(Translation)

Securities Code: 6839
June 9, 2017

NOTICE OF THE 65TH ORDINARY GENERAL MEETINGOF SHAREHOLDERS

Dear Shareholders:
We would like to express our appreciation for your continued good offices.
You are hereby notified that the 65th Ordinary General Meeting of Shareholders of Funai
Electric Co., Ltd. (the “Company”) will be held as described below, and you are cordiallyinvited to attend the meeting.
Since voting rights can be exercised in writing, even if you are unable to attend the meeting,please review the attached Reference Document for the General Meeting of Shareholders set
forth below and send to us by return mail the enclosed voting form indicating your approvalor disapproval of the propositions no later than 5:00 p.m. on June 27 (Tuesday) in Japan time,
2017.

Yours very truly,

Hideaki Funakoshi
Representative Director, President, andChief Executive Officer

Funai Electric Co., Ltd.
7-1, Nakagaito 7-chome,
Daito City, Osaka

1

Description
1.

Date and hour:
June 28 (Wednesday), 2017, 10:00 a.m.

2.

Place:
5F, Multipurpose Hall, Technology Bldg. of the Company
7-1, Nakagaito 7-chome, Daito City, Osaka

3.

Matters forming the objects of the meeting:
Matters to be reported:
1.

The business report, the consolidated financial statements and the audit reportson the consolidated financial statements by the independent auditors and the
Audit and Supervisory Committee for the 65th fiscal year (from April 1, 2016
to March 31, 2017)2.

The nonconsolidated financial statements for the 65th fiscal year (from April 1,2016 to March 31, 2017)

Matters to be resolved:
Proposition No. 1:

Election of five (5) Directors (excluding Directors who
are Audit and Supervisory Committee Members)

Proposition No. 2:

Election of three (3) Directors who are Audit andSupervisory Committee Members

Proposition No. 3:

Election of one (1) Substitute Director who is an Audit
and Supervisory Committee Member

Proposition No. 4:

Issuance of stock acquisition rights as stock options- END -・ In attending the meeting, please submit the enclosed voting form to a receptionist at theplace of the meeting.
・ Of the documents to be provided upon giving notice of this Ordinary General Meeting of
Shareholders, “Notes to the consolidated financial statements” and “Notes to thenonconsolidated financial statements”, which are posted on our website(http://www2.funai.co.jp/en/investors/) in accordance with and as provided for in theapplicable laws and ordinances and Article 14 of the Articles of Incorporation of theCompany, are not attached with this notice of the Ordinary General Meeting of
Shareholders. Therefore, the attached documents to this notice of the Ordinary General
Meeting of Shareholders are a part of the consolidated financial statements andnonconsolidated financial statements that have been audited by the independent auditors
to express their audit opinions.
・ In the event of the revision to any matters in the Reference Document for the General
Meeting of Shareholders, the business report, the consolidated financial statements andthe nonconsolidated financial statements, it will be posted on our website stated above.

2

(Attached documents)
BUSINESS REPORT(April 1, 2016 to March 31, 2017)
1.

Current state of the Funai Group (the “Group”)(1)

Development and results of business activities:

In the United States, which is the Group’s mainstay market, the economy has been
expanding at a moderate pace as seen in the recovery of corporate investing activities despitea temporary decline in consumer spending. Meanwhile, Europe has seen an accelerated
economic recovery as consumer spending has continued to improve. In China, theeconomic slowdown appears to have come to a pause in some areas as fixed asset investment
and exports seemed to have bottomed out.
In Japan, moderate recovery of exports and industrial production has continued and there
have been signs of improvement in consumer spending, reflecting solid employment andincome conditions.
Under these circumstances, the Group reported net sales of ¥133,838 million, a 21.3%
decrease from the previous fiscal year. Operating loss was ¥6,775 million (operating loss
for the previous fiscal year was ¥10,539 million), due to a drop in sales as well as liquid
crystal panel prices remaining high until the fiscal year-end, inventory adjustment of oldmodels of LCD-TVs in the first half of the year, and a decline in gross profit margin due tointensified price competition in Mexico. Ordinary loss was ¥7,726 million (ordinary loss
for the previous fiscal year was ¥13,653 million), mainly due to foreign exchange losses
generated by Mexican Peso-denominated accounts receivable resulting from the Mexican
Peso being weak against the Japanese yen. Net loss attributable to owners of parent ended
at ¥6,745 million (a net loss attributable to owners of parent of ¥33,839 million in theprevious fiscal year).
Net sales by product sector were as follows:
Audiovisual Equipment
Sales of BD players increased because of strong sales. However, sales of LCD-TVs
declined as the expansion of sales to regional mass merchandisers in the North American
market did not progress as planned and the Mexican market became more competitive. As aresult, net sales of this sector were ¥115,262 million, a decrease of 22.0% from the previous
fiscal year.
Information Equipment
Sales of the new in-house developed ink-jet cartridges contributed to an increase in overallsales. As a result, net sales of this sector were ¥5,075 million, an increase of 1.5% from theprevious fiscal year.

3OtherNet sales of other were ¥13,500 million, a decrease of 22.0% from the previous fiscal year,
due to the end of sales of audio accessories, whose contract terminated during the last fiscal
year.
<Consolidated net sales by product group>Group
Audiovisual equipment
Information equipment
Other
Total
(2)

Net sales(millions of yen)
115,262
5,075
13,500133,838

Component rate
(%)
86.1
3.8
10.1
100.0

Investment in property, plant and equipment:

Investment in property, plant and equipment during the fiscal year under review totaled¥3,070 million, which comprised of ¥2,758 million by its manufacturing companies and ¥312
million by its sales companies. Such investments were mainly for the improvement of the
manufacturing facilities.
(3)

Finance:
Nothing to be reported.

(4)

Status of major organizational restructuring, etc.

The Company transferred all of its shares held in DX ANTENNA Co., Ltd., a subsidiary of
the Company, to ELECOM Co., Ltd. on March 30, 2017.
(5)

Issues to be addressed:

In the consumer electronics industry, the demand for LCD-TVs expanded because of
demand shift to higher resolutions, such as 4K, and larger screens. However, the consumer
electronics industry continued to face a challenging environment because of an ongoing
downturn in the market for DVD/BD-related products, among other factors.
Under these circumstances, the issues and the measures to be taken are as follows:(i)

Increase of net sales and recovery of profitability
The Group’s top priority is to increase net sales and recover profitability.

To increase net sales of audiovisual equipment, the Group aims to increase sales of
LCD-TVs by offering 4K models and multiple models developed for individual customers in
the North American market. In the Japanese market, the Group strives to secure market
share through exclusive sales of “FUNAI” brand products by YAMADA DENKI Co., Ltd.

4

Regarding information equipment, the Group has been working to improve profitability
through concentration on sales of high-value-added model printers and ink cartridges forbusiness use.
To implement the above-mentioned strategies steadily, the Group is working towards thebusiness improvements to provide products that meet market needs in a timely manner byminimizing time lags in product planning, development, material procurement, production
and sales.
(ii)

Reinforcement of the manufacturing systems

The Group has production sites in China, Thailand, the Philippines and Mexico. By
concentrating production activities in the most optimal regions, the Group makes concerted
efforts to enhance the local content ratio, improve production efficiency and reduce costs
throughout all processes up to the delivery of end products.
(iii)

Training and appointment of human resources

The Group recognizes that it is important to bolster the Group’s capabilities by improving
each employee’s capabilities and more effectively leveraging its skills to win out against the
global competition in the new era and implementing the Group’s medium- to long-termbusiness strategy. Therefore, the Group is actively training and assigning employees,
regardless of their age and career, by strengthening and expanding its internal and external
training systems, such as language training.
(iv)

Inappropriate accounting

During the fiscal year under review, it was discovered that there was inappropriate
accounting in prior results at the Group’s subsidiaries. As a result, the Group submitted
amended securities reports for the past five years and subsequently amended its financial
reports.
Under these circumstances, the Group investigated and analyzed the causes of such
inappropriate accounting and thereby considered, formulated and implemented improvement
measures in order to prevent the recurrence of similar cases
The Group has taken the situation seriously and is determined to raise the awareness of its
officers and employees and further strengthen the Group’s governance with the aim of
ensuring that such incidents will never be repeated in the future.
The Group has taken the following improvement measures to prevent the recurrence ofsimilar cases.
(A) Strengthen management system for overseas subsidiaries
 Strengthen organization of the Group’s management division
 Reinforce monitoring of sales subsidiaries
 Change reporting lines for expatriates in charge of accounting
 Newly establish financial reporting meetings and enhance monthly reporting
operations
 Review relevant regulations and ensure thorough compliance5Conduct progress reporting of improvement measures at the Board of Directors’
meeting Implement periodical audits by Audit and Supervisory Committee Members(B) Strengthen operational capabilities of overseas subsidiaries
 Review human resources system and organizations
 Review management systems
 Clarify authorities by reviewing the regulations on administrative authorities
 Promote collaboration between accounting departments among sales subsidiaries
 Thoroughly implement risk management of new businesses(C) Restructure internal audit system
 Strengthen internal audit system Enhance audit contents(D) Implement educational activities for officers and employees Set out a commitment by the President to prevent the recurrence of similar cases Conduct training for officers
 Provide compliance lectures for divisional managers(v)

Significant events concerning the assumptions of the going concern

Since the Group recorded a significant operating loss, ordinary loss, net loss attributable toowners of the parent and negative operating cash flow during the fiscal year under review,
there have been events or circumstances that raise material doubts about the assumptions of
the going concern.
However, there are no material financial concerns as the balance of cash and deposits
currently held by the Group are sufficient to cover operating capital for the time being.
Moreover, the Group is confident that the matter in question can be resolved in light of thefact that the Group has formulated a medium-term management policy which sets the fiscal
year under review as the first year and the following measures have been gradually
implemented based on its basic policy.
(A) Display business (LCD-TV business)
 Expand sales in the North American market: Increase sales to existing customers andcultivate new customers through the introduction of multiple 4K models with large
screens
 Achieve entry into the Japanese market: Expand shares in the Japanese market
through exclusive sales by YAMADA DENKI Co., Ltd.
(B) Digital media business (DVD and BD business)
 Expand sales of 4K BD players in the North American market
 Achieve entry into the Japanese market: Expand shares in the Japanese market
through exclusive sales by YAMADA DENKI Co., Ltd.
(C) Office solution business (information equipment-related business) Improve profitability through expansion of sales of high-value-added printer products Reconsider investment in the development of Microfluidic technology(D) New businesses Expand sales by developing and releasing new products related to healthcare, medical
and in-vehicle devices6

As a result of the foregoing, it has been determined that significant uncertainty concerning
the assumptions of the going concern is not deemed to exist as of the end of the fiscal year
under review.
(6)

Property and income/loss:
62nd(April 1, 2013 toMarch 31, 2014)

63rd(April 1, 2014 toMarch 31, 2015)

64th(April 1, 2015 toMarch 31, 2016)

65th(April 1, 2016 to
March 31, 2017)

Net sales(millions of yen)

233,802

216,553

170,041

133,838

Ordinary income(loss)(millions of yen)

(2,908)600(13,653)(7,726)

Net income (loss)
attributable to ownersof the parent(millions of yen)

(7,400)31(33,839)(6,745)

Net income (loss)
per share (yen)(216.89)0.92(991.81)(197.70)

Total assets(millions of yen)

180,729

188,902

154,191

108,685

Equity(millions of yen)

114,743

123,218

84,43976,656Equity per share(yen)

3,328.58

3,576.14

2,442.28

2,242.38

Fiscal year
Item

(Note)Net income (loss) per share is calculated based on the average of the total number of sharesissued and outstanding during the fiscal year. Equity per share is calculated based on the
total number of shares issued and outstanding as of the end of the fiscal year. Each such
number of shares does not include the shares of treasury stock.

