ANNUALREPORT
20

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Corporate Philosophy

Better Products
Greater Trust
Co-Existence and Co-Prosperity

Dream

BeliefActionSince 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 “FPS (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 vital management resources that have been nurtured throughout the company’s history.
Funai believes that these resources will become our greatest assets as we battle for survival in an increasinglycompetitive industry.
Funai Electric’s desire is to bring the entire Group together, improve quality, delivery and cost even further, andprovide the world with products that meet the demands of the times.

Contents

Financial Highlights............................................1
To Our Shareholders..........................................2Interview with the President..............................3
Research and Development...............................6
Corporate Governance and CSR Initiatives......8

Management Discussion and Analysis...........12
Global Network / Directory..............................20
Members of the Board and Officers................22

Financial Highlights

Years ended March 31, 2010 and 2009FUNAI ELECTRIC CO., LTD. and its Consolidated Subsidiaries(Thousands of
U.S.dollars)
2010/3(Millions of yen)
2010/3

2009/3Financial Year :¥Net sales

314,912¥302,778$

3,384,695

Operating income

11,148

1,410

119,819

Net income (loss)

10,329（17,365）

111,017

Per Share (yen and U.S.dollars) :¥Net income (loss)

302.97¥（509.33）

40.00

Cash dividends

$

40.00

3.26
0.43

End of Financial Year :¥Total equity
Total assets
Number of employees

142,780¥

135,596$

1,534,609

204,058

199,883

2,193,229

2,553

2,590

—

Note-1 : The exchange rate of ¥93.04=U.S.$1.00 (as of March 31, 2010 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−

Net income (loss)−

Operating income (loss)−

Net income (loss) per share−

Annual Report 20101

To Our Shareholders

The global economy during the current fiscal year (ended March
2010) showed signs of partial recovery as various economic stimulus
measures implemented at the country level took hold and emerging
markets, especially China, India and Brazil, achieved growth.
Amid this environment, our Television (TV) Division continued
to face tough conditions as prices declined and the cost of major
components remained high. Despite this, the demand for LCD TV
units grew worldwide, and opportunities to expand the businesspresented themselves, allowing the division to post a profit during
the current fiscal year. At the Group level, the aggressive targeting ofsuch opportunities resulted in a 4.0% increase in consolidated net
sales as compared to the previous fiscal year. Further, consolidated
operating income increased by a massive 690.9% as compared tothe previous fiscal year.
Representative Director
President and CEO

Tomonori Hayashi

Unfortunately, the business environment is expected to remain
unpredictable in the future. However, we feel that these turbulent
times are exactly the right moment to show our true value. With thisin mind, we plan to promote an aggressive management style thatharnesses our strengths in “speed” and “cost competitiveness”.
In addition, we will be transitioning our management structurefrom a “Company with Committees” to a “Company with a Boardof Corporate Auditors” in June 2010 with the aim to build a more
efficient management structure and to develop future management
leaders from internal resources.
We look forward to receiving your continued understanding andsupport as we implement our strategies in the future.
July 2010

Representative Director
President and CEO
Tomonori Hayashi

2

Annual Report 2010

Interview with the PresidentManagement Analysis of the Consolidated Fiscal Year Ended March 2010

Although sales figures did notmeet projections, profitability
increased as Funai Electric’s
management framework thatemphasizes speed had a positive
impact on operating income.

billion was revised downwards to JPY163 billion as the estimated

The Funai Electric Group set off on the current fiscal year (ended

JPY11.1 billion for the full year. Despite this figure being lower

March 2010) with the objective to redouble its efforts to meetthan the JPY12 billion set forth in the revised projections, it

the target figures (net sales of JPY340 billion and operating

easily surpassed the initial forecast of JPY6 billion, indicating

income of JPY6 billion) that were not achieved in the previousthat profit conditions are steadily improving. This change canfiscal year (ended March 2009).

be attributed to a variety of factors including the increase incurrency exchange rate was revised from USD1 = JPY95 to USD1
= JPY90. Nevertheless, the Group was only able to post a figureof JPY147.9 billion for the second half of the year as prices
declined for LCD TV units and Blu-ray disc Players mainly due tosignificant competition. As a result of the above, the Group was
not able to meet the target figures, and posted a consolidated net
sales figure of JPY314.9 billion for the full year.
As for operating income, the Group posted a figure for

In regards to consolidated net sales, the Group posted a figure

revenues from LCD TV units in the North American market,of JPY167 billion for the first half of the year (April to September

as well as the Group’s efforts in the areas of management2009), which fell short of the JPY174.5 billion target. This was

efficiency and cost reductions.

mainly due to the fact that sales of LCD TV units fell short of

The Group plans to further emphasize “speed” and “costthe forecasted amount due to supply shortages of certain big-competitiveness” with the aim to become a company thatscreen panels. For the second half of the year (October 2009

can continuously generate profits even in tough competitive

to March 2010), the initial forecasted sales figure of JPY165.5

business environments.

−

Product
planning

Minimization of
the productlife-cycle
In order to respondto changes in
the market
Rapid
declinesin price

Necessary to
respond with speed

Sales

Speed

Product
development

Materials
procurements
andmanufacturing

Annual Report 20103

Interview with the President

Current Operating Environment and Issues Facing Management

Making products that customers
are satisfied with at price points
that they can afford in order tobeat out the competition andachieve top-line and bottom-line
growth.

enhance cost competitiveness.
The Group is also aiming to make products that customers
are satisfied with at price points that they can afford. In orderto achieve this, a closer level of communication is being
developed with vendors to ensure that products that accurately
meet market needs are being delivered in a timely manner.
In the field of LCD TV units, which is one of the Group’s
core products, the procurement of the panel, one of the main
components of a LCD TV unit, is a major issue for management.

Although the global economy has escaped from the worst

The demand for LCD TV units has increased globally at a fasterstages of the financial crisis, the timing of a full-fledged

rate than first imagined, and as a result, we faced a supply

recovery remains uncertain. Many consumers in Funai Electric’s

shortage of certain big-screen panels during the second half oflargest market of North America continue to keep a tight holdthe current fiscal year. In response, the Group quickly set up aof their wallets and remain conservative in their buying habits,

system to procure the component from multiple panel makers,

searching for good deals.

improving the procurement environment. After this event, we

In the consumer electronics industry, competition has

became acutely aware that the supply of components for our

become more intense as the digital era has set in. As a result,products is significantly affected by the price of raw materials

prices have fallen while the product life-cycle has shortened.

and demand from emerging markets. To avoid such situations

Further, the integration of hardware, network and contents

in other product areas, the management is working to improve

has evoked new consumer needs and has resulted in the rapid

and enhance the Group’s procurement system across all of its

development of original products that are represented byproduct lines in the future.

Internet and 3D enabled products.

Finally, we have plans to execute the above strategies without

At Funai Electric, the management recognizes the need toemphasize speed even more as rivals gear up in this new era ofdelay to ensure that an increase in net sales and improvements
in profitability are achieved.

competition. At the same time, the continued application of FPS
as well as the integration of IT into all aspects of the businessis being carried out with the goal to increase productivity and

Key issues for management−

Increasing cost competitiveness1. Optimal distribution of management resources (people, assets and capital)

2. Further promotion of FPS – Eliminate inefficiencies

3. Speed – Implement across all divisions / Investments in IT

4

Annual Report 2010

Increasein salesCost
reductions

Thoroughinventory
management

Implementationof“Speed Management”

Future Strategy

Achieving sales of 10 million LCD
TV units is the most important
strategy for the Group to meet
our medium-term management
objectives.

Of these five strategies, in order to achieve the goal of selling 10
million LCD TV units, a target of selling 7.5 million units, primarily
in the North American market, has been set for the period ending
March 2011. We firmly believe that the target of 10 million units
is very attainable if sales figures in the existing North American,
European and Japan markets improve. Further, the increase inrevenues will ensure that profitability levels rise. At the same

To marks its 50th anniversary, the Funai Electric has set forth atime, we are actively developing and bringing to market LCD TV

medium-term management objective of achieving JPY500 billion

units with a variety of features such as LED backlighting, Internet

yen in consolidated net sales and JPY25 billion in operating

connectivity and 3D compatibility. Further, in the strategically

income (operating profit margin of 5%) by the end of March 2012.

important area of Blu-ray devices, we are starting to enhanceWith this goal in mind, the Group has formulated the following fivethe line-up of products by introducing features such as Internet

strategies:

connectivity, 3D compatibility and recording functions. Finally inthe field of information devices, we have plans to expand the line-

1. Achieve sales of 10 million LCD TV units

up of products that utilize mechatronics technology where we

2. Expand the line-up of Blu-ray related products

believe we have a comparative advantage.

3. Develop the mechatronics divisions (printers, etc.)

Next, the Funai Electric is looking to enter new markets with

4. Enter new markets and create new business units

a specific focus on the BRICs (Brazil, Russia, India and China)

5. Foster and recruit talented human resources

countries in order to diversify the markets that we serve. During
the period ending March 2011, the Group is planning to enter the
China market and preparations are already being made to ensure

Trends in the sale of LCD TVs−

that this becomes a reality. The impact of this effort is anticipatedto become evident after March 2012.
On the fifth strategy above, we believe that it is essential,
particularly in a tough operating environment, to improve theskill sets of every employee and to actively appoint talented staff
to posts of larger responsibility. This belief forms the basis of theGroup’s activities in this area.
Over its approximately 50 years of history, the Group has
experienced significant changes in the business environment
several times. Every time we face such challenges, the Group has
quickly moved to establish new areas of business or open newmarkets. This historic period of great market turbulence is also
seen by the Group as an opportunity to open up new growth paths
and to write another page in our corporate history.
To our shareholders and investors, we look forward to receiving
your continued support as the management team at Funai Electric
engages in these endeavors.

Annual Report 20105

Research and Development

Developing and bringing to market high-quality products
offering excellent cost performance in a timely manner, whilelooking at future markets that combine the AV and IT markets.
With digitalization advancing rapidly on a global scale, there
are a lot of signs that a new market is being formed in the
consumer electronics industry through a merging of the AV and
IT markets. Market needs are becoming more diversified as well.
The wave of consumers in developed markets such as Japan,
US and Europe switching from analog to digital household
consumer appliances is also spreading to the BRICs countries.
At the same time, responding to the IT industry’s standard
specifications regarding the Internet is becoming imperative.
During the current fiscal year, the Group continued to
exhibit one of its core strengths; bringing to market highquality products that offer excellent cost performance and meetmarket needs in a timely manner. More specifically, new digital
TV units and Blu-ray products that feature Internet and home
network connectivity were introduced to the market. In regards
to the developmentof optical disk-related
technologies, digital
image technologies
and ultra-high-density
display technologies
that support theadvancement of theGroup’s core productline-up, investments

6

Annual Report 2010

were made into the continued development of technologies
that achieve certain price points and cutting-edge technologies
that form the foundation of various brand strategies.
Meanwhile, various efforts to develop products that are directly
linked to expanding markets and activities to seek out new
areas of business are being carried out with one eye always on
spotting potential growth markets.
Such research and development activities are being carriedout by Funai Electric’s R&D Engineering Department andthe technology departments located in each of the Group’s
operating divisions. For the current year, total research anddevelopment expenses totaled JPY13,485 million.
Funai Electric is engaged in the manufacturing and sale ofconsumer electronics. The main research and development
activities carried out during the current year are summarized
below (not classified by business segment).

In optical disk-related devices, as technologies converge
in sync with the transition to the next generation ofsemiconductors for Blu-ray disc players, Funai Electricactively developed ways to commercialize recordand-playback devices, decrease the size of its devices
and increase the energy efficiency of its devices.
Funai Electric also developed Internet application
technologies that are the characteristic of the next
generation Profile 2.0 (BD Live) standard.

In TV-related devices, the Group relentlessly worked
to develop value-added products with features such as
LED backlighting, 3D compatibility, as well as Internet
and home network connectivity. Furthermore, theGroup continued to pursue cutting-edge technologies
that can be applied to new functions that form the basisof various brand strategies as well as enhance the ability
to respond to needs of OEM customers. In addition,
environmentally-conscious products have also beendeveloped.

In addition to making a material investment into thedevelopment of network infrastructure for homeaccess technologies such as the next-generation cable
television platform in the US (Tru2Way) and wirelessmobile access technologies for next-generation mobile

platforms, Funai Electric also developed access network
technologies and devices in this field. In addition,
the Group is developing products that directly reflect
feedback received from users and industry personnel at
the North American CES (Consumer Electronics Show).

As for wireless network systems, Funai Electric is
engaged in the development of wireless device network
systems that support both the Wi-Fi and Wi-Max

standards. Moreover, preparations to enter the market
are being made through such efforts as the testing ofterminals at public demonstration events.

Funai Electric manages the Funai Electric Advanced
Applied Technology Research Institute Inc. as alaboratory focused on supporting nanotechnology
research. At the Institute, researchers look to enhanceexisting core businesses and intellectual property

in areas such as LCD and optimal discs. In addition,
researchers are actively developing devices that will
form the foundation of products designed for new
growth markets such as electronic publishing.

In the digital television sector, Funai Electric is seeking
to differentiate itself from other companies by utilizing
exclusive rights to specific patents obtained throughan alliance with the Thomson Group and the Group’s
own proprietary patents. Funai Electric is also working

to strengthen its personnel and build an organizationthat is able to strategically pursue efforts to acquire
intellectual property and form alliances in order toremain competitive from the standpoint of patentaccumulation.

