(Translation)

Securities Code:June 6, 2012

6839

NOTICE OF THE 60TH ORDINARY GENERAL MEETINGOF SHAREHOLDERS

Dear Shareholders:
We would like to express our appreciation for your continued good offices.
Please take notice that the 60th 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 not present at themeeting, please go over the Reference Document for the General Meeting of Shareholders set
forth below and send us by return mail the enclosed voting form indicating your approval ordisapproval of the propositions no later than 5:00 p.m. on June 21 (Thursday), 2012.

Yours very truly,

Tomonori Hayashi
Representative Director, President, andChief Executive Officer

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

Date and hour:
June 22 (Friday), 2012, 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.

Report on the business report, the consolidated financial statements, and theresults of audit of the consolidated financial statements by the accounting
auditors and the Board of Corporate Auditors for the 60th fiscal year (from
April 1, 2011 to March 31, 2012)

2.

Report on the non-consolidated financial statements for the 60th fiscal year
(from April 1, 2011 to March 31, 2012)

Matters to be resolved:
Proposition No. 1:

Election of nine (9) Directors

Proposition No. 2:

Election of one (1) Corporate Auditor

Proposition No. 3:

Granting of retirement gratuities to retiring Director andCorporate Auditor- END -In attending the meeting, please present the enclosed voting form to a receptionist at the placeof the meeting.
In the event of the revision of any matter in the Reference Document for the General Meetingof Shareholders, the business report, the consolidated financial statements, and thenon-consolidated financial statements, it will be posted on our Internet website(http://www.funai.jp/).

-2-

(Attached documents)
BUSINESS REPORT(April 1, 2011 to March 31, 2012)
1.

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

Development and results of business activities:

During the fiscal year ended March 31, 2012, the economy of the United States,
which is the Group’s principal market, was affected seriously in the first half by a sluggish
housing market and a persistently high unemployment rate. In the second half, however, thejob situation began to recover, mainly in the private sector, while personal consumption
showed signs of improvement. Meanwhile, uncertainty remains regarding the impact ofrising gasoline prices on personal consumption and the effect of the European debt crisis on
the global economic conditions.
In the consumer electronics market, conditions were problematic. An unexpectedly
high yen appreciation and supply chain disruptions stemming from the Great East Japan
Earthquake as well as the flooding in Thailand depressed corporate results. Performance inJapan dropped as the effect of the home electronics eco-point system expired and the demanddecreased in Europe and the United States for liquid crystal display (LCD) televisions (one of
the Company’s main production lines). Also, the rate of expansion which has been a growth
driver in emerging markets leveled off.
As a result of the above factors, the Group posted net sales of ¥246,147 million, a
16.8% decrease compared with the same period last year.
On the profit front, operating income was ¥461 million, a decrease of 40.2% year on
year; ordinary income was ¥174 million, a decrease of 86.5% year on year; and a net loss of¥4,629 million (the net loss for the same period last year was ¥1,169 million).
Sales by product segment were as follows:
Audiovisual Equipment
In audiovisual equipment, revenues from sales of LCD televisions in Japan were
down substantially, due to the expiration of the home electronics eco-point system and thecompletion of the transition to digital terrestrial broadcasting. In DVD-related equipment as
well, although revenues from sales of Blu-ray disc recorders were up, revenues from sales of
DVD players and Blu-ray disc players declined year on year. As a result, net sales of theseequipment were ¥183,507 million, a decrease of 7.6% year on year.
Information Equipment
In the information equipment segment, decreases in orders for printers resulted in net
sales of ¥30,013 million, a decrease of 46.8% year on year.

-3-Others
Sales of other products that are not included in the above categories amounted to¥32,627 million, a decrease of 20.3% year on year, as sales of antennas and related devices
fell, reflecting the conclusion of the transition from analog to digital terrestrial broadcasting.
<Consolidated net sales by product>
Division
Audiovisual equipment
Information equipment
Others
Total(2)

Net sales(million yen)
183,50730,01332,627
246,147

Component rate
(%)
74.5
12.2
13.3
100.0

Investment in plant and equipment by the Group:

Investment in plant and equipment by the Group during the fiscal year under review
totaled ¥3,931 million, composed of ¥3,405 million by its manufacturing companies and¥526 million by its sales companies. The amount was spent principally to improve
manufacturing facilities.
(3)

Fund-raising by the Group:
Nothing to be reported.

(4)

Issues to be tackled:

The consumer electronics market is globalizing with unprecedented speed. Amidsuch changes as business restructuring efforts that transcend traditional business borders,Internet proliferation and a growing societal focus on environmental issues, leading
companies, posting net losses or near losses on an annual basis, are undergoing a process of
selection and focus to survive as the industry undergoes major structural reforms.
Operating in this difficult environment, the Group faces such issues as increasing
management speed while ensuring quality and price levels to compete against rival firms
while expanding sales and recovering profitability by offering products that will sell. To
achieve these aims, we will optimize our allocation of management resources and further
enhance the Funai Production System, one of our core competencies. We will also embark
on the development of new businesses, centered on eco-products, which have a bright future.
In this environment, we will endeavor to enhance the Group’s corporate value byimplementing the policies outlined below.

-4-

(i)

Increasing net sales and returning to profitability

The Group has positioned the increase of net sales and improvement of earnings as its
highest priority issues.
(Product strategy)
In audiovisual equipment, revenues from sales of LCD televisions were down during
the year. This stemmed from a sluggish Japanese market, due to the expiration of the homeelectronics eco-point system and completion of the transition to digital terrestrial
broadcasting. Our inventory levels improved from the preceding fiscal year, as we
maintained appropriate inventories of both products and LCD backlight panels, a mainstay
component. We are enhancing our PSI management (PSI stands for “purchase, sales, andinventory”). We will continue to make our products more competitive price-wise throughredesigns and by restructuring our component sourcing system, with the objective to recoverprofitability. For products related to Blu-ray discs, sales of players dropped off due to thegrowing popularity of video on demand, where content is distributed via Internet, but sales ofrecorders rose, centered on provision in Japan under OEM (Original Equipment
Manufacturer) agreements. Going forward, we aim to boost sales by further strengthening
our relationships with OEM customers.
During the year, we extended our brand licensing agreements with Royal Philips
Electronics through December 31, 2015, for Philips consumer televisions and video productsin the United States, Canada, Mexico, and select South American countries. We plan toincrease sales by fostering demand for Philips brand products.
In addition, during the fiscal year, we purchased from IPG Electronics 503 Limited aportfolio of 360 patents applicable to its television and related businesses, augmenting our
audiovisual segment’s patent portfolio. This acquisition should aid our efforts to respond tocompetitors’ patent claims.
Further in information equipment as well, orders of conventional products from OEM
customers were down, lowering revenues during the fiscal year under review. In the future,
we will strive to provide higher-value-added products to OEM customers by leveraging ourbase of expertise in mechatronics, as well as by commercializing printers developed in-house.
We have also embarked on the new business of providing LED lighting for the
Chinese market. We expect to commence full-fledged production and sales activities in theupcoming fiscal year, and will work to develop cost-competitive products.
(Market strategy)
The Group faces the challenges of reducing the risk of over-emphasizing the U.S.
market, mitigating the effects of seasonality by smoothing production and sales throughout
the year, and increasing sales. To address these issues, we are considering ways to develop
our business in expanding emerging markets in ASEAN as well as the Near and Middle East
regions, besides in our existing markets in Europe, Japan, Mexico, and other Latin-Americancountries. In February 2012, we established Funai India Private Limited in Mumbai, India,
and we are now preparing to begin sales at this subsidiary in the upcoming fiscal year.
-5-Conversely, we have made the comprehensive decision to revise our position thatprioritized development of the Brazilian market. We will forgo this development for thetime being.
Through the steady implementation of the above-mentioned strategies, we plan tominimize the time lags between product planning, development, material procurement,
production and sales, enabling us to provide products in a timely manner that meets market
needs precisely.
(ii)

Reinforcing manufacturing and development systems

The Group’s manufacturing structure is highly dependent on China, and we recognize
this as a risk that must be mitigated. Consequently, during the year, we augmented FUNAI(THAILAND) CO., LTD., a production base that will become core to our provision of
products in the Indian market. We also plan to continue looking into production in otherregions.
To increase group-wide development efficiency, we moved forward with efforts to
expand our development facilities in Asian countries, while establishing a development
facility in China during the year.
(iii)

Training and appointment of human resources

The Group recognizes that improving each employee’s capabilities and being able tolink this to bolstering the strength of the Group will be critical for ensuring that the Group
continues to lead in the new era of global competition while implementing the Group’s
medium- to long-term business strategy. Therefore, the Company’s policy is to actively
train and assign employees, without regard to whether they are younger employees or
mid-career staff, by strengthening and expanding its internal or external training systems.

-6-

(5)

Property and income/loss:
57th(April 1, 2008 to
March 31, 2009)

58th(April 1, 2009 to
March 31, 2010)

59th(April 1, 2010 toMarch 31, 2011)

60th(April 1, 2011 toMarch 31, 2012)

302,777

314,911295,923

246,147

Ordinary income(million yen)

1,226

11,6841,290

174

Net (loss) income(million yen)

(17,364)

10,328(1,169)(4,629)Net (loss) income pershare (yen)(509.33)302.97(34.31)(135.69)

Total assets(million yen)

199,882

204,057

193,910

176,607

Equity(million yen)

135,596

142,779

131,228

123,843

Book-value per
share
(yen)

3,963.72

4,164.86

3,813.57

3,598.03

Fiscal year
Item
Net sales(million yen)

(Note) Net (loss) income per share is calculated based on the average of the total number ofshares issued and outstanding during the fiscal year. Book-value per share arecalculated based on the total number of shares issued and outstanding as of the endof the fiscal year. Each such number of shares does not include the shares oftreasury stock.
(6)

Major subsidiaries:

Trade nameDX Antenna Co., Ltd.
FUNAI CORPORATION,
INC.

Capital stock

Ratio of equity
participation of theCompany(%)¥363 million

91.40

U.S.$68.5
million

100.0

Main business
Manufacturing and sales ofelectronic equipment related toreceivers
Sales of the Company’s
products

Sales of the Company’s
products
Manufacturing of the
FUNAI ELECTRIC (HK)
HK$115 million
100.0
LIMITED
Company’s products(Note) Each ratio of equity participation of the Company is obtained by calculating down to the third
decimal place and thereafter rounding upward or downward to the nearest second decimal
place, as the case may be.
P&F USA, Inc.

U.S.$55 million

100.0

-7-

(7)

Major businesses of the Group:
Division

Principal products

Audiovisual equipment

LCD TVs, DVD players, DVD recorders, Blu-ray disc players,
and Blu-ray disc recorders

Information equipment

Printers

OthersElectronic equipment related to receivers(8)

Major business sites of the Group:
Category

Funai Electric Co., Ltd.
Production and sales
subsidiaryJapan

Sales subsidiaries
Overseas

Production subsidiary

Name
Head Office

Daito City, Osaka

Tokyo Branch

Chiyoda-ku, Tokyo

DX Antenna Co., Ltd.

