Onward Kashiyama Co., Ltd.
Annual Report 2004

ANNUAL REPOR T 2004
Year Ended February 29, 2004
apan

profilec

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 ofcontents
Contents

consumers, who differ not only in age but
also in the values they hold. Onward’s prod-

1 Financial Highlights

ucts are marketed through department

2 A Message to Our Shareholders

stores, direct merchants, shopping centers,

5 Strengthening Brand Value—Medium-TermBusiness Planand general retailers throughout Japan as

8 Business Overview

well as via a global sales network that spans

13 Topics

Europe, Asia, and North America.

14 Consolidated Six-Year Summary
15 Financial Review

Onward has earned a strong reputation

18 Consolidated Balance Sheets

in all quarters for its continued ability to

20 Consolidated Statements of Income

anticipate consumer needs and offer new

21 Consolidated Statements of Shareholders’ Equity

concepts that reflect those needs. As a

22 Consolidated Statements of Cash Flows
23 Notes to Consolidated Financial Statements

leading retailer in the global apparel indus-

37 Report of Independent Accountantstry, Onward is drawing on its long experi-

38 Non-Consolidated Balance Sheets

ence in planning and development,

40 Non-Consolidated Statements of Income andRetained Earnings

technology, information, and production tomore actively develop business in both
domestic and overseas markets.

41 Non-Consolidated Statements of Shareholders’Equity42 Notes to Non-Consolidated Financial Statements
47 Report of Independent Accountants
48 Board of Directors
49 Organization Chart
50 Principal Subsidiaries
51 Corporate Data

Future business plans, targets, and related numerical figures presented in this annual report are intended to give an accurate pictureof Onward’s future prospects. However, no guarantee can be offeredthat plans, targets, and other numerical figures described herein canbe realized. The achievement of stated targets is dependent not only
on the efforts of the Company, but also the conditions facing theindustry as a whole, and we ask for understanding in this regard.

financial highlights
Financial Highlights

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

Millions of yen

ASSETS

2003

2004

2004

At year-end:
Total current assets
Total current liabilities
Total shareholders’ equity¥141,468
80,147
190,755¥165,931
92,270196,796$1,513,691
841,730
1,795,258

For the year:
Net sales
Operating income
Net income¥263,399
19,607
7,158¥267,746
22,896
13,053$2,442,490
208,864
119,079

19,93017,491

159,566

Short-term bank loans

Yen

Per share:
Net income—Basic
Cash dividends

U.S. dollars¥00041.6
16.5¥00074.1
16.5

3.8
7.4

6.7
8.6

ROE (%)
Operating income margin (%)$0,000.676
0.151

Years ended ’00
February 28 or 29’01 ’02 ’03 ’04

196,796

190,755

187,039

189,236

180,415

13,053Years ended ’00
February 28 or 29

3,802

4,805

7,158

7,404

267,746

263,399

257,306

221,206

245,924

Note: Yen amounts have been translated, for convenience only, at ¥109.62=US$1, the approximate exchange rate on February 29, 2004.

’01 ’02 ’03 ’04

Net Sales

Net Income(Millions of yen)

(Millions of yen)

Years ended ’00
February 28 or 29’01 ’02 ’03 ’04

Total
Shareholders’Equity(Millions of yen)1

a message to ourshareholders
A Message to Our Shareholders

In fiscal 2004, ended February 28, 2004, consumption remained weakin Japan, and business conditions in the apparel industry were harsh.
Despite this, ONWARD KASHIYAMA Co., Ltd., maintained a forwardlooking posture and was able to achieve increases in sales and profitability, just as in fiscal 2003. The Company is continuing to proactively
implement various Brand-Leveraged Management strategies with thegoal of maximizing shareholder value.
The Operating Environment in Fiscal 2004
During fiscal 2004, the Japanese economy began seeing
the emergence of trends that were slightly more positive
than those of the previous fiscal year. Deflationary conditions
are expected to persist, however, and it remains difficult
to foresee a shift to rising consumption. Because of thedelayed economic recovery, any upturn in consumption
will likely be hampered by highly discriminating consumerpurchasing behavior. Companies in the apparel industry
hoping to successfully meet the needs of consumers in thisenvironment will have to strategically emphasize superiority
in design sensitivity and product quality. Such companies
must carefully gather and analyze market information, implement business strategies in prudently small stages, gain agood grasp of what consumers are truly longing for and are

Akira Baba,
Chairmanlikely to buy, and then quickly take the steps needed tostock stores with those kinds of products.

Performance Overview
Despite the challenges of these market conditions, the Onward Group was able
to boost its revenues and profitability. On a consolidated basis, net sales rose to¥267.7 billion, up 1.7% from fiscal 2003, operating income advanced 16.8%, to¥22.9 billion, and net income surged 82.4%, to ¥13.1 billion. Net income per sharewas ¥74.1, and return on equity was 6.7%. As of May 27, 2004, cash dividends
applicable to the period were set at ¥20.0 per share.
As in the previous fiscal year, in fiscal 2004 Onward pursued a policy of selecting
strategic business fields and concentrating its resources in those fields. In line withthis policy, a number of Group companies were reorganized or liquidated.

2

On March 1, 2004, Chacott Co., Ltd., was transformed into a wholly owned
subsidiary through a stock swap, and CK Calvin Klein operations were shiftedto the parent company. The conversion of Chacott into a subsidiary is designed toboost management efficiency and the Group’s overall corporate value as well as tobenefit Chacott shareholders, whose previous holdings were of low liquidity with values not commensurate with that company’s performance. The transfer of CK Calvin
Klein operations reflected a shift of this brand from designer-led to apparel industryoriented operations and made it possible to speed up product planning activities.
At the same time, we expanded our operations backed by area marketing activities
being carried out by each of our branches throughout
Japan.
In September 2003, Across Transport Co., Ltd., wasmerged with Across Service Co., Ltd. The merged company
specializes in fashion distribution and is aiming to be thebest company in that sector.
During the year under review, the parent company provided support for two other Group companies—Onward Beach
Resort Guam, Inc., and Onward Kashiyama U.S.A. Inc.
• Onward Beach Resort Guam revalued all its assets at current market prices and eliminated all its accumulated losses. Although this company has recently faced challenges
from such unexpected circumstances as those associatedwith terrorism, typhoons, the SARS epidemic, and hostilities in Iraq, its performance has finally begun recovering,and its sales in the first three months of fiscal 2004 wereup 27% from the same period in fiscal 2003.

Takeshi Hirouchi,
President• The terror incidents of September 11, 2001, had a strong
negative influence on the fashion business of Onward
Kashiyama U.S.A., which was forced to discontinue its
mainstay “KORS” (Michael Kors line) operations. Accumulated losses related to those operations and the withdrawal from those operations were eliminated during fiscal
2004.

• O & K Co., Ltd., which became a wholly owned subsidiary in April 2003, continued
to face a harsh operating environment, and its sales decreased 10% during fiscal
2004. In fiscal 2005, plans call for greatly reducing the subsidiary’s expenses andthereby considerably reducing its losses. At the same time, steps will be taken toenhance O & K’s profitability by bolstering its mainstay distribution business with
agricultural cooperatives, merging and eliminating certain branch offices, andincreasing personnel efficiency.

3All these restructuring measures are aimed at strengthening the Onward Group’s
overall profit base over the medium-to-long term.
On a non-consolidated basis, the parent Company was able in fiscal 2004 to
augment its sales and profitability for the third consecutive fiscal year. Net sales
were up 5.6%, and operating and net income grew 5.8% and 41.0%, respectively.
This strong performance reflected the Company’s steady implementation of BrandLeveraged Management strategies and progress made in pursuing optimal brandpositioning. During fiscal 2004, the Company introduced a 52-week merchandising(MD) system that immediately identifies products that are selling well to make productrestocking faster and more efficient. The MD system has steadily enhanced the effectiveness of product planning while boosting the level of sales per detail staff person.
OutlookAs economic recovery began to take hold in spring 2004, fashion colors brightened
considerably. Similarly, Onward began accelerating its implementation and refinement of Brand-Leveraged Management strategies, aiming to further strengthen its
main brands while proactively seeking to realize growth in the brighter business climate. Since fiscal 2004, the Company has stepped up its efforts to expand its luxury
brand business by establishing new outlets while developing new brands. New distribution methods are being used to enhance the profitability of established brands,
strengthen marketing outlets, and develop new merchandise.
The Onward Group has almost completed its balance-sheet streamlining campaign and, during fiscal 2005, it is aiming to achieve increases of 8.2% in net sales
and 4.1% in recurring income.
In line with our strong emphasis on measures to maximize shareholder value, we
expect to augment returns to shareholders through such measures as increasing thelinkage between our profitability and dividend levels. For the time being, we aim tosustain dividends at the ¥20 per share level attained in fiscal 2004.
May 27, 2004
Akira Baba, Chairman

4

Takeshi Hirouchi, Presidentstrengthening brand value—
medium-term business plan
Strengthening Brand Value—Medium-Term Business Plan

Onward is strengthening its

businesses through the imple-

The “Brand-Leveraged Management” Concept

mentation of Brand-Leveraged

Onward’s Brand-Leveraged Management strategies are designed to maximize
the value of the Company’s brands, thereby generating additional added value andManagement strategies. In 1997,

another dimension of customer satisfaction while equipping the Company with com-

the Company adopted the in-petitive capabilities that enable it to avoid profit-sapping price competition. In the cre-house slogan Neo-Revolution torepresent the reforms believed
to be necessary for businessation of brand value, Brand-Leveraged Management strategies emphasize initiatives
focused on objectives in eight key areas: in-house planning capabilities, low-cost
production capabilities, systems for meeting demand for best-selling products, flexible distribution systems, attractive retail environments, topical advertising and PR
activities, stronger sales capabilities, and state-of-the-art IT systems. In line with thesuccess in the harsh operating

Brand-Leveraged Management concept, we have since 1997 established businessenvironment of the time, andgroups that autonomously handle the marketing of numerous brands, including
J. PRESS, NIJYUSANKU, KUMIKYOKU, ICB, JIYUKU, and JANE MORE.

the concept of expanding operations through Brand-Leveraged
Management strategies wasintroduced. Since then, we haveworked to maximize the value ofBrand-Leveraged Management Growth Strategies
Onward’s brand growth strategies position each brand as a “brand tree” that canbe nurtured in ways that make it taller and broader as well enabling it to send out
additional branches. Each brand is founded on distinctive root identities and seeks
to grow by presenting various aspects of top-quality fashion. The trunk of each brandis the core brand and the branches that develop form derivative brands that extend

our brands and moved forward

into diverse promising growth fields. Coordinating related product developmentwith measures to optimize ourstrategies and product distribution strategies facilitates well-balanced brand development processes, helping sustain and increase overall brand value.

brand positioning.

Creating Brand Value—Eight Key Areas

State-ofthe-art IT
systems

Strongersales
capabilities

Topicaladvertisingand PR
activities

In-houseplanning
capabilities

Creation of
Brand Value

Attractive
retail environments

Low-cost
production
capabilities

Systems
for meeting
demand for bestselling products
Flexible
distribution
systems5

strengthening brand value—medium-term business plan

Brand-Leveraged Management Product Strategies
The Company’s product strategies entail three kinds of expansion. First, we nurturea given product line by focusing on an associated top-quality prestige line. Next, we
enlarge that line into such fields as women’s, men’s, children’s, and family apparel.
Finally, we extend the line into such additional merchandise fields as bags, shoes,
belts, perfume, and sundry goods.
For example, the parent company is working during fiscal 2005 to develop largescale core brands from the CK Calvin Klein brand—which was transferred from anotherGroup company, On Business Trend Co., Ltd.—as well as from the DAKS brand—which was formally launched in March 2004. CK Calvin Klein brand products are being
marketed nationwide through Onward’s branch network, and the DAKS brand is being
developed through the use of the MD system and a dedicated brand shop strategy.
While men’s fashion goods in these lines were previously managed with emphasis on
profitability, a more aggressive expansion strategy has been adopted with the objectiveof boosting net sales 14% during fiscal 2005. Moreover, the expansion is been coordinated with the expansion of another large-scale brand—J. PRESS. The recovery in the
men’s fashion business got on track during fiscal 2004, and our coordinated approach
to brand development is expected to help accelerate this recovery.
Brand-Leveraged Management Distribution Strategies
Onward’s distribution strategy centers on efforts to expand sales floor space at
department stores, introduce outlets at such new types of distribution facilities as
train-station buildings and fashion buildings in urban centers as well as shopping centers and fashion malls in suburbs, and establish directly managed roadside stores.
Currently, regarding department stores, the Company is striving to relocate its
sales floor spaces to optimal locations and also expand the size of these areas.
Regarding new distribution routes, we are expanding distribution through the nondepartment store outlets of various products centered on the KUMIKYOKU FAM line.
We are also moving ahead with various overseas distribution measures aimed atstrengthening and expanding our brands.
60,00060,00050,00050,00040,00040,00030,00030,00020,00020,00010,00010,0000Years ended ’00
February 28 or 29
Note: In addition to the listed retail sales categories for the twobrands, Onward generates revenue from licensing out thebrands. In fiscal 2004, such licensing income amounted toapproximately ¥1.6 billion and ¥1.1 billion in the cases of
NIJYUSANKU and KUMIKYOKU, respectively. Thus, theannual sales of both brands are in excess of ¥50.0 billion.

6

 NIJYUSANKU NIJYUSANKU HOMME NIJYUSANKU (S&L)
 NIJYUSANKU DEUX NIJYUSANKU SPORT Bags and jewelry Yukata’01 ’02 ’03 ’04

Retail Sales of
NIJYUSANKU(Millions of yen)0Years ended ’00
February 28 or 29
 KUMIKYOKU KUMIKYOKU (S&L)
 KUMIKYOKU SIS
 KUMIKYOKU girl
 KUMIKYOKU Noir
 KUMIKYOKU (chilteens) KUMIKYOKU FAM
 Bags and jewelry
 Kimonos  Yukata’01 ’02 ’03 ’04

Retail Sales of
KUMIKYOKU(Millions of yen)Brand-Leveraged Management Results
In recent years, the use of Brand-Leveraged Management strategies has enabled
stable growth in the sales and profitability of such large-scale brands as NIJYUSANKU, KUMIKYOKU, ICB, and GOTAIRIKU (Personal Style in Form). In fiscal 2004,
retail sales (including licensing income) of NIJYUSANKU and KUMIKYOKU brandproducts each surpassed the ¥50.0 billion mark, while those of ICB brand products
reached ¥18.0 billion.
Each brand-focused organizational unit works in collaboration, with the respectiveroles of each unit being clearly differentiated. Moreover, each unit strives to promote thedevelopment of a balanced and diverse selection of staff members, including veterans,
mid-level personnel, and new hires. These well-rounded teams are particularly effective
in promoting 52-week MD system initiatives aimed at coordinating all the product planning, manufacturing, marketing, and sales activities associated with a given brand.
Future Strategies
In the future, Onward intends to increase the number of staff focused on BrandLeveraged Management strategies, thereby augmenting the effectiveness of thosestrategies, while further strengthening emphasis on the parent company’s core competencies. The Company aims to clearly define the fundamental values and added
values associated with its brand identities and plan for the optimal development ofbrand trees in accordance with these value definitions. Regarding the eight key areas
associated with Brand-Leveraged Management strategies, we intend to describe
our objectives in these areas more concretely and specifically, even to the extent
of assigning specific objective-oriented tasks to individual employees in specificorganizational units.
By implementing its growth strategies through the concerted efforts of many
internal units, Onward aims to further increase the solid appeal of its brands ina dependable and expeditious manner.

