ANNUAL REPORT2009
Year Ended February 28, 2009

Contents
01

Financial Highlights

02

A Message to Our Shareholders

05	Onward’s Brand-Leveraged
Management Strategy
11	Business Overview
12	Corporate Social Responsibility
14

Corporate Governance

15

Board of Directors

15

Organization Chart

16

Consolidated Six-Year Summary

17	Management’s Discussion andAnalysis
20

Consolidated Balance Sheets

22	Consolidated Statements ofOperations
23	Consolidated Statements of
Changes in Net Assets
25	Consolidated Statements ofCash Flows27	Notes to Consolidated
Financial Statements
47	Report of Independent Auditors
48

Principal Subsidiaries

49

Corporate Data

ProfileThe Onward Group has defined its business domain as “aworld of fashion that gives refreshment and beauty to people’s
lives” and proposes “fashions” that become an integral part of
all aspects of our living culture. By creating new lifestyles andvalues, the Group contributes to the enrichment of life for all
people. The Onward Group comprises 106 companies inJapan and the rest of the world (as of February 28, 2009), andits principal businesses are the planning, production, and salesof textile products, including fashion items for women, men,and children. The Group’s activities also include services andresort businesses.
ONWARD HOLDINGS CO., LTD., which traces its lineage back to 1947, came into being in September 2007, when
the Onward Group made the transition to a holding company
structure––to strengthen its competitiveness and implement

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

a growth strategy––and changed the name of the Group’s
core company, ONWARD KASHIYAMA CO., LTD., to
ONWARD HOLDINGS. Since its founding, the Onward
Group has been a top apparel manufacturer in Japan and has
played a leading role in the fashion industry. In May 2005,
global brand JOSEPH and, in October 2008, the JIL
SANDER brand became members of the Onward Group, as
the Group moved forward to expand the scope of its operations to become a truly global corporation. Looking to the
future, the Group will continue to strengthen its major core
brands and develop new brands as it works to acquire attractive brands through aggressive M&A activities and aim for
global growth.

Financial Highlights

ONWARD KASHIYAMA CO., LTD. and Subsidiaries
Years ended February 29, 2008 and February 28, 2009
		Millions of yen

Thousands of
U.S. dollars

2008

2009

2009

At year-end:
Total current assets
Total current liabilities
Short-term loans
Total shareholders’ equity¥112,519
93,321
25,677
213,625¥ 98,946
92,36928,252
178,023$1,011,614
944,372
288,846
1,820,090

For the year:
Net sales
Operating income
Net income (loss)¥287,032
18,628
12,214¥261,006
9,084(30,895)$2,668,500
92,874(315,868)

Yen

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

U.S. dollars

¥76.5
30.0

¥(197.21)
30.0

6.1
6.5

(17.6)
3.5$(2.02)0.31

Note: Yen amounts have been translated, for convenience only, at ¥97.81=US$1, the approximate exchange rate on February 28, 2009.

Net Sales

Net Income (Loss)

Total Shareholders’ Equity(Millions of yen)
Years ended February 28 or 29(Millions of yen)
Years ended February 28 or 29(Millions of yen)
At February 28 or 29

350,000

15,000240,000

12,000200,000

9,000

160,000

6,000

120,000

3,000

80,000040,000300,000
250,000
200,000
150,000
100,000
50,0000’05 ’06 ’07 ’08 ’09-60,000’05 ’06 ’07 ’08 ’09

0’05 ’06 ’07 ’08 ’09

O N WA R D H O L D I NG S CO . , LT D .

01

A Message to Our Shareholders

T

he Onward Group has set the objective of establishing a newpath to growth by promoting the creation of brand value

and implementing its Brand-Leveraged Management. The businessstrategy of the Onward Group is to achieve stable expansion inearnings in the domestic market while aggressively developing
overseas business operations.

Performance in Fiscal 2009
During the fiscal year ended February 28, 2009, net sales amounted to ¥261,006
million, 9.1% lower than for the previous fiscal year, and operating income was¥9,084 million, 51.2% lower than for the prior year. The Group reported a consolidated net loss of ¥30,895 million compared with net income of ¥12,214 million in
the previous fiscal year.
During the fiscal year under review, the financial crisis triggered by the collapse of
Lehman Brothers grew steadily worse and began to have a detrimental impact on
the real economy. In the apparel industry, conditions were the most challenging everexperienced. For the Onward Group, as a result of the weakness in sales at department stores, which are the Group’s principal distribution channel, ONWARD
KASHIYAMA CO., LTD., reported declines in sales and net income, as just mentioned above. In overseas activities, in Europe, which are the core of the Group’s
operations outside Japan, the market for luxury items shrank suddenly in the second half of the fiscal year, and this, together with other factors, presented severe
challenges for operating results.
As a result of the sharp decline in stock prices, the Group reported ¥22.6 billion in
valuation losses on investment securities and ¥11.6 billion in impairment losses on
goodwill among extraordinary losses.

Takeshi Hirouchi
Chairman

No Change in Management Directions
At present, the Onward Group is implementing its Three-Year Medium-Term
Management Plan (covering the period from the year ended February 2009 (fiscal
2008) through the year ending February 2011 (fiscal 2010)), which is aimed at moving onto a new growth path. Under this three-year management plan, the Group’s
objective is to focus its management on its brands to create additional brand value
as it works to secure stable expansion in profitability in domestic business operations and aggressively expand its overseas activities.

02

A nnual R epor t 2009

Reflecting the deterioration in the domestic economy, the business environment
confronting the Group is challenged as consumers are increasingly motivated todefend their living standards, and trends in consumer spending are reflecting underlying demographic trends toward fewer children per household and aging of the
population as well as changes in consumer values. In the apparel industry also,­consumer confidence has ebbed, and, as a consequence of trends toward moresimilar, less-attractive products and other factors, market conditions continue
to be stagnant.
Looking ahead, as in the past, the Onward Group will continue to offer productsthat are highly fashionable, feature high quality, and offer value for price. As a consequence of the concentration of management resources on Onward’s major core
brands, including NIJYUSANKU and JIYUKU, we have been successful in achieving
a certain level of results even in the midst of weakness in the market. What is important in the fashion business is to continue to create products that are fresh, attractive, and give consumers a sense of excitement.

Priority Measures for Increasing Earnings
The Onward Group will move ahead with measures to increase efficiency and aim toincrease earnings even in a challenging environment. To accomplish this, we will
implement the following priority measures.
1. Focus Resources on Core Brands
We will polish our core brands and work to evolve them further to establish
a stronger market presence.
2. Strengthen Capabilities for Product Planning that Anticipates Market
Needs
With the keywords of “mode” (fresh pursuit of contemporary fashion), “quality” (further progress of quality), and “value for price” (offering value for price),
we will continue to create goods that are fresh and attractive.
3. Offer Something New to the Market in “New Brands”
We will offer new concepts to respond to the changing values of consumers.

Kentaro Mizuno
President

4. Accelerate Our Growth Strategy through M&A and Synergies
We will work to accelerate expansion by pursuing our M&A growth strategy
and realizing synergies among existing Group companies.

O N WA R D H O L D I NG S CO . , LT D .

03

Continued Expansion Strategy in Overseas Activities
We will move forward aggressively in the management of our overseas activities,
with Europe as the focal point of our growth strategy.
We will endeavor to realize powerful synergies among Group companies that will
include having the JIL SANDER Group make use of the production platform of the
GIBO’ CO. Group. As we work to realize these synergies to the fullest, we will
endeavor to establish them as top global luxury brands.
In the JOSEPH Group, the new CEO who joined us in May 2008, Sara Ferrero,
is moving forward steadily with the implementation of a new growth strategy andresults of the introduction of new product lines and major renovations of street-level
stores.
At the same time, in Asia outside Japan, we will continue our expansionary policies by responding swiftly to changing market trends, focusing especially on the
rapidly growing Chinese market.

Solid but Also Aggressive
For the fiscal year ending February 2010, the Onward Group is planning for net salesof ¥252.6 billion, a decline of 3.2% from the previous fiscal year; operating incomeof ¥8.0 billion, 11.9% lower than in the prior year, and net income of ¥3.6 billion­(versus a net loss of ¥30,895 million in the previous fiscal year).
Onward believes that allocating a portion of profits to shareholders is one of its
more important priorities. Our basic policy is to set a target payout ratio of 35% ormore and to make stable and appropriate distributions of profits, taking account ofour performance. For fiscal 2010, we have set the cash dividend for the full fiscal
year at ¥30 per share. In addition, we intend to conduct buybacks of Company
shares, taking account of funding demand and other issues.
The Onward Group will continue to work to secure stable expansion in profitability
in domestic business operations and aggressively expand its overseas activities,
with the objective of increasing corporate and shareholder value.
We wish to express our heartfelt thanks to you, our shareholders, for your continued understanding and support.

May 2009

Takeshi Hirouchi, Chairman

04

A nnual R epor t 2009

Kentaro Mizuno, President

On ward’s Br and-Le v er aged Management S tr at egy

Three-Year Medium-Term Management Plan
The Onward Group is currently aiming to move onto a firm
growth path through the implementation of its Three-Year
Medium-Term Management Plan covering the three-year period from fiscal 2008 through 2010. Following the direction set
by this plan, the Group will continue to manage its businessactivities actively.

Business Policies of the Onward Holdings Group

Implementing expansionary strategies for Group companies
Realizing synergies among businesses
Expanding business domains
Contributing to stakeholders

Quantitative Objectives for Fiscal 2011

Net sales¥350,000 million

Operating income¥30,000 million (an 8.6% ratio of operating income to net sales)

Ordinary income¥35,000 million (a 10.0% ratio of ordinary income to net sales)

Net income¥18,000 million (a 5.1% ratio of net income to net sales)

Return on equity

8% or higher

Domestic vs. Overseas Operations
Domestic operations
Sales: ¥280,000 million

Operating income: ¥21,000 million (a 7.5% ratio of operating income to sales)

Overseas operations
Sales: ¥100,000 million

Operating income: ¥9,500 million (a 9.5% ratio of operating income to sales)

O N WA R D H O L D I NG S CO . , LT D .

05

Domestic Strategy for Apparel-Related Businesses

Creating Brands with Presence

Focus Resources on Major Core Brands
To strengthen major core brands, we will polish them thor-

Also, we want to draw attention and create a buzz byoughly to increase their brand value and establish them as

implementing major advertising and publicity campaigns tobrands with a strong presence in the market by working topromote our products and to stimulate a desire among con-create fresh and attractive products through strengthening oursumers for our brands and their market presence. Since lastplanning and production capabilities. Taking account of mar-year, for promoting NIJYUSANKU and JIYUKU, we have fea-

ket trends, we will endeavor to differentiate our products by

tured popular actresses in our advertisements, chosen fromstrengthening our capabilities for product design, our produc-

those appealing to the targeted customer segments, and thistion technologies, and our capabilities for procurement as wellhas been quite effective. Going forward also, we will commu-

as, thereby, work to further enhance the originality and creativ-

nicate effectively the value of our brands and work to signifi-

ity of our brands.

cantly raise their value as major core brands.

Each year, the Textile Research Newspaper (Senken
Shimbun), in its Nationwide Department Store Buyers
Awards, selects the brands that contributed most to
the sales of Japan’s major department stores. In thefiscal 2008 awards, NIJYUSANKU won the first prizein the young career division and JIYUKU the first prizeJIYUKUin the missy and misses division.
NIJYUSANKU

06

A nnual R epor t 2009

Improving Capabilities for Design that Anticipates Market Needs
We are strengthening our product design capabilities underSpecifically, during the fiscal year ended February 2008,

the keywords of “mode” (fresh pursuit of contemporary fash-

we developed the materials for the shrunken jersey one-pieceion), “quality” (further progress of quality), and “value for price”

dresses we introduced in the JIYUKU line jointly with a textile(offering value for price). Our aim is to create products thatyarn manufacturer, and it proved to be a hit item, with sales

are fresh and appealing and generate excitement amongof about 10,000. This shows the importance of beginning theour customers.

design process from the materials research and development
stage and applying the results in product design.

Offering “Something New” to the Market with New Brands
In recent years, as a result of the growing diversity of retailate among purchase channels depending on their objectives.

venues and changes in lifestyles, the trends in apparel buying

With this trend toward selective consumption in mind, theamong consumers in recent years have clearly been toward

Onward Group is offering new concept brands that respond“selective consumption” patterns where consumers differenti-

to changes in consumer values.

Department Stores

New Distribution Channels(Other than Department Stores)

In its sales through department stores, the Onward Group will

At shopping centers located in the suburbs and close to

take full account of what consumers want from department

urban areas, there have been trends toward oversupply andstores, which is products that offer “a comfortable sense of

the sameness of merchandise because of growth in the num-style” and give them “confidence” and, by drawing on theber of shops. As a result, consumers have begun to examine

strengths of department stores and apparel manufacturers,

this merchandise with more critical and selective eyes.

will offer original brand products that feature department store

Onward is proceeding with the development of casual-brandquality at relatively attractive prices.

items with the keywords “trendy” and “value for price.” Also,

The new brand “FØRSTE,” for women in their 20s, which will

for buildings located near transportation centers housing a

make its debut this fall, returns to the basics that items sold in

range of stores and more upmarket “fashion buildings,”

department stores should offer—namely, “a comfortable sense

Onward is developing new brands.

of style” and “confidence”—and addresses issues head onthat Onward and department stores have in common.

In addition to these initiatives, the Onward Group acquired
the rights to the trendy U.S. fashion shop “Opening Ceremony,”
and the first store will be opened in Japan in the Shibuya Seibu
Movida, located in Tokyo’s Shibuya district, in August 2009.
In addition, the Group acquired Creative Yoko co., LTD., acreator of apparel for pets,
and is working to develop
products in collaboration with
Onward’s Japan-originated

The new brand FØRSTE will make its debut in fall 2009.

brands.

Joint press conference with representativesof U.S. fashion shop Opening Ceremony

O N WA R D H O L D I NG S CO . , LT D .

07

Apparel-Related Business Operations (Overseas Strategy)

Establishing Global Brands

Strategy for Overseas Apparel
The Onward Group has subsidiaries in the world’s leading
fashion centers, including New York, Paris, Milan, London,
Hong Kong, and Shanghai and has established a store network encompassing these cities. At present, the keystones of
the Group’s overseas business operations are three companies that the Group has acquired: the GIBO’ CO. Group,
based in Italy; the JOSEPH Group, headquartered in the
United Kingdom; and the JIL SANDER Group.
Sales Targets for Fiscal 2010
Overall*¥270.0

Domestic¥222.3

Overseas¥47.7

Europe

¥38.5

Asia

¥6.0

Americas¥3.2*Total before eliminations among geographic areas.

