CREATING TOMORROW’S LIFESTYLES

A n n u a l R ep o r t 2 0 0 6
Year Ended February 28, 2006

Profile

Since its establishment in 1947, ONWARD KASHIYAMA Co., Ltd., has been an active leader in theworld of fashion. The Company has drawn on its sophisticated capabilities in planning, technologicaldevelopment, information network management, and production to develop a wide range of popular
brands that appeal to the diverse tastes of consumers, who differ not only in age but also in the values
they hold. Onward’s products are marketed through department stores, direct merchants, shopping
centers, and general retailers throughout Japan as well as via a global sales network that spans Europe,Asia, and North America.
Onward has earned a strong reputation in all quarters for its continued ability to anticipate consumer needs and offer new concepts that reflect those needs. As a leading retailer in the global apparelindustry, Onward is drawing on its long experience in planning and development, technology, information, and production to more actively develop business in both domestic and overseas markets.

Contents

1 Financial Highlights

25 Notes to Consolidated Financial Statements

2 A Message to Our Shareholders

39 Report of Independent Accountants

5 Onward’s Brand-Leveraged Management
and World Strategy

40 Non-Consolidated Balance Sheets

8 Business Overview
13 Topics
14 Corporate Governance
14 Board of Directors
15 Organization Chart
16 Consolidated Six-Year Summary
17 Management’s Discussion and Analysis
20 Consolidated Balance Sheets
22 Consolidated Statements of Income
23 Consolidated Statements ofShareholders’ Equity
24 Consolidated Statements of Cash Flowsc2

42 Non-Consolidated Statementsof Income and Retained Earnings
43 Non-Consolidated Statementsof Shareholders’ Equity
44 Notes to Non-Consolidated
Financial Statements
49 Report of Independent Accountants
50 Principal Subsidiaries
51 Corporate Data
Future business plans, targets, and related numerical figures presented
in this annual report are intended to give an accurate picture of Onward’s
future prospects. However, no guarantee can be offered that plans, targets, and other numerical figures described herein can be realized. The
achievement of stated targets is dependent not only on the efforts of
the Company, but also the conditions facing the industry as a whole,
and we ask for understanding in this regard.

Financial Highlights

ONWARD KASHIYAMA Co., Ltd. and Subsidiaries
Years ended February 28, 2005 and 2006
Thousands of
U.S. dollars

Millions of yen
2005

2006

2006

At year-end:
Total current assets
Total current liabilities
Short-term loans
Total shareholders’ equity¥150,969
79,025
15,772
202,377¥135,769
97,617
26,419203,826$1,167,707
839,574
227,224
1,753,048

For the year:
Net sales
Operating income
Net income¥271,273
24,205
10,257¥283,111
24,708
11,091$2,434,941
212,503
95,394Yen

Per share:
Net income—Basic
Cash dividends
ROE (%)
Operating income margin (%)

U.S. dollars

¥58.1
22.0

¥63.8
24.0

5.1
8.9

5.4
8.7

$0.5490.206

Note: Yen amounts have been translated, for convenience only, at ¥116.27=US$1, the approximate exchange rate on February 28, 2006.

Net Sales (Millions of yen)
Years ended February 28 or 29
300,000

Net Income (Millions of yen)
Years ended February 28 or 29
15,000250,000

Total Shareholders’ Equity (Millions of yen)
At February 28 or 29
240,000

200,000

12,000200,000

160,000
9,000

150,000

120,000
6,000

100,000

80,0003,000

50,000040,000

0’02 ’03 ’04 ’05 ’06

0’02 ’03 ’04 ’05 ’06’02 ’03 ’04 ’05 ’06

01

A Message to Our Shareholders

In fiscal 2006, ended February 28, 2006, ONWARD KASHIYAMA Co., Ltd.,
recorded its fifth consecutive year of gains in consolidated revenues andprofits, as net sales and operating income climbed to the highest levels in
the Company’s history.
Onward’s objective going forward will be to remain on its current
growth path while continuing to maintain its policy of Brand-Leveraged
Management.

Overview of Performance
During the fiscal year under review, household incomes improved, supported byrecovery in the Japanese economy. Conditions in Japan’s apparel market weregenerally firm, owing to such factors as the “Cool Biz” initiative aimed at encouraging people to wear cooler summer clothing even for business occasions andexpansion in demand for clothing suitable to unseasonably severe winter weather.
Amid this environment, we actively pursued our Channel-Specific Brand Strategy,
continuing to develop brands appropriate for different distribution channels. In
addition, we went beyond our previous Four-Season Merchandising policy to amore finely tuned eight-season policy and worked to strengthen our product plan-

Takeshi
HirouchiChairman & CEOning capabilities.
As a consequence, in fiscal 2006 we were able to maintain growth in revenues
and basic profitability for the fifth consecutive year. Net sales rose 4.4% from theprevious fiscal year, to ¥283.1 billion, operating income was up 2.1%, to ¥24.7 billion, and ordinary income climbed 3.4%, to ¥27.2 billion. Please note that as aresult of a change in accounting principles, a payment of ¥0.6 billion in taxes
based on the scale of operations was included in selling, general and administrative
expenses for the fiscal year under review. If this amount is subtracted to facilitate alike-for-like comparison, operating income would have risen 4.4% and ordinary
income 5.5%.
Our product approach, based on a business headquarters system for eachbrand, and our sales approach, which defines eight branch area blocks nationwide
in Japan, functioned efficiently, and our major core brands, including NIJYUSANKU,KUMIKYOKU, JIYUKU, and ICB, attained stable growth. Also, as a result of theaggressive development of new brands and expansion of our stores, we were successful in raising sales above the level of the previous fiscal year. Moreover, as aconsequence of the improved success ratios of our Eight-Season, 52 Week
Merchandising strategy, our sales-to-consumer ratios have improved, and we havebeen able to maintain stability in earnings.

02

Targeting Further Expansion
We of the Onward Group will continue to implement our Brand-Leveraged
Management policy while working to improve the success ratios of our EightSeason, 52 Week Merchandising policy.
Key issues demanding management attention during the fiscal year ending
February 2007 will include the expansion of existing brands and realization of
profits from new businesses in which we have invested. To address theseissues effectively, we will implement four basic policies.
Boosting Underlying Capabilities
We will strive to further expand overall sales, especially by maximizing sales of ourcore brands NIJYUSANKU, KUMIKYOKU, JIYUKU, and ICB. In addition, we will
position four other brands—DAKS for men and, for women, Paul Smith, MICHAELMICHAEL KORS, and prideglide—as core brands and work to grow each of them
to become one of our next core brands with sales of ¥10 billion or more. In the
men’s fashion sector, where market conditions are improving, we plan to prioritize
investing in and rejuvenating the core brand GOTAIRIKU.
Developing and Nurturing New Brands
We aim to aggressively develop new brands and establish positions in new product and price zones where we traditionally have not had a significant presence. In
department stores, our core distribution channel, we are moving forward withplans to develop new brands targeted at various age segments, including ESME,
which we will begin to develop from fall 2006 as a bridge prêt-à-porter brand. On
the other hand, in new distribution channels, we will be developing Maison D’Azur,

Shigeru
UemuraPresidenta brand for fashion-conscious customers that will be sold at urban-type shopping
centers. Also, for young people, we aim to further expand sales of our rosebullet
brand. Regarding our NAVE brand, we introduce apparel for ladies this spring andsummer, followed by men’s in fall and winter.
Pursuing New Growth through M&A and Joint Ventures
Going forward, we will continue to aggressively acquire international brands.
Among our acquisitions thus far, the U.K.-based Joseph Group is reportingsmooth progress and has embarked on an international expansion program.
Among our joint ventures, we are expanding the operations of Croon a Song boutiques operated by CANDELA INTERNATIONAL Co., Ltd., a joint venture we haveentered into with MOTHER INTERNATIONAL Co., Ltd.

03

A Message to Our Shareholders

Strengthening Overseas Operations
Beginning in fiscal 2007, we plan to add another 15 subsidiaries, based inEurope, Asia, and North America, to our consolidated accounts. In our international strategy, we plan to build around Joseph and the GIBO’ CO. S.p.A.
Group as the core of our overseas activities and work to expand our overseas
sales. Moreover, we will move ahead with aggressive sales expansion inSoutheast and East Asia, especially in China.

Growth Founded on Strengths
We of Onward plan to draw on the core competencies we have developed in
the areas of planning, production, and marketing and remain on the path ofgrowth in revenues and profits.
The Onward Group regards the sharing of profits with its shareholders as a
key management issue and will endeavor to maintain stable cash dividends on
a continuing basis, after taking due account of the appropriate allocation of
profit based on comprehensive consideration of the operating environment
and performance. Accordingly, the Company will pay a dividend for the full fiscal year of ¥24 per share. As another means of sharing our success with ourshareholders and maintaining a strong defense against takeovers, we boughtback additional treasury stock in January and February 2006.
Looking to fiscal 2007, we are aiming for growth in sales of 9.5%, to¥310.0 billion. If the effect of the inclusion of another 15 subsidiaries within thescope of consolidation, estimated at ¥12.0 billion, were excluded, the rate of
growth would be 5.3%. We are also forecasting growth in ordinary income of
4.5%, to ¥28.4 billion, and expansion in net income of 17.2%, to ¥13.0 billion.
We wish to sincerely thank our shareholders for their continued support on
the road ahead.
May 2006

Takeshi Hirouchi, Chairman & CEO

04

Shigeru Uemura, President

Onward’s Brand-Leveraged Management and World Strategy

Onward is continuing to move ahead with its Brand-Leveraged Management policy, whichaims to maximize brand value. Major core brands, such as NIJYUSANKU, KUMIKYOKU,JIYUKU, ICB, and GOTAIRIKU, have shown stable growth.
Looking ahead, Onward will evolve its Brand-Leveraged Management strategy and promote
the implementation of outlet-based Store Branding. Moreover, in its World Strategy, Onward
will adopt policies finely tailored to each area, with primary focus on Joseph and the GIBO’Group, and endeavor to expand sales through the acceleration of this international strategy.

Continued Evolution in

Through these initiatives that take Brand-

Brand-Leveraged Management

Leveraged Management many steps forward,

The fashion market in Japan is becoming increas-

Onward is able to strengthen existing brands. At

ingly complex along with growth in demand forthe same time, Onward is adding a diversity of new“seasonless” apparel and the increasing diversifica-

brands tailored to appeal to customers of various

tion of individual tastes and values. As part of its

age-groups, such as ESME, a prêt-à-porter brand

Brand-Leveraged Management approach, Onward

sold in department stores. Other such initiatives

is implementing a Channel-Specific Brand Strategy,

include the introduction of the Maison D’Azur

which involves developing and nurturing brands

brand, which offers upmarket fashion goods suited

optimally tailored to a range of specific distribution

for sale in regional shopping centers (RSCs), andchannels.

the Croon a Song boutiques designed for rail sta-

Store Branding initiatives aim to enhance thetion shopping areas and fashion malls. Throughvalue of individual brands at the point of sale andthese initiatives, Onward is pressing forward to nur-create stronger and more diverse brand values.

ture new brands for various distribution channels.

Under Store Branding initiatives, Onward positions
the store itself as central to the entire product sup-Creating World Brands

ply chain, from manufacturing through final sales

Over the years, Onward has created many world

and, based on this, works to create newer, stronger

brands. About 30 years ago, Onward made its firstbrand values. The scope of these initiatives covers

forays into overseas markets and, in 1995, extend-

not only products but store design and the sales

ed sales of its ICB brand line, which it developed

process. While emphasizing the retail concept,

originally for world markets, into a number of coun-

Onward strives to create attractive stores that help

tries. The experience garnered from this entry into

to capture the hearts of customers who will, in turn,global markets enabled Onward to accumulate

support the brand.

know-how in the international retailing business.
Also, through Onward’s relationship with GIBO’ it
has had the opportunity to work with and gain theconfidence and trust of many of the world’s bestknown designers.

05

Sales of Onward Brands in
Department Stores (Millions of yen)

Building on this record of accomplishment, Onward
is now about to launch a new world strategy. With

Years ended February 28 or 29

regard to Onward’s future growth, we believe that it
150,000

will be essential to venture beyond the domestic market and make a full-scale commitment to world mar-120,000

kets. Group companies that will accelerate this entry
into the global market will be Joseph, which was

90,000acquired as the core enterprise for Onward’s world
strategy, and GIBO’, which has made major strides

60,000in development in recent years.
Brands newly positioned for international develop-

30,000ment are NAVE and rosebullet. NAVE is one of
Onward’s own brands and draws on the talents of0’02 ’03 ’04 ’05 ’06

European and U.S. designers—original goods in the
NAVE line are developed simultaneously in Japan andthe United States through the collaboration of design-

Sales of Onward Brands in RSCs, Station
Buildings, and Fashion Malls (Millions of yen)
Years ended February 28 or 29

ers selected each season. Onward looks forward to
the performance of the NAVE brand, which represents a new business model that enables it to evolve

35,000beyond reliance on in-house design. Outlets offering
the rosebullet brand will be expanded in fiscal 2007

30,000to include stores in China, principally in Shanghai and25,000Hong Kong, as well as Korea and Taiwan, bringing the
20,000

total in Asia to 45, with 20 outlets planned for Japan.
Onward is expecting to attain overseas sales of

15,000¥30 billion in fiscal 2007, rising to ¥50 billion in fiscal
10,000

2008.

5,000
0

’02 ’03 ’04 ’05 ’06

06

Onward’s Brand-Leveraged Management and World Strategy

Joseph: A Mainstay of

GIBO’ to Become a Consolidated Subsidiary

Onward’s World Strategy

Based in Europe, GIBO’ is engaged in the plan-

Onward acquired the U.K.-based Joseph Groupning, production, and marketing of a wide range

in May 2005 and the Joseph brand will be a pillarof designer brands and products under licensingof Onward’s world strategy. Joseph has expanded

arrangements.

from two-season merchandising, which is the tra-

GIBO’ acquired the management rights toditional practice in Europe, to four-season mer-

ERIKA s.r.l., a high-quality knitwear manufacturer,

chandising and it is now in the process ofin 2004 and those to IRIS s.r.l., a shoe manufac-

strengthening its product lineup. Japanese staff

turer and marketer, in June 2005, bringing both

members have been seconded to Joseph’s head-these companies into its operating group. On aquarters in London and are working to establish

licensing contract basis, ERIKA undertakes theclose working relationships between Onward

production and marketing of top-quality brands,

and Joseph.

including Prada, Louis Vuitton, and Christian Dior.