60,00050,00040,00030,00020,00010,0000Years ended ’00
February 28 or 29
 ICB
 NIJYUSANKU KUMIKYOKU  JIYUKU GOTAIRIKU J. PRESS’01 ’02 ’03 ’04

Growth of Our
Main Brands(Retail Sales)

Note: The JIYUKU brand was launched in autumn-winter2000. In addition to the listed retail sales categories forthese brands, Onward generates revenue from licensing out the brands.

(Millions of yen)7

business overview
Business Overview

Onward is proactively expanding its brand-focused busi-

FERRE as well as the Field Dream brand are included in thisnesses centered on such core brands as NIJYUSANKU,

calculation, the rate of increase in non-consolidated sales

KUMIKYOKU, GOTAIRIKU (Personal Style in Form), andwas 5.6%. Sales through department stores were up 4.3%.

J. PRESS. In fiscal 2004, the Company introduced the 52-

With respect to distribution strategies, Onward proactive-

week MD system, which facilitates the weekly launch ofly established new outlets, primarily for the KUMIKYOKU

new products and fast restocking of strong-selling items.

FAM and Field Dream brands, boosting the number of out-

This system has helped expand sales and boost the level

lets 14.0%, to 330, and non-consolidated sales at thoseof sales per detail staff person, and the benefits from theoutlets were up 39.6%.

system are steadily increasing.
Regarding the results of Onward’s Brand-Leveraged

In fiscal 2005, Onward anticipates an 8.2% rise in
non-consolidated net sales and 4.1% growth in non-Management strategies, the Company’s core brands

consolidated recurring profit, reflecting the success of theachieved steady growth, with non-consolidated sales ofBrand-Leveraged Management strategies, and Onward

existing brands up 1.4% overall. If sales of such new luxury

intends to continue using these strategies to expand its oper-

brands as SONIA RYKIEL, MISSONI, and GIANFRANCO

ations while further honing them for even greater success.

NIJYUSANKUKUMIKYOKU8ICBJIYUKUExpansion of Our Main Brands
Target Customers
Concept

Main Targets
Men

Women

Children

ICB

Urban and sophisticated brand for the
global market

—



—

NIJYUSANKU

Casual wear separates for people who liketo assemble their own original outfits





—

KUMIKYOKU

Trendy casual wear featuring mix-andmatch separates

—





JIYUKU

High-quality elegant everyday wear





—

GOTAIRIKUTokyo-born brand that blends timeless
British styling with an international flair



—

—

J. PRESS

Modern versions of traditional American
styles with emphasis on high quality andcraftsmanship







Working women in their late
20s
Women around 30

Young women in their early
20s
Women in their 40s

Businessmen in their 40s
and 50s
Men in their late 30s

Note: The above brands are being developed primarily through department stores, although sub-brands of the NIJYUSANKU and KUMIKYOKU brands are being
developed through dedicated brand shops at shopping centers.

GOTAIRIKU

J. PRESS

9

Fiscal 2004
Although a few positive trends emerged in the latter half of theyear, the business environment for men’s fashions for the year
as a whole was harsh due to such factors as the protracted
recession and unseasonal weather patterns, and Onward faceddifficult conditions for marketing men’s fashions, despite an
ongoing uptrend in sales of casual wear. In business wear, salesof pattern-made suits increased smoothly, but the unseasonal

GOTAIRIKU

weather affected business in loose fitting suits and wool coatsuits, depressing overall sales of business wear. On the other
hand, the 52-week MD system generated benefits that supported
steady rises in sales of such casual wear brands as NIJYUSANKUHOMME and JIYUKU. In particular, NIJYUSANKU HOMME brandcut-sew items, shirts, and high-gauge knit items were hit products throughout the year. Moreover, the horizontal sharing ofproduct development concepts among multiple brand-focusedorganizational units supported an overall rise in sales of knits
and cut-sew offerings.

J. PRESS

Consequently, consolidated sales in the Men’s Fashion
Business Group were ¥76.5 billion for fiscal 2004, down 3.9%
from fiscal 2003, and accounted for 28.6% of consolidated
net sales.

Men’s Fashions
OutlookAmong existing brands,
Onward is making particular efforts to further expand sales of its
J. PRESS brand. Plans also call for elevating to major coreJIYUKUbrand status the CK Calvin Klein brand, which was recently
transferred to the parent company, and the DAKS brand, which

100,000

was formally launched in March 2004. CK Calvin Klein products
are to be marketed nationwide through the Company’s branch

80,000

network, while the DAKS brand is being developed through the
52-week MD system and a dedicated brand shop strategy. The

60,000Company has given top priority to profitability in its men’s fashion operations and intends to proactively expand its sales vol-40,000ume on the strength of a lineup centered on these new brands.
During fiscal 2005, Onward projects a rise of 14% in its men’s

20,000fashion sales revenue.
0Years ended ’00
February 28 or 29’01 ’02 ’03 ’04

Sales of Men’s
Fashions(Millions of yen)10

150,000

Fiscal 2004
While market conditions for women’s fashions remained

120,000

severe, Onward was able to augment sales by increasing theaccuracy of its demand trend projections and expanding its

90,000

optimally located sales spaces. Particularly strong were salesof such mainstay brands as NIJYUSANKU, KUMIKYOKU, and60,000JIYUKU. While the Company’s development of merchandise forits new elegant and feminine VANILLA CONFUSION brand was

30,000delayed, the brand was launched in the latter half of fiscal
2004, and sales have increased steadily in line with projections. The rising sales of the Prideglide brand reflected marketing focused on department stores and fashion buildings

0Years ended ’00
February 28 or 29’01 ’02 ’03 ’04

in central urban locations. Also showing smooth growth

Sales of Women’s
Fashions

were sales of KUMIKYOKU FAM via new sales channels(Millions of yen)that included shopping centers and fashion buildings insuburban locations. However, ICB brand winter clothingsales decreased.
Consequently, consolidated sales in the
Women’s Fashion Business Group rose 6.0%, to¥143.0 billion, and comprised 53.4% of net sales.

Outlook

Women’s FashionsJIYUKU

Aiming to further boost revenues
from strong-selling core brands,
Onward is seeking steady growththrough augmented product proposal capabilities. The Company also intends to establish additional new outlets for luxury
brands. Focusing on such new brands as VANILLA CONFUSION, launched in autumn 2003, and Prideglide, launched inautumn 2002, the Company is proactively establishing new outlets for marketing through department stores and fashion buildings in central urban locations.

VANILLA CONFUSION

Onward has been marketing KUMIKYOKU FAM via new sales
channels that include shopping centers and fashion buildings insuburban locations, and the Company plans to expand sales ofthis brand through single-brand stores. The Company is also
seeking to open new suburban outlets for the Field Dreambrand and step up its creation of new outlets in urban and suburban shopping centers for the Deep Drops brand, which waslaunched in spring 2003.
NIJYUSANKU11KUMIKYOKU (children)
10,000Children’s Fashions
The decreasing birthrate in Japan has reduced domestic demandfor children’s fashions, and conditions in the children’s fashion

8,000

market have been made still more harsh by a rise in low-priced
imports and growing sales of used clothing. Amid these conditions,

6,000

Onward’s sales of children’s fashions were greatly affected byweather conditions, and sales of seasonal goods were generally

4,000

weak. While sales of the KUMIKYOKU brand and seasonal goods
fluctuated considerably, KUMIKYOKU FAM products showed

2,000

smooth growth in sales centered on suburban shopping centers,
making a major contribution to consolidated sales of children’s
fashions. Consolidated sales in Onward’s Children’s Fashion0Years ended ’00
February 28 or 29’01 ’02 ’03 ’04

Business Group climbed 12.9%, to ¥9.1 billion, which represented

Sales of Children’s
Fashions

3.4% of net sales.

(Millions of yen)

Kimonos

4,000

The market for kimonos has shrunk steadily for the past decade,but Onward achieved strong sales of KUMIKYOKU and NIJYUSANKU brand yukata (cotton summer kimonos). Reinforcing its

3,000

marketing activities at department stores, the Company was able
to boost its sales of prêt-a-porter synthetic fabric kimonos and

2,000such other kimono-Children’s Fashions,
Kimonos, and Other

related products as
sandals and bags,

1,000

but a drop in salesof premium-fabrickimonos depressed overall sales in the kimono business segment.

0Years ended ’00
February 28 or 29’01 ’02 ’03 ’04

Sales of
KimonosThus, consolidated sales in Onward’s Kimono Business Groupdecreased 4.8%, to ¥3.6 billion, making up 1.3% of the Company’s(Millions of yen)

net sales.
Other

40,000The share of casual-style products in Japan’s fashion jewelry market
has steadily increased, while the size of the market has shrunk due

30,000a drop in bridal wear-related demand. However, although Onward’s
sales of bridal wear-related products declined, the strong brandidentity of NIJYUSANKU, KUMIKYOKU, and ICB brand fashion

20,000jewelry products as well as the Company’s efforts to respond totrends in demand for items for the buyers’ own use and gift items

10,000supported rising sales. Sales of bags, objets d’art, and other goods
also increased, reflecting higher sales of items styled for career
women as well as shifting consumer preferences. Thus, other operations posted consolidated sales of ¥35.6 billion, down 3.8% fromfiscal 2003, and represented 13.3% of net sales.

120Years ended ’00
February 28 or 29’01 ’02 ’03 ’04

Sales of Other(Millions of yen)

topics
TopicsThe New DAKS Brand
As a part of its Brand-Leveraged Management strategies, Onward launched the traditional British-style DAKS line of men’s fashion in Japan in March 2004. Seeking to
make the most of the strengths of the 100-year tradition of the DAKS brand, whichenjoys high name recognition and a reputation for dependable high quality, Onward
has begun managing the brand by concertedly applying its product planning, manufacturing, and marketing capabilities. Working in collaboration with Sankyo Seiko Co.,
Ltd., which is the master licensee for the brand in Japan, Onward is striving to make
DAKS a dynamically powerful brand in domestic markets. In the brand’s first fiscal
year on the market, fiscal 2005, we are aiming to place DAKS products in 55 outlets
and generate ¥6.0 billion in retail sales. In fiscal 2006, we expect to complete thelaunch of DAKS, generating ¥10 billion in retail sales at 100 outlets.
Expanding Sales of Luxury Brands
To strengthen sales of such luxury brands as SONIA RYKIEL, MISSONI, and
GIANFRANCO FERRE, which it launched in spring 2003, Onward has implemented
diverse measures to improve marketing operations, including efforts related to outlets, products, staff, and marketing methods. Reflecting these efforts, during fiscal
2004, SONIA RYKIEL brand sales surged 6.7%, to ¥5.9 billion, and total sales of luxury brands rose in line with the Company’s plan. Preparation of sales spaces for the
luxury brands at existing outlets is almost complete, and the Company will proactively
launch the luxury brands at new outlets during fiscal 2005.
Helping Protect the Environment
As a company focused on consumer lifestyles, Onward views protecting the global
environment as a highly important business objective. The Company is seeking tofulfill its responsibilities as a corporate citizen within international society by being
an exemplary environment-friendly company.
To date, Onward has implemented numerous environmental protection initiatives,
including the development of Eco J suits and biodegradable suits, the establishmentof apparel recycling boxes, and the institution of green procurement programs. Whilemaintaining its traditional proactive stance toward environmental protection, Onward
is also working to more clearly demonstrate its high environmental protection standards by preparing to obtain ISO 14001 certification for its environmental management systems. In fiscal 2005, ISO 14001 certification is expected to be received in
November 2004 for the Nihonbashi Building, which houses the Company’s Tokyo
head office, as well as for the Company’s branch office in Nagoya, a city that will
host a major international exposition during 2005.

13

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

Millions of yen
1999

2000

2001

2002

2003

2004

2004

¥119,138¥120,922¥126,151¥146,080¥141,468¥165,931$1,513,691

equipment

90,82092,956

103,581

99,274

101,188

96,017875,909

Total assets

291,484

296,715

312,258

312,443

302,188318,270

2,903,398

Total current liabilities

69,691

79,63678,98599,67380,147

92,270841,730

Total shareholders’ equity

185,287

180,415

189,236

187,039

190,755

196,796

1,795,258

Net sales¥222,869¥221,206¥245,924¥257,306¥263,399¥267,746$2,442,490

Cost of sales

132,360

130,058

143,449

145,687

143,234

143,921

1,312,905

administrative expenses

73,70073,88785,731

93,499100,558

100,929920,721

Operating income

16,80917,261

16,744

18,12019,60722,896

208,864At year-end:
Total current assets
Total property, plant andFor the year:

Selling, general andIncome taxes, current

9,599

9,306

4,888

11,176

6,166

13,868

126,513

Net income

5,086

7,404

4,805

3,802

7,158

13,053

119,079

Yen

U.S. dollars

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

¥30.0

¥43.0

¥27.9

¥22.1

¥41.6

¥74.1

$0.676

Cash dividends

16.5

16.5

16.5

16.5

16.5

16.5

0.151

Note: Yen amounts have been translated, for convenience only, at ¥109.62=US$1, the approximate exchange rate on February 29, 2004.

