MOS is the Only One. MOS FOOD SERVICES, INC. Annual Report 2For the year ended March 31, 2001 So, what makes MOS different from other fast-food companies? It’s taste. We focus on delivering delicious foods with selected ingredients as well as providing the best hospitality for customers in every detail of our operations. 1 Since its establishment in 1972, MOS Food Services, Inc. has engendered strong customer loyalty by providing high-quality, fast-food dining. This formula for success has enabled MOS (an acronym for Moun- tain, Ocean and Sun) to build a domestic restaurant network of 1,566 MOS Burger restaurants. MOS also operates, through subsidiaries, the Chirimentei chuka soba (Chinese noodles) chain and the Nakau chain of donburi (rice topped with meat and vegetables) and udon (Japanese noodles) restaurants. MOS continually strives to address customer desires for hospitality, great taste and cleanliness at its restaurants. Further, MOS has enhanced its menu to respond to heightened concern for health in Japan. The MOS philosophy has struck a chord with customers overseas as well as in Japan, as evidenced by the MOS network in Taiwan and Singapore.

REINFORCING

MOS FOOD SERVICES, INC. 12 FinancialA QUICK LOOK AT MOS Thousands of Highlights U.S. dollars (Except per Thousands of yen (Except per share figures) share figures) Years ended March 31 2001 2000 1999 1998 1997 2001 Net sales ¥70,819,788 ¥71,554,497 ¥71,071,736 ¥71,325,355 ¥66,815,630 $571,588 Net income 1,017,822 1,987,538 1,832,261 2,857,774 2,771,228 8,215 Net income per share 32.25 61.00 54.14 82.83 87.88 0.26 Cash dividends per share, applicable to the year 10.00 28.00 28.00 28.00 25.45 0.08 Total assets 64,847,687 63,524,677 63,204,916 64,182,396 60,772,655 523,387 Shareholders’ equity 43,515,273 43,992,717 44,520,150 45,101,793 43,924,697 351,213 Notes: All dollar figures in this report refer to U.S. currency and are translated for convenience only at the rate of ¥123.90 to U.S.$1.00, the approximate rate of exchange on March 31, 2001. Per share data has been retroactively adjusted for subsequent stock splits.

Sales Growth 71,325 71,071 71,554 70,819 (Millions of yen) 66,815 62,815 64,154 59,000 53,868 48,731

Growth of MOS Burger Restaurants (Non-Consolidated) 1,525 1,561 1,566 (Shops) 1,481 1,426 1,469 1,458 1,387 1,450 1,330 1,358 1,413 1,277 1,318 1,264 1,193 1,213 1,103 1,136 1,049

108 54 57 64 66 69 68 68 75 92

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Upper: Domestic MOS Burger: Franchised Lower: Domestic MOS Burger: Company-owned

CONTENTS

Interview with the President 2 Review of Operations 6 Financial Review 9 Five-Year Summary 10 Consolidated Statements of Income 11 Consolidated Balance Sheets 12 Consolidated Statements of Shareholders’ Equity 14 Consolidated Statements of Cash Flows 15 Notes to Consolidated Financial Statements 16 Report of Independent Public Accountants 27 Corporate Data 28 Directors and Corporate Auditors 29

MOS FOOD SERVICES, INC. 1 Interview with the President

Q: What is your analysis of consolidated results for same-store sales of 8.5% fiscal 2001, ended March 31, 2001? and the promotion of store relocation with 59 open- ings and 54 closings, a net increase of only five stores. A: For the fiscal year under review, MOS Food Ser- Operating income fell 39.6% to ¥2,241 million vices, Inc. posted consolidated net sales of ¥70,819 (US$18 million), and net income decreased 41.5% to million (US$571 million), operating income of ¥784 million (US$6 million), owing to an increase in ¥2,527 million (US$20 million), and net income of expenses resulting from the temporary shift from ¥1,018 million (US$8 million). franchise ownership to company-owned stores, the In the MOS Burger business, we strengthened adverse effects of a food poisoning incident at a food marketing by extending store hours, reducing sources ingredient supplier and an increase in the allow- of complaints, participating in local events and ance for doubtful accounts in accordance with new directly distributing pamphlets to homes. Measures accounting standards. to boost sales included store-by-store, area-by-area In the restaurant business segment, the Japanese- and countrywide campaigns. Despite these efforts to style fast food restaurant subsidiary NAKAU Co., revitalize sales, net sales for the MOS Burger busi- Ltd. reported increased revenues due to new store ness decreased 4.0% to ¥57,491 million (US$464 openings. However, operating income declined due million) compared with the previous fiscal year. The to costs connected with experiments for new store primary reasons for this decline were a decrease in types. Despite this setback, we will make this invest- Recreating MOS ment a base from which to establish brand power and stimulate growth. Nakau was listed on the over-the- counter market in December 1999. TOMOS, Inc., which operates the Chirimentei Chinese-style soba restaurants, repositioned itself to secure operating income as a result of efforts to dras- tically reform management and reduce operating costs. The other business segment comprises two com- panies that support the three aforementioned com- panies in financing, insurance and sanitation-related areas. Net sales in this segment increased due to firm demand for hygiene and sanitation inspection ser- vices. We believe these results fall short of the expecta- tions of our shareholders. MOS will make Companywide efforts to quickly resolve issues that arose in a harsh operating environment created by

MOS FOFOODOD SERVICES, INC. 2 Now, more than ever, I must earnestly face these issues with a commitment to rebuilding MOS from square one. from scratch increasingly severe competition in the restaurant customers with convenience and economy through industry. fast service and inexpensive products, and the busi- nesses that provide delicious and wholesome foods— Q: How do you view current conditions in the harsh the essence of any cuisine. MOS is, of course, operating environment? following the latter. Moreover, in recreating itself MOS will always place customer satisfaction first. A: With its overwhelming customer admiration, MOS continues to improve operations from the MOS Burger used to have a certain uniqueness and customer’s point of view. excellence to its delicious food, relaxing store envi- ronment and friendly service. While these special Q: What are some concrete product and sales strat- qualities were once the strength of MOS Burger res- egies behind the recreation of MOS that places cus- taurants, they all have since declined. Now, more than tomer satisfaction first? ever, I must earnestly face these issues with a com- mitment to rebuilding MOS from square one. A: During the current fiscal year, a major theme in The restaurant industry is expected to become our product strategy is “Inspiring appetites for deli- increasingly competitive, with only two types of busi- cious, healthy food.” Opposing the current trend nesses left standing after a thinning out of weaker toward nutritionally unbalanced and unhealthy diets, companies. These will be the businesses that provide MOS is striving to strengthen its basic policy of

MOS FOOD SERVICES, INC. 3 using healthy and safe foods by maintaining its exacting standards in mineral-rich vegetables and natural beef supplied by carefully selected producers. We are also continually creating foods that custom- ers will remember for their taste and that are especially appealing to the Japanese palate, while combining ingredients in original ways to create entirely new fla- vors. Our commitment to quality extends to our clean, environmentally friendly stores, which make customers feel welcome and at home. Through the combination of efforts ranging from the selection of ingredients to store design, we are striving to create a pleasing dining atmosphere the customer can fully appreciate based on the theme of “Inspiring appe- tites for delicious, healthy food.” Expect the best from Moving toward

MOS as we seek to develop revolutionary products to celebrate our 30th anniversary. Our sales strategy is for customers to recall the MOS brand name and once again closely associate it with thoughts of deliciousness and healthiness. We Expect the best from will carry out various campaigns based on the under- lying theme of customer appreciation and the cel- MOS as we seek to ebration of our 30th anniversary to strengthen MOS’s develop revolutionary brand recognition. Q: Could you comment on the progress made in the products to celebrate MOS Standard store concept for the 21st century, our 30th anniversary. continued from the previous fiscal year, and on strat- egies for opening new stores?

A: During the fiscal year under review, we revamped store design, developed a new menu and improved operations and the service level to create a relaxing dining environment, especially at our Jiyugaoka and Keio-Mita stores. Based on experience gained in operating these stores, we have established a standard store design that will be aggressively applied to the

MOS FOOD SERVICES, INC. 4 design of new stores and in the remodeling of exist- control of sales activities and unify headquarters man- ing ones. As a first step in these efforts, we will agement of stores. We also established the New Busi- allocate ¥500 million (US$4 million) to the estab- ness Division to explore the possibility of new lishment of a financial support system for store franchise businesses, and aim to create a new pillar of repairs and remodeling. profit second to MOS Burger to further develop and At the same time, we aim to refresh our restau- invigorate our store chain system. rant image through an effective combination of mea- sures, including franchise store restructuring, scrap Q: In closing, could you comment on the fiscal year and building stores and store leasing on a case-by- under review? case basis. A: We continue to move forward with MOS’s recre- Q: How is headquarters reforming itself to provide ation with a firm resolve to rejuvenate existing stores support for these changes? as our foremost priority. In changing our thinking, we can change our behavior. We will do our utmost A: To improve management efficiency, we are un- to make our 30th year of operations a year of change steady change dertaking cost reduction measures at headquarters. so profound that MOS will emerge completely dif- MOS is working to cut costs Companywide by low- ferent in a year from now. We thank our shareholders ering material prices, reducing selling, general and for their support. administrative expenses, disposing of idle properties, downsizing and consolidating unprofitable busi- nesses, and reorganizing personnel. Moreover, we must strengthen company-owned stores and quickly develop new business formats to provide franchisees Atsushi Sakurada with innovative know-how to adapt to the times. President With this in mind, on May 1, 2001, we implemented a reorganization and reassignment of personnel. The FC Business Division was set up to preside over fran- chisee sales management to ensure close central

MOS FOODFOOD SERVICES, INC. 5 Recreating MOS Burger Marketing, Products, Stores What makes

1. Marketing: Recalling the MOS Brand Name

We are forging a marketing strategy to ensure that cus- To raise customer awareness of our efforts to provide tomers will always recognize the MOS name. only the finest natural beef from Tasmania, Australia, we will offer a Tasmania Vacation Present to 30 groups Toward a More Familiar MOS of people, or 90 customers. We will also continue to A comparison of results for last year’s customer survey offer “Dream Challenge 2001,” a global study abroad with those from several years ago revealed a decrease in program in its 18th year. the rate at which the main target consumer group (women in their teens and twenties) frequented MOS Introduction of New, Fashionable and Functional Burger stores or considered buying MOS’s core prod- Uniforms ucts. The Company is changing its campaigns and sales To match the renovations in store design, MOS Burger promotions to make MOS indispensable in each area as is also implementing changes to update employee uni- well as to individual customers. forms. We are creating an atmosphere that is pleasing and relaxing for customers, and our new uniforms will Summer Campaign—First of a Series Celebrating bring out the charm and enthusiasm of our store staff. Our 30th Anniversary: “Happy 30th Anniversary Moreover, we are planning summer and winter uniform MOS! Becoming the Ideal MOS” designs in harmony with the seasons. MOS is launching a summer campaign as the first of a series celebrating its 30th anniversary based on the cen- We hope that customers will appreciate our truly deli- tral theme of customer appreciation. Implementing a cious flavors, which inspire a hearty appetite and happi- complete makeover of products with hamburger buns, ness. Taste! the Company is taking this opportunity to thank its cus- tomers by offering such mainstay products as the MOS TasteBurger and Teriyaki Burger at special campaign prices. !

