AEON MALL AR03-PDF - EPRA

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ÆON MALL Co., Ltd. Annual Report 2003 pg. 1

in an Emerging Market

The Japanese retail sector is in transition from stand-alone

stores to commercial complexes. This is reflected in the

expansion of the shopping mall market. However, most of the

facilities known as malls in Japan have been developed by

general merchandise retailers, which simply cluster a few

dozen specialty stores around their own retail facilities. Specialist developers

are rare in Japan, and most have only one mall. As a pioneer in shopping mall

development in Japan, ÆON Mall is one of the very few companies with a

network of malls across the nation.

PositionedforGrowth

der

pg. 2 ÆON MALL Co., Ltd. Annual Report 2003

SophFinancialS


ManagementÆON Mall develops large shopping malls with 100 or more tenants.

Development on this scale involves substantial capital investment, and

the basic approach employed by ÆON Mall is to lease land and own build-

ings. It has also started to use off-balance sheet methods,

such as operating leases and asset securitization, to

avoid a build-up of assets in a deflationary environment

and to achieve a balance between returns and asset

efficiency. ÆON Mall is also diversifying its sources of

finance to include not only bank loans, but also direct finance. A share

float implemented in July 2002 was example of this strategy.

FinancialStrength

histicated


Ave

rage

Shopping malls contribute as much as

96% of ÆON Mall’s revenues. Since the

start of shopping mall operations in 1989,

ÆON Mall has achieved revenue and

income growth in each of the succeeding

14 accounting periods. Over the last five-year period,

operating income grew by the average annual rate of 27%,

and average net income grew by 32% on a non-consolidated

basis. From fiscal 1997 through 2002, income growth has

outstripped the growth of floor space. In that time, com-

mercial space in its shopping malls rose by 315%, and

operating income and net income grew by 336% and 403%,

respectively, underscoring ÆON Mall’s ability to achieve

sustained growth in income from existing-mall operations.

ProfitGrowth of

DemonstratedPerformance


%Over


Millions of yen

For the year:

Revenues

Operating income

Net income

At year-end:

Total assets

Interest-bearing debt

Shareholders’ equity

Per share:

Net income

Cash dividends applicable to the year

Ratios:

Net income/Revenue

Equity ratio

Return on assets*

Return on equity

*Return on assets = Net income/Total assets

30,836

9,041

3,878

154,190

70,125

23,762

167.73

25

12.6%

15.4%

2.6%

19.1%

Years ended February 20 2003 2002

Consolidated

Financial Highlights

Contents

A Message from the President . . . . . . . . . . . . 7

Shopping Mall Development . . . . . . . . . . . . . . 12

Property Management . . . . . . . . . . . . . . . . . . 16

Built-in Sustainability . . . . . . . . . . . . . . . . . . 20

Our Shopping Malls . . . . . . . . . . . . . . . . . . . . 24

Financial Section . . . . . . . . . . . . . . . . . . . . . . 26

Business Information . . . . . . . . . . . . . . . . . . . 49

Corporate Information . . . . . . . . . . . . . . . . . . 50

Stock Information . . . . . . . . . . . . . . . . . . . . . 51

25,162

7,007

2,393

148,254

76,058

16,786

107.56

20

9.5%

11.3%

1.7%

15.3%


A Message from

the President

Fiscal 2002 (the year ended February 20, 2003) was the 14th year since the launch of shopping mall opera-

tions and an epochal term for ÆON Mall. The Company listed its shares on the First Section of the Tokyo

Stock Exchange in July 2002. The listing highlighted the existence of a specialty shopping mall developer

and operator, still very much a rarity in Japan, and enabled the Company to procure funds for new shopping

complex development. Fiscal 2002 was also the year in which ÆON Mall put forth a long-term vision aiming

to take its place among the world’s ten leading shopping complex developers during the coming ten years,

and it established a medium-term management plan in the course of achieving that goal. Not content with

our position as Japan’s largest retail complex developer, we have clearly proclaimed our preparedness to

push ahead toward a new growth stage.

FOURTEEN CONSECUTIVE YEARS OF REVENUE AND INCOME GROWTH

Amid a continuing deflationary environment and great uncertainty about the future of

the Japanese economy, consumption expenditure remains in a long-term slump.

Despite these unfavorable business conditions for the retail industry, the shopping malls

developed by the Company met with strong customer support during the year under

review, and we posted our 14th consecutive gain in both revenues and income.

On a consolidated basis, the Company recorded a sharp rise in full-year revenues

to ¥30,836 million, a 22.5% increase compared to the previous term. The excellent

results are attributable to growth in revenues from existing shopping malls coupled with

full-year contributions from three new shopping complexes that opened during the pre-

vious year. The ÆON Takaoka Shopping Center, opened in September of 2002, got off

to a flying start that exceeded all expectations.

Thoroughgoing cost control helped boost operating income to ¥9,041 million, a

29.0% year-on-year expansion, which exceeded even the high rate of increase in rev-

enues. The Company achieved a dramatic 62.1% increase in net income, which

surged to ¥3,878 million in part due to booking a gain on the return of the subsitutional

execution portions of welfare pension funds. Expansion of floor space at one shopping

mall and the opening of one new complex brought an increase in the total commercial

floor space of ÆON Mall-developed facilities from 659,065 square meters to

755,876 square meters.

President

Yoshiharu Kawato


OUTLINE OF THE MEDIUM-TERM MANAGEMENT PLAN

In fiscal 2002, ÆON Mall formulated a medium-term management plan aimed at

achieving new growth. This three-year plan, for the period from fiscal 2003 to fiscal 2005

(from February 21, 2003 to February 20, 2006), targets revenue of ¥53,000 million, net

income of ¥7,000 million and return on assets of 3.5% or higher. This target calls for

the expansion of the total commercial floor space to 1.3 million square meters

through the development of eight or more shopping malls within three years.

The Company’s long-term vision entails increasing the number of shopping

malls to more than 50 and the total commercial floor space to more than 3.0 million

square meters during the coming ten years. By so doing, we will take our place

among the world’s top ten shopping complex developers and transform ourselves into

a specialty shopping mall developer with capabilities comparable to those of leading

developers in Europe and North America, where mall development is most advanced.

We will unfailingly execute the medium-term management plan in preparation for the

achievement of this long-term vision.

Strengthening and expanding shopping mall operations

Progressing deflation has spurred many Japanese manufacturers to shift their pro-

duction overseas, and the number of sites suited to the large-scale shopping complexes

at which ÆON Mall excels is rapidly increasing. Furthermore, land-use regulations are

becoming more flexible, and moves to attract shopping mall development are in evidence

as well. The number of shopping malls is on the rise and the share of the total

annual sales amount for the retail industry accounted for by shopping malls has

expanded from 10% to 20% during the past ten years, although the annual sales

amount for the retail industry is trending steadily downwards. This situation clearly

indicates the arrival of a true era of shopping malls, and represents a tremendous busi-

ness opportunity for ÆON Mall.

At the same time, the industry has been plunged into full-scale competition as

companies from other industries, and from overseas, attracted by the growth poten-

Long-term Vision

Becoming a global

top-ten specialist mall

developer/operator

Management target by fiscal 2005

> Revenues: ¥53 billion

> Operating income: ¥7 billion

> ROA: 3.5% or more

> Commercial floor space: 1.3 million square meters(8 or more new malls)


tial of the shopping malls in Japan, have begun to enter the market. ÆON Mall is fully

prepared to demonstrate its competitive advantage as a pioneer specialty mall

developer and operator. It is our intention to fully and rapidly leverage the expertise

we have accumulated over the years to expand our business base, aggressively

seize on business opportunities and prevail against the competition. To that end, ÆON

Mall must secure prime development sites ahead of the full-scale market entry on the

part of companies from other industries and overseas.

All Company employees, including those not involved in shopping mall devel-

opment, will assume the mindset of development personnel and make use of

every available route to gather site information. In this way, we will redouble our

efforts to obtain excellent sites.

Even as we engage in new shopping mall development, we must strengthen the

competitiveness and profitability of existing malls. The major source of revenue

from shopping mall operations is rent from tenants. The Company has introduced rents

based on a percentage of sales. Such a system links increases in tenant store sales to

increases in our own revenues. Using information technology and other measures, we

must further bolster sales support for specialty stores. The Company will intensify ten-

ant review and replacement to create a tenant mix that maximizes return on shopping

mall assets by monitoring changes in the market and tenant performance. We will also

systematically expand floor space and conduct large-scale renovations.

Cost reduction is another important issue as we pursue revenue expansion ini-

tiatives. We will promote chain management to cut start-up and running costs in an

unconditional pursuit of low-cost operations, while maintaining the high image of

our facilities. By standardizing and systematizing business procedures, we expect

to be able to streamline and speed up operations, and at the same time realize sig-

nificant cost savings.

Mall development pursuant to maintaining a solid balance sheet

Growth by increasing the number of shopping facilities requires a carefully conceived

financial strategy. Traditionally, the Company has obtained project financing for

development of individual shopping complexes. However, the timely diversification of our

financing methods will give more maneuverability in opening new facilities. To enable col-

lateral-free corporate financing based on corporate credit, in fiscal 2003, the

Company aims to obtain a corporate credit rating. However, we will not rely solely on indi-

rect financing, but will proceed at the same time to obtain funds from the market.

