Annual Report 2007
Year Ended February 28, 2007

C R E A T I N G
T O M O R R O W’S
L I F E S T Y L E S

Annual Report 2007

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

Contents

01 Financial Highlights

23 Consolidated Statements of Cash Flows

02 A Message to Our Shareholders

25 Notes to Consolidated Financial Statements

05 Onward’s Brand-Leveraged Management and World Strategy

42 Report of Independent Accountants

08 Business Overview

43 Non-Consolidated Balance Sheets

10 Topics

45 Non-Consolidated Statements of Income

11 Corporate Governance

46 Non-Consolidated Statements of Changes in Net Assets

12 Board of Directors

48 Notes to Non-Consolidated Financial Statements

13 Organization Chart

55 Report of Independent Accountants

14 Consolidated Six-Year Summary

56 Principal Subsidiaries

15 Management’s Discussion and Analysis

57 Corporate Data

18 Consolidated Balance Sheets

Future business plans, targets, and related numerical figures presented in this annual report are intended

20 Consolidated Statements of Income

to give an accurate picture of Onward’s future prospects. However, no guarantee can be offered that

21 Consolidated Statements of Changes in Net Assets

targets is dependent not only on the efforts of the Company but also the conditions facing the industry asplans, targets, and other numerical figures described herein can be realized. The achievement of stated
a whole, and we ask for understanding in this regard.

ONWARD KASHIYAMA Co., Ltd.

Financial Highlights

ONWARD KASHIYAMA Co., Ltd. and Subsidiaries
Years ended February 28, 2006 and 2007
Thousands of
U.S. dollars

Millions of yen
2006

2007

2007

At year-end:
Total current assets
Total current liabilities
Short-term loans
Total shareholders’ equity¥135,769
97,617
26,419201,599¥135,197
103,494
26,916
212,600$1,141,479
873,806
227,256
1,795,006

For the year:
Net sales
Operating income
Net income¥283,111
24,708
11,091¥318,691
25,431
11,438$2,690,735
214,720
96,572Yen

Per share:
Net income—basic
Cash dividends

U.S. dollars

¥63.8
24.0

¥70.5
26.0

5.4
8.7

5.3
7.9

ROE (%)
Operating income margin (%)$0.5950.220

Note: Yen amounts have been translated, for convenience only, at ¥118.44=US$1, the approximate exchange rate on February 28, 2007.

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

Net Income (Millions of yen)
Years ended February 28 or 29

Total Shareholders’ Equity (Millions of yen)

350,000

15,000240,000

300,000

At February 28 or 29

200,000

12,000250,000

160,000
9,000

200,000

120,000
150,000

6,000
80,000100,000
3,000

40,00050,0000

0’03 ’04 ’05 ’06 ’07

0’03 ’04 ’05 ’06 ’07’03 ’04 ’05 ’06 ’07

01

Annual Report 2007

A Message to Our Shareholders

Takeshi Hirouchi
Chairman & CEO

In fiscal 2007, ended February 28, 2007, ONWARD KASHIYAMA Co., Ltd., recorded increases over the previous year in consolidated revenues and profits, as net sales, ordinary income, and net income all posted further
gains.
Onward will work to attain a dominant competitive advantage through the aggressive implementation of its
policy of Brand-Leveraged Management, which aims at maximizing the value of its brands.

Performance in Fiscal 2007
During the fiscal year under review, the Japanese economy remained on a moderate recovery trend but, as a resultof weakness in income growth, consumer spending failed to attain a full-scale recovery. The operating environment
for Japan’s apparel industry presented tough challenges because of sudden changes in consumption trends, more
intense competition with other companies, including foreign brands, and the unexpectedly severe impact of unseasonable weather conditions.
Amid these operating conditions, we actively implemented our Channel-Specific Brand Strategy, continuing todevelop brands appropriate for different distribution channels, and worked to enhance the accuracy and success ratiosof product planning and merchandising through our more finely tuned Eight-Season, 52-Week Merchandising policy.
For the fiscal year, we expanded our market share, principally in department stores, and attained our net sales target. Nevertheless, because of unseasonable weather conditions and other factors, market conditions were extremely
tough and, as a consequence of the rise in inventories at fiscal year-end, inventory valuation losses rose above those of
the previous year, leading to a decline in the gross profit margin.
In the fiscal year under review, 19 additional subsidiaries in Europe, Asia, and North America were included within thescope of consolidation. In Europe, based on the power of their respective brands, the GIBO’ CO. Group and the JOSEPHGroup reported especially smooth expansion in sales and contributed to consolidated net sales and net income.
As a consequence, in fiscal 2007 we were able to record further increases in revenues and income. Net sales posted a gain of 12.6%, to ¥318,691 million, operating income was up 2.9%, to ¥25,431 million, and ordinary income
increased 0.9%, to ¥27,407 million.

Policies and Strategies in Fiscal 2008
Regarding the economic environment, we anticipate a further gradual recovery in the Japanese economy supported
by favorable revenue and income performances in the corporate sector. In the apparel industry, competition among
companies already operating in the industry and from new entrants from other sectors is likely to grow more intense,
as leading foreign brands enter the Japanese market and new IT-based sales channels, such as sales via portable

02

ONWARD KASHIYAMA Co., Ltd.

Shigeru Uemura
President

phones, are introduced. These various factors mean we must continue to closely monitor developments in the operating environment.
The Onward Group plans to continue to implement its growth strategy while realigning Group companies, strengthening its governance systems, speeding up strategic decision making, and further enhancing management efficiency.
We will maintain and steadily implement our policy of Brand-Leveraged Management and make increasing earnings
our highest-priority objective.
To further strengthen our operating base, we will move forward with measures to combine our planning and production departments to establish product supply capabilities that can respond quickly to market changes, with theobjective of expanding sales and income. In the development of new brands, we will work to further boost our share of
the core department store market, create brands that can establish a presence by seizing and responding to market
changes in new distribution channels, and optimize organizational units tasked with augmenting revenues from newand existing brands. We will implement these basic strategies in subsidiaries and affiliates in Japan and endeavor tostrengthen their revenue-generating capabilities. For overseas subsidiaries and affiliates, we will deal with and resolve
issues in North America and aggressively pursue further expansion in Europe and Asia, with the aim of increasing
revenues.
Looking to fiscal 2008, we have set a target for net sales of ¥296,000 million, 7.1% below the fiscal year underreview, but are aiming for 2.2% expansion in ordinary income, to ¥28,000 million, and 22.4% growth in net income,to ¥14,000 million.

Accelerating Our Growth Strategy
In April 2007, the Board of Directors of Onward decided to respond positively to an indication of agreement fromthe board of directors of IMPACT 21 CO., LTD., a domestic Onward subsidiary, to allow a takeover bid of IMPACT
21’s shares by Polo Ralph Lauren Corporation, of the United States. Onward also requested that Onward Group companies holding shares in IMPACT 21 make all these shares available for sale in the takeover bid. Our judgment was that
if IMPACT 21 becomes a subsidiary of Polo and a member of the Polo Ralph Lauren Group, that group would bepositioned to strengthen and further develop the business activities of IMPACT 21 going forward.
Accompanying the sale of Onward’s interest in IMPACT 21, Onward’s consolidated sales and operating income will
decline, but Onward will continue to have a relationship in certain businesses with Polo Ralph Lauren in the UnitedStates. In addition, Onward’s non-operating income will increase because of the consolidation of a portion of the net
income of Daido Limited, an affiliate newly consolidated under the equity method; accordingly, Onward is planning for
an increase in ordinary income and net income from this source. Please note that as a result of the sale of all IMPACT03

Annual Report 2007

A Message to Our Shareholders

21 shares, Onward is scheduled to report an extraordinary gain for fiscal 2008, amounting to ¥13.3 billion on a nonconsolidated basis and ¥6.8 billion on a consolidated basis. The improvement in Onward’s cash flow as a result of thede-consolidation of IMPACT 21 will be allocated to the implementation of Onward’s growth strategy, including M&A.

Transition to a Holding-Company Structure
As of September 1, 2007, the apparel business divisions and trading business divisions of Onward will be split off andcontinued by wholly owned subsidiaries Onward Kashiyama Split Off Implementation Co., Ltd.*1, and OAK Co., Ltd.*2,
respectively. As a result, Onward will become a pure holding company, and its name will be changed to Onward
Holdings Co., Ltd., as of September 1, 2007. Onward Holdings will continue to be a stock exchange listed company.
The objectives of the split-off will be to make the transition to a holding-company form of corporate group organizationand thereby (1) strengthen corporate governance systems through the separation of auditing functions and business execution functions as well as (2) accelerate strategic decision making by clarifying responsibility and authority for businessactivities, thus improving the efficiency of the execution of business activities by making them faster and more flexible.
Under this new form of corporate organization, Onward will work to increase the efficiency of joint corporate functions, enhance management efficiency through an optimal allocation of management resources, and, by expanding
business in each operating domain, strengthen competitiveness and promote growth, thereby maximizing corporate
value.
For the full fiscal year of 2007, Onward increased its dividend by ¥2 per common share, the fourth consecutive
annual increase, thus bringing the total dividend to ¥26 per share. Onward is also considering share buybacks as partof its overall policy of returning a portion of profits to shareholders.
We wish to sincerely thank our shareholders for their investment in Onward and ask for their continuing support in
the years ahead.
*1: Name to be changed to Onward Kashiyama Co., Ltd., as of September 1, 2007.
*2: Name to be changed to Onward Trading Co., Ltd., as of September 1, 2007.

May 2007Takeshi Hirouchi, Chairman & CEO

04

Shigeru Uemura, President

ONWARD KASHIYAMA Co., Ltd.

Onward’s Brand-Leveraged Management and World Strategy

Implementing Brand-Leveraged Management,
Strengthening Profitability
The Onward Group is steadily implementing its Brand-Leveraged Management strategy, with increasing
profitability as its highest-priority objective.
Onward has set five basic policies: “strengthening the operating base,” “developing and nurturing new
brands,” “promoting M&A and joint ventures,” “strengthening overseas business operations,” and “realigningand strengthening resort business operations.” In fiscal 2008, it is implementing various measures, with thehighest priority on “strengthening the operating base.”

Strengthening the Operating Base
Organizational Reforms

Business Process Reforms

1. Reduce the number of brand business groups from 29

1. Through the strategic use of overseas and domestic
plants, we can speed up the supply of best-sellingto 13
2. Shift the production functions to the business groups(planning departments) and integrate the systems fully,
from planning through production
We believe that the key to the future of apparelproducts.
2. By shifting the warehouse distribution functions
into the Company, we can improve the efficiency
of distribution and shorten lead times.

making lies in how speedily companies can deliver

We are placing emphasis on the ability to revise

creative, high-quality products that are manufac-

product plans during the season and use domestic

tured at low cost. By combining Onward’s planningand overseas plants strategically. In addition, by

and production departments, we are creating a sys-

shifting warehouse distribution functions to thetem that can respond quickly and nimbly to productCompany’s branches, away from subcontracted

trends for each brand and establishing a productdistribution subsidiaries, we can take advantage ofsupply system that can respond more quickly to

the warehousing functions of branches and supply

changes in the market.

products to store shelves as quickly as possible.

Newly Formed Business Groups:
Combining the Planning and Production Departments by BusinessSuppliers
Plants

Newly Formed Business Groups
Planning Department

Production Department

Merchandisers(Product Planning)

Pattern Makers
Graders(Making of paper patterns) (Size development)

Designers

Production
Management

Stores05

Annual Report 2007

Developing and Nurturing New Brands

Promoting M&A and Joint Ventures

We will aim to establish new core brands as quickly

We are aggressively forming joint ventures withas possible, while confirming customers, sales

newly emerging fashion companies and stepping

venues, and hit products.

up the pace of outlet openings in leading fashion

Also, in fall 2007 we are scheduled to begin
the introduction of a new brand, DOLLY GIRL
BY ANNA SUI, which we developed as a “next-street locations.
We commenced these initiatives in September

generation young casual brand” aimed at young

2005 when we established a joint company,

women between the ages of 18 and 25. This new

CANDELA INTERNATIONAL CO., LTD., withline is scheduled to be carried in department stores,

MOTHER INTERNATIONAL Co., Ltd., the developer

where Onward is still not yet well represented in theof the Croon a Song boutiques. In summer 2007 we“young zone.”established J. Direction Co., Ltd., a new company

In addition, in the “new distribution channel”

06

buildings and freestanding stores at prominent

with Mono Edition Co., Ltd., the developer of thearea we have newly developed FULLCARAT

Mono Edition accessory boutiques. Through these

UNISON stores for shopping centers that will offer

joint ventures, we are working to expand the scale

a mixture of major core brands. The first of theseof business operations through fashion buildings—

stores is scheduled to open in fall 2007 with about

which include department stores and new distribu-

300 square meters of sales space.

tion channels—and directly operated outlets.

DOLLY GIRL BY ANNA SUI

Croon a SongA next-generation casual brand targeted at young people with the brandconcept “sweet vintage” featuring healthy and clean styling

CANDELA INTERNATIONAL (established in September 2005) completed
the development of its new multi-line shops offering various goods for men
and women at its nationwide chain of outlets.

FULLCARAT UNISON

Mono Edition

A newly developed multi-line store brand concept aimed at the next
generation of women, mainly in their early 20s, based on the idea of“mixed merchandise layouts”

A chain of boutiques offering accessories, managed
by J. Direction (established in June 2007)

ONWARD KASHIYAMA Co., Ltd.

Onward’s Brand-Leveraged Management and World Strategy

Strengthening Overseas Business Operations
Europe: Toward Further Expansion of the GIBO’ CO.
Group and JOSEPH GroupThe GIBO’ CO. Group is working
to consolidate its managementfoundation by integrating its wide
range of initiatives with designers
and luxury brands into its group.
GIBO’ acquired the management rights to ERIKA
s.r.l., a high-quality Italian knitwear manufacturer, inJanuary 2004, and the management rights to IRIS
S.p.A., a high-quality shoe manufacturer. To further
strengthen its accessory product planning capabilities, in May 2007 GIBO’ acquired Italian bag manu-

Asia: Aiming to Be the Leading JapaneseAffiliated Apparel Company in the Asian Market
In China, we had formerly placed emphasis on sales
mainly of the NIJYUSANKU, ICB, and rosebullet
brands, but in fall 2006 we began to develop Sizesite
mixed-brand shops concentrating on small and large
sizes of KUMIKYOKU brand goods for young career
women, and the results have been favorable. In addition, in spring 2007 we introduced KUMIKYOKU children’s clothing and plan to follow up by introducing the
global fashion brand JOSEPH in fall 2007. Going forward, at large commercial outlets, including department stores, which are in the midst of a boom in new
openings, we will work to expand our business operations by developing a multiplicity of brands in a range offacturer Pelletteria Frassineti s.r.l.
The JOSEPH Group is working to strengthen andexpand its planning and production capabilities aswell as further build its brand equity. In addition, thegroup is implementing measures to fill out its product line to include women’s shoes, bags, smallleather articles, belts, and other items. In its geographical expansionary strategy, it began to open

price zones, mainly in the leading commercial outlets.
Plans for expansion of the JOSEPH brand into
Asian markets outside China include newly entering
the South Korean and Taiwanese markets andfocusing on aggressive sales development. In May
2007, we opened an outlet with a prominent street
location in Taipei.

latter half of 2007. Plans also call for refurbishing its

North America: Concentrating and Strengthening
the J.PRESS and JOSEPH Businesses

directly managed stores in Paris and London, which

In the J.PRESS business, we moved that brand’s

are situated in prominent street locations and haveflagship store to a new, fully redesigned location,

about 300 square meters of sales space, in sum-and plans call for expanding sales by reconstituting

mer 2007, with the goals of raising the profile ofthe product lineup to include traditional J.PRESS

its brand and expanding sales.

items and trendy new goods. For the JOSEPH

outlets in leading Italian department stores in thebrand, we are working to improve
Raising the Percentage ofOverseas Sales

profitability in North American(Millions of yen)
Years ended February 28 or 29

operations through the implemen-

50,000policy.
4,800
5,100

3,200

10,0002,800
2,700
17,50020,00032,60030,00034,100

4,200

40,000tation of a full-scale expansionary

 North America Asia Europe

Realigning and Strengthening Resort
Business Operations
In our resort operations, we plan
to concentrate our business basein Guam and establish a position
as an all-round resort with a hotel,
a water park, and golf facilities.
From the current fiscal year onward, we plan to0

FY06 FY07 FY08
(Result) (Result) (Planned)

draw fully on the synergies among these various
resort facilities and thereby return these operations
to a profitable condition.

07

Annual Report 2007

Business Overview

NIJYUSANKUKUMIKYOKUICBJIYUKUJapan’s apparel industry continues to confront a challenging and competitive environment, as foreign brands enter
the market and expand their operations, M&A activity within
the industry increases, and companies forge operating
alliances with one another. Amid this environment, theOnward Group is working to expand sales by moving forward aggressively with its Brand-Leveraged Management
strategy and its initiatives to achieve greater accuracy inproduct targeting through its Eight-Season, 52-Week
Merchandising.
In Onward’s major core brand lines NIJYUSANKU,KUMIKYOKU, ICB, and JIYUKU, as a result of initiatives toimprove the accuracy of its planning activities to supply theright products at the right time, the Company was able topost expansion in net sales over the previous fiscal year

gotairiku

J.PRESS

during the fiscal year under review. By distribution channel,
we introduced new brands in urban department stores andregional shopping centers that are best suited to the needsof retailers and the competitive environment. We aimed toincrease our brand business in fashion buildings* by combining leading brands appropriate for the needs of fashionbuildings, formed joint ventures, and took other initiatives.
Overseas sales rose to ¥40.0 billion for the year ended
February 28, 2007. Especially in Europe, sales climbed from
¥17.5 billion for the year ended February 28, 2006, to ¥32.6
billion for the year under review. Sales in Asia outside
Japan, particularly in China, showed steady growth.
* Fashion buildings are multi-story facilities housing boutiques and other retail
outlets.

