Enriching lives,
in harmony with nature
Kao is dedicated to filling consumers’ daily lives with smiles.
The philosophy behind our product development and manufacturing
has remained unchanged over the 120 years since Kao Sekken (Kao Soap)
was introduced in 1890.
With the business environment continuing to change on a global scale,
what can Kao do as a leading manufacturer? We believe we can
provide new value to people around the world through
Yoki-Monozukuri,* pursued from an ecological perspective.
Positioning ecology at the core of management, Kao is striving for
the wholehearted satisfaction and enrichment of the lives of people
globally in the fields of cleanliness, beauty and health.
Going forward, the Kao Group will continue to enhance
Yoki-Monozukuri and pursue true, sustainable enrichment made
possible through the harmony of people and nature.
* We define “Yoki-Monozukuri” as “a strong commitment by all members to provide products
and brands of excellent value for consumer satisfaction.” In Japanese, “Yoki” literally means
“good/excellent,” “Monozukuri” means “development/manufacturing of products.”
Forward-Looking Statements
Forward-looking statements such as earnings forecasts and other projections contained in this report are
based on information available at the time of publication and assumptions that management believes to be
reasonable. Actual results may differ materially from those expectations due to various factors.
Contents
Financial Highlights
Segment Information
A Message from Chairman of the Board of Directors Motoki Ozaki
An Interview with New President and CEO Michitaka Sawada
Kao at a Glance
2
4
6
8
14
Feature:
Innovation That Satisfies
Beauty Care
Business
Human Health Care
Business
Global Integrated
Management
Meeting Local
Consumer Needs
16
18
Fabric and Home Care
Business
Chemical
Business
Offering
Eco-Innovation
Rapid Progress
toward an
Eco-Chemical
Business
19
20
Kao’s Management Framework
Directors, Corporate Auditors and Executive Officers
Corporate Governance
Compliance
Financial Section
11-Year Summary
Management Discussion and Analysis
Consolidated Financial Statements
Notes to Consolidated Financial Statements
Independent Auditor’s Report
Principal Subsidiaries and Affiliates
Investor Information
22
24
26
28
30
40
46
67
68
69
Kao Annual Report 2012 1
Financial Highlights
Outstanding Year-on-Year Performance
Net Sales
+2.5%
¥1,216.1 billion
EVA*
106
(Year ended March 31, 2000=100)
*EVA (Economic Value Added) is a registered trademark of Stern Stewart & Co.
The fi gure is a comparison to the base year ended March 31, 2000.
Operating Income
+3.8%
¥108.6 billion
Net Income
+12.2%
¥52.4 billion
EBITA
+2.2%
¥142.2 billion
Cash Dividends
+¥2.00 per share
¥60.00
Kao Corporation and Consolidated Subsidiaries
Years ended March 31, 2012, 2011 and 2010
Billions of yen
2012
2011
2010
Millions of
U.S. dollars
2012
Change
2012/2011
For the year:
Net sales .......................................................
Beauty Care Business ...............................
Human Health Care Business ....................
Fabric and Home Care Business ................
Consumer Products Business ................
Chemical Business ....................................
Eliminations ...............................................
Japan ..........................................................
Asia & Oceania ...........................................
North America ............................................
Europe ........................................................
Eliminations ................................................
EBITA ............................................................
Operating income ..........................................
Net income ....................................................
EBITDA ..........................................................
At year-end:
Total assets ...................................................
Net worth ......................................................
¥1,216.1
537.9
181.8
285.6
1,005.3
247.6
(36.9)
¥1,186.8
533.5
175.8
279.0
988.3
232.0
(33.4)
¥1,184.4
547.9
183.2
276.9
1,008.0
207.8
(31.5)
925.3
173.6
85.4
117.0
(85.2)
142.2
108.6
52.4
188.4
912.4
152.4
80.3
112.1
(70.4)
139.1
104.6
46.7
186.0
918.5
131.7
79.2
111.2
(56.2)
129.5
94.0
40.5
178.8
$14,796.2
6,545.1
2,211.4
3,475.4
12,231.9
3,013.0
(448.7)
11,258.5
2,112.0
1,039.0
1,423.6
(1,037.0)
1,729.9
1,321.2
638.0
2,292.2
991.3
538.0
1,022.8
528.9
1,065.8
565.1
12,060.7
6,546.2
2.5%
0.8
3.4
2.4
1.7
6.7
.–
1.4
13.9
6.3
4.4
.–
2.2
3.8
12.2
1.3
(3.1)
1.7
Per share:
Net income ....................................................
Cash dividends ..............................................
Net worth ......................................................
Yen
U.S. dollars
Change
¥ 100.46
60.00
1,031.08
¥ 87.69
58.00
1,013.05
¥ 75.57
57.00
1,054.31
$ 1.22
0.73
12.55
14.6%
3.4
1.8
Notes: 1. The U.S. dollar amounts are translated, for convenience only, at the rate of ¥82.19=US$1, the approximate exchange rate at March 31, 2012.
2. Eliminations represent intersegment sales and interregion sales. Net sales of the Chemical Business include intersegment sales to the Beauty Care
Business, the Human Health Care Business and the Fabric and Home Care Business.
3. Net sales by region are classified based on the location of Kao Group companies.
4. Yen and U.S. dollar amounts are rounded to the nearest whole number or decimal.
5. EBITA (Earnings before interest, taxes and amortization) is operating income before amortization of goodwill and other items related to acquisitions.
6. EBITDA (Earnings before interest, taxes, depreciation and amortization) is operating income before depreciation and amortization.
7. Net worth is equity, excluding minority interests and stock acquisition rights.
2 Kao Annual Report 2012
Net Sales and
Operating Income Ratio
(Billions of yen)
1,500
1,318.5
1,276.3
1,184.4
1,186.8
1,216.1
1,000
500
0
8.8
7.6
7.9
8.8
8.9
2008
2009
2010
2011
2012
Net Sales (Left)
Operating Income Ratio (Right)
Net Income and ROE*
Net Income per Share
(Years ended March 31)
(%)
25
(Billions of yen)
80
(%)
20
(Yen)
150
20
15
10
5
0
60
40
20
0
66.6
64.5
11.7
11.5
52.4
9.8
46.7
8.5
40.5
7.3
2008
2009
2010
2011
2012
Net Income (Left)
ROE* (Right)
*In calculating ROE, equity excludes minority
interests and stock acquisition rights.
15
10
5
0
100
50
0
122.53
120.25
100.46
87.69
75.57
2008
2009
2010
2011
2012
Cash Dividends and
Payout Ratio
Net Worth and DER*
EBITDA
40
20
0
(Yen)
60
54.00
56.00
57.00
58.00
60.00
(%)
100
(Billions of yen)
600
574.0
545.2
565.1
528.9
538.0
75.4
66.1
59.7
46.6
44.1
80
60
40
20
400
200
0.5
0.5
0.3
0.3
0.2
184.3
178.8
186.0
188.4
(Times)
1.2
1.0
0.8
0.6
0.4
0.2
(Billions of yen)
250
209.7
200
150
100
50
2008
2009
2010
2011
2012
0
0
2008
2009
2010
2011
2012
0
0
2008
2009
2010
2011
2012
Cash Dividends (Left)
Payout Ratio (Right)
Net Worth (Left)
DER* (Right)
*DER (Debt to Equity Ratio)=Interest-bearing debt ÷
Equity, excluding minority interests and stock
acquisition rights
Capital Expenditures and
Depreciation and Amortization
R&D Expenses and
Percentage of Net Sales
Free Cash Flow*
(Billions of yen)
150
127.9
128.1
(Billions of yen)
120
119.5
100
93.4
100
50
0
78.4
76.1
2008
2009
2010
2011
2012
*Free cash flow = Net cash provided by operating
activities + Net cash used in investing activities
80
60
40
20
0
87.5
84.8
81.4
79.8
49.0
44.6
44.9
49.1
47.2
2008
2009
2010
2011
2012
Capital Expenditures
Depreciation and Amortization
(Billions of yen)
50
45.1
46.1
44.9
45.5
(%)
8
48.2
40
30
20
10
0
6
4
2
0
3.4
3.6
3.8
3.8
4.0
2008
2009
2010
2011
2012
R&D Expenses (Left)
Percentage of Net Sales (Right)
Kao Annual Report 2012 3
Segment Information
Net Sales
(Billions of yen)
1,500
1,318.5
1,276.3
Operating Income
(Billions of yen)
120
116.3
104.6
108.6
(Years ended March 31)
1,184.4
1,186.8
1,216.1
96.8
94.0
1,000
500
0
2008
2009
2010
2011
2012
80
40
0
2008
2009
2010
2011
2012
(cid:129)
(cid:129)
Figures are rounded to the nearest
whole number or decimal.
Figures in the graph represent net
sales to outside customers only.
Beauty Care Business
Human Health Care Business
Fabric and Home Care Business
Chemical Business
Business Segment Sales
(Year ended March 31, 2012)
Chemical Business
Breakdown by Region
Japan
Asia
North America
Europe
Eliminations
(Billions of yen)
210.8
125.5
89.2
35.9
55.7
(95.5)
Chemical Business
Oleo chemicals
Performance chemicals
Specialty chemicals
¥
¥210.8
billion
17.3%
Consumer Products Business
Breakdown by Region
Japan
Asia & Oceania
North America
Europe
Eliminations
(Billions of yen)
1,005.3
832.3
87.4
49.6
61.5
(25.5)
Beauty Care Business
Prestige cosmetics
Premium skin care products
Premium hair care products
Consolidated
Net Sales
¥1,216.1
billion
¥537.9
billion
44.2%
¥285.6
billion
23.5%
Fabric and Home Care Business
Fabric care products
Home care products
¥181.8
billion
15.0%
15.0%
Human Health Care Business
Food and beverage products
Sanitary products
Personal health products
(cid:129)
(cid:129)
(cid:129)
(cid:129)
Figures are rounded to the nearest
whole number or decimal.
Figures in the graph represent net
sales to outside customers only.
Net sales by region are classified
based on the location of Kao
Group companies.
Eliminations represent interregion
sales.
4 Kao Annual Report 2012
Operating Income / EBITA*
Operating Income Ratio
(Years ended March 31)
Net Sales
(Billions of yen)
800
600
547.9
533.5
537.9
Beauty Care
Business
400
200
0
(Billions of yen)
80
Operating Income (Left)
EBITA* (Left)
Operating Income Ratio (Right)
60
40
40.0
39.9
48.9
2.9
20
0.9
1.0
15.4
4.7
5.5
0
2010
2011
2012
2010
2011
2012
(Billions of yen)
300
(Billions of yen)
20
Operating Income (Left)
Operating Income Ratio (Right)
200
183.2
175.8
181.8
Human Health
Care Business
100
0
15.3
8.7
14.6
8.0
15
10
5
0
9.0
4.9
2010
2011
2012
2010
2011
2012
(Billions of yen)
400
(Billions of yen)
80
Operating Income (Left)
Fabric and
Home Care
Business
300
200
100
0
276.9
279.0
285.6
60
Operating Income Ratio (Right)
60.7
59.7
55.5
30
40
21.9
21.4
19.4
20
0
2010
2011
2012
2010
2011
2012
*
EBITA (Earnings
before interest,
taxes and
amortization) is
operating income
before amortization
of goodwill and
other items related
to acquisitions.
(%)
5.0
4.0
3.0
2.0
1.0
0
(%)
20.0
16.0
12.0
8.0
4.0
0
(%)
40
Chemical
Business
(Billions of yen)
400
(Billions of yen)
40
Operating Income (Left)
Operating Income Ratio (Right)
232.0
247.6
207.8
300
200
100
0
19.7
9.5
24.1
10.4
23.0
9.3
30
20
10
0
2010
2011
2012
2010
2011
2012
Note: Net sales include intersegment sales.
s
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n
i
s
u
B
s
t
c
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d
o
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e
m
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s
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u
B
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a
c
i
m
e
h
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20
10
0
(%)
20
15
10
5
0
Kao Annual Report 2012 5
A Message from Chairman of the Board of Directors Motoki Ozaki
After eight years as Kao’s
president and chief executive
officer, I am confident that the
Company is in an excellent
position to achieve profitable
growth both in Japan and
around the world as a result
of structural evolution. Just
as important, this growth will
also be sustainable as a result
of our commitment to
reducing environmental
impact and contributing to
society. The market agrees,
given Kao’s inclusion in
socially responsible
investment indexes and its
selection as one of the
world’s most ethical
companies. Kao will continue
to serve its stakeholders
effectively and with integrity.
6 Kao Annual Report 2012
A key theme during my tenure as CEO was leveraging innovative
technology to raise Kao’s competitive advantage in global markets and
achieve profi table growth. In each of our businesses, we are using our unique
capabilities and expertise to launch high-value-added products.
We complemented product innovation with structural innovation and
implemented a matrix management system that shifted the focus of our
businesses from product categories to the consumer’s perspective. Structural
reorganization has also helped Kao strategically and efficiently allocate
resources to respond to changes in market structure and consumers.
Integration of business operations across Asia has also supported
profi table global growth. This initiative successfully enhanced communication
among Asian countries to effi ciently develop high-value-added products that
meet the needs of both particular countries and the broader market. We are
now taking a similar approach by implementing matrix management in our
North American and European operations.
Over the past eight years we have deepened our commitment to the
environment and in 2009 issued the Kao Environmental Statement. Our
“eco together” concept is a key component of our approach, guiding us as
we work together with stakeholders and consumers worldwide throughout
the product lifecycle, from materials procurement and manufacturing, to
distribution, sales, use and fi nal disposal. We have also maintained our
longstanding emphasis on corporate social responsibility issues such as
effective governance and corporate ethics.
The Kao Group clarifi ed its deployment of free cash fl ow (net cash provided
by operating activities plus net cash used in investing activities) during my
tenure. We invested in future growth, as shown by the acquisition of Kanebo
Cosmetics Inc. We also used free cash fl ow to increase cash dividends per
share at a compound annual rate of nearly 7 percent over the past eight
years. In addition, we reduced interest-bearing debt related to the
acquisition while repurchasing shares totaling ¥135 billion.
Our focus on efficiently putting our resources to work has created an
organization that is well positioned to continue generating profitable
growth and consistently strong shareholder returns. In my new role as
Chairman of the Board of Directors, I plan to support the new company
leadership and the sustainable growth of the Kao Group by focusing on
corporate governance and risk management issues.
Motoki Ozaki
Chairman of the Board of Directors
Kao Annual Report 2012 7
An Interview with New President and CEO Michitaka Sawada
Michitaka Sawada
President and Chief Executive Officer
Michitaka Sawada joined Kao in 1981 after
earning a Master of Engineering specialized in
applied chemistry from Osaka University.
Sawada’s career over more than thirty years in
research and development at Kao spans both
fundamental research and product development
research, from the development of the
polymer materials used in the iconic Bioré
pore strips through to leadership on the
re-engineering of Merries baby diapers after
his appointment as Vice President of the
Sanitary Products Research Laboratories in
2003. In 2006, Sawada became an Executive
Officer of Kao and assumed broader
responsibility across the entire R&D Division.
He was the fi rst to lead the Human Health Care
R&D Center following its establishment in
2007 and quickly progressed to appointment to
the Board of Directors in 2008.
Recognition of Sawada’s significant
achievements in leading R&D teams in diverse
fields, as well as his dynamism, energy and
wide-ranging insights on global growth, all
contributed to his appointment as
Representative Director, President and Chief
Executive Officer of Kao on June 28, 2012.
Sawada has been an active member of the
Japan Chief Technology Officer Forum, Japan
Management Association and the Japan
Association for Chemical Innovation, where
he has contributed to the development of
industry policies and strategies. He was
recently appointed as Vice Chairman of the
Japan Soap and Detergent Association, a leading
industry body.
Sawada was born on December 20, 1955 in
Osaka Prefecture, Japan. He and his wife have
two daughters.
LEADERSHIP
8 Kao Annual Report 2012
CONTINUOUS
INNOVATION
What is your core theme for the Kao Group
as you lead it into the future?
“Yoki-Monozukuri” is one of the Kao Group’s core concepts. We defi ne it as
“a strong commitment by all members to provide products and brands of
excellent value for consumer satisfaction.” But this concept is not simply
about producing high quality products – it also encompasses our commitment
to enriching people’s lives, reducing environmental impact and resolving
social issues arising from changing lifestyles. That requires fresh ideas and
the will to make them realities, which is why we need innovation. But not
just innovation. We need “continuous innovation.”
The Kao Group is an exciting place because of its positive, innovative
corporate culture, and I am proud that I have helped keep this spirit
burning brightly. My career has focused on research and development,
so I have seen fi rsthand that continuous innovation drives profi table growth.
This concept of continuous innovation starts with breakthrough
innovation; we need great new ideas for products that cause creative
destruction. This kind of innovation changes the game. With its proven
innovative capabilities, the Kao Group can take the lead in the markets that
emerge. But we cannot stop there; we must follow up with step-by-step
innovation. By this I mean a series of small but significant steps that keep
The Key to
Strategic Success
Continuous innovation
is the key, and has
two phases:
Breakthrough
innovation:
great new ideas
for products that
cause creative
destruction
Step-by-step
innovation:
a series of small but
significant steps that
keep our brands fresh
in the marketplace
The Kao Group’s Mid-Term Growth Strategies
Use the Kao Group’s innovative technology to raise its competitive
advantage in the global market and achieve profitable growth
Consumer Products Business
Further reinforcement of business in Japan,
the Kao Group’s profit base
Accelerated globalization
Mature markets:
Achieve further growth driven by high-value-added products
Growth markets:
Invest management resources to strengthen focal strategic brands
Establish corporate identity
Chemical Business
Rapid progress toward an eco-chemical
business
Kao Annual Report 2012 9
our brands fresh in the marketplace. This involves incremental additions to
value over time. After all, a product is not innovative if nobody uses it, and
we are not in the business of creating fads. This cycle is essential for Kao.
For example, we created the compact detergent market in Japan with
breakthrough innovation, and have been the leader in this market for 25
years using step-by-step innovation. Kao is serious about nurturing its
product concepts over the long term.
Continuous innovation adapts products and approaches to evolving
market and consumer needs, so that our innovative products remain
relevant and at the forefront of consumer consciousness. It means
constant improvement of what we make and do. And it requires
persistence – we cannot afford to become complacent. We must
continuously come up with new ideas that maintain our product leadership
as competitors will inevitably try to replicate our innovations.
I also want to make the most of our organizational strengths while making
sure that we are not doing research for its own sake, but research that is
creating value. That is how we will meet challenges successfully to keep
sales and earnings on an upward vector over the medium and long term.
VALUE
How is Kao responding to the increasing maturity of
the Japanese market?
The Kao Group adapts. We remain open to new ideas as our markets
change. This is what sustains us as we turn challenges like market
maturity into opportunities.
We absolutely want to create value that consumers appreciate. As
markets in Japan have matured, we have expanded the spectrum of value
we offer through our products. We have always focused on functional
value, creating products that consumers love because they work really
well and make life better. Then we complemented the focus on functional
value by emphasizing emotional value, such as more appealing fragrances
and enhanced look and feel. Going forward, we also intend to strengthen
our offering in terms of social value. This involves effectively meeting
needs and wants in a social context, such as employing universal design
to enhance ease of use for seniors, or making our offerings even more
environmentally responsible.
Our concept of continuous innovation is key to leveraging the maturity
10 Kao Annual Report 2012
of the market in order to sustain profitable growth in Japan. We are
innovating every day and looking for additional opportunities to evolve
beyond providing products alone to include suites of products and
services that offer functional, emotional and social value, such as a health
solution business that focuses on prevention and improvement of health
issues for an aging society. In the future, the Kao Group will consider
how to apply the know-how gained through this business in markets
outside Japan.
GLOBAL
Japan is a large market for the Kao Group, while
some countries outside Japan are growth drivers.
How will you build the Kao Group’s global business?
Overseas markets present many opportunities for global expansion. This is
particularly true for growth markets with large populations such as China
and Indonesia, which we see as fundamental to our future. Previously, we
targeted upper-tier consumers with premium products in these markets,
but now we are adding a strong emphasis on volume zones – categories
with sizable markets such as laundry detergents, sanitary products and
diapers targeting mid-tier consumers. We intend to make use of another
Kao Group strength: our ability to deliver volume zone products that
consistently connect with consumers because they are easy to
understand and meet clearly identified needs.
As in the premium products market, we need to be known as an
innovative company through continuous innovation in volume zones. We
are competing against huge global companies, and will not succeed if we
use the same approaches they do. We will use consumer insights and
continuous innovation to compete with truly differentiated products that
are compelling, while making sure they are price competitive as well.
Through this focus, we are generating meaningful results in China and
elsewhere in Asia, giving us a great base for further expansion.
Our initiative to integrate management of the Beauty Care Business in
North America and Europe demonstrates another aspect of our approach
to global expansion. Not simply an exercise in integration to raise
efficiency, this is the next stage of our strategy for ultimately creating a
strong, unified business worldwide through global integrated management
of the Consumer Products Business.
Kao Annual Report 2012 11
PRESENCE
The Kao Group’s global identity is a strategic asset.
How will you build it?
I think of our global identity in terms of the word “presence.” Our
presence is our standing among consumers, communities and other
stakeholders. It means awareness of the Kao Group, its brands and its
commitment to enriching lives, in harmony with nature. Our presence is
the result of everything we do and achieve. We want markets to know and
respect the Kao Group, because that drives profitable growth and creates
a virtuous cycle in which earnings growth funds the innovation that
supports more earnings growth. We want society to know and respect the
Kao Group for its contribution as a corporate citizen, because that makes
our employees and the communities we serve proud of the Kao Group.
The key to building our presence will be to constantly renew ourselves
as we embrace a commitment to change. Employees must have the desire
to take on the challenges of innovation, and the courage to be creative.
Enhancing our presence involves thinking about markets in which we have
the best opportunities to sweep away the conventional and lead with the
new. It also means continuous innovation that incrementally strengthens
our brands and our ability to contribute to communities.
Sustainability is a core Kao Group management
focus. How is sustainability related to the overall
objectives of the Kao Group?
The Kao Group has embedded sustainability in its management, and we
are deploying our unique ability to innovate to address environmental
awareness. We have to be environmentally responsible in Japan and
overseas. Companies that fail to do that will not succeed. They will simply
become irrelevant. Our concept of Yoki-Monozukuri certainly includes
ecologically conscious products, and was a core rationale for founding the
Eco-Technology Research Center. It is a unique expression of what
differentiates the Kao Group, a place where we are using eco-innovation
research to link product creation and use to environmental responsibility.
