PROFILE
The Kao Group’s operations consist of the Consumer Products Business and the Chemical
Business. The Consumer Products Business encompasses the Beauty Care Business, in which we
offer prestige cosmetics, premium skin care products and hair care products; the Human Health
Care Business, with products such as functional health beverages, sanitary products and
personal health products; and the Fabric and Home Care Business, which includes laundry
detergents and household cleaners. In the Chemical Business, we develop chemical products
that meet the various needs of industry.
FINANCIAL HIGHLIGHTS
Net sales and profi ts*
Cash dividends: ¥70
break
previous records
25th consecutive
period of increase
* Net sales and net income broke the previous records, and operating
income broke previous records for the second year in a row.
(Years ended March 31, 2011 and 2012, period ended December 31, 2012 and years ended December 31, 2012 to 2014)
Net Sales
(Billions of yen)
1,500
1,186.8
1,216.1
1,220.4
1,000
1,012.6
1,401.7
1,315.2
500
0
Mar.
2011
Mar.
2012
Dec.
2012
Dec.
2012
(Restated)
Dec.
2013
Dec.
2014
Net Sales (Left)
Operating Income /
Operating Income Ratio
(Billions of yen)
150
100
50
0
133.3
124.7
104.6
108.6
101.6
111.8
8.8
8.9
10.0
9.2
9.5
9.5
Mar.
2011
Mar.
2012
Dec.
2012
Dec.
2012
(Restated)
Dec.
2013
Dec.
2014
Operating Income (Left)
Operating Income Ratio (Right)
Net Income per Share
(%)
25
(Yen)
180
20
15
10
5
0
120
60
0
156.46
126.03
100.46
101.12
101.77
87.69
Mar.
2011
Mar.
2012
Dec.
2012
Dec.
2012
(Restated)
Dec.
2013
Dec.
2014
Notes: 1. Due to a change in the fi scal year end, the term of consolidation for the fi scal period ended December 31, 2012 consisted of the nine
months from April to December for Kao Corporation and its subsidiaries whose fi scal year end was previously March 31 and the twelve
months from January to December for subsidiaries whose fi scal year end was December 31.
2. December 2012 (Restated) represents fi gures for the year from January 1 to December 31, 2012 for Kao Group companies whose fi scal year
end was previously March 31.
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.
The Kao Way
The Kao Way explains the essence of Kao’s unique corporate culture and spirit, which have been
developed through our business activities since the founding of the company.
Our mission is to strive for the wholehearted satisfaction and enrichment of the lives of people globally
and to contribute to the sustainability of the world, with products and brands of excellent value that are
created from the consumer’s and customer’s perspective. This commitment is embraced by all members
of the Kao Group as we work together with passion to share joy with consumers and customers in our
core domains of cleanliness, beauty, health and chemicals.
* We defi ne Yoki-Monozukuri as “a strong commitment by all members to provide products and brands of excellent value for consumer
satisfaction.” This core concept distinguishes Kao from all others.
** Genba literally means “actual spot.” At Kao, Genba-ism defi nes the importance of observing things “on-site,” in the actual location and
environment, both internally and externally, in order to maximize our understanding of the business and optimize our performance.
Further information is available at:
http://www.kao.com/jp/en/corp_about/kaoway.html
CONTENTS
2 Kao’s Strengths
4 Becoming a Company with a Global Presence
6
“Essential Research”: Offering Value for the Future
That Helps to Resolve Social Issues
8 A Message from President and CEO Michitaka Sawada
16 Research and Development
18 Corporate Governance
22
Board of Directors and Audit & Supervisory Board
Members, Executive Offi cers and Executive Fellows
25 Compliance
26 Risk Management
27 Sustainability
31 Financial Section
76 Principal Subsidiaries and Affi liates
77
Investor Information
Kao Corporation Annual Report 2014 1
Kao’s Strengths
For over 120 years, the Kao Group has been providing value to people by creating products that
change their lives for the better. Taking advantage of the unique strengths that we have developed
over this time, we continue to create value for the future that helps to resolve social issues.
R&D Capabilities
Kao works to create innovative products by
combining fundamental technology research, which
investigates cutting-edge science in various fi elds
for future business creation, and product development
research, which seeks to understand the lifestyles
and needs of consumers worldwide to create
products that provide comfort and satisfaction.
Top Share of the Household and
Personal Care Market* in Japan
Kao has captured a high market share with value
offerings that anticipate changes in people’s
lifestyles. We provide strongly competitive products.
*Source: INTAGE Inc. Jan. – Dec. 2014, value share in 79
categories in which Kao sells
Our Strengths
Synergy between the Chemical and
Consumer Products Businesses
Having diverse research domains that range from
chemicals to consumer products leads to the
development of innovative products. At the same
time, having both businesses reduces Kao’s
costs and creates high added value by broadly
optimizing the total supply chain from chemicals
to consumer products.
Sales and Proposal
Capabilities in Japan
Kao’s proposal-oriented sales activities address
consumers’ needs and retailers’ challenges with a
unique sales structure that has sales company and
logistics functions to enable better communication
with retailers and consumers for true customer
satisfaction.
Breakdown of Business Segment Sales (Year ended December 31, 2014)
Chemical Business
¥247.2 billion
17.6%
Fabric and Home Care Business
Human Health Care Business
2 Kao Corporation Annual Report 2014
¥247.2
billion
17.6%
Consolidated
Net Sales
¥1,401.7
billion
¥324.5
billion
23.2%
¥589.9
billion
42.1%
¥240.1
billion
17.1%
Consumer Products Business
¥1,154.5 billion
82.4%
Beauty Care Business
Note: Figures in the graph represent net sales
to outside customers only.
Segment Information
Beauty Care Business
Net Sales1
(Billions of yen)
800
Main Products
Professional hair care products / Cosmetics /
Skin care (mass products) / Hair care (mass products)
Human Health Care Business
Main Products
Beverages / Oral care / Blood circulation enhancement
products (incl. bath additives and thermal pads) /
Sanitary products
Fabric and Home Care Business
(Billions of yen)
400
Main Products
Laundry detergents and fabric treatments /
Products for kitchen, bath, toilet and living room care
Chemical Business
Main Products
Oleo chemicals / Performance chemicals /
Specialty chemicals
Operating Income1 / EBITA2
Operating Income Ratio1
(Billions of yen)
80
Operating Income (Left)
EBITA (Left)
Operating Income Ratio (Right)
57.3
54.0
4.8
4.9
45.9
4.2
21.8
23.9
28.4
60
40
20
0
570.3
589.9
444.4
600
400
200
0
Dec.
2012
Dec.
2013
Dec.
2014
Dec.
2012
Dec.
2013
Dec.
2014
(Billions of yen)
300
(Billions of yen)
30
Operating Income (Left)
Operating Income Ratio (Right)
240.1
210.6
152.0
200
100
0
20
10
0
21.9
16.9
11.5
7.6
7.6
8.0
8.0
9.19.19.1
9.1
10
Dec.
2012
Dec.
2013
Dec.
2014
Dec.
2012
Dec.
2013
Dec.
2014
(Billions of yen)
80
Operating Income (Left)
Operating Income Ratio (Right)
62.2
61.0
51.4
21.7
21.7
20.0
20.0
18.8
18.8
20
311.0
324.5
236.7
300
200
100
0
60
40
20
0
Dec.
2012
Dec.
2013
Dec.
2014
Dec.
2012
Dec.
2013
Dec.
2014
(Billions of yen)
400
(Billions of yen)
30
Operating Income (Left)
Operating Income Ratio (Right)
288.0
261.2
208.1
300
200
100
0
21.5
22.1
16.8
8.1
8.1
8.2
8.2
7.7
7.7
20
10
0
Dec.
2012
Dec.
2013
Dec.
2014
Dec.
2012
Dec.
2013
Dec.
2014
Note: Net sales include intersegment sales.
(%)
8
6
4
2
0
(%)
30
20
0
(%)
40
30
10
0
(%)
20
15
10
5
0
s
s
e
n
i
s
u
B
s
t
c
u
d
o
r
P
r
e
m
u
s
n
o
C
s
s
e
n
i
s
u
B
l
a
c
i
m
e
h
C
Notes: 1. Period ended December 31, 2012 and years ended December 31, 2013 and 2014
2. EBITA (Earnings before interest, taxes and amortization) is operating income before amortization of goodwill and other items related to acquisitions.
Kao Corporation Annual Report 2014 3
Becoming a Company with a Global Presence
The Kao Group’s mission is to strive for the wholehearted satisfaction and
enrichment of the lives of people globally and to contribute to the sustainability
of the world, with products and brands of excellent value that are created from
the consumer’s and customer’s perspective.
We aim to become a company with a global presence by offering value for
the future that helps to resolve the social issues regarding the environment,
health, the aging society and hygiene through our business activities.
The Environment
Health
Global warming, insufficient water
The number of health-conscious
resources and other environmental
people is rising rapidly. We will offer
problems that significantly affect life
value for the future that plays a role in
are growing more serious each year.
helping people improve their own
Kao will offer value for the future to
health.
promote environmental conservation.
4 Kao Corporation Annual Report 2014
The Aging Society
Hygiene
With a focus on the aging society, we
Infectious diseases and hygiene issues
will offer value for the future that helps
are numerous throughout the world.
seniors remain healthy and active.
We will offer value for the future that
facilitates hygienic lives.
Kao Corporation Annual Report 2014 5
“Essential Research”: Offering Value for the Future That Helps to
Kao’s Research and Development Aims to Create Value That
Will Be a Foundation of Society Decades from Now.
The Aging Society
Health
Hygiene
The Environment
Kao aims to advance a wide range of cutting-edge science together with industry,
government and academia. Research into humans and materials derived from this
science gives rise to new discoveries and inventions for the evolution of Kao’s
fundamental technology research. We then add new perspectives and design elements
to deepen and combine our technologies to offer value that consumers and customers
desire for the future. With operations consisting of the Consumer Products Business
and the Chemical Business, Kao conducts “essential research” to offer value for the
future that helps to resolve social issues regarding the environment, health, the aging
society and hygiene.
6 Kao Corporation Annual Report 2014
Resolve Social Issues
Representative Results of Essential Research
The Aging Society
20013
2013
Goldwell Kerasilk
The Environment
2014
2014
Algae research
The world’s fi rst keratin treatment with no
harmful substances that transforms unruly,
frizzy hair into manageable hair that is
smooth like silk. Expected to also apply to
hair concerns that arise with aging.
Health
2003
2003
Healthya Green Tea
Healthya Green Tea, which
contains high levels of tea
catechin, is the fi rst tea
product in Japan to receive
permission from the Ministry
of Health, Labour and Welfare
to be labeled as Food for
Specifi ed Health Use suitable
for people concerned about
body fat.
As a global pioneer, Kao aims to acquire
a natural raw material source of fats and
oils that is not in competition with food
resources.
1980
Toner and toner binder
Kao is a global pioneer in the development of polyester
resin, which is used for printer and copier toner with superior
performance in low-temperature fusing (high-speed printing)
and pigment dispersion (high image quality). Kao’s toner
and toner binder substantially reduce
electricity consumption, and are used for
one out of every three copies and prints
made worldwide.
Hygiene
2011
2011
Attack Neo Antibacterial EX Power
The only liquid laundry detergent formulated
with bleaching agents. Suppresses odor-causing
bacteria and deodorizes with each wash, while
preventing mold and mildew in washing
machine tubs and laundry. A single rinse saves
water, electricity and time.
Kao Corporation Annual Report 2014 7
A Message from President and CEO Michitaka Sawada
Look forward to the Kao Group’s
future growth as it makes its
presence felt as a company that
helps to resolve social issues.
Michitaka Sawada
President and Chief Executive Officer
As stated in the “Kao Way,” which is our corporate philosophy, the mission of the Kao
Group is to strive for the wholehearted satisfaction and enrichment of the lives of
people globally and to contribute to the sustainability of the world. Under this mission,
we have made numerous value offerings through our products and services since our
founding. In the future, Kao intends to become a company with a global presence,
exerting a substantial impact on the world by helping to resolve social issues while
continuing to take on challenges. Maximizing the use of our assets, such as our human
resources, R&D assets and brands, is important for achieving this objective. We will
continue to create new value for the future and offer it to the world through “essential
research.” Day in and day out, we will work diligently toward the realization of our goal
of becoming a company with a global presence.
8 Kao Corporation Annual Report 2014
In 2014, under Kao Group Mid-term Plan 2015 (K15) we made great strides
toward our vision for the Group’s future. We made progress in building the
sustainable growth model we have targeted by maximizing the use of Kao
Group assets to enhance our capabilities to increase profits.
We drew up Kao Group Mid-term Plan 2015 (K15) in 2013, and 2015 is its final
year. In 2014, not only were we able to achieve numerical targets, but we were
also able to make structural changes toward the realization of K15. We had been
offering consumers high-value-added products, which became more readily accepted
by consumers as the market changed. Under these circumstances, we made
substantial progress toward building the sustainable growth model I have been
insisting on: a post-deflation growth model for transformation to a more profi table
structure, with the capabilities to generate profits by maximizing the use of our
assets. It is a virtuous cycle in which the profi ts we generate are proactively allocated
to investments that lead to growth in market share and sales, which in turn
provides profi t exceeding the amount of investment. For example, even if an
unforeseen event occurs, we can overcome it and continue to generate profi ts that
can be used for other investments for further growth. The Kao Group has many
assets accumulated by our predecessors, in areas including research and
development, human resources, goods, information and brands. To start with, we
are making better use of our human resources. We have given all employees a
sense of ownership and an awareness of maximizing the use of the assets they
possess. As a result, among other factors, employee attitudes have changed. They
are able to think and act on-site to make forward-looking proposals that utilize
Targeted Sustainable Growth Model
Profi table growth, creation of new assets
Establish a post-defl ation growth model
Proactive
investment
Increase
profi ts
Increase
market share
and sales
Capabilities to generate profi ts
(Transformation to a profi table structure)
Maximize use of Kao Group assets
Kao Corporation Annual Report 2014 9
their assets. In this way, we are gradually shifting to a structure that generates
profits, or in other words, enhancing our capabilities to increase profits.
As maximizing use of assets has taken root throughout the Kao Group, we
have enhanced our capabilities to increase profits. The result has been progress in
building our sustainable growth model. At the same time, we continuously invest
in research and development, including “essential research.” Building the
foundation for this sustainable growth model was our primary accomplishment in
2014. Capital expenditures were at the ¥50 billion level until fiscal 2012, but
increased to the ¥60 billion level since K15 began. During 2014, we increased
production capacity in Japan for baby diapers, which are growing in sales, and for
the Fabric and Home Care Business, to reinforce this business. Outside Japan,
we built our second consumer products plant in the growing market of Indonesia
as part of the global expansion of the Consumer Products Business. Our efforts
to strengthen the Chemical Business included the establishment of new plants in
Indonesia and China. Moreover, we proactively increased investment in marketing
new and improved high-value-added products, among other measures to respond
to the last-minute surge in demand before the consumption tax rate increase in
Japan in April 2014. As a result, the increase in profits from sales growth
Growth Model for Exiting Deflation with Proactive Investment*
Profitable
growth
Investment
¥310.0 billion
Net sales
¥1,470.0 billion
FY2015
Operating income
¥150.0 billion
Investment
¥285.7 billion
Net sales
¥1,401.7 billion
FY2014
Operating income
¥133.3 billion
Investment
¥269.4 billion
Net sales
¥1,315.2 billion
FY2013
Operating income
¥124.7 billion
FY2014 actual
year-on-year growth
• Investment:
• Net sales:
(Billion yen)
+16.3
+86.5
• Operating income: +8.6
10 Kao Corporation Annual Report 2014
* Investment = Capital expenditures + Marketing expenditures + Research and development expenditures
A Message from President and CEO Michitaka Sawada
exceeded the increase in investment. The Kao Group’s share of the household and
personal care products market in Japan has increased compared with the previous
year. This is a sign that we are shifting to the sustainable growth model that I am
determined to establish.
Regarding Kanebo Cosmetics brightening products containing the ingredient
Rhododenol, the Kao Group continues to respond in a sincere manner. Kanebo
Cosmetics has been making individual visits to people who have experienced
vitiligo-like symptoms and offering support for their recovery and compensation.
K15 Net Sales and Operating Income
(Billions of yen)
1,500
1,270.0
1,315.2
1,220.4
(Billions of yen)
1,470.0
200
1,370.0
1,401.7
1,000
111.8
124.7
133.3
150.0
130.0
116.0
500
0
FY2012*
FY2013
FY2014
FY2015
150
100
50
0
K15 net sales
target
¥1.4 trillion
K15 operating
income target
¥150 billion
Overseas
sales ratio
26.8%
30.9%
33.1%
30% or more
(Target)
Net Sales (Actual) (Left)
Operating Income (Actual) (Right)
Net Sales (Forecast) (Left)
Operating Income (Forecast) (Right)
* Excludes the impact of the change in financial term in 2012.
In 2015, we will build our foundation for the future. We are poised for a major
leap to achieve the targets of K15, particularly the operating income target of
¥150 billion.
K15 has reached its final year in 2015. The plan was drawn up by visualizing the
Kao Group’s desired state, then looking backward to plot out the steps to get
there. This will be a year of looking a decade or two into the future to establish a
foundation for long-term application of the sustainable growth model we have
been building.
In 2015, as the final year of K15, it is imperative that we (1) break previous
records for net sales and profits and (2) achieve the numerical management
targets of ¥1.4 trillion in net sales, ¥150 billion in operating income and an
overseas sales ratio of 30 percent or more. These key performance indicators have
not changed since the initial announcement.
Kao Corporation Annual Report 2014 11
Growth Strategies to Achieve K15
1. Expand the Consumer Products Business globally
■ Growth markets: Expand the business signifi cantly by proposing products in
the domain of “cleanliness” including laundry detergents, baby diapers and
sanitary napkins that target the growing middle-class consumer segments
■ Mature markets: Accelerate growth with high-value-added products
2. Further reinforce the Fabric and Home Care Business, and accelerate
profi table growth in the Beauty Care and Human Health Care Businesses
Fabric and Home Care Business
■ Maintain or capture the top share in each product category
Beauty Care Business and Human Health Care Business
■ Move the cosmetics business to a phase of profi table growth
■ Propose products and services through new approaches focused on health and
the aging society
3. Reinforce the Chemical Business
■ Promote higher added value
■ Strengthen synergy with the Consumer Products Business
Profitable growth and the creation of new assets are priority themes for
achieving these targets, with a sustainable growth model driven by making
maximum use of the Kao Group’s assets and capabilities to generate profits. To
reinforce our Consumer Products Business in Japan, we will proactively launch
new and improved products and invest in marketing. We will also work to restore
the cosmetics business through growth of the distinctive Sofina and Kanebo
brands, and take measures to reinforce the Healthya brand of functional drinks.
For further growth in the Consumer Products Business in Asia, we will enhance
our efforts for the premium segment while proactively conducting business
targeting the middle-class consumer segment. In the Consumer Products
Business in the Americas and Europe, where we are facing challenges, we will
improve profitability. In the Chemical Business, we will respond to changes in the
global operating environment by proposing high-value-added products and further
reinforcing oleo chemicals.
We will focus on “essential research” with our sights set decades into the
future to help resolve social issues globally.
Setting its sights on the future, the Kao Group will focus efforts on the social
issues where it can best maximize its assets: the environment, health and the
aging society, to which we have added hygiene.
12 Kao Corporation Annual Report 2014
A Message from President and CEO Michitaka Sawada
In the area of the environment, for example, Eco-Technology Research Center in
Wakayama Prefecture in Japan, has been conducting research on algae as a next-
generation energy source. In the area of health, we have already begun developing
health promotion solutions including health-related products and measuring
instruments. For the aging society, we have been conducting a business that
provides a wide range of products for active seniors, not only incontinence
products, employing universal design and other measures. For hygiene, the new
area on our list, we intend to use the technologies we have accumulated in Japan
to make a contribution to consumers worldwide.
Moreover, to achieve our vision of becoming a company with a global presence,
we will refine our current strategies to set the direction of our mid-term growth
strategies following K15. There are still countries where the Kao Group does not
do business, and we want to enter those markets with all due speed to accelerate
the global expansion of the Consumer Products Business. Growth in Japan will be
indispensable for this expansion. Japan’s low birthrate and aging society are said
to be causing the market to contract, but I believe we can generate growth by
anticipating changes in lifestyles and making value offerings that are a half-step
ahead of those changes. Consumer spending is improving, and we should be able
to grow by further enhancing the market positions we have already established. In
Japan, we are facing the social issues of a low birthrate and an aging society
ahead of other countries. By successfully dealing with these issues and
accumulating expertise under these conditions in Japan, we will be equipped to
tackle them on a global scale. We also intend to quickly return the cosmetics
business to a growth path. In the Chemical Business, we aim to achieve sales
expansion and stable profitability.
I recognize that these strategies will require the training of expert personnel
and continuous investment in “essential research.” By expert personnel, I mean
employees who can link related parts of our functions: research with operations,
technologies with business, local sites with the head office, and so on. The key
will be to train expert personnel who can generate comprehensive value by
bringing together other employees who display value in specialized fields. We are
already conducting measures for this purpose within the Kao Group, such as the
Innovation Creation Project and the Global Expansion Project. In addition,
“essential research” is the most important element in creating value for the
future. Without a doubt, the Kao Group’s lifestyle proposals to date have
originated from this research. It is one of the strengths we must maximize for
future growth, and we will continue to prioritize investment in it to develop our
ability to create value for the future.
Kao Corporation Annual Report 2014 13
In 2014, we made substantial changes to our corporate governance structure
to attain our initial objectives: enhancing discussions of strategies from a
global perspective by the Board of Directors, speedy decision-making and
separation of supervision and execution.
To continue sustainable development, the Kao Group has been working to
enhance its corporate governance through innovation.* Our new structure has
been in operation since March 2014. We have reinforced the outside perspective
of the Board of Directors with an equal number of inside and outside members,
and an Independent Outside Director as chairman. Moreover, two of the Outside
Directors are Independent Directors. We have also accelerated decision-making,
further clarified the division of roles between supervision and execution, and
delegated authority. Receiving valuable opinions from the diverse perspectives of
the Outside Directors and Outside Audit & Supervisory Board Members has
deepened discussions of the Kao Group’s future direction and other matters. It
also leads to engagement with our investors from a long-term perspective, which
in turn increases our corporate value.
* “Innovation” is one of the values of the Kao Way.
Look forward to Kao’s growth decades into the future.
