------------
                                                          1999        1998
                                                          ----        ----
<S>                                                     <C>         <C>
         Convertible bonds, due 1999, interest 1.3%          -      198,357
         Convertible bonds, due 2002, interest 1.3%      99,010      99,021
         Convertible bonds, due 2004, interest 1.4%      98,911      98,917
         Convertible bonds issued by subsidiaries,
           due 1999, 2000, 2002 and 2005,
           interest 0.35% - 4.3%                         66,482     101,725
         U.S. dollar unsecured bonds, due 2002,
           effective interest 5.8%                      124,982     124,897
         Euro medium-term notes issued by a
           subsidiary, due 1998, effective
           interest 5.6%                                     -        5,284
         Straight bonds issued by a subsidiary,
           due 2001-2005, interest 1.38% - 2.15%         20,000          -
         Unsecured yen loans from banks and
           insurance companies, principally by
           financial subsidiaries, due 1998 - 2005,
           effective interest 1.9% in 1999
           and 2.2% in 1998                             434,158     421,249
         Other long-term debt                                53          83
                                                        -------   ---------
                                                        843,596   1,049,533
         Less current portion                           134,512     359,952
                                                        -------   ---------

                                                        709,084     689,581
                                                        =======   =========
</TABLE>

        The aggregate annual maturities and sinking fund requirements of
        long-term debt after March 31, 1999 are as follows:

<TABLE>
<CAPTION>
                                                  Yen (millions)
                                                  --------------

                Year ending March 31:
<S>                                                   <C>
                     2000                             134,512
                     2001                             148,548
                     2002                             201,423
                     2003                             195,297
                     2004                             121,270
</TABLE>

        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.


<PAGE>   69
                                     - 69 -


                    MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



        Each of the loan agreements grants the lender the right to request
        additional security or mortgages on property, plant and equipment. At
        March 31, 1999 and 1998, short-term loans subject to such general
        agreements amounted to 298,942 million yen and 325,109 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, 1999 and 1998 were 4.3% and 5.1%,
        respectively.

        Acceptances payable by foreign subsidiaries, in the amount of 794
        million yen and 6,580 million yen at March 31, 1999 and 1998,
        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 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
        61,117,000 shares of common stock at 1,620 yen per share.

        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
        61,056,000 shares of common stock at 1,620 yen per share.

        The convertible bonds maturing through 2005 issued by subsidiaries are
        redeemable at the option of the subsidiaries at prices ranging from 106%
        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, 1999,
        1998 and 1997 amounted to 49,306 million yen, 50,522 million yen and
        51,714 million yen, respectively.


<PAGE>   70
                                     - 70 -


                    MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



        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.

        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 the social security tax portion for the years
        ended March 31, 1999, 1998 and 1997 amounted to 79,570 million yen,
        60,071 million yen and 37,935 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, 1998 and 1997 with the latest information
        available:

<TABLE>
<CAPTION>
                                                              Yen (millions)
                                                           -------------------
                                                           1998           1997
                                                           ----           ----
        <S>                                              <C>             <C>
        Liability reserve                                1,051,132       846,705
        Fair value of plan assets, primarily
          marketable securities and loans                1,058,554       850,072
                                                         ---------       -------

        Fair value of plan assets greater than
          the liability reserve                              7,422         3,367
                                                         =========       =======
</TABLE>

        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, 1998 and 1997 for the portion of
        social security tax were 26,623 million yen and 22,756 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 20,587
        million yen as of March 31, 1998 is being amortized over a seven- to
        ten-year period. Contributions to amortize the past service costs for
        the years ended March 31, 1998 and 1997 totaled 6,808 million yen and
        2,576 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.


<PAGE>   71
                                     - 71 -


                    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, 1999 are summarized as follows:

<TABLE>
<CAPTION>
                                                Yen (millions)
                                     ------------------------------
                                     Domestic    Foreign      Total
                                     --------    -------      -----
<S>                                  <C>         <C>         <C>
1999:
    Income before income taxes        153,047    49,246      202,293
    Income taxes:
          Current                     117,925    34,378      152,303
          Deferred                     26,881    (3,734)      23,147
                                      -------    ------      -------

               Total income taxes     144,806    30,644      175,450
                                      =======    ======      =======

1998:
    Income before income taxes        258,582    97,042      355,624
    Income taxes:
          Current                     160,275    35,673      195,948
          Deferred                     43,252    (4,351)      38,901
                                      -------    ------      -------

               Total income taxes     203,527    31,322      234,849
                                      =======    ======      =======

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
                                      =======    ======      =======
</TABLE>

        For the years ended March 31, 1999 and 1998, domestic income taxes,
        deferred include the impact of 61,123 million yen and 37,423 million
        yen, respectively, attributable to adjustments of net deferred tax
        assets to reflect reductions in Japan's corporate income tax rate.


