Annual Report 1997 ［ PDF：2.4MB ］ - Shiseido

Annual Report 1997 

For the year ended March 31, 1997

Shiseido Company, Ltd., was founded in 1872. Over the years, 

the Company has introduced countless products that reflect its 

dedication to quality, scientific excellence and innovation. 

Today, Shiseido is one of the world's top cosmetics houses, 

and has operations in more than 50 countries. 

The Company maintains nine plants domestically and 10 abroad. 

In Japan, Shiseido offers an array of makeup and skin-care products, 

toiletries, professional beauty salon products, foodstuffs, pharmaceuticals, 

fine chemicals and other goods. 

Internationally, Shiseido makes and markets exclusive makeup 

and skin-care products, fragrances and professional hair-care products. 

The Company is pursuing its goal of winning a top worldwide 

1 Financial Highlights 

2 A Message from the Management 

5 Marking a World of Difference 

9 Review of Operations 

Cosmetics 

Toiletries 

Others 

16 Research and Development 

17 Social Involvement 

18 Board of Directors and Auditors 

Profile 

reputation in various aspects. 

Contents 

19 Financial Section 

Six-Year Summary/Divisional Sales 

20 Management’s Discussion and Analysis 

22 Consolidated Balance Sheets 

24 Consolidated Statements of Income 

25 Consolidated Statements of Shareholders’ Equity 

26 Consolidated Statements of Cash Flows 

27 Notes to the Consolidated Financial Statements 

35 Report of Independent Certified 

Public Accountants 

36 Directory

For the Year: 

Net sales...... ......................... 

Income from operations .................... 

Net income ............................. 

Divisional Sales: 

Cosmetics.............................. 

Toiletries .............................. 

Others: salon products, foodstuffs, 

pharmaceuticals and other products .......... 

At Year-End: 

Total assets ............................. 

Shareholders’ equity....................... 

Per Share Data (in yen and U.S. dollars): 

Net income ............................. 

Cash dividends .......................... 

Shareholders’ equity....................... 

Return on Equity........................... 

Number of Employees ....................... 

Financial Highlights 

Notes: 1. Net income per share is calculated on the average number of shares outstanding in each year. 

2. U.S. dollar amounts are converted from yen, for convenience only, at the rate of ¥115 = US$1, the approximate rate of exchange effective March 31, 1997. 

600 

450 

300 

150 

0 

Net Sales 

’93 

(Billions of yen) 

’94 

’95 

’96 ’97 

20 

15 

10 

5 

0 

Net Income 

’93 


’94 

’95 

’96 ’97 

1997 

¥588,572 

42,898 

19,152 

436,705 

94,610 

57,257 

¥610,132 

388,145 

¥047.5 

12.5 

941.0 

5.1% 

22,045 

SHISEIDO / Annual Report 1997 1 1 

Millions of yen 

1996 

¥560,821 

37,012 

17,507 

404,181 

101,675 

54,965 

¥580,513 

357,861 

¥043.7 

12.5 

894.2 

5.0% 

22,305 

Shareholders’ Equity 

400 

300 

200 

100 

0 

’93 


’94 

’95 

’96 ’97 

1995 

¥540,361 

26,490 

11,382 

387,314 

97,606 

55,441 

¥564,383 

346,190 

¥028.4 

12.5 

865.0 

3.3% 

23,355 

8 

6 

4 

2 

0 

’93 

’94 

Thousands of 

U.S. dollars 


$5,118,017 

373,026 

166,539 

$3,797,435 

822,695 

497,887 

$5,305,496 

3,375,174 

Return on Equity 

(%) 

’95 

$0.41 

0.11 

8.18 

’96 ’97

Successful Start to Our Global No. 1 Strategy 

A Message from the Management 

In fiscal 1997, ended March 31, 1997, the Japanese economy recovered 

steadily in line with improved private-sector capital investment and new 

housing starts. In contrast, personal consumption growth remained weak. 

Fiscal 1997 was an especially meaningful year for Shiseido. The term 

marked the launch of Global No. 1, a new five-year management plan 

through which we are aggressively pursuing corporate activities. 

We strove hard to reinforce our operations during the period under 

review. In our cosmetics business, we pursued marketing designed to maximize 

quality as perceived by customers. In the toiletries and other areas, we 

endeavored to keep abreast and ahead of consumer trends. At the same 

time, we solidified our management foundations in several ways. We 

strengthened research and development, cut costs through productivity gains, 

responded to the acceleration of information flows, and strategically 

expanded our overseas operations. 

As a result of these efforts, consolidated net sales advanced 4.9%, 

to ¥588.6 billion. Domestic sales were up 2.7%, to ¥524.0 billion, and 

accounted for 89.0% of this amount. Overseas sales jumped 28.0%, to 

¥64.5 billion, constituting 11.0% of net sales. Income from operations 

jumped 15.9%, to ¥42.9 billion. Net income thus climbed 9.4%, to ¥19.2 

billion. Net income per share was ¥47.5, up from ¥43.7. The return on 

equity was 5.1%, up from 5.0% in the preceding year. 

We again made heavy plant and equipment investments. We allocated 

much of the ¥18.6 billion spent to build new training and reinforce 

research facilities. To support growth and help finance affiliates, we issued 

SFr300 million in bonds with warrants during the year. 

Solid Progress with New Management Initiative 

We are solidifying our management base through Global No. 1. This initiative 

is our path to worldwide leadership in terms of the quality of our products 

and services, our management, and our people. This plan also targets ¥800 

billion in consolidated net sales by fiscal 2001, 25% of which will come from 

overseas. 

Global No. 1 has already been very successful. 

SHISEIDO / Annual Report 1997 2 

○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 

For example, we divided our domestic cosmetics business into the 

cosmetics and cosmenity businesses, which handle consultation-oriented 

and self-selected products, respectively. Then in April 1996 we completely 

separated the marketing operations of both businesses. These moves strengthened 

our market presence and sales. 

Through Shiseido International Corporation, we launched new brands 

that create new value both in Japan and abroad. These brands were instant 

hits among consumers. Sales of these brands are still relatively small, but 

we are confident that they will grow substantially in the years ahead. 

We again faced intense price competition in toiletries. Nevertheless, 

we were able to strengthen this area by focusing even more on the needs of 

consumers while slashing costs. 

In other businesses, notably professional beauty salon products, foodstuffs 

and pharmaceuticals, we launched many new products and expanded 

our sales channels. 

Sales generally expanded steadily overseas, including in the Middle 

East and Eastern Europe. We started Shiseido Asia Pacific Co., Ltd., during 

the year to help expand marketing in Asia. We acquired the North American 

Hair Salon Division of Helene Curtis Inc. in the United States, as well as 

Helene Curtis Japan Inc. In March 1997, we bought a plant in New Jersey. 

Those were our international highlights. Please read the full details later in 

this report. 

On the R&D front, we strengthened basic research. To broaden the 

range of research areas, we acquired a new R&D facility in Yokohama. 

Production went from strength to strength. We boosted capacity at 

our Kamakura plant and started an expansion of the Maizuru plant. To 

improve logistics as well as minimize environmental impact, we established 

a new joint distribution system with Kanebo, Ltd. 

Progress toward Global No. 1 

As we move ahead in our second year of Global No. 1, we have prioritized 

progress in several key areas. 

In cosmetics, we are focusing on the needs of an international 

marketplace through such efforts as the development of global brands.

Akira Gemma, President and Chief Executive Officer / 

Yoshiharu Fukuhara, Chairman of the Board 

SHISEIDO / Annual Report 1997 3

Furthermore, we are endeavoring to expand markets for our offerings 

by enhancing consumer trust in and enthusiasm for Shiseido, including 

the quality of our products and services. 

In toiletries, salon products, pharmaceuticals, foodstuffs and other 

businesses, we will strengthen competitiveness through high-quality, highperformance 

products based on our own research and development. 

Overseas, we are cultivating our presence in prestige segments, 

strengthening our capabilities in Europe, the Americas and Asia. We aim to 

secure a solid global market position by expanding our business internationally 

while broadening our salon business capabilities in Asia. 

The improvement of our research and development structure is 

crucial to keep providing superior products and services based on “global 

value,” so we plan to open more R&D facilities in the year ahead. 

We are striving to build a more flexible network of manufacturing, 

procurement and logistics operations. Success in this respect will help us 

achieve a highly competitive cost and pricing structure internationally. 

We have allocated ¥200 billion in strategic investments in marketing 

and other areas to support the drive toward worldwide growth through the 

Global No. 1 plan. In the previous fiscal year, we used ¥54 billion of that 

amount, including ¥37 billion domestically and ¥17 billion abroad. We 

plan to spend around ¥60 billion—¥42 billion and ¥18 billion for domestic 

and overseas activities, respectively—in fiscal 1998, bringing the total 

for the first two years of Global No. 1 to approximately ¥120 billion. 

A Good Corporate Citizen 

As a good corporate citizen, Shiseido contributes to society through its environmental 

protection, cultural and welfare activities. We do our very best to 

minimize the impact of our operations on the environment. To that end, we 

have set ourselves environmental standards that are far more rigorous than 

legally required. In addition, we conduct regular inspections to ensure 

that our operations satisfy our guidelines. 

We also sponsor cultural events, support social causes and support 

visits to homes for the elderly. We maintain a system whereby employees can 

take paid time off to do volunteer work. 


○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 

Promoting “Successful Aging” 

Since 1989, we have promoted a concept that we call “successful aging.” In 

common English, the term means “graceful aging,” which implies spending 

one’s years retaining beauty, health and spiritual vitality, regardless of age 

and gender. To support this concept, we devote considerable resources to 

researching and providing information, as well as offering appropriate products 

and services. We will continue to focus on “successful aging” as a core 

of our activities. 

Creating New Value and Building on the Corporate Culture 

As mentioned earlier, Global No. 1 is not simply about sales targets. More 

important to us is the reputation we can cultivate through the initiative. 

We want consumers around the globe to believe that we are the best cosmetics 

company in the world. 

In June 1997, the Company made key changes at the very top 

(Yoshiharu Fukuhara became chairman while Akira Gemma took over the 

presidency). Together, we will do our very best to create new value while 

continuing to build on the infinite progress of our corporate culture. 

June 27, 1997 

Yoshiharu Fukuhara 

Chairman of the Board 

Akira Gemma 

President and Chief Executive Officer

Our Global Strategy 

Making a World of Difference 

Since its foundation as Japan’s first pharmacy to sell Western 

medicines, Shiseido has endeavored to combine the best of 

oriental and occidental cultures to generate new value. 

Having started as a pharmacy, Shiseido diversified 

into cosmetics and developed opportunities in the international 

marketplace, thus realizing its corporate goal of globalisation. 

We began full-scale operations overseas in 1957, when 

we started sales in Taiwan. Today, we sell our products in 

more than 50 countries in Europe, the Americas and Asia. 