Continuous innovation drives sustainability. It drove the development of
our “eco together” environmental statement, in which we work with
consumers, business partners and society to reduce environmental impact
throughout the entire product lifecycle. It drives our commitment to eco-
innovation, which has resulted in products such as the Neo fabric care
12 Kao Annual Report 2012
series that conserves water, electricity and resources, as well as
innovations that help us use less water in our operations. It also supports
our drive to develop eco-chemical products for global markets.
Since 2005, we have been participating in the United Nations Global
Compact, a strategic policy initiative for businesses that are committed to
aligning their operations and strategies with ten universally accepted
principles in the areas of environment, human rights, labor and anti-
corruption. We have also demonstrated our global commitment to social
and environmental issues in ways such as participating in the Round Table
on Sustainable Palm Oil since September 2010.
Sustainability will certainly remain central to Kao Group management
worldwide.
How will the Kao Group continue to generate solid
shareholder returns?
Kao Corporation has raised dividends for 22 consecutive years and has
repurchased nearly 138 million shares since 1999, and I will maintain this
clear and consistent commitment to shareholder returns. How? The short
answer is profitable growth. The Kao Group is focusing on effective use of
free cash flow and other fundamentals that drive value and enable
shareholder satisfaction, because we contribute to society and make
ourselves an attractive investment when we grow profitably. We will
maintain our emphasis on deploying free cash flow toward reinvesting
earnings in capital expenditures, mergers and acquisitions that support
profitable global growth.
Use of Free Cash Flow*
1. Capital expenditures and M&A for future growth
2. Steady and continuous cash dividends
Year ended
March 31, 2012
Cash dividends per share: ¥60.00
59.7%
Payout ratio:
3. Share repurchases and repayment of interest-bearing debt including borrowings
t includi
t including borrowings
rest bearing debt
* Free cash flow = Net cash provided by operating activities + Net cash used in investing activities
We see that as a win-win approach that benefits the Kao Group and its
stakeholders. I expect continuous innovation to ensure that Kao Corporation
generates attractive returns for shareholders while upholding the ethical
and community principles that are the basis for the Kao Group’s strong
stakeholder support.
Michitaka Sawada
President and Chief Exective Officer
Kao Annual Report 2012 13
Kao at a Glance
Beauty Care Business
Human Health Care Business
Fabric and Home Care Business
Chemical Business
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14 Kao Annual Report 2012
Business Overview
In order to allow all consumers to achieve their
own unique beauty with leading technologies, the
Kao Group offers a wide range of products
including prestige cosmetics, premium skin care
products such as facial and body cleansers, and
premium hair care products such as shampoos
and conditioners.
The Kao Group offers products that help
consumers live healthily and comfortably,
including sanitary products created using
proprietary technologies, functional health
beverages that offer new performance values,
and other products such as bath additives and
toothpaste.
The Kao Group offers products designed for
quality, functionality, and ease of use in order to
help consumers enjoy a clean, comfortable
lifestyle, including fabric care products such as
laundry detergents and fabric treatments, as well
as dishwashing detergents, kitchen cleaners and
other home care products.
The Kao Group’s Chemical Business offers
customers worldwide a range of chemical
products designed to meet the diverse needs of
global industry, including oleo chemicals
manufactured from natural oil and fat raw
materials, surfactants, toners and toner binders,
and fragrances and aroma chemicals.
Representative Products
Mid-Term Strategies
Accelerate growth through integrated
global business operations.
Attain profitable growth utilizing value-
added technologies in targeted market
segments.
Achieve top-line growth in facial and body
cleanser categories through differentiation
in quality and cost.
Promote expansion of sanitary products in
Asia based on recognition of Japanese
quality.
In Japan, work to add value to existing
products in response to market changes
and create new markets.
In Japan, further promote “eco together”
with the growth of Attack Neo, which is
effective even in small amounts and can
conserve water and electricity as a
single-rinse detergent.
In China and other Asian countries where
the liquid laundry detergent market is
expanding, launch, nurture and strengthen
new products with Kao’s unique
technology to meet local needs and
surpass market growth.
Expand sales and develop markets in
BRICs and other growing markets.
Promote greater added value with a focus
on ecology.
Kao Annual Report 2012 15
Beauty Care Business
Global Integrated
Management
Originally introduced as a facial cleanser, Bioré has
established a solid position in the Japanese
market as a leading brand in the Kao Group’s
premium skin care portfolio. Since the start of our
global expansion in 1982, Bioré products have
been tailored to local markets, but the brand is
now undergoing worldwide renewal driven by the
Kao Group’s exclusive new Skin Purifying Technology.
Feature:
Innovation
That
Satisfies
To succeed globally, it is important to pair technologies
that are applicable worldwide with local insight to
understand the different needs and characteristics of
each market and respond appropriately. Moreover, to
ensure that we fully convey the unique value of Bioré in
markets around the world, the Kao Group is conducting
strong rollouts at the local level with a thorough
understanding of the needs of the target demographics
in each country, based on the brand guidelines that
support global development.
The Kao Group is constantly exploring new
science and technologies to create valuable
products and offer them to consumers
around the world. We seek to enhance our
brand value with an approach that pairs a
global perspective for developing world-
class technology with local insights to
tailor products to each market. Here we
highlight some of our initiatives.
16 Kao Annual Report 2012
Cleansing ingredients
(aggregation)
Bioré Skin Care Facial Foam,
which presented the concept
of “cleansing skin care”
to the market, uses the
Kao Group’s Skin Purifying
Technology to gently remove
dirt and excess oil that can
irritate the skin, leaving it
feeling smooth.
Skin
We intend to enhance the brand value of Bioré by returning to
the basics, centered on world-class cleansing technology.
The various markets around the world differ in terms of consumer needs and
competitive landscapes. In order for Bioré to build a strong global presence, the
Kao Group must focus on its core value of “clean, healthy beautiful skin.” We
have returned to the basics to better define Bioré’s strengths around its
cleansing ability, and now we plan to begin our new offerings with facial cleanser,
the product that best represents these core values. Our technology is what
makes this possible. Even though the facial cleanser market is maturing, I believe
that by adding new value to our products, we can further increase consumer
satisfaction in every market.
Global Rollout of New Bioré
Taiwan
United States
Satoru Tanaka
President, Premium Skin Care Business Group,
Beauty Care Business Unit
Bioré is a top-ranking brand in Taiwan. A high level of
satisfaction with the facial cleanser, the core driver of
Kao USA Inc. (formerly Kao Brands Company) launched
the Bioré Restage Project in 2010 and set out to
the brand’s image, can be expected to carry over to the
restructure its brand strategy. To gain an advantage
makeup remover and body cleanser lines as well. That
in the highly competitive U.S. facial cleanser market,
is why this is a critically important item. In restaging the
the company identified the need to rethink its target
facial cleanser with the introduction of Skin Purifying
demographic, and decided to focus on women in their
Technology in 2012, Kao (Taiwan) Corporation conducted
twenties because of their outstanding brand loyalty.
extensive surveys of consumers in their homes, and
used these findings to effectively spotlight Bioré’s
Based on extensive surveys of this target
demographic, the company is carrying out a
advanced functional value and to enhance its established
communications strategy centered on digital marketing.
brand image.
Kao Annual Report 2012 17
Human Health Care Business
Meeting Local Consumer Needs
Laurier products are sold in nine countries and regions in Asia, and the Kao Group aims to make it
Asia’s leading sanitary napkin brand. With the development and introduction of a groundbreaking
new surface material, the Kao Group repositioned the brand and, in 2010, began a series of launches
in Asia, where it has gained strong support from local women. By both strengthening standard global
product functions with innovative technology and introducing products developed from a consumer-
driven perspective in each local market, the Kao Group aims to be the closest to Asian consumers.
Product Development Aimed at Creating a
“Next-Generation Sanitary Napkin”
Laurier has won steady support in the growing Asian market for feminine hygiene products, including the top market share
in Singapore. However, with competition increasing, the Kao Group is targeting younger consumers by highlighting the
functional and emotional appeal of Laurier, which uses a new surface material developed for superior absorbency, as a
“next-generation sanitary napkin.”
Taiwan
Thailand
“Magnetic Absorbency” is the Brand-Building Catch Phrase
In Taiwan, aggressive promotion of the comfort and other
features of Laurier Super Slim Guard in magazines and
online has established a solid position for it as a high-value-
added product. In August 2011, we launched the renewed
Laurier Super Slim Guard with a new surface material, and
created the catch phrase “magnetic absorbency” to evoke
the product’s originality and unrivaled absorbency. As a
result, it is gaining strong support from women in the
target segment.
Dealing with Two Different Markets
In the sanitary napkin market in Thailand, it is necessary
to win share in two different markets: urban areas,
where the hypermarkets of global retailers and
convenience stores are the dominant sales channels,
and rural areas, where traditional outlets such as long-
established family-run shops are prevalent. When we
introduced the new product with stronger absorbency
using a new surface material, we devised and
aggressively implemented effective marketing
strategies for each of these two markets.
Innovation is the Key to Winning the Top Share
In sales promotions for Laurier Soft & Safe, a brisk-selling new thin-type product,
we focused on television commercials. Employing a well-known actress to
increase trust, the commercials were designed based on extensive surveys of
consumers’ real-life experiences to gain insight into their needs and help them
identify with the product. For Laurier Super Slim Guard, on the other hand, we
highlighted the product’s absorbency to appeal to active career women, and sales
have been strong. We realize the importance of listening to consumers and
constantly innovating.
Kanwara Chingchit
Category Manager, Marketing,
Consumer Business,
Kao Commercial Thailand Co., Ltd.
18 Kao Annual Report 2012
Fabric and Home Care Business
Offering Eco-Innovation
This year marks the 25th anniversary of the 1987 debut of Attack, the world’s fi rst compact laundry
detergent. In 2009, after two years of development aimed at making single-rinse laundering
possible, the Kao Group launched Attack Neo, which reduces washing time and saves water and
electricity. The same technology used in Attack Neo was applied in Attack Instant Clean Liquid
detergent, which was launched in China in 2010.
Simultaneously Reducing
Environmental Impact and
Benefiting Consumers
In developing Attack Neo, the Kao Group sought to
create a product that was not just “eco-friendly” but
would also use environmental technology to benefit
consumers. Efforts focused on the water used in
laundering. The toilet, bathing, cooking and laundry
account for about 90 percent of daily water use in the
average household. Researchers therefore looked to
find a way to save water by making single-rinse
laundering possible, and succeeded in developing a
surfactant with strong cleaning performance and
excellent rinsing properties. At the same time, the
product was made much more concentrated,
resulting in the creation of Attack Neo, a completely
new, ultra-concentrated liquid detergent. The
technology of Attack Neo has also been applied in
China and Australia to create products tailored to
laundry habits in those countries.
Creating New Value with Attack Instant Clean Liquid
When we were developing Attack Instant Clean Liquid detergent, which was launched in
September 2010, we surveyed 850 average households in Chinese urban areas (Shanghai
and Beijing) to see how they do their laundry. We found that most people use a combination
of machine washing and hand washing, and that roughly 80 percent of the water used in
laundering is consumed in rinsing. That led us to focus on the need for efficient rinsing, just
as the Kao Group did in Japan. Through joint development with the Japanese team, we came
up with a product that offers high cleaning performance and easy rinsing, both by machine
and by hand washing, and also helps to reduce water consumption.
From left: Wen Limeng, Ji Kan and Zhu Ye
Research and development staff at Kao (China)
Research & Development Center Co., Ltd.
Kao Annual Report 2012 19
Chemical Business
Rapid Progress toward an Eco-Chemical Business
The Kao Group is taking steps to provide new value to customers while reducing its environmental
footprint. The Eco-Technology Research Center, a base for development of next-generation environmental
technologies, started operation in June 2011. With this new facility, the Kao Group will accelerate ecology-
centered management by further blending technologies and exercising its creativity.
Development of Toner and
Toner Binder with
Low-Temperature Fusing
Eco-Innovation Research Laboratories
The Eco-Innovation Research Laboratories established in
the Eco-Technology Research Center centralizes research
on the environment, which was previously dispersed
across the organization. It will play a leading role in
realizing Kao’s vision of ecology-centered management in
actual development and manufacturing.
The Kao Group has been providing toner and toner binder for laser printers
and copiers globally since 1980. Looking for a way to reduce energy
consumption, we focused on polyester resin ahead of our competitors.
This led to the development of a product that easily fuses to paper even at
low temperatures, enabling sharp printing quality. Today, the Kao Group
accounts for more than 30 percent of the world’s total annual production
volume of toner binder.
In addition, our low-temperature fusing toner binder substantially
reduces the impact on the environment, and lowering the fusing
temperature by 10°C is expected to reduce CO2 emissions by approximately
10 percent. The Kao Group is further improving its toner binder to enable
fusing at temperatures 30°C lower than conventional toner binders.
Promoting Innovation by Blending Technologies from Different Fields
In eco-innovation research, we have constructively integrated the various eco-research
functions of the Kao Group’s research and development division. Our intention is to be a
professional research institute that competes on the global stage by developing next-
generation technologies around the theme of sustainability. We are aiming to develop
environmental management indexes that will determine how good each product is for the
environment as a whole, rather than determining whether or not a product is
environmentally-conscious based solely on greenhouse gas emissions or water usage. We
hope that the new technologies we create will contribute to the advancement of the Kao
Group’s ecology-centered management and to a sustainable society.
Naoki Katada
Vice President, Eco-Innovation
Research Laboratories
20 Kao Annual Report 2012
Kao’s
Management
Framework
Directors,
Corporate Auditors and
Executive Officers
Corporate Governance
Compliance
22
24
26
Kao Annual Report 2012 21
Directors, Corporate Auditors and Executive Officers (As of June 28, 2012)
Board of Directors * Holds the post of Executive Officer concurrently ** Outside Director
Motoki Ozaki
Michitaka Sawada*
Hiroshi Kanda*
Chairman of the Board of Directors
President, The Kao Foundation for
Arts and Sciences
Representative Director
Representative Director
Tatsuo Takahashi*
Representative Director
Toshihide Saito*
Ken Hashimoto*
Hisao Mitsui*
Teruhiko Ikeda**
Advisor, Mizuho Trust & Banking Co., Ltd.
Takuma Otoshi**
Sonosuke Kadonaga**
Senior Advisor, IBM Japan, Ltd.
President, Intrinsics
22 Kao Annual Report 2012
Corporate Auditors *** Outside Corporate Auditor
Masanori Sunaga
Takayuki Ishige
Full-time Corporate Auditor
Full-time Corporate Auditor
Tadashi Oe***
Corporate Auditor,
Attorney-at-Law
Teruo Suzuki***
Corporate Auditor,
Certified Public Accountant
Executive Officers
Michitaka Sawada
President and Chief Executive Officer
Hiroshi Kanda
Senior Managing Executive Officer
President, Consumer Products, Global
Responsible for Corporate Communications,
and Kao Professional Services Co., Ltd.
Tatsuo Takahashi
Senior Managing Executive Officer
Representative Director, President and Chief Executive Officer,
Kao Customer Marketing Co., Ltd.
Toshiharu Numata
Senior Managing Executive Officer
Masumi Natsusaka
Managing Executive Officer
Representative Director, President, Kanebo Cosmetics Inc.
President, Beauty Care Business Unit, Global
Katsuhiko Yoshida
Managing Executive Officer
President, Fabric and Home Care Business Unit, Global
President, Consumer Products, Asia (except China)
Yoshinori Takema
Managing Executive Officer
Senior Vice President, Research and Development, Global
Responsible for Product Quality Management (except Export
Regulations Service)
President, Consumer Products and Chemical Business, China
Chairman of the Board of Directors and Chief Executive
Officer, Kao (China) Holding Co., Ltd.
Chairman of the Board of Directors, Kao Commercial
(Shanghai) Co., Ltd.
Chairman of the Board of Directors, Kanebo Cosmetics (China)
Co., Ltd.
Masato Hirota
Senior Vice President, Media Planning and Management,
Global
Shinichiro Hiramine
Senior Vice President, Corporate Communications, Global
Toshihide Saito
Managing Executive Officer
Shigeru Koshiba
Vice President, Corporate Strategy, Global
Shoji Kobayashi
President, Chemical Business Unit, Global
Chairman of the Board of Directors, Pilipinas Kao, Incorporated
Chairman of the Board of Directors, Fatty Chemical (Malaysia)
Sdn. Bhd.
Chairman of the Board of Directors, Kao Chemicals Europe, S.L.
Takuji Yasukawa
President, Human Health Care Business Unit - Food and
Beverage Business, Global
Senior Vice President, Human Capital Development, Global
Senior Vice President, Corporate Strategy, Global
Responsible for Legal and Compliance
Chairman of the Board of Directors, Kao USA Inc.
President, Kao Group Corporate Pension Fund
President, Kao Health Insurance
Ken Hashimoto
Managing Executive Officer
Senior Vice President, Procurement, Global
Responsible for Accounting and Finance, Information Systems
and EVA Promotion
Hisao Mitsui
Managing Executive Officer
Senior Vice President, Production and Engineering, Global
Senior Vice President, Environment and Safety Management,
Global
Responsible for Chemical Business Unit, Logistics, and TCR
Promotion
Naohisa Kure
Vice President, Research and Development – Beauty Care,
Global
Akira Yoshimatsu
Vice President, Research and Development, Global
Vice President, Research and Development - Fabric and Home
Care, Global
Vice President, Research and Development - Chemical, Global
Hideko Aoki
Senior Vice President, Product Quality Management, Global
Minoru Utsumi
Vice President, Production and Engineering - Beauty Care
Supply Chain Management, Global
Vice President, Supply Chain Management Strategy and
Planning, Global
Vice President, Plant Management, Tokyo Plant
Yoshimichi Saita
President, Human Health Care Business Unit, Global
Muneki Hirao
Vice President, Production and Engineering - Chemical Supply
Chain Management, Global
Vice President, Plant Management, Wakayama Plant
Motohiro Morimura
Vice President, Production and Engineering - Fabric and Home
Care Supply Chain Management, Global
Vice President, Plant Management, Wakayama Plant
Kenji Miyawaki
Senior Vice President, Marketing Research and Development,
Global
Kazuyoshi Aoki
Senior Vice President, Accounting and Finance, Global
Yasushi Aoki
Senior Vice President, Human Resources and Administration,
Kanebo Cosmetics Inc.
Tadaaki Sugiyama
Senior Vice President, Legal and Compliance, Global
William J. Gentner
Vice President, Corporate Strategy, Global
President, Consumer Products, Americas and EMEA
Toshiaki Takeuchi
Representative Director, Senior Managing Executive Officer,
Kao Customer Marketing Co., Ltd.
Kao Annual Report 2012 23
Corporate Governance
Kao considers corporate governance to be a key management task. The Company’s basic approach to corporate
governance is to maintain the management structure and internal control system necessary to realize highly
effi cient, sound and transparent management, with the aim of continuously increasing corporate value.
Corporate Governance Structure
Kao has introduced, within the framework of the Board of
Directors, including Outside Directors, and the Board of
Corporate Auditors including Outside Corporate Auditors, an
Executive Officer system to separate supervision from
execution. Following the conclusion of the Annual General
Meeting of Shareholders and the subsequent meeting of the
Board of Directors in June 2012, Kao has as part of continuing
corporate governance improvements increased the number of
Outside Directors from two to three, reduced the number of
members of the Board of Directors from fifteen to ten
(including the Chairman, who does not have executive
authority), and reinforced the organization of Executive Officers
by increasing the number from twenty-six to twenty-eight and
by establishing four new Executive Officer positions, titled
Senior Managing Executive Officer or Managing Executive
Officer, without concurrent positions in the Board of Directors.
Furthermore, Kao has four Corporate Auditors, including two
Outside Corporate Auditors. All Outside Directors and Outside
Corporate Auditors maintain their neutrality and independence
from the Company’s management.
Kao has established the Compensation Advisory
Committee and the Committee for the Examination of the
Nominees for the Chairman of the Board of Directors and the
President, which fulfill functions similar to the compensation
committee and nominating committee of a “company with
committees.” In June 2011, a meeting of the Compensation
Advisory Committee was held with all Outside Directors in
attendance. It reported to the Board of Directors meeting in
the same month its evaluation that the current compensation
system and level of compensation for Members of the Board
and Executive Officers were appropriate. Also, prior to the
appointment of the Chairman and the President following the
election of Members of the Board at the Annual General
Meeting of Shareholders in June 2012, a meeting of the
Committee for the Examination of the Nominees for the
Chairman of the Board of Directors and the President was
held by all Outside Directors and Outside Corporate Auditors.
The committee subsequently submitted to the Board its
opinion that each candidate was qualified and appropriate.
In order to improve the effectiveness of audits and
strengthen auditing functions, the four Corporate Auditors,
including the two Outside Corporate Auditors, exchange
opinions with Representative Directors on regularly scheduled
occasions, attend meetings of the Board of Directors and
Management Committee as well as other important
meetings, and participate in regular conferences by corporate
auditors of domestic Kao Group companies. They also share
auditing information with the internal auditing division and the
Company’s accounting auditor, and conduct interviews of
internal divisions and subsidiaries regularly or as necessary.
Functions of Committees
Compensation Advisory Committee
This committee is composed of all Representative Directors, the Chairman of the Board of Directors and all
Outside Directors. The Committee meets at least once a year during the compensation review period for
Members of the Board and Executive Officers. At this meeting, the committee obtains and examines
opinions on the compensation system and the level of compensation for the Members of the Board and
Executive Officers. The results of that examination are reported at a meeting of the Board of Directors.
Committee for the Examination of the
Nominees for the Chairman of the
Board of Directors and the President
Composed of all Outside Directors and all Outside Corporate Auditors, this committee examines the
nominees prior to the appointment or reappointment of the Chairman of the Board of Directors and/or the
President, and submits its evaluation of the nominees’ qualifications to the Board of Directors.
Ensuring the Independence of Outside Directors/Corporate Auditors
In February 2010, Kao established and announced the
Standards for Independence of Outside Directors/Corporate
Auditors of Kao Corporation. All of the current Outside
Directors and Outside Corporate Auditors meet these
standards, and are registered with the Tokyo Stock Exchange
as independent directors/corporate auditors.
Outside Directors are expected to utilize their
considerable experience and expertise as managers or people
of relevant knowledge and experience to fulfill a checking
function from a neutral position, independent of the
Company’s management, to ensure that management
decisions of the Company are not disproportionately biased by
the views of Company insiders.
In addition, the Company believes that thorough
discussion at Board of Directors meetings is vital to corporate
governance. Therefore, the Secretariat of the Board of
Directors provides Outside Directors with adequate
explanations of the background, purpose and content of
agenda items prior to each meeting of the Board of Directors.
Furthermore, administrative divisions such as Global
Accounting and Finance, Global Internal Audit and Global
Legal and Compliance are available to assist Outside
Corporate Auditors at the Outside Corporate Auditors’ request.