Asset securitization is another effective option for diversifying financing and

improving the balance sheet. In fiscal 2002, the Company raised ¥4,788 million by

liquidating the guarantee deposits receivable for two malls and applied the funds to

repayment of borrowings. These days, real estate investment vehicles are diversify-

ing in Japan, with J-REIT (Japanese Real Estate Investment Trust) being a notable

example. While it formerly held primarily office buildings, its holdings now include


shopping centers and malls. While continuing to rely basically on the leased land and

owned building method for developing malls in the future, ÆON Mall will also

securitize existing shopping complexes to reduce interest-bearing liabilities and

improve return on assets.

Off-balance sheet structures, such as operating leases, also contribute to optimal

asset portfolio formation. In fiscal 2001, we developed two shopping malls using the

operating lease financing method. Two new malls are scheduled to open in fiscal 2003,

one of which will be financed using an off-balance sheet method. In developing our malls

in the coming years, we will continue to carefully assess whether or not we should own

or lease buildings at malls, with a view to the long-term prospects.

In preparation for the introduction of fixed-asset impairment accounting, we will

introduce balance sheets for each shopping complex, while we manage cash flow and

investment individually. We will also make sure to dispose of idle properties.

Launching a property management business

To secure a place for ÆON Mall among the world’s top ten commercial property devel-

opers, we have begun to extend the scope of business activities beyond development

of our own properties and move into a new field: property management with a focus

on operation management. No company in Japan engages in full-scale property

management of commercial facilities. Although some companies perform third-

party facility management under contract, they are not involved in tenant leasing, the

key to success in the shopping complex business. The Company will provide a com-

prehensive property management service spanning everything from planning, devel-

opment, tenant leasing and operations, to facility management. For the first project in

this new business, we concluded an agreement on construction management for a

shopping mall development in Taiwan. Over the coming ten-year period, we will

develop this new operation into a stable source of profit.

Entry into the property management business will provide an opportunity to estab-

lish a new source of profit based on expertise the company has developed over the years.

What is more, the process of seeking out value that can be sold to other companies will

yield increased precision in the various business processes entailed in the operation

of our own facilities and will enhance our competitiveness.

ÆON Morioka Shopping Center ÆON Ota Shopping Center

New malls opening

in fiscal 2003


Expanding insurance agency operations

Although ÆON Mall’s long-established insurance agency operations now account for

less than 4% of the Company’s overall revenues due to the growth of the shopping mall

operations, it is nevertheless an important business that yields stable profits. The

Company operates one of Japan’s few full-service insurance agency operations,

offering both non-life insurance and life insurance from a number of insurance

companies. In the corporate insurance sector, we leverage the benefits of membership

in the large-scale retail and service group ÆON to sell insurance primarily to the near-

ly 140 group companies.

While bolstering our ability to issue proposals to cope with the constantly

changing corporate risk situations of business today, we are currently focusing on mar-

keting activities directed at individual customers. Under these terms, we can take

advantage of synergy with the shopping mall operations. During fiscal 2002, we

commenced sales to individuals at shopping malls, where many customers congregate

and where the workers are also important potential customers. As reform of the

social insurance and pension systems brings expanded opportunities to sell insurance

to individuals, ÆON Mall will make the most of the planning and consulting capabilities

nurtured in the corporate sector to achieve further sales growth.

FULFILLMENT OF CORPORATE SOCIAL RESPONSIBILITY

A shopping mall operation cannot prosper without symbiosis with the community it

serves. We have long striven to fulfill our responsibilities to society, while assuring that

the natural environment is either improved or impacted minimally by our activities.

In fiscal 2002, ÆON Mall established the ÆON Mall Social Responsibility Council to

review corporate activities from the standpoint of society, the environment and

ethics in order to redouble our efforts in this regard. Under the auspices of this coun-

cil, we will establish a Compliance Committee to supplement the functions of the exist-

ing Social Contribution Council and Environment Committee.

We also aim to obtain Privacy Mark certification. The Company handles vast quan-

tities of personal information on customers and employees of companies that operate

stores in our malls, and we plan to construct a failsafe system for protecting this per-

sonal information.

The public offering of our shares has extended our responsibilities. To you, our

shareholders, we will promote management transparency, objectivity and accounta-

bility in the firm belief that this is in the best interests of the Company and its

stakeholders. We positively intend to enhance corporate value by pursuing the

aforementioned business initiatives to more effectively serve your long-term interests.

President Yoshiharu Kawato


Community Life

Creating

New Dimensionsfor

Shopping Mall

Development


A huge new shopping mall is built on what was once an empty field. Local residents, who

previously had to travel to neighboring towns to see movies or buy goods other than daily

necessities, can now compare and choose among goods offered by a wide array of retail

stores. They have a place where families can relax throughout the day. This is ÆON Mall’s

vision: to create shopping malls that enhance community life and culture.


Shopping Mall

Development

MARKET DEVELOPMENT

Shopping malls developed by ÆON Mall are large-scale, multi-functional

commercial complexes that target large trade areas. Most are sited on the out-

skirts of regional cities, usually far from commercial districts, where it is dif-

ficult to secure sufficient land for large commercial complexes and where

establishment costs can be high. Because ÆON Mall aims to generate the great-

est possible returns from the smallest possible investment, it considers

such commercial district locations to be unsuitable.

When developing a new shopping mall, ÆON Mall aims to create an

asset that will bring prosperity to the area and become a new focal point for com-

munity life. In short, it creates its own markets. Changes in Japan’s industri-

al structure have brought an increase in the number of disused farmland

and factory sites that offer high potential for development as major shopping

malls. These are the places that ÆON Mall selects for development. Because of

its proven track record in market creation, ÆON Mall now receives many

approaches from local governments, which are eager to secure malls as cen-

terpieces of industrial and urban development schemes. There is ample

scope for the development of new malls. ÆON Mall estimates that are still

around 100 suitable sites throughout Japan.

INTEGRATED FUNCTIONS

AND SERVICES ON LARGE SITES

ÆON Mall’s standard shopping mall consists of commercial facilities with a floor

space of 60,000 square meters, together with parking for 3,500 vehicles, on a

site with an area of at least 100,000 square meters. Few other companies are

involved in shopping mall development on this scale in Japan. ÆON Mall

aims to create complexes with at least two anchor stores, such as Japanese-style

For ÆON Mall, a shopping mall is not merely a retail center. It is a virtual town capable

of meeting all of the needs of people in local communities. Tenants include not only

retailers and restaurants, but also cinema complexes and other entertainment facilities,

and our malls support essential public services such as banks and health clinics. ÆON

Mall aims to create malls that play a central role in their communities by offering a wide

array of services and functions.


general merchandise stores (a combination of supermarket and U.S.-style

general merchandise store under one roof) or department stores, together

with at least 100 specialty stores of various types located in an enclosed mall

linking the two anchor stores. Tenant selection begins with in-depth market

research. ÆON Mall then approaches highly competitive merchants that

reflect market needs. About one-third of the tenants are national chains that

have remained consistently popular with consumers. Another third is made up

of stores that are establishing regional branches for the first time. The

remaining third consists of local retailers. The result is an appealing blend of

familiarity and novelty.

Competition is an important force for improving the quality of tenants. For

this reason, ÆON Mall always ensures that there is more than one store in each

retail category in its malls. The presence of a highly competitive anchor store has

a major influence on the success of a shopping mall. A key advantage for

ÆON Mall is the fact that it can anchor its malls with JUSCO, a general mer-

chandise store operated by its parent company, ÆON.

ÆON Mall develops large-scale shopping malls throughout Japan. They serve large areas with a variety of functions, including

shopping, dining, entertainment and essential services, all of which create a focal point of community life.

Standards for Our Malls

Trade area 400,000–500,000 people within 30 min. by car

Land size 100,000.m2

Commercial floor space 60,000.m2

Numbers of tenants 100–150 stores

Parking capacity 3,500 vehicles


Drawing Power

Enhancing

Customer

Property

Management


Even the newest facilities will lose their novelty with the passage of time, and as freshness

wanes, customer numbers gradually decline. ÆON Mall supports the business activities of

its tenants to ensure that its shopping malls are always alive with customers. It achieves

this by making the maintenance of freshness a basic commitment in both its development

and investment plans, and also in day-to-day management. In shopping malls created by

ÆON Mall, shoppers always find something new, however often they visit.


Property

Management

COMPREHENSIVE TENANT

SUPPORT

Rents for specialty stores other than anchor stores consist of a 28% fixed

portion, with the remaining 72% based on turnover. By combining a fixed

rent with a percentage of turnover, ÆON Mall raises the upper limit of its income

potential. This has been one of the keys to the Company’s strong growth.