Our marketing policy abroad emphasizes our high-quality 

products, prestigious image and superior service, an approach 

that has won us accolades around the world. 

We have been active abroad in keeping with a multibrand 

strategy. In 1986, we acquired famed French salon Carita S.A. 

Two years later, we bought Zotos Corporation, a professional 

hair-care products manufacturer based in the United States. 

In 1990, we established Beauté Prestige International S.A. in 

Paris to develop and market fragrances. 

In the booming Chinese market, in 1994 a local sales 

joint venture launched the high-end Aupres brand, which is 

made at the Beijing plant. This line has been tremendously 

successful. 

○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 


Global No. 1 and International Operations 

Through our Global No. 1 five-year strategy, we aim to secure 

consolidated net sales from operations abroad totaling ¥120 

billion and ¥80 billion from existing and new businesses, 

respectively. Given that overseas sales in fiscal 1997 were ¥64.5 

billion, we must do much to meet that goal by the end of 

fiscal 2001. 

Our immediate target is to achieve ¥120 billion in sales 

from existing overseas operations. In fiscal 1997, sales were 

particularly strong for our core Shiseido Benefiance and Pureness 

brands. We also expanded our international coverage during 

the term, entering the Brazilian, Turkish, Israeli, Cypriot, Czech 

and Vietnamese markets. 

Also during the year, we did far better than planned 

with fragrances that Beauté Prestige International launched. 

In the United States, Zotos Corporation has stepped up 

local marketing since Shiseido International Corporation 

acquired the North American Hair Salon Division of Helene 

Curtis Inc. from Unilever United States, Inc. 

Shiseido Benefiance

We are actively pursuing new business opportunities. 

Our strategy is to develop new brands with famous designers, 

secure original equipment manufacturing orders, engage 

in mergers and acquisitions, and launch a new marketing 

strategy in Asia. We plan to secure an additional ¥80 billion 

in sales from such activities. 

We are also targeting progress abroad in production, 

logistics, and research and development. We bought property 

for a future plant in New Jersey in March 1997 and started 

building a second Taiwanese plant in May 1997. In June 1997, 

we finalized an agreement to procure a new production site 

in France’s Loire region. As a result, we will operate 10 plants 

overseas. 

Our R&D operations overseas date to 1989, when we 

jointly founded with the Harvard Medical School the MGH/ 

Harvard Cutaneous Biology Research Center within the 

Massachusetts General Hospital. Our international R&D 

network also includes the R&D Center of Zotos International, 

Inc., and the Shiseido America Techno-Center, both in 

Connecticut, and the Shiseido Europe Techno-Center in Paris. 

72 

54 

36 

18 

0 

Overseas Sales 

54000 

36000 

18000 

0 

’93 


’94 

’95 

Sales of all Shiseido products. 

’96 

’97 


○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 

As our operations go increasingly global, it is becoming 

more difficult to control them from Tokyo. We therefore recognize 

the need to create three distinct management bases— 

covering Europe, the Americas and Asia—to truly localize 

marketing, production and sales. 

Asia 

This region’s booming growth in recent years has created a 

substantial middle class. 

From our entry into the area with sales to Taiwan in 

1957, we have expanded our reach to serve 10 regional markets, 

including Singapore, Indonesia, Malaysia, Thailand and 

China. In fall 1997, we will start marketing in Vietnam. 

Aupres

We maintain a diverse merchandising strategy in Asia. 

We offer prestigious brands created for overseas markets, as 

well as those originally intended for the domestic market. 

In addition, we sell products that do not carry the Shiseido 

brand name. This diverse approach allows us to expand our 

market base. 

In 1996, we founded Shiseido Asia Pacific Co., Ltd. 

(SAP), to step up regional marketing of new products. This 

subsidiary develops non-Shiseido brand products for middleclass 

consumers. SAP is planning to access the hair-care 

market. 

China is obviously a key focus for Shiseido, as its 

cosmetics market is expanding 20% to 30% annually. We 

began exporting to that country in 1981. Based on a 1983 

technical cooperation agreement with Beijing Liyuan Co., Ltd., 

we started making and selling the HuaZi brand. In 1991, we 

founded a joint venture and established a plant in Beijing, 

which mainly manufactures the Aupres line. Currently, 130 

stores in 32 Chinese cities carry our products. Within three 

Pureness 

○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 


years, we plan to have them sold in 350 outlets in 50 cities, 

with sales rising from the ¥1.2 billion recorded in fiscal 1997 

to more than ¥10 billion. 

Europe and the Middle East 

In 1963, we entered the Italian market. We now offer our 

products in more than 20 countries regionally. We have also 

expanded into such Middle Eastern markets as Saudi Arabia 

and Israel. In 1997, we started marketing in the Czech 

Republic in order to build a market channel in Eastern Europe, 

where the private sector has started to take off. 

Europe is important for Shiseido. It is the cultural center 

of the global cosmetics industry, and it will become even 

more economically important as the European Union implements 

a unified currency and eliminates internal trade boundaries. 

We recognize the need to quickly revamp our local 

operations to meet changing realities. To this end, in April 

1997 we established Shiseido Europe S.A. in Paris to oversee 

our European operations.

The Americas 

We have gone from strength to strength in the Americas since 

we started marketing in the United States in 1965. Our sales 

network in the Americas covers 10 countries, including such 

other nations as Canada and Brazil. 

We started exports from Japan to the United States in 

1978. In 1981, we opened a logistics center in New Jersey to 

better handle growing volume. We later bought Zotos Corporation, 

which invented the cold-treatment permanent wave, 

and Davlyn Industries, Inc., and then established Shiseido 

America Inc., also as a production base. Today, these three 

operations manufacture roughly 70% of Shiseido brand goods 

sold in the United States. 

With the Zotos acquisition in 1988, we also entered the 

professional hair-care market. We supported this effort in 1996, 

when we bought the North American Hair Salon Division of 

Helene Curtis Inc. in the United States. 

To build our production capacity to meet local market 

demand projections for fiscal 2001, we bought a plant in New 

Jersey in 1997. 

We maintain a strong R&D presence in the United States 

that dates to 1989, when we jointly founded the MGH/ 

Harvard Cutaneous Biology Research Center—the first general 

dermatological laboratory in the world. The Shiseido 

America Techno-Center in Connecticut heads our joint work 

with local universities and research institutes. 

Following the establishment of Shiseido Europe S.A., 

we enhanced the operational function of Shiseido America 

Inc., which now headquarters the local operations of all the 

Americas. 

○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 


New Businesses 

Our new business strategy encompasses the development of 

new brand strategies with leading designers, the promotion 

of original equipment manufacturing orders, mergers and 

acquisitions, and new marketing approaches in Asia. 

We can combine our creative know-how with the true 

individuality of such designers to generate new value for consumers. 

Excellent examples of this approach are the globally 

successful L’Eau d’Issey and Jean Paul Gaultier lines, which we 

created with world-famous fashion designers Issey Miyake and 

Jean Paul Gaultier. 

To support clients’ production capabilities, we manufacture 

products under license, mainly in the United States. 

We will keep expanding this network in the years ahead. 

As mentioned earlier, mergers and acquisitions are a 

key to growth, not just in terms of sales but also in terms of 

synergizing with existing businesses. We will actively seek M&A 

opportunities that complement current operations and lead 

to significant growth. 

L’Eau d’Issey

Review of Operations 

COSMETICS 

In fiscal 1997, sales of cosmetics, including overseas sales, jumped 8.0%, 

to ¥436.7 billion, and accounted for 74.2% of consolidated net sales. 

This impressive result underscores the correctness of our corporate 

strategies and related operations. 

Domestically, during the year under review we reinforced this maximize value. A related move was to create a new training 

operating area by completely separating the frontline market- system for beauty consultants to help provide consumers with 

ing operations of our cosmetics and cosmenity businesses. even better information counseling. 

The former targets consumers seeking counseling assistance 

We opened more Cosmetic Garden [C] showrooms dur- 

with their purchases. The latter is designed 

ing the year, in Fukuoka and Osaka, where 

for self-selection sales. Also during the year, 

we continued to integrate marketing domes- 

Divisional Sales 

customers can receive information and 

participate in product demonstrations. 

tically and abroad, thereby creating new 

We continued to create new value 

value. At the same time, we enhanced our 

from an international perspective during the 

marketing strategy to offer more individual- 

74.2% 

year. Through Shiseido International, we 

ity and sophistication in our products. 

launched the luxury Clé de Peau Beauté and 

Untied, a new men’s brand that was very well 

Cosmetics Business 

received. 

We did much to enhance customer satisfaction during the 

The upmarket Revital and core-brand Elixir remained 

term. We launched many more products with the quality they very popular. We also introduced two major new offerings. 

sought, and tailored sales approaches at individual stores to These were Actea Heart, a skin-care product for women over 

480 

360 

240 

120 

0 

Net Sales 

’93 

( Billions of yen ) 

’94 

’95 

’96 

’97 

○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 


Pieds Nus is a makeup product designed 

for greater self-expression.

Untied has won a strong following 

as a new global men’s brand. 

Fitfix Lift Conscious and Lostalot 

Faceline Effector are targeted at 

consumers seeking products to 

complement their slimming efforts. 

Actea Heart is designed 

for women over 40. 

The ff self-selection makeup brand is very popular among young women.

40, and Pieds Nus, a makeup product designed for greater 

self-expression. 

We had excellent market receptions for such body-care 

products as Fitfix Lift Conscious and for such facial cosmetics 

as Lostalot Faceline Effector. 

Cosmenity Business 

In fiscal 1997, Shiseido introduced various products based 

on our policy of providing high-quality products for many 

customers. We continued to reinforce marketing through 

advertising and by making store layouts more appealing. For 

example, we developed and introduced more Cosmenity displays 

especially for drugstores. These eye-catching displays 

are designed to make self-selection easier. 

During the term, we strengthened our Whitia lineup, a 

crucial skin-care brand, and achieved significant sales gains 

in all major product areas. Contributing to sales was ff, a new 

makeup brand for young women. Also, we did very well 

with Ma Chérie, an advanced hair-care product. 

Key men’s brands Auslese, Uno and Aleph continued 

to make market inroads. We created a new segment in the 

men’s market with Geraid for trend-conscious young males. 

Geraid was developed for trend-conscious young males. 


○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 

Ayura combines oriental and occidental beauty techniques. 

Non-Shiseido Brand Business 

We offer non-Shiseido brands for consumers seeking the ultimate 

in individuality. These products also help us broaden 

our customer base. Our first product in this genre was Ipsa, 

which we started selling in department stores in 1987. In 

1991, we released upmarket D’ici là in chain stores, followed 

in 1992 by Ettusais, which is available through variety stores. 

Introduced in 1995, Ayura is a new cosmetics brand that 

combines oriental and occidental beauty techniques. 

