Consolidated Summary Report For the Fiscal Year Ended ... · Fiscal year ended March 2013 57.30 ‐...

BOOKOFF Corporation Ltd. (3313) Summary of Financial Results for the Year Ended March 2013

The original disclosure in Japanese was released on May 8, 2013 at 15:00(GMT+9)

Consolidated Summary Report For the Fiscal Year Ended March 31, 2013

[Japan GAAP] Company Name: Bookoff Corporation Ltd. Code Number: 3313 Stock Exchange: Tokyo URL: http://www.bookoff.co.jp/ Representative Name: Nobuyuki Matsushita Title: President and CEO Inquiries Name: Yasutaka Horiuchi Title: Director & Executive Officer Telephone: +81-42-750-8588

General meeting of shareholders: June 22, 2013 Dividend payment date: June 24, 2013 Securities report issue date: June 24, 2013 Supplementary explanations of financial results: Yes Financial results briefing: Yes

(Amounts less than one million yen are rounded down) 1. Financial results for the current fiscal year (April 1, 2012 – March 31, 2013) (1) Results of Operations (Consolidated) (Percentage figures represent year on year changes)

Net sales Operating income Ordinary income Net income

Million yen

YoY Change %

Millionyen

YoY Change %

Million yen

YoY Change %

Million yen

YoY Change %

Fiscal year ended March 2013 76,670 1.3 1,914 (44.2) 2,366 (37.8) 1,058 (43.3) Fiscal year ended March 2012 75,716 3.2 3,432 24.9 3,803 20.4 1,867 228.6 Comprehensive income Fiscal year ended March 2013: 1,112 million yen (-40.1%) Fiscal year ended March 2012: 1,858 million yen (299.9%)

Net income per share

Fully diluted net income

per share

Return on equity

Ratio of ordinary income

to total assets

Operating incomemargin

Yen Yen % % %Fiscal year ended March 2013 57.30 ‐ 7.1 6.1 2.5Fiscal year ended March 2012 102.41 ‐ 13.8 9.9 4.5

(Reference): Income from investment in affiliates (equity method) Fiscal year ended March 2013 4 million yen Fiscal year ended March 2012 (2 million yen)

(2) Financial Condition (Consolidated)

Total assets Net assets Equity ratio Net assets per share

Million yen Million yen % YenAs of March 31, 2013 39,455 15,249 38.7 820.64As of March 31, 2012 37,983 14,386 37.9 784.19

(Reference): Shareholders’ equity Fiscal year ended March 2013: 15,249 million yen Fiscal year ended March 2012: 14,386 million yen


(3) Cash Flows (Consolidated)

Cash flows from operating activities

Cash flows from investing activities

Cash flows from financing activities

Cash and cash equivalents at the end

of period Million yen Million yen Million yen Million yen

Fiscal year ended March 2013 1,863 (2,190) (905) 4,630Fiscal year ended March 2012 4,983 (1,304) (4,336) 5,851 2. Dividends

Dividend per share Total

dividends

Dividend Payout ratio

(Consolidated)

Dividends onnet assets ratio (Consolidated)End of 1Q End of 2Q End of 3Q End of FY Full year

Yen Yen Yen Yen Yen Million yen % %Fiscal year ended March 2012

‐ ‐ ‐ 25.00 25.00 458 24.4 3.4

Fiscal year ended March 2013

‐ ‐ ‐ 25.00 25.00 464 43.6 3.1

Fiscal year ending March 2014 (est.)

‐ ‐ ‐ 25.00 25.00 46.5

3. Forecast for the fiscal year ending March 2013 (Consolidated, April 1, 2013 - March 31, 2014)

Net sales Operating income Ordinary income Net income Net income per share

Million yen % Million yen % Million yen % Million yen % YenFirst half 38,900 5.2 400 (44.2) 600 (33.5) 250 (48.4) 13.45Full year 80,000 4.3 1,900 (0.8) 2,300 (2.8) 1,000 (5.5) 53.81

Note: The percentage figures represent year-on-year changes.


4. Others 1. Significant changes in subsidiaries during the period (changes in specific subsidiaries accompanied by changes in the scope of

consolidation): No New: __ company (company name) Excluded: __ company (company name)

2. Changes in accounting policies, changes in accounting estimates and restatements (1) Changes due to revision of accounting standards: Yes (2) Changes due to other reasons: None (3) Changes in accounting estimates: Yes (4) Restatements: None

(Note) Beginning with the current consolidated fiscal year, the Company changed its method for calculating depreciation. This change conforms with "Changes in accounting policies that are difficult to distinguish from changes in accounting estimates changes in Accounting Policies." For more, see [Attached Materials] (7) Changes in Accounting Policies.

3. Number of shares outstanding (common stock) (1) Shares outstanding (including treasury stock) As of March 31, 2013 19,473,200 As of March 31, 2012 19,473,200(2) Treasury stock As of March 31, 2013 890,482 As of March 31, 2012 1,127,382

(3) Average number of shares outstanding As of March 31, 2013 18,467,001 As of March 31, 2012 18,232,491 (Reference) Overview of Non-Consolidated Results (April 1, 2012 – March 31, 2013) (1) Results of Operations (Non-Consolidated) (Percentage figures represent year on year changes)

Net sales Operating income Ordinary income Net income

Million yen

YoY Change %

Millionyen

YoY Change %

Million yen

YoY Change %

Million yen

YoY Change %

Fiscal year ended March 2013 58,692 1.3 1,532 (50.3) 1,573 (49.3) 428 (68.8) Fiscal year ended March 2012 57,942 4.9 3,082 13.2 3,101 16.6 1,374 58.9


Fully diluted net income

per share Yen Yen

Fiscal year ended March 2013 23.18 ‐

Fiscal year ended March 2012 75.36 ‐ (2) Financial Condition (Non-Consolidated)

Total assets Net assets Equity ratio Net assets per share

Million yen Million yen % YenAs of March 31, 2013 37,946 14,406 38.0 775.24As of March 31, 2012 36,851 14,216 38.6 774.93

(Reference): Shareholders’ equity Fiscal year ended March 2013: 14,406 million yen Fiscal year ended March 2012: 14,216 million yen

* Presentation on the status of audit process: This earnings release is not subject to the audit process as required by the Financial Instruments and Exchange Act of Japan. As of the date when this earnings release was issued, the audit process on financial statements as required by the Financial Instruments and Exchange Act had not been finalized. *Cautionary statement regarding forecasts of operating results and special notes: Forward-looking statements in these materials are based on information available to management at the time this report was prepared and assumptions that management believes are reasonable. Actual results may differ materially from those projected in the forward-looking statements due to a variety of factors. Please see “Analysis of Results of Operations” in the attached materials for items pertaining to the forecast stated above.


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Table of Contents

1. Results of Operations - Analysis of Financial Position 2

(1) Analysis of Results of Operations 2

(2) Analysis of Financial Position 5

(3) Basic Policy on Profit Distribution and Dividends for FY 2012 and FY 2013 6

(4) Business Risks 6

2. Corporate Group 11

3. Management Policy 13

(1) Basic Management Policy 13

(2) Targeted Performance Indicators 13

(3) Medium- to Long-Term Management Strategies 13

(4) Issues to be Addressed 13

4. Consolidated Financial Statements 15

(1) Consolidated Balance Sheet 15

(2) Consolidated Statements of Income and Consolidated Statements of Comprehensive Income 17

Consolidated Statements of Income 17

Consolidated Statements of Comprehensive Income 19

(3) Consolidated Statements of Changes in Net Assets 20

(4) Consolidated Statements of Cash Flow 22

(5) Notes Concerning the Going-Concern Premise 24

(6) Important Items that Form the Basis for Preparing Consolidated Financial Statements 24

(7) Changes in Accounting Policies 25

(8) Notes to Consolidated Financial Statements 25

(Consolidated Balance Sheet) 25

(Consolidated Statements of Income) 26

(Consolidated Statements of Comprehensive Income) 27

(Segment Information) 28

(Per Share Information) 32

(Important Subsequent Events) 32


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1. Results of Operations

(1) Analysis of Results of Operations

During the consolidated fiscal year under review, the BOOKOFF Group focused on its core Reuse business, the mission of which is to help pre-owned goods find new value in a new home. The Group deals in pre-owned goods across a wide range of categories, including books, CDs, DVDs, games, apparel, sporting goods, baby goods, and everyday household items. Moving forward, the Group will continue to pursue its mission of becoming a “BOOKOF for people who don’t let things go to waste,” a partner offering “infrastructure for a waste-free lifestyle for people who don’t want to toss things away.”Guided by these principles, our goal is to expand our comprehensive Reuse business, leveraging the BOOKOFF brand. We continue to extend our comprehensive large-format BOOKOFF SUPER BAZAAR stores and large-format urban BOOKOFF store lines as our core package of retail outlets. During the consolidated fiscal year under review, the Group opened seven BOOKOFF SUPER BAZAAR locations and three BOOKOFF large-format urban locations. Our major initiatives during this period focused on re-examining our sales promotion strategies and improving gross profit ratios. Our revised sales promotion strategy called for limiting the number of coupons issued, relying on more effective TV commercials, flyers, and other sales promotion tactics. As a result, the Group improved gross profit ratios. On the other hand, increased advertising costs led to higher selling, general and administrative costs. Building on initiatives from the previous consolidated fiscal year, the Group worked to improve gross margin ratios by adjusting selling and purchase prices with an eye to balancing supply and demand. The Group also continued to review inventory levels for optimum efficiency. As a result, consolidated net sales for the year under review amounted to ¥76,670 million, representing a 1.3% year-on-year increase. The Group recorded operating income of ¥1,914 million (44.2% decrease), ordinary income of ¥2,366 million (37.8% decrease), and net income of ¥1,058 million (43.3% decrease).