<PAGE>   72
                                     - 72 -


                    MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



        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 47.6% for the year ended March 31, 1999, and 51.2% for
        the two years ended March 31, 1998.

        The effective rates for the years differ from the normal tax rates for
        the following reasons:

<TABLE>
<CAPTION>
                                                             1999    1998    1997
                                                             ----    ----    ----
<S>                                                          <C>     <C>     <C>
        Normal tax rate                                      47.6%   51.2%   51.2%
            Tax credit for increased research expenses       (0.9)   (1.0)   (1.7)
            Lower tax rates of overseas subsidiaries         (9.6)   (1.3)   (4.9)
            Expenses not deductible for tax purposes          7.6     4.3     5.1
            Change in valuation allowance allocated to
              income tax expenses                             6.8    (1.7)   (4.3)
            Adjustments of deferred tax assets and
              liabilities for enacted changes in tax laws
              and rates                                      30.2    10.5     -
            Other                                             5.0     4.0     1.4
                                                             ----    ----    ----

        Effective tax rate                                   86.7%   66.0%   46.8%
                                                             ====    ====    ====
</TABLE>

        The significant components of deferred income tax expenses for the three
        years ended March 31, 1999 are as follows:

<TABLE>
<CAPTION>
                                                                  Yen (millions)
                                                             ----------------------
                                                             1999     1998     1997
                                                             ----     ----     ----
<S>                                                         <C>     <C>      <C>
        Deferred tax expense (exclusive of the effects
          of other components listed below)                 (51,821)  7,342  (53,476)
        Adjustments of deferred tax assets and
          liabilities for enacted changes in tax laws
          and rates                                          61,123  37,423       -
        Increase (decrease) in the balance of valuation
          allowance for deferred tax assets                  13,845  (5,864) (14,324)
                                                             ------  ------  -------

                                                             23,147  38,901  (67,800)
                                                             ======  ======  =======
</TABLE>




<PAGE>   73
                                     - 73 -


                    MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



        The tax effects of temporary differences that give rise to significant
        portions of the deferred tax assets and deferred tax liabilities at
        March 31, 1999 and 1998 are presented below:

<TABLE>
<CAPTION>
                                                                  Yen (millions)
                                                                 -----------------
                                                                  1999      1998
                                                                 -------   -------
<S>                                                              <C>       <C>
          Deferred tax assets:
             Inventory valuation                                  83,516    92,636
             Expenses accrued for financial statement purposes
               but not currently included in taxable income      132,477   146,890
             Depreciation                                        121,689   143,741
             Retirement and severance benefits                   108,194    93,882
             Tax loss carryforwards                               62,864    52,006
             Other                                                85,502    93,046
                                                                 -------   -------
                       Total gross deferred tax assets           594,242   622,201

                       Less valuation allowance                   38,275    39,612
                                                                 -------   -------

                       Net deferred tax assets                   555,967   582,589

          Deferred tax liabilities:
             Purchase accounting step-up of identifiable assets   (2,761)   (3,082)
             Other                                               (29,316)  (30,348)
                                                                 -------   -------
                       Total gross deferred tax liabilities      (32,077)  (33,430)
                                                                 -------   -------

                       Net deferred tax assets                   523,890   549,159
                                                                 =======   =======
</TABLE>

        The net change in total valuation allowance for the years ended March
        31, 1999 and 1998 was a decrease of 1,337 million yen and 15,407 million
        yen, respectively.

        At March 31, 1999, certain subsidiaries had, for tax reporting purposes,
        net operating loss carryforwards of approximately 159,031 million yen,
        which will generally expire between 2000 and 2014.


<PAGE>   74
                                     - 74 -


                    MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



        Net deferred tax assets and liabilities at March 31, 1999 and 1998 are
        reflected in the accompanying consolidated balance sheets under the
        following captions:

<TABLE>
<CAPTION>
                                                        Yen (millions)
                                                       -----------------
                                                       1999         1998
                                                       ----         ----
<S>                                                 <C>          <C>
                 Other current assets                251,189      263,560
                 Other assets                        273,616      287,158
                 Other liabilities                      (915)      (1,559)
                                                    --------     --------

                 Net deferred tax assets             523,890      549,159
                                                    ========     ========
</TABLE>

(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 Company issued 26,464 shares, 1,161,459 shares and 13,441,895 shares
        in connection with the conversion of bonds for the three years ended
        March 31, 1999, respectively.

