(Translation)

Dear Shareholders:Information to be Disclosed on the Internet upon Giving
Notice of the 63rd Ordinary General Meeting of Shareholders

June 9, 2015
Funai Electric Co., Ltd.

CONTENTS

1.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ··················· 1

2.

NOTES TO NONCONSOLIDATED FINANCIAL STATEMENTS ··········· 15

The above-listed matters are deemed to have been provided to the shareholders when posted
on our Internet website (http://www.funai.jp/en/investors/) in accordance as provided for inlaws and ordinances and Article 14 of the Articles of Incorporation of the Company.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presenting the Consolidated Financial Statements
1.

Scope of consolidation(1)

Number of consolidated subsidiaries:(2)

Names of major consolidated subsidiaries:

22

FUNAI CORPORATION, INC., Funai Electric (HK) Ltd. and DX ANTENNA Co.,Ltd.
DX ANTENNA MARKETING INC., which is a subsidiary incorporated during the
fiscal year under review, is included in the scope of consolidation.
(3)

Name of major nonconsolidated subsidiary:
FGS Co., Ltd.
(Reason for exclusion from consolidation)
All nonconsolidated subsidiaries are small, and aggregate total assets, net sales, net
income (loss) (based on the Company's equity interest) and retained earnings (basedon the Company's equity interest) of the nonconsolidated subsidiaries are not material
to the consolidated financial statements.

2.

Application of equity method(1)

Number of nonconsolidated subsidiaries to which the equity method is applied: 1(2)

Name of the nonconsolidated subsidiary to which the equity method is applied:
Highsonic Industrial Ltd.

(3)

Number of associated companies to which the equity method is applied: 1(4)Name of the associated company to which the equity method is applied:
CMET FUNAI Optical Electric Co., Ltd.

(5)

Name of the major nonconsolidated subsidiary and associated company to which theequity method is not applied:
Nonconsolidated subsidiary : FGS Co., Ltd.
Associated company: Digitec Industrial Ltd.
(Reason for not applying the equity method)
The nonconsolidated subsidiaries and associated companies have no material impact
on net income (loss) (based on the Company's equity interest) and retained earnings(based on the Company's equity interest) and they as a whole are not material to the-1-consolidated financial statements.
(6)

As the fiscal year ends of Highsonic Industrial Ltd., a nonconsolidated subsidiary towhich the equity method is applied, and CMET FUNAI Optical Electric Co., Ltd., anassociated company to which the equity method is applied, differ from theconsolidated fiscal year end, their financial statements are compiled as of theirrespective fiscal year ends.

(7)

Fiscal year ends of consolidated subsidiaries
The consolidated subsidiaries whose fiscal year ends differ from the consolidated
fiscal year end are as follows:
Name

Fiscal year end

DX ANTENNA Co., Ltd.

February 28

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

December 31

DX ANTENNA MARKETING, INC.

December 31

Zhong Yue FUNAI Electron Co.

December 31

Zhong Shan Funai Electron Co.

December 31

FUNAI Optical Electronics Co., Ltd.

December 31

For DX ANTENNA Co., Ltd., P&F MEXICANA, S.A. DE C.V. and DX ANTENNAMARKETING, INC. listed above, their financial statements as of their respective
fiscal year ends are used to prepare the consolidated financial statements withnecessary adjustments provided for consolidation purposes with regard to materialtransactions between their respective fiscal year ends and the consolidated fiscal year
end.
For Zhong Yue FUNAI Electron Co., Zhong Shan Funai Electron Co. and FUNAI
Optical Electronics Co., Ltd., their tentative financial statements as of theconsolidated balance sheet date are used to prepare the consolidated financial
statements.
3.

Summary of significant accounting policies(1)

Valuation basis and methods of significant assets(i)Securities:
Available-for-sale securities:
Available-for-sale securities for which the fair values are readily
determinable:
Stated at fair market value on the balance sheet date of the fiscal year-2-

(Unrealized gain or loss is included directly in equity after adjusting fortax effect. Costs of securities sold are determined by the moving averagemethod.)Available-for-sale securities for which the fair values are not readily
determinable:
Stated at cost determined by the moving average method(ii) Inventories:
As to the Company and its Japanese consolidated subsidiaries, merchandise andfinished goods and work in process are stated principally at the lower of cost,
determined by the average method, or net selling value. Raw materials are statedprincipally at the lower of cost, determined by the first-in, first-out method, or net
selling value.
As to the overseas consolidated subsidiaries, merchandise and finished goods,
work in process, and raw materials are stated principally at the lower of cost,
determined by the first-in, first-out method, or net selling value.
(2)

Depreciation method for major fixed assets(i)

Property, plant, and equipment (excluding lease assets):
The declining balance method is adopted by the Company and its Japaneseconsolidated subsidiaries (however, with regard to the buildings (excluding
appurtenances thereto) acquired on or after April 1, 1998, the straight-line method
has been adopted). The straight-line method is adopted by the overseas
consolidated subsidiaries.
The main useful lives are as follows:
Buildings and structures:
Machinery, equipment, and motor vehicles:
Tools, furniture, and fixtures:

3–50 years
3–10 years
1–20 years(ii) Intangible assets (excluding lease assets):
The amortization of intangible assets is computed by the straight-line method by theCompany and its consolidated subsidiaries. The amounts of goodwill are equallyamortized over five years; patents are amortized over the estimated economicallyusable period (8–10 years); and software for internal use is amortized over theinternal usable period (five years).
(iii) Lease assets:
Lease assets in finance lease transactions not involving the transfer of ownership-3-

are depreciated by the straight-line method, based on the assumption that theuseful life is equal to the lease term and the residual value is equal to zero.
(3) Accounting standards of significant reserves(i)

Allowance for doubtful accounts:
Allowance for doubtful accounts is provided to cover probable losses oncollection. It is the sum of the probable uncollectable amount estimated using
the rate of actual collection losses for normal receivables and a review of theindividual collectability of the specific receivables.

(ii) Provision for bonuses:
Some consolidated subsidiaries set aside provision to cover the payment of
employees’ bonuses based on the projected amount for such payments.
(iii) Reserve for product warranty:
Reserve for product warranty is provided for probable after-sales service costs ofsold products at an amount considered necessary based on the past track record.
(iv) Liabilities for directors’ and corporate auditors’ retirement benefits:
The Company calculates the required amount at the end of the fiscal year based oninternal regulations in preparation for the payment of retirement benefits todirectors and corporate auditors.
(4)

Other significant accounting policies as the basis of preparing the consolidated
financial statements(i)

Accounting method of retirement benefits:
Liabilities for retirement benefits and assets for retirement benefits are provided
for probable payment of employees’ retirement benefits at the differences between
projected benefit obligations and the fair value of plan assets at the consolidatedbalance sheet date.
Certain consolidated subsidiaries apply the simplified method.
To calculate retirement benefit obligations, the benefit formula basis is used toattribute the projected retirement benefits to the period through the consolidated
fiscal year under review.
The total transitional obligation, determined as of April 1, 2000, was charged toincome when first adopted, except that of certain consolidated subsidiaries, whichis amortized by the straight-line method over 15 years.
-4-

Past service cost is amortized by the straight-line method over a period within the
average remaining years of service of the employees (10 years).
Actuarial gains or losses are amortized by the straight-line method over a period
within the average remaining service period of the employees (10 years) startingfrom the following period.
Unrecognized actuarial gains or losses, unrecognized past service cost andunrecognized transitional obligation are recorded as defined retirement benefit
plans in accumulated other comprehensive income (loss) in equity after adjustingfor tax effects.
(ii) Accounting method of construction revenue and costs:
Construction contracts for which the outcome can be estimated reliably:.
Construction revenue and costs are recognized by the percentage of completion
method (the percentage of completion at the end of the fiscal year is estimated by
the cost-to-cost method.).
Other construction contracts:
Construction revenue and costs are recognized by the completed contract method.
(iii) Amortization of goodwill:
Goodwill is amortized by the straight-line method over a period of five years,
except for insignificant goodwill.
(iv) Accounting for consumption taxes, etc.:
By the tax-exclusive method-5-Change in Accounting Policy(Application of Accounting Standard for Retirement Benefits)
From the current consolidated fiscal year, the Group has changed its calculation
method for retirement benefit obligations and service costs by applying the “AccountingStandard for Retirement Benefits” (the Accounting Standards Board of Japan (“ASBJ”)
Statement No. 26, May 17, 2012, hereinafter referred to as the “Standard”) and the“Guidance on Accounting Standard for Retirement Benefits” (ASBJ Guidance No. 25, March
26, 2015, hereinafter referred to as the “Guidance”) with regard to the provisions of Article
35 of the Standard and Article 67 of the Guidance. The method of attributing estimatedretirement benefits to each period has been changed from the straight-line basis to the benefit
formula basis. The method of determining the discount rate has been changed from using
the discount rate based on the average period until the estimated benefit payment date tousing a single weighted average discount rate reflecting the estimated timing and amount of
retirement benefit payment.
Following the application of the Standard, in accordance with the provisions ofArticle 37 of the Standard concerning the transitional treatment, the financial impact resulting
from the changes in the calculation of retirement benefit obligations and service costs wasadded to or deducted from retained earnings at the beginning of the current consolidated
fiscal year.
As a result, assets and liabilities for the retirement benefits increased by ¥934 million,¥200 million, respectively, and retained earnings increased by ¥483 million, while minority
interests decreased by ¥11 million at the beginning of the current consolidated fiscal year.
Consolidated operating income, ordinary income, and income before income taxes andminority interests for the current consolidated fiscal year each increased by ¥11 million.
In addition, consolidated equity per share and net income per share for the current
consolidated fiscal year increased by ¥14.38 and ¥0.20, respectively.

Notes to Consolidated Balance Sheet
1.

Accumulated depreciation of assets
Accumulated depreciation of property, plant and equipment:

2.