The targeted sustainable growth model based on maximizing the use of the Kao
Group’s assets and our capabilities to generate profits has begun to function, and
we are now able to invest for our future growth. We will continue to prioritize the
uses of the cash flow we generate each year as we have in the past.
Moreover, the Kao Group was the first in Japan to introduce Economic Value
Added (EVA)* as a management indicator to increase corporate value. We believe
EVA management generates and improves “true” profit that exceeds the cost of
capital. We will work to increase corporate value by continuously improving EVA
through profitable growth. Furthermore, because EVA management keeps us
aware of the cost of capital at all times, it improves ROE.
*EVA (Economic Value Added) is a registered trademark of Stern Stewart & Co.
Direction of Mid-term Growth Strategies (3 to 5 Years) after K15
■ Accelerate global expansion of the Consumer Products Business
■ High-value-added offerings that resolve social issues including the environment,
health, the aging society and hygiene
■ Return the cosmetics business to a growth path
■ Achieve sales expansion and stable profi tability in the Chemical Business
14 Kao Corporation Annual Report 2014
A Message from President and CEO Michitaka Sawada
The Kao Group will voluntarily implement International Financial Reporting
Standards from 2016 based on its judgment that standardizing accounting within
the Group will help to improve the quality of Group management. The
implementation will enable management based on standardized frameworks and
information in each Kao Group company and business, thus strengthening our
management foundation to improve our corporate value as a global company.
The Kao Group will increase its corporate value by creating value for the future
from the perspective of consumers and working to help resolve social issues,
primarily in the areas of the environment, health, the aging society and hygiene.
By increasing value for our customers, employees and shareholders in a balanced
fashion, we aim to achieve profitable growth and contribute to a sustainable
society. The Kao Group is in the process of building its sustainable growth model
to drive future growth. Our shareholders can look forward to Kao’s growth as we
set our sights decades into the future.
Use of Cash Flow* and Shareholder Returns
Use steadily generated cash fl ow effectively in order of priority
shown below from an EVA standpoint toward further growth.
1
2
3
Investment for future growth
(capital expenditures, M&A, etc.)
Steady and continuous cash dividends
Share repurchases and early repayment of
interest-bearing debt including borrowings
* Net cash provided by operating activities
EVA
(Year ended March 31, 2000 = 100)
(Year ended December 31, 2011 = 100)
200
150
100
50
0
163
154
142
132
134
125
113
120
100
106
95
91
67
165
138
112
100
200
150
100
50
0
Mar.
2000
Mar.
2001
Mar.
2002
Mar.
2003
Mar.
2004
Mar.
2005
Mar.
2006
Mar.
2007
Mar.
2008
Mar.
2009
Mar.
2010
Mar.
2011
Mar.
2012
Dec.
2011
Dec.
2012
Dec.
2013
Dec.
2014
Note: Due to the change in the fiscal year end, EVA has been restated on a calendar year basis for periods ended December 31, 2011 and 2012.
Kao Corporation Annual Report 2014 15
Research and Development
Basic Policy
understanding of the various cultures and needs of
Kao’s mission is to strive for the wholehearted
consumers in diverse countries and regions to develop
satisfaction and enrichment of the lives of people
innovative products and technologies that create new
globally and to contribute to the sustainability of the
value and new markets.
world, with products and brands of excellent value that
Approximately 2,800 Kao Group personnel conduct
are created from the consumer’s and customer’s
research and development. R&D expenditures for the
perspective. Based on this mission, Kao’s research and
entire Kao Group in 2014 were ¥51.7 billion, equivalent
development division combines original ideas with an
to 3.7% of net sales.
Topics Thomson Reuters Names Kao One of the 2014 Top 100 Global Innovators
Kao regards its patents and other intellectual property
companies are selected
(IP) rights as important management resources, and in
using metrics such as
2014 it was selected for the fourth time by Thomson
overall patent volume,
Reuters as one of the “2014 Top 100 Global Innovators.”
patent grant success
The award is given to innovative companies recognized
rate, global reach of the
for having developed inventions with a global impact and
portfolio and patent
for working to protect their IP rights. Based on Thomson
influence as evidenced
Reuters’ patent database, IP search and analysis platform
by citations.
and criteria established by its IP solutions business,
Receiving an award as one of the
“2014 Top 100 Global Innovators”
Topics In Research on Algae, Kao Finds Some Strains That Produce Medium Chain Fatty Acids,
and Identifi es an Enzyme That Plays an Important Role in the Biosynthesis Pathway
Kao has succeeded in fi nding an enzyme that can produce a
Through research on biotechnologies that evolved from
large number of medium chain fatty acids, which are the
technologies for enzymes for detergents, Kao found some
main components of natural fats and oils (such as palm
strains that contained a large number of C12 medium chain
kernel oils and coconut oils) used as raw materials for
fatty acids among C12 to 14 medium chain fatty acids.
surfactants in detergents, shampoos, and other related
Additionally, as a fi rst in the fi eld of algae, we identifi ed a
products. This fi nding presents a strong possibility that Kao
could become a world pioneer in acquiring a natural raw
novel acyl-ACP thioesterase with high specifi city to medium
chain fatty acids from the genus Nannochloropsis. We
material source of fats and oils that is not in competition
expect that these fi ndings will dramatically accelerate the
with food resources.
breeding development of algae for large-scale production of
Reportedly, the potential for algae to produce fats and oils
medium chain fatty acids.
is more than ten times that of natural resources such as
palm. In recent years, many research cases to acquire new
raw materials for fuels (biofuels) to replace fossil fuels have
reported on the production of fats and oils that contain C16
to 18 fatty acids as a main component. However, surfactants
in detergents and the base substances of various raw
materials are C12 to 14 medium chain fatty acids. Therefore,
there have been virtually no examples of relevant research
within the conventional scope of research on algae.
Algae research
16 Kao Corporation Annual Report 2014
Beauty Care Business
Kao conducts research for a deep understanding of the
true nature of the skin and hair of people around the
world and develops materials and formulations that give
rise to new functions. By doing so, we aim to help
consumers achieve healthy, beautiful skin and hair and
to offer beauty proposals tailored to diverse lifestyles.
To maximize the use of the Kao Group’s assets and
reinforce the cosmetics category of the Beauty Care
Business, we integrated our research organizations for Kao
Sofi na and Kanebo Cosmetics. We have reorganized the
Kanebo Cosmetics Laboratories in Odawara, Japan as the
Kao Odawara Research Laboratories, which will conduct
full-scale research as the Kao Group’s comprehensive
R&D facility for cosmetics.
In hair care, we renewed the Essential hair care brand
in Japan, Taiwan, Singapore and Hong Kong. Using fi ne
cuticle care technology for uniform adsorption of hair care
ingredients (lanolin fatty acids that repair, moisturize and
preserve) that include 18-methyleicosanoic acid, the
improved shampoos and conditioners reduce hair friction to
enhance the smoothness of fi ngers running through the
hair and make washing, drying and setting easier.
R&D expenditures in the Beauty Care Business totaled
¥22.3 billion.
Human Health Care Business
Kao researches the body and mind to improve the quality of
life by making the most of people’s natural vitality.
In sanitary products, we launched an improved version
of Laurier Super Absorbent Guard from the Laurier brand of
sanitary napkins in Japan. Using a new technology for an
absorbent pad with localized blocking properties both
reduces unpleasant stiffness and makes it comfortable to
wear while also increasing absorbency. In Thailand, we
Fabric and Home Care Business
launched Laurier Super Gentle Plus, which uses a topsheet
material with a gentle touch and reduces the surface area
in direct contact with the skin to one-third that of
conventional products, thus reducing chafi ng, the primary
cause of irritation.
R&D expenditures in the Human Health Care Business
totaled ¥12.1 billion.
Kao’s research and development spans a wide range of
fi elds from household products that meet the diverse
needs of consumers to products for professional use
where a high level of cleanliness and hygiene is required.
In home care, we launched an improved version of
CuCute dishwashing detergent. Kao’s original hybrid wash
formulation, which combines two types of surfactant,
creates thick suds from the start of washing to rapidly
remove tough, congealed grease and fat and rinses off
immediately, thus saving water.
R&D expenditures in the Fabric and Home Care
Business totaled ¥7.4 billion.
Chemical Business
In this business, Kao’s research and development strives
for more substantive R&D results in areas including oils
and fats, surfactants and polymers to produce chemical
products distinguished by their ability to meet diverse
needs in a wide range of industries.
Kao conducts research on forward-looking environmental
technologies, centering on advanced use of biomass. In
our research on algae, we have succeeded in fi nding an
enzyme that can produce a large number of medium chain
fatty acids. We are pursuing technological development
with the aim of large-scale production of fats and oils from
algae as a natural raw material source of fats and oils that
is not in competition with food resources.
In performance chemicals, we are developing value-
added products with a reduced environmental burden. In
collaboration with Bridgestone Corporation, we have
developed a sustainable dispersion improving agent that
distributes silica more evenly in rubber. This enables the
addition of more silica to the rubber raw material than in
conventional tires, thus improving fuel economy and wet
grip performance.
In specialty chemicals, development efforts include
raising the ratio of bio-ingredients in our toner binder.
R&D expenditures in the Chemical Business totaled
¥9.9 billion.
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Kao Corporation Annual Report 2014 17
Corporate Governance
Basic Policy and Structure
In accordance with this position, Kao works to improve
For Kao, the basis of corporate governance is separating
governance as a company with an Audit & Supervisory
the functions of supervision and execution to strengthen
Board by strengthening the supervisory function of the
supervision of execution and transferring authority to the
Board of Directors and the auditing function of the Audit
Executive Offi cers to strengthen and accelerate execution
& Supervisory Board. An overview of Kao’s governance
with the aim of continuously enhancing corporate value.
structure is given in the following chart.
Corporate Governance Structure
Shareholders Meeting
Monitoring
Audit &
Supervisory
Board
Audit
Board of Directors
Committee for the Examination of the
Nominees for the Members of the Board
of Directors and Executive Officers
Compensation Advisory Committee
Audit
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Audit
Audit
Supervision
Management Committee
Sustainability Committee
Eco-Strategy Committee
Internal Control Committee
Disclosure Committee
Compliance Committee
Information Security Committee
Risk Management Committee
Committee for Responsible Care Promotion
Quality Assurance Committee
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Corporate
Audit Services
Internal Audit
Executive Officer Responsible for each Division
● Business Divisions
● Functional Divisions
Executing Divisions
Audit
Investigation
(Attendance)
Accounting Auditors
Certified Public Accountants
Audit
Conference by Audit & Supervisory
Board Members of
Domestic Group Companies
(Attendance)
Subsidiaries/Affiliates
Audit
Audit & Supervisory
Board Members
Note: Our policy is to ask lawyers and other experts, as necessary, when making business decisions concerning business management and daily operations.
18 Kao Corporation Annual Report 2014
Board of Directors
Audit & Supervisory Board
The Board of Directors ensures diversity, independence
The Audit & Supervisory Board ensures the effectiveness
and lively discussions by inviting people from outside the
of its audits through the collaboration of the Full-time
Company with diverse experiences and knowledge and by
Audit & Supervisory Board Members with the Outside
having a committee structure with an appropriate and
Audit & Supervisory Board Members, a majority of whom
equal number of inside and outside members.
have qualifi cations such as attorney-at-law or certifi ed
Number of Members
6
Outside Directors
Included in Above
3 (50%)
Independence
The Company has reported two
of the three Outside Directors
to the Tokyo Stock Exchange as
Independent Outside Directors
who have met the qualifi cations for
independence in the Standards for
Independence of Outside Directors/
Audit & Supervisory Board Members
of Kao Corporation (the “Standards”).
The Standards, which have been
established with reference to the
Independence Tests of the New York
Stock Exchange, can be found at:
http://www.kao.com/jp/en/corp_
imgs/corp_info/governance_002.pdf
Chairman
Independent Outside Director
Term of Offi ce
1 year (voluntarily shorter than the
statutory period)
Number of Meetings
15 times/year
Average Attendance
Rate of Outside
Directors
95%
public accountant, who maintain independence and
expertise as outside parties.
Number of Members
5
Outside Audit &
Supervisory Board
Members Included
in Above
3 (60%)
Independence
Chairman
Term of Offi ce
The Company has reported all
three Outside Audit & Supervisory
Board Members to the Tokyo Stock
Exchange as Independent Outside
Audit & Supervisory Board Members
who have met the qualifi cations in
the Standards.
Full-time Audit & Supervisory Board
Member
4 years (statutory period: prohibited
by the law to shorten the period)
Number of Meetings
10 times/year
Average Attendance
Rate of Outside Audit
& Supervisory Board
Members
Board of Directors Meetings: 100%
Audit & Supervisory Board Meetings:
98%
Meetings to exchange opinions with
Representative Directors: 100%
(3 times/year)
Committee for the Examination of the
Nominees for the Members of the Board
of Directors and Executive Officers
Compensation Advisory Committee
This committee examines the compensation system and
remuneration levels for Directors and Executive Offi cers
This committee examines the nominees prior to election
and submits the results of its examinations to the Board
or re-election as Representative Director, Director,
of Directors.
Executive Officer and title of Executive Officer as
proposed to the General Meeting of Shareholders and
Number of Members
9
the Board of Directors, and submits its evaluation of the
nominees’ qualifi cations to the Board of Directors.
Number of Members
6
Composition
Chairman
All Outside Directors and all Outside
Audit & Supervisory Board Members
Chosen by committee members. The
chairman was the President and Chief
Executive Offi cer in 2014.
Number of Meetings
Held for each election or re-election.
Held once in 2014.
Attendance Rate
100%
Composition
Chairman
All Representative Directors, all
Outside Directors and all Outside
Audit & Supervisory Board Members
Chosen by committee members. The
chairman was the President and Chief
Executive Offi cer in 2014.
Number of Meetings
Held once in 2014.
Compensation System
See next page
Kao Corporation Annual Report 2014 19
Support System for Outside Directors
and Outside Audit & Supervisory Board
Members
To allow for active discussions at meetings of the Board of
Directors, the Board of Directors Secretariat provides
Outside Directors with suffi cient explanations on matters
Type of Remuneration
Composition1
Base salary
Short-term incentive2 (bonus)
Long-term incentive
(remuneration-type stock options)
60 – 70%
20%
10 – 20%
such as the background, purposes and content of the
Notes: 1. Composition is the percentage allocated in estimated annual
standard remuneration.
2. Short-term incentive is set to fl uctuate between 0% and 200%
depending on the achievement of targets for EVA, net sales and
operating income.
3. The Company has no retirement bonus system for Directors.
4. Compensation for Outside Directors, who are independent of the
Company’s operations, consists of base salary and stock options
only.
5. Compensation of Audit & Supervisory Board Members consists
of base salary only.
respective agenda items prior to each meeting of the
Board of Directors. Furthermore, under this support
system, in addition to support staff nominees,
administrative divisions such as Global Internal Audit, the
Legal and Compliance Department and the Accounting and
Finance Department provide Outside Audit & Supervisory
Board Members with assistance upon request.
Compensation System for Officers
The Company’s fundamental position on remuneration of
Directors, Audit & Supervisory Board Members and
Executive Offi cers is (1) a compensation system that
attracts diverse and excellent candidates to establish and
improve competitive advantages; (2) a compensation
system that promotes continuous improvement of
corporate value and shares interests with shareholders;
and (3) an objective and transparent decision-making
process regarding compensation.
Based on data from an outside research institution
on Directors’ and Executive Offi cers’ remuneration,
the Company decides on compensation by setting a
benchmark each year with other well-known manufacturing
companies of a similar business size and in a similar
business category as companies of the same rank, and
comparing their remuneration systems and levels of
remuneration with those of the Company.
The composition of remuneration of Inside Directors
and Executive Offi cers is as shown above right, and
remuneration is determined based on their roles as
Directors and Executive Offi cers and positions
concurrently held.
20 Kao Corporation Annual Report 2014
Corporate Governance
Comment from Chairman of the Board of Directors Sonosuke Kadonaga
(Independent Outside Director)
As chairman of the Board of Directors,
I am pleased that the effects of changes
to the Board have gradually become
apparent. I intend to ensure that Kao
continues working to enhance its
corporate governance.
In March 2014, Kao made substantial changes to its
Board of Directors to enhance its corporate governance
structure. The number of Directors changed from seven
Inside Directors and three Outside Directors to a total
of six Directors, consisting of an equal number of Inside
and Outside Directors, two of whom are Independent
Directors. In addition, as an Independent Outside
Director, I assumed the position of chairman of the
Board of Directors. Now that about a year has passed, I
feel we are attaining our initial objectives, including
enhancing discussions of strategies from global
Sonosuke Kadonaga
Chairman of the Board of Directors
Independent Outside Director
perspectives, speedy decision-making and separation of
supervision and audits, including checks by Outside
supervision and execution.
Directors and Outside Audit & Supervisory Board
The Board of Directors conducts lively discussions, as
Members of the periodic reports made by the Executive
the three Outside Directors with rich overseas working
Officers to the Board of Directors on the status of
experience offer opinions from multifaceted
execution. Moreover, granting a wide range of authority
perspectives that make the most of their respective
to Executive Officers has accelerated decision-making
experiences and knowledge. The team of Audit &
for faster execution and management.
Supervisory Board Members, including members from
Of course, our efforts to enhance corporate
outside with many years of corporate experience as an
governance are by no means finished with the current
attorney-at-law or certified public accountant, adds to
structure. Appropriately dealing with the rapid changes
these discussions from specialist perspectives. The
in our business environment in recent years requires
Board of Directors mainly decides the direction of
constant innovation, including innovation of the
matters such as long-term business strategies and
corporate governance structure. I believe more active
organizational structure, and entrusts their execution to
management discussion by the Board of Directors will
the Executive Officers. In addition, the separation of
be vital in setting the course for our management and
supervision and execution is promoted by enhanced
businesses from holistic and long-term perspectives.
Kao Corporation Annual Report 2014 21
Board of Directors and Audit & Supervisory Board Members
(As of April 1, 2015)
Board of Directors
Michitaka Sawada1
Representative Director
Apr. 1981 Joined the Company
Jun. 2006 Executive Officer
Jun. 2008 Member of the Board, Executive Officer
Jun. 2012 Representative Director, President and Chief
Executive Officer (current)
Jan. 2014 Responsible for Product Quality Management
Katsuhiko Yoshida1
Representative Director
Apr. 1979 Joined the Company
Apr. 2007 President, Human Health Care Business Unit
Jun. 2007 Executive Officer
Apr. 2010 President, Fabric and Home Care Business
Unit
Jun. 2012 Managing Executive Officer (current)
Mar. 2014 Member of the Board, Representative
Director, President, Consumer Products;
Responsible for Kao Professional Services
Co., Ltd. (current)
Toshiaki Takeuchi1
Representative Director
Apr. 1981 Joined the Company
Mar. 2009 Vice President, Corporate Planning,
Kao Customer Marketing Co., Ltd.
Mar. 2010 Member of the Board, Executive Officer,
Kao Customer Marketing Co., Ltd.
May 2011 Member of the Board, Senior Managing
Executive Officer, Kao Customer Marketing
Co., Ltd.
May 2012 Representative Director, Senior Managing
Executive Officer, Kao Customer Marketing
Co., Ltd.
Jun. 2012 Executive Officer
Apr. 2013 Representative Director, Executive Vice
President, Kao Customer Marketing Co., Ltd.
Mar. 2014 Member of the Board, Representative
Director, Managing Executive Officer,
President and Chief Executive Officer,
Kao Customer Marketing Co., Ltd. (current)
22 Kao Corporation Annual Report 2014
Sonosuke Kadonaga2
Independent 4
President, Intrinsics
Apr. 1976 Joined Chiyoda Corporation
Jun. 1981 Master of Science in Chemical Engineering,
Massachusetts Institute of Technology,
School of Engineering, U.S.A.
Aug. 1986 Joined McKinsey & Company, Inc., Japan
Jul. 2009 President, Intrinsics (current)
Jun. 2012 Member of the Board, Kao Corporation
(current)
Mar. 2014 Chairman of the Board of Directors
Toru Nagashima2
Independent 4
Senior Advisor, Teijin Limited
Apr. 1965 Joined Teijin Limited
Jul. 1974 Courses taken in the MBA Program,
University of Utah, U.S.A.
Oct. 1975 Seconded to Polynova S.A., Mexico
Jun. 2000 Member of the Board, and CESHO (Chief
Environment, Safety & Health Officer),
Teijin Limited
Apr. 2001 Member of the Board, CMO (Chief Marketing
Officer) and General Manager of Corporate
Strategy & Planning Office, Teijin Limited
Jun. 2001 Managing Director, CMO (Chief Marketing
Officer) and General Manager of Corporate
Strategy & Planning Office, Teijin Limited
Nov. 2001 President & Representative Director, COO,
Teijin Limited
Jun. 2002 President & Representative Director, CEO,
Teijin Limited
Jun. 2008 Chairman of the Board, Teijin Limited
Mar. 2013 Member of the Board, Kao Corporation (current)
Apr. 2013 Senior Advisor, Member of the Board,
Teijin Limited
Jun. 2013 Senior Advisor, Teijin Limited (current)
Masayuki Oku2
Chairman of the Board, Sumitomo Mitsui
Financial Group, Inc.
Apr. 1968 Joined Sumitomo Bank
May 1975 LL.M., University of Michigan Law School, U.S.A.
Jan. 1991 Branch Manager, Chicago Branch,
Sumitomo Bank
Jun. 1994 Director, Sumitomo Bank
Nov. 1998 Managing Director, Sumitomo Bank
Jun. 1999 Managing Director and Managing Executive
Officer, Sumitomo Bank
Jan. 2001 Senior Managing Director and Senior
Managing Executive Officer, Sumitomo Bank
Apr. 2001 Senior Managing Director and Senior
Managing Executive Officer, Sumitomo
Mitsui Banking Corporation
Dec. 2002 Senior Managing Director, Sumitomo Mitsui
Financial Group, Inc.