300,000

10

240,000

8

180,00080

80

240,000

60

60

160,000

40

40

80,0002020

6120,000

4

60,00020Years ended ’00
February 28 or 29
 Net sales (left scale) Operating income
margin (right scale)

320,000

0’01 ’02 ’03 ’04

Net Sales
and Operating
Income Margin(Millions of yen, %)0Years ended ’00
February 28 or 29
 Total assets (left scale) Total shareholders’equity (left scale) Shareholders’ equity
ratio (right scale)0’01 ’02 ’03 ’04

Total Assets,
Total Shareholders’Equity, andShareholders’Equity Ratio(Millions of yen, %)140Years ended ’00
February 28 or 29
 Net income per share Cash dividends per
share’01 ’02 ’03 ’04

Net Income andCash Dividends
Per Share(Yen)financial review
Financial Review

Overview
In fiscal 2004, ended February 29, 2004, the Japanese economy showed some signs of a gradual recovery, including
an increase in private-sector capital investment sparked by
improvements in corporate earnings and a pickup in export
levels. However, employment conditions and the personal
income environment remained lackluster, and the limited
improvements did not lead to a full-fledged recovery.
Furthermore, personal consumption, which exerts a strong
influence on the apparel industry, failed to rebound amid persistent deflation, high unemployment, and other factors; thus,
business conditions continued to be challenging.
Against the backdrop of this business environment, Onward
continued, as it has for the past several years, to focus on apolicy of Brand-Leveraged Management with a two-pronged
strategy of strengthening product development and establishing a stable income base for its large-scale flagship brands
NIJYUSANKU, KUMIKYOKU, ICB, JIYUKU, and GOTAIRIKU.
In addition, the Company has implemented the full-scalelaunch of such brands as SONIA RYKIEL, MISSONI, and
GIANFRANCO FERRE in the luxury apparel market. Furthermore, VANILLA CONFUSION, a new brand of women’s clothing that Onward launched in autumn 2003, is moving toward
securing a stable income base, enabling the Company to overcome the general market stagnation and steadily improvebusiness performance.
Turning to its sales channel strategy, the Company focusedits business expansion on department stores—its mainstay
sales channel—including those in both urban shopping areasand commercial shopping centers, as well as on other sales
channels into new distribution markets.
Furthermore, we drove sales expansion and strengthened
our earnings base by implementing a comprehensive management system that spans demand forecasting, planning, production, and distribution to contribute to the creation of a
supply chain management system while also utilizing our 52week merchandising (MD) structure to construct a system able
to accurately determine the optimal timing and merchandise
mix for supply to retail outlets.

As a result of these factors, we again achieved growth inboth sales and earnings in fiscal 2004, with net sales for theperiod edging up 1.7% from fiscal 2003, to ¥267.7 billion,
operating income rising 16.8% year on year, to ¥22.9 billion,
and net income gaining a full 82.4%, to ¥13.1 billion.
Results of Operations
Net Sales
Net sales for fiscal 2004 increased 1.7% from the previous fiscal year, to ¥267.7 billion, and, although this was only a slightincrease, it marked the fourth consecutive year of growth in
the Company’s net sales. The increase was primarily attributable to the use of Brand-Leveraged Management to steadilystrengthen the appeal of our leading brands amid lackluster
consumer spending. Sales growth was led by the sales channel we refer to as “New Distribution” as well as by specificbrands, including our KUMIKYOKU FAM line of children’s
apparel, which showed significant growth, and NIJYUSANKU,KUMIKYOKU, JIYUKU, KORS, and other brands in our lineup
of women’s apparel, which rose in their relative importance toCompany sales. In other apparel businesses, performance inmen’s apparel was dampened by a contraction in the semicustom suit business and the discontinuation of certain
brands, while our Kimono business saw market competition
intensify for premium traditional Japanese clothing. Overallsales in the Clothing Segment rose 1.6% from the previous
term, to ¥255.1 billion.
However, sales in the Other Segment edged down 1.0%
from fiscal 2003, to ¥25.3 billion.
Furthermore, in fiscal 2004 the Company decided to implement the following changes to make business operations more
efficient.
1. Chacott Co., Ltd., was made a wholly owned subsidiarythrough a stock swap aimed at expanding our customer
base and achieving other mutual benefits as well as toincrease the overall Group value.
2. On Business Trend Co., Ltd., was put under liquidation to
improve the corporate value of the CK Calvin Klein brand byconcentrating business, planning, and production in theparent company.

15

3. Across Transport Co., Ltd., and Across Service Co., Ltd.,
were merged.
4. Support was provided to Onward Beach Resort Guam, Inc.,
to cover cumulative losses from the market devaluation ofassets.
5. The head office provided financial assistance to Onward
Kashiyama U.S.A. Inc. after the subsidiary was unable toregain its footing in the wake of the September 11, 2001,
terrorist attacks.
Costs, Expenses, and Earnings
The cost of sales edged up 0.5% from fiscal 2003, to¥143.9 billion. This was primarily due to increased net sales,
but because it grew at a slower pace than net sales, grossprofit rose 3.0%, to ¥123.8 billion, and the gross profit margin
improved 0.6 percentage point, from 45.6%, to 46.2%.
Selling, general and administrative (SG&A) expenses rose
0.4% from the previous term, to ¥100.9 billion. This increase
was relatively mild compared with that in net sales, and SG&A
expenses as a percentage of net sales decreased 0.5 percentage point, to 37.7%, down from 38.2% in the previous fiscal
year. Reduced costs were made possible through the implementation of the 52-week MD structure. As a result of the
reduced costs and modest gain in net sales, operating income
rose 16.8%, to ¥22.9 billion, for the third straight year of gains,while the ratio of operating income to net sales improved 1.2
percentage points from fiscal 2003, to 8.6%.
Other income (expenses) improved ¥6.4 billion, going from
¥2.2 billion in expenses in fiscal 2003, to ¥4.2 billion in income
in fiscal 2004. The improvement was chiefly due to a ¥10.5 billion gain on the settlement of substitutional portion of governmental pension fund. This helped offset a ¥2.7 billion provision
for allowance for doubtful accounts necessitated by businessreorganization and assistance extended to overseas subsidiaries, as well as ¥3.7 billion in valuation losses on fixed
assets and investments in unconsolidated subsidiaries andaffiliates.
These factors contributed to a 55.2% increase in income
before income taxes and minority interests, to ¥27.1 billion.
The effective tax rate was high at 56.0% in the previous fiscal
year due to losses of consolidated subsidiaries for which

16

deferred tax assets are not recognized and other factors, but
in fiscal 2004 it was down at 42.1%, which is nearly the sameas the statutory tax rate, and the Company’s tax burden
decreased. This helped net income soar 82.4% in fiscal 2004,
to a record-high ¥13.1 billion, sustaining the strong gains
made in the previous period and, in turn, lifting the profit margin 2.2 percentage points from the previous term, to 4.9%.
The return on equity (ROE) also improved 2.9 points, to 6.7%.
As indicated by its performance, the Onward Group is progressively strengthening its earnings base by utilizing BrandLeveraged Management to reinforce the development of
attractive products and the efficient management of subsidiaries and brands while pursuing a strategy aimed at establishing a supply chain management system and utilizing the
52-week MD system.
Financial Condition
The Onward Group’s total assets as of the fiscal year-end
were up 5.3%, or ¥16.1 billion, to ¥318.3 billion. This increase
was largely due to a 17.3%, or ¥24.5 billion, rise in current
assets. With regard to specific components of current assets,
cash and time deposits were up ¥8.9 billion on the back ofincreased sales, other current assets grew by ¥7.8 billion due
to growth in prepaid pension cost that accompanied the gainon the settlement of substitutional portion of governmental
pension fund, and deferred tax assets—current were also up,rising ¥4.1 billion.
Property, plant and equipment declined ¥5.2 billion from theprevious fiscal year-end, primarily due to losses related to the
Guam resort business. Investments and advances dipped¥2.0 billion as a result of decreases in investments in securities
that accompanied the reorganization of subsidiaries anddecreases in deferred tax assets.
Turning to liabilities, current liabilities increased ¥12.1 billion
from the end of fiscal 2003. This was primarily accounted forby an ¥8.9 billion rise in accrued income taxes and a ¥4.8 billion expansion in trade payables. The increase in accrued
income taxes was significant as accrued income taxes wererelatively low in the prior fiscal year due to a refund in corporate taxes for the Onward Kashiyama parent company in thatyear. The expansion in trade payables resulted from theincrease in net sales. Long-term liabilities receded ¥1.6 billion, led by a decline in accrued retirement benefits. Shortterm bank loans continued to shrink, dropping ¥2.4 billion,to ¥17.5 billion.
Shareholders’ equity grew 3.2%, or ¥6.0 billion, to ¥196.8
billion, due mainly to an increase in retained earnings accompanying the rise in net income. Despite the rise, the shareholders’ equity ratio declined 1.3 percentage points fromfiscal 2003, to 61.8% at the end of the term. In addition, theratio of short-term bank loans to shareholders’ equity was
reduced 1.5 percentage points from fiscal 2003, to 8.9%.
The current ratio improved 3.3 percentage points in fiscal
2004, to 179.8%.
Viewed as a whole, significant changes in the balance sheet
were generally related to the reorganization and consolidationof subsidiaries and brands as a part of the Group’s strategy toadvance optimally efficient business management through thestrategic allocation of business resources to promising brands
and business opportunities, which was undertaken to benefit
stockholders.
Cash FlowsNet cash provided by operating activities totaled ¥30.5 billion,up ¥15.0 billion from fiscal 2003, due to the increase in net
sales, improvements in operating margins, and other factors.
Net cash used in investing activities increased ¥2.1 billion
from the prior term, to ¥8.7 billion, largely a result of active
investments in retail outlets and sales floors.
Net cash used in financing activities totaled ¥10.8 billion,
owing mainly to ¥5.3 billion in fund outflows for the acquisitionof treasury stock and other factors.
As a result of the aforementioned factors, the balance of
cash and cash equivalents at the end of fiscal 2004 was up¥10.9 billion from the end of the prior term, at ¥87.8 billion.
Policy on the Distribution of Profits
The Onward Group’s management has long recognized as
one of its top priorities the distribution of profit to shareholders.
We will strive to continue to make stable dividend payments,
while securing adequate internal capital resources to strengthen our financial base and actively expand operations, taking

into overall account the business environment and performance trends. Based on these considerations, the Company
acquired ¥5.3 billion in treasury stock in the period underreview and, as of May 27, 2004, increased its cash dividend
payment for the year from ¥16.5 per share to ¥20.0 per share.
As a result, the payout ratio for fiscal 2004 was 34.3%, andthe ratio of cash dividends to stockholders’ equity was 1.8%.
Forward-Looking Statement
Despite signs of economic recovery, we expect challenging
economic conditions to persist amid high unemployment,
depressed personal incomes, unstable international conditions, and other areas of concern.
To counter these adverse economic conditions, theOnward Group will continue to actively apply Brand-Leveraged
Management and will persevere in implementing its fiscal 2003
strategy to steadily expand existing brands, which are primarily
marketed through department stores, as well as its luxury
brand lines in their second year of marketing. We will also
begin the full-scale marketing of VANILLA CONFUSION, which
was launched in autumn 2003, and actively develop the newly
created DAKS, which will be launched in spring 2005, in aneffort to expand sales and secure a stable income base. In
addition, as a part of a Group initiative to strategically allocate
management resources, we transferred control of the CK
Calvin Klein brand from a Group subsidiary, and will cultivate it
as a large flagship brand.
The Company will pursue a growth strategy of expanding
sales by strengthening cooperation between brand-centeredbusiness groups and the eight domestic regional marketingbranches to enhance market competitiveness and improve
management efficiency to achieve its goals.
For the fiscal year ending February 28, 2005, we anticipate a 3.1% increase in consolidated net sales, to ¥276.0 billion, and a 1.1% rise in consolidated net income, to ¥13.2
billion. These forecasts, based on information available to the
Onward Group at the time of writing, include the possibility oflatent risks and uncertainties. Please be aware that a variety
of factors may affect the Group’s forecasts, and cause actual
results to differ significantly from projections.

17consolidated balance sheets
Consolidated Balance Sheets
ONWARD KASHIYAMA Co., Ltd. and Subsidiaries
February 28, 2003 and February 29, 2004
Thousands of
U.S. dollars(Note 2. (18))

Millions of yen

ASSETS

2003

2004

2004

Current assets:
Cash and time deposits (Note 2. (16))
Trade receivables
Less: Allowance for bad debts¥079,191
29,049(213)¥088,099
31,781(318)$0,803,678
289,920(2,906)Inventories
Deferred tax assets—current (Note 8)
Other current assets

28,83625,133
3,116
5,192

31,463
26,1587,240
12,971

287,014238,626
66,047
118,326

Total current assets

141,468

165,931

1,513,691

Investments and advances:
Investments in securities (Note 3)Long-term loans (Note 14)
Deferred tax assets—non-current (Note 8)
Deferred tax assets—revaluation of land (Note 9)
Other investments

15,820
2,833
9,776
1,701
18,934

13,113
6,089
7,481
1,626
18,791

119,625
55,54868,246
14,835
171,419

Total investments and advances

49,064

47,100429,673

Property, plant and equipment (Note 5):
Buildings and structures
Other depreciable property
Less: Accumulated depreciation

67,46418,052(41,164)

65,006
18,357(43,416)

593,012167,459(396,061)

44,352
56,83639,94756,070364,410
511,499

101,188

96,017875,909

10,468

9,222

84,125

1——¥302,188¥318,270$2,903,398

Land (Note 9)
Total property, plant and equipment

Deferred charges and other assets

Excess investment costs over net assets of subsidiaries

The accompanying notes are an integral part of these statements.