Sales by business segment are as follows:

(BOOKOFF Business)

This segment recorded net sales of ¥52,484 million during the consolidated fiscal year under review, representing a 0.9% year-on-year increase. During the same period, the segment opened 27 new directly operated stores and 13 franchise stores. The segment shuttered 21 directly operated stores (including 17 closures resulting from the consolidation of multiple shops under one store name) and 35franchise stores. While consolidated existing store sales decreased compared to the prior fiscal year, contributions from new-store openings and the Online business led to higher overall revenues. Revised sales promotion strategies called for the Group to issue fewer coupons. However, an increase in unit purchase prices due to stronger purchase initiatives resulted in gross profit ratios level with the prior consolidated fiscal year. (Reuse Business)

The Reuse Business segment recorded consolidated net sales of ¥12,548 million, which was a 12.9% increase compared to the prior fiscal year. The segment saw 24 new directly operated store openings, with one franchise store added during the year. Two directly operated stores and two franchise stores were closed. Existing store sales gained year-on-year, while new store openings also contributed to net sales, driving overall segment revenues higher. The segment focused particularly on apparel sales, which accounted for half of segment net sales. Gross profit ratios showed a year-on-year increase thanks to selling and purchase price adjustments designed to balance supply and demand, as well as fewer coupon giveaways under a revised sales promotion strategy. (Packaged Media Business)

The Packaged Media Business segment recorded net sales of ¥11,271 million for the consolidated fiscal year under review. This reflected a year-on-year decrease of 7.2%. The segment opened one directly operated store during the period, while closing two directly operated stores. As a whole, net sales for the segment experienced a year-on-year decline. While the TSUTAYA business was able to increase customer traffic in response to a ¥100 rental program for older DVD releases, the increase in traffic could not compensate for lower sales per customer, leading to lower year-on-year net sales. Lower existing store sales in the new-book store business and shuttered unprofitable stores also contributed to lower year-on-year earnings.

(Other)

This segment recorded consolidated net sales of ¥366 million for the period, which was a 14.6% year-on-year decrease. The segment opened one directly operated store

during the period.


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(Performance Trends)

(Unit: million yen)

Fiscal Year Ended March 2012 Fiscal Year Ended March 2013

Net sales 75,716 76,670

BOOKOFF Business

Directly operated store sales

Online sales

Sales to Franchisees

Other services

Reuse Business

Packaged Media Business

Other

52,027

46,222

2,966

734

2,104

11,117

12,142

429

52,484

46,018

3,713

702

2,049

12,548

11,271

366

Operating income 3,432 1,914

Ordinary income 3,803 2,366

Extraordinary gains 190 -

Extraordinary losses 547 483

Income before income taxes 3,446 1,882

Net income 1,867 1,058

(Amounts rounded down to the nearest one million yen)

[Store Opening/Closing Trends by Segment]

(Reference Information: Store Openings/Closings by Segment)

(Unit: number of stores)

Fiscal Year Ended March 2012 Fiscal Year Ended March 2013

Open Close Open Close

BOOKOFF Business

Group 17 15 27 21

Franchise 15 17 13 35

Reuse Business Group 10 32 24 2

Franchise 0 11 1 2

Packaged Media Business

Group 1 1 1 2

Franchise - - - -

Other Group 0 3 1 0

Franchise - - - -

Total Store Openings/Closings

Group 28 51 53 25

Franchise 15 28 14 37

Fiscal Year-End Total

Group 464 492

Franchise 590 567


4

Outlook for the Fiscal Year Ending March 31, 2014

(Overall Outlook)

The BOOKOFF Corporation Ltd. Group will continue to open new stores that will become the infrastructure for the reuse market, focusing on BOOKOFF SUPER BAZAAR large-format composite retail complexes that combine reuse merchandise, including clothing and sports equipment, with BOOKOFF stores, as well as BOOKOFF large-format urban stores.

The Group believes that the expanded merchandise selection and the broader customer base resulting from the composite nature of BOOKOFF SUPER BAZAAR stores will translate into increased earnings. The Group plans to open 5 stores in the fiscal year ending March 31, 2014. While our emphasis is on the ramp-up of new-store sales, we also work toward profitability at as early a stage as possible. In addition to continued new-store openings, the Group will also be starting new businesses, looking for greater business growth over the medium and long term. We forecast higher selling, general and administrative costs for the fiscal year ending March 2014, mainly due to the impact of advance investment related to test rollouts. As a result of the above, the Group forecasts consolidated net sales of ¥80,000 million, operating income of ¥1,900 million, ordinary income of ¥2,300 million and net income of ¥1,000 million for the fiscal year ending on March 31, 2014.

(Outlook by Business Segment)

(BOOKOFF Business)

In this segment, we project five new BOOKOFF SUPER BAZAAR comprehensive large-format store and four new BOOKOFF store openings (including one BOOKOFF large-format urban store) for the fiscal year ending March 2014. We will continue to review our selling prices and sales promotion policies at existing stores to maximize sales of purchased products, at the same time that we pursue other initiatives to improve purchasing in the first place. We will expand further into trading cards, used mobile phones, and private label products, tying these initiatives to higher numbers of first-time customers. Our BOOKOFF Online E-commerce website continues to drive strong results in our Online business. We will continue to invest in this business, which we expect will result in higher revenues over the next fiscal period.

As a result of the preceding, the Group forecasts net sales of ¥54,700 million for this segment.

(Reuse Business)

The Group expects to open five new BOOKOFF SUPER BAZAAR comprehensive large-format stores during the fiscal year ending March 2014.

We believe this pattern of continued BOOKOFF SUPER BAZAAR openings will lead to higher Group revenues, while growing our share of the Reuse market. As a result of the above, ｔhe Group forecasts net sales of ¥14,000 million for this segment.

(Packaged Media Business)

Our TSUTAYA stores are facing greater competition at the same time that the CD market and new CD sales are shrinking. We plan to improve profitability in our TSUTAYA business by continuing to reduce selling, general and administrative costs.

As a result of the above, the Group forecasts net sales of ¥10,900 million for this segment.

(Other)

The Group is looking at growing business in this segment over the medium and long term through the launch of new businesses, as we pursue a strategy of continued store openings. For the fiscal year ending March 2014, we forecast higher selling, general and administrative costs due to the impact of advance investment that will be used to test new businesses.

As a result, the Group forecasts net sales of ¥400 million for this segment.

(Consolidated Earnings Forecast) (Unit: million yen)

Fiscal Year Ended March 2013

Fiscal Year Ending March 2014 (Forecast)

Change % Change

Net Sales 76,670 80,000 3,329 4.3

Operating Income 1,914 1,900 (14) (0.8)

Ordinary Income 2,366 2,300 (66) (2.8)

Net Income 1,058 1,000 (58) (5.5)

(Amounts rounded down to the nearest one million yen)


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(2) Analysis of Financial Position

1. Assets, Liabilities and Net Assets for the Consolidated Fiscal Year Ended March 31, 2013

(Current Assets)

Current assets for the consolidated fiscal year under review amounted to ¥19,351 million (¥18,776 million at the end of the previous consolidated fiscal year), an increase of ¥585 million. The primary factors were a ¥1,261 million increase in merchandise in line with the expansion of the Group’s operations, and an ¥126 million increase in notes and accounts receivable – trade, while cash and deposits decreased by ¥1,220 million.

(Noncurrent Assets)

Noncurrent assets for the consolidated fiscal year under review amounted to ¥20,103 million (¥19,217 million at the end of the previous consolidated fiscal year), an increase of ¥886 million. Amortization resulted in a ¥388 million decrease in intangible fixed assets. Meanwhile, the Group acquired assets in the course of investing in new stores, leading to an increase in tangible fixed assets of ¥476 million and an increase in investments of ¥798 million.

(Liabilities)

Liabilities as of the end of the consolidated fiscal year under review amounted to ¥24,205 million (¥23,596 million at the end of the previous consolidated fiscal year). This result was mainly due to an increase of ¥611 million in short- and long-term loans payable.

(Net Assets)

Net assets for the consolidated fiscal year under review amounted to ¥15,249 million (¥14,386 million at the end of the previous consolidated fiscal year), an increase of ¥863 million. The Group paid a dividend from surplus, but retained earnings increased by ¥599 million on the recording of a profit at the net income level. In addition, treasury stock decreased by ¥208 million as the BOOKOFF Corporation Employee Stock Ownership Association Trust sold stock to the Group’s Employee Stock Ownership Association.

2. Cash Flows

Cash and cash equivalents (“cash”) for the consolidated fiscal year under review amounted to ¥4,630 million, a decrease of ¥1,220 million compared to the end of the previous consolidated fiscal year.

Consolidated cash flows and the primary reasons for their fluctuation in the consolidated fiscal year under review are as follows:

(Cash Flows from Operating Activities)

The Group recorded an increase in net cash from operating activities in the amount of ¥1,863 million (compared to ¥4,983 for the prior consolidated fiscal year). This result was mainly due to increases of ¥1,882 million in income before income taxes, ¥2,071 million in depreciation, ¥320 million in amortization of goodwill, and ¥275 million in impairment loss—all factors leading to net cash increases. Factors leading to net cash decreases included an increase in inventories of ¥1,211 million, net changes in notes and accounts receivable-trade and notes and accounts payable-trade of ¥268 million, and income taxes paid of ¥1,289 million.

