2017
Annual Report

7-7-1 Nakagaito, Daito, Osaka 574-0013, Japan
Phone +81-72-870-4303 Fax +81-72-871-1112

http://www2.funai.co.jp/en/index.html

Corporate Philosophy

Dream with Conviction
and Act on Information
Since its establishment, Funai Electric has built considerable trust
among its customers in the Consumer Electronics sector bypromoting Funai’s strengths in supplying consumer electronics
products that focus on function and have superior cost-performance.

Corporate Logo

Our Corporate Logo, which shows a stylized “F” breaking out of its
circular boundaries, expresses our focus on breaking away fromstereotypes, while at the same time symbolizing our vigorous growth.
The shape of the “F” resembles a human hand, connoting production
and manufacturing. This shape is meant to convey our high productivity
and outstanding quality, with sharp angles to express simplicity.

Funai’s unique production system, the “Funai Production
System (FPS),” its system for globally optimizing production andsales, and its streamlined corporate organization and responsive
management are vital management resources that Funai has beencultivated throughout its history. We believe that these resources
are the greatest assets we wield as we seek to emerge a winner in
an increasingly competitive business environment.
The Funai Electric Group will unite as one team to achieve evengreater improvement in quality, cost, and delivery, and aspires toalways provide the world with products that meet the needs ofthe times.

Contents

1

Corporate Philosophy

1

Message from the President & CEO

3

Business Description

5Core Competencies

7

Topics9

Mid-term Business Plan

11

History

15

Company’s Outline

17
Annual Report 20172

Message from the President & CEO

Restoration of a Strong Funai’s Strength,
which is grounded in the AV businessProfileHideaki Funakoshi
January 1993

Joined Funai Electric Co., Ltd.

April 2006

Manager, DVD Project Div.

February 2008

Executive General Manager in charge of DVD Business Div.

My name is Hideaki Funakoshi, the president and CEO of the Funai Electric since May 15, 2017.

June 2010

Company Director
Officer and General Manager in charge of DVD Business Div.

I understand my role to be rolling out a new strategy aimed at sustained growth, quickly restoring

July 2011

Officer and Deputy General Manager in charge of AV Headquarters

May 2012

Officer and Deputy General Manager in charge of AV System BusinessDiv. and General Manager of Digital Media Business Div.

April 2013

Officer and General Manager in charge of AV System Business Div.
and General Manager of Display Business Div.

November 2014

Officer and General Manager in charge of AV System Business Div.

April 2016

Officer and General Manager in charge of AV System Business Div.
and General Manager of Display Business Div.

June 2016

Company Director
General Manager in charge of AV System Business Div. andGeneral Manager of Display Business Div.
President and CEO (present position)

slumping operating results, and building a stable business base by improving earnings, mainlyin the AV business. I will align my heart with those of our stakeholders and restore Funai’s strength
as a company that creates unique value in global markets.

Hideaki Funakoshi
Representative Director
President & CEO

Fiscal 2017 marks a fresh startyen (compared to an ordinary loss of 13,653 million yen lastbusiness in the North American LCD television market,

of superior quality and cost-performance to global markets inFunai is one of the most price competitive companies in thefiscal year). This culminated in a net loss attributable towhere price competition is stiff, and it holds a strong positiona timely manner. We will accomplish this by sensitive

world. We supply simple, high quality digital consumer

owners of the parent of 6,745 million yen (compared to a net

in the global digital consumer electronics market.

anticipation of market needs; rapid development of products

electronic products worldwide. However, the digital

loss of 33,839 million yen last fiscal year), a sobering result.

consumer electronics market has seen accelerating

As president and CEO, I am in charge of management

I believe that utilizing these superior managementthat customers desire by fully employing the latest

resources to rebuild a business base capable of fully

technology, designs, and components; and working

competition among global manufacturers on functional andrestructuring and am keenly aware that we must rebuild ourmanifesting the future strengths of Funai is the shortest path

continuously to improve productivity through FPS. I am

technological development in tandem with the rapid evolution

operating results as quickly as possible, with no room forto restoring operating results.

confident that this will enable Funai to fully draw out theof IT technology. The entrance of Chinese and Koreandelay. I take this assigned mission seriously.

manufacturers has also exacerbated price competition in
North America. These factors have had a major impact on the
profitability of the company’s businesses.
Consolidated operating results for fiscal year ended
March 31, 2017 (fiscal 2016) saw a 21.3% year on year

Returning to our origins and reflecting on
the strengths of Funai Electric

Building a formidable business basegrounded in the AV businessgrowth potential in the company that remains untapped.

When I was appointed, I announced the FY2017-FY2019

Working together with stakeholders to
restore Funai’s strength

When I was appointed, I looked back on the origins of Funai

New Policy and Strategy, aimed at improving profitability,

The fundamental principle of Funai Electric is “Dreams withand took a fresh look at our company’s strengths in the market.

mainly in the AV business (Display business and Digital

Convictions, and Information with Behavior,” and we are

During the era of CRT televisions, Funai was a highly

Media business) in which advanced development andkeeping the spirit of originality and ingenuity in manifesting

LCD televisions sold declined substantially, impacted by aprofitable company with a record of manufacturing andproduction capabilities are distilled into the optimal form fortrue value alive, especially when we encounter a severe

delay in plans for expansion of a new mass retail stores inselling more than 10 million televisions a year. Since thatthe market. The objective of this policy is a swift “return toenvironment. We have handed down the corporate culture

the North American market and a slump in sales in thetime, we have identified market needs two to three years inthe black,” and restoring Funai’s strength by improvingfrom veterans to young employees since our founding and

Mexican market. There was an operating loss of 6,775

advance and developed innovative technology, inventing

advanced development capabilities and productivity,

work to clarify mutual responsibilities through organizational

million yen (compared to an operating loss of 10,539 million

original products such as TV/VCR combinations and VHS/DVD

grounded in the expansion of the AV business.

reform and pursue management with a focus on speed. Our

yen last fiscal year) on the profit front as well. This resulted

recorder combinations. We have demonstrated superior

from inventory reduction accompanying a steep rise in LCD

decrease in net sales to 133,838 million yen. The number of3

DOB: September 30, 1965, in Osaka

Funai Electric wants to be the front runner that stays agoal is to align the hearts of all of our officers and employees

supply capabilities and price competitiveness via ourhalf step ahead of the competition on the proverbial track bywith the hearts of our stakeholders in restoring Funai’s strength.

panel prices and an increase in development costs in the

proprietary production system, the Funai Production Systemachieving an optimal balance between the ability to develop

We ask everyone to support us in this endeavor.

Office Solutions business, in addition to the decline in net(FPS), and our system for manufacturing and selling products

technologies rapidly and cost-competitive production

sales. A foreign exchange loss in Mexico from depreciationin the optimal locations. For many years, Funai Electric has

systems. We will therefore rebuild a business base that isof the peso contributed to an ordinary loss of 7,726 million

maintained market share that is among the highest in thecapable of introducing digital consumer electronic products

Annual Report 20174

Business Description

Supplying simple, high-quality products
to the world
Funai Electric supplies simple, high-quality products under a broad range of brands in four businesssegments—Display, Digital Media, Office Solution, and Other—and has established a solid positionin the global consumer electronics market.
Since our company was established, Funai Electric has demonstrated
the ability to develop and supply products of superior quality andtop-ranked share of the North American market in LCD televisions.
Funai Electric utilizes the printer products we developed

cost-performance, and has built a reputation of solid reliability inourselves in our Office Solution business and the strong

the global digital consumer electronics market.

partnerships with our OEM (consignment manufacturing)

Today we are engaged in a broad range of businesses in fourbusiness segments: the Display business, which carries LCD

21.2

DVD/BD-related
Products

Enticing AV users
High-definition simultaneous recording function
Funai Electric introduced a 4K Blu-ray player to the North American

bn yen(FY 2016)

market in 2016 and has debuted two models in 2017. In Japan, we
began exclusive sales a high-performance Blu-ray recorder at Yamada
Denki in June 2017, and are also working to expand sales incombination with LCD televisions.

We are entering a severe period of shakeout in the global
digital consumer electronics industry as competition on

BD (Blu-ray disc) related products, the Office Solutions

function, design, and price stiffens with the rise of Chinese,business, which carries printer-related equipment, and the Other

Taiwanese, and Korean manufacturers.

value-added products.

(15.8% of
total sales)customers in our Other business to sell high value-added products.

televisions, the Digital Media business, which carries DVD andbusiness, which carries dental CT scanners and other highDigital Media Business

However, it is precisely in this sort of severe environmentthat we are seizing the opportunity to manifest the true value of

In our main Display business, we supply four brands of LCD

Funai Electric, with our advanced in-house development capacity

televisions in a variety of sizes from small to large. In our Digitaland our formidable production system. We will work to increase

Media business, we supply DVD and BD (Blu-ray disc) related

our brand value and expand our market share by developing andproducts to Japan and North America, respectively. We are

manufacturing products that match the needs of the age rapidly

recognized for our price competitiveness and capacity to supply

and supplying products of superior quality and cost-performancethese audiovisual products, and are particularly proud of ourto the global market.

Office Solutions Business(3.8% oftotal sales)

5.1

bn yenprinters developed in-house under a license agreement in 2015.

Other Businesses

bn yenGlobally recognized high-definition imaging
Triumphant return to the Japanese market

substantially. We began manufacturing and selling Kodak-brand inkjet

inkjet technology contributed to operating results in fiscal year 2016.

(70.3% of
total sales)(FY 2016)

inkjet printer products since 1997 to expand the business

Commercial inkjet cartridges we developed in-house using thermal

LCD Televisions

94

Capitalizing on the diverse range of business needs
to achieve expansion of the printer business
Funai Electric is utilizing the expertise it has cultivated in OEM for(FY 2016)

Display Business

Printers(10.1% of
total sales)

13.5

OEM manufacturing, etc.

Meeting a wide range of OEM needs
with optimal technology and optimal manufacturing
Funai Electric is manufacturing dental CT scanning devices onbn yen(FY 2016)

consignment for the U.S. market. We are also manufacturing precision
machinery on consignment in the healthcare sector, which meets awide range of needs with superior technology.

Funai Electric is the only Japanese manufacturer to maintain a
top-ranked share of the North American market where we sell
three brands (Philips, SANYO, and Magnavox). We also entereda long-term exclusive sales agreement with Yamada Denki Co.,
Ltd. in the Japanese market and began selling high-quality 2Kand 4K LCD televisions in June 2017, all of which have arecording function. We are also working on developing a
television with an organic electroluminescent (EL) display andare aiming to launch it for sale in Japan in 2018.

5

Brands sold globally

BrandscarriedBrands sold in North America

Brand sold inCentral/South America

Philips
Kodak

Kodak

Philips Magnavox
Annual Report 2017

6

Core Competencies

Sales

DesignCapturing the Needs of Markets around the World

World-Class Price CompetitivenessFunai Electric deploys a sales strategy based on the unique characteristics of each market in many locations
around the world. In the North American market, which is the largest market in the world, Funai has
strengthened its relationship with leading mass retailers to develop an accurate assessment of market
needs, and maintains top share in the market. We also began exclusive sales of the FUNAI brand throughYamada Denki, the largest mass retailer of consumer electronics in Japan, from 2017.

Produce core components in-house, reduce thenumber of components, and design locally overseas.
Pursuit of cost-performance from the design stage
onward has given Funai Electric world-class pricecompetitiveness.

Utilizing our close ties with sales channels to accurately

strategy focused on speed and its advanced development

Funai Electric’s peerless price competitiveness was achieved

ascertain the latest trends and market needs, and providing

capabilities. We are currently engaged in product development

through our unique design concept of producing coreproducts that offer high quality and superior market

aimed at debuting an organic electroluminescent television incomponents in-house, reducing the number of components, andperformance--that is the sales strategy of Funai Electric.

the Japanese market during 2018.

local design overseas.

This also holds true for LCD televisions, our main product. We

We were also quick to introduce a Blu-ray disc (BD) player

were successful in quickly catching the growth in demand forcapable of playing Ultra HD discs (that meet the next-generation

and reduced the number of parts. Design work is performed atlarge 4K models in the North American market and rapidly

4K BD standard) to our BD product line in the North American

development sites in Malaysia, China, and other locations, anddeveloping products and introducing them to the market. This, inmarket in 2016, and began selling a second generation model

strengthening communication among these locations hasturn, led to the introduction of FUNAI-brand 4K models to thein 2017.

shortened development time, reduced labor hours, andFunai Electric meets the needs of world with a sales

Improve costcompetitivenessWe brought the production of core components in-house

Our goal is to increase our market share in BD products

improved efficiency in local parts procurement. A design flow

before the expansion of the 4K market gets fully underway.

that takes productivity into consideration and focuses on theJapanese market.

Three strengths
in design

Produce corecomponents
in-house

Reducethe number ofcomponents

Design locallyoverseas

relentless pursuit of optimal cost-performance for the entire
company helps Funai Electric products to emerge winners amid
stiff price competition.

Global sales locations
Global production locations
Sales locations

Production

Production locations

Worldwide

North America

Sold under
the
brand

Sold underthePhilips
Magnavox &Japan
Sold under

PolandbrandstheChinaTVs, DVDs,
BDs, printers

brand

Japan

China*
ThailandThailandUSA
MexicoJapan

MexicoOther

TVs

Philippines (Luzon)

Sold under

the Philips &TVs

Philippines(Luzon)DVDs,
BDs (in the future),
printers

Philippines (Cebu)

Philippines(Cebu)
Ink
cartridges

7

Funai Electric continuously pursues improvements in productivity through its unique Funai Production System(FPS). FPS enables Funai to provide high quality products with superior cost performance.
FPS, Funai’s unique production system, detects problems in thewith the current production system and fosters a mindset amongproduction process through intentional stress testing of theteam members to take the initiative on improvement. This

production line (reducing the number of line workers, speeding

enables continual improvements in productivity. Funai sees FPS

up the belt conveyor), and taking steps to improve productivity

as the driver for achieving sustainable growth, and will restore

that encourage voluntary efforts to improve.

Funai Electric to strength by pursuing this even more ardently.

Repeatedly working through this cycle detects problems

Continual improvement inproductivity through FPS

Perform
an intentionalline stress test

brandsFiscal 2016 share of LCD
television shipments in the U.S.

Overseas production ratio

4 98.0%* Source: IHS Markitth*Subcontractor plant

Central andSouth America

Taking on the Challenge of Ceaseless Improvements in Productivity

Resolvethe problems

FPS

Detectproblems

Take steps
to improve(Fiscal 2016, actual)

Annual Report 20178

Topics

2016-2017

Topic 1

Topic 2

Exclusive sale of Funai-brand 4K LCD televisions
at Yamada Denki, Japan’s largest mass retailer | June 2017 |Development of practical application of metal opticalscanning element | December 2016 |Funai Electric has begun selling LCD televisions, mainly
large 4K models, and BD (Blu-ray disc) recorders in theJapanese market under an exclusive sales agreement.
Having achieved world-class performance in the AV market,
mainly in North America, Funai achieved a triumphant returnof the Funai brand to the Japanese market based on a basic
agreement concerning the exclusive sale concluded with
Yamada Denki in October 2016.
There is a total of 11 models in the 5-series line-up. The
6000-series is the flagship model in the line-up and incorporates Clear Pix Engine 4K HDR, a high-definition engine thatwas developed in-house and creates clear images with 4K
resolution. All models offer full video recording functions,and the dynamic sound, elegant design, and extreme user
friendliness leave nothing unsaid in conveying Funai’s viewson the LCD television business.

