Financial Book 2018 Fiscal year ended March 31, 2018

Transcription

1 TSE code: 2229 Financial Book Fiscal year ended March 31, Contents 00 Eight-Year Summary 01 Management s Discussion and Analysis 04 Business Risks 06 Consolidated Balance Sheets 08 Consolidated Statements of Income 08 Consolidated Statements of Comprehensive Income 09 Consolidated Statements of Changes in Net Assets 11 Consolidated Statements of Cash Flows 12 Notes to Consolidated Financial Statements 41 Independent Auditor s Report

2 Eight-Year Summary Years ended March 31 Management s Discussion and Analysis For the Year: Net sales Operating income Operating margin(%) Net income attributable to owners of parent Net income margin (%) Return on equity(roe) (%) Research and development costs Capital expenditures Depreciation and amortization Per Share ( /$) (Note 2): Net income attributable to owners of parent Net assets Cash dividends Dividend payout ratio (%) At Year-End: assets Net assets Working capital (Note 3) Interest-bearing debt Equity ratio (%)(Note 4) Debt to equity ratio (times)(note 5) Number of consolidated subsidiaries Number of employees Cash Flows: Net cash provided by operating activities Net cash used in investing activities Net cash provided by (used in) financing activities Cash and cash equivalents at end of year 251,575 26, , ,469 11,009 7, , , ,667 71,526 1, ,798 9,358 (6,258) (5,450) 42, ,420 28, , ,168 9,763 7, , ,056 60,805 1, ,860 25,958 (13,404) (14,711) 44, ,129 28, , ,195 21,229 7, , ,469 57, ,728 22,541 (14,270) (2,859) 47, ,150 24, , ,052 15,290 6, , ,800 55, ,477 22,266 (9,422) (2,878) 42, ,941 19, , ,161 6,392 5, , ,466 50, ,341 23,478 (17,041) (383) 31, ,411 15, , ,288 7,298 6, ,793 92,685 36, ,352 17,328 (12,999) , ,268 12, , ,811 5,422 6, ,474 80,417 25, ,053 7,049 (5,347) (411) 19, ,529 10, , ,213 4,049 7, ,393 72,924 16, ,911 16,664 (620) (2,124) 18,238 (Note 1) $2,367, , ,129 23,244 10,362 73, ,808,527 1,380, ,252 14,230 88,092 (58,905) (51,303) 397,168 Notes: 1. U.S. dollar amounts are presented, for convenience only, at a conversion rate of = US$1, the approximate Tokyo foreign exchange market rate as of March 31,. 2. A 50-for-1 share split was conducted on January 14, 2011, and a 4-for-1 share split was implemented on October 1, Per share figures were retroactively adjusted to reflect these stock splits. 3. Working capital comprises current assets less current liabilities. 4. Interest-bearing debt includes long-and short-term debt, leasing obligations and other interest bearing debt. 5. Shareholders equity as presented above consists of total net assets exclusive of subscription rights and non-controlling interests. Operating Results Net Sales In the fiscal year ended March 31,, consolidated net sales for the year decreased 0.3%, to 251,575 million. Sales by business are shown in Table 1. 1) Production and sale of snacks and other foods business 1.Domestic production and sale of snack and other foods business Domestic snack foods: Sales of domestic snack foods were almost flat year on year, with significant sales growth in Potato Chips Crisp and a return to growth for Potato Chips amid strong demand after production recovered from the second quarter, which was offset by sluggish sales of Jagarico, flour-based snacks and corn-based snacks. Sales of domestic snack foods by product are shown in Table 2. -Sales of potato-based snacks were almost flat year on year due to decreased sales of Jagarico from the effect of factors including the suspension of limited time items. This was partially offset by strong Potato Chips sales since the second quarter, reflecting persistent strong demand since the resumption of temporarily suspended production and sales of Pizza Potato Chips and other products with the Hokkaido potato harvest having gotten underway, and the successful launch of Potato Chips in local flavors of Japan s 47 prefectures. -Sales of flour-based snacks decreased year on year due to factors including a decrease in Kappa Ebisen limited time items. -Sales of corn- and bean-based snacks decreased year on year as a result of weak sales of corn-based snacks, including popcorn. -Sales of other snacks increased significantly year on year due to progress in expanding sales areas and flavor development of Potato Chips Crisp, which began sales in the second quarter of the previous fiscal year. Domestic cereals: Sales of domestic cereals decreased year on year. Despite having enhanced the Frugra product lineup, variable overseas consumption caused a significant decrease in sales, and results were also impacted by the end of sales of cornflakes from this fiscal year. domestic foods: domestic foods includes the bakery business and sales of processed potato products and potatoes as groceries. Sales of other domestic foods decreased year on year due to decreased sales in the bakery business. 2. Overseas production and sale of snack and other foods business Overseas snack foods: Sales of overseas snack foods increased year on year due to contributions from sales growth in new markets such as Indonesia entered last fiscal year, partially offset by a significant decrease in sales in the key region of North America due to weak sales of bean-based snack Harvest Snaps to major customers. Overseas cereals: Sales of overseas cereals were being recorded from the second quarter with the beginning of operation of the new Frugra production line in our Hokkaido factory and the launch of Frugra sales in China via cross-border e-commerce. Sales of overseas production and sale of snack and other foods business by region are as shown in Table 3. 2) businesses businesses includes logistics and promotional tool sales. Sales at other businesses increased year on year primarily due to increased promotional tool sales. Calbee, Inc. Financial Book Calbee, Inc. Financial Book 01