        For the year ended March 31, 1999, 50,000,000 shares of the Company's
        common stock were repurchased from the market and retired for an
        aggregate cost of 98,883 million yen. The entire repurchase cost of
        retired shares was charged to retained earnings in accordance with the
        Japanese Commercial Code.

        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, 1999 represent dividends
        paid out during the periods and related appropriation to the legal
        reserve. The accompanying consolidated financial statements do not
        include any provision for the semi-annual dividend of 7.75 yen per
        share, totaling 15,982 million yen, planned to be proposed in June 1999
        in respect of the year ended March 31, 1999 or for the related
        appropriation.
<PAGE>   75
                                     - 75 -


                    MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



(11)    Net Income per Depositary Share
        -------------------------------

        A reconciliation of the numerators and denominators of the basic and
        diluted net income per depositary share computation for the three years
        ended March 31, 1999 is as follows:

<TABLE>
<CAPTION>
                                                     Yen (millions)
                                              -------------------------
                                              1999      1998       1997
                                              ----      ----       ----
<S>                                         <C>       <C>       <C>
        Net income available to common
           stockholders                      13,541    93,604    137,853
        Effect of assumed conversions:
           Convertible bonds, due 1999,
              interest 1.3%                      -      1,259      1,259
           Convertible bonds, due 2002,
              interest 1.3%                      -        629        634
           Convertible bonds, due 2004,
              interest 1.4%                      -        676        683
           Others                                -         -           1
                                             ------    ------    -------

        Diluted net income                   13,541    96,168    140,430
                                             ======    ======    =======
</TABLE>

<TABLE>
<CAPTION>
                                                  Number of shares
                                         ----------------------------------
                                         1999           1998           1997
                                         ----           ----           ----
<S>                                  <C>            <C>            <C>
        Average common
          shares outstanding         2,089,988,449  2,112,052,091  2,108,067,837
        Dilutive effect of
        assumed conversions:
          Convertible bonds,
            due 1999, interest 1.3%             -      81,285,840     81,289,186
          Convertible bonds,
            due 2002, interest 1.3%             -      61,267,028     61,666,616
          Convertible bonds,
            due 2004, interest 1.4%             -      61,181,174     61,712,449
        Others                                  -              -       3,122,125
                                     -------------  -------------  -------------

        Diluted common shares
          outstanding                2,089,988,449  2,315,786,133  2,315,858,213
                                     =============  =============  =============
</TABLE>

<TABLE>
<CAPTION>
                                                            Yen
                                              --------------------------------
                                              1999          1998          1997
                                              ----          ----          ----
<S>                                           <C>           <C>           <C>
        Net income per depositary share:
          Basic                                 65           443           654
          Diluted                               65           415           606
</TABLE>

        Approximately 197 million of the potential common shares were excluded
        from the computation of diluted net income per share for the year ended
        March 31, 1999, because their inclusion would have had an antidilutive
        effect on net income per share.
<PAGE>   76
                                     - 76 -


                    MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



(12)    Supplementary Information to the Statements of Income and Cash Flows
        --------------------------------------------------------------------

        Research and development costs and advertising costs charged to income
        for the three years ended March 31, 1999 are as follows:

<TABLE>
<CAPTION>
                                                         Yen (millions)
                                                 -----------------------------
                                                 1999        1998         1997
                                                 ----        ----         ----
<S>                                             <C>         <C>         <C>
        Research and development costs          499,986     480,539     434,874
        Advertising costs                       128,285     125,774     117,222
</TABLE>

        Included in other (net) of other income (deductions) for the year ended
        March 31, 1999 is a loss of 11,277 million yen related to liquidation of
        a U.S. joint venture for production of computer peripherals components.

        Included in other (net) of other income (deductions) for the year ended
        March 31, 1998 are foreign exchange losses of 25,086 million yen.
        Foreign exchange gains and losses included in the consolidated
        statements of income for the years ended March 31, 1999 and 1997 were
        not significant.