Plans call for accelerating the development of

IRIS manufactures shoes under the Mark Jacobs,

Joseph’s sales network, with Europe as the base,

Chloé, and other brands and has marketing rights

to include Japan, the United States, and Asia out-

throughout the world.

side Japan. In addition to our current presence in

In fiscal 2007, the GIBO’ Group will be consoli-

the United Kingdom and France, our coverage in

dated into the Onward Group, and the addition isEurope will be expanded to include Italy, Germany,

expected to contribute ¥10 billion to net sales.

and Spain. Plans under consideration include entry

The approximate breakdown of this total sales fig-

into the wholesaling business in the United States

ure will be ¥5.5 billion from GIBO’, ¥1.0 billion

and the development of a chain of franchise outlets

from ERIKA, and ¥3.7 billion from IRIS.

in Asia covering principally China, including especially
Hong Kong, and Taiwan. During 2006, new outlets
to be added in Japan will include five menswear
stores, five stores for women’s goods, and two outlets carrying both men’s and women’s apparel.
Joseph’s sales targets, including Japan, are¥16.5 billion in fiscal 2007 and ¥30.0 billion in fiscal 2009.

07

Business
Overview
NIJYUSANKUKUMIKYOKUICBJIYUKUGOTAIRIKU
J. PRESS08

Now that consumer spending in Japan is recovering and signs of prosperity are reemerging in theapparel industry, the Onward Group is responding
to nascent disparate trends—on the one hand
toward trendy consumption and on the othertoward demand for traditional items—by introducing Eight-Season Merchandising. This approach
divides the annual product planning cycle into
eight periods, and Onward is strengthening its
production design capabilities to meet thedemands of this new merchandising approach.
As a result of this new approach, in women’s
fashions Onward created its largest number of hit
items ever in the major core brand lines NIJYUSANKU, KUMIKYOKU, JIYUKU, and ICB, resulting
in expansion in sales. The success of the Paul
Smith and prideglide lines for young working
women also contributed to overall growth in salesof women’s fashions. In men’s fashions, Cool Biz
and Warm Biz* items helped boost sales as well.
By distribution channel, sales via urban department stores were especially favorable and contributed to overall growth in revenues and income.
On a nonconsolidated basis, sales through both

department stores and new channels expanded
as turnover at department stores rose 4.0% andsales through new distribution channels moved
up 2.5%. (The number of new distribution outlets
was expanded by 51, to 497.) The ratio of department store sales to new distribution channel sales
was 7 to 3, reflecting a continuation of Onward’s
traditional sales pattern. Since many improve-ments are being made going forward, including
the refurbishment of department store sales
areas and addition of new stores as well as thedevelopment of new brands, Onward is aiming
to secure a dominant share of department store
sales.
Onward has positioned the U.K.-based global
Joseph brand as its core brand for maximum
emphasis. Reflecting the implementation of powerful product and outlet strategies, the Joseph
brand has made a strong start according toschedule.
* The Cool Biz and Warm Biz campaigns were sponsored by Japan’s
Ministry of the Environment. Their aim was to reduce emissions ofgreenhouse gases by asking people to wear cooler clothing in summer and warmer clothing in winter, thereby making it possible toreduce air conditioner usage. This campaign brought an increase inpurchases of office wear.

Target Customers
Main Brands

ICB
NIJYUSANKUKUMIKYOKUJIYUKUGOTAIRIKU
J. PRESSDAKS*
prideglide
rosebullet
Dip Drops
field dream
FerouxDeux CONCEPT
LABO
anyFAM**
anySiS**

Concept

Urban and sophisticated brand forthe global market
Casual wear separates for women who
like to assemble their own original outfits
Trendy casual wear featuring mix-andmatch separates
High-quality elegant everyday wear
Tokyo-born brand that blends timeless
British styling with an international flair
Modern versions of American-traditionaland high-quality styles
Traditional English brand with ayoung mind-set and high quality
Elegant styles that are sweet yet cool
Sexy-casual brand that blends cutesexiness and attractivenessA casual jeans brand that combines
fashion and convenience
Lifestyle shop brand that offers afeeling of a better quality of life
A sweet and casual brand
Sophisticated casual wear brand foreveryday wear
High-quality casual fashion that aims to
improve the quality of life for anyone,
anytime, anywhere

Men

Women Children

Main Targets

Distribution
Depart- Urban Regional
ment Shopping Shopping
Stores Centers Centers

—

쎲

—

Working womenin their late 20s

쎲

—

—

쎲

쎲

—

Women around 30

쎲

—

—

—

쎲

쎲

Women in their early 20s

쎲

—

—

Women in their 40s
Businessmen in their
40s and 50s

쎲

쎲

—

쎲

—

—

쎲

—

—

쎲

—

—

쎲

쎲

쎲

Men in their late 30s

쎲

—

—

쎲

쎲

—

Fashion-conscious,
sophisticated men 45 to 55
Working women in theirearly to mid-20s

쎲

—

—

—

쎲

—

쎲

쎲

—

—

쎲

—

Women in their mid-20s

—

쎲

쎲

—

쎲

—

Young women 16 to 25

—

쎲

—

쎲

쎲

—

—

쎲

쎲

—

쎲

—

—

—

쎲

쎲

—

—

Men 25 to 35

—

—

쎲

—

쎲

쎲

—

쎲

—

Second-generation
baby boomer mothers
Working women in their 20s

—

—

쎲

—

—

쎲

Men and women 30 to 40
living in urban areas
Working womenin their mid-20s* DAKS is a licensed brand of U.K.-based DAKS.
** Spin-off brands of KUMIKYOKU launched in fall 2005 as new strategic brands.

09

Men’s Fashions
NIJYUSANKUHOMMEGOTAIRIKU

J. PRESSJIYUKU Men’s

Fiscal 2006
Consolidated sales of men’s fashions rose 0.6%, to ¥78,361 million, and accounted for
27.7% of net sales.
Conditions in the men’s apparel market during the fiscal year under review were quite favorable because of demand generated by the Cool Biz campaign in June and the Warm Biz
campaign in November as well as purchases of heavy clothing stimulated by unusually
severe winter weather. In addition, the rising popularity of fashion magazines targeting adult
men helped foster interest in clothing and heightened the general awareness of men’s fashion. Although sales in the first half of the fiscal year fell below those of the same period ayear earlier, purchases picked up in the latter half and showed a recovery trend.
Along with the Cool Biz and Warm Biz campaigns, Onward offered styles emphasizing
both function and fashion. As a consequence of aggressive marketing efforts that included
the creation of a special website and other activities, Onward was able to report a major
improvement in results. Brands showing strong gains were DAKS, which reported a 56%
increase in sales, CK Calvin Klein, with a 13% increase, and Joseph Uomo, with a 63% gain.
Outlook
Going forward, in the Cool Biz and Warm Biz product segments, Onward will offer an allaround lineup of products with a stronger message. This broader lineup will include Bikei
Jackets (lightweight jackets), Bisenaka Shirts (shirts with an appealing silhouette), andBikyaku Pants (pants that create the impression of being taller) as partof efforts to increase Onward’s market share during the Cool Biz andWarm Biz sales push. Also in line with these activities, in its leading
GOTAIRIKU and J. Press brand lines Onward will introduce its originallydeveloped Giga Cool Suits, which have superior heat dispersal properties, and Giga Warm System items,which offer the wearer special
warmth and comfort.
The core GOTAIRIKU brand line will be converted to an urban-type,high-grade merchandise line in the fall and winter season of 2006 andthe outlets will be refurbished to suit the new environment. The number of New Manual Shops selling the
DAKS brand will be increased to 100, establishing
Sales of Men’s Fashions(Millions of yen)
DAKS’s position as a core brand.
Years ended February 28 or 29
New brand introductions will include NAVE Men’s,
100,000
which will go on sale in fall 2006. Other initiatives will
include accelerating activities to strengthen the pres80,000
ence of Onward-related brands in key commercial
centers, including offering the Joseph line together
60,000with WE men’s clothing in large-scale, first-floor multiline stores with prominent street locations.
40,00020,000

0’02 ’03 ’04 ’05 ’06

10Women’s Fashions
Fiscal 2006
Consolidated sales of women’s fashions rose 7.2%, to ¥154,929 million, and accounted

JIYUKUfor 54.7% of net sales.
Onward sales of women’s fashions in both department stores and new distribution channels
saw steady expansion. In the department store retail segment, sales of major core brands
NIJYUSANKU, KUMIKYOKU, JIYUKU, and ICB expanded. For these brands, we were able
to report major successes by adopting policies of improving the accuracy of forward product planning, focusing on items that were selling well while also expanding the availability of
individual items and offering a broader selection of best-selling items. In the market foryounger women’s clothing, Onward closely coordinated its promotional activities for the
prideglide brand with fashion magazines to win a high level of support from customers.
These successful efforts resulted in a stunning 72% rise in sales of the prideglide line.
At RSCs, sales of the anySiS brand line exceeded planned levels. In rail station shopping

anySiS

areas and fashion malls, sales of rosebullet fashions, which were introduced in fall 2005,
were favorable. Sales at Croon a Song boutiques also got under way as these stores have
put their plans and systems in order, ready for full-scale entry into new distribution channels.
Sales of Joseph items also advanced steadily, and the number of stores carrying this line
expanded to 18, with sales of approximately ¥1.8 billion (on a retail price basis, covering aneight-month period).
Outlook
Onward will aim to further expand sales of its existing major brands and, by aggressively
developing new brands, work to expand the scope of its activities.

NIJYUSANKUAlong with the growing awareness of the NAVE brand, Onward will make active use of
fashion magazines and the press to develop NAVE into a core brand. In new distribution
channels, Onward will move forward to strengthen the presence of the rosebullet brand in
urban shopping areas through an expansion of the number of outlets and work to accelerate
the expansion in the number of Croon-a-Song stores.
Among new brands, in fall 2006 we introduced ourSales of Women’s Fashions

ESME bridge prêt-à-porter line and began offering this(Millions of yen)
Years ended February 28 or 29

line in urban department stores. Also, in fall 2006,

160,000

we will work to develop the Maison D’Azur brand forfashion-conscious customers in urban shopping centers.

ROSEBULLET

120,000

80,00040,000

0’02 ’03 ’04 ’05 ’06

11Children’s Fashions, Kimonos,
and OtherChildren’s Fashions
Consolidated sales of children’s fashions declined 6.5%, to ¥8,653 million, and accounted for 3.1%of net sales.
Although Japan’s declining birthrate has led to a continued dwindling in the market for children’s
clothing, items in the Celine line, a licensed brand, showed favorable performance. However, salesof the KUMIKYOKU and J. Press lines were below planned levels. Since “young fashions” worn by
women in their teens and young adults are generating growing interest among primary and middle
school children, we introduced a new line, KUMIKYOKU PYURUTE, for school-age children.

KUMIKYOKU
for children

Kimonos
Consolidated sales of kimonos rose 1.3%, to ¥3,667 million, and accounted for 1.3% of net sales.
Consumers are continuing to move away from traditional Japanese kimonos, but the market for yukata(cotton summer kimonos) for both men and women, which are positioned as summer fashion items, isexpanding and demand is becoming more diverse. In view of these trends, Onward expanded its lineupof yukata sold under the NIJYUSANKU, NIJYUSANKU OMU, KUMIKYOKU, JIYUKU, and Jean Paul
Gaultier brands.
In summer 2006, Onward will introduce yukata under the prideglide brand and aim for increases insales.

KUMIKYOKU
jewelry

Other Operations
Consolidated sales of other operations rose 4.4%, to ¥37,499 million, and accounted for 13.2% of
net sales.
The services and resort-related businesses posted a decline in revenues of 2.3%, or ¥638 million. Thiswas because of a decline in new orders at Onward Creative Center Co., Ltd., which is engaged primarily in preparing and implementing store designs. On the other hand, reforms at Onward Beach Resort
Guam, Inc., are proceeding and the company is expected to show a profit in the near future.
Among accessories and other items, the fashion jewelry business implemented vigorous business
policies and maintained sales at the previous year’s level. Also, mit mitte, a retailer of designer-brandleisure bags, stepped up its activities, opening additional corners in department stores and increasing

KUMIKYOKU
kimonoits brand presence.

Sales of Children’s Fashions

Sales of Kimonos

Sales of Other(Millions of yen)
Years ended February 28 or 29(Millions of yen)
Years ended February 28 or 29(Millions of yen)
Years ended February 28 or 29

10,0004,000

40,0003,000

30,0002,000

20,0001,000

10,000

8,000

6,000

4,000

2,000

0

0

’02 ’03 ’04 ’05 ’06

12

0’02 ’03 ’04 ’05 ’06’02 ’03 ’04 ’05 ’06

Topics

ESME: New Prêt-à-Porter Brand for Department Stores
In a strategic move to enter the prêt-à-porter zone of department stores,
Onward will introduce ESME, an original brand, in fall 2006. Clothing inthis line will be designed by Japanese for Japanese and will be targeted
at urbanite women in the 45- to 50-year-old range. These new prêt-à-porter
fashions will feature designs tailored especially to the Japanese female figure
and will offer luxury and sensuousness. The ESME brand will aim to develop
the “bridge prêt-à-porter zone” lying between foreign luxury brands and existing Japanese prêt-à-porter
fashions.

Maison D’Azur: A New Brand for New Distribution Channels
In fall 2006, Onward will begin to offer its Maison D’Azur line of women’s
fashion goods. The new line will be carried by suburban shopping malls andwill emphasize sensuousness. Creators of the Maison D’Azur fashions will
be Japanese male and female designers living in Paris. To differentiate the
new line, it will be designed for the highly fashion-conscious customer.

Menswear Added to the NAVE Brand Line
The NAVE brand line might be called a more innovative version of a traditional boutique. Through the collaboration of designers and brands chosen
for the season, the NAVE line seeks to provide “individual items with distinctive value,” ranging from apparel to accessories. Beginning in fall 2006, thisnext-generation, strategic brand will introduce a line for fashion-conscious
men. We have concluded contracts with a number of apparel and accessory
designers in Europe, the United States, and Japan. We will draw on the particular strengths of each designer to offer items with distinctive value createdthrough collaboration.

Croon a Song Boutiques to Begin Offering Multiple Lines
Beginning in fall 2006, Croon a Song boutiques will add a menswear line.
Croon a Song boutiques are managed by CANDELA INTERNATIONAL,
which was formed as a joint venture with MOTHER INTERNATIONAL in
September 2005. Going forward, Croon a Song boutiques will be introduced as a new store brand to rail station shopping areas and fashion malls.

