イズミAR05̲表1-4̲0817 05.8.26 5:00 PM ページ 2

00 - 2A N N U A L

R E P O R T

2 0 0 5IZUMI Co., Ltd.

イズミAR05̲表1-4̲0817 05.8.26 5:00 PM ページ 3

PROFI LE

Izumi Co., Ltd. (“Izumi” or the “Company”) takes pride in being thepredominant retail chain in the Chugoku, Shikoku and Kyushu regionsof Western Japan. As of the end of February 2005, its hypermarkets
and food supermarkets extended to 75 locations in the area. In theformer category, Youme Town in particular is striving to be number
one in the region in terms of scale and product lineup, with its “Dream
Street” supporting the local inhabitants’ lifestyles by continuing positive business development.
Under the guiding management principle of “customer satisfaction,”
Izumi will continue to respond appropriately to customer needs andfurther establish its position of competitive dominance in the region.

CONTENTS
Financial Highlights ......................................................................................... 1

Consolidated Statements of Cash Flows ................................................. 13

To Our Stockholders ................................................................................... 2

Notes to Consolidated Financial Statements ......................................... 14

Special Feature: Growth through Youme Town ................................... 4

Report of Independent Auditors ............................................................... 20

Consolidated Statements of Income ......................................................... 9

Directors and Corporate Auditors .......................................................... 21

Consolidated Balance Sheets ...................................................................... 10

Corporate Data .............................................................................................. 21

Consolidated Statements of Stockholders’ Equity ................................ 12

イズミAR05̲0817 05.8.26 5:20 PM ページ 1

00 - 01

F IN ANCIAL HIGHLIGHTS

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

2005
Mar. 2004–
Feb. 2005

2004
Mar. 2003–
Feb. 2004

2003
Mar. 2002–
Feb. 2003

2002
Mar. 2001–
Feb. 2002

2001
Mar. 2000–
Feb. 2001

2005
Mar. 2004–
Feb. 2005¥426,437¥ 407,648¥383,098¥363,714¥346,811$4,071,386

19,771

18,07915,994

14,784

10,285

188,763

and minority interests

18,08916,888

11,834

9,493

7,790

172,704

Net income

9,601

8,713

5,600

4,832

3,415

91,665

Revenues
Operating income
Income before income taxes

Net income/revenues

2.25%

2.14%

1.46%

1.33%

0.98%

2.25%

Total stockholders’ equity

85,51984,35476,892

74,132

71,810816,488

Total assets

318,893295,927

273,484

268,655

270,757

3,044,615
U.S. dollars(Note 1)Yen

Per share (Note 2):
Net income— basic¥ 166.88¥ 148.07

Net income— diluted

155.02

—

¥

94.21

95.23

¥

79.40

81.46

¥

48.87

53.66

$

1.48

1.59

Cash dividends declared

24.00

23.00

23.00

21.00

21.00

0.23

Notes 1. Yen amounts are translated into U.S. dollars, solely for convenience, at the prevailing exchange rate on February 28, 2005, of ¥104.74 = U.S. $1.
2. See Note 2 (19) of Notes to Consolidated Financial Statements.

Revenues

Operating Income(Millions of yen)

(Millions of yen)

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

500,000

25,000250

10,0009,601

400,000
407,648

300,000

346,811363,714426,437

20,0008,000

383,098

18,07915,000166.88148.076,000

15,994
14,784200,000

200

8,713

19,771150

5,600

10,000

4,000

100

4,832

10,285

3,415

100,000

5,000

2,000

95.23
81.46

50

53.66

0

0

01

02

03

04

05

0

0

01

02

03

04

05

01

02

03

04

05

イズミAR05̲0817 05.8.26 5:21 PM ページ 2

TO OUR STOCKHOLDERS

The fiscal year under review, ended February 28, 2005,
was characterized by continued severity in the operating
environment surrounding the distribution industry, withthe largest number of competing stores opening since theenactment of the Large-Scale Retail Store Law, recordbreaking heat spells, numerous severe typhoons and otherunfavorable weather conditions.
Yasuaki Yamanishi
Against this backdrop, established store sales were
Presidentsluggish. However, Izumi’s efforts to further cost reductions, open new stores and implement measures to increase added-value ofstores, such as tailoring store operations to local characteristics, enabled theCompany to record increases in revenues and profits for the sixth consecutive year.

INCREASE VALUE-ADDED STORES
Izumi believes that customer satisfaction is the wellspring of corporate revenues, and byextension, endeavoring to maximize customer satisfaction is the shortest path to meetingstockholders’ expectations. Aiming to create store layouts that please customers, theCompany continued to enhance established stores and to introduce popular tenants at its
facilities during the fiscal year under review.
Aware of the need to strengthen competitiveness, the Company made adjustments tothe products it handles and to pricing. In addition, Izumi promoted the realization of productlineups that meet local needs. In particular, the foods department continued to recovercompetitiveness through fashioning store layouts cohesive with local areas during theperiod under review. Moreover, we continued to strengthen links with business partners
in order to expand services and respond to diverse customer needs.
These measures contributed to improving the added-value of stores, and as a result,
Izumi further established its superior competitive position in the regions where it operates and won the continued allegiance of many customers.

イズミAR05̲0817 05.8.26 5:21 PM ページ 3

02 - 03NEW STORE OPENINGS
Izumi pursues a strategy of limiting store openings to the Chugoku, Shikoku and Kyushu
areas in order to gain unrivalled strength by devoting our entire efforts to local regions.
The Company opened the new “Youme Town Hikarinomori” in the Kikuchi district ofKumamoto Prefecture in June 2004, and “Youme Town Kure” in Kure City, Hiroshima,
in September 2004. These areas are projected to gain greater ability to lure customers
with the further development of bullet train and highway networks, creating a stronger
base for the Company’s aim to maintain its dominant position in the region.

PROMOTING LOW-COST OPERATIONSThe Company continues to develop its cost structure reforms, and these efforts resulted
in the ratio of selling, general and administrative expenses to revenues dropping to 21.8%
on a non-consolidated basis, an improvement of 0.4% from the previous fiscal year. The
gross profit ratio (non-consolidated basis) dropped slightly to 22.2%, down 0.5 points due
to an increase in tenants’ share of net sales at new retail facilities, but directly managed
departments maintained a ratio of 30.1%, a level equivalent to that of the previous fiscal
year. As a result of these factors, the non-consolidated operating income ratio increased
to 4.5%, up 0.4 percentage points from fiscal 2004.

CONDITION OF CONSOLIDATED SUBSIDIARIES
Conditions at consolidated subsidiaries remained solid, including card-service company
Youme Card Co., Ltd., building maintenance company Ideo Co., Ltd. and Youme Town
Kumamoto Co., Ltd., which has inherited stores from NIKONIKODO Co., Ltd., a company
under corporate rehabilitation.