Our new uniforms will bring out the charm and enthu- siasm of our store 1. staff. Familiarity

MOS vegetables are grown with reduced agricul- tural chemicals 2. and chemical fertilizers. Originality

MOS FOOD SERVICES, INC. 6 MOS different?

2. Our Products “Inspire Appetites for Delicious, Healthy Food”

Healthy, Delicious and Safe Food: MOS is just as exacting when it comes to the main Mineral-Rich Vegetables and Natural Beef ingredient in its hamburgers—beef. Cattle raised by MOS takes the problem of today’s nutritionally unbal- grazing on natural, mineral-rich pastureland in Tasma- anced diets lacking in vegetables seriously, and has made nia, an island in southern Australia, are known for pro- a point of using only the freshest, most delicious ingre- ducing tender beef. The mineral-rich natural salt further dients to provide the nutrition that bodies need. A fine enhances the flavor of the beef, which is succulent and balance of minerals found in rich soil are the building rich in flavor, bringing out its natural goodness. blocks for healthy bones and blood, and are essential to a properly functioning body. Concentrating on providing Deliciousness That Customers Cannot Forget mineral-rich vegetables, MOS’s exacting standards start Food reflects the culture of a country. As a hamburger with the soil. MOS vegetables are grown with reduced restaurant chain originating in Japan, MOS Burger has agricultural chemicals and chemical fertilizers under always tailored its menu to fine Japanese tastes as repre- conditions that surpass guidelines of the Ministry of sented by such original products as the Teriyaki Burger Agriculture, Forestry and Fisheries. In the fiscal year and the Rice Burger. Moreover, we are keenly interested under review, the Company received JF Certification in using ingredients that not only reflect the very best of from the Japan Food Service Association, which certi- the regional characteristics of Japan, but also of the four fies processes that include production, distribution and seasons. At MOS we are striving to develop new prod- consumption from a third-party perspective. ucts through a combination of handpicked, fresh and appetizing ingredients to gain overwhelming customer ! Tastesupport. !

3. Hospitality

Abundant use of wood interiors contributes to a more relaxing dining atmos- phere.

MOS FOOD SERVICES, INC. 7 New Products 3. Establishing the MOS Standard Store MOS Rice Burger Kakiage We took the following five ingredients—carrots, green beans, onions, shrimp and scallops—dipped them in a We will create a comfortable environment where batter made from select flour and fried them in light the customer always feels at home. vegetable oil to create a delightfully crispy product. We To ensure the success of the MOS Standard store for- then top off the rice burger with a delicate bonito- mat, we established a standard store design based on the flavored soy-based sauce that will surely please the results of experiments at our Jiyugaoka and Keio-Mita Japanese palate. This is the MOS Rice Burger of the stores, including the development of 21st century store 21st century: it boasts a totally original taste and is designs and menus, and improvements in operations bursting with flavor, making it a popular item appealing and service. The MOS Standard store design features a to a wide range of customers. simple, natural wooden interior to convey the feeling of a warm, handmade, down-to-earth setting. We espe- Pirimame Burger and Pirimame Cheeseburger cially concentrated on the creation of a relaxing atmo- The Pirimame Burger and Pirimame Cheeseburger fea- sphere by using an abundance of wood around the ture an original sauce that we simmer with a sumptuous counter area and the facade. We will establish a financial combination of red kidney beans, ground beef, onions support system to aggressively advance these repairs and and tomatoes. Chili peppers are added for a moderate renovations. Placing customer satisfaction first, we are spiciness perfectly suited to Japanese tastes. This zesty rapidly stepping up our efforts at relocating MOS pirimame sauce brings out the juicy deliciousness of the Burger stores to make them even more convenient and hamburger and is destined to be a new MOS main item. familiar. The generously sized Pirimame Cheeseburger uses the same quality ingredients as the hamburger with the addition of a hearty slice of blended cheese made of cheddar, gouda and emmental. We have taken the opportunity of the new product launch to replaceShop our !

MOS Chilidog and MOS Spicy Chilidog with the Creativity MOS Pirimame Dog and MOS Spicy Pirimame Dog. We have also included these new items on our set menus and are selling them at reasonable prices, making them popular.

Unique features of the MOS Stan- dard store are the user-friendly counter area and attractive facade.

MOS FOOD SERVICES, INC. 8 Financial Review

Results of Operations Cash Flows During fiscal 2001, MOS FOOD SERVICES, INC. Net cash provided by operating activities was ¥2,568 (MOS) recorded consolidated net sales of ¥70,820 million million (US$21 million). Primary sources of cash were (US$572 million), a 1.0% decrease compared with the income before income taxes and minority interests of previous fiscal year. By segment, net sales of the MOS ¥1,662 million (US$13 million), and depreciation and Burger business were down 4.0% to ¥57,491 million amortization of ¥2,144 million (US$17 million). (US$464 million), owing to lower same-store sales and a Net cash used in investing activities amounted to net increase of only five stores during the term. Net sales of ¥2,458 million (US$20 million). The main uses of cash the restaurant business advanced 14.9% to ¥12,751 million included acquisition of property and equipment of ¥2,418 (US$103 million), due primarily to contributions of new million (US$20 million) for investment in stores. In Nakau store openings. Net sales of other edged down 2.5% addition, acquisition of intangible assets amounted to to ¥578 million (US$5 million), reflecting firm demand for ¥1,056 million (US$9 million). hygienic and sanitation inspections following a food Net cash provided by financing activities was ¥1,393 poisoning incident at an ingredient supplier. million (US$11 million). Proceeds from long-term bank The Company opened 59 and closed 54 MOS Burger loans totaling ¥2,819 million (US$23 million) were gener- shops during the term, resulting in a total of 1,566 shops, ated due to subsidiaries procuring loans for funding invest- comprising 1,458 franchised shops and 108 directly oper- ments. Cash of ¥533 million (US$4 million) was used for ated shops. The number of Chirimentei, Nakau and other the purchase of treasury stock for retirement. restaurants totaled 354 shops, comprising 108 directly In aggregate, cash and cash equivalents increased operated restaurants and 246 franchised restaurants. ¥1,509 million (US$12 million). Cash and cash equivalents Cost of sales was down 2.6% to ¥43,238 million at end of year was ¥11,415 million (US$92 million). (US$349 million). Selling, general and administrative (SG&A) expenses were ¥25,054 million (US$202 million), Financial Position an increase of 8.4% compared with the previous fiscal year Total current assets decreased 3.9% to ¥24,488 million owing mainly to the launch of new campaigns, an increase (US$198 million). Although cash increased ¥2,233 million in Company-owned stores and a rise in expenses in line (US$18 million) to ¥5,972 million (US$48 million), with store openings. As a result, operating income fell marketable securities decreased ¥5,069 million (US$41 38.1% to ¥2,527 million (US$20 million). million) to ¥9,446 million (US$76 million). Income before income taxes and minority interests Total current liabilities advanced 2.4% to ¥15,494 decreased 56.7% to ¥1,662 million (US$13 million). The million (US$125 million), owing mainly to an increase in statutory tax rate was 42.0%, and the effective tax rate came short-term bank loans and current maturities of long-term to 39.3% following the application of tax-effect accounting. bank loans of ¥5,787 million (US$47 million). As a result, Net income fell 48.8% to ¥1,018 million (US$8 million). the current ratio was 1.58 times, down from 1.68 times in Net income per share totaled ¥32.25 (US$0.26) compared the previous fiscal year. with ¥61.00 in the previous fiscal year. Net working capital declined 13.2% to ¥8,994 million (US$73 million). Long-term bank loans less current maturities of long- term bank loans grew 254.5% to ¥2,191 million (US$18 million), resulting in total liabilities of ¥20,361 million (US$164 million), an increase of 10.0% from the previous fiscal year.

