Ready for
new growth
ANNUAL REPORT 2010

For the year ended April 30, 2010

At a Glance

The AIN PHARMACIEZ Group is the leader in the field of dispensing pharmacies
that boasts top position in the domestic market in terms of net sales. We vigorously
promote the opening of new stores, as well as an M&A strategy, and consistently
develop and establish an efficient operational structure. In the product sales
business, another one of our core businesses, we are expanding the number ofdrugstores that sell cosmetics, over-the-counter (OTC) drugs and other items as
part of a unique lineup.
In the year ended April 30, 2010 (fiscal 2010), AIN PHARMACIEZ posted record
highs for both consolidated net sales and net income.

Two Business Domains

Pharmaceutical BusinessSee pages 4-5 and 14-15

No.1 Dispensing Pharmacy in Japan• Specialized in dispensing pharmacies located just outside medical
institutions*; boasts leading position in net sales in Japan• Superior education level of pharmacists and depth of the stratificationof personnel• State-of-the-art dispensing structure ensuring safety and reassurance*Pharmacies located very near to medical institutions that mainly handle prescriptions from these facilities.

Product Sales BusinessSee page 16

Unique Urban Drug and Cosmetic Stores• Providing general support in daily life with drugs and cosmetics• Continually evolving store style• Lineup focusing on style-conscious females

Contents

1 At a Glance
2 Consolidated 11-year Financial Summary
3 History of Growth
4 Business Environment:
Outside-the-hospital Dispensing
Pharmacy Market in Japan
6 To Our Stakeholders
8 Interview with the President
12 Special Feature: Forward and Beyond
14 Review of Operations:
14 Pharmaceutical Business16 Product Sales 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
27 Consolidated Statements of Changes in Net Assets
28 Consolidate Statements of Cash Flows
29 Notes to Consolidated Financial Statements
52 Report of Independent Auditors
53 Investor Information

The operating environment surrounding the Group is constantly changing due
in part to the strengthening of government measures to control rising medical
expenses resulting from a declining birthrate and an aging population. We
have overcome various challenges in this regard by implementing leading-edge
strategies with a view to the future.
In this Annual Report, we present an outlook for the business environment aswell as our medium- to long-term strategies to accelerate growth.

Dispensing Pharmacy Operations
Leads Domestic Market

Exceptional Pharmacists(As of April 30, 2010)

Through an excellent education system

The AIN PHARMACIEZ Group has built up a

and aggressive and regular recruitment of

position of superiority in terms of net sales andpharmacists, the AIN PHARMACIEZ Group

profitability mainly through strategic expansion

has secured a pool of experts boasting aand enhanced efficiency.

high level of service quality that gives us acompetitive edge.

INDUSTRY POSITIONING—Comparison of net sales and operating marginamong major companies operating dispensing
pharmacies
8.0

Expansive Network of
Dispensing Pharmacies
We are steadily expanding our store network

Operating margin (%)

by opening new stores and through M&A.
6.0

AIN PHARMACIEZSOGOMEDICALDISPENSING
PHARMACY STORENETWORK

4.0

Qol

NIHON
CHOUZAI

Hokkaido 66

397 stores nationwide(Fiscal 2010)

2.0

Tohoku 650050,000100,000

150,000

Net sales (¥ million)
AIN PHARMACIEZ INC.
NIHON CHOUZAI Co., Ltd.
SOGO MEDICAL CO., LTD.
Qol Co., Ltd.

Other areas 19

Kanto/Koshinetsu 193

Kinki/Tokai 54

Souce: Complied by AIN PHARMACIEZ INC. from thosecompanies’ financial results for fiscal 2010.

Forwardlooking
Statements

This annual report contains forecasts and projections concerning the plans, strategies and performanceof AIN PHARMACIEZ INC. and its consolidated subsidiaries and affiliates. These forecasts and projections
constitute forward-looking 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 anumber of risks and uncertainties that include, but are not limited to, economic conditions, intense competitionin the healthcare industry, demand, foreign exchange rates, tax systems, and laws and regulations. As such,
AIN PHARMACIEZ INC. wishes to caution readers that actual results may differ materially from those projected.

AIN PHARMACIEZ ANNUAL REPORT 20101

Consolidated 11-year Financial Summary
AIN PHARMACIEZ INC. and its consolidate subsidiaries
Fiscal years ended April 30(¥ million)

2000/4

2001/4

2002/4

2003/4

For the year:
Net sales
Selling, general and administrative expenses
Operating income
Net income

18,570
2,626
249
707

19,572
2,539
531
437

24,677
2,674
710
465

35,374
3,268
1,185
603

316
208

1,155
278

1,022
282

1,052
366

5,243
5,243
16,156

6,079
6,079
17,202

6,379
6,379
18,293

7,003
7,003
23,9558,030,096
415
58
30

8,887,696
493
75
36

8,886,746
564
92
33

11,024,650
907
148
40

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

97.80
652.96–51.09
684.085.0

52.43
717.888.0

58.37
633.2210.0

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

2,090

1,180

1,320

1,080

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

1.3
3.8
4.4
21.3
32.5

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

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 : Pharmaceutical business
Number of stores : Product sales businessNotes: 1. Amounts of less than ¥ million 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

NET SALESOPERATING INCOME/OPERATING MARGIN

NET INCOME/RETURN ON SALES(¥ million)(¥ million)(%)(¥ million)(%)

140,000

7,000

6.0

4,000

3.0

120,000

6,000

5.0

100,000

5,000

80,000

4,000

3,000

3.0
60,0003,000

40,0002,000

20,00000

1.0

2006/4 2007/4 2008/4 2009/4 2010/4

10
8

0

0

(¥ million)

(%)

20

25,00050

250

20,00040

200

15,00030

150

10,000

20

100

5,000

10

50

0

0

6

9L[\YUVUZHSLZYPNO[ZJHSLNET INCOME PER SHARE

(%)

15

2006/4 2007/4 2008/4 2009/4 2010/4

5L[PUJVTLSLM[ZJHSL6WLYH[PUNTHYNPUYPNO[ZJHSLSHAREHOLDERS’ EQUITY/SHAREHOLDERS’ EQUITY RATIO

(%)

1.0
1,000

6WLYH[PUNPUJVTLSLM[ZJHSLROA/ROE

2,000

2.0

1,000

2006/4 2007/4 2008/4 2009/4 2010/4

2.0

4.0

(¥)

10
4
5

2
0

2006/4 2007/4 2008/4 2009/4 2010/4

ROA (left scale)ROE (right scale)

2 AIN PHARMACIEZ ANNUAL REPORT 201000

2006/4 2007/4 2008/4 2009/4 2010/4:OHYLOVSKLYZ»LX\P[`
SLM[ZJHSL:OHYLOVSKLYZ»LX\P[`YH[PVYPNO[ZJHSL2006/4 2007/4 2008/4 2009/4 2010/4

02004/4

2005/4

2006/4

2007/4

2008/4

2009/4

2010/445,227
3,886
1,766
855

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

1,240
444

1,536
458

2,087
648

1,620
773

1,914
968

2,891
1,119

2,573
1,286

8,019
8,019
25,131

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
21,49265,89811,024,650
905
148
27

11,210,350
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
2,913
397
49

74.72
724.5712.0

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

1,390

2,050

2,370

1,500

1,490

1,481

2,920

3.9
1.9
3.5
10.7
31.9

5.0
1.6
2.9
10.9
23.4

4.0
1.6
3.0
12.5
24.8

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

History of Growth
The AIN PHARMACIEZ Group has grown and expanded while dealing with the adverse effects from the repeated revisions to medical expenses, which began in April 2002.
The opening of new stores and M&A has been actively implemented to continue the scale expansion policy.
2002/4
Revisions
to medical
expenses

2003/4

Dispensing fees -1.3%
Drug prices -6.3%

Imagawa Yakuhin

2004/4

2005/4

2006/4

2007/4

Dispensing fees ±0
Drug prices -4.2%

Dispensing fees -0.6%
Drug prices -6.7%

AIN TOKAIMEDICAL
HEARTLAND

M&A

Rejoice

AIN MEDICALSYSTEMS

2008/4

2009/4

Dispensing fees +0.17%
Drug prices -5.2%

2010/4
Dispensing fees +0.52%
Drug prices -5.75%

Asahi Pharmacy

DAICHIKUSUNWOOD

Rejoice
Pharmacy(¥ million)(¥ million)

150,000

7,000
6,000

120,000

5,000
90,000

4,000
3,000

60,0002,000
30,0000

1,000
2002/4

2003/4

Consolidated net sales (left scale)

2004/4

2005/4

2006/4

2007/4

2008/4

2009/4

2010/40Consolidated operating income (right scale)

AIN PHARMACIEZ ANNUAL REPORT 20103

Business Environment:
Outside-the-hospital Dispensing Pharmacy Market in Japan

Japan’s outside-the-hospital dispensing
pharmacy market has major growth potential
over the medium term due to a low level ofoligopoly among major companies.
Structure of Japan’s Dispensing Pharmacy Industry
In Japan, it was standard for medical institutions to prescribe and dispense drugs to patients (inhospital prescriptions). However, following the introduction of a policy separating medical practice frompharmaceutical dispensing to control medical expenses in 1974, a system was adopted whereby ethicaldrugs can be dispensed at dispensing pharmacies (outside-the-hospital prescriptions).
DISPENSING PHARMACY MARKET IN JAPANDoctorsprescribingprescribing

In-hospital prescriptions

Outside-the-hospital prescriptions

Pharmacies inside
medical institutions

Large dispensing
pharmacy chains

Small-and-mediumsized dispensing
pharmacy chains/small pharmacies

Pharmacies inside
drugstore

including the
AIN PHARMACIEZ
Group
dispensing

dispensing

dispensing

dispensing

Patients / Customers

The separation of dispensing from medical practice has accelerated since 1990, with the proportion ofoutside-the-hospital prescriptions climbing to 59.1%*, or ¥5,173 billion* and steadily growing.
* Data for March 1, 2008 through February 28, 2009 by the Japan Pharmaceutical Association
The outside-the-hospital dispensing pharmacy market is comprised of large dispensing pharmacy chainsthat include the AIN PHARMACIEZ Group, small- and medium-sized chains, privately managed dispensing
pharmacies and drugstore chains. The proportion of outside-the-hospital prescriptions is expected tocontinue increasing to 80%.
TOTAL DISPENSING FEES AND RATIO OF OUTSIDE-THE-HOSPITAL PRESCRIPTIONS（IPSSPVU）
6,000

59.1

（ ）
60

5,173
5,000

50

4,000

34.8

40

3,000

2,293

30

2,000

20

1,000

10

0

1999

2000

;V[HSKPZWLUZPUNMLLZSLM[ZJHSL
Source: Japan Pharmaceutical Association

4 AIN PHARMACIEZ ANNUAL REPORT 2010

2001

2002

2003

2004

2005

2006

2007

2008

0

9H[PVVMV\[ZPKL[OLOVZWP[HSWYLZJYPW[PVUZYPNO[ZJHSL-VYYLZWLJ[P]LMPZJHS`LHYZILNPUUPUN4HYJOHUKLUKPUN-LIY\HY`

Major Growth Potential in the Outside-the-hospital Dispensing Pharmacy Market
The outside-the-hospital dispensing pharmacy

STRUCTURE OF OUTSIDE-THE-HOSPITALDISPENSING PHARMACY MARKET

market, our business domain, has a unique

Top five major companies*
6.4%
Top 50major companies
14.2%

composition whereby large dispensing pharmacy
chains, including the AIN PHARMACIEZ Group,
make up as little as 6.4% of the total.
The extremely low level of oligopoly combined
Others85.8%

with the need to boost efficiency by becoming a
chain to survive in a fast-changing market provides
considerable scope for large chains to expand.

(Fiscal 2010)

Source: The AIN PHARMACIEZ Group estimates based on materials by Japan Pharmaceutical Association and Drug Magazine published on July 2010.
* Top five major companies are AIN PHARMACIEZ INC., NIHON CHOUZAI Co., Ltd., PharmaCluster Co., Ltd., Qol Co., Ltd. and SOGO MEDICAL CO., LTD.