08

A nnual R epor t 2009

(Billions of yen)Accelerating Growth Strategy through M&A and Synergies

EuropeEurope is the core of the Group’s international operations, and
the GIBO’ CO. Group and the JOSEPH Group are steadily
expanding their activities as they have moved forward with theformation of an overall platform for planning, production, andmarketing. Following the acquisition of the JIL SANDER
Group, the growth potential of the Onward Group’s overseas
business operations has increased.

In the European region, the Onward Group is working torealize synergies among its Group members, with the GIBO’JIL SANDER’s 2009
spring and summer
collection

CO. Group—which has functions and capabilities as a luxury
apparel manufacturer—as a production platform.

The GIBO’ CO. Group has companies within its group thathave established reputations in manufacturing and marketingof exciting, top-quality fashion items, including fabrics, knits,
shoes, bags, and other products. Specific activities of thesecompanies are as follows. The JOSEPH Group is engaged in
manufacturing and sales of apparel, shoes, and bags; and JIL
SANDER is engaged in or planning the manufacturing of apparel(knit and woven) as well as shoes and bags.

JOSEPH’s Old Bond Street Store

GIBO’ CO.
Group

GIBO’ CO.
(manufacturing andsale of apparel)

CORPORATE(manufacturing andsale of apparel)

ERIKA(manufacturing of knitwear)

IRIS(manufacturing andsale of shoes)

FRASSINETI(manufacturing ofbags)

JOSEPH

u

—

—

u

u

JIL SANDER—

From fall/winter 2009

From fall/winter 2009

From spring/summer
2010

From spring/summer
2010

Note: “O” indicates JOSEPH is already engaged in this activity, the season indicated for JIL SANDER is the scheduled time of market entry, and “—” indicates no transactions at present.

O N WA R D H O L D I NG S CO . , LT D .

09

Asia
In Asia, the Onward Group is implementing measures aimed

In China, in addition to the marketing of national (Japanese-

at increasing profitability from its production and marketing

originated) brands, such as ICB, NIJYUSANKU, NIJYUSANKU

activities, focusing especially on the high-growth Chinese mar-

HOMME, and rosebullet in department stores, the Group isket, and will continue its growth policy.

also expanding sales of its overseas brands, including
JOSEPH. In addition, the Group is beginning to adopt thestrategy it has taken in Japan of introducing brand strategies
for specific distribution channels. For example, in September
2008, the Group introduced the “anysis” brand for the shopping center distribution channel and is now engaging in fullscale activities to enter distribution channels other thandepartment stores. Looking ahead, the Group will keep
abreast of market changes and continue to introduce new
brands.

“rosebullet” brand apparel on display in Shanghai’s Pacific Department StoreThe Americas
In the United States, J. PRESS is concentrating on retail business and Internet sales with the objective of increasing profitability by raising sales per store.

J. PRESS New York store

10

A nnual R epor t 2009

Business Overview
Apparel Business(Manufacturing and Marketing of Men’s Fashions, Women’s Fashions, and Other Products)
Sales of the apparel business declined 8.9% from the previous fiscal year, to ¥245,433 million, for the fiscal year under review.

EMen’s Fashions
Consolidated sales of men’s fashions were ¥58,259 mil-Sales of Men’s Fashions

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

100,000

180,000

lion, a decline of 13.9% from the previous fiscal year.
150,000

80,000120,000
60,000

EWomen’s Fashions
Consolidated sales of women’s fashions were ¥143,976
million, 9.8% lower than in the previous year.

90,00040,00060,00020,000030,0000’05 ’06 ’07 ’08 ’09’05 ’06 ’07 ’08 ’09

EChildren’s Fashions, Kimonos, and Other

Sales of Children’s Fashions,
Kimonos

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

Consolidated sales of children’s fashions were ¥7,150 million, 7.1% lower than in the previous fiscal year.

10,0008,000

Kimonos
Consolidated sales of kimonos were ¥2,980 million, which
was 7.7% lower than in the previous fiscal year.

6,000

4,000

2,000

0

’05 ’06 ’07 ’08 ’09
L Children’s fashions
L Kimonos

Service Businesses(Logistics-Related Business and Management ofResort Facilities)
Consolidated sales of service businesses amounted toService Businesses(Millions of yen)
Years ended February 28 or 29
50,00040,000¥23,260 million, 15.4% lower than in the previous fiscal year.
30,00020,00010,0000’05 ’06 ’07 ’08 ’09
O N WA R D H O L D I NG S CO . , LT D .

11Corporate Social ResponsibilityT

he Onward Group is aware that CSR management is important for being a company

Environmental Activities• Obtaining ISO14001 Certifications

that earns the trust of customers and other

ONWARD KASHIYAMA has

stakeholders and increasing its corporate value.

obtained and maintains

The Group engages in activities that preserve

ISO14001 certifications for its

the global environment and aims to be a compa-

head office in Nihonbashi andny that is caring and friendly toward humanits branch offices in Nagoya,beings and the natural environment.

Sendai, Sapporo, andFukuoka. Each of these

Environmental Policy­offices engages in activities

1. In all business activities at its business locations, theto make improvements inGroup works to preserve the natural environment byenvironmental management

promoting the conservation of energy and resources,

activities based on the “plan-

reducing waste, and promoting recycling.

do-check-act” (PDCA) cycle.

Branch office in Sendai

2. The Group has developed environmental management
systems based on ISO14001 and endeavors to improve• Promoting the Onward Green Campaign Activities

its environmental preservation activities and prevent

As part of activities to promote environmental management

pollution.

as one of the priority measures under its management policy,

3. The Group observes legally required matters relating to

ONWARD KASHIYAMA is promoting the Onward Greenthe environment and other required items agreed upon

Campaign. Under this campaign, ONWARD KASHIYAMA

in treaties and other agreements.

accepts the wide range of goods it has sold, including used

4. The Group establishes objectives and goals and works

men’s, women’s, and children’s appar-

to attain them as well as conducts periodic reviews ofel as well as sportswear, kimonos, andthese matters.

yukatas from its customers when they

5. The Group implements measures to make its environ-have ­finished using them at Onward

mental policies known to personnel working in and on

corners in department stores. As much

behalf of its business locations, takes steps to heighten

as possible, arrangements are madethe awareness of the significance and understanding of

to reuse ­or recycle these items withenvironmental preservation, and promotes the conduct

the aim of using scarce resources asof business activities that reflect care for human beings

effectively as possible.

Logo of Onward’s Green
Campaign Activities

and the natural environment.
6. The Group has made its environmental policy known tothe public.

Customers bring used articles for reuse and recycling.

12

A nnual R epor t 2009• Conducting Forest Preservation Activities
in the “Tosayama Onward ‘Rainbow Forest’”• Introduction of a Standardized Hanger Oricon System
for Department Stores

Onward Holdings concluded a partners agreement on

Onward has been making extensive use of a hanger system

November 14, 2008, with Kochi City in Kochi Prefecture andsince 1997 that uses standardized hangars from the sewing

the Forest Association of Kochi City regarding the Joint Foreststage through to delivery to department stores. These hang-

Development Project with Environmentally Advanced

ers are then reused when articles are collected and cleaned.

Corporations, which is being promoted by Kochi Prefecture.

In addition, instead of using corrugated boxes for delivery,

Under this project, environmental preservation activities are

Onward has introduced containers that can be folded forbeing conducted on about 45 hectares of forestland of Kochi

reuse extensively since 2001.

City named Tosayama Onward “Rainbow Forest.” With thecooperation of members of the local community, employees of
the Onward Group have begun activities that include the thin-• Development of Ecology Products that Can Be Washedin Waterning of the forest area. Through these forest-related activities,

Water treatment (WT) ­products can be washed ­by commercial

members of the Group have the opportunity to develop closer

laundering processes at washing and dry cleaning establish-

ties with members of the local community.

ments and thereby prevent
environmental pollution fromthe use of dry cleaning fluids.
ONWARD KASHIYAMA sells
GIGACOOL WT products in
all its principal men’s brandlines.

Logo of “Rainbow Forest”

Onward volunteers participate inforest-thinning activities.

• Development of• Portion of Sales Donated to Enviromental Foundation
ALMCS
ONWARD KASHIYAMA donated a portion of its sales for thefall and winter seasons of 2008 that resulted from a crossbrand promotional campaign of “gotairiku" and J. PRESS
brand men's fashions, ICB brand women's fashions, andKUMIKYOKU and J. PRESS brand children's fashions to theAustralian Landcare Management Certification System

Chemical Recycling
Uniforms
ONWARD TRADING CO.,WT men’s suits

LTD., is promoting “Earth Unit” fully recyclable uniforms bymaking proposals to collect used uniforms and return them totheir original materials, instead of discarding them after use.
As of January 2008, 11 of Japan’s leading companies had
adopted this proposal.

(ALMCS) in February 2009. ALMCS is using this donation in a
program to protect andimprove the soil environment.
Onward donated a portion ofsales to the ALMCS, an environmental preservation organization in Australia.

O N WA R D H O L D I NG S CO . , LT D .

13

Corporate Governance

Basic Approach to Corporate Governance
The Onward Group understands that responding promptly to changes
in the management environment and establishing corporate governance systems that enhance soundness, fairness, transparency, andcompliance are important management issues related to increasing
corporate value, or, in other words, shareholder value. We are working
to establish bonds of trust with all stakeholders, especially our shareholders, and improve our corporate governance by strengthening thefunctions of our management systems and those of the General
Meeting of Shareholders, Board of Directors, and Board of Auditors.

responsibility for compliance matters, has prepared a Compliance
Manual that takes the Onward Group Compliance Regulations as abasis and works to promote the creation and improvement of compliance systems for the Onward Group. The Onward Group Compliance
Committee works together with the Compliance Division to implement
appropriate activities for training and increasing the awareness ofcompliance issues. The committee and the division also work jointly toensure the Compliance Manual is properly employed throughout theGroup and to verify the upgrading and improvement of compliancesystems. In addition, the committee and the division have establisheda “hotline,” which is based on the Onward Group Internal Information
Transmission Regulations, and act as the conduit for transmitting con-Framework for Business Execution
and Management Surveillance
To make clear the difference between management decision-making
functions and the functions related to the conduct of business activities, the Company has introduced the Executive Officer System. The
Board of Directors is responsible for making strategic decisions
regarding Group matters and for supervising the activities of Groupfidential information regarding compliance matters.
The Internal Auditing Department has the responsibility for planning
for and structuring business process systems that ensure operations
in all departments are conducted appropriately and efficiently in compliance with relevant laws, the Articles of Incorporation, regulations,manuals, internal orders, and other directives. This department is also
responsible for reporting to the Board of Directors on these matters.

companies. By separating these supervisory functions from the conduct of business activities, the Company has clarified the responsibilities and authority of Group companies and has accelerated its

Risk Management Systems

strategic decision-making functions. This enables the Company to

The Group has designed and operates systems to improve its risk

conduct management quickly and execute business activities flexibly

management, as provided for in its Onward Group Risk Management

and efficiently. In addition to the Board of Directors, the Company has

Regulations. The Compliance Division is in overall charge of related

formed the Group Strategic Council, which meets once a month andmatters, and its responsibilities include designing risk management

includes the presidents of core Group companies as members. The

systems, identifying issues to be addressed, preparing plans for risk

Company has also created the Group Management Promotion

management systems, reporting to the Board of Directors, and ready-Council, which meets periodically and includes the directors of Grouping appropriate systems to deal with risks that may impact the contin-

companies as members.

uation of the Company’s operations or have a major impact on its

Since the Company has adopted the Board of Auditor governance

operations, including the risk of natural disasters and information

model, the corporate auditors attend important meetings of the Board­systems risk. Moreover, as necessary, the Board of Directors works

of Directors and monitor the conduct of duties of the Directors fromtogether with outside specialists to strengthen the Company’s capa-

an independent perspective, while working to improve management

bilities for dealing with risk and establishing systems to prevent risk.

surveillance functions. In addition, outside directors and outside­auditors have been appointed to enhance the transparency of­management.

Strengthening Internal Control Systems

The General Meeting of Shareholders, which convened in May 2008,
approved the introduction of the “Policy for Responding to LargeScale Purchases of the Company’s Shares (TOB Defense Policy).”

To substantially strengthen internal control systems, revisions in cer-This policy established rules to be followed by parties that make large-

tain parts of the basic policy for designing and implementing internal

scale purchases of the Company’s shares. It also clarifies specified

control systems were approved by the Board of Directors in Aprilcases where there is a possibility that purchasers of the Company’s

2008. The Company is now working to swiftly design internal control

shares may incur damages as a result of defensive actions taken bysystems based on this revised policy and will conduct continuing

the Company and, by making appropriate disclosure, enables thereviews to make needed improvements to create efficient corporate

Company to issue warnings to such purchasers whose behavior does

systems in compliance with legal regulations.

not contribute to enhancing corporate value and may be contrary toStrengthening Internal Control Systems

14

Matters Related to Corporate Takeovers

the common interests of the shareholders. Please note that, when theprovisions of this policy are applied, the policy calls for the formation

The Company has prepared its Compliance Regulations, which stateof a committee that is independent of the Board of Directors to elimi-

its basic compliance policy, and has formed the Onward Groupnate arbitrary judgments by the Board and for maximum compliance

Compliance Committee. The Compliance Division, which has ­primarywith the recommendations of this committee.

A nnual R epor t 2009

Board of Directors
Directors

Officers

Corporate Auditors

ChairmanManaging Directors

Executive Officers

Standing Corporate Auditors

Takeshi Hirouchi*

Masaaki Yoshizawa

Hitoshi Aoyama

Akito Yamamoto

President

Minoru Tanaka

Hidenobu Tanaka

Hideo Matsumoto

Kentaro Mizuno*

Outside Directors

Hirokazu Yoshizato

Keiichi Ogawa**

Vice President

Hachiro Honjou

Michinobu Yasumoto

Jotaro Yabe**Kazuya Baba*

Yoshihide Nakamura
As of May 28, 2009
* Representative Director** Outside AuditorO r g a n i z a t i o n C h a r t ( A s o f M a rch 1, 2 0 0 9 )General Meeting of Shareholders

Board of Corporate Auditors

Board of Directors

Representative Director, Chairman

Representative Director, PresidentGroup Strategy Committee(Onward Group Management Council)

Business Development Committee

Compliance Committee

Overseas Business Operations

Corporate
Planning
Division

Compliance
Division

IR Division

Finance andAccounting
DivisionInternal
Auditing
Division

GeneralAffairs
Division

Corporate
Communications
and Marketing
Division

Human
Resources
Division

Secretariat
DivisionO N WA R D H O L D I NG S CO . , LT D .

