Wacoal Holdings Corp.
Integrated Report

2018

IN T E G R AT E D R E P O RT 2018

Beauty:Illustrated

Published: 20181213-DN-AT3
Printed in Japan
Cover photo: Wacoal 2018 calendar, November–DecemberOur Website

WACOAL’SWEBSITE

Please find more informationon our website.

Top pagehttps://www.wacoalholdings.jp/en

To Our Shareholders

https://www.wacoalholdings.jp/en/ir

What isBeautyCorporate Strategy

IR News

Corporate Governance

IR ScheduleFinancial Results

For Personal Investors

Monthly Sales Data

Other Information

CSR

https://www.wacoalholdings.jp/en/csr
CSR Objectives

to Wacoal?

Relations with Stakeholders
CSR Procurement based on Mutual Trust and Cooperation
Basic Policies (ISO 26000)
Other Information

Contributing to the realization of women’s desires to express their beauty—
It has been through the pursuit and then the provision of beauty that
we have enhanced our corporate value.
It is through beauty that we interact with society, and also contribute to its betterment.
For us, beauty is a universal value.

Editorial Policy for This Report
In accordance with international norms for integrated
reporting, the Wacoal Group has been issuing integrated
reports since FY2011 as part of its communication withshareholders and other investors.
This integrated report explains the Wacoal Group’s
value creation activities not only through financial information
but also through nonfinancial information about unique,significant assets and other facets of the Group’s business.
Further, the website of Wacoal Holdings Corp. includes
a wide range of information about the Group. We hopethat referring to this integrated report in conjunction withthe website will further understanding of the Group. Goingforward, we will continue pursuing an editorial policy that
responds to changes in reader expectations.

Publications to Help Stakeholders
Understand Wacoal

Integrated
ReportNews for
Shareholders

Annual
Handbook

INTEGRATED REPORT 201887

INTEGRATEDR E P O R T

2018
CONTENTS

Wacoal Essence

Beauty: Origin
In this section, we will explain how Wacoal has developed its
strengths over time and the process of creating beauty.

02

Corporate Philosophy

04

History and Strengths

06

Wacoal’s Relationship with Society through Building Mutual Trust

08

Value Creation Process

10

Financial and Non-financial Highlights

Wacoal Story

Beauty: Sustainability
Described below are Wacoal’s continuing efforts to create beauty
through initiatives centered on people.

14

Management Messages

19

Capital Policy and Shareholder Returns

20

Promoting CSR Procurement

22

Characterizing Wacoal’s Business

24

Medium-term Management Plan

28

Spotlight
30

Strengthening the Earning Power of Domestic Business Operations

32

Our Challenge: Sustainable Growth and Success in North America

34

Creating an Attractive Corporate Culture

Wacoal Management

Beauty: Respect
Here we explain Wacoal’s management structure as a company
dedicated to the continuing creation of beauty.

36

Directors and Audit & Supervisory Board Members

38

Corporate Governance42

Dialogue with an Outside Director

44

Financial Section

86

Investor Information

87

Our Website

INTEGRATED REPORT 201801

Wacoal Essence

Beauty: Origin“Making women feel beautiful,” “Helping women to feel their most beautiful,” and“Contributing to the realization of women’s desires to express their beauty.”
For over half a century, these convictions have remained part of Wacoal’s mission.
Through changing times, they will continue to guide our activities as we move
forward in partnership with women everywhere.

02

INTEGRATED REPORT 2018

Our Mission
We will contribute to society
by helping women to
express their beauty.

Our VisionWe, the employees and management of Wacoal,
will maintain a refined corporate culture basedon mutual trust and will continually strive to
make the Company a global leader in the industry.

INTEGRATED REPORT 201803

Wacoal Essence

History and Strengths

Net sales:

Since its founding in 1949,
Wacoal has earned the affection ofcountless customers through its passion
for creating true value.
Net sales:¥

74.3 billion(Sept. 1978–
Aug. 1979)

Bra pads—Wacoal’s
opportunity to moveinto innerwear for
western clothing¥

169.9 billion(Apr. 1998–
Mar. 1999)

Joint ventures inSouth Korea, Thailand,
and Taiwan

An article about
Wacoal America in the
New York Times

A brassiere sales display
in the Kyoto branch of
the Takashimaya
department store¥

35 million(Sept. 1950–
Aug. 1951)

Changes in nominal
per capita GDP of
key countries (source: IMF)

1980

1990

2000

Japan$9,466.4
China$309.4
United States
$12,575.6

Japan$25,379.6
China$348.7
United States
$23,913.8

Japan$38,535.6
China$958.6
United States
$36,432.5

1960s

based on mutual trust. Under that system,
employees were given autonomy even overwork attendance. This energized the corporate
culture and created a psychological foundationthat led to further corporate growth.

Establishment of the Japanese Market
Wacoal’s challenge began with the establishment of outlets in department stores in 1950.
Japanese women were increasingly shiftingfrom traditional to Western apparel, and Wacoal
responded to this opportunity by designing its
own range of women’s innerwear for use with
Western clothing, and by manufacturing theseproducts in its own factory. As Japan began toachieve rapid economic growth, women became more interested in quality and fashion in
their lifestyles. Wacoal created a variety of new
products to meet this need.

Start of Human Science Research
In 1964, Wacoal created a product researchdivision in order to better create products that
fit Japanese women. This unit established abrassiere size system and used accumulated
measurement data to develop numericalmodels of what were considered ideal female
physiques. This product research division later
evolved into the Human Science ResearchCenter, and the scope of its research expanded to include not only the collection of body
shape data, but also studies relating to sensory perceptions, physiology, and movement.

Establishing Management Systems Based on
Mutual TrustLabor relations were a major issue in 1962. Inthat year, Wacoal’s founder, Koichi Tsukamoto
was profoundly impressed when he heard aspeech given by Sazo Idemitsu, President ofIdemitsu Kosan. Tsukamoto decided that acompany president who claimed to respecthuman rights must first trust the union, and heresolved to adopt a management system

1970s

The Evolution of Wacoal

1950s

04

Sales displays developed
exclusively for the “Wing” brandin a general merchandise store

Measuring physiquesin the second halfof the 1960s

Net sales:

INTEGRATED REPORT 2018

1980s

Pioneering the General MerchandiseStore Channel
By the 1970s, general merchandise stores
were selling more clothing than department
stores and had emerged as a major distribution channel. General merchandise stores later
began to shift from sourcing and selling

non-brand products to selling national brandproducts at discounted prices, and Wacoal
also came under pressure to adapt this approach. After long negotiations with leading
general merchandise stores, Wacoal agreed tosell its products in these outlets provided thatthey established dedicated sales areas andagreed to sell Wacoal products at the quoted
prices. “Wing” products subsequently went onsale as a national brand in the lingerie areas ofgeneral merchandise stores.
Development and Establishment ofOverseas Markets
In 1970 Wacoal established joint ventures inSouth Korea, Thailand, and Taiwan. These
were followed in the 1980s by local subsidiaries in the United States and Hong Kong.
Wacoal also became the first Japanese apparel manufacturer to establish a joint venture in
China. The foundations for “Worldwide Wacoal” were laid through a unique overseas
expansion strategy that gave priority to putting
down deep local roots.

1990s

2000s

Expansion into Directly Owned Outlets
In Japan, this era saw a decline in the relativeWacoal today

Wacoal’s Accumulated
Strengths

Net sales:¥

195.7 billion(Apr. 2017–
Mar. 2018)

Overseas sales

52.5

¥

billionWacoal has accumulated many strengths over
the years, including the ability to develop
sales channels to match changing trends, thecreation of high-quality products backed byscientific research into the human physique,and the use of advanced technology andquality management systems to create finely
crafted garments. These strengths underpin
Wacoal’s continuing efforts to enhance its
medium- to long-term corporate value.

Wacoal Europe—a wholly owned
subsidiary since 2012

Peach John—a wholly owned
subsidiary since 2008

Domestic sales

143.2

¥

billionAn outlet operated directly
by Wacoal India

A Wacoal sales area in a
Shanghai department store

2017
Japan$38,439.5
China$8,643.1
United States
$59,501.1
status of department stores, and the emergence of many kinds of retail alternatives todepartment stores, such as boutiques in train
stations and freestanding shopping malls.
Wacoal opened the first Subito store, a directly
operated specialty store retailer of private label
apparel (SPA) outlet in Tokyo’s Harajuku
district. Since then, more outlets have been
established using multiple shop formats tomatch consumer profiles and local characteristics in each location.
Long-awaited Achievement of
Positive Results in the United States
For many years after Wacoal’s entry into the
U.S. market, financial results stagnated due toover-stocking and soaring selling, general andadministrative expenses. However, Wacoal
worked to improve quality in its plant while
also maintaining listed prices and its commitment to consultation sales. These efforts
eventually bore fruit and, in 1995, the company achieved positive results for the first time.
Today, the United States remains a significant
and reliable source of earnings for Wacoal’s
overseas business operations.
Evolution as a Global Company
In 2000, Wacoal China became a wholly
owned subsidiary, signaling the start of a major

expansion of local operations that would rapidly raise Wacoal’s profile in the market. While
expanding its production and sales networks
in Asia, Wacoal also moved into the European
market. In 2005, it shifted to a holding company structure to allow a faster and more precise
approach to business development. Wacoal
continued to expand its customer basethrough an active program of mergers andacquisitions, including the acquisition of PeachJohn, a brand that is popular in Japan withyounger age groups, as a wholly owned
subsidiary.

2010s

2018

Creating “Worldwide Wacoal”
In 2012, Wacoal moved to expand its business
operations in Europe by acquiring Eveden(now Wacoal Europe) as a subsidiary. Thisbrought a rapid rise in Wacoal’s presence inthe United Kingdom and the Eurozone. Following the completion of post-merger integration,
Wacoal Europe is now building a robust
income structure through changes to its brandportfolio.

A Scientific Perspectiveon the Creation of
BeautyIn 1964, Wacoal established the productresearch division (now Human Science
Research Center) to study the female physique and provide data that could be used in
manufacturing. For over 50 years, the
Human Science Research Center has accumulated measurement data from over
40,000 women. It continues to conduct awide range of basic research focusing on thefemale physique, and the scope of that
research has expanded to include not only
the collection of data relating to body shapes
in different age groups, but also studies
about sensory perceptions, physiology andmovement. Findings accumulated throughthis work are used in the development of
new products.

A Passionfor Manufacturing
Wacoal’s mission in every era has been thecreation of products that consumers willlove. Factors that contribute to the achievement of this mission include human science
research, unique pattern design capabilities,
material standards that ensure superior
garment comfort, and superb quality resulting from hand-stitching by highly skilledworkers. The real source of Wacoal’s value isthis unchanging passion for manufacturing.

Meeting the Challenge
of Sales Channel
Development
Beginning with the launch of department
store sales outlets in the 1950s, and followed by entry into general merchandise
stores in the 1970s, and the opening of
directly owned outlets since the 2000s,
Wacoal has achieved growth by continually
taking up the challenge of developing sales
channels in each successive era. In anticipation of further changes in the distribution
environment, Wacoal now aims to strengthen
its e-commerce systems, while creating anomni-channel approach that will produce
synergies with sales channels developed in
the past.

INTEGRATED REPORT 201805

Wacoal Essence

Wacoal’s Relationship with Society through Building Mutual Trust
We will strengthen our brands and establish a competitive advantage by contributing to the solution ofsocial problems and constantly engaging in social projects through our core business activities.

01

6 CSR Material Issues

We have identified 6 material issues relevant to our business activities and our commitment to:a society that values diversity

highly transparent organizational structures

Extremely important

Contribute to society
by helping women to
express their beauty

Wacoal’s priority
issuesProvide safe, dependable,
high-quality products
and services

Important

Stakeholder expectations andpriorities

sustainable development

ImportantContinue the enhancementof corporate governance6

Material
IssuesCreate a business organizationand culture that are fair andin which people are ambitious
and enjoy their work

Extremely important

Build CSR procurement
partnerships founded on
mutual trust and cooperation

Breast care support
for women around the world

Expectations and priorities
for our business operations

02
STEP

1

Selection of Material Issues
Identification of social issues
We identified issues with a highrelevance to our business activities.

	Confirmation of which social issues need
to be considered (comparisons with
Wacoal’s current initiatives, taking into
account ISO 26000, the GRI standards,
the SDGs, and other criteria)	Assessment of relevance to Wacoal’sbusiness activities, and selection ofmaterial social issues (a high relevance toWacoal’s business operations, based on
our management philosophy, the Wacoal
Conduct Code, the Medium-term Management Plan, and other policies)

CSR
ActionPolicy

06

STEP

2

Assessment of issues fromstakeholder perspectives
We prioritized the issues in relation to
our business activities.

	Assessment of the importance of eachissue through individual dialogues withstakeholders, meetings with outside
experts, and other processes (further
narrowing of the list of social issues fromstakeholder perspectives, based on
expectations and priorities in relation to
Wacoal)STEP

3

Confirmation of suitability
Finalization of CSR material issues

	Approval by management after deliberations on the suitability of the material issues

	Final selection of themes through assessment and prioritization of issues according to the level of impact on our businessactivities (final selection of 6 priority
themes based on the dual perspectivesof importance to stakeholders and importance to our business activities)

Wacoal’s fundamental CSR objectives are to manufacture products that customers love, develop products that meetcurrent needs, and conduct business fairly to pave the way to a better future.
We conduct business in a fair manner and provide products that customers need. “Manufacturing” is our first step
toward building relationships of trust with customers and society, as well as the foundation of our CSR activities.
To advance CSR initiatives, Wacoal established its Basic Policies on CSR based on the ISO 26000 standards published in November 2010 (Japan Standards Association, 2010) according to seven basic principles (for accountability,transparency, ethical behavior, respect for stakeholders’ interests, respect for the rule of law, respect for international
codes of conduct, and respect for human rights) and seven core subjects (organizational governance, human rights,
labor practices, environment, fair operating practices, consumer issues, community involvement and development).
Furthermore, as part of its business strategy, Wacoal conducts continuous CSR activities to address social issues
that are related to the main business. This also strengthens brand power and competitiveness.

INTEGRATED REPORT 2018

03

Basis for Selection of CSR Material Issues
Commitment to Sustainable Development

Contribute to society
by helping women to
express their beauty

In line with this mission, our group philosophy and goal is to contribute widely to society by helping women to fulfill
their desire to express their beauty.
We create clothing and contribute to new lifestyles and innerwear culture while helping women of all ages andacross a wide spectrum of value systems, in Japan and around the world, to feel beautiful.
What stakeholders expect from us above all is to take up the challenge of working fairly and openly toward thecreation of a society in which every individual can participate actively. That challenge is also the core focus of ourbusiness activities.

Provide safe,
dependable,
high-quality products
and services

The provision of safe, dependable, high-quality products and services is the foundation on which we build confidence
in our brand among all stakeholders, including consumers.
Our beauty advisors and staff in customer centers and other locations provide dependable, high-quality products
and services in a personal manner to help customers enjoy enhanced comfort and beauty in step with contemporary
trends. At the same time, we provide accurate, fair, and unbiased information, while maintaining a high level of information security, including the protection of personal information.
We are also working to reduce energy consumption and prevent pollution in our production and logistics processes.

Toward a Society that Values Diversity

Create a businessorganization andculture that are fair andin which people areambitious andenjoy their work

We are working with our stakeholders to create a fair business organization and culture in which employees will behighly motivated. We will listen with humility to our increasingly global and diverse society, and we will refuse to be
confined by past practices or to be complacent about past successes.
The Wacoal Group has built value chains linked to its own networks spanning all stages from product planning anddevelopment to the procurement of raw materials, production, and sales. The Group’s most important assets in this arepeople. In the future, we expect to face significant challenges in recruiting human resources, so a key priority in termsof achieving sustainable growth is the creation of an attractive corporate culture in which employees can find bothenjoyment and motivation in their work. We are introducing teleworking and other systems to help employees copewith family obligations, such as caring for children or aging relatives. Starting with career development for women,
who make up the majority of the Group’s workforce, we are moving into the development of systems and policies toattract diverse employees and provide opportunities for advancement. We are working through diversity management,
workstyle innovation, and health management to ensure that every employee can achieve his or her full potential.
We are revising our corporate regulations and working with our suppliers and customers to enhance working andsales environments. Through these changes we aim to eliminate all forms of discrimination, including discrimination
based on gender, age, nationality, race, ethnicity, religion, social status, disabilities, sexual orientation, and gender
identity, and to provide support based on a proper understanding and respect for the human rights of people withdiverse value systems.

Breast care support
for women aroundthe world

Breast cancer is the most common form of cancer in women. Wacoal is contributing to social infrastructure enhancement
and community development through its breast care activities in 14 countries and regions. Through these activities, we
aim to alleviate the suffering and sadness caused by breast cancer by providing support for patients and their families,
including the promotion of early detection and diagnosis and the provision of post-surgery assistance, and by disseminating accurate information.
In each country and region where we are engaged in business activities, we use our networks, knowledge, and culture to contribute to society. We work sensitively with each individual and learn from what she shares with us. Throughthis process, we gain a renewed determination to expand our contribution to the elimination of breast cancer.

Creating Highly Transparent Organizational Structures

Build CSR procurement
partnerships founded on
mutual trust andcooperation

Wacoal’s commitment to the provision of safe, high-quality products and services cannot result in sacrifices by otherpeople. We need to build close partnerships with all of our suppliers, which are important stakeholders in the manufacturing of our products, so that we can work together to ensure respect for and compliance with social imperatives insuch areas as human rights, labor practices, the environment, and ethics.
An international human rights NGO criticized the working conditions at a factory that was handling subcontract
work for one of our subsidiaries. We have learned from this, and have initiated due diligence about human rights,
worker safety, and health with the aim of reliably detecting, preventing, or alleviating any situations that could have anegative impact on our business activities. We are also introducing mechanisms to rectify and alleviate problems.
We believe that the promotion of CSR procurement processes, in partnership with the suppliers and production
contractors in our supply chains, maximizes benefits and contributes to sustainable growth for all partners. We willcontinue to implement dynamic initiatives in this area.

Continue theenhancement ofcorporate governanceContinual improvement of corporate governance is essential to timely and appropriate management decision-making,guided by awareness of society’s needs and expectations, and a commitment to transparency, objectivity, and fairness. Corporate governance is also an essential foundation for building mutual trust with all stakeholders.
We are determined to achieve continual improvement in our corporate value through dialogue with all stakeholders,
including shareholders, customers, business partners, employees, and local communities, and through a commitment
to accountability and trustworthiness in our corporate activities. At the same time, we will work to optimize the distribution of value to all stakeholders.
We are also disseminating information about related topics, such as crisis management, through training and othermethods, to ensure that every Group employee is capable of acting independently and ethically. Through these efforts,
we aim to prevent problems and earn the recognition of society as a corporate group with high ethical standards.

INTEGRATED REPORT 201807

Wacoal Essence

Value Creation Process

Intangible Assets for 3 Tangible Values—
Beauty, Comfort, HealthManagement to Build TrustOur 4 types of assets—financial assets, physical assets, trust-related assets*, and organizational assets—are thesources that allow us to create products that are loved by large numbers of consumers. Our basic approach to management is to strengthen our intangible assets, which include our unchanging management philosophy, our structured
strengths in the form of our organizational assets, and the trust-based assets that we build by developing relationships of mutual trust with our customers, employees, business partners, and society.
*Wacoal defines “trust-related assets” as human assets and customer assets, which increase or decrease in step with relationships of trust with the company, in contrast with organizational assets, which are consolidated in our organization and depend on employment or business transactions.

Tangible Assets

 roup plants in JapanG
and overseas

PhysicalAssetsFinancial
AssetsAppealing sales areas
Rich product lineup

Value
Creation

Autonomous,
innovative personnel
 xtensive and diverse
E
groups of specialists
Operation ofwide range of stores

Trust-related
AssetsOrganizational
AssetsINTEGRATED REPORT 2018

 verwhelming market shareO
in Japan and Asia nique designing for comfort,U
manufacturing technology, andquality control system bundant physique data andAknowledge of Human Science
Research Center
Integrated manufacturingsystem responsive to market
feedback

Social contribution
through businesses

08Strong financial foundations

Beauty advisor training system

Establishment ofrelationships of trust
through customer service

Favorable business
partnerships

Abundant capital

Intangible Assets

 usiness management basedBon mutual trust
 ommitment to stronger globalC
presence for the Wacoal GroupThink Globally, Act Locally
Global-scale Business Expansion with Local Roots
In addition to its global perspective on business development, Wacoal is also pursuing a business model based on thecreation of businesses with local roots. We see this as the best way to respond to needs and values of women invarious countries and regions with differing perceptions of beauty. Our fundamental motivation is our desire to help
women everywhere to express their beauty through learning to understand the hearts and physiques of women invarious regions. At the same time, we are working toward our vision of a “Worldwide Wacoal” by creating innovativevalue, while using our know-how and technology to build links across countries and regions around the world.

R&D

Product
Planning

Sales

Manufacturing

Providing organically linked value
OutputProducts loved by customers

New products meeting current needs

Conduct of business in a fair manner

Outcome

Beauty, Comfort, Health

INTEGRATED REPORT 201809

Wacoal Essence

Financial and Non-financial Highlights (for the year ended March 31, 2018)

Financial Highlights
Consolidated Financial Data

Net Sales

¥

195.7

¥

billion

DOWN by 0.1%

12.5

Full-year Cash Dividends
per Share of Common Stock

ROE

Operating Income

4.2

billion¥%

DOWN by 1.3%

UP by 13.3%

72.00

As of October 1, 2017, Wacoal Holdings
Corp. effected a one-for-two ordinary
share reverse stock split.

Operating Segment Information

8.7%

59.3%

Mainly operations of Lecien Corporation
and Nanasai Co., Ltd.

Mainly operations of Wacoal Corp. inwholesale business for department
stores, general merchandise stores,
specialized stores, directly managed
stores, and online sales business, aswell as some domestic subsidiaries.

Other Businesses

Wacoal Business (Domestic)

5.5%

Peach John Business

Share of Sales
by Business Segment*

Operations of Peach John Co., Ltd.

26.5%

Share of Salesby Channel(Wacoal Corp.)

Wacoal Business (Overseas)
Mainly operations of Wacoal International
Corp. (U.S.), Wacoal Europe Ltd. (U.K.),
and Wacoal China Co., Ltd.

Department Stores
27.2%
General Merchandise Stores 31.3%
Specialty Stores
7.6%
Directly Managed Stores
15.1%
EC, Catalog Mail-order
12.2%
Others6.6%*Calculated based on net sales to external customers

Operating Segment Net Sales/Operating Income
Wacoal Business (Domestic)

Wacoal Business (Overseas)

Peach John Business

Other Businesses(¥ million)(¥ million)(¥ million)(¥ million)

Net Sales

Operating Income

116,085

FY2018Net Sales

3,852
118,389

FY20176,959

FY2016

120,570

48,423

INTEGRATED REPORT 2018

FY2016FY2018Operating Income

10,795Net Sales

FY2017FY2016258

Operating Income

16,957FY2018356

11,107FY2017

17,962677

374
51,8694,433

Net Sales

441

3,055

8,810

10

51,888FY20187,885

FY2017

Operating Income

11,190FY2016

19,288364

Information by Region
Overseas Consolidated
Subsidiaries Sales

¥

52.5

United Kingdom

billionCanadaHong Kong

FranceChina

UP by 7.5%

Overseas Equity Method
Affiliated Companies Sales

43.4

ThailandbillionAmericas and Europe

Philippines

Dominican Republic

13.1%

Cambodia

Sri Lanka

Indonesia

Malaysia
Singapore

UP by 12.1%

Countries & Regions where
Wacoal Products are Sold

More than

TaiwanMyanmar
India

United StatesJapan

VietnamIsrael¥South Korea

Australia

Asia and Oceania

Number of Countries where
the Wacoal Group has Operating Bases

50 22

27.0%

Sales8
Manufacturing4
Manufacturing/Sales10

countries

Share of Salesby Geographic
Segment*
Japan

59.9%
*Calculated based on net sales including
net sales of overseas affiliates(Including equity method affiliated companies)

Net Sales/Operating Income by Region (Consolidated)Japan (¥ million)
Net Sales

Asia and Oceania (¥ million)
Operating Income

Net Sales

143,196

FY2018Net Sales

21,057FY20188,521
FY2017

Americas and Europe (¥ million)

Operating Income

31,472FY20181,200
147,061

FY2017

2,813
19,1877,738

FY20171,758

FY2016

Operating Income

150,673

FY20161,569

FY2016

17,906

9,308

29,63334,338

1,381

3,176

Non-financial Highlights
Patents & Registrations in Japan*1

Approx.

Products Manufactured In-house*3

500

More than

Average at competitors in Japan*2

Approx.

80%

Beauty Advisors Worldwide

Approx.

170

Environment*4
CO2 emissions*5 (electricity, gas)

Compared to
FY2007

6,348t

27.9% DOWN

Waste emissions

Compared to
FY2007

1,109t

30.1% DOWN

8,000
*1 Wacoal Corp.
*2 Estimated by Wacoal*3 Wacoal Corp.
*4 Figures are FY2018*5 O
 nly CO2 emissions
resulting from electricity
and gas equivalent values
based on FY2011

INTEGRATED REPORT 201811

YOSHIKATA TSUKAMOTO

Wacoal Story

1

Beauty:Sustainability
A company that society will continue to rely on for years to come—
Wacoal’s new management structure seeks to fulfill this vision.

12

INTEGRATED REPORT 2018

INTEGRATED REPORT 201813

MASAYA WAKABAYASHIHIRONOBU YASUHARA

Wacoal Story

Management Messages

Passing on the Responsibility toHelp Women Express their Beauty
Next year, Wacoal will celebrate the 70th anniversary of its
founding. Our continuing focus under our new management
team will be to achieve further improvement in our
corporate value and build a sustainable future by adapting
to a changing environment, and by meeting the expectationsof our customers and society.

YOSHIKATA TSUKAMOTO
Representative Director and Chairman
Wacoal Holdings Corp.

14

INTEGRATED REPORT 2018

Management that Continues to Take up New Challenges
without Fear of Failure
Under the new management structure created at theI am also determined to ensure that Wacoal’s man-general meeting of shareholders held on June 28, 2018,

agement philosophy will continue to evolve for the future

I became Representative Director and Chairman, while

by maintaining and improving our relationships of trust

Hironobu Yasuhara was appointed as President andwith our joint venture partners in South Korea, Taiwan,

Representative Director. I had been President of Wacoal

Thailand, Indonesia, and elsewhere, and by continuingfor 31 years, since 1987. During that time, we worked toour efforts to disseminate and introduce our corporate

realize the concept of “Worldwide Wacoal” beyond our

culture in emerging countries. Within Japan, I have beenpresence in Japan and the United States through initia-

concerned about a decline in our opportunities for directtives that included the acquisition of companies within

dialogue with our business partners and frontline em-

Japan and the establishment of business operations inployees since our transition to a holding company struc-

China, Europe, and Southeast Asia. As the scale of ourture in 2005. I intend to travel around the country andbusiness expanded, group management and corporate

spend time listening to what our employees, businessgovernance became more important than at any otherpartners, and customers have to say.

time in our history.
In FY2020, the fiscal year ending March 31, 2020, we

I will convey the thoughts of frontline employees inJapan and overseas to Mr. Yasuhara’s management

will launch a new medium-term (three-year) management

team so that they can work to develop a work environ-plan for the Wacoal Group. As President, Mr. Yasuhara

ment in which employee motivation will be maintained

will lead group management through the formulation ofand enhanced. I will also work to energize communica-

management and business strategies. During his sevention between Wacoal and its business partners andyears as a Vice President of Wacoal Corporation, Mr.

customers, since I see the development of strong bonds

Yasuhara restructured our wholesaling operations inwith all stakeholders as an important part of my role.

Japan and put our retail business on track to realize

We will listen with humility to feedback from ourgrowth opportunities in that area. His efforts enhanced

customers and society, and we will redouble our efforts

the company’s earning performance. He also has over-to build Wacoal into a company that will continue to beseas business experience. For example, while stationed

needed beyond our first century. An essential part of thisin China, he led our operations in that country through aprocess will be the training of future generations of man-challenging transitional phase. Mr. Yasuhara’s otheragers. I believe that next-generation leaders are formed

strengths include extensive business networks in Japanthrough adapting to a changing world, gaining manage-and overseas, and a fine-tuned sensitivity to society’s

ment experience in a variety of important positions, andexpectations. He is the ideal person to lead the manage-by accumulating track records while staying ahead ofment of our group companies.

changing trends. We give increased priority to the train-

I will do everything possible to ensure a smoothing of as many future managers as possible. We willtransition to the new management structure. I will alsochoose people who are not afraid to put forward newstrengthen the ability of the Board of Directors to oversee

ideas, and who can take up bold challenges and see

the performance of business operations and supervise

them through to the end without being daunted by re-group management. Our goal is to achieve further en-

peated setbacks.

hancement of our corporate value by working to achieve

Wacoal will continue to help women to fulfill thesustainable growth and development, contribute to adesire to express their beauty. Through this commitment,

society in which diversity is valued, and build highly

we will contribute to society by creating new lifestyles,transparent organizational structures. I will lead the de-clothing, and innerwear culture. We look forward to yourvelopment of the corporate governance structure that willcontinuing support.

form the foundation for these efforts.

INTEGRATED REPORT 201815

Wacoal Story
Management Messages

Our Success is Driven Ultimatelyby the New Value We Create
for Society

HIRONOBU YASUHARA
President and Representative Director
Wacoal Holdings Corp.

A World-leading Innerwear
Manufacturer Determined to
Evolve Further
My most important mission as Presidentof Wacoal will be to ensure timely adaptation to changes in the world market byfurther enhancing our strengths as amanufacturer, including our planning,development, and production systems,
our technology, our quality assurance
systems, and our customer service. I
also believe that I have a mission to
identify growth opportunities accurately,
and to move forward boldly with decisions about proactive investment andbusiness restructuring.
Various tectonic shifts are transforming the business environment for the
innerwear industry. Those changes
include demographic aging and a fallingbirthrate in Japan, the global emergenceof fast fashion, the rapid spread ofinternet shopping, accelerating advancesin AI and other technologies, and anincreasing focus on social responsibility
in supply chains. Many of the world’s
traditional manufacturers of luxury innerwear are losing their relevance as values
change and with the spread of diverse

16

INTEGRATED REPORT 2018

value systems and dramatic shifts incompetitive environments.
However, this change is also a major
opportunity for us, since it can be seen
as evidence of Wacoal’s increasing rarity
as one of the world’s leading manufacturers of high-quality innerwear. Next
spring, we plan to open a next-generation store that will combine technologicalinnovation with Wacoal’s traditional
excellence in customer service. Thisinitiative is just part of our ongoing efforts
to respond effectively to a changing
business environment and realize ourvision for Wacoal as a world-class innerwear manufacturer.

Operating Income and
Net Income Exceeds Forecast
FY2019, the fiscal year ending March 31,
2019, will be the final year of our threeyear medium-term management plan.
We have adopted five basic policies
under this plan, and we are continuing todevelop and strengthen our businessstructures in line with those policies. In
FY2018, we secured our earnings frombusiness operations in Japan by further
enhancing our group management

infrastructure while also maintaining
initiatives designed to drive overseas
business growth. At the same time, we
improved our earning performance andbusiness efficiency by using groupsynergies to enhance our competitiveness in existing business areas, even as
we took up the challenge of expanding
our business portfolio.
In parallel with our efforts in theseareas, we also implemented effective
financial strategies designed to improve
our capital efficiency.
Progress on these measures wasreflected in results that exceeded ourconsolidated performance forecasts.
Operating income exceeded our forecastby ¥1,034 million, net income before
income taxes by ¥1,786 million, and net
income attributable to shareholders of
Wacoal Holdings Corp. by ¥745 million.
The ratio of net sales to operating income
was 6.4%, and ROE reached 4.2%.
Outlined below is our progress
toward the reinforcement of our businessstructures under the five basic policies in
the medium-term management plan.
1. Secure Earnings in
Domestic BusinessOur businesses in Japan have been

impacted by the closure of wholesalechannels and a prolonged inventory
correction. At the same time, rising healthinsurance premiums, the improvement of
employment conditions for sales personnel, and expenditure on IT systems areinevitably causing an increase in selling,
general and administrative expenses. We
have responded to this situation throughbusiness restructuring initiatives focusing
mainly on chain store and retail operations, with the emphasis on earning
performance. We have improved thegross margin by expanding sales of
products offering new comfort features,by reducing discounts and returns bywholesaling appropriate quantities atappropriate times, and by increasing our
focus on the rollout of standard products
at directly operated outlets.
We will integrate our wholesaling
operations into a single organizational
structure and commenced initiatives tooptimize supply chain processes. At thesame time, we will deepen customer
relationships by using digital technology
to provide omni-channel services. While
improving business efficiency, we will
also work toward an early return to a
growth track.
2. Generate Further Growth inOverseas BusinessOur three main subsidiaries in Europe,
the Americas, and China have intensified
their efforts in the growth area of e-commerce. We have enhanced customer
convenience on our own e-commercesites and revised our product and sales
policies for other companies’ sites.
These measures have led to robust sales
growth and further strengthening of ourmanagement structures. Since acquiringa materials supplier (A Textiles) in Thailand, we have been restructuring thecompany to overcome a number ofissues, including quality problems, andliquidating unprofitable operations. This
process has taken a considerable
amount of time. We will continue tostrengthen our growth potential througheffective investment in other countries.
3. Create Group Synergies andStrengthen Competitiveness
Four of our subsidiaries in Japan—PeachJohn, Lecien, Nanasai, and Ai—havebeen unable to adjust to changes in
distribution structures and consumer
needs, and their net sales and operating
income have fallen below their targets.
Their ratios of net sales to operating
income have also stagnated over the
past few years. We therefore plan toimplement radical business restructuring
measures and initiatives to improveearning performance, so that we canutilize their business infrastructure more
efficiently within the Group.
4. Expand Our Business Portfolio
We have created infrastructure for an
accommodation business using Machiya
townhouses in Kyoto. While working to
improve the earning potential of ourexisting business areas, we will continue
to explore the creation of new businessportfolios that allow us to build our brandreputation and financial soundness
without being confined to existing business models.
5. Improve Our Group Management
Infrastructure
In October 2017, we adopted the Wacoal Group CSR Procurement Guidelines, which call for increased efforts tofulfill our responsibilities in cooperation
with our suppliers, by responding tosocial expectations in such areas as
human rights, labor practices, andethics. We will also work continuously toConsolidated Financial Results and Forecasts
FY2018(forecast)

Operating Income

200.0 billion¥11.5 billion

Income Before
Income Taxes*¥

Net Sales et Income AttributableN
to Shareholders of
Wacoal Holdings Corp.

