Annual Report 1999
IZUMI CO., LTD.

Financial Highlights

Millions of yen

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

1995
Mar. 1994–Feb. 1995

1996
Mar. 1995–Feb. 1996

1997
Mar. 1996–Feb. 1997

1998
Mar. 1997–Feb. 1998

1999
Mar. 1998–Feb. 1999

¥1,198,806
9,231
8,088
4,030
2.0%
71,624140,871¥1,219,379
9,403
9,099
4,303
2.0%
74,549172,244¥1,249,398
8,184
5,710
2,717
1.1%
75,850
192,935¥1,263,245
6,665
3,801
1,470
0.56%
75,883
208,460¥1,275,424
5,683
813
393
0.14%
74,548214,534¥1,1222.18
21.82
21.00

5.94
—
21.00

Yen

Per share:
Net income
Net income assuming dilution
Cash dividends¥1,0063.77—
19.50¥1,1264.91—
21.00¥1,1240.98
39.37
21.00
Thousands of U.S. dollars

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

1995
Mar. 1994–Feb. 1995

1996
Mar. 1995–Feb. 1996

1997
Mar. 1996–Feb. 1997

1998
Mar. 1997–Feb. 1998

1999
Mar. 1998–Feb. 1999

$1,662,953
77,21567,65433,7102.0%
599,113
1,178,344$1,835,040
78,653
76,11035,993
2.0%
623,580
1,440,770$2,086,140
68,45747,762
22,727
1.1%
634,463
1,613,844$2,201,965
55,75031,794
12,296
0.56%
634,739
1,743,706$2,303,839
47,537
6.800
3,287
0.14%
623,572
1,794,513$$

U.S. dollars

Per share:
Net income
Net income assuming dilution
Cash dividends

$

0.53
—
0.16

$

0.54
—
0.18

$

0.34
0.33
0.18

0.19
0.18
0.18

Notes 1. All dollar figures herein refer to U.S. dollar amounts and are translated from yen, for convenience only, at the rate of ¥119.55 = U.S.$1.00.
2. See Notes to Non-Consolidated Financial Statements.

Contents

Profile

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To Our Shareholders○

Challenge 1○

Challenge 2
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Non-Consolidated Balance Sheets○○

Non-Consolidated Statements of Income
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Non-Consolidated Statements of Shareholders’ Equity○

Non-Consolidated Statements of Cash Flows
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Notes to Non-Consolidated Financial Statements○

Report of Independent Accountants○

Directors and Corporate Auditors○

Corporate Data
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2
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1

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Back cover

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Back cover

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Profile

Izumi Co., Ltd. is the number one retail chain in Western Japan’s Chugoku
region, with 78 stores throughout Hiroshima, Okayama, Yamaguchi,
Shimane and Hyogo Prefectures, Kagawa Prefecture on Shikoku, andFukuoka, Saga and Oita Prefectures on 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 andlifestyle needs of customers in its operating area.
As the next century approaches, 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 on Kyushu, Izumi
will continue to foster customer loyalty with an enhanced product lineup
and quality service.
Store Network

OKAYAMAHYOGOSHIMANE

1

4

15
40
HIROSHIMA

12YAMAGUCHI

1
KAGAWA

3
1
SAGA

OITA

1
FUKUOKA

As of February 28,1999

1

To Our Shareholders

BUSINESS RESULTS

creased depreciation and start-up costs from new store

In the fiscal year ended February 28, 1999, Japan’s eco-

openings resulted in a 14.7% decrease in operating in-nomic recession worsened as unemployment and bank-come to ¥5,683 million (US$47.5 million). In addition,

ruptcy rates rose and international financial markets

the Company recorded ¥2,640 million (US$22.1 mil-were shaken by turmoil. Although injection of publiclion) in losses on write-down and sales of marketable

funds into the banking system and large-scale stimu-

securities, and liquidation of cash trusts. As a result,lus packages from the Japanese government resulted

net income declined for the third consecutive period,in slight improvements in the second half of the fiscal

falling 73.3% to ¥393 million (US$3.3 million).

year, these measures failed to lift the economy from its
slump. In the retail industry, prolonged sluggishness in

FOR FUTURE GROWTH

personal income and uncertainty over employment

The Company has experienced three years of declining

dampened consumer sentiment and added to the con-income. These results stem directly from increased

tinuing harsh environment.

start-up costs incurred byAmid these conditions,store expansion and a de-Izumi Co., Ltd. continued

terioration in the competi-

work to improve merchan-tive edge of our existingdise selection and quality

stores, as well as efforts tofrom the customer’s view-

improve asset efficiency,

point, guided by the slogan,through which we have re-“Shopping Environments

alized substantial losses on

Built for Customer Satisfac-

sales of marketable securi-t i o n . ” We c o n t i n u e d t oties.

make progress in creating

Since the start of thestores and merchandise for1990s, Izumi has worked

the region’s most popularaggressively to open new

retail experience, Izumi’s

stores and expand its domi-

Youme Town. Three newnant area. We have suc-stores were created, includ-

ceeded in constructing a

ing

store network that provides

Yo u m e

To w nTakamatsu, the first Youme Town in Shikoku and thestable, long-term revenues through Youme Towns, thelargest in western Japan. W ith the acquisition ofregion’s number-one shopping center.

Okayama-based retailer Kobeya Co., Ltd.’s Sanyo store,

The Company originally planned to support the

Izumi’s total sales floor space at fiscal year-end grew tosubstantial burden of its store expansion with revenue

493,961 square meters.

from existing stores. However, tougher competition andAs a result of our efforts in the term under review,a continual mismatching of store merchandise with cur-revenues rose 4.6% to ¥275,424 million (US$2,303.8

rent customer needs have steadily eroded the competi-

million). Although sales expanded on robust growth intive edge of our existing stores. These unforeseen

new stores, failure on the part of existing stores to re-changes to the operating environment have disturbed

spond to external changes continued to weaken growth

the balance between new store start-up costs and ex-

in operating income. And despite progress with a se-isting store revenues, resulting in stagnant growth inries of measures to improve our gross profit ratio, in-recent years.

