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Shiseido commenced operations as Japan’s first Western-style pharmacy in Tokyo’s
Ginza district in 1872. The name Shiseido derives from a Chinese expression meaning
“praise the virtues of the great Earth, which nurtures new life and brings forth new values.”
In line with this expression, our founding spirit of “ser ving our customers and contributing
to society by integrating all things on Earth to create new value” lives on in our corporate mission of “We seek to identify new, richer sources of value and use them to create a beautiful
lifestyle.” This policy has led to high-value products and ser vices in the cosmetics and
other businesses promoting people’s beauty and well-being.
Shiseido aims to become a global player representing Asia with its origins in Japan,
and continues to improve quality of activities across the board under the current Three-Year
Plan in order to set the stage for the next Three-Year Plan.
By getting into a growth trajector y under these initiatives, we aim to assist society,
customers and all people in experiencing “This moment. This life. Beautifully.”
Contents
Financial Highlights ············································ 4
Financial Section ·················································· 35
Shiseido at a Glance ············································ 6
Six-Year Summary of
Selected Financial Data ····························· 36
An Interview with President Maeda ················· 8
Business Strategy
Domestic Cosmetics ······································· 14
Overseas Cosmetics ········································ 17
Feature: Conclusions and Beginnings ············· 20
Corporate Governance ········································ 24
Contributing to Society ······································· 28
Environmental Initiatives ··································· 30
Board of Directors, Corporate Auditors and
Corporate Officers ············································ 32
Main Subsidiaries and Affiliates ······················· 34
Management’s Discussion and Analysis ····· 37
Consolidated Financial Statements ·············· 50
Notes to the Consolidated
Financial Statements ·································· 55
Independent Auditors’ Report ······················· 75
Investor Information············································ 76
Corporate Information ········································ 77
Forward-Looking Statements
In this annual report, statements other than historical facts
are forward-looking statements that reflect the Company’s
plans and expectations. These forward-looking statements
involve risks, uncertainties and other factors that may
cause actual results and achievements to differ from those
anticipated in these statements.
Financial Highlights
Shiseido Company, Limited, and Subsidiaries
For the years ended March 31, 2008, 2009 and 2010
■ Net
sales: ¥644.2 billion (Down 6.7%)
Domestic sales declined due to cooling consumer sentiment. Overseas sales increased on a local currency basis, centered on Asia, but the impact of the strong yen resulted in a decrease in revenues.
■ Operating
income: ¥50.4 billion (Up 0.9%)
Operating profitability: 7.8% (Up 0.6 percentage points)
Income rose as efficient handling of SG&A expenses covered the decline in gross profit that resulted
from the decrease in net sales.
■ Cash
dividend per share: ¥50.0
The cash dividend per share was ¥50.0, the same as in the previous fiscal year, and the consolidated
payout ratio was 59.1%.
Millions of yen
(Except per share data)
Percent change
Thousands of U.S. dollars
(Note 1)
(Except per share data)
2010/2009
2010
2008
2009
2010
Net sales ········································
¥723,485
¥690,256
¥644,201
Operating income ····························
63,465
49,914
50,351
+0.9
541,176
Net income ·····································
35,460
19,373
33,671
+73.8
361,898
Total assets ····································
¥675,864
¥606,569
¥775,446
+27.8%
$8,334,544
Net assets ······································
399,739
351,951
365,208
+3.8
3,925,279
Net income (Note 2) ························
¥ 86.1
¥ 48.0
¥ 84.6
+76.3%
$0.91
Net assets (Note 2)··························
946.2
839.9
875.7
+4.3
9.41
Cash dividend ·································
34.0
50.0
50.0
+
_ 0.0
0.54
Operating Results:
– 6.7%
$6,923,914
Financial Position:
Per Share Data (In yen and U.S. dollars):
Financial Ratios:
Operating profitability ······················
8.8%
7.2%
7.8%
Return on equity······························
9.2
5.4
9.8
Payout ratio (Consolidated) ···············
39.5
104.1
59.1
Notes: 1. All dollar amounts herein refer to U.S. currency. Yen amounts have been translated, solely for the convenience of the reader, at the rate of ¥93.04 to US$1 prevailing
on March 31, 2010.
2. Net income per share (basic) is calculated based on the weighted average number of shares outstanding during each respective year. Net assets per share is calculated
based on the number of shares outstanding at the end of each respective year.
Please refer to page 36 for an in-depth six-year summary of selected financial data.
4
SHISEIDO ANNUAL REPORT 2010
Net Sales
Operating Income /
Operating profitability
(Billions of yen)
(Billions of yen)
694.6
671.0
723.5
690.3
Net Income
（%）
63.5
(Billions of yen)
35.5
644.2
50.0
38.9
25.3
8.8
7.2
33.7
50.4
49.9
7.2
7.8
19.4
5.8
14.4
06
07
08
09
10
06
07
08
Operating Income
09
10
06
07
Return on Equity
Net Income per Share
（%）
(Yen)
10
Cash Dividends per Share
(Yen)
86.1
9.8
09
(Years ended March)
(Years ended March)
(Years ended March)
08
Operating profitability
50.0
84.6
50.0
9.2
60.9
30.0
6.6
32.0
34.0
48.0
5.4
34.4
3.9
06
07
08
09
(Years ended March)
10
06
07
08
09
(Years ended March)
10
06
07
08
09
(Years ended March)
Business Segment Information
(Year Ended March 2010)
Geographic Segment Information
(Year Ended March 2010)
Overseas Sales /
Overseas Sales Ratio
Net Sales (Outer circle)
Operating Income (Inner circle)
Net Sales (Outer circle)
(Billions of yen)
3.4
（%）
1.6
Operating Income (Inner circle)
32.4
29.4
16.8
36.7
18.2
264.3
38.0
262.0
224.8
12.8 31.4
78.4 61.7
（%）
36.5
（%）
10
36.9
237.5
197.2
50.1 63.3
7.1
6.7
11.8
06
Domestic Cosmetics Business
Overseas Cosmetics Business
Others
07
Japan
Americas
Americas
Europe
Asia/Oceania
Europe
08
09
10
Asia/Oceania
Overseas Sales Ratio
(Years ended March)
Notes: 1. Segment sales represent sales to external customers only and do not include intersegment sales or transfers.
2. Segment operating income does not include eliminations/corporate.
SHISEIDO ANNUAL REPORT 2010
5
Shiseido at a Glance
Domestic Cosmetics Business
Net Sales
(Billions of yen)
439.0 412.3
397.6
Share of
total net
sales
61.7%
10
08
09
(Years ended March)
The domestic cosmetics business segment
handles products/services for the Japanese market,
primarily cosmetics. The core cosmetics division
manufactures and markets cosmetics, cosmetics
equipment and toiletries. The professional division
manufactures and markets products/services for
hair and beauty salons. The healthcare division
manufactures and markets health and beauty foods
and over-the-counter drugs.
Cosmetics
Counseling
MAQUILLAGE
Elixir White
clé de peau BEAUTÉ
Self-selection
Aqua Label
Toiletries
Integrate
Professional
PROSYNERGY
Uno
Tsubaki
Healthcare
Qi
Others
The Collagen
Share of
total net
sales
1.6%
SHISEIDO ANNUAL REPORT 2010
Sengan Senka
Non-Shiseido and Mail-Order
In and On
d’ici là
Soka-Mocka
The others business segment includes the frontier sciences division, which manufactures and markets
cosmetic raw materials, medical-use drugs and
beauty care cosmetics, and conducts a variety of
other activities including restaurant operation.
Note: Segment sales represent sales to external customers only and do not include intersegment sales or transfers.
6
Bénéfique
Overseas Cosmetics Business
Net Sales
(Billions of yen)
Share of
total net
sales
263.7 260.9 236.6
36.7%
Composed of the cosmetics division and the professional division, the overseas cosmetics business
segment handles products for overseas markets. It
manufactures and markets cosmetics and other
products/services in the Americas, Europe and
Asia/Oceania.
10
08
09
(Years ended March)
Cosmetics
Professional
Global brand
SHISEIDO
Future Solution LX
SHISEIDO
makeup line
JOICO
SHISEIDO
White Lucent
China/Asia
AUPRES
DQ
Za
DECLÉOR
Non-Shiseido
bareMinerals
Narciso Rodriguez
NARS
CARITA
Net Sales
(Billions of yen)
20.8
17.0
10.0
10
08
09
(Years ended March)
Bio-hyaluronic acid
Shiseido Parlour
SHISEIDO ANNUAL REPORT 2010
7
An Inter view with President Maeda
Aiming to become a global player representing Asia with its origins in Japan, we
will continue our drive to improve quality
of activities across the board under way
since the star t of the current Three-Year
Plan in the year ended March 2009.
We will wrap up the present Three-Year
Plan in the year ending March 2011, while
building a firm footing for getting on a
growth trajector y during the next ThreeYear Plan. In Japan, we will strengthen cultivation of our brands/lines. Overseas, we
will maintain growth in Asia and concentrate on further enhancing our presence on
a global scale.
Shiseido’s aim in these ef for ts is to
become a corporation that earns the suppor t of its stakeholders as it works to
increase corporate and shareholder value.
June 25, 2010
SHINZO MAEDA
President & CEO (Representative Director)
8
SHISEIDO ANNUAL REPORT 2010
■ Overview of the Year Ended March 2010
How did Shiseido deal with the global
recession that continued during the
year ended March 2010? Please provide
an overview of the fiscal year.
year because of our success in raising the efficiency of
selling, general and administrative expenses centered on
marketing costs. Operating profitability improved 0.6
percentage points year on year to 7.8 percent.
Moreover, we brought natural cosmetics company
Bare Escentuals, Inc. of the United States into the
The year ended March 2010 was the second year of
Shiseido Group in a major step that prepares us for
our drive to improve quality of activities across the
growth. This company pioneered mineral foundation,
board under the current Three-Year Plan from the year
and has performed strongly for many years. Its annual
ended March 2009 as we prepared for future growth.
net sales now exceed US$500 million. Shiseido primarily
While some tasks remain in our challenging market
used a tender offer to acquire the shares of Bare
environment, we strengthened our business base and
Escentuals, listed on the NASDAQ exchange, for a
increased earnings by assiduously stepping up concen-
total of US$1.96 billion. It became a wholly owned
tration and distinction.
subsidiary in March 2010, and its sales and earnings will
In Japan, consumption continued to decrease. We
focused on key areas in each channel and concentrated
contribute to Shiseido’s results in the year ending
March 2011.
resources. As a result, we performed strongly in the
key retail venues of voluntary chain stores and department stores. Unfortunately, however, our performance
was not satisfactory at general merchandise stores
and drug stores, where we still have work to do.
Overseas, we kept pace with our global competi-
■ The Business Plan for the Year Ending
March 2011
How has Shiseido positioned the year
ending March 2011, the final year of the
current Three-Year Plan?
tors by strengthening cultivation of the global brand
and executing our City Concept strategy
When we announced our current Three-Year Plan in
of focusing marketing on cities that have a strong ripple
2008, I declared our goal to become a global player repre-
effect on their respective countries as a whole. Sales
senting Asia with its origins in Japan in 10 years, and the
began to recover from the fourth quarter in Europe
reforms we would implement to do so. Among them, we
and North America. Performance in Asia was robust,
have identified the year ending March 2011 as a key year for
driven by energetic channel- and brand-specific mar-
wrapping up our efforts to improve quality of activities
keting in China. Even amid weak business confi-
across the board and building a firm footing for getting on a
dence, our tenacious, ongoing efforts to build a
growth trajectory during the next Three-Year Plan.
strong base for growth generated favorable results.
We assumed the following review of the future
Despite all these positive developments, net sales
business environment in formulating our business
decreased 6.7 percent year on year. By business, sales in
plan for the year ending March 2011. First, in Asia we
the domestic cosmetics business decreased due to the
believe that China will be the engine of growth. This
pronounced effect of the protracted recession. In the
trend will continue into the future, and the Asian market
overseas cosmetics business, sales increased on a local cur-
including Japan is forecast to become the world’s
rency basis, but decreased year on year when translated
largest market by 2013. Moreover, the Japanese market
into yen because of the appreciation of the Japanese cur-
is becoming increasingly polarized between high-
rency. Operating income increased 0.9 percent year on
priced and low-priced products, and we forecast that it
SHISEIDO ANNUAL REPORT 2010
9
this environment and establish an undisputed presence in
Asia in order to make steady progress toward becoming a
global player. Establishing a firm footing for full-scale
globalization will be absolutely critical.
As announced on June 8, 2010, we forecast that net
sales for the year ending March 2011 will increase 9.4
percent year on year to ¥705.0 billion, and operating
income will increase 0.3 percent to ¥50.5 billion. I would
like to point out that this forecast includes the impact
from adding Bare Escentuals to the scope of consolidation.
We expect this will increase cost of sales following
will continue to do so into the future. We see this
assessment of the fair value of the inventories acquired as
trend as a structural change that represents the effect of
well as incur amortization of marketing rights, and
evolving customer attitudes, purchasing behavior and
goodwill under Japanese accounting standards.
channels as well as the impact of the recession.
Please see the Management’s Discussion and Analysis on
pages 37 to 49 for more detail on the forecast for the year
ending March 2011.
In the year ending March 2011, Shiseido will respond to
Ten-Year Roadmap
Sustained growth as a global player representing Asia with its origins in Japan
pan
Current Three-Year Plan
Previous Three-Year Plan
Next Three-Year Plan
Phase 1
Establish foundation
Improve quality of
activities across the board
as a global player
Establish foundation
2006
Phase 2
Get into a growth
trajectory
Phase 3
Make a leap forward
Become a global player
Establish an undisputed presence in Asia
2009
2012
2015
2018
(Years ended March) Year Ending March 2018: Net sales in excess of ¥1 trillion (over 50% overseas sales); Consistently generate solid
operating profitability (12% or higher); ROE comparable to that of global competitors
(15% or higher)
Overview of Three-Year Plan
Become a global player representing Asia with its origins in Japan; Improve quality of activities across the board
Keywords
Expand growth potential and improve profitability
Globalization
Utilization of external
knowledge and resources
Distinction and concentration
Create solid brands
Improve quality of business management
Strategic direction
Strengthen cultivation of the global brand
Establish an undisputed presence in Asia
・Rollout of “masstige” marketing ・Further expand business in China
・Solidify No.1 position in Japan
Nurture human resources on global basis
Raise organizational capabilities
Advance corporate governance
Pursue structural reforms
Strengthen foundation for raising the Shiseido Group’s corporate value
・Accelerate innovation of Beauty Consultant activities
・Reinforce value creation power ・Establish global production systems
Target proactive CSR initiatives
Strengthen global solidarity
10 SHISEIDO ANNUAL REPORT 2010
An Inter view with President Maeda
■ Overview of Initiatives for the Year Ending
growing business in China with the goal of double-digit
growth in sales. In department stores, we will work to
March 2011
Wrapping up and a firm footing are key
themes, but what are your specific initiatives for the year ending March 2011?
expand sales of the global brand
and the
China-only brand AUPRES. At cosmetics specialty
stores, we will focus on raising sales of existing stores
and plan on raising total contracts with stores to about
My explanation will follow the key words of Japan,
5,000 during fiscal 2010. In addition, we will aggres-
Asia and Global as per the aim of becoming a global
sively promote expansion in the drugstore channel,
player representing Asia with its origins in Japan that I
which we entered in the past fiscal year, and in the
mentioned earlier.
professional business.
Japan refers to the domestic cosmetics business. We
1
will continue focused efforts to nurture mega lines and
2
Global is last but not least. We will move to install
new counters and strengthen our lines to cultivate the
relationship-building brands/lines , while working to
global brand
develop long-selling brands/lines by focusing on existing hit
City Concept strategy with a focus on Asia. Moreover, we
products to attract and retain loyal customers. We will
will accelerate our advance into new markets to expand
also further enhance efforts to meticulously combine
customer contact points.
. We will also execute our
brands/lines with channels to narrow down our core
fields, which was a key policy in the year ended March
2010. We will increase the number of core voluntary chain
stores, while moving forward at department stores with
our program of installing separate counters for the global
brand
and for clé de peau BEAUTÉ. We will
also improve the capabilities of beauty consultants at general
■ The Acquisition of Bare Escentuals
The acquisition of Bare Escentuals was
a major step in preparing for growth.
What is the background for the acquisition, and how will Shiseido develop this
business in the future?
merchandise stores and focus on priority chains in the
drug store channel. To reinforce these efforts, we have
In accordance with its long-term business strategy,
reassessed our channel-specific sales system, and in April
Shiseido regularly reviews strategic investments in
2010 reorganized it into a system that can adapt to mar-
projects that meet its requirements for synergy and
kets from the perspectives of both area and store chains.
new value. Bare Escentuals met our requirements, and we
In Asia, we will carefully prepare for the full-scale
acquired it for the following three specific reasons.
launch of the masstige3 business during the next Three-
One, we acquired new brand value. Bare Escentuals
Year Plan. We will develop this business while integrating
is the leader in the mineral foundation market in the
it with the Japanese market for low-priced products,
United States. Acquiring its strongly supported brands
and will begin some components of this business in the
allows us to structure a brand portfolio that allows us to
second half of the year ending March 2011. Meanwhile,
respond to a broader array of customer needs.
we will also draw on the Vietnam plant, a masstige pro-
Two, we see synergies with distribution, sales and
duction base that began operating in April 2010.
research and development. Bare Escentuals has built a
Moreover, we will maintain the momentum of our rapidly
unique business model in which it conducts aggres-
1. Mega lines: Lines aimed at expanding points of contact with customers; Shiseido concentrates advertising and sales promotion by skincare and makeup
category in order to attain category leadership.
2. Relationship-building brands/lines: Brands/lines that deepen relationships with customers through counseling.
3. Masstige: A word coined from “mass” and “prestige.” Masstige products are positioned as more expensive than mass-produced products, but more moderately
priced than prestige products.
SHISEIDO ANNUAL REPORT 2010 11
sive direct marketing using television shopping, mainly
management is essential to increasing growth potential
in the United States, while simultaneously retaining
and profitability.
customers through sales at locations including
We have been nurturing human resources on a
department stores and its company-owned stores.
global basis and promoting diversity by both globalizing
Shiseido sees excellent synergies for Bare Escentuals in
Japanese employees and nurturing employees in local
using the distribution and sales infrastructure of
markets overseas. Concurrently, we have been
Shiseido and Shiseido’s strong presence in Japan and
removing barriers related to age, gender and nationality
Asia. Moreover, we expect joint product development
in creating an organization that attracts the most suit-
that makes use of Shiseido’s skincare-centered R&D
able people for the most suitable roles.
strengths to further enhance the products of Bare
Our environmental activities include ongoing promotion of the Shiseido Earth Care Project, an envi-
Escentuals.
Three, we strengthened our business base in
ronmental initiative conducted by Shiseido employees
North America. Adding Bare Escentuals and its
worldwide, with the aim of achieving new lifestyles in
strong
expanded
which uniquely Shiseido beauty and the environment
Shiseido’s sales in the North American market to a
coexist. We are also undertaking initiatives in the
level equivalent to sales in Europe.
three areas of CO2 reduction, resource conservation
base
in
North
America
has
We moved to build synergies with Bare Escentuals
and biodiversity. The Shiseido Life Quality Beauty
by initiating meetings with Leslie Blodgett, chairperson
Program is a uniquely Shiseido CSR activity. We have
of Bare Escentuals, and her management team following
enhanced initiatives under this program in ways such as
the acquisition. We subsequently established collabo-
strengthening cooperation with healthcare institu-
rative projects and are now studying specific strate-
tions and increasing beauty seminars overseas.
gies to maximize synergies.
The acquisition of Bare Escentuals has given
Shiseido competitive brands covering Asia, Europe and
Please see pages 24 to 27 for more detail on corporate
governance, pages 28 to 29 for more detail on CSR and
pages 30 to 31 for more detail on environmental initiatives.
North America, with the global brand
from Asia, Beauté Prestige International S.A.’s designer
fragrance
brands
from
Europe,
and
the
Bare
Escentuals brand from North America. We will work
to further strengthen this brand portfolio and our
presence in Europe and North America in working to
■ Shareholder Returns
Shiseido made a major strategic investment in the year ended March 2010.
Please explain shareholder return policies
going forward.
generate steady growth as a global player.
Shiseido has changed its policy for shareholder
■ Establishing a High-Quality
Management Foundation
returns.
Our former income distribution policy was a total
return ratio of 60 percent in the medium term, calculated
What lies ahead as Shiseido continues
its emphasis on building a high-quality
management foundation?
as the sum of dividends paid and share buybacks, as a
proportion of consolidated net income. During the current
three-year period, in which we have aimed to establish our
Under our current Three-Year Plan, establishing
base and raise quality of operations, we have not under-
an unsurpassed, world-class quality of business
taken large-scale investments for growth. Therefore,
12 SHISEIDO ANNUAL REPORT 2010
An Inter view with President Maeda
the intent of our policy was to aggressively provide
returns to shareholders by distributing a majority of net
income to shareholders, while giving consideration to
■ Message to Shareholders and Investors
In closing, please describe your vision of
Shiseido’s future presence in global markets.
increasing return on equity. However, the next threeyear period is positioned as a phase for getting into a
The acquisition of Bare Escentuals was a major
growth trajectory. In light of this, we are implementing
step forward for Shiseido as a global corporation, and
more aggressive growth strategies such as the acquisition
we will continue to devote all of our strengths to the
of Bare Escentuals. Therefore, Shiseido will appropri-
challenge of becoming a global player representing
ate a majority of net income for investments in growth. In
Asia with its origins in Japan. This will further
addition, we will raise the predictability of shareholder
enhance our presence in global markets and propels
returns by removing the uncertain component of flexible,
Shiseido toward a new growth trajectory. At the same
ad hoc share buybacks, and will change to using the
time, we recognize that business development and
payout ratio as a numerical target. We may flexibly con-
corporate citizenship are both important for sustained
duct share buybacks as a means of incrementally
growth, and therefore intend to place even more
increasing shareholder returns.
emphasis on efforts to protect the environment and
As a result of the above, our new target for share-
fulfill our obligations to society.
holder returns over the medium term is a consolidated
Let me repeat my strong conviction that Shiseido
payout ratio of 40 percent. However, we emphasize
will be the choice of customers worldwide by creating the
stable dividends, and plan to maintain cash dividends
value that only Shiseido can. We must continue to be a
per share at ¥50.00 for the year ending March 2011, for
company that is needed. Exercising Shiseido’s unique
a consolidated payout ratio of 69 percent using our
strength, which is its commitment to “realize the beauty
forecast for net income.
of customers and enrich their hearts to complement
their outer beauty,” will be our motive force as we work to
succeed in the new challenges we are taking on.
We are counting on the continued support of shareholders and investors as we implement further reforms.
Cash Dividends per Share and
Consolidated Payout Ratio
Cash dividends
per share
(¥)
(%)
50 104.1 50
Consolidated
payout ratio
50
87.2
30
34
32
68.6
52.6
59.1
39.5
06
07
08
09
(Years ended March)
10
11
(Forecast)
SHISEIDO ANNUAL REPORT 2010 13
Business Strategy
Net Sales / Operating Income
500
453.4
400
Operating Income (Right scale)
Net Sales (Left scale)
(Billions of yen)
43.1
439.0
447.6
50
412.3
36.9
34.3
(Billions of yen)
397.6
39.4
33.0
40
300
30
200
20
100
10
0
06
07
08
09
10
0
(Years ended March)
Sales by Division
Other 8.9%
Healthcare 3.8%
Professional 3.5%
Toiletries 11.7%
Cosmetics
83.8%
Self-selection cosmetics 21.4%
Counseling cosmetics
Domestic Cosmetics
■ Domestic Cosmetics:
50.7%
Note: Segment sales represent sales to external customers only
and do not include intersegment sales or transfers.
brands/lines. Shiseido’s 21 core brands/lines in
Business Environment and Strengths
these areas are top brands or vying for top share in
The domestic over-the-counter cosmetics market
their categories. Shiseido is also concentrating its
began to contract in the second half of the year
efforts on cultivating core stores in each channel and
ended March 2008, a trend that has continued due
has superior operations at voluntary chain stores and
to
department stores that can provide the quality services
rapid
deterioration
of
the
economy
since
September 2008. In the year ended March 2010, it
and counseling that the Company aims for.
apparently shrank a further 3 to 4 percent.
Structurally, the market further polarized between
high- and low-priced products, and the low-priced
market expanded. Although deflationary trends
seem to have moderated to some extent, consumption has continued to decrease.
The Domestic Over-the-Counter Cosmetics Market
(Shiseido Estimates)
Year Ended March 2008
1H
Year Ended March 2009
2H
1H
-1 to -2%
-1 to -2%
2H
Year Ended March 2010
1H
2H
± 0%
In this market, Shiseido is concentrating resources
-3%
-3 to -4% -3 to -4%
such as people and marketing outlays on the two
core areas of mega lines and relationship-building
± 0 to -1% annually
-2 to -3% annually
-3 to -4% annually
Note: In the year ending March 2011, Shiseido plans to begin using the business segments of Domestic Cosmetics, Global Business and Other. As a result,
domestic professional division results will be included in Global Business rather than in Domestic Cosmetics as in the past.
14 SHISEIDO ANNUAL REPORT 2010
■ Overview of the Year Ended March 2010
Please see Management’s Discussion and Analysis on pages 37
to 49 for more detail on Domestic Cosmetics results.
In the year ended March 2010, Shiseido responded
to its rapidly changing markets by targeting stores
and brands/lines to strengthen sales in each channel
and implemented focused initiatives. While results
were not completely satisfactory at drug stores and
general merchandise stores, we achieved strongly
positive results by introducing the PS Program* at
approximately 600 voluntary chain stores where we
are focusing on improvement and following up with
solid support. At department stores, we concentrated on
major stores, and increased share through means
including the promotion of our Double Counter strategy entailing separate counters for
and
■ Initiatives in the Year Ending March 2011:
Brand Strategy
In the year ending March 2011, Shiseido will
work to increase brand value, centered on mega
lines. We will assiduously develop long-selling
brands/lines by focusing on existing hit products to
attract and retain loyal customers.
For example, in March 2010 we added a goldcolored Head Spa series for scalp care to Tsubaki,
thus creating a third series in addition to the red
series for luster care and the white series for damage
clé de peau BEAUTÉ.
However, in spite of these aggressive initiatives,
results for counseling cosmetics, self-selection cosmetics and toiletry products decreased year on year
because of the impact of cooling consumer sentiment and price sensitivity among customers. As a
result, domestic cosmetic sales decreased 3.6 percent year on year. High-priced counseling cosmetics
largely outperformed the overall market but midpriced counselling and low-priced self-selection
products were down year on year.
care. As a result, we are better able to meet a wide
range of customer needs during the year ending
March 2011. This will further strengthen the clear
product value the Tsubaki line delivers in the highly
competitive haircare market. Moreover, a completely
new men’s hair styling agent, Uno Fog Bar, became a
hit product in the year ended March 2010, and in
March 2010 we launched In and On, a line that
exemplifies our unique concept of internal and
external beauty because it counters the effects of
aging on the skin as both a cosmetic product and a
21 Core Brands/Lines
6 Mega Lines
5 Relationship-Building Brands/Lines
21 Core Brands/Lines
* PS Program: A strategy for nurturing voluntary chain stores with growth potential that want to strengthen cooperation with Shiseido. The program involves the
formulation of shared goals and focused execution tailored to each store’s unique characteristics.
SHISEIDO ANNUAL REPORT 2010 15
Meticulous Combination of Channels and Brands/Lines
Domains
Combinations of Channels and Brands/Lines
Value-Added Counseling
Voluntary chain stores, department stores, general merchandise stores X high-priced
counseling products centered on relationship-building brands/lines such as clé de
peau BEAUTÉ, Revital Granas and Bénéfique
Sales techniques in which beauty consultants communicate
value to value-conscious customers seeking cosmetics most
suited to them
Spot Counseling
Drug stores X mid-priced counseling products centered on mega lines such as
MAQUILLAGE and Elixir
Sales techniques involving mass advertising and “one-point
counseling” (tips) for customers who are very interested in
cosmetics trends
Self-Selection
Self-selection counters at drug stores and general merchandise stores X low-priced
self-selection and toiletry products centered on mega lines such as Aqua Label,
Integrate, Tsubaki and Uno
Sales techniques involving delivery of information at the sales
counters for price-conscious customers who make their own
choices
food product. Uno Fog Bar and In and On are repre-
To reinforce these initiatives, Shiseido has meticu-
sentative of the innovative products we want to
lously combined channels and brands/lines into
launch in the future to deliver new value.
three domains that reflect customer (buyer) purchasing behavior: value-added counseling, spot
■ Initiatives in the Year Ending March 2011:
Channel Strategy
counseling and self-selection. We will assiduously
cultivate
mega
lines
and
relationship-building
brands/lines centered on these domains.
At voluntary chain stores, we will accelerate the
PS Program and expand it to approximately 800
stores. At department stores, we will continue to
■ Initiatives in the Year Ending March 2011:
focus on major stores and promote the Double
Sales Strategy
Counter strategy. At general merchandise stores,
We restructured our front-line sales organization in
we will strengthen the capabilities of beauty consult-
April 2010, moving from our former channel-based
ants, primarily at major stores. At drug stores, we
sales system to a system that can adapt to markets
will narrow our focus to major corporate groups in
from the perspectives of both area and store chains.
order to respond to them thoroughly in a manner
consistent with their individual characteristics.
