Responding to the Year 2000 Problem

1. Background

(1) Action Policy
Shiseido recognizes that the Year 2000 problem ("Y2K problem" or "millennium bug") is an important issue that could affect the Company's core operations. Although the possibility that the Y2K problem may compromise the actual products and services provided by the Company is practically nil, there is concern that we, as a manufacturer, may not be able to fulfill our product supply responsibility due to disruptions of various functions in the supply chain, which includes our production operations and our business partners. We must recognize that this problem is a problem for the entire social system. Both top management and all Group employees in Japan and overseas share an awareness and sense of crisis about the problem and are taking measures accordingly.

(2) Action Framework
Due to time limitations, we need to address the Y2K issue in a steady and speedy manner, and there is a growing need to make complex decisions and actions. To this end, in March 1999 we formed an internal "Y2K Committee", chaired by a senior executive director of Shiseido. Through the actions of the Committee, we are changing our previous action promotion system, headed by middle managers, to a stronger implementation system made up of the heads of major divisions. The Office of the Committee is preparing to submit regular progress reports to the Board of Directors.
We have also entered contracts with outside consultants and attorneys who are well-versed in this issue to obtain advice from broad perspectives.

(3) Progress Status
Since 1997, a project team has been actively addressing the problem. At this stage, we have almost completed work in computer-related information technology (IT) areas. Program revisions to our core head office systems were completed in September 1998. Trial tests were conducted in November 1998, and final tests will be completed in May 1999. We are now successively testing our factory and research laboratory systems, as well as systems at our domestic and overseas affiliates. All such testing is scheduled for completion in September 1999.
In September 1999, we are also scheduled to complete work on microchip-embedded devices and other "non-IT" areas, as well as IT-related systems of VAN companies and other outside firm connected to the Company by computer networks.
In May 1999, we are scheduled to formulate a contingency plan.

2. Expenditures
We have estimated around 1 billion yen as an expenditure for addressing the Y2K problem. Of this amount, about 700 million yen has already been used, leaving approximately 300 million yen for the future. We fully recognize that expenditures beyond our estimates may be needed since we cannot predict exactly what will happen. Nevertheless, we do not plan to raise new funds for this problem. Our policy is to allocate expenditures in a way that ensures minimum effect on our profit-loss situation. Due to the Y2K project, expenses related to rebuilding our mainframe system and related personnel expenses are not included in the estimated amount.
Note: Although completion of the Company's Y2K problem responses does not guarantee uninterrupted product supply, we will commit our utmost efforts to minimize the risk involved.

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