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ANNUAL REPORT 2013
Our Quest for Beauty
In over six decades in Japan, KOSÉ has continually sought to offer a better-quality, superior level of beauty.
We take the same stance toward corporate management. We are constantly moving forward, utilizing our
current capabilities, while seeking a path that will provide future growth.
We have and will continue to relentlessly pursue research in order to be a global company with a presence throughout the world.
Corporate Message
Wisdom and beauty for people and the earth
Create a culture and values embodying a distinctive beauty
through a sophisticated fusion of sensuousness and intelligence.
Deeply devoted to all the people who believe in and support KOSÉ:
Statement of
Purpose
Management
Philosophy
· Respect the values and skills of each employee.
· Always aim for highest growth—never settle for stability.
· Strive for the highest possible quality backed by exclusive technology.
Action Guidelines
· Meet and exceed the expectations of customers.
Your actions shape the present
and future KOSÉ:
· Be sincere. Retain an intent focus on goals.
· Go beyond the conventional.
· Never lose your enthusiasm and the desire to
improve.
· Have the courage to communicate with others
openly and honestly.
· Build a stronger global presence.
13050711_copybook3
Contents
We believe that our mission is to provide joy and comfort through
cosmetics and to help everyone live a fuller life.
2
2013 Overview
4
Business Summary 2013
8
Interview with the President
12
Sources of KOSÉ’s Brand Power
20
Research and Development
22
Corporate Social Responsibility
24
Financial Section
56
Principal Consolidated Subsidiaries
57
Corporate Information
Shareholder Information
Forward-Looking Statements
This annual report contains forward-looking statements about KOSÉ Corporation’s future plans, strategies, and performance that are not historical
facts. Risks and uncertainties resulting from changes in the business environment may have a significant effect on the actual business results. Please
also note that we shall not be held responsible for any omissions or errors in data and content in this document.
Annual Report 2013
1
Highlights for the Year Ended March 2013
Net sales
2.5
+
왘
%
Overseas
왘
sales ratio
Operating
왘
income
12.6
KOSÉ pursued the optimal allocation of management resources, and made proactive efforts to improve management efficiency and enhance earnings capacity.
As a result, net sales rose 2.5% from the previous fiscal year, with year-on-year
gains in all business segments.
Overseas sales rose slightly, with a ratio of 12.6% of total sales.
%
¥11,864
million
Net Sales
Operating income rose 3.8% from the previous fiscal year as a result of the
growth in sales and a reduction in the cost of sales ratio. Net income increased
as a result of expansion in the foreign exchange gain from the weakening of
the yen.
Operating Income/
Operating Profitability
(Billions of yen)
Net Income
(Billions of yen)
(Billions of yen)
Operating income
178.1
172.6
171.1
166.5
Operating Profitability (%)
13.8
170.7
12.3
6.7
11.4
5.2
10.1
5.0
4.7
8.1
6.9
7.0
2012
2013
6.9
6.7
11.9
5.9
2009
2010
2011
2012
2013
2009
2010
2009
2010
2011
2012
ROA
Net Income per Share
Cash Dividends per Share
(%)
(Yen)
(Yen)
8.4
115.9
7.1
7.5
81.6
2009
2010
2013
117.2
40.0
40.0
40.0
40.0
41.0
2013
2009
2010
2011
2012
2013
7.0
6.4
2
2011
2011
2012
2013
2009
88.8
2010
86.5
2011
2012
7.1
Return on
왘
assets (ROA)
Cash
dividends 왘
per share
%
¥
(Billions of yen)
Cosmetaries
Dividends amounted to ¥41 per share in fiscal 2013, comprising an interim
dividend of ¥20 per share and a year-end dividend of ¥21 per share. For fiscal
2014, KOSÉ plans to pay a full-year dividend of ¥42 per share.
41.0
Net Sales by Reportable Segment
Cosmetics
ROA increased 0.1 percentage point year on year, to 7.1%. KOSÉ seeks to
raise ROA through further business expansion and efficiency measures.
Other
Operating Profitability by
Reportable Segment
Overseas Sales/
Overseas Sales Ratio
(%)
(Billions of yen)
Cosmetics
1.8
43.8
1.5
45.0
1.8
42.3
1.5
39.7
1.7
41.1
132.5
126.1
127.0
125.4
127.9
Cosmetaries
23.9
25.4
19.9
13.6
11.0
10.9
10.6
9.4
10.6
0.3
2009
2010
2011
2012
2013
Overseas Sales
Other
2009
10.7
10.8
19.1
18.7
2009
2010
Overseas Sales Ratio (%)
12.3
12.7
12.6
21.0
21.2
21.5
2011
2012
2013
9.1
5.9
1.3
2010
2011
3.1
7.4
2012
2013
SG&A Expenses
and SG&A Expenses to Net Sales
Depreciation and Amortization
and Capital Expenditures
Interest-Bearing Debt/
Debt-to-Equity Ratio
(Billions of yen)
(Billions of yen)
(Billions of yen)
SG&A Expenses
120.5
67.7
118.0
68.4
SG&A Expenses to Net Sales (%)
113.9
66.6
113.1
116.7
67.9
68.3
Depreciation and Amortization
6.6
5.6
Capital Expenditures
6.5
Interest-Bearing Debt
4.6
5.9
5.2 5.4
5.6
4.9
4.7
4.6
Debt-to-Equity Ratio (%)
5.1
5.1
5.0
4.8
4.7
4.5
2011
2012
2013
4.5
4.4
3.8
2009
2010
2011
2012
2013
2009
2010
2011
2012
2013
2009
2010
Annual Report 2013
3
Business Summary 2013
Sales
(Billions of yen)
Cosmetics
Cosmetaries
Other
1.8
43.8
1.5
45.0
1.8
42.3
1.5
39.7
1.7
41.1
132.5
126.1
127.0
125.4
127.9
1.0%
24.1%
74.9%
2009
4
2010
2011
2012
2013
Boosting Brands to Meet Consumer Needs
Prestige Brands
Fiscal 2013 Results
Sales in Japan rose 4% for prestige brands overall. In the
SEKKISEI brand, KOSÉ achieved positive results through a pro-
Sales (Million yen)
Year-on-Year Growth
170,685
2.5%
motional campaign featuring actress and model Yui Aragaki as
the new face for the brand, which led to the capturing of a new
customer segment of women in their 20s, while retaining the
existing customer base. In the ESPRIQUE brand, the year-
Business Results
round use of foundation alleviated inventory risk and reduced
The status of the global economy remains uncertain as a result
returns, making a significant contribution to earnings. During
of such concerns as the European debt crisis and slowing
the second half of the fiscal period, KOSÉ launched a skin-care
growth in emerging economies. In the Japanese economy,
brand containing the high-function components in which the
however, since the change of government at the end of 2012,
Company specializes, expanding its sales and market share in
expectations for large-scale supplementary budgets and other
the highly competitive mass market category.
economic policies have led to a weaker currency, rising stock
prices, and improvement in consumer sentiment.
The Japanese cosmetic market continues to be tight as
Self-Selection Brands (Cosmetaries)
Sales rose 3.6% overall. In the highly competitive sunscreen
a result of market maturity, growth in online sales, and more-
market, SUNCUT ® spray-type sunscreen that can also be used
intense competition due to new entrants from different indus-
on hair gained market acceptance. The Je l’aime series of
tries, and product prices are declining. Overseas cosmetic
non-silicone hair-care products, launched in March 2013,
markets also pose challenges, particularly China, Taiwan, and
became a major hit, making a significant contribution to perfor-
other areas of the greater China region. In this operating envi-
mance. Results were further boosted by steady growth through-
ronment, the KOSÉ Group steadily expanded sales in Japan
out the fiscal year of the FASIO and STEPHEN KNOLL series.
by concentrating on strengthening the mass market segment,
while taking steps to boost brands that meet changing market
The KOSÉ Group has adopted “Aggressive Innovation,” and is
and consumer needs. In the overseas business, which KOSÉ
steadily moving forward in a concerted effort as a company to
considers to be one of its growth drivers, revenue was up
achieve the three basic strategies in its medium-term manage-
slightly for overseas subsidiaries overall, but on the whole
ment plan: 1) Concentrate on growth drivers, 2) Expand profit-
conditions remained challenging.
ability of core brands, and 3) Build a more-powerful operating
framework.
High-Prestige Brands
For growth drivers, we established an e-commerce brand as
Sales rose 3% overall. In the COSME DECORTE brand, unit
a new business, and made initiatives in new markets and sales
sales volume reached record highs on sales of MOISTURE
channels, including launching a line of professional products
LIPOSOME products in limited-edition bottles to mark the line’s
for hair salons and introducing the PAUL STUART brand of
20th anniversary. The AQ MW product line was expanded with
cosmetics for men. For core brands, we implemented swift
the addition of Makeup in February 2012 and Base Makeup in
product strategies to meet logistical and customer needs,
August 2012, as the series grew to be one of the drivers for
including joint development with a major distribution group,
the COSME DECORTE brand. In the JILL STUART brand, we
and expanded a non-silicone hair-care series popular with
gained a new customer base with the introduction in October
young women. KOSÉ also made a strong push to strengthen
2012 of the RELAX series as well as the expansion of product
the operational framework by reducing costs Company-wide,
lines for body care and fragrances.
including in administrative divisions, and by lowering waste
disposal costs and withdrawing from unprofitable businesses.
Annual Report 2013
5
Aiming to Become a “Company with a Global Presence”
Overseas Business Initiatives
For its overseas business, KOSÉ conducts
country-specific marketing aimed at establishing a global brand. In China, demand is recovering as a result of efforts to develop the luxury
brand COSME DECORTE, the launch of the
China-specific brand Bizenist, and growth in
online sales. In Italy, sales volume is steadily
rising for the AQ MELIORITY and AQ MW lines
of the COSME DECORTE brand, launched in
2012.
Overseas sales amounted to ¥21,511 million
in fiscal 2013, accounting for 12.6% of total
sales. We will continue to actively expand the
cosmetics business globally, strengthen our
overseas production structure, and bolster our
worldwide organization, with the aim of becoming a “company with a global presence.”
6
Business Summary 2013
New Business Initiatives
E-Commerce Business Initiatives
For new business initiatives to adapt to the growing e-commerce market, in May 2011, KOSÉ launched an online site for
the JILL STUART and AWAKE brands, which had previously
only been available in department stores and specialty cosmetic stores. KOSÉ’s e-commerce business subsidiary
PROVISION Co., Ltd., established its first brand, AQUALIVE,
in December 2011, followed by the MAIHADA brand in June
2012. KOSÉ will seek to further increase sales by meeting
the diversified purchasing styles of customers and launching
cosmetics that take the fullest advantage of online sales.
Pushing Ahead with “Aggressive Innovation”
Future Outlook
Market Environment and Earnings Forecasts
Medium- to Long-Term Management Strategies
The outlook for the market environment remains clouded by
The KOSÉ Group, in addition to expanding its market share in
such concerns as the risk of a worldwide economic downturn
Japan, considers it important to accelerate its business devel-
developing from the ongoing European debt crisis and other
opment in growth markets, to expand business overall, and to
factors, as well as the direction for employment and incomes.
build strong management practices that will allow the corpo-
However, we anticipate moves toward economic recovery
rate Group to survive and prosper in the new era of competi-
stemming from improvements in household budgets and cor-
tion among firms. In the previous Medium-Term Management
porate sentiment on the back of rising exports, along with the
Plan (April 2008 to March 2011), we achieved a certain degree
positive effects of economic and fiscal policies. In such an
of success with such measures as eliminating waste to
environment, the KOSÉ Group will continue to move forward
enhance management efficiency. We further shifted manage-
with strengthening its management foundations, and further
ment practices to a stance of “Defensive Innovation” better
solidifying the position of core brands in Japan, while at the
able to cope with change, and implemented deep cost reduc-
same time making proactive investments in overseas and new
tions and operational improvements. Based on the three poli-
businesses with growth potential. In consideration of such fac-
cies designated as new management pillars (concentrate on
tors, for the fiscal year ending March 2014, KOSÉ is forecast-
growth drivers, expand profitability of core brands, and build a
ing net sales of ¥175,000 million (up 2.5% year on year), with
more-powerful operating framework), building on the success-
operating income of ¥12,500 million (up 5.4%), and net income
es of the preceding three years, we are continuing to pursue
of ¥7,000 million (up 4.2%). By business segment, we are fore-
“Aggressive Innovation” to put us on a growth track.
casting net sales of ¥131,800 million in Cosmetics, ¥41,500
million in Cosmetaries, and ¥1,700 million in Other. Capital
expenditures are anticipated to total ¥5,000 million, and
depreciation expense ¥5,100 million.
Annual Report 2013
7
Interview with the President
Kazutoshi Kobayashi
President
8
Q1
What is your analysis and impression of KOSÉ’s business performance in the fiscal year ended March 2013?
Although the final results fell slightly short of plan, we achieved
sales and earnings growth in all business segments. The
Japanese cosmetic market was flat compared to the previous
fiscal year in terms of both value and volume, but we were
successful in our various strategies to invigorate core brands,
establish new brands, and strengthen marketing.
In high-prestige brands, for example, new and limited-edition products for COSME DECORTE
and other core brands sold well. In prestige brands, we brought in a new celebrity as the face for
the mainstay SEKKISEI brand, allowing us to cultivate a new customer segment. We also introduced new products for our high-function skin-care brand—one of KOSÉ’s specialties—which
provided an additional boost to sales.
Overseas, we managed only a slight increase in sales. However, in China, KOSÉ launched the
China-specific brand Bizenist, and introduced 12 new skin-care items. Our online sales business
in China was also positive, as we bolstered sales expansion strategies with a brand site on a major
e-commerce service, and through TV shopping.
In Italy, in March 2012, we introduced the high-end line COSME DECORTE for the Italian market, and successfully established a business model targeting wealthy customers.
Q2
What is the status of business restructuring efforts and the current
level of achievement for the Medium-Term Management Plan begun
in April 2012?
The business restructuring we had undertaken as a management issue is now nearly completed, and we are on track to
achieving our goals of narrowing down brands, reforming the
distribution system, and streamlining specialty cosmetic
stores. For overseas business development, which we expect
to provide future growth, I think that we need to further
enhance our brand presence, particularly in Asian markets
where latent demand is high.
The Medium-Term Management Plan calls for “Aggressive Innovation,” and comprises the three
basic strategies of 1) Concentrate on growth drivers, 2) Reinforce core brands, and 3) Build a
more-powerful operating framework. We have made steady progress over the past year in
achieving all three.
In terms of new businesses, examples include a brand exclusively for e-commerce in Japan,
a line of professional products for hair salons, and the launch of a cosmetic line for men. For
our core brands, we are enhancing competitiveness by strengthening the marketing and sales
Annual Report 2013
9
structure to fit the characteristics of each sales channel, accelerating product development
in line with retail and customer needs, and other measures.