¥46,359 million

Accumulated impairment loss on assets
Accumulated depreciation of assets includes accumulated impairment loss on assets.

3.
As a result of the application of the Act on Land Revaluation of Japan (Act No. 34,
promulgated on March 31, 1998), one of the consolidated subsidiaries revaluated its land
used for business. The tax effect of the revaluation difference of ¥226 million was recorded
as deferred tax liabilities on revaluation of land. Also, the revaluation difference is-6-eliminated in consolidated financial statements, so it is not recorded in equity.
4.

Contingent liability(Arbitration)
The Company resolved to acquire from Koninklijke PHILIPS N.V. (hereinafter,“Philips”) all shares in a company that would succeed the operation of the Philips’ LifestyleEntertainment Business and concluded a share 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 the agreement by theCompany and the petition was served on the Company by the International Chamber ofCommerce on November 8, 2013.
With regard to this matter, the Company recognizes there to have been no breach of
the agreement on its part. Consequently, on December 6, 2013, the Company filed with theInternational Chamber of Commerce a counterclaim for claiming compensation for damages
on the grounds of a breach of the agreement and undue action by Philips.
On May 20, 2014, the Company was given notice of the amount of the claim forcompensatory damages from Philips against the Company. Subsequently, on October 1,
2014, the Company filed a statement with the International Chamber of Commerce including
indication of the amount of compensatory damages claimed against Philips.
On December 24, 2014, the Company received notice from Philips of a revisedamount of compensatory damages claimed by Philips.
The results of these arbitral proceedings may have an effect on the operating results of
the Group. However, it is not possible to make a reasonable estimate of the effect of thearbitration proceeding as of the end of the current consolidated fiscal year and the effectthrereof, if any, on the operating results, and the financial position of the Group remains
unclear.
The following is an outline of the petition for arbitration filed against the Company
and counterclaim filed by the Company.
1.

Outline of the petition for arbitration filed against the Company(1)

Institution and date of the petition for arbitrationi)
ii)

Institution with which the petition for arbitration was filed:International Chamber of Commerce
Date of the petition for arbitration: October 25, 2013

-7-

(2)

Petitioner for arbitration
i)
ii)
iii)

(3)

Name:
Koninklijke Philips N.V.
Location:
Eindhoven, The Netherlands
Title and name of representative: Frans van Houten, Chief Executive Officer

Details of the petition and claimed amount for damagesi)

Details of the petition:ii)

Claimed amount:

A claim for damages on the grounds of a breachof the agreement by the Company€189.6 million (revised amount from the amount of€171.8 million filed by Philips on May 20, 2014),
statutory interest thereon and arbitration expenses

2.

Outline of the counterclaim filed by the Company(1)

Institution with which the counterclaim was filed and the date thereof:
i)
ii)

(2)

Party to the counterclaim filed:
i)
ii)
iii)

(3)

Institution with which the counterclaim was filed:International Chamber of Commerce
Date of the counterclaim:
December 6, 2013

Name:
Koninklijke Philips N.V.
Location:
Eindhoven, The Netherlands
Title and name of representative: Frans van Houten, Chief Executive Officer

Details of the counterclaim and claimed amount for damages:i)
ii)

Details of the counterclaim: Claim for damages on the grounds of a breach of
the agreement and undue action by Philips
Claimed amount:€312.3 million, the amount of tax payable,
conventional interest thereon and arbitration expenses.

An overview of the above-mentioned share purchase agreement is as follows:
1.

Name of other Party and the content of the business to be acquired.

(1)
(2)

Name of other Party:
Content of the business to be acquired:

Koninklijke Philips N.V.
Lifestyle Entertainment Business(Note) The Lifestyle Entertainment Business involves the development, design,
sales and (partial) manufacture of the Philips-brand Audio, Video,
Multimedia products, Home Communication products and Accessories
products.
-8-

2.

Reasons for acquiring the shares

The transaction to assume the Lifestyle Entertainment Business from Philips
will enable the Group to expand the lineup of products that it handles and expand its
sales region to include Asia, South America and other emerging markets, as well as
advanced countries in Europe. The Company decided to acquire shares, based on
the belief that the acquisition would foster sustained growth of the Group’s business.
3.

Acquisition price and the percentage of shares held after the acquisition
Acquisition price: €150 million
Percentage of shares held after the acquisition: 100%

5.

Financial covenants

With regard to bank loans, a syndicated loan agreement (balance as of the end of the
fiscal year: ¥6,008 million) includes financial covenants; if the Company breaches any of thefollowing clauses, it shall forfeit the benefit of time in relation to the entire obligation under
the agreement and immediately pay the principal of and interest on the loan:(Clauses)(1)
The Company shall maintain the amount in the equity section in the consolidatedbalance sheet 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 on
the consolidated statement of income for the fiscal year ending March 31, 2015, andfor each fiscal year thereafter.

(3)

The Company shall, for two consecutive fiscal years, not report an ordinary loss on
the consolidated statement of income for the fiscal year ending March 31, 2015, andfor each fiscal year thereafter.

