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Onward Kashiyama Co., Ltd.
Annual Report 2001

Annual Report

Year Ended February 28, 2001

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ProfileSince its establishment in 1947, Onward Kashiyama Co.,
Ltd., has been a leader in the world of fashion. By leveraging its advanced capabilities in planning, technologicaldevelopment, information network management, and245,924

221,206

222,869

228,334

214,365

manufacturing, the Company continues to develop a wide
range of brands that respond to the diverse tastes of consumers, who differ not only in age but in the values theyhold. Onward’s products are marketed through department stores, boutiques, and general retailers throughout
Japan as well as through a global sales network thatspans Europe, Asia, and North America.
Onward has earned a strong reputation for its ability toanticipate consumer needs and delight its customers byoffering them new concepts that reflect those needs. As aleading company in the global apparel industry, Onward
will strive to apply its skills and experience to develop
appealing products for world markets.
(Millions of yen)
’97 ’98 ’99 ’00 ’01
Consolidated Net Sales

Contents
1

Looking Back and Looking Forward

2

A Message to Our Stockholders

4

Business Overview

7

Consolidated Six-Year Summary

8

Financial Review

11

Consolidated Statements of Income

12

Consolidated Balance Sheets

14

Consolidated Statements of Stockholders’ Equity

15

Consolidated Statements of Cash Flows

16

Notes to Consolidated Financial Statements

24

Report of Independent Accountants

25

Non-Consolidated Financial Statements of Income andRetained Earnings

226

Non-Consolidated Balance Sheets

28

Non-Consolidated Statements of Stockholders’ Equity

29

Notes to Non-Consolidated Financial Statements

33

Report of Independent Accountants

34

Board of Directors

35

Organization Chart

36

Principal Subsidiaries

37

Corporate Data and Offices

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Looking Backand Looking Forward

2001, ended February 28, increased 11.2% compared with the previous
fiscal year, to ¥245,924 million, with net income falling 35.1%, to ¥4,805

9,580

10,864

 The consolidated net sales of Onward Kashiyama Co., Ltd., for fiscal

million. Net income per share amounted to ¥27.9, the return on equity(ROE) was 2.6%, and cash dividends applicable to the period totaled
7,404¥16.5 per share.

4,805

5,086

 Through joint efforts with overseas subsidiaries regarding planning,production, and sales, Onward developed the menswear brand ICB
MEN. The brand lineup includes a full range of items targeting men in
their 20s and 30s, including suits, casual wear, and accessories
emphasizing quality and styling.
 Onward has created NIJYUSANKU DEUX for career women in their(Millions of yen)

20s. Developers of the brand took into account recent trends in prod’97 ’98 ’99 ’00 ’01
Consolidated Net Income

uct planning and strove to offer good style at a reasonable price,
thereby fully meeting the needs of career women.
 In autumn 2000, Onward launched the JIYUKU brand, targeting
women in their 40s. In the six months since debuting, the brand has

189,236

180,415

185,287

178,476

171,895

rapidly expanded to include ladies’ wear, children’s clothes, and golf
apparel, far exceeding initial sales targets. We believe the merchandise mix accurately reflects our target consumers’ price range andneeds.
 In 2001, J. Press Inc. welcomes the 100th year since its founding.
The relationship between the two companies began with the signingof a mens’ licensing agreement in 1974. Since then, ties have
expanded to encompass ladies’ wear, children’s clothing, and golf
apparel. Onward acquired J. Press Inc. in 1986, and it is currently oneof the Company’s leading subsidiaries.
 From autumn-winter 2001, Onward will be introducing the SHIJUSO
brand for women in their late 40s to early 50s. The SHIJUSO brand is(Millions of yen)based on the concept of “Global Standard Quality.” We aim to provide’97 ’98 ’99 ’00 ’01

highly fashionable, high-quality apparel in a variety of sizes.

Consolidated
Total Stockholders’ Equity

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A Message

to Our Stockholders

The Operating Environment in Fiscal 2001

securing adequate internal capital resources to maintain a management

Regarding economic conditions during the period under review, capitalfoundation that is capable of supporting stable, long-term growth.

investment—centering primarily on information and telecommunications—picked up due to the impact of economic policy initiatives, but the employ-

Going Forward

ment and income environment remained harsh, with continuing sluggish

The current harsh operating environment is expected to continue throughpersonal consumption. A severe operating environment persists, as thethe coming fiscal year. Persistent anxieties about the future, owing to theimpact of the downturn in the U.S. economy and the stock market slump

protracted economic recession, have diminished chances of a recovery inhave forced many large companies into bankruptcy and slowed theconsumer spending.

Japanese economy’s recovery.

Faced with this operating environment, the Onward Group has decided

Against this backdrop, Onward stepped up sales activities for its major

on several courses of action: the implementation of policies emphasizing

brands. For its apparel business, Onward devised a management strategy

value-added brand creation from the consumers’ perspective; the creationof leveraging its “Quick-Response System,” furthering efforts to strengthenof internationally competitive products; the operation of shops that will

the sales structure and production, expand the distribution system, and raiseappeal to consumers; and the installation and utilization of an IT infrastruc-efficiency. The aims of these efforts are to achieve success amid global com-

ture based on our concept of brand-oriented management. Our goals arepetition, leverage brand recognition, and maximize brand value through brand-

to strengthen international competitiveness and further improve manage-

oriented management. With regard to the organization, we have created ament efficiency, and, to this end, we will make every effort.

business structure that combines distinctly separate business units and uses
our product base and sales structure as the foundations upon which we canachieve a balance. Through this move, we aim to boost competitiveness andraise profitability, as well as strengthen management practices.
In the apparel division, the Company made aggressive marketing efforts
to promote such major profit-making clothing items as the men’s
GOTAIRIKU brand, the ladies’ KUMIKYOKU and NIJYUSANKU brands, andthe international ICB brand. Consequently, consolidated net sales rose
11.2% from the previous fiscal year, to ¥245,924 million. Operating income
declined 4.8%, to ¥18,544 million, and net income dropped 35.1%, to¥4,805 million. In the interests of maintaining a stable return to stockholders, cash dividends applicable to the period will be sustained at ¥16.5 pershare. Onward’s basic policy is to make stable dividend payments while2
2

May 24, 2001

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Akira Baba, CHAIRMAN

Takeshi Hirouchi, PRESIDENT

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Business

Overview

Men’s Fashions
During fiscal 2001, ended February 28, 2001, casual wear remained thedominant trend in men’s fashion. Consequently, price wars continued
in the formal-clothing market, centering on business suit sales. Although“no-necktie” business suits and low-price suit shops were popular, themarket as a whole failed to realize growth in sales.
On the other hand, the department store market saw the prêt-a-porterzone putting in a relatively favorable performance. Prices became increasingly polarized, varying according to consumers’ purchasing objectives.
Onward’s formal apparel product, ECO-J-SUITS, sold under the
GOTAIRIKU brand and riding the “eco-friendly” trend, proved a big hit—fueling sales in the process.
In the casual wear market, the opening of a series of new commercial
facilities and the trend toward low prices dealt a blow to department stores
during the period under review. Onward’s casual line for spring-summer
2001 features T-shirts and other shirts, slacks, and other apparel items.
The autumn-winter line was to be focused on such items as a four-way
coat and reversible jacket, but depressed demand for western-style clothing has led to a reconsideration of these items. Non-consolidated net sales
by Onward Men’s Fashions Business Group fell 9.5% year-on-year, to¥62,395 million, and accounted for 38.7% of non-consolidated total net
sales.

Women’s Fashions
In fiscal 2001, female consumers departed from focusing exclusively on
price, resulting in a widespread trend toward considering quality. In thedepartment store market, young, career fashions sales remained sluggish.
In contrast, the Missy-Misses segment showed a recovery thanks to thedebut of a new brand featuring an expanded line of knitwear.
Sales of the spring-summer line of spring coats were weak, but were
followed by strong sales of casual jackets, such as denim jackets. In theautumn-winter line, knitwear with patterns, as well as leather and suede
sold extremely well, while woolen coats—fur or angora and alpaca
blends—also sold well.

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Sales of core brands NIJYUSANKU and KUMIKYOKU showed growth

Kimonos

owing to the expansion of the product lines. JIYUKU got off to a good start

The overall downturn in consumption has led to a protracted decline inafter the implementation of a successful advertising campaign. The career-

the demand for traditional Japanese clothing and forced large-scale fabricoriented ICB brand is enjoying good results in overseas markets. The

wholesalers into bankruptcy. In recent years, many retailers have also been

Women’s Fashion Business Group, on a non-consolidated basis, posted

driven out of business, and the situation is one that could not have beensales of ¥83,792 million during the term under review, increasing 4.1% frompredicted. Despite such circumstances, yukatas—light summer kimonos—

the previous fiscal year and comprising 52.0% of non-consolidated net

continue to sell well, carrying over strong sales from the previous year.

sales.

NIJYUSANKU and other “brand” yukatas, as well as KUMIKYOKU
furisode—formal long-sleeved kimonos—are fueling the market as a whole.

Children’s Fashions

While other competitors have exhausted their management capabilities in

The final push to open shopping centers under Japan’s new Large-Scalethe current inclement business environment, Onward is seeing growth in its

Retailer Store Location Law is still under way, while the rapid entrance

share of sales at department stores. Although young people have greaterof retailers offering products targeting families with children is heating

freedom in the clothes they wear, demand from middle-aged and elderly

up the competition.

consumers has declined sharply. Thus, the industry as a whole remains

Large-scale outlets built around brands, including the GAP, COMME CA

depressed. The performance of Onward’s Kimono Business Group, on a

ISM, and other leading brands, which provide miscellaneous items, in addi-

non-consolidated basis, rose 7.6% from the previous fiscal year, to ¥3,786

tion to apparel, for all types of lifestyles. Retailers, building on this lifestylemillion, accounting for 2.3% of non-consolidated net sales.

concept, are opening stores as large as 900 square meters. With the arrivalof the UNIQLO phenomenon, price has become an important factor in consumers’ decisions to purchase clothes. Consequently, every retailer mustfind an appropriate balance between distinctiveness and price.
Against this backdrop, Onward opened 21 outlets of KUMIKYOKU
FAM, each measuring 330 square meters, in urban, suburban, and local
shopping centers nationwide. These shops are reporting strong sales. The
shops target mothers aged 26 to 33 years old and children from birth to six
years old. Regarding the composition of sales within these shops, ladies’
apparel accounted for 42%, children’s items, 53%, and sundry goods, 5%.
Onward aims to strengthen the attractiveness of its lineup of ladies’ appareland improve retail outlet management. In fiscal 2001, Onward’s Children’s
Business Group reported a 3.7% year-on-year decline in non-consolidated
net sales, to ¥5,996 million, which represented 3.7% of non-consolidated
net sales.

