<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, 1998
                         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 78 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, 1998    March 30, 1998
                    --------------             (Japan Time)      (New York Time)
                                               --------------    ---------------
<S>                                            <C>                <C>
Common Stock - 50 yen par value per share      2,112,318,310   
                                                               
American Depositary Shares, each                               
  representing 10 shares of common stock                             4,287,658
</TABLE>

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.  Yes X   No    .
                                       ---    ---
Indicate by check mark which financial statement item the registrant has elected
to follow. Item 17. X  Item 18.    .
                   ---         ---
All information contained in this Report is as of March 31, 1998 or for the year
ended March 31, 1998 (fiscal 1998) 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 22, 1998 was 141.10 yen=U.S.$1.


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

Any statements in this Annual Report, other than historical facts, are
forward-looking statements, which involve risks and uncertainties that could
cause actual results to differ materially. Such potential risks and
uncertainties include, without limitation, domestic and overseas economic
conditions such as consumer spending, housing construction and private capital
expenditures, especially under the continuingly sluggish economic environment of
Japan and other Asian countries; currency exchange rate fluctuations, especially
among the yen, U.S. dollar, Asian currencies and European currencies, with which
Matsushita operates its international business; and Matsushita's ability to
maintain its strength in many product and geographical areas through new product
introductions and other means in a highly competitive market, price-wise or
technology-wise, pertinent to the electronics industry to which the Company
primarily belongs.


                                     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. 

<PAGE>   3
                                     - 3 -



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 is basing its growth on technological advancement and
the use of electronics technology in every phase of life. The Company has been
expanding its development activities in such areas as next-generation
audiovisual equipment, multimedia products, and advanced electronic components
and devices, 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 April 1995, the Company merged with Matsushita Housing Products Co. Ltd., a
wholly-owned subsidiary engaged in the manufacture and sale of housing-related
products.

In June 1995, the Company sold an 80% interest in MCA, now named Universal
Studios, Inc., to The Seagram Company Ltd. for approximately U.S.$5.7 billion,
leaving the Company with a 20% interest.

Effective April 1, 1997, the Matsushita parent company established a new
organizational structure, setting up four internal divisional companies -
responsible for AVC (audiovisual and computer products), home appliances and
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 also announced a preliminary decision on a package of
new management initiatives aimed at better sharing interests with shareholders.
As part of this package, management decided in the following months, with
approval at the annual shareholders' meeting in late June 1998, to repurchase up
to 50 million shares of the parent company's common stock from the stock market
for retirement, to a maximum value of 100 billion yen, within a one-year period.
 


<PAGE>   4
                                     - 4 -



At the same time, as an incentive to Board members and employees toward the
enhancement of corporate value, the parent company decided to grant stock
option rights (exercisable from July 1, 2000 to June 30, 2004) to 32 Board
members and 4 select senior executives, at amounts ranging from 2,000 to 10,000
common shares each, and implemented 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 from fiscal 1999 through fiscal
2001).


                                SALES CATEGORIES

From fiscal 1998, the Company 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, as
shown in the table below. The new categories are classified by type of product
and customer, rather than by product group as was previously the case, so as to
more properly show the Company's current business nature, trends, areas and
markets. Major changes in the reclassification are: audiovisual (AV) equipment
for broadcast, business and industrial use previously included in "Video
equipment" has been transferred to "Information and communications equipment"
within the new "Industrial products" category; AV equipment mainly for the
automotive industry previously in "Audio equipment" is now in "Industrial
equipment" of the new "Industrial products" category; batteries in the
"Batteries and kitchen-related products" category are now in the "Components"
category; kitchen-related products previously in the same category as batteries
now belong to "Home appliances and household equipment" within the "Consumer
products" category; bicycles and photographic products previously in the "Other"
category have been moved to "Home appliances and household equipment" of the new
"Consumer products" category; and prerecorded video and audio tapes and discs
also previously included in "Other" now belong to "Video and audio equipment" of
the "Consumer products" category.

In the following table, Matsushita's sales breakdown according to these new
classifications is shown for the last three fiscal years, with prior year
figures restated accordingly.


<TABLE>
<CAPTION>
                                                    Yen (billions)
                                  -------------------------------------------------- 
                                              Fiscal year ended March 31,
                                  -------------------------------------------------- 
                                     1998               1997                1996
                                  ------------      ------------      -------------- 
<S>                               <C>      <C>      <C>      <C>      <C>        <C> 
 Consumer products                                                 
     Video and audio equipment     1,885    24%      1,804    24%      1,675      25%
     Home appliances and                                           
       household equipment         1,474    18       1,638    21       1,453      21
                                  ------  ----      ------  ----      ------    ---- 
             Subtotal              3,359    42       3,442    45       3,128      46
 Industrial products                                               
     Information and communi-                                      
       cations equipment           2,264    29       2,021    26       1,552      23
     Industrial equipment            701     9         701     9         685      10
                                  ------  ----      ------  ----      ------    ---- 
             Subtotal              2,965    38       2,722    35       2,237      33
                                                                   
 Components                        1,567    20       1,512    20       1,430      21
                                  ------  ----      ------  ----      ------    ---- 
                                                                   
             Total                 7,891   100%      7,676   100%      6,795     100%
                                  ======  ====      ======  ====      ======    ==== 
</TABLE>                                                           


<PAGE>   5
                                     - 5 -


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 3,359 billion yen, representing
42% of total Company sales in fiscal 1998. 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, such as VHS VCR models with
fewer control buttons. In camcorders, Matsushita offers a variety of compact
VHS-C and S-VHS-C models to the worldwide market. In addition, to meet the trend
toward digitalization of video equipment in recent years, the Company has been
strengthening its new line of digital camcorders since it launched the world's
first consumer-use digital model using smaller 6.35mm cassette tapes in 1995. In
fiscal 1998, to add impetus to the expansion of this product line, it introduced
in Japan three new compact digital camcorders equipped with liquid crystal
display (LCD) monitors; a camera-style model, a palm-sized model, and a
high-performance model incorporating three charge-coupled devices (CCDs), all of
which were favorably received in the market. As related products, Matsushita
also offers digital still cameras, as well as digital video printers that can be
used to print still pictures from digital camcorders or digital still cameras.

Matsushita's broad range of television receivers is designed to meet demand in
all segments of the Japanese and international markets. Increasing emphasis has
recently been placed, especially in Japan, on models that offer larger screens
and enhanced picture quality, including wide-screen and high-definition
television (HDTV) sets. Matsushita is also readying itself for the burgeoning
demand for multi-channel, multi-functional digital TV broadcasting by
manufacturing and selling set-top boxes (STBs) to receive new digital satellite
TV broadcasts in Japan since fiscal 1997 and by preparing for introduction of
STBs for digital terrestrial TV broadcasts scheduled to commence in the United
States and Europe in late 1998.

Matsushita is also active in promoting DVD products. Following its introduction
of the industry's first DVD players in fiscal 1997, the Company has been
expanding its product range, and began marketing of the world's first portable
DVD players in fiscal 1998. 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, laser disc players, and
such flat screen TVs as LCD TVs and plasma display TVs.

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


<PAGE>   6
                                     - 6 -


In response to growing market demand for compact audio equipment in recent
years, Matsushita has been strengthening such product lines as portable
headphone players and CD players by offering a number of new models, including
those that attained a long continuous playing time through the use of compact
high-performance batteries and those with a unique design and sturdy body
suitable for outdoor use. In the domestic market, the Company further introduced
the world's smallest portable MD player, as well as compact stereo component
system including a 5-CD and 5-MD changer, during fiscal 1998.

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

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, and electric and
kerosene heaters. 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 water purifiers.

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 costs.

Recent examples include refrigerators equipped with inverter-driven compressors
that allow low power consumption and featuring greater storage capacity,
including models which employ a CFC substitute with an ozone-depletion
coefficient of zero as a refrigerant, air conditioners with improved energy
consumption and dehumidification and deodorizing functions using compact
scroll-type compressors, and washing machines that feature shorter washing time,
lower water consumption and higher energy 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 an electric insect guard, a
bathroom shower-with-chair unit for use by the aged and the disabled, and a new
home-use compact organic garbage disposal unit boasting the industry's shortest
garbage decomposition time.

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

Industrial products, comprised of information and communications equipment and
industrial equipment, has been the Company's fastest growth area during the last
five 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 1998 totaled 2,965 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 PD 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-, business- and industrial-use AV
systems and equipment, communication 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 network age, the Company is currently
strengthening its multimedia-related equipment and systems businesses, by
expanding deliveries of on-demand information systems to municipal, business and
other customers, accelerating international development work in third-generation
mobile communications systems, marketing thin DVD-ROM drives for notebook PCs,
DVD-RAM drives and personal digital assistants (PDAs), and participating in such
new ventures as digital satellite broadcast operators. Furthermore, during
fiscal 1998, it expanded R&D bases for digital TV systems in the United States
and Europe and established a development base for digital network-related
products in Silicon Valley of the United States.

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
new, innovative products to meet ever-more sophisticated customer requirements,
including the world's fastest chip mounter, a unique Stud Bump Bonding
semiconductor-mounting machine employing an ultrasonic bonding method, and an
assembly robot equipped with Matsushita's own compact motors that performs
multiple, precise functions in a small space.

In car AV equipment as well, Matsushita is a leading Japanese manufacturer.
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 burgeoning domestic market for car
navigation systems, in the spring of 1998 Matsushita launched a new model
incorporating a DVD-ROM.

Components
----------

Matsushita produces one of the world's most extensive ranges of components and
devices. Major products included in this category are a broad range of
semiconductors and general components, display devices, electric motors,
compressors and batteries, for use by Matsushita and other manufacturers. Sales
of components as a whole in fiscal 1998, excluding in-house consumption, totaled
1,567 billion yen, accounting for some 20% of the Company total.


<PAGE>   8
                                     - 8 -




Recognizing that components and devices hold the key to the innovation and
advancement, as well as competitiveness, of finished products and systems in the
digital network 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 primarily includes integrated circuits
(ICs), such as MOS LSIs and bi-polar ICs, discrete devices and CCDs. Among
these, the Company is striving to strengthen the multimedia-related devices
field, including single-chip multifunctional LSIs called System LSIs, digital
signal processors, MPEG (Moving Picture Experts Group) chips, semiconductor
lasers and ferroelectric ICs. Such efforts, especially in System LSIs, resulted
in the successful development of such key devices as a Media Core Processor, an
MPEG-2 video encoder LSI, and a 32-bit microcontrollor, for use in such AV
equipment as digital camcorders, DVDs, digital TV-related equipment and PDAs.

In display devices, the Company has been expanding its global production and
supply network for mainstay cathode-ray tubes (CRTs), increasing its LCD
production capacity, and strengthening plasma display panels (PDPs), a line in
which the Company marketed a high quality 42-inch wide-screen model in fiscal
1998.

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.

Matsushita is also known as one of the world's largest battery manufacturers,
producing a comprehensive range of batteries, from such primary batteries as
manganese, alkaline, lithium, solar, 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.

Matsushita also leads the industry in 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, and as another industry first, in fiscal 1998 Matsushita launched these
batteries for HEVs, through an EV battery joint venture with Toyota Motor
Corporation.


<PAGE>   9
                                     - 9 -




                             SALES AND DISTRIBUTION

Set forth below is a sales breakdown by geographical markets:

<TABLE>
<CAPTION>
                                              Yen (billions)
                              -----------------------------------------------
                                         Fiscal year ended March 31,
                              -----------------------------------------------
                                 1998              1997              1996
                              ----------        ----------        -----------
<S>                          <C>     <C>       <C>     <C>       <C>      <C> 
 Japan                        3,891   49%       4,046   53%       3,727    55%
 North and South America      1,458   19        1,249   16        1,067    16
 Europe                         949   12          836   11          721    10
 Asia and Others              1,593   20        1,545   20        1,280    19
                              -----  ---        -----  ---        -----   ---
                                                                        
              Total           7,891  100%       7,676  100%       6,795   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.

These divisions include the Consumer Products Sales Division, Housing Equipment
Sales Division, Public Systems Sales Division, Private Institution Sales
Division, Industrial Sales Division, Semiconductor Sales Division, Factory
Automation Sales Division and Automotive Electronics Sales Division.

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 220 companies in 44 countries outside of Japan, including
five regional headquarters, 48 manufacturing/sales companies, 100 manufacturing
companies, 44 sales companies, 11 research organizations and four finance
subsidiaries. International marketing of Matsushita's products is conducted
through the Company's sales subsidiaries and affiliates and also through
independent distributors. In addition, certain products are sold in foreign
markets on an OEM basis and marketed under the brand names of third parties.

In order to promote global business development, as well as to counter currency
fluctuations, Matsushita has expanded its overseas production, covering not only
major consumer products, but also industrial products and components. Currently,
while reinforcing production and development capabilities of each of its
existing overseas manufacturing units, the Company is also building or expanding
production operations in newly developing areas, such as China, India and
Eastern Europe.

Matsushita's current emphasis is also placed on strengthening sales networks in
these markets, as well as those for industrial products and components, in
addition to consumer products.


<PAGE>   10
                                     - 10 -




During fiscal 1998, the economic slowdown in Southeast Asian countries, caused
by an outbreak of currency-related turmoil, had an adverse effect on
Matsushita's business in those local markets. Any negative effect on Companywide
results overall was, however, largely offset by an expansion of exports to other
regions from several Matsushita factories in that region. Although the Company
is currently endeavoring to reinforce its operations in Southeast Asia by
strengthening local production and sales structures, by increasing procurement
of locally-made parts and components and by providing technological and other
support to its local subsidiaries, the continuing economic setback there could
have negative effects on the Company's business in that region in fiscal 1999
and beyond.