¥

12.5 billion
9.0 billion¥

FY2019(forecast)

FY2018(result)¥

195.7 billion¥12.5 billion

200 billion¥10 billion¥

14.3 billion¥

9.7 billion

¥

¥

¥

*Income before Income Taxes and Equity in Net Income of Affiliated Companies

13 billion
10 billion

enhance our corporate governancesystems. Another priority will be thedevelopment of business infrastructurefrom a diversity perspective, including
career development for women. At thesame time, with the aim of enhancing thevalue of our intangible assets, we willfurther energize our organization andhuman resources through work styleinnovations, such as the introduction of
teleworking.
In the year ending March 2019, weare forecasting that consolidated net
sales will increase by 2.2% year on yearto ¥200 billion, that consolidated operating income will be 20.2% lower at ¥10billion, and that consolidated net income
attributable to shareholders of Wacoal
Holdings Corp. will rise by 2.6% to ¥10billion.

Deepening Commitments
to Stakeholders
We see the present time as a turning
point for Wacoal. In August, we signed acomprehensive partnership agreementwith the sportswear manufacturer
Descente. The two companies will
combine their business infrastructure andknow-how to create new value by going
beyond both fashion and sports to offer
products and services that will earn the
support of consumers.
In recent years, companies havecome under intense scrutiny about what
they consider key issues in the creationof a sustainable society, and about theircommitment to the consistent fulfillmentof their responsibilities through CSR
activities in the true sense of the concept. Wacoal has identified six priorities
in its efforts to achieve sustainablegrowth and development, create asociety in which diversity is valued, andbuild highly transparent organizational
structures.
We need to build a business structure that supports an accurate awareness of society’s expectations and has
been adapted to changes in consumer
needs, and we must pass that structure
on to the next generation. We remain
fully committed to new value creationthat will allow Wacoal’s evolution as acompany that is always needed bysociety.
September 2018

INTEGRATED REPORT 201817

Wacoal Story
Management Messages

We are maintaining and enhancing corporate value,
while optimizing value distribution to stakeholders.

MASAYA WAKABAYASHI
Director and Vice President
Wacoal Holdings Corp.

FY2019, the year ending March 2019, willbe the final year of our current medium-term management plan. Our goal
under this plan is to enhance corporate
value by further expanding investment in
future growth and shareholder returns,
while maintaining a robust financial structure. In addition to the improvement of
earning performance in core businessareas, we have also continued to generatecash by reducing operating shareholders’equity, restructuring our strategic shareholdings, and other measures. We haveinvested more than the cash generated
through these measures in future growth,
while also allocating funds to the maintenance of dividend stability and a flexible
share buy-back program.
Through this strategy, we aim to provide
returns to shareholders by combining a
medium- to long-term improvement incorporate value with shareholder returns that
also reflect our capital structure.
In FY2018, we implemented anothershare buy-back scheme and introduced aninterim dividend, resulting in a total payout

18

INTEGRATED REPORT 2018

ratio of 117%. However, shareholders’equity increased more than expected dueto the effects of unrealized gains and losses
on securities and other factors. As a result,
ROE fell below the target level to 4.2%.
We are developing IT systems to
support omni-channel services in ourbusiness operations in Japan. We see
active investment in Japan and overseas
as the way to ensure Wacoal’s growthpotential in domestic and international
markets, while also raising business productivity per employee, improving ourconsolidated operating income margin,and expanding net income per share.
In October 2017, we formulated the
Wacoal Group CSR Procurement Guidelines. Under these guidelines, we areworking in close partnership with all suppliers involved in our production activities
to ensure that we fulfill social responsibilities. We have declared that Wacoal and its
suppliers will not only maintain high standards in terms of quality, price, and ontime delivery, but also must comply withand respect society’s expectations in suchareas as human rights, labor practices, theenvironment, and ethics.
Our existing project structure alreadyincorporated effective supervisory mechanisms, including the monitoring of socially
responsible procurement and the rectification of any issues. However, we decided toenhance the effectiveness of this system,and since April 2018, the CSR Procurement Committee, of which I am the chairperson, has been effectively monitoring
compliance within the provisions of the
Guidelines. We have also shifted our focus
toward continual improvement and identified CSR procurement as a management
priority that will be targeted with expanded
initiatives.
Wacoal’s business depends on thetrust of many stakeholders and society ingeneral. To ensure Wacoal’s future as acompany that society will continue to needin the future, we need to maintain andenhance our corporate value, and optimize
the distribution of value to all stakeholders.
My role is to provide effective leadershipfor these efforts.

Capital Policy and Shareholder Returns

PART

01

Improving Capital Efficiency, Shareholder Returns
Net income attributable to shareholders of Wacoal Holdings Corp. in FY2018, the year ended March
2018, of ¥9.7 billion exceeded our forecast but was lower than the result for FY2017, when we recorded
gains on sales of fixed assets (land).
Capital expenditure amounted to ¥5.9 billion. The main items were the development of IT systems to
support omni-channel services in Japan, the creation of platforms for our overseas e-commerce operations, and the replacement of factory equipment. Returns to shareholders totaled ¥11.4 billion, consistingof ¥7.4 billion in dividends, and a ¥4 billion share repurchase scheme.
Shareholders’ equity increased by ¥5.1 billion to ¥232.7 billion, in part because of the effects of
unrealized losses and gains on marketable securities. Consolidated ROE was 4.2%.
Our forecasts of consolidated financial results for FY2019, the year ending March 2019, include net
income attributable to shareholders of Wacoal Holdings Corp. of ¥10 billion.
Our policy on shareholder returns is to maintain long-term dividend stability. Under this policy, we
have kept the annual dividend at ¥72 per share. We also plan to implement a share repurchase scheme
up to a maximum of 2.2 million shares, or ¥7.0 billion. On this basis, we expect the total payout ratio forthe period covered by the medium-term management plan to be over 100%.
However, in May 15, 2018, after finalizing our forecasts for FY2019, we projected that shareholders’equity would exceed ¥230 billion, and on that basis we expect consolidated ROE to be below 5%. We
will continue our efforts to bring this figure up to the target level while working to improve our businessearnings.
Capital Efficiency Improvement and Shareholder Returns as Indicators
for the Current Medium-term Management Plan
FY2016FY2019 (Planned)

Cash Generation

Profitability
improvement
Review ofstrategic
shareholdings

Investment inexisting businessNew business¥25 billion or more

Net income

Stable dividends

Depreciation

Working
capitalreduction(Assets impairment)

Flexible share
repurchases

45 billion or more¥
Shareholders’ Equity¥

224 billion

ROE

Cash
Generated
Cash
Used

Shareholders’ Equity
We will reinvest and allocate
to shareholder returns
at least the amount of cash
generated during the period.

4.9%

ROE

(Units: ¥ billion)

FY2017
Result

FY2018Result

FY2019 (Plan)➀ Net income

12.5

9.8

10.0

Depreciation

5.0

5.5

6.0

Capex

7.5

5.9

7.7

➁ Total dividends

4.7

7.4

4.9

Purchase of➂treasury stock

4.5

4.0

7.0

Total payout ratio(=( 2 + 3 )/ 1 )

73%

117%

119%

Shareholders’ equity

227.6

232.7

Over 230.0

4.2%

Expected to be below
the target level of 5%

Consolidated ROE

220 billion

¥

5.5%

5% or higher

Cumulative total for the current
medium-term management plan

101%
Influencing factors:
1. Net income above the cumulative
performance forecast
2. Effects of unrealized gains and losses onmarketable securities
3. Capital expenditure below the planned level

INTEGRATED REPORT 201819

Wacoal Story

Promoting CSR Procurement

02

CSR Procurement Based on Mutual Trust and Cooperation

Ongoing Initiatives to
Monitor Human Rights
and Labor Practices
and Resolve andImprove Issues

In October 2017, we adopted the Wacoal Group CSR Procurement Guidelines, which call for efforts
based on trust and cooperation in partnership with suppliers that share our commitment to social imperatives in such areas as human rights, labor practices, the environment, and ethics. We have started tomonitor compliance with the Guidelines in various ways, including self-assessment by contract manufacturers. We provide feedback based on analysis and assessment results, develop resolution and improvement plans, and carry out follow-up measures. In February 2018, we commenced initiatives based on acycle of accurate monitoring, followed by continuous resolution and improvement of issues.

PART

Supply chains for textiles and apparel begin with product planning and design in the countries and regions
where the products will be sold. Almost all products are shipped to their respective markets after processing through international networks in which production or procurement of raw materials and the mass-production of finished products are carried out in factories in China or emerging countries in ASEAN.
In January 2017, an international NGO raised concerns about working conditions in a factory in
Myanmar, which had been contracted to carry out manufacturing work for Lecien Corporation, a Wacoal
Group company. As part of learning from this situation, we are monitoring for any negative impacts fromour business activities, and have established systems to resolve and improve issues and to carry out due
diligence in relation to human rights, labor practices, and other aspects.

STEP

1

Monitoring

STEP

2

 ritten surveys
W(self-assessment)

Maintaining and
ImprovingTransparency—
Disclosure of Contract
Manufacturer
Information

Analysis andassessment/
feedback

STEP

3

Surveys

Resolution andimprovement
planning

STEP

4

 esolution andR
improvement plans
and reports

 istribution ofD
feedback sheets

Follow-up

Monitoring ofresolution andimprovement efforts.

Confirmation ofresolution andimprovement byinspectors

Since May 2018, we have disclosed basic information about our contract manufacturers, includingnames and addresses, on our website. The purpose of this initiative is to enhance the transparency of
our supply chains, and to work with contract manufacturers to fulfill our responsibilities in relation tosocial imperatives in the spirit of mutual trust and cooperation. Individual manufacturers are aware thatthey are under public scrutiny and will work with Wacoal to resolve problems and make improvements. All
manufacturers have agreed to the publication of their details.
Contract Manufacturers Covered by Disclosure (as of the end of September 2018)
Contract manufacturers for“Wacoal” and “Wing” brandproducts sold in Japan76

factories(Suppliers of over 60% of
products procured
by Wacoal Corp. in value terms)

Contract manufacturers
for Lecien Corporation

36

factories(98% of innerwear andouter apparel products procured)

Click here for detailed information about CSR procurement.
https://www.wacoalholdings.en/csr/procurement.html

20

INTEGRATED REPORT 2018

Contract manufacturers
for Peach John Co., Ltd.

8

factories(53% of innerwear, roomwear, andfashionwear products procured)

CSR Procurement
Initiatives Based on
Mutual Trust andCooperation

January
2017

Concerns are raised by aninternational NGO about
working conditions at a sewing
factory in Myanmar that iscontracted to manufacture
products for Lecien
Corporation.

After conducting on an on-site investigation,
Wacoal informs the NGO about the results of theinvestigation and its policy going forward.

Examples ofimprovement

Establishment of medical facility withfull-time qualified nurses

Installation of additional toilet stalls

Creation of
CSR Procurement
Project System

Wacoal launches a CSR Procurement Project
System to provide guidance on the monitoring
and resolution of social responsibility activities in
its procurement processes.

October
2017

Adoption of Wacoal GroupCSR Procurement Guidelines

Our shared procurement policy for the Wacoal
Group calls for the development of business
relationships based on mutual trust with companies that place a high priority on society’s expectations in relation to human rights, labor practices, the environment, and ethics.

February
2018

Start of monitoring based on
self-assessment
by contract manufacturers

We began to administer systems designed tomonitor compliance with the provisions of the
Wacoal Group CSR Procurement Guidelines andensure resolution and improvement measures.

April
2018

Establishment of
CSR Procurement Committee

We established the CSR Procurement Committee
under the Corporate Ethics and Risk Management Committee. Its tasks are to enhance theeffectiveness of CSR procurement measures byformulating overall plans and checking the
progress of the CSR procurement initiatives, andto provide education, guidance, and support forgroup companies.

May
2018

Disclosure of contract manufacturers for the “Wacoal” and “Wing” brands

July
2018

Start of survey on the status offoreign technical interns
accepted by contract
manufacturers in Japan

April
2017

September
2018

We started to monitor the situation in the 40
domestic contract manufacturers of “Wacoal”
and “Wing” brand products that accept technicalinterns from other nations.

Disclosure of contract manufacturers for Lecien Corporation and Peach John Co., Ltd.

INTEGRATED REPORT 201821

Wacoal Story

Characterizing Wacoal’s BusinessWe study local characteristics and respond to local needs.
Our vision for the future of the Wacoal Group is summed up in the words “Worldwide Wacoal.” We are actively
expanding our business operations not only in Japan, but also in overseas markets, especially the UnitedStates, Europe, and China. Markets in each country or region vary widely according to economic scale,culture, lifestyles, and other factors, and we have achieved growth through a management strategy of putting
down roots in each market. We are determined to maintain continuous business growth and strengthen ourearning power by using the full potential of group synergies to enhance the value of the Wacoal brand in eachcountry, and by further reinforcing our product planning and development capabilities.

Characteristics of Wacoal’s Business Worldwide
Business unique toeach market

Designs differ
by country and region

Responding in detail,rather than scale

Wacoal’s business model does not
simply introduce products createdfor Japan to the global market.
Instead, mainly with local subsidiarystaff in each country, we offer
products and services tailored to
local cultures, practices, andpreferences. Our integrated system,from manufacturing to sales,enables us to respond swiftly andflexibly to local trends and customer
needs.

Women’s physiques vary greatly, notonly among age groups andindividuals, but also among
countries and regions. To deliver
innerwear that is comfortable forevery woman, Wacoal designs products for all types of physiques andsensibilities worldwide. We believethat with products designed to fit foreveryone, we can contribute to thebeauty of the world’s women inways that customers love.

The women’s innerwear industry islabor intensive, and uses small lot
sizes of raw materials. This makes
the economy of scale less effective,
which is an obstacle for market
entry to mass production/mass
retailing clothing companies.
However, this creates an opportunity for Wacoal to respond to market
demands in superior detail.

EUROPE

CHINA

JAPAN

UNITED STATESMarket Size*2

Market Size*1

Market Size*2(10 major EU countries)

Market Size*2

Approx.

16

Approx.
billionRMB

130

Approx.
billion¥624

Approx.
billion$15

billion

Women’s Innerwear Market
Share as a Ratio of GDP

Women’s Innerwear Market
Share as a Ratio of GDP

Women’s Innerwear Market
Share as a Ratio of GDP

Women’s Innerwear Market
Share as a Ratio of GDP

0.12

0.19

0.11

0.08

%

%

%

%

*1 From Yano Research Institute, Ltd. *2 Estimated by Wacoal

22

INTEGRATED REPORT 2018

JAPAN

Domestic Market
Domestic Market Size*1

1998

2006

Approx.

¥

930 billion

2016

Approx.

CAGR
-

2.8%

¥

740 billion

Approx.

CAGR
-

1.7%

¥ 624 billion

The domestic innerwear market has relatively little price elasticity,and is relatively unaffected by economic cycles and changes inindividuals’ incomes, making it easier to secure stable sales volume
in the market.
However, Japan’s domestic market has been contracting since
its peak in 1988, mainly due to falling average sales prices. This
market is expected to shrink further, given that the economically
productive population will be decreasing. On the other hand, womenare being encouraged to play more active roles throughout society,which could increase demand for and diversity of innerwear.
Higher-quality products are expected to sell better, which should befavorable for Wacoal.

Change in Average Sales Price*2

Change in Proportion by Sales Channels*1

Wacoal’s main products retail for over ¥4,000. Products priced
above ¥4,000 accounted for approximately 38% of the entire market
in 1998, but fell to approximately 17% in 2016. On the other hand,products priced under ¥1,500 accounted for about 7% in 1998 androse to approximately 27% of the market in 2016.

Wacoal’s main sales channels are department stores and generalmerchandise stores. In the overall market, though, department store
sales have peaked and are contracting.
General merchandise store market sales have recently shown atendency to decrease as well. On the other hand, as directly managed
stores and online sales are expanding, Wacoal is putting more effort
into opening direct stores and enhancing e-commerce websites.

38%

27%

1998

2016

43%

52%
1998

2016

17%

25%

¥4,000–¥7,49934%–¥1,49927%

Department stores

¥7,500–4%¥4,000–¥7,49913%

 eneral merchandiseG
stores27%¥7,500–4%

25%

Department stores

13%

 eneral merchandiseG
stores30%
Directly managed stores 14%
Online sales11%*1 From Yano Research Institute, Ltd. *2 Estimated by Wacoal

OVERSEAS

Global Market
UNITED STATES
A number of American brands occupy overwhelming shares of the U.S. market, while
many other brands each hold less than about
5%. The largest sales channel is innerwear
specialty stores, followed by general merchandise stores, and then department stores,
which account for slightly less than 10% ofsales. Wacoal’s main sales channel is department stores, of which we hold the largest
share at 23%.

EUROPEThe European market is characterized bywide variation per country in designs, colors,and customer preferences, variation in customer body types, and top brands that are allcompletely different. The Wacoal Group’s
share of the market is approximately 1%. No
brand holds more than a 10% share because
there are so many brands in the market.
Department stores are clearly one of thelargest sales channels in the United Kingdom
and Germany, but overall, including France
and Italy, both boutique and chain innerwear
specialty stores account for the main portionof sales channels.

CHINA
The Chinese market’s annual rate of growth
has slowed to slightly less than 10%. Approximately 10% of the entire China innerwear
market is for mid- to high-end products soldmainly at department stores. Wacoal’s shareof these sales at department stores is approximately 20%, while local Chinese brands holda market share of approximately 30%.
E-commerce is the fastest growing sales
channel.

INTEGRATED REPORT 201823

Wacoal Story

Medium-term Management Plan
Overview of the Medium-term Management Plan for FY2017–FY2019
Secure Earnings
in Domestic Business

Generate Further Growth inOverseas Business

Create Group Synergies andStrengthen Competitiveness

Expand Our
Business Portfolio

Improve Our Group Management Infrastructure

Improving Profitability
Improving Business Efficiency

Capital Policy

Shareholder Returns

In FY2019, the year ending March 2019, which will be the final year of the current three-year medium-term management plan, Wacoal
will work to complete the development of infrastructure to support the improvement of business efficiency, while also investing in areasthat offer growth potential. We will restructure our business operations in Japan with aim of strengthening collaboration and improving
productivity in our wholesaling operations. We will also expand our efforts to improve the profitability of our retailing business. Anothergoal is to complete the development of omni-channel infrastructure so that we can phase in the operation of related systems. Goals forour overseas business include the expansion of our own e-commerce sites into more countries, and increased selling on other companies’ e-commerce sites at standard prices. At the same time, we will work to enhance services in department stores and stores owned
directly by Wacoal. At product supply bases in China and ASEAN, our efforts will focus on the development of production systems forwhole-garment products, which offer competitive advantages in terms of both quality and costs.
Net Sales

Targets announced in May 2016 for FY2019(final year of the medium-term management plan)¥

215 billion

Financial forecasts for FY2019(announced in May 2018)
Figures in [ ] represent increases (decreases)
compared with the targets¥

200 billion[-¥15 billion]

Operating Income¥

15 billion¥

10 billion[-¥5 billion]

Net Income

Operating Margin¥

11 billion

7%¥

10 billion

5%[-¥1 billion]

The results are expected to fall short of the medium-term management plan targets.
Comparison to plan

Factors

Differences from targets
Net Sales

Net Sales

Shift to a policy of business reform toward a structure thatprioritizes profitability

AmountPercent

AmountPercent

Wacoal

-4.4

-3.9%

-1.1

-21.2%

Peach John

-1.4

-9.6%

-0.4

-43.8%

Lecien-2.6-20.0%-0.1-20.0%

Nanasai-2.8-23.3%-0.3-55.6%

Four subsidiaries in Japan

Ai

-1.8

-23.8%-0.2-71.4%Net Sales	Subsidiaries in Japan(total of 4)-8.6-18.2%-0.8-46.8%

Wacoal International (U.S.)

-0.4

-2.0%

-0.3

-13.6%(Unit: Billions of yen)

Wacoal Europe

-1.5

-9.1%

-0.5

-27.3%

Wacoal China

0.5

+4.4%

-0.4

-36.3%A Tech Textile-1.0-35.7%

-0.7

-2.4

-4.7%

-1.8

	Overseas subsidiaries(total of 4)

24

WacoalOperating Income

INTEGRATED REPORT 2018-36.5%

Operating Income

Operating Income

Decreased profit on sales due to a revenue decline
Selling, general and administrative expenses were higher thaninitially planned due to an increase in health insurance
premiums, improvements in systems relating to retirement
payments and bonuses for sales personnel, and IT system
operating expenses.
Slow sales due to inadequate adaptation to changes in
distribution structures and consumer needs
Decreased profit on sales due to a revenue decline

Four overseas subsidiaries
Net Sales

U.S.:	Targets for the innerwear business exceeded, but
CW-X business stagnating
Europe:	Impact of exchange rate trends, slower sales in U.K.
department stores

Operating Income

U.S.:	Selling, general and administrative expenses higher
due to directly operated outlets and medical insurance
premiums
Europe:	Increased investment in brands and IT systems
China:	Sales margin lower due to reduced sales of LA
ROSABELLE and other brands

Secure Earnings in Domestic Business
Our flagship company, Wacoal Corporation, is restructuring its business operations to strengthen its focus on profitability, especially inthe areas of wholesaling and retailing. It has achieved improvements in sales margins by reducing discounting and returns while giving
priority to the expansion of sales of high added-value products, optimization of retail inventories, and the increased roll-out of common
product lines for directly owned outlets. In FY2019, the year ended March 2019, we expect to complete the infrastructure for omni-channel services, which will allow us to use digital technology to evolve our customer contact capabilities, including a shift to digitalmanagement of customer information in collaboration with department stores, and the launch of new app-based services.

Wacoal Business (Domestic)
Net Sales / Operating Income

Basic Policies• Continue to develop attractive new products with high added value• Improve the productivity of our wholesaling business and the profitability of our retailing business• Create original omni-channel services to enhance customer convenience

Net Sales

Operating Income(¥ million)

117,000

FY2019 (Plan)

5,800
FY2018116,085
7,885

FY2017

118,389
6,959

Main initiatives up to FY2018
Enhancement of marketing capabili-

Development of infrastructure

01 ties, productivity improvement

02 for omni-channel services

03 Integration of core IT systems

	Launch of the Chain Store Operation Divisionorganization	Enhancement of profitability of the Retail Business
Department

	Digitization of customer information management
	Introduction of tablets for use in customer
interactions

	Creation of an information management system
encompassing products from all brands

Focus of efforts in FY2019

P.30

Return to a growth track while improving productivity

01 productivity and retail profitability

Improvement of wholesaling

02 our customer interaction capabilities

Using digital technology to enhance

03 products with a competitive advantage

Planning and development of strategic	Launch of the Wholesale Business Divisionorganization• Value chain optimization, efficient deploymentof human resources	Reinforcement of retail earnings base• Development of common/continuing products,
incorporation of RFID systems

	Specific measures toward the roll-out ofomni-channel services• Trial development of next-generation shops• Launch of new app-based services

	Reanalysis of customer needs and positioning for
comfortably designed bras	Introduction of high-added value non-wire bras

INTEGRATED REPORT 201825

Generating Further Growth in Overseas BusinessWe are focusing on the reinforcement of our business structure, which centers on our three main subsidiaries in the United States,
Europe, and China. Specific goals include the enhancement of our planning and development systems in order to raise the added valueof our products, the linkage of product planning and production management in Europe and the United States, and the improvement ofour capacity to keep pace with the accelerating growth of e-commerce markets throughout the world. In FY2018, we enhanced theusability of our own e-commerce sites and reviewed our product and sales policies for e-commerce sites operated by other companies.
These measures resulted in robust sales growth. In FY2019, we will continue to strengthen our growth potential by effective growthinvestment. At product supply bases in China and ASEAN, we are installing production equipment for whole-garment products, which
are highly competitive in terms of both quality and costs.

Wacoal Business (Overseas)
Net Sales / Operating Income

Basic Policies• Enhance product added value through the reinforcement of planningand development systems• Collaborate across regions on product planning and production
management• Improve our ability to keep pace with the accelerating global growthof e-commerce markets• Use global supply chains to develop highly competitive materials

Net Sales

Operating Income(¥ million)

54,500FY2019 (Plan)

3,400
FY201851,8883,852

FY201748,4233,055

Main initiatives up to FY2018
Cross-regional business

Reinforcement of

01 collaboration

02 e-commerce capabilities

03 Develop ASEAN supply bases

	Review of material standards for the EU and theUnited States, collaboration with factories in the
ASEAN region	Implementation of the “One Wacoal” policy in Asia
• Shop design standardization and joint sales
promotion initiatives in Asia

	Expansion of our own e-commerce sites into
more countries (Europe, the U.S.)	Expansion of initiatives based on other companies’
e-commerce sites (China)	Creation of a stable supply system consisting of
high-quality, small lots

Focus of efforts in FY2019

Please see page 32 for
U.S. business initiatives.

Boost growth potential by investing effectively in growth initiatives
Continue cultivating channels by

01 and product competitiveness

Enhance development capabilities

02 increasing e-commerce capabilities

03 supply chain networking	Improvement of brand value and product planningand design proficiency in Europe and the U.S.
	Enhance novelty and originality in China andother Asian countries	Extend our e-commerce site to other countries,and expand regular sales of our products on
third-party e-commerce sites

	Development of supply bases in the ASEAN region(Thai materials company, Myanmar)	Development of equipment environments to meeta wide range of needs	Increased use of PLM and CAD

Expansion of

Wacoal International Corp.
Net Sales / Operating Income

Wacoal Europe Ltd.
Net Sales / Operating Income

Wacoal China Co., Ltd.
Net Sales / Operating Income(Before consolidation adjustments)(Before consolidation adjustments)(Before consolidation adjustments)

Net Sales

Operating Income(¥ million)

Net Sales

Operating Income(¥ million)

FY2019 (Plan)

FY2019 (Plan)

19,123

FY2018INTEGRATED REPORT 2018

14,900FY2019 (Plan)

14,062FY2018FY20170

11,800650

1,226
18,196

1,947

Operating Income

900

2,042

FY2017

Net Sales(¥ million)

19,7001,900
FY201826

P.32

10,593519

13,129FY2017

9,505
472

Create Group Synergies andStrengthen CompetitivenessOur four subsidiaries in Japan—Peach John, Lecien, Nanasai and Ai—have been
unable to adjust to changes in distribution structures and consumer needs, withthe result that their sales and operating income have fallen below the target
levels in the plan. We will continue our efforts to improve their profitability, including the possibility of radical business restructuring. We will also initiate reforms
designed to ensure reliable sales and earnings.

Peach John Business
Net Sales / Operating Income

Basic Policies• Act on the management problems ofindividual companies• Reciprocal use of each company’s
strengths to increase overall competitiveness

Net Sales

Other Businesses
Net Sales / Operating Income

Operating Income

Net Sales(¥ million)

11,000FY2019 (Plan)

FY2019 (Plan)

400
10,795FY2018

11,107FY2017441

16,957

356

374

Peach
John

17,500400

FY2018FY2017

Initiatives in FY2019

Operating Income(¥ million)

17,962
677

Income improvement measures, including radical changes to business structures

Improvement of earnings in Japan,
reinforcement of overseas sales

	Expansion of Taiwanese business throughdirectly owned outlets and e-commerce sales
	Expansion of business in China in cooperation
with Wacoal China
	Sales expansion and cost reduction for each
body type

Expand Our Business Portfolio

LecienStrengthening of efforts toimprove earnings	Improvement of competitiveness of own-brandproducts
	Cost reduction through centralized sourcing of
key materials

Strengthening of efforts toimprove earnings

	Reciprocal use of sales channels, improvementof efficiency of indirect operations
	Increase in percentage of products planned
in-house, cost reduction

We will continue to explore ways to create new business portfolios that go
beyond our existing business models. In FY2019, we will launch an accommodation business based on Machiya townhouses in Kyoto.

Basic Policies• Expand our business portfolio using
Wacoal’s tangible and intangible
strengths

Ai

Initiatives in FY2019

Launch of new businesses relating tobeauty, health, and comfort
	Launch of accommodation business using Machiya townhouses
in Kyoto

Improve Our Group Management Infrastructure
Basic Policies• Continually analyze society’s needs
and expectations and reflect them in
our management policies

We are building a relationship of trust with society through ongoing efforts to achievesustainability and respond to social issues, such as the environment and human rights,
to implement social contribution activities in such areas as breast care, and to ensure
the safety and dependability of our products and services. In addition to the continuous improvement of our corporate governance, we will go beyond our focus on careerdevelopment for women to develop business structures from a diversity perspective.

Focus of efforts in FY2019
CSR procurement in cooperation

Continuing improvement of

Acceleration of work style innovation

01 with contract manufacturers

02 corporate governance

03 and leave reforms	Establishment of the CSR Procurement Committee	Updating of the published list of factories,
achievement of transparency, fulfillment of social
responsibilities
	Continuous monitoring, mitigation, and improvement

	Compliance with amendments to the Corporate
Governance Code	Cessation of takeover defense measures	Introduction of teleworking, development of IT
infrastructure
Introduction of career development leave system

INTEGRATED REPORT 201827

Wacoal Story

Spotlight

2

Beauty:Sustainability

People-centered Pursuit of Originality inJapan and Overseas
Wacoal is adapting to the diversification of values in Japan by putting its unique omni-channel
service strategy into effect. In the United States, our management philosophy has helped us tobuild trust-related assets by achieving the top share of department store sales, and we have
now taken up the challenge of achieving sustainable growth and success in that market. Our
work to create richly diverse organizational assets are helping to sustain our efforts in thischallenge as we co-create corporate value with our employees around the world.

Wacoal Story

Spotlight

Strengthening the Earning Power of Domestic Business Operations

Wacoal’s omni-channel service
strategy adapting to Change.
We are developing services that transcend brandand channel boundaries to supply products thatmatch customer expectations. We are approaching
this goal through decisive organizational changes
and dynamic growth investment in IT systems.

Tomoyasu Ito
Representative Director, President and Corporate Officer
Wacoal Corp.