Future Outlook for Dispensing Pharmacy Industry
Since Japan has a declining birthrate and an aging population, it is projected that measures to control
medical expenses will continue to get stronger. In line with this, we expect drug prices and dispensing feesfor ethical drugs to be revised every two years. The usage rate of generic drugs on a volume base is forecast
to increase from 19.1% (as of January 2010) to 30.0% by March 2013, which is the target figure of the
Ministry of Health, Labour and Welfare.
Despite moderate growth in the dispensing pharmacy market, there is significant leeway for expansion
compared with other industries in Japan, and as such, competition is expected to intensify. Based on thesecircumstances, the level of oligopoly of large dispensing pharmacy chains with a competitive advantage inscale and accumulated know-how is projected to increase. The AIN PHARMACIEZ Group is aiming to drive
further growth under medium- to long-term strategies by leveraging current areas of comparative strength.
PROMOTION POLICY OF GENERIC DRUGS BY THE MINISTRY OF HEALTH, LABOUR AND WELFARE
Apr. 2006

Apr. 2008

Apr. 2010

Apr. 2012

Mar. 2013

Oct. 2007

Action program forpromoting the use ofgeneric drugs

The Ministry of Health, Labour and Welfare announced the “Action
Program for the Promotion of the Use of Generic Drugs” and set a targetof achieving a 30.0% usage rate on a volume base by March 2013.
Apr. 2006
An area added for doctors
to sign off on prescriptions
that allows changes togeneric drugs

Change ofprescription format
Revision of dispensing
fees related to generic drugs

Apr. 2008
An area added for doctors
to sign off on prescriptions
that does not allowchanges to generic drugs
Apr. 2008
Establishment of new
system of adding
dispensing fees forhandling generic drugs(4 points added when theuse of generic drugs
account for 30% or higherof the number of total
prescriptions)Apr. 2010
Revision to system ofadding dispensing fees forhandling generic drugs(Shift to adding points
according to the usage
rate on a volume base:
20％ or higher: 6 points
25％ or higher: 13 points
30％ or higher: 17 points)

USAGE RATE OF GENERIC DRUGS (Volume base)

30.0

（ ）
30

20

* 1 point = ¥10

15.4

16.1

18.0

18.7

14.3

2005/3

2006/3

2007/3

2008/3

2009/3100

Source: Ministry of Health, Labour and Welfare

2010/3

2011/3

2012/3(Target)AIN PHARMACIEZ ANNUAL REPORT 2010

5

TTo
o Our
O Stakeholders

Towards the Next Stage of Growththrough Continued Evolution

AIN PHARMACIEZ posted record highs
for both consolidated net sales andnet income in the year ended April 30,
2010. This result can be attributed toongoing store openings, the regular
recruitment of pharmacists and an
exceptional education program.
Low-cost operations, achieved
primarily through jointpurchasing and efficientbusiness practices, havealso contributed tofavorable performance
results.

6 AIN PHARMACIEZ ANNUAL REPORT 2010

Following our listing on the JASDAQ stock market in 1994, the Company’s stock went
public on the Second Section of the Tokyo Stock Exchange 15 years later in April 2009
and was listed on the First Section in April 2010, proving how fast we have grown. I
would like to express my sincere appreciation to our shareholders, partners, employees
and all other stakeholders for your understanding and cooperation.
The AIN PHARMACIEZ Group has overcome tough changes in the businessenvironment and continued to grow amid various governmental policies to increase thesoundness of medical systems (See “Business Environment” section on pages 4-5).
In our core business of dispensing pharmacies, initiatives are under way fordeveloping and expanding our network of dispensing pharmacies located just outside
medical institutions for ultimate user convenience. As a result, we are building a scale ofoperations that will enable us enjoy the benefits of economies of scale. In the productsales business, we have differentiated ourselves from major drugstore chains and are
pursuing greater profitability and efficiency at stores by tackling various challenges.
We have continuously undertaken measures to develop a structure from both
software and hardware perspectives to provide safety and reassurance for customers
and to create a comfortable working environment for our employees. These long-term
strategies have helped to bring about significant achievements at this time.
Our strengths lie in the scale of our operations, our innovative systems and, above
all, our human resources, who possess a strong sense of responsibility and have
exceptional capabilities. Going forward, we will continue evolving and expanding in thetwo businesses of dispensing pharmacies and drugstores with the aim of providing moreadvanced healthcare services.
Although the business environment is expected to keep changing, I believe we canrealize a new stage of growth through continued efforts across the board based on thewatchwords “Become a standard for the industry.”

July 30, 2010

Kiichi Ohtani
President and Representative Director

AIN PHARMACIEZ ANNUAL REPORT 20107

Interview with the President

There is no shortcut to growth in this business,where responsibility to society is so great.
We have a sense of mission and fulfill
our responsibilities to patients and society.
Kiichi Ohtani
President and Representative Director

Q. Please give us an overview of business performance for the period.
A. The Japanese economy during the fiscal year showed signs of steadyrecovery amid a resurgence in economies overseas and an improvement in

TOTAL NUMBER OF STORES
()
500

401

421

446

400

corporate earnings. Even so, there is still a risk that economies overseas

300

will decline, while the employment situation remains severe.

200

290

261

356

375

397

247

218
100

Under these circumstances, the AIN PHARMACIEZ Group executed initiatives to further
expand business, such as actively opening new dispensing pharmacies and urban

0

49
46
45
43
43
2006/4 2007/4 2008/4 2009/4 2010/4

7OHYTHJL\[PJHSI\ZPULZZ

7YVK\J[ZHSLZI\ZPULZZ

drugstores, restructuring the Group organization for a more agile structure and increasing
capital by ¥2.4 billion through a public offering to enhance our financial position.
In terms of results, net sales were up 8.8% compared with the previous fiscal year to¥125,495 million due to the opening of new dispensing pharmacies and urban drugstores

NET SALES(¥ million)
140,000

together with an increase in sales at existing dispensing pharmacies. As for profits,

120,000

operating income was up 22.6% year-on-year to ¥6,492 million, and net income surged

100,000

47.2% to ¥3,131 million. We achieved record highs in terms of both sales and net income.

80,000125,495
115,387
106,231
76,303 81,307

60,00040,000Q. What are the main reasons for such dynamic growth in the dispensing

20,0000

2006/4 2007/4 2008/4 2009/4 2010/4

pharmacy business amid numerous industry controls?

A. Besides having a deep understanding of the characteristics of thedispensing pharmacy market, including being a pharmacist myself, a key
reason is our policy of expanding business taking a straightforward stance.

NET INCOME(¥ million)
4,000

3,131

There is no shortcut to growth in this business, where responsibility to society is so great.
We have a sense of mission and fulfill our responsibilities to patients and society. By

3,000

2,127
1,215

establishing a structure and increasing efficiency in our fundamental business processes,
we minimize the burden on our pharmacists and provide a higher quality of advice andservices to patients and customers alike. Economies of scale provide us with low-cost
operations, and we place importance on reinvesting profits to foster human resources
and for further investment in facilities and equipment.

8 AIN PHARMACIEZ ANNUAL REPORT 2010

1,615

2,000

1,010

1,000

0

2006/4 2007/4 2008/4 2009/4 2010/4

Q. Please explain exactly what you mean by taking a straightforward stance.
A. We have a straightforward policy of focusing on dispensing pharmacies
located just outside medical institutions as well as regular recruitment ofpharmacists. These provide us with a source of differentiation that others
cannot emulate.
Dispensing pharmacies located just outside medical institutions are the most convenient
for customers. Also, opening stores near large hospitals will ensure more prescriptions,while there are a limited number of medical institutions to target, making our job simple
and efficient. Another merit is that we handle numerous drugs for patients in criticalcondition, and accordingly, this results in raising the skills of our pharmacists.
Another key approach is the regular recruitment of pharmacists. We have always
invested management resources in order to firmly establish education systems to nurture
new hires. While taking a proactive stance towards M&A, the purpose of promoting
the rapid nationwide expansion of our store network also has been to regularly recruit
graduating pharmacists from universities across Japan.
Our education system is at an industry-leading level. We also work to create astore environment in which pharmacists can work with reassurance such as building
systems to prevent drug dispensing errors. These facilitate the recruitment of exceptional
personnel and support aggressive store expansion. We will continue with our approaches
to be straightforward in our actions.

Q. What has been the key to corporate growth?
A. We aim to be a good company for employees and society, and we haveestablished our current position through ongoing efforts company-wide.
The AIN PHARMACIEZ Group has always worked to provide a better workplace forour personnel because we believe a motivated workforce ensures better service forcustomers. This in turn increases corporate value and enables us to give back toshareholders and other stakeholders.
While procuring funds, we have continued to make investments to open stores,
educate employees and create systems. For that reason, the profit growth rate andprofitability tend to fluctuate each year, but we still almost always achieve the sales andprofit targets of our business plans.
In general, as the business scale of a company expands, name recognition andcredibility increases, and then earnings stabilize. Since achieving annual net sales
exceeding ¥100 billion in the year ended April 30, 2008, we have maintained stable net
sales and profits. This is proof that business expansion through economies of scale andcapital investment has led to relatively low-cost operations.
To ensure ongoing growth, I have been conscious of keeping the company public,

AIN PHARMACIEZ ANNUAL REPORT 20109

which is of value to society. As opposed to a private holding company, corporate
information is more open and employee motivation is increased. Also, it’s easier to gain
the understanding of shareholders and investors, thus providing us with the opportunity
to procure funds more flexibly for further growth.

GLOBAL COMPARISON OF GENERIC
DRUG USAGE RATE
(Volume base)
(%)
100
80

Q. Please explain your stance toward generic drugs.
A. The AIN PHARMACIEZ Group seeks to expand the handling of genericdrugs as a new revenue source.
Although total pharmaceutical sales will decline as we handle more generic drugs,
dispensing fees will gradually be added in line with the volume-based usage rate ofgeneric drugs, which will boost gross profit margins.
The usage rate of generic drugs in Japan has been very slow to take off comparedwith Europe and the United States on both volume and value bases. On a volume
base, generic drugs account for 19.1% of the market in Japan as opposed to 60-70%
in Europe and the United States, and on a value base, they account for 7.1% in Japan
compared with around 20% in Europe and the United States.
The Ministry of Health, Labour and Welfare is planning to increase the use of genericdrugs and is targeting 30% on a volume base by March 2013.
In 2006, AIN PHARMACIEZ established WHOLESALE STARS Co., Ltd. (WSS), a
wholesale company specializing in generic drugs, in line with an expected increase inusage of generic drugs and to ensure their stable supply going forward. Distribution
centers were set up in Saitama and Sapporo for that purpose. As a result, a structure has
been established that is able to help lower the purchase price of generic drugs and raise
profitability.

Q. Please tell us about the current status of the product sales businessand your future strategy.

A. While continuing to expand business mainly in urban centers, we areworking to enhance our product range, inventory management and service
content, focusing on over-the-counter (OTC) drugs and cosmetics.
At present, the AIN PHARMACIEZ Group has three different types of stores: Ainz, asuburban drugstore mainly engaged in the sale of drugs and everyday items; Ainz &Tulpe, which specializes in drugs and cosmetics; and Tulpe, which focuses on cosmetics.
The drugstore industry, handling mainly OTC drugs, has become saturated in recent
years in Japan. We are thus working to differentiate ourselves from general drugstoresthrough our urban drugstores, Ainz & Tulpe and Tulpe, by enhancing customer contact.
This includes providing in-depth explanations of drugs by our pharmacists and registered

10 AIN PHARMACIEZ ANNUAL REPORT 2010

68.6
60.9

63.7

U.K.

Germany

60
40

19.1
20
0

Japan

U.S.

Source: U.S., U.K. and Germany data: IMS
Health, MIDAS, Market Segmentation,
Rx only, based on shipment volume,
MAT, Dec. 2008
Japan data: Ministry of Health, Labourand Welfare, Jan. 2010

In Japan, the dispensing pharmacy market
has significant potential for growth comparedwith numerous other mature industries.

vendors. We are also pursuing a differentiation strategy with our unique cosmetics range
targeting style-conscious women.
If full-scale expansion of the product sales business can be realized through a focus
on highly profitable cosmetics, it will make a significant contribution to overall corporate
profitability. This business domain still has considerable room for growth and cultivation,and our policy and measures will remain flexible to maximize this potential.