-9-Notes to Consolidated Statement of Income
Impairment losses
During the fiscal year under review, the Group recorded losses on impairment in thefollowing asset groups:
Use
Business assets

Location
FUNAI ELECTRIC EUROPE
Sp.z o.o. (Lubuskie, Poland)

Type
Buildings and structures,
land

In principle, the Group groups business assets on the basis of a legal entity whosecash inflows and outflows are continuously recorded. Idle assets are separated individually.
The Company reduced the book values of the business assets for which profitability
has declined significantly to the recoverable amounts in the current consolidated fiscal year,
and recorded decrease of ¥618 million as extraordinary losses. These losses include ¥596
million for buildings and structures and ¥22 million for land.
The recoverable amounts of the assets were determined at net realizable value, andwere calculated based on the real estate revaluations.

- 10 -

Notes to Consolidated Statement of Changes in Equity
1.

Type and total number of shares issued, and type and number of treasury shares(thousands of share)
Decrease in the
Number of
number ofshares as ofshares during
March 31, 2015
the year

Number ofshares as ofApril 1, 2014

Increase in thenumber ofshares during
the year

36,13036,130--36,13036,130

2,011
2,011

0
0

-

2,011
2,011

Shares issued
Shares of common stock
Total
Shares of treasury stock
Shares of common stock
Total(Note) The increase of 0 thousand shares of treasury shares of common stock resulted fromthe acquisition of less-than-one-unit shares.
2.

Dividends(1)

Amount of dividends paid:

Resolution

Type of shares

Meeting of theBoard of Directors
Shares ofheld on May 26,
common stock
2014

(2)

Total amountof dividends(million yen)Amount ofdividend per
share
(yen)

Record date

Effective date

1,194

35

March 31, 2014

June 9, 2014

Dividends whose record date is in the fiscal year ended March 31, 2015, but whose
effective date will be in the fiscal year ending March 31, 2016, are as follows:

Resolution

Type ofsharesTotalamount ofdividends(millionyen)

Meeting of theBoard of Directors
held on May 25,
2015

Shares ofcommon
stock

1,194

Source ofdividends

Amount ofdividend
per share(yen)

Recorddate

Effective
date

Retainedearnings

35

March 31,2015

June 8,2015- 11 -

3.

Stock acquisition rights

Description of stock acquisitionrightsType of shares to be issued ortransferred upon exercise ofstock acquisition rights

Number of shares for stockacquisition rights (shares)
As of March 31, 2015

The first stock acquisition rights
issued in the year ended March
31, 2009

Shares of common stock

270,500

Total

270,500(Note) Any stock acquisition right for which the exercise period has yet to start.

Notes to Financial Instruments
1.

Status of financial instruments

The Group obtains financing from banks and invests funds in short-term deposits, etc.
In principle, the Group has a policy of not using derivatives.
With regard to customers’ credit risks relating to notes and accounts receivable - trade,the Group has stipulated sales management rules and manages the trading terms and credit
lines by each customer.
Investment securities are exposed to market risks. With regard to the risks, themarket values and the financial positions of the issuers are reviewed periodically andreported to the internal Investment and Loan Committee.
Notes and accounts payable - trade and accounts payable - other mostly become dueand 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, theGroup may utilize derivatives (interest rate swap agreements) as hedging instruments
according to individual loan contracts. To trade in derivatives, such derivatives are
executed and managed in accordance with the internal rules. To mitigate credit risk, theGroup enters into transactions solely with financial institutions with high ratings.

- 12 -

2.

Fair values, etc. of financial instruments

Amounts recorded in the consolidated balance sheet, fair values, and the differences
between them as of March 31, 2015, are as follows:(millions of yen)Amountrecorded intheconsolidatedbalance sheet*

Fair value*

Difference(1)

Cash and deposits

66,82066,820-(2)

Notes and accounts receivable-trade38,18338,183-(3)

Investment securities:
794

794

-

Available-for-sale securities(4)

Notes and accounts payable-trade(31,625)(31,625)-(5)

Short-term bank loans(4,012)(4,012)-(6)

Accounts payable-other(11,944)(11,944)-(7)

Long-term bank loans(6,683)(6,683)-(8)

Derivatives

-

-

-

* The items recognized as liabilities are shown in the parentheses.
(Notes) 1.

Calculation method of the fair values of financial instruments, securities andderivatives:(1) Cash and deposits and (2) Notes and accounts receivable-trade:
The book value is used for these items, as the fair value approximates the bookvalue as a result of their short settlement periods.
(3) Investment securities – Available-for-sale securities:
The fair value of stocks is determined by the prices of the stocks traded on an
exchange.
(4) Notes and accounts payable-trade, (5) Short-term bank loans and (6) Accounts
payable-other:
The book value is used for these items, as the fair value approximates the bookvalue as a result of their short settlement periods.
(7) Long-term bank loans:
The long-term bank loans are those with floating rates and they reflect themarket interest rates timely. Thus, the book value is used as the fair value
approximates the book value.
- 13 -