The average attendance rate of Outside Directors and
Outside Corporate Auditors at the 14 Board of Directors
meetings held in the fiscal year ended March 31, 2012 was 92.9
percent and 92.9 percent, respectively. The average attendance
rate of Outside Corporate Auditors at the 7 Corporate Auditors
meetings during the same period was 92.9 percent.
24 Kao Annual Report 2012
Internal Control System and Risk Management System
Internal Control System
Kao formulated its Policies regarding the Development of the
Internal Control System in May 2006, and revises them as
necessary after confirming the level of compliance each year.
In accordance with these policies, the Internal Control
Committee, chaired by the Representative Director, President
and Chief Executive Officer of Kao, discusses and determines
plans for the maintenance and operation of the internal
control system. The committee also evaluates these plans on
a regular basis and makes improvements as necessary.
Six committees have been placed under the Internal
Control Committee. Each of these subcommittees assesses
the state of internal controls and makes improvements as
Risk Management
Among the various risks related to overall business activities,
risks related to management strategies that affect business
opportunities are evaluated by the relevant divisions and
countermeasures are developed. When necessary, the
Management Committee and Board of Directors check and
oversee these countermeasures. Management of operational
risks is based on the order of priority specified in the Kao Risk
Management Policy (1. Protection of human life; 2. Environmental
conservation; 3. Continuation of operations; and 4. Protection
of assets).
The Risk Management Committee, chaired by the
Member of the Board in charge of risk management,
needed by employing the PDCA (Plan, Do, Check and Act)
cycle. The subcommittees have begun activities for global
management integration in their respective business areas.
Six Committees under the Internal Control Committee:
Number of Times Convened during the Year Ended March 31, 2012
Disclosure Committee
Compliance Committee
Information Security Committee
Risk Management Committee
Committee for Responsible Care Promotion
Quality Assurance Committee
6 times
2 times
8 times
12 times
2 times
4 times
promotes risk management throughout the Company. In the
event of a serious crisis, a task force headed by the
Representative Director, President & CEO is set up to
respond to the situation.
Objectives of Activities to Properly Manage Risk
1. Identify at the global level risks that could affect
1. Identify at the global level risks that could affect
Yoki-Monozukuri and the continuation of
Yoki-Monozukuri and the continuation of
operations, and strengthen countermeasures
operations, and strengthen countermeasures
i
2. Strengthen the emergency response system
2. Strengthen the emergency response system
3. Maintain and enhance the business continuity plan (BCP)
3. Maintain and enhance the business continuity plan (BCP)
Measures to Maintain and Enhance the Business Continuity Plan
Some of the Kao Group’s manufacturing, research, distribution and sales bases were damaged to a greater or lesser
extent in the Great East Japan Earthquake, but the Group pulled together to restore normal operations to fulfill its mission
as a manufacturer of daily necessities. We are reflecting the issues brought to light on that occasion in our business
continuity plan (BCP) and other aspects of our operations. For procurement of raw materials, the Kao Group is purchasing
from multiple vendors and standardizing specifications to enable flexible purchasing according to conditions. To
strengthen our manufacturing system, we have taken measures such as seismic strengthening and liquefaction
countermeasures to make factories more disaster resistant. In addition, we are restructuring our manufacturing bases
from a global perspective to accommodate priority products.
Another new issue we are aware of is the possibility that an
earthquake with an epicenter in Tokyo or other disaster could damage
the head office and interrupt its functions. Therefore, we are
studying how to maintain head office functions by considering duty
assignments and ways of continuing operations under emergency
conditions.
In 2012, we will work to establish a stronger business
continuity framework by swiftly dealing with the issues we have
been studying in order to improve the effectiveness of the BCP.
Kao Annual Report 2012 25
Compliance
Measures to Promote and Establish Compliance
The principle of integrity, passed down from Kao’s founder,
and revision of Kao’s Business Conduct Guidelines (BCG),
is a core value of the Company’s corporate philosophy, The
(2) implementation of educational activities to promote each
Kao Way. Integrity means behaving lawfully and ethically
employee’s understanding of the BCG (employees sign an
and conducting fair and honest business activities. Kao
acknowledgement of their understanding), and (3)
regards integrity as the starting point of compliance and a
establishment and operation of compliance hotlines to resolve
guiding principle to follow so that it may continue to earn
employees’ questions and give them support to take
the respect and trust of all stakeholders.
responsible action in a timely and appropriate manner.
To practice integrity in our daily business activities, we
Compliance-related activities are conducted throughout the
have defined three compliance priorities: (1) establishment
entire Kao Group, primarily through the Compliance Committee.
Main Activities in the Year Ended March 31, 2012
(cid:129) Revised BCG and conducted e-learning in domestic
Kao Group companies and annual review
(cid:129) Conducted Integrity Workshops (total number of attendees
from October 1, 2008 to March 31, 2012):
Asia/Oceania
North America and Europe
Japan
Total
4 times / 110 people
192 times / 4,520 people
62 times / 1,262 people
258 times / 5,892 people
(cid:129) Established and began operation of compliance hotlines for
reporting and consultation
(cid:129) Conducted regular monitoring: Annual departmental self-
assessment, supplier satisfaction survey, and self-check
during training
Note: Besides the Integrity Workshops, Kao has conducted other BCG seminars since 2003 and has secured acknowledgements of understanding from all
employees of domestic Kao Group companies.
Kao Named One of the World’s Most Ethical Companies for Sixth Consecutive Year
In March 2011, Kao was named one of the World’s Most Ethical Companies 2012 by Ethisphere Institute, a U.S. think tank.
Since the first listing in 2007, Kao is the only Japanese company, and also the only consumer products company and chemical
company in the world to be included in the list for six consecutive years. This year’s record number of surveyed companies
came from over 100 countries, and 145 companies from more than 36 industries made the list.
Companies are evaluated in five categories: Ethics and Compliance Program; Reputation, Leadership and Innovation;
Corporate Citizenship and Responsibility; Governance; and Culture of Ethics. Among these categories, Kao received particular
recognition for its measures to promote ethics and compliance. These include establishing and revising the BCG, conducting
Integrity Workshops to instill a commitment to integrity in all Kao Group employees, and
setting up hotlines at all Kao Group companies for employees to report or consult on possible
legal or ethical violations. The hotlines resolve employees’ questions and give them support to
take responsible action.
In addition to these measures, Kao also received praise for enhancing environmental
initiatives under its policy of ecology-centered management, including the June 2011 opening
of a new research facility, the Eco-Technology Research Center.
Further information is available on the Kao CSR webpage at
http://www.kao.com/jp/en/corp_csr/csr.html
26 Kao Annual Report 2012
Financial Section
11-Year Summary
Management Discussion and Analysis
Consolidated Financial Statements
28
30
40
Notes to Consolidated Financial Statements
46
Independent Auditor’s Report
67
Kao Annual Report 2012 27
11-Year Summary
Kao Corporation and Consolidated Subsidiaries
Years ended March 31
For the year:
Net sales ................................................................
Segments
Millions of yen
2012
2011
2010
2009
¥1,216,096
¥1,186,831
¥1,184,385
¥1,276,316
Beauty Care Business .....................................
Human Health Care Business ..........................
Fabric and Home Care Business ......................
Consumer Products Business ......................
Chemical Business ..........................................
Eliminations .....................................................
537,938
181,758
285,645
1,005,341
247,635
(36,880)
Former Segments
Consumer Products .........................................
Prestige Cosmetics .........................................
Chemical Products ..........................................
Eliminations .....................................................
Region
Japan ..............................................................
Asia and Oceania .............................................
North America .................................................
Europe ............................................................
Eliminations .....................................................
Operating income ..................................................
Net income ............................................................
Capital expenditures ..............................................
Depreciation and amortization ................................
Cash flows .............................................................
Research and development expenditures...............
(% of sales) ............................................................
Advertising expenditures .......................................
(% of sales) ............................................................
At year-end:
Total assets ...........................................................
Net worth ..............................................................
—
—
—
—
925,339
173,588
85,397
117,005
(85,233)
108,590
52,435
47,178
79,798
101,960
48,171
4.0%
82,209
6.8%
991,272
538,029
533,514
175,761
279,008
988,283
231,997
(33,449)
—
—
—
—
912,443
152,361
80,328
112,123
(70,424)
104,591
46,738
49,101
81,380
97,028
45,516
3.8%
81,082
6.8%
547,944
183,151
276,918
1,008,013
207,834
(31,462)
588,330
191,319
274,202
1,053,851
262,058
(39,593)
—
—
—
—
918,499
131,699
79,200
111,158
(56,171)
94,034
40,507
44,868
84,778
95,269
44,911
3.8%
86,359
7.3%
—
—
—
—
953,369
161,927
98,999
140,623
(78,602)
96,800
64,463
44,624
87,463
122,441
46,126
3.6%
90,258
7.1%
1,022,799
528,895
1,065,751
565,133
1,119,676
545,230
Number of employees............................................
34,069
34,743
34,913
33,745
Per share:
Net income ............................................................
Cash dividends .......................................................
Net worth ..............................................................
Weighted average number of shares
Yen
¥ 100.46
60.00
1,031.08
¥ 87.69
58.00
1,013.05
¥ 75.57
57.00
1,054.31
¥ 120.25
56.00
1,017.19
outstanding during the period (in thousands) ........
521,936
532,980
536,009
536,085
Key financial ratios:
Return on sales ......................................................
Return on equity ....................................................
Net worth ratio .......................................................
%
4.3%
9.8
54.3
3.9%
8.5
51.7
3.4%
7.3
53.0
5.1%
11.5
48.7
Notes: 1. Kao reorganized its operations effective April 2007 by integrating the former consumer products business and prestige cosmetics business into the
Consumer Products Business, which is divided into three businesses (the Beauty Care Business, the Human Health Care Business and the Fabric and Home
Care Business). Together with the Chemical Business, Kao’s business operations now consist of four segments. Figures for 2007 have been restated to
reflect the change.
2. Net sales by segment include intersegment sales. Under the former segments, net sales of Chemical Products include intersegment sales to Consumer
Products and Prestige Cosmetics. Under the current segments, net sales of the Chemical Business include intersegment sales to the Beauty Care Business,
the Human Health Care Business and the Fabric and Home Care Business.
3. Kanebo Cosmetics Inc. and its consolidated subsidiaries are included in the consolidated statements of income from the year ended March 31, 2007, and in
the consolidated balance sheets as of March 31, 2006. The results of Kanebo Cosmetics Inc., which had a fiscal year ended December 31, are included for
the eleven months starting in February 2006, after the company was added to the Kao Group.
28 Kao Annual Report 2012
2008
2007
2006
2005
2004
2003
2002
¥1,318,514
¥1,231,808
¥ 971,230
¥936,851
¥902,628
¥865,247
¥839,026
627,914
191,300
274,657
1,093,871
258,674
(34,031)
584,284
183,608
269,519
1,037,411
223,609
(29,212)
—
—
—
—
968,594
158,295
111,017
154,648
(74,040)
116,253
66,562
49,045
93,444
131,114
45,070
3.4%
99,176
7.5%
744,748
292,663
223,609
(29,212)
924,196
125,989
106,731
135,918
(61,026)
120,858
70,528
70,143
92,171
134,906
44,389
3.6%
96,892
7.9%
—
—
—
—
—
—
704,034
85,247
208,890
(26,941)
708,056
110,898
95,168
109,486
(52,378)
120,135
71,140
203,595
60,758
107,943
40,262
4.1%
83,770
8.6%
1,232,601
574,038
1,247,797
564,532
1,220,564
509,676
32,900
32,175
29,908
¥ 122.53
54.00
1,070.67
¥ 129.41
52.00
1,035.66
¥130.58
50.00
935.11
—
—
—
—
—
—
690,007
78,294
196,989
(28,439)
703,085
100,282
83,638
93,804
(43,958)
121,379
72,180
54,318
56,794
109,704
39,764
4.2%
84,157
9.0%
688,974
448,249
19,143
¥131.16
38.00
821.47
—
—
—
—
—
—
670,438
77,648
181,621
(27,079)
673,657
101,452
79,907
84,899
(37,287)
119,706
65,359
51,823
58,166
106,430
38,506
4.3%
82,773
9.2%
723,891
427,757
19,330
¥119.06
32.00
782.14
—
—
—
—
—
—
646,413
75,833
170,935
(27,934)
654,595
101,555
75,796
67,845
(34,544)
114,915
62,462
84,544
58,310
104,436
37,713
4.4%
74,277
8.6%
720,849
417,031
19,807
¥108.05
30.00
744.56
—
—
—
—
—
—
626,047
74,176
162,802
(23,999)
648,188
93,499
70,274
57,625
(30,560)
111,728
60,275
49,537
58,484
103,657
37,543
4.5%
66,069
7.9%
772,145
459,731
19,923
¥100.43
26.00
779.44
543,228
544,996
544,127
549,626
547,865
576,770
600,150
5.0%
11.7
46.6
5.7%
13.1
45.2
7.3%
14.9
41.8
7.7%
16.5
65.1
7.2%
15.5
59.1
7.2%
14.2
57.9
7.2%
13.1
59.5
4. Net sales by region including interregion sales are classified based on the location of Kao Group companies.
5. Cash flows are defined as net income plus depreciation and amortization minus cash dividends.
6. Net income per share is computed based on the weighted average number of shares outstanding during the respective years. From the year ended
March 31, 2003, the portion of net income unavailable to common shareholders, such as preferred dividends, which should be included in the
appropriation of retained earnings, is deducted from net income for the calculation of net income per share. The same method is applied to the
calculation of net worth per share.
7. Cash dividends per share are the amounts applicable to the respective years, including dividends to be paid after the end of the year.
8. Net worth is equity, excluding minority interests and stock acquisition rights.
9. In calculating return on equity, equity excludes minority interests and stock acquisition rights.
Kao Annual Report 2012 29
Management Discussion and Analysis
Overview of Consolidated Results
As a result, net sales increased 2.5 percent compared with
the previous fiscal year to ¥1,216.1 billion (US$14,796.2
During the fiscal year ended March 31, 2012, the global
million). Excluding the effect of currency translation, net sales
economy recovered overall, albeit weakly, despite the impact
would have increased 4.0 percent. In the Beauty Care
of the European financial crisis. In Asia, economic expansion
Business, sales of prestige cosmetics grew in Japan, and
continued, but at a slower pace. In Japan, there were signs of
premium hair care products performed well outside Japan.
a gradual recovery, although conditions remained severe due
Sales increased in the Human Health Care Business and the
to the effects of the Great East Japan Earthquake (the
Fabric and Home Care Business. In the Chemical Business,
“Earthquake”) in March 2011 as well as deflation and the
sales outside Japan increased as the Kao Group adjusted its
appreciation of the yen. The household and personal care
selling prices in response to fluctuations in raw material prices.
products market in Japan, a key market for the Kao Group,
Operating income increased 3.8 percent compared with the
contracted 1 percent on a value basis as consumer purchase
previous fiscal year to ¥108.6 billion (US$1,321.2 million) and net
prices fell compared with the previous fiscal year with the
income increased 12.2 percent to ¥52.4 billion (US$638.0 million).
purchasing behavior of budget-strapped consumers. The
cosmetics market in Japan continued to contract due to a shift
in consumer preference to lower-priced products.
* The Kao Group defines “Yoki-Monozukuri” as a strong commitment by all
members to provide products and brands of excellent value for consumer
satisfaction. In Japanese, “Yoki” literally means “good/excellent,” and
“Monozukuri” means “development/manufacturing of products.”
Under these circumstances, the Kao Group made all-out
Analysis of Income Statements
efforts to ensure a stable supply of products after the
Earthquake as the mission of a manufacturer of daily
Net Sales and Operating Income
necessities, and worked to launch and nurture products with
Net sales increased 2.5 percent compared with the previous
high added value based on its concept of Yoki-Monozukuri.*
fiscal year to ¥1,216.1 billion (US$14,796.2 million). Excluding
In addition, while aggressively investing for growth, including
the effect of currency translation, net sales would have
the completion of the Eco-Technology Research Center, which
increased 4.0 percent. In the Beauty Care Business, sales of
centralizes environmental research functions to accelerate
prestige cosmetics expanded in Japan, while sales of
eco-innovation research, the Kao Group also worked to rebuild
premium hair care products were strong overseas. Sales also
its prestige cosmetics business in Japan and promote cost
increased in the Human Health Care Business and the Fabric
reduction measures.
and Home Care Business. In the Chemical Business, the Kao
Net Sales / Gross Profit Ratio
Net Sales (Left)
Gross Profit Ratio (Right)
Operating Income /
Operating Income Ratio
Operating Income (Left)
Operating Income Ratio (Right)
(Billions of yen)
1,500
1,318.5
1,276.3
1,184.4
1,186.8
1,216.1
1,000
58.0
56.2
58.4
58.0
56.8
500
0
2008
2009
2010
(Years ended March 31)
2011
2012
30 Kao Annual Report 2012
(%)
100
(Billions of yen)
150
(%)
20
80
60
40
20
0
116.3
8.8
2008
100
50
0
96.8
7.6
94.0
7.9
104.6
108.6
15
8.8
8.9
10
5
0
2012
2009
2010
(Years ended March 31)
2011
Costs, Expenses and Income as Percentages of Net Sales
Years ended March 31,
Cost of sales ..................................................................................
2012
43.2%
2011
42.0%
Gross profit ....................................................................................
56.8
(–1.2)
58.0
(– 0.4)
Selling, general and
administrative expenses ..............................................................
47.9
(–1.3)
49.2
(– 1.3)
Operating income ..........................................................................
8.9
(+0.1)
8.8
(+0.9)
Income before income taxes
and minority interests ..................................................................
Net income ....................................................................................
8.7
(+0.6)
4.3
(+0.4)
8.1
(+1.1)
3.9
(+0.5)
Note: Figures in parentheses represent changes in percentage points from the previous year.
2010
41.6%
58.4
50.5
7.9
7.0
3.4
Group adjusted selling prices in response to changes in raw
In addition, loss related to the Earthquake decreased to ¥2.0
material prices, resulting in sales growth overseas.
billion from ¥4.1 billion in the previous fiscal year, and the
Prices of raw materials increased due to volatility in market
effect of application of the accounting standard for asset
prices, mainly of natural oils and fats and petrochemicals.
retirement obligations, which totaled ¥1.6 billion in the
However, in addition to the effect on profits of increased
previous fiscal year, was absent in the fiscal year.
sales, the Kao Group continued its efforts to reduce costs and
As a result, income before income taxes and minority
cut back expenses. As a result, operating income increased
interests increased from ¥96.0 billion in the previous fiscal
¥4.0 billion from ¥104.6 billion in the previous fiscal year to
year to ¥105.3 billion (US$1,280.7 million). Total income taxes
¥108.6 billion (US$1,321.2 million).
increased from ¥48.2 billion in the previous fiscal year to
¥50.8 billion (US$617.8 million). The income tax rate after
Other Expenses and Net Income
application of tax effect accounting was 48.2 percent, a
Net other expenses were ¥3.3 billion (US$40.5 million),
decrease from 50.2 percent in the previous fiscal year.
compared with net other expenses of ¥8.6 billion in the
Net income increased ¥5.7 billion from ¥46.7 billion in the
previous fiscal year. Interest expense decreased as the Kao
previous fiscal year to ¥52.4 billion (US$638.0 million). Net
Group refinanced debt and redeemed bonds, and foreign
income per share was ¥100.46 (US$1.22), an increase of
currency exchange loss decreased because the appreciation
¥12.77, or 14.6 percent, from ¥87.69 in the previous fiscal year.
of the yen eased in comparison with the previous fiscal year.
Net Income / Return on Sales
(Billions of yen)
80
66.6
64.5
Net Income (Left)
Return on Sales (Right)
(%)
15
60
40
20
0
46.7
40.5
52.4
10
5.0
5.1
3.4
3.9
4.3
2008
2009
2010
(Years ended March 31)
2011
2012
5
0
Kao Annual Report 2012 31
Information by Segment
Consumer Products Business
(US$1,041.3 million). Although there was an impact from
Sales increased 1.7 percent compared with the previous fiscal
higher raw material prices, the Kao Group curtailed expenses
Operating income increased ¥5.1 billion to ¥85.6 billion
year to ¥1,005.3 billion (US$12,231.9 million). Excluding the effect
and took steps to reduce costs.
of currency translation, sales would have increased 2.8 percent.
In Japan, sales increased 1.8 percent to ¥832.3 billion
Beauty Care Business
(US$10,126.2 million). Although sales were impacted by the
Sales increased 0.8 percent compared with the previous fiscal
Earthquake, intensified market competition and deflation, the
year to ¥537.9 billion (US$6,545.1 million). Excluding the effect of
Kao Group took measures including proposing environmentally
currency translation, sales would have increased 2.4 percent.
conscious products, launching new products in response to
Sales of prestige cosmetics, which consist of self-selection
changing consumer lifestyles and enhancing proposal-based
and counseling cosmetics, increased 2.2 percent to ¥260.0
sales and in-store merchandising activities.
billion (US$3,163.2 million) with the launch of new products,
In Asia and Oceania, sales increased 6.6 percent to ¥87.4
although the downtrend continued in Japan’s cosmetics market
billion (US$1,063.8 million). Excluding the effect of currency
with the impact of the Earthquake in addition to the shift in
translation, sales would have increased 11.8 percent. Although
consumer preference toward lower-priced products. In Japan,
market competition intensified, the Kao Group carried out
the Kao Group launched new products and enhanced in-store
aggressive measures including collaborations with retailers and
merchandising for self-selection brands such as KATE makeup
introduction of new products amid continued market growth.
and EVITA total cosmetics. In counseling cosmetics, the Kao
In North America, sales decreased 2.7 percent to ¥49.6
Group nurtured and strengthened its megabrands with annual
billion (US$603.9 million). Excluding the effect of currency
sales of more than ¥10 billion, including making improvements to
translation, sales would have increased 6.6 percent. The
the BLANCHIR SUPERIOR whitening skin care and SOFINA
market was firm, and new products contributed to sales, but
beauté skin care brands, and adding a new product line for
the appreciation of the yen exerted an impact on results.
SOFINA Primavista base makeup. In addition, the Kao Group
In Europe, sales increased 1.3 percent to ¥61.5 billion
carried out reform of sales methods including optimization of
(US$748.4 million). Excluding the effect of currency
marketing activities and counseling in response to changes in
translation, sales would have increased 5.1 percent. The
consumer needs and increased its share in a contracting market.
market recovered, albeit gradually, and new products launched
Sales outside Japan expanded steadily.
in 2010 performed well.
