(Translation)

Dear Shareholders:Information to be Disclosed on the Internet upon Giving
Notice of the 64th Ordinary General Meeting of Shareholders

June 10, 2016
Funai Electric Co., Ltd.

CONTENTS

1.

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

2.

NOTES TO NONCONSOLIDATED FINANCIAL STATEMENTS ··········· 14

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

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

Scope of consolidation(1)

Number of consolidated subsidiaries:(2)

Names of major consolidated subsidiaries:

23

FUNAI CORPORATION, INC., Funai Electric (HK) Ltd. and DX ANTENNA Co.,Ltd.
In the current fiscal year, the Group has included DX ANTENNA PHILIPPINES,

INC. in the scope of consolidation, because its importance has increased. The Group
has also included Funai North America, Inc., which was newly established in thecurrent fiscal year.
The Group has excluded FUNAI Optical Electronics Co., Ltd. from the scope of
consolidation in the current fiscal year because of its liquidation.
(3)

Name of major nonconsolidated subsidiary:
FGS Co., Ltd.
(Reason for exclusion from consolidation)
All nonconsolidated subsidiaries are excluded from the scope of consolidation
because they are small companies and their aggregated total assets, net sales, net
income (loss) (based on the Company's equity interest) and retained earnings (basedon the Company's equity interest) do not have material impacts on the consolidated
financial statements.

2.

Application of equity method(1)

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

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

(3)

Number of associated companies to which the equity method is applied: 0

In the current fiscal year, CMET FUNAI Optical Electric Co., Ltd. was excluded from thescope of application of equity method because the Company sold all of its shares.
(4)
Name of the major nonconsolidated subsidiary and associated company to which theequity method is not applied:
Nonconsolidated subsidiary: FGS Co., Ltd.
Associated company: Digitec Industrial Ltd.
-1-

(Reason for not applying the equity method)
The nonconsolidated subsidiaries and associated companies have minor impacts oneach of net income (loss) (based on the Company's equity interest) and retained
earnings (based on the Company's equity interest) and, as a whole, do not havematerial impacts on the consolidated financial statements.
(5)

As the fiscal year end of Highsonic Industrial Ltd., a nonconsolidated and equity
method applied subsidiary, differs from the consolidated fiscal year end, the Company
uses the subsidiaries’ financial statements as of its fiscal year end.

(6)

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

Fiscal year end

DX ANTENNA Co., Ltd.

February 29

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

December 31

DX ANTENNA PHILIPPINES, INC.

December 31

DX ANTENNA MARKETING, INC.

December 31

Zhong Yue FUNAI Electron Co.

December 31

Zhong Shan Funai Electron Co.

December 31

For DX ANTENNA Co., Ltd., P&F MEXICANA, S.A. DE C.V., DX ANTENNAPHILIPPINES, INC. and DX ANTENNA MARKETING, INC. listed above, theirfinancial statements as of their respective fiscal year ends are used to prepare theconsolidated financial statements with necessary adjustments provided forconsolidation purposes with regard to material transactions between their respective
fiscal year ends and the consolidated fiscal year end.
For Zhong Yue FUNAI Electron Co. and Zhong Shan Funai Electron Co., theirprovisional financial statements as of the consolidated balance sheet date are used toprepare the consolidated financial statements.
3.

Summary of significant accounting policies(1)

Valuation basis and methods of significant assets(i)Securities:
Available-for-sale securities:
Available-for-sale securities for which the fair values are readily
determinable:-2-

Stated at fair market value on the balance sheet date of the fiscal year
(Unrealized gain or loss is included directly in equity after adjusting fortax effect. Costs of securities sold are determined by the moving averagemethod.)Available-for-sale securities for which the fair values are not readily
determinable:
Stated at cost determined by the moving average method(ii) Derivatives:
Stated at fair market value(iii) Inventories:
As to the Company and its domestic consolidated subsidiaries, merchandise andfinished goods and work in process are stated principally at the lower of cost,
determined using the average method, or net selling value. Raw materials arestated principally at the lower of cost, determined using the first-in, first-out
method, or net selling value.
As to the foreign consolidated subsidiaries, merchandise and finished goods, workin process and raw materials are stated principally at the lower of cost, determinedusing the first-in, first-out method, or net selling value.
(2)

Depreciation method for major fixed assets(i)

