At the Forefront of Change
ANNUAL REPORT 2013
For the year ended April 30, 2013

AIN PHARMACIEZ at a Glance

The AIN PHARMACIEZ Group is the leader in the Japanese dispensing pharmacy sector.
The Group operates the No. 1 dispensing pharmacy business in Japan and a unique urban drug
and cosmetic store business targeting style-conscious women in their 20s to 40s.
In the dispensing pharmacy business, the Group is steadily expanding its chain of specialist dispensing
pharmacies* through an active M&A strategy and new store openings.
One of the Group’s strengths is its bargaining power underpinned by the scale of the business.
And its profitability is among the highest in the sector.
* Specialist dispensing pharmacies: Pharmacies located near major hospitals to tap into prescription demand

Others¥533 million
0.4%

Drug and Cosmetic
Store Business¥16,735 million
10.8%

Fiscal 2013
Consolidated
Net Sales¥154,560 million

Dispensing Pharmacy
Business¥137,291 million
88.8%

Contents
AIN PHARMACIEZ at a Glance1

Consolidated Financial Highlights

2

Interview with the President

4

Feature: At the Forefront of Change
Key Characteristics of the Japanese
Dispensing Pharmacy Market
Growth Strategy: Store Opening Strategy
Growth Strategy: Responsive to Change

10

Segment Review
Dispensing Pharmacy Business
Drug and Cosmetic Store Business

16
16
17

Corporate Governance

18

10
12
14

Financial Section
Management’s Discussion and Analysisof Financial Condition and Results of Operations
Consolidated Balance Sheet
Consolidated Statement of Income
Consolidated Statement of Comprehensive Income
Consolidated Statement of Changes in Net Assets
Consolidated Statement of Cash Flows
Notes to Consolidated Financial Statements
Independent Auditor’s Report

20

Investor Information

54

20
24
26
26
27
28
29
53

Forward-looking Statements
This annual report contains forecasts and projections concerning the plans, strategies and performance of AIN PHARMACIEZ INC. and its subsidiaries andaffiliates. These forecasts and projections constitute forward-looking statements that are not historical facts, but are based on assumptions and beliefs inaccordance with data currently available to management. These forward-looking statements are subject to a number of risks and uncertainties that include, but
are not limited to, economic conditions, intense competition in the healthcare industry, demand, foreign exchange rates, tax systems, and laws and regulations.
As such, AIN PHARMACIEZ INC. wishes to caution readers that actual results may differ materially from those projected.

No.1 Dispensing Pharmacy in Japan
Scale of BusinessHigh Profitability—Our Dispensing Pharmacy Store Network—Comparison of net sales and operating margin amongmajor companies operating dispensing pharmacies in Japan560 pharmacies nationwide(As of end-Fiscal 2013)
Operating margin (%)

Hokkaido 77

Tohoku 77
Hokuriku 14
Chugoku, Shikoku
Kyushu, Okinawa
24

AIN
PHARMACIEZ

8.0

SOGO
MEDICAL

6.0

Aisei
Pharmacy

4.0

NIHON
CHOUZAI

Qol
2.0

Kanto, Koshinetsu 288
Kinki
52

50,000

0

Tokai
28

100,000

150,000

Net sales (¥ million)
Note: Spheres represent market
capitalization as of April 30, 2013.

AIN PHARMACIEZ INC.
NIHON CHOUZAI Co., Ltd.
SOGO MEDICAL CO., LTD.
Qol Co., Ltd.
Aisei Pharmacy Co., Ltd.

Branches
Group companies

Source:Complied by AIN PHARMACIEZ INC.
from the above companies’ financial
results for fiscal 2013.

History of Growth
Net sales

Operating margin(¥ million)
160,000(%)
8

140,000

7

120,000

6

100,000

5

80,0004

60,0003

40,0002

20,0001

02002/4

2003/4

2004/4

2005/4

2006/4

2007/4

Imagawa Yakuhin

AIN TOKAI

Rejoice

MEDICAL
HEARTLAND

Asahi Pharmacy

M&A
deals

AIN MEDICAL SYSTEMSDAICHIKU

2008/4

2009/4

2010/4

2011/4

2012/42013/4

6 M&As(33 stores)

9 M&As(21 stores)

11 M&As(28 stores)

0

SUNWOOD

Rejoice
Pharmacy

Revisions
to medical
expenses

-1.3%

±0

-0.6%

+0.17%+0.52%+0.46%

-6.3%

-4.2%

-6.7%

-5.2%

-5.75%-6.0%

Dispensing fees

Drug prices

AIN PHARMACIEZ INC. ANNUAL REPORT 20131

Consolidated Financial Highlights

11-year Financial Summary
2003/4

2004/4

2005/4

2006/435,374
3,268
1,185
603

45,227
3,886
1,766
855

57,091
5,230
2,875
930

76,303
7,145
3,083
1,215

1,052
366

1,240
444

1,536
458

2,087
648

7,003
7,003
23,955

8,019
8,019
25,131

9,095
9,095
38,887

10,352
10,352
41,66911,024,650
907
148
40

11,024,650
905
148
27

11,210,350
1,446
193
44

11,304,000
1,684
218
43

Per share information (¥):
Net income
Net assets
Cash dividends

58.37
633.2210.0

74.72
724.5712.0

79.92
807.6815.0

104.53912.4318.0

Stock information (based on the closing price as of April 30) (¥):
Stock price

1,080

1,390

2,050

2,370

Ratios (%):
Operating margin
Return on sales *3
Return on assets (ROA) *4
Return on equity (ROE) *5
Shareholders’ equity ratio

3.4
1.7
2.9
8.6
29.2

3.9
1.9
3.5
10.7
31.9

5.0
1.6
2.9
10.9
23.4

4.0
1.6
3.0
12.5
24.8

For the year:
Net sales
Selling, general and administrative expenses
Operating income
Net income
Capital expenditures*1
Depreciation and amortization *1
At the end of the year:
Equity capital*2
Total net assets
Total assets
Number of shares outstanding (shares)
Number of employees (persons)
Number of stores : Dispensing pharmacy business
Number of stores : Drug and cosmetic store business

Net Sales and Growth Rate(¥ million)

154,560

160,000

120,000

Operating Income and Operating Margin

(%)
20

15

8.2

80,00010

Net sales rose 8.2% year
on year to ¥154,560
million, driven by M&A
deals in the dispensing
pharmacy business andnew store openings.

(¥ million)(%)

12,00010

9,701

10,000

8

8,000

6.3

6

6,000
4
4,000

5

40,0002

2,000
02009/4 2010/4 2011/4 2012/4 2013/4

Net Sales

00Growth Rate

Operating Income

Net Income and Return on Sales(¥ million)

(%)

6,000

5

5,075

4
4,000

3.3

3
2

2,000
1
0

2009/4 2010/4 2011/4 2012/4 2013/4

Net Income

Return on Sales

2 AIN PHARMACIEZ INC. ANNUAL REPORT 20132009/4 2010/4 2011/4 2012/4 2013/4

0

Net income rose 3.6%
year on year to ¥5,075
million, mainly reflecting
an increase in gains on
the sale of investments insecurities. The return onsales was 3.3%, down 0.1
percentage points fromthe previous fiscal year.

0

Operating income declined
5.4% year on year to¥9,701 million, due
mainly to the impact of
up-front investment in the
medical mall development
business. The operating
margin was 6.3%, down
0.9 percentage points
from the previous fiscal
year.

Operating Margin

Total Assets and Shareholders’ Equity Ratio(¥ million)

95,839100,000
80,000

40.0

(%)
50
40

60,00030

40,00020

20,00010

02009/4 2010/4 2011/4 2012/4 2013/4

Total Assets

0Shareholders’ Equity Ratio

Total assets increased to¥95,839 million, mainlyreflecting investments
related to new stores
and an increase in fixed
assets at consolidated
subsidiaries acquired
through M&A deals.
The shareholders’ equity
ratio was 40.0%, up 0.8
percentage points fromthe previous fiscal year.

(¥ million)

2007/4

2008/4

2009/4

2010/4

2011/4

2012/42013/481,307
7,970
2,888
1,010

106,231
9,203
4,444
1,615

115,387
9,948
5,296
2,127

125,495
10,744
6,492
3,131

129,387
11,981
8,107
3,916

142,790
12,83910,253
4,899

154,560
14,740
9,701
5,075

1,620
773

1,914
968

2,891
1,119

2,573
1,286

2,750
1,560

5,870
1,749

7,235
2,212

10,71011,326
49,84912,04012,70757,546

16,071
16,10962,032

21,445
21,49265,89829,45029,49876,94033,69533,74585,90838,31238,356
95,83911,320,000
1,947
247
43

11,361,000
2,582
356
45

12,831,376
2,741
375
46

14,101,164
2,918
397
49

15,941,004
3,104
448
53

15,940,790
3,326
494
56

15,940,740
3,551
560
61

89.34
946.1718.0

142.36
1,059.78
20.0

170.74
1,252.54
30.0

228.081,520.81
40.0

255.67
1,847.46
45.0

307.35
2,113.79
50.0

318.372,403.43
60.0

1,500

1,490

1,481

2,920

3,115

4,290

4,765

3.6
1.2
2.2
9.6
21.5

4.2
1.5
3.0
14.2
20.9

4.6
1.8
3.6
15.1
25.9

5.2
2.5
4.9
16.7
32.5

6.3
3.0
5.5
15.4
38.3

7.2
3.4
6.0
15.5
39.2

6.3
3.3
5.6
14.1
40.0

Net Income per Share(¥)
400

318.37

Note:
Amounts of less than one million yen
were rounded down.
*1: The amounts of capital expendituresand depreciation and amortization
prior to the fiscal year ended April
30, 2007 are on a non-consolidated
basis.
*2: Equity capital =Total net assets – Minority interests*3: Return on sales =Net income / Net sales × 100*4: Return on assets =Net income / Total assets(yearly average) × 100*5: Return on equity =Net income / Equity capital(yearly average) × 100

Cash Dividends per Share
Net income per share rose
¥11.02 year on year to¥318.37.

300

(¥)
70

60

60
50
40

200
30

We raised the dividend
per share by ¥10 year on
year to ¥60. As a result,the dividend payout ratio
improved 2.5 percentage
points to 18.8%.

20

100

10
0

0

2009/4 2010/4 2011/4 2012/4 2013/4

Total Number of Stores
( )
700

621
61

600
500

560
400
300
0

2009/4 2010/4 2011/4 2012/4 2013/4

Dispensing pharmacy
Drug and cosmetic store

2009/4 2010/4 2011/4 2012/4 2013/4

Prescription Volume
At the end of the fiscal
year, the Group operated
a total of 621 stores. The
number of dispensing
pharmacies increased by66 year on year to 560,
while the number of drug
and cosmetic stores roseby five to 61.

(thousands)
14,00012,06412,00010,000
8,000
6,000
4,000
2,000
0

2009/4 2010/4 2011/4 2012/4 2013/4

The number ofprescriptions handled by
the Group saw steady
growth to 12.06 million.
This mainly reflected anincrease in the numberof dispensing pharmacies
through new store
openings and M&A deals,
as well as an improvementin productivity at existing
dispensing pharmacies.

AIN PHARMACIEZ INC. ANNUAL REPORT 20133

Interview with the President

Results for the year under review fell slightly short of target,
but we reported another year of growth in sales andnet income growth. We also updated the Group’s corporate
identity and took other steps to lay the foundations
for the next phase of growth.
From fiscal 2014, we plan to tackle issues identified in
the year under review, as well as pursue M&A opportunities
and boost efficiency in dispensing pharmacies, open new
medical malls, and further strengthen our drug and cosmetic
store brand, while ensuring risk is managed appropriately.
We will also work to secure a dominant positionin the market by playing a key role in sector restructuring.

July 30, 2013

Kiichi Otani
President and Representative Director

4 AIN PHARMACIEZ INC. ANNUAL REPORT 2013

Fiscal 2013 Review

Q. What are your thoughts on the Group’s performance in fiscal 2013?
A. Sales and profits both fell slightly short of our targets, which wasdisappointing. However, we began implementing initiatives to support
growth from fiscal 2014, including restructuring existing dispensing
pharmacies.
In fiscal 2013, ended April 30, 2013, net sales rose 8.2% year on year to ¥154,560 million, operating
income declined 5.4% to ¥9,701 million, and net income increased 3.6% to ¥5,075 million. Sales andprofits came in slightly short of our targets. This underperformance reflected the cancellation of M&A
deals, due to be completed at the start of the fiscal year, and slower-than-expected progress at new
medical malls.
In fiscal 2013, the government carried out its biennial revision to drug prices and dispensing fees.
Considering that the Group’s earnings are typically weaker in years when revisions are implemented,
results held up very well in the year under review. In existing dispensing pharmacies, we launched a farreaching restructuring program that includes overhauling drug dispensing processes and dispensing
pharmacy management methods (see Mini feature on page 15 for more details). This program has
already led to improvements in sales capabilities, with existing dispensing pharmacies seeing a sales
decline of only 0.4% year on year, despite a reduction of 6.25% to drug prices. We also continued tosteadily open new dispensing pharmacies.

Q. How successful was the AIN PHARMACIEZ Group in pharmacist
recruitment in fiscal 2013?

A. After reviewing our recruitment program, we secured 251 newpharmacists. We plan to hire around 300 pharmacists annually.
Recruiting enough pharmacists is vital to realizing our store opening strategy and delivering continued
growth. We fell short of our recruitment target in 2012, prompting us to review our recruitment
procedures. We have now adopted a more strategic approach, which helped us to secure 251 newpharmacists in the spring of 2013.
We expect competition for pharmacists to ease, as hiring by hospitals has peaked and the end of aban on online sales of OTC drugs is likely to lead to reduced hiring by drug stores. We are targeting asustained recruitment level of around 300 pharmacists each year.

AIN PHARMACIEZ INC. ANNUAL REPORT 20135

Strategy

Q. How are the medical malls performing and what are your plans for thebusiness?

A. The business has taken slightly longer to start up than we expected.
However, we have identified the issues that need to be addressed, so future
development is likely to be easier. We will continue to push ahead withmedical mall development as a key part of our strategy.
Although progress with our medical mall business has been slower than initial forecasts, conditions aregradually improving and some medical malls are already profitable. We have clearly identified the issues
that held us back, allowing us to target investment more carefully and make other improvements.
In April 2014, we plan to open one of Japan’s largest medical malls in the ABENO HARUKAS
building in Osaka. The medical service providers for the mall have already been confirmed, so we expect
the facility to get off to a smooth start. We will continue to push ahead with medical mall development
as a key part of our strategy. We expect medical malls to contribute to sales and earnings once thebusiness becomes more established.

The ABENO HARUKAS building

AIN Pharmacy ABENO HARUKAS (perspective drawing)

The reception of the clinic mall (perspective drawing)

6 AIN PHARMACIEZ INC. ANNUAL REPORT 2013

The medical floor (perspective drawing)

Q. What is your outlook and growth strategy for the drug and cosmetic
store business?

A. We are developing unique stores that aim to satisfy all the beauty needsof our customers. We will continue to strengthen our brands while working to
make our stores more appealing and profitable.
Our network of ainz & tulpe drug and cosmetic stores, mainly located in central urban areas, offer
products and advice designed to satisfy all the inner and outer beauty needs of our target customers.
This has helped our stores gain a strong following among female shoppers. Ainz & tulpe stores stocka unique range of products specially selected based on the latest trends, while the bright, clean store
environments help make the shopping experience more enjoyable. Rival drugstores have been unable
to compete with our approach. Going forward, we plan to further strengthen our store brands,
reinforce our store opening capabilities so that we can secure prime locations, and boost profitability.
Also, we have made good progress in shifting our Ainz Point Club Card holders to a new mobilebased system. Out of a total of 3 million members, 227,000 are now registered on our mobile system.
In general, mobile point club members tend to shop in our stores more regularly, and we plan to attract
more members to the system to increase repeat business and improve cost efficiency.

ainz & tulpe SHIBUYA CENTERGAI

ainz & tulpe MIYANOSAWA

Q. Please tell us about the competitive environment in the dispensing
pharmacy sector.

A. We are implementing a strategy ideally suited to the operating
environment in the domestic market. I believe this strategy will ensure AIN
PHARMACIEZ remains the leading company in the sector over the long term.
Dispensing pharmacies in Japan generally fall into two categories: those located near hospitals, and thosethat are not. AIN PHARMACIEZ is focused on specialist dispensing pharmacies located near hospitals,
which means we do not usually compete with companies that operate pharmacies in other locations.
Dispensing pharmacies located near hospitals have proved to be more successful in the Japanesemarket, while other strategies have not generated comparable profits, mainly due to a lack ofprescription volume. In Japan, most patients tend to take their prescriptions to the nearest dispensing
pharmacy immediately after visiting the doctor. We think this trend is likely to continue, provided there
are no significant changes to Japan’s healthcare system (see the feature section on page 13 for more

AIN PHARMACIEZ INC. ANNUAL REPORT 20137

details). Going forward, we will work to strengthen our competitive position in the sector by continuing
to channel management resources into specialist dispensing pharmacies located near major hospitals,
which offer customers a high level of convenience and are also highly profitable for the Group.
We expect the pace of new dispensing pharmacy openings to remain firm. In the year under review,
we opened 76 new dispensing pharmacies, exceeding our initial target of 66. We are confident we canachieve our ambitious fiscal 2014 target of 86 new stores, including drug and cosmetic stores.

