Consolidated Summary Report For the Fiscal Year Ended ... · Financial results for the current fiscal year (April 1, 2013 – March 31, 2014) ... Basic Policy on Profit Distribution

BOOKOFF Corporation Ltd. (3313) Summary of Financial Results for the Year Ended March 2014

May 8, 2014

Consolidated Summary Report

For the Fiscal Year Ended March 31, 2014 [Japan GAAP]

Company Name: Bookoff Corporation Ltd.

Code Number: 3313

Stock Exchange: Tokyo

URL: http://www.bookoff.co.jp/en/

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 21, 2014

Dividend payment date: June 23, 2014

Securities report issue date: June 23, 2014

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, 2013 – March 31, 2014)

(1) Results of Operations (Consolidated) (Percentage figures represent year on year changes)

Net sales Operating income Ordinary income Net income

Million

yen

YoY

Change %

Million

yen

YoY

Change %

Million

yen

YoY

Change %

Million

yen

YoY

Change %

Fiscal year ended March 2014 79,159 3.2 2,024 5.7 2,608 10.2 951 (10.1)

Fiscal year ended March 2013 76,670 1.3 1,914 (44.2) 2,366 (37.8) 1,058 (43.3)

Comprehensive income

Fiscal year ended March 2014: 1,075 million yen (-3.4%)

Fiscal year ended March 2013: 1,112 million yen (-40.1%)

Net income

per share

Fully diluted net

income

per share

Return

on equity

Ratio of

ordinary income

to total assets

Operating income

margin

Yen Yen % % %

Fiscal year ended March 2014 52.09 ‐ 6.2 6.5 2.6

Fiscal year ended March 2013 57.30 ‐ 7.1 6.1 2.5

(Reference): Income from investment in affiliates (equity method)

Fiscal year ended March 2014 0 million yen

Fiscal year ended March 2013 4 million yen

(2) Financial Condition (Consolidated)

Total assets Net assets Equity ratio Net assets per share

Million yen Million yen % Yen

As of March 31, 2014 40,336 15,226 37.7 865.90

As of March 31, 2013 39,455 15,249 38.7 820.64

(Reference): Shareholders’ equity

Fiscal year ended March 2014: 15,226 million yen

Fiscal year ended March 2013: 15,249 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 2014 3,269 (1,319) (1,000) 5,597

Fiscal year ended March 2013 1,863 (2,190) (905) 4,630

2. Dividends

Dividend per share Total

dividends

Dividend

Payout ratio

(Consolidated)

Dividends on

net 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

2013

‐ ‐ ‐ 25.00 25.00 464 43.6 3.1

Fiscal year ending March

2014

‐ ‐ ‐ 25.00 25.00 439 48.0 3.0

Fiscal year ending March

2015 (est.)

‐ ‐ ‐ 25.00 25.00 84.6

3. Forecast for the fiscal year ending March 2014 (Consolidated, April 1, 2014 - March 31, 2015)

Net sales Operating income Ordinary income Net income Net income

per share

Million yen % Million yen % Million yen % Million yen % Yen

First half 39,000 0.7 0 (100) 250 (11.2) 0 (100) 0.00

Full year 80,000 1.1 1,500 (25.9) 2,000 (23.3) 600 (37.0) 29.54

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): None

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: None

(2) Changes due to other reasons: None

(3) Changes in accounting estimates: None

(4) Restatements: None

3. Number of shares outstanding (common stock)

(1) Shares outstanding (including treasury stock) As of March 31, 2014 19,473,200 As of March 31, 2013 19,473,200

(2) Treasury stock As of March 31, 2014 1,888,782 As of March 31, 2013 890,482

(3) Average number of shares outstanding As of March 31, 2014 18,269,559 As of March 31, 2013 18,467,001

* 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)

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 reason able. Actual results may differ materially from those projected in the forward-

looking statements due to a variety of factors. Please see “(1) Analysis of Results of Operations” (p. 2) in the attached materials for

items pertaining to the forecast stated above.

(Consolidated Net Income per Share Earnings Forecast) The BOOKOFF Group plans to issue 3,100,000 shares of common stock to Yahoo Japan Corporation by means of an allocation of

shares to a third party, payment scheduled for May 15, 2014. Net income per share as displayed in the Group’s earnings forecast for

the fiscal year ending March 2015 has been calculated assuming the completion of this transaction.

(Financial Results Presentation Materials)

The Company publishes Financial Results Presentation Materials on TDnet on the same day as the publication of this Summary of

Financial Results.


1

Table of Contents

1. Results of Operations - Analysis of Financial Position 2

(1) Analysis of Results of Operations 2

(2) Analysis of Financial Position 6

(3) Basic Policy on Profit Distribution and Dividends for FY 2012 and FY 2013 7

(4) Business Risks 7

2. Corporate Group 12

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 to Consolidated Financial Statements 24 （Notes Concerning the Going-Concern Premise） 24 （Important Items that Form the Basis for Preparing Consolidated Financial Statements） 24 （Consolidated Balance Sheet） 24 （Consolidated Statements of Income） 25 （Consolidated Statements of Comprehensive Income） 26 （Segment Information） 27 （Per-Share Information） 30 （Important Subsequent Events） 31


2

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 BOOKOFF for people who don’t let things go to

waste and a partner offering infrastructure for a waste-free lifestyle for people who don’t want to toss things away, helping create

a truly reuse-based society.

Guided by this management policy, our goal is to expand our comprehensive Reuse business, leveraging the BOOKOFF brand.

We are increasing the pace of new store openings and remodels, focusing on BOOKOFF SUPER BAZAAR stores

(comprehensive large-format stores collecting reuse merchandise under the “Sell us your...” BOOKOFF business model) and

BOOKOFF PLUS stores (BOOKOFF stores combining apparel-related merchandise) as our core package of retail outlets.

During the current consolidated fiscal year, we opened four new BOOKOFF stores*, one BOOKOFF PLUS location, and three

BOOKOFF SUPER BAZAAR locations. We also remodeled one BOOKOFF store into a BOOKOFF PLUS format.

One of our major initiatives during the year was to increase the number of buying customers in our mainstay BOOKOFF stores

by creating more reasons to visit. Accordingly, the BOOKOFF Group held a major chain-wide buy-and-sell campaign twice

during the year.

During the second half of the year, we introduced a significant push to reduce losses stemming from slow-moving merchandise

through cost-reduction measures and by controlling payroll expenses and other store operating costs.

As a result of these efforts, consolidated net sales for the year under review amounted to ¥79,159 million, which was a 3.2%

year-on-year increase. The Group recorded operating income of ¥2,024 million (5.7% increase), ordinary income of ¥2,608

million (10.2% increase), and net income of ¥951 million (10.1% year-on-year decrease).

*Stores are defined as a discrete business model; a single location may host more than one store.

Sales by business segment were as follows:

(BOOKOFF Business)

The BOOKOFF Business segment recorded net sales of ¥53,648 million during the consolidated fiscal year under review,

representing a 2.2% year-on-year increase.