Annual Report 20107

Corporate Governance and CSR Initiatives
The Funai Electric Group operates with the utmost awareness of its corporate social
responsibilities (CSR). Taking this to heart, the Company promotes a management
approach that always keeps in mind its responsibility towards all stakeholders, bothinternal and external, ranging from shareholders and customers to vendors, neighboring
communities and employees.

The Funai Electric Group’s basic

rapid decision making is achieved

established. Through this system, thephilosophy on corporate governance isbecause internal directors are well-versed

administration department sends out

to continuously increase the value of thein Group business matters. At the samereference materials ahead of scheduled

corporation by:time, the soundness and transparency

Board of Directors of Board of Corporate• Being transparent to all stakeholders,both internal and external, ranging
from shareholders and customers tovendors, neighboring communities
and employees;• Ensuring the soundness and efficiencyof management; and• Responding to changing operating
environments through quick decision
making capabilities.

of operations is ensured through the

Auditors meetings. In addition, meeting

independence of the outside directors.

minutes as well as other necessary

As a general rule, scheduled Board of

information are sent out to those outside

Directors meetings are held once every

directors that were unable to attend thethree months. When necessary, non-meetings. Further, outside directors andscheduled meetings are also held.

auditors are given the opportunity to

Board of Corporate Auditors: As of Julysections and view internal documents

Based on this philosophy, the Group2010, the Funai Electric Group has threethat contain important decision-making

adopted an executive officer system incorporate auditors, of whom two arematters. In this manner, the system

2002, and subsequently transitioned

outside auditors. The corporate auditors

allows outside directors and auditors

into a “Company with Committees”

receive monthly audit reports fromto sufficiently exhibit their respective

System in June 2005 with both moves

the audit office. If deemed necessary,

management and audit functions.

aimed at separating the management andthe corporate auditors also receive

execution functions of its operations.

unscheduled results and explanations of

set based on the range approved at the

Further, on May 10, 2010, the Board ofinternal audits. With this information in

Annual General Shareholders’ Meeting.

Directors passed a resolution to change

hand, the system allows for the corporate

Specific figures for each director andthe organizational structure of the Groupauditors to share and exchange ideas andauditor are determined at their respective

once again to a “Company with a Board

opinions on audit matters.

meetings after much deliberation.

nurture internal management staff and

Executive Officer System: The Funai

Basic Philosophy on the Internal Control

further increase management efficiency.

Electric Group continues to implement

System and Current Conditions of SuchOn June 22, 2010, directors and auditors

an executive officer system to ensure that

System: The Funai Electric Group has

were appointed to each board at the

management decisions can be executedestablished an internal Investment andAnnual General Shareholders’ Meeting.

in a timely manner. As of July 2010, there

Loan Committee that deliberates overare 19 executive officers, including somematters concerning investments andof whom are Board of Directors.

loans that are not discussed at Board

meet regularly with the heads of various

Remuneration figures for directors areof Corporate Auditors” with the aim to

Board of Directors: As of July 2010, theFunai Electric Group has 12 directors,of whom two are outside directors. By
structuring the board in this manner,

8

Annual Report 2010of Directors meetings. The council
A support system for outside directors
and corporate auditors has also beenreviews such matters from a holistic
corporate standpoint to ensure thatsound management judgment is being

matters from each operating division

confers with the Board of Corporate

carried out. In addition, the Funai Electric

is understood and managed in an

Auditors, periodically carries out auditsGroup has formulated compliance rules

integrated manner, and such informationof each internal division as well as

to ensure that the Group’s corporate

is disclosed in a timely fashion. Further,subsidiary companies. Further, the Board

activities are strictly in compliancethe system works to prevent informationof Corporate Auditors works with thewith not only governmental rules andleaks and ensures that accurateGroup’s Accounting Auditors to perform

regulations but also with internal rules

information is disclosed in a timely

audits of core domestic and internationaland social norms. Internal rules regarding

manner through IR-related activities.

subsidiaries, analyzes the results of suchthe protection of whistle-blowers havealso been formulated.

Finally, full-time auditors sit within theInternal Audit Office. The Office, which

audits, and validates important mattersthat arise.

In regards to risk management, rules
have been formulated with the President
and CEO of the Group ultimately being
held responsible for appropriately
understanding and managing risks facing
the company. At the same time, theInternal Audit Office validates such risk

Organizational Diagram of a Company with Board of Corporate Auditors
Annual Shareholders’ Meeting
ReportingElection / Dismissals

Election / Dismissals

Board of Auditors
Reporting

Audit

information in an accurate manner.

Audit

Board of Directors

Reporting

Reportingis to create a comprehensive level ofElection / Dismissals

Accounting Auditor

management activities. As for disclosure
related matters, Funai Electric’s objective

ReportingElection / Dismissals / Management

Representative Director / Director Responsible for Business Units / Executive Officers

With this in mind, a system whereby
the General Manager of Administrationis responsible for the handling of
information has been established. This

Auditing OfficeInternal Audit

Reporting

Supervision

Each Business Unit / Subsidiary Company

ensures that decisions or other important

In recent years, there is an ever-the “Conformity Assessment Scheme

the Group passed the examinations

increasing dependence on information

for Information Security Management

to expand the scope of application ofsystems for business transactions.

Systems (Ver.2.0).”

both standards in November 2008,

With the understanding that it is the

Additionally, to further enhanceand obtained certification for its entire

Group’s duty to stakeholders to ensure

its information security management

Information Systems Department andinformation security, Funai Electric

systems, efforts were made by theall of the Personnel and Administration

worked to create an information security

Information Systems Department to

Department.

management system. On November

simultaneously receive the international

Such efforts to improve information

15, 2005, Funai Electric’s Information

information security management systemsecurity will continue to be made in the

Systems Department received Britain’s

standard “ISO/IEC 27001:2005” and thefuture by the Group as the safeguarding

information security management systemdomestic standard, “JISQ 27001:2006”,

of such information becomes even morecertification “BS7799-Part 2:2002”

thus allowing the Group to transition toimportant.

and Japan’s equivalent certification,

the most up-to-date standards. Further,

Annual Report 20109

Corporate Governance and CSR Initiatives

The Funai Electric Group acknowledges

Group’s facilities in and outside of Japanof “Green Procurement” that gives priority

the issue of the global environment as

becoming certified in recent years.

to suppliers that provide eco-friendly

an important management topic and has

In addition, the Group carries out

established an Office of Environmental

activities that aim to protect the globalof reduced power consumption andAffairs within the Head Office in order toenvironment through compliance withzero emissions of industrial waste fromtake action in response to environmental

the Environmental Charter. As part ofcompany locations, efforts to achieve

issues. At the same time, the Groupthese activities, efforts are being madegreater energy efficiency in all products,

is working towards the acquisition of

to increase the percentage of materials

and the voluntarily elimination of harmful

ISO14001 certification (an international

recycled to comply with the Home

toxic substances contained in products.

standard for an environmental

Appliance Recycling Law. Other activities

management system), with many of thebeing carried out include the promotion

parts, materials and products, the pursuit

The Funai Electric Group’s
Environmental Charter
Basic Philosophy
The Group’s slogan is “to make better products, build
greater trust, and establish a more meaningful coexistencewith society”. With this in mind, the Funai Electric Group isdelivering on a promise to implement business activities thatconsider environmental consequences with the understanding
Environmental Policies
1. Ensure management compliance (statutory compliance).
2. Voluntarily eliminate toxic substances from products anddevelop environmentally-friendly products.
3. Establish design targets with environmental considerations
and provide eco-friendly products.
4. Promote improvement activities to achieve zero emissions.
5. Establish environmental targets and achieve continuous
improvement through periodic reviews of such targets.
6. Educate all employees about the environmental matters andActivities at the Facility Level: The Funai Electric Group
engages in various environmental protection activities
at the facility level including efforts to use resources andenergy in the most efficient manner possible, reduce waste,
and increase the rate of recycling. In order to monitor
such efforts, the Group measures and analyzes input
levels for resources and energy, output levels of waste,
and the amounts of waste that are recycled. During the
fiscal year ended March 2009, the recycling activities thatwere introduced (e.g. recycling of Styrofoam and metal

10

Annual Report 2010that every single employee is responsible for protecting theenvironment. The Group is also working to realize coexistence
between nature and society by providing simple, highquality products to customers, that efficiently use resources,
eliminates waste, and minimizes the environmental load.

steadily work to improve environmental conditions.
The Funai Electric Group engages in environmental protection
activities from both the standpoint of facilities and products. Suchefforts are summarized in the annual “Environmental Report” thatis provided to the public on a continuing basis. Within the Group,
the ISO14001 Promotion Committee drives such activities at thefacility level and the Products Environmental Committee drives
such activities at the product level.

wastes) helped the Groupconsiderably reduce its
output of industrial waste.
In addition, the Groupparticipates in the “TeamMinus 6%” initiative that aims
to cut carbon dioxide (CO2)emissions. More specifically,work is being carried out toreduce the consumption ofelectricity (the main consumption factor) as well as gas,
gasoline, water, and printing paper. As part of these activities,
the Group participates in the test trials of E3 Gasoline(Gasoline that contains 3% bioethanol) that are being carriedout by Osaka Prefecture.

Activities at places of business

−

INPUT

OUTPUT

EnergyCrude oil equivalentconsumption amount
1,045kl

CO2 Emissions
1,749t - CO2
General
Office Waste
4,810 bags

Electricity
4,032,000 kWh
Gas
12,000g

Activities at the Product Level: The Funai Electric Group’s
design philosophy takes environmental protection into
account with the aim to satisfy customers. The Group’s
Products Environmental Committee is responsible forpromoting environmentally-friendly product design acrossall divisions. In recent years, work has been carried out
to design various eco-friendly products including simple,
lightweight products that reduce the use of resources,
products with reduced power consumption levels thatenable customers to contribute towards the prevention of
global warming, slim products that increase space efficiency
during transport thus reducing its environmental load, andproducts without harmful toxic substances that lowers thepotential for environmental pollution in the product lifecycle. Moreover, a ProductEnvironmental Seminar isheld every month by theCommittee in order to ensurethat employees are trainedand educated on mattersconcerning environmental
protection.
During a product-related environ-

Gasoline
13,000g

Industrial Waste
10t

Activities carriedout atFunai Headquarters
for the period
ended March 2009

RecycleWater
23,000m3

Paper
Materials
78t

OA Paper
3,863,000 pages

Other
104t

Annual standby power consumption for one product unit
(kWh per year per weighted average)
TV Division
DVD Division(kWh per year per unit)

60

30

29

9.73

9.05

20.83

16.74

26.61

27.57

March ’07

March ’08

50
40

Information Devices Division

20

30

25

25
20

20
10

Reduction rate
(%)

7.24
11.91

15

20.65

5

0

10

0

March ’09

mental training session

Through the awareness and involvement

the efficient use of agricultural land.

In addition, employees participate in theof its employees, the Funai Electric GroupThe Group participates in these efforts

annual Clean-Walk held by Daito City

is engaged in developing a cooperative

through the cultivation of rape blossoms(formerly known as Clean Day) which

environment with its surroundingat Nakagaito-hama Koen in collaboration

contributes towards the beautification ofcommunities and actively participateswith educational institutions in the area.

the city area.

Cultivation activities of rape blossoms (for biodiesel
fuel)Participation in regional beautification and cleaning
activities

in social activities. For example, Osaka
Prefecture has requested its various
municipalities to cultivate rape blossoms
with the aim to produce bio-diesel
from the raw material, prevent global
warming and at the same time achieve

Annual Report 201011

Management Discussion and Analysis
FUNAI ELECTRIC CO., LTD. and its Consolidated Subsidiaries

Basic Management Policy

Medium-Term Management Strategies and Issues
to be Addressed

The Funai Electric Group’s corporate motto is to “create
better products”, “earn greater trust” and “co-exist and co-

In the consumer electronics industry, collaborations between IT

prosper with society”. The Group’s business philosophy,

firms and contents developers, as well as collaborations between

which is based on this motto, is to establish the most efficient

hardware and software providers have resulted in the rapid

development, production and sales system, and supply thedevelopment of products that evoke new consumer needs. The

global markets with high quality, appropriately priced products

Funai Electric Group recognizes that is must also respond to thisin a stable manner in order to build a greater level of trust andnew era of competition by adding a speed component to its newachieve mutual prosperity with stakeholders.

product development activities and its stable of unique strengths
including the “setting attainable price points”, “maintaining aslim corporate structure” and “the implementation of FPS”.

Management Performance Measurement Index

Given such an environment, the following are the issues thatmust be addressed in order to increase the corporate value of the

The Funai Electric Group places a highest level of importanceGroup as well as the countermeasures that are being consideredon operating margins as its main management performance

to tackle such issues.

measurement index. For the medium-term, the target for theGroup is to achieve a 5% operating margin.

Increase Net Sales and Improve Profitability
The most important issue facing the Funai Electric Group is to

Basic Policy Concerning Profit Distribution

find a way to increase net sales and improve profitability.