        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, 1999 are as
        follows:

<TABLE>
<CAPTION>
                                                                Yen (millions)
                                                          -------------------------
                                                            1999     1998     1997
                                                          -------  -------  -------
<S>                                                       <C>      <C>      <C>
        a)   Cash paid:
                Interest                                   70,672   77,254   86,244
                Income taxes                              160,046  272,951  147,534

        b)   Noncash investing and financing activities:
                Conversion of bonds                            56    1,887   19,532
                Transfer of ownership arising on capital
                  transactions by consolidated and
                  associated companies                      2,960    4,096    1,139
</TABLE>
<PAGE>   77
                                     - 77 -


                    MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



(13)    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.

        The contract amounts of foreign exchange contracts at March 31, 1999
        and 1998 are as follows:

<TABLE>
<CAPTION>
                                                                 Yen (millions)
                                                               -------------------
                                                               1999           1998
                                                               ----           ----
<S>                                                           <C>            <C>
        Forward:
          To sell foreign currencies                          312,453        419,806
          To buy foreign currencies                            62,371        132,567
        Options purchased to sell foreign currencies            3,670          7,620
        Options purchased to buy foreign currencies                -           2,378
        Options written to buy foreign currencies               3,873             -
</TABLE>

        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.

(14)    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.
<PAGE>   78
                                     - 78 -


                    MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



        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.

        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, 1999 and
        1998 are as follows:

<TABLE>
<CAPTION>
                                                   Yen (millions)
                                  ---------------------------------------------
                                          1999                    1998
                                  -------------------   -----------------------
                                  Carrying     Fair      Carrying       Fair
                                   amount      value      amount        value
                                  --------   --------   ----------   ----------
<S>                               <C>        <C>        <C>          <C>
         Non-derivatives:
             Assets:
                 Short-term
                   investments     124,327    130,923      130,204      148,518
                 Investments
                   and advances    799,937    988,304      806,756      959,564
             Liabilities:
                 Long-term debt,
                   including
                   current
                   portion        (838,879)  (937,636)  (1,056,366)  (1,140,043)
         Derivatives relating to
           long-term debt,
           including current
           portion                  (4,717)    (4,888)       6,833       12,077
</TABLE>

        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 judgments and therefore cannot
        be determined with precision. Changes in assumptions could significantly
        affect the estimates.
<PAGE>   79
                                     - 79 -


                    MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



(15)    Commitments and Contingent Liabilities
        --------------------------------------

        At March 31, 1999, commitments outstanding for the purchase of property,
        plant and equipment approximated 17,838 million yen. Contingent
        liabilities at March 31, 1999 for discounted export bills of exchange
        and guarantees of loans amounted to approximately 85,691 million yen,
        including 62,898 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.

(16)    Stock Option Plans
        ------------------

        The Company's option rights were allotted to 32 directors and four
        senior executives on July 1, 1998, at amounts ranging from 2,000 to
        10,000 common shares each. The stock option rights are exercisable from
        July 1, 2000, to June 30, 2004. Shares repurchased for this purpose were
        in aggregate to 113,000 common shares or approximately 252 million yen
        in value for the year ended March 31, 1999.

        The Company applies Accounting Principles Board (APB) Opinion No. 25,
        "Accounting for Stock Issued to Employees," and related interpretations
        in accounting for its Stock Option Plans described above. Accordingly,
        as the option price at the date of the grant exceeded the fair market
        value of common shares, no compensation cost has been recognized in
        connection with the Plan. If the accounting provisions of SFAS No. 123,
        "Accounting for Stock-Based Compensation" had been adopted, the impact
        on the Company's net income for the year ended March 31, 1999 would not
        be material. The effects of applying this statement for either
        recognizing compensation cost or pro forma disclosures may not be
        representative of the effects on reported net income for future years.

        In accordance with the Japanese Commercial Code, there are certain
        restrictions on payment of dividends in connection with treasury stock
        repurchased for stock options. As a result of restrictions on the
        treasury stock repurchased for stock options, retained earnings of
        approximately 252 million yen as of March 31, 1999 are restricted as to
        the payment of cash dividends.