FISCAL PERFORMANCE
As a result of the above, consolidated revenues for the fiscal year ended February 28,
2005 rose 4.6% to ¥426.4 billion, net income climbed 10.2% to ¥9.6 billion, and net income
per share increased 12.7% to ¥166.88. These figures represent our sixth consecutive yearof increased revenues and profits.
Having achieved increases in revenues and profits for the sixth year in succession, theCompany has raised the cash dividend per share from last year’s level of ¥23.00 to ¥24.00,
as a way of returning profits to our stockholders.

Yasuaki Yamanishi
PresidentイズミAR05̲0817 05.8.26 5:22 PM ページ 4

S P E C I A L F E AT U R E

Growth throughYoume Town
Yo u m e Tow n — P r o m i n e n c e a n d P r o f i t a b i l i t y

1. THE DEVELOPMENT OF YOUME TOWN
Okayama
ShimaneIn the midst of an increasingly competitive retail

Yamaguchi

industry, Izumi boasts a dominant competitive position in regions where it operates in terms of both

Fukuoka
Hyogo

Saga

scale and quality through the opening of new Youme
Town outlets. Developed primarily around the

KagawaCompany Headquarters in the Hiroshima area,

Hiroshima

Youme Town outlets are opened in areas where rail
Oita
Headquarters
Youme Town
Other existing stores

Nagasaki
Kumamotoand highway networks continue to expand. Youme
Town operations support the growth of the wholeof Izumi.

CHANGE IN IZUMI NET SALES SINCE OPENING THE FIRST YOUME TOWN
Trend of Net Sales(Millions of yen)

Our first Youme Town opened
350,000
349,083

300,000
304,257

250,000
200,000
150,000
100,000
50,000130,092

68,894

0

80

90

00

05

Since the opening of our first Youme Town outlet in1990, Company growth and net sales at Izumi havesoared. Non-consolidated net sales in the fiscal year
ended February 28, 2005 reached ¥349 billion,
a jump of 2.7 times the amount in 1990.
Youme Town sales accounted for 78.9% of
non-consolidated net sales in the fiscal year ended
February 28, 2005.

イズミAR05̲0817 05.8.26 5:22 PM ページ 5

04 - 05

2. THE STRENGTH OF YOUME TOWN
Number one in scale and quality

Youme Town’s strength lies with its large-scale operations and its responsiveness to local
characteristics. The outlets draw customers from a broad area due to their diverse
product lineups, and are positioned as the unparalleled number one stores in the region.
The newly opened Hikarinomori outlet offers a product lineup ranging from goods to enricheveryday life to high-fashion articles through prominent specialty store groups. While providing the region’s first and most developed lineup of items, the outlets also provide onestop service, featuring an array of amusements, restaurants, community and other facilities,
The first cinema complex in thearea, with nine screens

so that virtually everything customers want to buy or do are all under one roof, making
Youme Town the perfect place for a family to spend a day. The outlets are centers of
their respective regions, as they attract customers from a broad area.
By limiting store openings to the Chugoku, Shikoku and Kyushu areas, Youme Town
has received tremendous support from customers. Their support is also a response to
our efforts to create stores closely connected with local communities, along with a deep
understanding of regional characteristics, responsiveness to the varied needs of eachregion, and our promotion of “regional production and regional consumption.”

Introduction of regionaldelicacies

Youme Town Hikarinomori
Location: Kumamoto Prefecture
Opened: June 2004
Store area: 36,600 m2
Parking space: 2,800 vehicles

イズミAR05̲0817 05.8.26 5:30 PM ページ 6

Izumi’s pursuit of high profitability and marketing efficiency

Youme Town is working to strengthen the product lineup of the everyday items handled
under Izumi’s directly managed departments, which make up our core business. At thesame time, Izumi promotes efficient use of management resources by actively introducing
prominent specialty stores in fields in which the Company does not specialize. In addition,
Izumi entrusts each store with broad autonomy, which is granted with the aim of improving flexibility to customer changes and also to advance reforms of cost structure, including cost of sales and labor cost reductions.
We actively introduce
prominent specialty stores

As the Company continuously re-energizes investment at existing stores, we also work
to improve overall store profitability by opening new stores and resolutely closing down
underperforming stores. Through these efforts, Youme Town has achieved exceptional
profitability and marketing efficiency, and Izumi continues to nurture these outlets
as the pillar of our income.

イズミAR05̲0817 05.8.26 5:30 PM ページ 7

06 - 07

MERCHANDISING STRATEGY FOR YOUME TOWN
Youme Town’s high-added-value service is unrivalled by other stores because Izumi creates storesclosely linked to local regions and offers product lineups responsive to each region’s demands.
Our clothing department offers a lineup of high-value-added products to each targetedcustomer segment through building further links with business partners. In addition, by mixing
our directly managed departments with prominent tenants, we are creating both a fashionable
and highly sensible shopping environment. While the clothing departments of many generalmerchandisers are losing profitability, Izumi’s clothing department has become a main pillar
supporting profits.
With a view toward enhancing the uniqueness of goods, the Company continues to link withprominent specialty stores and to shrink the number of product categories handled for more
efficient use of management resources in the household-related product department.
In the general and prepared food departments, the Company focuses efforts on thoroughdevelopment of product lines suited to customer characteristics. The prepared food department
offers an array of quality items, while the processed food department provides a variety of goods
from high-value-added products to lower-priced items. In addition, Izumi’s fresh produce
department contains goods from each region’s leading growers, reflecting local tastes. Izumi has
gained a strong competitive position with each department, but the food departments are ourleading revenue source, and the Company continues to shore up the stability of this platform.
Through the competitiveness of its directly managed departments and links with prominenttenants, Izumi offers the number one shopping environment to regional customers. Youme Town
continues to develop as the region’s brand.

THE ORGANIZATION AND STAFF SUPPORTING YOUME T OWN
In order to conduct operations that pursue customer satisfaction at Youme Town, we believe
the invigoration of full-time and part-time staff, and the entire organization is indispensable.
In order to achieve this, we entrust as much autonomy as possible toindividual stores, and by leaving purchasing and other decisions up to
the will of each store, staff motivation and the sense of responsibility
are enhanced. By making thorough use of a performance-based system,
all individuals are able to construct their own career plans in anenvironment where they can grasp chances and take initiatives.
Finally, Izumi supports the hiring of young and female employees,
in our aim to create a balanced and lively corporation.
Young employees lead the invigoration of storesイズミAR05̲0817 05.8.26 5:46 PM ページ 8

3. THE fUTURE OF YOUME TOWN
Constructing the Youme Town brandIzumi will continue to shore up the dominant position we hold in our regions of operation by invigorating existing stores and opening new stores.
We will not only continue to offer product lineups linked to local areas, but also
deepen our relationships with communities by promoting the preservation of local environments, promoting employment, and supporting culture and sports activities. Throughthese efforts, we will heighten the brand strength of Youme Town as the number one
store in our regions of operation.
New store plan

Izumi has traditionally carried out consistent new store openings of one or two per year.
The new Youme Town Yatsushiro store opened in June 2005 in Yatsushiro City,
Kumamoto. The Company will continue its policy of consistently opening new stores toachieve further corporate growth.
Izumi will continue to grow as a corporation by focusing investment in Youme Town,
the number one store in our operating regions. We will take up the challenge of rising
above the framework of conventional shopping centers to “create new downtowns,” asthe birth of new Youme Town outlets generates activity in individuals and in regions, andbroadens the dreams of our communities.

