ＴＳＩホールディングス（3608） – Business Results for the Fiscal Year Ended February 28, 2022 [Japanese GAAP] (Consolidated)

Business Results for the Fiscal Year Ended February 28, 2022 [Japanese GAAP] (Consolidated) April 13, 2022 Company name: TSI HOLDINGS CO., LTD. Stock listing: Tokyo Stock Exchange Code number: 3608 URL: https://www.tsi-holdings.com/en/ Representative: Contact: Representative Director and President, Tsuyoshi Shimoji Executive Officer, General Manager of Finance & Accounting Dept. Mitsuru Naito TEL: +81-3-6748-0001 Scheduled date of financial report: Scheduled date to begin dividend payment: May 27, 2022 May 27, 2022 Preparation of supplementary financial document: Briefing session to explain the financial statements: Yes Yes (For institutional investors and analysts) (Rounded down to the nearest million yen) 1. Consolidated Business Results for the Fiscal Year Ended February 28, 2022 (March 1, 2021 to February 28, 2022)(1) Consolidated results of operations (% change from the previous fiscal year) Net sales Operating income Ordinary income Profit attributable to owners of parent FY ended February 2022 FY ended February 2021 Million yen 140,382 134,078 % Million yen 4.7 (21.2) 4,440 (11,843) % Million yen ― ― 5,834 (10,359) % Million yen ― ― 1,022 3,861 % (73.5) 77.0 (Notes) Comprehensive income: Fiscal year ended February 28, 2022 Fiscal year ended February 28, 2021 ¥181 million ¥4,636 million(96.1%)―% Net income per share Diluted net income per share Return on equity FY ended February 2022 FY ended February 2021 Yen 11.32 42.64 Yen ― ― (Reference) Equity in earnings of affiliates: Fiscal year ended February 28, 2022 Fiscal year ended February 28, 2021 ¥27 million¥61 million(2) Consolidated financial positionRatio of ordinary income to total assets Ratio of operating income to net sales % 1.1 4.0 % 4.0 (6.6) % 3.2 (8.8) As of February 28, 2022 As of February 29, 2021 Total assets Net assets Net assets per share Shareholders’ equity ratio Million yen 140,440 154,951 Million yen 97,736 97,430 % 69.2 62.6 Yen 1,075 44 1,074 81 (Reference) Shareholders’ equity: As of February 28, 2022, As of February 28, 2021, ¥97,212 million¥96,977 million(3) Consolidated results of cash flowsCash flows from operating activities Cash flows from investing activities Cash flows from financing activities Million yen 1,380 (5,300) Million yen (3,981) 36,010 Million yen (8,960) (11,170) Cash and cash equivalents at the end of period Million yen 38,503 49,761 Annual dividend End of 1Q Yen End of 2Q End of 3Q Yen Yen 0.00 0.00 0.00 ― ― ― ― ― ― Year-end Total Total dividend Yen 0.00 5.00 Yen Million yen 0.00 5.00 ― 457 7.00 7.00 Dividend payout ratio (Consolidated) Rate of total dividend to net assets (Consolidated) % ― 0.5 % ― 44.2 42.2 FY ended February 2022 FY ended February 2021 2. DividendsFY ended February 2021 FY ended February 2022 FY ended February 2023 (forecast) Second quarter (Cumulative) Full fiscal year 3. Forecast of Consolidated Business Results for the Fiscal Year Ending February 28, 2023 (March 1, 2022 to February 28, 2023) Net sales Operating income Ordinary income Profit attributable to owners of parent Net income per share Million yen % Million yen % Million yen % Million yen % Yen (% change from the corresponding period of the previous fiscal year) 76,470 157,350 18.1 12.1 (985) 1,500 ― (66.2) (520) 2,400 ― (58.9) (240) 1,500 ― 46.7 (2.66) 16.59 ＊Notes: (1) Changes in significant subsidiaries during the period: Yes Changes in specified subsidiaries resulting in a change in the scope of consolidation Deselection 2 companies (SANEI-INTERNATIONAL CO., LTD. and TSI GROOVE AND SPORTS CO., LTD.) (2) Changes in accounting policies, accounting estimates, and restatements a. Changes in accounting policies due to revisions of accounting standards: None b. Changes in accounting policies other than above (a): None c. Changes of accounting estimates: Yes d. Restatements: None (3) Number of shares issued (common stock) a. Number of shares issued at the end of period (treasury stock included) FY ended February 2022 95,783,293 shares FY ended February 2021 95,783,293 shares b. Number of treasury c. Average number of shares over the period stock at the end of period FY ended February 2022 5,390,033 shares FY ended February 2021 5,556,309 shares FY ended February 2022 90,306,433 shares FY ended February 2021 90,560,235 shares * Summary of financial statements is not subject to audit by a certified public accountant or an audit corporation. *Explanation regarding the appropriate use of business forecasts and other special instructions The forward-looking statements, including business forecasts, contained in this document are based on information currently available to the Company and on certain assumptions deemed reasonable by the Company, and are not intended as a promise by the Company that they will be achieved. Actual results may differ materially due to a variety of factors. Please refer to “(3) Explanation of Consolidated Business Forecast and Other Forward-looking Statements ” on page 3 for the assumptions underlying the forecasts and cautionary statements regarding the use of the forecasts. Contents of Attached Materials 1. Overview of Business Results ···································································································· 2 (1) Overview of Business Results for the Fiscal Year Ended February 28, 2022 ································· 2 (2) Overview of Financial Position ···························································································· 3 (3) Overview of Cash Flows ······································································································· 3 (4) Outlook ····························································································································· 4 2. Basic Stance on the Selection of Accounting Standards ·································································· 4 3. Consolidated Financial Statements and Major Notes ···································································· 5 (1) Consolidated Balance Sheets ································································································ 5 (2) Consolidated Statements of Income and Consolidated Statements of Comprehensive Income ········· 7 (3) Consolidated Statements of Changes in Net Assets ·································································· 8 (4) Consolidated Statements of Cash Flows ················································································ 11 (5) Notes to Consolidated Financial Statements ·········································································· 13 Going Concern Assumption ·································································································· 13 Major Notes to Consolidated Financial Statements ·································································· 13 Change in reporting method ······················································································ 17 Change in an accounting estimate ············································································· 17 Additional Information ········································································································ 18 Segments of the Company and Related Information ································································· 20 Per Share Information ········································································································· 22 Important Subsequent Events ······························································································ 23 – 1 – 1. Overview of Business Results (1) Overview of Business Results for the Fiscal Year Ended February 28, 2022 In fiscal 2021, the twelve-month period from March 1, 2021 to February 28, 2022, the apparel industry was expected to see a recovery in consumer spending due to the progress of vaccination against the COVID-19 and the end of the declaration of a state of emergency that had been issued by the government in stages. Nevertheless, the number of infections did not significantly decrease because of the rapid spread of a new mutant strain of the COVID-19 and the trend toward voluntary restraint on outings and shortened business hours at some commercial facilities continued, resulting in a severe situation that still had an impact on sales. Under such a business environment, our group is using the TSI Innovation Program 2024 (TIP24) as a springboard to focus attention on withdrawing from unprofitable businesses and shops, reducing labor costs, and reducing SG&A expenses across the entire company. Following this, we will shift to a phase that involves boosting efforts in the rapidly growing area of EC business, and breaking into IT system business and other new business, etc. We will also actively invest for the future to maximize profitability in the group. Following this, we moved into a phase of strengthening our fast-growing EC business and IT systems and entering new businesses and aggressively invested for the future to maximize profitability in the Group. Moreover, the absorption-type merger was conducted in March 2021 as the first step toward the integration of the Group’s companies into one company (after the subsidiary SANEI bd CO., LTD. merged with eight other apparel subsidiaries, the trade name was changed to “TSI Inc.”). Through this change, we have aimed to further improve the speed of decision-making and operational efficiency. Although the number of new infections of the COVID-19 in Japan has been decreasing since the end of the declaration of a state of emergency issued on September 30, 2021, the trend of refraining from going out has not completely ended, and consumer confidence has not completely returned. Although the over-the-counter sales of our group companies showed a recovery trend, the harsh business climate continued due to a decrease in customer traffic. In response, we have been taking measures such as strengthening sales through EC, curbing excess inventory, and controlling costs by strictly monitoring product purchases and holding them to an appropriate level. Accounting for each of these factors, net sales came to ¥140,382 million in fiscal 2021, up 4.7% compared with the previous fiscal year. From a profit perspective, TSI Holdings incurred an operating income of ¥4,440 million and an ordinary profit of ¥5,834 million. This was a negative turnaround from the operating income of ¥11,843 million and ordinary income of ¥10,359 million posted in fiscal 2021. The Company’s net income attributable to owners of parent totaled ¥1,022 million, down 73.5% compared with the previous fiscal year. Net sales by reportable segment were as follows. Apparel-Related Businesses Based on the above TIP24, TSI Group subsidiaries composing our apparel-related businesses have made efforts by withdrawing unprofitable businesses and store and by reducing SG&A such as labor costs across the entire company. Based on the medium-term management strategy, TSI Group subsidiaries continued to improve profits by reforming existing brands and streamlining operations. Amid the need to manage high market value brands that are unique and are price competitive, the Group worked diligently to strengthen its profitability by rolling out products that take full advantage of special features in its existing businesses including PING, St ANDREWS and HUF of street apparel brands, and wander with a focus on outdoor fashion, CADUNE of a ladies brand. Despite these endeavors, we have suffered from COVID-19 including shorten its business hours because of continuation of the state of emergency. In the e-commerce business, we tried to increase sales by strengthening in-store and online coordination including the consolidation of in-store inventory to e-commerce stock, online customer service and OMO. Through these initiatives, net sales of the apparel-related businesses reached ¥135,812 million (up 4.4% year on year). – 2 – Other Businesses Companies within TSI Holdings’ other businesses include S-Groove Co., Ltd., which in addition to fulfilling a sales function for Group operating companies engages in paid employment placement and worker dispatching activities, Toska-Bano’k Co., Ltd., active in the manufacture and sale of synthetic resin related products, Plax Co., Ltd., which engages in store design and supervision as well as restaurant operations, Laline JAPAN Co., Ltd., which procures and sells a variety of products including cosmetics, perfumes, and soaps, and Urth Caffe JAPAN Co., Ltd., which operates in Japan a popular organic café in the U.S., California. Net sales in this segment decreased by 38.6% compared with the previous fiscal year, to ¥5,256million owing mainly to subsidiary integration. (2) Overview of Financial Position At the end of FY2021 (As of February 28, 2021) At the end of FY2022 (As of February 28, 2022) (Million yen) Increase/decrease Total assets Liabilities Net assets Shareholders’ equity ratio Net assets per share 154,951 57,521 97,430 62.6% ¥1,074.81 140,440 42,704 97,736 69.2% ¥1,075.44 (14,510) (14,816) 306 6.6% ¥0.63 Total assets decreased by ¥14,510 million due to a decrease in cash and deposits (down ¥10,612 million from the end of the previous period ), a decrease in property, plant, and equipment (down ¥1,605 million), a decrease in intangible assets (down ¥3,405 million) and a decrease in “other” under investments and other assets (down ¥768 million), despite an increase in “other” under current assets (up ¥2,668 million), among others. Liabilities decreased by ¥14,816 million dues to decreases in notes and accounts payable-trade (down ¥1,012 million from the end of the previous period), accounts payable-other (down ¥1,719 million), income taxes payable (down ¥1,944 million), and long-term borrowings (including current portion of long-term borrowings) (down ¥8,982 million). Net assets increased by ¥306 million from the end of the previous fiscal year, despite a decrease in Valuation difference on available-for-sale securities (down ¥1,753 million). This was mainly due to an increase in retained earnings (up ¥1,022 million) and an increase in foreign currency translation adjustment (up ¥927 million). As a result, net asset per share increased by ¥0.63. (3) Overview of Cash