Financial Report 2016
For the year ended December 31, 2016
Management Discussion and Analysis
Consolidated Financial Statements
Notes to Consolidated Financial Statements
Independent Auditor’s Report
1
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Management Discussion and Analysis
The Kao Group has adopted International Financial Reporting
increasing EVA. It also uses EVA to help shape long-term
Standards (IFRS) from the fiscal year ended December 31,
management strategies; to assess business performance; to
2016. In addition, financial figures for the previous fiscal year
evaluate investments in facilities and acquisitions; and to
have been restated using IFRS for comparative analysis.
develop performance targets for each fiscal year.
* EVA is a registered trademark of Stern Stewart & Co. EVA is defined as
net operating profit after tax (NOPAT) less a charge for the cost of capital
employed in the business.
Management Policies
Management Policies of the Kao Group
The Kao Group’s mission is to strive for the wholehearted
satisfaction and enrichment of the lives of people globally
and to contribute to the sustainability of the world, with
products and brands of excellent value that are created from
Medium-to-long-term Management
Strategies of the Kao Group
Long-term Management Strategy
Long-term Targets
the consumer’s and customer’s perspective. This commitment
As its vision by 2030 based on the above management policies,
is embraced by all members of the Kao Group as we work
the Kao Group aims to achieve its vision “make Kao a company
together with passion to share joy with consumers and
with a global presence” by combining sustained “profitable
customers in our core domains of cleanliness, beauty, health
growth,” and “contributions to the sustainability of the world”
and chemicals.
with proposals to resolve social issues and social contribution
The Kao Group aims to be a global company that is closest
activities conducted through its business operations. To achieve
to the consumers and customers in each market, earning the
this vision, the Kao Group will promote the further reinforcement
respect and trust of its shareholders and all other stakeholders
of the existing businesses that are its strength and the creation
as it achieves “profitable growth.”
of new markets from a global perspective utilizing the R&D
In its corporate governance, the Kao Group works for
capabilities that will create value for the future, in addition to
ongoing innovation* and further enhances its internal control
implementing basic measures to further raise the level of
system to achieve management that is swift, efficient and
safety and reliability.
sound, as well as impartial and transparent, as it continuously
It is becoming difficult to predict the various changes that
increases its corporate value.
* Innovation is one of the values of the Kao Way, the corporate philosophy
of the Kao Group.
The corporate philosophy that forms the basis of these
activities is “the Kao Way,” which clearly expresses the Kao
Group’s unique corporate culture and the essence of its
corporate spirit, and is shared and practiced by all employees.
Management Metric Used as a Target
will occur throughout the world in all aspects, such as speed,
size and direction. To deal with this situation, the Kao Group
aims to achieve the above vision by fully embracing the slogan
of “transforming ourselves to drive change.”
The Kao Group’s Vision by 2030
Make Kao a company with a global presence that
• Has a distinctive corporate image
Economic value added (EVA®*), which measures true economic
• Is a high-profit global consumer goods company that
profit by factoring in the cost of invested capital, is the Kao
exceeds:
Group’s principal management metric. Growth in EVA is linked
- ¥2.5 trillion in net sales (¥1.0 trillion outside Japan)
to increased corporate value, which results in long-term benefits
- 17% operating margin
not only for shareholders but for all Kao Group stakeholders.
- 20% ROE
The Kao Group aims to conduct and invest in business
• Provides a high level of returns to stakeholders
activities that expand the scale of its business while also
1
Kao Corporation Financial Report 2016
Mid-term Business Plan
The Kao Group has established Integrity, passed down
The Kao Group regards its mid-term business plan for the
from Kao’s founder, as one of the core Values of its corporate
period to 2020 as an important milestone toward achieving its
philosophy, the Kao Way. Under K20, this Integrity will continue
vision by 2030. To enhance corporate value, it established the
to be embraced in the Group’s daily business activities as it
Kao Group Mid-term Plan 2020 “K20” targeting the four years
maintains thorough quality control and information control,
from fiscal 2017 to fiscal 2020 and announced it publicly on
sincere consumer communications, strict compliance and
December 12, 2016.
effective crisis management. Through such endeavors, the
Kao Group aims to reinforce its credibility in a global society.
K20 Goals – Three Commitments
• Commitment to fostering a distinctive corporate image
Issues for Management
- Become a company that is always by the
consumer’s side
• Commitment to profitable growth
- Continue to set new record highs for profits
- Aim for like-for-like* net sales CAGR of +5%, operating
margin of 15%
- Three ¥100 billion brands (Merries baby diapers,
Attack laundry detergents, Bioré skin care products)
With intensifying market competition, changing market structure
and volatility in raw material market conditions and exchange
rates, the operating environment remains uncertain. Changes in
the attitudes of consumers regarding the environment, health
and other matters and associated changes in their purchasing
attitudes, as well as the aging society, hygiene and other social
* Excluding the effect of currency translation, change of sales
issues, are growing in significance. Moreover, amid the global
system, etc.
• Commitment to returns to stakeholders
expansion of business and the progress of structural changes in
various fields, companies must deal with changes in the risks
- Shareholders: Continuous cash dividend increases
entailed in their businesses.
(40% payout ratio target)
- Employees: Continuous improvement in
compensation, benefits and health support
- Customers: Maximization of win-win relationships
- Society: Advanced measures to address social issues
Under these conditions, the Kao Group will continuously
increase corporate value by addressing and dealing
appropriately with the following issues.
(1) Regarding brightening products containing the ingredient
Rhododenol sold by Kanebo Cosmetics, for which a
Cash Dividends per Share
(Yen)
100
80
60
40
20
0
Increases in dividends for 27 consecutive periods
56
57
58
60
62
64
52
54
50
94
80
70
7.1 8.87 9.09 10.0 10.5 11.5 12.5 14
7.1
38
30
32
24
26
20
15
16
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
Note: Impact of share splits is reflected retroactively.
Kao Corporation Financial Report 2016
2
voluntary recall was announced on July 4, 2013, Kanebo
in order to increase its corporate value as a global company.
Cosmetics has been responding earnestly with support
The Group also believes that the application of IFRS will facilitate
for the recovery and compensation of people who have
the international comparability of its financial statements in
experienced vitiligo-like symptoms. In addition, the entire
capital markets.
Kao Group is making efforts with a view to preventing
recurrence while striving to ensure greater safety
and reliability.
Overview of Consolidated Results
(2) To deal with changes in the risks entailed in its
businesses, the Kao Group will define the serious
During the fiscal year ended December 31, 2016, the global
company-wide risks among its main risks as corporate
economy slowed in the first half due to factors including a
risks and work to prevent damage to the corporate
trend toward normalization of monetary policy in the United
value of the Group as a whole by further enhancing its
States and Europe, sluggish economies in emerging nations
management system.
and elsewhere, and a drop in the price of crude oil, but turned
Basic Approach to Selection of
Accounting Standards
toward recovery in the second half, centered on the United
States. The Japanese economy continued on a moderate
recovery track, although delays in improvement have become
apparent in some sectors. Moreover, it was a volatile year in
foreign exchange markets. The household and personal care
Having decided that unifying accounting standards within
products market in Japan, a key market for the Kao Group,
the Kao Group will contribute to improving the quality of its
grew by 2% on a value basis and consumer purchase prices
business management, the Kao Group has voluntarily adopted
remained nearly flat compared with the previous fiscal year.
IFRS from the fiscal year ended December 31, 2016. This will
The cosmetics market in Japan grew by 1%, excluding
enable management based on standardized procedures and
inbound demand (demand from visitors to Japan).
information for each Group company and business, and the
Under these circumstances, the Kao Group worked to launch
Kao Group intends to reinforce its management foundation
and nurture products with high added value in response to
Net Sales / Gross Profit Ratio*
Operating Income / Operating Income Ratio
(Billions of yen)
1,500
1,220.4
1,401.7
1,315.2
1,471.8
1,474.6
1,457.6
1,000
500
0
56.5
54.9
55.3
55.3
56.3
Dec.
2012
(Restated)
Dec.
2013
Dec.
2014
Dec.
2015
Dec.
2015
Dec.
2016
(%)
100
80
60
40
20
0
(Billions of yen)
200
150
100
50
0
185.6
12.7
164.4
167.3
11.2
11.3
124.7
133.3
9.5
9.5
111.8
9.2
Dec.
2012
(Restated)
Dec.
2013
Dec.
2014
Dec.
2015
Dec.
2015
Dec.
2016
(%)
20
15
10
5
0
Japanese GAAP
IFRS
Japanese GAAP
IFRS
Net Sales (Left)
Gross Profit Ratio (Right)
* The gross profit ratio has not been disclosed for the year ended
December 31, 2012 (Restated)
Operating Income (Left)
Operating Income Ratio (Right)
3
Kao Corporation Financial Report 2016
Management Discussion and Analysis
Costs, Expenses and Income as Percentages of Net Sales
IFRS
Japanese GAAP
Years ended December 31, 2016, 2015 and 2014
December
2016
December
2015
Cost of sales ...........................................................................
43.7%
44.7%
Gross profit .............................................................................
Selling, general and administrative expenses .........................
Operating income ...................................................................
Income before income taxes and minority interests ..............
Income before income taxes ..................................................
Net income .............................................................................
Net income attributable to owners of the parent ...................
56.3
43.5
12.7
—
12.6
—
8.7
55.3
43.6
11.3
—
11.3
—
7.1
December
2015
44.7%
55.3
44.1
11.2
11.0
—
6.7
—
December
2014
45.1%
54.9
45.4
9.5
9.0
—
5.7
—
changes in consumer needs based on its concept of “Yoki-
Analysis of Income Statement
Monozukuri,”* which emphasizes research and development
geared to customers and consumers. The Kao Group also
Net sales decreased 1.1% compared with the previous fiscal
conducted cost reduction activities and other measures.
year to ¥1,457.6 billion. Excluding the effect of currency
* The Kao Group defines Yoki-Monozukuri as a strong commitment by all
members to provide products and brands of excellent value for consumer
satisfaction. In Japanese, Yoki literally means “good/excellent,” and
Monozukuri means “development/manufacturing of products.”
translation, net sales would have increased 3.2%. In the
Consumer Products Business, sales increased in Japan due
to factors including market growth, launches of new and
To improve capital efficiency and increase shareholder
improved products, and further enhancement of sales
returns, Kao Corporation resolved at a meeting of its Board of
promotion activities. Outside Japan, sales in Asia increased,
Directors held on August 25, 2016 to repurchase its own
shares, and repurchased shares totaling ¥50.0 billion.
excluding the effect of currency translation. In the Chemical
Business, sales increased compared with the previous fiscal
year, excluding the effect of currency translation, as the Kao
Net Income Attributable to Owners of the Parent* /
Return on Sales
Basic Earnings per Share
(Billions of yen)
150
100
50
0
126.6
8.7
98.9
6.7
105.2
7.1
79.6
5.7
64.8
4.9
53.1
4.4
Dec.
2012
(Restated)
Dec.
2013
Dec.
2014
Dec.
2015
Dec.
2015
Dec.
2016
(%)
15
10
5
0
(Yen)
300
200
100
0
253.43
209.82
197.19
156.46
126.03
101.77
Dec.
2012
(Restated)
Dec.
2013
Dec.
2014
Dec.
2015
Dec.
2015
Dec.
2016
Japanese GAAP
IFRS
Japanese GAAP
IFRS
Net Income Attributable to Owners of the Parent (Left)
Return on Sales (Right)
* Net income attributable to owners of the parent was reported as net
income under Japanese GAAP for the years ended December 31, 2012
(restated) to 2015.
Kao Corporation Financial Report 2016
4
Group worked to adjust selling prices in response to rising
In Japan, sales increased 2.1% to ¥943.0 billion. The Kao
costs for natural fats and oils, although sales were impacted
Group made efforts that included working to respond to
by a decline in demand in some customer industries.
the changing lifestyles and diversifying preferences of
Net sales outside Japan were 33.8% of net sales compared
consumers, and social issues such as the environment,
with 35.2% for the previous year. Excluding the effect of
health, the aging society and hygiene, by launching numerous
currency translation, net sales outside Japan would have been
high-value-added products and enhancing proposal-oriented
36.6% of net sales.
sales activities.
As for profits, due to the effect of increased sales in the
In Asia, sales decreased 1.1% to ¥180.8 billion. Excluding
Consumer Products Business in Japan and Asia, a decrease in
the effect of currency translation, sales would have increased
the cost of petrochemical raw materials and other factors,
13.0%. Growth continued as the Kao Group worked in areas
operating income was ¥185.6 billion, an increase of ¥18.3
such as launching and nurturing products targeting the middle-
billion compared with the previous fiscal year, the operating
class consumer segment, collaborating with retailers, utilizing
margin was 12.7% and income before income taxes was
wholesale channels and expanding sales regions.
¥183.4 billion, an increase of ¥17.4 billion. Net income was
In the Americas, sales decreased 10.7% to ¥80.1 billion.
¥127.9 billion, an increase of ¥21.9 billion.
Excluding the effect of currency translation, sales would have
Basic earnings per share were ¥253.43, an increase of
decreased 0.5%. Although sales of skin care products and
¥43.61, or 20.8%, from ¥209.82 in the previous fiscal year.
professional hair care products grew, sales of hair care products
Information by Segment
Consumer Products Business
decreased compared with the previous fiscal year.
In Europe, sales decreased 13.1% to ¥78.1 billion. Excluding
the effect of currency translation, sales would have decreased
0.8%. Although sales of professional hair care products were
nearly flat, sales of hair care products decreased compared
Sales decreased 0.5% compared with the previous fiscal year
with the previous fiscal year.
to ¥1,219.8 billion. Excluding the effect of currency translation,
Operating income increased ¥17.7 billion compared with
sales would have increased 3.0%.
the previous fiscal year to ¥155.1 billion due to factors
Consumer Products Business
Net Sales / Operating Income
Beauty Care Business
Net Sales / Operating Income
(Billions of yen)
1,400
(Billions of yen)
200
(Billions of yen)
750
(Billions of yen)
80
1,200
1,000
800
600
400
200
0
1,091.9
1,154.5
1,019.4
1,222.8
1,225.6
1,219.8
155.1
134.2
137.4
93.4
103.0
111.3
Dec.
2012
(Restated)
Dec.
2013
Dec.
2014
Dec.
2015
Dec.
2015
Dec.
2016
150
100
50
0
500
250
0
570.3
589.9
537.8
607.7
608.6
601.6
51.1
37.9
23.9
20.1
28.4
29.4
Dec.
2012
(Restated)
Dec.
2013
Dec.
2014
Dec.
2015
Dec.
2015
Dec.
2016
60
40
20
0
Japanese GAAP
IFRS
Japanese GAAP
IFRS
Net Sales (Left)
Operating Income (Right)
Net Sales (Left)
Operating Income (Right)
5
Kao Corporation Financial Report 2016
Management Discussion and Analysis
including the effect of increased sales in the Fabric and Home
increased due to growth in sales of Bioré facial cleanser and
Care Business in Japan, increased sales in Asia, a decrease in
UV care as well as Curél derma care products. Sales also
the cost of raw materials and the completion of amortization
grew in Asia and in the Americas as Bioré sold strongly.
of trademarks.
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.
Beauty Care Business
Sales of hair care products decreased. In Japan, the Kao
Group conducted a complete renewal of Essential shampoos
and conditioners and other measures, but sales were flat due
to intensifying competition. The Kao Group also launched new
easy-to-use, environmentally conscious refill products, which
Sales decreased 1.1% compared with the previous fiscal year
gained the support of consumers. Outside Japan, sales
to ¥601.6 billion. Excluding the effect of currency translation,
decreased as severe conditions continued.
sales would have increased 2.9%.
Operating income increased ¥13.2 billion compared with
Sales of cosmetics were on a par with the previous fiscal
the previous fiscal year to ¥51.1 billion, due to the effect of
year at ¥255.0 billion. Excluding the effect of currency translation,
increased sales in Japan, the completion of amortization of
sales would have increased 2.8%. In Japan, sales increased
trademarks related to Kanebo Cosmetics, and an impairment
due to factors including good performance by new products
loss and other items recorded in the previous fiscal year.
launched in 2015 and enhanced in-store sales promotion
activities. Major reforms in the cosmetics business started in
Human Health Care Business
September 2016 and sales of the SOFINA iP series, for which
Sales decreased 3.1% compared with the previous fiscal year
sales channels have expanded, and of the new global brand
to ¥273.1 billion. Excluding the effect of currency translation,
KANEBO were steady. In counseling cosmetics, the ALBLANC
sales would have increased 1.3%.
skin brightening brand and the RMK brand performed strongly,
For food and beverage products, signs of recovery became
and in self-selection cosmetics, sales of KATE and media
apparent as the Kao Group strengthened its promotion of the
makeup grew. Sales increased outside Japan, due in part to
function of highly concentrated tea catechins in Healthya
strong performance in China and Taiwan.
Green Tea, a functional drink that enhances the body’s ability
Sales of skin care products increased. In Japan, sales
to metabolize fat and facilitates reduction of body fat, and
Human Health Care Business
Net Sales / Operating Income
(Billions of yen)
300
250
200
189.6
280.7
281.7
(Billions of yen)
50
273.1
240.1
210.6
35.5
33.4
25.9
150
100
50
0
21.9
16.9
13.6
Dec.
2012
(Restated)
Dec.
2013
Dec.
2014
Dec.
2015
Dec.
2015
Dec.
2016
Japanese GAAP
IFRS
Net Sales (Left)
Operating Income (Right)
40
30
20
10
0
worked to cultivate new users.
Sales of sanitary products increased. Sales of the Laurier
brand of sanitary napkins grew steadily. In Japan, a high-
value-added scented version of Laurier Slim Guard, which
offers both high absorbency and comfort, was launched and
sales increased. In Asia, sales of high-value-added products
increased strongly. Sales of Merries baby diapers were nearly
flat excluding the effect of currency translation. In Japan, amid
a decline in demand for purchasing with the purpose of resale
in China compared with the previous fiscal year, the Kao
Group began full-scale efforts for cross-border e-commerce
for the Chinese market, but sales decreased. In addition, the
Kao Group has mostly resolved prolonged shortages in stores,
and resumed marketing activities. Market share is recovering,
supported by the June 2016 launch of an improved product
with even better breathability, among other factors. In China,
where market growth continues, sales increased even as the
Kao Group conducted a transformation of its sales structure.
Kao Corporation Financial Report 2016
6
In Indonesia, sales of locally produced Merries targeting the
with dishwashing detergent, the product created a new
middle-class consumer segment were favorable.
market with the entirely new concept of “spraying away
Sales of personal health products increased. Sales of oral
residue from places a sponge can’t reach.” Sales of Magiclean
care products increased with good performance by Pure Oral
household cleaners for the bath, toilet, kitchen and other
toothpaste and mouthwash. Sales of bath additives increased.
areas grew with value-added offerings such as deodorizing,
Although sales of MegRhythm steam thermo sheets decreased
disinfecting and anti-staining. In addition, sales of Resesh
due to a decline in inbound demand, the product is on a recovery
clothing, fabric and air refresher and Quickle household
trend as a result of factors including enhanced in-store sales
cleaning mop kit grew steadily. Sales grew in Asia as Magiclean,
promotion activities and advertising.
a high-value-added household cleaner that responds to lifestyles
Operating income decreased ¥7.4 billion compared with
in each country for use in various daily life settings, performed
the previous fiscal year to ¥25.9 billion due to factors including
strongly in Thailand and elsewhere.
the effect of aggressive marketing expenditures, an increase
Operating income increased ¥12.0 billion compared with
in depreciation, the effect of exchange rate fluctuations and a
the previous fiscal year to ¥78.1 billion due to factors including
decrease in inbound demand.
the effect of increased sales and a decrease in the cost of
Fabric and Home Care Business
Sales increased 2.9% compared with the previous fiscal year
Chemical Business
raw materials.
to ¥345.2 billion. Excluding the effect of currency translation,
Sales decreased 5.1% compared with the previous fiscal year
sales would have increased 4.7%.
to ¥273.8 billion. Excluding the effect of currency translation,
Sales of fabric care products increased compared with the
sales would have increased 2.5%.
previous fiscal year. In Japan’s fiercely competitive market
In Japan, sales were impacted by a trend toward a
environment, both sales and market share increased from
decrease in demand in some customer industry markets,
responding to the larger-sized products category and the
including construction materials. Outside Japan, excluding the
contribution of new and improved products. Sales of laundry
effect of currency translation, sales increased despite the
detergents increased, centered on ultra-concentrated liquid
negative effects from the decrease in demand among customer
laundry detergent Ultra Attack Neo and the rest of the Neo
series, as well as conventional-type Attack Antibacterial EX
Super Clear Gel. For fabric softeners, as the market for high-
value-added products expanded, the Kao Group launched a
new Flair Fragrance product that features a new fragrance
Fabric and Home Care Business
Net Sales / Operating Income
release function, and Flair Fragrance IROKA, a premium fabric
softener, and sales increased. Humming Fine, which has a
strong deodorizing effect, sold strongly. Sales also increased
in Asia compared with the previous fiscal year. In particular,
sales were strong for Attack Jaz1, a powder detergent for
hand washing targeting the middle-class consumer segment
in Indonesia.
Sales of home care products increased. In Japan, for
CuCute dishwashing detergent, the Kao Group launched
CuCute CLEAR Foam Spray, a new foam spray type product.
In response to the conventional notion that a sponge is used
7
Kao Corporation Financial Report 2016
(Billions of yen)
400
300
292.0
(Billions of yen)
100
311.0
324.5
334.4
335.3
345.2
78.1
59.6
62.2
61.0
69.2
66.1
200
100
0
Dec.
2012
(Restated)
Dec.
2013
Dec.
2014
Dec.
2015
Dec.
2015
Dec.
2016
Japanese GAAP
IFRS
Net Sales (Left)
Operating Income (Right)
80
60
40
20
0
Management Discussion and Analysis
industries, as the Kao Group worked to expand sales and
Financial Structure
adjust the selling prices of oleo chemicals.
Sales of oleo chemicals continued to increase as the Kao
Total assets increased ¥27.2 billion from December 31, 2015
Group worked to adjust selling prices in line with the continuing
to ¥1,338.3 billion. The principal increases in assets were a
rise of raw material prices. In performance chemicals, the Kao
¥13.9 billion increase in inventories and a ¥32.8 billion increase in
Group worked to develop and expand sales of high-value-
property, plant and equipment. The principal decreases in assets
added products with a reduced environmental footprint, but
were a ¥6.9 billion decrease in cash and cash equivalents and
was impacted by worsening conditions in the construction
a ¥14.2 billion decrease in other current assets.
materials and other markets. Sales of specialty chemicals
Total liabilities increased ¥27.8 billion from December 31,
decreased due to ongoing sluggish demand and structural
2015 to ¥646.8 billion. The principal increases in liabilities
changes in the personal computer market.
were a ¥10.1 billion increase in trade and other payables, a
Operating income increased ¥1.1 billion compared with the
¥5.7 billion increase in other current liabilities and a ¥19.1
previous fiscal year to ¥29.7 billion as the Kao Group promoted
billion increase in retirement benefit liabilities. The principal
high-value-added products, worked to adjust selling prices
decrease in liabilities was a ¥9.3 billion decrease in provisions.
and conducted other measures in response to rising costs for
Total equity decreased ¥0.5 billion from December 31, 2015
natural fats and oils in a severe business environment.
to ¥691.5 billion. The principal increase in equity was net income
In June 2016, the Kao Group announced the acquisition of
totaling ¥127.9 billion. The principal decreases in equity were
ink companies in the United States and Europe to accelerate
¥50.0 billion due to purchase of treasury shares from the market,
the development of its water-based pigment inkjet ink, which
exchange differences on translation of foreign operations of
contributes to reducing environmental footprint, and the
¥16.2 billion, remeasurements of defined benefit plans totaling
global rollout of the business. The company in the United
¥16.1 billion and dividends totaling ¥45.1 billion.
States became a consolidated subsidiary in July 2016.
As a result of the above factors, the ratio of equity attributable
to owners of the parent to total assets was 50.8% compared
with 51.9% at December 31, 2015.
Chemical Business
Net Sales / Operating Income
(Billions of yen)
300
261.2
236.5
(Billions of yen)
288.0
288.5
288.5
273.8
30.1
28.6
29.7
200
100
0
21.5
22.1
18.1
Dec.
2012
(Restated)
Dec.
2013
Dec.
2014
Dec.
2015
Dec.
2015
Dec.
2016
Japanese GAAP
IFRS
Net Sales (Left)
Operating Income (Right)
Note: Net sales include intersegment sales.
40
30
20
10
0
Total Assets / Equity Attributable to Owners of
the Parent*
(Billions of yen)
1,500
1,030.3
1,000
1,281.9
1,311.1
1,338.3
1,198.2
1,133.3
582.7
628.7
658.2
675.6
681.0
679.8
500
0
Dec.
2012
Dec.
2013
Dec.
2014
Dec.
2015
Dec.
2015
Dec.
2016
Japanese GAAP
IFRS
Total Assets
Equity Attributable to Owners of the Parent
* Equity attributable to owners of the parent is presented as net worth
under Japanese GAAP as of December 31, 2012 to 2015. Net worth is
equity, excluding minority interests and stock acquisition rights.
Kao Corporation Financial Report 2016
8
Cash Flows
Cash Flows from Financing Activities
Net cash flows from financing activities totaled negative
The balance of cash and cash equivalents at December 31,
¥95.0 billion. This primarily consisted of ¥50.0 billion for
2016 decreased ¥6.9 billion compared with December 31,
purchase of treasury shares and ¥45.1 billion for dividends
2015 to ¥303.0 billion, including the effect of exchange rate
paid to owners of the parent and non-controlling interests.
changes.
Cash Flows from Operating Activities
Net cash flows from operating activities totaled ¥184.3 billion.
The principal increases in net cash were income before income
Basic Policies Regarding Distribution of
Profits and Dividends for the Period
taxes of ¥183.4 billion, depreciation and amortization of ¥51.1
In order to achieve profitable growth, Kao Corporation (the
billion and increase in retirement benefit liabilities of ¥20.0
Company) secures an internal reserve for capital investment
billion. The principal decreases in net cash were increase in
and acquisitions from a medium-to-long-term management
inventories of ¥17.4 billion, other, which includes accrued
perspective and places priority on providing shareholders with
expenses, of ¥7.2 billion and income taxes paid of ¥48.7 billion.
steady and continuous dividends. In addition, the Company
flexibly considers share repurchase and retirement of treasury
Cash Flows from Investing Activities
shares from the standpoint of improving capital efficiency.
Net cash flows from investing activities totaled negative ¥88.6
In accordance with these policies, the Company announced
billion. This primarily consisted of payments into time deposits
a year-end dividend for fiscal 2016 of ¥48.00 per share, an
of ¥11.6 billion, purchase of property, plant and equipment of
increase of ¥6.00 per share compared with the previous fiscal
¥74.6 billion and purchase of intangible assets of ¥5.1 billion.
year. Consequently, cash dividends for the fiscal year increased
Free cash flow, the sum of net cash flows from operating
¥14.00 per share compared with the previous fiscal year,
activities and net cash flows from investing activities, was
resulting in a total of ¥94.00 per share. The consolidated
¥95.7 billion.
payout ratio was 37.1%.
For fiscal 2017, the Company plans to pay total cash dividends
Capital Expenditures
(Billions of yen)
120
80
40
0
83.4
82.8
89.9
63.7
68.5
41.9
Dec.
2012
(Restated)
Dec.
2013
Dec.
2014
Dec.
2015
Dec.
2015
Dec.
2016
Free Cash Flows*
(Billions of yen)
150
121.0
100
50
0
106.8
107.5
95.7
81.3
52.7
Dec.
2012
(Restated)
Dec.
2013
Dec.
2014
Dec.
2015
Dec.
2015
Dec.
2016
Japanese GAAP
IFRS
Japanese GAAP
IFRS
* Free cash flow is the sum of net cash flows from operating activities
and net cash flows from investing activities.