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Art and Jewelry
The art industry is struggling in the current austere operating climate, withdwindling corporate support prompting the closure of several private museums. In the fiscal year under review, we benefited from the discount salesof artwork held at department stores prior to their closing and strenuous
efforts that were made by the mobilized labor force handling the art exhibitions at department stores. In the jewelry industry, as Louis Vuitton, Prada,
Gucci, and other leading luxury brands expand into overseas markets, theaverage size of display areas continues to shrink. On the other hand,accessories and miscellaneous items that can be coordinated with apparelare expected to sell well. Sales by Onward’s Art and Jewelry BusinessGroup, on a non-consolidated basis, fell 8.2% from the previous fiscal year,to ¥2,515 million, representing 1.6% of non-consolidated net sales.

Other
Onward’s main NIJYUSANKU and ICB brands of shoes and handbags
have enjoyed consistent sales growth. However, the KUMIKYOKU brand foryoung career women and the Missy-Misses segment was held up by delaysin the supply of products to new commercial facilities. The Other Operations
Business Group, on a non-consolidated basis, posted a 2.4% rise, withsales of ¥2,796 million, comprising 1.7% of total non-consolidated net sales.

Onward Corporate GroupThe Onward Corporate Group is decentralizing operations to raise brandawareness. Impact 21 Co., Ltd., handles domestic sales, as well as production and import, of the world-famous RALPH LAUREN brand of women’s
clothing. ACTY 21, Co., Ltd., oversees domestic sales, production, andimporting of the RALPH LAUREN men’s clothing brand. O.B.T. Co., Ltd., isresponsible for the domestic sales, manufacture, and import of Calvin Klein
brand men’s and women’s apparel. Donna Karan Japan K.K. undertakes
the domestic sales, production, and import of the Donna Karan brand of
men’s and women’s clothing. Chacott Co., Ltd., manages the sales, manufacture, and import of Chacott dance-related products.

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Consolidated
Six-Year Summary

Onward Kashiyama Co., Ltd.
Years ended February 28 or 29

Thousands of
U.S. dollars

Millions of yen
1996

1997

1998

1999

2000

2001

2001

$1,083,771

At year-end:
Total current assets¥132,551¥112,873¥117,382¥119,138¥120,922¥126,151

Total property, plant and equipment

84,21386,50991,51790,82092,956

103,581889,871

Total assets

281,318

266,668

281,752

291,484

296,715

312,258

2,682,629

Total current liabilities

80,69757,76365,947

69,691

79,63678,985678,565

Total stockholders’ equity

157,552

171,897

178,479

185,287

180,415

189,236

1,625,739

Net sales¥203,017¥214,365¥228,334¥222,869¥221,206¥245,924$2,112,749

Cost of sales

114,920

121,041

131,476

132,360

130,058

143,449

1,232,380

Selling, general and administrative expenses

70,752

71,54575,54073,70073,88785,731

736,520

Operating income

17,344

21,77721,317

16,80917,261

16,744

143,849

Income taxes, current

9,382

11,601

10,471

9,599

9,306

4,888

41,993

Net income

8,723

10,864

9,580

5,086

7,404

4,805

41,280For the year:

Yen

U.S. dollars

Per share (Yen and U.S. dollars):
Net income

¥56.4

¥63.1

¥55.6

¥30.0

¥43.0

¥27.9

$0.240Cash dividends

16.5

18.0

16.5

16.5

16.5

16.5

0.142

Note: Yen amounts have been translated, for convenience only, at ¥116.4=US$1, the approximate exchange rate on February 28, 2001.

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Financial
Review

Overview
During fiscal 2001, ended February 28, 2001, capital investment, centering primarily on IT and telecommunications, brightened the Japanese economic outlook. However, the combined effect of the slowdown in the U.S. economy and weakness inthe stock market forced many large companies into bankruptcy and postponed the recovery of the Japanese economy,
resulting in a persistent, harsh operating environment.
The industry in which Onward Kashiyama Co., Ltd., and its consolidated subsidiaries (together, the Onward Group) operate
witnessed drastic changes during the fiscal year under review, namely, a polarization in consumption, a reorganization of distribution channels, and the entrance of new competitors into the market. Concerns over the lingering uncertainty regarding
the future direction of the Japanese economy dampened consumer sentiment far beyond expectations. Consequently, consumer spending, which has a large impact on the economic condition of the apparel industry, remained weak.
Amid this operating environment, the Onward Group achieved consolidated net sales of ¥245.9 billion, up 11.2% from theprevious fiscal year, owing to the inclusion in the financial statements of consolidated affiliates Oak Co., Ltd., and ChacottCo., Ltd. Consolidated net income dropped 35.1% from the previous fiscal year, to ¥4.8 billion. The Onward Group applied
new accounting standards effective from fiscal 2001, which affect the reporting of consolidated taxes. Through the application of such new accounting standards, consolidated net income for the year under review increased ¥4.3 billion.
Results of Operations
Net Sales
Despite the harsh operating climate, the Onward Group, as a result of its implementation of aggressive marketing strategies,
saw consolidated net sales rise 11.2%, from ¥221.2 billion in the previous fiscal year to ¥245.9 billion. The increase wasattributable primarily to the apparel and textile products divisions. Sales by business segment were as follows:
Apparel and Textile Products Business Groups
The Onward Group, actively promoting brand-oriented management, implemented several new initiatives: a product policythat responds to diverse consumer needs, a sales structure developed around its Quick-Response System, and a strengthened production and distribution system to increase management efficiency. As a result, consolidated net sales of this division during fiscal 2001 rose 12.1%, to ¥237.2 billion, for a slightly higher year-on-year contribution to sales of 96.4%.
Non-consolidated net sales by Onward, the core of this business group, dropped 2.1%, to ¥161.3 billion—before the elimination of internal transactions between segments—accounting for 65.6% of consolidated net sales. Sales of women’s
apparel rose 4.1% from the previous fiscal year, remaining strong. Onward’s mainstay brands, NIJYUSANKU andKUMIKYOKU, sold well due to an expanded product lineup. JIYUKU, a new brand introduced during the period under review,also got off to a good start thanks to an effective advertising campaign, contributing to the increase in sales. In contrast,
mens’ apparel sales slipped 9.5% from the previous fiscal year—the largest factor contributing to the decrease in net sales ona non-consolidated basis. Sales of casual wear were sluggish, pushed down by the opening of a series of new commercial
facilities and the trend toward low prices. However, ECO-J-SUITS, sold under Onward’s leading mens’ apparel brand,
GOTAIRIKU, performed well.
Other Businesses
The harsh employment situation and earnings environment persisted, and against this background resort-related operations
remain depressed. Net sales for this business declined 9.0%, to ¥8.7 billion, accounting for 3.6% of consolidated net sales.
Costs, Expenses, and Earnings
The cost of sales for the period under review totaled ¥143.4 billion, up 10.3% from the previous fiscal year. As this rate ofincrease was slower than that of the rise in net sales, the gross profit ratio rose only 0.5 percentage point, to 41.7%. Grossprofit increased 12.4%, to ¥102.5 billion.

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Selling, general and administrative (SG&A) expenses grew 16.0%, to ¥85.8 billion. The rise was due primarily to increases
in the SG&A expenses of consolidated subsidiaries. SG&A expenses as a percentage of net sales increased slightly, from
33.4% in the previous fiscal year to 34.9% during the period under review. As a result, operating income fell 3.0%, to ¥16.7
billion. The ratio of operating income to net sales thus declined 1.0 percentage point, to 6.8%.
Other income (expenses), net, turned from income of ¥0.1 billion to a loss of ¥12.6 billion. The loss is attributable mainly toa ¥1.8 billion increase in loss on the disposal of property, including a ¥1.4 billion loss on disposal of land; a ¥5.7 billion retirement benefit expense, including ¥3.8 billion for payment of additional retirement benefits under the early retirement incentive
program; and a ¥2.5 billion provision for doubtful accounts. The aforementioned retirement benefit expense includes a ¥1.9
billion adjustment provision for the accrued retirement allowance for two consolidated subsidiaries accompanying the recentchanges in accounting standards. (See Note 1 of the consolidated financial statements.)
As a consequence of the aforementioned factors, income before income taxes and minority interests plunged, from ¥17.3
billion in the previous term, to ¥4.1 billion.
Income taxes declined, from ¥9.3 billion in fiscal 2000 to ¥0.6 billion in fiscal 2001. Income taxes as a percentage ofincome before income taxes and minority interests decreased from 53.7% in the previous fiscal year to 14.5% in the year
under review. The income tax burden fell far below the statutory tax rate of 42.0% in fiscal 2001, due to the tax effect recognized on the loss incurred on financial support to subsidiaries during the period, as permitted by the new accounting standards introduced in the fiscal year under review. (See Note 8 of the consolidated financial statements.) Minority interests
decreased from ¥0.6 billion in fiscal 2000 to a loss of ¥1.3 billion in fiscal 2001.
As a result, net income declined 35.1%, from ¥7.4 billion to ¥4.8 billion. The net income margin ratio declined 1.3 percentage points, from 3.3% to 2.0%, and the ROE dropped from 4.0% in fiscal 2000 to 2.6% in fiscal 2001.
Financial Position
The Onward Group’s total assets rose ¥15.6 billion, or 5.2%, to ¥312.3 billion. The increase was due primarily to a ¥1.5 billion
rise in trade receivables, a ¥3.0 billion increase in inventories, and ¥11.5 billion recorded as deferred tax assets in the currentand fixed-asset sections as a result of the initial adoption of tax effect accounting. The increase was also due to a ¥9.3 billion
net increase following deductions for depreciation of buildings and structures. The turnover period for trade receivables was
reduced slightly, from 52 days in the previous year to 49 days, while the turnover period for inventory assets—66 days infiscal 2000—increased one day, to 67 days in the fiscal year under review. Both figures accurately reflect sales trends for theperiod. The increase in buildings and structures reflects the ¥10.7 billion spent on plant and equipment in fiscal 2001.
Decreases in assets included a ¥2.8 billion decline in cash and time deposits, as well as a ¥7.9 billion decline in otherinvestments.
The Onward Group, aiming to respond to diverse consumer needs, invested a total of ¥10.7 billion during the period underreview to expand its marketing, production, and distribution systems. Most of these investments were for its apparel business. In addition, Onward implemented a capital investment of ¥8.6 billion to construct a new building for its Nagoya branchand strengthen its sales structures through the renovation of sales counters at both directly operated and tenant operated
stores within department stores.
The Onward Group’s total liabilities declined ¥1.1 billion, or 1.1%, to ¥10.9 billion. An increase in liabilities was due primarily to a
¥4.5 billion increase in trade payables and a ¥2.7 billion rise in accrued retirement benefits. The turnover period for trade payables
increased slightly, from 112 days in the previous fiscal year to 113 days in fiscal 2001, reflecting the sales and purchase situation
during the period under review. The increase in accrued retirement benefits includes the adjustment provision for accrued retirement allowances resulting from changes in retirement benefit accounting made by the two subsidiaries previously mentioned.
The decrease in liabilities is attributable to a ¥3.1 billion fall in accrued income taxes, which reflects the decline in net
income. Short-term bank loans and long-term debt decreased ¥6.6 billion, through repayments made with surplus funds. As
a result, the debt-to-equity ratio improved, from 21.3% in fiscal 2000 to 16.8%. Minority interests rose, from ¥6.2 billion at theprevious fiscal year-end to ¥14.1 billion. The increase in minority interests was due to the effect of newly consolidated subsidiaries in which Onward held a minority share.