Flows Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities Cash and cash equivalents at end of period 1) Cash flows from operating activities: At the end of FY2021 (As of February 28, 2021) At the end of FY2022 (As of February 28, 2022) Increase/decrease (Million yen) (5,300) 36,010 (11,170) 49,761 1,380 (3,981) (8,960) 38,503 6,680 (39,991) 2,209 (11,257) Net cash provided by operating activities for the current consolidated fiscal year amounted to ¥1,380 million, compared to net cash used in operating activities of ¥-5,300 million in the previous fiscal year. This was mainly due to the postings of ¥2,712 million in income before income taxes, the postings of ¥3,650 million in depreciation, which is non-cash expenses and impairment loss of ¥4,225 million, despite an increase in inventories of ¥907 million, a decrease in purchase debt of ¥994 million, a decrease in accounts payable-other of ¥1,741 million, the postings of ¥1,698 million in gain on sales of investment securities, which were adjustment items for investment activities and the postings of ¥3,201 million in income taxes paid. – 3 – 2) Cash flows from investing activities: Net cash used in investing activities for the current consolidated fiscal year stood at ¥3,981 million (compared to net cash provided by investing activities of ¥36,010 million in the previous fiscal year), mainly due to the purchase of property, plant, and equipment (store interior assets, etc.) of ¥1,123 million, purchase of investment securities of ¥8,512 million and payment of leasehold and guarantee deposits of ¥1,195 million, despite the sales of investment securities of ¥6,137 million and collection of leasehold and guarantee deposits of ¥1,214 million. 3) Cash flows from financing activities: Net cash used in financing activities for the current consolidated fiscal year was ¥8,960 million (¥11,170 million in the previous fiscal year), mainly due to a net decrease in short-term borrowings of ¥52 million and repayment of long-term borrowings of ¥8,969 million. Consequently, cash and cash equivalents at the end of the current consolidated fiscal year decreased by ¥11,257 million from the end of the previous fiscal year to ¥38,503 million. (Reference) Changes in cash flow-related indicators (For Reference) Trends in Cash-Flow Indicators Shareholders’ equity ratio (%) Shareholders’ equity ratio based on current market price (%) Years of debt redemption (Years) Interest coverage ratio (Times) Notes: FY2020 (As of February 29, 2020) FY2021 (As of February 28, 2021) FY2022 (As of February 28, 2022) 59.2 24.2 7.1 21.7 62.6 15.3 ― ― 69.2 21.5 11.7 12.6 1. Shareholders’ equity ratio based on current market price (%) = total market value of common stock ÷ total assets 2. Years of debt redemption = interest-bearing debt ÷ cash flows from operating activities 3. Interest coverage ratio = cash flows from operating activities ÷ interest payments 4. Interest-bearing debt includes all balance-sheet debt for which interest payments are being made. 5. Interest payment are based on the amount of interest paid on the consolidated statement of cash flows. 6. All indicators are calculated based on consolidated financial figures. 7. As the cash frows from operating activities for the fiscal year ended February 28, 2021 was negative, the years of debt redemption and interest coverage ratio are not calculated. (4) Outlook Although the economic impact of the spread of the COVID-19 is continuing and remains to be seen, it is expected that the infection will be brought under control to some extent in the second half of the fiscal year ending February 28, 2023 (fiscal 2022) through vaccination and the spread of oral antiviral drugs for people with a mild condition. Although we expect a certain level of recovery in sales for fiscal 2022, we anticipate a considerable delay in the recovery of the economic situation due to growing social unrest following the invasion of the Republic of Ukraine by Russian Federation forces and the recent sharp rise in commodity prices. Meanwhile, we expect net income attributable to owners of parent for fiscal 2022 to be ¥ 1,500 million, based on aggressive investments in growth areas such as EC and athleisure, where demand is continuously on the increase. 2. Basic Stance on the Selection of Accounting Standards The TSI Holdings Group has adopted the Japanese Generally Accepted Accounting Principles (Japanese GAAP) to facilitate comparisons of consolidated financial statements of different fiscal terms and companies. Meanwhile, the Group’s policy is to properly address the application of International Financial Reporting Standards (IFRS) after taking into consideration various circumstances in Japan and overseas. – 4 – 2. Consolidated Financial Statements and Major Notes (1) Consolidated Balance Sheets FY2021 (As of February 28, 2021) FY2022 (As of February 28, 2022) (Million yen) Assets Current assets Cash and deposits Notes and accounts receivable–trade Securities Merchandise and finished goods Work in process Raw materials and supplies Other Allowance for doubtful accounts Total current assets Non-current assets Property, plant and equipment Buildings and structures Accumulated depreciation Buildings and structures, net Machinery, equipment and vehicles Accumulated depreciation Machinery, equipment and vehicles, net Land Leased assets Accumulated depreciation Leased assets, net Other Accumulated depreciation Other, net Total property, plant and equipment Intangible assets Goodwill Trademark right Other Total intangible assets Investments and other assets Investment securities Long-term loans receivable Leasehold and guarantee deposits Deferred tax assets Investment property, net Other Allowance for doubtful accounts Total investments and other assets Total non-current assets Total assets – 5 – 49,871 10,888 ― 17,034 544 821 3,594 (39) 82,714 17,730 (12,122) 5,607 1,146 (950) 195 903 558 (531) 27 7,565 (6,149) 1,415 8,149 5,266 3,646 3,757 12,670 28,872 76 11,222 1,021 4,980 5,350 (106) 51,416 72,237 154,951 39,258 10,378 969 17,597 494 634 6,263 (48) 75,547 16,126 (11,639) 4,487 1,079 (907) 172 958 532 (517) 15 6,876 (5,965) 911 6,544 2,044 3,379 3,841 9,265 28,397 94 10,742 634 4,735 4,581 (102) 49,083 64,893 140,440 FY2021 (As of February 28, 2021) FY2022 (As of February 28, 2022) (Million yen) 11,607 152 8,915 13 4,645 2,196 1,336 426 126 289 ― 12 6,246 35,969 16,082 36 1,029 42 1,040 2,344 975 21,551 57,521 15,000 29,255 52,213 (3,747) 92,720 4,812 (469) (86) 4,256 452 97,430 154,951 10,595 114 6,212 11 2,925 251 1,327 453 139 310 87 650 5,293 28,375 9,803 36 1,065 37 979 2,010 396 14,329 42,704 15,000 29,255 53,236 (3,668) 93,822 3,058 457 (126) 3,389 523 97,736 140,440 Liabilities Current liabilities Notes and accounts payable–trade Short-term borrowings Current portion of long-term borrowings Lease obligations Accounts payable–other Income taxes payable Provision for bonuses Provision for point card certificates Provision for shareholder benefit program Provision for sales returns Reserve for transfer Asset retirement obligations Other Total current liabilities Non-current liabilities Long-term borrowings Lease obligations Deferred tax liabilities