an adverse effect on operating results.
For example, should demand decline due to liquor and
consumption tax increases, or should regulations pertaining to liquor advertising, selling hours of liquor at liquor stores, or liquor sales locations spread, factors including expenses required for dealing with decreased demand and responding to new regulations could have a negative effect on business performance.
Risk of Litigation
The Sapporo Group strives to reduce violations and infringements of laws and regulations in its business operations by instilling a strong compliance culture through employee training and education.
However, there is a risk of litigation being brought against the Group in respect of a problem under product liability or intellectual property laws, irrespective of any violation of laws and regulations by Group companies or their employees in business operations in Japan or overseas. The instigation of a suit against the Group or its outcome could have a negative impact on the Group’s operating results.
Risk of Natural Disasters
The Sapporo Group could sustain damage as a result of a large-scale natural disaster or a secondary disaster. This could have a negative impact on the Group’s operating results such as by disrupting the supply of products.
Financial Liabilities
The Sapporo Group raises a significant portion of the funds it requires for various businesses through the issuance of corporate bonds and borrowings from financial institutions. Accordingly, the Group has a high balance of financial liabilities relative to total assets. Moreover, the Group’s financial liabilities may increase further as a result of large-scale investments accompanying the execution of its growth strategy.
In the event of an increase in market interest rates, or a downgrad-ing of the Company’s ratdowngrad-ings by ratdowngrad-ings agencies, the Group’s interest expenses could increase or its fund-raising conditions could deteriorate. This could have a negative impact on the Group’s operat-ing results.
Retirement Benefit Obligations
The Sapporo Group calculates employees’ retirement benefit expenses and obligations based on actuarial assumptions, such as the discount rate and the expected rate of return on pension assets.
In the event of differences between actual performance and actuarial assumptions, or a change in these assumptions, the impact will be recorded as an actuarial difference on a cumulative basis and amortized over the average remaining period of service of employees at the time of accrual.
transition, which arose upon a change in accounting standards for retirement benefits, is amortized over 15 years.
Loss on Impairment of Property, Plant and Equipment
The Sapporo Group records impairment losses on property, plant and equipment and intangibles at the Company and consolidated subsidiaries in Japan in line with impairment criteria based on Japanese accounting standards for the impairment of fixed assets.Overseas, consolidated subsidiaries record impairment losses, as necessary, based on local accounting standards. However, going forward, the Sapporo Group may need to book additional impairment losses if assets meet impairment criteria due to changes in market and operating conditions or other factors, or the Company may need to book losses on sales and disposal of property, plant and equipment, depending on the sales price. This could adversely affect the Sapporo Group’s operating results and financial position.
Business and Capital Alliances
The Sapporo Group is promoting business and capital alliances with other companies worldwide as part of efforts to increase its competi-tiveness with a view to achieving growth in line with the Sapporo Group Medium-Term Management Plan. However, the Group may not achieve results as initially anticipated, depending on market conditions, changes in the business environment and other factors. In certain situations, the Sapporo Group’s operating results and financial position may be negatively affected in the event of deterioration in the business operations, assets and other aspects of an alliance partner or investee. In addition, the Sapporo Group may record the amortization of large amounts of goodwill in line with investments, or may record an impairment loss on goodwill and other assets due to deterioration in the business results of investees.
These factors could have a negative impact on the Sapporo Group’s operating results and financial position.
Holding Company Risk
Sapporo Holdings derives income from brand licensing fees and com-missions for management guidance, as well as interest and dividends paid by Group operating companies.
Any deterioration in the financial position of Group operating companies could result in nonpayment, which could adversely affect Sapporo Holdings’ business performance.