Net Sales Net Income and Capital Expenditures Ratio of Shareholders’ (Millions of yen) Net Income per Share (Millions of yen) Equity to Total Assets (%) 80 71,325 71,072 71,554 70,820 3,873 66,816 3,619 2,858 3,103 75 2,771 72.3 2,511 70.3 70.4 1,832 1,988 70 69.3 87.88 82.83 67.1 61.00 1,178 54.14 1,018 65 32.25

60 1997 1998 1999 2000 2001 1997 1998 1999 2000 2001 1997 1998 1999 2000 2001 1997 1998 1999 2000 2001 Net Income (Millions of yen) Net Income per Share (Yen)

MOS FOOD SERVICES, INC. 9 Total assets were up 2.1% to ¥64,848 million (US$523 Group Expansion million). Net property and equipment increased 5.3% to MOS steadily opens restaurants and scraps and builds ¥21,669 million (US$175 million), mainly due to an stores in Japan. Japanese-style Nakau restaurants increased increase in buildings and structures of ¥1,018 million 50 units for a total of 194 stores, and Chinese-style (US$8 million) to ¥7,114 million (US$57 million). Chirimentei restaurants decreased 19 units to 159 stores, Total shareholders’ equity decreased 1.1% to ¥43,515 reflecting 3 openings and 22 closings. MOS Burger stores million (US$351 million). The primary reason for this grew 5 units to 1,566 restaurants, as 59 stores were opened decline was the purchase of treasury stock of ¥533 million and 54 were closed. (US$4 million) for the stock option plan. The ratio of Overseas, the Company advanced openings in Asia. In shareholders’ equity to total assets decreased 2.2 percentage Singapore, we launched 1 MOS Burger restaurant. In points to 67.1%. Taiwan, 3 MOS Burger openings increased the total to 39 Return on average assets was 1.6%, a decrease of 1.5 outlets. By March 31, 2001, the total number of overseas percentage points, and return on average equity declined MOS Group restaurants amounted to 50. 2.1 percentage points to 2.3%.

Five-Year Summary MOS FOOD SERVICES, INC. AND CONSOLIDATED SUBSIDIARIES

Thousands of yen Years ended March 31 2001 2000 1999 1998 1997

Consolidated Operating Results: Net sales ...... ¥70,819,788 ¥71,554,497 ¥71,071,736 ¥71,325,355 ¥66,815,630 Cost of sales ...... 43,238,446 44,368,492 44,763,430 44,578,766 41,519,813 Gross profit ...... 27,581,342 27,186,005 26,308,306 26,746,589 25,295,817 Selling, general and administrative expenses 25,054,299 23,105,541 21,931,551 21,235,913 19,301,192 Income before income taxes and minority interests ...... 1,662,112 3,837,521 4,204,088 5,559,631 6,070,134 Income taxes ...... 653,451 1,768,267 2,339,866 2,692,447 3,298,775 Minority interests...... (9,161) 81,715 31,961 9,410 131 Net income ...... 1,017,822 1,987,538 1,832,261 2,857,774 2,771,228

Yen Per Share of Common Stock (Note): Net income ...... ¥32.25 ¥61.00 ¥54.14 ¥82.83 ¥87.88 Cash dividends, applicable to the year ...... 10.00 28.00 28.00 28.00 25.45

Thousands of yen Consolidated Financial Position and Returns: Current assets ...... ¥24,488,133 ¥25,487,361 ¥27,412,506 ¥31,829,109 ¥29,475,421 Total assets ...... 64,847,687 63,524,677 63,204,916 64,182,396 60,772,655 Current liabilities ...... 15,494,497 15,128,965 15,748,920 17,060,432 11,986,890 Shareholders’ equity ...... 43,515,273 43,992,717 44,520,150 45,101,793 43,924,697 Capital expenditures ...... 3,618,960 2,511,275 3,872,852 3,103,133 1,177,892 Return on operating revenues ...... 1.4% 2.8% 2.6% 4.0% 4.1% Ratio of shareholders’ equity to total assets .. 67.1% 69.3% 70.4% 70.3% 72.3%

Other Statistics: Number of outlets: MOS Burger Company-owned shops ...... 108 92 75 68 68 Franchised shops ...... 1,458 1,469 1,450 1,413 1,358 1,566 1,561 1,525 1,481 1,426 Chirimentei, Nakau and the others Company-owned shops ...... 108 59 52 49 55 Franchised shops ...... 246 264 235 192 117 354 323 287 241 172 Note: Per share data has been retroactively adjusted for subsequent stock splits.

MOS FOOD SERVICES, INC. 10 Consolidated Statements of Income MOS FOOD SERVICES, INC. AND CONSOLIDATED SUBSIDIARIES Thousands of Thousands U.S. dollars of yen (Note 1) Year ended March 31, 2001, 2000 and 1999 2001 2000 1999 2001 Net Sales (Note 11) ...... ¥70,819,788 ¥71,554,497 ¥71,071,736 $571,588

Cost of Sales (Note 12)...... 43,238,446 44,368,492 44,763,430 348,978 Gross profit ...... 27,581,342 27,186,005 26,308,306 222,610

Selling, General and Administrative Expenses (Notes 9 and 10) ...... 25,054,299 23,105,541 21,931,551 202,214 Operating income (Note 11) ...... 2,527,043 4,080,464 4,376,755 20,396

Other Income (Expenses): Interest and dividend income ...... 142,124 223,717 276,235 1,147 Interest expense ...... (48,905) (28,269) (126,129) (395) Loss on revaluation of investments in securities ...... — (262,473) (70,259) — Loss on devaluation of investments in securities ...... (42,754) ——(345) Loss on sale and disposal of property and equipment, net ...... (127,026) (36,571) (12,474) (1,025) Gain on sale from marketable securities, net...... — 242,400 56,424 — Gain (Loss) on sale on investments in securities, net ...... 136,454 220,646 (44,195) 1,101 Loss on disposal of products...... (101,855) (44,937) (321,072) (822) Provision for declining value of investments in unconsolidated subsidiaries and affiliates ...... — (150,000) (150,000) — Loss on devaluation of golf memberships ...... (255,432) (260,960) — (2,061) Prior service costs ...... — (160,000) — — Allowance for doubtful accounts ...... (691,782) ——(5,583) Loss on suspended sales of milk products ...... (196,975) ——(1,590) Sales promotion income...... 340,714 197,619 176,905 2,749 Other, net ...... (19,494) (184,115) (41,898) (157) (864,931) (242,943) (172,667) (6,981) Income before income taxes and minority interests ...... 1,662,112 3,837,521 4,204,088 13,415

Income Taxes (Note 8) Current ...... 962,503 2,142,895 2,339,866 7,768 Deferred ...... (309,052) (374,627) — (2,494) Income before minority interests...... 1,008,661 2,069,253 1,864,222 8,141 Minority Interests ...... (9,161) 81,715 31,961 (74) Net Income...... ¥ 1,017,822 ¥ 1,987,538 ¥ 1,832,261 $ 8,215

U.S. dollars Yen (Note 1) Per Share of Common Stock: Net income ...... ¥32.25 ¥61.00 ¥54.14 $0.26 Cash dividends, applicable to the year ...... 10.00 28.00 28.00 0.08 The accompanying notes are an integral part of these statements.

MOS FOOD SERVICES, INC. 11 Consolidated Balance Sheets MOS FOOD SERVICES, INC. AND CONSOLIDATED SUBSIDIARIES Thousands of Thousands U.S. dollars of yen (Note 1) March 31, 2001 and 2000 2001 2000 2001

ASSETS Current Assets: Cash and deposits (Note 2) ...... ¥ 5,971,990 ¥ 3,739,305 $ 48,200 Marketable securities (Note 3) ...... 9,446,098 14,517,469 76,239 Accounts receivable: Trade ...... 5,314,902 5,168,310 42,897 Unconsolidated subsidiaries and affiliates ...... 7,724 67,237 62 Other ...... 343,604 109,665 2,773 5,666,230 5,345,212 45,732 Allowance for doubtful accounts ...... (431,357) (31,391) (3,481) 5,234,873 5,313,821 42,251 Loans receivable ...... 2,380,635 897,890 19,214 Inventories (Note 4) ...... 809,660 532,708 6,535 Deferred tax assets (Note 8) ...... 282,621 216,174 2,281 Prepaid expenses and other...... 362,256 269,994 2,924 Total Current Assets...... 24,488,133 25,487,361 197,644

Property and Equipment: Land...... 13,284,685 13,288,285 107,221 Buildings and structures ...... 12,160,223 10,612,592 98,146 Machinery and equipment ...... 3,529,369 3,186,200 28,486 Construction in progress...... 134,728 98,043 1,087 29,109,005 27,185,120 234,940

Less accumulated depreciation ...... (7,440,306) (6,613,797) (60,051) Net Property and Equipment ...... 21,668,699 20,571,323 174,889

Intangible Assets: Software ...... 2,387,295 2,304,864 19,268 Other ...... 49,256 48,691 397 Total Intangible Assets ...... 2,436,551 2,353,555 19,665

Other Assets: Investments in securities (Note 3) ...... 3,106,565 2,448,007 25,073 Investments in unconsolidated subsidiaries and affiliates less provision for declining value of investments in unconsolidated subsidiaries and affiliates (Note 3) ...... 1,623,342 1,526,719 13,102 Lease deposits paid ...... 5,666,424 4,850,053 45,734 Loans receivable ...... 3,929,546 3,819,648 31,715 Deferred tax assets (Note 8) ...... 1,197,196 683,047 9,663 Prepaid expenses ...... 298,801 235,596 2,412 Other ...... 877,013 1,616,503 7,078 16,698,887 15,179,573 134,777 Allowance for doubtful accounts ...... (444,583) (67,135) (3,588) Total Other Assets ...... 16,254,304 15,112,438 131,189 ¥64,847,687 ¥63,524,677 $523,387 The accompanying notes are an integral part of these statements.

MOS FOOD SERVICES, INC. 12 Thousands of Thousands U.S. dollars of yen (Note 1) 2001 2000 2001

LIABILITIES AND SHAREHOLDERS’ EQUITY Current Liabilities: Accounts payable: Trade ...... ¥ 5,483,335 ¥ 5,565,197 $ 44,256 Unconsolidated subsidiaries and affiliates...... 905,032 1,004,611 7,305 Other ...... 1,406,151 1,268,520 11,349 7,794,518 7,838,328 62,910

Short-term bank loans and current maturities of long-term bank loans (Note 6) .... 5,786,540 4,875,810 46,703 Accrued expenses ...... 1,060,211 1,009,677 8,557 Income taxes payable (Note 8) ...... 443,324 1,090,331 3,578 Other ...... 409,904 314,819 3,308 Total Current Liabilities...... 15,494,497 15,128,965 125,056

Long-term bank loans less current maturities of long-term bank loans (Note 6) .. 2,190,784 618,012 17,682 Deposits received from customers ...... 1,912,648 1,812,101 15,437 Severance and retirement benefits for employees (Note 10) ...... 150,492 174,180 1,215 Severance and retirement benefits for directors and corporate auditors ...... 566,278 735,605 4,570 Other ...... 46,669 42,084 377 Total Liabilities...... 20,361,368 18,510,947 164,337

Minority Interests ...... 971,046 1,021,013 7,837

Contingencies

Shareholders’ Equity (Note 7): Common stock, par value ¥50 per share: Shares authorized, 104,310,000; Shares issued, 32,009,910 (2001 and 2000) ...... 11,412,845 11,412,845 92,113 Additional paid-in capital...... 11,100,524 11,100,524 89,593 Retained earnings ...... 22,443,614 22,032,312 181,143 Net unrealized holding losses on securities...... (375,120) — (3,027) Treasury stock ...... (535,971) (2,586) (4,326) Foreign statement translation adjustment...... (530,619) (550,378) (4,283) Total Shareholders’ Equity ...... 43,515,273 43,992,717 351,213 ¥64,847,687 ¥63,524,677 $523,387 The accompanying notes are an integral part of these statements.