7

(7)

Major subsidiaries:
Ratio of equity
participation of
the Company(%)

Main business

FUNAI CORPORTION, INC. US$68.5 million

100.00

Sale of the Company’s products

Funai Electric (HK) Ltd.

100.00Trade name

Capital stock

HK$115 million

THB1,568
100.00
millionWith regard to DX ANTENNA Co., Ltd., the Company transferred all of its shares held
therein to ELECOM Co., Ltd. on March 30, 2017.

FUNAI (THAILAND) CO.,LTD.
(Note)(8)

Manufacture of the Company’s
products
Manufacture of the Company’s
products

Major businesses of the Group:
Division

Principal products

Audiovisual equipment

LCD-TVs, DVD players, DVD recorders, BD players and BD
recordersInformation equipment

Printers and ink cartridges

Other

Other equipment(9)

Major business sites of the Group:
Category

Funai Electric Co., Ltd.

Sales subsidiaries

Production subsidiaries

(10)

Name

Location

Head Office

Daito City, Osaka

Tokyo Branch

Chiyoda-ku, Tokyo

FUNAI CORPORATION, INC.

U.S.A.

P&F USA, Inc.

U.S.A.

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

MexicoFunai Electric (HK) Ltd.

Hong Kong

FUNAI (THAILAND) CO., LTD.

Thailand

Employees of the Group:
Number of employees(persons)

Change from the end of the previous fiscal year(+ or -) (persons)

3,287

-31

(Note)

The above number of employees represents those actively at work.

(11)

Major lenders:

Nothing to be reported.

8

(12)

Other important matters concerning the current state of the Group:

The Company changed Representative Director, President and Chief Executive Officer(CEO) on May 15, 2017 as follows with the aim of developing a system with a focus on the
AV Business and achieving earnings improvement and further growth.
Name

New position

Hideaki Funakoshi

Representative Director President
and CEO

Director

Tetsuhiro Maeda

Director

Representative Director President
and CEO

9Previous position2.

Matters concerning the shares of the Company(1)

Total number of shares authorized:

80,000,000 shares(2)

Total number of shares issued:

36,130,796 shares(Including 2,011,765 shares of treasury stock)(3)

Number of shareholders:

8,215 persons(4)

Principal shareholders (top 11):
Name

Tetsuro Funai
Funai Information Science Promotion Foundation
State Street Bank and Trust Company 505223
State Street Bank and Trust Company
Tetsuo Funai
The Bank of New York 133522
Japan Trustee Services Bank, Ltd. (Trust account 9)
The Master Trust Bank of Japan, Ltd. (Trust account)
EFUTSU Co., Ltd.
T&N Co., Ltd.
Funai Kosan Co., Ltd.

Number of shares held
(thousands of share)
12,359
1,740
1,640
1,106
1,079
708
604
555
470
470
470

Shareholding
ratio (%)
36.22
5.10
4.81
3.24
3.16
2.08
1.77
1.63
1.38
1.38
1.38

(Notes) 1. The Company, which holds 2,011 thousand shares of treasury stock, is not included in theabove-listed principal shareholders.
2. Each shareholding ratio is obtained by deducting shares of treasury stock of the Company
and calculating down to the third decimal place and thereafter rounding upward or
downward to the nearest second decimal place, as the case may be.

(5)

Other important matters concerning shares:
Nothing to be reported.

10

3.

Matters concerning stock acquisition rights:(1)

Stock acquisition rights issued and outstanding at the end of the fiscal year under review:(i)

Number of stock acquisition rights:(Note)(ii)

4,290 rights

The number of stock acquisition rights is shown by reducing from the numberof stock acquisition rights granted, the number of stock acquisition rights
exercised, and the number of stock acquisition rights that the persons entitledthereto ceased to have due to retirement or other terms of exercise of the rights.

Class and number of shares to be 429,000 shares of common stock
issued or transferred upon exercise (100 shares per stock acquisition right)of the stock acquisition rights:(iii) Stock acquisition rights held by Directors by category:

(2)

Issue

Category

Numberof rights

HolderExercise priceper share

Exercise period

The first stockacquisition rights
for the year ended
March 31, 2009

Director(other than Audit and Supervisory
Committee Member)(other than Outside Director)

116

3¥1,609August 1, 2010 toJuly 31, 2017

The first stockacquisition rights
for the year ended
March 31, 2015

Director(other than Audit and Supervisory
Committee Member)(other than Outside Director)

136

3¥1,296

September 1, 2016
to August 31,
2023

The first stockacquisition rights
for the year ended
March 31, 2017

Director(other than Audit and Supervisory
Committee Member)(other than Outside Director)

230

4¥1,019September 1, 2018
to August 31,
2023

Stock acquisition rights allotted during the fiscal year under review:
Stock acquisition rights issued on January 30, 2017:(i) Number of stock acquisition rights:

1,740 rights(ii) Class and number of shares to be 174,000 shares of common stock
issued or transferred upon exercise (100 shares per stock acquisition right)of the stock acquisition rights:(iii) Amount of property to be paid in upon ¥101,900 per right (¥1,019 per share)
exercise of the stock acquisitionrights:(iv) Exercise period of stock acquisition September 1, 2018 to August 31, 2023
rights:(v) Stock acquisition rights allotted:

11

Category

Number of rights

Directors of the Company
Employees of the Company
Employees of the subsidiaries

230
1,310
200

(3)

Number of shares to beissued or transferred
23,000131,000
20,000

Other important matters concerning stock acquisition rights, etc.:
Nothing to be reported.

12

Number of holders
4
51
2

4.

Matters concerning Officers of the Company:(1)

Directors (as of March 31, 2017)
Title

Name

Representative Director,
President and Chief
Executive Officer (CEO)Tetsuhiro Maeda

Director and Executive
Advisor

Tetsuro Funai

Director and Officer

Joji Okada

Director and Officer

Hideaki Funakoshi

Director and Officer

Takeshi Ito

Director and Officer

Hiroyuki Makiura

Outside Director

Mitsuo Yonemoto

Director (Audit andSupervisory Committee
Member)Hiroshi Ishizaki

Outside Director(Audit and Supervisory
Committee Member)

Masahide Morimoto

Outside Director(Audit and Supervisory
Committee Member)

Yoshiaki Bannai

Business in charge and importantconcurrent office

Chairman of Funai Information Science
Promotion Foundation; andChairman of Funai Scholarship Foundation
General Manager of Legal and Intellectual
Property Rights Headquarters and General
Manager of New Business Div.
General Manager of AV System Business
Headquarters and General Manager ofDisplay Business Div.
General Manager of Materials
Headquarters
Operating Officer sales
Vice President and Director of T.P.S.
Laboratory Co., Ltd. andOutside Audit & Supervisory Board
Member of Oriental Chain Mfg. Co., Ltd.
Full-time Audit and Supervisory
Committee Member
Chairman of Audit and Supervisory
Committee

President and Representative Director ofBe.com corporation(Notes) 1. Director (Audit and Supervisory Committee Member) Shinichi Komeda resigned
from office on June 28, 2016, and accordingly, Substitute Director (Audit andSupervisory Committee Member) Hiroshi Ishizaki assumed the office of Director(Audit and Supervisory Committee Member) as of the same date.
2. The Company has selected Hiroshi Ishizaki as Full-time Audit and Supervisory
Committee Member with the aim of enhancing the effectiveness of audits throughreinforcement of information gathering capability and collaboration with internal
audit unit, etc. and further strengthening audit and supervisory functions.
3. The Company has designated Outside Director Mitsuo Yonemoto as an
Independent Officer in accordance with the rules of Tokyo Stock Exchange, Inc.
and registered him with the exchange.
4. The Company has established a Nomination Committee and a Compensation
Committee (both of which are voluntary committees). The composition of eachof the committees is as follows:13• Nomination Committee: Joji Okada (Chairman), Tetsuro Funai, Tetsuhiro
Maeda, Hideaki Funakoshi and Takeshi Ito• Compensation Committee: Tetsuhiro Maeda (Chairman), Tetsuro Funai, Joji
Okada, Hideaki Funakoshi, Takeshi Ito and Mitsuo Yonemoto(2)

Directors who retired during the fiscal year under review:
Retirement
date

ReasonTitle, business in charge and importantconcurrent office upon retirement

June 28, 2016

Expiration ofterm of office

Representative Director, President andChief Executive Officer (CEO)June 28, 2016

Resignation

Outside Director (Audit andSupervisory Committee Member)

Name
Tomonori Hayashi

Shinichi Komeda(For reference)
The Company has adopted a “System of Officers” and the Officers as of March 31,2017 who did not concurrently hold the offices of Directors were as follows:
Officer
Officer
Officer(3)Motomi Adachi
Tsuneki YoshidaKazuo Uga

Outline of liability limitation agreements:
In accordance with Article 427, paragraph 1 of the Companies Act of Japan, theCompany has entered into an agreement with Non-executive Directors Tetsuro Funai,
Mitsuo Yonemoto, Hiroshi Ishizaki, Masahide Morimoto and Yoshiaki Bannai to limit
their liability for any damage as provided for in Article 423, paragraph 1 of said act
within the aggregate of the amounts listed in the items of Article 425, paragraph 1 ofsaid act.

