F in a n c ia l

S t a t e m e n t s

Financial Information

48

Analysis of Financial Condition
and Operating Results

52

Consolidated Balance Sheets

54

Consolidated Statements of Income

55

Consolidated Statements of Changes
in Net Assets

57

Consolidated Statements of Cash Flows

58 Notes to Consolidated Financial Statements

Analysis of Financial Condition and Operating Results

Sales

950,102

982,533

1,096,690

1,177,901

1,173,706(Millions of yen)

Business overview

Inc., which runs Plaza, a retailer of miscellaneous goods popular

During the consolidated ﬁscal year under review (ﬁscal 2010), an

the area of cost cutting, we made further revisions to our cost

improvement in corporate earnings and other developments

structure, taking on additional tasks in-house that had previously

provided evidence of a rebound in the Japanese economy. Amid

been outsourced and consolidating facilities. In addition, we

continuing deﬂation, however, conditions surrounding employment

strengthened cost controls targeting individual companies within

and incomes remained severe, and there was little sense that a

the Group, thereby promoting greater cost eﬃciencies.

recovery had taken hold.
06

07

08

09
10
(Fiscal year)

Sales by Business Segment〈

Composition of sales not includingintersegment sales〉

Other business
Wholesalebusiness

Department store sales fell short of the previous year s levels

entire Group tackled structural and personnel reform initiatives,

amid ﬁerce competition crossing the boundaries of business typeincluding eﬀorts to promote both a slimmed-down workforce andand segment, coupled with changes in consumer values and athe cultivation of a select group of employees through the optimal

deep-seated sense of consumer thrift.

deployment of personnel within the Group.

of a one industry, one company structure through the merger of
Daimaru and Matsuzakaya in March 2010. And, with a new Group

Department
store
business〈including intersegment sales〉(Millions of yen)
Department store business 739,311
Supermarket business

118,462

Wholesale business

54,445

Other businesses

92,737

Sales for our ﬂagship department store business again

in resolving outstanding issues facing our company.

underperformed the previous year s result, and sales for our

In our department store business, we set the rapid

supermarket, wholesale and other businesses also fell. As a result

establishment of a new department store model as our goal.

of the measures outlined above, however, total consolidated sales

Toward this end, we pressed forward with eﬀorts to create a novel

amounted to ¥950,102 million, a decrease of 3.3% compared totype of store that responds to market changes and is free of thethe previous year.

boundaries deﬁning traditional department stores, and also strove
management structure.

20,323

18,58428,092

42,632(Millions of yen)
41,900to establish a highly eﬃcient and highly productive store

08

09
10
(Fiscal year)

Selling, general and administrative expenses

In order to establish a more robust business foundation for the

Selling, general and administrative expenses were ¥209,265

future, we forged ahead with plans to increase the ﬂoor space of

million, down 5.6% from the previous year. Work-related expenses

the Daimaru Umeda store in response to increasingly intense

decreased as a result of cost cuts achieved through insourcing,competition in the Umeda district in Osaka. The Daimaru Tokyo

while store closures led to lower leasing costs. And, in addition to

store is also increasing its ﬂoor space. Meanwhile, thelowering personnel costs by reforming work methods and leaving

Matsuzakaya Nagoya Station store closed its doors on August 29,

retirement vacancies unﬁlled, we made progress on reducing

2010, and we reached a decision to close the Hakata Daimaru

advertising and other costs.

Nagasaki store in July 2011 (scheduled).
With respect to initiatives designed to enhance Group-wide
growth, we embarked on eﬀorts to bolster our catalog shopping

DaimaruSalesmanagement structure as the foundation, we stepped up the pace

Operating Income

07

Furthermore, in our drive to improve human productivity, theUnder these circumstances, the Group completed the creation

Supermarket
business

06

among young women, and made it an equity-method aﬃliate. In

Operating income

Matsuzakaya Holdings

business with a focus on the Internet, which holds promise for

Gross proﬁt decreased by ¥10,623 million. However, we achieved

JFR

further growth. Toward this end, we consolidated a portion ofsubstantial cuts of ¥12,362 million in selling, general andDaimaru Matsuzakaya Department Stores Co. Ltd. s catalog

administrative expenses, centering on personnel expenses. As a

shopping business into Daimaru Home Shopping, Inc., which was

result, operating income rose by 9.4% from the previous year torelaunched in March 2011 under the new name of JFR Online¥20,323 million.

＊1 Sales of Daimaru for and before
fiscal 2006 include other operating
revenue.
＊2 F o r f i s c a l 2 0 0 7 , f u l l - y e a r
consolidated figures are used for
Matsuzakaya Group.

Co. Ltd. In March we also acquired shares in StylingLife Holdings

boutiques and the Daimaru Gochipara-kan food ﬂoor. Elsewhere,

expenses (income), compared to a net loss of ¥4,762 million the

we worked to create retail spaces that are unencumbered by theprevious year. While we recorded income of ¥1,600 million

boundaries deﬁning conventional department stores, and toreceived on the closure of the Matsuzakaya Nagoya Station store

expand our customer demographic through measures such as theand a ¥569 million gain on the sale of investment securities, we

introduction of a Forever 21 fast fashion boutique and a Laox

recorded expenses in the amount of ¥3,382 million on thehome electronics store at the Matsuzakaya Ginza store.

disposal of ﬁxed assets as a result of improvements to sales ﬂoors,

With the realization of a highly productive store management

and a ¥1,434 million loss on the revaluation of investment

structure as our goal, we created two categories of sales ﬂoor

securities.

management. They consist of shop management, focusing onpurchasing and sales functions primarily executed by our trading

Net income

partners, and self-management functions executed by the

As a result of the foregoing, income before income taxes andthe characteristics of each category of management and also

minority interests increased by 6.0% from the previous year toaddressed personnel deployment and human resource¥14,652 million, and net income increased by 8.5% from thedevelopment.

07

Net Income per Share

45.74

As the culmination of our eﬀorts to create a new department

400th anniversary of Matsuzakaya s establishment. In addition,

proﬁt structure.

we proactively made use of new communication tools in the formEﬀorts to strengthen market responsiveness included theof digital sales promotions incorporating the Internet and email.

enhancement of product oﬀerings so as to appeal to a variety of

And in keeping with our decision to place greater importance on

age groups and a review of product pricing for enhanced

using cards to develop regular customers, we endeavored toaﬀordability. Particular eﬀort was expended to create sales ﬂoors

increase the number of new card members by issuing Sakurawith clearly deﬁned targets and concepts. These specialty

Panda and ufufu girls cards.

zones allow customers to sense at a glance that a shop ﬁts their

In spite of the foregoing measures, sales in the segment

values and lifestyle. A representative example is the ufufu girls

decreased by 2.8% to ¥739,311 million. Contributing factors

fashion ﬂoor targeting young women, which has been a hit since it

included a 50% reduction in sales ﬂoor area at the Daimaru

opened at the Daimaru Shinsaibashi store. ufufu girls was

Osaka Umeda store resulting from the store s expansion work andsubsequently introduced at the Daimaru Kyoto, Daimaru Kobe andthe eﬀects of the closure of the Matsuzakaya Okazaki store andMatsuzakaya Ginza stores, where it has sparked signiﬁcant gains

the Matsuzakaya Nagoya Station store. Operating income,in both store visits and purchases by women in their 20 s andhowever, rose 14.3% to ¥14,853 million, thanks to cost-cutting

30 s. So that we might meet the needs of local customers as

initiatives targeting selling, general and administrative expenses.

never before, we established and upgraded specialty zones

08

09
10
(Fiscal year)

Cash Dividends per Share(Unconsolidated)
(Yen)

7.00

weakness in market response capabilities and a high cost/low

15.45

at all of our stores and a commemorative event in honor of the

07

7.00

department store model to overcome two existing issues: a

06

8.00

topical projects including a spring and autumn Thanks Festival

6.00

In the area of sales promotion activities, we staged highly

In this segment, we committed our full energies to creating a new

13.56

specialty zones and to realize eﬃcient store management.

16.76

implemented a large-scale expansion, worked to create multiple

3.50●Department store business

09
10(Fiscal year)(Yen)

store model, the Daimaru Osaka Umeda store, which

Segment overview

08

4.50

previous year to ¥8,862 million.

department store itself. We strove to establish operations suited to

06

7,170

The Group recorded a net loss of ¥5,670 million in other8,862

women s sales ﬂoor, Cinderella Avenue women s shoes

23,404Net Income(Millions of yen)
22,560such as the International Boutique & Salon du Goût exclusive

97.18

Other income and expenses

S t a t e m e n t s

8,167

F in a n c ia l

Interim 07 07

08

09 10
(Fiscal year)

Daimaru
Matsuzakaya Holdings
JFR＊1 Sales of Daimaru for and before
fiscal 2006 include other operating
revenue.
＊2 F o r f i s c a l 2 0 0 7 , f u l l - y e a r
consolidated figures are used for
Matsuzakaya Group.

775,029

with close ties to local communities, Peacock Stores focused on

375,513804,534

In keeping with our aim of operating a high-quality foods supermarket
776,616●Supermarket business

805,375

Total Assets(Millions of yen)

07

08

09 10
(Fiscal year)

Net Assets

327,242

323,506

316,268

64,508109,308

315,854(Millions of yen)

06

07

08

09 10
(Fiscal year)

On the basis of these results, return on assets (ROA) was
2.6%, and the shareholders equity ratio was 41.0%.

providing products that oﬀer food safety and security, enhancing its
lineup of reasonably priced original products, and also developed
products commemorating the 50th anniversary of its founding.

217,49306

net assets came to ¥327,242 million.

Cash ﬂows

Responding to changes in local markets, we remodeled stores including

The Group is striving to generate stable operating cash ﬂows andthe Senboku Harumidai store (Sakai City, Osaka) and the Takanodai

to secure broad-based ﬁnancing methods with the goals of

store (Nerima-ku, Tokyo). And in January we reopened the Nakano

ensuring access to appropriate funds for its business activities,

store (Nakano-ku, Tokyo), which had been closed for reconstruction. In

maintaining liquidity and achieving a sound ﬁnancial condition.

spite of these measures, sales for the segment decreased by 3.9% toWe raise working capital, capital investment funds and¥118,462 million and operating income fell by 80.2% to ¥282 million.

investment and loan funds needed to sustain the Group s future

These results were partly due to the eﬀects of closing ﬁve stores, agrowth primarily through cash reserves and cash ﬂows frommove made in consideration of future trends in the market.

operating activities, as well as through borrowing and by issuingbonds.