Hyogo-ku, Kobe City

FUNAI CORPORATION, INC U.S.A.
P&F USA, Inc.
FUNAIELECTRIC
LIMITED

Production and sales FUNAI ELECTRIC
subsidiary
EUROPE Sp. z o.o.

(9)Location

U.S.A.
(HK) Hong Kong

PolandEmployees of the Group:
Number of employees
3,990

As compared with the end of the previous fiscal year(+ or -) (persons)+ 1,129(Notes) 1. The above number of employees represents those actually at work.
2. The number of employees increased principally due to operation of Zhong Yue FUNAIElectron co. established in the preceding fiscal year.

(10)

Major lenders:
Nothing to be reported.

(11)

Other important matters concerning the current state of the Group:
Nothing to be reported.

-8-

2.

Matters concerning the shares of the Company(1)

Total number of issuable shares:

80,000,000 shares(2)

Total number of issued shares:

36,130,796 shares(including 2,011,607 shares of treasury stock)(3)

Number of shareholders:

10,247 persons(4)

Principal shareholders (top 10):

Name
Tetsuro Funai
The FUNAI Foundation for Information Technology
Japan Trustee Services Bank, Ltd. (Trust account)
Trust & Custody Services Bank, Ltd. (Securities investment
trust account)
Tetsuo Funai
The Master Trust Bank of Japan, Ltd. (Trust account)
THE BANK OF NEW YORK TREATY JASDEC ACCOUNT
F2 Limited Liability Company
T&N Limited Liability Company
Funai Kosan Co., Ltd.

Number ofshares held
(thousandshares)12,709
1,540
1,495
1,296
1,079
1,074
606
470
470
470

Shareholding
ratio (%)
37.25
4.51
4.38
3.80
3.16
3.15
1.78
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 2,011 thousand shares of treasury stockof 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.

-9-

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)

11,068 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.

(ii) Class and number of shares to beissued or transferred upon exerciseof the stock acquisition rights:
1,106,800 shares of common stock(100 shares per stock acquisition right)(iii)

Stock acquisition rights held by Directors and Corporate Auditors by category:
Issue

The first stock acquisitionrights for the year ended
March 31, 2004
The first stock acquisitionrights for the year ended
March 31, 2005
The first stock acquisitionrights for the year ended
March 31, 2006
The first stock acquisitionrights for the year ended
March 31, 2009(2)

Numberof rights

HolderDirector

64

4

Outside Director

28

1

Corporate Auditor

14

1

Director

82

4

Director

103

4

Category

Corporate Auditor

24

1

Director

176

5

Exercise price

Exercise period¥13,646

August 1, 2005
to July 31, 2012¥16,167

August 1, 2006
to July 31, 2013¥12,369

August 1, 2007
to July 31, 2014

¥1,609August 1, 2010
to July 31, 2017

Stock acquisition rights delivered during the fiscal year under review:
Nothing to be reported.

(3)

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

- 10 -

4.

Matters concerning officers of the Company:(1)

Directors and Corporate Auditors (as of March 31, 2012)
Title

Name

Business in charge and important concurrent officeDirector;
Officer; Chairman

Tetsuro Funai

Member (Chairman) of the Nomination
Committee; Member of the Compensation
Committee;
Chairman of the FUNAI Foundation for
Information Technology;
Chairman of Funai Scholarship Foundation

Representative
Director; President
and Chief Executive
Officer (CEO)Tomonori Hayashi

Chairman of the Board of Directors; Member of theNomination Committee, Member (Chairman) of
the Compensation Committee

Director;
Senior Executive
Officer

Toshio Ohtaku

General Manager of New Business Div.

Director; Officer

Yoshikazu Uemura

GeneralManagerofAV(Audiovisual)
Headquarters; General Manager of TV Business
Div.;
Member of the Nomination Committee; Member of
the Compensation Committee;
President and Representative Director of P&F
USA, INC.

Director; Officer

Joji Okada

General Manager of Development & Technology
Headquarters;
Member of the Nomination Committee; Member of
the Compensation Committee

Director; Officer

Hideaki Funakoshi

Deputy General Manager of AV Headquarters;
General Manager of DVD Business Div.;
Member of the Nomination Committee; Member of
the Compensation Committee

Director; Officer

Shigeki Saji

General Manager of New Business Preparatory
Office, Development & Technology Headquarters;
Member of the Nomination Committee; Member of
the Compensation Committee

Outside Director

Mitsuo Yonemoto

Outside Director

Yasuhisa Katsuta

Member of the Compensation Committee;
Vice President and Director of T.P.S. LaboratoryCo., Ltd.;
Outside Director of THE SAILOR PEN CO., LTD.
Outside Corporate Auditor of Otsuka
Pharmaceutical Co., Ltd.;
Chairman of Osaka University of Economics

Full-time Corporate
AuditorAkitaka Inoue

Outside Corporate
AuditorShinichi Komeda- 11 -

TitleOutside Corporate
AuditorNameBusiness in charge and important concurrent office

Masahide
Morimoto(Notes) 1. Full-time Corporate Auditor, Akitaka Inoue, who is qualified as a certified public
accountant, has considerable knowledge of finance and accounting.
2. The Company has designated Outside Director, Mitsuo Yonemoto, and Outside
Corporate Auditor, Shinichi Komeda, as independent officers in accordance withthe rules of the Tokyo Stock Exchange and the Osaka Securities Exchange andregistered them with such exchanges.
3. The Company has established a Nomination Committee and a Compensation
Committee (both of which are voluntary committees).

(2)

Directors who retired during the fiscal year under review:
Name

Retirement
date

Title, business in charge, and importantconcurrent office upon retirement

ReasonTakashiKiyomoto

June 22, 2011

Expiration ofterm of officeDirector; Senior Executive Officer,
GeneralManagerof
Production
Headquarters

Hideo Nakai

June 22, 2011

Expiration ofterm of officeDirector; Senior Executive Officer,
General Manager of Development &Technology Headquarters

Shinji Seki

June 22, 2011

Expiration ofterm of officeDirector; Executive Officer; General
Manager of AV Headquarters(For reference)
The Company has adopted a system of officers, and the Officers as of March 31,
2012 who did not concurrently hold the offices of Directors were as follows:
Officer

Takashi Kiyomoto

Officer
Officer

Hideo Nakai

Officer

Nobuhisa Uchikawa

Officer

Susumu Nojii

Officer

Kazuo Uga

OfficerTakeshi Ito

Officer

Hisao Tatsumi

Officer

Sei Kono

Fumiaki Kidera- 12 -

(3)Total amount of remuneration, etc., of Directors and Corporate Auditors
Total amount of remuneration, etc., for the fiscal year under review:

Category
Director(Outside Director)
Corporate Auditor(Outside Corporate Auditor)
Total(Outside Director/Corporate Auditor)

Number ofrecipients
12
(2)
3
(2)
15
(4)

Amount of payments(thousand yen)244,602(12,850)
23,250(10,400)
267,852(23,250)(Notes) 1. The above-listed amount of payments includes the following amount as anallowance for officers’ retirement gratuities deducted as expenses for the fiscal
year under review:• ¥28,275 thousand for twelve Directors (including ¥1,000 thousand for twooutside Directors)• ¥1,800 thousand for three Corporate Auditors (including ¥800 thousand for
two outside Corporate Auditors)
2. The above-listed amount of payments includes the following amount of
remuneration in stock options deducted as expenses for the fiscal year underreview:• ¥1,642 thousand for nine Directors
3. The above-listed amount of payments includes the following amount of officers’
bonuses for the fiscal year under review:• ¥1,700 thousand for two Directors

4.

(4)

The above-listed amount of payments includes amount for three Directors who
retired on June 22, 2011, at the 59th Ordinary General Meeting of Shareholders

Other important matters concerning officers:
Nothing to be reported.

(5)

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 Yasuhisa Katsuta is Chairman of Osaka University of Economics.
The Company has no special relationship with Osaka University of Economics.

- 13 -

(ii)Concurrent holding of important offices of outside officers of othercorporations and their relationships with the Company:•

Director Mitsuo Yonemoto is outside Director of The Sailor Pen Co., Ltd.
The Company has no special relationship with The Sailor Pen Co., Ltd.

•

Director Yasuhisa Katsuta is outside Corporate Auditor of Otsuka
Pharmaceutical Co., Ltd.
The Company has no special relationship with Otsuka Pharmaceutical 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 at the meetings of the Board of Directors and the Board of
Corporate Auditors:
Board of Directors
Name

Director
Director
Corporate
AuditorCorporate
Auditor•Board of Corporate
Auditors
Number of
Numbermeetings
attended-

Mitsuo Yonemoto
Yasuhisa Katsuta

Number ofmeetings
66

Numberattended6
6

Shinichi Komeda

6

6

17

17

Masahide Morimoto

6

6

17

17

Speeches at meetings of the Board of Directors and the Board of Corporate
Auditors:
Name

Speeches
He attended meetings of the Board of Directors andexpressed opinions principally from the standpoint of a
Director
Mitsuo Yonemoto
management consultant, as well as the standpoint of an
independent officer.
He attended meetings of the Board of Directors andexpressed opinions principally from the standpoint of a
Director
Yasuhisa Katsuta
veteran top executive, as well as the standpoint of financeand treasury.
He attended meetings of the Board of Directors and the
Corporate
Board of Corporate Auditors and expressed opinions
Shinichi Komeda
Auditorprincipally from the standpoint of a veteran top executive,
as well as the standpoint of an independent officer.
He attended meetings of the Board of Directors and the
Corporate
Board of Corporate Auditors and expressed opinions
Masahide Morimoto
Auditorprincipally from the standpoint of a veteran top executive,
as well as the standpoint of finance and securities.

- 14 -

(v)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 each of the two outside Directors
and two outside Corporate Auditors to limit the liability for any damage asprovided for in Article 423, paragraph 1 of said act within the aggregate of theamounts listed in the items of Article 425, paragraph 1 of said act.

5.

Matters concerning accounting auditors:(1)

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

Remuneration, etc., of the accounting auditors for the fiscal
year under review:¥46 million

Total amount of cash and other proprietary benefits payable
to the accounting auditors by the Company and its
subsidiaries:¥78 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 accounting auditors and cannot actually be separated. Hence,
the amount in item (i) above includes both amounts.
2. Among the major subsidiaries of the Company, FUNAI CORPORATION, INC.
and two other companies are subject to audits by audit firms (including persons
having qualifications in foreign countries equivalent to those of the accounting
auditors of the Company) other than the accounting auditors of the Company.

