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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 “serving our cus-
tomers and contributing to society by integrating all things on Earth to create new
value” lives on in our corporate mission of “identifying new, richer sources of value and
using then to create a beautiful lifestyle.” This policy has led to high-value-added
products and services in the cosmetics and other businesses promoting people’s
beauty and well-being.
The fiscal year ending March 2009 is the first year of our new Three-Year Plan of fur-
ther reforms to “improve quality of activities across the board.” Our objective is to
“become a global player representing Asia with its origins in Japan.” By successfully
implementing these reforms, we aim to assist society, customers and all people in expe-
riencing “This moment. This life. Beautifully.”
Contents
Forward-Looking StatementsIn 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 fromthose anticipated in these statements.
Financial Highlights···························································· 4
Shiseido at a Glance ···························································· 6
To Our Stakeholders··························································· 8
An Interview with President Maeda································· 10
Shiseido’s Unique Identity and Strengths ······················ 16
Feature: “Become a global player representingAsia with its origins in Japan”
Domestic Cosmetics Business ····································· 18
Overseas Cosmetics Business ······································ 24
Corporate Social Responsibility (CSR)···························· 30
Corporate Governance························································ 34
Board of Directors, Corporate Auditors and Corporate Officers···························································· 38
Main Subsidiaries and Affiliates ······································· 40
Financial Section·································································· 41
Six-Year Summary of Selected Financial Data ·········· 42
Management’s Discussion and Analysis ···················· 43
Consolidated Financial Statements ····························· 54
Notes to the Consolidated
Financial Statements ··················································· 59
Report of Independent Auditors··································· 76
Corporate Information ························································ 77
4 SHISEIDO ANNUAL REPORT 2008
Financial HighlightsShiseido Company, Limited, and SubsidiariesFor the years ended March 31, 2006, 2007 and 2008
● Net sales increased 4.2 percent to a record ¥723.5 billion due to growth in overseas business.
● Operating income increased 26.9 percent to a record ¥63.5 billion due to higher sales, a reduction in cost of sales and efficient management of selling, general and administrative expenses, and operating profitability increased 1.6 percentage points to 8.8 percent. Shiseidoalso achieved record net income.
● Return on equity increased 2.6 percentage points to 9.2 percent.
● Cash dividends per share increased ¥2.0 to ¥34.0.
Thousands of U.S. dollarsMillions of yen (Note 1)
(Except per share data) Percent change (Except per share data)
2006 2007 2008 2008/2007 2008
Operating Results:
Net sales ········································· ¥670,957 ¥694,594 ¥723,485 +4.2% $7,220,409
Operating income ···························· 38,879 50,005 63,465 +26.9 633,383
Net income ····································· 14,436 25,293 35,460 +40.2 353,892
Financial Position:
Total assets ····································· ¥671,842 ¥739,833 ¥675,864 –8.6% $6,745,150
Net assets······································· 387,613 403,797 399,739 –1.0 3,989,411
Per Share Data (In yen and U.S. dollars):
Net income (Note 2)························· ¥ 34.4 ¥ 60.9 ¥ 86.1 +41.4% $0.86
Net assets (Note 2) ·························· 906.1 940.8 946.2 +0.6 9.44
Cash dividends ································ 30.0 32.0 34.0 +6.3 0.34
Financial Ratios:
Operating profitability ······················· 5.8% 7.2% 8.8%
Return on equity ······························ 3.9 6.6 9.2
Total return ratio (Note 3)·················· 105.1 52.6 108.8Notes: 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 ¥100.20 to US$1 prevailing
on March 31, 2008.2. 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 calcu-
lated based on the number of shares outstanding at the end of each respective year.3. Total return ratio = (Cash dividends + Share buybacks*) ÷ Net income *Excluding odd-lot purchases
5SHISEIDO ANNUAL REPORT 2008
Note: Segment sales represent sales to external customers only and do not include intersegment sales or transfers.
7.6
3.9
6.6 6.6
45,808 44,282 47,527 53,969 53,969
68,104 74,929 80,395 79,326 79,326
48,485 56,465
197,241224,798 224,798
29.432.4 32.4
(Billions of yen) (%)
162.4175.7
197.2224.8
264.3
04 05 06 07 08
26.0 27.529.4
32.436.5
Americas Europe Asia/OceaniaOverseas Sales Ratio
22.0 30.0
32.0 32.0
(%)(%)
Domestic Cosmetics Business
Overseas Cosmetics Business
Others Japan Americas
Europe Asia/Oceania
63.77.8
14.3
14.2
52.4
6.614.8
26.2
60.7
36.4
2.9
68.5
28.43.1
(Billions of yen)
624.2 639.8 671.0 694.6 723.5
04 05 06 07 08 04 05 06 07 08
(Billions of yen)
Operating IncomeOperating Profitability
(%)
37.5
26.5
38.9
50.0
63.5
6.04.1
5.87.2
8.8
04 05 06 07 08
(Billions of yen)
27.5
14.4
25.3
35.5
(8.9)
04 05 06 07 08
(%)
7.6
(2.4)
3.9
6.6
9.2
04 05 06 07 08
(Yen)
64.9
(21.5)
34.4
60.9
86.1
04 05 06 07 08
(Yen)
22.0 24.0
30.0 32.0 34.0
Net Sales
Return on Equity Cash Dividends per Share
Operating Income /Operating Profitability
Net Income (Loss)
Overseas Sales /Overseas Sales Ratio
Net Income (Loss) per Share
Business Segment Information(Year ended March 31, 2008)
Net Sales (Outer circle)Operating Income (Inner circle)
Geographic Segment Information(Year ended March 31, 2008)
Net Sales (Outer circle)Operating Income (Inner circle)
6 SHISEIDO ANNUAL REPORT 2008
Others
Tsubaki
IPSA
Elixir Superieur
Notes: Segment sales represent sales to external customers only and do not include intersegment sales or transfers.
Uno Sengan Senka
Ferzea Soka-MockaCollagen EXRENASCENT
Integrate
Qi
The domestic cosmetics business segment handles prod-ucts/services for the Japanese market, primarily cosmetics.The core cosmetics division manufactures and markets cos-metics, cosmetics equipment and toiletries. The professionaldivision manufactures and markets products/services for hairand beauty salons. The healthcare division manufactures andmarkets health and beauty foods and over-the-counter drugs.The non-Shiseido and mail-order division manufactures andmarkets cosmetics that are not branded as Shiseido products.
Domestic CosmeticsBusiness
Share of totalnet sales
Share of totaloperating income
68.5
60.7
Maquillage Bénéfique
Cosmetics
Professional Healthcare Non-Shiseido and Mail-Order
Counseling
Self-selection Toiletries
Share of totalnet sales
2.9
Share of totaloperating income
3.1The others business segment includes the frontier
sciences division, which manufactures and mar-kets medical-use drugs and cosmetics, and con-ducts a variety of other activities including the sale ofclothing and accessories, restaurant operation, andreal estate rental.
Shiseido at a Glance
clé de peau BEAUTÉ
Aqua Label
7SHISEIDO ANNUAL REPORT 2008
Composed of the cosmetics division and the professionaldivision, the overseas cosmetics business segment handlesproducts for overseas markets. It manufactures and marketscosmetics and other products/services in the Americas, Europeand Asia/Oceania.
Overseas CosmeticsBusiness
Share of totalnet sales
Share of totaloperating income
28.4
36.4
Shiseido ParlourBio-hyaluronic acid
White Lucent
NARSISSEY MIYAKEJean Paul GAULTIER
URARA
CARITA
JOICO
DECLÉORBenefiance Bio-Performance
AUPRES be
Cosmetics Professional
Shiseido Global Lines
Non-Shiseido
China
8 SHISEIDO ANNUAL REPORT 2008
To Our Stakeholders
Operating Environment in the Fiscal Year Ended March 2008
Fiscal 2007, the year ended March 2008, was the final year of the Three-Year Plan initiated
in April 2005 to maximize growth potential and increase profitability. In line with our stated
intention to break down and rebuild the corporate structure, over the past three years we mod-
ified and updated all the Company’s functions in Japan. We also implemented domestic mar-
keting reforms to establish a more competitive and profitable business model. Overseas, we
aimed for double-digit sales growth, centered on China. At the same time, we withdrew
from unprofitable businesses. We also worked to improve organizational capabilities and
corporate governance so that we could implement these reforms swiftly and effectively.
In the fiscal year ended March 2008, we accomplished remaining marketing reforms and
worked to establish a foundation for stable profitability. In addition, Shiseido continued to invest
aggressively in overseas markets with high growth potential, primarily China.
Concurrently, we continued working to implement structural reforms designed to qualitatively
transform our cost structure. As a result, for the fiscal year ended March 2008 consolidated net
sales increased 4.2 percent year-on-year to ¥723.5 billion, supported by growth in overseas sales.
Operating income increased 26.9 percent year-on-year to ¥63.5 billion, with operating prof-
itability of 8.8 percent. Net income increased 40.2 percent year-on-year to ¥35.5 billion. As per
our original target when we announced the Three-Year Plan, we achieved operating prof-
itability above 8 percent. We also achieved record net sales, operating income and net
income, and raised return on equity to 9.2 percent. Moreover, over three years Shiseido
also generated total shareholder returns, consisting of dividends and share buybacks, of
over 90 percent of consolidated net income.
Roadmap for the Next 10 Years
The reforms of the past three years have established a management foundation for sustained
9SHISEIDO ANNUAL REPORT 2008
growth in a global market. Going forward, Shiseido aims to “become a global player repre-
senting Asia with its origins in Japan.” In working toward this goal, we have divided the
next 10 years into three phases. During the first phase, which will end in March 2011, we will
improve quality of activities across the board. Under this new Three-Year Plan, Shiseido will
work to “create a brand loved by customers throughout the world,” “establish unsurpassed,
world-class quality of business management” and “strengthen the solidarity of the Shiseido
Group across countries and organizations.” Our targets for the fiscal year ending March
2011 are operating profitability of 10 percent or higher and return on equity that is 1-2 per-
centage points above operating profitability.
Shiseido will continue to implement reforms. Our goal is to go beyond mere sales of
products to reveal the beauty of customers as well as to enrich their spirits. By doing so, we will
reinforce Shiseido’s unique position and enhance corporate value as we move forward to
earn the support of all stakeholders. Shiseido’s medium-term target for the total return
ratio, which is the sum of dividends and share buybacks divided by net income, is 60 percent.
The Company will continue to flexibly buy back and retire treasury stock while emphasizing
cash dividends.
We look forward to the continuing support of our valued stakeholders.
June 25, 2008
SHINZO MAEDA KIMIE IWATA
President & CEO (Representative Director) Vice President (Representative Director)
Shiseido’s renewal resulted in record sales, operating income and net
income in the fiscal year ended March 2008, the final year of the Three-
Year Plan, and Shiseido’s performance exceeded all the initial goals of the
plan. Based on the business foundation created through the reforms of the
past three years, Shiseido now aims to “become a global player represent-
ing Asia with its origins in Japan” that generates sustained growth.
10 SHISEIDO ANNUAL REPORT 2008
The Previous Three-Year Plan
Please explain why the reforms of the previ-
ous Three-Year Plan resulted in such signifi-
cant achievements?
I outlined three key themes when Shiseido started
the Three-Year Plan in April 2005: “become thoroughly
committed to customer-oriented marketing,” “give
Shiseido a solid profit structure” and “improve the
execution and speed of all reforms.” At that time,
Shiseido had fallen into a pattern of not achieving its
plan targets. We therefore had to implement drastic
reforms including raising employee awareness, with
the resolve to break down and rebuild the Company
structure if necessary. Over the ensuing three years, we
implemented an array of challenging reforms, but
employees met every expectation in taking them on.
Implementing these reforms without delay allowed us to
achieve our numerical targets, and I believe we have
made progress toward being a corporation that can
deliver results. However, we still have work to do in
aggressively developing growth markets such as
health and beauty care and mail-order. We will imple-
ment initiatives to achieve further progress during
the new Three-Year Plan.
Shiseido’s Direction
Shiseido announced its Roadmap for the
Coming Decade in April 2008. What are
Shiseido’s goals for the future?
Three years ago, Shiseido may have been a top
player in Japan, but a large gap existed between it and
An Inter view with President Maeda
During the previous Three-Year Plan, Shiseido created a foundation for establishing an advanta-
geous position in a competitive global environment. We are now taking on the challenge of further
change with the goal of becoming a “global player representing Asia with its origins in Japan.”
SHINZO MAEDAPresident & CEO (Representative Director)
11SHISEIDO ANNUAL REPORT 2008
Roadmap for the Coming Decade
Ten years from now: 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)
Sustained growth as a global player representing Asiawith its origins in Japan
FY2005 FY2008 FY2011 FY2014 FY2017
Establish foundationas a global player
Phase 1
Improve quality of activities across
the board
Phase 2
Get into growthtrajectory
Phase 3
Make a leapforward
Establish foundation Establish an undisputed presence in Asia Become aglobal player
Previous Three-Year Plan
New Three-Year Plan
other global corporations in terms of indicators such as
profitability and market capitalization. By executing
the Three-Year Plan, Shiseido has created a manage-
ment foundation for sustained growth in a global market.
In my view, Shiseido is now at the stage where the
true value of the reforms we have implemented to
achieve sustained growth will be put to the test.
Shiseido aims to build on the foundation it has
established over the past three years to become a
global player representing Asia with its origins in
Japan. Yet we must clear many hurdles to do so. The first
is that we must increase our growth potential in global
markets, and must exceed the growth rate of the global
cosmetics market. The second is an issue I have stated
repeatedly: we must establish a management structure
capable of maintaining return on equity and operating
profitability on par with our global competitors.
We have divided the next 10 years into three phases
to achieve our aim of becoming a global player. During
the first phase, ending March 2011, we will improve
quality of activities across the board. In the second
phase we will achieve a growth trajectory that estab-
lishes an undisputed presence in Asia, and in the third
phase we will continue to make significant progress by
improving growth and profitability on a global scale.
Within 10 years, Shiseido is aiming to surpass net
sales of ¥1 trillion, more than half of which will be
overseas sales. We also aim to consistently achieve
operating profitability of 12 percent or higher and
return on equity of at least 15 percent, putting us on a
level comparable to our global competitors. We will
work wholeheartedly to realize this scenario.
The New Three-Year Plan
The new Three-Year Plan is the first phase of the
roadmap for the next 10 years. What are its
strategies and numerical targets?
The new Three-Year Plan contains three declara-
tions to improve quality of activities across the board
toward becoming a “global player representing Asia
with its origins in Japan.”
12 SHISEIDO ANNUAL REPORT 2008
1. Create a brand loved by customers throughout
the world;
2. Establish unsurpassed, world-class quality of
business management; and
3. Strengthen the solidarity of the Shiseido Group
across countries and organizations.
The key theme that all of these strategies share is
unchanged from the previous Three-Year Plan: maxi-
mize growth potential and improve profitability. In addi-
tion, we will accelerate globalization and distinction and
concentration to optimize the allocation of resources
from an international perspective. Moreover, rather
than adhering to the principle of self-sufficiency as we did
in the past, we will utilize external knowledge and
resources through means including alliances.
Our numerical targets for the fiscal year ending
March 2011, the final year of the Three-Year Plan,
include operating profitability of 10 percent or higher
and return on equity that is 1-2 percentage points
above operating profitability. Our target for net sales is
average growth of 4-5 percent annually over the three
years, with domestic sales increasing 1-2 percent each
year, slightly more than the overall domestic market
growth rate. Overseas, our target is average annual
sales growth of 10 percent or higher on a local currency
basis. In the final year of the plan, we aim for net sales of
at least ¥800 billion, based on exchange rates of ¥100 to
the U.S. dollar, ¥155 to the euro, and ¥14.5 to the
yuan, with overseas sales accounting for more than 40
Three Declarations of New Three-Year Plan
Create a brand loved by customers throughout the world1Establish unsurpassed, world-class quality of business management2Strengthen the solidarity of the Shiseido Group across countries and organizations3
Overview of New Three-Year Plan
Become a global player representing Asia with its origins in Japan;Improve quality of activities across the board
Strategic directionKeyw
ords
Expand growth potential and improve profitability
Strengthen global solidarity
Globalization
Create solid brands Improve quality of business management
Distinction and concentration Utilization of externalknowledge and resources
Strengthen cultivation ofthe global brand
Nurture human resources on global basis
Raise organizational capabilities
Advance corporate governance system
Pursue structural reforms
Target proactive CSR initiatives
Full-scale rollout of “masstige” marketingFurther expand business in ChinaSolidify No.1 position in Japan
Accelerate innovation of Beauty Consultant activitiesReinforce value creation powerEstablish global production systems
Establish an undisputed presence in Asia
Strengthen foundation for raisingthe Shiseido Group’s corporate value
13SHISEIDO ANNUAL REPORT 2008
percent of net sales. In addition, we have resolved to dis-
continue the Takeover Defense Measures, concentrating
on implementing the new Three-Year Plan while raising
corporate value.
Brand Creation
The goal of creating a brand loved by cus-
tomers throughout the world is challenging.
Specifically, what kind of brands will Shiseido
develop, and where?
Earning the love of customers throughout the
world is an imposing goal, and will not be easy to
achieve. However, I am proud of the successes
Shiseido has achieved in vigorously creating glorious
lines, such as the introduction of mega lines in Japan.
Now that we have created a management foundation for
sustained growth on a global scale, I am certain that we
can achieve our goals of creating brands/lines that
are loved throughout the world.
Our first task is working to strengthen cultivation of
the global brand , which is sold world-
wide, as the prestige brand that symbolizes the
Shiseido Group. We will gradually integrate our lines
and renew the product portfolio. In addition, we are
concentrating resources city by city to ensure
aggressive marketing under a marketing strategy
called the “City Concept.”
Next, to establish an undisputed presence in Asia,
we will begin developing “masstige” marketing, and
build a new business model ranging from improving the
manufacturing framework to lines and channels.
Shiseido is also working to further expand its busi-
ness in China and intends to maintain high average
annual sales growth of 20 percent. We will also solidify
our number one position in Japan through our brand
strategy and by furthering sales reforms with the aim of
expanding high-quality sales.
We will also globally promote our expertise in
customer service, which is based on the spirit of
omotenashi (hospitality), a Shiseido strength, and
achieve the highest level of customer satisfaction in
the world. In addition, to reinforce our value creation
capabilities we will further concentrate on research
into skincare and new domains such as health and
beauty care, while using alliances and other means to
mobilize global knowledge both inside and outside
the Company to strengthen research that makes skin
beautiful and enriches the spirit. (Please see pages 18 to
23 of the feature section, “Domestic Cosmetics,” for a
detailed explanation of initiatives including Shiseido’s
brand strategy and sales reforms. Please see pages
24 to 29 of the feature section, “Overseas Cosmetics,”
for a detailed discussion of strategies including the
“City Concept” and “masstige” marketing overseas.)
An Inter view with President Maeda
Targets of New Three-Year Plan
Average annual growth of 4-5%; overseas sales ratio over 40%10% or higher1-2 points above operating profitability
Net sales:
Operating profitability:ROE:
¥723.5 billion
FY2010(target)
FY2009(target)
FY2008(target)
FY2007
10%or higher8.8%
Net sales Operating profitability
14 SHISEIDO ANNUAL REPORT 2008
Building the Management Foundation
Building a high-quality management foundation is
one of the three key strategies you have stated, and
during the previous Three-Year Plan, Shiseido
moved to reform its human resource and organi-
zational structures and corporate governance.
What are Shiseido’s reasons for emphasizing
building its management foundation?
To achieve sustained growth in a globally competi-
tive environment, Shiseido must cultivate human
resources, raise its organizational capabilities, build a
corporate governance system and carry out other
reforms on a global basis. Cultivating human
resources includes cultivating senior management,
and the removal of distinctions between domestic and
foreign employees. Furthermore, in April 2008
Shiseido established a training center in Shanghai,
the Company’s first outside of Japan. We will raise
organizational capabilities by strengthening strategic
functions and our business support system while
working to raise management efficiency. Efforts will
center on standardizing and reforming business
processes with a new SAP core business processing sys-
tem to be introduced in the fiscal year ending March
2009. For corporate governance, we have handpicked a
small and able group of corporate executive officers
and have moved to appoint younger people.
Moreover, we have two independent directors, and
have also promoted diversity by appointing our first
non-Japanese director, Carsten Fischer, and promot-
ing Kimie Iwata to the position of Representative
Director and Vice President. We will further clarify
the functions and responsibilities of our corporate
executive officers. We are also actively promoting
CSR. Shiseido’s unique social contribution activities
will include offering personal makeup advice globally
for people with serious skin concerns. In working to
protect the environment, Shiseido has established
the Environmental Committee as one of the CSR
Committees that reports directly to the Board of
Directors. It will be central in enabling the entire
Shiseido Group to work together globally. (Please
see pages 30 to 33 for a detailed explanation of CSR
activities and pages 34 to 37 for a detailed explanation of
corporate governance.)
Shareholder Returns
Cash dividends have increased by ¥10 per share
over the past three years, and return on equity has
risen to 9.2 percent. What are Shiseido’s policies
for shareholder returns?
Our basic policy for shareholder returns will con-
tinue to be a total return ratio of 60 percent over the
Kimie IwataResponsible for Consumer Information,Corporate Culture, Public Relations,Corporate Culture Reform andCommittees under Direct Control ofDirectors (Chair of Corporate ValueCreation Committee, ComplianceCommittee and EnvironmentalCommittee) Joined Shiseido in December 2003 afterserving as Director-General, EqualEmployment, Children and Families Bureau,Ministry of Health, Labour and Welfare.
Representative Director, Vice President
Carsten FischerResponsible for Global Business(International Business, China Businessand Professional Business); Chief Officerof International Business Division andProfessional Business Operations Division
Joined Shiseido in October 2006 afterserving as Corporate Officer, President,Professional Care at Procter & GambleCompany.
Director, CorporateExecutive Officer
15SHISEIDO ANNUAL REPORT 2008
An Inter view with President Maeda
medium term, meaning that we will use 60 percent of
consolidated net income for dividends and share buy-
backs. We will continue to buy back and retire treasury
stock while taking account of changes in the stock
market with an emphasis on cash dividends. Cash
dividends per share for the fiscal year ended March
2008 increased by ¥2.00 compared with the previous fis-
cal year to ¥34.00. Moreover, we plan to raise total
cash dividends for the fiscal year ending March 2009 by
¥16.00 to ¥50.00. This will be the seventh consecutive
fiscal year in which Shiseido has increased dividends.
Determining a correct balance between future
growth and improved capital efficiency, we will maintain
our emphasis on delivering solid returns to share-
holders while investing in mergers, acquisitions and
other means to generate future growth.
To Shareholders and Investors
Please conclude by giving shareholders and
investors a summary of your thoughts on the
new Three-Year Plan.
In 2007, Shiseido participated in an employee sat-
isfaction survey in Japan. I was most delighted and
encouraged by the ratings given to Shiseido by its
employees when asked about “Pride in your company,”
“Affection for your company,” and “Hopes you have for
your company’s future.” Our ratings were far higher
than those of other companies that implemented the
survey. These results reflect in part the heritage of
the many people who have worked at Shiseido since its
foundation, as well as the confidence and pride
employees have gained from overcoming the chal-
lenging obstacles to our reforms over the past three
years. I believe that the strong solidarity and “spirit of
Shiseido people” will be our biggest strengths as we
build a unique identity in the highly competitive
global marketplace and move forward.
Moreover, Shiseido will work resolutely to clearly
define and further strengthen its unique identity and
strengths that set it apart from other global players. I
believe Shiseido’s unique identity and strengths are
“to realize the beauty of customers as well as to enrich
their hearts.” These strengths are supported by rich-
ness, human science and the spirit of omotenashi. As
Shiseido employees, we need to renew our awareness of
the unique identity and strengths we share, while
working to implement the new Three-Year Plan.
(Please see pages 16 to 17 for a detailed explanation of
Shiseido’s unique identity and strengths.)
As we take our first steps as a global player repre-
senting Asia in the new Three-Year Plan, our goal is for
our customers to recognize, cherish, and trust
Shiseido’s unique value and appeal, and to remain an
integral part of society. We are counting on the con-
tinued support of shareholders and investors as we
implement further reforms.
16 SHISEIDO ANNUAL REPORT 2008
Our goal is to go beyond merely selling products to reveal
the beauty of customers as well as to enrich their spirits.
RichnessBeing thoroughly meticu-lous about the high qualityof products and services.
Human ScienceIn R&D, not only making theskin beautiful, but also pur-suing benefits that reach allthe way to people’s minds.
Spirit of omotenashi
(hospitality)
Enriching people’s spiritsthrough interactions
between customers andproducts.
Making life beautiful through not
only momentar y beauty but also
spiritual enrichment — This corpo-
rate message embodies Shiseido’s
unique identity and strengths, and
its promise to society.
Shiseido’s Unique Identity and Strengths
17SHISEIDO ANNUAL REPORT 2008
Examples of Shiseido’s Strengths
Shiseido’s trademark, used since1915, was originally drawn by ShinzoFukuhara, the company’s first presi-dent. The flowing art nouveau linesare still part of the design.
Shiseido handled hair and makeup (one or both)for a total of 45 brands for the New York andParis Fall/Autumn 2007 collections and for 41brands for Spring/Summer 2008.
circa 1916 1917 1918
1921 Present
■ Recognizing the importance of corporate design early on, Shiseido established its creative division over 90 years ago. Nearly 100 in-house staff are engaged in the design of packag-ing, advertisements and stores. Created soon after the division’s foundation, the original refined design called “Shiseido Medium”has evolved and been carried on to the present.
■ The Shiseido Gallery, opened in 1919, provides a place for the activities of young artists. By dispatching numerous in-house hair and makeup artists to fashion shows around the world such as the Paris Collection and other activities, the Gallery maintains a deep, mutually influential relationship with art and fashion.
Shiseido was the first to scientificallyprove the effect of psychological stresson skin. Research is also revealing theeffect of scent on the autonomic nerv-ous system, the endocrine system andimmunity.
■ Over 1,000 staff work at Shiseido R&D bases in Japan, Southeast Asia, Europe, the Americas and China, and the Company actively promotes alliances with universities and research institutions around the world. We work to ensure beautiful skin for cus-tomers around the world by researching skin types and cosmetics traditions to develop products tailored to regional characteristics and by linking bases that have unique features.