Current Trends in
Our Business in JapanThe business environment in Japan haschanged dramatically over the past few
years, in step with the diversification ofsocial values and the expansion of choices. Based on our past history, Wacoal
may seem to have specialized mainly inwholesaling. However, in recent years
department stores and general merchandise stores have closed unprofitable
outlets in response to stagnating apparelsales, while advances in digital technology have accelerated. This has resulted ina decrease in the proportion of sales
through physical store locations fromthree-quarters as of five years ago to
two-thirds in the year ended March 2018.
Another conspicuous trend, reflecting theincreasing role of women and seniors in
the workplace, has been the expansion of
the market for apparel that is not overly
casual but combines fashionability withease of movement. The industry is also
being transformed by a labor market
environment in which it is becoming
increasingly difficult to recruit sufficientnumbers of sales personnel, and by thesevere decrease in manufacturers dedicated to the production of innerwear of
truly high quality.
Our focus under the current medium-term management plan is to prioritize
the profitability of our domestic business inthis environment. To date, we have worked
to develop the infrastructure needed tosupport enhanced business efficiency, andto transform our business structure through30

INTEGRATED REPORT 2018

efforts targeted toward three key areas: therestructuring and reinforcement of ourwholesale business organization, theimprovement of profitability in our retailbusiness, and the creation of omni-channel
service infrastructure.
A major initiative to restructure andreinforce our wholesale business organization was the integration of business
management and marketing operations
for our existing “Wacoal” and “Wing”
brands, which were served previously byseparate marketing structures under thecontrol of the Chain Store Operation
Division. This change took effect from thestart of the year ended March 2018. At
the start of the year ending March 2019,
we merged the Chain Store Operation
Division with the Wacoal Brand Business

Department and the Wellness Business
Department, thereby integrating all management and operations relating todepartment stores, general merchandise
stores, innerwear specialty stores, andother retailers under the Wholesale
Business Department. The fundamental
aim of these organizational changes is toimprove business efficiency and enhance
our competitive advantage by optimallydeploying our finite wholesale business
management resources, including ourbrands, product items, marketing support, and sales staff, to department
stores and other sales channels. Thesechanges have clearly improved efficiency
in indirect and back-office areas. Additionally, this merge has strengthened
collaboration across brand boundaries

Business Environment
Changes in Distribution Channels

Accelerating Innovation in Digital Technology

	Stagnation of department stores/
general merchandise stores,
emergence of fast fashion outlets
	Expansion of services to meet demand
from foreign visitors	Accelerating digital response to all kinds ofmaterial and non-material consumption
	Expansion of direct consumer-to-consumer links (social media communities, C2C,
D2C)

Further Diversification of Values
Consumer Changes

Trends Affecting Business and Industrial Structures

	Women and seniors becoming more activein the workforce	Continuing demand for apparel that combines fashionability with ease of movement, without being overly casual	Continuing emphasis on economizing
because of uncertainty about the future	Sales personnel recruitment problems
	Severe decrease in manufacturers capableof producing high-quality innerwear	Emphasis on social and ethical factors in
supply chainsWacoal Omni-channel Services
Creating the Innerwear Customer Experience of the Future

Personalized
applications

3D body scanners

Operational Innovation in Physical Stores

Artificial intelligence (AI)systems

Digitalization ofcustomer records

Customer-service
tablets

Strengthening our competitive advantage

Improvement of business productivity(Sales expansion through service expansion)(Improvement of profit margins through improvement of operating efficiency)	Provision of
personalized services
	Impact on existing
physical stores	Application for e-commercepurchasing services

Development of integrated company-wide database
Integration of customer data

Integration of inventory data

Development of new services through data analysis

and business units in such areas as effective sales outlet development. We havealso expanded the scope for efforts to
deploy salespersons and beauty advisers
flexibly in each market.
To achieve our second target, theimprovement of profitability in our retailbusiness, we have been conducting
analyses to identify the characteristics ofhighly efficient outlets by examining
various aspects of directly operated
stores opened over the past few years,
including their siting conditions andareas. As trends became apparent, we
implemented a decisive scrap-and-build
strategy that reduced the percentage ofindividual stores with negative returns toless than 10%, including newly established outlets. These measures wereaccompanied by efforts to improve sales
margins through changes to our productmix. Our past approach was to maintaindetailed differentiation of each shop
brand. However, we switched to thedevelopment of strong common productsthat can be sold in different types ofshops and focused on promotional
activities with strong synergistic effects.
This led to the creation of major hit
products and resulted in a dramatic
improvement in our sales margins.

Goals for Our Business
Operations in Japan
Our third target is the creation of anomni-channel service infrastructure. We
are now on track to open next-generation
stores to provide services that will meetthe expectations of our customers. I
would like to speak in detail about thisnew initiative, which is expected to startaround the spring of 2019.
As consumer values become increasingly diverse, Wacoal needs to be able toprovide a personalized response to eachindividual consumer’s expectations and	Improvement of
inventory efficiency
	Reduction oflost sales opportunities	Improvement ofcustomer service

Improvement of office work efficiency

needs. In the past, it was possible tocomplete transactions without everknowing the customer’s name, but today
the possession of big data has become
the key to success, and we are expected
to be able to offer personalized solutions
based not only on recognition of eachcustomer’s name and face, but also on
an understanding of each individual’s
physique and thought processes. The
aim of Wacoal’s omni-channel service
strategy is to build deeper, wider, andlonger relationships with each customer.
Building a “deeper” relationship in thiscontext means working closely with eachcustomer to achieve her desire to express
her beauty. By building “wider” relationships, we mean that we want to build acustomer relationship that also encompasses her family and friends. When we
say that we want to build “longer” relationships, we mean that we are committed to serving each customer throughout
her lifetime by maintaining the bonds that
we have built and carefully retaining herdata no matter where she goes.
We aim to secure our future as thenumber one brand by building a solid
reputation with customers and in themarket, and by using our omni-channel
strategy to create service networks that
our competitors will be unable to match.
We will achieve these goals by maintaining our commitment to the developmentof high-quality products to meet changing
needs, while using digital technology toenhance the advantage that we havegained through customer services provided by beauty advisors.
Specifically, we will begin by developing a personalized customer mobile app
as the starting point for our relationships
with individual customers. This will be theinitial step in two-way communications
between Wacoal and the customer basedon individualized fitting information andpurchase history, allowing Wacoal toprovide appropriate information in response to the customer’s needs. We will
next install 3D body scanners and customer consultation equipment utilizing
artificial intelligence (AI) in store locations.
A significant number of customers experience stress when interacting with sales
assistants for measurement and consultation. A 3D scanner can instantly record
1,100,000 size measurement data points
and share the resulting data with the app.
The AI consultation service will also be
available via the app, allowing the customer to look for products or retrieve
information anywhere and at any time.
We have been digitalizing our customer records and plan to provide tablets
to support the customer-service activitiesof our beauty consultants. With digital
customer records, it will be possible toupdate the customer’s purchase history
instantly at any store. This will not only
save time and stress for the customer,
but will also reduce the sales assistant’s
administration workload. By using tablets,
sales assistants will be able to display
suitable products on-screen for comparison and immediately check the stock of
product size and color. In addition to
reducing customer wait time, this system
will also allow more efficient deploymentof sales staff.
Customer information collected
through these systems will be centrally
managed as part of Wacoal’s resource ofbig data. Each customer’s information will
be analyzed and used in product development and service improvement. In
addition, we will improve business efficiency by reflecting accurate data inproduction and inventory management.
These improvements to our business
infrastructure and income structure in our
three core areas of wholesale, retailing,
and omni-channel services will put us on
track to achieve sustained sales growth,
while also ensuring robust profit growth.

INTEGRATED REPORT 201831

Wacoal Story

Spotlight

Our Challenge: Sustainable Growth andSuccess in North America

Wacoal’s singular corporate philosophy
is the key to surpassing customer
expectations.
The Wacoal corporate culture is the foundation for thegrowth of the North American business, which has thehighest operating margin of any Group company.
Our goal is to provide new value to customers amid theaccelerating diversification of sales channels.

Robert Vitale
President and CEO,
Wacoal America, Inc.

North American Business
Built on the Wacoal Spirit
Wacoal’s founder, Koichi Tsukamoto,envisioned his business not merely as anarm of the textiles industry, but as something rather more, something rather
uncommon—an industry dedicated tohelping women everywhere to achieve
their own personal beauty. It was when
Wacoal first opened an office in New
York in 1977 that Tsukamoto reportedly
declared Wacoal should also take its
corporate culture—its management
philosophy, its approach to businessactivities—to America. That culture
centers on the development of relationships of mutual trust with our business
partners and all stakeholders by consistently providing the highest standards ofquality in our products and services.
The first turning point for Wacoal
America was perhaps the establishmentof a plant in the Dominican Republic in
1990. We applied the Wacoal spirit—our
passionate commitment to quality manufacturing—by raising the quality of pattern design, materials, sewing, and otherprocesses to the same standards as wehave in Japan, and by creating a structure that allows us to supply productsthat meet the needs and match thephysiques of American women. A second major turning point came when we
began to sell products licensed under
the Donna Karan label. Wacoal had

32

INTEGRATED REPORT 2018struggled to make inroads into theAmerican market because of low brandrecognition, but when Donna Karan, adesigner with a strong focus on quality,
named Wacoal as her ideal partner, we
gained a reputation as a manufacturer ofhigh-quality products, and our businessexpansion accelerated.
A third turning point came in 1992,
when we received our first “Partner in
Excellence” award from the Nordstrom
department store chain. Historically,
America’s leading department stores
were the best in the world and were
known for providing excellent customer
service and consultation sales. By thetime that we received the award, department stores had gone through a periodof change, and in most stores customers
simply picked items off the shelves andtook them to a cash register. However,
Nordstrom singled out Wacoal for recognition because it still placed great importance on customer service and consultation. We have built strong relationships oftrust by working closely with individual
customers. We do this by matching thecustomer’s desire to achieve her own
beauty, and Wacoal’s desire to help her
to reach that goal.
These turning points marked the riseof Wacoal’s reputation in the American
market as a brand that is synonymouswith high quality and the best fit. We havealso emerged as the undisputed leader indepartment store sales with a share ofover 22%. In the year ended March 2018,
sales through our rapidly expanding
e-commerce business, including our own
site and those operated by our partner
department stores, as well as specialist
e-commerce companies, grew to 29% of
total sales. However, department storesremained our main channel, accountingfor 53% of Wacoal America’s sales.

Competitive Edge Based on
Product and Service Quality
Just as in Japan, China, and Europe,
Wacoal America is directly involved in allprocesses, from product planning anddevelopment, pattern design, and thedevelopment of technology and materials, to production, inventory management, and sales. This approach allows
us to exceed customer expectations byproviding the added value associatedwith the Wacoal brand, including quality,
functionality, fit, and design. At the sametime, Wacoal America works to enhance
this added value still further by helping
each customer to achieve her individual
beauty through its in-store customer
service and consultation.
In February 2016, Wacoal declaredits withdrawal from price competition in
department stores and other retail outlets by adopting a minimum retail pricing(MRP) policy. We aim to achieve continuing growth in the number of customers
who buy our products because they

Roadmap to Sustainable Growth and SuccessAccumulated strengths: Trust-related
assets reflecting Wacoal’s status as theleading brand sold in department stores

Brand value creation cycle

Expansion of values
to encompass a wide
variety of beauty ideals

Wacoal’sculture ofpassion for
manufacturing

Provision ofunique valuethat surpasses
customer
expectations

Opportunities:
Provision of value toa rapidly diversifying
society

Creation of
products andservices withdeep local
roots

recognize the value behind the Wacoal
label, and to earn the long-term loyalty of
those customers by always living up to
the trust placed in us.

Our Continuing Mission—
To Surpass Customer
Expectations
Always focused on its core role as amanufacturer, Wacoal America willcontinue to build a robust technology
base and provide customers with highly
functional, stylishly designed productswith unrivaled fit along with high-quality
services. To achieve this, Wacoal America will strengthen relationships with other
Wacoal subsidiaries around the world,such as Wacoal Europe and Thai Wa-

Convenienceenhancement anddistortion causedby advances indigital technology

Growth strategy focused on sustainable growth and success:
Maintenance and improvement of our competitive advantage
in North America

Strengthening our roots as a manufacturer by providing value
through high-quality manufacturing	We will accumulate and improve our technology so that we can offer fashionable
designs with enhanced functionality and fit to a wide variety of people.
	To meet the expectations of diverse consumers, we will develop omni-channelmarketing systems, including consultations focusing on individual physiques,
and encourage repeat purchases by giving priority to user convenience.
	We will enhance our competitiveness based on quality, cost, and originality byfocusing on the establishment of PLM networks through the reinforcement oflinks between supply chains and Wacoal companies around the world.

Fulfilling our responsibilities in relation to social issues and needs
Globalization of social
expectations toward
companies	We will supply safe, high-quality products while taking responsibility for allprocesses in our value chains. As one of a small number of leading companies
in the North American innerwear market, we will optimize the distribution ofvalue to all stakeholders.
	With the Wacoal management philosophy as our foundation, we will train thenext generation of managers, while evolving a management structure in which
local top management staff can take responsibility for business operations.
	We remain committed to ethical standards that maintain the trust of consumers
who have recognized the value of our brand.

coal, with whom we share an unwaveringcommitment to the provision of products
and services that surpass customer
expectations.
In March 2018, Wacoal America
opened a directly operated outlet in an
upscale shopping center in New Jersey.
The spacious interior was designed as aplace where we can inform customers
about the true value of the Wacoal brand.
In addition to a comprehensive range of
Wacoal products, the store offers consulting services by highly experienced sales
staff. We have also launched new initiatives to enhance our brand value indepartment stores. Customers in North
America hold increasingly diverse views
on beauty, so we push initiatives to meeta wide range of customer needs at ourstores, such as strengthening the development of a more extensive range ofsizes than other brands.
In September 2017, Wacoal America
established a Sustainability Committeewith the task of considering what Wacoal
America needs to do now in response to
the priorities and needs of future generations of society over the next 10 years
and beyond. The committee will also
look at ways to achieve sustainable
development while enhancing Wacoal’s
corporate value. We will further strengthen our efforts to meet the expectationsof our stakeholders and fulfill our social
responsibilities as a manufacturer that is
involved in all processes through its
supply chain.

COLUMN
Enhancing the Wacoal Brand through Value Co-creation
by Local Employees and Group Companies

Keisuke Kawanishi
Vice Chairman,
Wacoal America, Inc.

Wacoal’s Chairman, Yoshikata Tsukamoto, has a vision of an international network of subsidiaries spanningvarious countries and regions, all operating under a single brand and cooperatively sharing knowledge, while
maintaining their management autonomy. That vision reflects part of the Wacoal Group’s foundation. The
Wacoal Group does not sell products based on the same standards and designs everywhere in the world.
Instead, we foster our unique strengths in each country or region and put down roots in local markets. Thisrequires a continual investment of effort and innovative ideas, all made possible by the talent and abilities of
Wacoal people. Wacoal America has carefully built up a profile for its products, which it markets through its
own efforts. It gauges the market response and modifies those products accordingly in a repeated cycle that
also contributes to the development of our human resources. Wacoal America is building brand value that best
matches the needs of the U.S. market through shared value creation with other Wacoal Group companies
around the world.

INTEGRATED REPORT 201833

Wacoal Story

Spotlight

Creating an Attractive Corporate Culture

Junko Kasai
Director, Corporate Officer, Chief of Diversity Promotion
Wacoal Corp.

We are looking to a future in which the diversity of
our employees becomes a significant source ofcorporate and brand value.
Wacoal aims to create an environment in which there is reciprocal acceptance of individual differencesand values, and in which all employees can reach their full potential. We see this as the source of added
value for Wacoal, as a brand that customers will continue to prefer in the long-term future. Junko Kasai,
Chief of Diversity Promotion, provides the following examples of the strategic approach that Wacoal
Corp. has taken to diversity promotion.

Enhancing Corporate Valueby Linking Diversity to
Growth Potential
Wacoal Corp. is the Wacoal Group’sbusiness corporation in Japan. In 2014,
we established the Diversity Career
Support Group, which has since worked
to implement two core strategies: thedesign and implementation of systems toenhance working environments, andcareer development support for
next-generation leaders with the aim ofenhancing motivation. With women
making up around 90% of the Wacoal
Corp. workforce, career development for
women is an important management
priority. Our goal of increasing the per-34

INTEGRATED REPORT 2018

centage of women in managerial positions to 20% (as compared to FY2014)
was achieved two years early in FY2018
with a figure of 20.3%, as shown in thechart on page 35. This success is attributable to efforts on various levels, including the enhancement of systems and theprovision of leadership training. There
have also been conspicuous changes
that go beyond these figures, such as
more women working after having achild, and an increase in male and female
employees combining work with childcare. I believe that we were able toachieve our target because we have
evolved a corporate culture that accommodates these life events as a matter ofcourse.

One of Wacoal’s strengths is its
creation of value chains based on its
own global networks integrating all
stages from product development to the
procurement of materials, production,and marketing. Customers associate
Wacoal with quality. We have been able
to build that reputation thanks to ourfrontline capabilities, by which I mean thestrong sense of responsibility that ouremployees, who are our most importantmanagement resource, bring to theirwork. The core aim of Wacoal’s diversity
strategy is to enhance our corporate
value, which derives from our earning
power combined with our intangible
assets, by improving our performancethrough the creation of a diverse organi-zation in which individuals can express
their various values.

Realizing Individual Potential
through a Real Commitment
to Diversity
Wacoal has gained prominence for its
in-house initiatives, such as careerdevelopment for women. However, we
are also working actively to provide ourown unique answers to social issues,
such as the development of sales environments that also reflect the needs ofLGBT customers. This focus is not
limited to within Wacoal or the needs of
our employees. Our aim is to create anenvironment in which developers, business partners, and the consumers who
buy our products can all enjoy innerwear
culture in a spirit of mutual respect andconsideration.
We are about to commence thesecond phase of our diversity strategy,
the aim of which is to realize the potentialof diversity regardless of individual
attributes, such as gender, disabilities, orage. As a company we have a responsibility to develop systems and provide skill
development support to enable individual
employees to achieve his/her careergoals. Employees have a responsibility to
pursue their personal development bymaking career path decisions and improving their own skills, while working tofoster a mindset and culture actively
linked to contributing to the organization.
For these reasons, we will work with asense of urgency to create opportunities
and improve productivity by introducing avariety of work style innovations, such as
teleworking, the development of multiple
perspectives through employment in
multiple jobs, and a career development
leave system.
Wacoal’s business philosophy iscentered on mutual trust, while ourcorporate culture is characterized by asense of pride in our organizational
solidarity. With the second phase of ourdiversity strategy, we aim to improve
employee motivation and work satisfaction by fostering a corporate culture inwhich diversity is welcomed, and byhelping employees to raise their level ofengagement by forming a sense of
empathy toward society and their company.
We also want to maintain Wacoal’srole as a company that provides realvalue by giving priority to initiatives thatlead to innovation. We will foster qualities
that encourage people to collaborate
with those outside of the company
through networking with other industries
at different levels of seniority, and by
hosting seminars with people from otherindustries. We see these activities as away to develop the experience and skills
needed by all employees, whether they
have just joined Wacoal or have beenwith Wacoal for years, in order to create
value, from the improvement of day-today tasks, to the start-up of new businesses. These systems will be designed
to give priority to the development of asense of initiative, so that employees will
be motivated to participate.

The Key to Wacoal’s Future—
Independent, Innovative People
with Skills Honed in
Diverse Business Environments
Under our next medium-term management plan, Group companies in Japanand overseas will further strengthen theirfocus on diversity. We will extend thebenefits achieved by Wacoal Corp.,
including the utilization of diverse humanresources, and our track record of work
style innovation, across the entire Group,
while learning together from progressive
initiatives by other Group companies. We
believe that this approach will further
enhance Group-level synergy benefits.
We will periodically monitor progress andencourage Group companies to reflect
these efforts in their management.
Another goal is to train people withthe ability to work globally, and to accelerate the global spread of our management philosophy. We will achieve thesegoals by facilitating information andhuman resource networking throughcollaboration with local offices on thedevelopment of personnel capable ofworking successfully in overseas Group
companies, and through the creation ofopportunities for global human resource
exchanges.
Diversity management is not a goal in
itself. Our vision for the future of Wacoal
calls for the creation of an environment inwhich we can recruit diverse groups ofpeople and help them to set their own
career goals and develop their skills.
Those people can then work independently and innovatively to achieve
success through their commitment tobuilding a future for their company.

Progress toward Diversity Promotion
Theme

FY2014FY2018Career development for women(increase in the percentage ofwomen in managerial positions)

15.2%

20.3%

2.15% (2.0%)

2.23% (2.2%)

Employment of people
with disabilities(statutory employment ratio)
Employment of seniors(re-employment ratio)

82% of employees who reach retirement age, 100%of those who wish to be re-employed (FY2018)

LGBT

Training to promote understanding of LGBT issues
among management; formulation of guidelines forworking with LGBT customers, and provision of that
information to wholesale business outlets

INTEGRATED REPORT 201835

Wacoal Management
Directors and Audit & Supervisory Board Members
Wacoal Holdings Corp.
As of June 28, 2018

Hiroshi Shirai
Outside Audit & Supervisory
Board Member
Managing Partner,
Shirai Public Accounting Firm
Outside Audit & Supervisory
Board Member, Noritz Corporation

Akira Miyagi

Masashi Yamaguchi

Director

Managing Director

Outside Audit & Supervisory
Board Member, ALTECO Co., Ltd.

Minoru Shimada
Outside Audit & Supervisory
Board Member
Director and Chairman,
SOTSU CORPORATION

Mitsuhiro Hamamoto

Masaya Wakabayashi

Outside Audit & Supervisory
Board Member

Director and Vice President

Partner, Kikkawa Law OfficeOutside Director,
Toa Valve Engineering Inc.

36

INTEGRATED REPORT 2018

Yoshikata Tsukamoto
Representative Director andChairmanBeauty: Respect
Shigeru Saito
Outside Director
Representative Director andChairman, and CEO, TOSE CO., LTD.

Tsunehiko Iwai

Outside Director, SCREEN Holdings Co., Ltd.

Outside Director
Senior Advisor, Shiseido Co., Ltd.

Kiyotaka Hiroshima
Madoka Mayuzumi

Tomoki Nakamura

Hironobu Yasuhara

Outside Director

President andRepresentative Director

Visiting Professor,
Kitasato University

Standing Audit &Supervisory Board Member

Standing Audit &Supervisory Board Member

Councilor, Governing Councilof East Japan Railway
Culture Foundation

INTEGRATED REPORT 201837

Wacoal Management

Corporate GovernanceTo build a relationship of mutual trust with every stakeholder, the Wacoal Group’s overriding goal of corporate
governance is to continuously grow enterprise value by ensuring that management is highly transparent,
equitable, and objective with respect to all stakeholders.

Revisions in Wacoal’s Corporate Governance System
1977

Wacoal issues ADRs*(American Depositary Receipt)

Wacoal becomes the 8th Japanese company to issue ADRs. Upon issuance, the SEC(U.S. Securities and Exchange Commission) requires consolidated financial statements
and accounting report in accordance with U.S. GAAP.

2002

Introduction of the corporate officer system
9
Number of directors: 13

In June 2002, the company employs a corporate officer system in order to delegate
authority and clarify responsibility more appropriately and efficiently.
At the same time, the number of directors is reduced.

Switches to a pure holding company

We switch to a holding company system for effective, strategic decision-making andresource placement in order to execute quickly and clarify responsibilities and delegationof responsibilities at operating affiliate companies.

Appointment of outside officers

To promote fairness and independence of the Board of Directors and the Audit &Supervisory Board, the Group increases the number of outside directors by two members
and outside Audit & Supervisory Board members by one member.

2007

Established Executive Compensation Advisory Committee
Number of committee members(including outside directors): 4

Regarding appointment, promotion, and remuneration of the directors and executive
officers, the Executive Compensation Advisory Committee, chaired by the Director of the
Administrative Department, was established with outside directors included as members.

2010

All outside officers are registered with theTokyo Stock Exchange as independent officers
Independent officers registered: 6

All outside directors and outside Audit & Supervisory Board members are registered with
the Tokyo Stock Exchange as independent officers.

2015

Independent Outside Officer Meeting is established

The Independent Outside Officer Meeting is established with the intention of sharing
information about improving corporate governance, Board of Directors meetings, internal
audits, etc. The committee includes independent outside officers.

2005*In 2013, Wacoal stops listing ADRs on the U.S. NASDAQ market and de-registers with the SEC.

Corporate Governance Guidelines
The Role of the Board of Directors and the Responsibilities of the Directors
The Board of Directors makes decisions on important matters as
stipulated in laws and regulations and the articles of incorporation. They also consider management strategies and social
priorities from medium- to long-term perspectives. To ensurethat the supervisory functions of the Board of Directors are
performed effectively and in a timely manner, the Board of Directors formulate Group management strategies and consider
important management issues at the Group Management Meeting. The Group Strategy Meeting and the Quarterly BusinessResults Review Committee share information about priorities andmonitor quarterly results. The directors are required to performtheir duties fully by collaborating with the management team andthe Audit & Supervisory Board members as necessary; by collecting sufficient information; and by proactively putting forward
views and engaging in debate. Persons appointed as directors
must have a thorough understanding of related laws and regulations, the articles of incorporation, the rules of the Board of
Directors, and other internal rules and regulations, as well as befully aware of the level of responsibility the position entails.

Decision-making Process for Compensation of Company Officers
Compensation for company officers is determined under a highly
objective and transparent system designed by the Executive
Compensation Advisory Committee, which includes the independent outside directors. Compensation for directors consists of a
fixed basic remuneration, together with bonuses linked to thecompany’s performance each year, and stock options, which arelinked to medium- to long-term performance trends. Independent
outside directors and Audit & Supervisory Board members receive
only the fixed basic remuneration, since it would be inappropriate
for them to receive performance-linked remuneration.

38

INTEGRATED REPORT 2018

Compensation is set at a level that is appropriate comparedwith other companies in the same industry or of a similar size,and commensurate with the company’s business performanceand size. The amount of bonuses to be paid is determinedaccording to the company’s business performance on the basisof a resolution passed at the regular general meeting of shareholders each fiscal year. The upper limit for stock options was
set at ¥70 million per year by a resolution passed at the 60th
regular meeting of shareholders held on June 27, 2008.

Details of Remuneration Paid to Officers
Aggregate Amount of Remunerations, etc., by Type Thereof
Aggregate(Millions of yen)Amount ofRemunerations, etc.
Retirement
Basic
Stock
Bonus
(Millions of yen)
Allowance
Remuneration
Options

Category of Officers

Number of
Relevant
Officers

Directors (Excluding outside directors)

297

198

41

57

—

4

Audit & Supervisory Board members(Excluding outside Audit & Supervisory Board members)

36

36

—

—

—

2

Outside officers

46

46

—

—

—

8

*As of March 31, 2018, the numbers of directors, Audit & Supervisory Board members, and outside officers were four, two, and six, respectively. These numbers are inconsistent with the numbers described above since the ones above include two outside officers who resigned upon the close of the 69th Ordinary General Meeting of Shareholders held on June 29, 2017.

Compliance Structure
In April 2017, we merged the Risk Management Committee andCorporate Ethics Committee to form the Corporate Ethics andRisk Management Committee. The aim of this change was toenhance the effectiveness of corporate ethics and risk management in the Wacoal Group. Under Group compliance and risk
policies formulated by the committee, directors and employees
perform their duties in compliance with laws, regulations, andthe articles of incorporation and sound social norms. We havealso formulated the Wacoal Ethics Code and the Wacoal Con-

duct Code. These require us to reject any demands from antisocial elements. Our Risk Management Manual similarly stipulates
that Wacoal will have no relationship with any antisocial group.
We have established a structure that requires a director or
employee who becomes aware of an issue that could involve
violations of the Corporate Ethics: Wacoal Conduct Code toreport the matter immediately through our internal reporting
system.

Basic Policy on Constructive Dialogue with Shareholders and Other Stakeholders
We have adopted a basic policy on constructive dialogue withshareholders and other stakeholders and published it on our
website. Company officers and employees attend meetings withshareholders and other stakeholders. Managing directors coordinate such meetings. Various factors are considered in relation torequests for meetings with directors, including the topic of themeeting and the affiliations of the person seeking the meeting. In

addition to fair, timely, and accurate disclosure of information
about our business and financial situation to shareholders andinvestors in Japan and overseas, we also help stakeholders togain a better understanding about our situation and thinking byactively distributing information about the market environmentand our unique strengths.

State of IR Activities
Presentations for individual investors

Presentations hosted by securities companies: about eight
regular sessions per year, with corporate informationalsessions and company facility tours held as appropriate

IR office

Presentations for analysts andinstitutional investors

Presentation of financial results twice a year
(end of second quarter, end of financial year)

Representative directors anddirectors, IR office

Presentations for overseas investors

Presentations during individual visits: 1-2 times per year
(October 2017, London; February 2018, Singapore)Directors, IR office

Basic Policy on Information Disclosure
We see timely disclosure of accurate information as the foundation for trusting relationships with all stakeholders. We are also
keenly aware that disclosure is essential for accurate assessments of our corporate value. We actively disclose information
while complying with all related regulatory requirements.
We have identified three basic requirements for information
disclosure. First, important information must be disclosed accu-

rately and in a timely manner, regardless of whether it is positiveor negative for us. Second, information must be expressed inlanguage that is easy for all stakeholders to understand anddisclosed using various methods to ensure ease of access andfairness. Third, organizational, personal, physical, and technicalsteps must be taken to prevent leakage of information before
timely, appropriate disclosure.

INTEGRATED REPORT 201839

Wacoal Management
Corporate GovernanceManagement decision-making process, management organization according to business operations
and supervision, and other corporate governance structures (As of June 28, 2018)
Corporate Governance Structure
In-house(male)

Outside(male)

Outside(female)General Shareholders’ Meeting
Board of Directors

5 Directors

Audit & Supervisory
Board

8 Directors

Group Management Meeting

5 Audit & Supervisory
Board members*
Quarterly BusinessResults Review Committee
8 Directors*

Group Strategy Meeting
5 Directors

Audit & Supervisory Board Secretariat*

2 Independent Outside Officers Meeting

Representative Director*
1

Independent
Accountants

Corporate Ethics and Risk Management Committee

3 Executive Compensation Advisory Committee

Office ofCorporate Auditors

Operating Subsidiary
Operating Subsidiary

Corporate Ethics Hot-line

Internal Control Advisory Committee

Operating Subsidiary

Compliance Committee

CSR Procurement Committee

Operating Subsidiary*Both internal and external Audit & Supervisory Board members attend meetings for the purpose of auditing the performance of duties by directors.

Overview of Our Corporate Governance Structure
Wacoal’s eight-member Board of Directors includes three outside directors, of whom one is female. Its role is to make decisions on important matters relating to business operations, suchas management policies and strategies, as stipulated in laws,
regulations, and the Articles of Incorporation. The term of officefor directors has been set at one year with the aim of ensuring
clear management accountability and creating a management
structure capable of timely adaptation to changes in the business environment.
The role of the five-member Audit & Supervisory Board,which includes three outside members, is to monitor and supervise management. The Office of Corporate Auditors was createdto oversee the appropriateness and efficiency of business processes and monitor operations, including the operations ofassociated companies.
The Group Management Meeting was established to discussmatters relating to group management strategies and importantmanagement issues. Other tasks include prior screening ofmatters submitted for deliberation at meetings of the Board of
Directors.

compliance systems and ensuring their consistent implementation, this committee also monitors risks relating to all aspects ofgroup management and works to develop management structures. The Corporate Ethics and Risk Management Committee
was formed in April 2017 through the merger of the Corporate
Ethics Committee and the Risk Management Committee.

1 Corporate Ethics and Risk Management Committee

In principle, this committee meets four times ayear to provide advice to the President and Representative
Director. It consists of a Director in charge of administration andexternal and internal directors. The committee’s task is to consider and discuss the nomination, promotion, and remunerationof directors and report to the President.

The President and Representative Director is the officer responsible for the Corporate Ethics and Risk Management Committee.
Members include a Director in charge of administration, internal
directors, directors of business companies, and executive officers. In addition to its role in strengthening corporate ethics

40

INTEGRATED REPORT 2018

2 Independent Outside

3 Directors

3 Audit & Supervisory
Board members

Officers Meeting

These meetings are held at least
once a year to provide a forum for independent deliberations.
They are attended by outside directors and outside members of
the Audit & Supervisory Board, while a Director in charge ofadministration provides secretarial support. The purpose of themeetings is to assess the performance of the Board of Directors
and discuss approaches to the improvement of its operations,and to strengthen communications between outside directors andoutside members of the Audit & Supervisory Board.

3 Executive Compensation

4 Directors

Advisory Committee

FOCUSStrengthening Corporate Governance
Outlined below are some of the ways in which Wacoal is working toenhance the effectiveness of corporate governance.

Analysis and Assessment through the Independent
Outside Officers Meeting

Training for Directors and Audit & Supervisory Board
Members

The Independent Outside Officers Meeting reviews efficacy assessments in order to identify issues as the basis for continuous
improvement.

Internal directors and Audit & Supervisory Board members undergo basic training in the requirements for directors and corporate
auditors. They are also provided with knowledge about company
law, governance, and other aspects, as well as useful information
about management and compliance with laws and regulations.
After their appointment, external directors and Audit & Supervisory Board members attend briefings designed to improve theirknowledge about Wacoal Group management strategies andgeneral aspects of the business, and about the business environment for the innerwear industry and the Wacoal Group. Thereafter
they are provided with continuing support, including opportunities
to visit Wacoal business sites in Japan and overseas.

