Keep Moving
Forward
ANNUAL REPORT 2011

For the year ended April 30, 2011

ProfilePr

The AIN PHARMACIEZ Group is a leader in Japan’s dispensing pharmacy industry.
Concentrating its resources into the core dispensing pharmacy and drug andcosmetic store businesses, the Group pursues its growth strategy to respondflexibly to the changing business environment.

Dispensing pharmacy businesscomprises approximately 90% of consolidated net sales.

Others 0.1%

Drug and Cosmetic StoreBusiness
11.5%

Fiscal 2011
Consolidated Net Sales¥129,387 million

Dispensing Pharmacy
Business
88.4%

Contents
1 To Our Stakeholders
2 Business Environment and Our Strengths
in Dispensing Pharmacy Business
6 Interview with the President
11 Topics: Support for Quake-hit Area —Providing a Lifeline and Fulfilling
Our Corporate Responsibility
12 History of Growth
14 Review of Operations
14 Dispensing Pharmacy Business
16 Drug and Cosmetic Store Business17 Corporate Governance
19 Corporate Social Responsibility

20 Financial Section
20 Management’s Discussion and Analysis ofFinancial Condition and Results of Operations
24 Consolidated Balance Sheets
26 Consolidated Statements of Income/Consolidated Statements ofComprehensive Income
27 Consolidated Statements of Changes in Net Assets
28 Consolidate Statements of Cash Flows
29 Notes to Consolidated Financial Statements
53 Report of Independent Auditors
54 Investor Information

Forward-looking Statements
This annual report contains forecasts and projections concerning the plans, strategies and performance of AIN
PHARMACIEZ INC. and its consolidated subsidiaries and affiliates. These forecasts and projections constitute forwardlooking statements that are not historical facts, but are based on assumptions and beliefs in accordance 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, foreignexchange 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.

To Our Stakeholders

On behalf of the AIN PHARMACIEZ Group, and as president, I would like to offer my heartfelt
sympathies to all those affected by the Great East Japan Earthquake that struck on March 11, 2011.
Although nine of our stores were damaged, we were able to confirm the safety of all
employees. In addition to starting to repair and restore operations at stores as soon as possible,
we acted quickly to support the affected area. This was mainly achieved by delivering anddispensing drugs at evacuation centers making use of our nationwide network.
In the year ended April 30, 2011 (fiscal 2011), the Japanese economy faced a harsh businessenvironment due in part to the impact of the disaster. Nevertheless, the AIN PHARMACIEZ Group
achieved steady growth.
We are currently pushing ahead with initiatives aimed at the next stage of growth based on
our medium-term management plan, which concludes in the year ending April 2014. In thisannual report, we explain the basic philosophy underpinning these initiatives. We also take alook at the features of the dispensing pharmacy market in Japan and the areas of competitive
advantage of the AIN PHARMACIEZ Group.
The future business environment remains uncertain. Leveraging our strengths as a leading
company, we will proactively pursue ongoing growth while fulfilling our responsibility as a key
element of social infrastructure.
» See

July 29, 2011

business environment andour strengths in dispensing
pharmacy businesson the following pages.

Kiichi Otani
President and Representative Director

AIN PHARMACIEZ INC. ANNUAL REPORT 20111

Business Environment and Our Strengths in Dispensing Pharmacy Business

The dispensing pharmacy business environment and AIN PHARMACIES Group’s strength are provided asfollows to give a deeper understanding of our strategy.

Business Environment of Dispensing Pharmacy in Japan
Business Environment Outlook
Social Environment
Environnment
Low birthrate/
aging population

Universal
healthcare

Growth Potential:
Expansion of market scale over mid to long termto ¥7-8 trillion

Government Policies to Reducee Medical Expenses
Revision of drug prices
and medical treatment
fees* every 2 years

Profitability:
Policy to expand theuse of generic drugs

Gap in generating profits increases due
to differences in response suited to policies
and management competencies

Features of Japan’sJapan s Dispensing
pensingg Pharmacy Industry

Low level ofoligopoly

Efforts to reduce risk ofdrug dispensing errors

Fierce Competition:
Increasing level of oligopoly with clear winners* Medical treatment fees comprise professional fees for hospitals, dentists and dispensing pharmacies. Dispensing fees are included in medical treatment fees.

PROFIT STRUCTURE OF DISPENSING PHARMACIES

Total store sales *1

Sales fromdrugs *2

Purchasing cost of
drugs

Drug price margin and dispensing fees
are the key to increasing profits

Drug price marginStore operation costs+ Store labor costs

Pharmaceuticalmanagement fees *3
Dispensing
fees *2

Technical fees *3(includes generic drug
dispensing addition)

Gross profit

SG&A expenses
Operating income

Notes: 1. Dispensing pharmacies receive 0-30% of medical expenses depending on the type of insurance of customers.
Dispensing pharmacies then charge the remainder of medical expenses to health insurance bodies such as national health insurance.
2. Drug prices and dispensing fees are based on official prices and revised every two years.
3. Dispensing fees comprise pharmaceutical management fees and technical fees. These fees are added depending on the services at pharmacies.

2 AIN PHARMACIEZ INC. ANNUAL REPORT 2011

Strengths of the AIN PHARMACIEZ Group’s
Dispensing Pharmacy BusinessProfit growth and market share
expansion are the key to success.
The AIN PHARMACIEZ Grouphas made this possible and isready to take for a significant
leap forward.

Key toSuccess» Seenext pages formore details.

M&A
Strategies

Scale

Profits from
Generic Drugs

Human
Resources

Automationof Drug
Dispensing

AIN PHARMACIEZ INC. ANNUAL REPORT 20113

Our Competitive Advantages in Dispensing Pharmacy BusinessWe are promoting a strategy to boost both profitability and market share basedon these competitive advantages.
We aim to establish an even more dominant position in this growing market.
» See pages 6-10 “Interview with the President”

Scale
No. 1 in sales in domestic dispensing pharmacy industry
448 dispensing pharmacies nationwide (Fiscal 2011)
Strong purchasing power
Profit ratio much higher than competitors

Profits from Generic Drugs
Strong responsiveness with generic drugs and edge in profitability
WHOLESALE STARS Co., Ltd. (WSS), the industry’s only wholesale subsidiaryspecializing in generic drugs
Merits of WSS:
• Lower purchasing cost and higher drug price margin for generic drugs» See page 2 “Profit Structure of Dispensing Pharmacies”• Reduced inventory management costs for the Group
Improving profits with favorable business environment
Expansion of generic drugs expected to pick up steam in Japan

INDUSTRY POSITIONINGDISPENSING PHARMACY STORE NETWORK—Comparison of net sales and operating margin amongmajor companies operating dispensing pharmacies

448 stores nationwide

Operating margin (%)

8.0

6.0

SOGO
MEDICAL

4.0

Qol

AIN PHARMACIEZAIN PHARMACIEZ INC.
NIHON CHOUZAI Co., Ltd.
SOGO MEDICAL CO., LTD.
Qol Co., Ltd.
Source:Complied by AIN PHARMACIEZ
INC. from the above companies’
financial results for fiscal 2011.

NIHON
CHOUZAI(Fiscal 2011)

Hokkaido area 70

Koshinetsu area 43

Other areas 22

Tohoku area 66
Kanto area 189

2.0

Kinki/Tokai area 58
050,000100,000
Net sales (¥ million)

4 AIN PHARMACIEZ INC. ANNUAL REPORT 2011

150,000

M&A Strategies
M&A with 15 companies in the past 10 years» See pages 12-13 “History of Growth”
Lead to business expansion along with opening new stores

Human Resources
Advanced training and education systems
Secure top-class pharmacists through regular hiring of pharmaceuticaluniversity graduates» See page 7 “Interview with the President”

Automation of Drug Dispensing
Complete automation of operations aside from final check
Improve safety, efficiency and services» See pages 7-8 “Interview with the President”

NET SALES/OPERATING MARGIN OF WSS

AVERAGE USAGE RATE OF GENERIC DRUGS ON
A VOLUME BASE OF OUR DISPENSING PHARMACIES(¥ million)

(%)

(%)

8,000

20

30.0

6,415
5,484

6,000

15

28.0

3,079
408

5.7

10

5.9

7.2
5

8

10

12 2011/2

4

23.7
24.0

1,497
2,000

11.0

26.7

28.2

25.3

26.0
4,000

26.3

27.8

27.3

22.4

22.0

2.3
0

2007/3 2008/3 2009/3 2010/3 2011/3

0

20.0

2010/3

4

6

5L[ZHSLZSLM[ZJHSL6WLYH[PUNTHYNPUYPNO[ZJHSLAIN PHARMACIEZ INC. ANNUAL REPORT 20115

Interview with the President

Kiichi Otani
President and Representative Director

The direction of our medium-term strategy is moving ahead as planned.

TOTAL NUMBER OF STORESWe are concentrating management resources into dispensing pharmacy

()

501
500

and drug and cosmetic store operations and striving proactively to expand

401

421

446

400

our business scale and enhance profitability. We are now set to beat thecompetition and aim to achieve the next stage of growth group-wide.

200

Q. What has been the effect of the Great East Japan Earthquake onbusiness? Please also tell us your thoughts on recovery aid.

A.

Despite the impact on our drug and cosmetic store business andthe opening of dispensing pharmacies, the effect on business results has
been immaterial. We will do whatever we can to assist with recovery efforts.

448
290

300

356

100

53

+Y\NHUKJVZTL[PJZ[VYL
I\ZPULZZNET SALES(¥ million)

disaster with supplies and personnel (See page 11 for details). This tragic event has

100,000

We opened 53 new dispensing pharmacies during the year. We delayed the opening

49

46

2007/4 2008/4 2009/4 2010/4 2011/4+PZWLUZPUNWOHYTHJ`I\ZPULZZThe AIN PHARMACIEZ Group provided immediate support in the aftermath of thelocal communities.

45

43
0

120,000

Going forward, we will develop business while cherishing our relationships with

397

247

125,495 129,387
115,387
106,231140,000

made us more aware than ever of our responsibility to support community healthcare.

375

81,30780,00060,00040,00020,0000of some dispensing pharmacies in April due to the earthquake, but were still able to2007/4 2008/4 2009/4 2010/4 2011/4

achieve our start-of-year target through the acquisition of 33 pharmacies via M&A.
As a result, we achieved record highs in both sales and profits. Net sales for fiscal
2011 were up 3.1% compared with the previous fiscal year to ¥129,387 million. Operating
income was up 24.9% year-on-year to ¥8,107 million and net income increased 25.1%

NET INCOME(¥ million)

3,916

4,000

3,131

to ¥3,916 million.
3,000

2,127

Q. Have there been any changes to your M&A policy?
A. We have a consistent M&A policy so long as the other party offers
the appropriate benefits at a suitable price.
We don’t have a set goal for growth. I believe it is a company’s responsibility to continue
growing and expanding. M&A is one effective means. If the other party can provide us the

6 AIN PHARMACIEZ INC. ANNUAL REPORT 2011

1,615

2,000

1,010
1,000

0

2007/4 2008/4 2009/4 2010/4 2011/4

benefits at a suitable price, we will always enter negotiations. Any dispensing pharmacy
in Japan is within our sights.
Over the years, we have worked to integrate systems and exchange personnel within
the Group, and these efforts are bearing fruits, especially reductions in selling, generaland administrative (SG&A) expenses. We gather together pharmacists for educating andthen assign them to our respective pharmacies. Our profits have expanded by becoming
number one in the domestic dispensing pharmacy industry in terms of market share.
This enabled us to reduce costs, educate employees and promote system developmentgroup-wide, which in turn lead to further growth of synergetic effects of the AIN
PHARMACIEZ Group.

Q. How do you proceed with the employment and education of new
recruits?

A. We plan to employ a record 500 new pharmacists in April next year
and have prepared a new education system. Human resources are the key
to growth over the medium and long term. Going forward, we will pour ourenergies into nurturing our human resources.
April 2012 will be an epoch for pharmacist-related industries in Japan. This is because
close to 9,000 of the first graduates will enter the workforce since the curriculum changed
from four to six years at pharmaceutical universities. The AIN PHARMACIEZ Group isaiming to hire 500 new graduates. We have also revamped our education system and set
up a new system for accepting new graduates.
There are two dimensions to our pharmacist education. The first aspect is technicalwith the aim of producing specialists. This means learning how to dispense drugs
properly, with an in-depth knowledge of drugs and skills to operate dispensing equipment
on site. The second aspect pertains to human qualities. Being able to communicate wellwith customers helps build relationships of trust and prevent drug dispensing errors. We
focus on both dimensions to ensure top-class pharmacists.

AUTOMATION OF DRUG DISPENSING OPERATIONS

Prescription entry

Initial check

Dispensing process

Final checkDrugadministration
guidance

Automated

Machine underdevelopment

Automaticprescription
registration machine

Check bycomputerized
patient
drug history

Automatictablet picking
machineAutomaticliquid drug
dispensing
machineAutomatic
powdered drug
dispensing
machineCheck byimage
recognition

Drugadministrationby computerized
patient
drug history

AIN PHARMACIEZ INC. ANNUAL REPORT 20117

Q.

Are you proceeding on schedule with the automation of drug
dispensing operations?