Funai developed a practical application of a metal opticalscanning element based on the resonant piezoelectricscanner owned by the National Institute of Advanced
Industrial Science and Technology (AIST) and produced aprototype.
Utilizing the properties of the metal base, we worked tocreate a prototype of a distance measuring sensor with an

We have succeeded in designing products from thecustomer’s perspective by working with Yamada Denki, which is
intimately familiar with customers’ needs, and have utilized ourcapabilities in advanced development and manufacturing toprovide all of the features that users in Japan want in a television.
Displaying our products in the stores of the well-known Yamada
Denki should launch a rapid rise of the Funai brand.
We share the concept of creating a high quality
made-in-Japan brand from the customers’ perspective with
Yamada Denki. This formidable collaboration between the twocompanies will create new value in the AV market in Japan.
Funai Electric still boasts the highest annual LCD television
sales* among Japanese manufacturers in the North American
LCD television market, the largest market in the world, andYamada Denki boasts the top share of television sales inJapanese mass consumer electronics stores.

optical scanner having larger mirror size than considered
possible at the time* of the press release issued by AIST.
Having overcome the technical issues in practical application,
we succeeded in creating a wide-angle scanner with superior
durability and shock-resistance.
* AIST press release on February 9, 2010: Development of a Novel Optical Scanning
Device, a Core Component of a Projection Display -High scanning speeds of more than
25 kHz as well as large scanning angles such as 100° or greater were achieved –Photo of interior
Metal mirror
Range finding sensor

Reflective
mirrorLaser scanningwith large
metal mirror

Frame* Compared to Japanese manufacturers in terms of the share of North American LCD
televisions shipment volume in 2015 (IHS Markit survey)

Ranging distance:

0–2m

Piezo element

Ranging angle:

90°
Reflective mirror area: 25 x 20mm
Resonance frequency: 15Hz

Topic 3

Walmart “Supplier of the Year”
Awards received in three categories at the same time! | February 2017 |“Supplier of the Year” is a prestigious annual award
bestowed upon a supplier that has made a great contribution to customer satisfaction and to Walmart’s operating
results during that year by supplying attractive, high-quality
products. Funai received awards in the Entertainment
category and the Consumer Electronics category inrecognition of the successful contribution our LCD
televisions made to increasing FY 2016 sales in Walmart’s
TV division. Our LCD televisions also performed strongly inthe year-end sales campaign, earning the “Supplier of theQuarter” award for the fourth quarter. Funai received
awards in three categories at the same time. Funai has
received awards five times in total since 2002, a rare trackrecord among AV manufacturers around the world.

9

Annual Report 2017 10

Mid-term Business Plan

Improving Profitability Groundedin the AV Business
Funai Electric is pursuing a new medium-term management plan to concentrate management resourceson the core AV business (Display Business and Digital Media Business) and improve profitability basedon its FY2017-FY2019 New Policy and Strategy.

Fiscal 2019 Goals

210
Net sales

Fiscal 2017 Plan
Net sales160

bn yenOperating income

600

bn yenOperating income

6,000

mn yenmn yenTrend in Net Sales Funai’s goals under the plan are to achieve net sales of 160 billion yen and operating income of(Millions of yen)

600 million yen in fiscal 2017. A return to profitability of 200 million yen in net income is also projected.
The goal is to strengthen earning power and increase the profitability of the AV business to achieve net
sales of 210 billion yen, operating income of 6 billion yen, and an operating margin of 3.0% in fiscal 2019.

250,000
200,000

233,802
191,082

Improving Earnings, Primarily in the AV Business

Display Business

216,553

210,000
170,041

150,000

160,000

Japanese market:

Enter the Japanese market and expand share throughan exclusive sales agreement with Yamada Denki Co., Ltd.

North American market: Expand sales of 4K Blu-ray disc players.

133,838

Digital Media Business

100,000
50,000Japanese market:

Enter the Japanese market and expand share throughan exclusive sales agreement with Yamada Denki Co., Ltd.

Eliminate unprofitable products and concentrate on high value-added products.
Office Solutions Business

0

2012

11

North American market: Increase sales among existing customers and acquire newcustomers by expanding the large 4K LCD television line-up.

2013

2014

2015

2016

2017

Re-examine investment in the microfluidics business (involving the controlled releaseof very small amounts of fluid).

2019 (Fiscal year)

Annual Report 2017 12

Mid-term Business Plan

Grounded in the AV business, Funai willreach new heights as a global company

Improve business efficiency focusing on AV business

1
2
3

Funai Electric is pursuing a new medium-term management plan, which began in fiscal 2017 (fiscal year
ending March 31, 2018). The plan aims to improve profitability quickly to achieve the main objective of
restoring Funai to the black, and is targeted at rolling out a new strategy aimed at sustained growth by
expanding the AV business. It expresses the vision of President Hideaki Funakoshi, who formulated the
FY2017-FY2019 New Policy and Strategy, of restoring Funai’s strength.

Q1
A1

Return to the black
Expand the AV business
Improve productivity: Restore Funai’s strength

the AV business back firmly into the black.

2) earn profits in the LCD television business, and 3) improve

formulation of the FY2017–FY2019 New Policy

profitability of the information equipment business. This plan

We will aim to improve the profitability and efficiency ofand Strategy.

targeted maintenance of stable earnings while maintaining aoverseas sales subsidiaries in fiscal 2017. The functions of thehalf of fiscal 2017. We plan to introduce 17 models in fiscal 2018,balance among our various businesses. However, the highest

U.S. sales subsidiaries, P&F USA, Inc. and Funai Corporation,

including an organic EL television. We will continue work on

The goal is to build a strong earnings base for ourpriority issues we face in improving operating results rapidly is

Inc. will be merged, and we will strive to link sales plans anddeveloping attractive Funai-brand products that offer a consistentbusiness, with a primary focus on the AV business.

11 models in five series, and will add two models in the latter

concentrating the allocation of management resources on the AV

production plans in a timely manner through more appropriate

price range, with the goal of achieving volume sales of one

First, in regard to the previously announced fiscal 2016 results,business (Display business and Digital Media business), which ismanagement of PSI (production, sales, and inventory) to reduce

million televisions a year in the Japanese television market by

the decline in sales resulted from a year on year decline in the

our core business, and working to strengthen the earning power

costs and streamline organizational functions.

fiscal 2020.

number of LCD televisions sold in the North American market,of the business and achieve consistent management.

Q3

Q4

which is our main market. The main factor behind the decline in

We will endeavor to improve profits in stages and regain

profits was a greater than anticipated increase in costs andthe trust of the market through the three pillars of theexpenses incurred in the development of the next-generation

FY2017-FY2019 New Policy and Strategy by returning Funai toinkjet printers and microfluidics (a technology that controls thethe black, which is the main issue facing management;

flow of very small amounts of fluid).

expanding the AV business, as a means of strengthening the

Please describe the specific measures directed at
expanding the AV business.

The 2016-2018 medium-term business plan Funai has

earnings base; and restoring Funai’s strength, as the vision we

A3

pursued up to now is built on three pillars: 1) expand net sales,

strive to achieve. We will also work to expand penetration of theWe will expand our line-up of large 4K televisions as the core

FUNAI brand, particularly in the Japanese market.

products for expanding the AV business. We will also work to

Q2
A2

We are committed to the goal of securing volume TV
sales in the North American and Japanese markets.

A4

Please explain your vision for restoring Funai’s
strength.
We will improve our capabilities in advanced
development and production, offer products that
add even greater value, and improve global pricecompetitiveness.

develop an organic electroluminescent (EL) television as our

We will build an AV business base that will fuse the originalnext-generation flagship model while concentrating investment

strengths of Funai Electric with the speed of today’s digital era

Please explain the immediate steps that will beof internal management resources on large LCD televisions. We

and enable us to create higher quality products that are moretaken to restore Funai to the black.

will work to achieve a rebound in operating results by moving

price competitive.

the advanced development we have engaged in thus far to the

Advanced development capabilities and improvement in

We aim to achieve rapid improvement inmass production stage and creating products that offer a

productivity are the powerful engines that will restore Funai’s

profitability by curbing investment in unprofitablecompetitiveness expected of Funai Electric, and achieving growthstrength. We will form cross-organizational teams to work on

products and streamlining organizational functions.

in sales volume in the North American and Japanese markets.

projects with a development team and a product planning teamin each business division, and use the latest technology,

To return Funai to the black and achieve our highest priority goal

designs, and components to develop advanced technologies

and sale of unprofitable products, reducing R&D costs, and■ North American Market
In the core North American market, the key to growing sales lies

streamlining overseas sales subsidiaries since the beginning ofin acquiring more SKUs (stock keeping units) in the major mass

three years in the future. This will enable us to provide morefiscal 2017.

retail stores. Our success in being awarded “Supplier of theconvenient functions and new value-added through the use ofYear” awards in three categories from the major U.S. nationwide

digital technology more quickly. We will tenaciously pursue theand R&D on application of our printing head technology toretailer Walmart enabled Funai to secure SKUs for fivesuperiority that Funai possesses in cost-performance by also

products in our office solution business thus far, however we

Sanyo-brand models, and seven Philips-brand models in fiscal

demonstrating creativity in production in many ways, such as

could not deny the pressure that ongoing long-term investment

2017. Our goal is to acquire SKUs in new mass retailers based

bringing the production of core components in-house, reduction

through product commercialization is putting on profits. In theon this track record, and secure a 15% share of the Northin the number of components, designs that take productivity

future, we will carefully scrutinize each investment project for theAmerican market by fiscal 2019.

into consideration, promotion of FPS, and by increasing theof improving profitability, we have been reducing the production

Funai has engaged in development of new printer modelsof contribution it will make to profits, and will reconsider the areasthat anticipate product needs and technological trends two topercentage of components procured locally at each site.

balance between the speed of commercialization and the degree13over 800 stores nationwide. In televisions, we have a line-up of

Please explain the background leading to

We will create new value in global AV markets throughof investment. We will therefore temporarily curb investment in■ Japanese Market
Funai began exclusive sales of large 2K and 4K Funai-brand LCD

mutual cooperation among design, production, sales, R&D, andthe office solution business, but will resume investment in growth

televisions and 4K BD recorders at Yamada Denki stores frombusiness activities focused on speed with the goal of helping

businesses that will provide a second earnings base after we bring

June 2017. Yamada Denki is Japan’s largest mass retailer and has

Funai to reach new heights as a global company.
Annual Report 2017 14

History

2017-

Funai 4K TVs

2017 ● Exclusive sale of FUNAI-brand televisions and Blu-ray disc recorders at Yamada Denki.
● Hideaki Funakoshi becomes President & CEO.

2010

A parallel chronology of
product development andthe history of Funai Electric2016 ● FUNAI MANUFACTURING, S.A. DE C.V. established as a manufacturing subsidiary
in Mexico
2015 ● A holding company, Funai North America, Inc. established in Delaware,
the United States.

2009-

2013 ● FUNAI ELECTRIC CEBU, INC. (formerly, Lexmark International (Philippines), Inc.)
acquired from Lexmark.
● Funai Electric Philippines Inc. established in Luzon, the Philippines as
a production subsidiary.

Blu-ray Disc Recorders

2008-

Blu-ray Disc Players

2009 ● P&F MEXICANA, S.A. DE C.V. established in Mexico as a sales subsidiary for
Philips-brand products.

2004-2008

2008 ● P&F USA, Inc. established in Georgia, the United States as a sales subsidiaryfor Philips-brand products.

Digital Still
Cameras2004-

2006 ● FUNAI SERVICE CORPORATION established as a service subsidiary in Ohio,
the United States.
● FUNAI ELECTRIC (POLSKA) Sp. z o.o. (now a sales subsidiary, FUNAI ELECTRIC
EUROPE Sp. z o.o.) established as a production subsidiary in Poland.

DVD Recorders

2003 ● FUNAI (THAILAND) CO., LTD. established as a production subsidiary in
Nakhon Ratchasima Province, Thailand.
● Huang Jiang Plant (Dongguan City, Guangdong Province) started operation
as a consignment production plant in China.

2000

2000 ● Listed on the First Section of the Tokyo Stock Exchange and Osaka Securities Exchange.

2000-

1999-

Laser Beam Printers

DVD Players

1997-

Inkjet Printers

1996 ● FUNAI SERVICE CO., LTD.
established as a domestic
service subsidiary.
1992 ● HIGHSONIC INDUSTRIAL LTD.
(now FUNAI ELECTRIC (H.K.), LTD.)established in Hong Kong.

1987-1995

1991 ● FUNAI CORPORATION, INC. established asa sales subsidiary in New Jersey,
the United States.
1989 ● FUNAI ELECTRIC (MALAYSIA) SDN. BHD.
established as a production subsidiary in Malaysia.

1988-2003

Faxes

1994-2002

Air Conditioners

Auto Bakeries

1986-2009

CRT TVs

1985-2007

1983-1995

1987 ● FUNAI AMSTRAD LIMITED established as a production
joint venture company in U.K.

1980

LCD TVs

Projectors

1999 ● Listed on the Second
Section of the Osaka
Securities Exchange.

1990

2002-

2002-2007

2004 ● FUNAI ELECTRIC ADVANCED APPLIED TECHNOLOGY RESEARCHINSTITUTE INC. established.

1985-1995

TV/VCR Combos Microwave Ovens

Cordless
Telephones

1983 ● Tokyo Branch Office opened.
1980 ● FUNAI ELECTRIC TRADING (EUROPE) GmbH establishedin Germany as a sales subsidiary.

1983-2013

VHS Videos

1977 ● Training started which formed the basis for establishing the Funai Production System (FPS).
1970 ● FUNAI AMERICA ELECTRIC SERVICE CORP. established in the United States as a sales subsidiary.

1980-1982

1969 ● Construction of new headquarters building completed in Daito City, Osaka Prefecture.

CVC VCRs

1971-1995

1968 ● FUNAI ELECTRIC COMPANY OF TAIWAN established as a production subsidiary in Taiwan.

1960

1964 ● CHUGOKU FUNAI ELECTRIC CO., LTD. established as a production subsidiary
in Hiroshima Prefecture.
1962 ● Representative office established in Chicago, the United States.

1969-1981

Home Stereos

8-Track Car
Stereos

1963-1966

1961 ● FUNAI ELECTRIC CO., LTD. established in Ikuno Ward,
Osaka City, capitalized at ¥20 million.

1959-1970

Transistor
Radios15

1968-1979

Cassette
Car Stereos

Open
Reel-to-reelTape Recorders

Annual Report 2017 16

Company’s Outline

FUNAI CORPORATION, INC.
P&F USA, Inc.
FUNAI ELECTRIC (H.K.), LTD.

FUNAI SERVICE CORPORATIONHUANG JIANG PLANT*

Funai Lexington
Technology Corporation

Funai Electric R&D (Shenzhen) Co., Ltd.
FUNAI ELECTRIC EUROPE Sp. z o.o.

FUNAI ELECTRIC CO., LTD.
headquarters
FUNAI SERVICE CO., LTD.
FUNAI GENERAL SERVICE CO., LTD.

3

P&F MEXICANA, S.A. DE C.V.

FUNAI (THAILAND) CO., LTD.

TOKYO
BRANCHOFFICE

Funai Malaysia R&D SDN. BHD.

FUNAI MANUFACTURING, S.A. DE C.V.
FUNAI TRADING CORP.