2

Izumi intends to take radical measures to halt thisIzumi Group companies are continuing to grow anddeterioration, revitalize operations and return the Com-

complement the Company’s retail functions. Yume Townpany to the path of growth. To alleviate the burden of

Co. Ltd. now has 1.7 million subscribers to its credit

new store start-up costs, we are initiating strict selec-

card service. With such new features as an industry-tion criteria for new store investments and building aleading tie-up with the post office for ATM compatibil-

network of competitive stores with a firm emphasis onity, the card continues to be more attractive to con-recovering investments. To regain competitiveness at

sumers. Providing a wide selection of major foreign

our existing stores, we are aiming to provide better mer-brands at reasonable prices, X-Sell Inc. is realizing

chandise and more effective marketing.

strong growth from new stores in major locations

I believe it is wrong, however, to blame our loss ofthroughout Japan, including Ginza, the luxury shopping

competitiveness solely on changes to the external en-

capital of Japan. We expect these Group activities tovironment. Our internal efforts to provide customer sat-boost the competitiveness and profitability of Izumi’s

isfaction have been insufficient. To remedy this, we areretail operations.

going to respond more rapidly to changes in the needs

Prolonged sluggishness in consumer spending isof consumers. We are clarifying the things we over-

expected to continue into the current term. However,looked during our growth process, revising our previ-

despite the harshness of today’s retail environment, we

ous strategy, and listening with undivided attention–fromare thoroughly emphasizing customer satisfaction andthe executive ranks down to the sales staff at each Izumi

making more of the right efforts in management to gain

store–to the voices of our customers.

a leading position in our industry, maintain a stable cor-

I have full confidence in the pivotal role Youme Town

porate base and secure revenues over the long-term.

store development will play in Izumi’s future revenues.

We thank our customers and shareholders and ask for

Youme Town Takamatsu, newly opened last year, has

their continued support and guidance.

been a huge success. The new Hakata and Nagasaki
stores will undoubtedly form a major step toward de-July 1999

velopment when they are opened in 2000. Izumi’s strategy of combining revitalization of existing stores with
Youme Town development will create a network of com-

Yasuaki Yamanishi

petitive stores that foster loyalty.

(Millions of yen)

95

96

4,030

393

1,470

2,717

99

5,683

98

6,665

97

4,303

Net Income(Millions of yen)

8,184

96

Operating Income
9,403

27.1

95

26.4

27.2
99

26.3

(%)

26.3

275,424

263,245249,398

219,379(Millions of yen)

9,231

Gross Profit as a
Percentage of Net Sales

Revenues

198,806

President

95

96

97

98

3

97

98

99

95

96

97

98

99

Challenge: 1

For Customer Satisfaction
Can today’s retail formats really satisfy customers? Based on the current
sluggishness in consumer spending, we believe the answer is no. The newconsumer wants more user-friendliness, a wider selection of merchandise
and an enjoyable shopping environment with easier access. Izumi’s store
strategy in the 1990s has been built around responding to these needs.
Izumi’s Youme Town stores reflect the wide-reaching dreams of “towncitizens.” These multiformat shopping centers attract visitors with a wide
variety of features, from merchandise that responds in detail to the specificneeds of each region to public amenities and amusement areas. Izumi has
fueled expansion of its dominant area with aggressive development ofYoume Town shopping centers.

4and recreating Shikoku’s retail landscape as the region’sStore Strategies

number-one “hot spot.”

Izumi is positioning Kyushu as its core region for future
store development. Our five stores in the region havethe highest level of customer visits and profitability inthe region. We believe this success stems from a declining market share among our competitors, whose
older store formats have fallen out of touch with customer needs, and, conversely, our cultivation of latentdemand in the region with the suburban retail format of
our Youme Town stores. With new stores opening in
Okawa and Munakata in 1999, Izumi intends to continue concentrating stores in the Kyushu region. We plan
to create a base for growth in the 21st century by making Kyushu our number-two dominant area behind the
Chugoku region. Kyushu stores are expected to accountfor ¥100 billion or 30% of the Company’s net sales by
2001.

TOPIC 2
Scheduled to open in fiscal 2001, Youme Site Nagasaki

TOPIC 1and Youme Town Hakata will succeed Takamatsu as theOpened in October 1998, our new Youme Town Takamatsu

flagship stores of Izumi’s network. Despite the large popu-

in Shikoku is a perfect case study of our development

lation concentration in Nagasaki, its mountainous topog-

strategy. At 38,000 square meters, it has the largest sales

raphy has produced a marked shortage of large-scale re-floor space of any outlet in western Japan. In addition,

tail stores. As a result, the region’s purchasing power isthe new store features an elevated approach for easy op-

largely absorbed by other prefectures. A core item in aposite-lane access, the first lineup of high-grade merchan-

plan to redevelop the prefectural capital, Nagasaki Youme

dise in Shikoku, a selection of Japan’s most popular spe-

Site will be an urban shopping center carrying high-grade

cialty shops and such public amenities as an in-store bankmerchandise demanded by customers in the center of theand post office. Providing merchandise and amenities pre-newly developed Nagasaki area. The store is attracting

viously unavailable at retail outlets in the region, Youmestrong attention in the region as a potential symbol for

Town Takamatsu is cementing its position as the region’s

Nagasaki in the 21st century.

number-one shopping experience. By its second day ofYoume Town Hakata is part of a large-scale joint

operations, the new store had already attracted 350,000

project with Japan Freight Railway Company. Covering an

visitors–more than the entire population of Takamatsu.

area with 800,000 consumers, this store will have the larg-With visitors from all over the island of Shikoku, Youme

est market of any Izumi store. We expect Youme Town

Town Takamatsu is overwhelmingly attracting customers,

Hakata to revolutionize Fukuoka’s commercial market,

5both for the high growth potential of its location in the

The Company plans to continue adapting existing

metropolitan area of Fukuoka, one of Japan’s largest cit-

stores to meet newer customer needs, and improveies, and the wide coverage area afforded by its above-

profitability by revising sales floor layout and merchan-

average transportation access.

dise, and reducing fixed costs. We are moving rapidly
to close unprofitable stores, recover invested resources

Izumi’s store strategy will form a base for growth andand reallocate these resources to more profitable stores.

profitability in its retail operations. Our aggressive de-This program began in the current term and will con-velopment of competitive Youme Town stores, whichtinue solidly until the following term, promoting renewal

have become number one in the region, has createdin our store network.

this base for stable future growth. However, changing

In today’s ultra-competitive environment, new de-conditions have brought an end to growth in our exist-

velopment of Youme Town stores and restructuring of

ing stores and forced an erosion in their competitive-

our store portfolio are both necessary components ofness. Effectively restructuring our portfolio of existing

our strategy. We believe this strategy will enable us

and new stores is an essential point of our store strat-

maintain and increase corporate profitability.

egy for maintaining profitability.

Youme Town Hakata

HAKATANAGASAKI

Youme Site Nagasaki

Percentage of Izumi Sales Floor Space in Stores 10 Years Old or Less

55%

FY199670%

FY199975%

FY2002(Expected)

6Challenge: 2

Izumi demands customer satisfaction.
This means superior quality in every
part of our operations, including
merchandise, sales floors and stores.
We believe this is the only path for
returning to profitability in the shortterm.
Anxiety over the economy and its
future course has made consumers
more concerned with merchandise
value. Essential in providing this value
is a clear understanding of whatcustomers want. For Izumi, this means
not only offering merchandise but also
continually questioning what consumers
need most, thoroughly studying daily
sales trends and continually adjustingorders to meet these trends. These
combined efforts create merchandise
value unique to Izumi.
In addition, Izumi is strengthening
its cooperation with suppliers based on
the same awareness. By sharing
information on merchandise andcustomers, and integrating capabilities
between manufacturer and marketer,
we can achieve development of highvalue-added merchandise. Izumi iscreating a system capable of rapidly
ordering and receiving large amounts
of inventory, even amid today’s highly
seasonal and short-lived demand
trends.

