Kao Corp. Annual Report 2015

FY2015 Annual Report · Kao Corp.

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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 Business Segments
4 A Message from President and CEO Michitaka Sawada
12 Research and Development
14 Corporate Governance
20 Board of Directors and Audit & Supervisory Board
Members, Executive Ofﬁ cers and Executive Fellows

25 Risk and Crisis Management
27 Compliance
29 Sustainability
33 Financial Section
80 Principal Subsidiaries and Afﬁ liates
81

Investor Information

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.

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

Kao achieved all targets of Kao Group Mid-term Plan 2015 (K15)

Net Sales

Operating Income

Overseas Sales Ratio*

¥1,471.8 billion

K15 Target: ¥1,400.0 billion

¥164.4 billion

K15 Target: ¥150.0 billion

35.0%

K15 Target: 30% or more

* Ratio of net sales to foreign customers to consolidated net sales

Net Sales / Operating Income1, 2

Net Income1, 2

(Period ended December 31, 2012 and years ended December 31, 2012 to 2015)

(Billions of yen)
1,500

1,401.7

1,315.2

1,220.4

164.4

1,471.8

(Billions of yen)
200

(Billions of yen)

100

1,000

1,012.6

124.7

133.3

101.6

111.8

500

Dec.
2012

Dec.
2012
(Restated)

Dec.
2013

Dec.
2014

Dec.
2015

Net Sales (Left)

Operating Income (Right)

150

100

98.9

79.6

64.8

52.8

53.1

Dec.
2012

Dec.
2012
(Restated)

Dec.
2013

Dec.
2014

Dec.
2015

Economic Value Added (EVA) 3

(Year ended December 31, 2011 = 100)

Capital Expenditures4

244

(Billions of yen)

100

250

200

150

100

165

138

100

112

Dec.
2011

Dec.
2012

Dec.
2013

Dec.
2014

Dec.
2015

83.4

63.7

68.5

47.2

41.9

Mar.
2012

Dec.
2012

Dec.
2013

Dec.
2014

Dec.
2015

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.

3. EVA is a registered trademark of Stern Stewart & Co. Due to the change in the ﬁ scal year end, EVA has been restated on a calendar year basis for the

period ended December 31, 2011 and 2012.

4. Year ended March 31, 2012, period ended December 31, 2012 and years ended December 31, 2013 to 2015

Kao Corporation Annual Report 2015 1

Kao’s Business Segments

Beauty Care Business

In order to allow every consumer to achieve their own unique beauty with
leading technologies, the Beauty Care Business offers products including
cosmetics, skin care products such as facial and body cleansers, and hair
care products such as shampoos and conditioners.

Leading Beauty Care Business brands include Kanebo, Soﬁ na and
Molton Brown in cosmetics; Bioré, Curél and Jergens in skin care; John
Frieda, Essential and Liese in hair care, and Goldwell for professional
hair salons. Kao products offer distinctive features and functional values
clearly evident to the user. Beauty Care Business products are available
to consumers in Japan, Asia, Oceania, North America and Europe.

Main Products
Cosmetics / Skin care and hair care (mass products) / Professional hair care products

Human Health Care Business

The Human Health Care Business offers products that help consumers to
live healthy and comfortable lives. These products include sanitary products
with unique proprietary technologies, functional health beverages with
innovative beneﬁ ts, and other products such as toothpaste and bath additives.
Leading Human Health Care Business brands include Laurier sanitary

napkins, Merries baby diapers, Healthya functional health beverages,
Clearclean toothpaste and Bub bath additives. In particular, Kao’s sanitary
napkins and baby diapers offer high added value, including high absorbency
and gentleness on the skin, making them very popular among consumers in
Japan and other major Asian markets.

Main Products
Main Products
Beverages / Sanitary products / Peersonal health products
Beverages / Sanitary products / Personal health products

2 Kao Corporation Annual Report 2015

Fabric and Home Care Business

The Fabric and Home Care Business offers fabric care products such as
laundry detergents and fabric softeners, as well as home care products such
as dishwashing detergents and kitchen cleaners. These products are
designed for quality, functionality and ease of use, allowing consumers to
enjoy a clean and comfortable lifestyle.

Leading Fabric and Home Care Business brands include Attack laundry
detergent, Haiter laundry bleach and Magiclean household cleaner, all widely
used in Japan, Asia and Oceania. As environmental awareness has grown in
recent years, and social changes see more women working outside the home,
Kao has continued to offer new laundry choices, including liquid detergent with
powerful cleaning properties, and single-rinse options that reduce the time
needed to do laundry.
y

Main Products
Main Products
Laundry detergents and fabric treatments / Products for kitchen, bath, toilet
Laundry ddetetergents and fabric trereaatmente s / Products for
kitchen, bath, toilet
and living rrooom care
and living room care

Chemical Business

The Chemical Business offers a broad variety of chemical products to the
world, including oleo chemicals manufactured from natural fats and oils,
surfactants, toners and toner binders, and fragrances and aroma chemicals.
Products such as Kalcol fatty alcohol, Emal surfactant, and Mighty high
performance superplasticizer (for concrete) enrich people’s lives across a broad
range of industries globally, including information technology, electronics, pulp
and paper, food, pharmaceuticals, civil engineering and construction.

The Chemical Business supplies products to business customers around
the world – both outside the Group, and internally to the Consumer Products
Business. Kao’s Chemical Business is contributing to the creation of new value.

Main Products
Oleo chemicals / Performance chemicals / Specialty chemicals

Kao Corporation Annual Report 2015 3

A Message from President and CEO Michitaka Sawada

Aiming for New Heights Based
on Core Beliefs and Group
Dynamism to Ensure the Kao
Group’s Sustainable Growth

In 2015, the ﬁ nal year of Kao Group Mid-
term Plan 2015 (K15), we achieved all of
the plan’s targets. Rather than simply
continuing our efforts to date, we will make
2016 a year of preparation for our next mid-
term plan to set a high growth trajectory.

Michitaka Sawada
President and Chief Executive Officer

A Company with a Global Presence

Proﬁ table growth

Contributions to
the sustainability
of the world

4 Kao Corporation Annual Report 2015

The Direction of the Kao Group

The Kao Group aims to be a company with a global presence as
it works for both sustained “proﬁ table growth” by increasing
the added value of its products and “contributions to the
sustainability of the world” by making proposals to resolve
social issues such as the environment, health, the aging society
and hygiene through its business activities and by conducting
social contribution activities.

The Kao Group aims to be a company with a global presence by adhering to the

Kao Way, our corporate philosophy. After four years of working in this direction,

I feel we are making steady progress in increasing our global presence. There are

many perspectives on how to measure global presence, but I want the Kao Group

to show the greatest presence through our strengths in research and development.

Global recognition as a company that continually spurs innovation has deep

signiﬁ cance for us.

In addition to being recognized for being innovative, we want to be known for

our ongoing core belief in delivering returns to our stakeholders by achieving and

accomplishing the mid-term plans that we announce. No other Japanese company

has increased dividends for 26 consecutive periods, and in 2015 we achieved our

sixth consecutive ﬁ scal year1 of increases in consolidated net sales and proﬁ ts.

As a result, our management indicator Economic Value Added (EVA)2 reached

record highs in terms of both the increase from the previous year and absolute

value, reﬂ ecting a double-digit increase in net operating proﬁ t after tax (NOPAT) and

1. Excluding the effect of the change in the ﬁ scal year-end in 2012
2. EVA is a registered trademark of Stern Stewart & Co.

Targeted Sustainable Growth Model

Proﬁ table growth

Proactive
investment

Establish a
post-deﬂ ation
growth model

Increase
proﬁ ts

Increase
market share and
sales, and create
markets

Capabilities to generate proﬁ ts
Transformation to a proﬁ table structure

Maximize use of Kao Group assets

Kao Corporation Annual Report 2015 5

our ability to minimize the increase in capital invested by maximizing our utilization of

assets. In addition, ROE increased by 2.4 points compared with the previous year to

14.8 percent. Through results like these, we aim to stand out as an exemplary global

company in management direction as well.

The next mid-term plan will not take the approach of simply continuing the efforts

we have made so far. Rather, we will consider what is necessary to make a leap to the

next stage and to pave the way to becoming a company with a truly global presence.

This will require a considerable amount of preparation. We are now conducting a

Group-wide review of the achievements and issues of K15. At the same time, we are

methodically preparing K20, a mid-term plan that will begin in 2017 and deal with

various changes in the external business environment.

Summary of K15
The Kao Group has made further progress in maximizing
the use of our assets in order to steadily improve our
capabilities to generate proﬁ ts. As expected, the
sustainable growth model is beginning to generate a
positive cycle.

Achievements of K15

We achieved all of the targets of K15. The fact that we achieved ¥164.4 billion in

operating income in 2015, which not only exceeded our target of ¥150.0 billion but

was also a 23.3 percent increase from the previous year, is proof of the effectiveness

of the sustainable growth model we have been working on under K15. The essential

point of this model is that through maximizing the use of Kao Group assets and the

synergy generated by effective deployment of expenditures, we are transitioning to

a proﬁ table structure, or in other words, improving our capabilities to generate

proﬁ ts. One success of K15 is that all employees now feel personal responsibility

for utilizing assets and put this approach into practice in their work.

Target 1: Break previous records for consolidated net sales

and proﬁ ts

Target 2: Achieve numerical management targets for 2015

• Net Sales:

• Operating Income:

¥1,471.8 billion
Target: ¥1,400.0 billion
¥164.4 billion
Target: ¥150.0 billion

• Overseas Sales Ratio*: 35.0%

Target: 30% or more

* Ratio of net sales to foreign customers to consolidated net sales

Merries baby diapers are driving
growth in Asia.

MegRhythm steam thermo sheets
are in demand among Japanese
consumers and popular among
visitors from overseas as well.

Efforts to convey the value of
Curél for sensitive skin have led
to its ongoing growth.

CuCute, which is highly differentiated
in the market due to essential
research, has performed strongly
in Japan.

6 Kao Corporation Annual Report 2015

A Message from President and CEO Michitaka Sawada

Moreover, we have made substantial progress in improving the composition of net

sales and operating income, which since 2012 have become signiﬁ cantly more

balanced across geographic areas and business segments. As for net sales, the

overseas sales ratio has increased from 27 percent to 35 percent. As for operating

income, we were able to improve our balance, which was too heavily dependent on

Japan and the Fabric and Home Care Business, while increasing income in every

geographic area and business segment.

Improved Balance of Operating Income Composition

Change in geographic area balance: Increased overseas contribution

2012

2% 6%

2015

12%

86%

78%

Europe

Americas

Asia (excluding Japan)

Japan

Change in business segment balance: More dispersed among segments

2012

18%

54%

12%

16%

2015

18%

42%

22%

18%

Beauty Care

Fabric & Home Care

Human Health Care

Chemical

Promoting K15’s Mid-term Growth Strategies

Three growth strategies were the driving force of K15: 1) expand the Consumer

Products Business globally; 2) further reinforce the Fabric and Home Care Business,

and accelerate proﬁ table growth in the Beauty Care Business and the Human Health

Care Business; and 3) reinforce the Chemical Business. We achieved strong results,

although issues do remain. One result of these strategies was substantial growth of

the Consumer Products Business in Asia. During the three-year period, sales

doubled, or 1.5 times excluding the effect of currency translation. Sales increased

signiﬁ cantly in China and Indonesia, markets where we have been targeting the

growing middle-class consumer segment. We also achieved double-digit growth in

Taiwan, Hong Kong, Thailand, Vietnam, Malaysia and Singapore. Moreover, we have

been making tenacious efforts in the cosmetics business in China, where our

successful structural reforms resulted in proﬁ tability in 2015. In the Chemical

Business, operating income reached a record high as we gradually shifted to high-

value-added products, although we need to further expand sales. On the other hand,

some issues have come to the fore. One is improving the proﬁ tability of the cosmetics

business in Japan. We continued working to reinforce our focal brands, but results

were disappointing due to intensifying market competition. Major reforms are required

for both Kao Soﬁ na and Kanebo Cosmetics. Another issue is rebuilding functional drinks.

Looking back at the past three years, we were not necessarily helped along by

external events. I believe that achieving K15 in this difﬁ cult, rapidly changing business

environment was the result of the good fortune that is given to those who work hard

and conduct themselves with integrity.

Kao Corporation Annual Report 2015 7

Future Directions and Positioning in 2016
We intend to fulﬁ ll our role as a leading company, which
will increase our corporate value. The Kao Group will use
2016 to prepare for K20, a mid-term plan that will begin in
2017, and the greater progress it will entail. We will act
based on our core beliefs and display group dynamism.

We will use 2016 to fully prepare to take our next step, which will be “discontinuous.” In

other words, our next step will not be a continuation of what we have done in the past.

We must look back on what we could and could not accomplish under K15 from the

perspective of maximizing the use of our assets, which has been a recurring theme.

Displaying Group Dynamism

Under K15, we have been focusing on maximizing the use of our assets. We are now

able to make quite high-level use of our assets, so taking on the further challenge of

maximizing our assets to display group dynamism will be a major theme from now on.

Some may feel that a focus on group dynamism will dilute the strengths of the

individual. However, the group dynamism we aim for in the Kao Group entails making

greater use of our potential and assets and maximizing them to boldly take on

challenges that lead to the creation of new business opportunities. The Kao Group has

numerous research assets with the power to generate strong synergy between the

Chemical Business and the Consumer Products Business. I believe that having these

two businesses that can generate synergy is a unique advantage for Kao, and a feature

that separates us from our global peers.

If you think only of short-term, immediate proﬁ t, one view is that it is a good idea to

get rid of dormant assets and underperforming businesses. At Kao, we believe that

making skillful changes in tune with the times to poorly performing products and

businesses enables them to resurface. Conversely, there may be cases where

products and services that are currently making good progress slow down or stall.

Conducting businesses that are complementary at a high level is a strength of Japanese

companies and an essential element of Kao’s style.

Core Beliefs Unique to Kao

Our core beliefs encompass not only our attitude toward “Yoki-Monozukuri,” or

providing products and brands of excellent value created from the customer’s

perspective, but also our objectives of continuously raising dividends, increasing sales

and proﬁ ts, and achieving our management plans. Furthermore, I am convinced that

these core beliefs will support our efforts to achieve sustainable growth. In 2016, in

addition to increasing sales and proﬁ ts for the seventh consecutive year and achieving

our announced forecast, we will continue to ﬁ rmly maintain our core belief in

sustainable growth as we further strengthen our abilities to generate proﬁ ts by

deepening our sustainable growth model and creating and offering proﬁ table new

businesses. Moreover, we will engage in proactive investment for growth, including

M&A. We also have a core belief in making sustainable returns to our stakeholders.

We intend to be thorough in making returns to our employees (continuous increases in

compensation and beneﬁ ts), returns to society (payment of taxes, providing

employment, social contributions) and returns to our shareholders (continuous

increases in dividends).

8 Kao Corporation Annual Report 2015

A Message from President and CEO Michitaka Sawada

Core Initiatives and Areas of Focus in 2016

During 2016, we will work on three broad themes that will lead into K20. The ﬁ rst is

strengthening and expanding existing businesses. We will ensure that growing

businesses continue to grow even further and put poorly performing businesses on a

growth trajectory. In the cosmetics business, we will put the major reforms of Kao

Soﬁ na that we started in November 2015 on track, and in 2016 we will conduct major

reforms at Kanebo Cosmetics as well, among other measures for rapid rebuilding. For

food and beverage products in the Human Health Care Business, we will rebuild

Healthya (functional drinks) and consider entering food and health-related businesses.

In the Consumer Products Business in the Americas and Europe, we will focus on

using our original technologies to add higher value to products for “discontinuous”

growth that is more than simply an extension of our growth to date.

The second theme is creating new businesses. We will display the group dynamism

of the Kao Group, for example to take a new approach in the domain of hygiene, at the

intersection of the business ﬁ elds of cleanliness, beauty and health. We will also focus

on proactive M&A to expand and create businesses.

The third theme is accelerating expansion outside Japan. We want to use our

achievements in Asia as a lever for proactively expanding into new countries.

Taking a bird’s eye view of the socioeconomic environment, structural changes are

forecast to occur worldwide, with shifts in the center of the economy, changes in

consumer preferences and other factors. By positioning 2016 as a year of preparation,

we will not only acquire the ability to adapt to whatever changes may occur, but also

turn the changes that do occur into opportunities for progress.

Kao’s Essential Research
Kao’s essential research is rooted in its knowledge of
surface science. We use matrix management of R&D for
innovation in each business ﬁ eld, which leads to
innovative products.

Research and development is the source of our ability to create products and brands

of excellent value, and our foremost core belief. Based on our belief that excellent

products are created in a background environment of diverse scientiﬁ c expertise

and technologies, our research covers a truly broad range of ﬁ elds. I think that

having expertise in and the seeds of technologies for both humans (biological science)

and materials (material science) makes Kao a distinctive company, not just in Japan

but worldwide. Using matrix management for research and development is also a

unique feature. Both product development research and fundamental research are

closely connected to each business division. This promotes linkage of technologies

through cross-divisional collaboration.

In addition, the pursuit of the essence of things from a scientiﬁ c standpoint, or in

other words essential research, is key to Kao’s R&D. Our essential research is rooted

in surface science. Surface science is at the core of Kao, and the control of surfaces

opens up unlimited possibilities. For example, applying fabric softener to the surface of

ﬁ bers makes them feel ﬂ uffy, while spreading an oil ﬁ lm over the surface of the skin

creates a skin barrier. Adding a mechanism for breaking down a dirty surface creates

Kao Corporation Annual Report 2015 9

detergent. In the ﬁ nal analysis, surface science applies to everything, even enabling

precise control at the nano level. The nano surfactant control technology developed for

our chemical products is being used in our consumer products research.

R&D is not always immediately successful, but I regularly tell our researchers to

carry on their work with conﬁ dence and peace of mind because there is no such thing

as failure in developing technologies. Product development is linked to consumers, so

you can fail if you do not understand their needs, but technology development may still

be used for another product at some point in the future. Technologies that cannot

immediately be turned into products are ﬁ led away for the time being, using methods

that allow them to be shared among our researchers. Then, three years or ﬁ ve years

later, when things have changed, they can be taken out of that ﬁ le and applied to a

new product. Skillfully combining research assets that have been deepened through

essential research can help to create new worlds. I want to use these results to create

new value from the consumer’s perspective and to further stimulate markets.

Securing Stakeholder Support and Trust
We will promote further reform of corporate governance
and conduct corporate activities that regularly refer to
the Kao Way, the source of Kao’s efforts for sustainability.

Ongoing Enhancement of Corporate Governance

Behind the successful completion of K15 were three changes we made to our

organizational management. The ﬁ rst was delegating authority and accelerating

decision-making. We have implemented management improvements and the

Management Committee has decided that when we are on the fence about, for

example, an investment opportunity, our default stance will be action rather than

hesitation. The second is enhancement of governance. In July 2015, we released a

Report Concerning Corporate Governance that explains the status of implementation

of the principles of the Corporate Governance Code established by the Tokyo Stock

Exchange. Currently, Kao has six independent ofﬁ cers – three Outside Directors

and three Outside Audit & Supervisory Board Members – to provide a framework

for an exchange of opinions based on an objective view of the company. We are

aware of the need for greater diversity in the composition of the Board of Directors.

The third is enhancement of employee mindset. Through measures such as Top Talk,

a message I post on the company intranet, and Genba Roundtable sessions, where

employees engage in exchange of opinions with management, I share the

direction of the Kao Group, the Kao Sustainability Statement and other matters

with employees.

Respecting Human Rights and Promoting Diversity in the Workplace

Under the Kao Way, our corporate philosophy, the Kao Group respects diversity of

culture, nationality, belief, race and gender in the workplace. In addition to providing

training and promotions based on employees’ motivation and capabilities, since 1990

we have had an ongoing support system for diverse ways of working to promote

active participation by women.

In light of the global community’s growing interest in human rights, we held

discussions with related internal divisions and outside experts that led to the

10 Kao Corporation Annual Report 2015

A Message from President and CEO Michitaka Sawada

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.

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

adoption of the Kao Human Rights Policy in June 2015 based on the United Nations

Guiding Principles on Business and Human Rights.3 The Kao Human Rights Policy

states our support and respect for international standards for human rights, and

promotes measures such as human rights risk assessment and employee training.

We will strive for widespread understanding of this policy as we strengthen our

efforts for human rights.

3. Principles related to business and human rights proposed by UN Special Representative John Ruggie and endorsed by

the UN Human Rights Council in June 2011

In Conclusion
We will resolutely take on the challenge of turning
global structural shifts into opportunities for growth.
Our shareholders can expect the Kao Group to reach
new heights.

We will further strengthen our sustainable growth model to achieve profitable

growth. Using EVA keeps us aware of the cost of capital and there is no change

in the priorities we have set for using our steadily generated cash flow. After

making investments for future growth, we emphasize steady and continuous cash

dividends. We will also ﬂ exibly consider repurchases and cancellation of shares and

early repayment of interest-bearing debt including borrowings in light of improving

capital efﬁ ciency.

Moreover, from 2016 we have voluntarily adopted International Financial Reporting

Standards (IFRS) based on our decision that integrating accounting standards

throughout the Kao Group will help to improve the quality of Group management.

In 2016, we will establish our sustainable growth model more ﬁ rmly and invest

proactively. We will also use the year to prepare for the sustainable growth we

anticipate under K20, our next mid-term plan, and thereafter.

