IZUMIAnnual Report 2000

Financial Highlights

Non-Consolidated

Revenues
Operating income
Income before income taxes
Net income
Net income/revenues
Total shareholders’ equity
Total assets

Millions ofyen

Thousands of
U.S. dollars(Note1)

1996
Mar. 1995–Feb. 1996

1997
Mar. 1996–Feb. 1997

1998
Mar. 1997–Feb. 1998

1999
Mar. 1998–Feb. 1999

2000
Mar. 1999–Feb. 2000

2000
Mar. 1999–Feb. 2000

¥ 219,379
9,403
9,099
4,303
2.0%
74,549172,244¥ 249,398
8,184
5,710
2,717
1.1%
75,850
192,935¥ 263,245
6,665
3,801
1,470
0.56%
75,883
208,460¥ 275,424 ¥ 283,988$2,584,058
5,683
7,613
69,272813
2,945
26,797393
1,346
12,248
0.14%
0.47%
—
74,54974,586
678,672
214,534
217,179
1,976,151

Yen

Per share (Note 2):
Net income
Net income assuming dilution
Cash dividends

¥

64.91
—
21.00

¥

40.98
39.37
21.00

¥

22.18
21.82
21.00

U.S. dollars(Note1)¥

Consolidated (Note 3)

5.94
—
21.00

¥

20.60
18.84
21.00

Millions of
Yen

Revenues
Operating income
Income before income taxes
Net income
Net income/revenues
Total shareholders’ equity
Total assets$

Thousands of
U.S. dollars(Note1)

1998
Mar. 1997–Feb. 1998

1999
Mar. 1998–Feb. 1999

2000
Mar. 1999–Feb. 2000

2000
Mar. 1999–Feb. 2000

¥ 263,529
6,082
3,181
1,318
0.50%
75,745
216,681¥ 278,799¥ 288,343$2,623,685
5,714
8,134
74,013877
3,360
30,574342
1,437
13,076
0.12%
0.50%
—
74,30974,471
677,625
232,768
236,785
2,154,550
Yen

Per share (Note 2):
Net income
Net income assuming dilution
Cash dividends

0.19
0.17
0.19

¥

19.88
19,65
21.00

¥

5.17
—
21.00

¥

U.S. dollars(Note1)

21.99
20.36
21.00

$

0.20
0.19
0.19

Notes 1. U.S. dollar amounts are translated from yen, for convenience only, at the rate of ¥109.9 = U.S.$1, the rate of exchange on 29th February, 2000.
2. See Note 1 of Notes to Non-Consolidated Financial Statements.
3. The Company has been required to prepare the consolidated financial statements from the year ended 28th February, 1998. Accordingly, the consolidated financial data for the years ended 29th February,1996 and 28th February, 1997 is not presented.

Contents
Profile1
To Our Shareholders
2
Strategy4
Non-Consolidated Statements of Income
9
Non-Consolidated Balance Sheets
10
Non-Consolidated Statements of Shareholders’ Equity
12
Non-Consolidated Statements of Cash Flows13
Notes to Non-Consolidated Financial Statements
14
Report of Independent Accountants
19
Consolidated Balance Sheets
20
Consolidated Statements of Income
22
Consolidated Statements of Shareholders’ Equity
23
Notes to Consolidated Financial Statements
24
Report of Independent Accountants
25
Directors and Corporate Auditors
Back coverCorporate Data
Back coverProfile

Izumi Co., Ltd. is the number one retailchain in Western Japan’s Chugoku region,
with 74 stores throughout Hiroshima,
Okayama, Yamaguchi, Shimane andStore Network

Hyogo Prefectures; Kagawa Prefecture on
4

Shikoku; and Fukuoka, Saga and Oita
11

Prefectures on Kyushu. Izumi has
1steadily expanded the geographic focus

5

14

36

1

1
1
Yamaguchi

of its dominant area strategy with outlets,

Shimanestores and merchandise that respond to

HiroshimaOitachanges in the purchasing and lifestyle

KagawaFukuoka Okayama

needs of customers in its operating area.

Saga

Hyogo

As the next century approaches,
Izumi aims to maintain its reputation as
the number one retail chain for customer
satisfaction. As it expands development ofYoume Town mega-shopping centers on
Kyushu, Izumi will continue to foster
customer loyalty with an enhanced
product lineup and quality service.

As of February 29, 2000

1

To Our Shareholders

TO OUR SHAREHOLDERS

as customers have needs, our industry will not decline. We

The fiscal year ended February 29, 2000, was a great year foralso believe that creating new corporate value is possible by

Izumi Co., Ltd. Despite an operating environment of severe

responding adequately to these needs. In today’s environment,

conditions and sluggish activity, we are pleased to report out-

where an increasing number of companies are worn down bystanding growth in sales and earnings. Consolidated revenues

excessive competition, the gap between companies that willrose 3.4% to ¥288,343 million (US$2,623.7 million) and op-

thrive and companies that will falter is growing wider. We rec-erating income increased 42.4% to ¥8,134 million (US$74.0

ognize that in this environment only the best strategies will

million). Net income rose an impressive 320.2% to ¥1,437

allow a company to expand its market and thrive.

million (US$13.1 million).
We believe our perfor-

IZUMI’S MANAGEMENT

mance this year stems directly

PHILOSOPHY

from our efforts to bring speed

Izumi believes that customer

to our management and inno-

satisfaction is the source of all

vation to our operations after

corporate profitability. As

three consecutive fiscal years

such, the shortest path to cre-of declining revenue and earn-

ating corporate value is inings. Our growth in the fiscal

working to maximize cus-year under review is a reflec-

tomer satisfaction.

tion of two factors: improved

Based on this philoso-

competitiveness in existing

phy, we have created the slo-

stores; and the start of stronggan “Aiming to be a company

growth and profitability in ourbuilt on customer satisfaction

large-scale Youme Town

and confidence.” Realizing thisshopping complexes, chiefly ingoal means constant manage-

the Kyushu region.

ment activity aimed at creating
the kind of stores and sales
spaces that regional custom-

PESSIMISM ABOUT GENERAL
MERCHANDISE STORES

ers love to visit. It also means providing value-added merchan-

Performance among general merchandise stores (GMSs)

dise that effectively meets the diverse needs of our customers

has been lackluster for the past few years, because of pro-and realizing friendly sales floor space that fosters attentive

longed weakness in consumer sentiment and an excess

service. And it means creating stores that are environmentallyof sales floor space that emerged as major players com-friendly and sensitive to the needs of senior citizens and dis-

peted to open new stores. Based on this trend, more pes-

abled customers, and that make aggressive contributions tosimistic analysts have concluded that our industry is in thethe employment and culture of the region.

declining growth phase and that it is no longer able to create value. The market’s severe sell-off of GMS shares last

BUSINESS RESULTS

year supports this viewpoint.

Faced with three consecutive years of declining revenues

But is this an accurate assessment of our business?

and earnings, we revised our traditional management and

We don’t think so. Saying that GMSs are in a mature growth

administrative processes in the fiscal year under review, andphase is probably more realistic. Izumi believes that as long

worked with speed to implement innovations.

2First, we resolved to improve our profitability structure

INTO THE 21ST CENTURY

by introducing a staff rotation system for optimal staff alloca-

Considering the trends discussed above, we believe it is unre-tion, and starting a program of early retirement incentives. These

alistic to hope for an improvement in the operating environ-programs helped us reduce head-office staff from 350 to 250

ment. However, we also believe that continued earnings growth

members. In addition, we continued to reduce fixed costs andis possible if we remain focused on an effective strategy thatrevise administrative processes. Overall, we made significant

takes advantage of our core strengths.

progress lowering management costs, including a 12.4% re-In the fiscal year ending February 28, 2001, we expect

duction in utilities costs and a 20.1% decrease in furnishings

a larger contribution to earnings from our Kyushu stores, whichand supply costs.

are principal investments for the future. We also expect to see

Our efforts to exploit the unique strengths of our total

results emerging in our bottom line from closing six unprofit-

regional focus resulted in steady improvements to existing store

able stores in the term under review. In addition, due to thesales. At the same time, our newly opened Youme Town stores

introduction of a new system of consolidated accounting, 14

in Kyushu achieved strong growth, and allowed the Company

companies will become consolidated subsidiaries and theirto post significant increases in revenue and earnings. On theperformance added to Izumi’s consolidated results. With valu-

strength of this performance, consolidated ordinary income

able contributions from fast-growing, highly profitable compa-

increased 63.1%.

nies such as the imported goods specialty outlet X-Sell Inc.,

Based on our policy of supplying stable dividends to

we expect to continue seeing significant increases in revenue

shareholders, we will continue to pay an annual dividend ofand earnings.

¥21.00 per share (¥10.50 interim period dividend). The

Izumi is committed to marshalling management

Company’s dividend-payout ratio totaled 101.4% in the fiscal

strengths and becoming a company that thrives by satisfying

year under review.

its customers and creating value for its shareholders.
We thank our shareholders and ask for their continued sup-(Millions of yen)

Consolidated
Total

Revenue¥288,343
Operating income*
8,134
Net income
1,437
Net income
per share¥
21.9

Non-Consolidated
Percent
Change

Total

3.4%
63.1%
230.4%

port and guidance.