3 Management s Discussion and Analysis Table 1 Sales 1) Production and sale of snack and other foods business Domestic production and sale of snack and other foods business Domestic snack foods Domestic cereals domestic foods Overseas production and sale of snack and other foods business Overseas snack foods Overseas cereals 2) businesses Growth(%) Amount Table 2 Amount Growth(%) Amount Sales Potato-based snacks Potato Chips Jagarico Jagabee/ Jaga Pokkuru Flour-based snacks Kappa Ebisen Sapporo Potato, etc. Corn- and bean-based snacks snacks Domestic snack foods total 126,305 77,007 35,695 13,602 22,405 10,707 11,697 16,785 10, , ,824 76,583 36,685 13,556 22,795 11,130 11,664 17,160 7, ,305 Amount 247, , ,575 23,836 14,363 33,801 31,266 2,534 3, , , , ,305 30,436 15,152 28,978 28,978 3, ,420 Table 3 Amount Growth(%) Amount Sales North America Asia Greater China* South Korea Asian regions and Australia** Europe Overseas production and sale of snack and other foods business total *Greater China: Includes sales of snack foods and cereals from China, Taiwan and Hong Kong. ** Asian regions and Australia: Includes snack foods sales from Thailand, Philippines, Singapore, Indonesia and Australia. 9,843 8,718 5,283 8,551 1,404 33, ,606 5,217 5,336 5,798 1,019 28,978 Gross Profit Gross profit decreased 2.4% year on year, to 108,904 million. This was due to lower factory utilization and productivity in overseas and domestic, despite lower low material costs. Selling, General and Administrative Expenses Selling, general and administrative (SG&A) expenses decreased 0.8% year on year, to 82,075 million. The ratio of SG&A expenses to net sales declined 0.2 percentage point, to 32.6%. This was mainly due to a decrease domestic selling expenses, partially offset by an increase overseas selling expenses and distribution costs. Operating Income As a result of the aforementioned, operating income decreased 7.0% year on year, to 26,828 million. The operating margin decreased 0.7 percentage point to 10.7%. Non-Operating Income / Expenses Foreign exchange losses totaling 562 million included 650 million in net non-operating expenses. Net Income As a result of the above, net income decreased 6.8% year on year, to 17,330 million. Net income per share was After the dilution of common shares, net income per share was ROE worsened 1.9 percentage point, to 13.0%. Financial Position assets as of March 31, were 192,137 million, an increase of 10,126 million. The primary factors contributing to this outcome were increases in notes and accounts receivable-trade due to shift in payments to the following month due to a bank holiday on the last day of the period. Liabilities decreased 1,484 million to 45,470 million, primarily due to a decrease in consumption taxes payable recorded within other under current liabilities. Net assets increased 11,611 million to 146,667 million due to an increase in retained earnings. The shareholders equity ratio increased 2.1 percentage points from the end of the previous fiscal year to 72.5%. Cash Flows Cash and cash equivalents as of March 31, were 42,195 million, 2,432 million lower than at the end of the previous fiscal year. Cash Flows from Operating Activities Operating activities during the period ended March resulted in a net cash inflow of 9,358 million, a decrease in cash inflow of 16,599 million compared with the previous fiscal year, due to factors including an increase in notes and accounts receivable - trade and a decrease in accounts payable - other. Cash Flows from Investing Activities Investing activities during the period ended March resulted in a net cash outflow of 6,258 million, a decrease in cash outflow of 7,146 million compared with the previous fiscal year, primarily due to an increase in inflows from proceeds from redemption of securities. Cash Flows from Financing Activities Financing activities during the period ended March resulted in a net cash outflow of 5,450 million, a decrease in cash outflow of 9,261 million compared with the previous fiscal year, primarily due to a decrease in payments from change in ownership interests in subsidiaries that do not result in charge in scope of consolidation. Capital Expenditures In fiscal, capital expenditures totaled 11,009 million, up 1,246 million, compared with the previous fiscal year. Of this total, 9,338 million went to domestic operations and 1,670 million went to overseas operations. The main components of domestic capital expenditures were used to expand Frugra production facilities. 02 Calbee, Inc. Financial Book Calbee, Inc. Financial Book 03

4 Business Risks The major risks to which Calbee is exposed in its operations are described below. In the interests of full disclosure, information has also been provided on risks that are not anticipated to necessarily have a major impact on the business but have been deemed important to facilitate a better understanding of Calbee s business activities. Recognizing the possibility that such risks may materialize, Calbee s policy is to avoid these risks where possible and to mitigate any impact in the event that they materialize. The risks and forward-looking statements described below are based on judgments made by Calbee as of the date of publication of this report. 1. Product Development Calbee conducts research and development activities to provide customers with unique, value-added products that maximize the nutritional content and flavor of natural ingredients. Meanwhile, there is considerable change underway in Calbee s operating environment owing to diversifying customer tastes, growing health awareness, and Japan s low birthrate and aging society. The ability to rapidly respond to these changes and develop high-value-added products is becoming an increasingly important factor in Calbee s business expansion. As such, Calbee conducts research and development activities in accordance with annual plans in the areas of new product development, existing product improvement, cost reduction, and analysis of ingredients and nutrients. However, there is no guarantee that investment in these development activities will result in the successful launch of new products, and any divergence between research and development themes and market needs could have an impact on Calbee s operating results and financial position. 2. Ingredient Procurement In principle, imports of raw potatoes, the main ingredient of potato snacks such as Potato Chips, Jagarico, and Jagabee, are not permitted into Japan under the Plant Protection Act. In order to secure sufficient supplies of domestically produced highquality potatoes at a stable price, Calbee has sought to build a procurement system based on ongoing grower contracts concluded since launching its first potato snacks. Although these grower contracts enable stable supplies, harvest conditions could prevent Calbee from securing sufficient supplies of raw potatoes, resulting in sales opportunity losses and increased costs due to emergency procurement that could have an impact on Calbee s operating results and financial position. Moreover, changes in demand trends and fluctuations in the price of crude oil and in foreign exchange markets could affect procurement costs for a wide range of raw materials such as edible oils, other ingredients, and product packaging, which could also have an impact on Calbee s operating results and financial position. 