AIN Pharmacy ASAHIKAWAKITAAIN Pharmacy ITABASHI

Q. In 2014-2015, Japan will see hikes to consumption tax and revisions
to drug prices and dispensing fees. How do you plan to respond to thesedevelopments?

A. We intend to secure margins by expanding the business further andincreasing generic drug dispensing.
We see the dispensing pharmacy sector splitting into two clear groups after the drug price anddispensing fee revisions in 2014. We plan to expand profits by maximizing economies of scale andfurther increasing the ratio of generic drug dispensing.
Based on international methodology*1, generic drugs already account for over 50% of prescriptionsat our dispensing pharmacies. AIN PHARMACIEZ is one of only a handful of companies in thedispensing pharmacy sector to have a dedicated generic drug wholesaling subsidiary, WHOLESALESTARS Co., Ltd. (WSS). WSS provides significant benefits to the Group in terms of profits and efficiency(see page 14 for more details).
The Japanese government is working to promote wider use of generic drugs. To that end, theMinistry of Health, Labour and Welfare announced a new generic drug policy in April 2013 covering
the next five years. The new policy (“Roadmap to Further Promote the Use of Generics”) aims to raise
the generic drug dispensing ratio from 44.8% (as of March 2013, based on international methodology)
to at least 60% (34.3% based on previous methodology*2) by March 2018 (see page11 for moredetails).
*1: International methodology = generic drug volume/total volume of original drugs with generic versions + generic drug volume*2: Previous methodology = generic drug volume/total volume of all drugs

8 AIN PHARMACIEZ INC. ANNUAL REPORT 2013

Q. What is the Company’s position on shareholder returns and capital policy?
A. Our goal is to pay a stable dividend while balancing this with a need toinvest management resources in key growth areas.
We have set a dividend payout ratio target of 20%. In the near term, we plan to invest management
resources in key areas to drive growth.
We will also ensure that we have immediate access to funds to pursue M&A opportunities if anappropriate target emerges. We also intend to secure loans while ensuring we remain within the limitsof our internal debt-to-equity ratio criteria.
At the moment, we see no need to borrow funds to invest in store openings or medical malldevelopment, as the Group is generating profits and accumulating sufficient cash flow to coverinvestment in this area.

Q. To close, what message can you give investors about your goals for theGroup?

A. Our industry is likely to face a number of headwinds in 2014 and 2015.
We have made preparations to overcome those challenges and build adominant position in the market.
As mentioned earlier, the operating environment is likely to be extremely challenging in 2014 and2015 when consumption tax hikes coincide with revisions to drug prices and dispensing fees. We
expect these conditions to create a clear split between the leading companies and those that are
not so strong in our sector. Japan currently has around 54,000 dispensing pharmacies. The toughenvironment is likely to trigger further M&A activity, centered on smaller companies that are unable
to keep up with changes in the sector, leading to a wave of restructuring. These developments will
obviously have a negative impact, but we view them as an opportunity to expand our operations andplay a key role in sector restructuring. We have already taken a number of steps to ensure the Group isready to overcome this challenging phase. I believe our strong financial position with then enable AIN
PHARMACIEZ to become the dominant company in the sector.
We will work to further increase the corporate value of the
AIN PHARMACIEZ Group by actively implementing new initiatives
built on the can-do attitude of our early days as a company, while
also continuing to fulfill our role as a key part of Japan’s healthcare
infrastructure. I hope we can count on your support as we continue
to grow and evolve as a company.

AIN PHARMACIEZ INC. ANNUAL REPORT 20139

Feature

At the Forefront of Change
The dispensing pharmacy market is one of Japan’s few growth markets, but it has developed differently
to markets overseas due to the nature of the social environment in Japan.
The AIN PHARMACIEZ Group has captured the leading position in the sector by implementing a strategy
that is tailored to the local market and that also preempts change in the operating environment.
In this feature section, we look at the characteristics of the Japanese dispensing pharmacy market anddescribe our strategy to secure a dominant medium- to long-term position.

Key Characteristics of the Japanese Dispensing Pharmacy Market
Super-aging society

Significant growth potential

A fragmented market

People aged 65 and over are projectedto account for roughly 40% of Japan’s
population by 2060. The dispensing
pharmacy sector is expected to expand
further over the medium to long term,
due to its relationship with the superaging society.

The dispensing pharmacy market in
Japan is currently worth ¥6.9 trillion.
The non-hospital dispensing ratio
is only 66.1% and about 35% ofprescriptions are still filled by hospitals.
Compared with other markets in Japan,
this offers significant growth potential,
albeit at a slower pace than previously,
as prescriptions are increasingly filled
outside hospitals.

Most dispensing pharmacies in Japanare run by small-scale family businesses,
while the top five companies in the
sector account for only 7.3% of themarket. With many of these smaller
pharmacies unable to respond tochange in the operating environment,
we think the sector is poised to entera phase of restructuring.

Over

40

%

About

35

%

7.3

%

Drug price reductions

Generic drug promotion

Intensifying competition

The Japanese government revises drug
prices and dispensing fees once every
two years as part of its strategy to curb
national medical expenses. As a result,drug prices have been on the decline.
Dispensing pharmacies generate profits
from drug price margins and dispensing
fees, so earnings are affected by theserevisions.

The government aims to increase thegeneric drug dispensing ratio to at least
60% on a volume basis by March 2018.
Under the current system, higher genericdrug dispensing ratios have a positive
impact on earnings at dispensing
pharmacies, as they receive premiums(additional reimbursement points) for
dispensing generics. However, earnings
tend to decline due to lower drug pricemargins.

Convenience stores and drug stores, aswell as drug wholesalers and trading
companies, are moving into thedispensing pharmacy market.
All these companies are aiming to graba share of the growth market, leading
to intensifying competition.

Every

2

Years

Our Growth
Strategy

10 AIN PHARMACIEZ INC. ANNUAL REPORT 2013at least

60%

Growth market

Our growth strategy is tailored to the characteristics of the local market, but isalso designed to respond dynamically to changes in the operating environment,such as government policy. By building on our strengths, we plan to secure adominant position in the market over the medium to long term.

Non-hospital Dispensing Market
Dispensing pharmacy market value

Non-hospital dispensing ratio(¥ trillion)
8

(%)

80

¥ 6.9 trillion

7
6
5

70

66.1%

60
50

1997: Consumption tax raised
to 5%

4
3

2006: Prescription format revised

1997: New goal set to achieve complete
non-hospital dispensing systemfor 38 state-run model hospitals

40
30

18.1%

2

20

1
0

10

¥ 1.07 trillion
1994

1997

2006

0

2012

(April to March year)

Source: Non-hospital dispensing ratio is based on data from the Japan Pharmaceutical Association; Dispensing pharmacy market value is based on data fordispensing cost trends issued by the Ministry of Health, Labour and Welfare.

Action Program for the Promotionof the Use of Generic Drugs

Dispensing Pharmacy Company Market Share(Fiscal 2012)

Roadmap to Further
Promote the Use of Generics(Oct. 2007 to Mar. 2013)

Top 5 major companies*
7.3%

(%)
60

Top 40major companies
15.5%

50

(Apr. 2013~)

Based on previous methodology
Based on international methodology

New

44.8%

40

Others
84.5%

et

targ

60.0%

34.3%

25.6%

30
20
10
0

*Top 5 major companies: AIN PHARMACIEZ, NIHON CHOZAI, KRAFT,
Qol, SOGO MEDICAL
Source: AIN PHARMACIEZ estimates, based on data from DRUG
Magazine (August 2012) and FY2011 dispensing fee statistics
released by the Ministry of Health, Labour and Welfare.

2009

2010

2011

2012

2013 (Estimate)2018 (Target)

Note: Based on data for March each year.
Source: AIN PHARMACIEZ compiles based on the policies released by
the Ministry of Health, Labour and Welfare (see page 8 formore details).

Dispensing Pharmacy Earnings Model
Total store sales *1
Sales fromdrugs

Dispensing
fees *2

Purchasing cost of drugs
Drug price margin
Pharmaceuticalmanagement fees
Technical fees(includes premiums forgeneric drug dispensing)Store operation costs+ Store labor costs
SG&A expenses
Gross profit

Chain operation
nationwide*2: Dispensing fees comprise pharmaceutical management
fees and technical fees for pharmacists. These fees areadded depending on the services at pharmacies.

Operating income+[Store Opening Strategy]Specialist dispensing
pharmacies locatednear hospitals*1: Dispensing pharmacies receive 0-30% of medical
expenses depending on the type of insurance ofcustomers.
Dispensing pharmacies then charge the remainder of
medical expenses to health insurance bodies such as
national health insurance.

M&A[Responsive to Change]
Generic
drug strategy

Top-classpharmacists

See pages 12–15
for more details

AIN PHARMACIEZ INC. ANNUAL REPORT 201311

Feature: Growth Strategy

Store Opening Strategy
Our focus on specialist dispensing pharmacies located near hospitals is one reason for our competitive
advantage in a distinctive business field faced by intensifying competition.
We have built up our dispensing pharmacy business since the early days of the Company and we now
operate a nationwide chain. Store openings and active pursuit of M&A opportunities are also key
elements of our growth strategy. Based on this approach, the AIN PHARMACIEZ Group has expanded
rapidly to become the leading player in the sector (see History of Growth on page 1 for more details).

Specialist dispensing pharmacies locatednear hospitals

Earnings Models by Store Format (AIN PHARMACIEZ Group)A

Ratio of Store Network
1.7% B

Our focus on specialist pharmacies located near hospitals
has the following benefits:• Profitability: This format is the most popular type of
dispensing pharmacy in Japan. This means they attract
a higher volume of prescriptions, supporting highmargins.
• Cost reduction: This format allows us to reduce costsby leveraging economies of scale in areas such as drug
procurement and dispensing equipment development.
• Efficiency gains and risk mitigation: This format
enables us to standardize operating procedures, leading
to improvements in operating efficiency and mitigating
the risk of dispensing errors.

A

98.3%

Monthly net sales
Store
Monthly operating income
average(¥ thousand)Operating margin

12 AIN PHARMACIEZ INC. ANNUAL REPORT 2013

Dispensing
pharmacies not
located near
hospitals

22,430

7,264

2,828

(4,802)

12.6%—

Source: AIN PHARMACIEZ, fiscal 2013 data

Annual Sales per Store(¥ million)
National average120

AIN PHARMACIEZ Group

241

Source: AIN PHARMACIEZ, based on Ministry of Health, Labour and Welfare fiscal
2011 data and Company fiscal 2013 data
Note: Figures in the tables are rounded down.

AIN Pharmacy NISHISHINJYUKU

BSpecialist
dispensing
pharmacies
located near
hospitals(including
pharmacies
in medical malls)

Medical mall development

Advantages of our medical malls

We began the full-scale development of medical malls
from April 2012. We are involved in all stages of theprocess, from medical mall design and efforts to attract
tenants through to the actual development of the facility.
Our strategy is to create more locations for our specialist
dispensing pharmacies. We plan to accelerate growth byplaying an active role in the creation of medical zones.

• Convenience: By teaming up with major property
developers, we can secure highly accessible prime
locations.
• Quality healthcare: We can attract top-class medical
practitioners through our strong relationships with major
medical institutions.
• Profitable: The above two factors help our medical malls
attract patients, supporting higher prescription volumes.
We plan to continue aggressively expanding our businessthrough store openings, active M&A and medical malldevelopment.

AIN Pharmacy atrévie HIGASHINAKANONAVITAS CLINIC HIGASHINAKANOMini feature: Why specialist dispensing pharmacies near hospitals are so popular in Japan
In Japan, drugstores withdispensing pharmacy functions only
account for a small proportion ofprescriptions. Specialist dispensing
pharmacies near hospitals are
popular with patients in Japandue to the reasons described on
the right. We do not expect thisto change over the medium tolong term.

Well stocked
Many prescriptions written in Japan
specify certain drug brands, whichmeans pharmacies need to stock a wide
range of drugs. Specialist dispensing
pharmacies near hospitals work closelywith their local hospital to ensure theystock the right brands, so patients usually
get the brand of drugs they need.
Convenient
In Japan, patients have to return to their
hospital to receive repeat prescriptions.
The elderly and patients with chronic
disorders who tend to visit hospitals more
often, are increasingly using specialist
dispensing pharmacies near hospitals
because of their convenience.

Safe and reassuring
OTC drugs are not used much in Japan,
so patient needs are limited. Dispensing
pharmacies need to provide highly
specialized services and safety andpeace of mind is paramount. Specialist
dispensing pharmacies handle a muchgreater volume of prescriptions thandrugstores with dispensing pharmacy
functions, which means that pharmacists
who work at specialist pharmacies gain
more experience. This in turn leads toan even higher level of specialization atthese dispensing pharmacies.

AIN PHARMACIEZ INC. ANNUAL REPORT 201313

Feature: Growth Strategy

Responsive to Change
Another reason for our competitive advantage is our ability to respond changes in government policy.
Revisions to drug prices and dispensing fees have a major impact on earnings at dispensing pharmacies.
We have consistently implemented measures that preempt changes in government policy, supporting theGroup’s earnings and growth capabilities. The ability of companies to respond to government policies
designed to promote generic drugs and home healthcare is likely to make a huge impact on their futurein the industry. AIN PHARMACIEZ has already prepared for these upcoming changes.

Generic drug strategy
Anticipating moves by the government to expand its genericdrug promotion policies, we established WHOLESALE STARS
Co., Ltd. (WSS) in 2006, the first dedicated generic drug
wholesaler to be set up by a dispensing pharmacy company
in Japan. AIN PHARMACIEZ is one of only a handful ofcompanies in the dispensing pharmacy sector with this typeof subsidiary, which plays a key role in boosting the Group’s
earnings.
Normally, an increase in the generic drug dispensing
ratio results in lower drug price margins, which weighson dispensing pharmacy sales and profits. However, WSS
allows AIN PHARMACIEZ to avoid this risk. The subsidiaryoffers other benefits as well.
One is that we can negotiate directly with generic drugmakers. WSS sells most of its products to Group companies,
which means it can accurately monitor drug usage volume
across the Group, making it easier to negotiate withdrug companies. WSS can also instruct Group dispensing
pharmacies to promote certain generic drugs, giving it
significant control over usage volume for specific drugs.
In April 2013, the government announced a newgeneric drug policy covering the next five years. This policy

WHOLESALE STARS Co., Ltd. (WSS)

and other measures indicate that the government plans
to continue promoting the use of generic drugs over the
medium term (see page 8 and 11 for more details). Amid thistrend, WSS will allow us to further boost the competitivenessof the AIN PHARMACIEZ Group.

Top-class pharmacists
The government is clearly planning to put greater emphasis
on home healthcare. Although AIN PHARMACIEZ alreadyboasts a leading position in pharmacist number and quality,
we will need to attract pharmacists to respond to this trend.
• Quality: Pharmacists involved in home healthcare
services have an even closer connection to the livesof patients, so they will need to have a higher level ofexpertise and communication skills. AIN PHARMACIEZ
has one of the best personnel training and education
systems in the sector, helping newly hired pharmacists toprogressively improve their skills.
•Numbers: The shift to home healthcare will lead to awider scope of work for pharmacists, creating a needfor more personnel. As of April 30, 2013, the AIN
PHARMACIEZ Group employed 2,676 pharmacists.