Percent
Change¥283,988
3.1%
7,613
50.1%
1,346 242.6%¥

July 2000

20.6*The ratio of non-consolidated operating income was 1:1.07.

Yasuaki Yamanishi
President

Non-Consolidated
4,303

Net Income (Millions of yen) /Net Income Per Share (Yen)
Net income

393

97

98

99

5.94

20.60

1,346

1,470
22.18

2,717

Net income
per share

40.98

64.91

7,613

00

5,683

99

6,665
98

8,184

26.5

97

Operating Income (Millions of yen)
9,403

26.4

96

26.3

00

26.3

27.1

Gross Profit as a
Percentage of Net Sales (%)

283,988

275,424

263,245249,398

219,379

Revenues (Millions of yen)

96

97

98

99

96
3

97

98

99

00

96

00

Strategy

Taking Advantage of
the Unique Strengths of
Our Total Regional Focus
Izumi believes that customer satisfaction is the source of all corporate
profitability. Izumi’s advantage in raising customer satisfaction comesfrom the unique strengths of its total focus on the region. In the following
section, we would like to talk a little about the corporate strength thatcomes from this total regional focus and about our attitude for realizing
exceptional competitiveness and high profitability.

needs before they arise. The result has been that cus-

Forming a Dominant Area

tomers place overwhelming confidence in Izumi. With

Strategy Around Youme Town,a large number of stores concentrated in the same
area—the dominant area strategy—we have gained

the Region’s Number One Storehigher customer recognition, more effective sales promotion activities, reduced distribution costs and a

Izumi’s strength lies in its total regional focus. Start-

number of other benefits that render us highly com-

ing from its founding and continuing throughout thepetitive. And we have secured the number one posi-

years, the Company has carried out business activi-tion in the Chugoku region with far

ties chiefly in the Chugoku region of Japan. Each store

greater market share than any ofhas worked to gain a deep understanding of the special

our competitors.

traits that constitute its commercial territory, and Izumi
has worked to create stores that anticipate customer

4Topic 1: Izumi—the Number One Retailer in the Chugoku Region
Deciding where to open new stores, what stores to open and when to open them are extraordinarily important issues fordetermining the profitability and growth potential of a retailer. In Japan, each region has its own history and culture and amyriad of special characteristics based on climate and atmosphere. To provide diverse value to its customers, a GMS
cannot afford to ignore the distinctive features of the region in which it does business.
Based on this viewpoint, Izumi established the Chugoku region as the focus of its new store openings and strategically invested management resources accordingly. By making stores that are attuned precisely to the region’s distinctive qualities, Izumi has become the market leader in the Chugoku region and has continued to build a base for strong
differentiation from the major national chains, who carry out development throughout the country. In the Chugoku region,
we compete against companies whose position is not as well established as Izumi’s, which means we have secured adominant position even amid the recent boom in new store openings.
The previous fiscal year saw aggressive store openings throughout the Chugoku region. With a surplus of sales
floor space, many of our competitors posted large declines in existing-store sales. However, Izumi was able to realize
steady sales results that far surpassed the other industry players, as existing stores continued to make stable contributions to revenue.

Fiscal 1999 Sales AmongIZUMI Chugoku Competitors
IZUMI

SEVENELEVEN

TENMANYA
STORE

Fiscal 1999 Existing-Store Sales Growth(Billions of yen)

(%)
105

MYCAL

JASCO

IZUMI Chugoku
Other Chugoku Stores

100

95

99.1Q

215.2

100.4

79.4

72.4

70.7

99.2Q

99.3Q

99.4Q

Source: Chugoku Bureau of International Trade and Industry,
Ministry of International Trade and Industry

With its dominant area strategy in place in the Chugoku

specialty retailers. As such, they have won the strong sup-region, Izumi began opening new stores in Kyushu inport of local consumers. In the fiscal year under review,

February 1996. Kyushu is an attractive area for new store

existing stores in Kyushu showed their capacity for highopenings in many ways. It is a large commercial area

growth by outperforming the Company’s steady revenue-

with high economic growth potential, and competition

earning stores in Chugoku (see graph). Izumi’s dominant

in the region is comparatively light. Attracted by thesearea strategy in Kyushu continues to make rapid advances.

factors, the Company decided to establish a new domi-

Fiscal 1999 Existing-Store Sales Growth(%)
115

nant area in the Kyushu region.
Customer tastes in Kyushu differ greatly fromIZUMI Kyushu
IZUMI Chugoku
Other Chugoku Stores

105

Chugoku. Each Youme Town store, however, is adapted
specifically to the special characteristics of its area. In ad-

95

dition, they are number one for size and merchandise lineup
in those areas, and feature many of Japan’s premier

99.1Q
99.2Q
99.3Q
99.4Q
Source: Chugoku Bureau of International Trade and Industry,
Ministry of International Trade and Industry

5Topic 2: Rising to the Challenge in Kyushu—Opening
Youme Site Nagasaki
After much planning, Izumi launched Youme Site Nagasaki in April 2000. This large-scale
project was undertaken in cooperation with Nagasaki Prefecture to address the city’s lack ofadequate shopping facilities. A high-grade, urban shopping center, Youme Site Nagasaki ispoised to become a new symbol for Nagasaki in the 21st century.
The new shopping center will provide a diverse lineup of products previously unavailable in the area and a merchandise mix that is sensitive to the special tastes of local consumers. In addition, it features bright, open spaces and complies with people-friendly, barrierfree design standards. With internal waste disposal and clean power generation using seawater, Youme Site Nagasaki
represents store creation for the next century.
As an indication of the huge reaction the shopping center has elicited from the local community, more than 390,000
customers came to the store in its first three days of operations. That represents approximately 90% of the population of Nagasakicity. As a new symbol of the city, Youme Site Nagasaki boasts an incredible power to attract customers and its success is a clear
example of how Izumi has realized store creation that precisely matches the expectations of local customers. This store is expected to continue posting steady earnings results and is on its way to becoming the number one shopping center in the region.
Izumi’s Kyushu stores will soon go from being investments in the future to providing substantial
returns. As each store posts solid growth and profitability, Kyushu operations are expected to makelarge contributions to Companywide revenues. Approximately
HAKATA¥100 billion (US$909.9 million) in sales is expected to come fromthe Kyushu region alone in the fiscal year ending February 28,

NAGASAKI

2002. In response, the Company plans to build a solid dominantarea in Kyushu, believing that this region will be its main base forrevenue growth in the 21st century.

While expanding its dominant area from Chugoku to

Izumi’s store strategy centers on recognizing the

Kyushu, Izumi will also be working to raise profitability in

special characteristics of each region and creating storesits existing stores. We have undertaken aggressive store

that respond accurately to the needs of the region’s cus-

renewals as a way to respond to the changing needs of

tomers. Through this strategy, Izumi plans to boost store

our customers. We are also committed to closing downstrengths Companywide.

stores that, through changes in the market or the region,
Average Age of Stores (Weighted by Floor Space)have lost their ability to function properly. By doing so,
we believe we can address the changing needs of cus-

February 1991

February 1996

February 2000

9.3 years

7.9 years

7.5 years

tomers and constantly recreate our business.

6

Strategy

Strengthening the Corporate

with upgrades to its information infrastructure through ag-

Base—Progress in Structural

gressive IT investment. The goal is to provide support for
objective and accurate decision making in each unit of ourInnovation

organization.
As part of efforts to energize the organization, we

While working to realize customer satisfaction, Izumi is re-revised the traditional seniority-based pay system and in-vising the ways it has traditionally carried out purchasing of

troduced a new ability-based personnel system for salarygeneral merchandise and creation of sales floor space, andand other considerations. Combined with the Company’s

is working to reform administration as a means of creatingwell-established evaluation-based compensation system,

new corporate value. To ensure these reforms are success-which is considered one of Izumi’s unique strengths,

ful, Izumi believes it is essential to energize the staff andthese changes promise to bring improved treatment toorganization that make these reforms possible.

employees who make large contributions to theIn human resources, Izumi has practiced regular hir-Company’s performance.

ing of new university graduates since 1968, for more thanIn addition, amid the increasing involvement of

30 years. The Company started working to accumulate hu-

women in the work force, Izumi has begun actively

man resources talent comparatively earlier than many otherpromoting women to management positions. As aretailers, a practice that has created a base of support forresult of these actions, the Company received an

Izumi’s high level of competitiveness.

award from Hiroshima Prefecture for its record as an

In today’s market, the strength of a corporation isequal opportunity employer.

found in the speed of its management. Based on this rec-Our efforts with human resources and organizational

ognition, Izumi is working to create an innovative, more hori-revisions have resulted in a steady reduction in the average

zontal organization where management decisions can beage of full-time employees (see table). We aim to create amade with speed at the store level, the closest line to themore youthful, active organization and become a flexible

customer. At the same time, the Company is pushing ahead

but powerful corporation.