We have established a sales division for major store
chains, which has enabled responsive value chain
supervision for each account via a single point for consistent communication ranging from sales programs
targeting the headquarters of structured retailers to
counter creation at stores. Meanwhile, reorganized
branches will flexibly invest resources across all channels
to achieve overall optimization for each area. Using this
new system, we will work to enhance our negotiating
position by responding meticulously to changes in the
retail environment such as channel convergence resulting
The Double Counter strategy, entailing separate counters for
peau BEAUTÉ, is aimed at increasing share.
16 SHISEIDO ANNUAL REPORT 2010
and clé de
from alliances among retailers.
Business Strategy
Net Sales / Operating Income
Operating Income (Right scale)
Net Sales (Left scale)
(Billions of yen)
(Billions of yen)
300
263.7
236.6
224.3
200
30
260.9
196.3
17.9
20
15.0
10.4
9.1
100
10
2.8
0
06
07
08
09
0
10
(Years ended March)
Sales by Division
Professional
11.5%
Cosmetics
88.5%
Overseas Cosmetics
■ Overseas Cosmetics:
Note: Segment sales represent sales to external customers only
and do not include intersegment sales or transfers.
position. In Europe and North America, Shiseido is
Business Environment and Strengths
enhancing its presence as a prestige skincare line,
The high-end cosmetics markets of Europe and
and subsidiary Beauté Prestige International S.A. has
North America have been stagnant since the
designer fragrance brands that are strong in Europe.
Lehman Brothers collapse. However, signs of recovery
began to appear slowly from the fourth quarter of
the year ended March 2010. The global recession
■ Overview of the Year Ended March 2010
affected the high-end cosmetics markets of Asia, but
In the year ended March 2010, Shiseido moved to
not as much as those of Europe and North America,
enhance its competitiveness in global markets by bol-
and growth returned to previous levels from the sec-
stering skincare lines and installing new counters to
ond half of the fiscal year.
strengthen cultivation of the global brand
.
In overseas cosmetics markets, Shiseido is particu-
We also expanded the City Concept strategy to major
larly strong in China and the rest of Asia. Shiseido
cities in Europe, North America and Asia in order to
began operating in China some 30 years ago, ahead
focus marketing on cities that have a strong ripple
of other cosmetics companies, and has built a powerful
effect on their respective countries as a whole.
Note: In the year ending March 2011, Shiseido plans to begin using the business segments of Domestic Cosmetics, Global Business and Other. As a result,
domestic professional division results will be included in Global Business rather than in Domestic Cosmetics as in the past.
SHISEIDO ANNUAL REPORT 2010 17
In China, a key market, we continued to energetically implement channel-specific brand marketing.
In department stores, we maintained strong growth by
strengthening the makeup domain, which included
introducing the MAQUILLAGE makeup mega line
from Japan and innovating the China-only AUPRES
brand. Moreover, we signed up additional cosmetic
specialty stores, and sales at existing cosmetic spe-
We have translated the Shiseido BC Omotenashi Credo, a
digest of beauty consultant activities, into 22 languages
for overseas circulation.
cialty stores were steady because of measures to
strengthen sales of the URARA brand, which is only
sold in this channel.
We are aiming for full-scale development of the
masstige business in Asia during the next ThreeYear Plan. To strengthen the base of this business,
during the past fiscal year we expanded the areas in
which we sell Za and MAJOLICA MAJORCA and
raised sales of these products.
Through these efforts, overall sales in the overseas cosmetics business increased 3.0 percent year on
year on a local currency basis, but decreased 9.3
percent when translated into yen because of the
impact of the appreciation of yen against other currencies.
■ Initiatives in the Year Ending March 2011:
Global Development
The City Concept is Shiseido’s fundamental strategy
for global development, and we will concentrate our
efforts on Asia, where major cities have a strong ripple
effect on their respective countries as a whole and
markets are expected to grow. Concurrently, we will
continue to move forward with initiatives in Europe
and North America. Initiatives in Asian countries
will include area-based billboard campaigns, advertising on public transportation and events at stores.
In strengthening cultivation of the global brand
, we have been working to strengthen
Please see Management’s Discussion and Analysis on
the premium skincare, skin-brightening and anti-
pages 37 to 49 for more detail on the results of the overseas
aging lines. Going forward, we will continue to
cosmetics business.
determine customer needs and evaluate the moves
of competitors while further increasing the speed
of initiatives.
In addition, we will enhance the responsiveness
of beauty consultants, who communicate product
value to customers, by developing and introducing
overseas versions of customer response software.
We will also communicate Shiseido’s spirit of omotenashi (hospitality) by distributing the Shiseido BC
Omotenashi Credo to all beauty consultants worldwide to improve the quality of their activities.
We have been making steady progress in devel-
At department stores, we introduced new counters with enhanced design to
strengthen the presence of our prestige brand
.
18 SHISEIDO ANNUAL REPORT 2010
oping business in new markets, and will accelerate
these efforts. As of the March 2010, Shiseido operated
Business Strategy
in 73 countries and regions, and in the year ending
March 2011 began doing business in Mongolia
through a distributor. We also plan to initiate operations in new markets in several other countries. In
countries where we already operate we will promote a
shift to direct sales through joint ventures or subsidiaries in line with market expansion.
■ Initiatives in the Year Ending March 2011:
Development in Asia
In the year ending March 2011, we will carefully
In China, we complemented our presence in the department store and specialty cosmetics store channels by launching DQ in the drugstore channel. This brand is
already receiving strong customer support.
prepare for the full-scale development of the
masstige business during the next Three-Year Plan. We
demographic, and will ensure growth in ways such
will build on the successes of and experience gained in
as popularizing skincare products and strengthening
the year ended March 2010 to take the steps needed
the AUPRES lineup.
for full-scale development integrated with the low-
At cosmetics specialty stores, we are effectively
end market in Japan in the year ending March 2011.
using customer data centered on the URARA brand
We expect this program to cover multiple brands
sold only in cosmetics specialty stores to improve
from Japan and Asia, and plan to start with certain
our responsiveness to customers. We also continue to
brands in the second half of the fiscal year.
energetically promote the addition of new cosmetics
Moreover, the required infrastructure for this strategy
specialty stores, with the aim of achieving contracts
includes the Vietnam plant, which began operating
with 5,000 stores in total during the year ending
in April 2010. It will be a key production and ship-
March 2011.
ment base supporting the masstige business over the
medium-to-long term.
In March 2010, we entered the drugstore channel,
our third pillar in China, with the launch of the DQ
skincare brand. Going forward, we will secure sales
counters at large chains in major cities, with the goal of
■ Initiatives in the Year Ending March 2011:
establishing our presence in 600 stores during the
Development in China
year ending March 2011. Also in March 2010,
Our business in China is a growth driver. We will
Shiseido began full-scale operations in the profes-
energetically promote new domains covering new
sional business in China, and is working to increase the
customer groups, channels and businesses in order to
market presence of the
maintain strong growth.
and the JOICO brand for hair salons. We are also
Professional line
We will continue to install new counters in depart-
concentrating on expanding the number of salons
ment stores. We introduced the MAQUILLAGE
that handle our products, with the targets of increasing
makeup line in the year ended March 2010, to win
the number to 700 in Shanghai and Beijing by the
customers in China’s crucial New 1980s Generation
*
end of 2010 and to 2,500 by the end of 2014.
* The New 1980s Generation: The population segment of approximately 200 million born in the 1980s that grew up under China’s one-child and economic reform policies and
progressive values, and is now a leading consumer demographic.
SHISEIDO ANNUAL REPORT 2010 19
Feature: Conclusions and Beginnings
Shiseido will wrap up its current Three-Year Plan in the year ending March
2011 and build a firm footing for getting on a growth trajector y during the next
Three-Year Plan. This feature presents four case studies detailing the conclusions and beginnings that support value creation at Shiseido.
Case Study 1:
significant year-on-year sales growth for participat-
PS Program —
ing stores. The PS Program entails sales initiatives
focused on the Bénéfique line sold only in voluntary
chain stores, including advertising tailored to geo-
Measures to Support
Voluntar y Chain Stores
graphic areas, support for sales counters and
expanded distribution of samples. Seminars covering such topics as the use of original skin assessment equipment that Shiseido developed and sales
methods for new products have earned the praise of
participants, who commented that the seminars
helped them raise the number of repeat customers.
Even as Japan’s cosmetics market as a whole gravitated toward lower price points, in the year ended
March 2010 Shiseido achieved a number of successes in
the voluntary chain store channel, where it could
demonstrate its strength. The next task is to spread the
success. Accelerating initiatives to build a firm footing for
the next Three-Year Plan, Shiseido plans to increase
the number of stores participating in the PS Program to
➤ April 2009: With the domestic cosmetics busi-
ness battling in a challenging market environment,
Shiseido changed from a uniform approach to all
stores to one in which it looks at each channel to
determine stores and brands/lines that are strengthening sales, and then concentrates sales promotion
and other resources on them.
Noteworthy successes of this initiative were seen in
the voluntary chain store channel, comprising individual stores with systemized counseling sales.
Here, Shiseido introduced the PS Program, which
currently supports approximately 600 core voluntary
chain stores, and concentrated efforts resulted in
20 SHISEIDO ANNUAL REPORT 2010
800 in the year ending March 2011.
➤ As the mega line strategy got started in 2005,
President Maeda provided a pointer for the renewal of
Men’s Hair Styling Product Primer
1980s
the Uno line for men: “Go beyond plain old hair
Setting Agent
breakout value, because that is how to build lines
(Characteristics)
that capture top share. Under his direction Shiseido
Mechanism
undertook to create major hit products that would
Acrylic resin
Binds hairs
together to set
expand the market for men’s hair styling products.
Excellent hold
In 2007, sales of mainstream wax products had
Features
were moving from a hard to a natural look in hair
Restyling not
possible
Wax
2009 ~
▲
throw out the comfortable status quo and create
▲
Gel
Mousse
Mist
styling wax.” He suggested that Shiseido should
peaked and purchase cycles were lengthening. Men
Mid-1990s
Solid oil
Solid oil binds
hairs together,
and resin hardens
hair from the
outside to set.
Uno Fog Bar
Adhesive resin
Each hair is
coated, so all
have an adhesive
surface.
Excellent
stylability
Sticky
Difficult to maintain style or restyle
with fingers
Good styling
without hardness
styling, and hair styling agents were evolving in tandem. Shiseido had been developing innovative gel,
Fast forward to August 2009. Shiseido had just
mousse and wax products every 10 to 15 years and led
launched the new hair styling proposal Uno Fog Bar,
the market.
and sales of this unprecedented hair styling agent
Shiseido’s molecular design research using Fit
took off immediately. Shiseido hit its sales target for
Polymer, a type of adhesive polymer, resulted in a
the year of 2.4 million bottles just one month after
novel agent that styled hair well without making it
launch. Customers were extremely enthusiastic
hard. It was a breakout product: it wasn’t sticky,
about this product, with surveys showing 95 percent
allowed easy styling with fingers, and allowed
would purchase Uno Fog Bar again. Shiseido innova-
repeated restyling.
tion was the key factor in this success.
Shiseido will continue to build lines and remain
at the leading edge of our markets.
Case Study 2:
Uno Fog Bar —
The Breakout Product
SHISEIDO ANNUAL REPORT 2010 21
➤ 1994: Currently chairperson, Leslie Blodgett
became chief executive officer of Bare Escentuals,
which was founded in 1976. In 1995, she led the
company in the launch of the bareMinerals brand,
which has had a major market impact and continues to
grow. bareMinerals uses a mineral powder containing no preservatives, fragrances, oils or talc.
According to Shiseido estimates, it now has a towering
have established collaborative projects and are
67 percent share of the U.S. mineral foundation mar-
studying and discussing a broad range of themes to
ket. Bare Escentuals has aggressively deployed a
achieve both sales and cost synergies as they suc-
direct marketing business model in which Ms.
cessively formulate new plans. Shiseido and Bare
Blodgett herself appeared on television shopping
Escentuals are also expediting high potential brand
programs to promote products while marketing cre-
building initiatives that deploy Shiseido’s R&D
atively through department stores and company-
strengths centered on skin care and business devel-
owned stores to retain customers.
opment capabilities in Japan and Asia.
Shiseido and Bare Escentuals have been working
Bare Escentuals products are already succeeding at
together to achieve synergies since the acquisition
department stores in Japan, with launches at the
was completed in March 2010. The two companies
Isetan department store in Shinjuku in March 2010
and at the Hankyu Umeda Main Store in June 2010.
Sales are strong, which also supports growth in tele-
Case Study 3:
Bare
Escentuals —
vision shopping sales.
Going forward, Shiseido intends to transform
this North American brand into a global brand. Full
speed ahead!
Shiseido’s Newest Asset
Bare Escentuals Net Sales and Operating Income
(Millions of U.S. dollars）
Net Sales
Operating Income
511
558
556
395
139
2006
169
2007
175
2008
(Years ended December)
22 SHISEIDO ANNUAL REPORT 2010
159
2009
Feature: Conclusions and Beginnings
Case Study 4:
The Vietnam
Plant —
Key to the Masstige
Business
The Vietnam plant complies with ISO 22716, and
employs stringent standards for production and
product quality management that are equivalent to
those for the manufacture of oral pharmaceuticals. It is
environmentally friendly, featuring the latest energyefficient equipment and a zero waste emission sys➤ Shiseido moved to strengthen its global production
tem that employs recycling and reuse. Shiseido is
system by selecting Vietnam as the site for a new
also nurturing people, its most important resource.
plant, its fifteenth worldwide. Vietnam is situated at the
Fifteen core local employees came to Japan for five
heart of Southeast Asia, which reduces the cost and
months of training covering everything from production
time for shipments to the other countries of Asia. In
technology to Japanese culture, as well as Shiseido’s
addition to its youthful and energetic workforce,
corporate culture and manufacturing philosophy.
Vietnam also positions Shiseido to benefit from the
elimination of tariffs among ASEAN nations.
Completed in February 2010, the Vietnam plant
began operations in April 2010. It currently pro-
The Vietnam plant is representative of Shiseido’s
moves to proactively prepare the infrastructure for
new growth from the full-scale development of the
masstige business during the next Three-Year Plan.
duces facial cleansers and men’s hair styling agents for
the Japanese market. It will become a key component of the masstige business in the future, with
planned manufacturing of products for Asia’s rapidly
growing middle class. Shiseido forecasts growth in
demand for these products, and therefore invested
approximately ¥4 billion to construct a 25,000-
Overview of the Vietnam Plant
Address
Amata Industrial Park, Long Binh Ward, Bien Hoa City,
Dong Nai Province, Vietnam
Site area
100,000m2
Building area for
production facility
and adjacent wing
25,000m2
Production capacity
Approximately 22 million units (annual)
square-meter plant on a 100,000-square-meter site.
Products
manufactured
Lotions, emulsions, creams, facial cleansers and hair
styling agents
Shiseido designed the plant so it can be tripled in
Number of employees
132 as of May 2010
(scheduled to increase to about 210 by March 2011)
size when needed in the future.
SHISEIDO ANNUAL REPORT 2010 23
Corporate Governance
Corporate Governance Policy
Management and Execution Structure
Shiseido is setting higher standards of corporate gover-
Shiseido has selected a corporate auditor structure
nance based on the understanding that maximizing corporate
with double check functions for business execution:
and shareholder value, fulfilling social responsibilities and
supervision by the Board of Directors and audits of legality
achieving sustainable growth and development are key to
and adequacy by the Board of Auditors.
maintaining support as a valuable company from all stake-
Since adopting a corporate executive officer system in
holders (customers, business partners, shareholders,
the year ended March 2002, Shiseido has worked to reform cor-
employees and society).
porate governance by strengthening decision-making functions, enhancing management transparency and soundness,
■ Overview of Corporate Governance Reforms
Management transparency, fairness and speed
clarifying the allocation of responsibility and reinforcing
supervisory and auditing functions. Shiseido strengthens
these functions by integrating the outstanding features of a
Strengthen decisionmaking functions
2001 Established Corporate
Enhance management
transparency and soundness
2001 Established Remuneration
Committee
Executive Officer Committee
and Policy Meeting of
2005 Established Nomination
Corporate Officers
Advisory Committee
2002 Reduced number of directors
Clarify allocation of
responsibility
2001 Introduced corporate
2001
2006
2006
2006
executive officer system
Introduced 1-year term for
directors
Set upper term limit per
position
Formulated rules governing
promotions and demotions
for corporate officers
Lowered upper age limit per
position for holding office
Reinforce supervisory and
auditing functions
2005 Increased number of
external corporate auditors
from 2 to 3
2006 Appointed external directors
company of committees with the corporate auditor structure.
The Board of Directors is composed of eight members
including two external directors. The small number of
members facilitates rapid decision making. The Board of
Directors meets at least once a month to discuss all significant matters. Attendance for external directors at the 15
Board of Directors’ meetings in the year ended March
2010 averaged 86.7 percent. Attendance for other directors
was 100 percent.
Through the adoption of a corporate executive officer
system, we are separating the decision-making and supervisory functions of the Board of Directors from the business
execution functions of corporate officers. The Corporate
Executive Officer Committee, which acts as the final decision-making body regarding material issues, furthers the
24 SHISEIDO ANNUAL REPORT 2010
transfer of authority to corporate officers and accelerates
various duties including proposing the list of candidates for
operational decision making. Shiseido’s President &
directors and corporate officers. Both committees are
Chief Executive Officer chairs this Committee. The term of
chaired by external directors to maintain objectivity.
office of directors is one year, and the term limit of corporate
Additionally, since the June 2008 General Meeting of
officers is four years per position in principle and six
Shareholders, Shiseido has publicly disclosed aggregated
years maximum.
results of voting at the meetings.
To obtain an outside point of view and further
strengthen the Board of Directors’ supervisory function in
Audit Structure
regard to business execution, Shiseido appointed two
Shiseido’s Board of Auditors consists of two standing
external directors from the year ended March 2007.
corporate auditors and three external corporate audi-
Having external directors has stimulated discussion at
tors. Corporate auditors monitor the legality and ade-
Board of Directors’ meetings and strengthened its supervi-
quacy of directors’ performance by attending Board of
sory capabilities. Furthermore, Shiseido has designated
Directors’ meetings and other important meetings.
two external directors as independent directors and three
Representative directors and corporate auditors meet
external auditors as independent auditors pursuant to the
regularly to exchange opinions and resolve corporate gov-
Tokyo Stock Exchange’s Securities Listing Regulations.
ernance issues. Shiseido maintains a framework to ensure
In addition, Shiseido is actively promoting diversity
that corporate auditors discharge their duties effectively.
among directors in such ways as appointing individuals
For example, the Company arranges liaison meetings with
who have built careers outside of Shiseido. Wide perspective
the accounting auditors and the Internal Auditing
and advanced insight will promote objectivity and
Department in addition to assigning full-time staff to assist in
strengthen the Board’s supervisory and decision-making
audits. Corporate auditor attendance for the 14 Board of
functions. We are also handpicking a small and able
Auditors meetings held in the year ended March 2010 was
group of executive officers in addition to promoting
100 percent. For external corporate auditors, attendance at
younger members.
Board of Directors meetings was 88.9 percent and for
To increase transparency and objectivity in manage-
standing corporate auditors, attendance was 100 percent.
ment, Shiseido established two committees to play an
Internal audits of the entire Group are conducted to
advisory role to the Board of Directors: the Remuneration
ensure that business is executed in an appropriate manner,
Committee, which recommends executive remuneration levels,
and audit results are reported to the Board of Directors
and the Nomination Advisory Committee, which conducts
and Board of Auditors.
■ The Company’s System for the Management and Execution of Business
General Meeting of Shareholders
Appointment,
termination
Accounting Auditors
Resolution at the General Meeting of
Shareholders based on laws
Appointment, termination
Audit
Appointment,
termination
Board of Auditors
Audit
Board of Directors
Advisory committees to the Board of Directors
Advisory committees to the Board of Directors
Remuneration Committee
CSR Committee
Report
Nomination
Advisory Committee
Supervision
Compliance Committee
Policy Meeting of
Corporate Officers
Corporate Executive Officer Committee
Proposal of material legal and
management issues
Resolution,
approval
Proposal
Resolution, approval
Decision-Making Meeting of Corporate Officers
SHISEIDO ANNUAL REPORT 2010 25
Remuneration to Directors, Corporate
paid ¥38 million in performance-linked remuneration, in connection with the
previous Three-Year Plan that ended March 2008, to one director at the time he
served as a corporate executive officer but not concurrently as a director.
Officers and Corporate Auditors
Remuneration for directors and corporate officers
consists of a basic fixed portion and a performancelinked portion that fluctuates depending on achieving
management targets and share price. Effective the year
3. In addition to the above payments, for the fiscal year ended March 2010 three
subsidiaries paid ¥27 million in basic fixed remuneration and ¥9 million in
bonuses to two Shiseido directors who concurrently served as directors of
these subsidiaries.
4. Shiseido provided no additional compensation to directors and corporate auditors
other than the above executive remuneration, including the remuneration
described in Notes 1 through 3.
ended March 2009, the performance-linked portion has
been revised upward to 60 percent of remuneration.
Performance-linked remuneration consists of a bonus
■ Remuneration by Type to Representative Directors
and Directors Whose Total Remuneration Exceeded
¥100 Million for the Year Ended March 2010
Basic
Bonuses
Stock options
(Millions of yen)
Total
Shinzo Maeda
Representative
Director
49
35
36
121
37
18
10
66
marily aimed at fostering a shared awareness of profits
Kimie Iwata
Representative
Director
with shareholders. Performance-linked remuneration is
Carsten Fischer
Director
77
50
13
141
based on annual consolidated results, medium-term
remuneration based on the achievement of the final year
targets of the Three-Year Plan, to be paid at the culmination
of the plan, and stock options as long-term incentive, pri-
designed to give directors and corporate officers a mediumto-long-term perspective, not just a single-year focus, and to
motivate management to become more aware of
Shiseido’s performance and share price.
External directors receive only basic fixed remuneration
because of the importance of a stance independent from
business execution in their supervisory functions. Due to
the nature of auditing, corporate auditors receive fixed basic
Notes: 1. In addition to the payments above, the Company recognized an expense totaling
¥2 million for the year ended March 2010 for stock options granted to Director
Carsten Fischer at the time he was a corporate executive officer and not concurrently a director. The Company also paid the same director ¥38 million for the year
ended March 2010 as performance-linked remuneration, in connection with the
Three-Year Plan ended March 2008, for the period he was a corporate executive
officer and not concurrently a director.
2. The above three directors do not receive any remuneration other than that presented in the above table and amounts referred to in Note 1.
■ Remuneration to Accounting Auditors for the Year
Ended March 2010
(Millions of yen)
remuneration only, to eliminate linkage with performance.
Basic remuneration for directors and corporate
auditors is within the monthly remuneration limits
decided by the General Meeting of Shareholders; performance-linked remuneration, including the bonus,
medium-term remuneration and long-term incentive
stock options, is also set on a case-by-case basis by res-
Item
Amount
Remuneration paid for services rendered as accounting
auditors for the fiscal year under review
152
Total cash and other remuneration to be paid by the
Company and its subsidiaries to their accounting auditors
185
Note: In the audit contract between the Company and its accounting auditors, remuneration
paid for audits under the Corporate Law and audits under the Financial Instruments and
Exchange Law are not clearly distinguished and cannot be practically separated.
Therefore, the total payment for both is shown in “Remuneration to Accounting
Auditors” above.
olution at the General Meeting of Shareholders.
Management System Unique to Shiseido
■ Remuneration to Directors and Corporate Auditors
for the Year Ended March 2010
Directors (10 people)
External directors
(2 of the 10)
Corporate auditors
(5 people)
External auditors
(3 of the 5)
Total
(Millions of yen)
Stock options
Total
Basic
Bonuses
281
142
101
525
26
—
—
26
96
—
—
96
Guided by the idea that fulfilling corporate social
responsibility (CSR) is crucial to Shiseido’s sustained
development, we have established the CSR Committee
and the Compliance Committee under the jurisdiction
of the Board of Directors as part of our corporate governance structure. Both committees are headed by the
36
—
—
36
Vice President and comprise members elected company-
377
142
101
621
wide. They make proposals for and report on plans and
Notes: 1. In addition to the above payments, for the year ended March 2010 Shiseido
recognized an expense of ¥7 million for stock options granted to three directors at
the time served as corporate executive officers but not concurrently as directors.
2. In addition to the above payments, for the year ended March 2010 Shiseido
26 SHISEIDO ANNUAL REPORT 2010
results of activities to the Board of Directors.
The CSR Committee carries out comprehensive monitoring from a companywide perspective, with the aim of
Corporate Governance
increasing corporate value. The Compliance Committee
ventative measures and activities. It prepares manuals for use
works to ensure legitimate and fair business practices in the
in emergencies, and in the event of an emergency, it
Group, and promotes activities including corporate
responds by organizing a countermeasure headquarters,
ethics, risk management and information security counter-
project, team, or other grouping as dictated by the serious-
measures to enhance management quality.
ness of the situation.
Shiseido’s Board of Directors has adopted and dis-
Compliance and Risk Management
closed a basic policy for internal control systems.
We have enacted Group-wide Corporate Ideals, The
In addition, in the year ended March 2009, the submis-
Shiseido Way (Corporate Behavior Declaration) and The
sion of reports on internal controls for financial reporting was
Shiseido Code (Corporate Ethics and Behavior Standards),
institutionalized. The Internal Auditing Department estab-
which outline the standards of behavior that individual
lishes and monitors the management of internal controls
Group employees should apply in their work, and are actively
throughout the Group. The internal control report is dis-
promoting legitimate and fair business practices.
closed on the Company’s website.
We hold regular workshops on corporate ethics and
human rights education, and assign a Code Leader to each
office to ensure observance of The Shiseido Code. Code
Leaders report on progress in promoting legitimate and
Corporate Mission
We seek to identify new, richer sources of value
and use them to create a beautiful lifestyle.
fair business practices at their respective offices. We have
also established multiple reporting and consultation help
lines, which include advice from external lawyers, to
Mission
detect and correct at an early stage actions that contravene the law, The Shiseido Code or other regulations, and to
identify distress in employees.
The Compliance Committee takes a cross-departmental
approach to dealing with risks. The committee identifies
and evaluates risk in management strategy operations and
Company Rules and Regulations
administrative operations, and promotes necessary pre-
Corporate practice, daily business activities
With our customers
Through the creation of products possessing true value and exceptional quality, we strive to help our
customers realize their dreams of beauty, well-being and happiness.
With our business partners
Joining forces with partners who share our goals, we act in a spirit of sincere cooperation and mutual
assistance.
With our shareholders
We strive to win the support and trust of our shareholders through transparent management practices and
sound business results achieved by high-quality growth, enabling the retention of earnings for future
investments and payment of dividends.
With our employees
The diversity and creativity of our employees make them our most valuable corporate asset. We strive to
promote their professional development and we evaluate them fairly. We recognize the importance of our
employees’ personal satisfaction and well-being, and seek to grow together with them.
With our society
We respect and obey all laws in regions in which we do business. Safety and preservation of the natural
environment are among our highest priorities. In cooperation with local communities and in harmony with
international society, we employ our cultural resources in creating a beautiful lifestyle.
SHISEIDO ANNUAL REPORT 2010 27
Contributing to Society
Corporate Social Responsibility (CSR) Policy
and family life, making it the first company in the domestic
Shiseido actively promotes both fundamental CSR
cosmetics industry to introduce initiatives aimed at
required of a company and selective CSR unique to
improving employees’ work-life balance. In recognition of
Shiseido. In particular, Shiseido’s unique CSR activities
the establishment and achievements of these systems,
implement the idea of meticulously addressing all cus-
in the year ended March 2010 Shiseido received the
tomer beauty needs throughout life, as reflected in the
Work-Life Balance Prize at the 2nd (fiscal 2009)
corporate
Diversity Management Awards sponsored by publishing
message
of
“This
Moment.
This
Life.
Beautifully.” Specifically, Shiseido will further strengthen
company Toyo Keizai, Inc.
social activities through cosmetics, an approach that is
Overseas, Shiseido has been introducing employee
unique to the Company; enhance measures that address
hotlines since the year ended March 2009 as part of its
environmental problems, which are an important global
efforts to determine whether legitimate and fair business
issue; support women, who make up over 80 percent of
practices are followed. As of March 31, 2010, we had
Company employees, 90 percent of its customers and
established hotlines at 14 of the 29 offices where intro-
50 percent of its shareholders; and enhance the safety
duction is scheduled. Moreover, as of the same date, no
and reliability that are the basis of trusting relationships
calls had been received.
In addition, in the year ended March 2010 Shiseido
with customers.
formulated internal behavior standards for responding to
the spread of new strains of attenuated influenza. With
Fundamental CSR
Fundamental CSR, the most basic responsibilities of
any company, involves sustaining business through
actions such as providing products and services that
satisfy customers, focusing on employees, business
partnerships, protecting personal information and
respecting human rights. Shiseido addresses these
these standards and the manual for dealing with virulent
strains that was completed in the previous fiscal year, we
have established measures to cope with infectious diseases that could have a long-term impact on corporate
activities. These measures have further reinforced initiatives
aimed at respect for life and business continuity, which
are core concepts in our risk management policies.
issues as a Group.