15Consolidated Six-Year Summary
ONWARD KASHIYAMA CO., LTD. and Subsidiaries
Years ended February 28 or 29		Millions of yen

Thousands of
U.S. dollars

2004

2005

2006

2007

2008

2009

2009

¥165,931¥150,969¥135,769¥135,197¥112,519¥ 98,946$1,011,614

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

96,017

96,394

99,68894,85095,00890,175921,941

Total assets

318,270

308,170

329,403347,936

309,092

296,283

3,029,169

Total current liabilities

92,27079,02597,617

103,494

93,321

92,369944,372

Total shareholders’ equity

196,796202,377

201,599

212,600

213,625

178,023

1,820,090

Net sales¥267,746¥271,273¥283,111¥318,691¥287,032¥261,006$2,668,500

Cost of sales

143,921

146,447

152,043

175,796

156,842

142,676

1,458,706

administrative expenses

100,929

100,621106,360

117,464

111,562

109,246

1,116,920

Operating income

22,89624,20524,70825,431

18,628

9,084

92,874

Income taxes, current

13,868

7,490

12,321

14,409

9,780

4,639

47,429Net income (loss)

13,053

10,257

11,091

11,438

12,214(30,895)(315,868)

For the year:

Selling, general andYen

U.S. dollars

Per share:
Net income (loss)—basic

¥74.1

¥58.1

¥63.8

¥70.5

¥76.5

¥(197.2)$(2.02)

Cash dividends

20.0

22.0

24.0

26.0

30.0

30.0

0.31

Note: Yen amounts have been translated, for convenience only, at ¥97.81=US$1, the approximate exchange rate on February 28, 2009.

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

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

350,000

10

350,000

280,000

8

280,000

80

Net Income (Loss) Per Shareand Cash Dividends Per Share(Yen)
Years ended February 28 or 29
80

60
60

210,000

6

210,000

140,000

4

140,000

70,0002

70,000

0

0

40
40

0

’05 ’06 ’07 ’08 ’09

 Net sales (left scale) Operating income margin (right scale)16

A nnual R epor t 200920
20

’05 ’06 ’07 ’08 ’09

 Total assets (left scale)m Total shareholders’ equity (left scale) Shareholders’ equity ratio (right scale)

0

0

-200

’05 ’06 ’07 ’08 ’09

 Net income (loss) per sharem Cash dividends per shareM a n a g e m e n t ’ s D i s c u s s i o n a n d A n a lys i sOverview
During the fiscal year under review (ended February 28, 2009), in
Japan the real economy and corporate profitability deteriorated rapidly
as the financial crisis triggered by the collapse of Lehman Brothers
deepened. In addition, as the credit contraction in financial markets
progressed, fund-raising became increasingly more difficult. As aresult, private capital investment decelerated and employment conditions worsened, leading to stagnation in economic conditions.
In the apparel industry, along with changes in consumer values, atrend emerged among consumers toward maintaining their lifestyles,reflecting the deterioration in the economy. As a consequence, consumer behavior became increasingly more cautious, and conditions
were more challenging than any experienced in the recent past.
Amid this economic environment, the Onward Group began toimplement its Three-Year Medium-Term Management Plan, which
has the objective of moving onto a new growth path. Under the plan,
the Onward Group is working to implement its Brand-Leveraged
Management strategy, which targets polishing and strengthening theGroup’s brands, with the aims of achieving stable expansion in profitability in Japan, and expanding aggressively into overseas markets.
As part of its growth strategy, the Group made two corporate acquisitions during the fiscal year. In Europe, the Group acquired JIL
SANDER S.p.A., a luxury brand, and, in Japan, Creative Yoko
Co., Ltd., a one-of-its-kind enterprise in the pet-related products
market. Looking ahead, the Group will endeavor to develop thesecompanies as key sources of earnings, realize synergies with themthrough strong teamwork, and work toward the goal of enhancing
corporate value.
In domestic business activities, ONWARD KASHIYAMA CO., LTD.,
worked to concentrate its management resources with the aims ofstrengthening its core brands and improving efficiency. However, thesudden deterioration in consumer confidence in September and subsequent months brought stagnation in sales at department stores,
which are the Group’s main distribution channel, and resulting
declines in sales and income.
In overseas business activities, in Europe, which is the core of theGroup’s operations outside Japan, the luxury market showed a sharp
contraction in the second half of the fiscal year. This, together withadverse foreign currency rate movements, resulted in tough conditions for sales and income.
Among other factors influencing performance, the Group reported
valuation losses of ¥22.6 billion on securities holdings as a consequence of the sharp decline in stock market prices and impairment
losses on goodwill amounting to ¥11.6 billion.
As a consequence of these factors, the Group reported net sales of¥261.0 billion, 9.1% lower than for the previous fiscal year, and a net
loss of ¥30.9 billion, compared with net income of ¥12.2 billion in theprior fiscal year.

Results of Operations
Net Sales
Sales in the Group’s apparel business amounted to ¥245.4 billion,
8.9% lower than in the previous fiscal year, and sales of service-related businesses were ¥23.3 billion, 15.4% less than in the prior year.
After the elimination of intersegment sales amounting to ¥7.7 billion,
net sales for the Group were ¥261.0 billion, representing a 9.1%
decline from the previous year. The business activities of the Onward
Group are divided into two principal segments: namely, apparel andother textile product businesses and service-related businesses.

• Apparel and Other Textile Product Businesses
In the Japanese market, ONWARD KASHIYAMA concentrated its
management resources on major core brands NIJYUSANKU andJIYUKU and other core brands sold through the department store distribution channel, and, under weak market conditions, achieved a certain level of results; however, this business, as a whole, encounteredchallenging operating conditions. In new distribution channels, we
conducted a review of the efficiency of existing stores and implemented measures to improve profitability, principally for core brands. As aresult, we have established a base for expansion in income going­forward.
In overseas markets, in the European region, sales and income
declined, but we continued to make necessary investments in GIBO’
CO. S.p.A., which is the growth engine for the Group’s overseas business. Performance of the JOSEPH Group remained firm in the firsthalf of the fiscal year, but beginning in September, profitability declined
along with the weakening of market conditions; however, JOSEPH
created the base for its new growth strategy. In Asia, although growthslowed in the second half of the fiscal year, performance remained
generally steady. In the North American market, we worked to
improve performance by focusing business operations on the retailstore and Internet sales activities of J. PRESS.
As a result of these activities, sales of the apparel and other textile
product businesses declined 8.9%, to ¥245.4 billion, and operating
income decreased 55.6%, to ¥9.0 billion.
• Service-Related Businesses
In the Onward Group’s service-related businesses, although the fashion
distribution and logistics business of ACROSS TRANSPORT CO., LTD.,
reported a decline in sales, this company attained its planned increase
in income as a result of improvements in efficiency. At ONWARD
CREATIVE CENTER CO., LTD., a subsidiary engaged in the design andimplementation of stores, the number of orders declined, reflecting theimpact of restraints on investment in commercial facilities. In the resort
business, the golf business made strenuous efforts to maintain its performance, but results in the hotel business were below the level of theprevious year because of the impact of the sharp rise in airfares and the
downturn in the world economy, which reduced the number of visitors
to Guam, where these facilities are located. As a consequence of thesecircumstances, sales of this segment declined 15.4%, to ¥23.3 billion,
and an operating loss of ¥0.1 billion was reported versus operating
profit of ¥0.3 billion in the previous fiscal year.
Cost of Sales; Selling, General and Administrative
Expenses; and Other Income (Expenses)
The consolidated cost of sales declined 9.0%, to ¥142.7 billion,
accompanying the decline in net sales. Gross profit decreased 9.1%,
to ¥118.3 billion, largely because of the drop in net sales, but thegross margin on net sales remained virtually the same, declining only
0.1 percentage point, to 45.3%, compared with 45.4% in the previous
fiscal year.
Selling, general and administrative (SG&A) expenses were down
2.1% from the previous fiscal year, to ¥109.2 billion. The ratio of
SG&A expenses to net sales increased 2.9 percentage points, to41.8%, versus 38.9% in the prior fiscal year, mainly because of thesubstantial decline in net sales. Although the gross margin on net
sales remained virtually the same, the ratio of operating income to
net sales decreased 3.0 percentage points, to 3.5%, comparedwith 6.5% in the previous fiscal year. This was mainly because of anincrease in the ratio of SG&A expenses to net sales. Also, because of

O N WA R D H O L D I NG S CO . , LT D .

17the substantial impact of the decline in net sales, operating income fell
51.2%, to ¥9.1 billion.
Other income (expenses) amounted to expenses of ¥39.7 billion
compared with income of ¥9.3 billion for the previous fiscal year.
Principal factors accounting for this were (a) the reporting of a loss of¥0.3 billion in equity in losses of investees compared with equity inearnings of investees amounting to ¥1.7 billion in the previous fiscal
year, (b) a foreign currency exchange loss of ¥5.3 billion, (c) the
absence of a gain of ¥6.9 billion from the sale of the Group’s equity
interest in an affiliated company, IMPACT 21, reported in the previous
fiscal year, (d) the recognition of valuation losses on investment securities of ¥22.6 billion, and (e) a major increase in impairment losses on
goodwill, from ¥1.3 billion in the previous fiscal year to ¥13.0 billion for
the fiscal year under review due to reporting of losses on goodwill of aU.K. subsidiary amounting to ¥11.6 billion.
As a result of these factors, the Company reported a loss before
income taxes and minority interests of ¥30.6 billion, compared withincome before income taxes and minority interests of ¥27.9 billion forthe previous fiscal year. Income taxes, inhabitants’ taxes, and enterprise taxes offset income taxes current and deferred, resulting in a net
loss of ¥30.9 billion, which represented a deterioration of ¥43.1 billion
from the previous fiscal year.

Financial Position
Total assets declined ¥12.8 billion, to ¥296.3 billion. Current assets
were down ¥13.6 billion, mainly because of a decline in cash and time
deposits. Fixed assets rose ¥0.8 billion, despite a decrease in investments in securities because of an increase in goodwill resulting from
M&A.
Liabilities rose ¥26.4 billion, to ¥137.9 billion. Current liabilities
declined ¥1.0 billion. Long-term liabilities rose ¥27.4 billion because of
an increase in long-term borrowings and other factors.
Net assets decreased ¥39.2 billion, to ¥158.4 billion, as shareholders’ equity declined ¥35.6 billion because of the reporting of a net loss
for the fiscal year and other factors. Valuation and translation adjustments decreased ¥2.4 billion owing to declines in net unrealized gains
on available-for-sale securities and foreign currency translation adjustments. In addition, minority interests in consolidated subsidiaries
decreased ¥1.4 billion because the Company purchased all theshares of GIBO’ CO. S.p.A. and due to other factors.
Cash FlowsNet cash provided by operating activities amounted to ¥10.8 billion,¥1.7 billion lower than for the previous fiscal year. Although the loss
before income taxes and minority interests was ¥30.6 billion, this loss
was primarily due to valuation losses on securities of ¥22.6 billion andimpairment losses of ¥13.0 billion, neither of which was accompanied
by cash outflows.
Net cash used in investing activities was ¥41.0 billion, ¥20.3 billion
higher than the previous fiscal year. This increase was due to theacquisition of two companies, one in Japan and the other overseas.
Net cash provided by financing activities amounted to ¥18.0 billion,
compared with net cash used in financing activities of ¥12.6 billion in
the previous fiscal year. This increase was due to a rise in borrowings
to finance the previously mentioned acquisitions.
As a result of the aforementioned factors, the balance of cash andcash equivalents at the end of fiscal 2009 was ¥23.3 billion, ¥13.4 billion lower than at the end of fiscal 2008.

18

A nnual R epor t 2009

Policy on Distribution of Profits
The management of the Onward Group recognizes the distribution of
a portion of profits to shareholders as one of its top priorities. The
basic policy of the Company is to set a target dividend payout ratio of
35% or more and strive to make stable distributions from profits thatare appropriate to trends in the Company’s performance.
The Company pays dividends once each fiscal year, based on adecision made at the annual General Meeting of Shareholders. For the
fiscal year under review, the Company has decided to pay a cash dividend of ¥30 per share, the same as that for the previous fiscal year.
Retained earnings will be employed in a flexible manner that strikes
a balance between strategic investments for the consolidation of asolid business structure, improving the Company’s financial position,and other factors.

Outlook
Looking to future economic prospects, tough management conditions
are forecast as a result of the weakness in the world economy. In
addition, we believe that consumer spending will continue to be lackluster. Amid this management environment, the Onward Group will
not change the directions set under its Three-Year Medium-Term
Management Plan and will pursue the aggressive development of its
business activities.
In the domestic apparel industry, the Company believes that the
weakness in market conditions will persist because of the trend toward
families with fewer children and the demographic aging of the population; changes in the structure of consumption, including those resulting
from a growing diversity of values; and the rising trend toward maintaining lifestyles as a result of the economic downturn. Amid these­circumstances, ONWARD KASHIYAMA has selected these keywords,“mode,” “quality,” and “value for price,” and is working to develop
products that have a fresh look and are overflowing with attractiveness. In addition, Onward will aggressively expand sales per store byenhancing the interiors and ambience of its retail stores. We will draw
fully on the market support for our major core brands NIJYUSANKUand JIYUKU and work to expand and evolve our other core brands. In
developing new brands, we have created a new brand for women,“første,” to be introduced this fall through department stores, which
is based on new concepts and responds to the changing values ofconsumers. In addition, we will introduce our new business line
“Opening Ceremony,” which emerged from the implementation of ourinternational strategy in the United States and is drawing worldwide
attention for its new worldview, through our large-scale, urban streetlevel stores. In addition, with an eye to future business expansion, weare moving ahead with the development of new brands for new distribution channels. In our other domestic business activities, under ourbasic policy of raising profitability, we will implement aggressive measures to further expand our activities especially in the growing petrelated markets through our newly acquired company Creative Yoko.
In overseas business activities, we are forecasting that conditions
will remain challenging because of the global economic downturn.
However, we will continue to pursue an aggressive business strategy,
principally in Europe, which will be the main support of our growthstrategy. In the JOSEPH Group, the implementation of our new
growth strategy is proceeding under the new chief executive officer(CEO) who was appointed last year, and we are seeing results fromnewly design products and major renovations of our core street-level
stores. Looking ahead, we are convinced that the aggressive implementation of our new global strategy will lead to significant growth.