ÆON Mall uses various initiatives, such as sales promotions and

events, to enhance the overall customer drawing power of each mall. It also pro-

vides a variety of business support to individual tenants. An important asset for

ÆON Mall in this context is its status as the mall developer in a retail group with

a profound knowledge of consumer needs. Tenants benefit from in-depth

support that ranges from advice on merchandising and product display to

customer-service training for staff. ÆON Mall’s sales management system is an

example of unique expertise unmatched by other mall developers. This system,

which has earned an excellent reputation for reliability, uses advanced infor-

mation technology to provide precise sales data collection and analysis servic-

es in real time for all mall tenants throughout Japan.

ÆON Mall also monitors customer traffic in its malls and shares the

resulting data with tenants for use in marketing and sales promotion planning.

The linkage of tenant sales to ÆON Mall’s revenues ensures that the

Company benefits from growth in tenants’ sales. It also enhances the value of

the malls from the tenants’ viewpoint, since ÆON Mall tenants know that they

can look forward to excellent support and high sales. The result is a virtuous

circle in which highly competitive retailers seek to establish stores in malls devel-

oped by ÆON Mall, leading to further growth in ÆON Mall’s earnings.

In addition to its unique approach to development, ÆON Mall is also highly competitive in

the area of mall management. Careful attention to environmental management, security

and maintenance ensures that consumers can always enjoy a pleasant and secure shopping

experience. At the same time, asset value is maintained through systematic expansion and

renewal programs. ÆON Mall works in partnership with every tenant to enhance the

attractiveness of its malls.


MAINTAINING FRESHNESS

AND NOVELTY

The improvement of ÆON Mall’s earning power depends both on the estab-

lishment of new malls and on the revitalization of existing malls. Consumer needs

are continually changing, and the initial tenant mix will not remain optimal for-

ever. Despite the comprehensive support provided by ÆON Mall, some tenant

spaces grow old, and their sales stagnate. If counseling fails to bring any

improvement, ÆON Mall moves quickly to replace the tenants in question before

the overall attractiveness of the mall is affected. At the same time, ÆON Mall

strives to attract popular and interesting retailers to its malls.

In addition to this continuing review of the tenant mix, ÆON Mall also

expands and renews its malls, usually about five years after opening. This revi-

talization strategy includes provision for future expansion in initial mall

designs at the development stage.

The value of our malls lies in our ability to provide management and operational support to tenants. It ranges from sales data

analysis and regular management meetings to advice on merchandising.

Timely Updating of Malls

Year Opened Year Updated

ÆON Kashiwa SC 1992 1997, 2002

ÆON Akita SC 1993 1997, 2001

ÆON Futtsu SC 1993 1998

ÆON Shimoda SC 1995 1998, 2001

ÆON Suzuka SC 1996 2002

ÆON Sanko SC 1996 2000

ÆON Niihama SC 2001 2002


Better World

Taking

Direct Actionfor a

Built-in

Sustainability


The first principle of ÆON Mall’s management philosophy is that all business activities

should be guided by an active commitment to environmental conservation and contribution

to the community. ÆON Mall believes that shopping malls can only succeed through har-

monious coexistence and partnership with local communities. That is why it has made each

of its malls a base for wide-ranging environmental and community service activities.


Built-in

Sustainability

PLEASANT SHOPPING

ENVIRONMENTS FOR ALL

ÆON Mall aims to create pleasant, barrier-free shopping environments for all

people, including the physically challenged, the aged, expectant mothers and par-

ents with babies. For example, to facilitate access for people in wheelchairs,

ÆON Mall provides wide passageways and special parking facilities with

extra space to make vehicle entry and exit easier. Vending machines are

designed to allow purchases to be made from a low position, and slopes are pro-

vided alongside stairways. These initiatives are recognized and valued by

customers. All malls operated by ÆON Mall conform not only to a Japanese law

concerning building accessibility for the aged and disabled, but also with

local government welfare ordinances and other requirements.

In addition to these physical measures, ÆON Mall also works to make its

malls barrier-free on the social level. For example, staff is available to accompany

and assist any shoppers, and there is staff trained in sign language. The

ÆON Shimoda Shopping Mall is the first mall in Japan to provide senior day care.

CONSIDERATION FOR

LOCAL ENVIRONMENTS

Under a law enacted in June 2000, consideration for the environment is a

requirement for the establishment of large-scale retail stores in Japan. ÆON

Mall’s accumulated expertise, based on numerous projects undertaken to

conserve local social and natural environment and initiated long before any legal

requirements to do so, constitute a competitive advantage in shopping mall devel-

opment. For example, our malls are designed to minimize the impact on local road

traffic, including the provision of sufficient parking space to serve peak

demand, and the installation of traffic signals and guided routes. In addition,

ÆON Mall uses a two-stage opening strategy for new malls to mitigate the con-

gestion that is normally associated with the opening of such large mall complexes.

When developing a new shopping mall, ÆON Mall first considers people and the environ-

ment. It pioneered barrier-free design in Japan to create malls that all customers, includ-

ing the physically challenged, can access and use with pleasure. Out of consideration for

the environmental, ÆON Mall achieved ISO 14001 certification for all of its shopping

malls in 2001 and is continually striving to minimize the environmental load. In addi-

tion, ÆON Mall undertakes a wide variety of environmental initiatives in partnership

with local communities.


Tree planting has always been a feature of ÆON Mall’s development activities.

From its very first shopping mall development, it has carried out the “ÆON

Hometown Forest” program. This popular initiative aims to restore greenery by plant-

ing trees native to the region on its properties with the joint participation of local cit-

izens. During construction, a site’s existing trees are protected or relocated.

ZERO EMISSION

SHOPPING MALLS

In addition to its resource and energy conservation efforts, ÆON Mall is also

working to reduce waste emissions from its malls to zero. It is currently installing

organic waste processing equipment in all of its malls and aims to reduce emissions

to zero. Another goal is to recycle all non-organic waste through a sorted collection

program relying on the cooperation of tenants and customers.

In developing and operating shopping malls, ÆON Mall always considers people and the environment. We are well aware of our

social responsibility and carry out the appropriate measures as a good neighbor.

0

200

400

600

01 02 030099

In April 2001, all of our business

premises became accredited under the

ISO 14001 standard.

Trees Planted

(Thousand)


ÆON Kashiwa SC

ÆON Akita SC

ÆON Futtsu SC

ÆON Shimoda SC

ÆON Suzuka SC

ÆON Sanko SC

ÆON Kurashiki SC

Aomori Prefecture

Akita Prefecture

Chiba Prefecture

Aomori Prefecture

Mie Prefecture

Oita Prefecture

Okayama Prefecture

Our

Shopping Malls

November 28, 1992

September 10, 1993

September 25, 1993

April 22, 1995

November 29, 1996

December 7, 1996

September 21, 1999

51,238m2

65,194m2

32,425m2

48,000m2

62,508m2

31,348m2

71,706m2

ParkingSpaces

Population ofTrade Area

Location/Opening

510,946 people

226,222 people

650,000 people

276,736 people

422,789 people

715,000 people

181,834 people

4,000vehicles

2,500vehicles

3,500vehicles

4,000vehicles

1,800vehicles

2,700vehicles

2,700vehicles

Annual Sales

¥34.4 billion

¥9.3 billion

¥25.6 billion

¥18.2 billion

¥11.8 billion

¥22.7 billion

¥11.3 billion

Development Mode

Industrial land utilization

Farmland utilization


Development withJapan RegionalDevelopmentCorporation

Participation in landredevelopmentscheme

Development withJapan RegionalDevelopmentCorporation

Farmland utilization (urban rezoning)

Commercial Space

(66,554m2, afterintroducing acinema complexin July 2003)


Location/Opening

ÆON Kashiwa SC

ÆON Takaoka SCÆON Akita SC

ÆON Futtsu SC

ÆON Shimoda SC

ÆON Suzuka SC

ÆON Sanko SC

ÆON Kurashiki SCÆON Narita SC

ÆON Okazaki SCÆON Kochi SC

ÆON Niihama SCÆON Higashiura SC ÆON Yamato SC

(As of February 20, 2003)

415,675 people

587,000 people

667,065 people

344,507 people

501,477 people

753,378 people

553,000 people

3,600 vehicles

1,900 vehicles

4,000 vehicles

3,500 vehicles

2,800 vehicles

3,500 vehicles

3,500 vehicles

Annual Sales

—

¥17.8 billion

¥29.6 billion

¥18.0 billion

¥22.6 billion

¥39.1 billion

¥27.2 billion

Development Mode

Farmland utilization (urban rezoning)


