イズミAR2003 再校戻し 03.8.22 2:39 PM ページ 2

IZUMI Co., Ltd.
Annual Report
2003

イズミAR2003 再校戻し 03.8.22 2:39 PM ページ 3

FINANCIAL HIGHLIGHTS
Thousands of
U.S. dollars(Note 1)Millions of yen

Revenues
Operating income

2003
Mar. 2002–
Feb. 2003

2002
Mar. 2001–
Feb. 2002

2001
Mar. 2000 –Feb. 2001

2000
Mar. 1999 –Feb. 2000

1999
Mar. 1998 –Feb. 1999

2003
Mar. 2002–
Feb. 2003¥383,098¥363,714¥346,811¥288,343¥278,799$3,246,593

15,994

14,784

10,285

8,134

5,714

135,542

11,834

9,493

7,790

3,360

877

100,288

Income before income taxes
and minority interests
Net income

5,600

4,832

3,415

1,437

342

47,457

Net income/revenues

1.46%

1.33%

0.98%

0.50%

0.12%

1.46%

Total stockholders’ equity

76,892

74,132

71,81074,471

74,309651,627

Total assets

273,484

268,655

270,757

236,785

232,768

2,317,661
U.S. dollars(Note 1)Yen

Per share (Note 2):
Net income — basic¥95.23¥81.46¥53.66¥21.99

¥5.17

$0.81

Net income — diluted

94.21

79.40

48.87

Cash dividends declared

23.00

21.00

21.00

20.36

—

0.80

21.00

21.00

0.19

Notes 1. Yen amounts are translated into U.S. dollars, solely for convenience, at the prevailing exchange rate on February 28, 2003 of ¥118 = U.S. $1.
2. See Note 2 (17) of Notes to Consolidated Financial Statements.

CONTENTS
Profile1

Consolidated Statements of Stockholders’ Equity

12

To Our Stockholders

2

Consolidated Statements of Cash Flows

13

Review of Operations

3

Notes to Consolidated Financial Statements

14

Special Feature

4

Report of Independent Auditors

20

Consolidated Statements of Income

9

Directors and Corporate Auditors

21

Consolidated Balance Sheets

10

Corporate Data

21

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PROFILE
Izumi Co., Ltd. is the number one retail chain in Western Japan’s Chugoku region, with 71 stores throughout Hiroshima, Okayama,
Yamaguchi, Shimane and Hyogo Prefectures; Kagawa Prefecture in Shikoku; and Fukuoka, Saga, Oita and Nagasaki Prefectures in
Kyushu. Izumi has steadily expanded the geographic focus of its dominant area strategy with outlets, stores and merchandise that
respond to changes in the purchasing and lifestyle needs of customers in its operating area.
In the 21st century, Izumi aims to maintain its reputation as the number one retail chain for customer satisfaction. As it expands
development of Youme Town mega-shopping centers in Kyushu, Izumi will continue to foster customer loyalty with an enhanced productlineup and quality service.

BRANCH LOCATIONS

Shimane
Okayama
Hyogo

1

4

Fukuoka

12

Saga

32
10

8

1

Hiroshima

1

Yamaguchi

1

Kagawa1

Oita
Kumamoto
Nagasaki1

イズミAR2003 再校戻し 03.8.22 2:39 PM ページ 5

TO OUR STOCKHOLDERS
The protracted recession and lackluster consumer spending
continued to unleash a flood of structural transformations in
the retail industry in the form of increasing large-scale bankruptcies and other trends that produced an even more discouraging operating environment. Against this backdrop, Izumi
Co., Ltd. returned to the principal underlying theme of theretail industry, focusing on enhancing customer satisfaction.
In particular, Izumi worked to strengthen marketing capabilities and fortify existing store sales, while at the same time promoting cost-structure reforms in an effort to improve earnings.
In marketing, the Company worked to accelerate sales ofseasonal goods and to expand promotion of high-value-added merchandise. At the same time,
Izumi continued its efforts to nurture new ideas based on a thorough review of its store layout.
Emphasizing the highest standards in safety and health, the Company took steps to confirm thequality of its upstream suppliers and to ensure that merchandise was appropriately labeled.
On the earnings front, Izumi endeavored to reduce merchandise costs in collaboration with its
suppliers and to improve productivity in its human resources with a view toward curtailing selling,
general and administrative (SG&A) expenses.
In addition, during the fiscal year under review, ended February 28, 2003, Izumi began efforts
to support Niko Niko Do Co., Ltd., a company protected under rehabilitation law, as a steppingstone to bolster Izumi’s platform in the Kyushu region, to expand its store network, and toenhance efficiencies in merchandise procurement and logistics.
As a result of all these factors, the Company posted record earnings for the year underreview, which is the fourth consecutive year of increased sales and profits. Based on this favorable
performance, Izumi has declared a cash dividend per share of ¥23, up from ¥21 in the previous
fiscal year.

Yasuaki Yamanishi
President

CONSOLIDATED FINANCIAL DATA

Revenues

Operating Income(Millions of yen)

(Millions of yen)

Net Income/Net Income per Share(Millions of yen/Yen)

95.23

02/2

03/2

99/2

00/2

4,832

01/2

1,437

00/2

3,415

21.99

99/2

342
5.17

03/2

53.66

15,994

14,784

10,285

8,134

02/2

5,600

Net Income per Share

5,714

2

01/2

81.46

383,098

363,714

288,34300/2

346,811

278,799
99/2

Net Income

01/2

02/2

03/2

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REVIEW OF OPERATIONS
The fiscal year under review, ended February 28, 2003, was a record-setting year for Izumi Co., Ltd., on both a consolidated and nonconsolidated basis, and marked the fourth consecutive year of increased revenue and earnings.
ENHANCING THE COMPANY’S POSITION AS THE PREFERRED CHOICE OF CUSTOMERS AND SECURING STEADY SALES AT EXISTINGSTORES (NON-CONSOLIDATED)· Izumi targeted stable net sales through efforts to increase the number of customers to combat downward
pressure on unit prices due to prolonged deflation and weak consumer spending.
· As a result, the Company performed steadily, with the number of customers on a non-consolidated basis
up 1.8% year on year and net sales at existing stores down 0.4% compared with the previous fiscal year.
· On a regional basis, the Kyushu area, in which Izumi had actively promoted the opening of new stores, led
all other regions, with a year-on-year increase of 3.4%.
REFORMING THE COST STRUCTURE AND IMPROVING EARNINGS POWER (NON-CONSOLIDATED)
Operating Income Ratio
Non-consolidated· Izumi adopted initiatives targeting profit growth, including raising the earnings ratio though reforms andreduction of procurement costs and SG&A expenses, in an effort to offset a difficult sales environment.

(%)· The Company reduced SG&A expenses, primarily personnel expenses, bolstered marketing capabilities,
4.3
3.9

and cut back procurement costs by consolidating suppliers and strengthening alliances.
· As a result, the operating income ratio improved 0.4 of a percentage point to 4.3%, leading the industry in

2.7

2.8

2.1

this category. Based on a strong sales performance and improved profits, the parent company posted arecord operating income of ¥13.3 billion, a jump of 12.8% compared with the previous fiscal year.