Issues identified in FY2017

Initiatives in response to these issues

Inadequate reporting of medium- tolong-term management priorities andprogress under the medium-term
management plan

Increased opportunities have been
provided to report on deliberations about
management priorities, progress underthe medium-term management plan, andother matters.

Need for improvement of information
sharing and collaboration between theinternal audit organization (Office ofCorporate Auditors) and outside
directors and Audit & Supervisory
Board members

The venue for reporting by the internal
audit organization (Office of Corporate
Auditors) has been changed to meetingsof the Board of Directors.

Issues identified in FY2018

Initiatives in response to these issues

There should be increased sharing of
information to outside directors and Audit& Supervisory Board members about
important matters that are not subject todeliberations by the Board of Directors,
such as matters submitted to the GroupManagement Meeting.

Administrative systems have been modified
to ensure that information about importantmatters that are not subject to deliberations
by the Board of Directors is distributed
together with materials in advance of board
meetings.

FY2018FY2019In August 2017, training was provided forinternal directors with the aim of developing and reinforcing the Group’s crisis
management systems. A report on thistraining was later presented at a GroupManagement Meeting, and we also
arranged for an outside organization topresent a seminar on appropriate
information disclosure during crisis
situations.

In the year ending March 2019, we plan toprovide opportunities for discussions andtraining with outside organizations on
management strategies under theamended Corporate Governance Code, andmeasures to prevent or mitigate negative
risks relating to social changes or thesituation within the company.

Outside Directors and Audit & Supervisory Board Members
Reasons for Appointment of the Said Outside Directors*
MadokaMayuzumi

As a haiku poet, she has made wide-ranging contributions to the fields of art
and culture in Japan and overseas. Her expertise and experience is expected
to contribute to our efforts to realize business management that emphasizes
diversity, making her an appropriate outside director for the Group.

Shigeru
Saito
Tsunehiko
Iwai

Reasons for Appointment of the Said
Outside Audit & Supervisory Board Members
HiroshiShirai

It is anticipated he will enhance management supervisory functions byproviding input from various perspectives based on his extensive knowledge
and experience as a representative director of another company.

Specialized knowledge of accounting and finance as a certified
public accountant make him an appropriate outside Audit &Supervisory Board member for the Group.

Mitsuhiro
Hamamoto

His experience and specialized knowledge as an attorney makehim an appropriate outside Audit & Supervisory Board member.

In addition to his extensive knowledge and experience as a business
manager, Tsunehiko Iwai can also be expected to contribute to management
using his specialist knowledge relating to research, production, and fields oftechnology.

MinoruShimadaMinoru Shimada can be expected to contribute to our audit
and supervisory structure by using his long experience in thefinancial sector and his knowledge as a business manager, as
well has his overseas experience.

*Wacoal newly documented “Criteria for the Election of Directors” and “Criteria for Independence of Outside Officers” at the Board of Directors meeting on
April 30, 2015.

Criteria to Ensure Independence ofOutside Executives

For more details on our Criteria to Ensure Independence of Outside Executives,
please see our Corporate Governance Report.
https://www.wacoalholdings.jp/en/ir/pdf/governance_report.pdf

Attendance of Outside Directors at
Meetings of the Board of Directors

Attendance of Outside Audit & Supervisory Board Members at Meetingsof the Board of Directors and the Audit & Supervisory Board(April 2017–March 2018)(April 2017–March 2018)
Board of Directors

Audit & Supervisory Board

Atsushi Horiba

Attended

13 of 13

Akira Katayanagi

Attended

11 of 13

Attended

11 of 15

Madoka Mayuzumi

Attended

12 of 13

Hiroshi Shirai

Attended

12 of 13

Attended

14 of 15

Shigeru Saito

Attended

7 of 9Mitsuhiro Hamamoto

Attended

9 of 9Attended

10 of 10INTEGRATED REPORT 201841

Wacoal Management

Dialogue with an Outside Director

Our task is to maintain and enhance trust in management,so that we can enhance corporate value over the mediumto long-term future.
The Wacoal Group is strengthening and enhancing its corporate governance systems, which are thefoundation for its management structures, so that it can achieve sustainable development by providing
value to society through products that help to fulfill women’s desires to express their beauty.
The following is a dialogue between President and Representative Director Hironobu Yasuhara andOutside Director Shigeru Saito.
On the importance of outside directors
in achieving balance between the
supervisory and executive functionsof management.

Shigeru Saito
Outside Director
Wacoal Holdings Corp.

—E ffectiveness of the Board of Directors of
Wacoal Holdings
Yasuhara: The Board of Directors makes
decisions after a deliberation process that
includes thorough canvassing of the views ofoutside directors and Audit and Supervisory
Board members. Our founder warned against
self-centered behavior when he said that
Wacoal is sustained by society and should
always heed the voice of society with humility.
Our outside directors participate actively in
discussions about important matters, and wereflect their views in our business decisions.
Sometimes we identify and discuss unprofitable areas of our business, and then we mayneed to seek the understanding of our outside
directors by explaining the nature of thesebusiness areas, including the fact that restructuring may take a certain amount of time. For
example, our business in the United States has
become a reliable source of income, but werecorded losses for many years after we first
expanded into the U.S. market. We use examples like this to explain our activities from along-term perspective, and we debate ourstrategies on that basis.
Saito: I made some quite critical comments
about aspects of Wacoal’s new accommodation business, including concerns about business viability and the stance on contribution to

local communities.
Yasuhara: You were quite forthright in putting
forward objections from the perspective of
stakeholders. It took an explanation about thesignificance of the initiative in terms of contribution to the local community in Kyoto, andabout our commitment to optimize the distribution of value to all stakeholders to convinceyou. I am pleased to report that the businesshas been launched successfully.
Saito: I attend many meetings and committee
sessions as a director of other companies, but
I am impressed by the excellent atmosphere atmeetings of Wacoal’s Board of Directors, andby the Board’s effectiveness as a forum for a
lively exchange of views. This is my second
year as an outside director, and I will continue
to speak actively about several things that I
see as issues from a medium- to long-term
perspective. In the current year, we havetransitioned to a new management team led by
Mr. Yasuhara as President. I look forward toworking with our new Chairman,
Mr. Tsukamoto, to drive the evolution of ourcorporate governance structures, including therole and administration of the Board of Directors as a management supervisory body.
— On a recently passed resolution at thegeneral meeting of shareholders to add
another inside director, bringing theoverall total to eight directors
Yasuhara: Since Audit and Supervisory Board
members also attend Board meetings, there
were actually six outside participants andseven inside participants at Board meetings.

“Outside directors play an important role by providing
objective input from an independent perspective about how
the company is being viewed by society, and the ideals
toward which it should be working, thereby strengthening thesupervisory role of the Board of Directors.”

The outside directors and outside members of
the Audit and Supervisory Board are able toexpress their views freely and frankly, and I
believe that our current structure provides agood balance between management supervision and the exercise of executive authority.
Moreover, our outside directors all come fromdifferent backgrounds and are able to contribute to important decision-making processes byoffering advice based on a wide range ofadvanced knowledge and management perspectives, including expertise in areas in which
we inside directors may lack experience.
Saito: My own background is as a gamesoftware creator. The key to success or failurein that field is the ability to come up with new
ideas. The game industry operates in a rapidlychanging environment, and survival depends
on constant adaptation to those changes. I
believe that this experience allows me tocontribute to various decision-making processes about omni-channel services, which require
rapid strategy development. Going forward, acompany’s growth potential will be determinedby its ability to use customer information andother forms of big data. I aim to contribute totimely and effective business operations. For
example, I will take the initiative in strengthening the provision of information to outside
directors.

On strengthening Wacoal’s corporate
governance at all group business sites— The implications for reinforcement andenhancement of corporate governancefollowing the introduction of the revised
Corporate Governance CodeYasuhara: Transparency and fairness are thefundamental requirements in terms of maintaining and improving confidence in management
and strengthening and enhancing corporate
governance. Our goal must be to enhance ourrelationships of mutual trust with all stakeholders. We also need to ensure that Wacoal canfulfill its social responsibilities, by identifying
management risks, and by taking prompt
action to avoid or mitigate the impact of negative risks. Based on this approach, our policy is

to move forward according to priorities determined according to the importance and impactof each reform.
Saito: Compliance is obviously an important
issue. Obviously some reforms may be inappropriate because of the scale, business field,
or culture of a particular company, so we need
to identify those aspects and adapt our approach accordingly.
Yasuhara: For example, we established the
Executive Compensation Advisory Committee in
2007, and we have been working steadily to
reduce strategic shareholdings. We have also
discontinued our takeover defense measures. I
believe that we need to continue our efforts toensure full accountability. I wholeheartedly agreewith the government’s reform item calling for theformation of a board of directors consisting of
inside and outside directors with a wide rangeof advanced skills. However, this reform could
have unintended consequences if it encourages
every company to adopt the “company withnominating committee” structure.
Saito: My impression is that Mr. Yasuhara isabsolutely committed to the development ofour corporate governance systems on an evenhigher level, and I see this as an excellent
opportunity. I am determined to fulfill my responsibilities in relation to the improvement ofcorporate governance by helping to strengthencommunication with the Audit and Supervisory
Board through forums like the Independent
Outside Officers Meeting and by creating
opportunities to obtain input from appropriate
advisors.
Yasuhara: When equity method affiliatedcompanies are included, our overseas business operations far exceed the scale of ouroperations in Japan. We are developing corporate governance structures at overseas business sites as the basis for stronger systems.
At the same time, we are encouraging themanagement teams of these businesses totake appropriate risks, while also identifying
negative risks and taking steps to avoid or
mitigate them. We will continue to build management infrastructure to support the sustainable growth and development of the entire
Wacoal Group.

“The core requirements for corporate governance aretransparency, fairness, and speed. Our goal is to ensure that
Wacoal can earn the trust of all of its stakeholders.”

Hironobu Yasuhara
President and Representative Director
Wacoal Holdings Corp.

Financial Section
Eleven-Year Financial Summary
Wacoal Holdings Corp.: Key Consolidated Financial Data

2018

2017

2016

Performance
Net sales
Cost of sales% of net sales
Selling, general and administrative expenses% of net sales
EBITDA
Operating income% of net sales
Income before income taxes and equity in net income of affiliated companies
Net income attributable to Wacoal Holdings Corp.
Return on equity (ROE)
Return on assets (ROA)

195,725
91,90947.0%
91,282
46.6%
18,026
12,5346.4%
14,286
9,745
4.2%
4.8%

195,881
92,95047.5%
91,866
46.9%
16,097
11,065
5.6%
16,56912,5255.5%
5.6%

202,91795,901
47.3%
93,15145.9%
18,68013,865
6.8%
14,957
11,1594.9%
5.0%

Financial Condition
Total assets
Total shareholders’ equity
Net property, plant and equipment
Inventories

298,534
232,71254,33342,676294,958
227,568
55,28843,822292,854
224,374
53,93844,445

Cash FlowsNet cash provided by operating activities
Net cash provided by (used in) investment activities
Net cash provided by (used in) financing activities
Free cash flow
Cash and cash equivalents

15,493(7,362)(12,303)8,13129,487

16,351(3,032)(13,055)
13,31933,995

12,635(11,407)(4,547)1,228
34,059

5,884
5,492

7,445
5,032

8,978
4,815

3,454.40
143.46
72.00
4,871
2.3%
50.2%
21.47
0.89

1,658.53
90.13
36.00
4,225
2.6%
39.9%
15.24
0.83

1,592.90
79.23
33.00
4,648
2.5%
41.7%
16.95
0.84

116,085
51,888
10,795
16,957

118,389
48,423
11,107
17,962

120,570
51,869
11,19019,288

7,885
3,852
441
356

6,959
3,055
374
677

8,810
4,433
258
364

20,904

21,13920,655Investment
Capital expenditures
Depreciation and amortization
Per Share of Common Stock
Shareholders’ equity per share
Net income per share attributable to Wacoal Holdings Corp.
Dividends per share
Total dividend amount
Dividend yield
Dividend payout ratio
Price earnings ratio (Times)
Price book-value ratio (Times)
Operating Segment Information
Net sales:
Wacoal business (Domestic)
Wacoal business (Overseas)
Peach John business
Other
Operating income (loss):
Wacoal business (Domestic)
Wacoal business (Overseas)
Peach John business
Other
Employees
Employees within group (Persons)*	Consolidated financial statements for the fiscal year ended March 31, 2011, and prior fiscal years have been retroactively revised in accordance with the changes of the settlement
dates for certain consolidated subsidiaries that took place in the fiscal year ended March 31, 2012.
*	In accordance with changes in segment carried out in the fiscal year ended March 31, 2011, segment information for the fiscal year ended March 31, 2010, and prior fiscal years
has been omitted.
*	The Company have conducted a share consolidation of common stock of the Company pursuant to which two shares were consolidated into one share effective as of October 1,
2017. Per share information is calculated as if the consolidation of shares (reverse stock split) had been carried out at the beginning of the fiscal year ended March 31, 2018.

44

INTEGRATED REPORT 2018

For more details on our financial indicators, please see our website.

https://www.wacoalholdings.jp/en/ir/financial/index.html(Millions of yen, except per share amounts)

2015

2014

2013

2012

2011

2010

2009

2008

191,765
90,722
47.3%
87,94045.9%
12,156
7,082
3.7%
11,342
8,444
3.9%
4.0%

193,781
91,00847.0%
88,91345.9%
18,896
13,8607.2%
15,033
10,1065.2%
5.7%

180,230
84,54846.9%
84,331
46.8%
13,387
8,499
4.7%
10,940
7,880
4.4%
4.6%

171,897
81,891
47.6%
79,62946.3%
15,037
10,377
6.0%
10,207
6,913
4.1%
4.7%

165,548
81,65949.3%
77,716
46.9%
9,086
4,401
2.7%
3,927
2,785
1.6%
1.8%

163,548
80,101
49.0%
78,524
48.0%
8,594
3,829
2.3%
3,155
2,475
1.5%
1.4%

170,960
83,87949.1%
77,24845.2%
14,377
9,833
5.8%
7,329
5,062
2.9%
3.2%

165,201
82,94350.2%
68,921
41.7%
17,22913,337
8.1%
14,153
4,845
2.6%
5.8%

300,272
228,857
49,18842,893271,988
205,106
48,97840,211

254,536
186,646
49,66537,807221,098
171,496
49,07832,847215,276
167,480
49,73430,956

222,889
171,860
51,804
32,103

213,827
166,767
49,16531,153240,053
184,128
51,18530,02014,337164(8,391)
14,501
38,4108,949
1,658(5,554)
10,60730,65812,309(23,520)
5,379(11,211)24,514

10,060(3,467)(2,824)
6,593
29,985

10,441(703)(4,965)
9,738
26,316

9,463(3,573)(5,363)5,890
22,3288,202(4,759)(7,448)3,443
21,954

14,2493,709(9,400)17,95827,069

4,478
5,074

3,464
5,036

3,330
4,888

3,554
4,660

3,323
4,685

5,736
4,765

4,216
4,544

2,788
3,892

1,624.93
59.95
30.00
3,944
2.2%
50.0%
22.55
0.83

1,456.32
71.75
33.00
3,944
3.1%
46.0%
14.68
0.72

1,325.19
55.95
28.00
2,817
2.8%
50.0%
18.11
0.76

1,217.57
49.08
28.00
2,824
2.9%
57.0%
19.99
0.81

1,189.08
19.73
20.00
3,511
1.9%
101.4%
53.12
0.88

1,215.17
17.51
20.00
3,584
1.7%
114.2%
66.70
0.96

1,187.37
35.57
25.00
3,093
2.2%
70.3%
32.05
0.96

1,284.54
34.29
25.00
2,878
1.7%
72.9%
42.96
1.15

112,203
48,107
11,626
19,829118,085
43,636
12,482
19,578

115,657
23,081
11,972
26,444

115,870
21,396
13,836
20,795

110,856
20,01011,575
23,107

8,444
4,776(6,296)
158

9,284
4,037
83
456

8,423
1,430
(2,701)
947

8,172
1,440
529
236

5,620
1,322
(2,879)338

18,986

18,912

18,65016,52416,013

15,686

14,382

13,562

INTEGRATED REPORT 201845

Financial Section

Management’s Discussion and Analysis
Wacoal Holdings Corp. and Subsidiaries

Financial information contained in this section is based on the consolidated financial statements included in this integrated report, prepared in accordance with generally accepted accounting principles
in the United States (U.S. GAAP).
The Wacoal Group consists of one holding company (theCompany), 57 consolidated subsidiaries, and eight equity-method
affiliates. The Wacoal Group manufactures, wholesales, and—forcertain products—retails women’s foundation garments and lingerie,nightwear, children’s underwear, outerwear and sportswear, hosiery,and other textile products. Other operations include restaurant businesses, cultural and service-related operations, and the constructionof interiors for commercial premises.
OVERVIEW
We are a leading designer, manufacturer, and marketer in Japan of
women’s intimate apparel, with the largest share of the Japanesemarket for foundation garments and lingerie. Foundation garments(primarily brassieres and girdles) and lingerie (primarily slips, braslips, and women’s briefs) accounted for 75.1% of our consolidated
net sales for fiscal year 2018. We also design, manufacture, and sellnightwear, children’s underwear, outerwear, sportswear, hosiery andother apparel and textile goods, and provide several other services.
OVERVIEW OF STATUS OF BUSINESS PERFORMANCE ETC.
STATUS OF FINANCIAL POSITION AND OPERATION RESULTS
Status of Financial Position
Total assets as of the fiscal year ended March 31, 2018 (fiscal 2018)
were ¥298,534 million, an increase of ¥3,576 million compared tothe end of fiscal 2017, due to an increase in investment spurred onby rising market value.
Total liabilities at the end of fiscal year 2018 were ¥61,037 million, a decrease of ¥1,439 million compared to the end of the previous fiscal year, due to decreases in accrued taxes and deferred tax
liabilities.
Total Wacoal Holdings Corp. shareholders' equity at the end of
fiscal year 2018 was ¥232,712 million, an increase of ¥5,144 million
compared to the end of fiscal 2017, due to an increase in retained
earnings and a valuation gain on unrealized securities.
As a result of the above, the shareholders' equity ratio at theend of fiscal year 2018 was 78.0%, an increase of 0.8% comparedto the end of fiscal 2017.
SUMMARY OF BUSINESS RESULTS
During the current fiscal year (from April 1, 2017 to March 31, 2018),

Share of Net Sales
2018

Other textile products andrelated products
4.6%

Hosiery
1.0%

Other
5.9%

Outerwear andsportswear
8.2%
Children’s
underwear
0.7%
Nightwear
4.5%

Foundation garments
and lingerie
75.1%

consumer spending in the domestic economy recovered to some extent as
the employment environment improved. The environment surrounding thewomen’s innerwear market in Japan, however, remained difficult, due to theslow recovery of consumer spending, inhibited by deep-rooted concern for
the future, which continued to make consumers budget-conscious. Further,
we continued to experience a series of general merchandise store closings,
which precipitated inventory management issues. In the overseas markets,
consumer spending was stable in Europe and the United States, as consumer sentiment remained strong in the United States, and the employment environment continued to improve in the Eurozone, despite thesignificant uncertainty underlying Brexit in Europe. In China, consumer
spending was stable as a result of strong growth in the real per capita disposable income, and retail sales continued to achieve a high level of growth
due to reduced employment uncertainty.
In such an environment, our Group moved forward with efforts toimprove and strengthen our business structure toward achieving the objectives of our mid-term business plan. In our domestic business, we madeefforts to improve business efficiency through restructuring and strengthening of our wholesale business structure. The objectives were to realizeomni-channel services that will achieve synergies with our wholesale business and retail business, to form core IT systems that will improve inventory
efficiency, and to improve profitability by updating each of our brands andproduct groups. In our overseas business, we focused on business collaboration initiatives among Europe and the United States and Asian countries,
strengthening our ability to operate in the e-commerce market, and on

Net Sales to External Customers (and Percentage) by Product Category

Millions of yen

2018

2017

2016

Innerwear¥146,970

75.1%¥145,188

74.1%¥151,166

74.5%

Nightwear

Foundation garments and lingerie

8,758

4.5%

9,154

4.7%

10,0985.0%Children’s underwear

1,376

0.7%

1,429

0.7%

1,386

0.7%

157,104

80.3%

155,77179.5%

162,650

80.2%

Outerwear and sportswear

16,128

8.2%

17,1898.8%

19,074

9.4%

Hosiery

1,983

1.0%

2,235

1.1%

2,178

1.1%

Textile products

8,907

4.6%

9,346

4.8%

7,161

3.5%

Total innerwear

46

Other

11,603

5.9%

11,3405.8%

11,854

5.8%

Total

¥195,725

100%¥195,881

100.0%¥202,917

100.0%INTEGRATED REPORT 2018

improving product quality and cost competitiveness in China and
ASEAN-member countries, where our product supply bases arelocated.
Our consolidated sales for the current fiscal year fell slightly by
0.1% from sales for fiscal 2017. While consolidated sales from ourdomestic business for the current fiscal year fell by 2% from sales forfiscal 2017 due to the difficult environment for our wholesale business, our consolidated sales from our overseas business exceeded
sales for fiscal 2017 by 7% as a result of strong e-commerce sales
and steady sales at the existing stores in Europe, the United States,
and China. On the other hand, revenue from our Peach John andother business segments decreased.
Consolidated operating income increased by 13.3% comparedto fiscal 2017. In addition to our initiatives to improve profitability inthe domestic business, higher profit on sales resulting from a rise inrevenue from our overseas business contributed to the increase.
Also, consolidated operating income increased as a result of recognition of compensation income from leaving a factory space occupied by our subsidiary and the absence of non-recurring expenses
related to the liquidation proceedings for our French subsidiary that
we recorded for the previous fiscal year.
Income before income taxes declined by 13.8% from fiscal 2017,
due to substantial gains on sale of fixed assets (land) in fiscal 2017.
The key exchange rates used for the current fiscal year were:¥110.85 to the U.S. dollar; ¥147.03 to the British pound; and ¥16.63
to the Chinese yuan.
Net sales:

Operating income:

Income before income taxes
and equity in net income ofaffiliated companies:
Net income attributable to
Wacoal Holdings Corp.:¥195,725 million(a decrease of 0.1% compared tofiscal 2017)¥12,534 million(an increase of 13.3% compared tofiscal 2017)¥14,286 million(a decrease of 13.8% compared tofiscal 2017)¥9,745 million(a decrease of 22.2% compared tofiscal 2017)

The following is a summary of operations by operating segment.
Wacoal Business (Domestic)
Wacoal Corp. reorganized two divisions, formerly called the Wacoal
Brand Operation Division and the Wing Brand Operation Division,
into the Wacoal Brand Operation Division and the Chain StoreOperation Division. The Wacoal Brand Operation Division is responsible for planning and development of “Wacoal” brand products andwholesale business mainly with department stores and specialty
store channels. And the Chain Store Operation Division is responsible for planning and development of “Wing” brand products andwholesale business with general merchandise stores.
Sales from our wholesale business, mainly composed of wholesale business from the Wacoal Brand Operation Division and theChain Store Operation Division, decreased by 2% compared to sales
for fiscal 2017. Over-the-counter sales at department stores remained
at about the same level as the previous fiscal year due to weak sales
in the non-metropolitan cities of the Kanto, Koshinetsu, and Hokuriku
regions, although sales expanded significantly in Tokyo and the
Osaka area as a result of consumption by inbound tourists. Although
we have actively promoted renovations of our “Dual W” format shopsthat effectively brings together our Wacoal and Wing brands, andexpanded our share in the market, over-the-counter sales at generalmerchandise stores remained at about the same level as for fiscal
2017 due to poor sales of men’s innerwear products and nightwear.
With respect to over-the-counter sales of our core brassieres products, while sales of our Wacoal brand products increased by 6% fromsuch sales for fiscal 2017 due to 290% growth in sales of “GOCOCi,”
our brassieres marketed for their comfort, sales of our Wing brandproducts only increased by 1%. Although the over-the-counter sales
were stable, a series of closings, which prompted inventory adjustments at department stores, and general merchandise stores
impacted sales from our wholesale business.
In our retail business, sales only increased by 1% compared tosales for fiscal 2017 as a result of prioritizing improvement of businessprofitability and closing 11 underperforming stores, while minimizing
the number of new shop openings. Sales of our cross-store common
products among directly managed retail stores, “BRAGENIC,” haveincreased by 54% from such sales for the previous fiscal year, which
accounts for approximately 20% of overall sales, and the number ofregistered shop members, mainly from our core directly managed
retail stores, “AMPHI,” has reached over 660 thousand. We focusedon increasing sales per product, and reducing discount sales throughstrengthening of relationships with our important customers.
Sales from our wellness business fell by 5% compared to sales
for fiscal 2017 due to a 9% decline in sales of our core “CW-X”
brand products, which were impacted by the termination of businesswith certain sport specialty chain stores, despite the strong sales of“SUCCESS WALK.”In our e-commerce business (formerly catalog sales business),sales increased by 1% compared to sales for fiscal 2017. Sales fromour own online store business increased by 14% compared to suchsales for fiscal 2017. This result was driven by efforts to advise ourregistered shop members and to recapture our inactive customers,in collaboration with our retail business, as well as our efforts tostrengthen our ability to respond to phone orders and launch of consulting services by beauty advisers. On the other hand, sales fromour catalog sales business decreased by 4%, due to a gradualdecrease in the number of users and purchasers from our winter andspring catalogs.
Sales from Ai Co., Ltd. were weak, falling by 8% compared tosales for the previous fiscal year. Sales from our core swimwear business decreased by 5% over the previous fiscal year despite our efforts
to enhance revenue efficiency per store by reducing the number of ourseasonal stores (opened only during a period of peak demand).
Retaining temporary sales representatives also became difficult. Sales
from the underwear business were also weak and decreased by 14%
compared to sales for fiscal 2017 due to closure of underperforming
stores, and a decline in the competitiveness of our products.
As a result, sales attributable to our “Wacoal Business (Domestic)”
segment decreased by 1.9% compared to such sales for fiscal 2017.
Operating income increased by 13.3% compared to fiscal 2017.
We focused on improving the gross profit margin and minimizing
selling, general and administrative expenses with our efforts toimprove business efficiency by reducing the amount of returned
items in our wholesale business and to strengthen profitability of ourretail business, while IT infrastructure related expenses and expenses
related to changes in the health insurance premium rate increased.
In addition, recognition of compensation income received after leaving a factory space occupied by our subsidiary during the first quarter of the current fiscal year contributed to the increase.
Net sales:¥116,085 million(a decrease of 1.9% compared to fiscal 2017)

Operating income:¥7,885 million(an increase of 13.3% compared to fiscal 2017)

INTEGRATED REPORT 201847

Financial Section

Wacoal Business (Overseas)
Sales (on a local currency basis) from Wacoal International Corp. (theUnited States) increased by 3% compared to such sales for fiscal
2017. This was due to an increase in e-commerce sales through ourown website and third-party online websites, which showed strong
sales growth, as well as the positive impact of initial product delivery
due to an increase in the number of department stores handling
Wacoal brand products during the first quarter of fiscal 2018.
However, although over-the-counter sales were steady at department stores (physical shops) throughout fiscal 2018, sales for thesecond half of the fiscal year fell by 3% compared to sales for thecorresponding period of the previous fiscal year due to the management of inventories by certain department stores and companies
specializing in e-commerce.
Operating income on a local currency basis increased by 2% (anoperating margin of 11%) compared to fiscal 2017. While the grossprofit on sales margin increased as a result of reducing discountsales and increasing the percentage of sales from our own e-commerce website, selling, general and administrative expenses as apercentage of sales increased due to costs related to product listing
advertisements and website renewal to strengthen e-commerce
sales, and an increase in medical insurance premiums. In addition,
one-off expenses from restructuring our subsidiary, Wacoal Sports
Science Corp., in the United States during the fourth quarter of fiscal
2018 impacted the results.
Sales on a local currency basis (British pound) for Wacoal
Europe increased by 3% compared to the previous fiscal year. Thiswas due to steady sales through third-party e-commerce websitesthat specialize in selling luxury lingerie and through specialty storesin the major markets in the United Kingdom and the United States,
while sales in France fell below that of fiscal 2017 due to the effectof loss of sales that could have been recorded for the brands whichwere liquidated. In addition, sales in Germany and Spain achieved adouble-digit increase from fiscal 2017 due to an expansion in thenumber of brands handled by our clients and the favorable effect of
the appreciation of the Euro. In our underwear business, sales of ourplus-size brand “elomi” products continued to show strong growthwith an increase of 20% compared to such sales for the previous
fiscal year, while sales of the swimwear brands “FANTASIE” and“Freya” both increased by 17%, contributing to sales growth in various countries.
Operating income as a percentage of sales for fiscal 2018 was
9%, compared to fiscal 2017, which recorded an operating loss dueto the non-recurring expenses related to the liquidation proceedingsfor our French subsidiary. Also, operating income improved overbudget as a result of improvement in the gross profit margin from adepreciation of the dollar and reduction in transportation costs, aswell as minimizing selling, general and administrative expenses following the postponement of our website renewal for e-commerce
sales.
In China, sales on a local currency basis increased by 10%
compared to such sales for fiscal 2017. We captured consumers
who are becoming more sensitive to fashion trends and enhanced
sales initiatives, including the openings of special sales spaces
during China’s high-demand seasons such as the Chinese New Year,
International Women’s Day and China National Day. As a result, sales
per department store increased by 8% compared to such sales forthe previous fiscal year. In addition, e-commerce sales through thirdparty e-commerce websites increased by 29% compared to fiscal
2017 as a result of focusing on handling regular-priced products andof strong sales from the China Double 11 shopping festival sales. By
brand, sales of our Wacoal brand products increased by 10%, andsales of our Peach John brand products, including our popular product “Cover Cleavage Strapless” bras, also increased by 51%, resulting from steady growth in the number of repeat users.
Operating income on a local currency basis increased by 9% (an48

INTEGRATED REPORT 2018

operating income margin of 5%) compared to the previous fiscal
year. While we continued to minimize selling, general and administrative expenses through closure of underperforming stores, selling,
general and administrative expenses as a percentage of sales
increased during the fourth quarter of the current fiscal year due tocommencement of operation of our centralized distribution warehouse to achieve effective distribution of bargain products, andcosts related to advertisements to strengthen e-commerce sales.
As a result of the above, the overall sales attributable to our“Wacoal Business (Overseas)” segment on the Japanese yen basis
increased by 7.2% compared to the previous fiscal year. The overall
operating income attributable to “Wacoal Business (Overseas)” segment on the Japanese yen basis increased by 26.1% compared tofiscal 2017. This increase was affected by impairment charges of¥206 million on goodwill related to our raw materials company, A
Tech Textile Co., Ltd., in Thailand, which was recognized for the current fiscal year.
Net sales:¥51,888 million(an increase of 7.2% compared to fiscal 2017)

Operating income:¥3,852 million(an increase of 26.1% compared to fiscal 2017)

Peach John BusinessOverall sales at Peach John Co. Ltd., which are attributable to our“Peach John Business” segment declined by 2.8% compared tofiscal 2017 due to weak sales from the Peach John domestic web
sales business, while operating income attributable to our “PeachJohn Business” segment increased by 17.9% compared to suchoperating income for the previous fiscal year as a result of an
improvement in the gross profit margin in Japan, as well as an
improvement in profitability at Peach John’s Chinese business.
Sales from Peach John’s domestic business, specifically fromretail stores, remained at about the same level as the previous fiscal
year. Although sales from the premium themed “Salon by PeachJohn” increased by 31% as a result of a positive impact from new
shop openings. Sales of our “Peach John” products decreased by
2%, impacted by a decrease in the number of shop visitors, despite
the strong sales of the “Miracle Work Bra” launched in the fourth
quarter of the current fiscal year. Sales from the web sales businessdecreased by 12% from fiscal 2017. While the average spending per
customer increased, the sales decline was due to fewer visitors to
the peachjohn.co.jp e-commerce website, as our products failed to
attract consumers’ attention. Sales from the wholesale business,particularly sales to third-party e-commerce websites increased by
4% from fiscal 2017 as a result of successful sales during the fourth
quarter of the current fiscal year. Sales from our overseas businesswere strong as demonstrated by the sales from Taiwan Peach John
Ltd., a subsidiary in Taiwan, which, after commencing operations in
May 2017, achieved sales over budget by 56%, which were twice
the sales budgeted for the e-commerce website.
Positive factors, including an improvement in the gross profit
margin resulting from a reduction in discount sales of domestic
innerwear products, efforts to reduce advertising expenses, and an
improvement in profitability of our businesses resulting from sales
expansion in China and Taiwan, contributed to the strong rise inoperating income.
Net sales:¥10,795 million(a decrease of 2.8% compared to fiscal 2017)

Operating income:¥441 million(an increase of 17.9% compared to fiscal 2017)