To strengthen management foundations, we have concentrated management resources in core
brands, and thoroughly streamlined corporate costs. We have also succeeded in reducing returns
and disposals through such measures as promoting the year-round use of foundation, which has
been a seasonal product.
We plan to further step up measures from fiscal 2014. In particular, for core brands, based
on the successes of the past year, we changed the wording of the strategy from “reinforce” to
“expand profitability,” and adopted a more-proactive stance aimed at achieving both sustainable
growth and earnings.
Q3
What measures are you pursuing to achieve the targets
for the fiscal year ending March 2014?
We are expanding the overseas and new businesses that
are our growth drivers, and accelerating growth around
core brands, centered on the mass market business.
For the expansion of the overseas business, we are prioritizing the greater China region centered on East Asia. We have high expectations in the greater China region for developing specialty
cosmetic stores specializing in certain brands, and targeting middle-class consumers in those
areas. Up to this point, we have focused on expanding the number of stores, but, going forward,
will streamline our partner outlets to enhance profitability. In May 2013, we established a representative office in Hong Kong aimed at business expansion across greater China.
For new markets, we are focusing on developing business in India and Europe. In India, in
March 2013, KOSÉ agreed to establish a joint venture with a pharmaceutical company that manufactures and sells healthcare products and cosmetics in addition to drugs. India is an attractive
market of 1.2 billion people, the majority of whom are young. We are currently formulating a
specific business plan with our partner.
In Europe, following the favorable response we have received in Italy, we are exploring the
possibility of moving into other European countries with large markets.
In terms of new businesses, our Japanese e-commerce business is still in the upfront investment stage, but the market has the potential for future growth, and we will continue to seek business expansion. For the hair salon products business, we will strengthen our brands and expand
our network.
To expand the profitability of core brands, over the next few years, we will deepen our partnerships with the major retail companies that comprise our key accounts. Going forward, we will
make an effort to develop sales channels and our customer base.
For the building of a more-powerful operating framework, we consider cost reductions to be a
never-ending theme that we must constantly pursue, and plan to realize further management efficiency through such means as the globalization of ingredient procurement and shifting production
overseas. Alongside these efforts, we will continue to optimize the value chain through waste and
inventory control, and management of the product life cycle. Further, at stores and other points
10
Interview with the President
of customer contact, from fiscal 2014, we plan to introduce sales support systems to centrally
manage customer purchase records and inventory, as well as advanced skin diagnostic machines.
Efforts such as these will further strengthen our counseling capabilities, and provide for moreefficient and effective store operations.
For the fiscal year ending March 2014, we expect earnings to make a sharp recovery, and are
forecasting net sales of ¥175,000 million, with operating income of ¥12,500 million and net
income of ¥7,000 million.
Q4
What is your vision for the future of KOSÉ?
KOSÉ’s fundamental management spirit of coexistence and
mutual prosperity with customers, business partners, and
society, along with its focus on sustainable growth, is the
cornerstone of the Company today.
Our vision is to be a company with a global presence worthy of a century of history. We want to
earn the satisfaction of customers by providing them with the best-quality products and service,
and to bring the unique value we offer to countries and regions throughout the world.
Going forward, we will make a concerted effort to further enhance the soundness and efficiency
of our business management. At the same time, as a responsible corporate group, we will play an
active role in realizing a sustainable society and global environment through environmental conservation, support for the protection of the natural environment, and the furthering of normalization.
The Medium-Term
Management Plan
Annual Report 2013
11
Sources of KOSÉ’s Brand Power
Brand Marketing —Attractive brands via optimal sales channels—
KOSÉ utilizes a unique brand marketing approach of offer-
brands at each stage, from the product itself to sales chan-
ing each brand through the sales channel best suited to its
nels and communication at the sales counter.
particular characteristics. We strive to create attractive
HighPrestige
Brands
Prestige
Brands
Cosmetaries
Brands
12
To achieve this, KOSÉ assesses consumer needs in
through a careful consideration of all its aspects, including
terms of the sense of value brands offer as both a cosmetic
texture, fragrance, potential and actual effectiveness, price,
and lifestyle. Drawing on KOSÉ’s distinctive style of intelli-
and package design, as well as the occasions and season
gence and sensuousness, we then fashion the brand
for use.
The Highest Levels of Quality
and Service
KOSÉ high-prestige brands feature high quality made possible
by bringing together the latest technologies. Befitting luxury
brands, we sell them mainly in specialty cosmetic stores and
department stores. Specially trained beauty advisers introduce
and offer products after detailed advice sessions that include
skin analysis.
Cosmetics with High Added Value
for a Wider Customer Segment
Products in this category have high added value, but are sold
through a broader range of sales channels: PRÉDIA through
specialty cosmetic stores and INFINITY through general merchandise stores and drugstores, not to mention the SEKKISEI
brand, now synonymous with KOSÉ.
One Step Above the Rest
In addition to cosmetics, self-selection brands include hair-care
products, such as shampoos and conditioner, as well as other
toiletries developed with a cosmetic bent. We refer to these as
“cosmetaries.”* Consumers can purchase these quality products for a reasonable price at general merchandise stores,
drugstores, and convenience stores.
* The word is a fusion of “cosmetics” and “toiletries.”
Annual Report 2013
13
COSME DECORTE
For Women Seeking
14
13050711_copybook3
Sources of KOSÉ’s Brand Power
A Global Brand Offering
the Highest-Quality Cosmetics
with the Finest Service
COSME DECORTE was launched in 1970 as one of
KOSÉ’s high-prestige brands, and has remained a
ufavorite among many women seeking eternal beauty. The brand has earned the utmost trust of customers through our pursuit of the highest-quality
products incorporating leading-edge technologies, along with the skin exams and meticulous,
individual counseling provided by highly skilled
beauty advisers at sales counters.
metic stores
The brand is sold mainly through specialty cosmetic
and department stores that provide counseling services. In
addition to Japan, COSME DECORTE has regular users
around the world, including in Italy, China, Hong Kong, Taiwan,
South Korea, Singapore, and Malaysia.
Directly Managed Esthetic Salon Increasing
Fans of COSME DECORTE
A New Powder Foundation
for a Youthful, Natural Complexion
To further enhance customer satisfaction with the COSME
The COSME DECORTE AQ MW skin-care line, launched in fall
COSME DECORTE,” a directly managed, full-service facial
2010, was developed around the concept of “miracle wonder
esthetic salon, in the Ginza area of Tokyo (Mode Annex of
for the skin,” with the world-famous designer Marcel Wanders
Printemps Ginza). This salon features private rooms that offer
selected to serve as art director. The line articulates an edgy
an elegant relaxation space for clients, where specialist advis-
worldview that fuses elegance and art, and has become one
ers provide skin-care and beauty advice. The salon is a con-
of the series that symbolizes the COSME DECORTE brand.
necting point for regular users of COSME DECORTE and new
In fiscal 2013, KOSÉ added a new type of powder foundation and other items for the COSME DECORTE AQ MW line.
DECORTE brand, in fall 2011 KOSÉ opened “salon de beaute
customers, and helps to enhance trust in the brand, and
create many additional fans.
This new powder foundation is focused on providing a youthful, natural complexion, the latest trend in base makeup. The
item includes a powder to give the skin a natural complexion,
a powder to provide shine and transparency, and a foundation
for a base. Using a blend of these three colors and sensationss
provides the type of youthful, naturally beautiful color difficult to
achieve with conventional powder foundations, and has made
it one of the line’s more-popular items.
Annual Report 2013
15
ADDICTION
Winner of the 2012 VOGUE
“Best of Beauty” Prize
ADDICTION is a makeup brand targeting all women, regardless
of age, who are seeking their own style. AYAKO, a Japanese
makeup artist based in New York and active worldwide, determines the general direction for the brand, creating a style to
maximize the individuality of each user.
During fiscal 2013, KOSÉ once again offered select seasonal
collections planned by AYAKO. One of the items from this
series that was wildly popular with women, ADDICTION
“Nail Polish Spring 2012,” was awarded the
“Best of Beauty” prize (Makeup Division) by
the fashion magazine Vogue Japan.
JILL STUART
asYourself
Renewal of a Popular Body-Care Line
The producer for this cosmetic brand is Jill Stuart, a fashion
designer who is tremendously popular with young women
around the world. The brand skillfully draws out the dual characteristics of “innocent” and “sexy” that exist side by side in
young women to create the perfect blend of “kawaii” cuteness.
During fiscal 2013, KOSÉ launched the renewed
JILL STUART Relax line, a popular series of body-care products with a revamped product lineup and packaging design.
The items that comprise the line allow the user to thoroughly
enjoy the sweet fragrance of a comforting “aromatic white bouquet” at any time, while the lily-white container designs have
also proved popular.
16
Kawaii
in All Girls
Sources of KOSÉ’s Brand Power
SEKKISEI
Skin-Beatifying Benefits Widely Recognized
Overseas
Marketing Focus to Expand Sales
SEKKISEI is a long-selling skin-care brand that has remained
aimed at winning new customers, and promoting the brand
a favorite of customers of all generations since its launch
among existing customers. Specifically, we engaged Yui
in 1985. Containing a perfect combination of Chinese and
Aragaki, an actress popular with women of all age-groups, as
Japanese herbal extracts with highly effective moisturizing
the new face for the brand, and ran a promotional campaign
benefits, SEKKISEI aims to provide “skin as clear as snow.”
highlighting SEKKISEI as expressing a fresh and transparent
The brand includes a broad range of items, including face
lotion, facial packs, emulsion, and moisturizing cream, and
During fiscal 2013, KOSÉ conducted a marketing campaign
feeling, and the attractiveness of adult women.
Further, as part of its environmental conservation effort,
has received broad customer support for its evident skin
KOSÉ continued the “SAVE the BLUE®” campaign to donate a
benefits and ease of use. In Japan, SEKKISEI has already
portion of the sales from SEKKISEI to coral cultivation efforts
become a brand that is regularly used by two generations,
in Okinawa.
and the brand name is becoming widely recognized around
the world, centered on Taiwan, China, Hong Kong, South
Korea, and other areas of Asia.
Annual Report 2013
17
ASTABLANC
A New Skin-Care Brand with High Functionality
ASTABLANC is a new aging-care brand designed for adult
Medicinal Whitening Essence
Also Part of the Line
women concerned about small wrinkles and spots. KOSÉ suc-
For the launch of ASTABLANC, KOSÉ recruited the vibrant
ceeded in combining “astaxanthin S” (moisturizer), the result of
and recognized actress Yuki Amami as the face for the brand.
KOSÉ’s 20 years of research on the natural pigment com-
We are raising brand awareness through a diverse media mix
pound astaxanthin, with components for moisture retention
that includes television commercials and in-store promotions,
and skin whitening, and incorporating these into face lotion,
as well as web, magazine, and transportation advertising.
emulsion, and other products.
In February 2013, KOSÉ announced the launch of
The products provide a gentle elasticity to smooth the tiny
“Revolution White” for the ASTABLANC brand, a medicinal
wrinkles caused by drying, and to control excessive melanin
whitening essence combining the whitening agent “kojic acid”
from ultraviolet light. Using the full product line provides
and the moisturizing agent “astaxanthin S.” The item has
24-hour aging and whitening care.
attracted much attention for providing both whitening and
aging care at the same time.
Aging Care
for Adults
18
Sources of KOSÉ’s Brand Power
STEPHEN KNOLL
Entry into the Hair Salon Market
and Efforts to Establish the Brand
Jointly developed with the leading New York hair stylist
Stephen Knoll, this is a total hair-care brand that offers a
salon-quality finish. Fans of the product line are steadily
increasing, mainly for shampoo and conditioner, with many
regular users of hair coloring as well.
During fiscal 2013, KOSÉ launched
“Color Couture Hair Color,” a hair coloring
that provides beautiful and long-lasting coloration comparable to a hair salon treatment. We also developed and launched
“Stephen Knoll Professional,” a line of
products exclusively for salons, and are
working to further establish the brand
along with existing consumer products.
Total Hair-Care
That Is a Step
Above
Je l’aime
Hit Product with Sales
Nearly ­Double ­Expectations
The market for non-silicone shampoos is expanding, particularly among young women desiring natural products. Je l’aime
is a new hair-care series to meet this demand, offering both
shampoo and conditioner without the artificial compound
­silicone.
In addition to being silicone-free, Je L’aime is also free of
sodium laureth sulfate, commonly added to shampoos to
enhance cleansing, providing gentle care for the hair and scalp.
The line has earned a solid reputation from customers for its
rich aroma from natural fragrances and its noticeable treatment
effect. In the first two months since its launch in March 2013,
Je l’aime became a hit product with total shipments of 3.13
million units, nearly twice our initial estimate.
New Non-Silicone
Hair-Care Series
Annual Report 2013
19
Fundamentally speaking, our mission is to provide joy and comfort through cosmetics and to thereby help
everyone live fuller lives. At heart, we believe we can epitomize the spirit of R&D at KOSÉ with the words
“sensuousness,” “intelligence,” and “reliability.” Our foundational principle is to create values and a culture
encouraging unique beauty through the high-level fusion of these three elements, thereby realizing a core
concept embraced by KOSÉ’s founder, namely, “to conscientiously provide nothing but superior products.”
R&D at KOSÉ is best characterized by its focus on the originality and speed needed to create the highvalue-added cosmetics that are the continuing growth drivers of KOSÉ.
(1) Pursuit of market-creating research for the public
We are committed to the pursuit of cosmetic research
that creates new markets, reflecting a desire to develop
industry-first cosmetics, and highly original cosmetics.
Intelligence
(2) Globalization of technologies and products
We are committed to ensuring that many people around
the world are able to use and enjoy the KOSÉ cosmetics
that are trusted and acclaimed in Japan.
(3) Challenging the status quo
We are committed to securely clearing each new hurdle,
without being content with the status quo.
(4) Producing first-rate quality products with unique
technologies
We are committed to the creation of superior products
that are appreciated in proportion to their value.
(5) Establishing a research structure that draws the best
out of individuals and the entire Group
We are committed to ensuring a flexible research structure
that thoroughly respects the individual.
Sensuousness
Reliability
The Fusion of Intelligence, Sensuousness, and Reliability
Leads to the Creation of Unique Value and Culture.