Property, plant, and equipment (excluding lease assets):
Depreciation of the Company and its domestic consolidated subsidiaries iscomputed using the declining-balance method, while the straight-line method isapplied to buildings (excluding buildings and leasehold improvements) acquired
on and after April 1, 1998. Depreciation of the overseas consolidated subsidiaries
is computed using the straight-line method.
The useful lives of main property, plant and equipment are as follows:
Buildings and structures:
3–50 years
Machinery, equipment, and motor vehicles:
3–10 years
Tools, furniture, and fixtures:
1–20 years(ii) Intangible assets (excluding lease assets):
Amortization of intangible assets of the Company and its consolidated subsidiaries
is computed using the straight-line method. Patents are amortized over theestimated useful lives (8–10 years) and software for internal use is amortized overthe estimated useful lives (five years).
-3-

(iii) Lease assets:
Lease assets in non-ownership transfer finance lease transactions are depreciatedusing the straight-line method over the respective lease periods with the residual
value as zero.
(3) Basis for provision of significant reserves(i)

Allowance for doubtful accounts:
Allowance for doubtful accounts is stated to cover probable losses from bad debts
of receivables at the estimated uncollectable amount. The amount for generalreserve is estimated using the credit loss rate based on past experience, and thatfor specific reserve is estimated based on the individually expecteduncollectability.

(ii) Provision for bonuses:
Some consolidated subsidiaries set aside provision to cover the payment of
employees’ bonuses based on the projected amount for such payments.
(iii) Reserve for product warranty:
Reserve for product warranty is stated to cover the payment of after-sales service
costs of sold products at the projected amount based on past experience.
(iv) Liabilities for Directors’ and Audit & Supervisory Board Members’ retirement
benefits:
Liabilities for Directors’ and Audit & Supervisory Board Members’ retirement
benefits are stated to cover the payment of retirement benefits to directors at therequired amount at balance sheet date based on internal regulations.
(4)

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

Accounting method of retirement benefits:
Liabilities for retirement benefits and assets for retirement benefits are stated tocover the payment of employees’ retirement benefits at the amount of deducting
the fair value of plan assets from projected benefit obligations at the consolidatedbalance sheet date.
Certain consolidated subsidiaries apply the simplified method.
When calculating retirement benefit obligations, the benefit formula basis is used
to attribute the projected retirement benefits to the period through the fiscal year-4-

under review.
The total transitional obligation was charged to income when first adopted, exceptthat of certain consolidated subsidiaries, which is amortized by the straight-line
method over 15 years.
Past service cost is amortized using the straight-line method over a period within
the average remaining years of service of the employees (10 years).
Actuarial gains or losses are amortized using the straight-line method over a
period within the average remaining service period of the employees (10 years)
starting from the following period.
Unrecognized actuarial gains or losses, unrecognized past service cost andunrecognized transitional obligation are recorded as defined retirement benefit
plans in accumulated other comprehensive income (loss) within equity after
adjusting for tax effects.
(ii) Accounting method for construction revenue and costs:
Construction contracts for which the outcome can be estimated reliably:Construction revenue and costs are recognized using the percentage of completion
method (the percentage of completion at the end of the fiscal year is estimated by
the cost-to-cost method.).
Other construction contracts:
Construction revenue and costs are recognized by the completed contract method.
(iii) Accounting for consumption taxes:
Consumption taxes are excluded from the revenues and expense accounts.

Change in Accounting Policy(Application of Accounting Standard for Business Combinations)
From the current fiscal year, the Group has applied the “Accounting Standard forBusiness Combinations” (the Accounting Standards Board of Japan (“ASBJ”) Statement No.
21, September 13, 2013 hereinafter referred to as the "Business Combinations AccountingStandard”), the “Accounting Standard for Consolidated Financial Statements” (ASBJ
Statement No. 22, September 13, 2013; hereinafter referred to as the “Consolidation
Accounting Standard”) and the “Accounting Standard for Business Divestitures" (ASBJ
Statement No. 7, September 13, 2013; hereinafter referred to as the “Business Divestitures
Accounting Standard”), and the Group accounted for any difference between the fair value of-5-the consideration received or paid and the amount by which the noncontrolling interest is
adjusted as capital surplus as long as the parent retains control over its subsidiary andchanged the methods to recording for the acquisition-related costs as expenses in the periods
in which the costs are incurred. Also, for business combinations conducted from the
beginning of the fiscal year under review, the Group changed the methods of the adjustment
from the provisional amounts recognized at the acquisition date to the date of completion of
measurements to recognize the adjustment as if the accounting for the business combination
had been completed at the acquisition date. In addition, the Group changed the presentationof net income and other items, and changed the presentation of “minority interest” to“noncontrolling interest”.
For the application of the Business Combinations Accounting Standard and otherstandards, the Group follows the transitional treatment prescribed by Article 58-2 (4) of theBusiness Combinations Accounting Standard, Article 44-5 (4) of the Consolidation
Accounting Standard and Article 57-4 (4) of the Business Divestitures Accounting Standard,
and applied them prospectively from the beginning of the fiscal year under review.
The impacts from these accounting changes were immaterial.