Average Age of Full-Time Employees (Weighted by Floor Space)

7

February 2000

February 1999

February 2000

31.6 years

30.7 years

30.3 years

In addition, a change in accounting methods ef-

Introducing the Corporate

fective in the current fiscal year provides the Izumi Group

Group—Toward Full-Scalewith several new subsidiaries that were not previously
consolidated. X-Sell, a retail provider of imported luxury

Introduction of Consolidated

items at reasonable prices, best represents these newsubsidiaries with industry-leading merchandising capa-

Accounting

bilities and overwhelming differentiation from competitors. This company is expanding rapidly into major cities

The Izumi Group boasts a number of companies withnationwide.

high growth and high profitability. Yume Town Co., Ltd.,

Exceptional corporate group activity enhances thea long-time consolidated subsidiary, has now acquired

Izumi Group’s ability to realize customer satisfaction andmore than two million subscribers to its credit-card ser-is expected to create greater added value. The operating

vice. Through such initiatives as an industry-leading tie-

environment surrounding the retail industry will most likely

up with the Postal Savings Bureau to provide joint-use

remain unstable. Izumi and its Group companies are com-

ATM/credit cards, this company is making aggressive

mitted to working hard to implement their optimal businessefforts to expand its business. The company achieved

strategy and to realize customer satisfaction. Izumi aims tostrong growth in revenue for the fiscal year under review,

be a company that thrives in the 21st century.

and we expect it to continue posting solid growth on theback of increases in credit-card subscribers and enhanced corporate functions.

8Non-Consolidated Statements of Income
Thousands of
U.S. dollars(Note 3)

Millions of yen
Izumi Co., Ltd.

For the years ended 28th February, 1999 and 29th February, 2000

1999

2000

1999

2000

¥267,845¥275,611$2,437,170$2,507,834

7,579

8,377

68,96376,224275,424

283,988

2,506,133

2,584,058

COST OF SALES

204,675

210,931

1,862,375

1,919,299

Gross profit

70,74973,057643,758

664,759

65,06665,444592,047

595,487

5,683

7,613

51,711

69,272

456

272

4,149

2,475

REVENUES (Note 12):Net sales
Other operating revenues

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Operating income
OTHER INCOME (EXPENSES):Interest and dividend income
Discount on early settlement of accounts payable–trade

453

480

4,122

4,368

(2,488)(2,456)(22,639)(22,348)

Loss on write-down of investments in securities

(262)

(903)

(2,384)(8,217)

Loss on liquidation of subsidiaries

(65)

(740)

(591)

(6,733)

Interest expense

Loss on write-down of short term investments
Loss on sales of investments in securities
Loss on write-down of intangible assets
Loss on liquidation of cash trusts

(713)

(189)

(6,488)(1,720)(1,093)—(9,945)

—

—

(260)

—

(2,366)(572)—(5,205)—

Loss on sales or disposal of property and equipment

(581)

(935)

(5,287)(8,508)Additional severance benefits for early retirement

(358)

(164)

(3,257)(1,492)

Amortisation of unrecognised effect of change in methodof accounting for severance benefits of directors andcorporate auditors

(112)

—

(1,019)—Other, net

465

227

4,231

2,066

Income before income taxes

813

2,945

7,398

26,797

Current

420

2,041

3,822

18,571

Deferred

—

(442)

—

(4,022),393¥ 1,346

INCOME TAXES (Note 13)

Net income

¥

$

3,576

$

12,248$

0.19

U.S. dollars(Note 3)Yen

PER SHARE:
Net income¥

Net income assuming dilution

5.94¥ 20.60

$

0.05

—

18.84

—

0.17

21.00

21.00

0.19

0.19

Common shares

66,15965,354

Common shares assuming dilution

73,39472,453

Cash dividends
WEIGHTED AVERAGE NUMBER OF SHARES (THOUSANDS):

The accompanying notes are an integral part of these statements.

9Non-Consolidated Balance Sheets
Thousands of
U.S. dollars(Note 3)

Millions of yen
Izumi Co., Ltd.

28th February, 1999 and 29th February, 2000

1999

2000

1999

2000

ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Notes 6 and 10):
Cash
Time deposits

¥

9,057

¥

7,104

$

82,411$64,641

4,120

1,276

37,48911,611

13,1778,380

119,900

76,252

1,335

73

12,147

664

168

3,267

1,529

29,727

Trade

699

733

6,360

6,670

Other

959

950

8,726

8,644

1,658

1,683

15,08615,314

(9)

(9)

(82)

(82)

1,649

1,674

15,004

15,232

12,501

12,105

113,749

110,146

794

—

7,225

—

Short-term investments (Notes 5, 6 and 10)
Short-term loans receivable
Notes and accounts receivable (Note 10):Less, allowance for doubtful accounts
Inventories (Note 4)
Refundable income taxes
Deferred income taxes (Note 13)

—

385

—

3,503

Other current assets

1,063

1,543

9,672

14,040Total current assets

30,68727,427279,226

249,564

INVESTMENTS AND ADVANCES (Note 10):Investments in securities (Note 5)

5,188

5,418

47,20749,299Investments in subsidiaries and affiliates

1,347

1,330

12,257

12,102Other investments and advances

2,956

3,302

26,89730,045

9,491

10,05086,361

91,446

Buildings and structures

128,569

133,360

1,169,873

1,213,467

Furniture and fixtures

22,33023,332

203,185

212,302150,899

156,692

1,373,058

1,425,769(62,719)(68,394)(570,692)(622,330)

88,18088,298802,366

803,439

Land

48,54549,513441,720

450,528

Construction in progress

3,401

7,283

30,946

66,269140,126

145,094

1,275,032

1,320,236

25,21822,914229,463

208,499

PROPERTY AND EQUIPMENT (Note 6):

Less, accumulated depreciation

OTHER ASSETS:
Fixed leasehold deposits
Deferred income taxes (Note 13)
Other

—

929

—

8,453

9,012

10,76582,002

97,953¥214,534¥217,179$1,952,084$1,976,151

The accompanying notes are an integral part of these statements.

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

Millions of yen

1999

2000

1999

2000

LIABILITIES AND SHAREHOLDERS’ EQUITYCURRENT LIABILITIES:
Short-term bank loans (Notes 6 and 10)
Current portion of long-term debt (Notes 6 and 10)¥—¥ 4,650$—$

42,311

17,471

23,267

158,972

211,711

Accounts payable (Note 10):Trade

11,285

11,136102,684

101,329

Construction

6,784

2,966

61,72926,988

Other

2,671

2,856

24,30425,987

20,74016,958

188,717

154,304

—

1,838

—

16,724

Accrued payroll and bonuses

2,071

2,086

18,844

18,981

Accrued consumption taxes

82

1,079

746

9,818

Accrued income taxes

Deposits received

1,730

1,591

15,742

14,477

Other current liabilities

1,325

2,192

12,056

19,945

Total current liabilities

43,41953,661

395,077

488,271

84,08975,876765,141

690,410

LONG-TERM DEBT (Notes 6 and 10)
ACCRUED SEVERANCE INDEMNITIES (Note 7)

1,968

1,950

17,907

17,743LEASE DEPOSITS RECEIVED

10,492

11,072

95,469100,746

OTHER LIABILITIES
Total liabilities

17

34

155

309

139,985

142,593

1,273,749

1,297,479

19,614—

178,471——

19,614—

178,471

26,58025,792

241,856

234,686

COMMITMENTS AND CONTINGENT
LIABILITIES (Note 9)

SHAREHOLDERS’ EQUITY (Note 11):
Common stock, ¥50 ($0.45) par value:
Authoris ed—198,717,000 shares
Issued—65,957,710 shares at 28th February, 1999
—65,032,710 shares at 29th February, 2000
Additional paid-in capital
Legal reserve

1,679

1,820

15,27816,561

Voluntary reserves

26,27425,072

239,072

228,135

Retained earnings

402

2,288

3,658

20,81974,54974,586678,335

678,672¥214,534¥217,179$1,952,084$1,976,151

Total shareholders’ equity

11Non-Consolidated Statements of Shareholders’ Equity

Izumi Co., Ltd.