Ipsa is one of several non-Shiseido brands.

TOILETRIES 

Our second main business mainly comprises hair-care products, facial cleansers, 

soaps, bath additives and a range of fine toiletries. 

Sales in this category declined 6.9%, to ¥94.6 billion, in fiscal 1997, 

constituting 16.1% of net sales. 

In this business, we supply fine toiletries offering the value 

We have reinforced our business structure by cutting 

consumers expect from Shiseido. These products are designed costs at every level, from procurement to production, 

to attract consumers long before they are mature enough to distribution and sales. 

use cosmetics and long thereafter. These are thus very impor- 

Among those products contributing significantly to sales 

tant offerings because they build an impres- 

were Water Hair Pack, a shampoo treatment 

sion of the Company and eventually expand 

our customer base. 


that preserves hair’s natural moisture; Medicated 

Handsoap; and Mieux Mesh Center-In, 

Based on the twin concepts of making 

a panty pad that provides superior dryness. 

lifestyles more convenient and colorful, we 

16.1% 

We also won solid support for Cream 

continued to orient marketing even more 

Hadasui, a new addition to the evergreen 

to the needs of consumers through efforts 

Hadasui mineral-water-based facial, body 

to develop products and provide selling 

and hair freshener lotion line. Noteworthy 

spaces that enhance customer satisfaction. 

new products during the term were Prixaura 

One of our strengths in the toiletries market is that, unlike room freshener and the Ceu line of shampoos and body soaps 

the competition, we are primarily a cosmetics maker, which using environmentally friendly containers and ingredients. 

has helped us create new value. 

The sales decline in the division reflected intense price 

competition, especially for existing hair-care products, as 

well as a reduction in shelf stock in line with changes in the 

Net Sales 

retailing environment. 

120 

( Billions of yen ) 

Facial cleansers and other products have become daily 

items, thus expanding the scope of our fine toiletries business. 

90 

By providing new value with a sensitivity and information 

60 

base not available to the competition, we are certain to win 

30 

further customer loyalty. To that end, our main goal in 

toiletries is to maximize customer satisfaction. 

0 

’93 

’94 

’95 

’96 

’97 

○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 

SHISEIDO / Annual Report 1997 12

Ceu’s packaging and ingredients reflect 

Shiseido’s concern for the environment. 

Hadasui and Cream Hadasui mineral-water-based 

facial, body and hair freshener lotion products contain 

many natural ingredients. 

Prixaura room freshener features a gentle, relaxing fragrance. 

Water Hair Pack shampoo treatment helps 

retain hair’s natural moisture. 

Our Medicated Handsoap keeps hands clean 

and germ-free.

OTHERS 

Sales of this category gained 4.2%, to ¥57.3 billion, and represented 9.7% of 

net sales. The category covers the manufacture and sale of pharmaceuticals, salon 

skin-care and hair-care products, food products, fashion goods and fine chemicals. 

Also included are event production and various health-related activities. 

Salon Products 

and Collagen EX. We maintain 12 Shiseido Parlor restaurants, 

In this area, we strengthened the Zotos brand line for women’s the first of which was opened in 1902. These operations, 

hairdressers to expand the number of such outlets handling which include several cafes, sell Western-style cakes and 

these products and thus win a leading market position. 

We also upgraded our counseling 

imported foods. 

capabilities for our broader range of 246 Divisional Sales Pharmaceuticals 

Proscience hair- and scalp-care solutions to 

Contributing solidly to pharmaceuticals 

increase the number of men’s hairdressers 

9.7% 

sales were Opelead, an eye surgery adjuvant, 

handling these lines. In December 1996, we 

as well as the new Hyalos for surgical treat- 

acquired the North American Hair Salon 

ment of joint muscles and Hibisoft, a fast- 

Division of Helene Curtis Inc., forming a 

drying finger disinfectant. Over-the-counter 

solid base for our future operations. 

preparations also performed well. Noteworthy 

were the performances of Felzea, a 

Foodstuffs 

corn treatment, and Bibalance, a preparation for intestinal 

Our foodstuffs marketing highlighted the beauty and health 

benefits of our offerings. These efforts boosted sales of Gymrind 

disorders. 

80 

60 

40 

20 

0 

Net Sales 

’93 


’94 

’95 

’96 

’97 

○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 


Others 

In lifestyle-related operations, we added catalogs and events 

for retailers and developed several new-age therapeutic 

products. Our 51 The Ginza fashion boutiques experienced 

strong demand nationwide, including a store in Tokyo’s Ginza 

area that combines tradition with the latest trends. 

Our chromatography business, which sells chemical 

analysis equipment, again performed well, as did our fine 

chemicals operations, which supply a photochromic titanium 

dioxide pigment for makeup.

Gymrind diet foods help people 

maintain beauty and health. 

Zotos RX is a core salon hair-care line. 

246 Proscience is a hair- and scalp-care solution for men’s hairdressers. 

Felzea corn treatment has 

sold very successfully. 

Bibalance is a popular preparation 

for intestinal disorders.

Research and development has been crucial to our direction since 1939, 

when we opened the Shiseido Chemistry Research Laboratories. 

Our R&D covers everything from cosmetics, toiletries, 

pharmaceuticals and fine chemicals product development 

to basic research in the life sciences. 

We employ around 1,000 people globally in R&D-related 

positions. In fiscal 1997, our investments in research and 

development increased to ¥14.3 billion, up slightly from a 

year earlier. 

In Japan, we maintain the Research Center (1) and 

Research Center (2), which both operate laboratories; the 

Institute of Beauty Sciences; and the Beauty Creation Center. 

In 1996, we bought from Dupont a research facility in 

Yokohama. This new R&D base should start operations in 

the first half of fiscal 1999. The facility will conduct basic 

research to support our development of cosmetics for the 

global marketplace. One special focus will be the study of 

the links between cosmetics and human emotions and 

perceptions. 

In the United States, we continue to support the MGH/ 

Harvard Cutaneous Biology Research Center—the world’s first 

Clé de Peau Beauté is a new product 

designed to offer value internationally. 

Research and Development 


○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 

general dermatological laboratory. Also in that country are 

the R&D Center of Zotos International and the Shiseido 

America Techno-Center, both in Connecticut. In Paris, we 

operate the Shiseido Europe Techno-Center. 

One of the fruits of our R&D was a discovery that a 

plasmin controller, a ω-amino cyclo-C6 derivative, helps prevent 

skin from chapping. Skin exposed to dryness and ultraviolet 

rays generally fails to regenerate casing chapping. 

Shiseido has spent many years researching the actions of a 

proteolytic enzyme found in the skin layer, which led to the 

discovery. 

In November 1996, we commercialized a plasmin controller 

compound in Clé de Peau Beauté , a new global brand. 

In the years ahead, we will continue to focus on creating 

global quality and value through our research and development 

activities. 

The Research Center (2)

As a good corporate citizen, Shiseido focuses on environmental 

protection and supports cultural and welfare activities. 

This dedication reflects a desire to make community 

and environmental contributions in keeping 

with the global scope of our business. 

In 1989, when worldwide agreement was reached to ban the 

use of chlorofluorocarbons, we were the pioneer in the cosmetics 

industry announcing that we would eliminate the use 

of these substances in our hair sprays and other products. 

The following year, we stopped using chlorofluorocarbons in 

our aerosol lines. In 1992, we formulated the Shiseido 

Ecopolicy, a set of action measures that cover the environmental 

protection efforts of all our divisions. In response, our 

product development and planning operations established 

guidelines for the creation of new offerings. We design products 

and their packaging in keeping with those standards and 

also focus on the recycling and development of products using 

lighter packaging materials. 

We have set environmental protection objectives that 

go beyond merely observing legal requirements and have established 

environmental auditing efforts. These voluntary 

goals help us objectively evaluate conservation efforts in plants 

and other work areas. Internal auditors check progress in these 

activities, verifying that they meet the requirements of our 

environmental protection system. In addition, we are striving 

to win ISO 14001 certification, an international standard for 

environmental management. 

A good example of our commitment to a better world is 

the new joint distribution system that we established in fiscal 

Social Involvement 

○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 


1997 in Hokkaido with Kanebo, Ltd., which helps cut trucking 

volume and fuel emissions. 

During the year, we launched a new brand that reflects 

our concern for the environment. Called Ceu, which means 

“atmosphere” in Portuguese, this brand features containers 

that use 40% less plastic than most counterparts. The packaging 

can be crushed more compactly for disposal. The 

ingredients are also natural—vegetable-based oils and amino 

acids that care for the skin and body and quickly decompose 

into water and carbon dioxide. 

In cultural and welfare activities, we sponsored a highly 

popular event among people of all ages in which women born 

during the Meiji Era (1868–1912) discussed their hopes for 

the next millennium. In addition, our new Kamakura Studio 

donates proceeds from its cosmetics sales to the Kamakura 

Arts and Cultural Promotion Foundation. 

Environment-friendly Ceu

Chairman of the Board 

Yoshiharu Fukuhara* 

President and 

Chief Executive Officer 

Akira Gemma* 

Senior Executive Directors 

Sadao Abe* 

Morio Ikeda* 

Board of Directors and Auditors 

Tatsuya Ozawa* 

Shigeo Shimizu* 

Sadaaki Tahara* 

Executive Director 

Osamu Hosokawa 

Directors 

Akira Tadakawa 

Michio Kabasawa 

As of June 27, 1997 

Yoshiharu Fukuhara Akira Gemma 

Sadao Abe Morio Ikeda Tatsuya Ozawa 

Shigeo Shimizu Sadaaki Tahara Osamu Hosokawa 

Masahiro Kaneko 

Masahiro Maruyama 

Yasutaka Mori 

Kazunari Moriya 

Hisako Nagashima 

Takeshi Ohori 

Tadakatsu Saito 

Ikuo Sasaki 

Shuzo Shimojyo 

Hiroshi Yamaguchi 


Corporate Auditors 

Masatoshi Takemoto 

Rikuo Watanabe 

External Corporate 

Auditors 

Kinko Sato 

Toyonori Shibata 

*Representative Director

For the Year: 

Net sales ................. 

Cost of sales .............. 

Selling, general and 

administrative expenses..... 

Income from operations ...... 

Net income ............... 

At Year-End: 

Total current assets ......... 

Total assets ............... 

Total current liabilities ....... 

Short-term debt ............ 

Long-term debt ............ 

Shareholders’ equity......... 

Per share data 

(in yen and U.S. dollars): 

Net income ............... 

Cash dividends ............ 

Weighted average number of 

shares outstanding during 

the period (in thousands) ...... 

Key Financial Ratios: 

Operating profitability (%) .... 

Return on sales (%) ......... 

Return on assets (%) ........ 

Return on equity (%) ........ 

Equity ratio (%)............ 

Current ratio (times) ........ 