Q. Please explain the progress of the alliance with Seven & i Holdings
Co., Ltd.

A. We are aiming to create a new business model to provide drugs that
ensure safety and reassurance for customers that utilizes the powerful
network of Seven & i Holdings extending across industries and our high levelof specialization as a leading player in the dispensing pharmacy market.
Seven & i Holdings and AIN PHARMACIEZ concluded a business and capital alliance inAugust 2008. In June 2009, AIN PHARMACIEZ jointly established Seven Health Care Co.,
Ltd. with a 30% stake. Through the cooperation of both companies, Seven Health Careis building one of Japan’s top drugstore businesses via the development of private-branddrugs and an extensive sales network. We will also collaborate on personnel recruitment
and education for Seven Health Care by using AIN PHARMACIEZ’s pharmacist education
program.
In addition, both companies are discussing a strategy to mutually enhance corporate
value over the medium- to long-term while pursuing unique, new avenues of developmentthat include dispensing pharmacies.

Q. Finally, please tell us your message for shareholders and investors,
and future management vision.

A. In Japan, the dispensing pharmacy market has significant potential
for growth compared with numerous other mature industries. The AIN
PHARMACIEZ Group has formulated a medium- to long-term strategy thattakes into account governmental controls and other risk factors. I believe
we can drive further growth by making good use of our current competitive
advantages.
The Company views the return of profits to shareholders as extremely important and isaiming for a dividend payout ratio of over 20%.
Since our line of business involves a high degree of social responsibility, we will further
develop and strengthen our efforts to realize highly transparent information disclosure,governance, internal controls and compliance as key management challenges.

AIN PHARMACIEZ ANNUAL REPORT 201011

Special Feature

Forwardand Beyond
Ensuring a Greater Competitive Advantage
by Maximizing Pharmacist Capabilities

Creating a motivating work environment forpharmacists as well as safety and assurance
ultimately contributes to patient health. In thelong run, it also leads to higher profitability.
That’s why efforts to this end are the driving

AIMING FOR ZERO ERRORS INDISPENSING DRUGS
Eliminating drug dispensing errors is always a priority issue for the
AIN PHARMACIEZ Group. It is vital for us to create a structure

force behind sustained growth for the AIN

that prevents such errors and ensures immediate recovery in

PHARMACIEZ Group.

the event of an error. We have led the way ahead of competitors
in the formulation of manuals, an education system, and

It is a key challenge for the Group to create a structure enabling

automation of drug dispensing operation in order to minimize thesafe, stable, and speedy dispensing operations in order tostress as well as careless mistakes of pharmacists to increase

ensure sustained growth in the future. We are establishingaccuracy and speed.

an operational structure to increase accuracy and speed

To date, we have made significant progress in terms ofwhen providing drugs to patients, including automation at ourefficiency and providing better advice to patients by those efforts.

dispensing pharmacies. Another key challenge is to improve

We have also started initiatives to bring about total automation

our education system to help our pharmacists provide qualityof drug dispensing and are proceeding with systemization inadvice to customers. As the largest dispensing pharmacy chain

accordance with the characteristics of each store.

in Japan, the AIN PHARMACIEZ Group is pursuing in earnest
these two fundamental challenges along with promoting more

BENEFITS OF AUTOMATED DRUG DISPENSING

advanced initiatives ahead of our competitors.
1. Minimizes errors in dispensing

Increases safety

2. Boosts service competitiveness
Increases speed of dispensing and enhances services
such as drug administration guidance
3. Raises cost competitiveness

Increases personnel efficiency

Automatic Prescription Registration System 1
In this system, prescriptions are read by a scanner and registeredon computer, thereby preventing errors from manual input.
Unique Drug Dispensing Error Prevention System 2This system analyzes information recorded on the receipt
computer and sends data to the various stages of the

12 AIN PHARMACIEZ ANNUAL REPORT 2010

drug dispensing process, including preparation of the drug
envelope, tablet picking and the dispensing of a specific

EXCEPTIONAL HUMAN RESOURCES,A KEY STRENGTH

measure of powdered or liquid drug.
Pharmacists cross-check the information on the prescription
sent from the computer using Personal Digital Assistants

One of our strengths and most important assets is our human(PDAs) developed by the Company with the information on the

resources. As a company concerned with people’s well-being,

barcode. A warning alarm sounds if there is a discrepancy andwe believe it is our mission to create a structure that minimizes

handsets are also used for filling prescriptions to prevent errors.

errors in drug dispensing and to take responsibility for nurturing
the personnel who work at our pharmacies. Besides providing
training up to the moment our pharmacists first step foot in the

Automatic Drug Picking System 3
We are working on the total automation of drug dispensing bypharmacies, we have created an ongoing education systemfurther evolving the drug dispensing error prevention system

suited to individual careers. This makes it possible to foster

using barcode recognition. Automating the selection procedure

exceptional, highly motivated pharmacists.

to gather drugs from the shelf is expected to enable greater

It is also critical that we recruit experts to handle

safety and efficiency than the traditional PDA-based system,

pharmaceuticals in drugstores to ensure stable growth andwhich entails manual picking operations and requires more

expansion of the AIN PHARMACIEZ Group. On that point,

personnel and time.

the Group has an environment conducive to easily securing

We have already developed and introduced an automatic

graduates from pharmaceutical colleges around the country

powdered drug dispensing machine and an automaticfor its nationwide network. Going forward, we are planning toliquid drug dispensing machine, and are currently trialing an

recruit more pharmacists throughout the Group as we seek

automatic drug picking system that totally automates the drug

to expand dispensing pharmacy networks and product sales

dispensing process, starting with prescription entry. We arebusiness.

aiming to introduce the system at 30 stores during the current
fiscal year and at 50 stores annually from the next fiscal year.
AUTOMATED DRUG DISPENSING

Flow ofdrug dispensing

Prescription
entry

Dispensing process

Initial check

Powdered drug
1

Automaticprescription
registration system

Aiming for full automationfrom prescription entry
to drug dispensing

Fully
automatedDrugadministration
guidance

Final checkby a pharmacist

Final checkby a pharmacist

Start developmentof automatic
checking system

Final checkby a pharmacist

ODP*

2
Initial checkby a pharmacist

Current

Liquid drug

Final check

Barcode recognition
systemDispensing bya pharmacist
using PDAs

Automatic
powdered drug
dispensing machine

Barcode recognition
system3

Automatic
drug
pickingsystemAutomatic liquid drug
dispensing machine* ODP: One Dose Package

AIN PHARMACIEZ ANNUAL REPORT 201013

Review of Operations

Pharmaceutical Business
Expand Network across Japanof Highly Convenient Dispensing
Pharmacies Located Just Outside
Medical Institutions“The strength of our dispensing pharmacies lies in the work motivation of
Shoichi Shudo

young employees. The average age of our pharmacists is 30.2*,

Managing director,
General manager of Pharmaceutical divisionand our corporate culture enables swift response to changes in theoperating environment, which is a major asset in the dispensing pharmacy
industry as it undergoes reorganization.”*Average age calculated by the Company on a non-consolidated basis

Strengths and Characteristics ofPharmaceutical Business

DISPENSING PHARMACY STORE NETWORK
397 stores nationwide (Fiscal 2010)• Specialized in dispensing pharmacies
located just outside medical institutions;boasts leading position in net sales inJapan• Superior education level of pharmacists
and depth of the stratification of personnel

AIN PHARMACIEZ
Hokkaido area 66

MEDICAL HEARTLAND* 18
MIYAKO AIN* 1
DAICHIKU* 25• State-of-the-art dispensing structure
ensuring safety and reassurance

AIN PHARMACIEZ
Chugoku/Shikoku/Kyushu/Okinawa area 7

AIN PHARMACIEZ
Tohoku/Koshinetsu area 44
Asahi Pharmacy* 89
AIN PHARMACIEZ
Kanto area 43
AIN MEDICAL SYSTEMS* 46
AIN MEDIO* 38

Specialization in Dispensing Pharmacies Located

AIN PHARMACIEZ
Kinki/Hokuriku area 20

Just Outside Medical Institutions
An extensive network of large-scale dispensing pharmacies* Except AIN PHARMACIEZ INC., the number of stores of
the Group companies was as of March 31, 2010.

located just outside medical institutions forms the basis of ourbusiness model. In order to quickly expand business, the AIN
PHARMACIEZ Group has not only opened new pharmacies
independently but also made reputable dispensing pharmacy
chains into subsidiaries through M&A.

At the end of the fiscal year under review, the AIN
PHARMACIEZ Group boasted a network of seven companies

These chain stores, which also open stores located just(only those with dispensing pharmacy business), including AIN

outside medical institutions, continue to conduct sales under

PHARMACIEZ, and 397 stores (up 22 from the previous period)

their own brand and company names, and with their own

with 2,097 pharmacists.

pharmacists. This approach is taken to retain their credibility andcustomer confidence in their respective regions.

14 AIN PHARMACIEZ ANNUAL REPORT 2010

Moving ahead, we will continue recruiting pharmacists
while strengthening foundations to drive further growth.

Katsuta Store, Ibaraki

Fushimi Store, Kyoto

Cross-Organizational Management System

Expanding Approach to General Healthcare

We have unified operations in indirect departments of

The AIN PHARMACIEZ Group has a personnel introduction

respective companies for greater efficiency in order tobusiness that matches doctors with hospitals, opens multi-

standardize services across the Group and pursue group-

purpose clinics that are directly connected to train stations

wide profitability, thereby handling the expansion in businessand provides comprehensive consulting services in support ofscale. In addition to regular recruitment and enhancement of

hospital management.

our education program for pharmacists, we have developed

One new initiative is to provide home medical care alongand shared advanced know-how concerning, for example,

with the aging of Japanese society. The AIN PHARMACIEZ

centralized drug purchasing and standardization of automaticGroup is conducting trial services of “home drug dispensing”

drug dispensing systems in order to raise the Group’s

at our Yubari Store in Hokkaido. This service supports home

profitability.

medical care, whereby our pharmacists go to a person’s
residence to make sure the appropriate dosage for the patient

Response to the Expansion of Generic Drugs

as well as check their condition and work together with the

The use of generic drugs in Japan is expected to grow steadilyfamily doctor or nurse to provide high-quality medical care.

on account of regulations to control medical expenses.

The Yubari Store has pharmacists who specialize in home

Currently however, the supply system for generic drugs

drug dispensing and maintains a record of relevant data. By

is not ideal. In order to ensure a steady supply, WHOLESALE

collaborating with health clinics and social workers, the service

STARS Co., Ltd. (WSS) was established as a wholesaler

goes beyond mere drug delivery to contribute to regionalof generic drugs in 2006, as well as distribution centers inhealthcare.

Saitama and Sapporo. Aside from the AIN PHARMACIEZGroup, WSS provides generic drugs to small- and mediumsized pharmacies and medical institutions that are aiming tokeep costs down. The purchasing power of manufacturers willrise with the amount of generic drugs handled, thus boosting
the profitability of the AIN PHARMACIEZ Group.
Although net sales will decrease temporarily as the amountof generic drugs handled increases, gross profit margins will
increase. These margins will rise further if drug dispensing fees
are added in accordance with the volume of generic drugs
handled. As of April 30, 2010, 23.7% of drugs handled by
the AIN PHARMACIEZ Group were generic drugs. We aim toincrease this figure by utilizing WSS as a means to increase
profitability.

AIN PHARMACIEZ ANNUAL REPORT 201015

Review of Operations

Product Sales Business
Flexibility That Enables Continuous
Evolution“ As a select shop of drugs and cosmetics, Ainz & Tulpe is a highly valued
brand industry-wide. It is being nurtured as the second pillar of
AIN PHARMACIEZ due to its ability to expand profits in the medium- tolong-term.”
Rieko Kimei
General manager of Product sales division

New Challenges Resulting from Alliance

Strengths and Characteristics ofProduct Sales Business

The Company formed an alliance with Seven & i Holdings Co.,

• Providing general support in daily life withdrugs and cosmetics

positive effects that will lead to growth in the product sales

Ltd. in August 2008. This tie-up is expected to have numerous
business.
One of these benefits is diversification of sales channels.

• Continually evolving store style

We will promote the opening of new stores in general• Lineup focusing on style-conscious females

merchandising stores and in department stores under theSeven & i Holdings umbrella. We are also investigating various
collaborative projects with the Seven & i Holdings Group that
include using e-money and setting up joint operations with

Unique Urban Drug and Cosmetic Storesconvenience stores.