Provision for retirement benefits for directors Retirement benefit liability Asset retirement obligations Other Total non-current liabilities Total liabilities Net assets Shareholders’ equity Share capital Capital surplus Retained earnings Treasury stock Total shareholders’ equity Accumulated other comprehensive income Valuation difference on available-for-sale securities Foreign currency translation adjustment Remeasurements of defined benefit plans Total accumulated other comprehensive income Non-controlling interests Total net assets Total liabilities and net assets – 6 – (2) Consolidated Statements of Income and Consolidated Statements of Comprehensive Income Consolidated statements of income FY2021 (March 1, 2020 to February 28, 2021) FY2022 (March 1, 2021 to February 28, 2022) (Million yen) Selling, general and administrative expenses Net sales Cost of sales Gross profit Operating income (loss) Non-operating income Interest income Dividend income Real estate income Foreign exchange gain Other Total non-operating income Non-operating expenses Interest expenses Foreign exchange losses Rental expenses on real estate Loss on valuation of investment securities Other Total non-operating expenses Ordinary income (loss) Extraordinary income Gain on sales of non-current assets Gain on sale of investment securities Subsidies for employment adjustment Other Total extraordinary income Extraordinary losses Loss on retirement of non-current assets Impairment loss Loss on sales of investment securities Loss on liquidation of subsidiaries and associates Loss due to temporary closing Voluntary retirement-related expenses Provision for transfer costs Other Total extraordinary losses Income before income taxes Income taxes―current Income taxes―deferred Total income taxes Net income Net loss attributable to non-controlling interest Net income attributable to owners of parent – 7 – 134,078 70,232 63,846 75,689 (11,843) 34 1,065 1,297 – 603 3,000 216 26 876 32 364 1,516 (10,359) 24,024 364 438 31 24,859 80 3,068 559 1,192 2,414 1,160 ― 169 8,644 5,855 2,337 (233) 2,103 3,751 (109) 3,861 140,382 63,555 76,826 72,386 4,440 1,908 30 761 300 302 512 109 – 134 20 250 514 5,834 391 1,714 33 403 2,543 4,225 1,193 92 16 4 ― 87 45 5,664 2,712 528 1,186 1,715 996 (25) 1,022 Consolidated statements of comprehensive income Net income Other comprehensive income Valuation difference on available-for-sale securities Foreign currency translation adjustment Remeasurements of defined benefit plans Share of other comprehensive income of affiliates accounted for using equity method Total other comprehensive income Comprehensive income Total comprehensive income attributable to: Owners of parent Non-controlling interests (3) Consolidated Statements of Changes in Net Assets FY2021 (March 1, 2020 to February 28, 2021) FY2021 (March 1, 2020 to February 28, 2021) FY2022 (March 1, 2021 to February 28, 2022) (Million yen) 3,751 1,182 (269) (8) (20) 884 4,636 4,759 (123) 996 (1,753) 963 (40) 15 (815) 181 155 25 Share capital Capital surplus Treasury stock Shareholders’ equity Retained earnings (Million yen) Total shareholders’ equity 15,000 36,463 49,987 △9,856 91,594 △7,208 △1,635 3,861 △1,177 △1,177 77 7,208 △1,635 3,861 77 – ― △7,208 2,226 6,108 1,126 15,000 29,255 52,213 △3,747 92,720 Balance at the beginning of period Changes during period Dividends of surplus Net income attributable to owners of parent Purchase of treasury shares Disposal of treasury shares Cancellation of treasury shares Net changes in items other than shareholders’ equity Total changes during period Balance at the end of period – 8 – Accumulated other comprehensive income Valuation difference on available-for-sale securities Foreign currency translation adjustment Remeasure-ments of defined benefit plans Total accumulated other compre-hensive income Non-controlling interests Total net assets 3,630 (192) (78) 3,358 498 95,451 (7) (7) (86) (1,635) 3,861 (1,177) 77 ― 897 897 (45) 852 (45) 1,978 4,256 452 97,430 1,182 1,182 4,812 Balance at the beginning of period Changes during period Dividends of surplus Net income (loss) attributable to owners of parent Purchase of treasury shares Disposal of treasury shares Cancellation of treasury shares Net changes in items other than shareholders’ equity Total changes during period Balance at the end of period Balance at the beginning of period Changes during period Dividends of surplus Net income attributable to owners of parent Purchase of treasury shares Disposal of treasury shares Cancellation of treasury shares Net changes in items other than shareholders’ equity Total changes during period Balance at the end of period FY2022 (March 1, 2021 to February 28, 2022) Share capital Capital surplus Treasury stock Shareholders’ equity Retained earnings (Million yen) Total shareholders’ equity 15,000 29,255 52,213 (3,747) 92,720 1,022 (0) 79 ― 1,022 (0) 79 ― ― ― 1,022 79 1,101 15,000 29,255 53,236 (3,668) 93,822 (276) (276) (469) – 9 – Accumulated other comprehensive income Valuation difference on available-for- sale securities Foreign currency translation adjustment Remeasure-ments of defined benefit plans Total accumulated other compre-hensive income Non-controlling interests Total net assets 4,812 (469) (86) 4,256 452 97,430 Balance at the beginning of period Changes during period Dividends of surplus Net income attributable to owners of parent Purchase of treasury shares Disposal of treasury shares Cancellation of treasury shares Net changes in items other than shareholders’ equity Total changes during period Balance at the end of period (1,753) (1,753) 3,058 927 927 457 (40) (40) (126) (866) (866) 3,389 70 70 1,022 ― (0) 79 ― (795) 306 523 97,736 – 10 – FY2021 (March 1, 2020 to February 28, 2021) FY2022 (March 1, 2021 to February 28, 2022) (Million yen) 5,855 4,080 762 (38) (3) (55) 28 120 (46) 55 ― (1,099) 216 (24,015) 80 3,068 2,414 1,160 195 32 1,192 (438) 1,287 3,723 (2,749) 859 (145) (31) (710) (4,198) 1,099 (216) (549) 749 (2,185) ― (5,300) 2,712 3,650 788 3 (90) (4) 21 18 31 13 87 (792) 109 (375) 92 4,225 1,193 (1,698) ― 20 4 (33) 459 (907) (994) (303) 1,190 ― (3,547) 5,873 792 (109) (3,201) 90 (1,118) (947) 1,380 (4) Consolidated Statement of Cash Flows Cash flows from operating activities Income before income taxes Depreciation Amortization of goodwill Increase (decrease) in allowance for doubtful accounts Increase (decrease) in retirement benefit liability Increase (decrease) in provision for retirement benefits for directors Increase (decrease) in provision for bonuses Increase (decrease) in provision for sales returns Increase (decrease) in provision for point card certificates Increase (decrease) in provision for shareholder benefit program Interest and dividend income Interest expenses Loss (gain) on sales of non-current assets Loss on retirement of non-current assets Impairment loss Loss due to temporary closing Voluntary retirement-related expenses Loss (gain) on sales of investment securities Loss (gain) on valuation of investment securities Loss on liquidation of subsidiaries and associates Subsidies for employment adjustment Decrease (increase) in accounts receivables–trade Decrease (increase) in