Advantages of Generic Drug Procurement Using WSS(¥ million)

Previous approach

9,514 (¥ million)
1,351
1,400

10,000

WSS approach

Generic drug maker

1,200

Net Sales

1,000
6,000

8,279

800
600

4,000

Ordinary Income

8,000

Leading wholesalers
400

2,000

1,234
0

2007

2008

2009

2010

2011

2012

2013 (FY)2000No significant difference in drug
price margins on original drugs
and generic drugs

Higher margins by dealing
directly with drug makers
t Direct price negotiations
with drug makers
t Targeting specific generics forpromotion allows control overdrug volumes at Group
dispensing pharmacies, making
price negotiations easiert No interference from makers
of original drugs
WSS
t WSS can ensure specific generic

Drugs
Dispensing equipments, etc.
Ordinary income

14 AIN PHARMACIEZ INC. ANNUAL REPORT 2013

drugs are promoted

AIN PHARMACIEZ dispensing pharmacies

We also recruit a large number of newly graduatedpharmacists each year.
In this way, we are attracting large numbers of highquality pharmacists, giving us an even greater competitive
advantage in our store opening strategy and in our ability
to respond accurately to government policy, including theshift to home healthcare.
Moreover, we launched a new pharmacy-led project inautumn 2012 to improve productivity (see the mini feature
below for more details). The project includes measures toboost the earnings capabilities and service provision of ourdispensing pharmacies by enhancing operating efficiency.

Number of Graduates Hired

Increase in number ofpharmacists hired(persons)
400

No new
graduatesfrom pharmacy
college courses

New graduatesfrom six-year pharmacy
college courses(new curriculam)

300

300
251

200
100

2006 20070

Pharmacist

2008 2009 2010 2011

53
50
2012 2013 2014
(Target)(FY)

General positions

Mini feature: Dispensing pharmacies leading
efforts to improve productivity
As part of business process reengineering, we launched a new projectin autumn 2012 to revitalize our existing dispensing pharmacies. Initially
focused on two model dispensing pharmacies in the Tokyo metropolitanarea, the project is designed to increase efficiency in areas such as drug
inventory and patient waiting times, based on feedback from dispensing
pharmacy staff. Our new approaches have already generated significant
benefits and we are now extending the project across our entire network.
Our pharmacists work hard to ensure high-quality services.

Initiatives and progress at model dispensing pharmacies• Remedial measures developed based on feedback from pharmacy
staff• Improvements to pharmacy efficiency and reductions ininventories through use of automated ordering system• Flexible pharmacy operation based on conditions specific to eachlocation• Pharmacy layouts changed and stores refurbished(Minutes)(Prescriptions)

35
30

35

35

• Increased ability to respond to demand through improvements tocustomer service due to shorter waiting times• Pharmacy earnings boosted due to increase in number ofprescriptions filled per pharmacist(¥ million)
150

138

30
30
25
20

21

25

20.6

20

19.7

15

17

10

85.8

100

69

50

5
15

0
2012
2013
TargetSep. Oct. Nov. Dec. Jan. Feb. Mar. Apr. May Jun.
Average waiting time/day
Number of prescriptions filled
by one pharmacist/day

0

2012
2013
Sep. Oct. Nov. Dec. Jan. Feb. Mar. Apr. May Jun.

TargetInventory value

AIN PHARMACIEZ INC. ANNUAL REPORT 201315

Segment Review

Dispensing Pharmacy Business
Constantly Evolving in Response to Change“We are seeing rapid changes in medical and healthcare
administration in Japan, prompted by sharp increases in social welfare
spending due to the aging population. Dispensing pharmacies need
to be able to respond flexibly to these developments.
One of the strengths of our corporate culture is a willingness toconstantly embrace change, driven by ideas from every one of ouremployees in the dispensing pharmacy business.”

Fiscal 2013 Review

Shoichi Shudo
Senior Managing Director,
General Manager of
Dispensing Pharmacy Division

Medium- to Long-term Strategy

In fiscal 2013, the dispensing pharmacy sector faced
a downward trend in earnings at existing dispensing
pharmacies due to the impact of drug price and dispensing
fee revisions in April 2012. Against this backdrop, we
worked to increase profits through business expansion bycontinuing to actively open new dispensing pharmacies
and by pursing M&A opportunities with good prospects
for investment returns. Full-scale development of medicalmalls also got under way, with 15 new locations opened
in fiscal 2013, mainly in the Tokyo metropolitan area. As ofthe end of fiscal 2013, the business operated a total of 560
dispensing pharmacies.
Net sales rose 8.0% year on year to ¥137,291 million
and segment income increased 3.0% to ¥12,655 million,
reflecting further efficiency gains in operations at existing
dispensing pharmacies and technical fees secured by
actively dispensing generic drugs.

The core element of our growth strategy is to open largescale specialist dispensing pharmacies near hospitals
nationwide. We will continue to aggressively expand our
network through M&A deals and new pharmacies. We plan
to open 80 dispensing pharmacies in fiscal 2014.
In addition, we plan to continue developing medicalmalls while ensuring investment is targeted more carefully.
We expect our medical mall dispensing pharmacies toattract prescription volumes on par with our existing largescale specialist dispensing pharmacies. We therefore see
significant potential for sales and earnings contributions
from medical malls once the business becomes moreestablished.
Also, we will work to further enhance safety andproductivity at existing dispensing pharmacies by extending
business process reengineering initiatives launched inautumn 2012 across our entire network (see the minifeature on page 15 for more details).
In generic drugs, which are likely to become morewidespread in Japan, we aim to secure technical fees bypromoting wider use of generics. We will also work to boost
profit margins across the Group by actively using our genericdrug wholesale subsidiary WHOLESALE STARS Co., Ltd.

AIN Pharmacy HIGASHINAEBOAIN Pharmacy OTEMACHI

16 AIN PHARMACIEZ INC. ANNUAL REPORT 2013

Drug and Cosmetic Store Business
Increasing Profits with Larger Storesores
and More Products“The ainz & tulpe brand is highly regarded among consumers as
a select chain of stores selling OTC drugs and cosmetics.
We work to support the beauty and well-being of our female
customers by giving them access to the very latest products throughour bright and immaculately clean stores.”
Kaori Suzuki
General Manager ofDrug and Cosmetic Store Division

Fiscal 2013 Review

Medium- to Long-term Strategy

Market conditions in the drug store sector remained
challenging in fiscal 2013. Against this backdrop, we
continued to open new urban drug and cosmetic stores
under the ainz & tulpe brand and implemented initiatives toincrease the appeal of our stores. We also worked to shift
the Ainz Point Club Card to a mobile-based system.
In fiscal 2013, net sales rose 8.7% year on year to¥16,735 million. However, segment income declined 88.6%
to ¥14 million, with sales growth insufficient to offset the
impact of store opening costs and a fall back in demand
from the large rise after the Great East Japan Earthquake.
We continued to actively open new ainz & tulpe storesin locations with high levels of customer traffic, suchas station retail areas. As of the end of fiscal 2013, thebusiness operated a total of 61 drug and cosmetics stores.

The drug and cosmetic store business has three different
store brands: ainz has an extensive lineup of products
from drugs to everyday items; tulpe provides high-quality
cosmetics that include foreign brands; and ainz & tulpe hasa wide-ranging lineup that incorporates products from bothainz and tulpe.
With our drug and cosmetics stores, our aim is toencourage customers to spend time in-store and enjoy the
shopping experience, not simply offer them products at
low prices. In particular, ainz & tulpe stores target styleconscious women in their 20s to 40s, and these stores havebeen well received by the market. Our drug and cosmetic
stores are also strong in OTC drug retailing, underpinnedby the expertise we have accumulated in the dispensing
pharmacy business.
Going forward, we plan to continue opening stores inprime locations in densely populated areas, and we will shift
to larger store formats and offer a wider choice of products
in order to lift sales per store. We will also encourage
more Ainz Point Club Cardholders to move to our mobilebased system to increase the ratio of repeat customers andenhance cost efficiency.

ainz & tulpe YOKOHAMA PORTA

ainz & tulpe SAKURANO HIROSAKIAIN PHARMACIEZ INC. ANNUAL REPORT 201317

Corporate Governance(As of July 31, 2013)

AIN PHARMACIEZ assumes responsibility for people’s
health and the well-being of the wider community
through its business activities. We promote a highly
efficient and transparent management system andimplement ongoing initiatives toward enhancement ofcorporate governance.

BASIC POLICY FOR CORPORATE GOVERNANCE
Dispensing pharmacies and drug and cosmetic store chains are
the key business areas being developed by AIN PHARMACIEZ.
Both of these businesses are characterized by a responsibility
towards people’s health, and as such, we recognize theindispensability of continuing with sound and transparent
business activities that prioritize compliance.
We have adopted a corporate auditor system to oversee
not only key management decisions and the business executionof directors, but also general corporate management. In orderto ensure the effective mutual management oversight of
directors, the Board of Directors convenes more than once amonth, while a management meeting is held for directors andthe standing corporate auditor on a weekly basis.
To minimize potential risks, the Internal Audit Officeensures comprehensive compliance with basic pharmacy
regulations, while the Safety Policy Office conducts analysis andimplements measures to prevent drug dispensing errors.

OVERVIEW OF CORPORATE GOVERNANCE
SYSTEM
The Board of Directors, the major decision-making body of AIN
PHARMACIEZ, is comprised of 12 members. Outside directors
participate in management operations by providing appropriate
advice from multi-faceted perspectives when important
corporate decisions need to be made. At present, there are
four outside directors at AIN PHARMACIEZ, and executives
in charge of internal controls and internal audits are senior
executive officers.
Executives in charge of internal audits and internal control
work closely with the Board of Corporate Auditors from a

directorial standpoint and attend Board of Directors meetings
where they report on internal audits and internal controls.
This helps maintain a system that can secure the confidenceof shareholders and investors in real terms. In addition, AIN
PHARMACIEZ has introduced an executive officer systemseparating roles into management decision-making andoversight, and execution of operations, with the objective ofvitalizing the Board of Directors and improving the functionalityof business execution.
Aside from the above, we hold a weekly management
meeting that is attended by management in positions above
division head in order to monitor day-to-day operations.
Members discuss business execution in each division at themeeting, which also allows for mutual supervision between
business divisions.

INTERNAL CONTROL SYSTEMAIN PHARMACIEZ views the effective and reliable functioningof its internal control system as extremely important. With
regard to management oversight, continuous swift decision
making is a prerequisite in order to proactively promotebusiness expansion measures. We hold a management
meeting every week that is attended by directors and standing
corporate auditors, while four outside directors sitting on the
Board of Directors participate in management decisions byoffering appropriate advice from diverse standpoints. Throughthese measures, we are working to ensure that the mutual
management oversight of directors is functioning properly
when key decisions are being made.
Three outside corporate auditors and one standing
corporate auditor comment on relevant matters in a corporate
auditor capacity at meetings of the Board of Corporate
Auditors and Board of Directors, as well as monitor the
execution of duties by directors. We are striving to enhanceinternal control functions through measures that include
regular seminars conducted by lawyers, ongoing programs by
the Compliance Committee to raise awareness of executives
and regular employees and introduction of help desks forbreaches of compliance.

General Meeting of Shareholders
Appointment

Appointment

Board ofCorporate Auditors

Board of Directors
Outside Directors
Appointment

Appointment

Audit
Appointment

Representative
Directors

Appointment
Accounting Auditors
Audit

ReportingBusiness execution

Cooperation

Executive Officers

Compliance
Committee

Board ofManaging Directors

Management
Meeting

Reporting

Reporting

Drug and Cosmetic Store Division

18 AIN PHARMACIEZ INC. ANNUAL REPORT 2013

Dispensing Pharmacy Division

Audit
Administration
Department

Internal Audit OfficeMANAGEMENT SYSTEM OF GROUP COMPANIESThe AIN PHARMACIEZ Group is comprised of AIN
PHARMACIEZ INC., its 25 subsidiaries and one affiliate asof April 30, 2013. AIN PHARMACIEZ employs Management
Guidelines for Subsidiaries and Affiliates at each of the Group
companies in order to ensure appropriateness of operations as
a business group. For items requiring important management
decisions (including facts regarding decisions already made)at subsidiaries, a report is submitted to AIN PHARMACIEZ, theparent company, with action taken once approval has been
granted. Further, a Group management meeting convenes
twice a month in the form of a liaison conference for theGroup companies in order to manage the status of businessexecution at each company.

INTERNAL AUDITS AND AUDITS BY THE
CORPORATE AUDITORSIn principle, the Internal Audit Office conducts business audits
at least once a year at the head office and stores via a fiveperson structure. It also audits subsidiaries and verifies thecondition of respective internal audits.
In addition, we are increasing the effectiveness of internal
audits by submitting materials related to internal audits tocorporate auditors and through field audits in collaboration
with corporate auditors. Other measures include timely
discussions and reviews of internal audit methods and theireffects, and coordinating with the accounting auditors on
accounting audits. The status of internal audits is reported
at management meetings, and after coordination with eachbusiness division, individual guidance is provided and audits
once again conducted in an effort to enhance compliance.
Audits are conducted by corporate auditors, comprising
three outside corporate auditors and one standing corporate
auditor. In addition to the aforementioned activities, corporate
auditors work to enhance the accuracy of their audits fromlegal and accounting perspectives and in line with theCompany’s articles of incorporation by exchanging ideas withaccounting auditors at the time of each accounting audit.
Corporate auditors accompany the accounting auditors on
audits of subsidiaries to strengthen auditing functions.
Outside corporate auditors formulate audit policies andaudit plans together with the standing corporate auditor, view
important management-related documents, audit financial
documents and reference materials, as well as proposals
submitted at the General Meeting of Shareholders, and verify thestatus of business execution by directors. They also offer advice,suggestions and recommendations to directors and the Board of
Directors through discussions via the Board of Corporate Auditors.

OUTSIDE DIRECTORS AND OUTSIDE CORPORATE
AUDITORSThe Board of Directors is comprised of 12 members, including
four outside directors. Three of the Company’s four corporate
auditors are outside corporate auditors. There are no conflictsof interest between the Company and its outside directors andoutside corporate auditors. The outside directors and outside
corporate auditors have been appointed on the basis that they
have the ability to fulfill their roles, possess expert knowledge
about the nature of the Company’s business, and have a highlevel of independence.
Both of the outside corporate auditors have no history ofworking for the Company, its subsidiaries, major shareholders, or
its key clients, ensuring they possess a high level of independence
and neutrality. One of these outside corporate auditors has been
designated as the Company’s independent officer.

REMUNERATION FOR DIRECTORS AND AUDITORSThe maximum total amount of remuneration for directors
was determined by a resolution at the 33rd Ordinary General
Meeting of Shareholders held on July 30, 2002 to be ¥200
million annually (does not include payments made to directors
for their duties as employees). The actual amount each year
is determined within this limit by the Board of Directors upondue consideration of business results and economic conditions.
The maximum total amount of remuneration for directors
was determined by a resolution at the 44th Ordinary General
Meeting of Shareholders held on July 30, 2013 to be ¥300
million annually (does not include payments made to directors
for their duties as employees; the maximum total amount foroutside directors was determined to be ¥50 million annually).
The maximum total amount of remuneration for corporate
auditors was set at ¥30 million annually at the 22th Ordinary
General Meeting of Shareholders held on July 30, 1991.The
actual amount each year is determined within this limit via
discussions among the corporate auditors.
The amount of remuneration for directors and corporate
auditors for the year ended April 2013 is as follows.
Item

Directors(excluding outside
directors)
Corporate auditors(excluding outside
corporate auditors)
Outside directors andoutside corporate
auditors

Total
remuneration(¥ million)

Remuneration by type(¥ million)
Basic
Bonus
remuneration

Numberof eligible
individuals

174

146

28

8

6

6

—

2

25

24

1

8

STATUS OF ACCOUNTING AUDITS
Three certified public accountants from Ernst & Young
ShinNihon LLC conducted the accounting audits of AIN
PHARMACIEZ based on the Companies Act and Financial
Instruments and Exchange Act. Audit fees for the year endedApril 2013 are as follows.
(¥ thousand)

The Company
Consolidated
subsidiaries
Total

Compensation paid foraudit certification activities

Compensation paid for
non-audit activities

35,300–––35,300–AIN PHARMACIEZ INC. ANNUAL REPORT 201319

Financial Section

Management’s Discussion and Analysis of Financial Condition
and Results of Operations

BUSINESS ENVIRONMENT SURROUNDING THE
AIN PHARMACIEZ GROUP
The core business of the AIN PHARMACIEZ Group (the Group)is the dispensing pharmacy business that includes preparing
and dispensing drugs based on prescriptions. Drug prices
and dispensing fees* are stipulated by the Ministry of Health,Labour and Welfare.
As part of its policy to curb national medical expenses, theministry revises drug prices, dispensing fees and other medical
expenses every two years. Earnings at dispensing pharmacies
are the total of dispensing fees and sales of drugs, so earnings
are affected by these revisions.
Under April 2012 revision, the average drug price was
reduced by 6.25% and additional measures were introduced topromote the uptake of generic drugs. Specifically, dispensing
pharmacies that have a high generic drug dispensing ratio
receive additional reimbursement points (premiums), translating
into higher earnings, while those with a generic drug
dispensing ratio below a predetermined level do not receive
these premiums.
The gap in performance is widening between companies in
the industry, which are struggling with changes to their profit
structures resulting from revisions to medical treatment feesand other systems. However, the Group regards these revisions
as a perfect opportunity to further raise profitability.
* Dispensing fees comprise pharmaceutical management fees and technicalfees for pharmacists.