For the years ended 28th February, 1999 and 29th February, 2000

BALANCE AT 28TH FEBRUARY, 1998

Millions of yen

Number ofcommonshares(thousands)

Commonstock

Additional
paid-in
capitalLegalreserve

Voluntary
reserves

Retainedearnings

66,316¥19,614¥26,866¥1,534¥26,230¥ 1,640

Net income for the year

—

—

—

—

—

393

Cash dividends

—

—

—

—

—

(1,393)

Directors’ and corporate auditors’ bonus

—

—

—

—

—

(49)

Transfer to legal and voluntary reserves

—

—

—

145

67

(212)

Transfer from voluntary reserves

—

—

—

—

(23)

23

Common stock repurchased and cancelled (358)

—

(286)

—

—

—

19,614

26,5801,679

26,274402

BALANCE AT 28TH FEBRUARY, 1999

65,958Net income for the year

—

—

—

—

—

1,346

Cash dividends

—

—

—

—

—

(1,375)

Directors’ and corporate auditors’ bonus

—

—

—

—

—

(19)

Transfer to legal and voluntary reserves

—

—

—

141

26

(167)

Transfer from voluntary reserves

—

—

—

—

(1,228)1,228

Common stock repurchased and cancelled (925)

—

(788)

—

—

—

—

—

—

—

—

873

65,033¥19,614¥25,792¥1,820¥25,072¥ 2,288

Cumulative effects of adopting deferred tax
accounting at 1st March, 1999
BALANCE AT 29TH FEBRUARY, 2000

Thousands of U.S. dollars(Note 3)BALANCE AT 28TH FEBRUARY, 1998
Net income for the year

$178,471$244,459$13,958$238,672$14,923

—

—

—

—

3,576

Cash dividends

—

—

—

—

(12,675)

Directors’ and corporate auditors’ bonus

—

—

—

—

(446)

Transfer to legal and voluntary reserves

—

—

1,320

609

(1,929)Transfer from voluntary reserves

—

—

—

(209)

209

Common stock repurchased and cancelled—(2,603)———

178,471

241,856

15,278239,072

3,658

—

—

—

—

12,248BALANCE AT 28TH FEBRUARY, 1999
Net income for the year
Cash dividends

—

—

—

—

(12,512)

Directors’ and corporate auditors’ bonus

—

—

—

—

(173)

Transfer to legal and voluntary reserves

—

—

1,283

237

(1,520)Transfer from voluntary reserves

—

—

—

(11,174)

11,174

Common stock repurchased and cancelled—(7,170)

—

—

—

—

—

—

—

7,944

$178,471$234,686$16,561$228,135$20,819

Cumulative effects of adopting deferred tax
accounting at 1st March, 1999
BALANCE AT 29TH FEBRUARY, 2000
The accompanying notes are an integral part of these statements.

12

Non-Consolidated Statements of Cash Flows
Thousands of
U.S. dollars(Note 3)

Millions of yen
Izumi Co., Ltd.

For the years ended 28th February, 1999 and 29th February, 2000

1999

CASH FLOWS FROM OPERATING ACTIVITIES:Net income
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortisation
Loss on sales or disposal of property and equipment
Loss on write-down of short-term investments
Loss on write-down of investments in securities
Loss on write-down of other assets
Loss on liquidation of subsidiaries
Loss on sales of investment in securities
Loss on liquidation of cash trusts
Provision for accrued severance indemnities
Deferred income taxes
Changes in assets and liabilities:
Increase in notes and accounts receivable
Decrease (increase) in inventories
Decrease (increase) in refundable income tax(Increase) decrease in other current assets
Increase in notes and accounts payable
Increase in accrued payroll and bonuses
Increase in accrued income taxes
Increase (decrease) in other current liabilities
Other, net
Total adjustments
Net cash provided by operating activities

¥

2000

$ 12,248

8,897
935
189
903
279
—
—
—
430
(442)

79,181
5,287
6,488
2,384
—
591
9,945
5,205
4,895
—

80,955
8,508
1,720
8,217
2,539
—
—
—
3,913
(4,022)

(40)
(688)
(794)
863
687
128
(900)
(874)
(15)
10,893
11,286

(15)
396
794
(440)
36
15
1,838
1,725
(211)
15,32916,675(364)(6,260)(7,225)
7,852
6,251
1,165
(8,189)(7,953)(1,920)99,117
102,693

(137)
3,603
7,225
(4,004)328
136
16,724
15,696(1,920)139,481
151,729

CASH FLOWS FROM INVESTING ACTIVITIES:Payments for purchases of property and equipment
Proceeds from sales of property and equipment
Payments for purchases of investments and advances
Proceeds from sales of investments and collection of advances
Decrease in short-term investments(Increase) decrease in short-term loans receivable
Increase in fixed leasehold deposits
Decrease in fixed leasehold deposits
Other, net
Net cash used in investing activities(23,470)
482
(670)
1,434
1,182
3,166
(159)
1,275
(2,072)(18,832)(20,462)
1,919
(596)
167
—
(3,047)(1,975)
4,394(3,326)(22,926)(213,558)
4,386(6,096)
13,04810,75528,808(1,447)
11,602(18,854)(171,356)(186,188)
17,461(5,423)
1,520—(27,725)(17,971)
39,982(30,264)(208,608)

CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in short-term bank loans
Decrease in commercial paper
Proceeds from issuance of long-term debt
Repayments of long-term debt
Increase in lease deposits received
Repayments of lease deposits received
Cash dividends paid
Other, net
Net cash provided by financing activities(8,300)(9,000)29,200(6,323)
3,286(1,272)(1,393)
(8)
6,190

4,650
—
15,248(17,665)
1,358
(779)
(1,375)17
1,454(75,523)(81,893)
265,696(57,534)
29,900(11,574)(12,675)(73)
56,32442,311—
138,744(160,737)
12,357(7,088)(12,512)156
13,231

Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year

(1,356)
14,533¥ 13,177(4,797)
13,177¥ 8,380(12,339)132,239$ 119,900(43,648)
119,900$ 76,252¥ 2,665
1,992¥ 2,554180$ 24,249
18,126$ 23,239
1,638¥¥ 1,073$$

The accompanying notes are an integral part of these statements.

13¥ 1,346

8,702
581
713
262
—
65
1,093
572
538
—

—

$

2000

3,576

SUPPLEMENTARY DISCLOSURES OF CASH FLOWINFORMATION:
Cash paid during the year for:
Interest
Income taxes
Non-cash financing activities:
Transfer of short-term investments to investments in securities

393

1999

—

9,763

Notes to Non-Consolidated Financial Statements

Izumi Co., Ltd.

For the years ended 28th February, 1999 and 29th February, 2000

Cost of property and equipment retired or otherwise
disposed of and related accumulated depreciation are eliminated

1. Basis of Presenting Non-Consolidated Financial
Statementsfrom the respective accounts and the resulting gain or loss isreflected in income.

The accompanying non-consolidated financial statements havebeen prepared based on the accounts maintained by Izumi
Co., Ltd. (the “Company”) in accordance with the provisions set

Depreciation of property and equipment, other than a largescale and compound-type shopping center and buildings

forth in the Japanese Commercial Code and the Securities andExchange Law, and in conformity with accounting principles andacquired on or after 1st April, 1998, is computed on the declining balance method at rates based on the estimated useful lives

practices generally accepted in Japan, which are different incertain respects as to application and disclosure requirements ofof assets prescribed by the Japanese income tax laws. A largescale and compound-type shopping center and buildingsInternational Accounting Standards.
Certain items presented in the non-consolidated financial

acquired on or after lst April,1998 are depreciated by thestraight-line method.

statements filed with the Ministry of Finance (the “MOF”) inJapan have been reclassified in these accounts for the

The useful lives of buildings (excluding building improvements) were changed in accordance with 1998 amendments toconvenience of readers outside Japan. In addition, the nonconsolidated financial statements of cash flows are not required

the Japanese tax laws. The effects of this change were toincrease depreciation expense by ¥429 million ($3,904 thou-

to be filed with the MOF, but have been prepared and includedin the non-consolidated financial statements.

sand), and to decrease both operating income and income
before income taxes by ¥429 million ($3,904 thousand) for the

The non-consolidated financial statements are not intended
to present the non-consolidated financial position, results ofyear ended 29th February, 2000. In accordance with 1998
amendments to the Japanese tax laws, the capitalization

operations and cash flows in accordance with accounting
principles and practices generally accepted in countries andthreshold was lowered from ¥200 thousand to ¥100 thousand,and minor assets with acquisition costs of ¥100 thousand or

jurisdictions other than Japan.
The preparation of financial statements in conformity withmore but less than ¥200 thousand have been depreciated over
five years on a straight-line basis. The effects of this change

generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported

were to increase operating income and income before income
taxes by ¥68 million ($619 thousand) for the year ended 29th

amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements andFebruary, 2000.
The range of the estimated useful lives is as follows:

the reported amounts of revenues and expenses during thereporting period. Actual results could differ from those estimates.