Debt / equity ratio (times)..... 

Payout ratio (%)............ 

Financial Section 

Six-Year Summary 


1997 1996 

1995 1994 1993 1992 

¥588,572 

197,803 

347,871 

42,898 

19,152 

299,121 

610,132 

161,868 

13,736 

27,911 

388,145 

¥47.5 

12.5 

403,236 

7.3 

3.3 

3.2 

5.1 

63.6 

1.85 

0.11 

26.5 

¥560,821 

183,887 

339,922 

37,012 

17,507 

283,964 

580,513 

188,189 

50,055 

2,551 

357,861 

¥43.7 

12.5 

400,215 

6.6 

3.1 

3.1 

5.0 

61.6 

1.51 

0.15 

28.6 

¥540,361 

169,164 

344,707 

26,490 

11,382 

254,318 

564,383 

151,417 

18,986 

33,546 

346,190 

¥28.4 

12.5 

400,215 

4.9 

2.1 

2.0 

3.3 

61.3 

1.68 

0.15 

41.3 


¥549,178 

173,441 

345,712 

30,025 

14,668 

239,850 

568,402 

160,402 

29,244 

33,179 

338,819 

¥36.7 

11.0 

400,215 

5.5 

2.7 

2.5 

4.4 

59.6 

1.50 

0.18 

29.9 

Note: U.S. dollar amounts are converted from yen, for convenience only, at the rate of ¥115= US$1, the approximate effective rate of exchange on March 31, 1997. 

Cosmetics ........................... 

Women’s products................... 

Men’s products ..................... 

Overseas sales...................... 

Toiletries............................ 

Others: salon products, foodstuffs, 

pharmaceuticals and other products ....... 

Net sales ............................ 

Overseas sales ........................ 


(and percentage of net sales) 


¥436,705 

(74.2%) 

328,807 

47,910 

59,988 

94,610 

(16.1%) 

57,257 

(9.7%) 

¥588,572 

(100.0%) 

¥064,549 

1996 

¥404,181 

(72.1%) 

312,772 

46,919 

44,490 

101,675 

(18.1%) 

54,965 

(9.8%) 

¥560,821 

(100.0%) 

¥050,432 

¥561,548 

175,116 

353,742 

32,690 

13,289 

252,540 

602,431 

204,719 

65,267 

32,969 

327,637 

¥33.7 

11.0 

394,868 

5.8 

2.4 

2.2 

4.2 

54.4 

1.23 

0.30 

33.1 

¥553,299 

169,995 

342,936 

40,368 

16,012 

236,939 

600,833 

235,279 

84,224 

23,659 

305,437 

¥41.8 

11.0 

383,144 


1995 1994 1993 

¥387,314 

(71.7%) 

304,779 

48,277 

34,258 

97,606 

(18.1%) 

55,441 

(10.2%) 

¥540,361 

(100.0%) 

¥040,283 

¥390,188 

(71.0%) 

308,630 

50,772 

30,786 

102,132 

(18.6%) 

56,858 

(10.4%) 

¥549,178 

(100.0%) 

¥037,211 

7.3 

2.9 

2.7 

5.6 

50.8 

1.01 

0.35 

22.9 

¥376,673 

(67.1%) 

303,040 

45,175 

28,458 

108,095 

(19.2%) 

76,780 

(13.7%) 

¥561,548 

(100.0%) 

¥035,878 

Note: Beginning in 1994, in line with amendments to Japan’s accounting standards for consolidated financial statements, Shiseido revised its breakdown of net sales. The results for years prior to fiscal 1994 have not been 

retroactively altered to reflect this change. The results for fiscal 1993, calculated according to the new breakdown, would be as follows. These figures are unaudited. 

Cosmetics ................ ¥398,419 million Toiletries ................ ¥103,682 million Others ............. ¥59,447 million Net sales ....... ¥561,548 million 

Thousands of 

U.S. dollars 


$5,118,017 

1,720,026 

3,024,965 

373,026 

166,539 

2,601,052 

5,305,496 

1,407,548 

119,444 

242,704 

3,375,174 

$0.41 

0.11 

Thousands of 

U.S. dollars 


$3,797,435 

(74.2%) 

2,859,191 

416,609 

521,635 

822,695 

(16.1%) 

497,887 

(9.7%) 

$5,118,017 

(100.0%) 

$0,561,296

Net Sales by 

Segment 

600 

450 

300 

150 

0 

’93 

Cosmetics 

Toiletries 

’94 

’95 

’96 

Others 


’97 

Management’s Discussion and Analysis 

Revenues and Earnings 

In fiscal 1997, Shiseido and its 52 consolidated subsidiaries 

increased net sales by 4.9%, to ¥588.6 billion, reflecting higher 

domestic and international sales. 

Shiseido’s performance internationally was especially 

strong. Overseas sales accounted for 11.0% of net sales, up 

from 9.0% a year earlier. Sales outside Japan soared by 28.9%, 

to ¥59.3 billion. 

In cosmetics, the largest product category, sales jumped 

by 8.0%, to ¥436.7 billion. This reflected the separation of 

marketing for counseling-based and self-selected products 

and the unification of domestic and overseas marketing. 

Sales of toiletries, which Shiseido markets solely in Japan, 

fell by 6.9%, to ¥94.6 billion. This was mainly because of 

Shiseido’s attempts to reduce wholesalers’ inventory in line 

with changes in the retailing environment. In contrast, sales 

of other products, ranging from salon lines to foodstuffs, 

fashion goods and pharmaceuticals, expanded by 4.2%, to 

¥57.3 billion, owing mainly to the improved market position 

in foodstuffs and fashion goods. 

Income 

from Operations 

40 

30 

20 

10 

0 

’93 

’94 

’95 

’96 


’97 

Net Income 

’93 


The cost of sales increased by 7.6%, to ¥197.8 billion. 

This was the result of the increase in sales of high-cost 

foodstuffs and fashion goods, and the increase of depreciation 

for product returns. As a result, the gross margin was 

66.4%, compared with 67.2% a year earlier. Selling, general 

and administrative (SG&A) expenses increased by 2.3%, 

to ¥347.9 billion, due principally to an increase in personnel 

and advertising/promotional expenses, the latter caused 

by the division of counselling-based and self-selection product 

sales. However, SG&A as a percentage of net sales 

decreased from 60.6%, to 59.1%, testifying to the efficient 

use of advertising and promotional expenditures. 

Other income was up by 0.5%, to ¥5.1 billion, primarily 

because of the rise in interest and dividend income. Net income 

thus jumped by 9.4%, to ¥19.2 billion. Net income per share 

was ¥47.5, up from ¥43.7. Cash dividends per share were 

unchanged, at ¥12.5. 

20 

15 

10 

5 

0 

’94 

’95 

’96 


’97 

Total Assets/ 

Total Asset Turnover 


800 

600 

400 

200 

0 

’93 

’94 

’95 

Total Assets 

Total Asset Turnover 

’96 

’97 

(Times) 

2.0 

1.5 

1.0 

0.5 

0.0

Financial Position and Liquidity 

Assets and Liabilities 

At the end of fiscal 1997, total current assets were ¥299.1 billion, 

up by 5.3% from a year earlier. This gain reflected higher 

cash and time deposits, short-term investments in securities, 

trade notes and accounts receivable, and inventories. 

Total investments and advances rose by 3.6%, to ¥110.2 

billion, owing mainly to an increase in other investments. 

Property, plant and equipment were up by 1.6%, to ¥145.8 

billion. This was primarily because of the rise in construction 

in progress. 

Total current liabilities were down by 14.0% at the end of 

fiscal 1997, to ¥161.9 billion. This resulted from the maturity 

of the current portion of long-term debt and the reduction in 

short-term bank loans. 

Shareholders’ equity increased by 8.5%, to ¥388.1 billion, 

stemming from increases in common stock, additional paidin 

capital and retained earnings. 

Shareholders’ Equity/ 

Equity Ratio 


400 

300 

200 

100 

0 

’93 

’94 

’95 

Shareholders’ Equity 

Equity Ratio 

’96 ’97 

(%) 

80 

60 

40 

20 

0 

Cash Flow from 

Operating Activities 

40 

30 

20 

10 

0 

’93 

’94 

’95 

’96 


’97 


Cash Flows 

At the end of fiscal 1997, cash and cash equivalents were 

¥113.9 billion, up by 4.7% compared with the previous 

year. Net cash provided by operating activities was ¥37.5 billion, 

which stemmed from the net income gain and changes 

in assets and liabilities, including an increase in other current 

liabilities. Net cash used for investing activities was ¥35.5 

billion, compared with ¥7.9 billion in the previous year. This 

reflected the acquisition of property, plant and equipment 

and increases in investments in securities and intangibles. 

Net cash provided by financing activities was ¥3.1 billion, 

down from ¥4.9 billion in the previous year. This change 

stemmed from proceeds from the issue of bonds with warrants 

and from the exercise of warrants, which offset the redemption 

of bonds. 

Capital Investment 

32 

24 

16 

8 

0 

’93 

’94 

’95 

’96 


’97 

Research and 

Development Expense 

16 

12 

8 

4 

0 

’93 

’94 

’95 


’96 ’97

ASSETS 

Current Assets: 

Cash and time deposits .................................... 

Short-term investments in securities ........................... 

Notes and accounts receivable: 

Trade............................................... 

Unconsolidated subsidiaries and affiliates ..................... 

Less: Allowance for doubtful accounts ....................... 

Inventories (Note 4) ...................................... 

Deferred income taxes ..................................... 

Other current assets....................................... 

Total current assets ..................................... 

Investments and Advances: 

Investments in securities ................................... 

Investments in unconsolidated subsidiaries and affiliates............. 

Other investments ........................................ 

Total investments and advances ............................ 

Property, Plant and Equipment, at Cost: 

Buildings and structures.................................... 

Machinery and equipment .................................. 

Less: Accumulated depreciation .............................. 

Land.................................................. 

Construction in progress ................................... 

Total property, plant and equipment ......................... 

Intangible Assets and Deferred Charges (Note 5).................... 

Difference between Investment Costs and Equity in Net Assets Acquired ... 

Adjustments on Foreign Currency Statement Translation.............. 

The accompanying notes are an integral part of the statements. 