14

(4)

Total amount of remuneration, etc. for Directors
Total amount of remuneration, etc. for the fiscal year under review:
Number ofrecipients(persons)

Category
Director (other than Director being
Audit and Supervisory Committee
Member)(Outside Director)
Director (Audit and Supervisory
Committee Member)(Outside Director)
Total(Outside Director)

Amount of payments(thousand yen)

8
(1)

70,556(3,250)4(3)

14,037(7,700)12(4)84,594(10,950)(Notes) 1. The above-listed amounts of payments include payments to the Directors who
retired during the fiscal year under review.
2. The above-listed amount of payments includes the following amount ofallowance for Officers’ retirement benefits recorded as expenses for the fiscal
year under review:• ¥5,647 thousand for seven Directors (other than Directors being Audit andSupervisory Committee Members) (including ¥250 thousand for one outside
Director)• ¥987 thousand for three Directors (Audit and Supervisory Committee
Members) (including ¥500 thousand for two outside Directors)
3. The above-listed amount of payments includes the following amount of
remuneration in stock options recorded as expenses for the fiscal year underreview:• ¥1,339 thousand for four Directors (other than Audit and Supervisory
Committee Members)(5)

Other important matters concerning Officers:
Nothing to be reported.

(6)

Matters concerning Outside Officers:(i)Concurrent holding of important offices of Executive Officers of othercorporations and their relationships with the Company:•

Director Mitsuo Yonemoto is Vice President and Director of T.P.S. LaboratoryCo., Ltd. The Company has no special relationship with T.P.S. LaboratoryCo., Ltd.

•

Director Yoshiaki Bannai is President and Representative Director of Be.com
corporation.
The Company has no special relationship with Be.com

15

corporation.
(ii)

Concurrent holding of important offices of Outside Officers of othercorporations and their relationships with the Company:•

Director Mitsuo Yonemoto is an Outside Audit & Supervisory Board Memberof Oriental Chain Mfg. Co., Ltd. The Company has no special relationshipwith Oriental Chain Mfg. Co., Ltd.

(iii)

Kinship among Executive Officers of the Company and its specified related
enterprises:
Nothing to be reported.

(iv)•

Major activities during the fiscal year under review:
Attendance and speeches at the meetings of the Board of Directors and the
Audit and Supervisory Committee:
Name

Director

Mitsuo Yonemoto

Attendance and Speeches
He attended 21 of the 23 meetings (attendance rate:91%) of the Board of Directors held during the fiscal
year under review and expressed opinions principallyfrom the standpoint of a management consultant, as well
as from an objective standpoint as an Independent
Officer.

Director (Audit and Supervisory He attended 22 of the 23 meetings (attendance rate:
Committee Member)
96%) of the Board of Directors and 13 of 13 meetings(attendance rate: 100%) of the Audit and Supervisory
Committee held during the fiscal year under review.
He expressed opinions at the meetings of the Board of
Directors and the Audit and Supervisory Committee
Masahide Morimoto
principally from the standpoint of a veteran top
executive, as well as from a technical standpoint offinance and securities.
Director (Audit and Supervisory He attended 20 of the 23 meetings (attendance rate:
Committee Member)87%) of the Board of Directors and 12 of 13 meetings(attendance rate: 92%) of the Audit and Supervisory
Committee held during the fiscal year under review.
He expressed opinions at the meetings of the Board of
Yoshiaki Bannai
Directors and the Audit and Supervisory Committee
principally from the standpoint of a veteran top
executive.

(Note)In addition to the number of meetings of the Board of Directors
above, written resolutions, which shall be deemed to have been
adopted pursuant to the provisions of Article 370 of the Companies Act
and Article 23 of the Articles of Incorporation of the Company, wereadopted on five occasions.

16

5.

Matters concerning independent auditors:(1)

Names of the independent auditors:
Deloitte Touche Tohmatsu LLC(2)Amount of remuneration, etc., of the independent auditors for the fiscal year underreview:(i)(ii)

Remuneration, etc., of the independent auditors for the
fiscal year under review:¥141 million

Total amount of cash and other proprietary benefits
payable to the independent auditors by the Company andits subsidiaries:¥158 million(Notes) 1. The amount of remuneration, etc., for audits under the Companies Act of Japanand the amount of remuneration, etc., for audits under the Financial Instruments
and Exchange Act of Japan are not separated in the audit agreement between the
Company and the independent auditors and cannot actually be separated.
Hence, the amount in item (i) above includes both amounts.
2. Amounts in items (i) and (ii) above include remuneration of ¥50 million foraudit certification services concerning amendment of the Company’s pastfinancial results.
3. Three major subsidiaries of the Company are subject to audits by audit firms(including persons having qualifications in foreign countries equivalent to thoseof independent auditors of the Company) other than the independent auditors of
the Company.

(3)

Content of non-auditing services:
Nothing to be reported.

(4)

Reasons for the Audit and Supervisory Committee to consent to the remuneration, etc.,of the independent auditors:
The Audit and Supervisory Committee, based on the “Practical Guidance on
Cooperation with Independent Auditors” issued by the Japan Audit & Supervisory
Board Members Association, verified the changes in audit hours and audit
remuneration by audit item and the status of audit plans and audit results for theprevious fiscal year and investigated whether the estimates of audit hours andremuneration for the fiscal year under review were appropriate. As a result, theAudit and Supervisory Committee consented to the remuneration, etc. of the
independent auditors pursuant to Article 399, paragraph 1 of the Companies Act.

(5)

Policy on the determination of dismissal or non-reappointment of the independent
auditors:
In the event that the independent auditors are found to fall under any event of
dismissal under the items of Article 340, paragraph 1 of the Companies Act and are17

considered appropriate to be dismissed, the Audit and Supervisory Committee shall,
upon unanimous consent of the Audit and Supervisory Committee Members, dismiss
the independent auditors. In addition, in the event that any problem is found to arise
with the performance by the independent auditors of their proper audits, the Audit andSupervisory Committee shall determine the content of a proposition for the dismissal
or non-reappointment of the independent auditors to be submitted to a General
Meeting of Shareholders.
(6)

Outline of liability limitation agreements:
Nothing to be reported.

18

6.

Systems and policies of the Company(1)

Systems to secure the propriety of business activities:(i)

Systems to ensure that the Directors and employees perform their duties incompliance with laws, ordinances and the Articles of Incorporation
In the “Funai Group Charter of Conduct”, the “Regulations of Officers’
Compliance” and “Regulations of Compliance”, the Company shall specify
the acts to be taken by the Directors, Officers and employees to comply withlaws and ordinances and ensure that the Directors, Officers and employees
perform their duties in compliance with laws, ordinances and the Articles ofIncorporation. The Company has also formulated the “Whistleblower
Protection Regulations” to prohibit unfavorable treatment of whistleblowers.

(ii)

Systems for the storage and management of information concerning theperformance of the Directors’ duties
With regard to the storage and management of information concerning theperformance of the Directors’ duties, the minutes of meetings of the Board of
Directors and other important meetings that the Directors shall attend, circulardecision documents and other necessary documents and information to ensurethat the Directors perform their duties appropriately are stored and managed incompliance with laws, ordinances and the “Document Management
Regulations”.

(iii)

Regulations and other system for management of risk of loss
The Company has instituted “Risk Management Regulations” for managementof risk of loss and appointed Officers responsible for risk management toproperly grasp and evaluate risks to the Company and manage risks related totheir respective operations in charge.

(iv)

Systems to ensure that the Directors perform their duties effectively
To ensure that the management performs decision-making swiftly andeffectively, the Company has introduced a “System of Officers”, and place
Officers under the control of the Executive Directors to ensure that theoperations determined by the Executive Directors are performed swiftly. In
addition, to enhance the transparency of the Board of Directors and strengthen
its supervisory functions, the Company has appointed outside Directors andinstituted an Audit and Supervisory Committee.

(v)

Systems to secure the propriety of business activities of the corporate groupcomposed of the Company and its subsidiaries(a)

Systems of reports to the Company on the matters concerning theperformance by Directors, etc. of its subsidiaries of their duties

19

To grasp the management of the subsidiaries appropriately, the Company has
instituted the “Affiliated Companies Management Regulations” to set themateriality thresholds and the matters to be reported for the subsidiaries.
Accordingly, the Company requires the subsidiaries to submit operating
results and financial reports on a monthly basis.
(b)

Regulations and other system to manage the subsidiaries’ risks of loss

To control and manage the operations and administration of its subsidiaries,
the Company has instituted the “Affiliated Companies Management
Regulations” and with regard to the matters that may affect the finance andadministration of the subsidiaries through the relationships of funding,technology, personnel, transactions, etc., set required matters to consult with
the Company, and establish a system of consultation between the Company
and its subsidiaries.
(c)

Systems to ensure that the Directors, etc. of the subsidiaries performtheir duties effectively

To ensure that the subsidiaries manage business effectively, the Company has
instituted corporate regulations and established a system in accordance withthe “Affiliated Companies Management Regulations” that allow thesubsidiaries to manage business in respect of their managerial autonomy andindependence.
(d)Systems to ensure that the Directors, employees, etc. perform theirduties in compliance with laws, ordinances and the Articles ofIncorporation

The Company has instituted the “Funai Group Charter of Conduct” as a codeof conduct for all Officers and employees of the Funai Group, as well as the“Funai Group Procurement Policies” and “Regulations of Compliance” basedon the Charter of Conduct, and clarified the acts to be taken by the Directors,
employees, etc. of the subsidiaries to comply with law, thereby ensuring thatthe performance of their duties complies with laws, ordinances and the
Articles of Incorporation.
(vi)

Matters concerning the employees assisting the Audit and Supervisory
Committee to perform its duties
To allow the Audit and Supervisory Committee to properly perform its duties,
the Company shall institute a Secretariat to the Audit and Supervisory
Committee and assign employees to assist the Audit and Supervisory
Committee.

(vii)

Matters concerning the independence of the employees to assist the duties of
the Audit and Supervisory Committee, from the other Directors (other than
Directors being Audit and Supervisory Committee Members)

20

When the employees to assist the duties of the Audit and Supervisory
Committee are transferred to the Secretariat to the Audit and Supervisory
Committee, the Company shall assign employees who shall not be subjected todirect instructions and orders from other Directors (other than Directors being
Audit and Supervisory Committee Members) to secure their independence
from other Directors. The Company shall respect the opinions of the Audit
and Supervisory Committee with regard to their transfer and personnel
evaluations.
(viii)

Matters concerning the securing of the propriety of directions by the Audit andSupervisory Committee to employees assisting the Audit and Supervisory
Committee
The Audit and Supervisory Committee shall directly give instructions andorders to, and receive reports from, the employees to assist the Audit andSupervisory Committee to secure the propriety of directions.