MOS FOOD SERVICES, INC. 13 Consolidated Statements of Shareholders’ Equity MOS FOOD SERVICES, INC. AND CONSOLIDATED SUBSIDIARIES Thousands of yen, except for number of shares of common stock Foreign Number of Net unrealized statement shares of Common Additional Retained holding losses Treasury translation common stock stock paid-in capital earnings on securities stock adjustments Balance at April 1, 1998 ...... 34,209,910 ¥11,412,845 ¥11,100,524 ¥22,547,809 ¥ — ¥ (611) ¥(486,385) Net income ...... — — — 1,832,261 — — — Adjustments from translation of foreign currency financial statements ...... — — — — — — (22,757) Treasury stock (Note 7) ...... (883,000) — — (1,406,889) — (2,222) — Cash dividends paid (¥28.00 per share) ...... — — — (954,036) — — — Bonus to directors and corporate auditors ...... — — — (28,000) — — — Legal reserve ...... — — — 527,611 Balance at March 31, 1999...... 33,326,910 11,412,845 11,100,524 22,518,756 — (2,833) (509,142) Cumulative effect of adopting deferred income tax accounting ...... — — — 568,097 — — — Net income ...... — — — 1,987,538 — — — Adjustments from translation of foreign currency financial statements ...... — — — — — — (41,236) Treasury stock (Note 7) ...... (1,317,000) — — (2,104,001) — 247 — Cash dividend paid (¥28.00 per share) ...... — — — (924,078) — — — Bonus to directors and corporate auditors ...... — — — (14,000) — — — Balance at March 31, 2000...... 32,009,910 11,412,845 11,100,524 22,032,312 — (2,586) (550,378) Net income ...... 1,017,822 Adjustments from translation of foreign currency financial statements ...... — — — — — — 19,759 Adoption of new accounting standard for financial instruments...... — — — — (375,120) — — Treasury stock ...... — — — — — (533,385) — Cash dividends paid (¥19.00 per share) ...... — — — (605,856) — — — Bonus to directors and corporate auditors ...... — — — (664) — — — Balance at March 31, 2001...... 32,009,910 ¥11,412,845 ¥11,100,524 ¥22,443,614 ¥(375,120) ¥(535,971) ¥(530,619)

Thousands of U.S. dollars, except for number of shares of common stock Foreign Number of Net unrealized statement shares of Common Additional Retained holding losses Treasury translation common stock stock paid-in capital earnings on securities stock adjustments Balance at March 31, 2000...... 32,009,910 $92,113 $89,593 $177,823 $ — $ (21) $(4,442) Net income ...... 8,215 Adjustments from translation of foreign currency financial statements ...... — — — — — — 159 Adoption of new accounting standard for financial instruments...... — — — — (3,027) — — Treasury stock ...... — — — — — (4,305) — Cash dividends paid ($0.15 per share) ...... — — — (4,890) — — — Bonus to directors and corporate auditors ...... — — — (5) — — — Balance at March 31, 2001...... 32,009,910 $92,113 $89,593 $181,143 $ (3,027) $(4,326) $ (4,283) The accompanying notes are an integral part of these statements.

MOS FOOD SERVICES, INC. 14 Consolidated Statements of Cash Flows MOS FOOD SERVICES, INC. AND CONSOLIDATED SUBSIDIARIES Thousands of Thousands U.S. dollars of yen (Note 1) Years ended March 31, 2001 and 2000 2001 2000 2001 Cash Flows from Operating Activities: Income before income taxes and minority interests ...... ¥ 1,662,112 ¥ 3,837,521 $ 13,415 Depreciation and amortization ...... 2,144,007 1,746,599 17,304 Loss on revaluation of investments in securities ...... — 262,473 — Loss on devaluation of investments in securities ...... 42,754 — 345 Loss on sale and disposal of property and equipment, net ...... 127,026 36,571 1,025 Gain on sale of equity securities, net...... (136,454) (463,046) (1,101) Loss on devaluation of golf memberships ...... 255,432 260,960 2,061 Provision for declining value of investments in unconsolidated subsidiaries and affiliates ...... — 150,000 — Interest and dividend income ...... (142,124) (223,717) (1,147) Interest expense ...... 48,906 28,269 395 (Increase) Decrease in accounts receivable...... (137,126) 186,838 (1,107) Increase in inventories ...... (276,953) (125,950) (2,235) (Decrease) Increase in severance and retirement benefits for employees and corporate auditors ...... (193,015) 247,981 (1,558) Decrease in accounts payable...... (217,585) (483,661) (1,756) Increase (Decrease) in accrued expenses ...... 50,534 (46,756) 408 Other, net ...... 842,892 302,856 6,803 Subtotal ...... 4,070,406 5,716,938 32,852 Interest and dividend income received in cash ...... 156,422 223,717 1,263 Interest expense paid in cash ...... (48,906) (28,269) (395) Income taxes paid in cash ...... (1,609,510) (2,228,815) (12,990) Net Cash Provided by Operating Activities ...... 2,568,412 3,683,571 20,730

Cash Flows from Investing Activities: Decrease in marketable securities, net...... 150,972 1,380,836 1,219 Acquisition of investments in securities ...... (14,889,919) (1,490,000) (120,177) Proceeds from sale of investments in securities ...... 16,550,541 337,085 133,580 Acquisition of property and equipment ...... (2,417,524) (1,794,496) (19,512) Proceeds from sale of property and equipment...... 189,809 672,741 1,532 Acquisition of intangible assets ...... (1,056,209) (748,570) (8,525) Other, net ...... (985,743) (1,834,985) (7,956) Net Cash Used in Investing Activities ...... (2,458,073) (3,477,389) (19,839)

Cash Flows from Financing Activities: Increase (Decrease) in short-term bank loans, net ...... 301,660 (337,980) 2,435 Proceeds from long-term bank loans ...... 2,818,780 964,680 22,750 Repayments of long-term bank loans...... (650,957) (363,361) (5,254) Proceeds from issuance of common stock ...... — 516,060 — Purchase of treasury stock for retirement...... (533,385) (2,103,753) (4,305) Dividends paid ...... (648,116) (937,736) (5,231) Other, net ...... 105,132 365,215 849 Net Cash Provided by (Used in) Financing Activities ...... 1,393,114 (1,896,875) 11,244

Effect of Exchange Rate Fluctuation on Cash and Cash Equivalents...... 5,418 (5,320) 43 Net Increase (Decrease) in Cash and Cash Equivalents ...... 1,508,871 (1,696,013) 12,178 Cash and Cash Equivalents at Beginning of Year (Note 2)...... 9,905,642 11,601,655 79,949 Cash and Cash Equivalents at End of Year (Note 2)...... ¥ 11,414,513 ¥ 9,905,642 $ 92,127 The accompanying notes are an integral part of these statements.

MOS FOOD SERVICES, INC. 15 Notes to Consolidated Financial Statements MOS FOOD SERVICES, INC. AND CONSOLIDATED SUBSIDIARIES

1. Summary of Accounting Policies the Company has power of control through majority (a) Basis of Presentation of Consolidated Financial voting right or existence of certain conditions evidencing Statements control by the Company regardless of how much voting MOS FOOD SERVICES, INC. (the “Company”) and its right the Company owns and, accordingly, significant subsidiaries (the “Companies”) maintain their accounts and subsidiaries’ financial statements are to be consolidated records in accordance with the provisions set forth in the into the Company’s financial statements. There was no Japanese Commercial Code (the “Code”) and the Securi- effect of applying this rule to the Company’s financial ties and Exchange Law and in conformity with accounting statements for the year ended March 31, 2000. The principles and practices generally accepted in Japan, which Revised Accounting Principles also require that invest- are different from the accounting and disclosure require- ments in unconsolidated subsidiaries and affiliates over ments of International Accounting Standards. The ac- which the Company has the ability to exercise significant counts of overseas consolidated subsidiaries are based on influence over operating and financial policies of the their accounting records maintained in conformity with investees are accounted for on the equity method regard- generally accepted accounting principles and practices less of how much voting right the Company owns. prevailing in the respective countries of domicile. Regarding the scope of affiliates to which equity method The accompanying consolidated financial statements is applied, there was no effect of adopting the Revised are a translation of the audited consolidated financial Accounting Principle. statements of the Company which were prepared in In consolidation, all significant inter-company transac- accordance with accounting principles and practices tions and account balances are eliminated. Consolidation generally accepted in Japan from the accounts and records differences (excess of investments in consolidated subsid- maintained by the Company and its consolidated subsid- iaries over the net assets at the time the Company ac- iaries and were filed with the appropriate Local Finance quired control of the respective subsidiaries) are amor- Bureau of the Ministry of Finance as required by the tized within twenty years on a straight-line basis and the Securities and Exchange Law. amortization is included in selling, general and adminis- In preparing the accompanying consolidated financial trative expenses. The effect on net assets, net sales and statements, certain reclassifications have been made in net income or losses of unconsolidated subsidiaries and the consolidated financial statements issued domestically affiliates not accounted for on the equity method is in order to present them in a form which is more familiar immaterial to the consolidated financial statements and to readers outside Japan. The consolidated statements of those investments are carried at cost, adjusted for any cash flows were not customarily prepared in Japan and substantial and non-recoverable decline in value. not required to be filed with the regulatory authorities During the current fiscal year, the consolidated subsid- prior to the year beginning April 1, 1999. Effective from iary of MOS FOODS WEST, INC. merged into another the year beginning April 1, 1999, the “Standards for consolidated subsidiary, MOS FOODS HOLDING, INC. Preparation of Consolidated Cash Flow Statements, etc.” The numbers of consolidated companies and affiliates requires the Company to prepare consolidated statements accounted for by equity method for the year ended of cash flows and, accordingly, the year ended March 31, March 31, 2001 and 2000 were as follows: 2000 was the first year for which the Company was required to prepare a consolidated statement of cash flows. Number of companies 2001 2000 The translations of the Japanese yen (¥) amounts into U.S. dollars ($) are included solely for the convenience of Consolidated subsidiaries ...... 5 6 the readers, using the prevailing exchange rate at March Unconsolidated and 31, 2001, which was ¥123.90 to U.S.$1.00. The conve- non-equity-method subsidiaries...... 5 5 nience translations should not be construed as represen- Affiliates accounted for by equity tations that the Japanese yen amounts have been, could method ...... 2 2 have been, or could in the future be, converted into U.S. Affiliates not accounted for by equity dollars at this or any other rates of exchange. method ...... 4 4