●Wholesale businessWe generated a net cash inﬂow of ¥21,270 million from

Daimaru Kogyo, Ltd. focused on the procurement of new

operating activities, a decrease of ¥1,726 million from thecommodities and materials overseas, mainly in ASEAN nations,previous consolidated ﬁscal year. Although income before income

and on the expansion of its sales channels. While there weretaxes and minority interests increased, accounts payable

signs of a recovery in some product categories, such as metal andrecorded as Other decreased.

resin products and food products, market conditions overall

We recorded a cash outﬂow of ¥8,432 million on investingremained harsh. Sales decreased by 13.9% to ¥54,445 million,

activities. While sales of property and equipment resulted in an

while operating income fell by 13.1% to ¥2,235 million.

inﬂow of ¥3,359 million, property and equipment purchases
associated with the renovation of sales ﬂoors, including the●Other businesses

expansion of the Daimaru Osaka Umeda store, resulted in an

J. Front Design & Construction Co., Ltd. enjoyed an increase in orders

outﬂow of ¥14,601 million. Cash ﬂows decreased by ¥32,447

received for interior design work covering facilities used in every type of

million as compared with the previous consolidated ﬁscal year,

business, particularly in metropolitan areas, while growth in cardholder

when we acquired the North Building of the Daimaru

numbers fueled a steady gain in proﬁt for JFR Card Co., Ltd. These

Shinsaibashi store.

businesses, along with Dimples Co. Ltd. (staﬃng company), contributed

The cash outﬂow on ﬁnancing activities amounted to ¥23,128

to a 14.4% rise in this segment s sales to ¥92,737 million, and amainly due to the repayment of debt. The outﬂow increased by

52.1% jump in operating income to ¥4,263 million.

¥52,340 million compared to the previous consolidated ﬁscal
year, when we obtained ¥47,450 in loans as investment funds.

Daimaru

Financial condition

Matsuzakaya Holdings
JFR＊1 Sales of Daimaru for and before
fiscal 2006 include other operating
revenue.
＊2 F o r f i s c a l 2 0 0 7 , f u l l - y e a r
consolidated figures are used for
Matsuzakaya Group.

As a result of the above, cash and cash equivalents at the endof the consolidated ﬁscal year under review stood at ¥33,204

As a result of our eﬀorts to improve asset eﬃciency and capitalmillion, a decrease of ¥10,311 million compared with theeﬃciency by eﬀectively utilizing Group-owned assets, and toprevious period. The balance of interest-bearing debt came tocreate a uniﬁed management structure for our Group assets to¥108,658 million, a decrease of ¥17,279 million compared with

foster greater ﬁnancial strength, total assets came to ¥775,029

the previous period.

million. Total liabilities amounted to ¥447,786 million and total

Going forward, the Group intends to continue appropriate

F in a n c ia l

S t a t e m e n t slevels of proﬁt distribution and capital investment, taking into

The Group is subject to laws and regulations relating to theconsideration trends in our proﬁt levels and cash ﬂows.

opening of large-scale retail stores, antitrust, consumer protection,
tax systems, the environment and recycling. In addition, an

Basic policy on proﬁt distribution and dividends

increase in the consumption tax rate resulting from any future

JFR s basic policy is to distribute proﬁts appropriately with aThus the laws and regulations and legal revisions described here

dividend payout ratio of 30%, taking into consideration proﬁt

may lead to a restriction of business activities, an increase inlevels, future capital investment and cash ﬂow trends, whilecosts and a decline in sales, which could adversely aﬀect thesimultaneously working to maintain and improve upon our soundperformance and ﬁnancial position of the Group.

amendments to the tax system could reduce consumer spending.

ﬁnancial standing. We will consider stock buybacks whenappropriate, with the aim of improving capital eﬃciency and❸ Changes in the natural environment and accidents

ﬂexibly implementing capital policies.

Natural disasters, including earthquakes, ﬂoods and typhoons, andWe intend to use retained earnings to improve our corporate

unexpected accidents could damage stores and facilities, which

value, by strengthening our marketing capabilities throughmay lead to a loss of sales opportunities and aﬀect operations.

investment in store remodeling and business expansion, and byAbnormal weather conditions, including cold summers and warm

enhancing our ﬁnancial strength.

winters, could also result in decreased sales of the Group s main

For the period under review, JFR has decided to distribute an

products, such as clothing and foodstuﬀs. Thus, changes in theinterim dividend of ¥3.50 and a year-end dividend of ¥3.50, for an

natural environment could adversely aﬀect the performance andannual dividend of ¥7.

ﬁnancial position of the Group.

With respect to the next ﬁscal year, we plan to distribute
mid-term and year-end dividends of ¥3.50 each, for an annual❹ Information management

dividend of ¥7.

The Group has an internal system in place to strictly manage andprotect personal and conﬁdential information held by the Group.

Business risk factors

However, leaks of such information due to unexpected accidents

Business risk factors for the Group that could have a material

adversely aﬀect the Group s performance and ﬁnancial position.

and incidents could damage the reputation of the Group andimpact on investment decisions are discussed below.
The forward-looking statements herein are based on the Group s❺ Overseas operations

assessments as of February 28, 2011. Since they could be aﬀected

The Group engages in business activities abroad, primarily in theby domestic and overseas economic conditions, the Group s

wholesale business segment. Unpredictable economic andbusiness risk factors are not limited to those discussed here.

currency ﬂuctuations, political and social confusion arising fromterrorism, wars and civil wars, and legislative and taxation❶ Business environmentchanges impacting these overseas operations could adversely

Economic conditions, including business, consumption andaﬀect the performance and ﬁnancial position of the Group.

ﬁnancial trends, and competition with other retailers of the sameand diﬀerent types have a material impact on the Group s main

❻ Signiﬁcant lawsuits

department store and supermarket business segments. These

During the consolidated ﬁscal year under review, there were nobusiness environment factors could adversely aﬀect thelawsuits that had a material impact on the Group. However, should

performance and ﬁnancial position of the Group.

a signiﬁcant lawsuit arise and judgment be made against theGroup in the future, the performance and ﬁnancial position of the❷ Laws, regulations and legal revisions

Group could be adversely aﬀected.

CONSOLIDATED BALANCE SHEETS
J. Front Retailing Co., Ltd. and Consolidated Subsidiaries
February 28, 2011 and 2010

Millions of yen

Thousands of
U.S. dollars(Note 1)ASSETS

2011

2010

2011

Current assets:
Cash on hand and in banks (Notes 4 and 16)
Marketable securities (Notes 4, 5 and 16)
Notes and accounts receivable:
Less: allowance for doubtful accounts
Inventories (Notes 3(a) and 6)
Deferred tax assets (Note15)
Other current assets
Total current assets¥34,087
1,484
53,937(761)
30,382
13,02025,945
158,096¥44,103776
59,598(673)
35,186
13,29526,456
178,744$417,170
18,162
660,103(9,313)371,827
159,344
317,525
1,934,843

Property and equipment:
Land (Note 7)
Buildings and structures (Notes 7, 11 and 12)
Other
Construction in progress
Total
Accumulated depreciation
Net property and equipment

354,742
352,574
12,827
5,634
725,777(227,100)
498,678

358,177
352,718
12,573
2,870
726,338(226,768)
499,571

4,341,476
4,314,943
156,982
68,9518,882,352(2,779,342)
6,103,023

Investments and other assets:
Investment securities (Notes 5, 7 and 16)
Investments in unconsolidated subsidiaries and aﬃliates
Long-term loans
Leasehold and other deposits (Note 16)
Deferred tax assets (Note 15)
Other
Total investment and other assets

23,0533,831
1,505
47,7607,764
34,340118,253

24,5883,817
992
51,42011,21534,185
126,218

282,132
46,885
18,419584,506
95,019420,267
1,447,228¥775,029¥804,534$9,485,118

Total assets
See notes to consolidated ﬁnancial statements.

F in a n c ia l

S t a t e m e n t s

Thousands of
U.S. dollars

Millions of yen(Note 1)

LIABILITIES AND NET ASSETS
Current liabilities:
Notes and accounts payable (Note 16)
Short-term bank loans (Notes 7 and 16)
Current portion of bonds (Note 7)
Income taxes payable (Note 15)
Advances received
Gift certiﬁcates
Allowance for employees' bonuses
Allowance for directors' and corporate auditors' bonuses
Provision for sales promotion
Provision for loss on collection of gift certiﬁcates
Provision for loss on business liquidation (Note 12)
Other current liabilities
Total current liabilities
Long-term liabilities:
Long-term loans payable (Notes 7 and 16)
Deferred tax liabilities (Note 15)
Deferred tax liabilities on revaluation
Provision for retirement beneﬁts (Note 8)
Provision for directors' and corporate auditors' retirement allowances
Negative goodwill
Other
Total long-term liabilities
Total liabilities
Net assets (Note 9)：
Shareholders' equity:
Common stock:
Authorized: 2,000,000,000 shares
Issued: 536,238,328 shares in 2011 and 2010
Capital surplus
Retained earnings
Less: Treasury stock, at cost, 7,611,040 shares in 2011
7,582,002 shares in 2010
Total shareholders' equity
Valuation and translation adjustments:
Unrealized gains (losses) on available-for-sale securities
Deferred gains (losses) on hedges
Total valuation and translation adjustments
Stock acquisition rights
Minority interests
Total net assets
Total liabilities and net assets
See notes to consolidated ﬁnancial statements.

2011

2010

2011

¥76,310
43,181−
3,296
17,463
41,727
6,352
164
337
9,179
1,666
46,510246,190¥76,955
46,324
5,000
2,972
27,61033,311
6,979
221
350
8,413
1,641
53,328263,109$933,913
528,467−
40,338
213,719
510,672
77,7382,007
4,124
112,336
20,389569,208
3,012,973

65,476
95,717
1,492
29,409
65
3,443
5,990
201,596447,786

74,612
98,331
1,492
32,002
58
5,761
5,660
217,918
481,028

801,322
1,171,423
18,260359,919795
42,13773,3082,467,213
5,480,186

30,000209,605
84,89530,000209,636
81,585367,152
2,565,231
1,038,979(5,976)
318,523(5,991)
315,231(73,137)
3,898,213

(477)
(12)
(490)
115
9,093
327,242¥775,029

(676)
(60)
(736)
124
8,887
323,506¥804,534(5,838)(147)(5,997)
1,407
111,284
4,004,920$9,485,118

CONSOLIDATED STATEMENTS OF INCOME
J. Front Retailing Co., Ltd. and Consolidated Subsidiaries
Years ended February 28, 2011 and 2010

Thousands of
U.S. dollars

Millions of yen(Note 1)

2011

2010

¥944,140
5,962
950,102¥977,880
4,652
982,533$11,554,767
72,965
11,627,732

718,067
2,447
720,514229,588
209,265
20,323

740,429
1,892
742,321240,211
221,627
18,584

8,787,994
29,947
8,817,942
2,809,791
2,561,070
248,721756(1,717)(3,129)569(1,434)(1,097)3,441
2,317(3,436)(1,940)
136
−
−
1,600
(1,148)(586)(5,670)756(1,679)1,756
970(1,800)(3,505)
3,371
2,326(3,615)(1,251)938(665)(1,822)−(868)
327(4,762)

9,252(21,013)(38,294)
6,964(17,550)(13,426)
42,11228,356(42,051)(23,743)
1,664−−
19,581(14,050)(7,172)(69,392)

Income before income taxes and minority interests
Income taxes: (Note 15)
Income taxes - current
Income taxes for prior periods
Income taxes - deferred

14,652

13,822

179,317

4,550
−
938
5,489

4,807
1,598
(1,411)
4,993

55,685−
11,48067,177

Minority interests in earnings of consolidated subsidiaries
Net income

300¥8,862661¥8,167

3,672$108,457

Sales:Net sales
Rent income of real estate

Operating expenses:
Cost of sales
Cost of real estate rent
Gross proﬁt
Selling, general and administrative expenses
Operating income
Other income (expenses):
Interest and dividend income
Interest expenses
Net gain (loss) on sales or disposal of ﬁxed assets
Gain on sales of investment securities
Loss on revaluation of investment securities
Loss on impairment (Note 11)
Gain on restructuring liabilities
Amortization of negative goodwill
Provision for loss on collection of gift certiﬁcates
Loss on business restructuring (Note 12)
Reversal of provision for loss on business liquidation
Loss on valuation of inventories
Expenses related to acquisition of real estates
Compensation for store removal
Business structure improvement expenses (Note 13)
Other, net

See notes to consolidated ﬁnancial statements.

