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A N N U AL R E P O RT 2 0 0 8

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FinancBetter Products

Greater Trust

Co-Existence and Co-Prosperity

FUNAI ELECTRIC CO.

Since its establishment, Funai Electric has built considerable trust in the consumer electronics field by providing
superior electronic goods with a focus on functionality and by promoting Funai product cost-performance.
Our unique production system, the "Funai Production System," our technical strength in mechatronics and our
optimized global production/sales system, in addition to a slim corporate profile and speedy management, are vitalmanagement resources that have been nurtured throughout the company's history. Funai believes that theseresources will become our greatest assets as we battle for survival in an increasingly competitive industry andduring the increasing promulgation of digital/IT technologies.

F i n a n c i a l Ye a
Net sales
Operating income (Net loss

Funai Electric's desire is to bring the entire Group together, improve quality, delivery and cost even further, andPer Share (yeNet lossprovide the world with products that meet the demands of the times.

Cash dividends

End of Financ
Total equity

Dream

Total assets
Number of employeNote-1 : The exchange rate ofNote-2 : The figure for total nu

Net
500,000

400,000

300,000

200,000

ActionBelief100,000

0Net
C O N T E N T S

25,000Fi nanci al High ligh ts

1

To O ur Sha re h o lde r s

2

I nt ervi ew w ith th e Pre s ide n t

3

S peci al Fea tu re

6

C orporat e G o v e r n a n c e a n d C SR

8Manag emen t dis c u s s io n a n d a n a ly s is

100

G l obal N et w o r k / D ire c to r y

18-5,000

Memb ers o f th e B o a rd a n d O ffic e r s

20-10,000

20,00015,00010,0005,000

アニュアル2008pdf用8.10 08.8.10 1:39 AM ページ 1

Financial Highlights

Years ended March 31, 2008 and 2007

F U N A I E L E C T R I C C O . , LT D . a n d i t s C o n s o l i d a t e d S u b s i d i a r i e s(Millions of yen)of
( Thousands
U.S. dollars )2008/3

2007/3

2008/3¥277,168¥396,712$2,766,424

Operating income (loss)(2,406)

20,766(24,014)Net loss(5,377)(3,666)(53,668)¥(157.71)¥(107.01)$(1.57)

50.00

55.00

0.50

Total equity¥158,356¥187,362$1,580,557

Total assets

224,415

272,8112,239,894

2,628

3,319

------

F i n a n c i a l Ye a r :Net sales

Per Share (yen and U.S.dollars) :Net loss
Cash dividends

E n d o f F i n a n c i a l Ye a r :Number of employees

Note-1 : The exchange rate of ¥100.19=U.S.$1.00 (as of March 31, 2008 in the Tokyo foreign exchange market) is used for the above calculations.
Note-2 : The figure for total number of employees does not include those employees of outsourced production facilities located in China.

Net sales(¥ million)

30,000500,000

23,305

396,712400,000

Operating income (loss) (¥ million)

25,000360,885

20,76620,000277,168
300,000

15,00010,000200,000

5,000-2,406

100,000
0
0 March '06

March '07

March '08

Net income (loss)
25,000(¥ million)-5,000 March '06

March '07

March '08

Net income (loss) per share(¥)

800.0021,596620.0220,000600.0015,000400.0010,0005,000-3,666-5,377200.000-107.01-157.71

March '07

March '08

0.00
-5,000-10,000 March '06

March '07

March '08

-200.00 March '06

Funai Electric Co., Ltd. Annual Report 20081

アニュアル2008pdf用8.10 08.8.10 1:39 AM ページ 2

To O u r S h a r e h o l d e r s

Realizing a Rap
and Putting Fun
N ew Presid en t an
I am grateful to have been sele
President and CEO of Funai. S
have experienced all of the ups
the previous President and CE
experienced numerous large-s
response to changes in the bus
Specifically, I was always on th

Te t su ro F u n a i ,To m o n o ri H a y a sh i ,Business Development Depart

ChairmanPresident and CEO

worked to clarify management

Funai Electric Co., Ltd. accounts for the current year have been closed and as such, we would like toManaging Executive Officer suInc., our US sales subsidiary, apresent an outline of our business and the Funai Group strategy in the following pages.

Equipment Business Departme

Global demand for LCD TVs grew rapidly during the current year while intensified competition continued

experience in my new position

to push product prices down, making the business environment more difficult.

and devote myself to restoring

Funai was able to increase sales of its LCD TVs despite the ongoing challenges of our external
environment and difficulty in procuring panels. However, revenue generated by other audiovisual

potential.
In addition to decreased earnin
had no choice but to declare oequipment fell. Likewise, revenue from information equipment fell unavoidably due to product strategy

time since the initial listing of oreviews at printer OEM partners. These revenue decreases and operating losses have been reflected inreasons for this decrease in rethe consolidated results for the current year. We would like to express our sincere apologies to ourdecrease in sales that resulted
market, slowing demand for DV

shareholders for this situation.

America and the strategic revie

Funai also made the decision to transition to a new management system in order to promote our medium-OEM partner. However, the greterm growth strategy. I retired from my position as President and CEO as of June 2008 and will continue

earnings stemming from worse

to work as Executive Chairman to nurture my successor, Tomonori Hayashi. As the new President andfailure to achieve sales goals in

CEO, Mr. Hayashi will create a Funai ready for the challenges of the coming age.

LCD TVs where management
strategically concentrated.

Te t su ro Funai, Chair man
2

Funai Electric Co., Ltd. Annual Report 2008

To monor i Haya

アニュアル2008pdf用8.10 08.8.10 1:39 AM ページ 3

Interview with the President

Realizing a Rapid Return to Profitability in the LCD TV Businessand Putting Funai Back on the Road to Growth.
N e w Pr e s id e n t a n d C EO I n t r o d u ct i o n an d R esu l t s A n al ysi s f o r t h e C u rren t YearI am grateful to have been selected to serve as the new

The TV business, including both CRT TVs and LCD TVs,

President and CEO of Funai. Since joining Funai in 1969, I

ended in a deficit. The LCD TV deficit, in particular, was thehave experienced all of the ups and the downs along withresult of difficulty in procuring liquid crystal panels. Last year,

the previous President and CEO, Mr. Funai, and I havein contrast to the drop in LCD TV prices and the rapid

experienced numerous large-scale management reforms inincrease in global demand, this year saw a price increase of

response to changes in the business environment.

liquid crystal panels, a key component in LCD TVs, due toSpecifically, I was always on the front line in the New

an insufficient supply. In response to this situation, Funai

Business Development Department and in recent years, I

attempted to expand our procurement sources to secure theworked to clarify management policy as the Seniornecessary supply volume. However, we were unable toManaging Executive Officer supervising Funai Corporation,

secure a sufficient supply volume and thus were also unable

Inc., our US sales subsidiary, and the Audiovisual

to achieve the results we desired.

Equipment Business Department. I will rely on thisThe most pressing management issues for me as President

experience in my new position as the head of management

will be a rapid escape from the “TV business deficit” that weand devote myself to restoring the Funai Group’s growth

incurred during the current year and putting Funai back on

potential.

the road to growth as soon as possible.

In addition to decreased earnings in the current term, we
had no choice but to declare operating losses for the firsttime since the initial listing of our company. Some of thereasons for this decrease in revenue and profit were thedecrease in sales that resulted from a contracting CRT TV
market, slowing demand for DVD-related products in North
America and the strategic review of product-mix at a printerOEM partner. However, the greatest factors were negative
earnings stemming from worsening profitability and thefailure to achieve sales goals in the TV business, primarily in
LCD TVs where management resources had been
strategically concentrated.

To m o n o r i H a y a s h i , P r e si d e n t a n d CEO
Funai Electric Co., Ltd. Annual Report 20083

アニュアル2008pdf用8.10 08.8.10 1:39 AM ページ 4

To O u r S h a r e h o l d e r s

Creating Added Value and a New Growth Engine, and Restructuring
the Management Base to Prepare for the Coming Leap Forward.
T h e D ir e c t io n o f F u t u r e M an ag em en t

F u t u re M ed iu m - T

Several company-wide management

establishment and they must be restructured.

The Funai Group is aiming for

issues that must be addressed

Our future management policy will include the “production of

500,000 million yen, consolidat

became clear when we analyzed theviable products” and a business operation system with a

25,000 million yen, and a conscurrent year’s “TV business deficit”.

focus on speed. Specifically, by aggressively investing in

5% in FY 2011, three years fro

The first issue is “speed”. For

computers to further promote information technology

Funai’s basic policy to achieve

example, TV business revenue took athroughout the company, including product planning,

pursue the “production of viabl

hit due to the rapid contraction of thedevelopment, materials procurement, manufacturing andpreviously. Our specific strateg

CRT TV market while, at the same time, we were unable tosales, Funai will reconstruct itself so as to be capable offollowing four elements.

cope with strong market demand due to the insufficient

rapid responses to changes in the market.

The first element is the “promo

supply of panels needed for LCD TVs. We recognize it was

Structural reform of the TV business is already underway

deepening of alliances”. Largea failure of “management speed”, an area we have always

from the current year, with manufacturing of CRT TVs

drastic reforms are now being

focused on, to keep pace with market changes thatconcentrated in the Thailand Plant, the startup of the Poland

industry, particularly around LC

exceeded the forecasts for each business department.

Plant tasked with production of LCD TVs aimed at the

fast-paced technological innov

The second issue is “balance”. Each department was forced

European market, and an improved service system throughchanges. A strategy for promot

to take measures to deal with our inability to respond to thethe newly established US service subsidiary. As a result ofterm is a must for survival. Fun

speed of market changes and as a result, the distribution ofaddressing these issues at such an early stage, both growthcollaboration agreement with V

management resources (personnel, equipment, funding)potential and profitability in the LCD TV business are rapidly

in the audiovisual equipment b

became unbalanced making it difficult to create viable

recovering. Additionally, the implementation of a speed-

new North American LCD TV a

products in every stage of the cycle, from product planningfocused business strategy in the DVD and informationagreement with Phillips, a longto sales.

equipment areas is also being expanded.

Funai’s policy is to use such al

These areas have been Funai’s original strength since our

Future Management Policy

power in the market and to stre

LCD TV Sales Targets for FY 2009500

(10,000s of units)

The second element is the “exAiming for “more than 4% of world
LCD TV market share” in FY 2009

4,000,000 units+

400

Product
Planning

Sales

A business operation system focusing on“speed” and capable of rapid responses Development
to market changes
Materials
Procurement&
Manufacturing

global standard, Funai is worki

2,060,000 units

Funai Electric Co., Ltd. Annual Report 2008

products in which our company
competitors and quickly create

200

Funai has already begun OEM

540,000 units

players from the end of 2007 a
0

March '06

March '07

Results

4

Blue-ray-related products, inclu

2,540,000 units

300

100

lineup”. Now that Blue-ray disc

March '08

March '09

Plannedextend beyond our initial foreca
The third element is the “devel

アニュアル2008pdf用8.10 08.8.10 1:39 AM ページ 5

Interview with the President

F u t u r e M e d iu m - Te r m P r o sp ect s
The Funai Group is aiming for consolidated net sales of

new businesses”. Using cost competitiveness, a Funai

500,000 million yen, consolidated operating income ofstrength, we are planning an expansion of sales routes for

25,000 million yen, and a consolidated operating margin of

information equipment, including new OEM partners. Funai

5% in FY 2011, three years from now.

will begin production of printers for new OEM partner around

Funai’s basic policy to achieve this target is to diligently

the summer of 2008. Additionally, network-related products

pursue the “production of viable products” as mentioned

are forecast to be the next promising field and Funai ispreviously. Our specific strategy to do so is outlined in the

diligently working to develop and bring such products to thefollowing four elements.

market at an early stage.

The first element is the “promotion, expansion and

Finally, the fourth element is a “concentrated review ofdeepening of alliances”. Large capital investments andmarket and manufacturing bases”. Funai is currently

drastic reforms are now being made in the digital applianceexpanding sales to the new European and the BRICs

industry, particularly around LCD TVs, in order to respond tomarkets and creating a well-balanced, global sales

fast-paced technological innovation and the speed of market

expansion system. Furthermore, we will continue to seek outchanges. A strategy for promoting alliances over the medium-

optimal manufacturing bases while keeping an eye on theterm is a must for survival. Funai has reached a broadchanging world economy.

collaboration agreement with Victor Company of Japan, Ltd.

By tackling the challenges above, the Funai Group isin the audiovisual equipment business area and concluded aworking to create new growth engines and added value, and

new North American LCD TV and DVD brand licensing

rebuild a management base ready for the next leap forward.

agreement with Phillips, a long-time collaboration partner.

Medium-Term Targets

Funai’s policy is to use such alliances to improve our brandpower in the market and to strengthen our sales capabilities.

Medium-Term
Strategy

The second element is the “expansion of our Blue-ray disc

• Promotion, expansion and deepening of alliances• l Expansion of our Blue-ray disc lineup• l Development of new clients and new businesses• l Concentrated review of market and manufacturing bases

lineup”. Now that Blue-ray discs have become the de facto
global standard, Funai is working to expand its lineup ofBlue-ray-related products, including the combination
products in which our company excels, before our(100 millions of yen)

6,000

Aiming for[consolidated net sales of 500,000 million yen]
5,000
[consolidated operating income of 25,000 million yen]in FY 2011, three years
3,400
4,000
from now. 2,771

competitors and quickly create a new, profitable department.

3,000

Funai has already begun OEM supply of Blue-ray disc2,000

players from the end of 2007 and sales are now positive and

1,000

extend beyond our initial forecasts.

0

The third element is the “development of new clients and

5,000

2008/3

2009/3

2011/3Results

PlannedTargetFunai Electric Co., Ltd. Annual Report 20085

アニュアル2008pdf用8.10 08.8.10 1:39 AM ページ 6

Special Feature
Securing Growth in the LCD TV Business Based Upon Strategic
Alliances, Promoting Increased Profitability andthe Early Realization of Business Reconstruction.