During the same period, the segment opened eight new directly operated stores and six franchise stores. At the same time, the

Group shuttered 21 directly operated stores and 33 franchise stores.

While existing store net sales decreased compared to the prior consolidated fiscal year, contributions from new store openings

and the Online business led to higher overall revenues.

(Reuse Business)

The Reuse Business segment recorded consolidated net sales of ¥14,379 million, which was a 14.6% increase compared to the

prior fiscal year.

The segment saw five new directly operated store openings, while closing 30 directly operated stores (including 27 locations in

which multiple stores in one building were consolidated under one store name).

Existing store sales gained year on year, while new store openings also contributed to growth, driving overall segment revenues

higher.

(Packaged Media Business)

The Packaged Media Business segment recorded net sales of ¥10,704 million for the consolidated fiscal year under review—a

5.0% decrease compared to the prior fiscal year.

This segment did not open any new stores during the current consolidated fiscal year, but did shutter two directly operated

locations.

(Other)

This segment recorded net sales of ¥426 million for the consolidated year under review, which was a 16.2% year-on-year

increase.

The segment did not open any new stores during the period, but did close one directly operated location.


3

(Performance Trends)

(Unit: million yen)

Fiscal Year Ended March 2013 Fiscal Year Ended March 2014

Net sales 76,670 79,159

BOOKOFF Business

Directly operated store sales

Online sales

Sales to Franchisees

Other services

Reuse Business

Packaged Media Business

Other

52,484

46,018

3,713

702

2,049

12,548

11,271

366

53,648

46,378

4,623

677

1,969

14,379

10,704

426

Operating income 1,914 2,024

Ordinary income 2,366 2,608

Extraordinary gains - 64

Extraordinary losses 483 529

Income before income taxes 1,882 2,143

Net income 1,058 951

(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 2013 Fiscal Year Ended March 2014

Open Close Open Close

BOOKOFF

Business

Group 26 21 8 21

Franchise 13 35 6 33

Reuse Business Group 24 2 5 30

Franchise 1 2 - -

Packaged Media

Business

Group 1 2 - 2

Franchise - - - -

Other Group 1 - - 1

Franchise - - - -

Total Store

Openings/Closings

Group 52 25 13 54

Franchise 14 37 6 33

Fiscal Year-End

Total

Group 491 450

Franchise 567 540


4

Outlook for the Fiscal Year Ending March 31, 2015

(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 stores (comprehensive large-format stores collecting reuse merchandise

under the “Sell us your...” BOOKOFF business model) and BOOKOFF PLUS stores (BOOKOFF stores combining apparel-

related merchandise) as our core package of retail outlets. During the next fiscal period, we intend to open two BOOKOFF

SUPER BAZAAR locations and two BOOKOFF PLUS locations.

While we will continue with efforts to control operating costs at existing stores, we expect to incur up-front investment costs

for introducing a membership card service that we believe will more frequent repeat visits. We also expect that our Online

business will experience higher shipping and handling expenses due to shipping price increases for dispatch purchase services

provided by shipping companies. We also project up-front investment costs for warehouse expansions and systems in

anticipation of business growth, which will contribute to higher forecasted selling, general, and administrative expenses when

compared to the prior consolidated fiscal year.

As a result, our consolidated earnings forecast calls for net sales of ¥80,000 million, with operating income of ¥1,500 million,

ordinary income of ¥2,000 million, and net income of ¥600 million.

(Outlook by Business Segment)

(BOOKOFF Business)

For the fiscal year ending March 2015, we plan to replace certain existing BOOKOFF stores with two BOOKOFF SUPER

BAZAAR comprehensive large-format locations and two BOOKOFF PLUS locations.

We will continue to review our selling prices and sales promotions to improve purchasing and maximize sales of purchased

merchandise at existing stores. At the same time, we intend to attract new customers by expanding the scope of merchandise we

handle, including trading cards, used mobile phones, and private brand goods. We also believe that we can improve customer

numbers by encouraging repeat visits through a new member card service.

On April 24, 2014, we signed a business alliance agreement with Yahoo Japan Corporation. Under this new agreement, we will

list certain merchandise from BOOKOFF stores on Yahoo Auctions (operated by Yahoo Japan Corporation). We are confident

that this additional online sales channel will help improve sales efficiencies in our retail locations.

The BOOKOFF Group Online E-commerce site continues to perform well, and we expect the fiscal year ending March 2015 to

be another one of revenue growth for this business. However, we expect to see higher selling, general, and administrative

expenses due to higher shipping and handling expenses associated with dispatch purchase services performed by shipping

companies, as well as up-front investment for warehouse expansion and systems-related costs in anticipation of business growth.

Based on the preceding, we forecast BOOKOFF Business segment net sales of ¥53,100 million for the fiscal year ending March

2015.

(Reuse Business)

The Group plans to open two comprehensive large-format BOOKOFF SUPER BAZAAR locations and two BOOKOFF PLUS

locations during the fiscal year ending March 2015. Our strategy is to continue to roll out new BOOKOFF SUPER BAZAAR

and BOOKOFF PLUS locations to capture a greater share of the reuse market and to improve Group profitability.

Based on the preceding, we forecast Reuse Business segment net sales of ¥15,750 million for the fiscal year ending March

2015.

(Packaged Media Business)

The TSUTAYA business is experiencing both greater competition and an overall contraction in the new CD sales market. In

response to this business environment, we intend to expand merchandise offerings at TSUTAYA outlets to attract more repeat

visits. We will also continue to cut selling, general, and administrative expenses to improve profitability.

Based on the preceding, we forecast Packaged Media Business segment net sales of ¥10,350 million for the fiscal year ending

March 2015.

(Other)

We will continue with measures to expand our dispatch purchasing service and other purchasing services under our hug all

business, launched during the prior fiscal year. At the same time, we will make ongoing investments as required to build more

efficient operations looking ahead to support future business growth and to secure profitability.

Based on the business alliance agreement we signed with Yahoo Japan Corporation on April 24, 2014, we will establish a general

purchasing service desk to link our hug all business with BOOKOFF stores. This service will operate on a trial basis for to

purchase a wide range of merchandise beyond the typical books, CDs, DVDs, and games BOOKOFF has traditionally handled.

Merchandise purchased through this general purchasing service will be listed and sold through Yahoo Auctions, leading to

improved profitability.

Based on the preceding, we forecast Other segment net sales of ¥800 million for the fiscal year ending March 2015.