18

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

Millions of yen

LIABILITIES. MINORITY INTERESTS AND SHAREHOLDERS’ EQUITY

2003

2004

2004

Current liabilities:
Short-term bank loans (Note 16)
Trade payables
Accrued expenses
Accrued income taxes
Consumption tax payable
Accrued bonuses to employees
Allowance for sales returns
Other current liabilities¥019,930
43,000
6,863
1,996
1,504
2,807
1,409
2,638

¥017,491
47,777
7,840
10,867
1,104
2,969
1,213
3,009

$0,159,566
435,849
71,517
99,131
10,07027,082
11,06527,450Total current liabilities

80,147

92,270841,730

Long-term liabilities:
Long-term debt
Negative goodwill on consolidation
Accrued retirement benefits (Note 6)

4,957
—
8,088

4,764
1,790
4,880

43,461
16,32844,518

Total long-term liabilities

13,045

11,434

104,307

93,192

103,704

946,037

18,241

17,770162,103

30,08049,135
114,791(2,347)
(175)
(637)

30,08049,707
124,575(2,373)807(627)

274,399
453,450
1,136,429(21,642)
7,353(5,718)

190,847

202,169

1,844,271(92)(5,373)(49,013)

190,755

196,796

1,795,258¥302,188¥318,270$2,903,398

Total liabilities
Minority interests in consolidated subsidiaries
Commitments and contingent liabilities (Note 10)
Shareholders’ equity:
Common stock:
Authorized—400,000,000 shares
Issued—172,292,587 shares and 172,921,669 sharesat February 28, 2003 and February 29, 2004, respectively
Capital surplus
Retained earnings (Note 11)
Net revaluation loss of land (Note 9)
Net unrealized gains (losses) on available-for-sale securities (Note 3)
Foreign currency translation adjustment
Less: Treasury stock, at cost, 87,006 shares and 5,128,796 sharesat February 28, 2003 and February 29, 2004, respectively
Total shareholders’ equity

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

Yen

Per share (Note 13):
Net assets per share¥1,107.7¥1,170.0$10.67319

consolidated statements of income
Consolidated Statements of Income
ONWARD KASHIYAMA Co., Ltd. and Subsidiaries
For the years ended February 28, 2002, 2003 and February 29, 2004
Thousands of
U.S. dollars(Note 2. (18))

Millions of yen

Net sales

2002

2003

2004

2004

¥257,306¥263,399¥267,746$2,442,490

Cost of sales

145,687

143,234

143,921

1,312,905

Gross profit
Selling, general and administrative expenses

111,619
93,499120,165
100,558

123,825
100,929

1,129,585
920,721

Operating income

18,12019,60722,896

208,864

297
(185)
(436)
2,444
(1,771)
1,106(617)(3,902)
(611)

160
(149)
(911)
1,338
(2,549)
1,030
(72)
(993)
—

149
(128)
(1,169)
1,016
(15)
899
(34)
(54)
(2,744)

1,363(1,162)(10,671)
9,266
(133)
8,200
(312)
(494)
(25,032)

8,542

—

—

—

(14,430)
1,991

—
(665)

—
(734)

—
(6,695)——

10,471

95,524

—
—
782

—
(2)
651

(1,611)(2,103)244(14,692)(19,191)
2,231

Income before income taxes and minority interests

11,33017,44527,083247,066

Income taxes (Note 8):
Current
Deferred
Prior-year income taxes

11,176(4,884)
1,287

6,166
3,605
—

13,868(2,466)—

126,513(22,499)—

Income before minority interests

3,751

7,674

15,681

143,052

Other income (expenses):
Interest income
Interest expenses
Loss on disposal of property, net
Net gain on sale of investments in securities
Loss on write-down of investments in securities
Royalty income
Loss on liquidation of subsidiaries and affiliates
Additional retirement payments
Provision for allowance for doubtful accounts
Gain on securities contributed to employees’ retirement
benefit fundTransition adjustment arising from adoption of the new
accounting standard for retirement benefits (Note 2. (11))
Foreign currency exchange gain (loss)
Gain on the settlement of substitutional portionof governmental pension fund (Note 2. (11))
Valuation losses on investments in unconsolidated
subsidiaries and affiliates
Valuation losses on fixed assets
Other, net

Minority interests in (earnings) lossesof consolidated subsidiaries
Net income

51

(516)

(2,628)(23,973)¥003,802¥007,158¥013,053$0,119,079
U.S. dollars(Note 2. (18))

Yen

Per share (Note 13):
Net income—Basic
Cash dividends

¥22.1
16.5

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

20

¥41.6
16.5

¥74.1
16.5

$0.6760.151

consolidated statements of shareholders’ equity
Consolidated Statements of Shareholders’ Equity
ONWARD KASHIYAMA Co., Ltd. and Subsidiaries
For the years ended February 28, 2002, 2003 and February 29, 2004

Balance as at February 28, 2001:
Cash dividends
Directors’ bonuses
Selling of treasury stock, net
Adjustment of retained earnings for
newly consolidated subsidiaries
Net income for the year ended
February 28, 2002
Net revaluation loss of land
Net unrealized losses onavailable-for-sale securities
Foreign currency translation adjustment
Balance as at February 28, 2002:
Cash dividends
Directors’ bonuses
Selling of treasury stock, net
Net income for the year ended
February 28, 2003
Decrease in net revaluation loss of land
Net unrealized losses onavailable-for-sale securities
Foreign currency translation adjustment
Balance as at February 28, 2003:
Cash dividends
Directors’ bonuses
Gain on sales of treasury stock
Increase in treasury stock
Net income for the year ended
February 29, 2004
Increase in net revaluation loss ofland due to statutory tax rate change
Decrease in net revaluation loss of land
Net unrealized gains onavailable-for-sale securities
Foreign currency translation adjustment
Issuance of new stock in exchange
for Oak Co., Ltd.’s stock
Balance as at February 29, 2004

Commonstock

CapitalsurplusRetainedearnings

Net
revaluation
loss of land

Net unrealized
gains (losses)
on available-forsale-securities

Foreigncurrencytranslation
adjustment

Treasurystock

172,293———¥30,080———¥49,135———¥110,022(2,843)
(51)
—

¥000—
—
—
—

¥0,—
—
—
—

¥ 0,—
—
—
—

0¥0,00(1)
—
—
(16)

—

—

—

12

—

—

—

—

—
—

—
—

—
—

3,802
—

—
(2,348)

—
—

—
—

—
—

—
—
172,293—————
30,080—————49,135—————110,942(2,843)
(466)
—

—
—
(2,348)
—
—
—

(278)
—
(278)
—
—
—

—
(475)
(475)
—
—
—

—
—
(17)
—
—
(75)

—
—

—
—

—
—

7,158
—

—
1

—
—

—
—

—
—

—
—
172,293
—
—
—
—

—
—
30,080——————49,135——
0———
114,791(2,841)
(401)
—
—

—
—
(2,347)
—
—
—
—

103
—
(175)
—
—
—
—

—
(162)
(637)
—
—
—
—

—
—
(92)
—
—
2
(5,283)———

13,053

—

—

—

—

—
—

—
—

—
—

—
(27)

(53)
27

—
—

—
—

—
—

—
—

—
—

—
—

—
—

—
—

982
—

—
10

—
—

629
172,922—¥30,080572¥49,707—¥124,575—¥(2,373)—¥807—¥(627)—¥(5,373)

Foreigncurrencytranslation
adjustment

Treasurystock

Numberof sharesof commonstock(thousands)

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

Millions of yen

Numberof sharesof commonstock(thousands)

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

Commonstock

CapitalsurplusNet
revaluation
loss of land

Retainedearnings

172,293 $274,399 $448,230 $1,047,171 $(21,406)———(25,920)————(3,658)
—
—
—
0
—
—
—
—
—
—
—

Net unrealized
gains (losses)
on available-forsale-securities$(1,598)————$(5,813) $00,(837)
—
—
—
—
—
15
— (48,191)

—

—

—

119,079

—

—

—

—

—
—

—
—

—
—

—
(243)

(479)
243

—
—

—
—

—
—

—
—

—
—

—
—

—
—

—
—

8,951
—

—
95

—
—

629
—
5,220
—
—
172,922 $274,399 $453,450 $1,136,429 $(21,642)—$7,353

The accompanying notes are an integral part of these statements.

——$(5,718) $(49,013)

21

consolidated statements of cash flows
Consolidated Statements of Cash Flows
ONWARD KASHIYAMA Co., Ltd. and Subsidiaries
For the years ended February 28, 2002, 2003 and February 29, 2004

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
Increase (decrease) in provision forallowance for doubtful accounts
Increase (decrease) in provision for accrued
retirement benefits
Gain on securities contributed to
employees’ retirement benefit fundNet interest and dividend income
Loss on disposal of fixed assets
Net gain on sale of investments in securities
Loss on write-down of investments in securities
Valuation losses on investments
in unconsolidated subsidiaries and affiliates(Increase) decrease in trade receivables(Increase) decrease in inventories
Increase (decrease) increase in trade payables
Other, net
SubtotalInterest and dividends received
Interest paid
Income taxes paid
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
Net (increase) decrease in deferred charges
Payments for deposits
Proceeds from deposits
Other, net
Net cash (used in) provided by investing activities
Cash flows from financing activities:
Proceeds from short-term loans
Repayments of short-term loans
Net repayments of long-term debt
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
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Increase in cash and cash equivalents
due to changes in the scope of consolidation
Cash and cash equivalents at end of year (Note 2. (16))
The accompanying notes are an integral part of these statements.

22

2002

Millions of yen
2003

2004

Thousands of
U.S. dollars(Note 2. (18))
2004¥11,330¥17,445¥27,083$247,066

7,179

7,890

7,531

68,701

421

(658)

2,683

24,477

14,220996(2,792)(25,473)(8,542)(272)
436(2,444)
1,771

—
(43)
911
(1,338)
2,549

—
(46)
1,169
(1,016)15—(421)
10,671(9,266)
133

—
830
(89)
2,292
(591)
26,541456(185)(3,992)
22,820

—
2,363
1,750
(2,396)
1,492
30,961
190(156)(15,494)
15,501

1,611(2,746)(1,035)
4,942
1,936
35,463178(130)(4,996)30,515

14,692(25,054)(9,438)45,087(17,665)
323,510
1,627(1,183)(45,584)
278,370(6,017)
12,265(7,155)231(433)
11,448(4,096)(2,279)1,331(2,254)
3,041(2,283)445(4,170)316(6,324)5,554
220(2,182)
2,370(553)(6,607)(498)
493(4,183)
1,208
(412)
1,907
(2,444)(1,320)668(4,123)(8,704)(4,540)4,494(38,157)
11,015(3,754)
17,394(22,296)(12,043)
6,095(37,608)(79,400)

6,349(3,631)—(16)(2,843)
(164)
—
(305)
52
25,60853,8193,156(9,449)(2,060)(75)(2,843)(196)—(11,467)(18)(2,591)
79,499688(3,073)—(5,281)(2,841)(337)(3)(10,847)(61)
10,90376,9086,283(28,035)—(48,176)(25,920)(3,075)(29)(98,952)(558)
99,460701,59072¥79,499—¥76,908—¥87,811—$801,050

notes to consolidated financial statements
Notes to Consolidated Financial Statements
ONWARD KASHIYAMA Co., Ltd. and Subsidiaries

1. Basis of Presentation of the Consolidated Financial Statements
Accounting Principles
The accompanying consolidated financial statements have been prepared from the accounts maintained by ONWARD KASHIYAMA Co., Ltd. (the “Company”), and its consolidated subsidiaries in accordance with the provisions set forth in the JapaneseCommercial Code (the “Code”) and the Securities and Exchange Law and in conformity with accounting principles and practices
generally accepted in Japan, which are different in certain respects from the application and disclosure requirements ofInternational Accounting Standards.
Certain items presented in the consolidated financial statements submitted to the Director of the Kanto Finance Bureau in Japan
have been reclassified for the convenience of readers outside Japan. The accompanying consolidated financial statements are notintended to present the consolidated financial position, results of operations and cash flows of the Company and its consolidated
subsidiaries in accordance with accounting principles and practices generally accepted in countries and jurisdictions other thanJapan.
2. Summary of Significant Accounting Policies(1) Scope of Consolidation
The Company had 47 subsidiaries as at February 29, 2004 (53 as at February 28, 2003, 55 as at February 28, 2002). The accompanying consolidated financial statements include the accounts of the Company and its 17 subsidiaries (23 for 2003 and 2002).
The 17 subsidiaries which have been consolidated with the Company are listed below (the Company and these consolidated subsidiaries are together referred to as the “Companies”):
Name of subsidiary

Impact 21 Co., Ltd.
Onward Life Design Network Co., Ltd.
Freed of London Ltd.
O & K Co., Ltd.
Onward Beach Resort Co., Ltd.
Donna Karan Japan K.K.
Onward Creative Center Co., Ltd.
Excel Co., Ltd.
Across Transport Co., Ltd.
On Business Trend 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.

Equity ownership percentage

41.1%
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
60.5
100.0

Closing dateFebruary 29
February 29
December 31
February 29
December 31
December 31
February 29
February 29
February 29
February 29
February 29
February 29
December 31
February 29
February 29
February 29
February 29+A VIA BUS CO., LTD. and Field Dream Co., Ltd. were liquidated in 2003. On Business Trend Co., Ltd. is under liquidation as
of February 29, 2004. By exchange of stock, Oak Co., Ltd. became a 100% owned subsidiary on April 1, 2003. Acty 21 Co., Ltd.,and Partner 21 Co., Ltd. have been merged with Impact 21 Co., Ltd. and changed its name to Impact 21 Co., Ltd. in 2003.
Across Service Co., Ltd. has been merged with Across Transport Co., Ltd. and changed its name to Across Transport Co., Ltd.
in 2003.
Financial statements of Donna Karan Japan K.K., Onward Beach Resort Co., Ltd., Onward Beach Resort Guam, Inc., andFreed of London Ltd., which have a fiscal year-end of December 31, have been used for consolidation. Significant transactions
between January 1 and February 29 are reflected in the consolidated financial statements.
The remaining 30 subsidiaries (30 for 2003, 32 for 2002) were not consolidated because their combined assets, net sales, net
income, and retained earnings in the aggregate were not material compared with those of the consolidated financial statementsof the Companies.

23

(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 tominority interests is credited/charged thereto.
The assets and liabilities of consolidated subsidiaries are incorporated into the financial statements at fair value at the time ofacquisition, and the difference between the cost of investments in consolidated subsidiaries and the equity in their net assets at
dates of acquisition is amortized equally over a five-year period.
(3) Investments in Unconsolidated Subsidiaries and Affiliates
Although the Company had 30 unconsolidated subsidiaries (30 in 2003, 32 in 2002) and 5 affiliates (3 in 2003 and 4 in 2002) as
at February 29, 2004, the equity method was not applied to any of those subsidiaries and affiliates except for Polo Ralph Lauren
Japan Co., Ltd. This was because investment in the unconsolidated subsidiaries and affiliates would not have had a material
effect on the stocks of consolidated financial statements.
Since Polo Ralph Lauren Japan Co., Ltd. was acquired at the 2003 fiscal year-end, the equity method has been applied to theinvestment since the 2004 fiscal year.
(4) Inventories
Inventories are stated at cost, cost being determined generally by the last purchase invoice price method which approximates thefirst-in, first-out cost method. Merchandise held at retail stores is valued at the retail cost method.
When the net realizable value of certain classes of inventories (consisting primarily of seasonal merchandise which remains
unsold after the end of such seasons) is substantially less than the carrying value (cost), and the decline of value is not expected
to be recovered in the near future, appropriate write-downs are recorded on such inventory items. The amount of write-down isdetermined based on the experience of sales of merchandise similar to those unsold items during the immediately preceding
three years. At February 28, 2003 and February 29, 2004, recorded write-downs were ¥9,347 million and ¥10,335 million($94,285 thousand), respectively.
Unconsolidated subsidiaries and affiliates are stated at the cost determined by the moving-average method.
(5) Investments in Securities
Debt securities and equity securities designated as available for sale (“other securities”), whose fair values are readily determinable,
are carried at fair values prevailing at the fiscal year-end date with unrealized gains or losses included as a component of shareholders’ equity, net of applicable taxes.
Other securities, whose fair values can not readily be determined, are stated principally at cost. In cases where declines in fairvalues of individual securities are assessed to be other than temporary, the cost of the security is reduced to net realizable value
and the loss is charged to income. Realized gains and losses are determined using the moving-average method and are reflected
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” are deferred as assets
or liabilities and included in net profit or loss in the same period during which the gains and losses on the hedged items or transactions are recognized. For foreign exchange forward contracts, if they meet conditions for hedge accounting, the difference
between contract rate and spot rate at the date of the contract is recognized over the period from the contract date to the settlement date.