BUSINESS OVERVIEW FOR THE FISCAL YEARUNDER REVIEW
During the fiscal year ended April 30, 2013, there weregrowing expectations that the Japanese economy was
gradually heading for recovery. This reflected signs of an
upturn in corporate earnings, particularly at major companies,
due to an improvement in the export environment and theimpact of economic stimulus measures and monetary policy, as
well as a pickup in consumer spending and production activity
supported by improving consumer confidence.
In this economic environment, the AIN PHARMACIEZ Group(the Group) aggressively expanded its dispensing pharmacy
business and drug and cosmetic store business by opening
new stores and using M&A, and launched a number of new
initiatives, such as the comprehensive development of medicalmalls and the revitalization of existing stores.

20 AIN PHARMACIEZ INC. ANNUAL REPORT 2013

For the fiscal year under review, the Group reported net
sales of ¥154,560 million, an increase of 8.2% year on year
due to the opening of new dispensing pharmacies and urban
drug and cosmetic stores, as well as the impact of M&A in thedispensing pharmacy business. Operating income declined
5.4% to ¥9,701 million, mainly reflecting the impact of upfront
investment in the medical mall development business. Net
income increased 3.6% year on year to ¥5,075 million. As ofthe end of the fiscal year, the number of stores in the Group
totaled 621, a net increase of 71 stores from the end of theprevious fiscal year.
Performance by business segment was as follows.

BUSINESS RESULTS BY SEGMENT
Dispensing Pharmacy Business
The earnings capacity of the existing dispensing pharmacies
has declined slightly due to the impact of drug price anddispensing fee revisions in April 2012, which included anaverage reduction in drug prices of 6.25%.
Under these conditions, the Group is aiming to boost
profits by expanding the scale of the business. Specifically, theGroup is maintaining steady sales by continuing to actively
open and develop new stores. It is also seeking to aggressively
tap the growing number of M&A opportunities in the sector
due to changes in the business environment, while emphasizing
returns on investment.
In addition, the Group began implementing measures atexisting dispensing pharmacies to fundamentally rebuild drug
dispensing processes and dispensing pharmacy management
methods in order to enhance safety and boost productivity.
The medical mall development business requires
comprehensive support from across the Group, including
the operation of dispensing pharmacies —the Group’s corebusiness— property development and marketing to attract
clinics to the malls. The medical mall development businessbegan full-scale operations from the fiscal year under review.
The business has already opened 15 medical malls, mainly in
the Tokyo metropolitan area, and has finalized a joint projectwith Kintetsu Corporation to develop one of Japan’s largest
medical floors in ABENO HARUKAS, a new skyscraper that is
set to become the country’s tallest mixed-use building (Abenoku, Osaka; 60 above ground floors, five below ground;scheduled to open April 2014).
During the fiscal year under review, the Group opened
76 dispensing pharmacies, including those operated by 11
companies that became Group subsidiaries through M&A
deals, and closed 10 dispensing pharmacies, resulting in a totalof 560.

The dispensing pharmacy business posted net salesof ¥137,291 million, an increase of 8.0% year on year,
reflecting firm sales at existing dispensing pharmacies andsales contributions from new pharmacy openings and M&A.
Although segment income was slightly lower than forecast
mainly due to an increase in costs related to pharmacy
openings, the dispensing pharmacy business reported anincrease of 3.0% year on year to ¥12,655 million.

Other Businesses
Net sales of other businesses totaled ¥533 million, an increaseof 104.2% year on year, and the segment losses totaled ¥398
million, a deterioration of 176.9% year on year mainly due
to upfront rental costs incurred ahead of the opening of new
medical malls.

FINANCIAL POSITION
Drug and Cosmetic Store Business
There were some signs of an upturn in the retail sector as awhole from the fourth quarter of the fiscal year under review,
but the drugstore sector continued to face a challenging
market environment due to market entrants from different
sectors and a narrowing strategic gap and price competition
between companies within the sector. This was compounded
by a decline in demand compared with the previous fiscal year,
when demand spiked after the Great East Japan Earthquake.
Against this backdrop, the business is working to secure
profits by continuing to open urban drug and cosmetic stores
under the ainz & tulpe brand and by enhancing the appeal ofexisting stores.
With ainz & tulpe, the business is aiming to boost sales
capabilities and increase the gross margin by continuallystrengthening merchandise lineups, particularly for drug
and cosmetic products, in order to clearly communicate toconsumers the shop’s concept as a drug and cosmetics retailer.
Also, in sales promotion, the business joined the Smapo
smartphone application-based shopping points program, andworked on transferring Ainz Point Club Card holders to amobile-based system.
As of the end of the fiscal year under review, 227,000
point club card holders, out of a total of 3 million, had
become mobile-based members. This number includes existing
members who have been transferred to the mobile system
and newly signed up members. In general, mobile club card
holders tend to shop in our stores more regularly, and we plan
to attract more members to the system to increase the numberof repeat customers and enhance cost efficiency.
During the period under review, the business opened anumber of new ainz & tulpe format stores in station retail areasand prime locations near stations. These included the ainz &tulpe NAKANO CENTRAL PARK EAST (Nakano-ku, Tokyo), theainz & tulpe MARUI KINSHICHO (Sumida-ku, Tokyo), the ainz &tulpe SHIBUYA CENTERGAI (Shibuya-ku, Tokyo), the ainz & tulpe
YOKOHAMA PORTA (Nishi-ku, Yokohama City), the ainz & tulpe
TOKOROZAWA STATION (Tokorozawa City, Saitama Prefecture),
the ainz & tulpe KYOTO AVANTI (Minami-ku, Kyoto) and the ainz
& tulpe SAKURANO HIROSAKI (Hirosaki City, Aomori Prefecture),
resulting in a Group total of 61 drug and cosmetics stores.
As a result, the drug and cosmetic store business reported
net sales of ¥16,735 million, an increase of 8.7% year on year.
However, segment income declined 88.6% to ¥14 million, with
the increase in sales insufficient to offset the impact of store
opening costs and a fall back in demand from the sharp riseafter the Great East Japan Earthquake.

Total assets at the end of the fiscal year under review totaled¥95,839 million, an increase of ¥9,931 million due to newstore openings and M&A.
Consolidated current assets at the end of the fiscal year underreview increased by ¥2,842 million to ¥43,162 million comparedto ¥40,320 million at the end of the previous fiscal year.
This mainly reflected cash on hand and in banks of ¥18,460
million, up ¥2,525 million year on year due to wider use of the
securitization of dispensing fee receivables, notes and accounts
receivable of ¥7,043 million, down ¥3,941 million, and otheraccounts receivable of ¥7,180 million, up ¥4,422 million.
Fixed assets at the end of the fiscal year under review
increased by ¥7,106 million to ¥52,676 million compared to¥45,570 million at the end of the previous fiscal year.
This was mainly due to an increase in fixed assets related
to investment in new stores and expansion in the asset base atconsolidated subsidiaries that became part of the Group throughM&A deals. Property, plant and equipment, which is mainly
buildings and structures, increased by ¥2,293 million to ¥17,550
million, while goodwill rose ¥1,909 million to ¥19,574 million.
In addition, investments and other assets increasedby ¥2,862 million year on year to ¥14,520 million, chiefly
reflecting an increase in deposits and guarantees.
Liabilities increased by ¥5,321 million to ¥57,483 million
compared to ¥52,162 million at the end of the previous fiscal
year.
This primarily reflected accounts payable of ¥24,084
million, up ¥1,559 million year on year, short-term debt of¥7,483 million, up ¥1,085 million, and long-term debt of¥8,048 million, up ¥1,730 million.
As a result of the above, the balance of current liabilities
increased by ¥2,741 million from the previous year-end balanceof ¥42,945 million to ¥45,686 million, and the balance of longterm liabilities increased by ¥2,579 million from the previous
year-end balance of ¥9,216 million to ¥11,796 million.
Net assets increased by ¥4,610 million to ¥38,356 million
compared to ¥33,745 million at the end of the previous fiscal
year.
This was because the balance of retained earnings rose
¥4,278 million to ¥21,704 million due to the growth ofretained earnings during the fiscal year.
Unrealized holding gains on securities totaled ¥57 million.
As a result of the above factors, shareholders’ equity ratio
improved 0.8 percentage points to 40.0%, compared with39.2% at the end of the previous fiscal year.

AIN PHARMACIEZ INC. ANNUAL REPORT 201321

BASIC POLICIES FOR PROFIT DISTRIBUTION
The Company considers the return of profits to shareholders as
an important management issue.
Our basic policy is to repay our investors proportionate to
the profit we make, and to maintain these at stable levels.
Internal reserves are held to strengthen the corporate
structure and in preparation for new store openings and future
development of the business. We will make effective use of
these funds to generate profits to be returned to shareholders
in the future.
The Company’s basic policy is to pay dividends fromretained earnings once per year at the end of the fiscal year.
For the fiscal year under review, the Company paid a dividendof ¥60 per share, an increase of ¥10 per share compared withthe previous fiscal year’s ordinary dividend of ¥50.
In view of profit forecasts, plans for investment and otherfactors, the Company intends to pay an ordinary dividend fromretained earnings of ¥60 per share for the fiscal year ending
April 30, 2014, the same level as the planned dividend for the
fiscal year under review.

This was mainly due to payments of ¥3,266 million forpurchases of property, plant and equipment related to new
openings and refurbishments of urban drug and cosmetic
stores and dispensing pharmacies, and ¥2,923 million forpurchases of subsidiaries’ shares resulting in obtaining
controls related to shares acquired in eleven companies
through M&A deals.
Cash Flows from Financing Activities
Net cash provided by financing activities totaled ¥803 million,
compared with cash of ¥2,131 million used in the previous
fiscal year.
This was mainly attributable to net short-term debt
procurement of ¥850 million and net long-term debt
procurement of ¥1,181 million.
Cash dividends paid totaled ¥797 million.

BUSINESS AND OTHER RISKS
The following factors may affect the Group’s operating results,
stock price and financial position. Forward-looking statementsin this annual report are based on information available to theGroup at the end of the fiscal year under review.

CASH FLOWSIn the fiscal year under review, cash and cash equivalents at
end of year (“cash”) increased ¥2,504 million (15.7%) year
on year to ¥18,439 million. This reflected operating cash flow
generated by dispensing pharmacy and drug and cosmetic
store businesses, which was mainly used to actively invest in
new store openings and M&A. Some cash was also retained toprovide constant access to a certain level of funds.
Cash flows from each category and their relevant factors
are as follows.
Cash Flows from Operating Activities
Net cash provided by operating activities was ¥10,203 million,a decrease of 12.6% year on year.
The main items that were positive for cash flow wereincome before income taxes and minority interests of ¥9,694
million, as well as depreciation and amortization of ¥2,212
million and amortization of goodwill of ¥1,784 million related
to business expansion through new store openings and M&A.
Decrease in accounts receivable of ¥4,672 million, related towider use of the securitization of dispensing fee receivables,
also had a positive impact on operating cash flow.
The main items that were negative for cash flow wereincrease in other accounts receivable of ¥4,268 million andincome taxes paid of ¥4,947 million.
Cash Flows from Investing Activities
Net cash used in investing activities totaled ¥8,503 million, adecrease of 5.6% year on year.

22 AIN PHARMACIEZ INC. ANNUAL REPORT 2013

1. Laws and Regulations
a. Regulations under the Pharmaceutical Affairs Law andother laws
We operate dispensing pharmacies under various permits,
licenses, registrations and notifications including those set forth
by the Pharmaceutical Affairs Law, the Health Insurance Law
and the Pharmacists Law, under the supervision of the Ministryof Health, Labour and Welfare, and of prefectural health andwelfare departments. The drug and cosmetic store businessalso involves sales of drugs, which are similarly regulated under
the Pharmaceutical Affairs Law.
b. Easing of drug sales regulations
Under the Law for Partial Revision of the Pharmaceutical Affairs
Law (Law No. 69, June 14, 2006), which includes a review ofthe sales system for over-the-counter (OTC) drugs, OTC drugs
are categorized into three groups by risk. It has thus become
possible to sell the two lower-risk categories of drugs as a“registered seller,” not requiring a pharmacist.
Factors such as the entry into the market of firms fromother industries as a result of a continuing trend in the future
to deregulate drug sales may affect the Group’s performance.
2. Details of Business
The Group’s dispensing pharmacy business operates a chain of
specialist dispensing pharmacies. These dispensing pharmacies
are mainly located near major hospitals (targeting demand
from patients with prescriptions written by those hospitals)
and near medical malls (targeting demand from patients withprescriptions written by those mixed medical facilities).
As the dispensing pharmacy business accounted for
88.8% of net sales in the fiscal year under review, we plan tocontinue the multi-store operation mainly based on dispensing
pharmacies. Accordingly, the Group’s operating results may beaffected by the success or failure of the store opening policies
and by trends in competitors’ store openings.
Furthermore, sales of dispensing pharmacies significantly
depend on the medical institutions that write prescriptions.
Therefore, some hard-to-predict factors including the issuanceof non-hospital prescriptions by the medical institutions orsuspension/discontinuation of operations thereof may affect
the Group’s performance.
3. Industry Trends
The revenues in our dispensing pharmacy business come frompharmacy operations involving the dispensing and supplyingof prescription drugs. The drug prices and dispensing fees are
set by the Ministry of Health, Labour and Welfare. As a way
to contain medical expenses, both medical treatment feesand drug prices are being revised in stages. Changes in profit
structure resulting from factors such as revisions in the medical
treatment fee system could continue to affect the Group’s
performance and financial position.
4. Retention of Qualified Staff
Dispensing pharmacies and drugstores (stores for Category 1
Drugs) are required by the Pharmaceutical Affairs Law to havea pharmacist on site; the Pharmacists Law stipulates that thedispensing of drugs must be handled by a pharmacist. The
Group continues to have a policy of expansion by aggressively
opening new stores, but if it becomes difficult to secure
qualified pharmacists, this could affect our store openings andour performance.
5. Risk of Loss of Trust in the Groupa. In the dispensing operations
In our dispensing pharmacy business, pharmacists dispenseand supply prescription drugs that affect the human body.
This business carries the risk that medical accidents might becaused through dispensing errors. The Group recognizes thatany medical accidents could have a severely damaging effecton society’s confidence in the Group, and we place the highest
priority on measures in all aspects to prevent this risk frommaterializing.
b. Protection of personal data
We possess patient data in the dispensing pharmacy business,
including medical histories and prescription information, andwe possess personal data in the drug and cosmetic store
business obtained for the Ainz Point Club Card. The Group hascompleted development of personal information protection
systems and rules for the handling of such information. The
Company acquired the Privacy Mark accreditation in thehealthcare, medical and social service fields.
However, we believe it is possible that any accidental
or illegal leakage of personal data may not only affect our
performance but also lead to a loss of society’s confidence in
the Group.