9
Kao Corporation Financial Report 2016
Management Discussion and Analysis
of ¥108.00 yen share, an increase of ¥14.00 per share compared
and for consumer products in Indonesia. The Kao Group also
with the previous fiscal year. Although the operating environment
opened a new research facility in Japan, the Beauty Research &
is challenging, this plan is in accordance with the Company’s
Innovation Center, as one of the major reforms of its cosmetics
basic policies regarding distribution of profits, and free cash flow
business. Research and development expenditures were
and other factors have also been taken into consideration. As a
¥54.6 billion, which was the equivalent of 3.7% of net sales,
result, the Company is aiming for its 28th consecutive fiscal year
remaining at a high level relative to net sales.
of increases in dividends.
EVA and Related Activities
Increasing Profit: During the fiscal year ended December 31,
2016, the Kao Group invested in proactive research and
development, marketing activities and major reforms of the
cosmetics business. As a result, sales of the Consumer
In conjunction with the introduction of IFRS from the fiscal year
Products Business increased in Japan and continued to grow
ended December 31, 2016, the Kao Group has begun disclosing
by double digits in the rest of Asia, excluding the effect of
the monetary amount of EVA, its principal management
currency translation. Moreover, the Kao Group also benefitted
metric. For the fiscal year ended December 31, 2016, EVA
from a decline in petrochemical raw material prices in addition
was ¥73.4 billion, an increase of ¥14.8 billion from the
to its cost reduction activities, which covered the increase in
previous fiscal year due to an increase in NOPAT. The Kao
expenses and significantly improved NOPAT.
Group conducted the following EVA-related activities during
the fiscal year.
Financial Improvement: In addition to achieving its 27th
consecutive fiscal period of dividend growth with cash
Investing for Growth: During the fiscal year ended December
dividends of ¥94.00 per share, a 17.5% year-on-year increase
31, 2016, the Kao Group invested aggressively for future growth.
that exceeded its initial forecast, Kao Corporation repurchased
Capital expenditures were at a high level of ¥89.9 billion.
¥50.0 billion of its own shares.
The main item was expansion of manufacturing facilities for
sanitary products and fabric and home care products in Japan,
Total Dividend Payment / Share Repurchases*
EVA*
(Billions of yen)
120
100
50
0
96.8
50.0
85.5
50.0
62.8
30.0
32.4
32.4
32.8
35.5
40.2
40.2
46.8
100
Dec.
2012
(Restated)
Dec.
2013
Dec.
2014
Dec.
2015
Dec.
2016
Mar.
2000
Dec.
2012
(Restated)
Dec.
2013
Dec.
2014
Dec.
2015
(Billions of yen)
100
80
60
40
20
0
73.4
58.6
Dec.
2015
Dec.
2016
Total Dividend Payment
Share Repurchases
* Excludes repurchase of shares of less than one trading unit
Japanese GAAP
IFRS
* EVA under Japanese GAAP is presented as an index with 100 representing
the fiscal year ended March 31, 2000.
Kao Corporation Financial Report 2016
10
Business Risks and Other Risks
and expansion of new retail channels. The Consumer Products
Business conducts sales activities and makes new offerings
Various risks arise in the course of a company’s business. The
that respond to these structural changes. However, as a
Kao Group manages risks appropriately by identifying and
consequence of uncertainties in these business activities due
evaluating risks to formulate and implement necessary
to various factors, the Consumer Products Business may be
countermeasures, among other activities. In addition, in the
unable to conduct sales activities or make new offerings that
event a risk manifests itself, the Kao Group sets up an
respond to these structural changes. This could have an impact
emergency response organization and strives to minimize
on the Kao Group’s business results and financial condition.
damage and loss by responding promptly. However, in the
event a major risk such as those described below manifests
(2) Chemical Business
itself, it may exert a significant impact on the Kao Group’s
The Kao Group’s Chemical Business is affected by factors
business results and financial condition. The major risks
including trends in customer demand and fluctuations in raw
described below are not a comprehensive list of risks the Kao
material prices. The Chemical Business promotes creation of
Group faces. Other risks exist and may have an impact on
high-value-added products that match customer needs,
investment decisions. Any statements below concerning the
conducts research and development of products in
future are judgments made by Kao Corporation as of the
consideration of the environment, and provides such products
submission of its securities report to the Ministry of Finance
while working to reduce costs and deal with product prices.
on March 21, 2017.
However, as a consequence of uncertainties in these
business activities due to various factors, the Chemical
(1) Consumer Products Business
Business may be unable to provide products that match
1. Response to Changes in Consumer Needs
customer needs or respond to matters such as fluctuations in
The Kao Group’s Consumer Products Business is affected by
raw material prices. This could have an impact on the Kao
business cycles and changes in consumers’ values in the
Group’s business results and financial condition.
market of each country. The Consumer Products Business
maintains and improves brand value by understanding
(3) Business Acquisitions, Business Alliances and Mergers
changes in consumer needs and using the comprehensive
The Kao Group may implement business acquisitions,
strength of the Kao Group’s product development and
business alliances, mergers or other such measures. When
manufacturing in working to create high-value-added products
implementing them, the Kao Group makes decisions after
and provide services through approaches in areas including
thoroughly assessing economic value and its partner
the environment, health, the aging society and hygiene.
companies. However, due to various unforeseeable
However, as a consequence of uncertainties in these
uncertainties in its business activities, the Kao Group may be
business activities due to various factors, the Consumer
unable to produce the results it initially expected. This could
Products Business may be unable to provide products and
have an impact on the Kao Group’s business results and
services that respond to changes in consumer needs and
financial condition.
brand value could decrease. 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
2. Response to Changes in Retailing
operations in markets in Asia, the Americas, Europe and
The Kao Group’s Consumer Products Business is affected by
elsewhere, with a particular emphasis on strengthening its
changes in the structure of retailing, including progress in the
operations in countries where higher economic growth rates
creation of new corporate groups through retail industry
and market expansion are forecast. However, the Kao Group
mergers and integration in the market, and the emergence
may be unable to strengthen its operations as a consequence
11
Kao Corporation Financial Report 2016
Management Discussion and Analysis
of uncertainties due to various factors in the course of
(7) Response to Natural Disasters, Accidents and Other
business including the occurrence of a slowdown in economic
Incidents
growth or uncertain political or social conditions, intensifying
To deal with earthquakes and other natural disasters, the Kao
competition, the inability to conduct sufficient cost
Group has formulated disaster countermeasures for its
management or the emergence of problems in relationships
production facilities and primary offices and a business
with retail outlets, sales agents or other trading partners. This
continuity plan (BCP), and will continue to strengthen and
could have an impact on the Kao Group’s business results and
reinforce them in the future. However, the occurrence and
financial condition.
consequent damage of an earthquake on a scale exceeding
assumptions that hinder the supply of products to the market
(5) Procurement of Raw Materials
due to problems in areas such as securing raw materials and
Market prices for natural fats and oils and petroleum-related
maintaining production, among other impediments, could
materials used as raw materials for products of the Kao Group
have a serious impact on the Kao Group’s business results
are affected by factors including geopolitical risks, the balance
and financial condition. In addition, the emergence of major
between supply and demand, abnormal weather and
changes in demand trends due to a worsening economic
exchange rate fluctuations. The Kao Group has moved to
environment associated with the earthquake could have a
reduce the effect of increases in raw material prices through
serious impact on the Kao Group’s business results and
measures including cost reductions and passing on increases
financial condition. Furthermore, the occurrence of an explosion
in raw material costs into product prices. In addition, the Kao
or fire at production facilities, information system malfunction,
Group is conducting development of substitute raw materials
problems at a supplier of raw materials, dysfunction of social
for natural fats and oils through research into advanced
infrastructures such as electric power and water, environmental
effective utilization of non-edible raw materials. However,
pollution from harmful substances, the spread of infectious
unexpected radical changes in market conditions and pricing
disease, terrorism, political change, riots and other incidents
could have an impact on the Kao Group’s business results and
could hinder the supply of products to the market. This could
financial condition.
(6) Product Quality
have a serious impact on the Kao Group’s reputation, business
results and financial condition.
The Kao Group designs and manufactures products from the
(8) Currency Exchange Rate Fluctuations
viewpoint of consumers, in compliance with related laws and
Foreign currency-denominated transactions are affected by
regulations and voluntary standards. In the development
changes in currency exchange rates. The Kao Group hedges
stage prior to market launch, the Kao Group conducts
foreign exchange risk through various measures such as
thorough safety testing and survey research to confirm the
settlement of transactions through foreign currency accounts,
safety of products. After market launch, the Kao Group works
foreign exchange contracts, and currency swaps to mitigate
to further improve quality by incorporating the opinions and
the effect on business results. The Kao Group does not engage
desires of consumers through its consumer communication
in derivative transactions for the purpose of speculation.
centers. However, the unanticipated occurrence of a serious
However, because items on the financial statements of
quality problem or concerns about product safety or reliability
overseas consolidated subsidiaries are translated into
resulting from new scientific knowledge would not only cause
Japanese yen, substantial variance in the exchange rate from
difficulties for the relevant brand, but would also have a major
the expected rate at the time of conversion will have an impact
impact on the reputation of all of the Kao Group’s products.
on the Kao Group’s business results and financial condition.
This could have an impact on the Kao Group’s business
results and financial condition.
Kao Corporation Financial Report 2016
12
Management Discussion and Analysis
(9) Impact of Deferred Tax Assets and Impairment
(12) Information Management
The Kao Group records various tangible fixed assets and
The Kao Group possesses confidential information related to
intangible assets and deferred tax assets including assets
matters including research and development, production,
used in the course of business and goodwill incurred in
marketing and sales, as well as the personal information of
corporate acquisitions. The Kao Group may not generate the
numerous customers used for product development, sales
expected cash flow due to divergence from planned future
promotion and other purposes. The Kao Group conducts
business results, a decline in market value or other factors.
thorough information management using guidelines for handling
This could have an impact on the Kao Group’s business
information and implements appropriate security measures
results and financial condition.
for its information systems, including both hardware and
(10) Securing Human Capital
held by the Kao Group resulting from an attack on its server,
The Kao Group strives to secure diverse, superior human
unlawful access, a computer virus or other factor that exceeds
capital to achieve its business goals globally. Human capital
expectations could have an impact on the Kao Group’s
with advanced expertise in areas such as research and
reputation, business results and financial condition.
software. However, a leak of confidential or personal information
development, production technologies, marketing and sales
activities are indispensable in aiming for the Yoki-Monozukuri
(13) Litigation
(see note on page 4) that consumers support. However,
The Kao Group conducts diverse businesses globally, and
an inability to secure the necessary human capital due to
various types of litigation may be brought against it. The result
changes in employment conditions or other factors could
of such litigation could have an impact on the Kao Group’s
have an impact on the Kao Group’s business results and
business results and financial condition.
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.
13
Kao Corporation Financial Report 2016
Consolidated Statement of Financial Position
Kao Corporation and Consolidated Subsidiaries
Years ended December 31, 2016 and 2015, and at the transition date
Assets
Current assets
Cash and cash equivalents ................................................................
Trade and other receivables ...............................................................
Inventories ..........................................................................................
Income tax receivables ......................................................................
Other financial assets ........................................................................
Other current assets ..........................................................................
Subtotal ...........................................................................................
Non-current assets held for sale .........................................................
Total current assets ......................................................................
Non-current assets
Property, plant and equipment ..........................................................
Goodwill..............................................................................................
Intangible assets ................................................................................
Investments accounted for using the equity method ......................
Other financial assets ........................................................................
Other non-current assets ...................................................................
Deferred tax assets ............................................................................
Total non-current assets .............................................................
Notes
2016
2015
Transition date
(Millions of yen)
8,34
9,34
10
34
11
12
13
14
14
15
34
11,20
16
303,026
208,459
165,200
1,462
13,038
23,812
714,997
344
715,341
370,835
137,783
14,689
4,701
25,473
18,548
50,939
622,968
309,922
210,707
151,271
2,077
5,065
38,005
717,047
1,330
718,377
337,997
138,251
15,705
4,209
29,339
17,732
49,454
592,687
228,967
212,742
151,876
1,261
4,034
47,299
646,179
—
646,179
319,282
138,751
23,626
3,544
26,088
7,966
61,194
580,451
Total assets ..............................................................................
1,338,309
1,311,064
1,226,630
Liabilities and equity
Liabilities
Current liabilities
Trade and other payables ...................................................................
Bonds and borrowings .......................................................................
Income tax payables ..........................................................................
Other financial liabilities .....................................................................
Provisions ...........................................................................................
Other current liabilities ......................................................................
Total current liabilities .................................................................
Non-current liabilities
Bonds and borrowings .......................................................................
Retirement benefit liabilities ..............................................................
Other financial liabilities .....................................................................
Provisions ...........................................................................................
Other non-current liabilities ...............................................................
Deferred tax liabilities ........................................................................
Total non-current liabilities ..........................................................
Notes
2016
2015
Transition date
19,34
17,34
18,34
21
22
17,34
20
18,34
21
16
216,893
30,289
32,621
8,164
11,370
131,112
430,449
90,357
94,773
11,666
13,809
5,264
528
216,397
206,760
339
32,184
6,929
16,772
125,422
388,406
120,207
75,706
11,817
17,704
4,919
318
230,671
193,460
21,422
28,283
5,765
33,360
123,916
406,206
80,188
77,895
12,813
5,296
5,411
433
182,036
Total liabilities ...........................................................................
646,846
619,077
588,242
Equity
Share capital ..................................................................................
Capital surplus ...............................................................................
Treasury shares..............................................................................
Other components of equity ..........................................................
Retained earnings ..........................................................................
23
23
23
23
23
Equity attributable to owners of the parent ................................
Non-controlling interests ................................................................
Total equity ..........................................................................
85,424
107,648
(57,124)
(21,821)
565,715
679,842
11,621
691,463
85,424
108,659
(8,202)
(4,184)
499,299
680,996
10,991
691,987
85,424
109,561
(9,719)
7,601
431,975
624,842
13,546
638,388
Total liabilities and equity ........................................................
1,338,309
1,311,064
1,226,630
Kao Corporation Financial Report 2016
14
Consolidated Statement of Income
Kao Corporation and Consolidated Subsidiaries
Years ended December 31, 2016 and 2015
Net sales .............................................................................................................
Cost of sales ........................................................................................................
Gross profit ..........................................................................................................
Notes
6,26
10,13,14,20
Selling, general and administrative expenses .......................................................
Other operating income .......................................................................................
Other operating expenses.................................................................................... 12,13,14,20,29
Operating income .................................................................................................
13,14,20,27
13,28
6
Financial income ..................................................................................................
Financial expenses ...............................................................................................
Share of profit in investments accounted for using the equity method ................
Income before income taxes ..............................................................................
Income taxes ......................................................................................................
Net income ..........................................................................................................
6,20,30
6,20,30
6,15
6
16
2016
1,457,610
(637,502)
820,108
(633,368)
13,677
(14,846)
185,571
1,389
(5,424)
1,894
183,430
(55,541)
127,889
(Millions of yen)
2015
1,474,550
(658,865)
815,685
(642,729)
14,099
(19,737)
167,318
1,416
(4,213)
1,517
166,038
(60,086)
105,952
Attributable to:
Owners of the parent...........................................................................................
Non-controlling interests ......................................................................................
Net income ..........................................................................................................
126,551
1,338
127,889
105,196
756
105,952
Earnings per share
Basic (Yen) ...........................................................................................................
Diluted (Yen) .........................................................................................................
31
31
253.43
253.18
209.82
209.53
15
Kao Corporation Financial Report 2016
Consolidated Statement of Comprehensive Income
Kao Corporation and Consolidated Subsidiaries
Years ended December 31, 2016 and 2015
Net income .................................................................................................................
Other comprehensive income
Items that will not be reclassified to profit or loss:
Net gain (loss) on revaluation of financial assets measured
at fair value through other comprehensive income ..............................................
Remeasurements of defined benefit plans ............................................................
Share of other comprehensive income of investments
accounted for using the equity method ...............................................................
Total of items that will not be reclassified to profit or loss .....................................
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translation of foreign operations .....................................
Net gain (loss) on derivatives designated as cash flow hedges .............................
Share of other comprehensive income of investments
accounted for using the equity method ...............................................................
Total of items that may be reclassified subsequently to profit or loss ...................
Other comprehensive income, net of taxes ..............................................................
Comprehensive income ..............................................................................................
Attributable to:
Owners of the parent................................................................................................
Non-controlling interests ...........................................................................................
Comprehensive income .............................................................................................
Notes
2016
127,889
(Millions of yen)
2015
105,952
32,34
32
32
32
32
32
(906)
(16,111)
(72)
(17,089)
(16,661)
—
(10)
(16,671)
(33,760)
94,129
93,284
845
94,129
1,795
(770)
245
1,270
(15,064)
12
(19)
(15,071)
(13,801)
92,151
93,011
(860)
92,151
Kao Corporation Financial Report 2016
16
Consolidated Statement of Changes in Equity
Kao Corporation and Consolidated Subsidiaries
Years ended December 31, 2016 and 2015
Equity attributable to owners of the parent
(Millions of yen)
Notes
Share
Capital
capital
surplus
85,424 108,659
—
—
Treasury
shares
(8,202)
—
Subscription
rights to
shares
902
—
Exchange
differences on
translation of
foreign
operations
(13,513)
—
Other components of equity
Net gain (loss) on
revaluation of
financial assets
measured at fair
value through other
compre-
hensive income
8,430
—
Net gain (loss)
on derivatives
designated
as cash flow
hedges
(3)
—
Remeasure-
ments of defined
benefit plans
—
—
Total
(4,184)
—
Retained
earnings
499,299
126,551
Total
680,996
126,551
Non-
controlling
interests
10,991
1,338
Total
equity
691,987
127,889
—
—
—
—
(16,248)
(16,248)
(970)
(970)
(16,056)
(16,056)
(33,267)
(33,267)
—
126,551
(33,267)
93,284
(493)
845
(33,760)
94,129
23
23
33
25
23
23
33
25
January 1, 2016 ...............
Net income ....................
Other comprehensive
income .......................
Comprehensive income ....
Disposal of treasury
shares .........................
Purchase of treasury
shares .........................
Share-based payment
transactions ................
Dividends ......................
Changes in the
ownership interest in
subsidiaries ................
Transfer from other
components of equity
to retained earnings ...
Other increase
(decrease) ...................
Total transactions with
the owners .................
December 31, 2016 .........
January 1, 2015 ...............
Net income ....................
Other comprehensive
income .......................
Comprehensive income ....
Disposal of treasury
shares .........................
Purchase of treasury
shares .........................
Share-based payment
transactions ................
Dividends ......................
Changes in the
ownership interest in a
subsidiary ...................
Transfer from other
components of equity
to retained earnings ...
Other increase
(decrease) ...................
Total transactions with
the owners .................
December 31, 2015 .........
—
—
—
—
—
—
—
—
—
1,099
(189)
—
(50,021)
—
—
—
—
—
227
—
(29)
—
9
911
980
—
—
—
—
—
—
—
—
—
—
(1,011)
85,424 107,648
(48,922)
(57,124)
85,424 109,561
—
—
(9,719)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,571
(231)
(54)
—
—
—
225
—
—
(902)
—
—
—
—
—
—
—
—
—
(902)
85,424 108,659
1,517
(8,202)
(72)
—
(78)
902
—
—
—
—
—
—
—
—
(29,761)
—
—
(13,513)
(13,513)
—
—
—
—
—
—
—
—
(13,513)
7
7
—
—
—
—
—
—
—
—
4
(4)
—
1
1
—
—
—
—
—
—
—
—
(3)
(189)
(404)
506
—
506
—
227
—
—
(50,021)
—
(50,021)
—
(44,139)
227
(44,139)
—
(955)
227
(45,094)
—
—
—
—
—
—
—
—
—
—
(4)
—
—
—
(435)
16,056
15,592
(15,592)
—
—
—
—
(267)
(267)
16,056
—
15,630
(21,821)
(60,135)
565,715
(94,438)
679,842
(215)
11,621
(94,653)
691,463
—
—
(714)
(714)
—
—
—
—
—
714
—
714
—
7,601
—
431,975
105,196
624,842
105,196
13,546
756
638,388
105,952
(12,185)
(12,185)
—
105,196
(12,185)
93,011
(1,616)
(860)
(13,801)
92,151
(231)
(375)
965
(54)
—
—
965
(54)
—
—
(37,091)
225
(37,091)
—
(1,248)
225
(38,339)
—
225
—
—
—
(902)
(334)
(1,236)
406
(406)
—
—
—
—
—
—
(113)
(113)
400
(4,184)
(37,872)
499,299
(36,857)
680,996
(1,695)
10,991
(38,552)
691,987
—
(435)
7,025
6,625
—
2,041
2,041
—
—
—
—
—
(236)
—
(236)
8,430
—
(1,011)
—
—
—
—
(1,011)
1,007
17
Kao Corporation Financial Report 2016
Consolidated Statement of Cash Flows
Kao Corporation and Consolidated Subsidiaries
Years ended December 31, 2016 and 2015
Notes
2016
2015
(Millions of yen)
Cash flows from operating activities
Income before income taxes ..........................................................................................
Depreciation and amortization ........................................................................................
Interest and dividend income ..........................................................................................
Interest expense .............................................................................................................
Share of profit in investments accounted for using the equity method ..........................
(Gains) losses on sale and disposal of property, plant and
equipment, and intangible assets ................................................................................
(Increase) decrease in trade and other receivables ..........................................................
(Increase) decrease in inventories ..................................................................................
Increase (decrease) in trade and other payables .............................................................
Increase (decrease) in retirement benefit liabilities ........................................................
Other ...............................................................................................................................
Subtotal .......................................................................................................................
Interest received .............................................................................................................
Dividends received ..........................................................................................................
Interest paid ....................................................................................................................
Income taxes paid ...........................................................................................................
Net cash flows from operating activities .................................................................
Cash flows from investing activities
Payments into time deposits ..........................................................................................
Proceeds from withdrawal of time deposits ..................................................................
Purchase of property, plant and equipment ....................................................................
Purchase of intangible assets .........................................................................................
Acquisition of subsidiaries ..............................................................................................
Other ...............................................................................................................................
Net cash flows from investing activities ..................................................................
Cash flows from financing activities
Increase (decrease) in short-term borrowings ................................................................
Proceeds from long-term borrowings .............................................................................
Repayments of long-term borrowings ............................................................................
Purchase of treasury shares ...........................................................................................
Dividends paid to owners of the parent ..........................................................................
Dividends paid to non-controlling interests .....................................................................
Other ..............................................................................................................................
Net cash flows from financing activities ..................................................................
Net increase (decrease) in cash and cash equivalents ..................................................
Cash and cash equivalents at the beginning of the year ..............................................
Effect of exchange rate changes on cash and cash equivalents ...................................
Cash and cash equivalents at the end of the year .........................................................
8
8
183,430
51,116
(1,247)
1,484
(1,894)
3,466
(4,049)
(17,450)
4,388
19,967
(7,175)
232,036
1,003
1,479
(1,503)
(48,708)
184,307
(11,570)
3,703
(74,637)
(5,060)
(3,659)
2,584
(88,639)
(44)
200
(317)
(50,021)
(44,188)
(955)
282
(95,043)
625
309,922
(7,521)
303,026
166,038
57,423
(1,266)
1,528
(1,517)
3,497
(4,882)
(3,964)
9,707
(997)
2,321
227,888
1,004
1,315
(1,462)
(47,073)
181,672
(2,669)
1,355
(69,023)
(5,598)
—
1,811
(74,124)
(1,128)
40,080
(20,068)
(55)
(37,137)
(1,248)
(1,217)
(20,773)
86,775
228,967
(5,820)
309,922
Kao Corporation Financial Report 2016
18
Notes to Consolidated Financial Statements
Kao Corporation and Consolidated Subsidiaries
Fiscal year ended December 31, 2016
1
Reporting Entity
Kao Corporation (hereinafter the “Company”) is a corporation
established pursuant to the Companies Act of Japan (hereinafter
the “Companies Act”) with its headquarters in Chuo-ku, Tokyo.
The consolidated financial statements of the Company and its
subsidiaries (hereinafter the “Group”) have a closing date as of
December 31 and comprise the financial statements of the Group
and the interests in associates of the Company.
The Group manufactures consumer products including
cosmetics, skin care products, hair care products, sanitary
products, fabric care products, and chemical products including
fatty alcohols and surfactants. The Group delivers its products to
customers through its sales companies and distributors in Japan
and other countries. Details of these principal business activities
of the Group are presented in Note 6 “Segment Information.”
2
Basis of Preparation
(1) Compliance with International Financial Reporting
Standards (hereinafter “IFRS”) and Matters Concerning Its
First-time Adoption
The Group’s consolidated financial statements have been
prepared in accordance with IFRS issued by the International
Accounting Standards Board, permitted by the provision of Article
93 of the Ordinance on Terminology, Forms, and Preparation
Methods of Consolidated Financial Statements (Ordinance of the
Ministry of Finance of Japan No. 28 of 1976), as they satisfy the
requirements for an “IFRS Specified Company” in Article 1-2 of
the same ordinance.
The Group adopted IFRS for the fiscal year ended December
31, 2016. The Group made the transition to IFRS on January 1,
2015 (hereinafter the “transition date”), and applied IFRS 1 “First-
time Adoption of International Financial Reporting Standards”
(hereinafter “IFRS 1”). Note 39 “First-time Adoption of IFRS”
presents the effect of the transition to IFRS on amounts at the
transition date and comparative information for financial position,
operating results and cash flows for the fiscal year ended
December 31, 2015.
The Group’s accounting policies are in compliance with IFRS
effective as of December 31, 2016, excluding the IFRS provisions
3
Significant Accounting Policies
(1) Basis of Consolidation
1) Subsidiaries
Subsidiaries refer to all business entities controlled by the
Company. The Company controls an entity when it has
exposure, or rights, to variable returns from involvement
with an investee and has the ability to affect those returns
through its power over the investee.
The financial statements of subsidiaries are included in the
consolidated financial statements of the Group from the
date the Company gains control until the date it loses
control of the subsidiary.
All intergroup balances, transactions, income and
expenses and unrealized gains and losses arising from
intergroup transactions are eliminated in preparing the
consolidated financial statements.
A change in the Company’s ownership interest in a
subsidiary, without a loss of control, is accounted for as an
equity transaction. Any difference between the amount by
19
Kao Corporation Financial Report 2016
that have not been early adopted and the exemptions available in
IFRS 1.
(2) Basis of Measurement
The Group’s consolidated financial statements have been
prepared on the historical cost basis, except for certain assets and
liabilities including financial instruments measured at fair value as
presented in Note 3 “Significant Accounting Policies.”
(3) Functional Currency and Presentation Currency
The Group’s consolidated financial statements are presented in
Japanese yen, which is the Company’s functional currency. All
financial information presented in Japanese yen is rounded to the
nearest million yen.
(4) Early Adoption of New or Revised Standards and
Interpretations
The Group has early adopted IFRS 9 “Financial Instruments”
(issued in November 2009, revised in July 2014) (hereinafter “IFRS
9”) in preparing its consolidated financial statements.
which the non-controlling interests are adjusted and the fair
value of the consideration paid or received is recognized
directly in equity attributable to the Group.
Non-controlling interests in subsidiaries are identified
separately from the Group’s equity therein. Comprehensive
income of subsidiaries is attributed to owners of the parent
company and to the non-controlling interests even if this
results in the non-controlling interests having a deficit balance.
All subsidiaries have the same closing date as the Company.
2) Associates
An associate is defined as an entity over which the
Company has significant influence on financial and operating
policy decisions but does not have control over the entity.
The Company is presumed to have significant influence over
another entity when it directly or indirectly holds at least
20%, but no more than 50% of the voting rights of that
entity. Entities over which the Company is able to exercise
significant influence on financial and operating policy
decisions are also included in associates, even if it holds
less than 20% of the voting rights.
Investments in associates are initially recognized at cost,
and are accounted for by the equity method from the date
the Company gains significant influence until the date it
loses that influence.
Goodwill recognized on acquisition of associates (less any
accumulated impairment losses) is included in investments
in associates.