Consolidated Balance Sheets 

Shiseido Company, Limited, and Subsidiaries 

March 31, 1997 and 1996 




¥056,875 

56,998 

106,508 

1,032 

107,540 

(1,655) 

105,885 

60,521 

11,270 

7,572 

299,121 

83,848 

5,781 

20,578 

110,207 

141,339 

129,136 

270,475 

(190,886) 

79,589 

60,305 

5,929 

145,823 

43,556 

471 

10,954 

¥610,132 

¥053,992 

54,782 

98,607 

798 

99,405 

(1,229) 

98,176 

57,077 

13,212 

6,725 

283,964 

83,485 

5,388 

17,525 

106,398 

138,723 

124,589 

263,312 

(181,394) 

81,918 

60,883 

664 

143,465 

33,295 

— 

13,391 

¥580,513 

Thousands of 

U.S. dollars (Note 3) 


$0,494,565 

495,635 

926,156 

8,974 

935,130 

(14,391) 

920,739 

526,270 

98,000 

65,843 

2,601,052 

729,113 

50,270 

178,939 

958,322 

1,229,035 

1,122,922 

2,351,957 

(1,659,878) 

692,079 

524,391 

51,556 

1,268,026 

378,748 

4,096 

95,252 

$5,305,496

LIABILITIES AND SHAREHOLDERS’ EQUITY 

Current Liabilities: 

Short-term bank loans ..................................... 

Current portion of long-term debt (Note 6) ...................... 

Notes and accounts payable: 

Trade............................................... 

Unconsolidated subsidiaries and affiliates ..................... 

Other............................................... 

Accrued income taxes ..................................... 

Accrued expenses ........................................ 

Other current liabilities .................................... 

Total current liabilities................................... 

Long-Term Liabilities: 

Long-term debt (Note 6) ................................... 

Accrued retirement benefits ................................. 

Other long-term liabilities .................................. 

Total long-term liabilities................................. 

Minority Interests in Consolidated Subsidiaries .................... 

Contingent Liabilities (Note 8) 

Shareholders’ Equity: 

Common stock, par value ¥50 per share 

Authorized: 800,000,000 shares at March 31, 1997 and 1996 

Issued: 412,467,515 shares and 400,215,127 shares 

at March 31, 1997 and 1996, respectively .................... 

Additional paid-in capital................................... 

Legal reserve............................................ 

Retained earnings ........................................ 

Total shareholders’ equity ................................ 




¥013,736 

— 

57,882 

1,325 

32,680 

91,887 

14,825 

28,482 

12,938 

161,868 

27,911 

1,843 

5,683 

35,437 

24,682 

51,342 

49,124 

10,885 

276,794 

388,145 

¥610,132 

¥018,055 

32,000 

56,922 

565 

33,778 

91,265 

14,112 

26,206 

6,551 

188,189 

2,551 

1,503 

5,522 

9,576 

24,887 

43,241 

40,988 

10,811 

262,821 

357,861 

¥580,513 

Thousands of 



$0,119,444 

— 

503,322 

11,521 

284,174 

799,017 

128,913 

247,670 

112,504 

1,407,548 

242,704 

16,026 

49,418 

308,148 

214,626 

446,452 

427,165 

94,652 

2,406,905 

3,375,174 

$5,305,496

Net Sales....................................... 

Cost of Sales .................................... 

Gross profit ................................ 

Selling, General and Administrative Expenses ............ 

Income from operations........................ 

Other Income (Expenses): 

Interest and dividend income ...................... 

Interest expense................................ 

Gain on sales of marketable securities ................ 

Gain on sales of property and equipment .............. 

Loss on earthquake disaster (Note 10) ................ 

Loss on close down of stores....................... 

Restructuring expenses .......................... 

Others, net ................................... 

Income before income taxes..................... 

Income Taxes.................................... 

Minority Interests in Net Income of Consolidated Subsidiaries... 

Amortization of Equity in Net Assets of 

Consolidated Subsidiaries over Investment Cost......... 

Equity in Earnings of Affiliates (Note 1 (4)).............. 

Adjustments on Foreign Currency Statement Translation 

(Note 2 (3)).................................... 

Net income................................. 

Per Share (Note 2 (9)): 

Net income, adjusted–primary ..................... 

Net income, adjusted–fully diluted .................. 

Cash dividends ................................ 

Weighted Average Number of Shares (in thousands) ....... 


Consolidated Statements of Income 


For the years ended March 31, 1997, 1996 and 1995 




¥588,572 

197,803 

390,769 

347,871 

42,898 

4,696 

(578) 

1,263 

941 

— 

— 

(1,183) 

(85) 

5,054 

47,952 

29,290 

18,662 

(357) 

(11) 

858 

— 

¥019,152 

¥47.5 

47.3 

12.5 

403,236 

¥560,821 

183,887 

376,934 

339,922 

37,012 

4,183 

(790) 

1,351 

1,234 

— 

— 

— 

(949) 

5,029 

42,041 

25,357 

16,684 

92 

65 

601 

65 

¥017,507 

¥43.7 

— 

12.5 

400,215 

1995 

¥540,361 

169,164 

371,197 

344,707 

26,490 

3,490 

(739) 

3,139 

— 

(1,692) 

(1,320) 

— 

36 

2,914 

29,404 

21,013 

8,391 

2,184 

35 

652 

120 

¥011,382 

¥28.4 

— 

12.5 

400,215 

Thousands of 



$5,118,017 

1,720,026 

3,397,991 

3,024,965 

373,026 

40,835 

(5,026) 

10,983 

8,182 

— 

— 

(10,287) 

(739) 

43,948 

416,974 

254,696 

162,278 

(3,104) 

(96) 

7,461 

— 

$0,166,539 

Yen U.S. dollars (Note 3) 

$0.41 

0.41 

0.11

Consolidated Statements of Shareholders’ Equity 



Balance as at March 31, 1994 ....................... 

Net income for the year ended March 31, 1995 ........ 

Cash dividends ............................... 

Directors’ and statutory auditors’ bonuses ............ 

Adjustments on foreign currency statement translation ... 


Net income for the year ended March 31, 1996 ........ 



Adjustments on foreign currency statement translation ... 


Net income for the year ended March 31, 1997......... 

Transfer to legal reserve ......................... 



Increase due to change in an accounting policy 

followed by a Chinese subsidiary.................. 

Exercise of warrants............................ 

Balance as at March 31, 1997 ....................... 


Net income for the year ended March 31, 1997......... 

Transfer to legal reserve ........................ 



Increase due to change in an accounting policy 

followed by a Chinese subsidiary.................. 

Exercise of warrants............................ 

Balance as at March 31, 1997 ....................... 


Number of shares 

of common stock 

(thousands) 

400,215 

— 

— 

— 

— 

400,215 

— 

— 

— 

— 

400,215 

— 

— 

— 

— 

— 

12,252 

412,467 


of common stock 

(thousands) 

400,215 

— 

— 

— 

— 

— 

12,252 

412,467 


Common 

stock 

¥43,241 

— 

— 

— 

— 

¥43,241 

— 

— 

— 

— 

¥43,241 

— 

— 

— 

— 

— 

8,101 

¥51,342 

Common 

stock 

$ 376,009 

— 

— 

— 

— 

— 

70,443 

$446,452 

Capital 

surplus 

¥40,988 

— 

— 

— 

— 

¥40,988 

— 

— 

— 

— 

¥40,988 

— 

— 

— 

— 

— 

8,136 

¥49,124 

$ 356,417 

— 

— 

— 

— 

— 

70,748 

$427,165 


Legal 

reserve 

¥10,811 

— 

— 

— 

— 

¥10,811 

— 

— 

— 

— 

¥10,811 

— 

74 

— 

— 

— 

— 

¥10,885 

Thousands of U.S. dollars (Note 3) 

Capital 

surplus 

Legal 

reserve 

$ 94,009 

— 

643 

— 

— 

— 

— 

$94,652 

Retained 

earnings 

¥243,779 

11,382 

(4,700) 

(145) 

834 

¥251,150 

17,507 

(5,010) 

(137) 

(689) 

¥262,821 

19,152 

(74) 

(5,000) 

(138) 

33 

— 

¥276,794 

Retained 

earnings 

$ 2,285,400 

166,539 

(643) 

(43,478) 

(1,200) 

287 

— 

$2,406,905

Cash Flows from Operating Activities: 

Net income................................... 

Adjustments to reconcile net income to net cash provided 

by operating activities: 

Depreciation................................ 

Amortization ............................... 

Minority interests in net income of 

consolidated subsidiaries ..................... 

Translation gains from forward exchange contracts .... 

Provision for accrued severance indemnities ......... 

Equity in net income of affiliates ................. 

Gain on sales/disposal of property ................ 

Changes in assets and liabilities: 

Decrease (increase) in receivables ................ 

Increase in inventories ........................ 

Decrease (increase) in deferred income taxes ........ 

Decrease (increase) in other current assets .......... 

Increase in payables .......................... 

Increase (decrease) in accrued income taxes ......... 

Increase (decrease) in other current liabilities ....... 

Other, net.................................... 

Net cash provided by operating activities ........... 

Cash Flows from Investing Activities: 

Acquisition of property, plant and equipment........... 

Decrease (increase) in investments in securities ......... 

Decrease in investments in subsidiaries and affiliates...... 

Proceeds from sales of property, plant and equipment ..... 

Transfer of investments in securities 

to/(from) cash equivalents....................... 

Increase in intangibles and deferred charges............ 

Decrease (increase) in other ....................... 

Net cash provided by (used for) investing activities .... 

Cash Flows from Financing Activities: 

Borrowings of long-term debt ...................... 

Repayment of long-term debt ...................... 

Proceeds from issue of bonds with warrants............ 

Proceeds from exercise of warrants .................. 

Redemption of bonds............................ 

Decrease in short-term loans ...................... 

Cash dividends ................................ 

Net cash provided by (used for) financing activities.... 

Net Change in Cash and Cash Equivalents .............. 

Cash and Cash Equivalents at Beginning of Year .......... 

Cash and Cash Equivalents at End of Year............... 


Consolidated Statements of Cash Flows 






1996 1995 

¥019,152 

14,881 

6,363 

357 

(576) 

31 

(858) 

(941) 

(7,709) 

(3,444) 

1,942 

(847) 

622 

713 

6,388 

1,425 

37,499 

(18,570) 

(8,477) 

465 

3,087 

8,114 

(16,613) 

(3,535) 

(35,529) 

7 

(128) 

28,332 

16,237 

(32,000) 

(4,319) 

(5,000) 

3,129 

5,099 

108,774 

¥113,873 

¥017,507 

16,109 

6,022 

(92) 

(392) 

74 

(601) 

(1,234) 

(6,952) 

(683) 

1,418 

(1,097) 

7,539 

1,820 

(3,591) 

(636) 

35,211 

(11,607) 

(2,222) 

337 

2,734 

8,316 

(4,905) 

(596) 

(7,943) 

1,005 

— 

— 

— 

— 

(931) 

(5,010) 

(4,936) 

22,332 

86,442 

¥108,774 

¥11,382 

18,576 

5,647 

(2,184) 

(392) 

154 

(652) 

— 

1,885 

(5,796) 

(3,233) 

8 

1,649 

(975) 

599 

(1,430) 

25,238 

(11,373) 

112 

366 

2,015 

3,094 

(4,285) 

6,756 

(3,315) 

500 

(372) 

— 

— 

— 

(10,019) 

(4,700) 

(14,591) 

7,332 

79,110 

¥86,442 

Thousands of 



$166,539 

129,400 

55,330 

3,104 

(5,008) 

270 

(7,461) 

(8,183) 

(67,035) 

(29,948) 

16,887 

(7,365) 

5,409 

6,200 

55,548 

12,391 

326,078 

(161,478) 

(73,713) 

4,044 

26,843 

70,556 

(144,461) 

(30,739) 

(308,948) 

61 

(1,113) 

246,365 

141,191 

(278,261) 

(37,556) 

(43,478) 

27,209 

44,339 

945,861 

$990,200

Notes to the Consolidated Financial Statements 

1. Basis of Presenting Consolidated Financial Statements 

(1) Accounting Principles and Presentation 

Shiseido Company, Limited (the “Company”), has prepared 

its consolidated financial statements in accordance with 

accounting principles generally accepted in Japan. 