5

(Consolidated Earnings Forecast) (Unit: million yen)

Fiscal Year Ending

March 2014

Fiscal Year Ending

March

2015(Forecast)

Change % Change

Net Sales 79,159 80,000 840 1.1

Operating Income 2,024 1,500 (524) (25.9)

Ordinary Income 2,608 2,000 (608) (23.3)

Net Income 951 600 (351) (37.0)

(Amounts rounded down to the nearest one million yen)


6

(2) Analysis of Financial Position

1. Assets, Liabilities and Net Assets for the Consolidated Fiscal Year Ended March 31, 2014

(Current Assets)

Current assets for the consolidated fiscal year under review amounted to ¥20,844 million (compared to ¥19,351 million at the

end of the previous consolidated fiscal year), an increase of ¥1,492 million. The primary factors were a ¥430 million increase

in merchandise in line with the expansion of the Group’s operations and an increase of ¥967 in cash and deposits.

(Noncurrent Assets)

Noncurrent assets for the consolidated fiscal year under review amounted to ¥19,492 million (compared to ¥20,103 million at the

end of the previous consolidated fiscal year), a decrease of ¥611 million. While the Group acquired assets in connection with

investments in new stores, ongoing depreciation, as well as asset impairments and disposals associated with the closing of stores,

resulted in a ¥201 million decrease in property, plant, and equipment, while amortization led to a decrease of ¥235 million in

intangible fixed assets. A decrease in guarantee deposits due to store closings resulted in a ¥174 million decrease in investments

and other assets.

(Liabilities)

Liabilities as of the end of the consolidated fiscal year under review amounted to ¥25,110 million (compared to ¥24,205

million at the end of the previous consolidated fiscal year), which was an increase of ¥904 million increase. This result was

mainly due to an increase of ¥1,000 million in corporate bonds.

(Net Assets)

Net assets for the consolidated fiscal year under review amounted to ¥15,226 million (compared to ¥15,249 million at the end

of the previous consolidated fiscal year), a decrease of ¥23 million. While the Group paid a dividend from surplus, retained

earnings increased by ¥487 million with from net income. In addition, the Group purchased treasury stock, which increased

treasury stock by ¥634 million.

2. Cash Flows

Cash and cash equivalents (“cash”) for the consolidated fiscal year under review amounted to ¥5,597 million, an increase of

¥967 million compared to the end of the previous consolidated fiscal year.

Consolidated cash flows and the primary reasons for their fluctuation during 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 ¥3,269 million (compared to ¥1,863 for the

prior consolidated fiscal year). This result was mainly due to ¥2,143 million in income before income taxes, ¥2,081 million in

depreciation, ¥291 million in amortization of goodwill, and ¥393 million in impairment loss—all factors leading to net cash

increases. Factors leading to net cash decreases included an increase in inventories of ¥398 million, net changes in notes and

accounts receivable-trade and notes and accounts payable-trade of ¥254 million, and income taxes paid of ¥1,025 million.

(Cash Flows from Investing Activities)

Net cash used in investing activities amounted to ¥1,319 million, compared to ¥2,190 million for the prior consolidated fiscal

year. The Group recorded a decrease in guaranteed deposits of ¥524 million associated with store closings, while at the same

time making cash outlays for property, plant, and equipment in the amount of ¥1,099 million, guarantee deposits in the amount of

¥357 million, and intangible assets related to additional investments in POS systems in the amount of ¥358 million—all related to

new store openings.

(Cash Flows from Financing Activities)

Net cash from financing activities decreased by ¥1,000 million, compared to a decrease of ¥905 million in the prior consolidated

fiscal year. This result was mainly due to an increase of cash in the amount of ¥1,000 million from the issuance of corporate

bonds and ¥177 million in net loans payable, offset by ¥505 million in repayments of accounts payable—other, ¥545 million in

repayments of lease obligations, outlays of ¥764 million for the purchase of treasury stock, and payments of ¥464 million in

dividends.

(Trends in Equity Ratio, Equity Ratio Based on Market Value, Ratio of Interest-Bearing Debt to Cash Flow and Interest

Coverage Ratio)

Fiscal Year Ended

March 2012

Fiscal Year Ended

March 2013

Fiscal Year Ended

March 2014

Equity ratio (%) 37.9 38.7 37.7

Equity ratio based on market value (%) 40.0 33.8 34.3

Ratio of interest-bearing debt to cash flow

(years) 2.9 8.0 4.8

Interest coverage ratio (times) 20.2 8.5 16.1


7

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 2013 and FY 2014

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 2014), in line with our original

plan. This amount represents a 48.0% 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 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 2014.

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.

At present, the BOOKOFF Group goal is to expand our comprehensive Reuse business, leveraging the BOOKOFF brand,

as we roll out BOOKOFF SUPER BAZAAR stores (comprehensive large-format stores collecting reuse merchandise

under the “Sell us your...” BOOKOFF business model) and BOOKOFF PLUS stores (BOOKOFF stores combining

apparel-related merchandise). While stores engaged in the reuse business within the BOOKOFF PLUS and BOOKOFF

SUPER BAZAAR tend to build revenues rather quickly, the lack of market awareness of the business model and range

of reuse merchandise handled means that achieving revenue stability requires comparatively more time than for

traditional BOOKOFF locations. As well, investment per property for BOOKOFF PLUS and BOOKOFF SUPER

BAZAAR stores is relatively large compared with traditional BOOKOFF stores. Depending on the circumstances, these

factors could impact the business results and financial status of the BOOKOFF Group.

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


8

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 hiring and training system, matched to new and existing store operational needs. 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.” To expand our comprehensive reuse business, we intend to continue to open BOOKOFF

PLUS stores (BOOKOFF stores combining apparel-related merchandise) and BOOKOFF SUPER BAZAAR stores

(comprehensive large-format stores collecting reuse merchandise under the “Sell us your...” BOOKOFF business model)

locations.

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.

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, 2014).

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,


9

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 2014) 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

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.)


10

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

8,757 part-time workers as of March 31, 2014). 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

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 2014, guarantee deposits amounted

to ¥8,750 million on a consolidated basis (21.7% 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) Dilution of Stock

On April 24, 2014, BOOKOFF Corporation signed a capital and business alliance agreement with Yahoo Japan

Corporation (“Yahoo”). Based on this agreement, BOOKOFF Corporation agreed to grant Yahoo 3,100,000 shares of

BOOKOFF Corporation common stock via an allocation to a third party, as well as up to an additional 10,252,996 shares

via conversion of convertible bonds, combining for a total of 13,352,996 shares (133,529 voting shares). These


11

13,352,996 shares represent 68.5% of the total 19,473,200 shares (175,390 voting shares) issued by the BOOKOFF

Group as of March 31, 2014 and 76.1% (rounded to the nearest tenth) of the total outstanding voting shares as of that

date. As a result, per-share value and ownership ratios of BOOKOFF Corporation common shares could be diluted, and

such dilution may have an impact on BOOKOFF Group share prices and business results.