Target Customers
Main Brands
ICB
NIJYUSANKUKUMIKYOKUJIYUKUgotairiku
J.PRESS
DAKS*
prideglide
rosebullet
Dip Drops
field/dream
FerouxDeux CONCEPT
LABO
anyFAM**
anySiS**

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

Main Targets

Department
StoresDistribution
Urban
Regional
Shopping Shopping
Centers Centers

Men

Women

Children——Working women in their late 20s



—

—





—

Women around 30



—

—

—





Women in their early 20s



—

—





—

Women in their 40s



—

—



—

—

Businessmen in their 40s and 50s



—

—







Men in their late 30s



—

—



—

—





—

Fashion-conscious,
sophisticated men age 45 to 55

—



—

Working women in their early to mid-20s





—

—



—

Women in their mid-20s

—





—



—

Young women age 16 to 25

—



—

—





—

—



—

—



—

—



—

—







—

—



—

Men and women age 30 to 40
living in urban areas
Working women in their mid-20s



—

—

Men age 25 to 35
Second-generation
baby-boomer mothers
Working women in their 20s

—





—



—

* DAKS is a licensed brand of U.K.-based DAKS.
** Spin-off brands of KUMIKYOKU launched in fall 2005 as new strategic brands.

08ONWARD KASHIYAMA Co., Ltd.

Men’s Fashions

Sales of Men’s Fashions(Millions of yen)
Years ended February 28 or 29

Consolidated sales of men’s fashions rose 5.6%, to ¥82,757 billion, and accounted
for 26.0% of net sales.
Conditions in the men’s apparel market during the fiscal year under review were severe
because of unseasonable weather conditions and weakness in consumer spending. In
response, Onward sought to raise sales by selecting its core products on a weekly basis,
expanding inventories, increasing production, and conducting sales promotions. As aresult of these activities, sales for the fiscal year compare with the previous year.
In the Cool Biz and Warm Biz product segments, our activities included the development of new product lines, such as Giga Cool Suits and Giga Warm Systems, and we
prepared a handbook and went online with a dedicated Website, held “talk show” eventson site in department stores, and held fashion seminars aimed at corporations. As aresult, although our competitors reported tough times, Onward sales reported healthy
gains.

100,000

80,00060,00040,00020,0000’03 ’04 ’05 ’06 ’07

Women’s Fashions

Sales of Women’s Fashions(Millions of yen)
Years ended February 28 or 29

Consolidated sales of women’s fashions rose 14.0%, to ¥176,547 million,
and accounted for 55.4% of net sales.
Sales of women’s fashions increased over the previous year as our Eight-Season, 52Week Merchandising system came into its own, and we were able to precisely target
additional production based on advance planning and the identification of hot-selling
products.
Major core brands NIJYUSANKU, KUMIKYOKU, ICB, and JIYUKU as well as quasicore brands Paul Smith, MICHAEL MICHAEL KORS, prideglide, and others showedfavorable performance. In addition, sales of JOSEPH were significantly above the previous fiscal year, and sales of field/dream, Feroux, and anyFAM brands through new channels also posted major gains. Sales of rosebullet in transportation station buildings andfashion buildings also rose steadily.

180,000

150,000

120,000

90,00060,00030,0000’03 ’04 ’05 ’06 ’07

Children’s Fashions, Kimonos, and Other

Sales of Children’s Fashions,
Kimonos, and Other(Millions of yen)
Years ended February 28 or 29
10,00050,0008,000

40,0006,000

30,0004,000

20,0002,000

10,0000

0’03 ’04 ’05 ’06 ’07
 Children’s fashions (left scale) Kimonos (left scale) Other (right scale)Children’s Fashions
Consolidated sales of children’s fashions declined 3.2%, to ¥8,378 million,
and accounted for 2.6% of net sales.
Sales of KUMIKYOKU brand products created in collaboration with other companies andaccessories in this brand line were favorable. Also, sales in the CELINE line expanded, as
we worked in our merchandising activities to encourage customers to buy higher-quality
products, a strategy that increased average sales per customer.
Kimonos
Consolidated sales of kimonos declined 3.1%, to ¥3,552 million, and accounted for
1.1% of net sales.
Sales of yukata (casual, kimono-style robes) in the prideglide brand line were strong andrecorded a 140% increase over the planned level.
Other Operations
Consolidated sales of other operations rose 26.6%, to ¥47,456 million, and accounted for 14.9% of net sales.
In our resort business activities, we have positioned Onward Beach Resort Guam, Inc., asan all-round resort business, and expect it to become profitable going forward. Amongaccessories and other items, sales of mit mitte, a retailer of designer-brand leisure bags,
and NIJYUSANKU bag products were favorable, as were the sales of gold-colored items in
our fashion jewelry business.

09

Annual Report 2007

TopicsExpansion of the Onward Group’s Accessory Business
In June 2007, Onward established J. Direction, a new company in Japan, and in
May 2007 the Onward Group acquired the management rights to the business of
Italian bag manufacturer Pelletteria Frassineti with the goal of expanding the accessory business of the Onward Group in Japan and overseas.
J. Direction was established as a joint venture with Mono Edition, the developerof the Mono Edition accessory boutiques. J. Direction will take over the 23 Mono
Edition Moda boutique stores in Japan that handle Jacono-brand bags, Newman watches,
Francesca Bassi neckwear, and other items. The new company will aim to increase sales and accelerate the opening of new outlets in urban shopping facilities.
The management rights for Frassineti were acquired through the GIBO’ CO. Group. In fall 2007,
Frassineti will begin to supply original bags for the JOSEPH Group, then gradually begin to supply
the bag lines for companies that have alliances with the GIBO’ CO. Group, with the aim of expanding
its sales. In addition, looking ahead, with a view to supplying Onward’s original bags, Frassineti willfunction as a manufacturing center for high-value-added bag production for the Onward Group.

Next-Generation Young Casual Brand—DOLLY GIRL BY ANNA SUI
Onward has signed a sub-licensee agreement with Isetan Co., Ltd., which is the main
licensee for U.S. designer brand ANNA SUI, for the new DOLLY GIRL BY ANNA SUI casualline, which is targeted at young people, and will begin to supply mainly Isetan and othermembers of the All-Japan Department Store Development Organization (ADO), starting infall 2007. The objective will be to create demand for items in the price zone for young
women at department stores, where the choice of items is currently relatively limited.
The DOLLY GIRL BY ANNA SUI line will be targeted at young women between 18 and25 years of age and will be a next-generation casual brand. The brand concept is “sweet
vintage.” Based on healthy and clean styling, the brand line will offer fashions that combine cute,elegant items and sweet, casual items to create a vintage feeling.

New Multi-Line Stores for the Next Generation—FULLCARAT UNISONFULLCARAT UNISON is a newly developed multi-line store concept that targets thenext generation of women, principally in their early 20s. These stores will be basedon the concept of “mixed merchandise layouts” and will offer a mixture of ladies’
wear that features an appropriate feeling of contemporary trends, fashion accessories, accessories for daily living, and other product categories and thus responds
flexibly to various consumer needs. In addition to Onward brand items, the stores
will offer a delightful and diverse assortment of goods in six brand areas containing goods fromapparel to accessories suited to the season, including attractive goods from other manufacturers,
goods produced in collaboration with well-known models, and items procured from overseas. The
merchandise mix will raise the percentage of accessories where styling is an important factor. The
original goods and items purchased from other manufacturers will range from bags to belts andother fashion goods as well as stationery products, CDs, and other items for daily living.
The basic size of these stores will range from 164 to 300 square meters, and they will be locatedin urban areas, primarily within large shopping centers, as well as regional shopping centers, fashionbuildings, and other venues.

10ONWARD KASHIYAMA Co., Ltd.

Corporate Governance

The Onward Group understands that responding promptly

Committee to serve as the organizational unit with overall

to changes in the management environment and establishing

responsibility for compliance and the Compliance Division,

corporate governance systems that enhance soundness, fair-which is responsible for implementation. The Complianceness, transparency, and compliance are important manage-

Division is working to promote the creation of compliance sys-

ment issues for increasing corporate value, or, in other words,

tems for the Onward Group based on a Compliance Manual

shareholder value. We are working to establish bonds of trustthat takes the Onward Group Compliance Regulations as awith all stakeholders, especially our shareholders, and improvebasis. In addition, the Onward Group Compliance Committee

our corporate governance by strengthening the functions ofworks together with the Compliance Division to implement

our management systems and those of the General Meeting

appropriate activities for training and increasing the awarenessof Shareholders, Board of Directors, and Board of Auditors.

of compliance issues. The committee and division also work

Under the Company’s corporate governance systems,

jointly to ensure the Compliance Manual is properly employed

policies have been implemented to position the Board of

throughout the Group and to design compliance systems that

Directors as the Company’s decision-making organization.

operate effectively and develop verification mechanisms.

The board meets periodically to discuss and make decisions

Moreover, the Internal Auditing Department, which was creat-on important matters. When certain matters require quick

ed during the fiscal year under review, has the mission ofaction, the board convenes emergency sessions as appropri-

planning for and structuring business process systems that

ate to respond to rapid changes in the operating environment.

ensure operations are conducted appropriately and efficiently

In addition, in 1999, to make clear the difference between thein compliance with relevant laws, the Articles of Incorporation,

management decision-making functions and the functions

regulations, internal orders, and other directives. This depart-

relating to the conduct of business activities, the Company

ment also takes responsibility for reporting to the Board of

introduced the Executive Officer system. Moreover, toDirectors on these matters.

strengthen the management surveillance functions of theRegarding risk management, the Board of Directors is

Board of Directors, outside directors were appointed toworking to design and implement systems that follow thethe Board of Directors and outside auditors to the Board

Onward Group Risk Management Regulations, which wereof Auditors.

prepared to guide the structuring of these systems, with theRegarding internal control systems, the Company has

Compliance Division responsible for implementation. Activities

created systems and set policies based on Japan’s Companyof the Compliance Division in this area include designing risk

Law and the enforcement regulations of that law that “ensure

management systems, identifying issues to be addressed,that the directors perform their duties in compliance with rele-

preparing plans for risk management systems, reporting to thevant laws and the Company’s Articles of Incorporation and

Board of Directors, and readying appropriate systems to deal

other necessary systems as required under the regulations

with risks that may impact the continuation of the Company’sof Japan’s Ministry of Justice to ensure the appropriateness

operations or have a major impact on its operations, includingof the conduct of the Company’s operations.” Under these

the risk of natural disasters and information systems risk.

policies, the Company is acting to structure and implement

Moreover, as necessary, the Board of Directors works together

internal control systems. By reviewing these systems on awith outside specialists to strengthen the Company’s capabili-

continuing basis, the Company will work to reform these sys-

ties for dealing with risk and establish systems to prevent risk.

tems and create corporate systems that operate efficiently
and in compliance with legal regulations.
In the area of compliance, the Company has prepared
its Compliance Regulations, which state its basic policy forassuring the strict compliance of directors and employeeswith laws and internal rules and regulations. In addition,
the Company has formed the Onward Group Compliance11Annual Report 2007

Board of Directors

Directors

Corporate Auditors

Officers

Chairman & CEO

Standing Corporate

Managing Executive

Executive Officers

Takeshi Hirouchi*

Auditors

Officers

Hideo Matsumoto

Akito Yamamoto

Ryuji Horie

Tsutomu Hagihira

Isao Yamane

Masao Ohno

Hitoshi Aoyama

Keiichi Ogawa**

Junji Nakamura

Takahisa Suzuki

Jotaro Yabe**

Kentaro Mizuno

Hideo Hisamichi

Hiroshi Imai

Kazuo Kagatani

Masabumi Kiyohara

Manabu Nomura

Managing Director

Tadayoshi Kobayashi

Hidenobu Tanaka

Masaaki Yoshizawa

Susumu Maeda

Teruhiko Komatsu

Wataru Sakai

Hirokazu Yoshizato

Hiroaki Yamada

Hironobu Mitsuta

Kenichiro Tamai

Kazuhito Kobayashi

Akinori Baba

Eihachiro Umemiya

Yoshihiko Sato

Hisayuki Ichinose

Hiroshi Ishida

Michio Osawa

Minoru Tanaka

Naoki Kamo

Tsunenori Suzuki

Takao Usui

President
Shigeru Uemura*
Senior Managing Directors
Kazuya Baba*
Tsutomu Ohnuma

Outside Directors
Hachiro Honjou
Yoshihide Nakamura

Noriyasu Fujikawa
Michinobu Yasumoto

As of May 24, 2007

* Representive Director** Outside Auditor

12ONWARD KASHIYAMA Co., Ltd.

Organization Chart (As of May 24, 2007)

Board of Corporate Auditors

Board of Directors
Chairman

Onward Group Management Council

General Manager, Marketing Department Headquarters
New Designer Fashion Grand Prix Committee

President
Brand Marketing Business Group

Advertising Division
NR Promotion Division
Men’s Apparel Product Development Office
Women’s Apparel Product Development Office

Production Officer

Quality Control Division
Design Pattern System Division
Customer Service Office

Production Business Group

Production Implementation Division
Procurement Division
Overseas Production Division
Quality Merchandising Office
Technical Development Division

Compliance Committee

General Manager, Administrative
Department Headquarters
Corporate Planning OfficeCompliance Division
Management Information Division
Investor Relations Division
Accounting DivisionInternal Control Division

Business Group Administrative Division

General Affairs DivisionMarketing Promotion OfficeMarketing Promotion DivisionCorporate Communications &Marketing DivisionFirst Business Group

Men’s Sports Business GroupGOTAIRIKU Product Division
Ready-Made Product Division
Personal Order Product Division
J. PRESS Product Division
Casual Product Division
DAKS Product Division
Character Product Division
NIJYUSANKU HOMME Production Division
Sports Product Division
Men’s Production Division

Women’s First Business GroupPaul Smith Product Division
MICHAEL KORS Product Division
NAVE WOMEN’s Product Division
VANILLA CONFUSION Product Division
J. PRESS Ladies Sui-Sui Product Division
Noble Birth DOLLY GIRL Production Division
Production Division

Women’s Second Business GroupJIYUKU Product Division
Sonya Product Division
JANE MORE Product DivisionFirst Product Division
Second Product Division
Production Division

Women’s Third Business GroupNIJYUSANKU Product Division
ICB Product Division
JOSEPH WOMEN’s Product Division

Women’s Fourth Business GroupKUMIKYOKU Product Division
Prideglide Product Division
Production Division

Calvin Klein Business GroupCalvin Klein Men’s Product Division
Calvin Klein Women’s Product Division
Calvin Klein Jeans and Underwear Product DivisionMarketing Promotion Division

Imported Brand Business GroupFirst Product Division
Second Product Division
Third Product Division
Direct Sales DivisionChildren and Teens Business Group

Product Division

Human Resources Division
Information & Logistics Division
Secretarial Division

Fashion Goods Business Group

Second Business GroupSR Business Group

Product Division
Young Casual Product Division
anyFAM Product Division
New Product Development Division
Field Dream Product Division
GMS Product Division
Deux CONCEPT LABO Product Division
Éclair D’fi Product Division
Store Development Headquarters
Distribution Division
SR Production Division

Trading Division
Kimono Sales Division
Hiroshima Branch

FSR Business Grouprosebullet Product Division
EC Business Division

Sendai Branch

Kimono Business GroupFirst Product Division
Second Product Division

Trading Business GroupFirst Product Division
Second Product DivisionMarketing Promotion Division
Trading & Production Division

Sapporo Branch
Nagoya Branch
Fukuoka Branch
Osaka Branch
Kanto BranchTokyo BranchInternational Operations Business GroupInternational GroupInternational Trading Division13

Annual Report 2007

Consolidated Six-Year Summary

ONWARD KASHIYAMA Co., Ltd. and Subsidiaries
Years ended February 28 or 29
Thousands of
U.S. dollars

Millions of yen
2002

2003

2004

2005

2006

2007

2007

¥146,080¥141,468¥165,931¥150,969¥135,769¥135,197$1,141,479

and equipment

99,274

101,188

96,017

96,394

99,68894,850800,828

Total assets

312,443

302,188318,270

308,170

329,403347,936

2,937,659

Total current liabilities

99,67380,147

92,27079,02597,617

103,494

873,806

Total shareholders’ equity

187,039

190,755

196,796202,377

201,599

212,600

1,795,006

Net sales¥257,306¥263,399¥267,746¥271,273¥283,111¥318,691$2,690,735

Cost of sales

145,687

143,234

143,921

146,447

152,043

175,796

1,484,255

At year-end:
Total current assets
Total property, plant

For the year:

Selling, general andadministrative expenses

93,499100,558

100,929

100,621106,360

117,464

991,760

Operating income

18,12019,60722,89624,20524,70825,431

214,720

Income taxes, current

11,176

6,166

13,868

7,490

12,321

14,409121,658

Net income

3,802

7,158

13,053

10,257

11,091

11,43896,572

Yen

U.S. dollars

Per share:
Net income—basic

¥22.1

¥41.6

¥74.1

¥58.1

¥63.8

¥70.5

$0.595

Cash dividends

16.5

16.5

20.0

22.0

24.0

26.0

0.220

Note: Yen amounts have been translated, for convenience only, at ¥118.44=US$1, the approximate exchange rate on February 28, 2007.

Net Sales and Operating Income
Margin(Millions of yen, %)Years ended February 28 or 29

Total Assets, Total Shareholders’Equity, and Shareholders’Equity Ratio(Millions of yen, %)At February 28 or 29

350,000

10

350,000

280,000

8

280,000

6

210,000

140,000

4

140,000

70,0002

70,00000210,000

0’03 ’04 ’05 ’06 ’07’03 ’04 ’05 ’06 ’07

 Net sales (left scale) Operating income margin (right scale) Total assets (left scale) Total shareholders’ equity (left scale) Shareholders’ equity ratio (right scale)14

Net Income Per Share and Cash
Dividends Per Share(Yen)
Years ended February 28 or 29

80

80

60

60

40

40

20

20

0

0

’03 ’04 ’05 ’06 ’07
 Net income per share Cash dividends per share

ONWARD KASHIYAMA Co., Ltd.

Management’s Discussion and Analysis

Overview
During the fiscal year under review (fiscal 2007, ended
February 28, 2007), the Japanese economy continued ona gradual recovery trend as private capital investment rosealong with the expansion in corporate profits, and the employment environment showed improvement. On the other hand,
personal consumption failed to attain a full-scale recovery
because of the impact of weak growth in individual incomes
and other factors. In the apparel industry, the operating environment remained challenging because of sudden changes in
consumption trends and growing competition among industry
participants, including foreign brands.
Amid this operating environment, the Onward Groupdefined its business domain as “a world of fashion that brings
refreshment and beauty to people’s lives” and sought to offer
lifestyle fashions for all scenes. By creating new lifestyles andvalues, the Onward Group worked to contribute to people’s
affluent lifestyles. Among these activities, in our core appareland other textile product businesses segment, we continued
to implement our Brand-Leveraged Management policy,
which aims at maximizing the value of our brands, and, as allof our management and staff exerted their fullest efforts inworking together, we moved toward our target of establishinga dominant competitive advantage. As a result of these strategic initiatives and the consolidation of 19 additional subsidiaries in the key areas of Europe, Asia, and North America
as part of our global growth strategy, we reported gains inboth net sales and net income. Consolidated net sales forthe fiscal year under review rose 12.6% over the previous
fiscal year, to ¥318.7 billion, consolidated operating income
increased 2.9%, to ¥25.4 billion, and consolidated net income
expanded 3.1%, to ¥11.4 billion.