Jun. 2003 Deputy President and Executive Officer,
Sumitomo Mitsui Banking Corporation
Jun. 2005 Chairman of the Board, Sumitomo Mitsui
Financial Group, Inc. (current), and President
and Chief Executive Officer, Sumitomo
Mitsui Banking Corporation
Mar. 2014 Member of the Board, Kao Corporation (current)
Board of Directors and Audit & Supervisory Board Members
Audit & Supervisory Board Members
Shoji Kobayashi
Full-time Audit & Supervisory Board Member
Apr. 1979 Joined the Company
Jun. 2006 Executive Officer
Apr. 2007 Vice President, Chemical Business Unit
Jun. 2010 President, Chemical Business Unit
Mar. 2013 Full-time Audit & Supervisory Board
Member (current)
Teruo Suzuki3
Independent 5
Audit & Supervisory Board Member,
Certified Public Accountant
Aug. 1978 Registered as Certified Public Accountant
Jan. 2004 Partner, KPMG AZSA LLC
Jun. 2012 Audit & Supervisory Board Member, Kao
Corporation (current)
Toshiharu Numata
Full-time Audit & Supervisory Board Member
Apr. 1989 Joined the Company
Jun. 2005 Executive Officer
Jun. 2006 Member of the Board, Executive Officer; and
Senior Vice President, Research and
Development
Jun. 2008 Member of the Board, Executive Vice
President; Senior Vice President, Research and
Development; and Responsible for Chemical
Business, Product Quality Management; and
TCR Promotion
May 2012 Member of the Board, Managing Executive
Officer; Senior Vice President, Research and
Development; and Responsible for Chemical
Business Unit, Product Quality Management;
TCR Promotion; and China Business
Jun. 2012 Senior Managing Executive Officer; President,
Consumer Products and Chemical Business,
China; Chairman of the Board and Chief
Executive Officer, Kao (China) Holding Co., Ltd.;
Chairman of the Board, Kao Commercial
(Shanghai) Co., Ltd.; and Chairman of the Board,
Kanebo Cosmetics (China) Co., Ltd.
Mar. 2015 Full-time Audit & Supervisory Board Member
(current)
Notes: 1. Holds the post of Executive Officer concurrently
2. Outside Director
3. Outside Audit & Supervisory Board Member
4. Reported to Tokyo Stock Exchange, Inc. as Independent Director
as set forth in the Regulations of Tokyo Stock Exchange, Inc.
5. Reported to Tokyo Stock Exchange, Inc. as Independent Audit &
Supervisory Board Member as set forth in the Regulations of
Tokyo Stock Exchange, Inc.
Norio Igarashi3
Independent 5
Audit & Supervisory Board Member,
Certified Public Accountant,
Professor, Yokohama National University
Apr. 1977 Registered as Certified Public Accountant
Jul. 1988 Partner, Aoyama Audit Corporation and
Price Waterhouse
Apr. 2007 Professor, Graduate School of International
Social Sciences, Yokohama National
University (current)
Mar. 2013 Audit & Supervisory Board Member,
Kao Corporation (current)
Yumiko Waseda3
Independent 5
Audit & Supervisory Board Member
Attorney-at-Law
Apr. 1985 Registered as an attorney-at-law
Joined Masayuki Matsuda Law & Patent
Offices (now Mori Hamada & Matsumoto,
a law firm)
Apr. 2013 Joined Tokyo Roppongi Law & Patent
Offices
Jan. 2014 Partner, Tokyo Roppongi Law & Patent
Offices (current)
Mar. 2014 Audit & Supervisory Board Member,
Kao Corporation (current)
Kao Corporation Annual Report 2014 23
Executive Fellows
Corporate Executive Fellows who are treated
as the same as the Company’s Executive
Offi cers will engage in activities to deepen
the cooperation with outside parties by
utilizing their expertise and outside network.
Yoshinori Takema
Corporate Executive Fellow 1
Takuji Yasukawa
Corporate Executive Fellow 2
Minoru Utsumi
Corporate Executive Fellow 2
Notes: 1. Individual treated the same as the Company’s
Managing Executive Offi cers
2. Individual treated the same as the Company’s
Executive Offi cers
Executive Officers and Executive Fellows
Executive Officers
Michitaka Sawada
President and Chief Executive Offi cer
Katsuhiko Yoshida
Senior Managing Executive Offi cer
President, Consumer Products
Responsible for Kao Professional Services Co., Ltd.
Toshiaki Takeuchi
Managing Executive Offi cer
Representative Director, President and Chief Executive
Offi cer, Kao Customer Marketing Co., Ltd.
Masumi Natsusaka
Managing Executive Offi cer
Kozo Saito
President, Consumer Products – International Business
Management
Chairman of the Board, Kao USA Inc.
Hideki Tanaka
Senior Vice President, Procurement
Takehiko Shinto
Representative Director, President,
Kanebo Cosmetics Sales Inc.
Jun Shida
Vice President, Research and Development – Development
Research – Health Care and Household
Responsible for Beauty Care Business
President, Beauty Care – Cosmetics Business Unit
Representative Director, President, Kanebo Cosmetics Inc.
Yasushi Wada
Vice President, Supply Chain Management – Demand and
Supply Planning Center
Motohiro Morimura
Managing Executive Offi cer
Senior Vice President, Supply Chain Management
Senior Vice President, Environment and Safety Management
Responsible for TCR Promotion
Yasushi Aoki
Managing Executive Offi cer
Senior Vice President, Human Capital Development
Representative Director, Chairman of the Board,
Kanebo Cosmetics Inc.
Member of the Board and Senior Executive Offi cer,
Senior Vice President, Human Resources and Administration,
Kanebo Cosmetics Inc.
President, Kao Group Corporate Pension Fund
Hideko Aoki
Managing Executive Offi cer
Senior Vice President, Product Quality Management
Yoshimichi Saita
Senior Vice President, Media Planning and Management
Kenji Miyawaki
Senior Vice President, Marketing Research and Development
Kazuyoshi Aoki
Senior Vice President, Accounting and Finance
Tadaaki Sugiyama
Senior Vice President, Legal and Compliance
Masakazu Negoro
President, Chemical Business Unit
Chairman of the Board, Fatty Chemical (Malaysia) Sdn, Bhd.
Chairman of the Board, Pilipinas Kao, Incorporated
Presidente, Kao Chemicals Europe, S.L.
Tomoharu Matsuda
President, Beauty Care – Skin Care and Hair Care
Business Unit
Yoshihiro Hasebe
Senior Vice President, Research and Development
Masayuki Abe
Senior Vice President, Information Systems
Naoki Komoda
President, Fabric and Home Care Business Unit
Hitoshi Hosokawa
Vice President, Research and Development – Development
Research – Skin Care, Hair Care and Cosmetics
Hiroyuki Yamashita
Vice President, Supply Chain Management – Technology
Development Center
Vice President, Supply Chain Management – Demand and
Supply Planning Center – Human Health Care
Minoru Nakanishi
Regional Executive Offi cer, President, Consumer Products,
Greater China
Chairman of the Board and President, Kao (China) Holding
Co., Ltd.
Chairman of the Board, Kao Commercial (Shanghai) Co., Ltd.
Chairman of the Board, Kanebo Cosmetics (China) Co., Ltd.
Akemi Ishiwata
Senior Vice President, Corporate Communications
Satoru Tanaka
President, Human Health Care Business Unit
24 Kao Corporation Annual Report 2014
Compliance
Basic Policy
Preventing Bribery
Kao upholds the principle of integrity, passed down from
its founder, as one of the “Values” of its corporate
philosophy, the Kao Way. “Integrity” means to behave
lawfully and ethically and conduct fair and honest
business activities. Kao regards integrity as the starting
point of compliance and promotes it as a foundation for
earning the respect and trust of all stakeholders.
Structure
Kao has established a Compliance Committee, chaired by
a Managing Executive Officer and comprised of
representatives of relevant divisions and affiliates. Once
every six months, the committee (1) discusses the
establishment and revision of Kao’s code of conduct, the
Kao Business Conduct Guidelines (BCG), and other
internal compliance-related guidelines; (2) implements
educational activities to promote the spread and
establishment of corporate ethics both in Japan and
overseas; and (3) monitors the operation of and
responses to the compliance hotlines. The committee
then reports important matters, provides an overview of
activities and makes proposals to the Board of Directors
as appropriate.
In the BCG, Kao has made clear its strong stance against
bribery by specifying that bribes shall not be given to or
received from any third party, including government
officials, private companies and individuals. Furthermore,
the BCG prohibits “facilitation payments,” which are
small payments to government officials to speed up
routine non-discretionary government actions.
To present this stance in a more specific form, the Kao
Group has introduced its Anti-Bribery Guidelines, which
includes detailed anti-bribery rules applicable Group-wide
as well as operating procedures for the giving and
receiving of entertainment and gifts, and for other
matters geared to the business, country or region.
Verifying the Validity and Appropriateness
of Compliance Activities
Based on its medium-to-long-term and annual action plans,
Kao conducts compliance promotion activities including
regular revision of the BCG, maintenance and operation of
compliance hotlines, and Integrity Workshops. To confirm
the validity and appropriateness of the activities being
conducted so that they lead to more effective compliance
activities, Kao has decided to ask the opinions of
compliance promoters and general staff in all departments
within the Company and obtain verification from a
consulting firm outside the Company early in 2015 in order
to establish action plans for subsequent years.
PDCA Cycle for Compliance Activities
The Kao Group’s Compliance Activities (New activities planned are in red)
Plan
• Plan introduction and/or revision of BCG and
compliance-related guidelines
• Plan establishment of Kao Group compliance hotlines
(in new entities)
• Plan new educational measures
• Plan new measures based on employee opinions
and third-party evaluation
Do
• Introduce and revise BCG and compliance-related guidelines
• Establish and operate Kao Group compliance hotlines
• Implement training based on plans
• Implement new educational measures based on
employee opinions
I
• Implement training based on execution of new
measures planned in line with third-party evaluation
m
Proactive
investment
Act
• Address issues that require improvement based on
division self-diagnoses and third-party evaluation
Check
• Self-check of activities
(Division self-diagnoses, audit by Global Internal Audit, etc.)
• Ask employee opinions
• Third-party evaluation
Kao Corporation Annual Report 2014 25
Risk Management
Basic Policy and Structure
Kao visualizes the various risks pertaining to achieving the
Kao Group’s targets and its business activities and
implements measures to reduce their frequency and
influence. In addition, we make preparations and conduct
necessary drills to minimize damages and loss in the
event that such risk becomes a reality.
With regard to risks involved in business strategies, a
responsible division reviews the progress of short-term
and medium-to-long-term business plans, including
business conditions, which form the basis of such
strategies, and further identifies risks and considers and
implements necessary countermeasures, in cooperation
with related divisions.
With regard to operational risks, the Risk Management
Committee, chaired by the Executive Officer in charge of
Risk Management, verifies the furtherance of Group-wide
risk management and establishes basic policies for the
activities to be carried out upon each occurrence of
disasters/accidents, product quality problems and other
emergency situations, as well as preparation and operating
plans of specific countermeasures, in accordance with the
“Kao Risk Management Policy.” In addition, in each
division we appoint a member responsible for promoting
risk management, who identifies, evaluates and considers
measures to avoid or deal with operational risks on a
regular basis.
In addition to the enhancement of operational risk
Priority Themes
1. Identification of Risks That Could Seriously
Affect Achievement of Management Targets and
Business Activities and Strengthening of
Countermeasures
Kao works to respond appropriately to strategic risks by
having top management and responsible persons in each
division review the progress of short-term plans and the Kao
Group Mid-term Plan 2015 (K15), including the business
conditions on which they are based, identifying risks and
implementing necessary countermeasures.
With regard to operational risks, Kao will conduct risk
surveys at key divisions in Japan as well as at Kao Group
companies outside Japan to identify events that could
seriously affect Kao Group business activities, factors in
their occurrence, current countermeasures and issues. In
addition, Kao will establish policies based on the results of
these surveys and have the divisions responsible for the
relevant risks formulate responses as a priority measure to
reduce the impact on business activities.
2. Development and Strengthening of the
Emergency Response System
As our business becomes more global, emergency situations
that require our response broaden in scope to encompass
accidents and disasters, political and social unrest and labor
disputes. The impact on the business when such emergency
situations occur is increasing in terms of both the scale and
speed. We are developing and strengthening our emergency
response system to be able to respond to these kinds of
situations in Japan and overseas.
management that it has conducted up to now, Risk
3. Strengthening the Business Continuity Plan
Management, Corporate Strategy will enhance overall risk
management by visualizing and formulating countermeasures
for risks involved in business strategies that must be dealt
with by the entire Kao Group.
In the event of an emergency, an emergency response
organization will be established to respond to such a
situation, centered on the responsible divisions and,
depending on the graveness of the impact on the Kao
Group as a whole, an emergency response headquarters
will further be established in order to direct a prompt
We will fulfill our responsibility to ensure the delivery of
products that our customers need by formulating and
continuously improving a business continuity plan that
hypothesizes various events and their main causes that
could have a serious negative impact on the continuity of
our business activities, such as an operational stoppage due
to a large-scale earthquake or an epidemic.
Topics
Changes in “Business Risks and
Other Risks”
response to the situation with the President and Chief
Kao has changed and revised the presentation of “Business
Executive Officer or another appropriate person acting as
the head thereof.
The management status of the above-described
business strategy and operational risks will be reported
and discussed at the meeting of the Board of Directors or
at the Executive Committee on a regular basis, and also in
a timely manner whenever necessary.
Risks and Other Risks” based on its identifi cation of serious
strategic and operational risks that could have a negative
impact on achievement of its management targets and its
business activities. (For details, see “Business Risks and
Other Risks” on page 41.)
In 2015, Kao will work to evaluate and verify the status
of management of these serious risks and further enhance
its response.
26 Kao Corporation Annual Report 2014
Sustainability
Basic Policy
Based on its corporate philosophy, the Kao Way, the
Kao Group contributes to realizing a sustainable
society by working to find solutions to social issues
through Yoki-Monozukuri tailored to the needs of the
times and the community.
On July 1, 2013, we announced the Kao Sustainability
Kao Sustainability Statement
Three
Key Areas
Statement to share with stakeholders inside and outside
Conservation
the Kao Group our policy for achieving both corporate
growth and a sustainable society as our business
expands globally. With this statement as our point of
reference, the Kao Group proactively seeks the trust
and support of its stakeholders, aiming to enhance its
contributions to a sustainable society.
Community
Culture
Day-to-day Work / Basic Activities
Three Key Areas and Target Fields
To grow its business responsibly and sustainably, the
chosen for their compatibility with the mid-term plan
Kao Group will focus its efforts on the three key areas
and the Kao Group’s corporate resources as well as
of Conservation, Community and Culture. These were
their importance for resolving social issues.
Conservation
Community
Reducing environmental impacts
of our business activities
Engaging with communities
through business
Culture
Integrity
Fields
Environmental activities in
partnership with stakeholders
Engaging with local communities
through partnerships
Diversity and Inclusion
SRI 1 Indexes and External CSR 2 Evaluations
SRI indexes for which Kao has been selected
CSR-related evaluations from external organizations
Kao Corporation also received Gold Class
2015 and Industry Mover 2015
Notes: 1. SRI: Socially Responsible Investment
2. CSR: Corporate Social Responsibility
Kao Corporation Annual Report 2014 27
Environment
Basic Policy
In a society confronted with a range of global environmental
challenges, such as the depletion of natural resources and
global warming, Kao has adopted the mission of striving for
the enrichment of the lives of people globally. In 2009, we
announced the Kao Environmental Statement and medium-
term objectives for 2020. The entire Kao Group will focus on
manufacturing that reduces environmental impact and on
ecology-centered management as it continue meeting its
responsibilities as a user of chemicals. We recognize CO2,
water, chemical substances and biodiversity as four priority
areas for taking action.
Changes in Water Consumption during Product Use1
(%)
0
-20
-40
(Millions m3)
0
3,000
2,500
2,000
1,500
1,000
500
0
-20
-20
-21
-21
Target
-30
1,805
1,877
1,900
1,916
1,992
2005
2011
2012
2013
2014
2020
Water Consumed in the Use of Kao Products (Left)
Per Unit Reduction Rate (Right)
In addition, we conduct “eco together” activities to
promote cooperation with our diverse stakeholders, including
Notes: 1. Water consumption during product use is defined as the amount of
water used during the lifecycle of an individual consumer product
in Japan, multiplied by annual unit sales.
consumers, business partners and society, throughout the
2. Some data for 2005 have been retroactively modified.
product lifecycle, from raw material procurement to
production, logistics, sales, use and disposal. Outside Japan,
we promote nationwide cleanliness and water-saving
activities in China jointly with the Center for Environmental
Education and Communications of the Ministry of
Environmental Protection of China. Activities have the theme
of “aiming to save 10,000 liters annually per household.”
Initiatives for Water
Reducing Water Consumption during Product Use
For household laundering, which consumes a large amount
of water, Kao launched the concentrated liquid laundry
detergent Attack Neo in 2009. The use of ultra-concentration
technology that requires only one laundry rinse cycle saves
not only water but also electricity and time. In August 2013,
we launched Ultra Attack Neo, which uses a new cleaning
ingredient for high-performance, speedy laundering that
For dishwashing, another activity that consumes a large
amount of water, in August 2014 we launched an improved
version of CuCute dishwashing detergent with higher
cleaning power and faster rinsing.
Since 2010, our Merit Shampoo employs a component
allowing swift rinsing of lather. The shampoo cuts rinse
water by approximately 20 percent compared with the
original version.
Initiatives at Plants and in Offi ces
Each of Kao’s plants uses water as a product ingredient, as
well as to clean and cool equipment. To reduce use,
Pilipinas Kao, Inc. closely monitors the amount of water it
uses. As a measure to reuse water, the Sumida Complex
in Japan, Fatty Chemical (Malaysia) Sdn. Bhd. and other
sites collect rainwater and use it to water green spaces.
powerfully removes dirt and odors with just five minutes of
Moreover, we promote measures to recycle water by
washing time. We have also introduced water-saving laundry
cleaning and reusing water used in certain processes.
detergents in China and Australia.
2020 Medium-term Objectives
CO2
Water
Consumer products: 35% reduction
(across product lifecycle, per unit sales in Japan, relative to FY2005)
Water consumption during product use: 30% reduction
(per unit sales in Japan, relative to FY2005)
Chemical substances
Active implementation of the Strategic Approach to International Chemicals Management (SAICM) to
promote sound chemical management
Biodiversity
Implementation of measures to protect biodiversity through responsible raw material procurement and
other measures
Notes: 1. With regard to commercial/industrial products, CO2 reduction and resource conservation measures will be undertaken jointly with customers.
2. These medium-term objectives represent a fi rst step in ongoing environmental activities that will continue to be expanded in the future.
28 Kao Corporation Annual Report 2014
Sustainability
Supply Chain
Basic Policy
Kao is further enhancing its competitiveness in global
Specific activities are as follows.
markets with the aim of becoming a company with a
global presence. For that purpose, we conduct
procurement with fairness, legal compliance and the
highest ethics. In order to achieve a sustainable society,
we give full consideration to preservation of natural
resources, conservation, safety and human rights, striving
to fulfill our corporate social responsibilities.
Initiatives
Sustainable Procurement of Raw Materials
In recognition of the risks to sustainable development from
scarcity of resources, degradation of biodiversity, climate
change and other environmental problems, as well as
human rights issues, Kao strives for sustainable
procurement of raw materials. These initiatives require
comprehensive engagement of the supply chain. In
particular, we work toward climate change mitigation by
participating in the CDP Supply Chain Project1 while
requiring major suppliers to disclose and reduce greenhouse
gas emissions. In addition, in cooperation with our suppliers,
we are streamlining distribution and reducing the
environmental impact of procured products.
In particular, recognizing the dependence of its businesses
1. Procurement of Sustainable Raw Materials
Under procurement guidelines that were revised in 2014,
Kao declared its goal of switching to procurement of
sustainable raw materials for palm oil, paper and pulp by
2020 as an initiative toward zero deforestation. Kao has
joined the Roundtable on Sustainable Palm Oil and received
supply chain certification at its related plants for
procurement of certified palm oil and palm kernel oil. By
2020, Kao aims to purchase only sustainable palm oil and
palm kernel oil that is traceable to the plantation.
As for procurement of paper and pulp, by 2020 Kao aims
to purchase only recycled paper or sustainably sourced
paper and pulp for use in its consumer products, packaging
and office paper. In particular, by 2020 Kao aims to purchase
only pulp for raw materials that is traceable to the source.
2. Sustainable Sourcing of Plant Resources
In recognition of the problems of the scarcity of plant
resources and plunder of resources, Kao purchases plant
resources in consideration of access and benefit sharing
(ABS),2 and continues initiatives to diversify sourcing routes
and to convert from natural to cultivated plants, considering
the natural environment and local communities at their
source.
on natural capital, Kao is committed to zero deforestation at
3. Initiatives to Reduce Dependence on Petrochemical
the source in its procurement of raw materials including
Resources in Packaging
palm oil and paper. Over the medium-to-long term, Kao
strives to reduce its use of natural capital by reducing the
amount of raw materials used in its business and shifting to
alternative raw materials such as algae or other non-edible
biomass sources, in addition to working toward sustainable
procurement that also takes into account ethical issues that
have emerged due to globalization.
Kao continues efforts to reduce total volume of plastics
used through minimization of container size and
development of refill containers, while promoting use of
biomass materials such as plant-based polyethylene in
containers and packaging.
Notes: 1. CDP refers to cooperation between institutional investors and major
corporations in climate change initiatives and promotion of disclosure
of greenhouse gas emissions. The Supply Chain Project refers to
cooperation between the CDP and corporations, with corporations
requesting their suppliers to disclose information regarding climate
change; this project affects the entire supply chain.
2. Access to genetic resources and the fair and equitable sharing of
benefits arising from their utilization, as defined by the Convention
on Biological Diversity
Kao Corporation Annual Report 2014 29
Sustainability
Diversity & Inclusion
Basic Policy
Expanding the Number of Female Managers
Based on the recognition that the vitality generated by
Evaluating and promoting female employees based on
diversity supports business development, we aim to
their ambition and abilities and not attributes such as
realize an organization in which each individual’s diverse
gender leads to expanded roles for female employees. In
skills, personality and values are included and mobilized to
2010, a woman was appointed Managing Executive Officer
enhance the company’s collective strength with the aim of
in charge of quality assurance and continues to hold this
becoming a company with a global presence.
position today.
As we work to open up appropriate paths to
Kao’s percentage of female employees continues to
employees with motivation and ability, we are also
rise and reached 27.6 percent as of December 2014 for
continuing our awareness efforts, with the goal of
the Kao Group. The percentage of female managers in
achieving a corporate culture that allows a diverse range
the Kao Group in Japan is 10.1 percent. The current
of employees to flourish.
percentages of female employees and female managers
Development of Diverse Human Resources
Kao works to fairly evaluate and promote each individual
Policy for the Future
in the Kao Group are shown below.
employee, and to develop those with motivation and
We will further promote the advancement of diverse
ability into global leaders, regardless of gender, nationality,
personnel to leadership positions as we make detailed
or other factors. The Global Leadership Development
enhancements to support measures from an on-site
Program (GLDP) is a global program in which members
perspective, build mechanisms to support women’s
selected from companies in the Kao Group study Kao
career formation and increase options for ways of
management issues from a broader perspective and make
working. In addition, we will steadily work to increase the
proposals to executive management. Half of the participants
number of female managers (toward a short-term
of the GLDP, which has been held since 2010, are employees
milestone of 30 percent globally and 15 percent in Japan)
of subsidiaries and affiliates outside Japan and engage in
by striving to raise awareness of different ways of
vigorous discussions.
working and change the workplace environment.