(Cash Flows from Investing Activities)

Net cash used in investing activities amounted to ¥2,190 million, compared to ¥1,304 million for the prior consolidated fiscal year. Store closures resulted in a ¥367 million decrease in proceeds from collection of guarantee deposits. Meanwhile, the Group recorded purchases of property, plant and equipment in the amount of ¥1,273 million associated with new store openings. The Group also recorded an increase of ¥767 million in payments of guarantee deposits and ¥288 million in purchases of intangible fixed assets for additional investments in point-of-sale systems.

(Cash Flows from Financing Activities)

Net cash from financing activities decreased by ¥905 million, compared to a decrease of ¥4,336 million in the prior consolidated fiscal year. This result was mainly due to a net increase in short- and long-term loans payable of ¥611 million, in contrast to outlays of ¥689 million for repayment of long-term accounts payable-other and ¥528 million for lease obligation repayments. The Group also paid cash in the amount of ¥458 million for dividend payments. (Trends in Equity Ratio, Equity Ratio Based on Market Value, Ratio of Interest-Bearing Debt to Cash Flow and Interest Coverage Ratio)




Equity ratio (%) 32.6 37.9 38.7

Equity ratio based on market value (%) 30.2 40.0 33.8 Ratio of interest-bearing debt to cash flow (years) 5.0 2.9 8.0

Interest coverage ratio (times) 13.0 20.2 8.5


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Notes: Equity ratio (%): Shareholders’ equity/total assets

Equity ratio based on market value: Market capitalization/total assets

Ratio of interest-bearing debt to cash flow (years): Interest-bearing debt/cash flows from operating activities Interest-bearing debt is the sum of short-term loans payable, the current portion of long-term loans payable, long-term loans payable and long-term accounts payable – other.

Interest Coverage Ratio (times): Cash flows from operating activities/interest expense

(3) Basic Policy on Profit Distribution and Dividends for FY 2012 and FY 2013

The BOOKOFF Corporation Ltd. Group considers the distribution of profits to be one of its highest management priorities, and aims to realize a payout ratio of around 25% on a consolidated net income basis.

While striving to generate increased returns to shareholders through continuous performance improvements, the company intends to effectively utilize internal reserves for strategic investments that will enhance its financial standing and strengthen the foundation of its future business activities.

The Group will pay ¥25 per share in dividends for the consolidated fiscal year under review (FY 2013), in line with our original plan. This amount represents a 43.6% payout ratio on a consolidated basis. The Group plans to pay a dividend of ¥25 per share for the next fiscal period as well.

(4) Business Risks

Among the items the Group has identified as having the potential to affect its business results and financial position, those that could have a material influence on decision-making by investors are described below.

The items presented in the following text are those identified by the Group (BOOKOFF Corporation Ltd. and its subsidiaries) as of the end of the consolidated fiscal year to March 2013.

1) Business Activities and Operations

1. Revenue Trends by Business Segment

The Group divides its main business activities into three categories: the BOOKOFF Business, the Reuse business and the Packaged Media Business.

The BOOKOFF Business operates BOOKOFF stores, through which the Group buys and sells used books, CDs, DVDs, games, mobile phones, trading cards and other pre-owned goods. BOOKOFF locations exist throughout Japan, as well as in three countries overseas (U.S., France, Korea). Stores are either managed directly by the BOOKOFF Group (directly operated) or franchised (FC) to other operators. The BOOKOFF Business also owns manages the BOOKOFF Online E-commerce website. The Reuse Business utilizes store management know-how cultivated by the BOOKOFF Business and operates stores engaged in the purchase and sale of articles, including secondhand children’s goods, women’s clothing, sports equipment and accessories. In addition, as a franchisee of Hard Off Corporation Co. Ltd., the Reuse Business operates HARDOFF stores engaged in the purchase and sale of personal computers, audio-visual products, and other pre-owned goods.

The Packaged Media Business operates the TSUTAYA chain of CD and DVD rental stores as a franchisee of Culture Convenience Club Co., Ltd. (“CCC”), and also operates Ryusui Shobo, Aoyama Book Center and yc-vox, which are the Group’s directly operated new book stores.

The Group is currently targeting expansion as a comprehensive reuse company centered around BOOKOFF stores, and is concentrating its energies on the development of BOOKOFF SUPER BAZAAR large-format composite retail complexes. Earnings at each BOOKOFF SUPER BAZAAR store belonging to the Reuse Business is in an acceleration trend. However, due to low name recognition and the shallow penetration of reuse goods in the merchandise categories handled, it will take a certain amount of time before earnings for the Reuse Business stores achieve stability comparable to those for BOOKOFF stores. Moreover, investment costs per property are large when compared with those of BOOKOFF stores. Due to these facts, conditions pertaining to the development of the Reuse Business have the potential to affect the Group’s business results and financial position.


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2. Secondhand Article Procurement and Inventory Control

The Group procures the majority of its merchandise through purchases from individual customers within each store’s immediate market. The Group has therefore devised measures to encourage store visits by customers. These measures employ both hard and soft approaches, including store design, operations manuals, employee training, advertising and publicity. And, in addition to creating a system to ensure that each store is able to secure a stable merchandise supply, the Group has established systems that allow customers to buy and sell goods without visiting a store. They include a “dispatch purchase” service under which store staff conduct merchandise purchases at customers’ homes, and the “Takuhonbin” service whereby shipping companies pick up goods from customers’ homes.

However, trends in the new merchandise market for books, CDs, DVDs and videogame software (including the potential contraction in the primary distribution market for packaged media due to the rise of digital commerce) and competition could affect merchandise procurement. Therefore, there is no guarantee that the Group will be able to secure a stable supply of secondhand merchandise, either in terms of quantity and quality. There is the risk of the loss of sales opportunities resulting from product shortages caused by the procurement status of secondhand articles, which could have the potential to affect the Group’s performance.

In contrast with new merchandise, it is challenging to adjust purchasing volumes for secondhand merchandise. The purchase of excessive volumes of merchandise could lead to increased inventories and a higher loss ratio, potentially affecting the Group’s performance and financial position.

3. Development of Human Assets

Based on its philosophy that “people are assets,” the Group refers to its employees as “human assets.” Working from the perspective of developing its human assets, the Group entrusts the manager of each of its stores with broad authority over matters pertaining to operations, including the hiring of part-time staff, staff training and evaluations, advertising and publicity, sales promotions, and sales floor layout. This policy reflects the idea that a store’s performance can fluctuate depending on the skill with which a store is managed and the level of service. Our aim is for store managers to develop into “human assets” that are well balanced in all areas, ranging from personnel matters to store operations to managing by the numbers. A distinctive characteristic of the BOOKOFF Corporation Ltd. Group is that because each individual store in the Group’s BOOKOFF and Reuse businesses is responsible for all operations from purchasing to sales, the level of service provided by stores has a direct bearing on merchandise procurement, and this could result in potentially significant sales fluctuations. Therefore, stores’ operations standards may be influenced by the degree to which human assets are developed, and this could affect the Group’s earnings performance.

The Group also recognizes that securing and quickly developing its human assets is an important management issue in active store development. The Group is working to achieve the accelerated development of its human assets through the enrichment of its training system. However, in the event that the recruitment and development of appropriate human assets does not keep pace with plans for new stores, it is possible that store development may not proceed as expected and the Group’s performance could be affected.

4. New Store Opening Policy

The Group will continue to open stores with the aim of being “a company that creates the infrastructure for people who don’t let things go to waste.” The focus is the BOOKOFF SUPER BAZAAR concept, which combines various stores from the Reuse Business with BOOKOFF stores, and large-format BOOKOFF stores in metropolitan areas and so-called “cities designated by government ordinance.”

In order to continue expanding both the number of stores and each store’s sales floor area, the Group intends to use its store development division to pursue a policy of nimble store development. However, the Group’s business results and financial position could be affected if issues such as real estate market conditions should prevent the Group from securing properties that satisfy its store-opening requirements, or if the Group’s plans to open stores should change as a result of regulations, such as adjustments to store openings under the “Large-Scale Retail Store Location Law.”

5. Franchise Development

The Group develops BOOKOFF and other reuse stores through the use of franchises, and aims to achieve mutual prosperity for both the Group and its franchisees. It has set up a nationwide branch system in Japan, and at each branch it has posted branch managers and supervisors who provide support to franchise stores. Additionally, the Group has instituted support measures such as training programs for franchise store managers, full-time and part-time staff, “contract management” involving store managers who are dispatched by the company to manage stores, “store transfer,” or the transfer of directly operated stores to franchisees so that they may achieve efficient store operations, and “store acquisition,” whereby the company purchases franchise stores. Furthermore, the Group views the sharing of management philosophies and views about stores and human assets with franchisees to be of the utmost importance, and the Group will continue to emphasize communication with franchise stores in its role as franchise headquarters.

However, it is possible that the Group’s business results could be affected in the event that it were unable to secure properties that satisfy its requirements for franchise store-openings, and if the number or timing of store openings did not proceed according to plan. The Group offers operations guidance to franchise stores. However a franchisee could decide to review its plans to open stores as a franchise member if it were to judge that the Group did not adequately fulfilling its functions as the franchisee headquarters, or because of circumstances that arise at a franchise that are not attributable to the company. In the Group were unable to secure the planned number of stores due to such a revision, its performance could be affected.