13

Corporate Governance

Onward has positioned corporate governance as an important management issue and is working to structure organizational systems that will permit rapid responses to changes in the operating environment andenhance the Company’s soundness, fairness, transparency, and compliance with legal regulations.
To separate management decision making from the day-to-day conduct and supervision of operations,the Company has introduced the Executive Officer system. In addition, to strengthen the supervisory functions of the Board of Directors, an outside director and outside auditors have been appointed.
Moreover, the Company is endeavoring to strengthen its systems to ensure compliance, and its efforts tothis end include the formation of a Compliance Committee and the preparation of a Compliance Manual that
all employees are required to follow.
To strengthen internal controls, the Company has implemented measures to improve its systems forcontrol and reporting with the aims of securing compliance, ensuring the reliability of financial reporting, andimproving the efficiency of operations. For the management of risk, the Company has created a Compliance
Division within the Corporate Planning Office and is working to strengthen its capabilities for dealing with risk
systematically and its systems for preventing the emergence of legal issues.
Going forward, Onward will continue to strengthen its corporate governance systems and conduct its
operations in a fair and transparent manner in response to the expectations of its shareholders.

Board of Directors

Directors

Outside Director

Susumu Maeda

Teruhiko Komatsu

Honorary Chairman

Hachiro Honjou

Wataru Sakai

Hirokazu Yoshizato

Kenichiro Tamai

Hironobu Mitsuta

Akinori Baba

Kazuhito Kobayashi

Yoshihiko Sato

Eihachiro Umemiya

Akira Baba
Chairman & CEO
Takeshi Hirouchi*

Corporate Auditors

President

Standing Corporate
Auditors

Shigeru Uemura*

Kisaku Uragami

Akito Yamamoto

Shigeru Kamakari

Senior Managing Directors

Yuji Ohtsuka

Hideo Matsumoto

Kazuya Baba*

Keiichi Ogawa**

Hiroshi Ishida

Masaru Kusaki

Jotaro Yabe**

Tsutomu Hagihira

Isao Yamane
Masaaki Yoshizawa
Ryuji Horie
Hiroshi Imai
Tadayoshi Kobayashi

Michio Osawa
Naoki Kamo
Tsunenori Suzuki
Takao Usui
Noriyasu Fujikawa

Masayoshi Harazawa

Managing Directors
Masao Ohno

Hisayuki Ichinose

Eiji Tono

Tsutomu Ohnuma

14

Executive Officers

Minoru Tanaka

Officers

Hitoshi Aoyama

Managing Executive

Takahisa Suzuki

Officers

Hideo Hisamichi

Junji Nakamura

Kazuo Kagatani

Kentaro Mizuno

Manabu Nomura

Masabumi Kiyohara

Hidenobu Tanaka

As of May 25, 2006

* Representative Director** Outside Auditor

Organization Chart

Board of Directors
Honorary Chairman
Board ofCorporate
Auditors

ChairmanAffiliate Companies Supervisor
Supervisor for Affiliate Companies in Eastern Japan

Onward GroupManagement Council

Supervisor for Affiliate Companies in Western Japan
President

Production Officer

Compliance Committee

Men’s Office Clothes Business Group

General Manager,
Marketing Headquarters Department

Men’s Casual Clothes Business Group

Marketing Promotion Office

J. PRESS Business GroupDAKS Business GroupNIJYUSANKU HOMME Business Group

Marketing Promotion Division

Sportswear Business Group

Sales Promotion Division

JOSEPH Men’s Business GroupNAVE Men’s Business Group

Western Japan Region
Branch Supervisor

ICB Business GroupNIJYUSANKU Business Group

Advertising Division
New Designer Fashion
Grand Prix Committee

Prideglide Business GroupKUMIKYOKU Business GroupJIYUKU Business Group

Administrative Department Headquarters

Business
Coordination
Headquarters

JANE MORE Business Group
VANILLA CONFUSION Business Group
Jean-Paul Gaultier Business Group
Luxury Brand Business Group

Corporate Planning OfficeCompliance Division
Management Information Division
Business Group Coordination Division

JOSEPH WOMEN’s Business Group

Corporate Communications IR Office

Paul Smith Business Group

Women’s Fashion Business GroupMICHAEL KORS Business GroupChildren and Teens Business Group

Corporate Communications IR Division
Customer Service Office

CK Calvin Klein Business GroupNAVE WOMEN’s Business Group

Supply Chain Management
Promotion Division

New Business Group
Lifestyle Goods Business Group

General Affairs Division
Onward Research Institute

Young Casual Business Group
Lifestyle Business Group

Human Resources Division

Distribution Development Business Group

Secretarial OfficeFashion Building, Station Building,and Directly Managed Stores Group (FSR Group)

Accounting Division

Statistical Management OfficeInformation Systems Division

Men’s NR Promotion Office
Women’s NR Promotion Office
Men’s Apparel Product Development Office
Tokyo Branch

Women’s Apparel Product Development Office

Kanto Branch

Quality Merchandising OfficeOsaka Branch

Production Division

Fukuoka Branch

Asia Business Group

Nagoya Branch
Sapporo Branch
Sendai Branch
Hiroshima Branch
Kimono Sales Business Division
Trading Business Division

North America Business GroupInternational
Operations
Business Group

Europe Business Group
GIBO’ Co. Business Division
JOSEPH LTD. Business DivisionInternational Group
Trading Business GroupAs of May 25, 200615

Consolidated Six-Year Summary
ONWARD KASHIYAMA Co., Ltd. and Subsidiaries
Years ended February 28 or 29
Thousands of
U.S. dollars

Millions of yen
2001

2002

2003

2004

2005

2006

2006

¥126,151¥146,080¥141,468¥165,931¥150,969¥135,769$1,167,707

At year-end:
Total current assets
Total property, plantand equipment

103,581

99,274

101,188

96,017

96,394

99,688857,380

Total assets

312,258

312,443

302,188318,270

308,170

329,4032,833,090

Total current liabilities

78,98599,67380,147

92,27079,02597,617

839,574

Total shareholders’ equity

189,236

187,039

190,755

196,796202,377

203,826

1,753,048

Net sales¥245,924¥257,306¥263,399¥267,746¥271,273¥283,111$2,434,941

Cost of sales

143,449

145,687

143,234

143,921

146,447

152,043

1,307,667

administrative expenses

85,731

93,499100,558

100,929

100,621106,360

914,771

Operating income

16,744

18,12019,60722,89624,20524,708

212,503

Income taxes, current

4,888

11,176

6,166

13,868

7,490

12,321

105,969

Net income

4,805

3,802

7,158

13,053

10,257

11,091

95,394

For the year:

Selling, general andYen

U.S. dollars

Per share:
Net income—Basic

¥27.9

¥22.1

¥41.6

¥74.1

¥58.1

¥63.8

$0.549Cash dividends

16.5

16.5

16.5

20.0

22.0

24.0

0.206

Note: Yen amounts have been translated, for convenience only, at ¥116.27=US$1, the approximate exchange rate on February 28, 2006.

300,000

10

350,000

240,000

8

280,000

180,000

6

210,000

120,000

4

140,000

60,0002

70,0000Years ended ’02
February 28 or 29
왎 Net sales (left scale)왎 Operating income
margin (right scale)0’03 ’04 ’05 ’06

Net Sales
and Operating
Income Margin(Millions of yen, %)0
At ’02February 28 or 29
왎 Total assets (left scale)첸 Total shareholders’equity (left scale)왎 Shareholders’ equity
ratio (right scale)

80

60

60

40

40

20

20

0

’03 ’04 ’05 ’06

Total Assets,
Total Shareholders’Equity, andShareholders’Equity Ratio(Millions of yen, %)

16

80

0
Years ended ’02
February 28 or 29
왎 Net income per share첸 Cash dividends pershare’03 ’04 ’05 ’06

Net Income Per
Share and Cash
Dividends Per
Share
(Yen)

Management’s Discussion and Analysis

Overview
During the fiscal year under review (ended February 28, 2006),
the Japanese economy experienced a gradual recovery as
favorable trends in corporate performance began to have apositive impact on the employment and household environments, thus leading to improvement in personal consumption.
In the apparel industry as well, although relatively low temperatures had a dampening effect on sales of spring clothing, thesubsequent recovery in consumption and the expansion indemand for winter clothing boosted by severe winter weather
brought generally strong conditions in the apparel market.
Amid this operating environment, Onward continued to
implement its Brand-Leveraged Management policy and, inthe first half of the fiscal year under review, introduced EightSeason Merchandising, which offers a more finely tuned, deeper
response to customer needs, while working to enhance its
product planning capabilities. In addition, Onward establishedthe Store Branding approach, which aims to enhance brandvalue by making retail stores the central driving force for retailing activities, and actively implemented its Channel-SpecificBrand Strategy. As a consequence, sales of major core
brands, including NIJYUSANKU, KUMIKYOKU, JIYUKU, andICB, at department stores remained strong and new brands
performed well, resulting in sales above the levels of the previous fiscal year. This successful performance was driven by the
emergence of a considerable number of major hit items as thefocus of the Company’s product offerings reflected improvements in the accuracy of forward planning and the selective
addition of items in best-selling product lines during periodsof high demand.
In addition, sales of such core brands as Paul Smith expanded smoothly, and prideglide brand items targeting a younger
customer market segment where the Company previously has
not had a strong presence attracted strong support from customers. Growth in these core brands and other developments
contributed to an overall expansion in women’s apparel. Also,
to aggressively stimulate consumer demand, the Company
undertook a number of sales floor campaign activities that generated major positive results. These included introducing the“Vacance Your Style Campaign” just prior to the spring Golden
Week holidays as well as the “Cool Biz Campaign” in the summer
and the “All Brand Fair” and “Warm Biz Campaign” for winter.
Major overall improvements were seen in the menswear area,
as the Company followed up its “Cool Biz” campaign activities inJune with “Warm Biz” activities in November. Unseasonably
cold winter weather provided a favorable operating environment
and led to rapid expansion in demand for warm clothing.

In our new distribution channels, beginning in the latter halfof the fiscal year, the Company focused on sales of its newly
rejuvenated anyFAM and anySiS casual brands through urban
and regional shopping centers (RSCs). As a result, even though
the anyFAM line experienced difficulties at certain traditional
outlets, sales of anySiS exceeded initial plans. In addition, theCompany made an active entry into the rail station and fashion
mall retailing channels, opening 14 rosebullet sexy-casualbrand stores and two Croon a Song boutiques. Going forward, plans call for nurturing sales of core brands throughthese new channels.
The Company has positioned Joseph, a well-known U.K.based global brand it acquired in May 2005, as its leadingcore brand and is steadily implementing an uncompromisingproduct and outlet strategy that is proceeding according
to plan.
As previously mentioned, the Company was able to reportsteady expansion in sales through department stores, which
are its core distribution channel, and new distribution channels. As a result, both sales and profitability improved, with net
sales rising 4.4%, to ¥283.1 billion, operating income increasing 2.1%, to ¥24.7 billion, and net income climbing 8.1%, to¥11.1 billion.

Results of Operations
Net Sales
The Company’s net sales for the fiscal year under review
increased for the sixth consecutive fiscal year, growing 4.4%,
to ¥283.1 billion. Factors in the external business environment
contributing to this increase were the gradual strengtheningof the recovery trend in consumer spending and strong salesof winter apparel stimulated by unseasonably cold weather.
Internal factors contributing to the growth in sales included
the continued steady implementation of the Company’s
Brand-Leveraged Management policy aimed at enhancing
the customer drawing power of principal brands. Sales of
KUMIKYOKU, NIJYUSANKU, JIYUKU, and other original brandproducts at department stores were strong. In addition, theconsolidated sales of Joseph, a company acquired in May
2005, made a major contribution to net sales. Among distribution channels that the Company describes as “new distribution,” sales of anySiS exceeded the planned target level. In
men’s fashions, campaigns for Cool Biz apparel in June andWarm Biz clothing in November drew considerable attention
from the public and led to substantial increases in salesof these products. Another factor contributing to sales was17the addition of 16 new outlets in rail station shopping areas
and fashion malls. The Clothing Segment thus reported 4.4%
growth and accounted for ¥269.0 billion of net sales. Sales in
the Other Segment dropped 2.3%, to ¥26.8 billion.
Cost of Sales, Selling, General and Administrative
Expenses, and Other Income (Expenses)
The cost of sales rose 3.8%, to ¥152.0 billion. This increase
was primarily owing to the gain in sales. Also, as a result of
the growth in sales and measures taken to deal with inefficient
stores, including closure, gross profit increased 5.0%, to¥131.1 billion, and the gross margin on sales improved 0.3
percentage point, rising from 46.0% to 46.3%.
Selling, general and administrative (SG&A) expenses
increased 5.7%, to ¥106.4 billion. As a result of aggressive
sales strategies, the ratio of SG&A expenses to net sales rose
0.5 percentage point, from 37.1%, to 37.6%. While sales
increased and the gross margin on sales showed improvement, the increase in sales costs was significant, leading toa 0.2 percentage point deterioration in the ratio of operating
income to sales, from 8.9% to 8.7%. Despite this, the effect of
the gain in sales was substantial, leading to a 2.1% increase inoperating income, to ¥24.7 billion, the fifth consecutive annual
rise and the highest level in the Company’s history.
Other income (expenses) amounted to income of ¥1.2 billion
for fiscal 2006, up from the ¥0.1 billion reported in fiscal 2005.
As a consequence, income before income taxes climbed
6.4%, to ¥25.9 billion. The effective tax rate for fiscal 2006 was
50.9%, substantially unchanged from the 49.4% reported forthe previous fiscal year. Accordingly, net income for the fiscal
year under review was up 8.1%, to ¥11.1 billion, the second
consecutive annual increase. The ratio of net income to net
sales improved 0.1 percentage point, rising to 3.9%. Also,
the ratio of net income to shareholders’ equity rose 0.3 percentage point, to 5.4%.

Financial Position
Total assets rose 6.9%, or ¥21.2 billion, from the previous
fiscal year-end, to ¥329.4 billion. Current assets decreased
10.1%, or ¥15.2 billion, but fixed assets were up 23.2%, or¥36.4 billion, to ¥193.6 billion.
The decline in current assets was primarily owing to adrop in cash and deposits of ¥25.7 billion, to ¥56.1 billion.
The rise in fixed assets was mainly the result of ¥24.2 billion
in goodwill and an increase in investments in securitiesof ¥19.5 billion, to ¥37.4 billion.