The IFSCC has about 20,000 members.The IFSCC Congress is the most authoritativevenue for presenting research findings, as itbrings together cosmetics specialists fromaround the world. The full-scale Congressand a smaller scale Congress, held inalternating years, feature the very latestfindings in cosmetics research.
of the 22 IFSCC congresses (the Basic Research Award seven times and the Honorary Mention for Basic Research four times). Shiseido is highly evaluated globally not only for its new discoveries and the techniques it develops, but also for its contributions to the cosmetics industry and society. Working from basic research, the Company has developed numerous original pharmacological agents and has received approval from the Japanese government for four non-prescription base compounds in the area of skin bright-ening. Shiseido is committed to raising the level of science, tech-nology and esthetics in cosmetics to provide customers with maximum value and superior quality that brings peace of mind.
BCs are the essential “face ofShiseido,” conveying the value of theCompany to customers everywhere.
■ After joining, BCs in Japan undergo three months of training and practical experience before officially working at a store. Wide- ranging content covers topics from basic knowledge of skin science and products to skincare and makeup techniques, deportment and appearance, followed by regular training, the nationally rec-ognized BC Certificate Test and other efforts to raise their abilities.
The Global Beauty Consultant Contestis held the same year as the Olympics.BCs selected from qualifying trials con-ducted in various countries and regionsgather to express their spirit of hospi-tality as well as cosmetic techniques.
■ We dispatch highly qualified BCs every year to spread Shiseido’s omotenashi around the world. The Global Beauty Consultant Contest, held every four years, encourages friendly rivalry and mutual exchange, bringing together 20,000 highly skilled individuals.
Creativity That Promotes Richness
R&D That Explores Human Science
Beauty Consultant (BC) Training That Spreads the Spirit of Omotenashi (Hospitality)
■ The International Federation of Societies of Cosmetic Chemists (IFSCC) has a membership roster comprising cosmetics companies from 45 nations around the world. We have received awards at 11
18 SHISEIDO ANNUAL REPORT 2008
“Become a global player representing Asiawith its origins in Japan”
Domestic Cosmetics Business
Under the previous Three-Year Plan, the domestic cosmetics
business established a new business model by executing
marketing reforms to achieve “100 percent customer-oriented”
marketing. Under the new Three-Year Plan, we will further
advance efforts of the past three years to innovate brand strategy,
sales and Beauty Consultant activities in order to firmly secure
the number one position in Japan.
19SHISEIDO ANNUAL REPORT 2008
Domestic CosmeticsNet Sales
Operating Income
Sales by Division
(Billions of yen)
444.3 445.3 453.4 447.6 439.0
04 05 06 07 08 04 05 06 07 08
(Billions of yen)
38.9
25.5
34.336.9
43.1
Professional3.4%
Healthcare 3.3%
Counseling 50.8%
Toiletries 11.8%
Self-selection 22.7%
Non-Shiseido and Mail-Order 8.0%
Cosmetics85.3%
Note: Segment sales represent sales to external customers only and do not include intersegment sales or transfers.
Domestic Cosmetics: Operating Environment
The domestic cosmetics market is essentially not
growing. Conditions remain challenging, with intensifying
competition in the areas of new product development,
advertising and promotions as participants fight a zero-sum
battle for market share. In this environment, Shiseido
implemented domestic “100 percent customer-oriented”
marketing reforms under its previous Three-Year-Plan
from the fiscal year ended March 2006.
Achievements under the Previous Three-Year
Plan and in the Fiscal Year Ended March 2008
The fiscal year ended March 2008 was the final
year of the previous Three-Year Plan. Domestic cos-
metics sales decreased 1.9 percent year on year
because of factors such as cooling consumer senti-
ment. However, compared with the fiscal year ended
March 2005, over the entire three years of the plan
sales were essentially unchanged while operating
income increased 69.0 percent and operating prof-
itability increased 4.0 percentage points from 5.7 percent
to 9.7 percent.
Shiseido’s performance was the result of the
steady implementation of various reforms that com-
pletely revamped Shiseido’s business structure and
established a new business model. Aiming to create
“broad and strong” brands/lines, we executed a reno-
vation of brand strategy that selectively concentrated
marketing resources mainly on mega lines. We also
implemented sales reforms that entailed integrating
the cosmetics and toiletries business divisions and
establishing a channel-specific salesforce structure.
Moreover, Shiseido innovated the activities of Beauty
Consultants to raise corporate value at the point of
contact with customers. Over the past three years,
Shiseido’s domestic cosmetics business has created a
balanced profit structure through optimal, focused
deployment of resources. (Please see page 45 of the
Management’s Discussion and Analysis for a detailed
discussion of the results of the Domestic Cosmetics
segment.)
The addition of the high-performance line GoldenRepair for damaged hair toTsubaki, drove the introduc-tion of the mega line, result-ing in another year of highgrowth.
Domestic Marketing Strategy
Previous Three-Year Plan (FY2005-FY2007) New Three-Year Plan (FY2008-FY2010)
Launch and cultivate mega linesLaunch: FY2005-2006Cultivate: FY2007~
Strengthen cultivation ofmega lines
BC activity innovation:Global development of service methods
Launch new brands/lines
Strengthen Bénéfique and &FACE
Strengthen clé de peau BEAUTÉ and d program
BC activity innovation: Conduct evaluation of service based on level of customer satisfaction
Strengthen relationship-building brands/lines
Mega lines
Relationship-building
brands/lines
Beauty Consultant (BC)activity innovations
Sales reformsPhase 2 sales reforms:Eliminate sales quotas for sales representatives/Establish process-based targets
Phase 1 sales reforms:Build channel-based sales structure
20 SHISEIDO ANNUAL REPORT 2008
Brand Strategy
The New Three-Year Plan
Relationship-Building Brand Strategy
During the previous Three-Year Plan, Shiseido
succeeded by introducing mega lines that lead their
respective product categories, and implementing
brand/line strategy renovation that selectively con-
centrated marketing resources to create “broad and
strong” brands/lines. During the new Three-Year
Plan, Shiseido will focus on relationship-building
brands/lines1 based on our strength in building
strong ties with customers. Under this relationship-
building brands/lines strategy, Shiseido will make
full use of its strength at stores, which was
enhanced by innovating the activities of Beauty
Consultants and sales reforms during the previous
Three-Year Plan. Specifically, we plan to nurture
exclusive lines for existing channels such as
Bénéfique and & Face. Moreover, in the second half of
the fiscal year ending March 2009 we will add a
high-end line to clé de peau Beauté, and plan to
launch a new brand that generates strong interest.
1. Relationship-building brands/lines: Brands/lines that deepen relationships with customers through counseling.
Focusing on Mega Lines in Cultivating Existing
Brands/Lines
Four to five years ago, Shiseido’s spending was
dispersed over more than 100 lines. Over the past
three years, we have changed this situation by reor-
ganizing and consolidating our brand/line portfolio. As
a result, we are now concentrating costs and human
resources on a total of 27 core brands/lines. We will
further reduce this number to 21. We will concen-
trate marketing investment and manpower on these 21
In the year ended March2008, a high-performancefoundation and pre-makeupbase were added to theexclusive voluntary chainstore line Bénéfique NT.We will strengthen cultiva-tion of this line in thefuture.
Reduce Number of Core Brands/Lines
21 Core Brands/Lines of New Three-Year Plan
6 Mega Lines
Prestige
Channel specific
Specialty
5 Relationship-Building Brands/Lines
21 Core Brands/Lines
New brand
21SHISEIDO ANNUAL REPORT 2008
Feature: “Become a global player representing Asia with its origins in Japan”
brands/lines, which will include 6 mega lines and 5
relationship-building brands/lines, in order to further
raise marketing efficiency. In addition to scaling back
the number of core brands/lines, we will work to
reduce the number of product categories handled by
the Shiseido Group by approximately 30 percent.
During the first half of the fiscal year ending
March 2009, Shiseido will implement a large-scale
summer campaign across brands/lines and chan-
nels, centered on mega lines. At structured retailers in
particular, through this campaign Shiseido will
achieve higher sales and profitability by not only
presenting best-selling products effectively, but also
making proposals from the perspective of customers
that are in tune with seasons and trends.
Strengthening Efforts at Voluntary Chain Stores
We are further strengthening the voluntary chain
store channel because it is crucial to our aim of providing
high-quality services and counseling. Specifically,
Shiseido will use its collective technical capabilities
and expertise to provide seminars and other means
that help the employees of voluntary chain stores
acquire fully developed service skills with high-level
techniques and the spirit of omotenashi (hospitality) in
order to respond to customer needs. Moreover, we
will enhance our support for sales activities for mega
lines with numerous points of contact with customers,
such as Maquillage and Elixir Superieur. We will promote
activities using mega lines to draw customers to
stores, and have them experience our counseling serv-
ices, which will make them want to visit again. In this
way, we will energize the voluntary chain store channel.
Promotional activities were revised for Elixir Superieur in the fiscal year endedMarch 2008. We will further enhance handling of the line at voluntary chain stores.
22 SHISEIDO ANNUAL REPORT 2008
Ensuring “100 Percent Customer-Oriented”
Marketing
Improving quality of activities across the board is
one of the themes of the new Three-Year Plan. Sales
reforms are crucial to the goal of raising the quality of
sales. During the previous Three-Year Plan, we
developed a system devoted to Beauty Consultant
activities that satisfy customers, with the main evalu-
ation metrics and other features based on the
results of a customer survey. Under the new Three-
Year Plan, although sales targets are maintained for
branch managers, we introduced a system that
ensures “100 percent customer-oriented” marketing by
eliminating evaluation of sales representatives based
on achievement of those targets and shifting to an
emphasis on process over sales performance.
Specifically, in place of sales targets we have
established evaluation metrics such as the number
of customers served, the customer return ratio and
counter creation ratio. Moreover, business partner
evaluation is also a key point. We therefore conduct
business partner surveys twice a year and employ
them as metrics that also lead to measures that
address the survey results.
During 2007 we introduced this evaluation sys-
tem in a limited number of locations prior to nation-
wide introduction from April 2008, and saw a clear
connection between the system and higher sales. In
addition, the system was in line with the activities of
Beauty Consultants, and sales representatives were
able to share a common goal of increasing the number
of new customers and continuing to help returning
The Second Phase of Sales Reforms
The New Three-Year Plan
The second phase of management reforms brings
“100 percent customer-oriented” marketing.
Focusing on process will increase the importance
of communication between sales representatives
and Beauty Consultants.
Twice yearly, we conductsurveys of business part-ners channel by channel.
23SHISEIDO ANNUAL REPORT 2008
Feature: “Become a global player representing Asia with its origins in Japan”
customers enhance their beauty. As a result, we
confirmed effects such as synergy among activities
and a higher sales counter realization rate.
Shiseido will work toward steady growth in the
future and even higher quality sales rather than a
short-term gain in sales. Moreover, we will use
mobile terminals and expand training and education to
strengthen the activities of Retail Supporters who
visit stores, create new sales counters and handle
product inventory control and ordering.
Strengthening Our R&D Framework
The Shiseido Group will work to increase its value
by enhancing R&D. We will focus not only on making
skin more beautiful, but also on enriching the spirit
as we establish an R&D framework that allows us to
capitalize more fully on our strengths.
Specifically, in the field of skincare, where
Shiseido excels, we will complement our conventional
focus on skin-brightening and anti-aging by stepping up
R&D to improve skin quality in areas such as dry
skin and pores. In addition, to make products that
enrich the spirit we will promote R&D covering product
textures, treatments and formulations that allow people
to clearly feel the effect of usage.
Shiseido will also focus on new domains such as
health and beauty care and cosmetic dermatology
treatments, and will energetically promote strategic
alliances and open innovation1. This will allow
Shiseido to mobilize knowledge both inside and outside
the Company, thus strengthening research that
makes skin beautiful and enriches the spirit.
1. Open innovation: An approach to R&D in which Shiseido openly expresses needs in areas where its own technologies are not sufficient and solicits ideas from around the world.
Initiatives to Raise the Value of the Shiseido Group
The New Three-Year Plan
Shiseido operates R&D bases in five regions of the
world with a total of over 1,000 staff members.
The beauty/dermatology-oriented Navision has
been on the market since November 2005.
24 SHISEIDO ANNUAL REPORT 2008
Feature: “Become a global player representing Asia with its origins in Japan”
Overseas Cosmetics Business
Under the previous Three-Year Plan, the overseas cosmetics business
worked to establish a business base for a full-scale growth trajectory by
accelerating expansion in China, restructuring underperforming
businesses and implementing structural reforms for North American oper-
ations. Under the new Three-Year Plan, we will strengthen and
nurture the global brand and establish an undisputed presence
in Asia to further enhance our competitiveness in the global market.
25SHISEIDO ANNUAL REPORT 2008
Business Environment
Intensifying competition with global competitors
defines the operating environment of the overseas cos-
metics business. The markets of Asia, centered on
China, are growing strongly, while the markets of
Europe and North America are mature. In this environ-
ment, during the previous Three-Year Plan Shiseido
worked to accelerate expansion of its business in China,
and to improve profitability by restructuring underper-
forming businesses and implementing structural
reforms for North American operations.
Achievements under the Previous Three-Year
Plan and in the Fiscal Year Ended March 2008
During the fiscal year ended March 2008, growth in
Asia was highlighted by a 30 percent increase in sales in
China on a local currency basis. The global brand
, which is sold worldwide, and strong
performance by fragrances in Europe and Asia also
contributed to a 10.7 percent year-on-year increase in
sales on a local currency basis.
Over the past three years, sales increased more
than 50 percent compared with the fiscal year ended
March 2005 and operating profitability increased 6.3
percentage points from 0.4 percent to 6.7 percent.
Moreover, the overseas sales ratio increased to over
36 percent.
This performance was the result of a strong presence
in China, where we have earned greater customer sat-
isfaction by promoting a channel-based marketing
strategy. The strategy of distinction and concentration
executed overseas was another contributing factor.
Over the past three years, Shiseido’s overseas cosmetics
business has made progress in strengthening its busi-
ness base for a full-scale growth trajectory. (Please
see page 45 of the Management’s Discussion and
Analysis for a detailed discussion of the results of the
Overseas Cosmetics segment.)
Overseas CosmeticsNet Sales
Operating Income
Sales by Division
(Billions of yen)
04
161.1 174.5196.3
224.3263.7
(1.2)
0.72.8
10.4
17.9
05 06 07 08 04 05 06 07 08
(Billions of yen)
Professional14.0%
Cosmetics (Americas, Europe and Asia/
Oceania excludingChina) 63.0%
Cosmetics (China)23.0%
Cosmetics86.0%
Notes: Segment sales represent sales to external customers only and do not include intersegment sales or transfers.
A top brand in China, AUPRES underwent its first com-
prehensive renewal in 14 years.
The City Concept Marketing Strategy
Over the next three years we will successively
integrate lines and renew our product portfolio to
cultivate and strengthen the global brand
, which is sold in countries worldwide.
We will roll out a detailed marketing strategy called
the “City Concept.” Under the City Concept, we will
consider the world’s major markets as city-based
rather than country-based units, and we will con-
centrate allocation of resources in target cities. The
aim is to increase our presence and achieve growth
for the entire Shiseido Group through a ripple
effect. We have identified “City Intensive” and “City
Cultivation” as the two types of city marketing
strategies, and will roll out marketing suited to
their respective market environments. Shiseido will
use the City Intensive marketing strategy in cities
where the global brand is currently
weak but market characteristics suggest that the
injection of concentrated resources will generate
rapid growth. For example, under this strategy we
will expand our presence in Moscow and St.
Petersburg, the two consumption centers of Russia,
through a concentrated injection of resources. On
the other hand, we will apply the City Cultivation
marketing strategy in cities where the global brand
has a certain presence, such as
Bangkok, Thailand. In these cities, we will harness
Group synergies to roll out multiple brands/lines.
Key elements of our multiple brand/line rollout strategy
are the designer fragrances of French subsidiary
Beauté Prestige International S.A. and the makeup
artist brand of U.S. subsidiary Nars Cosmetics, Inc.
During the new Three-Year Plan we will step up
efforts to nurture fragrances, as they are a particularly
important product category that accounts for around 30
percent of the cosmetics markets of Europe and
26 SHISEIDO ANNUAL REPORT 2008
Cultivating and Strengthening the GlobalBrand
The New Three-Year Plan
White Lucent has gained strong customer support
worldwide as a skin-brightening product that
makes skin radiant and clear by bringing out its
inner shine.
Bio-Performance Intensive SkinCorrective Program received the
Prix d’Excellence from MarieClaire, a French fashion maga-
zine.
The Makeup is sold in 68 coun-
tries around the world, including
Japan.
North America.
An extension of the City Concept entails developing
promotions linking several cities simultaneously.
One example was last autumn’s promotion of the
global brand fragrance Zen in Europe
ahead of other markets. In this highly successful
campaign, we promoted Zen through street and airport
billboards, in-flight magazines, and in-store events
in duty-free stores and department stores in major
European cities.
We will further strengthen the travel retail busi-
ness, which continues to be a highly profitable and
growing area. In addition to emphasizing the designer
fragrances of Beauté Prestige International and the
global brand at duty-free stores and
other locations, we will execute promotions linking
multiple cities.
Strengthening Marketing Channels in China
Shiseido aims to further expand its business in
China, which has grown remarkably. In the depart-
ment store channel, we executed the first comprehen-
sive renewal of the exclusive China brand AUPRES in 14
years covering products, sales counters, customer
service and brand communication. Going forward, we
aim to maintain and improve the position of AUPRES as
the national brand that represents China.
On the other hand, we will introduce a newly
designed sales counter for the global brand
and work to strengthen marketing
overall by launching lines that are already popular in
Japan. Our aim is stable average annual growth of 10
27SHISEIDO ANNUAL REPORT 2008
Feature: “Become a global player representing Asia with its origins in Japan”
Establishing an Undisputed Presence in Asia
The New Three-Year Plan
Sales of Beauté Prestige International
designer fragrances increased strongly,
including sales of the travel retail
business.
The Zen “Cityjack Promotion” linked major cities
across Europe. This promotion had a big impact on
the market.
Sales in China
1999 2000 2001 2002 2003 2004 2005 2006 2007
Globalize Innovation of Beauty Consultant Activities
In Japan, Shiseido innovated Beauty Consultant
activities during the previous Three-Year Plan in ways
28 SHISEIDO ANNUAL REPORT 2008
percent on a local currency basis.
In the cosmetic specialty store channel, we have
established new “PURE & MILD Excellent Stores,” a
format that permits stores to handle only the exclusive
cosmetic specialty store brand PURE & MILD. In
the fiscal year ending March 2011, we aim to have a
total of more than 5,000 stores under these con-
tracts and are working to generate average annual
sales growth of 20 to 30 percent.
As a result of the above, Shiseido intends to maintain
a high average annual growth rate of 20 percent, twice
the projected growth rate for China’s overall cosmetics
market on a local currency basis.
Masstige Marketing across All of Asia
Shiseido will use its knowledge of the skin types
and tastes of Asian people and its business expertise in
Japan in expanding masstige1 marketing across all of
Asia. The full-scale roll out will happen during the
Three-Year Plan beginning in the fiscal year ending
March 2012, but during the new Three-Year Plan that
began April 1, 2008, Shiseido will prepare by succes-
sively expanding mega line sales from Japan to the rest of
Asia. Our aim is to transform our Japanese mega lines
into Asian mega lines. During this time, we will build a
robust and unique earnings model for our masstige
business in preparation for a full-scale rollout.
Advancing Innovations of BeautyConsultant Activities
The New Three-Year Plan
In the cosmetic spe-c ial ty store channelin China, the China-exclusive brand URARAsold well, and salesat existing storesincreased.
We will expand ourcustomer base byincreasing the num-ber of PURE & MILDExcellent Stores.
1. Masstige: Coined word from “mass” and “prestige,” and positioned as moreexpensive than mass-produced products, but more moderately priced than prestigeproducts.
We aim to develop theAqua Label skincare lineinto an Asian mega line.
Establishing a Global Production System
Production bases (15 locations) (Professional products)R&D bases (5 locations)
Factory in New Zealand(Closed June 2008)
Vietnam: Factory(Scheduled to beginoperating December 2009)
such as establishing the customer satisfaction evalua-
tion system and the Beauty Training Control Group.
During the new Three-Year Plan, we will further
advance and strengthen those activities on a global
scale. We plan to systemize the customer service
expertise based on the spirit of omotenashi that
Shiseido has developed in Japan as the “Shiseido
Beauty Way” and focus on the daily activities and training
of Beauty Consultants both in Japan and overseas. At
the same time, the customer service skills that have
been so successful in Japan during the previous Three-
Year Plan will be applied on a global scale. These initia-
tives will serve as the foundation for service that
ensures counseling precisely tailored to customer
needs. Shiseido is currently renewing its customer rela-
tions software in preparation for the global rollout, and
plans to begin using it in countries around the world
during the fiscal year ending March 2009. In addition, we
will expand the program for assigning superior Beauty
Consultants overseas and step up on-the-job training
and reciprocal exchanges. Our aim is to raise the status of
the profession of Beauty Consultants and achieve the
highest level of customer satisfaction in the world.
Reinforce Core Domains
During the previous Three-Year Plan, we achieved
results by reducing the number of domestic production
facilities from six to four, and intend to reorganize
our overseas production bases in the future. First, in
preparation for masstige marketing throughout Asia, we
are constructing a new 100,000m2 factory in Vietnam
that is scheduled for completion in October 2009. It
will begin operating in December 2009, and we are
preparing a framework for stable operation during
the new Three-Year Plan. In addition, we will target
focused reinforcement of our core domains while
strategically outsourcing certain functions in an effort to
establish an optimal global production system.
29SHISEIDO ANNUAL REPORT 2008
Feature: “Become a global player representing Asia with its origins in Japan”
Establishing a GlobalProduction System
The New Three-Year Plan
30 SHISEIDO ANNUAL REPORT 2008
Corporate Social Responsibility (CSR)
Basic CSR Policy
Shiseido actively promotes both fundamental
CSR required of a company and selective CSR
unique to Shiseido.
With the start of the new Three-Year Plan in the
year ending March 2009, Shiseido places serving
customers at the center of its CSR activities. This
focus on meticulously addressing all customer
needs is reflected in the corporate message of “This
Moment. This Life. Beautifully.” Specifically,
Shiseido will further strengthen social activities that
employ its unique cosmetics, enhance measures
that address environmental problems, which is an
important global issue, support women who make
up 70 percent of Company employees and 90 per-
cent of its customers, and enhance the safety and
reliability that are the basis of trusting relationships
with customers.
Fundamental CSR
Fundamental CSR, the most basic responsibili-
ties of a company, involves efforts for our cus-
tomers, respect for employee diversity, business
partnerships, the protection of personal information,
and work environment safety and hygiene. Shiseido
addresses these various issues as a Group.
In the year ended March 2008, we introduced
Kangaroo Staff across Japan to work evening hours at
sales counters in place of Beauty Consultants with
young children, and expanded operations of
Hanatsubaki Factory, a special subsidiary staffed pri-
marily by developmentally challenged individuals.
Shiseido’s environmental initiatives include
acquisition of ISO 14001 certification for 13 domestic
and overseas factories. We also promote environ-
mentally conscious products with a basic policy of
choosing environment-friendly materials, limiting
and reducing excessive packaging, designing con-
tainers that are easy to recycle and enhancing our
lineup of refillable products. In addition to these
existing activities carried out pursuant to Shiseido’s
Eco-Policy, all Shiseido employees made original
contributions to the Eco-Idea program implemented by
the Company in Japan in March 2008. We will
strengthen efforts to nurture a corporate culture in
which all employees carry out their daily duties with
regard for the environment.
Shiseido’s Unique “Selective CSR” Activities
Shiseido carries out initiatives in its core cosmetics
business that are most expected by society and best
reflect our unique character. Specific activities
include developing and disseminating cosmetics and
beauty methods for troubling facial features such as
birthmarks or scarring, holding beauty seminars to
support active lifestyles of the elderly and develop-
mentally challenged individuals, and providing accu-
rate cosmetics and beauty information to young people.
Shiseido strives to help women lead beautiful,
happy and healthy lives. The range of activities
extends globally, and includes the contribution of
funds by the Shiseido Social Contribution Club
Creation of new markets Proposal of new values
Social contribution activities (Corporate philanthropy)
Environmental protection, information disclosure, personal information protection, human rights advocacy
Provision of high-quality products and servicesEmphasis on employees
Business partnershipsProfit and dividends
Payment of taxes, provision of employment opportunitiesCorporate viability
Shiseido’s UniqueCSR
Fundamental CSR
Legal compliance
CSR Activity Domains
31SHISEIDO ANNUAL REPORT 2008
(Hanatsubaki Fund) to selected support groups that
help improve the daily lives of women. Shiseido also
supports beauty courses for women in China ahead of
the 2008 Beijing Olympics.
Through various social activities, Shiseido con-
tinues to fulfill its mission of actively disseminating the
cultural capital it has cultivated since the Company’s
foundation 136 years ago. We provide unique sup-
port for promising new talent and art, including “shi-
seido art egg,” public exhibitions for up-and-coming
artists held at the Shiseido Gallery since the year
ended March 2007.
For further information regarding Shiseido’s
CSR activities, please see the CSR Report 2008 on
our website.
http://www.shiseido.co.jp/e/csr/
Principal CSR Activities
Cosmetics-Related Social Activities
Personal Makeup Advice for Serious Skin Concerns
Shiseido provides optimum products and beauty
methods to customers with serious skin concerns to
further enhance inner and outer beauty and raise
their quality of life.
Shiseido develops foundation to cover birth-
Shiseido CSR Report 2008 on the Shiseido website
marks and other skin concerns, and cooperates with
medical institutions in providing free makeup advice to
people with serious skin concerns.
We opened a central facility in the Shiseido head
office in Ginza, Tokyo, in June 2006 to further
expand these activities. Ten beauty consultants with
practical training at medical institutions and special-
ized on-the-job education give advice on cosmetic
cover-up techniques and makeup tailored to a vari-
ety of skin coloring concerns including birthmarks
and scarring. Services are by advance reservation
only to provide private spaces that ensure a relaxing
atmosphere and peace of mind. Customers comment
that they have more confidence and hope, and that
because they are able to cover troubling areas well,
they now look forward to putting on makeup. We are
now able to offer advice for a wider range of skin
concerns with the addition of new products in
March 2008. Through research and development for
unique products and beauty methods we will
strengthen CSR activities using cosmetics.
Business partners and medical institutions
throughout Japan that have received education and
support these activities are now conducting similar
makeup introduction activities at 300 locations.
Beauty Seminars
Shiseido holds approximately 3,600 Beauty
Seminars every year throughout Japan with partici-
pation by some 83,000 customers.
The atmosphere of privaterooms in the facil ity isrelaxed.