The closing dates of some associates differ from that of
the Company. Associates with different closing dates
prepare additional financial closing as of the closing date of
the Company.
(2) Business Combinations
Business combinations are accounted for using the acquisition
method. The consideration of an acquisition is measured as the
aggregate of the acquisition-date fair value of the assets
transferred, liabilities assumed and equity securities issued by the
Company to the former owners of the acquiree in exchange for
control of the acquiree.
Identifiable assets and liabilities of the acquiree in business
combinations are measured at their acquisition-date fair value,
with the following exceptions:
• Deferred tax assets or liabilities and assets or liabilities related
to employee benefit arrangements are recognized and
measured in accordance with IAS 12 “Income Taxes” and IAS
19 “Employee Benefits”, respectively.
• Non-current assets and disposal groups that are classified as
held for sale in accordance with IFRS 5 “Non-current Assets
Held for Sale and Discontinued Operations” are measured in
accordance with that Standard.
• Liabilities or equity instruments related to share-based payment
transactions of the acquiree or share-based payment transactions
of the Company entered into to replace such transactions of the
acquiree are measured in accordance with IFRS 2 “Share-based
Payment.”
Any excess of the consideration over the net fair value of
identifiable assets acquired and liabilities assumed at the
acquisition date is recognized as goodwill in the consolidated
statement of financial position. Conversely, any deficit is
immediately recognized as income in the consolidated statement
of income.
Costs associated with business combinations, such as advisory
fees, attorney fees and due diligence costs, are expensed as incurred.
The additional acquisition of non-controlling interests is accounted
for as an equity transaction, and therefore no goodwill is
recognized with respect to such a transaction.
Business combinations under common control are business
combinations in which all of the combining entities or combining
businesses are ultimately controlled by the same party or parties
both before and after the business combination, and that control
is not transitory. These business combinations are accounted for
based on the carrying amounts.
(3) Foreign Currency Translation
1) Functional currency and presentation currency
The presentation currency used in the Group’s consolidated
financial statements is Japanese yen, which is the Company’s
functional currency. Subsidiaries and associates in the Group
determine their own functional currencies and each entity’s
transactions are measured in its functional currency.
2) Foreign currency transactions
Foreign currency transactions are translated into the functional
currency at the spot exchange rate at the date of the transaction,
or an exchange rate that approximates the spot rate.
At the end of each reporting period, foreign currency
monetary items are translated into the functional currency
using the rates at the end of each reporting period.
Non-monetary items that are measured in terms of historical
cost in foreign currencies are translated using the exchange
rates at the date of acquisition. Non-monetary items that are
measured at fair value in foreign currencies are translated into
the functional currency using the exchange rates at the date
when the fair value was measured. Exchange differences
arising from such translations and settlements are recognized
in profit or loss. However, exchange differences arising from
equity instruments measured at fair value through other
comprehensive income and cash flow hedges are recognized
in other comprehensive income.
3) Financial statements of foreign operations
Assets and liabilities of foreign operations are translated at
the rates at the end of each reporting period. Income and
expenses are translated at the average exchange rates for the
period, provided that there were no significant fluctuations in
the exchange rates during the period. Exchange differences
arising from translation of the financial statements of foreign
operations are recognized in other comprehensive income.
On the disposal of a foreign operation, the cumulative amount
of exchange differences relating to that foreign operation is
reclassified from equity to profit or loss when the gain or loss
on disposal is recognized.
(4) Financial Instruments
The Group has early adopted IFRS 9 effective from the transition date.
1) Financial assets
(i) Initial recognition and measurement
The Group initially recognizes trade and other receivables
at the date they are originated. Other financial assets are
initially recognized at the transaction date when the
Group becomes a party to the contractual provisions of
the financial instrument.
At initial recognition, all financial assets are measured
at fair value, but those that are not classified as financial
assets measured at fair value through profit or loss are
measured at fair value plus transaction costs directly
attributable to acquisition of the financial asset.
Transaction costs of financial assets measured at fair
value through profit or loss are recognized in profit or loss.
Kao Corporation Financial Report 2016
20
(ii) Classification and subsequent measurement
The Group classifies the financial assets it holds as (a)
financial assets measured at amortized cost; (b) debt
instruments measured at fair value through other
comprehensive income; (c) equity instruments measured
at fair value through other comprehensive income; or (d)
financial assets measured at fair value through profit or
loss. This classification is determined at initial recognition,
and measurement of financial assets after initial recognition
is performed as follows according to the classification of
the financial asset.
(a) Financial assets measured at amortized cost
Financial assets held by the Group are measured at
amortized cost if both of the following conditions are
met:
• The financial asset is held in a business model
whose objective is to hold financial assets in order to
collect contractual cash flows; and
• The contractual terms of the financial asset give rise
on specified dates to cash flows that are solely
payments of principal and interest on the principal
amount outstanding.
After initial recognition, the carrying amounts of
financial assets measured at amortized cost are
recognized using the effective interest method less
impairment loss, if any. Amortization using the effective
interest method and gains and losses on derecognition
are recognized in profit or loss for the period.
(b) Debt instruments measured at fair value through other
comprehensive income
Financial assets held by the Group are classified as
debt instruments measured at fair value through other
comprehensive income if both of the following
conditions are met:
• The financial asset is held within a business model
whose objective is achieved by both collecting
contractual cash flows and selling the financial asset;
and
• The contractual terms of the financial asset give rise
on specified dates to cash flows that are solely
payments of principal and interest on the principal
amount outstanding.
(c) Equity instruments measured at fair value through
other comprehensive income
The Group has made an irrevocable election to present
subsequent changes in fair value of certain equity
instruments in other comprehensive income, and
classifies them in equity instruments measured at fair
value through other comprehensive income.
These financial assets are measured at fair value
after initial recognition, and changes in fair value are
included in other comprehensive income. If the Group
disposes of an investment, or if the fair value of the
21
Kao Corporation Financial Report 2016
investment declines significantly, the cumulative gain
or loss recognized in other comprehensive income is
reclassified from other components of equity to
retained earnings.
Dividends from equity instruments measured at fair
value through other comprehensive income are
recognized as financial income in profit or loss.
(d) Financial assets measured at fair value through profit
or loss
Financial assets that are not classified as financial
assets measured at amortized cost, debt instruments
measured at fair value through other comprehensive
income, or equity instruments measured at fair value
through other comprehensive income are classified as
financial assets measured at fair value through profit
or loss. The Group’s financial assets that are measured
at fair value through profit or loss include certain short-
term investments and derivative assets. The Group has
not irrevocably designated any financial assets as
measured at fair value through profit or loss.
These financial assets are measured at fair value
after initial recognition, and changes in their fair value
are recognized in profit or loss. Gains and losses on
financial assets measured at fair value through profit
or loss are recognized in profit or loss.
(iii) Impairment of financial assets
With respect to impairment of financial assets measured
at amortized cost, the Group recognizes a loss allowance
for expected credit losses on such financial assets.
At each reporting date, the Group assesses whether
the credit risks on the financial assets have increased
significantly since initial recognition.
If credit risk on a financial instrument has not
increased significantly since initial recognition, the loss
allowance for that financial instrument is measured at an
amount equal to the 12-month expected credit losses. If
credit risk on a financial instrument has increased
significantly since initial recognition, the loss allowance
is measured in an amount equal to the lifetime expected
credit losses.
However, the loss allowance on trade receivables and
others is always measured in an amount equal to the
lifetime expected credit losses.
The expected credit losses of financial assets are
estimated in a way that reflects the following:
• An unbiased and probability-weighted amount
determined by evaluating a range of possible outcomes
• The time value of money
• Reasonable and supportable information about past
events, current conditions and forecasts of economic
conditions that is available without undue cost or effort
at the reporting date
The amounts of these measurements are recognized
in profit or loss.
If an event that reduces an impairment loss occurs
after the impairment loss has been recognized, the
impairment loss will be reversed to the extent of the
decrease and credited to profit or loss.
(iv) Derecognition of financial assets
The Group derecognizes financial assets only when the
contractual rights to the cash flows from the financial
assets expire, or when the Group transfers financial
assets and substantially all the risks and rewards of
ownership of the financial assets.
2) Financial liabilities
(i) Initial recognition and measurement
The Group initially recognizes bonds and borrowings at
the date they are issued, and other financial liabilities at
the transaction date.
Upon initial recognition, all financial liabilities are
measured at fair value. However, financial liabilities
measured at amortized cost are measured in the full amount
after deducting directly attributable transaction costs from
the fair value.
Transaction costs of financial liabilities measured at fair
value through profit or loss are recognized in profit or loss.
(ii) Classification and subsequent measurement
The Group classifies financial liabilities as either financial
liabilities measured at fair value through profit or loss, or
financial liabilities measured at amortized cost. This
classification is determined at initial recognition.
Measurement of financial liabilities after initial recognition
is performed as follows, according to the classification of
the financial liability.
The Group’s financial liabilities measured at fair value
through profit or loss are derivative liabilities. The Group
has not irrevocably designated any financial liabilities as
measured at fair value through profit or loss at initial
recognition. Financial liabilities measured at fair value
through profit or loss are measured at fair value after
initial recognition, and any changes in their fair value are
recognized in profit or loss for the period.
Financial liabilities measured at amortized cost are
subsequently measured at amortized cost using the
effective interest method. Amortization using the
effective interest method and gains and losses on
derecognition are recognized in profit or loss for the
period.
(iii) Derecognition of financial liabilities
The Group derecognizes financial liabilities when they
are extinguished (i.e., when the obligation specified in
the contract is discharged or cancelled or expires).
3) Offsetting of financial assets and financial liabilities
Financial assets and financial liabilities are offset and the
net amount is presented in the consolidated statement of
financial position only when the Group currently has a
Notes to Consolidated Financial Statements
legally enforceable right to set off the recognized amount
and intends either to settle on a net basis or realize the
assets and settle the liabilities simultaneously.
4) Fair value of financial instruments
The Group recognizes the fair value of financial instruments
using various valuation methodologies and inputs. The fair
values recognized based on the observability of inputs into
the valuation methodologies are grouped into the following
three levels:
Level 1: Fair value measured with quoted prices in active
markets for identical assets or liabilities
Level 2: Fair value measured with inputs other than quoted
prices categorized within Level 1 that are
observable for the asset or liability, either directly or
indirectly
Level 3: Fair value measured with unobservable inputs for
the asset or liability
5) Hedge accounting
The Group uses interest rate swaps and other derivatives to
hedge interest rate risk. At the inception of a hedging
relationship, the Group formally designates and documents the
hedging relationship and the interest rate risk management
objective and strategy for undertaking the hedge. The
documentation includes identification of the hedging instrument,
the hedged item, the nature of the risk being hedged, and the
methods of assessing whether the hedging relationship meets
the hedge effectiveness requirements. In addition, the Group
assesses whether the hedging relationship meets the hedge
effectiveness requirements, both at the inception and on an
ongoing basis. Ongoing assessments are conducted either at
each reporting date or upon a significant change in the
circumstances affecting the hedge effectiveness requirements,
whichever comes first.
In accordance with the Group’s risk management policy,
derivatives that meet the criteria for hedge accounting with
respect to interest rate risk are designated as cash flow
hedges and accounted for as follows.
Derivatives designated as hedging instruments in cash
flow hedges are interest rate swaps to convert floating-rate
financial liabilities to fixed-rate financial liabilities. The effective
portion of changes in the fair values of derivatives designated
as cash flow hedges is recognized in other components of
equity until the associated hedged transactions are executed
and profit or loss is recognized. Gains or losses on derivatives
recognized in other components of equity are reclassified
into profit or loss at the time when the associated hedged
transactions are recognized in profit or loss. However,
any ineffective portion of the change in fair value of the
derivatives is recognized immediately in profit or loss.
Hedge accounting is discontinued prospectively only
when the hedging relationship ceases to meet the qualifying
criteria. This includes instances when the hedging instrument
expires or is sold, terminated or exercised.
The Group does not use fair value hedges or net investment
hedges in foreign operations.
Kao Corporation Financial Report 2016
22
(5) Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand, demand
deposits and short-term investments that are highly liquid and
readily convertible to known amounts of cash subject to an
insignificant risk of changes in value, and that mature or become
due within three months from the date of acquisition.
Cash and cash equivalents include certificates of deposit, time
deposits, commercial paper, public and corporate bonds in
investment trusts, and money in trust.
(6) Inventories
Inventories are measured at the lower of cost and net realizable
value. Net realizable value is the estimated selling price in the
ordinary course of business less the estimated costs of completion
and the estimated costs necessary to make the sale. The cost of
inventories includes all costs of purchase, costs of conversion and
other costs incurred in bringing the inventories to their present
location and condition, and are determined principally by the
weighted average method.
(7) Property, Plant and Equipment
Property, plant and equipment are measured using the cost model
and carried at cost less any accumulated depreciation and any
accumulated impairment losses.
The cost of an item of property, plant and equipment comprises
any costs directly attributable to acquisition of the asset and the
initial estimate of the costs of dismantling and removing the item
and restoring the site on which it is located.
Depreciation of assets other than land and construction in
progress is calculated on a straight-line basis over the estimated
useful lives of the assets.
The estimated useful lives of major asset items are as follows:
(cid:119)(cid:1)Buildings and structures: 10 to 35 years
(cid:119)(cid:1)Machinery and vehicles: 7 to 14 years
(cid:119)(cid:1)Tools, furniture and fixtures: 3 to 10 years
The estimated useful lives, residual values and depreciation
method are reviewed at each fiscal year end, and any revisions are
applied prospectively as changes in accounting estimates.
The Group changed estimated useful lives from the fiscal year
ended December 31, 2016. The details are presented in Note 4
“Significant Accounting Estimates and Judgments (3) Useful Lives
of Property, Plant and Equipment.”
(8) Goodwill and Intangible Assets
1) Goodwill
Goodwill arising from a business combination is not
amortized, and is carried at cost, determined at the
acquisition date, less any accumulated impairment losses.
In addition, goodwill is allocated to the cash generating
unit or group of cash-generating units that is expected to
benefit from the synergies of the business combination, and
is tested for impairment at least once a year by each fiscal
year end or if there are indications of impairment.
Impairment loss on goodwill is recognized in profit or loss
and is not reversed in subsequent periods.
Goodwill measurements at initial recognition are
presented in Note 3 “Significant Accounting Policies (2)
Business Combinations.”
23
Kao Corporation Financial Report 2016
2) Intangible assets
Intangible assets are measured using the cost model and
carried at cost less any accumulated amortization and any
accumulated impairment losses.
The costs of separately acquired intangible assets comprise
any costs directly attributable to acquisition of the assets.
The costs of intangible assets acquired in business
combinations are measured at fair value at the acquisition date.
Expenditures related to internally generated intangible
assets are recognized as expenses when incurred, with the
exception of development expenses that meet the criteria
for capitalization. Software development expense only
meets the criteria for capitalization.
After initial recognition, with the exception of intangible
assets with indefinite useful lives, intangible assets are
amortized on a straight-line basis over their estimated useful
lives.
The Group has no intangible assets with indefinite useful
lives. The estimated useful lives of major intangible assets
are as follows:
(cid:119)(cid:1)Trademarks: 10 years
(cid:119)(cid:1)Software: 5 years
The estimated useful lives, residual values and
amortization method are reviewed at each fiscal year end,
and any revisions are applied prospectively as changes in
accounting estimates.
3) Research and development expenses
Research expenditures are expensed as incurred.
Development expenditures are capitalized only if they can
be measured reliably, future economic benefits are probable,
and the Group intends to, and has sufficient resources to,
complete development and to use or sell the asset. If
research expenditures and development expenditures
cannot be clearly distinguished, they are expensed as
incurred as research expenditures.
(9) Leases
The Group classifies a lease that transfers substantially all the
risks and rewards incidental to ownership of an asset as a finance
lease and a lease other than a finance lease as an operating lease.
In finance lease transactions, leased assets and lease
obligations are initially recognized at the lower of the fair value of
leased property and the present value of the minimum lease
payments, each determined at the inception of the lease.
Leased assets are depreciated on a straight-line basis over the
shorter of their estimated useful lives and lease terms. Lease
payments are apportioned between the finance charges and the
reduction of the outstanding liability using the interest method.
Lease payments under operating leases are recognized as an
expense on a straight-line basis over the lease term.
Determination of whether an arrangement is, or contains, a
lease is based on the substance of the arrangement, in
accordance with IFRIC Interpretation 4 “Determining Whether an
Arrangement Contains a Lease.”
Notes to Consolidated Financial Statements
(10) Impairment of Non-financial Assets
Non-financial assets, excluding inventories, deferred tax assets,
non-current assets classified as held for sale and assets arising
from employee benefits, are assessed at the end of each reporting
period to determine whether there is any indication of impairment.
If there is an indication of impairment, the recoverable amount of
the asset is estimated. For goodwill, the recoverable amount is
estimated at least once a year by each fiscal year end, irrespective
of whether there is any indication of impairment.
The recoverable amount of an asset or a cash-generating unit is
the higher of its value in use and fair value less cost of disposal.
The discount rate used in calculating the asset’s value in use is a
pre-tax rate that reflects current market assessments of the time
value of money and the risks specific to the asset, for which the
future cash flow estimates have not been adjusted.
If it is not possible to estimate the recoverable amount of an
individual asset, the recoverable amount of the cash-generating
unit to which the asset belongs is measured. Goodwill acquired in
business combinations is allocated to each of the cash-generating
units or groups of cash-generating units of the Group that is
expected to benefit from synergies of the business combinations
after the acquisition date, and is tested for impairment.
Because corporate assets do not generate separate cash
inflows, the recoverable amount of individual corporate assets
cannot be measured unless management has decided to dispose
of the asset. If there is an indication that a corporate asset may be
impaired, the recoverable amount of the cash-generating unit or
group of cash-generating units to which the asset belongs is
measured and compared with the carrying amount.
Impairment losses are recognized in profit or loss whenever the
recoverable amount is less than the carrying amount. Such
impairment losses of the cash-generating unit or group of cash-
generating units are recognized by first reducing the carrying
amount of any goodwill allocated to the cash-generating unit or
group of cash-generating units, and then allocating the rest of the
losses to other assets of the unit pro rata on the basis of the
carrying amount of each asset in the unit.
The Group reviews assets other than goodwill at each fiscal
year end to determine whether there is any indication that
previously recognized impairment losses may no longer exist or
may have decreased. If there are any such indications, the Group
estimates the recoverable amount of the asset.
Impairment losses on assets other than goodwill that were
recognized in prior fiscal years are reversed only when there have
been changes in the estimates used to determine the recoverable
amount of the asset since the last impairment loss was recognized.
In this case, the carrying amount of the asset is increased as a
reversal of impairment loss to the recoverable amount.
Impairment losses are reversed up to the carrying amount, net
of amortization or depreciation, that would have been determined
had no impairment loss for the asset been recognized in prior
fiscal years.
(11) Employee Benefits
1) Post-employment benefits
The Group sponsors a defined benefit plan and a defined
contribution plan as post-employment benefit plans for
employees.
(i) Defined benefit plan
For the defined benefit plan, the projected unit credit
method is used to individually determine the present
value of defined benefit obligations, related current
service costs and past service costs of each plan.
The discount rate is determined by referring to market
yields at the end of the fiscal year on high quality
corporate bonds corresponding to the period until the
expected date of future benefit payment.
The net amount of the present value of defined benefit
obligations and the fair value of plan assets is accounted
for as a liability or asset. However, if the defined benefit
plan has surplus, the net defined benefit asset is limited
to the present value of any economic benefits available
in the form of refunds from the plan or reductions in the
future contributions to the plan. Net interest on the net
defined benefit liability (asset) is recognized in profit or
loss as financial expenses (income).
Remeasurements of the net defined benefit liability
(asset) are recognized in other comprehensive income
and immediately reclassified to retained earnings in the
period in which they occur.
Past service costs are recognized in profit or loss for
the period in which they are incurred.
(ii) Defined contribution plan
Payments to defined contribution plan are recognized as
expenses when employees have rendered services
entitling them to the contributions.
2) Other employee benefits
Short-term employee benefit obligations are measured on
an undiscounted basis, and are recognized as an expense
when the related services are rendered.
For bonuses, when there is a present legal or constructive
obligation to make payments of bonuses, and a reliable
estimate of the obligation can be made, the estimated amount
to be paid is accounted for as a liability.
For the paid absence expenses, when there is a legal or
constructive obligation with respect to accumulating paid
absence systems and a reliable estimate of the obligation
can be made, the estimated amount to be paid based on
those systems is accounted for as a liability.
(12) Share-based Payments
The Company has a stock option plan accounted for as an equity-
settled share-based payment plan.
Stock options are estimated using their fair value at the grant
date and recognized in profit or loss as expenses over the vesting
periods with corresponding increases to equity and taking into
account the estimated number of options to be finally vested. The
fair value of options granted is measured using the Black-Scholes
model based on the terms and conditions of the options.
The terms and conditions are periodically reviewed and the
estimated number of options vested is revised as necessary.
Kao Corporation Financial Report 2016
24
(13) Provisions
Provisions are recognized when the Group has a present obligation
(legal or constructive) as a result of a past event, it is probable that
an outflow of resources embodying economic benefits will be
required to settle the obligation, and a reliable estimate can be
made of the amount of the obligation.
The amounts recognized as provisions are the best estimates of
necessary expenditures to settle the present obligation at the end
of the reporting period, taking into account the risks and
uncertainties associated with the obligation. When the effect of the
time value of money is material, the amount of provision is
measured at the present value of the expenditures expected to be
required to settle the obligation.
(14) Revenue
The Group is engaged in the sale of consumer products, including
cosmetics, skin care products, hair care products, sanitary products
and fabric care products, as well as chemical products, including
fatty alcohols and surfactants. Revenue from the sale of these
goods is recognized when the Group has transferred the significant
risks and rewards of ownership of the goods to the buyer; the
Group retains neither continuing managerial involvement nor
effective control over the goods sold; it is probable that economic
benefits related to the transaction will flow to the Group; and these
benefits and corresponding costs can be measured reliably.
Therefore, revenue is usually recognized at the time of delivery of
goods to customers. Revenue is measured at the fair value of the
consideration received or receivable less any discounts, rebates,
consumption taxes and other taxes.
(15) Income Taxes
Income taxes consist of current income taxes and deferred income
taxes. Income taxes are recognized as income or expenses and
included in profit or loss, except for taxes related to business
combinations and taxes related to items that are recognized
directly in equity or in other comprehensive income.
1) Current income taxes
Current income taxes are recognized in the amount of the
expected taxes payable to or receivable from the taxation
authorities. Calculation of the amount of tax is based on the
tax rates and tax laws enacted or substantively enacted by
the end of the reporting period in countries where the
Group conducts business and earns taxable income.
2) Deferred income taxes
Deferred tax assets and liabilities are recognized for
temporary differences between the carrying amounts of
assets or liabilities at the end of the reporting period and its
tax base, and for tax loss carryforwards and tax credits.
Deferred tax assets are recognized for deductible temporary
differences, the carryforwards of unused tax losses and the
carryforwards of unused tax credits to the extent that it is
probable that future taxable income will be available against
such deferred tax assets. Deferred tax liabilities are recognized,
in principle, for all taxable temporary differences.
The carrying amount of deferred tax assets is reviewed each
period and reduced to the extent that it is no longer probable
25
Kao Corporation Financial Report 2016
that sufficient future taxable income will be available to realize
benefits from all or part of the assets. Unrecognized deferred
tax assets are reassessed each period and are recognized to
the extent that it has become probable that future taxable
income will allow the deferred tax assets to be recovered.
Deferred tax assets and liabilities are not recognized for
the following temporary differences:
• Taxable temporary differences arising from initial
recognition of goodwill
• Temporary differences arising from initial recognition of
assets and liabilities from transactions that are not
business combinations and affect neither accounting
income nor taxable income
• Taxable temporary differences on investments in
subsidiaries and associates, when the timing of the
reversal of the temporary differences can be controlled
and it is probable that the temporary differences will not
reverse in the foreseeable future
• Deductible temporary differences on investments in
subsidiaries and associates, when it is probable that the
temporary differences will not reverse in the foreseeable
future
Deferred tax assets and liabilities are measured at the tax
rates that are expected to apply to the period when the
assets are realized or the liabilities are settled, based on the
tax rates and tax laws enacted or substantively enacted by
the end of the reporting period.
Deferred tax assets and liabilities are offset if the Group
has a legally enforceable right to set off current tax assets
against current tax liabilities and income taxes are levied by
the same taxation authority on the same taxable entity.
The Company and some of its subsidiaries have adopted
the consolidated tax system.
(16) Earnings per Share
Basic earnings per share are calculated by dividing net
income attributable to owners of the parent by the weighted-
average number of ordinary shares outstanding during the
period, adjusted for treasury shares held. Diluted earnings
per share are calculated by adjusting the effects of all dilutive
potential ordinary shares.
(17) Non-current Assets Held for Sale
A non-current asset or disposal group whose carrying amount
is expected to be recovered principally through a sale
transaction rather than through continuing use is classified as
a non-current asset or disposal group held for sale if it is
highly probable that the asset or disposal group will be sold
within one year and is available for immediate sale in its
present condition, and the Group’s management is
committed to a plan to sell. Non-current assets are not
depreciated or amortized while they are classified as held for
sale or are part of a disposal group classified as held for sale.
Non-current assets or disposal groups classified as held for
sale are measured at the lower of the carrying amount and
fair value less costs to sell.
Notes to Consolidated Financial Statements
(19) Dividends
Dividend distributions to shareholders of the Company are
recognized as liabilities in the period in which year-end dividends
are resolved upon by the General Meeting of Shareholders and
interim dividends are resolved upon by the Board of Directors.
(18) Equity and Other Capital
1) Ordinary shares
Ordinary shares are recognized in share capital and capital
surplus at their issue price. Share issuance costs are
deducted from the issue price.
2) Treasury shares
Treasury shares are recognized at cost and deducted from
equity. No gain or loss is recognized on the purchase, sale or
retirement of the Company’s treasury shares. Any difference
between the carrying amount and consideration received on
the sale of treasury shares is recognized directly in equity.
4
Significant Accounting Estimates and Judgments
The Group’s consolidated financial statements include estimates
and assumptions made by the management regarding income and
expenses, measurement of the carrying amounts of assets and
liabilities, and disclosure of contingencies and others at the end of
the reporting period. These estimates and assumptions are based
on management’s best judgment at the end of the reporting
period, and take into account historical experience and various
other factors that can be considered as reasonable. However, due
to their nature, actual results may differ from these estimates and
assumptions.
The estimates and their underlying assumptions are reviewed
by management on an ongoing basis. The effects of revisions to
accounting estimates and assumptions are recognized in the
period when the estimates are revised and in future periods.
Estimates and assumptions that significantly affect the
amounts recognized in the Group’s consolidated financial
statements are as follows.
(1) Impairment of Property, Plant and Equipment, Goodwill
and Intangible Assets
The Group conducts impairment tests for property, plant and
equipment, goodwill and intangible assets when there is an
indication that the recoverable amount of the asset or cash-
generating unit is less than the carrying amount.
Triggering events for impairment testing include, for example,
significant changes with adverse effects on past or projected
business performance, significant changes in the use of acquired
assets, or changes in overall business strategy.
Furthermore, goodwill is tested for impairment at least once a year
by each fiscal year end, irrespective of indication of impairment, to
verify that the recoverable amount of the cash-generating unit to
which goodwill is allocated exceeds the carrying amount.
Impairment tests are performed by comparing the carrying
amount and the recoverable amount of the asset or cash-
generating unit. If the recoverable amount is less than the carrying
amount, the carrying amount is reduced to the recoverable amount
and the reduction is recognized as an impairment loss. The
recoverable amount is the higher of the value in use and the fair
value less cost of disposal of the asset or cash-generating unit.
In calculating the value in use, the Group makes certain
assumptions about the remaining useful life and future cash flows
of the asset, discount rate, growth rate and other factors. These
assumptions are based on management’s best estimates and
judgments, but may be affected by changes in future business
plans, economic conditions or other factors. If revisions to the
assumptions become necessary, such revisions could have a
material effect on the amounts recognized in the consolidated
financial statements in future periods.