OtherSales from the business of Lecien Corporation (“Lecien”) decreased
by 16% from fiscal 2017. This was impacted by sales of the innerwear business, its main business division, which decreased by 13%
from the previous fiscal year, due to a decrease in the number oforders received for its private brand products sold at major generalmerchandise stores, a reduction in the number of products handled
and weak shop sales. In addition, sales from the art & hobby business decreased by 4% from fiscal 2017, due to poor sales of sewing
fabrics, despite steady sales of handcraft products. Sales of thematerial business were also weak, decreasing by 13% from fiscal
2017 due to a decline in demand for garment lace. Further, sales
from the apparel business decreased significantly by 47% from theprevious fiscal year due to the withdrawal from private brand sales atmajor general merchandise stores and the impact of weak sales
from teleshopping.
Operating income for Lecien decreased by 86% from the previous fiscal year due to a drop in profit from sales resulting fromdecreased revenue, despite our efforts to reduce selling, general andadministrative expenses, and the absence of the favorable effect of
the exchange rate during fiscal 2017.
Sales from Nanasai Co., Ltd. (“Nanasai”) fell by 2% compared tofiscal 2017. Although business confidence in the clothing industry
continued to show only modest improvement, a sign of recovery
was seen in demand for short-term leases for specialty stores within
department stores and, as we entered the second half of the current
fiscal year, this was reflected in demand for renovation projects in
our construction business for department stores and specialty
stores. As a result, we were able to maintain sales from both rental
business and sales business at about the same level as the previous
fiscal year. However, sales from construction business could not
make up for the a higher number of large-scale orders received
during fiscal 2017, and decreased by 2%, which impacted Nanasai’s
overall sales.
Operating income for Nanasai increased by 90% compared tofiscal 2017 due to an improvement in the gross profit margin fromhigher fees in our rental business and a decrease in the percentage
of sales from our construction business.
As a result of the above, overall sales and operating income
attributable to the “Other” segment decreased by 5.6% and 47.4%,
respectively, compared to the previous fiscal year.
Net sales:¥16,957 million(a decrease of 5.6% compared to fiscal 2017)

Operating income:¥356 million(a decrease of 47.4% compared to fiscal 2017)

REVIEW, ANALYSIS AND DISCUSSION WITH RESPECT TOSTATUS OF BUSINESS PERFORMANCE ETC. FOR FISCAL 2018
Our Group continues to move forward with efforts to improve andstrengthen our business structure in line with the five elements of thebasic policies in our three-year mid-term plan (from fiscal year 2017
to fiscal year 2019), which will end at the end of fiscal 2019.
During the current fiscal year, we continued to make efforts toensure stable profits from our domestic business and to achieve further growth of our overseas business, while building on our Groupmanagement base. Also, we made efforts to improve profitability andbusiness efficiency in the existing business domain by challenging
ourselves to expand our business portfolio, while strengthening ourcompetitiveness by achieving Group synergies through collaboration.
In addition, we focused on improving capital efficiency by implementing effective financial strategy.
A review, analysis, and discussion of the business strategies inline with the five elements of the basic policies under our mid-termplan follows:
In order“to ensure profits from our domestic business,” Wacoal
Corp., our core business company, worked on the restructuring of
our chain store operations and retail business, in particular. It prioritized the improvement of business profitability, to address the negative impact of the inevitable increase in selling, general andadministrative expenses related to increased health insurance premiums, better working conditions for the sales representatives, andIT-related expenses. Our business was also impacted by shop closings and prolonged inventory controls in the distribution channel. We
strengthened our efforts to increase the gross margin by expanding
sales of high value-added products, reducing discounts and/or
returns by prioritizing the achievement of proper shop inventory, andstrengthening the handling of the same products sold at directly
managed retail stores. We intend to get back on the growth path at
an early stage, while enhancing business productivity in Japan.
With respect to our aim to “achieve further growth of our overseas business,” our efforts through our core three business entities
in Europe, the United State and China, focused on responding to therapidly expanding e-commerce markets, enhancing user-friendlinessof our own e-commerce website and reviewing our merchandise anddistribution policies on third-party e-commerce websites. These initiatives have resulted in strong sales expansion, which also has facilitated further strengthening of our management practices. On theother hand, it is taking a considerable amount of time to restructure
the businesses of A Tech Textile Co., Ltd., our material production
company in Thailand, as it works to solve quality issues and to dispose of underperforming businesses after acquisition. We will continue to enhance our growth capability in the overseas by making
growth investment.
In relation to the basic policy to “achieve Group synergies
through collaboration and strengthen our competitiveness,” PeachJohn, Lecien, Nanasai and Ai Co., Ltd. have not been able to keep
up with changes in the distribution structure and consumer needs,
and as a result, both sales and operating income from these four
domestic subsidiaries were below target. Also, as the operating
margin has remained low at around 2% in recent years, we will
undertake reforms to ensure stable sales and revenue by working on
initiatives to improve profitability, with a view toward radical change
in the business structure.
To “expand our business portfolio,” we carried out infrastructuredevelopment projects to start a lodging business in the Kyomachiya
district of Kyoto to help preserve this traditional Japanese neighborhood and its classic wooden houses. Simultaneously with our efforts
to improve profitability from our existing business, we will also
explore the development of a new type of business portfolio that
defies the traditional business model.
With respect to the aim of “establishing our Group management
base,” we are intensifying efforts to fulfill our responsibility towardsocial needs, including human rights, labor practices, and ethics, bybuilding close partnerships with all suppliers in accordance with
“Wacoal Group CSR Procurement Guidelines,” established in
October 2017. Also, we will continue to make efforts to improve ourcorporate governance, and are improving our business infrastructure
by going further, not only to increase women’s participation in society but also to nurture a corporate culture that respects diversity. We
will aim to enhance the value of our “invisible assets” by further revitalizing our organization and human resources through the promotion of work-style reform, including the introduction of teleworking.
As a result, Wacoal Holdings Corp. consolidated results forfiscal 2018 exceeded the forecast for operating income, pre-tax net
income, and net income by ¥1,034 million, ¥1,786 million and ¥745
million, respectively.
Capital efficiency has also been impacted by implementation of
our financial strategies and initiatives on shareholder returns. Whilenet income attributable to Wacoal Holdings Corp. exceeded the

INTEGRATED REPORT 201849

Financial Section

forecast of the consolidated results for the current fiscal year, it was
below the consolidated results for fiscal 2017 due to the absence ofproceeds from sale of unused land, which was recorded for the previous fiscal year.
Our basic policy on profit distributions to shareholders is to provide stable distributions based on our consolidated results, while
seeking to increase our enterprise value through active investment toimprove profitability, and to increase net income per share attributable to Wacoal Holdings Corp.
With respect to retained earnings, in addition to actively investing to expand customer contacts in domestic business and growour overseas businesses, from the viewpoint of enhancing our enterprise value, we will make strategic investments to maintain competitiveness and strengthen our growth potential. With these efforts, wehope to deliver returns to our shareholders in the form of improved
future earnings.
In addition, we will acquire treasury shares flexibly while taking
into account the free cash flow level and the market environment,
and seek to improve capital efficiency and returns to ourshareholders.
The amount of capital investment for fiscal 2018 was ¥5,884
million. Our capital investment was used in IT infrastructure foromni-channel services in Japan, creation of a platform for our
e-commerce business overseas and renewal of construction facilities. The amount of profits returned to our shareholders will be¥11,393 million, the sum of ¥7,386 million, in the form of dividends,and ¥4,007 million, in the form of repurchases.
However, total shareholders’ equity increased ¥5,144 million to¥232,712 million due to the impact of unrealized gain on securities,
and as a result, the consolidated ROE (i.e., return on Wacoal
Holdings Corp. shareholders’ equity for fiscal 2018) was 4.2%.
To achieve future growth, we will continue to make efforts toimprove business profitability, while also actively and strategicallyseeking investment opportunities.
Objective indices for judging whether management policy andmanagement strategy, as well as management targets, have beenachieved are as follows.
Our target is to achieve consolidated operating margin of 7%
and a consolidated ROE (i.e., return on Wacoal Holdings Corp.
shareholders’ equity for the current fiscal year) of 5% or higher as
our mid-term financial data.
Our operating margin increased 0.8% from 5.6% for fiscal 2017
to 6.4% for fiscal 2018. This increase was mainly due to improvement in cost of sales as a percentage of net sales as a result of adifferent mix of products in Japan, greater appreciation of the British

pound against the U.S. dollar, and the absence of the impact ofimpairment of inventories for fiscal 2017. Other factors included recognition of subsidy revenue from leaving a factory space occupied
by our subsidiary, as well as reduction in selling, general and administrative expenses as a percentage of sales as a result of theabsence of non-recurring expenses related to the liquidation proceedings for our French subsidiary that we recorded for fiscal 2017.
Consolidated ROE decreased 1.3% from 5.5% for fiscal 2017 to
4.2%. This decrease was due to a decline in net income attributable
to Wacoal Holdings Corp. resulting from the absence of gain on
sales of property (land) that we recorded for fiscal 2017, although werecorded increased operating income for fiscal 2018.
We will continue to endeavor to improve these financial
indicators.

Net Cash Provided by Operating Activities

Capital Investment(¥ billion)(¥ billion)

2018

2018
15.5

2017

16.4

2016
12.6

2015

8.9

50

INTEGRATED REPORT 2018

CASH FLOW STATUS
The balance of cash and cash equivalents at the end of fiscal 2018was ¥29,487 million, a decrease of ¥4,508 million compared to theend of fiscal 2017.

5.9

2017

7.4

2016

9.0

2015
14.3

2014

CAPITAL RESOURCES AND LIQUIDITY
Our current policy is to fund our cash needs from cash flows fromoperating activities, which allows us to secure most of working capital, make capital investments, and pay dividends without relying on
substantial borrowings or other financing from outside of our Group
companies. As of March 31, 2018, we had credit facilities at financial
institutions totaling ¥30,965 million, and the balance of short-term
financing, which established line of credit, amounted to ¥7,291 million. Of this credit, ¥2,500 million is available to Wacoal Holdings
Corp., ¥1,988 million is available to Wacoal Europe Ltd., ¥2,616 million is available to Wacoal Service Co., Ltd., and ¥187 million isavailable to Nanasai.
In general, most of our credit facilities have automatically renewing terms, and we are not aware of any issues with respect to any of
our lenders that could cause these facilities to become unavailable.
Even if any of our subsidiaries loses access to funds from our credit
facilities, we believe that it is possible for other companies in ourGroup to provide any necessary funds. Our borrowing requirements
are not affected by seasonality.
We are not aware of any restrictions on the transfers of funds
from a subsidiary to a parent company in the form of a cash dividend. We believe our working capital is adequate for our present
requirements and for our business operations in the short to long
term.

4.5

2014
3.5

• Cash flow provided by operating activities
Cash flow provided by operating activities during fiscal 2018 was¥15,493 million, a decrease of ¥858 million compared to fiscal 2017.
It is the result after the net income of ¥9,660 million was adjusted for
depreciation expenses, deferred taxes and changes in assets andliabilities.
• Cash flow used in investing activities
Cash flow used in investing activities during fiscal 2018 was ¥7,362
million, an increase of ¥4,330 million compared to fiscal 2017, due
to an increase in time deposits and capital expenditures.
• Net cash used in financing activities
Cash flow used in financing activities during fiscal 2018 was ¥12,303
million, a decrease of ¥752 million compared to fiscal 2017, due tothe cash dividend payments and repurchase of treasury stock.

SUMMARY OF CAPITAL INVESTMENT, ETC.
The amount of capital investment for the fiscal year ended March 31,
2018, was ¥5,884 million. A majority of our capital investment wasused in the information system investment for our subsidiaries andmaintenance and repair work implemented for the real properties
held by the Company.
The amounts of capital investment made in Wacoal Business(Domestic), Wacoal Business (Overseas), Peach John Business, andOther were ¥3,649 million, ¥1,752 million, ¥365 million, and ¥118
million, respectively.

DIVIDEND POLICY
Our basic policy on profit distribution to shareholders is to makestable distributions based on consideration of our consolidated performance, while seeking to increase our enterprise value throughactive investment aimed at higher profitability and to increase net
income per share.
Our basic policy is to distribute earnings twice a year in the formof interim and year-end dividends, and the Board of Directors is thedecision-making body for distribution of earnings.
Based on such policy, we plan to distribute a year-end dividendof ¥36.00 per share as a distribution of earnings for the current fiscal
year. As a result, the annual cash dividend per share, including aninterim dividend of ¥18.00 per share, will be ¥54.00 for the current
fiscal year.
Please note that we have conducted a share consolidation ofcommon stock of the Company pursuant to which two (2) shareswere consolidated into one (1) share effective as of October 1, 2017.
As such, the annual cash dividend is a total of the interim dividend,
before such share consolidation, and the year-end dividend, after
such share consolidation. Without taking into consideration theshare consolidation, the year-end dividend per share will be ¥18.00,
and the annual dividend amount per share will be ¥36.0.
As for retained earnings, with the aim of improving our corporate value, we have actively invested in expanding new points ofcontact with consumers at our domestic business and our overseas
businesses. We also plan to use our retained earnings in our strategic investments for maintaining competitiveness and reinforcing
growth. With these efforts, we seek to benefit our shareholders by
improving future profitability. We also intend to acquire treasury stock
in a flexible manner taking into account the level of free cash flow aswell as the market environment, and will make efforts to improve
capital efficiency and return profits to our shareholders.
We also provide that the Company may distribute earnings subject to the resolution of the Board of Directors pursuant to the provisions of Paragraph 1, Article 459 of the Companies Act.

RESEARCH AND DEVELOPMENT
Our research and development activities are mainly conducted by
the Human Science Research Center to achieve harmony between
the human body and clothing and to support better product making.
Since 1964, we have been conducting research into the female
body in order to accurately understand the Japanese woman’s physique. In particular, we have developed a silhouette analysis system
and introduced a three-dimensional measuring system. We are also
working on an even more advanced measurement of sensory comfort. Our research and development activities focus on addressing
the proportional, physiological, and mental aspects of garment
design. One of our most important research results was the enrichment of our research on sensory comfort through our participation ina project led by the Ministry of Trade and Industry (presently the
Ministry of Economy, Trade and Industry) from 1995 to 1998. Basedon this research, we have been focusing on developing new products that are not only comfortable for the wearer, but also have apositive physiological effect based on fundamental study of threefactors, which are pressure, heat, and touch. In 2005, we developed
and created a new market for our breakthrough Style Science seriesof products, which support the creation of a healthy and beautiful
body by transforming the idea of everyday walking into walking forexercise. In 2010, we conducted an analysis and announced principles on the physiological changes associated with the aging
between one’s 20s and 50s. We also strengthened the developmentof new products coping with aging and have been working on developing new functional products based on the lifestyle habits of people
as they undergo small physical changes associated with aging.
Our Human Science Research Center is promoting researchand development, which is based on a survey analysis of the body
shapes and needs of young customers, including customers at theage when the products are first introduced, and the senior
generation.
During the fiscal year ended March 31, 2018, we worked on
research and development focusing on “physical sensation” to target
the market for comfort products and on research and developmentof high value-added products, responding to the needs for “beauty”
and “health.”
As a result of the above, we recorded ¥781 million for our
research and development during the fiscal year ended March 2018.
Our research and development activities cover a wide range of
research from basic research to product development, mainly of
women’s innerwear. Therefore, it is difficult to relate each of suchactivities to a specific segment, and thus, we do not provide information regarding such research and development activities bysegment.
In order to promote “the realization of an industry supporting
women with unbounded living beauty,” we will make efforts to enrichresearch and development activities that contribute to the improvement of customer satisfaction and corporate value based on the key
concepts of beauty, comfort, and health. We will also work toward
strengthening product appeal and developing new products or services that can gain support from and satisfy our customers.

INTEGRATED REPORT 201851

Financial Section

Consolidated Balance Sheets
Wacoal Holdings Corp. and Subsidiaries

Millions of yen
March 31, 2018 and 2017

Thousands of
U.S. dollars (Note 2)

2018

2017

2018

ASSETS
CURRENT ASSETS:
Cash and cash equivalents¥ 29,487¥ 33,995$ 277,655

Time deposits

4,296

2,722

40,452Marketable securities (Notes 3, 18 and 19)

1,567

1,457

14,755

Notes and accounts receivable (Note 6)

25,87325,563

243,625

Allowance for returns and doubtful receivables (Note 4)(2,459)(2,477)(23,154)

Inventories (Note 5)

42,67643,822401,846

Deferred income taxes (Note 16)
Other current assets (Notes 6, 19, 20 and 22)

4,049
4,372

4,683

41,168105,812

113,814996,347

Land (Notes 9 and 19)

21,561

21,555203,023

Buildings and structures (Notes 9, 11 and 19)

73,61872,664

693,201

Machinery and equipment (Note 19)

18,26817,722

172,015

254

274

2,392

113,701

112,215

1,070,631(59,368)(56,927)(559,021)

54,33355,288511,610Investments in affiliated companies (Note 6)

22,512

20,868211,977

Investments (Notes 3, 18 and 19)

69,31859,847652,712Goodwill (Notes 7 and 8)

16,594

16,071

156,252

Other intangible assets (Note 8)

12,85911,849121,083

Prepaid pension expense (Note 12)

10,178

10,287

95,838Deferred income taxes (Note 16)

1,194

1,060

11,243

Total current assets
PROPERTY, PLANT AND EQUIPMENT:

Construction in progress
Total
Accumulated depreciation
Net property, plant and equipment
OTHER ASSETS:

Other
Total other assets

TOTAL

5,734

5,874

53,993

138,389

125,856

1,303,098¥298,534¥294,958$2,811,055

As of October 1, 2017, Wacoal Holdings Corp. effected a one-for-two ordinary share reverse stock split. The number of ordinary shares, outstanding shares and treasury stock arecalculated assuming that the reverse stock split occurred at the beginning of the earliest fiscal year presented in the consolidated financial statements.
See notes to consolidated financial statements.

52

INTEGRATED REPORT 2018

Millions of yen

2018

Thousands of
U.S. dollars (Note 2)

2017

2018

LIABILITIES AND EQUITYCURRENT LIABILITIES:
Short-term bank loans (Note 9)

¥

7,104

¥

7,716

$

66,893

Notes and accounts payable:
Trade notes payable

1,174

1,438

11,054

Trade accounts payable (Note 6)

11,393

11,605

107,279

Other payables

7,053

6,185

66,412

Accrued payroll and bonuses

7,213

7,093

67,919

Income taxes payable (Note 16)

1,979

2,964

18,635

50

50

471

3,666

4,008

34,52039,632

41,059373,183

Current portion of long-term debt (Notes 9 and 18)
Other current liabilities (Notes 19 and 20)
Total current liabilities
LONG-TERM LIABILITIES:Long-term debt (Notes 9 and 18)

138

185

1,300

Liability for termination and retirement benefits (Note 12)

1,852

1,956

17,439Deferred income taxes (Note 16)

17,231

17,862

162,250

Other long-term liabilities (Notes 11, 12 and 16)

2,184

1,414

20,565

21,405

21,417

201,554

13,26013,260124,859

Total long-term liabilities
COMMITMENTS AND CONTINGENCIES (Notes 9 and 10)
EQUITY:WACOAL HOLDINGS CORP. SHAREHOLDERS’ EQUITY (Note 14):Common stock, no par value –authorized, 250,000,000 shares in 2018 and 2017;
issued 71,689,042 shares in 2018 and 2017
Additional paid-in capital (Note 14)

29,76529,707280,273

Retained earnings

172,418

170,062

1,623,522

Accumulated other comprehensive income (Note 15):
Foreign currency translation adjustments

2,274

1,212

21,412

Unrealized gain on securities

27,424

21,075258,230

Pension liability adjustments (Note 12)
Total accumulated other comprehensive income
Treasury stock, at cost – 4,322,121 shares and3,083,605 shares in 2018 and 2017, respectively
Total Wacoal Holdings Corp. shareholders’ equity
NONCONTROLLING INTERESTS
Total equity
TOTAL(1,101)(414)(10,367)

28,597

21,873

269,275(11,328)(7,334)(106,667)

232,712

227,568

2,191,262

4,785

4,914

45,056

237,497

232,482

2,236,318¥298,534¥294,958$2,811,055

INTEGRATED REPORT 201853

Financial Section

Consolidated Statements of Income
Wacoal Holdings Corp. and Subsidiaries

Years Ended March 31, 2018, 2017 and 2016

NET SALES (Note 6)
OPERATING COSTS AND EXPENSES (REVENUE):
Cost of sales (Notes 12 and 6)
Selling, general and administrative expenses (Notes 1, 10, 11, 12, 13, 19 and 21)
Compensation income
Impairment charges on goodwill (Notes 8 and 19)
Total operating costs and expenses
OPERATING INCOME
OTHER INCOME (EXPENSES):Interest income
Interest expense
Dividend income
Gain (loss) on sale or exchange of marketable securities
and investments – net (Note 3)
Valuation gain (loss) on marketable securities and investments – net (Note 3)
Gain on sale of property, plant and equipment
Gain on bargain purchase (Note 7)
Other – net (Notes 1, 15 and 20)
Total other income (expenses) – net
INCOME BEFORE INCOME TAXES AND EQUITY IN NET INCOME
OF AFFILIATED COMPANIESINCOME TAXES (Note 16):Current
Deferred
Total income taxes
INCOME BEFORE EQUITY IN NET INCOME OF AFFILIATED COMPANIESEQUITY IN NET INCOME OF AFFILIATED COMPANIES (Note 6)
NET INCOME
NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTSNET INCOME ATTRIBUTABLE TO WACOAL HOLDINGS CORP.

Millions of yen

Thousands of
U.S. dollars (Note 2)

2018¥195,725

2017¥195,881

2016¥202,917

2018$1,842,985

91,90991,784(708)
206
183,191
12,534

92,95091,866

95,901
93,151

184,816
11,065

189,052
13,865865,433
864,256(6,667)1,940
1,724,962
118,023

194
(10)
1,329

157
(27)
1,176

161
(65)
1,057

1,827
(94)
12,514

203

441

90

1,911

3

1
3,770

(20)

28

33
1,752

(14)
5,504

173
(304)
1,092

311
16,497

14,286

16,56914,957

134,520

4,880
662
5,542
8,744
916
9,660
85
¥9,745

4,830
450
5,280
11,2891,359
12,648(123)¥12,525

3,442
1,288
4,730
10,227
1,245
11,472(313)¥11,159

45,951
6,234
52,18582,335
8,625
90,960801$91,761

2018

2017

2016

2018

¥143.46¥142.98¥180.26¥179.71¥158.46¥158.00

$1.35
$1.35

¥717.30¥714.89¥901.30¥898.55¥792.30¥789.99

$6.75
$6.73

Yen
Years Ended March 31, 2018, 2017 and 2016

NET INCOME ATTRIBUTABLE TO WACOAL HOLDINGS CORP.
PER SHARE (Note 17):Basic
DilutedNET INCOME ATTRIBUTABLE TO WACOAL HOLDINGS CORP.
PER AMERICAN DEPOSITARY RECEIPT (5 shares of common stock) (Note 17):Basic
DilutedU.S. dollars (Note 2)

As of October 1, 2017, the Company effected a one-for-two ordinary share reverse stock split. Net income attributable to Wacoal Holdings Corp. per share is calculated assuming thatthe reverse stock split occurred at the beginning of the earliest fiscal year presented in the consolidated financial statements.
See notes to consolidated financial statements.

Consolidated Statements of Comprehensive Income
Wacoal Holdings Corp. and Subsidiaries
Millions of yen
Years Ended March 31, 2018, 2017 and 2016

NET INCOME
OTHER COMPREHENSIVE INCOME, NET OF TAX (Note 15):
Foreign currency translation adjustments:
Amounts arising during the year
Total foreign currency translation adjustments
Unrealized gain (loss) on securities:
Amounts arising during the year
Reclassification adjustments
Total unrealized gain (loss) on securities
Pension liability adjustments:
Amounts arising during the year
Reclassification adjustments
Total pension liability adjustments
OTHER COMPREHENSIVE INCOME (LOSS)COMPREHENSIVE INCOME (LOSS)COMPREHENSIVE (INCOME) LOSS ATTRIBUTABLE TONONCONTROLLING INTERESTSCOMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TOWACOAL HOLDINGS CORP.
See notes to consolidated financial statements.

54

INTEGRATED REPORT 2018

Thousands of
U.S. dollars (Note 2)2018¥ 9,660

2017¥12,6482016¥ 11,472

2018$ 90,960

1,113
1,113

(4,079)(4,079)(5,670)(5,670)

10,480
10,480

6,494
(139)
6,355

3,413
(304)
3,109

(2,833)(47)(2,880)61,149(1,309)59,840

(487)
(193)
(680)
6,788
16,448

619
(1)
618
(352)
12,296(2,327)(644)(2,971)(11,521)(49)(4,586)(1,817)(6,403)63,917
154,877

21

(6)

(270)

198

¥16,469¥12,290(319)$155,075¥

Consolidated Statements of Equity
Wacoal Holdings Corp. and Subsidiaries

Millions of yen

Years Ended March 31, 2018, 2017 and 2016

BALANCE, APRIL 1, 2015
Net income
Foreign currency translation adjustments
Unrealized loss on securities
Pension liability adjustments

Shares of
Outstanding
Common Stock(Thousands)

CommonStock

Additional
Paid-in
Capital70,420¥13,260¥29,642

Increase due to establishment of subsidiaries(Note 7)BALANCE, MARCH 31, 2016
Net income
Foreign currency translation adjustments
Unrealized gain on securities
Pension liability adjustments¥ (2,895)¥228,857
11,159(5,654)(2,855)(2,969)Noncontrolling
Interests

Total Equity¥2,711
313
(16)
(25)
(2)

¥231,568
11,472(5,670)(2,880)(2,971)(4,225)(4,225)
(206)

(3)
1
11

70,42913,26044(2)29,686

162,196
12,525

22,108

(7)
1

(7)
1

(206)
(7)
1

25

67

67

(2,876)

224,374
12,525(3,965)
3,109
621(3,965)
3,109
621(4,648)27
68,60521
13,26029,707(11)
170,062
9,745

2,252

2,252

5,027
123
(114)
0
(3)

229,401
12,648(4,079)3,109
618(4,648)(1,851)

21,873(4,522)(4,522)64

74(7,334)

1,062
6,349
(687)

Cash dividends paid to
Wacoal Holdings Corp. shareholders,¥270 per 5 shares of common stock
Cash dividends paid to noncontrolling interests
Purchase of treasury stock
Disposal of treasury stock
Share-based compensation granted(exercised) (Note 13)
Equity transactions with noncontrolling interests
BALANCE, MARCH 31, 2018¥33,586(4,225)

Cash dividends paid to
Wacoal Holdings Corp. shareholders,¥165 per 5 shares of common stock
Cash dividends paid to noncontrolling interests
Purchase of treasury stock
Share-based compensation granted(exercised) (Note 13)
Equity transactions with noncontrolling interests
BALANCE, MARCH 31, 2017
Net income
Foreign currency translation adjustments
Unrealized gain on securities
Pension liability adjustments¥155,264
11,159Total Wacoal
Treasury Holdings Corp.
Stock, Shareholders’at CostEquity(5,654)(2,855)(2,969)Cash dividends paid to
Wacoal Holdings Corp. shareholders,¥150 per 5 shares of common stock
Cash dividends paid to noncontrolling interests
Purchase of treasury stock
Disposal of treasury stock
Share-based compensation granted(exercised) (Note 13)

Accumulated
Other
Retained Comprehensive
Earnings
Income(7,386)

227,568
9,745
1,062
6,349
(687)

(4,648)
(167)

(167)
(4,522)

48
4,914
(85)
51
6
7

48
232,482
9,660
1,113
6,355
(680)

74

(7,386)(7,386)(194)(1,243)0
567,36758¥13,260¥29,765(3)¥172,418¥28,597(4,007)0(4,007)0

13

68¥(11,328)¥232,712(194)(4,007)0
68

86¥4,78586¥237,497

As of October 1, 2017, Wacoal Holdings Corp. effected a one-for-two ordinary share reverse stock split. The number of outstanding shares is calculated assuming that the reverse stock
split occurred at the beginning of the earliest fiscal year presented in the consolidated financial statements.

Thousands of U.S. dollars (Note 2)

Year Ended March 31, 2018

BALANCE, MARCH 31, 2017
Net income
Foreign currency translation adjustments
Unrealized gain on securities
Pension liability adjustments
Cash dividends paid to Wacoal Holdings Corp.
shareholders, $2 per 5 shares of common stock
Cash dividends paid to noncontrolling interests
Purchase of treasury stock
Disposal of treasury stock
Share-based compensation granted (exercised) (Note 13)
Equity transactions with noncontrolling interests
BALANCE, MARCH 31, 2018

CommonStock

Additional
Paid-in
Capital$124,859$279,707

Accumulated
Other
Retained Comprehensive
Earnings
Income$1,601,337
91,761$205,961
10,00059,783(6,469)Total Wacoal
Treasury Holdings Corp.
Stock, Shareholders’at CostEquity$ (69,058) $2,142,826
91,761
10,00059,783(6,469)(69,548)

Noncontrolling
Interests(69,548)(69,548)(1,827)$124,859

546

(28)

$280,273$1,623,522(37,731)0
122$269,275(37,731)0640$(106,667) $2,191,262

Total Equity$46,271 $2,189,097(801)
90,960480
10,48057
59,84066(6,403)810$45,056(1,827)(37,731)0640
810$2,236,318

See notes to consolidated financial statements.

INTEGRATED REPORT 201855

Financial Section

Consolidated Statements of Cash Flows
Wacoal Holdings Corp. and Subsidiaries

Millions of yen

2018

2017

2016

2018

¥ 9,660¥ 12,648¥ 11,472$ 90,960

5,492
68
18
662
250
(708)
206

5,032
74
264
450
(3,374)

4,815
67
(117)
1,288
59

51,714
640
169
6,234
2,354
(6,667)
1,940

(3)

(441)

(90)

(28)

(203)

(1)

(1,911)

(397)

(837)

20
(173)
(482)

(232)
1,012
270
676
(833)

882
(378)
475
(95)
(417)

(195)
(1,008)(1,111)(45)(2,101)(2,185)
9,529
2,542
6,365
(7,844)

(518)

1,615

(261)

(4,877)73
15,493454
16,351

241
12,635688
145,885(5,129)
3,368
394
(489)
554
(1,138)159
708(3,429)(2,455)13(4,336)
3,717
1,968
(313)
109
(330)
3,585

(2,459)
2,889
602
(420)
739
(629)
775

(5,504)(1,941)15(39)
4(7,546)(1,432)
12(48,296)
31,7143,710(4,605)
5,217(10,715)
1,497
6,667
(32,288)(23,117)
122

Years Ended March 31, 2018, 2017 and 2016

OPERATING ACTIVITIES:Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Share-based compensation (Note 13)
Allowance for returns and doubtful receivables – net
Deferred income taxes
Loss (gain) on sales or disposal of property, plant and equipment – net
Compensation income
Impairment charges on goodwill (Notes 8 and 19)
Impairment charges on long-lived assets(Gain) loss on sale or exchange of marketable securities
and investments – net (Note 3)
Valuation (gain) loss on marketable securities and investments – net (Note 3)
Gain on bargain purchase (Note 7)
Equity in net income of affiliated companies, less dividends received
Changes in assets and liabilities:(Increase) decrease in notes and accounts receivable
Decrease (increase) in inventories
Decrease (increase) in other current assets
Increase (decrease) in notes and accounts payable
Decrease in liability for termination and retirement benefit(Decrease) increase in accrued expenses, income taxes payable
and other current liabilities
Other
Net cash provided by operating activities

256

INVESTING ACTIVITIES:
Increase in time deposits
Decrease in time deposits
Proceeds from sales and redemption of available-for-sale securities (Note 3)
Payments to acquire available-for-sale securities
Proceeds from redemption of held-to-maturity debt securities
Payments to acquire held-to-maturity debt securities
Proceeds from sales of property, plant and equipment
Compensation income
Capital expenditures
Payments to acquire intangible assets (Note 8)
Proceeds from sales and redemption of other investments
Payments to acquire other investments
Proceeds from sales of shares of affiliated companies
Payments associated with the acquisitionof a business (net of cash and cash equivalents acquired) (Note 7)
Other
Net cash used in investing activities
FINANCING ACTIVITIES:(Decrease) increase in short-term bank loans
with original maturities of three months or less – net
Proceeds from issuance of long-term debt
Repayments of long-term debt
Purchase of treasury stock
Disposal of treasury stock
Proceeds from sales of treasury stock
Dividends paid on common stock
Dividends paid to noncontrolling interests
Other
Net cash used in financing activities
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
NET DECREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS, END OF YEARADDITIONAL CASH FLOW INFORMATION:
Cash paid for:
Interest
Income taxes
NONCASH INVESTING ACTIVITIES:Acquisition of property, plant and equipment by assuming payment obligation
See notes to consolidated financial statements.