Buildings and structures
Furniture and fixtures

2. Summary of Significant Accounting Policies(1) Translation of Foreign Currencies

Normal repairs and maintenance, including minor renewals

Investments in securities denominated in foreign currencies aretranslated into Japanese yen at the historical exchange rates.

and improvements, are charged to income as incurred.
(6) Leases(2) Inventories
Inventories are stated at cost, primarily determined by the retail

The Company leases certain of its superstore properties under
noncancellable agreements primarily for a 30-year period. The

inventory method (inventory valuation is based on the ratio of
cost to selling price).

rental fees are usually renegotiated every three years. Those leases
are accounted for as operating leases. When leasing land, the(3) Short-Term Investments and Investments in Securities
Securities with quoted market prices are stated at the lower ofCompany is usually required to make certain fixed leasehold
deposits which are returnable only when the lease is terminated. In

cost or market, and others are stated at cost. Cost is determined by the moving average method.

connection with the leasing of buildings for superstores, theCompany generally enters into agreements whereby the Company(4) Investments in Subsidiaries and Affiliates
Investments in subsidiaries and affiliates are valued at cost.

advances to the lessors the amounts of the construction costs ofthe buildings. Upon completion of construction, the advances are

Subsidiaries have not been consolidated nor has the equity
method of accounting been applied to account for investments

reclassified to fixed leasehold deposits for the buildings. After 10
years of the lease, 70 to 80 per cent of such fixed leaseholdin affiliates in the accompanying non-consolidated financial
statements.

deposits is refunded in installments over 10 to 20 years.
The Company also leases certain superstore equipment and(5) Property and Equipment and Depreciation
Property and equipment, including significant renewals andadditions, are carried at cost.

10 to 65 years
4 to 17 years

office equipment under noncancellable agreements for seven years.
Those leases are also accounted for as operating leases.
14(7) Accrued Severance Indemnities and Pension Plans
Employees of the Company, with more than one year’s service,dividends were proposed by the Board of Directors. Dividends arecharged to retained earnings in the year in which they are paid.

are entitled to receive lump-sum indemnities upon termination.
The amount of the benefit is determined by current basic rate of(10) Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and bankpay, length of service and condition under which the termination
occurs. The amount of severance indemnities to be paid by thedeposits, including time deposits maturing within one year.
3. United States Dollar Amounts
The Company maintains its accounting records in Japanese yen.

Company is reduced by the benefits payable under a noncontributory pension plan.

The dollar amounts included in the accompanying nonconsolidated financial statements and notes thereto represent the

The accrued severance indemnities in the accompanying
non-consolidated balance sheets represent 40 per cent of thearithmetical results of translating yen into dollars on the basis of¥109.9=U.S.$1, the approximate rate of exchange on 29th

liability the Company would be required to pay (reduced by thebenefits payable under the non-contributory pension plan) if all

February, 2000.
The inclusion of such dollar amounts is solely for conve-

eligible employees voluntarily terminated employment at thebalance sheet date. Such liability is not funded.

nience and is not intended to imply that assets and liabilities havebeen or could be readily converted, realised or settled in dollars at

The Company provides for lump-sum severance benefits
with respect to directors and corporate auditors. While the¥109.9=U.S.$1, or at any other rate.

Company has no legal obligation, it is a customary practice inJapan to make lump-sum payments to a director or a corporate

4. Inventories
Inventories as of 28th February, 1999 and 29th February, 2000,

auditor upon retirement. Such liability is not funded.
(8) Income Taxes

consisted of the following:

Income taxes of the Company consist of corporate income tax,
local inhabitant taxes and enterprise tax.

Thousands of
U.S. dollars
1999
2000

Millions of yen
1999
2000

Effective lst March,1999, the Company adopted the deferred
tax accounting method in accordance with the amended regulations for preparation of financial statements. Income taxes were
determined using the asset and liability approach, whereby
deferred tax assets and liabilities were recognised in respect of
temporary differences between the tax basis of assets andClothing¥ 7,626
Household goods
3,174
Fresh and processed foods
1,566
Supplies135¥ 5,881 $ 69,390
4,376
28,881
1,714
14,249134
1,229$ 53,512
39,81815,596
1,220¥12,501¥12,105 $113,749$110,146

5. Marketable Equity Securities
Marketable equity securities included in short-term investments

liabilities and those as reported in the financial statements.
Deferred tax assets and liabilities are measured by using currently(current assets) and investments in securities (non-current assets)
as of 28th February, 1999 and 29th February, 2000, areenacted tax rates, and the effect on these deferred tax assets andliabilities of a change in tax rates is recognised in income in thesummarised as follows:

period that includes the enactment date. The cumulative effect of
adopting deferred tax accounting at 1st March, 1999 wasThousands of
U.S. dollars
1999
2000

Millions of yen
1999
2000

charged to retained earnings.
In the year ended 28th February, 1999, income taxes of theCurrent:
MarketCost (carrying amounts)¥1,294
1,285

¥

34
35

$11,774
11,692$309
318

Unrealised (losses) gains

¥

¥

(1)

$

82

$ (9)

average number of shares of common stock outstanding during
each period. Diluted earnings per share additionally assumes theNon-current:
MarketCost (carrying amounts)¥3,873
3,629¥4,466
4,397$35,241
33,021$40,637
40,009conversion of outstanding convertible debentures. Diluted
earnings per share for the year ended 28th February, 1999 was

Unrealised gains

¥ 244

¥

$ 2,220$

not presented due to the anti-dilutive effect of the assumed
conversion of outstanding convertible debentures.

6. Short-Term Bank Loans and Long-Term Debt

Company were provided for at an amount currently payable
based on the tax returns filed with the tax authorities.

9(9) Net Income and Dividends per Share
Net income per share of common stock is based on the weighted

69

628

Short-term bank loans are represented by bank overdrafts,
bearing interest at the weighted average interest rate of 1.23%.

Cash dividends per share include those declared withrespect to the earnings for the respective periods for which the15(a) Subject to adjustments under certain circumstances, including stock splits of common stock.
(b) Under the terms of the convertible debentures, the aggregate payments of cash dividends
including interim cash dividends shall not exceed ¥1,900 million plus the aggregate amountsof net income of the Company for each year ending subsequent to 29th February, 1992 until
all the debentures are redeemed.
(c) Under the terms of the convertible debentures, the aggregate payments of cash dividends
including interim cash dividends shall not exceed ¥2,300 million plus the aggregate amountsof net income of the Company for each year ending subsequent to 31st August, 1993 until
all the debentures are redeemed.

Long-term debt as of 28th February, 1999 and 29th February,
2000, consisted of the following:Thousands of
U.S. dollars
1999
2000

Millions of yen
1999
2000

Loans from banks and insurancecompanies, due from April 1999
to August 2011 with interest
rates primarily based on
the long-term prime rate:¥55,326 ¥55,666 $503,421 $506,515
SecuredUnsecured
3,798
5,841
34,55953,14959,12461,507537,980

As of 29th February, 2000, bank deposits of ¥300 million($2,730thousand), marketable securities of ¥2,554 million($23,239 thousand), and property and equipment with a net bookvalue of ¥82,157 million ($747,561 thousand) were pledged ascollateral for short-term loans and long-term loans including the559,664

current portion.

Japanese yen unsecured
convertible debentures:
4.5% due February 2001
1.7% due August 2002
2.3% Japanese yen
unsecured debenturesdue March 2000
2.025% Japanese yen unsecured
debentures due March 2002
2.325% Japanese yen unsecured
debentures due March 2003
2.175% Japanese yen unsecured
debentures due October 2003
2.0% Japanese yen unsecured
debentures due December 2001
2.05% Japanese yen unsecured
debentures due February 2000

9,545
4,091

9,545
4,091

86,851
37,225

7. Accrued Severance Indemnities and Pension Plans

86,851
37,225The accumulated balance of fund assets of the pension planaggregated ¥1,027 million ($9,345 thousand) as of 29th February,

4,000

4,000

36,397

2000.

36,397

The past service cost for the pension plan aggregated ¥806
5,000

5,000

45,49645,496

5,000

5,000

45,49645,496

million ($7,334 thousand) as of 29th February, 2000, and was
being amortized over 14 years and four months.

5,000

5,000

45,49645,496

5,000

5,000

45,49645,4964,800—

43,676—

Severance indemnities and pension costs, for theCompany’s employees, charged to income for the two years
ended 28th February, 1999 and 29th February, 2000, are as
follows:
Thousands of
U.S. dollars

Millions of yen

101,560 99,143 924,113 902,121
Less: portion due within one year (17,471) (23,267) (158,972) (211,711)¥84,089 ¥75,876 $ 765,141 $ 690,410

1999

2000

1999

2000

¥536

¥712

$4,877$6,479

8. Leases

The aggregate annual maturities of long-term debt outstanding as

The total rental expense for leases for the two years ended 28thof 29th February, 2000, are as follows:

February, 1999 and 29th February, 2000, are as follows:Year ending the last
day of February

Millionsof yenThousands of
U.S. dollars

2002
2003
2004
2005
2006 and thereafter¥13,301
27,001
14,543
8,769
12,262$121,028
245,687
132,330
79,791
111,574¥75,876$690,410

Millions of yen
1999
2000

Total rental expense,
principally land andbuildings forsuperstores (a)¥6,242
Less: sublease rental income
from tenants (b)1,810
Net rental expense

Convertible debentures outstanding as of 29th February, 2000,
are redeemable or convertible as follows:

Current
conversion
price
per share (a)Number ofshares ofissuablecommonstock upon
conversion(thousands)

105%–
100%

¥1,897.0

5,032

103%–
94%

¥1,979.0

2,067Redeemable Redeemable
on or
price
after
range

4.5% dueFebruary
2001 (b)1.7% dueAugust2002 (c)1stMarch,
1996
1st
September,
1998¥4,432¥5,273$56,797$47,980

2,193

16,46919,955¥3,080$40,328$28,025(a) See Note 2 (6) for discussion of the accounting for leases.
(b) See Note 12 for discussion of the rental income.