A. Due to the recent earthquake, we are behind schedule in equipment
installation. However, we have enhanced profitability in stores that haveintroduced the new devices as a result of labor savings and more efficient
store operations.
Even the most professional pharmacists can make small mistakes. It is our responsibility
to reduce these mistakes, and should they occur, to prevent dispensing errors that could
adversely affect the customer. Because dispensing errors could be the greatest risk to thedispensing pharmacy industry, the AIN PHARMACIEZ Group, as an industry leader, takes
initiatives to prevent these errors. One such initiative is the automation of drug dispensing
operations, including an automatic liquid drug dispensing machine (See diagram on page 7).
The AIN PHARMACIEZ Group is pushing ahead with the total automation of drug
dispensing operations. Currently, we have completed development of an automatic tablet
picking machine. We have introduced the machine at five stores, which are mainly large
stores. Although the earthquake forced a delay in installation, we are aiming to set up 27
machines by the end of April 2012.
Advancements in automation provide numerous benefits. These include labor savingsand enhanced efficiency in store operations. Such improvements also raise awarenessamong employees of the need for greater efficiency.

Q. Some of your competitors are focused on jointly establishingdrugstore with dispensing pharmacy functions. Do you intend to take asimilar approach?

A.

The AIN PHARMACIEZ Group will remain dedicated to dispensing
pharmacy business because it is the only business format that can
respond to Japanese customer needs and also is highly profitable.
Most dedicated dispensing pharmacies in Japan are located near hospitals. This format is
unique to Japan with very few examples overseas. There are opinions that management
efficiency is higher in drugstores with dispensing pharmacy functions compared with thisconventional approach.
However, dispensing pharmacies near hospitals are most convenient for customers
in Japan*. The customers who generate a large portion of income for dispensing
pharmacies are those who suffer from chronic conditions such as diabetes and highblood pressure as well as serious illnesses. Generally, those patients bring prescriptions
to dispensing pharmacies near hospitals. This is because that those kind of pharmacies
not only stock most of the drugs prescribed at the nearby hospitals but also they haveextensive dispensing experience that is relevant to nearby hospitals, and thus, they areable to give patients a sense of reassurance and convenience.
Also dispensing pharmacies near hospitals deal with a large quantity of prescriptions
that require advanced drug dispensing capability, and the turnover of drugs is high,driving up profit margins. Moreover, the risks of drug dispensing errors are less due toaccumulated experience.
On the other hand, drugstores with dispensing pharmacy functions solely deal withprescriptions for relatively mild illnesses. Because these stores handle a wide variety ofprescriptions from different hospitals, plenty of stock is needed. Therefore, profitability at

8 AIN PHARMACIEZ INC. ANNUAL REPORT 2011

these stores is lower than dispensing pharmacies near hospitals. Moreover, total profits ofa company cannot be improved simply by increasing the number of stores.

DOCTORS CONSULTATIONS,NUMBER PER CAPITA

As above mentioned, dispensing pharmacies near hospitals have benefit both tocustomer and to a company operating pharmacies. Therefore, the AIN PHARMACIEZGroup is concentrating efforts in this format.
* In Japan, it is customary for people to cover their medical examinations with insurance and many enjoy theconvenience of having their drugs administered immediately at dispensing pharmacies located very nearto medical institutions that mainly handle prescriptions from the facilities (Table: Doctors consultations,
Number per capita).

2008
OECD countries
Japan
Germany
FranceUnited Kingdom
United States
Sweden

13.2
7.7
6.9
5.9
3.9
2.9

Source: OECD Health Data 2011

Q. Please tell us about progress in the development of medical malls,
your new growth strategy.

A. We are making good progress and expect medical malls to become
the next driver of growth for the Group.
In addition to opening pharmacies near hospitals, which is our core strategy, we arepromoting the development of medical malls (See page 14 “Segment Review: Dispensing
Pharmacy Business”) as another “aggressive” strategy. The merit of opening medicalmalls is that we can expect a number of prescriptions equivalent to large pharmacies
near hospitals by actively attracting many medical institutions to the malls.
We expect this approach to contribute significantly to future growth for the Group.
Since we have just started construction of the malls, however, it will take some time
before the benefits are reflected in business results. We plan to open the first mall in
Sapporo, Hokkaido in 2012 and continue with a series of malls throughout Japan,
including one in Futako-tamagawa, Tokyo by the end of April 2014.

Q. Do you have a strategy in response to the expansion of genericdrugs?

A.

We make the most effective use of our wholesale subsidiaryspecializing in generic drugs. We are always considering measures for
expected governmental measures to increase the usage rate of genericdrugs.
The usage rate of generic drugs in Japan is extremely low compared with Europe andthe United States and it is thought that it will be difficult for the Japanese government
to achieve its target*. In the future, it is expected that governmental policies will be evenstricter, with higher points for generic drug dispensing. This will increase the earnings gap
between companies in the industry.
In 2006, AIN PHARMACIEZ established WHOLESALE STARS Co., Ltd. (WSS), a
wholesale subsidiary specializing in generic drugs. We are the only company in thisindustry with a specialized wholesale subsidiary. Besides the AIN PHARMACIEZ Group,
we currently sell generic drugs to other entities and have established exceptional supply
capabilities. Pharmacists in our Group are fully aware of the need to expand of genericdrugs as well and we have set up a system for generic drug prescriptions. We expect the
spread of generic drugs to pick up steam in the future in Japan and believe that we standin a dominant position in this domain.
* The government aims to achieve a usage rate of 30% for generic drugs on a volume base by April 2012.
The AIN PHARMACIEZ Group achieved an average usage rate of 28.2% in the year ended April 2011.

AIN PHARMACIEZ INC. ANNUAL REPORT 20119

Q. Can you explain progress and the outlook for the “Transcend 2000”
medium-term plan?

A. Basically, we are slightly behind in our plan due to a shortage in
the number of stores. I believe, however, we can achieve our target by the
final fiscal year of the plan.
Under our new “Transcend 2000” medium-term plan, we aim to achieve net sales of¥200.0 billion, ¥13.7 billion in operating income and a total of 686 stores by the year
ending April 2014. Although our plans have been delayed somewhat due to sluggish
growth in the number of stores, we intend to concentrate the opening of new storescloser to the final fiscal year, which will include M&A and medical malls. As such, I believe
we can achieve our target in the end.
We are also making steady progress in cost reductions throughout the Group while
generic drugs are making a solid contribution to profits. Procurement costs for various
supplies have decreased as we expand the scale of operations. In this way, we havegenerated a positive growth cycle in every area. We have steadily increased earnings,
which has put us in a strong cash flow situation, and we will continue to aggressively
open both dispensing pharmacies and drug and cosmetic stores.

Q. Finally, please tell us your message for shareholders and investors,
including your policy on returning profits.

A.

AIN PHARMACIEZ returns profits to shareholders consistent withthe level of growth. This applies to both the dividend amount and dividend
payout ratio. The dispensing pharmacy market is one of the few growing
sectors in Japan. The AIN PHARMACIEZ Group currently occupies a top
position in this sector and we have already set foundations that will takeus to the next stage of growth.
We consider the return of profits to shareholders to be our corporate responsibility.
We are aiming for a dividend payout ratio of over 20% as one target and are striving toincrease the dividend amount in line with growth.
The AIN PHARMACIEZ Group has established a top position in the industry in the 17
years since our initial public stock offering. The dispensing pharmacy market is one of
the few markets with further growth potential even in the medium term; and we still have
major scope for growth.
However, the industry will change so that only strong companies can grow in the
future. The AIN PHARMACIEZ Group is ready for these changes and I am confident
that we can beat the competition. By achieving the goals of our new “Transcend 2000”
medium-term plan we are sure to ascend to the next stage of growth. I ask for thecontinued support of all shareholders and investors.

10 AIN PHARMACIEZ INC. ANNUAL REPORT 2011

Topics: Support for Quake-hit Area —Providing a Lifeline and Fulfilling Our Corporate Responsibility

Sanriku*1 was the region worst hit by the Great East Japan Earthquake. Nine of the AIN PHARMACIEZ Group’s
stores in the region were severely damaged. In addition to restoring operations at these stores, we provided
extensive support to the afflicted area primarily through the supply of drugs and food and dispatch of personnel.
The following measures were taken to support the affected areas. These restoration and relief efforts
were made possible by conducting business activities rooted in the local community; the ability to supply
personnel and goods on a nationwide basis; and above all, the strong sense of responsibility of every memberof the Group. Going forward, the AIN PHARMACIEZ Group will fulfill our corporate responsibility by providing
a much-needed social lifeline.

Nationwide Operations Shore Up Support Efforts

Developing Together with the Region

A Disaster Relief Headquarters under the direct control of theOver the years, the AIN PHARMACIEZ Group has opened

Company president was set up one day after the earthquake.

new stores and implemented an M&A strategy while building

Company representatives, including management, immediately

close relationships with local communities. We communicate

were sent to the disaster zone to provide direct support.

with local bodies such as pharmacists societies and help each

They confirmed the damage at our stores and implemented

other as necessary, which has enabled us to create such close

necessary restoration initiatives. Various goods also wererelationships.

supplied to the affected area.

The AIN PHARMACIEZ Group has a nationwide chain of

They rented cars and delivered daily essentials such as

stores. At the same time, pharmacy managers take the time

water, food and disposable diapers as well as drugs. Tohoku

to connect with customers and other relevant people in local

Branch in Sendai, was used as a base. This was because

communities as part of their daily work.

it is close to the stricken area and received relatively minor

In the Ofunato region, for example, regional pharmacists

damage. The vehicles of WHOLESALE STARS Co., Ltd.

whose stores were damaged as a result of the tunami gathered(WSS), a wholesale subsidiary specializing in generic drugs,

at the AIN pharmacy in the region, which was not affectted bywere designated for use as emergency relief vehicles. We

the desaster, and worked together to dispense drugs.

were thus able to provide large quantities of supplies quickly

Going forward, the AIN PHARMACIEZ Group aims to support

via two routes. Together with initially confirming the safety ofregional medical care and grow together with local communities,

personnel and supplying goods, we sent approximately 206*2

thereby pursuing a growth strategy for the entire Group.

pharmacists in total from all parts of Japan to the affected area.
Management’s speedy and sound decision-making was
crucial to responding quickly. The swift dispatch of personnel,
including young managers, and a high sense of responsibility*1 Sanriku: The eastern Tohoku district along the Pacific Coast covering
Miyagi, Iwate and Aomori Prefectures.

*2 Calculated as the cumulative number of pharmacists as of the end of
March 2011.

felt by all employees were also instrumental.
Opening of Temporary Pharmacy despite Personal
HardshipThe manager of our pharmacy in Yamada-machi (Iwate
Prefecture), which was the most severely damaged among ourpharmacies, opened a temporary pharmacy in an evacuation
shelter immediately after the disaster. She recovered items fromthe damaged pharmacy, cleaned the mud left by the tsunami
from the packaging and dispensed the items. Although she
had lost her home, she decided to provide support to others.
Local pharmacists know their patients well and what theyneed. Therefore, as long as pharmacists exist and pharmacies
are well equipped with drugs, this can save lives.
As the days passed, doctors arrived on the scene. Many
places, however, lacked the necessary drugs due to damage
to pharmacies and wholesalers. The goods and drugs suppliedby the AIN PHARMACIEZ Group thus contributed greatly to
medical support.

The Hokkaido Shimbun reported the Group’s support activities related tothe earthquake disaster.
Article about the manager of our pharmacy in Yamada-machi who
continued dispensing drugs at an evacuation shelter despite being
personally affected by the earthquake disaster

AIN PHARMACIEZ INC. ANNUAL REPORT 201111

History of Growth

The AIN PHARMACIEZ Group has grown and expanded while dealing with the adverse effects from therepeated revisions to medical expenses.
The opening of new stores and M&A have been actively implemented to continue the scale expansion policy.
(¥ million)
140,000
120,000
100,000
80,00060,00040,00020,0000Consolidated 11-year Financial Summary

2001/4

2002/4

2003/4

2004/4

19,572
2,539
531
437

24,677
2,674
710
465

35,374
3,268
1,185
603

45,227
3,886
1,766
855

1,155
278

1,022
282

1,052
366

1,240
444

6,079
6,079
17,202

6,379
6,379
18,293

7,003
7,003
23,955

8,019
8,019
25,131

8,887,696
493
75
36

8,886,746
564
92
33

11,024,650
907
148
40

11,024,650
905
148
27

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

51.09
684.085.0

52.43
717.888.0

58.37
633.2210.0

74.72
724.57
12.0

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

1,180

1,320

1,080

1,390

Ratios (%)
Operating margin
Return on sales*4
Return on assets (ROA)*5
Return on equity (ROE)*6
Shareholders’ equity ratio

2.7
2.2
2.6
7.2
35.3

2.9
1.9
2.6
7.3
34.9

3.4
1.7
2.9
8.6
29.2

3.9
1.9
3.5
10.7
31.9

For the year:
Net sales
Selling, general and administrative expenses
Operating income
Net income
Capital expenditures*2
Depreciation and amortization*2
At the end of the year:
Shareholders’ equity*3
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

Imagawa Yakuhin

AIN MEDICALSYSTEMS

M&A

Revisions
to medical
expenses

Dispensing fees -1.3%
Drug prices -6.3%

2001/412 AIN PHARMACIEZ INC. ANNUAL REPORT 2011

AIN TOKAI

2002/4

2003/4

Dispensing fees ±0
Drug prices -4.2%

2004/4

(%)
7
6
5
4
3
2
1
0

2005/4

2006/4

2007/4

2008/4

2009/4

2010/4

Net sales (left scale)Operating margin (right scale)2011/4(¥ million)

57,091
5,230
2,875
930

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

81,307
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

1,536
458

2,087
648

1,620
773

1,914
968

2,891
1,119

2,573
1,286

2,750
1,560

9,095
9,095
38,887

10,352
10,352
41,66910,71011,326
49,84912,04012,70757,546

16,071
16,10962,032

21,445
21,49265,89829,45029,49876,94011,210,350
1,446
193
44

11,304,000
1,684
218
43

11,320,000
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

79.92
807.6815.0

104.53912.4318.0

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

2,050

2,370

1,500

1,490

1,481

2,920

3,115

5.0
1.6
2.9
10.9
23.4

4.0
1.6
3.0
12.5
24.8

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

Rejoice

MEDICAL
HEARTLAND

Aquisition of
6 companies(33 stores)

Asahi Pharmacy
DAICHIKU

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

SUNWOOD

Rejoice
Pharmacy
Dispensing fees -0.6%
Drug prices -6.7%

2005/4

2006/4

2007/4

Dispensing fees +0.17%
Drug prices -5.2%

2008/4

2009/4

Dispensing fees +0.52%
Drug prices -5.75%

2010/4

2011/4AIN PHARMACIEZ INC. ANNUAL REPORT 201113

Review of Operations

Dispensing Pharmacy Business
Expanding Pharmacies Near Hospitals
on a Nationwide Basis“One of the strengths of the dispensing pharmacies run by AIN PHARMACIEZGroup is that the corporate culture enables a swift response to changes inthe environment. The business climate has been tough due to the revision todispensing fees in April 2010. However, we have a structure that lets us continue
Shoichi Shudo
Managing Director,
General Manager of
Dispensing Pharmacy Division

growing by each employee responding in a flexible and speedy manner.”