CHUGOKU FUNAIELECTRIC CO., LTD.

FUNAI ELECTRIC PHILIPPINES INC.

FUNAI ELECTRIC CEBU, INC.

*Consignment production plant

Name

FUNAI ELECTRIC CO., LTD.

Established

August 1961

Head office

7-7-1 Nakagaito, Daito, Osaka 574-0013

Executives

Offices and subsidiaries

Members of the Board Hideaki Funakoshi

TEL +81-72-870-4303 FAX +81-72-871-1112
Capital
Net sales
Employees
Business category

Representative
Director andPresident and CEO

URL http://www2.funai.co.jp/en/index.html

Takeshi Ito¥31,307 million (as of March 31, 2017)

Hiroyuki Makiura

Director and Officer¥133,838 million(Fiscal year ended March 31, 2017)

Mitsuo Yonemoto

Outside Director

Fumiaki Kidera

Director

No. of employees:
2,826 (consolidated basis, as of Mar. 31, 2017)

Outside Director(Audit and Supervisory
Committee Members)

Masakazu Funaishi

Outside Director

Electrical equipment

Officers

Motoyoshi Adachi

Officer

Yoshio Kinoshita

Officer

Katsuo Tokuhara

Officer

Principal businesses Display Business

LCD TVs

Digital Media Business DVD players/recorders

Director and Officer

Masahide Morimoto Outside Director

Offices

Production subsidiaries

Development subsidiaries

FUNAI ELECTRIC CO., LTD. headquarters

CHUGOKU FUNAI ELECTRIC CO., LTD.

Funai Electric R&D (Shenzhen) Co., Ltd.

TOKYO BRANCH OFFICEFUNAI MANUFACTURING, S.A. DE C.V.

Funai Malaysia R&D SDN. BHD.

FUNAI ELECTRIC (H.K.), LTD.

Funai Lexington Technology Corporation

Sales subsidiaries

HUANG JIANG PLANT*FUNAI CORPORATION, INC.

FUNAI (THAILAND) CO., LTD.

P&F USA, Inc.

FUNAI ELECTRIC CEBU, INC.

FUNAI TRADING CORP.

FUNAI ELECTRIC PHILIPPINES INC.

P&F MEXICANA, S.A. DE C.V.
FUNAI ELECTRIC EUROPE Sp. z o.o.

Other subsidiaries
FUNAI SERVICE CO., LTD.
FUNAI GENERAL SERVICE CO., LTD.
FUNAI SERVICE CORPORATION

Blu-ray Disc players/
recorders

17

Office Solutions
Business

Printers

Other Businesses

Other devices

Ink cartridges

Annual Report 2017 18

Corporate Governance1) Basic Philosophy on Corporate Governance
The Funai Electric Group’s basic philosophy on corporate governance is to continuously increase corporate value by increasing
the transparency of management to shareholders, consumers, vendors, local communities, employees, and other internal andexternal stakeholders and by responding to changes in the business environment by ensuring management soundness andefficiency and striving for prompt decision-making.
On the basis of this philosophy, the Group has introduced an executive officer system to ensure expeditious decisionmaking and establish a system for prompt business execution. The Group is also strengthening CSR activities. We haveformulated the Funai Group Code of Conduct, which regulates the conduct of all officers and employees of the Funai Group,and the Funai Group Procurement Policy, which is based upon the Code of Conduct, and established the CSR Committee as anorganization to promote corporate social responsibility.

2) Description of the Management Organization in the Fiscal Year under Review
Pursuant to a resolution at the ordinary general meeting of shareholders held on June 25, 2015 to amend the Articles ofIncorporation to provide for a transition to an audit and supervisory committee governance structure, the Group transitioned
from a board of corporate auditors governance structure to an audit and supervisory committee governance structure effective
June 25, 2015. The purpose of the transition is to further strengthen the supervisory function of the Board of Directors andenhance corporate governance by granting to directors who are Audit and Supervisory Committee members voting rights on
the Board of Directors. The Group has also introduced an executive officer system to establish a system for prompt businessexecution. We have also ensured objectivity and transparency in important decision-making processes by establishing theNomination Committee, Compensation Committee, and Internal Investment and Loan Committee as discretionary advisory
bodies to the Board of Directors other than the Audit and Supervisory Committee.

Ordinary General Meeting of Shareholders
Nominate/Dismiss/Non-reappointment

Nominate/Dismiss

Nominate/Dismiss
Accounting audit report

Account Auditor

Coordination

Account audit(Optional Committees)

Deliberations/Report

Audit and Supervisory Committee
Coordination

Audit/
Direction

Nomination Committee

Board of Directors
ReportCompensation Committee

Nominate/Dismiss/Direction

Internal Investment and Loan Committee

President and Representative Director

Internal Control Committee

Director Responsible for Business/Executive Director
ReportReportAudit OfficeInternal Audit

Command/Order

Respective business divisions/subsidiaries
Coordination

a. Board of Directors
The Funai Electric Group Board of Directors consists of eight members: five directors who are not Audit and Supervisory
Committee members (including one outside director) and three directors who are Audit and Supervisory Committee members(two of whom are outside directors). At the same time as the Group strives for prompt decision-making by inside directors
knowledgeable about the Group’s business matters, participation in Board of Directors decision-making by outside directors
with no special interest in the Group ensures management soundness and transparency. Meetings of the Board of Directors
are held, in principle, at least once every three months, and extraordinary meetings are held as necessary.

19b. Audit and Supervisory Committee
The Audit and Supervisory Committee consists of three directors, including two, who are outside directors. No special interest
exists between these outside directors and the Funai Electric Group. In principle, the Audit and Supervisory Committee meetsonce a month.

c. Independent Auditors
The Company has appointed Deloitte Touche Tohmatsu LLC as independent auditors.

Corporate Governance Organization

ReportAdvisory Bodies• Nomination Committee
The Nomination Committee consists of directors who are not Audit and Supervisory Committee members appointed by
the Board of Directors. As an advisory body to the Board of Directors, it ensures the transparency and objectiveness of thecandidate selection process by recommending candidates for director to the Board of Directors.
• Compensation Committee
The Compensation Committee consists of directors who are not Audit and Supervisory Committee members appointed by
the Board of Directors. It ensures the transparency and objectiveness of the compensation decision process by deciding
compensation and other payments for directors who are not Audit and Supervisory Committee members and executive officers
under authority delegated by the Board of Directors. Compensation and other payments for corporate auditors are determinedby consultation among the corporate auditors.
• Internal Investment and Loan Committee
The Internal Investment and Loan Committee consists of directors and executive officers appointed by the president. It ensures
the transparency and objectiveness of the decision-making process regarding major investment and loan projects by discussing
the details of individual projects from a group-wide perspective.

3) Inappropriate accounting
During the fiscal year under review, it was discovered that there was inappropriate accounting in prior results at the Group’s
subsidiaries. As a result, the Group submitted amended securities reports for the past five years and subsequently amended its
financial reports.
Under these circumstances, the Group investigated and analyzed the causes of such inappropriate accounting and thereby
considered, formulated and implemented improvement measures in order to prevent the recurrence of similar cases.
The Group has taken the situation seriously and is determined to raise the awareness of its officers and employees andfurther strengthen the Group’s governance with the aim of ensuring that such incidents will never be repeated in the future.
The Group has taken the following improvement measures to prevent the recurrence of similar cases.
a. Strengthen management system for overseas subsidiaries• Strengthen organization of the Group’s management division• Reinforce monitoring of sales subsidiaries• Change reporting lines for expatriates in charge of accounting• Newly establish financial reporting meetings and enhance monthly reporting operations• Review relevant regulations and ensure thorough compliance• Conduct progress reporting of improvement measures at the Board of Directors’ meeting• Implement periodical audits by Audit and Supervisory Committee Members
b. Strengthen operational capabilities of overseas subsidiaries• Review human resources system and organizations• Review management systems• Clarify authorities by reviewing the regulations on administrative authorities• Promote collaboration between accounting departments among sales subsidiaries• Thoroughly implement risk management of new businesses
c. Restructure internal audit system• Strengthen internal audit system• Enhance audit contents
d. Implement educational activities for officers and employees• Set out a commitment by the President to prevent the recurrence of similar cases• Conduct training for officers• Provide compliance lectures for divisional managers
Annual Report 201720

Management Discussion and Analysis
Business Performance in the Fiscal Year ended March 31, 2017
In the United States, which is the Group’s mainstay market, the economy has
been expanding at a moderate pace as seen in the recovery of corporate investing
activities despite a temporary decrease in consumer spending. Meanwhile,in Europe, a gradual economic spending continues to improve. In China, theeconomic slowdown appears to have come to a pause in some areas as fixed
assets investment and exports seemed to have bottomed out.
In Japan, moderate recovery of exports and industrial production has
continued and there have been signs of improvement in consumer spending,reflecting solid employment and income conditions.

(¥ billion)

Operating Loss

Audiovisual Equipment

216.5
170.0
133.8

2015

2016

2017

(659)

Current Assets

Net loss attributable to owners of the parent ended at ¥6,745 million (a net
loss attributable to owners of the parent of ¥33,839 million in the previous
fiscal year).

2016

2017

Net Income (Loss) Attributable to
Owners of the Parent(¥ million)

31(6,745)

Total current liabilities as of March 31, 2017 decreased by ¥30,248 million from theend of the previous fiscal year to ¥29,575 million.
The change is mainly attributable to an increase of ¥2,998 million in trade
payables, a decrease of ¥,5,118 million in short-term bank borrowings, and adecrease of ¥26,868 million in other payables. The main reason for the decreasein other payables was the payment of compensation for damage under otherpayables at the end of the previous fiscal year with respect to the arbitration in
the dispute between the Company and Koninklijke Philips N.V.

Total sales decreased, due to the end of LCD-TV sales. As a result, net sales
dropped to ¥612 million, down 51.4% year on year, while segment profit(operating profit) ended at ¥45 million (a segment loss of ¥300 million in theprevious fiscal year).

76.1%

Japan
EuropeAmericas*
Asia*Including sales of Central and South America

Sales by Region(¥ billion)

1.2
132.2

2016

34.1 170.0(33,839)
2015

2016

2017

Long-Term Liabilities
Long-term liabilities as of March 31, 2017 decreased by ¥7,474 million from theend of the previous fiscal year to ¥2,453 million.
The change is mainly attributable to a decrease of ¥6,009 million in longterm bank borrowings.

2.4

0.6
101.8

2017

31.2 133.8
0.3

Americas

Europe

Japan

Asia

Sales Composition by Products(Year ended March 31, 2017)

3.8%

10.1%

Net property, plant, and equipment as of March 31, 2017 decreased by ¥5,239
million from the end of the previous fiscal year to ¥12,963 million.
The decrease is due to primarily the sale of buildings and structures andland.

Current Liabilities

Europe

0.2%

23.3%

Property, Plant, and Equipment

Although BD-players and ink cartridges sales increased, LCD-TVs decreased
due to failure of sales expansion in new mass merchandisers in the U.S.
market to progress as expected as well as tougher price competition in the
Mexican market. As a result, net sales ended at ¥101,751 million (down 23.0%
year on year) and segment loss (operating loss) amounted to ¥131 million (asegment loss of ¥2,964 million in the previous fiscal year).

Net sales were ¥274 million, 88.7% year on year due to decrease on ink
cartridges. Segment loss (operating loss) amounted to ¥630million (segment
loss of ¥15 million in the previous fiscal year).

21(10,539)2015

Total current assets as of March 31, 2017 decreased by ¥37,710 million from theend of the previous fiscal year to ¥85,503 million.
The change is mainly attributable to the decreases of ¥8,145 million cash
and cash equivalents and ¥9,328 million time deposit due to the paymentof the compensation for damage by the arbitration in the dispute between
the Company and Koninklijke Philips N.V., which the Group recorded in otherpayables in ¥18,502 million in the previous fiscal year.

Americas

Asia

0.4%

Financial Position(6,775)

Although BD-recorders and ink cartridges sales increased, LCD-TVs and DVD
recorders decreased. As a result, net sales were ¥31,200 million (down 8.6%
year on year) and segment loss (operating loss) resulted in ¥8,219 million (theprevious fiscal year: segment loss of ¥7,663 million).

Sales of the new in-house developed ink-jet cartridges contributed to anincrease in overall sales. As a result, net sales of this sector were ¥5,075
million, an increase of 1.5% from the previous fiscal year.

Net sales of other were ¥13,500 million, a decrease of 22.0% from the previous
fiscal year, due to the end of sales of audio accessories, whose contract
terminated during the previous fiscal year.

(¥ million)

Net Loss Attributable to Owners of the Parent

Japan(Year ended March 31, 2017)

Although BD-players sales increased, LCD-TVs decreased due to failure ofsales expansion in new mass merchandisers in the U.S. market to progress as
expected as well as tougher price competition in the Mexican market. As a result,net sales of this sector were ¥115,262 million, a decrease of 22.0% from theprevious fiscal year.

OthersOperating Income (Loss)

There was an operating loss of ¥6,775 million (operating loss for the previous
fiscal year of ¥10,539 million), due to a drop in sales as well as liquid crystal
panel prices remaining high until the fiscal year-end, inventory adjustment ofold models of LCD-TVs in the first half of the year, and a decline in gross profit
margin due to intensified price competition in Mexico.

Net Sales by Geographical Area

Sales Composition by Region

Information Equipment

Net Sales
The Group reported net sales of ¥133,838 million, a 21.3% decrease from theprevious fiscal year.

Net Sales by Product GroupNet Sales

86.1%

Audiovisual equipment
Information equipment
othersSales by Products(¥ billion)

12.6
2015

171.9

31.9 216.5
5.0

2016

170.0

147.7

17.2

5.1
2017

115.2

133.8
13.5

Audiovisual equipment
Information equipment
othersAnnual Report 201722

Management Discussion and Analysis
Total Equity
Total equity as of March 31, 2017 decreased by ¥7,782 million from the end of
the previous fiscal year to ¥76,656 million.
The change is mainly attributable to an increase of ¥998 million in foreign
currency translation adjustments, a decrease of ¥7,768 million in retained
earnings and a decrease of ¥965 million in noncontrolling interest.

Total Assets(¥ billion)

188.9
154.1
108.7

i) Product cost and market prices
The Group’s primary target is customers of mass merchandisers such as Walmart, and therefore we must deliver low prices.
Consequently, the Group is working to reduce costs through measures such as establishing production systems in optimal
locations, pursuing further application of the Funai Production System (FPS), the unique productivity improvement systemdeveloped by the Company, and utilizing internal production of parts and centralized purchasing. However, the consumer
electronics business is intensely competitive and when parts and raw materials prices rise, cost pressures may affect theGroup’s financial condition and business results.

Cash Flows
Cash and cash equivalents on a consolidated basis as of March 31, 2017
decreased by ¥8,145 million from the end of the previous fiscal year to ¥38,971
million. The change is mainly attributable to a decrease in other payables, and adecrease in short and long - term bank borrowings.
Cash flows during the fiscal year under review and factors affecting cash
flows are as follows.

2015

2016

2017

Total Liabilities

Cash Flows from Operating Activities(¥ billion)

Net cash used in operating activities was ¥13,329 million in the fiscal year underreview. (Net cash used in operating activities was ¥7,549 million in the previous
fiscal year.) The primary reason of this is mainly attributable to loss before
income taxes and a decrease of other payables, while a decrease of tradereceivables and inventories and an increase of trade payables.