2011

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
J. Front Retailing Co., Ltd. and Consolidated Subsidiaries
Years ended February 28, 2011 and 2010

Millions of yen
Number ofshares issued

Commonstock

Balance, February 28, 2009
536,238,328
Cash dividends paid
Net income
Purchase of treasury stock
Disposal of treasury stock
Decrease resulting from exclusion of subsidiaries from consolidation
Net changes of items other than shareholders'equity during the year
Balance, February 28, 2010
536,238,328
Cash dividends paid
Net income
Purchase of treasury stock
Disposal of treasury stock
Net changes of items other than shareholders'equity during the year
Balance, February 28, 2011
536,238,328¥30,000

Capitalsurplus¥209,657

Retainedearnings¥75,310(1,851)
8,167

Treasurystock, atcost¥(5,980)

(52)
42

(20)
(41)

30,000209,636

81,585(5,552)
8,862

(31)

¥84,895(5,991)

Total
shareholders'equity¥308,987(1,851)
8,167
(52)
21
(41)

(53)
67

315,231(5,552)
8,862
(53)
36

¥(5,976)¥318,523¥30,000¥209,605

Unrealized gains Deferred
gains(losses) on
available-for-sale (losses) onhedgessecurities

Total
valuation andtranslation
adjustments

StockacquisitionrightsMinority
interests¥(1,161)¥35¥(1,125)¥130¥8,276¥316,268(1,851)
8,167
(52)
21
(41)

484
(676)

(95)
(60)

388
(736)

(5)
124

611
8,887

994
323,506(5,552)
8,862
(53)
36

199
¥(477)

47
¥(12)

246
¥(490)

(9)
¥115

205
¥9,093443¥327,242

Millions of yen

Balance, February 28, 2009
Cash dividends paid
Net income
Purchase of treasury stock
Disposal of treasury stock
Decrease resulting from exclusion of subsidiaries from consolidation
Net changes of items other than shareholders'equity during the year
Balance, February 28, 2010
Cash dividends paid
Net income
Purchase of treasury stock
Disposal of treasury stock
Net changes of items other than shareholders'equity during the year
Balance, February 28, 2011
See notes to consolidated ﬁnancial statements.

Total net assets

Thousands of U.S. dollars (Note 1)
Number ofshares issued

Balance, February 28, 2010
536,238,328
Cash dividends paid
Net income
Purchase of treasury stock
Disposal of treasury stock
Net changes of items other than shareholders'equity during the year
Balance, February 28, 2011
536,238,328

Commonstock

Capitalsurplus$367,152$2,565,610

Retainedearnings$998,470(67,948)
108,457(379)$367,152$2,565,231$1,038,979

Treasurystock, atcost$(73,320)

Total
shareholders'equity(649)
820$3,857,924(67,948)
108,457(649)
441$(73,137)$3,898,213

Total net assets

Thousands of U.S. dollars (Note 1)
Unrealized gains Deferred(losses) on
gains
available-for-sale (losses) on
securities
hedgesBalance, February 28, 2010
Cash dividends paid
Net income
Purchase of treasury stock
Disposal of treasury stock
Net changes of items other than shareholders'equity during the year
Balance, February 28, 2011
See notes to consolidated ﬁnancial statements.

Total
valuation andtranslation
adjustments

StockacquisitionrightsMinority
interests$(8,273)$(734)$(9,007)$1,518$108,763$3,959,197(67,948)
108,457
(649)
441

2,435
$(5,838)

575$(147)

3,011$(5,997)(110)$1,4072,509$111,284

5,422$4,004,920

CONSOLIDATED STATEMENTS OF CASH FLOWS
J. Front Retailing Co., Ltd. and Consolidated Subsidiaries
Years ended February 28, 2011 and 2010

Millions of yen

Thousands of
U.S. dollars(Note 1)

2011

2010

2011

Cash ﬂows from operating activities:
Income before income taxes and minority interests
Depreciation
Loss on impairment
Amortization of negative goodwill
Increase in allowance for doubtful accounts
Decrease in allowance for bonuses
Decrease in provision for employees' retirement beneﬁts
Decrease in provision for sales promotion
Increase in provision for loss on collection of gift certiﬁcates
Increase (decrease) in provision for business liquidation
Interest and dividend income
Interest expenses
Equity in earnings of aﬃliated companies(Gain) loss on sales or disposal of property and equipment, net
Gain on sales of investment securities, net
Write-down of investment securities
Decrease in notes and accounts receivable
Decrease in inventories
Decrease in notes and accounts payable(Increase) decrease in other receivables
Increase in prepaid expenses
Other
SubtotalInterest and dividend income received
Interest expenses paid
Income taxes paid
Net cash provided by operating activities¥14,652
13,6101,936(2,317)23(683)(2,592)
(13)
765
25
(756)
1,717
(66)
2,927
(569)
1,434
5,660
4,803
(645)
(1,216)(328)(12,597)
25,769710(1,728)(3,480)21,270¥13,822
13,295
3,769(2,326)409(705)(2,275)(3)
1,096(1,038)
(756)
1,679
(200)
(1,939)
(970)
1,800
2,310
7,703
(2,622)
1,884(1,741)(3,612)29,581711(1,574)(5,721)
22,996$179,317
166,565
23,694(28,356)281(8,359)(31,722)
(159)
9,362
306
(9,252)21,013(808)
35,822(6,964)
17,55069,26958,781(7,894)(14,882)(4,014)(154,167)
315,3718,689(21,148)(42,590)
260,311

Cash ﬂows from investing activities:
Purchase of securities
Proceeds from sales of securities
Purchase of property and equipment
Proceeds from sales of property and equipment
Increase in long-term loans
Proceeds from collection of long-term loans(Increase) decrease in short-term loans
Other
Net cash used in investing activities(1,538)
1,872(14,601)
3,359
(95)
158
122
2,288
(8,432)(2,149)8,327(55,748)
7,971
(36)
375
(87)
468
(40,879)(18,823)
22,910(178,693)
41,109(1,163)
1,934
1,493
28,001(103,194)

Cash ﬂows from ﬁnancing activities:
Net increase (decrease) in short-term bank loans
Proceeds from long-term bank loans
Payments of long-term bank loans
Redemption of bonds
Purchase of treasury stock
Cash dividends paid
Cash dividends paid to minority shareholders
Other
Net cash provided by (used in) ﬁnancing activities
Eﬀect of exchange rate changes
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year (Note 4)(8,818)2,500(5,960)(5,000)(51)(5,523)(94)(180)(23,128)(20)(10,311)43,515¥33,204

2,184
47,450(4,374)(14,000)(50)(1,858)(83)(54)
29,212(121)
11,20832,307¥43,515(107,918)
30,596(72,941)(61,192)(624)(67,593)(1,150)(2,203)(283,050)(245)(126,190)
532,554$406,364

See notes to consolidated ﬁnancial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
J. Front Retailing Co., Ltd. and Consolidated Subsidiaries
Years ended February 28, 2011 and 2010

1

BASIS OF PRESENTING CONSOLIDATED FINANCIALSTATEMENTS

On September 3, 2007, J. Front Retailing Co., Ltd. was established asa joint holding company through the management integration which wasagreed between The Daimaru, Inc. and Matsuzakaya Holdings Co., Ltd.
The accompanying consolidated ﬁnancial statements of J. Front
Retailing Co., Ltd. ( the Company ) and its consolidated subsidiaries
have been prepared in accordance with the provisions set forth in theJapanese Financial Instruments and Exchange Law and its related
accounting regulations and in conformity with accounting principles
generally accepted in Japan, which are diﬀerent in certain respects as
to the application and disclosure requirements of International Financial
Reporting Standards.
The accompanying consolidated ﬁnancial statements have been
restructured and translated into English (with some expanded
descriptions) from the consolidated ﬁnancial statements of theCompany, prepared in accordance with Japanese GAAP and ﬁled withthe appropriate Local Finance Bureau of the Ministry of Finance as
required by the Financial Instruments and Exchange Law. Some2

supplementary information included in the statutory Japanese language
consolidated ﬁnancial statements, but not required for fair presentation,
is not presented in the accompanying consolidated ﬁnancial statements.
All ﬁgures in the consolidated ﬁnancial statements and notes arestated in millions of Japanese yen by discarding fractional amounts ofless than ¥1 million as permitted by the Financial Instruments andExchange Law. As a result, the totals shown in the consolidated
ﬁnancial statements and notes in yen do not necessarily agree with thesum of the individual amounts.
The translations of the Japanese yen amounts into U.S. dollars areincluded solely for the convenience of readers outside Japan, using theprevailing exchange rate at February 28, 2011, which was ¥81.71 to
U.S. $1. Such translations should not be construed as representations
that the Japanese yen amounts have been, could have been or could in
the future be converted into U.S. dollars at this or any other rate ofexchange.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(a) Principles of consolidation
The consolidated ﬁnancial statements include the accounts of theCompany and its 21 (23 in 2010) signiﬁcant subsidiaries(hereafter the Companies ).
Investments in 5 signiﬁcant aﬃliates are accounted for by theequity method after the elimination of unrealized intercompany
proﬁts. Investments in the remaining unconsolidated subsidiaries
and aﬃliates are not accounted for by the equity method becauseof the immaterial eﬀect on the consolidated ﬁnancial statements.
Such investments are, therefore, stated at cost, adjusted for any
substantial and non-recoverable impairment in value, and income
from those unconsolidated subsidiaries and aﬃliates is recognized
only when the Companies receive dividends therefrom.
In accordance with the accounting standards for consolidation,
the Company s subsidiaries include companies over which
substantial control is exerted through either majority ownership ofvoting stock and/or by other means. Also, the Company s aﬃliates
include companies over which the Company has the ability to
exercise signiﬁcant inﬂuence.
All signiﬁcant intercompany transactions and unrealized proﬁts
among the Group have been eliminated in consolidation.
In the elimination of investments in subsidiaries, the assets andliabilities of the subsidiaries, including the portion attributable tominority shareholders, are evaluated using the fair value at thetime the Company acquired control of the respective subsidiaries.
The diﬀerences between the cost and underlying net equity ofinvestments in consolidated subsidiaries (goodwill or negative
goodwill) are amortized on a straight-line basis over 5 years withthe exception of minor diﬀerences, which are charged or credited
to income in the period of acquisition.
All the Company s unconsolidated subsidiaries are of a limited
scale in terms of total assets, net sales, proﬁt, retained earnings
and other indicators, and taken together they do not have asigniﬁcant impact on the consolidated ﬁnancial statements.