Strengths and Features of Dispensing
Pharmacy BusinessSpecializing in Pharmacies Near Hospitals• Pharmacies near hospitals

expand dedicated dispensing pharmacies located near hospitals

The basic concept of the Company’s business model is toand that are large in scale all over Japan. The AIN PHARMACIEZ• Retains many high-level pharmacists• Cutting-edge dispensing system

Group has expanded business rapidly by opening new storesand making reputable dispensing pharmacy chains near
hospitals into subsidiaries mainly through M&A.
The Group is comprised of 14 companies (only thoseengaged in dispensing pharmacy business), including AINDISPENSING PHARMACY STORE NETWORK

448 stores nationwide (Fiscal 2011)

AIN PHARMACIEZ
Hokkaido area 70

MIYAKO AIN* 1
DAICHIKU* 26

AIN PHARMACIEZ
Chugoku/Shikoku/Kyushu/Okinawa area 9

AIN PHARMACIEZ
Tohoku/Koshinetsu area 61
Asahi Pharmacy* 97
AIN PHARMACIEZ
Kanto area 60
AIN MEDICAL SYSTEMS* 60
AIN MEDIO* 39
AIN PHARMACIEZ
Kinki/Hokuriku area 25* Except AIN PHARMACIEZ INC., the number of stores of
the Group companies was as of March 31, 2011.

14 AIN PHARMACIEZ INC. ANNUAL REPORT 2011

PHARMACIEZ, and has 448 stores (up 51 from the end of the

STORE CASE STUDY

previous period). The number of pharmacists working in theGroup stood at 2,089 at the end of the fiscal year.
A steep rise in acquisition prices has led to fewer M&A

Itabashi Store

opportunities in the past four years and therefore no major
increase in sales or the number of stores. From May 2010,
however, we plan to actively pursue M&A and develop large
stores by sharing information between Group companies, led by
the Business Development Division in Tokyo.
Going forward, we will continue to regularly hire pharmacists
and solidify foundations for further growth.
Developing Medical Malls
as a New Driver of Growth

Aiming to Promote

In addition to our traditional dispensing pharmacy business, we

Generic Drugs

have started developing new medical malls from the following

Currently in Japan, the expansion

two directions. Our first strategy is to participate in projects toof generic drugs is not progressing

set up and relocate hospitals and establish large pharmacies

as swiftly as other industrializednear these hospitals after securing optimal site locations. Our

nations due to many medicalsecond strategy is to open dispensing pharmacies in buildings

Eriko Tamai

in large cities and near train stations in cooperation with

(Store Pharmacist)p ro f e s s i o n a l s ’ a n d p a t i e n t s ’concerns about their safety andleading developers. By attracting medical institutions to open

e f f e c t i v e n e s s . H o w e v e r, w e

inside the building or nearby, we can develop a medical mallbelieve it is the duty of pharmacists to actively promote

suited to the area. By actively attracting a number of medical

generic drugs in line with governmental policy in order toinstitutions, both of these strategies are expected to result in
the number of prescriptions equivalent to large pharmacies
near hospitals. As such, we expect medical malls to contributesignificantly to business performance in terms of both sales
and profits. We are aiming to develop around 50 medical mallsby the end of April 2014.

maintain the existing medical system in the future.
The Itabashi Store is a medium-sized dispensing
pharmacy with 12 pharmacists who fill 220 prescriptions
a day. Our pharmacy has created a system that enables
pharmacists to easily share information on generic drugs.
We also hold meetings twice a month. Based on these
efforts, all of our pharmacists are able to encourage
patients to switch to generic drugs by clearly explaining

Cross-organizational Management System

their various benefits, so that even people who are initially

We have unified operations in indirect departments ofhesitant to try generic drugs understand their benefits.

respective Group companies for greater efficiency in order toNow, customers are satisfied with the abundance ofstandardize services and pursue profitability across the Group,

generic drugs we have available. Our efforts have resulted

thereby handling the expansion in business scale. In addition

in a 6% growth in the usage rate of generic drugs. This

to regular hiring and enhancement of our education program

has strengthened relations between staff members andfor pharmacists, we have developed and shared our advanced

raised motivation. Going forward, we will work to tackle

know-how concerning, for example, centralized drug

various issues while further encouraging employees to dopurchasing and standardization of automatic drug dispensing

their utmost best.

systems in order to raise the Group’s profitability.
USAGE RATE OF GENERIC DRUGS ON A VOLUME BASE
AT ITABASHI STORE

April 2010
20.6%

+6.0%

April 2011
26.6%

AIN PHARMACIEZ INC. ANNUAL REPORT 201115

Review of Operations

Drug and Cosmetic Store Business
Flexibility to Continue Evolving
a Key Advantage“The ainz & tulpe brand is highly regarded in the industry as a select store ofdrugs and cosmetics. We promote the sale of drugs by making effective useof our know-how to develop pharmacists. We aim to continue supporting thebeauty and well-being of people.”
Rieko Kimei
General Manager ofDrug and Cosmetic Store Division

STORE CASE STUDY

ainz & tulpe Tokyo Station Store
Strengths and Features of Drug and Cosmetic
Store Business• Supports everyday living with drugs and cosmetics• Mainly targeting females from 20s to 40s• Differentiation through drug sales know-how
StrengtheningSh i
off OTC
Drug Sales
The location of the ainz & tulpe

Urban Drug and Cosmetic Stores

To k y o S t a t i o n S t o r e d r a w s

In the drug and cosmetic store business, we have three store

m a n y travelers and businesspeople. Approximately 1,300-

brands that handle different products: ainz has an extensive
lineup of products from drugs to everyday items; tulpe provides
high-quality cosmetics that include foreign brands; and ainz
& tulpe has a wide-ranging lineup that incorporates products
from both ains and tulpe.
In particular, ainz & tulpe and tulpe target style-conscious
women in their 20s to 40s, and these stores have been wellreceived by the market. The ability to sell drugs is vastlydifferent to other cosmetics stores due to advanced knowhow that has been accumulated in the dispensing pharmacy

1,500 customers visit the store

Heyong Kim(Store Staff)

each weekday. For this reason,

there is high demand for over-the-counter (OTC) drugs
that can be purchased on the spot. With the aim ofincreasing customer convenience, the store has almost
doubled its floor space for OTC drugs and made thelayout easier for customers to select these products. As aresult, sales have grown roughly 1.5 times since opening.
Since expert knowledge is indispensable to sell drugs, thestore regularly holds workshops regarding OTC drugs forbusiness. We will further reinforce this ability and work tosales staff. Besides this, information is shared at morning

expand profitability while also implementing a plan to draw new

meetings to raise the skills of every staff member. We

customers through utilizing mobile terminals.

believe that each of these initiatives provides reassurance

Going forward, we will continue to develop stores in urban

and increases customer satisfaction.

centers around Japan, notably ainz & tulpe stores. We are also
reviewing the possibility of expanding overseas and will nurturethe drug and cosmetic store business as one of our next key
drivers of growth.

SALES BREAKDOWN AT ainz & tulpe TOKYO STATION STORE
4.2%
5.6%
6.1%

0.1%

8.5%

32.3%

18.5%
24.7%

16 AIN PHARMACIEZ INC. ANNUAL REPORT 2011

Cosmetics
OTC Drugs
Beauty products
Counseling cosmetics
Everyday goods
Health foodHygiene products
OthersCorporate Governance(As of August 2, 2011)

AIN PHARMACIEZ assumes responsibility for people’s healthand the well-being of the wider community through its businessactivities. We promote a highly efficient and transparent
management system and implement ongoing initiatives towardenhancement of corporate governance.

BASIC ACTION POLICY FOR CORPORATE
GOVERNANCE
Dispensing pharmacies and drugstore chains are the key
business areas being developed by AIN PHARMACIEZ. Both ofthese businesses are characterized by a responsibility towards
people’s health, and as such, we recognize the indispensabilityof continuing with sound and transparent business activities
that prioritize compliance.
We have adopted a corporate auditor system to enablea framework that realizes this goal in a business environment
where an expanding market demands quick decision-making.
This involves oversight not only of key management decisions
and the business execution of directors but also general
corporate management. In order to ensure the effective mutual
management oversight of directors, the Board of Directors
convenes more than once a month, while a management
meeting is held for directors and standing corporate auditors on
a weekly basis.
To minimize potential risks, the Internal Audit Office assurescomprehensive compliance with basic pharmacy regulations
and the Safety Policy Office conducts analysis and implements
measures to prevent drug dispensing errors, a major risk factor
in operating a dispensing pharmacy business.

OVERVIEW OF CORPORATE GOVERNANCE
SYSTEM
The Board of Directors, the major decision-making body of AIN
PHARMACIEZ, is comprised of 13 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
five 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 controls
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 aforementioned, we hold a weekly
management meeting that is attended by management inpositions above division head in order to monitor day-to-day
operations. Members discuss business execution in eachdivision at the meeting, which also allows for mutual supervision
between business divisions.
Internal Control System
AIN PHARMACIEZ views the effective and reliable functioningof its internal control system as extremely important. With
regard to management oversight, continuous swift decisionmaking 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 five 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.

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 DivisionInternal Audit Office
Dispensing Pharmacy Division

Audit
Administration
Department

AIN PHARMACIEZ INC. ANNUAL REPORT 201117

Two outside corporate auditors and one standing corporate
auditor comment on relevant matters in a corporate auditors’capacity at meetings of the Board of Corporate Auditors andBoard of Directors, as well as monitor the execution of duties bydirectors. We are striving to enhance internal control functions
through measures that include regular seminars conductedby lawyers, ongoing programs by the Compliance Committee
to raise awareness of executives and regular employees andintroduction of help desks for breaches of compliance.
Management System of Group Companies
T h e A I N P H A R M A C I E Z G ro u p i s c o m p r i s e d o f A I N
PHARMACIEZ INC., its 18 subsidiaries and three affiliates asof April 30, 2011. 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 the Group
companies in order to manage the status of business execution
at each company.
Risk Management System
At AIN PHARMACIEZ, each division evaluates risk inherent
in its operations by identifying all potential factors that may
lead to physical or economic loss, loss of credibility or
unprofitable results based on Risk Management Regulations.
We always take steps to prevent or minimize anticipatedrisks by introducing rules and procedures and standardizing
operations. In case of an accident, our basic policy is to quickly
and accurately convey relevant information and respond
appropriately in order to minimize Company losses. We haveclarified a concrete system of reporting and response when an
accident occurs and are working to increase familiarity with thissystem among all executives and regular employees.
In addition, an Emergency Countermeasures Headquarters
led by the Company president or executive vice president has
been set up to deal with major accidents. This body works
closely with pertinent departments to control information, swiftly
provide appropriate instruction on procedures at the accident
source and decide on policies concerning, among otherthings, external announcements. With regard to the operational
status of risk management, the Internal Audit Office monitors
compliance with, and effectiveness of, rules and regulations via
field audits.
Internal Audits and Corporate Auditors’ Audits
In principle, the Internal Audit Office conducts business audits
more than once a year at the head office and stores via a fourperson 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 to

18 AIN PHARMACIEZ INC. ANNUAL REPORT 2011

corporate auditors and through field audits in collaboration withcorporate auditors. Other measures include timely discussions
and reviews of internal audit methods and their effects, andcoordinating with the accounting auditors on accounting
audits. The status of internal audits is reported at management
meetings, and after coordination with each business division,individual guidance is provided and audits once again
conducted in an effort to enhance compliance.
Audits are conducted by corporate auditors, comprising
two outside corporate auditors and one standing corporate
auditor. In addition to the aforementioned activities, corporate
auditors work to enhance the accuracy of their audits from legal
and accounting perspectives and in line with the Company’s
articles of incorporation by exchanging ideas with accounting
auditors at the time of each accounting audit. Corporate
auditors accompany the accounting auditors on audits ofsubsidiaries 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
the status of business execution by directors. They also offer
advice, suggestions and recommendations to directors andthe Board of Directors through discussions via the Board of
Corporate Auditors.

REMUNERATION FOR DIRECTORS AND
AUDITORS
The 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 isdetermined within this limit by the Board of Directors upon due
consideration of business results and economic conditions.
The maximum total amount of remuneration for corporate
auditors was set at ¥30 million annually at the 22nd 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 2011 is as follows.
Item

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

Total
remuneration(¥ million)

Remuneration by type(¥ million)
Basic
Bonus
remuneration

Numberof eligible
individuals

154

131

23

9

7

7

—

1

25

23

2

6

Note: Additionally, the portion of employees’ salaries for directors who
concurrently serve as employees amounted to ¥6 million.