16

Thousands of
U.S. dollars
1999
2000

Millions of yen

Information for finance lease transactions other than those which
are deemed to transfer the ownership of leased assets to lessees
for each period is summarised as follows:(1) Acquisition cost equivalent amount, accumulated depreciationequivalent amount and net book value equivalent amount of theleased furniture and fixtures as at 28th February, 1999 and 29th

Year ending the last
day of February

Real Estate

Equipment

Total
Commitment

2001
2002
2003
2004
2005
2006 and thereafter¥ 3,971
3,841
3,738
3,614
3,499
48,554¥1,295
1,259
1,111
1,016
752
568

¥ 5,266
5,100
4,849
4,630
4,251
49,122February, 2000, if capitalised, are summarised as follows:
Millions of yen
1999
2000

Acquisition costequivalent amount
Accumulated depreciationequivalent amountThousands of
U.S. dollars
1999
2000

¥9,496¥8,565$86,406$77,934

4,947

2,978

45,01427,097¥4,549¥5,587$41,392$50,837

Thousands of U.S. dollars

Net book value
equivalent amountYear ending the last
day of February

Real Estate

Equipment

Total
Commitment

2001
2002
2003
2004
2005
2006 and thereafter$ 36,133
34,95034,01332,884
31,838441,802$ 11,783
11,456
10,109
9,245
6,843
5,168

$ 47,916
46,40644,122
42,12938,681446,970

The acquisition cost equivalent amount is calculated including

The Company was contingently liable for guarantees of loansinterest portion as the outstanding future lease payments arefrom financial institutions and lease agreements made by affiliates

immaterial to the year-end balance of property and equipment.

and other, totalling ¥36,680 million ($333,758 thousand) at 29th
February, 2000.

(2) The amounts equivalent to outstanding future lease payments
at 28th February, 1999 and 29th February, 2000, which include

10. Fair Value of Financial Instrumentsinterest portion, are summarised as follows:

The Company uses derivative financial instruments to reduce its

Millions of yen
1999
2000

finance costs and to hedge its exposure to market risk fromThousands of
U.S. dollars
1999
2000

Due within one year
Due after one year

¥ 976
3,572

¥1,0974,490$ 8,881
32,502$ 9,982
40,855

Total¥4,548¥5,587$41,383$50,837

fluctuation in interest rates. The Company does not hold or issue
derivative financial instruments for speculative purposes.
The Company has entered into interest rate swap agreements, under which the Company receives fixed-rate interest andpays variable-rate interest, to reduce costs for debentures issued(3) Rental expenses and depreciation expense equivalentor loans borrowed at fixed interest rate. The Company has alsoamounts for the two years ended 29th February, 2000, are asentered into interest rate swap agreements, under which thefollows:

Company receives variable-rate interest and pays fixed-rate

Millions of yen
1999
2000

Rental expenses
Depreciation expenseequivalent amounts

Thousands of
U.S. dollars
1999
2000

¥1,101¥1,218$10,018$11,083

1,101

1,218

10,01811,083interest, to fix the interest payments on a long-term basis. The
contract amounts of interest rate swap agreements were ¥20,685
million ($188,217 thousand) and ¥29,062 million ($264,440
thousand) at 28th February, 1999 and 29th February, 2000,
respectively.

Depreciation expense equivalent amount is determined based on

The interest rate swap transactions, which are currently used

the straight-line method over the lease term of the leased assets

by the Company, may have a risk from interest rate fluctuations.

with no residual value.

The Company believes that there is little credit risk from nonfulfill-

9. Commitments and Contingent Liabilities

ment of contracts, as counter parties are highly creditworthy

Minimum rental commitments under noncancellable operating

domestic banks. Derivative transactions are approved at theleases at 29th February, 2000, are as follows:management conference, and executed and managed bytreasury department. The head of the administrative department
reports the status of transactions to the Board of Directors. The
estimated fair values of financial instruments as of 28th February,
1999 and 29th February, 2000, are as follows:17Millions of yen
1999
Carrying
AmountAssets:Cash and cash equivalents ¥13,177
Short-term investments
1,285
Notes and accounts
receivable
1,649
Investments andadvances
3,629
Liabilities:
Short-term bank loans—
Accounts payable
20,740Long-term debt
42,436

conversion of debentures must be capitalised as “common
stock.” However, at or less than 50 per cent of such issue
price may be capitalised as “additional paid-in capital”
pursuant to a resolution of the Board of Directors on thecondition that at least the par value of such new shares iscapitalised as “common stock.”
The Code requires the appropriation of retained earnings aslegal reserve in an amount equivalent to at least 10 per cent ofcash payments for appropriation of retained earnings until thereserve equals 25 per cent of common stock. This reserve may
be transferred to common stock by a resolution of the Board of
Directors or used to reduce a deficit by a resolution of theshareholders’ meeting.
Under the Code, the appropriation of retained earnings(including year-end cash dividend payments) proposed by the
Board of Directors should be approved at the shareholders’meeting which must be held within three months after the end ofeach fiscal year. The appropriation of retained earnings reflectedin the accompanying non-consolidated financial statements
represents the results of such appropriations which are applicableto the immediately preceding fiscal year and disposed of during
the current year.
As is customary practice in Japan, the payment of bonuses
to directors and corporate auditors is made out of retained
earnings instead of being charged to income of the year andconstitutes a part of the appropriations cited above.
The Company’s Board of Directors has made annual
appropriations of retained earnings for various purposes, theaccumulated balance of which is presented as “Voluntary
reserves” in the accompanying non-consolidated financial
statements.

2000
Fair
Value

Carrying
AmountFair
Value¥13,177
1,294¥8,38035¥8,380
34

1,649

1,674

1,674

3,873

4,397

4,466

—
20,74041,926

4,650
16,95837,636

4,650
16,95838,055

Thousands of U.S. dollars

Assets:Cash and cash equivalents $119,900
Short-term investments
11,692
Notes and accounts
receivable
15,004
Investments andadvances
33,021
Liabilities:
Short-term bank loans—
Accounts payable
188,717Long-term debt
386,133$119,900 $ 76,252
11,774318$ 76,252309

15,004

15,232

15,23235,24140,00940,637—
188,717
381,492

42,311
154,304
342,457

42,311
154,304
346,269

The following methods and assumptions were used to estimate
the fair value of each class of financial instruments.
(1) Cash and Cash Equivalents, Notes and Accounts Receivable, Short-Term Bank Loans, and Accounts Payable
The carrying amount approximates fair value because of the shortmaturity of these instruments.
(2) Short-Term Investments
The fair value of short-term investments is estimated based onquoted market prices. Investments with a carrying amount of ¥49
million ($446 thousand) were excluded because a reasonableestimate of fair value could not be made without incurring
excessive cost.
(3) Investments and Advances
The fair value of certain investments is estimated based onquoted market prices for those instruments. Investments andadvances with a carrying amount of ¥5,653 million ($51,437
thousand) were excluded because a reasonable estimate of fairvalue could not be made without incurring excessive cost.
(4) Long-Term Debt
The fair value of long-term debt is estimated based on quoted
market prices. Loans from banks and insurance companies withan aggregate carrying amount of ¥61,507 million ($559,664
thousand) were excluded because a reasonable estimate of fairvalue could not be made without incurring excessive cost.

12. Revenues from Tenants
The Company rents part of its sales floor space to tenants for theoperation of independent complementary retail businesses. Net
sales include sales of tenants who are on a percentage rent basis
and other operating revenues include rental income from tenants
who are on a fixed or variable rent basis. Sales of tenants andrental income from tenants are summarised as follows:
Millions of yen
1999
2000

Sales
Rental income¥65,451
1,810

Thousands of
U.S. dollars
1999
2000

¥68,546 $595,551
2,193
16,470$623,712
19,955

13. Income Taxes
The Company is subject to a number of different taxes based on
income which, in aggregate, indicates statutory tax rates ofapproximately 51.0% for the year ended 28th February, 1999 and47.3% for the year ended 29th February, 2000. Reconciliation of
the differences between the statutory income tax rate and the

11. Shareholders’ Equity
The Japanese Commercial Code (the “Code”) requires that theentire amount of the issue price of new shares issued upon

effective income tax rate for the years ended 28th February,
1999 and 29th February, 2000 are as follows:
18

1999

2000

14. Reclassification

Statutory income tax rate
51.0%
Increase (decrease) in taxes resulting from:
Per capita Inhabitant taxes
18.2
Effect of change in statutory income tax rate—
Dividend income which is permanently non-taxable (4.6)
Entertainment expenses and other which arepermanently non-tax deductible
13.4
Tax effects of temporary differences(33.7)
on which deferred taxes were not recognised
Other
7.4