7

Better Merchandise,
Better Marketing

TOPIC 1

ever, we have begun to realize the necessity of revising

Izumi has made major efforts to combat the sluggishness

our lineup of merchandise at small-scale stores that areof its apparel sales. In 1997, the Company began efforts

close to commercial centers and cannot always secure

to provide clothing more accurately targeted to custom-adequate sales floor space. Based on this realization, weers, and apparel sales have since begun to show signs

formed the SM apparel department in the fall of 1998. Af-of improvement. A major reason for this improvement is

ter an extensive search for the right lineup of apparel at

the favorable reaction from customers, who are increas-small-scale stores, positive results have begun to emerge.

ingly acknowledging that Izumi stocks a wide range ofSales in the SM apparel department are growing robustly.

their favorite merchandise–a direct result of its refinedWith the economic recession and a subsequent changetargeting.
Izumi is bolstering its marketing system to enablein values, consumers are demanding a higher degree

turnover of newly stocked items and restocking of fast-of reliability from retailers. To regain customer trust, Izumi

selling items in the appropriate lot and period demanded.

has made superb efforts at each of its stores, working

We are building a quick response system with our suppliers,

to attain the highest level of approval in a wide number

especially for basic items. And by securing fast-sellingof sales floor issues, including merchandise selection,

Merchandising andMarketing Strategy
merchandise, we expect to increase sales, improve ourfreshness and ease of shopping. These past few years

value-added rate, eliminate missed opportunities andof effort have imprinted on Izumi employees and sup-minimize losses resulting from falling prices.

pliers an image of “the perfect sales floor,” and madePreviously, the Company made no distinction between

Izumi sales floors capable of running smoothly, respond-

its lineup of apparel at small- and large-scale stores. How-ing to the changing needs of customers and adapting

8

appropriately to hourly and daily changes in the retailled management, and currently distribute online infor-

environment.

mation to our stores and head office, as well as suppli-

Izumi is making strong efforts to retain customer

ers, to enable rapid response to changes in the retail

trust by guaranteeing the quality of merchandise it sells

climate.

to customers. We achieve this guarantee through strict
factory inspection before shipping and continuous im-

TOPIC 2

provements to the quality control carried out by every

In fiscal 1999, Izumi worked to revise its organizational

employee at every Izumi store.

structure for the third consecutive term, not only to re-

The Company is conscious of its role in the region

duce its fixed costs but also to further its goal of cus-

as a corporate citizen and is responding with its large-

tomer satisfaction. The core of this revision involves es-

scale store location plan to be carried out in 2000. The

tablishment of a system linking personnel costs with busi-

new committee for raising customer satisfaction is pro-ness results. Specifically, we eliminated the traditional se-

moting development and use of environmentally friendly

niority system and initiated a job contribution-based sys-

merchandise, and creation of stores that are attentive

tem of compensation. By revising the traditional Japanese

to a variety of factors, ranging from proper waste dis-

system and introducing compensation based on an

posal to transportation and noise issues. These efforts

employee’s job contribution, we intend to eradicate a re-will help alleviate Izumi’s burden on the environment,

cent phenomenon in corporate Japan in which “person-

boost awareness of environmental issues regionally andnel costs go up while earnings go down.” In addition, theprovide the Company with recycling capabilities.

new system will promote a flatter, less bloated organiza-

High quality requires the support of an active or-tion, and place more emphasis on efficiency and speed inganization, especially one capable of continually re-the organization. These revisions have already penetrated

sponding to diverse customer needs. Izumi envisions aemployees’ way of thinking and are showing favorable re-store-led management system where employees takesults in the form of more individual initiative toward cus-

initiative in responding to customers and leadership is

tomer satisfaction.

carried out on location, independent of a central office.
We upgraded our information system to support store-

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

Millions of yen
Izumi Co., Ltd.

28th February, 1998 and 1999

1998

1999

1998

1999

¥010,984¥009,057$0,091,878$0,075,759

3,549

4,120

29,686

34,463ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 10):
Cash
Time deposits

14,533

13,177

121,564

110,222

Short-term investments (Notes 5, 6 and 10)

3,614

1,335

30,23011,167

Short-term loans receivable

3,205

168

26,809

1,405

Trade

678

699

5,671

5,847

Other

940

959

7,863

8,022

1,618

1,658

13,534

13,869

(36)

(9)

(301)

(75)

1,582

1,649

13,233

13,794

11,813

12,501

98,812

104,567

Notes and accounts receivable (Note 10):Less, allowance for doubtful accounts
Inventories (Note 4)
Refundable income taxes

—

794

—

6,641

Other current assets

1,898

1,063

15,876

8,892

Total current assets

36,64530,687

306,524

256,688

Investments in securities (Note 5)

7,458

5,188

62,384

43,396

Investments in subsidiaries and affiliates

1,403

1,347

11,736

11,267

Other investments and advances

3,090

2,956

25,847

24,726

11,951

9,491

99,967

79,389Buildings and structures

110,223

128,569

921,982

1,075,441

Furniture and fixtures

20,144

22,330168,499

186,784

130,367

150,899

1,090,481

1,262,225(55,011)(62,719)(460,151)(524,626)

75,35688,180630,330

737,599

Land

46,23748,545

386,759

406,065

Construction in progress

5,909

3,401

49,42728,448

127,502140,126

1,066,516

1,172,112

Fixed leasehold deposits

26,541

25,218222,008

210,941

Other

5,821

9,012

48,691

75,383¥208,460¥214,534$1,743,706$1,794,513

INVESTMENTS AND ADVANCES (Note 10):PROPERTY AND EQUIPMENT (Note 6):

Less, accumulated depreciation

OTHER ASSETS:

The accompanying notes are an integral part of these statements.