Never satisfied with the status quo, we will continue to aim high and take on

new challenges. I urge all our shareholders to follow the Kao Group’s activities

with anticipation. Expect us to reach new heights.

Cash Dividends per Share

(Yen)
100

Increases in dividends for 26 consecutive periods

7.1 7.1 8.87 9.09 10.0 10.5 11.5 12.5 14

Mar.
1988

Mar.
1990

Mar.
1992

Mar.
1994

Mar.
1996

Mar.
1998

Mar.
2000

Mar.
2002

Mar.
2004

Mar.
2006

Mar.
2008

Mar.
2010

Mar.
2012

Dec.
2014

Dec.
2016
(Forecast)

Note: Impacts of share splits are retroactively reﬂected.

Kao Corporation Annual Report 2015 11

Research and Development

Basic Policy

Kao’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. Based on this
mission, Kao’s research and development division combines
original ideas with an understanding of the various cultures
and needs of consumers in diverse countries and regions to
develop innovative products and technologies that create
new value and new markets. Approximately 2,800 Kao
Group personnel conduct research and development. R&D
expenditures for the entire Kao Group in 2015 were ¥52.0
billion, equivalent to 3.5% of net sales.

Kao’s Essential Research
The hallmark of Kao’s R&D, central to the creation of
consumer products and chemicals, is our engagement in
varied and wide-ranging essential research across a broad
spectrum of scientiﬁ c ﬁ elds, which can be grouped into
“humans” and “materials.” The essential properties of both

Essential Research

groups are explored through fundamental technology
research that reveals the structure of phenomena and
substances, enabling us to deepen and combine the two
areas. Furthermore, we combine the two areas with
product development research, which includes consumer
research, product design, and applied technology research.
This is key to creating products with high added value not
only in terms of their functions, but also for helping to
resolve environmental and other social issues. For this
reason, we actively promote interactive exchange of
information and technologies across research organizations.
The resulting linkage and expansion of research ﬁ elds is the
wellspring of new innovation.
Kao is committed to Yoki-Monozukuri* with R&D at the
core. We aim to contribute to addressing social issues
globally in a variety of ﬁ elds including cleanliness, beauty,
health and the environment.

* The Kao Group deﬁ nes 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.”

The Aging Society

Health

Hygiene

The Environment

12 Kao Corporation Annual Report 2015

Topics in 2015

Selected for Asia IP Elite for the Third
Year in a Row

Kao was selected for the third year in a row as one of the
Asia IP Elite, an honor given to Asian companies with
superior intellectual property (IP) strategies. The awards are
planned and held by Intellectual
Asset Management, an
internationally recognized
periodical on IP management.
Selection is based on factors
including the number of patent
ﬁ lings in each country, litigation
to assert rights, corporate
stance on the importance of IP
rights, and interviews with
experts in the ﬁ eld.

Kao Enters into a Comprehensive
Research Agreement for Industry-
Academia Collaboration with Juntendo
University in Japan

Kao entered into a comprehensive research agreement with
Juntendo University to obtain new research ﬁ ndings that
will contribute to the resolution of social issues in areas
including cleanliness, beauty, health, aging, the environment
and hygiene. By promoting open innovation through
industry-academia collaboration that encompasses shared
use of research ﬁ ndings and
facilities, including exchange
of researchers and mutual use
of research facilities, Kao will
reinforce its fundamental
research in the ﬁ elds of
medicine and health.

Beauty Care Business

Basic Policy
Kao conducts essential 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.

Human Health Care Business

2015 R&D expenditures:

¥23.9 billion

Basic Policy
Kao researches the body and mind to improve quality of life by making
the most of people’s natural vitality.

2015 R&D expenditures:

¥11.9 billion

Fabric and Home Care Business

Basic Policy
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.

Chemical Business

2015 R&D expenditures:

¥7.1 billion

Basic Policy
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.

2015 R&D expenditures:

¥9.1 billion

Kao Corporation Annual Report 2015 13

Corporate Governance

Basic Stance and Structure

Kao’s basic stance on measures related to corporate

In accordance with this stance, Kao works to improve

governance is to implement the necessary policies and

governance as a company with an Audit & Supervisory

fulfill its accountability by setting up and operating a

Board by strengthening the supervisory function of the

management structure and internal control system in

Board of Directors and the auditing function of the Audit

order to rapidly realize efficient, sound, fair and highly

& Supervisory Board. An overview of Kao’s governance

transparent management with the aim of continuously

structure is given in the following chart.

increasing corporate value and achieving the long-term

targets and mid-term plan.

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

Compensation Advisory Committee

Supervision

Audit

Management Committee

Audit

Sustainability
Committee

Internal Control Committee
Disclosure Committee
Compliance Committee
Information Security Committee
Risk and Crisis Management Committee
Committee for Responsible Care Promotion
Quality Assurance Committee

s
r
e
y
w
a
L

e
d
i
s
t
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O

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a
i
l

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m
o
C

e
n

i
l
t
o
H

n
o
i
t
a
t
l
u
s
n
o
C

Audit

Department of
Internal Audit

Internal Audit

Executing Divisions

Executive Ofﬁcer Responsible for Each Division

• Business Divisions
• Functional Divisions

s
r
o
t
i
d
u
A
g
n
i
t
n
u
o
c
c
A

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.

14 Kao Corporation Annual Report 2015

Board of Directors

The Board of Directors invites people from outside the

Company with diverse experiences, knowledge and a

high level of insight. Composed of four inside members

and three outside members, it ensures lively discussions

while maintaining diversity and independence.

Number of Members

Outside Directors
Included in Above

3 (approximately 42%)

Independence

The Company has reported all 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

Number of Members

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 law to shorten the period)

Number of Meetings

10 times in 2015 (including
extraordinary meetings)

Average Attendance
Rate of Outside Audit
& Supervisory Board
Members

Board of Directors Meetings: 97%
Audit & Supervisory Board Meetings:
98%
Meetings to exchange opinions with
Representative Directors: 100% (3
times in 2015)

Chairman

Independent Outside Director

Term of Ofﬁ ce

1 year (voluntarily shorter than the
statutory period)

Number of Meetings

Average Attendance
Rate of Outside
Directors

15 times in 2015 (including
extraordinary meetings)

100%

Audit & Supervisory Board

Committee for the Examination of the
Nominees for the Members of the Board
of Directors

This committee conducts advance examination of the

appropriateness of nominees for election or re-election

as Representative Director and Director as proposed to

the General Meeting of Shareholders and the Board of

Directors, and submits its opinions to the Board of

Directors. In addition, the committee discusses the

The Audit & Supervisory Board ensures the

composition and diversity of the members of the Board

effectiveness of its audits through the collaboration of

of Directors, including the proportion of Inside Directors

the Full-time Audit & Supervisory Board Members with

and Outside Directors, and the qualities and abilities

the Outside Audit & Supervisory Board Members, a

required of the Chief Executive Officer and Directors of

majority of whom have qualifications such as attorney-at-

the Company, and reports the results of its examination

law or certified public accountant, who maintain

independence and expertise as outside parties.

to the Board of Directors. In the course of its examination,

the committee also receives reports on Executive Ofﬁ cers

in charge of execution.

Number of Members

Composition

Chairman

All Outside Directors and all Outside
Audit & Supervisory Board Members

Chosen by committee members. The
chairman was an Independent Outside
Director in 2015.

Number of Meetings

3 times in 2015

Attendance Rate

100%

Kao Corporation Annual Report 2015 15

Compensation Advisory Committee

This committee examines the compensation system and

remuneration levels for Directors and Executive Officers

Support System for Outside Directors
and Outside Audit & Supervisory
Board Members

and submits the results of its examinations to the Board

To allow for active discussions at meetings of the Board

of Directors.

Number of Members

Composition

Chairman

Chairman of the Board of Directors
(position currently vacant), all
Representative Directors, all Outside
Directors and all Outside Audit &
Supervisory Board Members

Chosen by committee members. The
chairman was an Independent Outside
Director in 2015.

Number of Meetings

3 times in 2015 including preparatory
discussions.

Compensation System

See next page

of Directors, the Board of Directors Secretariat provides

Outside Directors and Outside Audit & Supervisory

Board Members with sufficient explanations by

distributing materials on matters such as the

background, purposes and content of the respective

agenda items, as necessary, prior to meetings of the

Board of Directors. Furthermore, under this support

system, in addition to support staff, administrative

divisions such as Internal Audit, the Legal and

Compliance Department and the Accounting and Finance

Department provide Outside Audit & Supervisory Board

Members with assistance upon request.

Comment from an Independent Outside Director

I have been a member of Kao’s

2) Clearly working out and implementing risk

Board of Directors for more

management for Kanebo Cosmetics, a subsidiary that

than three years, with

faced the management crisis of a voluntary product

expectations placed on my

recall in July 2013. As the parent company of a

global experience as an

consumer goods business group, we put the recovery

executive of a company that,

and care of customers first, with an unwavering

like Kao, is a manufacturer.

stance of wholeheartedly providing fair and equitable

During that period, I have

compensation and support; and

mainly been involved in

discussions of:

3) Ambitious initiatives for further growth and the

investment to fund them, amid strong performance

1) Ongoing consideration of

consisting of six consecutive fiscal years of increases

further innovations in and

in sales and profits.

Toru Nagashima
Independent
Outside Director,
Senior Advisor,
Teijin Limited

execution of corporate governance; in other words,

consideration of the corporate governance system

In these discussions, I give my opinion whenever I

we consider best for Kao’s sustained growth under

have doubts about proposals for execution. So far,

our present conditions;

however, I have enthusiastically supported the

decisions that have been made.

16 Kao Corporation Annual Report 2015

Corporate Governance

Compensation System for Members
of the Board of Directors, Audit &
Supervisory Board Members and
Executive Officers

Kao’s compensation system for members of the Board

(1) Base salary

Paid as fixed monthly remuneration in an amount

determined in accordance with duties as an Executive

Officer and rank.

of Directors, Audit & Supervisory Board Members and

(2) Bonus as short-term incentive compensation

Executive Officers is aimed at (1) securing and retaining

When the full amount is paid, the bonus is set at 50% of

diverse and excellent personnel to establish and improve

base salary for the President and Chief Executive Ofﬁ cer,

competitive advantages; (2) promoting prioritized

40% of base salary for the Chairman of the Board of

measures for lasting increases in corporate value; and

Directors and Executive Ofﬁ cers with titles other than the

(3) sharing interests in common with shareholders.

Chief Executive Ofﬁ cer, and 30% of base salary for other

Remuneration of members of the Board of Directors,

Executive Ofﬁ cers. The rate of payment of the bonus is

other than Outside Directors, and Executive Ofﬁ cers

set within a range of 0-200%, depending on the degree

consists of base salary, a bonus as short-term incentive

of achievement of targets for net sales and income (gross

compensation, and stock options as long-term incentive

proﬁ t less selling, general and administrative expenses),

compensation, and is designed to provide an impetus for

the degree of their improvement from the previous year,

continuing annual improvement in business results and

and the degree of achievement of the target for Economic

medium-to-long-term growth. Linkage of remuneration to

Value Added (EVA), the Company’s main management

business results increases with rank, based on the

metric, which takes capital cost into account.

responsibility for duties and business results of each

position. An overview of the components of remuneration

(3) Stock options as long-term incentive compensation

is as shown below.

Set at around 30% of base salary for each position.

Kao’s true value lies in its “Yoki-Monozukuri*,”

the viewpoint of its markets and its customers.

backed by research and technological development.

Stimulating discussion at Board of Directors

Therefore, I always listen to these innovative

meetings is a topic that is often raised. At Kao, the

proposals with excitement. For Kao’s products and

President puts forth immediate and medium-to-long-

brands of excellent value to be used by people

term issues and regularly directs the itinerary for

worldwide, I have been urging my fellow Directors to

discussions are held at Board meetings throughout

tell a story – in other words, to build a business

the year. As a result, we Outside Officers, including

model that not only creates excellent products

Audit & Supervisory Board Members, are always

through Yoki-Monozukuri but also conveys their

aware of the progress and purposes of current

excellence to the public. Last year, we started a

discussions, enabling us to participate with a grasp

project to communicate Kao’s value. We considered

of the bigger picture. With this broad perspective, I

how to accurately convey the essential value of Kao’s

would like to make my next proposal to Kao as it

products to our partners in the retail industry and the

aims to become a company with a global presence: I

consumers who actually use the products. We are

suggest that the company should look beyond its

now carrying out those measures. I am pleased that

past successes in Japan to discover and cultivate

my experience seems to have been useful in these

human assets who can perform on a global level for

discussions. Conversely, I would also like Kao to aim

the growth that will take Kao to the next stage.

for Yoki-Monozukuri and a new business model from

* See note on page 12

Kao Corporation Annual Report 2015 17

Compensation for Outside Directors, who are

increase its corporate value, and it will sincerely

independent from the execution of business operations,

implement this aim, based firmly on the intent of the

consists of fixed monthly remuneration only.

principles established in the Code. To ensure a better

The compensation system and compensation

understanding of the status of Kao’s implementation of

standards for members of the Board of Directors and

the principles required to be disclosed under the Code,

Executive Officers are examined by the Compensation

Kao’s Report Concerning Corporate Governance arranges

Advisory Committee, which is chaired by an Outside

its corporate governance measures to date and their

Director, and determined by resolution of the Board of

current status in a systematic fashion for publication,

Directors from the standpoint of ensuring the objectivity

rather than the order published in the Code. Moreover,

and transparency of the determination process. The

the Report Concerning Corporate Governance is not

Compensation Advisory Committee is composed of the

complete once it has been submitted. The content is

Chairman of the Board of Directors, all Representative

updated as necessary, earnestly incorporating advice

Directors, all Outside Directors and all Outside Audit &

and opinions received through dialogue with investors in

Supervisory Board Members. Independent Directors

Japan and overseas. Since the July 2015 revision, the

and Audit & Supervisory Board Members constitute a

report has been updated five times.

majority of the members of the committee, which

Kao will continue to further enhance corporate

meets at least once a year during the remuneration

governance and review it according to the business

adjustment period.

environment with the aim of ongoing development and

Compensation for Audit & Supervisory Board

maximization of corporate value from a medium-to-long-

Members consists of fixed monthly remuneration.

term standpoint.

Compensation standards are determined at meetings of

the Audit & Supervisory Board.

(For Reference)

The Chairman of the Board of Directors of Kao reported

on the Company’s stance on corporate governance and

its current status at the December 22, 2015 meeting of

the Council of Experts Concerning the Follow-up of

Japan’s Stewardship Code and Japan’s Corporate

Governance Code (an organizational body established by

the Tokyo Stock Exchange and the Financial Services

Agency to follow up on the status of diffusion and

establishment of Japan’s Stewardship Code and

Corporate Governance Code, and to discuss and propose

measures necessary to further enhance the corporate

governance of listed companies).

http://www.fsa.go.jp/en/refer/councils/follow-up/index.html

Compensation standards for members of the Board of

Directors, Executive Officers and Audit & Supervisory

Board Members are determined after ascertaining

standards at other major manufacturers of a similar size,

industry category and business type to the Company

each year using officer compensation survey data from

an external survey organization.

The Company has no retirement bonus system for

Directors or Audit & Supervisory Board Members.

Response to the Corporate
Governance Code
With regard to Japan’s Corporate Governance Code (the

“Code”), which was established by the Tokyo Stock

Exchange in June 2015, Kao released a Report

Concerning Corporate Governance, which covers the

status of implementation of each principle of the Code,

in Japanese and English in July 2015. The stated aim of

the Code is to seek “‘growth-oriented governance’ by

promoting timely and decisive decision-making based

upon transparent and fair decision-making.” This is in

alignment with the stance on measures to improve

corporate governance that Kao has been promoting to

18 Kao Corporation Annual Report 2015

Third-Party Opinion

Toshiaki Oguchi
Representative Director,
Governance for Owners Japan KK;
A member of The Council of Experts
Concerning the Follow-up of Japan’s
Stewardship Code and Japan’s
Corporate Governance Code

We at Governance for Owners Japan KK have
been engaging in constructive dialogue with
Kao Corporation on behalf of our global
institutional investor clients for more than
five years since 2010. Although there was a
voluntary product recall by Kanebo Cosmetics, a
subsidiary of Kao, in 2013, Kao’s clear policies
and conscientious explanations minimized its
downward impact, and as a result Kao’s
shareholder value (stock price) has more than
tripled during this period.
We would summarize our impression of
Kao’s corporate governance as the manifestation
of the “Innovation” expressed in the Kao Way.
When we began our dialogue with Kao, its
Board of Directors was made up of 13 Inside
Directors and two Independent Outside
Directors. The composition of the Board has
changed substantially, now consisting of three
Inside Directors, two Independent Outside
Directors and one Non-Independent Outside
Director, and the position of chairman is held
by an Independent Outside Director rather
than an Inside Director.* We realize that these
changes have been the result of ongoing
reexamination, as well as trial and error.
For example, we have learned about the
circumstances that led to the inclusion of
a non-independent bank executive as an
Outside Director. This was a result of Kao’s
emphasis on diversity, with Directors from
the fields of manufacturing, finance and
management consulting, all possessing the
global experience required by the Board of

Corporate Governance

Directors as their common thread. We have
also been told about the various methods
used to enhance discussions at Board of
Directors meetings, as well as the process of
trial and error used in setting the scope of
the Committee for the Examination of the
Nominees for the Members of the Board of
Directors. Hearing about these matters, we
believe that because Kao has gone through
such processes, it has developed unique,
firmly grounded corporate governance. The
results have been sustained growth and
increased corporate value, which in turn have
earned approbation from institutional
investors outside the company.

Innovation in corporate governance has no

end. For example, we have discussed the
necessity of diversity – in gender, nationality
or otherwise – among the members of the
Board of Directors, based on factors such as
the nature of Kao’s businesses and its further
expansion outside Japan. We also believe
ongoing discussion is required to select the
most appropriate form of corporate organization
for Kao. Global institutional investors, including
our company’s clients, will remain closely
attentive to Kao’s initiatives to contribute
to sustainability – including social and
environmental issues – while working for
profitable growth, as it has advocated.
We look forward to Kao’s continued use of
“Innovation” to resolve these issues.

* As of April 2016, there are four Inside Directors and all

Outside Directors are independent.

Kao Corporation Annual Report 2015 19

Board of Directors and Audit & Supervisory Board Members

(As of April 1, 2016)

Board of Directors

Michitaka Sawada1
Representative Director

Toshiaki Takeuchi1
Representative Director

Joined the Company

Apr. 1981
Mar. 1999 Manager, Materials Development Research Laboratories
Jul. 2003 Vice President, Sanitary Products Research Laboratories
Jun. 2006 Executive Ofﬁ cer, Vice President, Global Research & Development
Apr. 2007 Vice President, Global Research & Development, Human Health Care
Jun. 2008 Member of the Board, Executive Ofﬁ cer
Jun. 2012 Representative Director, President and Chief Executive Ofﬁ cer (current)
Jan. 2014 Responsible for Product Quality Management
Jan. 2016 Responsible for Corporate Strategy (current)

Apr. 1981 Joined the Company
Mar. 2009
Mar. 2010
May 2011

Vice President, Corporate Planning, Kao Customer Marketing Co., Ltd.
Member of the Board, Executive Ofﬁ cer, Kao Customer Marketing Co., Ltd.
Member of the Board, Senior Managing Executive Ofﬁ cer, Kao Customer
Marketing Co., Ltd.
Representative Director, Senior Managing Executive Ofﬁ cer, Kao
Customer Marketing Co., Ltd.

May 2012

Jun. 2012 Executive Ofﬁ cer
Apr. 2013

Mar. 2014

Jan. 2016

Representative Director, Executive Vice President, Kao Customer
Marketing Co., Ltd.
Member of the Board, Representative Director, Managing Executive
Ofﬁ cer, President, Kao Customer Marketing Co., Ltd. (current)
Representative Director, Senior Managing Executive Ofﬁ cer;
Representative Director, President, Kao Group Customer Marketing
Co., Ltd. (current)

Katsuhiko Yoshida1
Representative Director

Yoshihiro Hasebe1
Director

Apr. 1979
Apr. 2007
Jun. 2007
Apr. 2010
Jun. 2012
Mar. 2014

Joined the Company
President, Human Health Care Business Unit
Executive Ofﬁ cer
President, Fabric and Home Care Business Unit
Managing Executive Ofﬁ cer (current)
Member of the Board, Representative Director, President, Consumer
Products; Responsible for Kao Professional Services Co., Ltd. (current)
Mar. 2015 Representative Director, Senior Managing Executive Ofﬁ cer (current)

Apr. 1990 Joined the Company
Mar. 2008 Director, Research and Development – Fabric and Home Care Research

– Household Products Research

Mar. 2011 Vice President, Research and Development – Beauty Research

– Hair Beauty Research

Jan. 2014 Vice President, Research and Development – Core Technology;

Vice President, Research and Development – Eco-Innovation Research

Mar. 2014 Executive Ofﬁ cer, Vice President, Research and Development
Mar. 2015 Senior Vice President, Research and Development (current)
Jan. 2016 Managing Executive Ofﬁ cer (current)
Mar. 2016 Member of the Board (current)

20 Kao Corporation Annual Report 2015

Sonosuke Kadonaga2
Independent 3
President, Intrinsics,
Dean, Department of Management,
Kenichi Ohmae Graduate School of Business,
Business Breakthrough University

Apr. 1976
Jun. 1981

Joined Chiyoda Corporation
Master of Science in Chemical Engineering, Massachusetts Institute of
Technology, School of Engineering, U.S.A.
Joined McKinsey & Company, Inc., Japan
President, Intrinsics (current)
Member of the Board, Kao Corporation (current)

Aug. 1986
Jul. 2009
Jun. 2012
Mar. 2014 Chairman of the Board of Directors (current)

Masayuki Oku2
Independent 3
Chairman of the Board, Sumitomo Mitsui Financial Group, Inc.