Consumer Products Business
Net Sales /
Operating Income
(Billions of yen)
1,093.9
1,053.9
96.5
1,200
1,000
800
600
400
200
0
32 Kao Annual Report 2012
32 Kao Annual Report 2012
Net Sales (Left)
Operating Income (Right)
Beauty Care Business
Net Sales /
Operating Income
(Billions of yen)
150
(Billions of yen)
750
Net Sales (Left)
Operating Income (Right)
(Billions of yen)
50
1,008.0
988.3
1,005.3
627.9
588.3
547.9
533.5
537.9
79.6
74.4
80.5
85.6
100
500
27.3
50
0
2012
250
17.6
4.7
5.5
0
2008
2009
2010
(Years ended March 31)
2011
15.4
2012
2008
2009
2010
(Years ended March 31)
2011
40
30
20
10
0
Sales of premium skin care products grew in Japan as the Kao
Human Health Care Business
Group launched products from the Bioré facial cleanser and Bioré U
Sales increased 3.4 percent compared with the previous fiscal
body cleanser brands that use new cleansing technology (Skin
year to ¥181.8 billion (US$2,211.4 million). Excluding the effect of
Purifying Technology) to wash away dirt with the least possible
currency translation, sales would have increased 4.0 percent.
damage to the skin, and continued to make proposals for dry and
In food and beverage products, the Healthya brand of
sensitive skin with the Curél brand. Sales in Asia increased, with
functional drinks that promote body fat utilization gained support
product improvements contributing to strong performance by
from consumers and sales were firm.
Bioré in Hong Kong, Taiwan and Indonesia. In North America,
Sales of sanitary products were essentially flat compared
Jergens performed well in the hand and body lotion category.
with the previous fiscal year. Sales of sanitary napkins grew
Sales of premium hair care products decreased in Japan.
steadily in Japan, aided by the launch of improved Laurier F, and
Sales of Merit shampoo and conditioner were steady, but sales
also increased in Asian countries. Sales of baby diapers were
of hair coloring products were weak due to market contraction
impacted by market contraction and competition in Japan,
and intensifying competition. Sales in Asia increased, with
although market share grew. In Taiwan, China and Russia, baby
strong performance by Liese foam hair color in Hong Kong,
diapers performed strongly.
Taiwan and Thailand. In North America and Europe, strong sales
Sales of personal health products increased, as toothpastes
of foam hair color, hair styling products and other new John Frieda
and Bub bath additives performed well.
products drove substantial sales growth.
Operating income decreased ¥0.7 billion to ¥14.6 billion
Operating income increased ¥9.9 billion to ¥15.4 billion
(US$178.0 million) with the impact of increased raw material
(US$187.5 million) due to ongoing efforts to rebuild the prestige
prices and market competition, despite the Kao Group’s cost
cosmetics business in Japan and other factors, even though the
reduction activities in addition to the impact of increased sales.
Kao Group invested aggressively in advertising expenses for new
products in North America and Europe. Operating income before
Fabric and Home Care Business
amortization of goodwill and other items related to acquisitions
Sales increased 2.4 percent compared with the previous fiscal
(EBITA) increased ¥9.0 billion to ¥48.9 billion (US$594.9 million),
year to ¥285.6 billion (US$3,475.4 million). Excluding the effect
which is equivalent to 9.1 percent of sales.
of currency translation, sales would have increased 2.9 percent.
Sales of fabric care products increased. In Japan, the Kao
Group worked to highlight the reduced laundry time and
Human Health Care Business
Net Sales /
Operating Income
Net Sales (Left)
Operating Income (Right)
Fabric and Home Care Business
Net Sales /
Operating Income
Net Sales (Left)
Operating Income (Right)
(Billions of yen)
191.3
200
191.3
183.2
175.8
(Billions of yen)
20
181.8
(Billions of yen)
300
274.7
274.2
276.9
279.0
(Billions of yen)
80
285.6
150
100
50
0
15.3
14.6
13.2
13.0
9.0
2008
2009
2010
(Years ended March 31)
2011
2012
16
12
8
4
0
200
100
0
56.1
49.1
60.7
59.7
55.5
2008
2009
2010
(Years ended March 31)
2011
2012
60
40
20
0
Kao Annual Report 2012 33
Kao Annual Report 2012 33
environmental appeal of conserving water, electricity and
increased 10.0 percent.
resources with the Neo series, and strengthened the product
In oleo chemicals, the Kao Group made efforts to adjust
line by additionally launching Attack Neo Antibacterial EX
selling prices in response to fluctuations in prices of natural
Power ultra-concentrated liquid laundry detergent, which
oils and fats and petrochemicals. In performance chemicals,
suppresses odor-causing bacteria in laundry. Wide Haiter EX
the Kao Group worked to develop and expand sales of high-
Power fabric bleach for color garments and new Flair
value-added products with reduced environmental impact.
Fragrance fabric softener performed strongly. In Asia,
Sales of specialty chemicals, primarily toner and toner binder
consumer support led to increased sales of Attack Instant
for copiers and printers, were firm.
Clean Liquid laundry detergent in China and Attack Easy
Operating income decreased ¥1.1 billion to ¥23.0 billion
laundry detergent in Indonesia and other countries.
(US$279.9 million) due to the impact of the appreciation of the
In home care products in Japan, there was a steady increase
yen and decreased demand from customer industries, despite
in sales of CuCute dishwashing detergent, Toilet Quickle
efforts to adjust selling prices and cost reduction activities.
cleaning wipes, Quickle Wiper dust mop kits following a product
renewal, and Resesh Aroma Charge fabric and air freshener.
Financial Structure
Operating income decreased ¥4.1 billion to ¥55.5 billion
(US$675.8 million) with the impact of increased raw material
Total assets decreased ¥31.5 billion from the previous fiscal
prices, although the Kao Group conducted cost reduction
year-end to ¥991.3 billion (US$12,060.7 million). The principal
activities and other measures.
increases in assets were a ¥20.1 billion increase in notes and
accounts receivable – trade, an ¥11.8 billion increase in short-
Chemical Business
term investments and a ¥9.2 billion increase in finished
In the Chemical Business, while sales in Japan were affected
goods. The principal decreases in assets were a ¥25.3 billion
by decreased demand in customer industries due to the
decrease in cash and time deposits, an ¥11.5 billion decrease
Earthquake, the appreciation of the yen, flooding in Thailand
in short-term and long-term deferred tax assets, and a ¥35.5
and other factors, sales grew substantially outside Japan. As a
billion decrease in intangible assets due to the progress of
result, sales increased 6.7 percent compared with the
amortization of trademarks and other intellectual property
previous fiscal year to ¥247.6 billion (US$3,013.0 million).
rights and goodwill.
Excluding the effect of currency translation, sales would have
Total liabilities decreased ¥41.7 billion from the previous
Chemical Business
Net Sales /
Operating Income
(Billions of yen)
300
258.7
262.1
Net Sales (Left)
Operating Income (Right)
Total Assets / Net Worth*
Total Assets
Net Worth
(Billions of yen)
40
(Billions of yen)
1,500
247.6
232.0
207.8
24.1
23.0
200
100
0
19.7
19.7
17.2
2008
2009
Note: Net sales include intersegment sales.
2010
2011
2012
(Years ended March 31)
34 Kao Annual Report 2012
30
20
10
0
1,000
500
0
1,232.6
1,119.7
1,065.8
1,022.8
991.3
574.0
545.2
565.1
528.9
538.0
2008
2009
2010
2011
2012
* Net worth is equity, excluding minority interests and stock
acquisition rights.
(As of March 31)
fiscal year-end to ¥441.6 billion (US$5,372.5 million). The
income before income taxes and minority interests of ¥105.3
principal increase in liabilities was a ¥5.9 billion increase in
billion (US$1,280.7 million), depreciation and amortization of
notes and accounts payable – trade. The principal decrease in
¥79.8 billion (US$970.9 million) and change in trade payables
liabilities was a ¥50.0 billion decrease in the current portion of
of ¥9.0 billion (US$109.5 million). The principal decreases
long-term debt due to redemption of bonds.
were income taxes paid of ¥38.3 billion (US$466.5 million),
Total equity increased ¥10.1 billion from the previous fiscal
change in trade receivables of ¥26.5 billion (US$322.6 million)
year-end to ¥549.7 billion (US$6,688.2 million). The principal
and change in inventories of ¥14.9 billion (US$181.7 million).
increase in equity was net income totaling ¥52.4 billion. The
principal decreases in equity were a ¥30.3 billion decrease
Cash Flows from Investing Activities
due to recognition of cash dividends and an ¥11.7 billion
Net cash used in investing activities totaled ¥49.0 billion
change in foreign currency translation adjustments. In May
(US$595.6 million). This primarily consisted of purchase of
2011, Kao Corporation retired 13.9 million shares of treasury
property, plant and equipment of ¥41.7 billion.
stock worth ¥32.5 billion.
As a result, the net worth ratio, defined as net worth
Cash Flows from Financing Activities
divided by total assets, was 54.3 percent, compared with 51.7
Net cash used in financing activities totaled ¥86.2 billion
percent at the end of the previous fiscal year.
(US$1,048.3 million). This primarily consisted of ¥50.0 billion
Cash Flows
for redemption of bonds and ¥30.8 billion for payments of
cash dividends, including to minority shareholders. Taking
advantage of low market interest rates, the Kao Group also
The balance of cash and cash equivalents at March 31, 2012
refinanced ¥20.0 billion in long-term debt in September 2011
decreased ¥13.4 billion compared with the end of the
and used refinancing to shift ¥30.0 billion in current portion of
previous fiscal year to ¥129.7 billion (US$1,578.5 million).
long-term debt into long-term debt in March 2012.
Cash Flows from Operating Activities
Net cash provided by operating activities totaled ¥125.0 billion
(US$1,521.3 million), compared with ¥151.3 billion in the
previous fiscal year. The principal increases in net cash were
Cash Flows*/
Capital Expenditures
(Billions of yen)
200
Cash Flows
Capital Expenditures
Cash Dividends / Payout Ratio
Cash Dividends (Left)
Payout Ratio (Right)
(Yen)
60
54.00
56.00
57.00
58.00
60.00
(%)
100
150
100
50
0
131.1
122.4
95.3
97.0
102.0
49.0
44.6
44.9
49.1
47.2
2008
2009
2010
2011
2012
* Cash flows are defined as net income plus depreciation and
amortization minus cash dividends.
(Years ended March 31)
40
20
0
75.4
66.1
59.7
44.1
46.6
2008
2009
2010
(Years ended March 31)
2011
2012
75
50
25
0
Kao Annual Report 2012 35
Planned Change in Fiscal Year End
Corporation plans to pay total cash dividends of ¥62.00 per
share, an increase of ¥2.00 per share compared with the
Due to a planned change in the fiscal year end from March 31
previous fiscal year. Although consolidated group companies
to December 31, the fiscal year ending December 31, 2012
with a fiscal year end in March will only report a nine-month
will be the nine-month period from April through December
period due to the change in the fiscal year end, this plan is in
for Kao Corporation and its subsidiaries with a fiscal year end
accordance with the Company’s basic policies regarding
in March, and the twelve-month period from January through
distribution of profits, and free cash flow and other factors
December for subsidiaries with a fiscal year end in December.
have also been taken into consideration. As a result, the
projected consolidated payout ratio will be 53.9 percent.
Basic Policies Regarding Distribution of
Profits and Dividends for the Period
EVA
In order to achieve profitable growth, Kao Corporation secures
Economic Value Added (EVA®) is the Kao Group’s main
an internal reserve for capital investment and acquisitions
management metric, defined as net operating profit after tax
from a medium-to-long-term management perspective and
(NOPAT) less a charge for the cost of invested capital in the
places priority on providing shareholders with steady and
business. We believe EVA indicates “true” profit. Continuously
continuous dividends. In addition, the Company flexibly
increasing EVA raises corporate value, which is consistent
considers the repurchase and retirement of shares from the
with the long-term interest of not only shareholders but other
standpoint of improving capital efficiency.
stakeholders as well. The Kao Group aims to conduct
In accordance with these policies, and in light of the
business activities that expand the scale of its business while
increase in net income compared with the previous fiscal
also increasing EVA, and uses EVA for business performance
year, Kao Corporation announced a year-end dividend for the
evaluation, performance-based compensation and strategic
fiscal year ended March 31, 2012 of ¥31.00 (US$0.38) per
decision-making. During the fiscal year ended March 31, 2012,
share, an increase of ¥2.00 per share from the previous
due to an increase in NOPAT and a decrease in invested
fiscal year. Consequently, cash dividends for the fiscal year
capital, EVA increased to 106 from 95 for the previous fiscal
increased ¥2.00 per share compared with the previous fiscal
year, expressed as an index with the year ended March 31,
year, resulting in a total of ¥60.00 (US$0.73) per share and a
2000 as 100. The Kao Group conducted the following EVA-
consolidated payout ratio of 59.7 percent.
related activities during the fiscal year.
For the fiscal year ending December 31, 2012, Kao
EVA*
(EVA for the the year ended March 31, 2000 = 100)
(Billions of yen)
154
163
142
132
134
125
113
120
100
106
95
91
67
200
150
100
50
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
*EVA (Economic Value Added) is a registered trademark of Stewart & Co.
36 Kao Annual Report 2012
Investing for Growth: During the fiscal year ended March 31,
market conditions. During the fiscal year, the Kao Group
2012, the Kao Group invested aggressively for future growth. In
redeemed bonds totaling ¥50.0 billion (US$608.3 million). The
the growth market of China, a new factory is under construction
Kao Group also took advantage of low market interest rates to
and is scheduled to begin production of baby diapers at the end
refinance ¥50.0 billion (US$608.3 million) in debt.
of December 2012. To raise its competitiveness in global
* Free cash flow: Net cash provided by operating activities + Net cash
used in investing activities
markets and achieve profitable growth, the Kao Group built the
Eco-Technology Research Center in Wakayama, Japan, which
started operation in June 2011. This centralizes and combines
the Kao Group’s environmental research functions and
accelerates the development of next-generation environmental
technologies, particularly eco-innovation research and
technologies, in order to embody ecology-centered
management in the development and manufacture of products.
Research and development expenditures, which increased ¥2.7
billion compared with the previous fiscal year to ¥48.2 billion
(US$586.1 million), were the equivalent of 4.0 percent of net
sales, compared with 3.8 percent in the previous fiscal year.
Increasing Profit: During the fiscal year ended March 31,
2012, NOPAT increased due to an increase in sales volume
from strong performance by the Chemical Business outside
Japan and steady results from rebuilding the prestige
cosmetics business in Japan. Moreover, ongoing total cost
reduction activities cut costs by ¥9.0 billion year on year.
Business Risks and Other Risks
Various risks arise in the course of a company’s business. The
Kao Group takes reasonable measures to mitigate risks by
preventing the occurrence of, diversifying and hedging them.
However, unanticipated situations may occur that exert a
significant impact on the Kao Group’s business results and
financial condition. The risks described below are not a
comprehensive list of risks the Kao Group faces. Other risks
exist and may have an impact on investment decisions.
Any statements below concerning the future are judgments
made by Kao Corporation as of the submission of its securities
report to the Ministry of Finance on June 28, 2012.
(1) Market and Consumer Demand
The Japanese consumer products market, the foundation of
the Kao Group’s operations, has been sluggish in recent years,
due to economic stagnation as well as changes in the Kao
Financial Improvement: Free cash flow* totaled ¥76.1 billion
Group’s customer base as a consequence of the declining birth
(US$925.7 million) for the year ended March 31, 2011, a
rate and aging society. Utilizing the changes in the values of its
decrease of ¥43.4 billion compared with the previous fiscal
customer base, the Kao Group aims to respond to consumers’
year due to an increase in capital expenditures and an
needs by applying its comprehensive Yoki-Monozukuri (see
increase in notes and accounts receivable because the fiscal
note on page 30) capabilities and working to develop value-
year end was on a weekend. The Kao Group has set priorities
added products to maintain and improve its brand values.
for how it will deploy this free cash flow. Investments for
However, a number of factors could cause uncertainties in the
mergers and acquisitions and additional capital expenditures
Kao Group’s business activities, delaying an adequate response
for future growth are the top priorities in deploying free cash
to these changes. This could have a gradual impact on the Kao
flow, followed by stable and continuous dividends. Kao
Group’s business results and financial condition.
Corporation increased cash dividends per share for the fiscal
year by ¥2.00 to ¥60.00 (US$0.73) for the 22nd consecutive
(2) Prestige Cosmetics Business
year of growth in cash dividends. Moreover, the Kao Group
The Kao Group operates the prestige cosmetics business,
uses the remaining free cash flow for the repurchase of
where it is difficult to attain significant results using the
shares as a payout measure and for repayment of interest-
business model it has developed to date, due to intensifying
bearing debt, considering its investment plans and financial
competition in Japan and overseas from competitors in the
Kao Annual Report 2012 37
same industries and the entrance of new companies from
However, results may not meet the initial intentions due to
other industries, as well as changes in consumer purchasing
reasons including a lack of consumer acceptance of new
attitudes accompanied by substantial changes in retail
products’ environmental technologies or a lack of distinct
channels. The Kao Group is rebuilding its prestige cosmetics
advantage over other companies’ products. This could have an
business in Japan through initiatives including brand and
impact on the Kao Group’s business results and financial
marketing reform. However, a delay in appropriate response
condition.
could have an impact on the Kao Group’s business results and
financial condition.
(6) Raw Material Prices
Market prices for fats and oils used as raw materials for
(3) Distributors and Retailers
products of the Kao Group and petroleum-related raw
The Kao Group is highly dependent on the Japanese market.
materials may change for various reasons including
Particularly in the consumer products business in Japan, the
geopolitical risks, the balance between supply and demand,
progress of new groups of retailers due to merger and
abnormal weather and exchange rate fluctuations. The Kao
integration, changes in sales channels and the appearance of
Group has moved to reduce the effect of increases in raw
new distributors in response to changes in consumer activity
material prices through measures including cost reductions
could affect the Kao Group’s sales activities. The Kao Group is
and passing on increases in raw material costs into product
offering proposals and conducting activities that correspond to
prices. However, unexpectedly radical changes in market
these changes in the retail environment. Nevertheless, a delay
conditions and pricing could have an impact on the Kao
in appropriate response could have an impact on the Kao
Group’s business results and financial condition.
Group’s business results and financial condition.
(7) Product Quality
(4) Overseas Operations
The Kao Group designs and manufactures products from the
As one of its growth strategies, the Kao Group is conducting
viewpoint of consumers, in compliance with related laws and
operations in markets in Asia, North America and Europe, with
regulations and voluntary standards. In the development
a particular emphasis on strengthening its operations in
stage prior to market launch, the Kao Group conducts
countries where higher economic growth rates and market
thorough safety testing and survey research to confirm the
expansion are forecast. However, in the course of business,
safety of products. After market launch, the Kao Group works
factors such as competition, pricing, cost management,
to further improve quality by incorporating the opinions and
distribution, and relationships with vendors may not go as
desires of consumers through its consumer communication
planned. This could have an impact on the Kao Group’s
centers. However, the unanticipated occurrence of a serious
business results and financial condition.
quality problem or concerns about product safety or reliability
resulting from new scientific knowledge would not only cause
(5) Environmental Activities
difficulties for the relevant brand, but would also have a major
The Kao Group works for both business growth and “eco-
impact on the reputation of all of the Kao Group’s products.
innovation” by developing products with high environmental
This could cause a decrease in sales, which could impact the
value that conserve water and other resources, as well as
Kao Group’s business results and financial condition.
focusing on using raw materials that are low in greenhouse
gas emission volumes or recyclable, conserving energy in
(8) Earthquakes and Other Incidents
production and distribution, and employing renewable energy,
The Kao Group has implemented earthquake resistance
in addition to their original product quality and performance.
diagnoses, seismic retrofitting, emergency drills simulating
38 Kao Annual Report 2012
crisis situations, and systems to confirm employee safety at
(10) Impairment
all of its production facilities and primary offices in Japan, and
The Kao Group records various tangible and intangible fixed
has promoted the formulation of a business continuity plan
assets and deferred tax assets including assets used in the
(BCP). The Kao Group is currently planning to strengthen its
course of business and goodwill incurred in corporate
disaster countermeasures, including reviewing its measures
acquisitions. Impairment of or increase in valuation allowance
to respond to risks and reinforcing its BCP. In spite of these
for these assets may be required if cash flow does not meet
measures, however, in the event of an earthquake on a scale
expectations due to trends in future business results, decline
beyond our assumptions and the consequent damage, the
in market value or other factors. This accounting treatment
Kao Group’s ability to secure raw materials, maintain
could have an impact on the Kao Group’s business results and
production, or supply products to the market may be
financial condition.
disrupted, or demand trends could change significantly due to
a worsening economic environment, which could have a
(11) Human Resources
serious impact on the Kao Group’s business results and
Securing capable human resources is indispensable to achieve
financial condition. Furthermore, impediments to continuing
the Kao Group’s business goals. Hiring, developing and
production, securing raw materials, or supplying products to
retaining human resources with advanced expertise to
markets due to factors including a fire or explosion at
implement R&D, production of technologies, market planning
production facilities, information system malfunction,
and sales activities are necessary to the Yoki-Monozukuri (see
problems at a supplier of raw materials, dysfunction of social
note on page 30) that consumers consistently support.
infrastructures such as electric power and water,
However, an inability to secure superior human resources due
environmental pollution from radioactive materials or other
to changes in employment conditions or other factors could
harmful substances, terrorism, political change, riots and
have an impact on the Kao Group’s business results and
other incidents could have a serious impact on the Kao
financial condition.
Group’s business results and financial condition.
(12) Legal and Regulatory Issues
(9) Currency Exchange Rate Fluctuations
In the course of its business activities, the Kao Group must
Foreign currency-denominated transactions are affected by
comply with a variety of laws and regulations concerning
changes in currency exchange rates. The Kao Group hedges
areas such as standards for product quality and safety, the
foreign exchange risk through various measures such as
environment and chemical substances, as well as accounting
settlement of transactions through foreign currency accounts,
standards, tax law and regulations related to labor and
foreign exchange contracts, and currency swaps to mitigate
transactions. The Kao Group has constructed a compliance
the effect on business results. The Kao Group does not
system and strives to comply with all related laws and
engage in derivative transactions for the purpose of
regulations. However, a serious legal violation, change in
speculation. However, items denominated in local currencies,
current laws and regulations, or new laws and regulations
including the sales, expenses and assets of overseas
could restrict the Kao Group’s business activities, require
consolidated subsidiaries, are translated into Japanese yen for
investment for compliance, or otherwise affect the Kao
preparation of the consolidated financial statements. If the
Group. This could have an impact on the Kao Group’s business
exchange rate at the time of conversion differs substantially
results and financial condition.
from the expected rate, the value after translation into yen will
change significantly, which will have an impact on the Kao
Group’s business results and financial condition.
