イズミAR2004入稿8/24 04.9.2 4:53 PM ページ 2

IZUMI Co., Ltd.
Annual Report
2004イズミAR2004入稿8/24 04.9.2 4:53 PM ページ 3

FINANCIAL HIGHLIGHTS
Thousands of
U.S. dollars(Note 1)Millions of yen
2004
Mar. 2003–
Feb. 2004

2003
Mar. 2002–
Feb. 2003

2002
Mar. 2001–
Feb. 2002

2001
Mar. 2000–
Feb. 2001

2000
Mar. 1999–
Feb. 2000

2004
Mar. 2003–
Feb. 2004¥ 407,648¥ 383,098¥ 363,714¥ 346,811¥ 288,343$ 3,719,755

18,07915,994

14,784

10,2858,134

164,969

and minority interests

16,888

11,834

9,493

7,790

3,360

154,102

Net income

8,713

5,600

4,832

3,415

1,437

79,505

Revenues
Operating income
Income before income taxes

Net income/revenues

2.14%

1.46%

1.33%

0.98%

0.50%

2.14%

Total stockholders’ equity

84,35476,892

74,132

71,81074,471

769,724

Total assets

295,927

273,484

268,655

270,757

236,785

2,700,310
U.S. dollars(Note 1)Yen

Per share (Note 2):
Net income — basic
Net income — diluted
Cash dividends declared¥148.07

¥

95.23

¥

81.46

¥

53.66

¥

21.99

$

1.35

—

94.21

79.40

48.87

20.36

—

23.00

23.00

21.00

21.00

21.00

0.21

Notes 1. Yen amounts are translated into U.S. dollars, solely for convenience, at the prevailing exchange rate on February 29, 2004 of ¥109.59 = U.S. $1.
2. See Note 2 (17) of Notes to Consolidated Financial Statements .

CONTENTS
Profile1

Consolidated Statements of Cash Flows13

To Our Stockholders

2

Notes to Consolidated Financial Statements

14

Special Feature: Izumi’s Growth Strategy

4

Report of Independent Auditors

20

Consolidated Statements of Income

9

Directors and Corporate Auditors

21

Consolidated Balance Sheets

10

Corporate Data

21

Consolidated Statements of Stockholders’ Equity

12イズミAR2004入稿8/24 04.9.2 4:53 PM ページ 1

PROFILE
Izumi Co., Ltd. takes pride in being the predominant retail chain in the Chugoku, which includes Hiroshima, and Kyushu
regions of Western Japan. As at the end of February 2004, its hypermarkets and food supermarkets had extended to 70
locations in the area. In the former category, Youme Town in particular is pushing to be the region’s number one interms of scale and product range with its ‘Dream Street’ supporting the local inhabitants’ lifestyle proof positive of continued development to come.
As the guiding principle of Izumi’s management style, “customer satisfaction” will be properly addressed in accordance with customers’ needs in the future, as the Company further establishes its position of competitive dominancewithin the region.

01
ShimaneHyogo
Osaka
Yamaguchi

5
Fukuoka

10

Saga

29

Hiroshima

1

9
1

1
Kagawa

1
(4)

1

12

Oita

NagasakiExisting store
Subsidiary
KumamotoイズミAR2004入稿8/24 04.9.2 4:53 PM ページ 2

TO OUR STOCKHOLDERS

The fiscal year under review, ended February 29, 2004, witnessed the adverse environment surrounding the distribution industry increasing in its severity, with low clouds hanging over private spending caused by employment anxieties, and wage restraints and the increasing burden of welfare guarantee payments allying with more intensecompetition.
Under these circumstances, Izumi undertook strengthening measures in step with changing customer needs andworked towards maximizing customer satisfaction. As a result, established store sales made little progress due tochangeable weather and intensified competition, but a change in business conditions at newly opened stores
resulted in them making a contribution to an increase in revenues. Furthermore, the first stage in cost structurereform combined with the robust performance of the Group as a whole, enabling it to achieve increases in revenues
and profits for the fifth fiscal year in succession.

02

1. Contribution from newly opened storesOver and above increasing customer satisfaction levels, the Company should take advantage of its“original strengths it has acquired by making further inroads into the region.” Although our branches
are confined to the Chugoku, Shikoku and Kyushu areas, there are positive store developments taking
place within our catchment area, with newly opened stores making a significant contribution toincreases in revenue.
• In September 2003, Izumi’s premier Youme Town Kurume store opened, smoothly bringing aboutchange by concentrating Japan’s top-class in terms of scale and high-profile specialist store groupas the region’s number one.
• Youme Town Kumamoto opened in the previous fiscal year but, during the period under review
and continuing throughout the year they contributed fully to results and significantly to those of
subsidiaries. Among those stores leased from Niko Niko Do, overall activity involved the refurbishment and reopening of Sanpian and Hamasen stores as Youme Town stores.
2. Cost structure reformOn the other hand, revenue levels at our existing stores base weathered both poor consumer spending
as well as unseasonable temperatures, showing a decline of 2.8% compared with the previous fiscal
year. However, ongoing cost structure reform resulted in, among others, a reduction in selling, generaland administrative expenses, a rise in direct gross profit and a lower breakeven point. As a result,absorbing the burden of stagnation at existing stores and store openings at newly established locations
secured an increase in profits.
3. Group growth
Taking the Group as a whole, including the active expansion of X-Sell import brand stores, a strengthening of Youme Card functions and greatly increased card membership, the widening scope of orders
for Ideo’s energy saving business and the favorable results from Youme Town’s Kumamoto store all
managed to force up growth.

イズミAR2004入稿8/24 04.9.2 4:53 PM ページ 3

The above results and fiscal 2003 performance are set out below.

• Revenue levels at our existing stores base weathered both poor consumer spending as well as unseasonabletemperatures, showing a decline of 2.8% compared with the previous fiscal year, sales at Group subsidiaries
firmed up. Year-round operations at Youme Town Kumamoto, which commenced operations in July 2002 andalso operates the small-scale general stores leased from Niko Niko Do, resulted in consolidated revenues of¥407.6 billion being recorded, an increase of 6.4% compared with the previous fiscal year.
• Compared with the previous year, consolidated net income in the year under review increased 55.6%, to ¥8.71
billion, and net income per share was ¥148.07, representing an increase of 55.5%.
• Gross profit ratio from the provision and sale of products to Group companies was 22.7% (edging downward
0.6% compared with the previous year), but gross profit ratio at directly managed stores showed an improvement to 30.1%, an increase of 0.1% compared with the previous year.
• These results mean that revenues and profits have increased year-on-year for five successive fiscal years.

03

Consolidated return on equity (ROE) was 10.8%.

Cash dividend per share has risen from last year’s ¥21.00, to ¥23.00, but from the stability of allocation
point of view, that for the current fiscal year could be deferred.

Yasuaki Yamanishi
President

Revenues

Operating Income(Millions of yen)

(Millions of yen)

Net Income/Net Income per Share148.07(Millions of yen/Yen)

95.23

8,713

Net Income per Share

81.46

14,784

15,994

18,079407,648

363,714

4,832

53.66

21.99

3,415

8,134

10,285

5,600

288,343

346,811

383,098

Net Income

1,437

00/2

01/2

02/2

03/2

04/2

00/2

01/2

02/2

03/2

04/2

00/2

01/2

02/2

03/2

04/2

イズミAR2004入稿8/24 04.9.2 4:53 PM ページ 4

SPECIAL FEATURE : IZUMI’S GROWTH STRATEGYIZUMI’S OPERATINGENVIRONMENTThe environment surrounding the retail industry is as harsh as ever, with retail business breakevenpoints becoming a matter of life or death.
• At the start of the decade, the shake-up in multiple-location supermarkets caused a reduction in
the amount of sales floor space available. This was the first stage of a deterioration in the competitive environment, and those famous companies that managed to survive once again increased byproactively opening stores.
• In the retail industry, it is generally thought that the gaining and maintaining of customer satisfaction go hand in hand with profits. However, the needs of the customer are becoming increasingly
diverse and changing radically, so to comply with those needs in a precise manner poses a significant problem.
• The conflict of interest between the arrival of the retail businesses of overseas affiliates andretail/wholesale mergers and acquisitions on one side, and distribution structure rationalizationon the other is intense but, as a retailer with local roots, there is an absolute necessity to copewith and at the same time exploit these special circumstances.