Composition of Kao Group Employees and Managers
(As of December 31, 2014)
Change in Percentage of Female Managers
Employees
Japan
24,013
Asia
(excluding
Japan)
Americas and
Europe
8,975
4,242
Total
37,230
Female
employees
(%)
13,815
(57.5%)
4,532
(50.5%)
2,108
(49.7%)
20,455
(54.9%)
Managers
2,539
954
1,168
4,661
Female
managers
(%)
257
(10.1%)
463
(48.5%)
566
(48.5%)
1,286
(27.6%)
(%)
30
25
20
15
10
5
0
30 Kao Corporation Annual Report 2014
27.7
27.6
22.2
23.2
23.6
2010
2011
2012
2013
2014
Financial Section
11-Year Summary
32
Management Discussion and Analysis 34
Consolidated Financial Statements
44
Notes to Consolidated Financial
Statements
Independent Auditor’s Report
50
75
Kao Corporation Annual Report 2014 31
11-Year Summary
Kao Corporation and Consolidated Subsidiaries
Years ended December 31, 2014 to 2012, period ended
December 31, 2012, and years ended March 31, 2012 to 2005.
For the year:
Net sales ...............................................................................
Business Segments
Beauty Care Business ....................................................
Human Health Care Business .........................................
Fabric and Home Care Business .....................................
Consumer Products Business .....................................
Chemical Business .........................................................
Eliminations ....................................................................
Former Segments
Consumer Products ........................................................
Prestige Cosmetics ........................................................
Chemical Products .........................................................
Eliminations ....................................................................
Geographic Area
Japan .............................................................................
Asia ................................................................................
Asia and Oceania ............................................................
Americas ........................................................................
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 .............................................................................
Dec.
2014
Millions of yen
Dec.
2013
Dec. 2012
(Restated)
Dec.
2012
¥1,401,707
¥1,315,217
¥1,220,359
¥1,012,595
589,907
240,077
324,505
1,154,489
288,022
(40,804)
570,268
210,628
311,023
1,091,919
261,192
(37,894)
537,814
189,614
291,988
1,019,416
236,473
(35,530)
444,425
151,977
236,748
833,150
208,071
(28,626)
—
—
—
—
720,789
159,857
—
89,998
—
110,519
(68,568)
101,567
52,765
41,929
59,788
80,200
37,493
3.7%
67,045
6.6%
1,030,347
582,699
33,350
—
—
—
—
997,309
244,903
—
124,216
—
152,056
(116,777)
133,270
79,590
68,484
79,660
125,436
51,739
3.7%
92,410
6.6%
—
—
—
—
959,405
199,655
—
108,599
—
134,168
(86,610)
124,656
64,764
63,687
77,297
109,497
49,650
3.8%
86,406
6.6%
1,198,233
658,232
1,133,276
628,709
—
—
—
—
933,767
160,005
—
89,998
—
110,519
(73,930)
111,791
53,107
—
—
—
—
—
—
—
—
—
—
Number of employees...........................................................
32,707
33,054
Per share:
Net income ...........................................................................
Cash dividends ......................................................................
Net worth .............................................................................
Weighted average number of shares
Yen
¥ 156.46
70.00
1,313.63
¥ 126.03
64.00
1,227.54
¥101.77
—
—
¥ 101.12
62.00
1,116.61
outstanding during the period (in thousands) ........................
508,687
513,880
—
521,824
Key financial ratios:
Return on sales .....................................................................
Return on equity ...................................................................
Net worth ratio ......................................................................
5.7%
12.4
54.9
4.9%
10.7
55.5
4.4%
9.5
—
5.2%
9.4
56.6
%
Notes: 1. Due to a change in the fiscal year end, the term of consolidation for the fiscal period ended December 31, 2012 consists of the nine months from April to December
for Kao Corporation and its subsidiaries whose fiscal year end was previously March 31 and the twelve months from January to December for subsidiaries whose
fiscal year end was December 31.
2. December 2012 (Restated) represents figures for the year from January 1 to December 31, 2012, for Kao Group companies whose fiscal year end was previously March 31.
3. As of January 2014, certain changes have been made in inter-company transactions among subsidiaries in the Consumer Products Business in the Americas and Europe.
4. Australia and New Zealand, which had been included in Asia and Oceania until the fiscal year ended March 31, 2012, have been reclassified under Americas from the
fiscal period ended December 31, 2012.
5. 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 March 2007 have been restated to reflect the change.
6. 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.
32 Kao Corporation Annual Report 2014
Mar.
2012
Mar.
2011
Mar.
2010
Mar.
2009
Mar.
2008
Mar.
2007
Mar.
2006
Mar.
2005
Millions of yen
¥1,216,096
¥1,186,831
¥1,184,385
¥1,276,316
¥1,318,514
¥1,231,808
¥ 971,230
¥936,851
537,938
181,758
285,645
1,005,341
247,635
(36,880)
533,514
175,761
279,008
988,283
231,997
(33,449)
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)
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)
—
—
—
—
—
—
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%
—
—
—
—
—
—
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
—
—
—
—
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%
—
—
—
—
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%
—
—
—
—
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%
—
—
—
—
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
538,030
34,069
1,022,799
528,895
1,065,751
565,133
1,119,676
545,230
1,232,601
574,038
1,247,797
564,532
1,220,564
509,676
34,743
34,913
33,745
32,900
32,175
29,908
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
¥ 122.53
54.00
1,070.67
¥ 129.41
52.00
1,035.66
¥ 130.58
50.00
935.11
¥ 131.16
38.00
821.47
521,936
532,980
536,009
536,085
543,228
544,996
544,127
549,626
%
4.3%
9.8
54.3
3.9%
8.5
51.7
3.4%
7.3
53.0
5.1%
11.5
48.7
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. 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.
8. Net sales by geographic area including interregion sales are classified based on the location of Kao Group companies.
9. Cash flows are defined as net income plus depreciation and amortization minus cash dividends.
10. Net income per share is computed based on the weighted average number of shares outstanding during the respective years. 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.
11. Cash dividends per share are the amounts applicable to the respective years, including dividends to be paid after the end of the year.
12. Net worth is equity, excluding minority interests and stock acquisition rights.
13. In calculating return on equity, equity excludes minority interests and stock acquisition rights.
Kao Corporation Annual Report 2014 33
Management Discussion and Analysis
Overview of Consolidated Results
fiscal year to ¥1,401.7 billion (US$11,725.8 million).
Operating income increased ¥8.6 billion compared with the
During the fiscal year ended December 31, 2014, the global
previous fiscal year to ¥133.3 billion (US$1,114.9 million) and net
economy showed weakness in some sectors but recovered
income increased ¥14.8 billion compared with the previous
moderately. In the Japanese economy, although weakness was
fiscal year to ¥79.6 billion (US$665.8 million).
apparent in personal consumption and elsewhere, a moderate
recovery trend continued. The household and personal care
products market in Japan, a key market for the Kao Group, grew
by 2 percent on a value basis and consumer purchase prices
* 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.”
increased, both compared with the previous fiscal year. In
Analysis of Income Statement
addition, the cosmetics market in Japan was flat compared with
the previous fiscal year.
Net sales increased 6.6 percent compared with the previous
Under these circumstances, the Kao Group worked to launch
fiscal year to ¥1,401.7 billion (US$11,725.8 million). Excluding
and nurture products with high added value in response to
changes in consumer needs based on its concept of Yoki-
Monozukuri,* which emphasizes research and development
the effect of currency translation, net sales would have
increased 4.7 percent. In the Consumer Products Business,
sales and market share both grew in Japan due to the launch
geared to customers and consumers. The Kao Group also
of numerous high-value-added products and proactive sales
worked to the utmost to supply products responding to the last-
activities, although there was an impact from adverse weather
minute surge in demand associated with the consumption tax
conditions during the summer. Sales in Asia also continued to
rate increase in Japan in April 2014, and strove to stimulate the
grow steadily. Sales in the Chemical Business increased as
market by launching numerous new and improved products after
the Kao Group worked to adjust selling prices in connection
the consumption tax rate increase.
with higher prices for natural fats and oils used as raw
Regarding Kanebo Cosmetics brightening products
materials and to increase sales volume.
containing the ingredient Rhododenol, for which a voluntary
Despite aggressively increased marketing and other expenses
recall was announced on July 4, 2013, the Kao Group has been
for new and improved products and the impact of higher prices for
wholeheartedly supporting the recovery and compensation of
raw materials, operating income increased ¥8.6 billion compared
people who have experienced vitiligo-like symptoms and is
with the previous fiscal year to ¥133.3 billion (US$1,114.9 million)
working to prevent a recurrence.
due to the effect of increased sales of the Consumer Products
Net sales increased 6.6 percent compared with the previous
Business in Japan and Asia and the Chemical Business.
(Years ended March 31, 2011 and 2012, period ended December 31, 2012 and years ended December 31, 2012 to 2014)
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
1,186.8
1,216.1
1,220.4
1,000
1,012.6
58.0
56.8
56.3
1,401.7
1,315.2
56.5
54.9
500
0
Mar.
2011
Mar.
2012
Dec.
2012
Dec.
2012
(Restated)
Dec.
2013
Dec.
2014
(%)
100
80
60
40
20
0
Note: The gross profit ratio has not been disclosed for the year ended
December 31, 2012.
34 Kao Corporation Annual Report 2014
(Billions of yen)
150
133.3
124.7
111.8
(%)
20
15
9.2
9.5
9.5
10
104.6
108.6
8.8
8.9
101.6
10.0
Mar.
2011
Mar.
2012
Dec.
2012
Dec.
2012
(Restated)
Dec.
2013
Dec.
2014
5
0
100
50
0
Costs, Expenses and Income as Percentages of Net Sales
Years ended December 31, 2014 and 2013, and period ended December 31, 2012
Cost of sales ..................................................................................
Gross profit ....................................................................................
Selling, general and administrative expenses ................................
Operating income ..........................................................................
Income before income taxes and minority interests .....................
Net income ....................................................................................
Dec.
2014
45.1%
54.9
45.4
9.5
9.0
5.7
Dec.
2013
43.5%
56.5
47.0
9.5
8.7
4.9
Dec.
2012
43.7%
56.3
46.3
10.0
10.1
5.2
Net income increased ¥14.8 billion compared with the
and hygiene, and enhanced proposal-based sales, among other
previous fiscal year to ¥79.6 billion (US$665.8 million). The
measures, while working to supply products responding to the
Kao Group recorded ¥8.9 billion (US$74.4 million) in
last-minute surge in demand associated with the consumption
compensation-related and other expenses in connection with
tax rate increase and striving to stimulate the market by
brightening products containing Rhododenol.
launching numerous new and improved products after the
Net income per share was ¥156.46 (US$1.31), an increase of
consumption tax rate increase.
¥30.43, or 24.1 percent, from ¥126.03 in the previous fiscal year.
In Asia, sales increased 20.7 percent to ¥140.5 billion
Information by Segment
Consumer Products Business
(US$1,175.3 million). Excluding the effect of currency
translation, sales would have increased 16.1 percent. Sales
continued to grow as the Kao Group worked in areas such as
launching and nurturing products targeting the middle-class
consumer segment, collaborating with retailers, utilizing
Sales increased 5.7 percent compared with the previous fiscal
wholesale channels and expanding sales regions.
year to ¥1,154.5 billion (US$9,657.8 million). Excluding the effect
In the Americas, sales increased 15.9 percent to ¥79.9 billion
of currency translation, sales would have increased 4.3 percent.
(US$668.0 million). Excluding the effect of currency translation,
In Japan, sales increased 3.9 percent to ¥900.0 billion
sales would have increased 7.8 percent. Sales based on the
(US$7,529.1 million). Sales and market share both grew as the
same inter-company transaction method used in the previous
Kao Group responded to changing consumer lifestyles and
fiscal year would have increased 7.5 percent (an increase of
social issues such as the environment, health, the aging society
0.1 percent excluding the effect of currency translation).
(Years ended March 31, 2011 and 2012, period ended December 31, 2012 and years ended December 31, 2012 to 2014)
Net Income / Return on Sales
Net Income (Left)
Return on Sales (Right)
Net Income per Share
(Billions of yen)
80
79.6
64.8
60
40
20
0
52.4
52.8
53.1
46.7
3.9
4.3
5.2
4.4
4.9
5.7
Mar.
2011
Mar.
2012
Dec.
2012
Dec.
2012
(Restated)
Dec.
2013
Dec.
2014
(%)
15
10
5
0
(Yen)
160
120
80
40
00
156.46
126.03
100.46
101.12
101.77
87.69
Mar.
2011
Mar.
2012
Dec.
2012
Dec.
2012
(Restated)
Dec.
2013
Dec.
2014
Kao Corporation Annual Report 2014 35
Excluding the effect of currency translation, sales of skin care
with the previous fiscal year, due in part to adverse weather
products increased and sales of hair care products decreased
conditions during the summer and a delayed recovery from
compared with the previous fiscal year.
the pullback following the consumption tax rate increase. The
In Europe, sales increased 16.7 percent to ¥84.2 billion
(US$704.6 million). Excluding the effect of currency translation,
sales would have increased 7.9 percent. Sales based on the
same inter-company transaction method used in the previous
fiscal year would have increased 9.1 percent (an increase of 0.8
Kao Group continued to work to reinforce focal brands and
expanded sales of SOFINA Primavista base makeup,
ALBLANC skin care products and the new DEW beauté aging
care line in counseling cosmetics, as well as renewed KATE
TOKYO makeup in self-selection cosmetics. Outside Japan,
percent excluding the effect of currency translation). Excluding
sales increased compared with the previous fiscal year,
the effect of currency translation, sales of cosmetics increased
and sales of hair care products decreased compared with the
excluding the effect of currency translation, due in part to
growth in sales from the renewal of Molton Brown, a prestige
previous fiscal year.
brand from the United Kingdom.
Operating income increased ¥8.3 billion compared with the
Sales of skin care products increased compared with the
previous fiscal year to ¥111.3 billion (US$930.8 million) due to
the effect of increased sales in Japan and Asia associated with
aggressively increased marketing and other expenses for new
and improved products, despite the impact of higher prices for
raw materials.
previous fiscal year. In Japan, sales increased with strong
performance by Bioré facial cleanser, Bioré U body cleanser
and Curél derma care products, including new and improved
products. In Asia, Bioré performed steadily and sales grew. In
the Americas, sales excluding the effect of currency translation
Note: The Kao Group’s Consumer Products Business consists of the
Beauty Care Business, the Human Health Care Business, and the
Fabric and Home Care Business.
increased compared with the previous fiscal year, due in part
to the launch of improved Jergens hand and body lotion products.
Beauty Care Business
Sales of hair care products were flat compared with the
previous fiscal year. In Japan, although hair coloring products
Sales increased 3.4 percent compared with the previous fiscal
were impacted by market contraction, sales increased with
year to ¥589.9 billion (US$4,934.8 million). Excluding the effect
of currency translation, sales would have increased 1.3 percent.
strong performance by shampoos, conditioners and hair
styling products, including the contribution from Essential and
Sales of cosmetics increased 1.4 percent compared with
other new and improved products. In Asia, sales decreased
the previous fiscal year to ¥260.6 billion (US$2,180.4 million).
compared with the previous fiscal year due to narrowing down
Excluding the effect of currency translation, sales would have
increased 0.3 percent. In Japan, sales were flat compared
the brands. In the Americas and Europe, the Kao Group
launched an improved styling product line from John Frieda,
(Years ended March 31, 2011 and 2012, period ended December 31, 2012 and years ended December 31, 2012 to 2014)
Consumer Products Business
Net Sales /
Operating Income
(Billions of yen)
1,200
1,000
988.3
1,005.3
Net Sales (Left)
Operating Income (Right)
Beauty Care Business
Net Sales /
Operating Income
(Billions of yen)
150
1,154.5
(Billions of yen)
750
1,091.9
1,019.4
833.2
80.5
85.6
84.7
93.4
111.3
103.0
100
500
533.5
537.9
537.8
Net Sales (Left)
Operating Income (Right)
(Billions of yen)
50
570.3
589.9
40
800
600
400
200
0
Mar.
2011
Mar.
2012
Dec.
2012
Dec.
2012
(Restated)
Dec.
2013
Dec.
2014
50
0
250
0
36 Kao Corporation Annual Report 2014
444.4
28.4
30
21.8
20.1
23.9
15.4
5.5
Mar.
2011
Mar.
2012
Dec.
2012
Dec.
2012
(Restated)
Dec.
2013
Dec.
2014
20
10
0
Management Discussion and Analysis
but sales excluding the effect of currency translation
Merries baby diapers continued to sell strongly in Japan,
decreased compared with the previous fiscal year in the
where the Kao Group increased production capacity, and sales
severe competitive environment.
also grew in China and Russia. Regarding locally produced
Operating income increased ¥4.5 billion compared with the
products targeting the middle-class consumer segment, the
previous fiscal year to ¥28.4 billion (US$237.9 million) due to
Kao Group worked to expand sales of products launched in
the effect of increased sales and other factors. Operating
China in 2013 and began sales in Indonesia in September 2014.
income before amortization of goodwill and other items
Sales of personal health products increased compared with
related to acquisitions (EBITA) increased ¥3.2 billion compared
the previous fiscal year. Sales of oral care products were flat,
with the previous fiscal year to ¥57.3 billion (US$478.9 million),
although the Kao Group launched improved products and
which is equivalent to 9.7 percent of sales.
nurtured high-value-added products. Sales of bath additives
Human Health Care Business
were flat, due in part to stiff competition, but sales of
MegRhythm steam thermo power pads increased substantially.
Sales increased 14.0 percent compared with the previous fiscal
Operating income increased ¥5.0 billion compared with the
year to ¥240.1 billion (US$2,008.3 million). Excluding the effect
previous fiscal year to ¥21.9 billion (US$183.0 million) due to
of currency translation, sales would have increased 12.8 percent.
the effect of increased sales and cost reduction activities,
Sales of food and beverage products decreased compared
although higher raw material prices had an impact.
with the previous fiscal year in a severe market environment,
despite efforts in green tea to strengthen promotion of the
Fabric and Home Care Business
function of tea catechins in increasing the body’s fat-burning
Sales increased 4.3 percent compared with the previous fiscal
ability and the launch of an improved coffee drink with enhanced
flavor, both under the Healthya brand of functional drinks that
year to ¥324.5 billion (US$2,714.6 million). Excluding the effect
of currency translation, sales would have increased 4.1 percent.
promote body fat utilization.
Sales of fabric care products increased compared with the
Sales of sanitary products increased substantially compared
with the previous fiscal year. The Laurier brand of sanitary
napkins increased its market share in Japan due to growth in
sales of high-value-added products such as Laurier F, which
protects skin from dampness and chafing, and Laurier Slim
Guard, which offers both high absorbency and comfort. Laurier
sales also increased steadily in Asia.
previous fiscal year. In Japan, the Kao Group’s efforts to
highlight the environmental appeal of conserving water,
electricity and resources with the Neo series included
promotion of the reduced laundry time resulting from the
strong cleaning power of Ultra Attack Neo ultra-concentrated
liquid laundry detergent and an improved version of Attack
Neo Antibacterial EX W Power ultra-concentrated liquid
(Years ended March 31, 2011 and 2012, period ended December 31, 2012 and years ended December 31, 2012 to 2014)
Human Health Care Business
Net Sales /
Operating Income
Net Sales (Left)
Operating Income (Right)
Fabric and Home Care Business
Net Sales /
Operating Income
(Billions of yen)
250
(Billions of yen)
240.1
30
(Billions of yen)
350
279.0
59.7
285.6
292.0
59.6
55.5
236.7
51.4
200
150
100
50
0
175.8
181.8
15.3
14.6
210.6
189.6
21.9
152.0
16.9
13.6
11.5
Mar.
2011
Mar.
2012
Dec.
2012
Dec.
2012
(Restated)
Dec.
2013
Dec.
2014
300
250
200
150
100
50
0
20
10
0
Net Sales (Left)
Operating Income (Right)
(Billions of yen)
80
324.5
311.0
62.2
61.0
60
40
20
0
Mar.
2011
Mar.
2012
Dec.
2012
Dec.
2012
(Restated)
Dec.
2013
Dec.
2014
Kao Corporation Annual Report 2014 37
laundry detergent containing more of an anti-mold agent,
which was launched in May 2014. For Attack Reset Power
Operating income decreased ¥1.2 billion compared with
the previous fiscal year to ¥61.0 billion (US$509.9 million) due
powder laundry detergent, the Kao Group stimulated the
in part to aggressively increased marketing and other
powder laundry detergent market with the launch of a refill
expenses for new and improved products and the impact of
product that reduces environmental impact. Due in part to
higher raw material prices, despite the effect of increased
these activities, sales of laundry detergent increased despite
sales and other factors.
the impact of adverse weather conditions during the summer.
In fabric softeners, the Kao Group launched Humming Fine
Chemical Business
with a deodorant effect that lasts for 24 hours, and both it and
Flair Fragrance performed firmly. Wide Haiter EX Power, a
Sales increased 10.3 percent compared with the previous fiscal
year to ¥288.0 billion (US$2,409.4 million). Excluding the effect
fabric bleach for color garments with strengthened
of currency translation, sales would have increased 6.7 percent.
deodorizing and antibacterial functions, performed well. In
Amid overall weakness in customer industries in Japan,
Asia, sales increased compared with the previous fiscal year.
For Attack laundry detergent, sales increased in Indonesia due
in part to the launch of Attack Jaz1, a powder detergent for
demand increased in certain customer industries, including
export-related industries due to the depreciation of the yen
and those related to reconstruction following the Great East
hand washing targeting the middle-class consumer segment,
Japan Earthquake in March 2011. Conditions remained firm
and in Taiwan and Hong Kong, where liquid laundry detergent
in the Americas, and a moderate recovery became apparent
with a strengthened antibacterial function that was launched
in Europe.
in 2013 performed well.