Apr. 1968 Joined Sumitomo Bank
May 1975
Jan. 1991
Jun. 1994
Nov. 1998
Jun. 1999
Jan. 2001

LL.M., University of Michigan Law School, U.S.A.
Branch Manager, Chicago Branch, Sumitomo Bank
Director, Sumitomo Bank
Managing Director, Sumitomo Bank
Managing Director and Managing Executive Ofﬁ cer, Sumitomo Bank
Senior Managing Director and Senior Managing Executive Ofﬁ cer,
Sumitomo Bank
Senior Managing Director and Senior Managing Executive Ofﬁ cer,
Sumitomo Mitsui Banking Corporation
Senior Managing Director, Sumitomo Mitsui Financial Group, Inc.
Deputy President and Executive Ofﬁ cer,
Sumitomo Mitsui Banking Corporation
Chairman of the Board, Sumitomo Mitsui Financial Group, Inc. (current),
and President and Chief Executive Ofﬁ cer, Sumitomo Mitsui Banking
Corporation
Member of the Board, Kao Corporation (current)

Apr. 2001

Dec. 2002
Jun. 2003

Jun. 2005

Mar. 2014

Toru Nagashima2
Independent 3
Senior Advisor, Teijin Limited

Apr. 1965
Jul. 1974
Oct. 1975
Jun. 2000

Apr. 2001

Jun. 2001

Nov. 2001
Jun. 2002
Jun. 2008
Mar. 2013
Apr. 2013
Jun. 2013

Joined Teijin Limited
Courses taken in the MBA Program, University of Utah, U.S.A.
Seconded to Polynova S.A., Mexico
Member of the Board, and CESHO (Chief Environment, Safety & Health
Ofﬁ cer), Teijin Limited
Member of the Board, CMO (Chief Marketing Ofﬁ cer) and General
Manager of Corporate Strategy & Planning Ofﬁ ce, Teijin Limited
Managing Director, CMO (Chief Marketing Ofﬁ cer) and General Manager
of Corporate Strategy & Planning Ofﬁ ce, Teijin Limited
President & Representative Director, COO, Teijin Limited
President & Representative Director, CEO, Teijin Limited
Chairman of the Board, Teijin Limited
Member of the Board, Kao Corporation (current)
Senior Advisor, Member of the Board, Teijin Limited
Senior Advisor, Teijin Limited (current)

Notes: 1. Holds the post of Executive Ofﬁ cer concurrently

2. Outside Director
3. Reported to Tokyo Stock Exchange, Inc. as Independent Director
as set forth in the Regulations of Tokyo Stock Exchange, Inc.

Kao Corporation Annual Report 2015 21

Audit & Supervisory Board Members

Shoji Kobayashi
Full-time Audit & Supervisory Board Member

Apr. 1979
Jun. 2006
Apr. 2007
Jun. 2010
Mar. 2013

Joined the Company
Executive Ofﬁ cer
Vice President, Chemical Business Unit
President, Chemical Business Unit
Full-time Audit & Supervisory Board Member (current)

Toshiharu Numata
Full-time Audit & Supervisory Board Member

Apr. 1989 Joined the Company
Jun. 2005
Jun. 2006

Executive Ofﬁ cer
Member of the Board, Executive Ofﬁ cer; and Senior Vice President,
Research and Development
Member of the Board, Executive Vice President; Senior Vice President,
Research and Development; and Responsible for Chemical Business,
Product Quality Management; and TCR Promotion
Member of the Board, Managing Executive Ofﬁ cer; Senior Vice
President, Research and Development; and Responsible for Chemical
Business Unit, Product Quality Management; TCR Promotion; and China
Business
Senior Managing Executive Ofﬁ cer; President, Consumer Products and
Chemical Business, China; Chairman of the Board and Chief Executive
Ofﬁ cer, Kao (China) Holding Co., Ltd.; Chairman of the Board, Kao
Commercial (Shanghai) Co., Ltd.; and Chairman of the Board, Kanebo
Cosmetics (China) Co., Ltd.
Full-time Audit & Supervisory Board Member (current)

Jun. 2008

May 2012

Jun. 2012

Mar. 2015

22 Kao Corporation Annual Report 2015

Norio Igarashi1
Independent 2
Audit & Supervisory Board Member,
Certiﬁ ed Public Accountant,
Professor, Yokohama National University

Apr. 1977 Registered as Certiﬁ ed Public Accountant
Jul. 1988
Apr. 2007

Partner, Aoyama Audit Corporation and Price Waterhouse
Professor, Graduate School of International Social Sciences, Yokohama
National University (current)
Audit & Supervisory Board Member, Kao Corporation (current)

Mar. 2013

Yumiko Waseda1
Independent 2
Audit & Supervisory Board Member,
Attorney-at-Law

Apr. 1985

Apr. 2013
Jan. 2014
Mar. 2014

Registered as an attorney-at-law; Joined Masayuki Matsuda Law &
Patent Ofﬁ ces (now Mori Hamada & Matsumoto, a law ﬁ rm)
Joined Tokyo Roppongi Law & Patent Ofﬁ ces
Partner, Tokyo Roppongi Law & Patent Ofﬁ ces (current)
Audit & Supervisory Board Member, Kao Corporation (current)

Board of Directors and Audit & Supervisory Board Members

Toraki Inoue1
Independent 2
Audit & Supervisory Board Member,
Certiﬁ ed Public Accountant,
Representative Director, President, Accounting Advisory Co., Ltd.

Oct. 1980 Entered Arthur Andersen
Dec. 1985 Registered as Certiﬁ ed Public Accountant
Jun. 1987 Resided in New York Ofﬁ ce of Arthur Andersen
Oct. 1995 National Partner of Arthur Andersen
Oct. 1997 Worldwide Partner of Arthur Andersen
Jul. 1999 Representative Partner, Asahi & Co.
Jul. 2008 Toraki Inoue Certiﬁ ed Public Accountant Ofﬁ ce (current)
Jun. 2010 Representative Director, President, Accounting Advisory Co., Ltd. (current)
Mar. 2016 Audit & Supervisory Board Member, Kao Corporation (current)

Notes: 1. Outside Audit & Supervisory Board Member

2. Reported to Tokyo Stock Exchange, Inc. as Independent Audit &
Supervisory Board Member as set forth in the Regulations of
Tokyo Stock Exchange, Inc.

Kao Corporation Annual Report 2015 23

Executive Officers and Executive Fellows

(As of April 1, 2016)

Executive Fellows

Yoshinori Takema
Corporate Executive Fellow

Takuji Yasukawa
Corporate Executive Fellow

Minoru Utsumi
Corporate Executive Fellow

Yuji Furui
Corporate Executive Fellow
Doctor of Medical Science

Chiaki Mukai
Corporate Executive Fellow
Astronaut; Doctor of Medical Science

Executive Officers

Michitaka Sawada
President and Chief Executive Ofﬁ cer

Responsible for Corporate Strategy

Katsuhiko Yoshida
Senior Managing Executive Ofﬁ cer

President, Consumer Products
Responsible for Kao Professional Services Co., Ltd.

Toshiaki Takeuchi
Senior Managing Executive Ofﬁ cer

Representative Director, President, Kao Group Customer
Marketing Co., Ltd.
Representative Director, President, Kao Customer
Marketing Co., Ltd.

Masumi Natsusaka
Managing Executive Ofﬁ cer

Responsible for Beauty Care Business
President, Beauty Care – Cosmetics Business Unit
Representative Director, President, Kanebo Cosmetics Inc.

Motohiro Morimura
Managing Executive Ofﬁ cer
Senior Vice President, Supply Chain 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.
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

Kozo Saito
Managing Executive Ofﬁ cer
President, Consumer Products – International Business
Management
Chairman of the Board, Kao USA Inc.

Yoshihiro Hasebe
Managing Executive Ofﬁ cer
Senior Vice President, Research and Development

Yoshimichi Saita
Senior Vice President, Media Planning and Management
Vice President, Media Planning and Management – Product
Public Relations

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, Inc.
Presidente, Kao Chemicals Europe, S.L.

Hideki Tanaka
Senior Vice President, Procurement

Takehiko Shinto
Representative Director, Executive Vice President,
Kao Group Customer Marketing Co., Ltd.
Representative Director, President, Kanebo Cosmetics
Sales Inc.

Jun Shida
Vice President, Research and Development – Development
Research – Health Care and Household

Yasushi Wada
Vice President, Supply Chain Management – Demand and
Supply Planning Center

Tomoharu Matsuda
President, Beauty Care – Skin Care and Hair Care
Business Unit

Masayuki Abe
Senior Vice President, Enterprise Information Solutions

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

Kenji Miyawaki
Senior Vice President, Marketing Research and Development

Satoru Tanaka
President, Human Health Care Business Unit

Kazuyoshi Aoki
Senior Vice President, Accounting and Finance

Shigeru Ueyama
Senior Vice President, Corporate Strategy

24 Kao Corporation Annual Report 2015

Risk and Crisis Management

Basic Policy and Organization

In addition, Kao specifies major Company-wide risks as

Kao regards the potential negative impact on its

“corporate risks” and appoints a person to appropriately

management targets and business activities as a “risk”

manage each risk.

and the manifestation of such risk as a “crisis,” and has

When a crisis occurs, Kao responds promptly to

established an organization for appropriate risk and crisis

minimize injury and damage by establishing an

management.

organization for countermeasures centered on this

Based on the Risk and Crisis Management Policy, the

person in charge of corporate risks, and on departments

Risk and Crisis Management Committee, chaired by the

concerned with risk or subsidiaries and affiliates for

member of the Board of Directors or Executive Officer in

other risks. In addition, depending on the magnitude

charge of risk and crisis management, ascertains the

of the impact on the Kao Group as a whole, Kao also

progress of cross-divisional Company-wide risk

establishes a countermeasures headquarters with the

management and establishes a system and operating

President and Chief Executive Officer or other person

plans for risk and crisis management activities.

as its general manager.

Based on this policy and plan, departments concerned

Management of the abovementioned risks and crises is

with risk or subsidiaries and affiliates appropriately manage

reported to and discussed at the Meeting of the Board of

risk by ascertaining and assessing risks, formulating and

Directors or the Management Committee on a regular

implementing necessary countermeasures.

basis as well as in a timely fashion whenever necessary.

Risk and Crisis Management Organization

Board of Directors

Management Committee

Sustainability Committee

Internal Control Committee

Risk and Crisis Management Committee

• Disclosure Committee
• Compliance Committee
• Information Security
Committee
• Risk and Crisis Management
Committee
• Committee for Responsible
Care (RC) Promotion
• Quality Assurance Committee

Chair

Members

Executive Ofﬁcer in charge of risk
and crisis management
Legal and Compliance
Product Quality Management
Human Capital Development
Accounting and Finance
Kao Group Customer Marketing
Kao’s Business Units
Kanebo Cosmetics Inc., etc.
Person in charge of corporate risk

Secretariat Risk and Crisis Management,

Corporate Strategy, Public Relations,
Corporate Communication, etc.

Divisions

Kao Corporation Annual Report 2015 25

Risk and Crisis Management

2. Identifying Risks That Could Seriously Affect
Achievement of Management Targets and
Business Activities, and Strengthening
Countermeasures

For operational risks, Kao conducts risk surveys at key
divisions and subsidiaries 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.

Risk surveys at Kao Group companies outside Japan in
2015 ascertained the establishment of organizations to deal
with emergency situations, the creation of action plans and
the implementation status of education and training in order to
confirm that such companies are going through the PDCA
cycle in dealing with emergency situations that affect lives and
business continuity. As a result, we were able to understand
the differences in the response levels of Kao Group companies
outside Japan with regard to their establishment of
organizations to deal with social disorder caused by factors
such as terrorist attacks, which have occurred in many
countries in recent years, and pandemics of new types of
influenza or other diseases.

In 2016, we will work to enhance the level of response of
the entire Kao Group to emergency situations related to social
disorder or pandemics by revising global guidelines and
strengthening response organizations at Kao Group companies
outside Japan.

3. Strengthening the Business Continuity Plan (BCP)*

We have been working to strengthen our supply chain to
ensure delivery of products to customers by revising our
raw materials procurement, production and logistics
systems assuming a large-scale earthquake that may strike
in the future.

In 2015, we considered alternate locations for continuing
the functions of headquarters, assuming a situation in which
we were unable to secure key personnel or use main
locations due to an earthquake with an epicenter in the
Tokyo metropolitan area. In addition, we identified issues
such as a response organization and standards for business
continuity assuming a pandemic of a new type of influenza
or other disease, and made revisions.

In 2016, we will deal with these issues in greater depth

to strengthen the BCP.

* A plan for continuing key corporate activities through procedures to

decide in advance which operations and functions should be
continued, and which methods should be applied to continue activities,
assuming various situations that cause the interruption and/or
shutdown of business activities due to various events and the factors
in their occurrence

Priority Themes
1. Building a New Risk and Crisis Management

Organization

The globalization of our business increases the uncertainty
and complexity of the management environment, as well as
the scale and speed of the impact on business activities
when a risk becomes manifest. In light of this situation, Kao
worked as follows in 2015 to build a new risk and crisis
management organization.

(1) Expanding the Scope for Strengthening Risk

Management
The scope for strengthening risk management was
expanded to include not only the former operational risks
such as accidents and disasters, product problems and
issues with compliance, but also strategy risks that would
hinder the achievement of short-term and mid-term plans
as well as risks involving trust in the Company, which are
closely related to these risks.

(2) Clarifying Major Risks to Be Handled by Management

and Building an Organization for Response
Kao has specified major Company-wide risks as “corporate
risks,” appointed an Executive Officer in charge of
managing such risks, and built a new organization to
promote risk management.
Corporate risks include not only risks that have an
impact on business continuity, such as an earthquake with
an epicenter in the Tokyo metropolitan area, for which Kao
has been enhancing countermeasures, but also other risks
such as those related to management strategy.

(3) Strengthening the Organization and Initial Response

When a Crisis Occurs
Previously, dealing with risks has mainly been consideration
of risk reduction activities to prevent the manifestation
of risks and activities to minimize their impact. For major
risks, in addition to these risk reduction activities, we
have decided to strengthen the organization and our initial
response when a crisis occurs, assuming the manifestation
of such risks.

In 2016, we will further strengthen our risk reduction

activities and implement speedy and appropriate
responses under our new risk and crisis management
organization when a crisis occurs.

26 Kao Corporation Annual Report 2015

Compliance

Basic Policy

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 Senior 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.

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, through
activities to collect employee opinions and a Compliance
Roundtable, and to obtain verification from a consulting
firm outside the Company from 2015 onward in order to
establish action plans for subsequent years.

Compliance Awareness Month

In its activities to listen to employee opinions, Kao has
received a lot of calls from employees to make compliance
activities more relevant to their daily work. In response,
Kao has set October as Compliance Awareness Month
for all Kao Group companies in Japan, to coincide with
the Corporate Ethics Awareness Month designated by
Keidanren (The Japan Business Federation). Activities
conducted have included posting a message from the
Compliance Committee Chairman on the intranet and
posters, disseminating compliance messages to each
department from Executive Officers, an event to choose a

PDCA Cycle for Compliance Activities
The Kao Group’s Compliance Activities (Evaluation processes 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

• 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
m
measures planned in line with third-party evaluation

Proactive
improvement

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 Internal Audit, etc.)

• Ask employee opinions

• Third-party evaluation

Kao Corporation Annual Report 2015 27

Compliance

selected at the end of 2014, bringing the cumulative
participation rate to 85% (9,360 of 11,000 employees).
Integrity Workshops will continue to be conducted in
2016, mainly in areas where they have not yet been held.

Establishing and Operating
Compliance Hotlines

In accordance with the needs of each country or region,
the Kao Group either sets up both internal and external
hotlines or operates only an external hotline. After
properly confirming the caller’s needs, the company will
investigate the matter while taking steps to protect the
caller’s privacy to the fullest extent possible. The company
will obtain consent from the caller when third-party
confirmation is necessary. The company will also ensure
that the caller suffers no disadvantage as a result of a
report or consultation made in good faith. In 2015, there
were 196 calls to the hotlines in the Kao Group, including
companies outside Japan, none of which concerned
serious matters. About 70% of the calls were consultations
about workplace communication.

Selected as One of the World’s Most Ethical
Companies for Ten Consecutive Years

Kao has been selected as one of the 2016 World’s Most
Ethical Companies, as announced by the U.S. think tank
Ethisphere Institute in March 2016. The company has been
on this list since the inception of the list in 2007. Among
both Japanese companies and global manufacturers of
daily consumer goods and chemicals, Kao is the only
company to be chosen for ten consecutive years. This
year, 131 companies worldwide were selected. This
recognition reflects that the spirit of integrity passed
down from Kao’s founding continues to be implemented
by all Kao Group members through practice of the Kao
Way and the BCG.

World’s Most Ethical Companies presentation

compliance logo through intranet voting, sharing case
studies, and a test to review the BCG. Employees
expressed opinions that the vote on the logo enhanced a
feeling of unity among the Group companies, and that the
month offered a novel opportunity to reflect on
compliance once each year. In 2016, Compliance
Awareness Month will be held throughout the entire Kao
Group, including Group companies outside Japan.

Implementing Guidelines for Compliance

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 party, regardless of affiliation.
Furthermore, the BCG prohibits “facilitation payments,”
which are small payments to government officials.

In addition, the Kao Group has introduced the Kao Anti-

Bribery Guidelines, which include detailed anti-bribery
rules applicable Group-wide as well as operating
procedures for entertainment, giving and receiving gifts,
and other matters geared to the business, country or
region. The Kao Group has also introduced the Kao
Guidelines for Avoiding Conflicts of Interest, which set
forth requirements for approval and notification to deal
with specific circumstances where a conflict of interest
may arise such as competitive activities, transactions,
monetary loans and personal investments by executives
and employees.

In 2015, the Kao Business Conduct Guidelines

Casebook, a collection of case studies in a question-and-
answer format that was previously issued in Japanese
and English, was made available in local versions in 17
languages and distributed to employees in each country
or region. Moreover, the BCG was revised in April 2016
with updated content to incorporate the Kao Group’s
measures since 2013 and its approach to its operating
environment.

Accelerating the Spread of
Integrity Workshops

To deepen understanding of the BCG and other
compliance-related rules, group training is conducted for
new employees, newly appointed managers, executives
in Japan and employees of Group companies outside
Japan. A BCG refresher test is also conducted every year
so that employees review its content (participation rate:
95.2% (33,508 of 35,175 employees)). Moreover,
Integrity Workshops for BCG training have been held
since 2008. In 2015, workshops were held at Group
companies in Europe, mainly conducted by 16 instructors

28 Kao Corporation Annual Report 2015

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
Statement to share with stakeholders inside and outside
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.

Kao Sustainability Statement

Three
Key Areas

Conservation

Community

Culture

Day-to-day Work / Basic Activities

Topics

Respect for Human Rights:
Adoption of Kao Human Rights Policy

In 2005, Kao joined the United Nations Global Compact,
which deﬁ nes 10 principles in the four areas of human
rights, labor, the environment and anti-corruption. In
addition, Kao has implemented initiatives for respecting
human rights, making its stance clear in the Kao
Business Conduct Guidelines, the Guidelines for
Supplier’s Assessment and other internal rules. In light
of growing interest from the international community,
Kao adopted the Kao Human Rights Policy in June 2015
based on the United Nations Guiding Principles on
Business and Human Rights. In this policy, Kao sets
forth its respect for international principles on human

rights, its efforts for human rights due diligence,

employee education and other matters. Since adopting

the policy, we have been working to disseminate it
among employees through measures such as an

explanatory meeting and an introduction in the

company newsletter. To prepare for human rights due

diligence, we have been considering methods for

human rights risk assessment in Kao Group companies

and establishing the structure for promotion. In

addition, Kao has begun requesting its suppliers to

data on corporations, in addition to the current supplier

self-assessments conducted by Kao itself.

SRI Indexes and External CSR Evaluations (As of March 25, 2016)

SRI indexes for which Kao has been selected

CSR-related evaluations from external organizations

Kao Corporation also received Gold
Class 2016 and Industry Mover 2016

Kao Corporation named
for ten consecutive years

SRI: Socially Responsible Investment
CSR: Corporate Social Responsibility

Kao Corporation Annual Report 2015 29

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 has been
focusing on manufacturing that reduces environmental
impact and on ecology-centered management as it
continues meeting its responsibilities as a user of
chemicals. We recognize CO2, water, chemical substances
and biodiversity as four priority areas for taking action.
In addition, we conduct “eco together” activities to

promote cooperation with our diverse stakeholders,
including consumers, business partners and society,
throughout the product lifecycle, from raw material
procurement to production, distribution, 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
are focused on the theme of “aiming to save 10,000 liters
annually per household.”