04
IZUMI’S BASIC GUIDELINES

Under these circumstances, Izumi will adhere steadfastly to the basic guidelines outlined below.
• Maintaining customer satisfaction is indeed the source of profit, but Izumi, confronted by various
changes, is in the process of bringing this to lasting fruition at each store by measures corresponding to independence and speed.
• Maintain focus on spheres in which we hold a dominant competitive position and have limited
management resources. Specifically:
1. Limit stores to the Chugoku-Kyushu area, deepen understanding of the area’s special characteristics, increase management efficiencies
2. In our core everyday items business in that region, continue to make stores the local
number one by introducing a wider range of items from prominent Japanese specialty store
groups
3. Likewise, in the case of existing branches, continuously re-energize investment, resolutely
close down underperforming stores and increase property asset efficiency

VALUE-ADDED UPGRADE OF
PRODUCTS AND SERVICES

In accordance with the above-mentioned basic guidelines, the following will be put into effect at storesto ensure customer satisfaction:• By offering high value-added products, clothing departments have already gained customer allegiance and become Izumi profit leaders. This will be continued by the introduction of new andexisting lines previously unobtainable in the region, proposing new styles to customers with

イズミAR2004入稿8/24 04.9.2 4:54 PM ページ 5

further advancement of stylish stores.
• As Izumi’s household-related product department, which deals in domestic appliances, furnitureand sports goods, lacked unique selling points, it was withdrawn in its early stages and a special
focus is being placed on an area with more product differentiation potential. In the period underreview, the drug department began cooperation with Japan’s sole retail drug company,
MatsumotoKiyoshi Co., Ltd. As it stocks competitive products, there will be an exchange of expertise, expertise that it has already put into its vision of the dispensing pharmacy of the future. In its
position as an influential specialty store in the region, and with a view to higher value-added,
Izumi will continue to address those fields in which it currently lacks expertise.
• In the general and prepared food departments, market leading product ranges have made great
gains in terms of competitiveness. However, certain aspects of the fresh produce departmentcompared unfavorably with the region’s smaller food stores, showing a lack of responsiveness to
its particular needs. Therefore, in addition to adopting points gleaned from regional market planning to gain customer support, the Company addressed the problem by strengthening its development of daily market-fresh produce, accepting the risk of switching to buying in deliveries
direct from the market to each store on a daily basis. By doing so, a rich range of fresh produce
could be developed in a short space of time, competitiveness returned, with an overall recovery
trend visible in both the food department and its revenues.
An explanation of financial targets and results attained in the region for the period under review

FEBRUARY 2004 RESULTS

follows:

Trends in operating income ratio
and gross profit ratios at
directly managed stores(%)

1. Non-consolidated operating income ratio 4.1% (a decrease of 0.2% compared with the previous fiscal
year)• The main cause of the fall was the increase in products sold and supplied to Group companies(compared with the previous fiscal year, the 0.5% gross profit rate of products sold and supplied

28.8

29.2

30.0

30.1

4.3

4.1

03/2

04/2

30.0

3.9
2.7

2.8

00/2

01/2

02/2

increased 1.7 times, to ¥16.7 billion).

Operating income ratio
Gross profit ratio

Youme Town Kurume05

イズミAR2004入稿8/24 04.9.2 4:54 PM ページ 6• As a result, gross profit of 22.2% edged down 0.3% compared with the previous year but, as thecost prices of bought-in products and price cut losses came down, the gross profit ratio of thethree directly managed departments that form the profit base was able to show continued
improvement to 30.1%, up 0.1% from the previous fiscal year.
• With the increased burden of company insurance, personnel expenses, selling, general andadministrative expenses escalated but, on the other hand, by skillfully making changes, theeffect on advertising costs and the like, advances were made in reducing expenditures. This
resulted in a ratio of selling, general and administrative expenses to revenues of 22.2%,
showing a slight improvement of 0.3% compared with the previous fiscal year.
In this fashion, cost structure reform continued to make progress during the period under review,
with a corresponding improvement in the profit base.

Trends in consolidated ordinary
income to total assets
and consolidated ROE

06

(%)

2. Ordinary income as a percentage of total assets of 6.2% (an increase of 0.4% compared with theprevious fiscal year).
Izumi takes great pains to increase the asset profitability of its store network by continuously monitoring what stage in its life cycle each store has reached and by taking action accordingly.

10.8

Company smoothly opened its Youme Town stores to be the number one in the region but,

6.6
7.4
4.7

6.2

5.8

having some high performance remaining from their competitive edge, extended the scale ofIzumi’s lead and was the main reason for an improvement in earning power.

5.1
2.7

• It is essential that newly established stores combine sufficient growth and profit potential. The

3.9• In the face of competition and changing consumer needs, undertaking the revitalization of existing stores is of necessity an ongoing process. Every fiscal year, Izumi plows back a part of its

1.9
04/2

cash flow into existing stores. By doing so, it plans to maintain and improve their profit potential.

Ordinary income to total assets
Consolidated ROE• With reluctance, those underperforming stores that fail to meet needs or are not moving with

00/2

01/2

02/2

03/2

the times are closed down. Store closures improve the earnings potential of existing stores andthe setup of new high-profit stores and are essential for improved capital investment returnplanning.
These three points maintained healthy and high profit levels throughout the Izumi store networkand secured consolidated ordinary income to total assets of 6.2%, up 0.4% compared with the previous term. With the environment surrounding the retail industry becoming progressively worse, there
was wider scope for potential and long-lasting growth throughout the Company as a whole.
Regarding the capital held by stockholders, consolidated ROE showed its efficiency by improving

Trends in consolidated
interest-bearing debt balancesand repayment periods

3.4% compared with the previous year, to 10.8%.
3. Consolidated interest-bearing debt of ¥139.2 billion (a decrease of ¥500 million compared with the139,286

139,789

137,705

120,881

147,751

previous year; excluding credit finance subsidiary Youme Card Co., Ltd., a decrease of¥2.5 billion).
In the latter half of the 1990s, after three consecutive years of profit loss the opportunity was taken to
slacken the pace of store openings to decrease capital investment and allocate cash flow to bring

9.0

9.4
7.6

down interest-bearing debt. There was a focus on personnel training and staging a revenue recovery.
7.3

6.7

Later, to a background of a recovery in both revenues and results, Izumi once again used cash
flow to open new stores, which brought about the subsequent stable growth.

00/2

01/2

02/2

03/2

04/2

Interest bearing debt balance(Millions of yen)
Repayment period (Years)• Deriving appropriate scope to strike an even balance between shareholders’ equity and interestbearing debt, a balance will be found between interest-bearing debt balances and control ofarranged cash flows and investment.

イズミAR2004入稿8/24 04.9.2 4:54 PM ページ 7• At the same time, improving cash flow generation brought about a steady reduction in interestbearing debt repayment periods (interest-bearing debt ÷ cash flow).
By producing firm results and enriched internal reserves, an expected steady increase in shareholders’ equity, increased cash flows as well as control over interest-bearing debt, Izumi’s financialbase is also expected to become progressively more secure.

FUTURE GROWTH STRATEGIES

Izumi will achieve growth by opening more Youme Town stores, the number one stores in theregion. By increasing its market share in the Chugoku and Kyushu regions, Youme Town will beendowed with heightened consumer recognition as an up-market shopping center there.
By boosting performance, Izumi strengthened its management base and opened new stores overa wider area. From now on, new store openings will be entered into as actively and farsightedly as
ever, taking into account related improvements in the business environment. At the present time, it
has been decided to open two stores (Hikarinomori and Kure) in the fiscal year ending February 2005,
with a further two to be added in the fiscal year ending in February 2006. Depending on the businessenvironment and performance trends, consideration will then be given to the speed in which more
stores can be established without causing undue financial strain, as one step in seizing opportunities
enabling us to achieve high growth.