In the product sales business, we have three store brands that

By combining the abundant know-how of the Seven & ihandle different products: Ainz has an extensive lineup, from

Holdings Group and the strengths and characteristics ofpharmaceuticals to everyday items; Tulpe provides high-quality

AIN PHARMACIEZ stores, we aim to challenge unique, newcosmetics that include foreign brands; and Ainz & Tulpe has

avenues of development.

a wide-ranging lineup that incorporates products from boththese stores.
In particular, Ainz & Tulpe and Tulpe, which target styleconscious females in their 20 to 40s, have been well received

Ainz & Tulpe in BISSE ODORI, Hokkaido

by customers for being different from competitors. Our policy is
to expand these stores nationwide, mainly in urban areas.

STORE NETWORK

Ainz
Ainz & Tulpe
Tulpe

24
20
5
(As of April 30, 2010)

Ainz & Tulpe in Ikebukuro Seibu, Tokyo

16 AIN PHARMACIEZ ANNUAL REPORT 2010

Corporate Governance(As of July 29, 2010)

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 pharmaceutical business.

OVERVIEW OF CORPORATE GOVERNANCE
SYSTEM
The Board of Directors, the major decision-making body of AIN
PHARMACIEZ, is comprised of 14 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

Product Sales DivisionInternal Audit Office
Pharmaceutical Division

Audit
Administration
Department

AIN PHARMACIEZ ANNUAL REPORT 201017

Three 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 and Board of Directors, as well as monitor the
execution of duties by directors. We are striving to enhanceinternal control functions through measures that include regularseminars conducted by lawyers, ongoing programs by theCompliance Committee to raise awareness of executives andregular employees and introduction of help desks for breachesof 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, its 13 subsidiaries and three affiliates as of April
30, 2010. AIN PHARMACIEZ employs Management Guidelines
for Subsidiaries and Affiliates at each of its subsidiaries in orderto ensure appropriateness of operations as a business group.
For items requiring important management decisions (including
facts regarding decisions already made) at subsidiaries, areport is submitted to AIN PHARMACIEZ, the parent company,
with action taken once approval has been granted. Further, aGroup management meeting convenes every second week inthe form of a liaison conference for Group companies in orderto manage the status of business execution at each subsidiary.
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 ANNUAL REPORT 2010

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
three outside corporate auditors and one standing corporate
auditor. In addition to the aforementioned activities, corporate
auditors work to enhance the accuracy of their audits 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 EXECUTIVE OFFICERS
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 amountof remuneration for directors and corporate auditors for thecurrent fiscal year 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

175

146

29

12

7

7

—

1

17

14

2

5

Note: Additionally, the portion of employees’ salaries for directors who concurrently serve
as employees amounted to ¥4 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 17 assistant accountants provided support for
the accounting audits of AIN PHARMACIEZ. Audit fees for thecurrent fiscal year were as follows.
Compensation paid
for audit certification
activities (¥ thousand)Compensation paid for
non-audit activities(¥ thousand)

34,000–

The Company
Consolidated
subsidiaries
Total

–

–

34,000–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 theadvancement of research in the pharmaceutical field and takes
a proactive approach to initiatives based on academic-industry
partnerships, such as funded projects and joint research at
The University of Tokyo, Kyoto University, Hokkaido University
and Sapporo Medical University.

STATUS OF SHARES HELD
1. Of the Company’s investment securities, the number ofdifferent types of stock held for purposes other than investment,
and their total balance sheet value
Number of different types of stock held: 30
Total balance sheet value: ¥1,347 million
2. The issues, numbers of shares held, carrying amount andpurposes for holding equity securities (excluding unlisted
shares) held not for pure investment purposesIssuesHokuhoku
Financial Group,
Inc.
Sapporo Hokuyo
Holdings, Inc.

Numbers ofshares held
(shares)

Carrying
amount(¥ million)

2,047,400

382

779,400

337

˝

64,90080

˝

22,00063

˝

200,000

36

˝

35,000

11

˝

8,676

10

˝

100,000

9

˝

212

7

˝

10,0003

˝

Purpose for holding
equity securities

Being held to maintainand strengthen the close
relationship

TOKAI Corp.

JAFCO Co., Ltd.

Mizuho Financial
Group, Inc.
JAPAN CARESERVICE GROUPCORPORATION
ARCS COMPANY,
LIMITEDTAIHEIYO
KOUHATSU
INCORPORATEDCAREER BANK
Co., Ltd.
ARATACORPORATION<Funded Projects>
Division of Social Communication System for Advanced
Clinical Research:
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
and activities to identify concrete solutions.
Pharmaco-Business Innovation:
Graduate School of Pharmaceutical Sciences, The Universityof TokyoThis 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 and supporting 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 and verify their effectiveness in actual clinicalpractice 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.
<Joint Research>
Laboratory of Drug Informatics:
Graduate School of Pharmaceutical Sciences, The Universityof TokyoThis 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 theproper use of drugs on the number of prescriptions filled, andexamines the social usability of pharmacy information, including
drug dispensing information.

AIN PHARMACIEZ ANNUAL REPORT 201019

Financial Section

Management’s Discussion and Analysis of Financial
Condition and Results of Operations
BUSINESS ENVIRONMENT SURROUNDING
THE AIN PHARMACIEZ GROUP
The core pharmaceutical business of the AIN PHARMACIEZGroup (the Group) is a dispensing pharmacy business that
includes preparing and dispensing ethical drugs based onprescriptions.
The drug prices and dispensing fees are stipulated by
the Ministry of Health, Labour and Welfare. As a measure forcontaining national medical expenses*1, medical treatment
fees*2 and drug prices are being reduced incrementally.
The difficult business environment is continuing in thepharmaceutical and dispensing pharmacy industries. This isdue to the government’s policy of containing national medical
expenses including deliberation pertaining to a sweeping
overhaul of the medical system as well as revisions, including
drug prices and dispensing fees, carried out in April 2010.
Total amount revision*3 increased 0.19% overall (up ¥70
billion on value bases). Looking at a breakdown of theserevisions, even though the revision rate for dispensing feesrose 0.52% (an increase of ¥30 billion), the revision rate fordrug prices decreased 1.23%*4 (down ¥450 billion), making
this a severe downward revision for the dispensing pharmacy
industry as a whole because dispensing pharmacy revenues
are based on dispensing fees and drug prices.
One noteworthy point was setting up of the system ofadding dispensing fees for handling generic drugs. As a policy
for promoting the greater use of generic drugs, this system
now operates as a scheme whereby dispensing fees are
incrementally added depending on the generic drug usagerate. The Group began actively promoting the use of genericdrugs in 2006. While other companies in the industry are
struggling with changes to their profit structures resulting froma revision to the medical treatment fee and other systems,
the Group regards the recent revision to dispensing fees as aperfect opportunity for further raising profitability.
Notes:
1. National medical expenses refer to medial expenses within the scope of medical
services provided under health insurance.
2. Medical treatment fees comprise technical fees for medical personnel and fordispensing pharmacists.
3. Revisions include medical treatment fees, drug prices and material costs.
4. This rate was calculated based on total prior medical expenses. The rate of the mostrecent revisions to drug prices to the prior revision decreased 5.75%.

ANALYSIS OF BUSINESS RESULTS FOR THE
CURRENT FISCAL YEAR UNDER REVIEW
During the fiscal year under review, the Japanese economy
showed signs of a steady recovery along with the resurgence

20 AIN PHARMACIEZ ANNUAL REPORT 2010of overseas economies and an improvement in corporate
earnings. Nevertheless, the economy faced risks that included
concerns that overseas economies would decline, while theemployment situation remained severe.
Under these circumstances, the Group strengthened
its agility and financial structure in preparation for further
business expansion by restructuring the Group organizationand increasing capital by ¥2.4 billion through a public offering
while actively opening new dispensing phar macies and urban
drugstores.
Consolidated net sales increased 8.8% compared with theprevious fiscal year to ¥125,495 million due to the opening of
new dispensing pharmacies and urban drugstores in addition
to an increase in net sales at existing dispensing pharmacies.
At the profit level, selling, general and administrative (SG&A)
expenses increased 8.0% to ¥10,744 million due mainly
to investments for expanding store openings and upfront
investments for new store openings. Nonetheless, we
successfully implemented group-wide business reform projects
and were able to hold the SG&A ratio to 8.6%, the same as
for the previous fiscal year. Additionally, we posted favorable
results at dispensing pharmacies, which resulted in a sharp
22.6% increase in operating income to ¥6,492 million. The
operating margin rose 0.6 percentage point from the previous
fiscal year to 5.2%. Moreover, net income jumped 47.2% to an
all-time high of ¥3,131 million and the return on sales ratio rose
0.7 percentage point to 2.5%.

SEGMENT INFORMATION
Pharmaceutical businessIn the pharmaceutical business, new and existing dispensing
pharmacies recorded solid results due to a rise in unit prices
per prescription accompanying long prescription terms andowing to a large number of patients visiting these pharmacies.
In preparing for a two-year blank period for hiring new
pharmacist graduates resulting from the transition to a six-year
curriculum in pharmaceutical education at colleges, the Group
hired a large number of new graduates as pharmacists. Efforts
also continued to work to raise safety and efficiency andstrengthen the profitability of dispensing pharmacies.
At the Group structure level, we promoted reorganization
among subsidiaries to strengthen profitability by raising
the agility and efficiency of the Group operational structure
and reducing administration costs. Specifically, we merged
the operations of AIN MEDICAL SYSTEMS Inc. (surviving
company) and Rejoice Inc.; AIN TOKAI Inc. (surviving
company) and Rejoice Pharmacy Inc. (upon the merger, AIN

TOKAI Inc. was renamed AIN MEDIO Inc.); and AIN MEDIO
Inc. (surviving company) and SUNWOOD Co., Ltd. Regarding
stores, we continued to carry out active new store openings
and business development with 24 store openings and theclosure of two stores. Although we were unable to achieve
the target number of new store openings for the fiscal year,
the number of dispensing pharmacies in operation at the endof the fiscal year under review reached 397. During the fiscal
year under review, the Group did not engage in any largescale M&A activity because there were no potential investment
targets that satisfied the Company’s criteria for investment
recovery, which was due to a steep rise in market valuations
within the industry.
As a result of the previous initiatives, the pharmaceuticalbusiness recorded a 9.5% increase in net sales from theprevious fiscal year to ¥111,602 million and a 23.2% increasein operating income to ¥8,330 million.
Product sales business
The products sales business includes the Ainz & Tulpe urban
drugstores and the Tulpe cosmetic specialty stores situated incommercial facilities in inner-city areas throughout the country.
The Ainz & Tulpe and Tulpe stores handle beauty-related
products, centering on cosmetic products, and we are working
to strengthen the competitiveness of these stores and raise
profitability.
As we implement various measures as part of these
initiatives, our business alliance with the Seven & i HoldingsGroup is steadily yielding positive results. These include theestablishment of Seven Health Care Co., Ltd. with a joint
investment and the undertaking of renovations, centeringon the conversion of the Hirokoji Place Store of Ainz & Tulpe(Nagoya, Aichi Prefecture) into a 7-Eleven-based store. In
addition, in November 2009 we opened a store in the flagship
Ikebukuro Seibu Store of Seibu Department Stores, Ltd. (Tokyo),marking our first store opening inside a department store.
During the fiscal year under review, we opened a total of
five stores, including three Ainz & Tulpe stores, beginning with
the Ikebukuro Seibu Store, and two Tulpe stores, while closing
two small stores. As a result, we had a total of 49 drugstoresincluding subsidiary AIN MEDIO.
Ainz & Tulpe and Tulpe are differentiated from regulardrugstores that sell pharmaceuticals and everyday householdproducts and are thus virtually unaffected by the revised
Pharmaceutical Affairs Law. Nevertheless, there is still astrong tendency for consumers to maintain their defensive
stance toward spending and thus numerous existing stores
experienced declines in sales compared with the previous
fiscal year.
Consequently, net sales rose 2.8% from the previous fiscal
year to ¥13,619 million. However, the product sales business
was unable to absorb the initial costs for new store openings
while upfront investments for increasing staff in preparation for
new store openings pushed up SG&A expenses. The productsales business posted an operating loss of ¥493 million (versus
an operating loss of ¥289 million in the previous fiscal year).