99/2 00/2 01/2 02/2 03/2

STRONG GROUP COMPANY PERFORMANCE· Group companies expanded earnings steadily, based on a competitive advantage in each of their respective business domains.
· Youme Town Kumamoto Co., Ltd., a subsidiary company that commenced operations with stores leased
from Niko Niko Do Co., Ltd., posted a loss for the period, due to opening costs and other inauguration
expenses. Sales are increasing steadily, and this company is expected to turn a profit in the fiscal year
ending February 28, 2004.
· On a consolidated basis, the Group posted its fourth consecutive year of increased revenue and earnings,
which includes the loss by Youme Town Kumamoto Co., Ltd.
STEPPING STONES FOR GROWTH· Amidst large-scale bankruptcies and structural transformations in the industry, Izumi aggressively pursued
opportunities offering growth potential. Consequently, the Company was successful in establishing a profitable store at a location vacated by The Daiei, Inc.
· In addition, in supporting the rehabilitation of Niko Niko Do Co., Ltd., Izumi completed leases of largescale stores and strengthened its presence in the Kyushu area.

REALIZING BALANCE BETWEEN INTEREST-BEARING DEBT AND A STRONG FINANCIAL POSITION· Izumi has funded through operating cash flows an aggressive capital expenditure program for the openingof new stores commencing the fiscal year ending February 28, 2004.
· As of February 28, 2003, the balance of interest-bearing debt stood at ¥139.7 billion, an increase of ¥2.0
billion compared with the end of the previous fiscal year. This increase was mainly attributed to theGroup’s credit card business Youme Card Co., Ltd. Excluding the impact of Youme Card, interest-bearing
debt was ¥121.7 billion, a decrease of ¥1.7 billion.
· As a result, the consolidated equity ratio was 28.1%, and consolidated ROE was 7.4%.

3

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SPECIAL FEATURE: GROWTH STRATEGYThe Japanese retail industry is facing dramatic structural reform in the shape of a corporate shakeout and the inflow of foreign capital.
Notwithstanding the changes that are taking place, however, customer satisfaction remains at the heart of retail earnings. With this inmind, retail strategies are grounded in the delivery of stores, merchandise and services that generate customer satisfaction.
Although its management resources are small in comparison with the major retail chains, Izumi concentrates on specific areas in the
opening of new stores. Our growth strategy therefore is based on maximum application of our unique characteristics and strengths. The
core elements of our growth strategy are outlined in the special feature that follows. Izumi first implemented these strategies in fiscal
1998, and has recorded increased revenue and earnings in each of the five years that have followed.
1. STORE STRATEGYFUNDAMENTAL POLICYStore strategy in the retail industry is a key factor of growth. Izumi, however, does not contemplate
major changes to its existing policy. Accordingly, the Company plans to continue enforcing its market
dominance strategy, focusing on the Chugoku and Kyushu regions, in which it has a competitive
advantage. Through meticulous understanding of the unique qualities of these regions, Izumi strives
to enhance efficiency in distribution and sales promotion, and to secure a dominant position as thepreferred choice of customers.
Izumi has established Youme Town as the preeminent retail store in its dominant region. The
focus of the Youme Town store format is to deliver best-fit scale, product lineup, and services thatmatch the unique features of the region. At the same time, we collaborate with leading specialty
stores to attract a greater numbers of visitors. By these means, Youme Town achieves the level ofoverwhelming customer favor needed to outdistance the competition. To a large degree, Izumi’s
growth is closely linked to the success of the Youme Town format.
Izumi also continues to revitalize existing stores in an effort to address the diverse needs of customers. The Company concentrates on the integrity of the profit cycle, taking steps to progressively
close unprofitable stores, and to arrest deterioration in store network earnings power.
RESULTS

Beginning in the 1990s, Izumi actively expanded its network of general merchandise stores (GMSs),assuming a leading position in the industry. Cementing a dominant position in the Chugoku region,
the Company commenced expansion into the adjoining Kyushu region.
The Company’s store network in the Chugoku region—which Izumi has developed as its base ofoperations since its inauguration—is characterized by its maturity, with performance entrenched in thelatter stages of the earnings cycle. As a result, the Company allocates approximately 10-20% of its
annual cash flow to the revitalization of its store network, while at the same time closing unprofitable
stores. In the five-year period since fiscal 1998, Izumi has opened 11 new stores, closing 15.
In the Kyushu region, Izumi has adopted an aggressive investment policy, with a highly competitive network of 11 stores, contributing approximately ¥100 billion to sales. The Kyushu region is now
the Company’s second earnings base.
Information and trends regarding Izumi’s store network over the past five years are summarized
as follows.
· The number of stores in the Chugoku region has fallen from 71 to 58,
with net sales declining 14%. Based on the bipolar policy of revitaliz-Operating Income to Total Assets

ing stores with potential while closing unprofitable stores, however,(%)

Non-consolidated

profit over this period has increased approximately 10%.
6.1

· The number of stores in the Kyushu region has increased from 5 to

5.4

11, with sales exceeding ¥100 billion, a jump of 2.6 times. Burdenedby the costs of store openings and establishment, this segment
recorded a loss in fiscal 1999. In fiscal 2002, the Kyushu region

3.5

3.8

2.7

accounted for approximately 40% of the Company’s total profit.
· As a result, Izumi’s asset earnings power (operating income to total
assets on a non-consolidated basis) has risen from 2.7% to 6.1%.
4

99/2 00/2 01/2 02/2 03/2

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PRESSING ISSUES

To date, the Chugoku region has provided Izumi with its principal source of earnings. In an effort toexpand its earnings base, Izumi has invested in the Kyushu region. This investment has now moved fullcircle, with the Kyushu region generating a significant return. In the future, we anticipate greater earnings from this region, as the Kyushu Logistics Center becomes fully operational and initiatives toenhance the merchandising division bear fruit.
With a growing trend toward plant relocation, we anticipate a number of attractive sites will
Youme Town Kurume store

become available in the Chugoku region. With this in mind, Izumi will embark on investment in both
the Chugoku and Kyushu regions in an effort to further broaden its earnings base. Specifically, theCompany plans to open a Youme Town store in Kurume, Kyushu in fiscal 2003, and Youme Town
stores in Kumamoto, Kyushu and in Kure, Hiroshima Prefecture in fiscal 2004.
Izumi’s strategy for growth is based on continued investment in profitable areas with investments
funded by operating cash flows.

Topic: Supporting Niko Niko Do Co., Ltd.
In fiscal 2002, Izumi began supporting the rehabilitation of Niko Niko Do Co., Ltd., a company protected under rehabilitation law.
Despite the significant challenges confronting the Company, this support has led to the lease of four attractive large-scale stores. In
addition, we plan to establish a new company, and to spin off Niko Niko’s network of small-scale stores to this new company.
Although we are considering short-term support if required, as a principle, we anticipate the new company will operateautonomously, linked closely to its local community, providing economic and employment benefits.
The Izumi Group focuses on large-scale stores that boast a leading position in their respective communities and that attract
large volumes of customers. In addition, with an emphasis on leased stores, the Company’s financial burden remains light, impacting favorably on profitability. In leveraging economies of scale, Izumi strives to further enhance its dominant position in each area
and to improve efficiency in the procurement of merchandise, logistics, and promotion.