18

On the liabilities side of the balance sheets, current liabilities
rose ¥18.6 billion from the end of the previous fiscal year. Thiswas primarily due to an increase in short-term loans of ¥10.6
billion, to ¥26.4 billion. In addition, the balance of accrued
income taxes rose ¥7.0 billion, to ¥8.4 billion.
In the shareholders’ equity section of the balance sheets,
although the Company reported an increase in retained earnings as a result of net income earned for the fiscal year, total
shareholders’ equity was up only 0.7%, or ¥1.4 billion, to¥203.8 billion, at the fiscal year-end because of an increase inbuybacks of the Company’s outstanding shares. As a result,
the ratio of shareholders’ equity to total assets declined 3.8
percentage points, to 61.9%. In addition, the ratio of shortterm loans to shareholders’ equity deteriorated 5.2 percentage
points, from 7.8% to 13.0%. The current ratio fell 51.9 percentage points, from 191.0% to 139.1%.
The major changes in the balance sheets as a whole
were generally related to the reorganization and consolidationof subsidiaries and brands as well as acquisitions related toenhancing the Company’s brand strategy. Going forward,
the Company plans to maximize the efficiency of its businessactivities and, through selectivity and concentration in allocating resources to businesses and brand opportunities, to promote the interest of its shareholders.
Cash FlowsNet cash provided by operating activities rose ¥10.8 billion, to¥26.8 billion, reflecting in large part a decline of ¥11.1 billion inincome taxes paid.
Net cash used in investing activities increased ¥24.3 billion,to ¥37.2 billion, principally owing to the acquisition of shares in
Project Sloan Ltd., which was included in the scope of consolidation beginning in the fiscal year under review, and the acquisition of investments in securities.
Net cash used in financing activities rose ¥5.8 billion fromthe previous year, to ¥15.1 billion, reflecting the acquisition oftreasury stock, payment of dividends, and other factors.
As a result of the aforementioned factors, the balance of cash
and cash equivalents at the end of fiscal 2006 was ¥56.1 billion,¥25.5 billion lower than at the end of the previous fiscal year.

Policy on the Distribution of Profits
The management of the Onward Group has long recognized
the distribution of a portion of profits to shareholders as one ofits top priorities. The Company will strive to ensure continued
stable dividend payments and make distributions from profits

in a way that adequately takes into account the overall businessenvironment as well as performance trends. Retained earnings
will be employed in a flexible manner that strikes a balance
between strategic investment for the consolidation of a solid
business structure, improving the Company’s financial position, and meeting financing requirements.
In view of these considerations, and taking into account theCompany’s performance in the year under review as well as
the outlook for the business environment, the special cash dividend of ¥2 per share paid for fiscal 2005 was included in theregular dividend for fiscal 2006, and regular dividends wereincreased ¥2 per share, thus bringing total dividends for fiscal
2006 to ¥24 per share. As a result, the nonconsolidated dividend payout ratio for fiscal 2006 was 36.2%, and the nonconsolidated ratio of cash dividends to shareholders’ equity was
2.0%.

Outlook
Looking ahead, the Onward Group will continue to implement
its Brand-Leveraged Management policy, establish and promote its Store Branding initiatives, and work to enhance theprecision and effectiveness of Eight-Season Merchandising. In
our core distribution channel of department stores, efforts willcontinue to enhance the value of our major core brands,
including NIJYUSANKU, KUMIKYOKU, JIYUKU, and ICB, andreduce the incidence of lost sales opportunities as well as toexpand sales at individual department stores. Underlying the
expansion in sales of core brands in fiscal 2006 wereOnward’s focus on promising items and improvement in capabilities for quickly meeting demand for best-selling items. In fiscal 2007, this successful approach will be applied to other
Company brands, with the goal of expanding sales of existing
brands and improving profitability. In the newly introduced
NAVE brand, which the Company has developed in collaboration with leading designers around the world, women’s fashions are being introduced in 21 principal urban department
stores in the first half of the current fiscal year. Plans call for
adding NAVE wear for men in the second half of the fiscal
year, as we work to develop the NAVE brand into one of ourcore brands.
In addition, Onward is creating new women’s prêt-à-porter
brands that are targeted at newly affluent customers who areseeking to migrate to higher quality lifestyles; in the second
half of the current fiscal year, these brands will be introduced
into the prêt-à-porter zones of urban department stores. In
men’s fashions, the Company’s policy for midsummer wear will

be to draw fully on its latest original technologies to develop
Giga Cool Suits offering excellent permeability and airflow for
the GOTAIRIKU and J. Press men’s suit lines. In addition,
Onward will work to develop a new concept line to expand its
share of sales in the department store Cool Biz zone under thetheme “Stylish Up Line for Cool Biz.” This line will offer total
styling, including jackets (Bikei Jackets), shirts (Bisenaka
Shirts), and pants (Bikyaku Pants).
In new distribution channels, the Company will strengthen
the presence of its rosebullet brand in the rail station and fashion mall shopping areas and actively expand its Croon a Songboutiques. Also, beginning in the latter half of the current fiscal
year, Onward will begin to introduce a new fashion brand in
RSCs for women who value high fashion. In these and related
activities in fiscal 2007, we will continue to implement a strong
Channel-Specific Brand Strategy that meets the needs of new
retail channels.
For the Joseph brand, as a follow-up to the opening of astore in Tokyo’s fashionable Aoyama area, Onward will step
up its activities for creating new outlets in leading retailing centers, including a major store in Nagoya that opened in spring
2006. Overseas, the Company plans to realize maximum synergies with Joseph’s global network to enhance its productplanning and design capabilities and expand the coverage of
its sales network.
For the fiscal year ending February 28, 2007, along with thepositive effects of the strategies described thus far will be theresults of the inclusion of an additional 15 companies within
the scope of consolidation. These companies are based inareas that are expected to assume substantially greater importance to our operations in the years ahead, including Europe,Asia, and North America, and will become important bases forsupporting the Company’s future international expansion. As aresult of these and other factors, in fiscal 2007, the Company
anticipates a 9.5% increase in net sales from fiscal 2006, to¥310.0 billion, a gain of 6.9% in operating income, to ¥26.4
billion, and a substantial increase of 17.2% in net income, to¥13.0 billion. These forecasts are based on information available to the Onward Group at the time of writing and are subject to the possibility of risks and uncertainties. Accordingly,
a variety of factors may affect the Group’s forecasts and cause
actual results to differ significantly from these projections.

19

Thousands of
U.S. dollars(Note 2. (18))

Millions of yen

LIABILITIES, MINORITY INTERESTS AND SHAREHOLDERS’ EQUITY

2005

2006

Accounts and notes payable¥ 45,657¥ 46,927

Short-term loans (Note 17)

15,772

26,4192006

Current liabilities:$

403,603227,224

Accrued expenses

6,710

7,117

61,209Accrued income taxes

1,407

8,437

72,565

Consumption tax payable

1,308

1,255

10,795

Accrued bonuses to employees

2,592

2,971

25,554

Allowance for sales returns

1,013

982

8,447

Other current liabilities

4,566

3,509

30,17779,02597,617

839,574

Long-term debt

4,694

5,027

43,234

Negative goodwill on consolidation

1,342

895

7,697

Accrued retirement benefits (Note 6)

2,088

2,380

20,471

Accrued retirement benefits for directors and statutory auditors

1,766

1,885

16,207

9,890

10,18787,60988,915

107,804

927,183

16,878

17,773

152,859

Total current liabilities
Long-term liabilities:

Total long-term liabilities
Total liabilities
Minority interests in consolidated subsidiaries
Commitments and contingent liabilities (Note 11)
Shareholders’ equity:
Common stock:
Authorized̆400,000,000 shares
Issued̆172,921,669 shares

30,08030,080258,705

Capital surplus

at February 28, 2005 and 2006

50,04350,044430,415

Retained earnings (Note 12)

130,979

137,922

1,186,230

Net revaluation loss of land (Notes 9 and 10)(2,353)(2,378)(20,446)

Net unrealized gains on available-for-sale securities (Note 3)

1,266

5,292

45,509Foreign currency translation adjustment

(556)

(687)

(5,909)209,459

220,273

1,894,504(7,082)(16,447)(141,456)

Less: Treasury stock, at cost, 5,690,756 shares and 10,726,258 sharesat February 28, 2005 and 2006, respectively
Total shareholders’ equity

202,377

203,826

1,753,048¥308,170¥329,403$2,833,090
U.S. dollars(Note 2. (18))

Yen

Per share (Note 14):
Net assets per share¥1,207.3¥1,253.5$10.8

Consolidated Statements of Income
ONWARD KASHIYAMA Co., Ltd. and Subsidiaries
For the years ended February 29, 2004 and February 28, 2005 and 2006

Thousands of
U.S. dollars(Note 2. (18))

Millions of yen

Net sales

2004

2005

2006

2006

¥267,746¥271,273¥283,111$2,434,941

Cost of sales

143,921

146,447

152,043

1,307,667

Gross profit

123,825

124,826

131,068

1,127,274

Selling, general and administrative expenses (Notes 2. (10) and 15)

100,929

100,621106,360

914,771

Operating income

22,89624,20524,708

212,503

149

131

122

1,052

Other income (expenses):
Interest income

(128)

(102)

(294)

(2,535)

Loss on disposal of property, net

Interest expenses(1,169)

(352)

(146)

(1,254)Gain on sale of investments in securities, net (Note 3. (1))

1,016

883

3

26

Loss on write-down of investments in securities

(15)

(112)

(11)

(92)

Royalty income

899

741

598

5,143

Loss on liquidation of subsidiaries and affiliates

(34)

(536)

̆

̆

Additional retirement payments(54)(1,554)̆̆

(2,744)

̆

(107)

(920)

̆

̆

(293)

(2,520)

(794)

(127)

676

5,814

10,471̆̆̆subsidiaries and affiliates(1,611)

(300)

(744)

(6,397)

Valuation losses on fixed assets(2,103)

̆

̆

̆

304

1,431

1,355

11,652

27,08324,30825,867

222,472

Current (Note 2. (10))

13,868

7,490

12,321

105,969

Deferred (Note 9)(2,466)

4,507

842

7,244

15,681

12,311

12,704109,259

Provision for allowance for bad debt
Provision for loss on guarantee obligations
Foreign currency exchange gain (loss)
Gain on the settlement of the substitutional portionof governmental pension fund (Note 2. (11))
Valuation losses on investments in unconsolidated

Other, net
Income before income taxes and minority interests
Income taxes:

Income before minority interests
Minority interests in subsidiaries
Net income(2,628)(2,054)(1,613)¥ 13,053¥ 10,257¥ 11,091(13,865)$

95,394

U.S. dollars(Note 2. (18))

Yen

Per share (Notes 2. (14),13 and 14):
Net incomĕBasic

¥74.1

¥58.1

¥63.8

$0.549Cash dividends

20.0

22.0

24.0

0.206

Diluted net income per share is not disclosed because there were no securities with dilutive effect.
The accompanying notes are an integral part of these statements.

Consolidated Statements of Shareholders’ Equity
ONWARD KASHIYAMA Co., Ltd. and Subsidiaries
For the years ended February 29, 2004 and February 28, 2005 and 2006
Millions of yen

Balance as at February 28, 2003:
Cash dividends
Directors’ bonuses
Gain on sales of treasury stock
Increase in treasury stock
Net income
Increase in net revaluation loss ofland due to statutory tax rate change
Reversal of reserve for land revaluation
Net unrealized gains onavailable-for-sale securities
Foreign currency translation adjustment
Issuance of new stock in exchange
for Oak Co., Ltd.’s stock
Balance as at February 29, 2004:
Cash dividends
Directors’ bonuses
Gain on sales of treasury stock
Increase in treasury stock
Exchange of treasury stock for
Chacott Co., Ltd.’s stock
Net income
Reversal of reserve for land revaluation
Net unrealized gains onavailable-for-sale securities
Foreign currency translation adjustment
Balance as at February 28, 2005:
Cash dividends
Directors’ bonuses
Gain on sales of treasury stock
Increase in treasury stock
Net income
Reversal of reserve for land revaluation
Net unrealized gains onavailable-for-sale securities
Foreign currency translation adjustment
Balance as at February 28, 2006

Net
revaluation
loss of land
(Notes 9
and 10)Net unrealized
gains (losses)
on available-forsale-securities(Note 3)¥(2,347)ʊʊʊʊʊ¥ (175)
ʊ
ʊ
ʊ
ʊ
ʊ

ʊ
(27)

(53)
27

ʊ
ʊ

ʊ
ʊ

ʊ
ʊ

ʊ
ʊ

ʊ
ʊ

ʊ
ʊ

982
ʊ

ʊ
10

ʊ
ʊ

ʊ
30,080ʊʊʊʊ

572
49,707ʊʊ
2
ʊʊ
124,575(3,356)
(477)
ʊ
ʊ

ʊ
(2,373)
ʊ
ʊ
ʊ
ʊ

ʊ
807
ʊ
ʊ
ʊ
ʊ

ʊ
(627)
ʊ
ʊ
ʊ
ʊ

ʊ
(5,373)ʊʊ
5(3,495)

ʊ
ʊ
ʊ

ʊ
ʊ
ʊ

334
ʊ
ʊ

ʊ
10,257
(20)

ʊ
ʊ
20

ʊ
ʊ
ʊ

ʊ
ʊ
ʊ

1,781
ʊ
ʊ

ʊ
ʊ
172,922
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ

ʊ
ʊ
30,080
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ

ʊ
ʊ
50,043
ʊ
ʊ
1
ʊ
ʊ
ʊ

ʊ
ʊ
130,979(3,679)(494)
ʊʊ
11,09125

ʊʊ
(2,353)
ʊ
ʊ
ʊ
ʊ
ʊ
(25)

459
ʊ
1,266
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ

ʊ
71
(556)
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ

ʊ
ʊ
(7,082)ʊʊ
4(9,369)ʊʊʊʊ
172,922ʊʊ
¥30,080ʊʊʊʊ
¥50,044 ¥137,922

ʊʊ
¥(2,378)

4,026
ʊ¥5,292ʊʊ
(131)
ʊ
¥(687) ¥(16,447)

Numberof sharesof commonstock(thousands)

Commonstock

172,293ʊʊʊʊʊ¥30,080
ʊ
ʊ
ʊ
ʊ
ʊ

ʊ
ʊ

ʊ
ʊ

ʊ
ʊ

ʊ
ʊ

ʊ
ʊ

629
172,922ʊʊʊʊCommonstock

Balance as at February 28, 2005:
Cash dividends
Directors’ bonuses
Gain on sales of treasury stock
Increase in treasury stock
Net income
Reversal of reserve for land revaluation
Net unrealized gains onavailable-for-sale securities
Foreign currency translation adjustment
Balance as at February 28, 2006
The accompanying notes are an integral part of these statements.