Overseas sales, including products manufactured outside Japan and those exported
from Japan, represented approximately 51% of the Company's total consolidated
sales in fiscal 1998.

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, 1998, sales of industrial products and components accounted for
approximately 58% of Matsushita's total sales, rising from 47% of the total (50%
of total excluding MCA) in fiscal 1994. 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: optical discs, mobile communications equipment, display devices,
semiconductors and next-generation digital TV systems.

In pursuit of these goals, Matsushita operates future-oriented R&D at the
Corporate Research Division and several other corporate R&D centers. The
Corporate Research Division operates three research laboratories, including the
Central Research Laboratories, and engages primarily in basic research for the
21st century. Other corporate R&D centers include the Multimedia Development
Center, Optical Disk Systems Development Center and 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, car electronics systems, and related key components and
devices, as well as R&D into environment- and energy-related technologies.

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 four R&D centers, such as the Advanced LSI
Technology Development Center and the Microprocessor Development Center, and the
Production Engineering Laboratory, which engages in development of new
manufacturing technology and supports production activities at Matsushita's
domestic and overseas operating facilities.


<PAGE>   11
                                     - 11 -



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

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 2.6 gigabytes, and DVD discs employing a dual-layer disc bonding technology;
a DV archive that facilitates capture of video images from standard digital
video camcorders and editing and playback of such moving pictures on the PC; a
multimedia information providing system based on the Company's video server,
featuring easy creation and editing of multimedia files consisting of AV, text
and still-picture data and distribution of the data to multiple terminals; a
high-density multilayered printed circuit board technology with an "any layer
inner 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 will begin in the United States during 1998; a
wafer level burn-in technology which is designed to burn in all the chips on a
wafer at a time, thus improving the efficiency of wafer inspection at LSI
production facilities; and a resource-efficient TV incorporating highly
recyclable magnesium alloy in its cabinet as an industry first and the Company's
low energy consumption transformer.

Total expenditures for research and development amounted to 400 billion yen, 435
billion yen and 481 billion yen for the three years ended March 31, 1996, 1997
and 1998, respectively, representing 5.9%, 5.7% and 6.1% of Matsushita's total
net sales for each of those periods.


                              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 gradually been increasing investment in
plant and equipment in recent years. Total capital expenditures were 381 billion
yen, 415 billion yen and 474 billion yen for fiscal 1996, 1997 and 1998,
respectively. Besides constant investment in production automation and
labor-saving facilities, increasing emphasis has been placed on expansion of
strategically-important business areas, including key components and devices,
mobile communications equipment and PC peripherals, as well as overseas
production facilities.


                                   COMPETITION

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


<PAGE>   12
                                     - 12 -




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. However, the Company has
been endeavoring to minimize the effects of these negative factors primarily by
devising various cost-reduction measures, increasing its overseas production
with emphasis on local procurement of parts and components, and developing joint
ventures and other cooperative agreements with overseas partners.


                                   TRADEMARKS

Most of Matsushita's products are distributed throughout the world under the
"Panasonic" and "National" trademarks. Matsushita also sells a number of hi-fi
products under the "Technics" trademark. Some of the 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 RCA-Thomson Licensing Corporation
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 a non-exclusive patent cross-license agreement 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, 1998, Matsushita had approximately 276,000 employees. Most
regular employees in Japan, except management personnel, are union members,
principally of the Matsushita Electric Industrial Labor Union, which is
affiliated with the Japanese Electrical Electronic & Information Union.

As is customary in Japan, the Company negotiates annually with the unions and
grants annual wage increases and bonuses which are paid twice a year. Matsushita
also renews the terms and conditions of labor contracts, other than those
relating to wages and bonuses, every other year.

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



<PAGE>   14
                                     - 14 -


Item 2.  Description of Property

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

Matsushita's manufacturing plants are located principally in Japan, other
countries of Asia, North and South America and Europe. The Company considers
that all its factories are well maintained and suitable for its current
production requirements.

The following table sets forth information as of March 31, 1998 with respect to
manufacturing facilities:

<TABLE>
<CAPTION>
              Floor Space
             (thousands of
Location     square feet)         Principal Products Manufactured
--------     ------------         -------------------------------
<S>              <C>         <C>                                               
Osaka            9,976       VCRs, television receivers, DVD products, audio
                             equipment, washing machines, other home 
                             appliances, information equipment, industrial 
                             equipment, components, batteries, kitchen fixtures.
          
Kanagawa         4,395       Communications, information and measuring 
                             equipment, VCRs, audio equipment, car audio
                             equipment, compact discs, CRT displays,
                             refrigerators, batteries.
          
Shiga            3,592       Air conditioners, refrigerators, compressors, 
                             vacuum cleaners.
          
Tochigi          2,379       Television receivers, TV picture tubes, 
                             information equipment.
          
Nara             2,072       Home appliances, gas and kerosene equipment, 
                             compact discs.
          
Okayama          1,866       VCRs, components, magnetic tapes and discs.
          
Kyoto            1,629       Semiconductors, components.
          
Ibaraki          1,068       Television receivers, magnetic tapes.
          
Shikoku          3,684       VCRs, television receivers, information 
                             equipment, audio equipment, home appliances.
          
Kyushu           2,289       Information and communications
                             equipment, home appliances, components,
                             industrial equipment.
          
North            6,744       Television receivers, home appliances, VCRs, 
 America                     car audio equipment, information and
                             communications equipment, compressors,
                             components, semiconductors, batteries.
          
Europe           3,312       VCRs, television receivers, audio equipment,
                             car audio equipment, home appliances,
                             components, information and communications
                             equipment.
          
Asia            16,678       Television receivers, VCRs, audio equipment, 
                             air conditioners, refrigerators, other home
                             appliances, components, semiconductors,
                             information equipment, industrial equipment,
                             compressors, batteries.
          
Other           17,323       Home appliances, industrial equipment,
                             components, semiconductors, video and audio
                             equipment, batteries, information equipment.
                ------
          
   Total        77,007
                ======
</TABLE>  



<PAGE>   15
                                     - 15 -


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 6.4 million square feet, research and development
facilities with an aggregate floor space of approximately 6.2 million square
feet, employee housing and welfare facilities with an aggregate floor space of
approximately 10.9 million squarere feet, and administrative offices with an
aggregate floor space of approximately 15.0 million square feet.                

Matsushita leased approximately 13.6 million square feet of floor space as of
March 31, 1998, most of which was for sales office space.


Item 3.  Legal Proceedings

In November 1991, Loral Fairchild Corporation, a Delaware corporation, filed two
lawsuits in the United States District Court for the District of Virginia
against the Company, Matsushita Electric Corporation of America and 36 other
defendants. The suits were consolidated. All defendants were charged with
infringement of two U.S. patents by virtue of the production abroad and sale in
the United States of certain charge coupled devices (CCDs), which are used in
products such as video cameras and facsimile machines. In December 1991, this
action was transferred to the United States District Court for the Eastern
District of New York. The action seeks damages, attorneys' fees and a permanent
injunction. The Company has asserted that the patents are invalid and not
infringed upon by its products incorporating CCDs. This litigation has been
bifurcated between liability and damages and has been stayed as to all
defendants except one defendant. In a first liability trial involving this
defendant, a jury held that it infringed the two U.S. patents at issue. In July
1996, the court granted, among other things, its subsequent motion for judgment
as a matter of law, overturning the verdict. Loral Fairchild Corporation
appealed this decision to the Court of Appeals for the Federal Circuit and oral
argument was held in June 1997.

In July 1992, Matsushita Electronics Corporation (MEC), which manufactures CCDs,
commenced a suit in the United States District Court for the Southern District
of New York seeking a declaration that MEC's CCDs and all end products
incorporating MEC's CCDs (collectively "products") are licensed under the two
U.S. patents at issue. In April 1993, the district court granted MEC's motion
for summary 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 of the Central District of California claiming, in part,
that the Company violated Securities and Exchange Commission Rule 14d-10 by
treating the then chairman and chief executive officer of MCA differently than
other MCA stockholders in such acquisition. The district court denied
plaintiffs' motion for summary judgment and subsequently granted Matsushita's
motion for summary judgment. 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


<PAGE>   16
                                     - 16 -


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 later granted
Matsushita's petition for rehearing. The rehearing will be heard in August
1998.                                                          

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.

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, 1998 is as follows:

<TABLE>
<CAPTION>
                                                           Number of    Percent
          Title of class   Identity of person or group    shares owned  of class
          --------------   ---------------------------    ------------  --------
<S>      <C>               <C>                            <C>
          Common Stock        Directors and Corporate       18,449,342   0.87%
                               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.
<PAGE>   17
                                     - 17 -


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. 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>
                                                              
   1996                                                       
        1st quarter        1,790        1,640          171.00          157.25
        2nd quarter        2,070        1,730          188.00          159.50
        3rd quarter        2,050        1,790          187.50          163.38
        4th quarter        2,010        1,810          176.50          159.00
   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
</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, 1998, approximately 8.61% of the Company's Common Stock was
owned of record by a total of 209 United States shareholders including the
Depositary's nominee, considered as one shareholder of record, owning
approximately 2.04% of the total Common Stock.


Item 6.  Exchange Controls and Other Limitations Affecting Security Holders

(a)     Japanese Foreign Exchange Controls

        Effective from 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 exception relating to certain
        inward direct investment (which is not applicable to the Company's
        shares), substituted by the post facto reporting requirements. However,
        the Minister of Finance has the power to impose a licensing requirement
        for certain transactions in limited circumstances.


<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 presently authorized capital stock of the Company is 5,000,000,000
        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 all certificates of
        shares of Common Stock elected to be put into this system are deposited
        with the central clearing system and all such shares are registered in
        the name of the clearing house in the Company's register of
        shareholders. Each participating shareholder is in turn registered in
        the register of beneficial shareholders and treated the same way as
        shareholders registered in the Company's register of shareholders.

        Dividends

        The Articles of Incorporation of the Company provide that the accounts
        shall be closed on March 31 of each year and that dividends, if any,
        shall be paid to the shareholders of record as of the end of such fiscal
        period. After the close of the fiscal period, the Board of Directors
        prepares, among other things, a proposed allocation of profits for
        dividends and other purposes; this proposal is submitted to the
        Corporate Auditors of the Company and to independent certified public
        accountants and then submitted for approval to the ordinary general
        meeting of shareholders, which is normally held in June each year. In
        addition to provisions for dividends, if any, and for the legal reserve
        and other reserves, the allocation of profits customarily includes a
        bonus to Directors and Corporate Auditors. In addition to annual
        dividends, the Board of Directors of the Company may by its resolution
        declare a cash distribution pursuant to Article 293-5 of the Commercial
        Code (an "interim dividend") to shareholders who are registered in the
        Company's register of shareholders at the end of each September 30,
        subject to the limitations described below.


<PAGE>   19
                                     - 19 -



        The Commercial Code provides that a company may not make any
        distribution of profits by way of dividends or interim dividends for any
        fiscal period unless it has set aside in its legal reserve an amount
        equal to at least one-tenth of the amount paid by way of appropriation
        of retained earnings for such fiscal period until the legal reserve is
        one-quarter of its stated capital. Under the Commercial Code the Company
        is permitted to distribute profits by way of year-end or interim
        dividends out of the excess of its net assets over the aggregate of (i)
        its stated capital, (ii) its capital surplus, (iii) its accumulated
        legal reserve, (iv) the legal reserve to be set aside in respect of the
        fiscal period concerned, and (v) the excess, if any, of unamortized
        expenses incurred in preparation for commencement of business and in
        connection with research and development expense over the aggregate of
        amounts referred to in (ii), (iii) and (iv) above. If the Company has on
        its balance sheet a number of shares of its Common Stock which the
        Company has acquired for the purpose of transferring the same to its
        Directors and/or employees but such shares are yet to be so transferred,
        the book value of such shares shall be deducted from the amount
        available for payment of dividends. In the case of interim dividends,
        the net assets are calculated by reference to the balance sheet as at
        the last closing of the Company's accounts, but adjusted to reflect any
        subsequent 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), (ii), (iii), (iv) and (v)
        above, and, in addition to the deduction referred to in the immediately
        preceding sentence, if the Company's shareholders have adopted a
        resolution for the Company's purchase of shares of its Common Stock for
        the purpose of transferring the same to its Directors and/or employees
        or for the purpose of 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.

        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.


        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.


<PAGE>   20
                                     - 20 -




        The Commercial Code permits the Company to make a partially free
        distribution to shareholders by way of a rights issue at a subscription
        price per share which is less than the par value thereof if (a) the
        difference between the subscription price and the par value does not
        exceed the amount of the stated capital minus the aggregate par value of
        all outstanding shares, divided by the number of new shares to be issued
        pursuant to such rights issue, (b) the sum of the net assets of the
        Company (as appearing on the latest balance sheet) and the total
        subscription price, divided by the number of the shares outstanding
        immediately after the issue of the new shares, is at least 50 yen and
        (c) the subscription rights are made transferable. In order to satisfy
        the requirement mentioned in (a) above, the Board of Directors may
        transfer the whole or any part of capital surplus or legal reserve to
        stated capital.

        General meeting of shareholders

        The ordinary general meeting of shareholders to settle accounts of the
        Company for each fiscal period is normally held in June each year in
        Kadoma, Osaka, Japan. In addition, the Company may hold an extraordinary
        general meeting of shareholders whenever necessary by giving at least
        two weeks' advance notice to shareholders.

        Notice of a shareholders' meeting setting forth the place, time and
        purpose thereof, must be mailed to each shareholder having voting rights
        (or, in the case of a non-resident shareholder, to his resident proxy or
        mailing address in Japan) at least two weeks prior to the date set for
        the meeting.