Youme Town Sanpian store

Youme Town Hamasen store

Niko Niko Do stores converted to the Youme Town format

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2. MERCHANDISING STRATEGY

In the complex process that encompasses manufacture through sale, Izumi places the greatest emphasis on linking
the optimal product mix with the most appealing point of sale. This is the foundation for creating value and to successfully achieve customer satisfaction. Based on its accumulated know-how, the Company selects those productsthat represent the highest quality and value and packages them through stores that enhance customer appeal. The
following are examples of this product strategy in action.
· Izumi creates a unique store experience in tune with seasonal changes and events. Throughout the year we
present a variety of campaigns, deliver products in season before our competitors, and a comprehensive
product lineup, providing our customers with a fresh and pleasant experience with each visit. In addition,
we adapt our product portfolio to match the lifestyles of our customers, adjusting to days of the week andtimes of the day.
· In delivering our products, we focus on the customer’s perspective, working to rebuild stores that enhance
our product portfolio. Our goal is to find the optimal product mix and the most attractive display to add
value to each store experience and to raise customer appeal. To enhance the shopping experience further,Izumi applies a business model dividing each store into specific zones based on brand and other criteria. In
this manner, we enhance the individual character and unique features of each store.
· Consumer tastes are reflecting increasing polarization as customers seek value both in price and quality.
Accordingly, Izumi delivers a comprehensive range of products based on price and a separate range ofhigh-value-added brand merchandise. In providing this wide selection and exclusive brands not offered byour competitors through our Youme store network, we build customer loyalty and distinguish ourselvesfrom our rivals.

Essential to providing a complete range of superior and attractive merchandise is a strong relationshipwith suppliers. Based on this key driver, our efforts to assume a leading position in the retail sector are
also supported by our ability to procure hot-selling items in a timely fashion, deliver unique products,
and leverage our know-how and expertise to create attractive displays and promotions.
For suppliers urgently seeking new sales channels, a close collaboration with the retail industry,
together with customer information, and a stable sales route, are essential to production efficiency.
Amidst a volatile market and changing logistics composition, manufacturers, wholesalers and retailers
are searching for the most effective cooperation.
As retailers have adopted a more selective approach in their relationship with suppliers, Izumi,
from its dominant position in the Chugoku and Kyushu regions, has followed an open and fair policy,
endearing it to suppliers across the board and strengthening collaboration. In the future, Izumi willcontinue to strengthen its procurement capabilities and to pursue the optimal store and merchandising strategies in an effort to secure and enhance customer satisfaction.

6

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3. COST STRUCTURE REFORM

In an operating environment characterized by prolonged deflation and downward pressure on unit prices, improving
the profit ratio is essential to corporate growth. For this reason, Izumi has focused on structural reform of its procurement and promotional costs. In the five years beginning fiscal 1998, the parent company has implemented thefollowing initiatives.
· Izumi has raised the gross profit margin (company stores) from 28.8% to 30.0% by reducing purchasing
costs through enhanced collaboration with suppliers. In addition, the Company has accelerated inventory
turnover (company stores) from 35.0 days to 32.9 days, an improvement of 6.0%.
· Regarding SG&A expenses, Izumi worked to restructure the major component, namely personnel
expenses.
➜ Izumi adopted a number of measures in an effort to reform personnel expenses. These included
the introduction of a performance-based remuneration system and the abolition of the seniority
system to increase employee motivation, and moves to shift personnel expenses from fixed costs
to variable costs by linking them to the Company’s operating performance.
➜ Izumi undertook a comprehensive review of all operating functions allowing full-time staff to concentrate on specific management responsibilities. Izumi also increased the proportion of part-time
employees and implemented a clear distinction between miscellaneous tasks and principal business activities. The proportion of part-time staff increased from 71.3% to 76.1%. At the same time,
personnel expenses per employee fell 7.5%.
➜ Izumi achieved a reduction in the number of employees per store by standardizing business operations and by efficiently applying information systems. As a result, net sales per employee
improved by 1.7%.
➜ Accounting for all these factors, personnel expenses as a percentage of net sales (company stores)
fell from 14.0% to 12.7%.
· Izumi also made efforts to curtail other expenses. As a result, the SG&A expenses to net sales ratio
improved from 24.3% to 22.5%.
· In conjunction with efforts to reform the Company’s cost structure, Izumi has also successfully improved
earnings, with the operating income ratio climbing to 4.3% from 2.1%. These figures represent Izumi’s
earnings in the GMS business, positioning the Company among the leaders in the industry.
COST STRUCTURE REFORM AND RESULTS

99/2

03/2

ChangeGross profit margin (company stores)

28.8%

30.0%

1.2 points

Personnel expenses to net sales (company stores)

14.0%

12.7%

(1.3)points(7.5)%– Personnel expenses per employee (yen)3,170,000

2,933,000– Net sales per employee (yen)22,704,000

23,093,000

1.7 %SG&A expenses to net sales (all stores)

24.3%

22.5%

(1.8)points

Operating income ratio (all stores)

2.1%

4.3%

2.2 points
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4. GROUP COMPANIESEach Group company strives to maintain competitive advantage in its business domain and is steadily expanding
operations. All Group companies work to support the principal activities of the parent company, namely generalretailing, while at the same time exploring business opportunities outside the Group.

X-Sell Inc.
An enterprise specializing in the import of overseas designer products, X-Sell Inc. uses
Europe as its procurement route to market a wide array of brands at reasonable prices.
Active nationwide expansion has earned X-Sell the number one spot in its market and thecompany will continue to open new stores (currently totaling 36), in an effort to generate
further growth.

Youme Card Co., Ltd.
Youme Card Co., Ltd. handles house cards, credit cards and cash advances, and works toprovide a wider range of services in its card business. Agreements with the post office aswell as 36 major regional banks and their ATMs have provided customers with broad accessand convenience. The company is also pursuing international access for its cardholders
through tie-ups with internationally recognized cards. Cardholders continue to growsteadily with current membership totaling 2.81 million.

Ideo Co., Ltd.
Ideo Co., Ltd., which handles the security and electricity management of Izumi stores,
formed a business alliance with a leading electrical works company to augment its technological capabilities and is successfully reducing fixed costs of Izumi stores. Additionally,
Ideo has made progress in applying for the patent of a revolutionary energy saving system,
and is expanding orders through the pursuit of marketing at non-company stores throughout Japan.

Izumi Food Service Co., Ltd.
The in-store food court that Izumi Food Service Co., Ltd. operates has contributed significantly to attracting customers. The company has however worked to shift its course, implementing a specialty store model, currently numbering 132, with the aim of rapidly
expanding business. Izumi Food Service has been successful in developing authenticlooking specialty stores, such as an Italian restaurant that conjures up the atmosphere of
Naples and will continue to push roadside stores outside outlet facilities.

The four platforms we have identified above form the backbone of the Group’s strategy for growth.
Each strategy works in concert with all others, with the aim of maximizing benefits. This is the uniquefeature of Izumi and provides the basis for improved efficiency.
Amid a retail industry characterized by increasing complexity, Izumi will tirelessly pursue eachstrategy based on the underlying theme of enhancing customer satisfaction.