24

The derivatives designated as hedging instruments by the Company are principally foreign exchange forward contracts. The
related hedged items are trade accounts payable and trade accounts receivable denominated in foreign currencies, and scheduled transactions.
The Company has a policy to utilize the above hedging instruments in order to reduce the exposure to the risk of foreign currency exchange rate fluctuation.
(8) Property, Plant and Equipment
Depreciation is computed using the declining-balance method at rates based on the estimated useful lives of assets which areprescribed by Japanese income tax regulations except for certain buildings.
The Companies compute depreciation expense for buildings (other than improvements) acquired on and after April 1998 by thestraight-line method pursuant to the amendment to the Japanese income tax law.
(9) Amortization
Intangible assets and long-term prepaid expenses are amortized on a straight-line method over the period prescribed by theJapanese Commercial Code or tax regulations.
Software costs for internal use are amortized over their expected useful lives (5 years or less) on a straight-line method.
(10) Income Taxes
Income taxes of the Company and its domestic consolidated subsidiaries consist of corporate income tax, local inhabitant taxes andenterprise taxes.
(11) Allowances
An allowance for bad debts is provided for estimated losses on known bad debts and doubtful accounts at the balance sheet
date.
Accrued bonuses to employees are provided for at an amount determined based on the estimated bonuses to employees
which 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 valueof plan assets and deferred gains or losses at the balance-sheet date. Until the year ended February 28, 2001, the Company provided for accrued retirement benefits (unfunded) in an amount equivalent to 100% of the liabilities payable to all employees eligible
for such benefits upon their voluntary retirement at the balance-sheet date, less the accumulated balance of fund assets for thepension plan. As at February 28, 2001, fund assets aggregated ¥7,339 million with the past service liabilities being amortized overa six-year period.
Effective from the year ended February 28, 2002, the Company and its consolidated subsidiaries adopted the “New AccountingStandard for Retirement Benefits.” The unrecognized difference of ¥14,430 million arising from adopting the new standard (the“transition adjustment”) has been fully amortized for the year ended February 28, 2002. Unrecognized prior service costs areamortized and charged/credited to income on a straight-line basis over 5 to 10 years, which are within the related employees’
average remaining service years. Unrecognized actuarial differences are amortized on a straight-line basis over 5 to 10 years,
which are within the related employees’ average remaining service years from the year following the one in which they arise.

25

Following the enactment of the Defined Benefit Corporate Pension Plan Law in Japan, on September 25, 2003, the Company
and certain consolidated subsidiaries, obtained approval from Japan’s Ministry of Health, Labour and Welfare for exemption fromthe future benefit obligation with respect to the portion of the Employee Pension Fund that the Company and its consolidated subsidiaries operate on behalf of the Government (the so-called substitutional portion). The Company and the subsidiaries appliedtransitional provisions as prescribed in paragraph 47-2 of the “Practical Guidelines of Accounting for Retirement Benefits (Interim
Report)” (Accounting Committee Report No. 13 issued by the Japanese Institute of Certified Public Accountants) and recognized again in the amount of ¥10,471 million ($95,524 thousand) for the settlement of the substitutional portion was recognized at thedate of approval from Japan’s Ministry of Health, Labour and Welfare.
The amount of plan assets to be transferred to the Government was computed at ¥21,743 million ($198,351 thousand) as ofFebruary 29, 2004.
Accrued retirement benefits for directors and statutory auditors is provided for at the amount required at the balance-sheet
dates in accordance with the internal rules of the Company and certain consolidated subsidiaries.
While these companies have no legal obligation, it is the customary practice in Japan to make lump-sum payments to a director
or a statutory auditor upon retirement under the approval of the general meeting of shareholders.
(12) Accounting for Leases
Finance leases other than those which are deemed to transfer the ownership of the lease assets to lessees are accounted for by amethod similar to that applicable to ordinary operating leases.
(13) Accounting for Consumption Tax
The consumption tax withheld upon sales and the consumption tax paid by the Companies on the purchase of goods and services are not included in the accompanying consolidated statements of income.
(14) Dividends
Under the resolution of the general meeting of shareholders held on May 27, 2004, the Board of Directors declared a cash dividend of ¥3,356 million ($30,614 thousand), ¥20.0 ($0.182) per share, which was applicable to earnings of the year ended
February 29, 2004 and payable to shareholders on the register on February 29, 2004.
(15) Net Assets, Net Income and Dividends per Share
Effective from the fiscal year ended February 29, 2004, the Company and its domestic consolidated subsidiaries applied the
Financial Accounting Standards No. 2 “Financial Accounting Standards for Earnings per Share” and the Financial AccountingStandards Implementation Guidance No. 4 “Implementation Guidance for Accounting Standards for Earnings per Share” issuedby Accounting Standard Board of Japan on September 25, 2002.
The effect of the adoption is set forth in Note 13.
(16) Cash and Cash Equivalents
Cash and cash equivalents in the consolidated statement of cash flows are composed of cash on hand, bank deposits which areable to be withdrawn 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.
Cash and cash equivalents at February 28, 2003 and February 29, 2004 consisted of:Millions of yen

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

26

Thousands of
U.S. dollars

2003

2004

2004

¥79,191(2,283)¥88,099(288)$803,678(2,628)¥76,908¥87,811$801,050

(17) Reclassification of Accounts
Certain prior year amounts have been reclassified to conform with the current year’s presentation.
(18) United States Dollar Amounts
Amounts in U.S. dollars are included solely for the convenience of readers outside of Japan. The rate of ¥109.62=US$1, the rateof exchange as of February 29, 2004, 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 the rate or any other rate.
3. Investments in Securities(1) Information as of and for the Year Ended February 29, 2004(a) Available-for-sale securities (other securities) with fair value:
Investments in securities whose fair values were available at February 29, 2004, are analyzed as follows:
Millions of yen

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

Acquisition
cost

Fair value(Carrying value)¥1,373
1,373

Thousands of U.S. dollars
Difference

Acquisition
cost

Fair value(Carrying value)

Difference¥2,873¥1,500$12,528$26,211$13,683

2,873

1,500

12,52826,211

13,683

728

606

(122)

6,644

5,527

(1,117)

728

606

(122)

6,644

5,257

(1,117)¥2,101¥3,479¥1,378$19,172$31,738$12,566(b) Other securities sold during the year ended February 29, 2004:

Proceeds from sale of other securities
Gross realized gain on sale of other securities
Gross realized loss on sale of other securities

Millions of yen

Thousands of
U.S. dollars(Note 1)

¥1,907
1,016—$17,394
9,266—

Millions of yen

Thousands of
U.S. dollars¥00,786
4,400$007,166
40,139

5,186
6,448

47,30558,827¥11,634$106,132(c) Major securities which are not stated at fair values as of February 29, 2004:

Other securities:
Non-listed equity securities
Non-listed foreign bonds
Subtotal
Investments in equity securities of unconsolidated subsidiaries and affiliates
Total(d) Redemption and maturity schedule of debt securities classified as other securities:
Millions of yen

Non-listed foreign bonds

Thousands of U.S. dollars

Within 1
year

1 to 5years

5 to 10years

Over 10years

Within 1
year

1 to 5years

5 to 10years

Over 10years¥2,000¥—¥2,400¥—$18,245$—$21,894$—27

(2) Information as of and for the Year Ended February 28, 2003(a) Available-for-sale securities (other securities) with fair value:
Investments in securities whose fair values were available at February 28, 2003, are analyzed as follows:
Millions of yen

Securities with unrealized gains:
Equity securities

Acquisition
cost

Fair value(Carrying value)

Difference¥0,298¥0,376

¥(078

298

376

78

2,624

2,246

(378)

2,624

2,246

(378)

¥2,922¥2,622¥(300)

Total
Securities with unrealized losses:
Equity securities
Total
Total

An impairment loss of ¥2,513 million was recognized for the decline of fair value of the available-for-sale equity securities for theyear ended February 28, 2003.
(b) Other securities sold during the year ended February 28, 2003:
Millions of yen

Proceeds from sale of other securities
Gross realized gain on sale of other securities
Gross realized loss on sale of other securities¥3—1(c) Major securities which are not stated at fair values as of February 28, 2003:
Millions of yen

Other securities:
Non-listed equity securities
Non-listed foreign bonds¥00,775
4,400

Subtotal
Investments in equity securities of unconsolidated subsidiaries and affiliates

5,175
8,023

Total

¥13,198(d) Redemption and maturity schedule of debt securities classified as other securities:
Millions of yen

Non-listed foreign bonds

Within 1
year

1 to 5years

5 to 10years

Over 10
years

¥—

¥—

¥4,400¥—4. Derivative Transactions
Derivatives are used in order to hedge foreign exchange market risk on the transactions and balances which occur in the normal
course of business. Derivatives are not used for speculative purposes or for highly leveraged transactions. Derivatives are executed with creditworthy financial institutions, and the Company does not anticipate significant losses due to the nature of its counterparties.
The Company and its consolidated subsidiaries applied hedge accounting for all derivative transactions as of February 28, 2003
and February 29, 2004, therefore, no market value information is disclosed.

28

5. Property, Plant and Equipment
The Japanese tax regulations allowed a company to defer capital gains on the sale of real property if the company intended to offset such gains against the cost of newly acquired fixed assets. When such accounting was followed, the cost of the new fixed
assets was reduced to the extent of the deferred capital gains, thereby affecting related depreciation charges and accumulated
depreciation.
Property, plant and equipment at February 28, 2003 and February 29, 2004, were reduced by ¥8,752 million and ¥8,658 million($78,983 thousand), respectively, representing accumulated deferred gains from eligible prior sales.
6. Retirement Plan and Retirement Benefits
The Company and its subsidiaries have defined benefit retirement plans covering substantially all employees. Defined benefit retirement plans include a plan which is governed by the regulations of the Japanese Welfare Pension Insurance Law (“welfare benefitplan”), tax qualified pension plans, and plans for lump-sum retirement benefits.
The reserve for retirement benefits as of February 29, 2004, is analyzed as follows:
As of February 29, 2004
Millions of yen

Thousands of
U.S. dollars¥(34,940)
36,571$(318,734)
333,613

Funded status
Unrecognized prior service costs
Unrecognized actuarial differences

1,631
(273)
3,413

14,879(2,487)
31,130Subtotal
Prepaid pension cost

4,771
7,969

43,522
72,695¥0(3,198)$0(29,173)

Millions of yen

Thousands of
U.S. dollars

Service cost
Interest cost
Expected return on plan assets
Amortization of unrecognized prior service costs
Amortization of unrecognized actuarial differences¥2,030
1,229
(588)
(111)
1,682

$18,523
11,207(5,362)(1,009)15,340Net pension expense¥4,242$38,699

Projected benefit obligations
Plan assets (including employees’ retirement benefit fund)Accrued pension and severance costs

Net pension expense for the year ended February 29, 2004, was as follows:
For the year ended February 29, 2004

Assumptions used in the calculation of the aforementioned information were as follows:
As of February 29, 2004

Method of attributing the projected benefits to periods of service
Discount rate
Expected rate of return on plan assets
Welfare benefit plan
Tax qualified pension plans
Amortization of unrecognized prior service costs
Amortization of unrecognized actuarial differences

Straight-line basis
2.0% (2.0 to 2.5% at the beginning)
1.5 to 2.0%
0.8 to 1.5%
5 to 10 years
5 to 10 years

29The reserve for retirement benefits as of February 28, 2003, is analyzed as follows:
Millions of yen

Projected benefit obligations
Plan assets (including employees’ retirement benefit fund)¥(73,099)
48,006

Funded status
Unrecognized prior service costs
Unrecognized actuarial differences(25,093)(1,349)21,840Subtotal
Prepaid pension cost

(4,602)
1,388

Accrued pension and severance costs¥0(5,990))

Net pension expense for the year ended February 28, 2003 was as follows:
Millions of yen

Service cost
Interest cost
Expected return on plan assets
Amortization of transition adjustment
Amortization of unrecognized actuarial differences¥2,520
1,907
(997)
(165)
1,211

Net pension expense¥4,476

Assumptions used in the calculation of the aforementioned information were as follows:
As of February 28, 2003

Method of attributing the projected benefits to periods of service
Discount rate
Expected rate of return on plan assets
Welfare benefit plan
Tax qualified pension plans
Amortization of unrecognized prior service costs
Amortization of unrecognized actuarial differences

Straight-line basis
2.0 to 2.5% (2.0 to 3.0% at the beginning)
2.0 to 2.7%
1.1 to 1.5%
5 to 10 years
5 to 10 years

7. Lease Transactions
The Company’s finance lease contracts which are not deemed to transfer the ownership of the leased assets to lessees are notcapitalized, which is permitted by the Japanese accounting principles. Certain key information on such lease contracts of theCompanies for the years ended February 28, 2003 and February 29, 2004, are as follows.
(Lessee)
Assumed data as to acquisition cost, accumulated depreciation, net book value and depreciation expense of the leased assets,
which included the portion of interest thereon, are summarized as follows:
Millions of yen

Thousands of U.S. dollars

2004
Tools, furniture,and fixtures

Other

Acquisition cost
Accumulated depreciation¥2,670(1,392)¥1,354(745)

Net book value¥1,278¥0.609

30

2004
Total

Tools, furniture,and fixtures

Other

Total

¥4,024(2,137)$24,356(12,702)$12,355(6,798)$36,711(19,500)¥1,887$11,654$05,557$17,211

Millions of yen
2003
Tools, furniture,and fixtures

Other

Total

Acquisition cost
Accumulated depreciation¥2,745(1,358)¥1,101(516)¥3,846(1,874)

Net book value¥1,387¥2,585¥1,972The scheduled maturities of future lease payments on such lease contracts as of February 28, 2003 and February 29, 2004, areas follows:
Thousands of
U.S. dollars