-6-Notes to Consolidated Balance Sheet
1.

Accumulated depreciation of assets
Accumulated depreciation of property, plant and equipment:¥40,882 million

2.
As a result of the application of the Act on Land Revaluation of Japan (Act No. 34,
promulgated on March 31, 1998), one of the consolidated subsidiaries revaluated its land
used for business. The tax effect of the revaluation difference of ¥205 million was recorded
as deferred tax liabilities on revaluation of land. Also, the revaluation difference iseliminated in consolidated financial statements, so it is not recorded in equity.
3.

Financial covenants

With regard to bank loans, a syndicated loan agreement (balance as of the end of the
fiscal year: ¥5,634 million) includes financial covenants. Therefore if the Company
breaches any of the following clauses, the Company might lose the benefit of time of theentire obligation under the agreement and immediately need to pay the principal and intereston the loan.
(Clauses)(1)
The Company shall maintain the amount in the equity section in the consolidatedbalance sheet as of the end of each fiscal year at no less than ¥100 billion.
(2)

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

(3)

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

Notes to Consolidated Statement of Operations
1.

Settlement received

The Company filed a lawsuit for compensation for damages against Olympus
Corporation due to Olympus’s falsifications in its securities registration statement and otherdocuments. This amount is after deducting necessary expenses from the settlement
received.
2.

Refund of customs duty

FUNAI EUROPE GmbH, a consolidated subsidiary, won a lawsuit claiming a refundof additional customs duties against the German tax authorities in the District Court ofHamburg. This amount consists of refunded customs duties, legal costs, and associated-7-interest received.
3.
Impairment losses
During the fiscal year under review, the Group recorded losses on impairment in thefollowing asset groups:
Use
Business assets
Business assets

Location
Funai Electric Co., Ltd.
(Daito City, Osaka)
Funai Electric (H.K.) LTD(New Territories, Hong Kong)

Type
Long-term prepaid expenses
Machinery, equipment and,motor vehicles
Tools, furniture, and fixtures

Zhong Shan Funai Electron Co.
Tools, furniture, and fixtures(Guangdong, China)
In principle, on the impairment reviews, the Group categorizes business assets on thebasis of a legal entity whose cash inflows and outflows are continuously recorded. Idle
assets are separated individually.
Business assets

In the fiscal year under review, the Group decided to exit from the laser printerbusiness to concentrate enterprise resources of information equipment business on the inkjet
printer business, and reduced the book values of manufacturing facilities, development assets
and other assets not expected to be used in the future to the recoverable amount and recorded
the reduction (¥431 million) in extraordinary loss. This amount consists of ¥87 million for
Funai Electric Co., Ltd. (long-term prepaid expenses), ¥10 million for Funai Electric (H.K.)
LTD (¥6 million of machinery, equipment and motor vehicles and ¥4 million of tools,
furniture, and fixtures) and ¥333 million for Zhong Shan Funai Electron Co. (tools, furniture,and fixtures).
The recoverable amounts of the assets were determined at a net selling price and were
calculated with the net selling price as zero.
Use
Location
Type
Assets planned to be
Funai Electric Cebu, Inc.
Machinery, equipment and,retired(Cebu, the Philippines)
motor vehicles
In principle, on the impairment reviews, the Group categorizes business assets on thebasis of a legal entity whose cash inflows and outflows are continuously recorded. Idle
assets are separated individually.
Since acquiring the shares of a manufacturing subsidiary of Lexmark International,
Inc. (now Funai Electric Cebu, Inc.), the Group has engaged in contract production of inkjet
cartridges from Lexmark International, Inc. Although the Group previously categorized theassets planned to be retired as business assets, the production of certain models were finishedand planned to be retired, so the Group reduced the book values to the recoverable amountand recorded the reduction (¥125 million) in extraordinary loss.
The recoverable amounts of the assets were calculated using net selling price based-8-