6 Risk in Business Strategy
We have promoted the expansion of the business scale throughactively promoting new openings of dispensing pharmacies andM&A. Our basic policies regarding M&A strategy require us tocarefully examine target companies and determine the amountto be paid for acquisitions thereof in order to stably secure a
profitability level that exceeds the amortization of goodwill to
be incurred. If matters do not go as planned, however, we may
incur loss on valuation of shares in subsidiaries and impairment
loss on goodwill, which may have an adverse impact on theGroup’s operating results and financial position.
7. Interest Rate Risk
In the Group’s promotion of business expansion based on
actively promoting new store openings and M&A, costs forordinary store openings are covered by its own resources within
the range of operating cash flow, while in some cases of largescale M&A, costs are partially financed by borrowings fromfinancial institutions.
To flexibly respond to these capital needs, the Group seeks
to maintain a certain level of liquidity. As of the end of the
fiscal year under review, the balance of cash on hand andin banks was ¥18,460 million, while the balance of interestbearing debt of the Group was ¥15,531 million.
We focus on the possibility of return on investment andseek to reduce interest-bearing debt in implementing M&A.
However, if the Group fails to secure an adequate returnon its M&A investment, or due to interest rate fluctuations
associated with conditions of the financial market, the Group’s
financial position and operating results including interest
expenses may be affected.
8. Consumption Tax Risk
Under Japan’s Consumption Tax Act, dispensing sales in thedispensing pharmacy business related to social insurance
medical examinations are exempt from consumption tax.
However, the business is required to pay consumption tax on
drugs and other products that it procures.
As a result, the consumption tax burden borne by theGroup is booked as consumption tax under cost of sales in thedispensing pharmacy business.
In the past, when consumption tax was introducedor hiked in Japan and dispensing fees were revised, thegovernment took into account the increase in drug prices
caused by the higher rate of consumption tax. However, futurerevisions to the rate of consumption tax may not be reflected
in drug prices, which could have an impact on the Group’s
performance.

AIN PHARMACIEZ INC. ANNUAL REPORT 201323

AIN PHARMACIEZ INC.
CONSOLIDATED BALANCE SHEETAS OF APRIL 30, 2013

Millions of yen
2013
2012

ASSETS
Current assets:
Cash on hand and in banks (Notes 2 and 4)
Notes and accounts receivable (Note 4)
Other accounts receivable
Inventories (Note 3)
Deferred tax assets (Note 11)
Short-term loans
Other current assets
Allowance for doubtful accounts
Total current assets¥

18,460
7,044
7,181
7,944
955
445
1,142
(10)
43,162¥

15,935
10,985
2,758
8,253
892
606
918
(27)
40,320Thousands of
U.S. dollars(Note 1(1))
2013$

188,695
72,00273,403
81,202
9,762
4,549
11,673(102)
441,194

Property, plant and equipment (Note 7):
Buildings and structures, net
LandConstruction in progress
Other property, plant and equipment, net
Total property, plant and equipment

8,248
6,031
1,102
2,170
17,550

7,049
5,622
825
1,761
15,25784,31061,648
11,264
22,181
179,393

Investments and other assets:
Investments in securities (Notes 4 and 5)
Deferred tax assets (Note 11)Long-term loans
Deposits and guarantees
Goodwill
Other intangible fixed assets
Other investments and other assets
Allowance for doubtful accounts
Total investments and other assets
Total assets

2,790
946
1,348
6,986
19,575
1,031
2,720
(268)
35,12895,840

2,826
1,123
1,326
5,758
17,665
991
900
(257)
30,33185,90828,5199,670
13,77971,410200,092
10,53927,803(2,739)359,072
979,659

See accompanying notes.

24 AIN PHARMACIEZ ANNUAL REPORT 2012

¥

¥

$

Millions of yen
2013
2012

LIABILITIES AND NET ASSETS
Current liabilities:
Accounts payable (Note 4)
Short-term debt (Notes 4 and 8)
Accrued income taxes
Deposits received
Allowance for bonuses to employees
Allowance for bonuses to directors
Reserve for reward obligations
Other current liabilities
Total current liabilities

Thousands of
U.S. dollars(Note 1(1))
2013¥Long-term liabilities:
Long-term debt (Notes 4 and 8)
Lease obligations
Allowance for retirement benefits (Note 10)
Other long-term liabilities
Total long-term liabilities

24,085
7,483
2,427
7,906
1,099
13
316
2,358
45,687¥22,525
6,397
2,740
7,714
965
13
302
2,289
42,945$

246,192
76,49024,80880,814
11,234133
3,230
24,103
467,004

8,049
1,223
1,659
866
11,797

6,318
676
1,449
774
9,217

82,275
12,501
16,958
8,852
120,587

8,683

8,683

88,756

7,873
21,705(6)
38,255

7,873
17,426(6)
33,97780,476
221,864(61)
391,035

58
58
44
38,357
95,840

(281)
(281)
51
33,74685,908593
593
450
392,078
979,659

Net Assets: (Note 12)
Shareholders’ equity
Common stock
Authorized - 44,000,000 shares in 2013 and 2012
Issued - 15,944,106 shares in 2013 and 2012
Capital surplus
Retained earnings
Treasury stock (3,366 shares in 2013 and 3,316 shares in 2012)
Total shareholders’ equity
Accumulated other comprehensive income (loss):
Unrealized holding gains (losses) on securities
Total accumulated other comprehensive income (loss)
Minority interests
Total net assets
Total liabilities and net assets¥¥$

AIN PHARMACIEZ ANNUAL REPORT 201325

AIN PHARMACIEZ INC.
CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED APRIL 30, 2013

Millions of yen
2013
2012
¥ 154,561¥ 142,791
130,118
119,698
24,44223,093
14,741
12,839
9,701
10,254

Net sales (Note 16)
Cost of sales
Gross profit
Selling, general and administrative expenses
Operating income (Note 16)
Other income (expense):
Interest and dividend income
Gains on investments in partnership
Commissions received
Real estate rental revenue
Consignment income
Interest expenses
Losses on sales of accounts receivables
Gains on sales of investments in securities
Gains on sales of shares of subsidiaries and affiliates
Losses on sales of investments in securities
Losses on disposal and sales of fixed assets
Losses on devaluation of investments in securities
Impairment losses on fixed assets
Directors’ retirement benefits
Other, net
Income before income taxes and minority interests
Income taxes (Note 11):
Current
DeferredIncome before minority interests
Minority interests in income (loss)
Net income¥

Thousands of
U.S. dollars(Note 1(1))
2013$ 1,579,894
1,330,042
249,842
150,680
99,162

118
80
71
91
134
(144)
(79)
119
(124)
(132)
(2)
(159)
(320)
339
(7)
9,695

94
59
132
124
(159)
(71)
21
23
(193)
(147)
(52)
(244)
(12)
(45)
(472)
9,782

1,206
818
726
930
1,370
(1,472)(808)
1,216(1,268)(1,349)(20)(1,625)(3,271)
3,465(72)
99,100

4,597
29
4,626
5,069
(6)
5,075

4,652
229
4,881
4,901
2
4,899

46,990296
47,28651,814(61)
51,876¥$AIN PHARMACIEZ INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
YEAR ENDED APRIL 30, 2013

Income before minority interests
Other comprehensive income
Unrealized holding gains on securities
Total other comprehensive income
Total comprehensive income
Comprehensive income attributable toshareholders of the parent
Comprehensive (loss) income attributable tominority interests
See accompanying notes.

26 AIN PHARMACIEZ ANNUAL REPORT 2013

Millions of yen
2013
¥
5,069

Millions of yen
2012
¥
4,901

Thousands of
U.S. dollars(Note 1(1))
2013$
51,814

339
339
5,408

47
47
4,948

3,465
3,465
55,280

5,414

4,946

55,341

(6)

2

(61)

AIN PHARMACIEZ INC.
CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETSYEAR ENDED APRIL 30, 2013

Thousandsof shares

Millions of yen
Shareholders' equity

Number ofshares ofcommonstock

Balance at April 30, 2011
Net income
Cash dividends paid
Acquisition of treasury stock
Change in scope of consolidation
Net change in items other than those in shareholders’ equity
Net changes during the year
Balance at April 30, 2012
Net income
Cash dividends paid
Acquisition of treasury stock
Net change in items other than those in shareholders’ equity
Net changes during the year
Balance at April 30, 2013

Commonstock

15,944

¥

8,683

-

¥

¥

8,683

¥

-

8,683
-

Retainedearnings

7,873-

15,944

15,944

Capitalsurplus

7,873
-

¥

7,873

Accumulated other comprehensive income (loss)-¥

13,227
4,899
(717)
17
4,199
17,426
5,075
(797)
4,278
21,705

¥

¥

(5)
(1)
(1)
(6)
(0)
(0)
(6)

¥

¥

29,778
4,899
(717)
(1)
17
4,199
33,977
5,075
(797)
(0)
4,278
38,255

Total
accumulated
othercomprehensive
income (loss)

Unrealized
holding gains(losses) on
securities

Total
shareholders’equityTreasury
stock

¥

(328)
47
47
(281)
339
339
58

¥

¥

¥

(328)
47
47
(281)
339
339
58

Minority
interests

Total net
assets

¥

49

¥

¥

2
2
51
(6)
(6)
44

¥

29,499
4,899
(717)
(1)
17
49
4,247
33,746
5,075
(797)
(0)
333
4,611
38,357

Thousands of U.S. dollars (Note 1(1))
Shareholders' equity
Commonstock

Balance at April 30, 2012
Net income
Cash dividends paid
Acquisition of treasury stock
Net change in items other than those in shareholders’ equity
Net changes during the year
Balance at April 30, 2013$$

88,75688,756

Capitalsurplus$-$Retainedearnings

80,47680,476

Accumulated other comprehensive income (loss)-$ 178,125
51,876(8,147)43,729$ 221,864

Treasury
stock

$

$

(61)
(0)
(0)
(61)

$

$

347,307
51,876(8,147)(0)43,729391,035

Total
accumulated
othercomprehensive
income (loss)

Unrealized
holding gains(losses) on
securities

Total
shareholders’equity$$(2,872)
3,465
3,465
593

$

$

(2,872)
3,465
3,465
593

Minority
interests

Total net
assets

$

521

$

(61)
(61)
450

$ 344,945
51,876(8,147)(0)3,404
47,133$ 392,078

See accompanying notes.

AIN PHARMACIEZ ANNUAL REPORT 201327

AIN PHARMACIEZ INC.
CONSOLIDATED STATEMENT OF CASH FLOWSYEAR ENDED APRIL 30, 2013

Millions of yen
2013
2012
Cash flows from operating activities:
Income before income taxes and minority interests
Depreciation and amortization
Impairment losses on fixed assets
Amortization of goodwill
Impairment losses on investments in securities
Gains on sales of shares of subsidiaries and affiliates
Decrease in allowance for doubtful accounts
Increase (decrease) in reserve for reward obligations
Increase in allowance for retirement benefits
Increase in allowance for bonuses to employees
Increase in allowance for bonuses to directors
Decrease in allowance for losses on disaster
Interest and dividend income
Interest expenses(Gains) losses on investments in partnerships
Gains on donations of property, plant and equipment
Losses on sales of investments in securities
Losses on disposal and sales of fixed assets
Gains on transfer of business
Decrease in accounts receivable
Decrease in inventories(Increase) decrese in other assets
Increase in other accounts receivable
Increase in accounts payable(Decrease) increase in other liabilities
SubtotalInterest and dividends received
Interest paid
Income taxes paid
Net cash provided by operating activities

¥

9,695
2,213
159
1,784
2
(7)
14
202
115
0
(118)
144
(80)
(18)
5
112
(12)
4,673
505
(196)
(4,269)475(225)
15,171125(145)(4,948)
10,204

¥

9,782
1,750
244
1,263
52
(23)
(79)
(11)
175
2
3
(11)
(94)
159
19
(28)
172
130
70
405
10
(687)
1,862
1,007
16,17284(159)(4,418)
11,680Thousands of
U.S. dollars(Note 1(1))
2013$

99,10022,621
1,625
18,236
20
(72)
143
2,065
1,176
10
(1,206)
1,472
(818)
(184)
51
1,145
(123)
47,767
5,162(2,003)(43,637)
4,855(2,300)155,075
1,278(1,482)(50,578)
104,303

Cash flows from investing activities:
Payments for purchases of property, plant and equipment
Proceeds from sales of property, plant and equipment
Proceeds from transfer of business
Payments for purchases of investments in securities
Proceeds from sales of investments in securities
Purchase of shares in affiliates
Purchases of subsidiaries' shares resulting in obtaining controls
Proceeds from subsidiaries' shares resulting in losses of controls
Payments for loans receivable
Proceeds from collections of loans receivable
Payments for investments in capital
Proceeds from returns of investments in capital
Payments for purchase of intangible fixed assets
Increase in other investments
Net cash used in investing activities(3,267)
325
65
(559)
1,240
(2,923)
(579)
734
(743)
0
(956)
(1,840)(8,503)(2,378)
166
(478)
575
(8)
(4,122)205(1,061)183(4)
6(1,228)(866)(9,011)(33,395)
3,322
664(5,714)
12,675(29,878)(5,918)
7,503(7,595)0(9,772)(18,808)(86,916)

Cash flows from financing activities:
Proceeds from short-term debts
Repayments of short-term debts
Proceeds from long-term debts
Repayments of long-term debts
Payments for redemption of bonds
Repayments of lease obligations
Payments for purchase of treasury stock
Cash dividends paid
Net cash provided by (used in) financing activities

7,735(6,884)
6,440(5,258)
(431)
(0)
(797)
804

3,100
(2,777)3,400(4,646)
(184)
(305)
(1)
(717)
(2,131)

79,066(70,367)
65,828(53,746)(4,406)(0)(8,147)
8,218

2,504
15,935¥ 18,440

538
15,398¥ 15,935

25,595
162,885$ 188,490

Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of the year (Note 2)
See accompanying notes.

28 AIN PHARMACIEZ ANNUAL REPORT 2013

AIN PHARMACIEZ INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSYEARS ENDED APRIL 30, 2013 AND 2012

1. Summary of significant accounting policies(1) Basis of presenting consolidated financial statements
The accompanying consolidated financial statements have been prepared in accordance with theprovisions set forth in the Japanese Financial Instruments and Exchange Law and its related
accounting regulations, and in conformity with accounting principles generally accepted in Japan("Japanese GAAP"), which are different in certain respects as to application and disclosure
requirements of International Financial Reporting Standards.
The accompanying consolidated financial statements have been reclassified and translated into
English from the consolidated financial statements of AIN PHARMACIEZ INC. (the “Company”)
prepared in accordance with Japanese GAAP and filed with the appropriate Local Finance Bureau of
the Ministry of Finance as required by the Financial Instruments and Exchange Law. Some
supplementary information included in the statutory Japanese language consolidated financial
statements, but not required for fair presentation, is not presented in the accompanying consolidated
financial statements.
The translations of the Japanese yen amounts into U.S. dollars are included solely for the convenienceof readers outside Japan, using the prevailing exchange rate at April 30, 2013, which was ¥97.83 to
U.S. $1. The convenience translations should not be construed as representations that the Japanese
yen amounts have been, could have been, or could in the future be, converted into U.S. dollars at thisor any other rate of exchange.
As permitted by the Financial Instruments and Exchange Law of Japan, amounts of less than one
million yen have been omitted. As a result, the totals shown in the accompanying consolidated financial
statements (both in yen and U.S. dollars) do not necessarily agree with the sums of the individual
amounts.
(2) Consolidated statement of cash flows
In preparing the consolidated statement of cash flows, cash on hand, readily-available deposits andshort-term highly liquid investments with maturities not exceeding three months at the time of purchaseare considered to be cash and cash equivalents.
(3) Basis of consolidation and accounting for investments in affiliates
The consolidated financial statements comprise the accounts of the Company and its 19 and 18
subsidiaries as of April 30, 2013 and 2012, respectively. All significant intercompany accounts andtransactions have been eliminated in consolidation. All companies are required to consolidate all
significant investees which are controlled through ownership of majority voting rights or existence of
certain conditions.
The investments in affiliates are stated at their underlying equity value. All companies are required toaccount for investments in affiliates (20% to 50% owned and certain others that are 15% to 20%
owned) by the equity method, in principle.
Of consolidated subsidiaries, MEDIWEL Corp. closes its accounts on April 30. The account closing
date for a consolidated subsidiary in the dispensing pharmacy business is the end of January. The
account closing date for three consolidated subsidiaries in the dispensing pharmacy business is theend of February. The account closing date of other consolidated subsidiaries is the end of March 31.
Financial statements as of these respective closing dates are used in preparing the consolidated
financial statements. However, necessary adjustments are made to important transactions that occur
between these subsidiaries’ account closing dates and the account closing date for the consolidated
financial statements.