Millions of yen

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

2003

2004

2004

¥0,817
1,213¥0,828
1,102$07,553
10,053¥2,030¥1,930$17,606

Thousands of
U.S. dollars

Millions of yen

Lease expenses for the year
Depreciation

2003

2004

2004

¥958
¥958

¥756
¥756

$6,894$6,894(Lessor)Assumed data as to acquisition cost, accumulated depreciation, net book value and depreciation expense of the leased assets,
which included the portion of interest thereon, are summarized as follows:
Millions of yen

Thousands of U.S. dollars

2004
Tools, furniture,and fixtures

Other

Acquisition cost
Accumulated depreciation

¥—
¥—

¥75
(36)

Net book value

¥—

¥39

2004
Total

Tools, furniture,and fixtures

Other

Total

¥75
(36)

$—
—

$685
(330)

$685
(330)

¥39

$—

$355

$355

Millions of yen
2003
Tools, furniture,and fixtures

Other

Total

Acquisition cost
Accumulated depreciation

¥(7
(5)

¥71
(47)

¥78
(52)

Net book value

¥(2

¥24

¥26

31

The scheduled maturities of future lease income on such lease contracts as of February 28, 2003 and February 29, 2004, areas follows:
Millions of yen

Scheduled maturities of future lease income:Due within one year
Due over one year

2003

2004

2004

¥033
74

1¥133
77

$0,304
703

¥107

¥110

$1,007

Millions of yen

Lease income for the year
Depreciation

Thousands of
U.S. dollars

Thousands of
U.S. dollars

2003

2004

2004

¥20
¥15

¥16
¥17

$149
$160

8. Income Taxes
Deferred tax assets and liabilities as at February 28, 2003 and February 29, 2004, consisted of the following elements:
Millions of yen

Deferred tax assets:
Valuation loss on inventories
Evaluation loss on investments in unconsolidated subsidiaries
Excess amount of tax-deductible accrued bonuses to employees
Excess amount of tax-deductible accrued employees’ retirement benefits
Allowance for directors’ retirement benefits
Tax loss carryforwards
OthersSubtotal
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Gain on securities contributed to an employee retirement benefit trust
Provision for deferred capital gains on real property
Other

Thousands of
U.S. dollars

2003

2004

2004

¥02,801475
698
10,411882
13,1703,441¥02,828
1,392
995
6,381
677
12,2188,604$025,798
12,698
9,077
58,2106,176
111,458
78,48931,87833,095

301,906(15,240)(14,342)(130,833)

16,63818,753

171,073(3,589)(25)(132)(3,474)(23)(561)

31,691(210)(5,118)

Total deferred tax liabilities(3,746)(4,058)(37,019)

Net deferred tax assets¥12,892¥14,695$134,054

Reconciliation between the statutory tax rate and the effective tax rate for the year ended February 28, 2003 is as follows:%
2003

Statutory tax rate
(Reconciliation)
Nondeductible items (entertainment expense, etc.)
Losses of consolidated subsidiaries to which deferred tax assets are not recognized
Tax recognition on liquidation of consolidated subsidiaries
Eliminated gains on sale of equities of consolidated subsidiaries
Other
Effective tax rate

3242.0)%
2.1
11.3
(5.6)
4.5
1.7
56.0)%

The reconciliation of the difference between the statutory tax rate and the effective tax rate for the year ended February 29,
2004 has not been disclosed because such a difference is immaterial.
Legislation was issued at March 31, 2003, which amended a part of local taxes. Thus, the statutory tax rate which was used to
calculate deferred tax assets and deferred tax liabilities for temporary differences that are expected to reverse beginning March 1,
2005, was changed accordingly from 42.1% to 40.7%. As a result, deferred tax assets, net of deferred tax liabilities, as ofFebruary 29, 2004, decreased by ¥250 million ($2,281 thousand), income tax expense—deferred for the year then ended
increased by ¥250 million ($2,281 thousand), and net revaluation loss of land decreased by ¥53 million ($479 thousand).
9. Revaluation of LandIn the year ended February 28, 2002, the Company revaluated land for its business use at a market value as a result of applicationof the law, which permits a one-time revaluation of land for business use.
The revaluation loss amounted to ¥3,999 million ($36,477 thousand) , the related deferred tax asset recognized is ¥1,626 million ($14,835 thousand), and the net revaluation loss of ¥2,373 million ($21,642 thousand) is presented as a separate componentof shareholders’ equity as a “net revaluation loss of land”.
The difference between the market value of land subject to the revaluation and the book value was ¥5,101 million ($46,542
thousand) as at February 29, 2004.
10. Commitments and Contingent Liabilities
The Company was contingently liable as a guarantor for certain affiliates’ bank loans and for customers. The outstanding balance
guaranteed as at February 28, 2003 and February 29, 2004, aggregated ¥5,026 million and ¥3,147 million ($28,715 thousand),
respectively.
11. Legal Reserve and Appropriation of Retained Earnings
Under the Japanese Commercial Code and the Company’s Articles of Incorporation, a proposal for appropriation of retained earnings must be submitted by the Board of Directors to the shareholders’ meeting held within three months following the fiscal yearend for shareholders’ approval.
The appropriation of retained earnings reflected in the accompanying Consolidated Statements of Income represents the resultof such an appropriation applicable to the preceding fiscal period.
Under Japanese accounting practices, bonuses to directors and statutory auditors are paid out of retained earnings instead ofbeing charged to income of the year, and constitute a part of the appropriation explained above.
The Japanese Commercial Code requires that an amount equal to at least 10% of any payment by way of appropriation ofretained earnings be set aside as a legal reserve until the total additional paid-in capital and a legal reserve equals 25% of paid-in
capital. An additional paid-in capital and/or a legal reserve in excess of 25% of stated capital in total may be reduced by resolutionof the shareholders, which may be available for distribution to shareholders.

3312. Subsequent Events
Subsequent to February 29, 2004, the Company’s Board of Directors proposed a plan for the appropriation of retained earnings
applicable to the year ended February 29, 2004, which was approved at the general meeting of shareholders held on May 27,
2004.
The approved appropriation of retained earnings is shown below:

Reversal of a reserve for deferred capital gains on real property
Appropriations:
Cash dividends (¥20.0 per share)
Directors’ bonuses
Arbitrary reserves:
Reserve for deferred capital gains on real property
General reserve

Millions of yen

Thousands of
U.S. dollars¥(0,001$00,006(3,356)(421)(30,614)(3,840)(1)(6,000)(7)(54,735)¥(9,777)$(89,190)

13. Net Assets, Net Income and Dividends per Share
Net income per share of common stock is computed based upon the weighted-average number of shares of common stock outstanding during each year. Cash dividends per share shown for each year in the accompanying Consolidated Statements ofIncome represent dividends declared as applicable to the respective years rather than those paid during the years.
Effective from the year ended February 29, 2004, the Company and its subsidiaries applied the Financial Accounting Standards
No. 2 “Financial Accounting Standards for Earnings per Share” and the Financial Accounting Standards Implementation Guidance
No. 4 “Implementation Guidance for Accounting Standards for Earnings per Share” issued by Accounting Standard Board ofJapan on September 25, 2002.
Basis for the calculation of net income per share for the year ended February 29, 2004 is as follows:
Millions of yen

Thousands of
U.S. dollars

Net income
Less: Components not pertaining to common shareholders
Bonuses to directors and corporate auditors¥13,053$119,079(479)(4,371)

Net income pertaining to common stock¥12,574

Average outstanding shares of common stock$114,708
169,754,659 shares

By applying the previous method, the amounts of net income per share and net assets per share for the year ended February
29, 2004, are calculated as follows:
Net income per share
Net assets per share

Yen

U.S. dollars¥0,076.9
1,172.9$00.701
10.699Cash dividends per share shown for each year in the accompanying Consolidated Statements of Income represent dividends
declared as applicable to the respective years, rather than those paid in the respective years.

3414. Related Party Transaction
Year ended February 28, 2003
The disclosure for related party transactions is omitted as there have been no significant transactions with related parties.
Year ended February 29, 2004
The Company lent ¥3,300 million (US$30,104 thousand) to ONWARD KASHIYAMA U.S.A. INC., a 100% owned subsidiary of theCompany, during the year and the outstanding balance as at February 29, 2004 in the same amount was included in long-termloans. Interest rate is based on the market rate and the repayment is scheduled at a time on the due date.
15. 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 casualwear.
The Other Division operates logistics, sports facilities, resort facilities, etc.
Segment information classified by industry segment of the Companies for each of the two years ended February 29, 2004 andFebruary 28, 2003 is as follows:Year ended February 29, 2004

Millions of yen
Industry segment
Clothing

Other

Total

Elimination ofintersegment sales

Consolidated
total

Sales to outside customers
Intersegment sales¥255,111
19¥12,635
12,632¥267,746
12,651¥ 0000—(12,651)¥267,746—

Total
Costs and expenses

255,130
232,20925,26725,361

280,397
257,570(12,651)(12,720)

267,746244,850

Operating income (loss)¥022,921¥000(94)¥022,827¥00,0(69¥022,896

AssetsDepreciation
Capital expenditures¥298,909
6,573
6,858

¥38,384
1,026
336¥337,293
7,599
7,194

¥(19,023)
(68)
(47)

¥318,270
7,531
7,147

Year ended February 29, 2004

Thousands of U.S. dollars
Industry segment
Clothing

Other

Total

Elimination ofintersegment sales

Consolidated
total

Sales to outside customers
Intersegment sales$2,327,231
171$115,259
115,233$2,422,490
115,404$ 00000—(115,404)$2,442,490—

Total
Costs and expenses

2,327,402
2,118,306

230,492
231,358

2,557,894
2,349,664(115,404)(116,038)

2,442,490
2,233,626

Operating income (loss)$0,209,096$000(866)$0,208,230$000,(634$0,208,864

AssetsDepreciation
Capital expenditures$2,726,778
59,96062,564$350,152
9,366
3,064

$3,076,930
69,326
65,628$(173,532)
(625)
(433)

$2,903,398
68,701
65,19535

Year ended February 28, 2003

Millions of yen
Industry segment
Clothing

Other

Total

Elimination ofintersegment sales

Consolidated
total

Sales to outside customers
Intersegment sales¥251,207
117¥12,192
13,332¥263,399
13,449¥ 0000—(13,449)¥263,399—

Total
Costs and expenses

251,324
231,654

25,52425,562276,848257,216(13,449)(13,424)

263,399
243,792

Operating income (loss)¥019,670¥000(38)¥019,632¥00,0(25)¥019,607

AssetsDepreciation
Capital expenditures¥281,164
6,950
7,733

¥42,314
1,031
1,345

¥323,478
7,981
9,078

¥(21,290)
(91)
(130)

¥302,188
7,890
8,948

(2) Geographic Segment Information
Geographic segment information is omitted because more than 90% of total sales and total assets relate to only the domestic
segment.
(3) Overseas Sales
Overseas sales information is omitted because the total overseas sales of the Companies is under 10% of consolidated sales
amount.
16. Loans
Short-term loans at February 28, 2003 and February 29, 2004 represented loans, principally from banks. The weighted-averageinterest rates on these loans were 0.6% in 2003 and 2004, respectively.

36

report of independent accountants
Report of Independent Accountants

To the Board of Directors and Shareholders of ONWARD KASHIYAMA Co., Ltd.:We have audited the accompanying consolidated balance sheets of ONWARD KASHIYAMA Co., Ltd. and its consolidated subsidiaries as of February 28, 2003 and February 29, 2004, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended February 29, 2004, all expressed in Japanese yen. These
consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards, procedures and practices generally accepted and applied inJapan. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated
financial position of ONWARD KASHIYAMA Co., Ltd. and its consolidated subsidiaries as of February 28, 2003 and February 29,
2004, and the consolidated results of their operations and their cash flows for each of the three years in the period ended
February 29, 2004, in conformity with accounting principles and practices generally accepted in Japan (see Note 1).
The amounts expressed in U.S. dollars, provided solely for the convenience of the reader, have been translated on the basis set
forth in Note 2. (18) to the accompanying consolidated financial statements.

ChuoAoyama PricewaterhouseCoopers
Tokyo, JapanMay 27, 200437

non-consolidated balance sheets
Non-Consolidated Balance Sheets
ONWARD KASHIYAMA Co., Ltd.
February 28, 2003 and February 29, 2004
Thousands of
U.S. dollars(Note 2. (14))

Millions of yen

ASSETS

2003

2004

2004

¥018,036
30,993¥008,103
45,008$0,073,917
410,582

2,543
16,316

2,009
19,524

18,329178,105

Less: Allowance for bad debts

18,859(120)

21,533(238)

196,434(2,167)

Inventories (Note 3)
Advance payments
Deferred tax assets—current (Note 9)
Prepaid pension cost
Other current assets

18,73916,892
408
1,998
1,388
1,586

21,295
19,914
918
5,743
7,969
3,757

194,267
181,667
8,374
52,39572,69534,264

Total current assets

90,040112,707

1,028,161

6,772
31,590267
10,855
1,701
15,485(1,959)5,552
30,068
226
9,063
1,626
18,268(3,801)50,651
274,296
2,059
82,673
14,835
166,650(34,679)

Total investments and advances

64,71161,002556,485

Property, plant and equipment (Note 5):
Buildings and structures
Machinery and equipment
Tools, furniture and fixtures

48,7591,469
8,032

47,0661,374
8,837

429,360
12,53380,618Less: Accumulated depreciation

58,260(29,020)

57,277(29,019)522,511(264,731)

Land: (Note 6)

29,24043,48328,25842,926

257,780
391,588

72,72371,184649,368

3,664

3,681

33,580¥231,138¥248,574$2,267,594

Current assets:
Cash
Time deposits
Trade receivables:
Notes
Accounts

Investments and advances:
Investments in securities
Investments in and advances to subsidiaries and affiliates (Note 8)Long-term loans to employees
Deferred tax assets—noncurrent (Note 9)
Deferred tax assets—revaluation of land (Notes 6 and 9)
Other investments
Less: Allowance for bad debts

Total property, plant and equipment
Deferred charges and other assets
Total assets
The accompanying notes are an integral part of these statements.