        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 (with an exception of the merger of a small company)
        or consolidation of a corporation, the transfer of the whole or an
        important part of the business, the taking over of the whole of the
        business of any other corporation, any offering of new shares at a
         
<PAGE>   21
                                     - 21 -


         "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, 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").          

         Subscription rights

         Holders of the Company's Common Stock have no pre-emotive rights under
         its Articles of Incorporation. Authorized but unissued shares may be
         issued at such times and upon such terms as the Board of Directors
         determines, subject to the limitations as to the offering of new shares
         at a "specially favorable" price mentioned above. The Board of
         Directors may, however, determine that shareholders shall be given
         subscription rights regarding a particular issue of new shares, in
         which case such rights must be given on uniform terms to all
         shareholders as at a record date of which not less than two weeks'
         public notice must be given. Each of the shareholders to whom such
         rights are given must also be given notice of the expiry thereof at
         least two weeks prior to the date on which such rights expire.

         Rights to subscribe for new shares may be made generally transferable
         by the Board of Directors. Whether the Company will make subscription
         rights generally transferable in future rights offerings will depend
         upon the circumstances at the time of such offerings. If subscription
         rights are not made generally transferable, transfers by a 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 1997 amendments to the Commercial Code permit 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. If the rights to
         subscribe for new shares are granted to the Company's Directors and/or
         employees which rights are exercisable at a price below the market
         price of the shares and the number of shares issuable upon such
         exercise is substantial, existing shareholders' equity interest in the
         Company will be diluted.


<PAGE>   22
                                     - 22 -




        Liquidation rights

        In the event of a liquidation of the Company, the assets remaining after
        payment of all debts and liquidation expenses and taxes will be
        distributed among the shareholders in proportion to the respective
        numbers of shares held.

        Liability to further calls or assessments

        All the Company's presently outstanding shares of Common Stock including
        shares represented by the American Depository Shares are fully paid and
        non-assessable.

        Transfer agent

        The Chuo Trust & Banking Co., Ltd. is the transfer agent for the
        Company's Common Stock; as 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
        enacted in 1997 (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.

        The 1994 and 1997 amendments to the Commercial Code and the Special
        Retirement Law enable the Company to acquire its Common Stock for the
        following purposes, subject to the authorization of shareholders at an
        ordinary general meeting (if the Articles of Incorporation provide that
        the shares may be purchased for the purpose of retirement by resolution
        of the Board of Directors if the Board deems it especially necessary to
        do so in view of general economic condition, the business and financial
        condition of the Company and other factors, by the resolution of the
        Board of Directors): (1) for the purpose of transferring the same to its
<PAGE>   23
                                     - 23 -


        Directors and/or employees if there exists a justifiable reason; and (2)
        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:
        (a) 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); (b) 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 (c) acquisition shall be made through a stock
        exchange transaction or by way of tender offer. No such acquisition
        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. The Company's
        shareholders have, at the ordinary general meeting of shareholders held
        in June 1998, given an authorization for the acquisition of not
        exceeding 120,000 shares of Common Stock for the purpose of transferring
        the same to its all Directors then in office and certain executive
        employees. The Company amended its Articles of Incorporation in June
        1998 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 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 condition, 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 (v) referred to under
        "Dividends" above and the amount of interim dividend 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.

        "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).


<PAGE>   24
                                     - 24 -




        Right of a holder of shares representing less than one unit to require
        the Company to purchase such shares

        A holder of shares representing less than one unit may at any time
        require the Company to purchase such shares at their last reported sale
        price on Osaka Securities Exchange on the day when such request is made
        or, if no sale takes place on the Osaka Securities Exchange on such day,
        the last reported sale price on the Tokyo Stock Exchange on such day,
        and if a sale takes place on neither of such exchanges on such day, the
        price at which the first sale of the shares is effected on the Osaka
        Securities Exchange thereafter, less applicable brokerage commission.
        The usual securities transfer tax is applicable to such transactions.

        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, (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.

(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.
<PAGE>   25
                                     - 25 -


        A similar report must also be made in respect of any subsequent change
        of 1% or more in any such holding. For this purpose, shares issuable to
        such person upon conversion of convertible securities or exercise of
        share subscription warrants are taken into account in determining both
        the number of shares held by such holder and the issuer's total issued
        share capital. Copies of each such report must also be furnished to the
        issuer of such shares and all Japanese stock exchanges on which the
        shares are listed or (in the case of shares traded over-the-counter) the
        Japan Securities Dealers Association.


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.

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 corporation to non-residents of Japan or non-Japanese
corporation 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.

Dividends received by a U.S. holder of ADRs or Common Stock will be includable
in 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, a U.S. holder of ADRs or Common
Stock of the Company will be entitled to a credit for Japanese tax withheld 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.



<PAGE>   26
                                     - 26 -




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, 1999, 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, 1999, 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 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.                    


Item 8.  Selected Financial Data

<TABLE>
<CAPTION>
                                     Yen (billions), except per share amounts and yen 
                                --------------------------------------------------------
                                                    exchange rates
                                             Fiscal year ended March 31,
                                --------------------------------------------------------
                                1998        1997          1996         1995         1994
                                ----        ----          ----         ----         ----
<S>                           <C>         <C>           <C>          <C>          <C>         
   Income Statement Data:                                                 
   ----------------------
   Net sales                    7,891       7,676         6,795        6,948        6,624
   Income before income                                                   
     taxes                        356         332            77          232          128
   Net income (loss)               94         138           (57)          90           24
   Per common share:                                                      
      Net income (loss):                                                  
         Basic                  44.32       65.39        (27.12)       43.15        11.69
         Diluted                41.53       60.64        (27.12)       41.04        11.67
      Dividends                 13.00       12.50         12.50        13.50        12.50
                              ($0.107)    ($0.112)      ($0.136)     ($0.136)     ($0.116) 
                                                                          
   Balance Sheet Data:   
   -------------------                                                 
   Total assets                 8,564       8,696         8,012        8,202        8,193
   Long-term debt                 690         923         1,019        1,291        1,260
   Minority interests             618         611           560          556          558
   Stockholders' equity         3,770       3,696         3,398        3,255        3,289
                                                                          
   Yen exchange rates per
   ----------------------                                                 
     U.S. dollar:        
     ------------                                                 
      Year-end                 133.29      123.72        107.00        86.85       102.40
      Average                  122.78      113.19         97.09        98.48       107.13
      High                     111.42      104.49         81.12        86.85       101.10
      Low                      133.99      124.54        107.29       105.38       114.20
</TABLE>                                                                  
<PAGE>   27
                                     - 27 -


      Notes:     1.  Dividends per share reflect those paid during each
                     fiscal year. The dollar amounts of the dividends per
                     share have been computed at the exchange rates
                     prevailing on the respective payment dates.

                 2.  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.


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

(a)     Results of Operations

        For the three-year period ended March 31, 1998 ("fiscal 1996," "fiscal
        1997," and "fiscal 1998"), the Japanese economy showed a mixed picture:
        in fiscal 1996 and 1997, it continued moderate recovery from the
        recessionary climate in the early 1990s, owing to the government's
        fiscal and monetary policies to stimulate the domestic economy and the
        consequent revival in demand from the private sector such as corporate
        capital investment and consumer spending. However, the Japanese economy
        again experienced a setback in fiscal 1998, as a result of decline in
        demand from the private sector, largely due to the lack of confidence by
        consumers in their spending, triggered by a rise in the consumption tax
        rate and failures of several financial institutions.

        Overseas economic conditions were generally favorable during this
        three-year period, especially in North America and Europe. The economies
        of Asian countries, however, showed a slowdown or setback in growth
        during fiscal 1998, following the outbreak of currency-related turmoil
        in Southeast Asia in the summer of 1997.

        Reflecting the aforementioned factors, Japan's Gross Domestic Product in
        real terms showed moderate growth of 2.9% and 3.5% in fiscal 1996 and
        1997 and then negative growth of 0.6% in fiscal 1998.

        Inflation rates in Japan for the three-year period were low, even
        showing a sign of marginal deflation in the wholesale price index in
        fiscal 1998. This trend, however, had no substantial impact on the
        Company's operations. A large portion of the Company's overseas business
        is conducted in low-inflation areas, and operations in highly
        inflationary environments are not material.

        The Company's business was adversely affected, in terms of export-price
        competitiveness, by the yen's appreciation in fiscal 1996, and favorably
        affected by the yen's depreciation in fiscal 1997 and 1998. To alleviate
        the effects of currency exchange rate fluctuation, the Company has been
        increasing production outside Japan to meet increasing overseas demand
        while reducing its dependence on exports. The Company is also using
        various currency risk hedging techniques, including forward
        foreign-exchange contracts and options with leading world-class banks in
        exports and imports and matching of export and import exchange
        contracts. The Company does not have any material unhedged monetary
        assets, liabilities or commitments denominated in currencies other than
        the operation's functional currency. 
<PAGE>   28
                                     - 28 -


        During this period, the Company completed a three-year Matsushita
        Revitalization Plan, which commenced in fiscal 1995, to revitalize and
        strengthen its corporate structure with emphasis on improved
        profitability. In fiscal 1998, the Company further implemented its
        four-year Progress 2000 Plan. The basic objective of this new mid-term
        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. At the same time, the Progress 2000 Plan emphasizes
        the enhancement of its earnings ratio through the achievement of
        balanced growth in three primary business sectors--consumer products,
        industrial products and components--along with domestic and overseas
        operations.

        In June 1995, the Company sold an 80% share of its equity interest in
        the U.S. entertainment company, MCA INC. (MCA), to The Seagram Company
        Ltd. for approximately U.S.$5.7 billion. Consequently, MCA, now named
        Universal Studios, Inc., is no longer treated as a consolidated
        subsidiary. Due primarily to the accounting treatments related to the
        sale of the Company's controlling interest in MCA, as described in
        further detail below, the Company reported a 2.2% decline in net sales
        and a net loss of 57 billion yen in fiscal 1996.

        In fiscal 1997, net sales increased 13.0% to 7,676 billion yen,
        reflecting a favorable economic environment worldwide and management
        initiatives. The Company reported net income of 138 billion yen, as
        compared with the net loss in fiscal 1996.

        In fiscal 1998, net sales increased 2.8% to 7,891 billion yen, due
        mainly to growth in overseas sales, notably in North America and Europe.
        Net income decreased 32.1% to 94 billion yen, compared with 138 billion
        yen in fiscal 1997, due mainly to slowed market demand in Japan and Asia
        and intensified price competition at the operating profit level, and
        further exacerbated by the negative effect of 33 billion yen from
        one-time 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%.


        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>   29
                                     - 29 -


        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 personal computers (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 factory automation equipment and car audiovisual
        (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 5, 6 and 7 of the Notes to Consolidated Financial Statements.)



<PAGE>   30
                                     - 30 -




        (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 10 of the Notes to Consolidated Financial Statements.)

        (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 as
        discussed above.

        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.


<PAGE>   31
                                     - 31 -




        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.

        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, liquid crystal display (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.



<PAGE>   32
                                     - 32 -




        (7)    Net Income

        Due to the factors stated in the preceding paragraphs, net income for
        fiscal 1997 grew to 138 billion yen, compared with the prior year's net
        loss of 57 billion yen. Its ratio to sales was 1.8%, compared with
        (0.8%) in the previous year.


        Year ended March 31, 1996 compared with 1995
        --------------------------------------------

        (1)    Sales

        Consolidated net sales in fiscal 1996 were 6,795 billion yen, down 2.2%
        from the previous year's 6,948 billion yen, primarily owing to the
        exclusion of MCA's revenues from fiscal 1996 consolidated results. Were
        MCA's revenues excluded from the previous year's results, sales would
        have risen in fiscal 1996.

        Consolidated domestic sales rose 7.9% to 3,727 billion yen. Overseas
        sales decreased 12.2% (11.6% on a local-currency basis) to 3,068 billion
        yen, due mainly to the exclusion of MCA's revenues from consolidated
        sales.

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

        Sales of Consumer products increased 3.4% to 3,128 billion yen. Of this,
        sales of video and audio equipment grew 3.5% to 1,675 billion yen, with
        advanced unit shipment of TVs, VCRs and audio equipment in both domestic
        and overseas markets more than offsetting the negative effect of falling
        price levels. Sales of home appliances and household equipment advanced
        3.3% to 1,453 billion yen, as a result of firm demand for such products
        as refrigerators, microwave ovens and seasonal products, such as air
        conditioners and heating equipment, aided also by favorable weather
        conditions in Japan.

        Sales of Industrial products increased 13.4% to 2,237 billion yen. Sales
        of information and communications equipment grew 10.6% to 1,552 billion
        yen, reflecting surging demand for mobile communications equipment and
        PCs in Japan and overseas. Industrial equipment sales increased 20.2% to
        685 billion yen, as increased capital investment by information and
        communications equipment manufacturers boosted sales of factory
        automation equipment.

        Sales of Components rose 6.8% to 1,430 billion yen, primarily owing to
        strong domestic and overseas sales of semiconductors, cathode-ray tubes
        (CRTs) and general components for use in information and communications
        equipment, such as PCs and cellular phones. Batteries also showed
        continued growth in domestic and overseas markets, led by strong sales
        of compact, rechargeable batteries for use in information,
        communications and AV equipment.

        (2)    Operating Profit

        Despite adverse factors, such as intensified price competition and
        appreciation of the yen's average rate, as well as the exclusion of MCA
        from fiscal 1996 consolidated results, operating profit increased 1.6%
        to 264 billion yen, compared with the previous year's 260 billion yen,
        due mainly to sales gains and the Company's efforts of lowering
        manufacturing costs and raising overall management efficiency.