R&D Structure
Research Laboratory, which conducts research related to
KOSÉ’s founder, Kozaburo Kobayashi, began his business
base technologies and quality assurance; and the Technical
with a boundless passion for cosmetics that offer people
Research Center, which compiles and utilizes information
beautiful dreams and hope. He believed strongly in creating
pertaining to research, such as pharmaceutical and academic
the best-quality cosmetics that deeply satisfy customers, and
developments, and intellectual property. These three research
providing them with the sense of personal, hand delivery.
facilities are located within Tokyo’s 23 special wards, and this
This ideal has been passed down through the Company, and
close proximity to the Head Office in Nihonbashi, where the
continues today. The founder’s ideals live on in many aspects
marketing function is centered, provides for face-to-face com-
of our corporate activity, including our commitment to quality,
munication. To further global strategies, a China branch office
and unique brand marketing. Of these, research and develop-
was established in Shanghai. Including overseas offices, the
ment play a key role as the driving force for KOSÉ’s growth.
R&D structure comprises a total of four facilities.
KOSÉ’s R&D structure comprises three main facilities, the
KOSÉ Research Laboratory, which develops makeup, skincare, and a variety of other products; the KOSÉ Fundamental
20
KOSÉ’s Tales of World Firsts
• The Revolution in Skin Care
The first beauty serums began with the shift in focus
KOSÉ
KO
SÉ’s
s commitment to conscientious producttion is an
from oil to water
as
a
spi
pira
ira
attiio
on
n forr “satisfaction that exceeds expec
ctations.”
c
Skin care during the 1960s mainly involved protecting the skin
This
Th
This
s is th
he pu
ursuit of easier usability through R
R&D oriented
with an oil film. Skin research conducted in the 1970s, how-
to
oward
ward wis
sdom and sensuousness, as well as the desire
ever, revealed that water, and specifically retaining moisture,
for cu
fo
usttom
omerrs to deeply feel joy and emotion
n th
hrough the
is most important for beautiful skin. The skin components that
steady adv
d ance toward the ultimate ideal off be
eauty. We
retain this vital moisture at the molecular level are water-soluble
anticipate the desires of women as they ch
hang
ge over time,
compounds called natural moisturizing factor (NMF). Following
continually striving to create new value, an
nd prroducing
this discovery, research themes
cosmetics that had not existed before.
shifted from oil to water, and the
development of skin-care cos-
• The Revolution in Foundation
metics that utilize the special
A foundation that began with a desire to answer
characteristics of NMF. This led
women’s calls for their ideal product
to the creation of a new cate-
Many women desire beautiful skin, while few think their own
gory of product called beauty
skin is perfect. KOSÉ’s foundation fulfills the wish of many
serums, which sparked a
women to hide their problem areas, and move a ste
ep clo
ep
losse
er to
revolution in skin care.
their ideal of beautiful skin. KOSÉ listene
ed to women,
n, an
nd
d after
much research and development to cre
eate more-satisfying
products, created an entirely new type
e of foundation. Produc
uc
u
uct
cts
common today, such as “liquid founda
ation for summer,” “p
powder foundation,” and “two-way founda
dation” that can be use
ed
ed
with or without water, were three of the major revolutions in
foundation pioneered by KOSÉ.
Product Development Reflecting Market Needs
light. KOSÉ discovered that astaxanthin is highly effective in
eliminating free radicals, which affects aging. We have further
Cosmetics are used directly on the skin. KOSÉ is continu-
announced research showing that it inhibits the formation of
ally expanding its lines of high-quality, high-function cos-
wrinkles. Astaxanthin has a delicate nature, and becomes
metics to meet a wide range of market needs for different
ineffective when combined with cosmetics
customer skin types, ways of use, and storage environ-
as is. The material itself also has an orange
ments, as well as to fulfill everyone’s wish for beauty.
coloring, so ordinarily it would be considered an extremely difficult element to com-
• Efforts to Offer Beauty to Seniors and People
bine in cosmetics. KOSÉ was able to
with Various Skin Problems
overcome these many difficulties, however,
The ingredient astaxanthin
and ASTALUTION is now one of the
Astaxanthin is a natural red pigment. It is the component that
Company’s representative products.
protects salmon and salmon roe, as well as shrimp, crab, and
other forms of marine life, from the harmful effects of ultraviolet
Annual Report 2013
21
Approach to Society and the Environment
international standard for environmental management, under
• Efforts for a Sustainable Global Environment
which the Management Committee makes top-level manage-
KOSÉ’s founder, Kozaburo Kobayashi, held “mind to follow the
ment decisions regarding CSR activities, with implementation
right path” as a personal motto throughout his life. The concept
centered on the CSR Committee.
of the “three benefits” (benefitting the seller, the buyer, and society) embraced by the Omi merchants during the Edo period
(1603-1868) is well known, and Kozaburo followed a similar
• Energy Conservation and
Industrial Waste Reduction Measures
basic management concept of harmonious coexistence among
KOSÉ will maintain its basic stance during fiscal 2014 of
customers, stores, and society. The ambition for sustainable
eliminating unnecessary energy consumption and working
development “together with society,” while continually providing
as a company to prevent global warming.
good cosmetics along with the beauty and satisfaction that
customers demand, remains a cornerstone of KOSÉ today.
In modern terms, efforts such as these are the aim to ensure
• Current Status of Energy Use
and Future Conservation Efforts
compliance, and realize a sustainable social environment. We
Energy use in the production division has continued to decline
believe that for those of us alive today, who are facing such
as a result of conservation efforts. One of the factors affecting
environmental problems as the destruction of nature and global
efforts to improve energy conservation for existing facilities and
warming that have accompanied rapid economic development,
office functions is that since utility costs necessary for factory
as well as such difficult issues as the declining population in
operations are fixed regardless of the production volume, ener-
Japan resulting from the falling birthrate, these efforts carry
gy usage per unit increases with a falloff in output. In 2008, the
an even more-important responsibility.
boiler at the Gunma Factory was converted from kerosene to
natural gas, while energy conservation at the Sayama Factory
• “Wisdom and Beauty for People and the Earth”
was improved with the introduction of an inverter compressor.
More than 20 years ago, with the implementation of corporate
In 2011, a natural gas cogeneration system was introduced at
identity in 1991, KOSÉ adopted as its corporate message
the Gunma Factory. Power generators to further enhance ener-
“Wisdom and Beauty for People and the Earth.” As a company
gy efficiency at factories were put into operation in July 2012.
that creates beauty, we desire to continually generate “wisdom
We will make further efforts to eliminate waste, and reduce
and beauty” to ensure that everyone, from our children and
fixed energy costs, such as lighting and heating.
grandchildren to those who will follow, will continue to live happily in society, and in a beautiful green earth. To achieve this,
• Recycling Efforts and Industrial Waste Reduction
along with persistent efforts to lighten the environmental load,
All of the KOSÉ Group’s production facilities, centered on the
we are proactively taking a variety of initiatives unique to KOSÉ.
Sayama and Gunma factories, have actively undertaken recy-
As a result of the 2011 earthquake disaster, issues such as our
cling efforts. As a result, the volume of industrial waste that is
coexistence in society as a corporate citizen, and harmony
simply discarded has decreased significantly since fiscal 2001,
with nature, have become more meaningful. Going forward, we
and the recycling rate for industrial waste has exceeded
will retain our focus on the corporate spirit of “mind to follow
99.9%. In fiscal 2005, KOSÉ introduced a new system to
the right path” as our code of conduct, and make continual
provide a Company-wide framework for production, sales,
efforts toward realizing a sustainable society, and conserving
and inventory, resulting in a temporary increase in the disposal
the natural environment.
of unnecessary materials during the preparation stage. From
fiscal 2009, however, this system has had a positive effect
Environmental Measures
on reducing waste volume. We will continue to implement
• Environmental Policy and Activities
comprehensive measures in waste reduction and other areas.
KOSÉ has introduced a unique environmental management
system, based on the basic stance of the ISO 14001
22
TOPICS
As You Become Beautiful, So Does the World
• SEKKISEI SAVE the BLUE® Project
The coral reefs around Okinawa are among the world’s few marine paradises,
nurturing a great diversity of life. However, this coral is now being threatened
with extinction by global warming.
KOSÉ established the “SEKKISEI SAVE the BLUE® Project” in 2009 in an
effort to save the coral and the beautiful blue ocean. SEKKISEI is a long-selling
product that utilizes the bounty of nature in the form of Japanese and Chinese
herbs. In appreciation, KOSÉ donates a portion of sales for coral cultivation
efforts in Okinawa.
Corporate Governance
introduced an executive officer system to ensure efficient and
• Corporate Governance Structure
effective business execution, and have established a
KOSÉ considers its mutual relationships with all stakeholders to
Management Committee to deliberate on important manage-
be an important management issue, and strives to ensure trans-
ment matters. KOSÉ has also established a Risk Management
parency, fairness, and good communication through strong
and Compliance Committee to implement and ensure compli-
corporate governance. Accordingly, we have adopted the
ance throughout the Company, and two of the four corporate
corporate auditor governance model, under which the Board of
auditors are independent external auditors with no interest in the
Directors and the Audit & Supervisory Board responsible for the
Company.
oversight and monitoring of business conduct. We have also
General Meeting of Shareholders
Supervision
CSR Committee
Audit Office
Audit
Supervision
Resolution/
Approvals
Proposals
Risk Management
and Compliance Committee
Management Policy
Review Committee
Executive Committee
(Directors and Executive Officers)
Guidance and Instructions
Departments/Subsidiaries
Consultations
Cooperation
Management
Committee
Reporting
Audit
Resolution/Approvals
Cooperation
Resolution/Approvals
Oversight
Cooperation
Accounting
Auditor
Management
Oversight
Board of Directors
Audit
Reporting
Audit & Supervisory
Board
Election/Dismissal
Business Execution
Election/Dismissal
Reporting
Election/Dismissal
Annual Report 2013
23
Financial Section
Contents
25
Six-Year Summary
26
Management’s Discussion and Analysis
32
Consolidated Balance Sheets
34
Consolidated Statements of Income
35
Consolidated Statements of Comprehensive Income
36
Consolidated Statements of Changes in Net Assets
38
Consolidated Statements of Cash Flows
39
Notes to Consolidated Financial Statements
55
Independent Auditor’s Report
24
Six-Year Summary
KOSÉ Corporation and Consolidated Subsidiaries
Years ended March 31, 2013, 2012, 2011, 2010, 2009, and 2008
Thousands of
U.S. dollars
Millions of yen
2013
2012
2011
2010
2009
2008
2013
Performance:
Net sales................................................ ¥170,685 ¥166,508 ¥171,071 ¥172,564 ¥178,121
¥180,222
$1,815,798
Gross profit ............................................
128,587
124,481
127,767
128,096
132,841
134,918
1,367,947
Selling, general and
administrative expenses .......................
116,722
113,053
113,929
117,964
120,538
119,730
1,241,723
Operating income ..................................
11,864
11,427
13,838
10,132
12,303
15,187
126,213
Interest and dividend income .................
342
387
353
544
473
445
3,638
Income before income taxes
and minority interests ...........................
12,813
11,728
12,387
9,418
11,261
14,477
136,309
Net income ............................................
6,720
5,021
6,726
5,154
4,742
6,900
71,489
Comprehensive income .........................
8,656
5,484
6,693
—
—
—
92,085
Cash and cash equivalents ....................
32,121
34,090
34,065
33,801
39,073
34,093
341,713
Current assets .......................................
115,067
108,051
102,847
99,925
100,760
100,502
1,224,117
Total assets ............................................
173,014
169,316
169,262
167,395
166,920
172,128
1,840,574
Current liabilities .....................................
35,206
34,261
35,804
35,643
37,199
40,145
374,532
Long-term debt......................................
18,497
20,187
—
—
—
—
196,777
Shareholders’ equity ..............................
111,495
108,923
106,223
101,820
98,988
99,027
1,186,117
Interest-bearing debt..............................
5,006
5,071
5,104
4,502
4,593
4,824
53,255
Depreciation and amortization ................
4,607
4,882
5,162
5,892
5,593
5,452
49,011
Capital expenditures ..............................
5,599
3,821
5,421
6,446
6,622
5,804
59,564
Yen
U.S. dollars
Per Share Data:
Net income:
Basic .................................................. ¥ 117.22 ¥
86.51 ¥ 115.87 ¥
88.81 ¥
81.55 ¥ 115.50
$ 1.25
Net assets .............................................
1,964.85
1,858.91
1,813.28
1,746.59
1,699.92
1,693.55
20.90
Cash dividends ......................................
41.00
40.00
40.00
40.00
40.00
40.00
0.44
%
Financial Ratios:
Shareholders’ equity ratio.......................
64.8
63.7
62.2
60.6
59.1
58.1
Debt-to-equity ratio ................................
4.5
4.7
4.8
4.4
4.7
4.8
ROE .......................................................
6.1
4.7
6.5
5.2
4.8
7.0
ROA.......................................................
7.1
7.0
8.4
6.4
7.5
9.1
Gross profit margin ................................
75.3
74.8
74.7
74.2
74.6
74.9
Operating income margin .......................
7.0
6.9
8.1
5.9
6.9
8.4
Net income to net sales .........................
3.9
3.0
3.9
3.0
2.7
3.8
Payout ratio ...........................................
35.0
46.2
34.5
45.0
49.0
34.6
Note 1. The U.S. dollar amounts are translated, for convenience only, at the rate of ¥94 to US$1.00, the approximate rate of exchange on March 31, 2013.
2. For fiscal years ended before March 2009 capital expenditures include long-term prepaid expenses.
3. Shareholders’ equity ratio, net assets per share and debt-to-equity ratio are calculated including total valuation, translation, adjustments and other.
ROE = Net income / (yearly average of total shareholders’ equity + yearly average of total valuation, translation adjustments and other) × 100
ROA = (Operating income + interest and dividend income) / yearly average of total assets × 100
Annual Report 2013
25
Management’s Discussion and Analysis
SUMMARY
Gross Profit and
Gross Profit Margin
(Billions of yen)
During fiscal 2013 (ended March 31, 2013), the outlook for the global economy remained
128.6
uncertain, as concerns over economic slowdown persisted as a result of the European debt
crisis and other issues. The Japanese economy, however, showed signs of recovery as the
75.3
yen weakened and stock prices rose amid disaster recovery-related demand, and rising
expectations from economic policy following the change in government. In the Japanese
cosmetic industry, fiscal 2013 statistics on cosmetic shipments (calendar year) compiled by
FY ’09
’10
’11
’12
the Ministry of Economy, Trade and Industry showed that sales value and volume were
’13
on a par with the previous year.
Gross Profit
Gross Profit Margin (%)
In this market environment, the KOSÉ Group refined its brand marketing stance of “optimal
brand in the optimal sales channel,” responding to diversifying market and customer needs
with flexibility and speed. At the same time, we pursued the optimal allocation of manage-
SG&A Expenses and
SG&A Expenses to Net Sales
(Billions of yen)
ment resources, and made concerted efforts to improve management efficiency and enhance
earnings capacity.
116.7
As a result, the KOSÉ Group achieved year-on-year increases in both revenue and earnings for fiscal 2013. Net sales rose 2.5% from the previous fiscal year, to ¥170.7 billion
68.3
(US$1,816 million), on gains in all business segments. The proportion of overseas sales as a
total of consolidated net sales decreased 0.1 percentage point, to 12.6%, from 12.7% in the
previous fiscal year.