3. Product Safety Consumer demand for greater food safety has increased in recent years. In assuming responsibility for responding to this demand, Calbee strictly monitors the quality of ingredients and manufacturing processes and takes all possible precautions to ensure product quality and prevent contamination. However, unforeseen problems related to ingredients and manufacturing processes could have an impact on Calbee s operating results and financial position. Furthermore, in April 2002, the Swedish government released the results of research showing that grilling or frying foods with high carbohydrate content can generate acrylamide, a carcinogen. Japan s Ministry of Health, Labour and Welfare has said it does not foresee any health impact from this substance for people who consume average amounts of this type of food, and, at this point, there has been no impact on Calbee s operating results. Nevertheless, this issue could develop in the future to the point where it has an impact on the entire snack food industry. 4. Competitive Risk Calbee has a large and stable share of the domestic snack food and cereal markets. However, intensifying competition from rival domestic companies, a significant influx of foreignowned companies into the market, or sector realignment due to M&A deals could have an impact on Calbee s operating results and financial position. In addition, choosing to lower prices in response to price reductions implemented by competitors could result in lower profit margins and other outcomes, which in turn could have an impact on Calbee s operating results and financial position. 5. Global Expansion Calbee is using subsidiaries overseas to expand its operations outside the Japanese market. Calbee believes it is necessary to strengthen and expand overseas business to deliver growth over the longer term. Going forward, Calbee intends to expand its operations more rapidly and boost its competitiveness. However, if efforts to develop its presence in global markets do not proceed as anticipated, it may be necessary for Calbee to review its growth strategies. In addition, as Calbee expands its operations, changes in the political and economic conditions of a variety of countries and regions, as well as fluctuations in foreign exchange markets, could have an impact on Calbee s operating results and financial position. 6. Relationship with Major Shareholder As of March 31,, Frito-Lay Global Investments B.V. (FLGI), a wholly owned subsidiary of PepsiCo, Inc. (PepsiCo), owned 20.00% of Calbee, Inc. shares (after full dilution), making Calbee (the Company) an equity-method affiliate of PepsiCo. FLGI, which directly owns the shares of the Company, is a wholly owned PepsiCo subsidiary, so PepsiCo effectively makes all decisions regarding the exercise of common share voting rights. PepsiCo is one of the world s largest food and beverage makers and is listed on the New York Stock Exchange. Also, PepsiCo operates globally in the same snack food field as the Company via group companies, primarily its subsidiary Frito-Lay North America, Inc. On June 24, 2009, the Company and PepsiCo concluded a strategic alliance agreement, based on the understanding that combining management capabilities to generate synergies was necessary to deliver sustained growth for both companies. In order to reinforce the partnership with PepsiCo, the Company allocated new shares to PepsiCo s wholly owned subsidiary FLGI via a private placement and, at the same time, acquired all the shares of PepsiCo s subsidiary Japan Frito-Lay Ltd. Under the strategic partnership, PepsiCo has agreed not to operate a snack food business in the Japanese market and therefore does not compete with the Company in Japan. Also, because no restrictions have been placed on overseas business development, the Company believes there are no limits on its management decisions or business development under the agreement. The Company intends to maintain this strategic partnership and work toward boosting corporate value. However, in the future it may no longer be possible to generate synergies from the partnership in the event that PepsiCo makes changes to its management policy and business strategy. In addition, the PepsiCo Group could become a competitor in the Japanese market in the event that the partnership is dissolved for any reason. Any of these developments could have an impact on Calbee s operating results and financial position. a. Personnel Relationship As of March 31,, no significant personnel relationship existed between Calbee and PepsiCo Group. b. Business Relationship The Company s subsidiary Japan Frito-Lay Ltd. Receives imports of snack foods from Frito-Lay, Inc., a PepsiCo Group company. In addition, the Company s subsidiary Calbee North America, LLC sells snack foods to PepsiCo Group s Frito-LayNorth America, Inc. c. Capital Relationship Under the strategic partnership with PepsiCo, the Company and PepsiCo have agreed that from the perspective of maintaining the strategic partnership, PepsiCo shall not own more than 20% of the Company s shares. In future, Pepsi- Co s ownership ratio in the Company may be subject to change, owing to changes in the management policies or business strategies of PepsiCo or the Company, or as a result of other factors such as changes in the Company s business environment. 7. Legal Regulations In the course of its business activities, Calbee is subject to a range of legal regulations, including the Food Sanitation Act, Act against Unjustifiable Premiums and Misleading Representations, Measurement Act, Unfair Competition Prevention Act, Plant Protection Act, and Consumer Product Safety Act. Calbee may incur additional costs to respond to revisions to these regulations or their abolishment and the implementation of new regulations, and this could have an impact on Calbee s operating results and financial position. Calbee has also received a variety of permits and licenses necessary to conduct its business activities. However, Calbee s business activities may be restricted if these permits and licenses are withdrawn due to legal infringements or other reasons, which could have an impact on Calbee s operating results and financial position. 8. Natural Disaster Risk Calbee conducts necessary periodic inspections of its manufacturing lines to avoid the risk of shutdowns to these lines. It has also built a stable product supply framework by dispersing its manufacturing sites. However, there is no guarantee that manufacturing facilities will not be damaged as a result of a natural disaster or other event. Any such damage to facilities could lead to a drop in sales and an increase in costs, which could have an impact on Calbee s operating results and financial position. 04 Calbee, Inc. Financial Book Calbee, Inc. Financial Book 05