<PAGE>   33
                                     - 33 -




        (3)    Other Income (Deductions)

        Other income (net) registered a loss of 188 billion yen in fiscal 1996,
        compared with a loss of 28 billion yen in fiscal 1995, due mainly to the
        one-time, non-operating loss of approximately 164 billion yen relating
        to the MCA equity sale.

        (4)    Provision for Income Taxes

        Provision for income taxes amounted to 115 billion yen. Its ratio to
        income before income taxes jumped to 150.7%, compared with 56.4% for the
        previous fiscal year, due primarily to the aforementioned,
        non-tax-deductible loss relating to MCA.

        (5)    Minority Interests

        Minority interests were 22 billion yen, compared with 17 billion yen in
        fiscal 1995, owing mainly to the earnings improvement of certain
        subsidiaries.

        (6)    Equity in Earnings of Associated Companies

        Equity in earnings of associated companies decreased to 4 billion yen
        from the previous year's 6 billion yen because of the decreased earnings
        of certain overseas associated companies.

        (7)    Net Income (Loss)

        Due to the factors stated in the preceding paragraphs (in particular,
        the non-operating loss relating to MCA), the Company registered a net
        loss of 57 billion yen, compared with net income of 90 billion yen in
        the previous year. Its ratio to sales was (0.8%), compared with the
        previous year's 1.3%.


(b)     Liquidity and Capital Resources

        The Company's total assets at the end of fiscal 1998 decreased to 8,564
        billion yen, compared with 8,696 billion yen a year ago. Decreases in
        cash and cash equivalents and trade receivables were major factors
        contributing to this decrease. Stockholders' equity increased to 3,770
        billion yen, from 3,696 billion yen a year ago, due mainly to an
        increase in retained earnings and the positive effects of the yen's
        year-end exchange rate on cumulative translation adjustments.

        The Company's capital investment during the year totaled 474 billion
        yen, up from 415 billion yen in fiscal 1997. This increase was primarily
        due to expanded investment in such areas as key components and devices,
        including semiconductors and LCD devices. Depreciation also increased to
        360 billion yen, from 345 billion yen.

        Net cash provided by operating activities in fiscal 1998 fell to 529
        billion yen, from 635 billion yen in the previous year, due mainly to
        decreases in net income and accrued income taxes.

        Net cash used in investing activities amounted to 431 billion yen,
        compared with the previous year's 448 billion yen. This decrease was
        primarily attributable to a smaller degree of increase in investments
        and advances than in fiscal 1997.


<PAGE>   34
                                     - 34 -



        Net cash used in financing activities increased to 224 billion yen, from
        86 billion yen a year ago, reflecting less cash provided due mainly to
        decreases in short-term borrowings and proceeds from long-term debt.

        These activities, along with the effects of exchange rate changes,
        resulted in a net decrease of 119 billion yen in cash and cash
        equivalents. Cash and cash equivalents at the end of fiscal 1998 were
        1,906 billion yen, compared with 2,025 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.

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

<TABLE>
<CAPTION>                                          
                                                              Yen (millions)
                                                         ------------------------
                                                                  1998
                                                         ------------------------
                                                         Carrying          Fair
                                                          amount          value
                                                         --------        --------                                                   
<S>                                                       <C>             <C>    
        Due within one year                               123,396         123,901
        Due after one year through five years              92,813          92,616
        Due after five years                                  253             178
        Equity securities                                 400,383         571,012
                                                          -------         -------
                                                   
                                                          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.


<PAGE>   35
                                     - 35 -




        The following table provides the contract amounts and fair values of
        foreign exchange contracts, primarily hedging U.S. dollar revenues, at
        March 31, 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 at the table
        of "Interest Rate Risk."

<TABLE>
<CAPTION>
                                                                                     Yen (millions)
                                                                                  ---------------------
                                                                                          1998
                                                                                  ---------------------
                                                                                  Contract        Fair
                                                                                   amount         value
                                                                                  ---------       -----           
<S>                                                                               <C>           <C>    
        Forward:                                                     
          To sell foreign currencies                                               419,806       (9,182)
          To buy foreign currencies                                                132,567          200
        Options purchased to sell foreign currencies                                 7,620          (73)
        Options purchased to buy foreign currencies                                  2,378           55
</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, 1998 were not material.

        The following tables provide information about the Company's financial
        instruments that are sensitive to changes in interest rates at March 31,
        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 (year ended March 31)
                                         ---------------------------------------------------------------
                             Average
                             interest                                                           There-      Fair
                               rate      Total    1999     2000     2001     2002     2003       after     value
                             --------    -----    ----     ----     ----     ----     ----      -------    -----
<S>                                  <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>   36
                                     - 36 -




(d)     Regarding Environment

        In June 1998, certain prefectural and municipal authorities announced
        based on the Company 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 factory sites of
        the Company and certain of its subsidiaries. These substances, called
        chlorine-based solvents, include trichloroethylene, tetrachloroethylene
        and trichloroethane, and were used in the past for washing metal parts
        and semiconductors. It is believed that the contamination of the
        underground water was caused by the sinking of a small quantity of these
        substances, into the soil in the past. Matsushita ceased the use of such
        substances for the above purposes before the end of 1995 in all of its
        domestic factories. The Company intends to take measures necessary to
        remove the excess level of such substances at the factory sites
        mentioned above. Although the financial implications of this incident
        cannot be assessed precisely at this stage, the Company does not believe
        they will have a material adverse effect on its liquidity, financial
        position, or results of operations.

        Besides the aforementioned, 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
        effect upon its liquidity, financial position, or result of operations.


(e)     Year 2000 Issue

        Through a preliminary assessment, the Company has identified operating
        and application software challenges in computer usage related to the
        year 2000. Therefore, the Company expects to implement successfully the
        systems and programming changes necessary to address the year 2000 issue
        substantially through normal replacement and upgrades of software by the
        end of fiscal 1999, and does not believe that the cost of such actions
        will have a material effect on the Company's results of operations or
        financial condition. However, there can be no assurance that there will
        not be delays in, or increased costs associated with, the implementation
        of such changes, and that inability to properly implement such changes
        by the Company or by those with which it conducts business could have an
        adverse effect on future results of operations.


(f)     New Accounting Pronouncements

        In June 1997, the Financial Accounting Standards Board (FASB) issued
        Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
        Comprehensive Income." This Statement establishes standards for
        reporting and display of comprehensive income and its components in a
        full set of general-purpose financial statements and requires that all
        items that are required to be recognized under accounting standards as
        components of comprehensive income be reported in a financial statement
        that is displayed with the same prominence as other financial
        statements. The Company will adopt SFAS No. 130, beginning April 1, 1998
        as permitted, except for the effects on stockholders' equity of its
        departure from the provisions of SFAS No. 115, "Accounting for Certain
        Investments in Debt and Equity Securities." The Company does not expect
        that the adoption will affect the results of operations or financial
        position.
<PAGE>   37
                                     - 37 -


        In June 1997, FASB issued SFAS No. 131, "Disclosures about Segments of
        an Enterprise and Related Information," applicable for the fiscal year
        beginning April 1, 1998. This Statement establishes standards for the
        way that public business enterprises report information about operating
        segments. It also establishes standards for related disclosures about
        products and services, geographic areas, and major customers. The
        Company is evaluating the adoption of SFAS No. 131. Foreign issuers are
        presently exempted from the segment information disclosure requirements
        regulated by SFAS No. 14, "Financial Reporting for Segments of a
        Business Enterprise" in Securities Exchange Act filings with the United
        States Securities and Exchange Commission.


(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
        consumer-use 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.

        Information by segment for fiscal 1998 and 1997 is shown in the tables
        on the following pages.

        By Business Segment:



<TABLE>
<CAPTION>
                                                         Yen (billions)
                                                        -------------------
                                                        1998           1997
                                                        ----           ----
<S>                                                     <C>           <C>
        Sales:                                                             
         Consumer products:                                                
           Customers                                    3,359         3,442   
           Intersegment                                     7             5   
                                                       ------        ------   
                  Total                                 3,366         3,447   
        Industrial products:                                               
           Customers                                    2,965         2,722   
           Intersegment                                     5             5   
                                                       ------         ------   
                  Total                                 2,970          2,727   
        Components:                                                       
           Customers                                    1,567          1,512   
           Intersegment                                   768            729   
                                                       ------         ------   
                  Total                                 2,335          2,241   
        Eliminations                                     (780)          (739)  
                                                       ------         ------   
                                                                           
                Consolidated total                      7,891          7,676   
                                                       ======         ======   
</TABLE>



<PAGE>   38
                                     - 38 -

<TABLE>
<CAPTION>
                                                          Yen (billions)       
                                                        -----------------      
                                                        1998          1997     
                                                        ----          ----     
<S>                                                     <C>          <C>       
                                                                               
        Operating profit:                                                      
            Consumer products                             100           131    
            Industrial products                           222           199    
            Components                                     86           106    
            Corporate and eliminations                    (70)          (62)   
                                                       ------        ------    
                                                                               
                    Consolidated total                    338           374    
                                                       ======        ======    
                                                                               
        Identifiable assets:                                                   
            Consumer products                           2,455         2,484    
            Industrial products                         2,087         2,080    
            Components                                  1,754         1,767    
            Corporate and eliminations                  2,268         2,365    
                                                       ------        ------    
                                                                               
                    Consolidated total                  8,564         8,696    
                                                       ======        ======    
                                                                               
        Depreciation:                                                          
            Consumer products                              78            77    
            Industrial products                            84            77    
            Components                                    190           178    
            Corporate and eliminations                      8            13    
                                                       ------        ------    
                                                                               
                    Consolidated total                    360           345    
                                                       ======        ======    
                                                                               
        Capital investment (including intangibles 
        other than goodwill)*:                                     
            Consumer products                              81            75    
            Industrial products                           111            96    
            Components                                    280           246    
            Corporate and eliminations                      8             7    
                                                       ------        ------    
                                                                               
                    Consolidated total                    480           424    
                                                       ======        ======    
</TABLE>                                                                       


<PAGE>   39
                                     - 39 -




By Geographical Location of Companies:
                                                                
<TABLE>
<CAPTION>
                                                          Yen (billions)
                                                        ------------------ 
                                                        1998          1997
                                                        -----        ----- 
<S>                                                    <C>           <C>  
        Sales:                                
           Japan:                             
               Customers                                5,265         5,322
               Intersegment                               991           815
                                                       ------        ------
                      Total                             6,256         6,137
           North and South America:           
               Customers                                1,058           900
               Intersegment                                42            43
                                                       ------        ------
                      Total                             1,100           943
           Europe:                            
               Customers                                  614           549
               Intersegment                                28            29
                                                       ------        ------
                      Total                               642           578
           Asia and Others:                   
               Customers                                  954           905
               Intersegment                               428           441
                                                       ------        ------
                      Total                             1,382         1,346
           Eliminations                                (1,489)       (1,328)
                                                       ------        ------
                                              
                    Consolidated total                  7,891         7,676
                                                       ======        ======
                                              
        Operating profit:                     
           Japan                                          326           359
           North and South America                         11            13
           Europe                                          15            11
           Asia and Others                                 52            57
           Corporate and eliminations                     (66)          (66)
                                                       ------        ------
                                              
                    Consolidated total                    338           374
                                                       ======        ======
                                              
        Identifiable assets:                  
           Japan                                        4,781         4,880
           North and South America                        533           476
           Europe                                         317           270
           Asia and Others                                762           805
           Corporate and eliminations                   2,171         2,265
                                                       ------        ------
                                         
                    Consolidated total                  8,564         8,696
                                                       ======        ======
</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.

                 3.  Effective fiscal 1998, the Company reclassified and
                     expanded business segments as well as segments by
                     geographical location of companies operating outside Japan.
                     Prior year figures have been restated accordingly.

        *  Intangibles mainly represent rights to public facilities and patents.

<PAGE>   40
                                     - 40 -




Item 10.  Directors and Officers of Registrant

(a)     Matsushita's Articles of Incorporation provide that the number of
        Directors of the registrant shall be three or more and that of Corporate
        Auditors shall be three or more. Directors and Corporate Auditors shall
        be elected by the general meeting of shareholders. The Board of
        Directors has ultimate responsibility for administration of the
        registrant's affairs. Directors may, by resolution of the Board of
        Directors, appoint a Chairman of the Board of Directors, a Vice Chairman
        of the Board of Directors, a President and Director, and one or more
        Executive Vice Presidents and Directors, Senior Managing Directors and
        Managing Directors. The Chairman of the Board of Directors, Vice
        Chairman of the Board of Directors, President and Director, Executive
        Vice Presidents and Directors, Senior Managing Directors and Managing
        Directors are Representative Directors and severally represent the
        registrant. The term of office of Directors shall expire at the
        conclusion of the ordinary general meeting of shareholders with respect
        to the last closing of accounts within two years from their assumption
        of office, and in the case of Corporate Auditors, within three years
        from their assumption of office. However, they may serve any number of
        consecutive terms.

        The Corporate Auditors of the registrant are not required to be and are
        not certified public accountants. However, at least one of the Corporate
        Auditors should be a person who has not been a director, general manager
        or employee of the registrant or any of its subsidiaries during the
        five-year period prior to his election as a Corporate Auditor. Each
        Corporate Auditor has the statutory duty to examine the financial
        statements and business reports to be submitted by the Board of
        Directors at the general meeting of shareholders and also to supervise
        the administration by the Directors of the registrant's affairs. They
        are entitled to participate in meetings of the Board of Directors but
        are not entitled to vote.

        The 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 registrant's affairs and
        financial position and other matters concerning the performance of the
        Corporate Auditors' duties.

        The Corporate Auditors may not at the same time be Directors, managers
        or employees of the registrant.