Note 13 “Property, Plant and Equipment” and Note 14
“Goodwill and Intangible Assets” present the method for
calculating the recoverable amount. Note 14 “Goodwill and
Intangible Assets” presents sensitivity associated with goodwill.
(2) Post-employment Benefits
The Group provides a variety of post-retirement benefit plans that
include a defined benefit plan. The present value of defined
benefit obligations and related service costs are determined
based on actuarial assumptions.
Actuarial assumptions are based on management’s best
estimates and judgments, but may be affected by the revision of
inputs including discount rate and mortality rate due to changes in
economic conditions. If revisions to the assumptions become
necessary, such revisions could have a material effect on the
amounts recognized in the consolidated financial statements in
future periods.
Note 20 “Employee Benefits” presents actuarial assumptions
and related sensitivity.
(3) Useful Lives of Property, Plant and Equipment
The Group focuses on machinery and equipment in making
proactive capital investments, and prioritizes management issues
such as global analysis to optimize production bases and enable
manufacturing cost comparisons.
Consequently, the Group globally unified its property, plant and
equipment systems in January 2016. The Group decided to take
advantage of this change to make the estimated useful lives of
machinery and equipment consistent (generally 9 or 10 years
depending on the type of equipment) from the fiscal year ended
December 31, 2016 to better reflect the actual use of machinery
and equipment in global production.
The effect of this change in accounting estimates on the
consolidated financial statements is immaterial.
Kao Corporation Financial Report 2016
26
(4) Provisions
The Group has recognized a provision for loss related to cosmetics,
a provision for sales returns, a provision for asset retirement
obligations and other provisions in the consolidated statement of
financial position.
The amounts recognized are the best estimates of the
expenditures required to settle the present obligations, taking into
account historical experience and other factors at the end of the
reporting period.
The provision for loss related to cosmetics may be affected by
changes in compensation-related and other expenses.
The provision for sales returns may be affected by factors such
as plans to discontinue production and sales of products.
The provision for asset retirement obligations and other
provisions may be affected by factors such as changes in future
business plans.
(6) Fair Value
The Group uses various inputs, including unobservable inputs, and
valuation methodologies to estimate the fair value of specific assets
and liabilities. When measuring fair value, the Group maximizes the
use of relevant observable inputs and minimizes the use of
unobservable inputs, and management’s best estimates and
judgments are required in that process.
The fair value of these assets and liabilities is based on
management’s best estimates and judgments, but could be affected
by factors including changes in inputs due to changes in economic
conditions. Any revisions that become necessary could have a
material effect on the amounts recognized in the consolidated
financial statements in future periods.
Note 34 “Financial Instruments” presents fair value
measurement methods and amounts for major financial assets
and liabilities measured at fair value.
If the actual amounts paid differ from the estimates, such
In its first-time adoption of IFRS, the Group applies the exemption
differences could have a material effect on the amounts recognized
in the consolidated financial statements in future periods.
Note 21 “Provisions” presents the nature and amounts of these
provisions.
under IFRS 1 and uses the deemed cost as the acquisition cost for
certain property, plant and equipment. Note 39 “First-time Adoption
of IFRS” presents fair value measurement methods and amounts for
these assets.
(7) Contingencies
Contingencies are disclosed when there are items that could have a
material effect on future business after considering the probability
of occurrence and the amount of financial impact, taking into
account all available evidence at the end of the reporting period.
(5) Income Taxes
The Group recognizes and measures income tax payables and
income taxes based on reasonable estimates of the amounts to
be paid to the taxation authorities in each country. Such estimates
are made using the tax rates and tax laws enacted or
substantively enacted by the end of the reporting period.
Calculating income tax payables and income taxes requires
estimates and judgments of various factors, including
interpretations of tax regulations by the Group and the taxation
authorities and the experience of past tax audits.
Therefore, if the final tax outcome is different from the amount
initially recognized, the difference is recognized in the period
when the tax outcome is finalized.
Deferred tax assets are recognized for deductible temporary
differences, the carryforwards of unused tax losses and the
carryforwards of unused tax credits to the extent that it is probable
that future taxable income will be available. The realizability of
deferred tax assets is assessed using the tax rates that are
expected to apply to the period when the asset is realized, based
on tax rates and tax laws enacted or substantively enacted by the
end of the reporting period.
Recognition and measurement of deferred tax assets are based
on management’s best estimates and judgments, but may be
affected by future changes in business plans or other conditions,
or by the amendment or promulgation of related laws. Any
revisions that become necessary could have a material effect on
the amounts recognized in the consolidated financial statements
in future periods.
Note 16 “Income Taxes” presents income taxes and amounts.
27
Kao Corporation Financial Report 2016
Notes to Consolidated Financial Statements
5
New Standards and Interpretations Not Yet Adopted
New or revised major Standards and Interpretations that were issued by the date of approval presented in Note 40 “Approval of the
Consolidated Financial Statements,” but were not yet adopted by the Group as of December 31, 2016 are as follows.
IFRS
Title
Revenue from
Contracts with
Customers
IFRS 15
Mandatory adoption
(From the fiscal year beginning)
January 1, 2018
IFRS 16
Leases
January 1, 2019
Adoption by the Group
Early adoption being
planned in fiscal year ending
December 31, 2017
Overview of new or revised
Standards and Interpretations
Revised accounting treatment for
revenue recognition and disclosure
Fiscal year ending
December 31, 2019
Revised lease definition, accounting
treatment and disclosure
The main impact resulting from the early adoption of IFRS 15
“Revenue from Contracts with Customers” is the accounting
treatment of consideration payable to customers. Some of the
consideration payable to customers previously recognized as
selling, general and administrative expenses will be accounted for
as reductions of net sales or as cost of sales. The expected major
impact on the Group’s consolidated financial statements for the
fiscal year ending December 31, 2017 is a decrease of
approximately 40 billion yen in net sales in the consolidated
statement of income. The impact on operating income will be
immaterial.
The Group is currently evaluating the possible impacts on the
consolidated financial statements resulting from the adoption of
IFRS 16 “Leases” and the estimates are currently not available.
6
Segment Information
(1) Summary of Reportable Segments
The Group’s reportable segments are the components of the
Group for which discrete financial information is available and
which are regularly reviewed by the Board of Directors in deciding
how to allocate resources and in assessing their performance. Net
sales and operating income are the key measures used by the
Board of Directors to evaluate the performance of each segment.
The Group is an organization comprising four main business
units - the Beauty Care Business, the Human Health Care
Business, the Fabric and Home Care Business (collectively, the
“Consumer Products Business”) and the Chemical Business. In
each business unit, the Group plans comprehensive business
strategies and carries out business activities on a global basis.
Accordingly, the Group has four reportable segments: the
Beauty Care Business, the Human Health Care Business, the
Fabric and Home Care Business and the Chemical Business.
Information about major customers has been omitted as the revenue
from each customer is less than 10% of the Group’s net sales.
Reportable segments
Major products
Beauty Care
Business
Consumer
Products
Business
Human Health Care
Business
Cosmetics
Skin care products
Hair care products
Food and beverage
products
Sanitary products
Counseling cosmetics, self-selection cosmetics
Soaps, facial cleansers, body cleansers
Shampoos, conditioners, hair styling agents, hair coloring agents
Beverages
Sanitary napkins, baby diapers
Personal health products
Bath additives, oral care products, men’s products
Fabric care products
Laundry detergents, fabric treatments
Fabric and
Home Care
Business
Home care products
Oleo chemicals
Chemical Business
Performance chemicals
Specialty chemicals
Kitchen cleaning products, house cleaning products, paper
cleaning products, commercial-use products
Fatty alcohols, fatty amines, fatty acids, glycerin, commercial-use
edible fats and oils
Surfactants, plastics additives, superplasticizers for concrete
admixtures
Toner and toner binder for copiers and printers, ink and colorants
for inkjet printers, fragrances and aroma chemicals
Kao Corporation Financial Report 2016
28
(2) Sales and Results of Reportable Segments
Fiscal year ended December 31, 2016
(Millions of yen)
Reportable segments
Consumer Products Business
Beauty Care
Business
Human Health
Care Business
Fabric and Home
Care Business
Subtotal
Chemical
Business
Total
Reconciliation1 Consolidated
601,620
273,067
345,163
1,219,850
237,760
1,457,610
—
1,457,610
—
601,620
51,086
—
273,067
25,948
—
345,163
78,099
— 36,025
273,785
29,683
1,219,850
155,133
36,025
1,493,635
184,816
(36,025)
(36,025)
755
—
1,457,610
185,571
1,389
(5,424)
1,894
183,430
18,399
43
20,135
12,930
26
41,752
7,876
40
16,050
39,205
109
77,937
11,650
—
11,877
50,855
109
89,814
261
—
86
51,116
109
89,900
Net sales
Sales to customers ...............
Intersegment sales and
transfers2 ............................
Total net sales ...........................
Operating income .....................
Financial income ...................
Financial expenses ................
Share of profit in investments
accounted for using the
equity method .....................
Income before income taxes .....
Other items
Depreciation and
amortization3 .......................
Impairment losses3 ..............
Capital expenditures4 ............
Notes: 1. The operating income reconciliation of 755 million yen includes corporate expenses not allocated to reportable segments, as well as elimination of
intersegment inventory transactions.
2. Intersegment sales and transfers are mainly calculated based on market price and manufacturing cost.
3. Note 13 “Property, Plant and Equipment” and Note 14 “Goodwill and Intangible Assets” present the details of depreciation, amortization and impairment
losses.
4. Capital expenditures include investments in property, plant and equipment, intangible assets and other non-current assets.
Fiscal year ended December 31, 2015
(Millions of yen)
Reportable segments
Consumer Products Business
Beauty Care
Business
Human Health
Care Business
Fabric and Home
Care Business
Subtotal
Chemical
Business
Total
Reconciliation1 Consolidated
608,617
281,672
335,308
1,225,597
248,953
1,474,550
—
1,474,550
—
—
608,617
37,929
281,672
33,368
—
335,308
66,124
—
39,517
39,517
(39,517)
—
1,225,597
137,421
288,470
28,593
1,514,067
166,014
(39,517)
1,304
1,474,550
167,318
1,416
(4,213)
1,517
166,038
26,028
2,476
20,458
10,236
510
30,962
8,072
657
15,150
44,336
3,643
66,570
12,804
388
16,244
57,140
4,031
82,814
283
—
34
57,423
4,031
82,848
Net sales
Sales to customers ...............
Intersegment sales and
transfers2 ............................
Total net sales ...........................
Operating income .....................
Financial income ...................
Financial expenses ................
Share of profit in investments
accounted for using the
equity method .....................
Income before income taxes .....
Other items
Depreciation and
amortization3 .......................
Impairment losses3 ..............
Capital expenditures4 ............
Notes: 1. The operating income reconciliation of 1,304 million yen includes corporate expenses not allocated to reportable segments, as well as elimination of
intersegment inventory transactions.
2. Intersegment sales and transfers are mainly calculated based on market price and manufacturing cost.
3. Note 12 “Non-current Assets Held for Sale,” Note 13 “Property, Plant and Equipment,” and Note 14 “Goodwill and Intangible Assets” present the details
of depreciation, amortization and impairment losses.
4. Capital expenditures include investments in property, plant and equipment, intangible assets and other non-current assets.
29
Kao Corporation Financial Report 2016
Notes to Consolidated Financial Statements
(3) Geographical Information
Sales to customers and non-current assets (excluding financial assets, deferred tax assets and retirement benefit assets) by region
consist of the following.
Sales to Customers
Japan ..............................................................................................................................
Asia .................................................................................................................................
China ...........................................................................................................................
Americas .........................................................................................................................
United States ..............................................................................................................
Europe ............................................................................................................................
Total .........................................................................................................................
Note: Sales are classified by country or region based on the location of customers.
2016
964,904
251,284
103,346
120,782
93,148
(Millions of yen)
2015
956,033
249,335
96,565
134,080
102,865
120,640
1,457,610
135,102
1,474,550
Non-current Assets (excluding Financial Assets, Deferred Tax Assets and Retirement Benefit Assets)
Japan ..............................................................................................................................
Asia .................................................................................................................................
Americas .........................................................................................................................
Europe ............................................................................................................................
Total .........................................................................................................................
2016
415,993
81,927
22,854
24,731
545,505
2015
375,831
86,362
21,535
29,126
512,854
(Millions of yen)
Transition date
357,162
81,980
20,738
32,238
492,118
7
Business Combinations
(1) Outline of Business Combination
Name of the acquiree:
Collins Inkjet Corporation and SAMGAM, LLC, which owns and manages its
real estate and other assets used by Collins Inkjet Corporation
(collectively, “Collins”)
Business outline:
Acquisition date:
Development, manufacturing and sales of inkjet ink
July 1, 2016
Acquisition method:
Cash consideration to acquire shares
Percentage of voting rights acquired:
100%
By taking advantage of newly acquired technologies,
manufacturing facilities and sales networks from Collins in
addition to its own technologies, the Group aims to provide global
customers with innovative products and services that can
contribute to the mitigation of environmental impact.
(2) Primary Reason for Business Combination
Collins, based in the U.S., is engaged in development,
manufacturing and sales of inkjet ink. Collins was an early entrant
into the rapidly growing inkjet ink market for industrial printing.
With its advanced ink designing technologies responding to a
wide variety of inkjet heads and its reliability, Collins has built a
wide customer network. Collins continues to focus on ink
development to broaden the application range and expand
business globally.
(3) Acquisition Cost of Acquiree and Its Components
Acquisition cost of acquiree:
3,715 million yen
Components of acquisition cost:
Cash
3,715 million yen
Kao Corporation Financial Report 2016
30
(4) Fair Value of Assets Acquired and Liabilities Assumed at the Acquisition Date
Current assets ..................................................................
1,496 million yen
Non-current assets ...........................................................
913 million yen
Total assets ...................................................................
2,409 million yen
Current liabilities ...............................................................
377 million yen
Non-current liabilities ........................................................
232 million yen
Total liabilities ................................................................
609 million yen
(5) Goodwill
Goodwill recognized .................................................................. 1,915 million yen
Components of goodwill:
Goodwill recognized for this business
combination reflects excess earning
power in future from using newly acquired
technologies, manufacturing systems and
sales networks from Collins in addition to
the Group’s technologies. Certain goodwill
is deductible for tax purposes.
(6) Net Sales and Income of Acquired Business
Information on income associated with this business combination after the acquisition date and information on income assuming that
the business combination took place on the date of January 1, 2016 are not presented because the impacts on the consolidated
statement of income are immaterial.
8
Cash and Cash Equivalents
Cash and cash equivalents consist of the following.
Cash and deposits ..........................................................................................................
Short-term investments ..................................................................................................
Total .........................................................................................................................
2016
186,226
116,800
303,026
2015
121,371
188,551
309,922
(Millions of yen)
Transition date
105,328
123,639
228,967
Cash and deposits include time deposits that mature or become due within three months from the date of acquisition. In addition, the
balance of cash and cash equivalents presented in the consolidated statement of financial position is equal to the balance of cash and cash
equivalents presented in the consolidated statement of cash flows.
9
Trade and Other Receivables
Trade and other receivables consist of the following.
Trade receivables ............................................................................................................
Other receivables ...........................................................................................................
Allowance for doubtful receivables .................................................................................
Total .........................................................................................................................
2016
205,099
4,546
(1,186)
208,459
2015
206,966
5,049
(1,308)
210,707
(Millions of yen)
Transition date
205,674
8,372
(1,304)
212,742
31
Kao Corporation Financial Report 2016
Notes to Consolidated Financial Statements
10
Inventories
Inventories consist of the following.
Merchandise and finished goods ....................................................................................
Work in progress ............................................................................................................
Materials and supplies ....................................................................................................
Total .........................................................................................................................
2016
122,479
12,253
30,468
165,200
2015
112,087
12,356
26,828
151,271
(Millions of yen)
Transition date
111,998
12,910
26,968
151,876
The amount of inventories recognized as expenses and included in cost of sales for the fiscal years ended December 31, 2016 and 2015
were 636,969 million yen and 658,325 million yen, respectively.
Write-downs of inventories recognized as expenses for the fiscal years ended December 31, 2016 and 2015 were 4,534 million yen and
4,982 million yen, respectively.
11 Other Assets
Other assets consist of the following.
2016
2015
Transition date
(Millions of yen)
Other current assets
Insurance receivable ...................................................................................................
Prepaid expenses ........................................................................................................
Other ...........................................................................................................................
Total .........................................................................................................................
Other non-current assets
Insurance receivable ...................................................................................................
Long-term prepaid lease payments ............................................................................
Long-term prepaid expenses ......................................................................................
Other ...........................................................................................................................
Total .........................................................................................................................
6,330
9,410
8,072
23,812
11,095
5,337
881
1,235
18,548
20,219
8,487
9,299
38,005
9,919
5,818
754
1,241
17,732
30,357
8,426
8,516
47,299
—
5,175
1,563
1,228
7,966
12 Non-current Assets Held for Sale
Certain assets including the land for a training center and the
buildings and land for sales offices were classified as non-current
assets held for sale in the fiscal year ended December 31, 2015
pursuant to the decision to sell these assets. Impairment loss of
694 million yen was recognized upon classification of these assets
as non-current assets held for sale and included in other operating
expenses in the consolidated statement of income for the fiscal
year ended December 31, 2015. The sale of these assets was
largely completed in the fiscal year ended December 31, 2016.
Certain assets including the buildings and land for sales offices
were classified as non-current assets held for sale in the fiscal
year ended December 31, 2016 pursuant to the decision to sell
these assets.
The fair value of these assets was based on third-party appraisal
values using sales comparison and other approaches and sales
prices determined with reference to sales contracts, and was
categorized within Level 3 of the fair value hierarchy.
Kao Corporation Financial Report 2016
32
13
Property, Plant and Equipment
(1) Changes in Property, Plant and Equipment
The following tables present changes in acquisition costs, accumulated depreciation and accumulated impairment losses, and carrying
amounts of property, plant and equipment.
Acquisition Cost
January 1, 2015............................................................
Additions ..................................................................
Sales and disposals ..................................................
Reclassification ........................................................
Reclassification to assets held for sale ....................
Exchange differences on translation of
foreign operations ................................................
Other ........................................................................
December 31, 2015 .....................................................
Additions ..................................................................
Acquisitions through business combinations ..........
Sales and disposals ..................................................
Reclassification ........................................................
Reclassification to assets held for sale ....................
Exchange differences on translation of
foreign operations ................................................
Other ........................................................................
December 31, 2016 .....................................................
Buildings
and
structures
379,857
270
(5,464)
25,689
(486)
Machinery
and
vehicles
701,384
556
(21,628)
46,784
—
Tools,
furniture and
fixtures
113,312
6,033
(7,449)
5,126
(1)
Land
77,934
1
(1,228)
345
(3,710)
(Millions of yen)
Construction
in
progress
27,247
70,328
(24)
(77,944)
—
Total
1,299,734
77,188
(35,793)
—
(4,197)
(5,502)
(11,298)
(1,500)
(362)
(409)
(19,071)
(370)
393,994
313
272
(5,355)
24,591
(585)
(185)
715,613
245
175
(29,108)
39,877
(22)
118
115,639
4,490
31
(7,642)
9,055
(7)
—
72,980
36
126
(97)
384
(216)
(464)
18,734
79,781
14
(13)
(73,907)
—
(901)
1,316,960
84,865
618
(42,215)
—
(830)
(4,410)
(10,069)
(1,860)
(194)
(64)
(16,597)
79
408,899
86
716,797
(94)
119,612
(1)
73,018
(57)
24,488
13
1,342,814
Accumulated Depreciation and Accumulated Impairment Losses
(Millions of yen)
January 1, 2015............................................................
Depreciation1 ............................................................
Impairment losses 2 .................................................
Impairment losses reversed2 ...................................
Sales and disposals ..................................................
Reclassification to assets held for sale ....................
Exchange differences on translation of
foreign operations ................................................
Other ........................................................................
December 31, 2015
Depreciation1 ............................................................
Impairment losses2 .................................................
Impairment losses reversed2 ..................................
Sales and disposals ..................................................
Reclassification to assets held for sale ....................
Exchange differences on translation of
foreign operations ................................................
Other ........................................................................
December 31, 2016 .....................................................
Buildings
and
structures
277,771
11,765
154
(196)
(4,841)
(336)
Machinery
and
vehicles
604,104
21,393
117
—
(20,677)
—
Tools,
furniture and
fixtures
89,346
10,074
27
—
(7,200)
(1)
Land
9,231
—
3,039
—
(96)
(1,853)
(2,978)
(8,458)
(1,216)
—
(96)
281,243
11,934
13
(0)
(4,990)
(497)
(198)
596,281
22,448
—
—
(28,415)
(22)
88
91,118
10,396
—
(1)
(7,264)
(7)
—
10,321
—
96
—
(1)
—
(2,220)
(7,024)
(1,392)
—
(23)
285,460
(66)
583,202
51
92,901
—
10,416
Construction
in
progress
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Total
980,452
43,232
3,337
(196)
(32,814)
(2,190)
(12,652)
(206)
978,963
44,778
109
(1)
(40,670)
(526)
(10,636)
(38)
971,979
Notes: 1. Depreciation of property, plant and equipment is included in cost of sales, selling, general and administrative expenses and other operating expenses in
the consolidated statement of income.
2. Impairment losses on property, plant and equipment are included in other operating expenses and impairment losses reversed are recognized in other
operating income in the consolidated statement of income.
33
Kao Corporation Financial Report 2016
Notes to Consolidated Financial Statements
Carrying Amount
January 1, 2015............................................................
Buildings
and
structures
102,086
December 31, 2015 .....................................................
112,751
December 31, 2016 .....................................................
123,439
(Millions of yen)
Machinery
and
vehicles
97,280
119,332
133,595
Tools,
furniture and
fixtures
23,966
24,521
26,711
Land
68,703
62,659
62,602
Construction
in
progress
27,247
18,734
24,488
Total
319,282
337,997
370,835
(2) Leased Assets
The carrying amount of leased assets from finance leases included in property, plant and equipment is as follows:
January 1, 2015............................................................
December 31, 2015 .....................................................
December 31, 2016 .....................................................
(Millions of yen)
Buildings
and
structures
6,472
5,441
4,060
Other
125
83
54
Total
6,597
5,524
4,114
(3) Impairment Losses
The Group allocates property, plant and equipment into cash-
generating units based on the smallest identifiable group of
assets that generates cash inflows that are largely independent.
For idle assets, the Group considers whether to recognize
impairment losses for individual properties.
Impairment losses recognized for the fiscal years ended
December 31, 2016 and 2015 were 109 million yen and 3,337
million yen, respectively.
Impairment losses of 3,337 million yen for the fiscal year
ended December 31, 2015 consisted mainly of impairment losses
of 3,039 million yen recognized for idle land owned by the
Company and Kanebo Cosmetics Inc. Based on the projection that
the Group would no longer use these assets as a result of
organizational restructuring, the Group separated these assets
from the cash-generating units, reduced carrying amounts to fair
value less costs of disposal as independent assets, and
consequently recognized impairment losses. Fair value less costs
of disposal was based on third-party appraisals using a sales
comparison approach, and was categorized within Level 3 of the
fair value hierarchy. The assets held by the Company belong to the
segments of the Beauty Care Business, the Human Health Care
Business and the Fabric and Home Care Business. The assets
held by Kanebo Cosmetics Inc. belong to the Beauty Care Business.
(4) Commitments
Note 37 “Commitments” presents information on commitments
to acquire property, plant and equipment.
Kao Corporation Financial Report 2016
34
14 Goodwill and Intangible Assets
(1) Changes in Goodwill and Intangible Assets
The following tables present changes in acquisition costs, accumulated amortization and accumulated impairment losses, and carrying
amounts of goodwill and intangible assets.
Acquisition Cost
January 1, 2015..................................................................................
Additions ........................................................................................
Sales and disposals ........................................................................
Reclassification ..............................................................................
Exchange differences on translation of foreign operations ............
Other ..............................................................................................
December 31, 2015 ...........................................................................
Additions ........................................................................................
Acquisitions through business combinations ................................
Sales and disposals ........................................................................
Reclassification ..............................................................................
Exchange differences on translation of foreign operations ............
Other ..............................................................................................
December 31, 2016 ...........................................................................
Note: 1. Software in progress is included in other in intangible assets.
Intangible assets
(Millions of yen)
Goodwill
138,751
—
—
—
(500)
—
138,251
—
1,915
—
—
(2,383)
—
137,783
Software
24,031
199
(4,736)
5,666
(316)
(20)
24,824
85
4
(2,629)
5,122
(246)
124
27,284
Trademarks
133,526
—
(3)
—
—
—
133,523
—
—
(133,523)
—
—
—
—
Other1
5,317
5,432
(23)
(5,046)
(104)
(15)
5,561
4,948
316
(361)
(5,115)
(164)
(22)
5,163
Total
162,874
5,631
(4,762)
620
(420)
(35)
163,908
5,033
320
(136,513)
7
(410)
102
32,447
Accumulated Amortization and Accumulated Impairment Losses
(Millions of yen)
January 1, 2015..................................................................................
Amortization1 .................................................................................
Sales and disposals ........................................................................
Exchange differences on translation of foreign operations ............
Other ..............................................................................................
December 31, 2015 ...........................................................................
Amortization1 ..................................................................................
Sales and disposals ........................................................................
Exchange differences on translation of foreign operations ............
Other ..............................................................................................
December 31, 2016 ...........................................................................
Goodwill
—
—
—
—
—
—
—
—
—
—
—
Intangible assets
Software
14,037
4,143
(4,732)
(359)
(44)
13,045
4,650
(2,626)
(225)
71
14,915
Trademarks
122,222
9,977
(3)
—
—
132,196
1,327
(133,523)
—
—
—
Other1
2,989
71
—
(98)
—
2,962
361
(346)
(135)
1
2,843
Total
139,248
14,191
(4,735)
(457)
(44)
148,203
6,338
(136,495)
(360)
72
17,758
Note: 1. Amortization of intangible assets is included in cost of sales, selling, general and administrative expenses and other operating expenses
in the consolidated statement of income.
Carrying Amount
January 1, 2015...................................................................................
December 31, 2015 ............................................................................
December 31, 2016 ............................................................................
Intangible assets
(Millions of yen)
Goodwill
138,751
138,251
137,783
Software
9,994
11,779
12,369
Trademarks
11,304
1,327
—
Other
2,328
2,599
2,320
Total
23,626
15,705
14,689
35
Kao Corporation Financial Report 2016
Notes to Consolidated Financial Statements
(2) Goodwill
The following table presents the carrying amount of goodwill
recognized in the Group’s consolidated statement of financial
position. Goodwill arising from business combinations is allocated
at the acquisition date to cash-generating units benefiting from
the business combination, and the goodwill belongs to the Beauty
Care Business and the Chemical Business. The goodwill primarily
relates to the acquisition of the Kanebo Cosmetics Group.
Beauty Care Business ....................................................................................................
Kanebo Cosmetics Group ...........................................................................................
Molton Brown Group ..................................................................................................
Other ...........................................................................................................................
Chemical Business .........................................................................................................
Total .........................................................................................................................
2016
135,618
119,400
11,327
4,891
2,165
137,783
2015
138,251
119,400
13,771
5,080
—
138,251
(Millions of yen)
Transition date
138,751
119,400
14,270
5,081
—
138,751
(3) Impairment Test for Goodwill
The Group tests goodwill for impairment each period or at least
once a year by each fiscal year end, irrespective of indication of
impairment.
The recoverable amount on the impairment test is calculated
based on value in use. The Group primarily recognizes goodwill
associated with the Kanebo Cosmetics Group.
For the goodwill associated with the Kanebo Cosmetics Group,
cash flow projections that are the basis for value in use are
estimated using four-year medium-term plans that reflect past
year’s performance. The key assumptions used in formulating
these estimates include sales growth rates and discount rates and
the sales growth rates are consistent with the growth rate
projections of the markets in which cash-generating units operate.