5 Consolidated Balance Sheets Calbee, Inc. and Consolidated Subsidiaries March 31, and (Note 5) (Note 5) Assets Current assets: Cash and deposits (Notes 6 and 14) Notes and accounts receivable (Note 6) Marketable securities (Notes 6 and 7) Inventories (Note 8) Deferred tax assets (Note 10) Allowance for doubtful accounts current assets 23,559 41,749 22,998 10,748 2,576 5,323 (23) 106,933 23,961 28,600 28,999 9,895 2,593 3,868 (33) 97,884 $221, , , ,169 24,255 50,104 (220) 1,006,526 Liabilities Current liabilities: Notes and accounts payable (Note 6) Short-term borrowings (Notes 6 and 9) Lease obligations (Note 9) payables (Note 6) Income taxes payable Deferred tax liabilities (Note 10) Provision for bonuses Provision for directors bonuses Provision for stock payments current liabilities 9,728 1, ,273 5, , ,867 35,406 9,668 1, ,595 5, , ,550 37,079 $91,566 10,633 1,127 59,045 49, ,362 1, , ,273 Non-current assets: Property, plant and equipment: Land Buildings and structures (Note 18) Machinery, equipment and vehicles (Note 18) Lease assets Construction in progress (Note 18) (Note 18) Accumulated depreciation Property, plant and equipment, net Investments and other assets: Investment securities (Notes 6 and 7) Investments in affiliates (Note 6) Long-term loans Deferred tax assets (Note 10) Net defined benefit asset (Note 12) Goodwill (Note 18) Allowance for doubtful accounts investments and other assets non-current assets assets 11,556 67,961 99, ,523 4, ,591 (115,495) 73,096 2, ,995 2, ,763 (126) 12,108 85, ,137 11,626 67,093 97, ,840 4, ,764 (111,929) 70,835 2, ,307 1,984 1,618 5,200 (70) 13,291 84, , , , ,792 5,470 42,574 41,831 1,775,147 (1,087,119) 688,028 21, ,787 20,476 8,685 44,841 (1,190) 113, ,001 $1,808,527 Non-current liabilities: Lease obligations (Note 9) Deferred tax liabilities (Note 10) Provision for directors retirement benefits Provision for directors stock payments Net defined benefit liabilities (Note 12) Asset retirement obligations non-current liabilities liabilities Net assets (Note 11) Shareholders equity: Common stock: Authorized - 176,000,000 shares Authorized - 176,000,000 shares Issued - 133,875,800 shares Issued - 133,821,800 shares Capital surplus Retained earnings Treasury stock - 292,997 shares in 166,997 shares in shareholders equity Accumulated other comprehensive income: Unrealized holding gain on securities Foreign currency translation adjustments Remeasurements of defined benefit plans (Note 12) accumulated other comprehensive income (loss) Subscription rights Non-controlling interests net assets liabilities and net assets , ,063 45,470 12,033 4, ,647 (1,073) 139, (745) (7) 7 7, , , , ,875 46,954 12,020 4, ,936 (539) 128, (1,173) (77) 11 6, , ,011 2,021 7,098 4, ,232 6,211 1,679 94, , ,266 44,954 1,163,847 (10,100) 1,311,968 6, (7,018) (72) 66 68,570 1,380,532 $1,808,527 See accompanying notes to the consolidated financial statements. 06 Calbee, Inc. Financial Book Calbee, Inc. Financial Book 07

6 Consolidated Statements of Income Calbee, Inc. and Consolidated Subsidiaries Years ended March 31, and Consolidated Statements of Changes in Net Assets Calbee, Inc. and Consolidated Subsidiaries Years ended March 31, and (Note 5) Number of Shares of Common Stock Outstanding Common Stock Capital Surplus Shareholders Equity Retained Earnings Treasury Stock Shareholders Equity Net sales Cost of sales (Notes 8 and 16) Gross profit Selling, general and administrative expenses (Notes 15 and 16) Operating income income (expenses) Interest and dividend income Interest expense Real estate income Cost of real estate Foreign exchange gains (losses) Depreciation Business commencement expenses Gain on sales of non-current assets (Note 17) Gain on liquidation of subsidiaries and affiliates Subsidy income Loss on sales of non-current assets (Note 17) Loss on retirement of non-current assets (Note 17) Impairment loss (Note 18) Net income before income taxes Income taxes (Note 10): Current Deferred Net income Net income (loss) attributable to: Non-controlling interests Owners of parent See accompanying notes to the consolidated financial statements. Consolidated Statements of Comprehensive Income Calbee, Inc. and Consolidated Subsidiaries Years ended March 31, and Net income comprehensive income (Note 19): Unrealized holding gain (loss) on securities Foreign currency translation adjustments Remeasurements of defined benefit plans other comprehensive loss Comprehensive income Comprehensive income attributable to: Owners of parent Non-controlling interests 251, , ,904 82,075 26, (78) 77 (35) (562) (41) (2) (160) (97) (149) 26,099 (8,756) (270) (9,026) 17,072 (258) 17,330 17, (633) 428 (129) 16,942 17,400 (457) 252, , ,573 82,732 28, (36) 77 (37) (260) (163) (131) (4) (516) (584) ,700 (9,161) 406 (8,754) 18, ,605 18,946 (4) (578) 411 (171) 18,774 18, $2,367,992 1,342,913 1,025, , ,530 1,198 (736) 729 (334) (5,296) (389) 64 1,748 (25) (1,508) (913) (1,405) 245,662 (82,417) (2,546) (84,963) 160,698 (2,431) $163,129 (Note 5) $160, (5,967) 4,030 (1,219) $159,478 $163,786 $(4,307) Balance at April 1, 2016 Issuance of stock (exercise of subscription rights) Cash dividends paid Profit attributable to owners of parent Disposal of treasury stock Purchase of shares of consolidated subsidiaries Net changes during the year Balance at April 1, Issuance of stock (exercise of subscription rights) Cash dividends paid Profit attributable to owners of parent Purchase of treasury stock Disposal of treasury stock Purchase of shares of consolidated subsidiaries Net changes during the year Balance at March 31, Balance at April 1, 2016 Issuance of stock (exercise of subscription rights) Cash dividends paid Profit attributable to owners of parent Disposal of treasury stock Purchase of shares of consolidated subsidiaries Net changes during the year Balance at April 1, Issuance of stock (exercise of subscription rights) Cash dividends paid Profit attributable to owners of parent Purchase of treasury stock Disposal of treasury stock Purchase of shares of consolidated subsidiaries Net changes during the year Balance at March 31, See accompanying notes to the consolidated financial statements. 