The accompanying consolidated financial statements 

of the Company and its subsidiaries are essentially the translation 

into English of the original statements in Japanese 

language contained in the Securities Annual Report of the 

Company filed with the Ministry of Finance and the Stock 

Exchanges under the requirements of the securities and 

exchange regulations in Japan. 

Accordingly, the information disclosed in the accompanying 

consolidated financial statements is derived from the 



Equity ownership 

percentage, 

including indirect 

ownership 

Capital stock 

(thousands) 

Osaka Shiseido Co., Ltd. .................................................. 60.5% ¥315,000 

Shiseido Kako Co., Ltd. ................................................... 100.0 ¥100,000 

Shiseido Fine Toiletry Co., Ltd. .............................................. 100.0 ¥30,000 

Shiseido Beautech Co., Ltd. ................................................ 77.7 ¥48,000 

SFC Co., Ltd. .......................................................... 100.0 ¥3,527,500 

Shiseido Sales Co., Ltd. ................................................... 62.9 ¥1,590,264 

Shiseido Cosmenity Co., Ltd. ............................................... 100.0 ¥150,250 

Shiseido Cosmetics (America) Ltd. ........................................... 100.0 $15,000 

Zotos International, Inc.................................................... 100.0 $20,000 

Shiseido Cosmetici (Italia) S.p.A. ............................................ 100.0 Lit4,000,000 

In the accompanying consolidated financial statements, 

the accounts of the 25 overseas subsidiaries at December 31, 

1996, and for the year then ended were consolidated with 

the accounts of the Company at March 31, 1997, and for the 

year then ended, as they use a fiscal year ending on December 

31 of each year. 

The remaining 6 subsidiaries have been inactive and their 

total assets were insignificant in relation to those of the consolidated 

financial statements of the Companies and therefore 

the accounts of such subsidiaries have not been consolidated 

with the Companies. 

(3) Consolidation and Elimination 

For the purposes of preparing the consolidated financial 

statements, all significant intercompany transactions, account 

balances and unrealized profits among the Companies have 

been eliminated, and the portion thereof attributable to 

minority interests is charged to minority interests. 

The cost of investments in the common stock of consolidated 

subsidiaries is eliminated with the underlying equity 

in net assets of such subsidiaries. The difference between the 

original text and the scope and nature of the information is 

limited to those disclosed therein. However, certain reclassifications 

or summarizations of accounts have been made to 

present the consolidated financial statements in a form which 

is more familiar to foreign readers. 

(2) Scope of Consolidation 

The Company had 58 subsidiaries (majority-owned companies) 

as at March 31, 1997 (52 as at March 31, 1996). The 

consolidated financial statements include the accounts of 

the Company and 52 (50 for 1996) of its subsidiaries (the 

“Companies”). The major consolidated subsidiaries are 

listed below: 

cost of an investment and the amount of underlying equity 

in net assets of such subsidiary is deferred and amortized 

over a 5-year period on a straight-line basis, principally. If 

such amount is not material, it is directly charged/credited 

against income for the year. 

Legal reserves of consolidated subsidiaries provided subsequent 

to the acquisition of such subsidiaries by the Company 

are included in retained earnings and are not shown 

separately in the consolidated financial statements. 

(4) Investments in Unconsolidated Subsidiaries and Affiliates 

At March 31, 1997 and 1996, the Company had 6 affiliates 

(20% to 50% owned companies). 

Among the investments in unconsolidated subsidiaries 

and affiliates, investments in 6 affiliates are accounted for by 

the equity method, under which the Company’s equity in net 

income of these affiliates is included in consolidated income 

with appropriate elimination of intercompany profit 

at March 31, 1997, and for the year then ended. The remaining 

investments in unconsolidated subsidiaries and affiliates 

are stated at cost.

2. Summary of Significant Accounting Policies 

(1) Recognition of Income Taxes 

In the consolidated financial statements, the Companies 

have recognized tax effects on timing differences that arise 

from the consolidation of the accounts of the Companies. 

Such tax effects relate to the elimination of “unrealized 

intercompany profit” in year-end inventory remained within 

the Companies and “Allowance for doubtful accounts” provided 

for against intercompany account receivables for allowed 

tax deductions. 

In the accompanying consolidated financial statements, 

the recognized tax effects are shown as “Deferred income 

taxes.” 

(2) Foreign Currency Translation 

Accounts receivable and payable denominated in foreign 

currencies due within one year are translated at the current 

exchange rate prevailing on the balance sheet dates. The 

resulting exchange gains or losses are included in the determination 

of net income of the relevant period. 

Long-term receivables and payables and investments in 

and advances to unconsolidated subsidiaries and affiliates 

denominated in foreign currencies are translated at the historical 

exchange rates prevailing at the time such transactions 

were made. 

Whenever material foreign exchange rate fluctuations 

occur, such long-term receivables and payables in such foreign 

currencies are translated exceptionally at the current 

exchange rate in order to recognize the significant effect of 

the change in yen value against foreign currencies. 

For the year ended March 31, 1995, the Company revaluated 

a certain portion of its long-term receivables due to such 

material fluctuation, and recognized the foreign currency 

exchange loss in the amount of ¥36 million. 

(3) Translation of Foreign Currency Financial Statements 

(Accounts of Overseas Subsidiaries and Affiliates) 

The translation of foreign currency financial statements of 

overseas consolidated subsidiaries into Japanese yen has been 

made by the method of translation prescribed by the statements 

issued by the Business Accounting Council (BAC) 

of Japan. 

Until the year ended March 31, 1996, the translations 

of accounts in the foreign currency financial statements of 

the consolidated overseas subsidiaries into yen for consolidation 

purposes were made principally by applying the current 

exchange rate prevailing at the balance sheet date, except 

that Goodwill of Zotos was translated at the historical rates. 

Pursuant to the recent amendment to the BAC method, 

with effect from the year ended March 31, 1997, the translations 

of foreign currency financial statements of overseas consolidated 

subsidiaries into Japanese yen are made by applying 

the current exchange rate prevailing at the balance sheet date, 

except that the common stock is translated at the historical 

rates. As a result of this change, “Income before income taxes” 

for the year ended March 31, 1996, would be increased by 

¥69 million ($600 thousand), according to the amounts 

which would have been reported under the amended method. 

The translations of accounts in the foreign currency financial 

statements of the overseas affiliates into yen accounted 


for by the equity method are made principally by applying 

the exchange rate prevailing at the relevant balance sheet 

date of these affiliates. 

In this connection, certain adjusting accounts must be 

set up in the consolidated balance sheets, consolidated statements 

of income and consolidated statements of shareholders’ 

equity to enable balancing of debit and credit totals as 

well as the reconciliation of the beginning balance with 

the ending balance of retained earnings in translated yen 

amounts. Such adjusting account balances are shown as 

“Adjustments on Foreign Currency Statement Translation” 

in the accompanying consolidated financial statements. 

(4) Inventories 

Inventories held by the Company are valued at cost, which 

is determined by the average method. 

Inventories held by the consolidated subsidiaries are 

valued at cost, which is determined principally by the last 

purchase price method. 

(5) Property, Plant and Equipment 

Property, plant and equipment are stated at cost. Depreciation 

for property, plant and equipment held by the Company 

and domestic consolidated subsidiaries is computed primarily 

on the declining-balance method at rates based on the 

estimated useful lives of assets which are, in certain instances, 

shorter than those prescribed by the Japanese income tax 

laws. Depreciation of property, plant and equipment held 

by overseas consolidated subsidiaries is computed by the 

straight-line method. 

The range of useful lives is summarized as follows: 

Buildings and structures ...............10 to 40 years 

Machinery and equipment ........primarily 6 to 7 years 

Normal repairs and maintenance, including minor renewals 

and improvements, are charged to income as incurred. 

(6) Amortization 

Research and development costs are charged to income 

as incurred. 

Bond issue expenses are capitalized and amortized over a 

3-year period on a straight-line basis. 

Discounts on bond issues are deferred and amortized on 

a straight-line basis over a period up to the maturity of the 

relevant bond. 

As for the amortization of intangible assets, see Note 5 

below. 

(7) Valuation of Securities 

Securities with market quotation (listed on stock exchanges) 

held by the Company are valued at the lower of cost or market. 

The other securities owned by the Company are valued 

at cost. Securities held by the consolidated subsidiaries are 

mainly valued at cost regardless of whether or not market 

quotation is available. In all cases, cost is determined by the 

moving average method. 

Appropriate write-downs are recorded for investments 

in certain securities, the value of which has declined

substantially, and such impairments of the value are considered 

not to be temporary. 

(8) Accounting for Leases 

Finance leases other than those which are deemed to transfer 

the ownership of the leased assets to lessees are accounted 

for by the method similar to that applicable to ordinary 

operating leases. 

(9) Net Income and Dividends per Share 

“Net income per share” of common stock is based upon 

the weighted average number of shares of common stock 

outstanding during each year, appropriately adjusted for 

subsequent stock splits. In accordance with the amendments 

to the Japanese securities and exchange regulations, net income 

per share adjusted for dilution (assuming full conversion of 

all convertible debentures and full exercise of all warrants 

of the Company outstanding with related reduction in interest 

expenses) has been disclosed from the fiscal year ended 

March 31, 1996. 

Cash dividends per share shown for each year in the 

Consolidated Statement of Income represent dividends 

declared as applicable to the respective year (not adjusted for 

the effect of stock splits), rather than those paid in each year. 

(10) Accounting for the Consumption Tax 

In Japan, the consumption tax is imposed at the flat rate of 

3% on all domestic consumption of goods and services (with 

certain exemptions). The consumption tax imposed on the 

Companies’ domestic sales to customers is withheld by the 

Companies at the time of sale and is paid to the national 

government subsequently. 

3. United States Dollar Amounts 

The accompanying consolidated financial statements are prepared 

in yen. The U.S. dollar amounts included in the consolidated 

financial statements and notes thereto represent 

the arithmetical results of translating yen to U.S. dollars on 

a basis of ¥115 = US$1. 