For example, since about 1990 Shiseido has formulated
a variety of support measures to balance work, childcare
■ CSR Activities Domain
Creating new markets
Proposing new social values
Social contribution activities
Unique
Shiseido
CSR
(philanthropy)
Strict compliance with laws and regulations
Environmental conservation, information
disclosure, protection of personal information,
protection of human rights
Continued corporate existence
Providing high-quality products and services
Valuing employees
Collaboration with business partners
Profit and dividends
Payment of taxes and creation of employment opportunities
28 SHISEIDO ANNUAL REPORT 2010
Fundamental
CSR
Representative Director and Vice President
Kimie Iwata receives a prize at the 2nd Diversity
Management Awards.
Selective CSR Unique to Shiseido
Shiseido actively pursues social contribution activities through its core business of cosmetics that are
unique to the Company and are most expected from society. These activities are referred to as the Shiseido Life
Quality Beauty Program. Through this program we
improve quality of life (QOL) by leveraging the results of
research in the products and methods we have cultivated in
the field of beauty since our foundation.
Shiseido established the Beauty Supporter System to enable many employees to
participate in SHISEIDO LIFE QUALITY BEAUTY SEMINARS in Japan.
(Employees can apply to participate via Shiseido’s intranet)
The program encompasses two types of activities.
The first is Shiseido Life Quality Makeup, which helps
facilities for the elderly and the physically challenged in
people with serious skin concerns such as bruises, dark
order to communicate basic cosmetics usage and beauty
spots, vitiligo* and skin irregularities choose appropriate
information so people can take care of their skin them-
cosmetics and gives them makeup advice. As of March 31,
selves and experience cosmetics. In the year ended
2010, Shiseido provides advice through centers at 369
March 2010, we held about 3,000 seminars for about
cosmetics specialty stores and medical institutions in
50,000 people worldwide, including in Japan. We are also
Japan, using Perfect Cover foundation, which it developed
actively running seminars through overseas offices, par-
through many years of cosmetics research. Centered on the
ticularly in China. In the year ended March 2010, we
SHISEIDO LIFE QUALITY BEAUTY CENTER inside
held a total of about 30 seminars in locations including
our Head Office building in Tokyo’s Ginza district, these
Shanghai, Beijing and Hong Kong. Cosmetics make
activities are also offered overseas in China (Shanghai)
people more positive, raise the desire for rehabilitation
and Taiwan (Taipei and Kaohsiung). We plan to leverage
and help deepen connections with society. Because of
the cosmetics technologies developed through these
these effects, cosmetic therapy is gaining attention
activities in other products as well.
from medical and other
The other type of activities is SHISEIDO LIFE
institutions. In the year
QUALITY BEAUTY SEMINARS, in which staff visit
ended March 2010, the
Shiseido Beauty Solution
* Vitiligo is an acquired skin condition characterized by pigment loss causing white
patches on the hands, feet and other areas. Its cause is unknown.
Development Center compiled the results of its
research to date in order to
publish Cosmetic Therapy
through Nikkei Business
Publications, Inc.
Cosmetic Therapy, a sequel to The Psychology of
Cosmetic Behavior compiled and edited by
Shiseido in 1993, is a compilation of research on
the psychology of cosmetic behavior and cosmetic therapy during the subsequent 15 years.
In China, Shiseido is actively
conducting SHISEIDO LIFE
QUALITY BEAUTY SEMINARS.
The Shanghai SHISEIDO LIFE
QUALITY BEAUTY CENTER
(right) conducted beauty seminars (above) following its
establishment.
For further information regarding Shiseido’s CSR
activities, please see the Shiseido CSR website.
(URL: http://www.shiseido.co.jp/e/csr/)
SHISEIDO ANNUAL REPORT 2010 29
Environmental Initiatives
Basic Policy for Environmental Activities
ronmental issues had changed dramatically since the
Shiseido has consistently shown consideration for the
establishment of the Shiseido Eco Standard more than 10
environment since its foundation, with gratitude and
years earlier. Based on this review, we formulated the
esteem for the blessings of nature and the Earth.
Production Eco Standard and the Sales Promotion Eco
In the year ended March 2010, placing environmental
Standard. At the same time, we formulated the Office Eco
initiatives at the core of its management, Shiseido started
Standard with specific rules for addressing environmental
the Shiseido Earth Care Project, an environmental initiative
issues in offices. Furthermore, we promoted combined
involving all employees throughout the world. The pro-
efforts with business partners such as ingredient and pro-
ject’s mission is to realize a sustainable society where
motional material suppliers and contract manufacturers
humanity and the Earth’s environment can coexist beauti-
using the Supplier Code of Conduct, which was formulated
fully. In addition to basic environmental activities, which are
in 2006 and revised in May 2010 to reflect changing times
obvious social responsibilities, the project encompasses
and social demands.
active promotion of Shiseido’s unique environmental poli-
In April 2010, Shiseido established the Environmental
cies. Our goal is to create new lifestyles in which human
Planning Department to manage these standards and
beauty and the environment coexist.
lead future environmental activities. This department will be
central in collaborative efforts by related departments to
■ Overview of the Shiseido Group’s Environmental Efforts
Corporate Mission
Shiseido Eco Policy
Mission
Aiming to realize a sustainable society where people,
the Earth and beauty co-exist
step up environmental activities aimed at achieving the
goals of the Shiseido Earth Care Project.
Reducing Environmental Burden
Shiseido has promised to work to realize a low-carbon
society by reducing CO2 emissions at domestic factories by
15 percent (compared with the year ended March 1991;
Project
Name
per unit of production) and by 10 percent at overseas factories (compared with the year ended March 2008; per
unit of production) by the year ending March 2011. We
All employees
throughout
the world work
together
Unique Shiseido activities
＋
Basic environmental activities
also abide by a variety of laws and regulations in order to
reduce CO2 emissions and waste materials. Moreover, we
are aware that the blessings of the Earth, the source of
Cutting CO2 emissions, reducing energy use and
preserving the Earth’s blessings
Goals
Achieve a new lifestyle linking beauty and eco
activities in a way that is unique to Shiseido
value in every process of our business activities, are limited.
We therefore handle them with due care so that they can be
passed on to future generations. At the same time, we are
actively engaged in preserving biodiversity and are working
Environmental Management Framework
In 1992, Shiseido formulated the Shiseido Eco Policy as
a management policy regarding the environment and in
1997 established the Shiseido Eco Standard comprising
activity guidelines based on the Shiseido Eco Policy. In
the year ended March 2010, we reviewed design standards for environmentally friendly products and promotional materials from a current perspective because envi-
30 SHISEIDO ANNUAL REPORT 2010
to realize a sustainable society.
■ Numerical Targets for the Year Ending March 2011
Location
Domestic
factories
Overseas
factories
Details
Target
Terms of Comparison
Compared with the year ended
CO2
emissions
15% reduction March 1991 (per unit of production)
Compared with the year ended
10% reduction March 2008 (per unit of production)
Environmental Communication
Representative environmental activities carried out by the
Shiseido Group under the Shiseido Earth Care Project are introduced by number on a special website.
http://www.shiseido.co.jp/eco/
The Shiseido Earth Care Project website
■ Case Studies
No. 061
Ecological Disposal of Beauty
Consultants’ Costumes
Since the year ended March 2010, Shiseido
No. 062
Reduction of Plastic in
Aqua Label Packaging
No. 064
Low-Energy Production of
Shampoo
Since the renewal of the moisturizer series of
Shiseido reviewed the conventional heat-
has employed chemical recycling, which uses
the skincare line Aqua Label in August 2009,
ing and cooling process for shampoo produc-
thermal decomposition, to dispose of beauty
Shiseido has replaced plastic boxes with film
tion and developed a new production method
consultants’ costumes at the end of their rental
wrap and moved ahead in responding to the
called cold processing, which does not require
periods. Previously, about 50 tons of material
environment. Shiseido took the same step
the heating and cooling process due to innova-
were burned with each disposal, which emitted
when renewing its brightening series in
tions in ingredient blending methods and
about 100 tons of CO2, but switching to chemical
February 2010 and anti-aging series in August
process order. This new production method has
recycling has enabled
2010, allowing it
enabled us to reduce CO2 emissions. If used to
almost 100 percent
to reduce by about
make all shampoos at the Kuki Factory, it
of fibers to be recycled as
20 tons the roughly
chemical ingredients and
75 tons of plastic
other materials. As a
it used annually.
would reduce CO2 emissions by about 500 tons
▲
annually. We already use cold processing to
produce some hair and beauty treatment sham-
result, CO2 emissions
poos and will successively expand its application
have been reduced to
to cover other products.
nearly zero.
make a commitment to the Minister for the Environment. In
Shiseido’s Promise to Society
In the year ended March 2009, Shiseido made a promise
addition to reporting the progress of initiatives to the
to society to carry out environmental activities as an envi-
Ministry of the Environment, we will officially announce the
ronmentally progressive company.
results through our website and other channels.
In November 2008, Shiseido endorsed “Caring for
Climate: The Business Leadership Platform,” a climate
change initiative being spearheaded by the United
Nations Global Compact, as an opportunity to express to the
Shiseido’s
“Eco-First Commitment”
(Summary)
world its strong dedication to the environment.
In March 2009, Shiseido became the first company in
the cosmetics industry in Japan to be certified as an
“Eco-First
Company”
by
Japan’s
Ministry
of
the
Environment. The Eco-First Program was created by the
Ministry of the Environment in April 2008 to encourage
leading companies in each industry to further expand
1. Shiseido will actively pursue initiatives to prevent
global warming.
2. Shiseido will actively pursue initiatives to realize a
recycling-oriented society.
3. Shiseido will actively propose activities for realizing
a society characterized by the beautiful coexistence of people and the Earth both inside and
outside the Company.
their environmental protection activities by having them
SHISEIDO ANNUAL REPORT 2010 31
Board of Directors, Corporate Auditors and Corporate Officers
(As of June 25, 2010)
Directors
1970 Joined Shiseido
2003 General Manager of Corporate Planning Department
2003 Director, Corporate Officer
2005 Representative Director, President & CEO
Responsible for Public Relations, Consumer Information,
Corporate Culture, Advertising Creation, Beauty Solutions,
Environmental Measures, CSR, Organizational Climate
Reforms and Committees under Direct Control of the
Board of Directors
Shinzo Maeda
Kimie Iwata
Representative Director,
President & CEO
Representative Director,
Executive Vice President
Carsten Fischer
Director, Corporate Senior
Executive Officer
Chair of CSR Committee and Compliance Committee
Chief Financial Officer
Responsible for Finance, Investor Relations, Information
System Planning and Internal Control
Responsible for Global Business
(International Business, China Business and
Professional Business)
Chief Officer of International Business Division
1979 Joined Hans Schwarzkopf GmbH
2004 President of Professional Care, and Corporate
Officer, Procter & Gamble Company
2006 Corporate Advisor of Shiseido
2007 Corporate Executive Officer
2008 Director
2010 Corporate Senior Executive Officer
1971 Entered Ministry of Labour
2001 Director-General, Equal Employment, Children
and Families Bureau, Ministry of Health,
Labour and Welfare
2003 Corporate Advisor of Shiseido
2004 Director, Corporate Officer
2007 Corporate Executive Officer
2008 Representative Director, Executive Vice
President
Yasuhiko Harada
1971 Joined Shiseido
2003 General Manager of Corporate Restructuring
Department
2003 Corporate Officer
2005 Director
2006 Corporate Executive Officer
2008 Corporate Senior Executive Officer
Director, Corporate Senior
Executive Officer
General Manager of Corporate Planning Department
Chief Officer of
Domestic Cosmetics Business Division
Responsible for Domestic Cosmetics Business,
Healthcare Business and Clé de Peau BEAUTÉ
Marketing Unit
1982 Joined Shiseido
2007 General Manager of the Cosmetics Business
Planning Department
2008 Corporate Officer
2009 Director
2010 Corporate Executive Officer
1975 Joined Shiseido
2006 Chief Officer of China Business Division
2007 Corporate Officer
2009 Director
2010 Corporate Executive Officer
Hisayuki Suekawa
Tatsuomi Takamori
Director, Corporate
Executive Officer
Director, Corporate
Executive Officer
1997 President, ASKUL Corporation
2000 CEO, ASKUL Corporation
2006 External Director of Shiseido
1997 Professor, School of Law, Waseda University
2003 Professor, Graduate School of Law,
Waseda University
2006 External Director of Shiseido
2006 Dean of Faculty of Law and the School of Law,
Professor of Waseda Law School and Waseda
University
2008 Director, Global Center of Excellence - Waseda
Institute for Corporation Law and Society
Chair of Remuneration Committee
Independent Director 1
Chair of Nomination Advisory Committee
Shoichiro Iwata
Tatsuo Uemura
External Director
External Director
Independent Director 1
Directors retired as of June 25, 2010: Director, Corporate Senior Executive Officer Toshimitsu Kobayashi and Director, Corporate Senior
Executive Masaaki Komatsu (Both have been appointed Corporate Advisor of Shiseido.)
Corporate auditor retired as of June 25, 2010: Corporate Auditor Kiyoharu Ikoma (Appointed Corporate Advisor of Shiseido)
Corporate officers retired as of March 31, 2010: Corporate Executive Officer Kiyoshi Kawasaki (Appointed Corporate Advisor of Shiseido),
Corporate Officer Kazuo Tokubo and Corporate Officer Toshio Yoneyama (Appointed Standing
Corporate Auditor of Shiseido)
32 SHISEIDO ANNUAL REPORT 2010
Corporate Auditors
Kazuko Ohya
Toshio Yoneyama2
Standing Corporate Auditor
Standing Corporate Auditor
1973 Joined Shiseido
2000 General Manager of Consumer Information Center
2001 Corporate Officer
2007 Standing Corporate Auditor
1978 Joined Shiseido
2005 General Manager of Institute of Beauty Sciences
2006 Corporate Officer
2010 Standing Corporate Auditor
Akio Harada
Reiko Kuroda
External Corporate Auditor
External Corporate Auditor
2001 Prosecutor General
2005 External Corporate Auditor of Shiseido
1992 Professor, Department of Chemistry, College of Arts
and Sciences, and Department of Biological Science,
Graduate School of Science, The University of Tokyo
1996 Professor, Department of Life Sciences, Graduate
School of Arts and Sciences, The University of Tokyo
2008 External Corporate Auditor of Shiseido
Independent Director 1
Independent Director 1
Nobuo Otsuka
External Corporate Auditor
1988 President, Keiseikai Hospital
2007 External Corporate Auditor of Shiseido
Independent Director 1
Corporate Officers
Kozo Hanada
Toru Sakai 2
Chief Officer of Professional Business Operations Division
Responsible for Production, Purchasing and Logistics
Tsunehiko Iwai
Youichi Shimatani 2
Responsible for Technical Planning, Quality Management and Frontier
Sciences Business
Responsible for Marketing of Domestic Cosmetics Business and
Domestic Non-Shiseido Brand Businesses
Asa Kimura 2
Shoji Takahashi
Responsible for Cosmetics Products Research & Development and
Software Development
Responsible for Americas Chairman & CEO of Shiseido Americas
Corporation
Masaru Miyagawa
Mitsuo Takashige
Chief Officer of China Business Division and Chief Area Managing
Officer of China Chairman of Shiseido China Co., Ltd.
Responsible for Personnel General Manager of Personnel Department
Shoji Nishiyama
Responsible for Functional Food Research & Development, Innovative
Science Research & Development, Research Administration and
Technology Alliances
Takafumi Uchida
Responsible for General Affairs, Legal Affairs and Executive Affairs
General Manager of General Affairs Department
Ryuichi Yabuki
Yu Okazawa
2
General Manager of International Sales Department
International Business Division President of Shiseido Europe S.A.S.
President of Shiseido International Europe S.A.
President of Taishi Trading Co., Ltd.
Responsible for Sales of Domestic Cosmetics Business
President & CEO of Shiseido Sales Co., Ltd.
President & CEO of FT Shiseido Co., Ltd.
1. Independent Director required by Rule 436-2 of the Tokyo Stock Exchange Securities Listing Regulations
2. New appointment
SHISEIDO ANNUAL REPORT 2010 33
Main Subsidiaries and Af filiates
(As of March 31, 2010)
Company Name
Location
Paid-in Capital
Main Business1
Equity ownership percentage3
¥100 million
100.0
Chuo-ku, Tokyo
¥10 million
100.0
Shiseido International Inc.
Chuo-ku, Tokyo
¥30 million
100.0
The Ginza Co., Ltd.
Chuo-ku, Tokyo
¥100 million
FT Shiseido Co., Ltd.
Chuo-ku, Tokyo
¥100 million
Shiseido Professional Co., Ltd.
Chuo-ku, Tokyo
¥250 million
100.0
Shiseido Beauty Salon Co., Ltd.
Chuo-ku, Tokyo
¥100 million
100.0
Shiseido Pharmaceutical Co., Ltd.
Chuo-ku, Tokyo
¥100 million
100.0
Shiseido Sales Co., Ltd.
Minato-ku, Tokyo
Shiseido FITIT Co., Ltd.
Shiseido Americas Corporation
Delaware, U.S.A.
Shiseido America, Inc.
New York, U.S.A.
Blush Holdings LLC
Delaware, U.S.A.
Bare Escentuals, Inc.
Delaware, U.S.A.
Zotos International, Inc.
Connecticut, U.S.A.
Shiseido International Europe S.A.
Paris, France
Shiseido International France S.A.S.
Paris, France
Shiseido Deutschland GmbH
Dusseldorf,
Germany
Shiseido Cosmetici (Italia) S.p.A.
Milan, Italy
Shiseido Europe S.A.S.
Paris, France
Beauté Prestige International S.A.
Paris, France
Laboratoires Decléor S.A.S
Paris, France
Shiseido China Co., Ltd.
Shanghai, China
Shanghai Zotos Citic Cosmetics Co., Ltd.
Shanghai, China
Shiseido Liyuan Cosmetics Co., Ltd.
Beijing, China
Shiseido Dah Chong Hong Cosmetics Ltd.
Hong Kong, China
Taiwan Shiseido Co., Ltd.
Taipei, Taiwan
Shiseido Parlour Co., Ltd.
Chuo-ku, Tokyo
Domestic
cosmetics business
(Thousands of U.S. dollars)
100.0
$28,000
（100.0）
100.0
(U.S. dollars)
$100
（100.0）
100.0
(U.S. dollars)
$0.01
（100.0）
100.0
(Thousands of U.S. dollars)
$25,000
（100.0）
(Thousands of euro)
100.0
€256,133
100.0
(Thousands of euro)
€36,295
（100.0）
100.0
(Thousands of euro)
€5,200
€2,400
100.0
100.0
$403,070
(Thousands of U.S. dollars)
(Thousands of euro)
98.2
（100.0）
Overseas
cosmetics business
100.0
（100.0）
100.0
(Thousands of euro)
€9,000
（100.0）
100.0
(Thousands of euro)
€17,760
（100.0）
100.0
(Thousands of euro)
€19,374
（100.0）
(Thousands of yuan)
100.0
CNY565,093
92.6
(Thousands of yuan)
CNY418,271
（72.6）
65.0
(Thousands of yuan)
CNY94,300
（33.0）
(Thousands of HK dollars)
50.0
HKD123,000
(Thousands of NT dollars)
51.0
NTD1,154,588
¥100 million
99.3
Others
—
Selan Anonymous Association2
Chiyoda-ku, Tokyo
Other: 70 subsidiaries
—
—
—
—
(Equity-method affiliates): 3 companies
—
—
—
—
¥11,600 million
［100.0］
Notes: 1. The segment name is noted in the Main Business column.
2. A company of less than 50 percent equity ownership that is treated as a subsidiary because Shiseido is essentially in control.
3. Numbers in parentheses include indirect equity ownership, and numbers in brackets represent ownership by parties with a close relationship or those in agreement with Shiseido.
34 SHISEIDO ANNUAL REPORT 2010
Financial Section
Six-Year Summary of Selected Financial Data ·········· 36
Management’s Discussion and Analysis ··················· 37
Consolidated Financial Statements ··························· 50
Notes to the Consolidated Financial Statements ······ 55
Independent Auditors’ Report ··································· 75
SHISEIDO ANNUAL REPORT 2010 35
Six-Year Summar y of Selected Financial Data
Shiseido Company, Limited, and Subsidiaries
For the years ended March 31, 2005 to 2010
Thousands of dollars
(Note 1)
Millions of yen
(Except per share data)
2005
Operating Results:
Net sales ····························· ¥639,828
Cost of sales (Note 2) ············ 168,636
Selling, general and administrative
expenses (Note 2) ·················· 444,663
26,529
Operating income (Note 2) ·····
29,043
EBITDA (Note 3) ···················
(8,856)
Net income (loss) ··················
Financial Position (At year-end):
Total assets ························· ¥701,095
25,213
Short-term liabilities (Note 4) ·······
69,114
Long-term debt·····················
94,327
Interest-bearing debt ·············
Net assets ··························· 369,957
(Except per share data)
2006
2007
2008
2009
¥670,957
176,884
¥694,594
185,533
¥723,485
186,466
¥690,256
171,752
455,194
38,879
58,963
14,436
459,056
50,005
78,036
25,293
473,554
63,465
94,960
35,460
468,590
49,914
70,149
19,373
¥671,842
12,786
69,492
82,278
387,613
¥739,833
66,144
61,694
127,838
403,797
¥675,864
38,653
24,566
63,219
399,739
¥606,569
27,601
34,452
62,053
351,951
2010
2010
¥644,201 $6,923,914
160,166
1,721,474
433,684
50,351
75,699
33,671
4,661,264
541,176
813,619
361,898
¥775,446 $8,334,544
112,693
1,211,231
101,754
1,093,659
214,447
2,304,890
365,208
3,925,279
Per Share Data (In yen and U.S. dollars):
Net income (loss) (Note 5) ······
Net assets (Note 5) ················
Cash dividend·······················
Weighted average number of
shares outstanding during
the period (thousands) ··········
¥ (21.5)
866.5
24.0
¥ 34.4
906.1
30.0
¥ 60.9
940.8
32.0
¥ 86.1
946.2
34.0
¥ 48.0
839.9
50.0
¥ 84.6
875.7
50.0
414,219
412,855
412,572
407,696
403,240
397,886
Financial Ratios:
Operating profitability (%) (Note 2) ··
Return on assets (%) ·············
Operating ROA (%) (Notes 2 and 6)·····
Return on equity (%) ··············
Equity ratio (%) ·····················
Interest coverage ratio (times) (Note 7) ···
Debt-equity ratio (times) (Note 8) ···
Payout ratio (Consolidated)(%) ·······
Total return ratio (%) (Note 9) ······
Number of employees at year-end ····
Net sales per employee ··········
4.1
(1.3)
4.3
(2.4)
51.2
22.1
0.26
—
—
24,184
¥26.5
5.8
2.1
5.9
3.9
55.7
8.6
0.22
87.2
105.1
25,781
¥26.0
7.2
3.6
7.4
6.6
52.5
30.6
0.33
52.6
52.6
27,460
¥25.3
8.8
5.0
9.4
9.2
56.6
39.1
0.17
39.5
108.8
28,793
¥25.1
7.2
3.0
8.2
5.4
55.6
23.6
0.18
104.1
127.2
28,810
¥24.0
7.8
4.9
7.5
9.8
44.9
45.4
0.62
59.1
79.1
28,968
¥22.2
$0.91
9.41
0.54
$239
Notes: 1. U.S. dollar amounts are converted from yen, for convenience only, at the rate of ¥93.04 = US$1 prevailing on March 31, 2010.
2. Cost of sales, selling, general and administrative expenses, operating income, operating profitability and operating ROA for years up to March
31, 2005 have been retrospectively restated to reflect changes in accounting policies for the year ended March 31, 2006.
3. EBITDA (Earnings before interest, tax, depreciation and amortization) = Income (loss) before income taxes + Interest expense + Depreciation and
amortization
4. Short-term liabilities = Short-term debt + Current portion of long-term debt
5. Net income (loss) per share (primary) is based on the average number of shares outstanding during the fiscal year. Net assets per share is
calculated using the number of shares outstanding as of the balance sheet date.
6. Operating ROA = (Operating income + Interest and dividend income) ÷ Total assets (Yearly average)
7. Interest coverage ratio = Net cash provided by operating activities ÷ Interest paid*
*As stated in the statements of cash flows
8. Debt-equity ratio = Interest-bearing debt ÷ Equity*
* Equity = Total net assets – Stock acquisition rights – Minority interests in consolidated subsidiaries
9. Total return ratio = (Cash dividend + Share buybacks*) ÷ Net income
*Excluding odd-lot purchases
36 SHISEIDO ANNUAL REPORT 2010
Management’s Discussion and Analysis
Operating Results
Changes in Accounting Policies
Overview
Standards for Retirement Benefits (Part 3)” (ASBJ Statement No.
Shiseido has adopted “Partial Amendments to Accounting
During the fiscal year ended March 31, 2010, the economic
19, July 31, 2008) from the fiscal year ended March 31, 2010. The
recession persisted in Japan and overseas, and conditions in
adoption of this accounting standard had no effect on benefit obli-
the consumer products market remained challenging. The
gations, operating income, or income before income taxes.
domestic cosmetics market contracted sharply as consumer
sentiment remained cool. Overseas, recession impacted the
Net Sales
European market, but the North American market showed
Net sales decreased 6.7 percent compared with the previous
signs of recovery in the second half of the fiscal year. Markets in
fiscal year to ¥644,201 million ($6,923,914 thousand), and
newly industrialized economies were solid, with continued
decreased 2.0 percent on a local currency basis. Sales in Japan were
growth in the Chinese market.
impacted by factors including the rapid cooling of consumer
Since the fiscal year ended March 31, 2009, the Shiseido
sentiment. Overseas sales were solid, especially in China, but
Group has been aiming to become a global player representing
decreased on a yen basis due to the appreciation of the yen.
Asia with its origins in Japan by carrying out a Three-Year Plan to
Thus sales both in Japan and overseas decreased year on year.
improve the quality of activities across the board. Under this
Three-Year Plan Shiseido is concentrating on creating a brand
Net Sales/Overseas Sales Ratio
loved by customers throughout the world with a focus on
(Billions of yen)
800
strengthening cultivation of the global brand
(%)
60
, further
600
45
400
30
200
15
expanding its business in China, and nurturing core
brands/lines in the domestic market. In addition, we are
improving our profitability by promoting structural reform, nurturing global human resources and strengthening corporate
0
governance in order to establish an “unsurpassed, world-class
quality of business management.” Moreover, as a corporation
that is part of society, we are actively promoting CSR activities,
including social contributions and environmental protection.
Although Shiseido devoted all of its strengths to these
0
2006
2007
2008
2009
2010
Net Sales
Overseas Sales Ratio
671.0 694.6 723.5 690.3 644.2
29.4 32.4 36.5 38.0 36.9
Domestic Sales
Overseas Sales
473.7 469.8 459.2 428.3 406.7
197.3 224.8 264.3 262.0 237.5
corporate activities during the fiscal year ended March 31,
2010, challenging conditions persisted because of the protracted
recession.
For the fiscal year ended March 31, 2010, net sales
decreased 6.7 percent compared with the previous fiscal year to
Cost of Sales and Selling, General and
Administrative Expenses
[Cost of Sales]
¥644,201 million ($6,923,914 thousand). In Japan, factors
Cost of sales decreased 6.7 percent compared with the
included lower sales as consumer sentiment remained cool.
previous fiscal year to ¥160,166 million ($1,721,474 thou-
Overseas, sales steadily increased on a local currency basis but
sand), and the ratio of cost of sales to net sales was
decreased when translated into yen due to the appreciation of the
unchanged at 24.9 percent.
Japanese currency. Operating income increased 0.9 percent to
[Selling, General and Administrative Expenses]
¥50,351 million ($541,176 thousand). Operating profitability
Selling, general and administrative (SG&A) expenses
increased 0.6 percentage points compared with the previous
decreased 7.4 percent compared with the previous fiscal
fiscal year to 7.8 percent. Net income increased 73.8 percent to
year to ¥433,684 million ($4,661,264 thousand). The ratio of
¥33,671 million ($361,898 thousand) because other expenses
SG&A expenses to net sales decreased 0.6 percentage
and income taxes both decreased year on year.
points to 67.3 percent as a result of higher efficiency.
Shiseido used a tender offer to acquire all outstanding
shares of Bare Escentuals, Inc., a natural cosmetics company listed on the NASDAQ exchange in the United States, and made it
a wholly owned subsidiary. Note 20 of the Notes to the
Consolidated Financial Statements provides additional details
on the acquisition of Bare Escentuals.
Analysis of the major components of SG&A expenses is
included in the following sections.
Marketing Costs
Marketing costs consist of advertising and promotional
expenses. The ratio of marketing costs to net sales
decreased 1.0 percentage point to 22.7 percent. Overseas,
SHISEIDO ANNUAL REPORT 2010 37
Shiseido concentrated marketing costs on regenerating the
the previous fiscal year.