CapitalsurplusRetainedearnings(Note 12)¥49,135 ¥114,791
ʊ(2,841)
ʊ
(401)
0
ʊ
ʊ
ʊ
ʊ
13,053

CapitalsurplusThousands of U.S. dollars (Note 2. (18))
NetNet
unrealized gains
revaluation
on available-forloss of land
Retainedsale-securities(Notes 9
earnings(Note 3)and 10)(Note 12)

Foreigncurrencytranslation
adjustment

Treasurystock¥(637) ¥
(92)
ʊ
ʊ
ʊ
ʊ
ʊ
2
ʊ
(5,283)ʊʊForeigncurrencytranslation
adjustment

Treasurystock$258,705 $430,407 $1,126,511 $(20,230) $10,881
ʊʊ (31,642)
ʊʊʊʊ
(4,249)
ʊ
ʊ
ʊ
8
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
95,394
ʊ
ʊ
ʊ
ʊ
216
(216)
ʊ

$(4,782) $(60,916)
ʊ
ʊ
ʊ
ʊ
ʊ
31
ʊ (80,571)
ʊ
ʊ
ʊ
ʊ

ʊ
ʊ
ʊ
ʊ
34,628ʊʊʊʊʊ
$258,705 $430,415 $1,186,230 $(20,446) $45,509

ʊʊ
(1,127)
ʊ$(5,909) $(141,456)

Notes to Consolidated Financial Statements
ONWARD KASHIYAMA Co., Ltd. and Subsidiaries

1. Basis of Presentation of the Consolidated Financial Statements
The accompanying consolidated financial statements have been prepared from the accounts maintained by ONWARD KASHIYAMA
Co., Ltd. (the “Company”), and its consolidated subsidiaries in accordance with the provisions set forth in the Commercial Code ofJapan (the “Code”) and the Securities and Exchange Law and in conformity with accounting principles and practices generally
accepted in Japan, which are different in certain respects from the application and disclosure requirements of International Financial
Reporting Standards.
Certain items presented in the consolidated financial statements submitted to the Director of the Kanto Finance Bureau in Japan
have been reclassified for the convenience of readers outside Japan.
The accompanying consolidated financial statements are not intended to present the consolidated financial position, results ofoperations and cash flows of the Company and its consolidated subsidiaries in accordance with accounting principles and practices
generally accepted in countries and jurisdictions other than Japan.
2. Summary of Significant Accounting Policies(1) Scope of Consolidation
The Company had 67 subsidiaries as at February 28, 2006 (42 as at February 28, 2005, 47 as at February 29, 2004). The
accompanying consolidated financial statements include the accounts of the Company and 36 subsidiaries (16 for 2005, 17 for 2004).
The 36 subsidiaries which have been consolidated with the Company are listed below (the Company and these consolidated
subsidiaries are together referred to as the “Companies”):
Name of subsidiary

Impact 21 Co., Ltd.
Onward Life Design Network Co., Ltd.
Freed of London Ltd.
O & K Co., Ltd.
Onward Beach Resort Co., Ltd.
Donna Karan Japan K.K.
Onward Creative Center Co., Ltd.
Excel Co., Ltd.
Across Transport Co., Ltd.
Onward Marine Co., Ltd.
Personal Order Japan Co., Ltd.
Onward Beach Resort Guam, Inc.
Bus Stop Co., Ltd.
Oak Co., Ltd.
Chacott Co., Ltd.
BOOKLET CORP.
Project Sloane Ltd.
Joseph Ltd.
Joseph Tricot Ltd.
Joseph at Old Bond Street Ltd.
Joseph at Wimbledon Ltd.
Joseph London EURL
Joseph Tricot Cannes SARL
Joseph E France SARL
Joseph Production EURLSCI Joseph
Joseph UK Inc.(New York)
Joseph at Richmond Ltd.
Joseph at Notting Hill Ltd.
Joseph at Brooks Street Ltd.
Joseph Eyewear Ltd.
Joe’s Cafes Ltd.
Lynxmead Inc.
Bridge UK Inc.
Medtown Ltd.
Joblin Ltd.

Equity ownership percentage

Closing date

41.0%
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
51.0
51.0
100.0
100.0
65.0
100.0
65.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
51.0
51.0

February 28
February 28
December 31
February 28
December 31
December 31
February 28
February 28
February 28
February 28
February 28
December 31
February 28
February 28
February 28
February 28
November 30
November 30
November 30
November 30
November 30
November 30
November 30
November 30
November 30
November 30
November 30
November 30
November 30
November 30
November 30
November 30
November 30
November 30
November 30
November 30

All shares of Project Sloane Ltd. were acquired on May 16, 2005 and Joseph group including Project Sloane Ltd. and its twenty
subsidiaries became consolidated subsidiaries of the Company.

Effective from February 28, 2005, On Business Trend Co., Ltd. was excluded from consolidation, as the company was liquidated
on February 14, 2005.
By an exchange of stock, Chacott Co., Ltd. became a 100% owned subsidiary on March 1, 2004. Chacott Co., Ltd. has reduced its
common stock to ¥400 million on July 1, 2004.
The financial statements of Donna Karan Japan K.K., Onward Beach Resort Co., Ltd., Onward Beach Resort Guam, Inc. andFreed of London Ltd., which have a fiscal year-end of December 31, and Twenty Joseph Group companies, which have a fiscal
year-end of November 30, have been used for consolidation.
Significant transactions between December 1 and February 28, and January 1 and February 28 are reflected in the consolidated
financial statements.
The remaining 31 subsidiaries (26 for 2005 and 30 for 2004) were not consolidated because their combined assets, net sales, net
income and retained earnings in the aggregate were not material compared with those of the consolidated financial statements of theCompanies.
(2) Consolidation and Elimination
For the purposes of preparing the consolidated financial statements of the Companies, all significant intercompany transactions,account balances and unrealized profits among the Companies have been entirely eliminated, and the portion attributable to minority
interests is credited/charged thereto.
The assets and liabilities of consolidated subsidiaries are incorporated into the financial statements at fair value at the time ofacquisition, and the differences between the cost of investments in consolidated subsidiaries and the equity in their net assets at
dates of acquisition are amortized as goodwill equally over 5-year or 20-year periods. The Company started to amortize the goodwill
by the acquisition of Project Sloane Ltd. from the second half of this year due to its fiscal year-end is November 30 and the estimatedacquisition date was May 30, 2005.
(3) Investments in Unconsolidated Subsidiaries and Affiliates
Although the Company had 31 unconsolidated subsidiaries (26 in 2005 and 30 in 2004) and 6 affiliates (5 in 2005 and 2004) as at
February 28, 2006, the equity method was not applied to any of those subsidiaries and affiliates except for Polo Ralph Lauren Japan
Co., Ltd. and Gailyglen Ltd. These were because investment in the unconsolidated subsidiaries and affiliates would not have had amaterial effect on the stocks of consolidated financial statements and net income of consolidated financial statements.
Since the Company acquired shares of Project Sloane Ltd. in this fiscal year, the Company applied the equity method to Gailyglen
Ltd., an affiliate of Project Sloane Ltd. Although the fiscal year-end of Gailyglen Ltd. is November 30, the Company applied the equity
method by using the financial statement of Gailyglen Ltd. as of November 30.
(4) Inventories
Inventories are stated at cost, cost being determined generally by the last purchase invoice price method. Merchandise and finishedgoods held at retail stores is valued at the retail cost method.
When the net realizable value of certain classes of inventories (consisting primarily of seasonal merchandise which remains unsold
after the end of such seasons) is substantially less than the carrying value (cost), and the decline of value is not expected to be
recovered in the near future, appropriate write-downs are recorded on such inventory items. The amount of write-down is determinedbased on the experience of sales of merchandise similar to those unsold items during three years. At February 28, 2005 and 2006,
the recorded write-downs were ¥10,489 million and ¥9,423 million ($81,044 thousand), respectively.
(5) Investments in Securities
Debt securities and equity securities classified as available for sale (“other securities”) whose fair values are readily determinable arecarried at fair values prevailing at the fiscal year-end date with unrealized gains or losses included as a component of shareholders’equity, net of applicable taxes.
Other securities whose fair values cannot readily be determined are stated principally at cost. In cases where declines in fairvalues of individual securities are assessed to be other than temporary, the cost of the security is reduced to net realizable value andthe loss is charged to income. Realized gains and losses are determined using the moving-average method and are reflected inincome.

Investments in unconsolidated subsidiaries and affiliates are stated at cost determined by the moving-average method.
(6) Derivative Transactions
All derivatives are stated at fair value, and changes in fair value are included in income for the period in which they arise, except forderivatives that are designated as “hedging instruments” (see (7) Hedge Accounting below).
(7) Hedge Accounting
All gains or losses arising from changes in fair values of the derivatives designated as “hedging instruments” are deferred as assets
or liabilities and included in net profit or loss in the same period during which the gains and losses on the hedged items or transactions are recognized. For foreign exchange forward contracts, if they meet conditions for hedge accounting, the difference between
the contract rate and spot rate at the date of the contract is recognized over the period from the contract date to the settlement date.
The derivatives designated as hedging instruments by the Company are principally foreign exchange forward contracts. The
related hedged items are trade accounts payable and trade accounts receivable denominated in foreign currencies and scheduledtransactions.
The Company has a policy to utilize hedging instruments in order to reduce the exposure to the risk of foreign currency exchange
rate fluctuation.
(8) Property, Plant and Equipment
The Company and its domestic consolidated subsidiaries adopt a declining-balance method and overseas consolidated subsidiaries
adopt a straight-line method respectively for depreciation.
Depreciation for domestic companies is computed using the declining-balance method at rates based on the estimated useful livesof assets which are prescribed by Japanese income tax regulations except for certain buildings.
The domestic companies compute depreciation expense for buildings (other than improvements) acquired on and after April 1998
by the straight-line method pursuant to an amendment to the Japanese income tax law.
(9) Amortization
Intangible assets and long-term prepaid expenses are amortized on a straight-line method.
Software costs for internal use are amortized over their expected useful lives (five years) by the straight-line method.
(10) Income Taxes
The income taxes of the Company and its domestic consolidated subsidiaries consist of corporate income tax, local inhabitant taxes
and enterprise taxes.
Presentation of External Standard Taxation Portion in the Corporate Business Tax on the Income Statement
Since “Law for the Partial Revision of Local Tax, etc. (No. 9, 2003)” was announced on March 31, 2003, the rule of the external
standard taxation has been applied from fiscal years commencing on and after April 1, 2004. Subsequently, the added value portionand capital portion of corporate business tax have been recorded in selling, general and administrative expenses, respectively, fromthis point in accordance with “Practical Treatment of the Disclosure of External Standard Taxation Portion in the Corporate BusinessTax on the Profit and Loss Statement (February 13, 2004, Accounting Standards Board of Japan, Business Related Report No. 12).”
As a result, selling general and administrative expenses increased by ¥559 million ($4,804 thousand), while operating income andincome before income taxes and minority interests decreased by ¥559 million ($4,804 thousand) for the year ended February 28, 2006.
(11) Allowances
An allowance for bad debt is provided for estimated losses on known bad debt and doubtful accounts at the balance sheet date.
Accrued bonuses to employees are provided for at an amount determined based on the estimated bonuses to employees whichwere incurred at the balance sheet date.
An allowance for sales returns is provided for the estimated losses on sales returns calculated under the Japanese tax regulations.
Accrued retirement benefits are provided for at the present value of the projected benefit obligation less the estimated fair value ofplan assets and deferred gains or losses at the balance sheet date.
Unrecognized prior service costs are amortized and charged/credited to income on a straight-line basis over 5 to 10 years, which
is within the related employees’ average remaining service years. Unrecognized actuarial differences are amortized on a straight-linebasis over 5 to 10 years, which is within the related employees’ average remaining service years from the year following the one inwhich they arise.
Following the enactment of the Defined Benefit Corporate Pension Plan Law in Japan, on September 25, 2003, the Company andcertain consolidated subsidiaries obtained approval from Japan’s Ministry of Health, Labour and Welfare for exemption from thefuture benefit obligation with respect to the portion of the Employee Pension Fund that the Company and certain consolidated
subsidiaries operate on behalf of the Government (the so-called substitutional portion). The Company and the subsidiaries appliedtransitional provisions as prescribed in paragraph 47-2 of the “Practical Guidelines of Accounting for Retirement Benefits (Interim
Report)” (Accounting Committee Report No. 13 issued by the Japanese Institute of Certified Public Accountants) and recognized again in the amount of ¥10,471 million for the settlement of the substitutional portion at the date of approval from Japan’s Ministry of
Health, Labour and Welfare. The amount of plan assets to be transferred to the Government was computed at ¥21,743 million as ofFebruary 29, 2004.
Accrued retirement benefits for directors and statutory auditors are provided for at the amount required at the balance sheet dates
in accordance with the internal rules of the Company and certain consolidated subsidiaries.
While these companies have no legal obligation, it is the customary practice in Japan to make lump-sum payments to a director ora statutory auditor upon retirement under the approval of the general meeting of shareholders.
The provision for loss on guarantee obligations was provided in case the Company is obliged to pay for the guaranteedsubsidiaries. In estimating the provision the Company considers the financial condition of each subsidiary.
(12) Accounting for Leases
For the Company and its domestic consolidated subsidiaries, finance leases other than those which are deemed to transfer theownership of the lease assets to lessees are accounted for by a method similar to that applicable to ordinary operating leases.
(13) Accounting for Consumption Tax
The consumption tax withheld upon sale and the consumption tax paid by the Companies on the purchase of goods and services are
not included in the accompanying consolidated statements of income.
(14) Cash dividends
Under the resolution of the general meeting of shareholders held on May 25, 2006, the Board of Directors declared a cash dividendof ¥3,893 million ($33,480 thousand), or ¥24.0 ($0.206) per share, which was applicable to earnings of the year ended February 28,
2006 and payable to shareholders on the register on February 28, 2006.
(15) Cash and Cash Equivalents
Cash and cash equivalents in the consolidated statement of cash flows are composed of cash on hand, bank deposits which can bewithdrawn on demand, and short-term investments which are readily convertible into cash or with an original maturity of three months
or less, which represent insignificant risk of changes in value.
(16) Accounting Standard for Impairment of Fixed Assets
On August 9, 2002, the Business Accounting Council in Japan issued “Accounting Standard for Impairment of Fixed Assets.”
The standard requires that fixed assets be reviewed for impairment whenever events or changes in circumstances indicate that thecarrying amount of an asset may not be recoverable. An impairment loss shall be recognized in the income statement by reducing
the carrying amount of impaired assets or a group of assets to the recoverable amount to be measured as the higher of net selling
price or value in use.
The standard shall be effective for fiscal years beginning April 1, 2005. However, an earlier adoption is permitted for fiscal years
beginning April 1, 2004, and for fiscal years ending between March 31, 2004 and March 30, 2005.
The Company has not yet applied this new standard nor has determined the effect of applying it on the company’s consolidated
financial statements.
(17) Reclassification of Accounts
Certain prior year amounts have been reclassified to conform with the current year’s presentation.