6) Changes in Main and Largest Shareholder and other Affiliated Companies

On April 24, 2014, BOOKOFF Corporation signed a capital and business alliance agreement with Yahoo. Based on this

agreement, the BOOKOFF Group has agreed to issue Yahoo common shares via third party allocation, as well as

additional shares via conversion of convertible bond. In the event that Yahoo uses the rights to exercise these shares to

name two directors to the BOOKOFF Corporation board of directors at the company’s annual general meeting of

shareholders, Yahoo will then become the main and largest shareholder and other affiliated company of BOOKOFF

Corporation. Accordingly, the exercise of voting rights by Yahoo at the BOOKOFF Corporation annual general meeting

of shareholders may have an impact on the governance of the BOOKOFF Group’s business operations.

7) Capital and Business Alliance

Under the capital and business alliance signed with Yahoo, the BOOKOFF Group will act as a core vendor in the Yahoo

Auction online auction service operated by Yahoo, offering reuse merchandise such as books, CDs, DVDs, and games

over the Yahoo platform. This alliance will allow the BOOKOFF Group to offer merchandise from its nearly 850 Japan-

based stores to consumers throughout Japan. The resulting improvement in sales efficiency of BOOKOFF merchandise

should allow the Group to use extra sales floor space to offer new types of merchandise and services that lead to more

frequent customer visits and new revenue opportunities for the Group. Further, the Group’s hug all, Inc. subsidiary

should be able to use the Group’s network of retail outlets and the Yahoo member base to raise awareness of its general

purchasing service among general consumers, helping grow the Group’s comprehensive Reuse Business in tandem with

BOOKOFF PLUS and BOOKOFF SUPER BAZAAR stores. We believe these plans will lead to revenue growth for the

BOOKOFF Group; however, there is no guarantee that this business alliance will be executed exactly in accordance with

the alliance agreement. Even in the event that this business alliance is executed exactly according to the agreement, we

may not be able to secure the economic benefits expected, which could have an impact on the business results of the

BOOKOFF Group.


12

2. Corporate Group

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. *2 hug all, inc. is a BOOKOFF Group consolidated subsidiary, established on April 1, 2013.

*3 BOOKOFF Logistics, Co., Ltd. merged with *1 BOOKOFF Corporation Ltd. on April 1, 2014.

*4 BOOKOFF Next, Inc. merged with *1 BOOKOFF Corporation Ltd. on April 1, 2014.


13

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 as our target performance indicator for the time being, to be achieved through

stable and sustained growth.

(3) Medium- to Long-Term Management Strategies

Moving forward, we intend to leverage the BOOKOFF retail network, brand power, and operational capabilities to increase

store size and develop multi-format models. We also intend to expand the range of merchandise we handle to grow our share

and recognition in the reuse markets, a market for which we expect continued growth.

We plan to focus on the evolution of the BOOKOFF package, our mainstay business, and to grow the BOOKOFF Online

business. Our strategy also calls for expanding the range of merchandise BOOKOFF offers, adding mobile phones, trading cards,

figures and other hobbyist items to our traditional lineup of books, CDs, DVDs, and games. We intend to revise pricing

structures and display methods, as well as use our relationship with Yahoo to expand effective sales channels. This should allow

us to adapt to the changing business environment to grow our customer numbers over the long term and to increase profitability

across our network as a whole. BOOKOFF Online plans to roll out new and unique services that meet the needs of our

customers. These new services should help us continue to build our business as we develop different sales channels and expand

our customer base.

The Reuse Business is part of a large potential market—a market we believe to be the driver of future growth for the BOOKOFF

Group. Our strategy is to expand the number of BOOKOFF PLUS (BOOKOFF merchandise and apparel) and BOOKOFF

SUPER BAZAAR (comprehensive large-format locations) locations across Japan. In doing so, we believe we will be able to

gain a greater competitive advantage by leveraging the BOOKOOF name brand to attract customers and by offering wider range

of merchandise to secure a larger share of the reuse market.

Rather than limit ourselves to the physical retail business, we plan to expand our business offerings more widely across the

reuse field. We will build out our dispatch purchasing service as part of our general purchasing service, in addition to setting up

general purchasing service desks within BOOKOFF stores and at other locations. We expect this strategy to help us develop our

comprehensive reuse business further, as well as allow us to purchase a greater range of merchandise to be sold through a more

all-encompassing sales structure to achieve revenue growth.

We believe the preceding strategies will tie to our mission of building an infrastructure for people who don’t let things go to

waste. We will focus on the Reuse Business model as we stake out our position as a leading company in the comprehensive

reuse market, creating sustainable growth over the long term.

(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


14

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.

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, we intend to expand beyond the traditional BOOKOFF merchandise of books, CDs, DVDs, games by

leveraging our expertise in the reuse business to buy and traditional BOOKOFF merchandise and fashion goods through

our BOOKOFF PLUS chain, as well as handle books, CDs, DVDs, games, trading cards, figurines, fashion goods, sporting

goods, baby goods, watches, luxury-brand items, precious metals, kitchenware, household goods, and more through our

comprehensive large-format BOOKOFF SUPER BAZAAR locations.

While the Group’s investment will increase as a result of the move to comprehensive large-format stores, we will strive

to realize expedited profitability and greater investment efficiency by continuing efforts to reduce initial investment. We

will also further strengthen both training for staff hired for store openings and the headquarters’ support system.

3. The Evolution of BOOKOFF

The BOOKOFF Group will introduce greater merchandise sales efficiencies by conducting a comprehensive review of

BOOKOFF pricing and sales promotion measures. Our new alliance with Yahoo will open additional sales channels to

move merchandise that we have purchased. We plan to expand the range of our private-label goods lineup and buy/sell a

wider range of merchandise through our general purchasing service desk afforded by our alliance with Yahoo. These

measures should allow us to broaden our appeal to customers, leading to more frequent visits, a larger customer base, and

higher profits.

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.


15

4. Consolidated Financial Statements

(1) Consolidated Balance Sheet

(Unit: thousand yen)

FY 2012

As of March 31, 2013

FY 2013


Assets

Current assets

Cash and deposits 4,630,796 5,597,854

Notes and accounts receivable-trade 1,085,791 1,235,672

Merchandise 10,821,399 11,251,509

Supplies 27,089 27,073

Deferred tax assets 568,743 650,646

Other 2,217,681 2,081,369

Allowance for doubtful accounts (3) (6)

Total current assets 19,351,497 20,844,119

Noncurrent assets

Property, plant and equipment

Buildings and structures 14,134,479 14,838,505

Accumulated depreciation (9,135,270) (9,821,296)

Buildings and structures, net 4,999,209 5,017,208

Land 141,643 141,643

Leased assets 3,084,193 3,313,865


Leased assets, net 1,993,028 1,862,102

Construction in progress 98,267 12,534

Other 2,292,719 2,513,349


Other, net 499,824 496,996

Total property, plant and equipment 7,731,974 7,530,485

Intangible assets

Goodwill 795,077 507,077

Leased assets 16,347 11,438

Other 925,796 983,164

Total intangible assets 1,737,221 1,501,680

Investments and other assets

Investment securities *1 666,005 *1 728,414

Long-term loans receivable 82,983 58,624

Deferred tax assets 674,446 657,936

Guarantee deposits 8,935,519 8,750,635

Other 358,989 331,605

Allowance for doubtful accounts (83,474) (66,841)