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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 28, 2003 and 2002

2003

2002

2003

¥373,428¥353,830$3,164,644

9,670

9,884

81,949383,098

363,7143,246,593

COST OF SALES

283,925

269,013

2,406,144

Gross profit

99,173

94,701

840,449

83,17979,917

704,907

15,994

14,784

135,542REVENUES:Net sales
Other operating revenues

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Operating income
OTHER INCOME (EXPENSES):Interest and dividend income
Interest expense
Gain (loss) on revaluation of investments in securities, net
Gain on sales of property and equipment
Loss on sales or disposal of property and equipment
Other, net

Income before income taxes and minority interests

231

244

1,958

(2,184)(2,479)(18,508)

(206)

(473)

(1,746)

22

46

186

(2,581)(1,524)(21,873)558(1,105)

4,729(4,160)(5,291)(35,254)

11,834

9,493

100,288

INCOME TAXES (Note 11):
Current

5,682

5,624

48,153

Deferred(341)(1,474)(2,890)

5,341

4,150

45,263

6,493

5,343

55,025

893

511

7,568

Income before minority interests
MINORITY INTERESTS
Net income

¥

5,600

¥

4,832

$

47,457

U.S. dollars(Note 3)Yen

PER SHARE:
Net income:Basic¥95.23¥81.46$0.81

Diluted

94.21

79.40

0.80

23.00

21.00

0.19

58,80659,320Cash dividends declared
WEIGHTED AVERAGE NUMBER OF SHARES (thousands)
The accompanying notes are an integral part of these statements.

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CONSOLIDATED BALANCE SHEETS
Thousands of
U.S. dollars(Note 3)

Millions of yen

Izumi Co., Ltd. and its subsidiaries
As of February 28, 2003 and 2002

2003

2002

2003

ASSETS
CURRENT ASSETS:
Cash and bank deposits (Note 13)
Short-term loans receivable

¥

8,168

¥

8,781

$

69,22012,008

8,996

101,763

Trade

5,854

3,694

49,610

Other

1,064

1,082

9,017

6,918

4,776

58,627

(643)

(595)

(5,449)

6,275

4,181

53,178Inventories

20,936

21,062

177,424Deferred income taxes (Note 11)

1,287

1,310

10,907

Other current assets

3,608

3,454

30,57652,28247,784443,068

Investments in securities (Note 4)

4,562

4,687

38,661Other investments and advances

2,024

2,222

17,153

6,586

6,909

55,814

Buildings and structures

173,615

170,597

1,471,314

Machinery, equipment, vehicles and other

30,01527,928254,364

203,630

198,525

1,725,678(95,669)(87,675)(810,754)

107,961

110,850

914,924

Land

73,86372,532625,958

Construction in progress

1,613

856

13,669183,437

184,238

1,554,551

17,52818,079148,542

Notes and accounts receivable:

Less–allowance for doubtful accounts

Total current assets

INVESTMENTS AND ADVANCES:

PROPERTY AND EQUIPMENT (Note 5):

Less–accumulated depreciation

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

2,724

2,335

23,085

Other

10,927

9,310

92,601¥273,484¥268,655$2,317,661

The accompanying notes are an integral part of these statements.

10izumi 財務 再校戻し 03.8.22 4:16 PM ページ 3

Thousands of
U.S. dollars(Note 3)

Millions of yen

2003

2002

2003

¥ 24,883¥ 18,353$ 210,873

28,59333,341

242,314Trade

14,644

13,348124,102

Other

6,397

7,582

54,212

21,041

20,930178,314

3,868

4,284

32,779LIABILITIES AND STOCKHOLDERS’ EQUITYCURRENT LIABILITIES:
Short-term borrowings (Note 6)
Current portion of long-term debt (Note 6)
Notes and accounts payable:

Income taxes payable
Accrued bonus

1,464

1,586

12,407

Other current liabilities

4,313

3,749

36,55084,16282,243

713,237

Total current liabilities
LONG-TERM DEBT (Note 6)

86,31486,011

731,475

ACCRUED SEVERANCE INDEMNITIES

4,413

4,441

37,398LEASE DEPOSITS RECEIVED

16,114

16,382

136,559

DEFERRED INCOME TAXES (Note 11)

1,021

1,021

8,653

347

172

2,941

192,371

190,270

1,630,263

4,221

4,253

35,771

19,614—

166,220OTHER LIABILITIES
Total liabilities
CONTINGENT LIABILITIES (Note 8)
MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIESSTOCKHOLDERS’ EQUITY (Note 10):
Common stock, no par value:
Authorized:
February 28, 2003—195,243,000 shares
February 28, 2002—195,243,000 shares
Issued:February 28, 2003—61,558,710 shares—

19,614—

Additional paid-in capital

February 28, 2002—61,558,710 shares

22,31522,282

189,110Retained earnings

38,57334,368326,890

221

268

1,873

Net unrealized gains on securities
Less–foreign currency translation adjustments
Less–treasury stock at cost, February 28, 2003—3,596,400 shares
Total stockholders’ equity

(4)

(5)

(34)

(3,827)(2,395)(32,432)

76,892

74,132651,627¥273,484¥268,655$2,317,661

11

izumi 財務 再校戻し 03.8.22 4:16 PM ページ 4

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Millions of yen

Izumi Co., Ltd. and its subsidiaries
For the years ended February 28, 2003 and 2002

Number ofshares ofcommon stock(thousands)

62,133BALANCE AT FEBRUARY 28, 2001

Commonstock

Additional
paid-in
capital¥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)

61,55919,614

22,282

34,368268(5)(2,395)

—

—

—

5,600

—

—

—

BALANCE AT FEBRUARY 28, 2002
Net income for the year
Cash dividends

—

—

—

(1,292)———

Directors’ and corporate auditors’ bonuses

—

—

—

(103)

—

—

—

Treasury stock issued 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)$(42)$(20,296)

BALANCE AT FEBRUARY 28, 2003

Thousands of U.S. dollars (Note 3)

BALANCE AT FEBRUARY 28, 2002

$166,220$188,830$291,254$2,271

Net income for the year

—

—

—

47,457———

Cash dividends

—

—

—

(10,949)———

Directors’ and corporate auditors’ bonuses

—

—

—

(872)

—

—

—

Treasury stock issued at more than cost

—

—

280

—

—

—

1,695

Net unrealized gains on securities

—

—

—

—

(398)

—

—

Foreign currency translation adjustments

—

—

—

—

—

8

—

Increase in treasury stock, net

—

—

—

—

—

—

(13,831)61,559$166,220$189,110$326,890$1,873BALANCE AT FEBRUARY 28, 2003
The accompanying notes are an integral part of these statements.