65.7

69.7

32.0

Cash Flows from Investing Activities
Net cash provided by investing activities was ¥13,266 million in the fiscal year
under review. (Net cash provided by investing activities was ¥11,805 million in
the previous fiscal year.) The primary reason of this is mainly attributable to adecrease in time deposits, sales in property, plant and equipment and sales ofinvestments in a subsidiary with changes in consolidation scope.

2015

2016

2017

Total Equity

Cash Flows from Financing Activities

123.2

84.4

76.7

Risks that may have a significant impact on the Group’s financial situation andoperating results are outlined below.

(1) The Funai Group’s Management Policy

2015

2016

2017

Shareholders’ Equity Ratio
(%)

70.3
64.5

(2) Impact of overseas market trends

2016ii) Dependence on Chinese production
The Group is working to improve the cost competitiveness of its products by concentrating production in cost-advantaged
regions and purchasing parts in bulk. In this fiscal year, 98.0% of our products were produced overseas, with 58.8% producedin China (consignment manufacturing and in-house production). The Group has undertaken production site decentralization
to reduce the ratio of Chinese production. Nevertheless, as we continue to engage in production in China, rising labor cost,changes in the government system, the outbreak of conflict, natural disasters and other unforeseen circumstances may affect
the Group’s financial condition and business results.
iii) Foreign currency risk
The Group determines production sites for its principal products upon consideration of optimal production location and sales
systems. DVD-related products and LCD TVs are produced in China; LCD TVs are produced in Thailand, and Ink cartridges, Inkjet printers and DVD-related products are produced in the Philippines.

54.0

2015

23

iv) Intellectual property rights
So-called “patent trolls” have been very active in recent years. They have no products of their own, but attempt to generate
income from patent royalties by filing lawsuits using intellectual property rights acquired from third parties. This is a worrisome
trend for all companies in manufacturing and sales industries. As a result of these activities, we may need to make highcompensatory payments that may affect the Group’s financial condition and business results.

i) Dependence on the Americas (the United States, Mexico and other) market
A high proportion of the Group’s net sales comes from overseas markets. In particular, the Americas market accounted for 76.9%
of net sales in this fiscal year, and Walmart group alone accounted for 58.7% of these net sales.
If economies in the Americas suddenly enter recession, this may affect the Group’s financial condition and business results.

Business and Other Risks

The Group has adopted a policy of providing high-quality, low-cost products to
consumers based upon optimized production and sales systems on a global
scale. We manufacture and sell our principal products, such as audiovisualequipment (LCD TVs, DVD-related products, etc.) and information equipment(printers, etc.), in addition to other products (antennas and related devices,audio accessory-related products, etc.). Price competition in these productareas is intense. Additionally, the life cycle of digital products is short and thecompetition to develop new technologies and functions is also growing more
intense. Accordingly, these factors may affect the Group’s financial condition
and business results.

iii) Defects relating to products and services
The Group’s departments responsible for quality management and technologies play the primary role in the effort to maintainand improve quality. In addition, the Group has established service companies in Japan and overseas. However, if there aretroubles with repair or replacement of our products, the impact of the warranty costs and/or the decrease of social credibility
may have negative impacts for the Group’s financial condition and business results.

v) Corporate acquisitions and Business alliances
The Group may pursue corporate acquisitions and business alliances to improve its profit and efficiently boost sales. However forvarious reasons, in the event that the synergies fall short of initial expectations, we fail to reach agreement on an acquisition, oraffiliate relationships cannot be maintained, this may affect the Group’s financial position, business results and growth forecasts.

(¥ billion)

Net cash used in financing activities was ¥11,150 million in the fiscal year underreview. (Net cash provided by financing activities was ¥69 million in the previous
fiscal year.) The primary reason of this is mainly attributable to the repayment ofboth short and long term - bank borrowings.

ii) New technologies
In the consumer electronics business, market needs are becoming more diverse; the Group needs to improve the quality,
volume, and speed of its new product development.
To address these issues, the Group will improve its technical capabilities, focusing mainly on new business fields, throughpartnerships with other companies and universities, and personnel development. The Company also may consider mergers
and acquisitions depending on the situation. However, a diversification of market needs or technological innovation beyond our
expectations may affect the Group’s financial condition and business results.

2017

Annual Report 201724

Management Discussion and Analysis
The Group purchases products from overseas production subsidiaries and sells them to overseas sales subsidiaries or sells
directly to OEM supply partners mainly in North America. Domestic sales are also conducted through direct sales and sales
subsidiaries.
Although the majority of the Group’s sales are conducted in U.S. dollars, some transactions are conducted in Mexican
pesos and yen. In addition, the majority of the Group’s purchasing transactions are conducted in U.S. dollars. Although sales andpurchase transactions conducted in U.S. dollars are not affected by currency fluctuations, expenses denominated in U.S. dollars
relating to sales transactions conducted in Mexican pesos or yen are affected by currency fluctuations.
Since foreign currency-denominated assets and liabilities are converted to yen using the exchange rates on the settlement
date, significant currency fluctuations may affect the Groups financial condition and business results.

(3) Other risksi) Legal regulations
In each country, the Group is subject to a variety of local legal regulations, concerning commercial transactions, importing andexporting, intellectual property rights, product liability, environmental protection, consumer protection, financial transactions,and corporate taxation. Changes to these legal regulations, or the ways in which they are interpreted by the authorities, could
affect the Group’s financial position and business performance.
ii) Litigation
There are litigation risks relating to the Group’s business. A major lawsuit or other legal action could affect the Group’s financial
position and business performance.
iii) Information control
The Group has internal systems to prevent information leaks and protect itself against viruses. However, factors such as
operational mistakes or new viruses may preclude the complete avoidance of information leaks and system shutdowns
completely. Such events could affect the Group’s financial position and business results.
iv) Retirement benefit obligations
The Group and its consolidated domestic subsidiaries have defined benefit corporate pension systems, which are based on actuarial
assumptions on the pension assets, such as rates of return and discount rates. The Group’s financial position and business results
could be affected if there are any changes in these assumptions, if the pension assets decrease due to the deterioration in theinvestment environment, or if changes in the pension system cause future retirement benefit expenses to increase.
v) Financing
If the Group’s financing is limited due to deteriorating business performance, the cost of finance could increase. This could
affect the Group’s financial position and business performance.
vi) Important information about going concern assumption
Since the Group recorded a significant operating loss, ordinary loss, net loss attributable to owners of the parent, and negative
operating cash flow during the fiscal year under review, events or circumstances that cast significant doubt on the going
concern assumption exist at the present time.
Since the Group’s balance of cash and deposits is sufficient to cover working capital and other requirements for sometime, there is no significant concern about financing.
Since the Group has already started medium term management strategies and implemented following countermeasures
gradually, the Group believes that a resolution of the matter can be achieved.

25

Five-Year Summary
Millions of
U.S. dollars(Notes 1 and 2)

Millions of Japanese yen (Note 1)
Years ended March 31

2013

2014

2015

2016

2017

2017

Net Sales

191,082

233,802

216,553

170,041

133,838$1,194.98

Operating Income (Loss)(6,568)(6,071)(659)(10,539)(6,775)$(60.49)

Net Income (Loss)(1,681)(2,908)600(13,653)(7,726)$(68.98)

Total Equity

119,264

114,743

123,218

84,43976,656$684.43

Total Assets

194,207

180,729

188,902

154,191

108,685$970.40

Shareholders’ Equity

117,969

113,568

122,014

83,32876,507$683.10Net Cash Provided by (Used in)Operating Activities(8,022)(1,251)

16,897(7,549)(13,329)$(119.01)

Net Cash (Used in) Provided by
Investing Activities

12,863(2,730)(17,360)

11,805

13,266$118.45

Free Cash Flow*

4,841(3,981)

(463)

4,256

(63)

$(0.56)

Capital Investment

5,345

5,094

3,275

2,462

3,070

$27.41

Depreciation Expense

5,264

6,479

5,855

4,498

4,098

$36.59Return on Assets (%)(5.32)(3.95)

0.02(19.73)(5.13)

Return on Equity (%)(8.22)(6.39)

0.03(32.96)(8.44)

Debt/Equity Ratio (%)

11.27

9.51

9.11

14.54

0.99

Japanese yen

U.S. dollars

2013

2014

2015

2016

2017

2017

Shareholders’ Equity per Share

3,457.56

3,328.58

3,576.14

2,442.28

2,242.38$20.02Net Income (Loss) per Share(289.26)(216.89)0.92(991.81)(197.70)$(1.77)

35

35

35

30

10

$0.09

Cash Dividends per Share

Notes: 1.	From the current fiscal year, the Company rounded down Japanese yen figures less than a million to the nearest million yen and U.S.
dollar figures less than a thousand to the nearest thousand dollars, except for per share data.
2. The exchange rate of ¥112=U.S.$1.00 (the approximate rate of exchange at March 31, 2017) is used for the above calculations.
*Net cash provided by operating activities plus net cash provided by investment activities.

Annual Report 201726

Consolidated Balance Sheet
FUNAI ELECTRIC CO., LTD. and Consolidated Subsidiaries
March 31, 2017
Thousands of U.S.
dollars (Note 1)

Millions of Japanese yen

ASSETS

2016

2017

2017

Time deposits (Note 18)

LIABILITIES AND EQUITY

2016

2017

2017

CURRENT LIABILITIES:CURRENT ASSETS:
Cash and cash equivalents (Note 18)

Thousands of U.S.
dollars (Note 1)

Millions of Japanese yen¥ 38,971¥ 47,116$ 347,955

1,165

10,492

10,401

Short-term bank borrowings (Notes 11 and 18)
Current portion of long-term debt (Notes 11, 16 and 18)

¥
¥

4,818

242

551

$

2,162

Payables:Receivables:
		 Trade (Note 18)

15,571

24,092139,028

		 Trade (Note 18)

18,603

15,604

166,098

		Other

2,400

1,862

21,430		 Other (Note 18)

7,280

34,14965,008

		 Allowance for doubtful accounts

(847)

(400)

(7,566)

Income taxes payable

813

783

7,261

2,635

3,916

23,53529,57559,823

264,065

514

6,746

4,594

1,062

1,502

9,483

Long-term payables – other

281

615

2,510

595

811

5,316

Inventories (Note 5)
Deferred tax assets (Note 17)
Prepaid expenses and other current assets
		 Total current assets

26,25337,177

234,407

Other current liabilities

489

664

4,372

		 Total current liabilities

1,500

2,208

13,397

LONG-TERM LIABILITIES:

85,503

123,214

763,427

Long-term debt (Notes 11, 16 and 18)
Liability for retirement benefits (Note 12)

PROPERTY, PLANT, AND EQUIPMENT:
Land

3,592

6,331

32,077

Deferred tax liabilities (Note 17)

Buildings and structures

14,832

18,138132,428

Other

Machinery, equipment and other (Note 6)

28,203

33,832

251,814

Lease assets (Note 16)

597

697

5,338

Construction in progress

187

87

1,675

47,41359,086423,334(34,449)(40,882)(307,586)

12,963

18,203

115,748

		 Total property, plant, and equipment
Accumulated depreciation
		 Net property, plant, and equipment

		 Total long-term liabilities

Investment securities (Notes 10 and 18)

		Authorized, 80,000,000 shares; issued,
36,130,796 shares in 2017 and 2016
Stock acquisition rights

1,180

1,841

2,101

16,439

2,576

3,297

23,007

Accumulated other comprehensive income:

244

181

2,182

		 Unrealized gain on available-for-sale securities

Long-term prepaid expenses (Note 6)

2,620

2,649

23,394

		 Foreign currency translation adjustments

Assets for retirement benefits (Note 12)

1,543

1,555

13,782

		 Defined retirement benefit plans

454

206

4,061

		TotalOther assets (Note 6)

1,056

2,100

9,435

Allowance for doubtful accounts

(252)

(271)

(2,252)

		Total equity

10,217

12,772

91,231

TOTAL¥108,685¥154,191$970,408

Long-term loans

Deferred tax assets (Note 17)

		 Total investments and other assets
TOTAL

21,90531,30731,307

279,532

33,60333,301300,028

149

145

1,332

47,02054,789419,829(24,341)(24,341)(217,334)

11

160

106

(11,206)(12,204)(100,054)

111

314

996

76,656

83,473

684,436

Common stock:951

Patents

9,927

EQUITY (Notes 13, 14, and 22):132

	Investments in and advances to unconsolidated subsidiaries andassociated companies

2,453

COMMITMENTS AND CONTINGENT LIABILITIES(Notes 16, 19 and 23)

Capital surplus
INVESTMENTS AND OTHER ASSETS:

252

Retained earnings	Treasury stock – at cost
2,011,765 shares in 2017 and 2,011,687 shares in 2016965

Noncontrolling interests
76,65684,439684,436¥108,685¥154,191$970,408

See notes to consolidated financial statements.

See notes to consolidated financial statements.

27

Annual Report 201728

Consolidated Statement of Operations

Consolidated Statement of Comprehensive Income

FUNAI ELECTRIC CO., LTD. and Consolidated Subsidiaries
Year Ended March 31, 2017

FUNAI ELECTRIC CO., LTD. and Consolidated Subsidiaries
Year Ended March 31, 2017
Thousands of U.S.
dollars (Note 1)

Millions of Japanese yen

2017

2016

NET SALES¥133,838¥170,041$1,194,989

COST OF SALES (Note 15)

114,795

144,671

1,024,960

		Gross profit

19,04325,370170,028SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Note 15)

25,81835,910		Operating loss

(6,775)(10,539)

2017

2016

2017

¥(6,742)¥(33,876)$(60,196)

Unrealized loss on available-for-sale securities

(148)

(264)

(1,325)

230,523

Foreign currency translation adjustments

954(3,270)8,521(60,495)

Defined retirement benefit plans

(207)

(48)

(1,850)

44

(19)

399

643

(3,603)

5,744¥(6,098)¥(37,479)$(54,452)¥(6,098)¥(37,442)$(54,447)

(0)

(37)

(4)

2017

Interest and dividend income

253

287

2,262

Interest expense

(152)

(296)

(1,364)(1,122)(3,244)(10,018)

119

208

1,066

1,325

(367)

11,836

(2)

(4)

(22)

Income from rental of property, plant and equipment
	Gain (loss) on sale or disposal of property, plant and equipment – net
	Equity in losses of an unconsolidated subsidiary andan associated company
	Loss on sale of an investment in a consolidated subsidiary(704)

	Gain on sales of investments in unconsolidated subsidiaries
and associated companies
Loss on impairment of long-lived assets (Note 6)(6,289)

(339)

(667)
902

Refund of customs duty (Note 8)

485

Compensation for damages (Note 9)

TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO:
Owners of the parent
Noncontrolling interests
See notes to consolidated financial statements.

(18,502)
90

(341)

811

(21,500)(4,748)(7,307)(32,040)(65,243)

Current

67

514

599

Deferred

(632)

1,322

(5,646)LOSS BEFORE INCOME TAXESCOMPREHENSIVE LOSS

(3,030)(531)

Other expenses- net

Total other comprehensive income (loss)

41

Settlement payment received (Note 7)

Other – net

NET LOSS
OTHER COMPREHENSIVE INCOME (LOSS) (Note 20):	Share of other comprehensive income (loss) in associates

OTHER INCOME (EXPENSES):

Foreign exchange loss – net

Thousands of U.S.
dollars (Note 1)

Millions of Japanese yen

INCOME TAXES (Note 17):

		 Total income taxes
NET LOSSNET INCOME (LOSS) ATTRIBUTABLE TO NONCONTROLLINGINTERESTS
NET LOSS ATTRIBUTABLE TO OWNERS OF THE PARENT

(565)

1,836

(5,046)(6,742)(33,876)(60,196)

3

(37)

29

¥ (6,745)¥ (33,839)

Japanese yen$(60,226)

U.S. dollars

PER SHARE OF COMMON STOCK (Notes 2.w and 21):
Basic net loss
Cash dividends applicable to the year

¥ (197.70)¥ (991.8)

10.00

30.00

$

(1.77)
0.09

See notes to consolidated financial statements.