Kure store planned to open in
September 2004

As has happened in the past, possibilities will also arise in the entire Chugoku, Shikoku andKyushu region that will enable us to extend the store area by making use of the ease of accessafforded by Shinkansen services and high-speed roads. In this fashion, by extending the area inwhich Youme Town is dominant, Izumi’s business base will be further strengthened.

Topic: Hikarinomori Store Opened on June 3, 2004
The Hikarinomori store, which was opened on June 3, is located in the large suburban commuter belt aroundthe hub city of Kumamoto in central Kyushu, currently an area with a growing population. Izumi gives carefulconsideration to direct access when selecting new store locations. Here it is more than adequate, with a dedicated bridge that was constructed from the highway the store faces and a newly opened Japan Railways
station. The challenges posed by providing ease of access for elderly and disabled customers were also
addressed by the introduction of barrier-free design features. As this is the first of the Company’s stores toinclude a movie theater (nine screens, 1,800 seats) it is expected to bring in high numbers of visitors from thesurrounding area.

Site area: 48,500 m2
Store area: 36,600 m2
Parking space for 2,600 vehicles
Youme Town Hikarinomori store07

イズミAR2004入稿8/24 04.9.2 4:54 PM ページ 8

GROUP COMPANIESGroup companies, which are gaining in competitive strength in several business domains, intend to
expand in areas outside Izumi’s current framework.

Net Sales(Millions of yen)

40,95102/2

03/2

42,53040,00000/231,89626,445

X-Sell Inc.
By utilizing its own supply channels, X-Sell operates stores specializing inimported premier brands, offering them at reasonable prices. Being the only unrivalled stores of their kind in the industry has resulted in vigorous store expansionthat has attracted attention from nationwide shopping center chains. Two subsidiary companies derived from X-Sell, one specializing in watches the otherjewelry, are proud of their competitive strength and are accelerating X-Sell’s
growth.

01/2

08

04/2

Net Sales(Millions of yen)

6,127
5,154
4,295

00/2

3,784

3,481

Youme Card Co., Ltd
Youme Card, which is operated as Izumi’s own house card and has developed asa credit card/cash advance business, has become the region’s most widely usedcard with the cooperation of financial organizations. VISA, Mastercard and JCB
have all assisted in extending their convenience and favorably increased cardholder numbers, which has resulted in the internationalization of credit cards. By
strengthening credit controls and further developing the system, Izumi will
promote credit card use among its customers and is planning to extend its business even further.

01/2

02/2

03/2

04/2

Net Sales(Millions of yen)

8,239
6,325
4,385

00/2

3,804

3,023

Ideo Co., Ltd
Deriving its principal business from securing and safeguarding building facilities
as well as electrical and building maintenance and cleaning services, Ideo Co.,
Ltd. undertakes general building maintenance. From the Company`s shopping
centers to Narita International Airport and government buildings, Ideo attracts
business from a wide variety of facilities throughout Japan. Furthermore, largescale facilities such as water treatment works are putting into operation cost
reduction measures, which may point toward another growth phase in the near
future.

01/2

02/2

03/2

04/2

Net Sales(Millions of yen)

7,067

6,235
5,365

4,815
3,794

Izumi Food Service Co., Ltd
Izumi Food Service operates the Company’s in-store restaurants. There has beena continuing shift away from the former mid-range food courts to genuine specialist shops offering, for example, Italian and Chinese cuisine. These have acted
as core businesses attracting customers to YoumeTown, which places a numberof popular stores under one roof.
From now on, as well as making further improvements in quality, progress will
be made towards specialization that will produce higher profits than ever before
from within a variety of specialist businesses. This will bring with it improvements in growth as well as profit earning potential.

00/2

01/2

02/2

03/2

04/2

izumi 財務̲8/26 04.9.2 5:36 PM ページ 9

CONSOLIDATED STATEMENTS OF INCOME
Thousands of
U.S. dollars(Note 3)

Millions of yen

Izumi Co., Ltd. and its subsidiaries
For the years ended February 29, 2004 and February 28, 2003

2004

2003

2004

¥395,918¥373,428$3,612,720

11,7309,670

107,035

407,648

383,098

3,719,755

303,998

283,925

2,773,957

103,650

99,173

945,798

85,571

83,179780,829

18,07915,994

164,969

REVENUES:Net sales
Other operating revenues

COST OF SALES
Gross profit
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Operating income
OTHER INCOME (EXPENSES):Interest and dividend income

254

231

2,318

(1,839)(2,184)(16,780)

(61)

(206)

(556)

3

22

27

Loss on sales or disposal of property and equipment(629)(2,581)(5,740)Foreign exchange gains

306

133

2,792

Other, net

775

425

7,072

(1,191)(4,160)(10,867)

16,888

11,834

154,102

Current

7,369

5,682

67,242

Deferred

(255)

(341)

(2,327)

7,114

5,341

64,915

9,774

6,493

89,187

1,061

893

9,682

Interest expense
Loss on revaluation of investments in securities, net
Gain on sales of property and equipment

Income before income taxes and minority interests
INCOME TAXES (Note 11):

Income before minority interests
MINORITY INTERESTS
Net income

¥

8,713

¥

5,600

$

79,505

U.S. dollars(Note 3)Yen

PER SHARE:
Net income (Note 2 (17)):
Basic
DilutedCash dividends declared
WEIGHTED AVERAGE NUMBER OF SHARES (thousands)
The accompanying notes are an integral part of these statements.

¥148.07¥95.23

$1.35

—

94.21

—

23.00

23.00

0.21

58,67058,80609

izumi 財務̲8/26 04.9.2 4:57 PM ページ 10

CONSOLIDATED BALANCE SHEETS
Izumi Co., Ltd. and its subsidiaries
As of February 29, 2004 and February 28, 2003

Thousands of
U.S. dollars(Note 3)

Millions of yen

2004

2003

2004

ASSETS
CURRENT ASSETS:
Cash and bank deposits
Short-term loans receivable¥ 10,184

¥

8,168

$

92,92813,81012,008126,015

Trade

6,915

5,854

63,099

Other

1,381

1,064

12,602

8,296

6,918

75,701

(784)

(643)

(7,154)

7,512

6,275

68,547

Inventories

22,20020,936

202,573

Deferred income taxes (Note 11)

1,718

1,287

15,677

Other current assets

3,044

3,608

27,77658,46852,282

533,516

Investments in securities (Note 4)

4,695

4,562

42,842Other investments and advances

2,476

2,024

22,593

7,171

6,586

65,435

Buildings and structures

188,583

173,615

1,720,805

Machinery, equipment, vehicles and other

32,99230,015301,049

Notes and accounts receivable:

Less–allowance for doubtful accounts

10

Total current assets

INVESTMENTS AND ADVANCES:

PROPERTY AND EQUIPMENT (Note 5 and 6):

221,575

203,630

2,021,854(103,591)(95,669)(945,259)

117,984

107,961

1,076,595

Land

79,24673,863

723,113

Construction in progress

2,583

1,613

23,570199,813

183,437

1,823,278

16,864

17,528

153,882

Less–accumulated depreciation

OTHER ASSETS:
Fixed leasehold deposits
Deferred income taxes (Note 11)

2,304

2,724

21,024Other

11,307

10,927103,175¥295,927¥273,484$2,700,310

The accompanying notes are an integral part of these statements.

izumi 財務̲8/26 04.9.2 4:57 PM ページ 11

Thousands of
U.S. dollars(Note 3)

Millions of yen

2004

2003

2004

¥ 20,982¥ 24,883$ 191,459

28,66328,593

261,548Trade

17,485

14,644

159,549

Other

11,215

6,397

102,336

LIABILITIES AND STOCKHOLDERS’ EQUITYCURRENT LIABILITIES:
Short-term borrowings (Note 6)
Current portion of long-term debt (Note 6)
Notes and accounts payable:

28,70021,041

261,885

Income taxes payable

4,535

3,868

41,381

Accrued bonus

1,317

1,464

12,018Other current liabilities

6,045

4,313

55,16090,242

84,162

823,451

LONG-TERM DEBT (Note 6)

89,64386,314

817,985

ACCRUED SEVERANCE INDEMNITIES (Note 7)

4,623

4,413

42,184LEASE DEPOSITS RECEIVED

Total current liabilities

20,138

16,114

183,758

DEFERRED INCOME TAXES (Note 11)

994

1,021

9,070

OTHER LIABILITIES

609

347

5,557

206,249

192,371

1,882,005

5,324

4,221

48,581

19,614—

178,976

Total liabilities
COMMITMENTS AND CONTINGENT LIABILITIES (Note 8)
MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIESSTOCKHOLDERS’ EQUITY (Note 10):
Common stock, no par value:
Authorized:
February 29, 2004—195,243,000 shares
February 28, 2003—195,243,000 shares
Issued:February 29, 2004—61,558,710 shares—

19,614—

Additional paid-in capital

February 28, 2003—61,558,710 shares

22,31522,315

203,623

Retained earnings

45,82338,573

418,131

535

221

4,882

(3)

(4)

(27)

Net unrealized gains on securities
Less–foreign currency translation adjustments
Less–treasury stock at cost:
February 29, 2004—2,909,775 shares(3,930)—(35,861)

February 28, 2003—3,596,400 shares—(3,827)—84,35476,892769,724¥295,927¥273,484$2,700,310

Total stockholders’ equity

11

izumi 財務̲8/26 04.9.2 4:57 PM ページ 12

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Millions of yen

Izumi Co., Ltd. and its subsidiaries
For the years ended February 29, 2004 and February 28, 2003

Number ofshares ofcommon stock(thousands)

62,133BALANCE AT FEBRUARY 28, 2001

¥19,614¥23,056

Retainedearnings

Net
unrealized
gains
on securities

Foreigncurrencytranslation
adjustments

Treasurystock
at cost¥30,872——¥(1,732)

Net income for the year

—

—

—

4,832

—

—

—

Cash dividends

—

—

—

(1,304)———

Directors’ and corporate auditors’ bonuses

—

—

—

(32)

—

—

—

Common stock repurchased and cancelled

(574)

—

(774)

—

—

—

—

Net unrealized gains on securities

—

—

—

—

¥268

—

—

Foreign currency translation adjustments

—

—

—

—

—

¥(5)

—

Increase in treasury stock, net

—

—

—

—

—

—

(663)

BALANCE AT FEBRUARY 28, 2002

12

Commonstock

Additional
paid-in
capital61,559¥19,614¥22,282¥34,368

¥268

¥(5)

¥(2,395)

Net income for the year

—

—

—

5,600

—

—

—

Cash dividends

—

—

—

(1,292)———

Directors’ and corporate auditors’ bonuses

—

—

—

(103)

—

—

—

Treasury stock at more than cost

—

—

33

—

—

—

200

Net unrealized gains on securities

—

—

—

—

(47)

—

—

Foreign currency translation adjustments

—

—

—

—

—

1

—

Increase in treasury stock, net

—

—

—

—

—

—

(1,632)

61,559¥19,614¥22,315¥38,573

¥221

¥(4)

¥(3,827)BALANCE AT FEBRUARY 28, 2003
Net income for the year

—

—

—

8,713

—

—

—

Cash dividends

—

—

—

(1,442)———

Directors’ and corporate auditors’ bonuses

—

—

—

(21)

—

—

—

Net unrealized gains on securities

—

—

—

—

314

—

—

Foreign currency translation adjustments

—

—

—

—

—

1

—

Increase in treasury stock, net

—

—

—

—

—

—

(103)

—

—

—

0

—

—

—

(61,559)¥19,614¥22,315¥45,823

¥535

¥(3)

¥(3,930)

Increase due to application of equity method
to additional subsidiaries and affiliates
BALANCE AT FEBRUARY 29, 2004

Thousands of U.S. dollars (Note 3)

BALANCE AT FEBRUARY 28, 2003

$178,976$203,623$351,975$2,017

Net income for the year—

Cash dividends—$(36) $(34,921)—

79,505————(13,158)———

Directors’ and corporate auditors’ bonuses

—

—

(191)

—

—

—

Net unrealized gains on securities

—

—

—

2,865

—

—

Foreign currency translation adjustments

—

—

—

—

9

—

Increase in treasury stock, net

—

—

—

—

—

(940)

—

—

0

—

—

—

$178,976$203,623$418,131$4,882

Increase due to application of equity method
to additional subsidiaries and affiliates
BALANCE AT FEBRUARY 29, 2004
The accompanying notes are an integral part of these statements.

$(27) $(35,861)

izumi 財務̲8/26 04.9.2 4:57 PM ページ 13

CONSOLIDATED STATEMENTS OF CASH FLOWS
Izumi Co., Ltd. and its subsidiaries
For the years ended February 29, 2004 and February 28, 2003

Thousands of
U.S. dollars(Note 3)

Millions of yen

2004

2003

2004

¥ 16,888¥11,834$ 154,102

10,828

10,57898,804

CASH FLOWS FROM OPERATING ACTIVITIES:
Income before income taxes and minority interests
Depreciation and amortization
Provision for allowance for doubtful accounts

189

162

1,725

Interest and dividend income

(254)

(231)

(2,318)Interest expense

1,839

2,184

16,780

(3)

(22)

(27)

Loss on sales or disposal of property and equipment

629

2,581

5,740

Gain on sales or revaluation of short-term investments

(203)

(105)

(1,852)

Increase in notes and accounts receivable(1,061)(2,160)(9,682)

Increase (Decrease) in inventories(1,264)

126(11,534)

Increase in trade notes and accounts payable

2,841

1,296

25,924

Other, net

7,044

(355)

64,27637,47325,888341,938

280

230

2,555

Interest expense paid

(1,814)(2,149)(16,552)

Income taxes paid

(6,698)(6,208)(61,119)

29,241

17,761

266,822(25,379)(12,783)(231,582)

Payments for purchases of intangible assets(524)(2,838)(4,781)

Payments for purchases of investments in securities

(106)

(425)

(967)

Proceeds from sales of property and equipment

561

968

5,119

Proceeds from sales of investments in securities

468

600

4,270

Other, net(273)(2,177)(2,491)(25,253)(16,655)(230,432)(3,901)

6,529(35,596)

Gain on sales of property and equipment

Sub-totalInterest and divided income received

Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:Payments for purchases of property and equipment

Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (Decrease) in short-term borrowings
Additions to long-term loans

35,64434,826325,249

Repayment of long-term loans(22,246)(30,180)(202,993)

Redemption of straight bonds(10,000)(5,000)(91,249)—(4,091)

—

220

400

2,007

Redemption of convertible bonds
Proceeds from issue of stocks to minority interests
in consolidated subsidiary
Proceeds from sales of treasury stock

—

319

—

Payment for purchases of treasury stock(179)(3,076)(1,633)(1,511)(1,327)(13,788)(1,973)(1,600)(18,003)

1

1

9

Dividends paid
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents

2,016

-493

18,396

Cash and cash equivalents at beginning of year

8,168

8,661

74,532¥ 10,184¥ 8,168$ 92,928

Cash and cash equivalents at end of year
The accompanying notes are an integral part of these statements.