(18) United States Dollar Amounts
Amounts in U.S. dollars are included solely for the convenience of readers outside of Japan. The rate of ¥116.27=US$1, the rate ofexchange as of February 28, 2006, has been used in translation. The inclusion of such amounts is not intended to imply thatJapanese yen have been or could be readily converted, realized or settled in U.S. dollars at that rate or any other rate.
3. Investments in Securities(1) Information as of and for the Year Ended February 28, 2006(a) Available-for-sale securities (other securities) with fair value:
Investments in securities whose fair values were available at February 28, 2006, are analyzed as follows:
Millions of yen
Acquisition
cost

Fair value(Carrying value)¥16,649
16,649Thousands of U.S. dollars
Difference

Acquisition
cost

Fair value(Carrying value)

Difference¥25,668¥9,019$143,191$220,763$77,572

25,6689,019

143,191

220,763

77,572

1,004

967

(37)

8,636

8,316

(320)

1,004

967

(37)

8,636

8,316

(320)

¥17,653¥26,635¥8,982$151,827$229,079$77,252

Securities with unrealized gains:
Equity securities
Total
Securities with unrealized losses:
Equity securities
Total
Total

(b) Other securities sold during the year ended February 28, 2006:
Millions of yen

Thousands of
U.S. dollars¥312$2,658Gross realized gain on sale of other securities

3

26

Gross realized loss on sale of other securities

̆̆

Proceeds from sale of other securities(c) Major securities which were not stated at fair value as of February 28, 2006:
Millions of yen

Thousands of
U.S. dollars¥ 2,886$24,825

Other securities:
Non-listed equity securities
Investments in equity securities of unconsolidated subsidiaries and affiliates
Total

7,909

68,025¥10,795$92,850

(2) Information as of and for the Year Ended February 28, 2005(a) Available-for-sale securities (other securities) with fair value:
Investments in securities whose fair values were available at February 28, 2005, are analyzed as follows:
Millions of yen
Acquisition
cost

Fair value(Carrying value)

Difference¥5,738¥7,902¥2,164

5,738

7,902

2,164

Securities with unrealized gains:
Equity securities
Total
Securities with unrealized losses:
Equity securities
Total
Total

217

211

(6)

217

211

(6)

¥5,955¥8,113¥2,158(b) Other securities sold during the year ended February 28, 2005:
Millions of yen

Proceeds from sale of other securities¥1,541Gross realized gain on sale of other securities

883

Gross realized loss on sale of other securities

̆(c) Major securities which were not stated at fair value as of February 28, 2005:
Millions of yen

Other securities:
Non-listed equity securities¥3,208Investments in equity securities of unconsolidated subsidiaries and affiliates

6,568

Total

9,776

4. Derivative Transactions
Derivatives are used in order to hedge foreign exchange market risk on the transactions and balances which occur in the normal
course of business. Derivatives are not used for speculative purposes or for highly leveraged transactions. Derivatives are executedwith creditworthy financial institutions, and the Company does not anticipate significant losses due to the nature of its counterparties.
The Company and its consolidated subsidiaries applied hedge accounting for all derivative transactions as of February 28, 2005
and 2006, therefore, no market value information is disclosed.
5. Property, Plant and Equipment
The Japanese tax regulations allow a company to defer capital gains on the sale of real property if the company intends to offset
such gains against the cost of newly acquired fixed assets. When such accounting is followed, the cost of the new fixed assets is
reduced to the extent of the deferred capital gains, thereby affecting related depreciation charges and accumulated depreciation.
Property, plant and equipment at February 28, 2005 and 2006, were reduced by ¥8,573 million and ¥8,493 million ($73,049
thousand), respectively, representing accumulated deferred gains from eligible prior sales.

6. Retirement Plan and Retirement Benefits
The Company and its subsidiaries have defined benefit retirement plans covering substantially all employees. Defined benefit
retirement plans include a plan which is governed by the regulations of the Japanese Welfare Pension Insurance Law (“welfare
benefit plan”), tax qualified pension plans and plans for lump-sum retirement benefits.
The reserve for retirement benefits as of February 28, 2005 and 2006, is analyzed as follows:
Thousands of
U.S. dollars

Millions of yen
2005

2006

2006

¥(34,942)¥(36,456)$(313,546)

Plan assets (including employee retirement benefit fund)40,26658,067499,417

Funded status

5,324

21,611

185,871

Unrecognized prior service costs

(231)

(188)

(1,621)

Unrecognized actuarial differences

652

1,010

8,690

Unrecognized pension assets

̆(16,635)(143,070)

5,745

5,798

49,870

7,833

8,178

70,341¥ (2,088)¥ (2,380)$ (20,471)

Projected benefit obligations

Subtotal
Prepaid pension costAccrued retirement benefits

The net pension expense for the year ended February 28, 2005 and 2006, was as follows:
Thousands of
U.S. dollars

Millions of yen

Service cost

2005

2006

2006

¥1,376¥1,413$12,153

Interest cost

643

641

5,511

Expected return on plan assets

(382)

(437)

(3,760)

Amortization of unrecognized prior service costs

(41)

(43)

(366)

Amortization of unrecognized actuarial differences

548

349

2,998

¥2,144¥1,923$16,536

Net pension expense

Assumptions used in the calculation of the aforementioned information were as follows:
Method of attributing the projected benefits to periods of service
Discount rate
Expected rate of return on plan assets

As of February 28, 2005

As of February 28, 2006

Straight-line basis

Straight-line basis

2.0%

2.0%

0.8㨪2.0㧑

0.7㨪2.0%

Amortization of unrecognized prior service costs

5㨪10 years

5㨪10 years

Amortization of unrecognized actuarial differences

5㨪10 years

5㨪10 years

7. Notes to Consolidated Statements of Cash Flows(1) Cash and cash equivalents at February 28, 2005 and 2006, consisted of the following:Thousands of
U.S. dollars

Millions of yen

Cash and time deposits
Time deposits with maturities of more than three months
Cash and cash equivalents

2005

2006

2006

¥81,821¥56,136$482,810

(278)

(78)

(671)

¥81,543¥56,058$482,139(2) Payment for acquisition of consolidated subsidiaries with change within the scope of consolidation
For the year ended February 28, 2006, due to the acquisition of shares of Project Sloane Ltd., Joseph group including Project Sloane
Ltd. and it’s twenty subsidiaries are newly consolidated. The assets and liabilities of these companies at the time of initialconsolidation, additional acquisition, cash and cash equivalents held by consolidated subsidiaries, and net payment for acquisition of
consolidated subsidiaries were as follows:
Millions of yen

Thousands of
U.S. dollars

Current assets¥ 3,658$ 31,458

Fixed assets

2,870

24,684

Goodwill on consolidation

24,778213,108

Current liabilities(13,372)(115,005)

Long-term liabilities(788)(6,774)

Minority interests in consolidated subsidiaries

(73)

(629)

17,073

146,842

Cash paid for acquisition of consolidated subsidiaries
Cash and cash equivalents held by consolidated subsidiaries
Payment for acquisition of consolidated subsidiaries(187)(1,613)¥16,886$145,229

Lease income for the year and the depreciation of the lease assets as of February 28, 2005 and 2006, are as follows:
Thousands of
U.S. dollars

Millions of yen
2005

2006

2006

Lease income for the year

¥18

¥20

$170

Depreciation

19

17

146

9. Income Taxes
Deferred income taxes assets and liabilities as at February 28, 2005 and 2006, consisted of the following elements:
Thousands of
U.S. dollars

Millions of yen
2005

2006

2006

Deferred income taxes assets:¥ 2,890¥ 2,553$ 21,959

Evaluation loss on investments in unconsolidated subsidiaries

1,939

1,749

15,043

Excess amount of tax-deductible accrued bonuses to employees

1,061

1,213

10,428

Excess amount of tax-deductible accrued employees’ retirement benefits

6,626

6,819

58,650

730

765

6,583

7,325

5,921

50,924

Valuation loss on inventories

Accrued retirement benefits for directors and corporate auditors
Tax loss carryforwards
Other
Subtotal
Valuation allowance
Total deferred income taxes assets

2,273

2,598

22,347

22,844

21,618

185,934(8,550)(8,173)(70,295)

14,294

13,445

115,639

Deferred income taxes liabilities:(3,474)(3,474)(29,878)

Net unrealized gains on available-for-sale securities(880)(3,655)(31,441)

Provision for deferred capital gains on real property

(23)

(22)

(193)

Other

(34)

(24)

(204)

Gain on securities contributed to an employee retirement benefit trust

Total deferred income taxes liabilities(4,411)(7,175)(61,716)

Net deferred income taxes assets¥ 9,883¥ 6,270$ 53,923

The reconciliation of the difference between the statutory tax rate and the effective tax rate for the year ended February 28, 2006,
is as follows:%
Statutory tax rate

40.7%

Reconciliation:
Nondeductible items (entertainment expenses, etc.)

2.0

Losses of consolidated subsidiaries to which deferred income taxes assets are not recognized

1.9

Change in valuation allowance

5.1

Other
Effective tax rate

1.2
50.9%

The reconciliation of the difference between the statutory tax rate and the effective tax rate for the year ended February 28, 2005,
is as follows:%
Statutory tax rate

42.0%

Reconciliation:
Nondeductible items (entertainment expenses, etc.)

1.7

Losses of consolidated subsidiaries to which deferred income taxes assets are not recognized

2.3

Deduction of deferred tax assets caused by changing of tax rate

0.6

Unrealized gains by exchange of stock (Chacott Co., Ltd. became a 100% owned subsidiary)

5.4

Other

(2.6)

Effective tax rate

49.4%

10. Revaluation of LandIn the year ended February 28, 2002, the Company revaluated land for its business use at a market value as a result of theapplication of the law, which permits a one-time revaluation of land for business use.
In the year ended February 28, 2006, the revaluation loss amounted to ¥4,008 million ($34,462 thousand), the related deferred tax
asset recognized is ¥1,630 million ($14,016 thousand) and the net revaluation loss of ¥2,378 million ($20,446 thousand) is presented
as a separate component of shareholders’ equity as a “net revaluation loss of land.”The difference between the market value of land subject to the revaluation and the book value was ¥7,929 million ($68,198
thousand) as at February 28, 2006.
11. Commitments and Contingent Liabilities
The Company was contingently liable as a guarantor for certain affiliates’ bank loans. The outstanding balance guaranteed as at
February 28, 2005 and 2006, aggregated ¥2,733 million and ¥2,192 million ($18,857 thousand), respectively.
12. Legal Reserve and Appropriation of Retained Earnings
Under the Commercial Code of Japan and the Company’s Articles of Incorporation, a proposal for the appropriation of retained
earnings must be submitted by the Board of Directors to the shareholders’ meeting held within three months following the fiscal
year-end for shareholders’ approval.
The appropriation of retained earnings reflected in the accompanying consolidated statements of income represents the result ofsuch an appropriation applicable to the preceding fiscal period.
Under Japanese accounting practices, bonuses to directors and statutory auditors are paid out of retained earnings instead ofbeing charged to income of the year and constitute a part of the appropriation explained above.
The Commercial Code of Japan requires that an amount equal to at least 10% of any payment by way of appropriation of retained
earnings be set aside as a legal reserve until the total additional paid-in capital and a legal reserve equals 25% of paid-in capital.
Additional paid-in capital and/or a legal reserve in excess of 25% of stated capital in total may be reduced by resolution of theshareholders.
13. Subsequent Events(1) Subsequent to February 28, 2006, the Company’s Board of Directors proposed a plan for the appropriation of retained earnings
applicable to the year ended February 28, 2006, which was approved at the general meeting of shareholders held on May 25, 2006.
The approved appropriations of retained earnings is shown below:
Millions of yen

Thousands of
U.S. dollars

Reversal of a reserve for deferred capital gains on real property
Appropriations:
Cash dividends (¥24.0 per share)
Directors’ bonuses¥  0$(3,893)(33,480)(450)(3,870)5

Arbitrary reserves:
General reserve(6,000)(51,604)¥10,343$(88,949)(2) The Company concluded a business alliance agreement with Daido Limited on December 7, 2004, and built friendly capitalbusiness alliance relations, but the Company strengthened each other's cooperation more, as a part of a further alliance effectpursuit such as reinforcement of business and development/attemptability of sales, merchandise and joint ownership of the
production system agreed the business and the capital alliance that assumed the following a purpose on May 12, 2006.

(a) The Company dispatched the adviser Takaharu Torikoshi to Daido Limited as Special Counsel on May 15, 2006 and he waselected as a director in the ordinary general meeting of stockholders of Daido Limited on June 29, 2006 and is decided topresident formally in the Board of Directors of Daido Limited scheduled on the same day.
Led by Takaharu Torikoshi, president of Daido Limited, the Company will strengthen partnership and will examine thepossibility of tie-ups in various fields in the future.
(b) The Company now holds about 8% of the issued shares of total number of Daido Limited, and Daido Limited now holds about
1% of the issued shares of total number of the Company. The Company is planning to hold more than 15% of the issued sharesof total number of Daido Limited in the future.
14. Net Assets, Net IncomĕBasic and Cash Dividends per Share
Net income per share of common stock is computed based upon the weighted-average number of shares of common stock
outstanding during each year. Cash dividends per share shown for each year in the accompanying consolidated statements ofincome represent dividends declared as applicable to the respective years rather than those paid during the years.
The basis for the calculation of net incomĕbasic per share for the years ended February 28, 2005 and 2006, is as follows:
Thousands of
U.S. dollars

Millions of yen

Net income

2006¥10,257¥11,0912006$95,394

(487)

(516)

(4,437)¥ 9,770¥10,575$90,957

168,160,781

165,790,111

Less: Components not pertaining to common shareholders̆Bonuses to directors and corporate auditors
Net income pertaining to common stock
Average outstanding shares of common stock (shares)

2005

15. Related Party Transaction
Year ended February 28, 2006
The Company leased land from Mr. Hirouchi, Chairman of Onward Kashiyama Co., Ltd., during the year and the rental fee was¥7 million ($62 thousand). At the same time, Mr. Hirouchi, Chairman of Onward Kashiyama Co., Ltd., paid a rental fee for a house to
the Company of ¥21 million ($181 thousand). The rental fees were determined by the market average amount.
Year ended February 28, 2005
The Company leased land from Mr. Hirouchi, Chairman of Onward Kashiyama Co., Ltd., during the year and the rental fee was¥5 million. At the same time, Mr. Hirouchi, Chairman of Onward Kashiyama Co., Ltd., paid a rental fee for a house to the Company of¥16 million. The rental fees were determined by the market average amount.
16. Segment Information(1) Industry Segment Information
The Company and its consolidated subsidiaries operate principally in two industrial segments, “Clothing” and “Other.”
The Clothing Division produces and sells a wide range of women’s and men’s clothing, including dresses, suits, shirts, skirts,
sweaters, trousers and casual wear.
The Other Division operates logistics, sports facilities, resort facilities, etc.
Segment information classified by industry segment of the Companies for the two years ended February 28, 2006, is as follows:
For the year ended February 28, 2006