Youme Town Yatsushiro
Location: Kumamoto Prefecture
Site area: 70,000 m2
Store area: 28,100 m2
Parking space: 2,200 vehicles

イズミAR05財務̲0817 05.8.26 5:50 PM ページ 9

08 - 09

C O N S O L I D AT E D S T AT E M E N T S O F I N C O M E
Thousands of
U.S. dollars(Note 3)

Millions of yen

Izumi Co., Ltd. and its subsidiaries
For the years ended February 28, 2005 and February 29, 2004

2005

2004

2005

¥412,442¥395,918$3,937,770

13,995

11,730133,616

426,437

407,648

4,071,386

COST OF SALES

318,975

303,998

3,045,397

Gross profit

107,462

103,650

1,025,989

87,691

85,571

837,226

19,771

18,079188,763

246

254(1,839)2,349(16,002)

REVENUES:Net sales
Other operating revenues

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Operating income
OTHER INCOME (EXPENSES):Interest and dividend income
Interest expense(1,676)
451

471

4,306

Gain on sales of investments in securities

23

208

220

Gain on sales of property and equipment——(4,048)
1,442

Purchase discounts

Loss on sales or disposal of property and equipment

(424)

3
(629)

Foreign exchange gains

151

306

Other, net

(453)

35

(4,326)(1,682)(1,191)(16,059)

18,08916,888

172,704

Current

8,090

Deferred

(264)

7,369
(255)

77,239(2,521)

7,826

7,114

74,718

10,263

9,774

97,986

662

1,061

6,321

9,601

¥ 8,713

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

Income before minority interests
MINORITY INTERESTS
Net income¥$

91,665

U.S. dollars(Note 3)Yen

PER SHARE:
Net income (Note 2 (19)):
Basic¥166.88¥148.07$1.59

Diluted

155.02

—

1.48

24.00

23.00

0.23

57,47458,670Cash dividends declared
WEIGHTED AVERAGE NUMBER OF SHARES (thousands)
The accompanying notes are an integral part of these statements.

イズミAR05財務̲0817 05.8.26 4:42 PM ページ 10

C O N S O L I D AT E D B A L A N C E S H E E T S

Izumi Co., Ltd. and its subsidiaries
As of February 28, 2005 and February 29, 2004

Thousands of
U.S. dollars(Note 3)

Millions of yen

2005

2004

2005

¥ 12,623¥ 10,184$ 120,517

13,476

13,810128,661

Trade

7,526

6,915

71,854

Other

1,755

1,381

16,756

9,281

8,296

88,610

(834)

(784)

(7,963)

8,447

7,512

80,647

Inventories

24,12522,200230,332

Deferred income taxes (Note 11)

1,934

1,718

18,465

Other current assets

2,751

3,044

26,266

63,35658,468604,888

Investments in non-consolidated subsidiaries and affiliates

1,052

997

10,044

Investments in securities (Note 4)

4,999

4,215

47,728Other investments and advances

1,610

2,476

15,371

7,661

7,688

73,143

Buildings and structures

203,797

188,583

1,945,742

Machinery, equipment, vehicles and other

36,27432,992

346,324240,071

221,575

2,292,066(114,189)(103,591)(1,090,214)

ASSETS
CURRENT ASSETS:
Cash and bank deposits
Short-term loans receivable
Notes and accounts receivable:

Less–allowance for doubtful accounts

Total current assets

INVESTMENTS AND ADVANCES:

PROPERTY AND EQUIPMENT (Notes 5 and 6):

Less–accumulated depreciation

125,882

117,984

1,201,852

Land

89,534

79,246854,821

Construction in progress

4,149

2,583

39,612

219,565

199,813

2,096,285

Fixed leasehold deposits

16,86816,864

161,047

Deferred income taxes (Note 11)

2,080

2,304

19,859

Other

9,363

10,79089,393¥318,893¥295,927$3,044,615

OTHER ASSETS:

The accompanying notes are an integral part of these statements.

イズミAR05財務̲0817 05.8.26 4:42 PM ページ 11

10 - 11

Thousands of
U.S. dollars(Note 3)

Millions of yen

2005

2004

2005

¥ 27,792¥ 20,982$ 265,343

25,66528,663245,035Trade

15,63017,485

149,227

Other

14,467

11,215

138,123

30,09728,700287,350

Income taxes payable

4,905

4,535

46,830Accrued bonuses

1,375

1,317

13,128LIABILITIES AND STOCKHOLDERS’ EQUITYCURRENT LIABILITIES:
Short-term borrowings (Note 6)
Current portion of long-term debt (Note 6)
Notes and accounts payable:

Allowance for point discounts
Other current liabilities
Total current liabilities
LONG-TERM DEBT (Note 6)

881

752

8,411

5,488

5,293

52,396

96,20390,242

918,493

103,649

89,643

989,584

ACCRUED SEVERANCE INDEMNITIES (Note 7)

5,136

4,623

49,036LEASE DEPOSITS RECEIVED

22,285

20,138

212,765

DEFERRED INCOME TAXES (Note 11)

1,006

994

9,605

OTHER LIABILITIES

463

609

4,420

Total liabilities

132,539

206,249

1,265,410

4,632

5,324

44,224

19,614—

187,264

COMMITMENTS AND CONTINGENT LIABILITIES (Note 8)
MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIESSTOCKHOLDERS’ EQUITY (Note 10):
Common stock, no par value:
Authorized:
February 28, 2005—195,243,000 shares
February 29, 2004—195,243,000 shares
Issued:February 28, 2005—61,558,710 shares—

19,614—

Additional paid-in capital

February 29, 2004—61,558,710 shares

22,31522,315

213,051

Retained earnings

54,01845,823515,734

980

535

9,357

(4)

(3)

(39)

Net unrealized gains on securities
Less–foreign currency translation adjustments
Less–treasury stock at cost:
February 28, 2005—6,250,126 shares(11,404)—(108,879)

February 29, 2004—2,909,775 shares—(3,930)—85,51984,354816,488¥318,893¥295,927$3,044,615

Total stockholders’ equity

イズミAR05財務̲0817 05.8.26 4:42 PM ページ 12

C O N S O L I D AT E D S T AT E M E N T S O F S T O C K H O L D E R S ’ E Q U I T Y
Millions of yen

Izumi Co., Ltd. and its subsidiaries
For the years ended February 28, 2005, February 29, 2004 and February 28, 2003