29

Annual Report 201730

Consolidated Statement of Changes in Equity

Consolidated Statement of Cash Flows

FUNAI ELECTRIC CO., LTD. and Consolidated Subsidiaries
Year Ended March 31, 2017

FUNAI ELECTRIC CO., LTD. and Consolidated Subsidiaries
Year Ended March 31, 2017

Thousands

Millions of Japanese yen

Number ofshares ofcommonstock
outstanding

Commonstock

34,119¥31,307

BALANCE, APRIL 1, 2015

CapitalsurplusStockacquisitionrightsRetainedearnings

Treasurystock¥33,272¥142¥89,903¥(24,341)

Net loss attributable toowners of the parent¥ (8,913)(0)(33,839)(33,839)(1,194)(1,194)(0)Change of scope of consolidation(79)

Change in a parent’s ownershipinterest in a subsidiaryarising from transactions
with noncontrolling interests

(0)

(0)

(79)

(79)

29

29

29

Net change in the year2
34,11931,30733,301

145

54,789(24,341)

Total
equity¥1,061 ¥123,218(1,194)Purchase of treasury stock

Noncontrollinginterests

Total¥365 ¥122,157(33,839)

Cash dividends, ¥30.00
per share

BALANCE, MARCH 31, 2016

Unrealized
ForeignDefinedgain oncurrency
retirement
availabletranslation
benefitfor-saleadjustments
plans
securities

¥421

(260)

(3,290)(51)(3,600)(95)(3,695)160(12,204)314

83,473965

84,439Net loss attributable toowners of the parent(6,745)(6,745)(6,745)

Cash dividends, 10.00
per share(1,023)(1,023)(1,023)

(0)

(0)

301

301

Purchase of treasury stock

(0)

(0)

Change in a parent’s ownershipinterest in a subsidiaryarising from transactions
with noncontrolling interests

301

Net change in the year
BALANCE, MARCH 31, 20173
34,119¥31,307¥33,603¥149¥47,020¥(24,341)

(149)

998

¥ 11

¥(11,206)

(202)

650

(965)

¥111 ¥ 76,656(314)¥ 76,656

Thousands of U.S. dollars (Note 1)
Accumulated othercomprehensive income
Commonstock

BALANCE, MARCH 31, 2016
Net loss attributable to owners of
the parent
Cash dividends, $0.27 per share

Capitalsurplus$279,532 $297,338

StockacquisitionrightsTreasurystock$1,298 $489,195 $(217,333)

Purchase of treasury stock

Unrealized
ForeignDefinedgain oncurrency
retirement
availabletranslation
benefitfor-saleadjustments
plans
securities$1,436 $(108,971)(60,226)(60,226)(60,226)(9,139)(9,139)(9,139)

(0)

(0)

2,689

2,689

33
$279,532 $300,028

See notes to consolidated financial statements.

Total
equity$8,621 $753,923

2,689

Net change in the year

Noncontrollinginterests

Total$2,803 $745,301(0)

Change in a parent’s ownershipinterest in a subsidiary arising fromtransactions with noncontrollinginterests
BALANCE, MARCH 31, 2017

Retainedearnings$1,332 $419,829 $(217,334)(1,330)8,916$ 106 $(100,054)

Thousands of U.S.
dollars (Note 1)

Millions of Japanese yen

Accumulated othercomprehensive income(1,807)

5,811$ 996 $684,436$(8,621)(2,809)$684,436

OPERATING ACTIVITIES:
Loss before income taxes
Adjustments for:		 Income taxes – paid
		 Income taxes – refund		 Depreciation and amortization
		 (Gain) loss on sale or disposal of property, plant and equipment
		 Loss on impairment of long-lived assets
		 Equity in losses of an unconsolidated subsidiary and			an associated company
		 Gain on sales of investment securities
		 Loss on sale of an investment in a consolidated subsidiary
		 Gain on sales of investments in unconsolidated subsidiaries
			and associated companies
		 Changes in assets and liabilities:
			 Decrease in trade receivables
			Decrease in inventories
			 Increase (decrease) in trade payables			 (Decrease) increase in other payables
			 Decrease in liability for retirement benefits
			Other - net
		Total adjustments
		 Net cash used in operating activities
INVESTING 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
Proceeds from sales of investments in a subsidiary with		 changes in consolidation scope (Note 4)
Payments for loans receivable
Proceeds from collection of loans receivable
Other – net
Net cash provided by investing activities
FINANCING ACTIVITIES:(Decrease) increase in short-term bank borrowings - net
Repayment of long-term debt
Dividends paid
Other – net
Net cash (used in) provided by financing activities
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS ON
CASH AND CASH EQUIVALENTS
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS OF NEWLY - CONSOLIDATEDSUBSIDIARIES, BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS, END OF YEAR

2017

2016

2017

¥ (7,307)¥(32,040)$ (65,243)

(69)
49
4,098
(1,325)
339

(454)
28
4,498
367
667

(624)
444
36,595(11,836)
3,030

2

4

22

(127)
704

(68)

(1,135)
6,289

(41)
4,601
8,379
3,470
(25,539)
(147)
(459)
(6,022)(13,329)

12,1991,925(15,381)
20,520(112)
337
24,490(7,549)41,08274,82030,982(228,027)(1,318)(4,098)(53,774)(119,017)(6,205)
10,392
3,977(3,042)
(117)
178
(10)

(21,227)
34,215886(2,113)
(270)
242
(62)

(55,405)
92,79035,511(27,162)(1,052)
1,593
(95)

7,899

70,532(4)
25
174
13,266(2)
40
98
11,805

(44)
224
1,555
118,446(6,510)(3,192)(1,023)(424)(11,150)

1,124(1,194)
139
69(58,133)(28,501)(9,139)(3,786)(99,560)

3,069

(251)

27,402(8,145)
47,116

4,074
42,991(72,729)
420,684

51¥38,971¥ 47,116$347,955

See notes to consolidated financial statements.

31

Annual Report 201732

Notes to Consolidated Financial Statements
development costs of R&D; and (d) cancellation of the fair value model accounting for property, plant, and equipment andinvestment properties and incorporation of the cost model accounting.

FUNAI ELECTRIC CO., LTD. and Consolidated Subsidiaries
Year Ended March 31, 2017

1. BASIS OF PRESENTATION OF 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 accordance with accounting
principles generally accepted in Japan (“Japanese GAAP”), which are different in certain respects as to the application anddisclosure requirements of International Financial Reporting Standards (“IFRS”).
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 that is more familiar to readers outside
Japan. In addition, certain reclassifications have been made in the 2016 consolidated financial statements to conform to theclassifications used in 2017.
The consolidated financial statements are stated in Japanese yen, the currency of the country in which Funai Electric Co.,
Ltd. (the “Company”) is incorporated and operates. The translations of Japanese yen amounts into U.S. dollar amounts areincluded solely for the convenience of readers outside Japan and have been made at the rate of ¥112 to $1, the approximate
rate of exchange at March 31, 2017. Such translations should not be construed as representations that the Japanese yenamounts could be converted into U.S. dollars at that or any other rate.
Additionally, the Company rounded down Japanese yen figures to the nearest million and U.S. dollar figures to the nearest
thousand, except for per share data.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESa. Consolidation — The consolidated financial statements as of March 31, 2017, include the accounts of the Company and its
20 (23 in 2016) significant subsidiaries (collectively, the “Group”).
		
Under the control and influence concepts, those companies over whose operations the Company, directly or indirectly,
is able to exercise control are fully consolidated and those companies over which the Group has the ability to exercise
significant influence are accounted for using the equity method.
		
In 2017, investments in one (one in 2016) unconsolidated subsidiary, which was liquidated by the end of March 31,
2017, is accounted for using the equity method. Investments in the remaining unconsolidated subsidiaries and associatedcompanies 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.
		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 also eliminated.
b. Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial Statements —Under Accounting Standards Board of Japan (“ASBJ”) Practical Issues Task Force (“PITF”) No. 18, “Practical Solution on
Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial Statements,” the 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. However, financial
statements prepared by foreign subsidiaries in accordance with either IFRS or the generally accepted accounting principles
in the United States of America (Financial Accounting Standards Board Accounting Standards Codification or “FASBASC”) tentatively may be used for the consolidation process, except for the following items that should be adjusted in the
consolidation process, so that net income is accounted for in accordance with Japanese GAAP, unless they are not material:(a) amortization of goodwill; (b) scheduled amortization of actuarial gain or loss of pensions that has been recorded in theequity through other comprehensive income; (c) expensing capitalized development costs of research and development(R&D); and (d) cancellation of the fair value model accounting for property, plant, and equipment and investment properties
and incorporation of the cost model accounting.
c. Unification of Accounting Policies Applied to Foreign Associated Companies for the Equity Method — ASBJ
Statement No. 16, “Accounting Standard for Equity Method of Accounting for Investments,” requires adjustments to bemade to conform the associate’s accounting policies for similar transactions and events under similar circumstances tothose of the parent company when the associate’s financial statements are used in applying the equity method, unless it isimpracticable to determine such adjustments. In addition, financial statements prepared by foreign associated companies inaccordance with either IFRS or generally accepted accounting principles in the United States of America tentatively may be
used in applying the equity method if the following items are adjusted, so that net income is accounted for in accordancewith Japanese GAAP, unless they are not material: (a) amortization of goodwill; (b) scheduled amortization of actuarial gainor loss of pensions that has been recorded in the equity through other comprehensive income; (c) expensing capitalized

33

d. Business Combinations — Business combinations are accounted for using the purchase method. Acquisition related
costs, such as advisory fees or professional fees, are accounted for as expenses in the periods in which the costs are
incurred. If the initial accounting for a business combination is incomplete by the end of the reporting period in which
the business combination occurs, an acquirer shall report in its financial statements provisional amounts for the items
for which the accounting is incomplete. During the measurement period, which shall not exceed one year from theacquisition, the acquirer shall retrospectively adjust the provisional amounts recognized at the acquisition date to reflect new
information obtained about facts and circumstances that existed as of the acquisition date and that would have affected
the measurement of the amounts recognized as of that date. Such adjustments shall be recognized as if the accounting forthe business combination had been completed at the acquisition date. A parent’s ownership interest in a subsidiary mightchange if the parent purchases or sells ownership interests in its subsidiary. The carrying amount of noncontrolling interestis adjusted to reflect the change in the parent’s ownership interest in its subsidiary while the parent retains its controllinginterest in its subsidiary. Any difference between the fair value of the consideration received or paid and the amount bywhich the noncontrolling interest is adjusted is accounted for as capital surplus as long as the parent retains control over its
subsidiary.
e. Cash Equivalents — Cash equivalents are short-term investments that are readily convertible into cash and exposed toinsignificant risk of changes in value.
		Cash equivalents include time deposits, certificates of deposit, commercial paper, and bond funds, all of which matureor become due within three months of the date of acquisition.
f.

Allowance for Doubtful Accounts — The allowance for doubtful accounts is stated in amounts considered to beappropriate based on the companies’ past credit loss experience and an evaluation of potential losses in the receivables
outstanding.

g. Inventories — Inventories of the Company and its consolidated domestic subsidiaries are mainly stated at the lower ofcost, determined using the average method for merchandise, finished products and work in process and using the first-in,
first-out method for raw materials, or net selling value.
		Inventories of consolidated foreign subsidiaries are mainly stated at the lower of cost, determined using the first-in,
first-out method, or net selling value.
h. 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 fairvalue, with unrealized gains and losses, net of applicable taxes, reported as a separate component of equity.
		
Nonmarketable available-for-sale securities are stated at cost determined by the moving-average method. For otherthan-temporary declines in fair value, investment securities are reduced to net realizable value by a charge to income.
Property, Plant, and Equipment — Property, plant, and equipment are stated at cost. Depreciation of property, plant, andequipment of the Company and its consolidated domestic subsidiaries is computed substantially using the declining-balancemethod, while the straight-line method is applied to buildings acquired after April 1, 1998, and building improvements andstructures acquired after April 1, 2016 at rates based on the estimated useful lives of the assets. Depreciation of property,
plant, and equipment of consolidated foreign subsidiaries is principally computed using the straight-line method at rates
based on the estimated useful lives of the assets. The range of useful lives is principally from three to 50 years for buildings
and structures and from one to 20 years for machinery, equipment, and other.
		
Lease assets are depreciated using the straight-line method over the respective lease periods.
		Pursuant to an amendment to the Corporate Tax Act, the Company adopted Accounting Standards Board of Japan
Practical Issues Task Force No. 32 “Practical Solution on a change in depreciation method due to Tax Reform 2016” andchanged the depreciation method for building improvements and structures acquired on or after April 1, 2016, from thedeclining-balance method to the straight-line method. The impact from adoption of this amendment was immaterial for theyear ended March 31, 2017.
i.

j.

Patents — Patents are carried at cost, less accumulated amortization, which is computed using the straight-line method
over the estimated useful lives.

Annual Report 201734

Notes to Consolidated Financial Statements
k. Other Intangible Assets — Intangible assets are stated at cost. Amortization of intangible assets of the Company and its
consolidated subsidiaries is computed using the straight-line method. Amortization of software for internal use is computed
using the straight-line method over the estimated useful life (five years).
l.

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

m. Retirement and Pension Plans — The Company and certain consolidated subsidiaries have noncontributory funded defined
benefit pension plans and unfunded retirement benefit plans for employees. Certain consolidated foreign subsidiaries also
have defined contribution pension plans.
		
The Group accounts for the liability for retirement benefits based on the projected benefit obligations and plan assets
at the consolidated balance sheet date. The projected benefit obligations are attributed to periods on a benefit formula basis.
Actuarial gains and losses and past service costs that are yet to be recognized in profit or loss are recognized within equity(accumulated other comprehensive income), after adjusting for tax effects and are recognized in profit or loss. Actuarial
gains and losses are amortized using the straight-line method over a period within the average remaining years of serviceof the employees (10 years) starting from the following period. Past service cost is amortized using the straight-line method
over a period within the average remaining years of service of the employees (10 years).
		Retirement allowances for Directors and Executive Officers are recorded as a liability at the amount that would be
required if all Directors and Executive Officers retired at each consolidated balance sheet date.
n. Asset Retirement Obligations — An asset retirement obligation is recorded for a legal obligation imposed either by law orcontract that results from the acquisition, construction, development, and normal operation of a tangible fixed asset and isassociated 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 and is recorded in the period in which the obligation is incurred if a reasonable estimate can be made. If areasonable estimate of the asset retirement obligation cannot be made in the period the asset retirement obligation isincurred, the liability should be recognized when a reasonable 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 thecarrying amount of the related fixed asset by the amount of the liability. The asset retirement cost is subsequently allocatedto 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 estimate of undiscounted cash
flows are reflected as an adjustment to the carrying amount of the liability and the capitalized amount of the related asset
retirement cost.
o. Stock Options — The Company measures the cost of stock options granted to Directors, Executive Officers and employeesof the Company, Executive Officers and employees of the subsidiaries based on the fair value at the date of grant andrecognizes the compensation expense over the vesting period as consideration for receiving goods or services. In the
consolidated balance sheet, stock options are presented as stock acquisition rights as a separate component of equity until
exercised.
p. Research and Development Costs — Research and development costs are charged to income as incurred.
q. Leases — All finance lease transactions are capitalized by recognizing lease assets and lease obligations in the balance
sheet.
r.

