3. REFERENCE DATE OF THE CONSOLIDATED FINANCIAL STATEMENTS

The consolidated financial statements were prepared on October 31, 2000, the reference date for the financial year of the parent company ESCADA AG. The reference date for the consolidated statements is identical to the balance sheet reference dates of the companies included in the consolidated statements. Exceptions to this schedule are ESCADA Beauté Groupe S.A., Paris, France, ESCADA Beauté Ltd., New York, USA, ADIPAR Ltd., New York, USA, ESCADA Beauté Ltd., London, U.K., ESCADA Beauté Vertriebs GmbH, Aschheim, and EDIPAR S.A.R.L, Paris, France, for which interim closing statements were prepared for the balance sheet date.

4. ACCOUNTING AND VALUATION METHODS

The INTANGIBLE ASSETS purchased for money are shown at acquisition cost and are depreciated on a linear schedule based on the anticipated useful life of 3 to 5 years. Goodwill assets from the capital consolidation are depreciated over a useful life of 5 to 15 years. Intangible assets of little value are depreciated immediately.

Items of PROPERTY, PLANT, AND EQUIPMENT are valued at the cost of acquisition or production.

Property, plant, and equipment is depreciated in some cases on a linear schedule, in some cases on a declining basis, using the tax simplification tables, in accordance with the AfA tables applicable to taxes. Business assets of little value are fully depreciated in the year of acquisition.

The FINANCIAL ASSETS are always valued at acquisition cost. When necessary, they have been depreciated to the lower assumed value. If the reasons for retaining the lower valuation no longer exist, they are revalued upward to the assumed higher value.

RAW MATERIALS AND SUPPLIES and MERCHANDISE are valued at the acquisition cost. Items with reduced market viability are written down to the assumed lower value.

WORK IN PROCESS and FINISHED GOODS are valued at the cost of production. The production costs include both the individual costs and a share of the overhead costs for production, materials and administration. If the production costs of finished products are not covered by the anticipated sales proceeds to be received, special deductions are taken to allow loss-free valuation.

ACCOUNTS RECEIVABLE AND OTHER ASSETS are always reported at nominal value. Individual and lump sum valuation corrections are taken on trade payables for recognizable individual risks and for the general interest and credit risk. When determining the amount of valuation adjustment, consideration was given to the fact that the receivables are partially secured by merchandise credit insurance.

The shares of TREASURY STOCK are valued at their average cost of acquisition.

The item for DEFERRED CHARGES AND PREPAID EXPENSES pertains to a disagio and to deferred claims from various contractual relationships. The item will be released on a linear basis over time.

TAX PROVISIONS and the OTHER PROVISIONS cover all recognizable risks and uncertain liabilities on the basis of a cautious business assessment.

LIABILITIES are reported at their repayment value.

In other respects the PRINCIPLES OF VALUATION remain unchanged from the previous year.


5. UNIFORM VALUATION IN ACCORDANCE WITH § 308 HGB

The annual financial statements for subsidiary companies were prepared and incorporated into the consolidated statements in accordance with uniform accounting and valuation principles, making allowance for the items that are subject to the consolidation or to elimination of intermediate profits or losses, according to the laws governing the parent company. Adjustments were dispensed with if they were of minor importance for the consolidated statements.


6. PRINCIPLES OF CURRENCY CONVERSION

Receivable and payable items in foreign currencies are converted by ESCADA AG using monthly average rates.

Losses from changes in exchange rates are accounted for by revaluation at the price in effect on the balance sheet date. Where loans and claims against affiliated companies were hedged in foreign currencies, they have been reported at the hedging rate.


From the balance sheets of foreign subsidiaries the capital was converted at historic prices, other entries in the balance sheet at the rate for the reference date (official average rate) for October 31, 2000.

The average rates for the financial year were used to convert the items in the income statement. The annual results are converted at the rates for the reference date.

To the extent that they result from the conversion of the individual balance sheets, the conversion differences resulting from the use of different rates are reported in the balance sheet under the item for shareholders' equity. The conversion differences resulting from conversion of the income statements are posted under the operating income or expenses.

For first-time consolidation, the moment of acquisition was selected as the time of initial consolidation.

Capital consolidation in accordance with § 301 HGB For the fully consolidated Group companies, the capital consolidation was carried out according to the book value method (§ 301 (1) No. 1 HGB). For first-time consolidation the moment of acquisition is always selected as the time of initial consolidation.

The goodwill values are written off over 15 years in accordance with § 309 Par. 1 P. 2 HGB. The goodwill from the shares of Primera Tunisie S.A.R.L. newly acquired in the previous year is being written off over 5 years.

The differences in amounts of liability resulting from the capital consolidation are TDM 3,291 in the reporting year (previous year TDM 3,251). The increase of TDM 40 is the result of the first-time consolidation of Kemper Vertriebs GesmbH.

During this year an asset item in the amount of TDM 1,811 from changes in the consolidated group reduced the other earnings reserves in accordance with § 309 (1) P. 3 HGB. This is the result of the purchase of additional shares in ESCADA Japan Co. Ltd. (TDM 1,057) and in La Mode Handelsgesellschaft mbH (TDM 650), as well as the first-time inclusion of ESCADA Textilvertrieb GmbH (TDM 104).

Shares in the capital, open reserves and profit assigned to partners outside the group were listed on the liability side as an “adjusting item for the shares of the other partners in the amount of their share in the shareholders' equity.” This liability share of TDM 3,088 was the result of balancing liability-side “adjusting items” of TDM 5,931 with asset-side “adjusting items” of TDM 2,843.