Other businesses
Net sales in other businesses increased 5.6% to ¥273 million
and the operating loss was ¥76 million versus an operating
loss of ¥82 million in the previous fiscal year.

ANALYSIS OF FINANCIAL POSITION
Total assets at the end of the fiscal year under review
amounted to ¥65,898 million, up ¥3,866 million from ¥62,032
million at the end of the previous fiscal year.
Current assets at the end of the fiscal year under review
amounted to ¥31,242 million, up ¥3,071 million from ¥28,170
million at the end of the previous fiscal year. A principal factor
underlying this rise was an increase in cash on hand and inbanks. To flexibly carry out store openings and M&A activities,
besides procuring funds in capital markets, the Group also
liquidates receivables in working to raise liquidity on hand. As
a result, cash on hand and in banks at the end of the fiscal
year rose ¥1,954 million from the end of the previous fiscal
year to ¥11,188 million. Other principal factors underlying theincrease in current assets were a ¥709 million rise in notes andaccounts receivable associated with an expansion of openingsof dispensing pharmacies and drugstores and a total increase of¥1,009 million in inventories. The cash-to-debt ratio rose 25.3%
from 49.4% in the previous fiscal year to 74.7%.
Fixed assets at the end of the fiscal year under review
were ¥34,642 million, up ¥780 million from ¥33,862 million
at the end of the previous fiscal year. This was due mainly toa ¥272 million increase in tangible fixed assets resulting frominvestments related to new store openings (29 stores) as well
as a ¥745 million increase in investments in securities resulting
from investments in subsidiaries and affiliated companies andother factors.
Current liabilities at the end of the fiscal year under review
amounted to ¥34,140 million, up ¥738 million from ¥33,402
million at the end of the previous fiscal year. This was due
mainly to a ¥954 million increase in accounts payable and a¥445 million increase in accrued income taxes resulting fromnew store openings and an expansion in earnings, respectively.
On the other hand, short-term debt decreased ¥1,027 million
from the end of the previous fiscal year to ¥6,549 million.
Long-term liabilities at the end of the fiscal year underreview amounted to ¥10,266 million, down ¥2,254 million
from ¥12,521 million at the end of the previous fiscal year. The
decrease was due to a ¥2,539 million decline in long-term debt
and a ¥140 million decrease in bonds owing to the completionof bond redemptions.
As a result of the preceding factors, total liabilities at theend of the fiscal year under review amounted to ¥44,406
million, down ¥1,517 million from ¥45,923 million at the end of
the previous fiscal year. Interest-bearing debts were reduced¥3,706 million during the fiscal year under review due to therepayment of long- and short-term debts and to the completionof bond redemptions. As a result, net interest-bearing debt

AIN PHARMACIEZ ANNUAL REPORT 201021

(interest-bearing debts – cash on hand and in banks +investments in securities) declined ¥6,406 million to ¥985 million
and the net D/E ratio, an indicator showing the dependency on
borrowings, improved 0.40 point to 0.05 times.
Net assets at the end of the fiscal year under review
amounted to ¥21,492 million, up ¥5,383 million from ¥16,109
million at the end of the previous fiscal year. This was due
primarily to ¥1,251 million increases in common stock andcapital surplus, respectively, due to a public offering capitalincrease (the issuance of 1,200 thousand new shares and theexercise of equity warrants for 70 thousand shares). Retained
earnings rose ¥2,746 million from the previous fiscal year due
to an expansion in earnings.
The shareholders’ equity ratio at the end of the fiscal year
under review stood at 32.5%, up 6.6 percentage points from
25.9% at the end of the previous fiscal year. ROA and ROE
were 4.9% and 16.7%, respectively, and we thereby attained
our previously established targets (ROA: 4.5%, ROE: 15.5%).

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. Regarding
dividends from retained earnings in the year under review,
we paid cash dividends per share of ¥40. This consistedof ordinary cash dividends per share of ¥35, an increaseof ¥10 from the previous fiscal year, and a ¥5 per sharecommemorative dividend for the Company’s listing on the First
Section of the Tokyo Stock Exchange.
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. Regarding dividends
from retained earnings for the next fiscal year, we plan toincrease ordinary dividends per share by ¥10 and thus pay
total dividends of ¥45 per share.

CASH FLOWSCash flows from operating activities
Net cash provided by operating activities was ¥6,428 million
compared with ¥4,333 million in the previous fiscal year.
The primary cash inflows were income before income taxes
and minority interests of ¥6,105 million, depreciation andamortization of ¥1,286 million, amortization of goodwill of ¥878
million and increase in accounts payable of ¥954 million. These
inflows resulted from an expansion in earnings along with newstore openings. On the other hand, principal cash outflows
consisted of an increase in inventories of ¥1,009 million and

22 AIN PHARMACIEZ ANNUAL REPORT 2010

income taxes paid of ¥2,712 million.
Cash flows from investing activities
Net cash used in investing activities was ¥2,700 million
compared with ¥757 million in the previous fiscal year. Thiswas due primarily to a total of ¥471 million for purchase ofshares in subsidiaries and affiliated companies that included aninvestment for the establishment of Seven Health Care Co., Ltd.
as well as ¥1,606 million for payments for purchase of property,
plant and equipment and intangible fixed assets associated withnew openings of urban drugstores and dispensing pharmacies.
Cash flows from financing activities
Cash flows used in financing activities amounted to ¥1,773
million compared with an inflow of ¥1,462 million in the previous
fiscal year. This was due mainly to ¥2,484 million in proceedsfrom issuance of new shares associated with a public offering
capital increase and the exercise of stock options.
Due to the increase in cash flows provided by operating
activities that resulted from the increase in the Group’s earnings
along with efforts to strengthen the Group’s liquidity on handand financial structure in preparation for business expansion,
cash and cash equivalents at end of the year amounted to¥11,188 million, an increase of ¥1,954 million.

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 drugstore business in our productsales business also involves sales of pharmaceuticals, which
are similarly regulated under the Pharmaceutical Affairs Law.
b. Easing of pharmaceutical 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 categoriesof pharmaceuticals as a “Registered Vendor,” not requiringa pharmacist. Factors such as the entry into the market offirms from other industries as a result of a continuing trend in
the future to deregulate pharmaceutical sales may affect theGroup’s business performance.

2. Details of BusinessIn the Group’s pharmaceutical business, we have a chainof dispensing pharmacies based on a scheme, in which
dispensing pharmacies are located just outside medical
institutions to concentrate on the prescriptions from such
medical institutions to secure demand.
As the pharmaceutical business accounted for 88.9% of
net sales in the fiscal year under review, we plan to continue
the multi-store operation mainly based on dispensing
pharmacies. Accordingly, the Group’s operating results may beaffected by the success or failure of the store opening policies
and by trends in competitors’ store openings.
Furthermore, sales of dispensing pharmacies significantly
depend on the medical institutions that write prescriptions.
Therefore, some hard-to-predict factors including the issuanceof prescriptions for extramural dispensing by the medical
institutions or suspension/discontinuation of operations thereof
may affect the Group’s business performance.
3. Industry Trends
The revenues in our pharmaceutical business come frompharmacy operations involving the dispensing and supplyingof ethical drugs based on prescriptions. The price s of those
pharmaceuticals (drug prices) and remuneration levels are
set by the Ministry of Health, Labour and Welfare. As a way
to contain national medical expenses, both remuneration
for medical treatments and drug prices are being reduced
in stages. Changes in profit structure resulting from factors
such as revisions in the treatment remuneration system could
continue to affect the Group’s business performance andfinancial 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.

for the Ainz Point Club Card. The Group has completeddevelopment of personal information protection systems
and rules for the handling of such information. The Company
acquired the Privacy Mark accreditation in the healthcare,
medical and social service fields. However, we believe it ispossible that any accidental or illegal leakage of personal data
may not only affect our business performance but also lead to aloss 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 newstore openings and M&A. Our basic policies regarding M&A
strategy require us to carefully examine target companies
and determine the amount to be paid for acquisitions thereof
in order to stably secure a profitability level that exceeds theamortization of goodwill to be incurred. If matters do not go asplanned, however, we may incur loss on valuation of sharesin subsidiaries and impairment loss on goodwill, which may
have an adverse impact on the Group’s operating results andfinancial 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 ¥11,188 million, while the balance ofinterest-bearing debts of the Group was ¥14,976 million. The
net D/E ratio was 0.05 times.
We focus on the possibility of return on investment andseek to reduce interest-bearing debts in implementing M&A.
However, if the Group fails to secure an adequate return on its
M&A investment, or due to interest rate fluctuations associatedwith 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 Company
a. In the dispensing pharmacy businesses
In our pharmaceutical business, pharmacists dispense andsupply ethical drugs that affect the human body. This businesscarries the risk that medical accidents might be caused
through errors in dispensing drugs. The Group recognizes thatany medical accidents could have a severely damaging effecton society’s confidence in the Group, and we place the highest
priority on measures in all aspects to prevent this risk frommaterializing.
b. Protection of personal data
We possess patient data in the pharmaceutical business,
including medical histories and prescription information, and we
possess personal data in the product sales business obtained

AIN PHARMACIEZ ANNUAL REPORT 201023

AIN PHARMACIEZ INC.
CONSOLIDATED BALANCE SHEETSAS OF APRIL 30, 2010 AND 2009ASSETS
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

Millions of yen
2010
2009
¥ 11,188
9,270
1,404
6,938
723
893
851
(25)
31,242

¥

9,234
8,560
2,409
5,929
632
613
805
(12)
28,171Thousands of
U.S. dollars(Note 1(1))
2010$

118,794
98,42914,90873,667
7,677
9,482
9,036
(265)
331,726

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

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

5,988
4,959
209
1,083
12,23863,633
53,111
3,345
12,742
132,841

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

2,803
996
4,463
13,0781,027(220)
22,146¥ 65,899

2,057
893
4,496
13,493953(269)
21,624¥ 62,033

29,762
10,57547,388138,862
10,905(2,336)
235,145699,713

See accompanying notes.

24 AIN PHARMACIEZ ANNUAL REPORT 2010$

Millions of yen
2010
2009

LIABILITIES AND NET ASSETS

Current liabilities:
Accounts payable (Note 4)¥ 19,667
Short-term debt (Notes 4 and 8)
6,549
Current portion of bonds (Notes 4 and 8)
Accrued income taxes
1,709
Deposits received
3,036
Allowance for bonuses to employees
875
Allowance for bonuses to directors
21
Reserve for reward obligations
298
1,985
Other current liabilities
Total current liabilities
34,140Long-term liabilities:
Long-term debt (Notes 4 and 8)
Allowance for retirement benefits (Note 10)
Other long-term liabilities
Total long-term liabilities
Net Assets: (Note 12)
Shareholders’ equity
Common stock
Capital surplus
Retained earnings
Treasury stock
Total shareholders’ equity
Unrealized holding losses on securities
Minority interests
Total net assets
Total liabilities and net assets¥ 18,713
7,576
140
1,264
2,842
800
43
273
1,751
33,402Thousands of
U.S. dollars(Note 1(1))
2010$

208,824
69,537
18,14632,236
9,291
223
3,164
21,077362,497

8,427
1,018
822
10,267

10,966863
692
12,522

89,47810,8098,728
109,015

6,308
5,498
9,874
(4)
21,677(232)
47
21,492¥ 65,899

5,057
4,247
7,128
(4)
16,428(356)
3716,109¥ 62,033

66,97858,378104,842(42)
230,166(2,463)499
228,201
699,713$AIN PHARMACIEZ ANNUAL REPORT 201025

AIN PHARMACIEZ INC.
CONSOLIDATED STATEMENTS OF INCOMEYEARS ENDED APRIL 30, 2010 AND 2009

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
Interest expenses
Loss on sales of accounts receivables
Gain on sales of investments in securities
Loss on devaluation of investments in securities
Impairment losses
Other, net (Note 9)

Millions of yen
2010
2009
¥ 125,496¥ 115,387
108,259
100,142
17,237
15,245
10,745
9,949
6,493
5,296

Income before income taxes and minority interests
Income taxes (Note 11):
Current
Deferred
Minority interests
Net income
See accompanying notes.

