ANNUAL REPORT 2016

You may click on the section tittles to jump directly to that section.
Message from Business
Management Strength

Contents

1 Message from Management

SocialActivities /Topics5 Business Strength
15 Socal Activities/Topics

Corporate
Governance17 Corporate Governance

26 Financial Section

Disclaimer
This document contains forward-looking statements and projections regarding-

31 Corporate Databusiness performance which are not historical facts. Please note that these statements are based on information relating to factors that may impact future businessperformance that was available for analysis at the time this document was printed.
Electric Co., Ltd. or the Funai Group, such as audio-visual devices and information
communication equipment, the economic conditions of both domestic and inter-

Financial
Section

These factors include industry trends relating to the business areas of Funai

Management Discussion
and Analysis

20 Management Discussion and Analysis

national markets, and fluctuations in currency exchange rates. Actual performance
impacts of uncertainty in such areas as the competitive conditions of the electronics industry, market trends, currency exchange rate, introduction and success of
new products, and various other global conditions that may affect the tax systemand other systems.

Corporate
Data

may greatly differ from projections included in this document because of theMessage from Management

1

Corporate
Data

Tetsuhiro Maeda

Financial
SectionRepresentative Director, President and CEO

Management Discussion
and Analysis

In recent years, the home electronic appliance market has undergone tremendous transformation as a result of factors including intensifying international price competition, shortening of product life cycles, competition todevelop new technologies and capabilities, and increased demand for smart
devices fueled by the spread of the Internet. Although television sales arecomparatively strong In the North American market, the Group’s mainmarket, manufacturers from South Korea, China, and other countries areactively entering, and price competition in the market is intensifying.

Corporate
GovernanceBusiness Environment and Operating Results

SocialActivities /TopicsMy name is Tetsuhiro Maeda. I was recently appointed President and CEO of
Funai Electric Co., Ltd. (the “Company”) Although the Funai Electric Group(the “Group”) returned to profitability for the first time in five years in the fiscal
year ended March 31, 2015, the Group posted a loss of ¥33.8 billion in thefiscal year ended March 31, 2016 (fiscal 2015). In light of these results, I wasnamed president to radically reinvigorate the Group mindset. We must aim
for rapid improvement in business performance and further business development while also solving a number of problems in order to develop systems
with a view to the future. I consider this an opportunity to make a fresh start
for the Funai Electric Group, and will devote myself to meeting the expectations of our stakeholders by bringing about a change in thinking groupwide.

Message from Business
Management Strength

The Funai Electric Group will
emerge from an earnings slump andactively pursue business expansion.

Message from Management

Grow with New Customers

Develop products that satisfy customers’ needs / Enhancement of product planning

Enhance enterprise value

Expand new businessand markets

Develop and utilize
human resources

Increase net sales/Reduce costs

Improve PBR significantly

Expand newly built business
Re-enter Japanese market

Refocus on young employees
and utilization of the skills of
experienced employees(a) Sales expansion
	Increase sales and obtain orders for LCD-TVs for the year-end shopping season in the North
American market by offering 4K models and a range of models developed to suit individual customer groups. Begin selling a multi-model line of inkjet printers and open up new customers.

(c) Improvement of the rate of return from the information equipment business	Improve the rate of return by reducing R&D expenses through selection and concentration in
product development, improving plant utilization rates through sales expansion, and sellinghigh-value-added products.

2

Corporate
Data(b) Securing of profits from the LCD-TV business	Reduce inventory through rigorous control of purchasing, sales, and inventories (PSI) between
production subsidiaries, sales subsidiaries, and corporate divisions and reduce expenses
through integration of North American sales subsidiaries.

Financial
SectionAlthough the external environment in the fiscal year ending March 31, 2017
(fiscal 2016) is expected to remain difficult, we will undertake sales and profit
improvement by focusing on the following strategies.

Management Discussion
and Analysis

Initiatives to Improve Earnings

Corporate
Governancewas ¥10,539 million (compared to operating loss of ¥659 million in fiscal
2014). A foreign exchange loss caused by weakening of the Mexican peso
contributed to ordinary loss of ¥13,653 million (ordinary income of ¥600 million
in fiscal 2014). As a result of recording compensatory damages and otheramounts due to arbitration with Koninklijke Philips N.V. as an extraordinary
loss, net loss was ¥33,839 million (net income of ¥31 million in fiscal 2014).

In this environment, in March 2015 the Company succeeded the North
American television operations of SANYO Electric Co., Ltd., a subsidiary ofPanasonic Corporation, and commenced sales of televisions under the
SANYO brand, focusing mainly on major mass merchandisers.
Furthermore, to strengthen and increase the efficiency of the sales structure for the North American market, in October 2015 we established a holding company, Funai North America, Inc. Under the holding company, Funai’s
U.S. sales subsidiaries F&P USA, Inc. and Funai Corporation, Inc. will utilize
one another’s sales network, pursue sales expansion, and undertake service
improvements and cost savings.
In the printer business, the Company concluded a worldwide comprehensive license agreement concerning Kodak-brand inkjet printer products
and related consumable supplies with Eastman Kodak Company in February
2015. We commenced sales of inkjet printers developed in-house in the U.S.
in June 2015 and subsequently in the United Kingdom.
As a result of these initiatives, although sales of DVD-related products and
SANYO-brand audiovisual equipment in North America were strong, they failed
to compensate for a decrease in orders during the year-end shopping season
resulting from intensifying price competition and a change in the sales strategy.
For the fiscal year ended March 31, 2016 (fiscal 2015), consolidated net sales
were ¥170,041 million (a 21.5% decrease year on year), and operating loss

SocialActivities /TopicsStrengthen profitability

Message from Business
Management Strength

Future Growth Strategy

Message from Management

Development and Promotion of Human Resources
To compete and succeed in the new era of global competition and implement the medium- and long-term business strategy, we will improve the skillsof each individual employee and link this improvement to strengthening of
the Group. To that end, we will actively develop and promote humanresources, young and mid-career employees alike, by strengthening,
expanding, and upgrading internal and external training systems, including
language training.

3

Corporate
Data

Market Strategy
As a short-term market strategy, the Group is offering high-value-added
models such as 4K TVs to secure the competitive advantage of the Group
products in the North American market. As a medium- to long-term strategy,
we are actively engaging in sales channel expansion to eliminate in stages
excessive concentration on the North American market: for instance, in Europe(the U.K. and other areas) in the Information Equipment Business and in
Mexico and Central and South America in the Audiovisual Equipment Business.
To steadily execute the above strategies, we will implement improvements to minimize time lags between product planning, development,

Financial
SectionReinforcement of Production and Development Systems
The Group has undertaken production site decentralization to avoid the riskof excessive reliance on production in China, and the production ratio in
China is declining.
During fiscal 2015, we began operation of a plant at Funai Electric
Philippines Inc., a production facility established in the Philippines. We arealso continuing efforts to improve development efficiency at our operations in
China and elsewhere in Asia.

Management Discussion
and Analysis

In the consumer electronics industry, although demand for LCD-TVs has
increased due to improved resolution, such as 4K technology, and migration
to larger screens, amid continuing stagnation in the market for DVD/
BD-related products, signs have appeared of a decline in demand for smartphones, tablets, and other products that have driven market growth.
In this adverse industry environment, in addition to the abovementioned
initiatives to improve earnings, the Group will pursue medium- and long-term
growth by undertaking the following key tasks.

Corporate
Governancematerials procurement, production, and sales and enable the timely supplyof products that precisely meet market needs.

SocialActivities /TopicsMedium- to Long-term Management Strategy andIssues to Be Addressed

Message from Business
Management Strength

The Funai Electric Group will
pursue medium- and long-term growthby undertaking the key tasks.

Message from Management

Inappropriate Accounting Treatment in Past Years(Years ended March 31)

50

35

35

35

Financial
Section

30

Management Discussion
and Analysis

Cash Dividends per Share

Corporate
Governance

The Company considers providing returns to shareholders an importantmanagement priority and has adopted a basic policy of maintaining stabledividends while strengthening the business foundation. In implementing thedividend policy, we consider factors such as the business environment anduse as a specific criterion a ratio of dividends to consolidated net assets of
1.0%. In principle, the Company pays a year-end dividend once a year. If wepay an interim dividend, we make a public announcement in advance.