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

Millions of yen

1998

1999

1998

1999

LIABILITIES AND SHAREHOLDERS’ EQUITYCURRENT LIABILITIES:¥008,300¥000,0—$0,069,427$0,000,0—Commercial paper (Note 10)

Short-term bank loans (Notes 6 and 10)

9,000

—

75,282—Current portion of long-term debt (Notes 6 and 10)

3,559

17,471

29,770146,140Trade

10,593

11,28588,607

94,396

Construction

6,442

6,784

53,88656,746

Other

2,676

2,671

22,384

22,342

19,711

20,740164,877

173,484

816

—

6,826

—

Accrued payroll and bonuses

1,943

2,071

16,253

17,323

Deposits received

1,448

1,730

12,112

14,471Other current liabilities

2,365

1,407

19,782

11,769Total current liabilities

47,142

43,419394,329

363,187

LONG-TERM DEBT (Notes 6 and 10)

75,12484,089628,390

703,379

ACCRUED SEVERANCE INDEMNITIES (Note 7)

1,807

1,968

15,115

16,462LEASE DEPOSITS RECEIVED

8,479

10,49370,92487,771

25

17

209

142

132,577

139,986

1,108,967

1,170,941

Accounts payable (Note 10):

Accrued income taxes

OTHER LIABILITIES
Total liabilities

COMMITMENTS AND CONTINGENT
LIABILITIES (Note 9)

SHAREHOLDERS’ EQUITY (Note 11):
Common stock, ¥50 ($0.42) par value:
Authorized—199,642,000 shares
Issued—66,315,710 shares at 28th February, 1998

19,613—164,057—

Issued—65,957,710 shares at 28th February, 1999—

19,613—164,057

Additional paid-in capital

26,866

26,580224,726

222,334

Legal reserve

1,534

1,679

12,832

14,044

Voluntary reserves

26,23026,274219,406

219,774Retained earnings

1,640

402

13,7183,363

Total shareholders’ equity

75,88374,548634,739

623,572¥208,460¥214,534$1,743,706$1,794,513

11

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

Millions of yen
Izumi Co., Ltd.

For the years ended 28th February, 1998 and 1999

1998

1999

1998

1999

¥256,084¥267,845$2,142,066$2,240,443

7,161

7,579

59,89963,396263,245

275,424

2,201,965

2,303,839

COST OF SALES

195,805

204,675

1,637,850

1,712,045

Gross profit

67,44070,749564,115591,794

60,77565,066508,365544,257

6,665

5,683

55,75047,537

Interest and dividend income

369

456

3,086

3,814

Discount on early settlement of accounts payable-trade

359

453

3,003

3,789

Interest expense(1,232)(2,488)(10,305)(20,811)

Loss on write-down of investments in securities(1,390)(262)(11,627)(2,192)REVENUES (Note 12):Net sales
Other operating revenues

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Operating income
OTHER INCOME (EXPENSES):

Loss on liquidation of subsidiaries

(319)

(65)

(2,668)(544)

Loss on write-down of short term investments

(21)

(713)

(176)

(5,964)

Loss on sales of investments in securities(20)(1,093)(167)(9,143)

Loss on liquidation of cash trusts

(230)

(572)

(1,924)(4,785)

Loss on sales or disposal of property and equipment

(47)

(581)

(393)

(4,860)Additional severance benefits for early retirement

—

(358)

—

(2,994)

Amortization of unrecognized effect of change in methodof accounting for severance benefits of directors andcorporate auditors

(118)

(112)

(987)

(937)

Other, net

(215)

465

(1,798)3,890

Income before income taxes

3,801

813

31,794

6,800

2,331

420

19,4983,513¥001,470¥ 00,393$0,012,296$0,003,287

INCOME TAXES (Note 13)
Net income

U.S. dollars(Note 3)Yen

PER SHARE:
Net income¥0022.18¥¥ 005.94

Net income assuming dilution

21.82

—

0.18

—

Cash dividends

21.00

21.00

0.18

0.18

Common shares

66,316

66,159Common shares assuming dilution

70,14773,394

WEIGHTED AVERAGE NUMBER OF SHARES (THOUSANDS):

The accompanying notes are an integral part of these statements.

12

$

0.19

$

0.05

Non-Consolidated Statements of Shareholders’ Equity

Izumi Co., Ltd.

For the years ended 28th February, 1998 and 1999

BALANCE AT 28TH FEBRUARY, 1997

Millions of yen

Number ofcommonshares(thousands)

Commonstock

Additional
paid-in
capitalLegalreserve

Voluntary
reserves

Retainedearnings

66,316¥ 19,613¥026,866¥11,390¥ 25,052¥02,929

Net income for the year

—

—

—

—

—

1,470

Cash dividends

—

—

—

—

—

(1,392)

Directors’ and corporate auditors’ bonus

—

—

—

—

—

(45)

Transfer to legal and voluntary reserves

—

—

—

144

1,178

(1,322)

66,316

19,613026,866

11,534

26,2301,640

BALANCE AT 28TH FEBRUARY, 1998
Net income for the year

—

—

—

—

—

393

Cash dividends

—

—

—

—

—

(1,393)

Directors’ and corporate auditors’ bonus

—

—

—

—

—

(49)

Transfer to legal and voluntary reserves

—

—

—

145

67

(212)

Transfer from voluntary reserves

—

—

—

—

(23)

23

(358)

—

(286)

—

—

—

65,958¥ 19,613¥ 26,580¥ 1,679¥ 26,274¥

Common stock repurchased and cancelled
BALANCE AT 28TH FEBRUARY, 1999

402

Thousands of U.S. dollars(Note 3)BALANCE AT 28TH FEBRUARY, 1997

$164,057$224,726$11,627$209,553$24,500

Net income for the year

—

—

—

—

12,296

Cash dividends

—

—

—

—

(11,644)

Directors’ and corporate auditors’ bonus

—

—

—

—

(376)

Transfer to legal and voluntary reserves

—

—

1,205

9,853

(11,058)

BALANCE AT 28TH FEBRUARY, 1998

164,057

224,726

12,832

219,406

13,718Net income for the year

—

—

—

—

3,287

Cash dividends

—

—

—

—

(11,652)

Directors’ and corporate auditors’ bonus

—

—

—

—

(410)

Transfer to legal and voluntary reserves

—

—

1,212

561

(1,773)

Transfer from voluntary reserves

—

—

—

(193)

193

Common stock repurchased and cancelled—(2,392)———$164,057$222,334$14,044$219,774$(03,363

BALANCE AT 28TH FEBRUARY, 1999
The accompanying notes are an integral part of these statements.

13

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

Millions of yen
Izumi Co., Ltd.