FY ’09
’10
’11
’12
In terms of earnings, operating income increased 3.8%, to ¥11.9 billion (US$126 million),
’13
SG&A Expenses
SG&A Expenses to Net Sales (%)
as a result of the growth in sales and a reduction in the cost of sales ratio. The operating
income margin improved by 0.1 percentage point, to 7.0%. Net income rose 33.8%, to
¥6.7 billion (US$71 million). Net income per share increased to ¥117.22 (US$1.25), from
¥86.51 in the previous fiscal year.
Net Sales by Segment
(Billions of yen)
Results by Business Segment
1.7
41.1
Cosmetics Business
127.9
In Japan, KOSÉ developed existing brands, including COSME DECORTE and JILL STUART,
and introduced effective new products. We also increased sales through advertising campaigns and sales promotions aimed at broadening our customer base, centered on the
long-selling prestige brand SEKKISEI, and a new skin-care brand launched during the
FY ’09
’10
’11
’12
’13
second half of the period.
Cosmetics
Cosmetaries
Other
Overseas, KOSÉ took steps to expand its business, focusing on Asia. Sales rose slightly,
restrained by political tensions with neighboring countries and challenging market conditions.
As a result, sales in the cosmetics business increased 2.0% from the previous fiscal year,
Net Income and
Net Income to Net Sales
to ¥127.9 billion (US$1,361 million), while operating income declined 11.9%, to ¥11.7 billion
(US$124 million).
(Billions of yen)
6.7
Cosmetaries Business
Performance in this segment was boosted by such factors as KOSÉ’s quick responses
3.9
to changes in market needs, new products launched by consolidated subsidiary KOSÉ
COSMEPORT CORP., and a high-value-added hair-care brand. Sales increased 3.6% year
on year, to ¥41.1 billion (US$437 million), with operating income up 149.5%, to ¥3.0 billion
FY ’09
’10
’11
’12
’13
Net Income
Net Income to Net Sales (%)
26
(US$32 million).
Other Business
Other business operations are centered on the contract manufacture of OEM products and
Current Liabilities and
Current Ratio
(Billions of yen)
sales of commercial products. Fiscal 2013 sales rose 16.7% from the previous fiscal year, to
35.2
¥1.7 billion (US$18 million), with operating income up 19.8%, to ¥0.7 billion (US$8 million).
326.8
Cost of Sales and SG&A Expenses
The cost of sales rose just ¥71 million, or 0.2%, in fiscal 2013, to ¥42.1 billion (US$448 million), as disposal costs fell due to a decline in returns. The ratio to net sales improved by 0.5
percentage point, to 24.7%.
Selling, general and administrative (SG&A) expenses rose ¥3.7 billion, or 3.2%, from the
previous fiscal year, to ¥116.7 billion (US$1,242 million), with the ratio to net sales increasing
FY ’09
’10
’11
’12
’13
Current Liabilities
Current Ratio (%)
0.4 percentage point, to 68.3%. Of this total, advertising and promotional expenses expanded ¥2.8 billion, or 6.6%, to ¥44.8 billion (US$477 million), in an effort to boost sales, with the
ratio of advertising and sales promotion expenses to sales increasing 1.0 percentage point,
to 26.2%.
Interest-Bearing Debt and
Debt-to-Equity Ratio
(Billions of yen)
5.0
4.5
Other Income and Expenses
The main factors affecting changes in other income and expenses during fiscal 2013 are as
follows. The Company recorded ¥0.3 billion (US$4 million) in interest and dividend income
and ¥2.1 billion (US$22 million) in foreign exchange gain, partially offset by ¥1.5 billion
(US$15 million) in loss on liquidation of business related to the closure of the Ageo business
office. As a result, other income and expenses amounted to income of ¥0.9 billion (US$10
million).
FY ’09
’10
’11
’12
’13
Interest-Bearing Debt
Debt-to-Equity Ratio (%)
ROA
(%)
FINANCIAL CONDITION
7.1
Assets and Liabilities
Current assets increased ¥7.0 billion, or 6.5%, from the end of the previous fiscal year, to
¥115.1 billion (US$1,224 million). This was due mainly to an increase of ¥10.7 billion in time
deposits and short-term investments in securities, against a decrease of ¥2.0 billion in cash
and cash equivalents.
FY ’09
’10
’11
’12
’13
Investments and long-term loans advances decreased ¥2.9 billion, or 20.9%, to ¥10.8 billion (US$114 million). This was due mainly to a ¥2.6 billion decrease in investment securities.
Property, plant and equipment increased ¥0.6 billion, or 1.7%, from the end of the previous
fiscal year, to ¥35.7 billion (US$380 million). This was due mainly to accumulated depreciation offsetting investments related to molds and dies. Other assets decreased ¥1.1 billion, or
Depreciation and
Amortization and
Capital Expenditures
(Billions of yen)
8.4%, to ¥11.5 billion (US$122 million), due mainly to a reduction in deferred tax assets
stemming from reversal of the provision for retirement benefits.
5.6
Current liabilities increased ¥0.9 billion, or 2.8%, from the end of the previous fiscal year, to
4.6
¥35.2 billion (US$375 million). This was due mainly to a ¥0.7 billion increase in income taxes
payable, stemming from the recording of a loss on business liquidation following the closure
of the Ageo business office.
Noncurrent liabilities decreased ¥1.7 billion, or 8.4%, to ¥18.5 billion (US$197 million), due
mainly to a ¥1.7 billion decline in provision for retirement benefits.
FY ’09
’10
’11
’12
’13
Depreciation and Amortization
Capital Expenditures
Annual Report 2013
27
Of note, the balance of interest-bearing debt at fiscal year-end stood at ¥5.0 billion (US$53
million), with a debt-to-equity ratio of 4.5%.
As a result, the current ratio for fiscal 2013 was 326.8%, up 11.4 percentage points from
the previous fiscal year-end, and the quick ratio was 252.3%, up 21.5 percentage points.
Shareholders’ Equity
Total shareholders’ equity at the end of fiscal 2013 stood at ¥111.5 billion (US$1,186 million),
an increase of ¥2.6 billion from the end of the previous fiscal year. This was due mainly to an
increase of ¥4.4 billion in retained earnings and a ¥1.8 billion increase in treasury stock.
Key Performance Indicators
The KOSÉ Group considers increases in the operating income margin and ROA to be key
performance indicators. In fiscal 2013, the operating income margin rose 0.1 percentage
point, to 7.0%, while ROA rose 0.1 percentage point, to 7.1%.
Note: ROA = (Operating income + interest and dividend income)/yearly average of total assets x 100
Financing
It is the KOSÉ Group’s understanding that it has secured sufficient funds to continue business operations.
Regarding the use of funds going forward, retained earnings will be used to strengthen
the Company’s financial position and fund capital expenditures as well as for mergers and
acquisitions that can generate future cash flows and thereby improve the efficiency of capital
utilization. Funds not required for the immediate needs of the business will be invested
in a manner that places priority on the safety of the principal.
Cash Flows
Net cash provided by operating activities during fiscal 2013 amounted to ¥8.7 billion
(US$93 million), a decrease of 11.2% from the previous fiscal year. This was due mainly to
¥12.8 billion (US$136 million) in income before income taxes and minority interests; ¥4.6 billion (US$49 million) in depreciation and amortization, a non-cash expense; ¥1.5 billion
(US$15 million) in loss on liquidation of business; ¥1.7 billion (US$18 million) in decrease in
provision for retirement benefits; ¥1.7 billion (US$18 million) in increase in inventories; ¥0.6
billion (US$6 million) in increase in notes and accounts receivable—trade; and ¥4.4 billion
(US$47 million) in income taxes paid.
Net cash used in investing activities amounted to ¥7.9 billion (US$84 million), an increase
of 12.6% from the previous fiscal year. This was due mainly to ¥6.4 billion (US$68 million) in
net income from time deposits and short-term investments in securities; ¥5.0 billion (US$53
million) in purchase of property, plant and equipment, including molds and dies; and ¥3.1 billion (US$33 million) in net expenditures from trading and redemption of investment securities.
Net cash used in financing activities amounted to ¥4.5 billion (US$47 million), an increase
of 76.7% from the previous fiscal year. This was due mainly to ¥2.5 billion (US$27 million) in
cash dividends paid and ¥1.8 billion (US$20 million) in expenditures for the acquisition of
treasury stock.
28
Management’s Discussion and Analysis
BUSINESS AND OTHER RISKS
The following explanations of risk factors in this annual report are presented with the objective of proactively disclosing information of material interest to investors for making investment decisions. From the standpoint of proactive disclosure, these explanations include
factors that are not necessarily of this nature and factors associated with external matters
that are beyond the control of KOSÉ that can influence the decision making of investors.
This is not meant to be a complete list of potential risks.
These risk factors could have a material influence on KOSÉ’s management performance
and financial position. Please note that the forward-looking statements contained herein are
based on the Company’s judgments, which were made as of June 27, 2013.
Strategic investment activities
The KOSÉ Group makes various investment decisions from a strategic perspective. The
decision-making process is conducted after sufficient information has been gathered, but the
investments may not produce the initially forecast results due to unforeseen changes in the
business environment, and this could have a material influence on KOSÉ’s management
performance and financial position.
Cosmetic market
1) Japan’s cosmetic market
In Japan’s cosmetic market, which is now mature, new entrants have entered from other
industries in recent years, and, as a result, competition has intensified. Further challenges are
posed in Japan by major changes in sales and distribution channels due to the shortage of
successors for aging store owners among specialty cosmetic stores, the formation of alliances and realignment among large retail chains, and the expanding e-commerce market driven
by the Internet. KOSÉ has made and implemented various proposals to cope with these
changes, but if they prove ineffectual, it could see a material influence to its management
performance and financial position.
2) Overseas market
The KOSÉ Group conducts business in China and other overseas markets. These overseas
businesses expose the Group to risks associated with unforeseen revisions to laws and regulations, political instability, an epidemic of a contagious disease, labor problems, infrastructure disruptions, social unrest caused by terrorism, natural disasters caused by abnormal or
unseasonable weather, and other risks. These factors could have a material influence on
KOSÉ’s management performance and financial position.
3) Adapting to market needs
The development of new brands and the reinforcement and cultivation of existing brands in
response to changing consumer needs, and related marketing activities, have a large influence on business performance. However, these business activities involve various uncertainties, and if results are not in line with initial plans, this could have a material influence on
KOSÉ’s management performance and financial position.
Annual Report 2013
29
Market risks
1) Procurement of raw materials
The KOSÉ Group is moving forward with the diversification of procurement to include overseas sources in order to minimize market risk. It also maintains good relationships with suppliers to obtain necessary raw materials at appropriate prices and on a timely basis. However,
changes in international circumstances or an inflow of speculative money could temporarily
destabilize the supply-demand balance, thereby impacting purchase prices. Also, in the
event that suppliers are unable to continue their operations (due to bankruptcy, suspension
of business operations, or for other reasons), unexpected disasters or accidents, sudden
increases in demand, or other factors, the Group may encounter difficulties in obtaining
essential raw materials. These factors could have a material influence on KOSÉ’s management performance and financial position.
2) Foreign exchange
The KOSÉ Group is subject to the risk of foreign exchange rate volatility at the time of settlement for transactions denominated in foreign currencies. The Group strives to limit the impact
of this risk within the Group by building a structure of localized production to minimize import/
export transactions. However, these risks cannot be completely avoided. Also, the reported
figures of overseas consolidated subsidiaries are denominated in local currencies, but converted to yen for the preparation of consolidated financial accounts. As a result, a sharp
change in foreign exchange rates could have a material influence on KOSÉ’s management
performance and financial position.
3) Marketable securities
The KOSÉ Group holds marketable securities with market prices, and a sharp fluctuation in
market prices presents the risk of valuation losses.
Also, changes in the market prices of marketable securities could impact the pension
assets held by the KOSÉ Group’s corporate pension fund, causing an increase/decrease in
pension expenses which could have a material influence on KOSÉ’s management performance and financial position.
4) Laws and regulations
The KOSÉ Group’s business activities are subject to various domestic and overseas laws and
regulations including the Pharmaceutical Affairs Law, standards related to quality, safety, and
the environment, the Companies Act, tax laws, labor-related laws, and transaction-related
laws, among others. The Group strives to remain compliant with all these laws and regulations, but a change in the laws and regulations or the unforeseen enactment of new laws or
regulations, particularly overseas, could temporarily restrict the Group’s business activities
and have a material influence on KOSÉ’s management performance and financial position.
30
Management’s Discussion and Analysis
5) Intellectual property rights and important litigation
The KOSÉ Group retains intellectual property rights including patents, trademarks, and
design rights to maintain its competitive advantage vis-à-vis competitors, and takes appropriate measures to protect these rights. However, despite these measures, the Group’s market
share could be eroded were third parties to make and distribute imitation products, ignoring
the Group’s rights. This could impact the Group’s business. The KOSÉ Group conducts
sufficient research to ensure that its business activities do not infringe upon the intellectual
property rights of third parties, but were the Group to be sued by a third party for intellectual
property rights infringement, the Group may be required to pay damages and indemnities,
and its production and sales restricted. This could have a material influence on KOSÉ’s
management performance and financial position.
6) Information management
The KOSÉ Group manages personal, R&D, and other confidential information strictly by
establishing internal rules, conducting internal audits, and taking other actions. For example,
as prescribed by the Personal Information Protection Law and the Ministry of Economy,
Trade and Industry guidelines, the Company has established its Personal Information
Management Committee and internal rules. However, a leakage of confidential information
due to whatever reason could adversely affect business operations, and such leakages may
have a material influence on KOSÉ’s management performance and financial position.
7) Disasters
The KOSÉ Group has instituted safety measures to minimize the adverse impact of a suspension of business activities due to natural disasters. However, the occurrence of a large
earthquake, tsunami, or power outage that exceeds its expectations could cause production
activities to be suspended, logistics systems to slow, and the information system to be
disrupted, thereby materially influencing KOSÉ’s management performance and financial
position.
8) Customer relations
The KOSÉ Group manufactures products with its first priority on the delivery of secure and
safe products to customers. The Group refers to its thinking about quality as its “quality policy,” and has stipulated a quality policy message and five declarations of activities. The Group
bases its daily activities on this policy, but the occurrence of an unforeseen situation that
impairs the satisfaction or trust of customers could have a material influence on KOSÉ’s
management performance and financial position.
Annual Report 2013
31
Consolidated Balance Sheets
KOSÉ Corporation and Consolidated Subsidiaries
At March 31, 2013 and 2012
Thousands of
U.S. dollars (Note 3)
Millions of yen
Assets
2013
2012
2013
¥ 34,090
$ 341,713
Current assets:
Cash and cash equivalents (Note 5) ........................................................................ ¥ 32,121
Time deposits and short-term investments in securities (Notes 5 and 6)..................