SocialActivities /TopicsDuring the process of preparing the financial results of Funai Electric Co.,
Ltd. for the first quarter of the fiscal year ending March 31, 2017, inappropriate accounting treatment in the form of failure to record certain revenues andcosts in the years in which they should have been recorded was discovered
at consolidated subsidiaries P&F USA, Inc. and P&F MEXICANA, S.A. DE C.V.
In response to this fact, Funai established an internal investigation committee and started an investigation to uncover the full scope of the inappropriate accounting and to consider measures to prevent any futurereoccurrence. The investigation found that inappropriate accounting treatment occurred from the fiscal year ended March 31, 2012 through the fiscal
year ended March 31, 2016. In response to the findings, We proceeded with
amendment of past consolidated financial statements and in October 2016
submitted to the Kanto Local Finance Bureau and disclosed on the corporate website amendment reports for annual and quarterly securities reports
for past years.*
Funai sincerely apologizes to our shareholders, business partners, andother stakeholders for causing considerable inconvenience and concern. We
will take thorough measures to prevent any reoccurrence and undertake tofurther strengthen compliance and governance systems. We request thecontinued support of our stakeholders.

Basic Policy on Profit Distribution and Dividends(¥)

Message from Business
Management Strength

In accordance with the above policy, the Company declared an ordinary
dividend of ¥30 per share as the year-end dividend for fiscal 2015. Although
the dividend for fiscal 2016 has not yet been determined, we will continue to
strive to enhance corporate value and provide returns to the shareholders.

Rapid Start-up of New Businesses
We will accelerate new business development by commercializing microfluidics (a technology for high-precision control of picoliter-scale droplets), an
application of inkjet technology, in beauty products, chemicals, medications,and various other fields and introducing the world’s first LED photoacoustic
imaging system in products for the medical field.

*For details, please refer to http://www.funai.jp/en/investors/index.html.

Corporate
Data

2012

2013

2014

2015

2016

Representative Director, President and CEO

4

Tetsuhiro Maeda

What’s Funai?

87%

Constantly Evolving Business Operations

DVD • BD

72% 15%

Information
Equipment

Consolidated Net Sales ¥170 billion(March 31, 2016)

Since its founding in 1961, Funai has accurately identified the constantly changing needs of the times andcombine superb cost performance with high quality.
Today we do business worldwide in three general product fields. The Audiovisual equipment segment consists of the

Financial
Sectionapplied a unique perspective to create digital home electronic appliances thatManagement Discussion
and Analysis

10%

Corporate
Governance

OthersSocialActivities /Topics3%

BusinessStrength

Business Areas

TV

Audiovisual Equipment

Message fromManagement

Sales Composition by Products

Display Business, which manages our main products, LCD TVs, and the Digital Media Business,
Office Solutions Business, which focuses on inkjet printers, peripheral equipment, and related consumables supplies such as ink cartridges.
The Others segment, includes receiver-related products and other products.
We will seek greater growth to transform Funai into a globally outstanding business group by continuing to
supply the world with products that meet the needs of the times and renewing our focus on speedin business activities, a trademark of the company since its founding.
5

Corporate
Data

which handles products related to DVDs and Blu-ray Discs (BDs). The Information equipment segment comprises theWhat’s Funai?
Message fromManagement

Strength 1

DesignBusinessStrength

Business Strengths
Unique Strengths that Define Funai Electric GroupStrength 1

Production

Pursuit of Cost Performance throughInnovations from the Design Stage

Strength 3

Marketing Products around the World under
Multiple Brands Meeting Global Needs

Management Discussion
and Analysis

Continuous Productivity Improvement
through the Funai Production System (FPS)

Sales

Corporate
Governance

Strength 2Strength 3

SocialActivities /TopicsStrength 2

Financial
SectionCorporate
Data

6

What’s Funai?
Message fromManagement
BusinessStrength

Brand Competence
A Global Brand

SocialActivities /TopicsCorporate
GovernanceManagement Discussion
and Analysis

Sales area:	North America, Thailand

Sales area: Woldwide

Philips *2

Magnavox *3

Sales area: North America,
Central andSouth America

Sales area: North America

Timeless

Corporate
Data*1

Proven.
TrustedFinancial
SectionUserFriendly

Simple*4
Sales area: North America

Sales area: North America
Mexico*1, 2, 3, 4: See P32 “Important Contracts”
7

Sales area: Japan

Sales area: Japan

What’s Funai?

Japan

Europe1%1%Consolidated Net Sales ¥170 billion(March 31, 2016)

SocialActivities /TopicsSales Composition
by Region

BusinessStrength

Funai supplies markets and customers around the world with products that deliver excellent
cost performance and high quality. We have seven brands that we selectively deploy
according to individual market situations and product characteristics. We are developing arobust global business structure in which domestic and overseas group companies develop,
manufacture, and market products around the world, supported by our competitive brands.
We market LCD TVs, our mainstay product, under six brands (FUNAI, Philips,
Magnavox, SANYO, Emerson, and DX BROADTEC)*1 and DVD/BD-related products underfive brands (FUNAI, Philips, DX BROADTEC, Magnavox and SANYO) worldwide. In addition,
we sell antennas and other receiver-related products under the DX ANTENNA brand andLED sensor lights and other products under the DX DELCATEC brand. We also manufacture products under customers’ brands under OEM agreements.
We intend to accelerate full-scale development of the printer business, which we
strengthened in 2013 by acquiring inkjet-related assets. In June 2015, we began selling
Kodak brand*2 inkjet printers and related consumable supplies under a license agreement
concluded in February 2015.

20%

Message fromManagement

Asiaand others

Corporate
Governance*1,2: See P32 “Important Contracts”

78%

Brands and Operations that Span the Globe

Americas*3

EuropeAsia
andothersFinancial
SectionJapan*3 Including sales of Central and South America

Management Discussion
and Analysis

Global Operations

Americas*3

Corporate
Data

8

Design
Message fromManagement
BusinessStrength

Overseas R&D members
now 44.3% of total R&D staff

SocialActivities /TopicsCorporate
Governance

Global Development BasesManagement Discussion
and Analysis
Financial
Section

China

USA

Japan
Ratio of Overseas R&D Staff

Malaysia

39.2%

44.3%

2014

2015

2016

(Years ended March 31)

9Corporate
Data

38.9%

Design
Message fromManagement

SocialActivities /TopicsDesign Capabilities that Generate World-Class Cost CompetitivenessIn-house
production ofcore items

Financial
SectionImproving Cost
Competitiveness
Reducing
the numberof parts

Overseas
onsite design

Corporate
Data

10Management Discussion
and Analysis*OLB: Outer Lead Bonding

Three Unique Strengths in Design

Corporate
GovernanceFunai’s world-class cost performance is the result of three unique strengths: in-house production of core
items, reducing the number of parts, and overseas onsite design. Our engineers are passionately committed to designing products that are easy to assemble and rigorously engage in design activities withproductivity improvement in mind, such as reviews of parts and materials used, investigation of procurement methods, and process reduction.
One example of this is in-house production of LCD modules, a key component of LCD TVs.
Specifically, we have achieved parts reduction by procuring LCD-cell panels without backlights andengaging in design rationalization to integrate drive circuit design, backlight design, and chassis design.
Furthermore, we perform OLB* processing (production of liquid crystal modules) in our plants. In thisway, we pursue rationalization for the overall optimization of everything from parts to finished products.
In addition, we are transferring design work previously performed in Japan to development bases in
Malaysia, China, the U.S. (printer-related), and other countries and proceeding with offshoring of development by strengthening collaboration among these business sites. Development with short lead times
and early adoption of local parts has contributed significantly to cost performance improvement.
Funai will continue to pursue world-class cost competitiveness by applying a global perspective torecruitment and development and continuing our tireless efforts and innovations to reduce product cost.