Corporate Social Responsibility

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. Seven certified public
accountants and 12 assistant accountants provided support for
the accounting audits of AIN PHARMACIEZ. Audit fees for theyear ended April 2011 are as follows.

The Company
Consolidated
subsidiaries
Total

Compensation paid
for audit certification
activities (¥ thousand)Compensation paid for
non-audit activities(¥ thousand)

35,500

2,000

–

–

35,5002,000

STATUS OF SHARES HELD
1. Of the Company’s shares for investment held for any purposes
other than investment purpose, the number of investments
and total of the carrying value
Number of investments: 27
Total of the carrying value: ¥1,385 million
2. The shares, number of shares held, carrying value andholding purpose of the stocks for investment held for any
purposes other than investment purpose
Specific stocks for investment for the year ended April 2011
Numbers ofshares held
(shares)

Carryingvalue(¥ million)

Hokuhoku Financial
Group, Inc.

2,877,400

443

Being held to maintainand strengthen the close
relationship with this client

Sapporo Hokuyo
Holdings, Inc.

779,400

279

˝

TOKAI Corp.

64,90096

˝

JAFCO Co., Ltd.

25,00051

˝Mizuho Financial Group,Inc.

200,000

25

˝

JAPAN CARE SERVICEGROUP CORPORATION

35,00013

˝

ARCS COMPANY,
LIMITED

8,676

10

˝

212

9

˝

TAIHEIYO KOUHATSU
INCORPORATED

100,000

7

˝

The Dai-ichi Life Insurance
Company, Limited

17

2

˝

SPARX Group Co., Ltd.

200

1

˝

ECOMIC CO., LTD.

20

1

˝

10,0001

˝

SharesCAREER BANK CO., LTD.

ARATA CORPORATION

Holding purpose

AIN PHARMACIEZ aims to contribute to society mainly throughthe two businesses of dispensing pharmacies and drug andcosmetics stores, as well as to contribute to the advancementof research in the pharmaceutical field through funded projects
for universities and joint research.

FUNDED PROJECTS AND JOINT RESEARCH
It is critical to link frontline personnel, such as those from theAIN PHARMACIEZ Group, with educational and research
institutes to drive advancement in the pharmaceuticalindustry going forward. The Group seeks to contribute to
the advancement of research in the pharmaceutical field andtakes a proactive approach to initiatives based on academicindustry partnerships, such as five funded projects and three
joint research projects at The University of Tokyo, Kyoto
University, Hokkaido University, Sapporo Medical University
and Asahikawa Medical University.
<Funded Projects>
Pharmaco-Business Innovation: Graduate School of
Pharmaceutical Sciences, The University of Tokyo
This project aims to promote innovation, the true domain of theuniversity, and develop foundations to apply the results for the benefit
of society. Activities focus on three key areas: research, education andsupporting commercialization.
Pharmaceutical Risk Management:
Faculty of Pharmaceutical Sciences, Hokkaido University
By analyzing accumulated data regarding drug dispensing errors
and other incidents (mistakes that occur prior to handing over drugs
to patients), this project aims to develop new countermeasures andverify their effectiveness in actual clinical practice in order to prevent
accidents in drug dispensing.
Integrative Palliative Care Education & Practice:
Sapporo Medical University
This project aims to enhance and advance the level of medical
treatment through the evidence-based learning of therapy and care
at centers for palliative treatment. This involves perceiving palliative
treatment as a science.
Division of Community Health Research:
Hokkaido University Hospital
Medicine and Engineering Combined Research Institute:
Asahikawa Medical University<Joint Research>
Division of Social Communication System for Advanced ClinicalResearch: The Institute of Medical Science, The University of Tokyo
This project aims to clarify obstacles to the establishment andproliferation of advanced medial care and implements proposals andactivities to identify concrete solutions.
Laboratory of Drug Informatics: Graduate School of
Pharmaceutical Sciences, The University of Tokyo
This joint research aims to establish a system of learning for drug
informatics in order to carry out drug lifetime management.
Department of Pharmacoepidemiology: Graduate School of
Medicine and Public Health, Kyoto University
This joint research evaluates the impact and effect of various
announcement of regulations and treatment guidelines for the proper useof drugs on the number of prescriptions filled, and examines the social
usability of pharmacy information, including drug dispensing information.

AIN PHARMACIEZ INC. ANNUAL REPORT 201119

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. The drug prices
and dispensing fees*1 are stipulated by the Ministry of Health,Labour and Welfare.
In order to reduce medical expenses, the Japanese
government revised drug prices and medical treatment fees*2
every two years. Since earnings of dispensing pharmacies are
the total of dispensing fees and sales from drugs, the businessenvironment surrounding dispensing pharmacies continues to
be tough.
One noteworthy point in the dispensing fee revision in
April 2010 is the change to generic drug dispensing addition.
The purpose of this new system is to promote the expansionof generic drugs, and under the new system, dispensing
fees are incrementally added depending on the generic drug
usage rate. The Group is actively promoting the dispensing ofgeneric drugs, for example, by the establishment of a genericdrug wholesale subsidiary (WHOLESALE STARS Co., Ltd.
(WSS)) in 2006. The gap is increasing 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 this revision
as a perfect opportunity to further raise profitability.
Notes: 1. Dispensing fees equal technical fees and pharmaceuticalmanagement fees for pharmacists.
2. Medical treatment fees comprise professional fees for hospitals,
dentists and dispensing pharmacies. Dispensing fees are included
in medical treatment fees.

ANALYSIS OF BUSINESS RESULTS FOR THE
CURRENT FISCAL YEAR UNDER REVIEW
During the fiscal year under review, the Japanese economy
began to recover due to a pick up in production and personal
consumption, led by improved corporate earnings. Despite
this, economic recovery stagnated in Japan due mainly tothe impact of the Great East Japan Earthquake that struck
in March 2011, a subsequent decline in production activities
owing to power restrictions and a decrease in exports.
Under these circumstances, the Group aggressively
expanded its dispensing pharmacy and drugstore businesses
through new store openings and M&A. In addition, we
focused on enhancing our profitability by consolidating
indirect operations of Group companies and maximizing

20 AIN PHARMACIEZ INC. ANNUAL REPORT 2011

economies of scale.
With the aim of further expanding business, the Group
strengthened its financial position through a public offering andprivate placement of new shares in the total amount of ¥4.7
billion in August 2010.
Consolidated net sales increased 3.1% compared withthe previous fiscal year to ¥129,387 million, operating income
increased 24.9% to ¥8,107 million and net income increased
25.1% to ¥3,916 million. These results represented record
highs in both sales and profits. The operating margin rose 1.1
percentage points from the previous fiscal year to 6.3%. The
return on sales ratio was 3.0%, up 0.5 percentage point. The
Group’s total number of stores reached 501 at the end of the
fiscal year.
The Group had 115 dispensing pharmacies in the
Tohoku region and in Ibaraki Prefecture and one drugstore
in Sendai City that were operating on the day the Great East
Japan Earthquake struck. One store was destroyed by thetsunami and three stores are located in the evacuation zone
surrounding the Fukushima Daiichi Nuclear Power Station.
Operations at all other stores were restored quickly andreopened for business, or were able to continue businesswithin three weeks of the disaster. The Group recorded
extraordinary losses of ¥59 million due to the disaster, including
inventory and fixed asset losses, repair and other restoration
expenses (including allowances), and one-time expenses
required for business continuity and other reasons.

SEGMENT INFORMATION
Dispensing pharmacy businessIn the dispensing pharmacy business, the Group recorded
increases in both sales and profits. Although sales at existing
dispensing pharmacies decreased year-on-year due torevisions to the official drug prices and dispensing fees in April
2010, measures such as business expansion through newstore openings and M&A, promotion of efforts to increase
the use of generic drugs and greater efficiency in pharmacy
operations contributed to the favorable operating results.
The Group is actively raising the usage rate of genericdrugs through communication with patients. The percentage of
earnings accounted for by technical fees has been increasing
due to earning points through generic drug dispensing
addition. In addition, WSS, a wholesale subsidiary specializing
in generic drugs, expanded operations. These two factors also
helped boost profitability in the dispensing pharmacy business.
The number of new graduates hired by the Group as
pharmacists declined between April 2010 and April 2011
due to the change to a six-year curriculum at pharmaceuticaluniversities. Accordingly, personnel divisions across the Group
have joined forces to recruit new graduates on a national
scale to ensure the hiring of a large number as pharmacists in
April 2012.
In terms of M&A for the period, the Group consolidated
six dispensing pharmacy business operators as subsidiaries
during the third quarter after giving careful consideration to thepotential return on investment in M&A. This added a total of 33
new stores to the Group.
Efforts were also made to integrate systems between
Group companies to reduce head-office costs and otheradministrative expenses. On April 1, 2011, MEDICALHEARTLAND Co., Ltd. (Yamagata City) was merged into AIN
PHARMACIEZ (surviving company) and Saitama Chozai Co.,
Ltd. (Tokyo) was merged into Asahi Pharmacy Co., Ltd. (Tokyo,
surviving company).
In the fiscal year under review, we opened 53 stores,
including those added through the aforementioned M&A,
and closed 5 stores, bringing the total number of dispensing
pharmacies to 448. The dispensing pharmacy businessrecorded a 2.5% increase in net sales from the previous fiscal
year to ¥114,354 million and a 20.2% increase in segment
income to ¥10,209 million.
Drug and cosmetic store businessAlthough personal consumption as a whole was on a recovery
track during the fiscal period, the business environment
continued to be extremely tough in the drugstore industry.
Competition for store openings and prices intensified as aresult of new players entering the market from outside theindustry and also due to M&A and alliances among peers
within the industry.
The Group operates ainz & tulpe urban drug and cosmetic
stores and tulpe cosmetic specialty stores, which mainly
sell cosmetics and other beauty products. Suited to eachlocation based on the latest trends, the Group is continuing
to open stores in inner-city areas, train station buildings andlarge-scale commercial facilities throughout the country. The
Group is working on opening new stores to expand sales. In
addition, the Group has been restructuring its merchandisemix, reviewing management costs and enhancing operating
methods to ensure profitability.
In particular, in order to strengthen sales of drugs as well as
cosmetics, we reviewed product composition and remodeled
the drug sales section to increase customer convenience.
We renovated several stores during the fiscal period, andconfirmed that renovating the drug sales section revitalizes andimproves the profitability of not only the cosmetic products
section but also the entire store. Going forward, we plan toimplement similar initiatives at other stores.
During the fiscal year under review, we opened a total ofsix stores, including five ainz & tulpe stores, beginning with the
ODORI BISSE Store (Chuo-ku, Sapporo City) and the Tokyo
Station Store (Chiyoda-ku, Tokyo), and one tulpe store. We
also closed two small stores. As a result, the total number ofdrug and cosmetic stores, including those of subsidiary AINMEDIO Inc., was 53. The number of Ainz Point Club Card
members, an indicator of the number of customers, exceeded
2,380,000, up 360,000 from the previous fiscal year.
Sales at existing stores did not surpass those for theprevious fiscal year. This was mainly due to the absence ofgains on sales of new influenza-related products as in theprevious year and consumers refrained from buying higherpriced products. However, overall segment sales increased
8.8% compared with the previous fiscal year to ¥14,821 million
buoyed by sales from new stores. The segment loss was ¥207
million (versus the segment loss of ¥398 million in the previous
fiscal year).
Other businesses
Net sales in other businesses decreased 22.6% to ¥211 million
and the segment loss was ¥78 million (versus the segment
loss of ¥68 million in the previous fiscal year).

ANALYSIS OF FINANCIAL POSITION
Total assets at the end of the fiscal year under review
amounted to ¥76,940 million, up ¥11,041 million from the endof the previous fiscal year.
Current assets at the end of the fiscal year under review
amounted to ¥38,032 million, up ¥6,790 million from theend of the previous fiscal year. A principle factor underlying
this rise was an increase in cash on hand and in banks. The
Group worked to raise liquidity on hand to flexibly meet capitalneeds for over 50 store openings and M&A activities. As aresult, cash on hand and in banks at the end of the fiscal year
rose ¥4,249 million from the end of the previous fiscal year to¥15,437 million. Other principal factors underlying the increasein current assets were ¥10,247 million in notes and accounts
receivable (up ¥978 million) and ¥8,375 million in inventories (up¥1,437 million) associated with an expansion of openings ofdispensing pharmacies and drug and cosmetic stores.
Fixed assets at the end of the fiscal year under review were¥38,871 million, up ¥4,229 million from the end of the previous
fiscal year. This was due mainly to an increase of ¥940 million
to ¥13,451 million in property, plant and equipment resulting
from investments related to new store openings and fixed
assets of consolidated subsidiaries acquired through M&A andan increase of ¥1,712 million to ¥13,867 million in goodwill.
Current liabilities at the end of the fiscal year under review
amounted to ¥37,616 million, up ¥3,476 million from the endof the previous fiscal year. The increase was due mainly to
an increase of ¥712 million in accrued income taxes and anincrease of ¥3,686 million in deposits received by consolidating
the Group’s liquidation scheme for dispensing fee receivables.
Long-term liabilities at the end of the fiscal year underreview amounted to ¥9,824 million, down ¥441 million fromthe end of the previous fiscal year. The decrease was due to a
decline of ¥1,279 million in long-term debt despite an increaseof ¥184 million in bonds.