Estimated cash flows in years beyond the four-year forecasts
approved by management were calculated using an annual growth
rate of 0% and were discounted to present value using a
weighted average cost of capital (WACC) of 7.4% for the fiscal
year ended December 31, 2016 (8.7% and 8.9% for the fiscal year
ended December 31, 2015 and at the transition date, respectively).
Management assumes the probability that material impairment
will occur in this cash-generating unit is low even in cases where
the key assumptions used for the impairment test change within
the reasonably possible ranges for the fiscal year ended
December 31, 2016. While value in use exceeded carrying amount
at the transition date and at December 31, 2015, increasing the
discount rate by 1.8% at the transition date or 2.8% at December
31, 2015 would result in impairment.
(4) Intangible Assets with Indefinite Useful Lives
The intangible assets above include no intangible assets with
indefinite useful lives.
(5) Commitments
Note 37 “Commitments” presents information on commitments
associated with the acquisition of intangible assets.
15
Investments Accounted for Using the Equity Method
Investments in associates are accounted for using the equity method in the Group’s consolidated financial statements. The carrying
amount of investments in associates that are not individually material is as follows:
Investments accounted for using the equity method .....................................................
2016
4,701
2015
4,209
(Millions of yen)
Transition date
3,544
Changes in the Group’s share of net income and other comprehensive income of associates that are not individually material are
as follows:
The Group’s share of net income ..................................................................................
The Group’s share of other comprehensive income .......................................................
The Group’s share of comprehensive income ................................................................
2016
1,894
(82)
1,812
(Millions of yen)
2015
1,517
226
1,743
Kao Corporation Financial Report 2016
36
16
Income Taxes
(1) Deferred Tax Assets and Liabilities
Details of major causes of occurrence and changes in deferred tax assets and liabilities consist of the following.
Fiscal year ended December 31, 2016
(Millions of yen)
January 1,
2016
Recognized in
profit or loss
Recognized
in other
comprehensive
income
Other
December 31,
2016
Deferred tax assets
Property, plant and equipment and
intangible assets ................................................
Retirement benefit liabilities ..................................
Accrued expenses .................................................
Unused tax losses .................................................
Other ......................................................................
Total deferred tax assets ...........................................
Deferred tax liabilities
Property, plant and equipment and
intangible assets ................................................
Retirement benefit assets .....................................
Financial assets ......................................................
Undistributed foreign earnings ..............................
Other ......................................................................
Total deferred tax liabilities ........................................
Deferred tax assets, net ............................................
19,570
22,708
13,040
1,385
17,739
74,442
7,959
(1)
3,649
12,390
1,309
25,306
49,136
(1,292)
(1,024)
(889)
(135)
(1,696)
(5,036)
92
1
—
340
45
478
(5,514)
—
6,298
—
—
—
6,298
—
—
(663)
—
—
(663)
6,961
38
(135)
(224)
(10)
(202)
(533)
(106)
—
(222)
—
(33)
(361)
(172)
18,316
27,847
11,927
1,240
15,841
75,171
7,945
—
2,764
12,730
1,321
24,760
50,411
Fiscal year ended December 31, 2015
(Millions of yen)
January 1,
2015
Recognized in
profit or loss
Recognized
in other
comprehensive
income
Other
December 31,
2015
Deferred tax assets
Property, plant and equipment and
intangible assets ................................................
Retirement benefit liabilities ..................................
Accrued expenses .................................................
Unused tax losses .................................................
Other ......................................................................
Total deferred tax assets ...........................................
Deferred tax liabilities
Property, plant and equipment and
intangible assets ................................................
Retirement benefit assets .....................................
Financial assets ......................................................
Undistributed foreign earnings ..............................
Other ......................................................................
Total deferred tax liabilities ........................................
Deferred tax assets, net ............................................
21,459
26,424
14,089
4,990
20,428
87,390
7,758
1,676
3,381
12,500
1,314
26,629
60,761
(1,582)
(3,212)
(725)
(3,562)
(3,053)
(12,134)
(203)
(1,703)
—
96
(115)
(1,925)
(10,209)
—
(482)
—
—
(6)
(488)
—
—
405
—
—
405
(893)
(307)
(22)
(324)
(43)
370
(326)
404
26
(137)
(206)
110
197
(523)
19,570
22,708
13,040
1,385
17,739
74,442
7,959
(1)
3,649
12,390
1,309
25,306
49,136
37
Kao Corporation Financial Report 2016
Notes to Consolidated Financial Statements
Deferred tax assets and liabilities recognized in the consolidated statement of financial position are as follows:
Deferred tax assets .........................................................................................................
Deferred tax liabilities ......................................................................................................
Deferred tax assets, net ..................................................................................................
2016
50,939
528
50,411
2015
49,454
318
49,136
Deductible temporary differences and unused tax losses for which no deferred tax asset is recognized are as follows:
Unused tax losses ...........................................................................................................
Deductible temporary differences ...................................................................................
Total .............................................................................................................................
Unused tax losses for which no deferred tax asset is recognized will expire as follows:
Not later than 1 year ........................................................................................................
Later than 1 year and not later than 2 years ....................................................................
Later than 2 years and not later than 3 years ..................................................................
Later than 3 years and not later than 4 years ..................................................................
Later than 4 years ............................................................................................................
Total .............................................................................................................................
2016
35,274
21,091
56,365
2016
10,974
4,132
5,551
7,320
7,297
35,274
2015
39,784
22,049
61,833
2015
3,902
10,370
4,630
6,400
14,482
39,784
(Millions of yen)
Transition date
61,194
433
60,761
(Millions of yen)
Transition date
46,367
12,904
59,271
(Millions of yen)
Transition date
5,968
8,025
7,353
5,198
19,823
46,367
The aggregate amount of taxable temporary differences
associated with investments in subsidiaries and associates for
which deferred tax liabilities were not recognized at December 31,
2016 and 2015, and the transition date were 12,385 million yen,
14,496 million yen and 25,767 million yen, respectively. The Group
did not recognize deferred tax liabilities for these temporary
differences because it was able to control the timing of the
reversal of these temporary differences, and it was probable that
the temporary difference will not reverse in the foreseeable
future.
(2) Income Taxes
Income taxes consist of the following.
Current taxes .............................................................................................................
Deferred taxes1 ...........................................................................................................
Total ........................................................................................................................
2016
50,027
5,514
55,541
(Millions of yen)
2015
49,877
10,209
60,086
Note: 1. Deferred taxes include 2,698 million yen and 3,838 million yen for the fiscal years ended December 31, 2016 and 2015, respectively,
due to tax rate changes.
Kao Corporation Financial Report 2016
38
(3) Reconciliation of Effective Tax Rate
The details of difference between the statutory income tax rate and the Group’s average actual tax rate
consist of the following.
Effective statutory tax rate ........................................................................................
Tax credit for experimental research costs and other .............................................
Different tax rates applied to subsidiaries ...............................................................
Reassessment of recoverability of unused tax losses and deferred tax assets .....
Change in tax rates .................................................................................................
Other .......................................................................................................................
Average actual tax rate ...............................................................................................
2016
33.06
(3.00)
(2.06)
0.32
1.47
0.49
30.28
(%)
2015
35.64
(2.68)
(2.44)
1.94
2.31
1.42
36.19
Note: Fiscal year ended December 31, 2016
The “Act for Partial Revision of the Income Tax Act, etc.” (Act. No. 15 of 2016) and the “Act for Partial Revision of the Local Tax Act, etc.”
(Act No. 13 of 2016) enacted in Japan on March 29, 2016 reduced the income tax rate for fiscal years beginning on or after April 1, 2016.
Accordingly, the effective statutory tax rate used to measure deferred tax assets and deferred tax liabilities has changed from 32.26% to
30.86% for temporary differences expected to be reversed in the fiscal years beginning January 1, 2017 and January 1, 2018, and to
30.62% for temporary differences expected to be reversed in or after the fiscal year beginning January 1, 2019.
Fiscal year ended December 31, 2015
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) enacted in Japan on March 31, 2015 reduced the income tax rate for fiscal years beginning on or after April 1, 2015.
Accordingly, the effective statutory tax rate used to measure deferred tax assets and deferred tax liabilities has changed from 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 or after the fiscal year beginning January 1, 2017.
17
Bonds and Borrowings
Bonds and borrowings consist of the following.
Short-term borrowings ..............................................
Current portion of long-term borrowings ...................
Long-term borrowings ...............................................
Bonds2 .......................................................................
Total ....................................................................
Current liabilities
Bonds and borrowings ...........................................
Non-current liabilities
Bonds and borrowings ...........................................
Total ....................................................................
2016
220
30,069
40,410
49,947
120,646
2015
267
72
70,282
49,925
120,546
Transition date
1,357
20,065
30,285
49,903
101,610
30,289
339
21,422
90,357
120,646
120,207
120,546
80,188
101,610
(Millions of yen)
Average interest
rate1 (%)
0.95
0.29
0.13
—
Maturity
—
—
2019-2023
—
Notes: 1. The average interest rate is the weighted-average interest rate on the balance of borrowings as of December 31, 2016.
2. Details of bonds issued are as follows:
Issue date
2016
2015
Transition date
Interest rate (%)
Collateral Maturity date
(Millions of yen)
24,958
24,945
49,903
0.39
0.62
None
June 20, 2018
None
June 19, 2020
Issuer
The Company
The Company
Bond name
3rd unsecured
bonds 2018
4th unsecured
bonds 2020
June 14, 2013 24,982
24,970
June 14, 2013 24,965
24,955
Total(cid:1)..................................................... 49,947
49,925
39
Kao Corporation Financial Report 2016
Notes to Consolidated Financial Statements
18
Leases
(1) Finance Lease Payables
As a lessee, the Group leases assets including buildings. Some lease contracts include renewal options. The Group has no lease
contracts with covenants such as restrictions on additional borrowings or additional leases.
The total of future minimum lease payments and the present value under finance lease contracts consist of the following.
Not later than 1 year ...................................
Later than 1 year and not
later than 5 years ....................................
Later than 5 years .......................................
Total ........................................................
Financial charges ........................................
Present value of minimum
lease payments ...................................
Minimum lease payments
2015
968
Transition date
1,050
2016
884
Present value of minimum lease payments
2015
2016
917
842
Transition date
989
(Millions of yen)
2,622
634
4,140
(140)
4,000
3,008
1,125
5,101
(190)
4,911
3,306
1,786
6,142
(252)
5,890
2,532
626
4,000
—
4,000
2,888
1,106
4,911
—
4,911
3,153
1,748
5,890
—
5,890
(2) Non-cancellable Operating Leases
As a lessee, the Group leases assets including land.
The total of future minimum lease payments under non-cancellable operating lease contracts consists of the following.
Not later than 1 year ................................................................................................................
Later than 1 year and not later than 5 years ............................................................................
Later than 5 years ....................................................................................................................
Total .....................................................................................................................................
2016
8,808
16,660
7,627
33,095
2015
8,649
16,889
8,815
34,353
(Millions of yen)
Transition date
10,291
18,030
10,156
38,477
The total of minimum lease payments under operating lease contracts recognized as expenses is as follows:
Total of minimum lease payments ...........................................................................................
2016
9,858
(Millions of yen)
2015
11,590
19
Trade and Other Payables
Trade and other payables consist of the following.
Trade payables .........................................................................................................................
Non-trade payables ..................................................................................................................
Total .....................................................................................................................................
2016
130,348
86,545
216,893
2015
134,278
72,482
206,760
(Millions of yen)
Transition date
130,264
63,196
193,460
Kao Corporation Financial Report 2016
40
20
Employee Benefits
(1) Post-employment Benefits
The Company and most of its domestic subsidiaries have a cash
balance plan as a defined benefit plan and a defined contribution
plan as post-employment benefits (The cash balance plan is linked
to market interest rates). Defined benefit plan obligations held in
Japan account for a large proportion of the Group’s defined
benefit plan obligations.
Cash balance plan benefits are calculated using points acquired
during the enrollment period and a multiplier based on the enrollment
period. The Group may also pay an early retirement bonus allowance
to employees who retire earlier than retirement age.
In accordance with laws and regulations, the defined benefit
plan is operated as a pension fund that is legally separated from
the Group. The pension fund is managed by a Board of
Representatives composed of representatives elected by the
participating companies and the representatives of participating
employees. Pension fund management institutions manage the
pension fund’s assets in accordance with management policies
specified by the Board of Representatives. The Board of
Representatives and the pension fund management institutions
are legally required to act in the best interests of plan participants
in executing their responsibilities for managing plan assets.
Certain foreign subsidiaries have defined benefit plans and/or
defined contribution plans as post-employment benefits.
The defined benefit plan is exposed to the actuarial risk and to
the risk of fluctuation in the fair value of plan assets. Actuarial risk
primarily involves interest rate risk. Interest rate risk involves the
potential for an increase in defined benefit plan obligations if the
discount rate used to calculate their present value decreases,
because this discount rate is based on market yields on
instruments including high-quality corporate bonds. The risk of
fluctuation in the fair value of plan assets involves underfunding if
actual interest rates are lower than the interest rate criteria for
managing plan assets.
1) Defined benefit liabilities recognized in the consolidated statement of financial position
Net defined benefit liabilities and assets recognized in the consolidated statement of financial position, defined benefit obligations
and plan assets are as follows:
Present value of defined benefit obligations ...................................................................
Fair value of plan assets ..................................................................................................
Funded status ..............................................................................................................
Effect of asset ceiling ......................................................................................................
Net defined benefit liabilities .......................................................................................
Amounts recognized in consolidated statement of financial position
Retirement benefit liabilities ........................................................................................
Retirement benefit assets1 ..........................................................................................
Net defined benefit liabilities .......................................................................................
2016
355,579
(261,857)
93,722
—
93,722
94,773
(1,051)
93,722
2015
331,494
(256,828)
74,666
—
74,666
75,706
(1,040)
74,666
(Millions of yen)
Transition date
332,385
(255,541)
76,844
0
76,844
77,895
(1,051)
76,844
Note: 1. Retirement benefit assets are included in other non-current assets in the consolidated statement of financial position.
2) Defined benefit obligations
Changes in the present value of defined benefit obligations are as follows:
The present value of the defined benefit obligations at beginning of year ................................................
Current service cost1 .............................................................................................................................
Interest expense2 ..................................................................................................................................
Remeasurements
Actuarial (gains) losses arising from changes in demographic assumptions ......................................
Actuarial (gains) losses arising from changes in financial assumptions .............................................
Actuarial (gains) losses arising from experience adjustments............................................................
Benefits paid3 .........................................................................................................................................
Exchange differences on translation of foreign operations and other ....................................................
The present value of the defined benefit obligations at end of year .........................................................
2016
331,494
8,784
3,619
(2,374)
28,545
(1,245)
(10,964)
(2,280)
355,579
(Millions of yen)
2015
332,385
9,110
3,679
4,614
(5,013)
(468)
(11,148)
(1,665)
331,494
Notes: 1. Current service cost is recognized in profit or loss and included in cost of sales, selling, general and administrative expenses and other operating
expenses in the consolidated statement of income.
2. Interest expense or interest income associated with the net of the present value of the defined benefit obligations and the fair value of plan assets is
recognized in profit or loss and included in financial expenses or financial income in the consolidated statement of income.
3. The weighted-average duration of the defined benefit obligations in Japan was mainly 17.3 years at December 31, 2016, 16.1 years at December 31,
2015 and 15.7 years at the transition date.
41
Kao Corporation Financial Report 2016
Notes to Consolidated Financial Statements
3) Plan assets
Changes in the fair value of plan assets are as follows:
The fair value of plan assets at beginning of year ......................................................................................
Interest income .....................................................................................................................................
Remeasurements
Return on plan assets (excluding amounts included in interest income) ...........................................
Contributions to the plan by the employer1 ............................................................................................
Payments from the plan .........................................................................................................................
Exchange differences on translation of foreign operations and other ....................................................
The fair value of plan assets at end of year ...............................................................................................
2016
256,828
2,692
2,517
10,768
(9,752)
(1,196)
261,857
(Millions of yen)
2015
255,541
2,665
(1,155)
10,483
(10,140)
(566)
256,828
Note: 1. Pursuant to laws and regulations, the Group and the pension fund review the financial condition of the pension plan regularly and recalculate contributions
for allocating future benefits and maintaining the balance of pension financing when the plan is underfunded. The Group plans to contribute 8,972 million
yen to the defined benefit plan for the fiscal year ending December 31, 2017.
Plan assets consist of the following.
Equity securities ..............
Japan ...........................
Overseas ......................
Debt securities
Japan ...........................
Overseas ......................
Other ...............................
Total ..........................
2016
Market price in an active market
Quoted
7,723
—
7,723
7,489
—
7,489
237
15,449
Unquoted
51,195
24,704
26,491
180,216
116,734
63,482
14,997
246,408
Total
58,918
24,704
34,214
187,705
116,734
70,971
15,234
261,857
2015
Market price in an active market
Total
Unquoted
54,049
46,838
23,801
23,801
30,248
23,037
186,851
181,072
122,107
122,107
64,744
58,965
15,928
13,680
256,828
241,590
Quoted
7,211
—
7,211
5,779
—
5,779
2,248
15,238
(Millions of yen)
Transition date
Market price in an active market
Total
Unquoted
43,569
35,793
22,118
22,118
21,451
13,675
196,075
189,992
169,917
169,917
26,158
20,075
15,897
13,733
255,541
239,518
Quoted
7,776
—
7,776
6,083
—
6,083
2,164
16,023
Note: Plan assets invested in pooled funds of trust banks are classified without a quoted market prices in active markets.
Pension assets in Japan account for a large proportion of
the Group’s plan assets. The objective in managing plan
assets is to raise total returns to the greatest extent
possible in order to ensure stable benefits and lump-sum
payments for plan participants in the future and beneficiaries
with a long-term view under acceptable risks. Specifically,
the Group considers factors including expected rate of
return on investments in appropriate assets, risks of each
asset, and asset combinations to set an asset mix policy
for an appropriate basic portfolio in future years as the
basis for maintaining asset allocation. The Group reviews
the basic portfolio annually and realigns it as necessary if
the asset allocation conditions have changed since the asset
mix was set.
4) Significant actuarial assumptions and related sensitivity analysis
Significant actuarial assumptions are as follows:
Discount rate .................................................................................................................
Mainly 0.8%
Mainly 1.3%
Mainly 1.2%
2016
2015
Transition date
Note: The above table presents the discount rate used by the Company and major domestic subsidiaries.
Sensitivity analysis of the effect of changes in the present value of the defined benefit obligations of the Company and major
domestic subsidiaries given changes in the discount rate used as a significant actuarial assumption is as follows:
2016
2015
Transition date
(Millions of yen)
The impact on defined benefit obligations
0.5% increase in discount rate ..................................................................................
0.5% decrease in discount rate .................................................................................
(25,807)
26,774
(21,946)
23,706
(21,944)
23,306
Note: This sensitivity analysis estimates the effect on the defined benefit obligations at the end of each reporting period from changes in the discount rate
while all of the other assumptions remain constant.
Kao Corporation Financial Report 2016
42
5) Defined contribution plans
Expenses related to the defined contribution plan recognized
in profit or loss were 3,551 million yen and 3,707 million
yen for the fiscal years ended December 31, 2016 and
2015, respectively and included in cost of sales, selling,
general and administrative expenses and other operating
expenses in the consolidated statement of income.
(2) Other Employee Benefit Expenses
Other employee benefit expenses recognized in cost of sales,
selling, general and administrative expenses, and other operating
expenses in the consolidated statement of income for the fiscal
years ended December 31, 2016 and 2015 were 258,225 million
yen and 254,287 million yen, respectively.
21
Provisions
Components of and changes in provisions consist of the following.
January 1, 2016..........................................................
Increase .................................................................
Interest expense on discounted provision ................
Decrease (Provision used) .....................................
Decrease (Provision reversed) ...............................
Exchange differences on translation of
foreign operations ...............................................
December 31, 2016 ...................................................
Provision for loss
related to
cosmetics
23,447
—
8
(9,601)
(144)
Provision for
asset retirement
obligations
4,022
260
68
(87)
—
Provision for
sales returns
2,083
4,749
—
(2,751)
(9)
—
13,710
(21)
4,242
(107)
3,965
Other
provisions
4,924
2,030
—
(3,210)
(452)
(30)
3,262
(Millions of yen)
Total
34,476
7,039
76
(15,649)
(605)
(158)
25,179
(1) Provision for Loss Related to Cosmetics
The Group has recognized estimated compensation and other
expenses related to cosmetics for brightening products of Kanebo
Cosmetics containing the ingredient Rhododenol, for which a
voluntary recall was announced on July 4, 2013. The Group expects
insurance to cover 9,143 million yen of the estimated expenses.
(2) Provision for Asset Retirement Obligations
The Group recognizes asset retirement obligations principally based
on or pursuant to reasonably estimated future expenditures using
historical experience and other factors when the Group has a legal
or contractual obligation associated with the retirement of property,
plant and equipment and leased assets held for use.
These expenditures are generally expected to take place after a year
or more, but are affected by factors including future business plans.
(3) Provision for Sales Returns
The Group recognizes expected losses from product returns
based on reasonable estimates using historical experience and
other factors when the Group expects that customers will return
products that the Group has sold, primarily when the Group
terminates the production and sale of products. These
expenditures are generally expected to take place after a year or
more, but are affected by factors including future business plans.
(4) Other Provisions
Estimated expenses for business transformation at European
subsidiaries and other expenses are included.
22 Other Current Liabilities
Other current liabilities consist of the following.
Accrued expenses ...........................................................................................................
Consumption tax payables ..............................................................................................
Obligation for unused paid absences ..............................................................................
Other .............................................................................................................................
Total .............................................................................................................................
2016
104,425
8,655
6,199
11,833
131,112
2015
100,651
10,249
5,974
8,548
125,422
(Millions of yen)
Transition date
96,227
13,077
5,775
8,837
123,916
43
Kao Corporation Financial Report 2016
Notes to Consolidated Financial Statements
23
Equity and Other Equity Items
(1) Share Capital
The numbers of shares authorized and issued are as follows:
Authorized...................................................................................................................
Issued1
Beginning balance ...................................................................................................
Change during the year ...........................................................................................
Ending balance ........................................................................................................
(Shares)
2016
1,000,000,000
2015
1,000,000,000
504,000,000
—
504,000,000
504,000,000
—
504,000,000
Note: 1. All of the issued shares of the Company are ordinary shares that have no par value and no limitations on rights. Issued shares are
fully paid.
(2) Capital Surplus
Capital surplus consists of capital reserve and other capital surplus.
The Companies Act stipulates that over half of the capital contributed from the issue of shares must be included in share capital and
that the remainder must be included in capital reserve. Moreover, capital reserve may be included in share capital by resolution of the
General Meeting of Shareholders.
(3) Treasury Shares
The changes in treasury shares are as follows:
Beginning balance1 .....................................................................................................
Increase2 .................................................................................................................
Decrease3 ...............................................................................................................
Ending balance1 .........................................................................................................
2016
2,541,816
8,862,432
(266,594)
11,137,654
(Shares)
2015
2,921,992
9,340
(389,516)
2,541,816
Notes: 1. 556,492 shares of treasury shares held by associates were included at December 31, 2016 and 2015, and the transition date.
2. The increase of 8,862,432 shares of treasury shares during the fiscal year ended December 31, 2016 resulted from the
acquisition of 8,858,700 shares by resolution of the Board of Directors and the purchase of 3,732 fractional shares.
The increase of 9,340 shares of treasury shares during the fiscal year ended December 31, 2015 resulted from the purchase
of fractional shares.
3. The decrease of 266,594 shares of treasury shares during the fiscal year ended December 31, 2016 resulted from a decrease
of 266,000 shares due to the exercise of stock options, and the sale of 594 fractional shares.
The decrease of 389,516 shares of treasury shares during the fiscal year ended December 31, 2015 resulted from a
decrease of 389,000 shares due to the exercise of stock options, and the sale of 516 fractional shares.
(4) Other Components of Equity
1) Subscription rights to shares
The Company employs a stock option system and issues
subscription rights to shares in accordance with the
Companies Act. Note 33 “Share-based Payments” presents
information including terms and conditions and amounts.
2) Exchange differences on translation of foreign operations
Foreign currency translation differences arise from the
translation of financial statements of foreign operations
prepared in foreign currencies.
3) Net gain (loss) on derivatives designated as cash flow
hedges
The Group hedges its exposure to the risk of variability in
future cash flows. The effective portion of changes in the fair
value of cash flow hedges is the portion of the change in the
fair value of the hedging instrument recognized as effective
under hedge accounting.
4) Net gain (loss) on revaluation of financial assets measured
at fair value through other comprehensive income
This is the accumulated amount of changes in the fair value
of financial assets measured at fair value through other
comprehensive income. The Group reclassifies net gain (loss)
on revaluation of financial assets from other components of
equity to retained earnings when it disposes of an
investment or when fair value declines significantly.
5) Remeasurements of defined benefit plans
Remeasurements of defined benefit plans includes the effect
of variance between actuarial assumptions at the beginning
of the year and actual results, the effects of changes in
actuarial assumptions, actual return on plan assets and
interest income on plan assets (excluding amounts included
in net interest on the net defined benefit liability (asset)), and
any change in the effect of the asset ceiling (excluding
amounts included in net interest on the net defined benefit
liability (asset)). Remeasurements of defined benefit plans
are recognized in other comprehensive income and
Kao Corporation Financial Report 2016
44
immediately reclassified from other components of equity to
retained earnings in the period when they occur.
(5) Retained Earnings
Retained earnings consist of legal reserve and other retained
earnings.
The Companies Act requires that an amount equal to one-tenth
of dividends must be appropriated as capital reserve or as legal
reserve until the total of aggregate amount of capital reserve and
legal reserve equals a quarter of share capital. Legal reserve may
be appropriated to reduce a deficit, and also may be reversed by
resolution of the General Meeting of Shareholders.
24
Basic Strategy for Capital Policy
The Group’s capital policy follows a basic strategy of securing a
sound financial structure to make investments for sustainable growth
and tolerate the related risks, and to make stable, continuous returns
to shareholders. To realize this policy, the Group uses Economic Value
Added (hereinafter “EVA®1”), a management indicator that takes
capital cost into account, as its main indicator and works to enhance
its corporate value by improving EVA.
The Group manages all equity and interest-bearing liabilities as
subject of capital cost and intends to optimize capital cost from
the viewpoint of safety and capital efficiency. For equity, the
Group aims for a streamlined and sound structure from a medium-
to long-term perspective with efficiency in mind and, while
maintaining interest-bearing liabilities at a moderate level, aims to
obtain high credit ratings which will allow it to procure capital for
large-scale investments. The Group is not subject to significant
capital regulations except for general requirements under the
Companies Act and others.
Although the Group emphasizes shareholder returns, it realizes
that investment for growth will meet the expectations of its
stakeholders, and therefore prioritizes such investment. In
addition to providing stable dividends, the Group aims to
continuously increase dividends to reflect improvement in
business results. The Group also uses surplus funds to flexibly
conduct share repurchases.
In addition to making returns to shareholders, the Group retains
the capital necessary to conduct investments for growth in a
timely fashion and to ensure sufficient soundness to deal with
situations that exceed assumptions while improving EVA.
For the fiscal year ended December 31, 2016, EVA increased
14.8 billion yen compared with the previous fiscal year to 73.4
billion yen, due in part to an increase in net operating profit after
tax (hereinafter “NOPAT”) and efforts to reduce capital invested
including the implementation of shareholder returns through a
share repurchase.
Note: 1. EVA is a monetary metric defined as NOPAT less capital cost. EVA is a registered trademark of Stern Stewart & Co.
25 Dividends
Dividends paid are as follows:
Fiscal year ended December 31, 2016
Date of resolution
110th Annual General Meeting
of Shareholders held on
March 25, 2016
Board of Directors held on
July 28, 2016
Total dividends1
(Millions of yen)
Dividends per share
(Yen)
Record date
Effective date
21,061
23,077
42
46
December 31, 2015
March 28, 2016
June 30, 2016
September 1, 2016
Note: 1. Dividends on treasury shares held by associates accounted for using the equity method are reduced by an amount corresponding to the Group’s equity
in these associates. The dividend resolved at the 110th Annual General Meeting of Shareholders held on March 25, 2016 was 21,085 million yen before
the reduction. The dividend resolved at the meeting of the Board of Directors held on July 28, 2016 was 23,103 million yen before the reduction.