The Funai Electric Group is fully aware that providing returns

Product Strategy:

to shareholders is one of the most important issues that

In regards to the audio-visual devices category, LCD TV units

management faces. With this in mind, the Group’s basic

during the current year saw uplift in sales primarily in the North

policy on profit distribution is to maintain a stable dividend

American markets. This allowed the Group to return to anlevel while ensuring the operating basis of the Group isoperating profit as compared to a loss posted in the previous year.

continuously strengthened. The basic measurement which

Despite this positive turn of events, it will be necessary to develop

is used to track the policy is the Dividend-to-Consolidated

and bring to market new LCD TV units that come with features such

Net Assets Ratio with the current target figure being set at

as LED backlighting, 3D readiness and Internet connectivity that

1.0%. Based on this target, the Group plans to implement an

are anticipated rise in popularity quickly in the near future. As for

aggressive dividend policy while taking into consideration the

Blu-ray disc-related devices, the Group introduced Internet-readyoperating environment facing the business.

Blu-ray disc players and recorders to the market during the current

Based upon the aforementioned policy, the year-end dividend
for the period ended March 2010 was set at JPY40 per shareyear. The future strategy is to introduce an even deeper productline-up in this area by adding such products as 3D-ready players(annual dividend of JPY40 per share).

and portable players, with the aim to expand sales of such devices.

Regarding retained earnings, we will further strengthen the

Finally, in the information devices category, the Group is aiming toconstitution of management by appropriating Company financial

increase sales of devices in this area through the provision of notresources to maintain future stable shareholders profits andonly the traditional line-up of products but also products that havedevelop Funai’s medium to longterm business strategies.

high added value to OEM customers. More specifically, the Groupplans to develop more products that utilize mechatronics in thisproduct category as it is an area of specialization.

12

Annual Report 2010

LCD TV

Market Strategy:of the cycle. This can be achieved by having a closer level ofIn regards to markets, the Group believes that it is necessary tocommunication with customers and at the same time applying

expand sales globally while reducing its overdependence on the

IT to more parts of the Group in order to minimize the time-lag

US market (which is the largest source of sales of the Group) andbetween operating divisions. Taking such measures will enable

the impact of the annual drop-off period that is seen in January

the Group to supply products that accurately meet markets needs

and February. In order to achieve this, the European and Japanese

in a timely basis.

markets must be further developed, while entry into emerging
markets such as the BRICs must be achieved. At the same time,the manufacturing and sales structure of the Group must also
be standardized. In line with this plan, the Group is currently

Foster Human Resources and Appoint Personnel to Positionsof Responsibility

preparing to enter the China market with one of its core products,

The Funai Electric Group recognizes that measures to improve

the LCD TV unit.

employee skill levels and linking such efforts to the strengtheningof the organization are critical if medium to long-term business

Channel Strategy:

strategies are to be executed properly, and if the Group wants to

The Group believes that it is necessary to improve customer

beat out the competition in this new age of global competition.

satisfaction by accurately understanding market needs. ThisWith this in mind, the Group’s policy is to actively foster its

will be achieved by developing a closer level of communication

human resources, regardless of whether they are inexperienced orwith important existing customers as well as new customers.

mid-career, and appoint personnel to positions of responsibility.

The Group is also planning to launch Internet sales in the North

One plan for achieving this is by enhancing and strengthening theAmerican market with the aim to increase customer coverage ininternal and external training systems established by the Group.

this important market.
Brand Strategy:
In the audio-visual devices category, it is more important

Business Performance

than ever to focus on the positioning of the four brands in the
North American market (i.e. SYLVANIA, Emerson, PHILIPS andBusiness Environment:

MAGNAVOX) and the Funai brand in Europe as the Group plans

The uncertain business environment in the Group’s main US

to build on the comparative dominance of its existing productmarket continued during the current year as unemployment rates

line-up and also challenge competitors with the development

remained high despite an increase in part-time and temporaryof new products. Another important issue is the manner in

employment, and a full-fledged recovery of the housing market

which the brand is positioned in markets such as Japan where

did not become evident. However, as a result of the large-scale

the Group plans to boost sales, and China where the Group

fiscal support policy introduced by the US government, signs ofplans to enter in the near future.

improvement in certain economic indicators including capital
investments and personal consumption were seen at the start ofSupply Products in a Timely Manner by Accurately Responding to Market Needs

2010. Further, almost all concerns regarding a further bottoming
out of the economy were eliminated and hints of an economic
recovery became apparent. In the consumer electronics industry,In order to realize the goal of “Making Products that Sell at

the demand for LCD TV units, a core product for the Group,

Affordable Price Points”, the Funai Electric Group must aim tosignificantly increased not only in the major existing markets

speed up every step of the product development process fromof Japan, US and Europe but also in China where there marked

product planning, development, raw materials procurement,

economic growth was seen. On the other hand, the price of suchproduction, and sales while also reducing costs at each stage

products continued to decline and the cost of the LCD panel, theAnnual Report 201013

Management Discussion and Analysis
FUNAI ELECTRIC CO., LTD. and its Consolidated Subsidiaries

main component of a LCD TV unit, hovered at high levels. In theauthorities under the Anti-Tax Haven Law. For the current year,

future, the Group anticipates a shift in the business environment

no such extraordinary amount needed to be recorded. Further,as popularity for LCD TV units with new features such as LED

the improvement in operating income led to the Group posting abacklighting and 3D readiness will rapidly grow when they are

net income amount of JPY10,329 million for the current year.

introduced to the market.
Net Sales:
Net Sales for the current year totaled JPY314,912 million, a 4.0%
increase from the previous year. This was mainly due to growth insales of LCD TV units and Blu-ray disc-related devices, as well as

Performance by Product Category
Audio-Visual Devices
Main Product Line-Up:

an increase in OEM orders for printers.

In this product category, the Funai Electric Group engages in the
Operating Income:development and sales of LCD TV units and DVD-related devices.

As part of its efforts to increase its competitive edge, theIn the area of DVD-related devices, progress is being made toGroup continued to look for ways to reduce selling, general andenhance the Group’s product line-up in the areas of DVD players,administrative expenses. At the same time, the Group worked to

DVD recorders and Blu-ray disc players. In the area of LCD TV

thoroughly implement inventory management and made progressunits, the Group boasts a broad line-up of sizes that range fromin improving productivity through the further implementation of

19” to 52” to ensure that it is able to meet a wide spectrum of

FPS. In addition, the increase in revenues from LCD TV units incustomer needs. In addition, other market needs are met throughthe North American market significantly contributed to improved

the introduction of unique LCD TV “combo” models that comeprofitability during the current year. As a result, the Group posted

equipped with a built-in DVD player.

operating income of JPY11,148 million for the current year, aCurrent Year Performance:

690.9% increase from the previous year.

As competition increases and consumption cools off in the
Net Income:LCD TV market, prices for such products have continued to fall.

In the previous year, the Group posted a net loss of JPY17,365

Despite this, sales in the North American market showed growth

million after it was forced to record a JPY16,838 million expense

during the current period. In the DVD-related devices sub-for prior period income taxes relating to claims made by

category, sales of Blu-ray disc-related devices, an area where

Net sales−

14

Annual Report 2010

Operating income (loss)−

Net income (loss)−Blu-ray Disc Player

HDD/VCR/Blue-ray Disc Recorderthe Group sees significant potential, showed signs of growth.
However, in overall terms, sales in this sub-category fell as sales

Home Theater System

Performance by Region

for TV set-top boxes for the US market declined mainly because

Progress by Region:

production was halted for this product in June 2009. As a result,

In the Group’s main North American market, efforts are being

sales for the Audio-Visual Devices category as a whole during themade to strategically develop the LCD TV business throughcurrent year increased by 1.3% from the previous year to finish at

the four trusted brands (SYLVANIA, Emerson, PHILIPS, andJPY233,528 million.

MAGNAVOX) that are being currently in the market. In Europe as
well, the Group proceeded to build on its relationship with power
retailers such as France’s Carrefour, the largest retain chain store

Information-Related Devices

in the region, and Germany’s Metro AG. In addition, the Group’s

Main Product Line-Up:

Germany-based sales subsidiary was integrated into FUNAIIn this product category, the Funai Electric Group’s main products

ELECTRIC EUROPE Sp.z o.o., its Poland-based manufacturing

are ink-jet printers and laser printers.

subsidiary. Through such efforts, the organization is readying
itself for future sales expansion in the region. In the future, anCurrent Year Performance:even broader global sales network will be established by the

No digital still camera sales were recorded during the current

Group as it adds relationships in China into the mix.

year as orders were not received from OEM customers. On
the other hand, growth in printer sales was achieved as the

Results for the Current Fiscal Year:orders from OEM customers increased. As a result, sales forIn the North American market, sales of TV set-top boxes declined

the Information-Related Devices category as a whole duringwhile sales of LCD TV units increased. As a result, net sales

the current year increased by 21.4% from the previous year tofrom this market for the current year increased by 0.1% fromfinish at JPY54,629 million.

the previous year to finish at JPY216,454 million. Further, in thecurrent year, net sales in the Japan market increased by 30.5%
from the previous year to finish at JPY48,380 million, the Asia (exOther Products

Japan) market increased by 28.2% from the previous year to finish

Sales of other products during the current year fell by 1.5% as

at JPY8,822 million, and other markets increased by 70.5% fromcompared to the previous year to finish at JPY26,755 million.

the previous year to finish at JPY10,766 million. On the other
hand, sales of core LCD TV units and DVD-related devices fell in

Cost of sales / Cost of sales to net sales

Net sales−−

SGA expenses / SGA expenses to net sales

Operating income (loss)−−

Operating income (loss) to net sales

Net income (loss)−

Annual Report 2010−15

Management Discussion and Analysis
FUNAI ELECTRIC CO., LTD. and its Consolidated Subsidiaries

the European market, leading to net sales in the region decreasing

previous year. As a result of the above factors, total liabilities fellby 16.2% from the previous year to finish at JPY30,490 million.

by JPY3,009 million from the end of the previous year to total
JPY61,278 million for the current year.

Financial Condition

Equity:Total equity at the end of the current year totaled JPY142,780

Assets:million, an increase of JPY7,184 million compared to the previous

Current assets at the end of the current year totaled

year. This was primarily because retained earnings increased by

JPY167,156 million, a JPY3,447 million increase from the end of

JPY9,225 million from the end of the previous year while foreign

the previous year. This was primarily due to a JPY7,740 million

currency translation adjustments fell by JPY2,937 million from theincrease in inventories compared to the end of the previous

end of the previous year.

year. In addition, property, plant and equipment fell by JPY372
million from the end of the previous year to total JPY15,654

Cash Flowmillion at the end of the current year. Meanwhile, investments

Net cash provided by operating activities totaled JPY3,640 million

and other assets rose by JPY1,100 million compared to the end

for the current year. More specifically, trade accounts receivableof the previous year to total JPY21,248 million at the end of

and inventory increased by JPY7,103 and JPY8,587 million,

the current year. As a result of the above factors, total assets

respectively, while a JPY10,878 million amount was posted forincreased by JPY4,175 million compared to the end of theincome before taxes and minority interests and JPY5,757 million

previous year to total JPY204,058 million.

was used for depreciation and amortization.
Net cash used in investing activities totaled JPY2,714 million

Liabilities:

for the current year, as the JPY100,157 million proceed from time

Current liabilities at the end of the current year totaled JPY56,208

deposits was offset by a JPY98,887 million payment for time

million, a JPY4,175 million decrease from the end of the previous

deposits and a JPY3,547 million outlay associated with purchases

year. This was mainly due to a JPY5,713 decrease in short-of property, plant and equipment.

term bank loans countering the effects of a JPY3,148 million

for the current year. A decrease in short-term bank loans insales. Long-term liabilities at the end of the current year totaled

the amount of JPY6,280 million, a JPY700 million repayment of

JPY5,070 million, a JPY1,166 million increase from the end of thelong-term debt and JPY1,364 million used for paying dividends

Sales composition by product category (March ’ 10)

16

Net cash used in financing activities totaled JPY7,871 million

increase in trade accounts payable as a result of a recovery in

Annual Report 2010−

contributed to this figure.

cost products to consumers based upon optimized production

As a result of the above factors, the balance of cash and cash

and sales systems on a global scale. We manufacture and sellequivalents at the end of the current year totaled JPY34,063

our principal products, such as audio-visual equipment (DVD-

million, a JPY6,117 million decrease compared to the end of therelated products, LCD TVs, etc.) and information equipment

previous year.

(printers, etc.), in addition to other products (receiver-related
electronic equipment).
Price competition in these product areas is intense.

Capital Investment

Additionally, the lifecycle of digital products is short and thecompetition to develop new technologies and functions is also

Capital investment by the Funai Group in the current period

intensifying. Accordingly, these factors may affect the Group’s

totaled 4,309 million yen, a 704 million yen decrease comparedfinancial situation and operating results.

with the previous period. Capital investments by manufacturing
companies totaled 2,908 million yen, while sales companies

1. Product cost and market prices

invested 1,400 million yen. This capital investment was mainly

The Group’s primary target is customers of mass

for the expansion of production facilities. During the current year

merchandisers such as Wal-Mart and therefore we must deliver

Funai did not dispose of or sell any important facilities.

low prices. Consequently the Group is working to cut costs
through measures such as establishing production systems in
optimal locations, pursuing further application of FPS (Funai

Business Risk

Production System), the unique productivity improvement
system developed by Funai, and utilizing internal production of

Risks that may have a significant impact on the Group’s financial

parts and centralized purchasing.

situation and operating results are outlined below. Forward-

However, competition in the home electronic appliancelooking statements in this text are based on decisions made byindustry is intense and when the cost of parts and raw materials

the Group as of June 22, 2010.

rise, cost pressures may affect the Group’s financial situation andoperating results regardless of the fact that we have implemented
these measures.