on disposal value.
4.
Compensation for damage(Conclusion of arbitration)
The Company resolved to acquire from Koninklijke PHILIPS N.V. (“PHILIPS”) all
shares in a company that would succeed the operation of PHILIPS’ Lifestyle Entertainment
Business and concluded a sale and purchase agreement on January 29, 2013. However,
PHILIPS filed against the Company a petition as of October 25, 2013, for arbitration to claim
compensation for damages on the grounds of a breach of agreement by the Company.
With regard to this matter, the Company did not recognize a breach of the agreementon its part. Consequently, the Company filed a counterclaim for claiming compensation fordamages on the grounds of a breach of the agreement and undue action by PHILIPS.
On April 26, 2016, the International Court of Arbitration rendered an arbitral award
against the Company to pay compensatory damages of EUR 134.8 million, arbitration costsof US$1.35 million, and Philips’s legal fees of approximately EUR 2.5 million plus interest(2%) thereon to Philips, and dismissed the counterclaim of the Company.
The Company posted ¥18,502 million as compensation for damage in extraordinary
loss in the current fiscal year.

Notes to Consolidated Statement of Changes in Equity
1.

Type and total number of shares issued, and type and number of treasury shares(thousands of share)

Shares issued
Shares of common stock
Total
Shares of treasury stock
Shares of common stock
Total

Decrease in the
Number of
number ofshares as ofshares during
March 31, 2016
the year

Number ofshares as ofApril 1, 2015

Increase in thenumber ofshares during
the year

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

2,011
2,011

0
0

-

2,011
2,011

(Note) The increase of 0 thousand treasury shares of common stock resulted from theacquisition of less-than-one-unit shares.

-9-

2.

Dividends(1)

Amount of dividends paid:

Resolution

Type of shares

Meeting of theBoard of Directors
Shares ofheld on May 25,
common stock
2015

(2)

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

Record date

Effective date

1,194

35

March 31, 2015

June 8, 2015

Dividends whose record date is in the fiscal year ended March 31, 2016, but whose
effective date will be in the fiscal year ending March 31, 2017, are as follows:

Resolution

Type ofsharesTotalamount ofdividends(millionyen)

Meeting of theBoard of Directors
held on May 23,
2016

Shares ofcommon
stock

1,023

3.

Source ofdividends

Amount ofdividend
per share(yen)

Recorddate

Effective
date

Retainedearnings

30

March 31,2016

June 29,2016

Stock acquisition rights

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

Number of shares for stockacquisition rights (shares)
As of March 31, 2016

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

Shares of common stock

252,700

Total

252,700(Note) Any stock acquisition right for which the exercise period has yet to start is excluded.

- 10 -

Notes to Financial Instruments
1.

Status of financial instruments

The Group obtains financing from banks and invests funds in short-term deposits, etc.
The Group uses derivatives to reduce risks which are described below, and has a policy not
to conduct speculative trading.
With regard to customers’ credit risks relating to notes and accounts receivable - trade,the Group has stipulated sales management rules and manages the trading terms and credit
lines by each customer.
Investment securities are exposed to market risks. With regard to the risks, themarket values and the financial positions of the issuers are reviewed periodically andreported to the internal Investment and Loan Committee.
Notes and accounts payable - trade and accounts payable - other mostly become dueand payable within one year.
Bank loans are principally for the Group’s operations. The Group has a policy of
not using derivatives. However, as floating-rate loans are exposed to interest rate risk, theGroup may utilize derivatives (interest rate swap agreements) as hedging instruments
according to individual loan contracts.
With regard to derivatives, forward exchange contracts are used to hedge risks ofcurrency fluctuations in foreign currency-denominated receivables. Such derivativetransactions shall be executed and managed in accordance with the internal rules. To
mitigate credit risk, the Group enters into transactions solely with financial institutions withhigh ratings.

- 11 -

2.