26 AIN PHARMACIEZ ANNUAL REPORT 2010¥

Thousands of
U.S. dollars(Note 1(1))
2010$ 1,332,512
1,149,490
183,022
114,090
68,942

71
82
69
(290)
(82)
71
(56)
(196)
(57)
(387)
6,105

47
59
58
(358)
(63)
1
(67)
(175)
(55)
(553)
4,743

754
871
733
(3,079)
(871)
754
(595)
(2,081)(605)(4,109)64,823

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

2,533
81
2,614
2
2,128

33,521(2,049)31,472
106
33,245¥$AIN PHARMACIEZ INC.
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETSYEARS ENDED APRIL 30, 2010 AND 2009

Thousandsof shares

Balance at April 30, 2008
Net income
Cash dividends paid
Issuance of new shares
Acquisition of treasury stock
Net change in items other than those in shareholders’ equity
other than those in shareholders’ equity
Net changes during the year
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
other than those in shareholders’ equity
Net changes during the year
Balance at April 30, 2010

Number ofshares ofcommonstock
11,363-

Millions of yen

¥

1,470
12,834
1,270
14,104

Common
stock
3,424
1,633
-

¥

1,633
5,057
1,251
¥

1,251
6,308

Capitalsurplus
3,544
703
-

¥

703
4,247
1,251
¥

1,251
5,498

Retainedearnings
5,208
2,128
(207)
-

¥

1,920
7,128
3,131
(385)
¥

2,746
9,874

¥

Treasury
stock
(3)
(0)
-

Total
shareholders’ equity¥
12,172
2,128
(207)
2,336
(0)
-

Unrealized
holding
gains(losses) on
securities
¥
(132)
(225)

(0)
(4)
(1)
-

4,256
16,428
3,131
(385)
2,503
(0)
-

(225)
(356)
125

(0)
(4)

¥

5,249
21,677

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

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$$

Commonstock
53,695
13,283
13,283
66,978$$

Capitalsurplus45,094
13,283
13,28358,378$Retainedearnings
75,68533,245(4,088)-29,157$ 104,842$$

Treasury
stock
(42)
(11)
0
(42)

Total
shareholders’ equity$
174,432
33,245(4,088)26,577(0)$55,734230,166

¥

125
(232)

Unrealized
holding
gains(losses) on
securities$(3,780)
1,327
$

1,327
(2,463)¥

Minority
interests
667
(630)

¥

(630)
37
10
¥

$

$

10
47

Total net
assets12,708
2,128
(207)
2,336
(0)
(855)
3,402
16,109
3,131
(385)
2,503
(0)
134

¥

5,383
21,492

Minority
interests
393
106

Total net
assets$ 171,045
33,245(4,088)26,577
(0)
1,423

106
499

57,157$ 228,201

See accompanying notes.

AIN PHARMACIEZ ANNUAL REPORT 201027

AIN PHARMACIEZ INC.
CONSOLIDATED STATEMENTS OF CASH FLOWSYEARS ENDED APRIL 30, 2010 AND 2009

Millions of yen
2009
2010
Cash flows from operating activities:
Income before income taxes and minority interests
Depreciation and amortization
Impairment losses
Amortization of goodwill
Loss on devaluation of investments in securities
Decrease in allowance for doubtful accounts
Increase (decrease) in reserve for reward obligations
Increase in allowance for retirement benefits
Increase in allowance for bonuses to employees(Decrease) increase in allowance for bonuses to directors
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
Gain on transfer of business(Increase) decrease in accounts receivable
Increase in inventories
Decrease (increase) in other assets
Increase in accounts payable
Increase in other liabilities
SubtotalInterest and dividends received
Interest paid
Income taxes paid
Net cash provided by operating activities

¥

6,105
1,287
196
879
56
(35)
25
155
75
(22)
(71)
290
22
(17)
(70)
43
(755)
(1,009)
1,064
954
195
9,365
67
(291)
(2,712)
6,428

¥

4,743
1,119
175
860
67
(13)
(6)
128
82
0
(47)
358
39
(29)
(1)
76
(78)
452
(561)
(375)
82
112
7,183
44
(360)
(2,534)
4,333

Thousands of
U.S. dollars(Note 1(1))
2010$

64,823
13,665
2,081
9,333
595
(372)
265
1,646
796
(234)
(754)
3,079
234
(181)
(743)
457
(8,017)(10,714)
11,298
10,1302,071
99,437711(3,090)(28,796)
68,252

Cash flows from investing activities:
Payments for purchases of property, plant and equipment
Proceeds from sales of property, plant and equipment
Proceeds from business transfer
Payments for purchase 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 purchase of intangible fixed assets
Proceeds from withdrawal of time deposits(Increase) decrease in other investments
Net cash used in investing activities(1,152)
4
(392)
110
(270)
(201)
(630)
366
(0)
1
(455)
(80)
(2,701)(1,392)
90
78
(583)
1
(180)
(95)
96
(1)
0
(163)
120
1,270
(757)

(12,232)
42(4,162)
1,168(2,867)(2,134)(6,689)3,886
0
11(4,831)(849)(28,679)

Cash flows from financing activities:
Proceeds from short-term debts
Repayments for short-term debts
Proceeds from long-term debts
Repayments for 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 (used in) provided by financing activities

2,032(3,122)
1,350(3,826)
(140)
(166)
2,485
(1)
(385)
(0)
(1,773)

9,300(10,378)
4,550(3,033)
(332)
(70)
1,674
(0)
(227)
(20)
1,463

21,576(33,149)
14,334(40,624)(1,487)(1,763)
26,386(11)(4,088)(0)(18,826)

1,954
9,234
¥ 11,188

5,039
4,195
9,234

20,74898,046$ 118,794

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 2010¥

AIN PHARMACIEZ INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSYEARS ENDED APRIL 30, 2010 AND 2009

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, 2010, which was ¥94.18 to
U.S. $1. The convenience translations should not be construed as representations that the Japanese
yen amounts have been, could have been, or could in the future be, converted into U.S. dollars at thisor any other rate of exchange.
As permitted by the Financial Instruments and Exchange Law of Japan, amounts of less than one
million yen have been omitted. As a result, the totals shown in the accompanying consolidated financial
statements (both in yen and U.S. dollars) do not necessarily agree with the sums of the individual
amounts.
(2) Consolidated 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 thirteen andfourteen subsidiaries as of April 30, 2010 and 2009, 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 January 31. The account closing
date for other consolidated subsidiaries is March 31. Financial statements as of these respective
closing dates are used in preparing the consolidated financial statements. However, necessary
adjustments are made to important transactions that occur between these subsidiaries’ account closing
dates and the account closing date for the consolidated financial statements.
In the past, the account closing date for AIN MEDICAL SYSTEMS Inc. was January 31. However,this date was changed to March 31 at the time of the merger with Rejoice Inc. Consequently, in
preparing the consolidated balance sheets, a 14-month period, which is from February 1, 2009, to
March 31, 2010, was reported for AIN MEDICAL SYSTEMS Inc. for the year ended April 30, 2010.

AIN PHARMACIEZ ANNUAL REPORT 201029

(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 grossaverage method. Merchandise was stated at lower of cost or market, cost being determined using theretail method. Supplies were stated at cost determined using the last purchase method.
Effective May 1, 2008, the Company and its consolidated subsidiaries have applied the “AccountingStandard for Measurement of Inventories” (Statement No. 9 issued by Accounting Standards Board ofJapan (“ASBJ”) on July 5, 2006).
This standard requires that inventories held for sale in the ordinary course of business be measured at
the lower of cost or net selling value, which is defined as the selling price less additional estimatedmanufacturing costs and estimated direct selling expenses. The replacement cost may be used inplace of the net selling value, if appropriate.
The change had no impact on the consolidated financial statements for the year ended April 30, 2009.
(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.
(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.

30 AIN PHARMACIEZ ANNUAL REPORT 2010

(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.
(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)” (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.
This change had no impact on the consolidated financial statements for the year ended April 30, 2010.
(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) 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.
(14) Amounts per share of common stock
Basic net income per share is computed based on the weighted average number of shares of common
stock outstanding during the year.
Diluted net income per share is computed based on the weighted average number of shares ofcommon stock outstanding each year after giving effect to the dilutive potential of common shares to beissued upon conversion of the convertible bonds.

AIN PHARMACIEZ ANNUAL REPORT 201031

Net assets per share are computed based on the net assets excluding minority interests, and thenumber of common stock outstanding at the year end.
Cash dividends per share represent the actual amount declared as applicable to the respective years.
(15) 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 for and meet certain
hedging criteria.
(16) 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.
(17) Accounting change of lease transactions
Prior to May 1, 2008, the Company and its consolidated subsidiaries accounted for finance leases that
do not transfer ownership of the leased assets to the lessee as operating leases. On March 31, 2007,
the Accounting Standards Board of Japan (“ASBJ”) issued ASBJ Statement No.13, “AccountingStandard for Lease Transactions” and ASBJ Guidance No.16, “Guidance on Accounting Standard forLease Transactions.” The new accounting standards require that all finance lease transactions should
be capitalized.
Effective May 1, 2008, the Company and its consolidated subsidiaries adopted the new accounting
standards for finance leases commencing after April 30, 2008 and capitalized assets used under suchleases, except for certain immaterial or short-term finance leases, which are accounted for as operatingleases. As permitted, finance leases commencing prior to April 1, 2008 that have been accounted for
as operating leases, continue to be accounted for as operating leases. The effect on the financial
results was not material for the year ended April 30, 2009.
(18) Valuation of consolidated subsidiaries’ assets and liabilities
Assets and liabilities of consolidated subsidiaries are valued for consolidation at fair value.

32 AIN PHARMACIEZ ANNUAL REPORT 2010

(19) 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 April 30, 2010 and2009 are as follows:

Cash on hand and in banks
Less: Tim e deposits with m aturities
exceeding three months
Add: Short-term highly liquid
investm ents with m aturities
not exceeding three months
Cash and cash equivalents

Millions of yen
2010
2009
¥11,188¥ 9,234

Thousands of
U.S. dollars
2010$ 118,794---¥ 11,188¥ 9,234$ 118,794(2) The following table summarizes significant non-cash transactions for the years ended April 30, 2010
and 2009:(a) Major breakdown of assets and liabilities of a company that is newly included in the
consolidated financial statements for the years ended April 30, 2010 and 2009 due to theacquisition of shares(i) 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 theacquisition of shares of United Healthcare Co., Ltd., relating acquisition cost and net
disbursement.
Thousands ofMillions of yen
U.S. dollars
2010
2010
Current assets
¥ 57
$ 605
Fixed assets
156
1,656
Goodwill
60
637
Current liabilities
(20)
(212)
Long-term liabilities
(8)
(85)
245
2,601
Acquisition cost of United HealthcareCo., Ltd.'s shares
Cash and cash equivalents held by
(44)
(467)
United Healthcare Co., Ltd.
Net disbursement due to theacquisition¥ (201)$ (2,134)AIN PHARMACIEZ ANNUAL REPORT 2010

33

(ii) Acquisition of shares of Saitama Chozai Co., Ltd. for the year ended April 30, 2009
The following is the summary of assets acquired and liabilities assumed through theacquisition of shares of Saitama Chozai Co., Ltd., relating acquisition cost and net
disbursement.

Current assets
Fixed assets
Goodwill
Current liabilities
Acquisition cost of Saitama Chozai Co.,
Ltd.'s shares
Cash and cash equivalents held by
Saitama Chozai Co., Ltd.
Net disbursement due to theacquisition

Millions of yen
2009
¥ 82
3
187
(71)
200
(20)
¥ (180)3. Inventories
Inventories at April 30, 2010 and 2009 consisted of the following:

Merchandise
Supplies

Millions of yen
2010
2009
¥ 6,841¥ 5,832
97
96¥ 6,938¥ 5,929

Thousands of
U.S. dollars
2010$ 72,638
1,030$ 73,667

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 Valueof Financial Instruments” (ASBJ Guidance No.19 revised on March 10, 2008). Information on
financial instruments for the year ended April 30, 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 pharmacies and drugstores and through M&A activities. Operating cash flows
provide the majority of the funds the Company and its consolidated subsidiaries require tofund its shop openings. The Company and its consolidated subsidiaries secure additional
funding as needed for M&A activities through bank borrowings and issuance of newshares and invests in highly liquid financial assets. Derivatives are employed to hedge
against the risks described below; the Company and its consolidated subsidiaries do not
engage in speculative transactions.
(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 andthe Social Insurance Medical Care Fee Payment Fund, and therefore do not entail any
risk.