We will proceed with the development of the GIBO’ CO. Group and
the JIL SANDER Group from a global perspective, and, by drawing on
the capabilities of the GIBO’ CO. Group’s product planning and manufacturing platform, we will undertake more in-depth initiatives withboth of these groups. As a consequence, we will take steps toward
increasing profitability and enhancing the brand power of these twogroups as we realize greater synergies with them. Also, in Asia, principally in China, with its strong growth potential, we will manage ouractivities to respond quickly to changes in the market and continue
our policy of expansion.
As a result of the implementation of these policies, the Onward
Group has prepared plans for the fiscal year ending February 28,
2010, calling for a decline in net sales of 3.2%, to ¥252.6 billion, anda decrease in operating income of 11.9%, to ¥8.0 billion. Comparedwith the net loss of ¥30.9 billion during the fiscal year under review,
the Group is targeting net income of ¥3.6 billion. (Please note thatthese plans for future performance are judgments that are based on
information available at the time these figures were prepared, and they
are subject to latent risks and uncertainties. Therefore, if the factorsthat form the basis for these forecasts differ from assumed conditions,actual performance may differ substantially from the target levels.)
Description of Business Risks
The businesses of the Onward Group may be influenced by a numberof risks, which are described in the following paragraphs. Based on its
awareness of the possibility that these risks may emerge, the Group
conducts its business operations in a manner to avoid such risks andminimize their effects in the event they should emerge. Please notethat forward-looking statements contained in this section are basedon the Group’s judgments as of May 29, 2009.
(1) Risks Associated with Changes in Consumer Needs
To respond accurately to customer needs regarding the fashion products supplied by the Onward Group, the Group works to achieve originality and competitiveness of its products through the implementationof its Brand-Leveraged Management policy. However, the Group may
not be able to attain the performance targets in its business plans
because of a number of factors, including stagnation in consumer
spending as a result of fluctuations in economic conditions, competition with other companies, and sudden changes in fashion trends. This
failure to meet targets may have an impact on Group performance.
(2) Risks Associated with Weather Conditions and Natural Disasters
Since sales of the Group’s core fashion products may vary becauseof weather conditions, the Group works to strengthen its systems forplanning and production on a short turnaround cycle. However, cool
weather in the summers and warm weather in the winters as well asother unexpected developments of this kind as well as a series oftyphoons may result in the loss of sales opportunities during peakseasons, and there is a possibility that such developments may havean impact on performance. In addition, unexpected natural disasters—such as earthquakes and floods, sudden fires and accidents,and such illegal activities as acts of terrorism—may make cessation of
the Group’s operations unavoidable. Such circumstances may havean impact on Group performance.
(3) Quality Risk
The Group has established “quality management standards” andworks to manage the quality of its products through the observanceof these standards. However, despite the establishment of systems for
quality management, incidents may occur related to product liability asa result of matters relating to the Group and its business partners.
Such incidents may damage the Group’s brand image and result in
substantial expenses that may have an impact on Group performance.
(4) Risks Associated with Business Partners
The Group has strengthened its internal systems for confirming theoperating conditions and the creditworthiness of its business partners.
However, losses may occur as a result of non-payment of obligations
caused by a series of defaults during times of credit instability andunexpected bankruptcies of large commercial facilities. Such circumstances may have an impact on Group performance.
(5) Risks Associated with Intellectual Property
The Group owns trademarks and other intellectual property in Japanand overseas. The Group works to safeguard the rights to this property based on legal regulations, but the Group and its brand image may
be damaged and its capabilities for product development may be
impaired in the event of infringement of these rights by third parties.
Accordingly, such circumstances may have an impact on Group performance. In addition, the Group obtains rights to the use of intellectual property owned by its alliance partners based overseas andconducts business activities based on licensed brands. If the related
contracts are unexpectedly cancelled or if the terms of such contracts
become unfavorable when they are renewed, then such circumstances may have an impact on Group performance.
(6) Legal Risks
The Group conducts its business activities will full regard for laws andregulations, including those related to antimonopoly policies, the treatment of subcontractors, and labeling as well as laws concerning thenatural environment and recycling. The Onward Group Compliance
Committee takes a central role in providing information related to theimportance of compliance with laws and regulations as well as internal
control procedures with the aim of ensuring proper compliance management. However, despite the establishment of these compliancesystems, issues may arise as a result of illegal behavior of employees
and the actions of business partners. Such issues may impair thetrust placed in the Group by society and result in the payment of­substantial expenses for indemnities, etc. Such circumstances may
have an impact on the Group’s performance.
(7) Risks Associated with Information
The Group works to take all necessary measures and strengthenssystems for ensuring the security of information systems, and, as­provided for under the guidelines of Japan’s Personal Information
Protection Law, has prepared its Guidelines for the Personal
Information Protection Law. The Group has taken steps to ensure all
management and staff are aware of information security matters andstrengthened its systems for management and supervision of information. However, issues may arise if there are leakages of information
resulting from improper access to computer systems and criminal
activities. Such issues may impair the trust placed in the Group bysociety and result in the payment of related expenses. Such circumstances may have an impact on the Group’s performance.
(8) Risks Associated with Overseas Business Operations
The Group’s overseas operations may be exposed to a range of risks
resulting from natural disasters; political, social, and economic conditions; wars and terrorism; fluctuations in foreign currency exchange
rates; lawsuits related to intellectual property; and communicable­diseases. When such risks emerge, the Group may have difficultyin continuing its business operations. Such circumstances may havean impact on the Group’s performance.

O N WA R D H O L D I NG S CO . , LT D .

19Consolidated Balance Sheets
ONWARD HOLDINGS Co., Ltd. and Subsidiaries
February 29, 2008 and February 28, 2009

Thousands of
U.S. dollars(Note 2. (20))

Millions of yen

ASSETS

2008

2009

2009

¥ 36,849¥ 23,415$ 239,393

Current assets:
Cash and time deposits (Notes 2. (17) and 8. (1))
Accounts and notes receivable

28,323

26,421

270,126

Inventories (Note 2. (4))

33,23333,758345,138

Deferred tax assets (Note 10)

3,953

3,914

40,016

Other current assets

10,32911,600118,597

(168)

(162)

(1,656)

112,519

98,946

1,011,614

Buildings and structures

77,81476,818785,380

Other depreciable property

26,37325,221

257,857(62,340)(64,906)(663,593)

Less: Allowance for bad debt
Total current assets

Property, plant and equipment (Note 5):

Less: Accumulated depreciation

41,847

37,133379,644

53,16153,042542,296

95,00890,175921,941

Goodwill

23,08447,475

485,380

Other

2,860

2,899

29,63925,94450,374

515,019

50,77333,825345,824

Long-term loans receivable

4,732

4,507

46,079Long-term prepaid expenses

1,861

1,271

9,529

Land (Note 11)
Total property, plant and equipment

Intangible assets, net:

Total intangible assets, net

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

Deferred tax assets (Note 10)

6,436

5,749

58,777

Other investments

12,98614,159148,226

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

20

Annual R epor t 2009

(1,167)(2,723)(27,840)

75,62156,788580,595¥309,092¥296,283$3,029,169

Thousands of
U.S. dollars(Note 2. (20))

Millions of yen

LIABILITIES AND NET ASSETS
Current liabilities:
Accounts and notes payable
Short-term loans (Note 13)
Current portion of long-term loans (Note 13)
Accrued income taxes
Accrued bonuses to employees
Allowance for sales returns
Other current liabilities
Total current liabilities
Long-term liabilities:
Long-term loans (Note 13)
Accrued retirement benefits (Note 7)
Accrued retirement benefits for directors and statutory auditors
Deferred tax liabilities̆revaluation of land (Notes 10 and 11)
Other
Total long-term liabilities
Total liabilities

2008

2009

2009

¥ 42,075
25,677
7,237
2,428
712
15,192
93,321¥ 39,621
28,252
3,395
2,262
2,187
638
16,01492,369$ 405,081
288,846
34,71023,12622,360
6,523
163,726
944,372

ʊʊ

26,746

3,487
151
5,949
8,545
18,132
111,453

2,933
56
5,949
9,812
45,496
137,865

273,449
29,987572
60,822
100,317465,147
1,409,519

30,08050,044
157,016

30,08050,043
121,412

307,535
511,635
1,241,304(23,515)
213,625(23,512)
178,023(240,384)
1,820,090(5,887)(17)(11,075)(1,789)(18,768)(6,930)(75)(11,075)(3,077)(21,157)(70,851)(767)(113,230)(31,459)(216,307)

135

294

3,006

2,647

1,258

12,861

197,639

158,418

1,619,650¥309,092¥296,283$3,029,169

Commitments and contingent liabilities (Note 12)
Net assets:
Shareholders’ equity:
Common stock:
Authorized̆400,000,000 shares
Issued̆172,921,669 shares at February 29, 2008 and February 28, 2009
Capital surplus
Retained earnings (Note 14)
Less: Treasury stock, at cost, 16,259,441 shares and 16,267,855 sharesat February 29, 2008 and February 28, 2009, respectively
Total shareholders’ equity
Valuation and translation adjustments:
Net unrealized gains (losses) on available-for-sale securities (Note 3)
Deferred losses on hedging instruments
Net revaluation loss of land (Notes 10 and 9)
Foreign currency translation adjustment
Total valuation and translation adjustments
Stock acquisition rights
Minority interests in consolidated subsidiaries
Total net assets
Total liabilities and net assets

U.S. dollars
Yen

Per share:
Net assets per share¥1,243.80(Note 2. (20))¥1,001.36$10.24

See accompanying notes to financial statements.

O N WA R D H O L D I NG S CO . , LT D .

21Consolidated Statements of Operations
ONWARD HOLDINGS Co., Ltd. and Subsidiaries
For the years ended February 29, 2008 and February 28, 2009

Thousands of
U.S. dollars(Note 2. (20))

Millions of yen
2008

2009

2009

Net sales¥287,032¥261,006$2,668,500

Cost of sales

156,842

142,676

1,458,706

Gross profit

130,190

118,330

1,209,794

Selling, general and administrative expenses (Note 17)

111,562

109,246

1,116,920

Operating income

18,628

9,084

92,874

343

385

3,936

Other income (expenses):
Interest income
Dividend income

933

502

5,133

Interest expenses

(397)

(535)

(5,470)Royalty income
Equity in earnings (losses) of investees

696

771

7,883

1,693

(256)

(2,617)(54,320)140(5,313)

6,192

857

8,762

Loss on write-down of investments in securities(16)(22,646)(231,531)

Provision for allowance for bad debt

(781)

(1,338)(13,680)

Foreign currency exchange gain (loss)
Gain on sale of investments in securities, net (Note 3)

Loss on disposal of property, net
Impairment losses on fixed assets (Note 6)

(82)

(190)

(1,943)(1,333)(12,998)(132,890)

Loss on withdrawal of pension fund

(487)

ʊ

ʊ

Other, net

2,368

1,081

11,052

27,897(30,596)(312,811)

9,780

4,639

47,429

Income (loss) before income taxes and minority interests
Income taxes:
Current (Note 2. (10))
Deferred (Note 10)
Income (loss) before minority interests
Minority interests in subsidiaries
Net income (loss)

5,186(4,603)(47,061)

12,931(30,632)(313,179)

(717)

(263)

(2,689)¥ 12,214¥(30,895)$ (315,868)
U.S. dollars(Note 2. (20))

Yen

Per share (Notes 14,15 and 17):
Net income (loss)̆basic¥(197.21)$(2.02)

76.48

ʊ

ʊ

Cash dividends

30.00

30.00

0.31

See accompanying notes to financial statements.

22¥ 76.53

Diluted net income per share

Annual R epor t 2009

Consolidated Statements of Changes in Net Assets
ONWARD HOLDINGS Co., Ltd. and Subsidiaries
For the years ended February 29, 2008 and February 28, 2009
Millions of yen
Shareholders’ equity

Balance as at February 28, 2007:
Cash dividends
Net income
Purchase of treasury stock
Reissuance of treasury stockReversal of reserve for land revaluation
Increase resulting from newly consolidated
subsidiaries
Net changes other than shareholders’ equity
Total changes during the year
Balance as at February 29, 2008:
Cash dividends
Net loss
Purchase of treasury stock
Reissuance of treasury stock
Net changes other than shareholders’ equity
Total changes during the year
Balance as at February 28, 2009

Number ofshares ofcommon stock(thousands)

Commonstock

CapitalsurplusRetainedearnings(Note 14)

Treasury
stock

Total

172,922ʊʊʊʊʊ¥30,080ʊʊʊʊʊ¥50,045
ʊ
ʊ
ʊ
(1)
ʊ

¥148,954(4,217)
12,214ʊʊ
62¥(16,479)ʊʊ(7,044)8
ʊ

¥212,600(4,217)
12,214(7,044)762

ʊʊʊ
172,922̆̆̆̆̆̆¥172,922

ʊʊʊ
30,080̆̆̆̆̆̆¥30,080ʊʊ
(1)
50,044
̆
̆
̆
(1)
̆
(1)
¥50,0433
ʊ
8,062
157,016(4,700)(30,895)
̆
(9)
̆
(35,604)¥121,412ʊʊ(7,036)(23,515)
̆
̆
(29)
32
̆
3
¥(23,512)

3
ʊ
1,025
213,625(4,700)(30,895)(29)22
̆
(35,602)¥178,023

Thousands of U.S. dollars (Note 2. (20))

Shareholders’ equity

Balance as at February 29, 2008:
Cash dividends
Net loss
Purchase of treasury stock
Reissuance of treasury stock
Net changes other than shareholders’ equity
Total changes during the year
Balance as at February 28, 2009

Commonstock$307,535
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
$307,535

Capitalsurplus$511,645
ʊ
ʊ
ʊ
(10)
ʊ
(10)
$511,635

Retainedearnings(Note 14)

Treasury
stock

Total

$1,605,316 $(240,415) $2,184,081(48,052)
ʊ
(48,052)(315,868)ʊ(315,868)
ʊ
(296)
(296)
(92)
327
225
ʊ
ʊ
ʊ
(364,012)
31(363,991)$1,241,304 $(240,384) $1,820,090

See accompanying notes to financial statements.

(Continued)

O N WA R D H O L D I NG S CO . , LT D .

23Millions of yen
Valuation and translation adjustments

Balance as at February 28, 2007:
Cash dividends
Net income
Purchase of treasury stock
Reissuance of treasury stockReversal of reserve for land revaluation
Increase resulting from newly consolidated
subsidiaries
Net changes other than shareholders’ equity
Total changes during the year
Balance as at February 29, 2008:
Cash dividends
Net loss
Purchase of treasury stock
Reissuance of treasury stock
Net changes other than shareholders’ equity
Total changes during the year
Balance as at February 28, 2009

Net unrealized
gains (losses) on
available-for- salesecurities(Note 3)

¥ 3,813
ʊ
ʊ
ʊ
ʊ
ʊ

ʊ
(9,700)(9,700)(5,887)ʊʊʊʊ
(1,043)(1,043)¥(6,930)

Deferred gains
Net revaluation(losses) on
hedging
loss of land
(Notes 10, 11)
instruments

Foreigncurrencytranslation
adjustment

Total

¥ 21
ʊ
ʊ
ʊ
ʊ
ʊ

¥(11,012)
ʊ
ʊ
ʊ
ʊ
ʊ

¥(1,578)ʊʊʊʊʊ¥ (8,756)
ʊ
ʊ
ʊ
ʊ
ʊ

ʊ
(38)
(38)
(17)
ʊ
ʊ
ʊ
ʊ
(58)
(58)
¥(75)

ʊ
(63)
(63)
(11,075)
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
¥(11,075)

ʊ
(211)
(211)
(1,789)ʊʊʊʊ
(1,288)(1,288)¥(3,077)ʊ
(10,012)(10,012)(18,768)ʊʊʊʊ
(2,389)(2,389)¥(21,157)

Stock acquisitionrightsMinority
interests inconsolidated
subsidiaries

Total net
assets

¥ 73
ʊ
ʊ
ʊ
ʊ
ʊ

¥21,221ʊʊʊʊʊ¥225,138(4,217)
12,214(7,044)
7
62

ʊ
62
62
135
ʊ
ʊ
ʊ
ʊ
159
159
¥294

ʊ
3
(18,574)(28,524)(18,574)(27,499)
2,647
197,639
ʊ
(4,700)ʊ
(30,895)
ʊ
(29)
ʊ
22
(1,389)(3,619)(1,389)(39,221)¥ 1,258 ¥158,418

Thousands of U.S. dollars (Note 2. (20))

Valuation and translation adjustments

Balance as at February 29, 2008:
Cash dividends
Net loss
Purchase of treasury stock
Reissuance of treasury stock
Net changes other than shareholders’ equity
Total changes during the year
Balance as at February 28, 2009
See accompanying notes to financial statements.