Millions of yen
Industry segment

Sales to outside customers
Intersegment sales
Total

Clothing

Other

Total

¥268,968
18¥14,143
12,706¥283,111
12,724

268,986

26,849295,835

Costs and expenses

244,943

Operating income¥ 24,043¥

AssetsDepreciation and amortization
Capital expenditures

Elimination ofintersegment sales

Consolidated
totalʊ
(12,724)¥283,111(12,724)

283,111¥

26,210271,153639¥ 24,682¥¥308,170
6,320¥39,929
799

7,732

365

̆

(12,750)

258,40326¥ 24,708¥348,099
7,119¥ (18,696)(65)¥329,403
7,054

8,097

(44)

8,053

Thousands of
U.S. dollars(Note 2. (14))

Millions of yen

LIABILITIES AND SHAREHOLDERS’ EQUITY

2005

2006

2006

¥ 26,412¥ 13,971

6,942

21,777

187,295

Current liabilities:
Accounts and notes payable:
Notes
Accounts$

120,161

33,35435,748

307,456

Non-trade payables

1,917

2,586

22,243

Accrued expenses

5,136

5,247

45,131

Accrued income taxes

̆

7,134

61,357

Consumption tax payable

997

777

6,678

1,810

2,254

19,386

Allowance for sales returns

875

869

7,474

Other current liabilities

414

372

3,195

44,50354,987472,920

Accrued bonuses to employees

Total current liabilities
Long-term liabilities:

294

390

3,357

Accrued retirement benefits for directors and statutory auditors

Accrued retirement benefits

1,463

1,591

13,684

Provision for loss on guarantee obligations

1,800

2,493

21,441Long-term guarantee money deposited

2,307

2,543

21,870Total long-term liabilities
Total liabilities

5,864

7,017

60,35250,36762,004533,272

Commitments and contingent liabilities (Note 10)
Shareholders’ equity:
Common stock:
Authorized̆400,000,000 shares
Issued̆172,921,669 shares
30,08030,080258,705

Capital surplus

at February 28, 2005 and 2006

51,55251,553443,389

Legal reserve (Note 11)

5,483

5,483

47,153102,209108,709934,970

General reserve

33

33

287

Retained earnings (Note 11)

Special reserve

14,681

14,860127,810

Net revaluation loss of land (Note 6)(2,353)(2,378)(20,446)

Net unrealized gains on available-for-sale securities

1,092

5,041

43,358(8,207)(17,571)(151,124)

Less: Treasury stock, at cost, 5,690,756 shares and 10,726,258 sharesat February 28, 2005 and 2006, respectively
Total shareholders’ equity
Total liabilities and shareholders’ equity

194,570

195,810

1,684,102¥ 244,937¥ 257,814$ 2,217,374

Yen

Per share:
Net assets per share (Note 13)¥ 1,161.0¥ 1,204.5

U.S. dollars(Note 2. (14))$10.4

Non-Consolidated Statements of Income and Retained Earnings
ONWARD KASHIYAMA Co., Ltd.
For the years ended February 29, 2004 and February 28, 2005 and 2006

Thousands of
U.S. dollars(Note 2. (14))

Millions of yen

Net sales
Cost of sales

2004

2005

2006

2006

¥ 184,914
96,782
88,132¥ 197,230
105,161
92,069¥ 203,539
106,999
96,540$ 1,750,572
920,262
830,310147
88,27970,416
17,863265
92,33474,34917,985

6
96,546
77,74418,802

52
830,362
668,653
161,709

409
(86)
(15)
467
(4,750)(2,744)
̆
1,123
1,016

674
(286)
(112)
420
(536)
̆
(1,800)
1,058
883

1,347
(90)
(11)
377
̆
(508)
(693)
1,209
̆

11,582
(776)
(92)
3,242
̆
(4,369)(5,960)10,400
̆

8,616
̆
(3,756)280
18,143

̆
37
325
663
18,648

̆
37
(632)
1,036
19,838̆
323(5,438)
8,912
170,621

10,522(2,582)
7,940
10,203

4,847
3,153
8,000
10,648

9,063
21
9,084
10,754

77,945
183
78,12892,493

10,342

13,83014,681

126,263

1
(27)

1
(20)

0
25

6
216

(2,841)(348)(3,356)(421)(3,679)(421)(31,643)(3,621)

̆(3,500)(6,689)¥ 13,830(1)(6,000)(9,778)¥ 14,681

̆
(6,500)(10,575)¥ 14,860

̆
(55,904)(90,946)$ 127,810

Reversal of allowance for sales returns, net (Note 2. (8))
Gross profit
Selling, general and administrative expenses (Notes 2. (7) and 2. (8))
Operating income
Other income (expenses):
Interest and dividend income
Loss on disposal of property, net
Loss on write-down of investments in securities
Royalty income
Loss on liquidation of subsidiaries and affiliates
Provision for allowance for bad debt
Provision for loss on guarantee obligations
Rents received
Gain on sale of investments in securities, net
Gain on the settlement of the substitutional potion of
governmental pension fund (Note 2. (8))
Reversal of allowance for bad debt
Other, net
Income before income taxes
Income taxes (Notes 2. (7) and 9):
Current
Deferred
Net income
Retained earnings:
Balance at beginning of year
Reversal of reserve for deferred capital gains on property
due to adoption of deferred tax accounting
Reversal of reserve for land revaluation
Appropriations (Note 11):
Cash dividends
Directors’ bonuses
Reserve for deferred capital gains on property
due to adoption of deferred tax accounting
Transfer to general reserve
Balance at end of year

U.S. dollars(Note 2. (14))

Yen

Per share (Notes 2. (11), 12 and 13):
Net incomĕBasic
Cash dividends
Diluted net income per share is not disclosed because there were no securities with dilutive effect.
The accompanying notes are an integral part of these financial statements.

¥57.6
20.0

¥60.49
22.0

¥62.2
24.0

$0.5350.206

Non-Consolidated Statements of Shareholders’ Equity
ONWARD KASHIYAMA Co., Ltd.
For the years ended February 29, 2004 and February 28, 2005 and 2006

Balance as at February 28, 2003:
Reversal of reserve for deferred
capital gains on property
Increase in net revaluation loss of land
due to statutory tax rate change
Reversal of reserve for land revaluation
Cash dividends
Directors’ bonuses
Transfer to general reserve
Net income
Net unrealized gains on available-for-sale securities
Issuance of new stock in exchange
for Oak Co., Ltd.’s stock
Gain on sales of treasury stock
Increase in treasury stock
Balance as at February 29, 2004:
Reversal of reserve for deferred
capital gains on property
Reversal of reserve for land revaluation
Cash dividends
Directors’ bonuses
Reserve for deferred capital gains on property
due to adoption of deferred tax accounting
Transfer to general reserve
Net income
Net unrealized gains on available-for-sale securities
Exchange of treasury stock
for Chacott Co., Ltd.’s stock
Gain on sales of treasury stock
Increase in treasury stock
Balance as at February 28, 2005:
Reversal of reserve for deferred
capital gains on property
Reversal of reserve for land revaluation
Cash dividends
Directors’ bonuses
Transfer to general reserve
Net income
Net unrealized gains on available-for-sale securities
Gain on sales of treasury stock
Increase in treasury stock
Balance as at February 28, 2006

Millions of yen

Number ofshares ofcommonstock(thousands)

Commonstock

CapitalsurplusLegalreserve(Note 11)

172,293¥30,080¥49,135¥5,483 ¥ 92,709

ʊ

ʊ

ʊ

ʊ

ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ

ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ

ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ

629
ʊ
ʊ
172,922ʊʊʊ
30,080ʊʊʊʊRetainedearnings(Note 11)Net
Net unrealized
revaluation gains (losses)
loss of land on available-for(Note 6)
sale-securities

Treasury
stock

¥34

¥10,342¥(2,347)¥ (173)¥   (92)

ʊ

(1)

1

ʊ

ʊ

ʊ

ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ

ʊ
ʊ
ʊ
ʊ
3,500
ʊ
ʊ

ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ

ʊ
(27)
(2,841)(348)(3,500)
10,203
ʊ

(53)
27
ʊ
ʊ
ʊ
ʊ
ʊ

ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
938

ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ

1,480
0
ʊ
50,615

ʊ
ʊ
ʊ
5,483

ʊ
ʊ
ʊ
96,209

ʊ
ʊ
ʊ
33

ʊ
ʊ
ʊ
13,830ʊʊʊ
(2,373)

ʊ
ʊ
ʊ
765

ʊ
2
(5,283)(5,373)

ʊ
ʊ
ʊ
ʊ

ʊ
ʊ
ʊ
ʊ

ʊ
ʊ
ʊ
ʊ

ʊ
ʊ
ʊ
ʊ

(1)
ʊ
ʊ
ʊ

1
(20)
(3,356)
(421)

ʊ
20
ʊ
ʊ

ʊ
ʊ
ʊ
ʊ

ʊ
ʊ
ʊ
ʊ

ʊ
ʊ
ʊ
ʊ

ʊ
ʊ
ʊ
ʊ

ʊ
ʊ
ʊ
ʊ

ʊ
ʊ
ʊ
ʊ

ʊ
6,000
ʊ
ʊ

1
ʊ
ʊ
ʊ

(1)
(6,000)10,648
ʊ

ʊ
ʊ
ʊ
ʊ

ʊ
ʊ
ʊ
327

ʊ
ʊ
ʊ
ʊ

ʊ
ʊ
ʊ
172,922ʊʊʊ
30,080936
1
ʊ
51,552

ʊ
ʊ
ʊ
5,483

ʊ
ʊ
ʊ
102,209

ʊ
ʊ
ʊ
33

ʊ
ʊ
ʊ
14,681ʊʊʊ
(2,353)

ʊ
ʊ
ʊ
1,092

4,164
5
(7,003)(8,207)

ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
172,922

ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
¥30,080

ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
1
ʊ
¥51,553

ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
6,500
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
¥5,483 ¥108,709

(0)
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
¥33

0
25
(3,679)(421)(6,500)10,754ʊʊʊ
¥14,860

ʊ
(25)
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
¥(2,378)

ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
3,949
ʊ
ʊ
¥5,041

ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
4
(9,364)¥(17,571)

CapitalsurplusLegalreserve(Note 11)Retainedearnings(Note 11)Net
revaluation
loss of land
(Note 6)

Net unrealized
gains onavailable-forsale-securities

Treasurystock

Generalreserve

SpecialreserveThousand of U.S.Dollars (Note 2. (14))

Commonstock

Balance as at February 28, 2005:
Reversal of reserve for deferred
capital gains on property
Reversal of reserve for land revaluation
Cash dividends
Directors’ bonuses
Transfer to general reserve
Net income
Net unrealized gains on available-for-sale securities
Gain on sales of treasury stock
Increase in treasury stock
Balance as at February 28, 2006

Generalreserve

Specialreserve$258,705 $443,385$47,153 $879,066$293 $126,263$(20,230)$ 9,388 $ (70,589)

ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
4
ʊ
ʊ
$258,705 $443,389

ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
55,904
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
$47,153 $934,970

(6)
6
ʊ
ʊ
216
(216)
ʊ
(31,643)ʊʊ
(3,621)
ʊʊ
(55,904)ʊʊ
92,493
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
$287 $127,810 $(20,446)

ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
33,970ʊʊ
36
ʊ
(80,571)$43,358 $(151,124)

The accompanying notes are an integral part of these financial statements.

Notes to Non-Consolidated Financial Statements
ONWARD KASHIYAMA Co., Ltd.

1. Basis of Presentation of the Non-Consolidated Financial Statements
The accompanying non-consolidated financial statements have been prepared from the accounts maintained by ONWARD
KASHIYAMA Co., Ltd. (the “Company”), in accordance with the provisions set forth in the Commercial Code of Japan (the “Code”)
and the Securities and Exchange Law and in conformity with accounting principles and practices generally accepted in Japan,
which are different in certain respects from the application and disclosure requirements of international Financial ReportingStandards. Certain items presented in the non-consolidated financial statements submitted to the Director of the Kanto Finance
Bureau in Japan have been reclassified for the convenience of readers outside Japan.
The accompanying non-consolidated financial statements are not intended to present the financial position and results ofoperations of the Company in accordance with accounting principles and practices generally accepted in countries and jurisdictions
other than Japan.
2. Summary of Significant Accounting Policies(1) Inventories
Inventories are stated at cost, cost being determined generally by the last purchase invoice price method. Merchandise and finishedgoods held at retail stores is valued at the retail cost method.
When the net realizable value of certain classes of inventories (consisting primarily of seasonal merchandise which remains
unsold after the end of such seasons) is substantially less than the carrying value (cost), and the decline of value is not expected
to be recovered in the near future, appropriate write-downs are recorded on such inventory items. The amount of write-down isdetermined based on the experience of sales of merchandise similar to those unsold items during the immediately preceding three years.
At February 28, 2005 and 2006, the recorded write-downs were ¥8,379 million and ¥7,021 million ($60,386 thousand), respectively.
(2) Investments in Securities
Debt securities and equity securities classified as available for sale (“other securities”) whose fair values are readily determinable arecarried at fair values prevailing at the fiscal year-end date with unrealized gains or losses included as a component of shareholders’equity, net of applicable taxes.
Other securities whose fair values cannot readily be determined are stated principally at cost. In cases where declines in fairvalues of individual securities are assessed to be other than temporary, the cost of the security is reduced to net realizable value
and the loss is charged to income. Realized gains and losses are determined using the moving-average method and are reflected inincome.
Investments in subsidiaries and affiliates is stated at cost determined by the moving-average method.
(3) Derivative Transactions
Refer to Note 2. (6) to the consolidated financial statements.
(4) Hedge Accounting
Refer to Note 2. (7) to the consolidated financial statements.
(5) Property, Plant and Equipment
Refer to Note 2. (8) to the consolidated financial statements.
(6) Amortization
Refer to Note 2. (9) to the consolidated financial statements.
(7) Income Taxes
Refer to Note 2. (10) to the consolidated financial statements.
Presentation of External Standard Taxation Portion in the Corporate Business Tax on the Income Statement
Since “Law for the Partial Revision of Local Tax, etc. (No. 9, 2003)” was announced on March 31, 2003, the rule of the external
standard taxation has been applied from fiscal years commencing on and after April 1, 2004. Subsequently, the added value portionand capital portion of corporate business tax have been recorded in selling, general and administrative expenses, respectively, from

this point in accordance with “Practical Treatment of the Disclosure of External Standard Taxation Portion in the Corporate BusinessTax on the Profit and Loss Statement (February 13, 2004, Accounting Standards Board of Japan, Business Related Report No. 12).”
As a result, selling general and administrative expenses increased by ¥470 million ($4,039 thousand), while operating income andincome before income taxes decreased by ¥470 million ($4,039 thousand) for the year ended February 28, 2006.