Kao Annual Report 2012 39
Consolidated Balance Sheets
Kao Corporation and Consolidated Subsidiaries
March 31, 2012 and 2011
Assets
Current assets:
Cash and time deposits (Notes 3 and 16) ..................................................
Short-term investments (Notes 3, 4 and 16) ..............................................
Notes and accounts receivable (Note 16):
Trade (Note 5) ........................................................................................
Nonconsolidated subsidiaries and affiliates ............................................
Other ......................................................................................................
Inventories:
Finished goods .......................................................................................
Work in process and raw materials ........................................................
Deferred tax assets (Note 6) ......................................................................
Other current assets ..................................................................................
Allowance for doubtful receivables (Note 16) .............................................
Total current assets ............................................................................
Millions of yen
2012
2011
Thousands of
U.S. dollars (Note 2)
2012
¥ 85,483
48,798
¥ 110,762
37,028
$ 1,040,066
593,722
140,352
3,349
2,670
82,393
38,313
17,736
14,970
(1,115)
432,949
120,297
1,610
3,066
73,190
36,148
21,854
13,959
(1,081)
416,833
1
1,707,653
2,912
40,747
6,101
32,486
82,581
1,002,470
42,4,170
466,151
22,3,222
215,793
15,905
182,138
(2,36)
(13,566)
4351,025
5,267,660
6887
788,369
330
3,931,585
775
8,440,905
—18
145,200
9,,880
122,996
1,190
13,429,055
(83)
(10,501,959)
234
2,927,096
Property, plant and equipment (Note 5):
Land...........................................................................................................
Buildings and structures ............................................................................
Machinery, equipment and other ...............................................................
Lease assets ..............................................................................................
Construction in progress ............................................................................
Total ....................................................................................................
Accumulated depreciation .........................................................................
Net property, plant and equipment .....................................................
64,796
323,137
693,758
11,934
10,109
1,103,734
(863,156)
240,578
62,873
321,040
694,261
12,147
8,321
1,098,642
(853,918)
244,724
Intangible assets:
Goodwill ....................................................................................................
Trademarks ................................................................................................
Other intangible assets ..............................................................................
Total intangible assets ........................................................................
165,614
53,583
18,266
237,463
179,225
71,176
22,557
272,958
2387
2,015,014
1255
651,941
375
222,241
4047
2,889,196
Investments and other assets:
Investment securities (Notes 4 and 16) .....................................................
Investments in and advances to nonconsolidated
subsidiaries and affiliates .......................................................................
Deferred tax assets (Note 6) ......................................................................
Other assets (Note 8) ................................................................................
Total investments and other assets ....................................................
See Notes to Consolidated Financial Statements.
7,516
7,023
04
91,447
6,927
42,554
23,285
80,282
¥ 991,272
5,590
49,966
25,705
88,284
¥ 1,022,799
287
84,280
4,029
517,752
438
283,306
,108
976,785
x8,514
$12,060,737
40 Kao Annual Report 2012
Liabilities and Equity
Current liabilities:
Short-term debt (Notes 5 and 16) ...................................................................
Current portion of long-term debt (Notes 5 and 16) ........................................
Notes and accounts payable (Note 16):
Trade ...........................................................................................................
Nonconsolidated subsidiaries and affiliates .................................................
Other ...........................................................................................................
Income taxes payable (Note 16) .....................................................................
Accrued expenses ..........................................................................................
Liability for loss related to the Great East Japan Earthquake ..........................
Other current liabilities (Notes 5 and 6) ..........................................................
Total current liabilities ..............................................................................
Long-term liabilities:
Long-term debt (Notes 5 and 16) ....................................................................
Liability for retirement benefits (Note 8) .........................................................
Other (Notes 5 and 6) .....................................................................................
Total long-term liabilities ..........................................................................
Commitments and contingent liabilities (Notes 7, 9 and 17)
Equity (Notes 10 and 11):
Common stock:
Authorized — 1,000,000,000 shares in 2012 and 2011
Issued — 526,212,501 shares in 2012 and 540,143,701 shares in 2011 ....
Capital surplus .................................................................................................
Stock acquisition rights ...................................................................................
Retained earnings ...........................................................................................
Treasury stock, at cost
Millions of yen
2012
2011
Thousands of
U.S. dollars (Note 2)
2012
¥ 2,060
811
¥ 6,776
80,795
986
$ 25,064
28
9,867
108,081
5,493
44,778
18,306
73,388
33
21,960
274,910
106,565
45,026
15,067
166,658
102,206
5,133
43,689
18,785
68,267
2,658
19,886
348,195
77,451
42,317
15,272
135,040
668
1,315,014
33
66,833
,251
544,811
74
222,728
8546
892,907
401
79
267,186
95
3,344,811
04
1,296,569
,497
547,828
218
183,319
3,519
2,027,716
85,424
109,561
1,238
447,619
85,424
109,561
1,143
457,918
632
1,039,348
52
1,333,021
41
15,063
426795
5,446,149
(4,402,474 shares in 2012 and 18,063,790 shares in 2011) ..........................
(9,064)
(40,977)
(110,281)
379)
Accumulated other comprehensive income
Unrealized gain on available-for-sale securities ...........................................
Deferred gain (loss) on derivatives under hedge accounting ......................
Foreign currency translation adjustments ...................................................
Post retirement liability adjustments for foreign consolidated subsidiaries ...
Total .........................................................................................................
Minority interests ............................................................................................
Total equity ..............................................................................................
See notes to consolidated financial statements.
2,283
(3)
(96,094)
(1,697)
539,267
10,437
549,704
¥991,272
1,861
(2)
(84,430)
(461)
530,037
9,527
539,564
¥1,022,799
387
27,777
22)
(37)
(77)
(1,169,169)
43)
(20,647)
86
6,561,224
,714
126,986
500
6,688,210
,514
$12,060,737
Kao Annual Report 2012 41
Consolidated Statements of Income
Kao Corporation and Consolidated Subsidiaries
Years ended March 31, 2012 and 2011
Millions of yen
2012
2011
Thousands of
U.S. dollars (Note 2)
2012
Net sales (Note 13) ............................................................................................
¥1,216,096
¥1,186,831
139
$14,796,155
Cost of sales .....................................................................................................
Gross profit .....................................................................................................
Selling, general and administrative expenses (Note 14) ...............................
Operating income (Note 13) ............................................................................
Other income (expenses):
Interest and dividend income ..........................................................................
Interest expense ............................................................................................
Foreign currency exchange gain (loss) ............................................................
Equity in earnings (losses) of nonconsolidated subsidiaries and affiliates ......
Other, net (Note 15) ........................................................................................
Other income (expenses), net .....................................................................
525,012
691,084
582,494
108,590
1,068
(2,204)
(621)
1,658
(3,233)
(3,332)
498,970
687,861
583,270
104,591
990
(3,342)
(2,233)
973
(4,960)
(8,572)
04
6,387,784
35
8,408,371
093
7,087,164
1,321,207
12,994
2)
(26,816)
)
(7,555)
86
20,173
)
(39,336)
(40,540)
Income before income taxes and minority interests .....................................
105,258
96,019
6,710
1,280,667
Income taxes (Note 6):
Current ............................................................................................................
Deferred ..........................................................................................................
Total income taxes ......................................................................................
38,653
12,120
50,773
38,996
9,182
48,178
470,289
147,463
26,570
617,752
Income before minority interests ....................................................................
54,485
47,841
662,915
Minority interests in earnings of consolidated subsidiaries ............................
2,050
1,103
24,942
Net income ........................................................................................................
¥ 52,435
¥ 46,738
$ 637,973
Per share of common stock (Notes 1.t and 18):
Basic net income ............................................................................................
Diluted net income ..........................................................................................
Cash dividends applicable to the year .............................................................
Yen
U.S. dollars (Note 2)
¥100.46
100.43
60.00
¥87.69
87.67
58.00
$1.22
1.22
0.73
See Notes to Consolidated Financial Statements.
42 Kao Annual Report 2012
Consolidated Statements of Comprehensive Income
Kao Corporation and Consolidated Subsidiaries
Years ended March 31, 2012 and 2011
Millions of yen
2012
2011
Thousands of
U.S. dollars (Note 2)
2012
Income before minority interests .......................................................................
¥ 54,485
¥ 47,841
$ 662,915
Other comprehensive income (Note 12)
Unrealized gain (loss) on available-for-sale securities .........................................
Foreign currency translation adjustments ..........................................................
Share of other comprehensive income in affiliates ............................................
Post retirement liability adjustments for foreign consolidated subsidiaries .......
Total other comprehensive income ................................................................
487
(12,169)
(172)
(1,236)
(13,090)
(480)
(21,865)
77
(15)
(22,283)
5,925
(148,059)
(2,093)
(15,038)
(159,265)
Comprehensive income ......................................................................................
¥ 41,395
¥ 25,558
$ 503,650
Comprehensive income attributable to:
Shareholders of Kao Corporation .......................................................................
Minority interests ...............................................................................................
¥39,956
1,439
¥24,853
705
$486,142
17,508
See Notes to Consolidated Financial Statements.
Kao Annual Report 2012 43
Consolidated Statements of Changes in Equity
Kao Corporation and Consolidated Subsidiaries
Years ended March 31, 2012 and 2011
Millions of yen
Thousands of
U.S. dollars
(Note 2)
2012
2011
2012
Millions of yen
Thousands of
U.S. dollars
(Note 2)
2012
2011
2012
Common stock
Total
Balance at beginning of year .......
Net income ..............................
Cash dividends ........................
Purchase of treasury stock ......
Disposal of treasury stock .......
Retirement of treasury stock ...
Net change in the year ............
Balance at end of year .................
¥530,037
52,435
(30,273)
(628)
80
—
(12,384)
539,267
¥566,155
46,738
(31,090)
(30,093)
91
—
(21,764)
530,037
$6,448,923
637,973
(368,329)
(7,641)
973
—
(150,675)
6,561,224
Minority interests
Balance at beginning of year .......
Net change in the year ............
Balance at end of year .................
9,527
910
10,437
9,139
388
9,527
115,914
11,072
126,986
Total equity
Balance at beginning of year .......
Net income ..............................
Cash dividends ........................
Purchase of treasury stock ......
Disposal of treasury stock .......
Retirement of treasury stock ...
Net change in the year ............
Balance at end of year ................
539,564
52,435
(30,273)
(628)
80
—
(11,474)
¥549,704
575,294
46,738
(31,090)
(30,093)
91
—
(21,376)
¥539,564
6,564,837
637,973
(368,329)
(7,641)
973
—
(139,603)
$6,688,210
Cash dividends per share ..............
Yen
2012
¥58.00
2011
¥58.00
U.S. dollars
(Note 2)
2012
$0.71
Thousands
2012
2011
2011
Outstanding number of shares
of common stock
Balance at beginning of year .......
Purchase of treasury stock ......
Disposal of treasury stock .......
Balance at end of year .................
522,080
(305)
35
521,810
536,021
(13,974)
33
522,080
See Notes to Consolidated Financial Statements.
Balance at beginning of year .......
Balance at end of year ................
¥ 85,424
85,424
¥ 85,424
85,424
$ 1,039,348
1,039,348
Capital surplus
Balance at beginning of year .......
Balance at end of year ................
109,561
109,561
109,561
109,561
1,333,021
1,333,021
Stock acquisition rights
Balance at beginning of year .......
Net change in the year ............
Balance at end of year ................
Retained earnings
Balance at beginning of year .......
Net income ..............................
Cash dividends ........................
Disposal of treasury stock .......
Retirement of treasury stock ...
Balance at end of year ................
Treasury stock, at cost
Balance at beginning of year .......
Purchase of treasury stock ......
Disposal of treasury stock .......
Retirement of treasury stock ...
Balance at end of year ................
Accumulated other
comprehensive income
Unrealized gain on
available-for-sale securities
1,143
95
1,238
1,022
121
1,143
13,907
1,156
15,063
457,918
52,435
(30,273)
(1)
(32,460)
447,619
442,273
46,738
(31,090)
(3)
—
457,918
5,571,456
637,973
(368,329)
(12)
(394,939)
5,446,149
(40,977)
(628)
81
32,460
(9,064)
(10,978)
(30,093)
94
—
(40,977)
(498,564)
(7,641)
985
394,939
(110,281)
Balance at beginning of year .......
Net change in the year ............
Balance at end of year ................
1,861
422
2,283
2,292
(431)
1,861
22,643
5,134
27,777
Deferred gain (loss) on
derivatives under hedge accounting
Balance at beginning of year .......
Net change in the year ............
Balance at end of year ................
Foreign currency translation
adjustments
Balance at beginning of year .......
Net change in the year ............
Balance at end of year ................
(2)
(1)
(3)
(0)
(2)
(2)
(25)
(12)
(37)
(84,430)
(11,664)
(96,094)
(62,993)
(21,437)
(84,430)
(1,027,254)
(141,915)
(1,169,169)
Post retirement liability adjustments
for foreign consolidated subsidiaries
Balance at beginning of year .......
Net change in the year ............
Balance at end of year ................
(461)
(1,236)
¥ (1,697)
(446)
(15)
¥ (461)
(5,609)
(15,038)
$ (20,647)
44 Kao Annual Report 2012
Consolidated Statements of Cash Flows
Kao Corporation and Consolidated Subsidiaries
Years ended March 31, 2012 and 2011
Operating activities:
Income before income taxes and minority interests ......................................
¥105,258
¥ 96,019
$ 1,280,667
Millions of yen
2012
2011
Thousands of
U.S. dollars (Note 2)
2012
Adjustments for:
Income taxes paid .......................................................................................
Depreciation and amortization .....................................................................
Loss on sales or disposals of property, plant and equipment, net ..............
Equity in (earnings) losses of nonconsolidated subsidiaries and affiliates ..
Unrealized foreign currency exchange (gain) loss .......................................
Change in trade receivables ........................................................................
Change in inventories ..................................................................................
Change in prepaid pension cost ..................................................................
Change in trade payables ............................................................................
Change in liability for retirement benefits ...................................................
Other, net ....................................................................................................
Net cash provided by operating activities ................................................
Investing activities:
Purchase of property, plant and equipment ....................................................
Proceeds from sales of property, plant and equipment ..................................
Purchase of intangible assets .........................................................................
Proceeds from the redemption and sales of investment securities ...............
Increase in investments in and advances to nonconsolidated
subsidiaries and affiliates ..............................................................................
Proceeds from cancellation of derivatives ......................................................
Other, net ........................................................................................................
Net cash used in investing activities ........................................................
Financing activities:
Increase (decrease) in short-term debt ...........................................................
Proceeds from long-term loans .......................................................................
Repayments of long-term loans .....................................................................
Redemption of bonds ....................................................................................
Purchase of treasury stock .............................................................................
Payments of cash dividends ...........................................................................
Other, net ........................................................................................................
Net cash used in financing activities ........................................................
Translation adjustments on cash and cash equivalents ...............................
Net increase (decrease) in cash and cash equivalents ..................................
Cash and cash equivalents, beginning of year (Note 3) .................................
Cash and cash equivalents of newly consolidated subsidiaries, increase ..
Cash and cash equivalents, end of year (Note 3) ...........................................
See Notes to Consolidated Financial Statements.
(38,339)
79,798
2,202
(1,658)
159
(26,513)
(14,937)
906
8,997
3,056
6,103
125,032
(41,684)
746
(3,375)
1
(1,221)
—
(3,419)
(48,952)
(4,610)
50,013
(50,012)
(50,000)
(10)
(30,776)
(768)
(86,163)
(3,323)
(13,406)
143,143
—
¥129,737
(40,888)
81,380
1,334
(973)
455
(642)
(7,566)
(73)
7,794
4,596
9,863
151,299
(27,725)
2,410
(4,001)
594
(153)
4,297
(7,200)
(31,778)
12
17
(24,960)
—
(30,093)
(31,427)
(872)
(87,323)
(6,401)
25,797
117,180
166
¥143,143
(466,468)
970,897
26,792
(20,173)
1,935
(322,582)
(181,737)
11,023
109,466
37,182
74,254
1,521,256
(507,166)
9,076
(41,063)
12
(14,856)
—
(41,599)
(595,596)
(56,089)
608,505
(608,493)
(608,347)
(122)
(374,449)
(9,344)
(1,048,339)
(40,431)
(163,110)
1,741,611
—
$ 1,578,501
Kao Annual Report 2012 45
Notes to Consolidated Financial Statements
Kao Corporation and Consolidated Subsidiaries
Years ended March 31, 2012 and 2011
1
Summary of Significant Accounting Policies
a) Basis of presenting consolidated financial statements
The accompanying consolidated financial statements have been
prepared in accordance with the provisions set forth in the Japanese
Financial Instruments and Exchange Law and its related accounting
regulations, and in conformity with accounting principles generally
accepted in Japan (“Japanese GAAP”), which are different in certain
respects as to application and disclosure requirements of
International Financial Reporting Standards.
In preparing the consolidated financial statements, certain
reclassifications and rearrangements have been made to the
consolidated financial statements issued in Japan in order to present
them in a form that is more familiar to readers outside Japan. Certain
2011 financial statement items were reclassified to conform to the
presentation for 2012.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of
assets, liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from these estimates.
b) Consolidation and accounting for investments in
nonconsolidated subsidiaries and affiliates
The accompanying consolidated financial statements include the
accounts of Kao Corporation (the “Company”) and its significant
subsidiaries (collectively, the “Companies”). Investments in most of
the nonconsolidated subsidiaries and affiliates over which the Companies
have the ability to exercise significant influence (mainly 20-50 percent
owned companies) are accounted for using the equity method.
Under the control or influence concept, companies in which the
parent company and/or its consolidated subsidiaries, directly or
indirectly, are able to exercise control over operations are fully
consolidated, and other companies over which the Company and/or
its consolidated subsidiaries have the ability to exercise significant
influence are accounted for using the equity method.
Investments in the remaining subsidiaries and affiliates are stated at
cost except for write-downs recorded for the value of investments that
have been permanently impaired. If the equity method of accounting
had been applied to these investments, the effect on the accompanying
consolidated financial statements would not be material.
All significant intercompany balances and transactions have been
eliminated in consolidation. All material unrealized profit included in
assets resulting from transactions within the Companies is eliminated.
The excess of cost of investments in the subsidiaries and affiliates
over the fair value of the net assets of the acquired subsidiary and
affiliate at the dates of acquisition, consolidation goodwill, is being
amortized over an estimated period not exceeding 20 years, or 5
years in situations in which the useful lives cannot be estimated.
c) Unification of accounting policies applied to foreign
subsidiaries for the consolidated financial statements
The accounting standard for unification of accounting policies applied
to foreign subsidiaries for the consolidated financial statements
requires: (1) the accounting policies and procedures applied to a
parent company and its subsidiaries for similar transactions and
events under similar circumstances should in principle be unified for
the preparation of the consolidated financial statements, (2) financial
statements prepared by foreign subsidiaries in accordance with either
International Financial Reporting Standards or the generally accepted
46 Kao Annual Report 2012
accounting principles in the United States of America tentatively may
be used for the consolidation process, (3) however, the following
items should be adjusted in the consolidation process so that net
income is accounted for in accordance with Japanese GAAP unless
they are not material:
1) Amortization of goodwill
2) Scheduled amortization of actuarial gain or loss of pensions that
has been directly recorded in equity
3) Expensing capitalized development costs of R&D
4) Cancellation of the fair value model accounting for property, plant,
and equipment and investment properties and incorporation of the
cost model accounting
5) Exclusion of minority interests from net income, if contained
d) Unification of accounting policies applied to foreign affiliated
companies for the equity method
The accounting standard requires adjustments to be made to conform
the affiliate’s accounting policies for similar transactions and events
under similar circumstances to those of the parent company when
the affiliate’s financial statements are used in applying the equity
method unless it is impracticable to determine adjustments. In
addition, financial statements prepared by foreign affiliated companies
in accordance with either International Financial Reporting Standards
or the generally accepted accounting principles in the United States
tentatively may be used in applying the equity method if the following
items are adjusted so that net income is accounted for in accordance
with Japanese GAAP unless they are not material:
1) Amortization of goodwill
2) Scheduled amortization of actuarial gain or loss on pensions that
has been directly recorded in equity
3) Expensing capitalized development costs of R&D
4) Cancellation of the fair value model accounting for property, plant,
and equipment and investment properties and incorporation of the
cost model accounting
5) Exclusion of minority interests from net income, if contained
e) Business combinations
The accounting standard for business combinations requires
companies to account for in accordance with following policies:
1) Business combinations should be accounted for by the purchase
method except combinations of entities under common control
and joint ventures.
2) In-process research and development (IPR&D) acquired in the
business combination should be capitalized as an intangible asset.
3) The acquirer should recognize the bargain purchase gain in profit or
loss immediately on the acquisition date after reassessing and
confirming that all of the assets acquired and all of the liabilities
assumed have been identified after a review of the procedures
used in the purchase allocation.
Under the accounting standard for business separations, in a
business separation where the interests of the investor no longer
continue and the investment is settled, the difference between the
fair value of the consideration received for the transferred business
and the book value of net assets transferred to the separated
business is recognized as a gain or loss on business separation in the
statement of income. In a business separation where the interests of
the investor continue and the investment is not settled, no such gain
or loss on business separation is recognized.
f) Cash equivalents
For purposes of the statements of cash flows, cash equivalents are
short-term investments that are readily convertible into cash and that
are exposed to insignificant risk of changes in value.
Cash equivalents include time deposits, commercial paper,
investment trusts in bonds and receivables that are represented as
short-term investments, all of which mature or become due within
three months of the date of acquisition.
g) Inventories
The accounting standard for measurement of inventories requires that
inventories held for sale in the ordinary course of business be
measured at the lower of cost or net selling value, which is defined as
the selling price less additional estimated manufacturing costs and
estimated direct selling expenses. The replacement cost may be used
in place of the net selling value, if appropriate.
Cost of inventories is determined principally by the average
method. The cost of inventories held by certain foreign consolidated
subsidiaries is determined by the first-in, first-out method.
h) Short-term investments and investment securities
Short-term investments and investment securities are classified and
accounted for, depending on management’s intent, as follows: i) held-
to-maturity debt securities, which are expected to be held to maturity
with the positive intent and ability to hold to maturity, are reported at
amortized cost and ii) available-for-sale securities, which are not
classified as the aforementioned securities, are reported at fair value,
with unrealized gains and losses, net of applicable taxes, reported in a
separate component of equity.
Non-marketable available-for-sale securities are stated at cost
determined by the moving-average method.