inventories Increase (decrease) in accounts payables–trade Increase (decrease) in accrued consumption taxes Increase (decrease) in accounts payable–other Increase (decrease) in long-term accounts payable–other Other Subtotal Interest and dividends received Interest paid Income taxes paid Income taxes refund Payment for loss due to temporary closing Payment for voluntary retirement-related expenses Net cash provided by (used in) operating activities – 11 – (Million yen) FY2021 (March 1, 2020 to February 28, 2021) FY2022 (March 1, 2021 to February 28, 2022) 600 (2,927) 4,300 (8,397) 7,672 (710) ― (933) 1,440 (13) 34,031 (27) 407 (656) (6) ― ― (578) 1,807 36,010 55 478 (8,934) (31) (1,180) 77 (1,635) (11,170) (11) 19,528 30,232 49,761 (689) (1,123) 56 (8,512) 6,137 (967) 380 (1,195) 1,214 ― 89 (43) 26 ― (91) 25 20 (52) ― (17) (0) 79 ― (354) 1,047 (3,981) (8,969) (8,960) 304 (11,257) 49,761 38,503 Cash flows from investing activities Net decrease (increase) in time deposits Purchase of property, plant and equipment Proceeds from sales of property, plant and equipment Purchase of investment securities Proceeds from sales of investment securities Purchase of intangible assets Payments of leasehold and guarantee deposits Proceeds from collection of leasehold and guarantee deposits Proceeds from collection of leasehold and guarantee deposits Purchase of investment property Proceeds from sales of investment property Short-term loan advances Collection of short-term loans receivable Purchase of shares of subsidiaries resulting in change in scope of consolidation Payments for sales of shares of subsidiaries resulting in change in scope of consolidation Proceeds of shares of subsidiaries resulting in change in scope of consolidation Proceeds of shares of business transfer Payments for asset retirement obligations Other Net cash provided by (used in) investing activities Cash flows from financing activities Net increase (decrease) in short-term borrowings Proceeds from long-term borrowings Repayments of long-term borrowings Repayments of lease obligations Purchase of treasury shares Proceeds from sales of treasury shares Dividends paid Net cash provided by (used in) financing activities Effect of exchange rate change on cash and cash equivalents Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period – 12 – (5) Notes to the Consolidated Financial Statements Going Concern Assumption Not applicable Major Notes to Consolidated Financial Statements 1. Scope of consolidation i. Number of consolidated group companies: 28 Major subsidiaries: TSI Inc. HUF Holdings, LLC Ueno Shokai Co., Ltd. Consolidated subsidiaries other than the above: 25 Change in the scope of consolidation In the current consolidated fiscal year, SANEI bd CO., LTD., a consolidated subsidiary of the Company, completed an absorption-type merger of SANEI-INTERNATIONAL Co., Ltd., TSI GROOVE AND SPORTS CO., LTD., nano universe CO., LTD., anglobal Ltd., Rose Bud Co., Ltd., Isolar Co., Ltd., TSI EC STRATEGY CO., LTD., and TSI PRODUCTION NETWORK CO., LTD., all of which were consolidated subsidiaries of the Company (and changed its trade name to TSI Inc.). Hence, these eight companies were excluded from the scope of consolidation. The Company excluded SPIC INTERNATIONAL Co., Ltd. from the scope of consolidation due to the transfer of all shares held by the Company. of all shares of d’un a dix co. ltd. held by anglobal. anglobal, a consolidated subsidiary of the Company, was excluded from the scope of consolidation due to the transfer TSI SOCIAL WORKS, which was newly established by TSI PRODUCTION NETWORK CO., LTD., a consolidated subsidiary of the Company, through an incorporation-type company split, is included in the scope of consolidation. Laline Hawaii Corporation was excluded from the scope of consolidation because of the completion of liquidation. ii. Major non-consolidated subsidiaries Major non-consolidated subsidiaries: Tokyo Fashion (Kaito) Co., Ltd. Reason for exclusion from the scope of consolidation Non-consolidated subsidiaries are excluded from the scope of consolidation because they are small companies and their combined total assets, net sales, net income or loss (amount corresponding to the Company’s equity interest), retained earnings (amount corresponding to the Company’s equity interest), etc., do not have a material impact on the consolidated financial statements. 2. Equity method i. Number of subsidiaries and affiliates accounted for by the equity method: 1 Main company name: RICHARD HENDRIX LLC （Change in the scope of the application of the equity method） In the current consolidated fiscal year, MADE TO DESTROY LLC. was excluded from the scope of application of the equity method due to the transfer of all shares of the company held by Jack Clothing Co., Ltd., the Company’s consolidated subsidiary. ii. Non-consolidated subsidiaries not accounted for by the equity method Company name: – 13 – Reason for exclusion from the scope of equity method Non-equity method companies excluded from the scope of application of the equity method because their impact on the Company’s net income/loss (amount corresponding to the Company’s equity interest) and retained earnings (amount corresponding to the Company’s equity interest) is not material and their overall importance is not Tokyo Fashion (Kaito) Co., Ltd. significant. 3. Accounting period of consolidated subsidiaries Among the Company’s consolidated subsidiaries, Tokyo Style Hong Kong Co., Ltd., Shanghai Dongnoue Tokiso Trading Co., Ltd., TSI ASIA LIMITED, TSI US Holdings Co., Ltd., AVIREX SHANGHAI TRADING CO., LTD., and Efuego Corp. close their accounts on December 31. The financial statements of each company as of December 31 are used in the preparation of consolidated financial statements. Significant transactions that occurred between December 31 and the consolidated closing date are adjusted as necessary for consolidation purposes. Among consolidated subsidiaries, HUF Holdings, LLC and HUF Worldwide, LLC, with the annual business term set at 52 weeks, closed their accounts on the Saturday closest to December 31. The financial statements of each company as of January 2, 2022 are used in the preparation of consolidated financial statements. Significant transactions that occurred between January 2, 2022 and the consolidated closing date are adjusted as necessary for consolidation purposes. Among consolidated subsidiaries, SANEI INTERNATIONAL USA LLC closes its accounts on June 30. The quarterly financial statement of the company as of December 31 are used in the preparation of consolidated financial statements. Significant transactions that occurred between December 31 and the consolidated closing date are adjusted as necessary for consolidation purposes. (1) Valuation criteria and methods for significant assets 4. Accounting policies i. Securities Other securities Marketable securities: Marketable securities are carried at fair value based on quoted market prices as of the end of the fiscal year. Any changes in unrealized gain or loss are directly included in net assets and the costs of securities sold are generally calculated by the moving average method. Non-marketable