. In Japan, Shiseido raised cost
Reflecting the deteriorating fund management environ-
efficiency by assiduously distinguishing and concentrating
ment, net interest expense, calculated as interest and divi-
brands/lines for investment, which reduced the overall ratio of
dend income less interest expense, totaled ¥54 million ($581
marketing costs to net sales.
thousand), compared with net interest income of ¥1,009 million
Personnel Expenses
for the previous fiscal year.
global brand
The ratio of personnel expenses to net sales increased
Impairment loss totaled ¥3,469 million ($37,285 thousand),
0.6 percentage points compared with the previous fiscal
compared with impairment loss of ¥6,073 million for the pre-
year to 23.0 percent. Personnel expenses decreased year
vious fiscal year. This loss consisted primarily of impairment of
on year as Shiseido compensated for increased pension
fixed assets of domestic sales companies. In the previous
expenses by reducing bonuses, but rose as a percentage of net
fiscal year, it consisted of impairment of DECLÉOR brand
sales because of the decrease in net sales.
goodwill and trademark rights.
Other Expenses
The ratio of other expenses to net sales decreased 0.2
percentage points compared with the previous fiscal year to
21.6 percent. This improvement resulted from measures to
reduce costs in response to lower net sales.
Income before Income Taxes
Income before income taxes increased 21.4 percent compared with the previous fiscal year to ¥46,739 million
($502,354 thousand).
Income Taxes, Including Deferred Taxes
Cost of Sales Ratio/SG&A Expenses Ratio
Income taxes, including deferred taxes, decreased 37.3
(%)
(%)
30
70
percent compared with the previous fiscal year to ¥9,493
29
69
million ($102,032 thousand) as a result of the tax effect of
28
68
27
67
26
66
tax rate was 20.3 percent, compared with 39.3 percent in
25
65
the previous fiscal year.
24
64
23
63
2006
2007
2008
2009
2010
26.4 26.7 25.8 24.9 24.9
Cost of Sales Ratio (Left scale)
SG&A Expenses Ratio (Right scale) 67.8 66.1 65.4 67.9 67.3
the elimination of unrealized intercompany profit. The effective
Minority Interests in Net Income of
Consolidated Subsidiaries
Minority interests in net income of consolidated subsidiaries decreased 10.1 percent compared with the previous fiscal year to ¥3,575 million ($38,424 thousand).
Operating Income
Operating income increased 0.9 percent compared with the
previous fiscal year to ¥50,351 million ($541,176 thousand).
Operating profitability increased 0.6 percentage points to 7.8 percent.
Net Income
Net income increased 73.8 percent compared with the
previous fiscal year to ¥33,671 million ($361,898 thousand). Net
income per share increased to ¥84.6 ($0.91) from ¥48.0 for the
Operating Income/Operating Profitability
previous fiscal year. Return on equity increased 4.4 percentage
(Billions of yen)
80
(%)
60
7.5
40
5
20
2.5
10
points to 9.8 percent from 5.4 percent for the previous fiscal
year because of higher net income.
0
2007
2008
2009
(%)
(Billions of yen)
50
0
2006
Operating Income
Operating Profitability
Net Income/Return on Equity
2010
38.9 50.0 63.5 49.9 50.4
5.8 7.2 8.8 7.2 7.8
15
40
12
30
9
20
6
10
3
0
Net other expenses totaled ¥3,612 million ($38,822 thousand), compared with net other expenses of ¥11,428 million for
38 SHISEIDO ANNUAL REPORT 2010
0
2006
Other Income (Expenses)
Net Income
Return on Equity
2007
2008
2009
2010
14.4 25.3 35.5 19.4 33.7
3.9 6.6 9.2 5.4 9.8
Management’s Discussion and Analysis
Review by Business Segment
sentiment on promotional products, primarily mid-priced
Results by business segment follow below.
items, and the substantial impact of the trend toward lowpriced self-selection and toiletry products.
Domestic Cosmetics
[Professional Division]
Sales in the domestic cosmetics segment decreased 3.6 per-
Sales in the professional division, which manufactures and mar-
cent year on year to ¥397,568 million ($4,273,087 thousand).
kets products and services for hair and beauty salons,
Given a changing market structure that is becoming polarized
decreased 6.9 percent compared with the previous fiscal year.
between high-priced and low-priced products, Shiseido
In the beauty salon services sector, Shiseido emphasized
worked to step up distinction and concentration. However,
strengthening wedding-oriented beauty salons at wedding
we have not responded fully to the move among customers
halls and hotels. In the esthetic beauty and spa treatment
toward low-priced items amid cooling consumer sentiment.
sector, we concentrated on cultivating core salons and concluding new salon contracts. In hair and beauty salon product
[Cosmetics Division]
Sales in the cosmetics division decreased 4.4 percent
compared with the previous fiscal year, with lower sales year on
year of counseling products, self-selection products and toiletries. During the year, Shiseido responded to a changing
market structure that is becoming polarized by being even
more meticulous in combining brands/lines with channels.
We focused on high-priced counseling products in the core voluntary chain store, department store and general merchan-
sales, we continued to promote marketing activities that
emphasize the quality of merchandising proposals. However,
sales decreased year on year because a decline in the number
of salon customers caused product sales to fall.
[Healthcare Division]
Sales in the healthcare division continued to rise, increasing 2.2
percent compared with the previous fiscal year.
In the market for beauty supplements, we concentrated
dise store channels, and on low-priced self-selection and toiletry
resources to sustain expansion in sales of The Collagen line of
products in the core drug store channel.
beauty
For high-priced counseling products, we generated steady
results
by
expanding
sales
of
relationship-building
brands/lines centered on skincare. We executed sales measures
supplements
for
enhanced
skin
regeneration.
Shiseido also focused attention on launching The In and On line,
which combines beauty foods and cosmetics for women in
their 40s.
specializing in the Bénéfique line exclusively for voluntary
chain stores, and made progress with our new program that is
designed to powerfully support voluntary chain stores that
want to strengthen cooperation with Shiseido. At department stores, we implemented a Double Counter strategy for
the top-end prestige clé de peau BEAUTÉ brand, and also
strengthened cultivation of the REVITAL GRANAS line targeting
the “new luxury segment” of women in their 30s or older. At
general merchandise stores, we further enhanced the sales
counter activities of beauty consultants and, just as at
department stores, strengthened cultivation of the REVITAL
GRANAS line.
For low-priced self-selection and toiletry products, we concentrated on expanding sales of haircare, skincare and men’s
mega lines at self-selection sales counters in drug stores and
general merchandise stores. In order to meet an even broader
range of customer haircare needs, we added a gold-colored
Head Spa series to Tsubaki, thus creating a third series in
addition to the red and white series. Moreover, we innovated
Operating income for domestic cosmetics increased 19.2 percent compared with the previous fiscal year to ¥39,355 million
($422,990 thousand), and segment operating profitability
was 9.8 percent. Improved efficiency of marketing costs and
other selling, general and administrative expenses more than
compensated for the decrease in gross profit resulting from
lower sales.
Overseas Cosmetics
Sales in the overseas cosmetics segment increased 3.0
percent compared with the previous fiscal year on a local
currency basis, but decreased 9.3 percent to ¥236,600 million
($2,542,992 thousand) when translated into yen due to the
yen’s appreciation. Economic recession impacted the
European market, but the North American market showed
signs of recovery in the second half of the fiscal year.
Results were strong in Asia, driven by China.
[Cosmetics Division]
the Aqua Label self-selection skincare line, and launched Uno
Division sales increased 4.5 percent on a local currency
Fog Bar, a completely new genre of men’s hair styling agent. At
basis but decreased 8.1 percent on a yen basis compared
the same time, we worked to establish the new sales system
with the previous fiscal year.
for large store chains and deepened cooperation in this channel.
However, these efforts did not generate outstanding
results because of the impact of cooling consumer
Shiseido cultivated the global brand
, which is its
iconic prestige brand sold worldwide. We launched a new
makeup line, followed by the
Future Solution LX
SHISEIDO ANNUAL REPORT 2010 39
premium skincare line. We also renewed the design of
Operating income of the overseas cosmetics segment
department store sales counters in ways such as introducing a
decreased 39.2 percent to ¥9,122 million ($98,044 thousand) on
new symbolic sign in order to enhance our global image. In addi-
a yen basis because of the pronounced impact of the appreci-
tion, we continued to execute our City Concept strategy of
ation of the yen, and operating profitability was 3.8 percent.
focusing marketing on cities that have a strong ripple effect on
Others
their respective countries as a whole.
In China, a key market, we maintained strong growth by
Sales in other businesses decreased 41.0 percent com-
continuing to energetically implement channel-specific brand mar-
pared with the previous fiscal year to ¥10,033 million
keting centered on China-only brands. In department stores, we
($107,835 thousand). The decrease was primarily the result of
introduced MAQUILLAGE, a mega line in Japan, from a sales
The Ginza Co., Ltd.’s withdrawal from its boutique business.
foundation built on skincare. We also strengthened the makeup
domain in ways such as innovating the China-only AUPRES
makeup line. In addition, we signed up additional cosmetic
specialty stores and worked to increase sales at existing cosmetic specialty stores in ways such as strengthening sales of the
China-only brand URARA.
[Frontier Sciences Division]
The frontier sciences division handles items such as medicaluse drugs, cosmetics raw materials, chromatography, and
cosmetic dermatology treatments. Bio-hyaluronic acid, a raw
material used in cosmetics and pharmaceuticals, continued
to perform well in Japan and overseas, and sales of 2e and
In the masstige market, we significantly boosted sales of the
Navision cosmetics for medical institutions increased.
Za brand, which targets middle-income consumers. We also
expanded the sales area of the self-selection makeup brand
Operating income from other businesses increased 15.9
MAJOLICA MAJORCA into the countries of Southeast Asia. In
percent compared with the previous fiscal year to ¥1,716
these and other ways, we moved to strengthen our foundation
million ($18,444 thousand) and operating profitability was
in growing markets.
10.6 percent. The withdrawal from the boutique business
We also made steady progress in expanding business in
resulted in increased profitability.
new markets. We advanced into African markets for the first
time by entering the markets of Egypt and Morocco and
launched the global brand
Net Sales by Business Segment
(Billions of yen)
750
in Laos and Azerbaijan.
As a result of these efforts, the global brand
was
available in 73 countries and regions (including Japan) as of
500
March 31, 2010.
As part of efforts to improve quality and responsiveness at
250
sales counters, we distributed copies of the Shiseido BC
Omotenashi Credo to beauty consultants worldwide. The
0
2006
Credo is a set of behavioral indicators to help realize the spirit
of omotenashi, a Shiseido strength.
Moreover, in the fragrance markets of Europe and North
America, Beauté Prestige International S.A. added a new
2007
2008
2009
2010
Domestic Cosmetics
Overseas Cosmetics
Others
453.4 447.6 439.0 412.4 397.6
196.3 224.3 263.7 260.9 236.6
21.3 22.7 20.8 17.0 10.0
Total
671.0 694.6 723.5 690.3 644.2
line, A Scent by Issey Miyake, to its ISSEY MIYAKE brand of
designer fragrances and also worked to strengthen the Jean
Paul GAULTIER and NARCISO RODRIGUEZ brands.
[Professional Division]
Division sales decreased 7.4 percent on a local currency
basis and 17.9 percent on a yen basis compared with the
previous fiscal year.
Zotos International, Inc., which manufactures and sells
products for salons globally with a focus on North America,
implemented aggressive marketing activities, including stepping
up efforts to cultivate its core JOICO brand and launching
Diamond Shine, a new haircare line. In the esthetic beauty
and spa treatment sectors, the contraction of markets in
Europe impacted the performance of DECLÉOR.
40 SHISEIDO ANNUAL REPORT 2010
Operating Income by Business Segment
(Billions of yen)
Domestic Cosmetics
Overseas Cosmetics
Others
2006
2007
2008
2009
2010
34.3 36.9 43.1 33.0
2.8 10.4 17.9 15.0
1.0 2.2 2.0 1.5
39.4
9.1
1.7
Operating Profitability by Business Segment
(%)
2006
2007
2008
2009
2010
Domestic Cosmetics
Overseas Cosmetics
Others
7.5
1.4
2.4
8.1
4.6
4.9
9.7
6.7
5.0
7.9 9.8
5.7 3.8
5.2 10.6
Note: Operating profitability is calculated against sales for the
segment, including intersegment sales.
Management’s Discussion and Analysis
Review by Geographic Segment
Results by geographic segment follow below.
currency basis. Sales decreased 1.5 percent on a yen basis to
¥108,010 million ($1,160,898 thousand) due to the overall
appreciation of the yen versus Asian currencies. Sales grew
Japan
Sales in Japan decreased 5.1 percent compared with the
previous fiscal year to ¥408,078 million ($4,386,049 thousand) due
to a decline in sales of the core domestic cosmetics business.
Operating income in Japan increased 30.4 percent compared with the previous fiscal year to ¥24,042 million
($258,405 thousand). Operating profitability was 5.6 percent.
Improved efficiency in marketing costs and other selling, general
and administrative expenses more than compensated for the
decrease in gross profit resulting from lower sales.
Americas
Sales in the Americas decreased 0.1 percent compared
with the previous fiscal year on a local currency basis. Sales
decreased 9.7 percent on a yen basis to ¥45,720 million
($491,402 thousand) due to appreciation of the yen versus
the U.S. dollar.
steadily in the cosmetics division, centered on the key market
of China.
In the cosmetics division, high growth continued in China,
including Hong Kong. Sales were also solid in countries other
than China, particularly Taiwan and Thailand.
Operating income in Asia/Oceania decreased 10.2 percent
compared with the previous fiscal year to ¥15,074 million
($162,016 thousand), as higher gross profit resulting from sales
growth on a local currency basis did not fully compensate for the
effect of exchange rates. Operating profitability was 13.9 percent.
Net Sales by Geographic Segment
(Billions of yen)
2006
2007
2008
2009
2010
Japan
Americas
Europe
Asia/Oceania
475.7
46.0
85.6
63.7
471.2
51.7
88.4
83.3
460.7
56.6
103.8
102.4
430.0
50.7
100.0
109.6
408.1
45.7
82.4
108.0
Outside Japan
195.3 223.4 262.8 260.3 236.1
Cosmetics division sales decreased marginally year on
year due to the effect of the recession. Sales of cosmetics at
sales counters in the department store market decreased by
nearly double digits, although the global brand
performed solidly centered on skin care.
The professional division was impacted by the recession, although Zotos International, Inc. aggressively developed
Operating Income by Geographic Segment
(Billions of yen)
2006
2007
2008
2009
2010
Japan
Americas
Europe
Asia/Oceania
24.0
0.9
5.4
7.7
27.3 31.8 18.4 24.0
2.8 4.0 3.3 3.2
6.3 9.0 8.3 5.6
11.2 15.9 16.8 15.1
Outside Japan
14.0
20.3 28.9 28.4 23.9
business.
Operating income in the Americas decreased 1.8 percent
compared with the previous fiscal year to ¥3,217 million
($34,577 thousand), due to lower gross profit from the
decline in sales and the appreciation of the yen. Operating
profitability was 6.0 percent.
Europe
Sales in Europe decreased 3.4 percent compared with the pre-
Operating Profitability by Geographic Segment
(%)
2006
Japan
Americas
Europe
Asia/Oceania
4.8
1.7
6.0
12.0
Outside Japan
6.7
2007
2008
2009
2010
5.5 6.5 4.0 5.6
4.7 6.1 5.6 6.0
6.8 8.3 7.8 6.5
13.4 15.5 15.3 13.9
8.6 10.4 10.3
9.6
Note: Operating profitability is calculated against sales for the
segment, including intersegment sales.
vious fiscal year on a local currency basis. Sales decreased
17.6 percent on a yen basis to ¥82,393 million ($885,565
thousand) due to appreciation of the yen versus the euro.
Overseas Sales (by Destination)
(Billions of yen)
300
In the cosmetics division, sales of fragrances decreased
because of their susceptibility to the effect of the recession.
200
In the professional division, sales of the esthetic beauty
and spa treatment brand DECLÉOR were flat.
100
Operating income in Europe decreased 31.6 percent compared with the previous fiscal year to ¥5,647 million ($60,694
0
2006
thousand), mainly because of lower gross profit from the
decline in sales and the appreciation of the yen. Operating
profitability was 6.5 percent.
Asia/Oceania
Americas
Europe
Asia/Oceania
Total
2007
2008
2009
2010
47.5 54.0 59.4 54.9 48.5
80.4 79.3 92.8 88.5 73.8
69.3 91.5 112.1 118.6 115.2
197.2 224.8 264.3 262.0 237.5
Sales in Asia/Oceania increased 10.4 percent on a local
SHISEIDO ANNUAL REPORT 2010 41
Liquidity and Capital
Resources
Financing and Liquidity Management
Moody’s
S&P
Long-term
A1 (Outlook: Stable)
A (Outlook: Stable)
Short-term
P-1
A-1
(As of June 16, 2010)
Shiseido seeks to generate stable operating cash flow and
ensure a wide range of funding methods, with the aims of
Cash Flows
securing sufficient capital for operating activities and maintaining
sufficient liquidity and a sound financial position. We fund
working capital, capital expenditures, and investments and
loans needed for sustainable growth by supplementing cash
on hand and operating cash flow with bank borrowings and
bond issues.
Cash and cash equivalents (net cash) as of March 31, 2010
totaled ¥77,157 million ($829,288 thousand), a decrease of
¥14,701 million ($158,007 thousand) compared with the previous
fiscal year-end.
Cash Flow Summary
As of March 31, 2010, Shiseido maintained a sufficient level of
(Billions of yen)
2008
2009
2010
75.3
42.8
69.4
liquidity. The use of diverse funding methods provided a high level
of financial flexibility. One of our targets for short-term liquidity is
Cash flows from operating activities
to maintain cash on hand at a level of approximately 1.5
Cash flows from investing activities
(5.8)
(28.2)
(204.9)
months of consolidated net sales. As of March 31, 2010, cash and
Cash flows from financing activities
(95.9)
(32.3)
120.4
120.4
91.9
77.2
time deposits together with short-term investments in securities
Cash and cash equivalents at end of year
totaled ¥94,825 million ($1,019,185 thousand). It represented 1.8
months of consolidated net sales.
As of March 31, 2010, interest-bearing debt totaled
Cash Flows from Operating Activities
¥214,447 million ($2,304,890 thousand), reflecting fund pro-
Net cash provided by operating activities totaled
curement in connection with the acquisition of Bare
¥69,432 million ($746,260 thousand). Income before
Escentuals. Shiseido has diversified funding methods. These
income taxes of ¥46,739 million ($502,354 thousand) and
include an unused shelf registration in Japan for ¥80.0 billion of
depreciation of ¥26,350 million ($283,212 thousand) con-
straight bonds. Moreover, Shiseido Co., Ltd. and two sub-
tributed to cash provided by operations. Uses of cash
sidiaries in the United States and Europe have established a
included income taxes paid of ¥7,498 million ($80,589
syndicated loan program with unused commitments totaling
thousand) and decrease in notes and accounts payable of
$240 million. A financial subsidiary in the United States has
¥9,085 million ($97,646 thousand).
also established an unused commercial paper program totaling
$100 million.
Cash Flows from Investing Activities
Net cash used in investing activities totaled ¥204,885
Credit Ratings
million ($2,202,117 thousand). This was mainly due to
investments related to the Bare Escentuals acquisition, as
Shiseido recognizes that it needs to maintain a certain level of
well as construction of a new factory in Vietnam.
credit rating to secure financial flexibility that is consistent with its
Acquisition of fixed assets, calculated as the sum of acqui-
capital/liquidity policies and to secure access to sufficient capital
sition of property, plant and equipment, intangible assets
resources through capital markets. Shiseido has acquired ratings
excluding goodwill, and long-term prepaid expenses,
from Moody’s Investors Service Inc. (Moody’s) and Standard
totaled ¥25,517 million ($274,259 thousand), which was
and Poor’s (S&P) to facilitate fund procurement in global capital
about the same level as depreciation.
markets.
On March 10, 2010, S&P downgraded Shiseido’s long-term
Cash Flows from Financing Activities
credit rating to A from A+. The rating action reflected S&P’s
Net cash provided by financing activities totaled
view that the acquisition of Bare Escentuals would reduce
¥120,359 million ($1,293,626 thousand), due primarily to
Shiseido’s financial soundness.
bank borrowings related to the Bare Escentuals acquisition
On March 25, 2010, Moody’s downgraded Shiseido’s long-term
credit rating to A1 from Aa3. The rating action reflected
Moody’s view that the acquisition of Bare Escentuals would
cause Shiseido to have high levels of financial leverage over
the medium term.
42 SHISEIDO ANNUAL REPORT 2010
and bond issues.
Management’s Discussion and Analysis
Cash Flows from Operating Activities/Acquisition of Fixed Assets
Total Assets/Operating ROA
(Property, Plant and Equipment + Intangible Assets +
Long-term Prepaid Expenses) (Billions of yen)
(Billions of yen)
800
(%)
600
7.5
400
5
200
2.5
10
80
60
40
20
0
0
2006
0
2006
2007
2008
2009
2010
Cash Flows from Operating Activities 21.8 69.4 75.3 42.8 69.4
Acquisition of Fixed Assets 27.5 28.6 27.7 28.2 25.5
2007
2008
2009
2010
671.8 739.8 675.9 606.6 775.4
5.9 7.4 9.4 8.2 7.5
Total Assets
Operating ROA
Net Assets/Interest-bearing Debt
(Billions of yen)
500
400
Assets, Liabilities and Net Assets
300
[Assets]
200
As of March 31, 2010, total assets increased 27.8 percent com-
100
pared with the previous fiscal year-end to ¥775,446 million
0
($8,334,544 thousand).
Current assets increased 0.4 percent compared with the
previous fiscal year-end to ¥318,242 million ($3,240,486 thou-
2006
Net Assets
Interest-bearing Debt
2007
2008
2009
2010
387.6 403.8 399.7 352.0 365.2
82.3 127.8 63.2 62.1 214.4
sand).
Investments and other assets increased 148.9 percent com-
Equity Ratio/Debt-Equity Ratio
(%)
pared with the previous fiscal year-end to ¥288,582 million
(Times)
1.00
100
($3,101,698 thousand), mainly due to the investment to
acquire Bare Escentuals.
[Liabilities]
Total liabilities as of March 31, 2010 increased 61.1 percent
compared with the previous fiscal year-end to ¥410,238 mil-
bond issues net of redemptions.
0.75
50
0.50
25
0.25
0
lion ($4,409,265 thousand). This was mainly due to bank borrowings in connection with the acquisition of Bare Escentuals and
75
0
2006
Equity Ratio (Left scale)
Debt-Equity Ratio
(Right scale)
2007
2008
2009
2010
55.7 52.5 56.6 55.6 44.9
0.22 0.33 0.17 0.18 0.62
[Net Assets]
Total net assets as of March 31, 2010 increased 3.8 percent
compared with the previous fiscal year-end to ¥365,208 million ($3,925,279 thousand).
As a result, as of March 31, 2010 net assets per share
increased ¥35.8 compared with the previous fiscal year-end to
¥875.7 ($9.41). The equity ratio decreased 10.7 percentage
points to 44.9 percent from 55.6 percent a year earlier.
SHISEIDO ANNUAL REPORT 2010 43
Research and
Development
color and brightness but does not easily stick to glasses and
cups. Shiseido is using it to give MAQUILLAGE lip gloss and lipstick long-lasting color and gloss.
In hair styling, Shiseido looked to the mechanism used in
To develop superior products and offer services that support
global customers’ beauty and health, Shiseido conducts R&D
activities at locations worldwide, with two research centers in
Yokohama, Kanagawa Prefecture, Japan, the Beauty Solution
Development Center in Shinagawa Ward, Tokyo, Japan, and
research facilities in the Americas (the United States), Europe
(France), and Asia (China and Thailand). Numerous Grand
Prizes as a Japanese manufacturer from the International
Federation of the Societies of Cosmetic Chemists (IFSCC), the
world’s most authoritative congress for cosmetics science and
technology, demonstrate the regard the international community
holds for Shiseido technology.
In the fiscal year ended March 31, 2010, R&D expenses for the
Shiseido Group totaled ¥14,460 million ($155,417 thousand),
and represented 2.2 percent of net sales. R&D objectives, primary
sticky notes and detachable stickers for inspiration in developing
a new concept in adhesive polymer used in Uno Fog Bar.
With the strong support of young male consumers, Shiseido hit
its sales target for the year of 2.4 million bottles just one
month after launch, creating a new realm in hair styling.
In the health care business, Shiseido discovered capillaries
become more likely to leak excessively as people age, which
prevents nutrition from reaching every area of the skin.
Focusing on this discovery, Shiseido launched the In and On
line, which counters the beauty concerns of women in their 40s
from within the body with beauty food products and from
outside the body with cosmetics.
R&D expenses for the fiscal year ended March 31, 2010 in
the domestic cosmetics segment totaled ¥7,058 million
($75,860 thousand).
initiatives, results and expenses by business segment were as follows. R&D expenses include basic research costs and other
expenses totaling ¥5,120 million ($55,030 thousand) that cannot
be allocated to specific businesses.
Domestic Cosmetics
With the goal of contributing to beautiful skin and beautiful
lifestyles, Shiseido conducts research in basic dermatology
and interface science. The broad range of Shiseido’s R&D
activities includes developing cosmetic ingredients, developing
and evaluating products, developing beauty methods, and
research into sensitivity and the senses.
During the fiscal year ended March 31, 2010, Shiseido
used its own unique methods to conduct a detailed analysis of
intercellular lipids in the stratum corneum. As a result, we discovered that damage such as that from dry environments
causes greater short-term disarray in the arrangement of
intercellular lipids than previously thought. This discovery
led to the development of an intercellular emollient ingredient,
Aquainpool ICL Phytosterol EX complex, that ameliorates
the disarray of the intercellular lipids in the stratum
corneum. Shiseido is now using it in basic Bénéfique and
Elixir White items.
Shiseido also launched the new Revital Granas Platinum
System skin care system after skin testing covering more
than 700 people over two years. It serves customers who
have yet to achieve their ideal for beautiful skin by fully utilizing
the mechanism of action of a glycolic acid Shiseido discovered.
In makeup, Shiseido employed a newly developed specialty
technology that enables an oil compound that coats with
44 SHISEIDO ANNUAL REPORT 2010
Overseas Cosmetics
Aiming for high quality in overseas cosmetics brands,
Shiseido develops products from its unique and sophisticated
science and its leading-edge technologies.
During the fiscal year ended March 31, 2010, Shiseido discovered that external stimuli including dryness and ultraviolet
light cause an increase in the negative factor serpin b3 within
the skin. Shiseido focused on this discovery in developing an
original ingredient, Skingenecell 1P, that is used in
Future Solution LX.
For foundation, Shiseido combined its unique micromist
production method with powder that excels at helping cosmetics last longer to enable cosmetics that last for 12 hours.
Shiseido has employed this approach in
Sheer
Matifying Compact.
R&D expenses for the fiscal year ended March 31, 2010 in
the overseas cosmetics segment totaled ¥2,073 million
($22,281 thousand).
Others
The frontier sciences division conducts R&D in areas
including medical-use drugs, cosmetics raw materials, chromatography, and cosmetic dermatology treatments.
For cosmetics raw materials, Shiseido developed a new
manufacturing process for acetylated hyaluronic acid, a
unique raw material that excels at moisturizing skin. This
enables even more stable supply of high-quality raw materials.
For cosmetic dermatology treatments, Shiseido learned that the
introduction of glycylglycine ions works to significantly
Management’s Discussion and Analysis
reduce pore size, and put this observation to work in
Navision, a line for medical institutions.
Shiseido will apply the “Accounting Standard for Disclosures
about Segments of an Enterprise and Related Information”
R&D expenses for the fiscal year ended March 31, 2010 in
other businesses totaled ¥209 million ($2,246 thousand).
from the year ending March 31, 2011. As a result, Shiseido
plans to present segment information for the Domestic
Cosmetics business segment, the Global Business segment
and the Other business segment. As part of this change,
R&D Expenses/Ratio of R&D Expenses to Net Sales
(Billions of yen)
20
(%)
4
15
3
10
2
5
1
Shiseido will include the domestic professional business, formerly
reported as part of Domestic Cosmetics, in Global Business.
Past results will be restated arithmetically to conform to the
new presentation.
0
0
2006
2007
2008
2009
Shiseido’s forecast for the year ending March 31, 2011
includes the results of subsidiary Bare Escentuals, which
became a subsidiary in March 2010. The consolidation of Bare
2010
Escentuals is estimated to reduce operating income because of
R&D Expenses
16.5 16.1 14.6 15.2 14.5
Ratio of R&D Expenses to Net Sales 2.5 2.3 2.0 2.2 2.2
an increase of ¥7.5 billion in the cost of sales associated with
marking-to-market of acquired inventories resulting from the
acquisition and the amortization of sales rights and other items
amounting to ¥3.5 billion. In addition, the Company estimates that
it will book ¥4 billion as amortization of goodwill, along with
Outlook for the Fiscal Year
Ending March 31, 2011
other costs incurred during the process of consolidation based on
Japanese accounting standards. The increase in the cost of
sales associated with the marking-to-market of acquired inventories is a non-recurring item limited to the fiscal year ending
Although there are signs of global economic recovery, conditions will remain challenging in Shiseido’s core domestic market.