Participation in land redevelopmentscheme




Participation in land redevelopmentscheme

ÆON Narita SC

ÆON Okazaki SC

ÆON Kochi SC

ÆON Niihama SC

ÆON Higashiura SC

ÆON Yamato SC

ÆON Takaoka SC

65,913m2

69,118m2

54,190m2

50,215m2

56,334m2

33,153m2

64,534m2

ParkingSpaces

Population ofTrade Area

Commercial Space

Chiba Prefecture

Aichi Prefecture

Kochi Prefecture

Ehime Prefecture

Aichi Prefecture

Kanagawa Prefecture

Toyama Prefecture

March 18, 2000

September 22, 2000

December 23, 2000

June 30, 2001

July 24, 2001

December 1, 2001

September 19, 2002


Financial

Sec tion

Financial Section

ContentsSelected Financial Data . . . . . . . . . . . . . . . . . . . . . 27

Operational and Financial Review . . . . . . . . . . . . . 28

Consolidated Balance Sheets . . . . . . . . . . . . . . . . 32

Consolidated Statements of Income . . . . . . . . . . . 34

Consolidated Surplus Statements . . . . . . . . . . . . . 35

Consolidated Statements of Cash Flows . . . . . . . . 36

Notes to Consolidated Financial Statements . . . . 38


Selected Financial DataYears ended February 20

Millions of yen

CONSOLIDATED 2003 2002 2001

For the year:

Revenues

Real estate rent revenue

Insurance agency commissions

Sales of goods

Operating income

Net income

Depreciation and amortization

Capital expenditure

Per share:

Net income

Cash dividends applicable to the year

At year-end:

Total assets

Interesting-bearing debt

Total shareholders’ equity

¥25,162

23,978

1,076

107

7,007

2,393

4,662

23,786

107.56

20

148,254

76,058

16,786

¥18,292

17,152

1,030

109

4,620

1,868

3,981

25,302

83.94

20

136,298

66,014

14,445

¥30,836

29,612

1,156

67

9,041

3,878

5,104

13,188

167.73

25

154,190

70,124

23,762

Millions of yen

NON-CONSOLIDATED 2003 2002 2001 2000 1999

For the year:

Revenues

Operating income

Net income

At year-end:

Total assets

Interesting-bearing debt


¥13,946

3,506

1,243

104,104

46,861

13,131

¥12,494

2,836

1,022

94,261

46,773

12,355

¥18,561

4,393

1,809

133,027

62,311

14,468

¥25,430

6,746

2,330

145,116

72,652

16,746

¥31,105

8,755

3,801

151,278

67,017

23,645


Operational and Financial Review

REVIEW OF CONSOLIDATED OPERATIONS

ÆON Mall and its consolidated subsidiary achieved sharp increases in

revenues and operating income for fiscal 2002 (from February 21, 2002 to

February 20, 2003). Consolidated revenues surged 22.5% from the prior year

to ¥30,836 million, while operating income climbed 29.0% to ¥9,041 million.

The increase in revenues is attributable to measures taken to vitalize

existing shopping malls and the opening of a new mall. Revitalization

began with the large-scale renovation of the ÆON Kashiwa Shopping

Center in April 2002. This facility was originally developed as two separate

buildings divided by a village road, but Kashiwa Village did away with the

road to enable the Company to unite the two buildings into a single struc-

ture. The change increased customer traffic and made it possible to intro-

duce new specialty shops, centered on highly fashionable brands.

In June 2002, the Company greatly increased the floor space of the

ÆON Suzuka Shopping Center. It acquired a tract of idle industrial land,

about 20,000 square meters in area, to the west of the existing shopping

complex site. Twenty-six new specialty stores opened in the new facility,

including a large electrical appliance store, a clinic, educational facilities,

a daycare center, a pet shop, and other new specialty shops. The store loca-

tions within the existing mall were reorganize, as well. In July, a cinema

complex was introduced at the Niihama Shopping Center, which had

opened the previous year.

The Company engaged in aggressive advertising activities, staged

customer-participation events, and made improvements to facilities in

response to customer requests at existing malls, including the three

already mentioned. As a result of these initiatives, the ten existing shopping

malls for which prior-year comparisons are possible saw increases in tenant

sales. The aggregate year-on-year increase for the ten malls was 10.1%,

excluding the effect of the introduction of the large electrical appliance

store. The newly opened ÆON Takaoka Shopping Center attracted many cus-

tomers from outside the anticipated catchment area, and its performance has

exceeded expectations.

Insurance agency operations also recorded a revenue increase by

enhancing the ability to meet diversifying customer needs rapidly with

optimal insurance plans and improving services. During the year under

0

10,000

20,000

30,000

40,000

02 0301

Revenues

(Millions of yen)

0

10,000

20,000

30,000

02 0301


(Millions of yen)

0

500

1,000

1,500

02 0301

Insurance agency

commissions

(Millions of yen)


review, the Company focused on individual customers, stimulating robust

sales of annuities, cancer insurance, and medical insurance. Sales of auto

insurance also developed favorably, as we took full advantage of our position

as a member of ÆON. The Company also commenced over-the-counter sales

of insurance at shopping malls, in an expansion of sales channels.

Dedicated insurance counters opened at the ÆON Yamato Shopping

Center and the ÆON Higashiura Shopping Center, targeting mall cus-

tomers and workers. In the corporate insurance sector as well, meticulous

consultative selling led to an increase in the number of policies.

The operating margin stood at 29.3%, an improvement of 1.5 percent-

age points over the previous term. Although an increase in the cost of

operations is attendant on business expansion, the Company succeeded in

reducing selling, general and administrative expenses to a level below that

of the previous year.

With regard to other income and expenditures, we booked a loss on the

retirement of a store facility that was in operation before the start of shop-

ping mall operations, and a gain on the return of the substitutional portion

of the welfare pension fund. Net profit for the year under review increased

62.1% compared to the previous year, to ¥3,878 million.

Earnings from tenant rents by shopping mallFor the year ended February 20

Millions of yen %

2003 2002 YoY

ÆON Kashiwa SC 1,179 1,175 100.4ÆON Akita SC 2,261 2,109 107.2ÆON Futtsu SC 1,095 1,072 102.1ÆON Shimoda SC 1,865 1,836 101.6ÆON Suzuka SC 2,482 2,107 117.8ÆON Sanko SC 812 782 103.9ÆON Kurashiki SC 2,947 2,853 103.3ÆON Narita SC 2,464 2,272 108.5ÆON Okazaki SC 2,169 2,102 103.2ÆON Kochi SC 2,135 2,032 105.1ÆON Niihama SC 1,621 1,131 (8 month) -ÆON Higashiura SC 2,391 1,472 (7 month) -ÆON Yamato SC 2,388 622 (2 month) -ÆON Takaoka SC 1,327 (5 month) - -

0

1,000

2,000

3,000

5,000

02 0301

4,000

0

40

80

120

200

160

Net income/

Net income per share

(Millions of yen) (yen)

0

2,000

4,000

6,000

10,000

02 0301

8,000

0

10.0

20.0

30.0

50.0

40.0

Operating income/

Operating income margin

(Millions of yen) (%)


FINANCIAL POSITION

In parallel with the expanding scale of operations, total assets for fiscal

2002 increased ¥5,936 million year on year to ¥154,190 million. Current assets

increased by ¥3,283 million. Fixed assets increased by ¥2,702 million as a

result of floor space expansion and facility refurbishment at existing shopping

malls and the opening of a new shopping mall. The Company liquidated a por-

tion of guarantee deposits receivable, resulting in a decrease in fixed assets

of ¥4,788 million compared to the situation if liquidation had not been

employed. Subsequently, return on assets improved from 1.7% to 2.6%.

Total liabilities decreased by ¥1,071 million compared with the previous

year to ¥130,288 million. This is because the lenders were repaid using funds

obtained from liquidation of guarantee deposits receivable. The balance of

interest-bearing debt at the year-end decreased by ¥5,933 million to

¥70,125 million, and the interest-bearing debt to total assets ratio

improved 5.8 percentage points, from 51.3% to 45.5%, while the debt-to-

equity ratio improved from 4.5 times to 2.9 times.

Total shareholders’ equity increased by ¥6,976 million from the previ-

ous term to ¥23,762 million, due to the growth in net income and the

public offering of shares. The equity ratio increased from 11.3% to 15.4%,

while return on equity improved from 15.3% to 19.1%.

CASH FLOWS

For fiscal 2002, operating activities provided net cash of ¥10,824 million. This

was an ¥1,838 million increase compared to the prior year. Net cash used in

investing activities totaled ¥4,675 million. Net cash used in financing

activities was ¥2,859 million, a rise of ¥12,452 million. As a result, the clos-

ing balance of cash and cash equivalents at the fiscal year-end increased by

¥3,289 million year on year to ¥6,142 million.

The increase in net cash provided by operating activities is attributable

to the steady growth in profits owing to the opening of a new shopping mall,

the annual contribution of malls opened during the previous year, and the

vitalization of existing facilities.

The Company used ¥1,310 million for the opening of a new shopping

mall and for increasing floor space and refurbishment at existing shopping

malls. However, the partial liquidation of guarantee deposits receivable

offset these outflows, and the ending balance was confined to ¥4,675 million.