32 SHISEIDO ANNUAL REPORT 2008
Initiatives to Support Women
Establishment of the Shiseido Science Grant
for Women in Research
In the fiscal year ended March 2008, Shiseido
established the Shiseido Science Grant for Women
in Research supporting the research activities of tal-
ented women specializing in the field of natural sci-
ence. Our aim is to cultivate the next generation of
leading female researchers. The grant covers all nat-
ural sciences and is not subject to age or qualification
restrictions in order to support the widest range of can-
didates. Moreover, the grant supports continued
research regardless of an individual’s life stage by
permitting the use of funds for the employment
expenses of assistant researchers. The first grant
was awarded to 9 individuals after a stringent review of
132 applicants. Recipients commented among other
things that the establishment of a grant that could
be used for the employment expenses of assistant
researchers was extremely encouraging.
Shiseido foresees the growing importance of
female researchers in the natural sciences and sees
this grant as a way to help further the efforts of
promising individuals.
Beauty Support for Women in China
Shiseido’s AUPRES was selected as the sole
sponsoring brand for the China Women’s
Association’s “Feminine from the Heart: Educational
Project to Cultivate Beauty Ideal for Chinese
Women,” a program conceived to improve the image
of Chinese women. The project is being held in
advance of the 2008 Beijing Olympics with the goal of
cultivating the inner and outer beauty of Chinese
women. This year the Company has distributed 2.3
million copies of an educational booklet about basic
beauty knowledge and held a total of 220 beauty
seminars attended by over 10,000 people in 15 cities
At Beauty Seminars, launched in 1949, Beauty
Consultants convey correct cosmetics application
methods directly to customers throughout Japan
while offering ideas about how the use of makeup
can be a richer, more enjoyable experience.
In addition, we actively hold Beauty Seminars for
the elderly and developmentally challenged.
The benefits of makeup therapy have also
received attention in the medical community.
Makeup therapy is a process whereby cosmetics
play a useful role in creating a positive outlook in
patients, motivating them to complete their physical
therapy, and enriching their interactions with society.
Environmental Initiatives
Afforestation Activities in China
Shiseido will carry out afforestation activities in
Lanzhou, Gansu Province on the Loess Plateau in
inner China over 10 years beginning the fiscal year
ended March 2008. The city is known as a waypoint on
the Silk Road. Over a period of 10 years, Shiseido
employees including those from local subsidiaries
will participate in planting trees on 69,300m2 of land.
We will plant 7,000 deciduous and other trees in the
year ending March 2009. Lanzhou is working for the
greenification of the Loess Plateau, and Shiseido is
the first overseas corporation to carry out afforestation
activities there.
Employees from three localShiseido subsidiaries carryout afforestation activities.
33SHISEIDO ANNUAL REPORT 2008
including Beijing and Shanghai.
Shiseido is also proposing ways for women in
China to cultivate a beautiful appearance through a
variety of programs including beauty seminars at
companies and universities.
Shiseido is eager to continue contributing to the
beauty of women in China through a variety of pro-
grams such as these.
Cultural Capital Initiatives
Shiseido Gallery Receives the
Grand Mecenat Award
Shiseido’s founding president Shinzo Fukuhara
opened the Shiseido Gallery in 1919, the oldest
existing gallery in Japan. The Gallery encouraged
young artists with few chances to present their
works to make a start by providing them with a free
exhibition space, and has continued such philan-
thropic activities over the 88 years since its opening.
The Kigyo Mecenat Kyogikai (English name:
Association for Corporate Support of the Arts) rec-
ognized the Gallery for these activities with the
Grand Mecenat Award, the highest honor of the
2007 Japan Mecenat Awards. In announcing its deci-
sion, the Association stated, “With a highly original
approach to supporting young artists, the Shiseido
Gallery is a ground-breaking presence in corporate
philanthropy in Japan. Its long history and the
remarkable artists it has supported are the very history
and essence of corporate philanthropy in this country.
Although long-established initiatives tend to become
routine, we praise the Shiseido Gallery for continuing
to open roads and maintaining an innovative
approach.”
Beauty seminars have beenheld in 15 cities in China.
Light Passage — Cai Guo-Qiang & Shiseido 2007Photo: Tadahisa Sakurai
The Shiseido Gallery, locatedin the Ginza, Chuo Ward,Tokyo, has held more than3,000 exhibits and hostedmore than 5,000 artists.
This photo shows theShiseido Gallery in 1934.
Corporate Social Responsibi l i ty (CSR)
General Meeting of Shareholders
Appointment, terminationResolution at the General Meeting ofShareholders based on laws
Appointment,termination
Appointment,termination
Advisory committees to the Board of Directors
Advisory committees to the Board of Directors
Board of Directors,Shiseido Company, Limited
Decision-Making Meeting of Corporate Officers
Environmental Committee
Report
AuditAudit
Supervision
Accounting Auditors Board of Auditors
Compliance Committee
Corporate Value Creation Committee
Policy Meeting of Corporate Officers
Corporate Executive Officer Committee
Proposal of material issues based on laws
Resolution,approval Proposal Resolution, approval
NominationAdvisory Committee
Remuneration Committee
34 SHISEIDO ANNUAL REPORT 2008
Corporate Governance
Corporate Governance Policy
Shiseido is setting higher standards of corporate
governance based on the understanding that maximizing
corporate and shareholder value, fulfilling social
responsibilities and achieving sustainable growth and
development are key to maintaining support as a valuable
company from stakeholders (customers, business part-
ners, shareholders, employees and society).
Management and Execution Structure
Composed of eight members including two independent
directors, the Board of Directors is small and able to
make decisions quickly. The number of directors
decreased by one from nine in the year ended March
2008. The Board of Directors meets at least once a month to
discuss all significant matters. Attendance at the 14 Board of
Directors meetings in the year ended March 2008 was 98
percent (93 percent for external directors).
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 corporate offi-
cers’ material issues, serves to transfer authority to cor-
porate officers, thereby clarifying their responsibilities
and accelerating operational execution. Shiseido’s
President & Chief Executive Officer, who also serves as the
Chief Operating Officer, chairs this Committee. The term of
office of directors and corporate officers is one year.
To obtain an outside point of view and further
strengthen the Board of Directors’ supervisory function in
regard to business execution, Shiseido appointed two
independent directors from the fiscal year ended March
2007. Having independent directors has stimulated dis-
cussion on significant management matters at Board of
Directors meetings and strengthened its independence.
In addition, two of the six non-independent direc-
tors have careers outside of Shiseido, promoting diversity
among the directors. Wide perspective and insight
based on differing backgrounds and areas of expertise
will promote objectivity and strengthen the Board’s
supervisory function.
We are also working to improve the execution capa-
bilities of corporate executive officers by handpicking a
small and able group and recruiting younger members.
To promote transparency and objectivity in manage-
ment, Shiseido established two committees to play an
advisory role to the Board of Directors: the Remuneration
Committee, charged with setting executive remuneration,
and the Nomination Advisory Committee, which evaluates
and nominates candidates for directors and corporate offi-
cers. Both committees are chaired by independent directors
to maintain objectivity.
The Remuneration Committee revised the system of
remuneration for directors, corporate officers and cor-
porate auditors in the fiscal year ending March 2009 to fur-
ther reflect the achievement of performance targets and
■ Shiseido’s Management and Business Execution Structure
35SHISEIDO ANNUAL REPORT 2008
share price to promote further globalization. The
Nomination Advisory Committee, in addition to nominating
new candidates for executive positions, has built and is
enforcing a fair and highly transparent framework
designed to enhance the capabilities of top management
and ensure that all executives deliver a consistently high
level of results. Measures include the establishment of
term limits for corporate officers and the formation of
rules governing promotions, demotions and retirements.
The term limit of corporate officers is four years per
position in principle and six years maximum.
Audit Structure
Shiseido’s Board of Auditors consists of two standing
corporate auditors and three independent corporate
auditors. Corporate auditors monitor the legality and
adequacy of directors’ performance by attending Board of
Directors meetings and other important meetings.
Representative directors and corporate auditors
meet regularly to exchange opinions on actions that will
resolve corporate governance issues. Shiseido maintains a
framework to ensure that corporate auditors discharge
their duties effectively. For example, it arranges liaison
meetings with the accounting auditors and the Internal
Auditing Department in addition to assigning full-time
staff to assist in audits. Corporate auditor attendance
was 94 percent for the 14 Board of Auditors meetings
and 92 percent for the 14 Board of Directors meetings
held in the fiscal year ended March 2008.
Internal audits of the entire Group are conducted to
ensure that business is executed in an appropriate manner,
and audit results are reported to the Board of Directors
and Board of Auditors.
Remuneration to Directors, Corporate
Officers and Corporate Auditors
The unfunded retirement benefit plan for directors
and corporate auditors was abolished in the fiscal year
ended March 2005. Remuneration for directors, corpo-
rate officers and corporate auditors consists of a basic
fixed portion and a performance-linked portion that fluc-
tuates depending on achieving financial results targets and
share price. Since the fiscal year ended March, 2006,
these portions have been nearly equal. Effective the fiscal
year ending March 2009, the performance-linked por-
tion has been revised upward to 60 percent of remunera-
tion in order to further raise the incentive for attaining per-
formance targets. Performance-linked remuneration
consists of an annual short-term incentive bonus based on
consolidated results, a medium-term cash incentive
based on level of achievement of the targets of the new
Three-Year Plan that started in the fiscal year ending
March 2009, and long-term incentive stock options, pri-
marily aimed at fostering a shared awareness of profits
with shareholders. Performance-linked remuneration is
designed to give directors and corporate officers a
medium-to-long-term perspective, not just a single-year
focus, and to motivate management to become more
aware of Shiseido’s performance and share price.
Independent directors receive fixed basic remunera-
tion only because of the importance of a stance inde-
pendent from business execution in their supervisory
President & CEO of ASKUL Corporation.
Dean of Faculty of Law and the School of Law, Professor ofWaseda Law School and Waseda University.
As an incumbent management executive in another industryand business, to provide Shiseido management with a per-spective not limited by the Company’s established structure.
To provide Shiseido management with legal knowledge asa professor specializing in legal studies, as well as experi-ence and insight concerning capital markets and corporategovernance.
■ External Directors: Background and Reason for AppointmentName Background Details Reason for Appointment
Shoichiro Iwata
Tatsuo Uemura
Note: Shiseido’s business relationship with ASKUL Corporation is as follows.1. The Shiseido Group purchases stationery and other items from ASKUL Corporation. Total purchases were less than 0.1 percent of the total of consolidated cost of sales and
selling, general and administrative expenses for the year ended March 31, 2008, and less than 0.1 percent of the net sales of ASKUL Corporation for the fiscal year ended March 31, 2008.
2. The Shiseido Group sells toiletries and other items for office use to ASKUL Corporation. The total of such sales for the fiscal year ended March 31, 2008 was less than 0.1 percent of consolidated net sales.
Executive officer of another company
Scholar
36 SHISEIDO ANNUAL REPORT 2008
functions. Due to the nature of auditing, corporate
auditors receive fixed basic remuneration only, to elimi-
nate linkage with performance.
Shiseido sets remuneration amounts commensurate
with achievement of performance targets and by mak-
ing comparisons with companies in the same industry
and similar businesses with a high percentage of rev-
enues from overseas. Basic remuneration is within the
monthly remuneration limits decided by the General
Meeting of Shareholders; performance-linked remunera-
tion, including the bonus, medium-term cash incentive
and long-term incentive stock options, is also set by res-
olution at the General Meeting of Shareholders.
■ Remuneration to Directors and Corporate Auditors(Fiscal year ended March 2008) (Millions of yen)
Directors (9 people)External directors (2 of the 9)
Corporate auditors(5 people)External auditors (3 of the 5)
Total
Notes:1. Basic remuneration for directors was within the limit of ¥30 million per month as per resolution of the 89th Ordinary General Meeting of Shareholders (June 29, 1989). Basic remuneration for corporate auditors was within the limit of ¥10 million per month as per resolution of the 105th Ordinary General Meeting of Shareholders (June 29, 2005).
2. The above-noted amount for directors’ bonuses was based on a resolution of the 108th Ordinary General Meeting of Shareholders held on June 25, 2008.
■ Remuneration to Accounting Auditors(Fiscal year ended March 2008) (Millions of yen)
Item Amount
Remuneration paid for services rendered asaccounting auditors for the fiscal year under review 77
Total cash and other remuneration to be paid by the Company and its subsidiaries to their accounting auditors 120
Management System Unique to Shiseido
Guided by the idea that fulfilling corporate social
responsibility (CSR) is crucial to sustainable develop-
ment, we have established three CSR committees under the
jurisdiction of the Board of Directors as part of our corpo-
rate governance structure: the Compliance Committee,
the Corporate Value Creation Committee and the
Environmental Committee. All committees are headed by
the Vice President and comprise members elected com-
panywide. They make proposals for and report on plans and
results of activities to the Board of Directors.
The Compliance Committee works to ensure legiti-
mate and fair business practices in the Group, and pro-
motes activities including corporate ethics and risk
management.
The Corporate Value Creation Committee works to
increase the value of the corporate brand
by promoting corporate cultural activities as well as
gender equality, communication and social contribu-
tion activities.
In recognition of its responsibility as a global citizen,
Shiseido upgraded a panel of the Compliance Committee
that promoted environmental measures and established
the Environmental Committee in April 2008. In addition to
reducing environmental burden, the committee will
strengthen environmental measures on a global level
befitting Shiseido.
Compliance and Risk Management
We have enacted Group-wide Corporate Ideals, The
Shiseido Way (Corporate Behavior Declaration) and
The Shiseido Code (Corporate Ethics and Behavior
Standards), which outline the standards of behavior
that individual Group employees should apply in their
work, and are actively promoting legitimate and fair
business practices.
The Compliance Committee holds regular work-
shops on corporate ethics and human rights education,
and assigns a Code Leader to each office to ensure
observance of The Shiseido Code. Code Leaders
reports on the progress in promoting legitimate and
fair business practices at their respective offices. We
have also established multiple reporting and consulta-
tion help lines, which include advice from external
lawyers, to 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 administrative operations, and establishes panels
responsible for handling them. In the event of an emer-
gency, it responds by organizing a countermeasure head-
quarters, project, team, or other grouping as dictated by the
Basic
22226
85
33
308
Bonuses
120—
—
—
120
Stock options
38—
—
—
38
Total
38126
85
33
466
Comments from External Directors
As an independent director, I will fulfill my role in manage-
ment innovation from the perspective of the stakeholders so
that Shiseido will be loved and trusted by customers world-
wide.
Comment from Tatsuo Uemura, External Director
Two years have passed since I assumed the post of inde-
pendent director at Shiseido. Shiseido has a glamorous
image, but the Company’s management impresses me as
extremely serious. Shoichiro Iwata, the other independent
director, is also committed to maintaining an unwavering
management approach. I feel fortunate to work with such
sincere, dedicated business people.
Independent directors are not bound to directly affect the
judgment of management or to act in a set direction to that
effect. Rather, I believe our role is as a neutral third party
with no vested interest or management rights, to under-
stand, evaluate and give a vote of confidence in decision
making to increase its authority. On a daily basis, that means
providing an environment for company leaders to accelerate
their activities, or functioning as an effective brake when the
need arises. Although the last resort in applying the brake is
to log a protest in proceedings or resign, independent direc-
tors are close partners of management and generally give
them a vote of confidence. I look forward to a long-term part-
nership with Shiseido.
Comment from Shoichiro Iwata, External Director
Two years have passed since I was appointed to the posi-
tion of independent director. Shiseido must accelerate the
speed of reforms in order to evolve as a global company.
As chair of the Remuneration Committee, I have prepared
a remuneration system for the next Three-Year Plan to take
on the challenging goals of securing human resources to
support global operations and raising corporate value by
achieving the plan.
The pursuit of customer satisfaction is the basis of man-
agement and therefore of corporate growth. The amount of
discussion unrelated to customer value, however, tends to
increase with the size and complexity of an organization. I
carry out my responsibilities as an independent director by
checking for one-way thinking from an independent view-
point with the following in mind.
1. Is it good for the customer?
2. Is it good for society?
3. Will it raise shareholder value?
4. Does it fulfill accountability to all stakeholders?
The Board of Directors, comprising directors, independent
directors of varying backgrounds and corporate auditors with
broad perspectives, is highly committed to raising corporate
value, and conducts free and open-minded discussion and
decision making based on an awareness of corporate gover-
nance and other issues.
37SHISEIDO ANNUAL REPORT 2008
seriousness of the situation.
In accordance with the Corporate Law, Shiseido’s
Board of Directors has adopted and disclosed a basic policy
for internal control systems that outlines the necessary
systems to ensure that directors execute their duties in
conformance with laws and the articles of association and to
ensure the propriety of business with other companies.
We will work to further raise corporate value and
the quality of our corporate activities through ongoing
improvements to our governance structure.
Through the creation of products possessing true value and exceptional quality, westrive to help our customers realize their dreams of beauty, well-being and happiness.
With our customers
Joining forces with partners who share our goals, we act in a spirit of sincere cooperation and mutual assistance.
With ourbusiness partners
We strive to win the support and trust of our shareholders through transparent managementpractices and sound business results achieved by high-quality growth, enabling the retentionof earnings for future investments and payment of dividends.
With ourshareholders
The diversity and creativity of our employees make them our most valuable corporateasset. We strive to promote their professional development and we evaluate them fairly.We recognize the importance of our employees’ personal satisfaction and well-being, andseek to grow together with them.
With ouremployees
We respect and obey all laws in regions in which we do business. Safety and preservation ofthe natural environment are among our highest priorities. In cooperation with local communi-ties and in harmony with international society, we employ our cultural resources in creating abeautiful lifestyle.
With oursociety
Corporate Gover nance
38 SHISEIDO ANNUAL REPORT 2008
(As of June 25, 2008)
Board of Directors, Corporate Auditors and Corporate Officers
Shinzo MaedaRepresentative Director,President & CEO
1970 Joined Shiseido2003 Director, Corporate Officer2005 Representative Director, President & CEO
Committees :Chair of CSR Committee
Kimie IwataRepresentative Director,Vice President
Responsibilities :Responsible for Consumer Information,Corporate Culture, Public Relations, CorporateCulture Reform and Committees under DirectControl of the Directors
1971 Entered Ministry of Labour2001 Director-General, Equal Employment, Children
and Families Bureau, Ministry of Health, Labour and Welfare
2003 Corporate Advisor of Shiseido2004 Director, Corporate Officer2007 Corporate Executive Officer2008 Representative Director, Vice President
Committees :Chair of Corporate Value Creation Committee,Compliance Committee and EnvironmentalCommittee
Yasuhiko HaradaDirector, Corporate SeniorExecutive Officer
Responsibilities :Chief Financial Officer, Responsible forFinance, Investor Relations, InformationSystem Planning, Logistics, OperationalReform and Internal Control
1971 Joined Shiseido2003 Corporate Officer2005 Director2006 Corporate Executive Officer2008 Corporate Senior Executive Officer
Toshimitsu KobayashiDirector, Corporate SeniorExecutive Officer
Responsibilities :Responsible for Domestic Cosmetics BusinessSales, President and Representative Director,Shiseido Sales Co., Ltd.
1971 Joined Shiseido2002 Corporate Officer2004 Director, Corporate Executive Officer2006 Corporate Senior Executive Officer
Carsten Fischer*Director, CorporateExecutive Officer
Responsibilities :Responsible for Global Business (InternationalBusiness, China Business and ProfessionalBusiness); Chief Officer of InternationalBusiness Division and Professional BusinessOperations Division
1979 Joined Hans Schwarzkopf GmbH2004 Corporate Officer, President, Professional
Care at Procter & Gamble Company 2006 Corporate Advisor of Shiseido2007 Corporate Executive Officer2008 Director Masaaki Komatsu
Director, CorporateExecutive Officer
Responsibilities :Responsible for Research & Development,Production and Technical Planning
1969 Joined Shiseido2003 Director, Corporate Officer2006 Corporate Executive Officer
Shoichiro IwataExternal Director
1997 President, ASKUL Corporation2000 CEO, ASKUL Corporation2006 External Director of Shiseido
Committees :Chair of Remuneration Committee
Tatsuo UemuraExternal Director
1997 Professor, School of Law, Waseda University2003 Professor, Graduate School of Law, Waseda
University2006 External Director of Shiseido
Dean of Faculty of Law and the School ofLaw, Professor of Waseda Law School andWaseda University
Committees :Chair of Nomination Advisory Committee
Directors
39SHISEIDO ANNUAL REPORT 2008
1973 Joined Shiseido2001 Corporate Officer2007 Corporate Auditor
1971 Joined Shiseido 2006 Corporate Auditor
2004 Attorney at Law2005 External Corporate Auditor of Shiseido
1992 Professor, Department of Chemistry, Collegeof Arts and Sciences, and Department ofBiological Science, Graduate School ofScience, The University of Tokyo
1996 Professor, Department of Life Sciences,Graduate School of Arts and Sciences, TheUniversity of Tokyo
2008 External Corporate Auditor of Shiseido
1988 President, Keiseikai Hospital2007 External Corporate Auditor of Shiseido
Representative director retired as of June 25, 2008 is as follows.Representative Director, Vice President: Seiji Nishimori
Corporate officers retired as of March 31, 2008 are as follows.Corporate Executive Officer: Kohei MoriCorporate Officers: Toshihide Ikeda, Kiyoshi Nakamura, Kazutoshi Satake,Takemasa Yamanaka, Yutaka Yamanouchi
Kiyoshi Kawasaki**Responsible for Domestic Non-Shiseido BrandBusiness, Boutique Business and AdvertisingCreation
Corporate Officers
Corporate Executive Officer
Kozo HanadaResponsible for Structured Retail Stores and DomesticCosmetics Business, General Manager of SalesDepartment and Structured Retail Stores President and Representative Director, FT Shiseido Co., Ltd. Vice President and Director, Shiseido Sales Co., Ltd.
Tamio InabaResponsible for Business Strategy and Marketing of Domestic Cosmetics Business
Tsunehiko Iwai*Responsible for Technical Planning and TechnicalAffairsGeneral Manager of Technical Department
Shoji Nishiyama*Responsible for Cosmetics Products Research &Development and Software Development
Hisayuki Suekawa*General Manager of Corporate Planning Department
Shoji Takahashi*Responsible for the Americas
Tatsuomi TakamoriChief Officer of China Business Division
Mitsuo TakashigeResponsible for PersonnelGeneral Manager of Personnel Department
Kazuo TokuboResponsible for Functional Food, Innovative ScienceResearch & Development and Patents
Takafumi UchidaResponsible for General Affairs, Legal Affairs andExecutive Affairs General Manager of General Affairs Department
Ryuichi Yabuki*Responsible for Specialty Stores, Domestic CosmeticsBusinessVice President and Director, Shiseido Sales Co., Ltd.
Toshio YoneyamaResponsible for Healthcare Business and FrontierSciences BusinessChief Officer of Healthcare Business DivisionPresident and Representative Director, Shiseido Beauty Foods Co., Ltd.
Corporate Auditors
Corporate Officers
* New appointment ** Director retired as of June 25, 2008
Kazuko OhyaCorporate Auditor
Kiyoharu IkomaCorporate Auditor
Akio HaradaExternal CorporateAuditor
Reiko Kuroda*External CorporateAuditor
Nobuo OtsukaExternal CorporateAuditor
40 SHISEIDO ANNUAL REPORT 2008
Main Subsidiaries and Af filiates
Company Name
Shiseido Sales Co., Ltd.
Shiseido FITIT Co., Ltd.
Shiseido International Inc.
FT Shiseido Co., Ltd.
Shiseido Professional Co., Ltd.
Shiseido Beauty Salon Co., Ltd.
Shiseido Pharmaceutical Co., Ltd.
Shiseido International Corporation
Shiseido America, Inc.
Shiseido Cosmetics (America) Ltd.
Zotos International, Inc.
Shiseido International Europe S.A.
Shiseido International France S.A.S.
Shiseido Deutschland GmbH
Shiseido Cosmetici (Italia) S.p.A.
Shiseido Europe S.A.S.
Beauté Prestige International S.A.
Laboratoires Declér S.A.
Shiseido China Co., Ltd.
Shanghai Zotos Citic Cosmetics Co., Ltd.
Shiseido Liyuan Cosmetics Co., Ltd.
Shiseido Dah Chong Hong Cosmetics Ltd.
Taiwan Shiseido Co., Ltd.
The Ginza Co., Ltd.
Shiseido Parlour Co., Ltd.
Selan Anonymous Association2
Other: 65 companies
(Equity-method affiliates): 3 companies
Location
Minato-ku, Tokyo
Chuo-ku, Tokyo
Chuo-ku, Tokyo
Chuo-ku, Tokyo
Chuo-ku, Tokyo
Chuo-ku, Tokyo
Chuo-ku, Tokyo
Delaware, U.S.A.
New York, U.S.A.
New York, U.S.A.
Connecticut, U.S.A.
Paris, France
Paris, France
Dusseldorf, Germany
Milan, Italy
Paris, France
Paris, France
Paris, France
Shanghai, China
Shanghai, China
Beijing, China
Hong Kong, China
Taipei, Taiwan
Chuo-ku, Tokyo
Chuo-ku, Tokyo
Chiyoda-ku, Tokyo
—
—
Paid-in Capital
¥100 million
¥10 million
¥30 million
¥100 million
¥250 million
¥100 million
¥100 million
(Thousands of U.S. dollars)
$403,070(Thousands of U.S. dollars)
$28,000(Thousands of U.S. dollars)
$15,300(Thousands of U.S. dollars)
$25,000(Thousands of euro)
€247,473(Thousands of euro)
€36,295(Thousands of euro)
€5,200(Thousands of euro)
€2,400(Thousands of euro)
€7,000(Thousands of euro)
€17,760(Thousands of euro)
€19,374(Thousands of yuan)
CNY353,006(Thousands of yuan)
CNY418,271(Thousands of yuan)
CNY94,300(Thousands of HK dollars)
HKD123,000(Thousands of NT dollars)
NTD1,154,588
¥100 million
¥100 million
¥11,600 million
—
—
Main Business1
⦆
Domestic cosmetics business
⦆
⦆
⦆
Overseas cosmetics business
Others
—
—
Equity ownership percentage3
100.0
⦆100.0
100.0
100.0
100.0
⦆100.0
⦆100.0
⦆100.0
100.0(100.0)
100.0(100.0)
100.0(100.0)
100.0(100.0)
100.0(100.0)
100.0(100.0)
100.0(100.0)
100.0(100.0)
100.0(100.0)
100.0(100.0)
100.0
92.6(72.6)
65.0(33.0)
50.0
51.0
96.9
99.3
—[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.