AIN PHARMACIEZ INC. ANNUAL REPORT 201121

As a result of the preceding factors, total liabilities at theend of the fiscal year under review amounted to ¥47,441
million, up ¥3,034 million from the end of the previous fiscal
year. Interest-bearing debts were reduced ¥1,761 million
compared with the end of the previous fiscal year to ¥13,214
million due to a reduction in long-term and short-term debts.
Net assets at the end of the fiscal year under review
amounted to ¥29,498 million, up ¥8,006 million from the end of
the previous fiscal year. This was due primarily to an increaseof ¥2,374 million in each of common stock and capital surplus
due to a public offering and private placement of new sharesin addition to an increase of ¥3,352 million in retained earnings
due to expanded earnings. Unrealized holding losses on
securities totaled ¥327 million.
The shareholders’ equity ratio at the end of the fiscal year
under review stood at 38.3%, up 5.8 percentage points fromthe end of the previous fiscal year. ROA was 5.5%, up 0.6
percentage point, and ROE was 15.4%, down 1.3 percentage
points compared with the end of the previous fiscal year.

BASIC POLICIES FOR PROFIT DISTRIBUTION
The Company’s basic policy is to pay dividends from retained
earnings once per year at the end of the fiscal year. We paid acash dividend of ¥45 per share for the fiscal year under review,
an increase of ¥5 from the end of the previous fiscal year.
In the future as well, the Company will treat the return ofprofits to shareholders as an important management issue. We
will work to implement our basic policy of providing returns toinvestors proportionate to the profits realized and maintaining
a stable return on investment. Internal reserves are held forstrengthening the Company’s soundness, preparations 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.
Next fiscal year, we plan to increase annual dividends per
share by ¥5 and thus pay total dividends of ¥50 per share.

CASH FLOWSCash flows from operating activities
Net cash provided by operating activities was ¥7,627 million(up 18.6% year-on-year). The primary cash inflows wereincome before income taxes and minority interests of ¥7,644
million, depreciation and amortization of ¥1,560 million andamortization of goodwill of ¥973 million. These inflows resulted
from an expansion in earnings along with new store openings
and M&A. Principal cash outflows consisted of an increase
in inventories of ¥1,130 million and income taxes paid of¥3,365 million.
Cash flows from investing activities
Net cash used in investing activities was ¥3,881 million (up43.7% year-on-year). This was due primarily to ¥1,554 million

22 AIN PHARMACIEZ INC. ANNUAL REPORT 2011in payments for purchases of fixed assets associated with new
openings of urban drug and cosmetic stores and dispensing
pharmacies. It is also attributable to a year-on-year increase of¥1,434 million to ¥1,635 million for purchase of subsidiaries’
shares resulting in changes in the scope of consolidation
associated with purchases of shares in subsidiaries acquired
through M&A. All of these investments were financed by theCompany’s equity capital and through the issuance of new shares.
Cash flows from financing activities
Net cash provided by financing activities amounted to ¥463
million compared with an outflow of ¥1,773 million in theprevious fiscal year. This was due mainly to ¥4,720 million
in proceeds from issuance of new shares associated witha public offering and private placement. With regard to thedifference between debt and repayments, the Company repaid¥1,153 million in short-term debt and ¥2,283 million in longterm debt. In addition, cash dividends paid in the amount of¥564 million were recorded.
Due to securing of operating cash flows in line withbusiness expansion and investment for new stores and M&A,
coupled with efforts to strengthen financial position andliquidity on hand, cash and cash equivalents at end of year
amounted to ¥15,397 million. This represents an increase of
37.6% compared with the end of the previous fiscal year.

BUSINESS AND OTHER RISKS
The following factors may affect the Group’s businessperformance, stock price and financial position. Statements inthe text referring to the future reflect the judgment of the Groupat the end of the current fiscal year.
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 areview of the 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 businessperformance.

2. Details of BusinessIn the Group’s dispensing pharmacy business, we have achain of dispensing pharmacies based on a scheme, in whichpharmacies near hospitals to concentrate on the prescriptions
from such medical institutions to secure demand.
As the dispensing pharmacy business accounted for
88.4% of net sales in the fiscal year under review, we plan
to continue the multi-store operation mainly based ondispensing pharmacies. Accordingly, the Group’s operating
results may be affected 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 outside-the-hospital prescriptions by the medical institutions
or suspension/discontinuation of operations thereof may affect
the Group’s business 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’sbusiness 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 business performance.

Company acquired the PrivacyMark 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 ourbusiness performance but also lead to a loss of society’s
confidence in the Group.
6. Risk in Business Strategy
We have promoted expansion of the business scale ofdispensing pharmacies through actively promoting new store
openings and M&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. Risk of Financial Fluctuations
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 casesof large-scale M&A, costs are partially financed by borrowings
from financial institutions. To flexibly respond to these capitalneeds, the Group improved liquidity on hand through suchmeans as increasing capital through a public offering. As ofthe end of the fiscal year under review, the balance of cash on
hand and in banks was ¥15,437 million, while the balance ofinterest-bearing debts of the Group was ¥13,214 million. We
focus on the possibility of return on investment and seek toreduce interest-bearing debts 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
payable may be affected.

5. Risks of Loss of Trust in the Groupa. In the dispensing pharmacy businesses
In our dispensing pharmacy business, pharmacists dispenseand supply prescription drugs that affect the human body.
This business carries the risk that medical accidents might
be caused through dispensing errors. The Group recognizes
that any medical accidents could have a severely damaging
effect on society’s confidence in the Group, and we place thehighest priority on measures in all aspects to prevent this risk
from materializing.
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 Grouphas completed development of personal information protection
systems and rules for the handling of such information. The

AIN PHARMACIEZ INC. ANNUAL REPORT 201123

AIN PHARMACIEZ INC.
CONSOLIDATED BALANCE SHEETSAS OF APRIL 30, 2011 AND 2010

Millions of yen
2011
2010

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¥

15,438
10,248
2,037
8,376
929
235
898
(128)
38,033¥

11,188
9,270
1,404
6,938
723
893
851
(25)
31,242Thousands of
U.S. dollars(Note 1(1))
2011$

189,191
125,588
24,963
102,647
11,3852,880
11,005(1,569)466,091

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

6,457
5,421
236
1,338
13,451

5,993
5,002
315
1,200
12,511

79,13066,434
2,892
16,397
164,841

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

2,960
1,233
4,990
13,867
961
1,675
(230)
25,45676,940

2,803
996
4,463
12,155
923
1,027
(220)
22,14665,89936,275
15,11061,152
169,939
11,777
20,527(2,819)311,961
942,892

See accompanying notes.

24 AIN PHARMACIEZ ANNUAL REPORT 2011

¥

¥

$

Millions of yen
2011
2010

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
Reserve for loss on disaster (Note 9)
Other current liabilities
Total current liabilities

Thousands of
U.S. dollars(Note 1(1))
2011¥Long-term liabilities
Long-term debt (Notes 4 and 8)
Bonds
Allowance for retirement benefits (Note 10)
Other long-term liabilities
Total long-term liabilities
Net Assets: (Note 12)
Shareholders’ equity
Common stock
Authorized - 44,000,000 shares in 2011 and 2010
Issued - 15,944,106 shares in 2011 and 14,104,106 shares in 2010
Capital surplus
Retained earnings
Treasury stock (3,102 shares in 2011 and 2,942 shares in 2010)
Total shareholders’ equity
Accumulated other comprehensive income:Unrealized holding losses on securities
Total accumulated other comprehensive income
Minority interests
Total net assets¥
Total liabilities and net assets

19,707
5,883
2,422
6,722
948
9
313
11
1,600
37,616¥

19,667
6,549
1,709
3,036
875
21
298

$

1,985
34,1408,427

241,507
72,096
29,681
82,377
11,618
110
3,836
135
19,608
460,980

7,148
184
1,270
1,223
9,825

1,018
822
10,26787,5982,255
15,564
14,988120,404

8,683

6,308

106,409

7,873
13,227(5)
29,778

5,498
9,874
(4)
21,67796,483
162,096(61)
364,926

(328)
(328)
49
29,49976,940

(232)
(232)
47
21,49265,899(4,020)(4,020)600
361,507942,892-¥$

AIN PHARMACIEZ ANNUAL REPORT 201125

AIN PHARMACIEZ INCCONSOLIDATED STATEMENTS OF INCOMEYEARS ENDED APRIL 30, 2011 AND 2010

Net sales (Note 17)¥
Cost of sales
Gross profit
Selling, general and administrative expenses
Operating income (Note 17)
Other income (expenses):
Interest and dividend income
Commissions received
Real estate rental revenue
Consignment income
Interest expenses
Loss on sales of accounts receivables
Gain on sales of investments in securities
Loss on disposal and sales of fixed assets
Loss on devaluation of investments in securities
Impairment losses
Effect of adoption of accounting standard
for asset retirement obligations (Note 1)
Loss on disaster
Other, net
Income before income taxes and minority interests
Income taxes (Note 11):
Current
DeferredIncome before minority interests
Minority interests
Net income¥

Millions of yen
2011
2010
129,387¥ 125,496
109,298
108,259
20,09017,237
11,982
10,745
8,108
6,493

Thousands of
U.S. dollars(Note 1(1))
2011$ 1,585,625
1,339,436
246,201
146,838
99,363

89
52
86
90
(240)
(68)
45
(134)
(28)
(232)

71
82
69
48
(290)
(82)
71
(43)
(56)
(196)

1,091
637
1,054
1,103
(2,941)(833)
551(1,642)(343)(2,843)

(161)
(60)
98
(463)
7,645

(62)
(387)
6,105

(1,973)(735)
1,201(5,674)
93,689

4,039
(313)
3,726
3,919
2
3,917

3,157
(193)
2,964
10
3,131

49,498(3,836)45,66248,02725
48,002¥$AIN PHARMACIEZ INCCONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
YEAR ENDED APRIL 30, 2011

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

26 AIN PHARMACIEZ ANNUAL REPORT 2011

Millions of yen
2011
¥
3,919

Thousands of
U.S. dollars(Note 1(1))
2011$
48,027

(96)
(96)
3,822

(1,176)(1,176)
46,8383,821

46,826

2

25

AIN PHARMACIEZ INC.
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETSYEARS ENDED APRIL 30, 2011 AND 2010

Thousandsof shares

Millions of yen
Shareholders' equity

Number ofshares ofcommonstock

Balance at April 30, 2009
Net income
Cash dividends paid
Issuance of new shares
Acquisition of treasury stock
Net change in items other than those in shareholders’ equity

Net changes during the year
Balance at April 30, 2010
Net income
Cash dividends paid
Issuance of new shares
Acquisition of treasury stock
Net change in items other than those in shareholders’ equity
Net changes during the year
Balance at April 30, 2011

12,834
1,270
14,104
1,840
15,944

Common
stock

¥

5,057

¥

1,251
1,251
6,308
2,375
2,375
8,683

Capitalsurplus¥Retainedearnings

4,247

¥
-

¥

1,251
1,251
5,498
2,375
2,375
7,873

7,128
3,131
(385)
2,746
9,874
3,917
(564)
3,353
¥ 13,227

Total
shareholders’equityTreasury
stock

¥

¥

(4)
(1)
(1)
(4)
(0)
(0)
(5)

¥

¥

16,428
3,131
(385)
2,503
(1)
5,249
21,677
3,917
(564)
4,749
(0)
8,102
29,778

Accumulated other comprehensive income
Total
Unrealized
accumulated
holding gains
other(losses) oncomprehensive
securities
income

¥

¥

(356)
125
125
(232)
(96)
(96)
(328)

¥

¥

(356)
125
125
(232)
(96)
(96)
(328)

Minority
interests

¥

¥

37
10
10
47
2
2
49

Total net
assets¥¥

16,109
3,131
(385)
2,503
(0)
134
5,383
21,492
3,917
(564)
4,749
(0)
(95)
8,007
29,499Thousands of U.S. dollars (Note 1(1))
Shareholders' equity

Balance at April 30, 2010
Net income
Cash dividends paid
Issuance of new shares
Acquisition of treasury stock
Net change in items other than those in shareholders’ equity

Net changes during the year
Balance at April 30, 2011

Commonstock

CapitalsurplusRetainedearnings

77,304
29,105
29,105$ 106,409$ 67,377
29,105
29,105$ 96,483$ 121,005
48,002(6,912)
41,091$ 162,096$

Total
shareholders’equityTreasury
stock

$

$

(49)
(0)
(0)
(61)

$

$

265,650
48,002(6,912)58,199(0)99,289364,926

Accumulated other comprehensive income
Total
Unrealized
accumulated
holding gains
other(losses) oncomprehensive
securities
income$$(2,843)(1,176)(1,176)(4,020)$$(2,843)(1,176)(1,176)(4,020)$$Minority
interests

Total net
assets

576
25
25
600

$ 263,382
48,002(6,912)58,199(0)(1,164)
98,125$ 361,507

See accompanying notes.