(8) Allowances
An allowance for bad debt is provided for estimated losses on known bad debt and doubtful accounts at the balance sheet date.
Accrued bonuses to employees are provided for at an amount determined based on the estimated bonuses to employees whichwere incurred at the balance sheet date.
An allowance for sales returns is provided for the estimated losses on sales returns calculated under the Japanese tax regulations.
Accrued retirement benefits are provided for at the present value of the projected benefit obligation less the estimated fair value ofplan assets and deferred gains or losses at the balance sheet date.
Unrecognized prior service costs are amortized on a straight-line basis over 5 to 10 years, which is within the related employees’
average remaining service years. Unrecognized actuarial differences are amortized on a straight-line basis over 5 to 10 years, which
is within the related employees’ average remaining service years from the year following the one in which they arise.
Following the enactment of the Defined Benefit Corporate Pension Plan Law in Japan, on September 25, 2003, the Company
obtained approval from Japan’s Ministry of Health, Labour and Welfare for exemption from the future benefit obligation with respect
to the portion of the Employee Pension Fund that the Company operates on behalf of the Government (the so-called substitutional
portion). The Company applied transitional provisions as prescribed in paragraph 47-2 of the “Practical Guidelines of Accounting for
Retirement Benefits (Interim Report)” (Accounting Committee Report No. 13 issued by the Japanese Institute of Certified Public
Accountants) and recognized a gain in the amount of ¥8,616 million for the settlement of the substitutional portion at the date of
approval from Japan’s Ministry of Health, Labour and Welfare. The amount of plan assets to be transferred to the Government wascomputed at ¥19,705 million as of February 29, 2004.
Accrued retirement benefits for directors and statutory auditors is provided for at the amount required at the balance sheet dates inaccordance with the Company’s internal rules.
While the Company has no legal obligation, it is the customary practice in Japan to make lump-sum payments to a director or a
statutory auditor upon retirement under the approval of the general meeting of shareholders.
The provision for loss on guarantee obligations was provided in case the Company is obliged to pay for the guaranteedsubsidiaries. In estimating the provision the Company considers the financial condition of each subsidiary.
(9) Accounting for Leases
Refer to Note 2. (12) to the consolidated financial statements.
(10) Accounting for Consumption Tax
Refer to Note 2. (13) to the consolidated financial statements.
(11) Cash Dividends
Refer to Note 2. (14) to the consolidated financial statements.
(12) Accounting Standard for Impairment of Fixed Assets
Refer to Note 2. (16) to the consolidated financial statements.
(13) Reclassification of Accounts
Certain prior year amounts have been reclassified to conform with the current year’s presentation.
(14) United States Dollar Amounts
Amounts in U.S. dollars are included solely for the convenience of readers outside of Japan. The rate of ¥116.27=US$1, the rate ofexchange as of February 28, 2006, has been used in translation. The inclusion of such amounts is not intended to imply thatJapanese yen have been or could be readily converted, realized or settled in U.S. dollars at that rate or any other rate.

3. Inventories
Inventories at February 28, 2005 and 2006, consisted of the following:Thousands of
U.S. dollars

Millions of yen
2005

2006

2006

¥18,243¥19,983$171,868

Raw materials

1,399

1,192

10,254Work-in-process

1,016

1,045

8,983

229

255

2,195

¥20,887¥22,475$193,300

Merchandise and finished goods

Supplies

4. Derivative Transactions
Derivatives are used in order to hedge foreign exchange market risk on the transactions and balances which occur in the normal
course of business. Derivatives are not used for speculative purposes or for highly leveraged transactions. Derivatives are executedwith creditworthy financial institutions, and the Company does not anticipate significant losses due to the nature of its counterparties.
The Company applied hedge accounting for all derivative transactions as of February 28, 2005 and 2006, therefore, no market
value information is disclosed.
5. Property, Plant and Equipment
Refer to Note 5 to the consolidated financial statements.
6. Revaluation of Land
Refer to Note 10 to the consolidated financial statements.
7. Lease Transactions
The Companies’ finance lease contracts which are not deemed to transfer the ownership of the leased assets to lessees are notcapitalized, which is permitted by Japanese accounting principles. Certain key information on such lease contracts of the Company
for the years ended February 28, 2005 and 2006, is as follows.
Assumed data as to acquisition cost, accumulated depreciation, net book value of the leased assets, which included the portion ofinterest thereon, as of February 28, 2005 and 2006 is summarized as follows:
Millions of yen

Thousands of U.S. dollars

2005

2006

Tools, furniture,

Acquisition cost
Accumulated depreciation
Net book value

2006

Tools, furniture,

Tools, furniture,and fixtures

Other

Total

and fixtures

Other

Total

and fixtures

Other

Total

¥1,190¥421¥1,611¥1,218¥355¥1,573$10,478$3,056$13,534

(756)

(243)

(999)

(724)

(229)

(953)

(6,228)(1,972)(8,200)¥ 434¥178¥ 612

¥ 494

¥126

¥ 620

$ 4,250$1,084$ 5,334

The scheduled maturities of future lease payments on such lease contracts as of February 28, 2005 and 2006, are as follows:
Thousands of
U.S. dollars

Millions of yen

Scheduled maturities of future leases:
Due within one year
Due over one year

2005

2006

2006

¥320

¥264

$2,267

292

356

3,067

¥612

¥620

$5,334The lease expenses for the year and depreciation of the lease assets as of February 28, 2005 and 2006, are as follows:
Thousands of
U.S. dollars

Millions of yen
2005

2006

2006

Lease expenses for the year

¥401

¥368

$3,167

Depreciation

401

368

3,167

8. Investments in and Advances to Subsidiaries and Affiliates
Shares of subsidiaries with market value at February 28, 2005 and 2006, are as follows:
Millions of yen
2005

Shares of subsidiaries

Book
value

Marketvalue¥280¥12,795

Thousands of U.S. dollars
2006

Difference

Book
value

Marketvalue¥12,515¥280¥14,683

2006

Difference

Book
value

Marketvalue

Difference¥14,403$2,412$126,284$123,872

9. Income Taxes
Deferred income taxes assets and liabilities as at February 28, 2005 and 2006, consisted of the following elements:
Thousands of
U.S. dollars

Millions of yen

Deferred income taxes assets:
Valuation loss on inventories

2005

2006

2006

¥ 1,894¥ 1,491$ 12,826

Evaluation loss on investments in subsidiaries

3,797

4,125

35,482

Excess amount of tax-deductible accrued employees’ retirement benefits

5,937

6,051

52,039Accrued retirement benefits for directors and corporate auditors

595

647

5,565

Provision for loss on guarantee obligations

732

1,014

8,720

Other
Subtotal
Valuation allowance
Total deferred income taxes assets
Deferred income taxes liabilities:
Gain on securities contributed to an employee retirement benefit trust

2,767

3,452

29,687

15,722

16,780144,319-(1,109)(9,542)

15,722

15,671

134,777(3,474)(3,474)(29,878)

Net unrealized gains on available-for-sales securities(748)(3,456)(29,721)

Provision for deferred capital gains on real property

(23)

(23)

(193)

Other

(34)

(21)

(182)

Total deferred income taxes liabilities(4,279)(6,974)(59,974)

Net deferred income taxes assets¥11,443¥ 8,697$ 74,803

The reconciliation of the difference between the statutory tax rate and the effective tax rate for the year ended February 28, 2006,
is as follows:%
Statutory tax rate

40.7%

Reconciliation:
Nondeductible items (entertainment expenses, etc.)

2.0

Non taxable dividend income(2.5)

Change in valuation allowance

5.6

Other
Effective tax rate

0.0
45.8%

The reconciliation of the difference between the statutory tax rate and the effective tax rate for the year ended February 28, 2005,
has not been disclosed because such difference is immaterial.
10. Commitments and Contingent Liabilities
The Company was contingently liable as a guarantor for certain affiliates’ bank loans. The outstanding balance guaranteed as at
February 28, 2005 and 2006, aggregated ¥13,984 million and ¥22,356 million ($192,274 thousand), respectively.
11. Legal Reserve and Appropriation of Retained Earnings
Refer to Note 12 to the consolidated financial statements.
12. Subsequent Events
Refer to Note 13 to the consolidated financial statements.
13. Net Assets, Net IncomĕBasic and Cash Dividends per Share
Net income per share of common stock is computed based upon the weighted-average number of shares of common stock
outstanding during each year. Cash dividends per share shown for each year in the accompanying non-consolidated statements ofincome and retained earnings represent dividends declared as applicable to the respective years rather than those paid during theyears.
The basis for the calculation of net incomĕbasic per share for the years ended February 28, 2005 and 2006, is as follows:
Millions of yen

Net income
Less: Components not pertaining to common shareholders̆Bonuses to directors and corporate auditors
Net income pertaining to common stock
Average outstanding shares of common stock (shares)

Thousands of
U.S. dollars

2005

2006

¥10,648(421)¥10,754(450)$92,493(3,870)2006¥10,227¥10,304$88,623

169,077,356

165,790,111

Principal Subsidiaries

OVERSEAS SUBSIDIARIES
J. PRESS INC.
262 York Street,
New Haven, CT 06511, U.S.A.
Tel: (1) 203-772-1310
ONWARD KASHIYAMAFRANCE S.A.
6, Rue Vivienne,
75002 Paris, France
Tel: (33) 1-5504-8787
ONWARD KASHIYAMAHONG KONG LTD.
Units 1208-9, Lippo Sun Plaza,
28 Canton Road, T.S.T.,
Kowloon, Hong Kong,

ONWARD RETAIL L.L.C.
530 7th Ave., 29th Floor,
New York, NY 10018, U.S.A.

KOREA CO., LTD.

CHACOTT CO., LTD.

652-16, Shinsa-Dong,DONNA KARAN JAPAN K.K.

Kangnam-ku, Seoul,
Republic of Korea
Tel: (82) 2-548-5841

GIBO’ CO. S.p.A.
Via Cassia 69, Tavarnuzze,
50029 Firenze, Italy
Tel: (39) 055-237-2020
ONWARD ITALIA S.p.A.
Via Della Spiga 9,20121 Milano, Italy
Tel: (39) 02-783-667
SHANGHAI ONWARD
FASHION CO., LTD.
5F Jinjiang Dickson Center,#400 Changle Road, Shanghai,

22 Rue Saint Benoit,

MARNI JAPAN CO., LTD.

75006 Paris, France

FUSION CO., LTD.

Tel: (33) 1-4544-1118

445 Governor Carlos G. Camacho Road,ACROSS TRANSPORT CO., LTD.
ONWARD CREATIVE CENTER

Tel: (1) 671-647-7777

CO., LTD.

FREED OF LONDON LTD.

ONWARD LIFE DESIGN

94, St. Martin’s Lane,

NETWORK CO., LTD.

London WC2N 4AT, U.K.

EXCEL CO., LTD.

Tel: (44) 20-7240-0432
JOSEPH LTD.
Unit 11, 50 Carnwath Road,
London SW6 3JX, U.K.

BOOKLET CORP.
VOICEDAM CO., LTD.
BIEN CO., LTD.

Tel: (44) 20-7736-2522

ONWARD SKYLARKS CO., LTD.

IRIS s.r.l.

O • H • C CO., LTD.

Via Pampagnina 42,

CANDELA INTERNATIONAL

Fisso d’Artico,CO., LTD.

30032 Venezia, Italy
Tel: (39) 041-5169911<RESORTS>

Tel: (86) 21-6466-6466

Via Boschi 421 bis,

5F Jinjiang Dickson Center,<SERVICES>

Tamuning, Guam 96911, U.S.A.

ERIKA s.r.l.

CO., LTD.

PERSONAL ORDER JAPANCO., LTD.

People’s Republic of China

ONWARD TRADING (SHANGHAI)

BUS STOP CO., LTD.

HORLOGE SAINT BENOIT S.A.

GUAM, INC.

Tel: (44) 20-7494-2074

OAK CO., LTD.

KMD BLDG., 4F,

ONWARD BEACH RESORTW1 London, U.K.

PRODUCTS>IMPACT 21 CO., LTD.

ONWARD KASHIYAMA

Tel: (852) 2721-7068

47, Conduit Street,<APPAREL AND TEXTILE

Tel: (1) 212-997-3600

People’s Republic of China

ONWARD KASHIYAMA U.K. LTD.

DOMESTIC SUBSIDIARIES

O & K CO., LTD.

Maccari, 37060 Verona, Italy

ONWARD MARINE CO., LTD.

Tel: (39) 0442-56666

ONWARD BEACH RESORT
CO., LTD.

#400 Changle Road, Shanghai,
People’s Republic of China
Tel: (86) 21-6472-3660

50

As of February 28, 2006

Corporate Data
(As of February 28, 2006)

Head Office10-5, Nihonbashi 3-chome,

Major Shareholders

Chuo-ku, Tokyo 103-8239, Japan

Percentage ofTotal Shares Issued

Tel: (81) 3-3272-2317
Fax: (81) 3-3272-2314

Japan Trustee Services Bank, Ltd.

7.1%

URL: http://www.onward.co.jp/

The Master Trust Bank of Japan, Ltd.

6.0

Kashiyama Scholarship Foundation

5.0

Nippon Life Insurance Company

3.6

Isetan Company Limited

2.8

The Dai-ichi Mutual Life Insurance Company

2.4

The Chase Manhattan Bank, N.A., London

1.9

Caise Bank Paris Ordinary Account

1.8

Morgan Stanley & Co. International Limited

1.7

Sumitomo Mitsui Banking Corporation

1.6

Established

September 1947

Paid-in Capital¥30,080 million

Common Stock

Authorized—400,000,000 shares
Issued—172,921,669 shares

Number of Shareholders 8,758
Stock Listings

Tokyo, Osaka, and Nagoyastock exchanges

Transfer Agent

Mitsubishi UFJ Trust
Distribution of Ownership among Shareholders

and Banking Corporation(On a number of shares basis)

4-5, Marunouchi 1-chome,

Other Japanese corporations
14.5%

Chiyoda-ku, Tokyo 100-8212,
Japan
Number of Employees

Japanese financial institutions
36.0%

Foreign institutions and others
32.8%

1,656

Japanese securities companies
0.4%Japanese individuals and others
16.3%

Stock Price Movement(Thousands of shares)

(Yen)

6,000

2,500

2,000
4,000
1,500

1,000
2,000
500

0

0
Mar.
2005

Apr.

May

June

July

Aug.

Sept.

Oct.

Nov.

Dec.

Jan.
2006

Feb.

Mar.

왎 Trading Volume (left scale)왎 Onward Kashiyama’s Stock Price (Closing) (right scale)51

Head Office: 10-5, Nihonbashi 3-chome, Chuo-ku, Tokyo 103-8239, Japan
Tel: (81) 3-3272-2317
URL: http://www.onward.co.jp

Printed in Japan