In oleo chemicals, the Kao Group worked to increase sales
Sales of home care products increased compared with the
volume of fatty alcohols, for which it expanded its facilities in
previous fiscal year. In Japan, the Kao Group launched an
improved version of CuCute dishwashing detergent with an
2013, and to adjust selling prices in connection with higher
prices for natural fats and oils used as raw materials. In
innovative washing formulation for significantly higher
performance chemicals, sales were firm as the Kao Group
cleaning power as well as both long-lasting suds and easy
worked to develop and expand sales of high-value-added
rinsing, and it performed well. Sales of household cleaners
increased due in part to contributions from Bath Magiclean
Antibacterial Deodorizer Plus bathroom cleaner and new
Magiclean Brightening Sheets home cleaner. In addition, sales
of Quickle Wiper household mop kits and sheets also grew.
products with reduced environmental impact. Sales of
specialty chemicals were flat compared with the previous
fiscal year despite structural changes in the personal
computer market, as the Kao Group worked to offer products
adapted to customer needs.
(Years ended March 31, 2011 and 2012, period ended December 31, 2012 and years
ended December 31, 2012 to 2014)
(Years ended March 31, 2011 and 2012, period ended December 31, 2012 and years
ended December 31, 2013 and 2014)
Chemical Business
Net Sales /
Operating Income
(Billions of yen)
300
Net Sales (Left)
Operating Income (Right)
Total Assets / Net Worth*
Total Assets
Net Worth
(Billions of yen)
288.0
40
(Billions of yen)
1,500
200
100
0
247.6
232.0
208.1
24.1
23.0
261.2
236.5
21.5
22.1
16.8
18.1
Mar.
2011
Mar.
2012
Dec.
2012
Dec.
2012
(Restated)
Dec.
2013
Dec.
2014
Note: Net sales include intersegment sales.
38 Kao Corporation Annual Report 2014
30
20
10
0
1,022.8
991.3
1,030.3
1,000
1,133.3
1,198.2
528.9
538.0
582.7
628.7
658.2
500
0
Mar.
2011
Mar.
2012
Dec.
2012
Dec.
2013
Dec.
2014
* Net worth is equity, excluding minority interests and stock
acquisition rights.
Management Discussion and Analysis
Operating income increased ¥0.6 billion compared with the
were a ¥4.2 billion decrease in income taxes payable and a
previous fiscal year to ¥22.1 billion (US$184.5 million), despite
¥6.4 billion decrease in liability for retirement benefits.
the impact of higher prices for natural fats and oils used as
Total equity increased ¥29.8 billion from the end of the
raw materials, due to the effect of increased sales resulting
previous fiscal year to ¥672.4 billion (US$5,624.8 million). The
from selling price adjustments and growth in sales volume, as
principal increases in equity were net income totaling ¥79.6
well as cost reduction activities.
billion, foreign currency translation adjustments of ¥23.6
Financial Structure
billion and remeasurements of defined benefit plans totaling
¥8.2 billion (post retirement liability adjustments for foreign
consolidated subsidiaries at the end of the previous fiscal
year). The principal decreases in equity were a ¥50.0 billion
Total assets increased ¥65.0 billion from the end of the
decrease due to purchase of treasury stock and payments of
previous fiscal year to ¥1,198.2 billion (US$10,023.7 million).
dividends from retained earnings totaling ¥33.8 billion. In
The principal increases in assets were a ¥22.8 billion increase
December 2014, Kao Corporation retired treasury stock.
in notes and accounts receivable – trade, a ¥22.0 billion
As a result, the net worth ratio (defined as net worth
increase in short-term investments, a ¥12.4 billion increase in
divided by total assets) was 54.9 percent compared with 55.5
finished goods, a ¥6.3 billion increase in work in process and
percent at the end of the previous fiscal year.
raw materials, a ¥30.3 billion increase in property, plant and
equipment, and a ¥9.7 billion increase in asset for retirement
benefits. The principal decreases in assets were an ¥18.9
Cash Flows
billion decrease in cash and time deposits and a ¥24.7 billion
decrease in intangible assets due to the progress of amortization
The balance of cash and cash equivalents at December 31,
of trademarks and other intellectual property rights and goodwill.
2014 increased ¥1.1 billion compared with the end of the
Total liabilities increased ¥35.2 billion from the end of the
previous fiscal year to ¥228.7 billion (US$1,912.8 million).
previous fiscal year to ¥525.8 billion (US$4,398.9 million). The
principal increases in liabilities were a ¥12.0 billion increase in
Cash Flows from Operating Activities
notes and accounts payable – trade, a ¥10.4 billion increase in
Net cash provided by operating activities totaled ¥145.1 billion
notes and accounts payable – other, a ¥3.6 billion increase in
(US$1,214.0 million). The principal increases in net cash were
accrued expenses and a ¥6.9 billion increase in liability for
income before income taxes and minority interests of ¥126.8
loss related to cosmetics. The principal decreases in liabilities
billion, depreciation and amortization of ¥79.7 billion and
(Years ended March 31, 2011 and 2012, period ended December 31, 2012 and years ended December 31, 2013 and 2014)
Cash Flows
Capital Expenditures
Cash Dividends per Share /
Payout Ratio
Cash Dividends per Share (Left)
Payout Ratio (Right)
Cash Flows* /
Capital Expenditures
(Billions of yen)
150
100
97.0
102.0
125.4
109.5
80.2
63.7
68.5
50
0
49.1
47.2
41.9
Mar.
2011
Mar.
2012
Dec.
2012
Dec.
2013
Dec.
2014
* Cash flows are defined as net income plus depreciation and
amortization minus cash dividends.
(Yen)
80
60
40
20
0
58.00
66.1
60.00
62.00
64.00
70.00
59.7
61.3
50.8
44.7
Mar.
2011
Mar.
2012
Dec.
2012
Dec.
2013
Dec.
2014
(%)
100
75
50
25
0
Kao Corporation Annual Report 2014 39
change in trade payables of ¥6.7 billion. The principal
Company’s basic policies regarding distribution of profits, and
decreases in net cash were change in trade receivables of
free cash flow and other factors have also been taken into
¥11.0 billion, change in inventories of ¥12.4 billion and income
consideration. As a result, the projected consolidated payout ratio
taxes paid of ¥49.3 billion.
is 43.8 percent.
Cash Flows from Investing Activities
Net cash used in investing activities totaled ¥63.8 billion
EVA
(US$533.8 million). This primarily consisted of ¥51.2 billion for
purchase of property, plant and equipment and ¥4.5 billion for
Economic Value Added (EVA®) is the Kao Group’s main
purchase of intangible assets.
management metric, defined as net operating profit after tax
(NOPAT) less a charge for the cost of capital employed in the
Cash Flows from Financing Activities
business. We believe EVA indicates “true” profit. Continuously
Net cash used in financing activities totaled ¥85.0 billion
increasing EVA raises corporate value, which is consistent
(US$711.2 million). This primarily consisted of ¥50.0 billion for
with the long-term interest of not only shareholders but other
purchase of treasury stock and ¥35.0 billion for payments of
stakeholders as well. The Kao Group aims to conduct business
cash dividends, including to minority shareholders. In
activities that expand the scale of its business while also
September 2014, Kao Corporation repaid ¥20.0 billion in
increasing EVA, and uses EVA for business performance
borrowings and borrowed the same amount in the same
evaluation, performance-based compensation and strategic
month to maintain an appropriate capital cost ratio and to
decision-making. During the fiscal year ended December 31,
enhance its financial base for investment in growth.
2014, EVA increased to 165 from 138 in the previous year due
Basic Policies Regarding Distribution of
Profits and Dividends for the Period
In order to achieve profitable growth, Kao Corporation (the
to an increase in net operating profit after tax (NOPAT) and
measures to reduce capital charges, including stock
repurchases. EVA is expressed as an index with the year
ended December 31, 2011 as 100. The Kao Group conducted
the following EVA-related activities during the fiscal year.
Company) secures an internal reserve for capital investment
Investing for Growth: During the fiscal year ended December
and acquisitions from a medium-to-long-term management
31, 2014, the Kao Group invested aggressively for future
perspective and places priority on providing shareholders with
growth. In Japan, a new plant within the Sakata Plant complex
steady and continuous dividends. In addition, the Company
in Sakata, Yamagata Prefecture, started operation in April
flexibly considers share repurchase and retirement of treasury
stock from the standpoint of improving capital efficiency.
2014. Built to reinforce the Kao Group’s stable supply
structure to address the rapid increase in demand for Merries
In accordance with these policies, the Company announced
baby diapers inside and outside Japan, the plant contributed
a year-end dividend for the fiscal year ended December 31,
to the business by increasing supply. Outside Japan, the Kao
2014 of ¥36.00 (US$0.31) per share, an increase of ¥4.00 per
share compared with the previous fiscal year. Consequently,
Group’s second consumer products plant in Indonesia started
operation and sales of Merries baby diapers targeting the
cash dividends for the fiscal year increased ¥6.00 per share
middle-class consumer segment began. In the Fabric and
compared with the previous fiscal year, resulting in a total of
Home Care Business, the Kao Group enhanced facilities to
¥70.00 (US$0.59) per share. The consolidated payout ratio will
reinforce the business foundation. In the Chemical Business,
be 44.7 percent.
the Kao Group continued construction of a new plant in China
For the fiscal year ending December 31, 2015, the
and expanded production facilities for surfactants as well as
Company plans to pay total cash dividends of ¥76.00 per
streamlining, maintaining and renewing facilities in Indonesia.
share, an increase of ¥6.00 per share compared with the
Research and development expenditures were ¥51.7 billion
fiscal year ended December 31, 2014. Although the operating
(US$432.8 million), the equivalent of 3.7 percent of net sales.
environment is challenging, this plan is in accordance with the
40 Kao Corporation Annual Report 2014
Management Discussion and Analysis
Increasing Profit: During the fiscal year ended December 31,
(1) Consumer Products Business
2014, the Kao Group launched more new and improved
1. Response to Changes in Consumer Needs
products than usual in the Consumer Products Business to
The Kao Group’s Consumer Products Business is affected by
respond to the last-minute surge in demand associated with
business cycles and changes in consumers’ values in the
the consumption tax rate increase in Japan, and to stimulate
market of each country. The Consumer Products Business
the market after the increase.
maintains and improves brand value by understanding
Growth in sales outpaced the market, and contributed to
changes in consumer needs and using the comprehensive
an increase in profit. In addition, continuing growth in sales of
Merries baby diapers in Japan, China and Russia contributed
to improvement of NOPAT. The Chemical Business was
impacted by a surge in prices of oils and fats used as raw
materials, but NOPAT improved due to growth in sales volume.
Financial Improvement: Free cash flow* totaled ¥813.8
billion (US$680.2 million) for the fiscal year ended December
31, 2014. The Kao Group has set priorities for how it will
deploy this free cash flow. Investments for mergers and
acquisitions and additional capital expenditures for future
growth are the top priorities, followed by stable and continuous
dividends. During the fiscal year, Kao Corporation worked to
reduce invested capital with the repurchase of ¥50.0 billion of
its stock from the market. The repurchased shares have been
retired. Kao Corporation increased cash dividends per share
for the fiscal year by ¥6.00 to ¥70.00 (US$0.59) for the 25th
consecutive year of growth in cash dividends.
* Free cash flow = Net cash provided by operating activities + Net cash
used in investing activities
Business Risks and Other Risks
strength of the Kao Group’s product development and
manufacturing in working to create high-value-added products
and provide services through approaches in areas including
the environment, health, the aging society and hygiene.
However, as a consequence of uncertainties in these business
activities due to various factors, the Consumer Products
Business may be unable to provide products and services that
respond to changes in consumer needs and brand value could
decrease. This could have an impact on the Kao Group’s
business results and financial condition.
2. Response to Changes in Retailing
The Kao Group’s Consumer Products Business is affected by
changes in the structure of retailing, including progress in the
creation of new corporate groups through retail industry
mergers and integration in the market and the emergence of
new retail channels. The Consumer Products Business
conducts sales activities and makes new offerings that
respond to these structural changes. However, as a consequence
of uncertainties in these business activities due to various
factors, the Consumer Products Business may be unable to
conduct sales activities or make new offerings that respond to
these structural changes. This could have an impact on the
Kao Group’s business results and financial condition.
Various risks arise in the course of a company’s business. The
Kao Group takes reasonable measures to mitigate risks by
(2) Chemical Business
preventing the occurrence of, diversifying and hedging them.
The Kao Group’s Chemical Business is affected by factors
However, unanticipated situations may occur that exert a
including trends in customer demand and fluctuations in raw
significant impact on the Kao Group’s business results and
material prices. The Chemical Business promotes creation of
financial condition. The risks described below are not a
high-value added products that match customer needs, conducts
comprehensive list of risks the Kao Group faces. Other risks
research and development of products in consideration of the
exist and may have an impact on investment decisions. Any
environment, and provides such products while working to
statements below concerning the future are judgments made
reduce costs and deal with product prices. However, as a
by Kao Corporation as of the submission of its securities
consequence of uncertainties in these business activities due to
report to the Ministry of Finance on March 25, 2015.
various factors, the Chemical Business may be unable to provide
products that match customer needs or respond to matters such
as fluctuations in raw material prices. This could have an impact
on the Kao Group’s business results and financial condition.
Kao Corporation Annual Report 2014 41
(3) Business Acquisitions, Business Alliances and Mergers
(6) Product Quality
The Kao Group may implement business acquisitions,
The Kao Group designs and manufactures products from the
business alliances, mergers or other such measures. When
viewpoint of consumers, in compliance with related laws and
implementing them, the Kao Group makes decisions after
regulations and voluntary standards. In the development
thoroughly assessing economic value and its partner
stage prior to market launch, the Kao Group conducts
companies. However, due to various unforeseeable
thorough safety testing and survey research to confirm the
uncertainties in its business activities, the Kao Group may be
safety of products. After market launch, the Kao Group works
unable to produce the results it initially expected. This could
to further improve quality by incorporating the opinions and
have an impact on the Kao Group’s business results and
desires of consumers through its consumer communication
financial condition.
centers. However, the unanticipated occurrence of a serious
quality problem or concerns about product safety or reliability
(4) Overseas Business Expansion
resulting from new scientific knowledge would not only cause
As one of its growth strategies, the Kao Group is conducting
difficulties for the relevant brand, but would also have a major
operations in markets in Asia, the Americas, Europe and
impact on the reputation of all of the Kao Group’s products.
elsewhere, with a particular emphasis on strengthening its
This could have an impact on the Kao Group’s business
operations in countries where higher economic growth rates
results and financial condition.
and market expansion are forecast. However, the Kao Group
may be unable to strengthen its operations as a consequence
(7) Response to Natural Disasters, Accidents and
of uncertainties due to various factors in the course of
Other Incidents
business including the occurrence of a slowdown in economic
To deal with earthquakes and other natural disasters, the Kao
growth or uncertain political or social conditions, intensifying
Group has formulated disaster countermeasures for its
competition, the inability to conduct sufficient cost
production facilities and primary offices and a business
management or the emergence of problems in relationships
continuity plan (BCP), and will continue to strengthen and
with retail outlets, sales agents or other trading partners. This
reinforce them in the future. However, the occurrence and
could have an impact on the Kao Group’s business results and
consequent damage of an earthquake on a scale exceeding
financial condition.
assumptions that hinder the supply of products to the market
due to problems in areas such as securing raw materials and
(5) Procurement of Raw Materials
maintaining production, among other impediments, could
Market prices for natural fats and oils and petroleum-related
have a serious impact on the Kao Group’s business results
materials used as raw materials for products of the Kao Group
and financial condition. In addition, the emergence of major
are affected by factors including geopolitical risks, the balance
changes in demand trends due to a worsening economic
between supply and demand, abnormal weather and
environment associated with the earthquake could have a
exchange rate fluctuations. The Kao Group has moved to
serious impact on the Kao Group’s business results and
reduce the effect of increases in raw material prices through
financial condition.
measures including cost reductions and passing on increases
Furthermore, the occurrence of an explosion or fire at
in raw material costs into product prices. In addition, the Kao
production facilities, information system malfunction,
Group is conducting development of substitute raw materials
problems at a supplier of raw materials, dysfunction of social
for natural fats and oils through research into advanced
infrastructures such as electric power and water,
effective utilization of non-edible raw materials. However,
environmental pollution from harmful substances, the spread
unexpectedly radical changes in market conditions and pricing
of infectious disease, terrorism, political change, riots and
could have an impact on the Kao Group’s business results and
other incidents could hinder the supply of products to the
financial condition.
market. This could have a serious impact on the Kao Group’s
reputation, business results and financial condition.
42 Kao Corporation Annual Report 2014
Management Discussion and Analysis
(8) Currency Exchange Rate Fluctuations
transactions. The Kao Group has constructed a compliance
Foreign currency-denominated transactions are affected by
system and strives to comply with all related laws and
changes in currency exchange rates. The Kao Group hedges
regulations. However, a serious legal violation by the Kao
foreign exchange risk through various measures such as
Group or by a consignee or other party could have an impact
settlement of transactions through foreign currency accounts,
on the Kao Group’s reputation, business results and financial
foreign exchange contracts, and currency swaps to mitigate
condition. Moreover, a change in current laws and regulations,
the effect on business results. The Kao Group does not
or new laws and regulations could restrict the Kao Group’s
engage in derivative transactions for the purpose of
business activities, require investment for compliance, or
speculation. However, because items on the financial
otherwise affect the Kao Group. This could have an impact on
statements of overseas consolidated subsidiaries are
the Kao Group’s business results and financial condition.
translated into Japanese yen, substantial variance in the
exchange rate from the expected rate at the time of
(12) Information Management
conversion will have an impact on the Kao Group’s business
The Kao Group possesses confidential information related to
results and financial condition.
matters including research and development, production,
marketing and sales, as well as the personal information of
(9) Impact of Deferred Tax Assets and Impairment
numerous customers used for product development, sales
The Kao Group records various tangible and intangible fixed
promotion and other purposes. The Kao Group conducts
assets and deferred tax assets including assets used in the
thorough information management using guidelines for
course of business and goodwill incurred in corporate
handling information and implements appropriate security
acquisitions. The Kao Group may not generate the expected
measures for its information systems, including both hardware
cash flow due to divergence from planned future business
and software. However, a leak of confidential or personal
results, a decline in market value or other factors. This could
information held by the Kao Group resulting from an attack on
have an impact on the Kao Group’s business results and
its server, unlawful access, a computer virus or other factor
financial condition.
(10) Securing Human Resources
that exceeds expectations could have an impact on the Kao
Group’s reputation, business results and financial condition.
The Kao Group strives to secure diverse, superior human
(13) Litigation
resources to achieve its business goals globally. Human
The Kao Group conducts diverse businesses globally, and
resources with advanced expertise in areas such as research
various types of litigation may be brought against it. The result
of such litigation could have an impact on the Kao Group’s
business results and financial condition.
and development, production technologies, marketing and
sales activities are indispensable in aiming for the Yoki-
Monozukuri (see note on page 34) that consumers support.
However, an inability to secure the necessary human
resources due to changes in employment conditions or other
factors could have an impact on the Kao Group’s business
results and financial condition.
(11) Compliance with Laws and Regulations
In the course of its business activities, the Kao Group must
comply with a variety of laws and regulations concerning
areas such as standards for product quality and safety, the
environment and chemical substances, as well as accounting
standards, tax law and regulations related to labor and
Kao Corporation Annual Report 2014 43
Consolidated Balance Sheet
Kao Corporation and Consolidated Subsidiaries
December 31, 2014 and 2013
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 ......................................................................................................
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
Dec.
2014
Dec.
2013
Thousands of
U.S. dollars (Note 2)
Dec.
2014
¥ 107,412
123,639
¥ 126,314
101,645
$ 898,544
1,034,290
203,396
1,835
7,604
111,831
45,956
20,232
21,477
(1,648)
641,734
180,603
2,372
4,011
99,453
39,655
22,736
18,845
(1,669)
593,965
1,701,489
15,351
63,610
935,511
384,440
169,249
179,663
(13,786)
5,368,361
580,935
3,021,775
6,548,386
94,203
229,053
10,474,352
(7,901,029)
2,573,323
Property, plant and equipment:
Land...........................................................................................................
Buildings and structures ............................................................................
Machinery, equipment and other ...............................................................
Lease assets (Note 7) ................................................................................
Construction in progress ............................................................................
Total ....................................................................................................
Accumulated depreciation .........................................................................
Net property, plant and equipment .....................................................
69,445
361,223
782,794
11,261
27,381
1,252,104
(944,489)
307,615
64,900
354,012
747,947
12,049
22,945
1,201,853
(924,569)
277,284
Intangible assets:
Goodwill ....................................................................................................
Trademarks ................................................................................................
Other intangible assets ..............................................................................
Total intangible assets ........................................................................
139,941
15,145
12,844
167,930
152,286
28,498
11,834
192,618
1,170,663
126,694
107,445
1,404,802
Investments and other assets:
Investment securities (Notes 4 and 16) .....................................................
Investments in and advances to nonconsolidated
subsidiaries and affiliates .......................................................................
Deferred tax assets (Note 6) ......................................................................
Asset for retirement benefits (Note 8) .......................................................
Other assets (Note 8) ................................................................................
Total investments and other assets ...................................................
See Notes to Consolidated Financial Statements.
11,655
10,776
97,499
9,329
20,630
9,692
29,648
80,954
7,275
23,985
—
27,373
69,409
78,041
172,578
81,077
248,018
677,213
¥1,198,233
¥1,133,276
$10,023,699
44 Kao Corporation Annual Report 2014
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 cosmetics (Note 15) ..............................................
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 long-term liabilities (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 Dec. 2014 and Dec. 2013
Issued — 504,000,000 shares in Dec. 2014 and 516,000,000 shares in Dec. 2013 ...
Capital surplus .................................................................................................
Stock acquisition rights ...................................................................................
Retained earnings ...........................................................................................
Treasury stock, at cost
Millions of yen
Dec.
2014
Dec.
2013
Thousands of
U.S. dollars (Note 2)
Dec.
2014
¥ 1,137
20,776
¥ 1,278
21,256
$ 9,511
173,800
124,979
8,433
61,766
28,108
94,584
8,220
32,533
380,536
84,152
42,414
18,738
145,304
112,972
6,596
51,322
32,322
91,006
1,350
20,212
338,314
84,916
48,847
18,559
152,322
1,045,499
70,545
516,698
235,135
791,233
68,764
272,151
3,183,336
703,965
354,810
156,751
1,215,526
85,424
109,561
944
468,684
85,424
109,561
1,120
471,383
714,606
916,522
7,897
3,920,729
(2,921,992 shares in Dec. 2014 and 3,829,950 shares in Dec. 2013) ...........