AIN PHARMACIEZ ANNUAL REPORT 201329

(4) Securities
The Company and its consolidated subsidiaries examine the intent of holding each security and classify
those securities other than equity securities issued by subsidiaries and affiliates: (a) securities held for
trading purposes (hereafter, "trading securities"), (b) debt securities intended to be held to maturity(hereafter, "held-to-maturity debt securities"), (c) other securities that are not classified in any of theabove categories (hereafter, "available-for-sale securities").
Trading securities are carried at fair value and held-to-maturity debt securities are carried at amortizedcost. Marketable securities classified as available-for-sale securities are carried at fair value withchanges in unrealized holding gains or losses, net of the applicable income taxes, included directly in
net assets. Non-marketable securities classified as available-for-sale securities are carried at cost.
Cost of securities sold is determined by the moving average method.
(5) Inventories
Dispensed drugs were stated at lower of cost or market, cost being determined using the gross averagemethod. Merchandise was stated at lower of cost or market, cost being determined using the retailmethod. Supplies were stated at cost determined using the last purchase method.
(6) Depreciation and amortization
Depreciation of property, plant and equipment other than leased assets is computed by the
declining-balance method at rates based on the useful lives, except that the straight-line method isapplied to buildings acquired after April 1, 1998. The useful lives of major property, plant andequipment are summarized as follows:
Buildings and structures: 10 to 50 years
The straight-line method is applied over a three-year period for assets with an acquisition price of¥100,000 or more and less than ¥200,000.
Amortization of software other than leased assets used by the Company and its consolidated
subsidiaries is computed by the straight-line method over the useful lives, 5 years. Amortization of
long-term prepaid expenses is computed by the straight-line method. Amortization of goodwill iscomputed by the straight-line method over a period (5 to 20 years).
Leased assets capitalized under finance leases are depreciated over the lease terms of the respective
assets with no residual value. Finance lease transactions that do not transfer ownership thatcommenced prior to April 1, 2008, are accounted for under methods pertaining to standard leasetransactions.
(7) Impairment of fixed assets
Fixed assets are reviewed for impairment whenever events or changes in circumstances indicate thatthe carrying amount may not be recoverable. When amounts of undiscounted future cash flows of fixed
assets are less than the carrying amounts, the fixed assets are determined to be impaired. Then, anamount by which the carrying amount exceeds the recoverable amount is recognized as an impairment
loss.
The Company and its consolidated subsidiaries identify group of assets by store as the smallest
identifiable group of assets that generates cash inflows from continuing use that are largely
independent of the cash inflows from other assets or groups of assets. With respect to non-performing
assets, real estate is regarded as an independent asset group.
The recoverable amount of the asset group is measured by the respective net selling prices. The land
is assessed based on the appraisal value by an independent real estate appraiser. The fair value of
construction in progress and store facilities is the disposal value from which costs of disposal are
deducted.

30 AIN PHARMACIEZ ANNUAL REPORT 2013

(8) Deferred charges
Amortization of stock issuance cost is computed by the straight-line method over 3 years.
(9) Allowance for doubtful accounts
The Company and its consolidated subsidiaries provide an allowance for doubtful accounts forprobable collection losses by applying the actual rate of bad debt losses experienced in a pastreference period for normal receivables and by individual assessment of collectability for doubtfulreceivables.
(10) Bonuses to employees
Allowance for bonus to employees is provided for payments to employees of the Company and its
consolidated subsidiaries at the amount expected to be paid in respect of the calculation period ended
on the balance sheet date.
(11) Bonuses to directors
Allowance for bonus to directors is provided for payments to directors of the Company and its
consolidated subsidiaries at the amount expected to be paid in respect of the calculation period ended
on the balance sheet date.
(12) Retirement benefits
Retirement benefits covering all employees are provided through two plans: a lump-sum benefit plan
and a defined-benefit pension plan. Upon retirement or termination of employment, employees are
generally entitled to lump-sum or annuity payments based on their current rate of pay, length of service
and cause of termination.
The Company and some of its consolidated subsidiaries revised a retirement benefits plan in October,2012 and recognize prior service costs for the year ended April 30, 2013.
The liabilities and expenses for retirement benefits are determined based on the amounts actuariallycalculated using certain assumptions. The Company and its consolidated subsidiaries provide anallowance for employees' retirement benefits based on the estimated amounts of the projected benefit
obligation and the fair value of the plan assets. Actuarial gains and losses are recognized in expenses
using the declining-balance method over a period (six years) within the average of the estimatedremaining service period, commencing from the year after the year in which they are incurred.
(13) Reserve for reward obligations
In terms of the estimated redeemable amount of the purchase points given in the parent company’s
Drug and Cosmetic Store Business, the Company sets a reserve based on actual redemptions in thepast.
(14) Income taxes
Deferred tax assets and liabilities are determined based on the differences between financial reporting
and the tax bases of the assets and liabilities and are measured using the enacted tax rates and laws
which will be in effect when the differences are expected to reverse.
(15) Amounts per share of common stock
Basic net income per share is computed based on the weighted average number of shares of common
stock outstanding during the year.
Diluted net income per share is computed based on the weighted average number of shares ofcommon stock outstanding each year after giving effect to the dilutive potential of common shares to beissued upon conversion of the convertible bonds.

AIN PHARMACIEZ ANNUAL REPORT 201331

Net assets per share are computed based on the net assets excluding minority interests, and thenumber of common stock outstanding at the year end.
Cash dividends per share represent the actual amount declared as applicable to the respective years.
(16) Derivatives and hedge accounting
The Company and its consolidated subsidiaries state derivative financial instruments at fair value andrecognizes changes in the fair value as gains or losses unless derivative financial instruments are used
for hedging purposes.
If derivative financial instruments are used as hedges and meet certain hedging criteria, the Company
deters recognition of gains or losses resulting from changes in fair value of derivative financial
instruments until the related losses or gains on the hedged items are recognized.
If interest rate swap contracts are used as hedges and meet certain hedging criteria, the net amount tobe paid or received under the interest rate swap contract is added to or deducted from the interest on
the assets or liabilities for which the swap contract was executed.
The following summarizes hedging derivative financial instruments used by the Company and items
hedged.
Hedging instruments: Interest rate swap contracts
Hedged items: Interest on long-term debt
The Company uses interest rate swap contracts to hedge interest rate fluctuation risk on hedged items
and identifies hedged items by individual contracts.
The Company does not evaluate hedge effectiveness if the notional amounts, terms and interest
payment dates of the hedging instruments and the hedged items are the same and meet certain
hedging criteria.
(17) Consumption taxes
The Company and its consolidated subsidiaries are accounted for using the tax excluded method.
With regard to consumption taxes and other taxes that are not subject to deduction, the related
expenses are reported in the fiscal year in which they are incurred.
However, consumption taxes and other taxes that are not subject to deduction but related to fixed
assets are recorded in “other investments and other assets” within “investments and other assets” andamortized using the straight-line method.
Accrued consumption taxes are indicated in the corresponding “other” sections within current assets
and current liabilities.
(18) Changes in accounting policies that are difficult to distinguish from changes in accounting
estimates
In accordance with the revision of the Corporation Tax Act, the Company and its consolidated
subsidiaries have changed the depreciation method for property, plant and equipment acquired on orafter May 1, 2012 and April 1, 2012, respectively, to the method under the revised act from the year
ended April 30, 2013. The impact of this change to operating income and income before income taxes
and minority interests is immaterial.

32 AIN PHARMACIEZ ANNUAL REPORT 2013

(19) Unapplied accounting standards
Accounting Standard for Retirement Benefits (Accounting Standards Board of Japan (“ASBJ”)
Statement No. 26, revised on May 17, 2012)
Guidance on Accounting Standard for Retirement Benefits (ASBJ Guidance No.25 revised on May 17,
2012)
The accounting standard has been revised in light of improving financial reporting and trend toward
international convergence, mainly on changes in accounting methods for unrecognized net actuarial
gains or losses and unrecognized prior service cost and enhancement of disclosure items as well aschanges of calculation methods for projected benefit obligation and service cost.
The Company and its subsidiaries intends to adopt the revised accounting standard from the end of the
fiscal year ending April 30, 2014, and to adopt the changes on calculation methods for projected benefit
obligation and service cost from the fiscal year beginning May 1, 2014.
Effects of adoption of the revised accounting standard are currently evaluated.
(20) Reclassification and restatement
Certain prior year amounts have been reclassified to conform to the current year presentation.
These reclassifications and restatement had no impact on previously reported results of operations.

2. Cash and cash equivalents(1) Reconciliations of cash on hand and in banks shown in the consolidated balance sheet and cash
and cash equivalents shown in the consolidated statement of cash flows as of and for the year
ended April 30, 2013 are as follows:
Thousands ofMillions of yen
U.S. dollars
2013
2012
2013
Cash on hand and in banks¥ 18,460¥ 15,935$188,695
Less: Time deposits with maturities
exceeding three months
(21)
(215)
Cash and cash equivalents¥ 18,440¥ 15,935$ 188,490(2) The following table summarizes assets acquired and liabilities assumed through the acquisition ofshares of the companies relating acquisition cost and net disbursement:(a) Major breakdown of assets and liabilities of companies newly included in the consolidated
financial statements for the years ended April 30, 2013 and 2012 due to the acquisition of shares(i) Acquisition of shares of 11 companies in the dispensing pharmacy business for the year endedApril 30, 2013
The following is the summary of assets acquired and liabilities assumed through the acquisitionof shares of the companies relating acquisition cost and net disbursement.

AIN PHARMACIEZ ANNUAL REPORT 201333

Current assets
Fixed assets
Goodwill
Current liabilities
Long-term liabilities
Acquisition cost of the companies
Cash and cash equivalents held by
the companies
Net disbursement due to theacquisition

Millions of yen
2013¥ 1,463
826
3,104(1,547)
(592)
3,254

Thousands of
U.S. dollars
2013$ 14,955
8,443
31,729(15,813)(6,051)33,262(331)(3,383)¥ 2,923$ 29,878(ii) Acquisition of shares of nine companies in the dispensing pharmacy business for the year
ended April 30, 2012
The following is the summary of assets acquired and liabilities assumed through the acquisitionof shares of the companies relating acquisition cost and net disbursement.

Current assets
Fixed assets
Goodwill
Current liabilities
Long-term liabilities
Acquisition cost of the companies
Cash and cash equivalents held by
the companies
Net disbursement due to theacquisition

Millions of yen
2012¥ 1,704803
4,157(1,462)
(617)
4,585
(463)
¥ 4,122

3. Inventories
Inventories at April 30, 2013 and 2012 consisted of the following:

Merchandise
Supplies

Millions of yen
2013
2012
¥ 7,817¥ 8,139
128
115¥ 7,944¥ 8,253

Thousands of
U.S. dollars
2013$ 79,904
1,308$ 81,202

4. Financial instruments(1) Qualitative information on financial instruments(a) Policies for using financial instruments
The Company and its consolidated subsidiaries have expanded business by opening dispensing
pharmacies and drug and cosmetic stores and through M&A activities. Operating cash flows
provide the majority of the funds the Company and its consolidated subsidiaries require to fund its
shop openings. The Company and its consolidated subsidiaries secure additional funding as
needed for M&A activities through bank borrowings and issuance of new shares and invests inhighly liquid financial assets. Derivatives are employed to hedge against the risks described
below; the Company and its consolidated subsidiaries do not engage in speculative transactions.

34 AIN PHARMACIEZ ANNUAL REPORT 2013

(b) Details of financial instruments used and the exposures to risk and how they arise
Notes and accounts receivable, which relate to trade receivables, are mostly composed ofprescription dispensing fees receivable from National Health Insurance associations and theSocial Insurance Medical Care Fee Payment Fund. In addition, most of other accounts receivable
are collected in a short period. Therefore, these do not entail any risk.
Investment securities, which are principally held-to-maturity bonds and equity securities held forthe purpose of maintaining operating relationships with other companies, involve the risk ofmarket price fluctuations.
Lease deposits and guarantee deposits are primarily deposits placed with the owners ofproperties that the Company leases for the operation of dispensing pharmacies and drugstores.
Such deposits involve lessor credit risk.
Notes and accounts payable, which relate to purchases, are payable within three months.
With respect to borrowings, the Company raises funds primarily as working capital or in relation tocapital expenditures. Redemption periods on such debts are typically twelve years from the dateof borrowing, at the longest. A portion of these instruments carry floating interest rates and are
therefore subject to interest rate fluctuation risk. Derivative transactions (interest rate swap
transactions) are used to hedge against such risk.
With regard to derivative transactions, interest rate swap transactions are used to hedge the riskof fluctuations in interest rate payments. See Note 1 (16) for the description of derivatives andhedge accounting.
(c) Policies and systems for risk management
Management of credit risk (the risk that a business partner will default on its business transactions)
As the Company’s notes and accounts receivable, which relate to sales, are mostly composed ofprescription dispensing fees receivable from National Health Insurance associations and the Social
Insurance Medical Care Fee Payment Fund, and most of other accounts receivable are alsocollected in a short period, no particular risk management is employed.
Securities held to maturity are based on the Company’s Marketable Securities Investment
Standards. Such investments are based on careful decisions, following internal screenings ofinvestees and investment amounts. Furthermore, such investments are monitored regularly,
determining the investee’s financial status throughout the investment period to quickly determine
and minimize potential repayment difficulties.
The Company manages default risk on lease deposits and guarantee deposits through the credit
control upon making contract periods and regular credit screening.
Management of market risk (the risk of exchange and interest rate fluctuations)
The Company and its consolidated subsidiaries raise funds mainly through long-term debt and use
interest rate swap transactions to hedge the risk of fluctuations in interest rate payments on
borrowings. With regard to investment securities, the Company and its consolidated subsidiaries
regularly check the financial conditions of the issuers of unlisted securities. The Company and its
consolidated subsidiaries review on an ongoing basis the status of their holdings of listed securities,
taking into consideration market conditions and their relationships with the issuing companies.
Management of liquidity risk associated with fund procurement (the risk of being unable to execute
payments when due)
To manage liquidity risk, the Company and its consolidated subsidiaries create cash flow plans
based on annual capital expenditures forecasts. These plans are updated each month, based onrevised operating performance and forecast figures. To ensure the Company’s ability to respondflexibly to sudden demands for funding in relation to M&A activities, the Company maintains acertain level of liquidity, including through issuance of new shares.