13

izumi 財務̲8/26 04.9.2 4:57 PM ページ 14

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Izumi Co., Ltd. and its subsidiaries
For the years ended February 29, 2004 and February 28, 2003

1. BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL
STATEMENTS
The accompanying consolidated financial statements have been
prepared based on the accounts maintained by Izumi Co., Ltd. (the“Company”) and its subsidiaries (collectively, the “Companies”) in
accordance with the provisions set forth in the Commercial Codeof Japan (the “Code”) and the Securities and Exchange Law, andin conformity with accounting principles and practices generally
accepted in Japan, which are different in certain respects from theapplication and disclosure requirements of International Financial
Reporting Standards.
Certain items presented in the consolidated financial statements
submitted to the Director of Kanto Finance Bureau in Japan havebeen reclassified in these accounts for the convenience of readers
outside Japan.
The consolidated financial statements are not intended to present
the consolidated financial position, results of operations and cash flows
in accordance with accounting principles and practices generally
accepted in countries and jurisdictions other than Japan.

14
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(1) Basis of consolidation and accounting for investments in affiliates
As at February 29, 2004, the accompanying consolidated financial
statements include the accounts of the Company and 17 of its
subsidiaries, among which 1 subsidiary was newly consolidated due toestablishment and 1 subsidiary was excluded due to liquidation. As at
February 28, 2003, 17 of its subsidiaries were consolidated.
Investments in all affiliates (20%-to-50% owned companies) areaccounted for using the equity method. The company had 5 and 4
affiliates as at February 29, 2004 and February 28, 2003, respectively.
Two non-consolidated subsidiaries, NIKONIKODO Co., Ltd. andIzumi International Limited, were not accounted for using the equity
method due to civil rehabilitation and temporary control, respectively.
Investments in these companies were stated at cost.
(2) Elimination and consolidation
For the purposes of preparing the consolidated financial statements,
all significant inter-company transactions and account balances havebeen eliminated.
Unrealized profits on sales of assets among the Companies
have been entirely eliminated, and the portions attributable to minority
interests are credited to net income. Depreciation expense has beenadjusted in connection with the elimination of unrealized profits
included in depreciable assets.
Regarding the elimination of investments in shares of
consolidated subsidiaries, together with the underlying equity in net
assets of such subsidiaries, the Company follows the step-by-stepacquisition method to include equity in net income of subsidiaries
subsequent to the date of acquisition in the consolidated financial
statements. Any differences between the costs of investments in
subsidiaries and the amount of underlying equity in net assets ofsubsidiaries are charged to income as incurred.
(3) Cash and cash equivalents
Cash and cash equivalents included in the consolidated statements ofcash flows are composed of cash on hand, bank deposits able to bewithdrawn on demand and short-term investments with an original
maturity of three months or less and which represent a minor risk ofmaterial fluctuation in value.
(4) Translation of foreign currencies
All monetary assets and liabilities denominated in foreign currencies,
whether long-term or short-term, are translated into Japanese yen at
the exchange rates prevailing at the balance sheet date. Resulting gains

and losses are included in net profit or loss for the period.
Assets and liabilities of the foreign subsidiaries and affiliates aretranslated into Japanese yen at the exchange rates prevailing at thebalance sheet date. Profit and loss accounts for the year are translated
into Japanese yen using the average exchange rate during the year.
Differences in yen amounts arising from the use of different rates
are presented as “foreign currency translation adjustments” instockholders’ equity.
(5) Investments in securities
Held-to-maturity securities are stated at amortized cost adjusted for theamortization of premiums and the accretion of discounts to maturity.
Available-for-sale securities for which market quotations areavailable are stated at fair value. Unrealized gains on these securities
are reported as “Net unrealized gains on securities” in stockholders’equity at a net-of-tax amount, and unrealized losses on these securities
are included in net profit or loss for the period. Available-for-salesecurities with no available market quotations are stated at moving
average cost.
If a decline in fair value below cost of an individual security is
judged to be material and other than temporary, the carrying value ofthe individual security is written down.
(6) Derivatives
Derivative financial instruments are stated at fair value and changes
in the fair value are recognized as gains or losses unless derivative
financial instruments are used for hedging purposes. If the derivative
financial instruments are used as hedges and meet certain hedging
criteria, the Companies defer recognition of gains and losses resulting
from changes in fair value of derivative financial instruments until the
related losses or gains on the hedged items are realized. In case where
foreign exchange forward contracts, currency swap contracts orcurrency option contracts are used as hedges and meet certain hedging
conditions, the hedged items are stated at the forward exchange
contract rates. If interest rate swap agreements are used as hedges
and meet certain hedging criteria, the net amount to be paid or
received under the interest rate swap agreements is added to or
deducted from the interest on the assets or liabilities for which theswap agreements were executed.
(7) Inventories
Inventories are valued at cost. Cost is determined principally by theretail method.
Supplies are carried at cost. Cost is determined by the lastpurchase price method.
(8) Depreciation of property and equipment
Property and equipment are stated at cost. Significant renewals andadditions are capitalized; normal repairs and maintenance including
minor renewals and improvements are charged to income as incurred.
The cost and accumulated depreciation applicable to property andequipment retired or otherwise disposed of are eliminated from therelated accounts and the gain or loss on disposal is credited or charged
to income.
Depreciation of property and equipment is computed by the
declining-balance method over the estimated useful lives or lease
contract term of assets prescribed by the Japanese corporate
tax laws, except for the following, which are depreciated by thestraight-line method:• A large-scale and compound-type shopping center• Buildings built on the leasehold land
• Property and equipment of two consolidated subsidiaries• Buildings (excluding building improvements) acquired on orafter April 1,1998

izumi 財務̲8/26 04.9.2 4:57 PM ページ 15

Minor assets with acquisition costs of ¥100 thousand or more
but less than ¥200 thousand are depreciated over three years on
a straight-line basis.
(9) Intangible assets
Capitalized software costs, included in other assets, for internal use areamortized by the straight-line method over the estimated useful life (5years). Other intangible assets, included in other assets, are amortizedby the straight-line method over the period regulated by the Japanese
corporate income tax laws.
(10) Allowance for doubtful accounts
An allowance for doubtful accounts is provided in preparation forpossible risk of uncollectible accounts. It consists of the estimateduncollectible amount with respect to identified doubtful receivables andan amount calculated on the historical bad debt ratio with respect toremaining receivables.
(11) Accrued bonus
An accrued bonus is provided in preparation for payment of bonus toemployees based on the amount estimated to be paid.
(12) Allowance for point discounts
An allowance for point discounts is provided for estimated future usageof points that entitle customers to receive reductions in the price of
future purchases, based on past experience.
Until February 28, 2002, point discounts were not charged toincome when they were provided but recognized as expenses only
when customers used them. The Company became able to match
expenses and revenues relating to points discounts, and therefore,
from the year ended February 28, 2003, point discounts are charged toincome when they are provided.
As a result, in the year ended February 28, 2003, net sales andoperating income decreased by ¥106 million, other expenses increasedby ¥499 million and income before income taxes and minority interests
decreased by ¥606 million compared with what would have beenrecorded under the previous accounting method.
(13) Accrued severance indemnities
Accrued retirement indemnities to employees represents theestimated present value of projected benefit obligations in excess ofthe fair value of the plan assets except that, as permitted underJapanese accounting standards, unrecognized actuarial differences areamortized on a straight-line basis over 6 to 8 years from the next year inwhich they arise.
Certain subsidiaries provide for the accrued severance
indemnities at 100 % of the liability, which would be required to be
paid if all eligible employees voluntarily terminated employment at thebalance sheet date.
The Company and a consolidated subsidiary provide for lump-sum
severance benefits with respect to directors and corporate auditors.
While the Company and the consolidated subsidiary have no legal
obligation, it is a customary practice in Japan to make lump-sum
payments to a director or a corporate auditor upon retirement. Suchliabilities are not funded.
(14) Leases
Leases that transfer substantially all risk and rewards of ownership of
the assets are accounted for as capital leases, except leases which do
not transfer ownership of the assets at the end of the lease term areaccounted for as operating leases, in accordance with accounting
principles and practices generally accepted in Japan.