24

Annual R epor t 2009

Net unrealized
gains (losses) on
available-for- salesecurities(Note 3)$(60,188)ʊʊʊʊ
(10,663)(10,663)$(70,851)

Deferred gains(losses) on Net revaluation
hedging
loss of land
(Notes 10, 11)
instruments

Foreigncurrencytranslation
adjustment

Total$(174) $(113,230) $(18,290) $(191,882)
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
ʊ
(593)
ʊ
(13,169)(24,425)(593)
ʊ(13,169)(24,425)$(767) $(113,230) $(31,459) $(216,307)

Stock acquisitionrights$1,380
ʊ
ʊ
ʊ
ʊ
1,626
1,626
$3,006

Minority
interests inconsolidated
subsidiaries

Total net
assets$27,062 $2,020,641
ʊ(48,052)
ʊ
(315,868)
ʊ
(296)
ʊ
225
(14,201)(37,000)(14,201)(400,991)$12,861 $1,619,650

Consolidated Statements of Cash Flows
ONWARD HOLDINGS Co., Ltd. and Subsidiaries
For the years ended February 29, 2008 and February 28, 2009

Millions of yen

Cash flows from operating activities:
Income (loss) before income taxes and minority interests
Adjustments to reconcile income (loss) before income taxes andminority interests to net cash provided by operating activities:
Depreciation and amortization
Impairment loss on fixed assets
Net amortization of goodwill on consolidation
Increase in provision for allowance for bad debt
Decrease in provision for accrued retirement benefits
Interest and dividend income
Interest expense
Equity in (earnings) losses of investees
Loss on disposal of property, net
Gain on sale of investments in securities, net
Loss on write-down of investments in securities
Valuation losses on investments
in unconsolidated subsidiaries and affiliates
Decrease in trade receivables
Decrease in inventories
Decrease in trade payables
Other, net
SubtotalInterest and dividends received
Interest paid
Income taxes paid
Refunded income taxes
Net cash provided by operating activities
Cash flows from investing activities:
Increase in time deposits
Decrease in time deposits
Acquisition of property, plant and equipment
Proceeds from sale of property, plant and equipment
Acquisition of investments in securities
Proceeds from sale of investments in securities
Payments for long-term prepaid expenses
Payments for security deposits
Proceeds from security deposits
Payment for acquisition of consolidated subsidiaries resulting ina change in the scope of consolidation (Note 8. (2))
 Payment related to a sale of consolidated subsidiary resulting ina change in the scope of consolidation (Note 8. (3))
Acquisition of minority interests in consolidated subsidiaries
Other, net
Net cash used in investing activities

Thousands of
U.S. dollars(Note 2. (20))

2008

2009

2009

¥27,897¥(30,596)$(312,811)

7,341
1,333
1,051
779
(855)
(1,275)397(1,693)82(6,192)
16

5,986
12,998
2,400
1,690
(590)
(887)
535
256
190
(857)
22,64561,200132,890
24,537
17,279(6,032)(9,069)
5,470
2,617
1,943
(8,762)
231,52050
515
715(5,121)(763)
24,277
1,571(393)(13,013)61
12,503

260
3,602
776
(4,844)
3,411
16,975
1,375(439)(9,987)
2,915
10,8392,658
36,827
7,934(49,524)
34,874
173,551
14,058(4,488)(102,106)
29,802
110,817(2,594)2,604(8,379)1,247(6,380)2,795(1,404)
(298)
363

(164)
2,164
(2,848)55(3,399)
974
(875)
(536)
584

(1,677)
22,125(29,118)
562(34,751)
9,958(8,946)(5,480)5,971

ʊ

(33,335)(340,814)(6,346)
ʊ
(2,218)(20,610)ʊ(3,105)(465)(40,950)

ʊ
(31,745)(4,754)(418,669)

See accompanying notes to financial statements.

(Continued)

O N WA R D H O L D I NG S CO . , LT D .

25

Millions of yen

Cash flows from financing activities:
Net repayments of short-term loans
Proceeds from long-term debt
Acquisition of treasury stock
Dividends paid by the parent company
Dividends paid to minority stockholders
Other, net
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year (Note 8. (1))
See accompanying notes to financial statements.

26

Annual R epor t 2009

Thousands of
U.S. dollars(Note 2. (20))

2008

2009

2009

(1,301)
ʊ
(7,044)(4,217)
ʊ(7,139)30,000(29)(4,700)(177)(72,988)306,717(297)(48,052)(1,810)(21)(12,583)
159(20,531)
57,306¥36,775

17
17,972(1,310)(13,449)
36,775¥ 23,326

174
183,744(13,393)(137,501)
375,984$ 238,483

Notes to Consolidated Financial Statements
ONWARD HOLDINGS Co., Ltd. and Subsidiaries
For the years ended February 29, 2008 and February 28, 2009

1. Basis of Presentation of the Consolidated Financial Statements
The accompanying consolidated financial statements have been prepared from the accounts maintained by ONWARD HOLDINGS
Co., Ltd. (the “Company”), and its consolidated subsidiaries in accordance with the provisions set forth in the Corporation Law ofJapan (the “Corporation Law”) and the Financial Instruments and Exchange Law and in conformity with accounting principles andpractices generally accepted in Japan, which are different in certain respects from the application and disclosure requirements ofInternational Financial Reporting Standards.
Certain items presented in the consolidated financial statements submitted to the Director of the Kanto Finance Bureau in Japan
have been reclassified for the convenience of readers outside Japan.
The accompanying consolidated financial statements are not intended to present the consolidated financial position, results ofoperations and cash flows of the Company and its consolidated subsidiaries in accordance with accounting principles and practices
generally accepted in countries and jurisdictions other than Japan.
2. Summary of Significant Accounting Policies(1) Scope of Consolidation
The Company had 82 subsidiaries as at February 28, 2009 (89 as at February 29, 2008). The accompanying consolidated financial
statements include the accounts of the Company and its 70 subsidiaries (47 for 2008). Major consolidated subsidiaries are listed
below (the Company and the consolidated subsidiaries are collectively referred to as the “Companies”):
Name of subsidiary

Onward KASHIYAMA Co., Ltd.
Onward Trading Co., Ltd.
Chacott Co., Ltd.
Creative Yoko Co., Ltd.
Bus Stop Co., Ltd.
Project Sloane Ltd.
Joseph Ltd.
Gibo’ & Co. S.p.A.
Violine S.à r.l.
Jil Sander Italy S.p.A
Onward Fashion Trading(China) Co., Ltd.
J. Press, Inc.
Across Transport Co., Ltd.
Onward Creative Center Co., Ltd.
BOOKLET CORP.
Excel Co., Ltd.
Onward Resort & Golf Co., Ltd.
Onward Life Design Network Co., Ltd.
Onward Beach Resort Guam, Inc.
Onward Mangilao Guam, Inc.

Equity ownership percentage

Closing date

100.0%
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0

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

The shares of Creative Yoko Co., Ltd. were acquired during the year ended February 28, 2009, therefore Creative Yoko and its 3
consolidated subsidiaries became a consolidated subsidiary of the Company.
The shares of Violine S.à r.l. were acquired during the year ended February 28, 2009, therefore Violine S.à r.l. and its 15
subsidiaries, Jil Sander AG Group, became a consolidated subsidiary of the Company.
The shares of Corporate S.r.l. were acquired during the year ended February 28, 2009, therefore Corporate S.r.l. became aconsolidated subsidiary of the Company.
The financial statements of the aforementioned subsidiaries with fiscal year-ends of December 31 or November 30 have beenused for consolidation. All material transactions that occurred in the periods from such fiscal year-ends and February 28, theCompany’s fiscal year-end, have been adjusted.
The remaining 12 subsidiaries (15 for 2008) were not consolidated because their total assets, net sales, net income and retained
earnings were not material individually or in the aggregate compared with those of the consolidated financial statements of theCompanies.

O N WA R D H O L D I NG S CO . , LT D .

27

(2) Consolidation and Elimination
For the purposes of preparing the consolidated financial statements of the Companies, all significant intercompany transactions,account balances and unrealized profits among the Companies have been entirely eliminated, and the portion attributable to minority
interests is credited/charged thereto.
The assets and liabilities of newly acquired subsidiaries are measured at fair value at the time of acquisition, and the differences
between the cost of investments in the consolidated subsidiaries and the equity in their net assets at fair value are accounted for as
goodwill, which is amortized on a straight-line basis within 20-year periods.
(3) Investments in Unconsolidated Subsidiaries and Affiliates
Investments in unconsolidated subsidiaries and affiliates are accounted for by the equity method. 19 companies (21 companies for2008) are accounted for by the equity method for the year ended February 28, 2009.
Daido Advance and Puppy Shaldan which were the Daido Limited Group companies were excluded from the equity method. The
Company did not apply the equity method to 12 unconsolidated subsidiaries (15 in 2008) and 4 affiliates (6 in 2008) as at February
28, 2009, as the effect on net income or retained earnings of their consolidated financial statements are not material.
The Company applied the equity method by using the November 30 financial statements of Gailyglen Ltd., which has a fiscal
year-end of November 30. Also, the December 31 financial statements of Daido Limited, which has a fiscal year-end of March 31,
prepared on a basis similar to that for year-end closing, were used for consolidation purposes.
(4) Inventories
Inventories are stated at cost, cost being determined generally by the last purchase invoice price method. Merchandise and finishedgoods held at retail stores are measured using the retail cost method.
When the net realizable value of certain classes of inventories (consisting primarily of seasonal merchandise which remains unsold
after the end of such seasons) is substantially less than the carrying value (cost), and the decline in value is not expected to be
recovered in the near future, appropriate write-downs are recorded on such inventory items. The amount of write-down is determinedbased on the experience of sales of merchandise similar to those unsold items during the last three years. For the years ended
February 29, 2008 and February 28, 2009, the recorded write-downs were ¥9,903 million and ¥8,662 million ($88,559 thousand),
respectively.
(5) Investments in Securities
Debt securities and equity securities classified as available-for-sale securities whose fair values are readily determinable are carriedat the fair values prevailing at the fiscal year-end date with unrealized gains or losses included as a component of net assets, net of
applicable taxes.
Available-for-sale securities whose fair values cannot readily be determined are stated principally at cost. In cases where declines
in the fair values of individual securities are assessed to be other than temporary, the cost of the security is reduced to net realizablevalue and the impairment loss is charged to income. Realized gains and losses are determined using the moving-average method
and are reflected in income.
(6) Derivative Transactions
All derivatives are stated at fair value, and changes in fair value are included in income for the period in which they arise, except forderivatives that are designated as “hedging instruments” (see “(7) Hedge Accounting” below).
(7) Hedge Accounting
All gains or losses arising from changes in the fair values of the derivatives are designated as “hedging instruments,” which aredeferred as a component of net assets, net of applicable taxes. The gains or losses on the hedging instruments are included in net
income in the same period during which the gains and losses on the hedge items or transactions are recognized. For foreignexchange forward contracts, if they meet conditions for hedge accounting, the difference between the contract rate and spot rate at
the date of the contract is recognized over the period from the contract date to the settlement date.
The derivatives designated as hedging instruments 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.

28

Annual R epor t 2009

The Company has a policy of utilizing hedging instruments in order to reduce the exposure to the risk of foreign currency exchange
rate fluctuation.
(8) Property, Plant and Equipment
The Company and its domestic consolidated subsidiaries provide depreciation by the declining-balance method at rates based on
the estimated useful lives of assets which are prescribed by Japanese income tax regulations, except for certain buildings (other than
improvements) acquired on and after April 1998, which are depreciated by the straight-line method pursuant to an amendment toJapanese income tax law.
Effective March 1, 2008, property, plant and equipment acquired on or before March 31, 2007 which were depreciated to theallowable limit (95% of the acquisition cost) in a particular business year can be further depreciated down to ¥1 evenly over five
years starting from the following business year in connection with the revision to the Japanese Corporation Tax Law. The change did
not have a material impact on the Companies’ results of operations.
Effective April 1, 2007, the Company and its domestic subsidiaries changed their method of depreciation of property, plant andequipment acquired on or after April 1, 2007 in connection with the revision to the Japanese Corporation Tax Law. The change did
not have a material impact on the Companies’ results of operations.
Overseas consolidated subsidiaries provide depreciation by the straight-line method.
(9) Amortization
Intangible assets and long-term prepaid expenses are amortized by the straight-line method.
Software costs for internal use are amortized over their expected useful lives (five years) by the straight-line method.
(10) Income Taxes
The accounting standards for income taxes require that deferred income taxes be accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been included in thefinancial statements or tax returns. Under this method, deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled, andthe effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes theenactment date. A valuation allowance is provided to reduce deferred tax assets to the amount that is realizable.
(11) Allowances for Bad Debt
An allowance for bad debt is provided for estimated losses on known bad debt and those on doubtful accounts using the historical
write-off ratio at the balance sheet date.
(12) Allowances for Sales Returns
An allowance for sales returns is provided for the estimated losses on sales returns calculated under the Japanese tax regulations.
(13) Retirement Benefits
Accrued retirement benefits are provided for at the present value of the projected benefit obligation less the estimated fair value ofplan assets and deferred gains or losses at the balance sheet date. Unrecognized prior service costs are amortized and charged or
credited to income on a straight-line basis over 5 to 10 years, which is within the related employees’ average remaining service years.
Unrecognized actuarial differences are amortized on a straight-line basis over 5 to 10 years, which is within the related employees’
average remaining service years, from the year following the one in which they arise.
Accrued retirement benefits for directors and statutory auditors are provided for at the amount required at the balance sheet dates
in accordance with the internal rules of the Company and certain consolidated subsidiaries.
(14) Provision for Loss on Guarantee Obligations
The provision for loss on guarantee obligations was provided for the estimated losses on the Company’s obligations to pay for theguaranteed debts of subsidiaries. In estimating the provision, the Company considers the financial condition and other applicablefactors of each of the subsidiaries.