(8) Derivatives:
This item is not applicable.
2. Unlisted shares (¥2,020 million on the consolidated balance sheet) have nomarket price and it is impossible to estimate their future cash flows. As it isextremely difficult to determine their fair values, they are not included in "(3)Investment securities – Available-for-sale securities".
Notes to Per Share Information
Equity per share:
Net income per share:¥3,712.81¥39.70

Other Notes
Additional Information(Tax system for dealing with tax havens)
On June 29, 2011, the Company received notices from the Osaka Regional Taxation
Bureau suggesting that a subsidiary in Hong Kong did not satisfy the conditions for exclusionfrom application of the tax system for dealing with tax havens and indicating its decision toincorporate the income generated by the subsidiary into the income of the Company for theduration 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 forassessments by the Osaka National Tax Tribunal on August 25, 2011. On July 18, 2012, theCompany received written verdicts on this case indicating that our assertions had been
dismissed. The Company, unable to accept the verdicts, filed an appeal to have the action
canceled with the Tokyo District Court on January 17, 2013.
The additional tax, including corporate income taxes, inhabitant taxes, and enterprisetaxes, 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 thefiscal year ended March 31, 2012 in accordance with Japanese Institute of Certified Public
Accountants Audit and Assuarance 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 wereapplied from the fiscal year ended March 31, 2011, which is the fiscal year following the
fiscal year to which the assessment was applied.

========================================================================(Note)All figures in the notes to the consolidated financial statements are shown bydisregarding any fractions of the relevant units. Equity per share and net income
per share are shown by rounding off to two decimal places.
- 14 -NOTES TO NONCONSOLIDATED FINANCIAL STATEMENTS
Summary of Significant Accounting Policies:
1.

Valuation basis and methods of assets(1) Securities:
Investment in subsidiaries and associated companies:
Stated at cost determined by the moving-average method.
Available-for-sale securities:
Available-for-sale securities for which the fair values are readily determinable:
Stated at fair market value on the balance sheet date of the fiscal year
(Unrealized gain or loss is included directly in equity after adjusting for tax
effect. The cost of securities sold is determined by the moving-averagemethod.)Available-for-sale securities for which the fair values are not readily
determinable:
Stated at cost determined by the moving average method.
(2)

2.

Inventories:
Finished goods:

Stated at the lower of cost, determined by the averagemethod, or net selling value.

Raw materials:

Stated at the lower of cost, determined by the first-in,
first-out method, or net selling value.

Depreciation method for fixed assets:(1)

Property, plant and equipment (excluding lease assets):
The depreciation of property, plant and equipment is computed by the
declining-balance method.
However, for buildings (excluding appurtenances thereto) acquired on or after April
1, 1998, the straight-line method has been adopted.

- 15 -

(2)Intangible assets (excluding lease assets):
The amortization of intangible assets is computed by the straight-line method.
The amounts of goodwill are equally amortized for five years; the patents areamortized over the estimated economically usable period (8-10 years); andsoftware for internal use is amortized over the internal usable period (five years).

(3)

Lease assets:
Lease assets in finance lease transactions not involving the transfer of ownershipare depreciated by the straight-line method, based on the assumption that theuseful life is equal to the lease term and the residual value is equal to zero.

3.

Accounting standards of reserves:(1) Allowance for doubtful accounts:
Allowance for doubtful accounts is provided to cover probable losses oncollection. It is the sum of the probable uncollectable amount estimated using
the rate of actual collection losses for normal receivables and a review of theindividual collectability of the specific receivables.
(2) Reserve for product warranty:
Reserve for product warranty is provided for probable after-sales service costs ofsold products at an amount considered necessary based on the past track record.
(3) Liabilities for retirement benefits:
Liabilities for retirement benefits and prepaid pension cost are provided forprobable payment of employees’ retirement benefits based on retirement benefit
obligations and plan assets at the balance sheet date.
To calculate retirement benefit obligations, the benefit formula basis is used toattribute the projected retirement benefits to the period through the fiscal year
under review.
Past service cost is amortized by the straight-line method over a period within the
average remaining years of service of the employees (10 years).
Actuarial gains or losses are amortized by the straight-line method over a period
within the average remaining service period of the employees (10 years) startingfrom the following period.
(4) Liabilities for directors’ and corporate auditors’ retirement benefits:- 16 -

The Company calculates the required amount at the end of the fiscal year based oninternal regulations in preparation for the payment of retirement benefits todirectors and corporate auditors.
4.
Other significant accounting policies as the basis of preparing the nonconsolidated
financial statements(1) Accounting method of retirement benefits:
The accounting method for unrecognized actuarial gains or losses andunrecognized past service cost related to retirement benefits differs from theaccounting method for the consolidated financial statements.
(2) Accounting for consumption taxes, etc.:
By the tax-exclusive method