(15) Consumption taxes
Consumption taxes are imposed at a flat rate of 5% on all domestic
consumption of goods and services (with certain exemptions). The
consumption taxes withheld on revenues and the consumption taxes
paid on purchases are both excluded from the amounts of relevant
items in the accompanying consolidated statements of income.
(16) Income taxes
Income taxes of the Companies consist of corporate income tax, local
inhabitant tax and enterprise tax.
Deferred Income taxes are determined using the asset andliability method, whereby deferred tax assets and liabilities arerecognized in respect of temporary differences between the tax
basis of assets and liabilities and those as reported in the financial
statements. Deferred tax assets and liabilities are measured by using
currently enacted tax rates, and the effect on these deferred tax assets
and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(17) Net income and cash dividends per share
Effective from the year ended February 29, 2004, the Company
adopted the Statement of Financial Accounting Standard No. 2“Earnings per Share” issued by the Accounting Standards Boardof Japan. Prior to adopting the new statement, earnings per share
were calculated based on the net income shown on the Statement of
Income. The earnings per share calculation therefore excluded bonuses
to directors and corporate auditors, since under the Code, these arerecognized as an appropriation of retained earnings in the Statementof Stockholders’ Equity, rather than as expenses in the Statement of
Income. However, the new statement requires that net income should
be adjusted by deducting bonuses paid to directors and corporate
auditors as well as the payment of dividends to shareholders ofpreferred stocks to be recognized as an appropriation of retained
earnings, from net income shown in the Statement of Income, andthe calculation of net income per share be made on that adjusted net
income basis. Net income per share for the year ended February 29,
2004 calculated using the previous method and under the newstatement is ¥148.51 and ¥148.07, respectively.
Cash dividends per share include those declared with respect to
net income for the respective periods for which the dividends were
proposed by the Board of Directors. Dividends are charged to retained
earnings in the year in which they are paid.

3. UNITED STATES DOLLAR AMOUNTS
Amounts in U.S. dollars are included solely for the convenience ofreaders outside Japan. The rate of ¥109.59 = U.S.$1, the rate ofexchange on February 29, 2004 has been used in translation. The
inclusion of such amounts is not intended to imply that Japanese yen
have been or could be readily converted, realized or settled in U.S.
dollars at this rate or any other rate.

15

izumi 財務̲8/26 04.9.2 4:57 PM ページ 16

4. INVESTMENTS IN SECURITIES(1) Held-to-maturity debt securities at February 29, 2004 and February
28, 2003, which have readily available determinable fair value, aresummarized as follows:(4) Total sales of available-for-sale securities for the years ended
February 29, 2004 and February 28, 2003 are summarized
as follows:
Millions of yen

Millions of yen

Securities withvaluation gains:
Government bonds
Securities withvaluation losses:
Government bonds
Total

2004

2003

Valuation
Carrying Market
gains
value
value (losses)

Valuation
Carrying Market gains
value
value (losses)

¥71

¥71

¥0

¥641 ¥641¥0

5. LEASES

430
¥501

430
¥501

(0)
¥0

—
—
¥641 ¥641

—
¥0

(1)

Thousands of U.S. Dollars(Note 3)16

Sales
Gross realized gains
Gross realized losses

Securities withvaluation gains:
Government bonds $ 648 $ 648
Securities withvaluation losses:
Government bonds 3,924 3,924
Total$4,572 $4,572

Amount to:
Acquisition cost
Accumulated
depreciation

(0)
$0

2003

Gross
Gross
unrealized
unrealized
Acquisition Carrying
gains
Acquisition Carrying gains
cost
value
(losses)
costvalue (losses)

Total

Net book value

Total

¥369
193
5

¥156
46
3

$3,367
1,761
46

2004

2003

Equipment
andvehicles

Other

Total

Equipment
andvehicles Other¥ 3,188¥ 8,531¥11,719(2,042)(5,228)(7,270)¥ 1,146¥ 3,303¥ 4,449¥898¥2,462¥2,840

¥ 378

1,295

1,206

(89)

560

355

(205)

¥2,663¥3,472¥809¥3,022¥3,195¥ 173¥ 3,402 ¥ 9,271 ¥12,673(1,895) (4,705)

Amount to:
Acquisition cost $ 29,090 $ 77,845 $106,935
Accumulated
depreciation(18,633) (47,705) (66,338)$ 10,457 $ 30,140 $ 40,597

The acquisition cost is calculated including the interest portion as
the outstanding future lease payments are immaterial to the yearend balance of property and equipment.
b) Amounts of outstanding future lease payments at February 29,
2004 and February 28, 2003, which include the interest portion,
are summarized as follows:$12,483 $20,677 $8,194

11,005

Due within one year
Due after one year
Total

(812)

(6,600)¥ 1,507 ¥ 4,566 ¥ 6,073

Millions of yen

11,817

Total

Thousands of U.S. Dollars(Note 3)

Net book value

Thousands of U.S. Dollars(Note 3)

Securities withunrealized gains:
Equity securities
Securities withunrealized losses:
Equity securities

2004

As lessee:a) Acquisition cost, accumulated depreciation and net book value ofthe leased assets at February 29, 2004 and February 28, 2003, if
capitalized, are summarized as follows:

$0

2004

¥2,266

2003

Information for finance lease transactions other than those leased
assets that are deemed to transfer the ownership to lessees issummarized below:

Millions of yen¥1,368

2004

Millions of yen(2) Available-for-sale securities at February 29, 2004 and February 28,
2003 which have readily determinable fair value, are summarized
as follows:

Securities withunrealized gains:
Equity securities
Securities withunrealized losses:
Equity securities

Thousands of
U.S. dollars(Note 3)Thousands of
U.S. dollars(Note 3)

2004

2003

2004

¥1,7542,695¥4,449¥1,893
4,180¥6,073$16,005
24,592$40,597$24,300 $31,682 $7,382(3) Available-for-sale securities at February 29, 2004 and February 28,
2003, which have no readily determinable fair value, aresummarized as follows:
Millions of yen

Available-for-sale securities
Non-listed equity securities

Thousands of
U.S. dollars(Note 3)

2004

2003

2004

¥189

¥332

$1,725c) Lease payments and depreciation expense for the years ended
February 29, 2004 and February 28, 2003 are as follows:
Millions of yen

Lease payments
Depreciation expense

Thousands of
U.S. dollars(Note 3)

2004

2003

2004

¥1,936
1,936¥2,047
2,047$17,666
17,666d) Method of asset depreciation
Depreciation expense is determined based on the straight-line
method over the lease term of the leased assets assuming noresidual value.

izumi 財務̲8/26 04.9.2 4:57 PM ページ 17(2)

As lessor:a) Acquisition cost amount, accumulated depreciation and net bookvalue of the leased assets at February 29, 2004 and February 28,
2003 are summarized as follows:
Thousands of
U.S. dollars(Note 3)

Millions of yen

2004

2003

2004

Equipment andvehiclesEquipment andvehiclesEquipment andvehicles

¥53

¥35

$484

(6)
¥47

(2)
¥33

(55)
$429

Amount to:
Acquisition cost
Accumulated
depreciation
Net book valueb) Amounts of outstanding future income at February 29, 2004 andFebruary 28, 2003, which include the interest portion, aresummarized as follows:
Millions of yen

Due within one year
Due after one year
Total

Thousands of
U.S. dollars(Note 3)

2004

2003

2004

¥ 8
45
¥53

¥ 5
34
¥39

$ 73
411
$484

c) Lease income and depreciation expense for the years ended
February 29, 2004 and February 28, 2003 are as follows:
Millions of yen

Lease income
Depreciation expense amountThousands of
U.S. dollars(Note 3)

2004

2003

2004

¥6
4

¥2
1

$55
36

6. SHORT-TERM BORROWINGS AND LONG-TERM DEBT
Short-term borrowings are primarily represented by bank overdrafts,
bearing interest at the weighted average interest rate of 1.12% at
February 29, 2004 and February 28, 2003.
Long-term debt at February 29, 2004 and February 28, 2003,
consisted of the following:
Millions of yen