(9,719)
(9,397)
(81,303)
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 ...
Remeasurements of defined benefit plans .................................................
Total .........................................................................................................
Minority interests ............................................................................................
Total equity ..............................................................................................
5,507
8
(4,853)
—
3,619
659,175
13,218
672,393
4,733
12
(28,416)
(4,590)
—
629,830
12,810
642,640
46,068
67
(40,597)
—
30,274
5,514,263
110,574
5,624,837
¥1,198,233
¥1,133,276
$10,023,699
Kao Corporation Annual Report 2014 45
Consolidated Statement of Income
Kao Corporation and Consolidated Subsidiaries
Years ended December 31, 2014 and 2013
Millions of yen
Dec.
2014
Dec.
2013
Thousands of
U.S. dollars (Note 2)
Dec.
2014
Net sales (Note 13) ............................................................................................
¥1,401,707
¥1,315,217
$11,725,841
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 .....................................................................
632,205
769,502
636,232
133,270
1,014
(1,295)
1,171
2,225
(9,624)
(6,509)
572,769
742,448
617,792
124,656
1,133
(1,213)
(320)
2,272
(11,589)
(9,717)
5,288,648
6,437,193
5,322,336
1,114,857
8,483
(10,833)
9,796
18,613
(80,509)
(54,450)
Income before income taxes and minority interests .....................................
126,761
114,939
1,060,407
Income taxes (Note 6):
Current ............................................................................................................
Deferred ..........................................................................................................
Total income taxes ......................................................................................
44,316
2,023
46,339
50,752
(1,619)
49,133
370,722
16,923
387,645
Income before minority interests ....................................................................
80,422
65,806
672,762
Minority interests in earnings of consolidated subsidiaries ............................
832
1,042
6,960
Net income ........................................................................................................
¥ 79,590
¥ 64,764
$ 665,802
Per share of common stock (Notes 1.v and 18):
Basic net income ............................................................................................
Diluted net income ..........................................................................................
Cash dividends applicable to the year .............................................................
Yen
¥156.46
156.24
70.00
¥126.03
125.89
64.00
U.S. dollars (Note 2)
$1.31
1.31
0.59
See Notes to Consolidated Financial Statements.
46 Kao Corporation Annual Report 2014
Consolidated Statement of Comprehensive Income
Kao Corporation and Consolidated Subsidiaries
Years ended December 31, 2014 and 2013
Millions of yen
Dec.
2014
Dec.
2013
Thousands of
U.S. dollars (Note 2)
Dec.
2014
Income before minority interests .......................................................................
¥ 80,422
¥ 65,806
$672,762
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 .......
Remeasurements of defined benefit plans ........................................................
Total other comprehensive income ................................................................
639
24,709
222
—
(3,725)
21,845
2,044
44,201
335
(2,759)
—
43,821
5,345
206,701
1,857
—
(31,161)
182,742
Comprehensive income ......................................................................................
¥102,267
¥109,627
$855,504
Comprehensive income attributable to:
Shareholders of Kao Corporation .......................................................................
Minority interests ...............................................................................................
¥100,250
2,017
¥107,823
1,804
$838,631
16,873
See Notes to Consolidated Financial Statements.
Kao Corporation Annual Report 2014 47
Consolidated Statement of Changes in Equity
Kao Corporation and Consolidated Subsidiaries
Years ended December 31, 2014 and 2013
Thousands
Outstanding
number of
shares of
common stock
Common
stock
Capital
surplus
Stock
acquisition
rights
Retained
earnings
Treasury
stock,
at cost
Millions of yen
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
Remeasurements
of defined
benefit plans
Total
Minority
interests
Total
equity
521,844
¥85,424 ¥109,561 ¥1,294 ¥468,019
¥ (8,985)
¥2,447
¥ 6
¥(71,872)
¥(1,901)
¥ —
¥583,993
¥12,090
¥596,083
(9,999)
325
(19)
64,764
(32,564)
(30,038)
(79)
888
(28,738)
28,738
(174)
2,286
512,170
85,424
109,561
1,120
(11,527)
435
(9,397)
4,733
471,383
79,590
(33,814)
(50,041)
(79)
1,323
(48,396)
48,396
6
12
43,456
(2,689)
(28,416)
(4,590)
(176)
774
(4)
23,563
4,590
3,619
(19)
64,764
(32,564)
(30,038)
809
—
42,885
629,830
79,590
(33,814)
(50,041)
1,244
—
32,366
720
12,810
408
(19)
64,764
(32,564)
(30,038)
809
—
43,605
642,640
79,590
(33,814)
(50,041)
1,244
—
32,774
501,078
¥85,424 ¥109,561 ¥ 944 ¥468,684
¥ (9,719)
¥5,507
¥ 8
¥ (4,853)
¥ —
¥3,619
¥659,175
¥13,218
¥672,393
Thousands
Outstanding
number of
shares of
common stock
Common
stock
Capital
surplus
Stock
acquisition
rights
Retained
earnings
Treasury
stock,
at cost
Thousands of U.S. dollars (Note 2)
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
512,170
$714,606 $916,522 $ 9,369 $3,943,308 $ (78,610) $39,593
$100
$(237,711) $(38,397)
(11,527)
435
665,802
(282,868)
(418,613)
(661)
11,068
(404,852)
404,852
Remeasurements
of defined
benefit plans
Total
Minority
interests
Total
equity
$ — $5,268,780 $107,161 $5,375,941
665,802
665,802
(282,868)
(418,613)
10,407
—
270,755
(282,868)
(418,613)
10,407
—
274,168
3,413
(1,472)
6,475
(33)
197,114
38,397
30,274
501,078
$714,606 $916,522 $ 7,897 $3,920,729 $ (81,303) $46,068
$67
$(40,597)
$ —
$30,274
$5,514,263 $110,574 $5,624,837
Balance at
January 1, 2013 ..............
Adjustment of
retained earnings
for newly consolidated
subsidiaries ..................
Net income .....................
Cash dividends,
¥63.00 per share ..........
Purchase of
treasury stock ...............
Disposal of
treasury stock ...............
Retirement of
treasury stock ..................
Net change in the year ...
Balance at
December 31, 2013 ........
Net income .....................
Cash dividends,
¥66.00 per share ..........
Purchase of
treasury stock ...............
Disposal of
treasury stock ...............
Retirement of
treasury stock ...............
Net change in the year ...
Balance at
December 31, 2014 ........
Balance at
December 31, 2013 ........
Net income .....................
Cash dividends,
US$0.55 per share .......
Purchase of
treasury stock ...............
Disposal of
treasury stock ...............
Retirement of
treasury stock ................
Net change in the year ...
Balance at
December 31, 2014 ..........
See Notes to Consolidated Financial Statements.
48 Kao Corporation Annual Report 2014
Consolidated Statement of Cash Flows
Kao Corporation and Consolidated Subsidiaries
Years ended December 31, 2014 and 2013
Millions of yen
Dec.
2014
Dec.
2013
Thousands of
U.S. dollars (Note 2)
Dec.
2014
Operating activities:
Income before income taxes and minority interests ......................................
¥126,761
¥114,939
$1,060,407
Adjustments for:
Income taxes paid .......................................................................................
Depreciation and amortization .....................................................................
( Gain) loss on sales or disposals of property, plant and equipment,
and intangible assets, net .........................................................................
(Gain) loss on transfer of business ..............................................................
Equity in (earnings) losses of nonconsolidated subsidiaries and affiliates ....
Unrealized foreign currency exchange (gain) loss .......................................
Change in trade receivables ........................................................................
Change in inventories ..................................................................................
Change in trade payables ............................................................................
Change in notes and accounts payable - other and accrued expenses .......
Other, net ....................................................................................................
Net cash provided by operating activities ................................................
Investing activities:
Payments into time deposits ..........................................................................
Proceeds from withdrawal of time deposits ...................................................
Purchase of short-term investments ..............................................................
Proceeds from redemption and sales of short-term investments ..................
Purchase of property, plant and equipment ....................................................
Purchase of intangible assets .........................................................................
Increase in investments in and advances to nonconsolidated
subsidiaries and affiliates ..............................................................................
Payment for purchase of newly consolidated
subsidiaries, net of cash acquired .................................................................
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 ......................................................................
Proceeds from issuance of bonds ..................................................................
Redemption of bonds .....................................................................................
Purchase of treasury stock .............................................................................
Payments of cash dividends ...........................................................................
Other, net ........................................................................................................
Net cash used in financing activities ........................................................
(49,294)
79,660
(29,829)
77,297
(412,364)
666,388
2,706
—
(2,225)
(1,220)
(10,953)
(12,397)
6,715
2,048
3,317
145,118
2,644
(350)
(2,272)
381
(2,415)
(5,405)
3,505
16,819
3,431
178,745
(2,125)
88
—
—
(51,151)
(4,507)
(4,802)
7,190
(7,998)
13,000
(55,672)
(4,882)
22,637
—
(18,613)
(10,206)
(91,626)
(103,706)
56,174
17,132
27,747
1,213,970
(17,776)
736
—
—
(427,899)
(37,703)
(1,358)
(1)
(11,360)
—
(4,755)
(63,808)
(273)
20,001
(20,009)
—
—
(50,044)
(34,963)
266
(85,022)
(891)
(3,722)
(57,778)
(2,311)
19
(9)
50,000
(50,000)
(30,039)
(34,985)
(134)
(67,459)
—
(39,777)
(533,779)
(2,284)
167,316
(167,383)
—
—
(418,638)
(292,480)
2,226
(711,243)
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) ...........................................
4,776
1,064
227,598
—
¥228,662
13,032
66,540
160,435
623
¥227,598
39,953
8,901
1,903,948
—
$1,912,849
See Notes to Consolidated Financial Statements.
Kao Corporation Annual Report 2014 49
Notes to Consolidated Financial Statements
Kao Corporation and Consolidated Subsidiaries
Years ended December 31, 2014 and 2013
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 accordance 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 financial statement items of the previous fiscal
year were reclassified to conform to the presentation for the
current fiscal year.
The preparation of financial statements in accordance 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 and influence concepts, 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.
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
50 Kao Corporation Annual Report 2014
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 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 of accounting
5) Exclusion of minority interests from net income, if contained
in net income
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
such 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 of accounting
5) Exclusion of minority interests from net income, if contained
in net income
e) Business combinations
The accounting standard for business combinations requires
companies to account for business combinations in accordance
with the 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 a 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.
j) Property, plant and equipment
Property, plant and equipment are stated at cost. Depreciation of
property, plant and equipment is computed under the straight-line
method over the estimated useful lives, principally ranging from
21 to 35 years for buildings and structures and 7 or 9 years for
machinery and equipment.
k) Intangible assets
Goodwill and trademarks are amortized on a straight-line basis
over 15 or 20 years, and 10 years, respectively.
f) Cash equivalents
For purposes of the consolidated statement 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) Allowance for doubtful receivables
To provide for potential loss on trade receivables, loans and other
receivables, the Company and its domestic consolidated
subsidiaries provide an allowance for the expected amount of
unrecoverable receivables.
Allowances for ordinary debt are computed based on the historical
rate of default. For specified receivables, such as those where
recovery is doubtful, the Company and its domestic consolidated
subsidiaries consider the likelihood of recovery on an individual
basis and record an allowance for the amount of debt expected to
be unrecoverable. Foreign consolidated subsidiaries mainly record
an allowance for the amount of specified receivables expected to
be unrecoverable.
h) 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.
i) 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.
l) 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.
m) Liability for loss related to cosmetics
To provide for payment of compensation-related and other expenses,
the estimated substantive amount of actual loss related to cosmetics
as of the end of the fiscal year is recorded.
n) 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
employees who retire early.
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 statement of
income.
In May 2012, the Accounting Standards Board of Japan (the
ASBJ) issued ASBJ Statement No. 26, “Accounting Standard for
Retirement Benefits” and ASBJ Guidance No. 25, “Guidance on
Accounting Standard for Retirement Benefits”, which replaced
Kao Corporation Annual Report 2014 51
the accounting standard for retirement benefits that had been
issued by the Business Accounting Council in 1998 with an
effective date of April 1, 2000, and the other related practical
guidance, and were followed by partial amendments from time to
time through 2009. Major changes are as follows:
(a) Under the revised accounting standard, actuarial gains and
losses and past service costs that are yet to be recognized in
profit or loss are recognized within equity (accumulated other
comprehensive income), after adjusting for tax effects, and
any resulting deficit or surplus is recognized as a liability
(liability for retirement benefits) or asset (asset for retirement
benefits).
(b) The revised accounting standard does not change how to
recognize actuarial gains and losses and past service costs in
profit or loss. Those amounts are recognized in profit or loss
over a certain period no longer than the expected average
remaining service period of the employees. However,
actuarial gains and losses and past service costs that arose in
the current period and have not yet been recognized in profit
or loss are included in other comprehensive income and
actuarial gains and losses and past service costs that were
recognized in other comprehensive income in prior periods
and then recognized in profit or loss in the current period shall
be treated as reclassification adjustments.
(c) The revised accounting standard also made certain
amendments relating to the method of attributing expected
benefit to periods and relating to the discount rate and
expected future salary increases.
The revised accounting standard and guidance for (a) and (b)
above are effective for the end of annual periods beginning on
or after April 1, 2013, and for (c) above are effective for the
beginning of annual periods beginning on or after April 1, 2014,
or for the beginning of annual periods beginning on or after April
1, 2015, subject to certain disclosure in March 2015, both with
earlier application being permitted from the beginning of annual
periods beginning on or after April 1, 2013. However, no
retrospective application of this accounting standard to
consolidated financial statements in prior periods is required.
The Company applied the revised accounting standard and the
guidance for (a) and (b) above from the fiscal year ended
December 31, 2014.
As a result, asset for retirement benefits of ¥9,692 million
(US$81,077 thousand) and liability for retirement benefits of
¥42,414 million (US$354,810 thousand) were recorded as of
December 31, 2014. In addition, accumulated other comprehensive
income for the year ended December 31, 2014 increased by
¥11,882 million (US$99,398 thousand). Net worth per share
increased by ¥23.71 (US$0.20).
o) 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
52 Kao Corporation Annual Report 2014
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.
p) 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.
q) 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.
r) Income taxes
The Companies provide for income taxes applicable to all items
included in the consolidated statement 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.
The Company and certain subsidiaries file tax returns under the
consolidated taxation system, which allows tax payments to be
based on the consolidated profits or losses.
s) 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 statement of income to the extent that they are not
hedged by foreign exchange derivatives.
t) 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,
Notes to Consolidated Financial Statements
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.
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.
u) 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 statement 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 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.
v) 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 statement of income are dividends applicable to the
respective years including dividends to be paid after the end of
the year.
w) 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 following revision of
an accounting standard, the new policy is applied
retrospectively unless the revised accounting standard
includes specific transitional provisions in which case the
entity shall comply with the specific transitional provisions.
2) Changes in Presentation
When the presentation of financial statements is changed,
prior period financial statements are reclassified in accordance
with the new presentation.
4) Corrections of Prior Period Errors
When an error in prior period financial statements is
discovered, those statements are restated.
x) Changes in presentation
“Liability for loss related to cosmetics”, which was included in
“Other” under “Current liabilities” in the previous fiscal year, is
presented separately from the fiscal year ended December 31,
2014 due to its increased materiality. The consolidated financial
statements for the previous fiscal year have been reclassified to
reflect the change in presentation. As a result, ¥1,350 million
included in “Other” under “Current liabilities” on the consolidated
balance sheet for the previous fiscal year has been reclassified as
“Liability for loss related to cosmetics”.
y) New accounting pronouncements
Accounting Standard for Retirement Benefits
On May 17, 2012, the ASBJ issued ASBJ Statement No. 26,
“Accounting Standard for Retirement Benefits” and ASBJ
Guidance No. 25, “Guidance on Accounting Standard for
Retirement Benefits”, which replaced the Accounting Standard for
Retirement Benefits that had been issued by the Business
Accounting Council in 1998 with an effective date of April 1, 2000,
and other related practical guidance, and were followed by partial
amendments from time to time through 2009.
Major changes are as follows:
(a) Treatment in the balance sheet
Under the current requirements, actuarial gains and losses
and past service costs that are yet to be recognized in profit
or loss are not recognized in the balance sheet, and the
difference between retirement benefit obligations and plan
assets (hereinafter, “deficit or surplus”), adjusted by such
unrecognized amounts, is recognized as a liability or asset.
Under the revised accounting standard, actuarial gains and
losses and past service costs that are yet to be recognized in
profit or loss shall be recognized within equity (accumulated
other comprehensive income), after adjusting for tax effects,
and any resulting deficit or surplus shall be recognized as a
liability (liability for retirement benefits) or asset (asset for
retirement benefits).
(b) Treatment in the statement of income and the statement of
comprehensive income
The revised accounting standard does not change how to
recognize actuarial gains and losses and past service costs
in profit or loss. Those amounts would be recognized in
profit or loss over a certain period no longer than the
expected average remaining service period of the employees.
However, actuarial gains and losses and past service costs
that arose in the current period and have not yet been
recognized in profit or loss shall be included in other
comprehensive income and actuarial gains and losses
and past service costs that were recognized in other
comprehensive income in prior periods and then recognized
in profit or loss in the current period shall be treated as
reclassification adjustments.
Kao Corporation Annual Report 2014 53
(c) Amendments relating to the method of attributing expected
benefit to periods and relating to the discount rate and
expected future salary increases
The revised accounting standard also made certain
amendments relating to the method of attributing expected
benefit to periods and relating to the discount rate and
expected future salary increases.
The revised accounting standard and guidance for (a) and (b)
above are effective for the end of annual periods beginning on or
after April 1, 2013, and for (c) above are effective for the
beginning of annual periods beginning on or after April 1, 2014, or
for the beginning of annual periods beginning on or after April 1,
2015, subject to certain disclosure in March 2015, both with
earlier application being permitted from the beginning of annual
periods beginning on or after April 1, 2013. However, no
retrospective application of this accounting standard to
consolidated financial statements in prior periods is required.
The Company applied the revised accounting standard and
guidance for (a) and (b) above from the end of the fiscal year
ended December 31, 2014, and will apply (c) above from the
beginning of the fiscal year beginning January 1, 2015, and is in
the process of measuring the effects of applying the revised
accounting standard for (c) above in future applicable periods.
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 December 31, 2014 of ¥119.54=US$1, solely for convenience.
The translations should not be construed as representations that
Japanese yen amounts have been, could have been, or could in
the future be, converted into United States dollars at that or any
other rate.
3
Cash and Cash Equivalents
Cash and cash equivalents at December 31, 2014 and 2013 consisted of the following:
Cash and time deposits ............................................................................................
Short-term investments ............................................................................................
Less: time deposits and short-term investments which mature or become
due over three months after the date of acquisition .......................................
Cash and cash equivalents .......................................................................................
Millions of yen
Dec.
2014
¥107,412
123,639
Dec.
2013
¥126,314
101,645
Thousands of
U.S. dollars
Dec.
2014
$ 898,544
1,034,290
(2,389)
¥228,662
(361)
¥227,598
(19,985)
$1,912,849
4
Short-Term Investments and Investment Securities
Short-term investments and investment securities as of December 31, 2014 and 2013 consisted of the following:
Millions of yen
Dec.
2014
Dec.
2013
Short-term investments:
Investment trust funds and other .....................................................................
Total ..............................................................................................................
¥123,639
¥123,639
¥101,645
¥101,645
Investment securities:
Marketable equity securities ............................................................................
Investment trust funds and other .....................................................................
Total ..............................................................................................................
¥ 10,473
1,182
¥ 11,655
¥ 9,595
1,181
¥ 10,776
Thousands of
U.S. dollars
Dec.
2014
$1,034,290
$1,034,290
$ 87,611
9,888
$ 97,499
54 Kao Corporation Annual Report 2014
Notes to Consolidated Financial Statements
The carrying amount and aggregate fair value of the securities classified as available-for-sale and held-to-maturity at December 31, 2014
and 2013 were as follows:
Millions of yen
Dec.
2014
Cost
Unrealized
gains
Unrealized
losses
Fair
value
Securities classified as:
Available-for-sale:
Equity securities ...................................................................
Debt securities and other ......................................................
¥ 2,641
47,644
¥7,853
—
¥(21)
—
¥10,473
47,644
Held-to-maturity:
Debt securities and other ......................................................
75,995
—
—
75,995
Millions of yen
Dec.
2013
Cost
Unrealized
gains
Unrealized
losses
Fair
value
Securities classified as:
Available-for-sale:
Equity securities ...................................................................
Debt securities and other ......................................................
¥ 2,666
41,651
¥6,966
—
Held-to-maturity:
Debt securities and other ......................................................
59,994
—
¥37
—
—
¥ 9,595
41,651
59,994
Thousands of U.S. dollars
Dec.
2014
Cost
Unrealized
gains
Unrealized
losses
Fair
value
Securities classified as:
Available-for-sale:
Equity securities ...................................................................
Debt securities and other ......................................................
$ 22,093
398,561
$65,693
—
$(176)
—
$ 87,611
398,561
Held-to-maturity:
Debt securities and other ......................................................
635,729
—
—
635,729
Available-for-sale securities whose fair values are not readily determinable as of December 31, 2014 and 2013 were as follows:
Available-for-sale:
Equity securities .......................................................................................
Total ......................................................................................................
¥1,182
¥1,182
Dec.
2014
Dec.
2013
¥1,181
¥1,181
Carrying amount
Millions of yen
Thousands of
U.S. dollars
Dec.
2014
$9,888
$9,888
Proceeds from sales of available-for-sale securities for the years
ended December 31, 2014 and 2013 were ¥47 million (US$393
thousand) and ¥9 million, respectively. Gross realized gains and
losses on these sales, computed on the moving-average cost
basis, for the year ended December 31, 2014 were ¥18 million
(US$151 thousand) and ¥1 million (US$8 thousand), respectively.
And gross realized gains for the year ended 2013 were ¥3 million.
The carrying values of debt securities by contractual maturities
for securities classified as held-to-maturity at December 31, 2014
are included in Note 16.
Kao Corporation Annual Report 2014 55
5
Short-Term and Long-Term Debt
Short-term debt at December 31, 2014 and 2013 consisted of the following:
Unsecured loans principally from financial institutions .............................................
Total ..................................................................................................................
Millions of yen
Dec.
2014
¥1,137
¥1,137
Dec.
2013
¥1,278
¥1,278
Thousands of
U.S. dollars
Dec.