For the years ended 28th February, 1998 and 1999

1998

1999

1998

1999

¥(01,470¥((0,393$(012,296$0(03,287

8,244
47
21
1,390
319
20
230
456

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

68,959393
176
11,627
2,668
167
1,924
3,814

72,790
4,860
5,964
2,192
544
9,143
4,785
4,500

464
(1,365)—(656)(1,836)
(114)
237
717
1,220
31
9,425
10,895

(40)
(688)
(794)
863
687
128
(900)
282
(874)
(297)
10,893
11,286

3,881(11,418)—(5,487)(15,357)
(953)
1,982
5,997
10,205259
78,837
91,133(335)(5,755)(6,642)
7,219
5,746
1,071
(7,528)2,359(7,311)(2,485)
91,117
94,404

CASH FLOWS FROM INVESTING ACTIVITIES:Payments for purchases of property and equipment
Proceeds from sales of property and equipment
Payments for purchases of investments and advances
Proceeds from sales of investments and collection of advances
Decrease in short-term investments
Decrease (increase) in short-term loans receivable
Other, net
Net cash used in investing activities(16,540)657(1,172)
252
822
(436)
(157)
(16,574)(23,470)
482
(670)
1,434
1,182
3,166
(956)
(18,832)(138,352)
5,495(9,804)
2,108
6,876(3,647)(1,313)(138,637)(196,320)
4,032(5,604)
11,9959,887
26,483(7,997)(157,524)

CASH FLOWS FROM FINANCING ACTIVITIES:(Decrease) increase in short-term bank loans
Decrease in commercial paper
Proceeds from issuance of long-term debt
Repayments of long-term debt
Increase in lease deposits received
Repayments of lease deposits received
Cash dividends paid
Other, net
Net cash provided by financing activities

261(26,000)
50,600(11,106)
1,185
(508)
(1,392)—
13,040(8,300)(9,000)29,200(6,323)
3,286(1,272)(1,393)
(8)
6,190

2,183
(217,482)
423,254(92,898)
9,912(4,249)(11,644)—
109,076(69,427)(75,282)
244,249(52,890)
27,487(10,640)(11,652)(67)
51,778Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year

7,361
7,172
¥ 14,533(1,356)
14,533¥(13,177

61,57259,992$(121,564(11,342)
121,564$(110,222¥ 01,340
2,064¥ 2,665
1,992$ 11,209
17,265$ 22,292
16,663¥ 02,772¥ 00,—$ 23,187$ 00,0—CASH FLOWS FROM OPERATING ACTIVITIES:Net income
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization
Loss on sales or disposal of property and equipment
Loss on write-down of short-term investments
Loss on write-down of investments in securities
Loss on liquidation of subsidiaries
Loss on sales of investment in securities
Loss on liquidation of cash trusts
Provision for accrued severance indemnities
Changes in assets and liabilities:(Increase) decrease in notes and accounts receivable
Increase in inventories
Increase in refundable income tax
Decrease (increase) in other current assets
Increase (decrease) in notes and accounts payable
Increase (decrease) in accrued payroll and bonuses(Decrease) increase in accrued income taxes
Increase in deposits received(Decrease) increase in other current liabilities
Other, net
Total adjustments
Net cash provided by operating activities

SUPPLEMENTARY DISCLOSURES OF CASH FLOWINFORMATION:
Cash paid during the year for:
Interest
Income taxes
Non-cash financing activities:
Transfer of short-term investments to investments in securities
The accompanying notes are an integral part of these statements.
14

Notes to Non-Consolidated Financial Statements

Izumi Co., Ltd.

For the years ended 28th February, 1998 and 1999

1. Basis of Presenting Non-Consolidated Financial

posed of and related accumulated depreciation are eliminatedStatementsfrom the respective accounts and the resulting gain or loss is

The accompanying non-consolidated financial statements havereflected in income.

been prepared from accounts and records maintained by Izumi

Depreciation of property and equipment, other than a large-

Co., Ltd. (the “Company”) in accordance with the provisions set

scale and compound-type shopping center and buildings

forth in the Japanese Commercial Code and in conformity withacquired on or after 1st April, 1998, is computed on the declining

accounting principles and practices generally accepted in Japan,

balance method at rates based on the estimated useful lives ofwhich are different in certain respects as to application andassets prescribed by the Japanese income tax laws. A large-

disclosure requirements of International Accounting Standards.

scale and compound-type shopping center is depreciated by the

Certain items presented in the non-consolidated financial

straight line method.

statements filed with the Ministry of Finance (the “MOF”) in Japan,

The depreciation method of buildings was changed from thehave been reclassified for the convenience of readers outside

declining balance method to the straight line method for theJapan. In addition, the non-consolidated financial statements ofbuildings acquired on or after 1st April, 1998 in accordance withcash flows are not required to be filed with the MOF , but have been

1998 amendments of the Japanese income tax laws. The effects

prepared and included in the non-consolidated financial statements.

of this change were to decrease depreciation expense by ¥125

The non-consolidated financial statements are not intended

million ($1,046 thousand) and to increase both operating income

to present the non-consolidated financial position, results ofand income before income taxes by ¥125 million ($1,046 thou-operations and cash flows in accordance with accountingsand) for the year ended 28th February, 1999.

principles and practices generally accepted in countries and

The range of the estimated useful lives is as follows:

jurisdictions other than Japan.
The preparation of financial statements in conformity with

Buildings and structures

10 to 65 years

Furniture and fixtures

4 to 17 years

generally accepted accounting principles requires management toNormal repairs and maintenance, including minor renewals

make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent

and improvements, are charged to income as incurred.

assets and liabilities at the date of the financial statements and(6) Leases

the reported amounts of revenues and expenses during the

The Company leases certain of its superstore properties underreporting period. Actual results could differ from those estimates.

noncancellable agreements primarily for a 30-year period. The
rental fees are usually renegotiated every three years. Those

2. Summary of Significant Accounting Policies

leases are accounted for as operating leases. When leasing land,(1) Translation of Foreign Currencies

the Company is usually required to make certain fixed leasehold

Investments in securities denominated in foreign currencies aredeposits which are returnable only when the lease is terminated.

translated into Japanese yen at the historical exchange rates.

In connection with the leasing of buildings for superstores, the(2) Inventories

Company generally enters into agreements whereby the Company

Inventories are stated at cost, primarily determined by the retailadvances to the lessors the amounts of the construction costs ofinventory method (inventory valuation is based on the ratio of cost

the buildings. Upon completion of construction, the advances are

to selling price).

reclassified to fixed leasehold deposits for the buildings. After 10(3) Short-Term Investments and Investments in Securities

years of the lease, 70 to 80 per cent of such fixed leasehold

Securities with quoted market prices are stated at the lower ofdeposits is refunded in installments over 10 to 20 years.

cost or market, and others are stated at cost. Cost is determined

The Company also leases certain superstore equipment andby the moving average method.

office equipment under noncancellable agreements for seven(4) Investments in Subsidiaries and Affiliates

years. Those leases are also accounted for as operating leases.

Investments in subsidiaries and affiliates are valued at cost.

(7) Accrued Severance Indemnities and Pension Plans

Subsidiaries have not been consolidated nor has the equity method

Employees of the Company, with more than one year’s service,of accounting been applied to account for investments in affiliates inare entitled to receive lump-sum indemnities upon termination.

the accompanying non-consolidated financial statements.

The amount of the benefit is determined by current basic rate of(5) Property and Equipment and Depreciation

pay, length of service and condition under which the termination

Property and equipment, including significant renewals andoccurs. The amount of severance indemnities to be paid by theadditions, are carried at cost.