        On June 29, 1999, the annual shareholders' meeting approved that the
        Company's stock option rights would be allotted to 32 directors and four
        senior executives at amounts ranging from 2,000 to 10,000 common shares
        each. This stock option rights are exercisable from July 1, 2001, to
        June 30, 2005. Share purchases for this purpose will be limited in
        aggregate to 120,000 common shares or 350 million yen in value.
<PAGE>   80
                                     - 80 -


                    MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



(17)    Quarterly Financial Data (Unaudited)
        ------------------------------------

        Quarterly net sales, net income (loss) and net income (loss) per
        depositary share for the two years ended March 31, 1999 are set forth in
        the following table:

<TABLE>
<CAPTION>
                             Yen (millions), except per share information
                       --------------------------------------------------------
                                                 1999
                       --------------------------------------------------------
                                              Net income         Net income
                                     Net      (loss) per         (loss) per
                          Net      income  depositary share:  depositary share:
                         sales     (loss)     basic (yen)       diluted (yen)
                       ---------   ------  -----------------  -----------------
<S>                    <C>         <C>     <C>                <C>
        Quarter ended
        -------------

        June 30        1,875,846    11,116        53                 51
        September 30   2,015,996    (1,608)       (8)                (8)
        December 31    1,938,354    20,295        98                 92
        March 31       1,809,923   (16,262)      (79)               (79)
</TABLE>


<TABLE>
<CAPTION>
                             Yen (millions), except per share information
                       -------------------------------------------------------
                                                 1998
                       -------------------------------------------------------
                                              Net income        Net income
                                     Net      (loss) per        (loss) per
                          Net      income  depositary share: depositary share:
                         sales     (loss)     basic (yen)      diluted (yen)
                       ---------   ------  ----------------- -----------------
<S>                    <C>         <C>     <C>               <C>
        Quarter ended
        -------------

        June 30        1,892,648    26,291        125               116
        September 30   2,005,925    30,912        146               136
        December 31    2,082,879    38,996        184               171
        March 31       1,909,210    (2,595)       (12)               (8)
</TABLE>


        For the quarters ended March 31, 1999 and 1998, net loss includes the
        impact of 52,768 million yen and 33,259 million yen, respectively,
        attributable to adjustments of net deferred tax assets to reflect
        reductions in Japan's corporate income tax rate.
<PAGE>   81
                                     - 81 -


                                                                   Schedule VIII
                                                                   -------------



                    MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
                                AND SUBSIDIARIES

                 Valuation and Qualifying Accounts and Reserves

                              (In millions of yen)

                    Years ended March 31, 1999, 1998 and 1997



<TABLE>
<CAPTION>
                                            Deduct
                                      -----------------
                   Balance                                   Add
                     at       Add-      Bad                (deduct)   Balance
                  beginning  charged   debts             -cumulative   at end
                     of        to     written            translation     of
                   period    income     off    Reversal  adjustments   period
                  ---------  -------  -------  --------  -----------  -------
<S>               <C>        <C>      <C>      <C>       <C>          <C>
Allowance for
 doubtful trade
 receivables:

    1999             62,742   13,505    8,781    2,454       (1,363)   63,649

    1998             60,810    8,316    4,824    1,240         (320)   62,742

    1997             53,826   13,302    6,887      956        1,525    60,810

Allowance for
 doubtful
 noncurrent
 receivables:

    1999                523       -       219       -            -        304

    1998             63,171   12,249   74,897       -            -        523

    1997             68,910  107,302  113,041       -            -     63,171
</TABLE>
<PAGE>   82
                                     - 82 -


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:

<TABLE>
<CAPTION>
                                                                               Page
                                                                              number
                                                                              ------
<S>                                                                           <C>
           Independent Auditors' Report                                         49

           Consolidated Balance Sheets as of March 31, 1999 and 1998            50

           Consolidated Statements of Income for the years ended
             March 31, 1999, 1998 and 1997                                      52

           Consolidated Statements of Stockholders' Equity for the years
             ended March 31, 1999, 1998 and 1997                                53

           Consolidated Statements of Cash Flows for the years ended
             March 31, 1999, 1998 and 1997                                      55

           Notes to Consolidated Financial Statements                           57

        Schedule for the years ended March 31, 1999, 1998 and 1997:

           Schedule VIII  Valuation and Qualifying Accounts and Reserves for
                             the years ended March 31, 1999, 1998 and 1997      81
</TABLE>


(b)     Exhibits

        ARTICLES OF INCORPORATION as amended on June 29, 1999
        (English translation)
<PAGE>   83
                                     - 83 -



                                   SIGNATURES
                                   ----------

Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Company 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 30, 1999                    By         /s/ Shigeru Nakatani
                                           -------------------------------------
                                                     Shigeru Nakatani
                                                       President of
                                             Panasonic Finance (America), Inc.
                                                      375 Park Avenue
                                                   New York, N.Y. 10152