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The Onward Group’s total stockholders’ equity rose ¥8.8 billion, or 4.9%, to ¥189.2 billion. This rise was due primarily tothe increase in retained earnings as a result of the recognition of Parent Company equity in retained earnings and net income.
Other increases are attributable to the prior years’ deferred tax adjustment of ¥6.8 billion following the introduction of tax
effect accounting. As a result, the stockholders’ equity ratio declined slightly, to 60.6%, owing to the increase in minority
stockholders’ equity.
Cash FlowsThe cash flows generated by the Onward Group’s operating activities are the primary source of funds for financing operatingneeds, equipment investment, and the payment of dividends to stockholders. Cash and cash equivalents at the end of theyear totaled ¥53.8 billion, down ¥3.4 billion from the previous year-end. The decrease is due to the effect of net outflows of¥9.8 billion in cash as a result of the activities below, offset by the inclusion of a ¥6.4 billion cash increase in the opening balance of cash and cash equivalents of Onward’s two newly consolidated subsidiaries.
As this is the first year in which a consolidated cash flow sheet has been prepared, we are unable to draw a comparison
with the previous fiscal year in our analysis.
Net cash provided by operating activities amounted to ¥11.1 billion. Cash inflow was due primarily to: 1) income before
income taxes and minority interests of ¥4.1 billion; 2) ¥7.2 billion for depreciation, provision for doubtful accounts and provision for retirement benefits as a noncash item; 3) ¥5.1 billion of net loss on sales or devaluation of property, equipment andinvestment securities to be transferred to the category of cash flow resulting from investment activities; and 4) a ¥3.4 billion
improvement in the operating fund for trade receivables, inventories, and trade payables. The primary cash outflow was thepayment of ¥8.3 billion worth of income taxes.
Net cash used in investing activities amounted to ¥12.0 billion. Net outflows for the acquisition of property, plant and equipment—reflecting capital investment—totaled ¥4.0 billion, net outflows for the purchase of investment securities, net,
amounted to ¥1.5 billion, and the net increase in deferred charges amounted to ¥2.3 billion.
Net cash used in financing activities totaled ¥8.9 billion. The primary cash outflow was the repayment of short- and longterm debt, amounting to ¥6.7 billion, covered by surplus cash flow, and an outflow of ¥3.0 billion for the payment of dividends.
The Company’s management has long recognized the allocation of a portion of net income to stockholders as one ofits top priorities. We will strive to make stable dividend payments while securing adequate internal capital resources tostrengthen the financial base and actively expand operations. As performance improves, we intend to raise the portion of
net income allocated to stockholders. The Company has declared an annual dividend of ¥16.50 per share, on a par withthe dividend applicable to the previous fiscal year.
Forward-Looking Statement
The recession is predicted to continue throughout fiscal 2002, reflecting uncertainty regarding the prospects for the Japanese
economy and suggesting that a full recovery in consumer spending is improbable. Consequently, we expect the current harsh
operating environment to continue. Based on our concept of brand-oriented management, the Onward Group is implementing policies emphasizing value-added brand creation from the consumer’s perspective, the creation of internationally competitive products, the operation of attractive shops, and the installation and utilization of an IT infrastructure. Through these
efforts, we are committed to strengthening international competitiveness and improving management efficiency further.
For fiscal 2002, we expect a 2.1% rise in consolidated net sales, to ¥251.0 billion, and 4.1% growth in consolidated net
income, to ¥5.0 billion. These forecasts, based on information possessed by the Onward Group at this point in time, include
the possibility of latent risks and uncertainties. Please be aware that a variety of factors may affect the Group’s forecasts andcause the actual results to differ largely from projections.

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Consolidated
Statements of Income

Onward Kashiyama Co., Ltd. and Subsidiaries
For the years ended February 28/29/28, 1999, 2000 and 2001

Thousands of
U.S. dollars (Note 1)

Millions of yen
1999

2000

2001

2001

Net sales¥222,869¥221,206¥245,924$2,112,749

Cost of sales

132,360

130,058

143,449

1,232,380

Gross profit

90,50991,148102,475

880,369

Selling, general and administrative expenses

73,70073,88785,731

736,520

Operating income

16,80917,261

16,744

143,849

Other income/(expenses):
Interest income

498

369

374

3,213

Interest expenses

(239)

(202)

(268)

(2,302)

Loss on disposal of property

(184)

(90)

(1,850)(15,893)

—

(23)

(519)

(4,459)(1,868)(1,651)(175)(1,503)

Royalty income

725

1,221

1,136

9,759

Loss on backup for subsidiaries and affiliates

—

—

(820)

(7,045)

Loss on liquidation of subsidiaries and affiliates

—

(227)

(445)

(3,823)

Additional retirement payment——(3,823)(32,844)

Loss on sale of investments in securities, net
Loss on write-down of investments in securities

Adjustment provision for accrued retirement benefit allowance (Note 1)——(1,879)(16,143)

Provision for doubtful accounts——(2,477)(21,280)

Reversal of prior year’s evaluation loss on investments in securities

—

—

1,156

9,931

Evaluation loss on investment in venture fund——

(1,928)(16,563)

Other, net

(269)

687

(1,090)(9,364)

15,472

17,345

4,136

35,533Current

9,599

9,306

4,888

41,993

Deferred——(4,288)(36,838)

5,873

8,039

3,536

30,378

Income before income taxes and minority interests
Income taxes:

Income before minority interests
Minority interests in subsidiaries
Net income

(787)
¥

5,086

¥

(635)

1,269

10,9027,404¥004,805$0,041,280

Yen

U.S. dollars (Note 1)

Per share:
Net income

¥30.0

¥43.0

¥27.9

$0.240Cash dividends

16.5

16.5

16.5

0.142

The accompanying notes are an integral part of these statements.

1111

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Consolidated
Balance Sheets

Onward Kashiyama Co., Ltd. and Subsidiaries
February 29/28, 2000 and 2001

Thousands of
U.S. dollars (Note 1)

Millions of yen

ASSETS

2000

2001

2001

¥ 63,333¥060,510$0,519,845

31,34932,851

282,225

(254)

(216)

(1,855)31,09532,635

280,370

23,517

26,471

227,414—2,980

25,601

2,977

3,555

30,541

120,922

126,151

1,083,771

Investments in securities (Note 3)

37,82537,736324,192

Long-term loans

1,132

2,226

19,124—

8,493

72,964

24,792

16,852

144,777

63,74965,307561,057

Buildings and structures

53,78565,814565,412

Other depreciable property

13,521

16,008

137,526(34,796)(39,125)(336,125)

32,51042,697

336,81360,44660,884

523,058

92,956

103,581889,871

18,30816,448141,306

206

139

1,194

Current assets:
Cash and time deposits
Trade receivables
Less: Allowance for bad debts

Inventories
Deferred tax assets—current (Note 8)
Other current assets
Total current assets

Investments and advances:

Deferred tax assets—noncurrent (Note 8)
Other investments
Total investments and advances

Property, plant and equipment (Note 5):

Less: Accumulated depreciationLand
Total property, plant and equipment

Deferred charges and other assets
Excess investment costs over net assets of subsidiaries
Foreign currency translation adjustment

The accompanying notes are an integral part of these statements.

12
12

574

632

5,430

¥296,715¥312,258$2,682,629

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Thousands of
U.S. dollars (Note 1)

Millions of yen

LIABILITIES AND STOCKHOLDERS’ EQUITY

2000

2001

2001

Current liabilities:¥ 20,875¥017,501$0,150,352

Trade payables

Short-term bank loans

40,01444,515

382,431

Accrued expenses

4,444

5,745

49,356

Accrued income taxes

5,158

2,042

17,543

Consumption tax payable

1,127

733

6,297

Accrued bonuses to employees

2,499

2,840

24,399Allowance for sales returns

2,281

1,726

14,828Other current liabilities

3,238

3,883

33,35979,63678,985678,565

Total current liabilities

Long-term liabilities:
Long-term debt

17,534

14,338123,178

Accrued retirement benefits (Note 6)

12,951

15,632

134,296

30,48529,970257,474

6,179

14,067

120,851

Total long-term liabilities

Minority interests in consolidated subsidiaries

Contingent liabilities (Note 9)

Stockholders’ equity:
Common stock, par value ¥50 per share:
Authorized—400,000,000 shares
Issued—172,292,587 shares
30,08030,080258,419

Additional paid-in capitalat February 29/28, 2000 and 2001

49,135

49,135422,122

Retained earnings

101,201

110,022945,206

180,416

189,237

1,625,747

(1)

(1)

(8)

180,415

189,236

1,625,739¥296,715¥312,258$2,682,629

Less: Treasury stock, at cost
Total stockholders’ equity

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Consolidated

Statements of Stockholders’ Equity

Onward Kashiyama Co., Ltd. and Subsidiaries
For the years ended February 28/29/28, 1999, 2000 and 2001

Balance at February 28, 1998:

Commonstock

Retainedearnings

Treasury
stock

¥(3)

172,291¥30,079¥49,134¥099,267———(2,842)—

Directors’ bonuses

—

—

—

(434)

—

Conversion of convertible bonds

2

1

1

—

—

Decrease due to consolidation of additional subsidiaries

—

—

—

(23)

—

Increase due to adoption of equity method

—

—

—

(5,020)—

Selling of treasury stock, net

—

—

—

—

2

Net income for the year ended February 28, 1999

—

—

—

5,086

—

172,293

30,08049,135106,074(1)

Cash dividends

—

—

—

(2,843)—

Directors’ bonuses

—

—

—

(386)

—

Decrease due to consolidation of additional subsidiaries

—

—

—

(9,048)—Selling of treasury stock, net

—

—

—

—

0

Net income for the year ended February 29, 2000

—

—

—

7,404

—

Balance at February 29, 2000:

172,293

30,08049,135

101,201(1)

Cash dividends

—

—

—

(2,843)—

Directors’ bonuses

—

—

—

(303)

—

Selling of treasury stock, net

—

—

—

—

(0)

Increase due to consolidation of additional subsidiaries

—

—

—

322

—

Prior years’ deferred tax adjustment

—

—

—

6,840

—

Net income for the year ended February 28, 2001

—

—

—

4,805

—

172,293¥30,080¥49,135¥110,022¥(1)

Balance at February 28, 2001

Balance at February 29, 2000:

Thousands of U.S. dollars (Note 1)

Number ofshares ofcommon stock(thousands)

Commonstock

Additional
paid-in
capitalRetainedearnings

Treasury
stock

$(8)

172,293$253,419$422,122$869,424

Cash dividends

—

—

—

(24,424)—

Directors’ bonuses

—

—

—

(2,603)—

Selling of treasury stock, net

—

—

—

—

(0)

Increase due to consolidation of additional subsidiaries

—

—

—

2,766

—

Prior years’ deferred tax adjustment

—

—

—

58,763—

Net income for the year ended February 28, 2001

—

—

—

41,280—172,293$253,419$422,122$945,206$(8)

Balance at February 28, 2001
The accompanying notes are an integral part of these statements.