(3)

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

(4)

Policy on the determination of dismissal and non-reappointment of the accounting
auditors:
In the event that the accounting auditors are found to fall under any event of dismissal
under the items of Article 340, paragraph 1 of the Company Act, the Company shall,
upon unanimous consent of the Corporate Auditors, dismiss the accounting auditors.
In addition, in the event that there arises any problem with the performance by theaccounting auditors of their duties or otherwise considered necessary, the Company
shall, upon consent of the Board of Corporate Auditors or upon request from theBoard of Corporate Auditors, prepare a proposition for the dismissal or
non-reappointment of the accounting auditors as an agenda item of a General Meetingof Shareholders.
- 15 -

(5)Outline of liability limitation agreements:
Nothing to be reported.

6.

Systems and policies of the Company(1)

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

Systems to secure the execution by the Directors of their duties to comply
with acts, ordinances, and the Articles of Incorporation
In the “Funai Group Charter of Conduct” and the “regulations of officers’
compliance,” the Company shall specify the acts to be taken by the Directors
to comply with acts and ordinances and secure the execution by the Directorsof their duties to comply with acts, ordinances, and the Articles ofIncorporation.

(ii)

Systems concerning storage and management of information on the execution
by the Directors of their duties
With regard to the storage and management of information on the execution
by the Directors of their duties, minutes of meetings of the Board of Directors
and other important meetings, circular decision documents, and otherdocuments and information necessary to secure the properness of businessactivities shall be stored and managed pursuant to acts, ordinances, and the“document management regulations.”(iii)

Regulations concerning management of exposure to the risk of loss and othersystems
The Company shall institute “risk management regulations” with regard to the
management of exposure to the risk of loss. Each division or department
shall manage risks involving its operations and also control such riskssystematically.

(iv)

Systems to secure efficient execution by the Directors of their duties
To ensure swift and efficient managerial decision making, the Company shallintroduce a “system of officers,” and shall have Officers under the auspices of
the Executive Directors to ensure that the operations determined by the
Executive Directors are performed swiftly. In addition, to enhance thetransparency of the Board of Directors and strengthen its supervisory
functions, the Company shall have outside Directors.

(v)

Systems to secure the execution by employees of their duties to comply withacts, ordinances, and the Articles of Incorporation
In the “Funai Group Charter of Conduct” and the “compliance regulations,”- 16 -

the Company shall specify the acts to be taken by the employees and secure
the execution by the employees of their duties to comply with acts, ordinances,and the Articles of Incorporation.
In addition, the Company shall establish a whistleblowing system independentof its regular reporting channels and strengthen its compliance system.
(vi)

Systems to secure the properness of business activities of the corporate groupcomposed of the Company, its parent company and its subsidiaries
The “Funai Group Charter of Conduct” shall be the rule of conduct of theofficers and employees of the Group.
In addition, in the “affiliated companies management regulations,” theCompany shall clearly define authorities and responsibilities of its groupcompanies while giving regard to their autonomy and independence, andsecure the properness of business activities of the whole Group.

(vii)

Matters concerning the employees to assist the Corporate Auditors to execute
their duties when the Corporate Auditors request the assignment thereof
When the Corporate Auditors request the assignment of employees to assist
them to execute their duties, the Board of Directors of the Company shall,
upon consultation with the Board of Corporate Auditors, establish a secretariat
to the Board of Corporate Auditors and assign its employees to assist the
Corporate Auditors.

(viii) Matters concerning the independence of the employees set forth in (vii) abovefrom the Directors
When employees hired upon the request of the Corporate Auditors to assist
their duties as set forth in item (vii) above are transferred to and/or from thesecretariat to the Board of Corporate Auditors, the Company shall respect theopinions of the Board of Corporate Auditors with regard to such transfer andpersonnel evaluations thereof and ensure his/her independence from the
Directors.
(ix)

System for reports by the Directors and employees to the Corporate Auditorsand other systems for reporting to the Corporate Auditors
The Corporate Auditors shall attend meetings of the Board of Directors andother important meetings, hear from the Directors, etc., the state of executionof their duties, and inspect related materials.
In addition, the Corporate Auditors shall, in accordance with the “regulations
concerning reporting to the Board of Corporate Auditors,” request the
Directors, Officers, and employees to report facts that may inflict material
damage on the Company and other matters considered necessary for them to
execute their duties.
- 17 -

(x)Other systems to ensure effective audits by the Corporate Auditors
To ensure effective audits by the Corporate Auditors, the Corporate Auditors
shall closely cooperate with the accounting auditors, and regularly meet theRepresentative Director to confirm the management policy and exchange
opinions on the risks and issues involving the Company.

(xi)

System to ensure reliability of financial reporting
The Company shall establish a “Basic Policy for Internal Control overFinancial Reporting” to ensure reliability of financial reporting and makeeffective and appropriate disclosure of “internal control reports.” Inaccordance with the basic policy, the Company shall establish an “Internal
Control Committee” with Representative Director, President, and CEO acting
as chairman thereof, which shall be responsible for continuous improvement,
administration, and evaluation of internal control on financial reporting andimplement a corrective measure when any defect is found.

(2)

Policies on the determination of remuneration, etc., of officers, etc.:
Remuneration of Directors and Corporate Auditors shall be determined within thescope of their respective maximum total amounts of remuneration determined byresolution of the General Meeting of Shareholders.
The amount of monthly remuneration of Directors shall be determined on a specificbasis of the Company set up by the Compensation Committee upon authorization by
the Board of Directors. The amount of monthly remuneration of Corporate Auditors
shall be determined upon consultation among the Corporate Auditors.
Bonuses of Directors shall be determined on a specific basis of the Company set upby the Compensation Committee upon authorization by the Board of Directors.
Bonuses of Corporate Auditors shall be determined upon consultation among the
Corporate Auditors.
Officers’ retirement gratuities to Directors and Corporate Auditors shall, upon
approval of the granting thereof to Directors and Corporate Auditors by resolution of
the General Meeting of Shareholders, be determined by the Compensation Committee
upon authorization by the Board of Directors with regard to those to Directors, andupon consultation among the Corporate Auditors with regard to those to Corporate
Auditors.

- 18 -

(3)Policy on the determination of distribution of retained earnings, etc., by the Board of
Directors:
The Company recognizes the pay out of earnings to its shareholders as one of themost important missions of management and attaches key importance tostrengthening its operating base and maintaining a constant payment of dividends.
In concrete terms, the Company will implement its dividend policy, based on thedividend on equity ratio 1% for consolidated basis, while taking into consideration
business conditions and other factors.
With regard to a year-end dividend per share for the fiscal year under review, theCompany has determined to pay an ordinary dividend of ¥40 per share in accordancewith the aforementioned basic policy. In addition, the Company celebrated its 50th
anniversary of incorporation on August 9, 2011. Therefore, to commemorate theanniversary and thank its shareholders for their continued support, the Company will
pay a commemorative dividend of ¥10 per share. As a result, the year-end dividend
per share for the fiscal year under review will total ¥50.

=========================================================================(Note)In this business report, amounts and the number of shares are indicated bydiscarding any fraction of the indicated unit, and rates are indicated by rounding
fractions of a half or more of the indicated unit upward and the rest downward
unless otherwise indicated. Net income (loss) per share and book-value per shareare indicated by rounding upward five-thousandths of one yen or more to thenearest one-hundredth of one yen.

- 19 -

CONSOLIDATED BALANCE SHEET(As of March 31, 2012)(million yen)
ASSETS:
Current assets:

145,689

Cash and deposits .............................................................................
Notes and accounts receivable-trade .................................................
Marketable securities.........................................................................
Merchandise and finished goods .......................................................
Work in process .................................................................................
Raw materials and supplies ...............................................................
Deferred tax assets.............................................................................
Other ..................................................................................................
Allowance for doubtful receivables...................................................

68,14632,2964,500
22,387
1,570
10,005
2,915
3,989
(120)
30,917

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

14,785
5,406
1,749
2,025
5,170
352
80

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

4,795

Investments and other assets:
Investment securities..........................................................................
Deferred tax assets .............................................................................
Other ..................................................................................................
Allowance for doubtful receivables ...................................................

11,336
4,641
3,661
3,331
(297)

3,813
982

176,607

TOTAL ASSETS- 20 -

(million yen)
LIABILITIES:Current liabilities:
Notes and accounts payable-trade ........................................................
Short-term bank loans...........................................................................
Current portion of long-term lease obligations ....................................
Accounts payable-other ........................................................................
Income taxes payable. ..........................................................................
Deferred tax liabilities ..........................................................................
Accrued bonuses...................................................................................
Reserve for products warranty.............................................................. 2
Other .....................................................................................................

50,054
29,623
4,583
224
11,158
325
1
248
798
3,091

Long-term liabilities:

2,708

Long-term lease obligations .................................................................
Deferred tax liabilities ..........................................................................
Deferred tax liabilities on revaluation of land......................................
Liabilities for retirement benefits .........................................................
Liabilities for directors’ retirement benefits.........................................
Other .....................................................................................................
TOTAL LIABILITIESEQUITY:

281
4
226
1,038
1,069
87
52,763

Shareholders’ equity:

151,623

Common stock .......................................................................................

31,307

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

33,272Retained earnings...................................................................................

111,384

Treasury stock........................................................................................

(24,341)

Accumulated other comprehensive Income (loss):(28,861)

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

56

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

(28,917)

Stock acquisition rights:

106

Minority interests:

974

TOTAL EQUITY

123,843

TOTAL LIABILITIES AND EQUITY- 21 -

176,607

CONSOLIDATED STATEMENT OF OPERATIONS(from April 1, 2011 to March 31, 2012)(million yen)
246,147
208,779
37,36836,906461

Net sales
Cost of sales
Gross profit
Selling, general, and administrative expenses
Operating income
Non-operating income:Interest and dividend income
Other
Non-operating expenses:

334
233

Interest expense
Foreign exchange loss
Loss on investments in partnership
Other
Ordinary income
Special gain:
Gain on sales of fixed assets
Gain on sales of investment securities
Special loss:
Loss on disposal of fixed assets
Impairment loss on fixed assets
Loss on sales of investment securities
Other

126
378
141
207

12

30
396
313
7

748
560

1,385
935
1,617

Net loss

854
174

9
3

Loss before income taxes and minority interests
Income taxes – current
Income taxes - prior years
Income taxes - deferred
Net loss before minority interests
Minority interests in net income

567

3,939
4,500
129
4,629

- 22 -

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY(from April 1, 2011 to March 31, 2012)(million yen)
Shareholders’ equity
Commonstock
Balance as of April 1, 2011

CapitalsurplusRetainedearnings

31,30033,265

7

7

Treasury stock

116,738(24,341)

Total
shareholders’equity156,962

Changes of items during the
fiscal year
Exercise of stock options

14

Cash dividends
Net loss
Adjustment of retained
earnings due to change inscope of consolidation(1,364)(4,629)(1,364)(4,629)639

639

Net changes of items otherthan shareholders’ equity
Total changes of items during
the fiscal year
Balance as of March 31, 2012

Balance as of April 1, 20117

7

31,30733,272(5,354)111,384

Accumulated other comprehensive
Income (loss)
Stock
Total
acquisition
Unrealized
Foreignaccumulated
gain oncurrency
rightsotheravailable-for- translation comprehensive
sale securities adjustments Income (loss)
612(27,486)(26,874)87(24,341)(5,339)151,623

Minority
interests

Total

1,052

131,228

Changes of items during the
fiscal year
Exercise of stock options

14

Cash dividends(1,364)(4,629)Net loss
Adjustment of retained
earnings due to change inscope of consolidation
Net changes of items otherthan shareholders’ equity
Total changes of items during
the fiscal year
Balance as of March 31, 2012

639
(555)

(1,430)(1,986)19(77)(2,045)(555)(1,430)(1,986)19(77)(7,384)56(28,917)(28,861)106974

123,843- 23 -NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Notes on Matters Forming the Basis of Presentation of Consolidated Financial
Statements
1.