(b) Foreign currency translation
All monetary assets and liabilities denominated in foreign
currencies are translated into Japanese yen at the exchange
rate at the balance sheet date, and translation gains andlosses are charged to income.

(c) Cash and cash equivalents
In preparing the consolidated statements of cash ﬂows, cash
and cash equivalents include cash on hand, readily available
deposits and short-term highly liquid investments with maturities
not exceeding three months at the time of acquisition.

(d) Securities
No trading securities and held-to-maturity securities are held by
the Companies. Equity securities issued by subsidiaries andaﬃliates which are not consolidated or accounted for by theequity method are stated at moving-average cost.

F in a n c ia l

Available-for-sale securities with fair market value are stated atfair market value. Net unrealized gains or losses on thesesecurities are reported, net of applicable income taxes, as aseparate component of net assets in the balance sheets.
Realized gains and losses on sale of such securities arecomputed using the moving-average cost method.
Available-for-sale securities with no available fair market value
are stated at moving average cost.

(e) Derivatives and hedging transactions
Derivative ﬁnancial instruments are stated at fair value andchanges in the fair value are charged to income unless thederivative ﬁnancial instruments are used for hedging purposes.
If derivative ﬁnancial instruments are used as hedges andmeet certain hedging criteria, the Companies defer recognition ofgains or losses resulting from changes in the fair value ofderivative ﬁnancial instruments until the related losses or gains
on the hedged items are recognized.
In cases where foreign exchange forward contracts are usedas hedges and meet certain hedging criteria, hedged items arestated using the foreign exchange forward contract rates.

S t a t e m e n t sstraight-line method and other properties are depreciatedusing the declining-balance method over the estimated useful
lives of the assets as prescribed by the Corporate Tax Law.
Maintenance and repairs, including minor renewals andimprovements, are charged to income as incurred. The range
of useful lives is principally 3 to 50 years for buildings andstructures and 2 to 20 years for other properties.

(i) Impairment of ﬁxed assets
The Companies review their ﬁxed assets for impairment whenever
events or changes in circumstances indicate the carrying amountof an asset or asset group may not be recoverable. An
impairment loss would be recognized if the carrying amount of anasset or asset group exceeds the sum of the undiscounted future
cash ﬂows expected to result from the continued use and eventual
disposition of the asset or asset group. The impairment loss
would be measured as the amount by which the carrying amountof the asset exceeds its recoverable amount, which is the higherof the discounted cash ﬂows from the continued use and eventual
disposition of the asset or the net selling price at disposition.

(j) Software (except for leased assets)

Also, if interest rate swaps are used as hedges and meet certain
hedging criteria, the net amount to be paid or received under theinterest rate swap contract is added to or deducted from theinterest on the assets or liabilities for which the swap contract
was executed.
The Companies use foreign exchange forward contracts andSoftware purchased or internally developed for internal use isamortized using the straight-line method over its estimateduseful life (ﬁve years).

interest rate swaps as derivative ﬁnancial instruments only for the
purpose of mitigating future risks of ﬂuctuation of foreign currency
exchange and increases in the interest rate.
The related hedged items are trade receivables, trade
payables, loans payables, and interest on foreign currency bonds.

future costs on the issuance of point card certiﬁcates basedon the historical experience rate of usage.

(f) Allowance for doubtful accounts
Allowance for doubtful accounts is provided principally for
amounts suﬃcient to cover possible losses on collection. It
consists of the estimated uncollectible amount with respect tospeciﬁc items and possible losses on collection calculated byapplying a percentage based on collection experience to theremaining items.

(g) Inventories
Inventories are stated at the lower of cost or market
determined principally by the retail inventory method (lower
than book value due to decline in proﬁtability).

(h) Property and equipment (except for leased assets)
Property and equipment are stated at cost. Depreciation ofbuildings and structures is computed mainly by the(k) Provision for Sales Promotion
Provision for sales promotion is provided for the estimated(l) Allowance for employees bonuses
An allowance for employees bonuses is provided for theestimated amounts which are attributable to the ﬁscal year.

(m) Allowance for directors and corporate auditors bonuses
An allowance for directors and corporate auditors bonuses
is provided for the estimated amounts which are attributable tothe ﬁscal year.

(n) Provision for loss on collection of gift certiﬁcates
Provision for loss on collection of gift certiﬁcates is provided
for estimated future loss to be incurred when gift certiﬁcateswere collected after derecognition of the related liability basedon the historical experience.

(o) Provision for loss on business liquidation
Provision for loss on business liquidation is provided for
estimated loss on liquidation of unconsolidated subsidiaries
and aﬃliates and closing stores.

(p) Provision for retirement beneﬁts
Provision for retirement beneﬁts is provided based on the projected
beneﬁt obligations and plan assets at the balance sheet date.
The unrecognized prior service cost obligations are recognized
as expenses and recorded in equal amounts mainly 10 ‒ 12 years
from their recognition, which are less than the average remaining
service years of the employees. Actuarial gains or losses incurred
during the year are amortized by using the straight-line method
over a certain period of time (mainly 10 ‒ 12 years), which are lessthan the average remaining service years of the employees,commencing from the following ﬁscal year after they are incurred.

(q) Allowance for directors and corporate auditors retirement beneﬁts
An allowance for directors and corporate auditors retirement
beneﬁts is provided by certain consolidated subsidiaries based on
the internal rules for the estimated amount which would bepayable if all oﬃcers were to retire at the balance sheet date.
The payments are subject to an approval of the shareholders
meeting.

(r) Leases
Finance leases transactions other than those which are deemed totransfer ownership of the leased property to the lessee aredepreciated using the straight-line method over the period of thelease, with no residual value. Finance leases transactions otherthan those which are deemed to transfer ownership of the leased
property to the lessee commenced on or before February 28,2009
are accounted for in manner similar to ordinary operating lease

3transactions with disclosure of certain as if capitalized
information in the note to the consolidated ﬁnancial statements.

(s) Income taxes
Income taxes consist of national and local income taxes.
The Companies recognize the tax eﬀects of temporary
diﬀerences between the ﬁnancial statement s carrying amounts
and the tax basis of assets and liabilities. The provision forincome taxes is computed based on the income before income
taxes and minority interests included in the statements of incomeof each of the Companies. The assets and liabilities approach isused to recognize deferred tax assets and liabilities for the
expected future tax consequences of temporary diﬀerences.

(t) Per share information
Net income per share is based on the weighted average number ofshares of common stock outstanding during each year and diluted
net income per share reﬂects the potential dilution that could occur
if it were converted into common stock.
Cash dividends per share represent interim dividends resolved by
the Board of Directors in each year and year-end dividends resolvedby the Board of Directors subsequent to the end of the ﬁscal year.

(u) Reclassiﬁcation
Certain prior year amounts have been reclassiﬁed to conform tothe current year presentation. These changes had no impact onpreviously reported results of operations.

CHANGES IN ACCOUNTING POLICIES AND ADOPTION OF NEW ACCOUNTING STANDARDS(a) Accounting Standard for Measurement of Inventories
Eﬀective from the year ended February 28, 2010, the Companies
adopted the, Accounting Standard for Measurement of
Inventories (ASBJ Statement No. 9, issued on July 5, 2006) andinventories are stated at the lower of cost or market determinedprincipally by the retail inventory method (lower than book value
due to decline in proﬁtability).
The eﬀect of this change was to decrease operating income
and income before income taxes and minority interests for theyear ended February 28, 2010 by ¥158 million and ¥823
million, respectively, compared with the previous method.

(b) Accounting Standard for Lease Transactions as Lessee
Eﬀective from the year ended February 28, 2010, the Companies
adopted the Accounting Standard for Lease Transactions(ASBJ Statement No. 13, March 30, 2007, revised from standard
originally issued by the Business Accounting Deliberation Council
on June 17, 1993) and the Guidance on Accounting Standard

for Lease Transactions (ASBJ Guidance No. 16, March 30,
2007, originally issued by the Japanese Institute of Certiﬁed
Public Accountants on January 18, 1994). Accordingly, from theyear ended February 28, 2010, such leases are accounted for inmanner similar to ordinary sale or purchase transactions.
There were no eﬀects on operating income and income before
income taxes and minority interests for the year ended February
28, 2010.
Also, there were no eﬀects on operating income in the segment
information for the year ended February 28, 2010.

(c) Accounting Standard for Retirement Beneﬁts
Eﬀective from the year ended February 28, 2011, the Companies
have adopted the Partial Amendments to Accounting Standard for
Retirement Beneﬁts (Part 3) (ASBJ Statement No. 19, issued on
July 31, 2008).
There are no eﬀects on operating income and income before income
taxes and minority interests for the year ended February 28, 2011.

F in a n c ia l

4

S t a t e m e n t s

CASH AND CASH EQUIVALENTS

Cash and cash equivalents in the statements of cash ﬂows at February 28, 2011 and 2010 consisted of the following:
Millions of yen

Cash on hand and in banks
Time deposits with maturities exceeding three months
Short-term investments
Cash and cash equivalents

5

Thousands of
U.S. dollars

2011

2010

2011

¥34,087(900)
17¥33,204¥44,103(605)
17¥43,515$417,170(11,015)208$406,364

SECURITIESMarketable securities classiﬁed as available-for-sale securities at February 28, 2011 and 2010 were as follows:
Thousands of U.S. dollars

Millions of yen
February 28, 2011
Acquisition
cost

Securities whose carrying
value exceeds their acquisition cost:
Equity securities
Debt securities
Subtotal
Securities whose acquisition costexceeds their carrying value:
Equity securities
Debt securities
Subtotal
Total

Carrying
value

Unrealized
gains (losses)

Acquisition
cost

Unrealized
gains (losses)¥4,5393,306
7,845¥6,3963,340
9,737¥1,857
34
1,892$55,550
40,46096,010$78,277
40,876
119,165$22,727416
23,155

13,1001,112
14,213¥22,058

10,484
1,108
11,592¥21,329(2,615)(4)(2,620)¥(728)

160,323
13,609173,944$269,955

128,307
13,560141,868$261,033(32,003)(49)(32,065)$(8,910)

Millions of yen
February 28, 2010
Acquisition
cost

Securities whose carrying
value exceeds their acquisition cost:
Equity securities
Debt securities
Subtotal
Securities whose acquisition costexceeds their carrying value:
Equity securities
Debt securities
Subtotal
Total

Carrying
value

Carrying
value

Unrealized
gains (losses)¥5,1773,094
8,272¥7,504
3,136
10,641¥2,32742
2,369

14,275659
14,935¥23,207

10,848644
11,492¥22,134(3,427)(15)(3,442)¥(1,073)

The Companies review available-for-sale securities with fairvalue for impairment when the fair value declined more than
30% from the acquisition cost. When the cost is notconsidered to be recoverable, impairment loss would berecognized. Impairment losses recognized foravailable-for-sale securities whose fair value is available forthe years ended February 28, 2011 and 2010 amounted to¥1,434 million ($17,550 thousand) and ¥1,800 million,
respectively.