133,769,800 52, ,821,800 54, ,875,800 Unrealized Holding Gain on Securities 608 (4) , (412) ,020 (434) ,033 (1,585) 411 (1,173) 428 (745) 11, (6,803) 4, (18) 4,775 Accumulated Comprehensive Income Foreign Currency Translation Adjustments Remeasurements of Defined Benefit Plans Accumulated Comprehensive Income (72) (5) (77) 69 (7) 98,013 (4,681) 18, ,936 (5,620) 17, ,647 Subscription Rights 15 (3) 11 (4) 7 (609) 69 (539) (599) 66 (1,073) Non-Controlling Interests 10,541 (3,617) 6, , , (4,681) 18, (6,803) 128, (5,620) 17,330 (599) 66 (18) 139,383 Net Assets 131, (4,681) 18, (6,803) (3,622) 135, (5,620) 17,330 (599) 66 (18) ,667 See accompanying notes to the consolidated financial statements. 08 Calbee, Inc. Financial Book Calbee, Inc. Financial Book 09

7 Calbee, Inc. and Consolidated Subsidiaries Years ended March 31, Consolidated Statements of Cash Flows Calbee, Inc. and Consolidated Subsidiaries Years ended March 31, and Balance at April 1, Issuance of stock (exercise of subscription rights) Cash dividends paid Profit attributable to owners of parent Purchase of treasury stock Disposal of treasury stock Purchase of shares of consolidated subsidiaries Net changes during the year Balance at March 31, Balance at April 1, Issuance of stock (exercise of subscription rights) Cash dividends paid Profit attributable to owners of parent Purchase of treasury stock Disposal of treasury stock Purchase of shares of consolidated subsidiaries Net changes during the year Balance at March 31, See accompanying notes to the consolidated financial statements. Number of Shares of Common Stock Outstanding 133,821,800 54, ,875,800 Unrealized Holding Gain on Securities $5, $6,404 Common Stock $113, $113,266 $4,631 (4,090) $540 $(11,048) 4,030 $(7,018) $45, (172) $44,954 $1,053,620 (52,903) 163,129 $1,163,847 (Note 5) Accumulated Comprehensive Income Foreign Currency Translation Adjustments Remeasurements of Defined Benefit Plans (Note 5) Shareholders Equity Treasury Capital Surplus Retained Earnings Stock Accumulated Comprehensive Income $(729) 656 $(72) Subscription Rights $104 (38) $66 $(5,081) (5,644) 625 $(10,100) Non- Controlling Interests $65,174 3,395 $68,570 Shareholders Equity $1,206, (52,903) 163,129 (5,644) 625 (172) $1,311,968 Net Assets $1,271, (52,903) 163,129 (5,644) 625 (172) 4,051 $1,380,532 Cash flows from operating activities Net income before income taxes Depreciation and amortization Impairment loss Goodwill amortization Increase (decrease) in provision Increase (decrease) in net defined benefit asset/liability Interest and dividend income Interest expense Foreign exchange loss (gain) Net loss (gain) on sales of non-current assets Loss on retirement of non-current assets Decrease (increase) in notes and accounts receivables Decrease (increase) in inventories Increase (decrease) in notes and accounts payable Increase (decrease) in other payables Subtotal Interest and dividends received Interest paid Income taxes paid Net cash provided by operating activities Cash flows from investing activities Acquisition of property, plant and equipment Proceeds from sale of property, plant and equipment Acquisition of intangible fixed assets Acquisition of marketable securities Proceeds from redemption of marketable securities Purchase of investment securities Payment of loans receivable Collection of loans receivable Payment into time deposits Proceeds from withdrawal of time deposits Payment of security deposit Collection of security deposit Proceeds from purchase of shares of subsidiaries resulting in change in scope of consolidation Proceeds from sales of shares of subsidiaries resulting in change in scope of consolidation Net cash used in investing activities Cash flows from financing activities Net increase in short-term borrowings Repayments of long-term debt Purchase of treasury stock Inflow from exercise of stock options Repayment for lease obligations Cash dividends paid Proceeds from share issuance to non-controlling shareholders Dividends paid to non-controlling interests Payments from changes in ownership interests in subsidiariesthat do not result in change in scope of consolidation Net cash used in financing activities Effect of exchange rate changes on cash and cash equivalents Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year (Note 14) See accompanying notes to the consolidated financial statements. (Note 5) 26,099 7, (328) 431 (127) (4) 160 (13,256) (938) (2,346) 18, (73) (9,512) 9,358 (10,583) 25 (425) (27,997) 32,000 (116) (60) 60 (1,686) 1,669 (170) (6,258) 82 (599) 21 (136) (5,617) 816 (16) (5,450) (82) (2,432) 44,627 42,195 27,700 7, (120) (7) 516 (5,549) (642) (734) 1,957 1,984 34, (34) (8,523) 25,958 (9,372) 13 (391) (13,998) 10,000 (16) (0) 32 (728) 827 (175) (13,404) 1,070 (354) 20 (107) (4,677) (990) (9,673) (14,711) (538) (2,696) 47,323 44,627 $245,662 73, ,650 (3,095) 4,061 (1,198) 736 3,603 (39) 1,508 (124,780) (8,838) 1, (22,090) 177,081 1,239 (690) (89,537) 88,092 (99,619) 236 (4,008) (263,531) 301,204 (1,099) (570) 571 (15,875) 15,717 (1,603) 1,437 8,235 (58,905) 771 (5,644) 203 (1,285) (52,879) 7,685 (154) (51,303) (776) (22,892) 420,061 $397, Calbee, Inc. Financial Book Calbee, Inc. Financial Book 11