(ix)

Matters concerning reports to the Audit and Supervisory Committee(a)System of reporting by the Directors (other than Directors being Audit
and Supervisory Committee Members), Officers and employees of theCompany to the Audit and Supervisory Committee

If the Directors (other than Directors being Audit and Supervisory Committee
Members), Officers and employees of the Company find any fact that has
inflicted or may inflict material damage on the Company, they shallimmediately report the fact to the Audit and Supervisory Committee.
(b)System of reporting by the Directors, Audit & Supervisory Board
Members, Officers and employees of the subsidiaries to the Audit andSupervisory Committee of the Company

In the event that the Directors, Officers and employees of the subsidiaries arerequested to give reports on business by the Director being Audit andSupervisory Committee Member appointed by the Audit and Supervisory
Committee of the Company, they shall immediately do so unless there is any
justifiable reason to the contrary. If the Directors, Audit & Supervisory
Board Members, Officers and employees of the subsidiaries find any violationof law or any fact that has inflicted or may inflict material damage on the
Company, they shall report the fact to the Audit and Supervisory Committeeof the Company.
(x)

Systems to ensure that any party who has given a report to the Audit andSupervisory Committee will not suffer unfavorable treatment because ofgiving such report
By instituting the “Regulations of Compliance” and the “Whistleblower
Protection Regulations”, the Company prohibits unfavorable treatment ofwhistleblowers. The Company shall also ensure that any party who has

21

given a report to the Audit and Supervisory Committee will not suffer
unfavorable treatment because of giving such report.
(xi)

Matters concerning policies on the treatment of expenses to be incurred in theperformance by Audit and Supervisory Committee Members of their duties
In the event that Audit and Supervisory Committee Members request
payments for expenses in performing their duties, the Company shall makesuch payments unless such expenses are not necessary for the performance of
their duties.

(xii)

Other systems to ensure that the Audit and Supervisory Committee performs
its audits effectively
To ensure that the Audit and Supervisory Committee performs its audits
effectively, the Audit and Supervisory Committee shall closely cooperate with
the independent auditors, and regularly meet the Representative Directors,
Directors of the subsidiaries, etc. to confirm the management policy andexchange opinions on the risks and issues surrounding the Company.

(xiii) System to ensure the reliability of financial reporting
The Company shall establish a “Basic Policy for Internal Control overFinancial Reporting” to ensure the reliability of financial reporting and theeffective and appropriate disclosure of “Internal Control Reports”. In
accordance with the Basic Policy, the Company shall establish an “Internal
Control Committee”, which shall be chaired by the Representative Director,
President, and CEO, and shall be responsible for continuous improvement,
administration and evaluation of internal control over financial reporting andpromptly implement a correction when any defect is found.
(xiv)

System for the exclusion of antisocial forces
The Company shall have a fundamental policy of having no relation with any
antisocial force and refusing any unjust claim.
In the event that a client is found to be an entity, enterprise, individual, etc.
having any relation with such antisocial force, the Company shall promptly
terminate a business relationship with it.
The Company shall designate its Personnel and General Affairs Department asa principal division in charge of dealing with antisocial forces and control theinformation centrally. To make its Officers and employees comply with its
fundamental policy, the Company shall also define it clearly in its related rules
and regulations and establish an education system therefor. In addition, theCompany shall prepare countermeasures to prevent damages from antisocial
forces, if necessary.
In the event that any unjust claim is requested by an antisocial force, the22Company shall work closely with external specialized agencies, including thepolice and its legal counsel, and establish a cooperative system for emergency
situations.
(2)

Summary of the operation status of the systems to secure the propriety of businessactivities:(i)

Compliance
By instituting the “Funai Group Charter of Conduct” as a code of conduct, as
well as the “Regulations of Compliance” and keeping all Officers andemployees informed about compliance, the Company has clarified thefundamental policy on compliance with law and ensured their performance of
duties conducted in compliance with laws, ordinances and the Articles ofIncorporation. The Company has also established a whistleblower system toprevent violations of law and swiftly detect problems.
During the fiscal year under review, the Company conducted a study session
on accounting standards for officers and a compliance lecture for division
managers as part of educational activities to raise the awareness of theCompany’s officers and employees.

(ii)

Risk management
To minimize losses and disadvantages in business activities, the Company has
made continuous risk management by instituting the “Risk Management
Regulations”, developing the system for risk management and monitoring
periodically.

(iii)

Directors’ performance of duties
The Board of Directors, which consists of 10 Directors (three of whom are
Directors being Audit and Supervisory Committee Members), including threeoutside Directors, makes decisions on the matters required by laws orordinances and important matters concerning management, and supervises theexecution of business. During the fiscal year under review, the Board of
Directors held 23 meetings. In addition, the Investment and Loan Committee
held five sessions, the Nomination Committee held one session and theCompensation Committee held three sessions.

(iv)

The Audit and Supervisory Committee Members’ performance of duties
The Audit and Supervisory Committee Members attend meetings of the Boardof Directors, as well as monthly financial reporting meetings. During the
fiscal year under review, 13 meetings of the Audit and Supervisory Committee
were held.

(3)

Policies for the determination of Directors’ remuneration, etc.:

23Remuneration for Directors (other than Directors being Audit and Supervisory
Committee Members) and Directors being Audit and Supervisory Committee
Members shall be determined within the range of their respective maximum total
amounts of remuneration determined by resolution of the General Meeting of
Shareholders.
The amount of monthly remuneration for Directors (other than Directors being Audit
and Supervisory Committee Members) shall be determined by the Compensation
Committee upon authorization by the Board of Directors based on the Company’s
rules. The amount of monthly remuneration of Directors being Audit andSupervisory Committee Members shall be determined upon consultation among the
Directors being Audit and Supervisory Committee Members.
Bonuses for Directors (other than Directors being Audit and Supervisory Committee
Members) shall be determined by the Compensation Committee upon authorizationby the Board of Directors based on the Company’s rules. Bonuses for Directors
serving as Audit and Supervisory Committee Members shall be determined upon
consultation among the Directors being Audit and Supervisory Committee Members.
Regarding the retirement benefits for Directors, upon the approval of granting such
benefits to Directors (other than Directors serving as Audit and Supervisory
Committee Members) and Directors being Audit and Supervisory Committee
Members by resolution of the General Meeting of Shareholders and based on the
Company’s rules, the benefits for Directors (other than Directors serving as Audit andSupervisory Committee Members) shall be determined by the Compensation
Committee upon authorization by the Board of Directors, and the benefits for
Directors serving as Audit and Supervisory Committee Members shall be determinedby consultation among the Directors being Audit and Supervisory Committee
Members.
(4)

Policy for the determination of distribution of retained earnings, etc., by the Board of
Directors:
The Company recognizes the return of earnings to its shareholders as one of the mostimportant missions of management and strives to maintain a steady dividend as well
as reinforcement of its management base.
In specific indexes, the Company plans to pay a dividend with a dividend on equity
ratio of 1.0% on a consolidated basis, considering business conditions and otherfactors.

=========================================================================(Note) In this business report, all figures and the number of shares are shown by
discarding any fractions of the indicated units, and rates are shown by rounding
fractions of a half or more of the indicated unit upward and the rest downward
unless otherwise indicated. Net income per share, net loss per share and equity
per share are shown by rounding off to two decimal places.

24

CONSOLIDATED BALANCE SHEET(As of March 31, 2017)(millions of yen)
ASSETS:
Current assets:

85,503

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 .......................................................

40,136
15,571
15,459
1,149
9,644
489
3,900
(847)
23,181

Fixed assets:
Property, plant and equipment:
Buildings and structures .....................................................................
Machinery, equipment, and motor vehicles .......................................
Tools, furniture, and fixtures .............................................................
Land ...................................................................................................
Lease assets ........................................................................................
Other ..................................................................................................

12,963
6,140
1,394
1,281
3,592
367
187

Intangible assets:
Patents ................................................................................................
Other ..................................................................................................

3,342

Investments and other assets:
Investment securities ..........................................................................
Deferred tax assets .............................................................................
Assets for retirement benefits ............................................................
Other ..................................................................................................
Allowance for doubtful accounts .......................................................

6,875
1,425
454
1,543
3,703
(252)

2,576
765

108,685

TOTAL ASSETS

25

(millions of yen)
LIABILITIES:Current liabilities:

29,575
Notes and accounts payable-trade ........................................................
18,603
Accounts payable-other ........................................................................
7,280
Current portion of long-term lease obligations.....................................
242
Income taxes payable............................................................................
813
Accrued bonuses ...................................................................................
9
Reserve for product warranty ............................................................... 2,866 481
Other .....................................................................................................
2,144

Long-term liabilities:

2,453

Long-term lease obligations .................................................................
Deferred tax liabilities ..........................................................................
Liabilities for Directors’ and Audit & Supervisory Board Members’
retirement benefits ................................................................................
Liabilities for retirement benefits .........................................................
Other .....................................................................................................
TOTAL LIABILITIESEQUITY:
Shareholders’ equity:

514
595
1,047
15
281
32,02887,590Common stock ..........................................................................................

31,307

Capital surplus .........................................................................................

33,603Retained earnings .....................................................................................

47,020Treasury stock ..........................................................................................

(24,341)

Accumulated other comprehensive income (loss):(11,082)

Unrealized gain on available-for-sale securities ....................................

11

Foreign currency translation adjustments.............................................

(11,206)

Defined retirement benefit plans ............................................................

111

Stock acquisition rights:

149

TOTAL EQUITY

76,656TOTAL LIABILITIES AND EQUITY

108,685

26

CONSOLIDATED STATEMENT OF OPERATIONS(from April 1, 2016 to March 31, 2017)(millions of yen)
Net sales
Cost of sales
Gross profit
Selling, general, and administrative expenses
Operating loss
Non-operating income:

133,838
114,795
19,04325,8186,775Interest and dividend income

253

Rental income on fixed assets
Other
Non-operating expenses:

119
146

Interest expense
Foreign exchange losses
Other
Ordinary loss
Extraordinary income:Gain on sales of fixed assets
Other
Extraordinary loss:
Loss on disposal of fixed assets
Impairment loss on fixed assets
Loss on sales of investment in nonconsolidated
subsidiaries and associated companies
Other

152
1,122
195

1,436
141

519

1,470
7,726

1,578

57
339
704
57

Loss before income taxes

1,158
7,307

Income taxes – current
Income taxes – deferred
Net loss
Net income attributable to non-controlling interests
Net loss attributable to owners of the parent

27

67
(632)

(565)
6,742
3
6,745

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY(from April 1, 2016 to March 31, 2017)(millions of yen)
Shareholders’ equity
Common stock

Capital surplus

31,30733,301

Balance as of April 1, 2016
Changes of items during theperiodDividends from surplus
Loss attributable to owners of
the parent
Purchase of treasury stock
Change in treasury shares ofparent arising from transactions
with non-controlling interests
Net changes of items otherthan shareholders' equity
Total changes of items during the
fiscal year
Balance as of March 31, 2017

Retainedearnings

Treasury stock

54,789(24,341)

Total
shareholders’equity95,058(1,023)(1,023)(6,745)(6,745)
(0)

(0)
301

301

-

301

31,30733,603(7,768)47,020(0)(24,341)(7,467)87,590

Accumulated other comprehensive income (loss)
Unrealized
gain onavailablefor-salesecurities
Balance as of April 1, 2016
Changes of items during theperiodDividends from surplus
Loss attributable to owners of
the parent
Purchase of treasury stock
Change in treasury shares ofparent arising from transactions
with non-controlling interests
Net changes of items otherthan shareholders' equity
Total changes of items during the
fiscal year
Balance as of March 31, 2017

(Note)

160

Stock
Total
Foreignaccumulated acquisition Non-controll- Total equity
Defineding interests
currency
otherretirement comprehenrights
translation benefit
plans
adjustments
sive income(loss)(12,204)314(11,729)145
965
84,439(1,023)(6,745)
(0)

301
(149)

998

(202)

647

3

(965)

(314)

(149)
11

998
(11,206)

(202)
111

647
(11,082)

3
149

(965)
-

(7,782)76,656In the consolidated balance sheet and the consolidated statements of operations andchanges in equity, all figures are shown by discarding any fractions of the relevant
units.