Available-for-sale securities whose fair value is not available at February 28, 2010 were as follows:
Millions of yen
2010

Unlisted equity securities
Other
Total

¥3,19535¥3,230Information on available-for-sale securities whose fair value is not available at February 28, 2011 is described in Note 16
FINANCIAL INSTRUMENTS.

Proceeds from sales of available-for-sale securities, grossrealized gains and gross realized losses on these sales forthe year ended February 28, 2011 and 2010 were ¥1,013

6

million ($12,398 thousand) and ¥8,327 million, ¥569
million ($6,964 thousand) and ¥970 million, and ¥15 million($184 thousand) and ¥96 million, respectively.

INVENTORIESInventories as of February 28, 2011 and 2010 were as follows:
Millions of yen

Merchandise and products
Work in process
Raw materials and supplies
Total

Thousands of
U.S. dollars

2011

2010

2011

¥29,729294
358¥30,382¥34,364
398
423¥35,186$363,836
3,598
4,381
$371,827

F in a n c ia l

7

S t a t e m e n t s

SHORT-TERM BANK LOANS AND LONG-TERM DEBT

Short-term bank loans at February 28, 2011 and 2010 consisted of notes to banks and bank overdrafts. The annual weighted averageinterest rate applicable to the short-term bank loans was 0.57%. Long-term debt at February 28, 2011 and 2010 consisted of the following:
Millions of yen

Unsecured 0.88% straight bonds due 2011
Unsecured 0.86% straight bonds due 2011
Loans from banks and others due serially to 2021
Total
Less: Current portion of long-term debt

Thousands of
U.S. dollars

2011

2010

2011

¥−
−
77,108
77,108
11,632¥65,476¥3,0002,000
80,56985,56910,957¥74,612$−−
943,679
943,679
142,357$801,322

Annual maturities of long-term debt including bonds due subsequent to February 28, 2011 were as follows:
Years ending February 28
2012
2013
2014
2015
2016 and thereafter
Total

Millions of yen

Thousands of
U.S. dollars¥11,632
42,38915,285
4,049
3,753¥77,108$142,357
518,774
187,064
49,55345,931$943,679

The carrying amounts of assets pledged as collateral for short-term loans of ¥2,668 million ($32,652 thousand) and thelong-term loans of ¥8,314 million ($101,750 thousand) at February 28, 2011 were as follows:

Buildings and structures
Land
Investment securities
Total

Millions of yen

Thousands of
U.S. dollars¥13,881
12,612441¥26,935$169,881
154,351
5,397$329,641

As is customary in Japan, the Companies maintain substantial deposit balances with banks with which they have borrowings.
Such deposit balances are not legally or contractually restricted as to withdrawal.

8

PROVISION FOR RETIREMENT BENEFITSThe Companies have deﬁned beneﬁt pension plans, i.e.,
corporate pension fund plans, tax qualiﬁed pension plans,
lump-sum retirement plans and deﬁned contribution pension
plans. In certain cases, additional severance payments may
be granted to the eligible employees. Such payments are notincluded in retirement beneﬁt obligations actuariallycomputed in accordance with the accounting standard for
retirement beneﬁts. Certain consolidated subsidiaries haveestablished retirement beneﬁt trusts.

The following table sets forth the funded and accrued status of the plans, and the amounts recognized in the consolidatedbalance sheets at February 28, 2011 and 2010 for the Companies retirement beneﬁt plans:
Thousands of
U.S. dollars

Millions of yen

Retirement beneﬁt obligation
Plan assets at fair value
Retirement beneﬁt trusts
Unfunded retirement beneﬁt obligation
Unrecognized prior service cost
Unrecognized actuarial diﬀerences
Prepaid pension cost
Provision for retirement beneﬁts

2011

2010

2011

¥75,350(35,660)(9,476)30,2132,892(15,004)
18,101
11,308¥29,409¥83,381(37,161)(9,039)37,1802,191(18,087)
21,284
10,717¥32,002$922,164(436,421)(115,971)
369,759
35,393(183,625)
221,527
138,392$359,919

The component of net retirement beneﬁt costs for the years ended February 28, 2011 and 2010 were as follows:
Thousands of
U.S. dollars

Millions of yen
2011

Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost
Recognized actuarial diﬀerences
Net retirement beneﬁt cost
Contribution to deﬁned contribution plan
Total

2010

¥2,678
1,603
(888)
(574)
1,742
4,560
215
¥4,7752011¥2,768
1,671
(952)
(292)
1,653
4,848
248
¥5,097$32,774
19,618(10,868)(7,025)21,31955,807
2,631$58,438

Assumptions used in the calculation of the above information are as follows:
2011

Interperiod allocation method of estimated retirement beneﬁts
Discount rate
Expected return on plan assets
Amortization of unrecognized prior service costs
Amortization of unrecognized actuarial diﬀerences

Straight-line
2.0%
1.0%-2.0%
Mainly 10-12 years
Mainly 10-12 years

2010
Straight-line
2.0%
1.0%-2.0%
Mainly 10-12 years
Mainly 10-12 years

F in a n c ia l

9S t a t e m e n t s

NET ASSETS

Japanese companies are subject to the Corporate Law of Japan (the Corporate Law ). The signiﬁcant provisions in the
Corporate Law that aﬀect ﬁnancial and accounting matters are summarized below:(a) Dividends(c) Treasury stock and treasury stock acquisition rights

Under the Corporate Law, companies can pay dividends at
any time during the ﬁscal year in addition to the year-end
dividend upon resolution at the shareholders meeting. For
companies that meet certain criteria such as; (1) having theBoard of Directors, (2) having independent auditors, (3)having the Board of Corporate Auditors, and (4) the term ofservices of the directors is prescribed as one year rather
than two years of normal term by its articles of incorporation,
the Board of Directors may declare dividends (except for
dividends in kind) at any time during the ﬁscal year if thecompany has prescribed so in its articles of incorporation.
Semiannual interim dividends may also be paid once a year
upon resolution by the Board of Directors if the articles ofincorporation of the company so stipulate. The Corporate
Law provides certain limitations on the amounts available fordividends or the purchase of treasury stock. The limitation isdeﬁned as the amount available for distribution to theshareholders, but the amount of net assets after dividends
must be maintained at no less than ¥3 million.

The Corporate Law also provides for companies to purchasetreasury stock and dispose of such treasury stock byresolution of the Board of Directors. The amount of treasury
stock purchased cannot exceed the amount available for
distribution to the shareholders which is determined by
speciﬁc formula.

(b) Increases/decreases and transfer of common stock,reserve and surplus
The Corporate Law requires that an amount of equal to 10%
of dividends must be appropriated as a legal reserve (acomponent of retained earnings) or as additional paid-in
capital (a component of capital surplus) depending on theequity account charged upon the payment of such dividends
until the total of aggregate amount of legal reserve andadditional paid-in capital equals 25% of the common stock.
Under the Corporate Law, the total amount of additional
paid-in capital and legal reserve may be reversed without
limitation. The Corporate Law also provides that common
stock, legal reserve, additional paid-in capital, other capitalsurplus and retained earnings can be transferred among theaccounts under certain conditions upon resolution of theshareholders.

Under the Corporate Law, stock acquisition rights, whichwere previously presented as a liability, are now presented
as a separate component of net assets.
The Corporate Law also provides that companies canpurchase both treasury stock acquisition rights and treasury
stock. Such treasury stock acquisition rights are presented
as a separate component of net assets or deducted directlyfrom stock acquisition rights.
At the Board of Directors meeting held on April 12, 2011,
distribution of cash dividends amounting to ¥1,850 million($22,641 thousand) was resolved. This distribution has notbeen accrued in the consolidated ﬁnancial statements as ofFebruary 28, 2011 and is recognized in the period in which
they were resolved.

10 STOCK OPTIONSThe stock options outstanding as of February 28, 2011 were as follows:

1st

2nd

3 rd

4 th

5 th
6 th

Number ofoptions granted

Date of grant

140,000 common shares

May 23, 2002

Sep. 3, 2007 to
May 23, 2012

161,000 common shares

May 22, 2003

Sep. 3, 2007 to
May 22, 2013

308,000 common shares

May 27, 2004

Sep. 3, 2007 to
May 27, 2014

336,000 common shares

May 26, 2005

Sep. 3, 2007 to
May 26, 2015

63,000 common shares

May 25, 2006

300,000 common shares

May 25, 2006

Sep. 3, 2007 toJul. 14, 2026
Jul. 15, 2008 toJul. 14, 2012

1st

2nd

3rd

4th

140,000

119,000
14,000308,000

336,000

56,0007,000

300,000

140,000
35,000105,000
35,000308,000

336,000

49,00011,000300,000

105,000

70,000308,000

336,000

38,000300,000

Persons granted

Stock option

12 directors
4 corporate auditors
6 employees
7 directors
4 corporate auditors
16 corporate officers
1 employee
7 directors
4 corporate auditors
14 corporate officers
1 employee
7 directors
4 corporate auditors
12 corporate officers
1 employee
8 directors
5 corporate auditors
135 employees

Exercise Period

The stock option activity is as follows:

Vested:February 28, 2009-outstanding
Exercised
Forfeited
February 28, 2010-outstanding
Exercised
Forfeited
February 28, 2011-outstanding

5th

6th

Price information is as follows:
Yen

Year ended February 28, 2011
Exercise price
Average stock price at time of exercise
Fair value at date of grant

1st
¥404
548
＊

2nd
¥317
546
＊

3rd

4th

¥699
−
＊

5th

6th
¥1
523
833

¥691
−
＊

¥794
−
279

U.S. dollar

Year ended February 28, 2011
Exercise price
Average stock price at time of exercise
Fair value at date of grant

1st
$4.94
6.71
＊

2nd
$3.88
6.68
＊

3rd
$8.55
−
＊

4th
$8.46
−
＊

5th
$0.12
6.40
10.19

*Fair value at date of grant is not disclosed since these options were granted before the enforcement of the Corporate Law.

6th
$9.72
−
3.41

F in a n c ia l

S t a t e m e n t s

11 LOSS ON IMPAIRMENTThe Companies recognized impairment losses on property and equipment including buildings, other properties and land in storesfor the years ended February 28, 2011 and 2010 as follows:
The Companies identify groups of assets principally on a store basis which is the smallest identiﬁable group of assets
generating cash inﬂows.
Thousands of
U.S. dollars

Millions of yen
2011

Buildings and other properties
Land
Total

¥727
369
¥1,0972010

2011¥2,640864¥3,505$8,8984,516$13,426

The carrying values of these assets were reduced to the recoverable amounts. The recoverable amounts of buildings and otherproperties were measured based on the value of use and written-down to nil since no future cash inﬂows are expected. The
recoverable amounts of land were measured according to the estimated net sale value, which are based on the appraisal value by
quotation from a real-estate appraiser. The recoverable amounts of some buildings were measured according to the estimated net
sale value, which are based on the appraisal value by quotation from a real-estate appraiser for the year ended February 28, 2010.