Initiatives in 2015
1. Reducing Water Consumption during Product Use
For household laundering, which consumes a large amount
of water, Kao launched the concentrated liquid laundry

Water Use during Product Use*

(Millions m3)
3,000

2,500

2,000

1,500

1,000

500

-21

-20

-21

-22

-24

1,828 1,860 1,871 1,937 1,912

1,763

2005

2011

2012

2013

2014

2015

Water use during product use (Left)
Per unit (of sales) reduction rate (The value for 2005 equals 0) (Right)

(%)

-20

-40

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
powerfully removes dirt and odors with just five minutes of
washing time. We have also introduced water-saving laundry
detergents in China, Australia, Singapore, Hong Kong,
Thailand and Indonesia.
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.
Water consumption in the bath is even higher. We
launched improved versions of Merit Shampoo, which cuts
rinse water by approximately 20 percent compared with the
original version, in 2010 and Bath Magiclean bathroom
cleaner, which offers improved cleaning power and easier
rinsing, in August 2015.

2. Activities to Conserve Biodiversity
Kao works to conserve biodiversity in line with the Kao
Basic Policy on Biodiversity Conservation, which was
announced in 2011. Each Kao plant conducts its business
activities in consideration of regional ecosystems. In June
2015, Pilipinas Kao, Inc. received the PEZA (Philippine
Economic Zone Authority) Environmental Performance
Award from the government of the Philippines in
recognition of mangrove planting, beach cleanup and other
activities it has been conducting since 2010. In October
2015, Kao Corporation’s Kashima Plant received an award
from the Minister of the Environment of Japan in a contest
for corporate activities to promote a vibrant ecosystem, in
recognition of its activities to create a forest for employees
on its grounds.

* Water use during product use is defined as the amount of water during
the product use stage mainly of individual consumer products in Japan,
multiplied by their annual sales quantity. Some data entries through 2005
have been retroactively modified.

Pilipinas Kao environmental
protection team

Receiving an award from
President Aquino

30 Kao Corporation Annual Report 2015

Sustainability

Supply Chain

Basic Policy

Kao is further enhancing its competitiveness in global
markets with the aim of becoming a company with a
global presence. We conduct procurement of raw
materials that is not only fair and impartial, based on legal
compliance and the highest ethics, but that also contributes
to corporate growth, with attention to product quality
and stable procurement. With the aim of contributing to
the sustainability of the world, which we have adopted as
part of the mission of the Kao Way, we give full consideration
to preservation of natural resources, conservation, safety
and human rights as we strive 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 such as forced labor, 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 and
conservation of water resources by participating in the CDP 1
Supply Chain Project 2 and requiring major suppliers to
disclose and reduce greenhouse gas emissions and use
water resources appropriately. We also conduct activities to
conserve forest resources.

In addition, in cooperation with our suppliers, we are
streamlining distribution and reducing the environmental
impact of procured products. In particular, based on its
awareness of the dependence of its businesses on natural
capital, Kao is committed to zero deforestation at the source
in its procurement of raw materials including 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. Moreover, in consideration of human rights and
ethical issues that have emerged due to globalization, Kao

Traceability of Paper and Pulp

Amount purchased (tons)

Traceability rate

2013*

100

2014

127

2015

147

78%

96%

* The value for amount purchased in 2013 equals 100.

will promote measures such as confirmation of supply chain
risks using Sedex.3
Specific activities are as follows.

1. Procurement of Sustainable Raw Materials
Under its procurement guidelines, Kao has declared a 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 of
the end of 2015, Kao has confirmed traceability to the mill,
and efforts for confirmation to the plantation are continuing.
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, and has achieved a progress rate of 96%
toward that goal as of the end of 2015. 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 ABS 4 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

3. Initiatives to Reduce Dependence on Petrochemical

Resources in Packaging

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 (Carbon Disclosure Project) refers to cooperation between

institutional investors and major corporations in natural capital
initiatives and promotion of disclosure of greenhouse gas emissions,
and water and forest conservation activities.

2. The CDP Supply Chain Project refers to cooperation between the

CDP and corporations, with corporations requesting their suppliers to
disclose information regarding natural capital initiatives; this project
affects the entire supply chain.

3. Sedex (Supplier Ethical Data Exchange) is a large-scale, global

platform for the sharing of information relating to labor standards,
health and safety, environmental protection and business practices,
aimed at promoting the adoption and maintenance of ethical
business practices in global supply chains.

4. ABS (Access and Benefit Sharing) refers to 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 2015 31

Sustainability

Human Capital Development

Basic Policy

The efforts of each and every employee to pursue individual
achievements by exercising his or her own abilities and
characteristics to the utmost can contribute to the success
of the employer. Based on this concept, Kao has established
Guidelines for Human Capital Development with the aim of
creating such an environment and corporate culture. We
provide various opportunities and support for employees to
develop their skills and capabilities in accordance with their
own level of motivation, individual characteristics and
organizational goals.

Promoting Diversity and Inclusion

We fairly evaluate the performance of each employee to
find, develop and promote human capital with motivation
and capabilities. In addition, we work for detailed
communication with workplaces by exploring issues
through employee opinion surveys and Genba Roundtable
sessions in which President Sawada has the opportunity
to communicate his vision directly to employees, and for
employees to freely share ideas and exchange opinions.
We also promote the development of an organizational
culture and working environment in which both individuals
and the company achieve growth.

Cultivating Employees Who Can Act Globally
Employees’ personal growth is vital to the growth of the
company as a whole. Kao implements a wide range of
different training programs, providing Kao employees all
over the world with learning opportunities. Training is

designed to meet a wide range of different needs, and
incorporates common elements based on a global
perspective as well as elements tailored to meet the
specific needs of particular regions, companies or
positions.
The Global Leadership Development Program (GLDP)
is a global program in which members selected from
companies in the Kao Group study Kao’s business
challenges from a broader perspective, engage in vigorous
discussions and make proposals to executive management.
Networking among participants and overseas sessions
also provide opportunities to learn about diverse cultures.
At the same time, in-house trainers are cultivated at
individual Kao business locations around the world,
working with speed and attention to detail to ensure that
all Kao employees absorb the Kao Way and Kao’s emphasis
on integrity.

Active Participation by Women

Evaluating and promoting employees based on their
motivation and capabilities leads to expanded roles for
female employees. At Kao Corporation, the Kao Group’s
headquarters, three female officers have been appointed
to the positions of Managing Executive Officer,
Executive Officer and Audit & Supervisory Board
Member. As of December 31, 2015, the percentage of
female managers in the Kao Group is 27.5% worldwide
and 10.4% in Japan.

Composition of Kao Group Employees and Managers
(As of December 31, 2015)

Change in Percentage of Female Managers

Employees

Japan

22,105

Asia
(excluding
Japan)

7,091

Americas and
Europe

3,830

Total

33,026

Female
employees

(%)

12,124
(54.8%)

3,412
(48.1%)

1,804
(47.1%)

17,340
(52.5%)

Managers

2,557

1,032

1,142

4,731

Female
managers

(%)

267
(10.4%)

492
(47.7%)

542
(47.5%)

1,301
(27.5%)

(%)
50

32 Kao Corporation Annual Report 2015

23.2

23.6

27.7

27.6

27.5

2011

2012

2013

2014

2015

Financial Section

11-Year Summary

Management Discussion and Analysis

Consolidated Financial Statements

Notes to Consolidated Financial
Statements

Independent Auditor’s Report

Kao Corporation Annual Report 2015 33

11-Year Summary

Kao Corporation and Consolidated Subsidiaries

Years ended December 31, 2015 to 2012, period ended
December 31, 2012, and years ended March 31, 2012 to 2006.

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 .............................................................................

Millions of yen

Dec.
2015

Dec.
2014

Dec.
2013

Dec. 2012
(Restated)

¥1,471,791

¥1,401,707

¥1,315,217

¥1,220,359

607,692
280,723
334,416
1,222,831
288,456
(39,496)

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)

—
—
—
—

1,019,016
281,533
—
137,827
—
154,350
(120,935)

164,380
98,862

83,414
73,623
135,394
51,987
3.5%
94,496
6.4%

—
—
—
—

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%

1,281,869
675,608

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...........................................................

33,026

32,707

33,054

Per share:
Net income ...........................................................................
Cash dividends ......................................................................
Net worth .............................................................................

Weighted average number of shares

Yen

¥ 197.19
80.00
1,347.29

¥ 156.46
70.00
1,313.63

¥ 126.03
64.00
1,227.54

¥101.77
—
—

outstanding during the period (in thousands) ........................

501,352

508,687

513,880

—

Key financial ratios:
Return on sales .....................................................................
Return on equity ...................................................................
Net worth ratio ......................................................................

6.7%

14.8
52.7

5.7%

12.4
54.9

4.9%

10.7
55.5

4.4%
9.5
—

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.

34 Kao Corporation Annual Report 2015

Dec.
2012

Mar.
2012

Mar.
2011

Mar.
2010

Mar.
2009

Mar.
2008

Mar.
2007

Mar.
2006

Millions of yen

¥1,012,595

¥1,216,096

¥1,186,831

¥1,184,385

¥1,276,316

¥1,318,514

¥1,231,808

¥ 971,230

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)

—
—
—
—

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%

—
—
—
—
—
—

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%

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

—
—
—
—

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

¥ 101.12
62.00
1,116.61

¥ 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

521,824

521,936

532,980

536,009

536,085

543,228

544,996

544,127

5.2%
9.4
56.6

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. 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 2015 35

Management Discussion and Analysis

Overview of Consolidated Results

Japan, a key market for the Kao Group, grew by 3 percent on

a value basis and consumer purchase prices rose compared

The Kao Group has been working to carry out Kao Group Mid-

with the previous fiscal year. Excluding inbound demand

term Plan 2015 (K15), which started in fiscal 2013, with the

(demand from visitors to Japan), the cosmetics market in

aim of becoming a company with a global presence as it

Japan contracted by 2 percent on a value basis due to a tough

works for both sustained “profitable growth” by increasing

year-on-year comparison associated with the impact of an

the added value of its products and “contributions to the

increase in the consumption tax rate on April 1, 2014.

sustainability of the world” by making proposals to resolve

Under these circumstances, the Kao Group has been

social issues and conducting social contribution activities

working to launch and nurture products with high added value

through its business activities. As a result, the Kao Group has

in response to changes in consumer needs based on its

been able to achieve all of the targets of K15 as of fiscal 2015,

concept of Yoki-Monozukuri (see note on page 12), which

which was the final year of the plan.

emphasizes research and development geared to customers

and consumers. The Kao Group has also been conducting cost

(For Reference)

reduction activities and other measures.

Kao Group Mid-term Plan 2015 (K15)

Net sales increased 5.0 percent compared with the

Target 1: Break previous records for consolidated net

previous fiscal year to ¥1,471.8 billion (US$12,217.1 million).

sales and profits

Target 2: Achieve numerical management targets for

fiscal 2015

Consolidated net sales

¥1,400.0 billion

Consolidated operating income

¥150.0 billion

Overseas sales ratio*

30 percent or more

Operating income was ¥164.4 billion (US$1,364.5 million),

an increase of ¥31.1 billion compared with the previous fiscal

year. Net income increased ¥19.3 billion compared with the

previous fiscal year to ¥98.9 billion (US$820.6 million).

* Ratio of net sales to foreign customers to consolidated net sales

Analysis of Income Statement

During the fiscal year ended December 31, 2015, the global

Net sales increased 5.0 percent compared with the previous

economy recovered moderately, although weakness was

fiscal year to ¥1,471.8 billion (US$12,217.1 million). Excluding

apparent in emerging nations in Asia and elsewhere. The

the effect of currency translation, net sales would have

Japanese economy also continued on a moderate recovery

increased 2.8 percent. In the Consumer Products Business in

track. The household and personal care products market in

Japan, market share grew and sales increased due to factors

(Year ended March 31, 2012, period ended December 31, 2012 and years ended December 31, 2012 to 2015)

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

1,216.1

1,220.4

1,000

1,012.6

56.8

56.3

1,471.8

1,401.7

1,315.2

56.5

54.9

55.3

500

Mar.
2012

Dec.
2012

Dec.
2012
(Restated)

Dec.
2013

Dec.
2014

Dec.
2015

(%)
100

(Billions of yen)
180

120

108.6

8.9

111.8

9.2

101.6

10.0

164.4

11.2

133.3

124.7

9.5

Mar.
2012

Dec.
2012

Dec.
2012
(Restated)

Dec.
2013

Dec.
2014

Dec.
2015

(%)
20

Note: The gross proﬁt ratio has not been disclosed for the year ended

December 31, 2012.

36 Kao Corporation Annual Report 2015

Costs, Expenses and Income as Percentages of Net Sales

Years ended December 31, 2015, 2014 and 2013

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

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

Selling, general and administrative expenses ................................

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

Income before income taxes and minority interests .....................

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

Dec.
2015

44.7%

55.3

44.1

11.2

11.0

6.7

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

including market growth, new product launches and further

Information by Segment

enhancement of sales promotion activities. Outside Japan,

sales in Asia grew substantially. In the Chemical Business,

Consumer Products Business

sales decreased excluding the effect of currency translation

Sales increased 5.9 percent compared with the previous fiscal

due to selling price adjustments associated with fluctuations

year to ¥1,222.8 billion (US$10,150.5 million). Excluding the effect

in raw material prices and the impact of a decline in demand

of currency translation, sales would have increased 3.8 percent.

in some customer industries.

In Japan, sales increased 2.6 percent compared with the

Profits increased due to the effect of increased sales,

previous fiscal year to ¥923.0 billion (US$7,661.6 million).

mainly in the Human Health Care Business in Japan and the

Excluding the effect of the revision of the sales system for

Consumer Products Business in Asia, and lower prices of raw

Kao Sofina, sales would have increased 3.4 percent. The Kao

materials, mainly natural fats and oils and petrochemicals,

Group made efforts that included responding to changing

among other factors. Operating income was ¥164.4 billion

consumer lifestyles and social issues such as the environment,

(US$1,364.5 million), an increase of ¥31.1 billion compared

health, the aging society and hygiene, launching numerous

with the previous fiscal year. Net income increased ¥19.3

high-value-added products and enhancing proposal-oriented

billion compared with the previous fiscal year to ¥98.9 billion

sales activities. Sales grew, mainly of sanitary products,

(US$820.6 million).

although sales of cosmetics decreased compared with the

Net income per share was ¥197.19 (US$1.64), an increase of

previous fiscal year.

¥40.73, or 26.0 percent, from ¥156.46 in the previous fiscal year.

In Asia, sales increased 27.7 percent to ¥179.5 billion

(US$1,489.6 million). Excluding the effect of currency

(Year ended March 31, 2012, period ended December 31, 2012 and years ended December 31, 2012 to 2015)

Net Income / Return on Sales

Net Income (Left)
Return on Sales (Right)

Net Income per Share

(Billions of yen)
100

98.9

79.6

64.8

52.4

52.8

53.1

4.3

5.2

4.4

4.9

6.7

5.7

Mar.
2012

Dec.
2012

Dec.
2012
(Restated)

Dec.
2013

Dec.
2014

Dec.
2015

(%)
15

(Yen)
200

150

100

197.19

156.46

126.03

100.46

101.12

101.77

Mar.
2012

Dec.
2012

Dec.
2012
(Restated)

Dec.
2013

Dec.
2014

Dec.
2015

Kao Corporation Annual Report 2015 37

translation, sales would have increased 18.1 percent. Growth

decreased 3.0 percent. Excluding the effect of the revision of

continued as the Kao Group worked in areas such as launching

the sales system for Kao Sofina, sales would have increased

and nurturing products targeting the middle-class consumer

0.6 percent, or decreased 0.2 percent excluding the effect of

segment, collaborating with retailers, utilizing wholesale

currency translation. In Japan, the Kao Group continued to

channels and expanding sales regions.

work to reinforce focal brands, but sales decreased compared

In the Americas, sales increased 12.4 percent to ¥89.7

with the previous fiscal year due to the impact of severe

billion (US$744.9 million). Excluding the effect of currency

market competition. The Kao Group began its reform of the

translation, sales would have decreased 0.1 percent. Sales of

Kao Sofina brand in November, with advance sales at a

skin care products and professional hair care products grew,

flagship store in Ginza, Tokyo of new SOFINA iP products for

but sales of hair care products decreased compared with the

women in the “quest for long-lasting beauty,” even under

previous fiscal year.

harsh conditions such as fatigue and stress. In self-selection

In Europe, sales increased 6.7 percent to ¥89.9 billion

brands, sales of KATE TOKYO makeup grew and the suisai

(US$746.2 million). Excluding the effect of currency

skin care brand performed well due to inbound demand.

translation, sales would have increased 5.7 percent. Sales of

Outside Japan, sales increased from the previous fiscal year

hair care products and professional hair care products grew.

excluding the effect of currency translation due to strong

Operating income increased ¥22.9 billion compared with the

performance in China, where structural reforms have been

previous fiscal year to ¥134.2 billion (US$1,114.0 million) due to

completed, and the rest of Asia, with strong performance by

factors including the effect of increased sales in the Human

KATE TOKYO in particular.

Health Care Business in Japan and increased sales in Asia.

Sales of skin care products increased compared with the

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.

previous fiscal year. In Japan, sales increased with strong

performance by Bioré UV care products and facial cleanser

Beauty Care Business

and Curél for sensitive skin. In Asia, Bioré performed steadily

and sales grew excluding the effect of currency translation.

Sales increased 3.0 percent compared with the previous fiscal

Sales in the Americas grew excluding the effect of currency

year to ¥607.7 billion (US$5,044.3 million). Excluding the effect

translation, with steady performance by Bioré due to the

of currency translation, sales would have increased 0.5 percent.

addition of items based on new proposals.

Sales of cosmetics decreased 2.3 percent compared with

Sales of hair care products increased compared with the

the previous fiscal year to ¥254.7 billion (US$2,114.2 million).

previous fiscal year. In Japan, sales increased as new

Excluding the effect of currency translation, sales would have

shampoo and conditioner products performed steadily and

(Year ended March 31, 2012, period ended December 31, 2012 and years ended December 31, 2012 to 2015)

Consumer Products Business

Net Sales / Operating Income

Net Sales (Left)
Operating Income (Right)

Beauty Care Business
Net Sales / Operating Income

1,091.9

1,154.5

(Billions of yen)
150

1,222.8

134.2

100

103.0

111.3

(Billions of yen)
750

537.9

500

444.4

1,005.3

1,019.4

833.2

85.6

84.7

93.4

Net Sales (Left)
Operating Income (Right)

(Billions of yen)
50

537.8

570.3

589.9

607.7

28.4

29.4

21.8

20.1

23.9

250

15.4

Mar.
2012

Dec.
2012

Dec.
2012
(Restated)

Dec.
2013

Dec.
2014

Dec.
2015

Mar.
2012

Dec.
2012

Dec.
2012
(Restated)

Dec.
2013

Dec.
2014

Dec.
2015

38 Kao Corporation Annual Report 2015

(Billions of yen)
1,400

1,200

1,000

800

600

400

200

Management Discussion and Analysis

increased market share. In Asia, sales excluding the effect of

Japan due to growth in sales of high-value-added products such

currency translation decreased because the Kao Group narrowed

as Laurier F, which wicks moisture away to be gentle on the

down its brands. In the Americas, sales were basically unchanged

skin, and Laurier Slim Guard, which offers both high absorbency

excluding the effect of currency translation. In Europe, sales

and comfort. Sales of Laurier also increased steadily in Asia.

increased excluding the effect of currency translation, due to firm

Merries baby diapers continued to sell strongly in Japan, and

performance by John Frieda and professional hair care products.

the Kao Group is expanding production capacity. In China, sales

Operating income increased ¥1.0 billion compared with the

of both imports from Japan and locally produced products

previous fiscal year to ¥29.4 billion (US$244.2 million), mainly

targeting the middle-class consumer segment grew. In

due to the effect of increased sales and more efficient

Indonesia, locally produced products launched in September

management of expenses. Operating income before amortization

2014 targeting the middle-class consumer segment sold

of goodwill and other items related to acquisitions (EBITA)

steadily, including the expansion of distribution channels.

decreased ¥1.5 billion compared with the previous fiscal year

Sales of personal health products increased compared with

to ¥55.8 billion (US$463.0 million), which is equivalent to 9.2

the previous fiscal year. Sales of oral care products increased

percent of sales.

as the Kao Group launched high-value-added products. Sales of

bath additives were steady. Sales of MegRhythm steam thermo

Human Health Care Business

sheets increased substantially as the Kao Group captured

Sales increased 16.9 percent compared with the previous fiscal

inbound demand, mainly for MegRhythm Steam Eye Masks.

year to ¥280.7 billion (US$2,330.2 million). Excluding the effect

Operating income increased ¥13.7 billion compared with

of currency translation, sales would have increased 14.3 percent.

the previous fiscal year to ¥35.5 billion (US$295.1 million),

Sales of food and beverage products decreased compared

mainly due to the effect of the increase in sales.

with the previous fiscal year. For the Healthya brand of

functional drinks that promote body fat utilization, the Kao

Fabric and Home Care Business

Group strengthened its promotion of the function of highly

Sales increased 3.1 percent compared with the previous

concentrated tea catechins in increasing the fat-burning ability

fiscal year to ¥334.4 billion (US$2,775.9 million). Excluding

of its green tea. However, Healthya products, which include

the effect of currency translation, sales would have increased

coffee drinks as well as green tea, were impacted by

2.1 percent.

intensifying market competition.