The rise in net cash used in financing activities is due to the repayment

0

50,000

100,000

200,000

02 0301

150,000

0

1.0

2.0

4.0

3.0

Total assets/

Total assets turnover

(Millions of yen) (Times)

0

20,000

40,000

100,000

02 0301

80,000

0

1.0

2.0

60,000 3.0

5.0

4.0

Interesting-bearing debt/

Debt-equity ratio

(Millions of yen) (Times)

0

10,000

30,000

02 03010

10 .0

20,000 20.0

30.0

Total shareholders’ equity/

Equity ratio

(Millions of yen) (%)


of ¥14,365 million in long-term borrowings using funds obtained from the liq-

uidation of guarantee deposits receivable, which was partially counterbal-

anced by an inflow of ¥3,525 million from the public offering of shares. As

the Company considers profit distribution to shareholders to be an impor-

tant management duty, it increased the dividend per share from ¥20 to ¥25

for the year under review, with a ¥5 special dividend to commemorate the

public offering of shares.

CAPITAL EXPENDITURES

Capital expenditure for the year under review climbed by ¥10,598 million

compared to the previous period to ¥13,188 million as a result of floor-space

expansion and refurbishment at three existing shopping malls and the

opening of a new shopping mall. Of this amount, ¥4,153 million was

obtained from guarantee deposits received from tenants.

The Company’s basic policy concerning profit distribution is to place

importance on the continuing provision of stable dividends to shareholders

while at the same time using profits to maintain ample internal reserves for

capital investment to strengthen the business infrastructure.

0

5.0

20.0

02 0301

10.0

15.0

ROE/ROA

(%)

0

10,000

20,000

30,000

02 0301

Capital expenditure

(Millions of yen)


Consolidated Balance SheetsAs of February 20, 2003 and 2002

Millions of yen

ASSETS 2003 2002

Current assets:

Cash on hand and in banks

Accounts receivable—trade

Inventories

Prepaid expenses

Deferred tax assets—current (Note 9)

Others

Less: Allowance for doubtful accounts

Total current assets

Property and equipment:

Buildings and structures

Machinery and transportation equipment

Tools and fixtures

Less: Accumulated depreciation

Land

Construction in progress

Net property and equipment

Intangibles

Investments and other assets:

Investments in securities (Notes 2 and 3)

Long-term loans receivable

Long-term prepaid expenses

Deferred tax assets—non-current (Note 9)

Guarantee deposits receivable (Note 7)

Others

Less: Allowance for doubtful accounts

Total investments and other assets

Total assets

Accompanying notes are an integral part of the financial statements.

¥ 3,179

953

44

209

137

1,704

(10)

6,220

95,479

525

4,095

(26,916)

51,209

364

124,758

353

1,201

14

2,085

52

13,037

568

(37)

16,922

¥ 148,254

¥ 6,462

1,005

28

197

204

1,564

(10)

9,453

104,761

527

4,576

(29,817)

52,123

135

132,306

349

1,258

14

2,089

234

8,269

255

(39)

12,081

¥ 154,190

Millions of yen

LIABILITIES AND SHAREHOLDERS’ EQUITY 2003 2002

Current liabilities:

Accounts payable—trade

Short-term loans (Note 4)

Current portion of long-term loans (Note 4)

Income taxes payable

Deposits from specialty shops

Deposits received

Reserve for bonuses

Notes payable for facilities

Others

Total current liabilities

Long-term liabilities:

Long-term loans (Note 4)

Deferred tax liabilities—non-current (Note 9)

Reserve for employees’ retirement benefits

Reserve for directors’ retirement benefits

Guarantee deposits received (Note 4)

Others

Total long-term liabilities

Total liabilities

Minority interests

Shareholders’ equity:

Common stock, authorized: 80,000,000

Issued and outstanding:

2003—23,754,680

2002—22,254,680

Capital surplus

Retained earnings

Unrecognized gains or losses on

available-for-sale securities


Total liabilities, minority interests and shareholders’ equity



¥ 946

2,265

7,499

1,480

3,083

1,319

35

4,912

1,858

23,400

66,294

40

582

113

40,865

64

107,959

131,359

107

4,662

3,311

8,386

425

16,786

¥ 148,254

¥ 993

2,035

8,738

2,120

3,794

1,481

41

5,143

2,845

27,193

59,351

—

280

106

43,177

178

103,094

130,288

140

6,065

5,434

11,786

476

23,762

¥ 154,190


Consolidated Statements of IncomeFor the years ended February 20, 2003 and 2002

Millions of yen

2003 2002

Revenues:


Insurance agency commissions

Sales of goods

Cost of revenues:

Cost of real estate rent revenue

Cost of goods sold

Gross profit

Selling, general & administrative expenses (Note 10):

Operating income

Non-operating income (expenses):

Interest—net

Dividend income

Cancellation penalty for store withdrawal

Insurance money received

Subsidies and charges received for construction

Others—net

Recurring income

Non-recurring gains (losses):

Gains on returning substitutional portion of welfare pension fund

Cancellation penalty for core tenant withdrawal

Gains on sales of investments in securities

Losses on retirement and sales of property and equipment (Note 11)

Loss on revaluation of investments in securities

Losses on discontinuance of development

Special depreciation of idle assets

Amortization of unrecognized transition obligation arising

from change in accounting standards for retirement benefits

Others—net

Income before income taxes

Income taxes:

Current

Deferred

Minority interests in net income of consolidated subsidiary

Net income


¥ 23,978

1,076

107

25,162

14,977

96

15,073

10,088

3,081

7,007

(1,554)

13

61

—

—

(19)

(1,498)

5,508

—

—

16

(94)

(38)

(141)

(377)

(644)

(5)

(1,285)

4,222

2,251

(453)

1,797

31

¥ 2,393

¥ 29,612

1,156

67

30,836

18,677

60

18,737

12,098

3,057

9,041

(1,518)

42

51

23

20

(128)

(1,508)

7,532

328

40

—

(975)

—

—

—

—

(82)

(689)

6,843

3,251

(325)

2,926

38

¥ 3,878


Consolidated Surplus Statements For the years ended February, 20 2003 and 2002

Millions of yen

2003 2002

Capital surplus:

Beginning balance

Increase in capital surplus:

Share issuance for capital increase

Ending balance

Retained earnings:

Beginning balance

Increase in retained earnings:

Net income

Decrease in retained earnings:

Cash dividends

Directors’ bonuses

Ending balance


¥ 3,311

—

3,311

6,470

2,393

445

32

¥ 8,386

¥ 3,311

2,122

5,434

8,386

3,878

445

34

¥ 11,786


Consolidated Statements of Cash FlowsFor the years ended February 20, 2003 and 2002

Millions of yen

2003 2002

Cash flows from operating activities:

Income before income taxes

Depreciation and amortization

Increase in allowance for doubtful accounts

Increase in reserve for bonuses

Increase (Decrease) in reserve for employees’ retirement benefits

Interest and dividend income

Interest expenses

Special depreciation of idle assets

Revaluation losses of investments in securities

Net gains (losses) on sales of investments in securities

Losses on sales of property and equipment

Losses on retirement of property and equipment

Losses on discontinuance of development

Decrease (Increase) in accounts receivable—trade

Decrease (Increase) in inventories

Decrease (Increase) in other current assets

Increase in accounts payable—trade

Increase (Decrease) in consumption taxes payable

Increase in other current liabilities

Payment of directors’ bonuses

Others

Subtotal

Interest and dividends received

Interest paid

Income taxes paid

Net cash provided by operating activities

(Continued on following page.)

¥ 4,222

4,622

24

2

572

(36)

1,578

377

38

(13)

2

84

141

(168)

(21)

22

87

224

894

(32)

(321)

12,303

29

(1,584)

(1,762)

8,986

¥ 6,843

5,104

2

5

(302)

(67)

1,543

—

—

0

4

835

—

(51)

16

(1)

47

(109)

914

(34)

115

14,866

80

(1,509)

(2,612)

10,824

Cash flows from investing activities:

Fund transfer to time deposits

Withdrawal of time deposits

Acquisition of property and equipment

Proceeds from sales of property and equipment

Acquisition of intangibles

Proceeds from sales of intangibles

Acquisition of investments in securities

Proceeds from sales of investments in securities

Increase in loans receivable

Deposit of guarantee deposits receivable

Collection of guarantee deposits receivable

Proceeds from liquidation of guarantee deposits receivable

Repayment of guarantee deposits received

Receipt of guarantee deposits

Others

Net cash used in investing activities

Cash flows from financing activities:

Net decrease of short-term loans

Borrowings of long-term loans

Repayment of long-term loans

Proceeds from share issuance

Cash dividends

Cash dividends to minority shareholders

Net cash provided by (used in) financing activities

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

Accompanying notes are an integral part of financial statements.


(30)

189

(21,730)

1

(89)

—

(8)

208

—

(1,967)

22

—

(1,239)

5,725

52

(18,866)

(3,160)

17,760

(4,556)

—

(445)

(6)

9,592

(287)

3,140

¥ 2,853

—

137

(12,982)

584

(122)

42

(8)

39

(58)

(83)

67

4,788

(1,404)

4,153

171

(4,675)

(230)

8,660

(14,363)

3,525

(445)

(6)

(2,859)

3,289

2,853

¥ 6,142


Accounting principles

The accompanying consolidated financial statements of ÆON Mall Co., Ltd.

(“the Company”) and its consolidated subsidiary are translations of its consol-

idated financial statements issued domestically in Japan and are not audited.