12

61,559$(34) $(32,432)

izumi 財務 再校戻し 03.8.22 4:16 PM ページ 5

CONSOLIDATED STATEMENTS OF CASH FLOWS
Izumi Co., Ltd. and its subsidiaries
For the years ended February 28, 2003 and 2002

CASH FLOWS FROM OPERATING ACTIVITIES:
Income before income taxes and minority interests
Depreciation and amortization
Provision for allowance for doubtful accounts
Interest and dividend income
Interest expense
Gain on sales of property and equipment
Loss on sales or disposal of property and equipment
Gain on sales or revaluation of short-term investments
Increase in notes and accounts receivable
Increase (Decrease) in inventories
Increase (Decrease) in trade notes and accounts payable
Other, net
Sub-totalInterest and divided income received
Interest expense paid
Income taxes paid

Thousands of
U.S. dollars(Note 3)

Millions of yen

2003

2002

2003

¥ 11,834
10,578
162
(231)
2,184
(22)
2,581
(105)
(2,160)
126
1,296
(355)

¥ 9,493
10,509
75
(244)
2,479
(46)
1,524
(16)
(343)
(1,053)
(232)
2,613

$ 100,288
89,644
1,373(1,958)18,508(186)
21,873(890)(18,305)
1,068
10,983(3,008)25,888230(2,149)24,759245(2,380)219,390
1,949(18,212)(6,208)(3,103)(52,610)

17,761

19,521

150,517

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of short-term investments
Payments for purchases of property and equipment
Proceeds from sales of property and equipment
Payments for purchases of intangible assets
Payments for purchases of investments in securities
Acquisition, net of cash acquired
Proceeds from sales of investments in securities
Other, net—(12,783)
968(2,838)(425)—
600(2,177)

5(7,774)
460
(353)
(658)
134
226
(326)

—
(108,330)
8,203(24,051)(3,602)—
5,085(18,449)

Net cash used in investing activities(16,655)(8,286)(141,144)

6,529
34,826(30,180)(5,000)(4,091)(999)
15,103(19,658)(5,000)—55,331
295,136(255,763)(42,373)(34,669)400
319(3,076)(1,327)—785(1,900)(1,364)

3,390
2,703
(26,068)(11,246)(1,600)(13,033)(13,559)

Effect of exchange rate changes on cash and cash equivalents
Net decrease in cash and cash equivalents

1
(493)

(5)
(1,803)8(4,178)Cash and cash equivalents at beginning of year

8,661

10,46473,398¥ 8,168¥ 8,661$ 69,220

Net cash provided by operating activities

CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (Decrease) in short-term borrowings
Additions to long-term loans
Repayment of long-term loans
Redemption of straight bonds
Redemption of convertible bonds
Proceeds from issue of stocks to minority interests
in consolidated subsidiary
Proceeds from sales of treasury stock
Payment for purchases of treasury stock
Dividends paid
Net cash used in financing activities

Cash and cash equivalents at end of year (Note 13)
The accompanying notes are an integral part of these statements.

13

izumi 財務 再校戻し 03.8.22 4:16 PM ページ 6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Izumi Co., Ltd. and its subsidiaries
For the years ended February 28, 2003 and 2002

1. BASIS OF PRESENTATION OF CONSOLIDATEDFINANCIAL 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 Code ofJapan and the Securities and Exchange Law, and in conformity withaccounting principles and practices generally accepted in Japan,
which are different in certain respects from the application anddisclosure requirements of International Accounting Standards.
Certain items presented in the consolidated financial
statements submitted to the Director of Kanto Finance Bureau in
Japan have been reclassified in these accounts for the convenienceof readers outside Japan.
The consolidated financial statements are not intended topresent the consolidated financial position, results of operations
and cash flows in accordance with accounting principles andpractices generally accepted in countries and jurisdictions otherthan Japan.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(1)Basis of consolidation and accounting for investments inaffiliates
As at February 28, 2003, the accompanying consolidated financial
statements include the accounts of the Company and 17 of its
subsidiaries, among which 1 subsidiary was excluded due toliquidation. As at February 28, 2002, 18 of its subsidiaries wereconsolidated.
Investments in all affiliates (20%-to-50% owned companies) areaccounted for by the equity method. The company had 4 affiliates
as of February 28, 2003 and 2002.
A non-consolidated subsidiary, NIKO NIKO DO Co., Ltd, was
not accounted for by the equity method due to civil rehabilitation.
Investments in it were stated at cost as of February 28, 2003.
(2) Elimination and consolidation
For purposes of preparing the consolidated financial statements, allsignificant intercompany transactions and account balances havebeen eliminated.
Unrealized profits on sales of assets among the Companies
have been entirely eliminated, and the portions attributable tominority interests are credited to net income. Depreciation expense
has been adjusted 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 in the consolidated statements of cash
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 offluctuation in value.
(4) Translation of foreign currencies
Effective from the year ended February 28, 2002, the Companies
adopted the new Japanese accounting standard for foreign

14

currency translation, which was effective for periods beginning on
or after April 1, 2000. Under the new standard, all monetary assets
and liabilities denominated in foreign currencies, whether longterm or short-term, are translated into Japanese yen at theexchange rates prevailing at the balance sheet date. Resulting
gains and losses are included in net profit or loss for the period.
The adoption of the new method had no material impact on theaccompanying consolidated financial statements.
Assets and liabilities of the foreign subsidiaries and affiliates
are translated into Japanese yen at the exchange rates prevailing at
the balance sheet date. Profit and loss accounts for the year aretranslated into Japanese yen using the average exchange rateduring the year. Differences in yen amounts arising from the use ofdifferent rates are presented as “foreign currency translation
adjustments” in stockholders’ equity.
(5) Investments in securities
Prior to March 1, 2001, listed securities in short-term investments
and investments in securities were valued at the lower of cost or
market, cost being determined by the moving-average method.
Other securities were valued at cost, cost being determined by themoving-average method.
Effective March 1, 2001, the Companies adopted the new
accounting standard for financial instruments and changed theirvaluation method of securities.
Held-to-maturity securities are stated at amortized costadjusted for the amortization of premiums and the accretion of
discounts to maturity.
Available-for-sale securities whose fair value is readily
determinable are stated at fair value as of the end of the year.
Unrealized gains on these securities, net of applicable deferred tax
assets/liabilities and minority interests, are not reflected in earnings
but directly reported in a separate component of stockholders’equity and unrealized losses are included in net profit or loss for theperiod. Realized gains or losses on sales of such securities arecomputed using moving-average cost. Other securities with noavailable fair market value 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 valueof the individual security is written down.
The effect of adoption of the new standard on net income was
immaterial.
The Companies reconsidered the holding purposes of
securities outstanding at March 1, 2001 and reclassified securities
from short-term investments in current assets to investments insecurities in non-current assets. As a result of this reclassification,short-term investments decreased and investment in securities
increased by ¥57 million.
(6) Derivatives
The new accounting standard for financial instruments, effectivefrom the year ended February 28, 2002, requires companies to state
derivative financial instruments at fair value and to recognizechanges in the fair value as gains or losses unless derivative
instruments are used for hedging purposes. In accordance with the
new accounting standard for financial instruments stated above, theCompany adopted the method that defers gains and losses
resulting from changes in fair value of derivative financial
instruments until the hedged transactions occur. When foreignexchange forward contracts, currency swap contracts or currency
option contracts meet certain conditions, the hedged items arestated at the forward exchange contract rates. If interest rate swap
agreements are used as hedges and meet certain hedging criteria,