Matters concerning the scope of consolidation(1)

Number of consolidated subsidiaries:(2)

Names of major consolidated subsidiaries:

13

DX Antenna Co., Ltd., FUNAI CORPORATION, INC., and FUNAI ELECTRIC(HK) LIMITED.
FUNAI ELECTRIC (MALAYSIA) SDN. BHD. is excluded from the scope of
consolidation as from the fiscal year under review as its liquidation has been
completed.
(3)

Name of major non-consolidated subsidiary:
FGS Co., Ltd.
(Reason for exclusion from consolidation)
The non-consolidated subsidiary is a small company and its aggregated amount of
total assets, net sales, net income (based on the Company’s equity interest), andretained earnings (based on the Company’s equity interest) are not material to theconsolidated financial statements.

2.

Matters concerning the application of equity method(1)

Number of non-consolidated subsidiaries towhich the equity method is applicable:

1

Name of the non-consolidated subsidiary towhich the equity method is applicable:

Highsonic Industrial Ltd.

(2)

(3)

Name of the major non-consolidated subsidiary and affiliates to which the equity
method is not applicable:
Non-consolidated subsidiary:
Affiliate:

FGS Co., Ltd.
Digitec Industrial Ltd.

(Reason for exclusion from the equity method)
The non-consolidated subsidiary and affiliate have no material impact on net income(based on the Company’s equity interest) and retained earnings (based on the
Company’s equity interest) and generally, they are not material.

- 24 -

(4)As the fiscal year end of Highsonic Industrial Ltd., a non-consolidated subsidiary towhich the equity method is applicable, differs from the consolidated fiscal year end,
its financial statements compiled for its fiscal year are used.

(5)

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

Fiscal year end

DX Antenna Co., Ltd.

February 29

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

December 31

Zhong Yue FUNAI Electron co.

December 31

For DX Antenna Co., Ltd., and P&F MEXICANA, S.A. DE C.V. listed above, theirfinancial statements compiled as of their respective fiscal year ends are used totabulate consolidated results. However, significant transactions that occur between
that time and the consolidated fiscal year end are reflected in the consolidated
financial statements as so required.
For Zhong Yue FUNAI Electron co., its financial statements compiled based on theprovisional settlement of account made as of its group’s consolidated fiscal year end
are used to tabulate consolidated results.
3.

Matters concerning accounting policies(1)

Valuation basis and methods for major assets:(i)

Securities:
Available-for-sale securities:
Marketable securities:
Stated at fair value on the balance sheet date of the fiscal year. (Unrealized
gain or loss and net of applicable taxes are reported in a separate
component of equity. Costs of securities sold are determined by themoving average method).
Non-marketable securities:
Stated at cost determined by the moving average method- 25 -

(ii) Inventories:
As to the Company and its Japanese consolidated subsidiaries, merchandise andfinished
goods
andwork-in-processarestatedprincipallyatcost-under-the-average method (book value is written down to net realizablevalue if not profitable). Raw materials are stated principally at cost by the
first-in, first-out method (book value is written down to net realizable value if not
profitable).
As to the overseas consolidated subsidiaries, finished goods, work-in-process, andraw materials are stated principally at the lower of cost or market determined by
the first-in, first-out method.
(2)

Method of depreciation of major fixed assets:(i)

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

3–50 years
3–10 years
1–20 years(ii) Intangible assets (excluding lease assets):
Stated by the straight-line method by the Company and its consolidated
subsidiaries. However, depreciation of goodwill is made equally for five years;
depreciation of patent rights is made by the straight-line method based on theestimated economically usable period; and depreciation of software for internal
use is made by the straight-line method based on the internal usable years (fiveyears).
(iii) Lease assets:
Lease assets related to finance lease transactions that do not transfer ownershipare depreciated by the straight-line method based on the assumption that theuseful life equals to the lease term and the residual value equals to zero.
Any finance lease transaction that does not transfer ownership, which became
effective prior to the fiscal year during which the “Accounting Standard for Lease
Transactions” (Accounting Standards Board of Japan (ASBJ) Statement No. 13)
first became applicable, is treated similarly to the manner in which ordinary lease- 26 -

transactions are treated.
(3)Standards for providing important allowances:(i)

Allowance for doubtful receivables:
To meet losses from loan default, the Company sets aside an estimateduncollectible amount by taking into consideration the actual loss rate in respect ofgeneral credits and the individual possibilities of collection in respect of possible
non-performing credits and other specific claims.

(ii) Accrued bonuses:
To meet the payment of bonuses to employees, some consolidated subsidiaries set
aside the portion for each fiscal year of an estimated amount of bonuses to be paidin the future.
(iii) Reserve for products warranty:
To meet expenses of after-sales services with regard to the products sold, theCompany sets aside an estimated amount based on the past sales record.
(iv) Liabilities for retirement benefits:
To meet the payment of retirement benefits to employees, the Company provides
an amount based on estimated retirement benefit obligations and plan assets as ofthe end of the fiscal year.
The total transitional obligation, determined as of April 1, 2000, was charged toincome when first adopted, except that of certain subsidiaries which is amortizedby the straight-line method over 15 years.
Prior service cost is amortized by the straight-line method over a period within
the average remaining years of service of the employee (10 years).
Actuarial gains or losses are amortized by the straight-line method over a period
within the average remaining years of service of the employee (10 years) startingfrom the following period.
(Additional information)
As from the fiscal year under review, the Company and its Japanese consolidated
subsidiaries have changed their respective retirement benefits plans, from thetax-qualified pension plan to defined benefits pension plans. The changes of theplans have no significant impact on net income or loss.
(v) Liabilities for directors’ retirement benefits:- 27 -

To provide for the payment of retirement gratuities to officers, an amount payableat the end of the fiscal year under the Company’s internal rules is reserved.
(4)

Other significant accounting policies forming the basis of presentation of consolidated
financial statements:(i)Standards for recognizing revenue and costs of completed construction work:
Construction work of the outcome of which is deemed certain during the courseof activity by the end of the fiscal year:
By the percentage-of-completion method (the percentage of completion at theend of the fiscal year shall be estimated by the method of comparison of
incurred cost to date with estimated total contract costs.)
Other construction work:
By the completed-contract method(ii) Method and period of amortization of goodwill:
Goodwill is amortized by the straight-line method over a period of five years,
except for insignificant goodwill.
(iii) Accounting for consumption taxes, etc.:
By the tax-exclusive method

Notes to Consolidated Balance Sheet
1.

Accumulated depreciation of assets
Accumulated depreciation of tangible fixed assets:2.

¥36,311 million

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

3.
In accordance with the Act on Revaluation of Land (Act No. 34, promulgated on
March 31, 1998) of Japan, one of the consolidated subsidiaries revaluated its land used forbusiness. The applicable taxes of the revaluation difference were ¥226 million as revalued
deferred tax liabilities. Also, the revaluation difference is eliminated in consolidation, andso it is not presented in equity.
4.

Contingent liabilities- 28 -

A consolidated subsidiary, FUNAI EUROPE GmbH, is under investigation by theGerman tax authorities with regard to transfer pricing taxation on transactions with theCompany and FUNAI ELECTRIC EUROPE Sp. z o.o., which is also a consolidated
subsidiary. So far, the results of this investigation are inconclusive. As at present, it is notpossible to rationally estimate the amount of impact such an investigation could have, thisfactor has not been reflected in the Group’s consolidated financial statements.

Notes to Consolidated Statement of Operations
1.

Impairment losses

During the fiscal year under review, the Funai Electric Group recorded losses on
impairment in the following asset groups:
Use
Business assets
Business assets
Research facility

Location
DX Antenna Co., Ltd.
(Hyogo-ku, Kobe City)DX Antenna Co., Ltd.
(Ono City, Hyogo Pref.)DX Antenna Co., Ltd.
(Tarumi-ku, Kobe City)

Type
Buildings and structures
Buildings and structures
Buildings and structures, lands

In principle, the Funai Electric Group groups business assets by company, while idle
assets are grouped by individual asset.
During the fiscal year under review, we reduced the book values of structures
earmarked for demolition and land scheduled for sale to their recoverable values. These
reductions, along with estimated removal costs associated with demolition, were recorded asa loss on impairment (¥396 million) and posted as a special loss. This loss breaks down
into ¥353 million on buildings and structures, and ¥43 million on land.
We reduced to zero the recoverable value of those assets that are slated for demolition.
For assets scheduled for sale, we reduced their recoverable value to their net sale value basedon real estate appraisal values.
2.
Disposition of supplementary tax assessment based on the application of tax system for
dealing with tax havens(1)
On June 28, 2005 and June 16, 2008, we received a notice from the Osaka Regional
Taxation Bureau regarding the implementation of a corrective action. This noticeindicated a decision regarding our subsidiary in Hong Kong, suggesting that it did notsatisfy the conditions for exclusion from application of the tax system for dealing
with tax havens. The notification furthermore indicated that the Osaka Regional
Taxation Bureau decided to incorporate the income generated by our subsidiary inHong Kong into the income of the Company for the duration of three years, from- 29 -

April 1, 2001 to March 31, 2004 and from April 1, 2004 to March 31, 2007, fortaxation purposes. Because the Company objected to this corrective action, weapplied for assessments by the Osaka National Tax Tribunal on July 25, 2006 andagain on August 6, 2008. Thereafter, we received written verdicts on this case on
July 3, 2008, and again on July 23, 2009, indicating that our assertions had been
dismissed. We filed an appeal to have the action cancelled with the Osaka District
Court on November 16, 2006 and again on November 14, 2008, and hearings byconsolidation of those actions had been held since November 26, 2008. The court
dismissed the claims of the Company on June 24, 2011. Thereafter, as the Company
was unable to accept the Osaka District Court’s judgment, we filed a notice of appeal
at the Osaka High Court on July 7, 2011.
The additional tax amounted to ¥16,651 million (¥19,184 million including incidental
taxes) and ¥15,038 million (¥16,838 million including incidental taxes), including
corporate income taxes, inhabitant taxes and enterprise taxes. We processed theseamounts in the respective fiscal years ended March 31, 2007 and 2009 as “Income
taxes - prior years,” since the accounting procedures relating to additional tax
amounts have been clarified through the amendment of the “Treatment of Accounting
and Presentation of Taxes for the Purpose of Audits” (JICPA Audit and Assurance
Practice Committee Report No. 63).
(2)

On June 29, 2011, we received a notice from the Osaka Regional Taxation Bureausuggesting that our subsidiary in Hong Kong did not satisfy the conditions for
exclusion from application of the tax system for dealing with tax havens andindicating its decision to incorporate the income generated by the subsidiary into theincome of the Company for the duration of three years from April 1, 2007 to March
31, 2010, for taxation purposes. Because the Company objected to this corrective
action, we applied for assessments by the Osaka National Tax Tribunal on August 25,
2011.
The additional tax, including corporate, residential, and business taxes, amounted to¥825 million (¥935 million including incidental taxes). This amount has beenprocessed as expenses under the category of “Income taxes - prior years” in the fiscal
year under review.