Millions of yen
Thousands of U.S. dollars (Note 1)
ASSETS 2016 2015 2016
Current assets:
Cash and cash equivalents ¥ 10,476 ¥ 10,399 $ 89,896
Time deposits 114 31 977
Notes and accounts receivable—trade 96,851 92,335 831,121
Inventories (Note 5) 37,973 38,635 325,863
Allowance for doubtful receivables (82) (64) (705)
Deferred tax assets (Note 17) 3,640 4,458 31,234
Other current assets 15,213 10,570 130,552
Total current assets 164,184 156,365 1,408,938
Investments and long-term loans:
Investment securities (Notes 12 and 14) 59,296 61,848 508,848
Long-term loans receivable 4,790 9,016 41,101
Allowance for doubtful receivables (1,195) (1,235) (10,255)
Deferred tax assets (Note 17) 1,071 1,009 9,189
Other investments 14,760 15,363 126,667
78,722 86,002 675,550
Property, plant and equipment (Notes 6 and 14):
Land 111,636 105,121 958,006
Buildings and structures 393,022 383,087 3,372,714
Accumulated depreciation (220,234) (213,568) (1,889,931)
Machinery and vehicles 231,560 227,534 1,987,127
Accumulated depreciation (187,661) (183,166) (1,610,409)
Lease assets 16,971 15,498 145,634
Accumulated depreciation (7,695) (7,739) (66,031)
Construction in progress 3,694 6,638 31,700
Other 17,732 18,488 152,163
Accumulated depreciation (13,530) (14,851) (116,107)
Property, plant and equipment, net 345,496 337,042 2,964,866
Intangibles:
Goodwill 27,439 30,236 235,471
Other 10,511 10,743 90,202
37,951 40,979 325,673
Total assets ¥ 626,352 ¥ 620,388 $ 5,375,027
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
Current liabilities:
Short-term bank loans (Note 14) ¥ 18,506 ¥ 19,220 $ 158,812
Commercial paper 33,000 17,000 283,189
Current portion of bonds (Note 14) 10,083 10,000 86,529
Current portion of long-term debt (Note 14) 11,831 46,603 101,527
Current portion of lease obligations 3,024 2,933 25,953
Notes and accounts payable—trade 38,503 36,772 330,413
Liquor taxes payable 34,228 33,904 293,728
Income taxes payable (Note 17) 1,681 6,115 14,424
Accrued bonuses (Note 2 (k)) 2,980 2,220 25,574
Deposits received 8,215 8,824 70,494
Other current liabilities 50,072 50,054 429,689
Total current liabilities 212,123 233,644 1,820,330
Bonds (Note 14) 50,129 50,000 430,179
Long-term debt (Note 14) 114,594 91,919 983,386
Lease obligations 6,969 5,353 59,801
Dealers’ deposits for guarantees 33,242 32,833 285,263
Net defined benefit liability (Note 15) 8,996 7,636 77,195
Deferred tax liabilities (Note 17) 18,804 21,216 161,368
Other long-term liabilities 15,115 13,964 129,710
Contingent liabilities (Note 9)
Total liabilities 459,971 456,566 3,947,233
Net assets
Shareholders’ equity:
Common stock (Note 21)
Authorized — 200,000,000 shares
Issued — at December 31, 2016 78,794,298 shares 53,887 — 462,427
— 53,887 —
Capital surplus 46,089 45,914 395,516
Retained earnings (Note 7) 41,932 35,190 359,842
Treasury stock, at cost (1,796) (1,596) (15,409)
Total shareholders’ equity 140,113 133,394 1,202,376
Accumulated other comprehensive income:
Unrealized holding gain on securities 22,518 23,926 193,236
Deferred hedge gains (losses) 41 (11) 355
Foreign currency translation adjustments (1,944) (1,256) (16,678)
Remeasurements of defined benefit plans (Note 15) (41) 1,875 (355)
Total accumulated other comprehensive income 20,574 24,534 176,559
Non-controlling interests 5,694 5,894 48,860
Total net assets 166,381 163,822 1,427,795
Total liabilities and net assets ¥626,352 ¥620,388 $5,375,027