For other than temporary declines in fair value, investment
securities are reduced to net realizable value by a charge to income.
i) Property, plant and equipment
Property, plant and equipment are stated at cost. Depreciation of
property, plant and equipment is computed under the declining-
balance method for the assets located in Japan and principally under
the straight-line method for the assets located outside Japan, using
rates based upon the estimated useful lives, principally ranging from
21 to 35 years for buildings and structures and 7 or 9 years for
machinery and equipment.
j) Intangible assets
Goodwill and trademarks are amortized on a straight-line basis over 15
or 20 years, and 10 years, respectively.
k) Long-lived assets
The Companies review their long-lived assets for impairment
whenever events or changes in circumstances indicate the carrying
amount of an asset or asset group may not be recoverable. An
impairment loss would be recognized if the carrying amount of an
asset or asset group exceeds the sum of the undiscounted future
cash flows expected to result from the continued use and eventual
disposition of the asset or asset group. The impairment loss would be
measured as the amount by which the carrying amount of the asset
exceeds its recoverable amount, which is the higher of the discounted
cash flows from the continued use and eventual disposition of the
asset or the net selling price at disposition.
l) Retirement and pension plans
The Company and most domestic consolidated subsidiaries have a
cash balance plan and a defined contribution pension plan covering
substantially all of their employees. The cash balance plan is linked to
market interest rates and treated as a defined benefit plan. The
pension plan also covers employees of certain nonconsolidated
subsidiaries and affiliates in Japan. In addition, these companies may
pay an early retirement allowance to early retired employees.
Certain domestic consolidated subsidiaries have a defined benefit
plan that provides for a lump-sum payment to terminated employees.
The subsidiaries may pay an additional lump-sum payment that is not
subject to actuarial calculations under the accounting standard for
retirement benefits.
Certain foreign subsidiaries have a defined contribution plan and/or
a defined benefit plan. Some of these foreign subsidiaries apply the
“corridor approach” in calculating actuarial gain or loss.
Certain foreign subsidiaries also have local employees’ retirement
benefit plans and provide for the amount to recognize the liability for
these employees’ retirement benefits, primarily determined on an
actuarial basis.
The unrecognized transitional obligation, the unrecognized net
actuarial gain or loss and the unrecognized prior service cost are
being amortized over 15, 10 and 15 years, respectively. These
amortizations are recognized in cost of sales and selling, general and
administrative expenses in the consolidated statements of income.
m) Asset retirement obligations
The accounting standard for asset retirement obligations defines an
asset retirement obligation as a legal obligation imposed either by law
or contract that results from the acquisition, construction,
development and the normal operation of a tangible fixed asset and is
associated with the retirement of such tangible fixed asset.
The asset retirement obligation is recognized as the sum of the
discounted cash flows required for the future asset retirement and is
recorded in the period in which the obligation is incurred if a
reasonable estimate can be made. If a reasonable estimate of the
asset retirement obligation cannot be made in the period the asset
retirement obligation is incurred, the liability should be recognized
when a reasonable estimate of asset retirement obligation can be
made. Upon initial recognition of a liability for an asset retirement
obligation, an asset retirement cost is capitalized by increasing the
carrying amount of the related fixed asset by the amount of the
liability. The asset retirement cost is subsequently allocated to
expense through depreciation over the remaining useful life of the
asset. Over time, the liability is accreted to its present value each
period. Any subsequent revisions to the timing or the amount of the
original estimate of undiscounted cash flows are reflected as an
increase or a decrease in the carrying amount of the liability and the
capitalized amount of the related asset retirement cost.
n) Stock options
The accounting standard for stock options requires companies to
recognize compensation expense for employee stock options based
on the fair value at the date of grant and over the vesting period as
consideration for receiving goods or services. The standard also
requires companies to account for stock options granted to non-
employees based on the fair value of either the stock option or the
goods or services received. In the balance sheet, the stock option is
presented as a stock acquisition right as a separate component of
equity until exercised. The standard covers equity-settled, share-based
payment transactions, but does not cover cash-settled, share-based
payment transactions. In addition, the standard allows unlisted
companies to measure options at their intrinsic value if they cannot
reliably estimate fair value.
Kao Annual Report 2012 47
o) Leases
The accounting standard for lease transactions requires that all
finance lease transactions should be capitalized to recognize lease
assets and lease obligations in the balance sheet. In addition, the
accounting standard permits leases which do not transfer ownership
of the leased property to the lessee to be measured at the obligations
under finance leases less interest expense and recorded as
acquisition cost of lease assets.
All other leases are accounted for as operating leases.
p) Income taxes
The Companies provide for income taxes applicable to all items
included in the consolidated statements of income regardless of
when such taxes are payable. Income taxes based on temporary
differences between tax and financial reporting purposes are reflected
as deferred income taxes in the consolidated financial statements
using the asset and liability method.
q) Foreign currency transactions
All short-term and long-term monetary receivables and payables
denominated in foreign currencies are translated into Japanese yen at
the exchange rates at the balance sheet date. The foreign exchange
gains and losses from translation are recognized in the consolidated
statements of income to the extent that they are not hedged by
foreign exchange derivatives.
r) Foreign currency financial statements
The balance sheet accounts of the consolidated foreign subsidiaries
are translated into Japanese yen at the current exchange rate as of
the balance sheet date except for equity, which is translated at the
historical rate. Differences arising from such translation are shown as
“Foreign currency translation adjustments” in a separate component
of equity. Revenue and expense accounts of the consolidated foreign
subsidiaries are translated into Japanese yen at the average exchange rate.
s) Derivatives and hedging activities
The Companies use derivative financial instruments to manage their
exposures to fluctuations in foreign exchange and interest rates.
Foreign exchange forward contracts, foreign currency swaps and
interest rate swaps are utilized by the Companies to reduce foreign
currency exchange and interest rate risks. The Companies do not
enter into derivatives for trading purposes or speculative purposes.
Derivative financial instruments and foreign currency transactions
are classified and accounted for as follows: a) all derivatives are
recognized as either assets or liabilities and measured at fair value,
and gains or losses on derivative transactions are recognized in the
consolidated statements of income, and b) for derivatives used for
hedging purposes, if derivatives qualify for hedge accounting because
of high correlation and effectiveness between the hedging
instruments and the hedged items, gains or losses on derivatives are
2
Translation into United States Dollars
The Companies’ accounts are maintained in or translated into
Japanese yen. The United States dollar (US$) amounts included
herein represent translations using the approximate exchange rate
at March 31, 2012 of ¥82.19=US$1, solely for convenience.
deferred until maturity of the hedged transactions.
Short-term and long-term loan receivables denominated in foreign
currencies, for which foreign exchange forward contracts or foreign
currency swaps are used to hedge the foreign currency fluctuations,
are translated at the contracted rate if the forward contracts or the
swap contracts qualify for specific hedge accounting.
The interest rate swaps which qualify for hedge accounting and
meet specific matching criteria are not remeasured at market value
but the differential paid or received under the swap agreements are
recognized and included in interest expense or income as incurred.
t) Per share information
Basic net income per share is computed by dividing net income
available to common shareholders by the weighted-average number
of common shares outstanding for the period, retroactively adjusted
for stock splits.
Diluted net income per share of common stock reflects the
potential dilution that could occur if securities or other contracts to
issue common stock were converted or exercised into common stock
or resulted in the issuance of common stock.
Cash dividends per share presented in the accompanying
consolidated statements of income are dividends applicable to the
respective years including dividends to be paid after the end of the year.
u) Accounting changes and error corrections
The accounting standard for accounting changes and error corrections
requires the following;
1) Changes in Accounting Policies:
When a new accounting policy is applied with revision of
accounting standards, the new policy is applied retrospectively
unless revised accounting standards include specific transitional
provisions. When revised accounting standards include specific
transitional provisions, an entity shall comply with the specific
transitional provisions.
2) Changes in Presentations:
When the presentation of financial statements is changed, prior
period financial statements are reclassified in accordance with the
new presentation.
3) Changes in Accounting Estimates:
A change in an accounting estimate is accounted for in the period
of the change if the change affects that period only, and is
accounted for prospectively if the change affects both the period
of the change and future periods.
4) Corrections of Prior Period Errors:
When an error in prior period financial statements is discovered,
those statements are restated.
This accounting standard is applicable to accounting changes and
corrections of prior period errors which are made from the beginning
of the fiscal year that begins on or after April 1, 2011.
The translations should not be construed as representations that
Japanese yen have been, could have been, or could in the future be,
converted into United States dollars at that or any other rate.
48 Kao Annual Report 2012
3
Cash and Cash Equivalents
Cash and cash equivalents at March 31, 2012 and 2011 consisted of the following:
Cash and time deposits ............................................................................................
Short-term investments ............................................................................................
Less: time deposits and short-term investments which mature or become
Millions of yen
2012
¥ 85,483
48,798
2011
¥ 110,762
37,028
Thousands of
U.S. dollars
2012
$1,040,066
593,722
due over three months after the date of acquisition .......................................
Cash and cash equivalents .......................................................................................
(4,544)
¥129,737
(4,647)
¥143,143
(55,287)
$1,578,501
4
Short-Term Investments and Investment Securities
Short-term investments and investment securities as of March 31, 2012 and 2011 consisted of the following:
Millions of yen
2012
2011
Short-term investments:
Government and corporate bonds ........................................................................
Investment trust funds and other ........................................................................
Total .................................................................................................................
Investment securities:
Marketable equity securities .................................................................................
Investment trust funds and other .........................................................................
Total ..................................................................................................................
¥ —
48,798
¥48,798
¥ 6,335
1,181
¥ 7,516
¥ 6,270
30,758
¥ 37,028
¥ 5,828
1,195
¥ 7,023
Thousands of
U.S. dollars
2012
$ —
593,722
$593,722
$ 77,078
14,369
$ 91,447
The carrying amount and aggregate fair value of the securities classified as available-for-sale and held-to-maturity at March 31, 2012 and 2011 were as follows:
Millions of yen
2012
Cost
Unrealized
gains
Unrealized
losses
Fair
value
Securities classified as:
Available-for-sale:
Equity securities .......................................................................
Debt securities and other .........................................................
¥ 2,785
38,799
¥3,630
—
Held-to-maturity:
Debt securities and other .........................................................
9,999
—
¥80
—
—
¥ 6,335
38,799
9,999
Millions of yen
2011
Cost
Unrealized
gains
Unrealized
losses
Fair
value
Securities classified as:
Available-for-sale:
Equity securities .......................................................................
Debt securities and other .........................................................
¥ 2,765
27,029
¥3,202
—
Held-to-maturity:
Debt securities and other .........................................................
9,999
—
¥139
—
—
¥ 5,828
27,029
9,999
Thousands of U.S. dollars
2012
Cost
Unrealized
gains
Unrealized
losses
Fair
value
Securities classified as:
Available-for-sale:
Equity securities .......................................................................
Debt securities and other .........................................................
$ 33,885
472,065
$44,166
—
Held-to-maturity:
Debt securities and other .........................................................
121,657
—
$973
—
—
$ 77,078
472,065
121,657
Kao Annual Report 2012 49
Available-for-sale securities whose fair values are not readily determinable as of March 31, 2012 and 2011 were as follows:
Carrying amount
Millions of yen
2012
2011
Thousands of
U.S. dollars
2012
Available-for-sale:
Equity securities ...........................................................................................
Total ..........................................................................................................
¥1,181
¥1,181
¥1,195
¥1,195
$14,369
$14,369
Proceeds from sales of available-for-sale securities for the years
ended March 31, 2012 and 2011 were ¥1 million (US$12 thousand)
and ¥594 million, respectively. Gross realized gains and losses on
these sales, computed on the moving-average cost basis, for the
year ended March 31, 2012 were not recognized, and for the year
ended March 31, 2011 were ¥186 million and ¥4 million,
respectively.
The carrying values of debt securities by contractual maturities for
securities classified as held-to-maturity at March 31, 2012 are
included in Note 16.
5
Short-Term and Long-Term Debt
Short-term debt at March 31, 2012 and 2011 was comprised of the following:
Secured loans principally from financial institutions .................................................
Unsecured loans principally from financial institutions .............................................
Total ..................................................................................................................
Millions of yen
2012
¥ 99
1,961
¥2,060
2011
¥ 69
6,707
¥6,776
Thousands of
U.S. dollars
2012
$ 1,205
23,859
$25,064
The weighted average interest rates applicable to the above loans
were 2.00% and 3.90% at March 31, 2012 and 2011, respectively.
In addition to the above short-term debt, deposits payable to
affiliates, included in other current liabilities, were ¥6,527 million
(US$79,414 thousand) and ¥5,058 million at March 31, 2012 and
2011, respectively, and the applicable interest rates were 0.44%
and 0.44% at March 31, 2012 and 2011, respectively.
The secured loans are collateralized by trade accounts receivable
of ¥189 million (US$2,300 thousand) at March 31, 2012.
Long-term debt at March 31, 2012 and 2011 consisted of the following:
Unsecured bonds due 2011, 1.60% and due 2013, 1.91% ..................................
Unsecured loans principally from financial institutions,
weighted average rate 0.57% in 2012, 1.75% in 2011 .........................................
Lease obligations ......................................................................................................
Less current portion ..............................................................................................
Total ..................................................................................................................
Millions of yen
2012
2011
¥ 49,999
¥ 99,998
50,055
7,322
¥107,376
(811)
¥106,565
50,056
8,192
¥158,246
(80,795)
¥ 77,451
Thousands of
U.S. dollars
2012
$ 608,334
609,016
89,086
$1,306,436
(9,867)
$1,296,569
The current portion of long-term debt refinanced into long-term debt
during the year ended March 31, 2012 was ¥30,000 million
(US$365,008 thousand). The unsecured bonds redeemed during the
year ended March 31, 2012 was ¥50,000 million (US$608,347
thousand). In addition to the above long-term debt, deposits payable
to customers, included in other long-term liabilities, were ¥6,008
million (US$73,099 thousand) and ¥6,060 million at March 31, 2012
and 2011, respectively, and the applicable interest rates were 0.13%
and 0.15% at March 31, 2012 and 2011, respectively.
The aggregate annual maturities of long-term debt as of March 31, 2012 were as follows:
Years ending March 31
2013 .................................................................................................................................................
2014 .................................................................................................................................................
2015 .................................................................................................................................................
2016 .................................................................................................................................................
2017 .................................................................................................................................................
2018 and thereafter .........................................................................................................................
Total .............................................................................................................................................
Millions of yen
¥ 811
50,793
41,118
784
10,724
3,146
¥107,376
Thousands of
U.S. dollars
$ 9,867
617,995
500,280
9,539
130,478
38,277
$1,306,436
50 Kao Annual Report 2012
6
Income Taxes
The Company and its domestic subsidiaries are subject to Japanese
national and local taxes based on income, which in the aggregate
resulted in a normal statutory tax rate of approximately 41% for
both 2012 and 2011.
Foreign subsidiaries are subject to income taxes of the countries
in which they operate.
Tax effects of significant temporary differences and tax loss carryforwards that resulted in deferred tax assets or liabilities at March 31,
2012 and 2011 were as follows:
Millions of yen
2012
2011
Deferred tax assets:
Depreciation and amortization ..............................................................................
Pension and severance costs ...............................................................................
Accrued expenses ................................................................................................
Enterprise taxes ....................................................................................................
Tax loss carryforwards ..........................................................................................
Other .....................................................................................................................
Less valuation allowance ......................................................................................
Deferred tax assets ..................................................................................................
Deferred tax liabilities:
Unrealized gain on available-for-sale securities ....................................................
Undistributed foreign earnings .............................................................................
Deferred gains on sales of property .....................................................................
Prepaid pension cost ............................................................................................
Other .....................................................................................................................
Deferred tax liabilities ...............................................................................................
¥ 18,221
16,323
10,791
1,327
46,854
13,283
(29,189)
¥ 77,610
¥ (1,289)
(6,007)
(3,884)
(1,218)
(6,421)
¥(18,819)
¥ 21,552
16,362
11,720
1,487
63,157
15,981
(40,270)
¥ 89,989
¥ (1,310)
(5,893)
(4,531)
(1,042)
(7,161)
¥(19,937)
Thousands of
U.S. dollars
2012
$ 221,694
198,601
131,293
16,146
570,069
161,613
(355,141)
$ 944,275
$ (15,683)
(73,087)
(47,256)
(14,819)
(78,124)
$(228,969)
Net deferred tax assets ............................................................................................
¥ 58,791
¥ 70,052
$ 715,306
A reconciliation between the normal effective statutory tax rates and the actual effective tax rates reflected in the
accompanying consolidated statements of income for the years ended March 31, 2012 and 2011 were as follows:
Normal effective statutory tax rate ...........................................................................
Tax credit for research and development costs and other ....................................
Valuation allowance ...............................................................................................
Expiration of tax loss carryforwards .....................................................................
Amortization expenses not deductible for income tax purposes ..........................
Effect of tax rate reduction ...................................................................................
Other – net ............................................................................................................
Actual effective tax rate ............................................................................................
2012
40.5%
(2.6)
(6.4)
9.0
4.6
5.4
(2.3)
48.2%
2011
40.5%
(2.7)
9.5
0.9
4.9
—
(2.9)
50.2%
On December 2, 2011, new tax reform laws were enacted in Japan,
which will reduce the corporation tax rate and will impose special
corporation tax for reconstruction of the Great East Japan Earthquake
for fiscal years beginning on or after April 1, 2012. Consequently, the
effective statutory tax rate used to measure deferred tax assets and
liabilities changed from 40.54% to 38.01% for expected reversal of
temporary differences during fiscal years beginning on or after April 1,
2012 until March 31, 2015. The rate will be changed to 35.64% for
expected reversal of temporary differences during fiscal years
beginning on or after April 1, 2015.
As a result of these tax rate changes, net deferred tax assets after
deducting deferred tax liabilities as of March 31, 2012 decreased
¥5,500 million (US$66,918 thousand), while deferred income taxes
and unrealized gain on available-for-sale securities increased ¥5,676
million (US$69,059 thousand) and ¥176 million (US$2,141 thousand),
respectively.
Moreover, effective fiscal years beginning on or after April 1, 2012
the deferral period for tax loss carryforwards will be extended to nine
years from seven years and the deduction will be limited to 80% of
earnings prior to adjustment for tax loss carryforwards. Deferred tax
assets increased ¥3,215 million (US$39,117 thousand) as a result.
Deferred income taxes increased ¥2,461 million (US$29,943
thousand) because of the combined effect of the corporate tax rate
changes, the deferral period extension and the limit on the deduction
of tax loss carryforwards.
Kao Annual Report 2012 51
7
Leases
(a) Finance leases:
The Companies lease certain buildings, machinery, computer equipment and other assets.
(b) Operating leases:
The minimum rental commitments under noncancellable operating leases as of March 31, 2012 and 2011 were as follows:
Due within one year ...................................................................................................
Due after one year ......................................................................................................
Total ........................................................................................................................
8
Retirement Benefits
Millions of yen
2012
¥ 8,132
24,791
¥32,923
2011
¥ 8,624
30,826
¥39,450
Thousands of
U.S. dollars
2012
$ 98,941
301,631
$400,572
The Company and most domestic consolidated subsidiaries have a
cash balance plan and a defined contribution pension plan. The cash
balance plan is linked to market interest rates and treated as a
defined benefit pension plan. These companies may pay an early
retirement allowance to early retired employees.
Certain domestic consolidated subsidiaries have a defined benefit
plan that provides for a lump-sum payment to terminated employees.
The subsidiaries may make an additional lump-sum payment that is
not subject to actuarial calculations under the accounting standard for
retirement benefits.
Certain foreign consolidated subsidiaries have a contribution plan
and/or a defined benefit plan.
The liability for retirement benefits at March 31, 2012 and 2011 consisted of the following:
Projected benefit obligation ......................................................................................
Fair value of plan assets ...........................................................................................
Unrecognized prior service cost ...............................................................................
Unrecognized actuarial loss ......................................................................................
Unrecognized transitional obligation .........................................................................
Prepaid pension cost ................................................................................................
Net liability for retirement benefits .......................................................................
¥ 239,032
(196,235)
9,537
(2,009)
(5,413)
114
¥ 45,026
¥ 231,540
(189,043)
14,128
(8,223)
(7,213)
1,128
¥ 42,317
Millions of yen
2012
2011
The components of net periodic benefit costs for the years ended March 31, 2012 and 2011 were as follows:
Service cost ..............................................................................................................
Interest cost .............................................................................................................
Expected return on plan assets ................................................................................
Amortization of prior service cost (credit) .................................................................
Recognized actuarial loss .........................................................................................
Amortization of transitional obligation ......................................................................
Net periodic benefit costs .....................................................................................
Millions of yen
2012
¥ 8,694
5,177
(4,413)
(3,261)
3,307
1,815
¥11,319
2011
¥ 8,399
5,147
(4,423)
(3,603)
4,903
1,679
¥12,102
Thousands of
U.S. dollars
2012
$ 2,908,286
(2,387,578)
116,036
(24,443)
(65,860)
1,387
$ 547,828
Thousands of
U.S. dollars
2012
$105,779
62,988
(53,693)
(39,676)
40,236
22,083
$137,717
Assumptions used for the years ended March 31, 2012 and 2011 were set forth as follows:
Discount rate .................................................................................................................
Expected rate of return on plan assets ..........................................................................
Amortization period of prior service cost .......................................................................
Recognition period of actuarial gain/loss .......................................................................
Amortization period of transitional obligation ................................................................
Primarily 2.0%
Primarily 2.0%
Primarily 15 years
Primarily 10 years
Primarily 15 years
Primarily 2.0%
Primarily 2.0%
Primarily 15 years
Primarily 10 years
Primarily 15 years
2012
2011
In addition to the above net periodic benefit costs, the costs for
other retirement and pension plans such as a defined contribution
plan and for other supplemental retirement benefits were ¥2,772
million (US$ 33,727 thousand) and ¥2,358 million for the years
ended March 31, 2012 and 2011, respectively.
Certain foreign subsidiaries apply the “corridor approach” in
calculating actuarial gain or loss.
52 Kao Annual Report 2012
9
Contingent Liabilities
At March 31, 2012, the Companies had the following contingent liabilities:
Trade notes discounted .......................................................................................................................
Guarantees of borrowings, principally of affiliates and employees ......................................................
¥128
819
Millions of yen
Thousands of
U.S. dollars
$ 1,557
9,965
The Companies are parties to pending litigation arising in the
normal course of business. While it is not possible to predict the
outcome of pending litigation, the Company believes, after
consultation with counsel, that the results of such proceedings will
not have a material adverse effect upon the Company's
consolidated financial position and the results of its operations and
its cash flows.
