October 29, 2001

Victor Company of Japan, Ltd. (JVC) announced today it registered consolidated sales of 457.5 billion yen for the first half of fiscal 2001 (April 1 - September 30, 2001) up 3.2% from the same period of fiscal 2000.

During the first half of fiscal year 2001, the business environment continues to be severe at the midterm; the domestic economy has slumped, the US economy is losing speed and the IT industry is sluggish. The domestic AV (audio/visual) industry has been particularly hard hit, as stagnant consumer spending causes the industry as a whole to under-perform last year. Overseas, Europe continues to be strong, but economies are weakening in the Americas and Asia, so that overall international results are below last year.

JVC is responding to these conditions by moving forward with its "Value Creation 21" Plan, a three-year business plan inaugurated at the start of this fiscal year. The plan includes a fundamental restructuring of the JVC organization.

The company's consolidated Japanese sales declined by 4.2% compared to the midterm last year. Primary factors in this were sluggish consumer spending and falling prices. Overseas, the company achieved higher growth than the industry average in Europe and Asia, but this was not enough to cover sagging market conditions in the Americas. A favorable turn in the foreign-exchange rate resulted in a 7.6% increase in sales compared to the midterm last year, although IT-related demand was also down. When converted to local currencies, however, sales were down 1.8% compared to the midterm last year. The result was total sales of just over 457.5 billion yen, an increase of 3.2% compared to just over 443.3 billion yen at the midterm last year). On a uniform foreign-exchange basis, total sales declined 2.7% compared to the midterm last year.

Turning to the divisional breakdown, the consumer electronics division was influenced domestically by the general slump in the industry brought on by sluggish consumer spending, and also by declining prices. Digital video camcorders (DVCs) and MD component systems were particularly hard hit. Internationally, the division's results were solid in Europe and Asia, but met with difficulty in the Americas because of the economic slowdown. DVD player sales showed particularly strong growth, but the sales of DVCs under-performed last year in the Americas. The division recorded total sales of just over 306.3 billion yen (an increase of 6.9% compared to just over 286.6 billion yen at the midterm last year). On a uniform foreign-exchange basis, total sales declined 1.9% compared to the midterm last year.

The professional electronics division saw strong domestic growth for security systems, but was hurt overall by the drop-off in public investments. Internationally, the division experienced the same worsening of US market conditions as was seen in the consumer market. The division recorded total sales of just over 36.4 billion yen (a decline of 8.5% compared to just over 39.7 billion yen at the midterm last year).

The electronic components & devices division experienced a decline in IT-related demand, which resulted in falling prices for high-density build-up multi-layer printed wiring boards (PWBs) and deflection yokes, and resulted in under-performance compared to the midterm last year. The division recorded total sales of just over 24.2 billion yen, a decline of 25.2% compared to just over 32.3 billion yen at the midterm last year).

The software and media products division enjoyed several hit titles this year although the musical, video and game software industries in general saw results decline from last year. Changes in release schedules raised new challenges for the division, but the sales consignment from Universal Music K.K. enabled it to post growth at the midterm. The division recorded total sales of just over 86.3 billion yen (an increase of 6.4% compared to just over 81.1 billion yen at the midterm last year).

Other divisions recorded total sales of just over 4.1 billion yen, an increase of 27.9% compared to just over 3.2 billion yen at the midterm last year.

The profit and loss statement shows an operating loss of just over 15.3 billion yen (compared to an operating loss of just over 3.6 billion yen at the midterm last year) in spite of efforts to improve product costs by reducing fixed expenses and materials expenses so as to adapt to the slump in the domestic and US markets, sliding demand in the IT industry and the resulting lack of sales and falling prices. At the ordinary level, the company recorded an ordinary loss of just over 17.4 billion yen (compared to an ordinary profit of 2.2 billion yen at the midterm last year). At the net level, the company recorded a net loss of just over 20.4 billion yen (compared to a net loss of just over 5.6 billion yen at the midterm last year) due in part to allocations for special retirement funds and appraisal losses on portfolio securities.

On a non-consolidated basis, JVC recorded sales of just over 253.3 billion yen, a decline of 10.3% compared to the midterm last year.

Non-consolidated domestic sales declined 12.6% compared to the midterm last year to just over 86.7 billion yen (from 99.3 billion yen at the midterm last year) due to a slump in the AV industry and falling prices. Export sales were solid to Europe and Asia, but market conditions worsened in the United States and demand fell for IT-related products, resulting in a decline of 9.1% compared to the midterm last year to just over 166.5 billion yen (from 183.1 billion yen at the midterm last year).

The non-consolidated profit and loss statement shows an operating loss of just over 17.3 billion yen (compared to a loss of 5.4 billion yen at the midterm last year). This loss came due to slumping Japanese and US markets and falling IT-related demand and prices in spite of a favorable turn in the foreign-exchange rate and efforts to improve product costs through reductions in fixed expenses and materials costs. At the ordinary level, the company recorded an ordinary loss of just over 16.5 billion yen (compared to an ordinary profit of just over 1.4 billion yen at the midterm last year). At the net level, the company recorded a net loss of just over 18.7 billion yen (compared to a net loss of 4.9 billion yen at the midterm last year) due in part to allocations for special retirement funds.

A meeting of the board of directors held today decided that the company would regrettably be forced to forgo payment of the midterm dividend.

The company anticipates continued severity in the business environment. The domestic consumer AV market will be sluggish, IT-related demand will be slow to recover, and the terrorist attack on the United States has had adverse economic consequences around the world.

JVC will respond to this situation by promoting sales of digital and networking products, moving forward with further reductions in purchasing costs, continuing implementation of the emergency programs, reducing inventory levels, and accelerating its restructuring program in an effort to rebuild management and operations.

Below is our current full-year forecast for fiscal 2001:

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JVC is a public instrument that invests capital entrusted to it by the general public so as to maximize profits, live in harmony with the communities that it serves, protect the environment, enrich human lives and improve culture.

JVC has formulated a new mid-term business plan for the years FY 2001-2003. The JVC "Value Creation 21" Plan is a three-year plan for the independent reform of JVC's businesses and charts a course for development in coordination with the overall strategy of the Matsushita Group. JVC participates in the "Value Creation 21" Plan that will guide the Matsushita consolidated companies beginning FY 2001.

The new midterm plan represents the next evolution of JVC's prior strategy of "selection and concentration." Under the new plan, JVC will engage in the fundamental reform of its businesses using the concept "From Deconstruction to Creation." The company will collaborate more actively with the Matsushita Electric Industrial Co., Ltd. as a means of accelerating to create new corporate value.