The Funai Group is workin
deficit and put it back onin the LCD TV business, w
shifting towards departme
increases, “promoting stra
the large-scale reorganiza
overhauling its systems breconstruction.

Brand Licensing Agreement with Philips
for North American TV Business
Funai has concluded an exclusive brand licensing agreement forthe supply, distribution, marketing and sales of Philips (Royal
Philips Electronics) home-use TVs in North America and Canada.
The positive Funai-Philips relationship has been built up throughvideo and DVD OEMs over the past 18 years. This new deal, which
will begin on September 1, 2008 and remain in effect for aminimum of 5 years, gives exclusive usage rights to Funai for
Philips and Magnavox brand LCD TVs supplied to the North
American market.
Funai supplies several brands of TVs, primarily to North America,
and is already known as a leading supplier among retailers

Product
Planning

Development

stocking Philips-brand TVs. By adding these two new brands,
Funai will rapidly increase its sales capabilities.
By effectively using Philips world-class research, and design and
IP technology, to its fullest in the manufacture of LCD TVs for
Philips, Funai will be able to provide products to the market thatwill appeal to consumers for both their technology and design.

Strategic LCD Panel Collaboration
with the Chi Mei Group

Sales

Funai began a strategic collaboration with the Chi Mei Group, a worldfamous LCD panel manufacturer in Taiwan, from February 2006. The
Chi Mei Group provides a stable supply of liquid crystal panels to the’s internationalsales strengths and the Chi Mei Group’s comprehensive ability tosupply liquid crystal materials, both Groups are aiming to increase
their share of the LCD TV market.
While Funai did temporarily increase procurement from othermanufacturers due to pricing issues, both Funai and the Chi Mei
Group

have

reconfirmed

theircommitment

to

the

strategiccollaboration, are working to strengthen our cooperative relationshipin order to achieve our initial targets and build an environment that
promotes the stable supply of liquid crystal panels.

6

Funai Electric Co., Ltd. Annual Report 2008

Production of
Viable Products
Materials
Procurement&
Manufacturing

アニュアル2008pdf用8.10 08.8.10 1:39 AM ページ 7

Reconstructing the LCD TV Business

The Funai Group is working to rapidly turn the LCD TV business around from its current
deficit and put it back on the path to growth. We are also working to improve profitability
i n t h e L C D T V b u s i n e s s , w h i c h h a s w o r s e n e d r e c e n t l y, a n d t o r e c o n s t r u c t t h e b u s i n e s s b yshifting towards departments with stable revenue. As technological innovation rapidly
increases, “promoting strategic alliances” is now the most important means of survivingt h e l a r g e - s c a l e r e o r g a n i z a t i o n s t h a t a r e n o w s w e e p i n g t h e i n d u s t r y. F u n a i i s d i l i g e n t l yoverhauling its systems based on these alliances in preparation for businessreconstruction.

Educating Personnel and Expanding into New,
Promising Areas
The education of personnel, in particular personnel that support
Funai’s strong technological capabilities such as embedded software,is the fundamental basis for the “production of viable products”.
Additionally, by expanding into new, promising areas such as Blue-ray
discs, Funai will be able to develop and supply combination products,
an area in which we excel, and strengthen our overall ability to sell
LCD TVs.

Development
Broad Operational Collaborations
with JVC in the Audiovisual Equipment Area
I
Company of Japan, Ltd. (hereafter “JVC”) to engage in a broadcollaboration in the audiovisual equipment business area, particularly
regarding display equipment. The collaboration will include a wide rangeof cooperation in the display equipment business and other audiovisual

Materials
Procurement&
Manufacturing

equipment business areas, such as joint production/mutual production
consignment and joint development/mutual development consignment. In
addition to the effective utilization of management resources held by bothcompanies and mutual supplementation, we will pursue merits of scaleand strengthen our audiovisual equipment business’ management basethrough this collaboration.
JVC is developing a worldwide business, which includes Japan, based
upon its high-value added products that use their high-resolution
technology. Both companies will share their strengths and know-how
through this collaboration to pursue benefits in a range of areas, such as
the concentrated effects of production through mutual access to the North
American and European production bases of both companies, thesupplementation/ strengthening of product lineups by price/region throughthe mutual supply of products featuring the characteristics of bothcompanies, and improved development efficiency and reduced investment
through the joint development of digital audiovisual equipment platforms.

Funai Electric Co., Ltd. Annual Report 20087

アニュアル2008pdf用8.10 08.8.10 1:39 AM ページ 8

Corporate Governance and CSR
The Funai Group operates with the utmost awareness of its corporates o c i a l r e s p o n s i b i l i t i e s . Ta k i n g t h i s t o h e a r t , t h e C o m p a n y p r o m o t e s amanagement approach that always keeps in mind its responsibility towards
all stakeholders, internal and external, ranging from shareholders andcustomers to vendors,neighboring communities and employees.

Corporate GovernanceFunai believes that the most important management
theme is to continuously increase corporate value by
increasing the soundness and efficiency of its
management, enable rapid decision making to respondto changes in the marketplace and maintain a highly
transparent management.
In response to rapidly changing social trends, theCompany adopted a Committee System in June 2005 toensure that the Group manages it business in a dynamic
and flexible manner that allows rapid decision making.
As of the end of June 2008, the Funai Group has 9

directors, of which 6 are outside directors. Furthermore,
the Company continues to implement an officer systemthat has been in place since 2002 with the aim ofestablishing a system in which management decisions
and immediate action can be taken in a flexible manner.
As of the end of June 2008, there are 12 officers in theFunai Group.

Basic Philosophy
Under the Company Motto
products, build greater tru
meaningful coexistence w
Group promise to impleme
consider their environmen
understanding that every sfor protecting the global e
realize a coexistence betw
providing simple, high-qua
effectively using resources
reducing environmental bu

di
t
Au

di
t
Au
Ap

po

in

tm

en

t

A
Di pp
sm oi
iss ntm
al e
/A nt
ud /
it

Audit
Committee

Funai Electric Co., Ltd. Annual Report 2008th
bu orisin zaes tiosd nt
ec o m
isi a
on ke
s

Compensation
Committee

8CEO/
Corporate
Officers

Nomination
Committee

Au

Board ofDirectors

The Funai Group acknowl
environment as an importa
established an Office of E
head office in order to takeenvironmental issues. In a
towards the acquisition ofinternational standard forsystem). Starting with theDong, China), many of theoutside of Japan are being
In addition, the Company
protect the global environm

Funai Electri

Summary of Committee System

GeneralShareholders'Meeting

Environmenta

Officers

Information S
Funai has become aware
on information systems indetermining that it is the C
stakeholders to provide inworked to create an informsystem.
On November 15, 2005, F
Division received both Brit
management system certi
and Japan's certification, tアニュアル2008pdf用8.10 08.8.10 1:39 AM ページ 9R
Environmental Activities
The Funai Group acknowledges the issue of the global
environment as an important management topic and has
established an Office of Environmental Affairs within thehead office in order to take action in response toenvironmental issues. In addition, we are working
towards the acquisition of ISO14001 certification (aninternational standard for an environmental management
system). Starting with the Dong Guan plant (Guang
Dong, China), many of the Company's facilities in andoutside of Japan are being certified.
In addition, the Company carries out activities that aim toprotect the global environment as outlined in theEnvironmental Charter. As part of these activities, we areaiming to increase the recycle rate to comply with theElectric Appliance Recycle Law. In June 2005, we also
participated in the "Team Minus 6%*" campaign, an effort
to aggressively curb greenhouse gas emissions.
*The Kyoto Protocol which the world cooperated in
making and aims for a resolution to the serious global
warming problem was put into effect in February 2005.
Japan's promised goal to the world is "reducing its
greenhouse gas emissions by 6%." The "Team Minus
6%" campaign is a national project to realize this goal.

Funai Electric's "Environmental Charter"
Basic Philosophy
Under the Company Motto which is "to make better
products, build greater trust, and establish a moremeaningful coexistence with society," we at the Funai
Group promise to implement business activities thatconsider their environmental consequences with theunderstanding that every single employee is responsible
for protecting the global environment. Funai is working torealize a coexistence between nature and society byproviding simple, high-quality products to customers,
effectively using resources, eliminating waste andreducing environmental burden.

Environmental Policies
1. Ensure management compliance (statute compliance).
2. Voluntarily remove dangerous materials and provide
environment-friendly products.
3. Establish design targets that keep the environment inmind and provide earth-friendly products.
4. Promote improvement activities to achieve zero
emissions.
5. Establish necessary environmental targets andconduct on-going improvements with regular reviews.
6. Educate all employees about the environment andwork to improve the environment.

Information Security Activities
Funai has become aware of the increasing dependence
on information systems in business trading. After
determining that it is the Company’s duty to
stakeholders to provide information security, Funai
worked to create an information security management
system.
On November 15, 2005, Funai's Information Security
Division received both Britain's information security
management system certification, "BS7799-Part2:2002"
and Japan's certification, the "Conformity Assessment

Scheme for Information Security Management Systems(Ver.2.0)."
Additionally, in November 2006 Funai's Information
Security Division also received both the international
information security management system standard,"ISO/IEC 27001:2005," and the domestic standard, "JISQ 27001:2006."The Division now uses the newstandards and will continue to make further
improvements in their standards in the future.

Funai Electric Co., Ltd. Annual Report 20089

アニュアル2008pdf用8.10 08.8.10 1:39 AM ページ 10

Management discussion and analysis
F U N A I E L E C T R I C C O . , LT D . a n d i t s C o n s o l i d a t e d S u b s i d i a r i e s

Basic Management P olicy
Based on the company policy of: "better products", "greater
trust" and "co-existence and co-prosperity", our basic
management policy aims to achieve mutual prosperity with
our stakeholders by building a firm relationship of trust
through a more efficient development/production/sales
system and stable supply of high-quality products ataffordable prices.

Basic policy concerning profit distribution
Funai Electronic acknowledges that providing return toshareholders in connection with the distribution of profit is
one of the most important management issues and whileplanning the strengthening of its management, Funai
Electronic places its basic policy on the distribution ofdividend at a stable level to shareholders. The basic
measure of 1.0% Consolidated Dividend on Equity Ratio isused as a concrete criteria, and the results of operations andits environments are taken into consideration in order tofurther implement an aggressive dividend policy.
Based upon the policy described above, term-end dividends
for the fiscal year ended March 2008 were set at 50 yen per
share (annual dividends of 50 yen).
Regarding retained earnings, we further strengthen theconstitution of management by appropriating its financial
resources in order to maintain future stable shareholders
profits and develop its mid-to long-term business strategies.

Issues and Medium-term Management Strategy
Rapid product development has become vital in the homeelectronics industry due to new consumer needs arisingfrom the spread of digital products and the trend of evershortening product life-cycles. Additionally, price competition
is intensifying with the rise of cross-industrial manufacturers
such as IT companies and Asian manufacturers, particularly
in China.
In such an environment, the Funai Group's current issues
and measures against these are as follows.
Active development and reinforced production
system for digital products
The Funai Group has long pursued aggressive businessdevelopment in digital product areas such as DVDs, digital
10

Funai Electric Co., Ltd. Annual Report 2008

still cameras and LCD TVs. In November 2007, Funai
entered the market once again when we began OEM
production of next-generation Blue-ray disk players. Funai
intends to brings its own brand of products to the market in2008 and use these new products to increase sales.
Additionally, Funai filed a claim with the US International
Trade Commission in October 2007 against 14
manufacturing and import companies to prevent the importand sales of digital TVs and combination products into the
US based upon a violation of the digital TV-related patentrights Funai acquired from the Thompson Group. The Funai
Group expects that Funai's position in the claim will be
upheld and that this will lead to increased business
opportunities in a fair market.
Furthermore, Funai entered into a business collaboration
with JVC in the audiovisual equipment business area, with aconcentration on display equipment such as LCD TVs. Bothcompanies will share production/mutual production
consignment and share development/mutual development
consignment. In addition to the mutual supplementation andeffective use of the management resources of bothcompanies, we will pursue merits of scale and strengthen
our audiovisual equipment business management base.
Specifically, production of Funai's 37 inch LCD TVs began at
JVC's Mexico Plant from February 2008 and production of
JVC LCD TVs for the European market is planned to begin
this year at the Funai production subsidiary Funai Electric(Polska) SP.z o.o. In April 2008, Funai and Royal Philips
Electronics reached a basic agreement to conclude a brandlicensing contract for Philip's North American TV business.
This contract, expected to take effect on September 1, 2008,
will allow the Funai Group to supply, distribute, market andsell Philips and Magnavox home TVs, particularly LCD TVs.
In light of the development of new sales channels, we are
devoting our efforts to acquiring new customers for all Funai
Group products.
In addition, efforts are being made to expand futurecapabilities in elemental technology through collaboration
with academic institutes such as Kyoto University (joint
collaboration on construction of next-generation optical disk
system) and the University of Electro-Communications(framework agreement for collaboration on digital products).
Funai will continue to further strengthen its productdevelopment system centered on the digital product field,
based on improved technological capability through humanresource development, business alliance, academic allianceand possibly M&A.