Results of Operations
Net Sales
The increase of 12.6% in consolidated net sales, to ¥318.7
billion, for the fiscal year under review was the seventh consecutive annual increase in the Group’s turnover. The highlights of the Group’s performance during the fiscal year in its
two principal segments, namely, apparel and other textile
product businesses and service-related businesses, arepresented below.

the accuracy of our product planning and production activities through our Eight-Season, 52-Week Merchandising
approach. Through these activities and our basic policies of(1) strengthening the operating base, (2) developing and nurturing new brands, and (3) promoting M&A and joint ventures,
we aimed for further expansion in net sales.
To strengthen the operating base, we worked to improve
the accuracy of forward planning for our major core brands,
including NIJYUSANKU, KUMIKYOKU, ICB, and JIYUKU, andenhance our capabilities for providing the right products at theright time. As a consequence, we were able to raise sales
over the previous fiscal year.
In developing and nurturing new brands, we introduced
new brands best suited to the needs and competitive conditions of differing distribution channels, including department
stores and regional shopping centers.
As part of our policy of promoting M&A and joint ventures,
we aimed to expand brand business in fashion buildings andmoved ahead with new initiatives with leading brands suited
to fashion-building shopping areas. For example, working with
IMPACT 21 on the Ralph Lauren brand, we strengthened thatcompany’s product planning capabilities to offer products
suited to the climate and motivations of consumers in Japan
while sustaining the product innovation capabilities of Ralph
Lauren as a designer brand. As a result, IMPACT 21 wasbetter able to create products that responded to consumer
needs, and, while conditions were tough in the first half of the
fiscal year under review, sales moved onto a recovery trend
in the latter half.
In our overseas business activities, in Europe, JOSEPH and
GIBO’ reported steady expansion in sales, drawing on theirbrand power, and, as a result of efforts to manage costs andincrease efficiency, earnings showed major increases andboth brands exceeded their initial plan targets. In addition,
in Asia outside Japan, especially in China, we aggressively
expanded the number of stores for our in-house brands after
looking carefully at operational efficiency, and were able toreport a performance above our planned levels. In North
America, however, we still have certain issues to address
regarding the scale of brand development and making
improvements in our base infrastructure.
As a result of these and other developments, sales of theapparel and other textile product businesses segment rose
12.2% over the previous fiscal year, to ¥301.9 billion.

 Apparel and Other Textile Product Businesses
In the Japanese market, we continued to implement our
Brand-Leveraged Management policy and worked to improve15

Annual Report 2007

 Service-Related Businesses
In the Onward Group’s service-related businesses, marketing
efforts were strengthened to win outsourcing business fromoutside the Group, drawing on the Group’s accumulated
know-how, and as a result these businesses reported steady
growth in performance. In resort business activities, we concentrated our resources on the Group’s resort business inGuam and implemented measures to establish the Guam
operations as an all-round resort business operating hotel,
water park, and golf course facilities. As a result, we anticipate
these operations will return to profitability in the next fiscal
year. As a consequence of the overall improvement in theGroup’s service-related businesses, sales in this segmentrose 15.4%, to ¥31.0 billion.
Cost of Sales; Selling, General and Administrative
Expenses; and Other Income (Expenses)
The consolidated cost of sales rose 15.6%, to ¥175.8 billion.
This increase was mainly due to the rise in net sales. As aresult of valuation losses on inventories at the end of the fiscal
year, the gross margin on sales declined 1.5 percentage
points, from 46.3% to 44.8%, but gross profit rose 9.0%,
to ¥142.9 billion.
Selling, general and administrative (SG&A) expenses
increased 10.4%, to ¥117.5 billion, despite a decline in depreciation charges. The ratio of SG&A expenses to net sales
declined 0.7 percentage point, from 37.6% to 36.9%. The
principal reason for the decline in the gross margin on net
sales was a 0.7 percentage point deterioration in the operating income to net sales ratio, from 8.7% in the previous fiscal
year to 8.0% in the fiscal year under review, but because of
the positive impact of higher net sales, operating income rose
2.9%, to ¥25.4 billion, the sixth consecutive annual increase.
In addition, net sales and operating income reported theirhighest levels to date for the sixth year running.
Other income (expenses) amounted to expenses of ¥1.9
billion for the fiscal year under review, compared with incomeof ¥1.2 billion for the previous fiscal year. Although otherincome for the period included ¥4.1 billion in gains on the saleof investments in securities and ¥9.7 billion in a gain on thecancellation of the pension trust, these were more than offset
by impairment losses on fixed assets of ¥17.0 billion and otherfactors. As a consequence, income before income taxes
declined 9.0% from the previous fiscal year, to ¥23.5 billion.
The effective tax rate for the fiscal year under review was
47.8%, 3.1 percentage points below the effective tax rate of
50.9% for the previous fiscal year. Minority interests in subsidiaries declined from ¥1.6 billion in the previous fiscal year to

16¥0.9 billion for the fiscal year under review. As a result of thesevarious factors, consolidated net income increased 3.1%, to¥11.4 billion, the second consecutive annual increase. The
ratio of net income to net sales declined 0.3 percentage point,
to 3.6%, and the ratio of net income to shareholders’ equity
slipped 0.1 percentage point, to 5.4%.

Financial Position
Total assets rose 5.6%, or ¥18.5 billion, to ¥347.9 billion.
Although current assets declined 0.4%, or ¥0.6 billion, andwere virtually level with the previous fiscal year-end, fixed
assets climbed 9.9%, or ¥19.1 billion, to ¥212.7 billion.
The increase in fixed assets was primarily the result of anincrease in investment securities, due to the acquisition of
securities accompanying M&A deals, of ¥25.9 billion, to ¥63.3
billion, which offset a decline of ¥4.8 billion, to ¥94.9 billion, in
tangible fixed assets owing to the recognition of impairment
losses.
On the liabilities side of the balance sheets, current liabilities
increased ¥5.9 billion over the previous fiscal year-end. Longterm liabilities rose ¥9.1 billion, but this was due primarily tothe inclusion of deferred tax liabilities of ¥6.0 billion, owing to
the reversal of deferred tax assets in connection with therevaluation of land.
In the shareholders’ equity section of the balance sheets,
shareholders’ equity rose to ¥212.6 billion, mainly because of
the increase in retained earnings, along with the reporting of
net income for the period. With the inclusion of minority interests in consolidated subsidiaries, total net assets for the period amounted to ¥225.1 billion. As a result of these various
factors, the ratio of shareholders’ equity to total assets was
down 0.1 percentage point, to 61.1%. In addition, the ratio ofinterest-bearing debt to shareholders’ equity improved 0.4
percentage point, declining from 13.1% to 12.7%. The current
ratio declined 8.5 percentage points, from 139.1% at the previous fiscal year-end to 130.6% at February 28, 2007.
The major changes in the balance sheets as a whole weregenerally related to the reorganization and consolidation ofsubsidiaries and brands as well as acquisitions related toenhancing the Group’s brand strategy. Going forward, theGroup plans to strengthen its efforts to maximize the efficiency of its business activities and, through selectivity and concentration in allocating resources to businesses and brandopportunities, to promote the interest of shareholders.

ONWARD KASHIYAMA Co., Ltd.

Management’s Discussion and Analysis

Cash FlowsNet cash provided by operating activities declined ¥9.4 billion
from the previous fiscal year, to ¥17.4 billion for the fiscal year
under review, owing to a decline in income before income
taxes and minority interests of ¥2.3 billion, to ¥23.5 billion, an
increase in payments for corporate income taxes and othertaxes, and other factors.
Net cash used in investing activities decreased ¥23.4 billion, to ¥13.8 billion. Principal investments during the fiscal
year under review included acquisitions of securities andinvestments in stores and sales areas.
Net cash used in financing activities declined ¥9.3 billion, to¥5.8 billion. Principal cash outflows related to financing activities were dividend payments.
As a result of the aforementioned factors, the balanceof cash and cash equivalents at the end of fiscal 2007 was¥57.3 billion, compared with ¥56.1 billion at the end of fiscal
2006.

Policy on the Distribution of Profits
The management of the Onward Group recognizes the distribution of a portion of profits to shareholders as one of its toppriorities. The basic policy of the Company is to strive to continue stable dividend payments and make distributions fromprofits in a way that adequately takes into account the overall business environment as well as performance trends.
Retained earnings will be employed in a flexible manner thatstrikes a balance among strategically investing in the consolidation of a solid business structure, improving the Company’s
financial position, and meeting financial requirements.
Please note that after taking into consideration the operating environment and the Company’s performance, theCompany has decided to increase the cash dividend to be
paid for fiscal 2007 by ¥2 per share, to ¥26 per share.

Outlook
Looking ahead, management believes that the gradual recovery in the domestic economy accompanying the improvementin overall corporate profits will continue for the time being. In
the apparel industry, competition among current industry participants and companies newly entering the industry fromother sectors will further intensify as new foreign brands enter
the domestic market and new sales channels, including ITbased marketing via portable phones, become more common. Accordingly, developments in the operating environment
will continue to require careful attention and monitoring.

The Onward Group is committed to implementing its
growth strategy and making further improvements in management efficiency as it works to realign Group companies,
strengthen its corporate governance systems, and accelerate
strategic decision making. The recent public bid for the sharesof IMPACT 21 by Polo Ralph Lauren is fully compatible with
the Group’s strategy of accelerating its growth by structuring
a portfolio of brands through acquisitions of attractive brands,
both in Japan and overseas. The Onward Group intends tomove forward decisively with the implementation of its BrandLeveraged Management policy while placing maximum priority
on increasing earnings.
Among measures to strengthen the operating base, theGroup is moving forward with measures to unify its planningand production departments, establish product supply systems that respond immediately to changes in the market, andthereby further expand net sales and net income. In developing and nurturing new brands, the Group will work to expand
its presence in the core department store market, cultivate
brands with a high-profile presence that can move with themarket trends in the new distribution channels and markets,and further expand profitable units, including existing brands.
The Company’s associated companies in Japan will pursue
similar basic strategies and strengthen their earnings bases.
Associated companies overseas will also work to increase
profitability by resolutely addressing the issues we confront inNorth America and moving ahead with aggressive expansionin Europe and Asia.
Regarding results for the fiscal year ending February 28,
2007, net sales and operating income were lower than theywould have been otherwise as a result of the sale of Impact
21 shares; however, the Group is continuing a portion of its
business activities with Polo Ralph Lauren, and overseas subsidiaries accounted for under the equity method made contributions to consolidated performance. In addition, the asset
impairment losses will be absent in the year ending February
29, 2008. As a consequence, we are anticipating substantial
increases in net income. Specific targets for the year ending
February 29, 2008, are as follows: consolidated net sales todecline 7.1%, to ¥296.0 billion, operating income to fall 6.8%,
to ¥23.7 billion, and net income to expand 22.4%, to ¥14.0
billion. (Please note that these targets for future performance
are judgments that are based on information available at thetime these figures were prepared and they are subject tolatent risks and uncertainties. Therefore, if the factors thatform the basis for these forecasts differ from assumed conditions, actual performance may differ substantially from the target levels.)

17

Consolidated Balance Sheets
ONWARD KASHIYAMA Co., Ltd. and Subsidiaries
February 28, 2006 and 2007

Thousands of
U.S. dollars(Note 2. (21))

Millions of yen

ASSETS

2006

2007

2007

¥ 56,136¥ 57,390$ 484,552

Current assets:
Cash and deposits (Notes 2. (15) and 7. (1))
Accounts and notes receivable

27,67532,308272,778

Inventories (Note 2. (4))

31,11737,098313,218

Deferred tax assets (Note 9)

4,175

4,192

35,392Other current assets

16,892

4,373

36,923

Less: Allowance for bad debt

(226)

(164)

(1,384)

135,769

135,197

1,141,479

Buildings and structures

68,60675,623

638,491

Other depreciable property

22,54926,532224,011(61,028)(515,264)

Total current assets

Property, plant and equipment (Note 5):

Less: Accumulated depreciation(48,658)
42,497

41,127347,238

57,19153,723

453,590

99,68894,850800,828

Goodwill

24,15824,311

205,257

Other

2,609

2,783

23,503

26,76727,094

228,759

37,43063,308534,512Long-term loans

2,884

4,267

36,030Long-term prepaid expenses

5,768

3,708

31,305

Deferred tax assets (Note 9)

2,216

5,815

49,096

Deferred tax assets̆revaluation of land (Notes 9 and 10)

1,630

̆

̆

Other investments

17,635

14,692

124,051

(384)

(995)

(8,401)

Land (Note 10)
Total property, plant and equipment

Intangible assets, net:

Total intangible assets, net

Investments and other assets:
Investments in securities (Note 3)

Less: Allowance for bad debt
Total investments and advances
Total assets

18

67,17990,795766,593¥329,403¥347,936$2,937,659

Thousands of
U.S. dollars(Note 2. (21))

Millions of yen

LIABILITIES AND NET ASSETS

2006

2007

Current liabilities:
Accounts and notes payable
Short-term loans (Note 17)
Accrued expenses
Accrued income taxes
Consumption taxes payable
Accrued bonuses to employees
Allowance for sales returns
Other current liabilities
Total current liabilities¥ 46,927
26,419
7,117
8,437
1,255
2,971
982
3,509
97,617¥ 51,692
26,916
7,258
8,234
936
2,694
1,028
4,736
103,494

Long-term liabilities:
Negative goodwill
Accrued retirement benefits (Note 6)
Accrued retirement benefits for directors and statutory auditors
Deferred tax liabilities̆revaluation of land (Notes 9 and 10)
Other
Total long-term liabilities
Total liabilities

895
2,380
1,885
̆
5,027
10,187
107,804

447
4,950
274
5,992
7,641
19,304
122,798

3,778
41,792
2,315
50,58964,516
162,990
1,036,796

30,08050,044
137,92230,08050,045
148,954

253,965
422,538
1,257,632(16,447)
201,599(16,479)
212,600(139,129)
1,795,006

5,292
̆
(2,378)
(687)
2,227

3,813
21
(11,012)(1,578)(8,756)32,198
177(92,979)(13,320)(73,924)

̆

73

615

17,773

21,221

179,1662007$

436,443
227,256
61,28069,522
7,901
22,746
8,674
39,984
873,806

Commitments and contingent liabilities (Note 11)
Net assets:
Shareholders’ equity:
Common stock:
Authorized̆400,000,000 shares
Issued̆172,921,669 shares at February 28, 2006 and 2007
Capital surplus
Retained earnings (Note 12)
Less: Treasury stock, at cost, 10,726,258 shares and 10,744,252 sharesat February 28, 2006 and 2007, respectively
Total shareholders’ equity
Valuation and translation adjustments:
Net unrealized gains on available-for-sale securities (Note 3)
Deferred gains on hedging instruments
Net revaluation loss of land (Notes 9 and 10)
Foreign currency translation adjustment
Total valuation and translation adjustments
Stock acquisition rights
Minority interests in consolidated subsidiaries
Total net assets
Total liabilities and net assets

221,599

225,138

1,900,863¥329,403¥347,936$2,937,659
U.S. dollars

Yen

Per share (Note 13):
Net assets per share¥1,253.5(Note 2. (21))¥1,256.9$10.6

See accompanying notes to financial statements.

19

Consolidated Statements of Income
ONWARD KASHIYAMA Co., Ltd. and Subsidiaries
For the years ended February 28, 2005, 2006 and 2007

Thousands of
U.S. dollars(Note 2. (21))

Millions of yen
2005

2006

2007

2007

Net sales¥271,273¥283,111¥318,691$2,690,735

Cost of sales

146,447

152,043

175,796

1,484,255

Gross profit

124,826

131,068

142,895

1,206,480

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

100,621106,360

117,464

991,760

Operating income

24,20524,70825,431

214,720

131

122

257

2,168
(7,172)Other income (expenses):
Interest income
Interest expenses

(102)

(294)

(850)

Loss on disposal of property, net

(352)

(146)

(82)

(692)

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

883

3

4,051

34,202

Loss on write-down of investments in securities

(112)

(11)

(40)

(340)

Royalty income

741

598

473

3,996

Loss on liquidation of subsidiaries and affiliates

(536)

̆

̆

̆

(1,554)

̆

̆

̆

̆

(107)

(378)

(3,194)

Additional retirement payments
Provision for allowance for bad debt

̆

(293)

̆

̆

Foreign currency exchange gain (loss)

(127)

676

(137)

(1,156)

Gain on cancellation of the pension trust

̆

̆

9,665

81,599

(300)

(744)

̆

̆

̆

̆

(16,968)(143,259)

1,431

1,355

2,113

17,83724,30825,86723,535

198,709

7,490

12,321

14,409121,658

Provision for loss on guarantee obligations

Valuation losses on investments in unconsolidated
subsidiaries and affiliates
Impairment losses on fixed assets
Other, net
Income before income taxes and minority interests
Income taxes:
Current (Note 2. (10))

4,507

842

(3,170)(26,767)

Income before minority interests

Deferred (Note 9)

12,311

12,704

12,296

103,818

Minority interests in subsidiaries(2,054)(1,613)(858)(7,246)¥ 10,257¥ 11,091¥ 11,438

Net income$

96,572

U.S. dollars(Note 2. (21))

Yen

Per share (Note 13):
Net incomĕbasic
Diluted net income per share
Cash dividends
See accompanying notes to financial statements.