31,875
21,194
339,096
Notes and accounts receivable—trade (Note 5) ......................................................
24,828
23,799
264,128
Allowance for doubtful accounts .............................................................................
(250)
(274)
(2,660)
Inventories (Note 4) .................................................................................................
21,200
19,659
225,532
Deferred tax assets—current (Note 10) ...................................................................
4,093
4,270
43,543
Other ......................................................................................................................
1,197
5,311
12,734
Total current assets ..........................................................................................
115,067
108,051
1,224,117
Investments in and advances to unconsolidated subsidiaries and affiliates ..............
30
30
319
Investment securities (Notes 5 and 6) ......................................................................
7,530
10,178
80,106
Other ......................................................................................................................
3,388
3,576
36,043
Allowance for doubtful accounts .............................................................................
(188)
(173)
(2,000)
Total investments and long-term advances ......................................................
10,760
13,610
114,468
16,935
16,591
180,160
Investments and long-term advances:
Property, plant and equipment (Note 7):
Land ......................................................................................................................
Buildings and structures .........................................................................................
30,672
30,580
326,298
Machinery and equipment .......................................................................................
43,297
41,517
460,606
Leased assets.........................................................................................................
1,049
925
11,160
Construction in progress .........................................................................................
58
204
617
92,014
89,820
978,872
Accumulated depreciation.......................................................................................
(56,315)
(54,707)
(599,096)
Total property, plant and equipment .................................................................
35,698
35,113
379,766
Other assets:
32
Intangible assets .....................................................................................................
3,075
3,215
32,713
Deferred tax assets—noncurrent (Note 10)..............................................................
8,413
9,325
89,500
Total other assets.............................................................................................
11,489
12,540
122,223
Total assets .................................................................................................. ¥173,014
¥169,316
$1,840,574
Thousands of
U.S. dollars (Note 3)
Millions of yen
Liabilities and net assets
2013
2012
2013
Current liabilities:
Short-term loans payable (Notes 8 and 9) ............................................................... ¥
4,356
¥
4,379
$
46,340
Notes and accounts payable – trade (Note 5)..........................................................
11,274
11,275
119,936
Income taxes payable (Note 10) ..............................................................................
3,181
2,470
33,840
Lease obligations ....................................................................................................
180
163
1,915
Other (Note 11) .......................................................................................................
16,212
15,972
172,468
Total current liabilities .......................................................................................
35,206
34,261
374,532
Long-term lease obligations ....................................................................................
464
521
4,936
Noncurrent liabilities:
Provision for retirement benefits (Note 12) ...............................................................
14,985
16,658
159,415
Provision for directors’ retirement benefits ...............................................................
2,698
2,655
28,702
Other ......................................................................................................................
349
352
3,713
Total noncurrent liabilities .................................................................................
18,497
20,187
196,777
4,848
4,848
51,574
Commitments and contingent liabilities (Note 16)
Net assets:
Shareholders’ equity (Note 13):
Common stock, without par value:
Authorized —200,000,000 shares in 2013 and 2012
Issued
— 60,592,541 shares in 2013 and 2012.........................................
Capital surplus ....................................................................................................
6,390
6,390
67,979
Retained earnings ...............................................................................................
109,333
104,914
1,163,117
Treasury stock, at cost: 3,545,676 shares in 2013 and
2,545,525 shares in 2012 ..............................................
(9,076)
(7,229)
(96,553)
Total shareholders’ equity ................................................................................
111,495
108,923
1,186,117
Valuation difference on available-for-sale securities ..............................................
799
146
8,500
Foreign currency translation adjustment ..............................................................
(206)
(1,165)
(2,191)
Total accumulated other comprehensive income ..............................................
592
(1,019)
6,298
Minority interests .................................................................................................
7,221
6,962
76,819
Total net assets ................................................................................................
119,310
114,867
1,269,255
Total liabilities and net assets ........................................................................ ¥173,014
¥169,316
$1,840,574
Accumulated other comprehensive income
See accompanying notes to consolidated financial statements.
Annual Report 2013
33
Consolidated Statements of Income
KOSÉ Corporation and Consolidated Subsidiaries
Years ended March 31, 2013 and 2012
Thousands of
U.S. dollars (Note 3)
Millions of yen
Net sales..................................................................................................................
2013
2012
2013
¥170,685
¥166,508
$1,815,798
Cost of sales ...........................................................................................................
42,098
42,027
447,851
Gross profit ............................................................................................................
128,587
124,481
1,367,947
Selling, general and administrative expenses (Notes 14 and 15) ........................
116,722
113,053
1,241,723
Operating income ..................................................................................................
11,864
11,427
126,213
Other income (expenses):
Interest expense ....................................................................................................
(40)
(42)
(426)
Interest and dividend income .................................................................................
342
387
3,638
Foreign exchange gain (loss) ..................................................................................
2,069
(222)
22,011
Loss on sales or disposal of noncurrent assets ......................................................
(60)
(146)
(638)
Impairment loss .....................................................................................................
—
(249)
—
Gain on sales of investment securities (Note 6).......................................................
4
59
43
Loss on liquidation of business ..............................................................................
(1,453)
(380)
(15,457)
Compensation income ...........................................................................................
—
238
—
Reversal of provision for loss on disaster ................................................................
—
405
—
Other, net ...............................................................................................................
Income before income taxes and minority interests...........................................
87
250
926
948
300
10,085
12,813
11,728
136,309
Income taxes (Note 10):
Current ..................................................................................................................
(5,092)
(4,186)
(54,170)
Deferred .................................................................................................................
(717)
(1,989)
(7,628)
Total income taxes..............................................................................................
(5,809)
(6,176)
(61,798)
Income before minority interests ..........................................................................
7,003
5,552
74,500
Minority interests....................................................................................................
(282)
(530)
(3,000)
Net income (Note 19) ......................................................................................
See accompanying notes to consolidated financial statements.
34
¥
6,720
¥
5,021
$
71,489
Consolidated Statements of Comprehensive Income
KOSÉ Corporation and Consolidated Subsidiaries
Years ended March 31, 2013 and 2012
Thousands of
U.S. dollars (Note 3)
Millions of yen
2013
Income before minority interests ................................................................................... ¥7,003
2012
2013
¥5,552
$74,500
Other comprehensive income:
Valuation difference on available-for-sale securities ..........................................................
659
301
7,011
Foreign currency translation adjustment ..........................................................................
993
(369)
10,564
Total accumulated other comprehensive income (Note 17).......................................
1,652
(67)
17,574
Comprehensive income (Note 17) ................................................................................... ¥8,656
¥5,484
$92,085
¥4,970
$86,638
514
3,436
Comprehensive income attributable to:
Owners of the parent ...................................................................................................... ¥8,332
Minority interests .............................................................................................................
323
See accompanying notes to consolidated financial statements.
Annual Report 2013
35
Consolidated Statements of Changes in Net Assets
KOSÉ Corporation and Consolidated Subsidiaries
Years ended March 31, 2013 and 2012
Shareholders’ equity
Common stock
Capital surplus
Retained earnings
¥4,848
¥6,390
¥102,215
Dividends from surplus...........................................................................................
—
—
(2,321)
Net income ............................................................................................................
—
—
5,021
Purchase of treasury stock .....................................................................................
—
—
—
Disposal of treasury stock ......................................................................................
—
(0)
—
Transfer to capital surplus from retained earnings ...................................................
—
0
(0)
Net changes of items other than shareholders’ equity ............................................
—
—
—
Total changes of fiscal year ended March 31, 2012 ............................................
—
—
2,699
Balance as of March 31, 2012 ...............................................................................
¥4,848
¥6,390
¥104,914
Balance as of April 1, 2012 ....................................................................................
4,848
6,390
104,914
Dividends from surplus...........................................................................................
—
—
(2,301)
Net income ............................................................................................................
—
—
6,720
Purchase of treasury stock .....................................................................................
—
—
—
Disposal of treasury stock ......................................................................................
—
—
—
Transfer to capital surplus from retained earnings ...................................................
—
—
—
Net changes of items other than shareholders’ equity ............................................
—
—
—
Balance as of April 1, 2011 ....................................................................................
Changes of fiscal year ended March 31, 2012:
Changes of fiscal year ended March 31, 2013:
Total changes of fiscal year ended March 31, 2013 ............................................
—
—
4,419
Balance as of March 31, 2013 ...............................................................................
¥4,848
¥6,390
¥109,333
Shareholders’ equity
Common stock
Capital surplus
Retained earnings
$51,574
$67,979
$1,116,106
Dividends from surplus...........................................................................................
—
—
(24,479)
Net income ............................................................................................................
—
—
71,489
Purchase of treasury stock .....................................................................................
—
—
—
Disposal of treasury stock ......................................................................................
—
—
—
Transfer to capital surplus from retained earnings ...................................................
—
—
—
Net changes of items other than shareholders’ equity ............................................
—
—
—
Balance as of April 1, 2012 ....................................................................................
Changes of fiscal year ended March 31, 2013:
Total changes of fiscal year ended March 31, 2013 ............................................
—
—
47,011
Balance as of March 31, 2013 ...............................................................................
$51,574
$67,979
$1,163,117
See accompanying notes to consolidated financial statements.
36
Millions of yen
Accumulated other comprehensive income
Treasury stock
Total shareholders’
equity
Valuation difference on
available-for-sale securities
Foreign currency
translation adjustment
Total accumulated
other comprehensive income
Minority interests
Total net assets
¥(7,230)
¥106,223
¥(157)
¥ (811)
¥ (968)
¥6,541
¥111,796
—
(2,321)
—
—
—
—
(2,321)
—
5,021
—
—
—
—
5,021
(0)
(0)
—
—
—
—
(0)
0
0
—
—
—
—
0
—
—
—
—
—
—
—
—
—
303
(354)
(50)
421
370
0
2,699
303
(354)
(50)
421
3,070
¥(7,229)
¥108,923
¥ 146
¥(1,165)
¥(1,019)
¥6,962
¥114,867
(7,229)
108,923
146
(1,165)
(1,019)
6,962
114,867
—
(2,301)
—
—
—
—
(2,301)
—
6,720
—
—
—
—
6,720
(1,846)
(1,846)
—
—
—
—
(1,846)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
653
958
1,612
258
1,870
(1,846)
2,572
653
958
1,612
258
4,443
¥(9,076)
¥111,495
¥ 799
¥ (206)
¥ 592
¥7,221
¥119,310
Thousands of U.S. dollars (Note 3)
Accumulated other comprehensive income
Treasury stock
Total shareholders’
equity
Valuation difference on
available-for-sale securities
Foreign currency
translation adjustment
Total accumulated
other comprehensive income
Minority interests
Total net assets
$(76,904)
$1,158,755
$1,553
$(12,394)
$(10,840)
$74,064
$1,221,989
—
(24,479)
—
—
—
—
(24,479)
—
71,489
—
—
—
—
71,489
(19,638)
(19,638)
—
—
—
—
(19,638)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
6,947
10,191
17,149
2,745
19,894
(19,638)
27,362
6,947
10,191
17,149
2,745
47,266
$(96,553)
$1,186,117
$8,500
$ (2,191)
$ 6,298
$76,819
$1,269,255
Annual Report 2013
37
Consolidated Statements of Cash Flows
KOSÉ Corporation and Consolidated Subsidiaries
Years ended March 31, 2013 and 2012
Thousands of
U.S. dollars (Note 3)
Millions of yen
2013
2012
2013
Net cash provided by (used in) operating activities:
Income before income taxes and minority interests ...................................................
¥12,813
¥11,728
$136,309
Depreciation and amortization ...................................................................................
4,607
4,882
49,011
Impairment loss ........................................................................................................
—
249
—
Loss on liquidation of business .................................................................................
1,453
—
15,457
Decrease in allowance for doubtful accounts ............................................................
(13)
(42)
(138)
Decrease in provision for retirement benefits .............................................................
(1,673)
(1,657)
(17,798)
Increase in provision for directors’ retirement benefits ...............................................
42
116
447
Loss on sales or disposal of noncurrent assets .........................................................
60
146
638
Compensation income ..............................................................................................
—
(238)
—
(3,628)
Interest and dividend income ....................................................................................
(341)
(387)
Interest expense .......................................................................................................
40
42
426
Foreign exchange (gain) loss .....................................................................................
(1,456)
62
(15,489)
Gain on sales of investment securities .......................................................................
(4)
(57)
(43)
Increase in notes and accounts receivable—trade.....................................................
(596)
(1,392)
(6,340)
Decrease (increase) in inventories..............................................................................
(1,657)
1,028
(17,628)
Decrease in notes and accounts payable—trade ......................................................
(147)
(363)
(1,564)
Other, net ..................................................................................................................
(416)
(678)
(4,426)
Subtotal ................................................................................................................
12,710
13,438
135,213
Interest and dividend income received ......................................................................
421
430
4,479
Interest expenses paid ..............................................................................................
(37)
(44)
(394)
Compensation income received ................................................................................
—
238
—
Income taxes paid.....................................................................................................
(4,388)
(4,263)
(46,681)
Net cash provided by operating activities...............................................................
8,706
9,799
92,617
Decrease (increase) in time deposits and short-term investments in securities...........
6,363
(214)
67,691
Purchase of property, plant and equipment ...............................................................
(4,995)
(3,416)
(53,138)
Purchase of intangible assets ....................................................................................
(559)
(358)
(5,947)
Purchase of investment securities .............................................................................
(3,945)
(3,852)
(41,968)
Proceeds from sales and redemption of investment securities ...................................
817
2,281
8,691
Increase in other investments ....................................................................................
(5,579)
(1,455)
(59,351)
Net cash used in investing activities .......................................................................
(7,899)
(7,016)
(84,032)
Net increase in short-term loans payable...................................................................
(69)
—
(734)
Net decrease (increase) in treasury stock ..................................................................
(1,846)
0
(19,638)
Cash dividends paid and other, net ...........................................................................
(2,544)
(2,524)
(27,064)
Net cash used in financing activities ......................................................................
(4,459)
(2,524)
(47,436)
Effect of exchange rate changes on cash and cash equivalents .........................
1,682
(234)
17,894
Net increase (decrease) in cash and cash equivalents..........................................
(1,968)
24
(20,936)
Net cash provided by (used in) investing activities:
Net cash provided by (used in) financing activities:
Cash and cash equivalents at beginning of period ................................................
34,090
34,065
362,660
Cash and cash equivalents at end of period ..........................................................
¥32,121
¥34,090
$341,713
See accompanying notes to consolidated financial statements.