Avoid country risks
Funai Group's overseas sales
overall figure, especially that odisperse the risk associated wi
European sales subsidiary FUN
established branch offices in L
and October 2005 respectively
thereby expanding its sales neenter new emerging markets s
efforts to strengthen the sales
DX Antenna Co., Ltd., Funai isdomestic corporate market forelectronic equipment, in additio
development of home applianc
In terms of production, the Fun
improve the price competitiven
concentrating production in stra
volume purchases. However, t
on China for production. There
selected Poland as a strategic
October 2006, the production s(POLSKA) Sp.z o.o. was estaband production of LCD TVs be
However, in response to the ra
for CRT TVs - formerly the Fun
Funai resolved to liquidate thewere manufactured, Funai Elec
August 2007. Accordingly, thethis plant was completely transin, Funai (Thailand) Co., Ltd. T
Thailand subsidiary will be undfuture changes in the CRT TV
products.
Maintain/enhance compet
In order to maintain and enhan
Funai Group has been working
through the F.P.S. (Funai Produ
increasing in-house production
components, and enhancing its
we are working on further impr
have with globally competitive
OEM partners, and constructinof proposal-based sales by est
In October 2007, the service deアニュアル2008pdf用8.10 08.8.10 1:39 AM ページ 11s▲Combination LCD TV / DVD Player(19-inch)▼ HDD / VCR / DVD Recorder

Avoid country risks
Funai Group's overseas sales constitute a large portion of its
overall figure, especially that of North America. In order todisperse the risk associated with the current situation, ourEuropean sales subsidiary FUNAI EUROPE GmbH hasestablished branch offices in London and Warsaw in Julyand October 2005 respectively, and in Paris in July 2006,
thereby expanding its sales network. There are also plans toenter new emerging markets such as Russia. As part of theefforts to strengthen the sales system of Funai subsidiary
DX Antenna Co., Ltd., Funai is working to expanding into thedomestic corporate market for DX Atenna's receiver-related
electronic equipment, in addition to the ongoingdevelopment of home appliance retail stores.
In terms of production, the Funai Group is working to
improve the price competitiveness of Funai products byconcentrating production in strategic locations and throughvolume purchases. However, there is a strong dependence
on China for production. Therefore, the Funai Group
selected Poland as a strategic production location. In
October 2006, the production subsidiary FUNAI ELECTRIC(POLSKA) Sp.z o.o. was established in Nowa Sol, Poland
and production of LCD TVs began in June 2007.
However, in response to the rapid contraction of the market
for CRT TVs - formerly the Funai Group's principal productsFunai resolved to liquidate the plant in which these products
were manufactured, Funai Electric (Malaysia) SDN.BHD. in
August 2007. Accordingly, the manufacture of products fromthis plant was completely transferred to, and concentratedin, Funai (Thailand) Co., Ltd. The product system at theThailand subsidiary will be under constant review in light of
future changes in the CRT TV market and orders for otherproducts.
Maintain/enhance competitive edge
In order to maintain and enhance our competitive edge, theFunai Group has been working to further promote cost cuts
through the F.P.S. (Funai Production System), as well as
increasing in-house production of key parts andcomponents, and enhancing its buying power. In addition,
we are working on further improving the relationships wehave with globally competitive retailers companies and our
OEM partners, and constructing the optimum marketing mix
of proposal-based sales by establishing the "Funai" brand.
In October 2007, the service department of the US sales

subsidiary Funai Corporation, Inc. was spun off into a newcompany. Oversight of the newly established company,
Funai Service Corporation, will be conducted directly by
Funai. By directly linking Funai and this service company,
Funai will become even more aggressive in providing
support. Funai is aiming to increase our competitive
advantage in the North American market by strengthening
customer support centers and after-care service
departments in order to increase customer satisfaction.
Stable Procurement of Panels for LCD TVs
The insufficient supply of panels, a key LCD TV component,
due to active demand in the LCD TV market has become
significant and this trend is expected to continue for theforeseeable future. This situation has also affected Funai,
making our own panel procurement difficult. As a result, wemust promote further strengthening of relationships withpanel manufacturers, particularly the Taiwanese Chi Mei
Group, with whom we've entered into collaborative
relationships in order to ensure stable panel procurement.
At the same time, we must be aware of the possibility thatthe panel supply-demand balance could reverse as a resultof future increased production plans among panel
manufacturers or changes in the LCD TV market. Therefore,
it's also necessary to establish a procurement system that is
capable of responding to market changes.
Tax Assessment Based upon the Anti-Tax
Haven System
On June 28, 2005, Funai received notice of a supplementary
tax assessment from the Osaka Regional Taxation Bureau(the "Bureau") regarding aggregate taxation on the taxable
income of subsidiaries in Hong Kong for the three fiscal
years from March 31, 2002 to March 31, 2004. In the
Bureau's assessment, taxable income earned by the Hong
Kong subsidiaries should be added to Funai's taxable
income as the subsidiaries in Hong Kong are deemed not tosatisfy the conditions for exclusion from the application of
the anti-tax haven system.
The additional tax payments amounted to 16,651 million yen(19,184 million yen including penalties), which includes
corporate tax, residence tax and business tax.
Funai, having been dissatisfied with the said supplementary
tax assessment order, filed its objection with the Bureau on
August 24, 2005. However, on June 27, 2006, the Regional
Funai Electric Co., Ltd. Annual Report 200811

アニュアル2008pdf用8.10 08.8.10 1:39 AM ページ 12

Management discussion and analysis
F U N A I E L E C T R I C C O . , LT D . a n d i t s C o n s o l i d a t e d S u b s i d i a r i e s

Commissioner of the Bureau dismissed the objection filed by
Funai. Considering the reasoning for the Bureau's dismissal
to be unacceptable, Funai filed a petition with the National
Tax Tribunal's Osaka Branch (the "Tribunal") on July 25,
2006.
Three months after filing the petition, Funai became eligible
to seek judicial remedy. Therefore, Funai filed a complaint
with the Osaka District Court for the cancellation of the
supplementary tax assessment order on November 16, 2006
and Funai intends to continue asserting the validity of its
position.

Business P erformance
Business environmenty
Individual consumption in Funai Group's primary market the United States - fell and a slowdown was seen in theeconomy at the end of the fiscal year as a result of financial
worries arising from the sub-prime loan problems and therising price of oil. In Europe, exports and capital investment
increased but inflation depressed individual consumption
and a slight slowdown was seen the economy. Asian
economies continued to expand, particularly in the highgrowth areas of China and India. While exports remained
stable in Japan, weakened individual consumption and afalloff in the housing market due to revised building codes
led to a mid-year slowdown in the economy. The consumer
electronics industry in which Funai participates experienced

Net salesa contraction in the CRT TV and video markets as demand
shifted from analog products to digital products. However, arapid increase in global demand for LCD TVs was also seen.
The business environment will continue to be difficult,though, as increased LCD TV competition continues to drive
prices down.
Net sales
The Funai Group continued to expand sales of LCD TVs.
However, the failure of net sales of other principal products
to meet expectations, in addition to being unable to secure asufficient number of a key LCD TV component, liquid crystal
panels, put pressure on revenues. As a result, net sales
ended at 277,168 million yen, 30.1% lower compared to theprevious period.

As a result of the contraction in
production subsidiary in charge
Funai Electric (Malaysia) SDN.
generated an extraordinary losadditional tax charge of 5,540
from dividends paid to Funai E
Electric (Malaysia) SDN.BHD.
Kong) Ltd. due to differences inand the respective countries. A
million yen were incurred (Netyen in the previous period.)

Performance by Prod
Audiovisual Equipment

Operating income (loss)

Main product lineup

The price of liquid crystal panels rose due to tight demand,sending LCD TV revenue into the red. Additionally, profits
from DVD-related products and CRT TVs worsened due tomarket contractions and falling printer sales also resulted in
reduced revenue. Accordingly, operating income for thecurrent year was recorded as a deficit. Operating losses
totaled 2,406 million yen (Operating income totaled 20,766
million yen in the previous period).

Operating income (loss)

Net income (loss)(¥ million)(¥ million)(¥ million)

500,000

30,00025,000Funai produces and sells main
DVD-related products and LCD
products, Funai has been prod
March 2004 in addition to DVD
a broad lineup of LCD televisio
32", 37" and 42" models. In ad
broad consumer needs, a LCD
model was introduced. Funai a
non-TV products, such as a ter
definition tuner capable of rece

Cost of sales / Cost of sales to(¥ million)

500,000

21,59623,305

396,712400,000

Net income (loss)

25,000360,885

81.5
20,766200,000

20,00015,00015,00010,00010,0005,000

328,545
294,032
231,-5,377

Funai Electric Co., Ltd. Annual Report 2008

March '08

-5,000 March '06

100,000-5,0000March '07

200,000

0-2,406

100,000

12

300,000-3,666
5,000

0 March '06

83.7

400,000

277,168
300,000

82.8

20,000March '07

March '08

-10,000 March '06

March '07

March '08

0 March '06

March '07

Marc

▲

アニュアル2008pdf用8.10 08.8.10 1:39 AM ページ 13

LCD TV (37-inch)s▲ HDD / DVD Recorderbroadcasts. In addition to efforts to expand our LCD TV
business from 2008 such as mutual production with JVC,
Funai is also planning to expand sales of products for which
we anticipate future growth, such as Blue-ray disk-related
products.

Net income (loss)
As a result of the contraction in the market for CRT TVs, theproduction subsidiary in charge of producing CRT TVs,
Funai Electric (Malaysia) SDN.BHD., was dissolved andgenerated an extraordinary loss of 1,228 million yen. An
additional tax charge of 5,540 million yen was generated
from dividends paid to Funai Electric Co., Ltd. by Funai
Electric (Malaysia) SDN.BHD. and Funai Electric (HongKong) Ltd. due to differences in tax rates between Japanand the respective countries. As a result, net losses of 5,377
million yen were incurred (Net losses totaled 3,665 million
yen in the previous period.)

Performance results for the current term
Sales of audiovisual equipment grew due to expanded
global demand for LCD TVs. However, the CRT TV market
contraction resulted in large reductions in revenue andrevenue from players and recorders, particularly DVDrelated products and integrated video products, fell due toreduced demand in the North American market. As a result,net sales of these products totaled 184,183 million yen, a
33.5% decrease compared to the previous period.

Performance by P roduct Cate gory

Information Equipment

Audiovisual Equipment

Main product lineup and new products forthe current term

Main product lineup
Funai produces and sells mainly digital devices including
DVD-related products and LCD TVs. In DVD-related
products, Funai has been producing DVD recorders since
March 2004 in addition to DVD players. Funai is developing
a broad lineup of LCD televisions, including 15", 20", 26",32", 37" and 42" models. In addition to these efforts to meetbroad consumer needs, a LCD TV/DVD player combination
model was introduced. Funai also supplies a wide variety of
non-TV products, such as a terrestrial/BS/110°CS highdefinition tuner capable of receiving terrestrial digital

Cost of sales / Cost of sales to net sales(¥ million)(%)

500,000

100

81.5

82.8

In addition to inkjet printers and laser beam printers, Funai
has also been producing OEM-based digital still cameras in
the information and communications equipment category.
We have formed strategic alliance agreements with our
OEM partner and have shifted our focus from popularly
priced inkjet printers to high-end models, developing andreleasing new products into the market.

SGA expenses / SGA expenses to net sales(¥ million)

Operating income to net sales(%)

90,000

17.2

18

(%)

15

83.7

400,000

80

75,00015

12.0

328,545
294,03210

12.0

60,000300,000

60

231,869

200,000

12

43,54847,401

6.5

47,7055.2

45,000930,0006

540

0100,000

0 March '06

20

March '07

March '08

0

15,0000 March '06

-0.9

3

March '07

March '08

0-5

March '06

March '07

March '08

Funai Electric Co., Ltd. Annual Report 200813

アニュアル2008pdf用8.10 08.8.10 1:39 AM ページ 14

Management discussion and analysis
F U N A I E L E C T R I C C O . , LT D . a n d i t s C o n s o l i d a t e d S u b s i d i a r i e s

Performance results for the current term
Revenue from information equipment fell due to a review of
product strategies in an OEM partner brought on by toughcompetition in the printer market. Orders for digital stillcameras from an OEM partner also temporarily fell, resulting
in a large drop in revenue. As a result, net sales of theseproducts totaled 64,986 million yen, a 30.3% decrease
compared to the previous period.
Other

American market for both the Philips and Magnavox brands.
In Europe, Funai has created new business relationships
with powerful retailers such as Europe's largest retail chain,
Carrefour (France), and Metro AG (Germany). Additionally,
the foundation for expanding sales was created with theestablishment of a production subsidiary in Poland where
products for the European market will be produced. Funai isalso making preparations for its entry into the emerging
markets such as Russia with TV and DVD-related products.
In these regions, the "FUNAI" brand will be promoted as the
product brand, with the aim of increasing brand recognition.

Other net sales totaled 27,998 million yen, a 5.6% increase
compared to the previous period.

Performance results for the current term

Performance by Region
Progress by region
Funai is working towards raising the awareness of the"Funai Brand". In North America, our main market, Funai is
working to strengthen brand appeal in the United States andin Japan by concluding an exclusive partnership contract
with the Boston Red x, home of popular Japanese Major
League Baseball pitchers Daisuke Matsuzaka and Hideki
Okajima, in addition to strengthening its ties with leading
retailers. As part of a new brand strategy, Funai is planning
to use the brand licensing agreement concluded with Royal
Philips Electronics effective 2008 to enter the North

Sales composition by
product category (March '08)

Net sales in Japan increased by 7.7% compared to theprevious period to 41,322 million yen due to an increase insales of receiver-related electronic equipment. Net sales inoverseas markets, however, shrank due to the contraction in
the North American markets for both CRT TVs and DVDrelated products and a decision to focus on profitability inEurope rather than expanding sales. As a result, net sales in
the North American market totaled 181,109 million yen, a
34.6% decrease compared to the previous period. Net sales
in the European and Asian markets totaled 45,581 million
yen and 6,180 million yen respectively, a decrease of 32.3%
and 28.5% compared to the previous period respectively.
Other net sales totaled 2,976 million yen, a 44.1% decrease
compared to the previous period.