Sales of fabric care products increased compared with the

Sales of sanitary products increased substantially. The

previous fiscal year. Sales in Japan were basically unchanged

Laurier brand of sanitary napkins increased its market share in

from the previous fiscal year due to the contraction of the

(Year ended March 31, 2012, period ended December 31, 2012 and years ended December 31, 2012 to 2015)

Human Health Care Business
Net Sales / Operating Income

Net Sales (Left)
Operating Income (Right)

Fabric and Home Care Business
Net Sales / Operating Income

Net Sales (Left)
Operating Income (Right)

(Billions of yen)
40

280.7

35.5

(Billions of yen)
350

300

285.6

311.0

324.5

62.2

61.0

292.0

59.6

(Billions of yen)
80

334.4

69.2

55.5 236.7

51.4

240.1

210.6

189.6

21.9

16.9

181.8

152.0

14.6

13.6

11.5

(Billions of yen)
300

250

200

150

100

250

200

150

100

Mar.
2012

Dec.
2012

Dec.
2012
(Restated)

Dec.
2013

Dec.
2014

Dec.
2015

Mar.
2012

Dec.
2012

Dec.
2012
(Restated)

Dec.
2013

Dec.
2014

Dec.
2015

Kao Corporation Annual Report 2015 39

powder laundry detergent market and the impact of market

the effect of an increase in sales of high-value added products

competition. The Kao Group improved Ultra Attack Neo ultra-

and lower raw material prices.

concentrated liquid laundry detergent with a combination of

surfactants and citric acid for previously unattainable whiteness

Chemical Business

and launched Attack Antibacterial EX Super Clear Gel liquid

Sales increased 0.2 percent compared with the previous fiscal

laundry detergent, a blend of clear antibacterial components.

year to ¥288.5 billion (US$2,394.4 million). Excluding the effect

In fabric softeners, Humming was renewed to enable both

of currency translation, sales would have decreased 2.3 percent.

softness and quick water absorbency. For Humming Fine, the

Demand remained weak in some customer industries in

Kao Group made improvements to add the first drying effect

Japan. Outside Japan, although there was a decrease in

to its 24-hour deodorant. In addition, market share increased

demand in customer industries and a decline in public works

for Flair Fragrance fabric softener featuring about twice the

investment in some sectors, growth was apparent in export

fragrance release capability when sensing moisture or

demand with the depreciation of the euro.

perspiration. In Asia, sales increased compared with the

Sales of oleo chemicals were impacted by adjustments in

previous fiscal year. Sales of Attack laundry detergent grew,

selling prices in connection with fluctuations in raw material

due in part to the contribution of Attack Jaz1, a powder

prices and by a decrease in demand in customer industries. In

detergent for hand washing targeting the middle-class

performance chemicals, amid stagnant demand associated

consumer segment launched in Indonesia in June 2014.

with decreased public investment and other factors, the Kao

Sales of home care products increased compared with the

Group worked to develop and expand sales of high-value-

previous fiscal year. In Japan, CuCute dishwashing detergent

added products with reduced environmental impact. Specialty

continued to perform strongly. Magiclean household cleaners,

chemicals were impacted by structural changes in the

which underwent a complete renewal, and Quickle household

personal computer market, but sales of high-value-added

cleaning sheets sold well. The renewed Resesh fabric refresher

products grew as the Kao Group provided products that meet

stimulated the market and sales were strong. In fabric care

customer needs.

and home care products, the Kao Group also gained support

Operating income increased ¥8.1 billion compared with the

from consumers with the launch of the Deodorizing Strong

previous fiscal year to ¥30.1 billion (US$250.0 million) due to

range, which aims to address concerns about odors at nursing

the effect of increased sales of high-value-added products and

care sites and improve quality of life.

cost reduction activities.

Operating income increased ¥8.3 billion compared with the

previous fiscal year to ¥69.2 billion (US$574.7 million) due to

(Year ended March 31, 2012, period ended December 31, 2012 and years ended
December 31, 2012 to 2015)

(Year ended March 31, 2012, period ended December 31, 2012 and years ended
December 31, 2013 to 2015)

Chemical Business
Net Sales / Operating Income

Net Sales (Left)
Operating Income (Right)

288.0

(Billions of yen)
288.5

(Billions of yen)

300

247.6

200

100

208.1

23.0

261.2

236.5

30.1

21.5

22.1

16.8

18.1

Mar.
2012

Dec.
2012

Dec.
2012
(Restated)

Dec.
2013

Dec.
2014

Dec.
2015

Note: Net sales include intersegment sales.

40 Kao Corporation Annual Report 2015

Total Assets / Net Worth*

Total Assets
Net Worth

(Billions of yen)
1,500

1,000

991.3

1,030.3

1,133.3

1,198.2

1,281.9

538.0

582.7

628.7

658.2

675.6

500

Mar.
2012

Dec.
2012

Dec.
2013

Dec.
2014

Dec.
2015

* Net worth is equity, excluding minority interests and stock
acquisition rights.

Management Discussion and Analysis

Financial Structure

As a result of the above factors, the net worth ratio

(defined as net worth divided by total assets) was 52.7

Total assets increased ¥83.6 billion from the end of the previous

percent compared with 54.9 percent at the end of the

fiscal year to ¥1,281.9 billion (US$10,640.6 million). The

previous fiscal year.

principal increases in assets were a ¥17.7 billion increase in

cash and time deposits, a ¥64.9 billion increase in short-term

investments, a ¥9.9 billion increase in other current assets,

Cash Flows

and a ¥20.1 billion increase in property, plant and equipment.

The principal decrease in assets was a ¥24.2 billion decrease

in intangible assets due to the progress of amortization of

The balance of cash and cash equivalents as of December 31,

2015 increased ¥80.8 billion from a year earlier to ¥309.4

trademarks and other intellectual property rights and goodwill.

billion (US$2,568.6 million).

Total liabilities increased ¥68.9 billion from the end of the

previous fiscal year to ¥594.7 billion (US$4,936.8 million).

The principal increases in liabilities were a ¥39.4 billion

increase in long-term debt, a ¥31.8 billion increase in liability

for retirement benefits, which includes an increase due to the

adoption of an accounting standard for retirement benefits,

and a ¥10.0 billion increase in notes and accounts payable –

other. The principal decrease in liabilities was a ¥20.0 billion

decrease in current portion of long-term debt.

Cash Flows from Operating Activities

Net cash provided by operating activities totaled ¥180.9 billion

(US$1,501.3 million). The principal increases in net cash were

income before income taxes and minority interests of ¥161.6

billion, depreciation and amortization of ¥73.6 billion and

change in notes and accounts payable – other and accrued

expenses of ¥8.6 billion. The principal decreases in net cash

were income taxes paid of ¥46.2 billion and change in trade

Total equity increased ¥14.7 billion from the end of the

receivables of ¥8.4 billion.

previous fiscal year to ¥687.1 billion (US$5,703.8 million). The

principal increase in equity was net income totaling ¥98.9

billion. The principal decreases in net assets were foreign

currency translation adjustments of ¥14.5 billion and payments

Cash Flows from Investing Activities

Net cash used in investing activities totaled ¥74.0 billion

(US$614.4 million). This primarily consisted of purchase of

of dividends from retained earnings totaling ¥37.1 billion.

property, plant and equipment of ¥64.1 billion.

Due to the adoption of an accounting standard for retirement

benefits, the balance of retained earnings at the beginning of

the period decreased by ¥27.9 billion.

(Year ended March 31, 2012, period ended December 31, 2012 and years ended December 31, 2013 to 2015)

Cash Flows* / Capital Expenditures

Cash Flows
Capital Expenditures

Cash Dividends per Share /
Payout Ratio

Cash Dividends per Share (Left)
Payout Ratio (Right)

(Billions of yen)
150

102.0

100

135.4

125.4

109.5

80.2

83.4

63.7

68.5

47.2

41.9

Mar.
2012

Dec.
2012

Dec.
2013

Dec.
2014

Dec.
2015

(Yen)
90

60.00

59.7

62.00

61.3

64.00

50.8

80.00

70.00

44.7

40.6

Mar.
2012

Dec.
2012

Dec.
2013

Dec.
2014

Dec.
2015

(%)
100

* Cash ﬂows are deﬁned as net income plus depreciation and
amortization minus cash dividends.

Kao Corporation Annual Report 2015 41

Cash Flows from Financing Activities

business. We believe EVA indicates “true” profit. Continuously

Net cash used in financing activities totaled ¥20.6 billion

increasing EVA raises corporate value, which is consistent

(US$171.0 million). This primarily consisted of ¥38.4 billion for

with the long-term interest of not only shareholders but other

payments of cash dividends, including to minority shareholders.

stakeholders as well. The Kao Group aims to conduct business

In March 2015, the Kao Group repaid loans totaling ¥20.0

activities that expand the scale of its business while also

billion but borrowed ¥40.0 billion with the objective of

increasing EVA, and uses EVA for business performance

maintaining an appropriate capital cost ratio and reinforcing

evaluation, performance-based compensation and strategic

its financial base to invest for growth.

decision-making. During the fiscal year ended December 31,

2015, EVA increased to 244 from 165 in the previous year due

to double-digit growth in NOPAT and the Kao Group’s ability to

Basic Policies Regarding Distribution of
Profits and Dividends for the Period

minimize the increase in invested capital by maximizing the

use of its assets. As a result, EVA for the year set new record

highs in terms of both the amount of improvement and the

In order to achieve profitable growth, Kao Corporation secures

absolute value. EVA is expressed as an index with the year

an internal reserve for capital investment and acquisitions

ended December 31, 2011 as 100. The Kao Group conducted

from a medium-to-long-term management perspective and

the following EVA-related activities during the fiscal year.

places priority on providing shareholders with steady and

continuous dividends. In addition, Kao Corporation flexibly

Investing for Growth: During the fiscal year ended December

considers share repurchase and retirement of treasury stock

31, 2015, the Kao Group invested aggressively for future

from the standpoint of improving capital efficiency.

growth. The Kao Group expanded the capacity of production

In accordance with these policies, Kao Corporation announced

lines inside and outside Japan, mainly for sanitary products,

a year-end dividend for fiscal 2015 of ¥42.00 (US$0.35) per share,

and a new factory in China for the Chemical Business was

an increase of ¥6.00 per share compared with the previous

completed and started production. The Kao Group also

fiscal year. Consequently, cash dividends for the fiscal year

relocated its Odawara Research Laboratories and invested in

increased ¥10.00 per share compared with the previous fiscal

reform of cosmetics business. Research and development

year, resulting in a total of ¥80.00 (US$0.66) per share. The

expenditures were ¥52.0 billion (US$431.5 million), which was

consolidated payout ratio was 40.6 percent.

the equivalent of 3.5 percent of net sales, remaining at a high

For the fiscal year ending December 31, 2016, Kao Corporation

level relative to net sales.

plans to pay total cash dividends of ¥92.00 per share, an increase

of ¥12.00 per share compared with the fiscal year ended

Increasing Profit: During the fiscal year ended December 31,

December 31, 2015. Although the operating environment is

2015, the Consumer Products Business in Japan, excluding

challenging, this plan is in accordance with Kao Corporation’s

cosmetics, continued to increase its market share, and the

basic policies regarding distribution of profits, and free cash

Consumer Products Business performed well in Asia. As a

flow and other factors have also been taken into consideration.

result, sales grew substantially, leading to an increase in

As a result, Kao Corporation is aiming for its 27th consecutive

profit. In addition, cost reduction activities and the benefits

fiscal year of increases in dividends.

from the stabilization of raw material prices at a low level

EVA

contributed significantly to improvement in NOPAT.

Financial Improvement: Free cash flow* increased ¥25.5

billion to ¥106.8 billion (US$886.9 million) for the fiscal year

Economic Value Added (EVA®) is the Kao Group’s main

ended December 31, 2015. The Kao Group has set priorities

management metric, defined as net operating profit after tax

for how it will deploy this free cash flow. Investments for

(NOPAT) less a charge for the cost of capital employed in the

mergers and acquisitions and additional capital expenditures

42 Kao Corporation Annual Report 2015

Management Discussion and Analysis

for future growth are the top priorities, followed by stable and

2. Response to Changes in Retailing

continuous dividends. Kao Corporation increased cash dividends

The Kao Group’s Consumer Products Business is affected by

per share for the fiscal year by ¥10.00 to ¥80.00 (US$0.66) for

changes in the structure of retailing, including progress in the

the 26th consecutive year of growth in cash dividends.

creation of new corporate groups through retail industry

* Free cash flow: Net cash provided by operating activities + Net cash
used in investing activities

Business Risks and Other Risks

Various risks arise in the course of a company’s business. The

Kao Group takes reasonable measures to mitigate risks by

preventing the occurrence of, diversifying and hedging them.

In the event a risk manifests itself, the Kao Group responds

appropriately and works to minimize its impact.

However, unanticipated situations may occur that exert a

significant impact on the Kao Group’s business results and

financial condition. The risks described below are not a

comprehensive list of risks the Kao Group faces. Other risks

exist and may have an impact on investment decisions. Any

statements below concerning the future are judgments made

by Kao Corporation as of the submission of its securities

report to the Ministry of Finance on March 25, 2016.

(1) Consumer Products Business

1. Response to Changes in Consumer Needs

The Kao Group’s Consumer Products Business is affected by

business cycles and changes in consumers’ values in the

market of each country. The Consumer Products Business

maintains and improves brand value by understanding

changes in consumer needs and using the comprehensive

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.

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.

(2) Chemical Business

The Kao Group’s Chemical Business is affected by factors

including trends in customer demand and fluctuations in raw

material prices. The Chemical Business promotes creation of

high-value added products that match customer needs, conducts

research and development of products in consideration of the

environment, and provides such products while working to

reduce costs and deal with product prices. However, as a

consequence of uncertainties in these business activities due

to 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.

(3) Business Acquisitions, Business Alliances and Mergers

The Kao Group may implement business acquisitions, business

alliances, mergers or other such measures. When implementing

them, the Kao Group makes decisions after thoroughly assessing

economic value and its partner companies. However, due to

various unforeseeable uncertainties in its business activities,

the Kao Group may be unable to produce the results it initially

expected. This could have an impact on the Kao Group’s

business results and financial condition.

(4) Overseas Business Expansion

As one of its growth strategies, the Kao Group is conducting

operations in markets in Asia, the Americas, Europe and

elsewhere, with a particular emphasis on strengthening its

Kao Corporation Annual Report 2015 43

operations in countries where higher economic growth rates

(7) Response to Natural Disasters, Accidents and

and market expansion are forecast. However, the Kao Group

Other Incidents

may be unable to strengthen its operations as a consequence

To deal with earthquakes and other natural disasters, the

of uncertainties due to various factors in the course of business

Kao Group has formulated disaster countermeasures for its

including the occurrence of a slowdown in economic growth

production facilities and primary offices and a business

or uncertain political or social conditions, intensifying competition,

continuity plan (BCP), and will continue to strengthen and

the inability to conduct sufficient cost management or the

reinforce them in the future. However, the occurrence and

emergence of problems in relationships with retail outlets, sales

consequent damage of an earthquake on a scale exceeding

agents or other trading partners. This could have an impact on

assumptions that hinder the supply of products to the market

the Kao Group’s business results and financial condition.

due to problems in areas such as securing raw materials and

maintaining production, among other impediments, could

(5) Procurement of Raw Materials

have a serious impact on the Kao Group’s business results

Market prices for natural fats and oils and petroleum-related

and financial condition. In addition, the emergence of major

materials used as raw materials for products of the Kao Group

changes in demand trends due to a worsening economic

are affected by factors including geopolitical risks, the balance

environment associated with the earthquake could have a

between supply and demand, abnormal weather and exchange

serious impact on the Kao Group’s business results and

rate fluctuations. The Kao Group has moved to reduce the

financial condition. Furthermore, the occurrence of an

effect of increases in raw material prices through measures

explosion or fire at production facilities, information system

including cost reductions and passing on increases in raw

malfunction, problems at a supplier of raw materials,

material costs into product prices. In addition, the Kao Group is

dysfunction of social infrastructures such as electric power

conducting development of substitute raw materials for natural

and water, environmental pollution from harmful substances,

fats and oils through research into advanced effective utilization

the spread of infectious disease, terrorism, political change,

of non-edible raw materials. However, unexpectedly radical

riots and other incidents could hinder the supply of products

changes in market conditions and pricing could have an impact

to the market. This could have a serious impact on the Kao

on the Kao Group’s business results and financial condition.

Group’s reputation, business results and financial condition.

(6) Product Quality

(8) Currency Exchange Rate Fluctuations

The Kao Group designs and manufactures products from the

Foreign currency-denominated transactions are affected by

viewpoint of consumers, in compliance with related laws and

changes in currency exchange rates. The Kao Group hedges

regulations and voluntary standards. In the development

foreign exchange risk through various measures such as

stage prior to market launch, the Kao Group conducts

settlement of transactions through foreign currency accounts,

thorough safety testing and survey research to confirm the

foreign exchange contracts, and currency swaps to mitigate

safety of products. After market launch, the Kao Group works

the effect on business results. The Kao Group does not engage

to further improve quality by incorporating the opinions and

in derivative transactions for the purpose of speculation.

desires of consumers through its consumer communication

However, because items on the financial statements of

centers. However, the unanticipated occurrence of a serious

overseas consolidated subsidiaries are translated into

quality problem or concerns about product safety or reliability

Japanese yen, substantial variance in the exchange rate from

resulting from new scientific knowledge would not only cause

the expected rate at the time of conversion will have an impact

difficulties for the relevant brand, but would also have a major

on the Kao Group’s business results and financial condition.

impact on the reputation of all of the Kao Group’s products.

This could have an impact on the Kao Group’s business

results and financial condition.

44 Kao Corporation Annual Report 2015

Management Discussion and Analysis

(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 cash

measures for its information systems, including both

flow due to divergence from planned future business results, a

hardware and software. However, a leak of confidential or

decline in market value or other factors. This could have an impact

personal information held by the Kao Group resulting from an

on the Kao Group’s business results and financial condition.

attack on its server, unlawful access, a computer virus or

(10) Securing Human Capital

on the Kao Group’s reputation, business results and financial

other factor that exceeds expectations could have an impact

The Kao Group strives to secure diverse, superior human

condition.

capital to achieve its business goals globally. Human capital

with advanced expertise in areas such as research and

(13) Litigation

development, production technologies, marketing and sales

The Kao Group conducts diverse businesses globally, and

activities are indispensable in aiming for the Yoki-Monozukuri

various types of litigation may be brought against it. The result

(see note on page 12) that consumers support. However, an

of such litigation could have an impact on the Kao Group’s

inability to secure the necessary human capital due to

business results and financial condition.

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

transactions. The Kao Group has constructed a compliance

system and strives to comply with all related laws and

regulations. However, a serious legal violation by the Kao

Group or by a consignee or other party could have an impact

on the Kao Group’s reputation, business results and financial

condition. Moreover, a change in current laws and regulations,

or new laws and regulations could restrict the Kao Group’s

business activities, require investment for compliance, or

otherwise affect the Kao Group. This could have an impact on

the Kao Group’s business results and financial condition.

(12) Information Management

The Kao Group possesses confidential information related to

matters including research and development, production,

marketing and sales, as well as the personal information of

Kao Corporation Annual Report 2015 45

Consolidated Balance Sheet

Kao Corporation and Consolidated Subsidiaries
December 31, 2015 and 2014

Assets

Current assets:
Cash and time deposits (Notes 3 and 17) ...................................................
Short-term investments (Notes 3, 4 and 17)...............................................
Notes and accounts receivable (Note 17):

Trade ......................................................................................................
Nonconsolidated subsidiaries and affiliates ............................................
Other ......................................................................................................
Inventories:
Finished goods .......................................................................................
Work in process and raw materials ........................................................
Deferred tax assets (Note 7) ......................................................................
Other current assets ..................................................................................
Allowance for doubtful receivables (Note 17) .............................................
Total current assets .............................................................................

Millions of yen

Dec.
2015

Dec.
2014

Thousands of
U.S. dollars (Note 2)

Dec.
2015

¥ 125,159
188,551

¥ 107,412
123,639

$ 1,038,923
1,565,128

204,734
1,999
4,126

112,329
45,805
20,763
31,393
(1,626)
733,233

203,396
1,835
7,604

111,831
45,956
20,232
21,477
(1,648)
641,734

Property, plant and equipment (Note 5):
Land...........................................................................................................
Buildings and structures …………………………………………………………
Machinery, equipment and other ………………………………………………
Lease assets (Note 8) ……………………………………………………………
Construction in progress ............................................................................
Total ....................................................................................................
Accumulated depreciation ………………………………………………………
Net property, plant and equipment ………………………………………

64,715
376,714
799,266
11,212
18,734
1,270,641
(942,911)
327,730

69,445
361,223
782,794
11,261
27,381
1,252,104
(944,489)
307,615

Intangible assets:
Goodwill ……………………………………………………………………………
Trademarks ................................................................................................
Other intangible assets ..............................................................................
Total intangible assets ………………………………………………………

127,099
1,791
14,832
143,722

139,941
15,145
12,844
167,930

Investments and other assets:
Investment securities (Notes 4 and 17)…………………………………………
Investments in and advances to nonconsolidated
subsidiaries and affiliates ........................................................................
Deferred tax assets (Note 7) .......................................................................
Asset for retirement benefits (Note 9) .........................................................
Other assets ...............................................................................................
Total investments and other assets ........................................................

See Notes to Consolidated Financial Statements.