BusinessStrength

Achieving formidable global cost competitivenessProduction
Message fromManagement
BusinessStrength

SocialActivities /TopicsSix manufacturing facilities
in Five countries

Corporate
Governance

Global Development BasesManagement Discussion
and Analysis

Overseas Production Ratio(March 31, 2016)• LCD TVs
• DVDs, BDs• Printers

Japan

China*
Thailand• LCD TVs

Japan
Other

• Other

Philippines (Cebu)

Mexico*China• LCD TVs

55%
Overseas99%• Ink Cartridges*Consignment production plants

11

Corporate
Data

44%

Philippines (Luzon)• Printers• DVDs, BDs (planned)

Financial
Section1%

Production
Message fromManagement
BusinessStrength

Optimized quality, cost and delivery

SocialActivities /TopicsOur Quest to Improve Productivity with FPS and Optimize Production

Management Discussion
and Analysis

Apply stressto production
line

Resolve

FPS

Corporate
Data

Introduce
improvement

Identify
problemFinancial
Section

12

Funai Production System (FPS)

Corporate
GovernanceFunai constantly strives to improve productivity to ensure that our products offer high quality, ease ofuse, and excellent cost performance. At the heart of this effort is the Funai Production System (FPS), ourproprietary manufacturing system. With the FPS, we deliberately stress the production line, such as
reducing the number of operators or increasing conveyor belt speed, to identify problems by causing
the line to stop and implement improvements. By repeating this cycle, we strive for continuous productivity improvement. We consider the FPS a core group competence to be further developed and perfected in the coming years.
Since fiscal 2011, we have been shifting production capacity from production bases in China, where
we had been producing 90% of our products, to other locations in Asia. At first, we have concentrated
production activities in China into a plant in Huang Jiang (a consignment production plant), andexpanded our Number 3 Plant in Thailand, increasing production capacity in that country. In addition,
Funai Electric Philippines Inc., a new plant constructed on Luzon Island in the Philippines as a new production base started operation in 2015. In April 2013, we acquired from Lexmark an ink cartridge plant
located on Cebu Island (now Funai Electric Cebu, Inc.) and started in-house production of ink cartridges.
In addition, to increase supply strength to the North American market and especially the Mexican
market, we have scheduled construction of a new LCD TV production line in Mexico.
By reorganizing our production bases and increasing the local procurement ratio by concentratingproduction in optimal locations, we will work to achieve end-to-end production efficiency improvement
and cost reduction in processes extending from procurement of parts and materials to delivery of finished products to our customers.

SalesMessage fromManagement
BusinessStrength

SocialActivities /TopicsHigh LCD TV sharein North America

Corporate
Governance

Global Sales Bases
North America
Worldwide

Management Discussion
and Analysis

Philips
Magnavox

Japan

PolandShare of LCD TV Shipments
in North America(CY2015)

2
USA*

MexicoThailand

Others27%

A (Korea)9%

B (U.S.)

D (China)

9%*1: See P32 “Important Contracts”*2: A holding company, Funai North America, Inc., established over sales subsidiaries FUNAI CORPORATION, INC.
and P&F USA, Inc. in October 2015.

C (Korea)

18%

9%Philips*1
Source: IHS Technology

13

Central andSouth America

Corporate
Data

29%

FUNAI
( Japan)ThailandFinancial
SectionJapan*1

SalesMessage fromManagement
BusinessStrength

Pointing to future success in emerging markets

SocialActivities /TopicsA Global Multi-Brand Strategy
Sales by Geographical Area
(Years ended March 31)

216.5
32.2
2.1
6.1

170.0
31.4
1.0
1.6

135.8

Americas*

EuropeCorporate
Data

2015

2016
Asia and others

Financial
Section

176.1

Management Discussion
and Analysis(¥ Billion)*1, 2: See P32 “Important Contracts”

Japan*Including sales of Central and South America

14

Corporate
GovernanceFunai has established six major sales companies in Japan and overseas which implement sound sales
strategies adapted to the individual characteristics of markets around the world.
North America is the world’s largest market and our most important geographical area, where ourPhilips, Magnavox, Emerson and SANYO brands*1 enjoy high name recognition. We have establishedclose business relationships with leading mass merchandisers and have captured large market share forour products, especially LCD TVs.
In Mexico, we offer the Philips brand, and we captured the number-three share of LCD TV shipments
in 2015. In 2016, we also started sales under the SANYO brand.
While continuing to emphasize North America, currently our main market, we will expand sales inemerging markets that continue to show rapid growth, particularly Central and South America.
In addition, we plan to leverage Lexmark’s inkjet-related assets to not only sell printers developed inhouse under the Kodak brand*2, but also to produce and supply commercial and industrial ink cartridges
and peripheral equipment to printer manufacturers.

US-Japan Youth Baseball Exchange

Industry-University Cooperation in Research and Commercialization
with Osaka University Graduate School of Medicine and Osaka
University Hospital*Funai Electric’s sponsorship of this event ended in 2015.

The Red Sox Foundation is a charitable organization operated by the Boston Red Sox Major League
Baseball club that was founded in 2002. The primary focus of the foundation is in serving the health,education, recreation, and social service needs of children and families in the New England region.
Fenway Park, and Funai advertised in the Boston Red Sox magazine.

15

Corporate
Data

Since 2002, the Funai Group has supported the Make-A-Wish Foundation, which is sponsored by a leading mass merchandiser in the United States. Through its wish-granting
work, since 1980 the Make-A-Wish Foundation has helped give children with life-threatening medical conditions the strength to live and the courage tofight against disease.
In 2015, Funai hosted the Make-A-Wish hospitality eventat two NASCAR races at Richmond International Raceway:
the ToyotaCare 250 and the Virginia 529 College Savings
250. At each event, we provided food and games to 50
excited Make-A-Wish children and their parents and guests.

Financial
SectionSupport for the Make-A-Wish Foundation(Sponsored by a Leading U.S. Mass Merchandiser)

Management Discussion
and Analysis

Red Sox Foundation

Corporate
Governance

In April 2016, Funai Electric agreed with Osaka University Graduate School of Medicine
and Osaka University Hospital to enter into a Letter of Agreement on Promoting
Cooperation in Research and Commercialization. The purpose of the agreement is to promote various forms of cross-organizational and cross-disciplinary collaboration, engage inpersonnel development and exchange, advance academic research, and promote commercialization of research outcomes and their application in society in order to achieve
innovation in the fields of health and medical care.
The Kansai region has been designated as a National Strategic Special Zone in thefields of health and medical care. Expectations are high for initiatives for multi-level innovation emergence in these fields, and the region is attracting the attention of the world community. In these circumstances, Osaka University is reinforcing its advanced activities infields such are regenerative medicine, medical equipment development, and sports science as well as its innovation initiatives as Japan’s only clinical research core hospital in a
National Strategic Special Zone.
Against this backdrop, Osaka University opened the M/H (Medical/Healthcare)Intellectual Strategy Office, an organization to promote industry-university collaborationand cross-innovation in the health and medical care fields, the first such organization at anational university medical school, for the purpose of accelerating commercialization ofresearch outcomes and promoting their application in society
through reinforcement of collaboration with companies.
In connection with thelaunch of the strategy office,Funai Electric will enter into theletter of agreement with Osaka
University, engage in joint
research based on cross-innovation, and undertake activities
including personnel development and commercialization ofPress conference for the agreement(Left: Hiroyuki Makiura, director of Funai Electric)
research outcomes.

SocialActivities /TopicsFor seven years beginning in 2008, Funai supported* the US-Japan Youth Baseball
Exchange as a social contribution activity. The
exchange program is organized by the Red
Sox Foundation, the official team charity of the
Boston Red Sox.
From July 28 to August 3, 2015, twelve
youths and two coaches selected from youth
baseball teams in Kyoto and Chiba visited
Boston to engage in an international cultural exchange and experience home stay withlocal host families. The youths participated in a baseball clinic held by baseball coaches
from Harvard University and Northeastern University and played friendly games with local
youth baseball teams.

BusinessStrength

TopicsMessage fromManagement

Social Contribution Activities

Major Products

50” Class 4K Ultra HDTV

50” Class Full HDTV

DVD, BD

SOUNDBAR

Blu-ray Disc Player

2.1 ch Soundbar withWireless Subwoofer

BusinessStrength

LCD TV

Message fromManagement

In North America, Funai supplies and markets televisions under the SANYO, FUNAI, PHILIPS, Magnavox, and Emerson brands.
Funai also supplies and markets DVD/BD-related equipment and soundbars under the above brands, except the Emerson brand.

SocialActivities /TopicsFunai markets Kodak-branded consumer printer products and related consumable supplies worldwide.
CONSUMER PRINTER

Matt without LCD

Ink Cartridges

Financial
SectionHigh Gross dot with Hi-Res LCD

RELATED CONSUMABLE

Management Discussion
and Analysis

Netflix streaming membership required

Corporate
Governance

DVD Player

Corporate
Data

Standard Black & ColorXL Black & ColorXXL Black & Color
16

Corporate Governance
Message fromManagement

1) Basic Philosophy on Corporate GovernanceCorporate Governance Organization
Ordinary General Meeting of Shareholders
Nominate/Dismiss/Non-reappointment

Nominate/Dismiss

Nominate/Dismiss
Accounting audit report

BusinessStrength

The Funai Electric Group’s basic philosophy on corporate governance is tocontinuously increase corporate value by increasing the transparency ofmanagement to shareholders, consumers, vendors, local communities,
employees, and other internal and external stakeholders and by responding
to changes in the business environment by ensuring management soundness and efficiency and striving for prompt decision-making.
On the basis of this philosophy, the Group has introduced an executive officer system to ensure expeditious decision-making and establish a systemfor prompt business execution. The Group is also strengthening CSR activities. We have formulated 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, andestablished the CSR Committee as an organization to promote corporatesocial responsibility.