(¥ million)

Information
Equipment
23.4%
Others10.1%

Audiovisual Equipment

Information Equipment

235,465

March '06

95,950

Others1.1%

360,885

North A
65.3%

276,911

March '07

93,296

396,71227,998March '08

0

Funai Electric Co., Ltd. Annual Report 2008

Japan
14.9%
Asia
2.2%

26,50314

Current assets totaled 147,122
yen decrease from the previou
remained largely unchanged, tprimarily due a 26,221 million ycash equivalents, and 22,183 m
accounts receivable, compared
Property, plant and equipment
1,180 million yen decrease com
The principal cause of this dec
a 1,825 million yen increase incompared to the previous perio
decrease in machinery and eq
previous period. Investments a
60,520 million yen, a 15,567 m
previous period. The principal cslightly offset by a 1,023 million
and advances compared to the
10,747 million yen decrease in
7,621 million yen decrease in lcompared to the previous perio
factors, total assets decreased
compared to the previous perio

Europe16.5%

Others29,468
Audiovisual
Equipment
66.5%

AssetsSales composition
by region (March '08)

Sales by product category(%)

F in a n c ia l Co n d it io n

184,184

100,000

64,986200,000

277,168

300,000

400,000

500,000▲

アニュアル2008pdf用8.10 08.8.10 1:40 AM ページ 15

LCD TV (32-inch)s▲ Blue-ray Disc Player

Liabilities

Financial Condition

Current liabilities totaled 60,499 million yen, a 14,247 million
yen decrease compared to the previous period. Thisdecrease was due to a 1,411 million yen increase in shortterm bank loans, offset by a 22,947 million yen decrease intrade accounts payable, compared to the previous period.
Additionally, long-term debt, liability for retirement benefits,
and deferred tax liabilities decreased by 3,507 million yen,
187 million yen, and 2,155 million yen, respectively. As aresult of these factors, total liabilities decreased by 19,390
million yen compared to the previous period to 66,059
million yen.

AssetsCurrent assets totaled 147,122 million yen, a 31,649 million
yen decrease from the previous period. Although inventories
remained largely unchanged, the change in assets wasprimarily due a 26,221 million yen reduction in cash andcash equivalents, and 22,183 million yen reduction in tradeaccounts receivable, compared to the previous period.
Property, plant and equipment totaled 16,773 million yen, a1,180 million yen decrease compared to the previous period.
The principal cause of this decrease, while slightly offset by
a 1,825 million yen increase in buildings and structurescompared to the previous period, was a 12,522 million yen
decrease in machinery and equipment compared to theprevious period. Investments and other assets totaled
60,520 million yen, a 15,567 million yen decrease from theprevious period. The principal causes of this decrease, whileslightly offset by a 1,023 million yen increase in investment
and advances compared to the previous period, were a
10,747 million yen decrease in Investment securities, and a
7,621 million yen decrease in long-term loans receivable,compared to the previous period. As a result of thesefactors, total assets decreased by 48,396 million yen
compared to the previous period to 224,415 million yen.

Sales composition
by region (March '08)
Europe16.5%

Net assets
Retained earnings decreased by 9,655 million yen
compared to the end of the previous period to 129,813
million yen. Foreign currency translation adjustments totaled
12,064 million yen in the current period due to astrengthened yen/weakened dollar, in addition to 64 million
yen in unrealized loss on available-for-sale securities.
Additionally, minority interests totaled 485 million yen, an
increase of 104 million yen compared to the end of theprevious year. As a result of these factors, total equity
decreased by 29,006 million yen compared to the end of theprevious period to 158,356 million yen.

Sales by region(%)(¥ million)

Japan
14.9%

North America

EuropeAsia

Others5,864
14,469Asia
2.2%
Others1.1%

253,162

March '06

39,39947,990

North America
65.3%

360,885

5,326
8,637
277,104

March '07

0

181,109

100,000

38,366

67,2792,976
6,180

March '08

Japan

45,581200,000

396,71241,322

277,168

300,000

400,000

500,000

Funai Electric Co., Ltd. Annual Report 200815

アニュアル2008pdf用8.10 08.8.10 1:40 AM ページ 16Management discussion and analysis
F U N A I E L E C T R I C C O . , LT D . a n d i t s C o n s o l i d a t e d S u b s i d i a r i e s

low-cost products to consumers based upon optimized
production/sales systems on a global scale. We
manufacture and sell our principal products, e.g. audiovisualequipment (DVD-related products, LCD TVs, CRT TVs, etc.)
and information equipment (printers, digital still cameras), in
addition to other products (receiver-related electronicequipment).
Price competition in these product areas is intense.
Additionally, the lifecycle of digital products is short and thecompetition to develop new technologies and functions is
also intensifying. Accordingly, these factors may affect theGroup's financial situation and operating results.

Cash Flow
Income before income taxes and minority interests
decreased by 20,243 million yen compared to the previous
period to 2,510 million yen, in addition to a 6,979 million yen
decrease in trade accounts receivable. Accordingly, net cashused in operating activities totaled 13,714 million yen. While
proceeds from sales of investment securities totaled 9,746
million yen, proceeds from short-term investments totaled
12,444 million yen and purchases of property, plant andequipment totaled 4,826 million yen, bringing net cash used
in investing activities to 9,476 million yen. Decreases inshort-term bank loans and dividends paid totaled 5,648
million yen and 1,875 million yen respectively, bringing net
cash used in financing activities to 8,142 million yen. As aresult, cash and cash equivalents at end of year decreased
by 26,221 million yen compared to the previous period to
57,100 million yen.

Product Pricing Policy
The Group's primary targets are customers of massmerchandisers such as Wal-Mart and therefore we mustdeliver low prices. The Group is working to cut costs throughmeasures such as creating production systems in optimal
locations, internal production of parts and central
purchasing.
However, competition in the home electronic applianceindustry is intense and when the cost of parts and raw
materials rise, cost pressures may affect the Group's
financial situation and operating results regardless of thefact that we have implanted these measures.

Business Risk
Risks that may have a significant impact on the Group's
financial situation and operating results are outlined below.
Forward-looking statements in this text are based on
decisions made by the Group as of June 20, 2008.

Product Supply Through OEM (Producing Partner Brands)

The Funai Group's Managerial Policy

As part of the effort to create collaborations with distributors
and electronic appliance manufacturers, particularly

The Group has adopted a policy of providing high-quality,

Total assets

Total Equity / Shareholders' equity ratio

Cash and cash equivalents at end of year(¥ million)(¥ million)(%)(¥ million)

350,000

300,000

90

100,000

272,811250,000

198,205

224,415250,000

68.6

68.5

70.4

75
75,000187,362200,000

58,588

60

57,100158,356
200,000
150,000

45

100,000

30

New Technologies
As the number of digital produc
appliance industry increases a
become diversified, the quality
product development must be
The Group must be able to reswill improve our technical stren
product area, by collaborating
industry and academia, and thalso consider mergers and acq
However, a diversification of minnovation beyond our expecta
financial situation and operatin
The Effects of Overseas M
Dependence on the North Am

83,321

288,524300,000

overseas, OEMs accounted fo
production supply in the curren
While our OEM strategy is to eshare and improve productivity
entrusting the sales strategy toin unforeseen changes. Additio
contracts are relatively short inable to accurately respond to t
must strengthen our OEM strat
strengthen our marketing in ord
strategy from a long-term pers
proposal-based sales strategy
the Funai brand. However, themay affect the Group's financia
results.

50,000A large portion of the Group's noverseas markets. The North A
accounted for 65.3% of net sal
fiscal year.
Should the North American eco
recession, this may affect the G
operating results.

150,000

Dependence on Chinese Pro

100,000
25,00050,00050,0000 March '06

16

March '07

Funai Electric Co., Ltd. Annual Report 2008

March '08

0 March '06

15

March '07

March '08

0

0 March '06

March '07

March '08

The Group is working to improv
its products by concentrating p
benefit regions and purchasing
products in the current consolid
produced overseas and of thos

アニュアル2008pdf用8.10 08.8.10 1:40 AM ページ 17soverseas, OEMs accounted for 46.0% of the Group's
production supply in the current consolidated fiscal year.
While our OEM strategy is to efficiently increase our market
share and improve productivity through mass-production,
entrusting the sales strategy to our partners may also resultin unforeseen changes. Additionally, individual OEM
contracts are relatively short in duration and Funai must beable to accurately respond to the needs of our partners. We
must strengthen our OEM strategy and, at the same time,strengthen our marketing in order to complement thestrategy from a long-term perspective, and create a
proposal-based sales strategy through the establishment of
the Funai brand. However, the progress of these measures
may affect the Group's financial situation and operating
results.
New Technologies
As the number of digital products in the home electronic
appliance industry increases and the needs of the market
become diversified, the quality, volume and speed of new
product development must be improved.
The Group must be able to respond to such issues and wewill improve our technical strength, primarily in the digitalproduct area, by collaborating with other companies,
industry and academia, and through personnel training. We
also consider mergers and acquisitions among our options.
However, a diversification of market needs or technologicalinnovation beyond our expectations may affect the Group's
financial situation and operating results.
The Effects of Overseas Market Trends
Dependence on the North American Market
A large portion of the Group's net sales originates inoverseas markets. The North American market in particular
accounted for 65.3% of net sales in the current consolidated
fiscal year.
Should the North American economy rapidly enter arecession, this may affect the Group's financial situation andoperating results.

(consignment fabrication) in China. Changes in the Chinese
government, the outbreak of conflict or natural disasters orother unforeseen circumstances may affect the Group's
financial situation and operating results.
Foreign Currency Risk
The Group selects production sites for our principal products
after giving consideration to optimal production sites andsales systems.
DVD-related products, LCD TVs, printers and digital stillcameras are produced in Funai Electric (Hong Kong) Ltd.,LCD TVs are produced in Funai Electric (Polska) Sp.z o.o.,and CRT TVs are produced in Funai (Thailand) Co., Ltd.
Funai purchases products from these production
subsidiaries and sells them in overseas markets, North
America in particular, either through Funai's overseas sales
subsidiaries or direct sales to OEM supply partners.
Domestic sales are also conducted through direct sales andsales subsidiaries.
Purchases from these three overseas production
subsidiaries accounted for 90.7% of gross purchases during
the current consolidated fiscal year. Likewise, overseas net
sales accounted for 85.1% of net sales. The majority of ourpurchasing and sales are conducted in US dollars and webelieve this reduces the risks accompany currency
fluctuations.
However, it is impossible to completely eliminate foreign
currency risk and large currency fluctuations may affect theGroup's financial situation and operating results.
Tax Assessment Based upon theAnti-Tax Haven System
As described in "Issues and Medium-term Management
Strategy-Tax Assessment Based upon the Anti-Tax Haven
System", the Group's financial situation and operating
results may be affected if Funai's arguments are rejected in
the legal proceedings.

Dependence on Chinese Production
The Group is working to improve the cost competitiveness of
its products by concentrating production in positive costbenefit regions and purchasing parts in bulk. 99.2% of our
products in the current consolidated fiscal year were
produced overseas and of those, 92.0% were produced
Funai Electric Co., Ltd. Annual Report 200817

アニュアル2008pdf用8.10 08.8.10 1:40 AM ページ 18

Global Network / Directory
Dong Guan Plant 1 (China)

Funai Europe GmbH (Germany)

Dong Guan Plant 2 (China)

Dong Guan Plant 3 (China)

FUNAI ELECTRIC (POLSKA) Sp.z o.o.

Funai (Thailand) Co., Ltd. (Thailand)

Funai Electric (H.K.) Ltd. (Hong Kong)

Product Development S t rat e gy
Places of Business, Research Center

Sales Subsidiaries

TOKYO BRANCH (JAPAN)(FUNAI TOKYO TECHNOLOGY CENTER)

DX ANTENNA CO., LTD. (JAPAN)
FUNAI CORPORATION, INC (U.S.A)
FUNAI EUROPE GmbH (GERMANY)

Manufacturing Subsidiaries
CHUGOKU FUNAI ELECTRIC CO., LTD. (JAPAN)
FUNAI ELECTRIC (H.K.) LTD. (HONG KONG)
Consignment manufacturing plants
DONG GUAN PLANT1,2,3 (CHINA)HUANG JIANG PLANT (CHINA)ZHONG SHAN PLANT 1 (CHINA)ZHONG SHAN PLANT 2 (CHINA)
H.F.T. INDUSTRIAL LTD. (HONG KONG)
FUNAI (THAILAND) CO., LTD. (THAILAND)FUNAI ELECTRIC (POLSKA) Sp.z o.o.
18

Funai Electric Co., Ltd. Annual Report 2008

Development Subsidiary
FUNAI ELECTRIC ADVANCED APPLIEDTECHNOLOGY RESEARCH INSTITUTE INC. (JAPAN)

Affiliated Subsidiary
FUNAI SERVICE CO., LTD. (JAPAN)

A total of five companies in Japan
included in the Funai Group’s con
March 2006 period. In addition, th
affiliates that are both accounted
Electric Co., Ltd. is mainly responof the Group’s operations (develo
subsidiaries undertake the tangib
etc).
Funai’s manufacturing operations
procurement and a global produccurrently operates manufacturing
China, Malaysia and Thailand. In
digital devices is shared among t
Zhong Shan plants. Production osuch as large-screen televisions

アニュアル2008pdf用8.10 08.8.10 1:40 AM ページ 19

Huang Jiang Plant (China)

Zhong Shan Plant 1 (China)

Zhong Shan Plant 2 (China)

FUNAI SERVICE CORPORATION

Funai Electric Co., Ltd. Head Office (Japan)

Chugoku Funai Electric Co., Ltd. (Japan)
Funai Corporation, Inc. (U.S.A)

Funai Electric Co., Ltd. Tokyo
Branch (Japan)