(3)With regard to the actions the Company filed with the Osaka District Court on June
28, 2005 and June 16, 2008, seeking the rescission of supplementary tax assessments,
on June 24, 2011, a decision was reached in which the court dismissed the claims of
the Company. Accordingly, the Company treated this amount as an expense during
the fiscal year under review, which is the fiscal year following the year to which theassessment was applied.

Notes to Consolidated Statement of Changes in Equity
1.
Matters concerning the classes and total number of issued shares, and the classes andnumber of shares of treasury stocks- 30 -

(thousand shares)
Number ofshares as ofApril 1, 2011

Increase in thenumber ofshares during
the year

36,123

7-

36,13036,123

7-

36,130

2,011
2,011

-

-

2,011
2,011

Issued shares
Shares of common stock(Note)
Total
Shares of treasury stock
Shares of common stock
Total

Decrease in thenumber of
Number ofshares during
shares as of
the yearMarch 31, 2012

(Note)The number (7 thousand) of shares of common stock issued by the Company increased as aresult of the exercise of stock acquisition rights (stock options).

2.

Matters concerning dividends from surplus(1)

Amount of dividends paid:

Resolution

Class ofsharesTotal amountof dividends(million yen)Amount ofdividend per
share
(yen)

Record date

Effective
date

Meeting of the Boardof Directors held on
May 23, 2011

Shares ofcommon
stock

1,364

40

March 31,2011

June 14,2011(2)

Dividends for which the record date falls during the fiscal year under review, but theeffective date falls during the next fiscal year:

Resolution

Class ofsharesTotalamount ofdividends(millionyen)

Meeting of theBoard of Directors
held on May 21,
2012

Shares ofcommon
stock

1,705

Source ofdividends

Amount ofdividend
per share(yen)

Recorddate

Effective
date

Retainedearnings

50

March 31,2012

June 14,2012- 31 -

3.

Matters concerning stock acquisition rights
Description of stock option

Class of shares to be issued ortransferred upon exercise ofstock option

Number of shares for stock
option (share)
As of March 31, 2012

The first stock option for the year
ended March 31, 2004

Shares of common stock

378,500

The first stock option for the year
ended March 31, 2005

Shares of common stock

359,900

The second stock option for theyear ended March 31, 2005

Shares of common stock

25,600The first stock option for the year
ended March 31, 2006

Shares of common stock

346,400

The first stock option for the year
ended March 31, 2009

Shares of common stock

360,500

Total-

1,470,900

Notes to financial instruments
1.

Matters relating to the status of financial instruments

The Group raises funds by bank loans and invests funds by short-term deposits.
principle, the Group has a policy of not using derivatives.

In

With regard to customers’ credit risks relating to notes and accounts receivable-trade,the Group has stipulated its sales management rules to manage trading terms and credit lines
by client.
Marketable securities are negotiable certificates of deposit.
them by ensuring the safety thereof.

The Group manages

Investment securities are exposed to market risks. With regard to such risks, themarket values and the financial positions of the issuers are reviewed periodically andreported to the Investment and Loan Committee, an internal organ.
Notes and accounts payable-trade and accounts payable-other shall mostly becomedue and payable within one year.
Both short-term loans payable and long-term loans payable are funds procured inrelation to business transactions. The Group has a policy of not using derivatives.
However, as floating-rate loans are exposed to interest rate risk, the Group may utilize
derivatives (interest rate swap agreements) as hedging instruments according to individualloan contracts. To trade in derivatives, such derivatives are executed and managed inaccordance with the internal rules. To avert credit risk, the Group enters into transactions
solely with financial institutions receiving high ratings.

- 32 -

2.

Matters concerning fair values, etc., of financial instruments
The following chart shows amounts for items recorded in the consolidated balance
sheet as of March 31, 2012, along with their fair values and the variances:(million yen)
Balance sheet
amount*Fair value*

Variance(1)

Cash and deposits

68,146

68,146-(2)

Notes and accounts receivable-trade32,29632,296-(3)

Marketable securities:
4,500

4,500

-

Available-for-sale securities

1,366

1,366

-

(5)

Notes and accounts payable-trade(29,623)(29,623)-(6)

Short-term bank loans(4,583)(4,583)-(7)

Accounts payable-other(11,158)(11,158)-(8)

Derivatives

-

-

-

Available-for-sale securities(4)

Investment securities:* The items recognized as liabilities are shown in parentheses.
(Notes)1. Matters concerning the calculation method of the fair values of financial
instruments, as well as securities and derivatives:(1) Cash and deposits and (2) Notes and accounts receivable-trade:
The book value is used for these items, as the fair value is nearly equal to thebook value as a result of their short settlement periods.
(3) Marketable securities:
The book value is used for negotiable certificates of deposit, as the fair value
is nearly equal to the book value as a result of their short settlement periods.
(4) Investment securities:
The fair value of stocks is determined by the prices of the stocks traded on an
exchange.
(5) Notes and accounts payable-trade, (6) Short-term loans payable, and (7)Accounts payable-other:
The book value is used for these items, as the fair value is nearly equal to thebook value as a result of their short settlement periods.

- 33 -

(8) Derivatives:
The Group does not utilize any derivatives.
applicable.

Hence, this item is not

2. Unlisted shares (¥3,275 million in the balance sheet) have no market price andit is impossible to estimate their future cash flow. As determining the market
value is recognized as being extremely difficult, they are not included in “(4)Investment in securities – Available-for-sale securities.”

Notes on the information per share
Book-value per share:¥3,598.03

Net loss per share:¥135.69

Other notes
Additional Information
Application of “Accounting Standard for Accounting Changes and Error Corrections”
For any accounting change and the correction of any error in the past to be made as
from the beginning of the fiscal year under review, the “Accounting Standard for
Accounting Changes and Error Corrections” (ASBJ Statement No. 24, December 4,2009) and “Implementation Guidance on Accounting Standard for Accounting Changes
and Error Corrections” (ASBJ Implementation Guidance No. 24, December 4, 2009) areapplied.
========================================================================(Note)All figures in the consolidated balance sheet, consolidated statement of operations,consolidated statement of changes in equity, and notes to consolidated financial
statements are shown by disregarding any fractions of the relevant units.
Book-value per share and net loss per share are shown by rounding off to two
decimal places.

- 34 -

Copy of Accounting Auditors’ Audit Report on Consolidated Financial Statements(TRANSLATION)
INDEPENDENT AUDITORS’ REPORTMay 21, 2012
To the Board of Directors of
Funai Electric Co., Ltd.:
Deloitte Touche Tohmatsu LLC
Designated Unlimited Liability Partner,
Engagement Partner,
Certified Public Accountant:
Fumihiko Kimura
Designated Unlimited Liability Partner,
Engagement Partner,
Certified Public Accountant:
Masaki Mizoguchi

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,
2012, of Funai Electric Co., Ltd. (the “Company”) and consolidated subsidiaries and therelated consolidated statements of income and changes in equity for the fiscal year from
April 1, 2011 to March 31, 2012, 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 conformity 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.

- 35 -

Auditors’ 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.
An audit involves performing procedures to obtain audit evidence about the amounts anddisclosures in the consolidated financial statements. The procedures selected depend on theauditors’ 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 auditors consider 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
a basis 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 the Company and its consolidated subsidiaries asof March 31, 2012, and the results of their operations for the year then ended in conformity
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 -

- 36 -

NON-CONSOLIDATED BALANCE SHEET(As of March 31, 2012)(million yen)

ASSETS
Current assets:
Cash and deposits.....................................................................................
Notes receivable-trade .............................................................................
Accounts receivable-trade........................................................................
Marketable securities ...............................................................................
Merchandise and finished goods..............................................................
Raw materials and supplies......................................................................
Prepaid expenses......................................................................................
Deferred tax assets ...................................................................................
Other ........................................................................................................
Allowance for doubtful receivables .........................................................

66,283
18,67663
35,826
4,500
171
2,037
1,333
1,810
1,900
(36)

Fixed assets:
Tangible fixed assets:
Buildings ..................................................................................................
Structures .................................................................................................
Machinery and equipment .......................................................................
Motor vehicles .........................................................................................
Tools, furniture, and fixtures ...................................................................
Land .........................................................................................................
Lease assets ............................................................................................
Intangible assets:
Patents ......................................................................................................
Software ...................................................................................................
Lease assets..............................................................................................
Other ........................................................................................................

46,433
7,904
3,145
60
55
0
310
4,086
245
4,348
3,813
496
26
12

Investments and other assets:
Investment securities................................................................................
Investment in subsidiaries and associated companies .............................
Long-term loans receivable .....................................................................
Long-term prepaid expenses ....................................................................
Deferred tax assets ...................................................................................
Other ........................................................................................................
Allowance for doubtful receivables .........................................................

34,181
1,882
23,676
12,100
1,259
3,572
1,292
(9,602)TOTAL ASSETS

112,717- 37 -

LIABILITIES(million yen)

Current liabilities:
Accounts payable-trade................................................................................
Current portion of long-term lease obligations..............................................
Accounts payable-other .................................................................................
Accrued expenses ..........................................................................................
Accrued income taxes ....................................................................................
Deposit received ............................................................................................
Reserve for products warranty.......................................................................
Other ..............................................................................................................

33,88722,023
143
7,041
3,658
35
799
185
0

Long-term liabilities:
Long-term lease obligations...........................................................................
Liabilities for directors’ retirement benefits ..................................................
Other ..............................................................................................................