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6. BOOKOFF Online, Inc

In August 2007, the Group launched “BOOKOFF Online”, an Internet-based service selling books, CDs, DVDs and videogame software through its consolidated subsidiary BOOKOFF Online, Inc. The business’s sales have grown steadily from that time to the present. But in order to achieve further expansion, large additional investments may be necessary for such things as warehouse floor space and computer system enhancements. Meanwhile, computer problems resulting in a prolonged server crash could inflict direct damage on the business’s earnings and credibility, and this could affect the business results and financial position of the Group and BOOKOFF Online, Inc.

7. Development of Overseas Stores

The Group has opened a total of 11 BOOKOFF stores in three countries (the U.S., France, and South Korea) through its overseas subsidiaries in each country (excluding stores operated under franchise; as of March 31, 2013).

The stores are largely profitable on a per store basis. However, in addition to differences in customs and cultures in each country, the BOOKOFF’s name recognition is low when compared to Japan and the number of stores is small. Therefore, the Group expects that it will take a considerable amount of time to completely absorb the maintenance expenses (management division costs) for each overseas subsidiary and for profitability to improve to a level that would permit progress on recovering the Group’s investment. Each overseas subsidiary is in the process of switching from a business model of “exporting books from Japan and selling them locally” to one of “purchasing local books and selling them locally.” The Group is gradually promoting efforts to recoup its investment by enhancing the profitability of existing stores. However, recovering the Group’s investment could be further prolonged depending on future business conditions and trends in store openings. The status of that recovery could have a bearing on the Group’s business results and financial position.

8. New Book Store Business

The Group operates new-book stores through consolidated subsidiary Brass Media Corporation, Ltd. This subsidiary’s business consists of consignment sales (return policy), so there is low inventory risk. However, investment in inventory for newly introduced products is relatively high, generally resulting in lower profits and longer periods required for return of investment.

Brass Media Corporation, Ltd., has been promoting the closure of unprofitable stores and working to recoup its investment by improving the profitability of existing stores through enhanced product appeal and streamlined store operations. However, recovering the company’s investment could be further prolonged depending on future business conditions and trends in store openings. The status of the investment recovery could have a bearing on the Group’s business results and financial position.

9. TSUTAYA Business

The Group’s consolidated subsidiary Brass Media Corporation, Ltd., operates 33 TSUTAYA CD and DVD rental stores (as of the end of March 2013) as a franchisee of Culture Convenience Club Co., Ltd.

The business environment in the video rental business is influenced by the success or failure of the content sold. In recent years, the segment has experienced a trend toward lower prices resulting from a shrinking of the new merchandise market, which is due to the growth in online distribution of music and movie software, and competition with industry rivals. The Group’s business results and financial position could be affected in the event of a decline in the quality and volume of content released in the future or if there were a sustained, significant fall in rental prices.

10. Compliance System

With compliance both in Japan and abroad and respect for social norms as its goals, the Group has introduced an internal auditing system, instituted the compliance management committee as a permanent body, and is working to achieve thorough compliance by building Group-wide awareness of the issue.

Nevertheless, the possibility of future problems involving the management system cannot be ruled out. In such an event, decreased net sales stemming from a decline in the public’s confidence could potentially affect the Group’s business results.

2) Legal Restrictions

1. Resale Price Maintenance System

The books and CDs that comprise the main products handled by the BOOKOFF Corporation Ltd. Group’s BOOKOFF Business are all works that fall outside the scope of the Act on Prohibition of Private Monopolization and Maintenance of Fair Trade (“Anti-Monopoly Law”), and form the primary distribution market, based on the Resale Price Maintenance Agreement (“Resale Agreement”). Any future revisions to the Anti-Monopoly Law or the Resale Agreement would likely lead to major changes in the distribution system for the various products. However, at this stage it is difficult to predict what the impact would be on either the company’s businesses or the Group’s business results.

2. Secondhand Articles Dealer Act

Reuse merchandise handled by the Group qualifies as “secondhand articles” under the Secondhand Articles Dealer Act, and the Group is therefore subject to regulations established under the law. The regulatory agency is the prefectural


9

public safety commission with jurisdiction where the business is located. The main rules established by the law and related statutes are as follows:

• Permission must be obtained from the prefectural public safety commission with jurisdiction when conducting business involving the purchase and sale or exchange of secondhand articles. (Secondhand Articles Dealer Act, Article 3)

• When the purchase or sale price of a secondhand article is ¥10,000 or more, or when engaging in the purchase or sale of secondhand books, CDs, DVDs or videogame software, it is necessary to confirm the address, name, occupation and age of the other party, or to obtain a document noting this information, in order to confirm the other party’s identity. (Secondhand Articles Dealer Act, Article 15)

• When engaging in a purchase transaction requiring confirmation of the other party as described above, it is necessary to record the transaction date, the name and volume of the secondhand article(s), distinguishing characteristics of the secondhand article(s), and the other party’s address, name, occupation and age in the ledger. (Secondhand Articles Dealer Act, Article 16; however, an official notice states that eased measures apply to the recording of distinguishing characteristics of books.)

In the event that a piece of merchandise purchased from a customer is determined to be a stolen or lost item, civil law states that the item is to be returned to the rightful owner within two years, free of charge. The Group appropriately executes confirmation and safekeeping measures pertaining to the transaction record in accordance with the Secondhand Articles Dealer Act, such as confirmation of the other party at the time of sale or purchase, the ledger entry and safekeeping of that information. If a purchased item is determined to be stolen, the Group has established a system to enable the lawful return to the rightful owner without charge.

To date, the regulations in question have not resulted in any significant loss or damage to the Group. However, the Group will continue to address issues regarding the establishment and maintenance of a compliance system in view of the impact to business operations that could result from compliance with legal regulations.

3. Prefectural Ordinances

The BOOKOFF Corporation Ltd. Group is regulated by ordinances established by prefectural governments. The applicable ordinances have been set with due consideration of regional characteristics. It can be assumed that an ordinance’s content could be strengthened or revised due to changes in the regional environment. In Kanagawa Prefecture, where the company’s head office is located, the main provisions of the “Kanagawa Youth Nurturing and Protection Ordinance” that pertain to the company can be summarized as follows:

• The guardian’s agreement must be obtained when purchasing secondhand articles from a youth (less than 18 years of age).

The Group is in accord with the spirit of the ordinance and, taking the sound upbringing of youth into perspective, it complies with the ordinance and makes efforts to ensure that local order is maintained.

4. Expansion of Employees’ Pension Coverage for Part-time Workers

As a general rule, the Group currently operates its stores with a staff of one to two regular employees, along with part-time staff, mainly students and housewives. Thus, it employs a large number of part-time workers (the Group employed 9,399 part-time workers as of March 31, 2013). A future expansion of employees’ pension coverage for part-time workers would lead to higher insurance premiums and labor management costs, which could potentially affect store operations and business results.

5. Personal Information Management

When purchasing merchandise, the Group obtains personal information from the customer under the Secondhand Articles Dealer Act, receiving a document containing the customer’s address, name, occupation and age. This personal information is stored under lock and key and is tightly managed.

Goods that the Group purchases from individuals include merchandise that may contain personal information. In addition to requesting that customers delete such information before the Group purchases it, the Group either checks for the presence of such information and takes the appropriate steps to delete it, or has a broker perform these operations after making a purchase.

Consolidated subsidiary BOOKOFF Online, Inc collects information regarding delivery address, name, and credit card from online purchasers. Credit card information and other transaction data are stored on Group data center servers. These servers are operated under strict security measures. In keeping with the regulations and spirit of the Act on the Protection of Personal Information, the Group is working to enhance its information security management by strengthening its internal management structure and training for franchisees, as well as reinforcing countermeasures to prevent unauthorized access. The Group both exercises careful caution with regard to the handling of personal information and endeavors to prevent the leakage of personal information.

Should a leakage of personal information occur, however, the affected individual(s) could submit a claim for damages. In addition, the Group’s business results could potentially be affected due to decreased net sales stemming from a decline in the public’s confidence.

3) Guarantee Deposits


10

In principle, the Group uses rental properties for openings of directly operated stores, and pays a deposit and a guarantee to the lessor at the time of the rental contract. At the end of the fiscal year to March 2013, guarantee deposits amounted to ¥8,935 million on a consolidated basis (22.6% of consolidated total assets).

In keeping with the terms of the contract, such guarantee deposits are repaid when the contract is dissolved upon expiry. However, in the event of bankruptcy on the part of the lessor, it is possible that part or all of the amount may not be recovered. Meanwhile, it is necessary in some cases to pay a penalty if the contract is dissolved before expiration, in keeping with the terms of the contract.

4) Natural Disasters

The Group has stores throughout Japan as well as in three other countries (the U.S., France, and South Korea), and BOOKOFF Online maintains its inventory base in Kanagawa Prefecture. The Group’s business results and financial position could be affected should its stores, warehouses and merchandise be damaged by a large-format natural disaster.