(b) Consolidation (c) Consolidated Statements of Cash Flows The Company prepared consolidated financial state- In preparing the consolidated statements of cash flows, ments for the years ended March 31, 2001 and 2000 in cash on hand, readily-available deposits and short-term accordance with the revised Accounting Principles for highly liquid investments with negligible risk of changes Consolidated Financial Statements (the “Revised Ac- in value and maturities of not exceeding three months at counting Principles”) effective from the year ended the time of purchase are considered to be cash and cash March 31, 2000. equivalents. In accordance with the Revised Accounting Principles, subsidiaries are to be consolidated companies over which

MOS FOOD SERVICES, INC. 16 (d) Conversion of Foreign Currencies and Translation of (g) Investments in Securities Statements Prior to April 1, 2000, listed securities, other than securi- Short-term receivables and payables denominated in ties of unconsolidated subsidiaries and affiliated compa- foreign currencies are translated into Japanese yen at the nies, are stated at the lower of average cost or market. year-end rates. Prior to April 1, 2000, long-term receiv- Other securities are valued at average cost, adjusted for ables and payable denominated in foreign currencies were any substantial decline in value. translated at historical rates. Effective April 1, 2000, the Companies adopted the new Effective April 1, 2000, the Company and its consoli- Japanese accounting standard for financial instruments dated domestic subsidiaries adopted the revised accounting (“Opinion Concerning Establishment of Accounting standard for foreign currency translation, “Opinion Con- Standard for Financial Instruments” issued by the Business cerning Revision of Accounting Standard for Foreign Accounting Deliberation Council on January 22, 1999). Currency Translation”, issued by the Business Accounting Upon applying the new accounting standard, all compa- Deliberation Council on October 22, 1999. Under the nies are required to examine the intent of holding each revised accounting standard, long-term receivables and security and classify those securities as (a) securities held payables denominated in foreign currencies are also for trading purposes, (b) debt securities intended to be translated into Japanese yen at the year-end rate. held to maturity, (c) equity securities issued by subsidiaries The effect on the consolidated income statement of and affiliated companies, and (d) for all other securities adopting the revised accounting standard was immaterial. that are not classified in any of the above categories Financial statements of consolidated overseas subsidiar- (hereafter, “available-for-sale securities”). ies are translated into Japanese yen at the year-end rate for As a result of this classification, the Companies classi- assets and liabilities, and for shareholders’ equity accounts fied their securities at the beginning of the current fiscal at the historical rates. Income statement items are trans- year as equity securities issued by subsidiaries and affili- lated at the average rates. The foreign statement transla- ated companies not consolidated or accounted for by the tion adjustments are presented in the shareholders’ equity equity method and available-for-sale securities, and in the consolidated balance sheets. Such adjustments for presented as “investments in unconsolidated subsidiaries 2000, which were included in assets, have been reclassified and affiliates” and “investments in securities”, respectively. to conform to 2001. Equity securities issued by subsidiaries and affiliated companies which are not consolidated or accounted for (e) Allowance for Doubtful Accounts using the equity method are stated at cost by the moving- Prior to April 1, 2000, the Companies provided allowance average method. Available-for-sale securities with fair for doubtful accounts at the maximum amount that could market values are stated at fair market value. Unrealized be charged to income under the Corporation Tax Law of gains and losses on these securities are reported, net of Japan plus estimated amounts of probable bad debt for applicable income taxes, as a separate component of receivables from certain identified customers. shareholders’ equity. Realized gains and losses on sale of Effective April 1, 2000, the Companies adopted the new such securities are computed by the moving-average Japanese accounting standard for financial instruments method. Available-for-sale securities with no fair market (“Opinion Concerning Establishment of Accounting value are stated at cost by the average method. Standard for Financial Instruments” issued by the Business As a result of adopting the new accounting standard for Accounting Deliberation Council on January 22, 1999). financial instruments, income before income taxes and Under the new accounting standard, the consolidated minority interests increased by ¥374,051 thousand ($3,019 domestic companies provide for a sufficient allowance for thousand). Also, based on the examination of the intent of doubtful accounts to cover probable losses on collection by holding each security upon application of the new ac- estimating uncollectible amounts individually in addition counting standard, on April 1, 2000, available-for-sale to amounts for possible losses based on actual losses on securities maturing within one year from the balance sheet collection in the past. date are included in marketable securities, and other As a result of adopting the new accounting standard for securities are included in investments in securities. As a financial instruments, income before income taxes and result, on April 1, 2000, marketable securities in current minority interests decreased by ¥420,342 thousand assets decreased by ¥2,020,640 thousand ($16,309 thou- ($3,393 thousand). sand) and investments in securities in other assets increased by the same amount compared with what would have been (f) Inventories recorded under the previous accounting standard. Inventories are stated at cost determined by the most recent purchase price. (h) Property, Equipment and Depreciation Property and equipment are stated at cost. Depreciation is determined on a declining-balance method at rates based on the estimated useful lives of the assets, except

MOS FOOD SERVICES, INC. 17 that buildings acquired after April 1, 1998 are depreci- the excess of the present value of the future obligations ated using the straight-line method. The cost and over the pension plan assets as of March 31, 2000 and the accumulated depreciation applicable to assets retired or balance of the liabilities for the severance and retirement otherwise disposed of are eliminated from the related benefits recorded as of March 31, 2000. accounts and the gain or loss on sale and disposal is The effect of adopting the new accounting policy for credited or charged to income. Expenditures for new the year ended March 31, 2000, was to decrease income facilities and those which substantially increase the before income taxes and minority interests by ¥160,000 useful lives of existing property and equipment are thousand. capitalized. Maintenance, repair and minor renewals are Prior to April 1, 2000, the consolidated subsidiariy charged to expense as incurred. which provided mainly lump-sum severance and retire- ment benefits provided liabilities for such benefits at 40% (i) Finance Leases of the amount required had all qualified employees Finance leases, except those leases for which the owner- voluntarily terminated their employment at the balance- ship of the leased assets is considered to be transferred to sheet date. the lessee, are accounted for as operating leases. Effective April 1, 2000, the Companies adopted the new accounting standard, “Opinion on Setting Accounting (j) Software Costs Standard for Employees’ Severance and Pension Benefits”, Prior to April 1, 2000, the Companies accounted for issued by the Business Accounting Deliberation Council software as long-term prepaid expenses in other assets in on June 16, 1998 (the “New Accounting Standard”). the consolidated balance sheets. Effective April 1, 1999, Under the New Accounting Standard, the liabilities and the Companies adopted the provisional rule of the expenses for severance and retirement benefits are deter- JICPA’s Accounting Committee Report No. 12 “Practical mined based on the amounts actuarially calculated using Guidance for Accounting for Research and Development certain assumptions. Costs, etc.” (the “Report”). Pursuant to the Report, the The Companies provided severance and retirement Companies included software in intangible assets in the benefits for employees at March 31, 2001 based on the consolidated balance sheets. present value of future obligations and the fair value of the The Company amortized software for its own use using plan assets at that date. the straight-line method over the estimated useful lives The excess of the present value of the future obligations (five years). over the pension plan assets as of April 1, 2000 and the severance and retirement benefit obligations recorded as (k) Severance and Retirement Benefits for Employees of April 1, 2000 (the “net transition obligation”) Employees severing their connections with the Company amounted to ¥30,157 thousand ($243 thousand) was and the three of the consolidated subsidiaries (the “Three recognized as expense as incurred. Actuarial losses are Subsidiaries”) on retirement are generally entitled to amortized over one year in the following period. annuity payments covered by two funded non-contribu- As a result of the adoption of the new accounting tory defined pension plans based on rates of pay, length of policy, in the year ended March 31, 2001, severance and service and certain other factors. One of the plans is a retirement benefit costs decreased by ¥11,654 thousand governmentally supported pension plan and the other is a ($94 thousand) operating income and income before privately held pension plan. Another consolidated subsid- income taxes and minority interests increased by ¥21,270 iary (the “Other Subsidiary”) has provided mainly lump- thousand ($172 thousand) compared with what would sum severance and retirement benefits. have been recorded under the previous accounting policy. Prior to April 1, 1999, the Company and the Three Subsidiaries recognized severance and retirement benefit (l) Severance and Retirement Benefits for Directors and costs when and to the extent cash was contributed to the Corporate Auditors pension plans. Directors who are the members of the Board of Direc- Effective in the year ended March 31, 2000, the Com- tors and corporate auditors severing their connections pany and the two of the Three Subsidiaries changed their with the Company on retirement are entitled, in most accounting for severance and retirement benefit plans. circumstances, to lump-sum severance and retirement The new accounting policy adopted was to recognize the benefits based on rates of pay, length of services and difference between present value of the future obligations certain other factors, including contributions to the required for the privately held pension plan and the fair Company, etc. The Company accrues 100% of obliga- value of pension plan assets. tions based on the internal rules required under the The company and the two of the Three Subsidiaries assumption that all directors and corporate auditors recognized as expense in the year ended March 31, 2000, terminated their employment at the balance sheet date.