14

Millions of yen
Additional
paid-in
capitalCash dividends

Balance at February 28, 1999:

14

Number ofshares ofcommon stock(thousands)

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Consolidated

Statement of Cash Flows

Onward Kashiyama Co., Ltd.
For the year ended February 28, 2001
Millions of yen

Thousands of
U.S. dollars (Note 1)

2001

2001

¥04,136$035,533

6,245
259
733
(449)
1,850
(186)
(334)
(980)
4,429
4,938
(283)
(1,270)(137)

53,651
2,225
6,297(3,857)
15,893(1,598)(2,869)(8,419)38,05042,422(2,431)(10,911)(1,177)

18,951

162,809745(260)(8,330)6,400(2,234)(71,564)

11,106

95,411

Cash Flows from Investing Activities:
Increase in time deposits
Decrease in time deposits
Acquisition of property, plant and equipment
Proceeds from sale of property, plant and equipment
Acquisition of investments in securities
Proceeds from sale of investments in securities
Net increase in deferred charges
Payments for deposit
Proceeds from deposit
Other, net(6,651)
6,151(5,455)
1,494(1,912)402(2,335)(943)
1,186(3,994)(57,139)
52,844(46,864)
12,835(16,426)
3,454(20,060)(8,101)
10,189(34,313)

Net cash used in investing activities(12,057)(103,581)

6,132(4,906)(7,905)803
1(2,843)(164)

52,680(42,148)(67,912)6,899
9(24,424)(1,410)(8,882)(76,306)

16

137

Cash Flows from Operating Activities:
Income before income taxes and minority interests
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Provisions for allowance for doubtful accounts
Provisions for accrued retirement benefit allowance
Net interest and dividend income
Write-down of fixed assets
Gain on sale of investment in securities
Equity in earnings of affiliates
Evaluation loss on investments in securities
Evaluation loss on fixed assets
Increase in trade receivables
Decrease in inventories
Decrease in trade payables
Other, net
SubtotalInterest and dividends received
Interest paid
Income taxes paid
Net cash provided by operating activities

Cash Flows from Financing Activities:
Proceeds from short-term loans
Repayments of short-term loans
Net repayments of long-term debt
Proceeds from stock subscription from minority stockholders
Net proceeds from treasury stock
Dividends paid
Dividends paid to minority stockholders
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Increase in cash and cash equivalents(9,817)(84,339)

Cash and cash equivalents at the beginning of the year
Increase in cash and cash equivalents due to changes in the scope of consolidation

57,2106,426

491,495
55,207

Cash and cash equivalents at the end of year

¥53,819$462,363

The accompanying notes are an integral part of these statements.

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Notes toConsolidated Financial Statements

Onward Kashiyama Co., Ltd. and Subsidiaries

1. Basis of Presentation of the Consolidated Financial Statements(1) Accounting Principles
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 Japanese Commercial Code (the “Code”) and in
conformity with accounting principles and practices generally accepted in Japan, which are different in certain respects as to application anddisclosure requirements of International Accounting 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 of operations or
cash flows of the Company and its consolidated subsidiaries in accordance with accounting principles and practices generally accepted incountries and jurisdictions other than Japan.
For the year ended February 28, 2001, the consolidated statements of cash flows were required to be included in the consolidated financial
statements in accordance with a new accounting standard.
Amounts in U.S. dollars are included solely for the convenience of readers outside Japan. The rate of ¥116.4=US$1, the rate of exchange asof February 28, 2001, has been used in translation. The inclusion of such amounts is not intended to imply that Japanese yen have been or
could be readily converted, realized or settled in U.S. dollars at that rate or any other rate.
(2) Change of Accounting Policy
Previously, in connection with the retirement plan and retirement benefits, the consolidated subsidiaries, Impact 21 Co., Ltd., and Oak Co., Ltd.,
have adopted a policy to provide for accrued benefits in an amount equivalent to 100% of the liabilities payable to all eligible for such benefit
upon their voluntary retirement at the balance sheet date, less the accumulated balance of fund assets for the pension plan.
Effective from this fiscal year, accrued retirement benefits have been made at an amount equivalent to the present value of the projected
benefit obligation, less the fair value of plan assets.
The purpose of this accounting change is to properly record the full potential liability and to help establish a sounder financial basis for thepension plan, against a background of sluggish economic conditions which have led to several successive years of unfavorable financial returns
from plan assets.
This change was recorded as adjustment provision for accrued retirement benefit allowance of ¥1,879 million ($16,143 thousand) and,accordingly, decreased income before income taxes and minority interests by ¥1,879 million ($16,143 thousand).
In connection with the retirement benefit plan, the consolidated subsidiary Acty 21 Co., Ltd., adopted “Options on Setting AccountingStandards for Retirement Benefits,” issued by the Business Accounting Deliberation Council on June 16, 1998, effective from the beginning of
this fiscal year. Following this adoption, a transitional adjustment of pension accounting of ¥202 million ($1,735 thousand) was recorded andcharged to the loss and gain account.
(3) Additional Information
Under the amended consolidated financial statements regulations in Japan, deferred tax accounting was adopted with effect from the beginning of this fiscal year. Following its adoption, deferred tax assets of ¥11,473 million (current: ¥2,980 million, noncurrent: ¥8,493 million) were
newly recorded. Also, net income for the year and retained earnings at the year-end increased by ¥4,287 million and ¥11,127 million, respectively.
The method of accounting for software developed for internal use has not changed for the year ended February 28, 2001, in accordancewith transitional provisions in the “Guidelines for Accounting for Research and Development Expenses and Software” (Report Bi, 12, dated
March 31, 1999 from the Accounting System Committee of the Japanese Institute of Certified Public Accountants). Software costs for internal
use are amortized over their expected useful lives (less than 5 years) on a straight-line method.

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2. Summary of Significant Accounting Policies(1) Scope of Consolidation
The Company had 56 subsidiaries (majority-owned companies) as at February 28, 2001 (53 as at February 29, 2000). The consolidated financial statements include the accounts of the Company and its 21 consolidated subsidiaries (19 for 2000). The 21 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

Equity ownership percentage

Impact 21 Co., Ltd.
Acty 21 Co., Ltd.

56.1%
67.5

Partner 21 Co., Ltd.
Onward Life Design Network Co., Ltd.
Freed of London Ltd.
Onward Resort Creation Co., 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.
O.B.T. Co., Ltd.
Across Service Co., Ltd.
Onward Marine Co., Ltd.
Personal Order Japan Co., Ltd.
Onward Beach Resort Guam, Inc.
Bus Stop Co., Ltd.
Seagler Co., Ltd.
Oak Co., Ltd.
Chacott Co., Ltd.

80.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
90.3
100.0
100.0
100.0
100.0
100.0
95.2
28.6
60.5

Closing dateFebruary 29/28
March 31/
February 28
February 29/28
February 29/28
December 31
February 29/28
February 29/28
December 31
December 31
February 29/28
March 31
February 29/28
February 29/28
February 29/28
February 29/28
February 29/28
December 31
February 29/28
February 29/28
February 28
March 31

Pursuant to the amended consolidated financial statements regulations in Japan effective on April 1, 1999, the Company is required toinclude minority-owned companies in the consolidation if they are controlled directly or indirectly by the reporting entity. Accordingly, the scopeof consolidation of the Company changed in the year ended February 28, 2001. This change resulted in Oak Co., Ltd., and Chacott Co., Ltd.,
being included in the consolidation.
Although the original closing date of Excel Co., Ltd., and Chacott Co., Ltd., is March 31, the consolidated subsidiaries provisionally close
their accounts at February 29/28 solely in order to provide consolidated information for the Company.
In the accompanying consolidated financial statements, the accounts of the consolidated subsidiaries at their respective closing dates wereconsolidated with the accounts of the Company at February 28, 2001.
The remaining 35 subsidiaries (34 for 2000) 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 the Company.
(2) Consolidation and Elimination
For the purposes of preparing the consolidated financial statements of the Company, all significant intercompany transactions, accountbalances and unrealized profits among the Companies have been entirely eliminated, and the portion attributable to minority interests iscredited/charged thereto.
The difference between the cost of investments in consolidated subsidiaries and the equity in their net assets at dates of acquisition isamortized equally over a 5-year period. In case the amount of the difference is immaterial, it is credited/charged to income in the year it
incurred.
(3) Investments in Unconsolidated Subsidiaries and Affiliates
Although the Company had 35 unconsolidated subsidiaries (34 in 2000) and 4 affiliates (6 in 2000) as at February 28, 2001, the equity method
has not been applied to any of those subsidiaries and affiliates. This was because investment in the unconsolidated subsidiaries and affiliates
would not have had a material effect on the consolidated financial statements.