5) Employee Stock Ownership Plan

The board of directors meeting held on February 16, 2010 passed a resolution to introduce an employee stock ownership plan (“E-Plan”) with the aim of offering an incentive to employees to work toward medium- to long-term improvements in the Group’s corporate value. In line with this resolution, the company established the BOOKOFF Corporation Employee Stock Ownership Association Trust (“Employee Stock Trust”) at a trust bank. In March 2010, the Employee Stock Trust purchased the amount of the company’s shares that the BOOKOFF Corporation Employee Stock Ownership Association (“Stock Ownership Association”) is expected to purchase over the five-year period following the trust’s establishment (¥743 million; 843,400 shares; 882 yen per share).

Under the plan, the Employee Stock Trust will transfer shares in the company to the Stock Ownership Association at regular intervals. If there are residual assets in the Employee Stock Trust at the time of the trust’s termination, they will be distributed to employees who satisfy the conditions for beneficiary eligibility. The company has offered guarantees on loans taken for the purpose of stock purchases by the Employee Stock Trust. Therefore, should there be any outstanding loans remaining in the Employee Stock Trust at the trust’s termination as a result of a decline in the company’s share price, the company will settle the loans in question in accordance with the guarantee contract.

At the end of March 2013, the Employee Stock Trust held 147,700 shares of the company’s stock, and had an unrealized loss of ¥29 million (closing price at the end of March 2013: 685 yen). The unrealized loss will shrink if the company’s share price advances beyond the Employee Stock Trust’s purchase price. However, the Group’s business results and financial position could be affected should the shares continue to trade below the purchase price.


11

2. Corporate Group


12

Notes: 1. Consolidated subsidiaries are denoted by ; non-consolidated subsidiaries are denoted by ●; affiliated companies (companies accounted

for using the equity method) are denoted by . 2. Aoyama Book Center, Inc. merged with Brass Media Corporation, Ltd. on April 1, 2012*1.

*1 BOOKOFF Media, Inc. changed its corporate name to Brass Media Corporation during the consolidated fiscal year under review. *2 BOOKOFF CANADA TRADING INC. changed its corporate name to BOC CANADA PROPERTY MANAGEMENT LTD. during the consolidated fiscal year under review. *3 BOOKOFF With Co., Ltd. transferred a portion of stock to the BOOKOFF Group on January 31, 2013, becoming a BOOKOFF Group subsidiary.


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3. Management Policy (1) Basic Management Policy

The corporate philosophy of BOOKOFF Corporation is “contributing to society through our business activities” and “the pursuit of employees’ material and spiritual wellbeing.”

“Contributing to society through our business activities”

• Extract maximum value from merchandise by having each item fulfill its role multiple times

• Provide customers with pleasant experiences unavailable anywhere else

• Bring happiness to every person we come into contact with by being an organization that always has “people’s interests” in mind

“The pursuit of employees’ material and spiritual wellbeing”

• By developing the capability (intellectual power) to think about what must be done to achieve a goal, by realizing that goal through the best means possible, and by becoming people who are respected by their peers (enhancing human potential), individuals (all employees) grow

• Through individual growth, employees develop the ability to achieve “things I wasn’t able to do until now” and to develop “a way of thinking that I couldn’t grasp until now.” The breadth of each individual’s growth multiplied by the number of individuals who grow fuels the company’s growth.

Moreover, the company has established “BOOKOFF for people who don’t let things go to waste” as its corporate mission. The company will conduct business activities in order to provide the infrastructure for a reuse-based society for customers who think, “I don’t need it anymore, but throwing it away is wasteful,” and for customers who “want high-quality, inexpensive goods.”

(2) Targeted Performance Indicators

The Group has set ordinary income of ¥10.0 billion and return on assets (ROA) of 15% through stable and sustainable growth in sales and profit as targets for the present.

(3) Medium- to Long-Term Management Strategies

The BOOKOFF Business is the core model of the BOOKOFF Group, focusing on upsizing store layouts and optimizing store merchandising formats. In addition to new-store openings, the segment is upsizing existing and franchise stores through remodeling or replacement. The segment is responding to changes in the market by expanding product selection, revising pricing policies, creating space more attractive to middle- and senior-aged customers, and executing new branding initiatives. We will continue to pursue this course of policies over the medium and long term to secure and grow our customer base, as well as to expand our chain-wide earnings capacity.

We believe that there is a significant potential market related to our Reuse Business, and we view this business as a major driver of future growth for the BOOKOFF Group. We plan to roll out even greater numbers of BOOKOFF SUPER BAZAAR (BOOKOFF comprehensive large-format stores offering a variety of reuse goods) and BOOKOFF PLUS stores (stores carrying BOOKOFF products plus apparel) in Japan, improving BOOKOFF customer-attraction capacity, product selection, and competitive market advantage to capture an even higher share of the Reuse market.

To grow the Reuse business model beyond the framework of the traditional store, we plan to launch new businesses that will expand our business lines over the medium and long term.

The plans discussed above describe how the BOOKOFF Group will create sustainable growth in our BOOKOFF Business and Reuse Business as a leading company in the comprehensive reuse market, offering“infrastructure for people who don’t let things go to waste”.

(4) Issues to be Addressed

Issues to facing the company at the end of the consolidated fiscal year under review are as follows:

1. Realizing the goal of becoming a “company that creates the infrastructure for people who don’t let things go to waste”

The BOOKOFF Corporation Ltd. Group has positioned the goal of becoming a “company for people who don’t let things go to waste” as its business mission. The Group aims to simultaneously expand its customer base and secure its competitive advantage by instilling the image of “BOOKOFF for people who don’t let things go to waste” in people’s minds.

To achieve its goal, the Group will promote business activities founded on a branding strategy that incorporates this business mission. And in order to provide a standard of service that enables customers to use each store with peace of mind, the Group will work to improve its operations standards by making sure that employees are thoroughly versed in company manuals and by providing practical training.


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2. Developing a comprehensive reuse business

The Group will work to gain an even greater share of the reuse market by harnessing the customer appeal and name recognition of its BOOKOFF stores to expand its business territory as a comprehensive reuse business.

Specifically, the Group will concentrate on buying and selling core BOOKOFF goods, including books, CDs, DVDs, games, as well as trading cards, figurines, fashion goods, sporting goods, baby goods, watches, luxury-brand items, precious metals, kitchenware, household goods, and more, leveraging our expertise in the Reuse market to open more comprehensive large-format BOOKOFF SUPER BAZAAR stores. While the Group’s investment will increase as a result of the move to large-format stores, it will strive to realize expedited profitability and greater investment efficiency by continuing efforts to reduce its initial investment and also by further strengthening both training for staff hired for store openings and the headquarters’ support system.

3. Large-format BOOKOFF stores and Optimum Store Packaging

The Group aims to strengthen the customer appeal and earnings power of its BOOKOFF stores. It will open new stores on vacant land, focusing on metropolitan areas and so-called “cities designated by government ordinance,” and replace existing stores with large-format stores.

While the Group’s investment will increase as a result of the move to large-format stores, it will strive to realize expedited profitability and greater investment efficiency by continuing efforts to reduce its initial investment and also by further strengthening both training for staff hired for store openings and the headquarters’ support system..

At existing stores, we plan to introduce a greater variety of pre-owned goods, develop more private label goods, and conduct a ground-up review of price-based sales promotions to create a more enjoyable in-store experience. We believe these measures will enhance our ability to attract customers and lead to a jump in earnings capacity.

4. Business ethics

BOOKOFF Corporation Ltd. positions thorough compliance as the foundation for its contributions as a business to society, and it has established “compliance guidelines” to be adhered to by the BOOKOFF Group’s directors and its employees for building mutual trust with the Group’s stakeholders.

In order to ensure the thorough penetration of the guidelines’ principles, the Group conducts training sessions and meetings targeting all Group directors and employees, and also conducts awareness campaigns through newsletters and the internal corporate intranet.

To ensure accountability, the Group will promote transparency with regard to responsibility sharing resulting from the preparation and enforcement of internal controls, and realize timely disclosure of management information and the early disclosure of financial results.


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4. Consolidated Financial Statements

(1) Consolidated Balance Sheet

(Unit: thousand yen)

FY 2011 As of March 31, 2012

FY 2012 As of March 31, 2013

Assets Current assets

Cash and deposits 5,851,165 4,630,796 Notes and accounts receivable-trade 959,203 1,085,791 Merchandise 9,560,108 10,821,399 Supplies 28,156 27,089 Deferred tax assets 485,086 568,743 Other 1,883,446 2,217,681 Allowance for doubtful accounts (693) (3) Total current assets 18,766,474 19,351,497

Noncurrent assets Property, plant and equipment

Buildings and structures 13,382,797 14,134,479 Accumulated depreciation (8,483,562) (9,135,270) Buildings and structures, net 4,899,235 4,999,209

Land 226,476 141,643 Leased assets 2,420,871 3,084,193

Accumulated depreciation (698,094) (1,091,165) Leased assets, net 1,722,777 1,993,028

Construction in progress 3,840 98,267 Other 1,927,678 2,292,719

Accumulated depreciation (1,524,266) (1,792,894) Other, net 403,412 499,824

Total property, plant and equipment 7,255,741 7,731,974 Intangible assets

Goodwill 1,120,233 795,077 Leased assets 26,764 16,347 Other 978,428 925,796 Total intangible assets 2,125,426 1,737,221

Investments and other assets Investment securities *1 489,431 *1 666,005 Long-term loans receivable 111,533 82,983 Deferred tax assets 501,488 674,446 Guarantee deposits 8,480,177 8,935,519 Other 346,059 358,989 Allowance for doubtful accounts (92,749) (83,474) Total investments and other assets 9,835,941 10,634,471