O N WA R D H O L D I NG S CO . , LT D .

29

(15) Accounting for Leases
For the Company and its domestic consolidated subsidiaries, finance leases other than those which are deemed to transfer theownership of the lease assets to lessees are accounted for as operating leases.
(16) Accounting for Japanese Consumption Taxes
The Japanese consumption taxes withheld upon sale of goods and services and the consumption taxes paid by the Companies on
the purchase of goods and services are not included in the accompanying consolidated statements of operations.
(17) Cash and Cash Equivalents
Cash and cash equivalents in the consolidated statements of cash flows are composed of cash on hand, bank deposits which can bewithdrawn on demand, and short-term investments which are readily convertible into cash or with an original maturity of three months
or less, which represent insignificant risk of changes in value.
(18) Impairment of Long-Lived Assets
The standard of impairment of long-lived assets requires that fixed assets be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. An impairment loss would berecognized if the carrying amount of an asset or asset group exceeds the sum of the undiscounted future cash flows expected to begenerated from the continued use and eventual disposition of the asset or asset group. The impairment loss would be measured as
the amount by which the carrying amount of the asset exceeds its recoverable amount, which is the higher of the discounted cash
flows from the continued use and eventual disposition of the asset or the net selling price at disposition.
(19) Directors’ Bonuses
Under the standard of directors’ bonuses, directors’ bonuses are accounted for as an expense as incurred, instead of being
accounted for as an appropriation of retained earnings upon approval at a general meeting of shareholders.
(20) United States Dollar Amounts
Amounts in U.S. dollars are included solely for the convenience of readers outside of Japan. The rate of ¥97.81=US$1, the rate ofexchange as of February 28, 2009, 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.
(21) Reclassifications
Certain reclassifications have been made to the prior year’s consolidated financial statements to conform with the presentation used
for the year ended February 28, 2009.
3. Investments in Securities(1) Information as of and for the Year Ended February 28, 2009(a) Available-for-sale securities with readily determinable fair value:
Investments in securities whose fair values were readily determinable at February 28, 2009 are summarized as follows:
Millions of yen
Acquisition
cost

Thousands of U.S. dollars

Fair value
Unrealized gain(carrying value)(loss)

Acquisition
cost

Fair value
Unrealized gain(carrying value)(loss)

Securities with unrealized gains:936¥ 1,230

9,569$ 12,575

Other

8

10

2

82

102

20

Total

944

1,240

296

9,651

12,677

3,026(52,745)

Equity securities

¥

¥

294

$

$

3,006

Securities with unrealized losses:
29,69424,535(5,159)303,589

250,844

Other

282

209

(73)

2,883

2,137

(746)

Total

29,976

24,744(5,232)306,472

252,981(53,491)¥ 30,920¥ 25,984¥ (4,936)$ 316,123$ 265,658$ (50,465)

Equity securities

Total

Losses on impairment of available-for-sale securities recognized to reflect declines in market value considered to be other than
temporary were ¥22,646 million ($231,525 thousand) and ¥16 million for the years ended February 29, 2009 and February 28, 2008,
respectively

30

Annual R epor t 2009

(b) Available-for-sale securities sold during the year ended February 28, 2009:
Millions of yen

Thousands of
U.S. dollars¥ 8Proceeds from sale of securities

82$

Gross realized gain on sale of securities

̆̆

Gross realized loss on sale of securities

555(c) Major securities which were not stated at fair value as of February 28, 2009:
Millions of yen

Thousands of
U.S. dollars¥341$3,486

Available-for-sale securities:
Non-marketable equity securities(d) The aggregate carrying amount of investments in unconsolidated subsidiaries and affiliates as of February 28, 2009 was ¥7,500
million ($76,679 thousand).
(2) Information as of and for the Year Ended February 29, 2008(a) Available-for-sale securities with readily determinable fair value:
Investments in securities whose fair values were readily determinable at February 29, 2008 are summarized as follows:
Millions of yen
Acquisition
cost

Fair value
Unrealized gain(carrying value)(loss)

Securities with unrealized gains:
Equity securities
Total¥ 6,783¥ 9,225¥ 2,442

6,783

9,225

2,442

43,12030,756(12,364)

43,12030,756(12,364)¥ 49,903¥ 39,981¥ (9,922)

Securities with unrealized losses:
Equity securities
Total
Total

(b) Available-for-sale securities sold during the year ended February 29, 2008:
Millions of yen

Proceeds from sale of securities¥ 15

Gross realized gain on sale of securities

11

Gross realized loss on sale of securities

̆(c) Major securities which were not stated at fair value as of February 29, 2008:
Millions of yen

Available-for-sale securities:
Non-marketable equity securities¥ 341(d) The aggregate carrying amount of investments in unconsolidated subsidiaries and affiliates as of February 29, 2008 was ¥10,451
million.
4. Derivative Transactions
Derivatives are used in order to hedge foreign exchange market risk on the transactions which occur in the normal course ofbusiness. Derivatives are not used for speculative purposes or for highly leveraged transactions. Derivatives are executed withfinancial institutions with high credit ratings, and the Company does not anticipate significant losses due to the credit risks of its
counterparties.
The Company and its consolidated subsidiaries applied hedge accounting for all derivative transactions as of February 29, 2008;
therefore, disclosure requirements of market value information on those derivatives were not applicable.

O N WA R D H O L D I NG S CO . , LT D .

31The contract or notional amounts and fair value of derivative financial instruments held as of February 28, 2009 are summarized asfollows:
Millions of yen
Contract or notionalamounts

Valuation
gain (loss)

Fair value

Forward exchange contracts:
To buy foreign currency:
U.S. dollar
Euro¥3,495¥3,348¥ (147)

189

139

(50)

3,872

(5)

(5)

Currency swap agreement:
U.S. dollar received for Japanese yen
Currency option contracts:
Euro call / U.S. dollar put

(28)

(28)

Buy: U.S. dollar call

US$ 3,885 thousand
1,996

169

169

Sell: U.S. dollar put

1,996

(296)

(296)
¥ (357)

Interest rate swap agreement:
Variable rate received for fixed rate

¥ 300

¥ (12)¥ (12)¥ (12)

Thousands of U.S. dollars
Contract or notionalamounts

Valuation
gain (loss)

Fair value

Forward exchange contracts:
To buy foreign currency:
U.S. dollar
Euro$35,733$34,230$ (1,503)

1,932

1,421

(511)

39,587(51)(51)

Currency swap agreement:
U.S. dollar received for Japanese yen
Currency option contracts:
Euro call / U.S. dollar put

3,885

(286)

(286)

Buy: U.S. dollar call

20,407

1,728

1,728

Sell: U.S. dollar put

20,407(3,027)(3,027)$ (3,650)Interest rate swap agreement:
Variable rate received for fixed rate

$ 3,067$ (123)$(123)$ (123)32

Annual R epor t 2009

5. Property, Plant and Equipment
The Japanese tax regulations allow a company to defer capital gains on the sale of qualified real property, if the company intends tooffset such gains against the cost of newly acquired fixed assets. When such accounting is followed, the cost of the new fixed assets
is reduced to the extent of the deferred capital gains, thereby affecting related depreciation charges and accumulated depreciation.
Property, plant and equipment at February 29, 2008 and February 28, 2009, were reduced by ¥8,353 million and ¥8,290 million($84,756 thousand), respectively, representing accumulated deferred gains from eligible sales.
6. Impairment losses on fixed assets
For the years ended February 29, 2008 and February 28, 2009, the Company reviewed its long-lived assets for impairment and, as aresult, recognized an impairment loss as follows:
February 28, 2009
Thousands ofLocation

Usage

Description

Millions of yen¥

11,592

U.S. dollars$

118,515

UK

Goodwill

GoodwillTokyo Prefecture and other

Business

Buildings and structures

492

5,029

asset

Other

626

6,403

Kanagawa Prefecture

United States

Buildings and structures

72

739

Other

111

1,134

Business

Buildings and structures

64

656

asset

Other

41

414

Idle asset

February 29, 2008
Location
Tokyo Prefecture

Nara Prefecture

Usage

Description

Millions of yen

Business

Buildings and structures

asset

Other

Business

Buildings and structures

15

Business

Buildings and structures

4

asset

Other

2

¥

68
1,244

asset
Osaka Prefecture

The long-lived assets are basically grouped by brand, and assets for lease and idle assets are grouped individually by each item.
The Company has recognized a loss on impairment on assets for lease and idle assets due to a significant decline in their market
value, and on business assets due to a continuous loss generated from their operating activities, by reducing their carrying amount to
the respective net realizable value of each asset.
Impairment loss on long-lived assets for the years ended February 29, 2008 and February 28, 2009 consisted of the followings:
Thousands of
U.S. dollars

Millions of yen
February 29,
2008

Buildings and structures¥

Goodwill86
̆February 28,
2009

¥

628
11,592February 28,
2009

$

6,424
118,515

Other

1,247

778

7,951

Total

¥ 1,333¥12,998$ 132,890

The net realizable value is based on their net selling price or their value in use.
appraisal value or reasonable estimated price based on actual transactions.

The net selling price is estimated by using their

The value in use is calculated by discounting the future

cash flow with 5.0% and 6.5% discount rates for the years ended February 29, 2008 and February 28, 2009, respectively.

O N WA R D H O L D I NG S CO . , LT D .

33

7. Retirement Plan and Retirement Benefits
The Company and its subsidiaries have defined benefit retirement plans covering substantially all employees. Defined benefit
retirement plans include a plan which is governed by the regulations of the Japanese Welfare Pension Insurance Law (“Welfare
Benefit Plan”), tax qualified pension plans and plans for lump-sum retirement benefits.
The reserve for retirement benefits as of February 29, 2008 and February 28, 2009 is analyzed as follows:
Thousands of
U.S. dollars

Millions of yen
February 29,
2008

February 28,
2009

February 28,
2009$ (366,220)¥ (35,870)¥ (35,820)

Plan assets (including employee retirement benefit fund)30,144

22,843

233,545

Funded status(5,726)(12,977)(132,675)

Projected benefit obligations

Unrecognized prior service costs

(117)

(107)

(1,094)

Unrecognized actuarial differences

2,602

10,748109,886(3,241)(2,336)(23,883)246

597(3,487)¥ (2,933)

Subtotal
Prepaid pension costAccrued retirement benefits

¥

6,104
$

(29,987)

The net periodic pension expenses for the years ended February 29, 2008 and February 28, 2009, were as follows:
Thousands of
U.S. dollars

Millions of yen

Service cost

2008

2009

2009

¥ 1,544¥ 1,445$ 14,773

Interest cost

649

646

6,605

Expected return on plan assets

(504)

(450)

(4,601)

Amortization of unrecognized prior service costs

(29)

(41)

(419)

Amortization of unrecognized actuarial differences

(71)

455

4,652

¥ 1,589¥ 2,055$ 21,010

Net periodic pension expenses

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

As of February 29, 2008

As of February 28, 2009

Straight-line basis

Straight-line basis

Discount rate

1.5~2.0%

2.0%

Expected rate of return on plan assets

0.7~2.8%

0.3~2.4%

Amortization of unrecognized prior service costs

5~10 years

5~10 years

Amortization of unrecognized actuarial differences

5~10 years

5~10 years

8. Notes to Consolidated Statements of Cash Flows(1) Cash and cash equivalents at February 29, 2008 and February 28, 2009 consisted of the following:
Millions of yen
February 29,
February 28,
2008
2009

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

34

Annual R epor t 2009

Thousands of
U.S. dollars
February 28,
  
2009

¥36,849¥23,415

(74)

(89)

$239,393(910)¥36,775¥23,326$238,483

(2) Payment for acquisition of consolidated subsidiaries resulting in a change in the scope of consolidation
For the year ended February 28, 2009, due to the acquisition of shares of the below companies, the below companies were newly
consolidated. The assets and liabilities of the companies at the time of initial consolidation, additional cash paid for the acquisition,
cash and cash equivalents held by the subsidiaries and net payment for acquisition of the subsidiaries were as follows:(Creative Yoko Co., Ltd.)
Millions of yen

Thousands of
U.S. dollars

Current assets¥ 3,048$ 31,162

Fixed assets

3,588

36,683

Goodwill on consolidation

4,210

43,043Current liabilities(2,819)(28,821)Long-term liabilities(345)(3,527)

5

51

(83)

(848)

Cash paid for acquisition of the subsidiary

7,604

77,743

Cash and cash equivalents held by the subsidiary(933)(9,539)¥ 6,671$ 68,204

Millions of yen

Thousands of
U.S. dollars¥$

Minority interests in the subsidiary
Revaluation gain of land

Payment for acquisition of the subsidiary(Violine S.à r.l.)Current assets

8,210

83,938Fixed assets

19,814

202,576

Goodwill on consolidation

17,146

175,299

Current liabilities(7,684)(78,560)

Long-term liabilities(10,178)(104,059)

Cash paid for acquisition of the subsidiary

27,308279,194

Cash and cash equivalents held by the subsidiary
Payment for acquisition of the subsidiary(699)(7,146)¥ 26,609$ 272,048

Millions of yen

Thousands of
U.S. dollars(Corporate S.r.l.)Current assets¥ 224$ 2,290

Fixed assets

113

1,155

Goodwill on consolidation

49

501

Current liabilities(282)(2,883)Long-term liabilities

(49)

(501)

Cash paid for acquisition of the subsidiary

55

562

Cash and cash equivalents held by the subsidiary(0)

Payment for acquisition of the subsidiary

¥ 55

(0)
$

562

O N WA R D H O L D I NG S CO . , LT D .