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ページ 18(W) 610pt x (H) 794pt—215 x 280mm(4) Translation of Foreign Currency Financial Statements (Accounts of Overseas Subsidiaries)
The financial statements of the consolidated overseas subsidiaries are translated into Japanese yen at the current rate at the balance sheet
date in conformity with the amended accounting standards with respect to foreign currency transactions and accounts which were promulgated by the Business Accounting Deliberation Council in Japan.
Revenue and expense items are translated into Japanese yen at the current rate at the balance sheet date.
(5) Inventories
Inventories are stated at cost, cost being determined generally by the last purchase invoice price method which approximates the first-in, firstout cost method. Merchandise 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 theend 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 determined based on the experience ofsales of merchandise similar to those unsold items during the immediately preceding three years. At February 28, 2001, the recorded writedown is ¥8,232 million ($70,722 thousand).
(6) Investments in Securities
Securities with market quotations are valued at the lower of cost or market and securities without market quotation are valued at cost, cost
being determined by the moving-average method.
(7) Property, Plant and Equipment
Depreciation is computed using the declining-balance method, at rates based on the estimate useful lives of assets which are prescribed by
Japanese income tax laws.
The Company computes depreciation expenses for buildings (other than improvements) acquired on and after April 1998 by the straight-line
method pursuant to the amendments to the Japanese income tax laws.
(8) Amortization
Intangible assets and long-term prepaid expenses are amortized on a straight-line method basis over the period regulated by the JapaneseCommercial Code and tax laws.
Software costs for internal use are amortized over their expected useful lives (less than 5 years) on a straight-line method basis.
(9) Income Taxes
Income taxes of the Company and its consolidated subsidiaries consist of corporate income taxes, local inhabitants’ taxes and enterprise taxes.
In the fiscal year ended February 28, 2001, the Company and its domestic consolidated subsidiaries adopted deferred tax accounting inaccordance with the amended consolidated financial statements regulations in Japan. Income taxes were determined using the asset and liability approach whereby deferred tax assets and liabilities were recognized in respect of temporary differences between the tax basis of assets
and liabilities and those as reported in the Consolidated Financial Statements. The cumulative effect of adopting deferred tax accounting at
March 1, 2000 was charged to retained earnings.
In the fiscal years ended February 29, 2000 and February 28, 1999, income taxes of the Company were provided for as amounts currently
payable based on the tax returns filed with tax authorities.
(10) Allowances
Allowance for doubtful accounts is provided at the amount equivalent to the limit deductible for tax purposes as prescribed by the tax laws.
Allowance for bonus payable to employees at the annual expected to be paid in respect of the calculation period ended on the balance sheet
date.
Allowance for accrued sales returns is provided on the basis of the allowable deductions under Japanese tax laws.
(11) Accounting for Leases
Finance leases other than those which are deemed to transfer the ownership of the lease assets to lessees are accounted for by a method similar to that applicable to ordinary operating leases.
(12) 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 notincluded in the accompanying consolidated statements of income.

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ページ 19(W) 610pt x (H) 794pt—215 x 280mm(13) Dividends
Dividends are declared by the Board of Directors and approved by the stockholders at meetings held subsequent to the fiscal year to which
the dividends are applicable, and stockholders of record as at the end of such fiscal year are entitled to the subsequently declared dividends.
Dividends charged to retained earnings represent dividends approved by the stockholders and paid during the respective years.
(14) Net Income and Dividends per Share
Net income per share is based upon the weighted average number of shares outstanding during each year. Cash dividends per share shownfor each year in the accompanying Consolidated Statements of Income represent dividends declared as applicable to the respective years
rather than those paid during the years.
(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 are able to thewithdrawn on demand and short-term investments which are readily convertible into cash and fall due within three months of acquisition andthus are not exposed to significant market risk.

3. Investments in Securities
The cost, estimated market value and unrealized gain of investments in securities (non current assets) as of February 28, 2001 were as follows:
Millions of yen

Investments in securities:
Marketable equity securities
Bonds
Other securities
Total

Thousands of U.S. dollars

Book
value

Estimatedmarket value

Unrealized
gain, net

Book
value

Estimatedmarket value

Unrealized
gain, net

¥28,866——¥42,276——¥13,410——$247,990——$363,196——$115,206——¥28,866¥42,276¥13,410$247,990$363,196$115,206(1) Stock of Market Value
Listed securities:

Principally based on the last price on the Tokyo stock exchange.

Over-the-counter securities: Based on trading prices issued by the Japan Securities Industry Association, etc.
(2) The book value of major securities that are excluded from the above presentation as of February 28, 2001 is as follows:
Millions of yen

Thousands of
U.S. dollars¥4,4704,400$38,40237,801

Investments in securities:
Unlisted securities (excluding over-the-counter securities)
Unlisted foreign bonds

4. Derivative Transactions
Derivative transactions are used in order to manage exchange risks and risks of market rate fluctuations which occur in the normal course ofbusiness. Derivatives are not used for speculative purposes or for highly leveraged transactions.
The contracted amounts of market values and valuation gains or losses for derivative transactions as of February 28, 2001 were as follows:
Millions of yen
Contract amount, etc.

Forward exchange contract:
Buying contract
USD
GBP
EURO
Italian lira
DM

Total

Over one year

Fair value

Valuation
gain or loss

¥2,484
8
102
14
5

¥—
—
—
—
—

¥2,845
8
101
16
4

¥361
0
(1)
2
(1)

¥2,613¥—¥2,974

¥361

19
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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, 2001, was reduced ¥8,966 million ($77,027 thousand), representing accumulated deferredgains from historic sales.

6. Retirement Plan and Retirement Benefits
Employees with more than 2 years of service with the Company are entitled to lump-sum retirement benefits determined by reference to thecurrent rate of pay, length of service and conditions under which the termination occurs. The Company has a funded pension plan which covers
55% of retirement benefits payable to employees who retire at the mandatory retirement age.
In connection with the funded pension plan, the Company has adopted a policy to provide for accrued retirement benefits (unfunded) in an
amount equivalent to 100% of the liabilities payable to all employees eligible for such benefits upon their voluntary retirement at the balance
sheet date, less the accumulated balance of fund assets for the pension plan.
As at February 28, 2001, fund assets aggregated ¥7,339 million ($63,050 thousand) with the past service liabilities being amortized over a 6year period.
With respect to directors and statutory auditors, the Company provides for lump-sum severance benefits on a basis which is similar to thatused for employees. While the Company has no legal obligation, it is the customary practice in Japan to make lump-sum payments to a director or statutory auditor upon retirement with the approval of the general meeting of stockholders. Annual provisions are made in the accounts
for the estimated costs of this unfunded termination plan in both the reporting company and consolidated subsidiaries as follows: Impact 21
Co., Ltd., O.B.T. Co., Ltd., Acty 21 Co., Ltd., Donna Karan Japan K.K., Oak Co., Ltd., and Chacott Co., Ltd.

7. Lease Transactions
The Company’s finance lease contracts which are not deemed to transfer the ownership of the leased assets are not capitalized underJapanese accounting principles. Certain key information on such lease contracts of the Company for the year ended February 28, 2001, is asfollows:(Lessee)
Assumed data as to acquisition cost, accumulated depreciation, net book value and depreciation expense of the leased assets, which
included the portion of interest thereon, is summarized as follows:
Millions of yen
Tools, furniture,and fixtures

Other

Acquisition cost
Accumulated depreciation¥2,804(1,346)

¥986
(490)

Net book value¥1,458¥496

Thousands of U.S. dollars
Total

Tools, furniture,and fixtures

Other

Total

¥3,790(1,836)$24,089(11,563)$8,471(4,210)$32,560(15,773)¥1,954$12,526$4,261$16,787

The scheduled maturities of future lease rental payments on such lease contracts as of February 28, 2001, are as follows:

Due within one year
Due over one year

Millions of yen

Thousands of
U.S. dollars

¥ 715
1,238

$ 6,142
10,636¥1,953$16,778

Millions of yen

Lease rental expenses for the year20
20

Thousands of
U.S. dollars

2000

2001

2001

¥571

¥854

$7,337

Qx/Onw ard A R 01.EPS 01.8.9 11:28 A M

ページ 21(W) 610pt x (H) 794pt—215 x 280mm(Lessor)Assumed data as to acquisition cost, accumulated depreciation, net book value and depreciation expense of the leased assets, which
included the portion of interest thereon, is summarized as follows:
Millions of yen
Tools, furniture,and fixtures

Other

Acquisition cost
Accumulated depreciation

¥355
(273)

¥157
(129)

Net book value

¥082

¥ 28

Thousands of U.S. dollars
Total

Tools, furniture,and fixtures

Other

Total

¥512
(402)

$3,050(2,345)$1,349(1,108)$4,399(3,453)¥110$0,705$ 241$0,946The scheduled maturities of future lease rental income on such lease contracts as of February 28, 2001, are as follows:

Due within one year
Due over one year

Millions of yen

Thousands of
U.S. dollars

¥053
85

$0,455730¥138$1,185

Millions of yen

Lease rental income for the year

Thousands of
U.S. dollars

2000

2001

2001

¥133

¥106

$911

8. Income Taxes
Deferred tax assets and liabilities as at February 28, 2001 consisted of the following elements:

Deferred Tax Assets:
Valuation loss on inventories
Evaluation loss on unconsolidated subsidiaries’ stock
Excess amount of tax deductible for bonus allowance
Excess amount of tax deductible for retirement allowance to employees
Allowance for directors’ retirement
Tax loss carried forward
OthersSubtotal
Valuation allowance
Total deferred tax assets
Deferred Tax Liabilities:
Reversal amount of reserve for advanced depreciation of replacement by purchase

Millions of yen

Thousands of
U.S. dollars¥02,717
754
401
3,683
708
9,991
2,088

$023,342
6,478
3,445
31,641
6,082
85,833
17,93820,342

174,759(8,844)(75,979)

11,49898,780

(25)

(215)

Total deferred tax liabilities

(25)

(215)

Net deferred tax assets¥11,473$098,565

Reconciliation between statutory tax rate and effective tax rate as at February 28, 2001:%

Statutory tax rate
(Reconciliation)
Non-deductible items (entertainment, etc.)
Losses by consolidated subsidiaries not utilizing deferred tax accounting
Unrecorded effective deferred tax amount on non-realizable loss
Recorded effective deferred tax amount on backup for consolidated subsidiaries
Other
Effective tax rate42.0)%
15.8
89.2
14.0
(145.6)(0.9)14.5)%

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9. Contingent Liabilities
The Company was contingently liable as a guarantor of bank loans made by certain affiliates of the Company. The outstanding guarantees
as at February 28, 2001, aggregated ¥3,547 million ($30,473 thousand).

10. Legal Reserve and Appropriation of Retained Earnings
Under the Japanese Commercial Code and the Company’s Articles of Incorporation, the plan for appropriation of retained earnings proposedby the Board of Directors must be approved at the stockholders’ meeting which must be held in May following the end of each fiscal year.
The appropriation of retained earnings reflected in the accompanying Consolidated Statements of Income represents the result of suchan appropriation applicable to the preceding fiscal period which was approved by the stockholders’ meeting and disposed of during the fiscal
period immediately following.
Under Japanese accounting practices, bonuses to directors and statutory auditors are paid out of retained earnings instead of being charged
to income of the year, and constitute a part of the appropriation explained above.
The Japanese Commercial Code 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 such reserve equalled 25% of paid-in capital. This reserve may be transferred to common stock by a resolution of the Board of Directors or used to reduce a deficit by a resolution of the stockholders’ meeting, but is not available for dividend payments.
The Company’s Board of Directors, with subsequent approval by stockholders, has made annual appropriations of retained earnings for various purposes, the accumulated balance of which is presented as “retained earnings” in the accompanying consolidated financial statements.
Any disposition of such appropriations is at the discretion of the Board of Directors and stockholders.