8 Calbee, Inc. and Consolidated Subsidiaries Years ended March 31, 1. Basis of Presentation The accompanying consolidated financial statements of Calbee, Inc. (the Company ) and its consolidated subsidiaries have been prepared from the consolidated financial statements filed with the Kanto Local Finance Bureau as required by the Financial Instruments and Exchange Law of Japan and in conformity with generally accepted accounting principles and practices in Japan, which are different in certain respects as to the application and disclosure requirements of International Financial Reporting Standards. Accordingly, International Financial Reporting Standards are not applied in preparing the accompanying consolidated financial statements. The consolidated financial statements are not intended to present the financial position, results of operations or cash flows in accordance with accounting principles and practices generally accepted in countries and jurisdictions other than Japan. In preparing the accompanying consolidated financial statements, certain reclassifications have been made to present the information in a form familiar to readers outside Japan. The accounts and the financial statements of the Company and its subsidiaries are maintained in Japanese yen. As permitted, amounts of less than one million yen are rounded down. As a result, the totals shown in the accompanying consolidated financial statements (both in yen and ) do not necessarily agree with the sum of the individual amounts. 2. Summary of Significant Accounting Policies (a) Basis of consolidation and accounting for investments in affiliates The accompanying consolidated financial statements include the accounts of the Company and significant subsidiaries in which the Company holds, directly or indirectly, more than 50% of the voting rights or where it exercises control. The consolidated financial statements consist of the Company and its 27 (27 in ) significant subsidiaries as listed below. Consolidated subsidiaries Calbee Potato, Inc. Snack Food Service Co., Ltd. Garden Bakery, Inc. Tower Bakery, Inc. Star Bakery, Inc. Calnac Co., Ltd. Calbee Eatalk Co., Ltd. Japan Frito-Lay Ltd. ICS Investment Co., LTD. (Note 3) Studio Socio, Inc. CalNeCo, Inc. Calbee America, Inc. (Note 3) Calbee North America, LLC (Note 3) Haitai-Calbee Co., Ltd. (Note 3) Qingdao Calbee Foods Co., Ltd. (Note 3) Yantai Calbee Co., Ltd. (Note 3) CFSS Co. Ltd. (Note 3) Calbee (Hangzhou) Foods Co.,Ltd. (Notes 1and 3) Calbee Four Seas Co., Ltd. Calbee E-commerce Limited (Note 3) Calbee (Taiwan) Co., Ltd. (Note 3) Calbee-URC, Inc. (Note 3) Calbee Tanawat Co., Ltd. (Note 3) Calbee Moh Seng Pte. Ltd. (Note 3) PT. Calbee-Wings Food (Note 3) Calbee Australia Pty Limited (Note 3) Calbee (UK) Ltd (Note 3) Notes: Calbee E-commerce Limited established Calbee (Hangzhou) Foods Co.,Ltd. This company has been included in the scope of consolidation from the year ended March 31,. Following the liquidation of Calbee Iberia, S. L., which was within the scope of consolidation as of March 31,, it has been excluded from the scope of consolidation during the year ended March 31,. The fiscal year-end of these subsidiaries is December 31. For the year ended March 31,, all subsidiaries are consolidated and there is one affiliate (Calbee URC Malaysia Sdn. Bhd.) that is accounted for by the equity method. For the year ended March 31,, all subsidiaries are consolidated and there is no affiliate that is accounted for by the equity method. For the years ended March 31, and, two affiliates, Potato Foods Co., Ltd., and Hiroshima Agricultural Produce Distributors Cooperative are not accounted for using the equity method as they are not significant in terms of net income and retained earnings of the consolidated financial statements. Investments in these affiliates are carried at cost. All significant intercompany balances and transactions have been eliminated in consolidation. Accounts of subsidiaries whose year-ends differ by three months from March 31 have been included using pro forma financial information prepared as of March 31. (b) Foreign currency translation All monetary assets and liabilities denominated in foreign currencies are translated into yen at the exchange rate in effect at the balance sheet date and gains or losses arising from such translation are credited or charged to income. Assets and liabilities of overseas subsidiaries are translated into yen at the exchange rate in effect at the balance sheet date, whereas shareholders equity of such subsidiaries is translated at the historical rate that prevailed on the date of their acquisition. Income and expenses of overseas subsidiaries are translated into yen using the average exchange rate during the fiscal year. Translation adjustments are included in foreign currency translation adjustments and non-controlling interests in net assets section of the accompanying consolidated balance sheets. (c) Cash and cash equivalents For the purpose of the consolidated statements of cash flows, cash and cash equivalents consist of cash on hand, deposits with banks available for withdrawal on demand and short-term highly liquid investments with an original maturity of three months or less which are readily convertible into cash and subject to insignificant risk of changes in value. (d) Allowance for doubtful accounts Allowance for doubtful accounts is provided based on the Company s actual historical experience of credit loss for active accounts and on an individual basis after an analysis of collectability for certain doubtful accounts. (e) Marketable and investment securities Marketable and investment securities are classified and valued as follows (1) Held-to-maturity debt securities Amortized cost method (straight-line method) (2) Available-for-sale securities Securities for which fair values are readily available: Marked-to-market using market prices at the fiscal year-end, with any changes in unrealized holding gains or losses, net of applicable income taxes, included directly in net assets. Cost of securities sold is determined using the moving average method. Securities for which fair values are not readily available: Stated at cost based on the moving-average method. 12 Calbee, Inc. Financial Book Calbee, Inc. Financial Book 13