        Set forth below are the names of Directors and Corporate Auditors after
        the ordinary general meeting of shareholders held on June 26, 1998,
        their positions and offices with Matsushita Electric Industrial Co.,
        Ltd. and the periods during which they have served as Director or
        Corporate Auditor.


<PAGE>   41
                                     - 41 -

<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
        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             Managing Director                          1994
        Reiji Sano             Managing Director                          1995
        Osamu Tanaka           Managing Director                          1995
        Katsuro Sakakibara     Managing Director                          1992
        Seinosuke Kuraku       Managing Director                          1994
        Susumu Ishihara        Managing Director                          1994
        Kyonosuke Ibe          Director                                   1979
        Josei Ito              Director                                   1994
        Tsuneharu Nitta        Director                                   1991
        Masahiro Nagasawa      Director                                   1992
        Yukio Shotoku          Director                                   1994
        Tokio Miyao            Director                                   1996
        Yoshinori Kobe         Director                                   1996
        Yoshitomi Nagaoka      Director                                   1996
        Hiroaki Enomoto        Director                                   1996
        Seiichi Wakino         Director                                   1997
        Sukeichi Miki          Director                                   1997
        Yoshio Hino            Director                                   1997
        Toshio Sugiura         Director                                   1997
        Haruo Ueno             Director                                   1998
        Takami Sano            Director                                   1998
        Hidetsugu Otsuru       Director                                   1998
        Susumu Koike           Director                                   1998
        Fumio Otsubo           Director                                   1998
        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>   42
                                     - 42 -




Item 11.  Remuneration of Directors and Officers

(a)     The aggregate amount of remuneration, including bonuses, paid by the
        Company during fiscal 1998 to all Directors and Corporate Auditors as a
        group (41 persons) for services in all capacities was 1,372 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 1998 amounted to 325 million yen.


Item 12.  Options to Purchase Securities from Registrant or Subsidiaries

        The Board of Directors decided at its meeting held on May 20, 1998 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 on June 26, 1998 and
        subsequent Board of Directors' resolutions, the stock options (rights to
        purchase common shares) have been provided to the 32 Directors currently
        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, as determined pursuant to the approval of
        shareholders at the said annual shareholders' meeting. In order to meet
        these options the Company in early July 1998 purchased a total of
        113,000 common shares of the Company with an aggregate purchase price of
        252,555,000 yen at the Tokyo Stock Exchange.


Item 13.  Interest of Management in Certain Transactions

        None



<PAGE>   43
                                     - 43 -




                                   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>   44
                                    - 44 -



                                    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                                           45
                                                                      
   Consolidated Balance Sheets as of March 31, 1998 and 1997              46
                                                                      
   Consolidated Statements of Operations for the years ended          
     March 31, 1998, 1997 and 1996                                        48
                                                                      
   Consolidated Statements of Surplus for the years ended             
     March 31, 1998, 1997 and 1996                                        49
                                                                      
   Consolidated Statements of Cash Flows for the years ended          
     March 31, 1998, 1997 and 1996                                        50
                                                                      
   Notes to Consolidated Financial Statements                             52
                                                                      
Schedule for the years ended March 31, 1998, 1997 and 1996:           
                                                                      
   Schedule VIII  Valuation and Qualifying Accounts and Reserves for  
                    the years ended March 31, 1998, 1997 and 1996         76
</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>   45
                                      -45-


                          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, 1998 and 1997, and for each
of the years in the three-year period ended March 31, 1998. The effects on the
consolidated financial statements of not adopting SFAS No. 115 are summarized in
Note 5 of the notes to consolidated financial statements.

The segment information required to be disclosed in financial statements under
United States generally accepted accounting principles is not presented in the
accompanying consolidated financial statements. Foreign issuers are presently
exempted from such disclosure requirement in Securities Exchange Act filings
with the United States Securities and Exchange Commission.

In our opinion, except for the effects of the departure from SFAS No. 115 in
accounting for certain investments in debt and equity securities discussed in
the third paragraph of this report, and except for the omission of the segment
information discussed in the preceding paragraph, the consolidated financial
statements referred to above present fairly, in all material respects, the
financial position of Matsushita Electric Industrial Co., Ltd. and subsidiaries
as of March 31, 1998 and 1997, and the results of their operations and their
cash flows for each of the years in the three-year period ended March 31, 1998,
in conformity with Untied States generally accepted accounting principles. Also
in our opinion, the related financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.

                                                               


                                                              KPMG PEAT MARWICK
                                   
Osaka, Japan
May 20, 1998, except as to Note 17,
which is as of June 26, 1998
<PAGE>   46
                                      -46-


                    MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
                                AND SUBSIDIARIES

                           Consolidated Balance Sheets

                             March 31, 1998 and 1997

<TABLE>
<CAPTION>
                                                             Yen (millions)
                                                         --------------------   
              Assets                                     1998            1997
              ------                                     ----            ----   
<S>                                                   <C>             <C>      
Current assets:                                                   
   Cash and cash equivalents (Note 8)                  1,906,226      2,024,830
   Short-term investments (Notes 5 and 15)               130,204        157,919
   Trade receivables (Note 8):                                    
       Related companies (Note 4)                         25,245         30,769
       Notes                                             115,213        144,931
       Accounts                                        1,271,804      1,307,112
       Allowance for doubtful receivables                (62,742)       (60,810)
                                                      ----------     ----------
              Net trade receivables                    1,349,520      1,422,002
                                                      ----------     ----------
   Inventories (Notes 3 and 8)                         1,101,613      1,079,435
   Other current assets (Notes 5 and 10)                 437,006        426,430
                                                      ----------     ----------
              Total current assets                     4,924,569      5,110,616
                                                      ----------     ----------
                                                                  
Noncurrent receivables (Note 6)                          282,838        272,773
                                                                  
Investments and advances (Notes 5 and 15):                        
   Associated companies (Note 4)                         333,967        513,205
   Other investments and advances                        995,213        732,484
                                                      ----------     ----------
              Total investments and advances           1,329,180      1,245,689
                                                      ----------     ----------
Property, plant and equipment (Note 7):                           
   Land                                                  223,806        255,389
   Buildings                                           1,171,255      1,118,338
   Machinery and equipment                             3,026,070      2,936,775
   Construction in progress                               76,411         89,610
                                                      ----------     ----------
                                                       4,497,542      4,400,112
   Less accumulated depreciation                       2,975,675      2,871,755
                                                      ----------     ----------
              Net property, plant and equipment        1,521,867      1,528,357
                                                      ----------     ----------
Other assets (Notes 5, 7 and 10)                         505,058        538,470
                                                      ----------     ----------
                                                       8,563,512      8,695,905
                                                      ==========     ==========
</TABLE>

See accompanying Notes to Consolidated Financial Statements.
<PAGE>   47
                                      -47-


                    MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
                                AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                             March 31, 1998 and 1997

<TABLE>
<CAPTION>
                                                               Yen (millions)
                                                              --------------     
         Liabilities and Stockholders' Equity                 1998      1997
         ------------------------------------                 ----      ----     
<S>                                                      <C>          <C>
Current liabilities:                                                
   Short-term borrowings, including current portion of              
     long-term debt (Notes 8 and 15)                        887,841     917,319
   Commercial paper                                         138,460      81,743
   Trade payables:                                                  
       Related companies (Note 4)                            17,784      19,121
       Notes                                                 68,028      62,549
       Accounts                                             593,687     610,925
                                                         ----------  ----------
              Total trade payables                          679,499     692,595
                                                         ----------  ----------
   Accrued income taxes (Note 10)                            94,585     174,108
   Accrued payroll                                          171,428     169,538
   Other accrued expenses                                   582,255     565,179
   Deposits and advances from customers                     102,407      95,810
   Employees' deposits                                      150,343     149,395
   Other current liabilities (Note 5)                       223,400     190,390
                                                         ----------  ----------
               Total current liabilities                  3,030,218   3,036,077
                                                         ----------  ----------
Noncurrent liabilities:                                             
   Long-term debt (Notes 8 and 15)                          689,581     923,474
   Retirement and severance benefits (Note 9)               454,406     427,300
   Other liabilities (Notes 5 and 10)                         1,559       1,873
                                                         ----------  ----------
              Total noncurrent liabilities                1,145,546   1,352,647
                                                         ----------  ----------
Minority interests (Note 5)                                 617,634     611,472
                                                                    
Stockholders' equity (Note 5):                                      
   Common stock of 50 yen par value (Notes 8 and 11):               
     Authorized - 5,000,000,000 shares                              
     Issued - 2,112,318,310 shares                                  
       (2,111,156,851 shares in 1997)                       209,416     208,473
   Capital surplus (Notes 8 and 11)                         570,628     573,780
   Legal reserve (Note 11)                                   84,039      81,663
   Retained earnings (Note 11)                            2,938,539   2,874,763
   Cumulative translation adjustments (Note 1(g))           (32,508)    (42,970)
                                                         ----------  ----------
              Total stockholders' equity                  3,770,114   3,695,709
Commitments and contingent liabilities (Note 16)                    
                                                         ----------  ----------
                                                          8,563,512   8,695,905
                                                         ==========  ==========
</TABLE>

See accompanying Notes to Consolidated Financial Statements.
<PAGE>   48
                                      -48-


                    MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                    Years ended March 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>
                                                                Yen (millions)
                                                        ----------------------------
                                                        1998        1997        1996
                                                        ----        ----        ----    
<S>                                                  <C>         <C>          <C>
Net sales:
   Related companies (Note 4)                           257,366     291,271     283,156
   Other                                              7,633,296   7,384,641   6,511,696
                                                     ----------  ----------  ----------
            Total net sales                           7,890,662   7,675,912   6,794,852
Cost of sales (Note 4)                                5,494,746   5,316,390   4,689,691
                                                     ----------  ----------  ----------
            Gross profit                              2,395,916   2,359,522   2,105,161
Selling, general and administrative expenses
  (Note 13)                                           2,058,358   1,985,621   1,840,667
                                                     ----------  ----------  ----------
            Operating profit                            337,558     373,901     264,494
Other income (deductions):
   Interest and dividend income (Note 4)                 68,164      63,111      65,438
   Interest expense                                     (61,573)    (66,532)    (76,270)
   Other, net (Notes 5, 6, 7 and 13)                     11,475     (38,355)    (12,841)
   Loss relating to sale of MCA INC. (Note 2)                --          --    (164,198)
                                                     ----------  ----------  ----------
                                                         18,066     (41,776)   (187,871)
                                                     ----------  ----------  ----------
            Income before income taxes                  355,624     332,125      76,623
Provision for income taxes (Note 10):
   Current                                              195,948     223,187     141,418
   Deferred                                              38,901     (67,800)    (25,931)
                                                     ----------  ----------  ----------
                                                        234,849     155,387     115,487
                                                     ----------  ----------  ----------
            Income (loss) before minority
              interests and equity in earnings
              (losses) of associated companies          120,775     176,738     (38,864)
Minority interests                                       25,777      44,391      22,423
Equity in earnings (losses) of associated
  companies (Note 4)                                     (1,394)      5,506       4,416
                                                     ----------  ----------  ----------
            Net income (loss)                            93,604     137,853     (56,871)
                                                     ==========  ==========  ==========
<CAPTION>
                                                                      Yen
                                                     ----------------------------------
<S>                                                   <C>        <C>          <C>  

Net income (loss) per depositary share, each
  representing 10 shares of common stock
  (Notes 1(m) and 12):
    Basic                                                   443         654        (271)
    Diluted                                                 415         606        (271)
</TABLE>

See accompanying Notes to Consolidated Financial Statements.
<PAGE>   49
                                      -49-


                    MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
                                AND SUBSIDIARIES

                       Consolidated Statements of Surplus

                    Years ended March 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>
                                                             Yen (millions)
                                          --------------------------------------------------
                                                                                 Cumulative
                                           Retained     Capital        Legal     translation
                                           earnings     surplus       reserve    adjustments
                                          ----------   -----------   ---------- ------------
<S>                                       <C>          <C>             <C>        <C>
Balance at March 31, 1995                  2,852,604    567,201         75,360    (438,313)

Net loss for year                            (56,871)
Cash dividends (Note 11)                     (26,216)
Increase in capital surplus arising on
  conversion of bonds (Notes 11 and 13)                     334
Transfer of ownership in MCA INC.
  (Notes 2 and 13)                                       (4,659)                   136,504
Transfer to legal reserve (Note 11)           (3,457)                    3,457
Translation adjustments (Note 1(g))                                                 92,947
                                          ----------   --------        -------    --------
Balance at March 31, 1996                  2,766,060    562,876         78,817    (208,862)

Net income for year                          137,853
Cash dividends (Note 11)                     (26,304)
Increase in capital surplus arising on
  conversion of bonds (Notes 11 and 13)                   9,765
Transfer of ownership arising on capital
  transactions by consolidated and
  associated companies (Note 13)                          1,139
Transfer to legal reserve (Note 11)           (2,846)                    2,846
Translation adjustments (Note 1(g))                                                165,892
                                          ----------    -------        -------    --------
Balance at March 31, 1997                  2,874,763    573,780         81,663     (42,970)

Net income for year                           93,604
Cash dividends (Note 11)                     (27,452)
Increase in capital surplus arising on
  conversion of bonds (Notes 11 and 13)                     944
Transfer of ownership arising on capital
  transactions by consolidated and
  associated companies (Note 13)                         (4,096)
Transfer to legal reserve (Note 11)           (2,376)                    2,376
Translation adjustments (Note 1(g))                                                 10,462
                                          ----------    -------        -------    --------
Balance at March 31, 1998                  2,938,539    570,628         84,039     (32,508)
                                          ==========    =======        =======    ========
</TABLE>

See accompanying Notes to Consolidated Financial Statements.
<PAGE>   50
                                      -50-