11. Subsequent Event
Subsequent to February 28, 2001, the Board of Directors proposed a plan for the appropriation of retained earnings applicable to the year
ended February 28, 2001 which was approved at the general meeting of stockholders held on May 24, 2001.
The proposed appropriation of retained earnings is shown below:

Retained earnings at February 28, 2001
Reversal amount of reserve for advanced depreciation of replacement by purchase
Appropriations:
Cash dividends (¥16.5 per share)
Transfer to legal reserve

Retained earnings to be carried forward

Millions of yen

Thousands of
U.S. dollars¥3,611
37$31,022
318

2,843
285

24,424
2,449

3,128

26,873¥0,520$04,467

12. Segment Information(1) Industry Segment Information
The Company and its 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 Company for the two years ended February 29/28, 2000 and 2001, is as follows:

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Year ended February 29, 2000

Millions of yen
Industry segment
Clothing

Other

Total

Elimination ofintersegment sales

Consolidated
total

Sales to outside customers
Intersegment sales¥211,591
8¥ 9,615
10,547¥221,206
10,555¥—(10,555)¥221,206—

Total
Costs and expenses

211,599
194,561

20,162
19,943

231,761
214,504(10,555)(10,559)

221,206
203,945

Operating income¥017,038¥

219¥ 17,257¥4¥ 17,261

AssetsDepreciation
Capital expenditures¥283,133
5,219
8,351

¥53,218941
594¥336,351
6,160
8,945

¥(39,636)
(56)
(64)

¥296,715
6,104
8,881

Year ended February 28, 2001

Millions of yen
Industry segment
Clothing

Other

Total

Elimination ofintersegment sales

Consolidated
total

Sales to outside customers
Intersegment sales¥237,177
18¥08,747
11,657¥245,924
11,675¥ 0000—(11,675)¥245,924—

Total
Costs and expenses

237,195
220,325

20,404
20,410257,599
240,735(11,675)(11,555)

245,924
229,180

Operating income¥016,870¥0000(6)¥016,864¥00,(120)¥016,744

AssetsDepreciation
Capital expenditures¥285,390
5,458
8,725

¥46,221862
2,086¥331,611
6,320
10,811¥(19,353)
(59)
(79)

¥312,258
6,261
10,732

Year ended February 28, 2001

Thousands of U.S. dollars
Industry segment
Clothing

Other

Total

Elimination ofintersegment sales

Consolidated
total

Sales to outside customers
Intersegment sales$2,037,603
155$075,146
100,146$2,112,749
100,301$ 00000—(100,301)$2,112,749—

Total
Costs and expenses

2,037,758
1,892,827

175,292
175,344

2,213,050
2,068,171(100,301)(99,271)

2,112,749
1,968,900

Operating income$0.144,931$0000(52)$0,144,879$00(1,030)$0,143,849

AssetsDepreciation
Capital expenditures$2,451,804
46,89074,957$397,088
7,405
17,921$2,848,892
54,29592,878$(166,263)
(507)
(679)

$2,682,629
53,78892,199(2) Geographic Segment Information
Geographic segment information is omitted because over 90 percent of total sales and total assets relate to only the domestic segment.
(3) Overseas Sales
Overseas sales information is omitted because the amount of total overseas sales of the Company and its consolidated subsidiaries is under 10
percent of consolidated sales amount.

23
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Report ofIndependent Accountants

To the Board of Directors of ONWARD KASHIYAMA Co., Ltd.:We have audited the consolidated balance sheets of ONWARD KASHIYAMA Co., Ltd. and its subsidiaries as of February 29/28, 2000 and 2001,
the related consolidated statements of income and stockholders’ equity for each of the three years in the period ended February 28, 2001, andthe statement of cash flows for the period ended February 28, 2001, all expressed in Japanese yen. Our audits were made in accordance withauditing standards, procedures and practices generally accepted and applied in Japan and, accordingly, included such tests of the accounting
records and such other auditing procedures as we considered necessary in the circumstances.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of
ONWARD KASHIYAMA Co., Ltd. and its consolidated subsidiaries as of February 29/28, 2000 and 2001, the results of their operations for eachof the three years in the period ended February 28, 2001, and their cash flows for the period ended February 28, 2001, in conformity withaccounting principles and practices generally accepted in Japan (see Note 1) applied on a consistent basis.

The amounts expressed in U.S. dollars, provided solely for the convenience of the reader, have been translated on the basis set forth in Note 1
to the accompanying consolidated financial statements.

ChuoAoyama Audit Corporation

Tokyo, JapanMay 24, 2001

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Non-Consolidated

Statements of Income and Retained Earnings

Onward Kashiyama Co., Ltd.
For the years ended February 28/29/28, 1999, 2000 and 2001

Thousands of
U.S. dollars (Note 1)

Millions of yen

Net sales
Cost of sales

1999

2000

2001

2001

¥169,167
97,576¥164,685
91,609¥161,281
88,486$1,385,576
760,189

71,59173,076

72,795625,387

Reversal of allowance for sales returns, net

483

248

511

4,390

Gross profit
Selling, general and administrative expenses

72,07461,05073,32460,94673,306
61,709629,777
530,146

Operating income

11,024

12,378

11,597

99,631Other income/(expenses):
Interest and dividend income
Loss on disposal of property
Reversal of gain on investment in securities
Loss on write-down of investments in securities
Royalty income
Loss on backup for subsidiaries and affiliates
Loss on liquidation of subsidiaries and affiliates
Provisions for allowance for doubtful accounts
Additional retirement payment
Other, net

949
(151)
—
(1,837)
724
—
—
—
—
1,240

932
(17)
—
(1,643)695—(2,266)
—
—
3,097

850
(60)
1,156
(146)
750
(12,131)(4,898)(2,657)(3,075)
32

7,302
(515)
9,931
(1,254)
6,443(104,218)(42,079)(22,826)(26,418)
274

925

798

(20,179)(173,360)(Loss) income before income taxes

11,94913,176(8,582)(73,729)

Income taxes (Note 2. (5)):
Current
Deferred

6,122
—

7,200
—

2,049
(4,351)

17,603(37,380)

6,122

7,200

(2,302)(19,777)

5,827

5,976

(6,280)(53,952)

12,203
—

9,501
—

9,495
6,224

81,57253,470

—

—

32

275

(2,842)(321)(5,000)(366)(2,843)(317)(2,500)(322)(2,843)(307)(2,500)(210)(24,424)(2,637)(21,478)(1,804)(8,529)(5,982)(5,860)(50,343)9,495¥03,611$0,031,022

Net (loss) income

Retained earnings:
Balance at beginning of year
Cumulative effect of adopting deferred tax accounting
Reversal of amount of advance depreciation
due to adopting of deferred tax accounting
Appropriations (Note 11):
Cash dividends
Transfer to legal reserve
Transfer to general reserve
Directors’ bonuses

Balance at end of year

¥

9,501

¥

Yen

Per share:
Net (loss) income
Cash dividends
The accompanying notes are an integral part of these statements.

¥33.8
16.5

¥34.7
16.5

U.S. dollars (Note 1)¥(36.5)16.5$(0.314)
0.142

25
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Non-Consolidated
Balance Sheets

Onward Kashiyama Co., Ltd.
February 29/28, 2000 and 2001

Thousands of
U.S. dollars (Note 1)

Millions of yen

ASSETS

2000

2001

2001

6,607

¥008,790$0,075,515

44,011

32,106

275,825

Current assets:
Cash¥

Time deposits
Trade receivables:
Notes

7,448

4,627

39,751

Accounts

17,83816,306140,086

25,286

20,933

179,837

(161)

(102)

(876)

Less: Allowance for bad debts

25,125

20,831

178,961

Inventories (Note 3)

18,025

18,570159,536

Advance payments

376

950

8,161

Deferred tax assets—current

—

2,011

17,277

1,315

1,210

10,39595,45984,468725,670

Investments in securities (Note 2. (2))

30,81532,824

281,993

Investments in and advances to subsidiaries and affiliates

34,592

22,145

190,249

Long-term loans to employees

394

376

3,230

Deferred tax assets—noncurrent

—

8,564

73,574

8,014

8,511

73,11973,81572,420622,165

Buildings and structures

37,40547,984412,234

Machinery and equipment

2,041

2,034

17,474Tools, furniture and fixtures

4,975

5,870

50,430

Other current assets
Total current assets

Investments and advances:

Other investments

Property, plant, and equipment (Note 4):

Less: Accumulated depreciation

480,138(220,095)

20,06230,269260,043

45,07547,553

408,531

Construction in progress

3,217

—

—

68,354

77,822

668,574

6,027

5,733

49,253¥243,655¥240,443$2,065,662

The accompanying notes are an integral part of these statements.

26

55,888(25,619)

Land

Deferred charges and other assets

26

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Thousands of
U.S. dollars (Note 1)

Millions of yen

LIABILITIES AND STOCKHOLDERS’ EQUITY

2000

2001

2001

¥ 24,219¥024,356$0,209,244

6,727

6,247

53,668Current liabilities:
Trade payables:
Notes
Accounts

30,94630,603262,912

Non-trade payables

856

2,391

20,541

Accrued expenses

5,251

4,352

37,389Accrued income taxes (Note 2. (5))

3,976

846

7,268

681

261

2,242

Accrued bonuses to employees

2,053

1,888

16,220Allowance for sales returns

1,985

1,474

12,663251

1,178

10,12145,99942,993369,356

18,084

Consumption tax payable

Other current liabilities
Total current liabilities

Long-term liabilities:
Long-term guarantee money deposited

2,088

2,105

Accrued retirement benefits (Note 5)

11,654

10,67091,667—3,870

33,24813,742

16,645

142,999

Provisions for loss of guarantee obligations
Total long-term liabilities

Contingent liabilities (Note 8)

Stockholders’ equity:
Common stock, par value ¥50 per share:
Authorized—400,000,000 shares
30,08030,080258,419

Additional paid-in capital

Outstanding—172,292,587 shares at February 29/28, 2000 and 2001

49,135

49,135422,122

Legal reserve (Note 9)

4,891

5,198

44,656

General reserves (Note 9)90,20992,709796,469

Special reserves
Retained earnings (Note 9)
Total stockholders’ equity

104

72

619

9,495

3,611

31,022

183,914

180,805

1,553,307¥243,655¥240,443$2,065,66227
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Non-Consolidated
Statements of Stockholders’ Equity

Onward Kashiyama Co., Ltd.
For the years ended February 28/29/28, 1999, 2000 and 2001

Balance as at February 28, 1998:

Number ofshares ofcommon stock(thousands)