Total noncurrent assets 19,217,110 20,103,667 Total assets 37,983,584 39,455,164


16


FY 2011 As of March 31, 2012

FY 2012 As of March 31, 2013

Liabilities Current liabilities

Notes and accounts payable-trade 1,141,306 1,000,255 Short-term loans payable 4,930,000 4,560,600 Current portion of long-term loans payable 2,899,745 3,171,768 Lease obligations 396,079 486,745 Income taxes payable 1,085,569 890,430 Provision for bonuses 297,424 277,042 Provision for Sales Rebates - 52,067 Provision for loss on store closing 16,739 57,218 Accounts payable – other 1,828,241 1,776,518 Other 1,617,045 1,765,834 Total current liabilities 14,212,151 14,037,881

Noncurrent liabilities Long-term loans payable 5,730,265 6,439,885 Lease obligations 1,319,312 1,480,528 Asset retirement obligations 1,256,029 1,387,843 Other 1,079,230 859,304 Total noncurrent liabilities 9,384,837 10,167,561

Total liabilities 23,596,988 24,205,443 Net assets

Shareholders' equity Common stock 2,564,294 2,564,294 Capital surplus 3,098,903 3,098,903 Retained earnings 9,669,865 10,269,308 Treasury stock (712,000) (503,054) Total shareholders' equity 14,621,062 15,429,451

Accumulated other comprehensive income Valuation difference on available-for-sale securities 487 21,139 Foreign currency translation adjustment (234,953) (200,870) Total accumulated other comprehensive income (234,466) (179,730)

Total net assets 14,386,595 15,249,721 Total liabilities and net assets 37,983,584 39,455,164


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(2) Consolidated Statements of Income and Consolidated Statements of Comprehensive Income Consolidated Statements of Income

(Unit: thousand yen))

FY 2011

(April 1, 2011 – March 31, 2012)FY 2012

(April 1, 2012 – March 31, 2013)

Net sales 75,716,973 76,670,937 Cost of sales 32,415,362 31,956,706 Gross profit 43,301,611 44,714,231 Selling, general and administrative expenses

Provision of allowance for doubtful accounts (5,132) (9,453) Salaries and allowances 4,308,639 4,410,625 Part-time employee salaries 10,473,563 11,184,434 Bonuses 519,362 492,816 Provision for bonuses 288,774 273,576 Rent 10,226,526 10,940,416 Rent expenses 854,400 834,641 Other 13,202,634 14,672,505 Total selling, general and administrative expenses 39,868,768 42,799,562

Operating income 3,432,842 1,914,668 Non-operating income

Installation fee income from vending machines 183,009 189,511 Income from paper recycling 239,187 247,045 Amortization of negative goodwill 70,238 - Equity in Earnings of Affiliates -

211,448 4,987

268,785 Other Total non-operating income 703,885 710,330

Non-operating expenses Interest expenses 247,188 220,133 Equity in losses of affiliates 2,465 - Foreign exchange losses 6,547 - Other 77,491 38,722 Total non-operating expenses 333,692 258,855

Ordinary income 3,803,035 2,366,143 Extraordinary gains

Gain on sales of investment securities 1,100 - Gain on sale of stores 8,000 - Reversal of provision for damage or loss 44,925 - Compensation for transfer 117,053 - Subsidy income 19,544 - Total extraordinary gains 190,624 -


18

(Unit: thousand yen) FY 2011

(April 1, 2011 – March 31, 2012) FY 2012

(April 1, 2012 – March 31, 2013) Extraordinary losses

Loss on sales of investment securities 44,048 49,499 Loss on valuation of investment securities - 55,613 Loss on closing of stores 59,694 28,408 Provision for loss on closing of stores 14,967 54,960 Loss on retirement of noncurrent assets 12,492 19,890 Impairment loss *1 357,478 *1 275,609 Loss on disaster 58,640 - Total extraordinary loss 547,321 483,981

Income before income taxes 3,446,338 1,882,161 Corporate, inhabitant and enterprise taxes 1,491,662 1,082,296 Income taxes-deferred 87,432 (258,223) Total income taxes 1,579,095 824,072 Income before minority interests 1,867,242 1,058,088 Net income 1,867,242 1,058,088


19

(Consolidated Statements of Comprehensive Income)


FY 2011

(April 1, 2011 – March 31, 2012)FY 2012

(April 1, 2012 – March 31, 2013)

Income before minority interests 1,867,242 1,058,088 Other comprehensive income

Valuation difference on available-for-sale securities 10,677 10,797 Foreign currency translation adjustment (19,285) 34,083 Share of other comprehensive income of associates accounted for using equity method

9 9854

Total other comprehensive income * (8,598) * 54,736 Comprehensive income 1,858,643 1,112,824

(Breakdown) Comprehensive income attributable to owners of the parent

1,858,643 1,112,824

Comprehensive income attributable to minority interests - -


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(3) Consolidated Statements of Changes in Net Assets


FY 2011

(April 1, 2011 – March 31, 2012)FY 2012

(April 1, 2012 – March 31, 2013)

Shareholders' equity Capital stock

Balance at the start of current period 2,564,294 2,564,294 Changes during the period

Total changes during the period - - Balance at the end of current period 2,564,294 2,564,294

Capital surplus Balance at the start of current period 3,098,903 3,098,903 Changes during the period

Total changes during the period - - Balance at the end of current period 3,098,903 3,098,903

Retained earnings Balance at the start of current period 8,190,662 9,669,865 Changes during the period

Dividends from surplus (398,519) (458,645) Net income 1,867,242 1,058,088 Change of scope of consolidation 10,480 - Total changes during the period 1,479,203 599,443

Balance at the end of current period 9,669,865 10,269,308 Treasury stock

Balance at the start of current period (916,007) (712,000) Changes during the period

Disposal of treasury stock 204,006 208,945 Total changes during the period 204,006 208,945

Balance at the end of current period (712,000) (503,054) Total shareholders’ equity


Dividends from surplus (398,519) (458,645) Net income 1,867,242 1,058,088 Change of scope of consolidation 10,480 - Disposal of treasury stock 204,006 208,945 Total changes during the period 1,683,209 808,388

Balance at the end of current period 14,621,062 15,429,451


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FY 2011

(April 1, 2011 – March 31, 2012)FY 2012

(April 1, 2012 – March 31, 2013)

Accumulated other comprehensive income Valuation difference on available-for-sale securities

Balance at the start of current period (10,199) 487 Changes during the period

Net changes in items other than shareholders' equity 10,686 20,652 Total changes during the period 10,686 20,652

Balance at the end of current period 487 21,139 Foreign currency translation adjustment


Net changes in items other than shareholders' equity (45,306) 34,083 Total changes during the period (45,306) 34,083

Balance at the end of current period (234,953) (200,870) Total accumulated other comprehensive income


Net changes in items other than shareholders' equity (34,619) 54,736 Total changes during the period (34,619) 54,736

Balance at the end of current period (234,466) (179,730) Total net assets


Dividends from surplus (398,519) (458,645) Net income 1,867,242 1,058,088 Change of scope of consolidation 10,480 - Disposal of treasury stock 204,006 208,945 Net changes in items other than shareholders' equity (34,619) 54,736 Total changes during the period 1,648,590 863,125

Balance at the end of current period 14,386,595 15,249,721


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(4) Consolidated Statements of Cash Flow


FY 2011

(April 1, 2011 – March 31, 2012)FY 2012

(April 1, 2012 – March 31, 2013)

Cash flows from operating activities Income before income taxes 3,446,338 1,882,161 Depreciation and amortization 2,058,469 2,071,704 Impairment loss 357,478 275,609 Amortization of goodwill 350,678 320,147 Amortization of negative goodwill (70,238) - Increase (decrease) in provision for bonuses 39,084 （20,382） Increase (decrease) in allowance for doubtful accounts (5,162) （10,064） Increase (decrease) in provision for loss on closing of stores 14,967 54,960 Change in Provision for Sales Rebates - 52,067 Increase (decrease) on provision for loss on disaster (106,975) - Interest expense 247,188 220,133 Equity in (earnings) losses of affiliates 2,465 （4,987） Loss (gain) on sale of stores (8,000) - Loss on closing of stores 59,694 28,408 Loss on retirement of noncurrent assets 12,492 19,890 Loss (gain) on valuation of investment securities - 55,613 Compensation for transfer (117,053) - Loss on disaster 58,640 - Decrease (increase) in notes and accounts receivable-trade (83,664) （126,075） Decrease (increase) in inventories (95,338) （1,211,713） Increase (decrease) in notes and accounts payable-trade 50,173 （141,938） Increase (decrease) in accounts payable-other 349,108 104,107 Other current liabilities 189,859 （216,660） Subtotal 6,750,204 3,352,985 Interest and dividends income received 6,563 8,621 Interest expenses paid (240,391) （219,037） Proceeds from compensation for transfer 117,053 - Payments for loss on disaster (82,482) - Income taxes refund 39,522 10,822 Income taxes paid (1,607,284) （1,289,704） Cash flows from (used in) operating activities 4,983,185 1,863,687


23


FY 2011

(April 1, 2011 – March 31, 2012)FY 2012

(April 1, 2012 – March 31, 2013)