56

INTEGRATED REPORT 2018

Thousands of
U.S. dollars (Note 2)(3,738)

6(3,822)

82(7,362)33(3,032)(122)(11,407)772(69,322)(755)(3,613)

2,101(7,109)250(403)(4,522)(4,463)(7)(442)(37,731)0(7,386)(194)
86(12,303)(336)(4,508)33,995¥ 29,487(4,648)(167)
48(13,055)(328)(64)
34,059¥ 33,995

1(4,225)(206)
2,252(4,547)(1,032)(4,351)
38,410¥ 34,059(69,548)(1,827)810(115,847)(3,164)(42,448)
320,103$ 277,655

¥

11
5,853

¥

27
2,812

¥

67
5,756

$

104
55,113

¥

583

¥

795

¥

736

$

5,490

(47)
(4,007)0Notes to Consolidated Financial Statements
Wacoal Holdings Corp. and Subsidiaries

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES..................................................................................
BASIS OF FINANCIAL STATEMENTS—Wacoal Holdings Corp. (the“Company”) and subsidiaries are predominantly engaged in one
industry, the manufacture and sale of apparel, including foundation
garments, lingerie, nightwear, and outerwear in Japan, the UnitedStates of America, Europe and certain other countries in Asia.
The accompanying consolidated financial statements, stated inJapanese yen, have been prepared on the basis of accounting principles generally accepted in the United States of America (“U.S.
GAAP”).
CONSOLIDATION—The consolidated financial statements include
the accounts of the Company and its majority-owned subsidiaries(collectively, the “Companies”). All intercompany transactions and balances have been eliminated.
Some foreign subsidiaries of the Company have a fiscal year
ending December 31. The accounts of those subsidiaries are includedin the Company’s consolidated financial statements based on thesubsidiaries’ fiscal year end. Necessary adjustments have been madefor significant events related to subsidiaries that occurred during theperiod between their fiscal year ends and March 31.
Investments in affiliated companies where the Companies’ ownership is 20% to 50% are accounted for using the equity method.
Significant influence is generally deemed to exist if theCompanies have an ownership interest in the voting stock of theinvestee from 20% to 50%, although other factors are considered indetermining whether the equity method of accounting is appropriate.
USE OF ESTIMATES—The preparation of consolidated financial
statements in conformity with U.S. GAAP requires management tomake estimates and assumptions that affect the reported amounts ofassets and liabilities and disclosure of contingent assets and liabilities
at the date of the consolidated financial statements and the reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS—Cash and cash equivalents
include all highly liquid investments with original maturities of threemonths or less.
FOREIGN CURRENCY TRANSLATION—Assets and liabilities of foreign subsidiaries have been translated to Japanese yen at period-end
exchange rates and income and expenses have been translated using
average exchange rates for the period. Translation adjustments resulting from the process of translating consolidated financial statements,
net of tax, are included in accumulated other comprehensive income,which is a separate component of equity. Exchange gains and losses
resulting from foreign currency transactions and the conversion ofmonetary assets and liabilities denominated in foreign currencies areincluded in other income (expenses) in the consolidated statements ofincome.
Foreign currency translation gains (losses) for the years ended
March 31, 2018, 2017 and 2016 were ¥(189) million, ¥(175) millionand ¥(519) million, respectively. They have been included in other –net of other income (expenses).
MARKETABLE SECURITIES AND INVESTMENTS—The
Companies classify their marketable securities and investments into
one of three categories: trading, available-for-sale or held-to-maturity.
Trading securities are recorded at fair value and unrealized holding
gains and losses on trading securities are included in earnings.
Available-for-sale securities are recorded at fair value with a corresponding recognition of unrealized holding gain or loss (net of tax) inaccumulated other comprehensive income or loss, which is aseparate component of equity, until realized. Held-to-maturity securities are measured at amortized cost. The Companies classify debt
securities as held-to-maturity only if the Companies have the positive
intent and ability to hold those securities to maturity. Equity securities
that do not have readily determinable fair values are recorded at cost.
Gains and losses on sales of marketable securities and investments
are computed based on cost determined using the average cost
method.
If a decline in the fair value of marketable securities and investments is determined to be other than temporary, an impairment
charge is recorded in the consolidated statements of income. The
Companies periodically determine whether a decline in the fair valueof marketable securities and investments is deemed to be other than
temporary based on criteria that include the duration of the market
decline, the extent to which cost exceeds fair value, the financial position and business outlook of the issuer and the intent and ability of theCompanies to retain the impaired marketable securities and investments for a sufficient period of time for anticipated recovery in fairvalue.
ALLOWANCE FOR SALES RETURNS—An allowance for sales
returns is estimated based on historical product returns experience,sales movements, and the overall retail industry considerations.
ALLOWANCE FOR DOUBTFUL RECEIVABLES—An allowance for
doubtful notes and receivables is estimated based on historical collection experience and additional information including current economic
conditions and the creditworthiness of each applicable customer.
INVENTORIES—Inventories are stated at the lower of cost or net
realizable value, cost being determined by the first-in, first-out method
for raw materials and the average cost method for work in process
and finished products. Cost includes net prices paid for materials purchased, production labor cost, factory overhead and charges for customs duties.
PROPERTY, PLANT AND EQUIPMENT—Property, plant and equipment is stated at cost less accumulated depreciation and impairment
charges. Depreciation of property, plant and equipment is computedby the declining-balance method, except for buildings acquired on orafter April 1, 1998 as well as building improvements and structuresacquired on or after April 1, 2016, which are depreciated using thestraight-line method based upon the estimated useful lives of theassets. The estimated useful lives are as follows:
Buildings and structures
2 to 50 years (mainly 38 years)
Machinery and equipment (except for the part of the painting)
2 to 20 years (mainly 5 years)
Depreciation expenses for the years ended March 31, 2018,2017 and 2016 are ¥3,681 million, ¥3,443 million and ¥3,278 million,
respectively.
IMPAIRMENT OF LONG-LIVED ASSETS—The carrying amount oflong-lived assets held and used by the Companies is evaluated for
impairment whenever there is an event or change in circumstancesthat indicates that such assets have been impaired or that the carrying amounts of such assets might not be recoverable. The carrying
amount of a long-lived asset is not recoverable if it exceeds the sumof the undiscounted cash flows expected to result from the use andeventual disposition of the asset. That assessment is based on the
carrying amount of the asset at the date it is tested for recoverability,
whether in use or under development. The impairment charge is measured as the amount by which the carrying amount of a long-lived

INTEGRATED REPORT 201857

Financial Section

asset exceeds its fair value. Impairment charges of ¥256 million on
long-lived assets were included in selling, general and administrative
expenses in the consolidated statement of income for the year ended
March 31, 2016. The Companies recorded no impairment charges onlong-lived assets for the years ended March 31, 2018 and 2017.
GOODWILL AND OTHER INTANGIBLE ASSETS—Goodwill represents the excess of the purchase price of an acquired entity overthe fair value of assets acquired and liabilities assumed.
Goodwill and other intangible assets with indefinite useful lives
are tested for impairment annually, or more frequently if conditions
indicate an earlier review is necessary. The goodwill is allocated to thereporting unit in which the business that created the goodwill resides.
To test for goodwill impairment, the carrying amount of each reporting
unit is compared with its fair value. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed by comparing the carrying amount of reporting
unit goodwill with its implied fair value. If the carrying amount ofreporting unit goodwill exceeds its implied fair value, an impairment
charge is recognized in an amount equal to that excess.
To test for impairment of other intangible assets with indefinite
useful lives, the carrying value of an intangible asset is compared with
its fair value. If the carrying amount of an intangible asset with indefinite useful life exceeds its fair value, an impairment charge is recognized in an amount equal to that excess.
Other intangible assets with estimable useful lives consist primarily of brands and software and are amortized over their estimateduseful lives using the straight-line method. The estimated useful lives
are as follows:
Brands
20 to 25 years (mainly 25 years)
Software5 years
ASSET RETIREMENT OBLIGATIONS—The Companies have obligations arising from contractual commitments to remove leasehold
improvements from leased facilities and return the property to a
specified condition when the lease terminates. The Companies recognize asset retirement obligations at the inception of a lease. The
asset retirement obligations are measured with an expected present
value technique based on historical experience and recorded inother long-term liabilities in the consolidated balance sheets andsubsequently adjusted for changes in estimated disposal costs. The
difference between the gross expected future cash flow and its present value is accreted over the life of the related lease, which is determined using best estimates because the Companies’ lease
contracts generally have automatic renewal provisions. The estimated asset retirement costs are capitalized as part of the carrying
amount of the associated long-lived asset and depreciated over its
useful life.
TERMINATION AND RETIREMENT PLANS—Termination andretirement benefits are accounted for in accordance with the guidance for retirement benefits. The Companies amortize net actuarial
gains and losses and prior service cost over the average employees’
remaining service period by the declining-balance method and by
the straight-line method, respectively.
LEASES—Certain noncancelable leases are classified as capitalleases and the leased assets are included as part of property, plantand equipment. Other leases are classified as operating leases andare not capitalized.
TREASURY STOCK—The Companies account for treasury stock
under the cost method and include treasury stock as a componentof equity.
ACQUISITIONS—The Companies account for acquisitions using
the acquisition method in accordance with the guidance for business combinations. The Companies allocate the purchase price tothe assets acquired and liabilities assumed based on the estimated58

INTEGRATED REPORT 2018

fair values at the date of acquisition, including intangible assets thatcan be identified and named. The purchase price in excess of thefair value of the net assets is recorded as goodwill. In the casewhere the purchase price is below the fair value of the net assets,
the Companies recognize the excess of fair value of the net assets
over the purchase price in earnings as a gain on bargain purchase in
the consolidated statements of income.
REVENUE RECOGNITION—The Companies recognize revenue onsales to retailers, mail order catalog sales and web sales when (1)persuasive evidence of an arrangement exists, (2) delivery has
occurred resulting in transfer of title and risk of loss, (3) the sales
price is fixed or determinable, and (4) collectability is reasonably
assured. As for consignment sales, the Companies recognize revenue when the products are sold to the ultimate customer. The
Companies recognize revenue on direct retailing sales at theCompanies’ directly managed retail stores at the point of sale to thecustomer.
SHIPPING AND HANDLING COSTS—Shipping and handling fees
billed to customers are classified in net sales. Shipping and handlingcosts are expensed as incurred. Shipping and handling costs for theyears ended March 31, 2018, 2017 and 2016 were ¥5,185 million,¥5,249 million and ¥5,560 million, respectively, and have been
included in selling, general and administrative expenses.
ADVERTISING EXPENSES—Advertising costs are expensed as
incurred. Advertising expenses for the years ended March 31, 2018,2017 and 2016 were ¥12,719 million, ¥12,694 million and ¥13,167
million, respectively, and have been included in selling, general andadministrative expenses.
RESEARCH AND DEVELOPMENT COSTS—Research and development costs are expensed as incurred. Research and development
costs for the years ended March 31, 2018, 2017 and 2016 were¥781 million, ¥810 million and ¥839 million, respectively, and havebeen included in selling, general and administrative expenses.
CONSUMPTION TAXES—Consumption taxes are excluded fromsales, costs, and expenses in the consolidated statements ofincome.
INCOME TAXES—The provision for income taxes is determined
under the asset and liability method in accordance with the guidance for income taxes. Under this method, deferred tax assets andliabilities are determined for temporary differences between thefinancial statements and tax bases of assets and liabilities and tax
loss carryforwards at presently enacted tax rates. A valuation allowance is recorded when it is more likely than not that some portion or
all of the deferred tax assets will not be realized in the future.
The Companies assess their income tax positions and record
tax benefits for all years subject to examination based upon theirevaluation of the facts, circumstances and information available asof the end of the fiscal year. For those tax positions only where there
is greater than a 50% likelihood that the tax position will be sustained, the Companies record the largest amount of tax benefit thatmay potentially be realized upon ultimate settlement with a taxing
authority that has full knowledge of all relevant information.
SHARE-BASED COMPENSATION—Share-based compensation is
accounted for in accordance with the guidance for stock compensation. The Company measures share-based compensation cost at
the grant date, based on the fair value of the award and recognizes
the cost over the requisite service period, which is the vesting
period. The fair value of the award is estimated using the BlackScholes option-pricing model.
DERIVATIVES—Derivative instruments, including certain derivative
instruments embedded in other contracts, are accounted for inaccordance with the guidance for derivatives and hedging. Becausesuch derivative instruments are not designated as hedges, changes

in the fair value of the derivatives are recorded in earnings or losses.
SUBSEQUENT EVENTS—In accordance with the guidance for subsequent events, the Company has evaluated subsequent events
through June 28, 2018.
RECLASSIFICATIONS—Certain reclassifications have been madeto the prior years’ consolidated financial statements to conform tothe current year’s presentation. And as of October 1, 2017, theCompany effected a one-for-two ordinary share reverse stock split.
The number of ordinary shares, outstanding shares, treasury stockand net income attributable to Wacoal Holdings Corp. per share arecalculated assuming that the reverse stock split occurred at the
beginning of the earliest fiscal year presented in the consolidated
financial statements.
RECENT ACCOUNTING PRONOUNCEMENTS:
RECENTLY ADOPTED ACCOUNTING GUIDANCEMEASUREMENT OF INVENTORY—In July 2015, the Financial
Accounting Standards Board (the “FASB”) issued a new guidance
related to simplifying the measurement of inventory. Previously, an
entity was required to measure inventory at the lower of cost or
market. Market could be replacement cost, net realizable value, or net
realizable value less an approximately normal profit margin. This guidance requires an entity to measure inventory at the lower of cost or
net realizable value. This guidance is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal
years. In applying this provision, the Company has not retroactively
revised past consolidated financial statements. The adoption of thisguidance did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.
BALANCE SHEET CLASSIFICATION OF DEFERRED TAXES—In
November 2015, the FASB issued a new accounting guidance related
to balance sheet classification of deferred taxes. This guidance
requires an entity to classify deferred tax liabilities and assets as noncurrent on the consolidated financial position. This guidance is effective for fiscal years beginning after December 15, 2016. The Company
has applied this provision from the first quarter commencing on April
1, 2017. In applying this provision, the Company has not retroactively
revised past consolidated financial statements. The carrying amountof the current portion of deferred tax assets in the Companies’ consolidated balance sheet as of March 31, 2017 was ¥4,049 million.
There was no current portion of deferred tax liabilities as of March 31,
2017.
RECENT ACCOUNTING GUIDANCE NOT YET ADOPTEDREVENUE RECOGNITION—In May 2014, the FASB issued new
accounting guidance related to revenue recognition. This guidance isbased on the principle that revenue is recognized to depict the transfer of promised goods or services to customers in an amount thatreflects the consideration to which the entity expects to be entitled in
exchange for those goods or services. This standard provides comprehensive guidance, and requires the disclosure of information to
enable users of financial statements to understand the nature,amount, timing, and uncertainty of revenue and cash flows arisingfrom contracts with customers. In August 2015, the FASB issued
additional guidance and deferred the effective date of the guidance fora year. In May 2016, the FASB also issued additional guidance toimprove the above guidance by reducing the potential for diversity inpractice upon initial application and the cost and complexity of applying the new guidance both upon transition and on an ongoing basis.
This guidance is effective for fiscal years beginning after December
15, 2017 and interim periods within that annual period. The adoptionof this guidance is not expected to have a material impact on the
Company’s consolidated financial position, results of operations or
cash flows.

RECOGNITION AND MEASUREMENT OF FINANCIAL
INSTRUMENTS—In January 2016, the FASB issued new accounting
guidance related to recognition and measurement of financial assets
and financial liabilities. This guidance requires an entity to measureequity investments (except those accounted for under the equity
method of accounting or those that result in consolidation of theinvestee) at fair value with changes in fair value recognized in net
income and change of related disclosures. In February 2018, the
FASB issued new accounting guidance related to recognition andmeasurement of financial assets and financial liabilities. This guidance
requires the cumulative effect of non-marketable equity investments(except those accounted for under the equity method of accounting
or those that result in consolidation of the investee) to reflect their fairvalues to be adjusted to the beginning retained earnings. The guidance is effective for fiscal years beginning after December 15, 2017and interim periods within those fiscal years. The Company will adopt
the guidance in the first quarter of 2019. Adoption of the guidance will
require the Company to recognize unrealized gains of ¥27,320 million(net of tax) on available-for-sale securities as a cumulative-effectadjustment from accumulated other comprehensive income (loss) toretained earnings at the beginning of the fiscal year ending March 31,
2019. Further, the Company will measure non-marketable equity
securities at fair value and recognize unrealized gains of ¥515 million(net of tax) as a cumulative-effect adjustment.
LEASES—In February 2016, the FASB issued new accounting guidance related to leases. This guidance requires an entity to recognize
lease assets and lease liabilities on the balance sheet for under the
new lease standard (“ASC842”), with a few exceptions, those leases
classified as operating leases under current U.S. GAAP (“ASC840”).
In January 2018, the FASB also issued a new accounting guidance related to land easements. This guidance clarifies that landeasements are within the scope of ASC 842 and introduces a transition practical expedient allowing the Company to forgo assessment
as to whether existing expired land easements that were not previously accounted for as leases under ASC 840 are or contain leases
under ASC 842. The guidance is effective for fiscal years beginning
after December 15, 2018 and interim periods within those fiscal years.
The Company is currently evaluating the impact of adoptions on the
Company’s consolidated financial position, results of operations or
cash flows.
CLASSIFICATION OF CERTAIN CASH RECEIPTS AND CASH
PAYMENTS—In August 2016, the FASB issued new accounting
guidance related to classification of certain cash receipts and cash
payments. This guidance is intended to reduce existing diversity inpractice with respect to classification of certain cash receipts andpayments in the statement of cash flows. This guidance is effective forfiscal years beginning after December 15, 2017 and interim periods
within that annual period. The adoption of this guidance is notexpected to have a material impact on the Company’s consolidated
financial position, results of operations or cash flows.
INCOME TAXES—In October 2016, the FASB issued new accounting guidance related to income taxes. This guidance requires an entity
to recognize income tax consequences of intra-entity transfers ofassets other than inventory. This guidance is effective for fiscal years
beginning after December 15, 2017 and interim periods within thatannual period. The adoption of this guidance is evaluated to have nomaterial impact on the Company’s consolidated financial position,
results of operations or cash flows.
SIMPLIFYING THE TEST FOR GOODWILL IMPAIRMENT—In
January 2017, the FASB issued new accounting guidance related togoodwill and other intangible assets. This guidance simplifies the
goodwill impairment test by eliminating Step 2 from the test. This
guidance is effective for fiscal years beginning after December 15,

INTEGRATED REPORT 201859

Financial Section

2020 and interim periods within that annual period. The Company iscurrently evaluating the potential impact of adoption on its consolidated financial position and results of operations.
PERIODIC PENSION COST—In March 2017, the FASB issued new
accounting guidance related to periodic pension cost and net periodic
post retirement benefit cost. This guidance requires an entity to disaggregate the service cost component from the other components of
net periodic benefit costs. This guidance is effective for fiscal years
beginning after December 15, 2017 and interim periods within thatannual period. The Company will adopt this guidance in the first quarter of the year ending March 31, 2019. The guidance will be applied
retrospectively for the presentation of the service cost and the othercomponents of net periodic pension costs. The adoption of the guidance is expected to increase operating expenses by ¥1,040 millionand ¥783 million in the fiscal years ended March 31, 2018 and 2017,
respectively, and to decrease non-operating expenses by the sameamounts.

2. TRANSLATION INTO U.S. DOLLAR STATEMENTS..........................................................................................
The consolidated financial statements are stated in Japanese yen, thecurrency of the country in which the Company is incorporated andoperates. The translation of Japanese yen amounts into U.S. dollar
amounts is included solely for the convenience of readers outside ofJapan and has been made at the rate of ¥106.2 to $1, the noonbuying rate for yen in New York City as of March 31, 2018. Suchtranslation should not be construed as representations that theJapanese yen amounts could be converted into U.S. dollars at theabove or any other rate.

3. MARKETABLE SECURITIES AND INVESTMENTS...........................................................................................
HELD-TO-MATURITY AND AVAILABLE-FOR-SALE SECURITIES—The fair value of debt and marketable equity securities classified as
held-to-maturity and available-for-sale is based on quoted market prices as of March 31, 2018 and 2017. The cost, gross unrealized gain and loss
and the fair value of available-for-sale and held-to-maturity securities by major security type were as follows:
Millions of yen
2018

Available-for-sale securities:
Current:
Municipal bonds
Mutual funds
Total
Noncurrent:
Corporate debt securities
Equity securities
Total
Held-to-maturity securities:
Current:
Corporate debt securities
Noncurrent:
Corporate debt securities

Cost

¥
¥

10
575
585

¥ 464
23,106¥23,570

Gross
Unrealized Gain

¥
¥

Gross
Unrealized Loss

0
15
15

¥ 150
43,645¥43,795

Fair Value

¥
¥

10
590
600

¥ 0
¥ 0

¥ 614
66,751¥67,365

¥

967

¥ 8

¥

959

¥

646

¥12

¥

634

Millions of yen
2017

Available-for-sale securities:
Current:
Municipal bonds
Mutual funds
Total
Noncurrent:
Equity securities
Held-to-maturity securities:
Current:
Corporate debt securities
Noncurrent:
Corporate debt securities

60

INTEGRATED REPORT 2018

Cost

¥
¥

10
701
711

¥23,153

Gross
Unrealized Gain

¥

Gross
Unrealized Loss

Fair Value

0
168
168

¥ 1
¥ 1

¥

¥34,833¥10¥57,976

¥

¥

10
868
878

¥

567

¥ 3

¥

564

¥

566

¥ 4

¥

562

Gross unrealized holding losses and fair values of held-to-maturity securities, all of which have been in a continuous unrealized loss position for
more than 12 months as of March 31, 2018 and 2017, were as follows:
Millions of yen

2018

Held-to-maturity securities:
Current:
Corporate debt securities
Noncurrent:
Corporate debt securities

2017

Fair Value

Gross
Unrealized Loss

Fair Value

Gross
Unrealized Loss

¥424

¥3

¥340

¥3

¥105

¥2

Gross unrealized holding losses and fair values of available-for-sale and held-to-maturity securities, all of which have been in a continuous unrealized loss position for less than 12 months as of March 31, 2018 and 2017, were as follows:
Millions of yen

2018
Fair Value

Available-for-sale securities:
Current:
Mutual funds
Noncurrent:
Equity securities
Held-to-maturity securities:
Current:
Corporate debt securities
Noncurrent:
Corporate debt securities

Gross
Unrealized Loss2017
Fair Value

¥

Gross
Unrealized Loss

8

¥ 1

¥ 10

¥ 0

¥172

¥10

¥535

¥ 5

¥224

¥ 0

¥529

¥10

¥562

¥ 4

As of March 31, 2018 and 2017, available-for-sale securities in a continuous unrealized loss position were composed of one equity security, andthree equity securities and one mutual fund, respectively. The percentage of decline from acquisition cost was 1.1% and 11.5% as of March 31,2018 and 2017, respectively. The Companies periodically determine whether a decline in the fair value of available-for-sale and held-to-maturity
securities is deemed to be other than temporary based on criteria that include the duration of the market decline, the extent to which cost exceeds
fair value, the financial position and business outlook of the issuer, and the intent and ability of the Companies to retain the impaired available-forsale and held-to-maturity securities for a sufficient period of time for anticipated recovery in fair value as described in Note 1. No available-for-saleor held-to-maturity securities were identified that meet the Companies’ criteria for recognition of an impairment charge on available-for-sale andheld-to-maturity securities in an unrealized loss position presented above. Therefore, the Companies do not believe the unrealized losses represent
an other-than-temporary impairment as of March 31, 2018 and 2017.
Future maturities of debt securities and mutual funds classified asavailable-for-sale, excluding debt securities and mutual funds without
fixed maturities as of March 31, 2018, were as follows:

Proceeds from sales of available-for-sale securities and the gross realized gain or loss on the sales of available-for-sale securities during theyears ended March 31, 2018, 2017 and 2016 were as follows:

Millions of yen
Cost

Due within one year
Due after one year through five years
Due within ten years
More than ten years
Total

¥

10
295
464
280
¥1,049

¥

10
300
614
290
¥1,214

Future maturities of debt securities classified as held-to-maturity as ofMarch 31, 2018 were as follows:
Millions of yen

Due within one year
Due after one year through five years
Total

Millions of yen

Fair Value

Cost

Fair Value

¥ 967
646
¥1,613¥ 959
634¥1,593

Proceeds from salesof available-for-sale securities
Gross realized gain on salesof available-for-sale securities
Gross realized loss on salesof available-for-sale securities

2018

2017

2016

¥394

¥1,573

¥102

203

458

90

17

The Companies recorded newly-received securities at fair value andrecognized a loss of ¥0 million for the year ended March 31, 2017.
There was no exchange of marketable securities and investments forthe years ended March 31, 2018 and 2016.
The amount of impairment charges the Companies recognizedon available-for-sale securities in which declines in fair value weredeemed to be other than temporary was ¥2 million, ¥3 million and¥20 million for the years ended March 31, 2018, 2017 and 2016,
respectively.

INTEGRATED REPORT 201861

Financial Section

TRADING SECURITIES—A subsidiary in the United States ofAmerica has trading securities consisting of mutual funds, which arerecorded as investments at a fair value of ¥46 million and ¥44 million
as of March 31, 2018 and 2017, respectively. There were no trading
securities as of March 31, 2016. The Companies recorded a gain of¥5 million and ¥4 million for the years ended March 31, 2018 and2017, respectively. There was no gain or loss related to trading
securities for the year ended March 31, 2016.
COST METHOD SECURITIES—Investments in nonmarketable
equity securities for which there are no readily determinable fairvalues were accounted for using the cost method and aggregated¥1,261 million and ¥1,273 million as of March 31, 2018 and 2017,
respectively. Investments in nonmarketable equity securities arereviewed annually or upon the occurrence of an event for other-than-temporary impairment. There were no impairment charges
on investments in nonmarketable equity securities for the years
ended March 31, 2018 and 2017, respectively. The Companies recognized impairment charges on investments in nonmarketable
equity securities of ¥0 million for the year ended March 31, 2016.

4. ALLOWANCES FOR DOUBTFUL RECEIVABLES AND SALES RETURNS.......................................................
Information related to the Companies’ allowance for doubtful receivables was as follows:
Millions of yen

Balance at the beginning of the year
Charged to costs and expenses
Balances written-off/reversed
Balance at the end of the year

2018

2017

2016

¥219
28
(40)
¥207

¥196
68
(45)
¥219

¥ 198
110
(112)
¥ 196

2018

2017

2016

¥ 2,258
2,252(2,258)¥ 2,252¥ 2,033
2,258(2,033)¥ 2,258¥ 2,211
2,033(2,211)¥ 2,033

Information related to the Companies’ allowance for sales returns was as follows:
Millions of yen

Balance at the beginning of the year
Charged to costs and expenses
Balances utilized
Balance at the end of the year

5. INVENTORIES.....................................................................................................................................................
The components of inventories as of March 31, 2018 and 2017 were as follows:
Millions of yen

Finished products
Work in process
Raw materials
Total

62

INTEGRATED REPORT 2018

2018

2017

¥36,635
3,678
2,363¥42,676¥37,586
3,743
2,493¥43,822

6. INVESTMENTS IN AFFILIATED COMPANIES...................................................................................................
Certain investments are accounted for using the equity method if theinvestment provides the Companies with the ability to exercise significant influence over an investee. Significant influence is generally
deemed to exist if the Companies have an ownership interest in thevoting stock of the investee between 20% and 50%, although otherfactors are considered in determining whether the equity method of
accounting is appropriate. The Companies record investments inequity method investees meeting these characteristics as“Investments in affiliated companies.” Under the equity method, theCompanies record their proportionate share of an affiliated company’s
income or loss based on the most recently available financial
statements.
The primary affiliated companies and percentage of ownership as ofMarch 31, 2018 and 2017 were as follows:
Percentage of ownership (%)
Name of investee

Shinyoung Wacoal Inc.
Taiwan Wacoal Co., Ltd.
THAI WACOAL PUBLIC CO., LTD.
PT. Indonesia Wacoal
House of Rose Co., Ltd.

2018

2017

25
50
34
42
24

25
50
34
42
24

Aggregate carrying amounts and fair values of investments in affiliatedcompanies which have a quoted market price as of March 31, 2018and 2017 were as follows:

The balance of receivables and payables to affiliated companies asof March 31, 2018 and 2017 were as follows:
Millions of yen

Accounts receivable
Accounts payable
Other receivable

2018

2017

¥598
472
272

¥513
237
226

The amounts of transaction with affiliated companies as of March
31, 2018, 2017 and 2016 were follows:
Millions of yen

2018

2017

Sales

¥2,700¥1,898

2016

Cost of sales corresponding
to sales of material
and products

2,675

1,753

159

Purchases
Royalties

5,744
300

2,646
263

2,468
266

¥

335

Dividends received from affiliated companies were ¥519 million,¥522 million and ¥763 million for the years ended March 31, 2018,2017 and 2016, respectively.
Retained earnings includes net undistributed earnings of affiliated companies of ¥16,411 million and ¥15,689 million as of March
31, 2018 and 2017, respectively.

Millions of yen

Carrying amount
Aggregate value of quoted market price

2018

2017

¥15,191
11,445¥13,556
11,754

The following tables represent the affiliated companies’ summarized
information from the balance sheet as of March 31, 2017 and statement of income for the year ended March 31, 2017. Summarized
information of the balance sheet and statements of income of affiliated companies for the years ended March 31, 2018 and 2016 were
not disclosed as they were immaterial.
Millions of yen

2017

Current assets
Noncurrent assets
Total
Current liabilities
Long-term liabilities
EquityTotal¥40,589
41,773¥82,362¥ 8,5387,366
66,458¥82,362
Millions of yen

2017

Net sales
Gross profit
Income before income taxes
Net income¥59,172
30,2005,105
4,089

INTEGRATED REPORT 201863

Financial Section

7. ACQUISITIONS...................................................................................................................................................
In January 2016, Wacoal Corp., a wholly-owned subsidiary of theCompany, established A Tech Textile Co., Ltd. (“A Tech”) and G Tech
Material Co., Ltd. (“G Tech”) in the Kingdom of Thailand pursuant tojoint venture agreements executed on November 13, 2015. A Techand G Tech executed business transfer agreements with Textile
Prestige Public Company Limited (“TPC”) and Erawan Textile
Company Limited (“ETC”), respectively, and transfers of the material
business assets and liabilities were completed on February 1, 2016.
In connection with these business transfers, A Tech and G Techagreed to pay the purchase price for the assets acquired and liabilities
assumed in the amount of ¥2,334 million (THB 699 million) and ¥693
million (THB 208 million), respectively.
By establishing these two subsidiaries, the Companies will build aworldwide system to supply materials and products in the ASEAN
region, which has the potential to further develop, grow and improvethe manufacturing quality and cost competitiveness of the Wacoal
Group and to stably supply high value-added materials and products
to the global network of the Wacoal Group and customers in the
future.
As a result of purchase price allocations for A Tech and G Tech,
goodwill was recognized and recorded in the consolidated balance
sheet as of March 31, 2016. Goodwill is not deductible for tax
purposes.
Furthermore, based on updated information obtained after thedate of the transfers, the fair values of the assets and liabilities as ofthe date of the transfers were adjusted. During the year ended March
31, 2017, A Tech and TPC reached a final agreement on the purchaseprice. As a result of these changes, the amount of goodwill relating to
A Tech and G Tech decreased by ¥39 million and ¥18 million, respectively. These adjustments during the measurement period werereflected in the consolidated balance sheet as of March 31, 2017.