BALANCE AT FEBRUARY 28, 2002

Number ofshares ofcommon stock(thousands)

61,559Commonstock

Additional
paid-in
capitalRetainedearnings¥19,614¥22,282¥34,368Net
unrealized
gains
on securities

Foreigncurrencytranslation
adjustments

¥268

¥(5)

Treasurystock
at cost¥ (2,395)

Net income for the year

—

—

—

5,600

—

—

—

Cash dividends

—

—

—

(1,292)———

Directors’ and corporate auditors’ bonuses

—

—

—

(103)

—

—

—

Treasury stock at more than cost

—

—

33

—

—

—

200

Net unrealized gains on securities

—

—

—

—

(47)

—

—

Foreign currency translation adjustments

—

—

—

—

—

1

—

Increase in treasury stock, net

—

—

—

—

—

—

(1,632)BALANCE AT FEBRUARY 28, 2003

61,559¥19,614¥22,315¥38,573

¥221

¥(4)

¥ (3,827)

Net income for the year

—

—

—

8,713

—

—

—

Cash dividends

—

—

—

(1,442)———

Directors’ and corporate auditors’ bonuses

—

—

—

(21)

—

—

—

Net unrealized gains on securities

—

—

—

—

314

—

—

Foreign currency translation adjustments

—

—

—

—

—

1

—

Increase in treasury stock, net

—

—

—

—

—

—

(103)

—

—

—

0

—

—

—

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

61,559¥19,614¥22,315¥45,823

¥535

¥(3)

¥ (3,930)

Net income for the year

—

—

—

9,601

—

—

—

Cash dividends

—

—

—

(1,381)———

Directors’ and corporate auditors’ bonuses

—

—

—

(25)

—

—

—

Net unrealized gains on securities

—

—

—

—

445

—

—

Foreign currency translation adjustments

—

—

—

—

—

(1)

—

Increase in treasury stock, net

—

—

—

—

—

—

(7,474)61,559¥19,614¥22,315¥54,018

¥980

¥(4)

¥(11,404)$(29)$ (37,521)

BALANCE AT FEBRUARY 28, 2005

Thousands of U.S. dollars (Note 3)

BALANCE AT FEBRUARY 29, 2004

$187,264$213,051$437,493$5,108Net income for the year——

91,665———

Cash dividends——(13,185)———

Directors’ and corporate auditors’ bonuses

—

—

(239)

—

—

—

Net unrealized gains on securities

—

—

—

4,249

—

—

Foreign currency translation adjustments

—

—

—

—

(10)

—

Increase in treasury stock, net

—

—

—

—

—

(71,358)$187,264$213,051$515,734$9,357BALANCE AT FEBRUARY 28, 2005
The accompanying notes are an integral part of these statements.

$(39) $(108,879)

イズミAR05財務̲0817 05.8.26 4:42 PM ページ 13

12 - 13C O N S O L I D AT E D S T AT E M E N T S O F C A S H F L O W S

Izumi Co., Ltd. and its subsidiaries
For the years ended February 28, 2005 and February 29, 2004

Thousands of
U.S. dollars(Note 3)

Millions of yen

2005

2004

2005

¥ 18,089
11,461
356
(246)
1,676
—
424
(23)
(553)
(1,900)(1,964)(231)¥ 16,888
10,828
189
(254)
1,839
(3)
629
(203)
(1,061)(1,264)
2,841
7,044

$ 172,704
109,423
3,399(2,349)16,002
—
4,048
(220)
(5,280)(18,140)(18,751)(2,205)27,089268(1,691)(7,700)37,473280(1,814)(6,698)258,6312,559(16,145)(73,515)

17,96629,241

171,530

CASH FLOWS FROM INVESTING ACTIVITIES:Payments for purchases of property and equipment
Payments for purchases of intangible assets
Payments for purchases of investments in securities
Proceeds from sales of property and equipment
Proceeds from sales of investments in securities
Acquisition, net of cash acquired
Other, net(21,645)
(255)
(605)
338
635
148
265

(25,379)
(524)
(106)
561
468
—
(273)

(206,655)(2,435)(5,776)
3,227
6,063
1,413
2,530

Net cash used in investing activities(21,119)(25,253)(201,633)

Increase (decrease) in short-term borrowings
Additions to long-term loans
Repayment of long-term loans
Redemption of bonds
Proceeds from issue of bonds
Proceeds from issue of stocks to minority interests
in consolidated subsidiary
Payment of liquidation dividends to minority interests
in consolidated subsidiary
Payment for purchases of treasury stock
Dividends paid

5,596
18,950(23,642)(5,000)19,955(3,901)35,644(22,246)(10,000)—

53,428
180,924(225,721)(47,737)
190,519

180

220

1,719

(196)
(8,855)(1,468)—(179)(1,511)(1,871)(84,543)(14,016)

Net cash provided by (used in) financing activities

5,520(1,973)52,702

Effect of exchange rate changes on cash and cash equivalents
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents of newly consolidated subsidiaries

0
2,367
10,184
49

1
2,016
8,168
—

0
22,59997,231468¥ 12,600¥ 10,184$ 120,298

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 investments in securities
Increase in notes and accounts receivable
Increase in inventories
Increase (decrease) in trade notes and accounts payable
Other, net
Sub-totalInterest and divided income received
Interest expense paid
Income taxes paid
Net cash provided by operating activities

CASH FLOWS FROM FINANCING ACTIVITIES:Cash and cash equivalents at end of year
The accompanying notes are an integral part of these statements.

イズミAR05財務̲0817 05.8.26 4:42 PM ページ 14

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S T AT E M E N T S
Izumi Co., Ltd. and its subsidiaries
For the years ended February 28, 2005 and February 29, 2004

1. BASIS OF PRESENTATION OF CONSOLIDATEDFINANCIAL STATEMENTS
The accompanying consolidated financial statements of Izumi Co., Ltd.
(the “Company”) and its subsidiaries (collectively, the “Companies”)
are prepared on the basis of accounting principles generally acceptedin Japan, which are different in certain respects as to application anddisclosure requirements of International Financial ReportingStandards, and are compiled from the consolidated financial statements prepared by the Company as required by the Securities andExchange Law of Japan.
Certain items presented in the consolidated financial statements
submitted to the Director of the Kanto Finance Bureau in Japan havebeen reclassified in these accounts for the convenience of readers
outside Japan.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(1) Basis of consolidation and accounting for investments inaffiliates
As of February 28, 2005, the accompanying consolidated financial
statements included the accounts of the Company and 21 of its
subsidiaries, of which five subsidiaries were newly consolidated due
to establishment, acquisition or increase of significance, and one
subsidiary was excluded due to liquidation. As at February 29, 2004,
17 subsidiaries were consolidated.
Investments in all affiliates (20%-to-50%-owned companies) areaccounted for using the equity method. The company had four andfive affiliates as of February 28, 2005 and February 29, 2004,
respectively.
Two non-consolidated subsidiaries, NIKONIKODO Co., Ltd.
and Izumi International Limited, were not accounted for using theequity method due to civil rehabilitation and temporary control,
respectively. Investments in these companies were stated at cost.
(2) Elimination and consolidation
For the purposes of preparing the consolidated financial statements,
all significant inter-company transactions and account balances havebeen eliminated.
Unrealized profits on sales of assets among the Companies havebeen entirely eliminated, and the portions attributable to minority
interests are credited to net income. The 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 the net
assets of such subsidiaries, the Company follows the step-by-stepacquisition method to include equity in the 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 the net assets ofsubsidiaries are charged to income as incurred.
(3) Cash and cash equivalents
Cash and cash equivalents included in the consolidated statements ofcash flows are composed of cash on hand, bank deposits able to bewithdrawn on demand and short-term investments with an original
maturity of three months or less and which represent a minor risk ofmaterial fluctuation in value.
(4) Translation of foreign currencies
All monetary assets and liabilities denominated in foreign currencies,
whether long-term or short-term, are translated into Japanese yenat the exchange rates prevailing at the balance sheet date. Resulting
gains and losses are included in net profit or loss for the period.