Fiscal year ended December 31, 2015
Date of resolution
109th Annual General Meeting
of Shareholders held on
March 25, 2015
Board of Directors held on
July 28, 2015
Total dividends1
(Millions of yen)
Dividends per share
(Yen)
Record date
Effective date
18,039
19,052
36
38
December 31, 2014
March 26, 2015
June 30, 2015
September 1, 2015
Note: 1. Dividends on treasury shares held by associates accounted for using the equity method are reduced by an amount corresponding to the Group’s equity in
these associates. The dividend resolved at the 109th Annual General Meeting of Shareholders held on March 25, 2015 was 18,059 million yen before the
reduction. The dividend resolved at the meeting of the Board of Directors held on July 28, 2015 was 19,073 million yen before the reduction.
45
Kao Corporation Financial Report 2016
Notes to Consolidated Financial Statements
Dividends with an effective date after the fiscal year end are as follows:
Total dividends
(Millions of yen)
Dividends per share
(Yen)
Record date
Effective date
23,684
48
December 31, 2016
March 22, 2017
Total dividends
(Millions of yen)
Dividends per share
(Yen)
Record date
Effective date
21,085
42
December 31, 2015
March 28, 2016
Fiscal year ended December 31, 2016
Date of Resolution
111th Annual General Meeting
of Shareholders held on
March 21, 2017
Fiscal year ended December 31, 2015
Date of Resolution
110th Annual General Meeting
of Shareholders held on
March 25, 2016
26 Net Sales
Net sales consist of the following.
Sale of goods .............................................................................................................................................
Rendering of services ................................................................................................................................
Total .......................................................................................................................................................
2016
1,456,950
660
1,457,610
(Millions of yen)
2015
1,473,956
594
1,474,550
27
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist of the following.
Freight/warehouse .....................................................................................................................................
Advertising .................................................................................................................................................
Sales promotion .........................................................................................................................................
Employee benefits .....................................................................................................................................
Depreciation ..............................................................................................................................................
Amortization ..............................................................................................................................................
Research and development .......................................................................................................................
Other .......................................................................................................................................................
Total .......................................................................................................................................................
28 Other Operating Income
Other operating income consists of the following.
Revenue of logistics services to third party ...............................................................................................
Royalty income ..........................................................................................................................................
Other .......................................................................................................................................................
Total .......................................................................................................................................................
2016
58,168
97,437
83,161
191,122
11,236
6,173
54,567
131,504
633,368
(Millions of yen)
2015
60,737
94,745
79,910
191,392
11,695
13,957
52,699
137,594
642,729
2016
8,300
1,022
4,355
13,677
(Millions of yen)
2015
8,885
829
4,385
14,099
Kao Corporation Financial Report 2016
46
29 Other Operating Expenses
Other operating expenses consist of the following.
Expenses of logistics services to third party .............................................................................................
Losses on sale and disposal of property, plant and equipment .................................................................
Impairment losses1 ....................................................................................................................................
Loss related to cosmetics .........................................................................................................................
Expenses for business transformation at European subsidiaries ..............................................................
Other .......................................................................................................................................................
Total .......................................................................................................................................................
2016
7,454
3,817
109
—
1,776
1,690
14,846
(Millions of yen)
2015
8,159
3,910
4,031
1,961
—
1,676
19,737
Note: 1. Note 12 “Non-current Assets Held for Sale” and Note 13 “Property, Plant and Equipment” present impairment losses.
30
Financial Income and Financial Expenses
Financial income consists of the following.
Interest income
Financial assets measured at amortized cost ........................................................................................
Retirement benefit assets .....................................................................................................................
Dividend income
Financial assets measured at fair value through other comprehensive income
Financial assets derecognized during the year ..................................................................................
Financial assets held at year end .......................................................................................................
Financial assets measured at fair value through profit or loss ...............................................................
Other .......................................................................................................................................................
Total ...............................................................................................................................................
Financial expenses consist of the following.
Foreign exchange loss1 .............................................................................................................................
Interest expenses2
Financial liabilities measured at amortized cost ...................................................................................
Retirement benefit liabilities .................................................................................................................
Other .......................................................................................................................................................
Total ................................................................................................................................................
2016
1,012
26
9
205
21
116
1,389
2016
2,859
1,484
953
128
5,424
(Millions of yen)
2015
1,048
21
46
135
37
129
1,416
(Millions of yen)
2015
1,633
1,528
1,035
17
4,213
Notes: 1. Valuation gains or losses on currency derivatives that are not designated as hedges are included in foreign exchange loss.
2. Valuation gains or losses on interest rate derivatives that are not designated as hedges are included in interest expenses.
47
Kao Corporation Financial Report 2016
Notes to Consolidated Financial Statements
31
Earnings per Share
(1) The Basis for Calculating Basic Earnings per Share
Net income attributable to owners of the parent ........................................................................................
Amounts not attributable to ordinary shareholders of the parent ................................................................
Net income used to calculate basic earnings per share ..............................................................................
(Millions of yen, unless otherwise noted)
2016
126,551
—
126,551
2015
105,196
—
105,196
Weighted average number of ordinary shares (Thousands of shares) ........................................................
499,355
501,352
Basic earnings per share (Yen) ....................................................................................................................
253.43
209.82
(2) The Basis for Calculating Diluted Earnings per Share
Net income used to calculate basic earnings per share ...............................................................................
Adjustments to net income ..........................................................................................................................
Net income used to calculate diluted earnings per share .............................................................................
(Millions of yen, unless otherwise noted)
2016
126,551
—
126,551
2015
105,196
—
105,196
Weighted average number of ordinary shares (Thousands of shares) .........................................................
Increase in ordinary shares
Subscription rights to shares (Thousands of shares) ................................................................................
Weighted average number of ordinary shares after dilution (Thousands of shares) ....................................
499,355
501,352
483
499,838
701
502,053
Diluted earnings per share (Yen) ..................................................................................................................
253.18
209.53
Summary of potential ordinary shares not included in the calculation of diluted earnings per share
because they have no dilutive effect ........................................................................................................
—
—
32 Other Comprehensive Income
Amount arising during the fiscal year, reclassification adjustments to profit or loss and tax effects for each component of other
comprehensive income are as follows:
Fiscal year ended December 31, 2016
(Millions of yen)
Gains (losses)
arising for the year
Reclassification
adjustments
Before tax effect
Tax effect
After tax effect
Other comprehensive income that will not be
reclassified to profit or loss
Gains (losses) on financial assets measured at
fair value through other comprehensive income ......
Remeasurements of defined benefit pension plans ......
Share of other comprehensive income of
associates accounted for by the equity method .......
Total of other comprehensive income that will
(1,569)
(22,409)
(128)
not be reclassified to profit or loss ....................
(24,106)
Other comprehensive income that can be
reclassified to profit or loss
Exchange differences on translation of foreign
operations .................................................................
(16,661)
Share of other comprehensive income of
associates accounted for by the equity method .......
Total of other comprehensive income that can
(7)
be reclassified to profit or loss ..........................
(16,668)
Total ...............................................................
(40,774)
—
—
—
—
—
—
—
—
(1,569)
(22,409)
(128)
663
6,298
56
(906)
(16,111)
(72)
(24,106)
7,017
(17,089)
(16,661)
(7)
(16,668)
—
(3)
(3)
(16,661)
(10)
(16,671)
(40,774)
7,014
(33,760)
Kao Corporation Financial Report 2016
48
Fiscal year ended December 31, 2015
(Millions of yen)
Gains (losses)
arising for the year
Reclassification
adjustments
Before tax effect
Tax effect
After tax effect
Other comprehensive income that will not be
reclassified to profit or loss
Gains (losses) on financial assets measured at
fair value through other comprehensive income ......
Remeasurements of defined benefit pension plans ......
Share of other comprehensive income of
associates accounted for by the equity method .......
Total of other comprehensive income that will
2,200
(288)
332
not be reclassified to profit or loss ....................
2,244
Other comprehensive income that can be
reclassified to profit or loss
Exchange differences on translation of
—
—
—
—
2,200
(288)
332
2,244
foreign operations .....................................................
(14,236)
(828)
(15,064)
Effective portion of changes in the fair value of
cash flow hedges ......................................................
Share of other comprehensive income of
associates accounted for by the equity method .......
Total of other comprehensive income that can
18
(26)
—
1
18
(25)
be reclassified to profit or loss ..........................
(14,244)
(827)
(15,071)
(405)
(482)
(87)
(974)
—
(6)
6
—
1,795
(770)
245
1,270
(15,064)
12
(19)
(15,071)
Total ...............................................................
(12,000)
(827)
(12,827)
(974)
(13,801)
33
Share-based Payments
(1) Share-based Payment System
The Company issues the following two types of stock options to
directors, executive officers and employees of the Group.
1) Stock options for share-based payment
Stock options for share-based payment are granted as
compensation for directors and executive officers who do not
concurrently serve as directors. These stock options are
intended to motivate and inspire recipients to enhance the
Company’s results and value of shares and to further enhance
corporate value by aligning the interests of recipients with
those of shareholders by further increasing the linkage among
the compensation of recipients, the Company’s results and
value of shares.
• Vesting conditions: Set on date of grant
• Settlement: Shares settled
(2) Number of Stock Options and Weighted Average Exercise Price
• Exercise period: Five years from July 1 of two years after the
subscription rights to shares are granted
2) Conventional stock options
Conventional stock options were granted to the employees of
the Company and the directors and employees of its
subsidiaries and associates as incentives. These stock options
were intended to further enhance corporate value by aligning
the interests of recipients with those of shareholders. The
Group has ceased granting these stock options since the fiscal
year ended December 31, 2012 after reviewing its system of
compensation and incentives for managers.
• Vesting conditions: Set on date of grant
• Settlement: Shares settled
• Exercise period: Five years from September 1 of two years
after the subscription rights to shares are granted
2016
2015
Number of shares
(Shares)
Weighted average
exercise price
(Yen)
Number of shares
(Shares)
Weighted average
exercise price
(Yen)
Beginning balance of outstanding ......................................
Granted ...........................................................................
Exercised ........................................................................
Expired at maturity ..........................................................
Ending balance of outstanding ...........................................
Ending balance of exercisable ............................................
846,000
40,000
(266,000)
(71,000)
549,000
469,000
1,654
1
1,886
2,355
1,331
1,558
1,343,000
40,000
(389,000)
(148,000)
846,000
766,000
2,100
1
2,473
3,100
1,654
1,827
Notes: 1. The weighted average share price on the date of exercise for the fiscal years ended December 31, 2016 and 2015 was 5,821 yen and 5,443 yen,
respectively.
49
Kao Corporation Financial Report 2016
Notes to Consolidated Financial Statements
2. The exercise price and the weighted average remaining contractual life for stock options outstanding at the end of the period are as follows:
Range of
exercise price
(Yen)
1
2,190 - 2,254
Total
2016
Number of shares
(Shares)
222,000
327,000
549,000
Weighted average
remaining contractual life
(Years)
4.0
1.4
2.4
Range of
exercise price
(Yen)
1
2,190 - 2,355
Total
2015
Number of shares
(Shares)
231,000
615,000
846,000
Weighted average
remaining contractual life
(Years)
4.1
1.8
2.4
(3) Fair Value of and Assumptions for Stock Options Issued during the Fiscal Year
The weighted average fair value of stock options issued was estimated using the Black-Scholes model with the following assumptions.
Fair value at date of grant ...............................................................................................................
Share price at date of grant ............................................................................................................
Exercise price .................................................................................................................................
Expected volatility ...........................................................................................................................
Expected remaining life ..................................................................................................................
Expected dividend yield ..................................................................................................................
Risk-free interest rate .....................................................................................................................
Expected volatility is calculated using actual recent share prices for the expected remaining life.
Stock option 2016
5,681 yen
5,956 yen
1 yen
25.723%
3.5 years
1.343%
(0.235)%
Stock option 2015
5,630 yen
5,871 yen
1 yen
21.458%
3.5 years
1.192%
0.018%
(4) Share-based Payment Expenses
Share-based payment expenses recognized in the consolidated statement of income for the fiscal years ended December 31, 2016 and
2015 were 227 million yen and 225 million yen, respectively.
34
Financial Instruments
(1) Classification of Financial Instruments
The amounts of each classification of financial assets are as follows:
Financial assets
2016
2015
Transition date
(Millions of yen)
Financial assets measured at amortized cost
Cash and cash equivalents (Note 8) ..............................................................................
Trade and other receivables (Note 9) ............................................................................
Other .............................................................................................................................
Financial assets measured at fair value through profit or loss
Cash and cash equivalents (Note 8) ..............................................................................
Derivatives ....................................................................................................................
Other .............................................................................................................................
Financial assets measured at fair value through other comprehensive income
Equity securities ...........................................................................................................
Total ......................................................................................................................
Current assets
Cash and cash equivalents ...........................................................................................
Trade and other receivables ..........................................................................................
Other financial assets ...................................................................................................
Subtotal ......................................................................................................................
Non-current assets
Other financial assets ...................................................................................................
Total ......................................................................................................................
268,126
208,459
22,404
34,900
791
2,888
12,428
549,996
303,026
208,459
13,038
524,523
25,473
549,996
240,363
210,707
14,319
69,559
2,240
2,858
14,987
555,033
309,922
210,707
5,065
525,694
29,339
555,033
181,323
212,742
13,140
47,644
656
2,853
13,473
471,831
228,967
212,742
4,034
445,743
26,088
471,831
Kao Corporation Financial Report 2016
50
Equity securities held by the Group are mainly issued by the entities that maintain business relationships with the Group and held for the
long-term without speculative purposes. The Group has designated such equity securities as financial assets measured at fair value
through other comprehensive income. Names of major equity securities and their fair values are as follows:
As of December 31, 2016
Company name
Seven & i Holdings Co., Ltd. .........................................................................................
Seven Bank, Ltd. ..........................................................................................................
Tokio Marine Holdings, Inc. ..........................................................................................
Saiwai Trading Co., Ltd. ................................................................................................
Livedo Corporation .......................................................................................................
Aeon Co., Ltd. ...............................................................................................................
Settsu Oil Mill, Inc. .......................................................................................................
Izumi Co., Ltd. ..............................................................................................................
Japan Alcohol Trading Co., Ltd. ....................................................................................
Keytrading Co., Ltd. ......................................................................................................
As of December 31, 2015
Company name
Seven & i Holdings Co., Ltd. ..........................................................................................
Seven Bank, Ltd. ...........................................................................................................
Tokio Marine Holdings, Inc. ...........................................................................................
Livedo Corporation ........................................................................................................
Saiwai Trading Co., Ltd. .................................................................................................
Aeon Co., Ltd. ................................................................................................................
Settsu Oil Mill, Inc. ........................................................................................................
Izumi Co., Ltd. ...............................................................................................................
Japan Alcohol Trading Co., Ltd. .....................................................................................
Keytrading Co., Ltd. .......................................................................................................
(Millions of yen)
Fair value
2,863
1,675
913
863
835
687
533
502
462
359
(Millions of yen)
Fair value
3,568
2,665
1,000
831
766
728
621
468
418
353
As of the transition date
Company name
Seven & i Holdings Co., Ltd. ..........................................................................................
Seven Bank, Ltd. ...........................................................................................................
Tokio Marine Holdings, Inc. ...........................................................................................
Livedo Corporation ........................................................................................................
Saiwai Trading Co., Ltd. .................................................................................................
Aeon Co., Ltd. ................................................................................................................
Settsu Oil Mill, Inc. ........................................................................................................
Izumi Co., Ltd. ...............................................................................................................
Japan Alcohol Trading Co., Ltd. .....................................................................................
Keytrading Co., Ltd. .......................................................................................................
(Millions of yen)
Fair value
2,801
2,540
1,043
784
571
491
473
422
386
364
The Group derecognizes some financial assets measured at fair value through other comprehensive income by sale for reasons including
asset efficiency and changes in business relationships. The total amounts of the fair value of such financial assets at the time of sale and
the cumulative gains or losses on sales are as follows:
Fair value ....................................................................................................................
Cumulative gains (losses) ...........................................................................................
2016
1,036
658
(Millions of yen)
2015
690
367
The Group transfers to retained earnings the cumulative gains or losses arising from changes in the fair value of financial assets
measured at fair value through other comprehensive income recognized as other components of equity when it disposes of an investment
or when fair value declines significantly. Cumulative gains or losses of other comprehensive income, net of taxes, that were transferred to
retained earnings for the fiscal years ended December 31, 2016 and 2015 were 435 million yen and 236 million yen, respectively.
51
Kao Corporation Financial Report 2016
Notes to Consolidated Financial Statements
The amounts of each classification of financial liabilities are as follows.
Financial liabilities
2016
2015
Transition date
(Millions of yen)
Financial liabilities measured at amortized cost
Trade and other payables (Note 19) ............................................................................
Bonds and borrowings (Note 17) ................................................................................
Other ...........................................................................................................................
Financial liabilities measured at fair value through profit or loss
Derivatives ..................................................................................................................
Total ....................................................................................................................
Current liabilities
Trade and other payables ............................................................................................
Bonds and borrowings ................................................................................................
Other financial liabilities ..............................................................................................
Subtotal ...................................................................................................................
Non-current liabilities
Bonds and borrowings ................................................................................................
Other financial liabilities ..............................................................................................
Subtotal ...................................................................................................................
Total ....................................................................................................................
216,893
120,646
19,057
773
357,369
216,893
30,289
8,164
255,346
90,357
11,666
102,023
357,369
206,760
120,546
17,919
827
346,052
206,760
339
6,929
214,028
120,207
11,817
132,024
346,052
193,460
101,610
17,492
1,086
313,648
193,460
21,422
5,765
220,647
80,188
12,813
93,001
313,648
There are no significant assets pledged for the above financial liabilities. Deposits received, which is interest-bearing liability in other
financial liabilities at December 31, 2016 and 2015, and the transition date, was 13,275 million yen, 11,986 million yen and 10,561 million
yen, respectively. The average interest rate on deposits received as of December 31, 2016 is 0.14%.
(2) Risk Management on Financial Instruments
The Group manages financial instrument risk based on the
following policies to avoid and mitigate market risk, credit risk and
liquidity risk.
mitigation needs, and does not use derivatives for trading or
speculative purposes. Therefore, as a rule, changes in the fair
value of derivative instruments that the Group holds effectively
offset changes in the fair value or cash flow.
1) Market risk management
(i) Exchange rate risk
The Group is exposed to the risk of market variability such as
fluctuations in exchange rates, interest rates and share prices.
The Group appropriately manages market risk to mitigate risk.
In addition, the Group uses derivatives mainly consisting of
foreign exchange forward contracts, currency swaps and
interest rate swaps with the objective of appropriately
managing market risk. The Group executes and manages
derivatives in accordance with internal policies that define
objective, position limit, scope, organizational structure and
others. The Group limits the use of derivatives to actual risk
The Group also operates outside Japan, and therefore is
exposed to the risks of exchange rate fluctuations
associated with transactions conducted in foreign
currencies and with net investments in foreign operations.
The Group minimizes the effect of exchange rate
fluctuations on operating results by settling transactions
denominated in foreign currency through foreign currency
accounts, and by hedging the risk of exchange rate
fluctuations using derivative instruments such as foreign
exchange forward and currency swaps.
Kao Corporation Financial Report 2016
52
Details of foreign exchange forward contracts and
currency swaps between the Japanese yen, which is the
Group’s functional currency, and its main foreign
currencies including the U.S. dollar, the euro and the
Chinese yuan are as follows:
The Group did not apply hedge accounting for these
derivative transactions, but determined that these
transactions effectively offset the impact of fluctuations in
exchange rates.
(Millions of yen)
2016
Contract
amount over
1 year
Carrying
amount
(fair value)1
Contract
amount
2015
Contract
amount over
1 year
Carrying
amount
(fair value)1
Contract
amount
Derivatives transactions
Foreign exchange forward contracts:
Selling
Transition date
Contract
amount over
1 year
Carrying
amount
(fair value)1
Contract
amount
U.S. dollar .................................
Euro ..........................................
Chinese yuan ...........................
16,308
74
1,065
Buying
Euro ..........................................
Chinese yuan ...........................
151
701
7,280
—
—
—
701
60
3
(1)
(6)
(52)
16,824
76
4,578
43
778
9,729
—
3,379
—
778
(83)
(0)
110
1
(100)
—
54
3,053
55
808
—
—
3,053
—
808
—
1
(67)
(1)
(114)
Currency swaps:
Receiving Japanese yen, paying
Chinese yuan ...........................
2,279
2,279
(158)
2,279
2,279
(417)
2,279
2,279
(602)
Note: 1. Note 34 “Financial Instruments (4) Fair Value of Financial Instruments” presents the method of measuring the fair value of the above derivatives.
The above assets or liabilities related to derivative transactions are included in other financial assets or other financial liabilities
in the consolidated statement of financial position.
Net exposure to exchange rate risk consists of the following. Amounts hedged against exchange rate fluctuation risk with
derivatives are excluded.
As of December 31, 2016
Net exposure
As of December 31, 2015
Net exposure
U.S. dollar
2,210
U.S. dollar
1,598
Euro
707
Euro
1,354
(Millions of yen)
Chinese yuan
5,342
(Millions of yen)
Chinese yuan
4,183
The following table illustrates the impact on income
before income taxes in the consolidated statement of
income from foreign currency-denominated financial
instruments held by the Group at the end of each fiscal
year if the Japanese yen appreciated by 10% against the
U.S. dollar, the euro and the Chinese yuan.
The effects of translating financial instruments
denominated in the Group’s functional currency, and the
assets, liabilities, income and expenses of foreign
operations are not included in the analysis. The analysis
also assumes that currencies other than those used in the
calculation remain constant.
U.S. dollar ...............................................................................................................................................
Euro ........................................................................................................................................................
Chinese yuan ..........................................................................................................................................
2016
(221)
(71)
(534)
(Millions of yen)
2015
(160)
(135)
(418)
(ii) Interest rate fluctuation risk
The Group finances through long-term borrowings and
bonds for maintaining an appropriate cost of capital and
strengthening its financial base for investment for growth.
The Group considers interest rate market movements and
the balance between floating and fixed interest rates in
making decisions about long-term funding. The Group’s
short-term borrowings generally have floating interest
rates. The Group hedges interest rate risk as necessary
using derivative instruments such as interest rate swaps,
and therefore estimates its exposure to interest rate
fluctuation risk is limited.
(iii) Share price fluctuation risk
The Group held marketable equity securities, primarily
those of companies with which the Group has business
relationships, totaled at 8,956 million yen, 11,775 million
yen and 10,476 million yen at December 31, 2016 and 2015,
53
Kao Corporation Financial Report 2016
and the transition date, respectively. These equity
securities are exposed to share price fluctuation risk.
However, the Group annually evaluates the rationale and
reviews ongoing advisability and position size of these
holdings. Fluctuations in their prices do not affect net profit
or loss because all of these equity securities are
designated as financial assets measured at fair value
through other comprehensive income.
2) Credit risk management
The Group is exposed to credit risk such as a counterparty’s
default on its contractual obligations resulting in financial losses
to the Group.
(i) Trade and other receivables
Notes and accounts receivable are trade receivables that
expose the Group to customer credit risk. The Group
manages that risk with an internal process for investigating
and approving customer credit on initial transactions, and
by obtaining deposits, collateral or other guaranties as
necessary. The Group also manages due dates and
outstanding balances by customer, and periodically
reconfirms creditworthiness of major customers. Non-trade
receivables expose the Group to business partner credit
risk, but these receivables are almost entirely settled in the
short-term.
(ii) Short-term investments
Short-term investments are recognized in cash and cash
equivalents and other financial assets. They are highly safe
and liquid financial instruments that include commercial
paper issued by entities with high bond ratings, bond
investment trusts, and money held in trust.
(iii) Loan receivables
Loan receivables expose the Group to borrower credit risk.
The Group manages this risk with an internal process for
investigating and approving borrower credit on initial
lending transactions, and by obtaining deposits, collateral
or other guaranties as necessary. The Group also
periodically reconfirms creditworthiness of borrowers.
(iv) Derivatives
The Group executes and manages derivatives in
accordance with internal policies that define objective,
position limit, scope and organizational structure. The Group
limits the use of derivatives to actual risk mitigation needs,
and does not use derivatives for trading or speculative
purposes, and reduces credit risk by limiting transactions to
highly creditworthy financial institutions.
Notes to Consolidated Financial Statements
The carrying amount after impairment of financial assets in
the consolidated financial statements of financial position
represents the Group’s maximum exposure to the credit risk of
financial assets. The Group is not exposed to excessive credit
risk associated with a particular customer that requires
exceptional management.
The Group recognizes an allowance for doubtful receivables
for trade receivables and other financial assets measured at
amortized cost by estimating future credit losses in
consideration of recoverability and significant increases in credit
risk. The Group determines if credit risk has increased
significantly by evaluating changes in default risk with reference
to factors including downgrading of internal credit ratings, the
decline of counterparty results, and delinquency information.
Trade receivables are particularly important financial assets
for the Group. The Group collectively measures expected credit
losses of the financial assets for the entire period to recognize
the allowance for doubtful receivables. In the following
situations that would adversely affect future cash flows,
however, the Group measures expected credit losses
individually by treating each receivable as a credit-impaired
financial asset.
• Where the customer has serious financial difficulties
• Where the customer defaults or becomes delinquent in
accounts receivable payments despite repeated demands
for payment
• Where it is more likely that the customer will go into
bankruptcy or face a situation that forces it to reconstruct
its business
The Group directly writes down carrying amount if it does not
reasonably expect to recover all or part of the trade receivables,
following an internal process of investigation and approval.
The Group held security deposits for credit enhancement
totaling 6,413 million yen, 6,271 million yen, and 6,105 million
yen at December 31, 2016 and 2015, and the transition date,
respectively.
Kao Corporation Financial Report 2016
54
The carrying amount of trade receivables and changes in the related allowance for doubtful receivables are as follows:
Fiscal year ended December 31, 2016
(Millions of yen)
Trade receivables
January 1, 2016 .....................................................................
Change during the year
(Recognition and derecognition) ....................................
Transfer to credit-impaired financial assets .......................
Other changes ...................................................................
December 31, 2016 ...............................................................
Allowance for doubtful receivables
January 1, 2016 .....................................................................
Increase during the year ....................................................
Decrease during the year (charge-offs) ..............................
Decrease during the year (other) .......................................
Transfer to credit-impaired financial assets .......................
Other changes ...................................................................
December 31, 2016 ...............................................................
Financial assets for which
loss allowances are always
measured at an amount
equal to expected credit
losses for the entire period
206,494
2,472
28
(4,258)
204,736
Credit-impaired
financial assets
472
(36)
(28)
(45)
363
Financial assets for which
loss allowances are always
measured at an amount
equal to expected credit
losses for the entire period
Credit-impaired
financial assets
803
217
(85)
(72)
(6)
(76)
781
465
18
(28)
(36)
6
(43)
382
Total
206,966
2,436
—
(4,303)
205,099
(Millions of yen)
Total
1,268
235
(113)
(108)
—
(119)
1,163
Fiscal year ended December 31, 2015
(Millions of yen)
Trade receivables
January 1, 2015 .....................................................................
Change during the year
(Recognition and derecognition) ....................................
Transfer to credit-impaired financial assets .......................
Other changes ...................................................................
December 31, 2015 ...............................................................
Allowance for doubtful receivables
January 1, 2015 .....................................................................
Increase during the year ....................................................
Decrease during the year (charge-offs) ..............................
Decrease during the year (other) .......................................
Transfer to credit-impaired financial assets .......................
Other changes ...................................................................
December 31, 2015 ...............................................................