28

NONCONSOLIDATED BALANCE SHEET(As of March 31, 2017)(millions of yen)
ASSETS:
Current assets:
45,881
Cash and deposits .............................................................................
21,328
Accounts receivable-trade ...................................................................................
26,723Merchandise and finished goods .........................................................................281
Raw materials and supplies .................................................................................
1,035
Prepaid expenses .................................................................................................611
Accrued income...................................................................................................
1,122
Other ....................................................................................................................401
Allowance for doubtful accounts ........................................................................
(5,623)Fixed assets:
46,112
Property, plant and equipment:
4,535
Buildings .............................................................................................................
1,728
Structures .............................................................................................................27
Machinery and equipment ................................................................................... 2
Motor vehicles ..................................................................................................... 0
Tools, furniture, and fixtures ...............................................................................49
Land .....................................................................................................................
2,249
Lease assets .........................................................................................................367
Construction in progress......................................................................................109
Intangible assets:
2,806
Patents .................................................................................................................
2,576
Software ..............................................................................................................200
Other ....................................................................................................................29
Investments and other assets:
38,770Investment securities ...........................................................................................132
Investment in subsidiaries and associated companies .........................................
25,613Long-term loans receivable .................................................................................
21,014Long-term prepaid expenses ...............................................................................
2,137
Prepaid pension cost ............................................................................................
1,519
Other ....................................................................................................................157
Allowance for doubtful accounts ........................................................................
(11,803)
TOTAL ASSETS
91,99429

(millions of yen)
LIABILITIES:Current liabilities:
Accounts payable-trade ........................................................................
Current portion of long-term lease obligations.....................................
Accounts payable-other ........................................................................
Accrued expenses .................................................................................
Income taxes payable............................................................................
Deposits received ..................................................................................
Reserve for product warranty ...............................................................
Other .....................................................................................................
Long-term liabilities:
Long-term lease obligations .................................................................
Deferred tax liabilities ..........................................................................
Liabilities for Directors’ retirement benefits ........................................
Other .....................................................................................................
TOTAL LIABILITIES

18,601
11,362
123
4,236
2,040
178
350
277
33
2,123
273
522
1,047
281
20,725EQUITY
Shareholders’ equity
71,107
Common stock
31,307
Capital surplus:
33,272
Capital reserve ......................................................................................
32,833
Other capital surplus .............................................................................
438
Retained earnings:
30,869Legal reserve .........................................................................................
209
Other retained earnings .........................................................................
30,659Reserve for advanced depreciation of fixed assets ................................ 128
General reserve ......................................................................................23,400
Retained earnings brought forward ....................................................... 7,131
Treasury stock(24,341)
Valuation and translation adjustments:
11
Unrealized gain on available-for-sale securities
11
Stock acquisition rights
149
TOTAL EQUITY
71,269TOTAL LIABILITIES AND EQUITY
91,99430

NONCONSOLIDATED STATEMENT OF OPERATIONS(from April 1, 2016 to March 31, 2017)(millions of yen)
Net sales
Cost of sales
Gross profit
Selling, general, and administrative expenses
Operating loss
Non-operating income:Interest and dividend income
Other
Non-operating expenses:
Interest expense
Foreign exchange loss
Other
Ordinary loss
Extraordinary income:Gain on sales of fixed assets
Gain on sales of investment in nonconsolidated
subsidiaries and associated companies
Other
Extraordinary loss:
Loss on disposal of fixed assets
Income before income taxes
Income taxes – current
Income taxes – deferred

103,982
95,1098,873
17,957
9,084
4,582
147
87
700
173

960
5,315

1,216
5,908
110
9
11
(240)

Net income

4,730

7,235
9
1,909
(228)
2,138

31

NONCONSOLIDATED STATEMENT OF CHANGES IN EQUITY(from April 1, 2016 to March 31, 2017)(millions of yen)
Shareholders’ equity
Retained earnings

Capital surplus
Commonstock

Balance as of April 1, 2016
Changes of items during the
fiscal year
Reversal of reserve foradvanced depreciation of
fixed assets
Cash dividends
Net income
Acquisition of treasurystock
Net changes of items otherthan shareholders’ equity

Other
capitalsurplusCapitalreserve

31,307

32,833438

Other retained earnings
Reserve for
Retained
advanced
Generalearnings
depreciation
reservebrought
of fixed
forwardassetsTotal capitalsurplusLegalreserve

33,272

209

518

23,400

(389)

Total
retainedearnings

Total
shareholders’equityTreasury
stock

5,626

29,753(24,341)389(1,023)(1,023)(1,023)

2,138

2,138

2,138
(0)

69,992(0)Total changes of items during
the fiscal year

-

-

-

-

-

(389)

-

1,504

1,115

(0)

1,115

Balance as of March 31, 2017

31,307

32,833438

33,272

209

128

23,4007,13130,869(24,341)

71,10732

(millions of yen)

Balance as of April 1, 2016
Changes of items during the
fiscal year
Reversal of reserve foradvanced depreciation of fixed
assetsCash dividends
Net income
Acquisition of treasury stock
Net changes of items otherthan shareholders’ equity

Valuation and translation adjustments
Unrealized gain
Total valuationonand translation
available-for-saleadjustments
securities
59
59

Stock acquisitionrights145

Total equity

70,197(1,023)
2,138
(0)
(47)

(47)

3

(44)

Total changes of items during the
fiscal year

(47)

(47)

3

1,071

Balance as of March 31, 2017

11

11

149

71,269(Note)In the nonconsolidated balance sheet and the nonconsolidated statements of operations and changes in equity, all figures areshown by discarding any fractions of the relevant units.

33

Copy of Independent Auditor’s Report on Consolidated Financial Statements(TRANSLATION)
INDEPENDENT AUDITOR'S REPORTMay 19, 2017
To the Board of Directors
Funai Electric Co., Ltd.:
Deloitte Touche Tohmatsu LLC
Designated Unlimited Liability Partner,
Engagement Partner,
Certified Public Accountant:
Akira Nakata
Designated Unlimited Liability Partner,
Engagement Partner,
Certified Public Accountant:
Akihiro Okada
Pursuant to the fourth paragraph of Article 444 of the Companies Act, we have audited theconsolidated financial statements, namely, the consolidated balance sheet as of March 31,2017 of Funai Electric Co., Ltd. (the “Company”) and its consolidated subsidiaries, and therelated consolidated statements of operations and changes in equity for the fiscal year from
April 1, 2016 to March 31, 2017, and the related notes.
Management's Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated
financial statements in accordance with accounting principles generally accepted in Japan,
and for such internal control as management determines is necessary to enable thepreparation of consolidated financial statements that are free from material misstatement,
whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on these consolidated financial statements basedon our audit. We conducted our audit in accordance with auditing standards generally
accepted in Japan. Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the consolidated financial statements are free frommaterial misstatement.

34

An audit involves performing procedures to obtain audit evidence about the amounts anddisclosures in the consolidated financial statements. The procedures selected depend on theauditor's judgment, including the assessment of the risks of material misstatement of theconsolidated financial statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the entity's preparation and fairpresentation of the consolidated financial statements in order to design audit procedures thatare appropriate in the circumstances, but not for the purpose of expressing an opinion on theeffectiveness of the entity's internal control. An audit also includes evaluating theappropriateness of accounting policies used and the reasonableness of accounting estimates
made by management, as well as evaluating the overall presentation of the consolidated
financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide abasis for our audit opinion.
Audit Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in allmaterial respects, the financial position of Funai Electric Co., Ltd. and its consolidated
subsidiaries as of March 31, 2017, and the results of their operations for the year then endedin accordance with accounting principles generally accepted in Japan.
Interest
Our firm and the engagement partners do not have any interest in the Company for which
disclosure is required under the provisions of the Certified Public Accountants Act.
The above represents a translation, for convenience only, of the original report issued in theJapanese language.
-END-

35

Copy of Independent Auditor’s Report on Nonconsolidated Financial Statements(TRANSLATION)
INDEPENDENT AUDITOR'S REPORTMay 19, 2017
To the Board of Directors
Funai Electric Co., Ltd.:
Deloitte Touche Tohmatsu LLC
Designated Unlimited Liability Partner,
Engagement Partner,
Certified Public Accountant:
Akira Nakata
Designated Unlimited Liability Partner,
Engagement Partner,
Certified Public Accountant:
Akihiro Okada

Pursuant to the first item, second paragraph of Article 436 of the Companies Act, we haveaudited the financial statements, namely, the balance sheet as of March 31, 2017 of Funai
Electric Co., Ltd. (the “Company”), and the related statements of operations and changes inequity for the 65th fiscal year from April 1, 2016 to March 31, 2017, and the related notes
and the accompanying supplemental schedules.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial
statements and the accompanying supplemental schedules in accordance with accounting
principles generally accepted in Japan, and for such internal control as management
determines is necessary to enable the preparation of financial statements and theaccompanying supplemental schedules that are free from material misstatement, whether due
to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on these financial statements and theaccompanying supplemental schedules based on our audit. We conducted our audit inaccordance with auditing standards generally accepted in Japan. Those standards require that36

we plan and perform the audit to obtain reasonable assurance about whether the financial
statements and the accompanying supplemental schedules are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts anddisclosures in the financial statements and the accompanying supplemental schedules. The
procedures selected depend on the auditor's judgment, including the assessment of the risks
of material misstatement of the financial statements and the accompanying supplemental
schedules, whether due to fraud or error. In making those risk assessments, the auditor
considers internal control relevant to the entity's preparation and fair presentation of thefinancial statements and the accompanying supplemental schedules in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the entity's internal control. An audit also includes evaluating
the appropriateness of accounting policies used and the reasonableness of accounting
estimates made by management, as well as evaluating the overall presentation of the financial
statements and the accompanying supplemental schedules.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide abasis for our audit opinion.
Audit Opinion
In our opinion, the financial statements and the accompanying supplemental schedules
referred to above present fairly, in all material respects, the financial position of Funai
Electric Co., Ltd. as of March 31, 2017, and the results of its operations for the year thenended in accordance with accounting principles generally accepted in Japan.
Interest
Our firm and the engagement partners do not have any interest in the Company for which
disclosure is required under the provisions of the Certified Public Accountants Act.