March 31, 2011 and will not affect the results for the fiscal
year ending March 31, 2012 or thereafter.
Nonetheless, Shiseido will unite to implement its three-year
business plan covering the period from April 2008 to March
2011 with the aim of building a foundation for sustained mediumand long-term growth.
During the fiscal year ending March 31, 2011, we will complete
our current Three-Year Plan and build a firm footing for the
next Three-Year Plan with the aim of getting the onto a growth
trajectory. We will work to expand sales in Japan while establishing an overwhelming presence in Asia, reflecting our focus on
building a foundation for globalizing our operations.
Shiseido forecasts a year-on-year increase in net sales based on
assumptions including the bottoming out of the domestic market
in the second half of the fiscal year, continuing recovery in the
European and North American markets, and sales growth in
Asian markets centering on China. Shiseido also expects operating
income to increase year on year, mainly due to an increase in
Domestic Cosmetics
In the fiscal year ending March 31, 2011, in domestic cosmetics Shiseido will continue to concentrate on two pillars:
relationship building brands/lines and mega lines. We will
become increasingly meticulous in our efforts to match the
brands/lines and sales channels we are nurturing while honing
our focus on core fields. At the same time, we will strengthen
our responsiveness to structured retailers and deploy our
resources based on optimal perspectives for each area.
Shiseido forecasts that segment sales will increase year
on year in the fiscal year ending March 31, 2011 despite a challenging operating environment because of the initiatives
detailed above. Shiseido also forecasts that operating
income will increase because of an increase in gross profit
resulting from higher sales.
gross profit due to higher net sales.
Shiseido forecasts a year-on-year decline in net income
because expected reduction in other expenses will not fully
compensate for the absence of non-recurring factors that
reduced income taxes in the year ended March 31, 2010.
For the year ending March 31, 2011, Shiseido forecasts that
consolidated net sales will increase 9.4 percent year on year to
¥705.0 billion, operating income will increase 0.3 percent to
¥50.5 billion, and net income will decrease 13.9 percent to
Global Business
In Europe and North America we will seek to maintain
growth by advancing our City Concept strategy, innovating the
global brand
, strengthening the activities of
beauty consultants, and cultivating new markets. For Bare
Escentuals, we will strengthen store and website sales
activities and enhance efforts at department stores in the
United Kingdom.
¥29.0 billion.
SHISEIDO ANNUAL REPORT 2010 45
In China, Shiseido will expand the number of sales counters
handling its products in department stores and reinforce its
Shareholder Return Policy
product lineup for that channel, while expanding its network
The total shareholder return policy of Shiseido Co., Ltd. aims to
of cosmetic specialty stores and adopting measures to
maximize returns to shareholders through direct means and by
boost sales at existing stores. We will also tap drugstores as a
generating medium- and long-term share price gains. To this
new channel and enter the professional business targeting
end, our fundamental policy is to make strategic investments that
beauty salons.
drive earnings growth while raising capital efficiency, which
In Europe and the Americas, Shiseido expects economic
recovery to continue. We also forecast that China will continue
will lead to medium- and long-term increases in dividends and
share price.
to drive sustained growth in Asia. In the fiscal year ending
Beginning with the fiscal year ending March 31, 2011,
March 31, 2011, Shiseido therefore forecasts a year-on-year
Shiseido’s goal for returns over the medium-term is a consolidated
increase in global business sales in local-currency terms.
payout ratio of 40 percent. Based on this target, we will prioritize
Although we expect the yen to appreciate further compared
payment of stable dividends while implementing share buy-
with the fiscal year ended March 31, 2010, we forecast that
backs in a flexible manner.
segment sales will even increase on a yen basis. Shiseido
Our income distribution policy up to the fiscal year ended
forecasts that global business operating income will increase
March 31, 2010 was a total return ratio of 60 percent in the
year on year despite the negative impact of the appreciation
medium term, calculated as the sum of dividends paid and
of the yen.
share buybacks, as a proportion of consolidated net income.
During the current Three-Year Plan, we have been establishing our
Other
base as a global player and raising quality of operations, and
Going forward, Shiseido will continue striving to expand its
have not undertaken large-scale investments for growth.
presence in the frontier science division, which includes cos-
Therefore, the intent of our policy was to aggressively provide
metics raw materials, medical-use pharmaceuticals, chro-
returns to shareholders by distributing 60 percent of net
matography, and cosmetics for medical institutions. Shiseido
income, while giving consideration to increasing return on
forecasts that segment sales and operating income will
equity. However, the next Three-Year Plan is positioned as a time
remain essentially unchanged.
to enter a growth trajectory. In light of this, we are implementing
more aggressive growth strategies such as the acquisition of Bare
Overseas Sales
Escentuals. Therefore, Shiseido has changed its income distri-
Shiseido forecasts that overseas sales will increase year
bution policy from the fiscal year ending March 31, 2011, and will
on year in the fiscal year ending March 31, 2011. We expect to
appropriate a majority of net income for investments in
maintain sales growth in Asia, driven by China. We also
growth. In addition, we will raise the predictability of share-
anticipate factors such as economic recovery in Europe and the
holder returns by removing the uncertain component of flexible,
Americas, and the contribution of Bare Escentuals to consoli-
ad hoc share buybacks, and will use the payout ratio as a
dated results. Therefore, we also forecast a year-on-year
numerical target.
increase in yen terms despite the expected impact of the
appreciation of the yen.
We base our predictions on the following assumptions. In the
fiscal year ending March 31, 2011, we expect Japan’s real
GDP to expand by around 1 to 2 percent. Based on Ministry of
Economy, Trade and Industry statistics for cosmetics shipments, we estimate that domestic demand for cosmetics
products will decline slightly. We base our forecasts on
exchange rates of ¥90 per U.S. dollar, ¥120 per euro, and
¥13.5 per Chinese yuan.
46 SHISEIDO ANNUAL REPORT 2010
For the fiscal year ended March 31, 2010, Shiseido paid an
annual cash dividend at ¥50 per share, consisting of an interim
and year-end dividend of ¥25 per share each. In addition,
based on a resolution of the Board of Directors on April 30,
2009, Shiseido repurchased 4 million shares at a cost of
¥6,752 million ($72,571 thousand). The total return ratio was
79.1 percent, compared with to 127.2 percent for the previous
fiscal year.
Management’s Discussion and Analysis
Business and Other Risks
4. The Competitive Environment of the
Cosmetics Industry
The various risks that could potentially affect the business per-
Shiseido operates in the cosmetics industry, in which com-
formance and financial position of Shiseido are summarized
petition is intensifying on a global scale. Zero sum competi-
below. We feel that these risks could have a major impact on
tion for share among Japanese cosmetic companies in the
investors’ decisions. Items that deal with future events are
mature domestic market is intensifying because of factors
based on our judgment as of June 25, 2010, the date of issue for
including the expanding influence of global competitors in the
this annual report. Please note that the potential risks are not lim-
prestige market, and the entry of new competitors from other
ited to those listed below.
industries. In addition, in overseas markets such as China and
other Asian economies, which Shiseido has positioned as
1. Decrease in Value of the
Corporate Brand
The
corporate brand is shared by all Group com-
central to its growth strategy, the competitive environment is
becoming increasingly challenging as global competitors are
aggressively
conducting
mergers
and
acquisitions
and
panies in Shiseido’s domestic and overseas business activi-
expanding market share by executing marketing activities to
ties. We will continue working to enhance the value of this
raise consumer awareness of their brands. Consequently,
brand, but a decline in the brand’s value from an unforeseen
inability to respond to this competitive environment as effectively
event could negatively affect Shiseido’s business perform-
as global competitors could negatively affect Shiseido’s business
ance and financial position.
performance and financial position.
2. Customer Services
5. Overseas Business Activities
Shiseido places high priority on its relationships with cus-
As of March 31, 2010, Shiseido conducted business in 73
tomers. Chapter 1 of The Shiseido Code (Corporate Ethics
countries and regions (including Japan), and overseas sales
and Behavior Standards) clearly states that we shall act in a
account for a growing percentage of consolidated net sales
manner that earns the satisfaction and trust of customers,
each year, totaling 36.9 percent in the fiscal year under
and we will continue working to ensure that all employees are
review. In the course of conducting overseas business,
aware of these standards. However, an unforeseen event
Shiseido’s business performance and financial position could
could cause loss of such satisfaction and trust, leading to a
negatively be affected by various factors. These include
decline in the value of Shiseido Group brands. Shiseido’s
the occurrence of sudden and unpredictable economic,
business performance and financial position could negatively be
political and social crises; terrorism, war and civil war; economic
affected as a result.
and civil upheaval resulting from the spread of contagious
diseases such as new strains of influenza; and severe or
3. Strategic Investment Activities
abnormal weather.
When making decisions about investments in strategic markets, such as China and other Asian economies, mergers and
6. Market Risk
acquisitions, and expansion in new businesses and new markets,
[Raw material prices]
Shiseido endeavors to collect sufficient information and
International market conditions affect the price of raw materials
undertake due diligence prior to making rational judgments.
used in Shiseido products. Factors affecting market conditions
Due to various unforeseeable factors that may cause the
include geopolitical risk, the impact on supply and demand from
operating environment to deteriorate, however, we may not
increasing demand in developing countries and speculative capi-
achieve the results originally anticipated. This could negatively
tal flows, weather abnormalities and changes in exchange
affect Shiseido’s business performance and financial position.
rates. Shiseido constantly works to limit the impact of rising
Note 20 of the Notes to the Consolidated Financial
raw material prices by reducing cost of sales and other means.
Statements provides additional detail on Shiseido’s acquisition of
However, changes in market conditions and prices that exceed
Bare Escentuals during the fiscal year ended March 31, 2010.
projections could negatively affect Shiseido’s business performance and financial position.
SHISEIDO ANNUAL REPORT 2010 47
[Exchange rates]
Export, import and other transactions denominated in foreign
currencies expose Shiseido to foreign exchange rate risk.
business. Failure to respond effectively to these changes could
negatively
affect
Shiseido’s
business
performance
and
financial position.
Although we hedge foreign exchange rate risk through means
such as limiting export and import transactions by establishing pro-
9. Regulatory Risk
duction bases to serve local markets, we are unable to com-
Shiseido is subject to a range of domestic and overseas legal
pletely eliminate risk. Moreover, the financial statements of
provisions in the course of conducting its business. These
consolidated subsidiaries and equity affiliates domiciled over-
include pharmaceuticals laws, as well as quality-related stan-
seas are denominated in local currencies that are translated into
dards, environmental standards, accounting standards, and tax reg-
yen upon inclusion in the consolidated financial statements.
ulations. We aspire to be completely ethical based on legal
This has the potential to exert a negative impact on operating per-
compliance and corporate social responsibility. However, future
formance if the yen appreciates versus foreign currencies when
regulatory changes or the establishment of unanticipated new reg-
revenues exceed expenses. Moreover, Shiseido’s investments in
ulations may limit Shiseido’s activities, which could negatively
overseas subsidiaries and equity affiliates are subject to foreign cur-
affect Shiseido’s business performance and financial position.
rency translation adjustments that reduce shareholders’ equity if
the yen strengthens. Foreign exchange fluctuations that
exceed assumptions could negatively affect Shiseido’s busi-
10. Material Litigation
In the fiscal year ended March 31, 2010, Shiseido was not
ness performance and financial position.
involved in material litigation other than the litigation discussed
[Stock prices]
in Notes to the Consolidated Financial Statements, “10.
As of March 31, 2010, Shiseido held investments in securities
Contingent Liabilities.” In the future, unfavorable judgments
and is therefore exposed to the risk of changes in share price,
resulting from material litigation could negatively affect
which can increase or decrease unrealized gains or losses and
Shiseido’s business performance and financial position.
expose Shiseido to the risk of impairment losses. In addition, a
portion of the pension plan assets of Shiseido’s retirement
11. Information Security Risk
benefit plan is invested in shares with a market price. Lower
Shiseido takes various measures aimed at protecting its
share prices could therefore reduce pension plan assets and neg-
information assets, which include customers’ personal infor-
atively affect operating performance by increasing retirement
mation and industrial secrets. For example, in April 2005, the
benefit expenses. Unforeseen situations such as this could nega-
Personal Information Protection Law was fully enacted in
tively affect Shiseido’s business performance and financial position.
Japan. In anticipation of this, Shiseido Co., Ltd. in March 2004
obtained Privacy Mark certification, a Japanese Industrial
7. Responding Appropriately to Market Needs
Standard that recognizes the appropriateness of a company’s
Shiseido’s ability to develop and cultivate products and
systems for protecting personal information. However,
brands/lines and to conduct marketing activities that respond
unforeseeable events, such as leakage of information due to
appropriately to market needs exerts a significant impact on its sales
unauthorized access, could negatively affect Shiseido’s business
and earnings. To respond to market needs, we continuously
performance and financial position.
develop appealing new products and brands/lines; reinforce and cultivate new and existing products and brands/lines through marketing
12. Natural Disasters and Accidents
activities; and withdraw existing products and brands/lines that
Shiseido has developed a business continuation plan covering
no longer meet market needs. However, by nature these activities
issues critical to the continued operation of production bases, dis-
entail uncertainties that may prevent Shiseido from achieving its
tribution bases, information systems and the head office to
intended results, which could negatively affect Shiseido’s business
minimize loss due to interruption of production, distribution or
performance and financial position.
sales resulting from the occurrence of a natural disaster or
accident, such as a major earthquake. However, a natural disaster
8. Specific Business Partners
Significant changes are taking place in retail and wholesale distribution channels in Shiseido’s core domestic cosmetics
48 SHISEIDO ANNUAL REPORT 2010
or accident that exceeds the assumptions of this plan and disrupts production, distribution or sales could negatively affect
Shiseido’s business performance and financial position.
Management’s Discussion and Analysis
Significant Accounting
Estimates
Shiseido prepares its consolidated financial statements in
accordance with accounting principles generally accepted in
Japan. In preparing these financial statements, we select and
apply accounting policies and necessarily make estimates that
affect the presentation of reported amounts for assets, liabilities,
revenue and expenses. We consider information including historical data in making rational estimates. However, due to the
unpredictable nature of these estimates, actual results
may vary.
Shiseido considers the following significant accounting policies
to exert a large effect on key decisions regarding the estimates used in the consolidated financial statements.
Property, Plant and Equipment
Shiseido reviews fixed assets, primarily property, plant and
equipment, for impairment whenever circumstances indicate that
their carrying value may not be recoverable. Business-use
assets are pooled by business division to estimate future cash
flow, and the net sales value of idle assets is estimated for
each separate property. Based on these estimates, assets are
devalued from book value to recoverable value. We consider
information including estimates of future cash flow and recoverable value in making rational estimates. However, unpredictable factors could cause changes in underlying assumptions and estimates. This could change our estimates,
decrease future cash flow and recoverable value, and require us
to recognize impairment losses.
Goodwill and Other Intangible Assets
Shiseido reviews goodwill and other intangible assets for
impairment. Shiseido employs the opinions of external experts and
other data in estimating fair value and examining impairment for
goodwill and other intangible assets. The discounted cash flow
method primarily used to estimate fair value relies extensively
on estimates and assumptions regarding future cash flow and
discount rate. These estimates and assumptions may significantly affect measurement and recognition of the amount of
impairment. We consider the estimates of fair value used for
measuring impairment to be rational. However, unforeseen
changes to underlying assumptions and estimates could occur.
This could reduce fair value and require us to recognize
impairment losses.
Investments in Securities
Shiseido recognizes impairment for securities reported as
available-for-sale securities for which fair value or market price has
fallen substantially below acquisition cost. Securities deemed
recoverable are excluded. Securities with a fair value that is
more than 50 percent below acquisition cost as of the balance
sheet date are deemed unrecoverable. The recoverability of
securities with a fair value from 30 to 50 percent below acquisition cost is evaluated according to the performance and financial
condition of the issuing entity. Impairment is recognized for
securities for which fair value is not available if market price
has fallen to more than 50 percent below the acquisition
cost due to the financial condition of the issuing entity.
Securities deemed recoverable are excluded. We consider
the estimates of recoverability to be appropriate. However,
in the future the market price of securities deemed recoverable
may decrease and the performance and financial condition of
the issuing entity may deteriorate. This could require us to
recognize impairment losses.
Deferred Tax Assets
Shiseido has established a valuation allowance for deferred tax
assets deemed unrecoverable using appropriate deferred tax
asset accounting. Historical data and future projections are
used to evaluate the recoverability of deferred tax assets to
sufficiently determine taxable status. We consider these to be
appropriate. However, unpredictable factors could cause
changes in underlying assumptions that could reduce or eliminate
deferred tax assets. This could require us to provide additional
allowances for deferred tax assets.
Retirement Benefits and Obligations
Shiseido’s domestic retirement benefit plans consist primarily
of corporate pension plans and termination allowance plans.
Employee benefits and obligations are calculated based on
assumptions including discount rate, employee turnover rate,
mortality rate and projected rate of return on pension plan
assets. These assumptions are revised annually. Discount
rate and expected return on plan assets are two critical
assumptions in determining benefits and obligations. The discount rate is determined based on to the market rate as of
the balance sheet date for long-term fixed-rate bonds that
carry little or no risk. Expected return on pension plan assets is
determined based on an expected weighted-average return
for the various types of assets held within the plan. We consider
these assumptions to be appropriate. However, actual results
may vary and changes in the underlying assumptions could
occur. This could affect pension costs and obligations.
SHISEIDO ANNUAL REPORT 2010 49
Consolidated Financial Statements
CONSOLIDATED BALANCE SHEETS
Shiseido Company, Limited, and Subsidiaries
March 31, 2009 and 2010
Thousands of
U.S. dollars (Note 1)
Millions of yen
2009
ASSETS
Current Assets:
Cash and time deposits (Notes 3, 4 and 7) ·································
Short-term investments in securities (Notes 3 and 5) ·············
Notes and accounts receivable (Note 4):
Trade ·································································································
Unconsolidated subsidiaries and affiliates ······························
¥ 57,411
47,344
2010
¥ 70,102
24,723
2010
$
753,461
265,724
102,018
2
102,020
(1,035)
100,985
111,795
1
111,796
(1,050)
110,746
1,201,580
11
1,201,591
(11,286)
1,190,305
Inventories (Note 6) ···········································································
Deferred tax assets (Note 9) ···························································
Other current assets (Note 14) ······················································
Total current assets ··································································
68,330
26,229
16,697
316,996
67,342
28,390
16,939
318,242
723,796
305,138
182,062
3,420,486
Investments and Other Assets (Note 17):
Investments in securities (Notes 4, 5 and 7) ······························
Investments in subsidiaries and affiliates (Note 4) ···················
Prepaid pension expenses (Note 8) ··············································
Long-term loans receivable (Note 4) ·············································
Long-term prepaid expenses ··························································
Deferred tax assets (Note 9) ···························································
Other investments (Note 7) ····························································
Total investments and other assets ·····································
32,628
1,302
34,360
282
11,313
12,092
23,957
115,934
33,590
158,552
28,740
17,477
10,327
14,164
25,732
288,582
361,028
1,704,127
308,899
187,844
110,995
152,236
276,569
3,101,698
161,018
128,891
10,840
300,749
(201,837)
98,912
157,282
133,374
11,094
301,750
(208,561)
93,189
1,690,477
1,433,513
119,239
3,243,229
(2,241,627)
1,001,602
Land ·······································································································
Construction in progress ··································································
Total property, plant and equipment ····································
38,185
1,136
138,233
35,274
4,322
132,785
379,127
46,453
1,427,182
Intangible Assets (Note 17):
Goodwill ································································································
Lease assets ·······················································································
Other intangible assets ····································································
Total intangible assets ·····························································
Total Assets ····························································································
12,198
208
23,000
35,406
¥ 606,569
11,852
372
23,613
35,837
¥ 775,446
127,386
3,998
253,794
385,178
$ 8,334,544
Less: allowance for doubtful accounts ····································
Property, Plant and Equipment, at Cost (Note 17):
Buildings and structures (Note 7) ··················································
Machinery and equipment ·······························································
Lease assets ·······················································································
Less: accumulated depreciation ····················································
The accompanying notes are an integral part of the consolidated financial statements.
50 SHISEIDO ANNUAL REPORT 2010
Thousands of
U.S. dollars (Note 1)
Millions of yen
2009
LIABILITIES AND NET ASSETS
Current Liabilities:
Short-term debt (Notes 4 and 7) ····················································
Current portion of long-term debt (Notes 4 and 7) ···················
Notes and accounts payable (Note 4):
Trade ·································································································
Unconsolidated subsidiaries and affiliates ······························
Other payables (Note 14) ·································································
Accrued income taxes ······································································
Reserve for sales returns ·································································
Accrued bonuses for employees ···················································
Accrued bonuses for directors ·······················································
Provision for liabilities and charges ···············································
Deferred tax liabilities (Note 9) ·······················································
Other current liabilities ·····································································
Total current liabilities ······························································
Long-Term Liabilities:
Long-term debt (Notes 4 and 7) ·····················································
Accrued retirement benefits (Note 8)···········································
Allowance for losses on guarantees ·············································
Allowance for environmental measures ······································
Deferred tax liabilities (Note 9) ·······················································
Other long-term liabilities ·································································
Total long-term liabilities ·························································
Total Liabilities ·········································································
2010
2010
4,528
23,073
¥105,966
6,727
$1,138,929
72,302
51,862
851
52,713
43,445
876
44,321
466,950
9,415
476,365
47,006
5,307
11,062
9,563
120
634
9
20,083
174,098
46,989
10,277
11,821
11,320
318
1,026
22
22,725
261,512
505,041
110,458
127,053
121,668
3,418
11,028
236
244,250
2,810,748
34,452
39,271
350
—
3,822
2,625
80,520
254,618
101,754
40,130
350
499
3,382
2,611
148,726
410,238
1,093,659
431,320
3,762
5,363
36,350
28,063
1,598,517
4,409,265
64,507
64,507
693,325
70,258
245,545
(16,840)
70,258
259,064
(23,112)
755,137
2,784,437
(248,409)
363,470
370,717
3,984,490
353
(26,599)
(26,246)
256
14,471
351,951
¥606,569
1,055
(23,448)
(22,393)
430
16,454
365,208
¥775,446
11,339
(252,020)
(240,681)
4,622
176,848
3,925,279
$8,334,544
¥
CONTINGENT LIABILITIES (Note 10)
NET ASSETS (Note 11)
Shareholders’ Equity:
Common stock ···············································································
Authorized: 1,200,000,000 shares as of March 31, 2009 and 2010
Issued: 410,000,000 shares as of March 31, 2009 and 2010
Capital surplus ················································································
Retained earnings ··········································································
Less: treasury stock, at cost ······················································
Treasury stock: 8,489,386 shares as of March 31, 2009 and
12,241,810 shares as of March 31, 2010
Total shareholders’ equity ·······························································
Valuation, Translation Adjustments and Others:
Unrealized gains (losses) on available-for-sale securities,
net of taxes (Note 5)···································································
Foreign currency translation adjustments ······························
Total valuation, translation adjustments and others ·················
Stock Acquisition Rights (Note 12)············································
Minority Interests in Consolidated Subsidiaries ··················
Total Net Assets ······································································
Total Liabilities and Net Assets·······················································
SHISEIDO ANNUAL REPORT 2010 51
CONSOLIDATED STATEMENTS OF INCOME
Shiseido Company, Limited, and Subsidiaries
For the years ended March 31, 2008, 2009 and 2010
Thousands of
U.S. dollars (Note 1)
Millions of yen
2008
2009
2010
2010
Net Sales (Note 19)·······························································
¥723,485
¥690,256
¥644,201
$6,923,914
Cost of Sales ···········································································
Gross profit ······································································
186,466
537,019
171,752
518,504
160,166
484,035
1,721,474
5,202,440
Selling, General and Administrative Expenses (Note 13) ······
Operating Income (Note 19) ········································
473,554
63,465
468,590
49,914
433,684
50,351
4,661,264
541,176
2,977
(1,882)
(1,649)
149
422
3,097
2,821
(1,812)
(275)
58
24
71
1,515
(1,569)
(3)
62
163
—
16,283
(16,864)
(32)
666
1,752
—
(96)
(206)
(356)
(3,826)
(154)
(1,151)
(598)
(1,083)
(884)
(6,073)
(6,074)
—
(463)
(3,469)
—
—
(4,976)
(37,285)
—
—
—
—
2,028
2,060
65,525
(216)
—
1,138
(11,428)
38,486
—
(507)
1,015
(3,612)
46,739
—
(5,449)
10,909
(38,822)
502,354
Income before minority interests ······························
16,507
9,063
25,570
39,955
12,028
3,109
15,137
23,349
14,660
(5,167)
9,493
37,246
157,567
(55,535)
102,032
400,322
Minority Interests in Net Income of
Consolidated Subsidiaries ···································
(4,495)
(3,976)
(3,575)
(38,424)
Net income·······································································
¥ 35,460
¥ 19,373
Other Income (Expenses):
Interest and dividend income ··········································
Interest expense ·································································
Foreign exchange gain (loss) ···········································
Equity in earnings of affiliates ·········································
Gain (loss) on sales of investments in securities (Note 5) ····
Gain (loss) on sales of shares in affiliates ····················
Write-down of investments in
securities and other investments ································
Gain (loss) on sales and disposal of property,
plant and equipment ························································
Impairment loss (Notes 17 and 19) ···································
Restructuring expenses (Note 18) ·································
Additional retirement benefits (Note 8) ···························
Loss on adjustment for changes of accounting
standard for lease transactions ·······································
Environmental expenses·····················································
Other, net··············································································
Income before income taxes ······································
Income Taxes (Note 9)
Current ···················································································
Deferred ················································································
¥ 33,671
Yen
U.S. dollars (Note 1)
Per Share
Net income — basic ··························································
— fully diluted ··············································
Cash dividend ······································································
¥86.1
85.7
34.0
¥48.0
48.0
50.0
¥84.6
84.5
50.0
Weighted Average Number of Shares (thousands) ········
407,696
403,240
397,886
The accompanying notes are an integral part of the consolidated financial statements.
52 SHISEIDO ANNUAL REPORT 2010
$ 361,898
$0.91
0.91
0.54
Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
Shiseido Company, Limited, and Subsidiaries
For the years ended March 31, 2008, 2009 and 2010
Thousands
Number
of shares
of common
stock
Balance as of March 31, 2007·········
Net income for the year ended March 31, 2008 ···
Cash dividend from retained earnings ·····
Other decreases in retained earnings···
Acquisition of treasury stock ··········
Disposal of treasury stock ··············
Retirement of treasury stock ···········
Change in scope of consolidation ·········
Change in unrealized gains (losses) on
available-for-sale securities, net of taxes ···
Change in fair market value of
derivatives, net of taxes···················
Change in foreign currency
translation adjustments·················
Issuance of stock acquisition rights····
Increase in minority interests···········
Balance as of March 31, 2008·········
Effect of changes in accounting policies
applied to foreign subsidiaries ············
Net income for the year ended March 31, 2009 ···
Cash dividend from retained earnings ·····
Acquisition of treasury stock ··········
Disposal of treasury stock ··············
Change in scope of consolidation ·········
Change in unrealized gains (losses) on
available-for-sale securities, net of taxes ···
Change in fair market value of
derivatives, net of taxes···················
Change in foreign currency
translation adjustments·················
Issuance of stock acquisition rights····
Increase in minority interests···········
Balance as of March 31, 2009·········
Net income for the year ended March 31, 2010 ···
Cash dividend from retained earnings ·····
Acquisition of treasury stock ··········
Disposal of treasury stock ··············
Change in scope of consolidation···
Change in unrealized gains (losses) on
available-for-sale securities, net of taxes ···
Change in fair market value of
derivatives, net of taxes···················
Change in foreign currency
translation adjustments·················
Issuance of stock acquisition rights····
Increase in minority interests···········
Balance as of March 31, 2010·········
Millions of yen
Common
stock
Capital
surplus
424,562
—
—
—
—
—
(14,562)
—
¥64,507
—
—
—
—
—
—
—
¥70,294 ¥255,410
—
35,460
—
(13,464)
—
(491)
—
—
90
—
(126)
(27,880)
—
(114)
—
—
—
—
—
—
—
—
410,000
Deferred
losses on
hedges, net
of taxes
Foreign currency
translation
adjustments
Stock
acquisition
rights
Minority
interests in
consolidated
subsidiaries
¥(16,896)
—
—
—
(25,078)
2,771
28,006
—
¥13,744
—
—
—
—
—
—
—
¥(233)
—
—
—
—
—
—
—
¥ 1,561
—
—
—
—
—
—
—
¥ 52
—
—
—
—
—
—
—
¥15,358
—
—
—
—
—
—
—
—
—
(8,470)
—
—
—
—
—
—
—
—
176
—
—
—
—
—
—
64,507
—
—
—
70,258
—
—
—
248,921
—
—
—
(11,197)
—
—
—
5,274
—
—
—
(57)
3,203
—
—
4,764
—
102
—
154
—
—
1,757
17,115
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(5,386)
19,373
(16,982)
—
(430)
49
—
—
—
(6,546)
903
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(4,921)
—
—
—
—
—
—
—
—
—
—
57
—
—
—
—
—
—
410,000
—
—
—
—
—
—
—
—
64,507
—
—
—
—
—
—
—
—
70,258
—
—
—
—
—
—
—
—
245,545
33,671
(19,975)
—
(170)
(7)
—
—
—
(16,840)
—
—
(6,830)
558
—
—
—
—
353
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(31,363)
—
—
(26,599)
—
—
—
—
—
—
102
—
256
—
—
—
—
—
—
—
(2,644)
14,471
—
—
—
—
—
—
—
—
—
—
702
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
410,000
—
—
—
¥64,507
—
—
—
¥70,258
—
—
—
¥259,064
—
—
—
¥(23,112)
—
—
—
¥ 1,055
—
—
—
—
3,151
—
—
¥(23,448)
—
174
—
¥430
—
—
1,983
¥16,454
Thousands
Number
of shares
of common
stock
Balance as of March 31, 2009·········
Net income for the year ended March 31, 2010 ···
Cash dividend from retained earnings ·····
Acquisition of treasury stock ··········
Disposal of treasury stock ··············
Change in scope of consolidation···
Change in unrealized gains (losses) on
available-for-sale securities, net of taxes ···
Change in fair market value of
derivatives, net of taxes···················
Change in foreign currency
translation adjustments·················
Issuance of stock acquisition rights····
Increase in minority interests···········
Balance as of March 31, 2010·········
Unrealized gains
Treasury stock, (losses) on availablefor-sale securities,
at cost
net of taxes
Retained
earnings
Thousands of U.S. dollars (Note 1)
Common
stock
Capital
surplus
Retained
earnings
Unrealized gains
Treasury stock, (losses) on availablefor-sale securities,
at cost
net of taxes
$755,137 $2,639,134 $(180,997)
—
361,898
—
— (214,693)
—
—
—
(73,409)
—
(1,827)
5,997
—
(75)
—
$ 3,794
—
—
—
—
—
Deferred
losses on
hedges, net
of taxes
410,000
—
—
—
—
—
$693,325
—
—
—
—
—
—
—
—
—
—
7,545
—
—
—
—
—
—
—
—
—
—
—
410,000
—
—
—
$693,325
—
—
—
—
—
—
—
—
—
$755,137 $2,784,437 $(248,409)
—
—
—
$11,339
Foreign currency
translation
adjustments
— $(285,888)
—
—
—
—
—
—
—
—
—
—
Stock
acquisition
rights
Minority
interests in
consolidated
subsidiaries
$2,752
—
—
—
—
—
$155,535
—
—
—
—
—
—
—
—
—
—
—
—
33,868
—
—
—
—
— $(252,020)
—
1,870
—
$4,622
—
—
21,313
$176,848
The accompanying notes are an integral part of the consolidated financial statements.