Company is reduced by the benefits payable under a non-

Cost of property and equipment retired or otherwise dis15

4. Inventories

contributory pension plan.

Inventories as of 28th February, 1998 and 1999, consisted of the

The accrued severance indemnities in the accompanying

following:

non-consolidated balance sheets represent 40 per cent of theliability the Company would be required to pay (reduced by theMillions of yen
1998
1999

benefits payable under the non-contributory pension plan) if alleligible employees voluntarily terminated employment at thebalance sheet date. Such liability is not funded.
The Company provides for lump-sum severance benefits

Thousands of
U.S. dollars
1998
1999

Clothing¥05,921
Household goods
4,017
Fresh and processed foods
1,736
Supplies
139¥07,626
3,174
1,566
135

$49,527
33,601
14,521
1,163$063,789
26,55013,0991,129¥11,813¥12,501$98,812$104,567with respect to directors and corporate auditors. While theCompany has no legal obligation, it is a customary practice inJapan to make lump-sum payments to a director or a corporate

5. Marketable Equity Securities

auditor upon retirement. Such liability is not funded.

Marketable equity securities included in short-term investments(8) Income Taxes(current assets) and investments in securities (non-current assets)

The Company provides for corporate income tax, inhabitant tax

as of 28th February, 1998 and 1999, are summarised as follows:

and enterprise tax based upon amounts currently payable for

Millions of yen
1998
1999

each fiscal year. No tax effect is recorded for temporary differences between tax and financial reportings.
(9) Net Income and Dividends per Share
Net income per share of common stock is based on the weighted
average number of shares of common stock outstanding during

Thousands of
U.S. dollars
1998
1999

Current:
MarketCost (carrying amounts)¥2,2002,062¥1,294
1,285$18,402
17,248$10,824
10,749Unrealized gains¥0,138¥0,009$01,154$000,75

Non-current:
MarketCost (carrying amounts)¥6,0005,860¥3,873
3,629$50,188
49,017$32,397
30,356

Unrealized gains¥0,140¥0,244$01,171$02,041

each period. Diluted earnings per share additionally assumes theconversion of outstanding convertible debentures.
Cash dividends per share include those declared withrespect to the earnings for the respective periods for which thedividends were proposed by the Board of Directors. Dividends arecharged to retained earnings in the year in which they are paid.

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

(10) Cash and Cash Equivalents

Short-term bank loans are represented by bank overdrafts,

Cash and cash equivalents consist of cash on hand and bankbearing interest at the weighted average interest rate of 1.39%.

deposits, including time deposits maturing within one year.

Long-term debt as of 28th February, 1998 and 1999,
consisted of the following:

3. United States Dollar Amounts
The Company maintains its accounting records in Japanese yen.
The dollar amounts included in the accompanying non-consolidated financial statements and notes thereto represent thearithmetical results of translating yen into dollars on the basis of¥119.55=U.S.$1, the approximate rate of exchange at 26th
February, 1999.
The inclusion of such dollar amounts is solely for convenience and is not intended to imply that assets and liabilities havebeen or could be readily converted, realized or settled in dollars at¥119.55=U.S.$1, or at any other rate.

16

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

Thousands of
U.S. dollars
1998
1999

Millions of yen
1998
1999

Loans from banks and insurancecompanies, due from April 1999
to August 2011 with interest
rates primarily based on
the long-term prime rate:
Secured¥30,512 ¥55,326 $255,225 $462,786
Unsecured
4,087
3,798
34,18731,76934,599Japanese yen unsecured
convertible debentures:
4.5% due February 2001
1.7% due August 2002
2.3% Japanese yen
unsecured debenturesdue March 2000
2.025% Japanese yen unsecured
debentures due March 2002
2.325% Japanese yen unsecured
debentures due March 2003
2.175% Japanese yen unsecured
debentures due October 2003
2.0% Japanese yen unsecured
debentures due December 2001
2.05% Japanese yen unsecured
debentures due February 2000

As of 28th February, 1999, marketable securities of ¥3,299
million ($27,595 thousand), and property and equipment with a
net book value of ¥73,416 million ($614,103 thousand) were59,124 289,412 494,555

pledged as collateral for long-term loans including the current
portion.
9,645
4,439

9,545
4,091

80,67837,132

79,842
34,2207. Accrued Severance Indemnities and Pension Plans
The accumulated balance of fund assets of the pension plan

5,000

4,000

41,82333,459

5,000

5,000

41,823

41,823

aggregated ¥1,049 million ($8,775 thousand) as of 28th February,
1999.
The past service cost for the pension plan aggregated ¥750
million ($6,274 thousand) as of 28th February, 1999, and was

5,000

5,000

41,823

41,823

5,000

5,000

41,823

41,823

5,000

5,000

41,823

41,823

5,000

4,800

41,82340,151

being amortized over 14 years and four months.
Severance indemnities and pension costs, for theCompany’s employees, charged to income for the two years
ended 28th February, 1998 and 1999, are as follows:
Thousands of
U.S. dollars

Millions of yen

78,683 101,560 658,160 849,519
Less: portion due within one year (3,559) (17,471) (29,770) (146,140)¥75,124 ¥84,089 $628,390 $703,379

1998

1999

1998

1999

¥452

¥536

$3,781$4,484

8. Leases

The aggregate annual maturities of long-term debt outstanding as

The total rental expense for leases for the two years ended 28thof 28th February, 1999, are as follows:

February, 1998 and 1999, are as follows:Year ending the last
day of February

Millionsof yenThousands of
U.S. dollars

2001
2002
2003
2004
2005 and thereafter¥20,550
12,713
26,294
13,858
10,674$171,895
106,340
219,941
115,918
89,285¥84,089$703,379

Millions of yen
1998
1999

Total rental expense,
principally land andbuildings forsuperstores (a)¥5,076
Less: sublease rental income
from tenants (b)1,600
Net rental expense

Convertible debentures outstanding as of 28th February, 1999,
are redeemable or convertible as follows:

Redeemable Redeemable
on or
price
after
range

4.5% dueFebruary
2001 (b)1.7% dueAugust2002 (c)1stMarch,
1996
1st
September,
1998

104%~
100%

¥3,476

Thousands of
U.S. dollars
1998
1999

¥6,242$42,459$52,213

1,810

13,384

15,140¥4,432$29,075$37,073(a) See Note 2 (6) for discussion of the accounting for leases.
(b) See Note 12 for discussion of the rental income.