The above represents a translation, for convenience only, of the original report issued in theJapanese language and "the accompanying supplemental schedules" referred to in this report
are not included in the attached financial documents.
-END-

37

Copy of Audit Report of the Audit and Supervisory Committee

AUDIT REPORT
We, the Audit and Supervisory Committee of Funai Electric Co., Ltd. (the “Company”),
have performed our audits on the execution by Directors of their duties during the 64th fiscal
year from April 1, 2015, through March 31, 2016. We hereby report the audit method andresults as follows.
1.

Methods of audits and the particulars thereof:

With regard to the details of the resolutions of the Board of Directors on the mattersprovided in Article 399-13, paragraph 1, item 1 (b) and (c) of the Companies Act of Japanand the systems established pursuant to such resolutions (internal control systems), we
periodically received reports from the Directors and employees, etc., demanded their
explanations as necessary, and expressed our opinions, on the state of formulation andoperation thereof and conducted our audits in the following methods.
(i) Working in collaboration with the internal audit division, we attended important
meetings, received the execution of duties from the Directors and employees, etc.,
demanded their explanations as necessary, inspected important decision-making
documents, etc., and investigated the state of business operations and property at thehead office and principal business offices of the Company, pursuant to the audit policy,
task allocation, etc. determined by us. With regard to its subsidiaries, we maintained
constant communication and exchanged information with the directors, Audit &Supervisory Board Members, etc. and required the subsidiaries to report on theirbusiness operations as necessary.
(ii) In addition to monitoring and verifying whether the independent auditors had
maintained an independent position and conducted adequate audits, we received
reports on the state of execution of duties from the independent auditors and demanded
their explanations, as necessary. Moreover, we received from the independent
auditors a notice that a “system to secure adequate execution of duties” (as listed in theitems of Article 131 of the Ordinance on Accounting of Companies) has been
established in accordance with the “Quality Control Standards Concerning Audits” (theAccounting Standards Board of Japan, October 28, 2005) and demanded their
explanations, as necessary.
In accordance with such methods, we investigated the business report and its
accompanying supplemental schedules, the nonconsolidated financial statements (thenonconsolidated balance sheet, the nonconsolidated statements of operations and changes inequity, and the related notes) and their accompanying supplemental schedules, as well as theconsolidated financial statements (the consolidated balance sheet, the consolidated statementsof operations and changes in equity, and the related notes), for the fiscal year under review.

38

2.

Results of audit:(1)

Results of audit of the business report, etc.:(i)

We confirm that the business report and its accompanying supplemental schedules
present fairly the state of the Company in accordance with laws and ordinances andthe Articles of Incorporation.

(ii) We confirm that in connection with the execution of duties of the Directors, no
misconduct or material fact of violation of laws or ordinances or the Articles ofIncorporation was found.
(iii) We confirm that the details of the resolutions of the Board of Directors on internal
control systems are proper. We did not find anything that should be mentioned withrespect to the information in the business report and the execution of duties of the
Directors concerning such internal control systems. As described in the business
report, in light of the discovery of inappropriate accounting at the Company’s
consolidated subsidiaries, the Company has been considering, formulating andimplementing improvement measures including the strengthening of governancesystem for overseas subsidiaries, redevelopment of an internal audit system, etc. inorder to prevent the recurrence of similar cases based on suggestions by an internal
investigation committee. The Audit and Supervisory Committee will also monitor
speedy implementation of the aforementioned preventive measures while conducting
appropriate audits including regular audits on overseas subsidiaries.
(2)

Results of audit of the nonconsolidated financial statements and their accompanying
supplemental schedules:
We confirm that the audit method and results performed by the independent auditors,
Deloitte Touche Tohmatsu LLC, are proper.

(3)

Results of audit of the consolidated financial statements:
We confirm that the audit method and results performed by the independent auditors,
Deloitte Touche Tohmatsu LLC, are proper.

May 22, 2017
Funai Electric Co., Ltd.
The Audit and Supervisory Committee
Hiromu Ishizaki(seal)
Outside Audit and Supervisory Committee Member
Masahide Morimoto(seal)
Outside Audit and Supervisory Committee Member
Yoshiaki Bannai(seal)
Outside Audit and Supervisory Committee Member39

- END -40

Reference Document for the General Meeting of Shareholders
Propositions and reference information
Proposition No. 1: Election of five (5) Directors (excluding Directors who are Audit andSupervisory Committee Members)
The term of office of all seven (7) Directors (excluding Directors who are Audit andSupervisory Committee Members; the same applies hereinafter in this proposition) currently
in office will expire at the close of this Ordinary General Meeting of Shareholders.
Hence, it is hereby proposed that five (5) Directors, including one (1) outside Director,
be elected in order to accelerate decision-making and increase management efficiencies.
The candidates for Director are as follows:
Candidate
No.

Name(Date of birth)

Brief history, post in the Company and business incharge (and important concurrent office)April 1951

1

Tetsuro Funai(January 24, 1927)

Established Funai Sewing MachineCompany
Dec. 1952
Representative Director of Funai
Sewing Machine Co., Ltd.
August 1961 Founding President andRepresentative Director of Funai
Electric Co., Ltd. (the "Company")
June 2005
Director of the Company;
President and CEO of the Company
June 2008
Director of the Company;
Chairman and Officer of the Company
June 2010
Chairman and Officer of the Company
June 2012
Chairman of the Company
October 2014 Chairman and Representative Directorof the Company
June 2016
Executive Advisor of the Company(To date)(Chairman of Funai Information Science Promotion
Foundation)(Chairman of Funai Scholarship Foundation)

Number ofshares of theCompany heldby Candidate

41

12,359,288
sharesCandidate
No.

Name
(Date of birth)

Brief history, post in the Company and business incharge (and important concurrent office)April 1984
January 1993
April 2006
February 2008

June 2010

July 2011

May 2012
2

Hideaki Funakoshi(September
30,
1965)
April 2013

November 2014
April 2016

June 2016
May 2017

Joined Mitsubishi ElectricEngineering Company, Limited
Joined the Company
General Manager of DVD Projectof the Company
Executive General Manager of
DVD Business Div. of theCompany
Director of the Company
Officer and General Manager of
DVD Business Div. of theCompany
Officer and Deputy General
Manager of AV Business
Headquarters of the Company
Officer, Deputy General Manager
of AV System Business
Headquarters and General Manager
of Digital Media Business Div. of
the Company
Officer, General Manager of AV
System Business Headquarters andGeneral Manager of Display
Business Div. of the Company
Officer and General Manager of
AV System Business Headquartersof the Company
Officer, General Manager of AV
System Business Headquarters andGeneral Manager of Display
Business Div. of the Company
Director of the Company
Representative Director andPresident and CEO, General
Manager of AV System Business
Headquarters and General Manager
of Display Business Div. (To date)

42

Number ofshares of theCompany heldby Candidate

800 shares

Candidate
No.

Name
(Date of birth)

Brief history, post in the Company and business incharge (and important concurrent office)April 1982
April 2003

April 2005
3

Takeshi Ito(September 10,
1960)

August 2008
October 2009
April 2012
October 2014

June 2016
April 1970
July 1981

August 1988

April 1990
November 1994

4

Hiroyuki Makiura(June 1, 1947)

July 1999
June 2004
April 2008

April 2010
June 2015

February 2016
June 2016

Joined the Company
Assumed the position of General
Manager of the Company
President of FUNAICORPORATION, INC.
Executive General Manager of theCompany
President of P&F USA, Inc.
Officer of the Company
President of Funai India Private
Limited
Officer and General Manager ofMaterials Headquarters of theCompany (To date)Director of the Company (To date)
Joined Nichimen Co., Ltd. (nowSojitz Corporation)
General Manager of Machine
Dept., Los Angeles Branch of
Nichimen U.S.A.
General Manager of Car
Electronics Dept., Chicago Branchof Nichimen U.S.A.
General Manager of Detroit
Branch of Nichimen U.S.A.
General Manager of Dept. II of
Electronic Information Division,
Nichimen Corporation (now Sojitz
Corporation)
Senior Trade Advisor (JETRO) to
the State of Ohio, U.S.A.
Director of Foster ElectricCompany, Limited
Officer of Foster ElectricCompany, Limited and Presidentof Fostex Company
Vice President of Foster Electric(Europe) GmbH
Outside Director (Audit andSupervisory Committee Member)of the Company
Senior Officer of the Company
Director and Officer of theCompany (To date)

43

Number ofshares of theCompany heldby Candidate

1,000 shares- shareCandidate
No.

Name
(Date of birth)
Candidate for
Outside Director

Mitsuo Yonemoto(March 18, 1939)
5

Brief history, post in the Company and business incharge (and important concurrent office)Vice President and Director of
T.P.S. Laboratory Co., Ltd. (Todate)
September 1998 Outside Director of the Company(To date)
March 2009
Outside Director of THE SAILORPEN CO., LTD.
June 2012
Outside Audit & Supervisory
Board Member of Oriental Chain
Mfg. Co., Ltd. (To date)(Vice President and Director of T.P.S. Laboratory Co.,Ltd.)
(Outside Audit & Supervisory Board Member ofOriental Chain Mfg. Co., Ltd.)

Number ofshares of theCompany heldby Candidate

July 1995

100 shares(Notes) 1. None of the candidates for Director have any special interests with the Company.
2. Candidate for Director, Mr. Mitsuo Yonemoto, is a candidate for Outside Director.
3. Reasons for the selection of the candidates for Director or Outside Director:• Management expects Mr. Tetsuro Funai, who has long engaged in management of theCompany since its founding, to use a wide range of knowledge and capabilities
accumulated from his broad experiences for management of the Company.
• Management expects Mr. Hideaki Funakoshi to use a wide range of knowledge andcapabilities accumulated from his broad expertise and experience as a manager of the
AV business, one of the Company’s core businesses.
• Management expects Mr. Takeshi Ito to use a wide range of knowledge and capabilities
accumulated from his diverse business experience within the Company as well as
extensive overseas business experience for management of the Company.
• Management expects Mr. Hiroyuki Makiura, who has broad experience and expertisein corporate management gained through his career and many years of experience inthe business of the Company, to use his capabilities and knowledge for management of
the Company.
• Management expects Mr. Mitsuo Yonemoto to offer advice based on his broad
experience as a management consultant and also enhance the transparency ofmanagement by participating in the Board of Directors as an independent officer.
4. Years of service of Outside Director of the Company:
Mr. Mitsuo Yonemoto will have served as Outside Director for 18 years and nine months
at the close of this Ordinary General Meeting of Shareholders.
5. Designation of independent officer:
The Company has designated Mr. Mitsuo Yonemoto as an independent officer inaccordance with the rules of Tokyo Stock Exchange, Inc. and registered him with suchexchange.
6. Conclusion of limited liability agreement:

44

The Company has entered into an agreement with Non-executive Directors Mr. Tetsuro
Funai and Mr. Mitsuo Yonemoto to limit their liability for any damage as provided for in
Article 423, paragraph 1 of the Companies Act of Japan within the aggregate amount asprovided for in the items of Article 425, paragraph 1 of the said Act, pursuant to Article
427, paragraph 1 of the said Act. If they are reelected, such agreement will be renewed.