20

¥58.1

¥63.8

¥70.5

$0.595

̆

̆

70.5

0.595

22.0

24.0

26.0

0.220

Consolidated Statements of Changes in Net Assets
ONWARD KASHIYAMA Co., Ltd. and Subsidiaries
For the years ended February 28, 2005, 2006 and 2007
Millions of yen
Shareholders’ equity

Balance as at February 29, 2004:
Gain on sales of treasury stock
Cash dividends
Bonuses to directors and statutory auditors
Net income
Reversal of reserve for land revaluation
Increase in treasury stock
Exchange of treasury stock for
Chacott Co., Ltd.’s stock
Net changes other than shareholders’equityTotal changes during the year
Balance as at February 28, 2005:
Gain on sales of treasury stock
Cash dividends
Bonuses to directors and statutory auditors
Net income
Reversal of reserve for land revaluation
Increase in treasury stock
Net changes other than shareholders’equityTotal changes during the year
Balance as at February 28, 2006:
Cash dividends
Bonuses to directors and statutory auditors
Net income
Purchase of treasury stock
Reissuance of treasury stockReversal of reserve for land revaluation
Increase resulting from newly consolidated
subsidiaries
Net changes other than shareholders’equityTotal changes during the year
Balance as at February 28, 2007

Numberof sharesof commonstock(thousands)

Commonstock

172,922
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ

¥30,080
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ

ʊ

ʊ

334

ʊ
ʊ
172,922
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ

ʊ
ʊ
30,080
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ

ʊ
ʊ
172,922
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ

CapitalsurplusRetainedearnings(Note 12)

Treasury
stock

Total

¥ (5,373)
5ʊʊʊʊ
(3,495)¥198,989
7(3,356)(477)
10,257(20)(3,495)

ʊ

1,781

2,115

ʊ
336
50,043
1
ʊ
ʊ
ʊ
ʊ
ʊ

ʊ
(6,404)130,979
ʊ
(3,679)(494)
11,09125
ʊʊ
(1,709)(7,082)4ʊʊʊʊ
(9,369)ʊ
5,031
204,020
5(3,679)(494)
11,091
25(9,369)ʊʊ
30,080
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ

ʊ
1
50,044
ʊ
ʊ
ʊ
ʊ
1
ʊ

ʊ
6,943
137,922(3,893)(531)
11,438ʊʊ
554

ʊ
(9,365)(16,447)
ʊ
ʊ
ʊ
(42)
10
ʊ

ʊ
(2,421)
201,599(3,893)(531)
11,438
(42)
11
554

ʊ

ʊ

ʊ

3,464

ʊ

3,464

ʊ
ʊ
172,922ʊʊ
¥30,080ʊʊ
1
11,032¥50,045 ¥148,954

ʊ(32)¥(16,479)ʊ
11,001¥212,600¥49,707 ¥124,575
2
ʊʊ
(3,356)
ʊ(477)
ʊ
10,257ʊ(20)
ʊ
ʊ

Thousands of U.S. dollars (Note 2. (21))

Shareholders’ equity
Commonstock

Balance as at February 28, 2006:
Cash dividends
Bonuses to directors and statutory auditors
Net income
Purchase of treasury stock
Reissuance of treasury stockReversal of reserve for land revaluation
Increase resulting from newly consolidated
subsidiaries
Net changes other than shareholders’equityTotal changes during the year
Balance as at February 28, 2007

CapitalsurplusRetainedearnings(Note 12)

Treasury
stock

Total

$253,965 $422,529 $1,164,496 $(138,864) $1,702,126
ʊʊ(32,866)
ʊ
(32,866)ʊʊ(4,479)ʊ
(4,479)ʊʊ
96,572
ʊ
96,572
ʊ
ʊ
ʊ
(352)
(352)
ʊ
9
ʊ
87
96
ʊ
ʊ
4,674
ʊ
4,674
ʊ

ʊ

29,235

ʊ29,235

ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
9
93,136(265)
92,880$253,965 $422,538 $1,257,632 $(139,129) $1,795,006

See accompanying notes to financial statements.

(Continued)

21

Millions of yen
Valuation and translation adjustment
Net unrealized
gains onNet
available-for- Deferred gains revaluation
sale securities on hedging
loss of land
(Note 3)
instruments (Notes 9, 10)

Balance as at February 29, 2004:
Gain on sales of treasury stock
Cash dividends
Bonuses to directors and statutory auditors
Net income
Reversal of reserve for land revaluation
Increase in treasury stock
Exchange of treasury stock for
Chacott Co., Ltd.’s stock
Net changes other than shareholders’equityTotal changes during the year
Balance as at February 28, 2005:
Gain on sales of treasury stock
Cash dividends
Bonuses to directors and statutory auditors
Net income
Reversal of reserve for land revaluation
Increase in treasury stock
Net changes other than shareholders’equityTotal changes during the year
Balance as at February 28, 2006:
Cash dividends
Bonuses to directors and statutory auditors
Net income
Purchase of treasury stock
Reissuance of treasury stockReversal of reserve for land revaluation
Increase resulting from newly consolidated
subsidiaries
Net changes other than shareholders’equityTotal changes during the year
Balance as at February 28, 2007

Foreigncurrencytranslation
adjustment

¥ 807
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ

¥ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ

¥ (2,373)
ʊ
ʊ
ʊ
ʊ
20
ʊ
ʊ
ʊ

459
459
1,266
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ

ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ

ʊ
20
(2,353)
ʊ
ʊ
ʊ
ʊ
(25)
ʊ

71
71
(556)
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ

4,026
4,026
5,292
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ

ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ

ʊ
(25)
(2,378)
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ

ʊ

ʊ

ʊ

(1,479)(1,479)¥3,813

21(8,634)21(8,634)¥21 ¥(11,012)

Stock
Minority interests
acquisition in consolidated
rightssubsidiaries

Total net
assetsTotal¥ (627) ¥ (2,193)
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
20
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ

¥ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ

¥17,770
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ

¥214,566
7(3,356)(477)
10,257
ʊ
(3,495)530
550(1,643)
ʊ
ʊ
ʊ
ʊ
(25)
ʊ

ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ

(892)
(892)
16,878
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ

(362)
4,689
219,255
5(3,679)(494)
11,091
ʊ(9,369)

(131)
(131)
(687)
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ

3,895
3,870
2,227
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ

ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ

895
895
17,773
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ

4,790
2,344
221,599(3,893)(531)
11,438
(42)
11
554

ʊ

ʊ

ʊ

ʊ

3,464

(891) (10,983)(891) (10,983)¥(1,578) ¥ (8,756)

73
73
¥73

3,448
3,448
¥21,221(7,462)
3,539¥225,138

2,115

Thousands of U.S. dollars (Note 2. (21))

Valuation and translation adjustment
Net unrealized
gains onavailable-for- Deferred gains Net revaluation
sale securities on hedging
loss of land
(Note 3)
instruments (Notes 9, 10)

Balance as at February 28, 2006:
Cash dividends
Bonuses to directors and statutory auditors
Net income
Purchase of treasury stock
Reissuance of treasury stockReversal of reserve for land revaluation
Increase resulting from newly consolidated
subsidiaries
Net changes other than shareholders’equityTotal changes during the year
Balance as at February 28, 2007
See accompanying notes to financial statements.

22$44,675
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
(12,477)(12,477)$32,198

Foreigncurrencytranslation
adjustment

Stock
Minority interests
acquisition in consolidated
rightssubsidiaries
Total$ ʊ $(20,072) $ (5,800) $ 18,803
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ

ʊ

ʊ

Total net
assetsʊ

177 (72,907)(7,520) (92,727)
177 (72,907)(7,520) (92,727)$177 $(92,979) $(13,320) $(73,924)$ ʊ $150,058 $1,870,987
ʊʊ(32,866)ʊʊ(4,479)ʊʊ
96,572
ʊ
ʊ
(352)
ʊ
ʊ
96
ʊ
ʊ
4,674
ʊ

ʊ

29,235615
29,108(63,004)
615
29,10829,876$615 $179,166 $1,900,863

Consolidated Statements of Cash Flows
ONWARD KASHIYAMA Co., Ltd. and Subsidiaries
For the years ended February 28, 2005, 2006 and 2007

Thousands
ofU.S. dollars(Note 2. (21))

Millions of yen

Cash flows from operating activities:
Income before income taxes and minority interests
Adjustments to reconcile income before income taxes andminority interests to net cash provided by operating activities:
Depreciation and amortization
Impairment loss on fixed assets
Net amortization of goodwill on consolidation
Increase (decrease) in provision for allowance for bad debt
Increase (decrease) in provision for accrued retirement benefits
Interest and dividend income
Loss on disposal of property, net
Gain on sale of investments in securities, net
Loss on write-down of investments in securities
Valuation losses on investments
in unconsolidated subsidiaries and affiliates
Gain on cancellation of the pension trust(Increase) decrease in trade receivables
Increase in inventories
Increase (decrease) in trade payables
Other, net
SubtotalInterest and dividends received
Interest paid
Income taxes paid
Refunded income taxes
Net cash provided by operating activities
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
Payments for long-term prepaid expenses
Payments for deposits
Proceeds from deposits
Payment for acquisition of consolidated subsidiaries resulting ina change in the scope of consolidation (Note 7. (2))
Other, net
Net cash used in investing activities

2005

2006

2007

2007

¥24,308¥25,867¥23,535$198,709

7,042
̆
(462)
(2,863)(1,110)
(81)
352
(883)
112

7,054
̆
172
14
292
18
146
(3)
11

6,697
16,968903
541(1,346)255
82(4,051)
40

56,538143,259
7,627
4,569(11,370)
2,153
692(34,202)
340

300
̆
5,734
(1,230)(2,128)4,359
33,450326(101)(17,683)̆
15,992744
̆
(1,032)(1,574)115
77
31,901547(295)(6,560)1,166
26,759127(9,665)(1,397)(3,337)
1,206
1,952
32,510957(864)(15,321)80
17,362

1,072(81,599)(11,794)(28,177)
10,185
16,479274,481
8,079(7,295)(129,356)
680
146,589(2,278)288(5,288)50(7,570)1,546(2,723)(874)
685(3,078)278(5,567)
156(13,332)
312(1,854)
(484)
947

(87)
81
(7,687)
1,517(12,933)
6,585(2,021)
(928)
948

(735)
684
(64,903)12,810(109,197)
55,594(17,065)(7,837)
8,007

̆
3,215
(12,949)(16,886)
2,298(37,210)(4,737)
5,413(13,849)(39,992)
45,705(116,929)

See accompanying notes to financial statements.

(Continued)

23

ThousandsofU.S. dollars(Note 2. (21))

Millions of yen

Cash flows from financing activities:
Net repayments of short-term loans
Acquisition of treasury stock
Dividends paid
Dividends paid to minority stockholders
Other, net
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Effect of newly consolidated subsidiaries
Cash and cash equivalents at end of year (Note 7. (1))
See accompanying notes to financial statements.

24

2005

2006

2007

2007

(1,719)(3,495)(3,356)(770)
3(9,337)26(6,268)87,811̆(1,290)(9,368)(3,679)(758)
2(15,093)59(25,485)
81,543
̆

¥81,543¥56,058(1,139)(42)(3,893)(773)
10(5,837)364(1,960)56,0583,208¥57,306(9,616)(352)(32,866)(6,530)81(49,283)
3,075(16,548)
473,306
27,085$483,843

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

1. Basis of Presentation of the Consolidated Financial Statements
The accompanying consolidated financial statements have been prepared from the accounts maintained by ONWARD KASHIYAMA
Co., Ltd. (the “Company”), and its consolidated subsidiaries in accordance with the provisions set forth in the Corporation Law ofJapan (the “Corporation Law”) and the Securities and Exchange Law and in conformity with accounting principles and practices
generally accepted in Japan, which are different in certain respects from the application and disclosure requirements of International
Financial Reporting Standards.
Certain items presented in the consolidated financial statements submitted to the Director of the Kanto Finance Bureau in Japan
have been reclassified for the convenience of readers outside Japan.
The accompanying consolidated financial statements are not intended to present the consolidated financial position, results ofoperations and cash flows of the Company and its consolidated subsidiaries in accordance with accounting principles and practices
generally accepted in countries and jurisdictions other than Japan.
2. Summary of Significant Accounting Policies(1) Scope of Consolidation
The Company had 69 subsidiaries as at February 28, 2007 (67 as at February 28, 2006, 42 as at February 28, 2005). The
accompanying consolidated financial statements include the accounts of the Company and 55 subsidiaries (36 for 2006, 16 for 2005).
The 55 subsidiaries that have been consolidated by the Company are listed below (the Company and these consolidated
subsidiaries are collectively referred to as the “Companies”):
Name of subsidiary

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

Equity ownership percentage

Closing date

41.0%
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
51.0
51.0
100.0
100.0
65.0
100.0
65.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
51.0
51.0
84.0
60.0
60.0

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

25

Gibo’ USA Inc.
Gibo’ France SARL
Iris Sud S.r.l.
Rediris SARL
Iris France SARL
O.K.N. Amsterdam B.V.
Onward Kashiyama Korea Co., Ltd.
Onward Kashiyama Hong Kong Ltd.
Shanghai Onward Fashion Co., Ltd.
Onward Trading (Shanghai) Co., Ltd.
J. Press, Inc.
Onward Retail, L.L.C.
Agana Resort Club L.P.S.
Onward Kashiyama Guam, Inc.
Onward Golf Resort Guam, Inc.
Onward Mangilao Guam, Inc.

100.0
100.0
59.7
54.0
60.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
80.8
100.0
100.0
100.0

November 30
November 30
November 30
November 30
November 30
December 31
December 31
December 31
December 31
December 31
December 31
December 31
December 31
December 31
December 31
December 31

Europe, Asia and North America areas became more important for the Company’s growth strategy. In the year ended February 28,
2007, the following 19 subsidiaries located in these areas were added to the scope of consolidation:
Gibo’ & Co. S.p.A.
Maglificio Erika S.r.l.
Iris S.p.A.
Gibo’ USA Inc.
Gibo’ France SARL
Iris Sud S.r.l.
Rediris SARL
Iris France SARL
O.K.N. Amsterdam B.V.
Onward Kashiyama Korea Co., Ltd.
Onward Kashiyama Hong Kong Ltd.
Shanghai Onward Fashion Co., Ltd.
Onward Trading (Shanghai) Co., Ltd.
J. Press, Inc.
Onward Retail, L.L.C.
Agana Resort Club L.P.S.
Onward Kashiyama Guam, Inc.
Onward Golf Resort Guam, Inc.
Onward Mangilao Guam, Inc.
All shares of Project Sloane Ltd. were acquired on May 16, 2005 and the Joseph group including Project Sloane Ltd. and its 20
subsidiaries became consolidated subsidiaries of the Company.
Effective from February 28, 2005, On Business Trend Co., Ltd. was excluded from consolidation, as the company was liquidated
on February 14, 2005.
By an exchange of stock, Chacott Co., Ltd. became a 100%- owned subsidiary on March 1, 2004. Chacott Co., Ltd. reduced its
common stock to ¥400 million on July 1, 2004.
The financial statements of the aforementioned subsidiaries with fiscal year-ends of December 31 or November 30 have beenused for consolidation. All material transactions that occurred in the periods from such fiscal year-ends and February 28, theCompany’s fiscal year-end, have been adjusted.
The remaining 14 subsidiaries (31 for 2006 and 26 for 2005) were not consolidated because their total assets, net sales, net
income and retained earnings were not material individually or in the aggregate compared with those of the consolidated financial
statements of the Companies.

26

(2) Consolidation and Elimination
For the purposes of preparing the consolidated financial statements of the Companies, all significant intercompany transactions,account balances and unrealized profits among the Companies have been entirely eliminated, and the portion attributable to minority
interests is credited/charged thereto.
The assets and liabilities of newly acquired subsidiaries are measured at fair value at the time of acquisition, and the differences
between the cost of investments in the consolidated subsidiaries and the equity in their net assets at fair value are accounted for as
goodwill, which is amortized on a straight-line basis over 5-year or 20-year periods.
(3) Investments in Unconsolidated Subsidiaries and Affiliates
Investments in unconsolidated subsidiaries and affiliates are accounted for by the equity method. Twenty-three companies (2companies for 2006, 1 company for 2005) are accounted for by the equity method for the year ended February 28, 2007. In the year
ended February 28, 2007, the Company acquired more than 15% of Daido Limited, and applied the equity method to 21 Daido
Limited Group companies.
The Company did not apply the equity method to 14 unconsolidated subsidiaries (31 in 2006 and 26 in 2005) and 6 affiliates (6in 2006 and 5 in 2005) as at February 28, 2007, as the effect on net income or retained earnings of their consolidated financial
statements would not be material.
The Company applied the equity method by using the November 30 financial statements of Gailyglen Ltd., which has a fiscal
year-end of November 30. Also, the financial statements of Daido Limited, which has a fiscal year-end of March 31, prepared on abasis similar to that for year-end closing, were used for consolidation purposes.
(4) Inventories
Inventories are stated at cost, cost being determined generally by the last purchase invoice price method. Merchandise and finishedgoods held at retail stores are measured using the retail cost method.
When the net realizable value of certain classes of inventories (consisting primarily of seasonal merchandise which remains unsold
after the end of such seasons) is substantially less than the carrying value (cost), and the decline in value is not expected to be
recovered in the near future, appropriate write-downs are recorded on such inventory items. The amount of write-down is determinedbased on the experience of sales of merchandise similar to those unsold items during the last three years. For the years ended
February 28, 2006 and 2007, the recorded write-downs were ¥9,423 million and ¥11,262 million ($95,083 thousand), respectively.
(5) Investments in Securities
Debt securities and equity securities classified as available-for-sale securities whose fair values are readily determinable are carriedat fair values prevailing at the fiscal year-end date with unrealized gains or losses included as a component of net assets, net of
applicable taxes.
Available-for-sale securities whose fair values cannot readily be determined are stated principally at cost. In cases where declines
in fair values of individual securities are assessed to be other than temporary, the cost of the security is reduced to net realizablevalue and the impairment loss is charged to income. Realized gains and losses are determined using the moving-average method
and are reflected in income.
(6) Derivative Transactions
All derivatives are stated at fair value, and changes in fair value are included in income for the period in which they arise, except forderivatives that are designated as “hedging instruments” (see “(7) Hedge Accounting” below).
(7) Hedge Accounting
All gains or losses arising from changes in fair values of the derivatives designated as “hedging instruments,” which were formerly
deferred as assets or liabilities, are deferred as a component of net assets, net of applicable taxes, due to the adoption of a new
accounting standard described in Note 2. (18). The gains or losses on the hedging instruments are included in net income in thesame period during which the gains and losses on the hedge items or transactions are recognized. For foreign exchange forward
contracts, if they meet conditions for hedge accounting, the difference between the contract rate and spot rate at the date of thecontract is recognized over the period from the contract date to the settlement date.