A total of five companies in Japan and eight overseas areincluded in the Funai Group’s consolidated business results for
March 2006 period. In addition, the Group has two overseas
affiliates that are both accounted for by the equity method. Funai
Electric Co., Ltd. is mainly responsible for the intangible aspectsof the Group’s operations (development, design, etc) while thesubsidiaries undertake the tangible aspects (production, sales,
etc).
Funai’s manufacturing operations are characterized by global
procurement and a global production system. The company
currently operates manufacturing facilities in three countries:
China, Malaysia and Thailand. In China, production of our leading
digital devices is shared among the Dong Guan, Huang Jiang andZhong Shan plants. Production of audio and video equipment
such as large-screen televisions in Thailand is handled by Funai(Thailand) Co., Ltd., which was established in July 2003. Our
Malaysian plant, which has the longest history of all our overseas
plants, mainly produces televisions (combination TV/VCRs).
The plants in China (commission) and Thailand employ a total of
00,000 persons, while the overall Group employs 00,000 persons(both figures as of March 31, 2008).
Funai’s well-established global sales system consists of theoverseas subsidiaries Funai Corporation Inc. (USA), Funai
Europe GmbH (Germany) and DX Antenna Co., Ltd. (Japan).
Additionally, FUNAI SERVICE CORPORATION was established
as a service company in October 2007 in order to strengthen thesales system within the US and is under the direct control of
Funai Electric Co., Ltd. Domestic sales system has been
integrated into DX Antenna since the transfer of business from
Funai Sales Co., Ltd. to the company.
Funai Electric Co., Ltd. Annual Report 200819

アニュアル2008pdf用8.10 08.8.10 1:40 AM ページ 20

Members of the Board and Officers

Members of t he Board
Tetsuro Funai ································ Chairman of Nomination andMember of Compensation
Committee
Tomonori Hayashi ····················· Chairman of the Board,
Compensation and Member ofNomination Committee

as of June 19, 2008

C orpora te O ffi c e rs
Tetsuro Funai ································ Chairman
Tomonori Hayashi ····················· President and CEO

O ffi c e rs

Akitaka Inoue ································ Chairman of Audit Committee

Takashi Kiyomoto ······················ Senior Executive Officer

Mitsuo Yonemoto ······················· Member of Nomination andCompensation Committee

Hideo Nakai ···································· Senior Executive Officer
Noriyuki Yamamoto ·················· Executive Officer

Morihiko Tashiro ························· Member of Nomination, Audit
and Compensation Committee
Akira Miyazaki ······························ Member of Nomination andCompensation Committee

Shinji Seki ········································ Executive Officer
Kiyoji Katakawa ··························· Executive Officer
Toshio Otaku·································· Executive Officer

Shigemichi Asakura ················· Member of Audit andCompensation Committee
Yasuhisa Katsuta ······················· Member of Nomination, Audit
and Compensation Committee

Masahiko Naito ···························· Officer
Fumiaki Kidera ····························· Officer
Sachio Kobayashi······················ Officer

Hidetoshi Nishimura ················ Member of Audit andCompensation Committee

Nobuhisa Uchikawa ················· Officer
Minoru Yoneyama······················ Officer
Kenji Sakata ··································· Officer

20

Funai Electric Co., Ltd. Annual Report 2008

Financial Statements
F U N A I E L E C T R I C C O . , LT D .
and its Consolidated Subsidiaries

C

O

N

T

E

N

T

S

Consolidated Balance Sheets································································22
Consolidated Statements of Operations ···············································24
Consolidated Statements of Changes in Equity····································25
Consolidated Statements of Cash Flows ··············································26
Notes to the Consolidated Financial Statements ··································27
Independent Auditors’ Report ······························································40

Funai Electric Co., Ltd. Annual Report 2008 21

Consolidated Balance Sheets
FUNAI ELECTRIC CO., LTD. and Consolidated Subsidiaries(Thousands of
U.S. dollars)(Millions of yen)

(Note 1)March 31,

March 31,2008
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ........................................................
Short-term investments ............................................................
Receivables:..............................................................................
Trade....................................................................................
Other ...................................................................................
Inventories (Note 4) ....................................................................
Deferred tax assets (Note 9) ........................................................
Prepaid expenses and other current assets .................................
Allowance for doubtful receivables ...........................................

22¥

57,10010,974

2007¥

83,321
278

2008

$

569,917
109,532

26,841
1,794
35,085
3,605
12,010(287)

49,024
3,694
35,045
3,173
4,807
(571)

267,901
17,906350,185
35,982
119,872(2,865)

Total current assets...............................................................

147,122

178,771

1,468,430

PROPERTY, PLANT AND EQUIPMENT:Land ........................................................................................
Buildings and structures ...........................................................
Machinery and equipment .......................................................
Construction in progress ..........................................................

5,238
15,07954,60620

5,260
13,254
67,128297

52,281
150,504
545,024200

Total ....................................................................................
Accumulated depreciation

74,943(58,170)

85,939(67,986)

748,009(580,597)

Net property, plant and equipment ......................................

16,773

17,953

167,412INVESTMENTS AND OTHER ASSETS:
Investment securities (Note 3).....................................................
Investments in and advances to unconsolidated subsidiaries
and associated companies .....................................................
PatentLong-term loans.......................................................................
Deferred tax assets (Note 9) ........................................................
Other assets..............................................................................

5,798

16,54557,8703,945
5,375
40,118
3
5,281

2,922
5,217
47,739127
3,537

39,37553,648400,41930
52,710Total investments and other assets........................................

60,52076,087604,052

TOTAL ........................................................................................

¥ 224,415¥ 272,811$ 2,239,894

Funai Electric Co., Ltd. Annual Report 2008

See notes to consolidated

(Thousands of
U.S. dollars)

LIABILITIES AND EQUITYCURRENT LIABILITIES:
Short-term bank loans (Note 5) ...................................................
Current portion of long-term debt (Note 5).................................
Payables:Trade....................................................................................
Other ...................................................................................
Income taxes payable................................................................
Other current liabilities ............................................................

(Millions of yen)

(Note 1)March 31,

March 31,

2008

2007

¥

¥

9,706
3,507

8,295
724

2008

$

96,87635,00325,811
11,3994,643
5,433

48,758
9,730
3,657
3,582

257,621113,774
46,34254,227

Total current liabilities .........................................................

60,49974,746603,843

LONG-TERM LIABILITIES:Long-term debt (Note 5) .............................................................
Liability for retirement benefits (Note 6) .....................................

1,086
2,484

4,593
2,671

10,83924,793

Deferred tax liabilities (Note 9) ....................................................
Other .......................................................................................

618
1,372

2,773
666

6,168
13,694

Total long-term liabilities .....................................................

5,560

10,70355,49431,28033,245
129,813(64)(12,064)

31,27933,244
139,468
4,039
3,288

312,207
331,820
1,295,668(639)(120,411)(24,339)(24,337)(242,929)

Total ....................................................................................
Minority interests.....................................................................

157,871
485

186,981381

1,575,716
4,841

Total equity..........................................................................

158,356

187,362

1,580,557

TOTAL ........................................................................................

¥ 224,415¥ 272,811$ 2,239,894

COMMITMENTS AND
CONTINGENT LIABILITIES (Notes 9, 11 and 13):
EQUITY (Notes 7, 8 and 13):
Common stock,authorized, 80,000,000 shares; issued,
36,104,196 shares in 2008 and 36,103,896 shares in 2007 .....
Capital surplus .........................................................................
Retained earnings.....................................................................
Unrealized gain (loss) on available-for-sale securities.................
Foreign currency translation adjustments .................................
Treasury stock-at cost
2,011,003 shares in 2008 and 2,010,535 shares in 2007 ......

Funai Electric Co., Ltd. Annual Report 2008 23

financial statements.

Consolidated Statements of Operations
FUNAI ELECTRIC CO., LTD. and Consolidated Subsidiaries(Thousands of
U.S. dollars)(Note 1)years ended
March 31,year ended
March 31,

2008

2007

2008

NET SALES ................................................................................

¥ 277,168¥ 396,712$ 2,766,424

COST OF SALES .......................................................................

231,869

328,5452,314,293

Gross profit .........................................................................

45,29968,167452,13147,70547,401

476,145

Operating (loss) income .......................................................

(2,406)

20,766(24,014)

OTHER INCOME (EXPENSES):Interest and dividend income ...................................................
Interest expense........................................................................
Foreign exchange gain (loss), net ..............................................
Provision for doubtful receivables.............................................
Loss on impairment of investment securities ............................
Loss on liquidation of an associated company ..........................
Gain(loss) on sales of investment securities, net........................
Other-net.................................................................................

5,324
(593)
(2,026)(83)(47)(1,311)
5,622(1,970)4,764(1,193)
2,377
(409)
(777)
(2,457)
(117)
(201)

53,139(5,919)(20,222)
(828)
(469)
(13,085)
56,113(19,663)

Other income (expenses)-net................................................

4,916

1,987

49,066

INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS

2,510

22,75325,052

INCOME TAXES (Note 9):
Current ....................................................................................
Prior years ................................................................................
Deferred...................................................................................

6,208

61,962

1,645

6,366
19,184824

16,419Total income taxes................................................................

7,853

26,37478,381MINORITY INTERESTS IN NET LOSS .................................

(34)

(45)

(339)

SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES (Note 10)

NET LOSS ..................................................................................

PER SHARE OF COMMON STOCK (Notes 2 and 12):
Basic net loss ............................................................................
Cash dividends applicable to the year .......................................

24(Millions of yen)¥

(5,377)¥(3,666)$(Yen)¥ (157.71)¥
50.00

Funai Electric Co., Ltd. Annual Report 2008

See notes to consolidated financial statements.

(53,668)(Dollars)¥ (107.01)
¥
55.00

$
$

(1.57)
0.50

Consolidated Statements of Changes in Equity
FUNAI ELECTRIC CO., LTD. and Consolidated Subsidiaries(Thousands)(Millions of yen)

Outstanding
Number of
Shares ofCommon Common
Stock
Stock

CapitalSurplus

UnrealizedGain(loss)on
Foreign
Available Currency
Retained for-sale Translation Treasury
Earnings Securities Adjustments Stock

BALANCE, MARCH 31, 2006. 34,394 ¥31,241
Reclassified balance as ofApril 1, 2006 (Note 2.i) ..........
Net decrease inconsolidated companies ......
Net loss...................................
Cash dividends,¥55.00 per share .................
Purchase of treasury stock ....... (310)
Exercise of stock options.........
938
Net change in the year ............

¥33,205 ¥145,030

BALANCE, MARCH 31, 2007. 34,093
Adjustment due to change ofthe fiscal year-end
of foreign subsidiaries .........
Net loss...................................
Cash dividends,¥55.00 per share .................
Purchase of treasury stock .......
(0)
Exercise of stock options.........
0
Net change in the year ............

31,27933,244BALANCE, MARCH 31, 2008. 34,093¥31,280¥8,504

Total¥1,105 ¥ (21,214) ¥197,871(4)(3,666)(1,892)

139,468(4)(3,666)47(1,892)(3,123)77(2,235)381

187,362(4,465)

2,183

4,039

3,288

(24,337) 186,981

39(1,875)(2)
1(4,103)¥33,245 ¥129,813(15,352)334(4)(3,666)(1,892)(3,123)77(2,282)(3,123)Total
Equity¥197,871¥334(2,403)(5,377)

1

Minority
Interests(2,403)(5,377)(2,403)(5,377)(1,875)(2)
2(19,455)(1,875)(2)
2(19,351)¥(64) ¥(12,064) ¥ (24,339) ¥157,871

104¥485 ¥158,356(Thousands of U.S. dollars) (Note 1)

CommonStockCapitalSurplus

UnrealizedGain(loss) Foreign
on Available Currency
Retained for-sale Translation Treasury
Earnings Securities Adjustments Stock

BALANCE, MARCH 31, 2007............... $312,197 $331,810 $1,392,035
Adjustment due tochange of the fiscal year-end
of foreign subsidiaries.........................
(23,985)
Net loss ................................................
(53,668)
Cash dividends,$0.55 per share .................................
(18,714)Purchase of treasury stock .......................
Exercise of stock options..........................
10
10
Net change in the year ...........................

$40,313BALANCE, MARCH 31, 2008............... $312,207 $331,820 $1,295,668

Total

Minority
Interests

Total
Equity$32,818 $(242,908) $1,866,265$3,803 $1,870,068(23,985)(53,668)(23,985)(53,668)(18,714)(21)
20(194,181)(18,714)(21)
20
1,038 (193,143)$(639) $(120,411) $(242,929) $1,575,716$4,841 $1,580,557(21)(40,952) (153,229)

Funai Electric Co., Ltd. Annual Report 2008 25

See notes to consolidated financial statements

Consolidated Statements of Cash Flows
FUNAI ELECTRIC CO., LTD. and Consolidated Subsidiaries(Thousands of
U.S. dollars)(Millions of yen)

(Note 1)years ended
March 31,year ended
March 31,

2008

2007

2008

22,753$ 25,052(5,385)
6,003
(230)
39
(5,622)(4,556)
8,204
(8)
3
117

(53,748)
59,916(2,296)389(56,113)

6,979
3,313
(15,472)
(234)

2,473
545
14,129(150)

69,65833,067(154,427)(2,336)

Other-net.............................................................................

(5,615)2,998(56,042)

Total adjustments.............................................................

(16,224)

23,755(161,932)

Net cash provided by (used in) operating activities...........

(13,714)46,508(136,880)

INVESTING ACTIVITIES:(Payment of ) proceeds from short-term investments ................
Proceeds from sale of property, plant and equipment................
Purchases of property, plant and equipment .............................
Purchases of intangibles............................................................
Proceeds from sales of investment securities..............................
Purchases of investment securities ............................................
Payments for loans receivable ...................................................
Proceeds from collection of loans receivable .............................
Increase in other assets .............................................................

(12,444)543(4,826)(1,556)
9,746
(41)
(280)
28
(646)

274
204
(5,583)(445)
10,260
(773)
(581)
42
(359)

(124,204)
5,420(48,168)(15,530)
97,275(409)(2,795)279(6,448)Net cash provided by (used in) investing activities................

(9,476)

3,039(94,580)

FINANCING ACTIVITIES:
Decrease in short-term bank loans—net...................................
Repayments of long-term debt .................................................
Repurchase of treasury stock ....................................................
Dividends paid.........................................................................
Other, net ................................................................................