Change in Accounting Policy(Application of Accounting Standard for Retirement Benefits)
From the current fiscal year, the Company has changed its calculation method for
retirement benefit obligations and service costs by applying the “Accounting Standard for
Retirement Benefits” (ASBJ Statement No. 26, May 17, 2012, hereinafter referred to as the“Standard”) and the “Guidance on Accounting Standard for Retirement Benefits” (ASBJ
Guidance No. 25, March 26, 2015). The method of attributing estimated retirement benefits
to each period has been changed from the straight-line basis to the benefit formula basis.
The method of determining the discount rate has been changed from using the discount rate
based on the average period until the estimated benefit payment date to using a single
weighted average discount rate reflecting the estimated timing and amount of retirement
benefit payment.
Following the application of the Standard, in accordance with the provisions ofArticle 37 of the Standard concerning the transitional treatment, the financial impact resulting
from the changes in the calculation of retirement benefit obligations and service costs wasadded to or deducted from the retained earnings at the beginning of the current fiscal year.
As a result, prepaid pension cost and retained earnings increased by ¥934 million and¥601 million, respectively, at the beginning of the current fiscal year. Operating loss andordinary loss for the current fiscal year increased by ¥5 million, respectively, and income
before income taxes decreased by the same amount.
In addition, equity per share increased by ¥17.54 and net income per share decreasedby ¥0.10, for the current fiscal year.

- 17 -

Notes to Nonconsolidated Balance Sheet:1.

Accumulated depreciation of assets:
Accumulated depreciation of property, plant and equipment:

2.

Monetary receivables/payables from/to subsidiaries and associated companies:
Short-term monetary receivables:
Long-term monetary receivables:
Short-term monetary payables:3.

¥11,278 million¥35,191 million¥16,212 million¥17,662 million

Contingent liabilities(Arbitration)
The Company resolved to acquire from Koninklijke PHILIPS N.V. (hereinafter,“Philips”) all shares in a company that would succeed the operation of the Philips’ LifestyleEntertainment Business and concluded a share 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 the agreement by theCompany and the petition was served on the Company by the International Chamber ofCommerce on November 8, 2013.
With regard to this matter, the Company recognizes there to have been no breach of
the agreement on its part. Consequently, on December 6, 2013, the Company filed with theInternational Chamber of Commerce a counterclaim for claiming compensation for damages
on the grounds of a breach of the agreement and undue action by Philips.
On May 20, 2014, the Company was given notice of the amount of the claim forcompensatory damages from Philips against the Company. Subsequently, on October 1,
2014, the Company filed a statement with the International Chamber of Commerce including
indication of the amount of compensatory damages claimed against Philips.
On December 24, 2014, the Company received notice from Philips of a revisedamount of compensatory damages claimed by Philips.
The results of these arbitral proceedings may have an effect on the operating results of
the Company. However, it is not possible to make a reasonable estimate of the effect of thearbitration proceeding as of the end of the current fiscal year and the effect threreof, if any,on the operating results, and the financial position of the Company remains unclear.
The following is an outline of the petition for arbitration filed against the Company
and counterclaim filed by the Company.
1.

Outline of the petition for arbitration filed against the Company- 18 -

(1)Institution and date of the petition for arbitration
i)
ii)

(2)

Petitioner for arbitration
i)
ii)
iii)

(3)

Institution with which the petition for arbitration was filed:International Chamber of Commerce
Date of the petition for arbitration: October 25, 2013

Name:
Koninklijke Philips N.V.
Location:
Eindhoven, The Netherlands
Title and name of representative: Frans van Houten, Chief Executive Officer

Details of the petition and claimed amount for damagesi)

Details of the petition:ii)

Claimed amount:

A claim for damages on the grounds of breachof the agreement by the Company€189.6 million (revised amount from the amount of€171.8 million filed by Philips on May 20, 2014),
statutory interest thereon and arbitration expenses

2.

Outline of the counterclaim filed by the Company(1)

Institution with which the counterclaim was filed and the date thereof:
i)
ii)

(2)

Party to the counterclaim filed:
i)
ii)
iii)

(3)

Institution with which the counterclaim was filed:International Chamber of Commerce
Date of the counterclaim:
December 6, 2013

Name:
Koninklijke Philips N.V.
Location:
Eindhoven, The Netherlands
Title and name of representative: Frans van Houten, Chief Executive Officer

Details of the counterclaim and claimed amount for damages:i)
ii)

Details of the counterclaim: Claim for damages on the grounds of a breach of
the agreement and undue action by Philips
Claimed amount:€312.3 million, the amount of tax payable,
conventional interest thereon and arbitration expenses.

An overview of the above-mentioned share purchase agreement is as follows:
1.

Name of other Party and the content of the business to be acquired.

(1)

Name of other Party:

Koninklijke Philips N.V.
- 19 -

(2)Content of the business to be acquired:

Lifestyle Entertainment Business(Note) The Lifestyle Entertainment Business involves the development, design,
sales and (partial) manufacture of the Philips-brand Audio, Video,
Multimedia products, Home Communication products and Accessories
products.
2.

Reasons for acquiring the shares

The transaction to assume the Lifestyle Entertainment Business from Philips
will enable the Company to expand the lineup of products that it handles and expand
its sales region to include Asia, South America and other emerging markets, as well as
advanced countries in Europe. The Company decided to acquire shares, based on
the belief that the acquisition would foster sustained growth of the Company’sbusiness.
3.