47.3%

Certain reclassifications of previously reported amounts have

Effective income tax rate

54.3%

The appropriations of retained earnings in respect of the year
ended 29th February, 2000, proposed by the Board of Directors

The significant components of deferred tax assets and liabilities at 29th
February, 2000, are as follows:(“BOD”) and approved at the shareholders’ meeting held on 25th

51.7%

Millions of yen

Deferred tax assets:
Provision for accrued severance indemnities
to directors and corporate auditors¥
Interest expenses computed onlands newly acquired
Loss on write-down of investments
in securities
Accrued enterprise tax
Loss on write-down of intangible assets
Excess provision for accrued bonus
Excess provision for accrued
severance indemnities to employees
Other
Total deferred tax assets
Deferred tax liabilities:
Reserve for special depreciation
Deferred capital gains on sale of property

been made to the non-consolidated balance sheet as of 28th
February, 1999 and non-consolidated statements of cash flows

5.1
2.0
(1.1)

for the year ended 28th February , 1999, to conform to the 2000
presentation. Such reclassifications have no effect on net assets

0.9—

and net cash flows.
15. Subsequent Events

0.1

May, 2000, are as follows:

Thousands of
U.S. dollars

349$ 3,176

266

2,420

264
193
117
95

2,402
1,756
1,065
864

35
116

318
1,056

1,435

13,057

(76)
(45)

(692)
(409)

Total deferred tax liabilities(121)(1,101)

Net deferred tax assets¥1,314$11,956

Retained earnings at 29th February, 2000
Reversal of voluntary reserves

Appropriations:
Cash dividends (¥10.50 per share)
Directors’ and corporate auditors’
bonuses
Transfer to legal reserve
Transfer to voluntary reserves
Total appropriations
Retained earnings after appropriation

Millions of yen

Thousands of
U.S. dollars¥2,28813$20,819
118

2,301

20,937

683

6,215

51
74
406

464
673
3,694

1,214

11,046¥1,087$ 9,891

Report of Independent Accountants

To the Board of Directors and Shareholders
Izumi Co., Ltd.
We have audited the accompanying non-consolidated balance sheets of Izumi Co., Ltd. as of 28th February, 1999 and 29th February, 2000, and therelated non-consolidated statements of income, shareholders’ equity, and cash flows for the years then ended, all expressed in Japanese yen. Our audits
were made in accordance with auditing standards, procedures and practices generally accepted and applied in Japan and, accordingly, included such testsof the accounting records and such other auditing procedures as we considered necessary in the circumstances.
In our opinion, the non-consolidated financial statements referred to above present fairly the non-consolidated financial position of Izumi Co., Ltd. as of 28th
February, 1999 and 29th February, 2000, and the non-consolidated results of its operations and its cash flows for the years then ended in conformity withaccounting principles and practices generally accepted in Japan (see Note 1) applied on a consistent basis.
The amount expressed in U.S. dollars, provided solely for the convenience of the reader, have been translated on the basis set forth in Note 3 to theaccompanying non-consolidated financial statements.

Hiroshima, JapanCHUOAOYAMA AUDIT CORPORATION

25th May, 2000
19

Consolidated Balance Sheets
Izumi Co., Ltd. and Subsidiaries
28th February, 1999 and 29th February, 2000

Thousands of
U.S. dollars(Note 3)

Millions of yen

1999

2000

1999

2000

ASSETS
CURRENT ASSETS:
Cash and cash equivalents:
Cash
Time deposits¥ 9,930

¥

8,368

$

90,355$76,142

4,143

1,276

37,698

11,611

14,0739,644

128,053

87,753

Short-term investments

1,335

73

12,147664

Short-term loans receivable

4,870

8,602

44,31378,271

Trade

1,160

1,190

10,555

10,828

Other

1,642

966

14,941

8,790

2,802

2,156

25,496

19,618

(136)

(229)

(1,238)(2,084)

Notes and accounts receivable:Less, allowance for doubtful accounts
Inventories

2,666

1,927

24,25817,534

12,535

12,141

114,058

110,473

Deferred income taxes

—

466

—

4,240

Other current assets

1,463

1,265

13,312

11,511

Total current assets

36,942

34,118336,141

310,446

Investments in securities

5,955

6,161

54,18656,060

Other investments and advances

2,835

2,781

25,79625,305

8,790

8,942

79,98281,365

Buildings and structures

133,237

138,482

1,212,348

1,260,073

Furniture and fixtures

22,74023,888206,916

217,361

155,977

162,370

1,419,264

1,477,434

Less, accumulated depreciation(63,033)(68,990)(573,549)(627,753)

92,944

93,380845,715

849,681Land

57,26958,238521,101

529,918

Construction in progress

3,401

7,335

30,946

66,743

153,614

158,953

1,397,762

1,446,342

24,184

22,379220,055

203,631

—

937

—

8,526

9,238

11,456

84,058104,240¥232,768¥236,785$2,117,998$2,154,550

INVESTMENTS AND ADVANCES:

PROPERTY AND EQUIPMENT:OTHER ASSETS:
Fixed leasehold deposits
Deferred Income taxes
Other

The accompanying notes are an integral part of these statements.

20

Thousands of
U.S. dollars(Note 3)

Millions of yen

1999

2000

1999

2000

¥ 3,940¥ 8,450

17,471

23,868

158,972

217,179

11,341

11,188103,194

101,802

99

37

901

337

10,921

5,884

99,37253,54022,361

17,109203,467

155,679

—

2,148

—

19,545

Accrued payroll and bonuses

2,165

2,188

19,69919,908

Accrued consumption taxes

—

1,138

—

10,355

LIABILITIES AND SHAREHOLDERS’ EQUITYCURRENT LIABILITIES:
Short-term bank loans
Current portion of long-term debt$

35,851$

76,888

Accounts payable:
Trade
Construction
Other
Accrued income taxes

Deposits received

1,183

979

10,764

8,908

Other current liabilities

1,360

2,313

12,37521,047

Total current liabilities

48,48058,193441,128

529,509

95,29088,563867,061805,851

LONG-TERM DEBTACCRUED SEVERANCE INDEMNITIES

1,973

1,961

17,953

17,844LEASE DEPOSITS RECEIVED

12,693

13,555

115,496

123,339

17

33

154

300

158,453

162,305

1,441,792

1,476,843

6

9

55

82

—

178,471—

19,614—

178,471

OTHER LIABILITIES
Total liabilities

MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIESCONTINGENT LIABILITIES (Note 4)
SHAREHOLDERS’ EQUITY:
Common stock, ¥50 ($0.45) par value:
Authorised—198,717,000 shares
Issued—65,957,710 shares at 28th February, 1999

19,614—65,032,710 shares at 29th February, 2000
Additional paid-in capital

26,58025,792

241,856

234,686

Retained earnings

28,117

29,077

255,842

264,577

(2)

(12)

(18)

(109)

74,30974,471

676,151

677,625¥232,768¥236,785$2,117,998$2,154,550

Treasury stock
Total shareholders’ equity

21Consolidated Statements of Income
Thousands of
U.S. dollars(Note 3)

Millions of yen

Izumi Co., Ltd. and Subsidiaries
For the years ended 28th February, 1999 and 29th February, 2000

1999

2000

1999

2000

¥271,761¥280,630$2,472,803$2,553,503

7,038

7,713

64,04070,182

278,799

288,3432,536,843

2,623,685

COST OF SALES

205,664

212,174

1,871,374

1,930,609

Gross profit

73,13576,169665,469

693,076

67,421

68,035

613,476

619,063

5,714

8,134

51,99374,013

Interest and dividend income

416

245

3,785

2,229

Discount on early settlement of accounts payable – trade

453

480

4,122

4,368

Interest expense
Loss on write-down of investments in securities(2,537)(1,186)(2,514)(905)(23,085)(10,792)(22,875)(8,235)

Loss on liquidation of subsidiaries
Loss on write-down of short–term investments

(65)
(713)

(740)
(189)

(591)
(6,488)(6,733)(1,720)Loss on sales of investments in securities
Loss on write-down of intangible assets

(322)

—
(260)

(2,930)—(2,366)

Loss on liquidation of cash trusts
Loss on sales or disposal of property and equipment

(572)
(580)

—
(961)

(5,205)(5,277)—(8,744)

Additional severance benefits for early retirement
Amortisation of unrecognised effect of change in method

(358)

(164)

(3,257)(1,492)REVENUES:Net sales
Other operating revenues

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Operating income
OTHER INCOME (EXPENSES):of accounting for severance benefits of directors andcorporate auditors

(112)

—

(1,019)—Other, net

739

234

6,724

2,129

Income before income taxes and minority interests

877

3,360

7,980

30,574Current
Deferred

533
—

2,406
(487)

4,850
—

21,893(4,431)

Income before minority interests

344

1,441

3,130

13,112

2

4

18

36

INCOME TAXESMINORITY INTERESTS
Net income

¥

342

¥

1,437

$

3,112

$

13,076

U.S. dollars(Note 3)Yen

PER SHARE:
Net income¥

Net income assuming dilution

5.17

¥

21.99

$

0.05

$

0.20

—

20.36

—

0.19

21.00

21.00

0.19

0.19

Common shares

66,15965,354

Common shares assuming dilution

73,39472,453

Cash dividends
WEIGHTED AVERAGE NUMBER OF SHARES (THOUSANDS):