38
Notes to Consolidated Financial Statements
1. Summary of Significant
Accounting Policies
a. Basis of Preparation
The accompanying consolidated financial statements have been prepared from the accounts
maintained by KOSÉ Corporation (the “Company”) and its consolidated subsidiaries in accordance with the provisions set forth in the Companies Act and in conformity with accounting
principles generally accepted in Japan, which are different in certain respects as to the application and disclosure requirements of International Financial Reporting Standards, and are
compiled from the consolidated financial statements prepared by the Company as required
by the Financial Instruments and Exchange Law of Japan.
As permitted by the Financial Instruments and Exchange Law, amounts of less than one
million yen have been omitted. Consequently, the totals shown in the accompanying consolidated financial statements (both in yen and U.S. dollars) do not necessarily agree with the
sum of the individual amounts.
Certain amounts in the prior years’ financial statements have been reclassified to conform
to the current year’s presentation.
b. Basis of Consolidation
The accompanying consolidated financial statements include the accounts of the Company
and all significant subsidiaries controlled directly or indirectly by the Company. The accounts
of the consolidated subsidiaries are included on the basis of fiscal periods which end on, or
three months prior to, March 31. All significant intercompany items have been eliminated in
consolidation.
Investments in significant affiliates over which the Company exercises considerable influence in terms of their operating and financial policies are accounted for by the equity method.
Goodwill arising from the cost of the Company’s investments in subsidiaries and affiliates
over the equity in their net assets at the dates of acquisition is amortized on a straight-line
basis over their estimated useful lives or over a period of five years if the Company cannot
precisely estimate the useful life. In cases where the differences are immaterial, they are
charged to income when incurred. Assets and liabilities at the overseas consolidated subsidiaries are revalued at market.
Investments in other affiliates and unconsolidated subsidiaries, not significant in amount,
are carried at cost or less. Where there has been permanent impairment in the value of its
investments, the Company has written them down.
c. Foreign Currency Translation
Current and noncurrent monetary accounts denominated in foreign currencies of the
Company and its domestic consolidated subsidiaries are translated into yen at the current
exchange rates in effect at the balance sheet date.
The revenue and expense accounts of the overseas consolidated subsidiaries are translated into yen at the average exchange rates in effect during the year. The balance sheet
accounts of the overseas consolidated subsidiaries are translated into yen at the current
exchange rates in effect at the balance sheet date except for the components of net assets
excluding minority interests which are translated at their historical exchange rates.
d. Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less
when purchased to be cash equivalents. Cash equivalents in the accompanying consolidated
statements of cash flows exclude bank overdrafts of nil at March 31, 2013 and 2012,
respectively, in accordance with current Japanese accounting standards.
e. Inventories
Inventories are stated at cost determined primarily by the average method. When their costs
exceed the net realizable value, the costs over the net realizable value are recorded as cost.
Annual Report 2013
39
f. Securities
Securities, except for investments in unconsolidated subsidiaries and affiliates, are classified
as trading securities, held-to-maturity securities or other securities. Trading securities are
carried at fair value and held-to-maturity securities are carried at cost or amortized cost.
Marketable securities classified as other securities are carried at fair value with any changes
in unrealized holding gain or loss, net of the applicable income taxes, included directly in net
assets. Non-marketable securities classified as other securities are carried at cost. Cost of
securities sold is determined by the moving average method.
g. Fixed Assets
Property, plant and equipment are stated at cost. Depreciation of property, plant and equipment excluding leased assets at the Company and its domestic consolidated subsidiaries is
calculated by the declining-balance method at rates based on the estimated useful lives of
the respective assets ranging from 8 to 65 years for buildings and structures, except for
buildings acquired on or subsequent to April 1, 1998 on which depreciation is calculated by
the straight-line method, and from 2 to 9 years for machinery and equipment. Depreciation of
property, plant and equipment at the overseas consolidated subsidiaries is computed by the
straight-line method. Maintenance and minor repairs are charged to income as incurred;
major renewals and improvements are capitalized.
Software development costs are amortized over an anticipated useful life of 5 years by the
straight-line method. Intangible assets other than software development costs are amortized
by the straight-line method over their respective estimated useful lives.
Depreciation of leased assets where the ownership is not transferred to the lessee is calculated by the straight-line method over the terms of the respective leases.
The declining-balance depreciation rates were 200% and 250% for the years ended March
31, 2013 and 2012, respectively (See Note 2).
h. Leases
Leases classified as finance leases of the Company and its domestic consolidated subsidiaries are accounted for as ordinary sales and purchases whether or not the ownership of the
leased assets is transferred to the lessee.
i. Reserve for Returned Unsold Goods
The reserve for returned unsold goods included in “Other” under “Current liabilities” is provided at an estimated amount to cover anticipated losses on such goods at the Company and
certain domestic consolidated subsidiaries.
j. Retirement Benefits
Accrued employees’ retirement benefits at the balance sheet date are provided primarily
at an amount calculated based on the retirement benefit obligation and the fair value of the
pension plan assets as of the balance sheet date as adjusted for unrecognized prior service
cost and unrecognized actuarial gain or loss.
The retirement benefit obligation has been allocated to each period by the straight-line
method over the estimated remaining years of service of the eligible employees.
Actuarial gain or loss is amortized in the year following the year in which the gain or loss is
recognized primarily by the straight-line method over a period of 10 years which falls within
the average remaining years of service of the participants in the plans.
In addition, subject to the shareholders’ approval, directors and corporate auditors of the
Company and a certain consolidated subsidiary are customarily entitled to lump-sum payments under their respective unfunded severance benefit plans. The provision for severance
benefits for those officers has been made at estimated amounts.
40
Notes to Consolidated Financial Statements
k. Income Taxes
Deferred tax assets and liabilities are determined based on the differences between financial
reporting and the tax bases of the assets and liabilities and are measured using the enacted
tax rates and laws which will be in effect when the differences are expected to reverse.
l. Research and Development Expenses
Research and development expenses are charged to income when incurred.
m. Derivative Financial Instruments
The Company and certain consolidated subsidiaries enter into derivatives transactions in
order to manage certain risks arising from adverse fluctuation in foreign currency exchange
rates. Derivatives are carried at fair value with any changes in unrealized gain or loss charged
or credited to income, except for those which meet the criteria for deferral hedge accounting
under which unrealized gain or loss is deferred as an asset or a liability. Receivables and payables hedged by qualified forward foreign exchange contracts are translated at the corresponding foreign exchange contract rates.
n. Standards Issued but Not Yet Effective
On May 17, 2012, the ASBJ issued “Accounting Standard for Retirement Benefits” (ASBJ
Statement No. 26) and “Guidance on Accounting Standard for Retirement Benefits” (ASBJ
Guidance No. 25), which replaced the Accounting Standard for Retirement Benefits that had
been issued by the Business Accounting Council in 1998 with an effective date of April 1,
2000 and the other related practical guidance, being followed by partial amendments from
time to time through 2009. The major changes are as follows:
(1) Treatment in the balance sheet—Actuarial gains and losses and prior service cost that
have yet to be recognized in profit or loss shall be recognized within net assets (accumulated other comprehensive income), after adjusting for tax effects, and the deficit or surplus shall be recognized as a liability (liability for retirement benefits) or asset (asset for
retirement benefits).
(2) Treatment in the statement of income and the statement of comprehensive income—
Actuarial gains and losses and prior service cost that arose in the current period and have
yet to be recognized in profit or loss shall be included in other comprehensive income and
actuarial gains and losses and prior service cost that were recognized in other comprehensive income in prior periods and then recognized in profit or loss in the current period
shall be treated as reclassification adjustments.
This standard and related guidance are effective as of the end of fiscal years beginning
on or after April 1, 2013.
Annual Report 2013
41
2. Accounting Changes
a) Accounting Standard for Accounting Changes and Error Corrections
Effective April 1, 2011, the Company and its consolidated subsidiaries adopted the
“Accounting Standard for Accounting Changes and Error Corrections,” (Accounting Standard
Board of Japan Statement No. 24, December 4, 2009) and the “Guidance on the Accounting
Standard for Accounting Changes and Error Corrections.” (Accounting Standards Board of
Japan Guidance No. 24, December 4, 2009).
b) Depreciation Method for Property, Plant and Equipment
In accordance with an amendment to the Corporation Tax Law effective April 1, 2012, the
Company and its domestic consolidated subsidiaries have changed their depreciation method for property, plant and equipment acquired on or after April 1, 2012, other than certain
buildings, to reflect the methods prescribed in the amended Corporation Tax Law. The previously applied 250% declining-balance method was changed to the 200% declining-balance
method.
The impact on operating income, income before income taxes and minority interests was
immaterial for the year ended March 31, 2013.
3. U.S. Dollar Amounts
The translation of yen amounts into U.S. dollar amounts is included solely for the convenience of readers outside Japan and has been made, as a matter of arithmetic computation
only, at ¥94 =U.S.$1.00, the approximate rate of exchange in effect on March 31, 2013. The
approximate rate of exchange prevailing at May 31, 2013 was ¥100=U.S.$1.00. The translation should not be construed as a representation that all amounts shown could be converted
into U.S. dollars at such a rate.
4. Inventories
Inventories at March 31, 2013 and 2012 consisted of the following:
Millions of yen
2013
Merchandise and finished goods .................................................... ¥11,101
42
Thousands of
U.S. dollars
2012
2013
¥10,433
$118,096
1,137
13,745
Work in process .............................................................................
1,292
Raw materials and supplies ............................................................
8,806
8,088
93,681
Total ............................................................................................ ¥21,200
¥19,659
$225,532
Notes to Consolidated Financial Statements
5. Financial Instruments
a. Information on Financial Instruments
The Company and its consolidated subsidiaries mainly utilize low-risk financial instruments.
Notes and accounts receivable—trade are subject to customer credit risk. The Company and
its consolidated subsidiaries manage this risk by monitoring the due dates and the outstanding
balances for individual customers and by assessing credit risk every year. Investment securities
mainly are composed of low-risk instruments classified as held-to-maturity securities, which
are subject to possible changes in market price. The Company and its consolidated subsidiaries manage this risk by measuring the fair values every quarter. Notes and accounts payable—
trade are subject to liquidity risk. The Company and its consolidated subsidiaries manage this
risk by preparing cash-flow plans every month with payments made on a timely basis.
b. Information on Fair Value of Financial Instruments
Information on fair values of financial instruments at March 31, 2013 and 2012 is summarized
as follows (excluding financial instruments for which it is difficult to assess the fair value):
Millions of yen
March 31, 2013
Carrying
value
Thousands of U.S. dollars
Fair value
Unrealized
gain (loss)
Carrying value
Fair value
Unrealized
gain (loss)
¥32,120
¥(0)
$341,713
$341,702
$ (0)
(0)
Assets
Cash and cash equivalents .... ¥32,121
Time deposits and short-term
investments in securities.......
31,875
31,875
(0)
339,096
339,096
Notes and accounts
receivable—trade .................
24,828
24,828
—
264,128
264,128
—
Investment securities..............
4,850
4,850
—
51,596
51,596
—
Total assets ........................ ¥93,675
¥93,674
¥(0)
$996,543
$996,532
$ (0)
Notes and accounts
payable—trade .................... ¥11,274
¥11,274
¥—
$119,936
$119,936
$—
Total liabilities...................... ¥11,274
¥11,274
¥—
$119,936
$119,936
$—
Liabilities
Millions of yen
Fair value
Unrealized
gain (loss)
Cash and cash equivalents .................................................................... ¥34,090
¥34,090
¥(0)
Time deposits and short-term investments in securities ......................... 21,194
21,193
(0)
Notes and accounts receivable—trade................................................... 23,799
23,799
—
March 31, 2012
Carrying
value
Assets
Investment securities..............................................................................
9,000
9,000
—
Total assets ........................................................................................ ¥88,084
¥88,083
¥(1)
Notes and accounts payable—trade ...................................................... ¥11,275
¥11,275
¥—
Total liabilities...................................................................................... ¥11,275
¥11,275
¥—
Liabilities
Determining fair values of financial instruments is as follows:
a) Cash and cash equivalents, time deposits and notes and accounts receivable—trade
Due to the short-term nature of these assets, the Company and its consolidated subsidiaries assessed fair value and carrying value as almost equal.
b) Investment securities (included in short-term investments in securities)
The Company and its consolidated subsidiaries recorded fair values at prices on stock
exchanges or from correspondent financial institutions.
c) Notes and accounts payable—trade
The Company and its consolidated subsidiaries assessed the fair value as equal to carrying value because payments are settled in the short term.
Annual Report 2013
43
The carrying value of financial instruments for which the fair value is not readily determinable at March 31, 2013 and 2012 is summarized as follows:
Thousands of
U.S. dollars
Millions of yen
2013
2012
2013
Unlisted stock....................................................................................... ¥2,710
¥2,710
$28,830
Total .................................................................................................. ¥2,710
¥2,710
$28,830
The redemption schedule for monetary claims and marketable securities with maturities
classified as other securities at March 31, 2013 and 2012 is summarized as follows:
Millions of yen
Due in one year
or less
Due after one year
through five years
Due after five years
through ten years
Due after
ten years
Cash and cash equivalents .........................
¥31,988
¥ —
¥ —
¥—
Time deposits and short-term
investments in securities ...........................
31,881
—
—
—
Notes and accounts receivable—trade .......
24,828
—
—
—
Investment securities classified
as held-to-maturity securities ....................
—
—
—
—
Investment securities classified
as other securities.....................................
—
287
976
—
Total ........................................................
¥88,697
¥287
¥976
¥—
Due in one year
or less
Due after one year
through five years
March 31, 2013
Thousands of U.S. dollars
March 31, 2013
Cash and cash equivalents .........................
$340,298
Time deposits and short-term
investments in securities ...........................
339,160
Notes and accounts receivable—trade .......
Investment securities classified
as held-to-maturity securities ....................
$
Due after five years
through ten years
—
$
Due after
ten years
—
$—
—
—
—
264,128
—
—
—
—
—
—
—
Investment securities classified
as other securities.....................................
—
3,053
10,383
—
Total ........................................................
$943,585
$3,053
$10,383
$—
Due in one year
or less
Due after one year
through five years
Due after five years
through ten years
Due after
ten years
Millions of yen
March 31, 2012
44
Cash and cash equivalents .........................
¥33,339
Time deposits and short-term
investments in securities ...........................
21,167
Notes and accounts receivable—trade .......
Investment securities classified
as held-to-maturity securities ....................
¥
—
¥
—
¥—
—
—
—
23,799
—
—
—
—
—
—
—
Investment securities classified
as other securities.....................................
—
4,281
1,798
—
Total ........................................................