securities: Non-marketable securities are carried at cost determined by the moving average method. ii. Derivative financial instruments Derivative financial instruments are stated at fair value. iii. Inventories a. Merchandise and finished goods, work in process and raw materials They are primarily stated at cost method determined by the weighted average method (values on the balance sheet are subject to the book value reduction method based on decreased profitability.) They are primarily stated at the last purchase cost method (values on the balance sheet are subject to the book value reduction method based on decreased profitability.) b. Supplies (2) Depreciation method for significant depreciable assets i. Property, plant and equipment (excluding leased assets) and investment property – 14 – The declining-balance method is mainly used. However, the straight-line method is used for buildings (excluding attached facilities) acquired on or after April 1, 1998, and for building fixtures and structures acquired on or after April 1, 2016. The main useful lives are as follows. Buildings and structures 3 to 50 years Others 2 to 20 years ii. Intangible assets (excluding leased assets) The straight-line method is adopted. The main useful lives are as follows. Software Trademark rights 5 to 10 years 10 years iii. Leased assets deemed to be transferred to the lessee (3) Basis for accounting for significant provisions i. Allowance for doubtful accounts Leased assets related to finance lease transactions other than those where the ownership of the lease assets is Amortized by the straight-line method, assuming the lease period as the useful life and no residual value. To prepare for losses due to the credit loss of monetary claims, the domestic consolidated subsidiaries consider the actual loan loss rate for general claims and the collectability of specific claims such as doubtful debts individually and record the estimated uncollectible amount. Overseas consolidated subsidiaries have provided an allowance for doubtful accounts at the estimated uncollectible amount mainly for specific receivables. ii. Provision for bonuses To provide for the payment of bonuses to employees, the Company and its certain subsidiaries record the estimated amount of bonus payments corresponding to the consolidated fiscal year under review. iii. Provision for point card certificates Based on a system that confers points to customers in line with their purchase history, certain consolidated subsidiaries posted amounts that can be expected to be used in the future in line with past trends as of the end of the fiscal year under review to provide for expenses arising from the use of points. Based on its shareholder benefit program, the Company posted an amount that it expects to be used in the future in line with past trends as of the end of the fiscal year under review to provide for expenses arising from the use iv. Provision for shareholder benefits of shareholder benefit coupons. v. Provision for sales returns Certain consolidated subsidiaries posted amounts for estimated losses attributable to sales returns in line with such factors as historical rates of return to provide for losses from sales returns projected as of the end of the fiscal year under review. vi. Provision for retirement benefits for directors Certain consolidated subsidiaries posted amounts stipulated under internal regulation as of the end of the fiscal year under review to provide for the payment of retirement benefits to directors. vii. Provision for relocation costs penalties in connection with office relocations. Some consolidated subsidiaries posted estimates to be incurred to provide for the payment of cancellation – 15 – (4) Accounting method for retirement benefits i. Method of attributing the estimated amount of retirement benefits to the period In calculating the retirement benefit obligations, the estimated amount of retirement benefits attributed to the end of the fiscal year under review is based on the benefit calculation formula. ii. Amortization of actuarial differences and past service costs Past service costs are amortized on a straight-line method over a fixed number of years (5 years) within the average remaining service period of employees at the time they are incurred. Actuarial differences are amortized on a straight-line method over a fixed number of years (5 years) within the average remaining service period of employees at the time they are incurred. The Company amortizes them in the following year of occurrence. iii. Adoption of the simplified method for small-scale companies Certain consolidated subsidiaries have adopted the simplified method of calculating retirement benefit liabilities as well as retirement benefit expenses by using the amount required to be paid at the end of the fiscal year for voluntary retirement benefits as the retirement benefit obligation. (5) Basis for translating significant foreign currency-denominated assets and liabilities into Japanese currency Monetary receivables and payables denominated in foreign currencies are translated into Japanese yen at the spot rates of exchange on the consolidated closing date and the translation differences are treated as profit or loss. Assets and liabilities as well as revenues and expenses of foreign consolidated subsidiaries are translated into Japanese yen at the spot rate of exchange on the consolidated closing date, with translation differences included in foreign currency translation adjustments and non-controlling interests in net assets. (6) Significant hedge accounting methods i. Hedge accounting method Deferred hedge accounting is adopted. However, the allocation method is applied to currency swaps that meet the requirements for the allocation method and the exceptional method is applied to interest rate swaps where the requirements for the exceptional method are met. ii. Hedging instruments and hedged items a. Hedging instruments Foreign exchange forward contracts Hedged items Foreign currency denominated trade payables and forecasted foreign currency transactions b. Hedging instruments Interest rate swaps Hedged items Interest on borrowings c. Hedging instruments Currency swap Hedged items Foreign currency denominated borrowings The Company hedges the foreign exchange fluctuation risk and interest rate fluctuations in accordance with the “Derivatives Management Regulations,” which are internal regulations. iii. Hedging policy iv. Assessment of hedge effectiveness When entering into foreign exchange forward contracts, the Company allocates forward exchange contracts of the same amount and date denominated in the same currency in accordance with a risk management policy. – 16 – Because the correlation with subsequent fluctuations in foreign exchange markets is completely maintained, any evaluation of effectiveness at the time of account settlement is not conducted. In addition, any evaluation of effectiveness at the time of account settlement is not conducted for currency swaps using the allocation method and interest rate swaps that meet the requirements for special treatment. (7) Method and period of amortization of goodwill Goodwill is amortized in