Acquisition price and the percentage of shares held after the acquisition
Acquisition price: €150 million
Percentage of shares held after the acquisition: 100%

(Liabilities on guarantee)
The Company has provided a guarantee for accounts payable to suppliers for thefollowing subsidiary:
FUNAI ELECTRIC EUROPE Sp.z o.o.

¥390 million

The Company has provided a guarantee for bank loans for the following subsidiary:
P&F USA, INC.
4.

¥3,712 million

Financial covenants

With regard to bank loans, a syndicated loan agreement (balance as of the end of the
fiscal year: ¥6,008 million) includes financial covenants; if the Company breaches any of thefollowing clauses, it shall forfeit the benefit of time in relation to the entire obligations under
the agreement and immediately pay the principal of and interest on the loan:(Clauses)(1) The Company shall maintain the amount in the equity section in the consolidatedbalance sheet 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 on the
consolidated statement of income for the fiscal year ending March 31, 2015, and foreach fiscal year thereafter.
- 20 -

(3)The Company shall, for two consecutive fiscal years, not report an ordinary loss on the
consolidated statement of income for the fiscal year ending March 31, 2015 and foreach fiscal year thereafter.

Notes to Nonconsolidated Statement of Income:Amount of transactions with subsidiaries and associated companies
Operating transaction:
Sales amount:
Purchases amount:
Other operating expenses:
Non-operating transactions:¥126,288 million¥134,002 million¥1,809 million¥245 million

Notes to Nonconsolidated Statement of Changes in Equity
Number of shares of treasury stock:(thousands of share)
Type of shares
Common stock

Decrease in the Number of shares
Number of shares Increase in theas of April 1, 2014 number of shares number of shares as of March 31,
during the year
during the year2015
2,011/shares

0/shares-2,011/shares(Note) The increase of 0 thousand shares of treasury shares of common stock resulted fromthe acquisition of less-than-one-unit shares.

- 21 -

Notes on Deferred Tax Accounting
Significant components of deferred tax assets and deferred tax liabilities(millions of yen)
Deferred tax assets
Liabilities for directors’ and corporate auditors’ retirement benefits
Accounts payable-other
Allowance for doubtful accounts
Accrued expenses (bonuses)
Loss on revaluation of investment securities
Loss on revaluation of investment in subsidiaries and associatedcompanies
Transfer pricing taxation adjustments
Impairment loss on fixed assets
Tax loss carryforwards
Other
Subtotal
Valuation allowance
Total
Deferred tax liabilities
Unrealized gain on available-for-sale securities
Prepaid pension costReserve for advanced depreciation of fixed assets
Other
Subtotal
Deferred tax assets, net

346
842
5,278
171
193
2,631
726
99
4,590
303
15,183(13,751)
1,431
(121)
(578)
(244)
(31)
(976)
455

2.
Revision of deferred tax assets and deferred tax liabilities as a result of the change ofthe rate of corporate tax, etc.
As a result of the “Act for Partial Revision of the Income Tax Act, etc.” (Act No. 9 of
2015) and the “Act for Partial Revision of the Local Tax Act, etc.” (Act No. 2 of 2015)
enacted on March 31, 2015, the corporate tax rate, etc., will be reduced from the fiscal year
beginning on or after April 1, 2015. Accordingly, the effective statutory tax rate to be used
for the calculation of deferred tax assets and deferred tax liabilities will be reduced from
35.6% to 33.1% for the temporary differences expected to be reversed for the fiscal year
beginning on April 1, 2015, and to 32.3% for the temporary differences expected to bereversed for the fiscal year beginning on April 1, 2016 and thereafter.
The tax rate change decreased deferred tax assets (net of deferred tax liabilities) by ¥9million and increased income taxes - deferred and unrealized gain on available-for-salesecurities by ¥22 million and ¥12 million, respectively.
Further, with the change of the scheme of tax loss carryforwards, the deductible
amount is limited to 65% of taxable income for the fiscal years beginning on or after April 1,
2015, and to 50% of taxable income for the fiscal years beginning on or after April 1, 2017.
- 22 -

Consequently, deferred tax assets decreased by ¥68 million and income taxes - deferredincreased by ¥68 million.

- 23 -

Notes on Transactions with Related Parties
1.

Subsidiaries, etc.
(millions of yen)
Type

Name

Voting rights
held by theCompany (orheld by others)

Subsidiary

DX ANTENNA
Co., Ltd.

Direct, 91.40%

Sale of productsof the Company

Subsidiary

Funai Electric(HK) Ltd.

Direct, 100.00%

Production of
products of theCompany

Subsidiary

FUNAI(THAILAND)
CO., LTD.

Direct, 80.87%
Indirect, 19.13%

Production of
products of theCompany

Subsidiary

Subsidiary

Subsidiary

Subsidiary

Subsidiary(Note)FUNAICORPORATION,
INC.

P&F USA, INC.

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

FUNAI
ELECTRICEUROPE Sp. z
o. o.