MOS FOOD SERVICES, INC. 18 (m) Income Taxes (p) Net Income and Cash Dividends per Share The Company provided for income taxes at the amounts Net income and cash dividends per share are computed currently payable for the years ended March 31, 1999. based upon the weighted-average number of shares of Effective April 1, 1999, the Company adopted the new common stock outstanding during each period. accounting standard, which recognizes tax effects of Diluted net income per share is required to be disclosed. temporary differences between the carrying amounts of However, the Company has not had any notes with warrants assets and liabilities for tax and financial reporting. or convertible bonds for the three years ended March 31, Under the new accounting standard, the provision for 2001. Therefore, such information has not been disclosed. income taxes is computed based on the pretax income Cash dividends per share represent the cash dividends included in the consolidated statements. The asset and proposed by the Board of Directors as applicable to the liability approach is used to recognize deferred tax assets respective years, together with semi-annual cash dividends paid. and liabilities for the expected future tax consequences of temporary differences. (q) Use of Estimate The amount of deferred income taxes attributable to The consolidated financial statements have been pre- the net tax effects of the temporary differences at April pared in conformity with accounting principles generally 1, 1999 was reflected as an adjustment to the retained accepted in Japan and, as such, include amounts based on earnings brought forward from the previous year. Prior informed estimates and judgments of management with year’s financial statements have not been restated. The consideration given to materiality. Actual results could cumulative effect of adopting the new accounting stan- differ from those estimates. dard was ¥568,098 thousand which was directly added to the retained earnings brought forward from March 31, (r) Reclassification 1999. The effect for the year ended March 31, 2000 was Certain prior year amounts have been reclassified to to the increase net income by ¥374,627 thousand and to conform to the presentation of the year ended March 31, increase net assets by ¥899,221 thousand. 2001. These changes had no impact on previously reported results of operations. (n) Stockholders’ Equity Under the Commercial Code of Japan (the “Code”), at 2. Cash and Cash Equivalents least 50% of the issue price of new shares, with a mini- Reconciliation of cash and deposits shown in the con- mum of the par value thereof, is required to be designed solidated balance sheets as of March 31, 2001 and 2000 as stated capital. The portion which is to be designated and cash and cash equivalents shown in the consolidated as stated capital is determined by resolution of the Board statements of cash flows for the years ended at March of Directors. Proceeds in excess of the amounts desig- 31, 2001 and 2000 was as follows: nated as stated capital are credited to additional paid-in capital. Thousands Thousands of of yen U.S. dollars Under the Code, certain amounts of retained earnings March 31, March 31, equal to at least 10% of cash dividends and bonuses to 2001 2000 2001 directors and corporate auditors must be set aside as a Cash and deposits ..... ¥ 5,971,990 ¥3,739,305 $48,200 legal reserve until the reserve equals to 25% of common Less: Time deposits stock. The reserve is not available for dividends but may with maturities be used to reduce a deficit by resolution of the stockhold- exceeding three ers or may be capitalized by resolution of the Board of months ...... (1,075,840) (669,916) (8,683) Directors. The legal reserve is included in the retained Add: Short-term earnings. highly liquid The maximum amount that the Company can distrib- investments with ute as dividends is calculated based on the non-consolidated maturities of not financial statements of the Company in accordance with exceeding three the Code. months ...... 5,024,408 6,836,253 40,552 Short-term loan..... 1,493,955 — 12,058 (o) Bonuses to Directors Cash and cash Bonuses to directors are subject to approval by the stock- equivalents ...... ¥11,414,513 ¥9,905,642 $92,127 holders’ meeting and are accounted for by an appropria- tion of retained earnings for the period in which the payment is made.

MOS FOOD SERVICES, INC. 19 3. Information on Securities As mentioned in Note 1, effective April 1, 2000, the Companies adopted the new Japanese accounting standard for financial instruments.

(a) The following tables summarize acquisition costs and book values of available-for-sale securities with fair values as of March 31, 2001:

1) Securities with book values exceeding acquisition costs. Thousands of yen Thousands of U.S. dollars Acquisition Acquisition Type cost Book value Difference cost Book value Difference Equity securities ...... ¥ 37,153 ¥ 60,000 ¥22,847 $ 300 $ 484 $184 Bonds ...... 1,404,115 1,407,200 3,085 11,333 11,358 25 Corporate bonds...... 402,976 403,462 486 3,253 3,257 4 Other than government or corporate bonds ...... 1,001,139 1,003,738 2,599 8,080 8,101 21 Other ...... 933,648 934,709 1,061 7,535 7,544 9 Total ...... ¥2,374,916 ¥2,401,909 ¥26,993 $19,168 $19,386 $218

2) Other securities Thousands of yen Thousands of U.S. dollars Acquisition Acquisition Type cost Book value Difference cost Book value Difference Equity securities ...... ¥1,633,451 ¥1,122,075 ¥(511,376) $13,184 $ 9,056 $(4,128) Bonds ...... 1,951,745 1,946,714 (5,031) 15,753 15,712 (41) Corporate bonds...... 602,337 601,670 (667) 4,862 4,856 (6) Other than government or corporate bonds ...... 1,349,408 1,345,044 (4,364) 10,891 10,856 (35) Other ...... 632,626 478,475 (154,151) 5,106 3,862 (1,244) Total ...... ¥4,217,822 ¥3,547,264 ¥(670,558) $34,043 $28,630 $(5,413)

(b) The following tables summarize book values of available-for-sale securities with no fair market values as of March 31, 2001:

Thousands of yen Thousands of U.S. dollars March 31, 2001 Type Book value Unlisted equity securities (Over-the-counter securities are excluded) ...... ¥ 113,050 $ 913 Money market fund ...... 5,024,408 40,552 Other ...... 1,465,601 11,829 Total ...... ¥ 6,603,059 $53,294

(c) Available-for-sale securities with maturities are as follows:

Thousands of yen Over five Over one year years but Within but within within Over Type one year five years ten years ten years Total Bonds ...... ¥2,553,500 ¥800,000 ¥ — ¥ — ¥ 3,353,500 Corporate bonds...... 800,000 200,000 — — 1,000,000 Other than government or corporate bonds ...... 1,753,500 600,000 — — 2,353,500 Other ...... 1,868,087 — — — 1,868,087 Total ...... ¥4,421,587 ¥800,000 ¥ — ¥ — ¥ 5,221,587

MOS FOOD SERVICES, INC. 20 Thousands of U.S. dollars Over five Over one year years but Within but within within Over Type one year five years ten years ten years Total Bonds ...... $20,610 $6,457 $ — $ — $ 27,067 Corporate bonds...... 6,457 1,614 — — 8,071 Other than government or corporate bonds ...... 14,153 4,843 — — 18,996 Other ...... 15,077 — — — 15,077 Total ...... $35,687 $6,457 $ — $ — $421,144

(d) Total sales of available-for-sale securities sold in the year ended March 31, 2001 amounted to ¥2,483,013 thousand ($20,040 thousand) and the related gains and losses amounted to ¥180,572 thousand ($1,457 thousand) and ¥ 44,119 thousand ($356 thousand), respectively. Market value information of securities owned by the Companies at March 31, 2000 is as follows:

Thousands of yen Thousands of U.S. dollars Market Unrealized Market Unrealized Book value value gain (loss) Book value value gain (loss) Current: Equity securities ...... ¥ 430,550 ¥ 400,969 ¥(29,581) $ 4,056 $ 3,777 $(279) Bonds ...... 98,958 98,700 (258) 932 930 (2) Other ...... 503,937 489,295 (14,642) 4,748 4,610 (138) 1,033,445 988,964 (44,481) 9,736 9,317 (419)

Non-current: Equity securities ...... 872,814 896,402 23,588 8,222 8,444 222 Bonds ...... 100,000 98,940 (1,060) 942 932 (10) 972,814 995,342 22,528 9,164 9,376 212 ¥2,006,259 ¥1,984,306 ¥(21,953) $18,900 $18,693 $(207)

Non-marketable securities and beneficiary certificates of investment funds within closed period were excluded from the above table.