2014
$9,511
$9,511
The weighted average interest rates applicable to the above
loans were 1.49% and 1.37% at December 31, 2014 and 2013,
respectively. In addition to the above short-term debt, deposits
payable to affiliates, included in other current liabilities, were
¥9,074 million (US$75,908 thousand) and ¥4,273 million at
December 31, 2014 and 2013, respectively, and the applicable
interest rates were 0.48% and 0.56% at December 31, 2014 and
2013, respectively.
Long-term debt at December 31, 2014 and 2013 consisted of the following:
Unsecured bonds due 2018, 0.39% .........................................................................
Unsecured bonds due 2020, 0.62% .........................................................................
Unsecured loans principally from financial institutions,
weighted average rate of 0.31% in Dec. 2014, 0.56% in Dec. 2013 ....................
Lease obligations ......................................................................................................
Less current portion ..............................................................................................
Total ..................................................................................................................
Millions of yen
Dec.
2014
¥ 25,000
25,000
50,096
4,832
¥104,928
(20,776)
¥ 84,152
Dec.
2013
¥ 25,000
25,000
50,103
6,069
¥106,172
(21,256)
¥ 84,916
Thousands of
U.S. dollars
Dec.
2014
$ 209,135
209,135
419,073
40,422
$ 877,765
(173,800)
$ 703,965
In addition to the above long-term debt, deposits payable to
customers, included in other long-term liabilities, were ¥6,066
million (US$50,745 thousand) and ¥6,008 million at December 31,
2014 and 2013, respectively, and the applicable interest rate was
0.11% at December 31, 2014 and 2013.
The aggregate annual maturities of long-term debt as of December 31, 2014 were as follows:
Years ending December 31
2015 ............................................................................................................................................
2016 ............................................................................................................................................
2017 ............................................................................................................................................
2018 ............................................................................................................................................
2019 ............................................................................................................................................
2020 and thereafter…… ..............................................................................................................
Total ........................................................................................................................................
Millions of yen
¥ 20,776
724
30,670
25,581
490
26,687
¥104,928
Thousands of
U.S. dollars
$173,800
6,057
256,567
213,995
4,099
223,247
$877,765
56 Kao Corporation Annual Report 2014
Notes to Consolidated Financial Statements
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 36% and 38% for the years ended December 31,
2014 and 2013, respectively.
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 December 31,
2014 and 2013 were as follows:
Millions of yen
Dec.
2014
Dec.
2013
Deferred tax assets:
Depreciation and amortization ..........................................................................
Pension and severance costs ...........................................................................
Liability for retirement benefits ........................................................................
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 ........................................................................................
Asset for retirement benefits ...........................................................................
Other ................................................................................................................
Deferred tax liabilities .........................................................................................
¥ 22,644
—
13,920
13,290
1,780
20,826
19,100
(21,096)
¥ 70,464
¥ (2,765)
(12,747)
(3,495)
—
(5,133)
(8,883)
¥(33,023)
¥ 20,634
16,272
—
10,649
1,928
33,021
17,650
(28,127)
¥ 72,027
¥ (2,482)
(11,524)
(3,800)
(1,461)
—
(8,707)
¥(27,974)
Net deferred tax assets .......................................................................................
¥ 37,441
¥ 44,053
Thousands of
U.S. dollars
Dec.
2014
$ 189,426
—
116,446
111,176
14,890
174,218
159,780
(176,476)
$ 589,460
$ (23,130)
(106,634)
(29,237)
—
(42,940)
(74,310)
$(276,251)
$ 313,209
Reconciliation between the normal effective statutory tax rates and the actual effective tax rates reflected in the accompanying
consolidated statement of income was 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 ..........................
Other – net ............................................................................................................
Actual effective tax rate ............................................................................................
Dec.
2014
—
—
—
—
—
—
—
Dec.
2013
38.0%
(2.2)
(3.7)
8.9
3.7
(1.9)
42.8%
For the year ended December 31, 2014, the reconciliation is not
disclosed because the difference is less than 5% of the normal
effective statutory tax rate.
Following the promulgation on March 31, 2014 of the “Act for
Partial Amendment of the Income Tax Act, etc.” (Act No. 10 of
2014), the special reconstruction corporation tax is not imposed
from fiscal years beginning on or after April 1, 2014. As a result,
the effective statutory tax rate used for the calculation of deferred
tax assets and deferred tax liabilities was changed from the
former 36.23% to 35.64% for temporary differences expected to
be eliminated during the fiscal year beginning on January 1, 2015.
The effect of the change in the tax rate was immaterial.
Kao Corporation Annual Report 2014 57
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 December 31, 2014 and 2013 were as follows:
Due within one year ...................................................................................................
Due after one year .....................................................................................................
Total ........................................................................................................................
Millions of yen
Dec.
2014
¥ 9,868
23,110
¥32,978
Dec.
2013
¥ 9,090
22,128
¥31,218
Thousands of
U.S. dollars
Dec.
2014
$ 82,550
193,324
$275,874
8
Retirement Benefits
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 defined
contribution plan and/or a defined benefit plan.
For the year ended December 31, 2014
(1) Changes in defined benefit obligation
The aggregate annual maturities of long-term debt as of December 31, 2014 were as follows:
Balance at January 1 .......................................................................................................................
Current service cost ....................................................................................................................
Interest cost ................................................................................................................................
Actuarial gain and loss .................................................................................................................
Benefits paid ...............................................................................................................................
Past service cost .........................................................................................................................
Other ...........................................................................................................................................
Balance at December 31 .................................................................................................................
(2) Changes in plan assets
The changes in plan assets for the year ended December 31, 2014 were as follows:
Balance at January 1 .......................................................................................................................
Expected return on plan assets ...................................................................................................
Actuarial gain and loss .................................................................................................................
Contribution by the employer ......................................................................................................
Benefits paid ...............................................................................................................................
Other ...........................................................................................................................................
Balance at December 31 .................................................................................................................
Millions of yen
Dec.
2014
¥272,497
9,641
5,112
3,546
(10,421)
(483)
3,780
¥283,672
Millions of yen
Dec.
2014
¥230,352
5,329
12,681
10,551
(9,630)
1,667
¥250,950
Thousands of
U.S. dollars
Dec.
2014
$2,279,547
80,651
42,764
29,664
(87,176)
(4,040)
31,620
$2,373,030
Thousands of
U.S. dollars
Dec.
2014
$1,926,987
44,579
106,082
88,263
(80,559)
13,945
$2,099,297
58 Kao Corporation Annual Report 2014
Notes to Consolidated Financial Statements
(3) Reconciliation between the balances of defined benefit obligation and plan assets and liability and asset recorded on the
consolidated balance sheet at December 31, 2014
Funded defined benefit obligation ...................................................................................................
Plan assets ......................................................................................................................................
Unfunded defined benefit obligation ...............................................................................................
Net liability for defined benefit obligation ....................................................................................
Liability for retirement benefits .......................................................................................................
Asset for retirement benefits ..........................................................................................................
Net liability for defined benefit obligation ....................................................................................
(4) Benefit costs
Components of net periodic benefit costs for the year ended December 31, 2014 were as follows:
Current service cost ........................................................................................................................
Interest cost ....................................................................................................................................
Expected return on plan assets .......................................................................................................
Amortization of actuarial gain and loss ............................................................................................
Amortization of past service cost ....................................................................................................
Other ..............................................................................................................................................
Net periodic benefit costs ...........................................................................................................
Millions of yen
Dec.
2014
¥ 281,199
(250,950)
30,249
2,473
¥ 32,722
Millions of yen
Dec.
2014
¥42,414
(9,692)
¥32,722
Millions of yen
Dec.
2014
¥ 9,641
5,112
(5,329)
(892)
(4,077)
1,651
¥ 6,106
Thousands of
U.S. dollars
Dec.
2014
$ 2,352,342
(2,099,297)
253,045
20,688
$ 273,733
Thousands of
U.S. dollars
Dec.
2014
$354,810
(81,077)
$273,733
Thousands of
U.S. dollars
Dec.
2014
$ 80,651
42,764
(44,579)
(7,462)
(34,106)
13,811
$ 51,079
In addition to the above net periodic benefit costs, the costs for the defined contribution plan were ¥3,382 million (US$28,292
thousand) for the year ended December 31, 2014.
(5) Accumulated other comprehensive income on the defined benefit plan
Components of accumulated other comprehensive income on the defined benefit plan before deduction of tax effects at December 31,
2014 were as follows:
Unrecognized past service costs ....................................................................................................
Unrecognized actuarial gain and loss ..............................................................................................
Other ..............................................................................................................................................
Total ............................................................................................................................................
Millions of yen
Dec.
2014
¥3,789
2,547
(454)
¥5,882
Thousands of
U.S. dollars
Dec.
2014
$31,697
21,307
(3,799)
$49,205
Kao Corporation Annual Report 2014 59
(6) Plan assets
Components of plan assets at December 31, 2014 were as follows:
Debt securities ................................................................................................................................
Equity securities .............................................................................................................................
Cash and deposits ...........................................................................................................................
Other ..............................................................................................................................................
Total ............................................................................................................................................
Dec.
2014
77%
17
1
5
100%
The expected rate of return on plan assets is determined considering components of plan assets, actual return on
plan assets, policy on plan assets management, market trends and other factors.
(7) Actuarial assumption
Assumptions used for the year ended December 31, 2014 were as follows:
Discount rate .................................................................................................................
Expected rate of return on plan assets ..........................................................................
For the year ended December 31, 2013
The liability for retirement benefits at December 31, 2013 consisted of the following:
Dec.
2014
Primarily 1.6%
Primarily 2.0%
Projected benefit obligation ............................................................................................................
Fair value of plan assets ..................................................................................................................
Unrecognized prior service cost ......................................................................................................
Unrecognized actuarial gain (loss) ...................................................................................................
Unrecognized transitional obligation ...............................................................................................
Prepaid pension cost .......................................................................................................................
Net liability for retirement benefits ..............................................................................................
Millions of yen
Dec.
2013
¥ 272,497
(230,352)
5,004
3,892
(2,240)
46
¥ 48,847
The components of net periodic benefit costs for the year ended December 31, 2013 were as follows:
Service cost ....................................................................................................................................
Interest cost ....................................................................................................................................
Expected return on plan assets .......................................................................................................
Amortization of prior service cost (credit) ........................................................................................
Recognized actuarial (gain) loss ......................................................................................................
Amortization of transitional obligation .............................................................................................
Net periodic benefit costs ...............................................................................................................
Millions of yen
Dec.
2013
¥ 9,699
4,916
(4,734)
(1,967)
(19)
1,802
¥ 9,697
Assumptions used for the year ended December 31, 2013 were 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 ................................................................
Dec.
2013
Primarily 1.6%
Primarily 2.0%
Primarily 15 years
Primarily 10 years
15 years
In addition to the above net periodic benefit costs, the costs for other retirement and pension plans such as the defined contribution
plan and for other supplemental retirement benefits were ¥3,343 million for the year ended December 31, 2013.
Certain foreign subsidiaries apply the “corridor approach” in calculating actuarial gain or loss.
60 Kao Corporation Annual Report 2014
Notes to Consolidated Financial Statements
9
Contingent Liabilities
At December 31, 2014, the Companies had the following contingent liabilities:
Trade notes discounted .......................................................................................................................
Guarantees of borrowings, principally of affiliates and employees ......................................................
Millions of yen
¥ 21
181
Thousands of
U.S. dollars
$ 176
1,514
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) an audit &
supervisory board, 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 meets all four
criteria, but has not made the said prescription in its articles of
incorporation. 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 own 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, totaled ¥14,117 million (US$118,094 thousand)
at both December 31, 2014 and 2013. The Company’s additional
paid-in capital amount, which is included in capital surplus, totaled
¥108,889 million (US$910,900 thousand) at both December 31,
2014 and 2013.
The accompanying consolidated financial statements do not
include any provision for the year-end dividend of ¥36.0 (US$0.30)
per share, aggregating ¥18,059 million (US$151,071 thousand)
which the Company will subsequently propose at the 109th
Annual General Meeting of Shareholders to be held on March 25,
2015 as an appropriation of retained earnings in respect of the
year ended December 31, 2014.
(c) Treasury stock and treasury stock acquisition rights
The Corporation Law also provides for companies to purchase
their 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 their 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.
The Company purchased 11.5 million shares of its common
stock from the market during the year ended December 31, 2014,
at an aggregate cost of ¥50,000 million (US$418,270 thousand).
On December 10, 2014, the Company retired 12.0 million shares
of treasury stock by the resolution of the Board of Directors at the
meeting held on November 20, 2014.
Kao Corporation Annual Report 2014 61
11
Stock-Based Compensation Plans
The stock options for the year ended December 31, 2014 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 2007 I
13 Directors of the Company
25,000 shares*
August 31, 2007
14,000 shares*
August 31, 2007
¥1
¥1
$0.01
$0.01
Stock option 2007 II
14 Executive Officers
of the Company**
Stock option 2007 III
Stock option 2008 I
78 Employees of the Company
4 Directors of subsidiaries
of the Company
14 Directors of the Company
Stock option 2008 II
12 Executive Officers
of the Company***
Stock option 2008 III
Stock option 2009 I
81 Employees of the Company
4 Directors of subsidiaries
of the Company
13 Directors of the Company
Stock option 2009 II
12 Executive Officers
of the Company****
Stock option 2009 III
Stock option 2010 I
74 Employees of the Company
8 Directors of subsidiaries
of the Company
14 Directors of the Company
Stock option 2010 II
12 Executive Officers
of the Company*****
Stock option 2010 III
Stock option 2011 I
81 Employees of the Company
2 Directors of subsidiaries
of the Company
13 Directors of the Company
430,000 shares*
August 31, 2007
¥3,446
$28.83
24,000 shares*
August 29, 2008
12,000 shares*
August 29, 2008
¥1
¥1
$0.01
$0.01
447,000 shares*
August 29, 2008
¥3,100
$25.93
36,000 shares*
August 28, 2009
24,000 shares*
August 28, 2009
¥1
¥1
$0.01
$0.01
430,000 shares*
August 28, 2009
¥2,355
$19.70
38,000 shares*
August 25, 2010
24,000 shares*
August 25, 2010
¥1
¥1
$0.01
$0.01
435,000 shares*
August 25, 2010
¥2,190
$18.32
36,000 shares*
August 25, 2011
Stock option 2011 II
13 Executive Officers
of the Company******
26,000 shares*
August 25, 2011
Stock option 2011 III
Stock option 2012 I
81 Employees of the Company
1 Director of subsidiary
of the Company
1 Employee of subsidiary
of the Company
9 Directors of the Company
30,000 shares*
August 23, 2012
435,000 shares*
August 25, 2011
¥2,254
$18.86
Stock option 2012 II
22 Executive Officers
of the Company*******
49,000 shares*
August 23, 2012
Stock option 2013 I
10 Directors of the Company
22,000 shares
May 23, 2013
Stock option 2013 II
22 Executive Officers
of the Company********
27,000 shares
May 23, 2013
Stock option 2014 I
6 Directors of the Company
12,000 shares
May 22, 2014
Stock option 2014 II
23 Executive Officers
of the Company*********
28,000 shares
May 22, 2014
* The number of options originally granted converts into number of shares of common stock.
** 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.
******* The 22 Executive Officers were not members of the Board of Directors of the Company at the date of grant.
******** The 22 Executive Officers were not members of the Board of Directors of the Company at the date of grant.
********* The 23 Executive Officers were not members of the Board of Directors of the Company at the date of grant.
62 Kao Corporation Annual Report 2014
¥1
¥1
$0.01
$0.01
¥1
¥1
¥1
¥1
¥1
¥1
$0.01
$0.01
$0.01
$0.01
$0.01
$0.01
Exercise period
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 31, 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
July 1, 2014
through
June 28, 2019
July 1, 2014
through
June 28, 2019
July 1, 2015
through
June 30, 2020
July 1, 2015
through
June 30, 2020
July 1, 2016
through
June 30, 2021
July 1, 2016
through
June 30, 2021
Notes to Consolidated Financial Statements
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
2007 II 2007 III
2008 I
2008 II 2008 III
2009 I
2009 II
2009 III
2010 I
2010 II
For the year ended December 31, 2014
Non-vested
Outstanding at December 31, 2013 ...
Granted ......................................
Expired .......................................
Vested ........................................
Outstanding at December 31, 2014 ...
Vested
Outstanding at December 31, 2013 ...
Vested ........................................
Exercised ....................................
Expired .......................................
Outstanding at December 31, 2014 ...
Exercise price
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
4,000
—
4,000
—
—
4,000
—
4,000
—
—
288,000
—
46,000
242,000
—
5,000
—
1,000
—
4,000
4,000
—
3,000
—
1,000
430,000
—
85,000
—
345,000
11,000
—
3,000
—
8,000
9,000
—
4,000
—
5,000
367,000
—
93,000
—
274,000
16,000
—
—
—
16,000
10,000
—
2,000
—
8,000
Yen .................................................
U.S. dollars .....................................
¥1
$0.01
¥1
$0.01
¥3,446
$28.83
¥1
$0.01
¥1
$0.01
¥3,100
$25.93
¥1
$0.01
¥1
$0.01
¥2,355
$19.70
¥1
$0.01
¥1
$0.01
Average stock price at exercise
Yen .................................................
U.S. dollars .....................................
¥3,445
$28.82
¥3,872
$32.39
¥4,033
$33.74
¥4,000
$33.46
¥3,752
$31.39
¥3,933
$32.90
¥4,402
$36.82
¥3,995
$33.42
¥3,768
$31.52
—
—
¥4,313
$36.08
Fair value price at grant date
Yen .................................................
U.S. dollars .....................................
¥3,063
$25.62
¥3,063
$25.62
¥420
$3.51
¥2,865
$23.97
¥2,865
$23.97
¥426
$3.56
¥2,115
$17.69
¥2,115
$17.69
¥394
$3.30
¥1,749
$14.63
¥1,749
$14.63
(Number of shares)
Stock option Stock option Stock option Stock option Stock option Stock option Stock option Stock option Stock option Stock option
2010 III
2011 III
2011 II
2012 II
2013 II
2014 II
2011 I
2013 I
2014 I
2012 I
For the year ended December 31, 2014
Non-vested
Outstanding at December 31, 2013 ...
Granted ......................................
Expired .......................................
Vested ........................................
Outstanding at December 31, 2014 ...
Vested
Outstanding at December 31, 2013 ...
Vested ........................................
Exercised ....................................
Expired .......................................
Outstanding at December 31, 2014 ...
Exercise price
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
244,000
—
80,000
—
164,000
23,000
—
4,000
—
19,000
18,000
—
4,000
—
14,000
421,000
—
90,000
—
331,000
28,000
—
5,000
—
23,000
49,000
—
7,000
—
42,000
22,000
—
—
—
22,000
27,000
—
—
—
27,000
—
12,000
—
12,000
—
—
12,000
—
—
12,000
—
28,000
—
28,000
—
—
28,000
—
—
28,000
Yen .................................................
U.S. dollars .....................................
¥2,190
$18.32
¥1
$0.01
¥1
$0.01
¥2,254
$18.86
¥1
$0.01
¥1
$0.01
¥1
$0.01
¥1
$0.01
¥1
$0.01
¥1
$0.01
Average stock price at exercise
Yen .................................................
U.S. dollars .....................................
¥3,910
$32.71
¥3,280
$27.44
¥3,447
$28.84
¥3,575
$29.91
¥4,231
$35.39
¥4,335
$36.26
—
—
—
—
—
—
—
—
Fair value price at grant date
Yen .................................................
U.S. dollars .....................................
¥245
$2.05
¥1,718
$14.37
¥1,718
$14.37
¥211
$1.77
¥2,119
$17.73
¥2,119
$17.73
¥3,027
$25.32
¥3,027
$25.32
¥3,808
$31.86
¥3,808
$31.86
The fair value prices for 2014 stock options were estimated using the Black-Scholes Option Pricing Model with the following assumptions:
Stock option
2014 II
Stock option
2014 I
Volatility of stock price .........................................................................................................................
Estimated remaining outstanding period .............................................................................................
Estimated dividend per share
20.560%
3.5 years
Yen ...................................................................................................................................................
U.S. dollars .......................................................................................................................................
Risk-free interest rate ..........................................................................................................................
¥64
$0.54
0.120%
20.560%
3.5 years
¥64
$0.54
0.120%
Kao Corporation Annual Report 2014 63
12
Comprehensive Income
Each component of other comprehensive income for the years ended December 31, 2014 and 2013 was as follows:
Millions of yen
Dec.
2014
Dec.
2013
Unrealized gain (loss) on available-for-sale securities
Gains (losses) 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
Gains (losses) arising during the year ...................................................................
Total ......................................................................................................................
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 ......................................................................................................................
Remeasurements of defined benefit plans
Adjustments arising during the year .....................................................................
Reclassification adjustments to profit or loss .......................................................
Amount before income tax effect .........................................................................
Income tax effect ..................................................................................................
Total ......................................................................................................................
¥ 1,005
(11)
994
(355)
¥ 639
¥24,709
—
24,709
—
¥24,709
¥ 222
¥ 222
—
—
—
—
—
¥ (5,127)
(460)
(5,587)
1,862
¥ (3,725)
¥ 3,122
55
3,177
(1,133)
¥ 2,044
¥44,201
—
44,201
—
¥44,201
¥ 335
¥ 335
¥ (4,401)
748
(3,653)
894
¥ (2,759)
—
—
—
—
—
Thousands of
U.S. dollars
Dec.
2014
$ 8,407
(92)
8,315
(2,970)
$ 5,345
$206,701
—
206,701
—
$206,701
$ 1,857
$ 1,857
—
—
—
—
—
$ (42,889)
(3,848)
(46,737)
15,576
$ (31,161)
Total other comprehensive income ..........................................................................
¥21,845
¥43,821
$182,742
64 Kao Corporation Annual Report 2014
Notes to Consolidated Financial Statements
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
cosmetics, skin care and 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.
(a) Information related to sales, profit (loss), assets, and other items
Information by reportable segment of the Companies for the years ended December 31, 2014 and 2013 was as follows:
Millions of yen
Dec.
2014
Reportable segment
Consumer Products Business
Beauty Care
Business
Human Health Fabric and Home
Care Business Care Business
Total
Sales to customers ...........................
Intersegment sales ...........................
Total sales .........................................
Segment profit (Operating income) ..
Segment assets** ............................