The fair value of the assets and liabilities of the businesses which
A Tech and G Tech acquired were as follows:
Before Adjustment
Millions of yen
February 1, 2016
A TechG TechCash and cash equivalents
Notes and accounts receivable
Inventories
Other current assets
Property, plant and equipment
Goodwill
Other noncurrent assets
Total
Current liabilities
Other long-term liabilities
Total
Total shareholder’s equity

¥ 210
557
608
18
1,243
246
2,882
281
251
532
¥2,350

¥150
101
4
342
223
1
821
82
46
128
¥693
After Adjustment

Millions of yen
February 1, 2016
A TechG TechCash and cash equivalents
Notes and accounts receivable
Inventories
Other current assets
Property, plant and equipment
Goodwill
Other noncurrent assets
Total
Current liabilities
Other long-term liabilities
Total
Total shareholder’s equity

¥ 210
557
608
18
1,265
207
2,865
282
249
531
¥2,334

¥150
101
4
342
205
1
803
64
46
110
¥693

8. GOODWILL AND OTHER INTANGIBLE ASSETS..............................................................................................
GOODWILL—The changes in the carrying amount of goodwill by operating segment for the years ended March 31, 2018, 2017 and 2016 wereas follows. For information about the Companies’ operating segments, see Note 23.
Millions of yen

2018
Wacoal Business(Overseas)

Balance at the beginning of the year:
Goodwill
Accumulated impairment charges
Total
Impairment charges
Foreign currency translation adjustments
Balance at the end of the year:
Goodwill
Accumulated impairment charges
Total

64

INTEGRATED REPORT 2018¥11,746
11,746(206)
736
12,482(213)¥12,269

Peach John

Total

¥11,203(6,878)
4,325¥22,949(6,878)16,071(206)
736

11,203(6,878)¥ 4,325

23,685(7,091)¥16,594

Millions of yen

2017
Wacoal Business(Overseas)

Balance at the beginning of the year:
Goodwill
Accumulated impairment charges
Total
Adjustments during the measurement period
Foreign currency translation adjustments
Balance at the end of the year:
Goodwill
Accumulated impairment charges
Total¥13,586
13,586(57)(1,783)
11,746¥11,746

Peach John

Total

¥11,203(6,878)
4,325¥24,789(6,878)17,911(57)(1,783)

11,203(6,878)¥ 4,325

22,949(6,878)¥16,071
Millions of yen

2016
Wacoal Business(Overseas)

Balance at the beginning of the year:
Goodwill
Accumulated impairment charges
Total
Acquisition during the year
Foreign currency translation adjustments
Balance at the end of the year:
Goodwill
Accumulated impairment charges
Total¥14,425
14,425469(1,308)13,586¥13,586

Peach John

Total

¥11,203(6,878)
4,325¥25,628(6,878)18,750469(1,308)

11,203(6,878)¥ 4,325

24,789(6,878)¥17,911

The Company recorded “Impairment charges on goodwill” of ¥206 million of A Tech in the fiscal year ended March 31, 2018, which is included inoperating expenses of Wacoal Business (overseas). During the years ended March 31, 2017 and 2016, the Companies recorded no impairment
charge on goodwill. See Note 19 for further information.
OTHER INTANGIBLE ASSETS—The components of intangible assets excluding goodwill as of March 31, 2018 and 2017 were as follows:
Millions of yen

2018

2017

Gross Carrying
AmountAccumulated
Amortization andImpairment Charge

Gross Carrying
AmountAccumulated
Amortization andImpairment Charge¥ 6,219
11,777
1,703¥19,699¥1,671
6,434
805¥8,910¥ 5,8539,692
1,601¥17,146¥1,311
5,434
660¥7,405¥ 5,31676¥ 5,392¥3,322¥ 5,316114¥ 5,430¥3,322

Year Ended March 31

Amortized intangible assets:
BrandsSoftware
OthersTotal
Unamortized intangible assets:
Trademarks
Other
Total
Other intangible assets acquired during the years ended March 31,
2018, 2017 and 2016 totaled ¥2,569 million, ¥1,941 million and¥1,432 million, respectively, which primarily consist of software withan estimated useful life of five years.
The gross carrying amounts of brands include foreign currencytranslation adjustments.
During the years ended March 31, 2018, 2017 and 2016, theCompanies recorded no impairment charge on other intangible
assets. See Note 19 for further information.

¥3,322¥3,322Aggregate amortization expenses for the years ended March 31,
2018, 2017 and 2016 related to other intangible assets were ¥1,811
million, ¥1,589 million and ¥1,537 million, respectively. Future estimated amortization expenses as of March 31, 2018 were as follows:Year Ending March 31

Estimated amortization expense
2019
2020
2021
2022
2023
Total

Millions of yen¥1,791
1,591
1,308
1,099
808
¥6,597

INTEGRATED REPORT 201865

Financial Section

9. SHORT-TERM BANK LOANS AND LONG-TERM DEBT...................................................................................
Short-term bank loans as of March 31, 2018 and 2017 consisted of
the following:
Millions of yen

Unsecured bank loans

2018

2017

¥7,104¥7,716

The weighted-average annual interest rate on short-term bank loans asof March 31, 2018 and 2017 were 0.3% and 0.4%, respectively.
Unused lines of credit for short-term financing as of March 31,2018 and 2017 aggregated ¥23,511 million and ¥26,830 million,
respectively. The Companies compensate banks for these facilities in
the form of commitment fees, which were not material during the years
ended March 31, 2018 and 2017.
Long-term debt as of March 31, 2018 and 2017 is summarized
below. The interest rates and maturities are for loans as of March 31,
2018.
Millions of yen

Collateralized bank loans, with fixed interest
at 0.6%, maturing through 2022
Unsecured bank loans, with fixed interest
at 0.4%, maturing through 2022
Total
Less current portionLong-term debt, less current portion

2018

2017

¥ 75

¥ 95

113

140

188
(50)
¥138

235
(50)
¥185

The annual maturities of long-term debt as of March 31, 2018 were as
follows:
Millions of yen

Year Ending March 31

2019
2020
2021
2022
Total

¥ 50
50
50
38
¥188

A subsidiary has pledged assets as security for loans. As of March 31,2018 and 2017, assets pledged as collateral for bank loans were as
follows:
Millions of yen

Land
Buildings
Total

2018

2017

¥150
191
¥341

¥150
213
¥363

As is customary in Japan, both short-term and long-term loans are
made under general agreements which provide for security and guarantees for future and present indebtedness to be given upon requestof the bank. The bank has the right to offset cash deposits against
obligations that have come due or, in the event of default, against all
obligations due to the bank.

10. LEASES.............................................................................................................................................................
The Companies lease most of their store premises and certain equipment. Most leases have automatic renewal provisions and allow the
Companies to extend the lease term beyond the initial base period,
subject to the terms agreed at lease inception. Future minimum rental
commitments on operating leases having a remaining noncancelable
lease term in excess of one year as of March 31, 2018 are presented
below:

Millions of yen

Year Ending March 31

2019
2020
2021
2022
2023
Thereafter
Total

¥ 738
434
212
91
54
167
¥1,696

Rental expenses were ¥7,830 million, ¥7,862 million and ¥7,902 million for the years ended March 31, 2018, 2017 and 2016, respectively, and have been included in selling, general and administrative
expenses.

11. ASSET RETIREMENT OBLIGATIONS..............................................................................................................
The Companies recorded the fair value of asset retirement obligations in order to recognize legal obligations associated with the removal of leasehold improvements from leased facilities and return of the property to a specified condition when the lease terminates.
A reconciliation of the beginning and ending aggregate carrying amount of the asset retirement obligation is as follows:
Millions of yen

Balance at the beginning of the year
Accretion expense
Liabilities incurred
Liabilities settled
Change due to translation of foreign currencies
Balance at the end of the year

66

INTEGRATED REPORT 2018

2018

2017

2016

¥855
1
62
(91)
(2)
¥825

¥ 878
2
84
(111)
2
¥ 855

¥777
20
157
(74)
(2)
¥878

12. TERMINATION AND RETIREMENT PLANS.....................................................................................................
EMPLOYEE RETIREMENT PLANS—Certain subsidiaries of the Company sponsor termination and retirement benefit plans that cover substantially all employees. Benefits are based on the employee’s years of service, position and performance. If the termination is involuntary or caused bydeath, the employee is usually entitled to greater payments than in the case of voluntary termination.
The Company and certain subsidiaries have contributory defined retirement benefit plans and several unfunded termination plans administeredby the Company and certain subsidiaries. Benefits under the contributory defined retirement benefit plan are usually paid in a lump sum at the earlier of termination or retirement, although periodic payments are available under certain conditions. Benefits under the other termination and retirement benefit plan are paid either as lump-sum payments or periodic payments under certain conditions. The benefits are usually paid as a
lump-sum payment, if the employee resigns before the mandatory retirement age.
CONTRIBUTORY DEFINED RETIREMENT BENEFIT PLAN—The following provides a reconciliation of benefit obligations, plan assets andfunded status of the plans:Millions of yen

Change in benefit obligations:Benefit obligations at the beginning of the year
Service cost
Interest cost
Participants’ contributions
Actuarial (gain) loss
Prior service cost arising during the year
Benefits paid from plan assets
Settlement paid from plan assets
Settlement paid by the Company and certain subsidiaries
Changes in foreign currency exchange rates
Change in the scope of consolidation
Benefit obligations at the end of the year
Change in plan assets:
Fair value of plan assets at the beginning of the year
Actual return on plan assets
Employer contributions
Participants’ contributions
Benefit payments
Settlement payments
Changes in foreign currency exchange rates
Fair value of plan assets at the end of the year
Funded status at the end of the year

2018

2017

2016

¥34,935
1,086
205
63
432

¥34,085
1,074
321
66
1,893

(1,007)(1,003)(138)
7¥35,777
1,103
183
65
(509)
271
(958)
(865)
(125)
(7)

34,58034,935

(950)
(850)
(100)
(6)
244
35,777

43,203878
612
63(1,007)(1,003)(10)
42,736¥ 8,156

42,156
2,176
633
65
(958)
(865)
(4)
43,203¥ 8,268

43,137
(516)
1,275
66
(950)
(850)
(6)
42,156¥ 6,379

Amounts recognized in the consolidated balance sheets as of March 31, 2018 and 2017 consist of:Millions of yen

Prepaid pension expense
Other current liabilities
Liability for termination and retirement benefits
Total

2018

2017

¥10,178(170)(1,852)¥ 8,156¥10,287(63)(1,956)¥ 8,268

Amounts recognized in accumulated other comprehensive income, pre-tax, as of March 31, 2018 and 2017 were as follows:
Millions of yen

2018

2017

¥(35)

¥667
121
¥788

Actuarial loss (gain)
Prior service benefit
Total

¥(35)

The accumulated benefit obligation for all defined retirement benefit plans as of March 31, 2018 and 2017 was as follows:
Millions of yen

Accumulated benefit obligations

2018

2017

¥34,580¥34,935

INTEGRATED REPORT 201867

Financial Section

The projected benefit obligations and the fair value of the plan assets for the Company’s and certain subsidiaries’ pension plans with projected
benefit obligations in excess of plan assets, and the accumulated benefit obligations and the fair value of the plan assets for the Company’s andcertain subsidiaries’ pension plans with accumulated benefit obligations in excess of plan assets were as follows:
Millions of yen

Plans with projected benefit obligations in excess of plan assets:
Projected benefit obligations
Fair value of plan assets
Plans with accumulated benefit obligations in excess of plan assets:
Accumulated benefit obligations
Fair value of plan assets

2018

2017

¥2,838815¥2,905
886

2,838
815

2,905
886

Net periodic benefit costs for the Company and certain subsidiaries’ plans consisted of the following for the years ended March 31, 2018, 2017and 2016:
Millions of yen

Service cost
Interest cost
Expected return on plan assets
Amortization of actuarial loss (gain)
Amortization of prior service benefits

2018

2017

2016

¥1,086
205
(991)
(157)
(121)
¥ 22

¥1,103
183
(967)
213
(215)
¥ 317

¥1,074
321
(967)
(461)
(491)
¥ (524)The unrecognized net actuarial gain or loss and prior service benefits are amortized within 12 years (the average remaining service life of active
participants) using the declining-balance method and the straight-line method, respectively.
Other changes in plan assets and benefit obligations recognized in other comprehensive income for the years ended March 31, 2018, 2017and 2016 were as follows:
Millions of yen

Actuarial (loss) gain
Amortization of actuarial (gain) loss
Prior service cost arising during the year
Amortization of prior service benefits

Millions of yen

Actuarial loss

¥4

The Company and certain subsidiaries use a measurement date ofMarch 31 for their plans. The weighted-average assumptions used asof March 31, 2018 and 2017 in computing the benefit obligations
shown above were as follows:
2018

2017

0.5%

0.6%

The weighted-average assumptions used as of March 31, 2018,2017 and 2016 in computing the net periodic benefit costs shown
above were as follows:

Discount rate
Rate of increasein future compensation
Expected long-term rateof return on plan assets

68

INTEGRATED REPORT 2018

2017

2016

¥(545)(157)¥1,718
213
(271)
(215)
¥1,445¥(3,376)
(461)

(121)
¥(823)The estimated amounts that will be amortized from accumulated othercomprehensive income into net periodic benefit costs over the next
year are summarized as follows:

Discount rate

2018

2018

2017

2016

0.6%

0.5%

1.0%

5.3%

5.3%

5.3%

2.5%

2.5%

2.5%

(491)
¥(4,328)

The Company’s approach to establishing the discount rate is based
upon corporate bond indices. The discount rate assumption is based
upon effective yields as of March 31, 2018 on the corporate bondindices for which maturity dates approximate the timing of the
expected future benefit payments.
The retirement benefit plan of the Company and a certain subsidiary is a point-based benefits system, and, therefore, the rate of compensation increase has not been included in computing the benefit
obligations.
The expected long-term rate of return on plan assets is derived
proportionally from return assumptions determined for each of the
major asset classes. The return expectations for each of the asset
classes are based largely on assumptions about economic growthand inflation, which are supported by long-term historical data. The
estimated long-term rate of return is based on an asset allocation ofequity securities of 26.0%, debt securities of 54.0%, life insurancecompany general accounts of 18.0% and other short-term investments of 2.0%.
The plan investment strategy of the Company and certain subsidiaries is to maintain actual asset weightings within a preset range oftarget allocations. The plan investment strategy of the Company andcertain subsidiaries is broadly diversified, consisting primarily of equity
and debt securities. The Company and certain subsidiaries believethese ranges represent an appropriate risk profile for the planned benefit payments of the plans based on the timing of the estimated benefit payments.

The asset allocation as of March 31, 2018 and 2017 was as follows:

Equity securities
Debt securities
Life insurance company general accounts
Real estate
Other short-term investments

2018

2017

41.1%
37.2%
10.3%
3.2%
8.2%

48.3%
26.3%
11.1%
3.9%
10.4%

The target allocation percentages are reviewed and approved by thePension Committee. The actual allocations for 2018 and 2017 are different from the target allocation percentages primarily because Wacoal
Corp. maintained additional equity securities within a separate plan
asset which is assigned to the plan based on an agreement between
Wacoal Corp. and its employees and is not governed by the Pension
Committee. As such, the actual allocation percentage of equity securities to the total plan assets is higher than the target allocation and,similarly, the actual allocation for some other types of assets is lower
than the target allocation.

The following tables present the plan assets of the Company and certain subsidiaries using the fair value hierarchy as of March 31, 2018 and2017. The fair value hierarchy has three levels based on the reliability of the inputs used to determine the fair value. For references to each level,see Note 19.
Millions of yen
2018

Assets evaluated by other than net asset value per share
Equity securities:
Japanese companies
Foreign companies
Debt securities:
Foreign government bonds
Life insurance company general accounts
Other types of investments:
Other short-term investments
Assets evaluated by net asset value per share (a)Equity securities:
Pooled funds (b)Debt securities:
Pooled funds (c)Other types of investments:
Hedge funds (d)Pooled funds (e)TotalLevel 1

Level 2

Level 3

¥9,42317

Total¥9,42317

69¥4,403

69
4,403

2,403

2,403

6,030
11,095¥9,509¥6,806

Level 1

Level 2

3,870
5,426
¥42,736
Millions of yen

2017

Assets evaluated by other than net asset value per share
Equity securities:
Japanese companies
Foreign companies
Debt securities:
Foreign government bonds
Life insurance company general accounts
Other types of investments:
Other short-term investments
Assets evaluated by net asset value per share (a)Equity securities:
Pooled funds (b)Debt securities:
Pooled funds (c)Other types of investments:
Hedge funds (d)Pooled funds (e)Total¥ 9,962
25

Level 3Total

¥ 9,96225

67¥4,805

67
4,805

3,235

3,235

10,021
7,894¥10,054¥8,0401,377
5,817¥43,203(a)	Certain assets evaluated by net asset value per share (or its equivalent) are not categorized in the fair value hierarchy. Total amounts in the above table are presented to reconcile theamounts in the fair value hierarchy to the amounts stated on the consolidated balance sheets.
(b) This class includes common stock of approximately 52% Japanese companies and 48% foreign companies as of March 31, 2018 and 34% and 66%, respectively, as of March 31, 2017.
(c)	This class includes approximately 55% of foreign government bonds, 45% of corporate bonds investments as of March 31, 2018. This class includes approximately 15% of Japanese
government bonds, 2% of Japanese municipal bonds, 38% of foreign government bonds, 44% of corporate bonds and 1% of other short-term investments as of March 31, 2017.
(d) This class consists of hedge funds that invest in both long- and short-term debt securities as of March 31, 2018 and 2017.
(e)	This class includes approximately 34% of corporate bonds, 4% of common stock of Japanese companies, 16% of common stock of foreign companies, 26% of real estate and 20%
of other short-term investments as of March 31, 2018. This class includes approximately 35% of corporate bonds, 2% of common stock of Japanese companies, 13% of common
stock of foreign companies, 29% of real estate and 21% of other short-term investments as of March 31, 2017.

INTEGRATED REPORT 201869

Financial Section

Equity securities and debt securities presented in Level 1 are primarily
valued using a market approach based on the quoted market prices
of identical instruments. Life insurance company general accounts
categorized in Level 2 include contracts with insurance companies
with guaranteed rates of return and capital, and those values are
based on the sum of original value and return. Pooled funds arevalued using the net asset value per share provided by the administrator of the fund.
The funding policy for the funded plans of the Company and certain subsidiaries is to contribute amounts computed in accordancewith actuarial methods accepted by Japanese tax law. The Company
and certain subsidiaries expect to contribute ¥597 million to theirplans in the year ending March 31, 2019.
The following benefit payments, which reflect expected futureservices, as appropriate, are expected to be paid:
Year Ending March 31

2019
2020
2021
2022
2023
Thereafter

Millions of yen¥2,062
2,025
1,928
1,894
2,049
9,495

DEFINED CONTRIBUTION PLAN—Certain subsidiaries havedefined contribution plans. The amounts of cost recognized for theircontributions to the plan were ¥327 million, ¥249 million and ¥219
million for the years ended March 31, 2018, 2017 and 2016,
respectively.
EMPLOYEE EARLY RETIREMENT PROGRAM—The Company andcertain subsidiaries provide additional benefits to employees that electto participate in the Company’s and certain subsidiaries’ early retirement program. Retirement benefits of ¥210 million, ¥143 million and¥125 million were paid in addition to normal benefits and charged toselling, general and administrative expenses for the years ended
March 31, 2018, 2017 and 2016, respectively.
TERMINATION PLAN FOR DIRECTORS—The Company previously
had, and a certain subsidiary currently has, termination plans for
directors. Payment of termination benefits to directors is made in alump sum upon termination and requires the approval of the shareholders before payment. In June 2005, the Company rescinded its
termination plan for directors upon the approval of its shareholders.
The amount of benefits for each individual was fixed as of June 29,2005 and will remain frozen until the retirement of each respective
director. Outstanding liabilities of ¥348 million and ¥340 million as ofMarch 31, 2018 and 2017, respectively, were recorded in other longterm liabilities. A certain subsidiary has plans for its directors andrecorded a liability for termination benefits for directors at the amountthat would be needed if all directors were to resign at each balance
sheet date in accordance with the guidance for determination ofvested benefit obligations for a defined benefit pension plan.

13. SHARE-BASED COMPENSATION...................................................................................................................
The Company adopted an annual stock option plan in the year ended
March 31, 2009. Under the stock option plan, the Company granted
shares of its common stock to directors of the Company, excluding
outside directors and directors of the Company’s wholly-owned subsidiary, Wacoal Corp., in the years ended March 31, 2018, 2017 and2016. The Company believes that such awards better align the interests of its directors with those of its shareholders by sharing both risk
and return from fluctuations in stock prices and giving motivation toenhance corporate value. Each stock option is exercisable to acquire
500 shares of the Company’s common stock at ¥1 per share. The
compensation cost is measured at fair value on the grant date. Options
vest over one year in proportion to the services rendered by the directors, and are exercisable from the day after the date of retirement up to( i) 20 years from the grant date or (ii ) 5 years from the day after thedate of retirement, whichever is earlier.

The fair value of the options is estimated by using the BlackScholes option-pricing model with the following assumptions.
Expected dividend yield is based on the actual payout of dividends in the last fiscal year and the closing price of the Company’scommon stock on the grant date. Expected volatility is based on thehistorical volatility of the Company’s share price over the most recent
period commensurate with the expected term of the Company’s stock
options. The risk-free interest rate is based on the Japanese government bond yield curve in effect at the time of grant for a period commensurate with the expected term of the Company’s share options.
The expected term of options granted is based on the averageremaining service period of directors, assuming that those who are
granted options will render service until the stated retirement date andthey will exercise options immediately after their retirement.

Expected dividend yield
Expected volatility
Risk-free interest rate
Expected term

2018

2017

2016

2.3%
23.7%
(0.2)%
3.4 years

2.9%
25.1%
(0.2)%
2.5 years

2.0%
20.9%
0.0%
2.6 years

A summary of stock option activities under the plan for the year ended March 31, 2018 and 2017 was as follows:
Yen

Outstanding as of April 1, 2017
GrantedExercised
Outstanding as of March 31, 2018
Exercisable as of March 31, 201870

INTEGRATED REPORT 2018

Years

Shares

Weighted-Average
Exercise Price

Weighted-Average
Remaining
Contractual Term

222,500
23,0005,000
240,500
21,000¥1
1
1
1
1

14.39 years
2.30 years

Millions of yen
Aggregate
Intrinsic Value

¥740
65

Yen

Outstanding as of April 1, 2016
GrantedExercised
Outstanding as of March 31, 2017
Exercisable as of March 31, 2017
The total intrinsic value of options exercised was ¥16 million, ¥69 million and ¥31 million as of the years ended March 31, 2018, 2017 and2016, respectively.
The total compensation costs recognized for the years ended
March 31, 2018, 2017 and 2016 were ¥68 million, ¥74 million and¥67 million, respectively. The total recognized tax benefits related
thereto for the years ended March 31, 2018, 2017 and 2016 were
¥21 million, ¥23 million and ¥21 million, respectively.
The weighted-average grant date fair values of options granted
for the years ended March 31, 2018, 2017 and 2016 were ¥2,918,

Years

Shares

Weighted-Average
Exercise Price

Weighted-Average
Remaining
Contractual Term

215,500
34,50027,500222,500
26,000¥1
1
1
1
1

14.58 years
3.10 years

Millions of yen
Aggregate
Intrinsic Value

¥611
71

¥2,088 and ¥2,838, respectively.
As of March 31, 2018, there was ¥10 million in total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the plan. That cost is expected tobe recognized over three months.
*As of October 1, 2017, the Company effected a one-for-two ordinary share reverse
stock split. The number of shares to be granted for exercise of stock option is
calculated assuming that the reverse stock split occurred at the beginning of the earliest
fiscal year presented in the consolidated financial statements.

14. EQUITY.............................................................................................................................................................
Japanese companies are subject to the Companies Act of Japan (the“Companies Act”). The significant provisions in the Companies Act
that affect financial and accounting matters are summarized below:(a) Dividends
Under the Companies Act, companies can pay dividends at any time
during the fiscal year in addition to the year-end dividend upon resolution at the shareholders’ meeting. Additionally, for companies thatmeet certain criteria including (1) having a Board of Directors, (2)having independent auditors, (3) having an Audit and Supervisory
Board, and (4) the term of service of the directors being prescribedas one year rather than the normal two-year term by its articles ofincorporation, the Board of Directors may declare dividends (except
for dividends-in-kind) at any time during the fiscal year if the company
has prescribed so in its articles of incorporation. The Company
meets all the above criteria and, accordingly, the Board of Directors
may declare dividends (except for dividends-in-kind) at any time
during the fiscal year.
The Companies Act permits companies to distribute dividends-in-kind (noncash assets) to shareholders subject to a certain
limitation and additional requirements.
Semiannual interim dividends may also be paid once a year
upon resolution by the Board of Directors if the articles of incorporation of the companies so stipulate. The Companies Act provides certain limitations on the amounts available for dividends or thepurchase of treasury stock. The limitation is defined as the amountavailable for distribution to the shareholders, but the amount of net
assets after dividends must be maintained at no less than ¥3 million.
(b) Increases/Decreases and Transfer of Common Stock,
Reserve and Surplus
The Companies Act requires that an amount equal to 10% of dividends must be appropriated as a legal reserve (a component ofretained earnings) or as additional paid-in capital (a component of
capital surplus), depending on the equity account charged upon thepayment of such dividends, until the total of the aggregate amount oflegal reserve and additional paid-in capital equals 25% of thecommon stock. Under the Companies Act, the total amount of additional paid-in capital and legal reserve may be reversed without limitation. The Companies Act also provides that common stock, legal
reserve, additional paid-in capital, other capital surplus and retained
earnings can be transferred among the accounts under certain conditions upon resolution of the shareholders.
(c) Treasury stock
The Companies Act also provides for companies to purchase treasury
stock and dispose of such treasury stock by resolution of the Boardof Directors. The amount of treasury stock purchased cannot exceed
the amount available for distribution to the shareholders which isdetermined by a specific formula.

INTEGRATED REPORT 201871

Financial Section

15. OTHER COMPREHENSIVE INCOME (LOSS)..................................................................................................
The changes in the components of accumulated other comprehensive income, including amounts attributable to noncontrolling interests were as
follows:
Millions of yen

2018
Pension Liability
Adjustments

Unrealized Gainon Securities

Pension Liability
Adjustments¥21,075¥ (414)¥ 5,177¥17,966¥(1,035)

9,309(2,815)
6,494

(655)
168
(487)

(4,109)30(4,079)4,905(1,492)
3,413

1,062
(443)
619

(201)
62
(139)

(278)
85
(193)

(438)
134
(304)

(2)
1
(1)

(51)

(6)

(7)

114

(0)

3

¥2,274¥27,424¥1,101¥ 1,212¥21,075¥ (414)

Unrealized Gainon Securities¥1,212
1,158
(45)
1,113

Balance at the beginning of the year (after-tax)
Amount arising during the year:
Pre-tax amountTax credit
Net amount
Reclassification adjustments:
Pre-tax amountTax credit
Net amount
Other comprehensive income (loss) attributable
to noncontrolling interests (after-tax)
Balance at the end of the year (after-tax)

2017
Foreign Currency
Translation
Adjustments

Foreign Currency
Translation
Adjustments

Millions of yen

2016

Balance at the beginning of the year (after-tax)
Amount arising during the year:
Pre-tax amountTax credit
Net amount
Reclassification adjustments:
Pre-tax amountTax credit
Net amount
Other comprehensive income (loss) attributable
to noncontrolling interests (after-tax)
Balance at the end of the year (after-tax)

Foreign Currency
Translation
Adjustments

Unrealized Losson Securities

Pension Liability
Adjustments¥10,831¥20,821¥ 1,934(5,890)220(5,670)(4,169)1,336(2,833)(3,418)1,091(2,327)

(70)
23
(47)

(952)
308
(644)

16

25

2

¥ 5,177¥17,966¥(1,035)

Reclassification adjustments (pre-tax) of unrealized gain or loss on securities are included in “Gain (Loss) on sales or exchange of marketable securities and investments – net” and “Valuation gain or loss on marketable securities and investments – net” in the consolidated statements of income.
Reclassification adjustments (pre-tax) of pension liability adjustments are included in “Cost of sales” and “Selling, general and administrative
expenses” in the consolidated statements of income as the net periodic benefit costs.

16. INCOME TAXES................................................................................................................................................
Domestic and foreign components of income before income taxes
and equity in net income of affiliated companies for the years ended
March 31, 2018, 2017 and 2016 were summarized as follows:

Domestic and foreign components of income taxes for the years
ended March 31, 2018, 2017 and 2016 consist of:Millions of yen

Millions of yen

JapanForeign
Total

2018

2017

2016

¥ 25,139(10,853)¥ 14,286¥ 27,487(10,918)¥ 16,569¥24,002(9,045)¥14,957

Current:
Japan
Foreign
Deferred:Japan
Foreign
Total income taxes

72

INTEGRATED REPORT 2018

2018

2017

2016

¥3,2891,591¥4,880¥3,2301,600¥4,830¥1,666
1,776¥3,442

¥ 394
268
¥ 662
¥5,542

¥ 690
(240)
¥ 450
¥5,280¥1,483(195)¥1,288¥4,730Income taxes in Japan applicable to the Companies imposed by the national, prefectural and municipal governments in the aggregate resulted innormal effective statutory tax rates of approximately 30.9%, 30.9% and 33.1% for the fiscal years ended March 31, 2018, 2017 and 2016, respectively. Foreign subsidiaries are subject to income taxes of the countries in which they operate.
The Companies are subject to a number of different taxes based on income. The effective income tax rates differed from the normal effective
statutory tax rates for the following reasons for the years ended March 31, 2018, 2017 and 2016:

Normal Japanese effective statutory tax rates
Increase (decrease) in taxes resulting from:
Permanently nondeductible expenses
Change in valuation allowance
Undistributed earnings of associated companies
Differences in foreign subsidiaries’ tax rate
Tax exemption
Unrecognized tax benefits
Changes in Japanese income tax rates
Other – net
Effective tax rates

2018

2017

2016

30.9%

30.9%

33.1%

3.0
2.8
0.7
(1.3)
(0.9)
(0.1)
2.0
1.7
38.8%

2.4
3.1
(2.1)
(0.5)
(0.4)
(1.8)
0.2
0.1
31.9%

2.8
1.1
0.1
(1.2)
(0.2)
(0.1)
(3.0)
(1.0)
31.6%

On December 22, 2017, the Tax Cuts and Jobs Act (the “TCJA”) was enacted into law, which significantly reduced corporate tax rates in the
United States. As a result of the TCJA, deferred tax assets of foreign subsidiaries in the United States decreased and income tax expense
increased by ¥290 million.
The approximate effect of temporary differences and tax loss carryforwards that gave rise to deferred tax balances as of March 31, 2018 and2017 were as follows:
Millions of yen

2018
Deferred Tax
AssetsAllowance for returns
Allowance for doubtful receivables
Accruals not currently deductible
Inventory valuation
Accrued bonuses
Impairment charges on marketable securities and investments
Advanced depreciation on property, plant and equipment
Undistributed earnings of associated companies
Net unrealized gain on marketable securities and investments
Net realized gain on exchange of investments
Capitalized supplies
Enterprise taxes
Accrued vacation
Asset retirement obligation
Prepaid pension expense
Liability for termination and retirement benefit
Tangible fixed assets
Tax loss carryforwards
Intangible assets
Other temporary differences
Total
Valuation allowance
Total
The valuation allowance decreased by ¥492 million and ¥515 million
for the years ended March 31, 2018 and 2017, respectively.
On November 28, 2014, the Company resolved a restructuring
plan for its group organization. Based on the resolution, most of theassets and liabilities of Lecien Corp. (“Lecien”), a wholly-owned subsidiary of the Company, were transferred to a newly-established subsidiary, and Wacoal Corp., another wholly-owned subsidiary of theCompany, merged with Lecien, including Lecien’s remaining assets
and liabilities on April 1, 2015.

¥

Deferred Tax
Liabilities

2017
Deferred Tax
Assets

¥

600
15
213
840
999
449

713
14
221
830
963
972
¥ 1,992
2,209
10,738818¥ 1,981
2,355
12,266
818
162
298
761
267

175
216
727
255

2,462

2,402
478
1,472
1,491

479
1,005
1,861
92
7,926
(2,337)¥ 5,589

Deferred Tax
Liabilities

1,762
42
21,626¥21,626525
9,167(1,845)¥ 7,322

1,761
95
20,075¥20,075

In conjunction with the merger, deferred tax assets for temporary
differences related to the merged assets and liabilities and tax loss carryforwards were transferred from Lecien to Wacoal Corp., including
deferred tax assets for which a full valuation allowance had been established due to the poor operating results of Lecien. However, as a resultof considering the restructuring, there was a change in assessment of
the realizability of deferred tax assets, and the Company reversed¥1,398 million of the valuation allowance and recognized the sameamount of income tax benefit for the year ended March 31, 2015.

INTEGRATED REPORT 201873

Financial Section

The Companies also reversed a part of the valuation allowanceand utilized ¥333 million and ¥257 million of tax loss carryforwards,
and recognized tax benefits of ¥87 million and ¥77 million for theyears ended March 31, 2018 and 2017, respectively.
As of March 31, 2018, certain subsidiaries had tax loss carryforwards
which are available to offset future taxable income of such subsidiaries
and expire as follows:Year Ending March 31

2019
2020
2021
2022
2023
2024
2025
2026
2027
Thereafter
Total

Millions of yen

¥ 483
812
228
440
1,069
42
71
662
502
2,419
¥6,728There was no portion of undistributed earnings of foreign subsidiaries
and foreign corporate joint ventures which was deemed to be permanently invested as of March 31, 2017 and 2016.
A reconciliation of beginning and ending amounts of unrecognized tax benefits is as follows:

Millions of yen

Balance at the beginningof the year
Additions based on tax positions
related to the current year
Reductions for tax positionsof prior years
Balance at the end of the year

2018

2017

2016

¥4

¥ 300

¥312

1

1

1

(297)

(13)

4

¥300

¥

¥5

The total amount of unrecognized tax benefits that, if recognized,
would affect the effective tax rate is ¥5 million, ¥4 million and ¥300
million as of March 31, 2018, 2017 and 2016, respectively.
The Companies recognize interest and penalties accrued related
to unrecognized tax benefits in income taxes in the consolidated
statements of income. Total amounts of interest and penalties recognized in the consolidated statements of income for the years ended
March 31, 2018, 2017 and 2016 were not material.
The Companies file income tax returns in Japan and various foreign tax jurisdictions. In Japan, the Companies are no longer subject
to regular income tax examinations by the tax authorities for years
before 2014, with few exceptions. For other countries, the Companies
are no longer subject to regular income tax examinations by the tax
authorities for years before 2010, with few exceptions. For certain
subsidiaries in Japan, the United States, and Asia, the transfer pricing
examinations for the fiscal years ended March 31, 2017, 2011 and2008 were completed.