Financial assets for which
loss allowances are always
measured at an amount
equal to expected credit
losses for the entire period
205,186
5,749
(146)
(4,295)
206,494
Credit-impaired
financial assets
488
(104)
146
(58)
472
Financial assets for which
loss allowances are always
measured at an amount
equal to expected credit
losses for the entire period
Credit-impaired
financial assets
775
236
(115)
(46)
(7)
(40)
803
475
126
(35)
(49)
7
(59)
465
Total
205,674
5,645
—
(4,353)
206,966
(Millions of yen)
Total
1,250
362
(150)
(95)
—
(99)
1,268
55
Kao Corporation Financial Report 2016
Notes to Consolidated Financial Statements
The following tables present an analysis of the carrying amount of trade receivables and the allowance for doubtful receivables by days
past due.
As of December 31, 2016
Trade receivables .......................................................
Allowance for doubtful receivables ...........................
Expected credit loss (%) ............................................
As of December 31, 2015
Trade receivables .......................................................
Allowance for doubtful receivables ...........................
Expected credit loss (%) ............................................
As of the transition date
Trade receivables .......................................................
Allowance for doubtful receivables ...........................
Expected credit loss (%) ............................................
(Millions of yen unless otherwise noted)
Days past due
Not due
197,543
256
0.1
Less than 30
days
4,315
82
1.9
Over 30
days
1,248
30
2.4
Over 60
days
553
60
10.9
Over 90
days
1,440
735
51.0
Total
205,099
1,163
0.6
(Millions of yen unless otherwise noted)
Days past due
Not due
196,783
245
0.1
Less than 30
days
6,795
89
1.3
Over 30
days
1,414
28
2.0
Over 60
days
504
34
6.6
Over 90
days
1,470
872
59.3
Total
206,966
1,268
0.6
(Millions of yen unless otherwise noted)
Days past due
Not due
197,825
356
0.2
Less than 30
days
4,853
26
0.5
Over 30
days
1,142
43
3.8
Over 60
days
511
39
7.6
Over 90
days
1,343
786
58.6
Total
205,674
1,250
0.6
3) Liquidity Risk Management
Liquidity risk is the risk that the Group may not be able to fulfill
its obligation to pay financial liabilities that come due.
The Group uses methods such as scheduled medium- and
long-term financing plans to understand its liquidity and
consistently ensure the availability of sufficient funding.
The Group has also implemented the Global Cash
Management System to reduce liquidity risk through the
focused and efficient management of the Group’s capital in
Japan and overseas.
Financial liabilities including derivative instruments by maturity date consist of the following.
As of December 31, 2016
(Millions of yen)
Carrying
amount
Contract
amount
Not later
than 1 year
Later than
1 year but
not later than
2 years
Later than
2 years but
not later than
3 years
Later than
3 years but
not later than
4 years
Later than
4 years but
not later than
5 years
Later than
5 years
Non-derivative financial liabilities
Trade and other receivables ..........
Bonds and borrowings ..................
Lease obligations ..........................
Long-term deposits payable .........
Derivative financial liabilities
Currency related ...........................
Interest rate related ......................
Total ..........................................
216,893
120,646
4,000
6,413
216,893
120,699
4,140
6,413
758
15
348,725
758
15
348,918
216,869
30,289
884
—
337
7
248,386
24
25,066
779
—
159
8
26,036
—
40,045
684
—
—
—
40,729
—
25,038
667
—
—
—
25,705
—
235
492
—
262
—
989
—
26
634
6,413
—
—
7,073
Kao Corporation Financial Report 2016
56
As of December 31, 2015
Non-derivative financial liabilities
Trade and other receivables ..........
Bonds and borrowings ..................
Lease obligations ..........................
Long-term deposits payable .........
Derivative financial liabilities
Currency related ...........................
Interest rate related ......................
Total ..........................................
As of the transition date
Carrying
amount
Contract
amount
Not later
than 1 year
206,760
120,546
4,911
6,271
206,760
120,621
5,101
6,271
790
37
339,315
790
37
339,580
206,732
339
968
—
54
—
208,093
Later than
1 year but
not later than
2 years
Later than
2 years but
not later than
3 years
Later than
3 years but
not later than
4 years
Later than
4 years but
not later than
5 years
Later than
5 years
(Millions of yen)
28
30,070
882
—
54
25
31,059
—
25,067
782
—
515
12
26,376
—
40,046
683
—
58
—
40,787
—
25,038
661
—
109
—
25,808
—
61
1,125
6,271
—
—
7,457
Non-derivative financial liabilities
Trade and other receivables ..........
Bonds and borrowings ..................
Lease obligations ..........................
Long-term deposits payable .........
Derivative financial liabilities
Currency related ...........................
Interest rate related ......................
Total ..........................................
Carrying
amount
Contract
amount
Not later
than 1 year
193,460
101,610
5,890
6,105
193,460
101,707
6,142
6,105
1,007
79
308,151
1,007
79
308,500
193,460
21,422
1,050
—
338
79
216,349
Later than
1 year but
not later than
2 years
Later than
2 years but
not later than
3 years
Later than
3 years but
not later than
4 years
Later than
4 years but
not later than
5 years
Later than
5 years
(Millions of yen)
—
63
967
—
—
—
1,030
—
30,061
880
—
—
—
30,941
—
25,058
780
—
669
—
26,507
—
37
679
—
—
—
716
—
25,066
1,786
6,105
—
—
32,957
(3) Hedge Accounting
As described in Note 34 “Financial Instruments (2) Risk
Management on Financial Instruments”, the Group designates
interest rate swaps as cash flow hedges to hedge interest rate
fluctuation risk for floating-rate liabilities. When applying hedge
accounting, the Group periodically evaluates whether the hedged
item and the hedging instrument meets key criteria and is closely
matched in order to confirm an offsetting economic relationship
between fluctuations in the cash flow of the hedged item
attributable to the risk being hedged and fluctuations in the cash
flow of the hedging instrument. The Group also assesses hedge
effectiveness by quantitatively evaluating whether changes in the
cash flows of the hedged item and the hedging instrument have an
offsetting relationship due to the same risk. In addition, the Group
sets hedge ratios that are appropriate in light of the economic
relationship between the hedging instrument and the hedged item
and the Group’s risk management strategy. The Group’s hedges
generally do not have a significant ineffective hedge portion
because the Group only applies the hedge accounting when the
hedged item and the hedging instrument meet key criteria.
The effective portion of changes in the fair value of derivatives
designated as cash flow hedges is recognized in other
comprehensive income. Gains or losses on derivatives recognized
in other components of equity are transferred to profit or loss when
changes in the future cash flows associated with hedged items are
recognized in profit or loss. Any ineffective portion is recognized in
profit or loss. The Group discontinues hedge accounting for a
hedging relationship if the risk management objective has changed.
The carrying amount (fair value) of derivatives designated as cash flow hedges consists of the following. There was no hedging
relationship for which the Group discontinued hedge accounting.
Consolidated
statement of
financial
position line
item
Other financial
liabilities in
current
liabilities
Hedging
instrument
Interest rate
swap (pay
fixed / receive
variable)1
Type of risk
Interest Rate
Risk
2016
Contract
amount
later than
1 year
Nominal
amount
Carrying
amount
(fair value)
Nominal
amount
2015
Contract
amount
later than
1 year
(Millions of yen)
Transition date
Carrying
amount
(fair value)
Nominal
amount
Contract
amount
later than
1 year
Carrying
amount
(fair value)
—
—
—
—
—
— 20,000
—
(18)
Note: 1. The details of this swap contract are: pay fixed 0.53%, receive variable TIBOR+0.05%.
57
Kao Corporation Financial Report 2016
Notes to Consolidated Financial Statements
Derivatives designated as cash flow hedges that the Group recognized in other components of equity and in profit and loss (before tax
effect) consist of the following.
As of December 31, 2016
None applicable.
As of December 31, 2015
Type of risk
Interest rate risk
Beginning of year:
Effective portion of
changes in the fair value of
cash flow hedge
(18)
Hedge profit or loss
recognized in other
comprehensive income
18
Amount reclassified to
other components of
equity
—
(Millions of yen)
End of year:
Effective portion of
changes in the fair value of
cash flow hedge
—
(4) Fair Value of Financial Instruments
1) Fair value hierarchy levels
For financial instruments measured at fair value, the fair values
developed based on the observability of inputs into the
valuation techniques used in measurement are categorized
within the following three levels.
Level 1: Fair value measured with quoted prices in active
markets for identical assets or liabilities
Level 2: Fair value measured with inputs other than quoted
(ii) Derivative assets and derivative liabilities
Derivative assets and derivative liabilities are included in
other financial assets and other financial liabilities, and are
designated as financial assets and financial liabilities
measured at fair value through profit or loss. Consisting of
instruments including foreign exchange forward contracts,
currency swaps and interest rate swaps, derivative assets
and derivative liabilities are primarily measured with a
model using observable inputs such as exchange rates
and interest rates.
prices categorized within Level 1 that are observable
for the asset or liability, either directly or indirectly
(iii) Equity securities
Level 3: Fair value measured with inputs not based on
observable market data for the asset or liability
2) Financial instruments measured at fair value
The measurement methods for the main financial instruments
measured at fair value are as follows.
(i) Short-term investments (excluding short-term investments
measured at amortized cost)
Short-term investments are included in cash and cash
equivalents, and are designated as financial assets
measured at fair value through profit or loss. Short-term
investments primarily consist of bond investment trusts
and money held in trust, and are measured with a model
using observable inputs such as interest rates.
Equity securities are included in other financial assets, and
are designated as financial assets measured at fair value
through other comprehensive income. Equity securities
that are categorized within Level 1 are publicly listed and
traded in active markets, and are measured using market
prices on exchanges. Equity securities that are
categorized within Level 3 are unlisted, and are primarily
measured using a net asset valuation model, which
measures corporate value based on the net asset of the
issuing company with adjustments based on fair value.
Kao Corporation Financial Report 2016
58
The fair value hierarchy of financial instruments measured at fair value is as follows.
The Group recognizes transfers of financial instruments between levels of the fair value hierarchy at the end of each fiscal year. No
financial instruments were transferred between levels of the fair value hierarchy for the fiscal years ended December 31, 2016 or 2015.
As of December 31, 2016
Level 1
Level 2
Level 3
Total
(Millions of yen)
Financial assets
Financial assets measured at fair value through profit or loss
Short-term investments ............................................................
Derivative assets .......................................................................
Other .........................................................................................
Financial assets measured at fair value through other
comprehensive income
Equity securities ........................................................................
Total ......................................................................................
Financial liabilities
Financial liabilities measured at fair value through profit or loss
Derivative liabilities ...................................................................
Total ......................................................................................
—
—
—
8,956
8,956
—
—
34,900
791
2,888
—
38,579
773
773
—
—
—
3,472
3,472
—
—
34,900
791
2,888
12,428
51,007
773
773
As of December 31, 2015
Level 1
Level 2
Level 3
Total
(Millions of yen)
Financial assets
Financial assets measured at fair value through profit or loss
Short-term investments ............................................................
Derivative assets .......................................................................
Other .........................................................................................
Financial assets measured at fair value through other
comprehensive income
Equity securities ........................................................................
Total ......................................................................................
Financial liabilities
Financial liabilities measured at fair value through profit or loss ...
Derivative liabilities ...................................................................
Total ......................................................................................
—
—
—
11,775
11,775
—
—
69,559
2,240
2,858
—
74,657
827
827
—
—
—
3,212
3,212
—
—
69,559
2,240
2,858
14,987
89,644
827
827
As of the transition date
Level 1
Level 2
Level 3
Total
(Millions of yen)
Financial assets
Financial assets measured at fair value through profit or loss
Short-term investments ............................................................
Derivative assets .......................................................................
Other .........................................................................................
Financial assets measured at fair value through other
—
—
—
comprehensive income
Equity securities ........................................................................
Total ......................................................................................
10,476
10,476
Financial liabilities
Financial liabilities measured at fair value through profit or loss
Derivative liabilities ...................................................................
Total ......................................................................................
—
—
47,644
656
2,853
—
51,153
1,086
1,086
—
—
—
2,997
2,997
—
—
47,644
656
2,853
13,473
64,626
1,086
1,086
59
Kao Corporation Financial Report 2016
Notes to Consolidated Financial Statements
Changes in financial instruments categorized within Level 3 are as follows:
Beginning balance .....................................................................................................................................
Gains (Losses)1 ......................................................................................................................................
Purchases ..............................................................................................................................................
Sales ......................................................................................................................................................
Other changes .......................................................................................................................................
Ending balance ..........................................................................................................................................
2016
3,212
231
30
—
(1)
3,472
(Millions of yen)
2015
2,997
290
—
(73)
(2)
3,212
Note: 1. All gains and losses are associated with financial assets measured at fair value through other comprehensive income at the end of each reporting
period. These gains and losses are recognized in net gain (loss) on revaluation of financial assets measured at fair value through other comprehensive
income in the consolidated statement of comprehensive income.
Financial instruments categorized within Level 3 are primarily unlisted equity securities. Each responsible department of the Group
refers to the Group accounting policies in measuring the fair value of unlisted equity securities each quarter using recently available
data, and reports any changes in fair value and the reasons to the department manager, and to senior management as necessary.
3) Financial instruments measured at amortized cost
The following tables present the measurement techniques for
measuring the fair value of major financial instruments
measured at amortized cost. Financial instruments for which
carrying amounts are a reasonable approximation of fair value
or financial instruments that are not material are not included
in the tables.
(i) Cash and cash equivalents (excluding short-term
investments measured at fair value), trade and other
receivables, and trade and other payables
Carrying amounts approximate fair value because these
are settled in the short-term.
(ii) Bonds and borrowings
The fair value of bonds is based on market prices. The fair
value of borrowings is the present value of remaining
principal and interest discounted using a deemed interest
rate on equivalent new borrowings.
The carrying amount and fair value hierarchy of financial instruments measured at amortized cost are as follows:
As of December 31, 2016
Carrying amount
Level 1
Level 2
Level 3
Total
Fair value
(Millions of yen)
Financial liabilities
Financial liabilities measured at amortized cost
Bonds .............................................................
Borrowings .....................................................
As of December 31, 2015
Financial liabilities
Financial liabilities measured at amortized cost
Bonds ............................................................
Borrowings ....................................................
As of the transition date
Financial liabilities
Financial liabilities measured at amortized cost
Bonds ............................................................
Borrowings ....................................................
49,947
70,699
—
—
50,548
71,084
—
—
50,548
71,084
Carrying amount
Level 1
Level 2
Level 3
Total
Fair value
(Millions of yen)
49,925
70,621
—
—
50,650
70,933
—
—
50,650
70,933
Carrying amount
Level 1
Level 2
Level 3
Total
Fair value
(Millions of yen)
49,903
51,707
—
—
50,910
51,935
—
—
50,910
51,935
Kao Corporation Financial Report 2016
60
35
Principal Subsidiaries
Principal subsidiaries consist of the following. Voting rights at December 31, 2016 did not significantly change from a year earlier.
Company name
Country
Principal businesses
Voting rights (%)
Kao Group Customer Marketing Co., Ltd.
Japan
Control of sales companies and other subsidiaries
in Japan
Kao Customer Marketing Co., Ltd.
Kanebo Cosmetics Inc.
Kanebo Cosmetics Sales Inc.
Kao Transport & Logistics Co., Ltd.
Kao (China) Holding Co., Ltd.
Kao Corporation Shanghai
Kao (Hefei) Co., Ltd.
Kao Commercial (Shanghai) Co., Ltd.
Kanebo Cosmetics (China) Co., Ltd.
Kao (Shanghai) Chemical Industries Co., Ltd.
Kao (Taiwan) Corporation
Pilipinas Kao, Inc.
Beauty Care
Human Health Care
Fabric and Home Care
Beauty Care
Beauty Care
Logistics and related services in Japan
Control of subsidiaries in China
Beauty Care
Beauty Care
Human Health Care
Fabric and Home Care
Human Health Care
Beauty Care
Human Health Care
Fabric and Home Care
Beauty Care
Chemical
Beauty Care
Human Health Care
Fabric and Home Care
Chemical
Japan
Japan
Japan
Japan
China
China
China
China
China
China
Taiwan
Philippines
Chemical
Kao Industrial (Thailand) Co., Ltd.
Thailand
Beauty Care
Human Health Care
Fabric and Home Care
Chemical
Beauty Care
Human Health Care
Fabric and Home Care
Chemical
Beauty Care
Human Health Care
Fabric and Home Care
Thailand
Malaysia
Indonesia
U.S.A.
Beauty Care
U.S.A.
U.S.A.
Germany
Germany
Germany
Corporate service to subsidiaries in U.S.
Holding company for Chemical Business in the U.S.
Chemical
Beauty Care
Beauty Care
Chemical
U.K.
Beauty Care
Spain
Spain
Control of subsidiaries in Chemical Business in
Europe, etc.
Chemical
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
92.2
100.0
100.0
100.0
70.0
72.2
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
Kao Commercial (Thailand) Co., Ltd.
Fatty Chemical (Malaysia) Sdn. Bhd.
PT Kao Indonesia
Kao USA Inc.
Kao America Inc.
Kao Specialties Americas LLC
Kao Germany GmbH
Kao Manufacturing Germany GmbH
Kao Chemicals GmbH
Molton Brown Limited
Kao Chemicals Europe, S.L.
Kao Corporation S.A.
61
Kao Corporation Financial Report 2016
Notes to Consolidated Financial Statements
36
Related Parties
(1) Transactions with Related Parties
Disclosure is omitted because there is no material related party
transaction.
(2) Primary Executive Management Compensation
Primary executive management compensation consists of the
following. The Group’s primary executive management includes
members of the Board of Directors and executive officers of the
Company for each fiscal year.
Short-term benefits ...................................................................................................................................
Post-retirement benefits ............................................................................................................................
Share-based payment ................................................................................................................................
Total .......................................................................................................................................................
2016
1,131
39
227
1,397
(Millions of yen)
2015
951
50
225
1,226
37
Commitments
Commitments to acquire property, plant and equipment and intangible assets after the end of each reporting period are as follows:
Acquisition of property, plant and equipment .............................................................
Acquisition of intangible assets ..................................................................................
Total ........................................................................................................................
2016
27,100
1,306
28,406
2015
23,130
689
23,819
(Millions of yen)
Transition date
19,958
625
20,583
38
Significant Subsequent Events
The Board of Directors, at the meeting of the Board of Directors
held on February 2, 2017, resolved to retire treasury shares in
accordance with Article 178 of the Companies Act and the
Company retired treasury shares of the Company. The number of
shares retired corresponds to the number of shares of the
Company’s shares purchased from the market during the fiscal year
ended December 31, 2016.
• Shares retired: Ordinary shares of the Company
• Number of shares retired: 9,000,000 shares
• Total amount of shares retired: 48,429 million yen
• Retirement date: March 1, 2017
Kao Corporation Financial Report 2016
62
39
First-time Adoption of IFRS
The Group presents consolidated financial statements that comply
with IFRS from the fiscal year ended December 31, 2016. The most
recent consolidated financial statements prepared in accordance
with generally accepted accounting principles in Japan (hereinafter
“Japanese GAAP”) were for the fiscal year ended December 31,
2015, and the transition date is January 1, 2015.
The first-time adopter shall, in principle, apply the standards
required under IFRS retrospectively. However, an entity may elect
to use the exemptions contained in IFRS 1 and shall apply the
exceptions prohibiting retrospective application of some aspects of
other IFRS. The Group mainly applies the following exemptions.
IFRS 1 Exemptions
(1) Business Combinations
Under IFRS 1, an entity may elect to apply IFRS 3 “Business
Combinations” (hereinafter “IFRS 3”) either retrospectively or
prospectively. The Group has elected not to apply IFRS 3
retrospectively to past business combinations that occurred before
the transition date. As a result, the Group has applied the accounting
treatment under Japanese GAAP to the business combinations that
occurred before the transition date, which were not restated.
With respect to goodwill arising in business combinations, the
Group has kept the Japanese GAAP carrying amounts that had been
applied before the transition to IFRS, in principle, and has translated
all goodwill denominated in a foreign currency at the closing rate for
the retrospective application of IAS 21 “The Effects of Changes in
Foreign Exchange Rates.”
Goodwill is tested for impairment at the transition date, regardless
of any indications of impairment.
(2) Deemed Cost
Under IFRS 1, an entity may elect to measure property, plant and
equipment at its fair value at the transition date and use the fair
value as its deemed cost at the transition date. The Group used fair
value at the transition date as the deemed cost for certain property,
plant and equipment.
(3) Cumulative Translation Differences for Foreign Operations
Under IFRS 1, the cumulative translation differences for all foreign
operations are deemed to be zero at the transition date, or
recalculated retrospectively up until the date the subsidiary or
associate was established or acquired. The Group elected to reset
the cumulative translation differences to zero at the transition date.
(4) Designation of Previously Recognized Financial Instruments
Under IFRS 1, an entity may designate financial instruments
recognized before the transition date in accordance with IFRS 9 on
the basis of the facts and circumstances that exist at the transition
date. The Group designated financial instruments in accordance
with IFRS 9 on the basis of the facts and circumstances that
existed at the transition date.
Mandatory Exceptions of IFRS 1
IFRS 1 prohibits retrospective application of IFRS for estimates,
derecognition of financial assets and financial liabilities, hedge
accounting, non-controlling interests, classification and
measurement of financial assets, and impairment of financial
assets. The Group has prospectively applied IFRS for these items
from the transition date.
63
Kao Corporation Financial Report 2016
Notes to Consolidated Financial Statements
The table below presents reconciliations required in first-time adoption of IFRS.
In the table, items that do not affect retained earnings and comprehensive income are included in the “Reclassification” column,
differences from Japanese GAAP resulting from a review of the scope of consolidation under IFRS are included in the “Consolidation scope
differences” column, and items that affect retained earnings and comprehensive income are included in the “Recognition and
measurement differences” column.
Reconciliations of Equity as of the Transition Date (January 1, 2015)
Japanese
GAAP
Reclassifi-
cation
Consolidation
scope
differences
Recognition and
measurement
differences
IFRS
Notes
Accounts under IFRS
(Millions of yen)
107,412
121,251
304
—
228,967
(13), (14)
204,060
110,639
157,787
6,832
20,232
—
—
36,420
7,279
(110,639)
(2,892)
(6,832)
(20,232)
1,023
4,130
10,428
(1,648)
641,734
1,648
5,164
1,290
—
1,161
—
—
238
(96)
(33)
—
2,864
113
—
(4,180)
—
—
—
—
484
—
(3,583)
212,742
—
151,876
—
—
1,261
4,034
47,299
—
646,179
Assets
Current assets
Cash and cash
equivalents
Trade and other
receivables
(14)
(13)
(1), (14)
Inventories
(13)
(14)
(13), (14)
(13), (14)
Income tax receivables
Other financial assets
Other current assets
Total current assets
Non-current assets
Property, plant and
307,615
10,432
2,119
(884)
319,282
(2), (13), (14)
equipment
Accounts under Japanese GAAP
Assets
Current assets
Cash and time deposits ............
Notes and accounts
receivable - trade ....................
Short-term investments ............
Inventories ................................
Prepaid expenses ......................
Deferred tax assets ...................
Other .........................................
Allowance for doubtful
receivables .............................
Total current assets ..................
Fixed assets
Property, plant and equipment.....
Intangible assets ..........................
Goodwill ....................................
Trademarks ...............................
Other .........................................
139,941
15,145
12,844
—
—
(15,145)
(12,844)
27,965
Investments and other assets
Investment securities ...............
20,984
(20,984)
Long-term loans ........................
Long-term prepaid expenses .....
Asset for retirement benefits ....
Other .........................................
Deferred tax assets ...................
Allowance for doubtful
—
1,432
17,281
9,692
—
11,612
20,630
receivables .............................
Total fixed assets ......................
Total assets ....................................
(677)
556,499
1,198,233
9,264
(1,432)
(17,281)
(9,692)
23,916
4,982
20,232
677
20,090
25,254
—
—
—
7
—
(5,505)
—
—
—
424
44
1,189
—
(1,722)
1,142
(1,190)
—
—
(4,346)
138,751
—
—
23,626
—
—
(215)
—
—
—
1,748
(8,672)
19,143
—
5,584
2,001
3,544
—
—
—
26,088
7,966
61,194
—
580,451
1,226,630
(3)
Goodwill
(4), (14)
Intangible assets
Investments accounted
for using the equity
method
(14)
(13)
(5), (13), (14)
(9), (14)
(6), (13), (14)
Other financial assets
Other non-current assets
Deferred tax assets
Total non-current assets
Total assets
Kao Corporation Financial Report 2016
64
Japanese
GAAP
Reclassifi-
cation
Consolidation
scope
differences
Recognition and
measurement
differences
(Millions of yen)
IFRS
Notes
Accounts under IFRS
Liabilities
Current liabilities
Accounts under Japanese GAAP
Liabilities
Current liabilities
Notes and accounts
payable - trade ........................
Short-term loans .......................
Current portion of long-
term loans ...............................
Accounts payable - other ..........
Accrued expenses ....................
Income taxes payable ...............
Liability for loss related to
cosmetics ...............................
Other .........................................
Total current liabilities ...............
Long-term liabilities
Bonds ........................................
Long-term loans ........................
Liability for retirement
benefits ...................................
Other .........................................
129,711
1,137
20,013
—
66,230
94,666
28,108
8,220
—
—
32,451
380,536
50,000
30,083
—
42,414
—
—
22,807
—
65,491
(1,137)
(20,013)
21,150
(66,230)
(94,666)
112
(8,220)
10,122
35,962
81,754
24,325
(50,000)
(30,083)
80,083
798
11,877
4,447
(19,614)
3,421
929
25,254
Total long-term liabilities ...........
Total liabilities ............................
145,304
525,840
Net assets
Common stock ..........................
Capital surplus ...........................
Treasury stock, at cost ..............
Unrealized gain on available-for-
sale securities.........................
Deferred gain (loss) on
derivatives under hedge
accounting ..............................
Foreign currency translation
85,424
109,561
(9,719)
—
—
—
5,507
(5,507)
8
(8)
adjustments............................
(4,853)
4,853
Remeasurements of defined
benefit plans ...........................
Stock acquisition rights .............
Retained earnings .....................
3,619
944
—
468,684
(3,619)
(944)
5,225
—
(14)
Trade and other payables
(14)
Bonds and borrowings
(14)
(13)
(13), (14)
(7), (13), (14)
(8), (13), (14)
Income tax payables
Other financial liabilities
Provisions
Other current liabilities
Total current liabilities
Non-current liabilities
(14)
(9), (14)
(13), (14)
(13), (14)
Bonds and borrowings
Retirement benefit
liabilities
Other financial liabilities
Provisions
Other non-current
(10), (13), (14)
liabilities
(6), (13)
Deferred tax liabilities
Total non-current
liabilities
Total liabilities
Equity
Share capital
Capital surplus
Treasury shares
(1,742)
—
—
272
—
—
63
—
(4,375)
(2)
4,210
(1,574)
—
—
202
763
936
370
108
—
2,379
805
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
18
(2,600)
5,501
2,919
—
—
(97)
33,920
—
479
2,110
(2,988)
33,424
36,343
—
—
—
—
—
—
—
—
193,460
—
—
21,422
—
—
28,283
—
5,765
33,360
123,916
406,206
—
—
80,188
77,895
12,813
5,296
5,411
433
182,036
588,242
85,424
109,561
(9,719)
—
—
—
—
—
(302)
151
2,678
(36,860)
7,601
431,975
(11), (14)
(12), (14)
Other components of
equity
Retained earnings
Equity attributable to
owners of the parent
Non-controlling interests
Total equity
Total liabilities and equity
Minority interests ......................
Total net assets .........................
Total liabilities and net assets .........
13,218
672,393
1,198,233
—
—
25,254
488
337
1,142
(160)
(34,342)
2,001
624,842
13,546
638,388
1,226,630
(14)
65
Kao Corporation Financial Report 2016
Notes to Consolidated Financial Statements
Notes on Reconciliations of Equity as of the Transition Date
(January 1, 2015)
(1) Adjustment to Inventories
Mainly, goods for sales promotion recognized in supplies under
Japanese GAAP are recognized in an adjustment to retained
earnings as they do not meet the definition of assets under IFRS.