The Funai Group’s management policy
The Group has adopted a policy of providing high-quality, low

Sales composition by region (March ’ 10)

Sales by region

Annual Report 201017

Management Discussion and Analysis
FUNAI ELECTRIC CO., LTD. and its Consolidated Subsidiaries

2. Product supply through OEM (Producing partner brands)

situation and operating results.

As part of the effort to create collaborations with distributors andelectronic appliance manufacturers, particularly overseas, OEMs

4. Defects Relating to Products and Services

accounted for 26.0% of the Group’s production supply in the

The Group efforts to increase quality are centered on thecurrent consolidated fiscal year.

departments that are responsible for quality management andWhile our OEM strategy is to efficiently increase our market sharetechnologies. In addition, a service platform consisting of service

and improve productivity through mass production, entrusting thecompanies in both domestic and international markets has

sales strategy to our partners may also result in unforeseen changes.

been established. However, if there is a defect in a product that

Additionally, individual OEM contracts are relatively short in duration

requires the Group to respond by repairing or replacing suchand Funai must be able to accurately respond to the needs of our

product, the impact of the warranty and/or the resultant decrease

partners. We must strengthen our OEM strategy and, at the samein corporate reputation may have negative implications for thetime, strengthen marketing in order to complement that strategy

Group’s financial situation and operating results.

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

The effects of overseas market trends
Dependence on the North American market

situation and operating results.

A large portion of the Group’s net sales originates in overseas
3. New technologies

markets. The North American market in particular accounted for

As the number of digital products in the home electronic

68.7% of net sales in the current consolidated fiscal year. Should

appliance industry increases and the needs of the market become

the North American economy rapidly enter a recession, this may

more diverse, Funai must improve the quality, volume and speed

affect the Group’s financial situation and operating results.

of its new product development.
The Group must be able to respond to such issues and wewill improve our technical capabilities, primarily in the digital

The Group is working to improve the cost competitiveness of its

product area, by collaborating with other companies, industry

products by concentrating production in positive cost-benefit

and academia, and through personnel training. We also willregions and purchasing parts in bulk. In the current consolidated

consider mergers and acquisitions among our options. However,fiscal year 99.0% of our products were produced overseas,a diversification of market needs or technological innovation

with 81.9% produced under consignment fabrication in China.

beyond our expectations may affect the Group’s financial

Changes in the Chinese government, the outbreak of conflict or

Total assets−

18

Dependence on Chinese production−
AnnualReport
2010
Net
sales

Total Equity / Shareholders’ equity ratio

Cash and cash equivalents at the end of year

Operating income (loss)

Net income (loss)

−

−

−

−

natural disasters or other unforeseen circumstances may affectOsaka Regional Tax Tribunal on July 25, 2006, and filed a suit in

the Group’s financial situation and operating results.

the Osaka District Court on November 16, 2006 to overturn the
supplementary tax assessment order.

Foreign currency risk

On July 3, 2008, Funai received the written ruling of the Osaka

The Funai Group selects production sites for its principal

Regional Tax Tribunal stating it will dismiss the Company’s

products after giving consideration to optimal production sites

assertion. Funai believes this judgment is indeed regrettable andand sales systems.

is not a ruling to which it can agree. Currently, Funai is asserting

DVD-related products, LCD TVs, and printers are produced
at Funai Electric (Hong Kong) Ltd., LCD TVs and DVD-related

the validity of its arguments to the tribunal.
The additional tax of 16,651 million yen (19,184 million yen

products are produced at FUNAI ELECTRIC EUROPE Sp.z o.o., andincluding incidental taxes) includes corporate, enterprise and

LCD TVs are produced at Funai (Thailand) Co., Ltd.

residence taxes. Because the “Accounting Practices, Disclosure

Funai purchases products from these production subsidiaries

and Audit Treatment for Various Taxes” (Japanese Institute ofand sells them in overseas markets, particularly North America,

Certified Public Accountants, Auditing and Assurance Practiceeither through Funai’s overseas sales subsidiaries or throughCommittee, Audit Committee Report No. 63) was revised on

direct sales to OEM supply partners. Domestic sales are also

March 8, 2007 and the accounting treatment for supplementary

conducted through direct sales and sales subsidiaries.

tax assessments was clarified in writing, Funai charged the tax

Purchases from these three overseas production subsidiaries
accounted for 78.7% of gross purchases during the current

assessment to income as “prior year’s taxes” in the fiscal year
ended March 31, 2007.

consolidated fiscal year. Likewise, overseas net sales accounted
for 84.6% of net sales. The majority of our purchasing and sales

2. Funai received a rectification notice from the Osaka Regional

are conducted in US dollars. We believe this reduces the risks that

Taxation Bureau on June 16, 2008. The Bureau determined that

accompany currency fluctuations.

Funai’s Hong Kong subsidiary does not meet the requirements

However, it is impossible to completely eliminate foreignfor exclusion under the anti-tax haven system and the Hong Kong

currency risk, and large currency fluctuations may affect thesubsidiary’s income for the three fiscal years from March 2005

Group’s financial situation and operating results.

through March 2007 will be considered, and taxed as Funai’s income.
Funai strongly objects to the submission of another claim andTax assessment based upon the anti-tax haven system

for this reason submitted an appeals application to the Osaka
Regional Taxation Bureau’s Board of Tax Appeals on August 6,

Information concerning the supplementary tax assessment based

2008. In addition, Funai filed a request to the Osaka District Court

on application of the anti-tax haven system for the current period isfor the rescission of the supplementary tax assessment order on

provided below. There is a possibility this assessment will affect theNovember 14, 2008. On July 23, 2009, Funai received a writtenGroup’s financial situation and operating results if the assertions

ruling from the Osaka Regional Taxation Bureau stating it will

made by Funai are not recognized as a result of legal procedures.

dismiss the Company’s assertion. Funai believes this judgment isregrettable and is not a ruling to which it can agree. In the future,

1. Funai received a rectification notice from the Osaka Regional

the Group plans to continue to assert the validity of its arguments

Taxation Bureau on June 28, 2005. The Bureau determined thatto the courts. Currently, the Osaka District Court is reviewing

Funai’s Hong Kong subsidiary does not meet the requirements

both the current request made on November 14, 2008 along withfor exclusion under the anti-tax haven system and the Hong Kongthe previous one filed on November 16, 2006.

subsidiary’s income for the three fiscal years from March 2002

The additional tax of 15,038 million yen (16,838 million yen

through March 2004 will be considered, and taxed as, Funai’s

including incidental taxes) includes corporate, enterprise andincome. Funai objected to this supplementary tax assessment,

residence taxes. Funai charged the tax assessment to income as

and filed a petition seeking a review of the decision with the“prior year’s taxes” in the fiscal year ended March 2009.

Annual Report 201019

Global Network / Directory
Consignment Manufacturing Plants (China)

1

2

FUNAI ELECTRIC EUROPE Sp.z o.o.

43Dong Guan Plant 1

Dong Guan Plant 3

Dong Guan Plant 25

6Huang Jiang Plant

7

Zhong Shan Plant 1

Zhong Shan Plant 2

2

3

4

5

6

1

8

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

9

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

Places of Business, Research Center
TOKYO BRANCH (JAPAN)
FUNAI TOKYO TECHNOLOGY CENTER (JAPAN)
FUNAI ELECTRIC ADVANCED APPLIED TECHNOLOGY RESEARCH INSTITUTE INC.
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 EUROPE Sp.z o.o.

20

Annual Report 2010

8

9

Sales Subsidiaries
DX ANTENNA CO., LTD. (JAPAN)
FUNAI CORPORATION, INC. (U.S.A)
P&F USA, Inc. (U.S.A)
P&F MEXICANA, S.A. DE C.V. (MEXICO)Development Subsidiary
FUNAI ELECTRIC ADVANCED APPLIEDTECHNOLOGY RESEARCH INSTITUTE INC. (JAPAN)
Affiliated Subsidiary
FUNAI SERVICE CO., LTD. (JAPAN)
FUNAI SERVICE CORPORATION (U.S.A)

7

13

14

15

FUNAI SERVICE CORPORATION (U.S.A)

16

P&F USA, Inc. (U.S.A)

Funai Corporation, Inc. (U.S.A)

P&F MEXICANA, S.A. DE C.V. (MEXICO)

10

11

12

10

12
15

13
Funai Electric Co., Ltd. Head Office (Japan)

11
Funai Electric Co., Ltd. Tokyo Branch(Japan)14

16

Chugoku Funai Electric Co., Ltd. (Japan)

A total of three companies in Japan and eleven overseas areincluded in the Funai Group’s consolidated business results for
March 2010 period. In addition, the Group has one oversea affiliatethat is accounted for by the equity method. Funai Electric Co., Ltd.
is mainly responsible for the intangible aspects of the Group’s
operations (development, design, etc) while the subsidiaries
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,
Thailand and Poland. In China, production of our leading digital
devices is shared among the Dong Guan, Huang Jiang and Zhong
Shan plants. Production of LCD TVs in Thailand is handled by Funai(Thailand) Co., Ltd., which was established in July 2003. To provide abase to achieve sales growth in Europe, which is the world’s largest

LCD television market, we established Funai Electric (Polska) Sp.z
o.o. in Poland in October 2006. In 2009, the Germany-based sales
subsidiary of the Group was integrated into the FUNAI ELECTRIC(POLSKA) Sp.z o.o. and in July 2010, this entity was renamed FUNAIELECTRIC EUROPE Sp.z o.o. Overall, the Group employs 2,553
individuals (as of March 31, 2010).
Funai’s well-established global sales system consists of theoverseas subsidiaries Funai Corporation Inc. (USA), P&F USA,
Inc., FUNAI ELECTRIC EUROPE Sp.z o.o. and DX Antenna Co.,
Ltd. (Japan). Additionally, FUNAI SERVICE CORPORATION was
established as a service company in October 2007 in order tostrengthen the sales system within the US and is under the directcontrol 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.

Annual Report 201021

Members of the Board and Corporate Auditors and Officers
as of June 22, 2010

Members of the Board
Tetsuro Funai••••••••••••• Chairman

Tomonori Hayashi•••••• Representative Director
President and CEO
Takashi Kiyomoto••••••• Director
Senior Executive Officer
Hideo Nakai••••••••••••••• Director
Senior Executive Officer

Corporate Auditors
Akitaka Inoue••••••••••••••••••• Corporate Auditor

Shinichi Komeda••••••••••••••• Corporate Auditor

Masahide Morimoto••••••••••• Corporate Auditor

Officers

Shinji Seki••••••••••••••••• Director
Executive Officer

Masahiko Naito••••••••••••••••• Officer

Toshio Otaku••••••••••••• Director
Executive Officer

Fumiaki Kidera•••••••••••••••••• Officer

Yoshikazu Uemura•••••• Director
Officer

Nobuhisa Uchikawa••••••••••• Officer

Kenji Sakata•••••••••••••••••••••• Officer
Jyoji Okada•••••••••••••••• Director
Officer
Hideaki Funakoshi•••••• Director
Officer

Kazuo Uga•••••••••••••••••••••••• Officer

Shigeki Saji••••••••••••••• Director
OfficerTakeshi Ito•••••••••••••••••••••••• Officer

Mitsuo Yonemoto••••••• Director

Yasuhisa Katsuta•••••••• Director

22

Susumu Nojii•••••••••••••••••••• Officer

Annual Report 2010

Hisao Tatsumi••••••••••••••••••• Officer

Katsumi Hino•••••••••••••••••••• Officer

Aaaaaaaaaaaaaaaaaa
FUNAI ELECTRIC CO., LTD. and Consolidated Subsidiaries

Financial Statements
FUNAI ELECTRIC CO., LTD. and its Consolidated Subsidiaries

Contents

Consolidated Balance Sheets ................................................. 24
Consolidated Statements of Operations ............................... 26
Consolidated Statements of Changes in Equity ................... 27
Consolidated Statements of Cash Flows ............................... 28
Notes to the Consolidated Financial Statements . ................ 29
Independent Auditor’s Report ................................................ 46

See notes to consolidated financial statements.

Annual Report 201023

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

(Note 1)March 31,2010

ASSETS

March 31,
2009

2010

CURRENT ASSETS:
Cash and cash equivalents (Note 12)...............................................................

¥

Short-term investments (Note 12). ..................................................................

34,063¥

40,180$

366,11151,98256,323558,706
377,837

Receivables:
Trade (Note 12). ...........................................................................................

35,154

28,845

Other.........................................................................................................

942

2,409

10,125Inventories (Note 3).........................................................................................

38,41830,678412,919

Deferred tax assets (Note 9)............................................................................

4,131

2,763

44,400Prepaid expenses and other current assets..................................................

2,645

2,784

28,429Allowance for doubtful receivables...............................................................

(179)

(273)

(1,923)

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

167,156

163,709

1,796,604

PROPERTY, PLANT AND EQUIPMENT:Land...............................................................................................................

5,181

5,194

55,686

Buildings and structures................................................................................