(5,648)(724)(3)(1,875)
108(20,896)(724)(3,122)(1,892)
70(56,373)(7,226)(30)(18,714)
1,077

Net cash used in financing activities .....................................

(8,142)(26,564)(81,266)

FOREIGN CURRENCY TRANSLATION ADJUSTMENTS
ON CASH AND CASH EQUIVALENTS..............................

(2,173)

1,750(21,689)

NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS......................................................................

(33,505)

24,733(334,415)

ADJUSTMENT DUE TO CHANGE OF THE FISCALYEAR-END OF FOREIGN SUBSIDIARIES........................

7,284

CASH AND CASH EQUIVALENTS, BEGINNING OF
YEAR.......................................................................................

83,32158,588

831,630

CASH AND CASH EQUIVALENTS, END OF YEAR .............

¥ 57,100¥ 83,321$ 569,917

OPERATING ACTIVITIES:
Income before income taxes and minority interests ..................
Adjustments for:
Income taxes-paid ................................................................
Depreciation and amortization.............................................
Gain on sale or disposal of property, plant and equipment ...
Equity in losses of associated companies...............................
(Gain) loss on sales of investment securities, net...................
Changes in assets and liabilities, net of effects ......................
Decrease in trade accounts receivable ...............................
Decrease in inventories ....................................................
(Decrease) increase in trade accounts payable ...................
Decrease in liability for employees’ retirement benefits.....

26

¥

2,510

Funai Electric Co., Ltd. Annual Report 2008

See notes to consolidated financial statements¥

72,702

Notes to the Consolidated Financial Statements
FUNAI ELECTRIC CO., LTD. and Consolidated Subsidiaries

1.

BASIS OF PRESENTING CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements have been prepared in accordance with the provisions set forth in theJapanese Financial Instruments and Exchange Law (formerly, the Japanese Securities and Exchange Law) and its related
accounting regulations and in conformity with accounting principles generally accepted in Japan, which are different in certain
respects as to application and disclosure requirements of International Financial Reporting Standards.
In preparing these consolidated financial statements, certain reclassifications and rearrangements have been made to theconsolidated financial statements issued domestically in order to present them in a form which is more familiar to readers outside
Japan. In addition, certain reclassifications have been made in the 2007 consolidated financial statements to conform to theclassifications used in 2008.
The consolidated financial statements are stated in Japanese yen, the currency of the country in which FUNAI ELECTRIC
Co., Ltd. (the “Company”) is incorporated and operates. The translations of Japanese yen amounts into U.S. dollar amounts areincluded solely for the convenience of readers outside Japan and have been made at the rate of ¥ 100.19 to $1, the approximate
rate of exchange at March 31, 2008. Such translations should not be construed as representations that the Japanese yen amounts
could be converted into U.S. dollars at that or any other rate.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(a) Consolidation—The consolidated financial statements as of March 31, 2008 include the accounts of the Company and its
12 significant (12 in 2007) subsidiaries (together, the “Group”).
Under the control or influence concept, those companies in which the Company, directly or indirectly, is able toexercise control over operations are fully consolidated, and those companies over which the Group has the ability to exercise
significant influence are accounted for by the equity method.
Investments in 2 (2 in 2007) associated companies are accounted for by the equity method.
Investments in the remaining unconsolidated subsidiaries and associated companies are stated at cost. If the equity
method of accounting had been applied to the investments in these companies, the effect on the accompanying
consolidated financial statements would not be material.
The excess of the cost of an acquisition over the fair value of the net assets of the acquired subsidiary at the date ofacquisition is being amortized over a period of 5 years.
All significant intercompany balances and transactions have been eliminated in consolidation. All material unrealized
profit included in assets resulting from transactions within the Group is eliminated.
(b) Cash Equivalents—Cash equivalents are short-term investments that are readily convertible into cash and that are exposed
to insignificant risk of changes in value.
Cash equivalents include time deposits, certificate of deposits, commercial paper and bond funds, all of which matureor become due within three months of the date of acquisition.
(c)

Inventories—Inventories of the Company and its domestic consolidated subsidiaries are stated at cost substantiallydetermined by the average method for finished products and work in process, and by the first-in-first-out method for raw
materials.
Inventories of consolidated foreign subsidiaries are stated at the lower of cost or market substantially determined by
the first-in first-out method.

(d) Investment Securities—Investment securities are classified and accounted for, depending on management’s intent. All
securities are classified as available-for-sale securities.
Marketable available-for-sale securities are reported at fair value, with unrealized gains and losses, net of applicabletaxes, reported in a separate component of equity.
Non-marketable available-for-sale securities are stated at cost determined by the moving-average method. For otherthan temporary declines in fair value, investment securities are reduced to net realizable value by a charge to income.
(e)

Property, Plant and Equipment—Property, plant and equipment are stated at cost. Depreciation of property, plant andequipment of the Company and its consolidated domestic subsidiaries is computed substantially by the declining-balancemethod at rates based on the estimated useful lives of the assets, while the straight-line method is applied to buildings of theCompany and its consolidated domestic subsidiaries, and all property, plant and equipment of consolidated foreignsubsidiaries. The range of useful lives is principally from 3 to 50 years for buildings and structures and from 1 to 20 years
for machinery and equipment.

Funai Electric Co., Ltd. Annual Report 2008 27

(f)Patents—Patents are carried at cost less accumulated amortization, which is computed by the straight-line method over theestimated useful life.

(g)Long-lived assets—The Group reviews its long-lived assets for impairment whenever events or changes in circumstanceindicate the carrying amount of an asset or asset group may not be recoverable. An impairment loss would be recognized if
the carrying amount of an asset or asset group exceeds the sum of the undiscounted future cash flows expected to result
from the continued use and eventual disposition of the asset or asset group. The impairment loss would be measured as theamount by which the carrying amount of the asset exceeds its recoverable amount, which is the higher of the discounted
cash flows from the continued use and eventual disposition of the asset or the net selling price at disposition.

(h) Retirement and Pension Plans—The Company and certain consolidated subsidiaries have non-contributory funded
defined benefit pension plans and unfunded retirement benefit plans for employees. Certain consolidated foreignsubsidiaries also have defined pension plans.
Effective April 1, 2000, the Group adopted a new accounting standard for employees’ retirement benefits andaccounted for the liability for retirement benefits based on the projected benefit obligations and plan assets at the balance
sheet date. The total transitional obligation determined as of April 1, 2000, was charged to income when adopted, exceptthat of a certain domestic subsidiary which is amortized over 15 years.
Actuarial gains or losses are amortized by the straight line method over a period within the average remaining years ofservice of the employee (10 years) starting from the following period. Prior service cost is amortized by the straight line
method over a period within the average remaining years of service of the employee (10 years).
Retirement allowances for directors and executive officers are recorded to state the liability at the amount that would
be required if all directors and executive officers retired at each balance sheet date.
(i)

Presentation of Equity—On December 9, 2005, the ASBJ published a new accounting standard for presentation of equity.
Under this accounting standard, certain items which were previously presented as liabilities or assets, as the case may be, arenow presented as components of equity. Such items include stock acquisition rights, minority interests, and any deferredgain or loss on derivatives accounted for under hedge accounting. This standard was effective for fiscal years ending on orafter May 1, 2006. The balances of such items as of March 31, 2006 were reclassified as separate components of equity asof April 1, 2006 in the consolidated statements of changes in equity.

(j)Research and Development Costs—Research and development costs are charged to income as incurred.

(k)

Leases—Under Japanese accounting standards for leases, finance leases that deem to transfer ownership of the leased
property to the lessee are to be capitalized, while other finance leases are permitted to be accounted for as operating leasetransactions if certain “as if capitalized” information is disclosed in the notes to the lessee's financial statements. All otherleases are accounted for as operating leases.

(l)Income Taxes—The provision for income taxes is computed based on the pretax income included in the consolidated
statements of operations. The asset and liability approach is used to recognize deferred tax assets and liabilities for the
expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets andliabilities. Deferred taxes are measured by applying currently enacted tax laws to the temporary differences.

(m) Foreign Currency Transactions—All short-term and long-term monetary receivables and payables denominated in foreign
currencies are translated into Japanese yen at the exchange rates at the balance sheet date. The foreign exchange gains andlosses from translation are recognized in the consolidated income statements of operations to the extent that they are nothedged by forward exchange contracts.
(n) Foreign Currency Financial Statements—The balance sheet accounts of the consolidated foreign subsidiaries aretranslated into Japanese yen at the current exchange rate as of the balance sheet date except for equity, which is translated at
the historical rate.
Differences arising from such translation were shown as “Foreign currency translation adjustments” in a separate
component of equity.
Revenue and expense accounts of consolidated foreign subsidiaries are translated into yen at the average exchange rate.
(o)28

Per Share Information—Basic net loss per share is computed by dividing net income available to common shareholders by
the weighted-average number of common shares outstanding for the period.
Diluted net income per share reflects the potential dilution that could occur if stock options were exercised into

Funai Electric Co., Ltd. Annual Report 2008

common stock. Diluted net income per share of common stock assumes full conversion of full exercise of outstanding
warrants.
Cash dividends per share presented in the accompanying consolidated statements of operations are dividends
applicable to the respective years including dividends to be paid after the end of the year.
(p) New Accounting Pronouncements
Measurement of Inventories—Under generally accepted accounting principles in Japan (“Japanese GAAP”), inventories
are currently measured either by the cost method, or at the lower of cost or market. On July 5, 2006, the AccountingStandards Board of Japan (ASBJ) issued ASBJ Statement No.9, “Accounting Standard for Measurement of Inventories”,
which is effective for fiscal years beginning on or after April 1, 2008 with early adoption permitted. This standard requiresthat inventories held for sale in the ordinary course of business be measured at the lower of cost or net selling value, which
is defined as the selling price less additional estimated manufacturing costs and estimated direct selling expenses. The
replacement cost may be used in place of the net selling value, if appropriate. The standard also requires that inventories
held for trading purposes be measured at the market price.
Lease Accounting—On March 30, 2007, the ASBJ issued ASBJ Statement No.13, “Accounting Standard for Lease
Transactions”, which revised the existing accounting standard for lease transactions issued on June 17, 1993. The revised
accounting standard for lease transactions is effective for fiscal years beginning on or after April 1, 2008 with early adoption
permitted for fiscal years beginning on or after April 1, 2007.
Under the existing accounting standard, finance leases that deem to transfer ownership of the leased property to thelessee are to be capitalized, however, other finance leases are permitted to be accounted for as operating lease transactions if
certain “as if capitalized” information is disclosed in the note to the lessee’s financial statements. The revised accounting
standard requires that all finance lease transactions shall be capitalized recognizing lease assets and lease obligations in thebalance sheet.
Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial Statements—Under
Japanese GAAP, a company currently can use the financial statements of its foreign subsidiaries which have been prepared inaccordance with generally accepted accounting principles in their respective jurisdictions for its consolidation process unlessthey are clearly unreasonable. On May 17, 2006, the ASBJ issued ASBJ Practical Issues Task Force (PITF) No.18,“Practical Solution on Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial
Statements”. The new standard prescribes: 1) the accounting policies and procedures applied to a parent company and its
subsidiaries for similar transactions and events under similar circumstances should in principle be unified for the
preparation of the consolidated financial statements, 2) financial statements prepared by foreign subsidiaries in accordancewith either International Financial Reporting Standards or the generally accepted accounting principles in the United States
tentatively may be used for the consolidation process, 3) however, the following items should be adjusted in the
consolidation process so that net income is accounted for in accordance with Japanese GAAP unless they are not material;(1) Amortization of goodwill(2) Actuarial gains and losses of defined benefit plans recognized outside profit or loss
(3) Capitalization of intangible assets arising from development phases(4) Fair value measurement of investment properties, and the revaluation model for property, plant and equipment, andintangible assets(5) Retrospective application when accounting policies are changed(6) Accounting for net income attributable to a minority interest
The new task force is effective for fiscal years beginning on or after April 1, 2008 with early adoption permitted.

Funai Electric Co., Ltd. Annual Report 2008 29

3.

INVESTMENT SECURITIESThe carrying amounts and aggregate fair values of investment securities at March 31, 2008 and 2007 were as
follows:.
(Millions of yen)

Unrealized
Gains

Cost

Unrealized
LossesFair
Value

March 31, 2008
Securities classified as:
Available-for-sale:
Equity securities .........................................................

¥ 4,166¥735¥ (635)¥ 4,266

March 31, 2007
Securities classified as:
Available-for-sale:
Equity securities .........................................................

¥ 7,246¥ 6,913¥ (70)¥ 14,089(Thousands of U.S. Dollars)

March 31, 2008
Securities classified as:
Available-for-sale:
Equity securities...........................................................

Cost

Unrealized
Gains

Unrealized
LossesFair
Value$ 41,581$ 7,336$ (6,338)$ 42,579

Available-for-sale securities whose fair value is not readily determinable as of March 31, 2008 and 2007 were as
follows:
Carrying amount(Millions of yen)

Available-for-sale:
Equity securities...............................................................
Investments in limited partners........................................
Total ............................................................................

(Thousands of
U.S. dollars)

2008

2007

2008

¥

¥ 1,561895¥ 2,456$

739
793¥ 1,532

7,376
7,915
$ 15,291

Proceeds from sales of available-for-sale securities for the years ended March 31, 2008 and 2007 were ¥ 8,887
million ($ 88,701 thousand) and ¥ 12,660 million, respectively. Gross realized gains and losses on these sales,
computed on the moving average cost basis, were ¥ 5,626 million ($ 56,153 thousand) and ¥ 4 million ($ 40thousand), respectively, for the year ended March 31, 2008 and ¥ 11 million and ¥ 128 million, respectively, for theyear ended March 31, 2007.

30

Funai Electric Co., Ltd. Annual Report 2008

4.

INVENTORIESInventories at March 31, 2008 and 2007 consisted of the following:(Thousands of
U.S. dollars)(Millions of yen)Finished products.......................................................................
Work in process .........................................................................
Raw materials and supplies.........................................................
Total ......................................................................................