38

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

Millions of yen

LIABILITIES AND SHAREHOLDERS’ EQUITY

2003

2004

2004

¥024,279
6,258¥027,912
7,437$0,254,626
67,841

30,537
1,406
4,250
—
798
1,926
1,266
737

35,349
1,188
5,647
8,890
760
2,122
1,119
469

322,467
10,84151,51181,0986,934
19,358
10,208
4,282

Total current liabilities

40,92055,544

506,699

Long-term liabilities:
Long-term guarantee money deposited
Accrued retirement benefits

2,201
2,846

2,238
1,523

20,40913,896

Total long-term liabilities

5,047

3,761

34,30545,96759,305541,004

30,08049,135
5,483
92,70934
10,342(2,347)(173)

30,08050,615
5,483
96,20933
13,830(2,373)765

274,399
461,728
50,014
877,659309
126,161(21,642)
6,975

Current liabilities:
Trade payables:
Notes
Accounts
Non-trade payables
Accrued expenses
Accrued income taxes
Consumption tax payable
Accrued bonuses to employees
Allowance for sales returns
Other current liabilities

Total liabilities
Commitments and contingent liabilities (Note 10)
Shareholders’ equity:
Common stock:
Authorized—400,000,000 shares
Issued—172,292,587 shares and 172,921,669 sharesat February 28, 2003 and February 29, 2004, respectively
Capital surplus
Legal reserve (Note 11)
General reserve (Note 11)
Special reserve
Retained earnings (Note 11)
Net revaluation loss of land (Notes 6 and 9)
Net unrealized gains (losses) on available-for-sale securities (Note 8)
Less: Treasury stock, at cost, 87,006 shares and 5,128,796 sharesat February 28, 2003 and February 29, 2004, respectively
Total shareholders’ equity
Total liabilities and shareholders’ equity(92)(5,373)(49,013)

185,171

189,269

1,726,590¥231,138¥248,574$2,267,594
U.S. dollars(Note 2. (14))

Yen

Per share:
Net assets per share¥1,075.3¥1,125.5$10.26739

non-consolidated statements of income and retained earnings
Non-Consolidated Statements of Income and Retained Earnings
ONWARD KASHIYAMA Co., Ltd.
For the years ended February 28, 2002, 2003 and February 29, 2004

Net sales
Cost of sales

Reversal of allowance for sales returns, net
Gross profit
Selling, general and administrative expenses
Operating income

2002

Millions of yen
2003

2004

Thousands of
U.S. dollars(Note 2. (14))
2004¥171,109
93,111
77,998¥175,031
92,84382,188¥184,914
96,782
88,132$1,686,868
882,887
803,98189
78,08761,865
16,222

11982,30765,423
16,884

147
88,27970,416
17,863

1,341
805,322642,370
162,952431(77)(2,380)536—(4,435)
(800)
(929)

409
(86)
(15)
467
—
(4,750)(2,744)
—

3,734
(789)
(133)
4,264
—
(43,332)(25,032)
—

—
2,197
1,197
—

—
—
1,123
1,016

—
—
10,242
9,266—
515(3,745)
13,1398,616(3,756)280
18,14378,601(34,267)
2,554
165,506

8,474(5,045)
1,287
4,716
5,824

3,005
2,895
—
5,900
7,239

10,522(2,582)—
7,940
10,203

95,984(23,552)—
72,432
93,074

3,611

6,344

10,342

94,347

37
—

1
(1)

1
(27)

6
(243)

(2,843)—(285)—(3,128)¥006,344(2,843)(398)——(3,241)¥010,342(2,841)(348)—(3,500)(6,689)¥013,830(25,920)(3,175)—(31,928)(61,023)$0,126,161

Other income (expenses):
Interest and dividend income
591
Loss on disposal of property, net(36)
Loss on write-down of investments in securities(1,738)
Royalty income
587
Gain on securities contributed to employee retirement benefit trust
8,542
Loss on liquidation of subsidiaries and affiliates(617)
Provision for allowance for doubtful accounts(511)
Additional retirement payments(2,691)
Transition adjustment arising from adoptionof the new accounting standard for retirement benefits(13,940)
Gain on sale of equities in affiliates—
Rents received
1,116
Net gain on sale of investments in securities
2,444
Gain on the settlement of substitutional potion of
governmental pension fund (Note 2. (8))—
Other, net
571(5,682)
Income before income taxes
10,540
Income taxes (Note 9):
Current
Deferred
Prior-year income taxes
Net income
Retained earnings:
Balance at beginning of year
Reversal of reserve for deferred capital gains on property
due to adoption of deferred tax accounting
Reversal of reserve for land revaluation
Appropriations (Note 11):
Cash dividends
Directors’ bonuses
Transfer to legal reserve
Transfer to general reserve
Balance at end of year

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

Yen

Per share (Note 13):
Net income—Basic
Cash dividends

¥33.8
16.5

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

40

¥42.0
16.5

¥57.6
16.5

$0.5260.151

non-consolidated statements of shareholders’ equity
Non-Consolidated Statements of Shareholders’ Equity
ONWARD KASHIYAMA Co., Ltd.
For the years ended February 28, 2002, 2003 and February 29, 2004
Millions of yen

Number ofshares ofcommonstock(thousands)

Commonstock

CapitalsurplusLegalreserve

Generalreserve

Specialreserve

Retainedearnings

Net
revaluation
loss of land

Net unrealized
gains (losses)
on available-forsale-securities

Treasurystock

Balance as at February 28, 2001:
Reversal of reserve for deferred
capital gains on property
Cash dividends
Transfer to legal reserve
Net income for the year ended February 28, 2002
Net revaluation loss of land
Net unrealized losses onavailable-for-sale securities
Treasury stock, at cost

172,293¥30,080¥49,135¥5,198¥92,709¥72¥03,611¥ 000—¥0—¥ 000—

—
—
—
—
—

—
—
—
—
—

—
—
—
—
—

—
—
285
—
—

—
—
—
—
—

(37)
—
—
—
—

37
(2,843)
(285)
5,824
—

—
—
—
—
(2,348)

—
—
—
—
—

—
—
—
—
—

—
—

—
—

—
—

—
—

—
—

—
—

—
—

—
—

(255)
—

—
(17)

Balance as at February 28, 2002:
Reversal of reserve for deferred
capital gains on property
Decrease in net revaluation loss of land
Cash dividends
Directors’ bonuses
Net income for the year ended February 28, 2003
Net unrealized gains onavailable-for-sale securities
Treasury stock, at cost

172,293

30,08049,135

5,483

92,70935

6,344(2,348)

(255)

(17)

—
—
—
—
—

—
—
—
—
—

—
—
—
—
—

—
—
—
—
—

—
—
—
—
—

(1)
—
—
—
—

1
(1)
(2,843)
(398)
7,239

—
1
—
—
—

—
—
—
—
—

—
—
—
—
—

—
—

—
—

—
—

—
—

—
—

—
—

—
—

—
—

82
—

—
(75)

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

172,293

30,08049,135

5,483

92,70934

10,342(2,347)

(173)

(92)

—

—

—

—

—

(1)

1

—

—

—

—
—
—
—
—
—

—
—
—
—
—
—

—
—
—
—
—
—

—
—
—
—
—
—

—
—
—
—
3,500
—

—
—
—
—
—
—

—
(27)
(2,841)(348)(3,500)
10,203

(53)
27
—
—
—
—

—
—
—
—
—
—

—
—
—
—
—
—

—

—

—

—

—

—

—

—

938

—

629
—
—

—
—
—

1,480
0
—

—
—
—

—
—
—

—
—
—

—
—
—

—
—
—

—
—
—

—
2
(5,283)

Balance as at February 29, 2004

172,922¥30,080¥50,615¥5,483¥96,209¥33¥13,830¥(2,373)¥765¥(5,373)

Net unrealized
gains (losses)
on available-forsale-securities

Treasurystock

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

Number ofshares ofcommonstock(thousands)

Commonstock

CapitalsurplusLegalreserve

Generalreserve

Specialreserve

Retainedearnings

Net
revaluation
loss of land

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

172,293$274,399$448,230$50,014$845,731$315$094,347$(21,406)$(1,587)$00,(837)

—

—

—

—

—

(6)

6

—

—

—

—
—
—
—
—
—

—
—
—
—
—
—

—
—
—
—
—
—

—
—
—
—
—
—

—
—
—
—
31,928
—

—
—
—
—
—
—

—
(243)
(25,920)(3,175)(31,928)
93,074

(479)
243
—
—
—
—

—
—
—
—
—
—

—
—
—
—
—
—

—

—

—

—

—

—

—

—

8,562

—

629
—
—

—
—
—

13,498
0
—

—
—
—

—
—
—

—
—
—

—
—
—

—
—
—

—
—
—

—
15
(48,191)

Balance as at February 29, 2004

172,922$274,399$461,728$50,014$877,659$309$126,161$(21,642)$6,975$(49,013)

The accompanying notes are an integral part of these statements.

41notes to non-consolidated financial statements
Notes to Non-Consolidated Financial Statements

ONWARD KASHIYAMA Co., Ltd.

1. Basis of Presentation of the Non-Consolidated Financial Statements
The accompanying non-consolidated financial statements have been prepared from the accounts maintained by ONWARD
KASHIYAMA Co., Ltd. (the “Company”), in accordance with the provisions set forth in the Japanese Commercial Code (the“Code”) and the Securities and Exchange Law, and in conformity with accounting principles and practices generally accepted inJapan, which are different in certain respects from the application and disclosure requirements of International AccountingStandards.
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 of operations 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 which approximates thefirst-in first-out cost method. Merchandise held at retail stores is valued at the retail cost method.
When the net realizable value of certain classes of inventories (consisting primarily of seasonal merchandise which remains
unsold after the end of such seasons) is substantially less than the carrying value (cost), and the decline of value is not expected tobe recovered in the near future, appropriate write-downs are recorded on such inventory items. The amount of write-down isdetermined based on the experience of sales of merchandise, similar to those unsold items during the immediately preceding
three years. At February 28, 2003 and February 29, 2004, recorded write-down was ¥6,243 million and ¥7,621 million ($69,521
thousand), respectively.
(2) Investments in Securities
Refer to Note 2. (5) to the consolidated financial statements.
(3) Derivative Transactions
Refer to Note 2. (6) to the consolidated financial statements.
(4) Hedge Accounting
Refer to Note 2. (7) to the consolidated financial statements.
(5) Property, Plant and Equipment
Refer to Note 2. (8) to the consolidated financial statements.
(6) Amortization
Refer to Note 2. (9) to the consolidated financial statements.
(7) Income Taxes
Refer to Note 2. (10) to the consolidated financial statements.
(8) Allowances
An allowance for bad debts is provided for estimated losses on known bad debts and doubtful accounts at the balance-sheet
date.
Accrued bonuses to employees is 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 benefit is 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.

42

Until the year ended February 28, 2001, the Company provided for accrued retirement benefits (unfunded) in an amount equivalent to 100% of the liabilities payable to all employees eligible for such benefits upon their voluntary retirement at the balance-sheet
date, less the accumulated balance of fund assets for the pension plan.
As at February 28, 2001, fund assets aggregated ¥6,813 million, with the past service liabilities being amortized over a six-year
period.
Effective from the year ended February 28, 2002, the Company adopted the “New Accounting Standard for Retirement
Benefits.” The unrecognized difference arising from adopting the new standard (the “transition adjustment”) of ¥13,940 million has
been fully amortized for the year ended February 28, 2002. Unrecognized prior service costs are amortized on a straight-line basis
over 10 years, which is within the related employees’ average remaining service years. Unrecognized actuarial differences areamortized on a straight-line basis over 10 years, which is within the related employees’ average remaining service years from theyear following the one in which they arise.
Following the enactment of the Defined Benefit Corporate Pension Plan Law in Japan, on September 25, 2003, the Company
obtained approval from Japan’s Ministry of Health, Labour and Welfare for exemption from the future benefit obligation withrespect to the portion of the Employee Pension Fund that the Company operates on behalf of the Government (the so-called substitutional portion). The Company applied transitional provisions as prescribed in paragraph 47-2 of the “Practical Guidelines of
Accounting for Retirement Benefits (Interim Report)” (Accounting Committee Report No. 13 issued by the Japanese Institute ofCertified Public Accountants) and recognized a gain in the amount of ¥8,616 million ($78,601 thousand) for the settlement of thesubstitutional portion was recognized at the date of approval from Japan’s Ministry of Health, Labour and Welfare.
The amount of plan assets to be transferred to the Government was computed at ¥19,705 million ($179,754 thousand) as ofFebruary 29, 2004.
Accrued retirement benefits for directors and statutory auditors is provided for at the amount required at the balance-sheet
dates in accordance with the Company’s internal rules.
While the Company has no legal obligation, it is the customary practice in Japan to make lump-sum payments to a director or a
statutory auditor upon retirement under the approval of the general meeting of shareholders.
(9) Accounting for Leases
Refer to Note 2. (12) to the consolidated financial statements.
(10) Accounting for Consumption Tax
Refer to Note 2. (13) to the consolidated financial statements.
(11) Dividends
Refer to Note 2. (14) to the consolidated financial statements.
(12) Net Assets, Net Income and Dividends per Share
Refer to Note 2. (15) to the consolidated financial statements.
(13) Reclassification of Accounts
Certain prior year amounts have been reclassified to conform with the current year’s presentation.
(14) United States Dollar Amounts
Amounts in U.S. dollars are included solely for the convenience of readers outside of Japan. The rate of ¥109.62=US $1, the rateof exchange as of February 29, 2004, 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.