27

The derivatives designated as hedging instruments are principally foreign exchange forward contracts. The related hedged items
are trade accounts payable and trade accounts receivable denominated in foreign currencies and scheduled transactions.
The Company has a policy of utilizing hedging instruments in order to reduce the exposure to the risk of foreign currency exchange
rate fluctuation.
(8) Property, Plant and Equipment
The Company and its domestic consolidated subsidiaries provide depreciation by the declining-balance method at rates based on
the estimated useful lives of assets which are prescribed by Japanese income tax regulations, except for certain buildings (other than
improvements) acquired on and after April 1998, which are depreciated by the straight-line method pursuant to an amendment toJapanese income tax law.
Overseas consolidated subsidiaries provide depreciation by the straight-line method.
(9) Amortization
Intangible assets and long-term prepaid expenses are amortized by the straight-line method.
Software costs for internal use are amortized over their expected useful lives (five years) by the straight-line method.
(10) Income Taxes
The income taxes of the Company and its domestic consolidated subsidiaries consist of corporate income tax, local inhabitant taxes
and enterprise taxes.
The accounting standards for income taxes require that deferred income taxes be accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or
settled, and the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes
the enactment date.
Since the “Law for the Partial Revision of Local Tax, etc. (No. 9, 2003)” was announced on March 31, 2003, the rule of external
standard taxation has been applied from fiscal years commencing on and after April 1, 2004. Subsequently, the added-value portionand capital portion of corporate business tax have been recorded in selling, general and administrative expenses from this point inaccordance with “Practical Treatment of the Disclosure of the External Standard Taxation Portion in the Corporate Business Tax on
the Profit and Loss Statement (February 13, 2004, Accounting Standards Board of Japan, Business-Related Report No. 12).” As aresult, selling, general and administrative expenses increased by ¥559 million, while operating income and income before income
taxes and minority interests decreased by ¥559 million, for the year ended February 28, 2006.
(11) Allowances
An allowance for bad debt is provided for estimated losses on known bad debt and those on doubtful accounts using the historical
write-off ratio at the balance sheet date.
Accrued bonuses to employees are provided for at an amount determined based on the estimated bonuses to employees whichwere incurred at the balance sheet date.
An allowance for sales returns is provided for the estimated losses on sales returns calculated under the Japanese tax regulations.
Accrued retirement benefits are provided for at the present value of the projected benefit obligation less the estimated fair value ofplan assets and deferred gains or losses at the balance sheet date. Unrecognized prior service costs are amortized and charged or
credited to income on a straight-line basis over 5 to 10 years, which is within the related employees’ average remaining service years.
Unrecognized actuarial differences are amortized on a straight-line basis over 5 to 10 years, which is within the related employees’
average remaining service years, from the year following the one in which they arise.
The Company has an excess of plan assets at fair value for the retirement benefit obligations. The Company cancelled a partof assets set in the pension trust for the year ended February 28, 2007, and recognized the prior years’ unrecognized actuarial
differences corresponding to the cancellation of ¥9,665 million ($81,599 thousand) as a gain on cancellation of the pension trust in
the consolidated statements of income. The Company and certain consolidated subsidiaries obtained applicable approvals fromJapan’s Ministry of Health, Labour and Welfare for exemption for the return of the past benefit obligation with respect to the portion of28

the Employee Pension Fund that the Company and certain consolidated subsidiaries operate on behalf of the Government (theso-called substitutional portion).
Accrued retirement benefits for directors and statutory auditors are provided for at the amount required at the balance sheet dates
in accordance with the internal rules of the Company and certain consolidated subsidiaries.
While these companies have no legal obligation, it is the customary practice in Japan to make lump-sum payments to directors or
statutory auditors upon retirement under the approval of the general meeting of shareholders.
At the general meeting of shareholders held on May 25, 2006, abolishment of the retirement benefit system for directors andcorporate auditors of the parent company was approved, and the directors and the corporate auditors were entitled to lump-sum
payments up to the date of the abolishment when they leave the Company. The amount to be paid is included in other long-term
liabilities. Certain subsidiaries still have unfunded defined benefit pension plans for directors and corporate auditors. Under the plans,
directors and corporate auditors are entitled to lump-sum payments based on the current rate of pay and length of service when theyleave the subsidiaries. Related accruals of the subsidiaries are included in accrued retirement benefits for directors and statutory
auditors.
(12) Provision for Loss on Guarantee Obligations
The provision for loss on guarantee obligations was provided for the estimated losses on the Company’s obligations to pay for theguaranteed debts of subsidiaries. In estimating the provision, the Company considers the financial condition of each of thesubsidiaries.
(13) Accounting for Leases
For the Company and its domestic consolidated subsidiaries, finance leases other than those which are deemed to transfer theownership of the lease assets to lessees are accounted for as operating leases.
(14) Accounting for Japanese Consumption Taxes
The Japanese consumption taxes withheld upon sale of goods and services and the consumption taxes paid by the Companies on
the purchase of goods and services are not included in the accompanying consolidated statements of income.
(15) Cash and Cash Equivalents
Cash and cash equivalents in the consolidated statements of cash flows are composed of cash on hand, bank deposits which can bewithdrawn on demand, and short-term investments which are readily convertible into cash or with an original maturity of three months
or less, which represent insignificant risk of changes in value.
(16) Impairment of Long-Lived Assets
Effective March 1, 2006, the Company and its domestic consolidated subsidiaries adopted a new accounting standard for the
impairment of fixed assets (“Opinion Concerning the Establishment of an Accounting Standard for the Impairment of Fixed Assets”
issued by the Business Accounting Deliberation Council on August 9, 2002) and the “Implementation Guidance on the AccountingStandard for the Impairment of Fixed Assets” (Business Accounting Standard Implementation Guidance No. 6 issued on October 31,2003).
The standard requires that fixed assets be reviewed for impairment whenever events or changes in circumstances indicate that thecarrying amount of an asset or asset group may not be recoverable. An impairment loss would be recognized if the carrying amountof an asset or asset group exceeds the sum of the undiscounted future cash flows expected to be generated from the continued use
and eventual disposition of the asset or asset group. The impairment loss would be measured as the amount by which the carrying
amount of the asset exceeds its recoverable amount, which is the higher of the discounted cash flows from the continued use andeventual disposition of the asset or the net selling price at disposition.
The effect of adoption of the standard was to decrease income before income taxes and minority interests by ¥16,968 million($143,259 thousand) for the year ended February 28, 2007.
The ¥16,968 million impairment loss was recognized for land (¥3,855 million), buildings and structures (¥8,181 million) and otherfixed assets (¥4,932 million).

29

(17) Directors’ Bonuses
During the year ended February 28, 2007, the Company and its domestic consolidated subsidiaries adopted the “AccountingStandard for Directors’ Bonuses” (Accounting Standards Board of Japan Statement No. 4, issued by the Accounting Standards Boardof Japan on November 29, 2005).
Under the standard, directors’ bonuses are accounted for as an expense when such bonuses are accrued, instead of being
accounted for as an appropriation of retained earnings upon approval at a general meeting of shareholders. The effect of adoptionof the new standard was to decrease income before income taxes and minority interests by ¥517 million ($4,361 thousand).
(18) Presentation of Net Assets on the Balance Sheet
During the year ended February 28, 2007, the Company adopted the “Accounting Standard for Presentation of Net Assets on the
Balance Sheet” (Accounting Standards Board of Japan Statement No. 5, issued by the Accounting Standards Board of Japan on
December 9, 2005) and the “Guidance on Accounting Standard for Presentation of Net Assets on the Balance Sheet” (AccountingStandards Board of Japan Guidance No. 8, issued by the Accounting Standards Board of Japan on December 9, 2005).
Under the standard, “Shareholders’ equity” is presented as a component of “Net assets” along with the other components of“Valuation and translation adjustments”, “Stock acquisition rights” and “Minority interests in consolidated subsidiaries.” “Deferredgains/losses on hedging instruments” formerly presented as assets or liabilities are presented as a component of “Valuation andtranslation adjustments.” “Minority interests in consolidated subsidiaries” formerly listed after “Liabilities” are also included in “Netassets.” Shareholders’ equity based on the previous classification amounted to ¥203,824 million ($1,720,905 thousand).
(19) Stock Options
During the year ended February 28, 2007, the Company adopted the “Accounting Standard for Share-Based Payment” (AccountingStandards Board of Japan Statement No. 8, issued by the Accounting Standards Board of Japan on December 27, 2005) and“Guidance on Accounting Standard for Share-Based Payment” (Accounting Standards Board of Japan Guidance No. 11, issued by
the Accounting Standards Board of Japan, revised on May 31, 2006).
These standards provide that stock options should be recognized as an expense and presented as “Stock acquisition rights” asa component of net assets. The standards are applied to stock options that are granted on and after May 1, 2006. The effect of
adoption of the new standards was immaterial.
(20) Reclassifications
Certain reclassifications have been made to the prior-year financial statements to conform with the current year’s presentation.
(21) United States Dollar Amounts
Amounts in U.S. dollars are included solely for the convenience of readers outside of Japan. The rate of ¥118.44=US$1, the rateof exchange as of February 28, 2007, has been used in translation. The inclusion of such amounts is not intended to imply thatJapanese yen have been or could be readily converted, realized or settled in U.S. dollars at that rate or any other rate.

30

3. Investments in Securities(1) Information as of and for the Year Ended February 28, 2007(a) Available-for-sale securities with readily determinable fair value:
Investments in securities whose fair values were readily determinable at February 28, 2007 are summarized as follows:
Millions of yen
Acquisition
cost

Thousands of U.S. dollars

Fair value
Unrealized gain
(Carrying value)(loss)

Acquisition
cost

Fair value
Unrealized gain
(Carrying value)(loss)

Securities with unrealized gains:
Equity securities
Total¥34,583¥42,398¥7,815$291,988$357,967$65,979

34,58342,398

7,815

291,988357,967

65,979

9,218

7,883

(1,335)77,826

66,562(11,264)

9,218

7,883

(1,335)77,826

66,562(11,264)¥43,801¥50,281¥6,480$369,814$424,529$54,715

Securities with unrealized losses:
Equity securities
Total
Total

(b) Available-for-sale securities sold during the year ended February 28, 2007:
Millions of yen

Thousands of
U.S. dollars

Proceeds from sale of securities¥6,565$55,425

Gross realized gain on sale of securities

4,060

34,275Gross realized loss on sale of securities

973(c) Major securities which were not stated at fair value as of February 28, 2007:
Thousands of
U.S. dollars

Millions of yen

Available-for-sale securities:¥345

Non-marketable equity securities$2,913(d) The aggregate carrying amount of investments in unconsolidated subsidiaries and affiliates as of February 28, 2007 was ¥12,683
million ($68,025 thousand).
(2) Information as of and for the Year Ended February 28, 2006(a) Available-for-sale securities with readily determinable fair value:
Investments in securities whose fair values were available at February 28, 2006 are summarized as follows:
Millions of yen
Acquisition
cost

Fair value
Unrealized gain
(Carrying value)(loss)

Securities with unrealized gains:
Equity securities
Total¥16,649¥25,668¥9,01916,64925,668

9,019

1,004

967

(37)

1,004

967

(37)

¥17,653¥26,635¥8,982

Securities with unrealized losses:
Equity securities
Total
Total

(b) Available-for-sale securities sold during the year ended February 28, 2006:
Millions of yen

Proceeds from sale of securities¥312

Gross realized gain on sale of securities

3

Gross realized loss on sale of securities

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

Available-for-sale securities:
Non-marketable equity securities¥2,886(d) The aggregate carrying amount of investments in unconsolidated subsidiaries and affiliates as of February 28, 2006 was ¥7,909
million.

31

4. Derivative Transactions
Derivatives are used in order to hedge foreign exchange market risk on the transactions which occur in the normal course ofbusiness. Derivatives are not used for speculative purposes or for highly leveraged transactions. Derivatives are executed withfinancial institutions with high credit ratings, and the Company does not anticipate significant losses due to the credit risks of its
counterparties.
The Company and its consolidated subsidiaries applied hedge accounting for all derivative transactions as of February 28, 2006
and 2007; therefore, market value information on those derivatives is not applicable.
5. Property, Plant and Equipment
The Japanese tax regulations allow a company to defer capital gains on the sale of qualified real property, if the company intends tooffset 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, 2006 and 2007 were reduced by ¥8,493 million and ¥8,420 million ($71,087
thousand), respectively, representing accumulated deferred gains from eligible sales.
6. Retirement Plan and Retirement Benefits
The Company and its subsidiaries have defined benefit retirement plans covering substantially all employees. Defined benefit
retirement plans include a plan which is governed by the regulations of the Japanese Welfare Pension Insurance Law (“welfare
benefit plan”), tax qualified pension plans and plans for lump-sum retirement benefits.
The reserve for retirement benefits as of February 28, 2006 and 2007 is analyzed as follows:
Thousands of
U.S. dollars

Millions of yen
February 28,
2006

2007

February 28,
2007¥(36,456)¥(37,366)$(315,483)

Plan assets (including employee retirement benefit fund)

58,06736,589308,928

Funded status

21,611(776)(6,555)

Unrecognized prior service costs

(188)

(146)

(1,232)

Unrecognized actuarial differences

1,010(4,029)(34,005)

Projected benefit obligations

Unrecognized pension assets
Subtotal
Prepaid pension costAccrued retirement benefits(16,635)

̆

̆

5,798

(4,950)(41,792)

8,178

̆

̆

¥ (2,380)¥ (4,950)$ (41,792)

The net periodic pension expenses for the years ended February 28, 2006 and 2007 were as follows:
Thousands of
U.S. dollars

Millions of yen

Service cost

2006

2007

2007

¥1,413¥1,669$14,092

Interest cost

641

674

5,688

Expected return on plan assets

(437)

(592)

(5,001)

Amortization of unrecognized prior service costs(43)

Amortization of unrecognized actuarial differences

349

(43)
(1,061)(8,957)¥1,923¥ 647$ 5,463

Net periodic pension expenses(359)

Actuarial assumptions used in the calculation of the aforementioned information were as follows:
Method of attributing the projected benefits to periods of service
Discount rate

As of February 28, 2006

As of February 28, 2007

Straight-line basis

Straight-line basis

2.0%

2.0%

Expected rate of return on plan assets

0.7~2.0%

0.6~2.5%

Amortization of unrecognized prior service costs

5~10 years

5~10 years

Amortization of unrecognized actuarial differences

5~10 years

5~10 years

327. Notes to Consolidated Statements of Cash Flows(1) Cash and cash equivalents at February 28, 2006 and 2007 consisted of the following:Thousands of
U.S. dollars

Millions of yen
February 28,

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

2006

2007

February 28,
2007¥56,136¥57,390$484,552

(78)

(84)

(709)

¥56,058¥57,306$483,843(2) Payment for acquisition of consolidated subsidiaries resulting in a change in the scope of consolidation
For the year ended February 28, 2007, due to the acquisition of shares of Onward Mangilao Guam, Inc., Onward Mangilao Guam,
Inc. was newly consolidated. The assets and liabilities of the company at the time of initial consolidation, additional cash paid for theacquisition, cash and cash equivalents held by the subsidiary and net payment for acquisition of the subsidiary were as follows:
Millions of yen

Current assets

627$ 5,297

3,937

33,248Goodwill on consolidation

754

6,365

Current liabilities

(108)

(921)

Cash paid for acquisition of the subsidiary

5,210

43,989Fixed assets

Cash and cash equivalents held by the subsidiary
Payment for acquisition of the subsidiary¥

Thousands of
U.S. dollars(473)(3,997)¥4,737$39,992

For the year ended February 28, 2006, due to the acquisition of shares of Project Sloane Ltd., the Joseph group including Project
Sloane Ltd. and its twenty subsidiaries were newly consolidated. The assets and liabilities of these companies at the time of initialconsolidation, additional cash paid for the acquisition, cash and cash equivalents held by the consolidated subsidiaries and net
payment for acquisition of the consolidated subsidiaries were as follows:
Millions of yen

Current assets¥ 3,658

Fixed assets

2,870

Goodwill on consolidation

24,778Current liabilities(13,372)

Long-term liabilities(788)

Minority interests in the consolidated subsidiaries
Cash paid for acquisition of the subsidiaries
Cash and cash equivalents held by the subsidiaries
Payment for acquisition of the subsidiaries(73)
17,073(187)¥16,88633

8. Lease Transactions
The Companies’ finance lease contracts that are not deemed to transfer the ownership of the leased assets to lessees are accounted
for as operating leases, which is permitted by Japanese accounting principles. Certain key information on such lease contracts of theCompanies for the years ended February 28, 2006 and 2007 is as follows.
(Lessee)
Assumed data as to acquisition cost, accumulated depreciation, accumulated impairment loss and net book value of the leased
assets, which included the portion of interest thereon, as of February 28, 2006 and 2007 are summarized as follows:
Millions of yen

Thousands of U.S. dollars

February 28,
2006

February 28,
2007

2007

Tools, furniture,and fixtures

Other

Total

Tools, furniture,and fixtures

Other

Total

Tools, furniture,and fixtures

Other

Total

Acquisition cost

¥2,290¥896¥3,186¥2,531¥856¥3,387$21,366$7,231$28,597

Accumulated depreciation(1,360)(486)(1,846)(1,169)(447)(1,616)(9,867)(3,777)(13,644)

̆

̆

̆

(145)

̆

(145)

(1,222)

̆(1,222)

¥ 930

¥410

¥1,340¥1,217¥409¥1,626$10,277$3,454$13,731

Accumulated impairment loss
Net book value

The scheduled maturities of future lease payments on such lease contracts as of February 28, 2006 and 2007 is as follows:
Thousands of
U.S. dollars

Millions of yen
February 28,
2006

2007

February 28,
2007

Due within one year

¥ 592

¥ 695

$ 5,863

Due over one year

813

1,074

9,070

¥1,405¥1,769$14,933

Scheduled maturities of future leases:

The balance of accumulated impairment losses of leased assets as of February 28, 2006 and 2007 is as follows:
Thousands of
U.S. dollars

Millions of yen

Impairment losses of leased assets

2006

2007

2007

¥̆

¥85

$720

Lease expenses, reversal of impairment loss of leased assets, depreciation and impairment loss for the years ended February 28,
2006 and 2007 are as follows:
Thousands of
U.S. dollars

Millions of yen

Lease expenses for the year

2006

2007

2007

¥753

¥688

$5,809

Reversal of impairment loss of leased assets

̆

60

502

Depreciation

753

688

5,809

Impairment loss

̆

145

1,222

The Company’s operating lease contracts:
The scheduled maturities of future lease payments on such lease contracts as of February 28, 2006 and 2007 are as follows:
Thousands of
U.S. dollars

Millions of yen
February 28,
2006

2007

February 28,
2007

Due within one year

¥̆

¥119

$1,006Due over one year

̆

363

3,067

¥̆

¥482

$4,073

Scheduled maturities of future leases:

34

(Lessor)
Acquisition cost, accumulated depreciation and net book value of the leased assets as of February 28, 2006 and 2007 aresummarized as follows:
Thousands of
U.S. dollars

Millions of yen
February 28,
2006

February 28,
2007

2007

Other

Total

Other

Total

Other

Total

Acquisition cost

¥90

¥90

¥ 80

¥ 80

$677

$677

Accumulated depreciation

(62)

(62)

(60)

(60)

(507)

(507)

Net book value

¥28

¥28

¥ 20

¥ 20

$170

$170

The scheduled maturities of future lease income on such lease contracts as of February 28, 2006 and 2007 are as follows:
Millions of yen
February 28,

Thousands of
U.S. dollars

2006

2007

February 28,
2007

Due within one year

¥ 49

¥ 71

$ 601

Due over one year

81

134

1,127

¥130

¥205

$1,728

Lease income and depreciation for the years ended February 28, 2006 and 2007 are as follows:
Millions of yen

Thousands of
U.S. dollars

2006

2007

2007

Lease income for the year

¥20

¥17

$141

Depreciation

¥17

¥11

$ 95

35

9. Income Taxes
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities as at February
28, 2006 and 2007 consisted of the following elements:
Thousands of
U.S. dollars

Millions of yen
February 28,
2006

2007

February 28,
2007$ 18,094

Deferred tax assets:¥ 2,553¥ 2,143

Evaluation loss on investments in unconsolidated subsidiaries

1,749

1,033

8,721

Excess amount of tax-deductible accrued bonuses to employees

1,213

1,011

8,536

Excess amount of tax-deductible accrued employees’ retirement benefits

50,008Valuation loss on inventories

6,819

5,923

Accrued retirement benefits for directors and corporate auditors

765

1,080

9,119

Allowance for bad debt

̆

1,182

9,980

Tax loss carryforwards

8,542

11,273

95,179̆

8,599

72,602

3,054

2,514

21,226

24,69534,758

293,465(11,250)(14,783)(124,814)

13,445

19,975

168,651

Gain on securities contributed to an employee retirement benefit trust(3,474)(3,474)(29,331)

Gain on securities returned from an employee retirement benefit trust̆

(3,931)(33,186)(22,274)

Impairment loss
Other
SubtotalLess : Valuation allowance
Total deferred tax assets
Deferred tax liabilities:(3,655)(2,638)Provision for deferred capital gains on real property for tax purposes

(22)

(22)

(186)

Other

(24)

(95)

(807)

Total deferred tax liabilities(7,175)(10,160)(85,784)

Net deferred tax assets¥ 6,270¥ 9,815$ 82,867

Net unrealized gains on available-for-sale securities

The reconciliation of the difference between the statutory tax rate and the effective tax rate for the years ended February 28, 2006
and 2007 is as follows:%
Statutory tax rate

2006

2007

40.7

40.7

Reconciliation:
Non-deductible items (entertainment expenses, etc.)

2.0

2.9

Change in valuation allowance

5.1

5.5

Losses of consolidated subsidiaries to which deferred tax assets are not recognized

1.9

̆

Other

1.2

(1.3)

50.9

47.8

Effective tax rate36

10. Revaluation of Land
On February 28, 2002, the Company revaluated land for business use at market value as a result of the application of the Land
Revaluation Law, which permits a one-time revaluation of land for business use.
As of February 28, 2007, the accumulated revaluation loss amounted to ¥17,004 million ($143,568 thousand), for which the related
deferred tax liability of ¥5,992 million ($50,589 thousand) is recognized. The net revaluation loss of ¥11,012 million ($92,979
thousand) is presented as a separate component of net assets as “Net revaluation loss of land.”The difference between the market value of land subject to the revaluation and the book value was ¥5,810 million ($49,053
thousand) as at February 28, 2007.
11. Commitments and Contingent Liabilities
The Company was contingently liable as a guarantor for certain affiliates’ bank loans. The outstanding balance of such bank loans
guaranteed as at February 28, 2006 and 2007 aggregated to ¥2,192 million and ¥1,339 million ($11,303 thousand), respectively.
12. Shareholders’ Equity
On May 1, 2006, a new corporation law (the "Corporation Law") became effective, which reformed and replaced the Commercial
Code of Japan with various revisions that would, for the most part, be applicable to events or transactions which occur on or after
May 1, 2006 and for the fiscal years ending on or after May 1, 2006. Under the Corporation Law, the entire amount of the issue priceof shares is required to be designated as a stated common stock account, although a company in Japan may, by resolution of its
Board of Directors, account for an amount not exceeding 50% of the issue price of new shares as additional paid-in capital.
The Corporation Law provides that an amount equal to 10% of distributions from retained earnings paid by the Company and its
Japanese subsidiaries be appropriated as a legal reserve. No further appropriations are required when the total amount of theadditional paid-in capital and the legal reserve equals 25% of their respective stated capital. The Corporation Law also provides that
additional paid-in capital and the legal reserve are available for appropriations by a resolution of the shareholders. Balances of thelegal reserve are included in retained earnings in the accompanying consolidated balance sheets.
Cash dividends charged to retained earnings for the years ended February 28, 2007 and 2006 represent dividends paid out during
those years. The amount available for dividends is based on the amount recorded in the Company’s non-consolidated books ofaccount in accordance with the Corporation Law.
Dividends to be paid after the balance sheet date, which were approved by the general meeting of shareholders held on May 24,
2007, are as follows:(a) Total dividends(b) Source of dividends(c) Cash dividends per common share(d) Date to determine shareholders receive the dividends(e) Effective date

¥4,217 million ($35,601 thousand)
Retained earnings¥26 ($0.22)
February 28, 2007
May 25, 200737

13. Per Share Information
Net income per share of common stock is computed based upon the weighted-average number of shares of common stock
outstanding during each year. Cash dividends per share shown for each year in the accompanying consolidated statements ofincome represent dividends declared as applicable to the respective years rather than those paid during the years.
The basis for the calculation of basic and diluted net income per share for the years ended February 28, 2006 and 2007 is asfollows:
Thousands of
U.S. dollars

Millions of yen

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

2006

2007

¥11,091¥11,4382007$96,572

(516)

̆

̆

¥10,575¥11,438$96,572

165,790,111

162,187,211

̆

43,814

14. Related-Party Transactions
Year Ended February 28, 2007
The Company leased land from Mr. Hirouchi, Chairman of Onward Kashiyama Co., Ltd., during the year and the rental fee was¥7 million ($61 thousand). Also, Mr. Hirouchi paid a rental fee of ¥21 million ($178 thousand) to the Company for a house. The rental
fees were determined by the market average amounts.
Year Ended February 28, 2006
The Company leased land from Mr. Hirouchi, Chairman of Onward Kashiyama Co., Ltd., during the year and the rental fee was¥7 million. Also, Mr. Hirouchi paid a rental fee of ¥21 million to the Company for a house. The rental fees were determined by themarket average amounts.
15. Stock Options
The Company has a stock option plan for 12 directors and 2 corporate auditors. The options were granted on June 20, 2006 and are
exercisable in the period from July 1, 2006 to June 30, 2036. The terms of the options include certain limitations on the exercisability
under which grantees can exercise their options during a five-year period starting a year after they lose their positions as directors or
corporate auditors.
A summary of information for the Company’s stock option plan is as follows:
Exercise price¥1 ($0.01)

Fair value at the grant date

¥1,541 ($13.01)

Number of stock options granted

63,000 shares

The cost recognized for the stock options for the year ended February 28, 2007 is ¥73 million ($615 thousand), which is included
in selling, general and administrative expenses.
A summary of scale and movement of the Company’s stock option plan as of February 28, 2007 is as follows:
Stock options not exercisable:
2006 stock option plan
Outstanding at February 28, 2006

̆Granted63,000Forfeited̆

VestedOutstanding at February 28, 2007

38

̆63,000

The fair value of the stock options granted for the year ended February 28, 2007 is estimated using the Black-Scholes
option-valuation model with the following assumptions:
Expected volatility

33.507%

Expected lives

7 years and 6 months

Expected dividend¥24 per share

Risk-free interest rate

1.6000%The number of rights vested is calculated based on the actual forfeited number of stock options because it is difficult to estimate
forfeiture in the future.
16. Segment Information(1) Industry Segment Information
The Company and its consolidated subsidiaries operate principally in two industrial segments, “Clothing” and “Other.”
The Clothing Division produces and sells a wide range of women’s and men’s clothing, including dresses, suits, shirts, skirts,
sweaters, trousers and casual wear.
The Other Division operates logistics, sports facilities, resort facilities, etc.
Segment information classified by industry segment of the Companies for the year ended February 28, 2007 is as follows:
For the year ended February 28, 2007

Millions of yen
Industry segment

Elimination ofintersegment sales

Consolidated
total

Clothing

Other

Total

Sales to outside customers
Intersegment sales¥301,845
24¥16,845
14,131¥318,690
14,155

Total
Costs and expenses

301,869
277,086

30,97630,277

332,845
307,363

Operating income¥ 24,783¥

699¥ 25,482¥

AssetsDepreciation and amortization¥337,035¥ 5,917¥52,807¥ 844¥389,842¥ 6,761

Impairment loss¥

¥12,597¥ 16,968¥̆¥ 16,968

Capital expenditures¥ 10,020¥¥ 10,617¥(111)¥ 10,506

4,371

597

For the year ended February 28, 2007

̆
(14,155)¥318,690(14,155)(14,104)

318,690
293,259(51)¥ 25,431¥(41,906)¥(65)¥347,936¥ 6,696¥̆

Thousands of U.S. dollars
Industry segment
Clothing

Other

Total

Elimination ofintersegment sales

Consolidated
total$2,548,510$142,224$2,690,734

205

119,313

119,518̆(119,518)$2,690,734

Intersegment sales
Total
Costs and expenses

2,548,715
2,339,463

261,537
255,6312,810,252
2,595,094(119,518)(119,080)

2,690,734
2,476,014

Sales to outside customers$

̆Operating income$ 209,252

$

5,906

$ 215,158

$

(438)

$ 214,720

AssetsDepreciation and amortization$2,845,616$ 49,954$445,855$ 7,128$3,291,471$ 57,082$(353,812)$(544)$2,937,659$ 56,538$ 143,259

Impairment loss$

36,904$106,355$ 143,259$

̆Capital expenditures$

84,598

$

$

$

(935)

5,043

89,641$

88,706

Segment information classified by industry segment of the Companies for the year ended February 28, 2006 is as follows:
For the year ended February 28, 2006

Millions of yen
Industry segment
Clothing

Other

Total

Sales to outside customers
Intersegment sales¥268,968
18¥14,143
12,706¥283,111
12,724

Total
Costs and expenses

268,986
244,943

26,84926,210295,835
271,153

Elimination ofintersegment sales¥

Consolidated
total̆
(12,724)¥283,111
̆

(12,724)(12,750)

283,111
258,403

Operating income¥ 24,043¥

639¥ 24,682¥

26¥ 24,708

AssetsDepreciation and amortization¥308,170¥ 6,320¥39,929¥ 799¥348,099¥ 7,119¥(18,696)¥(65)¥329,403¥ 7,054

Capital expenditures

¥

¥

¥

¥

¥

7,732

365

8,097

(44)

8,053

39

(2) Geographic Segment Information
The sales in Europe were over 10% of total segment sales for the year ended February 28, 2007; therefore, the Company disclosed
geographic segment information.
The major countries or regions in the respective divisions are as follows:
Europe: United Kingdom, Italy and France
Other: U.S.A., China and Korea
Segment information classified by geographic segment of the Company for the year ended February 28, 2007 is as follows:
For the year ended February 28, 2007

Millions of yen
Geographic segment

Sales to outside customers
Intersegment sales
Total
Costs and expenses

Elimination ofintersegment sales

Japan

Europe

Other

Total

¥280,169
1,138¥31,395
1,109¥ 7,126122¥318,690
2,369

281,307258,126

32,50429,277

7,248
8,334

321,059
295,737¥

Consolidated
total̆
(2,369)¥318,690(2,369)(2,478)318,690
293,259̆Operating income (loss)¥ 23,181¥ 3,227¥ (1,086)¥ 25,322¥

109¥ 25,431

Assets¥321,911¥31,595¥18,041¥371,547¥(23,611)¥347,936

Elimination ofintersegment sales

Consolidated
total

For the year ended February 28, 2007

Thousands of U.S. dollars
Geographic segment

Japan

Europe

Other

Total

$2,365,497$265,074

Intersegment sales

9,610

9,360

$ 60,163
1,032$2,690,734
20,002

Total
Costs and expenses

2,375,107
2,179,386

274,434
247,189

61,19570,3622,710,736
2,496,937

Operating income (loss)$ 195,721$ 27,245$ (9,167)$ 213,799$

921$ 214,720

Assets$2,717,927$266,760$152,321$3,137,008$(199,349)$2,937,659

Sales to outside customers$

̆(20,002)$2,690,734(20,002)(20,923)2,690,734
2,476,014

̆Geographic segment information for the year ended February 28, 2006 was omitted because more than 90% of total sales andtotal assets related to only the domestic segment.
(3) Overseas Sales
Overseas sales were over 10% of consolidated sales for the year ended February 28, 2007; therefore, the Company disclosed
overseas sales information.
The major countries or regions in the respective divisions are as follows:
Europe: United Kingdom, Italy and France
Other: U.S.A., China and Korea
The overseas sales are sales except for sales to the Japan area of the Company and its consolidated subsidiaries.
Segment information classified as overseas sales of the Company for the year ended February 28, 2007 is as follows:
For the year ended February 28, 2007

Millions of yen
Overseas sales

Overseas sales

EuropeOther¥23,985¥13,925¥ 37,910
318,690

Total

7.5%

4.4%

11.9%

Consolidated sales
Percentage of overseas sales against consolidated sales

For the year ended February 28, 2007

Thousands of U.S. dollars
Overseas sales

Overseas sales
Consolidated sales
Percentage of overseas sales against consolidated sales

EuropeOther$202,508$117,570$ 320,078
2,690,734

Total

7.5%

4.4%

11.9%

Overseas sales information for the year ended February 28, 2006 was omitted because the total overseas sales of the Companies
were under 10% of consolidated sales.

4017. Loans
Short-term loans at February 28, 2006 and 2007 represented loans, principally from banks. The weighted-average interest rate onthese loans was 1.1% in 2006 and 3.1% in 2007.
18. Subsequent Events
At the Board of Directors’ meeting held on April 13, 2007, it was approved that the Company tender its shares in Impact 21 Co., Ltd.
(“Impact 21”) in the takeover bid for that company by PRL Japan Kabushiki Kaisha, a wholly-owned subsidiary of Polo Ralph Lauren
Corporation. The Company also required its related companies to tender their shares of Impact 21 in the takeover bid, and therelated companies agreed to tender their shares.
The takeover bid was completed on May 21, 2007, and Impact 21 is no longer a consolidated subsidiary of the Company.
On May 29, 2007, 8,110,150 shares of Impact 21 (41.0% of the issued and outstanding shares of Impact 21) were transferred.
Proceeds from the transfer amounted to ¥21,086 million ($178,034 thousand) and the gain on the transfer of shares was ¥6,840
million ($57,752 thousand).

41

42

Non-Consolidated Balance Sheets
ONWARD KASHIYAMA Co., Ltd.
February 28, 2006 and 2007

Thousands of
U.S. dollars(Note 2. (16))

Millions of yen

ASSETS

2006

2007

2007

¥ 20,394¥ 11,965

Current assets:
Cash and deposits$

101,023

Accounts and notes receivable:
Notes

1,756

1,293

10,916

Accounts

17,034

19,306

163,006

18,79020,599173,922

Inventories (Notes 2. (1) and 3)

22,47524,459206,510

Advance payments

1,504

1,126

9,506

Deferred tax assets (Note 9)

3,220

2,893

24,424

Prepaid pension cost

8,178

̆

̆

Other current assets

5,804

715

6,037

(47)

(29)

(251)

80,31861,728521,171

398,801

Less: Allowance for bad debt
Total current assets
Property, plant and equipment (Note 5):
Buildings and structures

48,751

47,234

Machinery and equipment

1,410

1,329

11,223Tools, furniture and fixtures

10,225

10,37987,63360,38658,942497,657(33,570)(35,080)(296,191)

26,81623,862

201,466

Land (Note 6)

44,08040,292

340,191

Construction in progress

1,640

̆

̆

72,53664,154

541,657

2,493

2,447

20,660Investments in securities

28,71849,874421,090

Investments in and advances to subsidiaries and affiliates (Note 8)

51,30771,876

606,858

Less: Accumulated depreciation

Total property, plant and equipment
Intangible assets, net
Investments and other assets:Long-term loans to employees

159

130

1,097

Long-term prepaid expenses

2,823

2,376

20,065

Deferred tax assets (Note 9)

5,478

7,295

61,595

Deferred tax assets̆revaluation of land (Notes 6 and 9)

1,630

̆

̆

Long-term deposits

5,500

5,500

5,500

Other investments
Less: Allowance for bad debt
Total investments and advances
Total assets

8,293

5,850

49,395(1,441)(3,589)(30,306)

102,467

139,312

1,176,231¥ 257,814¥267,641$2,259,719

See accompanying notes to financial statements.

(Continued)

43

Millions of yen

LIABILITIES AND NET ASSETS
Current liabilities:
Accounts and notes payable:
Notes
Accounts
Non-trade payables
Accrued expenses
Accrued income taxes
Consumption taxes payable
Accrued bonuses to employees
Allowance for sales returns
Other current liabilities
Total current liabilities
Long-term liabilities:
Accrued retirement benefits
Accrued retirement benefits for directors and statutory auditors
Accrued losses on guarantee obligations
Accrued losses on investment in subsidiaries
Deferred tax liabilities
Security deposits
Long-term non-trade payables
Total long-term liabilities
Total liabilities

Thousands of
U.S. dollars(Note 2. (16))

2006

2007

2007

¥ 13,971
21,77735,748
2,586
5,247
7,134
777
2,254
869
372
54,987¥ 12,821
23,66936,490
2,879
5,643
5,572
358
2,015
792
778
54,527

390
1,591
2,493
̆
̆
2,543
̆
7,017
62,004

2,376
̆
5,781
3,008
5,992
2,811
2,402
22,37076,897

20,057
̆
48,81025,39750,58923,737
20,284
188,874
649,249

30,08051,553129,085

30,08051,553
132,937

253,965
435,269
1,122,405(17,571)
193,147(17,602)
196,968(148,615)
1,663,024

5,041
̆
(2,378)2,663
̆
195,810¥257,814

4,698
17(11,012)(6,297)73
190,744¥267,641

39,663
147(92,979)(53,169)615
1,610,470$2,259,719$

108,251
199,839
308,090
24,30247,64747,044
3,023
17,013
6,687
6,569
460,375

Commitments and contingent liabilities (Note 10)
Net assets:
Shareholders’ equity:
Common stock:
Authorized̆400,000,000 shares
Issued̆172,921,669 shares at February 28, 2006 and 2007
Capital surplus
Retained earnings (Note 11)
Less: Treasury stock, at cost, 10,726,258 shares and 10,744,252 sharesat February 28, 2006 and 2007, respectively
Total shareholders’ equity
Valuation and translation adjustments:
Net unrealized gains on available-for-sale securities
Deferred gains on hedging instruments
Net revaluation loss of land (Note 6)
Total valuation and translation adjustments
Stock acquisition rights
Total net assets
Total liabilities and net assets

U.S. dollars(Note 2. (16))

Yen

Per share (Note 12):
Net assets per share
See accompanying notes to financial statements.