Fair values, etc. of financial instruments

Amounts recorded in the consolidated balance sheet, fair values, and the differences
between them as of March 31, 2016, are as follows:(millions of yen)Amountrecorded intheconsolidatedbalance sheet*

Fair value*

Difference(1)

Cash and deposits

57,60957,609-(2)

Notes and accounts receivable-trade

24,09224,092

-

582

582

-

(3)

Investment securities:
Available-for-sale securities(4)

Notes and accounts payable-trade(15,604)(15,604)-(5)

Short-term bank loans(5,118)(5,118)-(6)

Accounts payable-other(33,359)(33,359)-(7)

Long-term bank loans(6,009)(6,009)-(8)

Derivatives

(18)

(18)

-

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

Calculation method of the fair values of financial instruments, securities andderivatives:(1) Cash and deposits and (2) Notes and accounts receivable-trade:
The book value is used for these items, as the fair value approximates the bookvalue as a result of their short settlement periods.
(3) Investment securities – Available-for-sale securities:
The fair value of stocks is determined by the prices of the stocks traded on an
exchange.
(4) Notes and accounts payable-trade, (5) Short-term bank loans and (6) Accounts
payable-other:
The book value is used for these items, as the fair value approximates the bookvalue as a result of their short settlement periods.
(7) Long-term bank loans:
The long-term bank loans are those with floating rates and they reflect themarket interest rates timely. Thus, the book value is used as the fair value,
which approximates the book value.
- 12 -

(8) Derivatives:
Derivatives are calculated based on the prices and other information obtained
from counterparty financial institutions.
2. Unlisted shares (¥1,836 million on the consolidated balance sheet) have nomarket price and it is impossible to estimate their future cash flows. As it isextremely difficult to determine their fair values, they are not included in "(3)Investment securities – Available-for-sale securities".
Notes to Per Share Information
Equity per share:
Net loss per share:¥2,504.70¥1,061.62

Other Notes
Additional Information(Tax system for dealing with tax havens)
On June 29, 2011, the Company received notices from the Osaka Regional Taxation
Bureau suggesting that a subsidiary in Hong Kong did not satisfy the conditions for exclusionfrom application of the tax system for dealing with tax havens and indicating its decision toincorporate the income generated by the subsidiary into the income of the Company for theduration of three years from April 1, 2007, to March 31, 2010, for taxation purposes.
Because the Company objected to this corrective action, the Company applied forassessments by the Osaka National Tax Tribunal on August 25, 2011. On July 18, 2012, theCompany received written verdicts on this case indicating that our assertions had been
dismissed. The Company, unable to accept the verdicts, filed an appeal to have the action
canceled with the Tokyo District Court on January 17, 2013.
The additional tax, including corporate income taxes, inhabitant taxes, and enterprisetaxes, amounted to ¥825 million (¥935 million, including incidental taxes). This amount
has been processed as expenses under the category of “Income taxes - prior years” in thefiscal year ended March 31, 2012 in accordance with Japanese Institute of Certified Public
Accountants Audit and Assurance Practice Committee Report No. 63, “Treatment of
Accounting and Presentation of Taxes for the purpose of Audits”.
The Company has recorded the amount that would be affected if the taxation wereapplied from the fiscal year ended March 31, 2011, which is the fiscal year following the
fiscal year to which the assessment was applied.
========================================================================(Note)All figures in the consolidated balance sheet, the consolidated statements ofoperations and changes in equity and the notes to the consolidated financial
statements are shown by disregarding any fractions of the relevant units. Equity
per share and net loss per share are shown by rounding off to two decimal places.
- 13 -NOTES TO NONCONSOLIDATED FINANCIAL STATEMENTS
Summary of Significant Accounting Policies:
1.

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

Derivatives:
Stated at fair market value

(3)

2.

Inventories:
Finished goods:

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

Raw materials:

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

Depreciation method for fixed assets:(1)

Property, plant and equipment (excluding lease assets):
Depreciation is computed by the declining-balance method, while the straight-line
method is applied to buildings (excluding buildings and leasehold improvements)
acquired on or after April 1, 1998.

(2)

Intangible assets (excluding lease assets):- 14 -

Amortization of intangible assets is computed using the straight-line method.
Patents are amortized over the estimated useful lives (8-10 years); and software
for internal use is amortized over the estimated useful lives (five years).
(3)

Lease assets:
Lease assets in non-ownership transfer finance lease transactions are depreciatedusing the straight-line method over the respective lease periods with the residual
value as zero.

3.