2008

2007

2008

¥ 21,124
1,293
12,668¥ 35,085¥ 26,795
1,380
6,870
¥ 35,045$ 210,839
12,906
126,440$ 350,185

5.

SHORT-TERM BANK LOANS AND LONG-TERM DEBT
Short-term bank loans bore interest at an annual average rate of 3.3% and 4.0% at March 31, 2008 and 2007,
respectively.
Long-term debt at March 31, 2008 and 2007 consisted of the following:(Thousands of
U.S. dollars)(Millions of yen)2008
Unsecured loans from banks and other financial
institutions, due serially to 2010 with averageinterest rates 1.9% (2008) and 1.9% (2007): .......................
Less current portion .................................................................
Long-term debt, less current portion ........................................

2007¥ 4,593(3,507)¥ 1,086¥ 5,317(724)¥ 4,5932008$ 45,842(35,003)$ 10,839

Annual maturities of long-term debt at March 31, 2008, were as follows:Year Ending
March 312009 .......................................................................................................
2010 .......................................................................................................
Total .......................................................................................................

(Millions of yen)(Thousands of
U.S. dollars)¥ 3,507
1,086¥ 4,593$ 35,003
10,839$ 45,842

6.

RETIREMENT AND PENSION PLANS
The Company and certain consolidated subsidiaries have severance payment plans for employees and directors.
Under most circumstances, employees terminating their employment are entitled to retirement benefits determinedbased on the rate of pay at the time of termination, years of service and certain other factors. Such retirement
benefits are made in the form of a lump-sum severance payment from the Company or from certain consolidated
subsidiaries and annuity payments from a trustee. Employees are entitled to larger payments if the termination is
involuntary, by retirement at the mandatory retirement age, by death, or by voluntary retirement at certain specificages prior to the mandatory retirement age.
The Company and certain consolidated subsidiaries have non-contributory funded defined benefit pension
plans and unfunded retirement benefit plans for employees. Certain consolidated foreign subsidiaries also havedefined pension plans.
The liability (asset) for employees’ retirement benefits at March 31, 2008 and 2007 consisted of the followings:

Funai Electric Co., Ltd. Annual Report 2008 31

(Thousands of
U.S. dollars)(Millions of yen)

2008
Projected benefit obligation........................................................
Fair value of plan assets ..............................................................
Unrecognized prior service cost ..................................................
Unrecognized actuarial gain (loss) ..............................................
Unrecognized transitional obligation..........................................
Prepaid pension cost...................................................................
Net liability............................................................................

2007¥ 9,127(8,907)579
543(1,183)
1,539¥ 1,698¥ 9,036(7,871)
512(745)(1,058)1,590¥ 1,4642008$ 90,189(78,561)
5,110(7,436)(10,560)
15,870$ 14,612

The components of net periodic benefit costs for the years ended March 2008 and 2007 are as follows:(Thousands of
U.S. dollars)(Millions of yen)

2008
Service cost ................................................................................
Interest cost................................................................................
Expected return on plan assets....................................................
Amortization of prior service cost...............................................
Recognized actuarial loss ............................................................
Amortization of transitional obligation.......................................
Other .........................................................................................
Net periodic benefit costs.......................................................

¥ 469
187
(199)
(68)
7
125
—
¥ 521

2007
¥ 488
189
(194)
(68)
12
125
(2)
¥ 550

2008
$ 4,681
1,866(1,986)
(679)
70
1,248
—
$5,200Assumptions used for the years ended March 31, 2008 and 2007 are set forth as follows:
Discount rate .............................................................................
Expected rate of return on plan assets.........................................
Amortization period of prior service cost....................................
Recognition period of actuarial gain / loss ..................................

2008

2007

1.4-2.5%
1.4-2.5%
10 years
10 years

1.4-2.5%
1.4-2.5%
10 years
10 years

The total transitional obligation determined as of April 1, 2000 was charged to income when adopted, exceptthat of a certain domestic subsidiary which is amortized over 15 years.
Retirement allowance for directors and executive officers at March 31, 2008 and 2007 were ¥1,020 million($10,181 thousand) and ¥973 million, respectively, which were included in liability for retirement benefits.
Retirement allowance for directors and executive officers are paid subject to the approval of the Compensation
Committee or shareholders’ meeting.

7.

EQUITY
Since May 1, 2006, Japanese companies have been subject to the Corporate Law of Japan (the “Corporate
Law”), which reformed and replaced the Commercial Code of Japan. The significant provisions in the Corporate
Law that affect financial and accounting matters are summarized below:(a)32

Dividends
Under the Corporate Law, companies can pay dividends at any time during the fiscal year in addition to the year-end

Funai Electric Co., Ltd. Annual Report 2008

dividend upon resolution at the shareholders meeting. For companies that meet certain criteria such as; (1) having theBoard of Directors, (2) having independent auditors, (3) having the Board of Corporate Auditors, and (4) the term ofservice of the directors is prescribed as one year rather than two years of normal term by its articles of incorporation, theBoard of Directors may declare dividends (except for dividends in kind) at any time during the fiscal year if the company
has prescribed so in its articles of incorporation. The Company meets all the above criteria. The Board of Directors ofcompanies with board committees (an appointment committee, compensation committee and audit committee) can also do
so because such companies with board committees already, by nature, meet the above criteria under the Corporate Law,even though such companies have an Audit Committee instead of the Board of Corporate Auditors. The Company isorganized as a company with board committees.
Semiannual interim dividends may also be paid once a year upon resolution by the Board of Directors if the articles ofincorporation of the company so stipulate. The Corporate Law provides certain limitations on the amounts available fordividends or the purchase of treasury stock. The limitation is defined as the amount available for distribution to theshareholders, but the amount of net assets after dividends must be maintained at no less than ¥ 3 million.
(b)

Increases / decreases and transfer of common stock, reserve and surplus
The Corporate Law requires that an amount equal to 10% of dividends must be appropriated as a legal reserve (acomponent of retained earnings) or as additional paid-in capital (a component of capital surplus) depending on the equity
account charged upon the payment of such dividends until the total of aggregate amount of legal reserve and additional
paid-in capital equals 25% of the common stock. Under the Corporate Law, the total amount of additional paid-in capitaland legal reserve may be reversed without limitation. The Corporate Law also provides that common stock, legal reserve,
additional paid-in capital, other capital surplus and retained earnings can be transferred among the accounts under certain
conditions upon resolution of the shareholders.

(c)Treasury stock and treasury stock acquisition rights
The Corporate Law also provides for companies to purchase treasury stock and dispose of such treasury stock byresolution of the Board of Directors. The amount of treasury stock purchased cannot exceed the amount available for
distribution to the shareholders which is determined by specific formula. Under the Corporate Law, stock acquisitionrights, which were previously presented as a liability, are now presented as a separate component of equity. The Corporate
Law also provides that companies can purchase both treasury stock acquisition rights and treasury stock. Such treasury
stock acquisition rights are presented as a separate component of equity or deducted directly from stock acquisition rights.

8.

STOCK OPTIONSThe stock options outstanding as of March 31, 2008 are as follows:

Stock Option

Number of Options
grantedDate of Grant

Exercise Period

2001 Stock Option

421,400 shares

2001.7.26

From January 1, 2004 to December 31, 2010

2002 Stock Option

399,700 shares

2002.7.23

From August 1, 2004 to July 31, 20112003 Stock Option

378,500 shares2003.7.22

From August 1, 2005 to July 31, 20122004 Stock Option①

359,900 shares2004.7.21

From August 1, 2006 to July 31, 20132004 Stock Option②

25,600 shares2004.8.13

From August 1, 2006 to July 31, 20132005 Stock Option

346,400 shares2005.7.12

From August 1, 2007 to July 31, 2014

Funai Electric Co., Ltd. Annual Report 2008 33

The stock option activity is as follows:
2001
Stock
Option2002
Stock
Option2003
Stock
Option2004
Stock
Option①

2004
Stock
Option②2005
Stock
Option(Shares)
For the year ended March 31, 2007
Non-vested
March 31, 2006 – Outstanding .........
Granted.........................................
Canceled .......................................
Vested............................................
March 31, 2007 – Outstanding .........
VestedMarch 31, 2006 - Outstanding.......... 319,900
Vested............................................
Exercised ....................................... (8,000)
Canceled .......................................
March 31, 2007 – Outstanding ......... 311,900(Shares)(Shares)(Shares)(Shares)(Shares)

359,900

25,600346,400(359,900)(25,600)

For the year ended March31, 2008
Non-vested
March 31, 2007 – Outstanding .........
Granted.........................................
Canceled .......................................
Vested............................................
March 31, 2008 – Outstanding .........
VestedMarch 31, 2007 - Outstanding.......... 311,900
Vested............................................
Exercised .......................................
(300)
Canceled .......................................
March 31, 2008 – Outstanding ......... 311,600
Exercise price..................................... ¥ 9,549($ 95)
Average stock price at exercise............ ¥ 11,580($ 116)
Fair value price at grant date ..............
—

9.

346,400
399,600

399,600

378,500

378,500

359,900

25,600359,900

25,600346,400(346,400)
399,600

378,500

359,900

25,600346,400

399,600¥ 15,150($ 151)—

378,500¥ 13,646($ 136)—359,900¥ 16,167($ 161)—25,600¥ 16,836($ 168)—346,400¥ 12,369($ 123)
—

—

—

—

—

—

INCOME TAXESThe Company and its domestic subsidiaries are subject to Japanese national and local income taxes which, inthe aggregate, resulted in normal effective statutory tax rates of approximately 40.7% for the years ended March 31,
2008 and 2007.
The tax effects of significant temporary differences and tax loss carryforwards which resulted in deferred tax
assets and liabilities at March 31, 2008 and 2007 are as follows:

34

Funai Electric Co., Ltd. Annual Report 2008

(Thousands of
U.S. dollars)(Millions of yen)

2008
Deferred tax assets :The liability for retirement benefits........................................
Accounts payable ...................................................................
Allowance for doubtful receivable ..........................................
Accrued employees’ bonuses...................................................
Impairment loss on investment securities ...............................
Inventories .............................................................................
Intercompany profit...............................................................
Tax loss carryforwards of consolidated subsidiaries .................
Other
Less valuation allowance ........................................................
Total ..................................................................................
Deferred tax liabilities:
Tax purpose reserves in accordance with Japanese tax law.......
Net unrealized gains on other securities..................................
Prepaid pension cost ..............................................................
Other.....................................................................................
Total ..................................................................................
Net deferred tax assets ................................................................

2007

2008

¥ 1,012
1,576
2,364
521
1,664
888
200
2,431
2,927
(9,123)¥ 4,460¥ 1,075
662
2,706
517
1,744
878
512
4,620
1,034
(9,443)¥ 4,305$ 10,101
15,73023,595
5,200
16,608
8,863
1,996
24,26429,215(91,057)$ 44,515¥$ 3,613648
460¥ 1,470

¥ 373
2,765
627
13
¥ 3,778

6,468
4,590
$ 14,671¥ 2,990¥ 527$ 29,844

362

A reconciliation between the normal effective statutory tax rates and the actual effective tax rates reflected in theaccompanying consolidated statements of operations for the years ended March 31, 2008 and 2007 is as follows:
2008
Normal effective statutory tax rate ..................................................................
Expenses not deductible for income tax purposes............................................
Elimination of dividend earned from subsidiaries............................................
Permanently non-taxable income ....................................................................
R&D tax credit...............................................................................................
Prior year’s taxes..............................................................................................
Lower income tax rates applicable to incomein certain foreign countries .........................................................................
Indirect foreign tax credit................................................................................
Valuation Allowance .......................................................................................
Other – net.....................................................................................................
Actual effective tax rate ...................................................................................

2007

40.7%
20.6
444.6
(6.5)
(32.3)

40.7%
0.9(111.7)(137.3)170.3(75.5)
312.9%(18.8)

(0.8)
(2.6)
84.3

13.8
(1.6)
115.9%On June 28, 2005, the Company received notice of a supplementary tax assessment from the Osaka Regional
Taxation Bureau (the “Bureau”) regarding the application of controlled foreign companies tax measure on the taxable
income of subsidiaries in Hong Kong for the three fiscal years ended from March 31, 2002 to March 31, 2004. In
the Bureau’s assessment, taxable income earned by the Hong Kong subsidiaries should be included to the Company’s
taxable income as the subsidiaries in Hong Kong are deemed not to satisfy the conditions for exclusion from theapplication of the above tax measure for dealing with tax havens.
The additional tax payments amounted to ¥19,184 million including penalties. The Company, having been
dissatisfied with the said supplementary tax assessment order, filed a petition with the National Tax Tribunal (the“Tribunal”) seeking a review of the decision made by the Bureau and filed a complaint with the Osaka District court
Funai Electric Co., Ltd. Annual Report 2008 35

for the cancellation of the supplementary tax assessment order, pursuant to the applicable laws and regulations.
For the fiscal years subsequent to the tax assessment, years ended from March 31, 2005 to March 31, 2008, theCompany has not accrued the additional tax exposures estimated at approximately ¥15,000 million($149,716
thousand) based on the methodology applied by the Bureau, due to the reason described above.
With reference to the period from March 31,2005 to March 31,2007, on June 16, 2008, the Company also
received notice of a supplementary tax assessment from the Bureau. The detail is described in Note 13, as a“subsequent event”.

10. RESEARCH AND DEVELOPMENT COSTS
Research and development costs charged to income were ¥14,789 million ($147,610 thousand) and ¥14,036
million for the years ended March 31, 2008 and 2007, respectively.

11. LEASESThe Group leases certain machinery, computer equipment, office space and other assets.
Pro forma information of leased property of finance leases that do not transfer ownership of the leased property
to the lessee on an “as if capitalized” basis for the years ended March 31, 2008 and 2007 are as follows:
Acquisition cost, accumulated depreciation, and net leased property:(Thousands of
U.S. dollars)(Millions of yen)

2008
Acquisition cost..........................................................................
Accumulated depreciation ..........................................................
Net leased property ....................................................................