13,87013,370149,076

Machinery, equipment and other..................................................................

55,51955,249596,721

Lease assets (Note 11). ...................................................................................

537

295

5,772

Construction in progress...............................................................................

25

484

269

Total..........................................................................................................

75,132

74,592807,524

Accumulated depreciation.............................................................................

(59,478)(58,566)(639,274)

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

15,654

16,026168,250

4,064

3,424

43,680associated companies...............................................................................

2,238

2,610

24,054

Patents..........................................................................................................

3,666

4,328

39,402Long-term loans............................................................................................

248

218

2,666

Deferred tax assets (Note 9)............................................................................

4,804

4,329

51,634

Other assets..................................................................................................

6,228

5,239

66,939Total investments and other assets..........................................................

21,24820,148228,375

199,883$ 2,193,229

INVESTMENTS AND OTHER ASSETS:
Investment securities (Note 4 and 12)...............................................................
Investments in and advances to unconsolidated subsidiaries and

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

¥

204,058

See notes to consolidated financial statements.

24

Annual Report 2010¥(Thousands of
U.S. dollars)(Millions of yen)

(Note 1)March 31,2010

LIABILITIES AND EQUITYCURRENT LIABILITIES:
Short-term bank loans (Note 5 and 12)...............................................................
Current portion of long-term debt (Note 5 ,11 and 12)........................................
Payables:Trade (Note 12). ...........................................................................................
Other.........................................................................................................
Income taxes payable....................................................................................
Other current liabilities..................................................................................

¥

5,806
695

March 31,
2009

¥

2010

11,5191,512$

62,4037,470

31,305
11,035
1,799
5,568

28,157
12,132
1,624
5,439

336,468
118,605
19,336
59,845

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

56,20860,383604,127

LONG-TERM LIABILITIES:Long-term debt (Note 5 ,11 and 12). ...................................................................
Liability for retirement benefits (Note 6)..........................................................

954
2,429

945
2,343

10,254
26,107

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

22
1,665

27
589

236
17,896

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

5,070

3,904

54,49331,28033,245
62
119,273471(17,936)

31,28033,24518
110,048(99)(14,999)

336,199357,319666
1,281,955
5,062(192,776)(24,341)
142,054726
142,780(24,340)
135,153443
135,596(261,619)
1,526,806
7,803
1,534,609

199,883$ 2,193,229

COMMITMENTS AND
CONTINGENT LIABILITIES (Notes 9 and 11)
EQUITY (Notes 7, 8 and 14):
Common stock,authorized, 80,000,000 shares; issued,
36,104,196 shares in 2010 and 2009........................................................
Capital surplus...............................................................................................
Stock acquisition rights.................................................................................
Retained earnings..........................................................................................
Unrealized gain (loss) on available-for-sale securities....................................
Foreign currency translation adjustments.....................................................
Treasury stock – at cost
2,011,531 shares in 2010 and 2,011,321 shares in 2009 respectively.....
Total..........................................................................................................
Minority interests..........................................................................................
Total equity................................................................................................
TOTAL...............................................................................................................

¥

204,058¥

See notes to consolidated financial statements.

Annual Report 201025

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

(Note 1)Years Ended
March 31,2010
NET SALES.......................................................................................................

¥Years Ended
March 31,2009

314,912¥$ 3,384,695

COST OF SALES (Note 10). ................................................................................
Gross profit...............................................................................................

257,442
57,470258,304
44,4742,767,004
617,691

SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES (Note 10). .....................................................................................

46,32243,064

497,872

Operating income......................................................................................

11,148

1,410

119,819

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

690
(84)
(103)
(1)
(10)
(14)
88
(836)

3,439
(351)
(2,893)(94)(3,087)(644)
26(1,069)

7,416
(903)
(1,107)
(11)
(107)
(150)
946
(8,986)

Other income (expenses) – net.................................................................

(270)(4,673)(2,902)

INCOME (LOSS) BEFORE INCOME TAXES AND
MINORITY INTERESTS................................................................................

10,878(3,263)116,9172,520

27,085(23,699)
3,386(2,514)

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

(2,205)315

614
16,838(3,560)13,892MINORITY INTERESTS....................................................................................

(234)

(210)

NET INCOME (LOSS).......................................................................................

¥

10,329¥(17,365)(Yen)
PER SHARE OF COMMON STOCK (Notes 2.q and 13):
Basic net income (loss).................................................................................
Diluted net income........................................................................................
Cash dividends applicable to the year...........................................................

¥
¥
¥

302.97300.7740.00

See notes to consolidated financial statements.

26

2010

302,778

Annual Report 2010$

111,017(U.S. Dollars)¥(509.33)

¥

40.00

$
$
$

3.26
3.23
0.43

Consolidated Statements of Changes in Equity
FUNAI ELECTRIC CO., LTD. and Consolidated Subsidiaries

BALANCE, APRIL 1, 2008.....................
Adjustment of retained earnings due toan adoption of PITF No.18 (Note 2 b).....
Net loss..............................................
Cash dividends,¥ 50.00 per share...........................
Purchase of treasury stock.................
Net change in the year.......................
BALANCE, MARCH 31, 2009................
Net Income.........................................
Cash dividends,¥ 40.00 per share............................
Purchase of treasury stock . ..............

(Thousands)(Millions of yen)

Number of
Shares ofCommonCommonStock
Outstanding Stock

UnrealizedGain(loss)on
Available
for-sale
Securities

CapitalSurplus

Stock
Acquisition Retained
Rights
Earnings

34,093 ¥ 31,280 ¥ 33,245 ¥¥ 129,813 ¥Treasury
Stock

(695)

122

(1,705)
(0)

(1)
18

34,09331,28033,245 ¥

18

110,048
10,329(35)(3,057)(99)(14,999)(24,340)(1,364)(0)

260

34,093 ¥ 31,280 ¥ 33,245 ¥

485 ¥ 158,356

(573)

(573)
(17,365)(1,705)(1)(3,074)(1,705)(1)(3,116)(42)

135,153
10,329443

135,596
10,329(1,364)(1,364)

(1)

(1)

260
(2,937)

Total
Equity(17,365)(1)

Net change in the year ......................

Minority
Interests

Total(64) ¥ (12,064) ¥ (24,339) ¥ 157,871 ¥

(17,365)

Take-over of retained earning formerger of the unconsolidated
subsidiaries.....................................

BALANCE, MARCH 31, 2010................

Foreign
Currency
Translation
Adjustments

260

44

570

(2,323)283

62 ¥ 119,273 ¥

471 ¥ (17,936) ¥ (24,341) ¥ 142,054 ¥

(2,040)726 ¥ 142,780(Thousands of U.S. Dollars) (Note.1)

CommonStockCapitalSurplus

Stock
Acquisition Retained
Rights
Earnings

BALANCE, MARCH 31, 2009............................ $ 336,199 $ 357,319 $
Net income.....................................................
Cash dividends,$0.43 per share..........................................
Purchase of treasury stock.............................
Take-over of retained earning formerger of the unconsolidated company.....
Net change in the year...................................
BALANCE, MARCH 31, 2010............................ $ 336,199 $ 357,319 $

Unrealizd
Gain(loss)on
Available
for-sale
Securities

Foreign
Currency
Translation
Adjustments

Treasury
Stock

Minority
Interests

Total

193 $1,182,803 $ (1,064) $(161,210) $(261,608) $1,452,632 $
111,017
111,017(14,660)(11)
2,795(31,566)

4,762 $1,457,394
111,017(14,660)(11)
2,795(24,967)

473

6,126

666 $1,281,955 $

5,062 $(192,776) $(261,619) $1,526,806 $

Total
Equity(14,660)
(11)

3,041

2,795
(21,926)

7,803 $1,534,609

See notes to consolidated financial statements.

Annual Report 201027

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

Years Ended
March 31,

Years Ended
March 31,

(Note 1)OPERATING ACTIVITIES:
Income (loss) before income taxes and minority interests...........................
Adjustments for:
Income taxes – paid..................................................................................
Prior year's income taxes – paid...............................................................
Income taxes – refund..............................................................................
Depreciation and amortization...................................................................
Loss (Gain) on sale or disposal of property, plant and equipment............
Equity in losses of unconsolidated subsidiaries and associatedcompanies ............................................................................................
Gain on sales of investment securities, net..............................................
Changes in assets and liabilities, net of effects
Increase in trade accounts receivable...................................................
(Increase) decrease in inventories.........................................................
Increase in trade accounts payable.......................................................
Increase (decrease) in liability for employees’ retirement benefits.......
Other – net................................................................................................
Total adjustments..................................................................................

2010
¥

2009

10,878(2,266)(3,263)$(5,053)(16,838)

116,917(24,355)

1,504
5,757
1

4,929
(5)

16,16561,877
11

34
(88)

171
(26)

365
(946)

(7,103)(8,587)5,308
43(1,841)(7,238)(3,892)
2,820
6,182
(148)
14,394
2,534(76,344)(92,294)
57,051
462(19,786)(77,794)

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

3,640

(729)

39,123INVESTING ACTIVITIES:Payments for time deposits..........................................................................
Proceeds from time deposits........................................................................
Proceeds from sale of property, plant and equipment..................................
Purchases of property, plant and equipment................................................
Purchases of intangible assets......................................................................
Proceeds from sales of investment securities..............................................
Purchases of investment securities..............................................................
Payments for loans receivable......................................................................
Proceeds from collection of loans receivable................................................
Other – net....................................................................................................

(98,887)
100,157
9(3,547)
(791)
540
(439)
(17)
93
168

(80,481)
33,992721(4,752)
(758)
1,147
(750)
(106)
40,15141(1,062,844)
1,076,494
97(38,123)(8,502)
5,804(4,718)
(183)
1,000
1,805

Net cash used in investing activities.........................................................

(2,714)(10,795)(29,170)

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

(6,280)(700)(1)(1,364)474(171)(1,419)(1)(1,705)733(67,498)(7,524)(11)(14,660)
5,095

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

(7,871)(2,563)(84,598)

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

461(2,833)

4,955

NET DECREASE IN CASH AND CASH EQUIVALENTS.................................

(6,484)(16,920)(69,690)

CASH AND CASH EQUIVALENTS INCREASED BY MERGER......................

367

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

40,180CASH AND CASH EQUIVALENTS, END OF YEAR........................................

¥

34,063

See notes to consolidated financial statements.

28

¥

2010

Annual Report 2010

3,944
57,100¥

40,180431,857$

366,111

Notes to 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 Act and its related accounting regulations and in conformity with accounting principles
generally accepted in Japan, (“Japanese GAAP”) which are different in certain respects as to application and disclosure requirements ofInternational 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 2009 consolidated financial statements to conform to theclassifications used in 2010.
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 mounts into U.S. dollar amounts are included solely for theconvenience of readers outside Japan and have been made at the rate of ¥ 93.04 to $ 1, the approximate rate of exchange at March 31,
2010. 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 POLICIESa	Consolidation—The consolidated financial statements as of March 31, 2010 include the accounts of the Company and its 14 significant(13 in 2009) subsidiaries (together, the “Group”).
Under the control or influence concept, those companies in which the Company, directly or indirectly, is able to exercise control
over operations are fully consolidated, and those companies over which the Group has the ability to exercise significant influence areaccounted for by the equity method.
Investment in 1 (0 in 2009) unconsolidated subsidiaries and 1 (2 in 2009) associated company 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 of acquisition 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	Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial Statements—In May 2006, the
Accounting Standards Board of Japan (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”. PITF No. 18 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 accordance with either International Financial Reporting Standards or the generally
accepted accounting principles in the United States of America tentatively may be used for the consolidation process, (3) however, thefollowing 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) scheduled amortization of actuarial gain or loss of pensions that has been
directly recorded in the equity; 3) expensing capitalized development costs of R&D; 4) cancellation of the fair value model accounting forproperty, plant, and equipment and investment properties and incorporation of the cost model accounting; 5) recording the prior years’
effects of changes in accounting policies in the income statement where retrospective adjustments to financial statements have been
incorporated; and 6) exclusion of minority interests from net income, if contained. PITF No. 18 was effective for fiscal years beginningon or after April 1, 2008 with early adoption permitted.
The Company applied this accounting standard effective April 1, 2008.