(2) Adjustment to Property, Plant and Equipment
Property, plant and equipment is adjusted mainly by applying
deemed cost as follows.
The Group used fair value as the deemed cost at the transition
date for certain items of property, plant and equipment. At the
transition date, the carrying amount of property, plant and
equipment to which deemed cost was applied was 1,851 million
yen under Japanese GAAP, and the fair value was 848 million yen.
As a result of the above, property, plant and equipment at the
transition date decreased by 1,003 million yen, and the adjustment
was recognized in retained earnings.
Fair value is based on valuation by independent appraisers with
appropriate qualifications and other methods, and is categorized
within Level 3.
(3) Adjustment to Goodwill
Under Japanese GAAP, certain foreign currency-denominated
goodwill was translated at the exchange rate at the acquisition
date, whereas under IFRS all foreign currency-denominated
goodwill is translated at the closing rate and recognized in
adjustments to retained earnings.
(4) Adjustment to Intangible Assets
Certain intangible assets recognized under Japanese GAAP are
recognized in adjustments to retained earnings as they do not meet
the definition of assets under IFRS.
(5) Adjustment to Other Financial Assets (Non-current Assets)
Under Japanese GAAP, non-marketable equity instruments were
carried at the acquisition cost, and impairment loss was recognized
as required depending on the financial condition of the issuing
company. Under IFRS, these equity instruments are designated as
financial assets measured at fair value through other comprehensive
income, and are measured at fair value, irrespective of the
existence of market activity, with the change recognized as other
comprehensive income and reclassified to retained earnings in case
of derecognition or a significant decrease in fair value.
(6) Adjustments to Deferred Tax Assets and Deferred Tax
Liabilities
The amounts of deferred tax assets and deferred tax liabilities are
adjusted mainly due to taxable temporary differences arising as a
result of adjustments from Japanese GAAP to IFRS.
(7) Adjustment to Provisions (Current Liabilities)
Under Japanese GAAP, future expenses that fulfilled the required
conditions were recognized as provisions, but are recognized in an
adjustment to retained earnings as they do not meet the conditions
for recognition of provisions under IFRS.
(8) Adjustment to Other Current Liabilities
Mainly, obligation for unused paid absences that was not recognized
as a liability under Japanese GAAP is recognized as a liability under
IFRS and recognized in an adjustment to retained earnings.
(9) Adjustments to Retirement Benefit Liabilities and Other
Non-current Assets
Under Japanese GAAP, actuarial gains and losses were recognized
in other comprehensive income as incurred, and were recognized in
profit or loss from the fiscal year when incurred, amortized on a
straight-line basis over a certain number of years no longer than the
average remaining service period of employees. Under IFRS, these
actuarial gains and losses are recognized in other comprehensive
income as incurred, and immediately reclassified to retained
earnings. Moreover, under Japanese GAAP, past service costs were
recognized in other comprehensive income as incurred, and were
recognized in profit or loss from the fiscal year when incurred,
amortized on a straight-line basis over a certain number of years no
longer than the average remaining service period of employees
whereas under IFRS they are recognized in profit or loss as
incurred.
Under Japanese GAAP, the Company adopted the “Accounting
Standard for Retirement Benefits” of the Accounting Standards
Board of Japan (hereinafter “ASBJ”) (ASBJ Statement No. 26
issued on May 17, 2012, hereinafter “Retirement Benefits
Accounting Standard”), and the “Guidance on Accounting Standard
for Retirement Benefits” (ASBJ Guidance No. 25 issued on March
26, 2015, hereinafter “Retirement Benefits Guidance”) from the
fiscal year ended December 31, 2015, revising the methods for
calculating retirement benefit obligations and service costs and
changing the method for calculating projected retirement benefits
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 using several discount rates 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. Consequently, as the changes
due to the revisions of the Retirement Benefits Accounting Standard
and the Retirement Benefits Guidance were not recognized in the
consolidated balance sheet under Japanese GAAP, which was
already disclosed as of the transition date, the differences with the
consolidated statement of financial position are recognized in
retained earnings under IFRS.
(10) Adjustment to Other Non-current Liabilities
Special paid leave and bonuses granted conditional on a certain
number of years of employment, which were not recognized as
liabilities under Japanese GAAP, are recognized as liabilities under
IFRS and recognized in adjustments to retained earnings.
Kao Corporation Financial Report 2016
66
(11) Adjustment to Other Components of Equity
1) As an exemption elected under IFRS 1, the cumulative translation
differences for all foreign operations were reclassified to retained
earnings as of January 1, 2015, the transition date. As a result,
other components of equity increased by 4,853 million yen.
2) Based on the fair value of non-marketable equity instruments
stated in (5) above, other components of equity increased by
1,120 million yen.
3) Due to the impact of adjustment to retirement benefit liabilities
stated in (9) above, other components of equity decreased by
3,318 million yen.
(12) Adjustments to Retained Earnings
Adjustment to inventories ................................................................................................
Adjustment to property, plant and equipment ...............................................................
Adjustment to goodwill .....................................................................................................
Adjustment to intangible assets ......................................................................................
Adjustment to provisions (current liabilities) ..................................................................
Adjustment to other current liabilities .............................................................................
Adjustment to retirement benefit liabilities ....................................................................
Adjustment to other non-current liabilities .....................................................................
Adjustment to exchange differences on translation of foreign operations ................
Other adjustments .............................................................................................................
Subtotal .......................................................................................................................
Adjustment for tax effects ................................................................................................
Adjustment for non-controlling interests ........................................................................
Total .........................................................................................................................
(Millions of yen)
Transition date
January 1, 2015
(4,180)
(884)
(1,190)
(4,346)
2,600
(5,501)
(36,366)
(2,110)
(4,853)
402
(56,428)
19,414
154
(36,860)
(13) Reclassifications
Reclassifications are made to comply with the provisions of IFRS.
The main reclassifications are as follows:
1) Time deposits with deposit terms of more than three months in
“Cash and time deposits” under Japanese GAAP are classified
as “Other financial assets” in current assets under IFRS. Among
“Short-term investments” and “Other (current assets)” under
Japanese GAAP, short-term investments redeemable within three
months from the date of acquisition are classified as “Cash and
cash equivalents” under IFRS.
2) “Deferred tax assets” and “Deferred tax liabilities” classified as
current items under Japanese GAAP are classified as non-current
items under IFRS.
3) Store fixtures for cosmetics were classified as “Long-term
prepaid expenses” under Japanese GAAP, but are classified as
“Property, plant and equipment” under IFRS.
4) Financial assets and financial liabilities are disclosed separately
based on the requirements of IFRS.
5) The provision for sales returns and asset retirement obligations,
which were included in “Other (current liabilities)” and “Other
(non-current liabilities)” and the gross amount of liability for loss
related to cosmetics under Japanese GAAP, are classified as
“Provisions” under IFRS.
(14) Differences in Scope of Consolidation
Certain subsidiaries of minor importance were not included in the
scope of consolidation under Japanese GAAP and the equity
method was applied, but all subsidiaries are included in the scope
of consolidation under IFRS.
67
Kao Corporation Financial Report 2016
Notes to Consolidated Financial Statements
Reconciliations of Equity as of December 31, 2015
Japanese
GAAP
Reclassifi-
cation
Consolidation
scope
differences
Recognition and
measurement
differences
IFRS
Notes
Accounts under IFRS
(Millions of yen)
Cash and time deposits ............
125,159
184,279
484
—
309,922
(11), (12)
205,603
158,651
158,134
7,048
20,763
—
—
59,501
(1,626)
733,233
—
733,233
3,921
(158,651)
(2,953)
(7,048)
(20,763)
1,899
5,301
(21,971)
1,626
(14,360)
1,330
(13,030)
1,147
—
814
—
—
178
(236)
15
—
2,402
—
2,402
36
—
(4,724)
—
—
—
—
460
—
(4,228)
—
(4,228)
210,707
—
151,271
—
—
2,077
5,065
38,005
—
717,047
1,330
718,377
Assets
Current assets
Cash and cash
equivalents
Trade and other
receivables
(12)
(11)
(1), (12)
Inventories
(11)
(12)
(11), (12)
(11), (12)
Income tax receivables
Other financial assets
Other current assets
Subtotal
Non-current assets held
(11)
for sale
Total current assets
Non-current assets
Property, plant and
327,730
9,299
1,865
(897)
337,997
(2), (11), (12)
equipment
Accounts under Japanese GAAP
Assets
Current assets
Notes and accounts
receivable - trade ....................
Short-term investments ............
Inventories ................................
Prepaid expenses ......................
Deferred tax assets ...................
Other .........................................
Allowance for doubtful
receivables .............................
Total current assets ..................
Fixed assets
Property, plant and equipment ..
Intangible assets .......................
Goodwill .................................
Trademarks.............................
Other ......................................
127,099
1,791
14,832
—
—
(1,791)
(14,832)
16,602
Investments and other assets
Investment securities ...............
22,331
(22,331)
Long-term loans ........................
—
1,171
9,384
(1,171)
(4,956)
—
Long-term prepaid expenses ....
17,583
(17,583)
Asset for retirement benefits ....
Other .........................................
Deferred tax assets ...................
Allowance for doubtful
1,027
—
11,860
23,896
receivables .............................
Total fixed assets ......................
Total assets ....................................
(684)
548,636
1,281,869
(1,027)
26,862
5,846
20,763
684
30,705
17,675
—
—
—
2
—
11,152
—
—
(899)
138,251
—
—
15,705
—
—
(3)
Goodwill
(4), (12)
Intangible assets
Investments accounted
for using the equity
method
4,209
—
(12)
—
(11)
—
29,339
17,732
49,454
(5), (11), (12)
(12)
(6), (11), (12)
Other financial assets
Other non-current assets
Deferred tax assets
(219)
—
—
—
2,037
(35)
3,800
—
—
440
61
995
—
(1,593)
809
—
14,939
10,711
—
592,687
1,311,064
Total non-current assets
Total assets
Kao Corporation Financial Report 2016
68
Japanese
GAAP
Reclassifi-
cation
Consolidation
scope
differences
Recognition and
measurement
differences
(Millions of yen)
IFRS
Notes
Accounts under IFRS
Liabilities
Current liabilities
Accounts under Japanese GAAP
Liabilities
Current liabilities
Notes and accounts
payable - trade ........................
Short-term loans .......................
Current portion of long-term
loans .......................................
Accounts payable - other ..........
Accrued expenses ....................
Income taxes payable ...............
Liability for loss related to
cosmetics ...............................
Other .........................................
Total current liabilities ...............
Long-term liabilities
Bonds ........................................
Long-term loans ........................
133,728
47
15
—
76,078
99,033
32,073
2,891
—
—
33,628
377,493
74,741
(47)
(15)
62
(76,078)
(99,033)
—
(2,891)
11,335
16,712
82,225
7,011
50,000
70,060
—
(50,000)
(70,060)
120,060
Liability for retirement
benefits ..................................
74,178
804
Liability for loss related to
cosmetics ...............................
Other .........................................
Total long-term liabilities ...........
Total liabilities ..............................
Net assets
Common stock ..........................
Capital surplus ...........................
Treasury stock, at cost ..............
Unrealized gain on available-for-
sale securities.........................
Deferred gain (loss) on derivatives
under hedge accounting .........
Foreign currency translation
2,474
—
—
20,531
—
217,243
594,736
85,424
108,659
(8,202)
(2,474)
11,093
16,880
(17,790)
2,151
10,664
17,675
—
—
—
7,063
(7,063)
(3)
3
adjustments............................
(19,315)
19,315
Remeasurements of defined
benefit plans ...........................
Stock acquisition rights .............
(152)
889
152
(889)
(12)
Trade and other payables
(12)
Bonds and borrowings
(12)
(11)
(11), (12)
(11)
(7), (11), (12)
Income tax payables
Other financial liabilities
Provisions
Other current liabilities
Total current liabilities
Non-current liabilities
(12)
(12)
(11)
(11), (12)
(11), (12)
Bonds and borrowings
Retirement benefit
liabilities
Other financial liabilities
Provisions
Other non-current
(8), (11), (12)
liabilities
(6), (11)
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Equity
Share capital
Capital surplus
Treasury shares
(1,709)
—
—
277
—
—
111
—
(4,406)
—
3,920
(1,807)
—
—
222
724
—
724
365
83
—
2,118
311
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
60
5,649
5,709
206,760
—
—
339
—
—
32,184
—
6,929
16,772
125,422
388,406
—
—
(75)
—
—
120,207
—
75,706
—
—
459
2,095
(1,833)
646
6,355
—
—
—
—
—
—
—
—
—
11,817
17,704
4,919
318
230,671
619,077
85,424
108,659
(8,202)
—
—
—
—
—
Retained earnings ........................
—
502,134
(11,518)
—
(218)
246
7,552
(3,081)
(4,184)
499,299
(9), (12)
(10), (12)
Minority interests .........................
Total net assets ...........................
Total liabilities and net assets .........
10,636
687,133
1,281,869
—
—
17,675
470
498
809
(115)
4,356
10,711
680,996
10,991
691,987
1,311,064
(12)
Other components of
equity
Retained earnings
Equity attributable to
owners of the parent
Non-controlling interests
Total equity
Total liabilities and equity
69
Kao Corporation Financial Report 2016
Notes to Consolidated Financial Statements
Notes on Reconciliations of Equity as of December 31, 2015
(1) Adjustment to Inventories
Mainly, goods for sales promotion recognized in supplies under
Japanese GAAP are recognized in an adjustment to retained
earnings as they do not meet the definition of assets under IFRS.
(2) Adjustment to Property, Plant and Equipment
Property, plant and equipment is adjusted mainly by applying
deemed cost as follows.
The Group used fair value as the deemed cost at the transition
date for certain items of property, plant and equipment. As a result,
property, plant and equipment at the transition date decreased by
1,003 million yen, and the adjustment was recognized in retained
earnings. At the transition date, the carrying amount of property,
plant and equipment to which deemed cost was applied was 1,851
million yen under Japanese GAAP, and the fair value was 848 million
yen.
Fair value is based on valuation by independent appraisers with
appropriate qualifications and other methods, and is categorized
within Level 3.
(3) Adjustment to Goodwill
1) Under Japanese GAAP, the amortization period of goodwill was
effectively estimated and goodwill was amortized over the
amortization period, but under IFRS amortization of goodwill has
been discontinued since the transition date.
2) Under Japanese GAAP, certain foreign currency-denominated
goodwill was translated at the exchange rate at the acquisition
date, whereas under IFRS all foreign currency-denominated
goodwill is translated at the closing rate and recognized in
adjustments to other components of equity.
(4) Adjustment to Intangible Assets
Certain intangible assets that were recognized under Japanese
GAAP are recognized in adjustments to retained earnings as they
do not meet the definition of assets under IFRS.
(10) Adjustments to Retained Earnings
(5) Adjustment to Other Financial Assets (Non-current Assets)
Under Japanese GAAP, non-marketable equity instruments were
carried at the acquisition cost, and impairment loss was recognized
as required depending on the financial condition of the issuing
company. Under IFRS, these equity instruments are designated as
financial assets measured at fair value through other comprehensive
income, and are measured at fair value, irrespective of the existence
of market activity, with the change recognized as other comprehensive
income and reclassified to retained earnings in case of derecognition
or a significant decrease in fair value.
(6) Adjustments to Deferred Tax Assets and Deferred Tax
Liabilities
The amounts of deferred tax assets and deferred tax liabilities are
adjusted mainly due to temporary differences arising as a result of
adjustments from Japanese GAAP to IFRS.
(7) Adjustment to Other Current Liabilities
Mainly, obligation for unused paid absences that was not recognized
as a liability under Japanese GAAP is recognized as a liability under
IFRS and recognized in adjustments to retained earnings.
(8) Adjustment to Other Non-current Liabilities
Special paid leave and bonuses granted conditional on a certain
number of years of employment, which were not recognized as
liabilities under Japanese GAAP, are recognized as liabilities under
IFRS and recognized in adjustments to retained earnings.
(9) Adjustment to Other Components of Equity
1) As an exemption elected under the provisions of IFRS 1, the
cumulative translation differences for all foreign operations were
reclassified to retained earnings as of January 1, 2015, the
transition date. In addition, under IFRS, the cumulative translation
differences associated with the liquidation of foreign operations
during the fiscal year were reclassified to retained earnings. As a
result, other components of equity increased by 6,070 million yen.
2) Based on the fair value of non-marketable equity instruments
stated in (5) above, other components of equity increased by
1,368 million yen.
Adjustment to inventories ................................................................................................
Adjustment to property, plant and equipment ...............................................................
Adjustment to goodwill .....................................................................................................
Adjustment to intangible assets ......................................................................................
Adjustment to other current liabilities .............................................................................
Adjustment to retirement benefit liabilities ....................................................................
Adjustment to other non-current liabilities .....................................................................
Adjustment to exchange differences on translation of foreign operations ................
Other adjustments .............................................................................................................
Subtotal .......................................................................................................................
Adjustment for tax effects ................................................................................................
Adjustment for non-controlling interests ........................................................................
Total .........................................................................................................................
(Millions of yen)
December 31,
2015
(4,724)
(897)
11,687
(899)
(5,649)
(220)
(2,095)
(6,070)
(33)
(8,900)
5,755
64
(3,081)
Kao Corporation Financial Report 2016
70
(11) Reclassifications
Reclassifications are made to comply with the provisions of IFRS.
The main reclassifications are as follows:
1) Time deposits with deposit terms of more than three months in
“Cash and time deposits” under Japanese GAAP are classified
as “Other financial assets” in current assets under IFRS. Among
“Short-term investments” and “Other (current assets)” under
Japanese GAAP, short-term investments redeemable within three
months from the date of acquisition are classified as “Cash and
cash equivalents” under IFRS.
2) “Deferred tax assets” and “Deferred tax liabilities” classified as
current items under Japanese GAAP are classified as non-current
items under IFRS.
3) Store fixtures for cosmetics were classified as “Long-term
prepaid expenses” under Japanese GAAP, but are classified as
“Property, plant and equipment” under IFRS.
4) Financial assets, financial liabilities and non-current assets held
for sale are disclosed separately based on the requirements of
IFRS.
5) The provision for losses on returned products and asset
retirement obligations, which were included in “Other (current
liabilities)” and “Other (non-current liabilities)” and the gross
amount of liability for loss related to cosmetics under Japanese
GAAP, are classified as “Provisions” under IFRS.
(12) Differences in Scope of Consolidation
Certain subsidiaries of minor importance were not included in the
scope of consolidation under Japanese GAAP and the equity
method was applied, but all subsidiaries are included in the scope
of consolidation under IFRS.
Reconciliations of Profit or Loss and Comprehensive Income for the Fiscal Year Ended December 31, 2015 (January 1 to December 31, 2015)
Japanese
GAAP
1,471,791
(658,221)
813,570
Reclassifi-
cation
—
(647)
(647)
Consolidation
scope
differences
2,759
198
2,957
Recognition and
measurement
differences
IFRS
— 1,474,550
(658,865)
815,685
(195)
(195)
Notes
(6)
(2), (6)
Accounts under IFRS
Net sales
Cost of sales
Gross profit
(Millions of yen)
(2,234)
9,758
(8,824)
1,657
3
(85)
(1,113)
—
—
—
—
462
(596)
(134)
(182)
48
—
12,577
(62)
(1,286)
11,034
(375)
(6,636)
(26)
—
—
—
—
1,517
—
—
—
—
3,997
2,609
6,606
166,038
(60,086)
105,952
6,516
90
—
105,196
756
—
(642,729)
14,099
(19,737)
167,318
Selling, general and
(1), (2), (6)
administrative expenses
(4), (6)
(4), (6)
Other operating income
Other operating expenses
Operating income
1,416
(4,213)
(4), (6)
Financial income
(1), (2), (4), (6) Financial expenses
(4), (6)
(4)
(4)
(4)
(4)
(3), (6)
Share of profit in
investments accounted for
using the equity method
Income before income taxes
Income taxes
Net income
Attributable to:
Owners of the parent
Non-controlling interests
Accounts under Japanese GAAP
Net sales .........................................
Cost of sales ...................................
Gross profit .....................................
Selling, general and administrative
expenses .....................................
Operating income ...........................
Non-operating income ....................
Non-operating expenses .................
Extraordinary gain ...........................
Extraordinary loss ...........................
Income before income taxes and
minority interests .........................
Total income taxes .........................
Income before minority interests ...
(649,190)
—
—
164,380
—
—
—
7,600
(2,707)
1,561
(9,255)
161,579
(62,099)
99,480
(3,882)
4,403
(9,627)
(9,753)
1,788
2,508
2,656
(7,600)
2,707
(1,561)
9,255
—
—
—
Minority interests ...........................
Net income .....................................
—
618
98,862
98,862
—
(98,862)
71
Kao Corporation Financial Report 2016
Notes to Consolidated Financial Statements
Accounts under Japanese GAAP
Income before minority interests ...
Japanese
GAAP
99,480
Reclassifi-
cation
—
Consolidation
scope
differences
(134)
Recognition and
measurement
differences
6,606
IFRS
105,952
Notes
Accounts under IFRS
Net income
(Millions of yen)
Other comprehensive income
Unrealized gain (loss) on available-
for-sale securities ......................
Remeasurements of defined
1,310
benefit plans .............................
(3,712)
—
—
0
6
Other comprehensive
income
Items that will not be
reclassified to profit or
loss:
Net gain (loss) on
revaluation of financial
assets measured at fair
value through other
comprehensive income
Remeasurements of
485
1,795
(6)
2,936
(770)
(5), (6)
defined benefit plans
—
167
78
—
245
(6)
1,270
Foreign currency translation
adjustments ..............................
(15,793)
—
—
—
(213)
942
(15,064)
(6)
—
12
12
Share in other comprehensive
income of associates applied for
equity method ...........................
(9)
(167)
150
7
(19)
(6)
Other comprehensive income .....
Comprehensive income ..................
(18,204)
81,276
—
—
21
(113)
4,382
10,988
(13,801)
92,151
(15,071)
Share of other
comprehensive income
of investments
accounted for using the
equity method
Total of items that will not
be reclassified to profit or
loss
Items that may be
reclassified subsequently
to profit or loss:
Exchange differences on
translation of foreign
operations
Net gain (loss) on
derivatives designated as
cash flow hedges
Share of other
comprehensive income
of investments
accounted for using the
equity method
Total of items that may be
reclassified subsequently
to profit or loss
Other comprehensive
income, net of taxes
Comprehensive income
Notes on Reconciliations of Profit or Loss and Comprehensive
Income for the Year Ended December 31, 2015 (January 1 to
December 31, 2015)
(1) Adjustment to Selling, General and Administrative Expenses
1) Under Japanese GAAP, expected return on plan assets and
interest expenses relating to retirement benefits were included
in cost of sales and selling, general and administrative expenses
as retirement benefit expenses, but net interest relating to
retirement benefits is classified as financial expenses under
IFRS. As a result, negative 3,863 million yen was reclassified from
selling, general and administrative expenses to financial expenses.
2) Under Japanese GAAP, actuarial gains and losses relating to
retirement benefits were recognized in other comprehensive
income as incurred, and were recognized in profit or loss from
the fiscal year when incurred, amortized on a straight-line basis
over a certain number of years no longer than the average
remaining service period of employees. Under IFRS, these
actuarial gains and losses are recognized in other comprehensive
income as incurred, and immediately reclassified to retained
earnings. Moreover, under Japanese GAAP, past service costs
were recognized in other comprehensive income as incurred,
and were recognized in profit or loss from the fiscal year when
incurred, amortized on a straight-line basis over a certain number
Kao Corporation Financial Report 2016
72
Notes to Consolidated Financial Statements
of years no longer than the average remaining service period of
employees, whereas under IFRS, they are recognized in profit or
loss as incurred. As a result, defined benefit cost increased by
1,152 million yen compared with Japanese GAAP.
3) Under Japanese GAAP, the amortization period of goodwill was
effectively estimated and goodwill was amortized over the
amortization period, but amortization of goodwill is discontinued
under IFRS. As a result, amortization of goodwill decreased by
12,879 million yen compared with Japanese GAAP.
4) The intangible assets recognized under Japanese GAAP that do
not meet the definition of assets under IFRS are not recognized
as assets. As a result, amortization of intangible assets
decreased by 3,329 million yen compared with Japanese GAAP.
5) Under Japanese GAAP, future expenses that fulfilled the required
conditions were recognized as provisions, but are recognized in
an adjustment to retained earnings as they do not meet the
conditions for recognition of provisions under IFRS. As a result,
selling, general and administrative expenses increased by 1,710
million yen compared with Japanese GAAP.
(2) Adjustment to Financial Expenses
1) Under Japanese GAAP, expected return on plan assets and interest
expenses relating to retirement benefits were recognized in cost
of sales and selling, general and administrative expenses as
retirement benefit expenses, but net interest relating to retirement
benefits is classified as financial expenses under IFRS. As a result,
4,529 million yen was reclassified from cost of sales and selling,
general and administrative expenses to financial expenses.
2) Under Japanese GAAP, interest expenses, determined by
multiplying the discount rate by retirement benefit obligations,
and expected return on plan assets, determined by multiplying
the expected rate of return on plan assets by plan assets,
respectively, were recognized as retirement benefit expenses,
but under IFRS the net interest amount determined by
multiplying the net amount of retirement benefit obligations and
the plan assets by the discount rate is recognized as retirement
benefit expenses. As a result, financial expenses increased by
5,558 million yen.
3) As an exemption elected under the provisions of IFRS 1, the
cumulative translation differences for all foreign operations were
reclassified to retained earnings as of January 1, 2015, the
transition date. As a result, foreign exchange losses associated
with the liquidation of foreign operations during the fiscal year
increased by 1,064 million yen compared with Japanese GAAP.
(3) Adjustment to Income Taxes
The amount of income taxes is adjusted due to temporary
differences that arise as a result of adjustment from Japanese
GAAP to IFRS.
(4) Other Reclassifications
In addition to the above, reclassifications are made to comply with
the provisions of IFRS. The main reclassifications are as follows.
Among items that were classified as non-operating income, non-
operating expenses, extraordinary gain and extraordinary loss under
Japanese GAAP, finance-related items and foreign exchange gain or
loss are classified as financial income or financial expenses under
IFRS and other items are classified as other operating income,
other operating expenses or share of profit in investments
accounted for using the equity method.
(5) Adjustment to Remeasurements of Defined Benefit Plans
Under Japanese GAAP, actuarial gains and losses were recognized
in other comprehensive income as incurred, and were recognized in
profit or loss from the fiscal year when incurred, amortized on a
straight-line basis over a certain number of years no longer than the
average remaining service period of employees. Under IFRS, these
actuarial gains and losses are recognized in other comprehensive
income as incurred, and immediately reclassified to retained
earnings. Moreover, under Japanese GAAP, past service costs were
recognized in other comprehensive income as incurred, and were
recognized in profit or loss from the fiscal year when incurred,
amortized on a straight-line basis over a certain number of years no
longer than the average remaining service period of employees,
whereas under IFRS, they are recognized in profit or loss as incurred.
(6) Differences in Scope of Consolidation
Certain subsidiaries of minor importance were not included in the
scope of consolidation under Japanese GAAP and the equity
method was applied, but all subsidiaries are included in the scope
of consolidation under IFRS.
Reconciliations of Cash Flows for the Fiscal Year Ended December 31, 2015 (January 1 to December 31, 2015)
There are no significant differences between the disclosed consolidated statement of cash flows under Japanese GAAP and the disclosed
consolidated statement of cash flows under IFRS.
40 Approval of the Consolidated Financial Statements
The Consolidated Financial Statements were approved by Michitaka Sawada, President and Chief Executive Officer, and by Kenichi
Yamauchi, Executive Officer, Senior Vice President, Accounting and Finance, on March 14, 2017.
73
Kao Corporation Financial Report 2016
Independent Auditor’s Report
Kao Corporation Financial Report 2016
74
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Chuo-ku, Tokyo 103-8210, Japan
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