44¥1,204.5¥1,175.7$9.9

Non-Consolidated Statements of Income
ONWARD KASHIYAMA Co., Ltd.
For the years ended February 28, 2005, 2006 and 2007

Thousands of
U.S. dollars(Note 2. (16))

Millions of yen

Net sales
Cost of sales

Reversal of allowance for sales returns, net (Note 2. (8))
Gross profit
Selling, general and administrative expenses (Note 2. (7))
Operating income
Other income (expenses):
Interest and dividend income
Gain (loss) on disposal of property, net
Loss on write-down of investments in securities
Royalty income
Loss on liquidation of subsidiaries and affiliates
Provision for allowance for bad debt
Provision for loss on guarantee obligations
Rent income
Gain on sale of investments in securities, net
Gain on cancellation of the pension trust
Impairment losses on fixed assets
Provision for losses on investment for subsidiaries
Reversal of allowance for bad debt
Other, net
Income before income taxes
Income taxes (Notes 2. (7) and 9):
Current
Deferred
Net income

2005

2006

2007

2007

¥197,230
105,161
92,069¥203,539
106,999
96,540¥215,736
116,474
99,262$1,821,479
983,397
838,081265
92,33474,34917,985

6
96,546
77,74418,802

77
99,33981,106
18,233

650
878,731684,784
153,947

674
(286)
(112)
420
(536)
̆
(1,800)
1,058
883
̆
̆
̆
37
325
663
18,648

1,347
(90)
(11)
377
̆
(508)
(693)
1,209
̆
̆
̆
̆
37
(632)
1,036
19,838

1,615
48
(7)
283
̆
(1,913)(3,581)
1,463
4,051
9,664
(10,212)(3,008)̆
(815)(2,412)
15,821

13,634
406
(56)
2,392
̆
(16,154)(30,234)
12,351
34,20281,599(86,224)(25,397)̆
(6,884)(20,365)
133,582

4,847
3,153
8,000
¥ 10,648

9,063
21
9,084
¥ 10,754

9,907(1,727)
8,180¥ 7,641

83,649(14,584)
69,06564,517

U.S. dollars(Note 2. (16))

Yen

Per share (Note 12):Net incomĕbasic
Diluted net income per share
Cash dividends

¥60.5
̆
22.0

¥62.2
̆
24.0

$

¥47.1
47.1
26.0

$0.3980.398
0.220

See accompanying notes to financial statements.

45

Non-Consolidated Statements of Changes in Net Assets
ONWARD KASHIYAMA Co., Ltd.
For the years ended February 28, 2005, 2006 and 2007
Millions of yen
Shareholders’ equity

Balance as at February 29, 2004:
Gain on sales of treasury stock
Cash dividends
Bonuses to directors and statutory auditors
Net income
Reversal of reserve for land revaluation
Increase in treasury stock
Exchange of treasury stock for
Chacott Co., Ltd.’s stock
Net changes other than shareholders’equityTotal changes during the year
Balance as at February 28, 2005:
Gain on sales of treasury stock
Cash dividends
Bonuses to directors and statutory auditors
Net income
Reversal of reserve for land revaluation
Increase in treasury stock
Net changes other than shareholders’equityTotal changes during the year
Balance as at February 28, 2006:
Cash dividends
Bonuses to directors and statutory auditors
Net income
Purchase of treasury stock
Reissuance of treasury stockReversal of reserve for land revaluation
Net changes other than shareholders’equityTotal changes during the year
Balance as at February 28, 2007

Numberof sharesof commonstock(thousands)

Commonstock

172,922
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ

¥30,080
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ

ʊ

ʊ

936

ʊ
ʊ
172,922
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ

ʊ
ʊ
30,080
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ

ʊ
ʊ
172,922
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
172,922

CapitalsurplusRetainedearnings(Note 11)

Treasury
stock

Total

¥ (5,373)
5
ʊʊʊʊ
(7,003)¥190,877
6(3,356)(421)
10,648(20)(7,003)

ʊ

4,164

5,100

ʊ
937
51,552
1
ʊ
ʊ
ʊ
ʊ
ʊ

ʊ
6,851
122,406
ʊ
(3,679)(421)
10,75425
ʊʊ
(2,834)(8,207)4ʊʊʊʊ
(9,368)

ʊ
4,954
195,8315(3,679)(421)
10,75425(9,368)ʊʊ
30,080
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ

ʊ
1
51,553
ʊ
ʊ
ʊ
ʊ
0
ʊ

ʊ
6,679
129,085(3,893)
(450)
7,641
ʊ
ʊ
554

ʊ
(9,364)(17,571)
ʊ
ʊ
ʊ
(42)
11
ʊ

ʊ
(2,684)
193,147(3,893)
(450)
7,641
(42)
11
554

ʊ
ʊ
¥30,080

ʊ
ʊ
0
3,852
¥51,553 ¥132,937

ʊ(31)¥(17,602)

ʊ
3,821¥196,968¥50,615 ¥115,555
1
ʊʊ
(3,356)
ʊ(421)
ʊ
10,648ʊ(20)
ʊ
ʊ

Thousands of U.S. dollars (Note 2. (16))

Shareholders’ equity
Commonstock

Balance as at February 28, 2006:
Cash dividends
Bonuses to directors and statutory auditors
Net income
Purchase of treasury stock
Reissuance of treasury stockReversal of reserve for land revaluation
Net changes other than shareholders’equityTotal changes during the year
Balance as at February 28, 200746

Capitalsurplus$253,965 $435,266
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
3
ʊ
ʊ

Retainedearnings(Note 11)

Treasury
stock

Total

$1,089,879 $(148,356) $1,630,754(32,866)
ʊ
(32,866)(3,799)ʊ
(3,799)64,517
ʊ
64,517
ʊ
(352)
(352)
ʊ
93
96
4,674
ʊ
4,674

ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
3
32,526(269)
32,270$253,965 $435,269 $1,122,405 $(148,615) $1,663,024

Millions of yen
Valuation and translation adjustment
Net unrealizedNet
gains onDeferred gains revaluation
available-foron hedging
loss of landsale securities instruments(Note 6)

Balance as at February 29, 2004:
Gain on sales of treasury stock
Cash dividends
Bonuses to directors and statutory auditors
Net income
Reversal of reserve for land revaluation
Increase in treasury stock
Exchange of treasury stock for
Chacott Co., Ltd.’s stock
Net changes other than shareholders’equityTotal changes during the year
Balance as at February 28, 2005:
Gain on sales of treasury stock
Cash dividends
Bonuses to directors and statutory auditors
Net income
Reversal of reserve for land revaluation
Increase in treasury stock
Net changes other than shareholders’equityTotal changes during the year
Balance as at February 28, 2006:
Cash dividends
Bonuses to directors and statutory auditors
Net income
Purchase of treasury stock
Reissuance of treasury stockReversal of reserve for land revaluation
Net changes other than shareholders’equityTotal changes during the year
Balance as at February 28, 2007

StockacquisitionrightsTotal net
assets

Total

¥ 765
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ

¥ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ

¥ (2,373)
ʊ
ʊ
ʊ
ʊ
20
ʊ

¥(1,608)
ʊ
ʊ
ʊ
ʊ
20
ʊ

¥ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ

¥189,269
6(3,356)(421)
10,648ʊ
(7,003)

ʊ

ʊ

ʊ

ʊ

ʊ

5,100

327
327
1,092
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ

ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ

ʊ
20
(2,353)
ʊ
ʊ
ʊ
ʊ
(25)
ʊ

327
347
(1,261)
ʊ
ʊ
ʊ
ʊ
(25)
ʊ

ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ

327
5,301
194,570
5(3,679)(421)
10,754
ʊ
(9,368)

3,949
3,949
5,041
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ

ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ

ʊ
(25)
(2,378)
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ

3,949
3,924
2,663
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ

ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ

3,949
1,240
195,810(3,893)
(450)
7,641
(42)
11
554

(343)
(343)
¥4,69817(8,634)17(8,634)¥17 ¥(11,012)(8,960)(8,960)¥(6,297)

73
73
¥73

(8,887)(5,066)¥190,744

Thousands of U.S. dollars (Note 2. (16))
Valuation and translation adjustment
Net unrealized
gains onDeferred gains Net revaluation
available-foron hedging
loss of landsale securities instruments(Note 6)

Balance as at February 28, 2006:
Cash dividends
Bonuses to directors and statutory auditors
Net income
Purchase of treasury stock
Reissuance of treasury stockReversal of reserve for land revaluation
Net changes other than shareholders’equityTotal changes during the year
Balance as at February 28, 2007

StockacquisitionrightsTotal net
assetsTotal$42,564
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ

$ ʊ $(20,072) $ 22,492
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ

$ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ

$1,653,246(32,866)(3,799)64,517
(352)
96
4,674

(2,901)(2,901)$39,663

147 (72,907) (75,661)
147 (72,907) (75,661)$147 $(92,979) $(53,169)

615
615
$615

(75,046)(42,776)$1,610,470

See accompanying notes to financial statements.

47

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

1. Basis of Presentation of the Non-Consolidated Financial Statements
The accompanying non-consolidated financial statements have been prepared from the accounts maintained by ONWARD
KASHIYAMA Co., Ltd. (the “Company”), in accordance with the provisions set forth in the Corporation Law of Japan (the “CorporationLaw”) and the Securities and Exchange Law and in conformity with accounting principles and practices generally accepted in Japan,
which are different in certain respects from the application and disclosure requirements of International Financial ReportingStandards.
Certain items presented in the non-consolidated financial statements submitted to the Director of the Kanto Finance Bureau in
Japan have been reclassified for the convenience of readers outside Japan.
The accompanying non-consolidated financial statements are not intended to present the financial position and results ofoperations of the Company in accordance with accounting principles and practices generally accepted in countries and jurisdictions
other than Japan.
2. Summary of Significant Accounting Policies(1) Inventories
Inventories are stated at cost, cost being determined generally by the last purchase invoice price method. Merchandise and finishedgoods held at retail stores are measured by the retail cost method.
When the net realizable value of certain classes of inventories (consisting primarily of seasonal merchandise which remains
unsold after the end of such seasons) is substantially less than the carrying value (cost), and the decline in value is not expected
to be recovered in the near future, appropriate write-downs are recorded on such inventory items. The amount of write-down isdetermined based on the experience of sales of merchandise similar to those unsold items during the last three years. For the years
ended February 28, 2006 and 2007, the recorded write-downs were ¥7,021 million and ¥8,296 million ($70,048 thousand),
respectively.
(2) Investments in Securities
Debt securities and equity securities classified as available-for-sale securities whose fair values are readily determinable are carriedat fair values prevailing at the fiscal year-end date with unrealized gains or losses included as a component of net assets, net of
applicable taxes.
Available-for-sales securities whose fair values cannot readily be determined are stated principally at cost. In cases where declines
in fair values of individual securities are assessed to be other than temporary, the cost of the security is reduced to net realizablevalue and the impairment loss is charged to income. Realized gains and losses are determined using the moving-average method
and are reflected in income.
Investments in subsidiaries and affiliates are stated at cost determined by the moving-average method.
(3) Derivative Transactions
All derivatives are stated at fair value, and changes in fair value are included in income for the period in which they arise, except forderivatives that are designated as “hedging instruments” (see “(4) Hedge Accounting” below).
(4) Hedge Accounting
All gains or losses arising from changes in fair values of the derivatives designated as “hedging instruments,” which were formerly
deferred as assets or liabilities, are deferred as a component of net assets, net of applicable taxes, due to the adoption of a new
accounting standard described in Note 2. (13). The gains or losses on the hedging instruments are included in net income in thesame period during which the gains and losses on the hedge items or transactions are recognized. For foreign exchange forward
contracts, if they meet conditions for hedge accounting, the difference between the contract rate and spot rate at the date of thecontract is recognized over the period from the contract date to the settlement date.
The derivatives designated as hedging instruments are principally foreign exchange forward contracts. The related hedged items
are trade accounts payable and trade accounts receivable denominated in foreign currencies and scheduled transactions.
The Company has a policy of utilizing hedging instruments in order to reduce the exposure to the risk of foreign currency exchange
rate fluctuation.

48

(5) Property, Plant and Equipment
The Company provides depreciation by the declining-balance method at rates based on the estimated useful lives of assets which
are prescribed by Japanese income tax regulations, except for certain buildings (other than improvements) acquired on and after
April 1998, which are depreciated by the straight-line method pursuant to an amendment to Japanese income tax law.
(6) Amortization
Intangible assets and long-term prepaid expenses are amortized by the straight-line method.
Software costs for internal use are amortized over their expected useful lives (five years) by the straight-line method.
(7) Income Taxes
The income taxes of the Company consist of corporate income tax, local inhabitant taxes and enterprise taxes.
The accounting standards for income taxes require that deferred income taxes be accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or
settled, and the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes
the enactment date.
Since the “Law for the Partial Revision of Local Tax, etc. (No. 9, 2003)” was announced on March 31, 2003, the rule of external
standard taxation has been applied from fiscal years commencing on and after April 1, 2004. Subsequently, the added-value portionand capital portion of corporate business tax have been recorded in selling, general and administrative expenses from this point inaccordance with “Practical Treatment of the Disclosure of the External Standard Taxation Portion in the Corporate Business Tax on
the Profit and Loss Statement (February 13, 2004, Accounting Standards Board of Japan, Business-Related Report No. 12).” As aresult, selling, general and administrative expenses increased by ¥470 million, while operating income and income before income
taxes decreased by ¥470 million, for the year ended February 28, 2006.
(8) Allowances
An allowance for bad debt is provided for estimated losses on known bad debt and doubtful accounts using the historical write-off
ratio at the balance sheet date.
Accrued bonuses to employees are provided for at an amount determined based on the estimated bonuses to employees thatwere incurred at the balance sheet date.
Accrued bonuses to directors and statutory auditors are provided for at an amount determined based on the estimated bonuses todirectors and statutory auditors that were incurred at the balance sheet date.
An allowance for sales returns is provided for the estimated losses on sales returns calculated under the Japanese tax regulations.
Accrued retirement benefits are provided for at the present value of the projected benefit obligation less the estimated fair value ofplan assets and deferred gains or losses at the balance sheet date. Unrecognized prior service costs are amortized on a straight-line
basis over 5 to 10 years, which is within the related employees’ average remaining service years. Unrecognized actuarial differences
are amortized on a straight-line basis over 5 to 10 years, which is within the related employees’ average remaining service years
from the year following the one in which they arise.
The Company has an excess of plan assets at fair value for the retirement benefit obligations. The Company cancelled a partof assets set in the pension trust for the year ended February 28, 2007, and recognized the prior years’ unrecognized actuarial
differences corresponding to the cancellation of ¥9,665 million ($81,599 thousand) as a gain on cancellation of the pension trust in
the statements of income. The Company obtained an applicable approval from Japan’s Ministry of Health, Labour and Welfare for
exemption for the return of the past benefit obligation with respect to the portion of the Employee Pension Fund that the Company
operates on behalf of the Government (the so-called substitutional portion).
Accrued retirement benefits for directors and statutory auditors are provided for at the amount required at the balance sheet dates
in accordance with the internal rules of the Company.