¥589,907
—
589,907
¥ 28,437
¥466,128
¥240,077
—
240,077
¥ 21,880
¥161,280
—
324,505
¥324,505 ¥1,154,489
—
1,154,489
¥ 60,952 ¥ 111,269
¥158,552 ¥ 785,960
Chemical
Business
¥247,218
40,804
288,022
¥ 22,060
¥273,397
Reconciliations* Consolidated
¥ —
(40,804)
(40,804)
(59)
¥
¥138,876
¥1,401,707
—
1,401,707
¥ 133,270
¥1,198,233
Other
Depreciation and amortization*** ..
Investments in equity
method affiliates** .....................
Increase in property, plant and
equipment and intangible assets ..
¥ 30,302
¥ 10,618
¥ 9,541 ¥ 50,461
¥ 14,101
¥ —
¥ 64,562
3,782
1,122
1,328
6,232
3,032
17,042
22,956
13,781
53,779
14,705
—
—
9,264
68,484
* Reconciliation of segment profit includes elimination of intersegment transactions of inventory.
Reconciliation of assets includes ¥163,750 million of the Company’s financial assets and negative ¥24,874 million elimination of receivables among reportable
segments.
** Balances as of December 31, 2014
*** Depreciation and amortization excludes amortization of goodwill.
Kao Corporation Annual Report 2014 65
Millions of yen
Dec.
2013
Reportable segment
Consumer Products Business
Beauty Care
Business
Human Health Fabric and Home
Care Business Care Business
Total
Sales to customers ...........................
Intersegment sales ...........................
Total sales .........................................
Segment profit (Operating income) ...
Segment assets** ............................
¥570,268
—
570,268
¥ 23,933
¥482,704
¥210,628
—
210,628
¥ 16,850
¥130,610
—
311,023
¥311,023 ¥1,091,919
—
1,091,919
¥ 62,183 ¥ 102,966
¥148,936 ¥ 762,250
Chemical
Business
¥223,298
37,894
261,192
¥ 21,509
¥245,720
Reconciliations* Consolidated
¥ —
(37,894)
(37,894)
¥ 181
¥125,306
¥1,315,217
—
1,315,217
¥ 124,656
¥1,133,276
Other
Depreciation and amortization*** ..
Investments in equity
method affiliates** .....................
Increase in property, plant and
equipment and intangible assets ..
¥ 32,094
¥ 8,993
¥ 9,008 ¥ 50,095
¥ 13,373
¥ —
¥ 63,468
3,074
994
1,116
5,184
2,026
19,219
13,628
14,699
47,546
16,141
—
—
7,210
63,687
* Reconciliation of segment profit includes elimination of intersegment transactions of inventory.
Reconciliation of assets includes ¥152,828 million of the Company’s financial assets and negative ¥27,522 million elimination of receivables among reportable
segments.
** Balances as of December 31, 2013
*** Depreciation and amortization excludes amortization of goodwill.
Thousands of U.S. dollars
Dec.
2014
Reportable segment
Consumer Products Business
Beauty Care
Business
Human Health Fabric and Home
Care Business Care Business
Total
Chemical
Business
Reconciliations* Consolidated
Sales to customers ........................... $4,934,809
Intersegment sales ...........................
—
Total sales .........................................
4,934,809
Segment profit (Operating income) .. $ 237,887
Segment assets** ............................ $3,899,347
—
2,008,340
$2,008,340 $2,714,614 $9,657,763
—
—
9,657,763
2,714,614
$ 183,035 $ 509,888 $ 930,810
$1,349,172 $1,326,351 $6,574,870
$2,068,078 $ —
(341,342)
341,342
(341,342)
2,409,420
$ 184,541
(494)
$2,287,075 $1,161,754
$
$11,725,841
—
11,725,841
$
1,114,857
$10,023,699
Other
Depreciation and amortization*** .. $ 253,488
$ 88,824 $ 79,814 $ 422,126
$ 117,961
$ —
$ 540,087
Investments in equity
method affiliates** .....................
Increase in property, plant and
equipment and intangible assets ..
31,638
9,386
11,109
52,133
25,364
142,563
192,036
115,284
449,883
123,013
—
—
77,497
572,896
* Reconciliation of segment profit includes elimination of intersegment transactions of inventory.
Reconciliation of assets includes $1,369,834 thousand of the Company’s financial assets and negative $208,081 thousand elimination of receivables among
reportable segments.
** Balances as of December 31, 2014
*** Depreciation and amortization excludes amortization of goodwill.
66 Kao Corporation Annual Report 2014
Notes to Consolidated Financial Statements
(b) Information related to reportable segments
Sales by geographic area for the years ended December 31, 2014 and 2013 were as follows:
Sales to customers ...................................................
¥937,696
¥203,174
Japan
Asia
Sales to customers ...................................................
¥908,801
¥171,202
Japan
Asia
Millions of yen
Dec.
2014
Americas*
¥125,324
Millions of yen
Dec.
2013
Americas*
¥112,569
Europe**
¥135,513
Consolidated
¥1,401,707
Europe**
¥122,645
Consolidated
¥1,315,217
Thousands of U.S. dollars
Dec.
2014
Sales to customers ...................................................
$7,844,203
$1,699,632
$1,048,385
$1,133,621
$11,725,841
Japan
Asia
Americas*
Europe**
Consolidated
Note: Sales are classified by country or region based on the location of customers.
Property, plant and equipment by geographic area at December 31, 2014 and 2013 was as follows:
Property, plant and equipment .................................
¥199,484
¥75,294
Japan
Asia
Property, plant and equipment .................................
¥188,533
¥56,636
Japan
Asia
Millions of yen
Dec.
2014
Americas*
¥13,721
Millions of yen
Dec.
2013
Americas*
¥12,642
Europe**
¥19,116
Consolidated
¥307,615
Europe**
¥19,473
Consolidated
¥277,284
Thousands of U.S. dollars
Dec.
2014
Property, plant and equipment ....................................
$1,668,764
$629,864
*Americas: North America, South America, and Oceania **Europe: Europe and South Africa
Japan
Asia
Americas*
$114,782
Europe**
$159,913
Consolidated
$2,573,323
Kao Corporation Annual Report 2014 67
(c) Impairment losses by reportable segment
Impairment losses by reportable segment for the years ended December 31, 2014 and 2013 were as follows:
Millions of yen
Dec.
2014
Reportable segment
Consumer Products Business
Beauty Care
Business
Human Health Fabric and Home
Care Business Care Business
Impairment losses of assets ..............
¥62
¥28
¥42
Total
¥132
Chemical
Business
¥—
Reconciliations
Consolidated
¥—
¥132
Reportable segment
Consumer Products Business
Beauty Care
Business
Human Health Fabric and Home
Care Business Care Business
Impairment losses of assets ..............
¥96
¥35
¥54
Total
¥185
Chemical
Business
¥785
Reconciliations
Consolidated
¥ —
¥970
Millions of yen
Dec.
2013
Reportable segment
Consumer Products Business
Beauty Care
Business
Human Health Fabric and Home
Care Business Care Business
Impairment losses of assets ..............
$519
$234
$351
Total
$1,104
Chemical
Business
$—
Reconciliations
Consolidated
$—
$1,104
Thousands of U.S. dollars
Dec.
2014
(d) Amortization and balance of goodwill by reportable segment
Amortization and balance of goodwill by reportable segment for the years ended December 31, 2014 and 2013 were as follows:
Millions of yen
Dec.
2014
Amortization of goodwill ...................
Goodwill at December 31, 2014 .......
Reportable segment
Beauty Care
Business
¥ 15,098
139,941
Consumer Products Business
Human Health Fabric and Home
Care Business Care Business
¥—
—
¥—
—
Total
¥ 15,098
139,941
Chemical
Business
¥—
—
Reconciliations
¥—
—
Consolidated
¥ 15,098
139,941
Millions of yen
Dec.
2013
Reportable segment
Consumer Products Business
Amortization of goodwill ....................
Goodwill at December 31, 2013 ........
¥ 13,829
152,286
¥ —
—
¥ —
—
Beauty Care
Business
Human Health Fabric and Home
Care Business Care Business
Total
¥ 13,829
152,286
Chemical
Business
¥ —
—
Reconciliations
Consolidated
¥ —
—
¥ 13,829
152,286
68 Kao Corporation Annual Report 2014
Notes to Consolidated Financial Statements
Thousands of U.S. dollars
Dec.
2014
Beauty Care
Business
Amortization of goodwill .................... $ 126,301
1,170,663
Goodwill at December 31, 2014 ........
Reportable segment
Consumer Products Business
Human Health Fabric and Home
Care Business Care Business
$—
—
$—
—
Total
$ 126,301
1,170,663
Chemical
Business
$—
—
Reconciliations
$—
—
Consolidated
$ 126,301
1,170,663
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:
Loss related to cosmetics ........................................................................................
Loss on sales or disposals of property,
plant and equipment, and intangible assets, net ....................................................
Other, net ................................................................................................................
Total ......................................................................................................................
Millions of yen
Dec.
2014
¥ 92,410
73,072
51,739
130,974
81,391
Dec.
2013
¥ 86,406
69,554
49,650
130,265
77,253
Millions of yen
Dec.
2014
Dec.
2013
¥(8,896)*
¥ (9,652)**
(2,706)
1,978
¥(9,624)
(2,645)
708
¥(11,589)
Thousands of
U.S. dollars
Dec.
2014
$ 773,047
611,277
432,817
1,095,650
680,868
Thousands of
U.S. dollars
Dec.
2014
$(74,419)*
(22,637)
16,547
$(80,509)
*
Compensation-related and other expenses of ¥8,896 million (US$74,419 thousand) have been recognized as “Loss related to cosmetics” as the substantive
amount of loss on Kanebo Cosmetics brightening products containing Rhododenol, for which a voluntary recall was announced on July 4, 2013. Of this
amount, ¥8,220 million (US$68,764 thousand) for estimated future expenditures has been recorded in “Liability for loss related to cosmetics” under current
liabilities on the consolidated balance sheet.
** In connection with the voluntary recall by Kanebo Cosmetics Inc., Lissage Ltd. and e’quipe, Ltd., gross profit decreased by ¥2,400 million due to
various factors including the deduction from net sales of goods returned from retailers, and ¥9,652 million in expenditures, including an estimated
portion recognized as other expenses, was recognized as “Loss related to cosmetics” under other expenses in the consolidated statement of
income. The relevant amount of impact was included in the operating income of the “Beauty Care Business” segment in segment information
(Note 13). Please note that items in compensation expenses for which actual losses cannot be estimated have not been recognized in “Loss
related to cosmetics”.
Kao Corporation Annual Report 2014 69
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 collateral 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 paper of
highly-rated companies, bond investment trusts 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 maintenance of appropriate capital cost
ratio 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 December 31, 2014 and 2013 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 ...................................................................................................................
Millions of yen
Dec.
2014
Fair
value
¥107,412
123,639
211,464
10,473
¥452,988
¥ 1,137
20,810
195,178
28,108
85,258
¥330,491
Carrying
amount
¥107,412
123,639
212,835
(1,371)
211,464
10,473
¥452,988
¥ 1,137
20,776
195,178
28,108
84,152
¥329,351
Unrealized
gain/(loss)
¥ —
—
—
—
¥ —
¥ —
34
—
—
1,106
¥1,140
Derivatives ............................................................................................................
¥ (412)
¥ (412)
¥ —
70 Kao Corporation Annual Report 2014
Notes to Consolidated Financial Statements
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 ...................................................................................................................
Millions of yen
Dec.
2013
Fair
value
¥126,314
101,645
184,483
9,595
¥423,037
¥ 1,278
21,299
170,890
32,322
85,313
¥311,102
Unrealized
gain/(loss)
¥ —
—
—
—
¥ —
¥ —
(43)
—
—
(397)
¥(440)
Carrying
amount
¥126,314
101,645
186,986
(1,503)
185,483
9,595
¥423,037
¥ 1,278
21,256
170,890
32,322
84,916
¥310,662
Derivatives ............................................................................................................
¥ (189)
¥ (189)
¥ —
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
Dec.
2014
Fair
value
$ 898,544
1,034,290
1,768,981
87,611
$3,789,426
$ 9,511
174,084
1,632,742
235,135
713,218
$2,764,690
Carrying
amount
$ 898,544
1,034,290
1,780,450
(11,469)
1,768,981
87,611
$3,789,426
$ 9,511
173,800
1,632,742
235,135
703,965
$2,755,153
Unrealized
gain/(loss)
$ —
—
—
—
$ —
$ —
284
—
—
9,253
$9,537
Derivatives ............................................................................................................
$ (3,447)
$ (3,447)
$ —
Cash and time deposits
The carrying values of cash and time deposits approximate fair
value because of their short maturities.
Notes and accounts receivable
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 values of other marketable securities, such as commercial
paper, investment trust funds and others, approximate fair value
because of their short maturities. See Note 4 for information on
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 Corporation Annual Report 2014 71
Notes and accounts payable, and income taxes payable
The carrying values of notes and accounts payable, and income
taxes 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 December 31, 2014 and 2013
consisted of the following:
Investment securities that do not have a quoted
market price in an active market .............................................................................
¥1,182
¥1,181
$9,888
(4) Maturity analysis for financial assets and securities with contractual maturities
The maturity analysis for financial assets and securities with contractual maturities as of December 31, 2014 was as follows:
Millions of yen
Dec.
2014
Dec.
2013
Thousands of
U.S. dollars
Dec.
2014
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 ............................................................................................
Short-term investments and investment securities:
Held-to-maturity debt securities ...........................................................................
Available-for-sale other securities with contractual maturities .............................
Notes and accounts receivable .................................................................................
Total ......................................................................................................................
¥107,412
¥—
76,000
212,835
¥396,247
—
—
—
¥—
¥—
—
—
—
¥—
Due within
one year
Thousands of U.S. dollars
Due after
Due after
five years
one year
through ten
through five
years
years
Cash and time deposits ............................................................................................
Short-term investments and investment securities:
Held-to-maturity debt securities ...........................................................................
Available-for-sale other securities with contractual maturities .............................
Notes and accounts receivable .................................................................................
Total ......................................................................................................................
$ 898,544
$—
635,771
1,780,450
$3,314,765
—
—
—
$—
$—
—
—
—
$—
Please see Note 5 for annual maturities of long-term debt.
Due after
ten years
¥—
—
—
—
¥—
Due after
ten years
$—
—
—
—
$—
72 Kao Corporation Annual Report 2014
Notes to Consolidated Financial Statements
17
Derivatives
(a) Derivative transactions to which hedge accounting is not applied
The Company had the following derivative contracts outstanding to which hedge accounting was not applied at December 31, 2014
and 2013:
Foreign exchange forward contracts:
Buying U.S. Dollar .................................................................................................
Buying Japanese Yen ..........................................................................................
Buying other currencies ........................................................................................
Selling U.S. Dollar .................................................................................................
Selling Chinese Yuan ............................................................................................
Selling other currencies .......................................................................................
Foreign currency swaps:
Receiving Japanese Yen, paying Chinese Yuan ...................................................
Receiving U.S. Dollar, paying Indonesian Rupiah .................................................
Interest rate swaps:
Receiving floating rate, paying fixed rate ..............................................................
Foreign exchange forward contracts:
Buying U.S. Dollar .................................................................................................
Buying Japanese Yen ..........................................................................................
Buying other currencies ........................................................................................
Selling U.S. Dollar .................................................................................................
Selling other currencies .......................................................................................
Foreign currency swaps:
Receiving Japanese Yen, paying Chinese Yuan ...................................................
Receiving U.S. Dollar, paying Indonesian Rupiah .................................................
Interest rate swaps:
Receiving floating rate, paying fixed rate ..............................................................
Millions of yen
Dec.
2014
Contract
amount
¥3,652
863
27
6,285
3,053
1,368
2,279
7,750
Contract
amount
due after
one year
¥2,980
808
—
—
3,053
—
2,279
7,750
Fair
value
Unrealized
gain / (loss)
¥ 154
(115)
(0)
(162)
(67)
36
(602)
405
¥ 154
(115)
(0)
(162)
(67)
36
(602)
405
2,637
2,637
(61)
(61)
Millions of yen
Dec.
2013
Fair
value
Unrealized
gain / (loss)
Contract
amount
¥3,974
33
8
6,996
1,120
2,279
2,832
Contract
amount
due after
one year
¥2,739
—
—
—
—
2,279
2,832
¥ (12)
(3)
0
(36)
2
(380)
295
¥ (12)
(3)
0
(36)
2
(380)
295
(55)
281
281
(55)
Thousands of U.S. dollars
Dec.
2014
Foreign exchange forward contracts:
Buying U.S. Dollar .................................................................................................
Buying Japanese Yen ..........................................................................................
Buying other currencies ........................................................................................
Selling U.S. Dollar .................................................................................................
Selling Chinese Yuan ............................................................................................
Selling other currencies .......................................................................................
Foreign currency swaps:
Receiving Japanese Yen, paying Chinese Yuan ...................................................
Receiving U.S. Dollar, paying Indonesian Rupiah .................................................
Interest rate swaps:
Receiving floating rate, paying fixed rate ..............................................................
Contract
amount
$30,550
7,219
226
52,577
25,540
11,444
Contract
amount
due after
one year
$24,929
6,759
—
—
25,540
—
Fair
value
Unrealized
gain / (loss)
$ 1,288
(962)
(0)
(1,355)
(560)
301
$ 1,288
(962)
(0)
(1,355)
(560)
301
19,065
64,832
19,065
64,832
(5,036)
3,388
(5,036)
3,388
22,060
22,060
(510)
(510)
Kao Corporation Annual Report 2014 73
(b) Derivative transactions to which hedge accounting is applied
The Companies had the following derivative contracts outstanding to which hedge accounting was applied at December 31, 2014 and
2013:
Millions of yen
Fair
value
Contract
amount
Dec.
2014
Contract
amount
due after
one year
Dec.
2013
Contract
amount
due after
one year
Fair
value
Hedged
item
Contract
amount
Thousands of U.S. dollars
Dec.
2014
Contract
amount
due after
one year
Fair
value
Contract
amount
Interest rate swaps:
(Fixed rate payment,
Floating rate receipt) ..........
Long-term
debt
¥20,000
—
—
¥40,000 ¥20,000
—
$167,308
—
—
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.
18
Net Income per Share
A reconciliation of the differences between basic and diluted net income per share (“EPS”) for the years ended December 31, 2014 and
2013 was as follows:
Millions of yen
Net income
Thousands of
shares
Weighted
average shares
Yen
U.S. dollars
EPS
For the year ended December 31, 2014:
Basic EPS
Net income available to common shareholders ....................
Effect of dilutive securities
Warrants ...............................................................................
Diluted EPS
Net income for computation .................................................
¥79,590
508,687
¥156.46
$1.31
—
710
¥79,590
509,397
¥156.24
$1.31
Millions of yen
Net income
Thousands of
shares
Weighted
average shares
Yen
EPS
For the year ended December 31, 2013:
Basic EPS
Net income available to common shareholders ....................
Effect of dilutive securities
Warrants ...............................................................................
Diluted EPS
Net income for computation .................................................
¥64,764
513,880
¥126.03
—
550
¥64,764
514,430
¥125.89
74 Kao Corporation Annual Report 2014
Independent Auditor’s Report
Kao Corporation Annual Report 2014 75
Principal Subsidiaries and Affiliates (As of March 25, 2015)
Country/Area
Business
Company
Country/Area
Business
Company
Japan
China
Taiwan
Vietnam
Philippines
Thailand
Malaysia
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
Kao Customer Marketing Co., Ltd.
Kanebo Cosmetics Inc.
Australia
Canada
Kanebo Cosmetics Sales Inc.
United States
E'quipe, Ltd.
Kanebo Cosmillion Ltd.
Nivea-Kao Co., Ltd.
Kao Sanitary Products Ehime Co., Ltd.
Kao Professional Services Co., Ltd.
Kao-Quaker Co., Ltd.
Kao (China) Holding Co., Ltd.
Mexico
Germany
Kao Corporation Shanghai
Netherlands
Kao Commercial (Shanghai) Co., Ltd.
United Kingdom
Kanebo Cosmetics (China) Co., Ltd.
Shanghai Kanebo Cosmetics Co., Ltd.
Kao Chemical Corporation Shanghai
Switzerland
Kao Trading Corporation Shanghai
Kao (Shanghai) Chemical Industries Co., Ltd.
Spain
●
●
●
●
●
Kao (Hong Kong) Ltd.
●
Kao (Taiwan) Corporation
●
●
Kao Vietnam Co., Ltd.
Pilipinas Kao, Inc.
Kao Industrial (Thailand) Co., Ltd.
Kao Commercial (Thailand) Co., Ltd.
Kao Soap (Malaysia) Sdn. Bhd.
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
Kao (Malaysia) Sdn. Bhd.
●
●
●
●
●
●
●
●
●
●
●
●
●
Kao Australia Pty. Limited
●
●
●
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 Manufacturing Germany GmbH
●
Kao Chemicals GmbH
Kao Netherlands B.V.
Kao (UK) Limited
KPSS (UK) 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
●
●
●
●
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
●
●
●
●
●
●
76 Kao Corporation Annual Report 2014
Investor Information (As of December 31, 2014)
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: 504,000,000 shares
Outstanding (excluding treasury stock):
512,726,542 shares
Number of Shareholders: 46,744
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 Shareholder
Number of
Shares
(thousand shares)
Ratio of
Shareholding*
(percentage)
30,106
Japan Trustee Services Bank, Ltd.
(Trust Account)
The Master Trust Bank of Japan, Ltd.
(Trust Account)
State Street Bank and Trust Company 505223
State Street Bank and Trust Company
Tokio Marine & Nichido Fire Insurance Co., Ltd.
JPMorgan Chase Bank 380055
State Street Bank and Trust Company 505225
Northern Trust Co. (AVFC)
Re U.S. Tax Exempted Pension Funds
Mellon Bank, N.A. as Agent for
its Client Mellon Omnibus US Pension
Northern Trust Co. (AVFC) Re Silchester International
Investors International Value Equity Trust
* Ratio of shareholding is calculated based on the outstanding shares.
26,480
20,050
9,790
8,664
8,380
8,275
7,228
7,053
7,313
5.97
5.25
3.98
1.94
1.72
1.66
1.64
1.45
1.43
1.40
Composition of Shareholders
Securities Companies 3.68%
Other Japanese Companies 4.00%
Individuals and Others 11.87%
Financial
Institutions 31.58%
Treasury Stock 0.47%
Companies and Individuals
in Foreign Countries 48.39%
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
Website: 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)
5,000
4,000
3,000
2,000
1,000
0
80
60
40
20
0
Apr.
2010
Mar.
2011
Mar.
2012
Dec.
2012
Dec.
2013
Dec.
2014
Kao Corporation Annual Report 2014 77