The accompanying notes are an integral part of these statements.
22

Consolidated Statements of Shareholders’ Equity
Izumi Co., Ltd. and Subsidiaries
For the years ended 28th February, 1999 and 29th February, 2000

Millions of yen

Number ofcommonshares(thousands)

Commonstock

Additional
paid-in
capitalRetainedearnings

66,316¥ 19,614¥ 26,866¥ 29,278

BALANCE AT 28TH FEBRUARY, 1998

Treasury
stock

¥

(13)

Net income for the year

—

—

—

342

—

Cash dividends

—

—

—

(1,391)—

Directors’ and corporate auditors’ bonus

—

—

—

(49)

—

Common stock repurchased and cancelled

(358)

—

(286)

—

—

Effects of subsidiaries newly consolidated

—

—

—

(63)

—

Decrease in treasury stock, net

—

—

—

—

11

65,958

19,614

26,58028,117(2)

BALANCE AT 28TH FEBRUARY, 1999
Net income for the year

—

—

—

1,437

—

Cash dividends

—

—

—

(1,375)—

Directors’ and corporate auditors’ bonus

—

—

—

(19)

—

Common stock repurchased and cancelled

(925)

—

(788)

—

—

accounting at 1st March, 1999

—

—

—

917

—

Increase in treasury stock, net

—

—

—

—

(10)

65,033¥ 19,614¥ 25,792¥ 29,077¥ (12)

Cumulative effects of adopting deferred tax

BALANCE AT 29TH FEBRUARY, 2000

Thousands of U.S. dollars(Note 3)BALANCE AT 28TH FEBRUARY, 1998

$178,471$244,459$266,406$ (118)Net income for the year

—

—

3,112

—

Cash dividends——(12,657)—

Directors’ and corporate auditors’ bonus

—

—

(446)

—

Common stock repurchased and cancelled—(2,603)——

Effects of subsidiaries newly consolidated

—

—

(573)

—

Decrease in treasury stock, net

—

—

—

100

178,471

241,856

255,842

(18)

—

—

13,076—BALANCE AT 28TH FEBRUARY, 1999
Net income for the year
Cash dividends——(12,512)—

Directors’ and corporate auditors’ bonus

—

—

(173)

—

Common stock repurchased and cancelled—(7,170)——accounting at 1st March, 1999

—

—

8,344

—

Increase in treasury stock, net

—

—

—

(91)

$178,471$234,686$264,577$ (109)Cumulative effects of adopting deferred tax

BALANCE AT 29TH FEBRUARY, 2000
The accompanying notes are an integral part of these statements.

23

Notes to Consolidated Financial Statements
Izumi Co., Ltd. and Subsidiaries
For the years ended 28th February, 1999 and 29th February, 2000

1. Basis of Presenting Consolidated Financial

step acquisition method to include equity in net income ofStatements

subsidiaries subsequent to the date of acquisition in the consoli-

The accompanying consolidated financial statements have been

dated financial statements. Any differences between the costs of

prepared based on the accounts maintained by Izumi Co., Ltd.

investments in subsidiaries and the amount of underlying equity inand its subsidiaries (the "Companies") in accordance with the

net assets of subsidiaries are charged to income as incurred.

provisions set forth in the Japanese Commercial Code and the(3) Other Accounting Principles and Practices Employed by

Securities and Exchange Law, and in conformity with accounting

the Companies

principles and practices generally accepted in Japan, which are

Significant accounting principles and practices employed by thedifferent in certain respects as to application and disclosure

Companies in preparing the accompanying consolidated financial

requirements of International Accounting Standards.

statements are essentially same as those explained in Note 2,

Certain items presented in the consolidated financial state-“Summary of Significant Accounting Policies” of the Notes toments filed with the Ministry of Finance (the “MOF”) in Japan have

Non-Consolidated Financial Statements, except for the following

been reclassified in these accounts for the convenience ofaccounting policies employed by certain subsidiaries:

readers outside Japan.

a) Depreciation

The consolidated financial statements are not intended toProperty and equipment of a consolidated subsidiary are depreci-present the consolidated financial position and results of opera-

ated by the straight-line method.

tions in accordance with accounting principles and practicesb) Accrued severance indemnities

generally accepted in countries and jurisdictions other than

Consolidated subsidiaries provide for severance indemnities at

Japan.

100 per cent of the liability they would be required to pay if alleligible employees voluntarily terminated employment at the

2. Summary of Significant Accounting Policies

balance sheet date.

(1) Basis of Consolidation and Accounting for Investments in
Affiliates

3. United States Dollar Amounts

The consolidated financial statements include the accounts of the

The Companies maintain their accounting records in JapaneseCompany and its significant subsidiaries. Investments in uncon-

yen. The dollar amounts included in the consolidated financial

solidated subsidiaries and affiliates are accounted for by the coststatements and notes thereto represent the arithmetical results ofmethod, as their effects on the consolidated financial statements

translating Japanese yen into dollars on the basis of ¥109.9 =are immaterial.

U.S.$1, the approximate rate of exchange at 29th February,(2) Elimination and Consolidation

2000. The inclusion of such dollar amounts is solely for conve-

For the purposes of preparing the consolidated financial state-nience and is not intended to imply that the assets and liabilities

ments, all significant intercompany transactions and accounthave been or could be readily converted, realised or settled inbalances among the Companies have been eliminated.

dollars at ¥109.9 = U.S.$1, or any other rate.

Unrealised profits on sales or purchases of assets within the
4. Contingent Liabilities

Companies have been entirely eliminated, and the portions

The Company was contingently liable for guarantees of loans

attributable to minority interests are credited to net income.

from financial institutions and lease agreements made by affiliates

Depreciation expense has been adjusted in connection with theand other, totaling ¥36,680 million ($333,758 thousand) at 29th

elimination of unrealised profits included in depreciable assets.

February, 2000.

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-

24

Report of Independent Accountants

To the Board of Directors and Shareholders
Izumi Co., Ltd.
We have audited the accompanying consolidated balance sheets of Izumi Co., Ltd. and its subsidiaries as of 28th February, 1999 and 29th February, 2000,
and the related consolidated statements of income and shareholders’ equity for the years then ended, all expressed in Japanese yen. Our audits weremade in accordance with auditing standards, procedures and practices generally accepted and applied in Japan and, accordingly, included such tests of
the accounting records and such other auditing procedures as we considered necessary in the circumstances.
In our opinion, the consolidated financial statements referred to above present fairly the consolidated financial position of Izumi Co., Ltd. and its subsidiaries
as of 28th February, 1999 and 29th February, 2000, and the consolidated results of their operations for the years then ended in conformity with accounting
principles and practices generally accepted in Japan (see Note 1) applied on a consistent basis.
The amount expressed in U.S. dollars, provided solely for the convenience of the reader, have been translated on the basis set forth in Note 3 to theaccompanying consolidated financial statements.

Hiroshima, JapanCHUOAOYAMA AUDIT CORPORATION

25th May, 2000

25

Directors and Corporate Auditors

Chairman

Directors

Yoshimasa Yamanishi

Katsumi Konishi
Umeo Mashimo

President

Chiharu Hatagoshi

Yasuaki Yamanishi

Mitsuharu Kawano
Heijiro Natsuhara

Executive Managing Directors
Hiromasa Takanishi

Full-Time Corporate Auditors

Syoichiro Shibata

Akira Tsumura
Kazunobu Ishigaki

Managing Directors
Hiroshi Toko

Corporate Auditors

Hiroshi Shigehiro

Yoshiharu Kanasugi
Jiro Matsubara(as of May 28, 2000)

Corporate Data

Head OfficeTransfer Agent and Registrar

2-22, Kyobashi-cho,Japan Securities Agents, Ltd.

Minami-ku, Hiroshima

2-4, Nihonbashi-Kayaba-cho, 1-chome,

Hiroshima Prefecture 732-0828, Japan

Chuo-ku, Tokyo 103-8202, Japan

Tel.: (082) 264-3211
Date of Establishment

Annual Meeting of Shareholders

October 27, 1961

The annual meeting of shareholders of the Company isnormally held in May each year in Hiroshima, Japan. In

Paid-in Capital

addition, the Company may hold an extraordinary meeting¥19,614 million (as of February 29, 2000)of shareholders whenever necessary by giving at least
two weeks’ advance notice to shareholders.

Securities Traded
Common Stock
Tokyo Stock Exchange, First Section

Auditors

Osaka Securities Exchange, First Section

ChuoAoyama Audit Corporation

Hiroshima Stock Exchange

IZUMI CO., LTD.
2-22, Kyobashi-cho, Minami-ku, Hiroshima 732-0828, Japan
Tel.: (082) 264-3211
PRINTED IN JAPANAnnual Report 1999
IZUMI CO., LTD.