10
Equity
Significant provisions in the Corporation Law of Japan (the
“Corporation Law”) that affect financial and accounting matters are
summarized below:
(a) Dividends
Under the Corporation Law, companies can pay dividends at any
time during the fiscal year in addition to the year-end dividend upon
resolution at the shareholders’ meeting.
For companies that meet certain criteria such as having: (1) a
board of directors, (2) independent auditors, (3) a board of corporate
auditors, and (4) terms of service of directors prescribed as one
year under the articles of incorporation rather than the normal term
of two years, the boards of directors of such companies may
declare dividends (except for dividends in kind) at any time during
the fiscal year if the companies have prescribed so in their articles
of incorporation. The Company's governance system on March 31,
2012 meets the first three criteria but the two-year service period
of the members of the Board of Directors does not meet the fourth
criterion. The Company pays the dividends semi-annually as a year-
end dividend and an interim dividend.
Semiannual interim dividends may also be paid once a year upon
resolution by the board of directors if the articles of incorporation of
the company so stipulate. The Company pays semiannual interim
dividends upon the resolution by the Board of Directors because
the articles of incorporation of the Company so stipulate.
The Corporation Law permits companies to distribute dividends-
in-kind (non-cash assets) to shareholders subject to a certain
limitation and additional requirements. The Corporation Law
provides certain limitations on the amounts available for dividends
or the purchase of treasury stock. The limitation is defined as the
amount available for distribution to the shareholders, but the
amount of net assets after dividends must be maintained at no less
than ¥3 million.
(b) Increases / decreases and transfer of common stock, reserve
and surplus
The Corporation Law requires that an amount equal to 10% of
dividends must be appropriated as a legal reserve (a component of
retained earnings) or as additional paid-in capital (a component of
capital surplus) depending on the equity account charged upon the
payment of such dividends until the total of aggregate amount of
legal reserve and additional paid-in capital equals 25% of the
common stock. Under the Corporation Law, the total amount of
additional paid-in capital and legal reserve may be reversed without
limitation. The Corporation Law also provides that common stock,
legal reserve, additional paid-in capital, other capital surplus and
retained earnings can be transferred among the accounts under
certain conditions upon resolution at the shareholders’ meeting.
The Company’s legal reserve amount, which is included in
retained earnings, totals ¥14,117 million (US$171,761 thousand) at
both March 31, 2012 and 2011. The Company’s additional paid-in
capital amount, which is included in capital surplus, totals ¥108,889
million (US$1,324,845 thousand) at both March 31, 2012 and 2011.
The accompanying consolidated financial statements do not
include any provision for the year-end dividend of ¥31.0 (US$0.38)
per share, aggregating ¥16,193 million (US$197,019 thousand)
which the Company will subsequently propose at the 106th Annual
General Meeting of Shareholders to be held on June 28, 2012 as an
appropriation of retained earnings in respect of the year ended
March 31, 2012.
(c) Treasury stock and treasury stock acquisition rights
The Corporation Law also provides for companies to purchase own
stock and retire treasury stock by resolution of the board of
directors. The amount of own stock purchased cannot exceed the
amount available for distribution to the shareholders which is
determined by a specific formula.
Under the Corporation Law, stock acquisition rights are
presented as a separate component of equity.
The Corporation Law also provides that companies can purchase
both own stock and stock acquisition rights in their own companies.
Such treasury stock is presented as a separate component of equity.
Such stock acquisition rights are presented as a separate component
of equity or deducted directly from stock acquisition rights.
On May 20, 2011, the Company retired 13.9 million shares of treasury
stock by the resolution of the Board of Directors at the meeting held on
April 26, 2011. The Company purchased 0.3 million shares of its
common stock from untraceable shareholders on September 21, at an
aggregate cost of ¥619 million (US$7,531 thousand).
Kao Annual Report 2012 53
11
Stock-Based Compensation Plans
The stock options for the year ended March 31, 2012 were as follows:
Name
Persons originally granted
Number of options
originally granted
Date of grant
Exercise price Exercise price
(U.S. dollars)
(Yen)
Stock option 2004
Stock option 2005
Stock option 2006 I
13 Directors of the Company
89 Employees of the Company
5 Directors of subsidiaries
of the Company
13 Directors of the Company
90 Employees of the Company
5 Directors of subsidiaries
of the Company
12 Executive Officers
of the Company**
1,163,000 shares*
July 8, 2004
¥2,695
$32.79
1,167,000 shares*
July 8, 2005
¥2,685
$32.67
Stock option 2006 II
14 Directors of the Company
26,000 shares*
September 29, 2006
12,000 shares*
September 29, 2006
¥1
¥1
$0.01
$0.01
Stock option 2006 III
79 Employees of the Company
4 Directors of subsidiaries
of the Company
437,000 shares*
September 29, 2006
¥3,211
$39.07
Stock option 2007 I
13 Directors of the Company
25,000 shares*
August 31, 2007
Stock option 2007 II
14 Executive Officers
of the Company***
14,000 shares*
August 31, 2007
¥1
¥1
$0.01
$0.01
Stock option 2007 III
78 Employees of the Company
4 Directors of subsidiaries
of the Company
430,000 shares*
August 31, 2007
¥3,446
$41.93
Stock option 2008 I
14 Directors of the Company
24,000 shares*
August 29, 2008
Stock option 2008 II
12 Executive Officers
of the Company****
12,000 shares*
August 29, 2008
¥1
¥1
$0.01
$0.01
Stock option 2008 III
81 Employees of the Company
4 Directors of subsidiaries
of the Company
447,000 shares*
August 29, 2008
¥3,100
$37.72
Stock option 2009 I
13 Directors of the Company
36,000 shares*
August 28, 2009
Stock option 2009 II
12 Executive Officers
of the Company*****
24,000 shares*
August 28, 2009
¥1
¥1
$0.01
$0.01
Stock option 2009 III
74 Employees of the Company
8 Directors of subsidiaries
of the Company
430,000 shares*
August 28, 2009
¥2,355
$28.65
Stock option 2010 I
14 Directors of the Company
38,000 shares*
August 25, 2010
Stock option 2010 II
12 Executive Officers
of the Company******
24,000 shares*
August 25, 2010
¥1
¥1
$0.01
$0.01
Stock option 2010 III
81 Employees of the Company
2 Directors of subsidiaries
of the Company
435,000 shares*
August 25, 2010
¥2,190
$26.65
Stock option 2011 I
13 Directors of the Company
36,000 shares*
August 25, 2011
Stock option 2011 II
13 Executive Officers
of the Company*******
26,000 shares*
August 25, 2011
¥1
¥1
$0.01
$0.01
Stock option 2011 III
81 Employees of the Company
1 Director of subsidiary
of the Company
1 Employee of subsidiary
of the Company
435,000 shares*
August 25, 2011
¥2,254
$27.42
* The number of options originally granted converts into number of shares of common stock.
** The 12 Executive Officers were not members of the Board of Directors of the Company at the date of grant.
*** The 14 Executive Officers were not members of the Board of Directors of the Company at the date of grant.
**** The 12 Executive Officers were not members of the Board of Directors of the Company at the date of grant.
***** The 12 Executive Officers were not members of the Board of Directors of the Company at the date of grant.
****** The 12 Executive Officers were not members of the Board of Directors of the Company at the date of grant.
******* The 13 Executive Officers were not members of the Board of Directors of the Company at the date of grant.
54 Kao Annual Report 2012
Exercise period
July 1, 2006
through
June 30, 2011
July 1, 2007
through
June 29, 2012
July 1, 2008
through
June 28, 2013
July 1, 2008
through
June 28, 2013
July 1, 2008
through
June 28, 2013
July 1, 2009
through
June 30, 2014
July 1, 2009
through
June 30, 2014
September 1, 2009
through
August 29, 2014
July 1, 2010
through
June 30, 2015
July 1, 2010
through
June 30, 2015
September 1, 2010
through
August 31, 2015
July 1, 2011
through
June 30, 2016
July 1, 2011
through
June 30, 2016
September 1, 2011
through
August 30, 2016
July 1, 2012
through
June 30, 2017
July 1, 2012
through
June 30, 2017
September 1, 2012
through
August 31, 2017
July 1, 2013
through
June 29, 2018
July 1, 2013
through
June 29, 2018
September 1, 2013
through
August 31, 2018
The activity of stock options was as follows:
(Number of shares)
Stock option Stock option Stock option Stock option Stock option Stock option Stock option Stock option Stock option Stock option Stock option
2007 I
2006 II 2006 III
2007 II 2007 III
2008 II 2008 III
2006 I
2008 I
2004
2005
For the year ended March 31, 2012
Non-vested
Outstanding at
March 31, 2011 ............................
Granted ......................................
Expired .......................................
Vested ........................................
Outstanding at
March 31, 2012 .............................
Vested
Outstanding at
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
March 31, 2011 ..............................
Vested ........................................
Exercised ....................................
Expired .......................................
624,000
—
—
624,000
807,000
—
—
69,000
4,000
—
1,000
—
4,000
—
—
—
372,000
—
—
35,000
6,000
—
—
—
6,000
—
1,000
—
391,000
—
—
30,000
13,000
—
5,000
—
7,000
—
1,000
—
442,000
—
—
—
Outstanding at
March 31, 2012 ..............................
—
738,000
3,000
4,000
337,000
6,000
5,000
361,000
8,000
6,000
442,000
Exercise price
Yen .................................................
U.S. dollars .....................................
¥2,695
$32.79
¥2,685
$32.67
¥1
$0.01
¥1
$0.01
¥3,211
$39.07
¥1
$0.01
¥1
$0.01
¥3,446
$41.93
¥1
$0.01
¥1
$0.01
¥3,100
$37.72
Average stock price at exercise
Yen .................................................
U.S. dollars .....................................
Fair value price at grant date ..............
Yen .................................................
U.S. dollars .....................................
—
—
—
—
—
—
—
—
¥2,166
$26.35
—
—
—
—
—
—
¥2,070
$25.19
—
—
¥2,039
$24.81
¥2,075
$25.25
—
—
¥2,932
$35.67
¥2,932
$35.67
¥435
$5.29
¥3,063
$37.27
¥3,063
$37.27
¥420
$5.11
¥2,865
$34.86
¥2,865
$34.86
¥426
$5.18
Kao Annual Report 2012 55
Stock option Stock option Stock option Stock option Stock option Stock option Stock option Stock option Stock option
2011 III
2010 II
2009 III
2010 III
2009 II
2011 II
2011 I
2009 I
2010 I
(Number of shares)
For the year ended March 31, 2012
Non-vested
Outstanding at
March 31, 2011 ............................
Granted ......................................
Expired .......................................
Vested ........................................
Outstanding at
March 31, 2012 .............................
Vested
Outstanding at
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
36,000
—
36,000
—
26,000
—
26,000
—
435,000
—
435,000
—
—
—
March 31, 2011 ..............................
Vested ........................................
Exercised ....................................
Expired .......................................
36,000
—
16,000
—
24,000
—
9,000
—
430,000
—
—
—
38,000
—
—
—
24,000
—
—
—
435,000
—
—
—
—
36,000
—
—
—
26,000
—
—
—
435,000
—
—
Outstanding at
March 31, 2012 ..............................
20,000
15,000
430,000
38,000
24,000
435,000
36,000
26,000
435,000
Exercise price
Yen .................................................
U.S. dollars .....................................
Average stock price at exercise
¥1
$0.01
¥1
$0.01
¥2,355
$28.65
¥1
$0.01
¥1
$0.01
¥2,190
$26.65
¥1
$0.01
¥1
$0.01
¥2,254
$27.42
Yen .................................................
U.S. dollars .....................................
Fair value price at grant date ..............
Yen .................................................
U.S. dollars .....................................
¥2,059
$25.05
¥2,115
$25.73
¥2,055
$25.00
—
—
—
—
—
—
—
—
—
—
—
—
—
—
¥2,115
$25.73
¥394
$4.79
¥1,749
$21.28
¥1,749
$21.28
¥245
$2.98
¥1,718
$20.90
¥1,718
$20.90
¥211
$2.57
The fair value prices for 2011 stock options were estimated using the Black-Scholes Option Pricing Model with the following assumptions:
Stock option
2011 I
Stock option
2011 II
Stock option
2011III
Volatility of stock price ...........................................................................................
Estimated remaining outstanding period ...............................................................
Estimated dividend per share
25.396%
4.5 years
Yen ......................................................................................................................
U.S. dollars ..........................................................................................................
Risk-free interest rate ............................................................................................
¥58
$0.71
0.295%
25.396%
4.5 years
¥58
$0.71
0.295%
25.396%
4.5 years
¥58
$0.71
0.295%
56 Kao Annual Report 2012
12
Comprehensive Income
Each component of other comprehensive income for the year ended March 31, 2012 was the following:
Millions of yen
2012
Thousands of
U.S. dollars
2012
Unrealized gain (loss) on available-for-sale securities:
Gains arising during the year ...........................................................................................................
Reclassification adjustments to profit or loss ..................................................................................
Amount before income tax effect ....................................................................................................
Income tax effect .............................................................................................................................
Total .................................................................................................................................................
Foreign currency translation adjustments
Adjustments arising during the year ................................................................................................
Reclassification adjustments to profit or loss ..................................................................................
Amount before income tax effect ....................................................................................................
Income tax effect .............................................................................................................................
Total .................................................................................................................................................
Share of other comprehensive income in affiliates
¥ 517
12
529
(42)
¥ 487
¥(12,169)
—
(12,169)
—
¥(12,169)
Gains arising during the year ..........................................................................................................
Total .................................................................................................................................................
¥ (172)
¥ (172)
Post retirement liability adjustments for foreign consolidated subsidiaries
Adjustments arising during the year ................................................................................................
Reclassification adjustments to profit or loss ..................................................................................
Amount before income tax effect ....................................................................................................
Income tax effect .............................................................................................................................
Total .................................................................................................................................................
¥ (2,049)
87
(1,962)
726
¥ (1,236)
$ 6,290
146
6,436
(511)
$ 5,925
$(148,059)
—
(148,059)
—
$(148,059)
$ (2,093)
$ (2,093)
$ (24,930)
1,059
(23,871)
8,833
$ (15,038)
Total other comprehensive income ..............................................................................................
¥(13,090)
$(159,265)
The corresponding information for the year ended March 31, 2011
was not required under the accounting standard for presentation of
comprehensive income as an exemption for the first year of
adopting that standard and not disclosed herein.
13
Segment Information
(1) Description of reportable segments
The Companies’ reportable segments are components for which
separate financial information is available, and whose operating
results are reviewed regularly by the chief operating decision maker
in order to determine allocation of resources and assess segment
performance.
The Companies are organized into four business operating units,
the Beauty Care Business, the Human Health Care Business and
the Fabric and Home Care Business (collectively, the Consumer
Products Business) and the Chemical Business. Each business
operating unit plans comprehensive strategies for business in
Japan and other countries, and conducts its own business activities.
Therefore, the Companies have four reportable segments: the
Beauty Care Business, the Human Health Care Business, the Fabric
and Home Care Business and the Chemical Business. The Beauty
Care Business segment manufactures and sells prestige
cosmetics, premium skin care and premium hair care products. The
Human Health Care Business segment manufactures and sells food
and beverage, sanitary and personal health products. The Fabric and
Home Care Business segment manufactures and sells fabric care
and home care products. The Chemical Business segment
manufactures and sells oleo chemicals, performance chemicals and
specialty chemicals.
(2) Methods of measurement for sales, profit (loss), assets, and
other items for reportable segments
The amount of segment profit corresponds to that of operating
income. Intersegment sales and transfer prices are calculated
mainly based on market value or manufacturing cost.
Kao Annual Report 2012 57
Information by reportable segment of the Companies for the years ended March 31, 2012 and 2011 was as follows::
Millions of yen
2012
Reportable segment
Consumer Products Business
Human Health Fabric and Home
Care Business Care Business
Total
¥181,758
—
181,758
¥ 14,630
¥ 99,535
—
285,645
¥285,645 ¥1,005,341
—
1,005,341
¥ 55,544 ¥ 85,586
¥128,858 ¥ 724,570
Beauty Care
Business
¥537,938
—
537,938
¥ 15,412
¥496,177
Chemical
Business
¥210,755
36,880
247,635
¥ 23,001
¥194,582
Reconciliations*
¥ —
(36,880)
(36,880)
¥ 3
¥ 72,120
Consolidated
¥1,216,096
—
1,216,096
¥ 108,590
¥ 991,272
¥ 37,766
¥ 7,926
¥ 9,794 ¥ 55,486
¥ 11,648
¥ —
¥ 67,134
1,780
1,083
1,239
4,102
1,661
13,106
11,520
12,219
36,845
10,333
—
—
5,763
47,178
Sales to customers ...........................
Intersegment sales ...........................
Total sales .........................................
Segment profit (Operating income) ...
Segment assets ................................
Other
Depreciation and amortization** ....
Investments in equity
method affiliates .........................
Increase in property, plant and
equipment and intangible assets ..
* Reconciliation of segment profit includes elimination of intersegment transactions of inventory.
Reconciliation of assets includes ¥78,742 million of the Company’s financial assets and negative ¥6,622 million elimination of receivables among reportable
segments.
**Depreciation and amortization excludes amortization of goodwill.
Millions of yen
2011
Reportable segment
Beauty Care
Business
¥533,514
—
533,514
¥ 5,536
¥547,092
Consumer Products Business
Human Health Fabric and Home
Care Business Care Business
¥279,008
—
279,008
¥ 59,659
¥124,561
¥175,761
—
175,761
¥ 15,284
¥ 87,127
Total
¥988,283
—
988,283
¥ 80,479
¥758,780
Chemical
Business
¥198,548
33,449
231,997
¥ 24,100
¥186,704
Reconciliations*
¥ —
(33,449)
(33,449)
¥ 12
¥ 77,315
Consolidated
¥1,186,831
—
1,186,831
¥ 104,591
¥1,022,799
¥ 39,186
¥ 7,902
¥ 9,438
¥ 56,526
¥ 12,347
¥ —
¥ 68,873
1,603
936
1,019
3,558
1,483
16,276
8,871
12,223
37,370
11,731
—
—
5,041
49,101
Sales to customers ...........................
Intersegment sales ...........................
Total sales .........................................
Segment profit (Operating income) ...
Segment assets ................................
Other
Depreciation and amortization** ....
Investments in equity
method affiliates .........................
Increase in property, plant and
equipment and intangible assets ..
* Reconciliation of segment profit includes elimination of intersegment transactions of inventory.
Reconciliation of assets includes ¥81,193 million of the Company’s financial assets and negative ¥3,878 million elimination of receivables among reportable
segments.
**Depreciation and amortization excludes amortization of goodwill.
58 Kao Annual Report 2012
Thousands of U.S. dollars
2012
Reportable segment
Consumer Products Business
Beauty Care
Business
Human Health Fabric and Home
Care Business Care Business
Total
Sales to customers ........................... $6,545,054 $2,211,437 $3,475,423 $12,231,914
Intersegment sales ...........................
—
—
Total sales .........................................
3,475,423 12,231,914
6,545,054
Segment profit (Operating income) ... $ 187,517
$ 178,002 $ 675,800 $ 1,041,319
Segment assets ................................ $6,036,952
$1,211,035 $1,567,806 $ 8,815,793
—
2,211,437
—
Chemical
Business
$2,564,241
448,716
3,012,957
$ 279,851
$2,367,466
Reconciliations*
$ —
(448,716)
(448,716)
$ 37
$ 877,478
Consolidated
$14,796,155
—
14,796,155
$ 1,321,207
$12,060,737
Other
Depreciation and amortization** .... $ 459,496
$ 96,435 $ 119,163 $ 675,094 $ 141,721
$ —
$ 816,815
Investments in equity
method affiliates .........................
Increase in property, plant and
equipment and intangible assets ..
21,657
13,177
15,075
49,909
20,209
159,460
140,163
148,668
448,291
125,720
—
—
70,118
574,011
* Reconciliation of segment profit includes elimination of intersegment transactions of inventory.
Reconciliation of assets includes $958,048 thousand of the Company’s financial assets and negative $80,570 thousand elimination of receivables among
reportable segments.
**Depreciation and amortization excludes amortization of goodwill.
(b) Information related to reportable segments
Sales by geographic area for the years ended March 31, 2012 and 2011 were as follows:
Sales to customers ......................................................
Japan
¥887,100
Asia/Oceania*
¥138,821
Sales to customers ......................................................
Japan
¥874,771
Asia/Oceania*
¥131,473
Millions of yen
2012
America**
¥87,289
Millions of yen
2011
America**
¥83,082
Europe***
¥102,886
Consolidated
¥1,216,096
Europe***
¥97,505
Consolidated
¥1,186,831
Sales to customers ......................................................
Japan
$10,793,284
Asia/Oceania*
$1,689,025
America**
$1,062,039
Europe***
$1,251,807
Consolidated
$14,796,155
Note: Sales are classified in countries or regions based on location of customers
Thousands of U.S. dollars
2012
Kao Annual Report 2012 59
Property, plant and equipment by geographic area for the years ended March 31, 2012 and 2011 were as follows:
Property, plant and equipment ....................................
Japan
¥190,318
Asia/Oceania*
¥29,496
Property, plant and equipment ....................................
Japan
¥190,878
Asia/Oceania*
¥29,956
Millions of yen
2012
America**
¥6,980
Millions of yen
2011
America**
¥8,123
Europe***
¥13,785
Consolidated
¥240,579
Europe***
¥15,767
Consolidated
¥244,724
Thousands of U.S. dollars
2012
Property, plant and equipment ....................................
Japan
$2,315,586
Asia/Oceania*
$358,876
America**
$84,925
Europe***
$167,721
Consolidated
$2,927,108
* Asia/ Oceania: Asia and Oceania ** America: North America
*** Europe: Europe and South Africa
(c) Impairment losses by reportable segment
Impairment losses by reportable segment for the years ended March 31, 2012 and 2011 were as follows:
Millions of yen
2012
Impairment losses of assets ..............
Reportable segment
Beauty Care
Business
¥193
Consumer Products Business
Human Health Fabric and Home
Care Business Care Business
¥90
¥137
Total
¥420
Chemical
Business
¥1
Reconciliations
¥—
Consolidated
¥421
Impairment losses of assets ..............
Reportable segment
Beauty Care
Business
¥63
Consumer Products Business
Human Health Fabric and Home
Care Business Care Business
¥32
¥48
Total
¥143
Chemical
Business
¥210
Reconciliations
¥ —
Consolidated
¥353
Millions of yen
2011
Impairment losses of assets ..............