SHISEIDO ANNUAL REPORT 2010 53
Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
Shiseido Company, Limited, and Subsidiaries
For the years ended March 31, 2008, 2009 and 2010
Thousands of
U.S. dollars (Note 1)
Millions of yen
2008
Cash Flows from Operating Activities:
Income before income taxes ·····················································
Depreciation ·············································································
Amortization of goodwill ···························································
Impairment loss ········································································
Additional retirement benefits ···················································
Restructuring expenses ····························································
Loss on adjustment for changes of accounting standard
for lease transactions ······························································
Environmental expenses ···························································
Increase (decrease) in allowance for doubtful accounts ·············
Increase (decrease) in reserve for sales returns ························
Increase (decrease) in accrued bonuses for employees·············
Increase (decrease) in accrued bonuses for directors ················
Increase (decrease) in provision for liabilities and charges ·········
Increase (decrease) in accrued retirement benefits ···················
(Increase) decrease in prepaid pension expenses ······················
Interest and dividend income ····················································
Interest expense ·······································································
Equity in earnings of affiliates····················································
(Gain) loss on sales of investments in securities ·······················
(Gain) loss on sales of shares in affiliates ··································
Write-down of investments in securities and other investments ····
(Gain) loss on sales and disposal of property, plant and equipment······
(Increase) decrease in notes and accounts receivable ···············
(Increase) decrease in inventories ·············································
Increase (decrease) in notes and accounts payable ···················
Payments of accumulated benefits to defined contribution pension plan ···
Other ························································································
Subtotal ················································································
Interest and dividend received ··················································
Interest paid ··············································································
Income taxes paid ·····································································
Net cash provided by operating activities ······························
Cash Flows from Investing Activities:
Transfers to time deposits ························································
Proceeds from maturity of time deposits ··································
Acquisition of short-term investments in securities ···················
Proceeds from sales of short-term investments in securities ····
Acquisition of investments in securities ····································
Proceeds from sales of investments in securities······················
Acquisition of property, plant and equipment ····························
Proceeds from sales of property, plant and equipment··············
Acquisition of intangible assets ·················································
Payments of long-term prepaid expenses ·································
Payments of long-term loans receivable ····································
Net proceeds from acquisition of shares in subsidiaries
resulting in change in consolidation scope ····························
Net proceeds from sales of shares in subsidiaries
resulting in change in consolidation scope (Note 3) ···············
Other ························································································
Net cash used in investing activities ·····································
Cash Flows from Financing Activities:
Net increase (decrease) in short-term debt································
Proceeds from long-term debt ··················································
Repayment of long-term debt ···················································
Acquisition of treasury stock ·····················································
Disposal of treasury stock ·························································
Cash dividend paid ····································································
Cash dividend paid to minority shareholders ·····························
Other ························································································
Net cash provided by (used in) financing activities ················
Effect of Exchange Rate Changes on Cash and Cash Equivalents ····
Net Change in Cash and Cash Equivalents·································
Cash and Cash Equivalents at Beginning of Year (Note 3) ········
Increase (Decrease) in Cash and Cash Equivalents due to
the Change in Consolidation Scope of Subsidiaries ··················
Cash and Cash Equivalents at End of Year (Note 3) ···················
2010
2010
¥ 46,739
26,350
1,041
3,469
—
—
¥ 65,525
27,068
785
1,151
1,083
598
¥ 38,486
28,289
1,562
6,073
—
6,074
—
—
245
(779)
947
(12)
(559)
284
(2,940)
(2,977)
1,882
(149)
(422)
(3,097)
96
154
(7,589)
3,954
6,179
(1,841)
1,736
91,322
2,897
(1,925)
(16,986)
75,308
216
—
(230)
2,175
(2,466)
10
(19)
1,990
553
(2,821)
1,812
(58)
(24)
(71)
206
884
(5,053)
(10,340)
(4,698)
—
(3,255)
59,295
2,823
(1,808)
(17,542)
42,768
—
507
(73)
693
1,735
198
363
745
5,620
(1,515)
1,569
(62)
(163)
—
356
463
(8,472)
2,015
(9,085)
—
4,403
76,896
1,563
(1,529)
(7,498)
69,432
—
5,449
(785)
7,449
18,648
2,128
3,902
8,007
60,404
(16,283)
16,864
(666)
(1,752)
—
3,826
4,976
(91,058)
21,657
(97,646)
—
47,324
826,484
16,799
(16,434)
(80,589)
746,260
(7,093)
1,515
(1,525)
896
(3,349)
9,741
(17,449)
18,711
(5,399)
(4,899)
(77)
(31,738)
27,668
(935)
1,639
(3,816)
3,927
(16,133)
757
(5,671)
(6,419)
—
(33,151)
28,668
(1,365)
1,502
(157,574)
318
(15,545)
818
(4,685)
(5,287)
(20,841)
(356,309)
308,126
(14,671)
16,144
(1,693,616)
3,418
(167,079)
8,792
(50,355)
(56,825)
(224,000)
92
—
2,411
622
(5,803)
343
2,220
(28,158)
—
2,257
(204,885)
—
24,258
(2,202,117)
260
2,657
(61,219)
(25,078)
2,862
(13,462)
(1,982)
79
(95,883)
1,536
(24,842)
145,260
670
28,669
(36,623)
(6,546)
473
(16,972)
(2,065)
111
(32,283)
(10,753)
(28,426)
120,394
101,335
70,879
(23,855)
(6,830)
388
(19,955)
(1,905)
302
120,359
393
(14,701)
91,858
1,089,155
761,812
(256,395)
(73,409)
4,170
(214,478)
(20,475)
3,246
1,293,626
4,224
(158,007)
987,295
(24)
¥120,394
(110)
¥ 91,858
The accompanying notes are an integral part of the consolidated financial statements.
54 SHISEIDO ANNUAL REPORT 2010
2009
$
—
—
¥ 77,157
502,354
283,212
11,189
37,285
—
—
—
$
—
829,288
Notes to the Consolidated Financial Statements
Shiseido Company, Limited, and Subsidiaries
1. BASIS OF PRESENTING CONSOLIDATED FINANCIAL STATEMENTS
Accounting Principles and Presentation
The financial statements of Shiseido Company, Limited (the “Company”) and its consolidated subsidiaries have
been prepared in accordance with the provisions set forth in the Financial Instruments and Exchange Law and
Corporate Law and in conformity with accounting principles generally accepted in Japan. Therefore, application and
disclosure requirements are different from International Financial Reporting Standards in certain respects.
Certain items presented in the consolidated financial statements filed with the Director of the Kanto Finance Bureau
in Japan have been reclassified for the convenience of the reader.
Certain reclassifications have been made in the consolidated financial statements for the years ended March 31, 2008
and 2009 to conform to the presentation for the year ended March 31, 2010.
Amounts in U.S. dollars are included solely for the convenience of the reader. The rate of ¥93.04 = US$1 prevailing
on March 31, 2010 has been used in translating the consolidated financial statements expressed in Japanese yen into
U.S. dollars. Such translations should not be construed as representations that the Japanese yen amounts could be readily converted, realized or settled in U.S. dollars at this rate.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(1) Scope of Consolidation
The Company has 99 subsidiaries (companies over which the Company exercises control over operations) as of March
31, 2010 (96 and 91 as of March 31, 2008 and 2009, respectively). The accompanying consolidated financial statements
as of March 31, 2010 include the accounts of the Company and its 97 (91 and 86 as of March 31, 2008 and 2009, respectively) significant subsidiaries (the “Companies”).
The Company has 17 affiliates (companies that are not subsidiaries but over which the Company exercises significant influence) as of March 31, 2010 (22 and 20 as of March 31, 2008 and 2009, respectively). Investments in 3 affiliates (3 as of March 31, 2008 and 2009) are accounted for by the equity method as of March 31, 2010.
Three companies — Shiseido Hellas S.A., Shiseido Cosmetics Vietnam Co., Ltd., and Blush Holdings LLC —
were established in the current fiscal year and thus included in the scope of consolidation in the current fiscal year.
The Shiseido Group acquired the outstanding shares of Bare Escentuals, Inc. for cash. Therefore, Bare
Escentuals, Inc. and its 11 group companies are included in the scope of consolidation in the current fiscal year.
Three companies — Beauty Technologies Co., Ltd., Shiseido Beautech Co., Ltd., and Shiseido Dah Chong Hong
Cosmetics (Guangzhou) Ltd. — were excluded from the scope of consolidation in the current fiscal year because they
were liquidated during the period. Another company, Carita International S.A., was excluded from the scope of consolidation in the current fiscal year because it was merged into Carita S.A. (now named Carita International S.A.).
The major consolidated subsidiaries are listed in “Main Subsidiaries and Affiliates” on page 34.
Since the fiscal year end for certain consolidated subsidiaries is December 31, their financial statements as of that
date are used in the preparation of the Company’s consolidated financial statements. When significant transactions occur
at those subsidiaries between their fiscal year end and the Company’s fiscal year end, these transactions are
included in consolidation.
The Company acquired the shares of Bare Escentuals, Inc. through a U.S. subsidiary in March 2010. The investment
in Bare Escentuals is included in investment in subsidiaries and affiliates in the consolidated balance sheets. Note 20.
“Business Combinations” provides additional detail.
Investments in 2 unconsolidated subsidiaries and 14 affiliates not accounted for under the equity method are stated
at cost as they are immaterial to the consolidated financial statements.
The Company has adopted the “full fair value method” so that all of the assets and liabilities of the subsidiaries are
marked to fair value as of the date of acquisition of control.
All significant intercompany balances and transactions have been eliminated in consolidation. All material unrealized
profits included in assets resulting from intercompany transactions are eliminated.
(2) Inventories
Previously, inventories held by the Company for normal sales in the ordinary course of business were valued at cost, determined by the average method, while inventories held by domestic consolidated subsidiaries were valued at cost,
determined primarily by the last purchase price method. Effective from the year ended March 31, 2009, however, the
Company has applied “Accounting Standard for Measurement of Inventories” (Accounting Standards Board of Japan
(“ASBJ”), Statement No. 9, issued July 5, 2006) and unified accounting policies between the Company and its consolidated subsidiaries. The effect of this change on operating income, income before income taxes and net income for the
year ended March 31, 2009, was immaterial. Accordingly, such inventories are generally valued at cost, determined by the
average method. (Carrying amount in the balance sheet is calculated with consideration of write-downs due to
decreased profitability).
SHISEIDO ANNUAL REPORT 2010 55
(3) Property, Plant and Equipment (Excluding Lease Assets)
Buildings (excluding leasehold improvements) are depreciated using the straight-line method. Other tangible fixed assets
are, in principle, depreciated using the declining-balance method at the Company and its domestic consolidated subsidiaries and the straight-line method at overseas consolidated subsidiaries. Major fixed assets in Japan are depreciated over specific useful lives based on durability, level of deterioration, and special characteristics, which represent
approximately 20-30% reduction from useful lives for tax purposes.
Effective from the year ended March 31, 2008, the Company and its domestic consolidated subsidiaries changed their
depreciation method for tangible fixed assets acquired on or after April 1, 2007 in accordance with the revision of Japanese
Corporate Tax Law (Partial Revision of Income Tax Law, Law No. 6 of March 30, 2007; Partial Revision of Income Tax
Law Enforcement Ordinance, Cabinet Order No. 83 of March 30, 2007). The effect of this change on operating
income, income before income taxes and net income for the year ended March 31, 2008 was immaterial.
Pursuant to an amendment to the Japanese Corporate Tax Law, effective from the year ended March 31, 2008, the
Company and its domestic consolidated subsidiaries depreciate the difference between the original residual value of
5% of acquisition cost of assets acquired before April 1, 2007 and the new residual value of 1 yen (memorandum value)
by the straight-line method over 5 years commencing from the fiscal year following the year in which the asset becomes
fully depreciated to the original residual value. Depreciated amounts are included in depreciation expenses. As a result
of this change, operating income and income before income taxes each declined ¥687 million, and net income
declined ¥405 million for the year ended March 31, 2008.
(4) Intangible Assets (Excluding Lease Assets)
Intangible assets are mainly amortized using the straight-line method over the following estimated useful lives:
Trademark rights: 10 years, mainly
Software: 5 years, mainly
(5) Lease Assets
Finance lease assets that are not deemed to transfer ownership of the leased property to the lessee are depreciated
using the straight-line method over the period of the lease, with zero residual value.
Previously, the Company and its domestic consolidated subsidiaries treated finance lease assets that do not
transfer ownership as operating leases. Effective from the year ended March 31, 2009, however, the Company and its
domestic consolidated subsidiaries have applied “Accounting Standard for Lease Transactions” (ASBJ, Statement No. 13,
March 30, 2007; revised from the standard originally issued by the Corporate Accounting Council on June 17, 1993) and
“Guidance on Accounting Standard for Lease Transactions” (ASBJ, Guidance No. 16, March 30, 2007; revised from the
standard originally issued by the Japanese Institute of Certified Public Accountants on January 18, 1994).
Accordingly, from the year ended March 31, 2009, the Company and its domestic consolidated subsidiaries have treated
such leases as capital leases. As a result of this change, operating income increased ¥285 million, income before income
taxes increased ¥180 million, and net income decreased ¥106 million in the year ended March 31, 2009.
The effects of this change in specific segments are described in Segment Information (Note 19).
(6) Long-Term Prepaid Expenses
Long-term prepaid expenses are primarily amortized using the straight-line method.
(7) Goodwill
Amortization of goodwill is determined on a case by case basis and is generally amortized over a period not exceeding
20 years.
(8) Securities
The Company and its domestic consolidated subsidiaries categorize their existing securities as available-for-sale
securities. Those securities with market prices are carried at fair value prevailing at the fiscal year end, with net unrealized
gains and losses, net of taxes, reported separately in net assets. The cost of securities sold is mainly calculated
using the moving-average method. If fair value is not available, securities are carried at cost, which is determined mainly
by the moving-average method. Investments in limited partnerships are recorded as investments in securities at the
amount of interest in such partnerships calculated based on ownership percentage. Investment gain or loss is included
in net income or loss in proportion to the ownership interests in the net asset value of the partnership.
Securities with remaining maturities of one year or less and securities that are recognized as cash equivalents are classified as short-term investments in securities and others are included in investments in securities as non-current
assets.
(9) Net Income and Cash Dividend per Share
Net income per share of common stock is based on the weighted average number of shares of common stock outstanding during each year. The computation of fully diluted net income per share of common stock reflects the maximum possible dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock.
Cash dividend per share shown for each year in the consolidated statements of income represent the dividend
declared as applicable to the respective year, rather than that paid in each year.
(10) Accounting for Consumption Tax
In Japan, consumption tax is imposed at a flat rate on all domestic consumption of goods, assets and services (with
certain exemptions). The consumption tax withheld upon sales is recorded as a liability. Consumption tax, which is paid
56 SHISEIDO ANNUAL REPORT 2010
Notes to the Consolidated Financial Statements
by the Company and its domestic consolidated subsidiaries on purchases of goods, assets and services, is offset against
the balance withheld, and the net amount is subsequently paid to the national government.
Transactions subject to consumption taxes are recorded at amounts exclusive of consumption taxes.
(11) Allowance for Doubtful Accounts
The Company and its domestic consolidated subsidiaries provide the allowance for doubtful accounts based on the historic percentage of actual bad debt losses against the balance of total receivables and the amount of uncollectible receivables estimated on an individual basis. Overseas consolidated subsidiaries record the allowance based primarily on the
amount of uncollectible receivables estimated on an individual basis.
(12) Reserve for Sales Returns
The Companies provide reserve for sales returns for future losses considering the past return ratios and market distribution status.
(13) Accrued Bonuses for Employees
The Companies provide accrued bonuses for employees based on the estimated amounts to be paid in respect of the
fiscal year. This reserve includes bonuses for corporate officers who are non-Board members, for whom the calculations are the same as those for the Accrued Bonuses for Directors.
(14) Accrued Bonuses for Directors
The Companies provide accrued bonuses for members of the Board of Directors (except for external directors)
based on the estimated amounts to be paid in respect of the fiscal year.
(15) Provision for Liabilities and Charges
To provide for losses due to legal risks, product guarantee risks, tax risks, and other factors, certain overseas consolidated
subsidiaries make provision, the amount of which is based on estimated losses to be incurred considering the likelihood
of such losses in the future.
(16) Accrued Retirement Benefits
The Companies have obligations to pay retirement benefits to their employees and, therefore, the Company, its domestic consolidated subsidiaries and certain overseas consolidated subsidiaries provide accrued retirement benefits
based on the estimated amount of projected benefit obligation and the fair value of plan assets.
Unrecognized prior service cost is primarily amortized by the straight-line method over a 10-year period, which is shorter
than the average remaining years of service of the eligible employees. Unrecognized net actuarial gain or loss is primarily
amortized from the following year on a straight-line basis over a 10-year period, which is shorter than the average remaining years of service of the eligible employees.
The Company and its domestic consolidated subsidiaries have adopted “Partial Amendments to Accounting
Standards for Retirement Benefits (Part 3)” (ASBJ Statement No. 19, July 31, 2008) from the current fiscal year. The
adoption of this accounting standard had no effect on projected benefit obligations, operating income and income before
income taxes in the current fiscal year.
(17) Allowance for Losses on Guarantees
The Company provides an allowance for estimated probable losses on guarantees based on the financial status of the
guaranteed parties.
(18) Allowance for Environmental Measures
The Company and its domestic consolidated subsidiaries provide the reserve for the estimated cost to treat polychlorinated biphenyl (PCB) waste as required by the Act on Special Measures Concerning Promotion of Proper Treatment
of PCB Wastes.
(19) Foreign Currency Translation
Receivables and payables denominated in foreign currencies are translated into Japanese yen at the exchange rate prevailing on the respective balance sheet dates, and resulting exchange gains or losses are included in net income or loss
for the fiscal year.
Investments in unconsolidated subsidiaries and affiliates denominated in foreign currencies are translated at the historical exchange rates prevailing at the time of the transaction.
(20) Derivatives and Hedging Activities
The Companies use foreign currency exchange agreements, currency options and interest rate swap agreements to
reduce market risks and maintain stable profits. The Companies limit their use of foreign currency related derivative transactions to the amounts of foreign currency denominated receivables and payables, and do not use derivatives for speculative trading.
The Companies execute and manage derivative transactions within the limits of established internal rules and regulations, and reduce credit risk by limiting counterparties to highly creditworthy financial institutions.
Derivatives are carried at fair value with gains or losses recognized in the consolidated statements of income. For
derivatives used for hedging purposes, gains or losses on derivatives are deferred until recognition of the hedged transactions. Receivables, payables and forecast transactions denominated in foreign currencies, for which foreign
exchange forward contracts or foreign currency options are used to hedge the foreign currency fluctuations, are translated at the contracted rate if forward contracts or the options qualify for specific hedge accounting.
SHISEIDO ANNUAL REPORT 2010 57
Also, if interest rate swap contracts are used as a hedge and meet certain hedging criteria, the interest rate swaps
are not remeasured at market price, and the amount to be received under the interest rate swap contract is added to
or deducted from the interest on the liabilities for which the swap contract was executed (special accounting).
The Companies’ policy is to evaluate the effectiveness of derivatives used for hedging purpose based on either the
difference between the accumulated amount of cash flows from the hedging instrument and from the corresponding
hedged item or variance between the market value of the hedging instrument and the hedged item. However,
measurement of hedge effectiveness is not considered necessary for interest-rate swaps that meet the requirements
for special accounting and foreign exchange forward contracts or foreign currency options which qualify for specific hedge
accounting.
(21) Foreign Currency Determined Financial Statements
Financial statements of overseas consolidated subsidiaries and affiliates that are determined in foreign currencies are
translated into Japanese yen at the exchange rates prevailing at the respective balance sheet dates of those subsidiaries
for assets and liabilities, and at the historical exchange rates for shareholders’ equity. All income and expense
amounts are translated at the average rates of exchange during the fiscal year of those subsidiaries and affiliates.
The resulting translation adjustments are included in net assets as foreign currency translation adjustments and minority
interests.
(22) Definition of “Cash and Cash Equivalents” in Consolidated Statements of Cash Flows
Cash and cash equivalents as shown in the consolidated statements of cash flows are composed of cash in hand, readily
available time deposits, and short-term investments with maturities of 3 months or less at the time of purchase that
are exposed to insignificant risk of change in value.
(23) Practical Solution on Unification of Accounting Policies Applied to Foreign Subsidiaries for
Consolidated Financial Statements
Effective from the year ended March 31, 2009, the Company has applied “Practical Solution on Unification of
Accounting Policies Applied to Foreign Subsidiaries for Consolidated Financial Statements” (ASBJ, Practical Issues Task
Force No. 18, issued May 17, 2006), and necessary modifications have been made for consolidation. As a result of this
change, in the year ended March 31, 2009, operating income decreased ¥1,095 million, income before income
taxes decreased ¥950 million, and net income increased ¥456 million. The effects of this change in specific segments
are described in Segment Information (Note 19).
3. CASH FLOW INFORMATION
The reconciliation of cash and time deposits shown in the consolidated balance sheets and cash and cash equivalents
shown in the consolidated statements of cash flows as of March 31, 2008, 2009 and 2010 is as follows:
Thousands of
U.S. dollars (Note 1)
Millions of yen
Cash and time deposits ···································
Short-term investments in securities···············
Total ···························································
Time deposits with maturities exceeding 3 months ···
Equity securities and debt securities with
maturities exceeding 3 months··························
Cash and cash equivalents ······························
2008
2009
¥ 67,413
65,075
¥132,488
(9,679)
¥ 57,411
47,344
¥104,755
(11,536)
¥ 70,102
24,723
¥ 94,825
(16,287)
2010
$ 753,461
265,724
$1,019,185
(175,054)
2010
(2,415)
¥120,394
(1,361)
¥ 91,858
(1,381)
¥ 77,157
(14,843)
$ 829,288
The assets and liabilities on the date of sale of Shiseido Logistics Co., Ltd., which was sold during the year ended
March 31, 2008, and the relationship between the proceeds from sale of shares and net cash proceeds from sale of
shares is as follows:
Millions of yen
Current assets ············································································································
Non-current assets ·····································································································
Current liabilities ·········································································································
Non-current liabilities··································································································
Remaining investment balance after sale of shares···················································
Decrease in retained earnings resulting from exclusion of consolidated subsidiaries ······
Profit on sale of shares of Shiseido Logistics Co., Ltd. ··············································
Proceeds from sale of shares of Shiseido Logistics Co., Ltd. ····································
Cash and cash equivalents of Shiseido Logistics Co., Ltd.·········································
Net cash proceeds from sale of shares of Shiseido Logistics Co., Ltd. ·····················
58 SHISEIDO ANNUAL REPORT 2010
¥ 4,411
522
(3,754)
(653)
0
(53)
2,379
¥ 2,852
(1,923)
¥ 929
Notes to the Consolidated Financial Statements
The assets and liabilities on the date of sale of Shiseido Lease Co., Ltd., which was sold during the year ended
March 31, 2008, and the relationship between the proceeds from sale of shares and net cash proceeds from sale of
shares is as follows:
Millions of yen
Current assets ············································································································
Non-current assets ·····································································································
Current liabilities ·········································································································
Non-current liabilities ··································································································
Unrealized profit and other ·························································································
Remaining investment balance after sale of shares···················································
Decrease in retained earnings resulting from exclusion of consolidated subsidiaries ······
Profit on sale of shares of Shiseido Lease Co., Ltd.···················································
Proceeds from sale of shares of Shiseido Lease Co., Ltd.·········································
Cash and cash equivalents of Shiseido Lease Co., Ltd. ·············································
Net cash proceeds from sale of shares of Shiseido Lease Co., Ltd.··························
¥ 3,449
6,367
(4,660)
(4,236)
38
(18)
(61)
723
¥ 1,602
(120)
¥ 1,482
The assets and liabilities on the date of sale of Shiseido Real Estate Development Co., Ltd., which was sold during the
year ended March 31, 2009, and the relationship between the proceeds from sale of shares and net cash proceeds from
sale of shares is as follows:
Millions of yen
Current assets ············································································································
Non-current assets ·····································································································
Current liabilities ·········································································································
Non-current liabilities ··································································································
Remaining investment balance after sale of shares···················································
Increase in retained earnings resulting from exclusion of consolidated subsidiaries·····
Profit on sale of shares of Shiseido Real Estate Development Co., Ltd.····················
Proceeds from sale of shares of Shiseido Real Estate Development Co., Ltd.··········
Cash and cash equivalents of Shiseido Real Estate Development Co., Ltd. ··············
Net cash proceeds from sale of shares of Shiseido Real Estate Development Co., Ltd. ·····
¥ 3,638
559
(3,396)
(350)
(49)
4
71
¥ 477
(134)
¥ 343
The Company acquired the shares of Bare Escentuals, Inc. through a U.S. subsidiary in March 2010. The investment
in Bare Escentuals, ¥157,236 million ($1,689,983 thousand), is included in acquisition of investments in securities in the
consolidated statements of cash flows. Note 20 “Business Combinations” provides additional detail.
The important non-cash transactions are as follows:
The amounts of assets and obligations related to finance lease transactions that were newly recorded in the year ended
March 31, 2009 are ¥9,281 million and ¥9,497 million for lease assets and lease obligations, respectively.
The amounts of assets and obligations related to finance lease transactions that were newly recorded in the current
fiscal year are ¥3,831 million ($41,176 thousand) and ¥3,831 million ($41,176 thousand) for lease assets and lease obligations, respectively.
4. FINANCIAL INSTRUMENTS
Effective from the year ended March 31, 2010, the Company applied “Accounting Standards for Financial
Instruments” (ASBJ Statement No. 10, March 10, 2008) and “Implementation Guidance on Disclosures about Fair Value
of Financial Instruments” (ASBJ Guidance No. 19, March 10, 2008).
(1) Financial Instruments
1 Policy for financial instruments
The Companies limit fund management to short-term deposits, investments in securities and other methods. As
a matter of policy, the Companies procure funds using bank loans, commercial paper, bonds and other methods. The
Companies use derivatives to mitigate the risk of exchange rate fluctuations associated with receivables and
payables denominated in foreign currencies and the risk of interest rate fluctuations associated with loans. The
Companies limit the use of derivatives to the volume of receivables and payables and actual requirements, and do not
engage in speculative transactions.
2 Financial instruments content, risks and risk management system
Notes and accounts receivable are exposed to customer credit risk. The Companies mitigate this risk by managing
settlement date and amount due for each counterparty.