Total investments and other assets 10,634,471 10,460,374

Total noncurrent assets 20,103,667 19,492,541

Total assets 39,455,164 40,336,661


16


FY 2012


FY 2013


Liabilities

Current liabilities

Notes and accounts payable-trade 1,000,255 896,427

Short-term loans payable 4,560,600 4,320,008

Current portion of long-term loans payable 3,171,768 2,670,132

Lease obligations 486,745 493,724

Income taxes payable 890,430 1,147,388

Provision for bonuses 277,042 284,112

Provision for Sales Rebates 52,067 142,129

Provision for loss on store closing 57,218 66,025

Accounts payable – other 1,776,518 1,798,973

Other 1,765,834 1,580,082

Total current liabilities 14,037,881 13,399,003

Noncurrent liabilities

Bonds payable - 1,000,000

Long-term loans payable 6,439,885 7,359,095

Lease obligations 1,480,528 1,342,791

Asset retirement obligations 1,387,843 1,427,688

Other 859,304 581,743

Total noncurrent liabilities 10,167,561 11,711,318

Total liabilities 24,205,443 25,110,322

Net assets

Shareholders' equity

Common stock 2,564,294 2,564,294

Capital surplus 3,098,903 3,098,903

Retained earnings 10,269,308 10,756,442

Treasury stock (503,054) (1,137,165)

Total shareholders' equity 15,429,451 15,282,474

Accumulated other comprehensive income

Valuation difference on available-for-sale securities 21,139 66,113

Foreign currency translation adjustment (200,870) (122,249)

Total accumulated other comprehensive income (179,730) (56,136)

Total net assets 15,249,721 15,226,338

Total liabilities and net assets 39,455,164 40,336,661


17

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

Consolidated Statements of Income

(Unit: thousand yen))

FY 2012

(April 1, 2012 – March 31, 2013)

FY 2013

(April 1, 2013 – March 31, 2014)

Net sales 76,670,937 79,159,033

Cost of sales 31,956,706 33,289,385

Gross profit 44,714,231 45,869,647

Selling, general and administrative expenses

Provision of allowance for doubtful accounts (9,453) (16,706)

Salaries and allowances 4,410,625 4,493,767

Part-time employee salaries 11,184,434 11,472,202

Bonuses 492,816 493,013

Provision for bonuses 273,576 278,672

Rent 10,940,416 11,599,816

Rent expenses 834,641 816,631

Other 14,672,505 14,707,941

Total selling, general and administrative expenses 42,799,562 43,845,340

Operating income 1,914,668 2,024,307

Non-operating income

Installation fee income from vending machines 189,511 189,651

Income from paper recycling 247,045 363,897

Equity in Earnings of Affiliates 4,987

268,785

530

307,248Other

Total non-operating income 710,330 861,327

Non-operating expenses

Interest expenses 220,133 202,618

Other 38,722 74,599

Total non-operating expenses 258,855 277,217

Ordinary income 2,366,143 2,608,418

Extraordinary gains

Gain on sales of investment securities - 62,972

Gain on sale of noncurrent assets - 1,635

Total extraordinary gains - 64,607


18


FY 2012

(April 1, 2012 – March 31, 2013)

FY 2013

(April 1, 2013 – March 31, 2014)

Extraordinary losses

Loss on sales of investment securities 49,499 28,483

Loss on valuation of investment securities 55,613 -

Loss on closing of stores 28,408 53,707

Provision for loss on closing of stores 54,960 47,687

Loss on retirement of noncurrent assets 19,890 6,125

Impairment loss *1 275,609 *1 393,310

Total extraordinary loss 483,981 529,315

Income before income taxes 1,882,161 2,143,710

Corporate, inhabitant and enterprise taxes 1,082,296 1,280,168

Income taxes-deferred (258,223) (88,160)

Total income taxes 824,072 1,192,007

Income before minority interests 1,058,088 951,702

Net income 1,058,088 951,702


19

(Consolidated Statements of Comprehensive Income)


FY 2012

(April 1, 2012 – March 31, 2013)

FY 2013

(April 1, 2013 – March 31, 2014)

Income before minority interests 1,058,088 951,702

Other comprehensive income

Valuation difference on available-for-sale securities 10,797 42,360

Foreign currency translation adjustment 34,083 78,620

Share of other comprehensive income of associates

accounted for using equity method

9854 2,612

Total other comprehensive income 54,736 123,593

Comprehensive income * 1,112,824 * 1,075,296

(Breakdown)

Comprehensive income attributable to owners of the

parent

1,112,824 1,075,296

Comprehensive income attributable to minority interests - -


20

(3) Consolidated Statements of Changes in Net Assets

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


Shareholders’ equity

Common stock Capital surplus Retained earnings Treasury stock Total shareholders’

equity Balance at the start of current

period 2,564,294 3,098,903 9,669,865 (712,000) 14,621,062

Changes during the period

Dividends from surplus (458,645) (458,645)

Net income 1,058,088 1,058,088

Purchase of treasury stock -

Disposal of treasury stock 208,945 208,945

Net changes in items other

than shareholders' equity

Total changes during the period - - 599,443 208,945 808,388

Balance at the end of current

period 2,564,294 3,098,903 10,269,308 (503,054) 15,429,451

Accumulated other comprehensive income Total net assets Valuation difference on

available-for-sale

securities Foreign currency

translation adjustment Total accumulated other

comprehensive income Balance at the start of current

period 487 (234,953) (234,466) 14,386,595


Dividends from surplus (458,645)

Net income 1,058,088

Purchase of treasury stock -

Disposal of treasury stock 208,945


than shareholders' equity 20,652 34,083 54,736 54,736

Total changes during the period 20,652 34,083 54,736 863,125


period 21,139 (200,870) (179,730) 15,249,721


21

Current consolidated fiscal year (April 1, 2013 – March 31, 2014)


Shareholders’ equity

Common stock Capital surplus Retained earnings Treasury stock Total shareholders’

equity Balance at the start of current

period 2,564,294 3,098,903 10,269,308 (503,054) 15,429,451


Dividends from surplus (464,567) (464,567)

Net income 951,702 951,702

Purchase of treasury stock (764,382) (764,382)

Disposal of treasury stock 130,271 130,271


than shareholders' equity

Total changes during the period - - 487,134 (634,110) (146,976)


period 2,564,294 3,098,903 10,756,442 (1,137,165) 15,282,474

Accumulated other comprehensive income Total net assets Valuation difference on

available-for-sale

securities Foreign currency

translation adjustment Total accumulated other

comprehensive income Balance at the start of current

period 21,139 (200,870) (179,730) 15,249,721


Dividends from surplus (464,567)

Net income 951,702

Purchase of treasury stock (764,382)