Cash flows from investing activities Payments into time deposits (50,389) - Proceeds from withdrawal of time deposits 171,839 - Purchase of property, plant and equipment (738,985) (1,273,002) Purchase of intangible assets (187,892) (288,829) Purchase of investment securities (4,125) (1,000) Purchase of stock in affiliates - (221,098) Payments for guarantee deposits (615,155) (767,015) Proceeds from collection of guarantee deposits 423,862 367,164 Payments for sale of stores (76,995) (141,376) Other payments (227,153) 134,308 Cash flows from (used in) investing activities (1,304,995) (2,190,849)

Cash flows from financing activities Net increase (decrease) in short-term loans payable (1,516,000) (370,000) Proceeds from long-term loans payable 2,960,000 4,129,400 Repayment of long-term loans payable (4,269,455) (3,147,758) Payments for long-term accounts payable-other (845,530) (689,846) Repayments of lease obligations (426,562) (528,425) Proceeds from disposal of treasury stock 159,958 159,446 Cash dividends paid (398,519) (458,645) Cash flows from (used in) financing activities (4,336,108) (905,828)

Effect of exchange rate change on cash and cash equivalents

(3,016) 12,621

Net increase (decrease) in cash and cash equivalents (660,935) (1,220,369) Cash and cash equivalents at the beginning of period 6,505,179 (5,851,165) Increase in cash and cash equivalents from newly consolidated subsidiary

6,922 -

Cash and cash equivalents at the end of period 5,851,165 4,630,796


24

(5) Notes Concerning the Going-Concern Premise

None

(6) Important Items that Form the Basis for Preparing Consolidated Financial Statements

1. Scope of consolidation

(1)Number of consolidated subsidiaries: 11

Primary consolidated subsidiaries:

BOOKOFF U.S.A. INC.

BOM Corporation, Inc

Brass Media Corporation Ltd.

BOOKOFF Logistics, Co., Ltd

BOOKOFF Online, Inc

Aoyama Book Center, Inc. entered into an absorption-type merger with Brass Media Corporation Ltd. on April 1, 2013. BOOKOFF Media, Inc. subsequently changed its corporate name to Brass Media Corporation Ltd. BOOKOFF CANADA TRADING INC. changed its corporate name to BOC CANADA PROPERTY MANAGEMENT LTD.]

(2)Names of significant non-consolidated subsidiaries

BOOKOFF With Co., Ltd.

(Reason for non-consolidation)

BOOKOFF With total assets, net sales, net income (equity interest portion), and retained earnings (equity interest portion) do not have a material impact on Group consolidated financial statements, nor is the company a significant part of the Group’s overall business.

2. Application of equity method

(1)Number of companies accounted for by the equity method: 1

Name of company accounted for by the equity method:

BOS Partners, Inc.

(2) Names of Major Non-Consolidated Subsidiaries and Affiliates not Accounted for Under the Equity Method

Name of company accounted for by the equity method:

BOOKOFF With Co., Ltd.

(Reason for Non-Application of the Equity Method)

The impact of net income (amount subject to equity share) and retained earnings (amount subject to equity share) generated by BOOKOFF With is not material to the BOOKOFF Group, nor is BOOKOFF With a major component of the BOOKOFF Group business as a whole.

3. Fiscal year of consolidated subsidiaries

The last day of February is the fiscal year end for the consolidated subsidiaries BOOKOFF USA INC., BOC CANADA PROPERTY MANAGEMENT LTD., BOOKOFF FRANCE E.U.R.L. and BOOKOFF KOREA INC. The last day of December is the fiscal year end for SCI BOC FRANCE.

Financial statements for these subsidiaries as of the last day of their respective fiscal years are used in the preparation of the consolidated financial statements.

4. Significant Accounting Standards

(1) Significant Reserves and Allowances

Provision for Sales Rebates

The Company and its domestic consolidated subsidiaries record an estimate of sales returns as a Provision for Sales Rebates for periods beginning with the following consolidated fiscal year. This provision reserves against sales returns for stamp issued at stores, and the calculation is based on the number of unused stamp during the consolidated fiscal year under review.

(2) Hedge Accounting


25

a. Hedge Accounting Methods

The BOOKOFF Group accounts for interest rate and currency swap transactions using combined accounting (exception accounting, assignment accounting) when the conditions for combined accounting apply.

b. Hedge Method and Applicable Transactions

Hedge Method ..... Interest rate and currency swaps

Applicable Transactions ..... Loans

c. Hedge Policies

The BOOKOFF Group hedges against applicable foreign currency risk and interest rate risk according to internal management rules related to derivative transactions.

d. Measuring Hedge Effectiveness

The BOOKOFF Group has omitted effectiveness tests for interest rate and currency swap transactions where combined accounting has been applied.

Further, the BOOKOFF Group has omitted the presentation of matters other than those disclosed above, as there have been no significant changes from details presented in the most recent securities report, filed on June 25, 2012.

(7) Changes in Accounting Policies

(Changes in Accounting Policies difficult to Distinguish from Changes in Accounting Estimates)

The BOOKOFF Group and domestic consolidated subsidiaries have changed methods for depreciation of tangible fixed assets according to the revised Corporation Tax Act. These changes have been applied starting with the consolidated fiscal year under review for tangible fixed assets acquired on or after April 1, 2012.

(8) Notes to Consolidated Financial Statements

* Notes for which disclosure in the summary of financial results has been deemed immaterial have been omitted.

(Consolidated Balance Sheet)

* 1. The balance for non-consolidated subsidiaries and affiliates is as follows: (Thousand yen)

FY 2011 (April 1, 2011 – March 31, 2012)

FY 2012 (April 1, 2012 – March 31, 2013)

Investment securities 42,747 283,687

2. The company has concluded overdraft agreements with 13 banks in order to efficiently procure working capital. The balance of unexecuted loans under these contracts at the end of the current consolidated fiscal year is as follows:

(Thousand yen) FY 2011

(April 1, 2011 – March 31, 2012) FY 2012

(April 1, 2012 – March 31, 2013) Total overdraft amount 10,350,000 11,420,000

Executed loans payable 4,650,000 4,330,000 Balance 5,700,000 7,090,000


26

(Consolidated Statements of Income) * 1 Impairment loss

The Group recorded an impairment loss for the following asset groups.

FY 2011 (April 1, 2011 – March 31, 2012)

Application Type Location Impairment Loss (thousand yen)

Stores Buildings and structures Reuse Homes Town Kawagoe Kosemba Store(Kawagoe City, Saitama Prefecture), and 44 other stores

357,478

The Group regards each store as the base unit in identifying the smallest group of assets that generate cash flows.

For stores that have generated continuous losses stemming from their business activities, and when it has been deemed that there is little potential for an earnings recovery, or when changes in the range of use have significantly reduced the recoverable amounts, the book values were reduced to recoverable amounts, and the amount of the reduction was recognized as an asset impairment loss and recorded as an extraordinary loss.

The breakdown of the impairment loss is as follows:

(Thousand yen)

Buildings and structures 291,489 Property, plant and equipment – other

26,970

Leased assets (property, plant and equipment)

12,684

Intangible assets – other 23,150Investments and other assets – other

3,183

Total 357,478

The Group estimates the recoverable amount using value in use, which is calculated by discounting the asset’s future cash flows by 8%.

FY 2012 (April 1, 2012 – March 31, 2013)

Application Type Location Impairment Loss (thousand yen)

Stores Buildings and structures BOOKOFF Wago store (Togocho Aichi district, Aichi Prefecture), and 29 other stores

275,609

The Group regards each store as the base unit in identifying the smallest group of assets that generate cash flows.

For stores that have generated continuous losses stemming from their business activities, and when it has been deemed that there is little potential for an earnings recovery, or when changes in the range of use have significantly reduced the recoverable amounts, the book values were reduced to recoverable amounts, and the amount of the reduction was recognized as an asset impairment loss and recorded as an extraordinary loss.


27

The breakdown of the impairment loss is as follows:

(Thousand yen)

Buildings and structures 138,475Property, plant and equipment – other

24,028

Leased assets (property, plant and equipment)

13,675

Goodwill 67,127Intangible assets – other 26,584Investments and other assets – other

5,717

Total 275,609

The Group estimates the recoverable amount using value in use, which is calculated by discounting the asset’s future cash flows by 8%.

(Consolidated Statements of Comprehensive Income)

* Reclassification adjustments and tax effects related to other comprehensive income

(Thousand yen)

FY 2011 (April 1, 2011 – March 31, 2012)

FY 2012 (April 1, 2012 – March 31, 2013)

Valuation difference on other available-for-sale securities

Amount incurred in fiscal 2012 20,229 12,280

Amount of reclassification adjustments (1,100) -

Before tax effects 19,128 12,280

Amount of tax effects (8,451) (1,483)

Valuation difference on other available-for-sale securities 10,677 10,797

Foreign currency translation adjustments

Amount incurred in fiscal 2012 (19,285) 34,083

Share of other comprehensive income of associates accounted for using equity method

Amount incurred in fiscal 2012 9 9,854

Other comprehensive income (8,598) 54,736


28

(Segment Information)

a. Segment information

1. Overview of reporting segments

The reporting segments of the BOOKOFF Corporation Ltd. Group are constituent units of the Group for which separate financial information can be obtained, and the Board of Directors, examines such information on a regular basis to determine the allocation of management resources and evaluate business performance.

The Group has made “contributions to society through our business activities” and the “pursuit of employees’ material and spiritual wellbeing” its management philosophy, and it engages in the operation of retail stores and a franchise business developed on the concept of “reuse,” focusing on BOOKOFF retail secondhand bookstores.