12,945

11,655

107,454

9,385
23,896
1,027
29,931
77,184

9,329
20,630
9,692
29,648
80,954

77,903
198,357
8,525
248,452
640,691

¥1,281,869

¥1,198,233

$10,640,566

46 Kao Corporation Annual Report 2015

1,699,460
16,593
34,249

932,423
380,219
172,350
260,588
(13,497)
6,086,436

537,187
3,127,036
6,634,565
93,069
155,507
10,547,364
(7,826,936)
2,720,428

1,055,026
14,867
123,118
1,193,011

Liabilities and Equity

Current liabilities:
Short-term debt (Notes 6 and 17) ...................................................................
Current portion of long-term debt (Notes 6 and 17) ........................................
Notes and accounts payable (Note 17):

Trade ...........................................................................................................
Nonconsolidated subsidiaries and affiliates .................................................
Other ...........................................................................................................
Income taxes payable (Note 17) ......................................................................
Accrued expenses ..........................................................................................
Liability for loss related to cosmetics ..............................................................
Other current liabilities (Notes 6 and 7) ..........................................................
Total current liabilities ..............................................................................

Long-term liabilities:
Long-term debt (Notes 6 and 17) ...................................................................
Liability for retirement benefits (Note 9) .........................................................
Liability for loss related to cosmetics ..............................................................
Other long-term liabilities (Notes 6 and 7) ......................................................
Total long-term liabilities ..........................................................................

Commitments and contingent liabilities (Notes 8, 10 and 18)

Equity (Notes 11 and 12):
Common stock:

Authorized-1,000,000,000 shares in 2015 and 2014

Issued-504,000,000 shares in 2015 and 2014 .............................................
Capital surplus .................................................................................................
Stock acquisition rights ...................................................................................
Retained earnings ...........................................................................................

Treasury stock, at cost
(2,541,816 shares in 2015 and 2,921,992 shares in 2014) .............................

Accumulated other comprehensive income

Unrealized gain on available-for-sale securities ............................................
Deferred gain (loss) on derivatives under hedge accounting .......................
Foreign currency translation adjustments ...................................................
Remeasurements of defined benefit plans .................................................
Total .........................................................................................................
Minority interests ............................................................................................
Total equity ..............................................................................................

Millions of yen

Dec.
2015

Dec.
2014

Thousands of
U.S. dollars (Note 2)

Dec.
2015

¥ 47
748

¥ 1,137
20,776

$ 390
6,209

128,650
8,628
71,794
32,073
99,003
2,891
33,659
377,493

123,536
74,178
2,474
17,055
217,243

124,979
8,433
61,766
28,108
94,584
8,220
32,533
380,536

84,152
42,414
—
18,738
145,304

1,067,901
71,619
595,950
266,232
821,806
23,998
279,397
3,133,502

1,025,450
615,738
20,536
141,571
1,803,295

85,424
108,659
889
502,134

85,424
109,561
944
468,684

709,089
901,959
7,379
4,168,125

(8,202)

(9,719)

(68,083)

7,063
(3)
(19,315)
(152)
676,497
10,636
687,133
¥1,281,869

5,507
8
(4,853)
3,619
659,175
13,218
672,393
¥1,198,233

58,629
(25)
(160,330)
(1,262)
5,615,481
88,288
5,703,769
$10,640,566

Kao Corporation Annual Report 2015 47

Consolidated Statement of Income

Kao Corporation and Consolidated Subsidiaries
Years ended December 31, 2015 and 2014

Net sales (Note 14) ...........................................................................................

Cost of sales .....................................................................................................
Gross profit.....................................................................................................

Selling, general and administrative expenses (Note 15) .............................
Operating income (Note 14) ..........................................................................

Other income (expenses):

Interest and dividend income ........................................................................
Interest expense ............................................................................................
Foreign currency exchange gain (loss) ..........................................................
Equity in earnings (losses) of nonconsolidated subsidiaries and affiliates ..
Impairment loss (Notes 5 and 14) .................................................................
Other, net (Note 16) .......................................................................................
Other income (expenses), net ...................................................................

Millions of yen

Dec.
2015
¥1,471,791

Dec.
2014
¥1,401,707

Thousands of
U.S. dollars (Note 2)

Dec.
2015
$12,217,075

658,221
813,570

649,190
164,380

1,261
(1,486)
(472)
2,656
(4,014)
(746)
(2,801)

632,205
769,502

636,232
133,270

1,014
(1,295)
1,171
2,225
(132)
(9,492)
(6,509)

5,463,775
6,753,300

5,388,811
1,364,489

10,467
(12,335)
(3,918)
22,047
(33,319)
(6,193)
(23,251)

Income before income taxes and minority interests ..................................

161,579

126,761

1,341,238

Income taxes (Note 7):
Current ............................................................................................................
Deferred..........................................................................................................
Total income taxes......................................................................................

49,574
12,525
62,099

44,316
2,023
46,339

411,504
103,968
515,472

Income before minority interests ..................................................................

99,480

80,422

825,766

Minority interests in earnings of consolidated subsidiaries ........................

618

832

5,130

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

¥ 98,862

¥ 79,590

$ 820,636

Per share of common stock (Notes 1.v and 19):
Basic net income ............................................................................................
Diluted net income .........................................................................................
Cash dividends applicable to the year ...........................................................

Yen

U.S. dollars (Note 2)

¥197.19
196.92
80.00

¥156.46
156.24
70.00

$1.64
1.63
0.66

See Notes to Consolidated Financial Statements.

48 Kao Corporation Annual Report 2015

Consolidated Statement of Comprehensive Income

Kao Corporation and Consolidated Subsidiaries
Years ended December 31, 2015 and 2014

Income before minority interests ....................................................................

Millions of yen

Dec.
2015
¥ 99,480

Dec.
2014
¥ 80,422

Thousands of
U.S. dollars (Note 2)

Dec.
2015
$ 825,766

Other comprehensive income (Note 13)
Unrealized gain (loss) on available-for-sale securities ......................................
Foreign currency translation adjustments .......................................................
Share of other comprehensive income in affiliates .........................................
Remeasurements of defined benefit plans .....................................................
Total other comprehensive income .............................................................

1,310
(15,793)
(9)
(3,712)
(18,204)

639
24,709
222
(3,725)
21,845

10,874
(131,094)
(75)
(30,813)
(151,108)

Comprehensive income ...................................................................................

¥ 81,276

¥102,267

$ 674,658

Comprehensive income attributable to:
Shareholders of Kao Corporation ....................................................................
Minority interests ............................................................................................

See Notes to Consolidated Financial Statements.

¥ 82,173
(897)

¥100,250
2,017

$ 682,104
(7,446)

Kao Corporation Annual Report 2015 49

Consolidated Statement of Changes in Equity

Kao Corporation and Consolidated Subsidiaries
Years ended December 31, 2015 and 2014

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

512,170

¥85,424 ¥109,561

¥1,120

¥471,383
79,590

(33,814)

¥ (9,397)

¥ 4,733

¥ 12

¥(28,416)

¥(4,590)

¥ —

(11,527)

435

(50,041)

(79)

1,323

(48,396)

48,396

(176)

774

(4)

23,563

4,590

3,619

¥12,810

¥629,830
79,590

¥642,640
79,590

(33,814)

(50,041)

1,244

—
32,366

(33,814)

(50,041)

1,244

—
32,774

408

501,078

85,424

109,561

944

468,684

(9,719)

5,507

(4,853)

—

3,619

659,175

13,218

672,393

501,078

85,424

109,561

944

(27,931)

440,753
98,862

(37,091)

(9,719)

5,507

(4,853)

—

3,619

(9)

389

(54)

(390)

1,571

(902)

(55)

1,556

(11)

(14,462)

(3,771)

(27,931)

631,244
98,862

(37,091)

(54)

1,181

(902)
(16,743)

13,218

(27,931)

644,462
98,862

(37,091)

(54)

1,181

(902)
(19,325)

(2,582)

501,458

¥85,424 ¥108,659 ¥ 889 ¥502,134

¥ (8,202) ¥ 7,063

¥ (3)

¥(19,315)

¥ —

¥ (152)

¥676,497

¥10,636

¥687,133

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)
Post
retirement
liability
adjustments
for foreign
consolidated
subsidiaries

Deferred
gain (loss) on
derivatives
under hedge
accounting

Unrealized
gain on
available-
for-sale
securities

Foreign
currency
translation
adjustments

Remeasurements
of defined
benefit plans

Total

Minority
interests

Total
equity

501,078

$709,089 $909,446

$7,836 $3,890,462 $(80,675) $45,713

$ 67

$(40,284)

$—

$ 30,040

$5,471,694 $109,720

$5,581,414

501,078

709,089 909,446

7,836

(231,850)

3,658,612
820,636

(307,886)

(80,675) 45,713

(40,284)

30,040

(9)

389

(448)

(3,237)

13,040

109,720

(231,850)

5,239,844
820,636

(307,886)

(448)

9,803

(231,850)

5,349,564
820,636

(307,886)

(448)

9,803

(7,487)

(457)

12,916

(92)

(120,046)

(31,302)

(7,487)
(138,981)

(21,432)

(7,487)
(160,413)

501,458

$709,089 $901,959

$7,379 $4,168,125

$(68,083) $58,629

$(25)

$(160,330)

$—

$ (1,262)

$5,615,481

$ 88,288

$5,703,769

Balance at
January 1, 2014 ..............
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
(January 1, 2015,
as previously reported) ...
Cumulative effect of
accounting change
(Notes 1.n and 9) ..........

Balance at January 1,
2015 (as restated) ...........
Net income .....................

Cash dividends,
¥74.00 per share ..........
Purchase of
treasury stock ...............
Disposal of
treasury stock ...............
Change due to purchase
of shares of consolidated
subsidiaries .....................
Net change in the year ...

Balance at
December 31, 2015 ........

Balance at
December 31, 2014
(January 1, 2015,
as previously reported) ...
Cumulative effect of
accounting change
(Notes 1.n and 9) ..........

Balance at January 1,
2015 (as restated) ...........
Net income .....................
Cash dividends,

US$0.61 per share .......

Purchase of

treasury stock ...............
Disposal of
treasury stock ...............
Change due to purchase
of shares of consolidated
subsidiaries .....................
Net change in the year ...
Balance at
December 31, 2015 ........

See Notes to Consolidated Financial Statements.

50 Kao Corporation Annual Report 2015

Consolidated Statement of Cash Flows

Kao Corporation and Consolidated Subsidiaries
Years ended December 31, 2015 and 2014

Millions of yen

Dec.
2015

Dec.
2014

Thousands of
U.S. dollars (Note 2)

Dec.
2015

Operating activities:

Income before income taxes and minority interests ......................................

¥161,579

¥126,761

$1,341,238

Adjustments for:

Income taxes paid .......................................................................................
Depreciation and amortization .....................................................................
Impairment loss (Note 5) .............................................................................
(Gain) loss on sales or disposals of property, plant and equipment, and

intangible assets, net ...............................................................................
Equity in (earnings) losses of nonconsolidated subsidiaries and affiliates ........
Unrealized foreign currency exchange (gain) loss .......................................
Change in trade receivables .......................................................................
Change in inventories ..................................................................................
Change in trade payables ............................................................................
Change in notes and accounts payable - other and accrued expenses ......
Change in accrued consumption taxes .......................................................
Other, net ....................................................................................................
Net cash provided by operating activities ................................................

Investing activities:
Payments into time deposits .........................................................................
Proceeds from withdrawal of time deposits ...................................................
Purchase of property, plant and equipment ....................................................
Purchase of intangible assets .........................................................................
Increase in investments in and advances to nonconsolidated subsidiaries
and affiliates ...............................................................................................
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 ......................................................................
Purchase of treasury stock .............................................................................
Payments of cash dividends ...........................................................................
Other, net ........................................................................................................
Net cash used in financing activities ........................................................

Translation adjustments on cash and cash equivalents ................................
Net increase (decrease) in cash and cash equivalents ..................................
Cash and cash equivalents, beginning of year (Note 3).................................
Cash and cash equivalents, end of year (Note 3) ...........................................

See Notes to Consolidated Financial Statements.

(46,234)
73,623
4,014

3,499
(2,656)
(768)
(8,410)
(4,745)
7,334
8,581
(2,535)
(12,418)
180,864

(2,669)
1,355
(64,056)
(5,619)

—
(3,031)
(74,020)

(1,128)
40,000
(20,012)
(55)
(38,375)
(1,031)
(20,601)

(5,466)
80,777
228,662
¥309,439

(49,294)
79,660
132

2,706
(2,225)
(1,220)
(10,953)
(12,397)
6,715
2,048
6,576
(3,391)
145,118

(2,125)
88
(51,151)
(4,507)

(1,358)
(4,755)
(63,808)

(273)
20,001
(20,009)
(50,044)
(34,963)
266
(85,022)

(383,780)
611,131
33,319

29,045
(22,047)
(6,375)
(69,810)
(39,387)
60,878
71,229
(21,043)
(103,078)
1,501,320

(22,155)
11,248
(531,717)
(46,642)

—
(25,161)
(614,427)

(9,363)
332,033
(166,116)
(457)
(318,544)
(8,558)
(171,005)

4,776
1,064
227,598
¥228,662

(45,373)
670,515
1,898,083
$2,568,598

Kao Corporation Annual Report 2015 51

Notes to Consolidated Financial Statements

Kao Corporation and Consolidated Subsidiaries
Years ended December 31, 2015 and 2014

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.

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 recorded in equity through other comprehensive income

3) Expensing capitalized development costs of R&D
4) Cancellation of the fair value model of 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 of America 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 recorded in equity through other comprehensive
income

3) Expensing capitalized development costs of R&D
4) Cancellation of the fair value model of 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

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

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 price allocation.

52 Kao Corporation Annual Report 2015

Under the accounting standard for business divestitures, in a
business divestiture 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
divestiture in the statement of income. In a business divestiture
where the interests of the investor continue and the investment is
not settled, no such gain or loss on business divestiture is
recognized.

The “Accounting Standard for Business Combinations” (ASBJ
Statement No. 21 issued by the Accounting Standards Board of
Japan (ASBJ), in September 2013, hereinafter “Business
Combinations Accounting Standard”), “Accounting Standard for
Consolidated Financial Statements” (ASBJ Statement No. 22
issued in September 2013, hereinafter “Consolidation Accounting
Standard”) and “Accounting Standard for Business Divestitures”
(ASBJ Statement No. 7 issued in September 2013, hereinafter
“Business Divestitures Accounting Standard”) could be adopted as
of the beginning of fiscal years starting on or after April 1, 2014.
Accordingly, the Company has early adopted these accounting
standards (except as provided in Article 39 of the Consolidation
Accounting Standard) as of the fiscal year ended December 31,
2015. Under these accounting standards, the Company records the
difference caused by changes in the Company’s equity shares in
subsidiaries that it continues to control as capital surplus and
records acquisition-related expenses as expenses during the fiscal
year in which the expenses were incurred. With regard to business
combinations conducted on or after the beginning of the fiscal year
ended December 31, 2015, the Company has changed its
accounting method to reflect the revised allocation of acquisition
costs arising from settlement of provisional accounting treatment
in the quarterly consolidated financial statement in which the
business combination occurs.
The Company has adopted these accounting standards as of
the beginning of the fiscal year ended December 31, 2015 and has
applied them thereafter in accordance with the transitional
handling set forth in Article 58-2 (4) of the Business Combinations
Accounting Standard, Article 44-5 (4) of the Consolidation
Accounting Standard and Article 57-4 (4) of the Business
Divestitures Accounting Standard.
The impact of these changes on the consolidated financial
statements was immaterial.

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.

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.

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.

Kao Corporation Annual Report 2015 53

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.

amendments relating to the method of attributing expected
benefit to periods and relating to the discount rate and
expected future salary increases.

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 defined contribution plans and/
or defined benefit plans. 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 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 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.

54 Kao Corporation Annual Report 2015

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.
Furthermore, the Company applied the revised accounting
standard and guidance for (c) above from the beginning of the
fiscal year ended December 31, 2015, as provided in the main
clause of Article 35 of the Retirement Benefits Accounting
Standard and the main clause of Article 67 of the Retirement
Benefits Guidance, and revised the methods for calculating
retirement benefit obligations and service costs as follows. The
method for attributing projected benefits to periods changed from
the straight-line basis to the benefit formula basis. In addition,
determination of the discount rate changed from a method
based on the number of years for the underlying obligations
approximating the average remaining years of service of the
eligible employees to a method that uses several discount rates
that are set for each expected retirement benefit payment period.
In accordance with the transitional handling set forth in Article

37 of the Retirement Benefits Accounting Standard, the effect
associated with the change in the method of calculating retirement
benefit obligations and service costs was recognized by adjusting
retained earnings at the beginning of the fiscal year ended
December 31, 2015.
As a result, liability for retirement benefits increased by ¥32,906
million (US$273,146 thousand), asset for retirement benefits
decreased by ¥9,692 million (US$80,452 thousand) and retained
earnings decreased by ¥27,931 million (US$231,850 thousand) at
the beginning of the fiscal year ended December 31, 2015. The
effect of this change on operating income and income before
income taxes and minority interests for the fiscal year was
immaterial. Net worth per share increased by ¥55.70 (US$0.46).
The effect of this change on net income per share and diluted net
income per share for the fiscal year was immaterial.

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

Notes to Consolidated Financial Statements

asset retirement obligation is incurred, the liability should be
recognized when a reasonable estimate of asset retirement
obligation can be made. Upon initial recognition of a liability for an
asset retirement obligation, an asset retirement cost is capitalized
by increasing the carrying amount of the related fixed asset by the
amount of the liability. The asset retirement cost is subsequently
allocated to expense through depreciation over the remaining
useful life of the asset. Over time, the liability is accreted to its
present value each period. Any subsequent revisions to the timing
or the amount of the original estimate of undiscounted cash flows
are reflected as an increase or a decrease in the carrying amount
of the liability and the capitalized amount of the related asset
retirement cost.

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.
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,
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.

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 is 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.

Kao Corporation Annual Report 2015 55

Consolidated Statement of Cash Flows
“Impairment loss” and “Change in accrued consumption taxes”,
which were included in “Other, net” under “Operating activities”
in the previous fiscal year, are presented separately from the fiscal
year ended December 31, 2015 due to their increased materiality.
The consolidated financial statements for the previous fiscal year
have been reclassified to reflect the change in presentation.
As a result, ¥3,317 million of “Other, net” under “Operating
activities” on the consolidated statement of cash flows for the
previous fiscal year has been reclassified as ¥132 million for
“Impairment loss”, ¥6,576 million for “Change in accrued
consumption taxes” and negative ¥3,391 million for “Other, net.”

3) Changes in Accounting Estimates

A change in an accounting estimate is accounted for in the
period of the change if the change affects that period only, and
is accounted for prospectively if the change affects both the
period of the change and future periods.

4) Corrections of Prior Period Errors

When an error in prior period financial statements is
discovered, those statements are restated.

x) Changes in presentation
Consolidated Statement of Income
“Impairment loss,” which was included in “Other, net” under
“Other income (expenses)” in the previous fiscal year, is
presented separately from the fiscal year ended December 31,
2015 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, ¥132 million included in “Other” under “Other
income (expenses)” on the consolidated statement of income for
the previous fiscal year has been reclassified as “Impairment loss.”

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, 2015 of ¥120.47=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.

Cash and Cash Equivalents

Cash and cash equivalents at December 31, 2015 and 2014 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.
2015
¥125,159
188,551

Dec.
2014
¥107,412
123,639

Thousands of
U.S. dollars
Dec.
2015
$1,038,923
1,565,128

(4,271)
¥309,439

(2,389)
¥228,662

(35,453)
$2,568,598

Short-Term Investments and Investment Securities

Short-term investments and investment securities as of December 31, 2015 and 2014 consisted of the following:

Millions of yen

Dec.
2015

Dec.
2014

Short-term investments:

Investment trust funds and other .....................................................................
Total ..............................................................................................................

¥188,551
¥188,551

¥123,639
¥123,639

Investment securities:
Marketable equity securities ............................................................................
Investment trust funds and other .....................................................................
Total ..............................................................................................................

¥ 11,772
1,173
¥ 12,945

¥ 10,473
1,182
¥ 11,655

Thousands of
U.S. dollars
Dec.
2015

$1,565,128
$1,565,128

$ 97,717
9,737
$ 107,454

56 Kao Corporation Annual Report 2015

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, 2015
and 2014 were as follows:

Millions of yen
Dec.
2015

Cost

Unrealized
gains

Unrealized
losses

Fair
value

Securities classified as:
Available-for-sale:

Equity securities ...................................................................
Debt securities and other ......................................................

¥ 2,397
69,559

¥9,377
—

¥ (2)
—

¥ 11,772
69,559

Held-to-maturity:

Debt securities and other ......................................................

118,992

—

118,992

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

Thousands of U.S. dollars
Dec.
2015

Cost

Unrealized
gains

Unrealized
losses

Fair
value

Securities classified as:
Available-for-sale:

Equity securities ...................................................................
Debt securities and other ......................................................

$ 19,897
577,397

$77,837
—

$(17)
—

$ 97,717
577,397

Held-to-maturity:

Debt securities and other ......................................................

987,731

—

987,731

Available-for-sale securities whose fair values are not readily determinable as of December 31, 2015 and 2014 were as follows:

Available-for-sale:

Equity securities .......................................................................................
Total ......................................................................................................

¥1,173
¥1,173

Dec.
2015

Dec.
2014

¥1,182
¥1,182

Carrying amount

Millions of yen

Thousands of
U.S. dollars
Dec.
2015

$9,737
$9,737

Proceeds from sales of available-for-sale securities for the years
ended December 31, 2015 and 2014 were ¥641 million (US$5,321
thousand) and ¥47 million, respectively. Gross realized gains and
losses on these sales, computed on the moving-average cost
basis, for the year ended December 31, 2015 were ¥375 million
(US$3,113 thousand) and ¥8 million (US$66 thousand),

respectively. Additionally, gross realized gains and losses for the
year ended 2014 were ¥18 million and ¥1 million, respectively.
The carrying values of debt securities by contractual maturities
for securities classified as held-to-maturity at December 31, 2015
are included in Note 17.