Millions of yen
Commonstock

Additional
paid-in
capitalLegalreserve

Generalreserves

Specialreserves

Retainedearnings

172,291¥30,079¥49,134¥4,253¥82,709¥104¥12,203

Cash dividends

—

—

—

—

—

—

(2,842)

Transfer to legal reserve

—

—

—

321

—

—

(321)

Transfer to general reserves

—

—

—

—

5,000

—

(5,000)

Directors’ bonuses

—

—

—

—

—

—

(366)

Conversion of convertible bonds

2

1

1

—

—

—

—

Net income for the year ended February 28, 1999

—

—

—

—

—

—

5,827

172,293

30,08049,135

4,574

87,709

104

9,501

—

—

—

—

—

—

(2,843)

Balance as at February 28, 1999:
Cash dividends
Transfer to legal reserve

—

—

—

317

—

—

(317)

Transfer to general reserves

—

—

—

—

2,500

—

(2,500)

Directors’ bonuses

—

—

—

—

—

—

(322)

Net income for the year ended February 29, 2000

—

—

—

—

—

—

5,976

172,293

30,08049,135

4,891

90,209

104

9,495

—

—

—

—

—

—

6,224

Balance as at February 29, 2000:
Cumulative effect of adopting deferred tax accounting
Reversal amount of advance depreciation
due to adopting deferred tax accounting

—

—

—

—

—

(32)

32

Cash dividends

—

—

—

—

—

—

(2,843)

Transfer to legal reserve

—

—

—

307

—

—

(307)

Transfer to general reserves

—

—

—

—

2,500

—

(2,500)

Directors’ bonuses

—

—

—

—

—

—

(210)

Net loss for the year ended February 28, 2001

—

—

—

—

—

—

(6,280)172,293¥30,080¥49,135¥5,198¥92,709¥072¥03,611

Number ofshares ofcommon stock(thousands)

Commonstock

Additional
paid-in
capitalLegalreserve

Generalreserves

Specialreserves

Retainedearnings

172,293$258,419$422,122$42,019$774,991$894$81,572

—

—

—

—

—

—

53,470

Balance as at February 28, 2001

Balance as at February 29, 2000:
Cumulative effect of adopting deferred tax accounting

Thousands of U.S. dollars (Note 1)

Reversal amount of advance depreciation
due to adopting deferred tax accounting

—

—

—

—

—

(275)

275

Cash dividends

—

—

—

—

—

—

(24,424)

Transfer to legal reserve

—

—

—

2,637

—

—

(2,637)

Transfer to general reserves

—

—

—

—

21,478—(21,478)

Directors’ bonuses

—

—

—

—

—

—

(1,804)

Net loss for the year ended February 28, 2001

—

—

—

—

—

—

(53,952)

172,293$258,419$422,122$44,656$796,469$619$31,022

Balance as at February 28, 2001
The accompanying notes are an integral part of these statements.

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Notes toNon-Consolidated Financial Statements

Onward Kashiyama Co., Ltd.

1. Basis of Presentation of the Non-Consolidated Financial Statements(1) Accounting Principles
The accompanying non-consolidated financial statements have been prepared from accounts maintained by ONWARD KASHIYAMA Co., Ltd.
(the “Company”), in accordance with the provisions set forth in the Japanese Commercial Code (the “Code”) and in conformity with accounting
principles and practices generally accepted in Japan, which are different in certain respects as to application and disclosure requirements ofInternational Accounting Standards.
Certain items presented in the non-consolidated financial statements submitted to the Director of the Kanto Finance Bureau in Japan havebeen reclassified for the convenience of readers.
The accompanying non-consolidated financial statements are not intended to present the financial position or results of operations of theCompany in accordance with accounting principles and practices generally accepted in countries and jurisdictions other than Japan.
Amounts in U.S. dollars are included solely for the convenience of readers outside Japan. The rate of ¥116.40=US$1, the rate of exchange
as of February 28, 2001, has been used in translation. The inclusion of such amounts is not intended to imply that Japanese yen have been or
could be readily converted, realized or settled in U.S. dollars at that rate or any other rate.
(2) Additional Information•Accounting for software developed for internal use
Refer to Note 1. (3) to the consolidated financial statements.
•Adoption of deferred tax accounting
Under the amended consolidated financial statements regulations in Japan, deferred tax accounting was adopted with effect from the beginning of this fiscal year. Following its adoption, deferred tax assets of ¥10,575 million (current: ¥2,011 million, noncurrent: ¥8,564 million) were
newly recorded. Also, the net loss for the year decreased by increased by ¥4,350 million and the retained earnings at the year-end increasedby ¥10,606 million.

2. Summary of Significant Accounting Policies(1) Inventories
Inventories are stated at cost, cost being determined generally by the last purchase-invoice price method which approximates the first-in,
first-out cost method. Merchandise 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 theend 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 determined based on the experience ofsales of merchandise similar to those unsold items during the immediately preceding three years. At February 28, 2001, the recorded writedown is ¥5,120 million ($43,986 thousand).
(2) Investments in Securities
Refer to Note 2. (6) to the consolidated financial statements.
(3) Property, Plant, and Equipment
Property, plant, and equipment are generally stated at cost. Depreciation is computed using the declining-balance method, at rates based on
the estimated useful lives of assets which are prescribed by Japanese income tax laws. The range of useful lives is summarized as follows:
Buildings and structures ................. 3–50 years
Machinery and equipment .............. 3–20 years
According to a recent amendment of Japanese income tax laws, depreciation for buildings (excluding leasehold improvements and auxiliary
facilities attached to buildings), which were acquired on or after April 1998, has been computed by the straight-line method.
(4) Amortization
Refer to Note 2. (8) to the consolidated statements.
(5) Income Taxes
Refer to Note 2. (9) to the consolidated statements.

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ページ 30(W) 610pt x (H) 794pt—215 x 280mm(6) Allowances
The provisions for loss of guarantee obligations is provided in case the Company is obliged to pay for the guaranteed subsidiaries. In estimating
the allowance, the Company considers the financial condition of each subsidiary.
Please also refer to Note 2. (10) to the consolidated financial statements.
(7) Lease Transactions
Refer to Note 2. (11) to the consolidated financial statements.
(8) Accounting for Consumption Tax
Refer to Note 2. (12) to the consolidated financial statements.
(9) Dividends
Refer to Note 2. (13) to the consolidated financial statements.
(10) Net Income and Dividends per Share
Refer to Note 2. (14) to the consolidated statements.

3. Inventories
Inventories at February 29/28, 2000 and 2001, consisted of the following:
Millions of yen

Merchandise and finished goods
Raw materials
Work-in-process
Supplies

Thousands of
U.S. dollars

2000

2001

2001

¥14,840
2,141
855
189

¥15,016
1,852
1,561
141

$129,003
15,911
13,411
1,211¥18,025¥18,570$159,536

Write-downs of finished goods and merchandise to net realizable value are charged to cost of sales. Such write-downs for the years ended
February 29/28, 2000 and 2001, amounted to ¥5,759 million and ¥5,121 million ($43,995 thousand), respectively.

4. Property, Plant, and Equipment
The Japanese tax regulations allow a company to defer capital gains on the sales 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, 2001, was reduced by ¥8,966 million ($77,027 thousand), representing accumulated
deferred gains from historic sales.

5. Retirement Plan and Retirement Benefits
Employees with more than 2 years of service with the Company are generally entitled to lump-sum retirement benefits determined byreference to the current rate of pay, length of service and conditions under which termination occurs. The Company has a funded pension
plan which covers 55% of retirement benefits payable to employees who retire at the mandatory retirement age. In connection with the fundedpension plan, the Company has adopted a policy to provide for accrued retirement benefits (unfunded) in an amount equivalent to 100%of the liabilities payable to all employees eligible for such benefits upon their voluntary retirement at the balance sheet date, less the accumulated balance of fund assets for the pension plan.

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As at February 28, 2001, fund assets aggregated ¥6,813 million ($58,531 thousand), with the past service liabilities being amortized overa 6-year period.
With respect to directors and statutory auditors, the Company provides for lump-sum severance benefits on a basis similar to that used
for employees. While the Company has no legal obligation, it is the customary practice in Japan to make lump-sum payments to a director
or statutory auditor upon retirement with the approval of the general meeting of stockholders. Annual provisions are made in the accounts
for the estimated costs of this termination plan, which is not funded.

6. Lease Transactions
The Company’s finance lease contracts which are not deemed to transfer the ownership of the leased assets are not capitalized underJapanese accounting principles. Certain key information on such lease contracts of the Company for the years ended February 29/28, 2000
and 2001, is as follows.
Assumed data as to acquisition cost, accumulated depreciation, net book value and depreciation expense of the leased assets, which
included the portion of interest thereon, are summarized as follows:
Millions of yen
2000
Tools, furniture,and fixtures

Other

Acquisition cost
Accumulated depreciation¥1,137
(647)

¥184
(102)

Net book value

¥ 490

¥ 82

Thousands of U.S. dollars
2001

Total

Tools, furniture,and fixtures

Other¥1,321(749)¥1,083
(583)

¥224
(126)

¥ 572

¥0,500

¥098

2001
Total

Tools, furniture,and fixtures

Other

Total

¥1,307(709)$9,304(5,009)$1,925(1,082)$11,229(6,091)¥0,598$4,295$0,843$05,138

The scheduled maturities of future lease rental payments on such lease contracts as of February 29/28, 2000 and 2001, are as follows:
Millions of yen

Due within one year
Due over one year

2000

2001

2001

¥270
302

¥252
346

$2,165
2,973

¥572

¥598

$5,138Millions of yen

Lease rental expenses for the year
Depreciation

Thousands of
U.S. dollars

Thousands of
U.S. dollars

2000

2001

2001

¥314
314

¥281
281

$2,414
2,414

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7. Income Taxes
Deferred tax assets and liabilities as at February 28, 2001 consisted of the following elements:

Deferred Tax Assets:
Valuation loss on inventories
Evaluation loss on unconsolidated subsidiaries’ stock
Excess amount of tax deductible for retirement allowance to employees
Allowance for directors’ retirement
Provisions for guarantee obligations
OthersTotal deferred tax assets
Deferred Tax Liabilities:
Reversal amount of reserve for advanced depreciation of replacement by purchase

Millions of yen

Thousands of
U.S. dollars¥01,201
3,006
2,155
595
1,626
2,017

$10,318
25,825
18,514
5,112
13,96917,328

10,60091,066

(25)

(215)

Total deferred tax liabilities

(25)

(215)

Net deferred tax assets¥10,575$90,851

Reconciliation between statutory tax rate and effective tax rate as at February 28, 2001:%

Statutory tax rate
(Reconciliation)
Non-deductible items (entertainment, etc.)
Non taxable items (dividend income, etc.)
Inhabitant tax per capita basis
Effective tax rate42.0)%
16.6
(1.9)
0.5
26.8)%

Please also refer to Note 8 to the consolidated financial statements.