izumi 財務 再校戻し 03.8.22 4:16 PM ページ 7

the net amount to be paid or received under the interest rate swap
agreements is added to or deducted from the interest on theassets or liabilities for which the swap agreements were executed.
(7) Inventories
Inventories are stated at cost, being determined by the following
methods:
Merchandise in shops
Retail method (inventory valuation
based on the ratio of cost to selling
price)
Merchandise in
distribution center
Last purchase cost method
Supplies
Last purchase cost method(8) Depreciation of property and equipment
Property and equipment are stated at cost. Significant renewals
and additions are capitalized; normal repairs and maintenanceincluding minor renewals and improvements are charged to income
as incurred.
The cost and accumulated depreciation applicable toproperty and equipment retired or otherwise disposed of areeliminated from the related 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
Minor assets with acquisition costs of ¥100 thousand or more
but less than ¥200 thousand are depreciated over three years on astraight-line basis.
(9) Intangible assets
Capitalized software costs, included in other assets, for internal use
are amortized by the straight-line method over the estimated usefullife (5 years). Other intangible assets, included in other assets, areamortized by the straight-line method over the period regulated by
the Japanese corporate income tax laws.
(10) Allowance for doubtful accounts
The 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
and an amount calculated on the historical bad debt ratio withrespect to remaining receivables.
(11) Accrued bonus
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
usage of points that entitle customers to receive reductions in theprice of future purchases, based on past experience.
Previously, point discounts were not charged to income when
they were provided but recognized as expenses only whencustomers 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 arecharged to income when they are provided.

As a result, in the year ended February 28, 2003, net sales andoperating income decreased by ¥106 million ($898 thousand), otherexpenses increased by ¥499 million ($4,229 thousand) and income
before income taxes and minority interests decreased by ¥606
million ($5,136 thousand) compared with what would have beenrecorded under the previous accounting method.
(13) Retirement benefit plans
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 thetermination occurs. The amount of severance indemnities to be
paid by the Company is reduced by the benefits payable under anexternally funded non-contributory pension plan. Consolidated
subsidiaries have no such externally funded pension plan.
Effective March 1, 2001, the Companies adopted the newJapanese accounting standard for retirement benefits. The net
transition obligation at date of the adoption is all expensed in thecurrent year. Actuarial gains or losses are amortized on a straightline basis over 6 to 8 years from the next year in which they arise.
Until the year ended February 28, 2001, the accrued severance
indemnities of the Company represented 40 percent of the liability,
which the Company would be required to pay (reduced by thebenefits payable under the non-contributory pension plan) if alleligible employees voluntarily terminated employment at thebalance sheet date. As a result of adopting the new standard, net
pension expense for the year ended February 28, 2002 has
increased by ¥2,192 million, operating income has increased by¥294 million and income before income taxes has decreased by¥2,192 million, as compared with the amounts which would havebeen reported if the previous standard had been appliedconsistently.
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
the balance sheet date.
The Company and a consolidated subsidiary provide for lumpsum severance benefits with respect to directors and corporate
auditors. While the Company and the consolidated subsidiary haveno legal obligation, it is a customary practice in Japan to makelump-sum payments to a director or a corporate auditor uponretirement. Such liabilities are not funded.
(14) Leases
Leases that transfer substantially all risk and rewards of ownershipof the assets are accounted for as capital leases, except that leases
do not transfer ownership of the assets at the end of the lease term
are accounted for as operating leases, in accordance withaccounting 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 ofrelevant items in the accompanying consolidated statements ofincome.
(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 are15

izumi 財務 再校戻し 03.8.22 4:16 PM ページ 8

recognized 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 byusing currently enacted tax rates, and the effect on these deferred
tax assets and liabilities of a change in tax rates is recognized inincome in the period that includes the enactment date.
(17) Net income and cash dividends per share
Basic net income per share of common stock is based on theweighted average number of shares of common stock outstanding
during each period. Diluted net income per share assumes theconversion of outstanding convertible debentures.
Cash dividends per share include those declared with respect
to the earnings for the respective periods for which the dividends
were proposed by the Board of Directors. Dividends are charged toretained 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 ¥118 = U.S.$1, the rate ofexchange on February 28, 2003 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.

4. INVESTMENTS IN SECURITIES
Held-to-maturity debt securities at February 28, 2003, which havereadily available determinable fair value, are summarized as follows:
Thousands of
U.S. dollars

Millions of yen
Carrying Market Valuation
value
value
gain

Government
Bonds

¥641

¥641

¥0

Carrying
value

Market Valuation
value
gain

$5,432$5,432$0

Available-for-sale securities at February 28, 2003, which havereadily determinable fair value, are summarized as follows:
Thousands of
U.S. dollars

Millions of yen

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

Securities withunrealized gains:
Equity securities ¥2,462 ¥2,840 ¥ 378
Securities withunrealized losses:
Equity securities

Government
Bonds

Carrying
value

Marketvalue

Valuation
gain

¥602

¥602

¥0

Available-for-sale securities at February 28, 2002, which havereadily determinable fair value, are summarized as follows:
Millions of yen

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

Acquisition
cost

Carrying
value

Gross
unrealized
gains (losses)¥2,82856
2,884¥3,311
66
3,377

¥483
10
493

¥ 241
¥3,125¥ 186¥3,563¥ (55)¥438

Securities at February 28, 2002, which have no readily
determinable fair value, are summarized as follows:
Millions of yen

Available-for-sale securities:
Non-listed equity securities¥195

Total sales of available-for-sale securities in the year ended
February 28, 2002 amounted to ¥398 million and related gains andlosses amounted to ¥16 million and ¥204 million, respectively.

5. LEASES
Information for finance lease transactions other than those that are
deemed to transfer the ownership of leased assets to lessees issummarized below:(1) As lessee:a) Acquisition cost, accumulated depreciation and net bookvalue of the leased assets at February 28, 2003 and 2002, if
capitalized, are summarized as follows:
Millions of yen

Securities at February 28, 2003, which have no readily
determinable fair value, are summarized as follows:
Millions of yen

¥332

2003

Amount to:
Acquisition cost
Accumulated
depreciation
Net book value

Thousands of
U.S. dollars$2,814

Total sales of available-for-sale securities in the year ended
February 28, 2003 amounted to ¥156 million ($1,322 thousand) andrelated gains and losses amounted to ¥46 million ($390 thousand)and ¥3 million ($25 thousand), respectively.

16

Millions of yen$20,864 $24,068 $ 3,204560
355 (205)
4,746 3,008 (1,738)¥3,022 ¥3,195 ¥ 173 $25,610 $27,076 $ 1,466

Available-for-sale securities:
Non-listed equity securities

Held-to-maturity debt securities at February 28, 2002, which havereadily available determinable fair value, are summarized as follows:

Equipment
andvehicles

Other

Total

¥ 3,402¥ 9,271¥12,673(1,895)(4,705)(6,600)¥ 1,507¥ 4,566¥ 6,073

Thousands of U.S. Dollars

Amount to:
Acquisition cost
Accumulated
depreciation
Net book value$ 28,830 $ 78,568 $107,398(16,059)(39,873)(55,932)$ 12,771 $ 38,695 $ 51,466

2002
Equipment
andvehicles Other

Total¥ 3,396 ¥ 9,612 ¥13,008(1,489) (4,525)(6,014)¥ 1,907 ¥ 5,087 ¥ 6,994

izumi 財務 再校戻し 03.8.22 4:16 PM ページ 9

The acquisition cost is calculated including interest portion as
the outstanding future lease payments are immaterial to theyear-end balance of property and equipment.
b) Amounts to outstanding future lease payments at February 28,
2003 and 2002, which include interest portion, are summarized
as follows:
Millions of yen
2003
2002