Account Auditor

Coordination(Optional Committees)
Deliberations/
ReportBoard of Directors
Audit/
Direction

ReportCoordination

Compensation Committee

Nominate/
Dismiss/
Direction

Internal Investment and
Loan Committee

Internal Control
Committee

President andRepresentative Director
Director Responsiblefor Business/Executive Director

ReportReportAudit OfficeInternal Audit

Command/Order

Respective business divisions/subsidiaries

Financial
SectionPursuant to a resolution at the ordinary general meeting of shareholders heldon June 25, 2015 to amend the Articles of Incorporation to provide for atransition to an audit and supervisory committee governance structure, theGroup transitioned from a board of corporate auditors governance structure
to an audit and supervisory committee governance structure effective June25, 2015. The purpose of the transition is to further strengthen the supervisory function of the Board of Directors and enhance corporate governanceby 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 business execution. We have also ensured objectivity and transparency in important decision-making processes by establishing the Nomination 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.

Management Discussion
and Analysis2) Description of the Management Organization in the
Fiscal Year under Review

ReportNomination Committee
Corporate
Governance

Audit andSapervisory Committee

SocialActivities /Topics

Account audit

Coordination

17

Corporate
Data

a. Board of Directors
The Funai Electric Group Board of Directors consists of ten members: sevendirectors 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 timeas the Group strives for prompt decision-making by inside directors

Corporate Governanceoutside directors and the Funai Electric Group. In principle, the Audit andSupervisory Committee meets once a month.

3) Strengthening of Internal Controls

18

Corporate
Data

b. 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

Financial
Section• 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 andobjectiveness of the decision-making process regarding major investment
and loan projects by discussing the details of individual projects from agroup-wide perspective.

Management Discussion
and Analysis• Compensation Committee
The Compensation Committee consists of directors who are not Audit andSupervisory 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 andother payments for corporate auditors are determined by consultation
among the corporate auditors.

Corporate
GovernanceDuring the process of preparing the financial results of Funai Electric Co.,
Ltd. for the first quarter of the fiscal year ending March 31, 2017, inappropriate accounting treatment in the form of failure to record certain revenues andcosts in the years in which they should have been recorded was discovered
at consolidated subsidiaries P&F USA, Inc. and P&F MEXICANA, S.A. DE C.V.
In response to this fact, on August 4, 2016 Funai established an internal
investigation committee and started an investigation to uncover the fullscope of the inappropriate accounting and devise measures to prevent any
future reoccurrence. Funai’s response involved amending the financial resultsfor periods since the first quarter of the fiscal year ended March 31, 2012and submitting to the Kanto Local Finance Bureau on October 17, 2016
amendment reports for annual and quarterly securities reports for the fiscal
year ended March 31, 2012 through the fiscal year ended March 31, 2016.
Funai believes that the causes of the inappropriate accounting practices
were a deficiency in entity-level controls in the form of an inadequate system forgovernance of subsidiaries at the parent company, which led to inappropriate
reporting within subsidiaries or from subsidiaries to the parent company andinsufficient understanding of issues and improvements by the parent company;a business process deficiency in the form of deficiency in the accrual processwith respect to invoices not received; and a financial closing and financial
reporting process deficiency in the form of deficiency in the confirmation andapproval process for accrual of tax liabilities and expensing of transportation
costs. Funai has determined that these deficiencies have a material impact onfinancial reporting and constitute material weaknesses requiring disclosure.

SocialActivities /TopicsAdvisory Bodies• Nomination Committee
The Nomination Committee consists of directors who are not Audit andSupervisory Committee members appointed by the Board of Directors. Asan advisory body to the Board of Directors, it ensures the transparency andobjectiveness of the candidate selection process by recommending candidates for director to the Board of Directors.

BusinessStrengthc. Independent Auditors
The Company has appointed Deloitte Touche Tohmatsu LLC as independent
auditors. The status of accounting audits is recorded in “4) Status of
Statutory Audits, Internal Audits, and Accounting Audits e. Status of
Accounting Audits.”

Message fromManagement

knowledgeable about the Group’s business matters, participation in Board of
Directors decision-making by outside directors with no special interest in theGroup ensures management soundness and transparency. Meetings of theBoard of Directors are held, in principle, at least once every three months,
and extraordinary meetings are held as necessary.

Corporate GovernanceFiscal year ended March 31, 2014
Millions of Japanese yen

Net Sales
Operating Income
Net Income
Total Equity
Total Assets¥216,553
(659)

1,354

31

(1,323)

127,881
189,695

123,218
188,902(4,662)(793)

Total Equity
Total Assets

Financial Impact

¥

(534)
(1,223)Fiscal year ended March 31, 2016
Millions of Japanese yen
Before Amendment

After Amendment

Financial Impact¥168,116(13,061)¥170,041(10,539)¥ 1,925
2,521

Net Income Attributableto Owners of the Parent(36,221)(33,839)2,381

Total Equity
Total Assets

86,569154,295

84,439154,191(2,129)(103)

Net Sales
Operating Income

—
(567)
(632)
(630)
—

Financial
Section¥

After Amendment¥217,088
564

Management Discussion
and Analysis¥246,147(105)(5,261)
123,212
176,607

(240)
(606)
(654)
(2,940)(611)

Corporate
Governance¥246,147
461(4,629)123,843
176,607¥

Before Amendment

Net Income Attributableto Owners of the Parent

Millions of Japanese yen

Net Sales
Operating Income
Net Income
Total Equity
Total Assets

Financial Impact

SocialActivities /TopicsNet Sales
Operating Income

Item
Financial Impact¥233,802(6,071)(7,400)114,743
180,729

Millions of Japanese yen
Item

Outline of the Amendment of Consolidated Financial Statements for
Past Years
Fiscal year ended March 31, 2012
After Amendment

After Amendment¥234,042(5,465)(6,745)
117,684
181,341

Fiscal year ended March 31, 2015

Funai will continue to further strengthen organizations and systems relating
to corporate governance and endeavor to strengthen global internal control
systems.

Before Amendment

Before Amendment

BusinessStrength

Item(1) A review of personnel and organizations(2) Awareness raising and improvement of the corporate culture(3) Clarification of segregation of duties and official authority(4) Strengthening of the auditing system(5) Strengthening of governance of subsidiaries(6) Education of officers and accounting employees of Funai and subsidiaries

Item

Message fromManagement

Funai recognizes the importance of designing and operating internal controls pertaining to financial reporting and has endeavored to improve groupwide
internal controls. In accordance with the request of the internal investigationcommittee, we have taken the following preventive measures concerning thismatter. We are endeavoring to strengthen global internal control systems.

Figures presented in this annual report have been amended.
Corporate
Data

Fiscal year ended March 31, 2013
Millions of Japanese yen
Item

Net Sales
Operating Income
Net Income
Total Equity
Total Assets

Before Amendment

After Amendment¥192,008(5,273)(8,542)
121,398
194,524¥191,082(6,568)(9,869)119,264
194,207

Financial Impact

¥

(925)
(1,294)(1,326)(2,134)(317)
19

Management Discussion and Analysis

Net Sales
The Group reported net sales of ¥170,041 million, a 21.5% decrease fromthe previous fiscal year.

Results by Region

Operating Income (Loss)(¥ billion)(¥ million)

233.8

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

216.5

31

Sales Composition by Region(Year ended March 31, 2016)

1%

(659)

20%

170.0

(7,400)78%(10,539)
2015

2016

2014

2015

(33,839)

2016

2014
20

2015

2016

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

Corporate
Data(6,071)

2014

1%

Management Discussion Financial
Sectionand Analysis

Japan
Sales of LCD TVs increased year on year due to strong sales of large screensize models in the OEM business. But printers, DVD/BD-related products,

Operating Income
There was an operating loss of ¥10,539 million (compared to operating loss

Net Sales

Corporate
GovernanceNet Income (Loss) Antributable to Owners of the Parent
The Company was subject to an arbitral award from the International Courtof Arbitration on April 26, 2016 with respect to the arbitration in the dispute
between the Company and Koninklijke Philips N.V. As the Group recorded¥18,502 million for this compensation for damage and other expenses
decided by the arbitral award as extraordinary losses, net loss attributable toowners of the parent was ¥33,839 million (net income attributable to ownersof the parent for the previous fiscal year was ¥31 million).