(As of March 31, 2008)
41SHISEIDO ANNUAL REPORT 2008
F i n a n c i a l S e c t i o n
Six-Year Summary of Selected Financial Data ··········42
Management’s Discussion and Analysis ···················43
Consolidated Financial Statements ···························54
Notes to the Consolidated Financial Statements ······59
Report of Independent Auditors ································76
42 SHISEIDO ANNUAL REPORT 2008
Shiseido Company, Limited, and SubsidiariesFor the years ended March 31, 2003 to 2008
Thousands of dollarsMillions of yen (Note 1)
(Except per share data) (Except per share data)
2003 2004 2005 2006 2007 2008 2008
Operating Results:Net sales ·····························Cost of sales (Note 2) ············Selling, general and administrative
expenses (Note 2) ··················Operating income (Note 2) ·····EBITDA (Note 3) ···················Net income (loss)··················
Financial Position (At year-end):Total assets ·························Short-term liabilities (Note 4) ·······Long-term debt·····················Interest-bearing debt ·············Net assets ···························
Per Share Data (In yen and U.S. dollars):Net income (loss) (Note 5) ······Net assets (Note 5) ················Cash dividends ·····················Weighted average number of
shares outstanding during the period (thousands)··········
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)·········Payout ratio (Consolidated)(%) ·······Total return ratio (%) (Note 8)······Number of employees at year-end ····Net sales per employee ··········
Notes: 1. U.S. dollar amounts are converted from yen, for convenience only, at the rate of ¥100.20 = US$1 prevailing on March 31, 2008.2. 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 + Depreciation4. Short-term liabilities = Short-term debt + Current portion of long-term debt5. 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 = (Income from operations + 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 flows8. Total return ratio = (Cash dividends + Share buybacks*) ÷ Net income *Excluding odd-lot purchases
¥621,250170,702
403,45947,08966,82724,496
¥663,40355,11744,29199,408
364,728
¥ 58.0844.720.0
419,580
7.63.77.37.0
53.330.00.2834.553.2
25,202¥24.7
¥624,248166,299
420,47137,47882,34127,541
¥626,73047,67818,48066,158
385,336
¥ 64.9903.722.0
414,723
6.04.36.07.6
59.818.20.1833.951.2
24,839¥25.1
¥639,828168,636
444,66326,52929,043(8,856)
¥701,09525,21369,11494,327
369,957
¥ (21.5)866.524.0
414,219
4.1(1.3)4.3
(2.4)51.222.10.26
——
24,184¥26.5
¥670,957176,884
455,19438,87958,96314,436
¥671,84212,78669,49282,278
387,613
¥ 34.4906.130.0
412,855
5.82.15.93.9
55.78.6
0.2287.2
105.1
25,781¥26.0
¥694,594185,533
459,05650,00578,03625,293
¥739,83366,14461,694
127,838403,797
¥ 60.9940.832.0
412,572
7.23.67.46.6
52.530.60.3252.652.6
27,460¥25.3
¥723,485186,466
473,55463,46594,96035,460
¥675,86438,65324,56663,219
399,739
¥ 86.1946.234.0
407,696
8.85.09.49.2
56.639.10.1639.5
108.8
28,793¥25.1
$7,220,4091,860,938
4,726,088633,383947,705353,892
$6,745,150385,758245,170630,928
3,989,411
$0.869.440.34
$0.25
Six-Year Summar y of Selected Financial Data
43SHISEIDO ANNUAL REPORT 2008
Operating ResultsOverview
During the fiscal year ended March 31, 2008, amid rising concern
around the world about an economic downturn linked to the sub-
prime crisis in the United States and rising crude oil prices, the
economies of China and other countries in Asia continued to
grow steadily. The Japanese economy maintained moderate
growth despite a slight weakening in consumer spending due to
uncertainty about the economic outlook and the high price of
raw materials such as crude oil, as well as sudden fluctuations in
exchange rates and stock prices in the second half of the year. In
the cosmetics industry, Ministry of Economy, Trade and Industry
statistics for cosmetics shipments showed that shipments of
cosmetics were at a similar level to the previous year.
Amid these conditions, Shiseido worked to achieve the
objectives of the Three-Year Plan during its final year aimed at
expanding growth and raising profitability through continued
emphasis on the three key strategies of “reforming domestic mar-
keting activities,” “further strengthening global development” and
“fundamental structural reforms.” As a result, for the fiscal
year under review, net sales increased 4.2 percent compared with
the previous fiscal year to ¥723,485 million, and operating
income increased 26.9 percent to ¥63,465 million. Operating
profitability was 8.8 percent. Shiseido therefore achieved the
objective of the Three-Year Plan of operating profitability of 8 per-
cent or higher. Gain on sale of shares in Shiseido Logistics Co.,
Ltd. and Shiseido Lease Co., Ltd. compensated for other
expenses including impairment loss and nonrecurring expense for
additional retirement benefits. As a result, net income
increased 40.2 percent to ¥35,460 million.
Changes in Accounting PoliciesPursuant to an amendment to the Corporation 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
Company and its domestic consolidated subsidiaries have
changed their treatment of depreciation on property, plant and
equipment acquired after April 1, 2007. In addition, the
Company and its domestic consolidated subsidiaries depreciate the
difference between 5 percent of the acquisition cost of assets
acquired on or before March 31, 2007 and the book value of
said assets uniformly over a five-year period, starting the year
following the fiscal year in which the depreciated value of said
assets reaches 5 percent of the acquisition price using the pre-
amendment depreciation method. Depreciated amounts are
included in depreciation expenses.
(Please refer to Notes to the Consolidated Financial
Statements, “2. Summary of Significant Accounting Policies,”
on page 59, for additional details regarding the changes in
accounting policies.)
Net SalesNet sales increased 4.2 percent on a yen basis to ¥723,485
million, and increased 1.9 percent on a local currency basis.
While domestic sales decreased year on year because con-
sumer sentiment cooled in the second half of the fiscal year,
overseas sales increased substantially, centered on China
Cost of Sales and Selling, General and Administrative Expenses[Cost of Sales]
Cost of sales increased 0.5 percent compared with the previ-
ous fiscal year to ¥186,466 million, but the ratio of cost of
sales to net sales decreased 0.9 percentage points to 25.8 per-
cent. Factors in the improvement included ongoing efforts to
reduce cost of sales, enhanced production efficiency because of
increased production due to higher overseas sales, and an
increase in the proportion of sales in China, where the cost of
sales ratio is low. Moreover, in Japan Shiseido withdrew from or
scaled back service businesses with high cost of sales ratios such
as the leasing business.
[Selling, General and Administrative Expenses]Selling, general and administrative (SG&A) expenses
increased 3.2 percent compared with the previous fiscal year to
¥473,554 million. The ratio of SG&A expenses to net sales
decreased 0.7 percentage points to 65.4 percent. Analysis of the
major components of SG&A expenses is included in the fol-
lowing sections.
Marketing CostsMarketing costs consist of advertising and promotional
expenses. The ratio of marketing costs to net sales
decreased 0.7 percentage points to 22.9 percent.
Overseas, Shiseido invested aggressively to support the
critical Chinese market, the new Zen and designer fra-
grances in Europe, and the travel retail business.
Concentration of brands/lines in Japan allowed Shiseido to
manage domestic marketing expenses more efficiently and
compensate for higher outlays overseas. Shiseido has kept
annual marketing costs at a constant percentage of net
sales, and plans to maintain that ratio in the future.
(Billions of yen)
Net SalesOverseas Sales Ratio
(%)
20082007200620052004
200
0
400
600
15
0
30
45
800 60
723.5694.6671.0639.8624.226.0 27.5 29.4 32.4 36.5
Domestic Sales 459.2469.8473.7464.1461.8Overseas Sales 162.4 175.7 197.2 224.8 264.3
Net Sales/Overseas Sales Ratio
Management’s Discussion and Analysis
44 SHISEIDO ANNUAL REPORT 2008
Personnel ExpensesThe ratio of personnel expenses to net sales decreased
0.2 percentage points compared with the previous fiscal
year to 21.4 percent. Although the ratio of personnel
expenses to net sales rose slightly in Japan, Shiseido was able
to keep the rate of increase in overseas personnel expenses
within the rate of increase in overseas sales.
Other ExpensesThe ratio of other expenses to net sales increased 0.2 per-
centage points to 21.1 percent. Overseas, Shiseido was able to
keep the rate of increase of expenses within the rate of
increase in sales. In Japan, however, Shiseido incurred non-
recurring expenses in connection with issues such as the
development of new systems of internal control for reporting.
Operating IncomeOperating income increased 26.9 percent compared with
the previous fiscal year to ¥63,465 million due to marginal
gains resulting from growth in net sales, reduced cost of sales
and efficient management of SG&A expenses. Operating prof-
itability increased 1.6 percentage points to 8.8 percent, thus
meeting the Three-Year Plan goal of operating profitability of
8.0 percent or higher.
Other Income (Expenses)Net other income totaled ¥2,060 million, compared with net
other expenses of ¥2,239 million for the previous fiscal year.
Net interest income, calculated as interest and dividend
income less interest expense, totaled ¥1,095 million, compared
with net interest income of ¥288 million for the previous fiscal year.
However, changes in exchange rates resulted in a foreign
exchange loss of ¥1,649 million. Equity in earnings of affiliates
increased to ¥149 million, partly reflecting the contribution of
Pierre Fabre Japon, which sells the Avène brand of Laboratoires
Pierre Fabre in Japan. Moreover, the transfer of shares in
Shiseido Logistics Co., Ltd. and Shiseido Lease Co., Ltd. resulted
in gain on sales of shares in affiliates totaling ¥3,102 million.
However, Shiseido also incurred other expenses including
impairment loss, non-recurring expense for additional retirement
benefits due to restructuring of the domestic sales system and non-
recurring expenses for restructuring to improve profitability.
Income before Income TaxesIncome before income taxes increased 37.2 percent com-
pared with the previous fiscal year to ¥65,525 million.
Income TaxesIncome taxes, including deferred taxes, increased 33.4 percent
compared with the previous fiscal year to ¥25,570 million as a
result of the increase in income before income taxes. The
effective tax rate was 39.0 percent, a decrease of 1.1 percentage
points from 40.1 percent in the previous fiscal year, as a result of
the increase in the proportion of earnings from overseas con-
solidated subsidiaries with lower statutory and effective tax
rates than in Japan.
Minority Interests in Net Income of Consolidated Subsidiaries
Minority interests in net income of consolidated subsidiaries
increased 36.3 percent compared with the previous fiscal year to
¥4,495 million, due to improved performance of joint ventures in
Asia, primarily in China and Taiwan.
Net IncomeNet income increased 40.2 percent compared with the previ-
ous fiscal year to ¥35,460 million. Net income per share
increased to ¥86.1 from ¥60.9 for the previous fiscal year.
Improved profitability and management of capital resources as
a result of total returns exceeding net income supported an
increase of 2.6 percentage points in return on equity to 9.2
percent from 6.6 percent for the previous fiscal year.
(Billions of yen) (%)
Operating IncomeOperating Profitability
20082007200620052004
20
0
40
60
2.5
0
5
7.5
80 10
63.550.038.926.537.56.0 4.1 5.8 7.2 8.8
Operating Income/Operating Profitability
Cost of Sales Ratio (Left scale)
SG&A Expenses Ratio (Right scale)
2008200720062005200423 63
25.826.726.426.426.667.4 69.5 67.8 66.1 65.4
Cost of Sales Ratio/SG&A Expenses Ratio
28 68
26 66
25 65
24 64
27 67
29 69
(%) (%)30 70
(Billions of yen) (%)
Net Income (Loss) Return on Equity
20082007200620052004
0
(10)
10
30
0
(3)
3
9
40 12
35.525.314.4(8.9)27.57.6 (2.4) 3.9 6.6 9.2
20 6
Net Income (Loss)/Return on Equity
45SHISEIDO ANNUAL REPORT 2008
Review by Business SegmentResults by business segment follow below.
Domestic CosmeticsSales in the domestic cosmetics segment decreased 1.9
percent compared with the previous fiscal year to ¥439,021
million, due to factors including cooling consumer sentiment in the
second half.
[Cosmetics Division]Sales in the cosmetics division decreased 2.5 percent
compared with the previous fiscal year, with lower results
for counseling-based cosmetics, self-selection cosmetics
and toiletries. Factors such as cooling consumer sentiment in
the second half hampered continued efforts to build “broad and
strong” brands/lines and cultivate long-selling brands. As
outlined below, specific efforts included the addition of new
lines and items and innovation of existing core items.
In brands/lines through which we seek to expand customer
contacts, we worked to cultivate and strengthen each of our
mega lines aimed at attaining leading share in their respective
product categories, including makeup and skincare. Among
them, Tsubaki drove Shiseido’s mega line strategy with the
strong performance of new Tsubaki Golden Repair for dam-
aged hair launched in September 2007.
In brands/lines that deeply entrench customer contact points
and strengthen customer relationships, we innovated the highly
functional cream La Crème s in the Clé de Peau Beauté high-end
prestige brand and also Bénéfique anti-aging products exclu-
sively for voluntary chain stores.
[Professional Division]Sales in the professional division decreased 8.9 percent
compared with the previous fiscal year.
In beauty salon services, we primarily focused on activities to
increase the technical capability of stylists, and on proposing
new lineups. In hair and beauty salon product sales, we shifted to
a new marketing style that emphasizes the quality of our pro-
posals. However, this business is in a transitional period as it
undergoes sales reforms, which was one factor that caused
sales to decrease.
[Healthcare Division]Healthcare division sales increased 15.8 percent compared
with the previous fiscal year. In particular, we concentrated mar-
keting resources to develop Collagen EX and Collagen Update in
the Collagen series in order to address expected growth in the mar-
ket for beauty supplements. As a result, strong sales of the
Collagen series contributed to the increase in division sales.
Operating income for the domestic cosmetics segment
increased 17.0 percent compared with the previous fiscal year to
¥43,130 million, and segment operating profitability was 9.7 per-
cent. Despite the decrease in sales, operating income increased
because of efforts to reduce cost of sales and further improvement
in the efficiency of SG&A expenses.
Overseas CosmeticsSales in the overseas cosmetics segment increased 10.7
percent compared with the previous fiscal year on a local currency
basis and 17.6 percent on a yen basis to ¥263,703 million.
Ongoing aggressive efforts to develop markets and establish a
business base overseas, aided by the effects of a weaker yen,
resulted in steady sales increases in all regions, led by China.
[Cosmetics Division]Division sales increased 10.8 percent on a local currency
basis and 18.0 percent on a yen basis compared with the previ-
ous fiscal year.
In the prestige market, Shiseido generated steady sales
growth by concentrating on the strength of the global brand
in anti-aging and skin-brightening products and
enhancing the structure of the travel retail business. In addi-
tion, the high-end prestige brand Clé de Peau BEAUTÉ, the
designer fragrances of Beauté Prestige International S.A., and the
NARS makeup artist brand also performed well.
In the middle mass market, sales of the Za brand increased
throughout Southeast Asia.
In China, our key overseas market, we continued to proactively
advance our channel-specific brand strategy. In the department
store channel, we worked to cultivate the China-only AUPRES
brand and the higher-grade line of SUPREME AUPRES. In the cos-
metics specialty store channel, we continued to increase the num-
ber of contracts for Shiseido Chain Stores while raising per-
store sales at existing outlets by focusing on the URARA brand of
products sold exclusively in this channel.
[Professional Division]Division sales increased 9.6 percent on a local currency
basis and 14.8 percent on a yen basis compared with the previ-
ous fiscal year. Sales of Zotos International, Inc., which manu-
factures and sells products for salons globally with a focus on
North America, were strong, primarily for the haircare line from
JOICO. Sales of the esthetic beauty and spa treatment brands
Decléor, CARITA and Qi were also firm.
Operating income of the overseas cosmetics segment
increased 71.1 percent to ¥17,874 million, and segment operat-
ing profitability was 6.7 percent. Factors included strong sales
growth in highly profitable regions and efficient management of
expenses.
OthersSales in other businesses decreased 8.6 percent compared
with the previous fiscal year to ¥20,761 million. The decrease was
primarily the result of the divestiture of the lease company
Shiseido Lease Co., Ltd. during the fiscal year.
[Frontier Sciences Division]The frontier sciences division handles items such as medical-
use drugs, cosmetics raw materials, chromatography, and
cosmetic dermatology treatments. Sales rose with the continued
increase in sales for bio-hyaluronic acid, a raw material used in
cosmetics, pharmaceuticals and foods.
Management’s Discussion and Analysis
46 SHISEIDO ANNUAL REPORT 2008
Moreover, the Michelin Guide 2008 Tokyo, published by
French tire maker Michelin, awarded the L’osier restaurant
managed by Shiseido Co., Ltd. its highest rating of three stars.
Operating income from other businesses decreased 11.1 percent
compared with the previous fiscal year to ¥1,995 million and
segment operating profitability was 5.0 percent. The divestiture of
Shiseido Lease Co., Ltd. was a primary factor in the decrease.
Review by Geographic SegmentResults by geographic segment (by location) follow below.
JapanSales in Japan decreased 2.2 percent compared with the pre-
vious fiscal year to ¥460,714 million despite higher sales in the
healthcare division and the frontier science division due to a
decline in sales of the core domestic cosmetics business.
Operating income in Japan increased 16.3 percent compared
with the previous fiscal year to ¥31,785 million as a result of
reduced cost of sales and more efficient management of marketing
costs due to the concentration of brands/lines.
AmericasSales in the Americas increased 7.7 percent compared with the
previous fiscal year on a local currency basis. Sales increased 9.3
percent on a yen basis to ¥56,559 million due to depreciation of
the yen versus the U.S. dollar.
In the cosmetics division, Shiseido generated strong growth for
the global brand and the NARS brand in the United
States. Sales of subsidiaries in Canada and Brazil were also
solid.
In the professional division, sales of Zotos International, Inc.
were firm.
Operating income in the Americas increased 42.2 percent
compared with the previous fiscal year to ¥3,994 million, due to
marginal gains through growth in sales and the effects of
structural reform in North America.
EuropeSales in Europe increased 6.6 percent compared with the
previous fiscal year on a local currency basis. Sales increased 17.4
percent on a yen basis to ¥103,775 million due to depreciation of
the yen versus the euro.
In the cosmetics division, sales of the global brand
were solid at subsidiaries in Italy and France.
Sales also continued to increase in the growth markets of Spain
and the travel retail business. However, the impact of an
increase in the Value Added Tax rate caused sales in Germany to
decrease slightly compared with the previous fiscal year. Sales of
the designer fragrances of Beauté Prestige International S.A.
increased substantially throughout Europe.
In the professional division, sales of the esthetic beauty and spa
treatment brands CARITA and DECLÉOR were robust.
Operating income in Europe increased 42.4 percent com-
pared with the previous fiscal year to ¥8,986 million. Marginal gains
through growth in sales compensated for aggressive marketing
outlays for designer fragrances and the travel retail business
and strategic investment in the new Zen that was prelaunched in
Europe in the fall of 2007.
Asia/OceaniaSales in Asia/Oceania increased 16.9 percent on a local cur-
rency basis. Sales increased 23.0 percent on a yen basis to
¥102,437 million due to depreciation of the yen versus major cur-
rencies. Sales were steady in the cosmetics division, centered on
the key market of China.
In the cosmetics division, high growth continued in China,
including Hong Kong, as Shiseido achieved year-on-year growth of
30 percent for the fourth consecutive year. Sales were also
solid in countries other than China, particularly Korea and
Thailand. Sales growth was also strong in the travel retail business.
In the professional division, a subsidiary in Thailand
increased sales by significantly expanding its directly managed spa
and salon business.
Operating income in Asia/Oceania increased 41.6 percent
compared with the previous fiscal year to ¥15,880 million, as high-
er marginal gains resulting from sales growth and reduced cost of
sales compensated for an increase in strategic marketing
expenditures and higher personnel expenses in China.
Operating Profitability by Business Segment
Domestic Cosmetics
20082007200620052004(%)
9.78.17.55.78.7Overseas Cosmetics (0.8) 0.4 1.4 4.6 6.7Others (2.4) (0.2) 2.4 4.9 5.0
Note: Operating profitability is calculated against sales for the segment,including intersegment sales.
(Billions of yen)
Domestic Cosmetics
20082007200620052004
250
0
500
750
439.0447.6453.4445.3444.3
Net Sales by Business Segment
Overseas Cosmetics 161.1 174.5 196.3 224.3 263.7Others 18.8 20.0 21.3 22.7 20.8
Total 624.2 639.8 671.0 694.6 723.5
Operating Income by Business Segment
Domestic Cosmetics
20082007200620052004(Billions of yen)
43.136.934.325.538.9Overseas Cosmetics (1.2) 0.7 2.8 10.4 17.9Others (0.9) (0.1) 1.0 2.2 2.0
47SHISEIDO ANNUAL REPORT 2008
Liquidity and Capital ResourcesFinancing and Liquidity Management
Shiseido seeks to generate stable operating cash flow and
ensure a wide range of funding methods, with the aims of
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.
As of March 31, 2008, Shiseido maintained a sufficient level of
liquidity. The use of diverse funding methods provided a high level
of financial flexibility. One of our targets for short-term liquidity is
to maintain cash on hand at a level of approximately 1.5
months of consolidated net sales. As of March 31, 2008, cash and
time deposits together with short-term investments in securities
totaled ¥132,488 million, which represented 2.2 months of
consolidated net sales.
As of March 31, 2008, interest-bearing debt totaled ¥63,219
million. Shiseido has diversified funding methods. These
include an unused shelf registration in Japan for ¥50 billion of
straight bonds. Shiseido Co., Ltd. and two financial sub-
sidiaries, in the United States and Europe, respectively, have
established a syndicated loan program with unused commit-
ments totaling $260 million. A financial subsidiary in the United
States has also established an unused commercial paper program
totaling $100 million.
Credit RatingsShiseido recognizes that it needs to maintain a certain credit rat-
ing level to secure financial flexibility that suits its capital/liquidity
policies and to secure access to sufficient capital resources
through capital markets. Shiseido has acquired ratings from
Moody’s Investors Service Inc. (Moody’s) and Standard &
Poor’s (S&P) to facilitate fund procurement in global capital markets.
[Moody’s]On July 18, 2007, Moody’s raised its outlook for Shiseido’s long-
term A1 credit rating from “Stable” to “Positive.” Moody’s
based its revision on its conclusion that Shiseido’s strong balance
sheet structure, continued improvement in profitability, current
brand promotion strategy, aggressive measures to control
costs, and steady expansion of business outside Japan will
support continued improvement in Shiseido’s creditworthiness.
On May 20, 2008, Moody’s announced a review of Shiseido’s A1
long-term credit rating for possible upgrade. The credit rating
review reflects Moody’s opinion that Shiseido’s strategies of
maintaining a strong balance sheet, implementing measures to fur-
ther reduce costs, efficiently managing brands, and steadily
expanding its cosmetics business outside Japan will support
stable overall creditworthiness at a higher level than in the past.
[S&P]On June 29, 2007, S&P raised its outlook for Shiseido’s long-
term credit rating one ranking, from “A (Outlook: Positive)” to “A+
(Outlook: Stable).” S&P based this revision on its projection
that Shiseido’s ongoing expansion in the cosmetics market of
China will drive continued growth of Shiseido’s operations outside
Japan. In addition, S&P concluded that progress in consolidating
brands/lines has resulted in solid performance in the domestic cos-
metics market as well, which points to increased profitability
and cash flow coverage over the next several years and the
ability to maintain a stable financial structure.
Management’s Discussion and Analysis
(Billions of yen)
Americas
20082007200620052004
56.651.746.043.143.5Japan 460.7471.2475.7467.0465.3
Net Sales by Geographic Segment
Europe 72.4 79.8 85.6 88.4 103.8Asia/Oceania 43.0 49.9 63.7 83.3 102.4
Outside Japan 158.9 172.8 195.3 223.4 262.8
Operating Income by Geographic Segment
Americas
20082007200620052004(Billions of yen)
4.02.80.9(0.2)(0.4)Japan 31.827.324.012.526.2
Europe 3.0 5.0 5.4 6.3 9.0Asia/Oceania 5.3 6.5 7.7 11.2 15.9
Outside Japan 7.9 11.3 14.0 20.3 28.9
Operating Profitability by Geographic Segment
Americas
20082007200620052004(%)
6.14.71.7(0.3)(0.8)Japan 6.55.54.82.65.4
Europe 4.0 6.1 6.0 6.8 8.3Asia/Oceania 12.2 12.9 12.0 13.4 15.5
Outside Japan 4.6 6.2 6.7 8.6 10.4
Overseas Sales(by Destination)
Americas 59.354.047.544.345.8Europe 68.1 74.9 80.4 79.3 92.8Asia/Oceania 48.5 56.5 69.3 91.5 112.1
Total 162.4 175.7 197.2 224.8 264.3
(Billions of yen)
200820072006200520040
200
100
300
Note: Operating profitability is calculated against sales for the segment, including intersegment sales.
Moody’s
A1 (Outlook: Positive) A+ (Outlook: Stable)
P-1 A-1
Long-term
S&P
Short-term
(As of May 31, 2008)
48 SHISEIDO ANNUAL REPORT 2008
Assets, Liabilities and Net AssetsAssets
As of March 31, 2008, total assets decreased 8.6 percent
from a year earlier to ¥675,864 million.
Current assets decreased 4.2 percent from a year earlier to
¥357,707 million. Notes and accounts receivable increased
due to initial shipments of the new Tsubaki launched in March
2008, but the May 2007 redemption of unsecured yen bonds
totaling ¥50.0 billion reduced cash and time deposits.
Investments and other assets decreased 15.4 percent from a
year earlier to ¥122,861 million, mainly due to sale of investments
in securities and a decrease in valuation gains as a result of
lower market prices.
Property, plant and equipment, net of accumulated deprecia-
tion, decreased 15.9 percent from a year earlier to ¥144,358
million. Factors for this decrease included the sale of logistics and
product center facilities (¥17,274 million) to reform logistics
and the exclusion of Shiseido Lease Co., Ltd., which was sold dur-
ing the fiscal year, from the scope of consolidation.
Intangible assets increased 2.4 percent from a year earlier to
¥50,938 million. Factors included the introduction of a new
backbone SAP system.
LiabilitiesTotal liabilities as of March 31, 2008 decreased 17.8 percent
from a year earlier to ¥276,125 million. Primary factors included
an increase in accrued amounts payable included in “other”
under notes and accounts payable due to an increase in media
outlays to cultivate and strengthen domestic mega lines, and a
decrease in interest-bearing debt including long- and short-
term debt.
As of March 31, 2008, interest-bearing debt decreased 50.5
percent from a year earlier to ¥63,219 million. Primary factors in
the decrease were the redemption of the ¥50 billion in unsecured
yen bonds and the ¥7,868 million in MTN issued by sub-
sidiaries in Europe and the Americas, as well as the exclusion of
Shiseido Lease Co., Ltd. from the scope of consolidation. As of
March 31, 2008, bonds on Shiseido’s balance sheet consisted of
1.12 percent unsecured yen bonds due in March 2010 and
MTN issued by a financial subsidiary in the United States.