As a result, the Group consists of three reporting segments that form the basis for the merchandise it handles and its management configuration: the BOOKOFF Business, the Reuse Business and the Packaged Media Business.

The BOOKOFF Business operates BOOKOFF stores, through which the Group buys and sells used books, CDs, DVDs, games, mobile phones, trading cards and other pre-owned goods. BOOKOFF locations exist throughout Japan, as well as in three countries overseas (U.S., France, Korea). Stores are either managed directly by the BOOKOFF Group (directly operated) or franchised (FC) to other operators. The BOOKOFF Business also owns manages the BOOKOFF Online E-commerce website. The Reuse Business operates chains of stores dealing in products not generally handed by the BOOKOFF Business (fashion goods, sporting goods, baby goods, watches, luxury brand items, precious metals, kitchenware, household goods, etc.). The segment also manages the HARDOFF reuse chain and other franchised shops dealing in pre-owned hardware (audio-visual products, computers, etc.).

The Packaged Media Business operates stores as a member of the TSUTAYA chain of video rental stores, and also operates Aoyama Book Center, Ryusui Shobo and yc-vox new book stores.

2. Methods used to calculate the amount of net sales, profits or losses, assets, liabilities and other items in reporting segments

The accounting methods of the reported business segments are generally the same as those stated in Important Items that Form the Basis for Preparing Consolidated Financial Statements.

Profits in the reporting segments are values based on operating income.

Inter-segment internal net sales or transfers are based on third-party transaction values.

3. Information on the amounts of net sales, profits or losses, assets, liabilities and other items in reporting segments

Previous consolidated fiscal year (April 1, 2011 – March 31, 2012) (Unit: thousand yen)

Reporting Segment Other

(Note: 1)

Total Adjusted amount

(Note: 2)

Amount reported in

consolidated financial

statements

BOOKOFF Business

Reuse Business

Packaged Media

Business

Total

Net Sales

Net sales to unaffiliated customers

52,027,601

11,117,331 12,142,442 75,287,375 429,598 75,716,973 - 75,716,973

Intersegment internal net sales and transfers

337,767

358 20 338,146 165,205 503,351 (503,351) -

Total 52,365,369

11,117,689 12,142,463 75,625,521 594,803 76,220,325 (503,351) 75,716,973

Segment profit (loss)

5,197,970

200,581 19,690 5,418,242 (50,845) 5,367,396 (1,934,554) 3,432,842

Segment assets

19,645,517

5,305,199 4,344,264 29,294,981 152,304 29,447,286 8,536,298 37,983,584

Other items

Depreciation and amortization

1,500,271 359.243 90,209 1,949,723 9,469 1,959,193 92,850 2,052,043

Amortization of goodwill

183,195 8,649 152,973 344,817 5,860 350,678 - 350,678

Increases in property,

1,284,966 608,789 105,392 1,999,148 - 1,999,148 59,422 2,058,571


29

plant and equipment and intangible assets

Notes:

1. “Other” operates stores not included in the “BOOKOFF” “Reuse” and “Packaged Media” businesses (KID-O-KID indoor playground chain, etc.), and is also engaged in Interior and exterior planning, design, construction of stores in all segments.

Current consolidated fiscal year (April 1, 2012 – March 31, 2013) (Unit: thousand yen)

Reporting Segment Other

(Note: 1)

Total Adjusted amount

(Note: 2)

Amount reported in

consolidated financial

statements

BOOKOFF Business

Reuse Business

Packaged Media

Business

Total

Net Sales

Net sales to unaffiliated customers

52,484,073 12,548170 11,271,908 76,304,152 366,785 76,670,937 - 76,670,937

Intersegment internal net sales and transfers

367,226 183 286 367,696 116,091 483,788 (483,788)

Total 52,851,300 12,548,354 11,272,194 76,671,849 482,876 77,154,726 (483,789) 76,670,937

Segment profit (loss)

3,395,387 465,996 (113,122) 3,748,260 (14,558) 3,733,702 (1,819,033) 1,914,668

Segment assets

21,184,943 6,310,640 3,879,223 31,374,806 175,818 31,550,624 7,904,539 39,455,164

Other items

Depreciation and amortization

1,470,695 448,351 85,081 2,004,129 3,748 2,007,877 61,560 2,069,437

Amortization of goodwill

152,664 8,649 152,973 314,286 5,860 320,147 - 320,147

Increases in property, plant and equipment and intangible assets

1,701,371 789,050 129,691 2,620,112 1,203 2,621,315 68,447 2,689,762

Notes:

1. “Other” operates stores not included in the “BOOKOFF” “Reuse” and “Packaged Media” businesses (KID-O-KID indoor playground chain, etc.), and is also engaged in Interior and exterior planning, design, construction of stores in all segments.

2. Differences between total amounts for reporting segments and amounts recorded in the consolidated financial statement, and details on those differences (items related to the difference)


Income Previous consolidated fiscal year Current consolidated fiscal year

Total of reporting segments 5,418,242 3,748,260

Income classified as “other” (50,845) (14,558)

Inter-segment elimination total - 28,477

Corporate expenses (Notes) (1,934,554) (1,847,511)

Operating income 3,432,842 1,914,668

Notes: Corporate expenses are mainly general administrative expenses.


30


Assets Previous consolidated fiscal year Current consolidated fiscal year


Assets classified as “other” 152,304 175,818

Other adjustments (Notes: 1) (149,454) (65,586)

Corporate assets (Notes: 2) 8,685,753 7,970,125

Total assets 37,983,584 39,455,164

Notes:

1. Assets classified as “other” are mainly offset/elimination amounts of claims/debts and unrealized gains.

2. Corporate assets are mainly surplus funds (cash and deposits) and long-term investments (investment securities) of companies and subsidiary companies that submit a consolidated financial statement.


Depreciation and amortization Previous consolidated fiscal year Current consolidated fiscal year


Assets classified as “other” 9,469 3,748

Corporate assets (Note) 92,850 61,560

Total Depreciation 2,052,043 2,069,437

Note: Corporate assets mainly consist of depreciation expenses for systems-related assets.

b. Information concerning impairment loss of noncurrent assets by reporting segment


Reporting SegmentOther Total Adjustment Amount

reported in consolidated

financial statements

BOOKOFF Business

Reuse Business

Packaged Media

Business

Total

Impairment loss 128,904 79,713 122,280 330,898 - 330,898 26,580 357,478


Reporting SegmentOther Total Adjustment Amount



BOOKOFF Business

Reuse Business

Packaged Media

Business

Total

Impairment loss 166,954 19,753 75,084 261,793 14,766 276,559 (950) 275,609


31

c. Information concerning amortization and unamortized balance of goodwill and negative goodwill by reporting segment


Reporting Segment Other Total Adjustment Amount



BOOKOFF Business

Reuse Business

Packaged Media

Business

Total

(Goodwill)

Amortization during the current fiscal year

183,195

8,649

152,973

344,817

5,860

350,678

-

350,678

Balance at fiscal year end

520,991

34,597

542,666

1,098,255

21,978

1,120,233

-

1,120,233

(Negative Goodwill)


-

-

70,238

70,238

-

70,238

-

70,238


-

-

-

-

-

-

-

-


Reporting Segment Other Total Adjustment Amount



BOOKOFF Business

Reuse Business

Packaged Media

Business

Total

(Goodwill)


152,664 8,649 152,973 314,286 5,860 320,147 - 320,147


377,818 25,947 375,193 778,959 16,117 795,077 - 795,077

(Negative Goodwill)


- - - - - - - -


- - - - - - - -

d. Information concerning gain on negative goodwill by reporting segment

Previous consolidated fiscal year (April 1, 2011 – March 31, 2012)

There was no gain on negative goodwill of importance recorded in the current consolidated fiscal year.

Current consolidated fiscal year (April 1, 2012 – March 31, 2013)

There was no gain on negative goodwill of importance recorded in the current consolidated fiscal year.


32

(Per Share Information)

(Unit: Yen)

FY 2011 (April 1, 2011 – March 31, 2012)

FY 2012 (April 1, 2012 – March 31, 2013)

Net assets per share 784.19

Net assets per share 820.64

Net income per share 102.41

Net income per share 57.30

Fully diluted net income per share is not stated because there are no potentially dilutive securities.

Fully diluted net income per share is not stated because there are no potentially dilutive securities.

Notes: 1. Diluted earnings per share not presented as the Group has not issued any stock having dilutive effects.

2. Earnings per share calculations are based on the following figures.

FY 2011 (April 1, 2011 – March 31, 2012) FY 2012 (April 1, 2012 – March 31, 2013)


Net income (thousand yen) 1,867,242 1,058,088

Amount not attributable to common stockholders (thousand yen)

-

Net income attributable to common stockholders (thousand yen)

1,867,242 1,058,088

Weighted average number of shares of common stock during the fiscal year (thousand shares)

18,232 18,467

Outline of dilutive shares which were not included in the calculation of fully diluted net income per share because they do not have dilutive effect:

New share subscription rights issued on March 1, 2006 (2,380 units)

Subscription rights for stock options approved at the June 25, 2005 general meeting of shareholders expired as of June 30, 2012.

The number of outstanding shares of common stock at the end of the fiscal year used in the calculation of net asset per share and the weighted average number of shares of common stock during the fiscal year used in the calculation of net income per share did not include shares of the company’s stock held by the BOOKOFF Corporation Employee Stock Ownership Association Trust.

(Important Subsequent Events)

None

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