                    MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
                                AND SUBSIDIARIES

                      Consolidated Statements of Cash Flows

                    Years ended March 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>
                                                                    Yen (millions)
                                                            ------------------------  
                                                            1998      1997      1996
                                                            ----      ----      ----  
<S>                                                       <C>       <C>       <C>     
Cash flows from operating activities (Note 13):
   Net income (loss)                                        93,604   137,853   (56,871)
   Adjustments to reconcile net income (loss) to
     net cash provided by operating activities:
       Depreciation and amortization                       365,129   349,646   297,684
       Loss relating to sale of MCA INC. (Note 2)               --        --   164,198
       Net gain on sale of investments                    (113,234)  (98,554)   (8,399)
       Provision for doubtful receivables                   20,565   120,604    41,146
       Deferred income taxes                                38,901   (67,800)  (25,931)
       Impairment loss on long-lived assets (Note 7)        88,662    45,800        --
       Minority interests                                   25,777    44,391    22,423
       Change in assets and liabilities net of effects in
         1996 from sale of MCA INC.:
          (Increase) decrease in trade receivables          43,046  (125,230) (149,852)
          (Increase) decrease in inventories               (49,299)   (9,426) (116,537)
          (Increase) decrease in other current assets      (24,041)  (22,096)  (15,709)
          (Increase) decrease in noncurrent receivables    (26,413)  (28,394)   (1,033)
          Increase (decrease) in trade payables              1,175    74,557   (20,491)
          Increase (decrease) in accrued income taxes      (77,003)   75,653    (2,983)
          Increase (decrease) in accrued expenses and
            other current liabilities                       84,834    96,600    82,358
          Increase (decrease) in retirement and
            severance benefits                              29,178    34,605    24,144
          Other                                             28,398     6,300    20,838
                                                          --------  --------  --------
              Net cash provided by operating
                activities                                 529,279   634,509   254,985
                                                          --------  --------  --------

Cash flows from investing activities (Note 13):
   Proceeds from sale of MCA INC. (Note 2)                      --        --   479,780
   Proceeds from sale of short-term investments            488,887   434,186   262,075
   Purchase of short-term investments                     (348,350) (328,780) (173,396)
   Proceeds from disposition of investments and
     advances                                              203,644   247,379   266,847
   Increase in investments and advances                   (322,790) (408,259) (261,883)
   Capital expenditures                                   (475,906) (405,595) (379,870)
   Other                                                    23,166    12,836    14,109
                                                          --------  --------  --------
              Net cash provided by (used in)
                investing activities                      (431,349) (448,233)  207,662
                                                          --------  --------  --------
</TABLE>
                                                                     (Continued)
<PAGE>   51
                                      -51-


                    MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
                                AND SUBSIDIARIES

                      Consolidated Statements of Cash Flows

                    Years ended March 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>
                                                                  Yen (millions)
                                                          -----------------------------   
                                                          1998        1997         1996
                                                          ----        ----         ----   
<S>                                                    <C>         <C>          <C>     
Cash flows from financing activities (Note 13):        
   Increase (decrease) in short-term borrowings           (85,660)     28,353      (39,660)
   Increase in deposits and advances                   
     from customers and employees                           7,545       4,231           54
   Proceeds from long-term debt                           129,109     228,360      125,676
   Repayments of long-term debt                          (238,029)   (312,385)    (291,353)
   Dividends paid                                         (27,452)    (26,304)     (26,216)
   Dividends paid to minority interests                    (9,232)     (8,613)      (6,799)
                                                       ----------  ----------   ----------
              Net cash used in financing activities      (223,719)    (86,358)    (238,298)
                                                       ----------  ----------   ----------
Effect of exchange rate changes on cash and cash       
 equivalents                                                7,185      76,133       79,399
                                                       ----------  ----------   ----------
Net increase (decrease) in cash and cash equivalents     (118,604)    176,051      303,748
                                                       
Cash and cash equivalents at beginning of year          2,024,830   1,848,779    1,545,031
                                                       ----------  ----------   ----------
Cash and cash equivalents at end of year                1,906,226   2,024,830    1,848,779
                                                       ==========  ==========   ==========
</TABLE>

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


                    MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          March 31, 1998, 1997 and 1996


(1)  Summary of Significant Accounting Policies

     (a)   DESCRIPTION OF BUSINESS

           Matsushita Electric Industrial Co., Ltd. is one of the world's
           leading producers of electronic and electric products. The
           Company currently offers a comprehensive range of products,
           systems and components for consumer, business and industrial
           use based on sophisticated electronics and precision
           technology. Most of the Company's products are marketed under
           several trade names, including "Panasonic," "National,"
           "Technics," "Quasar," "Victor" and "JVC."

           Sales in fiscal 1998 were categorized as follows: video and
           audio equipment -- 24%, home appliances and household
           equipment -- 18%, information and communications equipment --
           29%, industrial equipment -- 9%, and components -- 20%. A
           sales breakdown in fiscal 1998 by geographical market was as
           follows: Japan -- 49%, North and South America -- 19%, Europe
           -- 12%, and Asia and Others -- 20%.

           The Company is not dependent on a single supplier, and has no
           significant difficulty in obtaining raw materials from       
           suppliers.                                                 

     (b)   BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS

           The Company and its domestic subsidiaries maintain their books
           of account in conformity with financial accounting standards
           of Japan, and its foreign subsidiaries in conformity with
           those of the countries of their domicile.

           The consolidated financial statements presented herein have been
           prepared in a manner and reflect the adjustments which are necessary
           to conform with United States generally accepted accounting
           principles.                                        

     (c)   PRINCIPLES OF CONSOLIDATION (SEE NOTES 2 AND 4)

           The consolidated financial statements include the accounts of the
           Company and its subsidiaries. Significant intercompany accounts and
           transactions have been eliminated on consolidation.                

           Investments in certain associated companies in which the Company's
           ownership is 20% to 50% are stated at their underlying net equity
           value after elimination of intercompany profits.            
<PAGE>   53
                                      -53-


                    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 3)

           Finished goods and work in process are stated at the lower of
           cost (average) or market. Raw materials are stated at cost,  
           principally on a first-in, first-out basis, not in excess of 
           current replacement cost.                                    
                  
     (g)   FOREIGN CURRENCY TRANSLATION

           Foreign currency financial statements are translated in
           accordance with Statement of Financial Accounting Standards
           (SFAS) No. 52, "Foreign Currency Translation," under which all
           assets and liabilities are translated into yen at year-end
           rates and income and expense accounts are translated at
           weighted average rates. Adjustments resulting from the
           translation of financial statements are reflected under the
           caption, "Cumulative translation adjustments," a separate
           component of stockholders' equity.

     (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>   54
                                      -54-


                    MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


     (i)   SHORT-TERM INVESTMENTS AND INVESTMENTS AND ADVANCES (SEE NOTE 5)

           Marketable equity securities included in short-term
           investments and in investments and advances are carried at the
           lower of cost or market, cost being determined by the average
           method. Other items included in short-term investments,
           primarily marketable securities classified as current assets
           and those included in investments and advances, are carried at
           cost or less.

           In May 1993, the Financial Accounting Standards Board (FASB)
           issued SFAS No. 115, "Accounting for Certain Investments in
           Debt and Equity Securities," applicable for the fiscal year
           beginning April 1, 1994. This addresses the accounting and
           reporting for investments in equity securities that have
           readily determinable fair values and for all investments in
           debt securities. The Company decided not to apply SFAS No. 115
           in the body of its consolidated financial statements in order
           to maintain comparability to consolidated financial statements
           prepared in accordance with accounting principles generally
           accepted in Japan where such debt and equity securities are
           reported at historical cost. The effects on the consolidated
           financial statements of not adopting SFAS No. 115 are
           summarized in Note 5. This treatment was approved by the
           United States Securities and Exchange Commission.

     (j)   NONCURRENT RECEIVABLES (SEE NOTE 6)

           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 10)

           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>   55
                                      -55-


                    MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


     (l)   ADVERTISING (SEE NOTE 13)

           Advertising costs are expensed as incurred.

     (m)   NET INCOME (LOSS) PER DEPOSITARY SHARE (SEE NOTES 8, 11 AND 12)

           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 years net income
           (loss) 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 14 AND 15)

           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>   56
                                      -56-


                    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 7)

           The Company adopted SFAS No. 121, "Accounting for the
           Impairment of Long-Lived Assets and for Long-Lived Assets to
           Be Disposed Of," on April 1, 1996. This Statement requires
           that long-lived assets and certain identifiable intangibles be
           reviewed for impairment whenever events or changes in
           circumstances indicate that the carrying amount of an asset
           may not be recoverable. Recoverability of assets to be held
           and used is measured by a comparison of the carrying amount of
           an asset to future net cash flows (undiscounted and without
           interest charges) expected to be generated by the asset. If
           such assets are considered to be impaired, the impairment to
           be recognized is measured by the amount by which the carrying
           amount of the assets exceed the fair value of the assets.
           Assets to be disposed of are reported at the lower of carrying
           amount or fair value less cost to sell.

     (q)   USE OF ESTIMATES

           Management of the Company has made a number of estimates and
           assumptions relating to the reporting of assets and
           liabilities and the disclosure of contingent assets and
           liabilities to prepare these financial statements in
           conformity with generally accepted accounting principles.
           Actual results could differ from those estimates.

     (r)   NEW ACCOUNTING PRONOUNCEMENTS

           In June 1997, FASB issued SFAS No. 130, "Reporting
           Comprehensive Income." This statement establishes standards
           for reporting and display of comprehensive income and its
           components in a full set of general-purpose financial
           statements and requires that all items that are required to be
           recognized under accounting standards as components of
           comprehensive income be reported in a financial statement that
           is displayed with the same prominence as other financial
           statements. The Company will adopt SFAS No. 130, beginning
           April 1, 1998 as permitted, except for the effects on
           stockholders' equity of its departure from the provisions of
           SFAS No. 115, "Accounting for Certain Investments in Debt and
           Equity Securities" (See Note 5). The Company does not expect
           that the adoption will affect the results of operations or
           financial position.

           In June 1997, FASB issued SFAS No. 131, "Disclosures about
           Segments of an Enterprise and Related Information," applicable
           for the fiscal year beginning April 1, 1998. This Statement
           establishes standards for the way that public business
           enterprises report information about operating segments. It
           also establishes standards for related disclosures about
           products and services, geographic areas, and major customers.
           The Company is evaluating the adoption of SFAS No. 131.
           Foreign issuers are presently exempted from the segment
           information disclosure requirements regulated by SFAS No. 14,
           "Financial Reporting for Segments of a Business Enterprise" in
           Securities Exchange Act filings with the United States
           Securities and Exchange Commission.
<PAGE>   57
                                      -57-


                    MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


(2)  Disposition

     On June 5, 1995, the Company transferred an 80% share of its equity
     interest in MCA INC. (MCA), now named Universal Studios, Inc.
     (Universal), to the Seagram Company Ltd. (Seagram) for approximately
     U.S.$5.7 billion. As a result of this transaction, the Company
     registered a one-time, non-operating loss on the sale of this
     investment of approximately 164.2 billion yen primarily stemming from
     the realization of foreign currency translation adjustments related to
     MCA. MCA was no longer treated as a consolidated subsidiary from fiscal
     1996.

     On December 8, 1997, Universal issued new shares to Seagram. As a
     result, the Company's ownership interest in Universal fell below 20%.


(3)  Inventories

     Inventories at March 31, 1998 and 1997 are summarized as follows:

<TABLE>
<CAPTION>
                                               Yen (millions)
                                           -----------------------   
                                           1998               1997
                                           ----               ----  
            <S>                          <C>                <C>    
            Finished goods                588,660            547,494
            Work in process               193,727            204,400
            Raw materials                 319,226            327,541
                                        ---------          ---------
                                        1,101,613          1,079,435
                                        =========          =========
</TABLE>


(4)  Investments in and Transactions with Associated Companies

     Certain financial information in respect of associated companies at
     March 31, 1998 and 1997 and for the three years ended March 31, 1998 is
     shown below. The most significant of these associated companies is
     Matsushita Electric Works, Ltd. (MEW). At March 31, 1998, the Company
     has a 31.2% equity ownership in MEW. As discussed in Note 2, on
     December 8, 1997, the Company's ownership interest in Universal fell
     below 20%. The financial information of Universal for fiscal 1998 is
     not included in the following.
<PAGE>   58
                                      -58-


                    MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


<TABLE>
<CAPTION>
                                                       Yen (millions)
                                                     -----------------
                                                     1998         1997
                                                     ----         ----   
<S>                                                <C>          <C>      
         Current assets                            1,092,931    1,448,091
         Other assets                              1,449,442    2,331,167
                                                   ---------    ---------
                                                   2,542,373    3,779,258
                                       
         Current liabilities                         697,723      896,764
         Other liabilities                           846,485    1,051,396
                                                   ---------    ---------
                Net assets                           998,165    1,831,098
                                                   =========    =========
         Company's equity in net assets              274,823      440,048
                                                   =========    =========
</TABLE>

<TABLE>
<CAPTION>
                                                  Yen (millions)
                                        ------------------------------------
                                        1998            1997            1996
                                        ----            ----            ----
   <S>                                <C>             <C>             <C>      
         Net sales                    2,306,649       3,062,556       2,740,359
         Gross profit                   553,459         816,730         688,230
         Net income                      23,690          46,217          41,564
</TABLE>

         Purchases and dividends received from the associated companies for the
         three years ended March 31, 1998 are as follows:

<TABLE>
<CAPTION>
                                                     Yen (millions)
                                          ------------------------------------
                                          1998            1997            1996
                                          ----            ----            ----
   <S>                                  <C>           <C>            <C>    
         Purchases from                 259,451         257,150         199,310
         Dividends received               9,875           6,032           7,147
</TABLE>

         Retained earnings include undistributed earnings of associated
         companies in the amount of 85,889 million yen and 81,214 million yen,
         respectively, as of March 31, 1998 and 1997.