12 LOSS ON BUSINESS LIQUIDATION
After the management integration, the Companies have been proceeding business liquidation in order to improve management
eﬃciency throughout the organization. Pursuant to the management s strategic plan, the Companies have recognized loss on
business liquidation for the years ended February 28, 2011 and 2010 as follows:
Millions of yen
2011
Hakata Daimaru
Nagasaki store

Provision for loss on business liquidation
Impairment loss on buildings and other properties
Total¥1,102838¥1,940Total¥1,102838¥1,940Thousands of U.S. dollars
2011
Hakata Daimaru
Nagasaki store

Provision for loss on business liquidation
Impairment loss on buildings and other properties
Total$13,487
10,256$23,743

Total$13,487
10,256$23,743

Millions of yen
2010
Matsuzakaya
Matsuzakaya
Okazaki store Nagoya station store

Provision for loss on business liquidation
Impairment loss on buildings and other properties
Asset restoration costs and other
Total

¥345
15
340
¥701

¥301
248
−
¥550

Total
¥646
263
340
¥1,251

13 BUSINESS STRUCTURE IMPROVEMENT EXPENSES
The main components of business structure improvement expenses are registration expense for the transfer of real property
related to the merger of The Daimaru, Inc. and Matsuzakaya Co., Ltd. and expenses associated with implementing ﬂexible
retirement system.

14 LEASES
a. Finance leases
The companies lease machinery and equipment and other assets.
Information regarding ﬁnance leases transactions other than those which are deemed to transfer ownership of the leased
property to the lessee commenced on or before February 28, 2009 is as follows:(As a lessee)
Pro forma information of leased assets such as acquisition cost, accumulated depreciation, accumulated impairment loss,
obligations under ﬁnance leases, depreciation expense and other information of ﬁnance leases as if capitalized basis
for the years ended February 28, 2011 and 2010 was as follows:

Thousands of
U.S. dollars

Millions of yen

Property and equipment (Machinery, furniture and fixtures)
Acquisition cost
Accumulated depreciation
Accumulated impairment loss
Net leased assets

2011

2010

2011

¥10,713
6,969
568¥3,174¥13,159
7,477
547¥5,135$131,110
85,289
6,951$38,845

Obligations under ﬁnance leases:
Thousands of
U.S. dollars

Millions of yen
2011

Due within one year
Due after one year
Total
Impairment loss on leased assets

2010

2011

¥1,714
1,757¥3,471¥2,104
3,390¥5,494$20,977
21,503$42,480

¥296

¥359

$3,623

Total lease payments and other information:
Thousands of
U.S. dollars

Millions of yen
2011

Total lease payments
Reversal of allowance for impairment loss on leased assets
Depreciation expense
Impairment loss

¥2,086
172
1,913
109

2010
¥2,532
145
2,387
220

2011
$25,529
2,105
23,412
1,334

F in a n c ia l

S t a t e m e n t s

Depreciation expense, which is not reﬂected in the accompanying consolidated statements of income, is computed by thestraight-line method over the lease periods.
(As a lessor)
Pro forma information of leased assets such as acquisition cost, accumulated depreciation, receivables under ﬁnance leases,
depreciation expense and other information of ﬁnance leases for the years ended February 28, 2011 and 2010 was as follows:

Thousands of
U.S. dollars

Millions of yen
2011

Property and equipment (Machinery, furniture and fixtures)
Acquisition cost
Accumulated depreciation
Net leased assets

2010

¥713
474
¥239

¥1,172
813
¥358

2011
$8,726
5,801$2,925

Commitment received under ﬁnance leases:
Thousands of
U.S. dollars

Millions of yen
2011

Due within one year
Due after one year
Total

2010

¥72
166
¥239

¥119
239
¥358

2010
$881
2,032
$2,925

Lease income and depreciation expense:
Thousands of
U.S. dollars

Millions of yen
2010

Lease income
Depreciation expense

¥97
97

2009
¥156
156

2010
$1,187
1,187

b. Operating leases
Future minimum lease payments under non-cancelable leases subsequent to February 28, 2011 are summarized as follows:
Millions of yen

As a lessee:
Within one year
After one year
Total
As a lessor:
Within one year
After one year
Total

Thousands of
U.S. dollars¥3,793
21,534¥25,327$46,420
263,542$309,962¥730
901¥1,632$8,934
11,027$19,973

15 INCOME TAXESThe Company and its domestic subsidiaries are subject to Japanese national and local income taxes which in the aggregate,
resulted in normal eﬀective statutory tax rates of approximately 40.6% for the years ended February 28, 2011 and 2010. The
tax eﬀects of signiﬁcant temporary diﬀerences and tax loss carryforwards which resulted in deferred tax assets and liabilities asof February 28, 2011 and 2010 were as follows:

Millions of yen

Thousands of
U.S. dollars

2011

2010

2011

Deferred tax assets:
Provision for retirement benefits
Securities under retirement benefit trusts
Loss on evaluation recognized upon merger of consolidated subsidiaries
Loss on impairment
Provision for loss on collection of gift certificates
Points payable
Allowance for bonuses
Tax loss carryforwards
Allowance for doubtful accounts
Unrealized gains on fixed assets
Provision for loss on business liquidation
Accrued enterprise tax
Provision for sales promotion
Payables related to an amendment to the retirement benefit plan
Inventories
Other
Gross deferred tax assets
Less: Valuation allowance
Total deferred tax assets¥7,342
4,921
4,516
4,538
3,697
2,884
2,607
2,174
1,249
742
697
374
136
159
132
4,356
40,532(11,214)¥29,317¥8,611
4,843
4,516
3,717
3,380
2,809
2,878
2,272
1,193
598
666
406
173
415
228
5,044
41,755(10,797)¥30,958$89,854
60,22555,26955,53845,24535,29631,906
26,606
15,286
9,081
8,530
4,577
1,664
1,946
1,615
53,310496,047(137,241)$358,793

Deferred tax liabilities:
Adjustments of book values by fair value method
Deferred gains
Returned shares of retirement benefit trusts
Other
Total deferred tax liabilities
Net of deferred tax assets¥(94,546)(7,615)(2,063)(25)(104,250)¥(74,933)¥(94,970)(7,344)(2,464)−(104,778)¥(73,820)$(1,157,092)(93,195)(25,248)(306)(1,275,854)$(917,060)

These deferred tax assets and liabilities were recorded under the following captions of the accompanying consolidated balance
sheets:Millions of yen

Current assets
Investments and other assets
Long-term liabilities

Thousands of
U.S. dollars

2011

2010

2011

¥13,020
7,764(95,717)¥13,295
11,215(98,331)$159,344
95,0191,171,423

F in a n c ia l

S t a t e m e n t s

16 FINANCIAL INSTRUMENTS
The Companies have adopted the Accounting Standard for Financial Instruments (ASBJ Statement No. 10, issued on March
10, 2008) and the Guidance on Disclosures about Fair Value of Financial Instruments (ASBJ Guidance No. 19, issued on
March 10, 2008) eﬀective from the year ended February 28, 2011.

(1) Overview(a) The Companies policy for ﬁnancial instruments
The Companies manage funds through low-risk bankdeposits and bonds only. Funds are raised through bankborrowings, issuance of corporate bonds and securitization
receivables. Derivatives are only utilized to hedge foreign
currency ﬂuctuation risk to accounts receivable andaccounts payable denominated in foreign currencies andinterest rate ﬂuctuation risk to loans payable and bonds, andare not used for speculative purposes.

(b) Types of ﬁnancial instruments and related risk andrisk management
Trade receivables such as notes and accounts receivable
are exposed to credit risk.
Leasehold and other deposits are mainly associated withstore rentals and exposed to lessors credit risk. For these
credit risks, the Companies manage the due date andbalances for each counterparty periodically and keep track of
the adverse ﬁnancial conditions of them in the early stage tomitigate bad debts.
Stocks as Investment securities are exposed to market
ﬂuctuation risk, but mainly consist of securities of companies
with which a business relationship has been established.
The Companies review these fair value periodically andreadjusting the portfolio on an ongoing basis.
Most of trade payables such as notes and accounts
payable are due within one year. Some of these trade
payables are denominated in foreign currencies that are

exposed to foreign currency ﬂuctuation risk. The Companies
utilizes foreign exchange forward contracts to hedge foreign
currency ﬂuctuation risk to trade payables denominated inforeign currencies.
Short-term bank loans and securitization receivables aremainly used to ﬁnance operating capital and long-term loans
payable are mainly used to ﬁnance necessary funds for thecapital investments. Variable interest rate loans payable areexposed to interest rate ﬂuctuation risk. The Companies
utilize derivative transactions (interest rate swaps) as
hedging instruments for each long-term loan to mitigate theinterest ﬂuctuation risk and ﬁx interest payment. The
Companies evaluate the eﬀectiveness of each hedgetransaction periodically. For some debts that meet short-cut
method of interest rate swaps, evaluation of hedge
eﬀectiveness is omitted.
Implementation and management of derivativetransactions are based on the internal rules which
determines the authorization and maximum amounts of thetransactions. The Companies enter into derivativetransactions only with creditworthy ﬁnancial institutions to
mitigate credit risk.
Trade payables and loans payable are exposed to liquidity
risk. The Companies manage the risk by preparing andupdating the monthly cash management schedule and keep
the necessary liquidity by commitment lines and overdraft
contracts with several ﬁnancial institutions.

(2) Fair value of ﬁnancial instruments
Carrying amount on the consolidated balance sheet as of February 28, 2011, fair value and diﬀerence are as follows.
The ﬁnancial instruments whose fair value is extremely diﬃcult to determine are not included below.
Thousands of U.S. dollars

Millions of Yen
2011
Carrying
amountFair value

Diﬀerence

Carrying
amountFair value

Diﬀerence

Cash on hand and in banks
Notes and accounts receivable
Marketable and investment securities:
Available-for-sale securities
Investments in affiliates
Leasehold and other deposits
Total assets¥35,387
53,937¥35,387
53,937¥−−$433,080
660,103$433,080
660,103$−−

21,3291,237
37,458¥149,351

21,329484
33,191¥144,331−(752)(4,267)¥(5,020)

261,033
15,139458,426$1,827,818

261,033
5,923
406,205$1,766,381−(9,203)(52,221)$(61,437)

Notes and accounts payable
Short-term bank loans
Long-term loans payable
Total liabilities
Derivative transactions, net¥76,31031,54977,109¥184,969¥(21)¥76,31031,54978,244¥186,104
¥(21)

¥−
−
1,135
¥1,135¥−$933,913
386,893943,691$2,264,509$(257)$933,913
386,893
957,582$2,278,399$(257)$−−
13,891$13,891$−(Note 1) Valuation method for ﬁnancial instruments and information on investment securities and derivative transactions are
summarized below:
Cash on hand and in banks and Notes and accounts receivable
Fair value of cash on hand and in banks is based on its
carrying amount since these are primarily paid in short-term
and the fair value approximates carrying amount. The amounts
in the above table include deposits with maturities exceeding
one year.
Marketable and investment securities
Fair value of stocks is based on the quoted price on stock
exchanges and that of bonds is based on the quoted price onbond markets or price presented by the counter party ﬁnancial
institutions.
Leasehold and other deposits
Fair value of leasehold and other deposits is determined bydiscounting the future cash ﬂows at the rate considering credit
risk. The amounts in the above table include leasehold andother deposits which refundable within one year.
Notes and accounts payable and Short-term bank loans
Fair value of notes and accounts payable is based on its
carrying amount since these are paid in short-term and the fairvalue approximates carrying amount.