SocialActivities /TopicsIn the fiscal year under review, in spite of generally stable business conditions in the United States, the Group’s mainstay market, there was a slight
slowdown in consumer spending and a slowdown in the overall rate of
employment growth. While the European economy experienced an improvement in consumer spending, the slowing of economic recovery in China
resumed from the second half of this fiscal year.
The economic slowdown in emerging economies, especially in China, isaffecting the Japanese economy, particularly in exports, as indicated by
weakness in machinery orders and a decline in the index of industrial production from the beginning of this fiscal year.

BusinessStrength

for the previous fiscal year of ¥659 million), due to a decrease in orders
during the peak year-end sales period, sluggish sales to regional mass merchandisers in the U.S.market, increasing competition in the Mexico, especially in LCD TVs, and termination expenses for the audio accessories
business.

Message fromManagement

Business Performancein the Fiscal Year ended March 31, 2016

Management Discussion and Analysis

Net Sales by Product Group

Sales by Region

Sales Composition by Products

Sales by Products(¥ billion)(Year ended March 31, 2016)(¥ billion)

3.8
2015

165.3

182.9
12.6

4.8
87%

34.1 170.0

2015

171.9

EuropeAsia

31.9 216.5
5.0 17.2

2.4
Americas31.9 233.8

Japan

Audiovisual equipment
Information equipment
others

21

2016

147.7

Audiovisual equipment

170.0

Information equipment

othersCorporate
Data

132.2

2014

42.4 216.5
1.2

2016

3%

18.8

10%

Management Discussion Financial
Sectionand Analysis

Audiovisual Equipment
Sales of DVD-related products increased because of strong sales of DVD/
VCR Combo models. However, the Group could not offset the decline insales of LCD TVs during the year-end peak shopping season in the North
American market with efforts to increase sales throughout the fiscal year. In
addition, sales to regional mass merchandisers were slow, and the Mexican

Corporate
GovernanceEuropeSales of printers increased following the Group’s launch of in-house developed ink-jet printers. On the other hand, sales of LCD TVs were slow, resulting in a decrease in sales overall. As a result, net sales amounted to ¥1,259
million, down 67.0% year on year, segment loss amounted to ¥300 million(segment income was ¥57 million in the previous fiscal year).

SocialActivities /TopicsAmericas
Sales of DVD-related products increased thanks to strong sales of DVD/VCR
Combo models. Printer sales increased because the Group launched new
in-house developed ink-jet printers in May 2015. But sales of LCD TVs
decreased due to a fall in orders during the peak year-end sales period in the
U.S. The Group tried unsuccessfully to make up for this decline by increasing sales during the remaining business period. In addition, sales at regional
mass merchandisers were slow, the Mexican market became more competitive, and sales of audio accessories declined.
As a result, net sales amounted to ¥132,216 million, down 20.0% year
on year. Segment loss amounted to ¥2,964 million (segment income was¥557 million in the previous fiscal year).

BusinessStrengthAsia
Net sales amounted to ¥2,426 million, down 50.4% year on year due to adecrease in ink cartridge sales. Segment loss amounted to ¥15 million (segment loss was ¥202 million in the previous fiscal year).

Message fromManagement

and electronic reception devices declined. As a result, net sales amounted to¥34,139 million, down 19.7% year on year. Segment loss (operating loss)
amounted to ¥7,663 million (segment loss was ¥1,637 million in the previous
fiscal year).

Management Discussion and Analysis

Financial Position
Current Assets
Total current assets as of March 31, 2016 (fiscal 2015) decreased by¥30,767 million from the end of the previous fiscal year to ¥123,214 million.
The change is mainly attributable to decreases of ¥9,210 million in cash

Total Assets

Total Liabilities

Total Equity

Shareholders’ Equity Ratio(¥ billion)(¥ billion)(¥ billion)

(%)

180.7

188.9

65.9

65.6

69.7

114.7

123.2

154.1

62.8

64.5

Management Discussion Financial
Sectionand Analysis

Current Liabilities
Total current liabilities as of March 31, 2016 increased by ¥4,575 million fromthe end of the previous fiscal to ¥59,823 million.
The change is mainly attributable to a decrease of ¥16,020 million intrade payables and an increase of ¥19,466 million in other payables. The
main reason for the decrease in trade payables was a decrease decline inpurchases of raw materials. The main reason for the increase in other

Corporate
Governance

Others
Net sales of other products were ¥17,297 million, a decrease of 45.8% fromthe previous fiscal year, due to a decrease in sales of electronic reception
devices and audio accessories.

SocialActivities /TopicsProperty, Plant, and Equipment
Net property, plant, and equipment as of March 31, 2016 decreased by¥3,840 million from the end of the previous fiscal year to ¥30,976 million.
The change is mainly attributable to a decrease of ¥3,103 million in net
property, plant, and equipment primarily attributable to the sale of buildings
and structures and the recognition of impairment losses on machinery,equipment, and vehicles and tools, furniture, and fixtures.

BusinessStrength

Information Equipment
Sales of in-house developed ink-jet printers, which were launched during thisfiscal year, could not offset a shortage due to the termination of OEM business. As a result, net sales of this sector were ¥5,000 million, a decrease of
60.4% from the previous fiscal year.

Message fromManagement

and time deposits, ¥14,091 million in trade receivables, and ¥2,838 million inmerchandise and finished products resulting principally from the decrease insales.

market became more competitive. As a result, net sales of this segment
were ¥147,742 million, a decrease of 14.1% from the previous fiscal year.

54.0

84.4

Corporate
Data

2014

2015

2016

2014

2015

2016

2014
22

2015

2016

2014

2015

2016

Management Discussion and Analysis

trade payables, which offset a decrease in trade receivables and an increasein other payables.

Total Equity
Total equity as of March 31, 2016 decreased by ¥38,779 million from theend of the previous fiscal year to ¥84,439 million.
The change is mainly attributable to a decrease of ¥35,113 million inretained earnings and a decrease of ¥3,290 million in foreign currency translation adjustments.

Corporate
GovernanceCash Flows from Financing Activities
Net cash provided by financing activities was ¥69 million in the fiscal year
under review. (Net cash used in financing activities was ¥2,725 million in theprevious fiscal year.) The change is mainly attributable to an increase in
short-term bank loans.

SocialActivities /TopicsLong-Term Liabilities
Long-term liabilities as of March 31, 2016 decreased by ¥507 million fromthe end of the previous fiscal year to ¥9,927 million.
The change is mainly attributable to a decrease of ¥674 million in longterm debt resulting principally from a decrease in the yen equivalent of U.S.
dollar-denominated borrowings due to a currency conversion difference.

BusinessStrength

Cash Flows from Investing Activities
Net cash provided by investing activities was ¥11,805 million in the fiscal
year under review. (Net cash used in investing activities was ¥17,360 million
in the previous fiscal year.) The change is mainly attributable to a decrease intime deposits.

Message fromManagement

payables was the recording of compensation for damage under other payables at the end of the fiscal year under review following receipt of an arbitralaward from the International Court of Arbitration with respect to the arbitration in the dispute between the Company and Koninklijke Philips N.V.

Business and Other Risks

Cash Flows
Cash and cash equivalents (“cash”) on a consolidated basis as of March 31,
2016 increased by ¥4,125 million from the end of the previous fiscal year to¥47,116 million. The change is mainly attributable to a decrease in tradereceivables, an increase in other payables, and an increase in time deposits,
which offset the recording of net loss before income taxes and minority interests and a decrease in trade payables.
Cash flows during the fiscal year under review and factors affecting cash
flows are as follows.
Cash Flows from Operating Activities
Net cash used in operating activities was ¥7,549 million in the fiscal year
under review. (Net cash provided by operating activities was ¥16,897 million
in the previous fiscal year.) The change is mainly attributable to the recordingof net loss before income taxes and minority interests and a decrease in

1) 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 Group23

Corporate
Data(1) The Funai Group’s Management Policy
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 audiovisual equipment (LCD TVs, DVD-related products, etc.) and informationequipment (printers, etc.), in addition to other products (antennas and related
devices, audio accessory-related products, etc.). Price competition in theseproduct areas is intense. Additionally, the life cycle of digital products is shortand the competition to develop new technologies and functions is also growing more intense. Accordingly, these factors may affect the Group’s financial
condition and business results.