Annual Report 201029

c	Cash Equivalents—Cash equivalents are short-term investments that are readily convertible into cash and that are exposed toinsignificant risk of changes in value.
Cash equivalents include time deposits, certificate of deposits, commercial paper and bond funds, all of which mature or become due
within three months of the date of acquisition.
d 	Inventories—Inventories of the Company and its consolidated domestic subsidiaries are mainly stated at the lower of cost, determinedby the average method for finished products and work in process, and by the first-in, first-out method for raw materials, or net selling
value.
Inventories of the consolidated foreign subsidiaries are mainly stated at the lower of cost, determined by the first-in, first-out
method, or net selling value.
e 	Property, Plant and Equipment—Property, plant and equipment are stated at cost. Depreciation of property, plant and equipment of
the Company and its consolidated domestic subsidiaries is computed substantially by the declining-balance method while the straightline method is applied to buildings acquired after April 1, 1998, at rates based on the estimated useful lives of the assets. Depreciationof property, plant and equipment of consolidated foreign subsidiaries is principally computed by the straight-line method at rates basedon the estimated useful lives assets. The range of useful lives is principally from 3 to 50 years for buildings and structures and from 1 to
20 years for machinery ,equipment and other.
f 	Investment Securities—Investment securities are classified and accounted for, depending on management’s intent. All investment
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 applicable taxes, reported
in a separate component of equity.
Non-marketable available-for-sale securities are stated at cost determined by the moving-average method. For other than temporary
declines in fair value, investment securities are reduced to net realizable value by a charge to income.
g 	Patents—Patents are carried at cost less accumulated amortization, which is computed by the straight-line method over the estimateduseful lives.
h 	Long-lived assets— The Group reviews its long-lived assets for impairment whenever events or changes in circumstance indicate thecarrying amount of an asset or asset group may not be recoverable. An impairment loss would be recognized if the carrying amount ofan 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 at the amount by which the carrying amount of theasset exceeds its recoverable amount, which is the higher of the discounted cash flows from the continued use and eventual dispositionof the asset or the net selling price at disposition.
i 	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 foreign subsidiaries also have defined
pension plans.
Effective April 1, 2000, the Group adopted a new accounting standard for employees’ retirement benefits and accounted forthe liability for retirement benefits based on the projected benefit obligations and plan assets at the balance sheet date. The totaltransitional obligation determined as of April 1, 2000, was charged to income when adopted, except that 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 of service of theemployee (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).
Partial Amendments to Accounting Standard for Retirement Benefits (Part 3)
On July 31, 2008, the ASBJ issued an Accounting Standard-ASBJ Statement No. 19 “Partial Amendments to Accounting Standard for
Retirement Benefits (Part 3)”. The Company and its consolidated domestic subsidiaries have adopted this Statement No. 19 beginning
this fiscal year. There is no effect of this change on consolidated statements of operations.

30

Annual Report 2010

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.
j 	Stock Options—The Company recognizes compensation expense for directors, executive officers and employee stock options basedon the fair value at the date of grant and over the vesting period as consideration for receiving goods or services. A certain domestic
subsidiary also measures options at their intrinsic value if they cannot reliably estimate fair value. In the consolidated balance sheet, thestock option is presented as stock acquisition right as a separate component of equity until exercised.
k 	Research and Development Costs—Research and development costs are charged to income as incurred.
l 	Leases—In March 2007, the ASBJ issued ASBJ Statement No. 13, “Accounting Standard for Lease Transactions”, which revised theprevious accounting standard for lease transactions issued in June 1993. The revised accounting standard for lease transactions iseffective 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 previous accounting standard, finance leases that deem to transfer ownership of the leased property to the lessee were
to be capitalized. However, other finance leases were 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 should be capitalized to recognize lease assets and lease obligations in the balance sheet. In addition, therevised accounting standard permits leases which existed at the transition date and do not transfer ownership of the leased property to
the lessee to be accounted for as operating lease transactions.
The Group applied the revised accounting standard effective April 1, 2008. In addition, the Group accounted for leases which existed
at the transition date and do not transfer ownership of the leased property to the lessee as operating lease transactions.
m	Income Taxes— The provision for income taxes is computed based on the pretax income included in the consolidated statementsof 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 and liabilities. Deferred taxes aremeasured by applying currently enacted tax laws to the temporary differences.
n 	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 and losses from translation
are recognized in the consolidated statements of operations to the extent that they are not hedged by forward exchange contracts.
o 	Foreign Currency Financial Statements—The balance sheet accounts of the consolidated foreign subsidiaries are translated 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 ofequity.
Revenue and expense accounts of consolidated foreign subsidiaries are translated into yen at the average exchange rate.
p 	Construction Contracts—In December 2007, the ASBJ issued ASBJ Statement No. 15 “Accounting Standard for Construction Contracts”
and ASBJ Guidance No. 18 “Guidance on Accounting Standard for Construction Contracts”. Under the previous Japanese GAAP, either
the completed-contract method or the percentage-of-completion method was permitted to account for construction contracts. Under
this new accounting standard, the construction revenue and construction costs should be recognized by the percentage-of-completion
method, if the outcome of a construction contract can be estimated reliably. When total construction revenue, total construction costs
and the stage of completion of the contract at the balance sheet date can be reliably measured, the outcome of a construction contract
can be estimated reliably. If the outcome of a construction contract cannot be reliably estimated, the completed-contract methodshould be applied. When it is probable that the total construction costs will exceed total construction revenue, an estimated loss on thecontract should be immediately recognized by providing for a loss on construction contracts. This standard is applicable to construction
contracts and software development contracts and effective for fiscal years beginning on or after April 1, 2009. The Company applied
the new accounting standard effective April 1, 2009. The effect of this change on the consolidated statements of operations isimmaterial.

Annual Report 201031

q 	Per Share Information—Basic net income (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 common stock.
Diluted net income per share of common stock assumes full conversion of full exercise of outstanding warrants. Diluted net income pershare is not disclosed because of the Company’s net loss position in 2009.
Cash dividends per share presented in the accompanying consolidated statements of operations are dividends applicable to therespective years including dividends to be paid after the end of the year.
r	New Accounting Pronouncements
	Asset Retirement Obligations—In March 2008, the ASBJ published a new accounting standard for asset retirement obligations, ASBJ
Statement No. 18 “Accounting Standard for Asset Retirement Obligations” and ASBJ Guidance No. 21 “Guidance on AccountingStandard for Asset Retirement Obligations”. Under this accounting standard, an asset retirement obligation is defined as a legal
obligation imposed either by law or contract that results from the acquisition, construction, development and the normal operation of atangible fixed asset and is associated with the retirement of such tangible fixed asset.
The asset retirement obligation is recognized as the sum of the discounted cash flows required for the future asset retirement andis recorded in the period in which the obligation is incurred if a reasonable estimate can be made. If a reasonable estimate of the asset
retirement obligation cannot be made in the period the asset retirement obligation is incurred, the liability should be recognized when areasonable estimate of asset retirement obligation can be made. Upon initial recognition of a liability for an asset retirement obligation,
an asset retirement cost is capitalized by increasing the carrying amount of the related fixed asset by the amount of the liability. The
asset retirement cost is subsequently allocated to expense through depreciation over the remaining useful life of the asset. Over time,
the liability is accreted to its present value each period. Any subsequent revisions to the timing or the amount of the original estimateof undiscounted cash flows are reflected as an increase or a decrease in the carrying amount of the liability and the capitalized amountof the related asset retirement cost. This standard is effective for fiscal years beginning on or after April 1, 2010 with early adoption
permitted for fiscal years beginning on or before March 31, 2010.
	Accounting Changes and Error Corrections—In December 2009, ASBJ issued ASBJ Statement No. 24 “Accounting Standard for
Accounting Changes and Error Corrections” and ASBJ Guidance No. 24 “Guidance on Accounting Standard for Accounting Changes andError Corrections”. Accounting treatments under this standard and guidance are as follows:(1) Changes in Accounting Policies:
When a new accounting policy is applied with revision of accounting standards, a new policy is applied retrospectively unlessthe revised accounting standards include specific transitional provisions. When the revised accounting standards include specifictransitional provisions, an entity shall comply with the specific transitional provisions.
(2) Changes in Presentations
When the presentation of financial statements is changed, prior period financial statements are reclassified in accordance with thenew presentation.
(3) Changes in Accounting Estimates
A change in an accounting estimate is accounted for in the period of the change if the change affects that period only, and isaccounted for prospectively if the change affects both the period of the change and future periods.
(4) Corrections of Prior Period Errors
When an error in prior period financial statements is discovered, those statements are restated.
This accounting standard and the guidance are applicable to accounting changes and corrections of prior period errors which are
made from the beginning of the fiscal year that begins on or after April 1, 2011.
	Segment Information Disclosures—In March 2008, the ASBJ revised ASBJ Statement No. 17 “Accounting Standard for Segment
Information Disclosures” and issued ASBJ Guidance No. 20 “Guidance on Accounting Standard for Segment Information Disclosures”.
Under the standard and guidance, an entity is required to report financial and descriptive information about its reportable segments.
Reportable segments are operating segments or aggregations of operating segments that meet specified criteria. Operating segments
are components of an entity about which separate financial information is available and such information is evaluated regularly by thechief operating decision maker in deciding how to allocate resources and in assessing performance. Generally, segment informationis required to be reported on the same basis as is used internally for evaluating operating segment performance and deciding how to

32

Annual Report 2010

allocate resources to operating segments. This accounting standard and the guidance are applicable to segment information disclosures
for the fiscal years beginning on or after April 1, 2010.

3. INVENTORIESInventories at March 31, 2010 and 2009 consisted of the following:(Thousands of
U.S. dollars)
2010(Millions of Yen)
2010
Merchandise and finished products.........................................................
Work in process.......................................................................................
Raw materials and supplies......................................................................
Total.....................................................................................................

¥
¥

2009

20,8501,510
16,05838,418¥¥

20,926
1,635
8,117
30,678$$

224,097
16,230172,592
412,919

4. INVESTMENT SECURITIESThe carrying amounts and aggregate fair values of investment securities at March 31, 2010 and 2009 were as follows:(Millions of yen)
Cost

March 31, 2010

Unrealized
Gains

Unrealized
LossesFair
Value

Securities classified as:
Available-for-sale:
Equity securities...................................................

¥

2,116

¥

869

¥

(76)

¥

2,909

March 31, 2009
Securities classified as:
Available-for-sale:
Equity securities...................................................

¥

2,262

¥

174

¥

(170)

¥

2,266

(Thousands of U.S. dollars)
March 31, 2010

Unrealized
Gains

Unrealized
Losses

$

$

Cost

Fair
Value

Securities classified as:
Available-for-sale:
Equity securities...................................................

$

22,743

9,340

(817)

$

31,266

Available-for-sale securities whose fair value is not readily determinable as of March 31, 2010 and 2009 were as follows:

Carrying amount(Millions of yen)
2010
2009
Available-for-sale:
Equity securities...................................................................................
Investments in limited partners...........................................................
Total.................................................................................................

¥
¥

595
560
1,155

¥
¥

591
567
1,158

(Thousands of
U.S. dollars)
2010
$
$

6,395
6,019
12,414

Annual Report 201033

Proceeds from sales of available-for-sale securities for the years ended March 31, 2010 and 2009 were ¥ 216 million ($ 2,322
thousand) and ¥ 26 million, respectively. Gross realized gains and losses on these sales, computed on the moving average cost basis,
were ¥ 40 million ($ 430 thousand) and ¥ 0 million, respectively, for the year ended March 31, 2010 and ¥ 26 million and ¥ 0 million,
respectively, for the year ended March 31, 2009.
The impairment losses on available-for-sale equity securities for the years ended March 31, 2010 and 2009 were ¥ 10 million($ 107 thousand) and ¥ 3,087 million, respectively.

5. SHORT-TERM BANK LOANS AND LONG-TERM DEBT
Short-term bank loans bore interest at an annual average rate of 1.7% and 1.6% at March 31, 2010 and 2009, respectively.
Long-term debt at March 31, 2010 and 2009 consisted of the following:(Millions of yen)2010
Unsecured loans from banks and other financial institutions,due serially to 2013 with average interest rates 0.7%(2010)
and 1.3% (2009):......................................................................................

¥

Obligations under finance leases.............................................................
Total.....................................................................................................
Less current portion.................................................................................
Long-term debt, less current portion........................................................

¥

1,099
550
1,649
(695)
954

2009
¥

¥

2,086
371
2,457
(1,512)
945(Thousands of
U.S. dollars)
2010
$

$

11,813
5,911
17,724(7,470)
10,254

Annual maturities of long-term debt, excluding finance leases (see Note 11), at March 31, 2010, were as follows:Year Ending(Millions of yen)March 312011.........................................................................................................................
¥
533
2012.........................................................................................................................
533
33
2013.........................................................................................................................
¥
1,099
Total.........................................................................................................................

(Thousands of
U.S. dollars)
$
$

5,729
5,729
355
11,813

6. RETIREMENT AND PENSION PLANS
The Company and certain consolidated subsidiaries have severance payment plans for employees ,directors and executive officers.
Under most circumstances, employees terminating their employment are entitled to retirement benefits determined based on the rateof pay at the time of termination, years of service and certain other factors. Such retirement benefits are made in the form of a lumpsum 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 specific ages 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 have defined pension plans.

34

Annual Report 2010

The liability for employees’ retirement benefits at March 31, 2010 and 2009 consisted of the followings:(Millions of yen)
2010
Projected benefit obligation......................................................................
Fair value of plan assets...........................................................................
Unrecognized prior service cost...............................................................
Unrecognized actuarial loss......................................................................
Unrecognized transitional obligation.........................................................
Prepaid pension cost................................................................................
Net liability............................................................................................

¥

¥

8,580
(7,100)
376
(986)
(808)
1,324
1,386

2009
¥

8,792
(6,021)444(2,442)
(933)
1,476
1,316

¥

(Thousands of
U.S. dollars)
2010
$

$

92,218(76,311)
4,041(10,598)(8,684)
14,231
14,897The components of net periodic benefit costs for the years ended March 2010 and 2009 are as follows:(Millions of yen)
2010
Service cost..............................................................................................
Interest cost.............................................................................................
Expected return on plan assets................................................................
Amortization of prior service cost.............................................................
Recognized actuarial loss.........................................................................
Amortization of transitional obligation......................................................
Net periodic benefit costs....................................................................