¥78,306
¥4,281
¥1,798
¥—
Notes to Consolidated Financial Statements
6. Securities
Marketable securities classified as held-to-maturity securities at March 31, 2013 and 2012
are summarized as follows:
Millions of yen
March 31, 2013
Carrying
value
Fair value
Thousands of U.S. dollars
Unrealized
gain (loss)
Carrying
value
Fair value
Unrealized
gain (loss)
Securities whose fair value
exceeds their carrying value:
Government bonds ................ ¥
—
¥—
Corporate bonds ...................
1,499
—
¥
1,499
0
$
15,947
—
$
15,947
—
$ —
0
Other .....................................
—
—
—
—
—
—
Subtotal .............................
1,499
1,499
0
15,947
15,947
0
Securities whose fair value
exceeds their carrying value:
Government bonds ................
—
—
—
—
—
—
Corporate bonds ...................
6,467
6,466
(0)
68,798
68,787
(11)
Other .....................................
6,500
6,500
—
69,149
69,149
—
Subtotal .............................
12,967
12,966
(0)
137,947
137,936
(11)
Total................................ ¥14,467
¥14,466
¥ (0)
$153,904
$153,894
$(11)
Millions of yen
March 31, 2012
Carrying
value
Fair value
Unrealized
gain (loss)
Securities whose fair value
exceeds their carrying value:
Government bonds .............................................................................. ¥
—
¥
—
¥—
Corporate bonds .................................................................................
—
—
—
Other ...................................................................................................
—
—
—
Subtotal ...........................................................................................
—
—
—
—
—
—
(1)
Securities whose fair value
exceeds their carrying value:
Government bonds ..............................................................................
Corporate bonds .................................................................................
7,908
7,906
Other ...................................................................................................
4,000
4,000
–
Subtotal ...........................................................................................
11,908
11,906
(1)
Total.............................................................................................. ¥11,908
¥11,906
¥(1)
Annual Report 2013
45
Marketable securities classified as other securities at March 31, 2013 and 2012 are
summarized as follows:
Millions of yen
March 31, 2013
Acquisition
cost
Carrying
value
¥ 1,497
¥ 2,007
Thousands of U.S. dollars
Unrealized
gain (loss)
Acquisition
cost
Carrying
value
Unrealized
gain (loss)
¥ 510
$ 15,926
$ 21,351
$ 5,426
Securities whose carrying value
exceeds their acquisition cost:
Stock .........................................
Debt securities............................
5,149
5,836
686
54,777
62,085
7,298
Other..........................................
2,032
2,146
113
21,617
22,830
1,202
Subtotal ..................................
8,679
9,990
1,311
92,330
106,277
13,947
Securities whose acquisition cost
exceeds their carrying value:
Stock .........................................
21
18
(2)
223
191
(21)
Debt securities............................
3,101
3,100
(1)
32,989
32,979
(11)
Other..........................................
1,403
1,366
(37)
14,926
14,532
(394)
Subtotal ..................................
4,526
4,485
(40)
48,149
47,712
(426)
Total ....................................
¥13,205
¥14,476
¥1,270
$140,479
$154,000
$13,511
Millions of yen
Acquisition
cost
March 31, 2012
Carrying
value
Unrealized
gain (loss)
Securities whose carrying value
exceeds their acquisition cost:
Stock ................................................................................................... ¥
790
¥ 1,003
¥ 212
Debt securities......................................................................................
6,227
6,519
291
Other....................................................................................................
1,903
1,935
31
Subtotal ............................................................................................
8,922
9,458
536
Securities whose acquisition cost
exceeds their carrying value:
Stock ...................................................................................................
704
574
(129)
Debt securities......................................................................................
6,923
6,819
(103)
Other....................................................................................................
2,444
2,386
(58)
Subtotal ...............................................................................................
10,071
9,780
(291)
Total ................................................................................................. ¥18,993
¥19,238
¥ 245
Sales of securities classified as other securities for the years ended March 31, 2013 and
2012 are summarized as follows:
Millions of yen
Thousands of U.S. dollars
Sales of
securities
Aggregate
gain on sales
of securities
Aggregate
loss on sales
of securities
Sales of
securities
Aggregate
gain on sales
of securities
Aggregate
loss on sales
of securities
Stock ......................................
¥—
¥—
¥—
$—
$—
$—
Debt securities........................
—
—
—
—
—
—
March 31, 2013
Other ......................................
5
4
(0)
53
43
(0)
Total ....................................
¥ 5
¥ 4
¥ (0)
$53
$43
$(0)
Millions of yen
2012
46
Sales of securities................................................................................................................
¥742
Aggregate gain on sales of securities ..................................................................................
59
Aggregate loss on sales of securities ................................................................................
(1)
Notes to Consolidated Financial Statements
7. Depreciation and
Amortization
Depreciation and amortization for the years ended March 31, 2013 and 2012 amounted to
¥4,607 million ($49,011 thousand) and ¥4,882 million, respectively.
8. Short-Term Loans
Payable and
Long-Term Loans
Payable
Short-term loans payable include overdrafts. The annual interest rates applicable to such
borrowings at March 31, 2013 and 2012 ranged from 0.56% to 4.15% and from 0.53% to
3.85%, respectively.
Long-term loans payable at March 31, 2013 amounted to ¥2 million ($32 thousand) and
at March 31, 2012 was ¥5 million ($61 thousand).
9. Pledged Assets
There were no pledged assets as collateral for short-term loans payable at March 31, 2013
and 2012.
10. Income Taxes
Income taxes in Japan applicable to the Company and its domestic consolidated subsidiaries consist of corporate income taxes (national), enterprise taxes (local) and inhabitants’ per
capita taxes (local), which resulted in statutory tax rates of approximately 38.0% and 40.4%
for the years ended March 31, 2013 and 2012, respectively. Income taxes of the overseas
consolidated subsidiaries are based generally on the tax rates applicable in their respective
countries of incorporation.
The effective tax rates reflected in the accompanying consolidated statements of income
for the years ended March 31, 2013 and 2012 differ from the statutory tax rate for the following reasons:
2013
Statutory tax rate ...................................................................................................... 38.0%
2012
40.4%
Effect of:
Income of certain overseas consolidated subsidiaries whose statutory tax
rates are lower than those of domestic consolidated subsidiaries ...........................
(0.7)
Expenses not deductible for income tax purposes ...................................................
2.6
2.3
Dividend income not deductible for income tax purposes.........................................
(0.1)
(0.1)
(1.1)
Tax on undistributed profit ........................................................................................
1.0
0.8
Special deduction for income taxes..........................................................................
(2.3)
(2.5)
Increase in valuation allowance ................................................................................
5.2
—
Reduction of deferred tax asset by change in effective tax
rate adapted from next year ...................................................................................
—
10.2
Other, net .................................................................................................................
1.6
Effective tax rates ........................................................................................................ 45.3%
2.7
52.7%
Annual Report 2013
47
The significant components of deferred tax assets and liabilities as of March 31, 2013 and
2012 were as follows:
Thousands of
U.S. dollars
Millions of yen
2013
2013
2012
Deferred tax assets:
Allowance for doubtful accounts ................................................. ¥
690
¥
672
$
7,340
Provision for retirement benefits ..................................................
6,449
7,103
68,606
Deferred assets for tax purposes ................................................
1,591
1,630
16,926
Inventories ..................................................................................
520
536
5,532
Fixed assets and inventory reserves ............................................
688
863
7,319
Impairment loss ..........................................................................
1,218
1,274
12,957
Loss on valuation of investment securities ...................................
247
217
2,628
Accrued bonuses ........................................................................
1,667
1,686
17,734
Accrued enterprise tax ................................................................
286
208
3,043
Other ..........................................................................................
2,120
1,547
22,553
Gross deferred tax assets........................................................
15,481
15,741
164,691
Less:
Valuation allowance.....................................................................
(2,297)
(1,846)
(24,436)
Total deferred tax assets..........................................................
13,183
13,894
140,245
(2,223)
Deferred tax liabilities:
Deferred gain on repurchased property .......................................
(209)
(212)
Valuation difference on available-for-sale securities ......................
(467)
(85)
(4,968)
Total deferred tax liabilities .......................................................
(677)
(298)
(7,202)
Net deferred tax assets ........................................................ ¥12,506
¥13,596
$133,043
Changes in Accounting Policy
“Act for Partial Revision of the Income Tax Act, etc. for the Purpose of Creating Taxation
System Responding to Changes in Economic and Social Structures” (Act No. 114 of 2011)
and “Act for Special Measures for Securing Financial Resources Necessary to Implement
Measures for Reconstruction following the Great East Japan Earthquake” (Act No. 117 of
2011) were promulgated on December 2, 2011 and effective for the fiscal year beginning
on or after April 1, 2012. Accordingly, the effective tax rate for income taxes of the Company
and its domestic consolidated subsidiaries reduced and special tax rates for income taxes
applied.
As a result, the effective tax rates for deferred tax assets and liabilities will be changed from
the current 40.41% to 38.01% and 35.64% for temporally differences which will be settled
in the fiscal year beginning April 1, 2015 and after the fiscal year beginning April 1, 2016,
respectively.
11. Reserve for Returned
Unsold Goods
48
The reserve for returned unsold goods included in “Other” under “Current liabilities” amounted to ¥1,717 million ($18,266 thousand) and ¥1,778 million at March 31, 2013 and 2012,
respectively.
Notes to Consolidated Financial Statements
12. Retirement Benefit
Plan
The Company and its domestic consolidated subsidiaries have a defined benefit pension
plan, known as a “cash balance plan,” which allows pension benefits to fluctuate in accordance with market interest rates.
The following table sets forth the funded and accrued status of the plan and the amounts
recognized in the accompanying consolidated balance sheets at March 31, 2013 and 2012
for the Company’s and its domestic consolidated subsidiaries’ defined benefit plan:
Thousands of
U.S. dollars
Millions of yen
2013
Retirement benefit obligation ...................................................... ¥(47,712)
2012
2013
¥(49,121)
$(507,574)
Plan assets at fair value ..............................................................
33,073
29,525
351,840
Unfunded retirement benefit obligation........................................
(14,638)
(19,595)
(155,723)
Unrecognized actuarial gain ........................................................
(347)
2,937
(3,691)
Provision for retirement benefits .............................................. ¥(14,985)
¥(16,658)
$(159,415)
The components of retirement benefit expenses for the years ended March 31, 2013 and
2012 are outlined as follows:
Thousands of
U.S. dollars
Millions of yen
2013
2012
2013
$16,617
Service cost......................................................................................
¥1,562
¥1,588
Interest cost .....................................................................................
736
745
7,830
Expected return on plan assets ........................................................
(442)
(436)
(4,702)
Actuarial gain ....................................................................................
(95)
(126)
(1,011)
Total ..............................................................................................
¥1,761
¥1,771
$18,734
The assumptions used in accounting for the above plans for the years ended March 31,
2013 and 2012 were as follows:
Discount rate .............................................................................................................
2013
2012
1.5%
1.5%
1.5%
1.5%
Expected rate of return on pension plan assets:
Defined benefit pension plan ....................................................................................
13. Shareholders’ Equity
The Companies Act (the “Act”), which superseded most of the provisions of the Commercial
Code of Japan, went into effect on May 1, 2006. The Act provides that an amount equal to
10% of the amount to be disbursed as distributions of capital surplus (other than the capital
reserve) and retained earnings (other than the legal reserve) be transferred to the capital
reserve and the legal reserve, respectively, until the sum of the capital reserve and the legal
reserve equals 25% of the capital stock account. Such distributions can be made at any time
by resolution of the shareholders, or by the Board of Directors if certain conditions are met.
The retained earnings account in the accompanying consolidated balance sheets at
March 31, 2013 included a legal reserve of ¥774 million ($8,234 thousand).
14. Research and
Development
Expenses
Research and development expenses included in “Selling, general and administrative
expenses” for the years ended March 31, 2013 and 2012 totaled ¥4,320 million ($45,957
thousand) and ¥4,158 million, respectively.
Annual Report 2013
49
15. Selling, General
and Administrative
Expenses
Selling, general and administrative expenses for the years ended March 31, 2013 and 2012
consisted of the following:
2013
Advertising and promotional expenses....................................... ¥ 44,800
16. Commitments and
Contingent Liabilities
Thousands of
U.S. dollars
Millions of yen
2012
2013
¥ 42,014
$ 476,596
43,304
464,532
Personnel expenses ..................................................................
43,666
Other .........................................................................................
28,256
27,734
300,596
Total ....................................................................................... ¥116,722
¥113,053
$1,241,723
The Company and its consolidated subsidiaries had the following contingent liabilities at
March 31, 2013:
Millions of yen
Thousands of
U.S. dollars
Renovation of stores by agents ..............................................................
¥16
$170
Total ...................................................................................................
¥16
$170
As guarantor of indebtedness in connection with:
17. Comprehensive
Income
Recycling and tax effect amount on other comprehensive income for the year ended March
31, 2013 was the following:
Millions of yen
Thousands of
U.S. dollars
¥1,041
$11,074
Valuation difference on available-for-sale securities:
Amount arising during the year...............................................................
Recycling adjustments ...........................................................................
—
—
Before-tax amount .................................................................................
1,041
11,074
Tax .........................................................................................................
(382)
(4,064)
Balance at end of year........................................................................
659
7,011
Amount arising during the year...............................................................
993
10,564
Balance at end of year ...........................................................................
993
10,564
Total ...................................................................................................
¥1,652
$17,574
Foreign currency translation adjustment:
18. Derivatives
50
Various derivatives transactions, including forward foreign exchange contracts and foreign
currency option contracts utilized by the Company and certain of its consolidated subsidiaries, entail a certain degree of market risk. However, the Company and these consolidated
subsidiaries do not anticipate significant risk resulting from these derivatives, all of which have
been designated as hedges. The Company and its consolidated subsidiaries have adopted
internal rules governing derivatives transactions which prescribe appropriate authorization
and reporting policies. The Company is exposed to credit risk in the event of nonperformance by the counterparties to the derivatives positions, but any such loss would not be
material because the Company enters into such transactions only with financial institutions
with high credit ratings.
Notes to Consolidated Financial Statements
19. Amounts per Share
Yen
U.S. dollars
2013
2012
2013
Net income:
Basic ......................................................................................
¥ 117.22
¥
86.51
$ 1.25
Cash dividends ........................................................................
41.00
40.00
0.44
Net assets ................................................................................
1,964.85
1,858.91
20.90
In accordance with the accounting standard for earnings per share which went into effect on
April 1, 2002, net income per share for the years ended March 31, 2013 and 2012 was calculated based on the net income available for distribution to shareholders of common stock
and the weighted-average number of shares of common stock outstanding during the
respective years. Net assets per share at March 31, 2013 and 2012 were computed based
on the net assets available for distribution to the shareholders and the number of shares of
common stock outstanding at each respective year-end.
Information used in the calculation of basic net income per share for the year ended March
31, 2013 was as follows:
Millions of yen
Thousands of
U.S. dollars
Net income ..............................................................................................