35

(3) Payment related to a sale of consolidated subsidiary resulting in a change in the scope of consolidation
For the year ended February 29, 2008, due to a sale of shares of Impact 21 Co., Ltd., Impact 21 Co., Ltd. was excluded fromconsolidation. The assets and liabilities of the company were as follows:
Millions of yen

Current assets¥ 33,112

Fixed assets

5,802

Current liabilities(7,041)Long-term liabilities(705)

Minority interests in the subsidiary(18,966)

Gain on sale of investments in securities

6,885

Cash income from the sale of the subsidiary

19,087

Cash and cash equivalents held by the subsidiary(25,433)

Payment for selling of the subsidiary¥ (6,346)

9. Lease Transactions
The Companies’ finance lease contracts that are not deemed to transfer the ownership of the leased assets to lessees are accounted
for as operating leases, which is permitted by Japanese accounting principles. Certain key information on such lease contracts of theCompanies for the years ended February 29, 2008 and February 28, 2009 are as follows:(Lessee)
Assumed data as to acquisition cost, accumulated depreciation, accumulated impairment loss and net book value of the leased
assets, which included the portion of interest thereon, as of February 29, 2008 and February 28, 2009 are summarized as follows:
Millions of yen
February 29,
2008

Acquisition cost

¥3,160

Other
¥ 880

Total
¥ 3,255(372)(1,517)(1,386)(445)(1,831)(14,170)(4,550)(18,720)

ʊ

(145)

(145)

ʊ

(145)

(1,483)

ʊ

(1,483)¥ 400¥1,498

¥ 844

¥ 435

¥ 1,279$ 8,629(1,145)(145)¥1,098Net book value

February 28,
2009

Tools,
furniture,and fixtures$ 24,282

Other
¥ 772

Accumulated impairment lossTools,
furniture,and fixtures¥ 2,375

Tools,
furniture,and fixtures¥2,388

Accumulated depreciation

Thousands of U.S. dollars
February 28,
2009

Total

Other
Total
$ 8,997 $ 33,279$ 4,447 $ 13,076

The scheduled maturities of future lease payments on such lease contracts as of February 29, 2008 and February 28, 2009 are as
follows:
Millions of yen

Thousands of
U.S. dollars

February 29, February 28,
 20082009

February 28,
2009

Scheduled maturities of future leases:
Due within one year

¥ 678

¥ 659

Due over one year

965

765

$ 6,738
7,821¥1,643¥ 1,424$ 14,559

The balance of accumulated impairment losses of leased assets as of February 29, 2008 and February 28, 2009 are as follows:

Impairment losses of leased assets

36

Annual R epor t 2009

Millions of yen

Thousands of
U.S. dollars

February 29, February 28,
 20082009

February 28,
2009

¥32

¥17

$174

Lease expenses, reversal of impairment loss of leased assets, depreciation and impairment loss for the years ended February 29,
2008 and February 28, 2009 are as follows:
Millions of yen

Thousands of
U.S. dollars

February 29, February 28,
2008
2009

February 28,
2009

¥715

¥738

Reversal of impairment loss of leased assets

53

14

143

Depreciation

715

738

7,545

Impairment loss

ʊ

ʊ

ʊ

Lease expenses for the year

$7,545The Companies’ operating lease contracts:
The scheduled maturities of future lease payments on operating lease contracts as of February 29, 2008 are as follows:
Millions of yen

Scheduled maturities of future leases:
Due within one year¥2

Due over one yearʊ¥2(Lessor)
Acquisition cost, accumulated depreciation and net book value of the leased assets as of February 29, 2008 are summarized asfollows:
Millions of yen
Other
Total

Acquisition cost

¥ 83

Accumulated depreciation

(68)

¥ 83
(68)

Net book value

¥ 15

¥ 15

The scheduled maturities of future lease income on such lease contracts as of February 29, 2008 and February 28, 2009 are as
follows:
Millions of yen

Thousands of
U.S. dollars

February 29, February 28,
2008
2009

February 28,
2009

Due within one year

¥ 73

¥ 81

Due over one year

144

112

$

1,145

828

¥217

¥ 193

$ 1,973

Lease income and depreciation for the year ended February 29, 2008 are as follows:
Millions of yen

Lease income for the year

¥18

Depreciation¥11

O N WA R D H O L D I NG S CO . , LT D .

37

10. Income Taxes
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities as at February
29, 2008 and February 28, 2009 consisted of the following elements:
Thousands of
U.S. dollars

Millions of yen
February 29,
2008

February 28,
2009

February 28,
2009

Deferred tax assets:¥ 1,434¥ 2,262$ 23,126

Evaluation loss on investments in unconsolidated subsidiaries

28

192

1,963

Accrued bonuses to employees

987

891

9,109

5,937

3,129

31,991

Valuation loss on inventories

Accrued retirement benefits
Accrued retirement benefits for directors and auditors

62

56

572

Allowance for bad debt

503

690

7,054

Tax loss carryforwards

12,20018,266

186,750

Impairment loss

7,582

6,635

67,836396

1,535

15,694

Net unrealized gains on available-for-sale securities

4,035

16

164

Other

2,657

2,917

29,823

Investments in securities

35,821

36,589374,082(17,848)(25,195)(257,591)

17,973

11,394116,491

Gain on securities contributed to an employee retirement benefit trust(3,474)(699)(7,146)

Gain on securities returned from an employee retirement benefit trust(3,930)ʊʊProvision for deferred capital gains on real property for tax purposes

(22)

(21)

(215)

Business tax refundable

(237)

(17)

(174)

Other

(155)

(999)

(10,214)

Subtotal
Less: Valuation allowance
Total deferred tax assets
Deferred tax liabilities:

Total deferred tax liabilities(7,818)(1,736)(17,749)

Net deferred tax assets¥ 10,155¥ 9,658$ 98,742

The reconciliation of the difference between the statutory tax rate and the effective tax rate for the year ended February 29, 2008
was as follows:%
Statutory tax rate

40.7

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

1.7

Change in valuation allowance(3.4)

Deductible losses on sales of investments in subsidiaries and affiliates which are eliminated for consolidation

15.9

Other
Effective tax rate

(1.3)
53.6

The reconciliation for the year ended February 28, 2009 is omitted because a loss before income taxes and minority interests wasrecorded.

38

Annual R epor t 2009

11. Revaluation of Land
On February 28, 2002, the Company revaluated its land for business use at market value as a result of the application of the Land
Revaluation Law, which permits a one-time revaluation of land for business use.
As of February 28, 2009, the accumulated revaluation loss amounted to ¥17,024 million ($174,052 thousand), for which the related
deferred tax liability of ¥5,949 million ($60,822 thousand) is recognized. The net revaluation loss of ¥11,075 million ($113,230
thousand) is presented as a separate component of net assets as “Net revaluation loss of land.”
As of February 29, 2008, the accumulated revaluation loss amounted to ¥17,024 million, for which the related deferred tax liabilityof ¥5,949 million is recognized. The net revaluation loss of ¥11,075 million is presented as a separate component of net assets as“Net revaluation loss of land.”12. Commitments and Contingent Liabilities
The Company was contingently liable as a guarantor for certain affiliates’ bank loans. The outstanding balance of such bank loans
guaranteed as at February 29, 2008 and February 28, 2009 aggregated to ¥96 million and ¥89 million ($910 thousand), respectively.
13. Short-term Loans and Long-term Debt
Short-term loans at February 29, 2008 and February 28, 2009 represented loans, principally from banks. The weighted-averageinterest rate on these loans was 3.8% in 2008 and 1.2% in 2009.
Long-term loans at February 28, 2009 are summarized as follows:
Thousands of
U.S. dollars

Millions of yen
Loans, principally from banks, maturing in installments through 2013 withweighted average interest of 1.4% at February 28, 2009, partially securedby mortgage of time deposits, lease deposits, buildings and land

¥30,141

Less current portion$308,159

3,395

34,710¥26,746$273,449

The aggregate annual maturities of long-term loans after February 28, 2010 are as follows:
Millions of yen

Thousands of
U.S. dollars

2011¥ 3,346$ 34,209

2012

3,300

33,739

2013

3,300

33,7392014

16,800171,762

Year ending February 28 or 29:

At February 28, 2009, time deposits of ¥11 million ($112 thousand), lease deposits of ¥59 million ($603 thousand), buildings of¥234 million ($2,392 thousand) and land of ¥83 million ($849 thousand) are mortgaged to secure short-term loans of ¥820 million($8,384 thousand) and long-term loans of ¥85 million ($869 thousand).

O N WA R D H O L D I NG S CO . , LT D .

39

Bonds at February 28, 2009 are summarized as follows:
Millions of yen
1.23% unsecured yen bonds issued by a subsidiary, due 2009

Thousands of
U.S. dollars¥150

0.79% unsecured yen bonds issued by a subsidiary, due 2010
Less current installments$1,534

24

245

174

1,779

166

1,697

¥ 8

$

82

The aggregate annual maturities of bonds after February 28, 2010 are as follows:
Millions of yen

Thousands of
U.S. dollars

Year ending February 28 or 29:
2011

¥ 8

$ 82

2012

ʊ

ʊ

2013

ʊ

ʊ

2014

ʊ

ʊ

14. Shareholders’ Equity
Under the Corporation Law, the entire amount of the issue price of shares is required to be designated as a stated common stock
account, although a company in Japan may, by resolution of its Board of Directors, account for an amount not exceeding 50% of theissue price of new shares as additional paid-in capital.
The Corporation Law provides that an amount equal to 10% of distributions from retained earnings paid by the Company and its
Japanese subsidiaries be appropriated as a legal reserve. No further appropriations are required when the total amount of theadditional paid-in capital and the legal reserve equals 25% of their respective stated capital. The Corporation Law also provides that
additional paid-in capital and the legal reserve are available for appropriations by a resolution of the shareholders. Balances of thelegal reserve are included in retained earnings in the accompanying consolidated balance sheets.
Cash dividends charged to retained earnings for the years ended February 28, 2009 and February 29, 2008 represent dividends
paid out during those years. The amount available for dividends is based on the amount recorded in the Company’s nonconsolidated books of account in accordance with the Corporation Law.
Dividends to be paid after the balance sheet date, which were approved by the general meeting of shareholders held on May 29,
2009, are as follows:(a) Total dividends(b) Source of dividends(c) Cash dividends per common share(d) Date to determine which shareholders receive the dividends(e) Effective date

40

Annual R epor t 2009

¥4,700 million ($48,052 thousand)
Retained earnings¥30.00 ($0.31)
February 28, 2009
May 29, 2009

15. Per Share Information
Net income (loss) 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 ofoperations represent dividends declared as applicable to the respective years rather than those paid during the years.
The basis for the calculation of basic and diluted net income (loss) per share for the years ended February 29, 2008 and February
28, 2009 is as follows:
Thousands of
U.S. dollars

Millions of yen

Net income (loss)

2008

2009

2009

¥12,214¥(30,895)$(315,867)

Less: Components not pertaining to common shareholders

̆

̆

̆

Net income (loss) pertaining to common stock¥12,214¥(30,895)$(315,867)

Average outstanding shares of common stock (thousand shares)

159,602

156,659

156,65987̆̆

Effect of dilutive stock options (thousand shares)

16. Related-Party Transactions
Year Ended February 28, 2009
The Company leased land from Mr. Hirouchi, Chairman and CEO of ONWARD HOLDINGS Co., Ltd., during the year and the rental
fee was ¥7 million ($72 thousand). Also, Mr. Hirouchi paid a rental fee of ¥16 million ($164 thousand) to the Company for a house.
The rental fees were determined by the average market prices.
Year Ended February 29, 2008
The Company leased land from Mr. Hirouchi, Chairman and CEO of ONWARD HOLDINGS Co., Ltd., during the year and the rental
fee was ¥7 million. Also, Mr. Hirouchi paid a rental fee of ¥17 million to the Company for a house. The rental fees were determined by
the average market prices.
17. Stock Options
The cost recognized for the stock options for the year ended February 28, 2009 and February 29, 2008 was ¥145 million ($1,482
thousand) and ¥63 million, respectively, which is included in selling, general and administrative expenses.
2008 Stock Option Plan (No. 4)
Under the 2008 stock option plan (No. 4), stock options were granted to 12 directors and 21 executive officers of the Company’s
subsidiary on June 20, 2008. They are exercisable in the period from June 21, 2008 to February 28, 2038. The terms of the options
include certain limitations on the exercisability under which grantees can exercise their options during a five-year period starting ayear after they lose their positions as directors or executive officers of the Company’s subsidiary.
A summary of information for the stock option plan is as follows:
Exercise price¥1 ($0.01)

Fair value at the grant date

¥905 ($9.25)

Number of stock options granted

91,100 shares

A summary of the scale and movement of the stock option plan for the year ended February 28, 2009 is as follows:2008 stock option plan
(No.4)
Non-vested:
Outstanding at February 29, 2008̆Granted91,100Forfeited̆

Vested̆

Outstanding at February 28, 2009

91,100O N WA R D H O L D I NG S CO . , LT D .

41

The fair value of the 2008 stock options (No. 4) was estimated using the Black-Scholes option-valuation model with the following
assumptions:
Expected volatility
Expected lives
Expected dividend

32.434%8 years and 11 months¥30 per share

Risk-free interest rate

1.7326%

The number of rights to vest in the future periods is determined based on the actual forfeited number of the stock option because it
is difficult to estimate forfeiture in the future.
2008 Stock Option Plan (No. 3)
Under the 2008 stock option plan (No. 3), stock options were granted to 5 directors on July 20, 2008. They are exercisable in the
period from June 21, 2008 to June 20, 2038. The terms of the options include certain limitations on the exercisability under which
grantees can exercise their options during a five-year period starting a year after they lose their positions as directors.
A summary of information for the stock option plan is as follows:
Exercise price¥1 ($0.01)

Fair value at the grant date

¥944 ($9.65)

Number of stock options granted

70,000 shares

A summary of the scale and movement of the stock option plan for the year ended February 28, 2009 is as follows:2008 stock option plan
(No.3)
Non-vested:
Outstanding at February 29, 2008̆Granted70,000Forfeited̆

VestedOutstanding at February 28, 2009

̆
70,000The fair value of the 2008 stock options (No. 3) was estimated using the Black-Scholes option-valuation model with the following
assumptions:
Expected volatility
Expected lives
Expected dividend

29.320%7 years and 4 months¥30 per share

Risk-free interest rate

1.5614%

The number of rights to vest in the future periods is determined based on the actual forfeited number of the stock option because it
is difficult to estimate forfeiture in the future.
2007 Stock Option Plan (No. 2)
Under the 2007 stock option plan, stock options were granted to 5 directors and 2 corporate auditors on July 20, 2007. They are
exercisable in the period from July 21, 2007 to July 20, 2037. The terms of the options include certain limitations on the exercisability
under which grantees can exercise their options during a five-year period starting a year after they lose their positions as directors or
corporate auditors.
A summary of information for the stock option plan is as follows:
Exercise price
Fair value at the grant date
Number of stock options granted

42

Annual R epor t 2009¥1($0.01)¥1,284 ($13.13)
40,000 sharesA summary of the scale and movement of the stock option plan for the year ended February 28, 2009 is as follows:2007 stock option planNon-vested:
Outstanding at February 29, 2008

40,000Granted̆

Forfeited̆

Vested̆

Outstanding at February 28, 2009

40,000The number of rights to vest in the future periods is determined based on the actual forfeited number of the stock option because it
is difficult to estimate forfeiture in the future.
2006 Stock Option Plan (No. 1)
Under the 2006 stock option plan, stock options were granted to 12 directors and 2 corporate auditors on June 20, 2006. They are
exercisable in the period from July 1, 2006 to June 30, 2036. The terms of the options include certain limitations on the exercisability
under which grantees can exercise their options during a five-year period starting a year after they lose their positions as directors or
corporate auditors.
A summary of information for the stock option plan is as follows:
Exercise price
Fair value at the grant date

¥1 ($0.01)¥1,541 ($15.76)

Number of stock options granted

63,000 shares

A summary of the scale and movement of the Company’s stock option plan for the year ended February 28, 2009 is as follows:
2006 stock option planNon-vested:
Outstanding at February 29, 2008

63,000Granted̆

Forfeited̆

Vested26,500

Outstanding at February 28, 2009

36,500

Vested:Outstanding at February 29, 2008

̆

Vested26,500Exercised

3,000

Forfeited̆

Outstanding at February 28, 2009

23,500The number of rights to vest in the future periods is determined based on the actual forfeited number of the stock option because it
is difficult to estimate forfeiture in the future.
18. Segment Information(1) Industry Segment Information
The Company and its consolidated subsidiaries operate principally in two industrial segments, “Apparel” and “Other.”
The Apparel Division produces and sells a wide range of women’s and men’s clothing, including dresses, suits, shirts, skirts,
sweaters, trousers and casual wear.
The Other Division operates logistics, sports facilities, resort facilities, etc.