43

3. Inventories
Inventories at February 28, 2003 and February 29, 2004, consisted of the following:Thousands of
U.S. dollars

Millions of yen

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

2003

2004

2004

¥14,382
1,469
844
197

¥17,175
1,637
885
217

$156,684
14,934
8,073
1,976¥16,892¥19,914$181,667

4. Derivative Transactions
Derivatives are used in order to hedge foreign exchange market risk on the transactions and balances which occur in the normal
course of business. Derivatives are not used for speculative purposes or for highly leveraged transactions. Derivatives are executed with creditworthy financial institutions, and the Company does not anticipate significant losses due to the nature of its counterparties.
The Company and its consolidated subsidiaries applied hedge accounting for all derivative transactions as of February 28, 2003
and February 29, 2004, therefore, no market value information is disclosed.
5. Property, Plant and Equipment
The Japanese tax regulations allowed a company to defer capital gains on the sales of real property if the company intended tooffset such gains against the cost of newly acquired fixed assets. When such accounting was followed, the cost of the new fixed
assets was reduced to the extent of the deferred capital gains thereby affecting related depreciation charges and accumulated
depreciation.
Property, plant and equipment at February 28, 2003 and February 29, 2004, were reduced by ¥8,752 million and ¥8,658 million($78,983 thousand), respectively, representing accumulated deferred gains from eligible prior sales.
6. Revaluation of Land
Refer to Note 9 to the consolidated financial statements.
7. Lease Transactions
The Company’s finance lease contracts which are not deemed to transfer the ownership of the leased assets to lessees are notcapitalized, which is permitted by the Japanese accounting principles. Certain key information on such lease contracts of theCompany for the years ended February 28, 2003 and February 29, 2004, is as follows.
Assumed data as to acquisition cost, accumulated depreciation, net book value and depreciation expense of the leased assets,
which included the portion of interest thereon, are summarized as follows:
Millions of yen

Thousands of U.S. dollars

2003
Tools, furniture,and fixtures

Other

Acquisition cost
Accumulated depreciation¥1,467(678)

Net book value¥0,789

44

2004
Total

Tools, furniture,and fixtures

Other

¥326
(116)

¥1,793(794)¥1,407(786)¥210¥0,999¥0,621

2004
Total

Tools, furniture,and fixtures

Other

Total

¥373
(184)

¥1,780(970)$12,832(7,171)$3,399(1,675)$16,231(8,846)¥189¥0,810$05,661$1,724$07,385

The scheduled maturities of future lease payments on such lease contracts as of February 28, 2003 and February 29, 2004, areas follows:
Thousands of
U.S. dollars

Millions of yen

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

2003

2004

2004

¥395
604

¥382
428

$3,483
3,902

¥999

¥810

$7,385
Thousands of
U.S. dollars

Millions of yen

Lease expenses for the year
Depreciation

2003

2004

2004

¥441
441

¥419
419

$3,8183,818

8. Investments in and Advances to Subsidiaries
Shares of subsidiaries with market value at February 28, 2003 and February 29, 2004 are as follows:
Millions of yen
2003

Shares of subsidiaries

Book
value

Marketvalue¥508¥7,536

Thousands of U.S. dollars
2004

Difference

Book
value

Marketvalue¥7,028¥280¥13,529

2004
Difference

Book
value

Marketvalue

Difference¥13,249$2,558$123,421$120,863

9. Income Taxes
Deferred tax assets and liabilities as at February 28, 2003 and February 29, 2004, consisted of the following elements:
Millions of yen

Deferred tax assets:
Valuation loss on inventories
Evaluation loss on investments in subsidiaries
Excess amount of tax-deductible accrued employees’ retirement benefits
Allowance for directors’ retirement benefits
Other
Total deferred tax assets
Deferred tax liabilities:
Gain on securities contributed to an employees’ retirement benefit fund
Provision for deferred capital gains on real property
Other

Thousands of
U.S. dollars

2003

2004

2004

¥01,410
2,841
8,496
753
3,099

¥01,713
4,303
5,519
540
6,752

$015,626
39,25150,3504,929
61,595

16,59918,827

171,751(3,589)(25)(132)(3,474)(23)(524)(31,691)(212)(4,780)Total deferred tax liabilities(3,746)(4,021)(36,683)

Net deferred tax assets¥12,853¥14,806$135,068

Reconciliation between the statutory tax rate and the effective tax rate for the year ended February 28, 2003 is as follows:%
2003

Statutory tax rate
(Reconciliation)
Nondeductible items (entertainment expenses, etc.)
Nontaxable items (dividend income, etc.)
Inhabitant tax per capita basis42.0)%
2.3
(0.5)
1.1

Effective tax rate44.9)%The reconciliation of the difference between the statutory tax rate and the effective tax rate for the year ended February 29,
2004 has not been disclosed because such difference is immaterial.
Please also refer to Note 8 to the consolidated financial statements.

45

Legislation was issued at March 31, 2003, which amended a part of local taxes. Thus, the statutory tax rate which was used to
calculate deferred tax assets and deferred tax liabilities for temporary differences that are expected to reverse beginning March 1,
2005, was changed accordingly from 42.0% to 40.7%. As a result, deferred tax assets, net of deferred tax liabilities, as ofFebruary 29, 2004 decreased by ¥290 million ($2,641 thousand), income tax expense—deferred for the year then ended
increased by ¥290 million ($2,641thousand), and net revaluation loss of land decreased by ¥53 million ($479 thousand).
10. Commitment and Contingent Liabilities
The Company was contingently liable as a guarantor for certain affiliates’ bank loans. The outstanding balance guaranteed as at
February 28, 2003 and February 29, 2004, aggregated ¥19,567 million and ¥17,419 million ($158,900 thousand), respectively.
11. Legal Reserve and Appropriation of Retained Earnings
Refer to Note 11 to the consolidated financial statements.
12. Subsequent Events
Refer to Note 12 to the consolidated financial statements.
13. Net Assets, Net Income and Dividends per Share
Net income per share of common stock is computed based upon the weighted-average number of shares of common stock outstanding during each year. Cash dividends per share shown for each year in the accompanying Non-Consolidated Statements ofIncome and Retained Earnings represent dividends declared as applicable to the respective years rather than those paid during
the years.
Effective from the year ended February 29, 2004, the Company and its subsidiaries applied the Financial Accounting Standards
No. 2 “Financial Accounting Standards for Earnings per Share” and the Financial Accounting Standards Implementation Guidance
No. 4 “Implementation Guidance for Accounting Standards for Earnings per Share” issued by Accounting Standard Board ofJapan on September 25, 2002.
Basis for the calculation of net income per share for the year ended February 29, 2004 is as follows:
Millions of yen

Thousands of
U.S. dollars

Net income
Less: Components not pertaining to common shareholders
Bonuses to directors and corporate auditors¥10,203$93,074(421)(3,841)

Net income pertaining to common stock¥09,782$89,233

Average outstanding shares of common stock

169,755,258 shares

By applying the previous method, the amounts of net income per share and net assets per share for the year ended February
29, 2004, would be calculated as follows:
Net income per share
Net assets per share

46

Yen

U.S. dollars¥0,057.6
1,125.5$00.526
10.267

report of independent accountants
Report of Independent Accountants

To the Board of Directors and Shareholders of ONWARD KASHIYAMA Co., Ltd.:We have audited the accompanying non-consolidated balance sheets of ONWARD KASHIYAMA Co., Ltd., as of February 28,
2003 and February 29, 2004, and the related non-consolidated statements of income and retained earnings, and of shareholders’equity for each of the three years in the period ended February 29, 2004, all expressed in Japanese yen. These non-consolidated
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these
non-consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards, procedures and practices generally accepted and appliedin Japan. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the nonconsolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the non-consolidated financial statements. An audit also includes assessing theaccounting principles used and significant estimates made by management, as well as evaluating the overall non-consolidated
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the non-consolidated financial statements referred to above present fairly, in all material respects, the nonconsolidated financial position of ONWARD KASHIYAMA Co., Ltd., as of February 28, 2003 and February 29, 2004, and theresults of its operations for each of the three years in the period ended February 29, 2004, in conformity with accounting principles and practices generally accepted in Japan (see Note 1).
The amounts expressed in U.S. dollars, which are provided solely for the convenience of the reader, have been translated on thebasis set forth in Note 2. (14) to the accompanying non-consolidated financial statements.

ChuoAoyama PricewaterhouseCoopers
Tokyo, JapanMay 27, 200447

board of directors
Board of Directors<DIRECTORS><CORPORATE AUDITORS>

Executive Officers

ChairmanStanding Corporate Auditors

Akio Date

Akira Baba*

Yasumitsu Miyamoto

Nobutake Matsuo

Tenji Tanaka

Kisaku Uragami

President

Kinshi Kurihara

Hiroshi Imai

Takeshi Hirouchi*

Akito Yamamoto

Toshio Tobita
Shigeru Kamakari

Vice President
Kenji Takada*

Yoshihiko Sato
<OFFICERS>

Hideo Matsumoto

Managing Executive Officers

Kenichiro Tamai

Senior Managing Directors

Yoshiaki Hanada

Hiroshi Ishida

Fumiyasu Yamashita

Ryuji Horie

Tsutomu Hagihira

Masaru Kusaki

Tetsuji Wada

Eiji Tono

Kentaro Mizuno

Masayoshi Tomura

Managing Directors

Masabumi Kiyohara

Masayoshi Harazawa

Masao Ohno

Tadayoshi Kobayashi

Minoru Tanaka

Kazuya Baba

Susumu Maeda

Hitoshi Aoyama

Isao Yamane

Wataru Sakai

Shinichi Yokoyama

Masaaki Yoshizawa

Tsutomu Ohnuma

Takahisa Suzuki

Shigeru Uemura

Hiroaki Yamada

Akinori Baba

* Representative Director
As of May 27, 2004

48

organization chart
Organization Chart

Board of Directors
Board ofCorporate
Auditors

Onward Apparel Group Production Officer

Chairman
Onward Apparel Group New Distribution Business Officer

Onward GroupManagement Council
President

Men’s Office Clothes Business Group
Men’s Casual Clothes Business Group

Vice President (Onward
Apparel Group Sales Officer)

Sportswear Business Group

Western Japan Region
Branches Supervisor

Women’s Fashion Business GroupJIYUKU Business Group

Supply Chain
Management
Promotion Division

Onward Group Supply
Chain Management
Promotion Officer

JANE MORE Business GroupManagement
Planning Division

Management
Planning Office

KUMIKYOKU Business GroupManagement
Information
Division

Advertising Division

NIJYUSANKU Business GroupICB Business Group
Jean-Paul Gaultier Business GroupPaul Smith Business Group
Secretarial OfficePublic Relations
Division

Business
Coordination
Headquarters

MICHAEL KORS Business Group
J. Press Business GroupCK Calvin Klein Business Group

Customer Service
OfficeFamily Apparel Business GroupNew Designer Fashion
Grand Prix Committee

Lifestyle Goods Business Group

Youth Apparel Business GroupNew Business Group
General Affairs
Division
Onward ResearchInstitute
Accounting Division

Luxury Brand Business Group
Men’s Apparel ProductDevelopment Office
Women’s Apparel ProductDevelopment Office

Tokyo Branch
Kanto Branch

Brand Promotion Group
Osaka Branch

Human Resources
Division

Quality Improvement Office
Fukuoka Branch
Production Division
Nagoya Branch
New Business Distribution Officer
Sapporo Branch
Sales Promotion OfficeSendai BranchInternational Operations
Business Group

Hiroshima Branch

Trading Business Group

Trading Business
Division

Kimono Business Group
Kimono Sales
Business Division

As of May 27, 200449

principal subsidiaries
Principal Subsidiaries

OVERSEAS SUBSIDIARIES
J. PRESS INC.
262 York Street,
New Haven, CT 06511, U.S.A.
Tel: (1) 203-772-1310
ONWARD KASHIYAMAFRANCE S.A.
6, Rue Vivienne,
75002 Paris, France
Tel: (33) 1-5504-8787
ONWARD KASHIYAMA
U.S.A. INC.
530 Seventh Avenue,
29th Floor,
New York, NY 10018, U.S.A.
Tel: (1) 212-997-3600
ONWARD KASHIYAMAHONG KONG LTD.
Unit 1208-9, Lippo Sun Plaza,
28 Canton Road, T.S.T.,
Kowloon, Hong Kong
People’s Republic of China
Tel: (852) 2367-2055, 2721-7074
ONWARD KASHIYAMA U.K. LTD.
47, Conduit Street,
London W1S 2YP, U.K.
Tel: (44) 20-7494-2074
GIBO’ CO. S.p.A.
Via Cassia 69, 50029 Tavarnuzze,
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<APPAREL AND TEXTILEPRODUCTS>IMPACT 21 CO., LTD.

Tel: (86) 21-6466-6466
OAK CO., LTD.
ONWARD TRADING (SHANGHAI)
CO., LTD.

CHACOTT CO., LTD.

5F Jinjiang Dickson Center,

DONNA KARAN JAPAN K.K.

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

BUS STOP CO., LTD.
PERSONAL ORDER JAPANCO., LTD.

499 Seventh Avenue,
7th & 8th Floors, South Tower,
New York, NY 10018, U.S.A.

<SERVICES>

Tel: (1) 212-629-6100

ACROSS TRANSPORT CO., LTD.

ONWARD KASHIYAMAONWARD CREATIVE CENTER

KOREA CO., LTD.

CO., LTD.

U-SAM BLDG., 2F, 584-1 Shinsa-Dong,
Kangnam-ku, Seoul,
Republic of Korea

ONWARD LIFE DESIGNNETWORK CO., LTD.

Tel: (82) 2-548-5841

EXCEL CO., LTD.

HORLOGE SAINT BENOIT S.A.

BOOKLET CORP.

22 Rue Saint Benoit,
75006 Paris, France
Tel: (33) 1-4544-1118<RESORTS>

ONWARD BEACH RESORTO & K CO., LTD.

GUAM, INC.
445 Governor Carlos G. Camacho Road,
Tamuning, Guam 96911, U.S.A.
Tel: (1) 671-647-7777

ONWARD MARINE CO., LTD.
ONWARD BEACH RESORT
CO., LTD.

FREED OF LONDON LTD.
94, St. Martin’s Lane,
London WC2N 4AT, U.K.
Tel: (44) 20-7240-0432

50

DOMESTIC SUBSIDIARIESAs of May 27, 2004

corporate data
Corporate Data
(As of February 29, 2004)

Head Office10-5, Nihonbashi 3-chome,

Major Shareholders

Chuo-ku, Tokyo 103-8239, Japan

Percentage ofTotal Shares Issued

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

Japan Trustee Services Bank, Ltd.

17.80%

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

The Master Trust Bank of Japan, Ltd.

6.79%

Kashiyama Scholarship Foundation

5.04%

Trust & Custody Service Bank, Ltd.

4.21%

Nippon Life Insurance Company

3.66%

The Dai-ichi Mutual Life Insurance Company

3.65%

Nomura Securities Co., Ltd.

2.18%

Isetan Company Limited

2.12%

State Street Bank and Company

1.64%

The Sumitomo Trust & Banking Co., Ltd.

1.62%

Established

September 1947

Paid-in Capital¥30,080 million

Common Stock

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

Number of Shareholders 9,166
Stock Listings

Tokyo, Osaka, and Nagoya stock
exchanges

Transfer Agent

Number of Employees

UFJ Trust Bank Ltd.

Distribution of Ownership among Shareholders

1-4-3, Marunouchi, Chiyoda-ku,(On a number of shares basis)

Tokyo 100-0005, Japan

Other Japanese corporations
11.0%

1,689

Foreign institutions and others
21.6%

Japanese financial institutions
53.2%

Japanese securities companies
2.6%

Japanese individuals and others
11.6%

Stock Price Movement(Thousands of shares)

(Yen)

4,000

1,600

3,000

1,200

2,000

800

1,000

400

0

0
Mar.
2003

Apr.

May

June

July

Aug.

Sept.

Oct.

Nov.

Dec.

Jan.
2004

Feb.

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

Onward Kashiyama Co., Ltd.

Head Office: 10-5, Nihonbashi 3-chome, Chuo-ku, Tokyo 103-8239
Tel: (81) 3-3272-2317

Annual Report 2004

Printed in Japan