2004

2003

Loans from banks and insurancecompanies, due from April 2004
to February 2018 with weighted
average interest rates of 1.51% and1.68% at February 29, 2004 andFebruary 28, 2003, respectively.
Secured¥ 52,119 ¥ 54,794
Unsecured
56,187
40,113
108,306
94,9072.325% Japanese yen unsecured
straight bonds due March 2003—
5,000
2.175% Japanese yen unsecured
straight bonds due October 2003—
5,000
1.53% Japanese yen unsecured
straight bonds due March 2004
5,000
5,000
1.84% Japanese yen unsecured
straight bonds due March 2005
5,000
5,000
118,306 114,907
Less, portion due within one year
(28,663) (28,593)¥ 89,643 ¥ 86,314

The aggregate annual maturities of long-term debt outstanding at
February 29, 2004 are as follows:
Years ending February 28 or 29:

Millionsof yenThousands of
U.S. dollars(Note 3)

2006
2007
2008
2009
2010 and thereafter
Total¥25,445
17,566
16,5378,430
21,665¥89,643$232,184
160,288
150,899
76,923
197,691$817,985

Assets pledged as collateral and related secured debt at February
29, 2004 and February 28, 2003 are summarized as follows:
Millions of yen

2004

Assets pledged as collateral:
Land
Buildings
Investments in securities
Total
Debt secured by the above:
Short-term borrowings
Long-term debt
Total

$ 475,581
512,702988,283

45,62545,625
1,079,533(261,548)$ 817,985

2004¥ 55,381 ¥ 55,293
63,49657,651
2,520
2,206¥121,397 ¥115,150$ 505,347
579,396
22,995$1,107,738¥$

6,308 ¥ 3,656
52,11954,794¥ 58,427 ¥ 58,450

57,560475,581$ 533,141

Employees of the Companies, with more than one year’s service,
are entitled to receive lump-sum indemnities upon termination.
The amount of the benefits is determined by reference to current basic
rate of pay, length of service and condition under which the termination
occurs. The amount of severance indemnities to be paid by theCompany and a consolidated subsidiary is reduced by the benefits
payable under an externally funded non-contributory pension plan.
The funded status of the Companies at February 29, 2004 andFebruary 28, 2003 are summarized as follows:
Millions of yen

Projected benefit obligation
Unrecognized net actuarial
differences
Plan assets at fair value
Prepaid pension costAccrued severance indemnities

Thousands of
U.S. dollars(Note 3)

2004

2003

2004

¥ 5,669¥ 5,587$ 51,729(87)(1,783)—¥ 3,799(232)(1,869)140¥ 3,626(793)(16,270)—$ 34,666

Pension and severance costs of the Companies included thefollowing components for the years ended February 29, 2004 andFebruary 28, 2003:
Millions of yen

—
—

2003

7. RETIREMENT BENEFIT PLANS

Thousands of
U.S. dollars(Note 3)

2004

Thousands of
U.S. dollars(Note 3)Service cost
Interest cost
Expected return on plan assets
Realized net actuarial losses
Payment for extra supplementary
benefits and other payments
Net periodic pension costThousands of
U.S. dollars(Note 3)

2004

2003

2004

¥531
108
(19)
36

¥507
136
(16)
(17)

$4,846
985
(173)
328

24
¥680

30
¥640

219
$6,20517

izumi 財務̲8/26 04.9.2 4:57 PM ページ 18

Pension benefits are attributed to periods of employee service
based on years-of-service by the straight-line method.
Assumptions used in the accounting for the defined benefit
plans for the years ended February 29, 2004 and February 28, 2003 are
as follows:
Discount rate
Expected rate of return on plan assets

2004

2003

2.0%
1.0%

2.0%–2.5%
1.0%

8. COMMITMENTS AND CONTINGENT LIABILITIESThe Company was contingently liable for guarantees of loans fromfinancial institutions made by affiliates and others, totaling ¥4,526
million ($41,300 thousand) and ¥4,766 million at February 29, 2004 andFebruary 28, 2003, respectively.

9. DERIVATIVE FINANCIAL INSTRUMENTS(1)

18

Status of transactiona) Nature of transactions
The Companies use derivative instruments, which compriseforeign currency exchange forward contracts, currency swap
contracts, currency option contracts and interest rate swap
agreements.
b) Purpose and policy of transactions
The Companies use foreign currency exchange forward contracts,
currency swap contracts and currency option contracts to minimize exposure and to reduce risk from exchange rate fluctuationsin import transactions. The Companies also use interest rate
swap agreements to hedge against exposure of interest rate
fluctuations and to adapt the long-term fixed interest rate to thecurrent rate in line with the change in the market rate. The
Companies do not use derivative instruments for speculative
trading purposes.
c) Risks in transactions
Derivative instruments used by the Companies are exposed torisk from market rate fluctuations. Counter-parties are highly
creditworthy domestic banks and, therefore, the Companies do not
expect losses due to non-performance of counter-parties.
d) Risk management
Derivative transactions are managed and approved by responsible
decision-making bodies such as management meetings andexecuted by related departments.

(2) Market value of transactions
The Companies had the following derivative contracts outstanding at
February 29, 2004 and February 28, 2003:
Millions of yen

2004
Contract
amountForeign currency
exchange forward
contracts
Currency swap
contracts
Currency option
contracts
Total

2003

Fair Unrealized
marketgains
value(losses)

Fair Unrealized
Contract market
gains
amount value (losses)¥1,772

¥ 54

¥ 54

¥ 390

¥ 78

¥ 78

140

44

44

698

144

144

1,221
¥3,133

(20)
¥ 78

(20)
¥ 78

2,215
¥3,303

62
¥284

62
¥284

Thousands of U.S. Dollars(Note 3)Foreign currency
exchange forward
contracts$16,169 $ 493 $ 493
Currency swap
contracts
1,277
402
402
Currency option
contracts
11,142 (183) (183)
Total$28,588 $ 712 $ 712
The fair value is quoted from financial institutions with which
the Companies make foreign currency exchange forward contracts,
currency swap contracts and currency option contracts.
Derivative transactions with hedge accounting applied are
excluded from the above table.

10. STOCKHOLDERS’ EQUITY
Under the Code, the entire amount of the issue price of new sharesissued is required to be capitalized as stated common stock, although
the Company may, by resolution of its Board of Directors, capitalize
an amount not exceeding one-half of the issue price of the new sharesas additional paid-in capital.
The Code requires a domestic company to appropriate as a legal
reserve an amount equal to at least 10% of the amount paid out by itas appropriation of retained earnings (including any payment by way ofannual dividend and bonuses to directors and corporate auditors) forthe period or equal to 10% of any interim dividend until the sum of thelegal reserve and the additional paid-in capital equals 25% of its statedcommon stock. The legal reserve and additional paid-in capital may betransferred to stated common stock through suitable director actions orused to reduce a deficit through suitable stockholder actions.
Under the Code, the appropriation of retained earnings (including
year-end cash dividend payment) proposed by the Board of Directors
should be approved at stockholders’ meeting, which must be held
within 3 months after the balance sheet date. The appropriation ofretained earnings reflected in the accompanying consolidated financial
statements represents the results of such appropriations which areapplicable to the immediately preceding fiscal year but which areapproved by the stockholders’ meeting and disposed of during thecurrent year.
As is customary practice in Japan, the payment of bonuses todirectors and corporate auditors is made out of retained earnings
instead of being charged to income for the year and constitutes a partof the appropriations cited above.
Effective for the year ended February 28, 2003, the Company
adopted the Statement of Financial Accounting Standard No. 1“Accounting for Treasury Stock and Reversal of Capital and Legal
Reserves” issued by the Accounting Standards Board of Japan.
However, the effect on net income for the period of adopting this newstatement was immaterial.

izumi 財務̲8/26 04.9.2 4:57 PM ページ 19

11. INCOME TAXESThe Companies are subject to a number of different taxes basedon income, which, in aggregate, result in statutory income tax rates ofapproximately 41.7% for the years ended February 29, 2004 andFebruary 28, 2003.
The reconciliation of the difference between the statutory income
tax rates and the effective income tax rates for the year ended February
28, 2003 is as follows:
2003