AIN PHARMACIEZ ANNUAL REPORT 201127

AIN PHARMACIEZ INCCONSOLIDATED STATEMENTS OF CASH FLOWSYEARS ENDED APRIL 30, 2011 AND 2010

Millions of yen
2010
2011
Cash flows from operating activities:
Income before income taxes and minority interests
Depreciation and amortization
Impairment losses
Loss on disaster
Amortization of goodwill
Loss on devaluation of investments in securities
Decrease in allowance for doubtful accounts
Increase in reserve for reward obligations
Increase in allowance for retirement benefits
Increase in allowance for bonuses to employees
Decrease in allowance for bonuses to directors
Increase in reserve for loss on disaster
Interest and dividend income
Interest expenses
Loss on investments in partnerships
Gain on donations of property, plant and equipment
Gain on sales of investments in securities
Loss on disposal and sales of fixed assets
Effect of adoption of accounting standard for asset retirement obligations
Increase in accounts receivable
Increase in inventories
Decrease in other assets(Increase) decrease in other accounts receivable(Decrease) increase in accounts payable
Increase in other liabilities
SubtotalInterest and dividends received
Interest paid
Income taxes paid
Net cash provided by operating activities

¥

7,645
1,561
232
28
974
28
(12)
16
193
34
(12)
11
(89)
240
8
(20)
(42)
133
161
(86)
(1,131)7(506)(1,169)2,944
11,14690(243)(3,365)
7,627

¥

6,105
1,287
196

Thousands of
U.S. dollars(Note 1(1))
2011
$

879
56
(35)
25
155
75
(22)
(71)
290
22
(17)
(70)
43
(755)
(1,009)
1,064
1,005
954
(810)
9,365
67
(291)
(2,712)
6,428

93,68919,1302,843
343
11,936
343
(147)
196
2,365
417
(147)
135
(1,091)
2,941
98
(245)
(515)
1,630
1,973
(1,054)(13,860)
86(6,201)(14,326)
36,078
136,593
1,103(2,978)(41,238)
93,468Cash flows from investing activities:
Payments for purchases of property, plant and equipment
Proceeds from sales of property, plant and equipment
Payments for purchases of investments in securities
Proceeds from sales of investments in securities
Purchase of shares in affiliated companies
Purchase of subsidiaries' shares resulting in changes in scope of consolidation
Payments for loans receivable
Proceeds from collections of loans receivable
Payments for investments in capital
Proceeds from returns of investments in capital
Payments for purchases of intangible fixed assets
Increase in other investments
Net cash used in investing activities(1,237)17(182)
54(1,635)
(875)
699
(3)
3
(317)
(404)
(3,882)(1,152)
4
(392)
110
(270)
(201)
(630)
366
(0)
1
(455)
(80)
(2,701)(15,159)208(2,230)662(20,037)(10,723)
8,566
(37)
37
(3,885)(4,951)(47,574)

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
Proceeds from issuance of new shares
Payments for purchase of treasury stock
Cash dividends paid
Dividend payments to minority shareholders
Net cash provided by (used in) financing activities

2,940(4,094)
7,380(9,664)
(33)
(221)
4,720
(0)
(564)
(0)
463

2,032
(3,122)
1,350(3,826)
(140)
(166)
2,485
(1)
(385)
(0)
(1,773)36,029(50,172)
90,441(118,431)(404)(2,708)57,843(0)(6,912)
(0)
5,674

4,209
11,188¥ 15,398

1,954
9,234
¥ 11,188

51,581
137,108$ 188,701

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

28 AIN PHARMACIEZ ANNUAL REPORT 2011

AIN PHARMACIEZ INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSYEARS ENDED APRIL 30, 2011 AND 2010

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 restructured 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, 2011, which was ¥81.6 to U.S.
$1. The convenience translations should not be construed as representations that the Japanese yenamounts have been, could have been, or could in the future be, converted into U.S. dollars at this or
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 statements of cash flows
In preparing the consolidated statements 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 affiliated companies
The consolidated financial statements comprise the accounts of the Company and its eighteen andthirteen subsidiaries as of April 30, 2011 and 2010, respectively. All significant intercompany accounts
and transactions 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 affiliated companies are stated at their underlying equity value. All companies are
required to account for investments in affiliated companies (20% to 50% owned and certain others thatare 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 four consolidated subsidiaries in the dispensing pharmacy business and for other consolidated
subsidiaries are the end of February and March 31, respectively. Financial statements as of theserespective 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.
In the past, the account closing date for MEDIWEL Corp. was January 31. However, this date waschanged to April 30 in preparing the accompanying consolidated balance sheet, and a 15-month period,

AIN PHARMACIEZ ANNUAL REPORT 201129

which is from February 1, 2010, to April 30, 2011, was reported for MEDIWEL Corp. for the year endedApril 30, 2011.
(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 is computed by the declining-balance method at rates
based on the useful lives, except that the straight-line method is applied to buildings acquired after April
1, 1998. The useful lives of major property, plant and equipment 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 used by the Company and its consolidated subsidiaries is computed by thestraight-line method over the useful lives, 5 years. Amortization of long-term prepaid expenses iscomputed by the straight-line method. Amortization of goodwill is computed by the straight-line method
over 5 or 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) Deferred charges
Amortization of stock issuance cost is computed by the straight-line method over 3 years.
(8) 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.
(9) 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.

30 AIN PHARMACIEZ ANNUAL REPORT 2011

(10) 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.
(11) Retirement benefits
Retirement benefits covering all employees are provided through two plans: a lump-sum benefit plan
and a tax-qualified 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 began employing a tax-qualified retirement plan in the 23rd fiscal year (beginning
December 1, 1991) applied to a portion of the retirement benefit (equivalent to 30%).
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. Prior service costs are recognized in expenses in equalamounts over a period within the average of the estimated remaining service lives of the employees.
Actuarial gains and losses are recognized in expenses using the declining-balance method over a
period (one year to six years) within the average of the estimated remaining service period,
commencing from the year after the year in which they are incurred.
Effective from the year ended April 30, 2010, the Company and its consolidated subsidiaries haveadopted the “Partial Amendments to Accounting Standard for Retirement Benefits (Part 3)” (AccountingStandards Board of Japan (“ASBJ”) Statement No.19 issued on July 31, 2008).
The new accounting standard requires domestic companies to use the rate of return on long-term
government or gilt-edged bonds as of the end of the fiscal year for calculating the projected benefit
obligation of a defined-benefit plan. Previously, domestic companies were allowed to use a discountrate determined taking into consideration fluctuations in the yield of long-term government andgilt-edged bonds over a certain period.
(12) Reserve for reward obligations
In terms of the estimated redeemable amount of the purchase points given in the parent company’s
Product Sales Business, the Company sets a reserve based on actual redemptions in the past.
(13) Reserve for loss on disasterA reserve was set aside as of April 30, 2011, at an estimated amount for expenses considerednecessary to restore assets damaged by the Great East Japan Earthquake.
(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.
Net assets per share are computed based on the net assets excluding minority interests, and the

AIN PHARMACIEZ ANNUAL REPORT 201131

number 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 states derivative financial instruments at fair value and recognizes changes in the fairvalue 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 subject to exclusions, expenses arereported in the fiscal year in which they are incurred.
However, consumption taxes and other taxes that are subject to exclusions and that are 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) Accounting Standard for Asset Retirement Obligations“Accounting Standard for Asset Retirement Obligations” (ASBJ Statement No. 18, issued on March 31,2008) and “Guidance on Accounting Standard for Asset Retirement Obligations” (ASBJ Guidance No.
21, issued on March 31, 2008) became effective for fiscal years beginning on or after April 1, 2010.
Accordingly, the effect of the application of this standard was that operating income and income before
income taxes and minority interests decreased by ¥46 million ($564 thousand) and ¥207 million($2,537 thousand), respectively, compared with the amounts that would have been reported under theprevious accounting method.
(19) Accounting Standard for Business Combinations“Accounting Standard for Business Combinations” (ASBJ Statement No. 21, issued on December 26,2008), “Accounting Standard for Consolidated Financial Statements” (ASBJ Statement No. 22, issued
on December 26, 2008), “Partial Amendments to Accounting Standard for Research and Development
Costs” (ASBJ Statement No. 23, issued on December 26 2008), “Revised Accounting Standard forBusiness Divestitures” (ASBJ Statement No. 7, Revised 2008), “Accounting Standard for Equity

32 AIN PHARMACIEZ ANNUAL REPORT 2011

Method of Accounting for Investments” (ASBJ Statement No. 16, Revised 2008) and “Revised
Guidance on Accounting Standard for Business Combinations and Accounting Standard for Business
Divestitures” (ASBJ Guidance No. 10, Revised 2008) became effective for fiscal years beginning on orafter April 1, 2010, and the Company and its consolidated subsidiaries have applied them from thefiscal year ended April 30, 2011.
(20) Changes in method of presentation
The Company and its consolidated subsidiaries newly present “Income before minority interests” on the
consolidated statements of income from the year ended April 30, 2011 in accordance with the “Cabinet
Office Ordinance of Partial Amendment to Regulation for Terminology, Forms and Preparation of
Financial Statements” (Cabinet Office Ordinance No. 5, March 24, 2009), based on the “AccountingStandard for Consolidated Financial Statements” (ASBJ Statement No. 22, issued on December 26,2008), which became effective for fiscal years beginning on or after April 1, 2010.
(21) Valuation of consolidated subsidiaries’ assets and liabilities
Assets and liabilities of consolidated subsidiaries are valued for consolidation at fair value.
(22) 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 sheets and cash
and cash equivalents shown in the consolidated statements of cash flows as of and for the years
ended April 30, 2011 and 2010 are as follows:
Thousands ofMillions of yen
U.S. dollars
2011
2010
2011
Cash on hand and in banks¥15,438¥ 11,188$189,191
Less: Time deposits with maturities
exceeding three months
(40)
(490)
Cash and cash equivalents¥15,398¥ 11,188$188,701(2) The following table summarizes significant non-cash transactions for the years ended April 30, 2011
and 2010:(a) Major breakdown of assets and liabilities of companies newly included in the consolidated
financial statements for the years ended April 30, 2011 and 2010 due to the acquisition of shares(i) Acquisition of shares of six companies in the dispensing pharmacy business for the year
ended April 30, 2011
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 201133

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
2011¥ 3,8261,226
2,608(2,427)(1,222)
4,010

Thousands of
U.S. dollars
2011$ 46,887
15,02531,961(29,743)(14,975)
49,142(2,375)(29,105)¥ 1,635$ 20,037(ii) Acquisition of shares of United Healthcare Co., Ltd. for the year ended April 30, 2010
The following is the summary of assets acquired and liabilities assumed through the acquisitionof shares of United Healthcare Co., Ltd., relating acquisition cost and net disbursement.

Current assets
Fixed assets
Goodwill
Current liabilities
Long-term liabilities
Acquisition cost of United HealthcareCo., Ltd.'s shares
Cash and cash equivalents held byUnited Healthcare Co., Ltd.
Net disbursement due to theacquisition

Millions of yen
2010
¥ 57
156
60
(20)
(8)
245
(44)
¥ (201)

3. Inventories
Inventories at April 30, 2011 and 2010 consisted of the following:

Merchandise
Supplies

Millions of yen
2011
2010
¥ 8,268¥ 6,841
107
97¥ 8,376¥ 6,938

Thousands of
U.S. dollars
2011$ 101,324
1,311$ 102,647

4. Financial instruments
Effective from the year ended April 30, 2010, the Company and its consolidated subsidiaries haveadopted a revised accounting standard, “Accounting Standard for Financial Instruments” (ASBJ
Statement No. 10 revised on March 10, 2008) and the “Guidance on Disclosures about Fair Value of
Financial Instruments” (ASBJ Guidance No.19 revised on March 10, 2008). Information on financial
instruments for the years ended April 30, 2011 and 2010 required pursuant to the revised accounting
standards is as follows:(1) Qualitative information on financial instruments(a) Policies for using financial instruments
The Company and its consolidated subsidiaries have expanded business by opening dispensing

34 AIN PHARMACIEZ ANNUAL REPORT 2011

pharmacies and drugstores and through M&A activities. Operating cash flows provide the majorityof 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 in highly liquid
financial assets. Derivatives are employed to hedge against the risks described below; theCompany and its consolidated subsidiaries do not engage in speculative transactions.
(b) Details of financial instruments used and the exposures to risk and how they arise
Notes and accounts receivable, which relate to sales receivables, are mostly composed ofprescription dispensing fees receivable from National Health Insurance associations and theSocial Insurance Medical Care Fee Payment Fund, and therefore 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 seven 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, 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
management of contract periods and regular credit screening.
Management of market risk (the risk of exchange and interest rate fluctuations)
The Company and its consolidated subsidiaries mainly raise funds 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 on

AIN PHARMACIEZ ANNUAL REPORT 201135

revised 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.
(2) Fair values of financial instruments
Carrying values and fair values of the financial instruments on the consolidated balance sheet at April
30, 2011 and 2010 are summarized in the following table:
AssetsThousands ofMillions of yen
U.S. dollars
2011
2010
2011
Carrying value
Cash on hand and in banks¥ 15,438¥ 11,188$ 189,191
Notes and accounts receivable
10,2489,270
125,588
Investment securities
1,965
1,832
24,081
Deposits and guarantees
4,875
4,346
59,743
Total
32,526
26,636398,603
Fair value
Cash on hand and in banks
15,438
11,188189,191
Notes and accounts receivable
10,2489,270
125,588
Investment securities
1,965
1,832
24,081
Deposits and guarantees
4,632
4,175
56,765
Total
32,283
26,465395,625
Difference
Cash on hand and in banks
Notes and accounts receivable
Investment securities
Deposits and guarantees
(243)
(172)
(2,978)Total¥ (243)¥ (172)$ (2,978)Liabilities

Thousands of
U.S. dollars
2011

Millions of yen
2011
2010
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

¥ 19,707
5,883¥ 19,667
6,549$ 241,507
72,096

6,722
7,148
39,4603,036
8,427
37,67982,37787,598483,578

19,707
5,893

19,667
6,556

241,507
72,2186,722
7,165
39,4883,036
8,427
37,68682,37787,806483,922

10

7

123

17
¥ 27

0
¥7

208
$ 331

Method of calculating the fair value of financial instruments and matters related to available-for-salesecurities and derivative transactions.