8. Contingent Liabilities
The Company was contingently liable as a guarantor of bank loans made by certain subsidiaries and affiliates of the Company. The outstanding
guarantees as at February 28, 2001 aggregated ¥17,255 million ($148,239 thousand).

9. Legal Reserve and Appropriation of Retained Earnings
Refer to Note 10 to the consolidated financial statements.

10. Subsequent Event
Refer to Note 11 to the consolidated financial statements.

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Report ofIndependent Accountants

To the Board of Directors of Onward Kashiyama Co., Ltd.:We have audited the accompanying non-consolidated balance sheets of ONWARD KASHIYAMA Co., Ltd. as of February 29/28, 2000 and
2001, and the related non-consolidated statements of income, retained earnings and stockholders’ equity for each of the three years in the
period ended February 28, 2001, all expressed in Japanese yen. Our audits were made in accordance with auditing standards, procedures andpractices generally accepted and applied in Japan and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.

In our opinion, the non-consolidated financial statements referred to above present fairly, in all material respects, the non-consolidated financial
position of ONWARD KASHIYAMA Co., Ltd. as of February 29/28, 2000 and 2001, and the results of its operations for each of the three years
in the period ended February 28, 2001, in conformity with accounting principles generally accepted in Japan (see Note 1) applied on a consistent basis.

The amounts expressed in U.S. dollars, provided solely for the convenience of the reader, have been translated on the basis set forth in Note 1
to the accompanying non-consolidated financial statements.

ChuoAoyama Audit Corporation

Tokyo, JapanMay 24, 2001

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Board ofDirectors

CHAIRMANSENIOR MANAGING DIRECTORSEXECUTIVE OFFICERS

Akira Baba*

Kinshi Kurihara

Kazuya Baba

Tenji Tanaka

Akio Date

VICE CHAIRMAN
Sadajiro Gion*

Isao Yamane
MANAGING DIRECTOR

Nobutake Matsuo

Masao Ohno

Hideo Hisamichi

PRESIDENT
Takeshi Hirouchi*

VICE PRESIDENT

Susumu Maeda
DIRECTORS

Masaaki Yoshizawa

Takaharu Torikoshi

Kisaku Uragami

Ohtsuka Yuji

Hiroshi ImaiKenji Takada*Masabumi Kiyohara
SENIOR EXECUTIVE OFFICERS*Representative Director

Tadayoshi Kobayashi

Takashi Nakamura
Fumiyasu Yamashita

STANDING AUDITORS

Masaru Kusaki

Katsutoshi Kashiyama

Yoshiaki Hanada

Yukio Sugimoto

Ryuji Horie

Yasumitsu Miyamoto

Tetsuji Wada

Kusunoki Masao

Kentaro Mizuno
Uemura Shigeru
As of May 24, 2001

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Organization
Chart

Board of Directors
Chairman
Auditors

Vice Chairman
President

Director in Charge of Affiliated Companies
Director in Charge of Production

Management Council
Vice President(Director in Charge of
Onward Group Business)

Men’s Office Clothes Business Group
Men’s Casual Clothes Business GroupManagement Planning
Division

Women’s Business Group
23 ku Business GroupKUMIKYOKU Business GroupICB Business Group

Secretariat
Department
Public Relations
Department

Jean-Paul Gaultier Business GroupPaul Smith Business Group

Office of the President
Director in
Charge ofSales andMarketingCustomer Service
Department

Michael Kors Business Group
J. Press Business GroupSportswear Business Group

Advertising DivisionMarketing Division
General Affairs
Division

KUMIKYOKU FEMME Business GroupChildren’s Business Group
Lifestyle Goods Business Group
Third Business GroupAccounting Division

Kimono Business Group

Human Resources
Division

Research & Development Business Group

Director in Chargeof Logistics for
Onward Group

Onward Apparel Group
Direct Sales Development Business Group
Production Division

Logistics Division

Business Promotion OfficeInformation System
Division

Sales Promotion Division

Onward ResearchInstitute

Accounting Management OfficeInternational Operations BusinessGroup
Trading Business GroupTokyo Branch
Kanto Branch
Osaka Branch
Fukuoka Branch
Nagoya Branch
Sapporo Branch
Sendai Branch
Hiroshima Branch

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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 KASHIYAMA
U.S.A. INC.
499 Seventh Avenue,
7th & 8th Floors, South Tower,
New York, N.Y. 10018, U.S.A.
Tel: (1) 212-629-6100
ONWARD KASHIYAMAHONG KONG LTD.
UNIT 1208-9, Lippo Sun Plaza,
28 Canton Road, T.S.T.,
Kowloon, Hong Kong
Tel: (852) 2367-2055, 2721-7068
ONWARD KASHIYAMA U.K. LTD.
47, Conduit Street,
W1 London, U.K.
Tel: (44) 20-7494-2074
ONWARD KASHIYAMACANADA INC.
Suit 3600,
Toronto Dominion Bank Tower,
Toronto-Dominion Centre,
Toronto, Ontario, Canada M5K ING6

GIBO CO. S.p.A.
Via Cassia 69, 50029 Tavarnuzze,
Firenze, Italy
Tel: (39) 055-237-2020

DOMESTIC SUBSIDIARIESONWARD ITALIA S.p.A.
Via Della Spiga 9, 20121 Milano, Italy
Tel: (39) 02-783-667

CHACOTT CO., LTD.

SHANGHAI ONWARD
FASHION CO., LTD.
Meilongzhen Plaza 26F, Room 10,1038 Nanjing West Road,
Shanghai, P.R.C.
Tel: (86) 21-6217-6886

ACROSS TRANSPORT CO., LTD.

ONWARD RETAIL L.L.C.
499 Seventh Avenue,
7th & 8th Floors, South Tower,
New York, N.Y. 10018, U.S.A.
Tel: (1) 212-629-6100
ONWARD KASHIYAMAKOREA CO., LTD.
U-SAM BLD., 2F, 584-1 Shinsa-Dong,
Kangnam-ku, Seoul, Korea 135-120
Tel: (82) 2-548-5841
HOLOGE SAINT BENOIT S.A.
22 Rue Saint Benoit, 75006
Paris, France
Tel: (33) 1-4544-1118
ONWARD BEACH RESORT GUAM,
INC.
445 Governor Carlos G. Camacho Road,
Tamuning, Guam 96911, U.S.A.
Tel: (1) 671-647-7777
FREED OF LONDON LTD.
94 Street, Martin’s Lane,
London WC2N 4AT
Tel: (44) 071-240-0432

OAK CO., LTD.
IMPACT 21 CO., LTD.

O & K CO., LTD.

ACROSS SERVICE CO., LTD.
ONWARD LIFE DESIGNNETWORK CO., LTD.
ONWARD CREATIVE CENTER
CO., LTD.
PERSONAL ORDER JAPANCO., LTD.
VOICEDAM CO., LTD.
ONWARD MARINE CO., LTD.
BUS STOP CO., LTD.
O•B•T CO., LTD.
ACTY 21 CO., LTD.
PARTNER 21 CO., LTD.
DONNA KARAN JAPAN K.K.
EXCEL CO., LTD.
ONWARD BEACH RESORT
CO., LTD.
FIELD DREAM CO., LTD.
W•I•O CO., LTD.
+A VIA BUS CO., LTD.
As of May 24, 2001

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Corporate

Data and Offices

Head Office

3-10-5, Nihonbashi, Chuo-ku, Tokyo 103-8239
Tel: (03) 3272-2317
Fax: (03) 3272-2314
URL: http://www.onward.co.jp

Established

September 1947

Paid-in Capital¥30,080 million

Common Stock

Authorized—400,000,000 shares
Issued—172,292,587 shares

Stock Listings

Tokyo, Osaka, and Nagoya stock exchanges

Transfer Agent

The Toyo Trust & Banking Co., Ltd.

Number of Employees

2,107

OFFICES
Head Office
3-10-5, Nihonbashi,
Chuo-ku, Tokyo
Tel: (03) 3272-2317
Tokyo Shibaura Bldg. No. 1
3-9-32, Kaigan,
Minato-ku, Tokyo
Tel: (03) 5476-5102
Tokyo Shibaura Bldg. No. 2
3-11-6, Kaigan,
Minato-ku, Tokyo
Tel: (03) 5476-5102
Tokyo Shibaura Bldg. No. 3
3-14-11, Kaigan,
Minato-ku, Tokyo
Tel: (03) 5476-5102
Tokyo Shibaura Bldg. No. 4
3-14-21, Kaigan,
Minato-ku, Tokyo
Tel: (03) 5476-5102
Atsugi Distribution Center
1434, Aikokatamachi,
Atsugi, Kanagawa
Tel: (046) 230-2520
Osaka Regional Office
4-3-6, Honmachi,
Chuo-ku, Osaka
Tel: (06) 6252-1010

Miyakojima Operations Center
5-10-7, Takadono,
Asahi-ku, Osaka
Tel: (06) 6952-3211
Osaka Plant
2-10, Kusunekitamachi,
Neyagawa, Osaka
Tel: (0720) 24-3311
Kanto Regional Office
3-11-6, Kaigan,
Minato-ku, Tokyo
Tel: (03) 5476-5102
Fukuoka Regional Office
2-6-43, Daimyo,
Chuo-ku, Fukuoka
Tel: (092) 712-2111
Sapporo Regional Office16-1, Kitaichijonishi,
Chuo-ku, Sapporo
Tel: (011) 644-4440
Sendai Regional Office
1-6-8, Kamisugi,
Aoba-ku, Sendai
Tel: (022) 262-8411

Sendai Regional Office
Ayashi Building
2-2-22, Ochiai,
Aoba-ku, Sendai
Tel: (022) 392-8585
Nagoya Regional Office
4-11-31, Meiekiminami,
Nakamura-ku, Nagoya
Tel: (052) 563-2311
Nagoya Inazawa Operation Center
79-3, Shimozu, Ushiarai-cho,Inazawa, Aichi
Tel: (0587) 24-5851
Hiroshima Regional Office
3-12-10, Minami-Kanon,
Nishi-ku, Hiroshima
Tel: (082) 293-2311
Onward Daikanyama
Fashion Building,
28-7, Sarugaku-cho,Shibuya-ku, Tokyo
Tel: (03) 3770-8271
Institute Onward S ōken
3-9-3, Ushikubo,
Tsuzuki-ku, Yokohama
Tel: (045) 912-8812

As of February 28, 2001

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Head Office: 3-10-5, Nihonbashi, Chuo-ku, Tokyo 103-8239
Tel: (03) 3272-2317

Printed in Japan

4