Due within one year
Due after one year
Total

¥1,893
4,180¥6,073¥1,991
5,003¥6,994

Thousands of
U.S. dollars
2003$16,042
35,424$51,466c) Lease payments and depreciation expense for the years
ended February 28, 2003 and 2002 are as follows:
Millions of yen
2003
2002

Lease payments
Depreciation expense¥2,0472,047¥1,977
1,977

Thousands of
U.S. dollars
2003$17,347
17,347d) Method of asset depreciation
Depreciation expense is determined based on the straightline method over the lease term of the leased assets with noresidual value.
(2) As lessor:a) Acquisition cost amount, accumulated depreciation and net
book value of the leased assets at February 28, 2003 aresummarized as follows:
Millions of yen
2003
Equipment and vehicles

Amount to:
Acquisition cost
Accumulated
depreciation
Net book value¥35

Short-term borrowings are primarily represented by bankoverdrafts, bearing interest at the weighted average interest rate of
1.12% at February 28, 2003.
Long-term debt at February 28, 2003 and 2002, consisted of
the following:
Millions of yen
2003
2002

Loans from banks and insurancecompanies, due from April 2003
to August 2015 with weighted
average interest rates of 1.68%
at February 28, 2003
SecuredUnsecured
1.7% Japanese yen unsecured
convertible bonds due
August 2002
2.025% Japanese yen unsecured
straight bonds due March 2002
2.325% Japanese yen unsecured
straight bonds due March 2003
2.175% Japanese yen unsecured
straight bonds due October 2003
1.53% Japanese yen unsecured
straight bonds due March 2004
1.84% Japanese yen unsecured
straight bonds due March 2005
Less–portion due within one year

Thousands of U.S. dollars

$297
(17)
$280

2005
2006
2007
2008
2009 and thereafter

Millions of yen
2003

Thousands of
U.S. dollars
2003

¥ 5
34
¥39

$ 42
288
$330

c) Lease income and depreciation expense for the year ended
February 28, 2003 are as follows:

Lease income
Depreciation expense amount¥54,794
40,113
94,907¥75,298
14,96390,261$464,356
339,941804,297

—

4,091

—

—

5,000

—

5,000

5,000

42,373

5,000

5,000

42,373

5,000

5,000

42,373

5,000
114,907(28,593)¥86,3145,000
119,352(33,341)¥86,011

42,373
973,789(242,314)$731,475

Millionsof yenThousands of
U.S. dollars¥26,059
20,845
11,195
9,922
18,293¥86,314$220,839
176,653
94,87384,085155,025$731,475

Assets pledged as collateral and related secured debt at
February 28, 2003 are summarized as follows:b) Amounts to outstanding future income at February 28, 2003,
which include interest portion, are summarized as follows:

Due within one year
Due after one year
Total

Thousands of
U.S. dollars
2003

The aggregate annual maturities of long-term debt
outstanding at February 28, 2003 are as follows:
Years ending the last of February:

(2)
¥33

Amount to:
Acquisition cost
Accumulated
depreciation
Net book value

6. SHORT-TERM BORROWINGS AND LONG-TERM DEBT

Millions of yen
2003

Thousands of
U.S. dollars
2003

¥2
1

$17
8

Assets pledged as collateral:
Land
Buildings
Investments in securities

Debt secured by the above:
Short-term borrowings
Long-term debt

Millionsof yenThousands of
U.S. dollars¥ 55,293
57,651
2,206¥115,150$468,585
488,568
18,695$975,848

3,656
54,794¥ 58,450

30,983464,356$495,339

17

izumi 財務 再校戻し 03.8.22 4:16 PM ページ 10

7. RETIREMENT BENEFIT PLANS
The funded status of the Companies at February 28, 2003 and 2002
are summarized as follows:
Millions of yen
2003
2002

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

Thousands of
U.S. dollars
2003¥ 5,587¥ 5,100$ 47,347(232)(1,869)140¥ 3,626

110(1,649)—¥ 3,561(1,966)(15,838)
1,186$ 30,729

Pension and severance costs of the Companies included thefollowing components for the years ended February 28, 2003 and2002:
Millions of yen
2003
2002

Service cost
Interest cost
Expected return on plan assets
Amortization of net unrecognizedtransition obligation
Realized net actuarial losses
Payment for extra supplementary
benefits and so on
Net periodic pension costThousands of
U.S. dollars
2003

¥507
136
(16)

¥ 485
142
(29)

$4,297
1,153
(136)

—
(17)

2,487
—

—
(144)

30
¥640

138
¥3,223254$5,424

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 28, 2003 and 2002 are as follows:
Discount rate
Expected rate of return on plan assets

2003

2002

2.0%–2.5%
1.0%

2.5%–2.8%
2.0%

8. CONTINGENT LIABILITIESThe Company was contingently liable for guarantees of loans fromfinancial institutions made by affiliates and other, totaling ¥4,766
million ($40,390 thousand) at February 28, 2003.

9. DERIVATIVE FINANCIAL INSTRUMENTS(1) 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 fromexchange rate fluctuation in import transactions. The
Companies also use interest rate swap agreements to hedge
against exposure of interest rate fluctuation and to adapt thelong-term fixed interest rate to the current rate in line withthe change in the market rate. The Companies do not use
speculative transactions.
c) Risks in transactions
Derivative instruments used by the Companies are exposed torisk from market rate fluctuation. Counter-parties are highly
creditworthy domestic banks and, therefore, the Companies do
not expect losses due to non-performance of counter-parties.
18d) Risk management
Derivative transactions are managed and approved byresponsible decision-making bodies such as management
meetings and executed by related departments.
(2) Market value of transactions
The Companies had the following derivative contract outstandingat February 28, 2003.
Millions of yen
2003
Contract Fair market Unrealized
amountvalue gains or losses

Foreign currency exchange
forward contracts
Currency swap contracts
Currency option contracts
Total

¥ 390
698
2,215
¥3,303

¥ 78
144
62
¥284

¥ 78
144
62
¥284

Thousands of U.S. Dollars

Foreign currency exchange
forward contracts
Currency swap contracts
Currency option contracts
Total$ 3,305
5,915
18,771$27,991

$ 661
1,220
526
$2,407

$ 661
1,220
526
$2,407

The fair value is quoted from financial institutions with which theCompanies make foreign currency exchange forward contracts,
currency swap contracts and currency option contracts.
Derivative transactions with hedge accounting applied are
excluded in the above table.
Above information for 2002 is not shown due to derivativetransactions with hedge accounting applied.