Assets and liabilities of the foreign subsidiaries and affiliates aretranslated into Japanese yen at the exchange rates prevailing at thebalance sheet date. Profit and loss accounts for the year are translated into Japanese yen using the average exchange rate during theyear. Differences in yen amounts arising from the use of different
rates are presented as “foreign currency translation adjustments” instockholders’ equity.

(5) Investments in securities
Held-to-maturity securities are stated at amortized cost adjusted forthe amortization of premiums and the accretion of discounts tomaturity.
Available-for-sale securities for which market quotations areavailable are stated at fair value. Unrealized gains on these securities
are reported as “Net unrealized gains on securities” in stockholders’equity at a net-of-tax amount, and unrealized losses on these securities are included in net profit or loss for the period. Available-for-salesecurities with no available market quotations are stated at moving
average cost.
If a decline in fair value below cost of an individual security is
judged to be material and other than temporary, the carrying valueof the individual security is written down.
(6) Derivatives
Derivative financial instruments are stated at fair value and changes
in the fair value are recognized as gains or losses unless the derivative financial instruments are used for hedging purposes. If thederivative financial instruments are used as hedges and meet certain
hedging criteria, the Companies defer recognition of gains and losses
resulting from changes in the fair value of derivative financial instruments until the related losses or gains on the hedged items are
realized. In the event that foreign exchange forward contracts,
currency swap contracts or currency option contracts are used ashedges and meet certain hedging 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, thenet amount to be paid or received under the interest rate swap
agreements is added to or deducted from the interest on the assets
or liabilities for which the swap agreements were executed.
(7) Inventories
Inventories are valued at cost. Cost is determined principally by theretail method.
Supplies are carried at cost. Cost is determined by the lastpurchase price method.
(8) Depreciation of property and equipment
Property and equipment are stated at cost. Significant renewals andadditions are capitalized; normal repairs and maintenance including
minor renewals and improvements are charged to income as
incurred.
The cost and accumulated depreciation applicable to property
and equipment retired or otherwise disposed of are eliminated fromthe 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 Japanese corporate tax laws,
except for the following, which are depreciated by the straight-line
method:• A large-scale, compound-type shopping center• Buildings built on leasehold land
• Property and equipment of two consolidated subsidiaries• Buildings (excluding building improvements) acquired on orafter April 1, 1998

イズミAR05財務̲0817 05.8.26 4:42 PM ページ 15

14 - 15

Minor assets with an acquisition cost of ¥100 thousand or more
but less than ¥200 thousand are depreciated over three years on astraight-line basis.

no legal obligation to do so, it is customary practice in Japan to makelump-sum payments to directors or corporate auditors upon retirement. Such liabilities are not funded.

(9) Intangible assets
Capitalized software costs, included in other assets, for internal use
are amortized by the straight-line method over its estimated usefullife (five years). Other intangible assets, included in other assets, areamortized by the straight-line method over the period stipulated by
the Japanese corporate income tax laws.

(16) Leases
Leases that transfer substantially all risks and rewards of ownershipof the assets are accounted for as capital leases. Leases which do nottransfer ownership of the assets at the end of the lease term areaccounted for as operating leases, in accordance with accounting
principles and practices generally accepted in Japan.

(10) Impairment of fixed assets
On August 9, 2002, the Business Accounting Council in Japan issued“Accounting Standard for Impairment of Fixed Assets.” The standard
requires that fixed assets be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amountof an asset may not be recoverable. An impairment loss shall be recognized in the income statement by reducing the carrying amount of
impaired assets or a group of assets to the recoverable amount to bemeasured as the higher of net selling price and value in use.
The standard shall be effective for fiscal years beginning on orafter April 1, 2005. However, an earlier adoption is permitted forfiscal years beginning on or after April 1, 2004 and for fiscal years
ending between March 31, 2004 and March 30, 2005.
The Companies have not yet applied this new standard nor
have determined the effect of applying it on the consolidated financial
statements.

(17) Consumption taxes
Consumption taxes are imposed at a flat rate of 5% on all domestic
consumption of goods and services (with certain exemptions). The
consumption taxes withheld on revenues and the consumption taxes
paid on purchases are both excluded from the amounts of relevant
items in the accompanying consolidated statements of income.

(11) Bond issuance costs
Bond issuance costs are charged to income as incurred.
(12) Allowance for doubtful accounts
An allowance for doubtful accounts is provided in preparation for
the risk of uncollectible accounts. This consists of the estimateduncollectible amount with respect to identified doubtful receivables
and an amount calculated on the historical bad debt ratio withrespect to the remaining receivables.
(13) Accrued bonuses
An accrued bonus is provided for in preparation for payment ofbonuses to employees based on the amount estimated to be payable.
(14) 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.
(15) Accrued severance indemnities
Accrued retirement indemnities to employees represent the estimated present value of projected benefit obligations in excess ofthe fair value of the plan assets except that, as permitted underJapanese accounting standards, unrecognized actuarial differences areamortized on a straight-line basis over six to eight years from thenext year in which they arise and unrecognized past service costs areamortized on a straight-line basis over six years from the year inwhich they arise.
Certain subsidiaries provide for accrued severance indemnities
at 100% of the liability, which would be required to be paid if alleligible employees voluntarily terminated their employment at thebalance 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 have(18) 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 and liability method, whereby deferred tax assets and liabilities are recognized in respect of temporary differences between the tax basis ofassets and liabilities and those as reported in the financial statements.
Deferred tax assets and liabilities are measured by using currently
applicable tax rates, and the effect on these deferred tax assets andliabilities of a change in tax rates is recognized in income in the
period that includes the application date.
(19) Net income and cash dividends per share
Effective from the year ended February 29, 2004, the Company
adopted the Statement of Financial Accounting Standard No. 2“Earnings per Share,” issued by the Accounting Standards Board ofJapan. Prior to adopting the new statement, earnings per share were
calculated based on the net income shown on the Statement of
Income. The earnings per share calculation therefore excluded
bonuses to directors and corporate auditors, since under theCommercial Code of Japan (the “Code”), these are recognized as an
appropriation of retained earnings in the Statements of Stockholders’Equity, rather than as expenses in the Statements of Income.
However, the new statement requires that net income should be
adjusted by deducting bonuses paid to directors and corporate auditors as well as the payment of dividends to shareholders of preferredstocks to be recognized as an appropriation of retained earnings,
from net income shown in the Statements of Income, and the calculation of net income per share be made on that adjusted net income
basis. Net income per share for the year ended February 29, 2004,
calculated using the previous method and under the new statement is¥148.51 and ¥148.07, respectively.
Cash dividends per share include those declared with respect to
net income for the respective periods for which the dividends were
proposed by the Board of Directors. Dividends are charged 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 ¥104.74 = U.S.$1, the rate ofexchange on February 28, 2005 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.