Kao Corporation Annual Report 2015 57

Long-lived Assets

The Companies reviewed their long-lived assets for impairment as
of the years ended December 31, 2015 and 2014. As a result, the
Companies recognized impairment losses of ¥4,014 million

(US$33,319 thousand) and ¥132 million as other expense for the
years ended December 31, 2015 and 2014, respectively. The
details were as follows:

(Year ended December 31, 2015)

The Companies recorded impairment losses for the following asset groups.

Use
Assets for business
Assets to be disposed of
Idle assets

Classification
Machinery, equipment and other, etc.
Land, etc.
Land, etc.

Location
Spain
Japan and other
Japan and other

Millions of yen
Dec.
2015
¥ 174
2,557
1,283
¥4,014

Thousands of
U.S. dollars
Dec.
2015
$ 1,444
21,225
10,650
$33,319

The Companies categorize assets for business mainly based on
business units. Assets to be disposed of and idle assets are
grouped on an individual basis.

In the fiscal year ended December 31, 2015, the Companies
recorded impairment losses totaling ¥4,014 million (US$33,319
thousand) as other expense by reducing the net book value to the
recoverable value of each asset because they did not expect to
recover the investment amount due to a decline in profitability and
a decrease in market price. This total consisted of ¥3,583 million
(US$29,742 thousand) for land, ¥288 million (US$2,391 thousand)
for buildings and structures, and ¥143 million (US$1,186 thousand)
for machinery, equipment and other.

The recoverable amounts of assets for business were measured
at value in use, which was considered zero because future cash
flows were not expected. The recoverable amounts of assets to be
disposed of and idle assets were measured at the net selling price,
estimated based on appraisal value and other items.

(Year ended December 31, 2014)
The details of impairment loss are not disclosed because the
amount was immaterial.

Short-Term and Long-Term Debt

Short-term debt at December 31, 2015 and 2014 consisted of the following:

Unsecured loans principally from financial institutions .............................................
Total ..................................................................................................................

Millions of yen

Dec.
2015
¥47
¥47

Dec.
2014
¥1,137
¥1,137

Thousands of
U.S. dollars
Dec.
2015
$390
$390

The weighted average interest rates applicable to the above
loans were 4.33% and 1.49% at December 31, 2015 and 2014,
respectively. In addition to the above short-term debt, deposits
payable to affiliates, included in other current liabilities, were

¥10,388 million (US$86,229 thousand) and ¥9,074 million at
December 31, 2015 and 2014, respectively, and the applicable
interest rates were 0.45% and 0.48% at December 31, 2015 and
2014, respectively.

Long-term debt at December 31, 2015 and 2014 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 0.19% in Dec. 2015, 0.31% in Dec. 2014 ..................
Lease obligations ......................................................................................................

Less current portion ..............................................................................................
Total ..................................................................................................................

58 Kao Corporation Annual Report 2015

Millions of yen

Dec.
2015
¥ 25,000
25,000

70,075
4,209

¥124,284
(748)
¥123,536

Dec.
2014
¥ 25,000
25,000

50,096
4,832
¥104,928
(20,776)
¥ 84,152

Thousands of
U.S. dollars
Dec.
2015
$ 207,521
207,521

581,680
34,937
$1,031,659
(6,209)
$1,025,450

Notes to Consolidated Financial Statements

In addition to the above long-term debt, deposits payable to
customers, included in other long-term liabilities, were ¥6,186
million (US$51,349 thousand) and ¥6,066 million at December 31,

2015 and 2014, respectively, and the applicable interest rates were
0.10% and 0.11% at December 31, 2015 and 2014, respectively.

The aggregate annual maturities of long-term debt as of December 31, 2015 were as follows:

Years ending December 31
2016 ............................................................................................................................................
2017 ............................................................................................................................................
2018 ............................................................................................................................................
2019 ............................................................................................................................................
2020 ............................................................................................................................................
2021 and thereafter…… ..............................................................................................................
Total ........................................................................................................................................

Millions of yen
¥ 748
30,685
25,604
40,514
25,515
1,218
¥124,284

Thousands of
U.S. dollars
$ 6,209
254,710
212,534
336,301
211,795
10,110
$1,031,659

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% for the years ended December 31, 2015 and 2014.
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,
2015 and 2014 were as follows:

Millions of yen

Dec.
2015

Dec.
2014

Deferred tax assets:
Depreciation and amortization ..........................................................................
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 .................................................................
Asset for retirement benefits ...........................................................................
Other ................................................................................................................
Deferred tax liabilities .........................................................................................

¥ 21,454
21,567
12,766
1,729
15,516
16,968
(19,542)
¥ 70,458

¥ (2,989)
(12,867)
(3,140)
(0)
(8,955)
¥(27,951)

¥ 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)

Net deferred tax assets .......................................................................................

¥ 42,507

¥ 37,441

Thousands of
U.S. dollars
Dec.
2015

$ 178,086
179,024
105,968
14,352
128,796
140,848
(162,215)
$ 584,859

$ (24,811)
(106,807)
(26,065)
(0)
(74,333)
$(232,016)

$ 352,843

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 ...............................................................................................
Amortization expenses not deductible for income tax purposes ..........................
Effect of change in corporate income tax rate ......................................................
Tax rate difference of consolidated subsidiaries ...................................................
Other – net ...........................................................................................................
Actual effective tax rate ............................................................................................

Dec.
2015
35.64%
(2.74)
1.26
2.83
3.15
(2.12)
0.41
38.43%

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.

Kao Corporation Annual Report 2015 59

The “Act for Partial Revision of the Income Tax Act, etc.” (Act
No. 9 of 2015) and the “Act for Partial Revision of the Local Tax
Act, etc.” (Act No. 2 of 2015) were promulgated on March 31,
2015 in Japan, resulting in a reduction in the rates of corporate
income taxes from fiscal years beginning on or after April 1, 2015.
Accordingly, the effective statutory tax rate used to measure
deferred tax assets and liabilities will change from the former
35.64% to 33.06% for temporary differences expected to be
reversed in the fiscal year beginning January 1, 2016, and to

32.26% for temporary differences expected to be reversed in
fiscal years beginning January 1, 2017. As a result of these
changes, deferred tax assets (the net amount deducting deferred
tax liabilities) decreased by ¥4,465 million (US$37,063 thousand),
deferred income taxes increased by ¥5,091 million (US$42,260
thousand), unrealized gain on available-for-sale securities
increased by ¥308 million (US$2,557 thousand), and
remeasurements of defined benefit plans increased by ¥318
million (US$2,640 thousand).

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, 2015 and 2014 were as follows:

Due within one year ...................................................................................................
Due after one year .....................................................................................................
Total ........................................................................................................................

Millions of yen

Dec.
2015
¥ 7,909
20,767
¥28,676

Dec.
2014
¥ 9,868
23,110
¥32,978

Thousands of
U.S. dollars
Dec.
2015
$ 65,651
172,383
$238,034

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 foreign consolidated subsidiaries have defined
contribution plans and/or defined benefit plans.

(1) Changes in defined benefit obligation

The changes in defined benefit obligation for the years ended December 31, 2015 and 2014 were as follows:

Balance at beginning of year (as previously reported) ................................................
Cumulative effect of accounting change ................................................................
Balance at beginning of year (as restated) ..................................................................
Current service cost................................................................................................
Interest cost............................................................................................................
Actuarial gain and loss ............................................................................................
Benefits paid ...........................................................................................................
Past service cost.....................................................................................................
Other ......................................................................................................................
Balance at end of year ................................................................................................

Millions of yen

Dec.
2015
¥283,672
42,598
326,270
8,897
3,620
(990)
(10,879)
9
(1,361)
¥325,566

Dec.
2014
¥272,497
—
272,497
9,641
5,112
3,546
(10,421)
(483)
3,780
¥283,672

Thousands of
U.S. dollars
Dec.
2015
$2,354,711
353,598
2,708,309
73,852
30,049
(8,218)
(90,305)
75
(11,297)
$2,702,465

60 Kao Corporation Annual Report 2015

Notes to Consolidated Financial Statements

(2) Changes in plan assets

The changes in plan assets for the years ended December 31, 2015 and 2014 were as follows:

Balance at beginning of year.......................................................................................
Expected return on plan assets ..............................................................................
Actuarial gain and loss ............................................................................................
Contribution by the employer .................................................................................
Benefits paid ...........................................................................................................
Other ......................................................................................................................
Balance at end of year ................................................................................................

Millions of yen

Dec.
2015
¥250,950
8,149
(6,866)
10,548
(9,929)
(437)
¥252,415

Dec.
2014
¥230,352
5,329
12,681
10,551
(9,630)
1,667
¥250,950

Thousands of
U.S. dollars
Dec.
2015
$2,083,091
67,643
(56,993)
87,557
(82,419)
(3,627)
$2,095,252

(3) Reconciliation between the liability recorded in the consolidated balance sheet and the balances of defined benefit obligation

and plan assets

Reconciliations at December 31, 2015 and 2014 were as follows:

Funded defined benefit obligation ..............................................................................
Plan assets .................................................................................................................
Total ........................................................................................................................
Unfunded defined benefit obligation .........................................................................
Net liability for defined benefit obligation ...............................................................

Liability for retirement benefits ..................................................................................
Asset for retirement benefits ....................................................................................
Net liability for defined benefit obligation ...............................................................

Millions of yen

Dec.
2015
¥ 323,147
(252,415)
70,732
2,419
¥ 73,151

Dec.
2014

¥ 281,199
(250,950)
30,249
2,473
¥ 32,722

Millions of yen

Dec.
2015
¥74,178
(1,027)
¥73,151

Dec.
2014
¥42,414
(9,692)
¥32,722

(4) Benefit costs

Components of net periodic benefit costs for the years ended December 31, 2015 and 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.
2015
¥ 8,897
3,620
(8,149)
426
(2,213)
413
¥ 2,994

Dec.
2014
¥ 9,641
5,112
(5,329)
(892)
(4,077)
1,651
¥ 6,106

Thousands of
U.S. dollars
Dec.
2015

$ 2,682,386
(2,095,252)
587,134
20,079
$ 607,213

Thousands of
U.S. dollars
Dec.
2015
$615,738
(8,525)
$607,213

Thousands of
U.S. dollars
Dec.
2015
$ 73,852
30,049
(67,643)
3,536
(18,370)
3,429
$ 24,853

In addition to the above net periodic benefit costs, the costs for the defined contribution plan were ¥3,593 million (US$29,825

thousand) and ¥3,382 million for the years ended December 31, 2015 and 2014, respectively.

Kao Corporation Annual Report 2015 61

(5) Amounts recognized in other comprehensive income

Amounts recognized in other comprehensive income (before income tax effect) in respect of defined retirement benefit plans for the

years ended December 31, 2015 and 2014 were as follows:

Prior service cost ........................................................................................................
Actuarial (gains) losses ...............................................................................................
Other ..........................................................................................................................
Total ........................................................................................................................

Millions of yen

Dec.
2015
¥(2,256)
(4,674)
454
¥(6,476)

Dec.
2014

¥ —
—
—
¥ —

Thousands of
U.S. dollars
Dec.
2015
$(18,727)
(38,798)
3,769
$(53,756)

(6) Amounts recognized in accumulated other comprehensive income

Amounts recognized in accumulated other comprehensive income (before income tax effect) in respect of defined retirement benefit

plans as of December 31, 2015 and 2014 were as follows:

Millions of yen

Unrecognized past service costs ................................................................................
Unrecognized actuarial gain and loss ..........................................................................
Other ..........................................................................................................................
Total ........................................................................................................................

(7) Plan assets

Components of plan assets at December 31, 2015 and 2014 were as follows:

Dec.
2015
¥ 1,533
(2,127)
—
¥ (594)

Debt securities .............................................................................................................................
Equity securities ...........................................................................................................................
Cash and deposits ........................................................................................................................
Other ...............................................................................................................................................
Total .............................................................................................................................................

Dec.
2014
¥3,789
2,547
(454)
¥5,882

Dec.
2015
73%
20
1
6
100%

Thousands of
U.S. dollars
Dec.
2015
$ 12,725
(17,656)
—

$ (4,931)

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 asset management, market trends and other factors.

(8) Actuarial assumptions

Assumptions used for the years ended December 31, 2015 and 2014 were as follows:

Discount rate ..................................................................................................................................
Expected rate of return on plan assets ..............................................................................................

Dec.
2015
Primarily 1.3%
Primarily 3.0%

Dec.
2014
Primarily 1.6%
Primarily 2.0%

Contingent Liabilities

At December 31, 2015, the Companies had the following contingent liabilities:

Trade notes discounted .....................................................................................................................
Guarantees of borrowings of employees ..........................................................................................

Millions of yen

¥46
52

Thousands of
U.S. dollars
$382
432

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.

62 Kao Corporation Annual Report 2015

Notes to Consolidated Financial Statements

Equity

Significant provisions in the Companies Act of Japan (the
“Companies Act”) that affect financial and accounting matters are
summarized below:

(a) Dividends
Under the Companies Act, 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 semiannually 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 Companies Act permits companies to distribute dividends-
in-kind (non-cash assets) to shareholders subject to a certain
limitation and additional requirements. The Companies Act
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 Companies Act 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 Companies Act, the total amount of
additional paid-in capital and legal reserve may be reversed without
limitation. The Companies Act 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$117,183 thousand)
at both December 31, 2015 and 2014. The Company’s additional
paid-in capital amount, which is included in capital surplus, totaled
¥108,889 million (US$903,868 thousand) at both December 31,
2015 and 2014.
The accompanying consolidated financial statements do not
include any provision for the year-end dividend of ¥42.0 (US$0.35)
per share, aggregating ¥21,085 million (US$175,023 thousand)
which the Company will subsequently propose at the 110th Annual
General Meeting of Shareholders to be held on March 25, 2016 as
an appropriation of retained earnings in respect of the year ended
December 31, 2015.

(c) Treasury stock and treasury stock acquisition rights
The Companies Act 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 Companies Act, stock acquisition rights are
presented as a separate component of equity.
The Companies Act 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.

Kao Corporation Annual Report 2015 63

Stock-Based Compensation Plans

The stock options for the year ended December 31, 2015 were as follows:

Name

Persons originally granted

Number of options
originally granted

Date of grant

Exercise price
(Yen)

Exercise price
(U.S. dollars)

Stock option 2008 I

14 Directors of the Company

24,000 shares*

August 29, 2008

Stock option 2008 II

12 Executive Officers
of the Company**

12,000 shares*

August 29, 2008

¥1

$0.01

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

36,000 shares*

August 28, 2009

447,000 shares*

August 29, 2008

¥3,100

$25.73

¥1

$0.01

Stock option 2009 II

12 Executive Officers
of the Company***

24,000 shares*

August 28, 2009

Stock option 2009 III

74 Employees of the Company
8 Directors of subsidiaries
of the Company

430,000 shares*

August 28, 2009

¥2,355

$19.55

Stock option 2010 I

14 Directors of the Company

38,000 shares*

August 25, 2010

Stock option 2010 II

12 Executive Officers
of the Company****

24,000 shares*

August 25, 2010

¥1

$0.01

Stock option 2010 III

81 Employees of the Company
2 Directors of subsidiaries
of the Company

435,000 shares*

August 25, 2010

¥2,190

$18.18

Stock option 2011 I

13 Directors of the Company

36,000 shares*

August 25, 2011

Stock option 2011 II

13 Executive Officers
of the Company*****

26,000 shares*

August 25, 2011

¥1

$0.01

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

$18.71

¥1

$0.01

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

Stock option 2015 I

6 Directors of the Company

13,000 shares*

May 21, 2015

Stock option 2015 II

23 Executive Officers
of the Company*********

27,000 shares*

May 21, 2015

* The number of options originally granted converts into the number of shares of common stock.
** The 12 Executive Officers were not members of the Board of Directors of the Company at the date of grant.
*** The 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.
********* The 23 Executive Officers were not members of the Board of Directors of the Company at the date of grant.

64 Kao Corporation Annual Report 2015

Exercise period

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
July 1, 2017
through
June 30, 2022
July 1, 2017
through
June 30, 2022

Notes to Consolidated Financial Statements

Stock option activity was as follows:

(Number of shares)

Stock option
2008 I

Stock option
2008 II

Stock option
2008 III

Stock option
2009 I

Stock option
2009 II

Stock option
2009 III

Stock option
2010 I

Stock option
2010 II

Stock option
2010 III

Stock option
2011 I

For the year ended December 31, 2015
Non-vested
Outstanding at December 31, 2014 ....
Granted .......................................
Expired ........................................
Vested .........................................
Outstanding at December 31, 2015 ....
Vested
Outstanding at December 31, 2014 ....
Vested .........................................
Exercised .....................................
Expired ........................................
Outstanding at December 31, 2015 ....
Exercise price

—
—
—
—
—

4,000
—
4,000
—
—

1,000
—
1,000

345,000
—
197,000
— 148,000
—
—

Yen ...................................................
U.S. dollars ......................................

¥1
$0.01

¥3,100
$25.73

Average stock price at exercise

—
—
—
—
—

8,000
—
1,000
—
7,000

¥1
$0.01

—
—
—
—
—

5,000
—
—
—
5,000

274,000
—
62,000
—
212,000

16,000
—
7,000
—
9,000

8,000
—
1,000
—
7,000

164,000
—
33,000
—
131,000

19,000
—
3,000
—
16,000

¥1
$0.01

¥2,355
$19.55

¥1
$0.01

¥2,190
$18.18

¥1
$0.01

Yen ...................................................
U.S. dollars ......................................

¥6,088
$50.54

¥5,134
$42.62

¥5,362
$44.51

¥5,553
$46.09

— ¥5,472
— $45.42

¥5,631
$46.74

¥6,152
$51.07

¥5,641
$46.82

¥6,064
$50.34

Fair value price at grant date

Yen ...................................................
U.S. dollars ......................................

¥2,865
$23.78

¥426
$3.54

¥2,115
$17.56

¥394
$3.27

¥1,749
$14.52

¥245
$2.03

¥1,718
$14.26

Stock option
2011 II

Stock option
2011 III

Stock option
2012 I

Stock option
2012 II

Stock option
2013 I

Stock option
2013 II

Stock option
2014 I

Stock option
2014 II

Stock option
2015 I

Stock option
2015 II

(Number of shares)

—
—
—
—
—

14,000
—
—
—
14,000

331,000
—
59,000
—
272,000

23,000
—
2,000
—
21,000

42,000
—
10,000
—
32,000

22,000
—
4,000
—
18,000

27,000
—
5,000
—
22,000

12,000
—
—
—
12,000

28,000
—
—
—
28,000

—
13,000
—
13,000
—

—
13,000
—
—
13,000

—
27,000
—
27,000
—

—
27,000
—
—
27,000

Yen ...................................................
U.S. dollars ......................................

¥1
$0.01

¥2,254
$18.71

¥1
$0.01

Average stock price at exercise

Yen ...................................................
U.S. dollars ......................................

—
—

¥5,451
$45.25

¥5,778
$47.96

¥5,437
$45.13

¥5,439
$45.15

¥5,511
$45.75

—
—

Fair value price at grant date

Yen ...................................................
U.S. dollars ......................................

¥1,718
$14.26

¥211
$1.75

¥2,119
$17.59

¥3,027
$25.13

¥3,808
$31.61

¥5,630
$46.73

The fair value prices for 2015 stock options were estimated using the Black-Scholes Option Pricing Model with the following assumptions:
Stock option
2015 II

Stock option
2015 I

Volatility of stock price .........................................................................................................................
Estimated remaining outstanding period .............................................................................................
Estimated dividend per share

21.458%
3.5 years

Yen ...................................................................................................................................................
U.S. dollars .......................................................................................................................................
Risk-free interest rate ..........................................................................................................................

¥70
$0.58
0.018%

21.458%
3.5 years

¥70
$0.58
0.018%

Kao Corporation Annual Report 2015 65

Comprehensive Income

Each component of other comprehensive income for the years ended December 31, 2015 and 2014 was as follows:

Millions of yen

Dec.
2015

Dec.
2014

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 ...................................................................
Reclassification adjustments to profit or loss .......................................................
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 ......................................................................................................................

¥ 1,915
(367)
1,548
(238)
¥ 1,310

¥(13,498)
(2,295)
(15,793)
—
¥(15,793)

¥ 17
(26)
¥ (9)

¥ (5,132)
(1,344)
(6,476)
2,764
¥ (3,712)

¥ 1,005
(11)
994
(355)
¥ 639

¥24,709
—
24,709
—
¥24,709

¥ 226
(4)
¥ 222

¥ (5,127)
(460)
(5,587)
1,862
¥ (3,725)

Thousands of
U.S. dollars
Dec.
2015

$ 15,896
(3,046)
12,850
(1,976)
$ 10,874

$(112,044)
(19,050)
(131,094)
—
$(131,094)

$ 141
(216)
$ (75)

$ (42,600)
(11,156)
(53,756)
22,943
$ (30,813)

Total other comprehensive income ..........................................................................

¥(18,204)

¥21,845

$(151,108)

66 Kao Corporation Annual Report 2015

Notes to Consolidated Financial Statements

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, 2015 and 2014 was as follows:

Millions of yen

Dec.
2015

Reportable segment

Consumer Products Business

Beauty Care
Business

Human Health
Care Business

Fabric and Home
Care Business

Total

Chemical
Business

Reconciliations*

Consolidated

Sales to customers ............................... ¥607,692

¥280,723

¥334,416

¥1,222,831

¥248,960

¥ —

¥1,471,791

Intersegment sales ...............................