9 (f) Inventories Inventories are stated at cost using the average method for finished goods and work-in-process. The moving-average method is applied for commercial goods, raw materials and supplies. The book value of inventories is written down to reflect any declines in profitability. (g) Property, plant and equipment (except for leases) Property, plant and equipment is stated at cost less accumulated depreciation. Depreciation is calculated by the straight-line method over the estimated useful lives of the respective assets. The useful lives of buildings, machinery and equipment are as follows: Useful lives (years) Buildings 15 to 31 years Machinery and equipment 10 years (h) Goodwill Goodwill is amortized using the straight-line method over 5, 10 or 20 years. (o) Accounting method for retirement benefits (1) Period allocation methodology for the estimated retirement benefit amount The retirement benefit obligation is calculated by allocating the estimated retirement benefit amount until the end of the current fiscal year on a benefit formula basis. (2) Amortization of net unrecognized actuarial gains (losses) and unrecognized past service cost Net unrecognized actuarial gains (losses) are amortized beginning in the following fiscal year by the straight-line method over a specified number of years (12 years) within the average remaining service period of employees at the time the difference arose. Unrecognized past service cost is amortized by the straight-line method over a specified number of years (5 years) within the average remaining service period of employees at the time the cost incurred. (3) Application of the simplified method for small businesses For part-time employees of the Company, amount payable at the fiscal year-end in accordance with internal regulations is provided for. For certain consolidated subsidiaries, a simplified method is applied for the calculation of retirement benefit obligations and retirement benefit expenses in which the necessary retirement benefit provisions for voluntary resignations at the end of the fiscal year are recorded as retirement benefit obligations. (i) Intangible assets (except for leases) Intangible assets are amortized using the straight-line method. Software for internal use is amortized using the straight-line method over the estimated useful life of five years. (j) Leases Finance lease assets that do not transfer ownership of the property to the lessee are depreciated using the straight-line method over the lease term with no residual value. (p) Consumption taxes Transactions subject to consumption tax and local consumption tax are stated at the amount, net of consumption taxes. (q) Business commencement expenses Business commencement expenses are expensed as incurred. (k) Provision for bonuses Provision for bonuses is provided for the bonus payments to employees and directors in the estimated bonus amount attributable to the current fiscal year. (l) Provision for stock payments To prepare for future awards of the Company s shares to Group employees, provision for stock payments is provided for stock award debt based on predetermined regulations for awarding stock. (m) Provision for directors retirement benefits To provide for the payment of directors retirement benefit, the amount payable under internal regulations at the consolidated balance sheet date is recorded. (n) Provision for directors stock payments To prepare for future awards of the Company s shares to the Company s directors, etc, provision for stock payments is provided for stock award debt based on predetermined regulations for awarding stock. 14 Calbee, Inc. Financial Book Calbee, Inc. Financial Book 15

10 3. Standards and guidance not yet adopted The following standard and guidance were issued but not yet adopted. - Accounting Standard for Revenue Recognition (ASBJ Statement No.29, March 30, ) - Implementation Guidance on Accounting Standard for Revenue Recognition (ASBJ Guidance No.30, March 30, ) (1) Overview The above standard and guidance provide comprehensive principles for revenue recognition. Under the standard and guidance, revenue is recognized by applying following 5 steps: Step1: Identify contract(s) with customers. Step2: Identify the performance obligations in the contract. Step3: Determine the transaction price. Step4: Allocate the transaction price to the performance obligation in the contract. Step5: Recognize revenue when (or as) the entity satisfies a performance obligation. (2) Effective date The Company and its consolidated subsidiaries have not yet determined its first application date. (3) Effects of the application of the standards The Company and its consolidated subsidiaries are currently in the process of determining the effects of these new standards on the consolidated financial statements. Performance-linked stock compensation plan The Company awards stock to board members (excluding outside and part-time directors) and executives contractually bound to the Company including Senior Executive Officers and Executive Officers (hereinafter Board Members ) through the Trust. (1) Transaction summary On August 6, 2014, the Company introduced a performance-linked stock compensation plan (hereinafter the Plan ) with the goal of increasing awareness of the importance of contributing to further enhancing the Company s corporate value and performance over the medium-to-long-term. The plan will be highly transparent and objective and closely linked with the Company s performance for Board Members. The Plan is the performance-linked stock compensation plan under which the Company s shares are acquired through the Board Incentive Plan Trust (hereafter BIP Trust ) with the funds of remuneration contributed by the Company and the Company s shares are awarded to the Company s Board Members in accordance with performance targets achieved. Upon their retirement, Board Members will receive the Company s stocks in principle. In order to ensure the neutrality of the Company s management, voting rights for the Company s stocks in the Trust shall not be exercised while in the Trust. (2) The Company s own stock in the Trust The Company s own stock in the Trust is recorded in treasury stock under net assets based on the book value in the Trust (excluding ancillary expenses). The book value and the number of treasury stock in the Trust as of March 31, and were 737 million ($6,943 thousand) and 199,200 shares, and 428 million and 122,700 shares, respectively. 