Management Discussion Financial
Sectionand Analysis

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

Management Discussion and Analysis

ments that may affect the Group’s financial condition and business results.

3) Foreign Currency Risk
The Group determines production sites for its principal products upon consideration of optimal production location and sales systems. DVD-related products,
LCD TVs, and printers are produced in China; LCD TVs are produced in
Thailand, and Ink cartridges and Ink-jet printers are produced in the Philippines.
24

Corporate
Data4) 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 byfiling lawsuits using intellectual property rights acquired from third parties. Thisis a worrisome trend for all companies in manufacturing and sales industries.
As a result of these activities, we may need to make high compensatory pay-

Management Discussion Financial
Sectionand Analysis2) Dependence on Chinese Production
The Group is working to improve the cost competitiveness of its products byconcentrating production in cost-advantaged regions and purchasing partsin bulk. In this fiscal year, 98.9% of our products were produced overseas,with 55.0% produced in China (consignment manufacturing and in-houseproduction). The Group has undertaken production site decentralization to
reduce the ratio of Chinese production . Nevertheless, as we continue toengage 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.

3) Defects Relating to Products and Services
The Group’s departments responsible for quality management and technologies play the primary role in the effort to maintain and improve quality. In
addition, the Group has established service companies in Japan and overseas. However, if there are troubles 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 andbusiness results.

Corporate
Governance(2) Impact of Overseas Market Trends
1) 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 79.7% of net sales in this fiscal
year, and Walmart group alone accounted for 53.1% of these net sales.
If economies in the Americas suddenly enter recession, this may affect theGroup’s financial condition and business results.

SocialActivities /Topics2) New Technologies
In the consumer electronics business, market needs are becoming morediverse; 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, through partnerships with other companies and universities, and personnel development. The Company also may
consider mergers and acquisitions depending on the situation. However, adiversification of market needs or technological innovation beyond our expectations may affect the Group’s financial condition and business results.

BusinessStrength5) Corporate Acquisitions and Business Alliances
The Group may pursue corporate acquisitions and business alliances toimprove its profit and efficiently boost sales. However for various reasons, inthe event that the synergies fall short of initial expectations, we fail to reachagreement on an acquisition, or affiliate relationships cannot be maintained,
this may affect the Group’s financial position, business results and growthforecasts.

Message fromManagement

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 andcentralized purchasing. However, the consumer electronics business isintensely competitive and when parts and raw materials prices rise, costpressures may affect the Group’s financial condition and business results.

Management Discussion and Analysis

3) Information Control
The Group has internal systems to prevent information leaks and protect

25

Corporate
Data2) Litigation
There are litigation risks relating to the Group’s business. A major lawsuit orother legal action could affect the Group’s financial position and businessperformance.

Management Discussion Financial
Sectionand Analysis6) 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 coverworking capital, repayment of borrowings and other requirements for sometime, there is no significant concern about fundraising.
Since the Group is already implementing the following countermeasuresin stages, the Group believes that a resolution of the matter can be achieved.

Corporate
Governance(3) Other Risks
1) Legal Regulations
In each country, the Group is subject to a variety of local legal regulations,concerning commercial transactions, importing and exporting, 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.

SocialActivities /Topics5) 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. Some of the Group’s debt is subject tofinancial covenants. The consequences of a covenant infringement, such asa higher interest rates or the loss of benefit of time, could affect the Group’s
financial position and business performance.

BusinessStrength4) Retirement Benefit Obligations
The Group and its consolidated domestic subsidiaries have defined benefit corporate pension systems, which are based on actuarial assumptions on thepension 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 inthese assumptions, if the pension assets decrease due to the deterioration in
the investment environment, or if changes in the pension system cause future
retirement benefit expenses to increase.

Message fromManagement

itself against viruses. However, factors such as operational mistakes or new
viruses may preclude the complete avoidance of information leaks andsystem shutdowns completely. Such events could affect the Group’s financial position and business results.

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 throughdirect 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, themajority of the Group’s purchasing transactions are conducted in U.S. dollars.
Although sales and purchase transactions conducted in U.S. dollars are notaffected by currency fluctuations, expenses denominated in U.S. dollars relating to sales transactions conducted in Mexican pesos or yen are affected bycurrency fluctuations. Although the Group uses forward exchange contracts
to hedge transactions denominated in Mexican pesos against currency fluctuation risk, it is difficult to completely eliminate the impact of significant currency fluctuations.
Since foreign currency-denominated assets and liabilities are converted toyen using the exchange rates on the settlement date, significant currency
fluctuations may affect the Groups financial condition and business results.

Five-Year Summary (Unaudited)2016

1,504,788(105)(6,568)(6,071)(659)(10,539)(93,265)(5,261)(9,869)(7,400)31(33,839)(299,460)

Total Net Assets

123,212

119,264

114,743

123,218

84,439747,248

Total Assets

176,607194,207

180,729

188,902

154,191

1,364,522

Net Cash (Used in) Provided by Operating Activities

16,416(8,022)(1,251)

16,897(7,549)(66,805)

Net Cash Provided by (Used in) Investing Activities(6,434)

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

11,805

104,469

Free Cash Flow*

9,981

4,841

(3,981)

(462)

4,256

37,664

Capital Investment

3,931

5,345

5,094

3,275

2,462

21,788Depreciation Expense

4,970

4,056

5,279

4,758

3,581

31,690Return on Assets (%)(2.84)(5.32)(3.95)

0.02(19.68)Return on Equity (%)(4.17)(8.22)(6.39)

0.03(32.65)

Debt/Equity Ratio (%)

3.72

10.88

9.28

8.68

13.18

Operating (loss) income
Net (Loss) Income Attributable to Owners of the Parent

2013

Japanese yen
2014

2015

2016

Shareholders’ Equity per Share

3,579.54

3,457.56

3,328.58

3,576.14

2,442.28

21.61

Net (Loss) Incomeper Share(154.23)(289.26)(216.89)0.92(991.81)(8.77)

50

35

35

35

30

0.26

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 ¥113.00=U.S.$1.00 (the approximate rate of exchange at March 31, 2016) is used for the above calculations.
*Net cash provided by operating activities plus net cash provided by investment activities.

26

U.S. dollars
2016

Corporate
Data

2012

Financial
Section2016

170,041

Management Discussion
and Analysis

2015

216,553

Corporate
Governance2014

233,802

SocialActivities /Topics2013

191,082

Net Sales

BusinessStrength

2012

246,147

Years ended March 31

Message fromManagement

Thousands of U.S.
dollars (Note 1, 2)Millions of Japanese yen (Note 1)

Consolidated Balance Sheets (Unaudited)

Millions of Japanese yen

2015

2016

Millions of Japanese yen

2016

160,513(86,673)
73,832
95,097(79,327)
15,761
204,301(193,973)
10,31956,027
6,168(1,796)4,363
770
161,088

4,020
2,097
6,117

3,297
1,562
4,860

2,814
339
1,716
2,900
(276)
7,496
34,920¥(188,902)

2,418
206
1,555
4,003
(271)
7,912
30,976¥154,191

29,177
13,82343,0090
21,398
1,823
13,76135,425(2,398)70,018274,124$1,364,522
27¥ 15,604
5,118
34,149
251
783
236
689
18
2,971
59,823$ 138,088
45,292302,204
2,221
6,929
2,088
6,097
159
26,292
529,407

6,683
290
1,345
226
1,093
548
247
10,43565,683

6,009
737
811
205
1,106
395
662
9,927
69,75153,177
6,522
7,177
1,814
9,788
3,496
5,858
87,850617,265

31,30733,272
89,903(24,341)
130,142

31,30733,30154,789(24,341)
95,058277,053294,699484,858(215,407)
841,221421(8,913)365(8,127)142
1,061
123,218¥188,902

160(12,204)314(11,729)145
965
84,439¥154,191

1,416(108,000)
2,779(103,796)
1,283
8,540
747,248$1,364,522

Corporate
Data

18,138(9,794)
8,343
10,746(8,964)
1,781
23,086(21,919)
1,166
6,331
697
(203)
493
87
18,203¥ 31,625
4,012
14,683
126
485
212
985
—
3,118
55,248Financial
Section

20,314(10,258)
10,055
13,592(10,601)
2,900
26,156(24,433)
1,722
6,343
513
(340)
173
19
21,306

2016

Management Discussion
and Analysis$ 509,814
213,204
201,487
10,584
116,920
5,876
36,027(3,540)1,090,389