Number ofshares ofissuable
Current
commonconversion stock upon
price conversion
per share (a) (thousands)

Information for finance lease transactions other than those which
are deemed to transfer the ownership of leased assets to lessees
for each period is summarised as follows:(1) Acquisition cost equivalent amount, accumulated depreciation¥1,897.0

equivalent amount and net book value equivalent amount of the

5,032

leased furniture and fixtures as at 28th February, 1998 and 1999,
103%~
100%

¥1,979.0

if capitalized, are summarised as follows:

2,067

17

Thousands of
U.S. dollars
1998
1999

Millions of yen
1998
1999

Acquisition costequivalent amount
Accumulated depreciationequivalent amount¥7,987¥9,496$66,809$79,431

4,333

4,947

36,244

41,380¥3,654¥4,549$30,565$38,051

Thousands of U.S. dollars

Net book value
equivalent amount¥3,654fluctuation in interest rates. The Company does not hold or issue
derivative financial instruments for speculative purposes.

$08,164
29,879$30,565$040,100
38,72137,36534,95633,484
405,805

finance costs and to hedge its exposure to market risk fromThousands of
U.S. dollars
1998
1999

¥4,548$8,122
7,746
7,018
5,780
5,103
3,187

The Company uses derivative financial instruments to reduce its

are summarised as follows:

Total$031,97830,97530,347
29,17628,381
402,618

10. Fair Value of Financial Instruments

at 28th February, 1998 and 1999, which include interest portion,$08,005
22,560

2000
2001
2002
2003
2004
2005 and thereafter

February, 1999.

(2) The amounts equivalent to outstanding future lease payments¥0,976
3,572

Total
Commitment

and other, totalling ¥23,345 million ($195,274 thousand) at 28th

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

¥0,9572,697

Equipmentfrom financial institutions and lease agreements made by affiliates

interest portion as the outstanding future lease payments are

Due within one year
Due after one year

Real Estate

The Company was contingently liable for guarantees of loans

The acquisition cost equivalent amount is calculated including

Millions of yen
1998
1999

Year ending the last
day of February

The Company has entered into interest rate swap agreements, under which the Company receives fixed-rate interest and$38,043

pays variable-rate interest, to reduce costs for debentures issued(3) Rental expenses and depreciation expense equivalentor loans borrowed at fixed interest rate. The Company has alsoamounts for the two years ended 28th February, 1999, are asentered into interest rate swap agreements, under which thefollows:

Company receives variable-rate interest and pays fixed-rate
Thousands ofMillions of yen
1998

Rental expenses
Depreciation expenseequivalent amounts

interest, to fix the interest payments on a long-term basis. The

U.S. dollars

1999

1998

1999

¥923

¥1,101$7,721$9,210

923

1,101

7,721

9,210

contract amounts of interest rate swap agreements were ¥21,000
million ($175,659 thousand) and ¥20,687 million ($173,041
thousand) at 28th February, 1998 and 1999, respectively.
The interest rate swap transactions, which are currently used

Depreciation expense equivalent amount is determined based onby the Company, may have a risk from interest rate fluctuations.

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

The Company believes that there is little credit risk from nonfulfill-with no residual value.

ment of contracts, as counter parties are highly creditworthy
domestic banks. Derivative transactions are approved at the

9. Commitments and Contingent Liabilities

management conference, and executed and managed by

Minimum rental commitments under noncancellable operatingtreasury department. The head of the administrative department

leases at 28th February, 1999, are as follows:

reports the status of transactions to the Board of Directors. The

Millions of yen
Year ending the last
day of February

Real Estate

Equipment

Total
Commitment

2000
2001
2002
2003
2004
2005 and thereafter¥33,823
3,703
3,628
3,488
3,393
48,133

¥971
926
839
691
610
381

¥04,794
4,629
4,467
4,179
4,003
48,514

estimated fair values of financial instruments as of 28th February,
1998 and 1999, are as follows:1811. Shareholders’ Equity

Millions of yen
1998
Carrying
AmountAssets:Cash and cash equivalents ¥14,533
Short-term investments
2,111
Notes and accounts
receivable
1,582
Investments andadvances
7,587
Liabilities:
Short-term bank loans
8,300
Commercial paper
9,000
Accounts payable
19,711Long-term debt
78,682

1999

The Japanese Commercial Code (the “Code”) requires that the

Fair
Value

Carrying
AmountFair
Value¥14,533
2,249¥13,177
1,286¥13,177
1,295

stock.” However, at or less than 50 per cent of such issue price

1,582

1,649

1,649

resolution of the Board of Directors on the condition that at least

7,718

5,309

5,553

8,300
9,000
19,711
76,892——
20,74042,436——
20,74041,926entire amount of the issue price of new shares issued upon
conversion of debentures must be capitalised as “common
may be capitalised as “additional paid-in capital” pursuant to athe par value of such new shares is capitalised as “common
stock.”The Code requires the appropriation of retained earnings aslegal reserve in an amount equivalent to at least 10 per cent ofcash payments for appropriation of retained earnings until thereserve equals 25 per cent of common stock. This reserve may
be transferred to common stock by a resolution of the Board ofThousands of U.S. dollars

Assets:Cash and cash equivalents $121,564
Short-term investments
17,658Notes and accounts
receivable
13,233
Investments andadvances
63,463Liabilities:
Short-term bank loans
69,427
Commercial paper
75,282
Accounts payable
164,877
Long-term debt
658,151

Directors or used to reduce a deficit by a resolution of the$121,564 $110,222
18,812
10,757$110,222
10,832

13,233

13,794

13,79464,55944,40846,44969,42775,282
164,877
643,179——
173,484
354,964——
173,484
350,698

shareholders’ meeting.
Under the Code, the appropriation of retained earnings(including year-end cash dividend payments) proposed by the
Board of Directors should be approved at the shareholders’meeting which must be held within three months after the end ofeach fiscal year. The appropriation of retained earnings reflectedin the accompanying non-consolidated financial statements
represents the results of such appropriations which are applicableto the immediately preceding fiscal year and disposed of during
the current year.

The following methods and assumptions were used to estimate

As is customary practice in Japan, the payment of bonuses

the fair value of each class of financial instruments.
(1) Cash and Cash Equivalents, Notes and Accounts Receiv-

to directors and corporate auditors is made out of retained

able, Short-Term Bank Loans, Commercial Paper and Ac-

earnings instead of being charged to income of the year andcounts Payable

constitutes a part of the appropriations cited above.
The Company’s Board of Directors has made annual

The carrying amount approximates fair value because of the shortmaturity of these instruments.

appropriations of retained earnings for various purposes, the(2) Short-Term Investments

accumulated balance of which is presented as “Voluntary

The fair value of short-term investments is estimated based onreserves” in the accompanying non-consolidated financial

quoted market prices. Investments with a carrying amount of ¥49

statements.

million ($410 thousand) were excluded because a reasonable

12. Revenues from Tenants

estimate of fair value could not be made without incurring

The Company rents part of its sales floor space to tenants for theexcessive cost.