Net AssetsTotal net assets decreased 1.0 percent from a year earlier to
¥399,739 million.
Net income increased net assets by ¥35,460 million. The
payment of cash dividends from retained earnings reduced net
assets by ¥13,464 million, and buyback of shares reduced net
assets by ¥24,450 million (excluding purchases of odd lots).
As a result, net assets per share increased ¥5.4 from a year ear-
lier to ¥946.2. The equity ratio increased 4.1 percentage points to
56.6 percent from 52.5 percent a year earlier.
Cash FlowsCash and cash equivalents (net cash) as of March 31, 2008
totaled ¥120,394 million, a decrease of ¥24,866 million from a
year earlier.
Cash Flows from Operating ActivitiesNet cash provided by operating activities increased ¥5,876
million from the previous fiscal year to ¥75,308 million.
200 2.5
400 5
600 7.5
800 10
0
(Billions of yen)
Total AssetsOperating ROA
(%)
200820072006200520040
675.9739.8671.8701.1626.76.0 4.3 5.9 7.4 9.4
Total Assets/Operating ROA
100
200
300
400
0
(Billions of yen)
Net AssetsInterest-bearing Debt
20082007200620052004
399.7403.8387.6370.0385.366.2 94.3 82.3 127.8 63.2
Net Assets/Interest-bearing Debt
Equity Ratio/Debt-Equity Ratio
Equity RatioDebt-Equity Ratio
25 0.25
50 0.50
75
100
0.75
1.00
0
(%) (Times)
020082007200620052004
59.8 51.2 55.7 52.5 56.60.18 0.26 0.22 0.32 0.16
2006
21.8
(12.6)
(30.0)
89.0
2008
75.3
(5.8)
(95.9)
120.4
Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities
Cash and cash equivalents at end of year
2007
69.4
(18.5)
1.8
145.3
Cash Flow Summary (Billions of yen)
49SHISEIDO ANNUAL REPORT 2008
Shiseido used net cash provided by operating activities to fund the
following investing and financing activities.
Cash Flows from Investing ActivitiesNet cash used in investing activities decreased ¥12,680 million
from the previous fiscal year to ¥5,803 million. This change
resulted from the sale of a majority of the logistics and product
center facilities owned by Shiseido Co., Ltd. as part of
Shiseido’s fundamental structural reforms.
Acquisition of fixed assets, calculated as the sum of acquisition
of property, plant and equipment, intangible assets and long-term
prepaid expenses, totaled ¥27,747 million, which was about
the same level as depreciation. Capital expenditures included
upgrade and renovation of existing domestic facilities, as well as
projects such as the third phase of the expansion of the
Shanghai Plant, which increased production capacity in the
growing Chinese market.
Cash Flows from Financing ActivitiesNet cash used in financing activities totaled ¥95,883 million. In
the previous fiscal year, financing activities provided net cash total-
ing ¥1,837 million. Primary factors included the redemption of the
unsecured yen bonds and the MTN issued by subsidiaries in
Europe and the Americas, totaling ¥57,837 million, and the use of
¥24,450 million to buy back shares (excluding purchases of
odd lots).
Research and DevelopmentTo develop superior products and offer services that support
customers’ beauty and health, Shiseido conducts R&D activities
in five regions 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 United States, France, China and
Thailand.
In the fiscal year under review, R&D expenses for the
Shiseido Group decreased 9.7 percent compared with the previ-
ous fiscal year to ¥14,566 million. R&D expenses represented 2.0
percent of net sales, a decrease of 0.3 percentage points from the
previous fiscal year. R&D objectives, primary initiatives, results and
expenses by business segment were as follows. R&D expenses
include basic research costs and other expenses totaling
¥4,059 million that cannot be allocated to specific businesses.
Domestic CosmeticsWith the goal of contributing to beautiful skin and beautiful
lifestyles, Shiseido conducts research in basic dermatology
and interface science. Other R&D activities include developing
cosmetic ingredients, developing and evaluating products, and
developing beauty methods.
R&D expenses for the fiscal year under review in the domestic
cosmetics business totaled ¥8,465 million
[Cosmetics Division]The cosmetics division began using a newly produced skin
moisturizing ingredient, glycylglycine, in the skincare brand
Aqua Label, and developed a serum that reduces pore size in
adults and makes skin smooth.
In addition, Shiseido launched Tsubaki Golden Repair with
the new ingredient “camellia amino.” Beautiful hair symbolizes
beauty for Japanese women. This new products keeps hair
beautiful by repairing damaged hair all the way to the tip and mak-
ing it smooth to the touch. In addition, Shiseido developed a
new ingredient to repair and beautify hair, “beauty luster
camellia lipid,” from a natural beauty component of the camellia
flower, and made progress toward a new Tsubaki that further
enhances the luster of hair by bringing out its deep shine.
Cosmetics-related CSR activities included the development
of Perfect Foundation BM for skin irregularities that conventional
foundations have difficulty covering such as scars from burns,
injuries and acne. This product supports a higher quality of life for
customers by providing a solution for a wider range of skin
blemishes.
[Healthcare Division]The healthcare division focused on the connection between
stress and lack of sleep and collagen production in order to
develop Collagen EX and Collagen Update with an ingredient
that supports the creation of collagen.
Overseas CosmeticsAiming for “high quality, high image and high service” in
overseas cosmetics brands, Shiseido develops products that
fully capitalize on high-quality, high-performance ingredients.
R&D expenses for the fiscal year under review in the overseas
cosmetics business totaled ¥1,676 million.
[Cosmetics Division]In the cosmetics division, scientific research into the skin
uncovered the ability of the biogenic substance carnosine to
ameliorate wrinkles due to aging, dryness, ultraviolet rays and
other causes. Shiseido put this discovery to use in Benefiance
NutriPerfect Day Cream/Night Cream to hydrate skin and
restore and preserve its firmness to make skin youthful.
Moreover, Shiseido created a new formulation of the global
Management’s Discussion and Analysis
20
40
60
80
0
(Billions of yen)
Cash Flows from Operating ActivitiesAcquisition of Fixed Assets
20082007200620052004
75.369.421.852.447.133.7 30.0 27.5 28.6 27.7
Cash Flows from Operating Activities/Acquisition of Fixed Assets(Property, Plant and Equipment + Intangible Assets + Long-term Prepaid Expenses)
makeup line The Makeup that balances the skin’s moisture and
sebum, and developed Dual Balancing Foundation, a foundation
with skincare benefits.
OthersR&D expenses for the fiscal year under review in other busi-
nesses totaled ¥366 million.
[Frontier Science Division]The frontier science division conducts R&D in areas such as
medical-use drugs, cosmetics raw materials, chromatography
and cosmetic dermatology treatments. For medical-use drugs, the
division developed the hormone supplement l’estrogel®, which
addresses the typical symptoms of female menopause. This
product is the first gel formulation of this drug in Japan, and
Bayer Yakuhin Ltd. has begun sales.
In chromatography, Shiseido has applied the technology for
developing makeup powders to develop high-performance
columns used for analysis. Other products developed in the
chromatography business include a variety of instruments for
analysis and purification.
Outlook for the Year Ending March 31, 2009The market environment in which Shiseido operates will
remain challenging, both domestically and overseas. The
Shiseido Group will work in concert to implement the new
Three-Year Plan ending March 2011, and build a foundation for
sustained growth over the medium-to-long term.
In the fiscal year ending March 2009, the first year of the
new Three-Year Plan, Shiseido aims to increase sales in Japan at
a rate that is faster than the growth rate of the overall market.
Overseas, we will undertake new initiatives and further expand
our business in China with the aim of maintaining a high
growth rate.
Shiseido will work to achieve double-digit sales growth over-
seas on a local currency basis, but expects little year-on-year sales
growth on a yen basis because the yen is expected to remain
strong. However, Shiseido expects an increase in domestic
sales to support overall growth in net sales. Income will benefit
from growth in net sales and initiatives such as efforts to
reduce cost of sales and operating expenses. This will com-
pensate for the cost of introducing a new SAP core business pro-
cessing system, aggressive marketing expenditures and other fac-
tors that will reduce earnings. Shiseido therefore expects
income to increase slightly.
For the fiscal year ending March 31, 2009, Shiseido fore-
casts a 1 percent increase in consolidated net sales to ¥730
billion, a 2 percent increase in operating income to ¥65 billion, and
a 2 percent increase in net income to ¥36 billion.
The above outlook is based on the assumption that domestic
real GDP will grow approximately 1 percent in the fiscal year.
Based on Ministry of Economy, Trade and Industry statistics
for cosmetics shipments, we estimate that demand for cos-
metics products will be essentially unchanged. Our forecasts are
based on exchange rates of ¥100 per U.S. dollar, ¥155 per
euro and ¥14.5 per Chinese yuan.
Income Distribution PolicyThe shareholder return policy of Shiseido Co., Ltd. aims to max-
imize returns to shareholders through direct means, in addition to
generating medium- and long-term share price gains. To this
end, in allocating internal capital resources, we prioritize (a)
strategic investments linked to renewed growth, and (b) stable
dividends and flexible implementation of share buybacks.
We have established a “total return ratio,” which represents
the amount of profits returned to shareholders - the sum of
dividends paid and share buybacks - as a proportion of consoli-
dated net income. We hope to achieve a 60 percent total
return ratio in the medium term while increasing the percentage
of dividends and flexibly buying back and retiring shares.
For the fiscal year ended March 31, 2008, Shiseido Co., Ltd.
increased cash dividends per share by ¥2 to ¥34, consisting of an
interim cash dividend of ¥17 per share and a year-end cash divi-
dend of ¥17 per share. In addition, Shiseido bought back 10
million shares at a cost of ¥24,450 million, which raised the
total return ratio to 108.8 percent from 52.6 percent for the
previous fiscal year. The total return ratio for the previous
Three-Year Plan from the fiscal year ended March 2006 to the fis-
cal year ended March 2008 was about 90 percent.
For the year ending March 31, 2009, Shiseido plans to
increase the interim and the year-end dividend to ¥25 each,
which will increase annual cash dividends to ¥50 per share.
Business and Other RisksThe various risks that could potentially affect the business
performance and financial position of Shiseido are summarized
below. We feel that these risks could have a major impact on
investors’ decisions. Items that deal with future events are
based on our judgment as of June 25, 2008, the date of issue for
this annual report. Please note that the potential risks are not lim-
ited to those listed below.
1. Decrease in Value of theCorporate Brand
The corporate brand is shared by all Group com-
5 1
10 2
15 3
20 4
0
(Billions of yen)
R&D ExpensesRatio of R&D Expenses to Net Sales
(%)
200820072006200520040
14.616.116.516.817.62.8 2.6 2.5 2.3 2.0
R&D Expenses/Ratio of R&D Expenses to Net Sales
50 SHISEIDO ANNUAL REPORT 2008
51SHISEIDO ANNUAL REPORT 2008
panies in Shiseido’s domestic and overseas business activities.
We will continue working to enhance the value of this brand, but
a decline in the brand’s value from an unforeseen event could
potentially affect Shiseido’s business performance and finan-
cial position.
2. Customer ServicesShiseido places high priority on its relationships with cus-
tomers. Chapter 1 of The Shiseido Code (Corporate Ethics
and Behavior Standards) clearly states that we shall act in a man-
ner that earns the satisfaction and trust of customers, and
we will continue working to ensure that all employees are
aware of these standards. However, an unforeseen event
could cause loss of such satisfaction and trust, leading to a
decline in the value of Shiseido Group brands. Shiseido’s
business performance and financial position could potentially be
affected as a result.
3. Strategic Investment ActivitiesWhen making decisions about investments in strategic markets
such as China and Russia, and strategic investments in mergers
and acquisitions, new businesses and new markets, Shiseido
endeavors to collect sufficient information and undertake due dili-
gence prior to making rational judgments. Due to various
unforeseeable factors that may cause the operating environ-
ment to deteriorate, however, we may not achieve the results
originally anticipated. This could potentially affect Shiseido’s
business performance and financial position.
4. The Competitive Environment of the CosmeticsIndustryShiseido operates in the cosmetics industry, in which com-
petition is intensifying on a global scale. Zero sum competition for
share among Japanese cosmetic companies in the mature
domestic market is intensifying because of factors including
the expanding influence of global U.S. and European corporations
in the prestige market, and the entry of new competitors from
other industries. In addition, in overseas markets such as
China, which Shiseido has positioned as a pillar of its growth strat-
egy, and Russia, the competitive environment is becoming
increasingly challenging as well-capitalized U.S. and European cor-
porations are aggressively conducting mergers and acquisi-
tions and expanding market share by executing marketing
activities to raise consumer awareness of their brands. Inability to
respond to this competitive environment as effectively as global
competitors could potentially affect Shiseido’s business per-
formance and financial position.
5. Overseas Business ActivitiesShiseido conducts business in 70 countries overseas, and
overseas sales account for a growing percentage of consolidated
net sales each year, totaling 36.5 percent in the fiscal year
under review. Shiseido plans to raise that ratio to 40 percent by
the end of the final year of the new Three-Year Plan ending
March 2011. In the course of conducting overseas business,
Shiseido’s business performance and financial position could
potentially be affected by various factors. These include the
occurrence of sudden and unpredictable economic, political
and social crises; terrorism, war and civil war; economic and
civil upheaval resulting from the spread of contagious diseases
such as avian influenza; and severe or abnormal weather.
6. Market Risk[Raw material prices]
International market conditions affect the price of raw materials
used in Shiseido products. Factors affecting market conditions
include geopolitical risk, the impact on supply and demand from
increasing demand in developing countries and speculative capital
flows, weather abnormalities and changes in exchange rates.
Shiseido constantly works to limit the impact of rising raw material
prices by reducing cost of sales and other means. However,
changes in market conditions and prices that exceed projections
could affect Shiseido’s business performance and financial position.
[Exchange rates]
Export, import and other transactions denominated in for-
eign currencies expose Shiseido to foreign exchange rate risk.
Although we hedge foreign exchange rate risk through means
such as limiting export and import transactions by establishing pro-
duction bases to serve local markets, we are unable to completely
eliminate risk. Moreover, the financial statements of consoli-
dated subsidiaries and equity affiliates domiciled overseas are
denominated in local currencies that are translated into yen
upon inclusion in the consolidated financial statements. This
has the potential to exert a negative impact on operating per-
formance if the yen appreciates versus foreign currencies
when revenues exceed expenses. Foreign exchange fluctua-
tions that exceed assumptions could affect Shiseido’s busi-
ness performance and financial position.
[Stock prices]
As of March 31, 2008, Shiseido held shares with a market value
of ¥18,976 million, and is therefore exposed to the risk of
changes in share prices. Unrealized gain on these sharehold-
ings as of March 31, 2008, totaled ¥9,470 million. However,
these unrealized gains are exposed to the risk that changes in
share prices could reduce or eliminate them, or cause an unre-
alized loss. In addition, a portion of the pension plan assets of
Shiseido Co., Ltd.’s retirement benefit plan is invested in
shares with a market price. Lower share prices could therefore
reduce pension plan assets and negatively affect operating
performance by increasing retirement benefit expenses.
Unforeseen situations such as this could affect Shiseido’s
business performance and financial position.
7. Responding Appropriately to Market NeedsShiseido’s ability to develop and cultivate products and
brands/lines and to conduct marketing activities that respond
Management’s Discussion and Analysis
52 SHISEIDO ANNUAL REPORT 2008
appropriately to market needs exerts a significant impact on its sales
and earnings. To respond to market needs, we continuously
develop appealing new products and brands/lines; reinforce and cul-
tivate new and existing products and brands/lines through marketing
activities; and withdraw existing products and brands/lines that
no longer meet market needs. However, by nature these activities
entail uncertainties that may prevent Shiseido from achieving its
intended results, which could negatively affect Shiseido’s busi-
ness performance and financial position.
8. Specific Business PartnersSignificant changes are taking place in retail and wholesale dis-
tribution channels in Shiseido’s core domestic cosmetics busi-
ness. Failure to respond effectively to these changes could
negatively affect Shiseido’s business performance and finan-
cial position.
9. Regulatory RiskShiseido is subject to a range of domestic and overseas
legal provisions in the course of conducting its business.
These include the Pharmaceuticals Law, as well as quality-
related standards, environmental standards, accounting stan-
dards and tax regulations. We aspire to be completely ethical
based on legal compliance and corporate social responsibility.
However, future regulatory changes or the establishment of
unanticipated new regulations may limit Shiseido’s activities,
which could negatively affect Shiseido’s business performance
and financial position.
10. Material LitigationIn the fiscal year ended March 31, 2008, Shiseido was not
involved in material litigation. In the future, unfavorable judg-
ments resulting from material litigation could negatively affect
Shiseido’s business performance and financial position.
11. Information Security RiskShiseido takes various measures aimed at protecting its
information assets, which include customers’ personal infor-
mation and industrial secrets. For example, in April 2005, the
Personal Information Protection Law was fully enacted. In
anticipation of this, Shiseido Co., Ltd. in March 2004 obtained
Privacy Mark certification, a Japanese Industrial Standard that rec-
ognizes the appropriateness of a company’s systems for pro-
tecting personal information. However, due to unforeseeable
events, such as leakage of information due to unauthorized
access, Shiseido’s business performance and financial position
could potentially be affected.
12. Natural Disasters and AccidentsShiseido has developed a business continuation plan covering
issues critical to the continued operation of production bases, dis-
tribution bases, information systems and the head office to
minimize loss due to interruption of production, distribution or
sales resulting from the occurrence of a natural disaster or
accident, such as a major earthquake. However, a natural disas-
ter or accident that exceeds the assumptions of this plan and dis-
rupts production, distribution or sales could negatively affect
Shiseido’s business performance and financial position.
Fundamental Policy on Control of the Company
Non-Continuation of Takeover Defense Measures
At its Board of Directors meeting held on April 27, 2006,the Company established a basic policy regarding controlover the Company (the “Basic Policy”). Based on theapproval of its shareholders obtained at the 106th OrdinaryGeneral Meeting of Shareholders held on June 25, 2006,the Company adopted a plan for countermeasures againstlarge-scale acquisitions of its shares (known as an advance-warning rights plan; hereinafter, the “Plan”) as a measure toprevent decisions on the Company’s financial and businesspolicies from being controlled by persons viewed as inap-propriate under the Basic Policy.
The Plan is effective until the conclusion of the 108thOrdinary General Meeting of Shareholders, which is scheduledfor June 25, 2008. However, at its Board of Directorsmeeting held on April 30, 2008, the Company decided toabolish the Basic Policy as of the conclusion of the 108thOrdinary General Meeting of Shareholders and thereafternot to continue the Plan.
Beginning in April 2005, the Company promoted its Three-
Year Plan with the goal of increasing growth potential and
profitability (the “previous Three-Year Plan”). The previous
Three-Year Plan contained three central pillars: (a) “domestic mar-
keting reforms;” (b) “further strengthening global develop-
ment,” under which China is the market of primary impor-
tance; and (c) “fundamental structural reforms.” Based on
these pillars, Shiseido Co., Ltd. has been making efforts to
enhance its brand value and maximize its corporate value, aiming
to be considered a company of value by all of its stakeholders —
namely, its shareholders, customers, business partners, ven-
dors, employees, and society as a whole. As a result, we have
received strong support from our stakeholders, and were able to
achieve our outcomes as originally planned. In anticipation of mak-
ing a further leap forward, the Company started a new three-year
medium-term business plan for the period from April 2008
through March 2011 (the “New Three-Year Plan”). Under the
New Three-Year Plan, the Company will aim to become a
“global player representing Asia with its origins in Japan.” It will
create “a brand loved by customers throughout the world”
and establish an “unsurpassed, world-class quality of business
management” in order to continue increasing growth potential
and profitability. Accordingly, the Company aims to achieve
53SHISEIDO ANNUAL REPORT 2008
consolidated average annual sales growth of 4 to 5 percent,
an overseas sales ratio of 40 percent or higher, consolidated oper-
ating profitability of 10 percent or higher, and a consolidated
return on equity that is 1 to 2 points higher than operating
profitability. Under these circumstances, the Company dili-
gently discussed how to deal with the Plan, which is set to
expire at the conclusion of the 108th Ordinary General
Meeting of Shareholders, taking into account the advice of an
independent committee composed of two external directors
and one external corporate auditor. After the discussion, the
Company concluded, in light of circumstances such as the
amendments to laws and ordinances regarding large-scale
acquisitions, that the Company should implement the New
Three-Year Plan steadily, rather than ask shareholders to vote in
favor of continuation of the Plan, in order to increase its com-
petitiveness and maintain sustained growth in global markets and
to assure and increase its corporate value and the common
interests of its shareholders. The Company therefore passed a
resolution at its Board of Directors meeting held on April 30, 2008
to abolish the Basic Policy upon the conclusion of the 108th
Ordinary General Meeting of Shareholders and thereafter not to
continue the Plan.
Significant Accounting EstimatesShiseido prepares its consolidated financial statements in
accordance with accounting principles generally accepted in
Japan. In preparing these statements, we select and apply
accounting policies and necessarily make estimates that affect the
presentation of reported amounts for assets, liabilities, income
and expenses. We consider information including historical
data in making rational estimates. However, due to the unpre-
dictable 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 esti-
mates used in the consolidated financial statements.
Property, Plant and EquipmentShiseido 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 sale value of idle assets is estimated for each
separate property. Based on these estimates, assets are devalued
from book value to recoverable value.
Goodwill and Intangible Assets with IndefiniteUseful Lives
In general, goodwill and intangible assets determined to
have indefinite useful lives at overseas consolidated sub-
sidiaries are not amortized, but instead are tested for impair-
ment at least once annually. Certain overseas subsidiaries
employ the opinions of experts and other data in estimating
fair value and determining impairment. The discounted cash
flow method primarily used to estimate fair value relies exten-
sively on estimates and assumptions regarding future cash
flow and discount rate.
Investments in SecuritiesShiseido recognizes impairment for securities reported in
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 acquisi-
tion 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 current net
asset value per share according to the financial condition of the
issuing entity is more than 50 percent below net asset value per
share at the time of acquisition. Securities deemed recover-
able are excluded.
Deferred Tax AssetsShiseido has established an 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.
Retirement Benefits and ObligationsShiseido’s domestic retirement benefit plan consists primarily
of a corporate pension plan and a termination allowance plan.
Employee benefits and obligations are calculated based on
assumptions including discount rate, 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 with ref-
erence to the market rate 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.
Management’s Discussion and Analysis
54 SHISEIDO ANNUAL REPORT 2008
Thousands ofMillions of yen U.S. dollars (Note 1)
2007 2008 2008
ASSETS
Current Assets:
Cash and time deposits (Notes 3 and 6) ·····························Short-term investments in securities (Notes 3 and 4) ···········
Notes and accounts receivable:Trade ········································································Unconsolidated subsidiaries and affiliates ·······················
·························································································
Less: allowance for doubtful accounts·····················································································································
Inventories (Note 5)························································Deferred tax assets (Note 8) ············································Other current assets·······················································
Total current assets ·················································
Investments and Other Assets (Note 16):Investments in securities (Notes 4 and 6)···························Investments in and advances to
unconsolidated subsidiaries and affiliates ····················Prepaid pension expenses (Note 7) ···································Long-term prepaid expenses············································Deferred tax assets (Note 8) ············································Other investments (Note 6) ·············································
Total investments and other assets ····························
Property, Plant and Equipment, at Cost (Note 16):
Buildings and structures (Note 6) ······································Machinery and equipment ···············································
·························································································
Less: accumulated depreciation ································································································································
Land ············································································Construction in progress ·················································
Total property, plant and equipment····························
Intangible Assets (Note 16):Goodwill ·······································································Other intangible assets ···················································
Total intangible assets··················································
Total Assets··········································································
The accompanying notes are an integral part of the financial statements.
¥ 65,45385,544
104,57825
104,603
(1,304)103,299
73,89132,34412,677
373,208
62,173
1,42832,63010,24111,83726,938
145,247
186,342174,853361,195
(244,498)116,697
52,3702,569
171,636
23,10326,639
49,742
¥ 739,833
¥ 67,41365,075
111,07244
111,116
(1,495)109,621
68,48629,45517,657
357,707
38,377
1,40435,15910,41910,94426,558
122,861
168,343135,975304,318
(201,624)102,694
40,2901,374
144,358
22,19428,744
50,938
¥ 675,864
$ 672,784649,451
1,108,503439
1,108,942
(14,920)1,094,022
683,493293,962176,218
3,569,930
383,004
14,012350,888103,982109,222265,050
1,226,158
1,680,0701,357,0363,037,106
(2,012,216)1,024,890
402,09613,713
1,440,699
221,497286,866
508,363
$ 6,745,150
Consolidated Financial Statements
Shiseido Company, Limited, and SubsidiariesMarch 31, 2007 and 2008
CONSOLIDATED BALANCE SHEETS
55SHISEIDO ANNUAL REPORT 2008
Thousands ofMillions of yen U.S. dollars (Note 1)
2007 2008 2008LIABILITIES AND NET ASSETSCurrent Liabilities:
Short-term debt (Note 6) ·················································Current portion of long-term debt (Note 6)··························Notes and accounts payable:
Trade ········································································Unconsolidated subsidiaries and affiliates ·······················
·························································································
Other payables ······························································Accrued income taxes ····················································Reserve for sales returns ················································Accrued bonuses for employees ······································Accrued bonuses for directors and corporate auditors ··········Provision for liabilities and charges····································Deferred tax liabilities (Note 8) ·········································Other current liabilities ····················································
Total current liabilities···············································Long-Term Liabilities:
Long-term debt (Note 6)··················································Accrued retirement benefits (Note 7) ································Allowance for losses on guarantees ··································Deferred tax liabilities (Note 8) ·········································Other long-term liabilities ················································
Total long-term liabilities ···········································Total Liabilities ······················································
CONTINGENT LIABILITIES (Note 9)
NET ASSETS (Note 10)Shareholders’ Equity:
Common stock···························································Authorized: 1,200,000,000 shares as of March 31, 2007 and 2008 Issued: 424,562,353 shares as of March 31, 2007 and
410,000,000 shares as of March 31, 2008Capital surplus····························································Retained earnings ·······················································Less: treasury stock, at cost ·········································Treasury stock:11,730,235 shares as of March 31, 2007 and
5,794,022 shares as of March 31, 2008Total shareholders’ equity················································
Valuation, Translation Adjustments and Others:Unrealized gains (losses) on available-for-sale securities, net of taxes·····Deferred losses on hedges···········································Foreign currency translation adjustments························
Total valuation, translation adjustments and others ··············Stock Acquisition Rights ···············································Minority Interests in Consolidated Subsidiaries···············
Total Net Assets·····················································Total Liabilities and Net Assets ············································
¥ 4,45661,688
56,5251,173
57,698
53,01610,026
8,68611,703
1221,377
—19,069
227,841
61,69438,643
3504,1453,363
108,195336,036
64,507
70,294255,410(16,896)
373,315
13,744(233)
1,56115,072
5215,358
403,797¥739,833
¥ 4,70433,949
57,2941,040
58,334
56,1089,0307,945
12,417110888
422,500
205,989
24,56638,302
3503,7973,121
70,136276,125
64,507
70,258248,921(11,197)
372,489
5,274(57)
4,7649,981
15417,115
399,739¥675,864
$ 46,946338,812
571,79710,379
582,176
559,96090,12079,292
123,9221,0988,862
40224,551
2,055,779
245,170382,255
3,49337,89431,148
699,9602,755,739
643,782
701,1782,484,241(111,746)
3,717,455
52,635(569)
47,54599,611
1,537170,808
3,989,411$6,745,150
56 SHISEIDO ANNUAL REPORT 2008
Thousands ofMillions of yen U.S. dollars (Note 1)
2006 2007 2008 2008
Net Sales (Note 17)···················································
Cost of Sales ························································Gross profit ····················································
Selling, General and Administrative Expenses (Note 12)·······Operating Income (Note 17) ······························
Other Income (Expenses):Interest and dividend income ································Interest expense·················································Foreign exchange gain (loss) ·································Equity in earnings of affiliates ·······························Gain (loss) on sales of securities (Note 4) ··················Gain (loss) on sales of shares in affiliates··················Write-down of investments in
securities and other investments ····················Gain on sales of property, plant and equipment········Loss on disposal of property, plant and equipment·······Impairment loss (Notes 16 and 17) ························Restructuring expenses ·······································Additional retirement benefits (Note 7)······················Others, net ························································
············································································Income before income taxes ·····························
Income Taxes (Note 8)Current ·····························································Deferred····························································
············································································Income before minority interests····························
Minority Interests in Net Income of Consolidated Subsidiaries ···························
Net income ··············································
Yen U.S. dollars (Note 1)
Per ShareNet income — basic ···············································
— fully diluted···································Cash dividends ···················································
Weighted Average Number of Shares (thousands) ····
The accompanying notes are an integral part of the financial statements.