1,245
182
1,062
1

TOTAL LIABILITIES

35,133

EQUITY
Shareholders’ Equity:
Common stock:
Capital surplus:
Capital reserve ...............................................................................................
Other capital surplus ......................................................................................

77,46931,30733,272
32,833438

Retained earnings:
Legal reserve..................................................................................................
Other retained earnings..................................................................................
Reserve for advanced depreciation of fixed assets ............................
General reserve ..................................................................................
Retained earnings carried forward.....................................................

37,230209
37,021
520
23,40013,100Treasury stock:(24,341)

Valuation and translation adjustments: ................................................................
Unrealized gain on available-for-sale securities: ..............................................
Stock acquisition rights:..........................................................................................

7
7
106

TOTAL EQUITY

77,584TOTAL LIABILITIES AND EQUITY

112,717- 38 -

NON-CONSOLIDATED STATEMENT OF INCOME(from April 1, 2011 to March 31, 2012)(million 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 expenses
Foreign exchange loss
Provision for allowance for doubtful accounts ofassociated companies
Transfer pricing taxation adjustments
Other
Ordinary income
Special gain:
Gain on sales of fixed assets
Gain on sales of investment securities
Special loss:
Loss on disposal of fixed assets
Valuation loss on investments in subsidiaries andassociated companies
Other

195,880
175,831
20,04820,356307
12,77488

12,862

0
301
40
1,770
277

3
3

2,389
10,165

6

22
5,568
312

Income before income taxes

5,903
4,268

73
935
636

Income taxes - current
Income taxes - prior years
Income taxes - deferred
Net income

1,646
2,621

- 39 -

NON-CONSOLIDATED STATEMENT OF CHANGES IN EQUITY(from April 1, 2011 to March 31, 2012)(million yen)
Shareholders’ equity
Retained earnings

Capital surplus
Commonstock

Balance as of April 1, 2011

Other
capitalsurplusCapitalreserve

31,30032,8267

7

438

Other retained earnings
Reserve for
Retained
advancedearnings
Generaldepreciation
carriedreserveof fixed
forwardassetsTotal capitalsurplusLegalreserve

33,265209

490

23,40011,872

Total
shareholders’equityTreasury
stock

Total
retainedearnings

35,973(24,341)

76,197

Changes of items during the
fiscal year
Exercise of stock options

7

14

Reserve for advanced
depreciation of fixed
assets

39

(39)

-

-

Reversal of reserve foradvanced depreciationof fixed assets

(10)

10

-

-

Cash dividends(1,364)(1,364)(1,364)

Net income

2,621

2,621

2,621

Net changes of items otherthan shareholders’ equity
Total changes of items during
the fiscal year

7

7

-

7

-

29

-

1,227

1,257

-

1,272

Balance as of March 31, 2012

31,307

32,833438

33,272209

520

23,40013,10037,230(24,341)

77,469- 40 -

(million yen)

Balance as of April 1, 2011

Valuation and translation adjustments
Unrealized gain
Total valuationonand translation
available-for-saleadjustments
securities
566
566

Stock acquisitionrights87

Total

76,851

Changes of items during the
fiscal year
Exercise of stock options

14

Reserve for advanced
depreciation of fixed assets-

Reversal of reserve for advanced
depreciation of fixed assets-

Cash dividends(1,364)

Net income

2,621

Net changes of items other thanshareholders’ equity

(559)

(559)

Total changes of items during the
fiscal year

(559)

(559)

19

732

7

7

106

77,584

Balance as of March 31, 201219

- 41 -(539)

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
Notes on matters concerning major accounting policies:
1.

Valuation basis and methods for assets:(1) Valuation basis and methods for securities:
Investment in subsidiaries and associated companies:
At cost, determined by the moving average method.
Available-for-sale securities:
Marketable securities
Stated at fair value on the non-consolidated balance sheet date of the fiscal year
(Unrealized gain or loss and net of applicable taxes reported in a separate
component of equity. Selling costs are determined by the moving averagemethod).
Non-marketable securities:
Stated at cost, determined by the moving average method.
(2)

2.

Valuation basis and methods for inventories:
Finished goods:

Stated at cost, determined by the average method (Book value
is written down to net realizable value if not profitable).

Raw materials:

Stated at cost, determined by the first-in, first-out method(Book value is written down to net realizable value if not
profitable).

Method of depreciation of major fixed assets:(1) Tangible fixed assets (excluding lease assets):
Stated by the declining balance method.
However, with regard to the buildings (excluding appurtenances thereto) acquired on
or after April 1, 1998, the straight-line method has been adopted.
(2) Intangible assets (excluding lease assets):
Stated by the straight-line method.

- 42 -

However, depreciation of goodwill is made equally for five years, depreciation ofpatent rights is made by the straight-line method based on the estimated economicallyusable period, and depreciation of software for internal use is made by thestraight-line method based on the internal usable years (five years).
(3)

Lease assets:
Lease assets related to finance lease transactions that do not transfer ownership are
depreciated by the straight-line method based on the assumption that the useful life
equals to the lease term and the residual value equals to zero.
Any finance lease transaction that does not transfer ownership, which became
effective prior to the fiscal year during which the “Accounting Standard for Lease
Transactions” (ASBJ Statement No. 13) first became applicable, is treated similarly
to the manner in which ordinary lease transactions are treated.

3.

Standards for providing allowances:(1) Allowance for doubtful receivables:
To meet losses from loan default, Funai Electric Co., Ltd. (the “Company”) sets aside anestimated uncollectible amount by taking into consideration the actual loss rate inrespect of general credits and the individual possibilities of collection in respect ofpossible non-performing credits and other specific claims.
(2) Reserve for product warranty:
To meet expenses of after-sales services with regard to the products sold, theCompany sets aside an estimated amount based on the past sales record.
(3) Liabilities for retirement benefits:
To meet the payment of retirement benefits to employees, the Company provides anamount based on estimated retirement benefit obligations and plan assets as of the
non-consolidated balance sheet date.
Prior service cost is amortized by the straight-line method over a period within the
average remaining years of service of the employee (10 years).
As plan assets exceeded retirement benefit obligations as of the end of the fiscal year
under review, “other” in “Investments and other assets” were recorded by inclusionof ¥886 million of prepaid pension cost.
Actuarial gains or losses are amortized by the straight-line method over a period
within the average remaining years of service of the employee (10 years) startingfrom the following period.

- 43 -

(Additional information)
As of April 1, 2011, the Company changed its retirement benefits plan from thetax-qualified pension plan to defined benefits pension plan. The change of the plan
has no significant impact on net income or loss.
(4) Liabilities for directors’ retirement benefits:
To provide for the payment of retirement gratuities to officers, an amount payable atthe end of the fiscal year under the Company’s internal rules is reserved.
4.
Other significant accounting policies forming the basis of presentation of non-consolidated
financial statements:
Accounting for consumption taxes, etc.:

By the tax-exclusive method

Notes to Non-consolidated Balance Sheet:1.

Accumulated depreciation of assets:
Accumulated depreciation of tangible fixed assets:

2.

¥10,824 million

Monetary debts due from and to subsidiaries and associated companies:
Short-term monetary debts due from associated companies:
Long-term monetary debts due from associated companies:
Short-term monetary liabilities due to associated companies:¥26,774 million¥11,888 million¥25,178 million

Short-term monetary liabilities due to associated companies include ¥1,770 million oftransfer pricing taxation adjustments due from the Company to its U.S. subsidiary as
described in Note 2 to non-consolidated statement of income below.
3.

Contingent liabilities:

A consolidated subsidiary, FUNAI EUROPE GmbH, is under investigation by theGerman tax authorities with regard to transfer pricing taxation on transactions with the Company
and FUNAI ELECTRIC EUROPE Sp. z o.o., which is also a consolidated subsidiary. So far,the results of this investigation are inconclusive. As at present it is not possible to rationallyestimate the amount of impact such an investigation could have, this factor has not been reflectedin the non-consolidated financial statements.

- 44 -

Notes to Non-consolidated Statement of Income:1.

Amount of transactions with subsidiaries and associated companies:
Trading transaction:
Sales:
Purchase:
Other operating expenses:
Transactions other than trading:¥121,140 million¥168,495 million¥1,397 million¥14,605 million

Transactions other than trading include ¥1,770 million of transfer pricing taxation
adjustments due from the Company to its U.S. subsidiary as described in Note 2 to
non-consolidated statement of income below.
2.

Transfer pricing taxation adjustments:

With regard to prior confirmation concerning Japan-U.S. transfer pricing applied by theCompany’s consolidated group, the Japanese and U.S. taxation authorities have agreed.
Transfer pricing taxation adjustments recorded as non-operating expenses are prior-year
adjustments due from the Company to its U.S. subsidiary pursuant to the agreement.
3.
Disposition of supplementary tax assessment based on the application of tax system for
dealing with tax havens:(1)
On June 28, 2005, and June 16, 2008, we received a notice from the Osaka Regional
Taxation Bureau regarding the implementation of a corrective action. This noticeindicated a decision regarding our subsidiary in Hong Kong, suggesting that it did notsatisfy the conditions for exclusion from application of the tax system for dealing withtax havens. The notification furthermore indicated that the Osaka Regional Taxation
Bureau decided to incorporate the income generated by our subsidiary in Hong Kong into
the income of the Company for the duration of three years, from April 1, 2001 to
March 31, 2004 and from April 1, 2004 to March 31, 2007, for taxation purposes.
Because the Company objected to this corrective action, we applied for assessments by
the Osaka National Tax Tribunal on July 25, 2006, and again on August 6, 2008.
Thereafter, we received written verdicts on this case on July 3, 2008, and again on July23, 2009, indicating that our assertions had been dismissed. We filed an appeal to havethe action cancelled with the Osaka District Court on November 16, 2006, and again on
November 14, 2008, and hearings by consolidation of those actions had been held sinceNovember 26, 2008. The court dismissed the claims of the Company on June 24, 2011.
Thereafter, as the Company was unable to accept the Osaka District Court’s judgment,
we filed a notice of appeal at the Osaka High Court on July 7, 2011.
The additional tax amounted to ¥16,651 million (¥19,184 million including incidental
taxes) and ¥15,038 million (¥16,838 million including incidental taxes), including
corporate income taxes, inhabitant taxes and enterprise taxes. We processed theseamounts in the respective fiscal years ended March 31, 2007 and 2009, as “Income taxes- prior years,” since the accounting procedures relating to additional tax amounts havebeen clarified through the amendment of the “Treatment of Accounting and Presentation- 45 -

of Taxes for the Purpose of Audits” (JICPA Audit and Assurance Practice Committee
Report No. 63).
(2)

On June 29, 2011, we received a notice from the Osaka Regional Taxation Bureausuggesting that our subsidiary in Hong Kong did not satisfy the conditions for exclusionfrom application of the tax system for dealing with tax havens and indicating theirdecision to incorporate the income generated by the subsidiary into the income of theCompany for the duration of three years from April 1, 2007 to March 31, 2010, fortaxation purposes. Because the Company objected to this corrective action, we applied
for assessments by the Osaka National Tax Tribunal on August 25, 2011.
The additional tax, including corporate, residential, and business taxes, amounted to¥825 million (¥935 million including incidental taxes). This amount has been processed
as expenses under the category of “Income taxes - prior years” in the fiscal year underreview.