4. Inventories 

Inventories held by the Companies as at March 31, 1997 and 1996, consisted of the following: 

Merchandise and products ..................................... 

Raw materials.............................................. 

Work in process ............................................ 

Supplies.................................................. 


The Company excludes the consumption tax withheld 

upon sale and the consumption tax paid on the purchases 

of goods and services from the related amounts in the 

accompanying consolidated statements of income. The 

consolidated subsidiaries primarily includes the consumption 

tax in the related amounts in the accompanying consolidated 

statements of income. 

(11) Accounting Change—Accounting for Write-off of Unsold 

Merchandise Returned 

Until the year ended March 31, 1995, the write-off of merchandise 

which was unsold and returned to the Company’s 

production plants had been recorded as a part of “Selling, 

general and administrative expenses.” With effect from the 

year ended March 31, 1996, the Company changed its policy 

to account for such cost elements as a part of “Cost of sales.” 

The change was made based on the general recognition that 

unsold merchandise returned became to be caused in the 

ordinary cause of sales cycles due to the diversification of 

sales channels and that it became to be necessary to enhance 

the control on the freshness of products and to collect merchandise 

to be returned from the viewpoint of quality control 

according to changes in the social and economic environment 

including the enforcement of the product liability law 

in Japan. 

As a result of the change, “Cost of sales” for the year 

ended March 31, 1996, was increased by ¥3,982 million 

($34,626 thousand) and “Selling, general and administrative 

expenses” was decreased by ¥3,982 million ($34,626 

thousand), as compared with the previous basis. 

The inclusion of such U.S. dollar amounts is solely for 

the convenience of the reader and is not intended to imply 

that yen amounts have been or could be converted, realized 

or settled in U.S. dollars at that or any other rate. 



¥41,456 

10,538 

4,969 

3,558 

¥60,521 

¥42,269 

8,368 

3,421 

3,019 

¥57,077 

Thousands of 

U.S. dollars 


$360,487 

91,635 

43,209 

30,939 

$526,270

5. Intangible Assets and Deferred Charges 

Intangible assets as at March 31, 1997 and 1996, consisted of the following: 

Goodwill of Zotos* .......................................... 

Trademark rights of Zotos*..................................... 

Goodwill of Helene Curtis**.................................... 

Deferred assets ............................................. 

Others................................................... 

6. Long-Term Debt 

Long-term debt as at March 31, 1997 and 1996, consisted of the following: 

Long-term borrowings from banks and other financial institutions ........... 

2.5 percent U.S. dollar bonds due February 4, 1997, 

with warrants (detachable) .......................................... 

2.0 percent Swiss franc bonds due February 4, 1997, 


0.875 percent Swiss franc bonds due May 8, 2000, 


Less: Current maturities of long-term debt ............................... 




¥16,275 

1,361 

9,277 

2,517 

14,126 

¥43,556 

¥02,430 

— 

— 

25,481 

27,911 

— 

¥27,911 

¥17,688 

2,321 

— 

— 

13,286 

¥33,295 

Thousands of 

U.S. dollars 


$141,522 

11,835 

80,669 

21,887 

122,835 

$378,748 

** The Company’s wholly owned subsidiary incorporated in the U.S.A., Shiseido International Corporation (“SIC”) acquired all the outstanding stocks of Zotos International, Inc. (“Zotos”) on September 1, 1988. In connection with 

this acquisition, goodwill and trademark rights in the amounts of ¥26,166 million and ¥9,603 million, respectively, were recognized and are being amortized over 40-year and 10-year periods, respectively, on a straight-line basis. 

During each of the years ended March 31, 1997 and 1996, ¥1,545 million ($13,435 thousand) and ¥1,586 million was amortized to income, respectively. 

** Also, SIC acquired the North American hair salon division from Helene Curtis, Inc. in December, 1996. In connection with this acquisition, goodwill in the amount of ¥9,290 million was recognized and is being amortized mainly over 

a 35-year period on a straight-line basis on the number of months. During the year ended March 31, 1997, ¥12 million ($104 thousand) was amortized to income. 



¥02,551 

23,742 

8,258 

— 

34,551 

(32,000) 

¥02,551 

The current exercise prices per share and number of shares issuable upon full exercise of warrants described above are 

summarized as follows: 

Fixed 

exchange 

rate used 

Thousands of 

U.S. dollars 


$021,130 

— 

— 

221,574 

242,704 

— 

$242,704 


issuable upon full 

exercise (thousands) 

Warrants attached to: 

0.875 percent Swiss franc bonds due May 2000 .................. ¥1,261.0 SFr1 = ¥88.98 

20,825 

In connection with each issue of bonds with warrants, 

the Company has entered into a long-term forward exchange 

contract to hedge the repayment of the principal of the 

bonds. Accordingly, the principal amount of each issue of 

bonds is translated at the applicable forward exchange rate 

and the difference between the amount translated at the 

forward exchange contract rate and the amount translated at 

the historical exchange rate is deferred and amortized over a 

period from the date of concluding the forward exchange 

Current 

excercise 

price 

contract to the date of settlement based on the number 

of months. The amounts amortized during the years ended 

March 31, 1997 and 1996, were ¥576 million ($5,009 

thousand), and ¥392 million, respectively. 

The unamortized balance was included in “Other long-term 

liabilities” in an amount of ¥590 million ($5,130 thousand) 

and in “Other current liabilities” in an amount of ¥272 million 

($2,365 thousand) in the accompanying consolidated 

balance sheet at March 31, 1997.

7. Retirement Plans and Severance Indemnities 

The Company and its consolidated domestic subsidiaries 

have a funded pension program to cover the employees’ 

retirement benefits. The amount of such retirement benefits 

is determined by reference to the latest rate of pay, length 

of service and conditions under which the retirements occur. 

The “Accrued retirement benefits” account has been provided 

for periodic accrual of cost of the retirement benefits 

that are not covered by the funded pension program mentioned 

above. The balance of “Accrued retirement benefits” 

in the accompanying consolidated balance sheets represents 

100% of the liability the Company and its consolidated 

domestic subsidiaries would be required to pay by themselves 

if all eligible employees voluntarily terminated employment 

at the respective balance sheet dates. 


Effective in the fiscal year ended March 31, 1989, the 

funded pension program of the Company was amended, and 

thereby an additional portion of the retirement benefits on a 

voluntary retirement basis became payable out of the pension 

program. In connection therewith, the balance of “Accrued 

retirement benefits” that had been provided for the periodic 

cost of such retirement benefits became excessive. Accordingly, 

the excess balance of the “Accrued retirement benefits” has 

been reversed into income on a straight-line basis over a period 

of 11 years. 

The accumulated balance of fund assets of the pension 

program aggregated ¥112,239 million ($975,991 thousand) at 

March 31, 1997. 

The past service cost for the pension program arising 

from the amendment mentioned above is amortized over 20 

years on a straight-line basis. 

8. Contingent Liabilities 

As at March 31, 1997, the Companies had contingent liabilities from guarantees of bank loans made by two affiliates in the 

aggregate amount of ¥450 million ($3,913 thousand). 

9. Accounting for Leases 

The Company has various lease agreements whereby the 

Company acts both as a lessee and a lessor. Finance lease contracts 

other than those which are deemed to transfer the ownership 

of the leased assets to lessees are accounted for by the 

method that is applicable to ordinary operating leases. 

10.Earthquake Disaster 

The Companies suffered the loss resulted from the Hanshin- 

Awaji Earthquake on January 17, 1995, and subsequent fire 

accidents, which are shown in the accompanying consolidated 

Disposal of fixed assets ................................................. 

Disposal of damaged goods .............................................. 

Supports and aids to suffered people in the area ................................ 

Others ............................................................. 

11. Subsequent Event 

Subsequent to March 31, 1997, the Company’s Board of 

Directors, with the subsequent approval by shareholders on 

June 27, 1997, declared a cash dividend of ¥2,577 million 

Lease rental expenses on finance lease contracts without 

transfer of ownership amounted to ¥3,959 million ($34,426 

thousand) for the year ended March 31, 1997. 

statement of income for the year ended March 31, 1995. 

The loss includes provision for the estimated future loss in 

connection with the disaster and consists of the following: 


¥0,693 

518 

317 

164 

¥1,692 

Thousands of 

U.S. dollars 

$06,026 

4,504 

2,757 

1,426 

$14,713 

($22,409 thousand), equal to ¥6.25 per share, which was 

applicable to earnings of the year ended March 31, 1997, and 

payable to shareholders on the register on March 31, 1997.

12. Segment Information 

(1) Industry Segment Information 

The Company and its subsidiaries operate principally in the 

following three industrial segments: 

Cosmetics ...Women’s and men’s cosmetics 

Toiletries....Hair care, soaps, napkins and paper diapers 

Net sales: 

Cosmetics .................................... 

Toiletries..................................... 

Others....................................... 

Operating income before unallocatable costs: 

Cosmetics .................................... 

Toiletries..................................... 

Others....................................... 

Less: unallocatable operating expenses................... 

Operating income................................. 

Total assets: 

Cosmetics .................................... 

Toiletries..................................... 

Others....................................... 

Unallocatable or headquarters ........................ 

Depreciation: 

Cosmetics .................................... 

Toiletries..................................... 

Others....................................... 


Capital expenditure: 

Cosmetics .................................... 

Toiletries..................................... 

Others....................................... 


¥436,705 

94,610 

57,257 

588,572 


Others......Fashion goods, health food products, beauty 

salon products and pharmaceuticals 

The segment information of the Company and subsidiaries 

for each of the three years in the period ended March 

31, 1997, is presented below: 



1996 1995 

49,213 

660 

(829) 

49,044 

(6,146) 

¥042,898 

¥352,191 

82,480 

150,320 

584,991 

25,141 

¥610,132 

¥007,677 

3,095 

5,610 

16,382 

75 

¥016,457 

¥009,036 

1,637 

11,560 

22,233 

61 

¥022,294 

¥404,181 

101,675 

54,965 

560,821 

46,102 

1,915 

(3,404) 

44,613 

(7,601) 

¥037,012 

¥321,008 

89,977 

148,688 

559,673 

20,840 

¥580,513 

¥008,251 

3,868 

5,495 

17,614 

90 

¥017,704 

¥007,156 

1,355 

3,573 

12,084 

88 

¥012,172 

¥387,314 

97,606 

55,441 

540,361 

35,535 

2,577 

(1,772) 

36,340 

(9,850) 

¥026,490 

Thousands of 

U.S. dollars 


$3,797,435 

822,695 

497,887 

5,118,017 

427,939 

5,739 

(7,209) 

426,469 

(53,443) 

$0,373,026 

$3,062,530 

717,217 

1,307,131 

5,086,878 

218,618 

$5,305,496 

$0,066,756 

26,913 

48,783 

142,452 

652 

$0,143,104 

$0,078,574 

14,235 

100,522 

193,331 

530 

$0,193,861

As a result of the amendment to the Consolidated Financial 

Statement Regulations, the disclosure of total assets, 

depreciation and capital expenditure to each segment classified 

by industrial departments has become mandatory with 

effect from the year ended March 31, 1996. 