2007¥ 1,626
1,020
¥ 606

¥ 1,822
1,080
¥ 742

2008
$ 16,229
10,181$ 6,048

Obligations under finance leases(Thousands of
U.S. dollars)(Millions of yen)

2008
Due within one year...................................................................
Due after one year......................................................................
Total ......................................................................................

2007

¥ 259
353
¥ 612

¥ 298
434
¥ 732

2008
$ 2,585
3,523$ 6,108

Depreciation expense, interest expense and other information under finance leases:(Thousands of
U.S. dollars)(Millions of yen)

2008
Depreciation expense .................................................................
Interest expense..........................................................................
Total ......................................................................................
Lease payments ..........................................................................

36

Funai Electric Co., Ltd. Annual Report 2008

¥ 339
10
¥ 349
¥ 348

2007
¥ 379
8
¥ 387
¥ 381

2008
$ 3,384
100$3,484$3,473

Depreciation expense and interest expense, which are not reflected in the accompanying statements of operations,are computed by the straight-line method and the interest method, respectively
The minimum rental commitments under noncancellable operating leases at March 31,2008 and 2007 arefollows:(Thousands of
U.S. dollars)(Millions of yen)

2008
Due within one year...................................................................
Due after one year......................................................................
Total ......................................................................................

2007¥ 1,058
3,122¥ 4,1802008¥ 1,001
3,861¥ 4,862$ 10,560
31,161$ 41,721

12. NET LOSS PER SHARE
Reconciliation of the differences between basic and diluted net loss per share (“EPS”) for the years ended
March 31, 2008 and 2007 is as follows:

For the year ended March 31, 2008:
Basic EPS
Net loss available to common shareholders.................
Effect of Dilutive Securities
Warrants ....................................................................
Diluted EPS
Net loss for computation............................................
For the year ended March 31, 2007:
Basic EPS
Net loss available to common shareholders.................
Effect of Dilutive Securities
Warrants ....................................................................
Diluted EPS
Net loss for computation............................................

Millions ofYen

Thousands ofsharesNet loss

Weighted
averageshares¥ (5,377)

34,093————¥ (3,666)

34,253

—

—

—

—

Yen

Dollars

EPS¥ (157.71)$ (1.57)¥ (107.01)

Diluted net income per share in 2008 and 2007 is not disclosed due to the loss position

13. SUBSEQUENT EVENTS(a) Receipt of notice of a supplementary tax assessment
On June 16, 2008, the Company received notice of a supplementary tax assessment from the Bureau regarding theapplication of controlled foreign companies tax measure on the taxable income of subsidiaries in Hong Kong for the threefiscal years ended from March 31, 2005 to March 31, 2007. In the Bureau’s assessment, taxable income earned by the Hong
Kong subsidiaries should be included in the Company’s taxable income as the subsidiaries in Hong Kong are deemed not tosatisfy the conditions for exclusion from the application of the tax system for dealing with tax havens.
The total taxable income assessed was ¥33.9 billion($ 338,357 thousand) and the additional tax for the principal tax
as assessed amounted to ¥15billion ($ 149,716 thousand)and, if including penalties, the total additional tax as assessedamounted to ¥17.2billion ($ 171,674 thousand). The additional tax payments will be charged to income for the year
ending March 31, 2009.
Funai Electric Co., Ltd. Annual Report 2008 37

(b) Appropriations of Retained Earnings
The following appropriation of retained earnings at March 31, 2008 was approved at the Company’s Board of
Directors held on June 2, 2008:(Millions of yen)(Thousands of
U.S. dollars)¥ 1,704$ 17,008

Year-end cash dividends, ¥_50 ($ 0.50) per share ..............................................

14. SEGMENT INFORMATION(1) Industry Segments
The Company and its subsidiaries operates in the single business segment of manufacturing and sales of electrical
products in Japan and overseas. Therefore, industry segment information is not disclosed.
(2) Geographical Segments
The geographical segments of the Company and its subsidiaries for the years ended March 31, 2008 and 2007 aresummarized as follows:(Millions of yen)

2008
North
America

Asia

EuropeElimination

Consolidated
total

Sales:
135,775
Sales to outside customers ¥¥193,927
109,668
Inter-segment sales.......... 181,020¥¥173,442
116,6051128¥¥ 2,592
7,186
194,319
297,377¥ 22,196
8,479
0
—

¥¥
—
(303,998)(478,425)¥¥383,034
277,168—

245,443374,947
248,547
353,932

116,616
173,470
121,213
171,176

196,911
304,563
192,795
293,333

22,196
8,479
22,2678,458(303,998)(478,425)(305,248)(477,213)

277,168
383,034
279,574
349,686(3,104)
Operating income (loss) ... ¥¥ 21,015¥¥ (4,597)
2,294¥¥ 11,230
4,116

¥¥

(71)
21

¥ ¥1,250(1,212)(2,406)¥ 33,348

Identifiable assets .............. ¥¥108,383
82,553¥¥ 25,429
23,867¥¥114,602
117,576¥¥ 20,358
1,718¥¥ (44,357)
29,612¥¥255,326
224,415

Japan

Total .............................
Operating expenses ...........

2007
Sales:
Sales to outside customers ¥¥193,927
162,715Inter-segment sales.......... 181,020
195,165¥¥173,442
203,388
28

7,186¥¥ 3,572
297,377
284,621¥ 27,037
8,479
—
305

—
¥¥
(478,425)(480,091)¥¥383,034
396,712—374,947
357,880
353,932
340,562

173,470
203,388
171,176
202,197

304,563
288,193
293,333
277,637

8,479
27,342
8,458
34,909(478,425)(480,091)(477,213)(479,359)

383,034
396,712349,686
375,946

Operating income (loss) .... ¥¥ 21,015
17,3182,294¥¥ 1,191

11,230¥¥ 10,556¥¥ (7,567)21¥ ¥ (1,212)(732)¥¥ 33,348
20,766

Identifiable assets .............. ¥¥105,622
82,55323,867¥¥ 40,137

117,576¥¥168,549

1,718¥ 16,689

29,612¥ ¥ (58,186)¥¥255,326
272,811

Total .............................
Operating expenses ...........

38

Funai Electric Co., Ltd. Annual Report 2008

(Thousands of U.S. dollars)
2008

North
America

Asia

Sales:
Sales to outside customers $1,805,820$1,355,175
Inter-segment sales ....... 1,685,632
1,094,600$1,615,067$1,163,839
261
110$ 66,915
25,871
2,769,131
1,939,505

Total ...........................
Operating expenses............

1,615,328
1,163,949
1,593,966
1,209,831

2,836,046
1,965,376
2,731,474
1,924,294

Japan

3,491,452
2,449,775
3,295,763
2,480,756

EuropeElimination

Consolidated
total$ $221,539
78,955 $$— $2,766,424$3,566,757—0 (4,455,024)—(3,034,215)

78,955 (4,455,024)
221,539(3,034,215)
78,760 (4,443,738)
222,248(3,046,691)

3,566,757
2,766,424
3,256,225
2,790,438

21,362 $ 104,572
Operating income (loss)..... $$ 195,689(30,981) $$ (45,882)
41,082$ $Identifiable assets.............. $$1,081,775
768,721$ $203,194
15,998 $$ (442,730)
275,742 $2,239,894$2,377,558$ 222,246
253,808$1,094,851$1,143,847

195 $$ (11,286)(709)
12,476$$ (24,014)
310,532(3) Sales to Foreign Customers
Sales to foreign customers for the years ended March 31, 2008 and 2007 are summarized as follows:(Thousands of
U.S. dollars)(Millions of yen)

North America ...........................................................................
Asia......................................................................................
Europe ......................................................................................
Other ......................................................................................
Total ......................................................................................

2008

2007

¥ 181,109
6,180
45,581
2,976¥ 235,846¥ 277,104
8,637
67,2795,326¥ 358,346

2008$ 1,807,655
61,683454,946
29,704$ 2,353,988

Funai Electric Co., Ltd. Annual Report 2008 39

Independent Auditors’ Report40

Funai Electric Co., Ltd. Annual Report 2008

To the Board of Directors and Shareholders of
Funai Electric Co., Ltd.
We have audited the accompanying consolidated balance sheets of Funai Electric Co., Ltd.(“the Company”)
and its consolidated subsidiaries as of March 31, 2006 and 2007, and the related consolidated statements of income,changes in net assets, and cash flows for the years then ended, all expressed in Japanese yen. These consolidated
financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Thosestandards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing theaccounting principles used and significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Funai Electric Co., Ltd. and its consolidated subsidiaries as of March 31, 2006
and 2007, and the consolidated results of their operations and their cash flows for the years then ended inconformity with accounting principles generally accepted in Japan.
1. As described in Note 12 to the consolidated financial statements, the additional tax payments of ¥19,184
million ($163,310 thousand)including penalties were accounted for as “Suspense payments of income taxes”
on its consolidated balance sheet as of March 31,2006. This “Suspense payments of income taxes” have been
charged to the income and presented as “Prior year’s taxes” on its consolidated statements of income ended
March 31, 2007 in accordance with the amended Audit Committee Report No.63 “Accounting Practices,
Disclosure and Audit Treatment for Various Taxes.” issued by Japanese Institute of Certified Public
Accountants (Auditing and Assurance Practice Committee) on March 8, 2007.For the fiscal years
subsequent to the tax assessment, year ended from March 31, 2005 to March 31, 2007, the Company has
not accrued the additional tax exposures.
2. As described in Note 2 (P) to the consolidated financial statements, the due date of the receivables from thesales of securities has been changed to the end of June 2007.
The amounts expressed in U.S. dollars, which are provided solely for the convenience of the reader, havebeen translated on the basis set forth in Note 3 to the accompanying consolidated financial statements.

Osaka, Japan
June 21, 2007
This is a copy of an audit report on the consolidated financial statements of Funai Electric Co., Ltd. and its
subsidiaries for the year ended March 31, 2007 issued by Misuzu Audit Corporation dated June 21, 2007. Misuzu
Audit Corporation has ceased operations and has not reissued the audit report.

Funai Electric Co., Ltd. Annual Report 2008 41

Company Data
Company Outline

Business Operations

Name
FUNAI ELECTRIC CO., LTD.
Foundation August 1961
Address
7-7-1 Nakagaito Daito city, Osaka
574-0013, JapanTel
81-72-870-4303
Fax
81-72-871-1112
URL
http://www.funaiworld.com/
Capital¥ 31,280 million
Sales¥ 277,168 million

Audio-visual Equipment
VCR, DVD player, DVD recorder,
Television, LCD TV
Information Equipment
Printer, Digital Still Camera(March 2008 / Consolidated)

Employees 2,628 (March 2008 / Consolidated)*The figure for total number of employees does

not include those employees (13,183) ofoutsourced production facilities located in China.

Company History
Aug. 1961 Funai Electric Co., Ltd. was established in Ikuno-ku, Osaka City capitalized at ¥20 million.
Mar. 1964 Chugoku Funai Electric Co., Ltd. was established as a manufacturing company in Fukayasu-gun(now FukuyamaCity), Hiroshima.
Sep. 1976 The head office was relocated to Daito City, Osaka.
Jun. 1980 Funai Electric Trading (Europe) GmbH (now Funai Europe GmbH), a sales firm, was established in Hamburg,
Germany.
May. 1991 Funai Corporation, Inc. was established as a sales firm in New Jersey, U.S.A.
Mar. 1992 Highsonic Industrial Ltd. (now Funai Electric (H.K.) Ltd.) was established in Hong Kong as a managementcompany of processing on commission to consignment manufacturing plants in Guang Dong province, China.
Apr. 1992 Dong Guan Plant in Dong Guan City, Guang Dong Province started operations as a consignment manufacturing
plant in China.
Aug. 1994 Zhong Shan Plant in Zhong Shan City, Guang Dong Province started operations as a consignment manufacturing
plant in China.
Jan. 1996 Funai Service Co., Ltd. was established in Higashi-Osaka City, Osaka.
May. 1996 Highsonic Industrial Ltd. (now Funai Electric (H.K.) Ltd.) established H.F.T Industrial Ltd. by joint investment
with a Japan company.
Feb. 1999 Funai Electric Co., Ltd. was listed on the Second Section of Osaka Securities Exchange.
Mar. 2000 Funai Electric Co., Ltd. was listed on the First Section of Tokyo Stock Exchange and the First Section of Osaka
Securities Exchange.
Mar. 2001 Closing date for the fiscal year ending on June 15 was changed to March 31.
Nov. 2001 Acquired the majority stocks of DX Antenna Co., Ltd. in Japan.
Jul. 2003 Funai (Thailand) Co., Ltd. a manufacturing company, was established in Nakornratchasima, Kingdom of Thailand.
Dec. 2003 Huang Jiang Plant in Dong Guan City, Guang Dong Province started operations as a consignment manufacturing
plant in China.
Apr. 2004 Funai Electric Advanced Applied Technology Research Institute Inc. was established in Kawasaki City, Kanagawa(moved in Tsukuba City, Ibaraki in May, 2008).
Oct. 2006 Funai Electric (Polska) Sp.z o.o. was established as a production company in the city of Nowa Sol, Poland.
Oct. 2007 Funai Service Corporation was established in Ohio, U.S.A.
Jan. 2008 Funai Electric Co., Ltd. and Victor Company of Japan, Ltd. agreed to a business alliance in the audiovisualequipment market.
Jun. 2008 P&F USA, Inc. was established in Georgia, U.S.A., as a subsidiary for the sourcing, distribution, marketing, andsales of Philips brand consumer televisions for the North American market.
Jun. 2008 Tetsuro Funai, President and CEO, assumed the post of Chairman.
Tomonori Hayashi, Senior Executive Officer, assumed the post of President and CEO.

42

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