¥

¥

509
181
(135)
(68)
321
125
933

2009
¥

¥

554
186
(176)
(68)
137
125
758

(Thousands of
U.S. dollars)
2010
$

$

5,471
1,945
(1,451)
(731)
3,450
1,344
10,028Assumptions used for the years ended March 31, 2010 and 2009 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................................................

2010

2009

1.4〜2.5%
1.4〜2.5%
10 years
10 years

1.4〜2.5%
1.4〜2.5%
10 years
10 years

Retirement allowance for directors and executive officers at March 31, 2010 and 2009 were ¥ 1,043 million ($ 11,210 thousand) and¥ 1,027 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
Japanese companies are subject to the Companies Act of Japan (the “Companies Act”). The significant provisions in the Companies
Act that affect financial and accounting matters are summarized below:(a) Dividends
Under the Companies Act, companies can pay dividends at any time during the fiscal year in addition to the year-end dividend upon
resolution at the shareholders meeting. For companies that meet certain criteria such as; (1) having the Board of Directors, (2) having
independent auditors, (3) having the Board of Corporate Auditors, and (4) the term of service of the directors is prescribed as one year
rather than two years of normal term by its articles of incorporation, the Board 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 theabove criteria. The Board of Directors of companies with board committees (an appointment committee, compensation committee andaudit committee) can also do so because such companies with board committees already, by nature, meet the above criteria under the

Annual Report 201035

Companies Act, 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 of incorporationof the company so stipulate. The Companies Act provides certain limitations on the amounts available for dividends or the purchase oftreasury stock. The limitation is defined as the amount available for distribution to the shareholders, 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 Companies Act requires that an amount equal to 10% of dividends must be appropriated as a legal reserve (a component ofretained earnings) or as additional paid-in capital (a component of capital surplus) depending on the equity account charged upon thepayment 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 Companies Act, the total amount of additional paid-in capital and legal reserve may be reversed without limitation.
The Companies Act 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 Companies Act also provides for companies to purchase treasury stock and dispose of such treasury stock by resolution of theBoard 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 Companies Act, stock acquisition rights are presented as a separate component ofequity. The Companies Act also provides that companies can purchase both treasury stock acquisition rights and treasury stock. Suchtreasury 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, 2010 are as follows:(The Company)

Stock Option

36

Persons
GrantedNumber of
Options
grantedDate of
Grant

Exercise
Price

Exercise Period

2001 Stock Option

4 directors
284 employees

421,400 shares

2001.7.26¥ 9,549($ 103)

From January 1, 2004
to December 31, 2010

2002 Stock Option

6 directors
381 employees
18 other persons

399,700 shares

2002.7.23¥ 15,150($ 163)

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

4 directors
313 employees
6 other persons

378,500 shares2003.7.22¥ 13,646($ 147)

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

2 directors
293 employees
5 other persons

359,900 shares2004.7.21¥ 16,167($ 174)

From August 1, 2006
to July 31, 20132004 Stock Option ②

20 employees
1 other person

25,600 shares2004.8.13¥ 16,836($ 181)

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

2 directors
293 employees
5 other persons

346,400 shares2005.7.12¥ 12,369($ 133)

From August 1, 2007
to July 31, 20142008 Stock Option

1 directors
10 executive
officers
315 employees

431,700 shares2008.11.20¥ 1,609($ 17)

From August 1, 2010
to July 31, 2017

Annual Report 2010

(DX ANTENNA)

Stock Option
2010 Stock Option

Persons
Granted4 directors
29 employees

Number of
Options
grantedDate of
Grant

Exercise
Price

Exercise Period

152,000 shares2010.2.13

¥ 384
($ 4)

From February 1, 2012
to February 10, 2019

The stock option activity is as follows:(The Company)

For the year ended March31, 2009Non-vested
March 31, 2008 − Outstanding..................
Granted..................................................
Canceled................................................
Vested....................................................
March 31, 2009 − Outstanding..................
VestedMarch 31, 2008 − Outstanding..................
Vested....................................................
Exercised................................................
Canceled................................................
March 31, 2009 − Outstanding..................
For the year ended March31, 2010
Non-vested
March 31, 2009 − Outstanding..................
Granted..................................................
Canceled................................................
Vested....................................................
March 31, 2010 − Outstanding..................
VestedMarch 31, 2009 − Outstanding..................
Vested....................................................
Exercised................................................
Canceled................................................
March 31, 2010 − Outstanding
Exercise price.............................................
Average stock price at exercise.................
Fair value price at grant date......................
a.............................................................
b.............................................................
c.............................................................
d.............................................................
e.............................................................
f..............................................................
g.............................................................

2001
Stock
Option(Shares)

2002
Stock
Option(Shares)

2003
Stock
Option(Shares)

2004
Stock
Option①(Shares)

2004
Stock
Option②(Shares)

2005
Stock
Option(Shares)311,600

399,600

378,500

359,900

25,600346,400

2008
Stock
Option(Shares)

431,700
9,800
421,900
311,600

399,600

378,500

359,900

25,600346,400

311,600

399,600

378,500

359,900

25,600346,400

421,900
4,200
417,700
311,600

399,600

378,500

359,900

25,600346,400

311,600

399,600

378,500

359,900

25,600346,400¥ 9,549($ 103)——¥ 15,150($ 163)——¥ 13,646($ 147)——¥ 16,167($ 174)——¥ 16,836($ 181)——¥ 12,369($ 133)——¥ 1,609($ 17)
—
—
¥
440
($ 5)
¥
447
($ 5)
¥
454
($ 5)
¥
458
($ 5)
¥
475
($ 5)
¥
487
($ 5)
¥
510
($ 5)

Exercise Period
a: From August 1, 2010 to July 31, 2017b: From August 1, 2011 to July 31, 2017
c: From August 1, 2012 to July 31, 2017
d: From August 1, 2013 to July 31, 2017

Annual Report 201037

e: From August 1, 2014 to July 31, 2017
f: From August 1, 2015 to July 31, 2017
g: From August 1, 2016 to July 31, 2017
(DX ANTENNA)

For the year ended March31, 2010
Non-vested
March 31, 2009 − Outstanding..................
Granted..................................................
Canceled................................................
Vested....................................................
March 31, 2010 − Outstanding..................
VestedMarch 31, 2009 − Outstanding..................
Vested....................................................
Exercised................................................
Canceled................................................
March 31, 2010 − Outstanding
Exercise price.............................................

2010
Stock
Option(Shares)

152,000
152,000
311,600

¥

384
($ 4)

The assumption used to measure fair value of the 2010 stock option(DX Antenna)
On February 13, 2010, DX ANTENNA CO., Ltd., one of the subsidiaries granted stock options. As the company was a non-publiccompany, the fair unit value of the stock options was measured at their intrinsic value.
Estimated method of number of vested options(The Company)
Estimated number of vested options of the Company is determined based on the historical data.
(DX Antenna)
Estimated number of vested options of a certain subsidiary is determined based on the actual cancellation data, because the numberof options cancelled in the future is reasonably estimated.

38

Annual Report 2010

9. INCOME TAXESThe Company and its domestic subsidiaries are subject to Japanese national and local income taxes which, in the aggregate, resulted
in a normal effective statutory tax rate of approximately 40.7% for the years ended March 31, 2010 and 2009.
The tax effects of significant temporary differences and tax loss carryforwards which resulted in deferred tax assets and liabilities at
March 31, 2010 and 2009 are as follows:(Millions of yen)
2010
Deferred tax assets :Liability for retirement benefits............................................................
Accounts payable.................................................................................
Allowance for doubtful receivables......................................................
Accrued employees’ bonuses..............................................................
Impairment loss on investment securities...........................................
Inventories...........................................................................................
Intercompany profit..............................................................................
Tax loss carryforwards ........................................................................
Previous taxed income of foreign subsidiaries.....................................
Other....................................................................................................
Less valuation allowance.....................................................................
Total.................................................................................................
Deferred tax liabilities:
Unrealized gain (loss) on available-for-sale securities...........................
Prepaid pension cost............................................................................
Other....................................................................................................
Total.................................................................................................
Net deferred tax assets............................................................................

¥

¥
¥

988
1,191
3,876
550
295
1,022
30
10,3501,691(9,864)
10,129

¥

313
539
364
1,216

¥

8,913

2009
¥

¥

954
790
3,650
470
331
1,579
118
5,091
4,660
3,872
(12,990)8,525¥

(Thousands of
U.S. dollars)2010$

10,61912,801
41,6605,911
3,171
10,985322
111,242

18,175(106,019)$ 108,867

¥

601
859
1,460

$
$

3,364
5,793
3,912
13,069

¥

7,065

$

95,798A reconciliation between the normal effective statutory tax rate and the actual effective tax rate reflected in the accompanying
consolidated statement of operations for the year ended March 31, 2010 is as follows (2009 was not presented because of the net loss
for the period):

2010
Normal effective statutory tax rate.......................................................................................................................
Expenses not deductible for income tax purposes..............................................................................................
Elimination of dividend earned from subsidiaries.................................................................................................
Reduction of earnings retained by tax haven company........................................................................................
Lower income tax rates applicable to incomein certain foreign countries...............................................................................................................................
Valuation Allowance.............................................................................................................................................
Other – net...........................................................................................................................................................
Actual effective tax rate.......................................................................................................................................

40.7%
0.2
(1.5)
(7.0)
(18.5)(16.0)
4.9
2.8%

On June 28, 2005 and June 16, 2008, the Company received notices of supplementary tax assessment to the additional tax on theincome of its subsidiary in Hong Kong under the anti-tax haven rules for three financial years ended from March 31, 2002 to March 31,
2004 and three financial years ended from March 31, 2005 to March 31, 2007 from the Osaka Regional Taxation Bureau, respectively,
as the subsidiary in Hong Kong did not satisfy the conditions to exclude from the application of anti-tax haven rules. The Company has
contested the validity in court, as the Company disagreed with this assessment and considered it to be unacceptable.
The additional tax payment amounts were ¥ 16,651 million (¥ 19,184 million including incidental taxes) and ¥ 15,038 million(¥ 16,838 million including incidental taxes), respectively, including corporate income taxes, inhabitant taxes and enterprise taxes. They

Annual Report 201039

were respectively recognized as “income taxes for prior periods” for the fiscal year ended March 31, 2007 and the fiscal year ended
March 31, 2009 in accordance with the “Treatment of Accounting and Presentation of Taxes for the Purpose of Audits” (JICPA Audit andAssurance Practice Committee Report No. 63).
The taxation is judged based on the status of any relevant foreign subsidiary at the end of each financial year end. Hence, for thereference, the effects of the application by this unti-tax haven rules on the income of a subsidiary in Hong Kong for the year ended
March 31, 2008 and subsequent years upto March 31, 2010, less dividend income received by the Company for the years ended March
31, 2008 and 2009 are estimated at approximately ¥ 700 million ($ 7,524 thousand) in total.
The Company has not accounted for this effects due to the aforementioned reasons.

10. RESEARCH AND DEVELOPMENT COSTS
Research and development costs charged to income were ¥ 13,486 million ($ 144,948 thousand) and ¥ 13,057 million for the years
ended March 31, 2010 and 2009, respectively.

11. LEASESThe Group leases certain machinery, computer equipment, office space and other assets.
Obligations under finance leases was as follows:(Thousands off
U.S. Dollars)
2010(Millions of Yen)2010
Due within one year.................................................................................
Due after one year....................................................................................
Total..........................................................................................................

¥

2009
162
388
550

¥

¥

93
279
371

¥

$
$

1,741
4,170
5,911

Pro forma information of leased property whose lease inception was before March 31, 2008
ASBJ Statement No. 13, “Accounting Standard for Lease Transactions” requires that all finance lease transactions should becapitalized to recognize lease assets and lease obligations in the balance sheet. However, the ASBJ Statement No. 13 permits leases
without ownership transfer of the leased property to the lessee whose lease inception was before March 31, 2008 to be accounted for as
operating lease transactions if certain “as if capitalized” information is disclosed in the note to the financial statements. The Company
applied the ASBJ Statement No. 13 effective April 1, 2008 and accounted for such leases as operating lease transactions. Pro forma
information of leased property whose lease inception was before March 31, 2008 such as acquisition cost, accumulated depreciation,
accumulated impairment loss, obligations under finance leases, depreciation expense, interest expense and other information offinance leases that do not transfer ownership of the leased property to the lessee on an “as if capitalized” basis was as follows:(Millions of yen)2010
Acquisition cost........................................................................................
Accumulated depreciation........................................................................
Net leased property..................................................................................

40

Annual Report 2010

¥
¥

2009
902
734
168

¥
¥

1,262
916
346

(Thousands of
U.S. dollars)
2010
$
$

9,695
7,889
1,806

Obligations under finance leases:(Thousands of
U.S. dollars)
2010(Millions of yen)2010
Due within one year.................................................................................
Due after one year....................................................................................
Total.....................................................................................................

¥

2009
104
71
175

¥

¥

178
175
353

¥

$
$

1,118
763
1,881

Depreciation expense, interest expense and other information under finance leases:(Thousands of
U.S. dollars)
2010(Millions of yen)
2010
Depreciation expense...............................................................................
Interest expense......................................................................................
Total.....................................................................................................
Lease payments.......................................................................................