5. U.S. Dollar Amounts 4. Additional Information Employee Stock Ownership Plan (ESOP) Trust The Company awards the Company s own stock to the employees of the Group through a trust. For the convenience of the reader, the accompanying consolidated financial statements are also presented in by converting Japanese yen amounts at the rate of = $1, the approximate rate in effect on March 31,. The inclusion of such amounts is not intended to imply that yen amounts have been or could be readily converted, realized or settled in U.S. dollars at that or any other rate. (1) Transaction summary On March 7, 2014, the Employee Stock Ownership Plan (ESOP) Trust was introduced as an employee incentive plan with the aim of improving long-term corporate value. By raising awareness of our financial results and share price among employees, the Company aims to further promote corporate activities that improve financial results. The Company has established the Trust by contributing funds for acquisition of the Company s stocks for those employees who satisfy certain requirements. Based on predetermined regulations for awarding stocks, the Trust will acquire the estimated number of the Company s stocks to be awarded to employees from the stock market during the predetermined stock acquisition period. Funds required for the Trust to purchase the aforementioned stocks will be provided by the Company. The employees will bear no liabilities. Introducing the Trust will enable employees to profit from a rise in stock prices, and will promote awareness of the stock price among employees as they fulfill their duties and is thereby expected to improve employee motivation. Further, the voting rights of the Company s stocks held in the Trust will be executed within a structure that will reflect the will of the employees who are potential beneficiaries and is an effective way to improve corporate value by promoting employees participation in management planning. (2) The Company s own stock in the Trust The Company s own stock in the Trust is recorded in treasury stock under net assets based on the book value in the trust (excluding ancillary expenses). The book value and the number of these treasury stock as of March 31, and were 333 million ($3,135 thousand) and 92,965 shares, and 109 million and 43,465 shares, respectively. 16 Calbee, Inc. Financial Book Calbee, Inc. Financial Book 17

11 6. Financial Instruments (1) Policy for financial instruments The Company s fund management policy is to use highly secure financial instruments, such as term deposits, with purchases of financial instruments carried out in accordance with internal regulations including the fund management policy. As for funding, domestic consolidated subsidiaries are prohibited from borrowing from third parties and are only allowed to borrow from the Company. The Company borrows necessary funds from third parties if necessary. The Company uses derivatives in order to hedge foreign exchange risk and does not enter into derivative transactions for speculative or trading purposes. (2) Nature of financial instruments and the related risks and risk management Trade receivables consist of notes and accounts receivable and are exposed to customers credit risk. In order to reduce such risk, the Company monitors the credit standing, due dates and outstanding balance by individual customer in accordance with the Group credit management policy. Marketable securities consist of commercial paper and jointly-managed money trust and are highly safe financial instruments held for short-term investment. The Company considers their credit risk to be insignificant. Investment securities consist of shares of companies with business relationships and debt securities for surplus fund management, and are exposed to market volatility risk. In order to reduce such risk, the Company reviews the market values and the financial position of the issuers on a regular basis. Trade payables consist of notes and accounts payable and other payable are exposed to liquidity risk. The Company manages such risk by preparing fund management plans on a monthly basis. Also, the Company enhanced its centralized funding and cash management functions by implementing a cash management system. Long-term debt (including current portion of long-term debt) are taken out for the purpose of capital investments. To avoid risks from fluctuations in interest rates for payments on long-term debt, the Company s borrowings are limited to those with fixed interest rates. To hedge exchange rate volatility risk related to monetary receivables and payables denominated in foreign currencies, the Company uses forward foreign exchange contracts. These derivative transactions are executed and managed in accordance with the internal regulations governing the transaction authorizations. The Company considers that credit risk arising from non-performance of counterparties is minimal because the counterparties to the derivative transactions are limited to domestic banks with high credit standing. (3) Supplementary explanation of the estimated fair value of financial instruments The fair value of financial instruments includes the market value, or the reasonably determined value, in case there is no relevant market value. Such value may change depending on the different presumptions adopted, since variable factors are taken into account in determining the fair value. The contract amount of derivative transactions shown in Note 20 Derivative Financial Instruments does not represent market risk. (4) Fair values of financial instruments Carrying amount, estimated fair value and the difference between them for financial instruments as of March 31, and are shown in the following table. The financial instruments for which fair values are not readily available are not included (see Note 2 below). (As of March 31, ) Carrying Amount Estimated Fair Value Difference Assets (1) Cash and deposits (2) Notes and accounts receivable (3) Marketable and investment securities Held-to-maturity Available-for-sale assets Liabilities (4) Notes and accounts payable (5) Short-term borrowings (6) payables liabilities Derivative transactions Hedge accounting not applied derivative transactions 23,559 41,749 22,998 2,197 90,506 (9,728) (1,129) (6,273) (17,130) (66) (66) 23,559 41,749 22,996 2,197 90,504 (9,728) (1,129) (6,273) (17,130) (66) (66) (2) (2) (As of March 31, ) Carrying Amount Estimated Fair Value Difference Assets (1) Cash and deposits (2) Notes and accounts receivable (3) Marketable and investment securities $ 221, ,976 $ 221, ,976 Held-to-maturity Available-for-sale assets Liabilities 216,481 20,685 $ 851, ,461 20,685 $ 851,883 $ (19) $ (19) (4) Notes and accounts payable (5) Short-term borrowings (6) payables liabilities $ (91,566) (10,633) (59,045) $ (161,245 ) $ (91,566) (10,633) (59,045) $ (161,245) Derivative transactions Hedge accounting not applied $ (621) $ (621) derivative transactions $ (621) $ (621) 18 Calbee, Inc. Financial Book Calbee, Inc. Financial Book 19