Proposition No. 2:

Election of three (3) Directors who are Audit and Supervisory
Committee Members

The term of office of all three (3) Directors who are Audit and Supervisory
Committee Members currently in office will expire at the close of this Ordinary General
Meeting of Shareholders. Hence, it is hereby proposed that three (3) Directors who are
Audit and Supervisory Committee Members, including two (2) outside Directors, be elected.
The Audit and Supervisory Committee has consented to this proposition.
The candidates for Directors who are Audit and Supervisory Committee Members are
as follows:
Candi
date
No.

Name
(Date of birth)

Brief history, post in the Company and business incharge (and important concurrent office)January 1973
September 1976
July 1991
June 1999
September 1999

June 2003[New]
1

Akitaka Inoue(September 25,
1944)

June 2004
June 2005
June 2009
June 2010
June 2012
December 2015

December 2016

Joined Mizuho Audit Corporation
Registered as Certified Public
Accountant
Became an employee of Mizuho
Audit Corporation
Joined the Company
Director of the Company
General Manager of
Administration Headquarters of theCompany
Officer and General Manager ofGeneral Planning Headquarters of
the Company
Audit & Supervisory Board
Member of the Company
Director and Chairman of Audit
Committee of the Company
Special Advisor of the Company
Full-time Audit & Supervisory
Board Member of the Company
Special Advisor of the Company
General Manager of Management
Planning Department of theCompany
Special Advisor of the Company(To date)

45

Number ofshares of theCompany heldby Candidate- sharesCandi
date
No.

Name
(Date of birth)

Brief history, post in the Company and business incharge (and important concurrent office)April 1967
June 1991

September 1995

April 1999
Candidate foroutside Director
June 2001
2

Masahide
Morimoto(August 27, 1944)

June 2002

April 2007
June 2010
June 2015

Joined Daiwa Securities Co. Ltd.
Director, General Manager ofHigashi-Tokyo Headquarters andGeneral Manager of Tokyo
Metropolitan-West Sales
Headquarters of Daiwa Securities
Co. Ltd.
Managing Director and General
Manager of Osaka-Kinki-Shikoku
Sales Headquarters of Daiwa
Securities Co. Ltd.
Senior Managing Director,
Representative Director andGeneral Manager of Osaka Branchof Daiwa Securities SMBC Co.
Ltd. (now Daiwa Securities Co.
Ltd.)
President and Representative
Director of Daiwa Tochi Tatemono
Co., Ltd. (now Daiwa Property
Co., Ltd.)
President and Representative
Director of Daiwa Sanko Co., Ltd.
(now Daiwa Office Service Co.,Ltd.)
Special Advisor of Daiwa Property
Co., Ltd.
Outside Corporate Auditor of theCompany
Outside Director of the Company(Audit and Supervisory Committee
Member) (To date)46

Number ofshares of theCompany heldby Candidate

2,000 shares

Candi
date
No.

Name
(Date of birth)

Brief history, post in the Company and business incharge (and important concurrent office)March 1966
January 1983

3

[New]
Candidate foroutside Director
Masakazu Funaishi(July 22, 1947)

June 1993
January 1994

July 2001
April 2003

Joined the Company
President and Representative
Director of Chugoku Funai ElectricCo., Ltd.
General Manager of Video
Business Department, AV Business
Headquarters of the Company
General Manager of LCD
Department, AV Business
Headquarters of the Company
Executive Manager of theCompany
Resigned from the Company(To date)

Number ofshares of theCompany heldby Candidate

5,746 shares(Notes) 1. The candidate has no special interests with the Company.
2. Masahide Morimoto and Masakazu Funaishi are candidates for outside Director.
3. Candidate for outside Director, Mr. Masakazu Funaishi has served as Executive Officerof the Company and Chugoku Funai Electric Co., Ltd., a subsidiary of the Company.
4. Reason for the selection of candidates for Director and outside Director:
Management expects Mr. Akitaka Inoue, who has expertise in corporate accounting andtaxation as a Certified Public Accountant, to use his capabilities for the audit systems of
the Company.
Management expects Messrs. Masahide Morimoto and Masakazu Funaishi, who havebroad experience in corporate management for many years, to use their capabilities andknowledge for the audit systems of the Company.
5. Years of service of outside Director who are Audit and Supervisory Committee Membersof the Company:
Mr. Masahide Morimoto, who currently serves as outside Director who is an Audit andSupervisory Committee Member of the Company, will have served as outside Director
for two years at the close of this Ordinary General Meeting of Shareholders.
6. Conclusion of limited liability agreements:
The Company has entered into an agreement with Mr. Masahide Morimoto, Director andan Audit and Supervisory Committee Member, to limit his liability for any damage asprovided for in Article 423, paragraph 1 of the Companies Act of Japan within theaggregate amount as provided for in the items of Article 425, paragraph 1 of the said Act,
pursuant to Article 427, paragraph 1 of the said Act. If Messrs. Akitaka Inoue,
Masahide Morimoto and Masakazu Funaishi, who are Audit and Supervisory Committee
Members, are elected as Directors, the Company will enter into limited liability
agreements with the same content as the aforementioned with them.

47

Proposition No. 3:

Election of one (1) Substitute Director who is an Audit andSupervisory Committee Member

To prepare in advance for a vacancy in the statutory number of Directors who are
Audit and Supervisory Committee Members, it is hereby proposed that one (1) substitute
Director who is an Audit and Supervisory Committee Member be elected in advance inaccordance with the provision of Article 329, paragraph 3 of the Companies Act of Japan.
With regard to the effectiveness of the election, it may be repealed by resolution of
the Board of Directors upon consent thereto by the Audit and Supervisory Committee only
before he assumes office.
The Audit and Supervisory Committee has consented to this proposition.
The candidate for substitute Director who is an Audit and Supervisory Committee
Member is as follows:

Name(Date of birth)

Brief history, post in the Company and business incharge (and important concurrent office)
July 1995

September 1998
Candidate for
Substitute outside
Director

Mitsuo Yonemoto(March 18, 1939)

March 2009
June 2012

Vice President and Director of
T.P.S. Laboratory Co., Ltd.
(To date)
Outside Director of theCompany (To date)Outside Director of THE
SAILOR PEN CO., LTD.
Outside Corporate Auditor of
Oriental Chain Mfg. Co., Ltd.
(To date)(Vice President and Director of
T.P.S. Laboratory Co., Ltd.)(Outside Corporate Auditor of
Oriental Chain Mfg. Co., Ltd.)

Number ofshares of theCompany heldby Candidate

100 shares(Notes) 1. Candidate for substitute Director who is an Audit and Supervisory Committee Member
has no special interests with the Company.
2. Candidate for substitute Director who is an Audit and Supervisory Committee Member,
Mr. Mitsuo Yonemoto is a candidate for substitute outside Director.
3. Reason for the selection of the candidate for substitute outside Director who is an Audit
and Supervisory Committee Member:Management expects Mr. Mitsuo Yonemoto, who has broad experience as a management
consultant as well as many years of experience in corporate management, to use his
capabilities and knowledge for the audit systems of the Company.
4. Years of service of outside Director of the Company:

48

Mr. Mitsuo Yonemoto, who currently serves as outside Director of the Company, will
have served as outside Director for 18 years and 9 months at the close of this Ordinary
General Meeting of Shareholders.
5. Conclusion of limited liability agreements:
When Mr. Mitsuo Yonemoto, who is an Audit and Supervisory Committee Member,assumes the office of Director, the Company will enter into an agreement with him to
limit his liability for any damage as provided for in Article 423, paragraph 1 of theCompanies Act of Japan within the aggregate amount as provided for in the items of
Article 425, paragraph 1 of the said Act, pursuant to Article 427, paragraph 1 of the said
Act.

Proposition No. 4:

Issuance of stock acquisition rights as stock options

It is hereby proposed to the shareholders to approve that pursuant to the provisions ofArticle 236, Article 238 and Article 239 of the Companies Act of Japan, the determination of
the terms and conditions of the offering for subscription for stock acquisition rights to beissued as stock options to the Directors (excluding Directors who are Audit and Supervisory
Committee Members and outside Directors; the same applies hereinafter in this proposition),
Officers and employees of the Company and its subsidiaries be left to the Board of Directorsof the Company.
The issuance of stock acquisition rights to the Directors of the Company falls under
non-pecuniary remuneration, etc. Hence, pursuant to Article 361 of the Companies Act ofJapan, it is also proposed to the shareholders to approve the method of calculating the stockacquisition rights to be allotted to the Directors.
In the event that Proposition No. 1 (Election of five (5) Directors (excluding Directors
who are Audit and Supervisory Committee Members)) is approved, the number of Directors
to be allotted stock acquisition rights will be four (4) (excluding outside Director) and when
the stock acquisition rights are issued to the Directors of the Company, in consideration of the
purpose of the stock options, the level of remuneration for the Directors and other factors, themaximum number of stock acquisition rights to be allotted to them shall be 500 (themaximum number of stock acquisition rights to be allotted to the persons other than the
Directors shall be the residual number after allotting the number of stock acquisition rightsfrom the number listed in section 2. (2) below). The amount of remuneration, etc. for the
Directors of the Company in connection with the stock acquisition rights will be obtained bymultiplying the fair value of each stock acquisition right calculated by using theBlack-Scholes model based on the various conditions on the Allotment Date, by the total
number of stock acquisition rights to be allotted to the Directors of the Company (the amountshall be other categories from the maximum amount of Directors’ remuneration “¥550
million per year” approved at the 63rd Ordinary General Meeting of Shareholders of theCompany held on June 25, 2015). It is also proposed that the issuance timing and theallotting methods of the stock acquisition rights to each Director of the Company, etc. be left
to the Board of Directors.
1.