Investments in securities, primarily the equity securities of corporations with which the Companies do business, are exposed to the risk of fluctuations in market price. The Companies manage this risk by periodically examining
market prices and the financial condition of the issuing entities.
Notes and accounts payable are due within one year.
Interest-bearing debt includes short-term borrowings and commercial paper, which the Companies use to procure
funds for operating transactions, as well as long-term borrowings, bonds and lease obligations, which the
Companies use to fund investments and loans, capital expenditures and operating transactions. Floating-rate debt is
SHISEIDO ANNUAL REPORT 2010 59
exposed to the risk of fluctuations in interest rates. The Companies hedge this risk for specific long-term borrowings
by using derivatives (interest rate swaps) to mitigate the risk of interest rate fluctuations and fix interest payments.
The Companies use forward foreign exchange contracts and currency options to hedge the risk of foreign
exchange fluctuations associated with receivables and payables denominated in foreign currencies, and use interest
rate swaps to hedge the risk of fluctuations in interest rates associated with debt. (20) Derivatives and Hedging Activities
in Note 2. Summary of Significant Accounting Policies explains hedge accounting, hedging instruments and methods,
hedging policy, hedged items, and assessment of hedging effectiveness.
The Companies execute and manage derivative transactions within the limits of established internal rules and regulations, and reduce credit risk by limiting counterparties to highly creditworthy financial institutions.
Payables and interest-bearing debt are exposed to liquidity risk that the Companies manage in ways such as preparing monthly capital deployment reports.
3 Supplemental information on the fair value of financial instruments
The Companies calculate the fair value of financial instruments based on market prices, or by using reasonable estimates when market prices are not available. These estimates include variable factors, and are subject to fluctuation
due to changes in the underlying assumptions. The contract amounts of the derivatives discussed in Note 16.
Derivative Financial Instruments below are not an indicator of the market risk associated with derivatives transactions.
(2) Fair Value of Financial Instruments
Fair value and variance with carrying value presented on the balance sheets as of March 31, 2010 are as follows. Fair
values that are not readily determinable are not included in the following table. (See *2 for additional information.).
Carrying value (*)
Millions of yen
Fair value (*)
¥ 70,102
¥ 70,102
—
110,746
110,746
—
45,876
17,477
(91,310)
(105,966)
(50,000)
45,876
17,477
(91,310)
(105,966)
(49,830)
(52,053)
(6,428)
(52,143)
(6,538)
(90)
(110)
(259)
—
(259)
(474)
—
(474)
1 Cash and time deposits ·························································
2 Notes and accounts receivable
(less allowance for doubtful accounts) ··································
3 Short-term investments in securities and investments
in securities
Available-for-sale securities ···················································
4 Long-term loans receivable ···················································
5 Notes and accounts payable··················································
6 Short-term bank borrowings··················································
7 Bonds ····················································································
8 Long-term borrowings from banks and other
financial institutions ·······························································
9 Lease obligations···································································
0 Derivative instruments
i. Hedge accounting not applicable ···································
ii. Hedge accounting applicable ·········································
Variance
—
—
—
—
¥ 170
Thousands of U.S. dollars (Note 1)
1 Cash and time deposits ·························································
2 Notes and accounts receivable
(less allowance for doubtful accounts) ··································
3 Short-term investments in securities and investments
in securities
Available-for-sale securities ···················································
4 Long-term loans receivable ···················································
5 Notes and accounts payable··················································
6 Short-term bank borrowings··················································
7 Bonds ····················································································
8 Long-term borrowings from banks and other
financial institutions ·······························································
9 Lease obligations···································································
0 Derivative instruments
i. Hedge accounting not applicable ·······································
ii. Hedge accounting applicable··············································
$
753,461
$
753,461
—
1,190,305
1,190,305
—
493,078
187,844
(981,406)
(1,138,929)
(537,403)
493,078
187,844
(981,406)
(1,138,929)
(535,576)
(559,469)
(69,089)
(560,436)
(70,271)
(967)
(1,182)
(2,784)
—
(2,784)
(5,095)
—
(5,095)
—
—
—
—
$ 1,827
* Liabilities are in parentheses. Derivative transactions are presented as net amounts receivable or payable, with net amounts payable in
parentheses.
*1: Method for calculating the fair value of financial instruments, short-term investments in securities and derivative transactions
1 Cash and time deposits; 2 Notes and accounts receivable
Carrying value is used for fair value for these short-term items because these amounts are approximately the same.
3 Short-term investments in securities and investments in securities
Short-term investments in securities are held as available-for-sale securities. Market prices on exchanges are used to determine the fair value
of equity securities. Prices quoted by financial institutions are used to determine the fair value of bonds. Carrying value is used for fair value
for instruments with short-term maturities included in available-for-sale securities because these amounts are approximately the
same.
60 SHISEIDO ANNUAL REPORT 2010
Notes to the Consolidated Financial Statements
4 Long-term loans receivable
Floating-rate long-term loans receivable reflect market interest rates. Carrying value therefore approximates fair value of long-term loans
receivable.
5 Notes and accounts payable; 6 Short-term bank borrowings
Carrying value approximates fair value for these short-term items.
7 Bonds
Fair value of bonds issued by the Company is calculated based on market prices.
8 Long-term borrowings from banks and other financial institutions
Floating-rate long-term borrowing reflects market interest rates. In addition, fair value approximates carrying value because the
Company’s creditworthiness does not vary significantly after assuming long-term borrowings. Therefore, carrying value is used for fair value
of floating-rate long-term borrowing. Fair value of fixed-rate long-term borrowing is the discounted value of total principal and interest using
an assumed interest rate on equivalent new borrowings.
9 Lease obligations
The fair value of lease obligations is the discounted present value of total principal and interest using an assumed interest rate on equivalent new lease transactions.
0 Derivative instruments
Please refer to Note 16. Derivative Financial Instruments.
*2: Fair values that are difficult to determine
Millions of yen
Carrying value
Shares of subsidiaries and affiliates ···········································································
Available-for-sale securities ·························································································
¥158,552
12,437
Thousands of
U.S. dollars (Note 1)
Carrying value
$1,704,127
133,674
Market prices do not exist for these items, or the cost of estimating future cash flows is considered prohibitive. These items are not included
in 3 Short-term investments in securities and investments in securities, because their fair values are not readily determinable.
“Shares of subsidiaries and affiliates” above includes investment of ¥157,236 million ($1,689,983 thousand) in Bare Escentuals, Inc. Note
20. Business Combinations provides additional detail.
*3: The carrying value of monetary assets as of March 31, 2010
Due in 1 year or less
Cash and time deposits ···································
Notes and accounts receivable························
Long-term loans receivable······························
···························································
¥ 70,102
110,746
—
¥180,848
Due in 1 year or less
Cash and time deposits ···································
Notes and accounts receivable························
Long-term loans receivable······························
···························································
$ 753,461
1,190,305
—
$1,943,766
Millions of yen
Due after 1 year
Due after 5 years
through 5 years
through 10 years
—
—
¥17,466
¥17,466
—
—
¥11
¥11
Thousands of U.S. dollars (Note 1)
Due after 1 year
Due after 5 years
through 5 years
through 10 years
—
—
$187,726
$187,726
—
—
$118
$118
Due after 10 years
—
—
—
—
Due after 10 years
—
—
—
—
5. SECURITIES
The acquisition cost, carrying amount, and gross unrealized gains and losses for securities stated at fair value by
security type at March 31, 2009 and 2010 are as follows:
Available-for-sale securities:
Millions of yen
2009
Cost
Equity securities··············································
Corporate bonds··············································
Other ·······························································
····································································
¥12,235
5,960
48,284
¥66,479
Carrying amount
Gross unrealized gains
¥13,517
5,426
48,125
¥67,068
¥3,531
3
0
¥3,534
Gross unrealized losses
¥2,249
537
159
¥2,945
Millions of yen
2010
Cost
Equity securities··············································
Corporate bonds··············································
Other ·······························································
····································································
¥12,189
5,603
26,218
¥44,010
Carrying amount
¥14,922
4,732
26,222
¥45,876
Gross unrealized gains
¥4,255
4
72
¥4,331
Gross unrealized losses
¥1,522
875
68
¥2,465
SHISEIDO ANNUAL REPORT 2010 61
Thousands of U.S. dollars (Note 1)
2010
Cost
Equity securities··············································
Corporate bonds··············································
Other ·······························································
····································································
$131,008
60,221
281,793
$473,022
Carrying amount
Gross unrealized gains
$160,382
50,860
281,836
$493,078
$45,733
43
774
$46,550
Gross unrealized losses
$16,359
9,404
731
$26,494
Impairment for securities stated at fair value was recognized in the amounts of ¥24 million, ¥164 million and ¥24
million ($258 thousand) for the years ended March 31, 2008, 2009 and 2010, respectively.
The carrying amount of securities stated at cost by security type as of March 31, 2009 and 2010 is summarized as follows:
Available-for-sale securities:
Carrying amount
Thousands of
U.S. dollars (Note 1)
Millions of yen
2009
Unlisted equity securities ·····························································
Unlisted bonds··············································································
Other ····························································································
......................................................................................................
2010
¥11,124
—
1,780
¥12,904
¥10,771
—
1,666
¥12,437
2010
$115,768
—
17,906
$133,674
Impairment for securities stated at cost was recognized in the amounts of ¥72 million, ¥23 million and ¥332 million ($3,568 thousand) for the years ended March 31, 2008, 2009 and 2010, respectively.
Proceeds from sales, and gross realized gains and losses from the sale of available-for-sale securities in the years ended
March 31, 2008, 2009 and 2010 are as follows:
Carrying amount
Thousands of
U.S. dollars (Note 1)
Millions of yen
2008
Proceeds from sales ·······································
Gross realized gains ········································
Gross realized losses ······································
¥13,682
2,109
1,687
2009
2010
2010
¥1,980
36
12
¥1,820
199
36
$19,562
2,139
387
The carrying value by contracted maturity of debt securities classified as available-for-sale as of March 31, 2010 is as
follows:
Millions of yen
Due in 1 year or less ·····························································································
Due after 1 year through 5 years················································································
Due after 5 years through 10 years ············································································
Due after 10 years ······································································································
¥17,499
1,636
—
4,500
¥23,635
Thousands of
U.S. dollars (Note 1)
$188,081
17,584
—
48,366
$254,031
6. INVENTORIES
Inventories held by the Companies as of March 31, 2009 and 2010 are as follows:
Thousands of
U.S. dollars (Note 1)
Millions of yen
2009
Merchandise and products ···························································
Work in process ·······································································
Raw materials and supplies··························································
62 SHISEIDO ANNUAL REPORT 2010
¥40,172
4,187
23,971
¥68,330
2010
¥37,957
3,273
26,112
¥67,342
2010
$407,964
35,178
280,654
$723,796
Notes to the Consolidated Financial Statements
7. SHORT-TERM AND LONG-TERM DEBT
Short-term and long-term debt as of March 31, 2009 and 2010 are as follows:
Thousands of
U.S. dollars (Note 1)
Millions of yen
2009
Bank borrowings (weighted average interest rate 0.97%) ···········
Commercial paper (Borrowings due within one year,
weighted average interest rate 1.00%) ········································
Short-term debt ············································································
Long-term borrowings from banks and other financial institutions
(Borrowings due within one year, weighted average interest rate 0.61%)·····
(Borrowings due after one year, weighted average interest rate 1.09%)·······
1.12% unsecured yen bonds due in March 2010·························
0.65% unsecured yen bonds due in December 2014 ··················
Lease obligations
(Borrowings due within one year, weighted average interest rate 3.22%)·····
(Borrowings due after one year, weighted average interest rate 3.33%)·······
Less: portion due within one year ················································
Long-term debt·············································································
2010
2010
¥ 3,709
¥105,966
$1,138,929
819
¥ 4,528
—
¥105,966
—
$1,138,929
800
31,111
20,000
—
4,273
47,780
—
50,000
45,926
513,543
—
537,403
2,273
3,341
¥ 57,525
(23,073)
¥ 34,452
2,454
3,974
¥108,481
(6,727)
¥101,754
26,376
42,713
$1,165,961
(72,302)
$1,093,659
The aggregate annual maturities of long-term debt as of March 31, 2010 are as follows:
For the Years Ending March 31
2011····························································································································
2012····························································································································
2013····························································································································
2014····························································································································
2015····························································································································
2016 and thereafter ·····································································································
Millions of yen
¥
6,727
11,421
10,710
29,301
50,227
95
¥108,481
Thousands of
U.S. dollars (Note 1)
$
72,302
122,754
115,112
314,929
539,843
1,021
$1,165,961
Assets pledged as collateral as of March 31, 2010 are as follows:
Millions of yen
2010
Buildings and structures ·····························································································
Other investments······································································································
Investments in securities ···························································································
Cash and time deposits ······························································································
Machinery, equipment and vehicles···········································································
······················································································································
¥17,315
15,200
1,512
1,286
2
¥35,315
Thousands of
U.S. dollars (Note 1)
2010
$186,103
163,371
16,251
13,822
21
$379,568
The above assets are pledged as collateral for derivative transactions (interest rate swaps) and the following collateralized
liabilities as of March 31, 2010:
Millions of yen
2010
Current portion of long-term debt···············································································
Long-term debt···········································································································
¥
800
24,850
¥25,650
Thousands of
U.S. dollars (Note 1)
2010
$ 8,599
267,089
$275,688
8. ACCRUED RETIREMENT BENEFITS
The Company and its domestic consolidated subsidiaries have contributory funded pension plans and unfunded termination allowance plans, which are defined benefit plans. In some cases, additional voluntary retirement benefits are paid
when an employee retires, which are accounted for as retirement benefit expenses when incurred.
Certain overseas consolidated subsidiaries also have defined benefit pension plans, unfunded termination
allowance plans and defined contribution plans.
SHISEIDO ANNUAL REPORT 2010 63
The reconciliation of projected benefit obligations, plan assets, funded status of the pension benefit plans, prepaid pension expenses and accrued retirement benefits recognized in the accompanying balance sheets as of March 31, 2009 and
2010 is as follows:
Thousands of
U.S. dollars (Note 1)
Millions of yen
Projected benefit obligations·······················································
Fair value of plan assets······························································
Funded status of the pension benefit plans································
Unrecognized net actuarial loss ··················································
Unrecognized prior service cost ··················································
Net retirement benefit obligation ················································
Prepaid pension expenses ··························································
Accrued retirement benefits ·······················································
2009
2010
2010
¥(200,767)
144,086
(56,681)
56,885
(5,115)
¥ (4,911)
34,360
¥ (39,271)
¥(203,578)
158,407
(45,171)
36,743
(2,962)
¥ (11,390)
28,740
¥ (40,130)
$(2,188,070)
1,702,569
(485,501)
394,916
(31,836)
$ (122,421)
308,899
$ (431,320)
The net periodic pension benefit costs for the years ended March 31, 2008, 2009 and 2010 are as follows:
Thousands of
U.S. dollars (Note 1)
Millions of yen
2008
Service cost ····················································
Interest cost····················································
Expected return on plan assets·······················
Amortization of net obligation at transition*····
Amortization of net actuarial loss ····················
Amortization of prior service cost ···················
Net periodic pension benefit cost ···················
¥ 7,862
4,646
(7,614)
113
2,843
(2,021)
¥ 5,829
2009
¥ 8,712
4,965
(7,011)
—
5,500
(2,125)
¥10,041
2010
¥ 7,971
5,022
(5,853)
—
9,031
(2,125)
¥14,046
2010
$ 85,673
53,977
(62,909)
—
97,066
(22,840)
$150,967
* The amounts for the year ended March 31, 2008 pertain to a Taiwanese subsidiary, according to the Taiwanese retirement allowance
accounting system. The net obligation at transition is amortized by the straight-line method over a 17-year period.
The discount rate used to determine the actuarial present value of projected benefit obligations as of March 31, 2009
and 2010 is mainly 2.5%. The expected rate of return on plan assets of those plans as of March 31, 2009 and 2010 is
mainly 4.0%. Allocation of pension benefits to each year of service of the employees is based on the
“benefits/years-of-service” approach, whereby the same amount of benefits is allocated to each year. Certain foreign
consolidated subsidiaries have adopted the corridor approach for the amortization of actuarial gains and losses.
9. INCOME TAXES
Income tax applicable to the Company and its domestic consolidated subsidiaries consist of corporation, inhabitants’ and
enterprise taxes. The statutory income tax rate is approximately 41.0% for the years ended March 31, 2008, 2009 and
2010.
Since the difference between the statutory tax rate and the effective tax rate for the fiscal years ended March 31, 2008
and 2009 is less than 5%, a reconciliation of these two rates is not presented.
A reconciliation between the statutory tax rate and the effective tax rate for the fiscal year ended March 31, 2010 is
as follows:
Statutory tax rate ·········································································································
Increase (decrease) due to:
Permanently nondeductible expenses ·····································································
Dividend income not taxable ···················································································
Unrealized intercompany profit ················································································
Effects of realignment of subsidiaries······································································
Tax credits ··············································································································
Differences of tax rates for overseas consolidated subsidiaries································
Valuation allowance·································································································
Others ····················································································································
Effective tax rate ·········································································································
64 SHISEIDO ANNUAL REPORT 2010
41.0%
1.2
(1.5)
(11.6)
4.5
(4.4)
(7.1)
(1.3)
(0.5)
20.3%
Notes to the Consolidated Financial Statements
Deferred tax assets and liabilities (both current and non-current) as of March 31, 2009 and 2010 are as follows:
Thousands of
U.S. dollars (Note 1)
Millions of yen
2009
Deferred tax assets:
Inventories ···············································································
Depreciation ·············································································
Unrealized intercompany profit in inventory and property,
plant and equipment·······························································
Accrued expenses····································································
Accrued retirement benefits·····················································
Accrued bonuses for employees··············································
Write-down of investments in securities and other investments ····
Tax losses carried forward························································
Reserve for sales returns ·························································
Accrued enterprise tax ·····························································
Other ························································································
Total gross deferred tax assets ················································
Less: valuation allowance·························································
Total deferred tax assets ··························································
Deferred tax liabilities:
Goodwill and other intangible assets········································
Special tax-purpose reserve ·····················································
Unrealized gains (losses) on available-for-sale securities ··········
Undistributed earnings of foreign subsidiaries··························
Other ························································································
Total deferred tax liabilities ·······················································
Net deferred tax assets ····························································
2010
2010
¥ 9,190
8,283
¥ 8,406
7,998
$ 90,348
85,963
3,530
4,554
1,743
3,858
2,374
5,564
2,025
222
4,099
45,442
(6,078)
¥39,364
7,613
4,819
4,637
4,592
2,918
2,802
1,670
831
2,751
49,037
(4,739)
¥44,298
81,825
51,795
49,839
49,355
31,363
30,116
17,949
8,932
29,568
527,053
(50,935)
$476,118
¥ 2,099
1,028
234
506
1,007
¥ 4,874
¥34,490
¥ 2,507
996
709
359
577
¥ 5,148
¥39,150
$ 26,945
10,705
7,620
3,858
6,202
$ 55,330
$420,788
10. CONTINGENT LIABILITIES
As of March 31, 2009 and 2010, the Company was contingently liable as a guarantor for SDL Co., Ltd.’s own guarantees
of the lease liabilities of third-party customers, amounting to ¥56 million and ¥11 million ($118 thousand), respectively.
11. NET ASSETS
Under Japanese laws and regulations, the entire amount paid for new shares is required to be designated as common stock.
However, a company may, by a resolution of the Board of Directors, designate an amount not exceeding one half of the
price of the new shares as additional paid-in capital, which is included in capital surplus.
Under the Japanese Corporate Law (“the Law”), in cases where dividend distribution of surplus is made, the lesser
of an amount equal to 10% of the dividend or the excess, if any, of 25% of common stock over the total of additional paidin capital and legal earnings reserve, must be set aside as additional paid-in capital or legal earnings reserve. Legal earnings reserve is included in retained earnings in the accompanying consolidated balance sheets. Under the Law, both legal
earnings reserve and additional paid-in capital used to eliminate or reduce a deficit generally require a resolution of the
shareholders’ meeting.
Additional paid-in capital and legal earnings reserve may not be distributed as dividends. Under the Law, all additional
paid-in capital and legal earnings reserve may be transferred to other capital surplus and retained earnings under certain
conditions. The maximum amount that the Company can distribute as dividends is calculated based on the nonconsolidated financial statements of the Company in accordance with the Law. Under the Law, companies can pay a dividend at any time during the fiscal year in addition to the year-end dividend upon resolution at the shareholders’ meeting.
For companies that meet certain criteria such as: (1) having a Board of Directors, (2) having accounting auditors, (3) having a Board of Corporate Auditors, and (4) the term of service of the directors is prescribed as one year rather than two
years as the normal term by its articles of incorporation, the Board of Directors may declare a dividend if the Company
has prescribed so in its articles of incorporation.
A semiannual interim dividend may also be paid once a year upon resolution by the Board of Directors if the articles
of incorporation of the company so stipulate. Cash dividends charged to retained earnings during the fiscal year were the
year-end cash dividend for the preceding fiscal year and the interim cash dividend for the current fiscal year.
Appropriations are not accrued in the consolidated financial statements for the corresponding period, but are
recorded in the subsequent accounting period after shareholders’ meeting approval has been obtained.
Retained earnings at March 31, 2010 include amounts representing year-end cash dividend of ¥9,944 million
($106,879 thousand), ¥25.0 ($0.27) per share, which was approved at the shareholders’ meeting held on June 25, 2010.
SHISEIDO ANNUAL REPORT 2010 65
12. STOCK OPTION PLAN
Summarized information on the stock options granted as of March 31, 2010 is as follows:
1 Stock option plan approved by the shareholders on June 27, 2002
Stock options granted on
July 16, 2002
Number of shares for options granted
Number of shares for options outstanding
Exercise price
Exercisable period
578,000 shares
210,000 shares
¥1,669
July 1, 2004 - June 26, 2012
Total
578,000 shares
210,000 shares
2 Stock option plan approved by the shareholders on June 27, 2003
Stock options granted on
July 31, 2003
Number of shares for options granted
Number of shares for options outstanding
Exercise price
Exercisable period
878,000 shares
109,000 shares
¥1,287
July 1, 2005 - June 26, 2013
Total
878,000 shares
109,000 shares
3 Stock option plan approved by the shareholders on June 29, 2004
Stock options granted on
July 26, 2004
Number of shares for options granted
Number of shares for options outstanding
Exercise price
Exercisable period
Total
1,004,000 shares
1,004,000 shares
499,000 shares
499,000 shares
¥1,427
July 1, 2006 - June 28, 2014
4 Stock option plan approved by the shareholders on June 29, 2005
Stock options granted on
July 28, 2005
Number of shares for
options granted
Number of shares for
options outstanding
Exercise price
Exercisable period
408,000 shares
73,000 shares
¥1
July 1, 2008 - June 30, 2011
Stock options granted on
July 28, 2005
261,000 shares
258,000 shares
¥1,481
July 1, 2007 - June 28, 2015
Stock options granted on
November 7, 2005
1,851,000 shares
602,000 shares
¥1,896
July 1, 2007 - June 30, 2010
Total
2,520,000 shares
933,000 shares
5 Stock option plan approved by the shareholders on June 29, 2006 and resolved by the Board of Directors on July 31, 2006.
Stock options granted on
August 23, 2006
Number of shares for options granted
Number of shares for options outstanding
Exercise price
Exercisable period
Stock options granted on
August 23, 2006
Number of shares for
options granted
Number of shares for
options outstanding
Exercise price
Exercisable period
12,000 shares
6,000 shares
¥1
July 1, 2008 - June 30, 2011
9,000 shares
2,000 shares
¥1
July 1, 2008 - June 30, 2011
Stock options granted on
August 23, 2006
67,000 shares
67,000 shares
¥2,300
August 1, 2008 - July 30, 2016
Stock options granted on
August 23, 2006
74,000 shares
74,000 shares
¥2,300
August 1, 2008 - July 30, 2016
Total
162,000 shares
149,000 shares
6 Stock option plan approved by the shareholders on June 26, 2007 and resolved by the Board of Directors on July 31, 2007.
Stock options granted on
August 23, 2007
Number of shares for
options granted
Number of shares for
options outstanding
Exercise price
Exercisable period
66 SHISEIDO ANNUAL REPORT 2010
15,000 shares
8,000 shares
¥1
July 1, 2008 - June 30, 2011
Stock options granted on
August 23, 2007
81,000 shares
81,000 shares
¥2,615
August 1, 2009 - July 30, 2017
Stock options granted on
August 23, 2007
78,000 shares
78,000 shares
¥2,615
August 1, 2009 - July 30, 2017
Total
174,000 shares
167,000 shares
Notes to the Consolidated Financial Statements
7 Stock option plan approved by the shareholders on June 25, 2008 and resolved by the Board of Directors on July 31, 2008.
Number of shares for options granted
Number of shares for options outstanding
Exercise price
Exercisable period
Stock options granted on
August 21, 2008
Stock options granted on
August 21, 2008
46,000 shares
46,000 shares
¥1
August 1, 2011 - July 30, 2018
40,000 shares
40,000 shares
¥1
August 1, 2011 - July 30, 2018
Total
86,000 shares
86,000 shares
8 Stock option plan approved by the shareholders on June 24, 2009 and resolved by the Board of Directors on July 31, 2009.
Number of shares for options granted
Number of shares for options outstanding
Exercise price
Exercisable period
Stock options granted on
August 28, 2009
Stock options granted on
August 28, 2009
81,400 shares
81,400 shares
¥1
August 1, 2012 - July 31, 2019
53,500 shares
53,500 shares
¥1
August 1, 2012 - July 31, 2019
Total
134,900 shares
134,900 shares
13. RESEARCH AND DEVELOPMENT
Research and development expenses are expensed as incurred.
Research and development expenses, which are included in selling, general and administrative expenses, totaled
¥14,566 million, ¥15,243 million and ¥14,460 million ($155,417 thousand) for the years ended March 31, 2008, 2009 and
2010, respectively. There are no research and development expenses included in total manufacturing expenses for the
years ended March 31, 2008, 2009 and 2010.
14. TRANSACTIONS WITH RELATED PARTIES
The Company contributed ¥1 million to the Shiseido Social Welfare Foundation (“the Foundation”) in the year ended
March 31, 2008. The Foundation performs social support specializing in child welfare. Shinzo Maeda, President and CEO
(Representative Director) of the Company, is the Chairman of the Foundation. The Company approved the amount of
contribution at a Board of Directors meeting.
Shoichiro Iwata, an External Director of the Company, is the Representative Director of ASKUL Corporation. The
Company purchases stationery and other products from ASKUL Corporation and the amount of transactions was ¥94
million for the year ended March 31, 2008 and the ending balance was ¥42 million in other payables as of March 31, 2008.
Effective from the year ended March 31, 2009, the Company has applied “Accounting Standard for Disclosure of Related
Party Transactions” (ASBJ, Statement No. 11, October 17, 2006) and “Guidance on Accounting Standard for
Related Party Disclosures” (ASBJ, Guidance No. 13, October 17, 2006). As a result, transactions between the
Company and the executives of important subsidiaries are disclosed in addition to those related party transactions disclosed previously.
The Company paid advisory services fees of ¥14 million to Rémy Gomez, the President and CEO of Beauté
Prestige International, a consolidated subsidiary, for the year ended March 31, 2009 and the ending balance was ¥7 million as prepaid expenses in other current assets as of March 31, 2009. The advisory services fee conforms to customary
practices.
15. ACCOUNTING FOR LEASES
The Companies have various lease agreements whereby the Companies act both as a lessee and a lessor.
Finance leases of the Company and its domestic consolidated subsidiaries other than those deemed to transfer the
ownership of the leased assets to the lessee, which previously were not recorded on the balance sheets, are recorded
on the balance sheets from the year ended March 31, 2009.
Information on finance lease contracts other than those deemed to transfer the ownership of the leased assets as a
lessee and a lessor for the years ended March 31, 2008 was as follows:
SHISEIDO ANNUAL REPORT 2010 67
Millions of yen
2008
1 As lessee:
The scheduled maturities of future lease rental payments
on such lease contracts are as follows:
Due within one year ····························································
Due after one year·······························································
Balance of allowance for impairment loss on leased assets ·······
Reversed lease impairment loss ················································
Lease rental expenses for the year ············································
Assumed depreciation·······························································
Impairment loss ·······································································
¥ 3,335
4,050
¥ 7,385
¥
14
9
3,229
3,220
8
Leased machinery and equipment:
Assumed purchase cost ······················································
Assumed accumulated depreciation ······································
Assumed impairment loss ····················································
Assumed net book value ·····················································
¥ 22,012
(14,627)
(14)
¥ 7,371
Assumed purchase cost and the scheduled maturities of future lease rental payment include the capitalized interest
thereon, as the proportion of future lease rental payments to total property, plant and equipment is immaterial.
Assumed depreciation is based on the straight-line method over the lease term of the leased assets, assuming no
residual value.
Millions of yen
2008
2 As lessor:
The scheduled maturities of future lease rental payments
on such lease contracts are as follows:
Due within one year ····························································
Due after one year·······························································
························································································
—
—
—
Lease rental income for the year ···············································
Depreciation··············································································
Assumed interest income··························································
¥1,596
1,380
165
Leased machinery and equipment:
Purchase cost ······································································
Accumulated depreciation ···················································
Net book value······································································
—
—
—
Assumed interest income is calculated based on the interest method.