35

Construction Contracts — Construction revenue and construction costs are 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, theoutcome of a construction contract is deemed to be estimated reliably. If the outcome of a construction contract cannot be
reliably estimated, the completed-contract method should be applied. When it is probable that the total construction costs
will exceed total construction revenue, an estimated loss on the contract should be immediately recognized by providing fora loss on construction contracts.

s. Income Taxes — The provision for income taxes is computed based on pretax income and included in the consolidated
statements of operations. The asset and liability approach is used to recognize deferred tax assets and liabilities for the
expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets andliabilities. Deferred taxes are measured by applying currently enacted income tax rates to the temporary differences.
		
The Company applied ASBJ Guidance No. 26 “Guidance on Recoverability of Deferred Tax Assets,” effective April 1,
2016. There was no impact from adopting this guideline for the year ended March 31, 2017.
t. Foreign Currency Transactions — All short-term and long-term monetary receivables and payables denominated in foreign
currencies are translated into Japanese yen at the exchange rates at the balance sheet date. The foreign exchange gains andlosses from translation are recognized in the consolidated statements of operations to the extent that they are not hedged
by forward exchange contracts.
u. Foreign Currency Financial Statements — The balance sheet accounts of the consolidated foreign subsidiaries aretranslated into Japanese yen at the current exchange rate as of the balance sheet date, except for equity, which is translated
at the historical rate.
		
Differences arising from such translation are shown as “Foreign currency translation adjustments” under accumulated
other comprehensive income as a separate component of equity.
		
Revenue and expense accounts of consolidated foreign subsidiaries are translated into Japanese yen at the averageexchange rate.
v. Derivatives and Hedging Activities — The Group uses derivative financial instruments to manage its exposures tofluctuations in foreign currency exchange rates and interest rates. Foreign exchange forward contracts and interest rate
swaps are utilized by the Group to reduce foreign currency exchange and interest rate risks. The Group does not enter into
derivatives for trading or speculative purposes.
		
Derivative financial instruments are recognized as either assets or liabilities and measured at fair value, and gains andlosses on derivative transactions are recognized in the consolidated statements of operations.
w. Per Share Information — Basic net loss per share (“EPS”) is computed by dividing net loss attributable to commonshareholders by the weighted-average number of common shares outstanding for the period. Diluted net income per shareis not disclosed as the Company recognizes net loss per share and the effect of including potential common shares is antidilutive.
		
Cash dividends per share presented in the accompanying consolidated statements of operations are dividends
applicable to the respective years, including dividends to be paid after the end of the year.
x. New Accounting Pronouncementsa) Leases — In January 2016, IFRS 16 Leases was issued. For lessees, IFRS 16 requires most leases to be recognized on
the balance sheet (under a single model), eliminating the distinction between operating and finance leases. On the other
hand, it remains largely unchanged for lessors and the distinction between operating and finance leases is retained. IFRS 16
supersedes IAS 17 Leases and related interpretations.
		
Under IFRS 16, a lessee recognizes a right-of-use asset and a lease liability. The right-of-use asset is treated similarly toother non-financial assets and is depreciated accordingly. The lease liability is initially measured at the present value of thelease payments payable over the lease term, discounted at the rate implicit in the lease if that can be readily determined,
and the liability accrues interest. Under IFRS 16, lessors classify leases as operating or finance in nature, as under current
IAS 17.
		IFRS 16 must be applied for periods beginning on or after January 1, 2019, with earlier adoption permitted if IFRS 15
Revenue from Contracts with Customers has also been applied.
		
In February 2016, the FASB issued an accounting standards update which requires lessees to recognize most leaseson their balance sheets, but recognize expenses on their income statements in a manner similar to current guidance. For
lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. This
guidance is effective for annual reporting periods beginning after December 15, 2018, and early adoption is permitted.
		
The foreign subsidiaries expect to apply the new standards on leases effective April 1, 2019, and are in the process ofmeasuring the effects of applying the new standards in future applicable periods.

Annual Report 201736

Notes to Consolidated Financial Statements
3. BUSINESS COMBINATION

5. INVENTORIES

Sale of an investment in a consolidated subsidiary
The Company decided to enter into a basic agreement for the sale of an investment in a subsidiary (share ratio of stock issued:96%) at a meeting of the Company’s Board of Directors hold on November 7, 2016, and reached a basic agreement on the sameday. After negotiations, the Board of Directors’ resolved to sell the investment and the final agreement on February 21, 2017
and sold the investments on March 30, 2017.

Inventories at March 31, 2017 and 2016, consisted of the following:[Overview of Business Combination](1) Name of the divested company and its main business
Name of the company: DX ANTENNA CO., Ltd. (“DX ANTENNA”)
Main business: Sales of receiving, communication and security related devices(3) Reason for the divestiture
The business combination was conducted to focus management resources on the Group’s core business in face of thedecrease in sales of the LED TV business due to severe competition in the Group’s main market, North America.
		Considering the similarity of products between DX ANTENNA and ELECOM, the Company resolved to transfer theshares of DX ANTENNA to ELECOM.
(4) Date of the business combination: March 30, 2017(5) Legal form of business combination
Share transfer in which consideration is limited to cash
[Overview of accounting treatment]
The difference between the consolidated carrying amount and the sales amounts of DX ANTENNA was recognized as transfer
profit (loss).
The Company recorded transfer loss of ¥704 million ($6,289 thousand) under “Loss on sales of investment in aconsolidated subsidiary” in “Other income (expenses)”.

4. ADDITIONAL INFORMATION OF CASH FLOWSOn March 30, 2017, the Company sold its shares in DX ANTENNA, with changes of consolidation scope.
Assets and liabilities of the divested company and net cash provided by the sales were as follows:
Millions ofJapanese yen

37

2017
¥15,459
1,149
9,644¥26,253

Merchandise and finished products
Work in process
Raw materials and supplies
		Total2016¥22,768
1,196
13,212¥37,1772017$138,034
10,264
86,108$234,407

6. LONG-LIVED ASSETS(2) Name of transferee: Elecom Co., Ltd (“ELECOM”)

Current assets
Noncurrent assets
Current liabilities
Long-term liabilities
Unrealized gain on available-for-sale securities
Foreign currency translation adjustments
Defined retirement benefit plans
Noncontrolling interests
Loss on sales of investment in a consolidated subsidiary
Related expenses to sales of the investment
Total sales amounts
Related expenses to sales of the investment
Cash and cash equivalents
Proceeds from sales of investment in a subsidiary

Thousands of
U.S. dollars

Millions of Japanese yen

2017¥12,006
3,826(3,178)
(821)
(128)
(3)
(290)
(470)
(704)
132
10,367(132)(2,336)¥ 7,899

Thousands of
U.S. dollars

2017$107,198
34,169(28,377)(7,336)(1,147)(33)(2,590)(4,201)(6,289)1,178
92,569(1,178)(20,858)$ 70,532

In principle, when the Company conducts an impairment test, the Group categorizes business assets on the basis of the legal
entity whose cash inflows and outflows are continuously recorded. Idle assets are evaluated individually.
During the fiscal year ended March 31, 2017, the Group recorded losses on impairment in the following asset groups:
Use

Location

Type

Assets planned to be retired

Funai Electric Cebu, Inc.
(Cebu, the Philippines)

Machinery, equipment, and other assets

Since acquiring the shares of a manufacturing subsidiary of Lexmark International, Inc. (now Funai Electric Cebu, Inc.), theGroup has engaged in contract production of inkjet cartridges from Lexmark International, Inc. Although the Group previously
categorized the assets as business assets, the production of certain models was discontinued, so the Group reduced the bookvalues of the related manufacturing equipment to their recoverable amounts and recorded a loss on impairment of long-lived
assets of ¥339 million ($3,030 thousand) in other income (expenses).
The recoverable amounts of the assets were calculated using net selling price based on disposal value.
During the fiscal year ended March 31, 2016, the Group recorded losses on impairment in the following asset groups:
Use

Location

Type

Business assets

Funai Electric Co., Ltd.
(Daito City, Osaka)

Long-term prepaid expenses

Business assets

Funai Electric (H.K.) LTD.
(New Territories, Hong Kong)

Machinery, equipment and other assets

Business assets

Zhong shan Funai Electron Co.
(Guangdong, China)

Machinery, equipment and other assets

In the fiscal year ended March 31, 2016, the Group decided to exit from the laser printer business to concentrate enterprise
resources on the information equipment business focusing on the inkjet printer business, and reduced the book values ofmanufacturing facilities, development assets and other assets not expected to be used in the future to their recoverable
amounts and recorded loss on impairment of long-lived assets of ¥431 million in other income (expenses). This amount consistsof ¥87 million for Funai Electric Co., Ltd. (long-term prepaid expenses), ¥10 million for Funai Electric (H.K.) LTD. (machinery,equipment and other assets) and ¥333 million for Zhong shan Funai Electron Co. (machinery, equipment and other assets).
The recoverable amounts of the assets were determined at their net selling price and were calculated with the net selling
price as zero.
Use

Location

Type

Assets planned to be retired

Funai Electric Cebu, Inc.
(Cebu, the Philippines)

Machinery, equipment, and other assets

Since acquiring the shares of a manufacturing subsidiary of Lexmark International, Inc. (now Funai Electric Cebu, Inc.), theGroup has engaged in contract production of inkjet cartridges from Lexmark International, Inc. Although the Group previously
categorized the assets as business assets, the production of certain models was discontinued, so the Group reduced the bookvalues of the related manufacturing equipment to their recoverable amounts and recorded a loss on impairment of long-lived
assets of ¥125 million in other income (expenses).
The recoverable amounts of the assets were calculated using net selling price based on disposal value.

Annual Report 201738

Notes to Consolidated Financial Statements
Available-for-sale securities whose fair values are not readily determinable as of March 31, 2017 and 2016, were as follows:

Use

Location

Type

Business assets

P&A USA, Inc. (Delaware, the USA)

Software (included in “Other assets” in“Investment and other assets”)

2016

2017
The Company reduced the book values of the business assets on which the profitability had declined significantly to theirrecoverable amounts in the fiscal year ended March 31, 2016, and recorded a loss on impairment of long-lived assets of¥110 million as other income (expenses).
The recoverable amounts of the assets were determined at their net selling price and were calculated with the net selling
price as zero.

Thousands of
U.S. dollars

Millions of Japanese yen

Available-for-sale:
Equity securities

2017

¥368

¥84

$755

The information on available-for-sale securities which were sold during the years ended March 31, 2017 and 2016 is as follows:
Millions of Japanese yen

7. SETTLEMENT PAYMENT RECEIVED

Proceeds

In the fiscal year ended March 31, 2016, the Company received a payment after reaching a settlement for a lawsuit regarding
compensation for damages against Olympus Corporation due to Olympus’s falsifications in its securities registration statement
and other documents. This amount is after deducting necessary expenses from the settlement payment received.

Realized losses

2017
Available-for-sale:
Equity securities

8. REFUND OF CUSTOMS DUTY
In the fiscal year ended March 31, 2016, FUNAI EUROPE GmbH, a consolidated subsidiary, won a lawsuit claiming a refundof additional customs duties against the German tax authorities in the District Court of Hamburg. This amount consists ofrefunded customs duties, legal costs, and associated interest received.

Realized gains

¥178

¥127

¥132

¥68

2016
Available-for-sale:
Equity securities

9. COMPENSATION FOR DAMAGES

Thousands of U.S. dollars(Conclusion of arbitration)
The Company resolved to acquire from Koninklijke PHILIPS N.V. (“PHILIPS”) all shares in a company that would succeed
the operation of PHILIPS’ Lifestyle Entertainment Business and concluded a sale and purchase agreement on January 29,
2013. However, PHILIPS filed against the Company a petition as of October 25, 2013, for arbitration to claim compensation
for damages on the grounds of a breach of agreement by the Company. With regard to this matter, the Company contested
PHILIPS’ claims. Consequently, the Company filed a counterclaim claiming compensation for damages on the grounds of abreach of the agreement and undue action by PHILIPS.
On April 26, 2016, the International Court of Arbitration rendered an arbitral award against the Company to pay
compensatory damages of EUR 134.8 million, arbitration costs of US$1.35 million, and Philips’s legal fees of approximately EUR
2.5 million plus interest (2%) thereon to Philips, and dismissed the counterclaim of the Company.
The Company posted ¥18,502 million as compensation for damages in other income (expenses) in the fiscal year ended
March 31, 2016.

Proceeds

Available-for-sale:
Equity securities$1,597The costs and aggregate fair values of investment securities at March 31, 2017 and 2016 were as follows:
Millions of Japanese yen
Cost

Unrealized gains

Unrealized losses

Fair value

2017
Securities classified as:
Available-for-sale:		Equity securities

¥ 35

¥ 11

¥ 47

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

¥337

¥248

¥3

¥582

Thousands of U.S. dollars
Cost

Unrealized gains

Unrealized losses

Fair value$1,135

Short-term bank loans bore interest at an annual average rate of 2.0% at March 31, 2016.
Long-term debt at March 31, 2017 and 2016, consisted of the following:Thousands of
U.S. dollars

Millions of Japanese yen

Unsecured loans from banks and other financial institutions, due
serially through 2019 with average interest rates of 1.3% (2016)
Obligations under finance leases
Total
Less current portionLong-term debt, less current portion

2016

2017

¥6,309
¥756
756
(242)
¥514

989
7,298
(551)
¥6,746$6,757
6,757(2,162)$4,594

Annual maturities of obligations under finance leases at March 31, 2017, were as follows:Year Ending March 31

2016

Realized losses

11.		 SHORT-TERM BANK LOANS AND LONG-TERM DEBT

2017

10. INVESTMENT SECURITIESRealized gains

2017

2018
2019
2020
2021
2022
Total

Millions ofJapanese yen

Thousands of
U.S. dollars

¥242
237
205
68
2
¥756

$2,162
2,121
1,838
614
20
$6,7572017
Securities classified as:
Available-for-sale:		Equity securities

39

$318

$106

$424

Annual Report 201740

Notes to Consolidated Financial Statements
12. RETIREMENT AND PENSION PLANS(4) The components of net periodic benefit costs for the year ended March 31, 2017, were as follows:

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 determinedbased on the rate of pay at the time of termination, years of service, and certain other factors. Such retirement benefits are
made in the form of a lump-sum severance payment from the Company or from certain consolidated subsidiaries and annuity
payments from a trustee. Employees are entitled to larger payments if the termination is involuntary, by retirement at the
mandatory retirement age, by death, or by voluntary retirement at certain specific ages prior to the mandatory retirement age.
The Company and certain consolidated subsidiaries have noncontributory funded defined benefit pension plans for
employees. Certain consolidated foreign subsidiaries also have defined contribution pension plans. Some consolidated
subsidiaries use the simplified method.
The liability for retirement benefits at March 31, 2017 and 2016 for Directors and Executive Officers is ¥1,047 million($9,349 thousand) and ¥1,106 million, respectively. The retirement benefits for Directors are paid subject to the approval by theshareholders.
(1) The changes in defined benefit obligation for the year ended March 31, 2017 and 2016, were as follows:
Millions of Japanese yen