イズミAR05財務̲0817 05.8.26 4:42 PM ページ 16

4. INVESTMENTS IN SECURITIES(1) Held-to-maturity debt securities at February 28, 2005 andFebruary 29, 2004, which have readily available determinable fair value, are summarized as follows:(4) Total sales of available-for-sale securities for the years
ended February 28, 2005 and February 29, 2004 aresummarized as follows:

Millions of yen

2005

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

2004
Valuation
gains(losses)

Carrying
value

Marketvalue

Valuation
gains(losses)

Carrying
value

Market
value

¥60

¥60

¥0

¥ 71

¥ 71

¥0

—
¥60

—
¥60

—
¥0

430
¥501

430
¥501

(0)
¥0

Thousands of U.S. dollars(Note 3)

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

Sales
Gross realized gains
Gross realized losses

2005

2004

2005

¥208
23
—

¥369
193
5

$1,986220—

5. LEASES
Information on finance lease transactions other than those leases thatare deemed to transfer the ownership of the assets to the lessees issummarized below:(1) As lessee:a) The acquisition cost, accumulated depreciation and net bookvalue of leased assets at February 28, 2005 and February 29,
2004, if capitalized, are summarized as follows:
Millions of yen

$573

$573

$0

—
$573

—
$573

—
$0

2005
Equipment
andvehicles(2) Available-for-sale securities at February 28, 2005 andFebruary 29, 2004 which have readily determinable fairvalue, are summarized as follows:
2005

Acquisition
cost

Carrying
value

2004
Gross
unrealized
gains(losses)Grossunrealized
Acquisition Carrying
gains
cost
value
(losses)¥3,093 ¥4,745 ¥1,652¥1,368 ¥2,266

¥898

6
5
(1)
¥3,099 ¥4,750 ¥1,651

1,295 1,206¥2,663 ¥3,472

(89)
¥809

Thousands of U.S. dollars(Note 3)

Securities withunrealized gains:
Equity securities $29,530 $45,303 $15,773
Securities withunrealized losses:
Equity securities
57
48
(9)
Total
$29,587 $45,351 $15,764

Total

Other

Total

Thousands of U.S. dollars(Note 3)

Amount to:
Acquisition cost $ 26,532 $ 62,669 $ 89,201
Accumulated
depreciation(19,038) (43,470) (62,508)
Net book value $ 7,494 $ 19,199 $ 26,693

The acquisition cost is calculated including the interest portion
as the outstanding future lease payments are immaterial to theyear-end balance of property and equipment.
b) Amounts of outstanding future lease payments at February 28,
2005 and February 29, 2004, which include the interest
portion, are summarized as follows:
Millions of yen

Due within one year
Due after one year
Total

Thousands of
U.S. dollars(Note 3)

2005

2004

2005

¥1,2371,560¥2,797¥1,7542,695¥4,449$11,810
14,894$26,704c) Lease payments and depreciation expense for the years ended
February 28, 2005 and February 29, 2004 are as follows:(3) Available-for-sale securities at February 28, 2005 andFebruary 29, 2004, which have no readily determinable fairvalue, are summarized as follows:
Millions of yen

Available-for-sale securities
Non-listed equity securities

Other

2004
Equipment
andvehiclesAmount to:
Acquisition cost ¥ 2,779 ¥ 6,564 ¥ 9,343 ¥ 3,188 ¥ 8,531 ¥11,719
Accumulated
depreciation(1,994) (4,553) (6,547)(2,042) (5,228) (7,270)
Net book value ¥ 785 ¥ 2,011 ¥ 2,796 ¥ 1,146 ¥ 3,303 ¥ 4,449

Millions of yen

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

Thousands of
U.S. dollars(Note 3)

Millions of yen

Thousands of
U.S. dollars(Note 3)

2005

2004

2005

¥189

¥189

$1,804

Millions of yen

Lease payments
Depreciation expense

Thousands of
U.S. dollars(Note 3)

2005

2004

2005

¥1,675
1,675¥1,936
1,936$15,992
15,992d) Method of asset depreciation
The depreciation expense is determined based on the straightline method over the lease term of the leased assets assuming
no residual value.

イズミAR05財務̲0817 05.8.26 4:42 PM ページ 17

16 - 17(2) As lessor:a) The acquisition cost, accumulated depreciation and net bookvalue of leased assets at February 28, 2005 and February 29, 2004
are summarized as follows:
Millions of yen

Amount to:
Acquisition cost
Accumulated
depreciation
Net book value

Thousands of
U.S. dollars(Note 3)

2004

2005

Equipment
and vehicles

Equipment
and vehicles

Equipment
and vehicles

¥40

¥53

$382

(9)
¥31

(6)
¥47

(86)
$296

b) Amounts of outstanding future income at February 28, 2005
and February 29, 2004, which include the interest portion, aresummarized as follows:

Due within one year
Due after one year
Total

Thousands of
U.S. dollars(Note 3)

2005

2004

2005

¥ 6
30
¥36

¥ 8
45
¥53

$ 57
287
$344

c) Lease income and depreciation expense for the years ended
February 28, 2005 and February 29, 2004 are as follows:
Millions of yen

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

2005

2004

2005

¥8
6

¥6
4

$76
57

6. SHORT-TERM BORROWINGS AND LONG-TERM DEBT
Short-term borrowings are primarily represented by bank overdrafts,
bearing interest at the weighted average interest rate of 0.90% and1.12% at February 28, 2005 and February 29, 2004.
Long-term debt at February 28, 2005 and February 29, 2004,
consisted of the following:
Millions of yen