36 AIN PHARMACIEZ ANNUAL REPORT 2011

Assets:(a) Cash on hand and in banks and notes and accounts receivable
As these instruments are settled in the short term, their carrying value approximates fair value.
(b) Investment 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.
(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 current 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 borrowingsof the same type.
(b) Long-term debt
The fair value of long-term debt included in short-term debt is determined by discounting the total
amount of principal and interest 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 ¥994 million ($12,181 thousand)and ¥971 million as of April 30, 2011 and 2010, respectively, are not readily determinable.
The redemption schedule for monetary claims and securities with maturity dates as of April 30,
2011 are summarized as follows:
Millions of yen

1 year or
less

Cash on hand and in banks
Notes and accounts receivable
Investment securities
Held-to-maturity debt securities
Deposits received
Total

2011
More thanMore than
5 years
1 year but
but less
less than
than 10
5 years
years

More than
10 years¥ 15,438
10,248

¥ -

¥ -

¥ -

450
760
¥ 26,896

1,701¥ 1,701

1,631¥ 1,631899¥ 899

AIN PHARMACIEZ ANNUAL REPORT 201137

1 year or
less

Cash on hand and in banks
Notes and accounts receivable
Investment securities
Held-to-maturity debt securities
Deposits received
Total

Thousands of
U.S. dollars
2011
More thanMore than
5 years
1 year but
but less
less than 5than 10
years
years

More than
10 years$ 189,191
125,588

$ -

$ -

$ -

5,515
9,314
$ 329,608

20,846$ 20,846

19,988$ 19,988

11,017$ 11,017

5. Securities(1) The following tables summarize acquisition costs, carrying values and differences of securities withavailable fair values as of April 30, 2011 and 2010:
Other securities:
Securities with carrying values exceeding acquisition costs
Millions of yen
2011
2010
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

38 AIN PHARMACIEZ ANNUAL REPORT 2011

Thousands of
U.S. dollars
2011

¥ 15
-

¥ 20
-

$ 184
-

15

54
74

184

38
-

40
-

466
-

38

58
98

466

22
-

19
-

270
-

¥ 22

4
¥ 24

$ 270

Other securities:
Securities with carrying values not exceeding acquisition costs
Millions of yen
2011
2010
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
2011¥ 1,435450¥ 1,304450$ 17,586
5,515

338
277
2,500

169
223
2,146

4,142
3,395
30,637

914
450

923
450

11,201
5,515

329
234
1,928

161
199
1,733

4,032
2,868
23,627

(521)
-

(381)
-

(6,385)-(8)(43)¥ (573)(8)(24)¥ (413)(98)(527)$ (7,022)

Equity securities included stocks of non-consolidated subsidiaries and affiliates of ¥322 million($3,946 thousand) and ¥322 million at April 30, 2011 and 2010, 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, 2011 and 2010:
Millions of yen
2011
2010
Total sales ofother securities sold
Related gains
Related losses

¥ 54
45
3

¥ 110
71
1

Thousands of
U.S. dollars
2011
$ 662
551
37

(3) The following table summarizes impairment loss on other securities in the years ended April 30,
2011 and 2010:
Millions of yen
2011
2010
Other securities with fair value
Other securities without fair value

¥2
26

¥ 11
45

Thousands of
U.S. dollars
2011
$ 25
319

AIN PHARMACIEZ ANNUAL REPORT 201139

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. The notional amounts were ¥20 million ($245 thousand) and¥1,110 million at April 30, 2011 and 2010, respectively. 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, 2011 and 2010, 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 loss and net balance of leased assets as of April 30, 2011 and 2010, 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.
Thousands ofMillions of yen
U.S. dollars
2011
2010
2011
Acquisition cost
Buildings
¥ 411
¥ 411
$ 5,037
Other fixed assets
857
988
10,502Intangible fixed assets
371
487
4,547
Total
1,639
1,886
20,086
Accumulated depreciation
Buildings
333
308
4,081
Other fixed assets
706
690
8,652
Intangible fixed assets
306
338
3,750
Total
1,344
1,336
16,471
Impairment loss
Buildings
Other fixed assets
2
425
Intangible fixed assets
Total
2
4
25
Net balance
Buildings
79
103
968
Other fixed assets
149
294
1,826
Intangible fixed assets
65
149
797
Total
¥293
¥ 546
$ 3,591
Future minimum lease payments as of April 30, 2011 and 2010 for finance leases currently accounted
for as operating leases are summarized as follows:
Thousands ofMillions of yen
U.S. dollars
2011
2010
2011
Due within one year
Due after one year
Total

¥ 197
187
¥ 383

¥ 257
204
¥ 461

$ 2,414
2,292$ 4,694

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

40 AIN PHARMACIEZ ANNUAL REPORT 2011

Thousands of
U.S. dollars
2011

Millions of yen
2011
2010
Lease expense
Reversal of impairment loss forleased assets
Depreciation
Interest expense
Impairment loss

¥ 362

¥ 488

$ 4,436

2
300
43
-

16
416
57
2

25
3,676
527
-

Remaining lease expenses for non-cancellable operating lease transactions are as follows:
Thousands ofMillions of yen
U.S. dollars
2011
2010
2011
Due within one year
Due after one year
Total

¥ 536
3,724
¥ 4,259

¥ 470
3,555
¥ 4,025$ 6,569
45,637$ 52,194

8. Short-term debt and long-term debt
Short-term debt and long-term debt at April 30, 2011 and 2010 consisted of the following:Thousands of
U.S. dollars
2011

Millions of yen
2011
2010
Short-term bank loans with aweighted-average interest rate of
1.3%
Subsidiaries’ unsecured bondmaturing in 2015 with a fixed interest
rate of 0.80%-0.92%
Current portion of long-term debt
with a weighted-average interest rateof 1.0%Current portion of lease obligation
with a weighted-average interest rateof 1.9%Long-term debt (2012-2020) with aweighted-average interest rate of
0.8%
Lease obligation (2012-2016) with aweighted-average interest rate of
1.8%
Total

¥ 2,135¥ 3,010$ 26,164

184

-

2,255

3,748

3,539

45,931

245

184

3,002

7,148

8,427

87,598548¥ 14,008

533¥ 15,693

6,716$ 171,667

At April 30, 2011 and 2010, the carrying amounts of assets pledged as collateral for accounts payable
are as follows:

AIN PHARMACIEZ ANNUAL REPORT 201141

Assets pledged as collateral:
Millions of yen
2011
2010
Investments in securities

¥ 6

¥ 6

$ 74

Millions of yen
2011
2010

Thousands of
U.S. dollars
2011

Liabilities corresponding tocollateral:

Accounts payable

Thousands of
U.S. dollars
2011

¥ 12

¥ 14

$ 147

The aggregate annual maturities of long-term debt at April 30, 2011 are as follows:Year ending April 30,
2012
2013
2014
2015
2016

Millions of yen¥ 3,794
3,247
1,982
1,478
520

Thousands of
U.S. dollars$ 46,495
39,792
24,28918,113
6,373

The aggregate annual maturities of lease obligations at April 30, 2011 are as follows:Year ending April 30,
2012
2013
2014
2015
2016

Millions of yen
¥ 245
250
183
89
27

Thousands of
U.S. dollars$ 3,002
3,064
2,243
1,091
331

9. Sales, disposal and impairment of fixed assets(1) Gain and loss on sales of fixed assets for the years ended April 30, 2011 and 2010 are as
follows:
Gain on sales of fixed assets:
Millions of yen
2011
2010
Buildings and structures
Other property, plant andequipment
Total

Thousands of
U.S. dollars
2011

¥1

¥-

$ 12

0
¥1

¥-

0
$ 12

The details of loss on sales of fixed assets for the years ended April 30, 2011 and 2010 have been
omitted as the amounts are immaterial.

(2) Loss on disposal of fixed assets for the years ended April 30, 2011 and 2010 are as follows:

42 AIN PHARMACIEZ ANNUAL REPORT 2011

Thousands of
U.S. dollars
2011

Millions of yen
2011
2010
Buildings and structures
Other property, plant andequipment
Intangible fixed assets
Deposits and guarantees
Other investments and otherassets
Disposal cost
Total

¥ 33

¥ 16

$ 404

4
0
49

4
8
2

49
0
600

2
47
¥ 134

0
12
¥ 43

25
576
$ 1,642(3) For the years ended April 30, 2011 and 2010, the Company recognized impairment losses forthe following property groups:
Millions of yen
2011
2010
Property group
StoresReal estate
Shops and real estate
Shops scheduled for
opening
Shop to be closed

Description of assets
Store facilities
Store facilities and land
Land
Store facilities and landStore facilities
Store facilities and land

Thousands of
U.S. dollars
2011

¥ 10
66
156
-

¥ 173
11
9

$ 123
809
1,912
-

¥ 232

3
¥ 196

$ 2,843(4) Losses resulting from the Great East Japan Earthquake during the fiscal year ended April 30,
2011, are recorded in “loss on disaster” in the accompanying consolidated statements ofincome. A breakdown of this total is provided below.
Thousands ofMillions of yen
U.S. dollars
2011
2011
¥ 28
$ 343
Losses on inventories, property, plantand equipment and intangible fixed
assets destroyed in the disaster
Repair, removal and other restoration
7
86
expenses
Other
25
306
Total
¥ 60
$ 735
Of the ¥60 million ($735 thousand) for loss on disaster, ¥11 million ($135 thousand) was anallocation to reserve for loss on disaster.

AIN PHARMACIEZ ANNUAL REPORT 201143

10. Retirement benefits
Allowance for retirement benefits as of April 30, 2011 and 2010 consist of the following:

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

Millions of yen
2011
2010
¥ (1,623)¥ (1,359)
198
182(1,425)(1,178)155
160(1,270)(1,018)¥ (1,270)¥ (1,018)

Thousands of
U.S. dollars
2011$ (19,890)
2,426(17,463)1,900(15,564)$ (15,564)

Retirement benefit expenses for the years ended April 30, 2011 and 2010 comprised the following:Thousands ofMillions of yen
U.S. dollars
2011
2010
2011
Service costs
¥ 254
¥ 209
$ 3,113Interest cost on projected benefit obligation
13
20
159
Expected return on plan assets
(1)
(1)
(12)
Amortization of actuarial losses
51
44
625
Retirement benefit expenses
¥ 317
¥ 273
$ 3,885
Actuarial assumptions used in accounting for the Company’s plans as of April 30, 2011 and 2010 are
principally as follows:

Discount rate
Expected rate of return on plan assets
Amortization period for unrealized
actuarial gain or loss

2011

2010

1.0-2.0%
0.75%
1-6 years

1.0-2.0%
0.75%
1-6 years

The estimated amount of all retirement benefits to be paid at the future retirement date is allocatedequally to each service year using the estimated number of total service years.

11. Income taxes
The aggregate statutory income tax rate used for calculation of deferred income tax assets andliabilities was 40.4%.
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, 2011 and2010:
Statutory tax rate
Non-deductible expenses
Per capita inhabitant tax
Amortization of goodwill
Valuation allowance
Other
Effective tax rates

44 AIN PHARMACIEZ ANNUAL REPORT 2011

2011
40.4%
0.4
1.8
4.6
1.5
0.0
48.7%

2010
40.4%
0.2
2.0
5.2
0.3
0.5
48.6%

Significant components of deferred tax assets as of April 30, 2011 and 2010 are as follows:
Millions of yen
2011
2010
Deferred tax assets:
Impairment losses
Excess of allowance for bonuses
Excess of reserve for rewards obligation
Allowance for retirement benefits
Net unrealized holding gains on securities
Other
Sub-total deferred tax assets
Valuation allowance
Total deferred tax assets

¥ 552
379
127
510
222
837
2,627
465
2,162

¥ 490
358
120
413
157
546
2,085
366
1,719

Thousands of
U.S. dollars
2011$ 6,765
4,645
1,556
6,250
2,721
10,25732,194
5,699
26,495

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. Stock options
The Company has adopted certain stock option plans under which share subscription rights are
granted to directors and employees of the Company and its consolidated subsidiaries.
(1) Details of the stock options for the years ended April 30, 2011 and 2010
There was nothing to be reported for the year ended April 30, 2011.

AIN PHARMACIEZ ANNUAL REPORT 201145

For the year ended April 30, 2010
Stock option plans:
Individuals covered by the plan:

Type and number of options:
Grant date:
Exercise period:

Exercise price:
Average share price upon
exercise:

October 2002 plan
11 directors
1 auditor
208 employees
16 directors of
Subsidiaries
Common stock 300,000
October 16, 2002
Within five years from thevesting date. However,this date shall become
ineffective on theretirement date in theevent that the retirement
is later than the vestingdate.
¥ 1,360¥ 2,129

Exercise period of October 2002 stock option plan expired on July 31, 2009.
Conditions for the exercise of share subscription rights are as follows:
Individuals to whom the share subscription rights are granted must continue their service with theCompany or its subsidiaries in the state of being employed or entrusted until the share subscription
rights become exercisable.
(2) Changes stock options outstanding for the years ended April 30, 2011 and 2010
There were no stock options outstanding for the years ended April 30, 2011 and 2010.

14. Commitment
The Company entered into overdraft agreements with 22 and 23 banks as of April 30, 2011 and 2010,
respectively, to finance working capital requirements. The outstanding balances of such overdrafts asof April 30, 2011 and 2010 are as follows:
Thousands ofMillions of yen
U.S. dollars
2011
2010
2011
Total overdraft available¥ 13,450¥ 13,500$ 164,828
Amount utilized
1,310
2,460
16,054
Outstanding balance¥ 12,140¥ 11,040$ 148,775

15. Contingencies
The Company has contingent liabilities for the payment of lease deposits and guarantee deposits toowners of shops that the Company has rented. Such transferred contingent liabilities amounted to¥1,847 million ($22,635 thousand) and ¥1,957 million as of April 30, 2011 and 2010, respectively.

16. Amounts per share
Net assets per share at April 30, 2011 and 2010 and basic and diluted net income per share for theyears then ended are as follows:

46 AIN PHARMACIEZ ANNUAL REPORT 2011

Yen
Net assets per share
Basic net income per share
Diluted net income per share
Cash dividends per share attributable to the year2011
¥1,847256
452010¥ 1,521
228
228
40

U.S. dollars
2011$ 22.63
3.14
0.55

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.