¥670,957
176,884494,073
455,19438,879
1,878(1,413)
49461
519—
(93)3,408(1,601)
(12,404)(2,703)
—2,513(9,341)29,538
12,274(27)
12,24717,291
(2,855)
¥ 14,436
¥34.434.430.0
412,855
¥694,594
185,533509,061
459,05650,005
2,169(1,881)
8658
143(20)
(28)1,987(1,253)(4,598)(1,102)
—2,200(2,239)47,766
13,6605,515
19,17528,591
(3,298)
¥ 25,293
¥60.960.732.0
412,572
¥723,485
186,466537,019
473,55463,465
2,977(1,882)(1,649)
149422
3,097
(96)948
(1,102)(1,151)
(598)(1,083)2,0282,060
65,525
16,5079,063
25,57039,955
(4,495)
¥ 35,460
¥86.185.734.0
407,696
$7,220,409
1,860,9385,359,471
4,726,088633,383
29,710(18,782)(16,457)
1,4874,211
30,908
(958)9,461
(10,998)(11,487)
(5,968)(10,808)20,24020,559
653,942
164,74190,449
255,190398,752
(44,860)
$ 353,892
$0.860.860.34
Shiseido Company, Limited, and Subsidiaries For the years ended March 31, 2006, 2007 and 2008
CONSOLIDATED STATEMENTS OF INCOME
57SHISEIDO ANNUAL REPORT 2008
Thousands Millions of yen
Number Unrealized gainsDeferred Foreign currency Stock
Minorityof shares Common Capital Retained Treasury stock, (losses) on available-
losses translation acquisitioninterests in
of common stock surplus earnings at cost for-sale securities,on hedges adjustments rights
consolidatedstock net of taxes subsidiaries
Balance as of March 31, 2005 ········ 424,562 ¥64,507 ¥70,258 ¥242,342 ¥(14,434) ¥ 8,003 — ¥(11,672) — ¥10,953Net income for the year ended March 31, 2006··· — — — 14,436 — — — — — —Cash dividends from retained earnings as
appropriation of earnings ·················· — — — (11,571) — — — — — —Directors’ and corporate auditors’
bonuses as appropriation of earnings ···· — — — (15) — — — — — —Other decreases in retained earnings ·· — — — (417) — — — — — —Disposal (purchase) of treasury stock ·· — — — (7) (2,725) — — — — —Change in unrealized gains (losses) on
available-for-sale securities, net of taxes ·· — — — — — 10,276 — — — —Change in foreign currency
translation adjustments················ — — — — — — — 4,918 — —Increase in minority interests·········· — — — — — — — — — 2,761
Balance as of March 31, 2006 ········ 424,562 64,507 70,258 244,768 (17,159) 18,279 — (6,754) — 13,714Net income for the year ended March 31, 2007··· — — — 25,293 — — — — — —Cash dividends from retained earnings as
appropriation of earnings ·················· — — — (6,186) — — — — — —Directors’ and corporate auditors’
bonuses as appropriation of earnings······ — — — (133) — — — — — —Interim cash dividends from retained earnings ···· — — — (6,601) — — — — — —Other decreases in retained earnings ·· — — — (174) — — — — — —Disposal (purchase) of treasury stock ·· — — 36 — 263 — — — — —Change in scope of consolidation ···· — — — (1,557) — — — — — —Change in unrealized gains (losses) on
available-for-sale securities, net of taxes·· — — — — — (4,535) — — — —Change in fair market value of
derivatives·································· — — — — — — (233) — — —Change in foreign currency
translation adjustments················ — — — — — — — 8,315 — —Issuance of stock acquisition rights ··· — — — — — — — — 52 —Increase in minority interests·········· — — — — — — — — — 1,644
Balance as of March 31, 2007 ········ 424,562 64,507 70,294 255,410 (16,896) 13,744 (233) 1,561 52 15,358Net income for the year ended March 31, 2008··· — — — 35,460 — — — — — —Cash dividends from retained earnings ··· — — — (13,464) — — — — — —Other decreases in retained earnings ·· — — — (491) — — — — — —Disposal (purchase) of treasury stock ····· — — 90 — (22,307) — — — — —Retirement of treasury stock ··········· (14,562) — (126) (27,880) 28,006 — — — — —Change in scope of consolidation ········ — — — (114) — — — — — —Change in unrealized gains (losses) on
available-for-sale securities, net of taxes ·· — — — — — (8,470) — — — —Change in fair market value of derivatives ···· — — — — — — 176 — — —Change in foreign currency translation
adjustments································· — — — — — — — 3,203 — —Issuance of stock acquisition rights ··· — — — — — — — — 102 —Increase in minority interests·········· — — — — — — — — — 1,757
Balance as of March 31, 2008 ········ 410,000 ¥64,507 ¥70,258 ¥248,921 ¥(11,197) ¥ 5,274 ¥ (57) ¥ 4,764 ¥154 ¥17,115
Thousands Thousands of U.S. dollars (Note 1)
Number Unrealized gainsDeferred Foreign currency Stock
Minorityof shares Common Capital Retained Treasury stock, (losses) on available-
losses translation acquisitioninterests in
of common stock surplus earnings at cost for-sale securities,on hedges adjustments rights
consolidatedstock net of taxes subsidiaries
Balance as of March 31, 2007 ········ 424,562 $643,782 $701,537 $2,549,002 $(168,623) $137,166 $(2,325) $15,579 $ 519 $153,273Net income for the year ended March 31, 2008 · — — — 353,892 — — — — — —Cash dividends from retained earnings ··· — — — (134,371) — — — — — —Other decreases in retained earnings ·· — — — (4,900) — — — — — —Disposal (purchase) of treasury stock ·· — — 898 — (222,624) — — — — —Retirement of treasury stock ············· (14,562) — (1,257) (278,244) 279,501 — — — — —Change in scope of consolidation ······· — — — (1,138) — — — — — —Change in unrealized gains (losses) on
available-for-sale securities, net of taxes ·· — — — — — (84,531) — — — —Change in fair market value of
derivatives·································· — — — — — — 1,756 — — —Change in foreign currency
translation adjustments················ — — — — — — — 31,966 — —Issuance of stock acquisition rights ··· — — — — — — — — 1,018 —Increase in minority interests·········· — — — — — — — — — 17,535
Balance as of March 31, 2008 ········ 410,000 $643,782 $701,178 $2,484,241 $(111,746) $52,635 $ (569) $47,545 $1,537 $170,808
The accompanying notes are an integral part of the financial statements.
Shiseido Company, Limited, and SubsidiariesFor the years ended March 31, 2006, 2007 and 2008
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
Consolidated Financial Statements
58 SHISEIDO ANNUAL REPORT 2008
Thousands ofMillions of yen U.S. dollars (Note 1)
2006 2007 2008 2008Cash Flows from Operating Activities:
Income before income taxes ·························································Depreciation···················································································Amortization of goodwill ································································Impairment loss ·············································································Increase (decrease) in liabilities for additional retirement benefits ·····Additional retirement benefits ·······················································Restructuring expenses·································································(Increase) decrease in prepaid pension 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 and corporate auditors ·······Increase (decrease) in provision for liabilities and charges··············Increase (decrease) in accrued retirement benefits ······················Interest and dividend income ························································Interest expense············································································Equity in earnings of affiliates························································(Gain) loss on sales of securities ···················································Write-down of investments in securities and other investments ·······(Gain) loss on sales and disposal of property, plant and equipment, net ····Gain (loss) on sales of shares in affiliate········································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 ·······Other ················································································
Subtotal ·····················································································Interest and dividends received·····················································Interest paid···················································································Income tax 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································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) ···············Acquisition of shares of consolidated subsidiaries·····················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················································Sales (acquisition) of treasury stock········································Cash dividends paid ·····························································Cash dividends 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) ·····················
The accompanying notes are an integral part of the financial statements.
Shiseido Company, Limited, and SubsidiariesFor the years ended March 31, 2006, 2007 and 2008
CONSOLIDATED STATEMENTS OF CASH FLOWS
Consolidated Financial Statements
¥ 29,53826,415
73112,404
(43,879)—
2,7031,118(206)587
——
(123)1,166
(1,878)1,413
(61)(519)
93(1,807)
—2,223
(4,319)663
(6,176)7,921
28,0071,873
(2,540)(5,528)
21,812
(1,468)3,912(383)
3,052(4,767)
11,183(20,096)
4,159(2,504)(4,871)
—
—(1,690)
833 (12,640)
(10,049)8,612
(12,890)(2,731)
(11,560)(1,208)
(133)(29,959)
1,768 (19,019)
108,281
(247)¥ 89,015
¥ 47,76627,876
7414,598
——
1,102(2,018)
(501)3,734
—122(31)
2,506(2,169)1,881
(58)(143)
28(734)
201,542
216(3,756)(2,362)3,147
83,5072,151
(2,269)(13,958)69,431
(4,519)1,668
(1,354)370
(1,725)9,842
(20,558)4,161
(2,878)(5,122)
—
132—
1,500(18,483)
85425,927
(10,977)298
(12,794)(1,672)
2011,8371,930
54,71589,015
1,530¥145,260
¥ 65,52527,068
7851,151
—1,083
598(2,940)
245(779)947(12)
(559)284
(2,977)1,882(149)(422)
96154
(3,097)(7,589)3,9546,179
(1,841)1,736
91,3222,897
(1,925)(16,986)75,308
(7,093)1,515
(1,525)896
(3,349)9,741
(17,449)18,711(5,399)(4,899)
92
2,411—
545(5,803)
2602,657
(61,219)(22,216)(13,462)(1,982)
79(95,883)
1,536(24,842)145,260
(24)¥120,394
$ 653,942270,140
7,83411,487
—10,8085,968
(29,341)2,445
(7,774)9,451(120)
(5,579)2,834
(29,710)18,782(1,487)(4,211)
9581,537
(30,908)(75,739)39,46161,667
(18,373)17,325
911,39728,912
(19,211)(169,521)751,577
(70,788)15,120
(15,220)8,942
(33,423)97,216
(174,142)186,736(53,882)(48,892)
918
24,062—
5,439(57,914)
2,59526,517
(610,968)(221,717)(134,351)(19,780)
788(956,916)
15,329(247,924)
1,449,701
(240)$1,201,537
59SHISEIDO ANNUAL REPORT 2008
1. BASIS OF PRESENTING CONSOLIDATED FINANCIAL STATEMENTSAccounting Principles and Presentation The financial statements of Shiseido Company, Limited (the “Company”) and its domestic consolidated subsidiarieshave been prepared in accordance with the provisions set forth in the Financial Instruments and Exchange Law andCorporate Law and in conformity with accounting principles generally accepted in Japan. The financial statementsof the Company’s overseas subsidiaries have been prepared in conformity with generally accepted accounting prin-ciples prevailing in the respective countries of domicile. The accompanying consolidated financial statements havebeen prepared from the accounts maintained by the Company and its consolidated subsidiaries in conformity withaccounting principles generally accepted in Japan, which are different from International Financial ReportingStandards in certain respects as to the application and disclosure requirements.
Certain items presented in the consolidated financial statements filed with the Director of the Kanto Finance Bureauin 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 31,2006 and 2007 to conform to presentation for the year ended March 31, 2008.
Amounts in U.S. dollars are included solely for the convenience of the reader. The rate of ¥100.20 = US$1 pre-vailing on March 31, 2008 has been used in translating the consolidated financial statements expressed inJapanese yen into U.S. dollars. Such translations should not be construed as representations that the Japanese yenamounts 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 96 subsidiaries (companies over which the Company exercises control over operations) as ofMarch 31, 2008 (97 and 100 as of March 31, 2006 and 2007, respectively). The accompanying consolidated finan-cial statements as of March 31, 2008 include the accounts of the Company and its 91 (93 and 92 as of March 31,2006 and 2007, respectively) significant subsidiaries (the “Companies”).
The Company has 22 affiliates (companies that are not subsidiaries but over which the Company exercises sig-nificant influence) as of March 31, 2008 (5 and 28 as of March 31, 2006 and 2007, respectively). Investments in3 affiliates (5 as of March 31, 2006 and 2007) are accounted for by the equity method as of March 31, 2008.
Shiseido (RUS), LLC was included in the scope of consolidation from the current fiscal year. Two other compa-nies —Tai Tsu Holding Limited and Shanghai Huani Transparent Beauty Soap Co., Ltd. — became consolidated sub-sidiaries from equity-method affiliates in the current fiscal year, and thus are included in the scope of consolidation.
Excluded from the scope of consolidation in the current fiscal year are two companies — Shiseido Logistics Co.,Ltd. and Shiseido Lease Co., Ltd. — due to the sale of shares in those companies.
The Company sold its shares in Shiseido Lease Co., Ltd. on January 31, 2008 and excluded it from the scope ofconsolidation. The statements of income and cash flows of Shiseido Lease Co., Ltd. are consolidated for the 10-month period from April 1, 2007 to January 31, 2008.
Also excluded from the scope of consolidation in the current fiscal year is Full Cast Co., Ltd., which is in the processof liquidation and is immaterial.
Shiseido of Hawaii, Inc. was merged into Shiseido Cosmetics (America) Ltd. and thus was excluded from the scopeof consolidation in the current fiscal year.
The major consolidated subsidiaries are listed in the “Main Subsidiaries and Affiliates” section on page 40.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 transactionsoccur at those subsidiaries between their fiscal year end and the Company’s fiscal year end, these transactions areincluded in consolidation.
Investments in 5 unconsolidated subsidiaries and 19 affiliates not accounted for under the equity method are stat-ed 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 subsidiariesare marked to fair value as of the date of acquisition of control.
All significant intercompany balances and transactions have been eliminated in consolidation. All materialunrealized profits included in assets resulting from intercompany transactions are eliminated.
(2) InventoriesInventories held by the Company are valued at cost, determined by the average method.
Inventories held by consolidated subsidiaries are valued at cost, determined principally by the last purchase pricemethod.
(3) Property, Plant and EquipmentBuildings (excluding leasehold improvements) are depreciated using the straight-line method. Other tangible fixedassets are, in principle, depreciated using the declining-balance method at the Company and its domestic con-
Shiseido Company, Limited, and Subsidiaries
Notes to the Consolidated Financial Statements
60 SHISEIDO ANNUAL REPORT 2008
solidated subsidiaries and the straight-line method at overseas consolidated subsidiaries. Major fixed assets in Japanare depreciated over specific useful lives based on durability, level of deterioration, and special characteristics whichrepresent approximately 20-30% reduction from useful lives for tax purposes.
Effective from the year ended March 31, 2008, the Company and its domestic consolidated subsidiarieschanged their depreciation method for tangible fixed assets acquired on or after April 1, 2007 in accordance withthe 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). Theeffect of this change on the consolidated operating income and income before income taxes for the yearended 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 residualvalue of 5% of acquisition cost of assets acquired before April 1, 2007 and the new residual value of 1 Yen (mem-orandum value) by the straight-line method over 5 years commencing from the fiscal year following the year in whichthe asset becomes fully depreciated to the original residual value. Depreciated amounts are included in depreci-ation expenses. As a result of this change, operating income and income before income taxes each declined ¥687million ($6,856 thousand), and net income declined ¥405 million ($4,042 thousand) for the year ended March 31,2008. The effects of this change in specific segments are described in the Segment Information section (Note 17).
(4) Intangible AssetsIntangible assets are, in principle, amortized using the straight-line method over the following estimated useful lives:
Trademark rights: 10 years, in principleSoftware: 5 years, in principle
(5) Long-Term Prepaid ExpensesLong-term prepaid expenses are primarily amortized using the straight-line method.
(6) GoodwillAmortization of goodwill is determined on a case by case basis and is generally amortized over a period not exceed-ing 20 years.
Goodwill in certain overseas subsidiaries is not amortized, pursuant to U.S. generally accepted accounting prin-ciples and accounting principles in other countries. Instead, impairment is assessed either annually or if certain indi-cators arise, and any impairment loss is accounted for at that time.
(7) SecuritiesThe Company and its domestic consolidated subsidiaries categorize their existing securities as available-for-sale securities. Those securities with market prices are carried at fair values prevailing at the balance sheet date,with net unrealized gains and losses, net of related taxes, reported separately in net assets. The cost of securitiessold 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 atthe amount of interest in such partnerships calculated based on ownership percentage. Investment gain orloss is included in net income or loss in proportion to the ownership interests in the net asset value of the part-nership.
Securities with remaining maturities of one year or less and securities that are recognized as cash equivalentsare classified as short-term investments in securities and others are included in investments in securities as non-current assets.
(8) Accounting for LeasesFinance leases of the Company and its domestic consolidated subsidiaries, other than those deemed to transferthe ownership of the leased assets to lessees, are accounted for as operating lease transactions. Financialleases of overseas consolidated subsidiaries are principally capitalized.
(9) Net Income and Cash Dividends per ShareNet income per share of common stock is based on the weighted average number of shares of common stock out-standing during each year. The computation of diluted net income per common stock reflects the maximum pos-sible dilution that could occur if securities or other contracts to issue common stock were exercised orconverted into common stock or resulted in the issuance of common stock.
Cash dividends per share shown for each year in the consolidated statements of income represent dividendsdeclared as applicable to the respective year, rather than those paid in each year.
(10) Accounting for Consumption TaxIn Japan, consumption tax is imposed at a flat rate on all domestic consumption of goods, assets and services (withcertain exemptions). The consumption tax withheld upon sales is recorded as a liability. Consumption tax,which is paid by the Company and its domestic consolidated subsidiaries on purchases of goods, assets and serv-ices, 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.
61SHISEIDO ANNUAL REPORT 2008
(11) Allowance for Doubtful AccountsThe Company and its domestic consolidated subsidiaries provide the allowance for doubtful accounts based on thepercentage of actual bad debt losses against the balance of total receivables and the amount of uncollectible receiv-ables estimated on an individual basis. Overseas consolidated subsidiaries record the allowance based primarilyon the amount of uncollectible receivables estimated on an individual basis.
(12) Reserve for Sales ReturnsThe Companies provide reserve for sales returns considering the market distribution status, product resale statusand past return ratios.
Prior to the year ended March 31, 2007, the Companies provided a reserve for sales returns based on historicalreturn ratios. As a result of accumulation of past data and improvements in analytical precision, effective for theyear ended March 31, 2007, the Company and its domestic consolidated subsidiaries adopted a new methodologyto more accurately estimate sales returns that considers the market distribution status and product resale status.Accordingly, as a result of this change, operating income and income before income taxes decreased ¥3,636 mil-lion and net income decreased ¥2,145 million for the year ended March 31, 2007.
(13) Accrued Bonuses for EmployeesThe Companies provide accrued bonuses for employees based on the estimated amounts to be paid in respect ofthe fiscal year. This reserve includes bonuses for corporate officers who are non-Board members, and the cal-culations are the same as those for the reserve for bonuses for directors and corporate auditors.
Previously, the Company included accrued bonuses for employees in other current liabilities. Due to the introductionof a performance-based bonus system, the accrued amount represents an estimate, and, therefore, theCompany recategorized this item as a separate line item; accrued bonuses for employees from the year endedMarch 31, 2007.
(14) Accrued Bonuses for Directors and Corporate AuditorsThe Company and its domestic consolidated subsidiaries provide accrued bonuses for board directors (except forexternal directors) based on the estimated amounts to be paid in respect of the fiscal year.
Effective from the year ended March 31, 2007, the Company and its domestic consolidated subsidiariesapplied Accounting Standard for Directors’ Bonuses (Accounting Standards Board of Japan, Statement No. 4,November 29, 2005). As a result, for the year ended March 31, 2007, selling, general and administrativeexpenses increased ¥122 million and operating income, income before income taxes, and net incomedecreased by the same amount.
(15) Provision for Liabilities and ChargesTo provide for losses due to legal risks, product guarantee risks, currency risks, tax risks, and other factors, certainoverseas consolidated subsidiaries make provision, the amount of which is based on estimated losses to be incurredconsidering the likelihood of such losses in the future.
Previously, certain overseas consolidated subsidiaries included provision for liabilities and charges in other cur-rent liabilities. In order to appropriately present its state, this item is presented separately on the balance sheet fromthe year ended March 31, 2007.
(16) Accrued Retirement BenefitsThe Companies have obligations to pay retirement benefits to their employees and, therefore, the Company, itsdomestic consolidated subsidiaries and certain overseas consolidated subsidiaries provide accrued retirement ben-efits 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 isshorter than the average remaining years of service of the eligible employees. Unrecognized net actuarial gain orloss is primarily amortized from the following year on a straight-line basis over a 10-year period, which is shorterthan the average remaining years of service of the eligible employees.
Until the previous fiscal year, accrued retirement benefits for corporate officers were included in accruedretirement benefits. However, in accordance with the public announcement of the “Auditing TreatmentRelating to Reserve Defined under the Special Tax Measurement Law, Reserve Defined under the SpecialLaw, and Reserve for Director and Corporate Auditor Retirement Benefits” (Japanese Institute of CertifiedPublic Accountants, Auditing and Assurance Practice Committee, Report No. 42, April 13, 2007) and because theyare definitely payable within one year, accrued benefits for corporate officers are included in “Other payables” effec-tive for the year ended March 31, 2008.
(17) Accrued Retirement Benefits for Directors and Corporate AuditorsIn the year ended March 31, 2004, the Board of Directors of the Company resolved to abolish the unfunded retire-ment benefit plans for directors, corporate auditors and corporate officers, effective on the date of the OrdinaryGeneral Meeting of Shareholders for the year ended March 31, 2004. Until the previous fiscal year, theCompany provided the amount equivalent to the unfunded lump-sum payments for their duties up to March 31, 2004as accrued retirement benefits for directors and corporate auditors, as determined by the Board of Directors.
Notes to the Consolidated Financial Statements
62 SHISEIDO ANNUAL REPORT 2008
Until the previous fiscal year, the Company provided the amount equivalent to the unfunded lump-sum paymentsfor their services as accrued retirement benefits for directors and corporate auditors. However, in accordance withthe public announcement of the “Auditing Treatment Relating to Reserve Defined under the Special TaxMeasurement Law, Reserve Defined under the Special Law, and Reserve for Director and Corporate AuditorRetirement Benefits” (Japanese Institute of Certified Public Accountants, Auditing and Assurance PracticeCommittee, Report No. 42, April 13, 2007), these benefits are included in “Other Long-Term Liabilities” effectivefor the year ended March 31, 2008.
(18) Allowance for Losses on GuaranteesThe Company provides an allowance for estimated probable losses on guarantees based on the financial status ofthe guaranteed parties.
(19) Foreign Currency TranslationReceivables and payables denominated in foreign currencies are translated into Japanese yen at the exchange rateprevailing on the respective balance sheet dates, and resulting exchange gains or losses are included in net incomeor loss for the period.
Investments in unconsolidated subsidiaries and affiliates denominated in foreign currencies are translated at thehistorical exchange rates prevailing at the time of the transaction.
(20) Derivatives and Hedging ActivitiesThe Companies use foreign currency exchange agreements, currency swap agreements and interest rateswap agreements to reduce market risk. The Companies limit their use of foreign currency related transactions tothe amounts of foreign currency denominated receivables and payables, and do not use derivatives for specula-tive trading. The Companies’ basic policies regarding derivatives are determined by the Board of Directors, and con-tracts are entered into and controlled by the Financial Department. Transactions involving derivative contracts areexposed to market risks, but the counter-parties are limited to highly rated banking institutions and theCompanies consider there are no material credit risks associated with them.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 maturity of the hedged trans-actions. The Companies’ policy is to evaluate on a semiannual basis the effectiveness of derivatives based on eitherthe difference between the accumulated amount of cash flows from the hedging instrument and from the corre-sponding hedged item or variance between the market value of the hedging instrument and the hedged item.
(21) Foreign Currency Financial StatementsForeign currency financial statement amounts of overseas consolidated subsidiaries and affiliates are translated intoJapanese yen at the exchange rate prevailing at the respective balance sheet dates of those subsidiaries for assetsand liabilities, and at the historical exchange rate for shareholders’ equity. All income and expense amounts are trans-lated at the average rate 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.
(22) Definition of “Cash and Cash Equivalents” in Statements of Cash FlowsCash 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 pur-chase that are exposed to insignificant risk of change in value.
(23) Accounting Standard for Impairment of Fixed AssetsOn August 9, 2002, the Business Accounting Council of Japan issued the Accounting Standard for Impairment ofFixed Assets. The standard requires that fixed assets be reviewed for impairment whenever events or changes incircumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss is rec-ognized in the consolidated statement of income by reducing the carrying amount of impaired assets or agroup of assets to the recoverable amount to be measured as the higher of net realizable value and value in use.