Long-term loans payable
Fair value of variable interest rate long-term loans payable isbased on its carrying amount since these reﬂect interest rates
market in short-term and the fair value approximates carrying
amount. Some of them subject to the short-cut method of theinterest rate swaps are calculated by discounting the sum of
principal and interest including the interest swaps, using thereasonable interest rate applied to when a new borrowing is
made.
Fair value of ﬁxed interest rate long-term loans payable arecalculated by discounting the sum of principal and interest,
using the rate assumed when a similar and new borrowing ismade. The amounts in the above table include current portionof long-term loans payable.
Derivative transactions
Please see Note 17 DERIVATIVE TRANSACTIONS.

F in a n c ia l

S t a t e m e n t s(Note2) Financial instruments whose fair value is extremely diﬃcult to determine as of February 28, 2011 are as follows:
Millions of yen

Thousands of
U.S. dollars

Carrying Value

Unlisted stock
Leasehold and other deposit¥5,80010,705$70,983
131,012(Note3) The redemption schedule for ﬁnancial instruments and securities with maturities as of February 28, 2011 is as follows:
Millions of yen
2011
Due in one
year or less

Cash in banks
Notes and accounts receivable
Marketable and investment securities:
Available-for-sale securities with maturities
Government bonds
Corporate bonds
Other
Leasehold and other deposits
Total

Due after one year Due after ﬁve years
through ﬁve years through ten years

Due after
ten years¥29,136
53,937¥1,300
−

¥−
−

¥−
−

−
1,300
176
964
¥85,515

250
2,200
400
2,970
¥7,120

−
100
−
1,833
¥1,933−−−
7,829¥7,829Thousands of U.S. dollars
2011
Due in one
year or less

Cash in banks
Notes and accounts receivable
Marketable and investment securities:
Available-for-sale securities with maturities
Government bonds
Corporate bonds
Other
Leasehold and other deposits
Total

Due after one year Due after ﬁve years
through ﬁve years through ten years

Due after
ten years$356,578
660,103$15,910
−

$−
−

$−
−

−
15,9102,154
11,798$1,046,567

3,060
26,924
4,895
36,348$87,137−
1,224−
22,433$23,657−−−
95,814$95,814

17 DERIVATIVE TRNSACTIONSThere are no derivative transactions where hedge accounting is not applied as of February 28, 2011.
Derivative transactions to which hedge accounting is applied as of February 28, 2011 are as follows:(a) Currency related
Millions of yen
2011
Hedgeditem

Contract Contract amount due
amountafter one year

Fair
value

Allocation method
Foreign exchange forward contracts:
USD (Selling)
HKD (Selling)
USD (Buying)

Accounts receivable
Accounts receivable
Accounts payable

¥290
0
1

¥−
−
−

＊
＊
＊

Benchmark method
Foreign exchange forward contracts:
USD (Buying)
EUR (Buying)
GBP (Buying)
THB (Buying)

Foreign-currency-dominated forecasted transactions (Accounts payable)
Foreign-currency-dominated forecasted transactions (Accounts payable)
Foreign-currency-dominated forecasted transactions (Accounts payable)
Foreign-currency-dominated forecasted transactions (Accounts payable)

759
685
0
12

−
−
−
−

¥(9)
(10)
(0)
(0)

Thousands of U.S. dollars
2011
Hedgeditem

Allocation method
Foreign exchange forward contracts:
USD (Selling)
HKD (Selling)
USD (Buying)
Benchmark method
Foreign exchange forward contracts:
USD (Buying)
EUR (Buying)
GBP (Buying)
THB (Buying)

Accounts receivable
Accounts receivable
Accounts payable

Contract Contract amount due
amountafter one year

Fair
value

$3,549
0
12

$−
−
−

＊
＊
＊

Foreign-currency-dominated forecasted transactions (Accounts payable) 9,289
Foreign-currency-dominated forecasted transactions (Accounts payable) 8,383
Foreign-currency-dominated forecasted transactions (Accounts payable)
0
Foreign-currency-dominated forecasted transactions (Accounts payable) 147

−
−
−
−

¥(110)
(122)
(0)
(0)

*Fair value of the foreign exchange forward contracts to which allocation method of accounting have been applied is included in the fair valueof corresponding accounts receivable and accounts payable as hedged item.

Fair value of derivatives is measured at quoted price obtained from the ﬁnancial institutions.

F in a n c ia l

S t a t e m e n t s(b) Interest rate related
Millions of yen
2011

Short-cut method
Interest rate swaps:
Receive floating and pay fixed rate

Hedgeditem

Contract
amountLong-term loans payable¥44,000

Contract amountdue after one year

Fair
value

＊

¥41,000

Thousands of U.S. dollars
2011

Short-cut method
Interest rate swaps:
Receive floating and pay fixed rate

Hedgeditem

Contract
amountContract amountdue after one year

Long-term loans payable$538,490$501,775

Fair
value

＊

* Fair value of the interest rate swaps to which short-cut method have been applied is included in the fair value of corresponding long-termloans payable as hedged item.

As described in Note 16 FINANCIAL INSTRUMENTS, the Companies have adopted the Accounting Standard for Financial
Instruments and the Guidance on Disclosures about Fair Value of Financial Instruments . The accounting standard andthe guidance are eﬀective from the years ending on or after March 31, 2010; therefore, the required information regarding
derivatives is disclosed only for the year ended February 28, 2011.

18 CONTINGENT LIABILITIESThe Companies had the following contingent liabilities at February 28, 2011 and 2010:
Thousands of
U.S. dollars

Millions of yen
2011

Guarantees of payment for Daimaru Kogyo International Trading (Shanghai) Co., Ltd. (a subsidiary of Daimaru Kogyo Ltd.)
Guarantees on employees home mortgage loans
Guarantees on lease arrangements for SDS Planning Co.,Ltd.(a subsidiary of The Shimonoseki Daimaru,Inc.)
Total

¥100
54
17
¥172

2010
¥−
68
20
¥89

2011
$1,224661
208$2,105

19 PER SHARE INFORMATION
The ﬁnancial data for the computation of basic net income per share for the years ended February 28, 2011 and 2010 was as follows:

Millions of yen

Thousandsof shares

Net income

Weighted
average shares

For the year ended February 28, 2011:
Basic EPS
Net income available to common shareholders¥8,862

528,676¥16.76

For the year ended February 28, 2010:
Basic EPS
Net income available to common shareholders¥8,167

528,689¥15.45

Yen

U.S. dollar
EPS

$0.21

Net assets per share at February 28, 2011 and 2010 were calculated as follows:
Millions of yen

Thousandsof shares

Yen

Net assets

Common shares at
end of ﬁscal year

Net assets per shares

For the year ended February 28, 2011:
Total net assets
Amounts not attributable to common shares:−Stock subscription rights−Minority interests
Net assets attributable to common shares
Outstanding number of common shares issued¥327,242
9,209
(115)
(9,093)
318,033

For the year ended February 28, 2010:
Total net assets
Amounts not attributable to common shares:−Stock subscription rights−Minority interests
Net assets attributable to common shares
Outstanding number of common shares issued¥323,506
9,012
(124)
(8,887)¥314,494¥601.62
528,627¥594.89
528,656

U.S. dollar$7.36

F in a n c ia l

S t a t e m e n t s

20 BUSINESS COMBINATION
Transactions under common control(a) Department store business(b) Special prepayment-based transaction business

Matsuzakaya Co., Ltd. and The Daimaru, Inc., both wholly
owned subsidiaries of the Company, merged on March 1,
2010. Overview of the merger is as follows:

The Daimaru Tomonokai Inc. and Matsuzakaya Tomonokai Co.,
Ltd., both wholly owned subsidiaries of the Company, mergedon September 1, 2010. Overview of the merger is as follows:(1) Names of combined parties and description of the business:(1) Names of combined parties and description of the business:

Absorbing company:
Company name
Description of the business
Absorbed company:
Company name
Description of the business

Matsuzakaya Co., Ltd.
Department store business
The Daimaru, Inc.
Department store business(2) Date of the business combination
March 1, 2010
(3) Legal form of the business combination
The merger was an absorption-type merger with MatsuzakayaCo., Ltd. as a surviving company, and The Daimaru, Inc. went
into liquidation on March 1, 2010.

Absorbing company:
Company name
The Daimaru Tomonokai, Inc.
Description of the businessSpecial prepayment-based transaction businessbased on the Installment Sales Act
Absorbed company:
Company name
Matsuzakaya Tomonokai, Co., Ltd.
Description of the businessSpecial prepayment-based transaction businessbased on the Installment Sales Act(2) Date of the business combination
September 1, 2010
(3) Legal form of the business combination(4) Name of company following the business combination
Daimaru Matsuzakaya Department Stores Co., Ltd.

The merger was an absorption-type merger with The Daimaru
Tomonokai, Inc. as a surviving company, and Matsuzakaya
Tomonokai Co., Ltd. went into liquidation on September 1, 2010.

(5) Overview of the transactions including purposes
The Company promotes to reorganize the structures andfunctions among the Company, The Daimaru, Inc. andMatsuzakaya Co., Ltd. and integrate into a simple business
operating structure, to speed up the decision-making and further
improve management eﬃciency and productivity in thedepartment store business, including centralizing and downsizingof organization, personnel, facilities and others.
As the both companies were wholly owned subsidiaries of theCompany, merger ratio was not determined and there was noissuance of new shares or increase in capital.
On the eﬀective date of the merger, the surviving company
increased in share capital by reclassifying a portion of its capitalsurplus to share capital. As a result, share capital of the surviving
company increased to ¥10,000 million ($122,384 thousand).

(4）
Name of company following the business combination
Daimaru Matsuzakaya Tomonokai Co., Ltd.
(5) Overview of the transactions including purposes
The Company aims to have stable ﬁnancial ground by scale
expansion, establish eﬃcient management base by streamlining
overlapping services. And through building up the structure ofmembership association of Daimaru Matsuzakaya Department
Stores Co., Ltd, tomonokai , that can provide more convenient,better and new customer services continuously in the broader area,
it contributes to strategic advantages in regular customers, corporate
survival and growth strategy of the Companies.
As the both companies were wholly owned subsidiaries of theCompany, merger ratio was not determined and there was noissuance of new shares or increase in capital.

(6) Overview of accounting procedures implemented
This merger has been accounted for as a transaction under common
control according to the Accounting Standard for Business
Combinations (ASBJ Statement No.21, issued on December 26,2008) and the Guidance on Accounting Standard for Business
Combinations and Accounting Standard for Business Divestitures(ASBJ Guidance No.10, issued on December 26, 2008).