Lease obligations under operating leases at March 31, 2008, 2009 and 2010 are as follows:
Thousands of
U.S. dollars (Note 1)
Millions of yen
1 As lessee:
The scheduled maturities of future lease
rental payments on
such lease contracts are as follows:
Due within one year ······························
Due after one year·································
··························································
2 As lessor:
The scheduled maturities of future
lease rental receipts on
such lease contracts are as follows:
Due within one year ······························
Due after one year·································
··························································
68 SHISEIDO ANNUAL REPORT 2010
2008
2009
2010
2010
¥2,260
6,514
¥8,774
¥2,655
5,944
¥8,599
¥2,411
6,176
¥8,587
$25,914
66,380
$92,294
—
—
—
—
—
—
¥ 214
6,093
¥6,307
$ 2,300
65,488
$67,788
Notes to the Consolidated Financial Statements
16. DERIVATIVE FINANCIAL INSTRUMENTS
The contract amount, estimated fair value and unrealized gain (loss) of the derivative instruments as of March 31, 2009
is as follows:
Millions of yen
2009
Contract amount
Settled over
one year
Estimated
fair value
¥1,396
161
—
—
¥1,472
158
¥ (76)
(3)
1,820
—
¥1,820
—
(168)
—
(168)
¥(247)
Total
Foreign exchange contracts: Put US$···············
Foreign exchange contracts: Call US$ ··············
Interest swap contracts:
To receive variable/to pay fixed····················
Unrealized
gain (loss)
The contract amount, estimated fair value and unrealized gain (loss) of the derivative contracts as of March 31, 2010
is as follows:
1 Derivatives that do not meet the criteria for hedge accounting
Millions of yen
2010
Contract amount
Settled over
one year
Estimated
fair value
¥4,453
1,976
88
1,174
165
223
—
—
—
—
—
—
¥4,601
1,981
91
1,207
160
215
1,841
—
¥1,841
—
Total
Foreign exchange contracts: Put US$··············
GBP ·············
AU$··············
Foreign exchange contracts: Call US$··············
EUR ·············
GBP ·············
Interest swap contracts:
To receive variable/to pay fixed····················
(124)
—
Unrealized
gain (loss)
¥(148)
(5)
(3)
33
(5)
(8)
(124)
¥(260)
Thousands of U.S. dollars (Note 1)
2010
Contract amount
Settled over
one year
Estimated
fair value
Unrealized
gain (loss)
$47,861
21,238
946
12,618
1,774
2,397
—
—
—
—
—
—
$49,452
21,292
978
12,973
1,720
2,311
$(1,591)
(54)
(32)
355
(54)
(86)
19,787
—
$19,787
—
Total
Foreign exchange contracts: Put US$··············
GBP ·············
AU$··············
Foreign exchange contracts: Call US$··············
EUR ·············
GBP ·············
Interest swap contracts:
To receive variable/to pay fixed····················
(1,333)
—
(1,333)
$(2,795)
2 Derivatives that meet the criteria for hedge accounting
Millions of yen
2010
Contract amount
Interest swap contracts:
To receive variable/to pay fixed····················
Total
Settled over
one year
¥25,650
¥24,850
Estimated
fair value
¥(474)
Thousands of U.S. dollars (Note 1)
2010
Contract amount
Total
Interest swap contracts:
To receive variable/to pay fixed····················
$275,688
Settled over
one year
$267,089
Estimated
fair value
$(5,095)
SHISEIDO ANNUAL REPORT 2010 69
17. IMPAIRMENT LOSS
For impairment accounting purposes, the Companies pool their business-use assets separately from their idle assets.
Business-use assets are generally pooled according to the minimum independent cash-flow-generating unit, based on
business classification. Idle assets are pooled according to each separate property. Business-use assets, due to
decreasing profitability, have been devalued from the book value to the recoverable value, with the differences
reported as other expenses. Idle assets whose market value have declined, mainly due to be sold, have been devalued
from the book value to the recoverable value, with the differences reported as other expenses. Recoverable values are
calculated according to estimated net sale value, which are mainly based on real-estate tax appraisal values and land assessments.
Impairment loss on overseas assets is mainly recognized due to decreasing profitability of subsidiaries in North America.
Impairment losses for the years ended March 31, 2008, 2009 and 2010 are as follows:
Thousands of
U.S. dollars (Note 1)
Millions of yen
Domestic
Business-use assets:
Land ························································
Buildings and structures, etc. ·················
Idle assets:
Land ························································
Buildings and structures, etc. ·················
Overseas
Buildings and structures, etc. ·················
Goodwill ··················································
Trademark rights ·····································
2008
2009
2010
2010
¥ 939
161
¥ 168
605
¥ 592
2,725
$ 6,363
29,289
—
—
291
58
82
59
881
634
51
—
—
¥1,151
23
1,653
3,275
¥6,073
11
—
—
¥3,469
118
—
—
$37,285
18. RESTRUCTURING EXPENSES
Restructuring expenses are business costs incurred in streamlining the Companies’ operations, including downsizing and
withdrawing from brands and businesses that contribute little to profitability.
Restructuring expenses for the year ended March 31, 2009 mainly consisted of liquidation expenses of ¥2,689 million
of Shiseido Beautech Co., Ltd. and withdrawing expenses of ¥2,465 million of THE GINZA boutique business.
19. SEGMENT INFORMATION
(1) Business Segment Information
The Companies operate principally in the following three business segments.
The business segments are classified based on the internal organization of the Companies.
The main contents of each business segment are as follows:
Domestic Cosmetics:
Overseas Cosmetics:
Others:
70 SHISEIDO ANNUAL REPORT 2010
Cosmetics division
(Production and sale of cosmetics, cosmetic
accessories and toiletries)
Professional division (Production and sale of beauty salon products, etc.)
Healthcare division
(Production and sale of health & beauty foods and
over-the-counter drugs)
Cosmetics division
(Production and sale of cosmetics, cosmetic
accessories and toiletries)
Professional division (Production and sale of beauty salon products, etc.)
Frontier Sciences division (Production and sale of cosmetic ingredients, medical-use
pharmaceuticals, and beauty therapy cosmetics)
Others
(Operation of restaurants and other)
Notes to the Consolidated Financial Statements
The business segment information of the Companies for the years ended March 31, 2008, 2009 and 2010 is as follows:
Millions of yen
2008
Domestic
Cosmetics
Net sales
Sales to outside customers··········
Intersegment sales or transfers ···
Total ················································
Operating expenses ························
Operating income1, 2 ························
Total assets3, 4 ·································
Depreciation5 ···································
Impairment loss5 ·····························
Capital expenditure5·························
¥439,021
6,471
¥445,492
402,362
¥ 43,130
¥257,963
¥ 14,133
¥ 1,080
¥ 14,756
Overseas
Cosmetics
¥263,703
1,771
¥265,474
247,600
¥ 17,874
¥257,508
¥ 8,301
¥
51
¥ 12,261
Others
Subtotal
¥20,761
19,487
¥40,248
38,253
¥ 1,995
¥61,123
¥ 4,630
¥
20
¥ 2,649
¥723,485
27,729
¥751,214
688,215
¥ 62,999
¥576,594
¥ 27,064
¥ 1,151
¥ 29,666
Elimination/
corporate
—
¥(27,729)
¥(27,729)
(28,195)
¥
466
¥ 99,270
¥
4
—
¥
72
Consolidation
¥723,485
—
¥723,485
660,020
¥ 63,465
¥675,864
¥ 27,068
¥ 1,151
¥ 29,738
Millions of yen
2009
Domestic
Cosmetics
Net sales
Sales to outside customers··········
Intersegment sales or transfers ···
Total ················································
Operating expenses ························
Operating income1, 2 ························
Total assets3, 4 ·································
Depreciation5 ···································
Impairment loss5 ·····························
Capital expenditure5·························
¥412,338
5,601
¥417,939
384,935
¥ 33,004
¥251,744
¥ 17,390
¥
750
¥ 15,546
Overseas
Cosmetics
¥260,916
1,734
¥262,650
247,656
¥ 14,994
¥224,091
¥ 9,241
¥ 5,071
¥ 13,223
Others
Subtotal
¥17,002
11,552
¥28,554
27,073
¥ 1,481
¥53,358
¥ 1,621
¥ 252
¥ 621
¥690,256
18,887
¥709,143
659,664
¥ 49,479
¥529,193
¥ 28,252
¥ 6,073
¥ 29,390
Elimination/
corporate
—
¥(18,887)
¥(18,887)
(19,322)
¥
435
¥ 77,376
¥
37
—
¥
72
Consolidation
¥690,256
—
¥690,256
640,342
¥ 49,914
¥606,569
¥ 28,289
¥ 6,073
¥ 29,462
Millions of yen
2010
Domestic
Cosmetics
Net sales
Sales to outside customers··········
Intersegment sales or transfers ···
Total ················································
Operating expenses ························
Operating income1, 2 ························
Total assets3, 4 ·································
Depreciation5 ···································
Impairment loss5 ·····························
Capital expenditure5·························
¥397,568
2,282
¥399,850
360,495
¥ 39,355
¥237,848
¥ 16,731
¥ 3,395
¥ 14,960
Overseas
Cosmetics
¥236,600
1,641
¥238,241
229,119
¥ 9,122
¥423,934
¥ 8,259
¥
54
¥ 13,411
Others
Subtotal
¥10,033
6,189
¥16,222
14,506
¥ 1,716
¥47,896
¥ 1,308
¥
20
¥ 232
¥644,201
10,112
¥654,313
604,120
¥ 50,193
¥709,678
¥ 26,298
¥ 3,469
¥ 28,603
Elimination/
corporate
—
¥(10,112)
¥(10,112)
(10,270)
¥
158
¥ 65,768
¥
52
—
¥
55
Consolidation
¥644,201
—
¥644,201
593,850
¥ 50,351
¥775,446
¥ 26,350
¥ 3,469
¥ 28,658
Thousands of U.S. dollars (Note 1)
2010
Net sales
Sales to outside customers··········
Intersegment sales or transfers ···
Total ················································
Operating expenses ························
Operating income1, 2 ························
Total assets3, 4 ·································
Depreciation5 ···································
Impairment loss5 ·····························
Capital expenditure5·························
Domestic
Cosmetics
Overseas
Cosmetics
$4,273,087
24,527
$4,297,614
3,874,624
$ 422,990
$2,556,406
$ 179,826
$ 36,490
$ 160,791
$2,542,992
17,638
$2,560,630
2,462,586
$ 98,044
$4,556,471
$ 88,768
$
580
$ 144,142
Others
$107,835
66,520
$174,355
155,911
$ 18,444
$514,789
$ 14,059
$
215
$ 2,494
Subtotal
$6,923,914
108,685
$7,032,599
6,493,121
$ 539,478
$7,627,666
$ 282,653
$ 37,285
$ 307,427
Elimination/
corporate
—
$(108,685)
$(108,685)
(110,383)
$ 1,698
$ 706,878
$
559
—
$
591
Consolidation
$6,923,914
—
$6,923,914
6,382,738
$ 541,176
$8,334,544
$ 283,212
$ 37,285
$ 308,018
Notes: 1. Effective from the year ended March 31, 2009, the Company has applied “Practical Solution on Unification of Accounting
Policies Applied to Foreign Subsidiaries for Consolidated Financial Statements.” As a result of this change, operating income in the
Overseas Cosmetics business segment decreased ¥1,095 million for the year ended March 31, 2009.
2. Effective from the year ended March 31, 2009, the Company and its domestic subsidiaries have applied “Accounting Standard for
Lease Transactions” and “Guidance on Accounting Standard for Lease Transactions.” As a result of this change, operating income
in the Domestic Cosmetics business segment increased ¥207 million, operating income in the Overseas Cosmetics business segment increased ¥65 million, and operating income in the Others business segment increased ¥13 million for the year ended March
31, 2009.
3. Previously, deferred tax assets were included as corporate assets. Effective from the year ended March 31, 2009, however, such
assets are classified by business segment, in order to better clarify assets that should be controlled by the relevant business segment. Business segment information for the year ended March 31, 2008 has been restated to reflect this change in allocation of
deferred tax assets adopted from the year ended March 31, 2009.
4. Corporate assets included in the Elimination/corporate line item as of March 31, 2008, 2009 and 2010 were ¥101,942 million, ¥79,411
million and ¥66,887 million ($718,906 thousand), consisting mainly of financial assets of the Company (cash and time deposits, shortterm investments in securities, and investments in securities) and assets related to administrative operations.
5. Depreciation, impairment loss and capital expenditure include amounts relating to long-term prepaid expenses.
SHISEIDO ANNUAL REPORT 2010 71
(2) Geographic Segment Information
Segmentation between countries and regions is based on geographic proximity.
Major countries and regions besides Japan are as follows:
Americas: United States, Canada, Brazil
Europe: France, Italy, Germany, Spain
Asia/Oceania: China (including Hong Kong), Taiwan, South Korea, Southeast Asia, Australia
The geographic segment information of the Companies for the years ended March 31, 2008, 2009 and 2010 is as follows:
Millions of yen
2008
Japan
Net sales
Sales to outside customers··········
Intersegment sales or transfers ···
Total ················································
Operating expenses ························
Operating income1, 2 ························
Total assets3, 4 ·································
¥460,714
25,898
¥486,612
454,827
¥ 31,785
¥343,461
Americas
¥56,559
9,007
¥65,566
61,572
¥ 3,994
¥57,347
Europe
Asia/
Oceania
Subtotal
¥103,775
5,092
¥108,867
99,881
¥ 8,986
¥107,343
¥102,437
154
¥102,591
86,711
¥ 15,880
¥ 86,996
¥723,485
40,151
¥763,636
702,991
¥ 60,645
¥595,147
Elimination/
corporate Consolidation
—
¥(40,151)
¥(40,151)
(42,971)
¥ 2,820
¥ 80,717
¥723,485
—
¥723,485
660,020
¥ 63,465
¥675,864
Millions of yen
2009
Japan
Net sales
Sales to outside customers··········
Intersegment sales or transfers ···
Total ················································
Operating expenses ························
Operating income1, 2 ························
Total assets3, 4 ·································
¥429,963
25,326
¥455,289
436,856
¥ 18,433
¥337,164
Americas
¥50,657
8,297
¥58,954
55,678
¥ 3,276
¥44,388
Europe
Asia/
Oceania
Subtotal
¥100,034
6,150
¥106,184
97,926
¥ 8,258
¥ 80,642
¥109,602
182
¥109,784
93,005
¥ 16,779
¥ 80,648
¥690,256
39,955
¥730,211
683,465
¥ 46,746
¥542,842
Elimination/
corporate Consolidation
—
¥(39,955)
¥(39,955)
(43,123)
¥ 3,168
¥ 63,727
¥690,256
—
¥690,256
640,342
¥ 49,914
¥606,569
Millions of yen
2010
Net sales
Sales to outside customers··········
Intersegment sales or transfers ···
Total ················································
Operating expenses ························
Operating income1, 2 ························
Total assets3, 4 ·································
Japan
Americas
Europe
¥408,078
25,020
¥433,098
409,056
¥ 24,042
¥321,923
¥ 45,720
7,747
¥ 53,467
50,250
¥ 3,217
¥224,886
¥82,393
4,600
¥86,993
81,346
¥ 5,647
¥84,510
Asia/
Oceania
Subtotal
¥108,010
188
¥108,198
93,124
¥ 15,074
¥ 95,448
¥644,201
37,555
¥681,756
633,776
¥ 47,980
¥726,767
Elimination/
corporate Consolidation
—
¥(37,555)
¥(37,555)
(39,926)
¥ 2,371
¥ 48,679
¥644,201
—
¥644,201
593,850
¥ 50,351
¥775,446
Thousands of U.S. dollars (Note 1)
2010
Net sales
Sales to outside customers··········
Intersegment sales or transfers ···
Total ················································
Operating expenses ························
Operating income1, 2 ························
Total assets3, 4 ·································
Japan
Americas
Europe
Asia/
Oceania
Subtotal
$4,386,049
268,917
$4,654,966
4,396,561
$ 258,405
$3,460,050
$ 491,402
83,265
$ 574,667
540,090
$ 34,577
$2,417,089
$885,565
49,441
$935,006
874,312
$ 60,694
$908,319
$1,160,898
2,021
$1,162,919
1,000,903
$ 162,016
$1,025,881
$6,923,914
403,644
$7,327,558
6,811,866
$ 515,692
$7,811,339
Elimination/
corporate Consolidation
—
$(403,644)
$(403,644)
(429,128)
$ 25,484
$ 523,205
$6,923,914
—
$6,923,914
6,382,738
$ 541,176
$8,334,544
Notes: 1. Effective from the year ended March 31, 2009, the Company has applied “Practical Solution on Unification of Accounting
Policies Applied to Foreign Subsidiaries for Consolidated Financial Statements.” As a result of this change, operating income in the
Americas decreased ¥734 million and operating income in Asia/Oceania decreased ¥361 million for the year ended March 31, 2009.
2. Effective from the year ended March 31, 2009, the Company and its domestic subsidiaries have applied “Accounting Standard for
Lease Transactions” and “Guidance on Accounting Standard for Lease Transactions.” As a result of this change, operating income
in Japan increased ¥285 million for the year ended March 31, 2009.
3. Previously, deferred tax assets were included as corporate assets. Effective from the year ended March 31, 2009, however, such
assets are classified by geographic segment, in order to better clarify assets that should be controlled by the relevant geographic
segment. Geographic segment information for the year ended March 31, 2008 has been restated to reflect this change in allocation
of deferred tax assets adopted from the year ended March 31, 2009.
4. Corporate assets included in the Elimination/corporate line as of March 31, 2008, 2009 and 2010 were ¥101,942 million,
¥79,411 million and ¥66,887 million ($718,906 thousand), consisting mainly of financial assets of the Company (cash and time
deposits, short-term investments in securities, and investments in securities), and assets related to administrative operations.
72 SHISEIDO ANNUAL REPORT 2010
Notes to the Consolidated Financial Statements
(3) Overseas Sales*
Overseas sales of the Companies (which represent the exports made by the Company and its domestic consolidated
subsidiaries and sales (other than exports to Japan) of its overseas consolidated subsidiaries) for the years ended March
31, 2008, 2009 and 2010, are as follows:
Thousands of
U.S. dollars (Note 1)
Millions of yen
Overseas sales:
Americas ·······················································
Europe ···························································
Asia/Oceania ·················································
......................................................
2008
2009
2010
¥ 59,333
92,785
112,146
¥264,264
¥ 54,859
88,550
118,595
¥262,004
¥ 48,504
73,773
115,269
¥237,546
Percentage of such sales against
consolidated net sales···································
36.5%
38.0%
36.9%
2010
$ 521,324
792,917
1,238,919
$2,553,160
36.9%
*** Classification of overseas sales is determined by geographical location.
20. BUSINESS COMBINATIONS
On March 8, 2010, the Company completed a tender offer through acquisition subsidiary Blush Acquisition Corporation (BAC)
to acquire all outstanding shares of common stock of Bare Escentuals, Inc. (Bare Escentuals) with cash, and made Bare
Escentuals a subsidiary of the Company. Following the acquisition, BAC implemented a short-form merger under
Delaware law with Bare Escentuals, which is the surviving company
(1) Name and main business of acquired company; reason, date, and legal method used for
acquisition; name of company after acquisition and share of voting rights acquired
1 Name and main business of acquired company
Name of acquired company: Bare Escentuals, Inc.
Main business of acquired company: Sales of cosmetics and other products
2 Reason for business combination
Attain new brand value; achieve a significantly complementary position in distribution, sales and R&D capabilities; and
strengthen the business foundation in North America.
3 Date of combination
Purchase of shares with cash: March 8, 2010
Absorption merger: March 12, 2010
4 Legal method used for combination and name of company after combination
Legal method used for combination: purchase of shares with cash and absorption merger (absorption merger of BAC with
and into Bare Escentuals, which is the surviving company)
Name of company after combination: Unchanged
5 Share of voting rights acquired
100.0%
(2) Purchase price and details
The purchase price for the acquired company included approximately US$1.74 billion, comprising cash paid to acquire tendered
shares and the cost of purchasing the stock options of Bare Escentuals employees. The purchase price included contingent
consideration that is being measured at fair value in accordance with U.S. accounting standards.
(3) Accounting for contractually obligated contingent consideration
1 Contingent Consideration
The Company will make additional payments to the former management of the acquired company using a contractually specified formula if EBITDA exceeds specified benchmarks over the three years beginning the year ending March 31, 2012.
2 Accounting policy
The Company plans to recognize the variable portion of the contingent consideration above using U.S. accounting standards.
(4) Goodwill incurred, assets acquired and liabilities assumed on the date of business combination
As of March 31, 2010, the purchase price allocation was not complete because the specification and measurement of
the fair value of identifiable assets and liabilities included in the assets acquired and liabilities assumed through the acquisition of and business combination with Bare Escentuals was not complete. A provisional accounting treatment was
applied and the investment of U.S.$1.74 billion in this subsidiary was included in investments in subsidiaries and affiliates on the consolidated balance sheets as of March 31, 2010. The income and expenses of Bare Escentuals are not
included in the consolidated statements of income in the year ended March 31, 2010.
SHISEIDO ANNUAL REPORT 2010 73
Notes to the Consolidated Financial Statements
21. SUBSEQUENT EVENT
(Retirement of treasury stock)
At its meeting held on April 28, 2010, the Board of Directors passed a resolution to retire treasury stock pursuant to
Article 178 of the Corporation Law. The details of the retirement conducted are as outlined below.
1) Type of shares retired: Common stock
2) Number of shares retired: 10,000,000 (equivalent to 2.43% of total shares prior to retirement)
3) Retirement date: May 21, 2010
Following this retirement, the Company has a total of 400,000,000 shares outstanding.
(Issue of unsecured yen bonds)
At its meeting held on April 28, 2010, the Board of Directors passed a resolution to issue unsecured yen bonds. Based on this
resolution, the 6th unsecured yen bonds was issued on June 22, 2010. The details are outlined below.
1) Security name: Shiseido 6th unsecured yen bonds
2) Total amount of issue: ¥40.0 billion
3) Issue price: ¥100 for each ¥100 bond issued
4) Interest rate: 0.547% per annum
5) Time of maturity: June 22, 2015
6) Application of funds procured: Repayment of debt, etc.
The Company plans to use this bond issue to repay part of the bridge loan from banks totaling ¥100 billion used
to fund the acquisition of Bare Escentuals. The Company converted the remainder of the bridge loan to long-term
bank loans.
74 SHISEIDO ANNUAL REPORT 2010
Independent Auditors’ Repor t
To the Shareholders and Board of Directors of
Shiseido Company, Limited:
We have audited the accompanying consolidated balance sheets of Shiseido Company, Limited and consolidated subsidiaries as of March 31, 2010 and 2009, and the related consolidated statements of income, changes in net assets and
cash flows for each of the three years in the period ended March 31, 2010, expressed in Japanese yen. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to independently express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Shiseido Company, Limited and subsidiaries as of March 31, 2010 and 2009, and the consolidated results of their operations and their cash flows for each of the three years in the period ended March 31, 2010,
in conformity with accounting principles generally accepted in Japan.
Without qualifying our opinion, we draw attention to the following:
As discussed in Note 21 to the consolidated financial statements, Shiseido Company, Limited issued the 6th unsecured
yen bonds on June 22, 2010.
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended
March 31, 2010 are presented solely for convenience of the reader. Our audit also included the translation of yen
amounts into U.S. dollars and, in our opinion, such translation has been made on the basis described in Note 1 to the
consolidated financial statements.
Tokyo, Japan
June 25, 2010
SHISEIDO ANNUAL REPORT 2010 75
Investor Information
(As of March 31, 2010)
Number of Shareholders
48,011
Common Shares Issued and Outstanding
410,000,000 (including 12,241,810 in treasury stock)
Composition of Shareholders
Principal Shareholders
Shareholders
The Master Trust Bank of Japan, Ltd. (Trust Account)
Japan Trustee Services Bank, Ltd (Trust Account)
Mizuho Bank, Ltd.
The Bank of New York Mellon as Depositary Bank for DR Holders*
Asahi Mutual Life Insurance Company
NIPPONKOA Insurance Company, Ltd.
Shiseido Employees' Stockholding
Mitsui Sumitomo Insurance Company, Limited
Nippon Life Insurance Company
Tokio Marine & Nichido Fire Insurance Co., Ltd.
Number of
shares held
(thousands)
Percentage
of
shareholding
30,745
22,089
21,226
13,972
12,079
11,277
8,795
8,000
7,798
5,277
7.72
5.55
5.33
3.51
3.03
2.83
2.21
2.01
1.96
1.32
(by number of shares)
Other Japanese
Companies 5.05%
Treasury Stock
2.98%
Securities
Companies
Foreign
Investors
2.47%
Financial 25.75%
Institutions Individuals
44.37%
19.34%
In addition to the above, Shiseido Company, Limited holds 12,241 thousand shares of treasury stock.
In May 2010, the Company retired 10 million shares of treasury stock. (The balance of shares of treasury stock after the
retirement was 400 million.)
Calculations of percentage of shareholding are based on the total number of issued and outstanding shares and treasury stock.
* The Bank of New York Mellon as Depositary Bank for Depositary Receipt Holders is an owner of record for The Bank of
New York Mellon, a depositary for American depositary receipts.
Composition of Shareholders (%)
Monthly Share Price Range and Trading Volume
(By number of shares)
(¥)
3,500
Share Price
Trading Volume
(Nikkei Stock Average)
Nikkei Stock Average (Closing Price)
18,000
3,000
14,000
2,500
10,000
2009
27.66
18.76
44.64
1.69
5.16
2.07
2010
25.75
19.34
44.37
2.47
5.05
2.98
2009
1.40
96.30
0.48
0.17
1.62
0.00
2010
1.12
97.12
0.36
0.09
1.28
0.00
6,000
2,000
(Thousands of shares)
1,500
120,000
1,000
80,000
500
40,000
0
0
04/07
04/08
04/09
03/10
Price/Earnings Ratio (PER)
Price/Book Value Ratio (PBR)
( Times)
( Times)
(By number of shareholders)
Foreign Investors
Individuals
Financial Institutions
Securities Companies
Other Japanese Companies
Treasury Stock
Note: Shiseido acquired 4,000,000 of its own shares at an
aggregate acquisition price of ¥6,752,000,000 in
May 2009.
Stock Price Indicators
80
Foreign Investors
Individuals
Financial Institutions
Securities Companies
Other Japanese Companies
Treasury Stock
Dividend Yield
4.0
3.0
(%)
2.8
63.7
2.5
2.4
3.5
2.5
3.5
2.3
60
3.0
2.5
2.0
2.5
1.7
39.3
40
2.0
1.5
30.6
29.9
24.0
1.5
1.4
1.3
03/06
03/07
1.3
1.0
1.0
20
0.5
0
0.5
0.0
0.0
03/06
03/07
03/08
03/09
03/10
Note: Price/Earnings Ratio =
Closing stock price at fiscal year-end/Net income per share
76 SHISEIDO ANNUAL REPORT 2010
03/06
03/07
03/08
03/09
03/10
Note: Price/Book Value Ratio =
Closing stock price at fiscal year-end/Net assets per share
03/08
03/09
03/10
Note: Dividend Yield = Cash dividends per share/
Closing stock price at fiscal year-end
Corporate Information
(As of March 31, 2010)
Head Office
Stock Listings
Shiseido Company, Limited
5-5, Ginza 7-chome, Chuo-ku
Tokyo 104-0061, Japan
Tel: +81-3-3572-5111
Common Stock: Tokyo Stock Exchange (Code: 4911)
American Depositary Receipts: U.S. Over-the-Counter
Foundation
September 17, 1872
Incorporation
June 24, 1927
Capital
¥64,506,725,140
American Depositary Receipts
CUSIP:
824841407
Ratio (ADR:ORD): 1:1
Exchange:
OTC (Over-the-Counter)
Symbol:
SSDOY
Depositary:
The Bank of New York Mellon
101 Barclay Street, New York, NY
10286, U.S.A.
Tel: +1 (212) 815-3874
U.S. toll free: (888) 269-2377
http://www.adrbnymellon.com
Number of Employees
3,573 (28,968 for the Shiseido Group)
Accounting Auditors
KPMG AZSA & Co.
Fiscal Year-End
March 31
Share Registrar
Shareholders’ Meeting
The Chuo Mitsui Trust and Banking Company, Ltd.
33-1, Shiba 3-chome, Minato-ku, Tokyo 105-8574, Japan
The Ordinary General Meeting of Shareholders
is normally held in June in Tokyo.
For further information, please contact
Investor Relations Department
Shiseido Company, Limited
6-2, Higashi-shimbashi 1-chome, Minato-ku,
Tokyo 105-8310, Japan
Tel: +81-3-6218-5530
Fax: +81-3-6218-5544
E-mail: [email protected]
Website
Global Website
http://www.shiseido.com/
Investor Relations Website
http://www.shiseido.co.jp/e/ir/
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This report was printed using green electricity generated from solar power, which produces no CO2 emissions, thus helping counter global warming.
SHISEIDO ANNUAL REPORT 2010 77