34 AIN PHARMACIEZ ANNUAL REPORT 2010

Investment securities, which are principally held-to-maturity bonds and equity securities
held for the purpose of maintaining operating relationships with other companies, involve
the risk of market 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 anddrugstores. 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 to capital expenditures. Redemption periods on such debts are typically sevenyears from the date of borrowing, at the longest. A portion of these instruments carryfloating interest rates and are therefore subject to interest rate fluctuation risk. Derivativetransactions (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 risk of fluctuations in interest rate payments. See Note 1 (16) for the description ofderivatives and hedge 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 of prescription 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
of investees and investment amounts. Furthermore, such investments are monitored
regularly, determining the investee’s financial status throughout the investment period toquickly 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 thestatus of their holdings of listed securities, taking into consideration market conditions andtheir relationships with the issuing companies.
Management of liquidity risk associated with fund procurement (the risk of being unable toexecute payments when due)
To manage liquidity risk, the Company and its consolidated subsidiaries create cash flowplans based on annual capital expenditures forecasts. These plans are updated eachmonth, based on revised operating performance and forecast figures. To ensure theCompany’s ability to respond flexibly to sudden demands for funding in relation to M&A
activities, the Company maintains a certain level of liquidity, including through issuance of
new shares.

AIN PHARMACIEZ ANNUAL REPORT 201035

(2) Fair values of financial instruments
Carrying values and fair values of the financial instruments on the consolidated balance sheet at April
30, 2010 are the following.
AssetsCarrying value
Cash on hand and in banks
Notes and accounts receivable
Investm ent securities
Deposits and guarantees
Total
Fair value
Cash on hand and in banks
Notes and accounts receivable
Investm ent securities
Deposits and guarantees
Total
Difference
Cash on hand and in banks
Notes and accounts receivable
Investm ent securities
Deposits and guarantees
Total

Millions of yen
2010

Thousands of
U.S. dollars
2010¥ 11,188
9,270
1,832
4,346
26,636$ 118,794
98,42919,452
46,146
282,820

11,188
9,270
1,832
4,175
26,465

118,794
98,42919,45244,330281,004(172)¥ (172)(1,826)$ (1,826)

Millions of yen
2010

Thousands of
U.S. dollars
2010¥ 19,667
6,549$ 208,824
69,537

3,036
8,427
37,67932,23689,478400,074

19,667
6,556

208,824
69,611

3,036
8,427
37,68632,23689,478400,149

7

74

0
¥7

0
$ 74

Liabilities
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

Method of calculating the fair value of financial instruments and matters related to available-for-salesecurities and derivative transactions.
Assets:(a) Cash on hand and in banks and notes and accounts receivable
As these instruments are settled in the short term, their carrying value approximates fair value.

36 AIN PHARMACIEZ ANNUAL REPORT 2010

(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
borrowings of 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 value of unlisted equity securities with a carrying amount ¥971 million ($10,310 thousand) as ofApril 30, 2010 is not readily determinable.
The redemption schedule for monetary claims and securities with maturity dates as of April 30,
2010 are summarized as follows:
Millions of yen

1 year or
less

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

2010
More thanMore than
5 years
1 year but
but less
less than
than 10
5 years
years

More than
10 years¥ 11,188
9,270

¥ -

¥ -

¥ -

300
718
¥ 21,476

150
1,596¥ 1,746

1,642¥ 1,642506¥ 506

AIN PHARMACIEZ ANNUAL REPORT 201037

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
2010
More thanMore than
5 years
1 year but
but less
less than 5than 10
years
years

More than
10 years$ 118,794
98,429

$ -

$ -

$ -

3,185
7,624
$ 228,031

1,593
16,946$ 18,539

17,435$ 17,435

5,373$ 5,373

5. Securities(1) The following tables summarize acquisition costs, carrying values and differences of securities withavailable fair values as of April 30, 2010 and 2009:
Other securities:
Securities with carrying values exceeding acquisition costs
Millions of yen
2010
2009
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 2010

Thousands of
U.S. dollars
2010

¥ 20
-

¥ 36
-

$ 212
-

54
74

6
54
96

573
786

40
-

55
-

425
-

58
98

9
59
122

616
1,041

19
-

19
-

202
-

4
¥ 24

2
5
¥26

42
$ 255

Other securities:
Securities with carrying values not exceeding acquisition costs
Thousands of
U.S. dollars
2010

Millions of yen
2010
2009
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

¥ 1,304450¥ 1,283-$ 13,846
4,778

169
223
2,146

188
120
1,591

1,794
2,368
22,786

923
450

709
-

9,800
4,778

161
199
1,733

180
78
966

1,709
2,113
18,401

(381)
-

(574)
-

(4,045)-(8)(24)¥ (413)(9)(43)¥ (625)(85)(255)$ (4,385)

Equity securities included stocks of non-consolidated subsidiaries and affiliates of ¥322 million($3,419 thousand) and ¥2 million at April 30, 2010 and 2009, 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, 2010 and 2009:
Millions of yen
2010
2009
Total sales ofother securities sold
Related gains
Related losses

¥ 110
71
1

¥1
0
-

Thousands of
U.S. dollars
2010$ 1,16875411(3)The following table summarizes impairment loss on other securities in the years ended April 30,
2010 and 2009:
Millions of yen
2010
2009
Other securities with fair value
Other securities without fair value

¥ 11
45

¥ 17
50

Thousands of
U.S. dollars
2010
$ 117
478

AIN PHARMACIEZ ANNUAL REPORT 201039

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 amount is ¥1,110 million ($11,786 thousand)and the amount of the contracts for which the term is more than one year is ¥770 million ($8,176
thousand). As discussed in Note 1 (16), if interest rate swap contracts are used as hedges and meetcertain 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, 2010 and 2009, 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, 2010 and 2009, 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.
Millions of yen
2010
2009
Acquisition cost
Buildings
Other fixed assets
Intangible fixed assets
Total
Accumulated depreciation
Buildings
Other fixed assets
Intangible fixed assets
Total
Impairment loss
Buildings
Other fixed assets
Intangible fixed assets
Total
Net balance
Buildings
Other fixed assets
Intangible fixed assets
Total

Thousands of
U.S. dollars
2010

¥ 411
988
487
1,886

¥ 392
1,472
703
2,567

$ 4,364
10,491
5,171
20,025

308
690
338
1,336

258
876
400
1,534

3,270
7,326
3,589
14,186

4
4

40
40

42
42

103
294
149
¥ 546

133
557
303
¥ 993

1,094
3,122
1.582
$ 5,797

Future minimum lease payments as of April 30, 2010 and 2009 for finance leases currently accounted
for as operating leases are summarized as follows:
Millions of yen
2010
2009
Due within one year
Due after one year
Total

40 AIN PHARMACIEZ ANNUAL REPORT 2010

¥ 257
204
¥ 461

¥ 431
718
¥ 1,149

Thousands of
U.S. dollars
2010$ 2,729
2,166$ 4,895

The balance of impairment loss for leased assets is ¥2 million ($21 thousand) and ¥15 million at April
30, 2010 and 2009, respectively.
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:
Thousands of
U.S. dollars
2010

Millions of yen
2010
2009
Lease expense
Reversal of impairment loss forleased assets
Depreciation
Interest expense
Impairment loss

¥ 488

¥ 647

$ 5,182

16
416
57
2

13
553
78
3

170
4,417
605
21

Remaining lease expenses for non-cancellable operating lease transactions are as follows:
Thousands of
U.S. dollars
2010

Millions of yen
2010
2009
Due within one year
Due after one year
Total

¥ 470
3,555
¥ 4,025

¥ 457
2,405
¥ 2,862$ 4,990
37,747$ 42,737

8. Short-term debt and long-term debt
Short-term debt and long-term debt at April 30, 2010 and 2009 consisted of the following:
Millions of yen
2010
2009
Short-term bank loans with aweighted-average interest rate of
1.1%
5th unsecured bond maturing in2009 with a fixed interest rate of
0.8%
Current portion of long-term debt
with a weighted-average interest rateof 1.5%Current portion of lease obligation
with a weighted-average interest rateof 2.0%Long-term debt (2011-2016) with aweighted-average interest rate of
1.4%
Lease obligation (2011-2016) with aweighted-average interest rate of
2.0%
Total

Thousands of
U.S. dollars
2010¥ 3,010¥ 4,100$ 31,960

-

140

-

3,539

3,476

37,577

184

114

1,954

8,427

10,96689,478533¥ 15,693

402¥ 19,198

5,659$ 166,628

AIN PHARMACIEZ ANNUAL REPORT 201041

At April 30, 2010 and 2009 the carrying amounts of assets pledged as collateral for short-term debt,
long-term debt and accounts payable are as follows:
Assets pledged as collateral:
Millions of yen
2010
2009
Buildings and structures
Land
Investments in securities¥6

Thousands of
U.S. dollars
2010

¥ 181
471
6

$64

Millions of yen
2010
2009

Thousands of
U.S. dollars
2010

Liabilities corresponding tocollateral:

Short-term debt
Long-term debt
Accounts payable

¥14

¥ 32
66
12

$149

The aggregate annual maturities of long-term debt at April 30, 2010 are as follows:Year ending April 30,
2011
2012
2013
2014
2015

Millions of yen¥ 3,539
3,053
2,969
1,671
729

Thousands of
U.S. dollars$ 37,577
32,417
31,525
17,743
7,740

The aggregate annual maturities of lease obligations at April 30, 2010 are as follows:Year ending April 30,
2011
2012
2013
2014
2015

Millions of yen
¥ 184
183
186
123
39

Thousands of
U.S. dollars$ 1,954
1,943
1,975
1,306
414

9. Sales, disposal and impairment of fixed assets(1) Gain and loss on sales of fixed assets for the years ended April 30, 2010 and 2009 are as
follows:
Gain on sales of fixed assets:
Millions of yen
2010
2009
Buildings and structures
Land
Total

42 AIN PHARMACIEZ ANNUAL REPORT 2010

¥¥-

¥2
5
¥7

Thousands of
U.S. dollars
2010
$$-

Loss on sales of fixed assets:
Millions of yen
2010
2009
Buildings and structures
Land
Other property, plant andequipment
Goodwill
Intangible fixed assets
Total

Thousands of
U.S. dollars
2010

¥0

¥ 10
6
0

$0

¥0

0
0
¥ 16

$0

(2) Loss on disposal of fixed assets for the years ended April 30, 2010 and 2009 are as follows:

Millions of yen
2010
2009
Buildings and structures
Other property, plant andequipment
Intangible fixed assets
Goodwill
Deposits and guarantees
Other investments and otherassets
Disposal cost
Total

Thousands of
U.S. dollars
2010

¥ 16
4

¥ 20
2

$ 170
42

8
2

1
20

85
21

0
12
¥ 43

0
24
¥ 67

0
127
$ 457

(3) For the years ended April 30, 2010 and 2009, the Company recognized impairment losses forthe following property groups:
Millions of yen
2010
2009
Property group
Stores
Shops scheduled for
opening
Shop to be closed

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

Thousands of
U.S. dollars
2010

¥ 173
11
9

¥ 145
30
-

$ 1,837
117
96

3
¥ 196

¥ 175

32
$ 2,081AIN PHARMACIEZ ANNUAL REPORT 201043

10. Retirement benefits
Allowance for retirement benefits as of April 30, 2010 and 2009 consist of the following:

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

Millions of yen
2010
2009
¥ (1,359)¥ (1,086)
182
158(1,178)
(929)
160
66
(863)
(1,018)¥( 1,018)¥ (863)Thousands of
U.S. dollars
2010$ (14,430)
1,932(12,508)
1,699(10,809)$ (10,809)

Retirement benefit expenses for the years ended April 30, 2010 and 2009 comprised the following:Thousands ofMillions of yen
U.S. dollars
2010
2009
2010
Service costs
¥ 209
¥ 182
$ 2,219
Interest cost on projected benefit obligation
20
17
212
Expected return on plan assets
(1)
(1)
(11)
Am ortization of actuarial losses
44
15
467
$ 2,899
Retirement benefit expenses
¥ 273
¥ 213
Actuarial assumptions used in accounting for the Company’s plans as of April 30, 2010 and 2009 areprincipally as follows:

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

2010

2009

1.0-2.0%
0.75%
1-6 years

2.0-2.5%
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, 2010 and2009:
Statutory tax rate
Non-deductible expenses
Per capita inhabitant tax
Am ortization of goodwill
Valuation allowance
Other
Effective tax rates

44 AIN PHARMACIEZ ANNUAL REPORT 2010

2010
40.4%
0.2
2.0
5.2
0.3
0.5
48.6%

2009
40.4%
0.7
2.6
6.7
4.6
0.1
55.1%

Significant components of deferred tax assets as of April 30, 2010 and 2009 are as follows:
Millions of yen
2010
2009
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

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

¥ 436
320
110
349
237
465
1,918
393
1,525

Thousands of
U.S. dollars
2010$ 5,203
3,801
1,274
4,385
1,667
5,797
22,1383,886
18,252

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
is made, the smaller of an amount equal to 10% of the dividend or the excess, if any, of 25% ofcommon stock over the total of additional paid-in-capital and legal earnings reserve must be set
aside as additional 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,
all additional paid-in capital and all legal earnings reserve may be transferred to other capitalsurplus and retained 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.