         Investments in associated companies include equity securities which
         have quoted market values at March 31, 1998 and 1997 compared with
         related carrying amounts as follows:

<TABLE>
<CAPTION>
                                                         Yen (millions)
                                                     ---------------------
                                                     1998             1997
                                                     ----             ----
   <S>                                              <C>              <C>    
         Carrying amount                            270,312          274,070
         Market value                               366,585          340,238
</TABLE>
<PAGE>   59
                                      -59-


                    MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



(5)      Short-term Investments and Investments and Advances

         As discussed in Note 1(i), the Company does not apply SFAS No. 115 in
         the body of its consolidated financial statements. The effects on the
         consolidated financial statements of not adopting SFAS No. 115 are
         disclosed in this note.

         SFAS No. 115 requires that certain investments in debt and equity
         securities be classified as held-to-maturity, trading, or
         available-for-sale securities. The short-term investments and
         investments and advances of the Company consist of available-for-sale
         securities. The consolidated statements of operations for the three
         years ended March 31, 1998 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, 1998 and 1997 are summarized as follows:

<TABLE>
<CAPTION>
                                                                    Yen (millions)
                                                                   ---------------
                                                                   1998       1997
                                                                   ----       ---- 
          <S>                                                   <C>         <C>      
          Stockholders' equity as reported                      3,770,114   3,695,709
                                                                          
          Net increase in the carrying amount of:                         
                Short-term investments                             18,314      85,372
                Investments and advances                          152,548     223,327
          Net decrease in deferred tax assets and increase                
           in deferred tax liabilities:                                   
                Current deferred tax assets (decrease)             (4,135)    (38,304)
                Noncurrent deferred tax assets (decrease)         (72,613)   (114,332)
                Current deferred tax liabilities (increase)        (4,582)     (5,402)
                Noncurrent deferred tax liabilities (increase)        --           (2)
          Net unrealized gain on securities held by associated             
           companies                                                2,892       4,556
          Net increase in minority interests                       (8,856)     (9,162)
                                                                ----------  ---------
              Total adjustments to stockholders' equity            83,568     146,053
                                                                ---------   ---------
          Stockholders' equity in accordance with                         
           U.S. generally accepted accounting principles        3,853,682   3,841,762
                                                                =========   =========
</TABLE>
<PAGE>   60
                                      -60-


                    MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



         As a result of the above adjustments, total assets at March 31, 1998
         and 1997 would increase by 97,006 million yen and 160,619 million yen,
         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, 1998 and 1997 are as follows:

<TABLE>
<CAPTION>
                                                         Yen (millions)
                                          --------------------------------------------
                                                             1998
                                          --------------------------------------------
                                                                 Gross        Gross        
                                                               unrealized   unrealized     
                                          Carrying    Fair       holding      holding       
                                           amount     value       gains       losses        
                                           -------   -------     -------     -------        
<S>                                        <C>     <C>         <C>          <C>           
         Current:                                                                          
           Available-for-sale:                                                             
             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:                                                                            
           Available-for-sale:                                                                  
             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>
<PAGE>   61
                                      -61-


                    MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


<TABLE>
<CAPTION>
                                                               Yen (millions)         
                                              ----------------------------------------------
                                                                    1997
                                              ----------------------------------------------
                                                                      Gross        Gross
                                                                     unrealized   unrealized
                                               Carrying     Fair      holding      holding     
                                               amount      value      gains        losses     
                                              -------     -------    --------    ----------     
     <S>                                      <C>         <C>        <C>          <C>          
         Current:                                                                          
           Available-for-sale:                                                              
              Equity securities                9,195      93,608       84,413          --
              Japanese and foreign
                government bonds             107,043     107,793          809          59
              Convertible and straight
                bonds                          4,881       4,938          108          51
              Investment trust                 4,891       4,891           --          --
              Other debt securities           31,909      32,061          306         154
                                             -------     -------      -------     -------
                                             157,919     243,291       85,636         264
                                             =======     =======      =======     =======
         Noncurrent:
           Available-for-sale:
              Equity securities              299,451     526,593      227,142          --
              Japanese and foreign 
                government bonds               7,061       7,156           95          --
              Convertible and straight
                bonds                          1,968       1,994           26          --
              Investment trust               100,109      96,137          156       4,128
              Other debt securities           15,935      15,971           36          --
                                             -------     -------      -------     -------
                                             424,524     647,851      227,455       4,128
                                             =======     =======      =======     =======
</TABLE>                                                                       

         Maturities of short-term investments and investments and advances
         classified as available-for-sale at March 31, 1998 and 1997 are as
         follows:

<TABLE>
<CAPTION>
                                                  Yen (millions)
                                    --------------------------------------------
                                           1998                     1997
                                    ------------------       -------------------
                                    Carrying    Fair         Carrying    Fair
                                     amount     value         amount     value
                                    -------    -------       -------    --------
     <S>                            <C>        <C>           <C>        <C>    
         Due within one year        123,396    123,901       142,671     143,630
         Due after one year
           through five years        92,813     92,616       127,456     123,784
         Due after five years           253        178         3,670       3,527
         Equity securities          400,383    571,012       308,646     620,201
                                    -------    -------       -------     -------
                                    616,845    787,707       582,443     891,142
                                    =======    =======       =======     =======
</TABLE>                       
<PAGE>   62
                                      -62-


                    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, 1998, 1997 and 1996 was a decrease of 62,485 million
         yen, a decrease of 122,484 million yen and an increase of 72,054
         million yen, respectively.

         Proceeds from sale of available-for-sale securities for the years ended
         March 31, 1998, 1997 and 1996 were 657,449 million yen, 652,504 million
         yen and 495,565 million yen, respectively. The gross realized gains for
         the years ended March 31, 1998, 1997 and 1996 were 118,370 million yen,
         104,393 million yen and 21,416 million yen, respectively. The gross
         realized losses for the years ended March 31, 1998, 1997 and 1996 were
         5,136 million yen, 5,839 million yen and 13,017 million yen,
         respectively. The cost of securities sold in computing gross realized
         gains and losses is determined by the average cost method.


(6)      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, 1998 and 1997 was 15,343 million yen
         and 95,676 million yen, respectively. Related allowance for doubtful
         receivables was not significant at March 31, 1998, and was 63,171
         million yen at March 31, 1997. The average recorded investment in
         impaired receivables during the years ended March 31, 1998, 1997 and
         1996 was 73,954 million yen, 133,225 million yen and 184,480 million
         yen, respectively. Additions charged to bad debt expenses for the years
         ended March 31, 1998, 1997 and 1996 were 12,249 million yen, 107,302
         million yen and 38,790 million yen, respectively. Write-downs charged
         against the allowance for the years ended March 31, 1998, 1997 and 1996
         were 74,897 million yen, 113,041 million yen and 45,497 million yen,
         respectively.


(7)      Long-Lived Assets

         As is discussed in Note 1(p), the Company adopted SFAS No. 121,
         effective April 1, 1996. As the prices of semiconductors, mainly
         16-megabit DRAMs and 64-megabit DRAMs, have 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
         (included in other assets) which had been received by NLF in
         satisfaction of impaired receivables.
<PAGE>   63
                                      -63-


                    MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



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

         Long-term debt at March 31, 1998 and 1997 is set forth below:

<TABLE>
<CAPTION>
                                                                               Yen (millions)
                                                                             -------------------
                                                                             1998           1997       
                                                                             ----           ----    
<S>                                                                        <C>           <C>          
         Straight bonds, due 1997, interest 4.35%                                --        99,650    
         Convertible bonds, due 1999, interest 1.3%                         198,357       198,370    
         Convertible bonds, due 2002, interest 1.3%                          99,021        99,879    
         Convertible bonds, due 2004, interest 1.4%                          98,917        99,932    
         Convertible bonds issued by subsidiaries, due 1997,                                         
           1999, 2000, 2002 and 2005, interest 0.35% - 4.3%                 101,725       126,609    
         U.S. dollar unsecured bonds, due 2002, effective interest 5.8%     124,897       124,812    
         Euro medium-term notes issued by a subsidiary, due 1997 - 2000,                             
           effective interest 5.6% in 1998 and 5.3% in 1997                   5,284        17,374    
         Unsecured yen loans from banks and insurance companies,                                     
           principally by financial subsidiaries, due 1997 - 2005,                                   
           effective interest 2.2% in 1998 and 3.0% in 1997                 421,249       392,307    
         Other long-term debt                                                    83         1,490    
                                                                          ---------     ---------    
                                                                          1,049,533     1,160,423    
         Less current portion                                               359,952       236,949    
                                                                          ---------     ---------    
                                                                            689,581       923,474    
                                                                          =========     =========    
</TABLE>

         The aggregate annual maturities and sinking fund requirements of
         long-term debt after March 31, 1998 are as follows:

<TABLE>
<CAPTION>
                                             Yen (millions)
                                             --------------
         Year ending March 31:
         <S>                                    <C>    
                 1999                           359,952
                 2000                            75,451
                 2001                           141,570
                 2002                           173,613
                 2003                           165,882
</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>   64
                                      -64-


                    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, 1998 and 1997, short-term loans subject to such general
         agreements amounted to 325,109 million yen and 491,169 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, 1998 and 1997 were 5.1% and 3.6%,
         respectively.

         Acceptances payable by foreign subsidiaries, in the amount of 6,580
         million yen and 10,323 million yen at March 31, 1998 and 1997,
         respectively, are secured by a portion of the cash, accounts receivable
         and inventories of such subsidiaries. The amount of assets pledged is
         not calculable.

         The 1.3% convertible bonds maturing in 1999 are currently redeemable at
         the option of the Company at prices ranging from 101% of principal to
         100% of principal near maturity, and are currently convertible into
         approximately 81,284,000 shares of common stock at 2,440.30 yen per
         share.

         The 1.3% convertible bonds maturing in 2002 are redeemable from 1999 at
         the option of the Company at prices ranging from 102% of principal to
         100% of principal, and are currently convertible into approximately
         61,124,000 shares of common stock at 1,620.00 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
         61,060,000 shares of common stock at 1,620.00 yen per share.

         The convertible bonds maturing through 2005 issued by subsidiaries are
         redeemable at the option of the subsidiaries at prices ranging from
         107% of principal to 100% of principal near maturity.


(9)      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.
<PAGE>   65
                                      -65-


                    MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



         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, 1998, 1997 and 1996 amounted to 50,522
         million yen, 51,714 million yen and 49,838 million yen, respectively.

         In addition to the plans described above, substantially all employees
         of the Company and certain subsidiaries are covered by contributory,
         funded benefit pension plans which include a portion of social security
         tax calculated in accordance with the Welfare Pension Insurance Law.
         The Company and certain subsidiaries contribute to the pension funds as
         well as to the social security tax portion. The employees contribute
         only to the social security tax portion. The pension funds do not
         account for participants on an individual basis. Therefore, assets
         cannot be attributed to each participant.

         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, 1998, 1997 and 1996 amounted to 60,071 million yen,
         37,935 million yen and 25,642 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, 1997 and 1996 with the latest information
         available:

<TABLE>
<CAPTION>
                                                            Yen (millions)
                                                            ---------------
                                                            1997       1996
                                                            ----       ----
<S>                                                        <C>        <C>  
         Liability reserve                                 846,705    798,418
         Fair value of plan assets, primarily                                   
          marketable securities and loans                  850,072    796,752
                                                          --------   --------
         Fair value of plan assets greater than                                 
          (less than) the liability reserve                  3,367     (1,666)
                                                          ========   ======== 
</TABLE>
<PAGE>   66
                                      -66-


                    MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



         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, 1997 and 1996 for the portion of
         social security tax were 22,756 million yen and 22,063 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 29,647
         million yen as of March 31, 1997 is being amortized over a seven- to
         ten-year period. Contributions to amortize the past service costs for
         the years ended March 31, 1997 and 1996 totaled 2,576 million yen and
         2,442 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.


(10)     Income Taxes

         Income before income taxes and income taxes for the three years ended
         March 31, 1998 are summarized as follows:

<TABLE>
<CAPTION>
                                                           Yen (millions)
                                               -------------------------------- 
                                               Domestic     Foreign       Total  
                                               --------     -------       -----  
         <S>                                   <C>          <C>          <C>     
         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 
                                               ========     ========    ======== 
         1996:                                                                   
              Income before income taxes        154,209      (77,586)     76,623 
              Income taxes:                                                      
                Current                         114,759       26,659     141,418 
                Deferred                        (25,038)        (893)    (25,931)
                                               --------     --------    -------- 
                Total income taxes               89,721       25,766     115,487 
                                               ========     ========    ======== 
</TABLE>
<PAGE>   67
                                      -67-


                    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 51.2% for the three years ended March 31, 1998.