49

While the Company has no legal obligation, it is the customary practice in Japan to make lump-sum payments to directors or
statutory auditors upon retirement under the approval of the general meeting of shareholders.
At the general meeting of shareholders held on May 25, 2006, abolishment of the retirement benefit system for directors andcorporate auditors was approved, and the directors and the corporate auditors were entitled to lump-sum payments up to the dateof the abolishment when they leave the Company. The amount to be paid is included in long-term non-trade payables.
The provision for loss on guarantee obligations was provided for the estimated losses on the Company’s obligations to pay for theguaranteed debts of subsidiaries. In estimating the provision, the Company considers the financial condition of each of thesubsidiaries.
The provision for loss on investment in subsidiaries was provided for the estimated losses resulting from those investments.
(9) Accounting for Leases
For the Company, finance leases other than those that are deemed to transfer the ownership of the lease assets to lessees areaccounted for as operating leases.
(10) Accounting for Japanese Consumption Taxes
The Japanese consumption taxes withheld upon sale of goods and services and the consumption taxes paid by the Company on thepurchase of goods and services are not included in the accompanying non-consolidated statements of income.
(11) Impairment of Long-Lived Assets
Effective March 1, 2006, the Company adopted a new accounting standard for the impairment of fixed assets (“Opinion Concerning
the Establishment of an Accounting Standard for the Impairment of Fixed Assets” issued by the Business Accounting Deliberation
Council on August 9, 2002) and the “Implementation Guidance on the Accounting Standard for the Impairment of Fixed Assets”(Business Accounting Standard Implementation Guidance No. 6 issued on October 31, 2003).
The standard requires that fixed assets be reviewed for impairment whenever events or changes in circumstances indicate that thecarrying amount of an asset or asset group may not be recoverable. An impairment loss would be recognized if the carrying amountof an asset or asset group exceeds the sum of the undiscounted future cash flows expected to be generated from the continued use
and eventual disposition of the asset or asset group. The impairment loss would be measured as the amount by which the carrying
amount of the asset exceeds its recoverable amount, which is the higher of the discounted cash flows from the continued use andeventual disposition of the asset or the net selling price at disposition.
The effect of adoption of the standard was to decrease income before income taxes by ¥10,212 million ($86,224 thousand) for theyear ended February 28, 2007.
The ¥10,212 million impairment loss was recognized for land (¥2,791 million), buildings and structures (¥5,329 million) and otherfixed assets (¥2,092 million).
(12) Directors’ Bonuses
During the year ended February 28, 2007, the Company adopted the “Accounting Standard for Directors’ Bonuses” (AccountingStandards Board of Japan Statement No. 4, issued by the Accounting Standards Board of Japan on November 29, 2005).
Under the standard, directors’ bonuses are accounted for as an expense when such bonuses are accrued, instead of being
accounted for as an appropriation of retained earnings upon approval at a general meeting of shareholders. The effect of adoptionof the new standard was to decrease income before income taxes and minority interests by ¥426 million ($3,597 thousand).
(13) Presentation of Net Assets on the Balance Sheets
During the year ended February 28, 2007, the Company adopted the “Accounting Standard for Presentation of Net Assets on the
Balance Sheet” (Accounting Standards Board of Japan Statement No. 5, issued by the Accounting Standards Board of Japan on
December 9, 2005) and the “Guidance on Accounting Standard for Presentation of Net Assets on the Balance Sheet” (AccountingStandards Board of Japan Guidance No. 8, issued by the Accounting Standards Board of Japan on December 9, 2005).
Under the standard, “Shareholders’ equity” is presented as a component of “Net assets” along with the other components of“Valuation and translation adjustments” and “Stock acquisition rights.” “Deferred gains/losses on hedging instruments” formerly
presented as assets or liabilities are presented as a component of “Valuation and translation adjustments.” The statements of50

retained earnings formerly included in the statements of income and retained earnings have been incorporated into the statements ofchanges in net assets. Shareholders’ equity based on the previous classification amounted to ¥190,654 million ($1,609,708
thousand).
(14) Stock Options
During the year ended February 28, 2007, the Company adopted the “Accounting Standard for Share-Based Payment” (AccountingStandards Board of Japan Statement No. 8, issued by the Accounting Standards Board of Japan on December 27, 2005) and“Guidance on Accounting Standard for Share-Based Payment” (Accounting Standards Board of Japan Guidance No. 11, issued by
the Accounting Standards Board of Japan, revised on May 31, 2006).
These standards provide that stock options should be recognized as an expense and presented as “Stock acquisition rights” asa component of net assets. The standards are applied to stock options that are granted on and after May 1, 2006. The effect of
adoption of the new standards was immaterial.
(15) Reclassifications
Certain reclassifications have been made to the prior-year financial statements to conform with the current year’s presentation.
(16) United States Dollar Amounts
Amounts in U.S. dollars are included solely for the convenience of readers outside of Japan. The rate of ¥118.44=US$1, the rateof exchange as of February 28, 2007, has been used in translation. The inclusion of such amounts is not intended to imply thatJapanese yen have been or could be readily converted, realized or settled in U.S. dollars at that rate or any other rate.
3. Inventories
Inventories at February 28, 2006 and 2007 consisted of the following:Thousands of
U.S. dollars

Millions of yen
February 28,

Merchandise and finished goods
Raw materials
Work in process
Supplies

2006

2007

February 28,
2007¥19,983
1,192¥22,117
1,148$186,740
9,694

1,045

1,015

8,566

255

179

1,510

¥22,475¥24,459$206,510

4. Derivative Transactions
Derivatives are used in order to hedge foreign exchange market risk on the transactions which occur in the normal course ofbusiness. Derivatives are not used for speculative purposes or for highly leveraged transactions. Derivatives are executed withfinancial institutions with high credit ratings, and the Company does not anticipate significant losses due to the credit risks of its
counterparties.
The Company applied hedge accounting for all derivative transactions as of February 28, 2006 and 2007; therefore, market value
information on those derivatives is not applicable.
5. Property, Plant and Equipment
The Japanese tax regulations allow a company to defer capital gains on the sale of qualified real property, if the company intends tooffset 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, 2006 and 2007 were reduced by ¥8,493 million and ¥8,420 million ($71,087
thousand), respectively, representing accumulated deferred gains from eligible sales.

51

6. Revaluation of Land
On February 28, 2002, the Company revaluated land for business use at market value as a result of the application of the Land
Revaluation Law, which permits a one-time revaluation of land for business use.
As of February 28, 2007, the accumulated revaluation loss amounted to ¥17,004 million ($143,568 thousand), for which the related
deferred tax liability of ¥5,992 million ($50,589 thousand) is recognized. The net revaluation loss of ¥11,012 million ($92,979
thousand) is presented as a separate component of net assets as “Net revaluation loss of land.”The difference between the market value of land subject to the revaluation and the book value was ¥5,810 million ($49,053
thousand) as at February 28, 2007.
7. Lease Transactions
The Company’s finance lease contracts that are not deemed to transfer the ownership of the leased assets to lessees are accounted
for as operating leases. Certain key information on such lease contracts of the Company's for the years ended February 28, 2006
and 2007 is as follows.
Assumed data as to acquisition cost, accumulated depreciation and net book value of the leased assets, which included the
portion of interest thereon, as of February 28, 2006 and 2007 are summarized as follows:
Millions of yen

Thousands of U.S. dollars

February 28,
2006

Acquisition cost
Accumulated depreciation
Net book value

February 28,
2007

2007

Tools, furnitureand fixtures

Other

Total

Tools, furnitureand fixtures

Other

Total

Tools, furnitureand fixtures

Other

Total

¥1,218¥355¥1,573¥1,443¥274¥1,717$12,182$2,316$14,498

(724)

(229)

(953)

(502)

(145)

(648)

(4,239)(1,230)(5,469)

¥ 494

¥126

¥ 620

¥ 941

¥129

¥1,069$ 7,943$1,086$ 9,029

The scheduled maturities of future lease payments on such lease contracts as of February 28, 2006 and 2007 are as follows:
Thousands of
U.S. dollars

Millions of yen
February 28,

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

2006

2007

February 28,
2007

¥264

¥ 394

$3,325

356

675

5,704

¥620

¥1,069$9,029The lease expenses and depreciation of the leased assets for the years ended February 28, 2006 and 2007 are as follows:
Thousands of
U.S. dollars

Millions of yen
February 28,
2006

2007

February 28,
2007

Lease expenses for the year

¥368

¥425

$3,586

Depreciation

368

425

3,586

8. Investments in and Advances to Subsidiaries and Affiliates
Investments in subsidiaries and affiliates of which shares were publicly traded at February 28, 2006 and 2007 are as follows:
Millions of yen

Thousands of U.S. dollars

February 28,
2006

Book
value
Investment in subsidiaries
Investment in affiliates

52

February 28,
2007

2007

Marketvalue

Difference¥280¥14,683¥14,403

̆

̆

̆

Book
value

Marketvalue

Difference

Book
value

Marketvalue

Difference¥

280¥10,960¥10,680$ 2,368$92,535$90,167

10,329

9,979

(350)

87,20984,255(2,954)

9. Income Taxes
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities as at February
28, 2006 and 2007 consisted of the following elements:
Thousands of
U.S. dollars

Millions of yen
February 28,

Deferred tax assets:
Valuation loss on inventories

2006

2007

February 28,
2007¥1,491¥ 1,439$12,152

Evaluation loss on investments in subsidiaries

4,125

4,679

39,505

Excess amount of tax-deductible accrued employees’ retirement benefits

6,051

5,493

46,377

̆

1,471

12,420Allowance for bad debt
Accrued retirement benefits for directors and statutory auditors
Accrued losses on guarantee obligations

647

977

8,249

1,014

2,351

19,851

Impairment loss

̆

3,550

29,975

Accrued losses on investment in subsidiaries

̆

1,224

10,329Other
Subtotal
Less: Valuation allowance
Total deferred tax assets

3,452

2,670

22,541

16,78023,854

201,399(1,109)(2,975)(25,115)

15,671

20,879176,284

Deferred tax liabilities:
Gain on securities contributed to an employee retirement benefit trust(3,474)(3,474)(29,331)

Gain on securities returned from an employee retirement benefit trust̆

(3,931)(33,186)(3,456)(3,220)(27,188)

Provision for deferred capital gains on real property for tax purposes

(23)

(22)

(186)

Other

(21)

(44)

(374)

Total deferred tax liabilities(6,974)(10,691)(90,265)

Net deferred tax assets¥8,697¥10,188$86,019

Net unrealized gains on available-for-sale securities

The reconciliation of the difference between the statutory tax rate and the effective tax rate for the years ended February 28, 2006
and 2007 is as follows:%
Statutory tax rate

2006

2007

40.7

40.7

Reconciliation:
Non-deductible items (entertainment expenses, etc.)

2.0

3.8

Non-taxable dividend income

(2.5)

(3.6)

Change in valuation allowance

5.6

11.7

Other

0.0

(0.9)

45.8

51.7

Effective tax rate

10. Commitments and Contingent Liabilities
The Company was contingently liable as a guarantor for certain affiliates’ bank loans. The outstanding balance of such bank loans
guaranteed as at February 28, 2006 and 2007 aggregated to ¥22,356 million and ¥20,089 million ($169,611 thousand), respectively.
11. Shareholders’ Equity
Refer to Note 12 to the consolidated financial statements.

5312. Per Share Information
Net income per share of common stock is computed based upon the weighted-average number of shares of common stock
outstanding during each year. Cash dividends per share shown for each year in the accompanying non-consolidated statements ofincome represent dividends declared as applicable to the respective years rather than those paid during the years.
The basis for the calculation of basic and diluted net income per share for the years ended February 28, 2006 and 2007 is asfollows:
Thousands of
U.S. dollars

Millions of yen
2006

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

2007¥10,754

2007¥7,641$64,518

(450)

̆

̆

¥10,304¥7,641$64,518

165,790,111 162,187,211
̆

43,814

13. Subsequent Events
At the Board of Directors’ meeting held on April 13, 2007, it was decided that on September 1, 2007, the Company would transfer
its Clothing business to a wholly-owned subsidiary, ONWARD KASHIYAMA Bunkatsujyunbi Co., Ltd. (which would change its nameto (new) ONWARD KASHIYAMA Co., Ltd. on the same date) and its Trading business to Oak Co., Ltd. (which would change its nameto ONWARD Trading Co., Ltd. on the same date) under the provision of the Japanese Corporation Law. As a result, the Company will
be reorganized as a pure holding company, and change its name to ONWARD Holdings Co., Ltd. on September 1, 2007. These
reorganizations were approved by the general meeting of shareholders of the Company held on May 24, 2007.
At the Board of Directors’ meeting held on April 13, 2007, it was approved that the Company tender its shares in Impact 21 Co., Ltd.
(“Impact 21”) in the takeover bid for that company by PRL Japan Kabushiki Kaisha, a wholly-owned subsidiary of Polo Ralph Lauren
Corporation.
The takeover bid was completed on May 21, 2007, and Impact 21 is no longer a consolidated subsidiary of the Company. On
May 29, 2007, 5,243,950 shares of Impact 21 (26.5% of the issued and outstanding shares of Impact 21) were transferred. Proceedsfrom the transfer amounted to ¥13,634 million ($115,115 thousand) and the gain on the transfer of shares was ¥13,354 million($112,748 thousand).

54

Report of Independent Auditors
The Board of Directors
ONWARD KASHIYAMA Co., Ltd.

We have audited the accompanying non-consolidated balance sheets of ONWARD
KASHIYAMA Co., Ltd. as of February 28, 2007, and the related non-consolidated
statements of income and change in net assets for the year then ended, all expressedin yen. These non-consolidated financial statements are the responsibility of theCompany's management.  Our responsibility is to express an opinion on thesefinancial statements based on our audits. The non-consolidated financial statementsof ONWARD KASHIYAMA Co., Ltd. for each of the two years ended February 28,
2006, were audited by other auditors whose report dated May 25, 2006, expressed an
unqualified opinion on those statements.
We conducted our audits in accordance with auditing standards generally accepted inJapan. Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements of ONWARD KASHIYAMA Co., Ltd. for theyear ended February 28, 2007, referred to above present fairly, in all material respects,
the financial position of ONWARD KASHIYAMA Co., Ltd. at February 28, 2007, andthe results of its operations for the year then ended in conformity with accounting
principles generally accepted in Japan.
As discussed in Note 2(11) to the financial statements, the Company adopted a new
accounting standard for the impairment of fixed assets effective March 1, 2006.
In addition, as discussed in Note 13 to the financial statements, the Board of Directors
decided to reorganize the Company as a pure holding company under the JapaneseCorporation Law on April 13, 2007, and it was approved by the shareholders' meeting
held on May 24, 2007. As also discussed in Note 13 to the financial statements, thetakeover bid for Impact 21 Co., Ltd. ("Impact 21") by PRL Japan Kabushiki Kaisha, awholly-owned subsidiary of Polo Ralph Lauren Corporation, has been completed on
May 21, 2007. Accordingly, Impact 21 will no longer be the Company's consolidated
subsidiary.
The U.S. dollar amounts in the accompanying non-consolidated financial statements withrespect to the year ended February 28, 2007 are presented solely for convenience. Our
audit also included the translation of yen amounts into U.S. dollar amounts and, in our
opinion, such translation has been made on the basis described in Note 2(16).

55

Annual Report 2007

Principal Subsidiaries

Overseas Subsidiaries
J. PRESS, INC.
262 York Street,
New Haven, CT 06511, U.S.A.
Tel: (1) 203-772-1310
ONWARD KASHIYAMAHONG KONG LTD.
Units 1208-9, Lippo Sun Plaza,
28 Canton Road, T.S.T.,
Kowloon, Hong Kong,
People’s Republic of China
Tel: (852) 2721-7068
GIBO’ CO. S.p.A.
Via Cassia 69, Tavarnuzze,
50029 Firenze, Italy
Tel: (39) 055-237-2020
ONWARD ITALIA S.p.A.
Via Della Spiga 9,20121 Milano, Italy
Tel: (39) 02-783-667
SHANGHAI ONWARD
FASHION CO., LTD.
5F Jinjiang Dickson Center,#400 Changle Road, Shanghai,
People’s Republic of China
Tel: (86) 21-6466-6466

HORLOGE SAINT BENOIT S.A.
22 Rue Saint Benoit,
75006 Paris, France
Tel: (33) 1-4544-1118
ONWARD BEACH RESORTGUAM, INC.
445 Governor Carlos G. Camacho Road,
Tamuning, Guam 96911, U.S.A.
Tel: (1) 671-647-7777
ONWARD GOLF RESORTGUAM, INC.
#825, Route 4A Talofofo,
Guam 96915, U.S.A.
Tel: (1) 671-789-5555

ONWARD RETAIL L.L.C.
530 7th Ave., 29th Floor,
New York, NY 10018, U.S.A.
Tel: (1) 212-997-3600

APPAREL AND TEXTILEPRODUCTSONWARD TRADING CO., LTD.
CHACOTT CO., LTD.
BUS STOP CO., LTD.
DONNA KARAN JAPAN K.K.
MARNI JAPAN CO., LTD.
FUSION CO., LTD.
CANDELA INTERNATIONAL
CO., LTD.
J. DIRECTION CO., LTD.

FREED OF LONDON LTD.
94, St. Martin’s Lane,
London WC2N 4AT, U.K.
Tel: (44) 20-7240-0432
JOSEPH LTD.
Unit 11, 50 Carnwath Road,
London SW6 3JX, U.K.
Tel: (44) 20-7736-2522

SERVICESACROSS TRANSPORT CO., LTD.
ONWARD LIFE DESIGNNETWORK CO., LTD.
ONWARD CREATIVE CENTER
CO., LTD.

IRIS S.p.A.
Via Pampagnina 42,
Fisso d’Artico,
30032 Venezia, Italy
Tel: (39) 041-5169911

ONWARD FASHION TRADING(China) CO., LTD.
5F Jinjiang Dickson Center,#400 Changle Road, Shanghai,
People’s Republic of China
Tel: (86) 21-6472-3660

Domestic Subsidiaries

ERIKA s.r.l.
Via Boschi 421 bis,
Maccari, 37060 Verona, Italy
Tel: (39) 0442-56666

VOICEDAM CO., LTD.
BIEN CO., LTD.
ONWARD SKYLARKS CO., LTD.
EXCEL CO., LTD.
BOOKLET CORP.

RESORTSFRASSINETI s.r.l.
Via E. Fermi 7,
Loc. Scopeti - Rufina,
50068 Firenze, Italy
Tel: (39) 055-8397385
Fax: (39) 055-8395040

O & K CO., LTD.
ONWARD RESORT & GOLF
CO., LTD.

ONWARD KASHIYAMAKOREA CO., LTD.
GF, Hwankyoung B/D,
1-118, Jangchung-Dong, Chung-ku,
Seoul 100-391, Republic of Korea
Tel: (82) 2-548-5841

56

As of February 28, 2007

ONWARD KASHIYAMA Co., Ltd.

Corporate Data

(As of February 28, 2007)

Head Office10-5, Nihonbashi 3-chome,

Major Shareholders

Chuo-ku, Tokyo 103-8239, Japan

Percentage ofTotal Shares Issued

Tel: (81) 3-3272-2317

Established

Fax: (81) 3-3272-2314

Japan Trustee Services Bank, Ltd.

6.5%

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

Kashiyama Scholarship Foundation

5.0

The Master Trust Bank of Japan, Ltd.

4.0

September 1947

Paid-in Capital¥30,080 million

Common Stock

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

Number of Shareholders 6,056
Stock Listings

Nippon Life Insurance Company

3.6

Isetan Company, Limited

2.8

The Dai-ichi Mutual Life Insurance Company

2.4

Sumitomo Mitsui Banking Corporation

1.6

JPMorgan Chase Bank

1.6

National Mutual Insurance Federation of Agricultural Cooperatives 1.6
Morgan Stanley & Co. International Limited

Tokyo, Osaka, and Nagoya

1.5

stock exchanges
Transfer Agent

Mitsubishi UFJ Trust
Distribution of Ownership among Shareholders

and Banking Corporation(On a number of shares basis)

4-5, Marunouchi 1-chome,
Chiyoda-ku, Tokyo 100-8212,
Japan
Number of Employees

Japanese financial institutions
35.5%

Other Japanese corporations
18.4%
Foreign institutions and others
30.7%

1,646

Japanese securities companies
0.4%Japanese individuals and others
15.1%

Stock Price Movement(Thousands of shares)(Yen)

10,000

2,500

8,000

2,000

6,000

1,500

4,000

1,000

2,000

500

0

0
Mar.
2006

Apr.

May

June

July

Aug.

Sept.

Oct.

Nov.

Dec.

Jan.
2007

Feb.

Mar.

 Trading Volume (left scale) Onward Kashiyama’s Stock Price (Closing) (right scale)57

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

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