AIN PHARMACIEZ ANNUAL REPORT 201335

(2) Fair values of financial instruments
Carrying values and fair values of the financial instruments on the consolidated balance sheet at April
30, 2013 are summarized in the following table:
AssetsThousands ofMillions of yen
U.S. dollars
2013
2012
2013
Carrying value
Cash on hand and in banks¥ 18,460¥ 15,935$ 188,695
Notes and accounts receivable
7,044
10,98572,002
7,181
73,403
Other accounts receivable
Investment in securities
2,102
1,307
21,486
Deposits and guarantees
6,852
5,624
70,040Total
41,63933,851
425,626
Fair value
Cash on hand and in banks
18,46015,935
188,695
Notes and accounts receivable
7,044
10,98572,002
7,181
73,403
Other accounts receivable
Investment in securities
2,126
1,307
21,732
Deposits and guarantees
6,702
5,420
68,507
Total
41,51333,647424,338
Difference
Cash on hand and in banks
Notes and accounts receivable
Other accounts receivable
Investment in securities
24245
Deposits and guarantees
(150)
(204)
(1,533)Total¥ (126)¥ (204)$ (1,288)
Liabilities

Thousands of
U.S. dollars
2013

Millions of yen
2013
2012
Carrying value
Accounts payable
Short-term debt including current
portion of long-term debt
Deposits received
Long-term debt
Total
Fair value
Accounts payable
Short-term debt including current
portion of long-term debt
Deposits received
Long-term debt
Total
Difference
Accounts payable
Short-term debt including current
portion of long-term debt
Deposits received
Long-term debt
Total

¥ 24,085
7,483¥ 22,525
6,397$ 246,192
76,4907,906
8,049
47,523

7,714
6,318
42,95580,81482,275
485,771

24,085
7,490

22,525
6,406

246,192
76,561

7,906
8,056
47,537

7,714
6,333
42,97780,814
82,347
485,914

7

8

72

7
¥ 15

14
¥ 23

72
$ 153

Method of calculating the fair value of financial instruments and matters related to available-for-salesecurities and derivative transactions:
Assets:(a) Cash on hand and in banks, notes and accounts receivable, and other accounts receivable

36 AIN PHARMACIEZ ANNUAL REPORT 2013

As these instruments are settled in the short term, their carrying value approximates fair value.
(b) Investment in securities
The fair values of equity securities are determined by their prices on stock exchanges. The fairvalues of bonds are determined by the prices indicated by the counterparty financial institutions, or
the Company determines credit risk from the standpoint of credit management, according to
repayment amount and contract period, and these amounts are discounted to their present value
using appropriate rates of interest.
(c) Deposits and guarantees
The Company determines credit risk from the standpoint of credit management, according to
repayment amount and contract period. These amounts are discounted to their present value using
appropriate rates of interest.
Liabilities:(a) Accounts payable, short-term debt and deposits received
As these instruments are settled in the short term, their carrying value approximates fair value. The
fair value of current portion of long-term debt included in short-term debt is determined bydiscounting the total amount of principal and interest by the assumed interest rate on new
borrowings of the same type.
(b) Long-term debt
The fair value of long-term debt is determined by discounting the total amount of principal andinterest by the assumed interest rate on new borrowings of the same type.
Financial instruments for which fair value is not readily determinable:
The fair values of unlisted equity securities with carrying amounts of ¥688 million ($7,033 thousand)and ¥1,519 million as of April 30, 2013 and 2012, respectively, are not readily determinable.
The redemption schedule for monetary claims and securities with maturity dates as of April 30,
2013 and 2012 are summarized as follows:
Millions of yen

1 year or
less

Cash on hand and in banks
Notes and accounts receivable

2013
More thanMore than
5 years
1 year but
but less
less than
than 10
5 years
years

More than
10 years

Other accounts receivable¥ 18,193
7,044
7,181

¥ -

¥ -

¥ -

Investment securities
Debt securities
Deposits received
Total

480
901
¥ 33,798

119
3,017¥ 3,136

2,046¥ 2,046

1,021¥ 1,021AIN PHARMACIEZ ANNUAL REPORT 201337

1 year or
less

Cash on hand and in banks
Notes and accounts receivableThousands of
U.S. dollars
2013
More thanMore than
5 years
1 year but
but less
less than 5than 10
years
years

More than
10 years

Other accounts receivable$ 185,965
72,00273,403

$ -

$ -

$ -

Investment securities
Debt securities
Deposits received
Total

4,906
9,210
$ 345,477

1,216
30,839$ 32,056

20,914$ 20,914

10,436$ 10,436

Millions of yen

1 year or
less

Cash on hand and in banks
Notes and accounts receivable
Investment securities
Debt securities
Deposits received
Total

2012
More thanMore than
5 years
1 year but
but less
less than
than 10
5 years
years

More than
10 years¥ 15,610
10,985

¥ -

¥ -

¥ -

369
¥ 26,965

119
2,627¥ 2,74530
1,682¥ 1,7121,080¥ 1,080

5. Securities(1) The following tables summarize acquisition costs, carrying values and differences of securities withavailable fair values as of April 30, 2013 and 2012:38 AIN PHARMACIEZ ANNUAL REPORT 2013

Other securities:
Securities with carrying values exceeding acquisition costs
Millions of yen
2013
2012
Acquisition cost
Equity securities
Bonds
Limited partnerships
and similar
investments
Other
Total
Carrying value
Equity securities
Bonds
Limited partnerships
and similar
investments
Other
Total
Difference
Equity securities
Bonds
Limited partnerships
and similar
investments
Other
Total

Thousands of
U.S. dollars
2013

¥ 510
-

¥ 108
-

$ 5,213
-

110
103
724

108

1,124
1,053
7,401

585
-

126
-

5,980
-

115
117
817

126

1,176
1,196
8,351

74
-

18
-

756
-

5
14
¥ 93

¥ 18

51
143
$ 951

Other securities:
Securities with carrying values not exceeding acquisition costs
Millions of yen
2013
2012
Acquisition cost
Equity securities
Bonds
Limited partnerships
and similar
investments
Other
Total
Carrying value
Equity securities
Bonds
Limited partnerships
and similar
investments
Other
Total

Thousands of
U.S. dollars
2013

¥ 355
599

¥ 914
149

$ 3,629
6,123

335
1,289

365
206
1,634

3,424
13,176

352
599

500
149

3,598
6,123

335
1,285

362
169
1,180

3,424
13,135AIN PHARMACIEZ ANNUAL REPORT 201339

Difference
Equity securities
Bonds
Limited partnerships
and similar
investments
Other
Total

(3)
-

(414)
-

(31)
-

¥ (3)

(3)
(37)
¥ (453)$ (31)

Equity securities included stocks of non-consolidated subsidiaries and affiliates of ¥2 million ($20
thousand) and ¥381 million at April 30, 2013 and 2012, respectively.
(2) The following table summarizes total sales amounts of other securities sold, and amounts of therelated gains and losses in the years ended April 30, 2013 and 2012:
Millions of yen
2013
2012
Total sales ofother securities sold
Related gains
Related losses¥ 1,333
119
124

¥ 575
21
193

Thousands of
U.S. dollars
2013$ 13,626
1,216
1,268

(3) The following table summarizes impairment losses on other securities in the years ended April 30,
2013 and 2012:
Millions of yen
2013
2012
Other securities with fair value
Other securities without fair value

¥2

¥1
51

Thousands of
U.S. dollars
2013
$20

6. Derivative financial instruments and hedging transactions
The Company has applied hedge accounting for interest rate swap contracts to hedge risks of changesof floating interest rates on long-term debt. There were no outstanding derivative transactions for which
hedge accounting has been applied at April 30, 2013 and 2012. As discussed in Note 1 (16), if interest
rate swap contracts are used as hedges and meet certain hedging criteria, the net amount to be paid or
received under the interest rate swap contract is added to or deducted from the interest on the assets
or liabilities for which the swap contract was executed. Therefore, the fair value of long-term debt
includes the fair value of the interest rate swap contracts.
At April 30, 2013 and 2012, there were no outstanding derivative transactions for which hedge
accounting has not been applied.

7. Leases
The following pro forma amounts represent the acquisition costs, accumulated depreciation,
impairment losses and net balance of leased assets as of April 30, 2013 and 2012, which would havebeen reflected in the consolidated balance sheets if finance lease accounting had been applied to thefinance leases currently accounted for as operating leases as allowed under Japanese GAAP.

40 AIN PHARMACIEZ ANNUAL REPORT 2013

Thousands of
U.S. dollars
2013

Millions of yen
2013
2012
Acquisition cost
Buildings
Other fixed assets
Intangible fixed assets
Total
Accumulated depreciation
Buildings
Other fixed assets
Intangible fixed assets
Total
Impairment losses
Buildings
Other fixed assets
Intangible fixed assets
Total
Net balance
Buildings
Other fixed assets
Intangible fixed assets
Total

¥ 207
82
65
354

¥ 344
362
120
827

$ 2,116
838
664
3,619

160
56
42
258

287
303
104
694

1,635
572
429
2,637

-

-

-

47
26
24
¥96

58
58
17
¥ 133

480
266
245
$ 981

Future minimum lease payments as of April 30, 2013 and 2012 for finance leases currently accounted
for as operating leases are summarized as follows:
Thousands ofMillions of yen
U.S. dollars
2013
2012
2013
Due within one year
Due after one year
Total

¥ 27
109
¥ 135

¥ 74
135
¥ 208

$ 276
1,114
$ 1,380

The following table summarizes details of lease expenses, reversal of impairment losses for leased
assets, depreciation, interest expense and impairment losses, if they had been capitalized:

Millions of yen
2013
2012
Lease expense
Reversal of impairment losses forleased assets
Depreciation
Interest expense
Impairment losses

Thousands of
U.S. dollars
2013

¥ 100

¥ 168

$ 1,022

66
25
-

158
5
-

675
256
-

Equivalent interest is calculated by applying the interest method to allocate for each fiscal year over theterm of the lease the difference between the total lease amount and the equivalent acquisition price ofthe leased asset.

AIN PHARMACIEZ ANNUAL REPORT 201341

Remaining lease expenses for non-cancellable operating lease transactions are as follows:
Thousands ofMillions of yen
U.S. dollars
2013
2012
2013
Due within one year
Due after one year
Total

¥ 569
4,109
¥4,678¥ 576
3,859¥ 4,435$ 5,816
42,001$47,818

8. Short-term debt and long-term debt
Short-term debt and long-term debt at April 30, 2013 and 2012 consisted of the following:
Millions of yen
2013
2012
Short-term bank loans with aweighted-average interest rate of
0.4%
Current portion of long-term debt
with a weighted-average interest rateof 0.7%
Current portion of lease obligation
with a weighted-average interest rateof 1.4%Long-term debt (2014-2024) with aweighted-average interest rate of
0.6%
Lease obligation (2014-2022) with aweighted-average interest rate of
1.6%
Total

Thousands of
U.S. dollars
2013¥ 3,555¥ 2,503$ 36,339

3,928

3,895

40,151

499

345

5,101

8,049

6,318

82,275

1,223¥ 17,254

676¥ 13,736

12,501$ 176,367

At April 30, 2013 and 2012, the carrying amounts of assets pledged as collateral for long-term debt are
as follows:
Assets pledged as collateral:
Millions of yen
2013
2012
Buildings
Land
Investments in securities
Total

¥ 5
28
6
¥ 39

¥ 6
¥ 6

$ 51
286
61
$ 399

Millions of yen
2013
2012

Thousands of
U.S. dollars
2013

Liabilities corresponding tocollateral:

Accounts payable
Long-term debt
Total

42 AIN PHARMACIEZ ANNUAL REPORT 2013

Thousands of
U.S. dollars
2013

¥ 3
25
¥ 28

¥ 7
¥ 7

$ 31
256
$ 286

The aggregate annual maturities of long-term debt at April 30, 2013 are as follows:
Thousands ofYear ending April 30,
Millions of yen
U.S. dollars
2014¥ 3,928$ 40,151
2015
3,457
35,337
2016
2,604
26,6182017
1,276
13,043
2018
426
4,354
The aggregate annual maturities of lease obligations at April 30, 2013 are as follows:Year ending April 30,
2014
2015
2016
2017
2018

Millions of yen
¥ 499
404
339
270
133

Thousands of
U.S. dollars$ 5,101
4,130
3,465
2,760
1,360

9. Sales, disposal and impairment of fixed assets(1) Gains and losses on sales of fixed assets for the years ended April 30, 2013 and 2012 are as
follows:
Gains on sales of fixed assets:
Millions of yen
2013
2012
Buildings and structures
Land
Other property, plant andequipment
Total

¥ 17
1

¥ 16
-

$ 174
10

3
¥ 21

2
¥ 17

31
$ 215

Millions of yen
2013
2012

Thousands of
U.S. dollars
2013

Losses on sales of fixed assets:

Buildings and structures
Land
Construction in progress
Other property, plant andequipment
Other intangible fixed assets
Other investments and otherassets
Disposal cost
Total

Thousands of
U.S. dollars
2013

¥ 84
11

¥1
9
-

$ 859
112

11
9

12
-

112
92

0
16
¥ 132

1
¥ 24

0
164
$ 1,349

AIN PHARMACIEZ ANNUAL REPORT 201343

(2) Losses on disposal of fixed assets for the years ended April 30, 2013 and 2012 are as follows:

Millions of yen
2013
2012
Buildings and structures
Other property, plant andequipment
Goodwill
Other intangible fixed assets
Deposits and guarantees
Other investments and otherassets
Disposal cost
Total

Thousands of
U.S. dollars
2013

¥0

¥ 29

$0

0
-

13
26
0
26

0
-

¥0

4
26
¥ 124

$0

(3) For the years ended April 30, 2013 and 2012, the Company recognized impairment losses forthe following property groups:
Thousands of
U.S. dollars
2013

Millions of yen
2013
2012
Property group
StoresReal estateStores and real estateStores scheduled for
opening
Stores to be closed
Leasehold properties

Description of assets
Store facilities
Land
Store facilities and landStore facilities

¥ 136
7
-

¥ 168
50
21

$ 1,390
72-

Store facilities
Store facilities
Total

15
¥ 159

5
¥ 244

153
$ 1,625

10. Retirement benefits
Allowance for retirement benefits as of April 30, 2013 and 2012 consist of the following:

Projected benefit obligation
Plan assets at fair value
Unfunded retirement benefit obligation
Unrecognized actuarial gains
Unrecognized prior service costs
Net retirement benefit obligation
Allowance for retirement benefits

44 AIN PHARMACIEZ ANNUAL REPORT 2013

Millions of yen
2013
2012
¥ (2,015)¥ (2,020)325
251(1,690)(1,768)
218
320
(187)
(1,659)(1,449)¥ (1,659)¥ (1,449)

Thousands of
U.S. dollars
2013$ (20,597)
3,322(17,275)
2,228(1,911)(16,958)$ (16,958)

Retirement benefit expenses for the years ended April 30, 2013 and 2012 comprised the following:

Service costs
Interest cost on projected benefit obligation
Expected return on plan assets
Amortization of actuarial losses
Amortization of prior service costs
Additional retirement allowance paid
Retirement benefit expenses

Thousands of
U.S. dollars
2013$ 3,322
153
(20)
1,043
(215)
225
$4,498Millions of yen
2013
2012
¥ 325
¥ 292
15
16
(2)
(1)
102
50
(21)
22
¥ 440
¥ 356

Actuarial assumptions used in accounting for the Company’s plans as of April 30, 2013 and 2012 areprincipally as follows:

Discount rate
Expected rate of return on plan assets
Allocation of estimated amount of
retirement benefits
Amortization period for actuarial gains
or losses
Amortization period for changes inaccounting standards
Amortization period for prior service
costs

2013

2012

1.0%
0.75%
Straightline
method6 years

1.0-2.0%
0.75%
Straightline
method
1-6 years

1

1

6

-

11. Income taxes
The aggregate statutory income tax rates used for calculation of deferred income tax assets andliabilities for the years ended April 30, 2013 and 2012 were 37.7% and 40.4%, respectively.
(1) The following table summarizes the significant differences between the statutory tax rate and theeffective tax rates for consolidated financial statement purposes for the years ended April 30, 2013
and 2012:
Statutory tax rate
Non-deductible expenses
Per capita inhabitant tax
Amortization of goodwill
Valuation allowance
Reversal of deferred tax assets due
to changes in the corporate income
tax rate
Other
Effective tax rates

2013
37.7%
0.7
1.7
5.2
0.2

2012
40.4%
0.5
1.5
4.5
-

2.2
47.7%

1.8
1.2
49.9%

AIN PHARMACIEZ ANNUAL REPORT 201345

(2) Significant components of deferred tax assets and liabilities as of April 30, 2013 and 2012 are as
follows:
Millions of yen
2013
2012
Deferred tax assets:
Impairment losses
Excess of allowance for bonuses
Excess of reserve for rewards obligation
Allowance for retirement benefits
Net unrealized holding losses on securities
Other
Sub-total deferred tax assets
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Capitalized removal costs
Net unrealized holding gains on securities
Valuation of land
Other
Total deferred tax liabilities
Net deferred tax assets

Thousands of
U.S. dollars
2013

¥ 445
412
119
589
931
2,495
461
2,034

¥ 469
357
114
516
153
1,017
2,626
512
2,114

$ 4,549
4,211
1,216
6,021
9,517
25,503
4,712
20,791

(95)
(32)
(61)
(50)
(237)
¥ 1,797

(100)
(59)
(159)
¥ 1,955

(971)
(327)
(624)
(511)
(2,423)$18,369

12. Net assets
Under Japanese laws and regulations, the entire amount paid for new shares is required to be
designated as common stock. However, a company may, by a resolution of the Board of Directors,
designate an amount not exceeding one-half of the price of the new shares as additional paid-in capital,
which is included in capital surplus.
Under the Japanese Corporate Law (the “Law”), in cases where a dividend distribution of surplus ismade, the smaller of an amount equal to 10% of the dividend or the excess, if any, of 25% of common
stock over the total of additional paid-in-capital and legal earnings reserve must be set aside asadditional paid-in capital or legal earnings reserve. The legal earnings reserve is included in retained
earnings in the accompanying consolidated balance sheets.
Under the Law, the legal earnings reserve and additional paid-in capital could be used to eliminate or
reduce a deficit or could be capitalized by resolution of the shareholders’ meeting.
Additional paid-in capital and legal earnings reserve may not be distributed as dividends. However, alladditional paid-in capital and all legal earnings reserve may be transferred to other capital surplus andretained earnings, respectively, which are potentially available for dividends.
The maximum amount that the Company can distribute as dividends is calculated based on the
non-consolidated financial statements of the Company in accordance with the Law.