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

<TABLE>
<CAPTION>
                                                          1998     1997     1996    
                                                          ----     ----     ----    
         <S>                                              <C>      <C>      <C>     
         Normal tax rate                                  51.2 %   51.2 %   51.2 %  
             Tax credit for increased research expenses   (1.0)    (1.7)    (2.5)   
             Lower tax rates of overseas subsidiaries     (1.3)    (4.9)    (7.7)   
             Expenses not deductible for tax purposes      4.3      5.1     28.5    
             Cumulative translation adjustment loss                                 
               relating to sale of MCA                      --       --     87.7    
             Change in valuation allowance allocated to                             
               income tax expenses                        (1.7)    (4.3)     5.4    
             Adjustments of deferred tax assets and                                 
               liabilities for enacted changes in tax   
               laws and rates                             10.5       --       --    
             Other                                         4.0      1.4    (11.9)   
                                                          ----     ----    -----    
         Effective tax rate                               66.0 %   46.8 %  150.7 %  
                                                          ====     ====    =====    
</TABLE>                                                                       
                                                                               
         The significant components of deferred income tax expenses for the
         three years ended March 31, 1998 are as follows:

<TABLE>
<CAPTION>
                                                              Yen (millions)                 
                                                        --------------------------          
                                                        1998       1997       1996            
                                                        ----       ----       ----           
         <S>                                          <C>        <C>        <C>              
         Deferred tax expense (exclusive of the      
           effects of other components listed below)    7,342    (53,476)   (30,081)         
         Adjustments of deferred tax assets and                                              
           liabilities for enacted changes in tax    
           laws and rates                              37,423         --         --          
         Increase (decrease) in the balance of       
           valuation allowance for deferred          
           tax assets                                  (5,864)   (14,324)     4,150          
                                                       ------    -------    -------          
                                                       38,901    (67,800)   (25,931)         
                                                       ======    =======    =======          
</TABLE>                                                       
<PAGE>   68
                                      -68-


                    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, 1998 and 1997 are presented below:

<TABLE>
<CAPTION>
                                                                  Yen (millions)       
                                                                 ---------------     
                                                                 1998       1997        
                                                                 ----       ----        
         <S>                                                   <C>        <C>           
         Deferred tax assets:                                                           
            Inventory valuation                                  92,636     97,253      
            Expenses accrued for financial statement purposes                           
              but not currently included in taxable income      146,890    153,827      
            Depreciation                                        143,741    153,358      
            Retirement and severance benefits                    93,882     91,381      
            Tax loss carryforwards                               52,006     58,406      
            Other                                                93,046    139,509      
                                                               --------   --------      
                       Total gross deferred tax assets          622,201    693,734      
                       Less valuation allowance                  39,612     55,019      
                                                               --------   --------      
                       Net deferred tax assets                  582,589    638,715      
         Deferred tax liabilities:                                                      
            Purchase accounting step-up of identifiable assets   (3,082)   (19,377)     
            Other                                               (30,348)   (33,843)     
                                                               --------   --------      
                      Total gross deferred tax liabilities      (33,430)   (53,220)     
                                                               --------   --------      
                      Net deferred tax assets                   549,159    585,495      
                                                               ========   ========  
</TABLE>
         The net change in total valuation allowance for the years ended March
         31, 1998 and 1997 was a decrease of 15,407 million yen and 28,097
         million yen, respectively.

         At March 31, 1998, certain subsidiaries had, for tax reporting
         purposes, net operating loss carryforwards of approximately 119,817
         million yen, which will generally expire between 1999 and 2013.
<PAGE>   69
                                      -69-


                    MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



         Net deferred tax assets and liabilities at March 31, 1998 and 1997 are
         reflected in the accompanying consolidated balance sheets under the
         following captions:

<TABLE>
<CAPTION>
                                                     Yen (millions)
                                                 ----------------------
                                                 1998              1997
                                                 ----              ----
<S>                                            <C>               <C>    
         Other current assets                   263,560           279,573
         Other assets                           287,158           307,795
         Other liabilities                       (1,559)           (1,873)
                                               --------          --------
         Net deferred tax assets                549,159           585,495
                                               ========          ========
</TABLE>


(11)     Stockholders' Equity

         In accordance with the Japanese Commercial Code, at least 50% of the
         amount of converted debt must be credited to the common stock account.
         The increase in the common stock account resulting from conversion of
         bonds for the respective fiscal years is as follows:

<TABLE>
<CAPTION>
         Fiscal                                 Number of         Common stock
          year               Nature              shares          Yen (millions)
         ------              ------             ---------        --------------
         <S>          <C>                      <C>               <C>
         1998         Conversion of bonds       1,161,459              943
         1997         Conversion of bonds      13,441,895            9,767
         1996         Conversion of bonds         458,126              333
</TABLE>          

         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, 1998 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 6.25 yen per
         share, totaling 13,201 million yen, planned to be proposed in June 1998
         in respect of the year ended March 31, 1998 or for the related
         appropriation.
<PAGE>   70
                                      -70-


                    MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



(12)     Net Income (Loss) per Depositary Share

         A reconciliation of the numerators and denominators of the basic and
         diluted net income (loss) per depositary share computation for the
         three years ended March 31, 1998 is as follows:

<TABLE>
<CAPTION>
                                                                                Yen (millions)
                                                                      --------------------------------
                                                                      1998          1997          1996
                                                                      ----          ----          ----
<S>                                                                  <C>           <C>           <C>     
         Net income (loss) available to common stockholders           93,604       137,853       (56,871)
         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 (loss)                                    96,168       140,430       (56,871)
                                                                     =======       =======       =======
</TABLE>

<TABLE>
<CAPTION>
                                                                       Number of shares
                                                              ------------------------------------
                                                              1998           1997             1996
                                                              ----           ----             ----
<S>                                                     <C>              <C>               <C>          
         Average common shares outstanding              2,112,052,091    2,108,067,837     2,097,339,494
         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              2,315,786,133    2,315,858,213     2,097,339,494  
                                                        =============    =============     =============  
</TABLE>                                                                      

<TABLE>
<CAPTION>
                                                                          Yen
                                                               -------------------------
                                                               1998       1997      1996
                                                               ----       ----      ----
<S>                                                            <C>        <C>       <C>  
         Net income (loss) per depositary share:
            Basic                                              443        654       (271)
            Diluted                                            415        606       (271)
</TABLE>
<PAGE>   71
                                      -71-


                    MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



(13)     Supplementary Information to the Statements of Operations and Cash
         Flows

         Research and development costs and advertising costs charged to income
         for the three years ended March 31, 1998 are as follows:

<TABLE>
<CAPTION>
                                                        Yen (millions)
                                               -------------------------------
                                               1998          1997         1996
                                               ----          ----         ----
<S>                                           <C>           <C>          <C>    
         Research and development costs       480,539       434,874      399,712
         Advertising costs                    125,774       117,222      104,967
</TABLE>

         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 operations for the two years ended March 31, 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, 1998 are as
         follows:

<TABLE>
<CAPTION>
                                                       
                                                            Yen (millions)
                                                        -----------------------
                                                        1998     1997      1996     
                                                        ----     ----      ----     
<S>                                                     <C>      <C>       <C>      
         a) Cash paid:                                                              
                 Interest                                77,254   86,244    96,296   
                 Income taxes                           272,951  147,534   139,609   
                                                                                    
         b) Noncash investing and financing activities:                             
                 Conversion of bonds                      1,887   19,532       699   
                 Transfer of ownership arising on      
                   capital transactions by             
                   consolidated and associated                                 
                   companies                              4,096    1,139        --   
                 Transfer of ownership in MCA                --       --     4,659   
</TABLE>
<PAGE>   72
                                      -72-


                    MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



(14)     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, 1998
         and 1997 are as follows:

<TABLE>
<CAPTION>
                                                             Yen (millions)
                                                           -----------------
                                                           1998         1997
                                                           ----         ----
         <S>                                              <C>         <C>    
         Forward:                                                 
             To sell foreign currencies                   419,806     308,320
             To buy foreign currencies                    132,567      51,107
         Options purchased to sell foreign currencies       7,620      33,877
         Options purchased to buy foreign currencies        2,378          --
         Options written to sell foreign currencies            --       1,180
         Options written to buy foreign currencies             --       3,538
</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.


(15)     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>   73
                                      -73-


                    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, 1998 and
         1997 are as follows:

<TABLE>
<CAPTION>
                                                                Yen (millions) 
                                                 -----------------------------------------------
                                                          1998                      1997  
                                                 ---------------------      --------------------   
                                                 Carrying        Fair       Carrying       Fair     
                                                  amount         value       amount        value    
                                                 --------        -----      --------       -----    
         <S>                                   <C>           <C>          <C>          <C>        
         Non-derivatives:                                                                        
             Assets:                                                                             
                Short-term investments            130,204       148,518      157,919      243,291 
                Investments and advances          806,756       959,564      552,393      777,088 
             Liabilities:                                                                        
                Long-term debt, including                                                        
                  current portion              (1,056,366)   (1,140,043)  (1,159,256)  (1,202,096)
         Derivatives relating to long-term                                                       
           debt, including current portion          6,833        12,077       (1,167)      (1,725)
</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>   74
                                      -74-


                    MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



(16)     Commitments and Contingent Liabilities

         At March 31, 1998, commitments outstanding for the purchase of
         property, plant and equipment approximated 18,296 million yen.
         Contingent liabilities at March 31, 1998 for discounted export bills of
         exchange and guarantees of loans amounted to approximately 67,175
         million yen, including 43,254 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.

(17)     Subsequent Events

         On June 26, 1998, the annual shareholders' meeting approved to purchase
         up to 50 million shares of common stock from the market, to a maximum
         value of 100 billion yen, for retirement, which would be effective for
         one year following the annual shareholders' meeting.

(18)     Quarterly Financial Data (Unaudited)

         Quarterly net sales, net income (loss) and net income (loss) per
         depositary share for the two years ended March 31, 1998 are set forth
         in the following table:

<TABLE>
<CAPTION>
                                Yen (millions), except per share information
                             -------------------------------------------------
                                                  1998
                             -------------------------------------------------
                                                      Net income    Net income  
                                                      (loss) per    (loss) per  
                                                      depositary    depositary  
                                             Net        share:        share:    
                                Net         income      basic        diluted    
                               sales        (loss)      (yen)         (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)
                             ---------      -------      ----          ----
                             7,890,662       93,604       443           415
                             =========      =======      ====          ====
</TABLE>
<PAGE>   75
                                      -75-


                    MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



<TABLE>
<CAPTION>
                                 Yen (millions), except per share information
                           ---------------------------------------------------------  
                                                   1997
                           ---------------------------------------------------------
                                                       Net income       Net income
                                                     per depositary   per depositary
                               Net         Net            share:         share:
                              sales       income       basic (yen)     diluted (yen)
                              -----       ------     --------------   --------------
<S>                         <C>         <C>          <C>              <C>
         Quarter ended                
         -------------                                 
         June 30            1,719,590      18,545           88                83
         September 30       1,884,858      24,091          114               107
         December 31        2,032,365      45,321          215               198
         March 31           2,039,099      49,896          237               218
                            ---------    --------         ----              ----
                            7,675,912     137,853          654               606
                            =========    ========         ====              ====
</TABLE>
<PAGE>   76
                                      -76-

                                                                   Schedule VIII

                    MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
                                AND SUBSIDIARIES

                 Valuation and Qualifying Accounts and Reserves

                              (In millions of yen)

                    Years ended March 31, 1998, 1997 and 1996


<TABLE>
<CAPTION>
                                                     Deduct                                                                        
                                            --------------------                                                               
                                                                                                Add                     
                  Balance       Add-        Bad                                               (deduct)     Balance      
                at beginning   charged      debt                               Sale of       -cumulative   at end       
                    of           to       written                                MCA         translation     of         
                  period       income       off       Reversal    Transfer       INC.        adjustments   period       
                ------------   -------    -------     --------    --------     -------       ------------  -------      
<S>            <C>            <C>        <C>         <C>         <C>          <C>           <C>           <C>   
Allowance                                                                               
  for                                                                                   
  doubtful                                                                              
  trade                                                                                 
  receivables:                                                                          
                                                                                        
1998                60,810       8,316      4,824       1,240           --          --            (320)     62,742
1997                53,826      13,302      6,887         956           --          --           1,525      60,810
1996               153,558      30,303     26,452       1,495      (75,617)    (27,899)          1,428      53,826
                                                                                        
Allowance                                                                               
  for                                                                                   
  doubtful                                                                              
  noncurrent                                                                            
  receivables:                                                                          
                                                                                        
1998                63,171      12,249     74,897          --           --          --              --         523
1997                68,910     107,302    113,041          --           --          --              --      63,171
1996                    --      38,790     45,497          --       75,617          --              --      68,910
</TABLE>                                                                        
<PAGE>   77
                                      -77-


Item 19. Financial Statements and Exhibits

(a)  Financial Statements

     The following financial statements and schedules are filed in Part IV,
     Item 17 of this report:

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

                                                                           Page
                                                                          number
                                                                          ------

         Independent Auditors' Report                                       45

         Consolidated Balance Sheets as of March 31, 1998 and 1997          46

         Consolidated Statements of Operations for the years ended
           March 31, 1998, 1997 and 1996                                    48

         Consolidated Statements of Surplus for the years ended
           March 31, 1998, 1997 and 1996                                    49

         Consolidated Statements of Cash Flows for the years ended
           March 31, 1998, 1997 and 1996                                    50

         Notes to Consolidated Financial Statements                         52

     Schedule for the years ended March 31, 1998, 1997 and 1996:

         Schedule VIII  Valuation and Qualifying Accounts and Reserves 
                        for the years ended March 31, 1998, 1997 and 1996   76

(b)  Exhibits

     ARTICLES OF INCORPORATION as amended on June 26, 1998
     (English translation)
<PAGE>   78
                                      -78-


                                   SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant certifies that it meets all of the requirements for filing
on Form 20-F and has duly caused this annual report to be signed on its behalf
by the undersigned, thereunto duly authorized.

                                        MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
                                        ----------------------------------------
                                                      (Registrant)


Date: July 31, 1998                     By        /s/ Shigeru Nakatani
                                          --------------------------------------
                                                     Shigeru Nakatani
                                                        President of
                                             Panasonic Finance (America), Inc.
                                                        375 Park Avenue
                                                     New York, N.Y. 10152