The original financial statements are prepared from accounts and records

maintained by the Company and its consolidated subsidiary in accordance

with the provision set fourth in the Japanese Commercial Code and Securities

and Exchange Law and in conformity with accounting principles and practices

generally accepted in Japan, which are different from the accounting and

disclosure requirements of International Accounting Standards. In translating,

certain reclassifications and rearrangements have been made to the original

financial statements for the convenience of readers outside Japan.

All yen figures are rounded down to the nearest million. Accordingly,

breakdown figures may not add up to the sums.

New accounting standards:

Accounting for treasury stock and reduction of legal reserves

Effective February 21, 2002, the Company adopted, earlier than required,

“Accounting Standards for Treasury Stock and Reduction of Legal Reserves”

(Financial Accounting Standards No. 1). This does not affect profit or loss for

the year ended February 20, 2003.

In accordance with the proviso of Item 2 of Additional Clauses of

“Ministerial Ordinance Partially Amending Regulations for Terms, Forms and

Preparation Method of Consolidated Financial Statements” (the Cabinet Office

Ordinance No. 11, dated March 26, 2002), shareholders’ equity of the consol-

idated balance sheets and the consolidated surplus statements were

presented under the regulations incorporating the above amendment.

1. Basis of Presentation ofConsolidated FinancialStatements

2. Summary of significantaccounting policies

Scope of consolidation

As of February 20, 2003 and 2002, the Company had one subsidiary,

Shimoda Town Co., Ltd., which is consolidated. There are no subsidiaries to

which the equity method is applied nor which are not consolidated. The

balance sheet date of the consolidated subsidiary is the same as that of the

Company.

Marketable securities and investments in securities

a. Held-to-maturity bonds

Held-to-maturity bonds are stated at cost using the straight-line method, after

accounting for premium or discount on acquisitions.

b. Available-for-sale securities

Available-for-sale securities with market value are stated at fair market value

as determined by market prices on the closing date of the fiscal year. Net

unrealized gains or losses on these securities are reported as a separate item

Notes to Consolidated Financial StatementsFor the years ended February 20, 2003 and 2002


in shareholders’ equity at a net-of-tax amount. Cost of sales is calculated by

the moving-average method.

Available-for-sale securities without market value are stated at cost using

the moving-average method.

Inventories

Merchandise is stated at cost using the gross-average method. Supplies are

stated at cost using the last purchased cost method.

Depreciation

a. Property and equipment

Depreciation of property and equipment is computed by the straight-line

method over their useful economic life. The useful economic lives of property

and equipment are as follows.

Buildings and structures 3 to 39 years

Tools and fixtures 2 to 20 years

b. Intangibles

Intangibles are stated according to the straight-line method. Software for

internal use is depreciated over the estimated period of internal use (five years).

c. Long-term prepaid expenses

Long-term prepaid expenses are charged to income evenly over contract periods.

Common stock issuance costs

Common stock issuance costs are directly charged to income as incurred.

Allowances and reserves

a. Allowance for doubtful accounts

Allowance for general credits is determined by the actual bad debt ratio,

according to past credit loss experience, while allowance for specific credits,

such as credits with financial difficulty, is determined by estimating

uncollectable amounts by examining collectibility on an individual basis.

b. Reserve for bonuses

Reserves for bonuses are provided for the payment of bonuses to regular

employees and part-time employees in an amount deemed necessary to be

charged to the accounting period out of the estimated amount to be paid.

c. Reserve for employees’ retirement benefits

In order to provide for retirement benefits for employees, the Company has

accounted for the amount deemed to have been incurred at the end of the

fiscal years, based on the estimated amount of retirement benefit obligation

and pension assets at the end of fiscal years.

Unrecognized actuarial differences were amortized from the next fiscal

year by the straight-line method over the fixed number of years (10 years),

which do not exceed the average remaining service period of employees.

An unrecognized transition obligation amount of ¥644 million arising

from the adoption of a new accounting standard was fully charged to income


for the year ended February 20, 2002.

The Company has participated in the ÆON Welfare Pension Fund, which

was established by its parent company, ÆON Co., Ltd. On September 1,

2002, the Company obtained approval from the Minister of Health, Labour

and Welfare for exemption of obligations of future benefit payments with

respect to the substitutional portion, in accordance with the enforcement of

the Defined Benefit Corporate Pension Plan Law. In application of the interim

measures provided in Article 47-2 of “Practical Guidance for Accounting for

Retirement Benefits” (Accounting Systems Committee report No. 13, the

Japanese Institute of Certified Public Accountants), the Company accounted

for retirement benefit obligations for the substitutional portion and pension

assets equivalent to the returned portion as they were nullified as of the date

on which the approval was obtained. As a result, the “gains on returning

substitutional portion of welfare pension fund” amounting to ¥328 million has

been recorded as a non-recurring gain for the year ended February 20, 2003.

d. Reserve for directors’ retirement benefits

Reserve for directors’ retirement benefits are provided in an amount required

to be paid at the end of each fiscal year, based on internal regulations.

Leases

Finance lease transactions, except for those that are deemed to transfer

ownership of the leased assets to the lessee, are accounted for under the same

method as operating lease transactions.

Interest on construction included in costs

Interest expenses for loans borrowed for long-term, large-scale development of

shopping malls are included in construction in progress until the opening of

shopping malls. This amount is then transferred as acquisition costs of

property and equipment at the opening.

There were no such interest expenses during the fiscal year ended

February 2003 and 2002 booked in the accompanying consolidated financial

statements.

Consumption taxes

Consumption taxes have been excluded from amounts shown on the

accompanying consolidated financial statements.

Appropriation of retained earnings

Consolidated surplus statements have been prepared on the basis of appropri-

ations of retained earnings approved by the general shareholders’ meetings

held during the corresponding fiscal year.

Cash and cash equivalents

Cash and cash equivalents in the consolidated statements of cash flows

consist of cash on hand, demand deposits and highly liquid investments with

original maturities of three months or less and having only insignificant risk

in value fluctuations.

Money deposited as insurance premiums is cash on hand and in banks


in the accounts of the Company, but is prohibited from being appropriated for

other purposes. Such cash and deposits belong to insurance companies in

effect and are therefore excluded from cash and cash equivalents.

(1) Held-to-maturity bonds with market value

Millions of yen

As of February 20, 2003

Book value Market value Difference

Government bonds, local municipal bonds, etc. with market value exceeding book value — — —

Government bonds, local municipal bonds, etc. with market value not exceeding book value — — —

Millions of yen


Book value Market value Difference

Government bonds, local municipalbonds, etc. with market value exceeding book value ¥ 9 ¥ 9 ¥ 0 Government bonds, local municipal bonds, etc. with market value not exceeding book value — — —

(2) Available-for-sale securities with market value

Millions of yen


Acquisition cost Book value Difference

Equity securities with book value exceeding acquisition cost ¥ 258 ¥ 1,095 ¥ 836

Equity securities with market value not exceeding acquisition cost 63 48 (14)

Total ¥ 322 1,143 ¥ 821

Millions of yen


Acquisition cost Book value Difference

Equity securities with book value exceeding acquisition cost ¥ 200 ¥ 951 ¥ 751

Equity securities with market value not exceeding acquisition cost 113 95 (18)

Total ¥ 313 ¥ 1,046 ¥ 733 Impairment losses of ¥38 million were recognized for certain equity securities.

(3) A summary of available-for-sale securities sold during the years ended

February 20, 2003 and 2002 is as follows:

Millions of yen

2003 2002

Proceeds from sales ¥ — ¥ 208Total gains on sales ¥ — ¥ 16Total losses on sales ¥ — ¥ 3

3. Marketable securities andinvestments in securities

The assets pledged as collateral for the Company’s liabilities as of February

20, 2003 and 2002 were as follows:

Millions of yen

2003 2002

Pledged assetsBuildings and structures ¥ 69,540 ¥ 63,169 Land 50,407 44,070 Total ¥ 119,948 ¥ 107,239

Secured liabilitiesShort-term loans ¥2,035 ¥2,265Current portion of long-term loans 8,338 6,909 Long-term loans 57,751 60,384Guarantee deposits received 15,037 14,787 Total ¥ 83,162 ¥ 84,346


The assets deposited under Article 25 of the Housing Land and Building

Transaction Broker Law as of February 20, 2003 and 2002 were as follows:

Millions of yen

2003 2002

Investments in securities — ¥ 9

5. Deposited assets

(1) Finance lease transactions without transfer of ownership to the lessee

a. A summary of assumed amounts of acquisition costs, accumulated

depreciation and the net book value as of February 20, 2003 and 2002 is as

follows:

6. Lease transactions

4. Pledged assets andsecured liabilities

(4) Available-for-sale securities without market value as of February 20, 2003

and 2002 were as follows:

Millions of yen

2003 2002

Book value

Unlisted equity securities ¥ 114 ¥ 144

(5) Future redemption of available-for-sale securities with maturity and held-

to-maturity bonds is as follows:

Millions of yen

Government bonds 2003 2002

Due within one year — 9Due after one to five years — —Due after five to ten years — —Due after ten years — —Note: These government bonds will mature in less than one year. However, as they are deposited

assets under Article 25 of the Housing Land and Building Transaction Broker Law, governmentbonds of the same kind are shown under investments in securities for every fiscal year.