13. Commitment
The Company entered into overdraft agreements with 21 and 20 banks as of April 30, 2013 and 2012,
respectively, to finance working capital requirements. The outstanding balances of such overdrafts asof April 30, 2013 and 2012 are as follows:

46 AIN PHARMACIEZ ANNUAL REPORT 2013

Total overdraft available
Amount utilized
Outstanding balance

Millions of yen
2013
2012
¥ 22,100¥ 13,365
3,550
2,305
¥ 18,550¥ 11,060

Thousands of
U.S. dollars
2013$ 225,902
36,287$ 189,615

14. Contingencies
The Company has contingent liabilities for the claims for lease deposits and guarantee deposits paid toowners of shops, due to their transfers to third parties. Such contingent liabilities amounted to ¥1,462
million ($14,944 thousand) and ¥1,674 million as of April 30, 2013 and 2012, respectively.

15. Amounts per share
Net assets per share at April 30, 2013 and 2012 and basic and diluted net income per share for theyears then ended are as follows:Yen
Net assets per share
Basic net income per share
Diluted net income per share
Cash dividends per share attributable to the year2013
¥ 2,403
318
60

2012
¥ 2,114
307
50

U.S. dollars
2013$ 24.56
3.25
0.61

Cash dividends per share represent the cash dividends declared as applicable to the respective years,
including dividends to be paid after the end of the year and not accrued in the accompanying
consolidated financial statements.

16. Segment information(1) Overview of reporting segments
Reporting segments of the Company and its consolidated subsidiaries are composed of thoseindividual business units for which separate financial information is available, from which the boardof directors makes decisions regarding the allocation of management resources and for which
operating performance can be evaluated, allowing the reporting segments to be analyzed
periodically.
The Company and its consolidated subsidiaries divide their operations into two main businesses,
the Dispensing Pharmacy business and the Drug and Cosmetic Store business, and the Other
business. The Dispensing Pharmacy business primarily includes the dispensing pharmacy business,sale of generic drugs, staff dispatching and introduction services and consulting business. The Drugand Cosmetic Store business primarily includes the urban and suburban drug stores and cosmetic
specialty stores. The Other business primarily involves real estate rental business. The Company
and its consolidated subsidiaries plan and execute strategies for each business.
Consequently, the business operations of the Company and its consolidated subsidiaries areclassified into the three following reporting segments: Dispensing Pharmacy, Drug and Cosmetic
Store and Other.
(2) Methods of calculating sales, income (loss), assets and other items by reporting segment
Methods of accounting for reported business segments are in principle the same as those indicatedin Note 1 “Summary of Significant Accounting Policies.” Income or loss of reporting segments are
based on ordinary income. Income or loss between segments and transfer amounts are based on

AIN PHARMACIEZ ANNUAL REPORT 201347

market prices.
(3) Information on sales, income (loss), assets and other items by reporting segment as of and for theyears ended April 30, 2013 and 2012 is summarized as follows:
Millions of yen
2013
Dispensing

Drug and

Other

pharmacy

cosmetic store

Total

Adjustments

Consolidated

Sales
Sales to third parties¥ 137,292¥ 16,736¥ 533¥ 154,561¥ -¥ 154,561

-

-

137

137

(137)

-

137,292

16,736670

154,697(137)

154,561

12,65614(398)

12,272(1,980)

10,293¥ 80,710¥ 7,049¥ 3,962¥ 91,720¥ 4,119¥ 95,840¥ 1,577

¥ 260

¥ 71

¥ 1,909¥ 38¥ 1,947

1,779

5

-

1,784

-

1,784

7

129

15

152

7

159

3,575

373

812

4,761

550

5,310

Intersegment sales
Total sales
Segment income(loss)
Segment assets
Other
Depreciation andamortization
Amortization of
goodwill
Impairment losses
Increase of tangible
and intangible
assetsThousands of U.S. dollars
2013
Dispensing

Drug and

Other

Total

Adjustments

Consolidated

pharmacy

cosmetic store$ 1,403,373$ 171,072$ 5,448$ 1,579,894$ -$ 1,579,894

-

-

1,400

1,400

(1,400)-1,403,373

171,072

6,849

1,581,284(1,400)1,579,894

129,367

143(4,068)125,442(20,239)

105,213$ 825,003$ 72.054$ 40,499$ 937,545$ 42,104$ 979,659

Sales
Sales to third parties
Intersegment sales
Total sales
Segment income(loss)
Segment assets

48 AIN PHARMACIEZ ANNUAL REPORT 2013

OtherDepreciation andamortization$ 16,120$ 2,658$ 726$ 19,513$ 388$ 19,902

18,18551-

18,236-

18,236

72

1,319

153

1,554

72

1,625

36,543

3,813

8,300

48,666

5,622

54,278

Amortization of
goodwill
Impairment losses
Increase of tangible
and intangible
assetsMillions of yen
2012
Dispensing

Drug and

Other

pharmacy

cosmetic store

Total

Adjustments

Consolidated

Sales
Sales to third parties
Intersegment sales
Total sales¥ 127,134¥ 15,395¥ 261¥ 142,791¥ -¥ 142,791

-

-

19

19

(19)

-

127,134

15,395

280

142,809(19)

142,791

12,287126(144)

12,269(1,721)

10,548¥ 77,142¥ 7,204¥ 2,446¥ 86,792¥ (883)¥ 85,908¥ 1,276

¥ 220

¥ 29

¥ 1,525¥ 28¥ 1,553

1,258

5

-

1,263

-

1,263

177

55

12

244

-

244

3,645

457

139

4,241

2

4,243

Segment income(loss)
Segment assets
Other
Depreciation andamortization
Amortization of
goodwill
Impairment losses
Increase of tangible
and intangible
assetsAmortization of goodwill and unamortized balances by reporting segment as of and for the years
ended April 30, 2013 and 2012 are summarized as follows:
Millions of yen
2013
Dispensing

Drug and

Other

pharmacy

cosmetic store

Adjustments

Consolidated

Amortization of goodwill¥ 1,779

¥ 5

¥ -

¥ -

¥ 1,784

Unamortized balances of goodwill

19,5695--

19,575AIN PHARMACIEZ ANNUAL REPORT 201349

Thousands of U.S. dollars
2013
Dispensing

Drug and

Other

pharmacy

cosmetic store

Adjustments

Consolidated

Amortization of goodwill$ 18,185

$ 51

$ -

$ -

$ 18,236

Unamortized balances of goodwill

200,03151--

200,092

Millions of yen
2012
Dispensing

Drug and

Other

pharmacy

cosmetic store

Adjustments

Consolidated

Amortization of goodwill¥ 1,258

¥ 5

¥ -

¥ -

¥ 1,263

Unamortized balances of goodwill

17,655

10--

17,665

17. Comprehensive income
Each component of other comprehensive income for the years ended April 30, 2013 and 2012 was thefollowing:Thousands ofMillions of yen
U.S. dollars
2013
2012
2013
Unrealized holding gains (losses) on securities:
Gains (losses) arising during the year
¥ 491
¥ (64)$ 5,019
Reclassification adjustments to losses
33
179
337
Amount before income tax effect
524
115
5,356
Income tax effect
185
68
1,891
Total Unrealized holding gains on securities
339
47
3,465
Total other comprehensive income
¥ 339
¥ 47
$ 3,465

18. Business combinations
For the year ended April 30, 2013
(1)Business combinations
During the fiscal year ended April 30, 2013, the Company and its consolidated subsidiary Asahi
Pharmacy Co., Ltd. acquired for cash consideration the shares in eleven companies in thedispensing pharmacy business, which became consolidated subsidiaries.
Through this business combination, the AIN PHARMACIEZ Group aims to increase its market sharein the dispensing pharmacy business and anticipates greater economies of scale.
The Group decided to conduct this acquisition after taking into due consideration the profitability of
the acquired companies, their potential return on investment and their ability to secure stablerevenues and profits above and beyond the amortizable goodwill generated through this acquisition.
(2)Acquisition price and details
Consideration for acquisition
Expenses related directly to acquisition
Cost of acquisition¥3,178 million ($32,485 thousand)¥76 million ($777 thousand)¥3,254 million ($33,262 thousand)(3)Amount of goodwill generated, its sources, and its amortization method and term

50 AIN PHARMACIEZ ANNUAL REPORT 2013

(a) Amount of goodwill generated¥3,104 million ($31,729 thousand)
The identification or evaluation of assets and liabilities, such as estimates of deferred tax assets,
valuations of land and estimates of various reserves, is based on reasonable information available
as of April 30, 2013. As the period between their acquisition and the end of the fiscal year is short,the available information is insufficient, so the allocation of acquisition costs is not complete.
Consequently, asset and liability amounts, including goodwill, may change.
(b) Sources of goodwill
Goodwill is the cost amount paid over the fair value of asset acquired and liabilities assumed andrecoverable through the future operation by utilizing the AIN PHARMACIEZ Group’s management
resources and economies of scale.
(c) Goodwill amortization method and term
Straight-line method over 10–15 years
For the year ended April 30, 2012(1)Business combinations
During the fiscal year ended April 30, 2012, the Company and its consolidated subsidiaries AIN
MEDICAL SYSTEMS Inc., Daichiku Co., Ltd. and AIN MEDIO Inc. acquired for cash consideration
the shares in nine companies in the dispensing pharmacy business, which became consolidated
subsidiaries.
Through this business combination, the AIN PHARMACIEZ Group aims to increase its market sharein the dispensing pharmacy business and anticipates greater economies of scale. The Groupdecided to conduct this acquisition after taking into due consideration the profitability of the acquiredcompanies, their potential return on investment and their ability to secure stable revenues andprofits above and beyond the amortizable goodwill generated through this acquisition.
(2)Acquisition price and details
Consideration for acquisition
Expenses related directly to acquisition
Cost of acquisition¥4,463 million¥122 million¥4,585 million(3)Amount of goodwill generated, its sources, and its amortization method and term(a) Amount of goodwill generated¥4,157 million
The identification or evaluation of assets and liabilities, such as estimates of deferred tax assets,
valuations of land and estimates of various reserves, is based on reasonable information available
as of April 30, 2013. As the period between their acquisition and the end of the fiscal year is short,the available information is insufficient, so the allocation of acquisition costs is not complete.
Consequently, asset and liability amounts, including goodwill, may change.
(b) Sources of goodwill
Goodwill is the cost amount paid over the fair value of asset acquired and liabilities assumed andrecoverable through the future operation by utilizing the AIN PHARMACIEZ Group’s management
resources and economies of scale.
(c) Goodwill amortization method and term
Straight-line method over 10 years

AIN PHARMACIEZ ANNUAL REPORT 201351

19. Subsequent events
Not applicable.

20. Quarterly Information(1) Quarterly net sales for the year ended April 30, 2013 are as follows:
Thousands ofMillions of yen
U.S. dollars
2013
2013
Three months ended July 31, 2012
¥ 36,258$ 370,623
Six months ended October 31, 2012
75,091
767,566
Nine months ended January 31, 2013
114,671
1,172,146
Twelve months ended April 30, 2013
154,561
1,579,894(2) Quarterly income before income taxes and minority interests for the year ended April 30, 2013 is asfollows:
Thousands ofMillions of yen
U.S. dollars
2013
2013
Three months ended July 31, 2012
¥ 1,708$ 17,459
Six months ended October 31, 2012
3,970
40,581
Nine months ended January 31, 2013
6,736
68,854
Twelve months ended April 30, 2013
9,695
99,100(3) Quarterly net income for the year ended April 30, 2013 is as follows:
Thousands ofMillions of yen
U.S. dollars
2013
2013
Three months ended July 31, 2012
¥ 912
$ 9,322Six months ended October 31, 2012
2,138
21,854
Nine months ended January 31, 2013
3,690
37,718
Twelve months ended April 30, 2013
5,075
51,876(4) Quarterly net income per share for the year ended April 30, 2013 is as follows:
Yen
U.S. dollars
2013
2013
Three months ended July 31, 2012
¥ 57.22$ 0.58Six months ended October 31, 2012
134.101.37
Nine months ended January 31, 2013
231.47
2.37
Twelve months ended April 30, 2013
318.37
3.25(5) Quarterly net income per share for each accounting period of the year ended April 30, 2013 is asfollows:
Yen
U.S. dollars
2013
2013
Three months ended July 31, 2012
¥ 57.22$ 0.58Three months ended October 31, 2012
76.88
0.79
Three months ended January 31, 2013
97.38
1.00
Three months ended April 30, 2013
86.90
0.89

52 AIN PHARMACIEZ ANNUAL REPORT 2013

AIN PHARMACIEZ ANNUAL REPORT 201353

Investor Information

DIRECTORS AND CORPORATE
AUDITORSCORPORATE DATASTOCK INFORMATION(Fiscal 2013)(Fiscal 2013)

Corporate NameAIN PHARMACIEZ INC.

Transfer Agent
Mizuho Trust & Banking Co., Ltd.

Head Office(From November 2013)
5-2-4-30, Higashisapporo,
Shiroishi-ku, Sapporo,
Hokkaido 003-0005, Japan

Stock Listings
First Section of the Tokyo Stock
Exchange(As of July 31, 2013)

President and Representative
Director
Kiichi Otani
Executive Vice Presidents andRepresentative Directors
Tadashi Nagumo
Hiromi Kato
Senior Managing Directors
Junichi Kawai
Masato Sakurai
Shoichi Shudo
Toshihide Mizushima
Directors
Miya Oishi
Hikaru Minami*1
Tsuyoshi Kobayashi*1
Masao Kiuchi*1
Ko Mori*1
Corporate Auditors
Kouichi Kawamura
Akira Ibayashi*2
Toshiaki Kobayashi*2
Tomonori Ito*2
Notes: 1. Outside directors
2. Outside corporate auditors(Until October 2013)
5-1-2-1, Higashinaebo,
Higashi-ku, Sapporo,
Hokkaido 007-8755, Japan
Established
August 1969
Paid-in Capital¥ 8,682 million
Number of Employees
Consolidated: 3,551
Non-consolidated: 2,273
Business Lines• Dispensing Pharmacy Business
Management and franchise
operation of dispensing pharmacies
and consulting services for the
opening of dispensing pharmacies• Drug and Cosmetic StoreBusiness
Management of drug and cosmetic
stores and consulting services for the
opening of shopping centers

Securities Code Number
9627
Fiscal Year
May 1 to April 30 of the following year
Ordinary General Meeting of
Shareholders
July
Date of Record
April 30
(The Company will announce otherdates as and when required.)
Number of Shares Outstanding
15,944,106 shares(including treasury stock)
Number of Shareholders
2,402

Major Shareholders(As of April 30, 2013)

Shareholders

Number ofshares held
(thousandshares)Shareholding
ratio (%)

Kiichi Otani

1,654

10.38

Retirement Benefit Trust managed
by Mizuho Trust & Banking Co., Ltd.
(Marubeni Corporation account); Trust & Custody Services Bank,
Ltd. as a Trustee of Retrust

1,240

7.78

Seven & i Holdings Co., Ltd.

1,240

7.78

The Hokkaido Bank, Ltd.

786

4.93

Goldman Sachs International

759

4.76

THE CHASE MANHATTAN BANK, N.A. LONDONSECS LENDING OMNIBUS ACCOUNT

501

3.14

ML PRO SEGREGATION ACCOUNT

500

3.14

Japan Trustee Services Bank, Ltd. (Trusut Account)

489

3.07

JPMorgan Chase Bank 385174

440

2.76

Yoshiaki Imagawa

393

2.47

Notes: 1. Shares held in the Retirement Benefit Trust managed by Mizuho Trust & Banking Co., Ltd. (Marubeni
Corporation account) are part of Marubeni Corporation’s retirement benefit trust.
2. Shares held by Japan Trustee Services Bank, Ltd. and The Master Trust Bank of Japan, Ltd. are all
related to trust services.

54 AIN PHARMACIEZ INC. ANNUAL REPORT 2013

AIN PHARMACIEZ INC.
This annual report is printed using vegetable oil ink on FSC ®-certified paper.
Printed in Japan