Notes to Consolidated Interim Financial Statements

1. Scope of Consolidation
(1) Number of consolidated subsidiaries: 74
Principal subsidiaries: Osaka Shiseido Co., Ltd.; Shiseido Kako Co., Ltd.; Shiseido Sales Co., Ltd.; Shiseido Fine Toiletry Co., Ltd.
(a) Shiseido newly included the following 6 companies engaged in full-scale business in the scope of consolidation in the period under review:
Domestic: Shiseido Shoppers Club Co., Ltd.; Beauty Technology Co., Ltd.;
Axe Co., Ltd.; Prier Co., Ltd.
Overseas: Shiseido España S.A.; Shiseido Dah Chong Hong Cosmetics (Guangzhou) Ltd.
(b) Shiseido converted the following 3 companies, formerly affiliates under the equity method and recognized as companies effectively controlled by the parent company, into consolidated subsidiaries:
Domestic: Kyuryudo Art-Publishing Co., Ltd.
Overseas: Shiseido Thailand Co., Ltd.; Saha Asia Pacific Co., Ltd.
(2) Number of nonconsolidated subsidiaries: 2
Shiseido's 2 nonconsolidated subsidiaries are not engaged in full-scale operations. Since the combined assets of these companies are minimal and deemed to have no measurable effect on the Company's consolidated financial statements, they are excluded from the scope of consolidation.
(3) Number of affiliated companies: 2 (including Pierre Fabre Japon Co., Ltd.)
The equity method applies to both of these affiliated companies.
2. Notes on Accounting Standards
Methods of calculating depreciation of depreciable assets.
(1) Tangible Fixed Assets ..... Buildings (excluding installed equipment) are depreciated according to the straight-line method. Other fixed assets are depreciated according to the declining-balance method.
Previously, depreciation of buildings was calculated according to the declining-balance method. From the interim period under review, however, the straight-line method has been adopted. The reason for the change was that, since consolidated financial reporting will become predominant from fiscal 2000, it became necessary to unify accounting methods within the Shiseido Group. Taking advantage of this situation, the Company decided to adopt the straight-line method, even for existing buildings, since this method is widely used internationally and thus allows the Company to provide consistent international comparative information. In addition, the Company's buildings are used securely for long periods and do not greatly affect the Company's productivity or profitability. Compared with the previous method of calculation, this change resulted in a 489 million yen increase in income from operations and a 628 million yen rise in both ordinary income and income before income taxes.
(2) Intangible Fixed Assets ..... The straight-line method is employed.

(Supplementary information)
Previously, tax-effect accounting was applied for one-time discrepancies arising as a result of consolidation procedures. From the interim period under review, however, the parent company and its domestic consolidated subsidiaries have adopted tax-effect accounting, in line with Article 4 of the ministerial ordinance for the partial revision of regulations covering terms, styles, and preparation laws concerning financial statements. The result of this revision is the addition of deferred tax assets amounting to 19,659 million yen (6,554 million yen in current assets and 13,105 million yen in investments and other assets), and minority interests amounting to 768 million yen, as well as a reduction in investments in securities amounting to 48 million yen. In addition, interim net income grew by 1,218 million yen, and the consolidated term-end retained earnings balance grew by 18,842 million yen, compared with the previous method.

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