(6) Overview of accounting procedures implemented
This merger has been accounted for as a transaction under common
control according to the Accounting Standard for Business
Combinations (ASBJ Statement No.21, issued on December 26,2008) and the Revised Guidance on Accounting Standard forBusiness Combinations and Accounting Standard for Business
Divestitures (ASBJ Guidance No.10, issued on December 26, 2008).

21 INVESTMENT AND RENTAL PROPERTY
Eﬀective from the year ended February 28, 2011, theCompanies have adopted the Accounting Standard forDisclosures about Fair Value of Investment and Rental
Property (ASBJ Statement No. 20, issued on November 28,2008) and the Guidance on Accounting Standard forDisclosures about Fair Value of Investment and Rental
Property (ASBJ Guidance No. 23, issued on November 28,2008).
Certain consolidated subsidiaries of the Company own
buildings for rent (including land) in Tokyo and other areas.

Revenue and cost related to the real estate for rent arerecorded in rent income of real estate in sales and cost ofreal estate rent in operating expenses, respectively. Net
proﬁt of the real estate for rent is ¥3,515 million ($43,018
thousand) for the year ended February 28, 2011.
Gain on sales of ﬁxed assets of ¥448 million ($5,483
thousand), loss on disposal of ﬁxed assets of ¥254 million($3,109 thousand), and loss on impairment of ¥363 million($4,443 thousand) are recorded in other income (expense),
respectively, for the year ended February 28, 2011.

The carrying amounts, increase/decrease in balances and the fair value of the properties at February 28, 2011 are as follows:
Millions of yen
Carrying amountFebruary 28, 2010 Increase/ Decrease¥92,590¥25,230

Fair value
February 28, 2011

February 28, 2011

¥117,820¥112,958

Thousands of U.S. dollars
Carrying amountFebruary 28, 2010 Increase/ Decrease$1,133,154$308,775

Fair value
February 28, 2011

February 28, 2011

$1,441,929$1,382,426(Note1) Carrying amount is net of accumulated depreciation.
(Note2) Increase during the year ended February 28, 2011 is mainly due to the transfer from real estate for own use to realestate for rent of ¥26,256 million ($321,332 thousand) and the acquisition of real estate of ¥1,655 million ($20,255
thousand). Decrease during the year ended February 28, 2011 was mainly due to the sales of real estate for rent of¥2,332 million ($28,540 thousand).
(Note3) Fair value of signiﬁcant properties as of February 28, 2011 is calculated by the outside real-estate appraiser, based on
the real estate appraisal standards. Fair value of other properties is measured by the Company using market indexes
and other information.

F in a n c ia l

S t a t e m e n t s

22 SEGMENT INFORMATION(a) Business segment information
The Companies operate in the four business segments
consisting of Department store,
Supermarket,
Wholesale and Other. Other segment includes various

business including mail order, real estate leasing, interior
construction contract and manufacturing and sales offurniture, credit business, etc.

Business segment information for the years ended February 28, 2011 and 2010 was as follows:
Millions of yen

Year ended February 28, 2011
I. Sales and operating income
Sales1）Sales to outside customers2）Intersegment sales
Total
Operating expenses
Operating income
II. Assets, depreciation, impairment loss and capital expenditure
AssetsDepreciation
Loss on impairment
Capital expenditure

Department
store

Super
marketWholesale

Other

Elimination or
corporate

Consolidated¥736,570
2,741
739,311
724,457¥14,853¥114,688
3,774
118,462
118,180¥282¥47,628
6,817
54,44552,209¥2,235¥51,216
41,521
92,73788,473¥4,263¥−(54,854)(54,854)(53,541)¥(1,312)¥950,102−
950,102929,779¥20,323¥671,811
12,526838
18,564¥40,025
846
649
578

¥26,6509978
107¥129,291
367
369
1,134

¥(92,748)
(228)
−
(608)

¥775,029
13,6101,936
19,776

Elimination or
corporate

Consolidated

Millions of yen

Year ended February 28, 2010
I. Sales and operating income
Sales1）Sales to outside customers2）Intersegment sales
Total
Operating expenses
Operating income
II. Assets, depreciation, impairment loss and capital expenditure
AssetsDepreciation
Loss on impairment
Capital expenditure

Department
store

Super
marketWholesale

Other¥758,069
2,850
760,919
747,924¥12,995¥118,626
4,631
123,258
121,829¥1,429¥56,510
6,738
63,24960,675¥2,573¥49,326
31,717
81,04478,241¥2,803¥−(45,938)(45,938)(44,721)¥(1,216)¥982,533−
982,533
963,949¥18,584¥691,741
12,2232,020
53,121¥43,546
889
633
514

¥25,342
122−
166¥135,266
301
1,135
828

¥(91,361)
(241)
(19)
(153)

¥804,534
13,295
3,769
54,476

Thousands of U.S. dollars

Year ended February 28, 2011Super
marketWholesale

Other$1,403,598
46,1881,449,786
1,446,335$3,451$582,891
83,429666,320
638,955$27,353$626,802
508,151
1,134,953
1,082,768$52,172$−(671,325)(671,325)(655,256)$(16,057)$11,627,732−
11,627,732
11,379,011$248,721$489,842
10,354
7,943
7,074$326,153
1,212
955
1,310

$1,582,316
4,491
4,516
13,878$(1,135,088)(2,790)−(7,441)$,9,485,118
166,565
23,694
242,027

Department
store

I. Sales and operating income
Sales1）Sales to outside customers$9,014,441
2）Intersegment sales
33,545
Total
9,047,987
Operating expenses
8,866,198
Operating income$181,777
II. Assets, depreciation, impairment loss and capital expenditure
Assets$8,221,895
Depreciation
153,298
Loss on impairment
10,256
Capital expenditure
227,194

Elimination or
Consolidated
corporate

Notes: As discussed in the note 3 (a), the Companies have adopted the Accounting Standards for Measurement of Inventories (ASBJ
Statement No.9, issued on July 5, 2006), and inventories are stated at the lower of cost or market determined principally by the retailinventory method (lower than book value due to decline in proﬁtability) eﬀective from the year ended February 28, 2010. The eﬀect of
this change was to increase operating income of Department store by ¥38 million and decrease operating income of Supermarket
and Other by ¥193 million and ¥2 million, respectively, compared with the previous method for the year ended February 28, 2010.

(b) Geographic segment information
Geographic segment information is not disclosed, due tosales and total assets of overseas subsidiaries not beingmaterial compared to consolidated sales and consolidated
total assets, respectively.

(c) Information for overseas sales
Information for overseas sales is not disclosed, due tooverseas sales not being material compared to consolidated
sales.

23 RELATED PARTIES
There were no signiﬁcant transactions between the Company and related parties for the year ended February 28, 2011.
Signiﬁcant transactions between the consolidated subsidiaries and a related party for the year ended February 28, 2011 were as follows:

Name of related party
Ryoichi Yamamoto

Type of transaction
Contract for housing construction

Millions of yen

Thousands of
U.S. dollars

2011

2011

¥113

$1,383

Ryoichi Yamamoto is a director of the Company and owns 0.01% of voting rights of the Company.
The contract amount is determined based on general terms and conditions.
There were no signiﬁcant transactions and balances with related parties as of and for the year ended February 28, 2010.

F in a n c ia l

S t a t e m e n t s

24 SUBSEQUENT EVENTThe Company entered into share transfer agreements foracquiring stocks of StylingLife Holdings Inc. (hereafter SLH )with Sony Corporation, MITSUI & Co., LTD. and Senshukai Co.,
Ltd. on March 1, 2011 and Tokyu Corporation on March 28,
2011 upon the resolution by the Board of Directors meeting held
on February 25, 2011 and March 28, 2011, respectively, andacquired the stocks of SLH on March 30, 2011 and SLH became
its aﬃliated company accounted for by the equity method.

(1) Purposes of the stock acquisition
The Companies aim at establishing a status as a leading Japaneseretail company both in terms of quality and quantity with thedepartment store business as its core.
SLH is involved in the 4 core business areas, general merchandise,known as PLAZA stores and popular among young women,
mail-order, manufacturing and distribution of beauty products andfood services, under its fundamental principles, enhancing thelifestyles of customers and pursuing something new . Some ofthese stores are in the department stores of the Companies.
The Company believes that strengthening cooperation with SLH
enables the enhancement of competitiveness in main department
store business through improving the store arrangement and gaining
young customers. The Company also believes that introducing new
eﬀective businesses will contribute to the future growth of theCompanies as a whole.
Hereafter the Company works on improving the corporate value of
SLH, in cooperation with Tokyo Broadcasting systems holdings, Inc.,
the parent company of SLH.

(2) Overview of the acquired company:
Company name: StylingLife Holdings Inc.
Address:
2-12-2 Kita Aoyama, Minato-ku, Tokyo
Representative: Kimio Uchida, President and CEO
Description of the business: Retailing, cosmetic manufacturing and sales.
Management of business, ﬁnance, HR, complianceand IR and business development as a holding
company for retail businesses, comprised of LightUp
Shopping Club inc. (mail-order business), CP
Cosmetics Inc. (cosmetics wholesaler) and Maxim s
de Paris Ltd. (restaurant and confectionary).
Capital:¥1,048 million ($12,826 thousand)Name of company
Tokyo Broadcasting System Holdings, Inc.
J. Front Retailing Co., Ltd. (the Company)
StylingLife group shareholding association
Total(3) Overview of the companies from which the shares were acquired:a）Sony Corporation
Company name:
Address:

Sony Corporation
1-7-1 Konan, Minato-ku, Tokyo

Representative:
Description of the business:

Howard Stringer, Chairman, CEO and President
Manufacturing and distribution of electronicand electric machinery and appliancesb）
MITSUI & Co., LTD.
Company name: MITSUI & Co., LTD.
Address:
1-2-1 Ohtemachi, Chiyoda-ku, Tokyo
Representative: Masami Iijima, President and CEO
Description of the business:

Business developments in the ﬁelds of Iron andSteel products, Mineral and Metal Resources,
Chemicals, Energy, Foods and Retail, Consumer
Services, Information, Financial Markets andTransportation Logistics.

c）
Senshukai Co., Ltd.
Company name: Senshukai Co., Ltd.
Address:
1-8-9 Doushin, Kita-ku, Osaka
Representative:
Description of the business:

Michio Tanabe, Representative Director
Catalog business, hanpukai business andother businessd）Tokyu Corporation
Company name:
Address:
Representative:

Tokyu Corporation
5-6 Nanpeidai-cho, Shibura-ku, Tokyo
Toshiaki Koshimura, President and Representative Director

Description of the business:

Transportation, real estate business, retailbusiness, leisure and service business, hotelbusiness and other business.

(4) Number of shares holding before and after the acquisition,
holding ratio, acquisition cost and investment ratio:a）Number of shares before the acquisition: 0 shares (share holding ratio 0.0%)b）Number of shares acquired: 72,786 sharesc）
Acquisition cost:¥9,826 million ($120,255 thousand)d）Number of shares after the acquisition: 72,786 shares (share holding ratio 48.5%)e）Investment ratio after the acquisition:
Number of shares Holding ratio
76,50072,786
714

51.0%
48.5%
0.5%

150,000

100.0%