Basis for provision of reserves:(1) Allowance for doubtful accounts:
Allowance for doubtful accounts is stated to cover probable losses from bad debts
of receivables as the estimated uncollectable amount. The amount for generalreserve using the credit loss rate based on past experience, and that for specificreserve is estimated based on the individually expected uncollectability.
(2) Reserve for product warranty:
Reserve for product warranty is stated to cover the payment of after-sales service
costs of sold products at the projected amount based on past experience.
(3) Liabilities for retirement benefits:
Liabilities for retirement benefits and prepaid pension cost are stated to cover thepayment of employees’ retirement benefits based on retirement benefit obligations
and plan assets at the balance sheet date.
When calculating retirement benefit obligations, the benefit formula basis is used
to attribute the projected retirement benefits to the period through the fiscal year
under review.
Past service cost is amortized using the straight-line method over a period within
the average remaining years of service of the employees (10 years).
Actuarial gains or losses are amortized by the straight-line method over a period
within the average remaining service period of the employees (10 years) startingfrom the following period.
(4) Liabilities for directors’ retirement benefits:
Liabilities for directors’ retirement benefits are stated to cover the payment of
retirement benefits to directors at the required amount at the balance sheet date
- 15 -

based on internal regulations.
4.
Other significant matters as the basis of preparing the nonconsolidated financial
statements(1) Accounting method of retirement benefits:
Accounting methods for unrecognized actuarial gains or losses and unrecognized
past service cost related to retirement benefits differ from those for the
consolidated financial statements.
(2) Accounting for consumption taxes:
Consumption taxes are excluded from the revenues and expense accounts.

- 16 -

Change in Accounting Policy(Application of Accounting Standard for Business Combinations)
From the current fiscal year, the Company has applied the “Accounting Standard forBusiness Combinations” (the Accounting Standards Board of Japan (“ASBJ”) Statement No.
21, September 13, 2013; hereinafter referred to as the "Business Combinations AccountingStandard”) and the “Accounting Standard for Business Divestitures" (ASBJ Statement No. 7,
September 13, 2013; hereinafter referred to as the “Business Divestitures AccountingStandard”), and the Company changed the methods to recording for the acquisition-related
costs as expenses in the periods in which the costs are incurred.
For the application of the Business Combinations Accounting Standard and otherstandards, the Company follows the transitional treatment prescribed by Article 58-2 (4) of
the Business Combinations Accounting Standard and Article 57-4 (4) of the Business
Divestitures Accounting Standard, and applied them prospectively from the beginning of the
fiscal year under review.
The impacts from these accounting changes were immaterial.
Notes to Nonconsolidated Balance Sheet:1.

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

2.

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

3.

¥10,892 million¥39,166 million¥13,456 million¥14,688 million

Contingent liabilities(Liabilities on guarantee)
The Company has provided a guarantee for bank loans for the following subsidiary:
P&F USA, INC.
4.

¥4,581 million

Financial covenants

With regard to bank loans, a syndicated loan agreement (balance as of the end of the
fiscal year: ¥5,634 million) includes financial covenants. Therefore, if the Company
breaches any of the following clauses, the Company might lose the benefit of time of theentire obligations under the agreement and immediately need to pay the principal and intereston the loan.
(Clauses)- 17 -

(1)The Company shall maintain the amount in the equity section in the consolidatedbalance sheet as of the end of each fiscal year at no less than ¥100 billion.

(2)

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

(3)

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

Notes to Nonconsolidated Statement of Income:1.

Amount of transactions with subsidiaries and associated companies
Operating transaction:
Sales amount:
Purchases amount:
Other operating expenses:
Non-operating transactions:

2.

¥112,117 million¥102,526 million¥2,648 million¥26,185 million

Settlement received

The Company filed a lawsuit for compensation for damages against Olympus
Corporation due to Olympus’s falsifications in its securities registration statement and otherdocuments. This amount is after deducting necessary expenses from the settlement
received.
3.

Impairment losses

During the fiscal year under review, the Company recorded losses on impairment in thefollowing asset groups:
Use
Business assets

Location
Funai Electric Co., Ltd.
(Daito City, Osaka)TypeLong-term prepaid expenses

In principle, the Group categorizes business assets on the basis of the legal entity
whose cash flows and outflows are continuously recorded. Idle assets are separated
individually.
In the fiscal year under review, the Company decided to exit from the laser printerbusiness to concentrate enterprise resources of information equipment business on the inkjet
printer business, and reduced the book values of development assets and other assets notexpected to be used in the future to the recoverable amount and recorded the reduction (¥87
million) in extraordinary loss.
- 18 -

The recoverable amounts of the assets were determined at net selling price and were
calculated with the net selling price as zero.
4.