17. EARNINGS PER SHARE...................................................................................................................................
Basic net income attributable to Wacoal Holdings Corp. per share has
been computed by dividing net income attributable to Wacoal
Holdings Corp. by the weighted-average number of common shares
outstanding during each year. Diluted net income attributable to
Wacoal Holdings Corp. per share assumes the dilution that would
occur if share-based options to issue common stock were exercised.
The weighted-average number of common shares outstandingused in the computations of basic net income attributable to Wacoal
Holdings Corp. per share was 67,928,557 shares, 69,483,315 sharesand 70,421,092 shares for the years ended March 31, 2018, 2017and 2016, respectively. The weighted-average number of diluted
common shares outstanding used in the computations of diluted net
income attributable to Wacoal Holdings Corp. per share was68,157,430 shares, 69,696,631 shares and 70,627,620 shares forthe years ended March 31, 2018, 2017 and 2016, respectively.
*As of October 1, 2017, the Company effected a one-for-two ordinary share reverse
stock split. Net income attributable to Wacoal Holdings Corp. per share is calculated
assuming that the reverse stock split occurred at the beginning of the earliest fiscal year
presented in the consolidated financial statements.

18. FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK.......................................................
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and fair values of financial instruments as of March 31, 2018 and 2017 were as follows:
Millions of yen

2018

Assets:Marketable securities (Notes 3 and 20)
Investments (Notes 3 and 20)
Total assets
Liabilities:
Long-term debt including current portion
Total liabilities

74

INTEGRATED REPORT 2018

2017

Carrying Amount

Fair Value

Carrying Amount

Fair Value¥ 1,567
68,057¥69,624¥ 1,559
68,045¥69,604¥ 1,445
58,586¥60,031¥ 1,442
58,582¥60,024

¥
¥

¥
¥

¥
¥

¥
¥

188
188

188
188

235
235

235
235

There are investments in nonmarketable equity securities and debt
securities for which there are no readily determinable fair values. See
Note 3 for further information. The carrying amounts of all other financial instruments approximate their estimated fair values because of
the short maturity of those instruments. For information about fairvalues of foreign exchange contracts, see Note 19.
MARKETABLE SECURITIES AND INVESTMENTS—Held-tomaturity debt securities are classified as marketable securities andinvestments as of March 31, 2018 and 2017. The fair value of these
held-to-maturity debt securities are classified as Level 1. For all otherinvestments included in marketable securities and investments, seeNotes 3 and 19.
LONG-TERM DEBT—The fair values for long-term debt are estimated by discounted cash flow analysis, using rates currently

available for similar types of borrowings with similar terms and remaining maturities. The estimated fair value is based on Level 2 inputs.
LIMITATIONS—Fair value estimates are made at a specific point intime based on relevant market information and information about thefinancial instruments. These estimates are subjective in nature andinvolve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions
could significantly affect the estimates.
CONCENTRATION OF CREDIT RISK—The Companies’ businessconsists primarily of sales of women’s intimate apparel to a large
number of diverse customers in the Japanese retail industry, which
include well-established department stores, general merchandise
stores and other general retailers and specialty stores.

19. FAIR VALUE MEASUREMENTS.......................................................................................................................
The guidance for fair value measurements defines fair value as theprice that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for theasset or liability in an orderly transaction between market participantsat the measurement date. The guidance establishes a three-level fairvalue hierarchy that prioritizes the inputs used to measure fair value asfollows:

Level 1—Inputs are quoted prices in active markets for identicalassets or liabilities.
Level 2—Inputs are quoted prices for similar assets or liabilities in
active markets, quoted prices for identical or similar assets
or liabilities in markets that are not active, inputs other thanquoted prices that are observable, and inputs that arederived principally from or corroborated by observable
market data by correlation or other means.
Level 3—Inputs are unobservable.

ASSETS AND LIABILITIES MEASURED AT FAIR VALUE ON A RECURRING BASIS
Assets and liabilities measured at fair value on a recurring basis as of March 31, 2018 and 2017 were as follows:
Millions of yen
2018

Assets:Marketable securities:
Municipal bonds
Mutual funds
Total marketable securities
Investments:
Equity securities
Corporate debt securities
Mutual funds
Total investments
Derivative instruments:
Foreign exchange contracts
Total assets
Liabilities:
Derivative instruments:
Foreign exchange contracts
Currency swap
Total liabilities

Level 1

Level 2

¥

10
590
600

¥66,751

Level 3

Total

¥

10
590
600

46
66,797614

66,751614
46
67,411¥66,7976¥1,220

6¥68,017

¥

¥

614

¥

13
31
44

¥

13
31
44

INTEGRATED REPORT 201875

Financial Section

Millions of yen
Level 1

2017

Assets:Marketable securities:
Municipal bonds
Mutual funds
Total marketable securities
Investments:
Equity securities
Mutual funds
Total investments
Derivative instruments:
Foreign exchange contracts
Total assets
Liabilities:
Derivative instruments:
Foreign exchange contracts
Total liabilities

Level 2

Level 3

¥ 10
868
878

¥

¥57,97644
58,020¥58,020

Investments presented in Level 1 are valued using unadjusted quoted
market prices in active markets with sufficient volume and frequencyof transactions. Bonds presented in Level 2 are valued by financial
institutions using quoted market prices for identical instruments inmarkets that are not active. Mutual funds presented in Level 2 arevalued by financial institutions based on quoted prices in an inactive
market for identical instruments which are included in the mutual
funds.

Total

10
868
878

57,97644
58,0202¥880

2¥58,900

¥
¥

¥
¥

4
4

4
4

As discussed in Note 3, the Companies record impairment
charges on marketable securities and investments if a decline in fairvalue of marketable securities and investments is determined to beother than temporary.
Foreign exchange contracts and currency swaps presented in
Level 2 are valued by financial institutions based on market data inboth active and inactive markets.

ASSETS MEASURED AT FAIR VALUE ON A NONRECURRING BASIS
Assets measured at fair value on a nonrecurring basis as of March 31, 2018 were as follows:
Millions of yen
2018

Level 1

Goodwill (Note 8)

As of March 31, 2018, all the carrying amount of A Tech’s goodwill
was written down resulting in an impairment charges of ¥206 million,
which is included as a charge to earnings for the year ended March
31, 2018. The impairment arose mainly due to the revision of the
future business plan made in response to a slump in sales. To measure the fair values of A Tech’s reporting units, the Companies usedthe expected present value of future cash flows and incorporated

76

INTEGRATED REPORT 2018

Level 2

Level 3

Total

Impairment Losses¥(206)¥(206)
relevant unobservable inputs, such as management’s internal
assumptions about future cash flows and appropriately risk-adjusted
discount rates, which reflected management’s estimate of assumptions that market participants would use in pricing the asset in anarm’s length transaction as of the measurement date.
There were no assets measured at fair value on a nonrecurring
basis as of March 31, 2017.

20. DERIVATIVE INSTRUMENTS...........................................................................................................................
RISK MANAGEMENT POLICY—The Companies are exposed to therisk of changes in foreign currency exchange rates. Derivative instruments are used to manage such risk. Derivative instruments are usedbased on Company policy and administrative provisions. There were
no derivative instruments used for the purpose of speculative trading.
The Companies consider the related credit risk to be low since thesederivative instruments are provided by financial institutions with international credibility.
FOREIGN EXCHANGE RISK—Assets and liabilities denominated inforeign currencies, which are primarily related to international business, are exposed to the risk of changes in foreign currency exchange
rates. Foreign exchange contracts are used to mitigate such risk.
DERIVATIVE INSTRUMENTS NOT DESIGNATED AS A HEDGE—
Foreign exchange contracts are classified as derivative instruments,
which are not designated as a hedge since these derivative instruments do not qualify for hedge accounting. These derivative instruments are used to mitigate the risk of changes in foreign currency

exchange rates, and the changes in fair value of such derivative
instruments are recorded in earnings immediately.
Notional contract amounts of foreign currency exchange contracts that are not designated as hedges were ¥1,598 million and¥1,313 million as of March 31, 2018 and 2017, respectively. Thechanges in the fair value of the foreign currency exchange contracts
are recorded in earnings, since the foreign currency exchange contracts are not designated as hedges. The Companies recognized again of ¥29 million, a gain of ¥295 million and a loss of ¥(506) million
in other – net of other income (expenses) for the years ended March
31, 2018, 2017 and 2016, respectively.
The Companies recorded derivative instruments at fair value inthe consolidated balance sheets as other current assets and othercurrent liabilities in the amount of ¥6 million and ¥44 million, respectively, as of March 31, 2018, and as other current assets and othercurrent liabilities in the amount of ¥2 million and ¥4 million, respectively, as of March 31, 2017.

21. REORGANIZATION EXPENSES.......................................................................................................................
Eveden Huit SAS, a wholly-owned subsidiary of the Company which sold underwear and swimwear, filed with the Rennes Commercial Court inFrance for reorganization on April 1, 2016. On July 9, 2016, the subsidiary was instructed to transfer its business to Trendy Capital Co., which
operates in France. Accordingly, in connection with this reorganization, expenses of ¥805 million were recognized during the year ended March 31,
2017.
The changes in the amount of related liabilities for the years ended March 31, 2018 and 2017 were as follows:
Millions of yen

2018

Retirement Cost

Depreciation and
Loss on Disposalof Assets without
Cash Payment – net

Balance at the beginning of the year:
Reorganization expenses
Expenses without cash payment
Cash payments madeForeign currency translation adjustments
Balance at the end of the year

Other RelatedExpenses

Total

¥ 87

¥ 87

(91)
4

(91)
4

Millions of yen

2017

Balance at the beginning of the year:
Reorganization expenses
Expenses without cash payment
Cash payments madeForeign currency translation adjustments
Balance at the end of the year

Retirement Cost

¥ 237
(237)

Depreciation and
Loss on Disposalof Assets without
Cash Payment – net

¥ 301
(301)

Other RelatedExpenses

Total

¥ 212
(2)
(121)
(2)
¥ 87

¥ 750
(303)
(358)
(2)
¥ 87

The Companies recorded no reorganization expenses in the fiscal year ended March 31, 2018 and recorded reorganization expenses of ¥211 million and ¥539 million in costs of sales and selling, general and administrative expenses, respectively, in the consolidated statement of income forthe year ended March 31, 2017. These expenses were included in the operating costs and expenses for Wacoal business (overseas) in the segment information.

INTEGRATED REPORT 201877

Financial Section

22. ASSETS CLASSIFIED AS HELD FOR SALE....................................................................................................
The Companies sold land, located at the site of the Nagoya branch,on April 27, 2016 to make effective use of resources because it was
unlikely that the Companies would use this site for future business.

As a result of the transfer, the Companies recorded a gain on saleof property, plant and equipment of ¥3,770 million in the consolidated
statement of income for the year ended March 31, 2017.

23. SEGMENT INFORMATION...............................................................................................................................
OPERATING SEGMENT INFORMATIONThe Companies have three reportable segments: “Wacoal business(domestic),” “Wacoal business (overseas),” and “Peach John,” which
are based on their locations and brands. These segments represent
components of the Companies for which separate financial information is available and for which operating income (loss) is reviewed regularly by the chief operating decision-maker in deciding how toallocate the Companies’ resources and in assessing their performance. The accounting policies used for these reportable segments
are the same as those described in the summary of significant
accounting policies in Note 1.
The “Wacoal business (domestic)” segment primarily produces

and sells innerwear (consisting of foundation, lingerie, nightwear andchildren’s innerwear), outerwear, sportswear and hosiery. The “Wacoal
business (overseas)” segment produces and sells innerwear (consisting of foundation, lingerie, nightwear and children’s innerwear), outerwear, sportswear, hosiery and other textile-related products. The“Peach John” segment produces and sells innerwear (consisting offoundation, lingerie, nightwear), outerwear, and other textile-related
products, which are sold under the “Peach John” brand. The “Other”
produces and sells innerwear (consisting of foundation, lingerie, nightwear and children’s innerwear), outerwear, other textile-related products, and mannequins and also engages in construction of stores andinterior design.

Information about operating results and assets for each segment as of and for the years ended March 31, 2018, 2017 and 2016 is as follows:
Millions of yen
2018

Net sales:
External customers
Intersegment
Total
Operating costs and expenses:
Operating costs and expenses
Depreciation and amortization
Impairment charges on goodwill
Total
Operating income
Total assets and capital expenditures:
Total assets
Capital expenditures

Wacoal Business(Domestic)

Wacoal Business(Overseas)

Peach John

Other

Elimination¥116,085
1,051
117,136¥51,888
10,18062,068¥10,795
1,281
12,076¥16,957
5,283
22,240¥(17,795)(17,795)

105,782
3,469

11,290345

21,712
172(17,795)

109,251
7,885

56,504
1,506
206
58,216
3,852

11,635441

21,884356(17,795)

260,582
3,649

77,374
1,752

13,825365

18,261
118(71,508)

Wacoal Business(Domestic)

Wacoal Business(Overseas)

Peach John

Other

Elimination¥118,389
1,098
119,487¥48,4239,236
57,659¥11,107
1,006
12,113¥17,962
5,947
23,909¥(17,287)(17,287)

109,280
3,248
112,528
6,959

53,3201,284
54,604
3,055

11,427
312
11,739374

23,044
188
23,232
677

259,531
5,233

77,313
1,799

11,882355

18,68458

Consolidated¥195,725
195,725
177,493
5,492
206
183,191
12,534
298,534
5,884
Millions of yen

2017

Net sales:
External customers
Intersegment
Total
Operating costs and expenses:
Operating costs and expenses
Depreciation and amortization
Total
Operating income
Total assets and capital expenditures:
Total assets
Capital expenditures

78

INTEGRATED REPORT 2018

Consolidated¥195,881(17,287)(17,287)(72,452)

195,881
179,784
5,032
184,816
11,065294,958
7,445

Millions of yen
2016

Wacoal Business(Domestic)

Wacoal Business(Overseas)

Peach John

Other

Elimination¥120,570
1,427
121,997¥51,869
8,595
60,464¥11,190775
11,965¥19,288
6,102
25,390¥(16,899)(16,899)

110,144
3,043
113,187
8,810

54,711
1,320
56,031
4,433

11,442
265
11,707258

24,839187
25,026364

254,269
6,977

80,580
1,694

11,959245

18,86662

Net sales:
External customers
Intersegment
Total
Operating costs and expenses:
Operating costs and expenses
Depreciation and amortization
Total
Operating income
Total assets and capital expenditures:
Total assets
Capital expenditures

Consolidated¥202,917(16,899)(16,899)(72,820)

202,917
184,237
4,815
189,052
13,865292,854
8,978

The sum of the operating income (loss) of the reportable segments is consistent with the operating income on the consolidated statements ofincome. For a reconciliation from operating income to income before income taxes and equity in net income of affiliated companies, see otherincome (expenses) on the consolidated statements of income.
The Companies account for intersegment sales and transfers at cost plus a markup. Operating income (loss) represents net sales less operating costs and expenses.
PRODUCTS AND SERVICE INFORMATIONNet sales information by product and service for the years ended March 31, 2018, 2017 and 2016 is as follows:
Millions of yen

Innerwear:
Foundation and lingerieNightwear
Children’s underwear
Subtotal
Outerwear/Sportswear and others
Hosiery
Other textile goods and related products
Others
Total

2018

2017

2016

¥146,970
8,758
1,376
157,104¥ 16,128
1,983
8,907
11,603¥195,725¥145,188
9,154
1,429
155,771¥ 17,189
2,235
9,346
11,340¥195,881¥151,166
10,098
1,386
162,650¥ 19,074
2,178
7,161
11,854¥202,917

GEOGRAPHIC INFORMATION
Information by major geographic area as of and for the years ended March 31, 2018, 2017 and 2016 is as follows:
Millions of yen

Net sales:Japan
Asia and Oceania
Americas and Europe
Consolidated
Long-lived assets:Japan
Asia and Oceania
Americas and Europe
Consolidated

2018

2017

2016

¥143,196
21,05731,472¥195,725¥147,061
19,187
29,633¥195,881¥150,673
17,90634,338¥202,917¥ 46,367
4,916
3,050
¥ 54,333¥ 47,452
4,661
3,175
¥ 55,288¥ 46,136
4,490
3,312
¥ 53,938

Countries or areas are classified according to their geographical proximity.
Asia and Oceania includes East Asia, Southeast Asia, West Asia and Australia.
Net sales are attributed to countries or areas based on the location where sold.
Long-lived assets represent property, plant and equipment.

INTEGRATED REPORT 201879

Financial Section

24. SUBSEQUENT EVENTS...................................................................................................................................
(Purchase of Treasury Stock)
On May 15, 2018, the Board of Directors resolved to purchase treasury stock based on a specific purchasing method as described
below pursuant to the provisions of Paragraph 1, Article 459 of theCompanies Act as follows.

(Retirement of Treasury Stock)
On May 15, 2018, the Board of Directors resolved to retire treasury
stock based on a specific purchasing method as described below
pursuant to the provisions of Article 178 of the Companies Act asfollows.

a. Reason for Purchase:	To improve capital efficiency and to implement capital policy tailored to the business environment with increased flexibility

a. Type of Shares to Be Retired:
Common stock of the Company

b. Type of Shares to Be Purchased:
Common stock of the Company
c. Total Number of Shares to Be Purchased:
2,200,000 shares (at maximum)d. Total Amount to Be Purchased:¥7,000 million (at maximum)
e. Purchase Period:
From May 21, 2018 through December 31, 201880

INTEGRATED REPORT 2018b. Total Number of Shares to Be Retired:
1,000,000 sharesc. Date for Retirement
May 25, 2018
(Dividend Declaration)
On May 15, 2018, the Board of Directors resolved to pay a cash dividend of ¥180 per 5 shares of common stock to holders of record asof March 31, 2018 (aggregate amount of ¥2,425 million).

Independent Auditors’ Report

To the Board of Directors and Stockholders of Wacoal Holdings Corp.
Kyoto, Japan
We have audited the accompanying consolidated financial statements of Wacoal Holdings Corp. and its subsidiaries (the “Company”), which comprise the consolidated balance sheets as of March 31, 2018 and 2017, and the related consolidated statements of income, comprehensive
income, equity, and cash flows for each of the three years in the period ended March 31, 2018 (all expressed in Japanese yen), and the related
notes to the consolidated financial statements.

Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to
the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordancewith auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements.
The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated
financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to theCompany’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in thecircumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, we express nosuch opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting
estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Audit Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Wacoal
Holdings Corp. and its subsidiaries as of March 31, 2018 and 2017, and the results of their operations and their cash flows for each of the three
years in the period ended March 31, 2018, in accordance with accounting principles generally accepted in the United States of America.

Convenience Translation
Our audit for the year ended March 31, 2018 also comprehended the translation of Japanese yen amounts into U.S. dollar amounts and, in our
opinion, such translation has been made in conformity with the basis stated in Note 2. The translation of the financial statement amounts into U.S.
dollars has been made solely for convenience of readers outside of Japan.

Report on Management’s Report on Internal Control over Financial Reporting
Notwithstanding the second paragraph of the “Auditors’ Responsibility” section, we have performed an audit of management’s report on internal
control over financial reporting (“ICFR”) under the Financial Instruments and Exchange Act of Japan. A translated copy of management’s report on
ICFR along with a translated copy of our report is included within this Annual Securities Report as information for readers.

June 28, 2018

INTEGRATED REPORT 201881

Financial Section

Management’s Annual Report on Internal Control Over Financial Reporting (Translation)

NOTE TO READERS
Following is an English translation of management’s report on internal control over financial reporting (“ICFR”) filed under the Financial
Instruments and Exchange Act of Japan. This report is presented merely as supplemental information.
There are differences between management’s assessment of ICFR under the Financial Instruments and Exchange Act (“ICFR under
FIEA”) and one conducted under the attestation standards established by the American Institute of Certified Public Accountants (“AICPA”).
In management’s assessment of ICFR under FIEA, there is detailed guidance on the scope of management’s assessment of ICFR, suchas quantitative guidance on business unit selection and/or account selection. In management’s assessment of ICFR under the attestation
standards established by the AICPA, there is no such detailed guidance. Accordingly, based on the quantitative guidance which provides anapproximate measure of the scope of the assessment of internal control over business processes, we designated the business units that
accounted for approximately two-thirds of the aggregated sales for the previous fiscal year on a consolidated basis as “significant business
units” which should be subject to management’s assessment of the process-level controls.

1. Matters Relating to the Basic Framework for Internal Control over Financial Reporting
Hironobu Yasuhara, President and Representative Director, and Masaya Wakabayashi, Director and Vice President, are responsible fordesigning and operating effective ICFR of Wacoal Holdings Corp. (the “Company”), and have designed and operated ICFR in accordancewith the basic framework for internal control set forth in “On the Revision of the Standards and Practice Standards for Management
Assessment and Audit concerning Internal Control Over Financial Reporting (Council Opinions)” published by the Business Accounting
Council.
The internal control is designed to achieve its objectives to the extent reasonable through the effective function and combination of its
basic elements. Therefore, there is a possibility that misstatements may not be completely prevented or detected by ICFR.

2. Matters Relating to Scope of Assessment, the Assessment Date, and Assessment Procedures
The assessment of ICFR was performed as of March 31, 2018. The assessment was performed in accordance with assessment standards
for ICFR generally accepted in Japan.
In conducting this assessment, we evaluated internal controls which may have a material effect on the entire financial reporting in aconsolidation (“company-level controls”) and, based on the result of this assessment, we appropriately selected business processes to beevaluated, analyzed these selected business processes, identified key controls that may have a material impact on the reliability of our financial reporting, and assessed the design and operation of these key controls. These procedures have allowed us to evaluate the effectiveness of the internal controls.
We determined the required scope of the assessment of ICFR for the Company, as well as its consolidated subsidiaries and equity
method affiliated companies, from the perspective of the materiality that may affect the reliability of our financial reporting. We determined
the materiality that may affect the reliability of the financial reporting taking into account the materiality of quantitative and qualitative
impacts. We confirmed that we had reasonably determined the scope of assessment of internal controls over business processes in light of
the results of the assessment of company-level controls conducted for the Company, its consolidated subsidiaries and equity method affiliated companies. We did not include those consolidated subsidiaries and equity method affiliated companies which do not have any quantitatively or quantitatively material impact on the consolidated financial statements in the scope of the assessment of company-level controls.
Regarding the scope of assessment of internal control over business processes, we selected business units for testing as “significant
business units,” whose combined sales were at least two-thirds of total consolidated sales for the prior year on a consolidated basis.
At the selected significant business units, we included in the scope of our assessment those business processes leading to sales or
accounts receivable and inventories as significant accounts that may have a material impact on our business objectives. Further, not only at
selected significant business units, but also at other business units, we added to the scope assessment the following as business processes with greater materiality considering their impact on financial reporting:(1) those business processes relating to greater likelihood of material misstatements and significant accounts involving estimates and management’s judgment, and (2) those business processes relating to businesses or operations dealing with high-risk transactions.

82

INTEGRATED REPORT 2018

3. Matters Relating to the Results of Assessment
As a result of the assessment above, we concluded that our ICFR was effective as of March 31, 2018.

4. Supplementary Matters
Not applicable.

5. Special Information
Not applicable.

Hironobu Yasuhara
President and Representative Director
WACOAL HOLDINGS CORP.
Masaya Wakabayashi
Director and Vice President
WACOAL HOLDINGS CORP.

INTEGRATED REPORT 201883

Financial Section

Independent Auditors’ Report

NOTE TO READERS:
Following is an English translation of the Independent Auditors’ Report filed under the Financial Instruments and Exchange Act of Japan. This
report is presented merely as supplemental information.
There are differences between an audit of internal control over financial reporting (“ICFR”) under the Financial Instruments and Exchange Act(“ICFR under FIEA”) and one conducted under attestation standards established by the American Institute of Certified Public Accountants(“AICPA”).
In an audit of ICFR under FIEA, the auditors express an opinion on management’s report on ICFR, and do not express an opinion on the
Company’s ICFR directly. In an audit of ICFR under attestation standards established by the AICPA, the auditors express an opinion on the
Company’s ICFR directly. Also, in an audit of ICFR under FIEA, there is detailed guidance on the scope of an audit of ICFR, such as quantitative
guidance on business unit selection and/or account selection. In an audit of ICFR under attestation standards established by the AICPA, there isno such detailed guidance. Accordingly, based on the quantitative guidance which provides an approximate measure for the scope of assessment of internal control over business processes, we used a measure of approximately 70% of total assets on a consolidated basis and income
before income taxes on a consolidated basis for the selection of significant business units.

(TRANSLATION)
Deloitte Touche Tohmatsu LLC
Designated Unlimited Liability Partner,
Engagement Partner,
Certified Public Accountant:
Wakyu Shinmen
Designated Unlimited Liability Partner,
Engagement Partner,
Certified Public Accountant:Hiroaki Sakai
Designated Unlimited Liability Partner,
Engagement Partner,
Certified Public Accountant:Seiichiro Nakashima
To the Board of Directors of Wacoal Holdings Corp.

Audit of Financial Statements
Pursuant to the first paragraph of Article 193-2 of the Financial Instruments and Exchange Act, we have audited the consolidated financial statements included in the Financial Section, namely, the consolidated balance sheet as of March 31, 2018 of Wacoal Holdings Corp. and its consolidated subsidiaries (the “Company”), and the consolidated statements of income, comprehensive income, equity and cash flows for the fiscal
year from April 1, 2017 to March 31, 2018, and a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting
principles generally accepted in the United States of America pursuant to the third paragraph of the Supplementary Provisions of the Cabinet
Office Ordinance for Partial Amendment of the Regulations for Terminology, Forms and Preparation Methods of Consolidated Financial
Statements (No. 11 of the Cabinet Office Ordinance in 2002), and for such internal control as management determines is necessary to enable
the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

84

INTEGRATED REPORT 2018

Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in Japan. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to
the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Audit Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Wacoal
Holdings Corp. and its consolidated subsidiaries as of March 31, 2018, and the results of their operations and their cash flows for the year thenended, in accordance with accounting principles generally accepted in the United States of America.

Audit of Internal Control
Pursuant to the second paragraph of Article 193-2 of the Financial Instruments and Exchange Act, we have audited management’s report oninternal control over financial reporting of the Company as of March 31, 2018.

Management’s Responsibility for the Report on Internal Control
Management is responsible for designing and operating effective internal control over financial reporting and for the preparation and fair presentation of its report on internal control in accordance with assessment standards for internal control over financial reporting generally accepted inJapan. There is a possibility that misstatements may not be completely prevented or detected by internal control over financial reporting.

Auditors’ Responsibility
Our responsibility is to express an opinion on management’s report on internal control based on our internal control audit. We conducted ourinternal control audit in accordance with auditing standards for internal control over financial reporting generally accepted in Japan. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether management’s report on internal control is freefrom material misstatement.
An internal control audit involves performing procedures to obtain audit evidence about the results of the assessment of internal control overfinancial reporting in management’s report on internal control. The procedures selected depend on the auditors’ judgment, including the significance of effects on reliability of financial reporting. An internal control audit includes examining representations on the scope, procedures andresults of the assessment of internal control over financial reporting made by management, as well as evaluating the overall presentation of management’s report on internal control.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Audit Opinion
In our opinion, management’s report on internal control over financial reporting referred to above, which represents that the internal control overfinancial reporting of Wacoal Holdings Corp. and its consolidated subsidiaries as of March 31, 2018 is effectively maintained, presents fairly, in allmaterial respects, the results of the assessment of internal control over financial reporting in accordance with assessment standards for internal
control over financial reporting generally accepted in Japan.

Interest
Our firm and the engagement partners do not have any interest in the Company for which disclosure is required under the provisions of theCertified Public Accountants Act.

June 28, 2018

INTEGRATED REPORT 201885

Investor Information
As of March 31, 2018

Ownership and Distribution of Shares

Stock Listing
Tokyo

Securities firms

Fiscal Year-end
March 31

0.92%

Individuals and others

19.99 %

Securities Code
3591
Financial
institutions

Common Stock
Issued: 71,689,042 shares
Outstanding: 67,366,921 shares

40.09 %
Other Japanesecompanies

Trading Unit
100 shares

19.03 %

Shareholder Register Agent for Common Stock
Mitsubishi UFJ Trust andBanking Corporation,
1-4-5, Marunouchi, Chiyoda-ku,
Tokyo 100-8212, Japan

Foreign institutions
and individuals

19.98 %

American Depositary Receipts
Cusip No.: 930004205
Ratio (ADR:ORD): 1:5Market: OTCQX
Symbol: WACLY
Depositary
The Bank of New York Mellon, 101 Barclay Street,
New York, NY 10286, U.S.A.
Tel 1-212-815-8161
U.S. toll free 888-269-2377 (888-BNY-ADRS)
www.adrbny.com
Number of Shareholders
13,808Major Shareholders*%

The Bank of Tokyo-Mitsubishi UFJ, Ltd.
Meiji Yasuda Life Insurance Company
Japan Trustee Services Bank Ltd. (Trust Account)
The Master Trust Bank of Japan, Ltd. (Trust Account)
The Bank of Kyoto, Ltd.
Nippon Life Insurance Company
The Shiga Bank, Ltd.
Mitsubishi UFJ Trust and Banking Corporation
The Dai-ichi Life Insurance Company, Ltd.
Asahi Kasei Fibers Corp.

4.89
4.53
4.30
3.58
3.49
2.73
2.71
2.26
2.03
1.84

*The percentages exclude treasury stock.

Stock Price/Trading Volume
Stock Price (¥)

4,000
3,000
2,000
1,000
0
Trading Volume (Thousand shares)

8,000
6,000
4,000
2,000
0

09/1

10/1

11/1

12/1

13/1

14/1

15/1

16/1

17/1

18/1

Notes:	As of October 1, 2017, Wacoal Holdings Corp. effected a one-for-two ordinary share reverse stock split. For relative comparison, periods prior to the split have beenadjusted in the graphs above.
	Forward-Looking Statements: Statements contained in this integrated report that are not historical facts are forward-looking statements, which reflect the Company’splans and expectations at the time of writing.
		 These forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause the Company’s actual results, performance, or
achievements to differ materially from those anticipated in these statements.

86

INTEGRATED REPORT 2018

Our Website

WACOAL’SWEBSITE

Please find more informationon our website.

Top pagehttps://www.wacoalholdings.jp/en

To Our Shareholders

https://www.wacoalholdings.jp/en/ir

What isBeautyCorporate Strategy

IR News

Corporate Governance

IR ScheduleFinancial Results

For Personal Investors

Monthly Sales Data

Other Information

CSR

https://www.wacoalholdings.jp/en/csr
CSR Objectives

to Wacoal?

Relations with Stakeholders
CSR Procurement based on Mutual Trust and Cooperation
Basic Policies (ISO 26000)
Other Information

Contributing to the realization of women’s desires to express their beauty—
It has been through the pursuit and then the provision of beauty that
we have enhanced our corporate value.
It is through beauty that we interact with society, and also contribute to its betterment.
For us, beauty is a universal value.

Editorial Policy for This Report
In accordance with international norms for integrated reporting,the Wacoal Group has been issuing integrated reports since
FY2011 as part of its communication with shareholders and otherinvestors.
This integrated report explains the Wacoal Group’s value
creation activities not only through financial information but also
through nonfinancial information about unique, significant assets
and other facets of the Group’s business.
Further, the website of Wacoal Holdings Corp. includes
a wide range of information about the Group. We hope thatreferring to this integrated report in conjunction with the website
will further understanding of the Group. Going forward, we willcontinue pursuing an editorial policy that responds to changes inreader expectations.

Publications to Help Stakeholders
Understand Wacoal

Integrated
ReportAnnual
Handbook

INTEGRATED REPORT 201887

Wacoal Holdings Corp.
Integrated Report

2018

IN T E G R AT E D R E P O RT 2018

Beauty:Illustrated

Published: 20181213-DN-AT3
Printed in Japan
Cover photo: Wacoal 2018 calendar, November–December