17. Segment information
The Company and its consolidated subsidiaries have applied “Accounting Standard for Disclosuresabout Segments of an Enterprise and Related Information” (ASBJ Statement No. 17, issued on March
27, 2009) and “Guidance on the Accounting Standard for Disclosures about Segments of an Enterpriseand Related Information” (ASBJ Guidance No. 20, issued on March 21, 2008) from the fiscal year
ended April 30, 2011.
(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, principle, the same as those indicatedin Note 1 “Summary of Significant Accounting Policies.” Income or losses of reporting segments are
based on ordinary income. Income or losses between segments and transfer amounts are based onmarket prices.
(3) Information on sales, income (loss), assets and other items by reporting segment as of and for theyears ended April 30, 2011 and 2010 is summarized as follows:

AIN PHARMACIEZ ANNUAL REPORT 201147

Millions of yen
2011
Dispensing

Drug and

Other

pharmacy

cosmetic store

Total

Adjustments

Consolidated

Sales
Sales to third parties¥ 114,354¥ 14,821¥ 211¥ 129,387¥ -¥ 129,387

-

31

19

49

(49)

-

114,354

14,852

230

129,437(49)

129,387

10,210

(207)

(79)

9,924

(1,713)

8,210¥ 67,116¥ 6,881¥ 1,162¥ 75,160¥1,781¥ 76,940¥ 1,108

¥ 222

¥ 15

¥ 1,346¥ 28¥ 1,374

goodwill

969

5

-

974

-

974

Impairment loss

76

156

-

232

-

232

1,488

404

132

2,024

55

2,079

Intersegment sales
Total sales
Segment income(loss)
Segment assets
Other
Depreciation andamortization
Amortization of

Increase of tangible
and intangible
assetsThousands of U.S. dollars
2011
Dispensing

Drug and

Other

Total

Adjustments

Consolidated

pharmacy

cosmetic store$ 1,401,397$ 181,630$ 2,586$ 1,585,625$ -$ 1,585,625

-

380

233

600

(600)

-

1,401,397

182,0102,819

1,586,238(600)

1,585,625

125,123(2,537)(968)

121,618(20,993)

100,613$ 822,500$ 84,326$ 14,240$ 921,078$21,826$ 942,892$ 13,578$ 2,721$ 184$ 16,495$ 343$ 16,838

11,875

61-

11,936-

11,936

931

1,912

-

2,843

-

2,843

Sales
Sales to third parties
Intersegment sales
Total sales
Segment income(loss)
Segment assets
Other
Depreciation andamortization
Amortization of
goodwill
Impairment loss

48 AIN PHARMACIEZ ANNUAL REPORT 2011

Increase of tangible
and intangible

18,235

4,951

1,618

24,804674

25,478assetsMillions of yen
2010
Dispensing

Drug and

Other

pharmacy

cosmetic store

Total

Adjustments

Consolidated

Sales
Sales to third parties¥ 111,603¥ 13,620¥ 273¥ 125,496¥ -¥ 125,496

-

6

19

25

(25)

-

111,603

13,626292

125,521(25)

125,496

8,495

(399)

(68)

8,028

(1,666)

6,362¥ 56,643¥ 7,193¥ 1,155¥ 64,991¥ 908¥ 65,899

¥ 906

¥ 198

¥ 15

¥ 1,119¥ 24¥ 1,143

goodwill

874

5

-

879

-

879

Impairment loss

103

93

-

196

-

196

1,583

395

-

1,978

42

2,021

Intersegment sales
Total sales
Segment income(loss)
Segment assets
Other
Depreciation andamortization
Amortization of

Increase of tangible
and intangible
assets(4) Amortization of goodwill and unamortized balances by reporting segment as of and for the year
ended April 30, 2011 are summarized as follows:
Millions of yen
2011
Dispensing

Drug and

Other

pharmacy

cosmetic store

Adjustments

Consolidated

Amortization of goodwill

¥ 969

¥ 5

¥ -

¥ -

¥ 974

Unamortized balances of goodwill

13,852

15--

13,867

Thousands of U.S. dollars
2011
Dispensing

Drug andpharmacy

cosmetic store

Other

Adjustments

Consolidated

Amortization of goodwill$ 11,875

$ 61

$ -

$ -

$ 11,936

Unamortized balances of goodwill

169,755

184--

169,939AIN PHARMACIEZ ANNUAL REPORT 201149

18. Comprehensive income“Accounting Standard for Presentation of Comprehensive Income” (ASBJ Statement No. 25, issued
June 30, 2010) became effective for consolidated financial statements for the fiscal years ending on orafter March 31, 2011. Accordingly, the Company and its consolidated subsidiaries have applied thisstandard and, therefore, “Valuation and transaction adjustments” and “Total valuation and transaction
adjustments” as of and for the fiscal year ended April 30, 2010 are newly presented as “Accumulated
other comprehensive income” and “Total accumulated other comprehensive income” as of and for the
fiscal year ended April 30, 2011, respectively.
Comprehensive income for the year ended April 30, 2010 is as follows:

Comprehensive income attributable to shareholders of the parent
Comprehensive income attributable to minority interests
Total

Millions of yen
2010¥ 3,25610¥ 3,266

Other comprehensive income for the year ended April 30, 2010 is as follows:

Unrealized holding gains on securities
Total

Millions of yen
2010
¥ 125
¥ 125

19. Business combinations
For the year ended April 30, 2011
1. Business combinations
During the fiscal year ended April 30, 2011, the Company and its consolidated subsidiaries AIN
MEDICAL SYSTEMS Inc. and Asahi Pharmacy Co., Ltd., acquired for cash consideration theshares in six companies in the dispensing pharmacy business, which became consolidated
subsidiaries.

Through this business combination, the AIN PHARMACIEZ Group aims to increase its market
share in the dispensing pharmacy business and anticipates greater management economies ofscale. 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 tosecure stable revenues 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¥3,974 million ($48,701 thousand)¥36 million ($441 thousand)¥4,010 million ($49,142 thousand)

3. Amount of goodwill generated, its sources, and its amortization method and term
(1) Amount of goodwill generated¥2,608 million ($31,961 thousand)(2) Sources of goodwill
Goodwill is the excess amount paid for the acquired companies in anticipation that theapplication of the AIN PHARMACIEZ Group’s management resources and economies of scale
will generate this amount.

50 AIN PHARMACIEZ ANNUAL REPORT 2011

(3) Goodwill amortization method and term
Straight-line method over 10–15 years
For the year ended April 30, 2010
1. Merger of AIN MEDICAL SYSTEMS Inc. and Rejoice Inc.
(1) Names and businesses of companies involved in merger, method of corporate merger, name ofpost-merger entity and overview of transaction, including the purpose of the transaction(a) Names and businesses of merging companies
AIN MEDICAL SYSTEMS Inc. (consolidated subsidiary) - Operating dispensing pharmacies
Rejoice Inc. (consolidated subsidiary) - Operating dispensing pharmacies(b) Method of corporate merger
A merger, with Rejoice Inc. as the dissolved company and AIN MEDICAL SYSTEMS Inc. as thesurviving company(c) Name of post-merger entity
AIN MEDICAL SYSTEMS Inc.
(d) Overview of transaction, including the purpose of the transaction
As wholly owned subsidiaries of the Company, AIN MEDICAL SYSTEMS Inc. and Rejoice Inc.
both worked to expand dispensing pharmacy chain operations in the Kanto region. Their merger
is designed to allow the consolidation of headquarters functions, accelerate decision-making andraise management efficiency, with the aim of enhancing overall corporate value.
(2) Overview of accounting method used
This merger is was handled as a jointly controlled transaction, based on “Accounting Standard forBusiness Combinations” (Business Accounting Council), the “Accounting Standard for Business
Divestitures” (ASBJ Statement No. 7) and the “Guidance on Accounting Standard for Business
Combinations and Accounting Standard for Business Divestitures” (ASBJ Guidance No. 10).

2. Merger of AIN TOKAI Inc. and Rejoice Pharmacy Inc.
(1) Names and businesses of companies involved in merger, method of corporate merger, name ofpost-merger entity and overview of transaction, including the purpose of the transaction(a) Names and businesses of merging companies
AIN TOKAI Inc. (consolidated subsidiary) - Operating dispensing pharmacies
Rejoice Inc. (consolidated subsidiary) - Operating dispensing pharmacies(b) Method of corporate merger
A merger, with Rejoice Pharmacy Inc. as the dissolved company and AIN TOKAI Inc. as thesurviving company(c) Name of post-merger entity
AIN MEDIO INC.
(d) Overview of transaction, including the purpose of the transaction
As wholly owned subsidiaries of the Company, AIN TOKAI Inc. and Rejoice Pharmacy Inc.
both worked to expand dispensing pharmacy chain operations in the Keihanshin region(Greater Osaka region). Their merger is designed to allow the consolidation of headquartersfunctions, accelerate decision-making and raise management efficiency, with the aim ofenhancing overall corporate value.
(2) Overview of accounting method used
This merger is was handled as a jointly controlled transaction, based on “Accounting Standard

AIN PHARMACIEZ ANNUAL REPORT 201151

for Business Combinations” (Business Accounting Council), the “Accounting Standard forBusiness Divestitures” (ASBJ Statement No. 7) and the “Guidance on Accounting Standard forBusiness Combinations and Accounting Standard for Business Divestitures” (ASBJ GuidanceNo. 10).
20. Subsequent events
Not applicable.

21. Quarterly Information(1) Quarterly net sales for the year ended April 30, 2011 are as follows:
Thousands ofMillions of yen
U.S. dollars
2011
2011
Three months ended July 31, 2010
¥ 30,791$ 377,341
Three months ended October 31, 2010
31,049380,502
Three months ended January 31, 2011
33,338408,554
Three months ended April 30, 201134,207419,203(2) Quarterly income before income taxes and minority interests for the year ended April 30, 2011is as follows:
Thousands ofMillions of yen
U.S. dollars
2011
2011
Three months ended July 31, 2010
¥ 1,419$ 17,390
Three months ended October 31, 2010
1,861
22,806
Three months ended January 31, 2011
2,306
28,260Three months ended April 30, 2011
2,056
25,196(3) Quarterly net income for the year ended April 30, 2011 is as follows:
Thousands ofMillions of yen
U.S. dollars
2011
2011
Three months ended July 31, 2010
¥ 714
$ 8,750
Three months ended October 31, 2010
982
12,034Three months ended January 31, 2011
1,222
14,975Three months ended April 30, 2011
997
12,218(4) Quarterly net income per share for the year ended April 30, 2011 is as follows:
Yen
U.S. dollars
2011
2011
Three months ended July 31, 2010
¥ 50.69$ 0.62Three months ended October 31, 2010
64.22
0.79
Three months ended January 31, 2011
76.67
0.94
Three months ended April 30, 2011
64.09
0.79

52 AIN PHARMACIEZ ANNUAL REPORT 2011

AIN PHARMACIEZ INC. ANNUAL REPORT 201153

Investor Information

DIRECTORS ANDCORPORATE AUDITORSCORPORATE DATASTOCK INFORMATION(Fiscal 2011)(Fiscal 2011)

Corporate NameAIN PHARMACIEZ INC.

Transfer AgentHead Office
5-1-2-1, Higashi-naebo,
Higashi-ku, Sapporo-shi,
Hokkaido 007-8755, Japan

Stock Listings
First Section of the Tokyo Stock
Exchange(As of July 29, 2011)

President and Representative
Director
Kiichi Otani
Executive Vice President andRepresentative Director
Tadashi Nagumo
Senior Managing Directors
Hiromi Kato
Junichi Kawai
Masato Sakurai
Managing Director
Shoichi Shudo
Directors
Toshihide Mizushima
Masahiro Kuribayashi
Joji Sato*1
Masaru Mizuno*1
Hikaru Minami*1
Tsuyoshi Kobayashi*1
Masao Kiuchi*1
Corporate Auditors
Ichiro Ohashi
Kousei Isu*2
Yuya Ishibashi*2
Notes: 1. Outside directors
2. Outside corporate auditors

Established
August 1969
Paid-in Capital¥ 8,682 million
Number of Employees
4,561(includiing part-time workers)
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 forthe opening of shopping centers

Mizuho Trust & Banking Co., Ltd.

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
2,962

Major Shareholders
Number ofshares held
(thousandshares)Shareholding
ratio (%)

Kiichi Otani

1,654

10.37

Marubeni Corporation

1,240

7.78

Seven & i Holdings Co., Ltd.

1,240

7.78

929

5.83

Japan Trustee Services Bank, Ltd.

879

5.52

Yoshiaki Imagawa

700

4.39

The Hokkaido Bank, Ltd.

546

3.42

Name

State Street Bank and Trust Company(Standing proxy agent: Mizuho Corporate Bank, Ltd.)The Master Trust Bank of Japan, Ltd.

475

2.98

Imagawa Shoji Co., Ltd.

443

2.78

OM04 SSB Client Omnibus

379

2.38

Notes: 1. Number of shares held by Japan Trustee Services Bank, Ltd. and The Master Trust Bank ofJapan, Ltd. are all related to trust services.
2. A copy of the revised report dated July 1, 2011 was sent from Marubeni Corporation,
stating that the company concluded a pension lialility trust agreement with Mizuho Trust &Banking Co., Ltd. for the 1,240,000 shares owned by the company.

54 AIN PHARMACIEZ INC. ANNUAL REPORT 2011

AIN PHARMACIEZ INC.
5-1-2-1, Higashi-naebo,
Higashi-ku, Sapporo-shi,
Hokkaido 007-8755, Japan

This annual report is printed using vegetable oil ink.
Printed in Japan