Millions of yen

2003

Acquisition Accumulated Net book cost depreciation value

Machinery and transportation equipment ¥ 1,818 ¥ 454 ¥ 1,363Tools and fixtures 1,214 498 715Total ¥ 3,032 ¥ 952 ¥ 2,079

Millions of yen

2002

Acquisition Accumulated Net book cost depreciation value

Machinery and transportation equipment ¥ 1,810 ¥ 265 ¥ 1,544Tools and fixtures 826 343 482Total ¥ 2,636 ¥ 608 ¥ 2,027

b. Future lease payments subsequent to February 20, 2003 and 2002 are as

follows:

Millions of yen

2003 2002

Due within one year ¥ 361 ¥ 304Over one year 1,790 1,768Total ¥ 2,151 ¥ 2,073

c. Lease payments, assumed depreciation expenses and assumed interest

expenses for the year ended February 20, 2003 and 2002 are as follows:

Millions of yen

2003 2002

Lease payments ¥ 439 ¥ 347Assumed depreciation expenses 386 298Assumed interest expenses ¥ 81 ¥ 74

d. Calculation method of assumed depreciation expenses

Assumed depreciation expenses are computed using the straight-line method

over the lease term, assuming no residual value.

e. Calculation method of assumed interest expenses

Assumed interest expenses, which are the difference between total lease

payments and assumed acquisition costs of leased assets, are allocated in

each accounting period based on the interest method.

(2) Operating lease transactions

Future lease payments subsequent to February 20, 2003 and 2002 are as follows:

Millions of yen

2003 2002

Due within one year ¥ 834 ¥ 868Over one year 14,634 16,107 Total ¥ 15,468 ¥ 16,976


8. Employees’ retirementbenefits

The Company adopts a defined welfare pension fund plan and a lump-sum

retirement benefit advance payment system that have been established by

ÆON Co. Ltd. and certain of its domestic subsidiaries. On September1, 2002,

the Company obtained approval from the Minister of Health, Labour and

Welfare for exemption from obligations of future benefit payments with respect

to the substitutional portion.

The consolidated subsidiary is a member of the Organization for Workers’

Retirement Allowance Mutual Aid.

The funded status and amounts recognized in the accompanying consol-

idated balance sheet as of February 20, 2003 and 2002 are as follows:

Millions of yen

2003 2002

Retirement benefit obligation ¥ (1,485) ¥ (2,270)Plan assets 631 1,286Retirement benefit obligation in excess of plan assets (854) (983)Unrecognized actuarial difference 574 401Reserve for employees’ retirement benefit ¥ (280) ¥ (582)

The retirement benefit obligation as of February 20, 2002 includes the substi-

tutional portion of the welfare pension fund. The figures incorporate the

normalization of the benefit payment multiplier of 5% for the basic portion

and the raise in benefit age for the substitutional portion accompanying the

amendment to the Employee Pension Insurance Law effected in March 2000,

and the effect has been reflected in the net transition obligation.

The Company adopted the interim measures provided in Article 47-2 of

“Practical Guidance for Accounting for Retirement Benefits (Interim Report)”

(Accounting Systems Committee report No. 13, the Japanese Institute of

Certified Public Accountants) to account for returning the substitutional

7. Guarantee deposits receivable

Regarding the guarantee deposits receivable pertaining to leases of stores

constructed with the construction cooperation fund, the Company has sold to J.

One Asset Corporation, which is a special-purpose company, the rights of recovery

pursuant to the provisions of monetary loan agreement in the store lease contracts

on November, 2002.

For the guarantee deposits receivable, which were accounted for as sold

through the said transaction (the balance to be repaid on February 20, 2003

was ¥4,788 million), an option to sell the rights of recovery to ÆON Co., Ltd.

is given in cases where a specified occurence, such as the case where the

original debtors become insolvent. When ÆON Co., Ltd. purchases the rights

of recovery through exercise of this option, the said company has an option to

sell the said rights of recovery to the Company

Gains or losses on cancellation of interest swap contracts for hedging

purposes, which will be cancelled when J. One Asset Corporation exercises its

option, will belong to Aeon Co., Ltd. However, when ÆON Co., Ltd. exercises

its option to sell to the Company the rights of recovery it purchased, the said

gains or losses will belong to the Company.

The aggregated losses on revaluation of such interest rate swap contracts

as of February 20, 2003 was ¥149 million.


portion of the welfare pension fund plan. As a result, the retirement benefit

obligation for the substitutional portion and pension assets equivalent to the

returned portion have been accounted for for the year ended February 20,

2003, as they have been nullified as of the date on which the approval for

exemption from obligations of future benefit payment was obtained from the

Minister of Health, Labour and Welfare. The plan assets, assessed as

equivalent to the returned portion as of February 20, 2003, was ¥707 million.

The net periodic cost of retirement benefits for the years ended February

20, 2003 and 2002 consisted of the following:

Millions of yen

2003 2002

Service cost ¥ 69 ¥ 67Interest cost 51 50Expected return on plan assets (40) (57)Amortization of unrecognized actuarial difference 30 —Amortization of net transition obligation — 644Retirement benefit expenses 110 705Gains on returning substitutional portion of welfare pension fund (328) —

Total ¥ (217) ¥ 705

Service cost excludes the amount of employees’ contribution to the welfare

pension fund and includes advance payments of lump-sum retirement benefits

to employees under the lump-sum retirement benefit advance payment system.

In addition to the retirement benefit expenses above, premiums paid to the

Organization for Workers’ Retirement Allowance Mutual Aid by the subsidiary (less

than ¥1 million for both the previous fiscal year and the current fiscal year) have

been accounted for as cost of real estate rent revenue.

The assumptions and the basis for the calculation of employees’ retirement

benefits for the years ended February 20, 2003 and 2002 are as follows:

2003 2002

Allocation method of projected benefit obligation: Straight-line method

Discount rate 2.4% 3.0%Expected rate of return on plan assets 4.06% 5.29%Amortization period of unrecognized actuarial difference 10 years 10 years

Amortization period of net transition obligation —

Starting from thefollowing year ofthe term incurred

Fully changedto income asincurred


9. Income taxes The significant components of deferred tax assets and liabilities as of February

20, 2003 and 2002 are summarized as follows:

Millions of yen

2003 2002

Deferred tax assets—current:Enterprise taxes payable ¥ 190 ¥ 133Other 14 4

Total 204 ¥ 137 Deferred tax assets—non-current:

Property and equipment ¥ 892 ¥ 433Allowance for doubtful accounts 12 13Reserve for employees’ retirement benefits 159 241Long-term prepaid expenses 62 132Elimination of unrealized gains 19 26Other 95 101Subtotal 1,242 948Offset against deferred tax liabilities (1,007) (895)

Net deferred tax assets ¥ 234 ¥ 52Deferred tax liabilities—non-current:

Reserve for reduction entry of fixed assets ¥ 282 292Reserve for special depreciation 380 334Unrecognized losses on available-for-sale securities 344 308Subtotal 1007 935Offset against deferred tax assets (1,007) (895)

Net deferred tax liabilities ¥ — ¥ 40

The difference between the statutory tax rate and the effective tax rate after

applying tax-effect accounting was insignificant for the years ended February 20,

2003 and 2002 and are as follows:

2003 2002

Statutory tax rate 42.0% 42.0%Effective tax rate 42.8% 42.6%

The enterprise tax rate is to be changed effective from the fiscal years

beginning on and after April 1, 2004, as a result of the introduction of a tax

on gross profit to the enterprise tax, due to promulgation of the “Law

Amending Part of Regional Tax Laws” (2003 Law No. 9) on March 31, 2003.

Accordingly, as regards the temporary difference, which is expected to

become zero in the fiscal years beginning on and after April 1, 2004, the

statutory tax rate, which will be used to calculate deferred tax assets and

deferred tax liabilities, will be changed from 42.0% to 40.6%. The amount of

the variance incurred from recalculation of deferred tax assets and deferred

tax liabilities due to the change in the statutory tax rate is ¥6 million. The

amount debited to income taxes (deferred) in the following consolidated fiscal

year is ¥17 million.