2016

Corporate
Governance¥ 57,609
24,092
22,768
1,196
13,212
664
4,071
(400)
123,2142015

SocialActivities /Topics¥ 66,820
38,18325,606
1,455
14,708
2,245
5,352
(389)
(153,982)

LIABILITIESCurrent Liabilities
Notes and accounts payable-trade
Short-term loans payable
Accounts payable-otherlease obligations
Income taxes payable
Provision for bonuses
Provision for product warranties
Foward exchange contracts
Other
Total current liabilities
Noncurrent liabilities
Long-term loans payable
lease obligations
Deferred tax liabilities
Deferred tax liabilities for land revaluation
Provision for directors’ retirement benefits
Net defined benefit liability
Other
Total noncurrent liabilities
TOTAL LIABILITIESNET ASSETS
Shareholders’ equity
Capital stock
Capital surplus
Retained earnings
Treasury stock
Total shareholders’ equity
Accumulated other comprehensive income
Valuation difference on avaiable-for-sale securities
Foreign currency translation adjustment
Remeasurements of defined benefit plans
Total accumulated other comprehensive income
Subscription right to shares
Non-controlling interests
TOTAL NET ASSETSTOTAL LIABILITIES AND NET ASSETS

Thousands of
U.S. dollars (Note 1)

BusinessStrength

ASSETS
Current Assets
Cash and deposits
Notes and accounts receivable-trade
Merchandise and finished goods
Work in process
Raw materials and supplies
Deferred tax assets
Other
Allowance for doubtful accounts
Total current assets
Noncurrent assets
Property, plant and equipment
Buildings and structures
Accumulated depreciation
Buildings and structures, net
Machinery,equipment and vehicles
Accumulated depreciation
Machinery,equipment and vehicles, net
Tools, furniture and fixtures
Accumulated depreciation
Tools, furniture and fixtures, net
Lands
Lease assets
Accumulated depreciation
Lease assets, net
Other
Total property, plant and equipment
Intangible assets
Patent right
Other
Total intangible fixed assets
Investment and other assets
Investment securities
Deferred tax assets
Net defined benefit asset
Other
Allowance for doubtful accounts
Total investments and other assets
Total noncurrent assets
TOTAL ASSETS

Thousands of
U.S. dollars

Message fromManagement

March 31, 2016 and 2015

Consolidated Statements of Operations (Unaudited)

Millions of Japanese yen

Thousands of
U.S. dollars

Millions of Japanese yen

2016¥170,041
144,671
25,37035,910(10,539)

2016$1,504,788
1,280,274
224,513317,788(93,265)

198
112
1,557
208
106
160
2,344

259
28
—
208
218
79
793

2,292
248

187
144
—
147
604
1,084
600

296
4
(3,244)—362
3,908(13,653)

1,841
1,929
699
7,018
0
2,619
35
(28,708)—
3,204
34,584(120,823)

150
824
134
—
—
—
1,110

18
68
41
902
485
46
1,562

159
602
363
7,982
4,292
407
13,823

Net income (Loss)
Other comprehensive income
Valuation difference on avaiable-for-sale securities
Foreign currency translation adjestment
Remeasurements of defined benefit plans, net of tax
Share of other comprehensive incomeof associates accounted for using equity method

25
618
131
—
14
789

475
667
—
18,502
303
19,948

4,204
5,903
—
163,735
2,681
176,531

Comprehensive income(Comprehensive income attributable to)

2016

2016

921

(32,040)(283,540)

635
238
873
47

514
1,322
1,836
(33,876)

4,549
11,69916,248(299,788)

16

(37)

(327)

¥31

¥(33,839)$(299,460)

2015
Income (loss) before income taxes
and minority interests
Income taxes
Income tax adjustments
Total income taxes
Net income (loss)
Net income (loss) attributable tonon-controlling interests
Net income (loss) attributable to owners of parent

SocialActivities /Topics2015¥216,553
179,763
36,79037,449(659)

BusinessStrength
Corporate
GovernanceConsolidated Statements of Comprehensive Income (Loss)Year Ended March 31, 2016 and 2015
Thousands of
U.S. dollars

Millions of Japanese yen

2016(299,788)

(246)
8,895
481

(264)
(3,270)(48)(2,336)(28,938)
(425)

12

(19)

(168)

9,144

(3,603)(31,885)

9,191(37,479)(331,673)

Comprehensive income attributableto owners of the parent

9,157(37,442)(331,345)

Comprehensive income attributable
to non-controlling interests

34

(37)

(327)

Total other comprehensive income

28

Corporate
Data

2016
(33,876)

Financial
Section47

2015

Management Discussion
and Analysis

Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Operating income (loss)
Non-operating income
Interest income
Dividends income
Foreign exchange gains
Rent income on non-current assets
Gain on investments in partnership
Other
Total non-operating income
Non-operating expenses
Interest expenses
Equity in losses of affiliates
Foreign exchange losses
Loss on disposal of inventories
Other
Total non-operating expenses
Ordinary income (loss)
Extraordinary income
Gain on sales of noncurrent assets
Gain on sales of investment securities
Gain on sales of shares of subsidiaries
Settlement received
Refund of customs duty
Other
Total extraordinary income
Extraordinary loss
Loss on disposal of noncurrent assets
Impairment loss
Loss on closing of sales officeCompensation for damage
Other
Total extraordinary loss

Thousands of
U.S. dollars

Message fromManagement

Year Ended March 31, 2016 and 2015

Consolidated Statements of Changes in Equity (Unaudited)
Message fromManagement

Year Ended March 31, 2016 and 2015
Millions of Japanese yen
Shareholders’ equity
Capitalstock

CapitalsurplusRetainedearnings

Treasury
stock

Total
shareholders’ equity¥31,307¥33,272¥ 89,903¥(24,341)¥130,142

¥ 421

0
(79)
29

¥31,30729¥33,301(35,113)¥ 54,789

0¥(24,341)

Non-controllinginterests

Total
net assets¥ (8,127)¥142¥1,061¥123,218¥365(1,194)(33,839)
0(79)(1,194)(33,839)
0
(79)

29

29

Net changes of items
other than shareholders’ equity
Total changes of items during the period
Balance, March 31, 2016

Subscription
rights toshares(35,084)¥ 95,058(3,290)(51)(3,602)

2(95)(3,695)

(260)
¥ 160

(3,290)¥(12,204)

(51)
¥314

(3,602)¥(11,729)

2
¥145

(95)
¥ 965

(38,779)¥ 84,439

Total
accumulated
othercomprehensive
incomeSubscription
rights tosharesNon-controllinginterests

Total
net assets$ (71,920)$1,256$9,389$1,090,424

Thousands of U.S. dollars
Shareholders’ equity
Capitalstock

CapitalsurplusRetainedearnings

Treasury
stock

Total
shareholders’ equity$277,053$294,442$ 795,601$(215,407)$1,151,699$ 3,7250(699)

Change in treasury shares of parent arisingfrom transactions with
non-controlling shareholders

256$277,053

256$294,698(310,725)$ 484,8760$(215,407)(10,566)(299,460)
0
(699)

256

256

(310,477)$ 841,222

29$3,230(10,566)(299,460)
0(699)

Net changes of items
other than shareholders’ equity
Total changes of items during the period
Balance, March 31, 2016

$ (78,876)

Corporate
Data(10,566)(299,460)

Foreign
Remeasurements
currency translationof definedadjustment
benefit plans

Financial
SectionBalance, March 31, 2015
Changes of items during the period
Dividends from surplus
Income (loss) attributable to owners of parent
Purchase of treasury stock
Change of scope of consolidation

Accumulated other comprehensive income
Unrealized
holding gains/losses on
securities

Management Discussion
and Analysis(260)

Corporate
Governance

Change in treasury shares of parent arisingfrom transactions with
non-controlling shareholders¥ (8,913)

Total
accumulated
othercomprehensive
incomeSocialActivities /Topics(1,194)(33,839)

Foreign
Remeasurements
currency translationof definedadjustment
benefit plans

BusinessStrength

Balance, March 31, 2015
Changes of items during the period
Dividends from surplus
Income (loss) attributable to owners of parent
Purchase of treasury stock
Change of scope of consolidation

Accumulated other comprehensive income
Unrealized
holding gains/losses on
securities(2,300)(29,115)(451)(31,876)

17

(840)

(32,699)(2,300)$ 1,415(29,115)$(108,000)(451)$2,778(31,876)$(103,796)

17$1,273(840)$8,549(343,168)$ 747,256

Consolidated Statements of Cash Flows (Unaudited)Thousands of
U.S. dollars (Note 1)