Statutory income tax rate
Increase (decrease) in taxes resulting from:Entertainment expenses and other which arepermanently non-tax-deductible
Dividend income and other income which ispermanently non-taxable
Per capita inhabitant taxes and other
Valuation allowance provided for tax loss
carry-forwards of subsidiaries
Effect on liquidated consolidated subsidiary
Others
Effective income tax rate

41.7%

0.3
(0.2)
1.6
2.3
(1.5)
0.9
45.1%

The reconciliation schedule for the year ended February 29, 2004
is not disclosed because the difference between the statutory income
tax rates and the effective income tax rates is less than 5% of thestatutory income tax rates.
The significant components of deferred tax assets and liabilities atFebruary 29, 2004 and February 28, 2003 were as follows:
Thousands of
U.S. dollars(Note 3)

Millions of yen

2004

Deferred tax assets:
Allowance for doubtful accounts
Property and equipment
Intangible assets
Investments in securities
Accrued enterprise tax
Accrued bonus
Accrued severance indemnities
Fair value adjustments ofconsolidated subsidiaries
Tax loss carry-forwards
Excess depreciation andamortization
Allowance for point discounts
Other
Total
Valuation allowance
Total
Deferred tax liabilities:
Reserve for special depreciation
Reserve for advanced
depreciation of fixed assets
Fair value adjustments ofconsolidated subsidiaries
Unrealized gains onavailable-for-sale securities
Net deferred tax assets

2003

2004

292
69
166
392
318
417
1,468

$ 2,738
1,150
1,478
903
3,568
4,380
15,111

355
290

469
434

3,239
2,646

354
314
295
4,822
(86)
4,736

377
—
375
4,777
(282)
4,495

3,230
2,865
2,692
44,000(784)
43,216

(115)

(72)

(1,049)

(236)

(252)

(2,154)(994)(1,021)(9,070)(363)(1,708)¥ 3,028(160)(1,505)¥ 2,990(3,312)(15,585)$ 27,631

¥

300
126
162
99
391
480
1,656

¥

On March 31, 2003, the Japanese National Diet approved various
changes to the calculation of the statutory local enterprise tax forcompanies with capital in excess of ¥100 million, effective April 1,
2004. Under the amended legislation, the enterprise tax will be thesum of three tax components; a) an income based component, b) a
value added component and c) a capital based component, although
there was only an “income tax based component” before theamendment. Concurrently, the basic tax rate for the “income based
component” has resulted in a reduction from 9.6% to 7.2%. As a resultof this amendment, the tax rate to be applied to deferred tax assets
and liabilities for the expected future tax consequences of temporary
differences between the carrying amounts and tax bases of assets andliabilities, that are expected to reverse in the year beginning March 1,
2005 or later, decreased from 41.7 % to 40.4 % as at February 29,
2004. For temporary differences that are expected to reverse in theyear ending February 28, 2005, a tax rate of 41.7 % has continued to
be used at that date. As a result, deferred tax assets (net of deferred
tax liabilities) decreased by ¥23 million ($210 thousand), income taxesdeferred (debit) increased by ¥35 million ($ 319 thousand) and net
unrealized gains on securities increased by ¥12 million ($109 thousand)in the year ended February 29, 2004.

12. RELATED PARTY TRANSACTIONS
For the years ended February 29, 2004 and February 28, 2003,
the Company purchased ¥11,056 million ($100,885 thousand) and¥11,709 million of merchandise from Japan Logistics Industry Co., Ltd.
(“JLI”), respectively. A representative director and vice president of
JLI, Mr. Yasuaki Yamanishi, is also a representative director and thepresident of the Company and owns 1.7% of the Company’s voting
stock. At February 29, 2004 and February 28, 2003, the Company had
accounts payable of ¥1,204 million ($10,986 thousand) and ¥1,298
million, and deposited guarantee money of ¥538 million ($4,909
thousand) and ¥505 million to JLI, respectively.
Mr. Yasuaki Yamanishi and Mr. Hiromasa Takanishi purchased
the Company’s subsidiary stocks from the Company for ¥40 million($365 thousand) on February 25, 2004 and for ¥10 million ($91
thousand) on February 20, 2004. Mr. Hiromasa Takanishi is a
representative director and the vice president of the Company
and owns 0.13% of the Company’s voting stock. These purchaseprices were identical with the offering price of the allocation of
new shares to a third party on February 28, 2004.
For the years ended February 29, 2004 and February 28, 2003,
the Company leased the building of Higashi-Hiroshima shop from
Izumi Kosan K.K. (“Izumi”) with lease payments of ¥341 million ($3,112
thousand). Izumi is a majority-owned subsidiary of a company, which iswholly owned by Mr. Yasuaki Yamanishi and his relatives. The leaseterms are the same as those for third parties. At February 29, 2004 andFebruary 28, 2003, the Company deposited guarantee money of ¥3,174
million ($28,962 thousand) and ¥3,650 million respectively, to Izumi,
which were determined based on the total construction costs of thebuilding and the area occupied by the Company.

19

izumi 財務̲8/26 04.9.2 4:57 PM ページ 20

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholders of
Izumi Co., Ltd.

We have audited the accompanying consolidated balance sheets of Izumi Co., Ltd. and its subsidiaries as of February 29, 2004 and February
28, 2003, and the related consolidated statements of income, stockholders’ equity and cash flows for the years then ended, all expressed inJapanese Yen. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards, procedures and practices generally accepted and applied in Japan. Thosestandards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonablebasis for our opinion.

20

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial positionof Izumi Co., Ltd. and its subsidiaries as of February 29, 2004 and February 28, 2003, and the consolidated results of their operations and their
cash flows for the years then ended in conformity with accounting principles and practices generally accepted in Japan (see Note 1).
As described in Note 2 (12), effective for the year ended February 28, 2003, Izumi Co., Ltd. and its subsidiaries changed their method of
accounting for the allowance for point discounts.
The amounts expressed in U.S. dollars, which are provided solely for the convenience of the reader, have been translated on the basis set
forth in Note 3 to the accompanying consolidated financial statements.

ChuoAoyama PrincewaterhouseCoopers

Hiroshima, JapanMay 27, 2004

izumi 財務̲8/26 04.9.2 4:57 PM ページ 21

DIRECTORS AND CORPORATE AUDITORS

Chairman
Yoshimasa Yamanishi

Full-Time Corporate Auditor
Akira Tsumura

President
Yasuaki Yamanishi

Corporate Auditors
Toyomi Takimoto
Jiro Matsubara
Yasuyuki Tudo

Executive Vice President
Hiromasa Takanishi(as of July 12, 2004)
Directors
Hiroaki Bando
Hiroshi Toko
Heijiro Natsuhara

21

CORPORATE DATAHead Office2-22, Kyobashi-cho,
Minami-ku, Hiroshima,
Hiroshima Prefecture 732-0828, Japan
Tel.: (082) 264-3211

Transfer Agent and Registrar
Japan Securities Agents, Ltd.
2-4, Nihonbashi-Kayaba-cho, 1-chome,
Chuo-ku, Tokyo 103-8202, Japan

Date of Establishment
October 27, 1961

Annual Meeting of Stockholders
The annual meeting of stockholders of the Company isnormally held in May each year in Hiroshima, Japan. In
addition, the Company may hold an extraordinary meetingof stockholders whenever necessary by giving at least
two weeks’ advance notice to stockholders.

Paid-in Capital¥19,614 million (as of February 29, 2004)
Securities Traded
Common Stock
Tokyo Stock Exchange, First Section
Osaka Securities Exchange, First Section
Hiroshima Stock Exchange

Auditors
ChuoAoyama PrincewaterhouseCoopers

イズミAR2004入稿8/24 04.9.2 4:53 PM ページ 1

IZUMI CO., LTD.
2-22, Kyobashi-cho, Minami-ku,
Hiroshima 732-0828, Japan
Tel: (082) 264-3211

Printed in Japan