—

39,496

Total sales .............................................

607,692

280,723

334,416

1,222,831

288,456

Segment profit (Operating income) ...... ¥ 29,420

¥ 35,546

¥ 69,233

¥ 134,199

¥ 30,115

Segment assets ** ............................... ¥459,880

¥195,368

¥160,745

¥ 815,993

¥271,879

(39,496)

¥ 66

¥193,997

—

1,471,791

¥ 164,380

¥1,281,869

Other

Depreciation and amortization*** .... ¥ 29,514

¥ 10,458

¥ 7,972

¥ 47,944

¥ 12,801

¥ —

¥ 60,745

Investments in equity
method affiliates** .........................

Increase in property, plant and
equipment and intangible assets ....

3,686

1,020

1,184

5,890

3,495

20,643

31,173

15,297

67,113

16,301

—

9,385

83,414

* Reconciliation of segment profit includes elimination of intersegment transactions of inventory.

Reconciliation of assets includes ¥228,295 million of the Company’s financial assets and negative ¥34,298 million of elimination of receivables among reportable
segments.

** Balances as of December 31, 2015
*** Depreciation and amortization excludes amortization of goodwill.

Kao Corporation Annual Report 2015 67

Millions of yen

Dec.
2014

Reportable segment

Consumer Products Business

Beauty Care
Business

Human Health
Care Business

Fabric and Home
Care Business

Total

Chemical
Business

Reconciliations*

Consolidated

Sales to customers ............................... ¥589,907

¥240,077

¥324,505

¥1,154,489

¥247,218

¥ —

¥1,401,707

Intersegment sales ...............................

—

40,804

Total sales .............................................

589,907

240,077

324,505

1,154,489

288,022

(40,804)

—

1,401,707

Segment profit (Operating income) ...... ¥ 28,437

¥ 21,880

¥ 60,952

¥ 111,269

¥ 22,060

¥ (59)

¥ 133,270

Segment assets ** ............................... ¥466,128

¥161,280

¥158,552

¥ 785,960

¥273,397

¥138,876

¥1,198,233

Other

Depreciation and amortization*** ........ ¥ 30,302

¥ 10,618

¥ 9,541

¥ 50,461

¥ 14,101

¥ —

¥ 64,562

Investments in equity
method affiliates** ...............................

Increase in property, plant and
equipment and intangible assets ..........

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 of elimination of receivables among reportable
segments.

** Balances as of December 31, 2014
*** Depreciation and amortization excludes amortization of goodwill.

Thousands of U.S. dollars

Dec.
2015

Reportable segment

Consumer Products Business

Beauty Care
Business

Human Health
Care Business

Fabric and Home
Care Business

Total

Chemical
Business

Reconciliations*

Consolidated

Sales to customers ............................... $5,044,343 $2,330,231 $2,775,928 $10,150,502 $2,066,573

$ —

$12,217,075

Intersegment sales ...............................

—

327,849

(327,849)

—

Total sales ............................................. 5,044,343

2,330,231

2,775,928

10,150,502

2,394,422

(327,849)

12,217,075

Segment profit (Operating income) ...... $ 244,210 $ 295,061 $ 574,691 $ 1,113,962 $ 249,979

$ 548

$ 1,364,489

Segment assets** ................................ $3,817,382 $1,621,715 $1,334,315 $ 6,773,412 $2,256,819

$1,610,335

$10,640,566

Other

Depreciation and amortization*** ........ $ 244,990 $ 86,810 $ 66,174 $ 397,974 $ 106,259

$ —

$ 504,233

Investments in equity method
affiliates** ............................................

Increase in property, plant and
equipment and intangible assets ..........

30,597

8,467

9,828

48,892

29,011

—

77,903

171,353

258,762

126,978

557,093

135,312

—

692,405

* Reconciliation of segment profit includes elimination of intersegment transactions of inventory.

Reconciliation of assets includes $1,895,036 thousand of the Company’s financial assets and negative $284,702 thousand of elimination of receivables among
reportable segments.

** Balances as of December 31, 2015
*** Depreciation and amortization excludes amortization of goodwill.

68 Kao Corporation Annual Report 2015

Notes to Consolidated Financial Statements

(b) Information related to reportable segments
Sales by geographic area for the years ended December 31, 2015 and 2014 were as follows:

Sales to customers ...................................................

¥956,073

¥247,860

Japan

Asia

Sales to customers ...................................................

¥937,696

¥203,174

Japan

Asia

Millions of yen
Dec.
2015

Americas*

¥134,189

Millions of yen
Dec.
2014

Americas*

¥125,324

Europe**

¥133,669

Consolidated

¥1,471,791

Europe**

¥135,513

Consolidated

¥1,401,707

Thousands of U.S. dollars
Dec.
2015

Sales to customers ...................................................

$7,936,192

$2,057,442

$1,113,879

$1,109,562

$12,217,075

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, 2015 and 2014 was as follows:

Property, plant and equipment .................................

¥216,495

¥80,039

Japan

Asia

Property, plant and equipment .................................

¥199,484

¥75,294

Japan

Asia

Millions of yen
Dec.
2015

Americas*

¥14,586

Millions of yen
Dec.
2014

Americas*

¥13,721

Europe**

¥16,610

Consolidated

¥327,730

Europe**

¥19,116

Consolidated

¥307,615

Thousands of U.S. dollars
Dec.
2015

Property, plant and equipment ....................................

$1,797,086

$664,389

*Americas: North America, South America, and Oceania **Europe: Europe and South Africa

Japan

Asia

Americas*

$121,076

Europe**

$137,877

Consolidated

$2,720,428

Kao Corporation Annual Report 2015 69

Impairment losses by reportable segment for the years ended December 31, 2015 and 2014 were as follows:

Millions of yen
Dec.
2015

Reportable segment

Consumer Products Business

Beauty Care
Business

Human Health Fabric and Home
Care Business Care Business

Impairment losses of assets ..............

¥2,459

¥510

¥657

Total

¥3,626

Chemical
Business

¥388

Reconciliations

Consolidated

¥—

¥4,014

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

Millions of yen
Dec.
2014

Reportable segment

Consumer Products Business

Beauty Care
Business

Human Health Fabric and Home
Care Business Care Business

Total

Impairment losses of assets .............. $20,412

$4,233

$ 5,454

$30,099

Chemical
Business

$3,220

Reconciliations

Consolidated

$—

$33,319

Thousands of U.S. dollars

Dec.
2015

(d) Amortization and balance of goodwill by reportable segment

Amortization and balance of goodwill by reportable segment for the years ended December 31, 2015 and 2014 were as follows:

Millions of yen
Dec.
2015

Amortization of goodwill ...................
Goodwill at December 31, 2015 .......

Reportable segment

Beauty Care
Business
¥ 12,879
127,099

Consumer Products Business

Human Health Fabric and Home
Care Business Care Business

¥—
—

Total
¥ 12,879
127,099

Chemical
Business
¥—
—

Reconciliations
¥—
—

Consolidated
¥ 12,879
127,099

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.
2014

70 Kao Corporation Annual Report 2015

Notes to Consolidated Financial Statements

Thousands of U.S. dollars

Dec.
2015

Beauty Care
Business
Amortization of goodwill .................... $ 106,906
1,055,026
Goodwill at December 31, 2015 ........

Reportable segment

Consumer Products Business

Human Health Fabric and Home
Care Business Care Business

$—
—

Total

$ 106,906
1,055,026

Chemical
Business
$—
—

Reconciliations
$—
—

Consolidated
$ 106,906
1,055,026

Selling, General and Administrative Expenses

Selling, general and administrative expenses principally consisted of the following:

Freight/warehouse ....................................................................................................

Advertising ................................................................................................................

Sales promotion ........................................................................................................

Salaries and bonuses ................................................................................................

Research and development ......................................................................................

Millions of yen

Dec.
2015
¥ 85,609

94,496

78,264

133,310

51,987

Dec.
2014
¥ 81,391

92,410

73,072

130,974

51,739

16 Other Income (Expenses)

“Other, net” consisted of the following:

Millions of yen

Gain on sales of investment securities .....................................................................

Gain on liquidation of subsidiaries ............................................................................

Dec.
2015
¥ 375

299

Loss related to cosmetics ........................................................................................

(1,035)

Loss on sales or disposals of property,
plant and equipment, and intangible assets, net ....................................................

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

(3,499)

3,114

Total ......................................................................................................................

¥ (746)

Dec.
2014
¥ 18

—

(8,896)

(2,706)

2,092

¥(9,492)

Thousands of
U.S. dollars
Dec.
2015
$ 710,625

784,394

649,656

1,106,583

431,535

Thousands of
U.S. dollars
Dec.
2015
$ 3,113

2,482

(8,591)

(29,045)

25,848

$ (6,193)

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 purpose 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 that internal deliberations and approval processes, in

which customer credit standing is reviewed, are conducted 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 are mainly cross-shareholdings, and
the Companies hold the shares in cases where they consider
such shareholdings, including the number of shares held, to be
reasonable in consideration of their necessity in terms of business
activities, such as maintaining and strengthening business

Kao Corporation Annual Report 2015 71

alliances and transactions, trends in the issuing companies’ stock,
and other matters. These cross-shareholdings are subject to the
impact of trends in stock markets and the business environment in
which the Companies operate. However, each year the Companies
ascertain the reasonableness of cross-shareholdings and review
their continuance and the number of shares held.
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 prices
in active markets. If a quoted price is not available, other rational
valuation techniques are used. Also, see Note 18 for details of the
fair values of derivatives. The contract amounts of derivatives
which are shown in Note 18 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, 2015 and 2014 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.
2015
Fair
value

¥125,159
188,551

Unrealized
gain/(loss)

¥ —
—

209,514
11,772
¥534,996

¥ 47
752
209,072
32,073
124,516
¥366,460

—
—
¥ —

¥ —
4
—
—
980
¥984

Carrying
amount

¥125,159
188,551
210,859
(1,345)
209,514
11,772
¥534,996

¥ 47
748
209,072
32,073
123,536
¥365,476

Derivatives .............................................................................................................................

¥ 1,413

¥ —

72 Kao Corporation Annual Report 2015

Notes to Consolidated Financial Statements

Millions of yen
Dec.
2014
Fair
value

Unrealized
gain/(loss)

¥ 107,412
123,639

¥ —
—

211,464
10,473
¥ 452,988

¥ 1,137
20,810
195,178
28,108
85,258
¥ 330,491

—
—
¥ —

¥ —
34
—
—
1,106
¥ 1,140

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

Derivatives .............................................................................................................................

¥ (412)

¥ —

Thousands of U.S. dollars
Dec.
2015
Fair
value

Unrealized
gain/(loss)

Carrying
amount

$ 1,038,923
1,565,128
1,750,302
(11,165)
1,739,137
97,717
$ 4,440,905

$ 390
6,209
1,735,470
266,232
1,025,450
$ 3,033,751

$ 1,038,923
1,565,128

$ —
—

1,739,137
97,717
$ 4,440,905

$ 390
6,242
1,735,470
266,232
1,033,585
$ 3,041,919

—
—
$ —

$ —
33
—
—
8,135
$ 8,168

Derivatives .............................................................................................................................

$ 11,729

$ —

Cash and time deposits
The carrying values of cash and time deposits approximate fair
value because of their short maturities.

information on the fair value of short-term investments and
investment securities by classification.

Short-term investments and investment securities
The fair value of marketable equity securities is measured at the
quoted market prices of the stock exchange. The fair value of
marketable debt securities is measured at the quoted market
prices of the stock exchange or at the quoted prices obtained
from the financial institutions if there is no quoted market prices.
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

Notes and accounts receivable
The carrying values of notes and accounts receivable approximate
fair value because of their short maturities.

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

Kao Corporation Annual Report 2015 73

value by discounting expected repayments of principal and
interest in the remaining period using an assumed interest rate on
an equivalent new loan.

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 long-term debt of various interest loans is 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. The fair value of this 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 18.

The carrying amount of financial instruments whose fair value cannot be reliably determined as of December 31, 2015 and 2014 consisted of

the following:

Investment securities that do not have a quoted market price in an active market

Millions of yen

Dec.
2015
¥1,173

Dec.
2014
¥1,182

Thousands of
U.S. dollars
Dec.
2015
$9,737

(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, 2015 was as follows:

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 ......................................................................................

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 ......................................................................................

Please see Note 6 for annual maturities of long-term debt.

Due within
one year

¥125,159

119,006

—

210,859
¥455,024

Due within
one year

$1,038,923

987,848

—

1,750,302
$3,777,073

Millions of yen

Due after one
year through
five years

Due after five
years through
ten years

Due after
ten years

¥—

—

—
¥—

¥—

—

—
¥—

¥—

—

—
¥—

Thousands of U.S. dollars

Due after one
year through
five years

Due after five
years through
ten years

Due after
ten years

$—

—

—
$—

$—

—

—
$—

$—

—

—
$—

74 Kao Corporation Annual Report 2015

Notes to Consolidated Financial Statements

18 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, 2015 and 2014:

Currency-related

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 .................
Other currencies ...................................................................

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 ..................

Millions of yen

Dec.
2015

Contract
amount

Contract amount
due after
one year

Fair
value

Unrealized
gain / (loss)

¥ 4,400
822
87
22,521
4,578
1,457

2,279
10,280
143

Contract
amount

¥3,652
863
27
6,285
3,053
1,368

2,279
7,750

¥ 2,856
778
—
9,729
3,379
—

2,279
10,280
143

¥ 314
(99)
0
(99)
110
2

(417)
1,636
3

¥ 314
(99)
0
(99)
110
2

(417)
1,636
3

Millions of yen

Dec.
2014

Contract amount
due after
one year

Fair
value

Unrealized
gain / (loss)

¥2,980
808
—
—
3,053
—

2,279
7,750

¥ 154
(115)
(0)
(162)
(67)
36

(602)
405

¥ 154
(115)
(0)
(162)
(67)
36

(602)
405

Thousands of U.S. dollars
Dec.
2015

Contract
amount

Contract amount
due after
one year

Fair
value

Unrealized
gain / (loss)

$ 36,524
6,823
722
186,943
38,001
12,094

18,918
85,332
1,187

$ 23,707
6,458
—
80,759
28,048
—

18,918
85,332
1,187

$ 2,606
(822)
0
(822)
913
17

(3,461)
13,580
25

$ 2,606
(822)
0
(822)
913
17

(3,461)
13,580
25

Kao Corporation Annual Report 2015 75

Interest-related

Millions of yen

Dec.
2015

Contract
amount

Contract amount
due after
one year

Fair
value

Unrealized
gain / (loss)

Interest rate swaps:
Receiving floating rate, paying fixed rate ……………………

¥2,652

¥(37)

Millions of yen

Dec.
2014

Contract
amount

Contract amount
due after
one year

Fair
value

Unrealized
gain / (loss)

Interest rate swaps:
Receiving floating rate, paying fixed rate ..............................

¥2,637

¥(61)

Thousands of U.S. dollars
Dec.
2015

Contract
amount

Contract amount
due after
one year

Fair
value

Unrealized
gain / (loss)

Interest rate swaps:
Receiving floating rate, paying fixed rate ……………………

$22,014

$(307)

(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:

Millions of yen

Dec.
2014

Hedged
item

Contract
amount

Contract amount
due after
one year

Fair
value

Interest rate swaps:

(Fixed rate payment, Floating rate receipt) ...........................

Long-term debt

¥20,000

—

The interest rate swaps which qualify for hedge accounting and

recognized and included in interest expense or income. In addition,

meet specific matching criteria are not remeasured at market value

the fair value of the interest rate swaps is included in that of the

but the differentials paid or received under the swap agreements are

hedged item, long-term debt, in Note 17.

76 Kao Corporation Annual Report 2015

Notes to Consolidated Financial Statements

19 Net Income per Share

A reconciliation of the differences between basic and diluted net income per share (“EPS”) for the years ended December 31, 2015 and 2014

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, 2015:
Basic EPS

Net income available to common shareholders ................

¥98,862

501,352

¥197.19

$1.64

Effect of dilutive securities

Warrants ............................................................................

—

701

Diluted EPS

Net income for computation ............................................

¥98,862

502,053

¥196.92

$1.63

For the year ended December 31, 2014:
Basic EPS

Net income available to common shareholders ................

¥79,590

508,687

¥156.46

Effect of dilutive securities

Warrants ............................................................................

—

710

Diluted EPS

Net income for computation .............................................

¥79,590

509,397

¥156.24

Kao Corporation Annual Report 2015 77

Subsequent Event

Transaction under Common Control
At the meeting of the Board of Directors of the Company held on

Kao Customer Marketing Co., Ltd., Kanebo Cosmetics Sales Inc. and

November 19, 2015, it was resolved to conduct an absorption-type

Kao Field Marketing Co., Ltd. to Kao Group Customer Marketing

company split in which the Company will transfer all the shares of

Preparation Co., Ltd., a consolidated subsidiary of the Company.

a) Summary of the Transaction
1) Names and Business Content of Companies Involved in the Combination

Combining company: Kao Corporation

Business content: Manufacturing and sales of consumer products, chemical products, etc.

Combined company: Kao Group Customer Marketing Preparation Co., Ltd.

Business content: Sales of consumer products, etc.

2) Date of Business Combination

January 1, 2016

3) Legal Form of the Business Combination

Simplified absorption-type company split with Kao Group Customer Marketing Preparation Co., Ltd. as the successor company

4) Name of Company after the Combination

Kao Group Customer Marketing Co., Ltd. (Kao Group Customer Marketing Preparation Co., Ltd. changed its name as of January 1, 2016)

5) Other Items Related to the Summary of the Transaction

The Company will conduct the absorption-type company split to leverage the “comprehensive strength of the Kao Group” to strengthen

the Companies’ ability to provide products and services by promoting integrated management of the sales functions of the Kao Group.

b) Summary of Accounting Treatment Used

The Company plans to treat the transaction as a transaction

for Business Combinations and Accounting Standard for Business

under common control based on the “Accounting Standard for

Divestitures” (ASBJ Guidance No. 10 issued on September 13, 2013).

Business Combinations” (ASBJ Statement No. 21 issued on

September 13, 2013) and “Guidance on Accounting Standard

78 Kao Corporation Annual Report 2015

Independent Auditor’s Report

Kao Corporation Annual Report 2015 79

Principal Subsidiaries and Affiliates (As of March 25, 2016)

Country/Area

Business

Company

Country/Area

Business

Company

●

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

Japan

China

Taiwan

Vietnam

Philippines

Thailand

Malaysia

●

Kao Group Customer Marketing Co., Ltd.

Australia

Kao Customer Marketing Co., Ltd.

Canada

Kanebo Cosmetics Inc.

United States

Kanebo Cosmetics Sales Inc.

E'quipe, Ltd.

Kanebo Cosmillion Ltd.

Mexico

Kao Cosmetic Products Odawara Co., Ltd.

Germany

●

Nivea-Kao Co., Ltd.

Kao Sanitary Products Ehime Co., Ltd.

Kao Professional Services Co., Ltd.

Kao-Quaker Co., Ltd.

Kao (China) Holding Co., Ltd.

Kao Corporation Shanghai

Kao (Hefei) Co., Ltd.

Netherlands

United Kingdom

Kao Commercial (Shanghai) Co., Ltd.

Switzerland

Kanebo Cosmetics (China) Co., Ltd.

Shanghai Kanebo Cosmetics Co., Ltd.

Spain

Kao Chemical Corporation Shanghai

Kao Trading Corporation Shanghai

Kao (Shanghai) Chemical Industries Co., Ltd.

●

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.

●

Fatty Chemical (Malaysia) Sdn. Bhd.

Kao Plasticizer (Malaysia) Sdn. Bhd.

Kao Oleochemical (Malaysia) Sdn. Bhd.

Kao Singapore Private Limited

PT Kao Indonesia

●

PT. Kao Indonesia Chemicals

Singapore

Indonesia

●

80 Kao Corporation Annual Report 2015

Investor Information (As of December 31, 2015)

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):
502,014,676 shares
Number of Shareholders: 53,272

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)

Japan Trustee Services Bank, Ltd.
(Trust Account)
The Master Trust Bank of Japan, Ltd.
(Trust Account)
JPMorgan Chase Bank 380055
State Street Bank and Trust Company 505223
Tokio Marine & Nichido Fire Insurance Co., Ltd.
State Street Bank West Client – Treaty 505234
The Bank of New York Mellon SA/NV 10
State Street Bank and Trust Company 505225
Nippon Life Insurance Company
National Mutual Insurance Federation of
Agricultural Cooperatives

34,018

32,957
22,183
16,207
8,442
8,153
7,603
7,190
6,691

6,524

6.78

6.56
4.42
3.23
1.68
1.62
1.51
1.43
1.33

1.30

Notes: 1. The number of shares in the list above may include the number of shares held in trusts or subject

to share administration.

2. The ratio of shareholding for each shareholder above has been calculated based on the number of

issued shares excluding treasury shares.

Composition of Shareholders

Securities Companies 2.44%

Other Japanese Companies 3.95%

Individuals and Others 11.49%

Financial
Institutions 33.57%

Treasury Stock 0.39%

Companies and Individuals
in Foreign Countries 48.16%

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)

7,000

6,000

5,000

4,000

3,000

2,000

1,000

Apr.
2011

Mar.
2012

Dec.
2012

Dec.
2013

Dec.
2014

Dec.
2015

Kao Corporation Annual Report 2015 81