Beauty Care
Business
$2,348
Consumer Products Business
Human Health Fabric and Home
Care Business Care Business
$1,095
$1,667
Total
$5,110
Chemical
Business
$12
Reconciliations
$—
Consolidated
$5,122
Thousands of U.S. dollars
2012
Reportable segment
60 Kao Annual Report 2012
(d) Amortization and balance of goodwill by reportable segment
Amortization and balance of goodwill by reportable segment for the years ended March 31, 2012 and 2011 were as follows:
Millions of yen
2012
Reportable segment
Amortization of goodwill ....................
Goodwill at March 31, 2012 ..............
Beauty Care
Business
¥ 12,664
165,614
Consumer Products Business
Human Health Fabric and Home
Care Business Care Business
¥—
—
¥—
—
Total
¥ 12,664
165,614
Chemical
Business
¥—
—
Reconciliations
¥—
—
Consolidated
¥ 12,664
165,614
Millions of yen
2011
Reportable segment
Amortization of goodwill ....................
Goodwill at March 31, 2011 ..............
Beauty Care
Business
¥ 12,507
179,225
Consumer Products Business
Human Health Fabric and Home
Care Business Care Business
¥ —
—
¥ —
—
Total
¥ 12,507
179,225
Chemical
Business
¥ —
—
Reconciliations
¥ —
—
Consolidated
¥ 12,507
179,225
Thousands of U.S. dollars
2012
Reportable segment
Beauty Care
Business
Amortization of goodwill .................... $ 154,082
Goodwill at March 31, 2012 ..............
2,015,014
Consumer Products Business
Human Health Fabric and Home
Care Business Care Business
$—
—
$—
—
Total
$ 154,082
2,015,014
Chemical
Business
$—
—
Reconciliations
$—
—
Consolidated
$ 154,082
2,015,014
14
Selling, General and Administrative Expenses
Selling, general and administrative expenses principally consisted of the following:
Advertising ................................................................................................................
Promotion .................................................................................................................
Research and development ......................................................................................
Salaries and bonuses ................................................................................................
Packing and delivery expenses .................................................................................
15
Other Income (Expenses)
“Other, net” consisted of the following:
Gain on sales of investment securities .....................................................................
Loss related to the Great East Japan Earthquake ....................................................
Effect of application of Accounting Standard for Asset Retirement Obligations ......
Loss on sales or disposals of property, plant and equipment, net ...........................
Insurance ..................................................................................................................
Other, net .................................................................................................................
Total ......................................................................................................................
Millions of yen
2012
¥ 82,209
62,980
48,171
121,787
68,388
2011
¥ 81,082
64,655
45,516
124,348
66,924
Millions of yen
2012
¥ —
(2,028)
—
(2,202)
39
958
¥(3,233)
2011
¥ 186
(4,129)
(1,634)
(1,334)
—
1,951
¥(4,960)
Thousands of
U.S. dollars
2012
$1,000,231
766,273
586,093
1,481,774
832,072
Thousands of
U.S. dollars
2012
$ —
(24,675)
—
(26,792)
475
11,656
$(39,336)
Kao Annual Report 2012 61
16
Financial Instruments
(1) Group policy for financial instruments
The Companies position excess cash as standby funds until
investing them in business activities, and manage them by
investment only in short-term, low-risk financial instruments. The
Companies have a policy to finance by debt from financial
institutions and issuance of corporate bonds and other instruments
in capital markets. The Companies use derivatives to hedge risk
and do not use derivatives for the purposes of speculation.
(2) Nature and extent of risks arising from financial
instruments and risk management
Receivables such as trade notes and trade accounts are exposed
to customer credit risk. The Companies manage this risk by
ensuring their internal deliberations and approval processes of
reviewing customers’ credit standing before entering into
transactions with new customers. In addition, the Companies
secure guarantee deposits or collaterals as necessary.
Furthermore, the Companies monitor due dates and manage
balances of receivables by customer and periodically check the
credit risk of key customers.
Marketable securities, which consist of commercial papers of
highly-rated companies and bond investment trusts including MMF
and others, are highly safe and liquid financial instruments.
Investment securities, which consist mainly of stock of business
partners, are exposed to stock price volatility risk. The Companies
periodically check the validity of their stockholdings.
Payment terms of payables, such as trade notes and trade
accounts, are mostly less than one year.
Loans, principally from financial institutions, in short-term debt
are mainly for financing related to operating activities. Bonds and
loans principally from financial institutions in long-term debt are for
financing related to M&A and investment in property, plant and
equipment. Certain loans with floating interest rates are exposed
to interest rate volatility risk. The Companies use interest rate
swaps for the purpose of hedging the interest rate volatility risk by
converting the floating rates into fixed rates.
Derivative transactions entered into and managed by the
Companies are made in accordance with internal policies that
regulate objectives, credit limit amount, scope, organization and
others. The Companies do not use derivatives for the purpose of
speculation. All derivative transactions are entered into to meet
requirements for hedging risk incorporated in the Companies’
business. The Companies limit the counterparties to these
derivative transactions to major international financial institutions
to reduce their credit risk.
With regard to payables, such as trade notes, trade accounts
and loans, the Companies monitor and manage liquidity risk by
preparing monthly forecast statements of cash flows of each
company.
(3) Fair values of financial instruments
Fair values of financial instruments are based on the quoted price
in active markets. If a quoted price is not available, other rational
valuation techniques are used. Also see Note 17 for details of the
fair values of derivatives. The contract amounts of derivatives
which are shown in Note 17 do not represent the amounts
exchanged by the parties and do not measure the Companies’
exposure to credit or market risk.
The carrying amount, fair value and unrealized gain or loss of financial instruments as of March 31, 2012 and 2011 consisted of the following:
Cash and time deposits ........................................................................................
Short-term investments .......................................................................................
Notes and accounts receivable .............................................................................
Allowance for doubtful receivables ...................................................................
Notes and accounts receivable, net ..................................................................
Investment securities ...........................................................................................
Total ...................................................................................................................
Short-term debt ....................................................................................................
Current portion of long-term debt .........................................................................
Notes and accounts payable .................................................................................
Income taxes payable ...........................................................................................
Long-term debt .....................................................................................................
Total ...................................................................................................................
Carrying
amount
¥ 85,483
48,798
146,371
(1,020)
145,351
6,335
¥285,967
¥ 2,060
811
158,352
18,306
106,565
¥286,094
Millions of yen
2012
Fair
value
¥ 85,483
48,798
145,351
6,335
¥285,967
¥ 2,060
773
158,352
18,306
107,441
¥286,932
Unrealized
gain/(loss)
¥ —
—
—
—
¥ —
¥ —
38
—
—
(876)
¥ (838)
Derivatives ............................................................................................................
¥ (340)
¥ (340)
¥ —
62 Kao Annual Report 2012
Cash and time deposits ........................................................................................
Short-term investments .......................................................................................
Notes and accounts receivable .............................................................................
Allowance for doubtful receivables ...................................................................
Notes and accounts receivable, net ..................................................................
Investment securities ...........................................................................................
Total ...................................................................................................................
Short-term debt ....................................................................................................
Current portion of long-term debt .........................................................................
Notes and accounts payable .................................................................................
Income taxes payable ...........................................................................................
Long-term debt .....................................................................................................
Total ...................................................................................................................
Carrying
amount
¥110,762
37,028
124,973
(1,002)
123,971
5,828
¥277,589
¥ 6,776
80,795
151,028
18,785
77,451
¥334,835
Millions of yen
2011
Fair
value
¥110,762
37,028
123,971
5,828
¥277,589
¥ 6,776
81,261
151,028
18,785
79,340
¥337,190
Unrealized
gain/(loss)
¥ —
—
—
—
¥ —
¥ —
(466)
—
—
(1,889)
¥(2,355)
Derivatives ............................................................................................................
¥ 80
¥ 80
¥ —
Cash and time deposits ........................................................................................
Short-term investments .......................................................................................
Notes and accounts receivable .............................................................................
Allowance for doubtful receivables ...................................................................
Notes and accounts receivable, net ..................................................................
Investment securities ...........................................................................................
Total ...................................................................................................................
Short-term debt ....................................................................................................
Current portion of long-term debt .........................................................................
Notes and accounts payable .................................................................................
Income taxes payable ...........................................................................................
Long-term debt .....................................................................................................
Total ...................................................................................................................
Thousands of U.S. dollars
2012
Fair
value
$1,040,066
593,722
1,768,475
77,078
$3,479,341
$ 25,064
9,405
1,926,658
222,728
1,307,227
$3,491,082
Carrying
amount
$1,040,066
593,722
1,780,886
(12,411)
1,768,475
77,078
$3,479,341
$ 25,064
9,867
1,926,658
222,728
1,296,569
$3,480,886
Unrealized
gain/(loss)
$ —
—
—
—
$ —
$ —
462
—
—
(10,658)
$(10,196)
Derivatives ............................................................................................................
$ (4,137)
$ (4,137)
$ —
Cash and time deposits
The carrying values of cash and time deposits approximate fair value
because of their short maturities.
Notes and accounts receivables
The carrying values of notes and accounts receivable approximate
fair value because of their short maturities.
Short-term investments and investment securities
The fair value of marketable equity securities is measured at the
quoted market price of the stock exchange. The fair value of
marketable debt securities is measured at the quoted market price
of the stock exchange or at the quoted price obtained from the
financial institutions if there is no quoted market price. The carrying
value of other marketable securities, such as commercial papers,
investment trust funds and other which consist of MMF and others,
approximate fair value because of their short maturities. See Note 4
for information of the fair value of short-term investments and
investment securities by classification.
Short-term debt
The carrying values of short-term debt approximate fair value
because of their short maturities.
Current portion of long-term debt
The fair value of fixed interest loans is measured at the present
value by discounting expected repayments of principal and interest
in the remaining period using an assumed interest rate on an
equivalent new loan.
Kao Annual Report 2012 63
Notes and accounts payable
The carrying values of notes and accounts payable approximate fair
value because of their short maturities.
Long-term debt
The fair value of bonds issued by the Company is measured at the
quoted market price.
The fair value of fixed interest loans is measured at the present
value by discounting expected repayments of principal and interest
in the remaining period using an assumed interest rate on an
equivalent new loan.
The fair value of long-term loans subject to a special accounting
method for interest rate swaps which qualify for hedge accounting
and meet specific matching criteria is measured at the present
value by discounting expected repayments of principal and interest
together with the interest rate swaps in the remaining period using
an assumed interest rate on an equivalent new loan.
The fair value of lease obligations is measured at the present
value by discounting expected repayments of lease obligations
including interest in the remaining period using an assumed interest
rate on equivalent new lease obligations.
Derivatives
Information on fair value of derivatives is included in Note 17.
The carrying amount of financial instruments whose fair value cannot be reliably determined as of March 31, 2012 and 2011 consisted of the following:
Investment securities that do not have a quoted
market price in an active market ............................................................................
¥1,181
¥1,195
$14,369
Millions of yen
2012
2011
Thousands of
U.S. dollars
2012
(4) Maturity analysis for financial assets and securities with contractual maturities
The maturity analysis for financial assets and securities with contractual maturities as of March 31, 2012 was as follows:
Due within
one year
Millions of yen
Due after
one year
through five
years
Due after
five years
through ten
years
Cash and time deposits ............................................................................................ ¥ 85,483
Short-term investments and investment securities
Held-to-maturity debt securities ...........................................................................
10,000
Available-for-sale other securities with contractual maturities .............................
147
Notes and accounts receivable .................................................................................
146,371
Total ...................................................................................................................... ¥242,001
¥—
—
—
—
¥—
¥—
—
—
—
¥—
Due within
one year
Thousands of U.S. dollars
Due after
one year
through five
years
Due after
five years
through ten
years
Cash and time deposits ............................................................................................ $1,040,066
Short-term investments and investment securities
Held-to-maturity debt securities ...........................................................................
121,668
Available-for-sale other securities with contractual maturities .............................
1,789
Notes and accounts receivable .................................................................................
1,780,886
Total ...................................................................................................................... $2,944,409
$—
—
—
—
$—
$—
—
—
—
$—
Please see Note 5 for annual maturities of long-term debt.
Due after
ten years
¥—
—
—
—
¥—
Due after
ten years
$—
—
—
—
$—
64 Kao Annual Report 2012
17
Derivatives
(a) Derivative transactions to which hedge accounting is not applied
The Companies had the following derivative contracts outstanding to which hedge accounting was not applied at March 31, 2012 and 2011:
2012
2011
Millions of yen
Contract
amount
Contract
amount
due after
one year
Fair
value
Unrealized
gain/(loss)
Contract
amount
Foreign exchange forward contracts:
Buying U.S. Dollar ............................................... ¥ 1,087
Buying Japanese Yen .........................................
81
Buying British Pound ..........................................
774
Buying other currencies ......................................
3
Selling U.S. Dollar ...............................................
11,082
Selling other currencies ......................................
2,733
Foreign currency swaps:
Selling put option British Pound ......................... ¥ 464
Option premium ..........................................
—
Buying call option U.S. Dollar .............................
334
Option premium ..........................................
—
Buying call option Euro ......................................
302
Option premium ...........................................
—
¥ —
—
—
—
714
—
¥ —
—
—
—
—
—
¥ 9
2
28
0
(284)
(96)
¥ (14)
—
12
—
3
—
¥ 9
2
28
0
(284)
(96)
¥ (14)
—
12
—
3
—
¥1,010
49
806
233
7,301
3,863
¥ —
—
—
—
—
—
Contract
amount
due after
one year
¥ 331
—
—
—
1,569
—
¥ —
—
—
—
—
—
Fair
value
Unrealized
gain/(loss)
¥ (42)
1
36
27
(52)
110
¥ —
—
—
—
—
—
¥ (42)
1
36
27
(52)
110
¥ —
—
—
—
—
—
Thousands of U.S. dollars
2012
Contract
amount
Contract
amount
due after
one year
Fair
value
Unrealized
gain/(loss)
Foreign exchange forward contracts:
Buying U.S. Dollar ............................................... $ 13,225
Buying Japanese Yen .........................................
986
Buying British Pound ..........................................
9,417
Buying other currencies ......................................
37
Selling U.S. Dollar ............................................... 134,834
Selling other currencies ......................................
33,252
Foreign currency swaps:
Selling put option British Pound ......................... $ 5,645
Option premium ..........................................
—
Buying call option U.S. Dollar .............................
4,064
Option premium ..........................................
—
Buying call option Euro ......................................
3,674
Option premium ...........................................
—
$ —
—
—
—
8,687
—
$ —
—
—
—
—
—
$ 110
24
341
0
(3,456)
(1,169)
$ 110
24
341
0
(3,456)
(1,169)
$ (170) $ (170)
—
146
—
37
—
—
146
—
37
—
(b) Derivative transactions to which hedge accounting is applied
The Companies had the following derivative contracts outstanding to which hedge accounting was applied at March 31, 2012:
Hedged
item
Contract
amount
Millions of yen
2012
Contract
amount
due after
one year
Fair
value
Thousands of U.S. dollars
2012
Contract
amount
due after
one year
Fair
value
Contract
amount
Interest rate swaps:
(Fixed rate payment, Floating rate receipt) ..........
Long-term
debt
¥40,000 ¥40,000
—
$486,677 $486,677 —
The interest rate swaps which qualify for hedge accounting and
meet specific matching criteria are not remeasured at market value
but the differentials paid or received under the swap agreements
are recognized and included in interest expense or income. In
addition, the fair value of the interest rate swaps is included in that
of the hedged item, long-term debt, in Note 16.
Kao Annual Report 2012 65
18
Net Income per Share
A reconciliation of the differences between basic and diluted net income per share (“EPS”) for the years ended March 31, 2012 and 2011
was as follows:
For the year ended March 31, 2012:
Basic EPS
Net income available to common shareholders ......................
Effect of dilutive securities
Warrants .................................................................................
Diluted EPS
Net income for computation ...................................................
Millions of yen
Net income
Thousands of
shares
Weighted
average shares
Yen
U.S. dollars
EPS
¥52,435
521,936
¥100.46
$1.22
—
183
¥52,435
522,119
¥100.43
$1.22
For the year ended March 31, 2011:
Basic EPS
Net income available to common shareholders ......................
Effect of dilutive securities
Warrants .................................................................................
Diluted EPS
Net income for computation ...................................................
Millions of yen
Net income
Thousands of
shares
Weighted
average shares
Yen
EPS
¥46,738
532,980
¥87.69
—
151
¥46,738
533,131
¥87.67
Supplemental information
Reorganization of Beauty Care Business in North America
and Europe
In order to conduct integrated management by unifying multiple
managements of Beauty Care Business in each country in North
America and Europe, the Company has been conducting a
sequential reorganization within the Group since January 2012.
As a result, major companies subject to reorganization and changes
to their corporate names as of March 31, 2012 were as follows:
Country
Before Reorganization
After Reorganization
United States of America
KPSS, Inc.
Kao Brands Company
KMS Global Marketing LLC
Kao Brands Canada Inc.
KPSS Canada Ltd.
Canada
Germany
Kao USA Inc.
Kao Canada Inc.
KPSS – Kao Professional Salon Services GmbH
Kao Germany GmbH
United Kingdom
Kao Brands Europe Limited
Switzerland
Netherlands
Singapore
KPSS AG
KPSS Netherland B.V.
Kao (Singapore) Private Limited
KPSS Pte. Ltd.
Kao (UK) Limited
Kao Switzerland AG
Kao Netherlands B.V.
Kao Singapore Private Limited
66 Kao Annual Report 2012
Independent Auditor’s Report
Kao Annual Report 2012 67
Principal Subsidiaries and Affiliates (As of June 28, 2012)
Country/Area
Business
Company
Country/Area
Business
Company
●
●
Kao Customer Marketing Co., Ltd.
Japan
China
Taiwan
Vietnam
Philippines
Thailand
Malaysia
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
Kanebo Cosmetics Inc.
E'quipe, Ltd.
Lissage Ltd.
Kanebo Cosmillion Ltd.
Nivea-Kao Co., Ltd.
Ehime Sanitary Products Co., Ltd.
Kao Professional Services Co., Ltd.
Kao-Quaker Co., Ltd.
Kao (China) Holding Co., Ltd.
Kao Corporation Shanghai
Kao Commercial (Shanghai) Co., Ltd.
Kanebo Cosmetics (China) Co., Ltd.
Shanghai Kanebo Cosmetics Co., Ltd.
Kao Chemical Corporation Shanghai
Switzerland
Kao Trading Corporation Shanghai
Kao (Hong Kong) Ltd.
Spain
●
Kao (Taiwan) Corporation
●
●
Kao Vietnam Co., Ltd.
Pilipinas Kao, Incorporated
Kao Industrial (Thailand) Co., Ltd.
Kao Commercial (Thailand) Co., Ltd.
Kao Soap (Malaysia) Sdn. Bhd.
Canada
United States
Mexico
Germany
Netherlands
United Kingdom
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
Kao Canada Inc.
Kao USA Inc.
Kao America Inc.
Kao Specialties Americas LLC
Quimi-Kao, S.A. de C.V.
Kao Germany GmbH
Guhl Ikebana GmbH
Kao Corporation GmbH
●
Kao Chemicals GmbH
Kao Netherlands B.V.
Kao (UK) Limited
KPSS (UK) Limited
Kao Prestige Limited
Molton Brown Limited
Kao Switzerland AG
Kanebo Cosmetics (Europe) Ltd.
●
●
Kao Chemicals Europe, S.L.
Kao Corporation S.A.
Consumer Products Business
● Beauty Care Business
● Human Health Care Business
● Fabric and Home Care Business
Chemical Business
● Chemical Business
●
●
Kao (Malaysia) Sdn. Bhd.
●
●
●
●
Fatty Chemical (Malaysia) Sdn. Bhd.
Kao Plasticizer (Malaysia) Sdn. Bhd.
Kao Oleochemical (Malaysia) Sdn. Bhd.
Kao Singapore Private Limited
P.T. Kao Indonesia
●
P.T. Kao Indonesia Chemicals
Singapore
Indonesia
●
●
●
●
●
●
68 Kao Annual Report 2012
Investor Information (As of March 31, 2012)
Kao Corporation
Head Office
14-10, Nihonbashi Kayabacho 1-chome
Chuo-ku, Tokyo 103-8210, Japan
Telephone: 81-3-3660-7111
Founded
June 19, 1887
Common Stock
Authorized: 1,000,000,000 shares
Issued: 526,212,501 shares
Outstanding (excluding treasury stock):
522,366,519 shares
Number of Shareholders: 54,622
Stock Listing
Tokyo Stock Exchange
Ticker Symbol Number
4452
Administrator of Shareholder Register
Sumitomo Mitsui Trust Bank, Limited
8-4, Izumi 2-chome, Suginami-ku, Tokyo 168-0063, Japan
Depositary and Registration for American Depositary
Receipts (ADR Ticker Symbol: KCRPY)
JPMorgan Chase Bank, N.A.
1 Chase Manhattan Plaza, Floor 58, New York, NY 10005, U.S.A.
Top Ten Shareholders
Name of Shareholders
Number of
Shares
(thousand shares)
Ratio of
Shareholding*
(percentage)
Japan Trustee Services Bank, Ltd.
(Trust Account)
Northern Trust Co. (AVFC)
Sub A/C American Clients
The Master Trust Bank of Japan, Ltd.
(Trust Account)
State Street Bank and Trust Company
Mellon Bank, N.A. as Agent for
its Client Mellon Omnibus US Pension
Northern Trust Co. AVFC Re U.S.
Tax Exempted Pension Funds
SSBT OD05 Omnibus Account – Treaty Clients
Tokio Marine & Nichido Fire Insurance Co., Ltd.
Kao Group Employee Shareholding Association
State Street Bank and Trust Company 505225
* Ratio of shareholding is calculated based on the issued shares.
32,332
23,076
21,492
18,844
13,585
12,346
12,021
10,442
8,815
8,618
6.14
4.38
4.08
3.58
2.58
2.34
2.28
1.98
1.67
1.63
Composition of Shareholders
Securities Companies 3.59%
Other Japanese Companies 4.04%
Individuals and Others 14.57%
Financial
Institutions 29.32%
Treasury Stock 0.73%
Companies and Individuals
in Foreign Countries 47.75%
For the Kao Sustainability Report and Kao Group
Profile, please refer to the Kao Group website at
http://www.kao.com/group/en/group/reports.html
Investor Relations
Telephone: 81-3-3660-7101 Facsimile: 81-3-3660-8978
e-mail: ir@kao.co.jp
Web site: http://www.kao.com/jp/en/corp_ir/investors.html
Stock Price Range and Trading Volume (Tokyo Stock Exchange)
Stock Price Range (Yen)
Common Stock Price Range
Tokyo Price Index Close
Monthly Trading Volume (Million Shares)
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
120
100
80
60
40
20
0
2007
2008
2009
2010
2011
Note: Fiscal years beginning April and ending March the following calendar year
Kao Annual Report 2012 69