MOS FOOD SERVICES, INC. 21 4. Inventories Thousands Thousands of of yen U.S. dollars Inventories consisted of the following: March 31, March 31, 2001 2000 2001 Thousands Thousands of of yen U.S. dollars Due within one March 31, March 31, year ...... ¥ 628,808 ¥ 504,848 $ 5,075,129 2001 2000 2001 Due after one Merchandise ...... ¥750,384 ¥468,760 $6,056 year ...... 1,582,451 1,342,466 12,772,001 Supplies ...... 59,276 63,948 479 ¥2,211,259 ¥1,847,314 $17,847,130 ¥809,660 ¥532,708 $6,535 Lease obligations were calculated using the exclusive- 5. Lease Information of-interest method. (a) Finance lease transactions without ownership transfer The lease payments, depreciation equivalents and to lessee: interest expense equivalents under the finance leases for The Company and its consolidated subsidiaries lease the the years ended March 31, 2001 and 2000 were as following assets under the finance leases without transfer follows: of ownership. Assuming that finance leases without transfer of ownership were capitalized, they would be Thousands Thousands of of yen U.S. dollars recorded on the financial statements as follows: March 31, March 31, 2001 2000 2001 Thousands of yen March 31, 2001 Lease payments ...... ¥645,922 ¥482,276 $5,213 Buildings Machinery Depreciation and structures and equipment Other Total equivalents ...... 578,299 448,672 4,668 Acquisition Interest expense cost...... ¥260,467 ¥3,067,139 ¥61,682 ¥3,389,288 equivalents ...... 84,755 75,490 684 Accumulated depreciation . 115,328 1,114,106 31,237 1,260,671 The depreciation is calculated on a straight-line Book value .... ¥145,139 ¥1,953,033 ¥30,445 ¥2,128,617 method over the lease period without residual value. The interest expense for the difference between the total lease Thousands of yen payment and the acquisition cost is allocated to the March 31, 2000 appropriate period. Buildings Machinery and structures and equipment Other Total Acquisition (b) Operating lease transactions: cost...... ¥176,098 ¥2,376,490 ¥64,784 ¥2,617,372 (1) Non-cancelable operating leases: Accumulated The Company and its consolidated subsidiaries lease depreciation . 84,243 729,369 25,386 838,998 certain vehicle and office equipment under non-cancelable Book value .... ¥ 91,855 ¥1,647,121 ¥39,398 ¥1,778,374 operating leases. The following is lease commitments under non-cancelable leases. Thousands of U.S. dollars March 31, 2001 Thousands Thousands of Buildings Machinery of yen U.S. dollars and structures and equipment Other Total March 31, March 31, Acquisition 2001 2000 2001 cost...... $2,102 $24,755 $497 $27,354 Due within one year.. ¥48,429 ¥ 5,589 $391 Accumulated Due after one year ..... 8,186 6,574 66 depreciation . 931 8,992 252 10,175 Total ...... ¥56,615 ¥12,163 $457 Book value .... $1,171 $15,763 $245 $10,179 (2) Cancelable operating leases: The payment schedule of lease obligations under the The majority of the MOS Burger shops are company finance leases as of March 31, 2001 and 2000 were as owned and its consolidated subsidiaries in leased facili- follows: ties. A few MOS Burger shops are operated in the land and buildings owned by the Company and its consoli- dated subsidiaries. The lease terms are generally for 2 to 10 years under cancelable lease agreements. The Com- pany is generally obligated for the cost of maintenance and repair.

MOS FOOD SERVICES, INC. 22 The lease deposits to the lessors, which are generally The annual maturities of long-term bank loans as of non-interest bearing, provided by the Company and its March 31, 2000 are as follows: consolidated subsidiaries are refundable upon termina- tion of the lease agreements. Thousands Thousands of Ending March 31, of yen U.S. dollars 2001 ...... ¥ 434,790 $4,096 (c) Total rental expense: 2002 ...... 339,474 3,198 Total rental expense for the years ended March 31, 2001, 2003 ...... 179,499 1,691 2000, and 1999 amounted to ¥2,616,897 thousand 2004 ...... 74,039 697 ($21,145 thousand), ¥2,123,689 thousand and 2005 ...... 25,000 236 ¥1,769,979 thousand, respectively. ¥ 1,052,802 $ 9,918 6. Short-Term and Long-Term Bank Loans 7. Changes in Shareholders’ Equity Accounts Short-term bank loans outstanding as of March 31, 2001 In accordance with purchase and retirement of common and 2000 are partially unsecured with interest of 0.87% stock authorized by the Board of Directors on July 6, to 1.75% per annum and 0.85% to 1.8% per annum, 1999 and June 30, 1998 the Company purchased and respectively. retired common stock of 1,317,000 shares and 883,000 Long-term bank loans at March 31, 2001 are as fol- shares in the year ended March 31, 2000 and 1999, lows: respectively. Thousands Thousands of of yen U.S. dollars 8. Taxes on Income Unsecured loans from banks The Company and its subsidiaries are subject to a with interest of 1.19% to number of income taxes which, in the aggregate, reflect a 4.18% per annum maturing statutory tax rate 42.0%, 42.0% and 47.5% for the years serially through 2006...... ¥3,234,644 $26,107 ended March 31, 2001, 2000 and 1999, respectively. Less current maturities ...... (1,043,860) (8,425) The following table summarizes the significant Total ...... ¥2,190,784 $17,682 differences between the statutory tax rate and the Company’s and its consolidated subsidiaries’ effective tax The annual maturities of long-term bank loans as of rate for financial statement purposes for the years ended March 31, 2001 are as follows: March 31, 2001 and 2000:

Thousands Thousands of March 31, Ending March 31, of yen U.S. dollars 2001 2000 2002 ...... ¥1,043,860 $ 8,425 Statutory tax rate ...... 42.0% 42.0% 2003 ...... 1,137,342 9,180 Valuation allowance recognized 2004 ...... 653,932 5,278 on current losses of subsidiaries ... 4.6 — 2005 ...... 266,320 2,149 Non-taxable income...... (1.6) (0.7) 2006 ...... 133,190 1,075 Non-deductible expenses ...... 4.6 2.1 ¥3,234,644 $26,107 Per capita inhabitants taxes ...... 6.0 2.2 Reserve for loss on consolidated Long-term bank loans at March 31, 2000 are as fol- subsidiaries ...... (17.7) — lows: Other ...... 1.4 0.5 39.3% Thousands Thousands of Effective tax rate ...... 46.1% of yen U.S. dollars Unsecured loans from banks with interest of 1.8% to 4.18% per annum maturing serially through 2005 ...... ¥ 1,052,802 $ 9,918 Less current maturities ...... (434,790) (4,096) Total ...... ¥ 618,012 $ 5,822

MOS FOOD SERVICES, INC. 23 Significant components of the Company’s and its Thousands Thousands of of yen U.S. dollars consolidated subsidiaries’ deferred tax assets as of March March 31, March 31, 31, 2001 and 2000 were as follows: 2001 2001 (a) Present value of the future Thousands Thousands of obligations: ...... ¥884,788 $7,141 of yen U.S. dollars March 31, March 31, (b) Pension plan assets: ...... 715,792 5,777 2001 2000 2001 (c) Unfunded obligations of Deferred income tax severance and retirement 168,996 1,364 assets: benefits: ((a)-(b))...... Enterprise taxes ..... ¥ 39,614 ¥ 97,409 $ 320 (d) Unrecognized actuarial (18,504) (149) Allowance for losses: ...... doubtful accounts . 345,687 — 2,790 (e) Severance and retirement Accrued bonuses ... 108,254 94,137 874 benefits for employees: ¥150,492 $1,215 Reserve for loss on ((c)+(d)) ...... consolidated subsidiaries ...... 126,000 126,000 1,017 Included in the consolidated statements of income for Retirement and the year ended March 31, 2001 are severance and retire- severance benefits ment benefit costs comprised of the following: for directors and Thousands Thousands of corporate of yen U.S. dollars auditors ...... 237,837 308,954 1,919 March 31, March 31, Loss on revaluation 2001 2001 ¥ 93,109 $ 752 of golf (a) Service costs: ...... 23,639 191 memberships ...... 188,419 109,603 1,521 (b) Interest costs: ...... Retirement and (c) Expected return on plan 19,013 153 severance benefits assets: ...... for employees ...... 57,619 68,242 465 (d) Loss on net transition 15,448 124 Goodwill ...... 114,587 42,101 925 obligation:...... Unrealized losses (e) Severance and retirement ¥113,183 $ 914 on investments benefit costs for employees: ... in securities...... 271,543 — 2,192 Operating loss carry The discount rate and the rate of expected return on forward ...... 224,454 196,802 1,811 plan assets used by the Company are 3.0%. The esti- Other ...... 49,566 63,399 400 mated amount of all severance and retirement benefits to Valuation be paid in the future is allocated equally to each service allowances...... (283,763) (207,425) (2,290) year using the estimated number of total service years. Net deferred 11. Segment Information income tax assets .. ¥1,479,817 ¥ 899,222 $11,944 The Companies operate primarily in the sales of prod- 9. Research and Development Expenses ucts in three business segments: MOS Burger Business, Research and development expenses, which were charged Restaurant Business and Other. to income when incurred, included in general adminis- trative expenses for the fiscal years ended April 30, 2001 MOS Burger Business and 2000 were ¥30,212 thousand ($244 thousand) and Operations in MOS Burger business are to sell Rice ¥47,137 thousand, respectively. burger, other different kinds of burgers, MOS chicken and other. 10. Employees’ Severance and Retirement Benefits As explained in Note 1. Summary of Accounting Policies, Restaurant Business the Company and its domestic consolidated subsidiaries Restaurant business serves noodle, gyu-don, oyako-don have a lump sum severance and retirement plan, a privately and other. held pension plan and governmentally supported pension plan as the defined benefit plan for employees. Other The liabilities for severance and retirement benefits Operations in Other involve food sanitation, finance, included in the liability section of the consolidated balance leasing and other. sheet as of March 31, 2001 consist of the following:

MOS FOOD SERVICES, INC. 24 Business segment information: Thousands of yen Year ended March 31, 2001 MOS Burger Restaurant Corporate Business Business Other Total or elimination Consolidated Net sales: External customers...... ¥ 57,491,124 ¥ 12,750,651 ¥ 578,013 ¥ 70,819,788 ¥ — ¥ 70,819,788 Inter-segment ...... 3,642 423 808,356 812,421 (812,421) — Total ...... ¥ 57,494,766 ¥ 12,751,074 ¥ 1,386,369 ¥ 71,632,209 ¥ (812,421) ¥ 70,819,788 Operating expenses ...... ¥ 55,253,361 ¥ 12,661,171 ¥ 1,226,318 ¥ 69,140,850 ¥ (848,105) ¥ 68,292,745 Operating income ...... ¥ 2,241,405 ¥ 89,903 ¥ 160,051 ¥ 2,491,359 ¥ 35,684 ¥ 2,527,043 Identifiable assets ...... ¥ 50,057,064 ¥ 8,888,937 ¥ 6,108,341 ¥ 65,054,342 ¥ (206,655) ¥ 64,847,687 Depreciation and amortization ...... ¥ 1,795,949 ¥ 316,523 ¥ 31,858 ¥ 2,144,330 ¥ (323) ¥ 2,144,007 Capital expenditures ...... ¥ 1,664,120 ¥ 1,932,221 ¥ 22,619 ¥ 3,618,960 ¥ — ¥ 3,618,960 Thousands of yen Year ended March 31, 2000 MOS Burger Restaurant Corporate Business Business Other Total or elimination Consolidated Net sales: External customers ...... ¥ 59,864,150 ¥ 11,097,461 ¥ 592,886 ¥ 71,554,497 ¥ — ¥ 71,554,497 Inter-segment ...... 72,081 1,458 686,520 760,059 (760,059) — Total ...... ¥ 59,936,231 ¥ 11,098,919 ¥ 1,279,406 ¥ 72,314,556 ¥ (760,059) ¥ 71,554,497 Operating expenses ...... ¥ 56,226,383 ¥ 10,896,088 ¥ 1,131,162 ¥ 68,253,633 ¥ (779,600) ¥ 67,474,033 Operating income ...... ¥ 3,709,848 ¥ 202,831 ¥ 148,244 ¥ 4,060,923 ¥ 19,541 ¥ 4,080,464 Identifiable assets ...... ¥ 51,268,716 ¥ 6,007,284 ¥ 6,440,023 ¥ 63,716,023 ¥ (191,346) ¥ 63,524,677 Depreciation and amortization ...... ¥ 1,261,338 ¥ 222,017 ¥ 38,430 ¥ 1,521,785 ¥ — ¥ 1,521,785 Capital expenditures ...... ¥ 1,585,618 ¥ 908,047 ¥ 17,610 ¥ 2,511,275 ¥ — ¥ 2,511,275 Thousands of yen Year ended March 31, 1999 MOS Burger Restaurant Corporate Business Business Other Total or elimination Consolidated Net sales: External customers ...... ¥ 60,989,862 ¥ 9,501,075 ¥ 580,799 ¥ 71,071,736 ¥ — ¥71,071,736 Inter-segment ...... 33,529 16,579 459,858 509,966 (509,966) — Total ...... ¥ 61,023,391 ¥ 9,517,654 ¥ 1,040,657 ¥ 71,581,702 ¥ (509,966) ¥71,071,736 Operating expenses ...... ¥ 56,730,527 ¥ 9,558,175 ¥ 922,224 ¥ 67,210,926 ¥ (515,945) ¥66,694,981 Operating income (loss)...... ¥ 4,292,864 ¥ (40,521) ¥ 118,433 ¥ 4,370,776 ¥ 5,979 ¥ 4,376,755 Identifiable assets ...... ¥ 52,263,502 ¥ 4,022,850 ¥ 7,026,748 ¥ 63,313,100 ¥ (108,184) ¥63,204,916 Depreciation and amortization ...... ¥ 1,021,277 ¥ 200,235 ¥ 28,269 ¥ 1,249,781 ¥ — ¥ 1,249,781 Capital expenditures ...... ¥ 2,823,253 ¥ 999,852 ¥ 49,747 ¥ 3,872,852 ¥ — ¥ 3,872,852 Thousands of U.S. dollars Year ended March 31, 2001 MOS Burger Restaurant Corporate Business Business Other Total or elimination Consolidated Net sales: External customers...... $ 464,012 $102,911 $ 4,665 $571,588 $ — $ 571,588 Inter-segment ...... 30 3 6,524 6,557 (6,557) — Total ...... $ 464,042 $102,914 $11,189 $578,145 $ (6,557) $ 571,588 Operating expenses ...... $ 445,951 $102,189 $ 9,897 $558,037 $ (6,845) $ 551,192 Operating income ...... $ 18,091 $ 725 $ 1,292 $ 20,108 $ 288 $ 20,396 Identifiable assets ...... $ 404,012 $ 71,743 $49,300 $525,055 $ (1,668) $ 523,387 Depreciation and amortization ...... $ 14,495 $ 2,555 $ 257 $ 17,307 $ (3) $ 17,304 Capital expenditures ...... $ 13,431 $ 15,595 $ 183 $ 29,209 $ — $ 29,209

As described in Note 1, the Companies adopted the new accounting standard for financial instruments. As a result, operating income for Other decreased by ¥33,968 thousand ($274 thousand).

MOS FOOD SERVICES, INC. 25 As described in Note 1, the Companies adopted the 12. Purchase from Affiliated Companies new accounting standard for severance and retirement Merchandise purchased from affiliated companies for the benefits for employees. As a result, operating income for years ended March 31, 2001, 2000 and 1999 were MOS Burger Business increased by ¥60,028 thousand ¥5,698,922 thousand ($45,996 thousand), ¥5,781,739 ($484 thousand) and operating income for Other de- thousand and ¥6,125,058 thousand, respectively. creased ¥11,654 ($94 thousand). As described in Note 1, the Companies adopted the 13. Subsequent Events revised accounting standard for translation of foreign On June 28, 2001, the shareholders approved the pay- currencies. The effect of adopting the revised accounting ment of a cash dividend of ¥5.00 ($0.04) per one share to standard was immaterial. shareholders of record as of March 31, 2001 or a total Both of geographic segment information and overseas payment of ¥157,791 thousand ($1,274 thousand). sales information are omitted due to immateriality to the consolidated financial statements.

MOS FOOD SERVICES, INC. 26 Report of Independent Public Accountants

To the Shareholders and the Board of Directors of MOS FOOD SERVICES, INC.:

We have audited the accompanying consolidated balance sheets of MOS FOOD SERVICES, INC. (a Japanese corpo- ration) and its consolidated subsidiaries as of March 31, 2001 and 2000, the related consolidated statements of income, and shareholders’ equity for each of the three years in the period ended March 31, 2001 and the related consolidated statements of cash flows for each of the two years in the period ended March 31, 2001, all expressed in Japanese yen. Our audits were made in accordance with generally accepted auditing standards in Japan and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circum- stances. In our opinion, the consolidated financial statements referred to above present fairly the consolidated financial position of MOS FOOD SERVICES, INC. and its consolidated subsidiaries as of March 31, 2001 and 2000, the consolidated results of their operations for each of the three years in the period ended March 31, 2001 and their cash flows for each of the two years in the period ended March 31, 2001 in conformity with accounting principles generally accepted in Japan applied on a consistent basis during the periods, except as noted in the following paragraph. As explained in Note 1, MOS FOOD SERVICES, INC. and its consolidated subsidiaries adopted, on a prospective basis in all cases, new Japanese accounting standards for financial instruments, foreign currency translation and severance and retirement benefits for employees effective April 1, 2000, and for consolidation and equity method accounting, income taxes, research, development and other costs and preparation of the consolidated statement of cash flows effective April 1, 1999. Also effective April 1, 1999, MOS FOOD SERVICES, INC. and its consolidated subsidiaries changed the method of accounting for retirement benefits for employees as explained in Note 1, with which we concur. Also, in our opinion, the U.S. dollar amounts in the accompanying consolidated financial statements have been translated from Japanese yen on the basis set forth in Note 1.

Tokyo, Japan June 28, 2001

Certified Public Accountants (ASAHI KANSA-HOJIN)

Statements on Accounting Principles and Auditing Standards This statement is to remind users that accounting principles and auditing standards and their application in practice may vary among nations and therefore could affect, possibly materially, the reported financial position and results of operations. The accompanying consolidated financial statements are prepared based on accounting principles generally accepted in Japan, and the auditing standards and their application in practice are those generally accepted in Japan. Accordingly, the accompanying financial statements and the auditors’ report presented above are for users familiar with Japanese accounting principles, auditing standards and their application in practice.

MOS FOOD SERVICES, INC. 27 Corporate Data

HEADQUARTERS NUMBER OF RESTAURANTS 22, Tansu-machi, MOS Burger Shinjuku-ku, Tokyo Franchised: 1,458 162-8501, Japan Company-owned: 108 (including four MOTHER Tel: (03) 3266-7171 LEAF stores) Fax: (03) 3266-7110 http://www.mos.co.jp/ Subsidiaries AEN DATE OF ESTABLISHMENT Company-owned: 2 July 1972 Chirimentei Franchised: 146 NUMBER OF EMPLOYEES Company-owned: 13 483 Nakau Franchised: 100 CAPITAL Company-owned: 94 ¥11,413 million Overseas COMMON STOCK Hawaii (Honolulu) Authorized: MOS Burger: 1 101,610,000 shares Taiwan Issued: MOS Burger: 39 32,009,910 shares Singapore MOS Burger: 9 NUMBER OF SHAREHOLDERS Malaysia 9,530 MOS Burger: 1

(As of March 31, 2001)

Forward-Looking Statements When included in this annual report, the words, “will,” “should,” “expects,” “intends,” “anticipates,” “estimates,” and similar expressions, among others, identify forward-looking statements. Such statements inherently are subject to a variety of risks and uncertainties that could cause actual results to differ materially from those set forth in such statements. These forward-looking statements are made only as of the date of this annual report. The Company expressly disclaims any obligations or undertaking to release any update or revision to any forward-looking statement contained herein to reflect any change in the Company’s expectations with regard thereto or any change in events, conditions or circumstances on which any statement is based.

MOS FOOD SERVICES, INC. 28 Directors and Corporate Auditors

(From back to front and left to right) Toshifumi Hanegawa, Takashi Kurushima, Yasusuke Kunugi, Kyozo Watanabe, Airo Yamasaki, Shigeru Tamura, Masumi Saito, Jiro Watanabe, Kazuhiko Tada, Atsushi Sakurada, Yoshikazu Matsumura, Ryutaro Furuki

PRESIDENT DIRECTORS STANDING CORPORATE AUDITOR Atsushi Sakurada Airo Yamasaki Kyozo Watanabe FC Business Division MANAGING DIRECTORS Shigeru Tamura CORPORATE AUDITORS Yoshikazu Matsumura New Business Development Yasusuke Kunugi Administration Division and Division Takashi Kurushima Corporate Planning Office Masumi Saito Toshifumi Hanegawa Kazuhiko Tada Merchandising Division FC Business Division Jiro Watanabe Ryutaro Furuki Corporate Planning Office RC Business Division and Franchise Service Office

(As of June 28, 2001)

MOS FOOD SERVICES, INC. 29 MOS FOOD SERVICES, INC. 22, Tansu-machi, Shinjuku-ku, Tokyo 162-8501, Japan

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