Disposal of treasury stock 130,271


than shareholders' equity 44,973 78,620 123,593 123,593

Total changes during the period 44,973 78,620 123,593 (23,382)


period 66,113 (122,249) (56,136) 15,226,338


22

(4) Consolidated Statements of Cash Flow


FY 2012

(April 1, 2012 – March 31, 2013)

FY 2013

(April 1, 2013 – March 31, 2014)

Cash flows from operating activities

Income before income taxes 1,882,161 2,143,710

Depreciation and amortization 2,071,704 2,081,345

Impairment loss 275,609 393,310

Amortization of goodwill 320,147 291,864

Increase (decrease) in provision for bonuses （20,382） 7,070

Increase (decrease) in allowance for doubtful accounts （10,064） (16,703)

Increase (decrease) in provision for loss on closing of stores 54,960 47,687

Change in Provision for Sales Rebates 52,067 90,062

Interest expense 220,133 202,618

Equity in (earnings) losses of affiliates （4,987） (530)

Loss on closing of stores 28,408 53,707

Loss on retirement of noncurrent assets 19,890 6,125

Loss (gain) on valuation of investment securities 55,613 -

Decrease (increase) in notes and accounts receivable-trade （126,075） (149,563)

Decrease (increase) in inventories （1,211,713） (398,725)

Increase (decrease) in notes and accounts payable-trade （141,938） (105,028)

Increase (decrease) in accounts payable-other 104,107 32,798

Other current liabilities （216,660） (190,642)

Subtotal 3,352,985 4,489,106

Interest and dividends income received 8,621 8,134

Interest expenses paid （219,037） (203,191)

Income taxes refund 10,822 880

Income taxes paid （1,289,704） (1,025,669)

Cash flows from (used in) operating activities 1,863,687 3,269,260


23


FY 2012

(April 1, 2012 – March 31, 2013)

FY 2013

(April 1, 2013 – March 31, 2014)

Cash flows from investing activities

Purchase of property, plant and equipment (1,273,002) (1,099,873)

Purchase of intangible assets (288,829) (358,350)

Purchase of investment securities (1,000) (14,687)

Purchase of stock in affiliates (221,098) -

Payments for guarantee deposits (767,015) (357,594)

Proceeds from collection of guarantee deposits 367,164 524,606

Payments for sale of stores (141,376) (39,029)

Other payments 134,308 25,626

Cash flows from (used in) investing activities (2,190,849) (1,319,301)

Cash flows from financing activities

Net increase (decrease) in short-term loans payable (370,000) (239,992)

Proceeds from long-term loans payable 4,129,400 3,810,000

Repayment of long-term loans payable (3,147,758) (3,392,426)

Proceeds from issuance of bonds - 1,000,000

Payments for long-term accounts payable-other (689,846) (505,148)

Repayments of lease obligations (528,425) (545,763)

Proceeds from disposal of treasury stock 159,446 101,787

Purchase of treasury stock - (764,382)

Cash dividends paid (458,645) (464,567)

Cash flows from (used in) financing activities (905,828) (1,000,492)

Effect of exchange rate change on cash and cash

equivalents

12,621 17,590

Net increase (decrease) in cash and cash equivalents (1,220,369) 967,057

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

Cash and cash equivalents at the end of period 4,630,796 5,597,854


24

(5) Notes to Consolidated Financial Statements （Notes Concerning the Going-Concern Premise）

None

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

1. Scope of consolidation

(1)Number of consolidated subsidiaries: 12

Primary consolidated subsidiaries:

BOOKOFF U.S.A. INC.

BOM Corporation, Inc

Brass Media Corporation Ltd.

BOOKOFF Logistics, Co., Ltd

BOOKOFF Online, Inc

During the current consolidated fiscal year, the BOOKOFF Group added hug all, Inc. as a consolidated entity.

2. Significant Accounting Standards

Disposal of Deferred Assets

Bond Issuance Costs

Entire amount charged to expenses when incurred.

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 24, 2013.

(Consolidated Balance Sheet)

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

FY 2012

(April 1, 2012 – March 31, 2013)

FY 2013

(April 1, 2013 – March 31, 2014)

Investment securities（stocks） 283,687 286,830

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 2012

(April 1, 2012 – March 31, 2013)

FY 2013

(April 1, 2013 – March 31, 2014)

Total overdraft amount 11,420,000 11,900,000

Executed loans payable 4,330,000 4,166,672

Balance 7,090,000 7,733,328


25

(Consolidated Statements of Income)

* 1 Impairment loss

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

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.

The breakdown of the impairment loss is as follows:

(Thousand yen)

Buildings and structures 138,475

Leased assets (property, plant

and equipment)

13,675

Property, plant and equipment –

other

24,028

Goodwill 67,127

Intangible assets – other 26,584

Investments 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%.

FY 2013 (April 1, 2013 – March 31, 2014)

Application Type Location Impairment Loss (thousand yen)

Stores Buildings and structures Reuse Namba Ebisubashi Store

(Osaka, Chuo-ku); 47 other

stores

393,310

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.


26

The breakdown of the impairment loss is as follows:

(Thousand yen)

Buildings and structures 296,373

Leased assets (property, plant

and equipment)

32,151

Property, plant and equipment –

other

21,302

Goodwill 42,058

Investments and other assets –

other

1,425

Total 393,310

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 2012 (April 1, 2012 –

March 31, 2013)

FY 2013 (April 1, 2013 –

March 31, 2014)

Valuation difference on other available-for-sale securities

Amount incurred 12,280 80,655

Amount of reclassification adjustments - (14,138)

Before tax effects 12,280 66,516

Amount of tax effects (1,483) (24,156)

Valuation difference on other available-for-sale securities 10,797 42,360

Foreign currency translation adjustments


Share of other comprehensive income of associates accounted for

using equity method


Other comprehensive income 54,736 123,593


27

(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 leverages BOOKOOF expertise in store operations to buy and sell pre-owned children’s goods,

women’s fashion goods, sporting goods, accessories, and other merchandise. The Reuse Business also buys and sells

PC and audio/visual equipment through HARDOFF stores as a franchisee of HARD OFF Corporation Co., Ltd.

The Packaged Media Business sells CDs, DVDs, and other goods through TSUTAYA stores as a franchisee of Culture

Convenience Club Co., Ltd. (“CCC”). The Packaged Media Business also operates Aoyama Book Center, Ryusui

Shobo and yc-vox stores, through which it sells new books.