(3)

With regard to the actions the Company filed with the Osaka District Court on June 28,2005 and June 16, 2008, seeking the rescission of supplementary tax assessments, on
June 24, 2011, a decision was reached in which the court dismissed the claims of theCompany. Accordingly, the Company treated this amount as an expense during the
fiscal year under review, which is the fiscal year following the year to which theassessment was applied.

Notes to Non-consolidated Statement of Changes in Equity
Matters concerning the number of shares of treasury stock:

Class of shares
Common stock（thousand shares）

Increase in the
Decrease in the Number of shares
Number of shares numberofsharesnumberof shares as of March 31,
as of April 1, 2011 during the year
during the year
2012
2,011

-

- 46 --

2,011

Notes on Accounting for Deferred Tax
1.

Principal components of deferred tax assets and deferred tax liabilities:(million yen)

Deferred tax assets
Liabilities for directors’ retirement benefits
Accounts payable-other
Allowance for doubtful receivables
Accrued expenses (bonuses)
Impairment loss on investment securities
Impairment loss on investment in subsidiaries and associatedcompanies
Tax loss carryforwards
Other
Subtotal
Valuation allowance
Total

1,984
3,425
1,375
12,274(6,285)
5,989

Deferred tax liabilities
Unrealized loss on available-for-sale securities
Prepaid pension costReserve for advanced depreciation of fixed assets
Subtotal
Deferred tax assets, net

(1)
(315)
(289)
(606)
5,382

378
1,178
3,349
353
229

2.
Application of the “Act for Partial Revision of the Income Tax Act, etc. to Establish Tax
Systems in Response to the Changing Socioeconomic Structure,” etc.:
On December 2, 2011, the “Act for Partial Revision of the Income Tax Act, etc. toEstablish Tax Systems in Response to the Changing Socioeconomic Structure” (2011 Act No.
114) and the “Special Measures Act to Secure the Funds Necessary to Realize Restoration
Following the Great East Japan Earthquake” (2011 Act No. 117) were promulgated. By theseacts, the corporate tax rate will be reduced and the special restoration corporate tax will be leviedfrom the fiscal year beginning on or after April 1, 2012. Accordingly, with regard to temporary
differences expected to be eliminated from the fiscal year beginning on April 1, 2012 to thefiscal year beginning on April 1, 2014, the effective corporate tax rate used for the calculation ofdeferred tax assets and deferred tax liabilities is changed from 40.70% to 38.01%. With regard
to temporary differences expected to be eliminated for the fiscal year or years beginning on orafter April 1, 2015, the effective corporate tax rate used for the calculation of deferred tax assets
and deferred tax liabilities is changed from 40.70% to 35.64%. Consequently, net deferred tax
assets (net of deferred tax liabilities) decreased by ¥474 million and income tax adjustments
increased by ¥474 million.

- 47 -

Notes on the Fixed Assets Used by Lease
Finance lease agreements that do not transfer ownership, which became effective on or
before March 31, 2008, are treated similarly to the manner in which ordinary lease transactions
are treated.
1.

Amounts equivalent to the acquisition prices, accumulated depreciation, and balance atthe end of the year:
Amount equivalent
to the acquisition
costs
Tools, furniture, and fixtures
258
Total:
258

2.

(million yen)Amount equivalent Amount equivalent
to accumulated
to balance at the end
depreciationof the year
255
3
255
3

Future lease payable at the end of the year:
Balance of future lease payable at the end of the year:
Due within one year:
Due after one year:¥2 million¥- million

Total:¥2 million

Transactions with Related Parties
Subsidiaries, etc.
(million yen)

Type

Name

Voting rights
held by theCompany (orheld byothers)RelationshipTransaction

Subsidiary

DX AntennaCo., Ltd.

Direct,91.40%

Sale of productsof the Company

Subsidiary

FUNAI
ELECTRIC(HK) LIMITED

Direct, 100%

Production of
products of theCompany

Sale ofelectronic
products
Purchase ofelectronic
products

Subsidiary

FUNAI(THAILAND)
CO., LTD.

Direct,66.67%
Indirect,33.33%

Production of
products of theCompany

Purchase ofelectronic
products

Sale of productsof the Company;
interlocking
directorate

Sale ofelectronic
products
Transfer
pricing
taxationadjustments

Sale of productsof the Company;
interlocking
directorate

Sale ofelectronic
products

Subsidiary

Subsidiary

FUNAI
CORPORATION,
INC.

P&F USA, Inc.

Direct, 100%

Direct, 100%

- 48 -

Amount8,827

139,033

Account
Accounts
receivable trade
Accounts
payable trade

Balance asof March
31, 2012
1,162

18,382

12,416

Accounts
payable trade

1,534

72,373

Accounts
receivable trade

12,011

1,770

Accruedexpenses

2,727

31,746

Accounts
receivable trade

10,289

Voting rights
held by theCompany (orheld byothers)RelationshipSale of productsof the Company;
interlocking
directorate

Type

Name

Subsidiary

FUNAI
ELECTRICEUROPE Sp. z
o.o.

Direct, 100%FUNAIEUROPEGmbH

Direct, 100%

Subsidiary(Note)

Sale of productsof the Company;
interlocking
directorate

Transaction

AmountSale ofelectronic
products

3,155

Loan offunds-

Loan offunds-

Account
Accounts
receivable tradeLong-term
loans
receivable
Long-term
loans
receivable

Balance asof March
31, 2012
1,308
2,086

9,568

Transaction terms and policies on the determination of transaction terms, etc.:
Like the terms of ordinary transactions, transaction terms are determined in consideration ofmarket prices and other factors.

Note on the Information per Share
Book-value per share:¥2,270.78

Net income per share:¥76.86

Other notes
Additional Information
Application of “Accounting Standard for Accounting Changes and Error Corrections”
For any accounting change and the correction of any error in the past to be made as fromthe beginning of the fiscal year under review, the “Accounting Standard for Accounting
Changes and Error Corrections” (ASBJ Statement No. 24, December 4, 2009) and“Implementation Guidance on Accounting Standard for Accounting Changes and Error
Corrections” (ASBJ Implementation Guidance No. 24, December 4, 2009) are applied.
========================================================================•All figures in the non-consolidated balance sheet, non-consolidated statement of income,non-consolidated statement of changes in equity, and notes to non-consolidated financial
statements are shown by disregarding any fractions of the relevant units. Book-value pershare and net income per share are shown by rounding off to two decimal places.

- 49 -

Copy of Accounting Auditors’ Audit Report(TRANSLATION)
INDEPENDENT AUDITORS’ REPORTMay 21, 2012
To the Board of Directors of
Funai Electric Co., Ltd.:
Deloitte Touche Tohmatsu LLC
Designated Unlimited Liability Partner,
Engagement Partner,
Certified Public Accountant:
Fumihiko Kimura

Designated Unlimited Liability Partner,
Engagement Partner,
Certified Public Accountant:
Masaki Mizoguchi

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, 2012, of Funai
Electric Co., Ltd. (the “Company”) and the related statements of income and changes inequity for the 60th fiscal year from April 1, 2011 to March 31, 2012, 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 conformity 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.

- 50 -

Auditors’ 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 thatwe 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 auditors’ 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 the Company
as of March 31, 2012, and the results of its operations for the year then ended in conformity
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 -

- 51 -

Copy of Audit Report of the Board of Corporate Auditors

AUDIT REPORT
We, the Board of Corporate Auditors of Funai Electric Co., Ltd. (the “Company”),
after deliberation based upon the audit report prepared by each Corporate Auditor on theexecution by Directors of their duties during the 60th fiscal year from April 1, 2011 throughMarch 31, 2012, have prepared this audit and hereby report as follows.
1.
Method of audit by the Corporate Auditors and the Board of Corporate Auditors andthe particulars thereof:
The Board of Corporate Auditors determined the audit policy, audit plans, etc.,
received from each Corporate Auditor reports on the state of his/her performance of audits
and the results thereof, and also received from the Directors, etc., and the accounting auditors
reports on the state of execution of their duties and demanded their explanations whenevernecessary.
Each Corporate Auditor, in accordance with the auditing standards for the Corporate
Auditors determined by the Board of Corporate Auditors and pursuant to the audit policy,
audit plans, etc., maintained constant communication with the Directors, the internal audit
division, and other employees, etc., in an effort to collect information and improve theenvironment for auditing; attended meetings of the Board of Directors and other important
meetings; received from the Directors and employees, etc., reports on the state of executionof their duties; demanded their explanations whenever necessary; inspected important
decision documents, etc.; and made investigations into the state of activities and property at
the head office and principal business offices of the Company. With regard to the details of
the resolutions of the Board of Directors for establishing systems to secure that the execution
by the Directors of their duties will comply with acts or ordinances and the Articles ofIncorporation and such other systems provided for in Article 100, paragraphs 1 and 3 of theRegulations to Enforce the Companies Act of Japan as necessary to secure the adequacy ofbusiness of joint-stock corporations, as well as the status of the systems (internal control
systems) established pursuant to such resolutions, which are described in the business report,
we periodically received from the Directors and employees, etc., reports; demanded their
explanations; and expressed our opinions, whenever necessary, on the state of formulationand operation thereof.
With regard to its subsidiaries, we maintained constantcommunication and exchanged information with the Directors, Corporate Auditors, etc.,
thereof and required the subsidiaries to render reports on their business operations whenevernecessary. In accordance with such methods, we investigated the business report and its
accompanying detailed statements for the fiscal year under review.
We also monitored and verified whether the accounting auditors had maintained an
independent position and conducted adequate audits, and received from the accounting
auditors reports on the state of execution of their duties and demanded their explanations
whenever necessary. In addition, we received from the accounting auditors a notice that the“systems to secure adequate execution of duties” (as listed in the items of Article 131 of the- 52 -

Regulations on Corporate Accounts) had been established in accordance with the “Standard
for Quality Control Concerning Audits” (ASBJ, October 28, 2005) and demanded their
explanations whenever necessary.
In accordance with such methods, we investigated the non-consolidated financial
statements (the non-consolidated balance sheet, the non-consolidated statement of income,the non-consolidated statement of changes in equity, and the notes to non-consolidated
financial statements) and their accompanying supplemental schedules, as well as theconsolidated financial statements (the consolidated balance sheet, the consolidated statementof operations, the consolidated statement of changes in equity, and the related notes) for the
fiscal year under review.
2.