2005

2004

Loans from banks and insurancecompanies, due from March 2005
to February 2018 with weighted
average interest rates of 1.44% and1.51% at February 28, 2005 andFebruary 29, 2004, respectively.
Secured¥ 55,801 ¥ 52,119
Unsecured
48,51356,187104,314108,306
1.53% Japanese yen unsecured—
5,000
straight bonds due March 2004
1.84% Japanese yen unsecured
straight bonds due March 2005
5,000
5,000
0.00% Japanese yen unsecured
convertible bonds due July 2009
20,000—129,314118,306
Less, portion due within one year
(25,665)(28,663)¥103,649 ¥ 89,643

Thousands of
U.S. dollars(Note 3)

¥ 23,857
19,251
9,497
26,54624,498¥103,649$227,774
183,798
90,672
253,447
233,893$989,584

Years ending the last day of February

2005

Millions of yen

Millionsof yenThousands of
U.S. dollars(Note 3)2005

$ 532,757
463,176995,933—
47,737
190,949
1,234,619(245,035)$ 989,584

The aggregate annual maturities of long-term debt outstandingat February 28, 2005 are as follows:

2007
2008
2009
2010
2011 and thereafter
Total

Assets pledged as collateral and related secured debt at
February 28, 2005 are summarized as follows:
Thousands of
U.S. dollars(Note 3)

Millions of yen

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

2005

2004

¥ 60,173
74,6791,897¥136,749¥ 55,381
63,4962,520¥121,397$ 574,499
712,994
18,112$1,305,605¥¥ 6,308
52,119¥ 58,427$

9,217
55,801¥ 65,018

2005

87,999532,757$ 620,756

7. RETIREMENT BENEFIT PLANS
Employees of the Companies with more than one year’s service areentitled to receive lump-sum indemnities upon termination. The
amount of the benefits is determined by reference to current basic
rate of pay, length of service and condition under which the termination of employment occurs. The amount of severance indemnities tobe paid by the Company and certain consolidated subsidiaries are
reduced by the benefits payable under an externally funded noncontributory pension plan. In January 2005, the Company terminatedan externally funded non-contributory pension plan.
The funded status of the Companies at February 28, 2005 andFebruary 29, 2004 is summarized as follows:
Thousands of
U.S. dollars(Note 3)

Millions of yen

2005

Projected benefit obligation
Unrecognized net actuarial differences
Unrecognized past service costs
Plan assets at fair value
Accrued severance indemnities

2004¥4,127 ¥ 5,669
(181)
(87)
337
—
—
(1,783)¥4,283 ¥ 3,799

2005$39,402(1,728)3,217—$40,891

Pension and severance costs of the Companies included thefollowing components for the years ended February 28, 2005 andFebruary 29, 2004:
Thousands of
U.S. dollars(Note 3)

Millions of yen

Service costs
Interest costs
Expected return on plan assets
Realized net actuarial losses
Payment for extra supplementary
benefits and other payments
Amortization of unrecognized past
service costs
Other
Net periodic pension costs

2005

2004

2005

¥506
105
(18)
16

¥531
108
(19)
36

$4,831
1,002
(172)
153

—

24

—

(4)
16
¥621

—
—
¥680

(38)
153
$5,929イズミAR05財務̲0817 05.8.26 4:42 PM ページ 18

Pension benefits are attributed to periods of employee service
based on year-of-service using the straight-line method.
Assumptions used in the accounting for the defined benefit
plans for the years ended February 28, 2005 and February 29, 2004
are as follows:
Discount rate
Expected rate of return on plan assets

2005

2004

1.5%–2.0%
1.0%

2.0%
1.0%

8. COMMITMENTS AND CONTINGENT LIABILITIESThe Company was contingently liable for guarantees of loans fromfinancial institutions taken out by affiliates and others, totaling ¥3,578
million ($34,161 thousand) and ¥4,526 million at February 28, 2005
and February 29, 2004, respectively.
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 from exchange
rate fluctuation in import transactions. The Companies also useinterest rate swap agreements to hedge against exposure ofinterest rate fluctuation and to adapt the long-term fixedinterest rate to the current rate in line with changes in themarket rate. The Companies do not use derivative instruments
for speculative trading purposes.
c) Risks in transactions
Derivative instruments used by the Companies are exposed torisk from market rate fluctuations. Counter-parties are highly
creditworthy domestic banks and, therefore, the Companies
do not expect losses due to non-performance by thesecounter-parties.
d) Risk management
Derivative transactions are managed and approved by responsible decision-making bodies such as management meetings andexecuted by related departments.
(2) Market value of transactions
The Companies had the following derivative contracts outstanding at
February 28, 2005 and February 29, 2004.
Millions of yen

2005
Contract
amountForeign currency
exchange forward
contracts
Currency swap
contracts
Currency option
contracts
Total

¥

Fair
marketvalue

2004
Unrealized
gains(losses)

Contract
amountFair Unrealized
marketgains
value(losses)

151

¥ 23

¥ 23

¥1,772

¥ 54

¥ 54

—

—

—

140

44

44

12,811¥12,962

(38)
¥(15)

(38)
¥(15)

1,221
¥3,133(20)(20)¥ 78 ¥ 78

Thousands of U.S. dollars(Note 3)2005
Contract
amountFairmarketvalue

Unrealized
gains(losses)

Foreign currency
exchange forward
contracts$ 1,442 $ 220 $ 220
Currency swap———
contracts
Currency option
contracts
122,312 (363) (363)
Total$123,754 $(143) $(143)The fair value is quoted by financial institutions with which theCompanies conclude foreign currency exchange forward contracts,
currency swap contracts and currency option contracts.
Derivative transactions with hedge accounting applied are
excluded from the above table.

10. STOCKHOLDERS’ EQUITY
Under the Code, the entire amount of the issue price of new sharesissued is required to be capitalized as stated common stock, although
the Company may, by resolution of its Board of Directors, capitalize
an amount not exceeding one half of the issue price of the newshares as additional paid-in capital.
The Code requires a domestic company to appropriate asa legal reserve an amount equal to at least 10% of the amount paidout by it as appropriation of retained earnings (including any payment
by way of annual dividend and bonuses to directors and corporate
auditors) for the period or equal to 10% of any interim dividend until
the sum of the legal reserve and the additional paid-in capital equals
25% of its stated common stock. The legal reserve and additional
paid-in capital may be transferred to stated common stock throughsuitable director actions or used to reduce a deficit through suitable
stockholder action.
Under the Code, the appropriation of retained earnings (including year-end cash dividend payment) proposed by the Board of
Directors should be approved at the stockholders’ meeting, whichmust be held within three months of 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’ meeting anddisposed 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.
11. INCOME TAXESThe Companies are subject to a number of different taxes based on
income, which, in aggregate, result in statutory income tax rates ofapproximately 41.7% for the years ended February 28, 2005 andFebruary 29, 2004.
The reconciliation schedule for the years ended February 28,
2005 and February 29, 2004 is not disclosed because the difference
between the statutory income tax rate and the effective income tax
rate is less than 5% of the statutory income tax rate.
The significant components of deferred tax assets and liabilities
at February 28, 2005 and February 29, 2004 were as follows:イズミAR05財務̲0817 05.8.26 4:42 PM ページ 19