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, 2012 – March 31, 2013) (Unit: thousand yen)

Reporting Segment

Other

(Note: 1) Total

Adjusted

amount

(Note: 2)

Amount

reported in

consolidate

d 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


28

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, 2013 – March 31, 2014) (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

53,648,402 14,379,747 10,704,629 78,732,780 426,253 79,159,033 - 79,159,033

Intersegment

internal net

sales and

transfers

376,988 2,741 728 380,458 155,298 535,757 (535,757) -

Total 54,025,391 14,382,489 10,705,358 79,113,239 581,552 79,694,791 (535,757) 79,159,033

Segment profit

(loss) 3,450,227 917,580 (72,752) 4,295,055 (396,522) 3,898,532 (1,874,225) 2,024,307

Segment assets 21,104,619 6,727,339 3,418,704 31,250,664 373,949 31,624,614 8,712,046 40,336,661

Other items

Depreciation

and

amortization

1,459,555 509,885 62,897 2,032,339 5,763 2,038,102 42,798 2,080,901

Amortization

of goodwill 145,780 8,649 131,573 286,003 5,860 291,864 - 291,864

Increases in

property, plant

and equipment

and intangible

assets

1,412,214 590,201 17,962 2,020,379 44,079 2,064,459 18,340 2,082,799

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 3,748,260 4,295,055

Income classified as “other” (14,558) (396,522)

Inter-segment elimination total 28,477 (43,676)

Corporate expenses (Notes) (1,847,511) (1,830,548)

Operating income 1,914,668 2,024,307

Notes: Corporate expenses are mainly general administrative expenses.


29


Assets Previous consolidated fiscal year Current consolidated fiscal year


Assets classified as “other” 175,818 373,949

Other adjustments (Notes: 1) (65,586) (63,136)

Corporate assets (Notes: 2) 7,970,125 8,775,183

Total assets 39,455,164 40,336,661

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” 3,748 5,763

Corporate assets (Note) 61,560 42,798

Total Depreciation 2,069,437 2,080,901

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

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


Reporting Segment

Other Total Adjustment

Amount

reported in

consolidated

financial

statements

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


Reporting Segment


Amount

reported in

consolidated

financial

statements

BOOKOFF

Business

Reuse

Business

Packaged

Media

Business

Total

Impairment

loss 288,441 55,461 34,452 378,356 4,630 382,987 10,323 393,310


30

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

segment


Reporting Segment


Amount

reported in

consolidated

financial

statements

BOOKOFF

Business

Reuse

Business

Packaged

Media

Business

Total

Amortization

during the

current fiscal

year

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

Balance at

fiscal year

end

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


Reporting Segment


Amount

reported in

consolidated

financial

statements

BOOKOFF

Business

Reuse

Business

Packaged

Media

Business

Total

Amortization

during the

current fiscal

year

145,780 8,649 131,573 286,003 5,860 291,864 - 291,864

Balance at

fiscal year

end

235,902 17,298 243,620 496,821 10,256 507,077 - 507,077

d. Information concerning gain on negative goodwill by reporting segment

Previous 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.

Current consolidated fiscal year (April 1, 2013 – March 31, 2014)

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

(Per-Share Information)

(Unit: Yen)

FY 2012 (April 1, 2012 – March 31, 2013) FY 2013 (April 1, 2013 – March 31, 2014)

Net assets per share 820.64 865.90

Net income per share 57.30 52.09

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.


31

FY 2012 (April 1, 2012 – March 31, 2013) FY 2013 (April 1, 2013 – March 31, 2014)

Net income per share

Net income (thousand yen) 1,058,088 951,702

Amount not attributable to common

stockholders (thousand yen) - -

Net income attributable to common

stockholders (thousand yen) 1,058,088 951,702

Weighted average number of shares of

common stock during the fiscal year

(thousand shares)

18,467 18,269

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:

Subscription rights for stock options

approved at the March 1, 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)

Capital and Business Alliance, Issuance of Stock and Corporate Bonds

At a board of directors meeting held April 24, 2014, BOOKOFF Corporation resolved to sign a capital and business alliance

agreement with Yahoo Japan Corporation (“Yahoo”). The board also agreed to issue stock via allocation to a third party and

convertible bonds to Yahoo as part of the agreement. The agreement was signed between BOOKOFF Corporation and Yahoo on

April 24, 2014. The following outlines the content of the capital and business alliance between BOOKOFF Corporation and Yahoo.

(1) Capital and Business Alliance

[1] Reasons for the Capital and Business Alliance

This capital and business alliance combines the BOOKOOF Group merchandising (books, CDs, DVDs, games, and other

goods) and Reuse Business operational structure and management expertise with Yahoo’s member base and website popularity.

Under this agreement, the BOOKOFF Group and Yahoo will work together to develop reuse business operations and related

information systems that will create a new online-offline reuse market in which the BOOKOFF Group will secure a competitive

advantage in terms of merchandise volume, pricing, quality, services, and more. This new partnership is expected to create a

reuse lifestyle infrastructure, helping each entity achieve its business mission and improve corporate value.

To quickly raise the capital necessary for this alliance and move the partnership forward, BOOKOFF Corporation decided to

issue new shares via allocation to a third party and issue convertible bonds, convertible to stock according to BOOKOFF

Corporation operating income results. BOOKOFF Corporation chose this funding scheme in consideration of the significant

dilutive effects if the entire amount were to be funded in Group stock, as well as to provide an equity incentive to drive the

success of the partnership with Yahoo.

[2] Name of Business Partner

Yahoo Japan Corporation

[3] Effective Agreement Date

April 24, 2014

[4] Agreement Details

a. Operating Agreement

Business Partnership [1]

The BOOKOFF Group shall list BOOKOFF store items (books, CDs, DVDs, games, etc.) on the Yahoo Auction website,

taking advantage of the Yahoo name brand and website popularity to offer merchandise to consumers throughout Japan. The

BOOKOFF Group expects this alliance to maximize BOOKOFF store sales efficiencies: ・BOOKOFF Group to list BOOKOFF store inventory on Yahoo Auction


32

・Yahoo and BOOKOFF Group to improve Yahoo Auction functions to allow greater online sales efficiency ・Yahoo and BOOKOFF Group to jointly develop operating structures and systems for efficient merchandise listing on

Yahoo Auction and post-bid merchandise shipping and related operations

Business Partnership [2]

BOOKOFF stores work closely with the hug all business to offer a general purchase service desk, buying a wide variety of

merchandise from consumers in addition to traditional BOOKOFF goods (books, CDs, DVDs, games). Besides purchasing

merchandise in stores, the hug all business also offers a growing number of dispatch purchase service centers whereby

representatives go to the consumer’s home to purchase pre-owned goods for resale. With access to the Yahoo member base,

popular websites, and systems development expertise, we intend to aggressively promote the hug all business to grow the

number of reuse service customers, to expand our merchandise purchasing channel, and to build BOOKOFF Group profits: ・Establish general purchasing services desk in BOOKOFF stores tied to the hug all business ・Build more dispatch purchase facilities to expand service area ・Jointly develop a system to be used for hug all purchasing, calculations, and sales administration ・Advertise and promote BOOKOFF Group services to the Yahoo member base

b. Capital Alliance

BOOKOFF Corporation plans to allocate shares of BOOKOFF Corporation stock to Yahoo via a third-party allocation of

common shares and convertible corporate bonds.