¥6,720
$71,489
Net income relating to common stock .................................................
¥6,720
$71,489
Weighted-average number of shares of common stock: 57,338,279
Diluted net income per share has not been presented for the years ended March 31, 2013
and 2012 because the Company had no potentially dilutive shares outstanding as of these
balance sheet dates.
Cash dividends per share represent the cash dividends declared as applicable to the
respective fiscal years together with the interim cash dividends paid.
20. Segment Information
a) Summary of Reporting Segments
Our reportable operating segments are business units which can provide separate financial
information and are periodically monitored by the top decision-making body of the Company
in order to determine the allocation of management resources and evaluate the operating
results.
In order to supply products which meet various needs of our customers, the Company is
providing products which are planned and developed by our group with various brands. The
Company is also running the business under a comprehensive business strategy including
domestic and overseas markets.
Accordingly, the Company consists of two reportable operating segments, which are “cosmetics” and “cosmetaries.” These are determined based on brands.
The main brands of “cosmetics” segment are “KOSÉ,” “SEKKISEI,” “ESPRIQUE,” “COSME
DECORTE,” “Prédia,” “INFINITY,” “JILL STUART,” “CRIE,” “ALBION” and so on. The main
brands of “cosmetaries” segment are “FASIO,” “ELSIA,” “SALON STYLE,” “softymo,”
“STEPHEN KNOLL collection,” “RIMMEL,” “adidas,” “Nature & Co” and so on.
b) Method of Calculating Sales, Profit or Loss, Assets, Debts and Other Items
on Each Reportable Operating Segment
The Company adopted the above “Summary of Significant Accounting Policies” to calculate
sales, profits (or losses), assets and other items on each reportable operating segment. The
profits on each reportable operating segment are representing operating income. The intragroup sales and transfers between segments are based on the market price.
Annual Report 2013
51
c) Information on amount of sales, profits (or losses), assets and debts and other
items on each reportable operating segment
Millions of yen
Reportable operating segments
Year ended
March 31, 2013
Cosmetics
Cosmetaries
Total
Other
Total
Adjustment
¥127,906
¥41,078
¥168,984
¥1,700
¥170,685
Consolidated
Sales:
Sales to third
parties.....................
¥
—
¥170,685
Intragroup sales
and transfers...........
—
0
0
1,162
1,162
(1,162)
—
Total sales .............
127,906
41,078
168,904
2,863
171,848
(1,162)
170,685
Segment profits .........
11,678
3,034
14,712
727
15,440
(3,575)
11,864
Segment assets.......
¥ 79,642
¥20,035
¥ 99,677
¥5,525
¥105,203
¥67,811
¥173,014
Depreciation .............
¥ 3,345
¥
617
¥ 3,962
¥ 200
¥ 4,163
¥
444
¥ 4,607
Impairment loss ........
—
—
—
—
—
401
401
4,341
644
4,986
220
5,206
392
5,599
Others:
Amount of increase
of tangible fixed
assets and intangible
fixed assets.............
Thousands of U.S. dollars
Reportable operating segments
Year ended
March 31, 2013
Cosmetics
Cosmetaries
Other
Total
Total
Adjustment
Consolidated
$
—
$1,815,798
Sales:
Sales to third
parties..................... $1,360,702
$437,000
$1,797,702 $18,085
$1,815,798
Intragroup sales
and transfers...........
—
0
0
12,362
12,362
(12,362)
—
Total sales .............
1,360,702
437,000
1,797,702
30,457
1,828,170
(12,362)
1,815,798
Segment profits .........
124,234
32,277
156,511
7,734
164,255
(38,032)
126,213
Segment assets....... $ 847,255
$213,138
$1,060,394 $58,777
$1,119,181
$721,394
$1,840,574
35,585
$ 6,564
$
$
44,287
$ 4,723
$
—
—
—
—
—
4,266
4,266
46,181
6,851
53,043
2,340
55,383
4,170
59,564
Others:
Depreciation ............. $
Impairment loss ........
Amount of increase
of tangible fixed
assets and intangible
fixed assets.............
42,149 $ 2,128
49,011
Note:
1) “Other” segment includes rental on real estate and manufacturing and selling of amenity products.
2) “Adjustment” items in “Segment profits” contain elimination of transactions between segments amounted to ¥24 million ($255 thousand)
and corporate costs amounted to ¥(3,550) million ($(37,766) thousand). The corporate costs mainly include the costs belonging to the
department of management and the fundamental research costs.
3) “Adjustment” items in “Segment assets” contain elimination between segments amounted to ¥(342) million ($(3,638) thousand) and corporate assets amounted to ¥68,153 million ($725,032 thousand). The corporate assets mainly include financial assets, which are cash
and deposits, securities and investment securities and so on, deferred tax assets of the Company and its consolidated subsidiaries.
4) “Adjustment” item in “Depreciation” contains depreciation costs of corporate assets.
5) “Adjustment” items in “Amount of increase of tangible fixed assets and intangible fixed assets” contain amounts of increase of corporate
assets.
6) “Depreciation” contains the depreciation costs of long-term prepaid expenses.
7) “Segment profits” represent operating income reported on consolidated financial statements.
52
Notes to Consolidated Financial Statements
Millions of yen
Reportable operating segments
Year ended
March 31, 2012
Cosmetics
Cosmetaries
Total
Other
Total
Adjustment
Consolidated
¥
¥166,508
Sales:
Sales to third
parties..................... ¥125,385
¥39,664
¥165,050 ¥1,457
¥166,508
—
Intragroup sales
and transfers...........
—
0
0
1,079
1,079
(1,079)
—
Total sales .............
125,385
39,664
165,050
2,537
167,587
(1,079)
166,508
Segment profits .........
13,253
1,216
14,469
607
15,076
(3,648)
11,427
Segment assets....... ¥ 77,951
¥19,920
¥ 97,872 ¥5,596
¥103,468
¥65,847
¥169,316
¥
¥
¥
¥
¥
Others:
Depreciation ............. ¥
Impairment loss ........
Amount of increase
of tangible fixed
assets and intangible
fixed assets.............
3,509
751
4,261 ¥ 225
4,486
396
4,882
—
—
—
—
—
249
249
2,877
524
3,401
145
3,547
274
3,821
Note:
1) “Other” segment includes rental on real estate and manufacturing and selling of amenity products.
2) “Adjustment” items in “Segment profits” contain elimination of transactions between segments amounted to ¥52 million and corporate
costs amounted to ¥(3,596) million. The corporate costs mainly include the costs belonging to the department of management and the
fundamental research costs.
3) “Adjustment” items in “Segment assets” contain elimination between segments amounted to ¥(430) million and corporate assets amounted to ¥66,278 million. The corporate assets mainly include financial assets, which are cash and deposits, securities and investment securities and so on, deferred tax assets of the Company and its consolidated subsidiaries.
4) “Adjustment” item in “Depreciation” contains depreciation costs of corporate assets.
5) “Adjustment” items in “Amount of increase of tangible fixed assets and intangible fixed assets” contain amounts of increase of corporate
assets.
6) “Depreciation” contains the depreciation costs of long-term prepaid expenses.
7) “Segment profits” represent operating income reported on consolidated financial statements.
d) Related Information
1) Information on Product and Service
No information on product and service has been reported because segment relating to
product and service is represented by reportable operating segment.
2) Geographical information
Millions of yen
March 31, 2013
Sales
Japan
Asia
Other
Total
¥149,174
¥21,072
¥439
¥170,685
Thousands of U.S. dollars
March 31, 2013
Sales
Japan
Asia
Other
Total
$1,586,957
$224,170
$4,670
$1,815,798
Millions of yen
March 31, 2012
Sales
Japan
Asia
Other
Total
¥145,326
¥20,726
¥455
¥166,508
Annual Report 2013
53
Classification of the country or region is determined by customer’s location.
The principal countries and regions belonging to geographical segment other than Japan
are as follows:
(1) Asia Taiwan, China, South Korea, Hong Kong and Singapore and so on.
(2) Other Countries and regions other than Asia and Japan
Fixed assets
No information on geographical segments has been reported because the Company and
its consolidated subsidiaries have conducted over 90% of the Company’s consolidated total
fixed assets in Japan.
Main customers
No information on specific customers has been reported because the Company and its
consolidated subsidiaries have not sold over 10% of consolidated sales to any specific
customers.
3) Information relating to impairment loss of fixed assets in each reportable
operating segment
Refer to “c) Information on amount of sales, profits (or losses), assets and debts and other
items on each reportable operating segment.”
4) Information relating to amount of amortization and amortized balance of goodwill
in each reportable operating segment
Since the amount of amortization and amortized balance of goodwill recognized by the
Company and its domestic consolidated subsidiaries was nothing for the year ended
March 31, 2013 and immaterial for the year ended March 31, 2012, this information has
been omitted.
5) Information relating to profit on negative goodwill recognized in each reportable
operating segment
Not applicable for the years ended March 31, 2013 and 2012.
21. Rental Property
Rental property includes investment properties and property which is being constructed,
developed or renovated as well as idle property that is not expected to be used in the future.
Since the total amount of rental property held by the Company and its domestic consolidated subsidiaries was immaterial for the years ended March 31, 2013 and 2012, this information has been omitted.
22. Subsequent Event
Not applicable for the year ended March 31, 2013
54
Independent Auditor’s Report
Annual Report 2013
55
Principal Consolidated Subsidiaries
Production Related Subsidiaries
Company Name
Country
Paid-in Capital
ADVANCE CO., LTD.
Japan
¥90 million
100.0%
INTERCOSME INC.
Japan
¥50 million
100.0%
ALBION CO., LTD.
Japan
¥760 million
79.5%
TECHNOLABO CO., LTD.
Japan
¥10 million
79.5%
KOSÉ COSMETICS CO., LTD. (CHINA)
China
RMB88.7 million
100.0%
Taiwan
NT$180 million
100.0%
Country
Paid-in Capital
KOSÉ SALES CO., LTD.
Japan
¥300 million
100.0%
KOSÉ COSMENIENCE CO., LTD.
Japan
¥30 million
100.0%
KOSÉ COSMEPORT CORP.
Japan
¥30 million
100.0%
CARTE LABORATORIES INC.
Japan
¥10 million
100.0%
COSMEDIC CO., LTD.
Japan
¥30 million
100.0%
CRIE CO., LTD.
Japan
¥10 million
100.0%
Dr. PHIL COSMETICS INC.
Japan
¥40 million
100.0%
PROVISION CO., LTD.
Japan
¥30 million
100.0%
KOSÉ COSMEPIA CO., LTD.
Japan
¥10 million
100.0%
KOSÉ INSURANCE SERVICE CO., LTD.
Japan
¥10 million
100.0%
COSME LABO CO., LTD.
Japan
¥10 million
100.0%
A • L DEVELOPMENT CO., LTD.
Japan
¥109 million
44.2%
KOSÉ (HONG KONG) CO., LTD.
China
HK$15.9 million
100.0%
KOSÉ COSMETICS SALES (CHINA) CO., LTD.
China
RMB115.2 million
100.0%
Singapore
S$1.7 million
100.0%
South Korea
W25,000 million
100.0%
KOSÉ (MALAYSIA) SDN. BHD.
Malaysia
RM1 million
100.0%
KOSÉ (THAILAND) CO., LTD.
Thailand
BAHT5 million
49.0%
ALBION COSMETICS (AMERICA) INC.
U.S.A.
US$2 million
79.5%
ALBION COSMETICS (HK) LTD.
China
HK$71.8 million
79.5%
ALBION COSMETICS (SHANGHAI) CO., LTD.
China
RMB37.5 million
79.5%
Taiwan
NT$10 million
79.5%
TAIWAN KOSÉ CO., LTD.
Ownership
Marketing and Services Related Subsidiaries
Company Name
KOSÉ SINGAPORE PTE. LTD.
KOSÉ KOREA CO., LTD.
ALBION COSMETICS (TAIWAN) CO., LTD.
Ownership
(As of March 31, 2013)
56
Corporate Information
(As of March 31, 2013)
Corporate Name: KOSÉ Corporation
Founding: March 2, 1946
Incorporation: June 11, 1948
Head Office: 3-6-2, Nihonbashi, Chuo-ku,
Tokyo 103-8251, Japan
Tel: +81-3-3273-1511
Web Site: http://www.kose.co.jp
IR Site (English): http://www.kose.co.jp/jp/en/ir/
Number of Employees: 5,485
Fiscal Year-End: March 31
Board of Directors (As of June 27, 2013)
Corporate Auditors
Chairman
Hiroyuki Tsutsumi
Yasukiyo Kobayashi
Tatsuya Etou
President
Masanori Odakura (External)
Kazutoshi Kobayashi
Minoru Murakami (External)
Managing Directors
Takao Kobayashi
Kazumasa Hanagata
Directors
Noboru Naito
Kiyoto Nagahama
Kumi Arakane
Atsuo Kumada
Koichi Shibusawa
Masanori Kobayashi
Shareholder Information
(As of March 31, 2013)
Number of Shareholders
Common Stock: Authorized: 200,000,000 shares
Issued: 60,592,541 shares
Capital: ¥4,848 million
Number of Shareholders: 22,464
Stock Listing: Tokyo Stock Exchange, First Section
(Code: 4922)
Transfer Agent: Mizuho Trust & Banking Co., Ltd.
Other Japanese Corporations: 146
Foreign Corporations
and Individuals: 185
Financial Institutions: 69
Treasury Stock: 1
Japanese Individual Investors
and Others: 22,063
FTSE Group confirms that KOSÉ Corporation
has been independently assessed according
to the FTSE4Good criteria, and has satisfied
the requirements to become a constituent of
the FTSE4Good Index Series. Created by the
global index company FTSE Group,
FTSE4Good is an equity index series that is
designed to facilitate investment in companies that meet globally recognised corporate
responsibility standards. Companies in the
FTSE4Good Index Series have met stringent
environmental, social and governance criteria,
and are positioned to capitalise on the benefits of responsible business practice.
Distribution of Shares
Other Japanese Corporations: 2.6%
Treasury Stock: 5.9%
Japanese Individual Investors
and Others: 63.2%
Financial Institutions: 11.4%
Foreign Corporations
and Individuals: 16.9%
Stock Data
쐽 Stock Price
쐽 Volume
(Yen)
3,000
2,000
(Millions of
shares)
4
3
1,000
2
1
0
0
’12/4
’12/5
’12/6
’12/7
’12/8
’12/9
’12/10
’12/11
’12/12
’13/1
’13/2
’13/3
Annual Report 2013
57
ANNUAL REPORT 2013
3-6-2, Nihonbashi, Chuo-ku, Tokyo 103-8251, Japan
Tel: +81-3-3273-1511
http://www.kose.co.jp
http://www.kose.co.jp/jp/en/ir/
KOSÉ Corporation
Printed in Japan