Compensation for damage(Conclusion of arbitration)
The Company resolved to acquire from Koninklijke PHILIPS N.V. (“PHILIPS”) all
shares in a company that would succeed the operation of PHILIPS’ Lifestyle Entertainment
Business and concluded a sale and purchase agreement on January 29, 2013. However,
PHILIPS filed against the Company a petition as of October 25, 2013, for arbitration to claim
compensation for damages on the grounds of a breach of agreement by the Company.
With regard to this matter, the Company did not recognize a breach of the agreementon its part. Consequently, the Company filed a counterclaim for claiming compensation fordamages on the grounds of a breach of the agreement and undue action by PHILIPS.
On April 26, 2016, the International Court of Arbitration rendered an arbitral award
against the Company to pay compensatory damages of EUR 134.8 million, arbitration costsof US$1.35 million, and Philips’s legal fees of approximately EUR 2.5 million plus interest(2%) thereon to Philips, and dismissed the counterclaim of the Company.
The Company posted ¥18,502 million as compensation for damage in extraordinary
loss in the current fiscal year.
Notes to Nonconsolidated Statement of Changes in Equity
Number of shares of treasury stock:(thousands of share)
Type of shares
Common stock

Decrease in the Number of shares
Number of shares Increase in theas of April 1, 2015 number of shares number of shares as of March 31,
during the year
during the year
2016
2,011

0

-

2,011

(Note) The increase of 0 thousand treasury shares of common stock resulted from theacquisition of less-than-one-unit shares.

- 19 -

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

330
6,307
4,647
157
52
2,151
693
50
8,535
408
23,334(23,320)
13
(24)
(527)
(228)
(19)
(800)
(786)

2.
Revision of deferred tax assets and deferred tax liabilities as a result of the change ofthe rate of corporate tax, etc.
As a result of the approval of the “Act for Partial Revision of the Income Tax Act,etc.” (Act No. 15 of 2016) and the “Act for Partial Revision of the Local Tax Act, etc.” (ActNo. 13 of 2016) in the Diet on March 29, 2016, the corporate tax rate, etc., will be reduced
from the fiscal year beginning on or after April 1, 2016. Accordingly, the effective statutory
tax rate to be used for the calculation of deferred tax assets and deferred tax liabilities will be
reduced from 32.3%, which was used for calculations for the previous fiscal year, to 30.9%
for the temporary differences expected to be reversed for the fiscal year beginning on April 1,2016 and 2017, and to 30.6% for the temporary differences expected to be reversed for the
fiscal year beginning on April 1, 2018 and thereafter.
The tax rate change decreased deferred tax liabilities by ¥42 million and decreased
income taxes - deferred and unrealized gain on available-for-sale securities by ¥40 millionand ¥1 million, respectively.

- 20 -

Notes on Transactions with Related Parties
1.

Subsidiaries, etc.
(millions of yen)
Type

Name

Voting rights
held by theCompany (orheld by others)

Subsidiary

DX ANTENNA
Co., Ltd.

Direct, 91.80%

Sale of productsof the Company

Subsidiary

Funai Electric(HK) Ltd.

Direct, 100.00%

Production of
products of theCompany

Subsidiary

Subsidiary

Subsidiary

Subsidiary

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

FUNAICORPORATION,
INC.

P&F USA, INC.

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

Direct, 80.87%
Indirect, 19.13%

Indirect, 100.00%

Indirect, 100.00%

Direct, 100.00%
Indirect, 0.00%

FUNAI EUROPE
Direct, 100.00%
GmbH

RelationshipTransaction
Sale ofelectronic
products
Purchase ofelectronic
products

Production of
products of theCompany

Sale of productsof the Company

Sale of productsof the Company

Sale of productsof the Company

1,381
56,685

Balance asof March
31, 2016

Account
Accounts
receivable- tradeAccounts
payable trade
Short-term
loans
receivable

526
4,336

Loan offunds

19,155Purchase ofelectronic
products

31,872

Accounts
payable trade

2,306

91,383

Accounts
receivable- trade7,069-

Accruedexpenses

1,521

5,320

Accounts
receivable- trade4,015

Sale ofelectronic
products
Transfer
pricing
taxationadjustments
Sale ofelectronic
products
Guarantee
for bank
loans
Transfer
pricing
taxationadjustments
Sale ofelectronic
products
Loan offunds
Provision ofallowancefor doubtful
accounts

Sale of productsof the Company

Amount4,581-

13,035-465

Loan offunds-

Provision ofallowancefor doubtful
accounts-

19,155

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

-

3,467

6,817
1,306

3,682

10,434

10,376

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

- 21 -

2.