10. STOCKHOLDERS’ EQUITY
Under the Commercial Code of Japan (the “Code”), the entire
amount of the issue price of new shares issued is required to becapitalized as stated capital, although the Company may, byresolution of its Board of Directors, capitalize an amount notexceeding one-half of the issue price of the new shares asadditional paid-in capital.
The Code requires a domestic company to appropriate as alegal reserve an amount equal to at least 10% of the amount paidout by it as the appropriation of retained earnings (including any
payment by way of annual dividend and bonuses to directors andcorporate auditors) for the period or equal to 10% of any interim
dividend until the sum of the legal reserve and the additional paidin capital equals 25% of its stated capital. The legal reserve andadditional paid-in capital may be transferred to stated capitalthrough suitable director actions or used 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 Boardof Directors should be approved at stockholders’ meeting, whichmust be held within 3 months after the balance sheet date. The
appropriation of retained earnings reflected in the accompanying
consolidated financial statements represents the results of suchappropriations which are applicable to the immediately preceding
fiscal year but which are approved by the stockholders’ meetingand disposed of during the current 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 apart of the appropriations cited above.

izumi 財務 再校戻し 03.8.22 4:16 PM ページ 11

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 thisnew statement was immaterial.

11. INCOME TAXESThe Companies are subject to a number of different taxes basedon income, which, in aggregate, result in statutory income tax rates
of approximately 41.7% for the years ended February 28, 2003
and 2002.
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%

Above information for the year ended February 28, 2002 is notshown because the difference between the statutory income tax
rates and the effective income tax rate for financial statement
purpose is less than 5% of the statutory income tax rates.
The significant components of deferred tax assets andliabilities at February 28, 2003 and 2002 were as follows:
Millions of yen
2003
2002

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
Other
Total
Valuation allowance
Total

¥

292
69
166
392
318
417
1,468

290
114
166
335
359
343
1,490

$ 2,474
585
1,407
3,322
2,695
3,534
12,441

469
434

423
174

3,974
3,678

377
375
4,777
(282)
4,495

310
170
4,174
—
4,174

3,195
3,178
40,483(2,390)38,093

(72)

(610)

(263)

(2,135)(1,011)(205)(1,551)¥ 2,623(8,653)(1,356)(12,754)$ 25,339

Deferred tax liabilities:
Reserve for special depreciation(72)
Reserve for advanced depreciationof fixed assets(252)
Fair value adjustments ofconsolidated subsidiaries(1,021)
Unrealized gains on securities(160)(1,505)Net deferred tax assets¥ 2,990¥

Thousands of
U.S. dollars
2003

On March 31, 2003, the Japanese National Diet approved
various changes to the calculation of the statutory local enterprisetax for companies with capital in excess of ¥100 million, effective
April 1, 2004. Under the amended legislation, the enterprise tax willbe the sum 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 the amendment. Concurrently, the basic tax
rate for the “income based component” has resulted in a reduction
from 9.6% to 7.2%. As a result of 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 and liabilities, that are expected toreverse in the year beginning March 1, 2005 or later, decreased
from 41.7 % to 40.4 % as at March 31, 2003. For temporary
differences that are expected to reverse in the year ending
February 28, 2005, a tax rate of 41.7 % has continued to be used atthat date.
The Company is not required to reflect this change in theaccompanying consolidated financial statements as of February 28,
2003, because new tax rates have not been enacted or
substantively enacted by the balance sheet date (February 28,2003). If the Companies would measure deferred tax assets andliabilities by using new tax rates, deferred tax assets at February 28,
2003 would be decreased by ¥31 million ($ 263 thousand),compared with the assets that would have been recognized if a tax
rate of 41.7 % had been fully applied to all temporary differences.
The Companies expected net income for the year ended February
29, 2004 will also decrease by ¥68 million ($576 thousand) as a resultof these changes in statutory local enterprise tax regulations.

12. RELATED PARTY TRANSACTIONSThe Company purchased ¥11,709 million ($99,229 thousand) ofmerchandise from Japan Logistics Industry Co., Ltd. (“JLI”) for theyear ended February 28, 2003. A representative director and vicepresident of JLI, Mr. Yasuaki Yamanishi, is also a representative
director and the president of the Company and owns 1.70% of
the Company’s voting stock. At February 28, 2003, the Company
had accounts payable of ¥1,298 million ($11,000 thousand) anddeposited guarantee money of ¥505 million ($4,280 thousand)to JLI.
The Company leases a building of Higashi-Hiroshima shopfrom Izumi Kosan K.K. (“Izumi”) with lease payments of ¥341 million($2,890 thousand) for the year ended February 28, 2003. Izumi is amajority-owned subsidiary of a company wholly owned by Mr.
Yasuaki Yamanishi and his relatives. The lease terms are the sameas those for third parties. At February 28, 2003, the Company
deposited guarantee money of ¥3,650 million ($30,932 thousand) to
Izumi, which was determined based on the total construction costsof the building and the area occupied by the Company.

13. SUPPLEMENTARY CASH FLOW INFORMATIONCash and cash equivalents at February 28, 2003 and 2002 consistedof the following:
Millions of yen
2003
2002

Cash and bank deposits
Less–time deposits with deposit
term of over 3 months
Cash and cash equivalents

Thousands of
U.S. dollars
2003¥8,168¥8,781$69,220—¥8,168(120)¥8,661—$69,220

19

izumi 財務 再校戻し 03.8.22 4:16 PM ページ 12

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors
Izumi Co., Ltd.

We have audited the accompanying consolidated balance sheets of Izumi Co., Ltd. and its subsidiaries as of February 28, 2003 and2002, and the related consolidated statements of income, stockholders’ equity and cash flows for the years then ended, all expressedin Japanese yen. Our audits were made in accordance with auditing standards, procedures and practices generally accepted andapplied in Japan and, accordingly, included such tests of the accounting records and such other auditing procedures as we considerednecessary 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 February 28, 2003 and 2002, and the consolidated results of their operations and their cash flows for theyears then ended in conformity with accounting principles and practices generally accepted in Japan (see Note 1) applied on aconsistent basis, except for the changes described in the next paragraph.
As discussed in Note 2 (12) to the consolidated financial statements, effective from the year ended February 28, 2003, Izumi Co., Ltd.
and its subsidiaries changed their method of accounting for the allowance for point discounts.
As described in Note 2 to the consolidated financial statements, effective from the year ended February 28, 2002, Izumi Co., Ltd. andits subsidiaries adopted the new Japanese accounting standards for financial instruments, retirement benefits, and foreign currencytranslation.
The amounts expressed in U.S. dollars, provided solely for the convenience of the readers, have been translated on the basis set forthin Note 3 to the accompanying consolidated financial statements.

ChuoAoyama Audit Corporation

Hiroshima, JapanMay 22, 2003

20

izumi 財務 再校戻し 03.8.22 4:16 PM ページ 13

DIRECTORS AND CORPORATE AUDITORS

Chairman
Yoshimasa Yamanishi

Full-Time Corporate Auditor
Akira Tsumura

President
Yasuaki Yamanishi

Corporate Auditors
Yoshiharu Kanasugi
Toyomi Takimoto
Jiro Matsubara

Executive Vice President
Hiromasa Takanishi(as of May 22, 2003)
Directors
Takashi Kaneko
Hiroaki Bando
Heijiro Natsuhara

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 28, 2003)
Securities Traded
Common Stock
Tokyo Stock Exchange, First Section
Osaka Securities Exchange, First Section
Hiroshima Stock Exchange

Auditors
ChuoAoyama Audit Corporation

21

イズミAR2003 再校戻し 03.8.22 2:39 PM ページ 1

IZUMI CO., LTD.
2-12, Kyobashi-cho, Minami-ku,
Hiroshima 732-0828, Japan
Tel: (082) 264-3211

Printed in Japan