AIN PHARMACIEZ ANNUAL REPORT 201045

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) The following presents details of the stock options the Company has for the years ended April
30, 2010 and 2009.
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 ofsubsidiaries
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 ($14.4)¥ 2,129 ($22.6)

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
the Company or its subsidiaries in the state of being employed or entrusted until the sharesubscription rights become exercisable.

For the year ended April 30, 2009
Stock option plans:
Individuals covered by the plan:

June 2002 plan
1 director
170 employeesType and number of options:
Grant date:
Exercise period:

Common stock 174,000
June 28, 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.
¥1,473 ($15.6)¥1,739 ($18.5)

Exercise price:
Average share price upon
exercise:

October 2002 plan
11 directors
1 auditor
208 employees
16 directors ofsubsidiaries
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 ($14.4)¥1,894 ($20.1)

Exercise period of June 2002 stock option plan expired on July 31, 2008.
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
the Company or its subsidiaries in the state of being employed or entrusted until the share

46 AIN PHARMACIEZ ANNUAL REPORT 2010

subscription rights become exercisable.
(2) Changes stock options outstanding for the years ended April 30, 2010 and 2009 are as follows:
Movement of stock options
Outstanding as of April 30, 2008
Exercised
Forfeited
Outstanding as of April 30, 2009
Exercised
Forfeited
Outstanding as of April 30, 2010

June 2002
52,00028,00024,0000-

October 2002
146,000
18,000128,000
70,00058,0000

14. Commitment
The Company entered into overdraft agreements with 23 and 22 banks as of April 30, 2010 and2009, respectively, to finance working capital requirements. The outstanding balances of suchoverdrafts as of April 30, 2010 and 2009 are as follows:

Total overdraft available
Amount utilized
Outstanding balance

Millions of yen
2010
2009
¥ 13,500¥ 15,850
2,460
3,550
¥ 11,040¥ 12,300

Thousands of
U.S. dollars
2010$ 143,343
26,120$ 117,222

15. Contingencies
The Company has contingent liabilities for the payment of lease deposits and guarantee deposits toowners of shops that the Company has rented, which the Company has sold to owners of shops that
the Company has leased. Such transferred contingent liabilities amounted to ¥1,957 million ($20,779
thousand) and ¥1,842 million as of April 30, 2010 and 2009, respectively.

16. Amounts per share
Net assets per share at April 30, 2010 and 2009 and basic and diluted net income per share for theyears then ended are as follows:Yen
Net assets per share
Basic net incom e per share
Diluted net income per share
Cash dividends per share attributable to the year2010
¥ 1,521
228
228
40

2009
¥ 1,253
171
170
30

U.S. dollars
2010$ 16.15
2.42
2.42
0.42

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.

AIN PHARMACIEZ ANNUAL REPORT 201047

17. Segment information
The business operations of the Company and its consolidated subsidiaries are classified into threebusiness segments: “Pharmaceutical,” “Product sales” and “Other.”
Millions of yen
2010
Pharmaceutical

Product sales

Other

Total

Eliminations

Consolidated

I. Sales and operating incom e
Sales to third parties¥ 111,603¥ 13,620¥ 273¥ 125,496¥ -¥ 125,496

-

6

19

25

(25)

-

Total sales

111,603

13,626292

125,521(25)

125,496

Operating expenses

103,272

14,119369

117,760

1,243

119,003

Operating income¥ 8,331¥ (494)¥ (77)¥ 7,760¥ (1,268)¥ 6,493

Intersegment sales(loss)
II. Assets, depreciation and capital expenditures
Total assets¥ 56,643¥ 7,193¥ 1,155¥ 64,991¥ 908¥ 65,899

999

203

15

1,216

24

1,241

103

93

-

196

-

196

1,583

395

-

1,978

42

2,021

Depreciation andamortization
Impairment loss
Capital expenditures

Thousands of U.S. dollars
2010
Pharmaceutical

Product sales

Other

Total

Eliminations

Consolidated$ 1,184,997$ 144,617$ 2,899$ 1,332,512$ -$ 1,332,512

-

64

202

265

(265)

-

Total sales

1,184,997

144,680

3,100

1,332,778(265)

1,332,512

Operating expenses

1,096,539

149,915

3,918

1,250,372

13,1981,263,570

Operating income$ 88,458$ (5,245)$ (818)$ 82,395$ (13,464)$ 68,942

I. Sales and operating incom e
Sales to third parties
Intersegment sales(loss)
II. Assets, depreciation and capital expenditures
Total assets$ 601,433$ 76,375$ 12,264$ 690,072$ 9,641¥ 699,713

10,6072,155

159

12,911

255

13,177

Impairment loss

1,094

987

-

2,081

-

2,081

Capital expenditures

16,808

4,195-

21,002446

21,459Depreciation andamortization

48 AIN PHARMACIEZ ANNUAL REPORT 2010

Millions of yen
2009
Pharmaceutical

Product sales

Other

Total

Eliminations

Consolidated

I. Sales and operating incom e
Sales to third parties¥ 101,877¥ 13,252¥ 259¥ 115,387¥ -¥ 115,387

-

6

19

25

(25)

-

Total sales

101,877

13,258277

115,412(25)

115,387

Operating expenses

95,115

13,547359

109,0211,070

110,091

Operating income¥ 6,762¥ (289)¥ (82)¥ 6,391¥ (1,094)¥ 5,296

Intersegment sales(loss)
II. Assets, depreciation and capital expenditures
Total assets¥ 53,380¥ 6,174¥ 1,059¥ 60,612¥ 1,420¥ 62,033

837

174

14

1,026

20

1,046

82

93

-

175

-

175

1,838

217

9

2,064

72

2,135

Depreciation andamortization
Impairment loss
Capital expenditures

As discussed in Note 1 (17), the Company and its consolidated subsidiaries adopted the new
accounting standard for lease transactions in the year ended April 30, 2009. The effect on the financial
operating expenses and operating income was not material in fiscal year 2009.

18. Business combinations
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
the surviving 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. Theirmerger is designed to allow the consolidation of headquarters functions, accelerate
decision-making and raise management efficiency, with the aim of enhancing overall corporate
value.

AIN PHARMACIEZ ANNUAL REPORT 201049

(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 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 Inc. as the dissolved company and AIN TOKAI Inc. as the surviving
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 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 headquarters functions, accelerate
decision-making and raise 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).

For the year ended April 30, 2009
Merger through share exchange of the Company and AIN MEDICAL SYSTEMS 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(b) Method of corporate merger
Merger though share exchange, with the Company as wholly owning parent company in shareexchange and AIN MEDICAL SYSTEMS Inc. as subsidiary company in share exchange(c) Name of post-merger entity
AIN PHARMACIEZ INC. (wholly owning parent company in share exchange)
AIN MEDICAL SYSTEMS Inc. (subsidiary company in share exchange)(d) Overview of transaction, including the purpose of the transaction
To enable the sharing of information among certain sales, operational and management
divisions of the two companies that had previously been controlled individually, as well as
improved operational efficiency, the other party and the Company are reinforcing governanceand strengthening relationships in other pharmaceutical operations, personnel transfers and

50 AIN PHARMACIEZ ANNUAL REPORT 2010

numerous other ways, to enhance corporate competitiveness and bolster synergies. The
Company and its consolidated subsidiaries acquired all outstanding shares in AIN MEDICALSYSTEMS Inc. in the aim of further enhancing profitability, accelerating growth and enhancing
corporate value.
(2) Overview of accounting method used
This merger 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).
(a)

The acquisition costs for the acquired company and breakdown
The acquisition cost of the acquired company was ¥662 million, which was the value of theCompany’s common stocks.

(b)Transfer ratio by share type and the computation method, issued number of shares and theirappraisal value(i) Transfer ratio by share type1 share of the AIN MEDICAL SYSTEMS Inc.’s common stock for 150 shares of the Company(ii) Computation method
The Company assigned to third-party institutions the task of calculating share exchange
ratios for ABeam M&A Consulting Ltd., AIN MEDICAL SYSTEMS Inc. and Attax Business
Consulting Co., Ltd., and these ratios were employed following the approval of therespective organizations.
(iii) Issued number of shares and their value
Issued number of shares: 424,650 shares of common stock
Value of issued shares: ¥662 million(c)Amount of goodwill generated, its sources, and its amortization method and term(i) The amount of goodwill was ¥50 million.
(ii) Sources of goodwill
Primarily, through the increased cooperation in sales, operational and management
divisions as well as the increased operational efficiencies resulting from the companies’
conversion to wholly owned subsidiaries, the Company and its consolidated subsidiaries
look forward to superior earnings capabilities.
(iii) Amortization method and term
Uniform amortization over 20 years

19. Subsequent Events
Not applicable.

AIN PHARMACIEZ ANNUAL REPORT 201051

52 AIN PHARMACIEZ ANNUAL REPORT 2010

Investor Information

DIRECTORS ANDCORPORATE AUDITORSCORPORATE DATASTOCK INFORMATION

Corporate NameAIN PHARMACIEZ INC.

Transfer Agent
Mizuho Trust & Banking Co., Ltd.

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

Stock Listings
First Section of the Tokyo Stock
Exchange(Fiscal 2010)(Fiscal 2010)(As of July 29, 2010)

Chairman and Representative
Director
Yoshiaki Imagawa
President and Representative
Director
Kiichi Ohtani
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
Kazunori Sugimoto*2
Notes: 1. Outside directors
2. Outside corporate auditors

Established
August 1969
Common Stock¥ 6,308 million
Number of Employees
4,336(including part-time workers)
Business Lines• Pharmaceutical Business
Management and franchise
operation of dispensing pharmacies
and consulting services for the
opening of dispensing pharmacies• Product Sales Business
Management of drugstores andconsulting services for the openingof shopping centers

Securities Code Number
9627
Fiscal Year
May 1 to April 30 of the following year
Ordinary General Meeting of
Shareholders
July
Date of Record
April 30
(The Company will announce otherdates as and when required.)
Number of Shares Outstanding
14,104,106 shares(including treasury stock)
Number of Shareholders
3,032

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

Kiichi Ohtani

1,754

12.44

Marubeni Corporation

1,340

9.50

Yoshiaki Imagawa

1,200

8.51

State Street Bank and Trust Company(Standing proxy: Mizuho Corporate Bank, Ltd.)

1,029

7.30

Seven & i Holdings Co., Ltd.

1,000

7.09

The Hokkaido Bank, Ltd.

546

3.87

Japan Trustee Services Bank, Ltd.

540

3.84

The Norinchukin Bank

300

2.13

Bank of New York GCM Client Account JPRD ISG (FE-AC)(Standing proxy: The Bank of Tokyo-Mitsubishi
UFJ, Ltd.)

274

1.95

NORTHERN TRUST CO AVFC RE NORTHERN TRUSTGUERNSEY NON TREATY CLIENTS(Standing proxy: The Hong Kong and Shanghai Banking
Corporation Limited, Tokyo Branch)

266

1.89

Name

Note: The Company owned 2,942 shares of treasury stock as of April 30, 2010, but they are excluded from the major
shareholders mentiond above.

AIN PHARMACIEZ ANNUAL REPORT 201053

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

This annual report is printed using FSC-certified paper as well as soy-ink and a waterless printing method.
Printed in Japan