equal amounts over a reasonable period of up to 20 years, based on individual estimates of the period over which the investment effect will be realized. (8) Scope of cash and cash equivalents in the consolidated statements of cash flows Cash and cash equivalents consist of cash on hand, deposits that can be withdrawn from time to time, and short-term investments that are easily converted to cash and that mature within three months of the date of acquisition and are subject to insignificant risk of change in value. (9) Other important matters for the preparation of consolidated financial statements i. Accounting method for consumption tax, etc. Consumption tax, etc. are accounted for by the tax exclusion method. ii. Application of the consolidated taxation system The Company and certain domestic subsidiaries apply consolidated tax payment system. iii. Application of tax effect accounting for the transition from the consolidated taxation system to the group tax sharing system For the transition to the group tax sharing system established under the “Act for Partial Amendment of the Income Tax Act, etc. (Law No. 8, 2020) and for items that were reviewed in the non-consolidated taxation system in conjunction with the transition to the group tax sharing system, subject to the treatment of paragraph 3 of the “Application of tax effect accounting for the transition from the consolidated taxation system to group tax sharing system” (Practical Issues Task Force No. 39, March 31, 2020), the Company and certain domestic consolidated subsidiaries do not apply the provisions of paragraph 44 of the “Guidance on Accounting Standards for Tax Effect Accounting” (ASBJ Guidance No. 28, February 16, 2018) and calculate the amount of deferred tax assets and deferred tax liabilities in accordance with the provisions of pre-revision tax laws. Change in reporting method Application of “Accounting Standard for Disclosure of Accounting Estimates” The “Accounting Standard for Disclosure of Accounting Estimates” (ASBJ Statement No. 31, March 31, 2020) is applied to the consolidated financial statements of the current financial year and notes on significant accounting estimates are included in the consolidated financial statements. However, in accordance with the transitional treatment stipulated in the proviso of Paragraph 11 of the accounting standard, the contents related to the previous consolidated fiscal year are not described in these notes. Change of accounting estimate Provision for bonuses increased by 587 million yen. Valuation Criteria for Inventories In the end of this fiscal year, there is no prospect of convergence in preventing the spread of new coronavirus infections. We have changed the estimate for the allowance for bonuses recorded in the previous consolidated fiscal year. As a result of this change, operating income, ordinary income, and income before income taxes have increased. It has The Company has adopted a valuation criteria for inventories based on a certain devaluation rate determined in accordance with the period since production or purchase. The Company’s balance sheet amount is based on the – 17 – devalued book value. While we were affected by the expansion of covid-19, we’ve changed the sales policy and holded down purchase and sales cost and along with that, we tried to improve the portion of the proper sales. Consequently, the existing write-down rate deviates from that which would have been applied if the latest sales results had been reflected. We therefore decided to reflect the latest sales results in the write-down rate that evaluates the book value effective from this fiscal year. The change in the estimation method was made to reflect decline in inventory-related profitability more appropriately in the Company’s financial position and operating results. As a result of this change, the cost of sales decreased by ¥1,876 million in this fiscal year. Consequently, operating income, ordinary income, and income before income taxes increased by the same amount, respectively. Additional Information Trust-Type Employee Stock Ownership Plan (ESOP) TSI Holdings resolved at a Board of Directors’ meeting held on April 13, 2020 to reintroduce a trust-type employee stock ownership plan (ESOP) as an incentive plan and part of its efforts to provide benefits for its employees. i. Overview of the Plan The Company has established a trust (the Shareholding Association Trust). The beneficiaries of the Shareholding Association Trust are members of the TSI Employee Shareholding Association (the Shareholding Association) who have met certain requirements. The Shareholding Association Trust acquired in advance a number of TSI Holdings shares projected to be acquired by the Shareholding Association over a five-year period from April 2020 utilizing funds procured through debt finance. Thereafter, acquisition of the Company’s shares by the Shareholding Association will be undertaken by the Shareholding Association Trust. Meanwhile, TSI Holdings will guarantee the debt finance undertaken by the Shareholding Association Trust. ii. Shares of the Company Remaining in the Trust The shares of the Company remaining in the Trust are posted as shares of treasury stock in the net assets section at their carrying amount in the Trust. The carrying amount and number of shares of treasury stock were ¥325 million for 696,000 shares as of the end of the previous fiscal year and ¥255 million for 545,000 shares as of the end of this fiscal year. Board Benefit Trust (BBT) iii. Carrying Value of Debt Finance Posted Using the Gross Price Method ¥359 million as of the previous fiscal year and ¥311 million as of the end of this fiscal year. In accordance with a proposal put forward at the Company’s 5th General Meeting of Shareholders held on May 25, 2016, TSI Holdings introduced a performance-linked stock compensation (Board Benefit Trust (BBT)) plan for its directors and delegated executive officers as well as Group company directors (eligible officers). i. Outline of the Transaction Under the plan, the Company’s shares are acquired through a trust using money contributed by the Company as funds. Eligible officers receive the Company’s shares equivalent to the points granted in accordance with the level of performance achievement, etc., and money equivalent to the amount of the Company’s shares converted at market value as of the date of retirement (the Company’s shares, etc.), pursuant to the officer stock delivery regulations. Meanwhile, the timing of receipt of the benefits of the Company’s shares, etc. by eligible officers shall, in principle, be upon their retirement from office. ii. Shares of the Company Remaining in the Trust The shares of the Company remaining in the Trust are posted as shares of treasury stock in the net assets section at their carrying amount in the Trust. The carrying amount and number of shares of treasury stock were ¥288 million for 512,000 shares as of the end of the previous fiscal year and ¥279 million for 496,000 shares as of the – 18 – it. end of the fiscal year under review. Group reorganization (absorption-type merger organized by the Company and 14 consolidated subsidiaries) At a