Millions of Japanese yen

2015

2016

2016

39,805
5,903
363(1,106)(2,540)2,619

Share of (profit) loss of entities accounted
for using equity method

144

4

35

Loss on retirement of property, plant and equipment
Loss (gain) on sales of property, plant and equipment
Loss (gain) on sales of investment securities

19
(146)
(824)

357
9
(68)

3,159
80
(602)

Loss (gain) on sales of shares of subsidiaries
and associates

(134)

(41)

(363)

Loss (gain) on valuation of investment securities

—

2

18

Loss on valuation of shares of subsidiaries
and associates

13

6

53

Decrease (increase) in notes
and accounts receivable—trade

2,289

12,199107,956

Decrease (increase) in inventories(12,668)

1,925

17,035

Increase (decrease) in notes
and accounts payable—trade(5,435)(15,381)(136,115)

938

20,520181,593

1,195
17,961298(188)(1,205)31
16,897290(7,124)
295
(294)
(454)
28
(7,549)2,566(63,044)2,611(2,602)(4,018)248(66,805)

Increase (decrease) in notes
and accounts payable—other
Other, net
SubtotalInterest and dividend income received
Interest expenses paid
Income taxes paid
Income taxes refund
Net cash provided by (used in) operating activities

Effect of exchange rate change on cash
and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Increase in cash and cash equivalentsfrom newly consolidated subsidiary
Cash and cash equivalents at end of period(187,850)
302,788(18,699)
7,841(2,389)
(549)
2,142
(18)
354
867
104,469(1,404)(0)(1,194)(126)(2,725)1,124(0)(1,194)
139
69

9,947
0
(10,566)
1,230
611

2,567

(251)

(2,221)(621)
43,612

4,074
42,991

36,053
380,451

—

51

451

¥ 42,991¥ 47,116$ 416,956

Corporate
Data

4,498
667
41
(125)
(287)
296

(21,227)
34,215(2,113)
886
(270)
(62)
242
(2)
40
98
11,805

Financial
Section

5,855
618
124
(163)
(311)
187

Depreciation
Impairment loss
Increase (decrease) in allowance for doubtful accounts
Increase (decrease) in net defined benefit liability
Interest and dividend income
Interest expenses(39,069)
22,256(3,164)
218
(343)
(154)
2,093
(68)
684
186
(17,360)

Management Discussion
and Analysis$(283,540)

2016

Corporate
Governance¥(32,040)

2016

SocialActivities /Topics

(921)

¥

2015

BusinessStrength

Cash flows from investing activities
Payments into time deposits
Proceeds from withdrawal of time deposits
Purchase of property, plant and equipment
Proceeds from sales of property, plant and equipment
Purchase of intangible assets
Purchase of investment securities
Proceeds from sales of investment securities
Payments of loans receivableCollection of loans receivable
Other, net
Net cash provided by (used in) investment activities
Cash flows from financing activities
Net increase (decrease) in short-term loans payable
Purchase of treasury shares
Cash dividends paid
Other, net
Net cash provided by (used in) financing activities

Cash flows from operating activities
Income (Loss) before income taxes
and minority interests

Thousands of
U.S. dollars (Note 1)

Millions of Japanese yen

Message fromManagement

Year Ended March 31, 2016 and 201530

Corporate Data
Message fromManagement

History

2000

	FUNAI ELECTRIC CO., LTD. established in Osaka, capitalized at ¥20 million.

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

1962

2001

Representative office established in Chicago,United States.

	Acquired stocks of DX ANTENNA CO., LTD.

1964

BusinessStrength

1961

2003
	FUNAI (THAILAND) CO., LTD. established as a production subsidiary in Thailand.
	Huang Jiang Plant started operation as a consignment production plant in China.

1968

2004

	FUNAI ELECTRIC COMPANY OF TAIWAN established as a production subsidiary in Taiwan.
	Construction of new headquarters building completed in the city of Daito, Osaka.

2006

1970

	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.

	FUNAI AMERICA ELECTRIC SERVICE CORP. established in the United States as a sales
subsidiary.

Corporate
Governance	FUNAI ELECTRIC ADVANCED APPLIED TECHNOLOGY RESEARCH INSTITUTE INC.
established.

1969

SocialActivities /Topics	CHUGOKU FUNAI ELECTRIC CO., LTD. established as a production subsidiary in
Hiroshima Prefecture.

2007
	FUNAI SERVICE CORPORATION established as a service subsidiary in the United States.

	Training started which formed the basis for establishing the Funai Production System (FPS).

2008

1980

	P&F USA, Inc. established in the United States as a sales subsidiary for Philips-brand products.

	FUNAI ELECTRIC TRADING (EUROPE) GmbH established in Germany as a sales subsidiary.

2009

1983

	P&F MEXICANA, S.A. DE C.V. established in Mexico as a sales subsidiary for Philips-brandproducts.

Tokyo Branch Office opened.

1987

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

1989
	FUNAI ELECTRIC (MALAYSIA) SDN. BHD. established as a production subsidiary in Malaysia.

Financial
Section	FUNAI AMSTRAD LIMITED established as a production joint venture in U.K.

Management Discussion
and Analysis

1977

2015

1991

A holding company, Funai North America, Inc. established in the United States.

	FUNAI CORPORATION, INC. established as a sales subsidiary in the United States.

	Tetsuro Funai was appointed Director and Executive Advisor, Tetsuhiro Maeda Representative
Director President and CEO.

	HIGHSONIC INDUSTRIAL LTD. (now FUNAI ELECTRIC (H.K.), LTD.) established in Hong Kong.

1996
	FUNAI SERVICE CO., LTD. established as a domestic service subsidiary.

1999
	Listed on the Second Section of the Osaka Securities Exchange.
31

Corporate
Data

2016

1992

Corporate Data

Head Office

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

TEL+81-72-870-4303

FAX+81-72-871-1112

URL

http//www.funai.jp/en/

Capital¥31,307 million(as of March 31, 2016)

Employees

794 (as of March 31, 2016)(non-consolidated)

Business
Category

Members of the Board

Officers

Representative Director andPresident and CEO. . . . . . . . . . . Tetsuhiro Maeda

Officer.. . . . . . . . . Motoyoshi Adachi

Director andExecutive Advisor.. . . . . . . . . . . . Tetsuro Funai

Officer.. . . . . . . . . Tsuneki Yoshida

Director and Officer. . . . . . . . . . . Jyoji Okada
Director and Officer. . . . . . . . . . . Hideaki Funakoshi
Director and Officer. . . . . . . . . . . Hiroyuki Makiura

Head OfficeDirector and Officer. . . . . . . . . . . Takeshi Ito
Outside Director. . . . . . . . . . . . . . Mitsuo Yonemoto

Directors(Audit and Supervisory Committee Members)

Electrical Equipment

Outside Director. . . . . . . . . . . . . . Masahide Morimoto

Principal Businesses

Outside Director. . . . . . . . . . . . . . Yoshiaki Bannai

Display Business		 LCD TVs
Digital Media Business		 Blu-ray Disc Players/Recorders
Office Solutions Business		Printers
		 Ink Cartridges
Other Businesses*3:	Licensee for supply and sales activities for SANYO brand TVs, DVD/BD-related equipment,
and sound bar products in North America and Mexico.
*4:	Use of Kodak trademarks and designs for Funai printers under a brand license agreementwith the Eastman Kodak Company.

32

Corporate
Data*2:	Exclusive licensee for Magnavox consumer TVs, DVD/BD-related products and home theaterin North America.

		Antennas

Financial
SectionImportant Contracts*1:	Exclusive licensee for Philips consumer TVs in North America, Mexico and select LATAM
countries. Exclusive licensee for Philips hospitality TVs in North America. Exclusive licensee forPhilips DVD/BD-related products and home theater in North America and Mexico.
		 P&F USA Inc. is the distributor for Philips-branded audio and video consumer
products, including home and portable audio products, headphones, portable DVD andother accessories.

		 DVD Players/Recorders

Management Discussion
and Analysis

Director. . . . . . . . . . . . . . . . . . . . . Hiromu Ishizaki

Corporate
Governance

August 1961

SocialActivities /TopicsEstablished

Executives

BusinessStrength

FUNAI ELECTRIC CO., LTD.

Message fromManagementName7-7-1 Nakagaito, Daito, Osaka 574-0013
TEL +81-72-870-4303 FAX +81-72-871-1112
http://www.funai.jp/en/

The copying or unauthorized reproduction of all or part of this publication in any form is prohibited.