Responding to the Year 2000 (Y2K) Problem

1. Background

(1) Action Policy
Shiseido recognizes the Y2K problem as a major issue affecting the very basis of its business. While virtually none of our products and services themselves can cause malfunction due to the Y2K problem, there is some concern that we, as a manufacturer, may become unable 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 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
Although a project team has been actively addressing the problem since 1997, in March 1999 we formed an internal Y2K Committee chaired by a senior executive director of Shiseido, due to a growing need for higher-level decisions and actions. Based on an action system spearheaded by the Committee, we are responding to the problem more systematically and swiftly than before. The Committee reports regularly to the Board of Directors on the state of progress of our response and other matters.
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
Our response measures scheduled for completion by the end of September are generally on target. Even areas behind schedule should be completed during November. In information technology (IT) areas relating to computer systems, final tests of our key head office systems were completed in May without any problems. In microchip-embedded devices and other non-IT areas, all our responses are on target, except in areas where deliveries were delayed by suppliers.
In IT-related systems of outside firms connected to the Company by computer networks, our response to VAN companies and suppliers connected through VANs was fully completed by September, and communication tests are now running. Some VAN-connected customers have not responded to the problem or have not replied to us, and we are now following these clients up by telephone and fax.
We completed a contingency plan in June and by the end of September all divisions had finished producing detailed manuals. By the end of March 2000, the action groups headed by the Y2K Committee will seek to thoroughly implement the contingency plan. On January 1, 2000, we will implement operational checks and respond as necessary, according to the contingency plan.

2. Expenditures
The Shiseido Group has set aside around 1 billion yen as expenditure for dealing with the Y2K problem (of which about 800 million yen had been spent by the end of September 1999). However, we cannot predict what will happen, and have given due consideration to the need for extra expenditure, particularly after January 1, 2000. Naturally, the estimated amount will be increased if this expenditure becomes necessary, but we plan to avoid raising new funds as far as possible and hope to obtain required funds without affecting our profit-loss situation. Y2K-related expenditures related to rebuilding our mainframe system and related personnel expenses are not included in the estimated amount.
Note: Although completion of the Company's response to the Y2K problem does not fully guarantee uninterrupted product supply, we will commit our utmost efforts to minimize the risk involved.

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