meeting of its board of directors held on December 16, 2020, we resolved to undertake a reorganization with the aim of integrating each of its apparel operating companies into a single company over the following three stages, with a scheduled completion date of March 1, 2023. As a side note, at a meeting of its board of directors held on January 14, 2022, as we resolved to change the companies to be merged on March 1,2022, we will disclose a schedule of the reorganization as soon as we resolve 1. Stage 1: Absorption-type merger between consolidated subsidiaries on March 1, 2021 The Transaction under common control (1) Overview of the Transaction i. Names and Businesses of the Combining Companies Name of the Combining Company: SANEI bd CO., LTD. Business: Apparel business Names of the Combined Companies: SANEI-INTERNATIONAL CO., LTD. TSI GROOVE AND SPORTS CO., LTD. nano universe CO., LTD. anglobal Ltd. Rose Bud Co., Ltd. Isolar Co., Ltd. TSI EC STRATEGY CO., LTD. TSI PRODUCTION NETWORK CO., LTD. Business: Apparel business ii. Date of Business Combination March 1, 2021 and March 12,2021 iii. Legal Form of Business Combination Absorption-type merger with SANEI bd CO., LTD., as the surviving company, and SANEIINTERNATIONAL CO., LTD., TSI GROOVE AND SPORTS CO., LTD., nano universe CO., LTD., anglobal Ltd., Rose Bud Co., Ltd., Isolar Co., Ltd., TSI PRODUCTION NETWORK CO., LTD., and TSI EC STRATEGY CO., LTD., as the companies to be merged. iv. Name of the Company after Business Combination SANEI bd CO., LTD. (new corporate name: TSI Co., Ltd.) v. Other Matters Related to the Transaction Nine consolidated subsidiaries underpinned by the same internal information systems, human resources,and other systems were the subject of the absorption-type merger. (2) Overview of the Accounting Treatment Applied Pursuant to the “Accounting Standard for Business Combinations” (Accounting Standards Board of Japan (ASBJ) Statement No. 21 issued on January 16, 2019 and the “Guidance on Accounting Standard for Business Combination and Accounting Standard for Business Divestitures” (ASBJ Guidance No. 10 issued on January 16, 2019), the absorption-type merger was treated as an under common control transaction. 2. Stage 2: Absorption-type merger between consolidated subsidiaries on March 1, 2022 At a meeting of its board of directors held on January 14, 2022, TSI Holdings’ Board of Directors resolved to undertake an absorption-type merger with TSI Inc., as the surviving company, and consolidated subsidiaries – 19 – Ueno Shokai Co., Ltd., as the companies to be merged on the scheduled date of March 1, 2022(scheduled). Regarding Jack Clothing Co., Ltd., Arpege Co., Ltd., Star Joinus Co., Ltd., and And Wonder Co., Ltd, though they were described to be merged, we will disclose a schedule as soon as we resolve it because of the delay of the standardization of infrastructure. Segments of the Company and Related Information Segment information 1. Overview of reportable segments (1) Method of determining segments The reportable segments of the TSI Holdings Group are components for which separate financial information is available and whose operating results are regularly reviewed by the Board of Directors to make decision about resource allocation and to assess their performance. As a holding company, TSI Holdings is responsible for the management of each operating company focusing mainly on the apparel business as well as the strategic functions of the Group as a whole. Each operating company in turn formulates comprehensive strategies for the apparel brands handled while engaging in business activities. On this basis, the TSI Holdings Group is comprised of Apparel-Related businesses, a reportable segment, and Other Businesses. (2) Products and services belonging to each reportable segment In its Apparel-Related Businesses, the Group mainly engages in the planning, manufacture, and sale of apparel as well as brand licensing, production, and logistics operations. In its Other Businesses, the Group engages in such activities as the provision of sales agency, temporary staffing, synthetic resin-related, store design and management, restaurant services. consolidated financial statements.” 2. Calculation method of net sales, income or losses, assets and other items by reportable segments The accounting method for the reportable segments is generally the same as the items stated in the “Major notes to The segment income or loss is based on operating income or loss. The intersegment sales and amount of transfer are based on the prevailing market price. – 20 – (Million yen) Consolidated financial statements amount (Note 3) Adjustments Note 1,2,4,5 77 3. Net sales, income or losses, assets and other items by reportable segments FY2021 (March 1, 2020 to February 28, 2021) Other Total Reportable segment Apparel-related businesses Net sales Sales to third parties 129,862 4,138 134,001 134,078 Inter-segment sales or transfers 257 4,429 4,686 (4,686) ― Total 130,120 8,567 138,687 (4,609) 134,078 Segment income (loss) (11,800) (192) (11,993) 150 (11,843) 76,700 7,067 83,767 71,183 154,951 2,715 2,699 186 452 2,902 3,151 1,178 523 4,080 3,675 1. The segment income adjustment of ¥150 million is transaction offsets among consolidated companies. 2. The segment assets adjustment of ¥78,183 million includes the Company-wide assets that are not belong to respective reportable segments of ¥76,471 million and elimination of internal transactions between consolidated 3. Segment income(loss) is adjusted to operating income listed in the consolidated financial statements. 4. The adjustment of depreciation and amortization of ¥1,178 million is mainly due to the amortization cost of the 5. Adjustment of ¥523 million in increase in property, plant and equipment and intangible assets is mostly related to Segment assets Other items Depreciation and amortization expense Increase in property, plant and equipment and intangible assets Notes: companies of ¥(5,287) million. Company-wide assets. the Company-wide assets. – 21 – FY2022 (March 1, 2021 to February 28, 2022) Net sales Sales to third parties 135,702 4,590 140,293 140,382 Inter-segment sales or transfers 109 666 775 (775) ― Total 135,812 5,256 141,069 (687) 140,382 Reportable segment Apparel-related businesses Other Total Adjustments Note 1, 2, 4, 5 (Millions of yen) Consolidated financial statements amount (Note 3) 88 1,880 1,424 203 216 4,627 46 4,674 (234) 4,440 73,818 7,082 80,901 59,539 140,440 2,084 1,641 1,565 1,134 3,650 2,776 1. The segment loss adjustment of ¥(234) million is transaction offsets among consolidated companies. 2. The segment assets adjustment of ¥59,539 million includes the Company-wide assets that are not belong to respective reportable segments of ¥64,737 million and elimination of internal transactions between consolidated 3. Segment loss is adjusted to operating loss listed in the consolidated financial statements. 4. The adjustment of depreciation and amortization of ¥1,565 million is mainly due to the amortization cost of the 5. Adjustment of ¥1,134 million in increase in property, plant and equipment and intangible assets is mostly related Segment profit Segment assets