operation of independent complementary retail businesses. Net(3) Investments and Advances

sales include sales of tenants who are on a percentage rent basis

The fair value of certain investments is estimated based on

and other operating revenues include rental income from tenants

quoted market prices for those instruments. Investments andwho are on a fixed or variable rent basis. Sales of tenants andadvances with a carrying amount of ¥4,182 million ($34,981

rental income from tenants are summarised as follows:

thousand) were excluded because a reasonable estimate of fairMillions of yen
1998
1999

value could not be made without incurring excessive cost.
(4) Long-Term Debt

Sales
Rental income

The fair value of long-term debt is estimated based on quoted
market prices and the present (discounted) value of the future
cash flows using appropriate current discount rates and exchange rates.
19¥60,519
1,600

Thousands of
U.S. dollars
1998
1999

¥65,451 $506,223
1,810
13,384$547,478
15,14013. Income Taxes

Based on the resolution of the BOD’s meeting held on 20th

The Company is subject to a number of different taxes based on

April, 1999, the Company entered into the following agreements:

income which, in the aggregate, indicates statutory tax rates ofAn agreement dated 6th May, 1999, with Yume Town

approximately 51 per cent for the fiscal years 1998 and 1999.

Higashihiroshima Kaihatsu Co., Ltd. (“YHK”) was made toacquire all of YHK’s operations with its assets and liabilities. The

However, income tax expenses as shown in the accompanying non-consolidated statements of income differ from thetransfer of assets and liabilities is scheduled on 1st July, 1999,

amounts computed by applying the above-mentioned statutory

and their book values at 28th February, 1999, are as follows:

tax rates to “Income before income taxes.” The principal reasonsMillions of yen

Thousands of
U.S. dollars

Current assets
Non-current assets¥0,1082,730$00,903
22,836

Total Assets¥2,838$23,739

for this difference are that entertainment expenses are notdeductible from taxable income, and certain dividend income is
not taxable. In addition, the difference arises because no tax
effect has been recognized on certain temporary differences
between financial accounting and tax reporting primarily in relation

Current liabilities
Non-current liabilities¥0,1082,670$00,903
22,334to accrued enterprise tax, office space tax and severance benefits

Total liabilities¥2,778$23,237

for directors and corporate auditors, which are not deductible

An agreement dated 30th April, 1999, with Yanai Shopping

until paid, and interest expenses in the case of acquisition of land.

Center Co., Ltd. (“YSC”) was made to acquire all of YSC’s

Unlike other income taxes, enterprise tax is deductible for tax

operations with its assets and liabilities. The transfer of assets

purposes when it is paid. Although enterprise tax is presented as

and liabilities is scheduled on 1st July, 1999 and their bookselling, general and administrative expenses in the financial

values at 31st March, 1999 are as follows:statements disclosed in conformity with the accounting practices
in Japan, the reclassification of income taxes has been made in

Non-current assets
Lease and guarantee desposits received

the accompanying non-consolidated statements of income.

Millions of yen

Thousands of
U.S. dollars¥1,564465$13,0823,890

14. Reclassification
An agreement dated 30th April, 1999 with Chofu Shogyo

Certain reclassifications of previously reported amounts have

Kaihatsu Co., Ltd. (“CSK”) was made to acquire all of CSK’s

been made to the non-consolidated statements of income andoperations excluding post office operation with its assets andcash flows for the year ended February 28th, 1998, to conform toliabilities. The transfer of assets and liabilities is scheduled on 1st

the 1999 presentation. Such reclassifications have no effect on

July, 1999, and their book values at 28th February, 1999, are as

net income and net cash flows.

follows:
15. Subsequent Events
The appropriations of retained earnings in respect of the year

Current assets
Non-current assets

ended 28th February, 1999, proposed by the Board of Directors(“BOD”) and approved at the shareholders’ meeting held on 27th

Total Assets

May, 1999, are as follows:

Retained earnings at 28th February, 1999
Reversal of voluntary reserves

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

Millions of yen

Thousands of
U.S. dollars¥0,646654$05,404
5,470¥1,300$10,874

Current liabilities
Non-current liabilities¥0,177
1,096$01,480
9,168

Total liabilities¥1,273$10,648

Millions of yen

Thousands of
U.S. dollars¥0,402
1,173$03,363
9,812

The above acquisitions were approved at the 38th general

1,575

13,175

shareholders’ meeting held on 27th May, 1999.

692

5,788

18
72
26

151
602
218

808

6,759

¥0,767$ 6,41620

Report of Independent Accountants

To the Board of Directors and Shareholders
Izumi Co., Ltd.
We have audited the accompanying non-consolidated balance sheets of Izumi Co., Ltd. as of 28th February, 1998 and 1999,
and the related non-consolidated statements of income, shareholder’s equity, and cash flows for the years then ended, allexpressed in Japanese Yen. Our audits were made in accordance with auditing standards, procedures and practices generally
accepted and applied in Japan and, accordingly, included such tests of the accounting records and such other auditing
procedures as we considered necessary in the circumstances.
In our opinion, the non-consolidated financial statements referred to above present fairly the non-consolidated financial positionof Izumi Co., Ltd. as of 28th February, 1998 and 1999, and the non-consolidated results of its operations and its cash flows forthe years then ended in conformity with accounting principles and practices generally accepted in Japan ( see Note 2 ) applied
on a consistent basis.
The amount expressed in U.S. dollars, provided solely for the convenience of the reader, have been translated on the basis set
forth in Note 3 to the accompanying non-consolidated financial statements.

Hiroshima, JapanCHUO AUDIT CORPORATION

27th May, 199921

Directors and Corporate Auditors

Chairman

Directors

Yoshimasa Yamanishi

Katsumi Konishi
Umeo Mashimo

President

Chiharu Hatagoshi

Yasuaki Yamanishi

Mitsuharu Kawano
Toshihiko Yasumoto

Executive Managing Director

Heijiro Natsuhara

Hiromasa Takanishi
Syoichiro Shibata

Full-Time Corporate Auditors
Akira Tsumura
Kazunobu Ishigaki

Managing Directors
Hiroshi Toko
Hiroshi Shigehiro

Corporate Auditors
Yoshiharu Kanasugi
Jiro Matsubara(as of May 27, 1999)

Corporate Data

Head OfficeTransfer Agent and Registrar

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

Minami-ku, Hiroshima

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

Hiroshima Prefecture 732-0828, Japan

Chuo-ku, Tokyo 103-8202, Japan

Tel: (082) 264-3211
Date of Establishment

Annual Meeting of Shareholders

October 27, 1961

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

Paid-in Capital

addition, the Company may hold an extraordinary meeting¥19,613 million (as of February 28, 1999)of shareholders whenever necessary by giving at least
two weeks’ advance notice to shareholders.

Securities Traded
Common Stock
Tokyo Stock Exchange, First Section

Auditors

Osaka Securities Exchange, First Section

Chuo Audit Corporation

Hiroshima Stock Exchange

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