¥

2009
177
5
182
183

¥
¥

¥

260
9
269
268

¥
¥

$
$
$

1,902
54
1,956
1,967

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 31,2010 and 2009 are follows:(Millions of yen)2010
Due within one year.................................................................................
Due after one year....................................................................................
Total.....................................................................................................

¥
¥

1,162
1,361
2,523

2009
¥
¥

1,419
2,257
3,676

(Thousands of
U.S. dollars)
2010
$
$

12,48914,628
27,117

12. FINANCIAL INSTRUMENTS AND RELATED DISCLOSURESOn March 10, 2008, the ASBJ revised ASBJ Statement No. 10 “Accounting Standard for Financial Instruments” and issued ASBJ
Guidance No. 19 “Guidance on Accounting Standard for Financial Instruments and Related Disclosures”. This accounting standard andthe guidance are applicable to financial instruments and related disclosures at the end of the fiscal years ending on or after March 31,
2010 with early adoption permitted from the beginning of the fiscal years ending before March 31, 2010. The Group applied the revised
accounting standard and the new guidance effective March 31, 2010.
1. The situation of financial instruments(1) Group policy for financial instruments
The Group uses bank loans for fund raising and short deposits to fund operations. The Group doesn’t use derivatives in principle. In
principle, derivatives are not permitted.
(2) Nature and extent of risks arising from financial instruments and risk management for financial instruments
Receivables such as trade notes and trade accounts are exposed to customer credit risk.
To avoid such a risk, the Company sets up sales management regulations, and determine trading conditions and credit limit by eachcustomer.
The Company has many debits and credits based on foreign currencies due to our overseas development. Basically the Company

Annual Report 201041

doesn’t make forward foreign currency contracts because of our US dollar basis trading.
Investment securities and equity instruments are exposed to the market risk. Marketable and investment securities are managed bymonitoring market values and financial position of issuers on a regular basis. This risk should be reported to investment committee
internally.
Payment terms of payables, such as trade notes and trade accounts are less than one year.
Loans, both short-term and long term are financed from sales operations. Basically derivatives are not permitted. Although thevariable interest rates of loans are exposed to market risks, those risks may be mitigated by using interest-rate swap derivatives. This
derivative transaction should be executed and managed by corporate regulations. To decrease credit risks, the Company only makes therelationships with highly rated financial institutions.
Sales credit and loans are exposed to liquidity risks. The group manages to have our associated companies make monthly financial
plans.
2. Fair value of financial instruments
Fair values of financial instruments are based on quoted price in active markets. If quoted price is not available, other rational
valuation techniques are used instead. The list below doesn’t contain financial instruments which fair value are difficult to recognize.
(a) Fair Value of financial instruments(Millions of yen)
Carrying
amountMarch 31, 2010
Cash and cash equivalents.....................................................................
Receivables............................................................................................
Investment securities.............................................................................
Total...................................................................................................

¥

Short-term bank loans (excluding finance lease obligation)....................
Payables.................................................................................................
Long-term debt (excluding finance lease obligation)..............................
Total...................................................................................................

¥

¥

¥

86,04535,154
2,909
124,108
6,339
31,305567
38,211

Fair Value
¥

¥
¥

¥

Unrealized
gain/loss

86,04535,154
2,909
124,108
6,339
31,305567
38,211(Thousands of U.S. dollars)
Carrying
Unrealized
amountFair Value
gain/loss

March 31, 2010
Cash and cash equivalents.....................................................................
Receivables............................................................................................
Investment securities.............................................................................
Total...................................................................................................

$

924,817377,837
31,267$ 1,333,921

924,817377,837
31,267$ 1,333,921

Short-term bank loans (excluding finance lease obligation)....................
Payables.................................................................................................
Long-term debt (excluding finance lease obligation)..............................
Total...................................................................................................

$

$

$

68,132
336,468
6,094
410,694$$

68,132
336,468
6,094
410,694

Assets(1) Cash and cash equivalents (2) Receivables
The carrying values of cash, cash equivalents and receivables approximate fair values because of their short maturities.
(3) Investment securities
The investment securities are measured at the quoted market price of the stock exchange for the equity instruments.

42

Annual Report 2010

Liabilities(1) Short-term bank loans (2) Payables
The carrying value of short-term bank loans and payables approximate fair value because of their short maturities.
(3) Long-term debt
The fair value of long-term debt are determined by discounting the cash flows related to the debt at the Group’s assumed corporate
borrowing rate.
Derivatives
No comments is described because derivatives are not permitted .
(b) Financial instruments whose fair value cannot be reliably determined

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

March 31, 2010
Investments in equity instruments that do nothave a quoted market price in an active market................................................................

¥

1,155

$

12,413(c) Maturity analysis for financial assets and securities with contractual maturities(Millions of yen)March 31, 2010
Cash and cash equivalents.......................................
Receivables..............................................................
Investment securities
Held-to-maturity securities...................................
Total.....................................................................

Due inone yearor less¥

86,04535,154¥

121,199

Due after
one yearthroughfive years

Due after
five years
throughten years

Due after
ten years(Thousands of U.S. dollars)
March 31, 2010
Cash and cash equivalents.......................................
Receivables..............................................................
Investment securities
Held-to-maturity securities...................................
Total.....................................................................

Cost
$

Unrealized
gains

Unrealized
losses

Unrealized
losses924,817377,838$ 1,302,655

Please See Notes 5 for annual maturities of long-term debt and Note 11 for obligations under finance leases, respectively.

Annual Report 201043

13. NET INCOME (LOSS) PER SHARE
Reconciliation of the differences between basic and diluted net income (loss) per share (“EPS”) for the years ended March 31, 2010
and 2009 is as follows:

For the year ended March 31, 2010:
Basic EPS
Net income available to common shareholders . ....
Effect of Dilutive Securities
Stock options ......................................................
Diluted EPS
Net income for computation ...............................
For the year ended March 31, 2009:
Basic EPS
Net loss available to common shareholders........

Millions of yen

Thousands ofsharesNet Income(Loss)

Weighted
averageshares¥

10,32934,093

Yen

DollarsEPS¥

302.97

$

3.26

$

3.23

249
¥

10,32934,342¥

300.77¥(17,365)

34,093¥(509.33)

Diluted net income per share in 2009 is not disclosed due to the loss position.

14. SUBSEQUENT EVENT
Appropriations of Retained Earnings
The following appropriation of retained earnings at March 31, 2010 was approved at the Company’s Board of Directors held on May
31, 2010:(Millions of yen)
Year-end cash dividends, ¥ 40.00 ($ 0.43) pershare................................................................

¥

1,364

(Thousands of
U.S. dollars)$

14,66015. SEGMENT INFORMATION(1) Industry Segments
The Group operates in a single business segment of manufacturing and sales of electrical products in Japan and overseas. Therefore,
industry segment information is not disclosed.

44

Annual Report 2010

(2) Geographical Segments
The geographical segments of the Group for the years ended March 31, 2010 and 2009 is summarized as follows:(Millions of yen)
2010
Japan
Sales:
Sales to outside customers........................ ¥ 114,180
163,001
Inter-segment sales...................................
Total................................................................
277,181272,770
Operating expenses.......................................
4,411
Operating income (loss)................................. ¥
Identifiable assets.......................................... ¥ 120,425

North
America¥ 191,855
30
191,885
188,239¥
3,646¥ 35,735

Asia

Europe¥

1,049
183,813
184,862
178,873¥
5,989¥ 102,814¥Elimination

Conso-lidated
total

7,828
3
7,831
9,036
(1,205)9,966¥
(346,847)(346,847)(345,154)¥ (1,693)¥ (64,882)

15,08513
15,09817,631(2,533)
11,163¥(286,946)(286,946)(286,205)¥
(741)¥ (53,513)

302,778
301,368¥
1,410¥ 199,883

EuropeElimination

Conso-lidated
total

84,13632
84,168
97,119$ (12,951)$ 107,115$
(3,727,934)(3,727,934)(3,709,738)$ (18,196)$ (697,356)¥¥¥ 314,912
314,912303,764¥ 11,148¥ 204,058

2009
Sales:
Sales to outside customers........................ ¥ 103,933
120,413Inter-segment sales...................................
Total
224,346
223,296
Operating expenses.......................................
1,050
Operating income (loss) ................................ ¥
Identifiable assets.......................................... ¥ 108,739¥ 182,991
39
183,030
180,846¥
2,184¥ 40,495¥

769
166,481
167,250
165,800¥
1,450¥ 92,999

¥

¥
¥

¥ 302,778(Thousands of U.S. dollars)
2010
Japan
Sales:
Sales to outside customers........................ $1,227,214
Inter-segment sales................................... 1,751,945
Total................................................................ 2,979,159
Operating expenses....................................... 2,931,750
Operating income (loss)................................. $ 47,409
Identifiable assets.......................................... $1,294,336

North
AmericaAsia$2,062,070
323
2,062,393
2,023,206$ 39,187$ 384,082$ 11,275
1,975,634
1,986,909
1,922,539$ 64,370$1,105,052$$3,384,695
3,384,695
3,264,876$ 119,819$2,193,229(3) Sales to Foreign Customers
Sales to foreign customers for the years ended March 31, 2010 and 2009 are summarized as follows:2009(Thousands of
U.S. dollars)
2010

216,150
6,880
36,372
6,312
265,714$ 2,326,462
94,819327,709115,713$ 2,864,703(Millions of yen)
2010
North America..........................................................................................
Asia...........................................................................................................
Europe......................................................................................................
Other........................................................................................................
Total.....................................................................................................

¥¥

216,454
8,822
30,49010,766
266,532¥¥Annual Report 201045

Independent Auditors’ Report46

Annual Report 2010

Company Data
Company Outline
Name
Foundation
AddressTel
Fax
URL
CapitalSales
Employees

Business Operations

FUNAI ELECTRIC CO., LTD.
August 1961
7-7-1 Nakagaito Daito city, Osaka
574-0013, Japan
81-72-870-4303
81-72-871-1112
http://www.funaiworld.com/¥ 31,280 million¥ 314,912 million(March 2010 / Consolidated)
2,553(March 2010 / Consolidated)

Audio-visual Equipment
LCD TV, DVD player, DVD recorder,
Blu-ray disc player, Blu-ray disc recorder
Information Equipment
PrinterCompany History
Aug. 1961
Mar. 1964
Sep. 1976
Jun. 1980
May. 1991
Mar. 1992
Apr. 1992
Aug. 1994
Jan. 1996
May. 1996
Feb. 1999
Mar. 2000
Mar. 2001
Nov. 2001
Jul. 2003
Dec. 2003
Apr. 2004
Oct. 2006
Oct. 2007
Jan. 2008
Jun. 2008
Jun. 2008
Apr. 2010

Funai Electric Co., Ltd. was established in Ikuno-ku, Osaka City capitalized at ¥20 million.
Chugoku Funai Electric Co., Ltd. was established as a manufacturing company in Fukayasu-gun(nowFukuyama City), Hiroshima.
The head office was relocated to Daito City, Osaka.
Funai Electric Trading (Europe) GmbH (now Funai Europe GmbH), a sales firm, was established in
Hamburg, Germany.
Funai Corporation, Inc. was established as a sales firm in New Jersey, U.S.A.
Highsonic Industrial Ltd. (now Funai Electric (H.K.) Ltd.) was established in Hong Kong as amanagement company of processing on commission to consignment manufacturing plants in Guang
Dong province, China.
Dong Guan Plant in Dong Guan City, Guang Dong Province started operations as a consignment
manufacturing plant in China.
Zhong Shan Plant in Zhong Shan City, Guang Dong Province started operations as a consignment
manufacturing plant in China.
Funai Service Co., Ltd. was established in Higashi-Osaka City, Osaka.
Highsonic Industrial Ltd. (now Funai Electric (H.K.) Ltd.) established H.F.T Industrial Ltd. by joint
investment with a Japan company.
Funai Electric Co., Ltd. was listed on the Second Section of Osaka Securities Exchange.
Funai Electric Co., Ltd. was listed on the First Section of Tokyo Stock Exchange and the First Section of
Osaka Securities Exchange.
Closing date for the fiscal year ending on June 15 was changed to March 31.
Acquired the majority stocks of DX Antenna Co., Ltd. in Japan.
Funai (Thailand) Co., Ltd. a manufacturing company, was established in Nakornratchasima, Kingdom of Thailand.
Huang Jiang Plant in Dong Guan City, Guang Dong Province started operations as a consignment
manufacturing plant in China.
Funai Electric Advanced Applied Technology Research Institute Inc. was established in Kawasaki City,
Kanagawa (moved in Tsukuba City, Ibaraki in May, 2008).
Funai Electric (Polska) Sp.z o.o. was established as a production company in the city of N
­ owa Sol, Poland.
Funai Service Corporation was established in Ohio, U.S.A.
Funai Electric Co., Ltd. and Victor Company of Japan, Ltd. agreed to a business alliance in theaudiovisual equipment market.
P&F USA, Inc. was established in Georgia, U.S.A., as a sales subsidiary for Philips brand consumer TVs.
Tetsuro Funai, President and CEO, assumed the post of Chairman.
Tomonori Hayashi, Senior Executive Officer, assumed the post of President and CEO.
P&F Mexicana S.A. de C.V. (current consolidated subsidiary) was established as a sales office
responsible for Mexico.

FUNAI ELECTRIC CO., LTD.