Balance at beginning of year
Current service cost
Interest cost
Benefits paid
Actuarial losses (gains)
Decrease in exclusion from consolidation scope
OthersBalance at end of year2017
¥8,468
480
92
(494)
47
(1,896)(109)¥6,5882016¥8,583
494
100
(628)
(53)
(28)
¥8,468

Thousands of
U.S. dollars

2017$75,615
4,292
823(4,415)428(16,936)(979)$58,827

Millions of Japanese yen

Service cost
Interest cost
Expected return on plan assets
Recognized Actuarial losses
Amortization of prior service cost
Amortization of transitional obligation
OthersNet periodic benefit costs

Millions of Japanese yen

Actuarial gains
Prior service cost
OthersTotal

2016¥9,752
132
(628)
612
(206)
(33)
¥9,629Thousands of
U.S. dollars

2017$85,973949(4,415)5,294(18)(14,193)(1,114)$72,475		(3) R econciliation between the liability recorded in the consolidated balance sheet and the balances of defined benefit obligationand plan assets was as follows:
Millions of Japanese yen

Plan assets
Funded defined benefit obligation
Net asset arising from defined benefit obligation2017¥ 7,975(6,431)¥ 1,5432017¥(177)(222)
58¥(340)

2016¥(133)(74)
124¥ (83)

2016¥ 7,847(6,292)¥1,555

Thousands of
U.S. dollars

2017$ 71,209(57,426)$ 13,782

2017$4,292
823
(949)
1,416
(361)
526
82
$5,829Thousands of
U.S. dollars

2017$(1,583)(1,986)526$(3,043)(6)	Amounts recognized in accumulated other comprehensive income (loss) (before income tax effect) in respect of defined
retirement benefit plans as of March 31, 2016 and 2015, were as follows:
Millions of Japanese yen

Millions of Japanese yen

2017¥9,629
106
(494)
592
(2)
(1,589)(124)¥8,117

2016
¥494
100
(132)
19
(74)
124
18
¥550

(5)	Amounts recognized in other comprehensive income (before income tax effect) in respect of defined retirement benefit
plans for the years ended March 31, 2017 and 2016, were as follows:(2) The changes in plan assets for the year ended March 31, 2017 and 2016, were as follows:

Balance at beginning of year
Expected return on plan assets
Benefits paid
Contributions from the employer
Actuarial losses
Decrease in exclusion from consolidation scope
OthersBalance at end of year

2017
¥480
92
(106)
158
(40)
58
9
¥652

Thousands of
U.S. dollars

Unrecognized actuarial gains
Unrecognized prior service cost
Others
Total

2017
¥109
5
¥115

Thousands of
U.S. dollars

2016
¥287
228
(58)
¥456

2017
$ 979
52

2017
61%
18%
2%
19%
100%

2016
57%
26%
1%
16%
100%

$1,031(7) Plan assets			
(a) Components of plan assets
		 Plan assets as of March 31, 2017 and 2016, consisted of the following:
Debt investments
Equity investments
Loans receivable
OthersTotal(b) Method of determining the expected rate of return on plan assets		The expected rate of return on plan assets is determined considering the long-term rates of return that are expectedcurrently and in the future from the various components of the plan assets.
(8) Assumptions used for the year ended March 31, 2017 and 2016, were set forth as follows:

Funded defined benefit obligation
Plan assets
Net liability arising from defined benefit obligation41¥ (156)141¥ (15)¥(2,176)
1,781¥ (395)$ (1,400)
1,266$ (134)

Discount rate
Expected rate of return on plan assets
Expected rates of pay raises
Lump sum election rate

2017
1.4%
1.3%
5.6%
86.5%

2016
1.1%
1.3%
4.7%
90.8%
Annual Report 201742

Notes to Consolidated Financial Statements
13. 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 a Boardof Directors, (2) having the independent auditors, (3) having an Audit & Supervisory Board, and (4) the term of service of
the Directors being prescribed as one year rather than the normal two-year term by its articles of incorporation, the Boardof Directors may declare dividends (except for dividends–in-kind) at any time during the fiscal year if the company hasprescribed so in its articles of incorporation. With respect to the third condition above, the Board of Directors of companies
with (a) board committees (namely, an appointment committee, compensation committee and audit committee), or (b)an audit and supervisory committee (as implemented under the Companies Act effective May 1, 2015) may also declare
dividends at any time because such companies, by their nature, meet the criteria under the Companies Act. The Company
is organized as a company with an audit and supervisory committee, effective June 25, 2015. The Company meets all theabove criteria, and accordingly, the Board of Directors may declare dividends (except for dividends-in-kind) at any time during
the fiscal year.
		Semiannual interim dividends may also be paid once a year upon resolution by the Board of Directors if the articles
of incorporation of the company so stipulate. The Companies Act provides certain limitations on the amounts available
for dividends or the purchase of treasury stock. The limitation is defined as the amount available for distribution to theshareholders, but the amount of net assets after dividends must be maintained at no less than ¥3 million.
(b) Increases/Decreases and Transfer of Common Stock, Reserve, and Surplus
The Companies Act requires that an amount equal to 10% of dividends must be appropriated as a legal reserve (acomponent of retained earnings) or as additional paid-in capital (a component of capital surplus) depending on the equity
account charged upon the payment of such dividends, until the 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 within equity undercertain conditions upon resolution by 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 resolutionof the Board of Directors. The amount of treasury stock purchased cannot exceed the amount available for distribution
to the shareholders, which is determined using a specific formula. Under the Companies Act, stock acquisition rights arepresented as a separate component of equity. The Companies Act also provides that companies can purchase both treasury
stock acquisition rights and treasury stock. Such treasury stock acquisition rights are presented as a separate component ofequity or deducted directly from stock acquisition rights.

14. STOCK OPTIONS
Persons granted2008 stock option

One Director Officer
10 Executive Officers
315 employees

2014 stock option

Three Directors
Two Executive Officers
Two Executive Officers of a subsidiary
One employee of a subsidiary2016 stock option

Four Directors
One Executive Officer
50 employees
Two employees of a subsidiary

2008
stock option(Shares)Year ended March 31, 2016
Nonvested
March 31, 2015 – Outstanding
		Granted
		Canceled
		Vested
March 31, 2016 – Outstanding
VestedMarch 31, 2015 – Outstanding
		Vested		Exercised		Canceled
March 31, 2016 – Outstanding
Year ended March 31, 2017
Nonvested
March 31, 2016 – Outstanding
		Granted
		Canceled
		Vested
March 31, 2017 – Outstanding
VestedMarch 31, 2016 – Outstanding
		Vested		Exercised		Canceled
March 31, 2017 – Outstanding

Number ofoptions granted

Date of grant

Exercise price

Exercise period

431,700 shares

November 20,
2008¥1,609($ 14)

From August 1, 2010
to July 31, 2017

120,000 shares

October 10,
2014¥1,296($ 12)

174,000 shares

January 30,
2017¥1,019($
9)

From September 1,
2018 to August 31,
2023

113,000(82,000)
31,000270,500(17,800)
252,700

31,00031,000174,000
31,000174,000
252,700
31,000(24,100)
228,600(4,600)26,400174,000¥1,609($14)

Average stock price at exercise
Fair value price at grant datea. From August 1, 2010 to July 31, 2017c. From August 1, 2012 to July 31, 2017d. From August 1, 2013 to July 31, 2017
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

43

2016
stock option(Shares)

2008
stock option

b. From August 1, 2011 to July 31, 2017
From September 1,
2016 to August 31,
2023

2014
stock option(Shares)

The price information of the stock option is as follows:

Exercise price(1) The stock options outstanding as of March 31, 2017, are as follows:
Stock option(2) The stock option activity is as follows:
The number of stock options

¥ 440
($4)
¥ 447
($4)
¥ 454
($4)
¥ 458
($4)
¥ 475
($4)
¥ 487
($4)
¥ 510
($5)

Annual Report 201744

Notes to Consolidated Financial Statements
2014
stock option¥1,296($12)

Exercise price
Average stock price at exercise
Fair value price at grant date(4) Estimated method of number of vested options
The estimated number of vested options of the Company is determined based on historical data.

15. R&D COSTS
R&D costs charged to income were ¥7,248 million ($64,720 thousand) and ¥7,701 million for the years ended March 31, 2017and 2016, respectively.

¥ 236
($2)
¥ 280
($3)
¥ 330
($3)
¥ 353
($3)
¥ 359
($3)
¥ 359
($3)
¥ 356
($3)

a. From September 1, 2016 to August 31, 2023
b. From September 1, 2017 to August 31, 2023
c. From September 1, 2018 to August 31, 2023
d. From September 1, 2019 to August 31, 2023
e. From September 1, 2020 to August 31, 2023
f. From September 1, 2021 to August 31, 2023
g. From September 1, 2022 to August 31, 2023

2016
stock option¥1,019($9)

Exercise price

16. LEASESThe Group leases certain machinery and vehicles.
The minimum rental commitments under noncancelable operating leases at March 31, 2017 and 2016, were as follows:

Due within 1 year
Due after 1 year		Totala. From September 1, 2018 to August 31, 2023
b. From September 1, 2019 to August 31, 2023
c. From September 1, 2020 to August 31, 2023
d. From September 1, 2021 to August 31, 2023
e. From September 1, 2022 to August 31, 2023

(3) The Assumption Used to Measure the Fair Value of the 2016 Stock Option
Estimate method: Black-Sholes option-pricing model2016 stock option

Volatility of stock price
Estimated remaining
outstanding period
Estimated dividend
Risk free interest rate

a

b

c

d

e

40.06%

40.58%

40.51%

40.41%

40.23%

4.085years

4.583years

5.084years

5.585years

6.084years¥30($0.27)-0.119%¥30($0.27)-0.109%¥30($0.27)-0.097%¥30($0.27)-0.078%¥30($0.27)-0.059%* Volatility of stock price is calculated based on the actual stock price during the below periods;
a: From December 30, 2012 to January 30, 2017b: From July 1, 2012 to January 30, 2017
c: From December 31, 2011 to January 30, 2017
d: From July 1, 2011 to January 30, 2017
e: From December 31, 2010 to January 30, 2017

45

2017
¥ 581
579
¥1,160

2016
¥ 681
1,263
¥1,9442017$ 5,188
5,177$10,365

17.		 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 30.9% and 33.1% for the years ended March 31, 2017 and2016, respectively.
The tax effects of significant temporary differences and tax loss carryforwards, which resulted in deferred tax assets andliabilities at March 31, 2017 and 2016, were as follows:
Thousands of
U.S. dollars

Millions of Japanese yen

Average stock price at exercise
Fair value price at grant date
¥ 188
($2)
¥ 199
($2)
¥ 206
($2)
¥ 212
($2)
¥ 216
($2)

Thousands of
U.S. dollars

Millions of Japanese yen

Deferred tax assets:
Liability for retirement benefits
Accounts payable – other
Allowance for doubtful accounts
Accrued employees’ bonuses
Impairment loss on investment securities
Inventories
Loss on impairment of long-lived assets
Transfer pricing adjustment
Tax loss carryforwards
Other
Less valuation allowance		TotalDeferred tax liabilities:
Reserve for reduction entry of property assets
Unrealized gain on available-for-sale securities
Prepaid pension cost
Other		Total
Net deferred tax assets

2017

2016

2017

¥

¥

$

321
969
479
165
20
233
51
699
17,7001,435(21,053)
1,025

471
7,559
203
247
77
315
221
693
12,723
2,417(23,941)
989

56

¥

471
148
676
349

¥

228
73
477
150
930
59

2,877
8,660
4,285
1,480
184
2,086
459
6,247
158,035
12,820(187,981)
9,157
507

$

4,211
1,321
6,040
3,116

A reconciliation between the normal effective statutory tax rate and the actual effective tax rate reflected in the accompanying
consolidated statements of operations was not presented because of the net loss for the period.
On June 29, 2011, the Company received notice from the Osaka Regional Taxation Bureau suggesting that a subsidiaryin Hong Kong did not satisfy the conditions for exclusion from incorporating of income generated by the subsidiary into theincome of the Company for the duration of three years from April 1, 2007, to March 31, 2010, for taxation purposes. Because
the Company objected to this corrective action, the Company applied for assessments by the Osaka National Tax Tribunal on
August 25, 2011. On July 18, 2012, the Company received written verdict on this case indicating that our assertions had been

Annual Report 201746

Notes to Consolidated Financial Statements
dismissed. The Company, unable to accept the verdict, filed an appeal to have the action canceled with the Tokyo District Court
on January 17, 2013, however the Court rejected the Company’s claim on September 28, 2016. The Company unable to accept
the adjudgment, so filed the appeal to the Tokyo High Court on October 12, 2016.
The additional tax, including corporate income taxes, inhabitant taxes, and enterprise taxes, amounted to ¥825 million(¥935 million, including incidental taxes). This amount has been processed as expenses under the category of “Income taxes –prior years” in the fiscal year ended March 31, 2012, in accordance with Japanese Institute of Certified Public Accountants Audit
and Assurance Practice Committee Report No. 63, “Treatment of Accounting and Presentation of Taxes for the purpose of Audits.”
The Company has recorded the amount that would be affected if the taxation were applied from the fiscal year ended
March 31, 2011, which is the fiscal year following the fiscal year to which the assessment was applied.

18. FINANCIAL INSTRUMENTS AND RELATED DISCLOSURES
1. Status of Financial Instruments(1) Group Policy for Financial Instruments
The Group obtains financing from banks and invests funds in short-term deposits. The Group has a policy of not using
derivatives.
(2) Nature and Extent of Risks Arising from Financial Instruments and Risk Management for Financial Instruments
Trade receivables, such as trade notes and trade accounts, are exposed to customer credit risk.
		
To avoid such risk, the Group has stipulated sales management rules and manages trading terms and credit lines by
each customer.
		Investment securities, mainly equity instruments, are exposed to market risk. With regard to the risks, the market
values and the financial positions of the issuers are reviewed periodically and reported to the Internal Investment and
Loan Committee.
		
Most payables, such as trade notes and trade accounts, become due and payable within one year.
		Bank loans are principally for the Group’s operations. The Group has a policy of not using derivatives. However, as
floating-rate loans are exposed to interest rate risk, the Group may utilize derivatives (interest rate swap agreements)
as hedging instruments according to individual loan contracts. To trade in derivatives, such derivatives are executed andmanaged in accordance with Group internal rules. To mitigate credit risk, the Group enters into transactions solely withfinancial institutions with high ratings.
		Trade receivables and loans are exposed to liquidity risks. The Group manages these risks by having each company
perform monthly financial planning.
2. Fair Value of Financial Instruments
Fair values of financial instruments are based on quoted prices in active markets. If quoted prices are not available, anotherrational valuation technique is used instead. The list below does not contain financial instruments whose fair values are notreadily determinable.
(a) Fair value of financial instruments

Millions of Japanese yen
Carrying amount2016
Cash and cash equivalents
Time deposits
Receivables-trade
Investment securities
		TotalShort-term bank borrowings (excluding finance lease obligation)
Payables-trade
Payables-other
Long-term debt (excluding finance lease obligation)
		TotalDerivatives¥47,116
10,49224,092
582¥82,284¥ 5,118
15,60434,1496,009¥60,881¥(18)

Fair value

Unrealized gain/loss¥47,116
10,49224,092
582¥84,284¥ 5,118
15,60434,1496,009¥60,881¥(18)
Thousands of U.S. dollars

Carrying amount2017
Cash and cash equivalents
Time deposits
Receivables-trade
Investment securities
		TotalPayables-trade
Payables-other		Total$347,955
10,401
139,028424$497,810$166,098
65,008$231,106

Fair value

Unrealized gain/loss$347,955
10,401
139,028424$497,810$166,098
65,008$231,106

AssetsCash and cash equivalents, time deposits, and receivables – trade
The carrying values of cash and cash equivalents, time deposits, and receivables – trade approximate fair value because of theirshort maturities.
Investment securities
Investment securities are measured at the quoted market prices on a stock exchange for the equity instruments.
Fair value information for investment securities is included in Note 10.