The Company and its domestic consolidated subsidiaries applied this standard effective for the year beginning April1, 2005. As a result, cost of sales decreased by ¥124 million, gross profit increased by ¥124 million, selling, gen-eral and administrative expenses increased by ¥261 million, operating income decreased by ¥137 million and incomebefore income taxes decreased by ¥6,223 million for the year ended March 31, 2006, as compared with theamounts which would have been reported if the previous standards had been applied consistently.
(24) Accounting Standard for Presentation of Net Assets in the Balance SheetEffective from the year ended March 31, 2007, the Company applied Accounting Standard for Presentation of NetAssets in the Balance Sheet (Accounting Standards Board of Japan, Statement No. 5, December 9, 2005) andImplementation Guidance on Accounting Standard for Presentation of Net Assets in the Balance Sheet(Accounting Standards Board of Japan, Guidance No. 8, December 9, 2005).
63SHISEIDO ANNUAL REPORT 2008
(25) Accounting Standards for Business Combinations and DivestituresEffective from the year ended March 31, 2007, the Company and its domestic consolidated subsidiariesapplied Accounting Standard for Business Combinations (Business Accounting Council, October 31, 2003) andAccounting Standard for Business Divestitures (Accounting Standards Board of Japan, Statement No. 7,December 27, 2005) and Guidance on Accounting Standard for Business Combinations and AccountingStandard for Business Divestitures (Accounting Standards Board of Japan, Guidance No. 10, final revision onDecember 22, 2006).
(26) Accounting Standards for Stock OptionsEffective from the year ended March 31, 2007, the Company applied Accounting Standard for Share-BasedPayment (Accounting Standards Board of Japan, Statement No. 8, December 27, 2005) and ImplementationGuidance on Accounting Standard for Share-Based Payment (Accounting Standards Board of Japan, Guidance No.11, final revision on May 31, 2006). As a result, for the year ended March 31, 2007, selling, general and admin-istrative expenses increased ¥52 million, operating income and income before income taxes decreased by the sameamount and net income decreased by ¥45 million.
(27) Revision to Accounting Standard for Treasury Stock and Reduction of Legal ReservesEffective from the year ended March 31, 2007, the Company applied the revised Accounting Standard forTreasury Stock and Reduction of Legal Reserves (Accounting Standards Board of Japan, Statement No. 1, final revi-sion on August 11, 2006) and Implementation Guidance on Accounting Standard for Treasury Stock andReduction of Legal Reserves (Accounting Standards Board of Japan, Guidance No. 2, final revision on August 11,2006). The change had no impact on the consolidated statements of income for the year ended March 31, 2007.
(28) Application of Control Criteria and Influence Criteria to Investment AssociationsEffective from the year ended March 31, 2007, the Company applied Practical Solution on Application ofControl Criteria and Influence Criteria to Investment Associations (Accounting Standards Board of Japan, PITF No.20, September 8, 2006). As a result, for the year ended March 31, 2007, operating income increased ¥1,376 mil-lion, while income before income taxes decreased ¥507 million, and net income decreased ¥337 million.
(29) Changes in ClassificationIn the year ended March 31, 2006, the Company introduced a new consolidated operations managementframework. This entailed setting up a Group-standard account item system, from the perspective of combining theinstitutional accounting and management accounting frameworks. The Company also reassessed its method forcalculating business earnings, with the aim of gaining a more accurate assessment of its financial performance. Toobtain a clearer insight into cost of sales compared to net sales, the Company reassessed the nature of certainitems, such as distribution costs and research and development expenses; which previously had been included with-in cost of sales. As from the year ended March 31, 2006, those items are now included within selling, general andadministrative expenses. With a view to providing a more accurate report of the Company’s operating income, amor-tization of goodwill and trademark rights, previously included within other expenses, is now included within sell-ing, general and administrative expenses, because acquisitions of goodwill and trademark rights are expected tobenefit the Company’s operating earnings.
In the previous fiscal year, negotiable certificates of deposit issued by domestic corporations was included in “Cashand Time Deposits.” Effective from the year ended March 31, 2008, however, this item is included in “Short-TermInvestments in Securities.” This change is in accordance with “Practical Guidelines for Accounting for FinancialInstruments” (Accounting Committee Report No. 14, issued by the Japanese Institute of Certified PublicAccountants, July 4, 2007), and amended “Q&A on Accounting for Financial Instruments” issued by theJapanese Institute of Certified Public Accountants (JICPA, November 6, 2007).
3. CASH FLOW INFORMATIONThe reconciliation of cash and time deposits shown in the consolidated balance sheets and cash and cash equivalentsshown in the consolidated statements of cash flows as of March 31, 2007 and 2008 is as follows:
Thousands ofMillions of yen U.S. dollars (Note 1)
2007 2008 2008Cash and time deposits ··························································· ¥ 65,453 ¥ 67,413 $ 672,784Short-term investments in securities ········································ 85,544 65,075 649,451
Total ··········································································· ¥150,997 ¥132,488 $1,322,235Time deposits with maturities exceeding 3 months··················· (4,121) (9,679) (96,596)Equity securities and debt securities with maturities exceeding 3 months ···· (1,616) (2,415) (24,102)Cash and cash equivalents······················································· ¥145,260 ¥120,394 $1,201,537
Notes to the Consolidated Financial Statements
64 SHISEIDO ANNUAL REPORT 2008
The assets and liabilities on the date of sale of Mieux Products Co., Ltd., which was sold during the year ended March31, 2007, and the relationship between the proceeds from sale of shares and net cash proceeds from sale of shares isas follows:
Thousands ofMillions of yen U.S. dollars (Note1. (1))
Current assets····························································································· ¥1,707 $14,455Non–current assets ······················································································ 904 7,655Current liabilities ·························································································· (790) (6,690)Non–current liabilities·························································································· (236) (1,998)Minority interests in consolidated subsidiaries ······················································ (555) (4,700)Loss on sale of shares of Mieux Products Co., Ltd. ··········································· (20) (169)Proceeds from sale of shares of Mieux Products Co., Ltd. ·································· ¥1,010 $ 8,553Cash and cash equivalents of Mieux Products Co., Ltd.······································ (878) (7,435)Net cash proceeds from sale of shares of Mieux Products Co., Ltd. ····················· ¥ 132 $ 1,118
The assets and liabilities on the date of sale of Shiseido Logistics Co., Ltd., which was sold during the year endedMarch 31, 2008, and the relationship between the proceeds from sale of shares and net cash proceeds from sale ofshares is as follows:
Thousands ofMillions of yen U.S. dollars (Note 1)
Current assets····························································································· ¥ 4,411 $ 44,022Non-current assets······················································································· 522 5,209Current liabilities ·························································································· (3,754) (37,465)Non-current liabilities ·························································································· (653) (6,517)Investment account after sales of shares ····························································· 0 0Decrease in retained earnings resulting from exclusion of consolidated subsidiaries ····· (53) (529)Profit on sale of shares of Shiseido Logistics Co., Ltd. ······································· 2,379 23,743Proceeds from sale of shares of Shiseido Logistics Co., Ltd. ······························· ¥ 2,852 $ 28,463Cash and cash equivalents of Shiseido Logistics Co., Ltd.··································· (1,923) (19,191)Net cash proceeds from sale of shares of Shiseido Logistics Co., Ltd. ·················· ¥ 929 $ 9,272
The assets and liabilities on the date of sale of Shiseido Lease Co., Ltd., which was sold during the year ended March31, 2008, and the relationship between the proceeds from sale of shares and net cash proceeds from sale of shares isas follows:
Thousands ofMillions of yen U.S. dollars (Note 1)
Current assets····························································································· ¥ 3,449 $ 34,421Non-current assets······················································································· 6,367 63,543Current liabilities ·························································································· (4,660) (46,507)Non-current liabilities··························································································· (4,236) (42,275)Unrealized profit and other ·················································································· 38 379Investment account after sales of shares ····························································· (18) (180)Decrease in retained earnings resulting from exclusion of consolidated subsidiaries ···· (61) (609)Profit on sale of shares of Shiseido Lease Co., Ltd. ··········································· 723 7,216Proceeds from sale of shares of Shiseido Lease Co., Ltd. ··································· ¥ 1,602 $ 15,988Cash and cash equivalents of Shiseido Lease Co., Ltd.······································· (120) (1,198)Net cash proceeds from sale of shares of Shiseido Lease Co., Ltd. ······················ ¥ 1,482 $ 14,790
4. SECURITIESThe acquisition cost, carrying amount, gross unrealized gains and losses for securities with fair value by security typeat March 31, 2007 and 2008, are as follows:
Available-for-sale securities:Millions of yen
2007Cost Carrying amount Gross unrealized gains Gross unrealized losses
Equity securities ·········································· ¥11,077 ¥34,127 ¥23,072 ¥22Corporate bonds ·········································· 8,532 8,509 4 27Other ·························································· 1,100 1,285 185 —
···································································· ¥20,709 ¥43,921 ¥23,261 ¥49
Millions of yen2008
Cost Carrying amount Gross unrealized gains Gross unrealized losses
Equity securities ·········································· ¥ 9,505 ¥18,976 ¥9,603 ¥133Corporate bonds ·········································· 4,500 4,024 6 390Other ·························································· 1,615 1,627 13 92
···································································· ¥15,620 ¥24,627 ¥9,622 ¥615
65SHISEIDO ANNUAL REPORT 2008
Thousands of U.S. dollars (Note 1)2008
Cost Carrying amount Gross unrealized gains Gross unrealized losses
Equity securities ·········································· $ 94,860 $189,381 $95,838 $1,328Corporate bonds ·········································· 44,910 40,160 60 3,892Other ·························································· 16,118 16,237 130 918
···································································· $155,888 $245,778 $96,028 $6,138The carrying amount of securities without fair value by security type as of March 31, 2007 and 2008 is summarized
as follows:
Available-for-sale securities:Carrying amount
Thousands of Millions of yen U.S. dollars (Note 1)
2007 2008 2008Unlisted equity securities························································· ¥ 17,822 ¥11,142 $111,198Unlisted bonds········································································ 3,669 2,456 24,511Other ····················································································· 82,305 65,227 650,968...................................................................................................... ¥103,796 ¥78,825 $786,677
Proceeds from sales, gross realized gains and losses from the sale of available-for-sale securities in the years endedMarch 31, 2006, 2007 and 2008 are as follows:
Carrying amountThousands of
Millions of yen U.S. dollars (Note 1)2006 2007 2008 2008
Proceeds from sales ······························· ¥14,235 ¥10,212 ¥13,682 $136,547Gross realized gains ································ 519 310 2,109 21,047Gross realized losses······························· — 167 1,687 16,836
The carrying value of debt securities by contractual maturities for securities classified as available-for-sale as ofMarch 31, 2008 is as follows:
Thousands ofMillions of yen U.S. dollars (Note 1)
Due in 1 year or less····················································································· ¥15,206 $151,757Due after 1 year through 5 years ···································································· 2,111 21,068Due after 5 years through 10 years ································································· 128 1,277Due after 10 years ······························································································ 4,000 39,920
¥21,445 $214,022
5. INVENTORIESInventories held by the Companies as of March 31, 2007 and 2008 are as follows:
Thousands of Millions of yen U.S. dollars (Note 1)
2007 2008 2008Merchandise and products······················································· ¥ 48,346 ¥41,365 $412,824Raw materials ········································································· 14,218 15,421 153,902Work in process ······································································ 3,991 4,304 42,954Supplies ··········································································· 7,336 7,396 73,813
¥73,891 ¥68,486 $683,493
6. SHORT-TERM AND LONG-TERM DEBT
Short-term debt mainly consisting of bank borrowings as of March 31, 2007 and 2008 is ¥4,456 million and¥4,704 million ($46,946 thousand), respectively. The weighted average interest rates on short-term debt out-standing at March 31, 2007 and 2008 are 5.31% and 4.25%, respectively.
Long-term debt as of March 31, 2007 and 2008 is as follows:
Thousands of Millions of yen U.S. dollars (Note 1)
2007 2008 2008Long-term borrowings from banks and other financial institutions
(Borrowings due within one year, weighted average interest rate 1.66%) ···· ¥ 3,820 ¥27,100 $270,459(Borrowings due after one year, weighted average interest rate 5.14%) ···· 34,547 4,566 45,569
0.40% unsecured yen bonds due in May 2007·························· 50,000 — —1.12% unsecured yen bonds due in March 2010······················· 20,000 20,000 199,601Medium-Term Notes due 2007–2008* ····································· 15,015 6,849 68,353
........................................................................................ ¥123,382 ¥58,515 $583,982Less: portion due within one year············································· (61,688) (33,949) (338,812)
........................................................................................ ¥ 61,694 ¥24,566 $245,170
*** These notes have been issued by Shiseido International Corporation and Shiseido International Europe S.A. The interest rates during theyear ended March 31, 2008 ranged from 4.01% to 4.05%.
Notes to the Consolidated Financial Statements
66 SHISEIDO ANNUAL REPORT 2008
The aggregate annual maturities of long-term debt as of March 31, 2008 are as follows:
Thousands of For the Years Ending March 31 Millions of yen U.S. dollars (Note 1)
2009 ········································································································ ¥33,949 $338,8122010 ········································································································ 20,000 199,6012011 ········································································································ — —2012 ········································································································ 2,283 22,7842013 ········································································································ 2,283 22,7852014 and thereafter······························································································ — —
¥58,515 $583,982
Assets pledged as collateral as of March 31, 2008 are as follows:
Thousands of Millions of yen U.S. dollars (Note 1)
Buildings and structures···························································································· ¥19,058 $190,200Other investments ······························································································ 15,200 151,696Investments in securities····················································································· 1,512 15,090Cash and time deposits ······················································································· 1,242 12,395
······················································································································ ¥37,012 $369,381
The above assets are pledged as collateral for derivative transactions (interest rate swaps) and the following col-lateralized liability as of March 31, 2008:
Thousands of Millions of yen U.S. dollars (Note 1)
Current portion of long-term debt ············································································· ¥27,100 $270,459
7. ACCRUED RETIREMENT BENEFITSThe Company and its domestic consolidated subsidiaries have contributory funded pension plans and unfunded ter-mination allowance plans, which are defined benefit plans. In September 2004, the Company transferred part of its pen-sion plan to an unfunded termination allowance plan. In October 2004, the Company discontinued part of its defined ben-efit plan and transferred to a defined contribution plan and a prepaid termination allowance plan. In some cases, addi-tional voluntary retirement benefits are paid when an employee retires. These are accounted for as retirement bene-fit expenses when incurred.
Certain overseas consolidated subsidiaries also have defined benefit pension plans, unfunded terminationallowance plans and defined contribution plans.
The reconciliation of projected benefit obligations, plan assets, funded status of the pension benefit plans, prepaidpension expense and accrued retirement benefits for significant plans recognized in the accompanying balancesheets as of March 31, 2007 and 2008 is as follows:
Thousands of Millions of yen U.S. dollars (Note 1)
2007 2008 2008Projected benefit obligations··················································· ¥(190,449) ¥(195,564) $(1,951,736)Fair value of plan assets ························································· 190,405 173,532 1,731,856Funded status of the pension benefit plans ····························· (44) (22,032) (219,880)Unamortized net obligation at transition* ································· 1,083 932 9,301Unrecognized net actuarial loss··············································· 5,010 27,973 279,172Unrecognized prior service cost ·············································· (9,157) (7,136) (71,218)Additional minimum liability* ·················································· (1,482) (1,351) (13,483)Net retirement benefit obligation ················································ ¥ (4,590) ¥ (1,614) $ (16,108)Prepaid pension expense ······················································· 32,630 35,159 350,888Accrued retirement benefits ··················································· ¥ (37,220) ¥ (36,773) $ (366,996)
The net periodic pension benefit cost for the years ended March 31, 2006, 2007 and 2008 are as follows:
Thousands of Millions of yen U.S. dollars (Note 1)
2006 2007 2008 2008Service cost ················································ ¥ 7,606 ¥ 7,876 ¥ 7,862 $ 78,463Interest cost················································ 4,304 4,546 4,646 46,367Expected return on plan assets ···················· (5,983) (7,328) (7,614) (75,988)Amortization of net obligation at transition* ············ 108 113 113 1,128Amortization of net actuarial loss······················· 5,367 3,069 2,843 28,373Amortization of prior service cost ················· (2,124) (2,125) (2,021) (20,169)The net periodic pension benefit cost ··········· ¥ 9,278 ¥ 6,151 ¥ 5,829 $ 58,174
*** These figures pertain to a Taiwanese subsidiary, according to the Taiwanese retirement allowance accounting system.Net obligation at transition is amortized by the straight-line method over a 17-year period.
67SHISEIDO ANNUAL REPORT 2008
The discount rate used to determine the actuarial present value of projected benefit obligations as of March 31, 2007and 2008 under the plans that cover employees of the Company and certain domestic subsidiaries is 2.5%. The expect-ed rate of return on plan assets of those plans as of March 31, 2007 and 2008 is 4.0%. Allocation of pension benefitsto each year of service of the employees is based on the “benefits/years-of-service” approach, whereby the sameamount of benefits is allocated to each year.
In addition, certain other overseas consolidated subsidiaries record accrued retirement benefits, according to theaccounting standards of their respective countries. The total amount of these accrued retirement benefits at March 31,2007 and 2008 is ¥1,423 million and ¥1,529 million ($15,259 thousand), respectively.
8. INCOME TAXESIncome tax applicable to the Company and its domestic consolidated subsidiaries consist of corporation, inhabi-tants’ and enterprise taxes. The statutory income tax rate is approximately 41.0% for the years ended March 31, 2006,2007 and 2008.
Since the difference between the statutory tax rate and the effective tax rate for the fiscal years ended March 31,2007 and 2008 is less than 5%, a reconciliation of these two rates is not presented.
Deferred tax assets and liabilities (both current and non-current) as of March 31, 2007 and 2008 are as follows:
Thousands of Millions of yen U.S. dollars (Note 1)
2007 2008 2008Deferred tax assets:
Unrealized intercompany profit in inventory andproperty, plant and equipment ············································· ¥ 8,944 ¥ 9,020 $ 90,020
Depreciation ········································································ 10,731 8,244 82,275Write-down of investments in securities and other investments······ 8,981 7,909 78,932Non-deductible cost and valuation loss on inventory················· 6,465 6,572 65,589Tax losses carried forward····················································· 9,845 5,651 56,397Accrued expenses································································ 4,980 5,401 53,902Accrued bonuses for employees············································ 4,613 4,868 48,583Accrued enterprise tax·························································· 812 777 7,754Accrued retirement benefits ·················································· 1,129 409 4,082Other·················································································· 7,745 4,947 49,372Total gross deferred tax assets ·············································· 64,245 53,798 536,906Less: valuation allowance······················································ (10,931) (8,839) (88,213)Total deferred tax assets······················································· ¥ 53,314 ¥44,959 $448,693
Deferred tax liabilities:Unrealized gains (losses) on available-for-sale securities ··········· ¥ 9,526 ¥ 3,674 $ 36,666Goodwill and other intangible assets ······································ 1,636 1,869 18,653Undistributed earnings of foreign subsidiaries ························· — 1,256 12,535Special tax-purpose reserve··················································· 1,101 1,063 10,609Depreciation ········································································ 518 288 2,874Other·················································································· 497 211 2,106Total deferred tax liabilities ···················································· ¥ 13,278 ¥ 8,361 $ 83,443Net deferred tax assets ························································ ¥ 40,036 ¥36,598 $365,250
9. CONTINGENT LIABILITIESAs of March 31, 2008, the Company was contingently liable as a guarantor for Shiseido Lease Co., Ltd.’s own guaranteesfor the lease liabilities of third customers, amounting to ¥153 million ($1,527 thousand). Shiseido Lease Co., Ltd. wasdisposed during the year ended March 31, 2008. As of March 31, 2007, the Company had no such contingent liabilities.
Note: Shiseido Lease Co., Ltd. was renamed SDL Co., Ltd. as of April 1, 2008.
10. NET ASSETSThe Corporate Law (“the Law”) became effective on May 1, 2006, replacing the Commercial Code (“the Code”). UnderJapanese 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 ofthe price of the new shares as additional paid-in capital, which is included in capital surplus.
Under the Law, in cases where dividend distribution of surplus is made, the lesser of an amount equal to 10% of thedividend or the excess, if any, of 25% of common stock over the total of additional paid-in capital and legal earningsreserve, must be set aside as additional paid-in capital or legal earnings reserve. Legal earnings reserve is included inretained earnings in the accompanying consolidated balance sheets. Under the Code, companies were required to setaside an amount equal to at least 10% of cash dividends and other cash appropriations as legal earnings reserve untilthe total of legal earnings reserve and additional paid-in capital equaled 25% of common stock. Under the Code, legalearnings reserve and additional paid-in capital could be used to eliminate or reduce a deficit by a resolution of the share-holders’ meeting or could be capitalized by a resolution of the Board of Directors. Under the Law, both of these appro-
Notes to the Consolidated Financial Statements
68 SHISEIDO ANNUAL REPORT 2008
priations generally require a resolution of the shareholders’ meeting.Additional paid-in capital and legal earnings reserve may not be distributed as dividends. Under the Code, however,
additional paid-in capital and legal earnings reserve could be transferred to retained earnings by the resolution of the share-holders’ meeting as long as the total amount of legal earnings reserve and additional paid-in capital remained equal toor exceeded 25% of the common stock balance. Under the Law, all additional paid-in capital and legal earningsreserve may be transferred to other capital surplus and retained earnings, respectively, which are potentially availablefor dividends. The maximum amount that the Company can distribute as dividends is calculated based on the non-con-solidated financial statements of the Company in accordance with the Law. Under the Law, companies can pay dividendsat any time during the fiscal year in addition to the year-end dividend upon resolution at the shareholders’ meeting. Forcompanies that meet certain criteria such as: (1) having a Board of Directors, (2) having accounting auditors, (3) havinga Board of Corporate Auditors, (4) the term of service of the directors is prescribed as one year rather than two yearsas the normal term by its articles of incorporation, and (5) the opinion of accounting auditors is unqualified, theBoard of Directors may declare dividends if the company has prescribed so in its articles of incorporation.Semiannual interim dividends may also be paid once a year upon resolution by the Board of Directors if the articles ofincorporation of the company so stipulate. Under the Code, certain limitations were imposed on the amount of capitalsurplus and retained earnings available for dividends. Cash dividends charged to retained earnings during the fiscal yearwere year-end cash dividends for the preceding fiscal year and interim cash dividends for the current fiscal year.
Appropriations are not accrued in the consolidated financial statements for the corresponding period, but arerecorded in the subsequent accounting period after shareholders’ approval has been obtained.
Retained earnings at March 31, 2008 include amounts representing year-end cash dividends of ¥6,871 million ($68,573thousand), ¥17.0 ($0.17) per share, which were approved at the shareholders’ meeting held on June 25, 2008.
On November 7, 2007, the Company retired 14,562,353 shares of treasury stock.
11. STOCK OPTION PLANSummarized information on the stock options granted as of March 31, 2008 is as follows:
➀ Stock option plan approved by the shareholders on June 27, 2002Stock options granted on
July 16, 2002 Total
Number of shares for options granted 578,000 shares 578,000 sharesNumber of shares for options outstanding 253,000 shares 253,000 sharesExercise price ¥1,669Exercisable period July 1, 2004 - June 26, 2012
➁ Stock option plan approved by the shareholders on June 27, 2003Stock options granted on
July 31, 2003 Total
Number of shares for options granted 878,000 shares 878,000 sharesNumber of shares for options outstanding 181,000 shares 181,000 sharesExercise price ¥1,287Exercisable period July 1, 2005 - June 26, 2013
➂ Stock option plan approved by the shareholders on June 29, 2004Stock options granted on Stock options granted on Stock options granted on
July 26, 2004 November 30, 2004 March 9, 2005 Total
Number of shares for options granted 1,004,000 shares 16,000 shares 78,000 shares 1,098,000 sharesNumber of shares for
options outstanding 749,000 shares — — 749,000 sharesExercise price ¥1,427 ¥1,419 ¥1,445Exercisable period July 1, 2006 - June 28, 2014 December 1, 2004 - November 30, 2007 April 1, 2005 - March 31, 2008
➃ Stock option plan approved by the shareholders on June 29, 2005Stock options granted on Stock options granted on
July 28, 2005 July 28, 2005
Number of shares for options granted 408,000 shares 261,000 sharesNumber of shares for options outstanding 316,000 shares 258,000 sharesExercise price ¥1 ¥1,481Exercisable period July 1, 2008 - June 30, 2011 July 1, 2007 - June 28, 2015
Stock options granted on Stock options granted on Stock options granted onOctober 27, 2005 November 7, 2005 March 8, 2006 Total
Number of shares for options granted 11,000 shares 1,851,000 shares 63,000 shares 2,594,000 sharesNumber of shares for
options outstanding 3,000 shares 705,000 shares 21,000 shares 1,303,000 sharesExercise price ¥1,865 ¥1,896 ¥2,012Exercisable period November 1, 2005 - October 31, 2008 July 1, 2007 - June 30, 2010 April 1, 2006 - March 31, 2009
69SHISEIDO ANNUAL REPORT 2008
➄ Stock option plan approved by the shareholders on June 29, 2006Stock options granted on
August 23, 2006
Number of shares for options granted 9,000 sharesNumber of shares for options outstanding 9,000 sharesExercise price ¥1Exercisable period July 1, 2008 - June 30, 2011
Stock options granted on Stock options granted on Stock options granted onAugust 23, 2006 August 23, 2006 August 23, 2006 Total
Number of shares for options granted 12,000 shares 67,000 shares 74,000 shares 162,000 sharesNumber of shares for
options outstanding 12,000 shares 67,000 shares 74,000 shares 162,000 sharesExercise price ¥1 ¥2,300 ¥2,300Exercisable period July 1, 2008 - June 30, 2011 August 1, 2008 - July 30, 2016 August 1, 2008 - July 30, 2016
➅ Stock option plan approved by the shareholders on June 26, 2007Stock options granted on
August 23, 2007
Number of shares for options granted 2,000 sharesNumber of shares for options outstanding 2,000 sharesExercise price ¥1Exercisable period July 1, 2008 - June 30, 2011
Stock options granted on Stock options granted on Stock options granted onAugust 23, 2007 August 23, 2007 August 23, 2007 Total
Number of shares for options granted 15,000 shares 81,000 shares 78,000 shares 176,000 sharesNumber of shares for
options outstanding 15,000 shares 81,000 shares 78,000 shares 176,000 sharesExercise price ¥1 ¥2,615 ¥2,615Exercisable period July 1, 2008 - June 30, 2011 August 1, 2009 - July 30, 2017 August 1, 2009 - July 30, 2017
12. RESEARCH AND DEVELOPMENTResearch and development expenses, which are included in selling, general and administrative expenses, totaled ¥16,452million, ¥16,133 million and ¥14,566 million ($145,369 thousand) for the years ended March 31, 2006, 2007 and 2008,respectively. There are no research and development expenses included in total manufacturing expenses for theyears ended March 31, 2006, 2007 and 2008.