18 - 19

Millions of yen

2005

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

Thousands of
U.S. dollars(Note 3)

2004

2005

300
126
162
99
391
480
1,656

$ 1,862
1,423
1,948
258
3,953
5,270
18,522

355
174

355
290

3,389
1,661

355
357
401
5,123
(85)
5,038

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

3,389
3,408
3,829
48,912(812)
48,100

(142)

(115)

(1,356)

(226)

(236)

(2,158)

(985)

(994)

(9,404)

(667)

(363)

(6,368)(10)(2,030)¥ 3,008—(1,708)¥ 3,028(95)(19,381)$ 28,719

¥

195
149
204
27
414
552
1,940

¥

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 ofassets and liabilities, that are expected to reverse in the year beginning March 1, 2005 or later, decreased from 41.7% to 40.4% as ofFebruary 29, 2004. For temporary differences that are expected toreverse in the year ending February 28, 2005, a tax rate of 41.7% has
continued to be used at that date. As a result, deferred tax assets(net of deferred tax liabilities) decreased by ¥23 million, income
taxes-deferred (debit) increased by ¥35 million and net unrealized
gains on securities increased by ¥12 million in the year ended
February 29, 2004.

12. RELATED PARTY TRANSACTIONS
For the years ended February 28, 2005 and February 29, 2004, theCompany purchased ¥11,705 million ($111,753 thousand) and¥11,056 million of merchandise from Japan Logistics Industry Co.,
Ltd. (“JLI”), respectively. A representative director and Vice Presidentof JLI, Mr. Yasuaki Yamanishi, is also a representative director and

the President of the Company and owns 1.8% of the Company’s
voting stock. At February 28, 2005 and February 29, 2004, theCompany had accounts payable of ¥1,158 million ($11,056 thousand)and ¥1,204 million, and deposited guarantee money of ¥572 million($5,461 thousand) and ¥538 million to JLI, respectively.
Mr. Yasuaki Yamanishi and Mr. Hiromasa Takanishi purchased
the Company’s subsidiary stocks from the Company for ¥40 million
on February 25, 2004 and for ¥10 million on February 20, 2004. Mr.
Hiromasa Takanishi is a representative director and the vice president of the Company and owns 0.13% of the Company’s voting
stock. These purchase prices were identical to the offer price of theallocation of new shares to a third party on February 28, 2004.
For the years ended February 28, 2005 and February 29, 2004,
the Company leased the Higashi-Hiroshima shop building from Izumi
Kosan K.K. (“Izumi”) with lease payments of ¥341 million ($3,256
thousand). Izumi is a majority-owned subsidiary of a company, which
is wholly owned by Mr. Yasuaki Yamanishi and his relatives. The leaseterms are the same as those for third parties.
At February 28, 2005 and February 29, 2004, the Company paid
guarantee money of ¥2,698 million ($25,759 thousand) and ¥3,174
million respectively, to Izumi. These amounts were determined basedon the total construction costs of the building and the area occupiedby the Company.

13. SUPPLEMENTARY CASH FLOW INFORMATIONCash and cash equivalents at February 28, 2005 and February 29,
2004 consisted of the following:
Millions of yen

Cash and bank deposits
Less-time deposits with deposit
Term of over 3 months
Cash and cash equivalents

Thousands of
U.S. dollars(Note 3)

2005

2004

2005

¥12,623¥10,184$120,517(23)¥12,600—¥10,184(219)$120,298

For the year ended February 28, 2005, Kouwa Shokuhin Co.,
Ltd. and its subsidiary were newly consolidated. The assets and liabilities of the subsidiaries at the time of consolidation, cash paid for thecapital and cash received in conjunction with the purchases of
consolidated subsidiaries were as follows:

AssetsLiabilities
Negative goodwill
Investments in affiliates
Minority interests
Cash paid for the capital
Cash and cash equivalents of consolidated
subsidiaries
Cash received in conjunction withthe purchases of consolidated subsidiaries

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

¥ 2,794(2,644)
(17)
(3)
(100)
30

$ 26,676(25,244)
(162)
(29)
(955)
286

178

1,699

148

$ 1,413¥

14. SUBSEQUENT EVENT
Pursuant to the resolution of the Board of Directors meeting held on
May 9, 2005, the Company repurchased its own shares on May 11,2005 as follows:(1) Number of shares repurchased: 867,000 shares(2) Repurchase price: ¥2,640 ($25,205) per share
Total amount:¥2,289 million ($21,854 thousand)(3) Method of repurchase: Through ToSTNet-2(closing price orders) of the Tokyo Stock ExchangeイズミAR05財務̲0817 05.8.26 4:42 PM ページ 20

R E PORT OF INDEPENDENT AUDITORS

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

We have audited the accompanying consolidated balance sheets of Izumi Co., Ltd. and its subsidiaries as of February 28, 2005 andFebruary 29, 2004, and the related consolidated statements of income, stockholders’ equity, and cash flows for the years then ended,
all expressed in Japanese Yen. These consolidated financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards, generally accepted in Japan. Those standards require that we planand perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Izumi Co., Ltd. and its subsidiaries as of February 28, 2005 and February 29, 2004, and the consolidated results of
their operations and their cash flows for the years then ended in conformity with accounting principles and practices generally
accepted in Japan.
As described in Note 14, Izumi Co., Ltd. repurchased its own shares of ¥2,289 million ($21,854 thousand) on May 11, 2005.
The amounts expressed in U.S. dollars, which are provided solely for the convenience of the reader, have been translated on thebasis set forth in Note 3 to the accompanying consolidated financial statements.

ChuoAoyama PricewaterhouseCoopers

Hiroshima, JapanMay 26, 2005

イズミAR05̲表1-4̲0817 05.8.26 5:00 PM ページ 4

20 - 21

D I R E C T O R S A N D C O R P O R AT E A U D I T O R S

Chairman

Full-Time Corporate Auditor

Yoshimasa Yamanishi

Kuniaki Kawamoto

President

Corporate Auditors

Yasuaki Yamanishi

Toyomi Takimoto
Jiro Matsubara
Yasuyuki Tudo

Executive Vice President
Hiromasa Takanishi(as of May 27, 2005)

Directors
Umeno Mashita
Heijiro Natsuhara

C O R P O R AT E D AT A

Head OfficeTransfer Agent and Registrar

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

The Sumitomo Trust & Banking Co., Ltd.
4-5-33, Kitahama, Chuo-ku,
Osaka 540-8639, Japan

Date of Establishment

Annual Meeting of Stockholders

October 27, 1961

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, 2005)

Securities Traded
Common Stock
Tokyo Stock Exchange, First Section
Osaka Securities Exchange, First Section

Auditors
ChuoAoyama PricewaterhouseCoopers

イズミAR05̲表1-4̲0817 05.8.26 5:00 PM ページ 1

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

This report is printed on recycled paper.
Printed in Japan