Further, BOOKOFF Corporation has agreed to perform the procedures necessary for Yahoo to exercise voting rights related

to common shares acquired via this same third party allocation at the BOOKOFF Corporation annual shareholders’ meeting,

the record date (for exercising voting rights) of which is prior to the payment date of the above-referenced third-party

allocation.

In the event that any candidates for director nominated by Yahoo is not elected as a director of the BOOKOFF Group by the

last day of October 2014, or in the event that this capital and business alliance agreement is terminated, Yahoo may demand

that the BOOKOFF Group purchases shares of BOOKOFF Group stock owned by Yahoo, effective as of the date of

demand.

c. Director Nomination

Yahoo has indicated its intent to nominate two directors for the BOOKOFF Group board of directors. The BOOKOFF

Group plans to bring this matter to the board of directors and general meeting of shareholders after deliberation of the

nomination and individuals in question.

(2) Issuance of New Shares

[1] Number and Type of Shares to be Issued 3,100,000 shares of common stock

[2] Issue Price ¥702 per share

[3] Total Issue Amount ¥2,176,200,000

[4] Paid-in Capital ¥1,088,100,000 (¥351 per share)

[5] Method of Offering or Allotment Third-party allotment

[6] Payment Date May 15, 2014

[7] Party to whom Shares are to be Allocated; Yahoo Japan Corporation; 3,100,000 shares of common stock

Number of Allocated Shares

[8] Use of Funds New construction of logistics center; development of related

operations facilities and information systems

[9] Allotment Calculation Date April 1, 2014

(3) Issuance of Corporate Bonds

1. Name of Bond


33

BOOKOFF Corporation Ltd. Unsecured Convertible Bond #1 (“Convertible Bond”). Bond referred to as “Convertible Bond;”

share warrants referred to as “Warrants,” below.

2. Total Amount of Bond Issue

¥7,700,000,000

3. Denomination of Each Bond

¥100,000,000

4. Payment Amount

¥100 per face value of ¥100

However, Warrant conversion shall not require cash payment.

5. Convertible Bond Face Value

Bearer bond. However, no bond or securities certificates shall be issued.

Further, in accordance with the provisions of the Companies Act Article 254, Paragraphs 2 and 3, neither Warrants nor

Convertible Bond shall be transferable separately.

6. Interest Rate

Convertible Bond is not an interest-bearing bond.

7. Collateral/Security

Convertible Bond does not have attached collateral or security; the BOOKOFF Group has not reserved any assets in particular

for the Convertible Bond.

8. Offering Date

May 15, 2014

9. Convertible Bond Payment Date and Warrant Allocation Date

May 15, 2014

10. Subscription Method

Entire amount allotted to Yahoo Japan Corporation via allocation to a third party.

11. Redemption and Maturity of Convertible Bond

(1) Redeemable on Maturity

Convertible Bond is redeemable in its entirety on December 31, 2018 at an amount of ¥100 per ¥100 face value.

12. Warrants

(1) Number of Warrants attached to Convertible Bond

Each Convertible Bond has one (1) attached share warrant for a total of 77 share warrants to be issued.

(2) Payment for Conversion of Warrants

No cash payment required at upon conversion of Warrants.

(3) Type of Stock subject to Warrants and Calculation Method

a. Type

BOOKOFF Corporation common shares

b. Number

The number of new shares of BOOKOFF Corporation common stock to be issued in response to a demand for exercise of

Warrants, or number of shares of BOOKOFF Corporation common stock to be transferred in lieu of the issuance of new

shares (referred to as “Delivery,” below) shall be the number derived by dividing the total amount of the Convertible Bond

issue price subject to execution demand by the conversion price (defined in c. below). Any fractional remainder shall be

settled via cash, deemed a demand for purchase of fractional shares under the provisions of the Companies Act.

c. Conversion Price

Conversion Price

The per-share price used to calculate the number of BOOKOFF Corporation common shares subject to Delivery upon

Warrant execution (“Conversion Price”) shall be the initial price of ¥751.

(4) Value and Nature of Assets Contributed upon Warrant Execution

Upon exercise of Warrants, the entire Convertible Bond associated with the Warrants shall be deemed as contributed. The value

of the Convertible Bond shall be deemed to be the same amount as the amount paid for the Convertible Bond.


34

(5) Warrant Exercise Period

The Warrant holder may exercise share warrants at any time between July 1, 2015 and December 31, 2018 (“Exercise Period”),

or on the last bank business day in the event that the last day of the Exercise Period falls on a banking holiday. Warrants shall

not be exercisable after the Exercise Period.

(6) Terms for Warrant Exercise

[1] The Warrant holder may exercise share warrants in units according to determined ratios during the exercise period noted

in (5) above only upon satisfaction of the conditions described in [2], below. The determination of operating income shall be

as disclosed in the consolidated statements of income in the BOOKOFF Corporation summary of financial results for the

period in question. In the event that a change in applicable accounting standards results in a significant change to the

concept of operating income as used for these purposes, the BOOKOFF Corporation board of directors shall determine

another appropriate index as deemed rational.

[2] Conditions and Exercise Ratio upon Exercise of Warrants

(a) When operating income for any of the fiscal years ending March 2015 through March 2018 exceeds ¥2.2 billion.

Allowed Exercise Ratio: 45%

(b) When operating income for any of the fiscal years ending March 2015 through March 2018 exceeds ¥2.7 billion.

Allowable Exercise Ratio: 100%

[3] Notwithstanding the provisions of [1] and [2] above, in the event that, through no fault of the Warrant holder, the ratio of

voting shares owned by Warrant holder falls below 15/100 of all voting shares issued by BOOKOFF Corporation (however,

after all or a portion of share warrants attached to Convertible Bond have been exercised, (a) the total number of voting

shares of BOOKOFF Corporation stock acquired by Warrant holder through the exercise of share warrants in question by

the relevant time divided by total voting rights of shares issued by BOOKOFF Corporation at the time in question (rounded

to the nearest thousandth) shall be added to the (b) 15/100 ratio for calculation), the Warrant holder may exercise 100% of

share warrants within the Exercise Period as defined in (5) above.

[4] Notwithstanding the provisions of [1] through [3] above, in the event that individuals (two individuals) nominated by the

Convertible Bond holder have not been accepted as directors according to a board director election proposal introduced to

the BOOKOFF Corporation meeting of general shareholders by the last day of October 2014, the Convertible Bond holder

may exercise 100% of Warrants within the period specified in (5) above.

[5] Notwithstanding the provisions of [1] through [4] above, in the event of forfeiture of the benefit of time related to

Convertible Bond, nevertheless, 100% of Warrants may be exercised within the Exercise Period defined in (5) above.

[6] Warrants may not be exercised partially.

13. Use of Funds

Funds will be used to build a new logistics center and to develop related operational facilities and information systems.

Documents

Consolidated Summary Report For the Fiscal Year Ended ... · Financial results for the current fiscal year (April 1, 2013 – March 31, 2014) ... Basic Policy on Profit Distribution