Millions of Japanese yen
Carrying amount2017
Cash and cash equivalents
Time deposits
Receivables-trade
Investment securities
		TotalPayables-trade
Payables-other		Total¥38,971
1,165
15,571
47¥55,754¥18,603
7,280¥25,883

Fair value¥38,971
1,165
15,571
47¥55,754¥18,603
7,280¥25,883

Unrealized gain/loss

Liabilities
Short-term bank loans, payables – trade, and payables – other
The carrying value of short-term bank loans and payables approximates fair value because of their short maturities.		
Long-term debt
The carrying value of long-term debt approximates fair value as such debt bears interest at floating rates and they reflect themarket interest rates.
Derivatives
Fair Value Information for derivatives is included in Note 19.
(b) Financial instruments whose fair value cannot be reliably determined
Millions of Japanese yen

2017
Investments in equity instruments that do not have a quoted
market price in an active market

47¥1,3772016¥1,836

Thousands of
U.S. dollars

2017$12,301

Annual Report 201748

Notes to Consolidated Financial Statements
20. OTHER COMPREHENSIVE INCOME(c) Maturity analysis for financial assets and securities with contractual maturities

The components of other comprehensive income for the years ended March 31, 2017 and 2016, were as follows:

Millions of Japanese yen
Due in 1 year
or less

2017
Cash and cash equivalents
Time deposits
Receivables-trade		Total¥38,971
1,165
15,571¥55,7072016
Cash and cash equivalents
Time deposits
Receivables-trade		Total¥47,116
10,49224,092¥81,701

Due after 1 year
through 5 years

Due after 5 years
through 10 years

Due after 10 years

Unrealized loss on available-for-sale securities:
Gain (loss) arising during the year
Reclassification adjustments to profit or loss
Amount before income tax effect
Income tax effect		TotalThousands of U.S. dollars

2017
Cash and cash equivalents
Time deposits
Receivables-trade		TotalDue after 1 year
through 5 years

Due after 5 years
through 10 years

Due after 10 years

Foreign currency translation adjustments:
Adjustments arising during the year
Reclassification adjustments to profit or loss
Amount before income tax effect
Income tax effect		TotalDefined retirement benefit plans:
Adjustments arising during the year
Reclassification adjustments to profit or loss
Amount before income tax effect
Income tax effect		Total$347,955
10,401
139,028$497,385

Please see Note 11 for annual maturities of obligations under finance leases.

19. DERIVATIVESThe Group enters into foreign currency forward contracts to hedge foreign currency exchange rate risk associated with certain
assets and liabilities denominated in foreign currencies.
All derivative transactions are entered into to hedge foreign currency exposures incorporated within the Group’s business.
Accordingly, market risk in these derivatives is basically offset by opposite movements in the value of hedged assets or liabilities.
Because the counterparties to these derivatives are limited to major international financial institutions, the Group does not
anticipate any losses arising from credit risk.
Derivative transactions entered into by the Group have been made in accordance with internal policies which regulate theauthorization and credit limit amount.

Share of other comprehensive income (loss) in associates:(Loss) gain arising during the year
Reclassification adjustments to profit or loss		Total
Total other comprehensive income (loss)

Contract amount¥653¥ (323)
(66)
(389)
125
¥ (264)

$

¥ 971
(16)
954

$ 8,671
(150)
8,521

¥ 954

¥(3,202)(92)(3,295)24¥(3,270)¥ (50)
(290)
(340)
133
¥(207)¥ (153)69(83)
35¥ (48)$ (447)(2,596)(3,043)
1,193$(1,850)¥¥$

Fair value¥(18)

Unrealized gain/
loss

¥(18)

832
(2,279)(1,446)120$(1,325)$ 8,5210(19)¥ (19)¥(3,603)

(53)
453
$ 399
$ 5,744

Information on basic net EPS for the years ended March 31, 2017 and 2016, was as follows:
Thousands ofsharesJapanese yen

Net loss attributable to Weighted-averageowners of the parent
shares

The fair value of derivative transactions is measured at the quoted price obtained from the financial institution. The contract
or notional amounts of derivatives which are shown in the above table do not represent the amounts exchanged by the partiesand do not measure the Group’s exposure to credit or market risk.

49

¥ 93
(255)
(162)
13
¥(148)

(6)
50
¥ 44
¥ 643

Millions ofJapanese yen

Millions of Japanese yen
Contract amount(Due after 1 year)2017

21. NET LOSS PER SHAREThe Group did not use any derivative transactions for the year ended March 31, 2017.
Derivative transactions to which hedge accounting is not applied:

March 31, 2016
Foreign currency forward contracts
Buying U.S.$ / Selling Mexican Peso

2016

2017

Due in 1 year
or less

Thousands of
U.S. dollars

Millions of Japanese yen

For the year ended March 31, 2017:
Basic EPS		 Net loss available to common shareholders
For the year ended March 31, 2016:
Basic EPS		 Net income available to common shareholders

U.S dollars
EPS¥(6,745)

34,119¥(197.70)¥(33,839)

34,119¥(991.81)$(1.77)

Diluted net income per share is not disclosed due to the net loss for the years ended March 31, 2017 and 2016.

Annual Report 201750

Notes to Consolidated Financial Statements
22. SUBSEQUENT EVENT
Appropriation of Retained Earnings
The following appropriation of retained earnings at March 31, 2017, was approved at a meeting of the Company’s Board of
Directors held on May 22, 2017:

Year-end cash dividends, ¥10 ($0.09) per share

Millions ofJapanese yen

Thousands of
U.S. dollars¥341$3,046

23. CONTINGENT LIABILITIES(Financial covenants)
With regard to bank loans, a syndicate loan agreement with balances at March 31, 2016, of ¥5,634 million includes financial
covenant terms. Therefore, if the Company breaches any of the following clauses, the Company might lose the benefit of timeof the obligations under the agreement and immediately need to pay the principal and interest on the loan.
(Clauses)(1) The Company shall maintain the amount in the equity section in the consolidated balance sheets as of the end of each fiscal
year at no less than ¥100 billion.
(2) The Company shall, for two consecutive fiscal years, not report an operating loss in the consolidated statements ofoperations for the fiscal year ending March 31, 2015, and for each fiscal year thereafter.
(3) The Company shall, for two consecutive fiscal years, not report an ordinary loss in the consolidated statements ofoperations for the fiscal year ending March 31, 2015, and for each fiscal year thereafter.
The limits and unused amounts of the commitment line agreement at March 31, 2016, was as follows.
Millions of Japanese yen

Limit
Used Amounts
Unused Amounts

2016¥13,000

LTD. operate in Asia, and FUNAI ELECTRIC EUROPE Sp.zo.o. operates in Europe. Each overseas subsidiary is an independent
management unit, which develops product strategies and business activities in its respective region. Therefore, the Groupconsists of four geographic segments based on the manufacturing and sales structures: “Japan,” “Americas,” “Asia,” and “Europe.”(2) Methods of Measurement for the Amounts of Sales, Profit (Loss), Assets, and Other Items for Each Reportable Segment
The accounting policies of each reportable segment are consistent with those disclosed in Note 2, “Summary of Significant
Accounting Policies.” Sales prices between the segments are set on an arm’s-length basis.

(3) Information about Sales, Profit (Loss), Assets, and Other Items
Millions of Japanese yen

2017
Japan

Sales:
Sales to external customers¥ 31,200
Intersegment sales or transfers
83,776
Total¥114,977
Segment (loss) profit (Note B)¥ (8,219)
Segment assets
88,400
Other
Depreciation
1,589
Increase in property, plant and¥654
equipment and intangible assets
Impairment losses of assets

Americas

Asia

Europe¥101,751
1,194¥102,945¥(131)
34,976¥ 274
87,607¥87,881¥(630)
42,110

¥ 612

171

2,337

332

2,250

¥

¥

The Company breached the financial covenant terms at March 31, 2016. In the fiscal year ended March 31, 2017, the Company
prepaid all loans to banks.

24. SEGMENT INFORMATION
Under ASBJ Statement No.17, “Accounting Standard for Segment Information Disclosures,” and ASBJ Guidance No. 20,“Guidance on Accounting Standard for Segment Information Disclosures,” an entity is required to report financial anddescriptive information about its reportable segments. Reportable segments are operating segments or aggregations ofoperating 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 the chief operating decision maker in deciding
how to allocate resources and in assessing performance. Generally, segment information is required to be reported on thesame basis as is used internally for evaluating operating segment performance and deciding how to allocate resources tooperating segments.

¥ 612
¥45
1,868
¥

¥133,838
172,577¥306,416¥(8,935)
167,355

0Reconciliations Consolidated(Note A)
(Note B)

¥133,838¥(172,577)¥(172,577)¥ 2,160(58,669)¥133,838¥ (6,775)
108,685

4,098
3,237

339

¥

4,098
¥

(0)

339

3,237
¥

339

Millions of Japanese yen¥13,000(Clauses)(1) The Company shall maintain the amount in the equity section in the consolidated balance sheets as of the end of each fiscal
year at no less than ¥100 billion.
(2) The Company shall maintain the amount in the equity section in the stand-alone balance sheet as of the end of each fiscal
year at no less than ¥65 billion(3) The Company shall not report either one or both of a consolidated operating loss and a consolidated ordinary loss for eachfiscal wear.

Total

2016

Sales:
Sales to external customers
Intersegment sales or transfers
Total
Segment (loss) profit (Note B)
Segment assets
Other
Depreciation
Investment in equity method
affiliate
Increase in property, plant andequipment and intangible assets
Impairment losses of assets

Japan

Americas

Asia

Europe¥ 34,139
112,001¥146,140¥ (7,663)
114,583¥132,216
1,159¥133,376¥ (2,964)
45,147¥ 2,426
96,794¥99,220¥(15)
52,612¥1,259

1,633

180

2,660

752
¥

87

510
¥

110

¥

¥1,259¥ (300)2,119¥170,041
209,955¥379,997¥ (10,944)
214,462

23

Reconciliations Consolidated(Note A)
(Note B)

¥170,041¥(209,955)¥(209,955)¥
404(60,271)¥170,041¥ (10,539)
154,191

4,498

4,498

166

166

166

1,863

3,127

469

¥

Total

¥

667

¥

(0)

3,127
¥

667

(1) Description of Reportable Segments
The Group’s reportable segments are those for which separate financial information is available and regular evaluation by theCompany’s management is being performed in order to decide how resources are allocated among the Group. The Groupis engaged in the manufacture and sale of consumer electronics products. Mainly, the Company operates in Japan, FUNAICORPORATION, INC. and P&F USA, INC. operates in the Americas, FUNAI ELECTRIC (H.K.) LTD. and FUNAI (THAILAND) Co.,

51

Annual Report 201752

Notes to Consolidated Financial Statements
Thousands of U.S. dollars

Thousands of U.S. dollars

2017
Japan

Sales:
Sales to external customers$ 278,579
Intersegment sales or transfers
748,006
Total$1,026,586
Segment (loss) profit (Note B)$ (73,387)
Segment assets
789,286
Other
Depreciation
14,194
Increase in property, plant and5,844
equipment and intangible assets
Impairment losses of assets

2017

EuropeReconciliations Consolidated(Note A)
(Note B)

Americas

Asia

Total

$908,493
10,661$919,154$ (1,170)
312,285$2,447782,206$784,654$ (5,625)
375,987

1,533

20,867

2,966

20,09828,909

3,030

3,030

Sales to external customers$ 5,469 $1,194,989$1,194,989
1,540,874 $(1,540,874)$ 5,469 $2,735,864 $(1,540,874) $1,194,989$ 402 $ (79,780) $ 19,285 $ (60,495)
16,682
1,494,242(523,834)
970,408

Informationequipment$1,029,128$45,321

Other$120,540

Total$1,194,989

2. Information about geographical areasa. SalesNote: Sales are classified by country or region based on the location of customers.
Millions of Japanese yen
2017

036,59536,595(1)

28,9083,030

Americas
Japan

USA

Mexico

Other

Asia

EuropeTotal¥29,521¥93,384¥6,895¥2,588¥424¥1,023¥133,838

Millions of Japanese yen

Note A Components of reconciliations are as follows:				
Thousands of
U.S. dollars

Millions of Japanese yen

2016

2017
Segment profit (loss)
Elimination of intersegment transactions
Company-wide expenses (*1)
Adjustment of inventory
		Total

¥696
(761)
469
¥404

¥2,705(767)
222¥2,160Millions of Japanese yen

2016

2017

2017
$24,155(6,855)
1,985$19,285
Thousands of
U.S. dollars

2017

2016
Americas
Japan

USA

Mexico

Other

Asia

EuropeTotal¥31,477¥118,853¥14,626¥2,402¥1,022¥1,659¥170,041

Thousands of U.S. dollars
2017
Americas
Japan

USA

Mexico

Other

Asia

EuropeTotal$263,582$833,794$61,569$23,109$3,793$9,139$1,194,989

EuropeTotal

b. Property plant and equipment
Millions of Japanese yen

Segment assets
Company-wide assets (*2)
Adjustment of inventory
Elimination of intersegment assets and liabilities, etc.
		Total¥27,677(1,520)(86,428)¥(60,271)¥ 22,762(1,298)(80,133)¥(58,669)$ 203,233(11,594)(715,473)$(523,834)

2017
Asia
Japan

AmericasPhilippines

Thailand

Other¥4,544¥263¥5,922¥1,697¥535(*1) Corporate expenses are mainly general and administrative expenses not attributable to any reportable segment.
(*2) C orporate assets mainly consist of cash surpluses (cash and cash equivalents and time deposits) and long-term-investments (investments
securities, etc.) that are not attributable to any reportable segment.

Note B Segment (loss) profit is adjusted to operating loss in the consolidated statements of operations.

¥12,963

Millions of Japanese yen
2016
Asia
Japan

AmericasPhilippines

Thailand

Other

EuropeTotal¥9,521¥77¥6,405¥1,784¥411¥2¥18,203

Europe(4) Related Information
1. Information about each product and service			

Thousands of U.S. dollars
2017

Millions of Japanese yen

Asia

2017

Sales to external customers

Audiovisualequipment

Audiovisualequipment

Informationequipment¥115,262¥5,075

Other

Total

¥13,500¥133,838

Japan

AmericasPhilippines

ThailandOther$40,572$2,356$52,880$15,159$4,779Total$115,748

3. Information about major customers
Millions of Japanese yen

Sales

2016

Sales to external customers

53

Audiovisualequipment

Informationequipment¥147,742¥5,000

Other

Total

¥17,297¥170,041

Millions of Japanese yen
Name of Customer

WAL-MART STORES, INC.

2017
¥78,530

2016¥89,528

Thousands of
U.S. dollars

2017$701,161

Related segment nameAmericas

Annual Report 201754

Independent Auditors’ Report55