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

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

Voting rights
held by theCompany (orheld byothers)Relationship

Propia Co. Ltd.

-Sale of products;
interlocking
directorate

PreXion Co.,Ltd.

-

Sale of products;
lease of offices;interlocking
directorate

Transaction

AmountSale ofproducts

47

Sale ofproducts

29

Developmentof products on
consignment
Advancepayments forpurchase of
equipment,
etc.

103

Account

Balance asof March
31, 2016

Accounts
receivable trade
Accounts
receivable trade
Accounts
receivable trade

7
111

41

Advances

45

Sale of patentapplications

11

Accounts
receivable other12

Lease ofoffices38--(Notes) Transaction terms and policies on the determination of transaction terms, etc.:
1. Propia Co., Ltd.
(1) As with the terms of ordinary transactions, transaction terms are determined inconsideration of market prices and other factors.
(2) 100.00% of the voting rights had been owned directly by a company of which a close
relative of Representative Director of the Company, Tetsuro Funai, owned a majority ofthe voting rights. The close relative sold all of his shares of the company of which theclose relative had owned a majority of the voting rights on May 25, 2015 and resigned
from office of director of the company on June 20, 2015, whereupon said company
ceased to be a related party. Accordingly, “Amount” represents the transaction amounts
for the period during which the close relative was a related party and “Balance as ofMarch 31, 2016” represents the balance as of the day on which the close relative ceased
to be a related party.
2. PreXion Co., Ltd.
(1) With regard to sale of products, as with the terms of ordinary transactions, transaction
terms are determined in consideration of market prices and other factors.
(2) With regard to development of products on consignment, prices and transaction terms are
determined upon consultation in consideration of total cost of each project.
(3) With regard to advance payments for purchase of equipment, etc., an advance payment
was made in connection with the development of products on consignment set forth in
the preceding item.
(4) With regard to sale of patent applications, the sales were determined in accordance withthe policy of the Company to possess patent rights, etc., as determined upon negotiations
and consultation based on the selling prices calculated by the Company.
(5) Lease prices of offices are determined upon consultation in consideration of market pricerates in the neighborhood and other factors.
(6) PreXion Co., Ltd. changed its trade name from XTrillion Inc. as of August 1, 2015.
(7) 100.00% of the voting rights had been owned directly by Representative Director of theCompany, Tetsuro Funai. On March 31, 2016, he sold all of the shares in the company,- 22 -

8whereupon said company ceased to be a related party. Accordingly, in the above list,“Amount” represents the transaction amounts for the period during which he was a
related party and “Balance as of March 31, 2016” represents the balance as of the day on
which he ceased to be a related party.

Note to Per Share Information
Equity per share:¥2,203.58

Net loss per share:¥172.52

Other Notes
Additional Information(Tax system for dealing with tax havens)
On June 29, 2011, the Company received notices from the Osaka Regional Taxation
Bureau suggesting that a subsidiary in Hong Kong did not satisfy the conditions for exclusionfrom application of the tax system for dealing with tax havens and indicating its decision toincorporate the income generated by the subsidiary into the income of the Company for theduration of three years from April 1, 2007, to March 31, 2010, for taxation purposes.
Because the Company objected to this corrective action, the Company applied forassessments by the Osaka National Tax Tribunal on August 25, 2011. On July 18, 2012, theCompany received written verdicts on this case indicating that our assertions had been
dismissed. The Company, unable to accept the verdicts, filed an appeal to have the action
canceled with the Tokyo District Court on January 17, 2013.
The additional tax, including corporate income taxes, inhabitant taxes, and enterprisetaxes, amounted to ¥825 million (¥935 million, including incidental taxes). This amount
has been processed as expenses under the category of “Income taxes - prior years” in thefiscal year ended March 31, 2012 in accordance with Japanese Institute of Certified Public
Accountants Audit and Assurance Practice Committee Report No. 63, “Treatment of
Accounting and Presentation of Taxes for the purpose of Audits”.
The Company has recorded the amount that would be affected if the taxation wereapplied from the fiscal year ended March 31, 2011, which is the fiscal year following the
fiscal year to which the assessment was applied.

========================================================================(Note)All figures in the nonconsolidated balance sheet, the nonconsolidated statement ofincome, the nonconsolidated statement of changes in equity and the notes to thenonconsolidated financial statements are shown by disregarding any fractions of
the relevant units. Equity per share and net loss per share are shown by rounding
off to two decimal places.
- 23 -