As a result of the change on the accounting policy of translation 

of foreign currency financial statements (see Note 2 (3)), 

“Operating income in cosmetics division” for the year ended 

(2) Information by Geographic Segment 

Sales of the Companies classified by geographic area (inside and outside Japan) for each of the three years in the period ended 

March 31, 1997, are summarized as follows: 

Net sales: 

Domestic (inside Japan)........................... 

Outside Japan.................................. 

Operating income before unallocatable costs: 


Outside Japan.................................. 

Less: unallocatable operating expenses................... 

Operating income.................................. 

Total assets: 


Outside Japan.................................. 

Unallocatable or headquarters......................... 

As a result of the amendment to the Consolidated Financial 

Statement Regulations, the disclosure of operating 

expenses to each segment classified by geographic area has 

become mandatory with effect from the year ended March 

31, 1995, and that of total assets to such segment classified 

by geographic area has become mandatory with effect from 

the year ended March 31, 1996. 


March 31, 1996, would be decreased by ¥28 million ($243 

thousand), “Total assets in cosmetics division” as at March 31, 

1996, would be decreased by ¥121 million ($1,052 thousand) 

and “Total assets in others division” as at March 31, 1996, 

would be decreased by ¥2,737 million ($23,800 thousand), 

according to the amounts which would have been reported 

under the amended method. 



1996 1995 

¥529,316 

59,256 

588,572 

45,346 

3,698 

49,044 

(6,146) 

¥042,898 

¥500,519 

84,472 

584,991 

25,141 

¥610,132 

¥514,839 

45,982 

560,821 

41,414 

3,199 

44,613 

(7,601) 

¥037,012 

¥500,020 

59,653 

559,673 

20,840 

¥580,513 

¥504,486 

35,875 

540,361 

34,721 

1,619 

36,340 

(9,850) 

¥026,490 

Thousands of 

U.S. dollars 


$4,602,748 

515,269 

5,118,017 

394,313 

32,156 

426,469 

(53,443) 

$0,373,026 

$4,352,339 

734,539 

5,086,878 

218,618 

$5,305,496 

(3) Export Sales and Sales by Overseas Subsidiaries 

Export sales of the Companies (meaning the amounts of export made by the Company and its domestic subsidiaries plus the sales 

of overseas consolidated subsidiaries) for each of the three years in the period ended March 31, 1997, are presented below: 

Export sales and sales by overseas subsidiaries.............. 

Percentage of such sales against consolidated net sales ........ 

As a result of the change on the accounting policy of translation 

of foreign currency financial statements (see Note 2 (3)), 

“Operating income in outside Japan area” for the year ended 

March 31, 1996, would be decreased by ¥28 million ($243 thousand) 

and “Total assets in outside Japan area” as at March 31, 

1996, would be decreased by ¥2,859 million ($24,861 thousand), 

according to the amounts which would have been 

reported under the amended method. 



1996 1995 

¥64,549 

11.0% 

¥50,432 

9.0% 

¥40,283 

7.5% 

Thousands of 

U.S. dollars 


$561,296 

11.0%

13. Unaudited Related Party Information 

Material transactions of the Company with its related companies 

and individuals, excluding transactions with consolidated 

subsidiaries which are eliminated in the consolidated financial 

SHISEIDO HONEYCAKE INDUSTRIES Co., Ltd. Paid-in capital ¥90 million 

Principal business Production of cosmetics and toiletries 

Equity ownership percentage 28.1% 

Description of the Company’s transactions Purchase of products 

Volume of transactions made in the year ended March 31 ...... 

Resulting account balances as at March 31 

(Notes and accounts payable).......................... 

TAIWAN SHISEIDO Co., Ltd. Paid-in capital NT$724 million 

Principal business Production and wholesale of cosmetics 


Description of the Company’s transactions Sales of products 

Volume of transactions made in the year ended March 31 ...... 


(Accounts receivable).............................. 

Pierre Fabre Japon Co., Ltd. Paid-in capital ¥100 million 

Principal business Sales and import of cosmetics 


Description of the Company’s transactions Purchase of products 

Volume of transactions made in the year ended March 31 .......................... 


(Accounts payable) ................................................... 

The term and conditions on the above transactions are the same as those of the arm’s-length transactions. 


statements and other than those disclosed elsewhere in these 

financial statements, for each of the three years in the period 

ended March 31, 1997, were as follows: 


1997 1996 1995 

¥2,663 

¥0,732 

¥2,271 

¥0,332 

¥1,518 

¥1,532 


1997 1996 1995 

¥3,855 

¥0,373 

¥3,076 

¥0,046 

¥2,924 

¥0,514 



¥2,801 

¥0,273 

Thousands of 

U.S. dollars 


$23,157 

$06,365 

Thousands of 

U.S. dollars 


$33,522 

$03,243 

Thousands of 

U.S. dollars 


$24,357 

$02,374

To: The Board of Directors of 

Shiseido Company, Limited 

We have audited the accompanying consolidated balance sheets of Shiseido Company, Limited and its subsidiaries 

as at March 31, 1997 and 1996, and the related consolidated statements of income, shareholders’ 

equity and cash flows for each of the three years in the period ended March 31, 1997, all expressed in 

Japanese yen. These consolidated financial statements are the responsibility of the Company’s management. 

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. 

We conducted our audits in accordance with the auditing standards generally accepted in Japan. Those 

standards require that we plan and perform the audit to obtain reasonable assurance about whether the 

financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence 

supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing 

the accounting principles used and significant estimates made by management, as well as evaluating the 

overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis 

for our opinion. 

In our opinion, the consolidated financial statements referred to above present fairly, in all material 

respects, the consolidated financial position of Shiseido Company, Limited and its subsidiaries as at March 

31, 1997 and 1996, and the consolidated results of its operations and its cash flows for each of the three years 

in the period ended March 31, 1997, in conformity with generally accepted accounting principles in Japan. 

As described in Note 2 (11) of the Notes to the Consolidated Financial Statements, the Company, during 

the year ended March 31, 1996, changed its accounting policy to account for the cost elements resulted from 

write-off of merchandise which was unsold and returned to the Company’s production plants from as a part 

of selling, general and administrative expenses to as a part of cost of sales. The change was made based on 

the general recognition that unsold merchandise returned became to be caused in the ordinary cause of sales 

cycles due to the diversification of sales channels and that it became to be necessary to enhance the control 

on the freshness of products and to collect merchandise to be returned from the viewpoint of quality control 

according to changes in the social and economic environment including the enforcement of the product 

liability law in Japan and, we concur the change as appropriate. 

As a result of the change, cost of sales for the year ended March 31, 1996 was increased by ¥3,982 million 

and selling, general and administrative expenses was decreased by ¥3,982 million as compared with 

the previous basis. 

Tokyo, Japan 

June 27, 1997 


Chuo Audit Corporation 

Independent Certified Public Accountants

SHISEIDO HEAD OFFICE 

Shiseido Company, Limited 

7-5-5, Ginza, Chuo-ku, 

Tokyo 104-10, Japan 

Tel: (03) 3572-5111 

Fax: (03) 3574-8380 

URL: 

English Edition 

http//www.shiseido.co.jp/e/ 

Japanese Edition 

http//www.shiseido.co.jp/ 

DOMESTIC 

Directory 

Osaka Shiseido Co., Ltd. 

Shiseido Kako Co., Ltd. 

Shiseido Beautech Co., Ltd. 

Mieux Products Co., Ltd. 

IPSA Co., Ltd. 

Haramachi Paper Co., Ltd. 

Pierre Fabre Japon Co., Ltd.** 

ETWAS Co., Ltd. 

Shiseido Fine Toiletry Co., Ltd. 

Shiseido Sales Co., Ltd. 

Shiseido Pharmaceutical Co., Ltd. 

Shiseido Logistics Company Ltd. 

SFC Co., Ltd. 

The Ginza Co., Ltd. 

Shiseido Parlour Co., Ltd. 

Shiseido Beauty Salon Co., Ltd. 

Shiseido Real Estate Development Co., Ltd. 

Shiseido Wellness Co., Ltd. 

Mikawaya Co., Ltd. 

Shiseido Lease Co., Ltd. 

d’ici là Co., Ltd. 

Ettusais Co., Ltd. 

Shiseido Cosmenity Co., Ltd. 

Qi salon cosmetics Co., Ltd. 

Shiseido Honeycake Industries, 

Co., Ltd.** 

Kyuryudo Art-Publishing Co., Ltd.** 

CJP Co., Ltd.** 

Amenity Goods Co., Ltd. 

Beauté Prestige International Japon, 

Co., Ltd. 

Ayura Laboratories Inc. 

Shiseido International Inc. 

Shiseido Information Network Co., Ltd.* 

Shiseido Asia Pacific Co., Ltd.* 

Shiseido City Co., Ltd.* 


OVERSEAS 

Shiseido International Corporation 

Zotos International, Inc. 

Davlyn Industries, Inc. 

Shiseido Cosmetics (America) Ltd. 

Shiseido America Inc. 

Shiseido of Hawaii, Inc. 

Shiseido Cosmetici (Italia) S.p.A. 

Shiseido Deutschland GmbH. 

Shiseido United Kingdom Co., Ltd. 

Carita S.A. 

Alma Coiffure S.A. 

Alma Esthetique E.U.R.L. 

Shiseido International Europe B.V. 

Shiseido Singapore Co., (Pte.) Ltd. 

Shiseido (Australia) Pty., Ltd. 

Shiseido (N.Z.) Ltd. 

Shiseido International France S.A. 

Beauté Prestige International S.A. 

Shiseido Philippines, Inc.* 

Shiseido Thailand Co., Ltd.** 

Shiseido France S.A. 

Taiwan Shiseido Co., Ltd.** 

Shiseido Liyuan Cosmetics Co., Ltd. 

Les Salons du Palais Royal Shiseido 

S.A. 

Zotos Corporation*** 

Shiseido Canada Inc. 

Carita International S.A. 

Piidea Canada, Ltd. 

Beauté Prestige International S.p.A.* 

Shiseido Industries S.A.S.* 

* Unconsolidated subsidiary 

** Affiliate accounted for using the equity method 

*** On January 1, 1997, Zotos Corporation was merged with Zotos 

International, Inc.

Printed in Japan

Annual Report 1997 ［ PDF：2.4MB ］ - Shiseido

Create successful ePaper yourself

Delete template?

Save as template?