O N WA R D H O L D I NG S CO . , LT D .

43

On September 1, 2007, the Company was reorganized as a pure holding company; therefore, the Group management expenses
and the assets used for management activity which were included in the Apparel segment have been transferred to Elimination ofintersegment sales.
Segment information classified by industry segment of the Companies for the year ended February 28, 2009 is as follows:
For the year ended February 28, 2009

Millions of yen
Industry segment

Sales to outside customers

Elimination ofintersegment sales

Consolidated
total

Apparel

Other

Total

¥ 245,422¥15,584¥ 261,006

11

7,676

7,687

(7,687)

̆

245,433

23,260268,693(7,687)

261,006

Intersegment sales
Total

¥

¥ 261,006

236,479

23,3808,954¥ (120)¥AssetsDepreciation and amortization¥ 202,727¥ 4,946¥32,496¥ 730¥ 235,223¥ 5,676¥ 61,060¥
310¥ 296,283¥ 5,986

Impairment loss

¥ 12,738¥77¥ 12,815¥

183¥ 12,998

Capital expenditures

¥

¥

404

¥

¥

169

¥

Costs and expenses
Operating income (loss)

¥

3,605

For the year ended February 28, 2009

259,859

ʊ

(7,937)

8,834

¥

4,009

251,922

250

¥

9,084

4,178

Thousands of U.S. dollars
Industry segment
Apparel

Other

Total

Sales to outside customers
Intersegment sales$2,509,171
112$159,329
78,479$ 2,668,500
78,591

Total
Costs and expenses

2,509,283
2,417,738

237,808
239,035

2,747,091
2,656,773

Elimination ofintersegment sales$ʊ(78,591)$2,668,500(78,591)(81,147)

2,668,500
2,575,626

$

2,556

̆

$

92,874

Operating income (loss)$

91,545$ (1,227)$

AssetsDepreciation and amortization$2,072,661$ 50,567$332,236$ 7,464$ 2,404,897$
58,031$ 624,272$ 3,169$3,029,169$ 61,200

Impairment loss

$ 130,232

$

787

$

131,019$

1,871$ 132,890

Capital expenditures

$

$

4,130

$

40,987

$

1,728

$

36,85790,318

Consolidated
total

42,715The management expenses in Elimination of intersegment sales as of February 28, 2009 were ¥3,836 million ($39,219 thousand)and the assets used for management activity as of February 28, 2009 were ¥191,306 million ($1,955,894 thousand).
Segment information classified by industry segment of the Companies for the year ended February 29, 2008 is as follows:
For the year ended February 29, 2008

Millions of yen
Industry segment

Sales to outside customers
Intersegment sales

Apparel

Other

Total

¥ 269,322
13¥17,7109,778¥ 287,032
9,791

Total

Elimination ofintersegment sales¥

Consolidated
totalʊ
(9,791)¥ 287,032
ʊ
287,032

269,335

27,488296,823(9,791)

Costs and expenses

249,191

27,211

276,402(7,998)268,404

Operating income¥ 20,144¥277¥ 20,421¥ (1,793)¥ 18,628

AssetsDepreciation and amortization¥ 178,035¥ 6,246¥40,664¥ 1,148¥ 218,699¥ 7,394¥ 90,393¥(53)¥ 309,092¥ 7,341

Impairment loss

¥

1,312

¥

21

¥

1,333

¥

ʊ

¥

1,333

Capital expenditures

¥

8,565

¥ 1,037

¥

9,602

¥

(36)

¥

9,566

The management expenses transferred to Elimination of intersegment sales as of February 29, 2008, were ¥1,801 million and theassets used for management activity as of February 29, 2008, were ¥180,201 million.

44

Annual R epor t 2009

(2) Geographic Segment Information
The major countries or regions in the respective divisions are as follows:
Europe: United Kingdom, Italy and France
Other: U.S.A., China and Korea
On September 1, 2007, the Company was reorganized as a pure holding company; therefore, the Group management expense
and the assets used for management activity which were included in the Japan segment have been transferred to Elimination ofintersegment sales.
Segment information classified by geographic segment of the Company for the year ended February 28, 2009 is as follows:
For the year ended February 28, 2009

Millions of yen
Geographic segment

Sales to outside customers
Intersegment sales
Total
Costs and expenses

Elimination ofintersegment sales

Japan

Europe

Other

Total

¥ 226,449
1,834¥ 26,330
546¥ 8,22775¥ 261,006
2,455

ʊ
(2,455)¥ 261,006
ʊ

228,283

26,876

8,302

263,461(2,455)

261,006

217,529

28,4008,866

254,795(2,873)251,922

Operating income (loss)¥ 10,754¥

Assets¥ 150,554¥ 69,777(1,524)

¥

(564)

¥

¥ 14,715

For the year ended February 28, 2009

8,666

¥

¥ 235,046

418

¥

9,084

¥ 61,237¥ 296,283

Elimination ofintersegment sales

Consolidated
total

Thousands of U.S. dollars
Geographic segment

Japan
Sales to outside customers
Intersegment sales¥

Consolidated
total

Europe$2,315,192 $ 269,196
18,751
5,582

Other

Total

$ 84,112766$2,668,500
25,099$ʊ
(25,099)$ 2,668,500
ʊ

2,333,943

274,778

84,8782,693,599(25,099)

2,668,500

Costs and expenses

2,223,995

290,359

90,6452,604,999(29,373)

2,575,626

Operating income (loss)$ 109,948 $ (15,581)$ (5,767) $Assets$1,539,250 $ 713,393$ 150,445

Total

88,600$2,403,088

$

4,274

$ 626,081$

92,874$ 3,029,169

The management expenses in Elimination of intersegment sales as of February 28, 2009 were ¥3,836 million ($39,219 thousand)and the assets used for management activity as of February 28, 2009 were ¥191,306 million ($1,955,894 thousand).
Segment information classified by geographic segment of the Company for the year ended February 29, 2008 is as follows:
For the year ended February 29, 2008

Millions of yen
Geographic segment

Sales to outside customers

Japan

Europe

Other

Total

Elimination ofintersegment sales¥ʊConsolidated
Total¥ 243,199¥34,107¥ 9,726¥287,032

Intersegment sales

1,536

623

121

2,280

(2,280)¥ 287,032
ʊ

Total
Costs and expenses

244,735
226,700

34,73031,892

9,847
10,765289,312269,357(2,280)(952)

287,032
268,405

Operating income (loss)¥ 18,035¥ 2,838¥(917)¥ 19,956¥ (1,328)¥ 18,628

Assets¥ 152,615¥47,114¥ 17,839¥217,568¥91,524¥ 309,092

The management expenses transferred to Elimination of intersegment sales as of February 29, 2008, were ¥1,801 million and theassets used for management activity as of February 29, 2008, were ¥180,201 million.

O N WA R D H O L D I NG S CO . , LT D .

45

(3) Overseas Sales
The major countries or regions in the respective divisions are as follows:
Europe: United Kingdom, Italy and France
Other: U.S.A., China and Korea
The overseas sales are sales except for sales to the Japan area of the Company and its consolidated subsidiaries.
Segment information classified as overseas sales of the Company for the year ended February 28, 2009 is as follows:
For the year ended February 28, 2009

Millions of yen
Overseas sales

Overseas sales
Consolidated sales
Percentage of overseas sales against consolidated sales

Europe

Other

Total

¥ 18,530¥ 14,945¥ 33,475
261,006

7.1%

5.7%

12.8%

For the year ended February 28, 2009

Thousands of U.S. dollars
Overseas sales

Overseas sales
Consolidated sales
Percentage of overseas sales against consolidated sales

Europe

Other

Total

$ 189,449$ 152,796$ 342,245
2,668,500

7.1%

5.7%

12.8%

Segment information classified as overseas sales of the Company for the year ended February 29, 2008 is as follows:
For the year ended February 29, 2008

Millions of yen
Overseas sales

Overseas sales
Consolidated sales
Percentage of overseas sales against consolidated sales

46

Annual R epor t 2009

Europe

Other

Total

¥ 25,917¥ 19,243¥ 45,160
287,032

9.0%

6.7%

15.7%

Principal Subsidiaries
Overseas Subsidiaries
J. PRESS, INC.
262 York Street,
New Haven, CT 06511, U.S.A.
Tel: (1) 203-772-1310

Horloge Saint BeNoit S.A.
22 Rue Saint Benoit,
75006 Paris, France
Tel: (33) 1-4544-1118

ONWARD KASHIYAMAHONG KONG LTD.
Units 1208-9, Lippo Sun Plaza,
28 Canton Road, T.S.T.,
Kowloon, Hong Kong,
People’s Republic of China
Tel: (852) 2721-7068

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

GIBO’ CO. S.p.A.
Via Cassia 69, Tavarnuzza,
50029 Firenze, Italy
Tel: (39) 055-237-2020
ONWARD ITALIA S.p.A.
Via Della Spiga 9, 20121 Milano, Italy
Tel: (39) 02-783-667
SHANGHAI ONWARD
FASHION CO., LTD.
5F Jinjiang Dickson Center,#400 Changle Road, Shanghai,
People’s Republic of China
Tel: (86) 21-6466-6466
ONWARD FASHION TRADING(China) CO., LTD.
5F Jinjiang Dickson Center,#400 Changle Road, Shanghai,
People’s Republic of China
Tel: (86) 21-6472-3660
ONWARD Retail L.L.C.
530 7th Ave., 29th Floor,
NAVE Soho Store,
New York, NY 10018, U.S.A.
Tel: (1) 212-997-3600
ONWARD Kashiyama
Korea Co., Ltd.
GF, Hwankyoung B/D,
1-118, Jang Chung-Dong, Chung-ku,
Seoul 100-391, Republic of Korea
Tel: (82) 2-548-5841

48

Domestic Subsidiaries

A nnual R epor t 2009

ONWARD Golf RESORT GUAM, INC.
#825, Route 4A, Talofofo,
Guam 96915, U.S.A.
Tel: (1) 671-789-5555
Freed of London Ltd.
94, St. Martin’s Lane,
London WC2N 4AT, U.K.
Tel: (44) 20-7240-0432
Joseph Ltd.
Unit 11, 50 Carnwath Road,
London SW6 3JX, U.K.
Tel: (44) 20-7736-2522
Jil sander S.p.A.
Piazza Castello 1,
20121 Milano, Italy
Tel: (39) 02-806913. 1
IRIS S.p.A.
Via Pampagnina 42,
Fisso D’Artico,
30032 Venezia, Italy
Tel: (39) 041-5169911
ERIKA s.r.l.
Via Boschi, 42/bis,
37060 MACCARI (Verona), Italy
Tel: (39) 0442-56666
Frassineti s.r.l.
Via E. Fermi 7, Loc. Scopeti - Rufina,
50068 Firenze, Italy
Tel: (39) 055-839-7385
corporate s.r.l.
Via Robuschi, 3 43100 Parma, Italy
Tel: (39) 0521-292-961

Apparel and Textile
Products
onward kashiyama Co., Ltd.
onward trading Co., Ltd.
Chacott Co., Ltd.
CREATIVE YOKO Co., Ltd.
BUS STOP Co., Ltd.
Donna Karan Japan K.K.
FUSION Co., Ltd.
candela international co., ltd.
j. direction co., ltd.
O.P. S. co., ltd.

Services
Across Transport Co., Ltd.
Onward Life Design
Network Co., Ltd.
Onward Creative Center Co., Ltd.
voicedam co., ltd.
bien co., ltd.
EXCEL CO., LTD.
BOOKLET Corp.

Resorts
O & K Co., Ltd.
ONWARD RESORT & golf CO., LTD.

As of February 28, 2009C o r p o r a t e D a ta
(As of February 28, 2009)

Head Office	10-5, Nihonbashi 3-chome,

Major Shareholders

Chuo-ku, Tokyo 103-8239, Japan

Tel: (81) 3-3272-2317
Fax: (81) 3-3272-2314
URL: http://www.onward-hd.co.jp/
Established

September 1947

Paid-in Capital¥30,080 million

Common Stock	Authorized—400,000,000 shares
Issued—172,921,669 shares
Number of Shareholders

10,317

Percentage ofTotal Shares Issued

Kashiyama Scholarship Foundation

5.03%

Japan Trustee Services Bank, Ltd. (Trust account)

4.62

Japan Trustee Services Bank, Ltd. (Trust account 4G)

3.98

The Master Trust Bank of Japan, Ltd. (Trust account)

3.78

Nippon Life Insurance Company

3.60

Lehman Brothers International (Europe), Limited

3.14

Isetan Company, Limited

2.89

The Dai-ichi Mutual Life Insurance Company

2.42

MARUI GROUP CO., LTD.

1.97

SUMITOMO MITSUI BANKING CORPORATION

1.69

Notes: 1. The Company holds 16,267 treasury shares (9.40%) but has been
excluded from the list of major shareholders.
2. The figures for percentage ownership of total shares issued have been
computed to three digits and then truncated to two digits.

Stock Listings	Tokyo, Osaka, and Nagoyastock exchanges
Transfer Agent	Mitsubishi UFJ Trust& Banking Co., Ltd.

Distribution of Ownership among Shareholders

4-5, Marunouchi 1-chome,(On a number of shares basis)

Chiyoda-ku, Tokyo 100-8212, Japan
Number of Employees(Consolidated)

2,473 (As of the end of February 2009)

Other Japanese corporations
23.0%

Japanese financial institutions
31.9%

Foreign institutions and others
24.7%

Japanese securities companies
0.2%Japanese individuals and others
20.2%

Stock Price Movement
12,000(Thousands of shares)

(Yen)

2,000

10,000
1,500
8,000
6,000

1,000

4,000
500
2,000
0

May
2008

June

July

Aug.

Sept.

Oct.

Nov.

Dec.

Jan.
2009

Feb.

Mar.

Apr.

May

0

 Trading Volume (left scale) ONWARD KASHIYAMA’s Stock Price (Closing) (right scale)O N WA R D H O L D I NG S CO . , LT D .

49

ONWARD HOLDINGS CO., LTD.

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

Annual Report 2009

Printed in Japan