13. TRANSACTIONS WITH RELATED PARTIESThe Company contributed ¥1 million ($10 thousand) to the Shiseido Social Welfare Foundation (the Foundation) in theyears ended March 31, 2007 and 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 the Board of Directors meeting.
Shoichiro Iwata, an External Director of the Company, is the Representative Director of ASKUL Corporation. TheCompany purchases stationery and other products from ASKUL Corporation and the amount of transactions was ¥94million ($938 thousand) for the year ended March 31, 2008 and the ending balance was ¥42 million ($419 thousand)in other payable as of March 31, 2008.
14. ACCOUNTING FOR LEASESThe Companies have various lease agreements whereby the Companies act both as a lessee and a lessor.Information on finance lease contracts other than those deemed to transfer the ownership of the leased assets as a les-see and a lessor for the years ended March 31, 2006, 2007 and 2008, is as follows:
Notes to the Consolidated Financial Statements
70 SHISEIDO ANNUAL REPORT 2008
Thousands of Millions of yen U.S. dollars (Note 1)
2006 2007 2008 2008➀ As lessee:
The scheduled maturities of future lease rental payments on such lease contracts are as follows:Due within one year ···························· ¥ 4,166 ¥ 2,788 ¥ 3,335 $ 33,284Due after one year ······························ 8,107 4,161 4,050 40,419
¥ 12,273 ¥ 6,949 ¥ 7,385 $ 73,703
Balance of allowance for impairment loss on leased assets···························· — ¥ 15 ¥ 14 $ 140
Reversed lease impairment loss················· — ¥ 103 ¥ 9 $ 90Lease rental expenses for the year ············· ¥ 5,371 ¥ 3,688 ¥ 3,229 $ 32,226Assumed depreciation ······························ ¥ 5,371 ¥ 3,681 ¥ 3,220 $ 32,136Impairment loss ······································ — ¥ 7 ¥ 8 $ 80
Leased machinery and equipment:Assumed purchase cost ······················ ¥ 27,187 ¥15,155 ¥ 22,012 $ 219,681Assumed accumulated depreciation········ (14,914) (8,206) (14,627) (145,978)Assumed impairment loss ····················· — (15) (14) (140)Assumed net book value ····················· ¥ 12,273 ¥ 6,934 ¥ 7,371 $ 73,563
Assumed purchase cost and the scheduled maturities of future lease rental payment include the capitalizedinterest thereon, as the proportion of future lease rental payments to total property, plant and equipment isimmaterial.
Assumed depreciation is based on the straight-line method over the lease term of the leased assets, assumingno residual value.
Thousands of Millions of yen U.S. dollars (Note 1)
2006 2007 2008 2008➁ As lessor:
The scheduled maturities of future lease rental receipts onsuch lease contracts are as follows:Due within one year ···························· ¥ 1,619 ¥ 1,324 — —Due after one year ······························· 2,939 2,046 — —
¥ 4,558 ¥ 3,370 — —
Lease rental income for the year ················ ¥ 1,930 ¥ 1,999 ¥1,596 $15,928Depreciation ············································ ¥ 1,757 ¥ 1,740 ¥1,380 $13,772Assumed interest income ························· ¥ 345 ¥ 203 ¥ 165 $ 1,647
Leased machinery and equipment:Purchase cost ····································· ¥ 9,442 ¥ 8,784 — —Accumulated depreciation ··················· (5,164) (5,584) — —Net book value····································· ¥ 4,278 ¥ 3,200 — —
Assumed interest income is calculated based on the interest method.
Lease obligations under operating leases at March 31, 2006, 2007 and 2008, are as follows:
Thousands of Millions of yen U.S. dollars (Note 1)
2006 2007 2008 2008➀ As lessee:
The scheduled maturities of future lease rental payments onsuch lease contracts are as follows:Due within one year ···························· ¥ 3,797 ¥1,629 ¥2,260 $22,555Due after one year ······························· 27,505 4,454 6,514 65,010
¥31,302 ¥6,083 ¥8,774 $87,565➁ As lessor:
The scheduled maturities of future lease rental receipts onsuch lease contracts are as follows:Due within one year ···························· ¥ 212 ¥ 210 — —Due after one year ······························· 394 381 — —
¥ 606 ¥ 591 — —
71SHISEIDO ANNUAL REPORT 2008
15. DERIVATIVE FINANCIAL INSTRUMENTSThe contract amount, estimated fair value and unrealized gain (loss) of the derivative contracts as of March 31, 2007and 2008 are as follows:
Millions of yen
2007Contract amount
Total Settled over Estimated Unrealizedone year fair value gain (loss)
Currency swap contracts:To receive Yen/to pay Euro ······················ ¥1,317 — ¥(334) ¥(334)
Interest swap contracts:To receive variable/to pay fixed················· ¥2,382 ¥2,382 ¥ (35) ¥ (35)
Millions of yen
2008Contract amount
Total Settled over Estimated Unrealizedone year fair value gain (loss)
Interest swap contracts:To receive variable/to pay fixed················· ¥2,283 ¥2,283 ¥(107) ¥(107)
Thousands of U.S. dollars (Note 1)
2008Contract amount
Total Settled over Estimated Unrealizedone year fair value gain (loss)
Interest swap contracts:To receive variable/to pay fixed················· $22,784 $22,784 $(1,068) $(1,068)
Derivatives that meet the criteria for hedges are excluded from the above table.
16. IMPAIRMENT LOSSFor 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-useassets due to be sold have been devalued from the book value to the recoverable value, with the differences report-ed as other expenses. Idle assets whose market value has declined have been devalued from the book value to therecoverable value, with the differences reported as other expenses. Recoverable values are calculated according toestimated net sale value, which are mainly based on real estate appraisal values.
Impairment loss on overseas assets is mainly recognized due to decreasing profitability of long-lived assets of NorthAmerican subsidiaries.
Impairment losses for the years ended March 31, 2006, 2007 and 2008 are as follows:
Notes to the Consolidated Financial Statements
Thousands of U.S. Millions of yen dollars (Note 1)
Domestic
Business-use assets:Land ····················································Building and structures, etc. ··················
Idle assets:Land ····················································Building and structures, etc. ··················
OverseasBuilding and structures, etc. ··················Goodwill ··············································Trademark rights ··································
2007
¥1,389699
1,159143
407801
—¥4,598
2008
¥ 939161
——
51——
¥1,151
2008
$ 9,371 1,607
——
509——
$11,487
2006
¥ 2142,597
2,356919
—3,3572,961
¥12,404
72 SHISEIDO ANNUAL REPORT 2008
¥453,3605,131
¥458,491424,231
¥ 34,260¥238,456¥ 15,040¥ 4,840¥ 14,991
¥447,5576,232
¥453,789416,919
¥ 36,870¥243,882¥ 14,362¥ 2,115¥ 12,150
¥439,021 6,471
¥445,492 402,362
¥ 43,130 ¥229,202 ¥ 14,133 ¥ 1,080 ¥ 14,756
DomesticCosmetics
DomesticCosmetics
¥196,331379
¥196,710193,875
¥ 2,835¥211,346¥ 6,595¥ 6,360¥ 8,578
¥224,3201,347
¥225,667215,222
¥ 10,445¥229,795¥ 7,617¥ 1,255¥ 8,739
¥263,703 1,771
¥265,474 247,600
¥ 17,874 ¥248,443 ¥ 8,944 ¥ 51 ¥ 12,261
OverseasCosmetics
OverseasCosmetics
¥21,26619,293
¥40,55939,577
¥ 982¥53,335¥ 5,360¥ 1,256¥ 5,028
¥22,71723,113
¥45,83043,585
¥ 2,245¥77,993¥ 6,519¥ 1,228¥ 5,463
¥20,761 19,487
¥40,248 38,253
¥ 1,995 ¥58,822 ¥ 4,630 ¥ 20 ¥ 2,649
Others
Others
¥670,95724,803
¥695,760657,683
¥ 38,077¥503,137¥ 26,995¥ 12,456¥ 28,597
¥694,59430,692
¥725,286675,726
¥ 49,560¥551,670¥ 28,498¥ 4,598¥ 26,352
¥723,485 27,729
¥751,214 688,215
¥ 62,999 ¥536,467 ¥ 27,707 ¥ 1,151 ¥ 29,666
Subtotal
Subtotal
— ¥ (24,803)¥ (24,803)
(25,605)¥ 802¥168,705¥ (23)¥ (52)¥ 29
— ¥ (30,692)¥ (30,692)
(31,137)¥ 445¥188,163¥ (23)
—¥ 14
—¥ (27,729)¥ (27,729)
(28,195)¥ 466 ¥139,397 ¥ 3
—¥ 72
Elimination/corporate
Elimination/corporate
¥670,957—
¥670,957632,078
¥ 38,879¥671,842¥ 26,972¥ 12,404¥ 28,626
¥694,594—
¥694,594644,589
¥ 50,005¥739,833¥ 28,475¥ 4,598¥ 26,366
¥723,485 —
¥723,485 660,020
¥ 63,465 ¥675,864 ¥ 27,710 ¥ 1,151 ¥ 29,738
Consolidation
Consolidation
Millions of yen2006
Net salesSales to outside customers···············Intersegment sales or transfers········
Total ··············································Operating expenses2,3 ····················Operating income3 ·························Total assets4 ··································Depreciation3,5 ·······························Impairment loss5 ····························Capital expenditure5 ·······················
Millions of yen2007
Net salesSales to outside customers ·········Intersegment sales or transfers········
Total ··············································Operating expenses2,3 ····················Operating income3 ·························Total assets4 ··································Depreciation3,5 ·······························Impairment loss5 ····························Capital expenditure5 ·······················
Millions of yen2008
Net salesSales to outside customers ·········Intersegment sales or transfers········
Total ··············································Operating expenses2,3 ····················Operating income3 ·························Total assets4 ··································Depreciation3,5 ·······························Impairment loss5 ····························Capital expenditure5 ·······················
17. SEGMENT INFORMATION(1) Business Segment Information1
The Companies operate principally in the following 3 business segments.The business segments are classified based on the internal organization of the Companies.
Domestic Cosmetics: 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)Overseas Cosmetics: Cosmetics division (Production and sale of cosmetics, cosmetic
accessories and toiletries)Professional division (Production and sale of beauty salon products, etc.)
Others: Frontier Sciences division (Production and sale of cosmetic ingredients, medical-usepharmaceuticals, and beauty therapy cosmetics)
Others (Sale of clothing and accessories, operation of restaurants, real estate rental, etc.)
The business segment information of the Companies for the years ended March 31, 2006, 2007 and 2008, is as fol-lows:
DomesticCosmetics
OverseasCosmetics
Others Subtotal Elimination/corporate
Consolidation
73SHISEIDO ANNUAL REPORT 2008
Notes to the Consolidated Financial Statements
Millions of yen2006
Net salesSales to outside customers ·········Intersegment sales or transfers ···
Total ··············································Operating expenses1,2 ····················Operating income2 ·························Total assets3 ··································
Japan
¥475,65421,072
¥496,726472,699
¥ 24,027¥309,980
Americas
¥46,0168,476
¥54,49253,562
¥ 930¥59,547
Europe
¥85,5733,870
¥89,44384,065
¥ 5,378¥84,696
Asia/Oceania
¥63,71484
¥63,79856,131
¥ 7,667¥65,383
Subtotal
¥670,95733,502
¥704,459666,457
¥ 38,002¥519,606
Elimination/corporate
—¥ (33,502) ¥ (33,502)
(34,379) ¥ 877¥152,236
Consolidation
¥670,957—
¥670,957632,078
¥ 38,879¥671,842
Thousands of U.S. dollars (Note 1) 2008
Net salesSales to outside customers ·········Intersegment sales or transfers········
Total ··············································Operating expenses2,3 ····················Operating income3 ·························Total assets4 ··································Depreciation3,5 ·······························Impairment loss5 ····························Capital expenditure5 ·······················
Notes: 1. Effective for the year ended March 31, 2007, the Company has reclassified business segment reporting from “cosmetics,” “toi-letries” and “others” to “domestic cosmetics,” “overseas cosmetics” and “others.”• “Cosmetics” includes toiletries, beauty salon products, health & beauty foods, and over-the-counter drugs, which had previously
been included in “toiletries” and “others” segments.• “Cosmetics” with its wider product domain is divided into domestically-operated “domestic cosmetics” and overseas-operat-
ed “over-seas cosmetics.”• “Others” include medical-use drugs, clothing, accessories, and other businesses that are not included in the scope of “domestic cos-
metics” and “overseas cosmetics.”Through these changes, segments are reclassified to reflect the integration of cosmetics with its peripheral businesses and other
internal organizational changes, and to clarify overseas cosmetics business results.Business segment information for years up to March 31, 2006 have been restated to retrospectively reflect changes in business
segments from the year ended March 31, 2007.
2. Effective for the year ended March 31, 2007, the Company has reassessed the segment allocation of its operating expenses. Certainadministrative expenses and basic research and development expenses, etc., which had previously been included under theElimination line as unallocatable operating expenses, are now allocated to each segment. The Company also redefined certain inter-segment transactions. By allocating all administrative expenses to each business segment, these changes aim to provide a moreappropriate presentation and disclosure of business segment results, in line with the reclassification in business segmentreporting.
Business segment information for years up to March 31, 2006 have been restated to retrospectively reflect changes in allocationof operating expenses from the year ended March 31, 2007.
3. Pursuant to an amendment to the Japanese Corporate Tax Law, effective from the year ended March 31, 2008, the Company andits domestic consolidated subsidiaries depreciate the difference between the original residual value of 5% of acquisition cost ofassets acquired before April 1, 2007 and the new residual value of 1 Yen (memorandum value) by the straight-line method over5 years commencing from the fiscal year following the year in which the asset becomes fully depreciated to the original residualvalue. Depreciated amounts are included in depreciation expenses. As a result of this change, operating expenses in theDomestic Cosmetics, Overseas Cosmetics and Others segments rose ¥622 million ($6,208 thousand), ¥55 million ($549 thousand)and ¥9 million ($90 thousand), respectively, while operating income in those segments declined by the same amounts.
4. Corporate assets included in the Elimination line item were ¥142,341 million ($1,420,569) thousand), consisting mainly ofdeferred tax assets, financial assets of the Company (cash and time deposits, short-term investments in securities, and investmentsin securities), and assets related to administrative operations.
5. Depreciation, impairment loss and capital expenditure include amounts relating to long-term prepaid expenses.
(2) Geographic Segment Information Segmentation between countries and regions is based on geographic proximity.
Americas: United States, Canada, BrazilEurope: France, Italy, Germany, SpainAsia/Oceania: China (including Hong Kong), Taiwan, South Korea, Southeast Asia, Australia
The geographic segment information of the Companies for the years ended March 31, 2006, 2007 and 2008 is as fol-lows:
$4,381,447 64,581
$4,446,028 4,015,589
$ 430,439 $2,287,445 $ 141,048 $ 10,778 $ 147,265
DomesticCosmetics
$2,631,766 17,675
$2,649,441 2,471,058
$ 178,383 $2,479,471 $ 89,261 $ 509 $ 122,365
OverseasCosmetics
$207,196 194,481
$401,677 381,766
$ 19,911 $587,046 $ 46,208 $ 200 $ 26,437
Others
$7,220,409 276,737
$7,497,146 6,868,413
$ 628,733 $5,353,962 $ 276,517 $ 11,487 $ 296,067
Subtotal
—$ (276,737)$ (276,737)
(281,387)$ 4,650 $1,391,188 $ 30
—$ 719
Elimination/corporate
$7,220,409 —
$7,220,409 6,587,026
$ 633,383 $6,745,150 $ 276,547 $ 11,487 $ 296,786
Consolidation
74 SHISEIDO ANNUAL REPORT 2008
Notes: 1. Effective for the year ended March 31, 2007, the Company has reassessed the segment allocation of its operating expenses.Certain administrative expenses and basic research and development expenses, etc., which had previously been included under theElimination line as unallocatable operating expenses, are now allocated to each segment. The Company also redefined certain inter-segment transactions. By allocating all administrative expenses to each geographic segment, these changes aim to provide a more appro-priate presentation and disclosure of geographic segment results, in line with the reclassification in geographic segment reporting.
Geographic segment information for years up to March 31, 2006 has been restated to retrospectively reflect changes in account-ing policies from the year ended March 31, 2007.
2. Pursuant to an amendment to the Japanese Corporate Tax Law, effective from the year ended March 31, 2008, the Company andits domestic consolidated subsidiaries depreciate the difference between the original residual value of 5% of acquisition cost ofassets acquired before April 1, 2007 and the new residual value of 1 Yen (memorandum value) by the straight-line method over5 years commencing from the fiscal year following the year in which the asset becomes fully depreciated to the original residualvalue. Depreciated amounts are included in depreciation expenses. As a result of this change, operating expenses in the Japan seg-ment rose ¥687 million ($6,856 thousand), while operating income in this segment declined by the same amount.
3. Corporate assets included in the Elimination line item were ¥142,341 million ($1,420,569) thousand), consisting mainly ofdeferred tax assets, financial assets of the Company (cash and time deposits, short-term investments in securities, and investmentsin securities), and assets related to administrative operations.
(3) Overseas Sales* Overseas sales of the Companies (which represent the exports made by the Company and its domestic consolidatedsubsidiaries and sales (other than exports to Japan) of its overseas consolidated subsidiaries) for the years ended March31, 2006, 2007 and 2008, are as follows:
Thousands ofMillions of yen U.S. dollars (Note 1)
2006 2007 2008 2008Overseas sales:
Americas ·········································· ¥ 47,527 ¥ 53,969 ¥ 59,333 $592,146Europe ················································ 80,395 79,326 92,785 925,998Asia/Oceania······································ 69,319 91,503 112,146 1,119,221
...................................................... ¥197,241 ¥224,798 ¥264,264 $2,637,365Percentage of such sales against
consolidated net sales ·························· 29.4% 32.4% 36.5% 36.5%*** Classification of overseas sales is determined by geographical location.
Millions of yen2007
Net salesSales to outside customers ·········Intersegment sales or transfers ···
Total ··············································Operating expenses1,2 ····················Operating income2 ·························Total assets3 ··································
Millions of yen2008
Net salesSales to outside customers ·········Intersegment sales or transfers ···
Total ··············································Operating expenses1,2 ····················Operating income2 ·························Total assets3 ··································
Thousands of U.S. dollars (Note 1) 2008
Net salesSales to outside customers ·········Intersegment sales or transfers ···
Total ··············································Operating expenses1,2 ····················Operating income2 ·························Total assets3 ··································
Japan
¥471,20522,116
¥493,321465,986
¥ 27,335¥337,971
Japan
¥460,714 25,898
¥486,612 454,827
¥ 31,785 ¥306,576
Japan
$4,597,944 258,463
$4,856,407 4,539,192
$ 317,215 $3,059,641
Americas
¥51,7308,139
¥59,86957,060
¥ 2,809¥59,428
Americas
¥56,559 9,007
¥65,566 61,572
¥ 3,994 ¥56,765
Americas
$564,461 89,890
$654,351 614,491
$ 39,860 $566,517
Europe
¥88,3644,335
¥92,69986,388
¥ 6,311¥95,801
Europe
¥103,775 5,092
¥108,867 99,881
¥ 8,986 ¥105,720
Europe
$1,035,679 50,819
$1,086,498 996,816
$ 89,682 $1,055,090
Asia/Oceania
¥83,295112
¥83,40772,195
¥11,212¥74,131
Asia/Oceania
¥102,437 154
¥102,591 86,711
¥ 15,880 ¥ 86,557
Asia/Oceania
$1,022,325 1,537
$1,023,862 865,379
$ 158,483 $ 863,842
Subtotal
¥694,59434,702
¥729,296681,629
¥ 47,667¥567,331
Subtotal
¥723,485 40,151
¥763,636 702,991
¥ 60,645 ¥555,618
Subtotal
$7,220,409 400,709
$7,621,118 7,015,878
$ 605,240 $5,545,090
Elimination/corporate
—¥ (34,702) ¥ (34,702)
(37,040) ¥ 2,338¥172,502
Elimination/corporate
—¥ (40,151)¥ (40,151)
(42,971)¥ 2,820 ¥120,246
Elimination/corporate
—$ (400,709)$ (400,709)
(428,852)$ 28,143 $1,200,060
Consolidation
¥694,594—
¥694,594644,589
¥ 50,005¥739,833
Consolidation
¥723,485 —
¥723,485 660,020
¥ 63,465 ¥675,864
Consolidation
$7,220,409 —
$7,220,409 6,587,026
$ 633,383 $6,745,150
75SHISEIDO ANNUAL REPORT 2008
Notes to the Consolidated Financial Statements
18. SUBSEQUENT EVENT
(Establishment of Significant Subsidiary)
(1) Background and PurposeOn December 26, 2007, the Board of Directors approved a resolution to establish a wholly owned production sub-
sidiary in Vietnam to construct a manufacturing facility that will serve as the Group’s production base for the expand-ing Asian market. The new subsidiary, called Shiseido Vietnam Inc., was established on April 24, 2008.
(2) Overview of Subsidiary
Company name Shiseido Vietnam Inc.
Location Bien Hoa City, Dong Nai Province, Vietnam
Description of business Manufacture of cosmetics
Amount of capital Approx. ¥4.0 billion (US$38 million)(plan)
Ownership 100% owned by Shiseido Co., Ltd.
(3) Overview of Investment (plan)
Size of operation Land: 100,000m2; production facility: 21,400m2
Size of investment Approx. ¥4.0 billion (US$38 million)
Dec. 2008 (start construction);Schedule Oct. 2009 (complete construction);
Dec. 2009 (commence operations)
76 SHISEIDO ANNUAL REPORT 2008
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 sub-
sidiaries as of March 31, 2008 and 2007, and the related consolidated statements of income, changes in net assets and
cash flows for the years then ended, expressed in Japanese yen. These consolidated financial statements are the respon-
sibility of the Company’s management. Our responsibility is to independently express an opinion on these consolidated
financial statements based on our audits. The consolidated financial statements of Shiseido Company, Limited and con-
solidated subsidiaries for the year ended March 31, 2006 was audited by other auditors whose report, dated June 29,
2006, expressed an unqualified opinion on those statements.
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 dis-
closures in the financial statements. An audit also includes assessing the accounting principles used and significant esti-
mates 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 con-
solidated financial position of Shiseido Company, Limited and subsidiaries as of March 31, 2008 and 2007, and the con-
solidated results of their operations and their cash flows for the years then ended, in conformity with accounting prin-
ciples generally accepted in Japan.
Without qualifying our opinion, we draw attention to the following:
(1) As discussed in Note 2(28) to the consolidated financial statements, effective for the year ended March 31,
2007, Shiseido Company, Limited applied Practical Solution on Application of Control Criteria and Influence
Criteria to Investment Associations.
(2) As discussed in Note 17(1) to the consolidated financial statements, Shiseido Company, Limited changed the
classification of business segments in the year ended March 31, 2007.
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended
March 31, 2008 are presented solely for the 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, 2008
Repor t of Independent Auditors
Head Office
Shiseido Company, Limited 5-5, Ginza 7-chome, Chuo-ku Tokyo 104-0061, Japan Tel: +81-3-3572-5111
Foundation
September 17, 1872
Incorporation
June 24, 1927
Capital
¥64,506,725,140
Number of Employees
3,497 (28,793 for the Shiseido Group)
Fiscal Year-End
March 31
Common Shares Issued and Outstanding
410,000,000 (including 5,794,022 in treasury stock)
Number of Shareholders
33,075
Shareholders’ Meeting
The Ordinary General Meeting of Shareholdersis normally held in June in Tokyo.
Stock Listings
Common Stock: Tokyo Stock Exchange (Code: 4911)American Depositary Receipts: U.S. Over-the-Counter
Accounting Auditors
KPMG AZSA & Co.
Share Registrar
The Chuo Mitsui Trust and Banking Company, Ltd. 33-1, Shiba 3-chome, Minato-ku, Tokyo 105-8574, Japan
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) 269-2377http://www.adrbnymellon.com
(As of March 31, 2008)
Corporate Information
Composition of Shareholders(by number of shares)
Composition of Shareholders (%)
Principal ShareholdersNumber of Percentageshares held of
Shareholders (thousands) shareholding
The Master Trust Bank of Japan, Ltd. (Trust Account) 22,505 5.48Mizuho Bank, Ltd. 21,226 5.17State Street Bank and Trust Company 20,467 4.99Japan Trustee Services Bank, Ltd. (Trust Account) 19,073 4.65Hero & Co. 15,118 3.68NIPPONKOA Insurance Company, Ltd. 13,112 3.19Asahi Mutual Life Insurance Company 12,079 2.94Mizuho Corporate Bank, Ltd. 11,382 2.77Mitsui Sumitomo Insurance Company, Ltd. 10,211 2.49Nippon Life Insurance Company 9,747 2.37In addition to the above, Shiseido Company, Limited holds 5,794 thousand shares of treasury stock.
(¥) (Nikkei Stock Average)
(Thousands of shares)
Share Price Trading Volume Nikkei Stock Average (Closing Price)3,500
3,000 18,000
20,000
14,000
10,000
60,000
40,000
20,000
0
2,500
2,000
1,500
1,000
500
005/04 06/04 07/04 08/03
%
ForeignInvestors28.08%
Individuals17.08%
FinancialInstitutions46.23%
Other JapaneseCompanies 5.17%
Treasury Stock1.41%
Securities Companies2.00%
(By number of shares) 2007 2008Foreign Investors 30.94 28.08Individuals 17.52 17.08Financial Institutions 41.91 46.23Securities Companies 1.65 2.00Other Japanese Companies 5.22 5.17Treasury Stock 2.76 1.41
(By number of shareholders) 2007 2008Foreign Investors 1.25 1.41Individuals 96.52 96.32Financial Institutions 0.47 0.48Securities Companies 0.12 0.11Other Japanese Companies 1.64 1.65Treasury Stock 0.00 0.0014.56 million shares of treasury stock (3.42% of commonshares issued and outstanding) were retired in November 2007.
For further information, please contact Investor Relations, Financial DepartmentShiseido Company, Limited 6-2, Higashi-shimbashi 1-chome Minato-ku, Tokyo 105-8310, Japan F a x : +81-3-6218-5544 E-mail: [email protected]
WebsiteEnglish Edition: http://www.shiseido.co.jp/e/ Japanese Edition: http://www.shiseido.co.jp/
Monthly Share Price Range and Trading Volume
77SHISEIDO ANNUAL REPORT 2008