10. Selling, general andadministrative expenses

The significant components of selling, general and administrative expenses for

the years ended February 20, 2003 and 2002 were as follows:

Millions of yen

2003 2002

Employees’ salaries and bonuses ¥ 1,096 ¥ 1,080Provision for reserve for bonuses 27 24Retirement benefit expenses 82 35Provision for reserve for directors’ retirement benefits 28 26Legal welfare expenses 219 205Travel expenses 285 282Rent 157 219Depreciation expenses 5 5Others 1,156 1,202Total ¥ 3,057 ¥ 3,081

The significant components of losses on retirement and sales of property and

equipment for the years ended February 20, 2003 and 2002 is as follows:

Millions of yen

2003 2002

Retirement of buildings and structures ¥ 944 ¥ 76Retirement of tools and fixtures 26 13Sales of tools and fixtures — 2Others 5 1 Total ¥ 975 ¥ 94

11. Losses on retirement andsales of property andequipment

Reconciliation between the balance of cash and cash equivalents and the

balances shown in the consolidated balance sheet as of February 20, 2003

and 2002 is as follows:

Millions of yen

As of February 20 2003 2002

Cash on hand and in banks ¥ 6,462 ¥ 3,179Money deposited as insurance premiums (320) (326) Cash and cash equivalents ¥ 6,142 ¥ 2,853

12. Cash and cash equivalents

The Company has no derivative transactions.13. Derivative transactions

14. Earnings per share2003 2002

Net assets per share ¥ 1000.33 ¥ 754.32Earnings per share ¥ 167.73 ¥ 107.56

Diluted net income per share is not presented, since neither corporate bonds

with warrants nor convertible bonds have been issued.


15. Related party transactions Material transactions with the parent company, individuals and associated

companies for the years ended February 20, 2003 and 2002 were as follows:

Transaction amount Year-end balance

Millions of yen Millions of yen

Nature 2003 2002 Account 2003 2003Relations

Parent company

Immediaterelative ofdirector

Subsidiary ofthe parentcompany

Subsidiary of the parentcompany

Name

ÆON Co. Ltd.

TakuyaOkada

ÆON TechnoService Co.,Ltd.

TachibanaDepartmentStore Co., Ltd.

Scope of business

General merchandiseretailing

Chief directorof the ÆONEnvironmentFoundation

Facility maintenance

Departmentstore

Percentage of equity ownership(%)

(Owned)Direct–56.4Indirect–2.5

—

(Own)Direct–0.4(Owned)Indirect–0.4

—

Lease ofshopping mallfacilities

Guaranteedepositsreceivedaccompanyinglease ofshoppingcenterfacilities

Assistance forenvironmentalconservationactivities

Maintenanceof shoppingmall facilities

Guaranteedepositsreceivedaccompanyinglease ofshoppingcenterfacilities

¥ 6,465

¥ 735

—

¥ 2,909

—

¥ 5,605

¥ 1,102

¥ 6

¥ 2,424

—

Accountsreceivable

Guaranteedepositsreceived

Accountsreceivable

Guaranteedepositsreceived

¥ 564

¥ 15,106

—

¥ 258

¥ 1,582

¥ 580

¥ 14,769

—

¥ 185

¥ 1,753

Notes1. Consumption taxes are excluded from transaction amounts, but are included in the year-end balances. 2. Trading conditions and decision policy of trading conditions

(1) Rents ÆON Co., Ltd. pays for the shopping mall facilities are adjusted every three years by store lease agreement in consideration ofchanges in economic conditions, taxes and other public charges, etc.

(2) As regards guarantee deposits received from ÆON Co., Ltd, and which accompany the lease of shopping mall facilities, a “constructioncooperation fund” and rent deposits are collected when a store lease agreement is entered into. The construction cooperation fund will berepaid in equal installments over 10 years after a grace period of a full 10 years.

(3) Transaction amount with ÆON Techno Service Co., Ltd. are decided upon negotiation based on market prices.(4) Rents Tachibana Department Store Co., Ltd. pays for the shopping mall facilities are adjusted every three years by store lease agreement in

consideration of changes in economic conditions, taxes and other public charges, etc.(5) As regards guarantee deposits received from Tachibana Department Store Co., Ltd., and which accompany the lease of shopping facilities,

the construction cooperation fund and rent deposits are collected when a store lease agreement is entered into. The constructioncooperation fund will be repaid in equal installments over 10 years after a grace period of a full 10 years.

16. Segment information (1) Business segment information

The Company and its subsidiary are engaged in shopping mall operations and

insurance agency operations. Such segment information, however, has not

been presented, as the percentage of shopping mall operations exceeds 90% in

revenues, operating income and total assets.

(2) Geographic segment information

Since the Company and its subsidiary’s business activities are conducted in

Japan, geographic segment information is not presented.

(3) Overseas sales

The Company and its subsidiary have no sales outside Japan.


SHOPPING MALLS (as of February 20, 2003)

ÆON Kashiwa Shopping Center 41 Aza-Ikuyo, Oaza-Ise, Kashiwa-mura, Nishitsugaru-gunAomori Prefecture

ÆON Akita Shopping Center 1-1-1, Jizoden, Goshono, Akita City, Akita Prefecture

ÆON Futtsu Shopping Center Sect. 200, Aoki land partitioning area, Futtsu City, Chiba Prefecture

ÆON Shimoda Shopping Center 40-1, Aza-Nakanotai Shimoda-machi, Shimokita-gun, Aomori Prefecture

ÆON Suzuka Shopping Center 4-1-2, Shono-hayama, Suzuka City, Mie Prefecture

ÆON Sanko Shopping Center 1032, Oaza-Sachi, Sanko-mura, Shimoge-gun, Oita Prefecture

ÆON Kurashiki Shopping Center 1, Mizue, Kurashiki City, Okayama Prefecture

ÆON Narita Shopping Center 680, Yamanosaki, Tsuchiya, Narita City, Chiba Prefecture

ÆON Okazaki Shopping Center 38-5, Aza-Sotoyama, Tosaki-cho, Okazaki City, Aichi Prefecture

ÆON Kochi Shopping Center 1-4-8, Hatamimani-machi, Kochi City, Kochi Prefecture

ÆON Niihama Shopping Center 8-8, Maeda-cho, Niihama City, Ehime Prefecture

ÆON Higashiura Shopping Center 67-8, Sect.2, Aza-Sarushinden, Oaza-Ogawa, Higashiura-cho, Chita-gun,Aichi Prefecture

ÆON Yamato Shopping Center 1-2-1, Shimo-Tsuruma, Yamato City, Kanagawa Prefecture

ÆON Takaoka Shopping Center 383, Shimo Fukumae, Takaoka City, Toyama Prefecture

COMPANIES REPRESENTED IN INSURANCE AGENCY OPERATIONS (as of February 20, 2003)

Tokio Marine & Fire Insurance

Asahi Fire & Marine Insurance

Sompo Japan Insurance

Mitsui Sumitomo Insurance

NIPPONKOA Insurance

Nichido Fire & Marine Insurance

Aioi Insurance

Nissei Dowa General Insurance

Nisshin Fire & Marine Insurance

Kyoei Mutual Fire & Marine

Insurance

Fuji Fire & Marine Insurance

AFLAC Japan

Tokio Marine Life Insurance

Mitsui Sumitomo Kirameki Life

Insurance

NIPPONKOA Life Insurance

ALICO Japan

Yasudakasai Himawari Life

Insurance

Business Information


Company name ÆON Mall Co., Ltd.

Established November 1911

Capital ¥7,796 million (as of August 6, 2003)

Address 1-5-1, Nakase, Mihama-ku, Chiba City

Number of employees 295

DIRECTORS AND AUDITORS (as of May 13, 2003)

President Yoshiharu Kawato

Managing Directors Toshihiro Yokota

Takao Okazaki

Kazuhiko Hazama

Seiji Fujii

Director & Advisor Motoya Okada

Directors Masaji Miura

Hidehiro Hirabayashi

Atsushi Yoshimura

Tetsuji Nishio

Hiroshi Shikinaka

Standing Auditor Masaru Yokoi

Auditors Tokuichi Yamaguchi

Sadao Okawa

Shigeyuki Hayamizu

Corporate Information


SHARES OF COMMON STOCK

Authorized 80,000,000 shares

Issued: 23,754,680 shares (as of February 20, 2003)

* The common stock was split into 1.2 shares for 1 on April 10, 2003, and the Company issued

new common stock of 1,500,000 on August 6, 2003. As of August 6, 2003, total number of

shares issued is 30,005,616.

Number of shareholders: 1,878 (as of February 20, 2003)

Stock listing Tokyo Stock Exchange, First Section

Transfer agent Mizuho Trust & Banking Co., Ltd.

1-2-1, Yaesu, Chuo-ku, Tokyo, 135-8722

COMMON STOCK PRICE

CONTACT POINT

IR Section, Business Planning Dept.

TEL: +81-43-212-6733

Stock Information

8/’02 9/’02 8/’037/’0310/’02 11/’02 12/’02 1/’03 2/’03 3/’03 4/’03 5/’03 6/’03

(¥)

0

1,000

2,000

3,000

4,000

ÆON MALL

Splits

Forward-looking StatementsStatements made in this annual report with respect to ÆON Mall’s plans, strategies and other statements that are not historical fact are

forward-looking statements about the future performance of the Company. They are based on management’s assumptions and beliefs in

light of the information currently available. ÆON Mall cautions that a number of factors could cause actual results to differ materially

from those expressed herein.

1-5-1 Nakase, Mihama-ku, Chiba-shi, Chiba 261-8515, Japan

Tel: 81-(43)-212-6733 fax: 81-(43)-212-6736

Homepage: http://www.aeon-mall.net

ÆON Mall Co., Ltd.

Printed on 100% recycled paper Printed in Japan

Documents

AEON MALL AR03-PDF - EPRA