Reason for the necessity to make an offering for subscription for stock acquisition49

rights to subscribers on specifically favorable conditions:
To afford incentives and raise the morale to achieving much improved results of theCompany on a consolidated basis, secure good human resources and enhance its corporate
value, management intends to issue stock acquisition rights as stock options.
2.
Content and the maximum number of the stock acquisition rights which terms andconditions can be determined upon authorization by resolution of this Ordinary General
Meeting of Shareholders:(1)Class and number of shares to be issued or transferred upon exercise of stockacquisition rights:
Not exceeding 180,000 shares of common stock of the Company.
In the event that the Company makes a stock split (which shall include scrip issues;
the same applies hereinafter) or stock consolidation which shall become effective
after the close of this Ordinary General Meeting of Shareholders, the said number ofshares to be issued or transferred upon exercise of the stock acquisition rights shall be
adjusted in accordance with the following formula. Such adjustment shall be madeonly to the number of shares which the said stock acquisition rights have not been
exercised then, with any fraction of one share occurring upon such adjustment
discarded.
Number of shares asadjusted=

Number of shares
before adjustment

×

Split (or consolidation) ratio

In addition, in the event that the Company makes an absorption-type merger, aconsolidation-type merger, an absorption-type company a split, incorporate-typecompany split, a share exchange or a share transfer which shall become effective after
the close of this Ordinary General Meeting of Shareholders or otherwise for any
inevitable reason, the said number of shares to be issued or transferred upon exerciseof the stock acquisition rights shall be adjusted to a reasonable extent.
(2)

Number of stock acquisition rights:
Not exceeding 1,800 rights.
The number of shares to be issued or transferred upon exercise of each stockacquisition right shall be 100 shares; provided, however, that in the event of an
adjustment to the number of shares as set forth in paragraph (1) above, the total
number of shares to be issued or transferred upon exercise of stock acquisition rights
shall also be adjusted similarly.

(3)

Cash to be paid in for stock acquisition rights:
No cash shall be required to be paid in for stock acquisition rights.

(4)

Amount of property to be contributed upon exercise of a stock acquisition right or the50

method of determination thereof:
The amount of property to be contributed upon exercise of a stock acquisition rightshall be an amount obtained by multiplying the paid-in amount per share to be
determined below (the "Exercise Price"), by the number of shares to be issued ortransferred for each stock acquisition right as set forth in paragraph (2) above.
The Exercise Price shall be the higher of (i) an amount obtained by multiplying by
1.05 the average of the daily closing prices (the "Closing Price") (regular way) of theshares of common stock of the Company on the Tokyo Stock Exchange for the days
(exclusive of any day on which transactions are not validly made) of the month
immediately preceding the month under which the date on which the stock acquisitionrights shall be allotted (the "Allotment Date") falls (with any fraction of one yenrounded upward to the nearest one yen) and (ii) the Closing Price on the Allotment
Date (if the Closing Price is not available on that day, the Closing Price on any
trading day immediately preceding that day).
In the event that after the Allotment Date for the stock acquisition rights, theCompany makes a stock split or stock consolidation, the said Exercise Price shall be
adjusted in accordance with the following formula, with any fraction of one yen
occurring upon such adjustment rounded upward to the nearest one yen:
Exercise Price as adjusted=

Exercise Price
beforeadjustment

×1
Split (or consolidation) ratio

In the event that after the Allotment Date for the stock acquisition rights, theCompany issues new shares or disposes of its treasury shares at a price lower than thecurrent market price (excluding where the Company issues new shares or transfers its
treasury shares upon exercise of stock acquisition rights), the said Exercise Price shallbe adjusted in accordance with the following formula, with any fraction of one yen
occurring upon such adjustment rounded upward to the nearest one yen:

Exercise Price asadjusted=

Number of
newly issued
× Paid-in pricesharesper share
Number of+
Exercisealready issued
Current market price before thePricesharesissuance of new shares×
beforeNumber of+ Number of newly issued sharesadjustment
already issued
sharesIn the above calculation formula, "Number of already issued shares" is derived bydeducting the number of shares of treasury shares of common stock of the Company
from the total number of shares of common stock of the Company issued andoutstanding, and in the event that the shares of treasury stock of common stock of theCompany are disposed, "Number of newly issued shares" shall be replaced by"Number of treasury shares disposed" and "Paid-in price per share" shall be replaced51

by "Disposal price per share".
In addition, in the event that the Company makes an absorption-type merger, aconsolidation-type merger, an absorption-type company split, incorporate-typecompany split, a share exchange or share transfer or otherwise for any reason, the said
Exercise Price shall be adjusted to a reasonable extent.
(5)

Exercise period of the stock acquisition rights:
From September 1, 2019 to August 31, 2024. However, if the final day of such
period falls on a holiday of the Company, the immediately preceding business day
shall be the final day.

(6)

Terms and conditions of the exercise of stock acquisition rights:(i)

The number of stock acquisition rights exercisable by any person entitled toexercise stock acquisition rights in any given year (from September 1 throughAugust 31 of the following year) during the period for exercising stockacquisition rights shall be governed by the rule to be established by the Board of
Directors.
If any person entitled to exercise his/her stock acquisition rights does not
exercise all or any part of his/her rights exercisable in any given year during theperiod for exercising stock acquisition rights, the rights remaining unexercised insuch any given year may be carried over to any subsequent year until the period
for exercising stock acquisition rights expires.

(ii) Any person entitled to exercise stock acquisition rights cannot exercise his/herrights in any given year (from September 1 through August 31 of the followingyear) during the period for exercising stock acquisition rights unless he/she
obtains approval of the Company therefor in such any given year.
(iii) Any person entitled to exercise stock acquisition rights shall be a Director, Audit& Supervisory Board Member, Officer or employee of the Company or its
related companies when he/she exercise his/her stock acquisition rights.
(iv) No stock acquisition rights shall be transferred, offered as a pledge or any othercollateral or inherited.
(7)

Matters concerning capital and capital reserve to be increased in the event that theCompany issues shares upon exercise of the stock acquisition rights:(i)

In the event that the Company issues shares upon exercise of the stockacquisition rights, the amount of capital to be increased shall be a half of the
maximum increase amount of capital calculated pursuant to Article 17,
paragraph 1 of the Regulations on Corporate Accounts, with any fraction of
one yen rounded upward to the nearest one yen.

(ii)

In the event that the Company issues shares upon exercise of the stock52

acquisition rights, the amount of capital reserve to be increased shall be an
amount obtained by deducting the amount of capital to be increased as set forthin item (i) above from the maximum increase amount of capital set forth initem (i) above.
(8)

Restriction on acquisition of the stock acquisition rights by transfer:Any acquisition of the stock acquisition rights by transfer shall be subject to theapproval of the Board of Directors of the Company.

(9)

(10)

Events of acquisition of stock acquisition rights:(i)

In the event that before any person entitled to exercise stock acquisition rights
exercises his/her rights, a proposition for the approval of a merger agreement
under which the Company shall be merged, a share exchange agreement or ashare transfer plan under which the Company shall become a wholly-owned
subsidiary is approved at a General Meeting of Shareholders (or a resolution
therefor is adopted by the Board of Directors of the Company when such
resolution of the General Meeting of Shareholders is not required), theCompany may acquire the stock acquisition rights without compensation on a
day separately specified by its Board of Directors.

(ii)

In the event that before any person entitled to exercise stock acquisition rights
exercises his/her rights, he/she ceases to be entitled to do so due to any of theterms and conditions set forth in paragraph (6) above, the Company may
acquire the stock acquisition rights without compensation on a day separately
specified by its Board of Directors.

(iii)

In the event that any person entitled to exercise stock acquisition rights waives
all or any part of his/her rights, the Company may acquire the stock acquisitionrights without compensation on a day separately specified by its Board of
Directors.

Treatment of stock acquisition rights upon reorganization by the Company:
In the event that the Company conducts a merger (limited to cases where theCompany shall be extinguished as a result of the merger), an absorption-typecompany split, an incorporation-type company split, a share exchange or a sharetransfer (collectively, "reorganization"), the Company shall deliver to any person
entitled to exercise the stock acquisition rights outstanding (the "Outstanding Rights")
on the day on which the reorganization becomes effective, stock acquisition rights ofrelevant corporations ("reorganizing companies") listed in Article 236, paragraph 1,
item 8 (a) through (e) of the Companies Act, in accordance with the following terms
and conditions. In such case, the Outstanding Rights shall become null and void andthe reorganizing companies shall issue new stock acquisition rights, only if and when
the delivery of stock acquisition rights of the reorganizing companies in accordancewith the following terms and conditions is stipulated in the relevant merger agreement,53

an absorption-type company split agreement, an incorporate-type company split plan,share exchange agreement or share transfer plan:(i)

Number of stock acquisition rights of reorganizing company to be delivered:
The same number as that of the stock acquisition rights held by each person
entitled to exercise the Outstanding Rights.

(ii)

Class of shares of reorganizing company to be issued or transferred upon
exercise of stock acquisition rights:
Shares of common stock of the reorganizing company.

(iii)

Number of shares of reorganizing company to be issued or transferred upon
exercise of stock acquisition rights:
The number of shares shall be determined in accordance with paragraph (1)above, taking into account the terms and conditions of the reorganization.

(iv)

Amount of property to be contributed upon exercise of a stock acquisitionright:
The amount of property to be contributed upon exercise of each stockacquisition right to be delivered shall be an amount obtained by multiplying by
the number of shares of the reorganizing company to be issued or transferred
upon exercise of each such stock acquisition right determined as set forth initem (iii) above, the paid-in amount after the reorganization obtained byadjustment to the Exercise Price set forth in paragraph (4) above by taking into
account the terms and conditions of the reorganization.

(v)

Exercise period of stock acquisition rights:
From the latter of the first day of the exercise period of stock acquisition rights
set forth in paragraph (5) above and the day on which the reorganization
becomes effective, to the last day of the exercise period of stock acquisitionrights set forth in paragraph (5) above.

(vi)

Terms and conditions of the exercise of stock acquisition rights:
To be determined in accordance with paragraph (6) above.

(vii) Matters concerning capital and capital reserve to be increased in the event thatshares are issued upon exercise of the stock acquisition rights:
To be determined in accordance with paragraph (7) above.
(viii) Restriction on acquisition of stock acquisition rights by transfer:54

Any acquisition of stock acquisition rights by transfer shall be subject to theapproval of the reorganizing company.
(ix)

Events of acquisition of stock acquisition rights:
To be determined in accordance with paragraph (9) above.

(11)

Treatment of fractions of a share upon exercise of the stock acquisition rights:
In the case the number of shares to be delivered to any stock acquisition right holder
who exercises his/her rights includes any fraction of one share, such fraction shall bediscarded.

(12)

Other matters:
Other matters concerning the stock acquisition rights shall be determined byresolution of the Board of Directors.

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