Financial Overview

In million JPY	FY2006	FY2005	Rate of Change(%)	Factors
Overall
Sales	9,108,170	8,894,329	2	Sales of digital equipment grew favorably in and outside Japan.
Operating income	459,541	414,273	11	Despite the negative impact on the Company's results caused by a sharp rise in materials prices and intensified price competition in the global market, the Company's operating income and net income both increased, thanks to cost-cutting efforts, mainly for materials cost and fixed costs; and favorable currency translation due to the weakened yen.
Net income	217,185	154,410	41
AVC networks Division
Sales	4,047,171	3,986,088	2	Sales at the division increased year-on-year, thanks to favorable sales of car electronics equipment and other products.
Operating income	219,654	190,885	15	Operating income grew year-on-year, supported by greater sales and the Company's streamlining efforts.

Domestic business
The Company announced that it will revamp its production structure of air conditioner compressors by the end of fiscal 2007. Production of rotary compressors used in home air conditioners, which is now conducted at the Kofu Plant (Showa-machi, Yamanashi Prefecture), will be transferred to the group's plant in China; the Kofu Plant will be closed around March 2008, accordingly. On the other hand, the company will expand operations at the Kusatsu Plant (Shiga Prefecture), which will become the sole compressor factory of the group in Japan. To be positioned as the model compressor facility of the group, the Kusatsu plant will increase its capabilities to develop and produce quality automotive compressors including those used in hybrids. Although Matsushita possesses the largest share of the world's home air conditioning compressor market, it currently makes car air conditioning compressors only through its joint business with Mazda and for some other compact models. The group decided to bolster the automotive business by riding on the technological shift now made towards next generation compressor technology such as application of CO2 catalysts. (From an article in the Nikkan Jidosha Shimbun on Feb. 07, 2007)

Main activities of Panasonic Automotive Systems (PAS)
PAS announced that the total number of electronic toll collection (ETC) terminals it has manufactured reached 5 million units since its production launch in 2000. No other company in the industry has ever achieved this record. Cumulative sales are also expected to reach 5 million in March 2007. The internal divisional company of Matsushita Electric Industrial Co., Ltd. began producing the first ETC devices used in a monitoring system in April 2000. With full-fledged introduction of the ETC system in Japan, the company has been increasing sales of its products by making more compact and competitive terminals. It now holds more than 30 percent share in the market through sales of its products as genuine products as well as to OEMs. PAS held a ceremony to cerebrate the production record at the Thai plant, to which it had transferred production from Japan. It has no plans to change its production structure at the moment.(From an article in the Nikkan Jidosha Shimbun on Feb. 20, 2007)

Overseas business
PAS announced that it will establish a new company in Thailand "Panasonic Automotive Systems Asia Pacific (Thailand)" to control its car electronics business in Asia, mainly in ASEAN and India. The new organization will add the development function to production and sales functions of existing facilities in Thailand to integrate the overall car electronics business, in a bid to optimize product development and production systems in Asian market. (From an article in the Nikkan Jidosha Shimbun on Nov. 29, 2006)

R&D system
R&D expenses in the entire group were 578,087 million yen in fiscal year 2006.

AVC Networks Division
-R&D expenses for the AVC Networks Division were 286,971 million yen in fiscal year 2006.
- Networks Business
The Company's R&D division, along with Panasonic Mobile Communications, Panasonic Communications, and Panasonic Shikoku Electronics Co., Ltd., is conducting research and development on audio/visual equipment and information/telecommunication equipment.

R&D Operations of Panasonic Automotive Systems (PAS)
PAS has formed a working agreement with Fender Musical Instruments Corporation to develop custom audio systems for the automotive market. (From a press release by the company on Jan. 9, 2007)

Capital investment：418,334 million yen
AVC network: 150,700 million yen

New equipment installment

Segment	Planned investment amount in FY2006 (million JPY)	Main Purpose
AVC Networks	203,000	To manufacture new products for audio/visual equipment, information/telecommunication equipment as well as to rationalize production.