Direct, 100.00%

Direct, 100.00%

Direct, 100.00%
Indirect, 0.00%

RelationshipTransaction
Sale ofelectronic
products
Purchase ofelectronic
products
Loan offunds
Repaymentof loans
Purchase ofelectronic
products
Sale ofelectronic
products
Sale ofelectronic
products
Repaymentof loans
Guarantee
for bank
loans
Transfer
pricing
taxationadjustments
Sale ofelectronic
products

Sale of productsof the Company

Sale of productsof the Company

Sale of productsof the Company

Loan offunds
Provision ofallowancefor doubtful
accounts
Sale ofelectronic
products

Direct, 100.00%

FUNAI EUROPE
Direct, 100.00%
GmbH

Sale of productsof the Company

Loan offunds
Provision ofallowancefor doubtful
accounts

Sale of productsof the Company

Amount1,737
79,946

Account
Accounts
receivable- tradeAccounts
payable trade

Balance asof March
31, 2015
553
8,468

1,827

-

-

3,177

-

-

36,141

95,234

11,489Accounts
payable trade
Accounts
receivable- tradeAccounts
receivable- trade3,898

16,050

9,064

4,086

-

-

3,712

-

-

-

15,553
-

612

1,657
-

642

Loan offunds-

Provision ofallowancefor doubtful
accounts-

Accruedexpenses
Accounts
receivable- tradeLong-term
loans
receivable
Allowancefordoubtfulaccounts
Accounts
receivable- tradeLong-term
loans
receivable
Allowancefordoubtfulaccounts
Long-term
loans
receivable
Allowancefordoubtfulaccounts

2,250

6,603
1,576

3,217

1,492
2,476

1,992

10,435

10,376

Transaction terms and policies on the determination of transaction terms, etc.:
As with the terms of ordinary transactions, transaction terms are determined in considerationof market prices and other factors.

- 24 -

2.

Directors, corporate auditors and individual principal shareholders, etc.
(millions of yen)Type

Company,
etc. whose
director(s)and his/herclose
relative(s)own amajority ofthe voting
rightsName

Voting rights
held by theCompany (orheld byothers)Relationship

Propia Co. Ltd.

-Sale of products;
interlocking
directorate-

Sale of products;
lease of offices;interlocking
directorate

XTrillion Inc.

PreXion Co.,Ltd.

-

Sale of products

Transaction

AmountSale ofproducts

104

Sale ofproducts

48

Lease ofoffices
Sale ofproducts

Account

Balance asof March
31, 2015

Accounts
receivable trade
Accounts
receivable trade
-

-

43

-

-

1. Propia Co., Ltd.
(1) As with the terms of ordinary transactions, transaction terms are determined inconsideration of market prices and other factors.
(2) 100.00% of the voting rights are owned directly by a company of which a close relativeof Representative Director of the Company, Tetsuro Funai, owns a majority of the voting
rights.
2. XTrillion Inc.
(1) As with the terms of ordinary transactions, transaction terms are determined inconsideration of market prices and other factors.
(2) Lease prices of offices are determined upon consultation in consideration of market pricerates in the neighborhood and other factors.
(3) 100.00% of the voting rights are owned directly by Representative Director of theCompany, Tetsuro Funai.
3 PreXion Co., Ltd.
(1) As with the terms of ordinary transactions, transaction terms are determined inconsideration of market prices and other factors.
(2) 61.01% of the voting rights were owned directly by Representative Director of theCompany, Tetsuro Funai. As of July 1, 2014, PreXion Co., Ltd. was merged by
XTrillion Inc. and the transactions after the merger were transferred to XTrillion Inc.

Note to Per Share Information¥2,417.62

Net income per share:¥10.19- 25 -

036(Notes) Transaction terms and policies on the determination of transaction terms, etc.:

Equity per share:

12Other Notes
Additional Information(Tax system for dealing with tax havens)
On June 29, 2011, the Company received notices from the Osaka Regional Taxation
Bureau suggesting that a subsidiary in Hong Kong did not satisfy the conditions for exclusionfrom application of the tax system for dealing with tax havens and indicating its decision toincorporate the income generated by the subsidiary into the income of the Company for theduration 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 forassessments by the Osaka National Tax Tribunal on August 25, 2011. On July 18, 2012, theCompany received written verdicts on this case indicating that our assertions had been
dismissed. The Company, unable to accept the verdicts, filed an appeal to have the action
canceled with the Tokyo District Court on January 17, 2013.
The additional tax, including corporate income taxes, inhabitant taxes, and enterprisetaxes, 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 thefiscal year ended March 31, 2012 in accordance with Japanese Institute of Certified Public
Accountants Audit and Assuarance 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 wereapplied from the fiscal year ended March 31, 2011, which is the fiscal year following the
fiscal year to which the assessment was applied.

========================================================================(Note)All figures in the notes to the non-consolidated financial statements are shown bydisregarding any fractions of the relevant units. Equity per share and net income
per share are shown by rounding off to two decimal places.
- 26 -