Results of audit:(1)

Results of audit of the business report, etc.:
We are of the opinion:(i)That the business report and its accompanying detailed statements present fairly thestate of the Company in accordance with acts and ordinances and the Articles ofIncorporation(ii) That in connection with the execution by the Directors of their duties, no dishonest
act or material fact of violation of acts or ordinances or the Articles of Incorporation
exists(iii) That the details of the resolutions of the Board of Directors on internal control
systems are proper and that the descriptions in the business report and the execution
by the Directors of their duties concerning such internal control systems containnothing to be pointed out(2)

Results of audit of the non-consolidated financial statements and their accompanying
supplemental schedules:
We are of the opinion that the method and results of the audit made by the accounting
auditors, Deloitte Touche Tohmatsu LLC, are proper.

(3)

Results of audit of the consolidated financial statements:- 53 -

We are of the opinion that the method and results of the audit made by the accounting
auditors, Deloitte Touche Tohmatsu LLC, are proper.
May 21, 2012
Funai Electric Co., Ltd.
The Board of Corporate Auditors
Akitaka Inoue
Full-time Corporate Auditor(seal)

Shinichi Komeda
Outside Corporate Auditor(seal)

Masahide Morimoto
Outside Corporate Auditor(seal)- END -

- 54 -

Reference Document for the General Meeting of Shareholders
Propositions and reference information
Proposition No. 1:

Election of nine (9) Directors

The term of office of all the (9) Directors currently in office will expire at the close ofthis Ordinary General Meeting of Shareholders. Hence, it is hereby proposed that nine (9)Directors, including two (2) outside Directors, be elected.
The candidates for Directors are as follows:

Cand
i-date
No.

1.

Name

Brief history, post in the Company, and business incharge (and important concurrent office)(Date of birth)

Tetsuro Funai

April 1951

Established Funai Sewing MachineCompany

December
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 (To date);
Chairman and Officer of theCompany(January 24, 1927)

June 2010

Chairman and Officer of theCompany (To date)(Chairman of the FUNAI Foundation for Information
Technology)(Chairman of Funai Scholarship Foundation)- 55 -

Number ofshares of theCompany heldby Candidate

12,709,288
sharesCandi-date
No.

2.

Name

Brief history, post in the Company, and business incharge (and important concurrent office)(Date of birth)
April 1969

Joined the Company

October 2002

Officer of the Company

June 2005

Executive Officer of the Company

March 2006

CEO of FUNAI CORPORATION
INC.

June 2007

Senior Executive Officer of theCompany

March 2008

General Manager of AV
Headquarters of the Company

June 2008

Director of the Company;
President and CEO of theCompany

June 2010

Representative Director of theCompany (To date);

Tomonori Hayashi(March 13, 1947)

Number ofshares of theCompany heldby Candidate

15,400 shares

President and CEO of theCompany (To date)
Candidate for
Outside Director

3.

Mitsuo Yonemoto

July 1995

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 Sailor
Pen Co., Ltd. (To date)(March 18, 1939)

100 shares(Vice President and Director of T.P.S. LaboratoryCo., Ltd.)(Outside Director of The Sailor Pen Co., Ltd.)
April 1967
June 2007

June 20084.

Toshio Ohtaku(July 11, 1948)

June 2010
June 2011

Joined the Company
Officer and General Manager of
New Business Div. of theCompany
Executive Officer and General
Manager of New Business Div. of
the Company
Director of the Company (Todate)
Senior Executive Officer andGeneral Manager of New
Business Div. of the Company(To date)- 56 -

700 sharesCandi-dateNo.

Name

Brief history, post in the Company, and business incharge (and important concurrent office)(Date of birth)January 1992
July 2004

5.

Joined the Company
General Manager of DVD
Marketing Dept. of the Company
April 2007
COO of FUNAICORPORATION, INC. (To date)
October 2009
Officer of the Company
June 2010
Director of the Company (Todate)
September 2010 Chairman and Representative
Director of FUNAICORPORATION, INC.
October 2010
Officer and General Manager of
TV Business Div. of theCompany
Yoshikazu Uemura
December 2010 President and Representative(June 27, 1958)
Director of P&F USA, Inc. (Todate)
April 2011
Officer and General Manager of
AV Headquarters of the Company
July 2011
Officer and General Manager of
AV Business Div. of theCompany
May 2012
Officer and General Manager of
AV System Business Div.; andGeneral Manager of Display
Business Div. of the Company(To date)(President and Representative Director of P&F USA,Inc.)

Number ofshares of theCompany heldby Candidate- 57 -

700 sharesCandi-dateNo.

Name

Brief history, post in the Company, and business incharge (and important concurrent office)(Date of birth)
April 1977

Joined Hitachi, Ltd.

April 1990
April 1999

Chief Engineer, Hitachi, Ltd.
General Manager of Development
Office, System LSI Business
Dept., Semiconductor Group of
Hitachi, Ltd.
General Manager of Global
Marketing Dept. of Renesas
Technology Corp.
Representative Director of
Applause Technologies Co., Ltd.
Joined the Company
Executive Manager ofDevelopment & Technology
Headquarters of the Company
Officer and Deputy General
Manager of Development &Technology Headquarters of theCompany
Director of the Company (Todate)
Officer and General Manager ofDevelopment & Technology
Headquarters of the Company (Todate)

April 2003

February 2004

6.

Joji Okada

December 2005
April 2007

(August 27, 1954)
October 2009

June 2010
June 2011- 58 -

Number ofshares of theCompany heldby Candidate

500 sharesCandi-dateNo.

Name

Brief history, post in the Company, and business incharge (and important concurrent office)(Date of birth)
April 1984
January 1993
July 2003
April 2006
February 2008

June 2010
Hideaki Funakoshi
7.

(September 30,
1965)
June 2011

July 2011

May 2012

8.

April 1995

Joined the Company

July 2003

Manager, FUNAI ELECTRIC(HK) LIMITEDMay 2006

Assistant General Manager of AV
Headquarters of the Company

October 2009

President and Representative
Director of FUNAI ELECTRIC(POLSKA) Sp.z.o.o.
Director of the Company (Todate);
Officer of the Company

Shigeki Saji
(April 13, 1972)

Joined Mitsubishi ElectricEngineering Company Limited
Joined the Company
Chief Engineer, AV Project of theCompany
General Manager, DVD Project of
the Company
Executive General Manager of
DVD Business Div. of theCompany
Director of the Company (Todate);
Officer and General Manager of
DVD Business Div. of theCompany
Officer and Deputy General
Manager of AV Headquarters of
the Company
Officer and Deputy General
Manager of AV Business Div. of
the Company
Officer and Deputy General
Manager of AV System BusinessDiv. and General Manager of
Digital Media Business Div. of
the Company (To date)June 2010

September 2010

January 2012

Officer and Deputy General
Manager of TV Business Div. of
the Company
Officer, Development &Technology Headquarters of theCompany (To date)- 59 -

Number ofshares of theCompany heldby Candidate

800 shares

1,400 sharesCandi-date
No.

9.

Name
(Date of birth)[New]
Candidate for
Outside Director

Yoshiaki Bannai(August 3, 1954)

Brief history, post in the Company, and business incharge (and important concurrent office)April 1979

Joined TDK Corporation

June 2000

President and Representative
Director of Terra Logic Japan Inc.
(renamed Zoran Japan
Corporation in August 2003)
Country General Manager; andVice President in charge of Japan
area Sales & Marketing of Zoran
Corporation (U.S.A.)
Adviser of the Company (To date)June 2005

January 2012

Number ofshares of theCompany heldby Candidate- share(Notes) 1. None of the other candidates for Directors has any special interests with the Company.
2. Candidates for Directors: Messrs. Mitsuo Yonemoto and Yoshiaki Bannai are candidates
for outside Directors.
3. Reasons for the selection of the candidates for outside Directors:
Management has judged that Mr. Mitsuo Yonemoto will be able to offer advice based on
his broad experience as a management consultant.
Management has judged that Mr. Yoshiaki Bannai will be able to use his broad
knowledge and experience in corporate management and the creation of new businesses.
4. Years of service of outside Directors of the Company:
Mr. Mitsuo Yonemoto will have served as outside Director for 14 years at the close ofthis Ordinary General Meeting of Shareholders.
5. Conclusion of liability limitation agreements:
The Company has entered into an agreement with outside Director Mitsuo Yonemoto tolimit 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. If he is re-elected, such agreement will be renewed. If Mr. Yoshiaki Bannai iselected as outside Director, the Company will enter into the same agreement with him to
limit his liability for any damage as set forth herein.

- 60 -

Proposition No. 2:

Election of one (1) Corporate Auditor

Corporate Auditor Akitaka Inoue will resign at the close of this Ordinary General
Meeting of Shareholders. Hence, it is hereby proposed that one (1) Corporate Auditor beelected to fill a vacancy.
The term of office of the Corporate Auditor so elected to fill a vacancy shall expire atsuch time as the term of office of his predecessor would expire, in accordance with the
Articles of Incorporation of the Company.
The Board of Corporate Auditors has consented to this proposition.
The candidate for Corporate Auditor is as follows:

Name

Brief history (and important concurrent office)(Date of birth)

Hiromu Ishizaki

September 1968

Joined the Company

June 1993

General Manager of Business
Administration Dept., Accounting Div.
of the Company

October 2000

General Manager of Administration
Dept., Accounting Div. of theCompany

October 2005

General Manager of Corporate
Planning Dept. of the Company

June 2007

Director of New DAT Japan Inc.

October 2007

General Manager of Strategy Planning
Dept. of the Company

February 2011

Outside Corporate Auditor of DX
Antenna Co., Ltd. (To date)

May 2012

Adviser of the Company (To date)(March 23, 1946)(Note)

Number of sharesof the Company
held by Candidate

1,000 shares

The candidate for Corporate Auditor does not have any special interests with the Company.

Proposition No. 3:

Granting of retirement gratuities to retiring Director and Corporate
AuditorIt is hereby proposed that retirement gratuities be granted to Messrs. Yasuhisa Katsuta
and Akitaka Inoue, who will retire as Director and Corporate Auditor, respectively, at theclose of this Ordinary General Meeting of Shareholders, in appreciation of services renderedby them while in office, within the extent of a reasonable amount in accordance with theestablished standards of the Company and that determination of the actual amount, the timeand method of presentation, etc., be left to the Compensation Committee upon authorization- 61 -

by the Board of Directors as to the retiring Director, and consultation among the Corporate
Auditors as to the retiring Corporate Auditor.
The brief histories of the retiring Director and Corporate Auditor are as follows:
Name

Brief history

Yasuhisa Katsuta

June 2005 Outside Director of the Company (To date)

Akitaka Inoue

June 2010 Corporate Auditor of the Company (To date)- END –

- 62 -