Lawson, Inc.
INTEGRATED REPORT 2014

INTEGRATED REPORT 2014
Creating Happiness and Harmony
in Our Communities

East Tower, Gate City Ohsaki, 11-2, Osaki 1-chome,
Shinagawa-ku, Tokyo 141-8643, Japan

http://lawson.jp/en/
Published in November 2014

© 1975-2014 Lawson, Inc. All rights reserved.
Printed in Japan

Greetings

Corporate Philosophy

Creating Happiness and Harmony
in Our Communities

Enhancing our corporate
value for the benefit of
all stakeholders by taking

Lawson’s Multi-Stakeholders

timely action while placing
the utmost emphasis on

Suppliers/
Business Partners

Store Crews

existing in harmony(Part-time andtemporary workers)

with society.

Franchise
OwnersEmployees

Shareholders

Customers
I assumed the position of President and CEO and Representative Director on May 1, 2014.
Guided by a corporate philosophy that places the utmost emphasis on “Creating Happiness and Harmony in Our
Communities,” Lawson has continued to implement a variety of reforms in order to address the needs of customers and the

Local Communities

community. As a result, we have experienced uninterrupted growth in business profits for more than a decade and achieved an
ROE of at least 15% for two consecutive years.
The convenience store business is adept at sensing day-by-day changes in the community and at applying this sensitivity toaddress a wide range of social issues. From our perspective, these shifts are a source of innovation and provide the foundation

Lawson operates its business in conjunction with society (local communities)
as a whole, including seven core stakeholders. Moving forward,
we will continue to provide unique value in order to addressa variety of social challenges through our accessibility within local communities.

for future growth. Recent trends in Japanese society, such as the declining birthrate, aging population, and burgeoning female
workforce, are prompting calls for the Company to take the lead in providing new and unique value.
In order to meet expectations and fulfill our role as a key component of today’s social infrastructure, it is imperative for every
member of the Lawson convenience store group, including franchise owners, to nurture the human capital necessary to takeup the challenge of creating new value. Passing on the unique attributes that have continued to define “Team Lawson” fromgeneration to generation, we will take action in a timely manner and enhance our corporate value for the benefit of all stakeholders, including customers, franchise owners, suppliers and business partners, shareholders, and employees.

Genichi Tamatsuka
President and CEO,
Representative Director
Lawson, Inc. Integrated Report 20141

Tackling issues in the community,
for the community
The evolution of convenience stores has mirrored changes in society atlarge. Most notable among these is the unprecedented pace at which
Japan’s birthrate has continued to decline and its population to age. In overall terms, our role as a convenience store chain is to help build attractive
communities while improving lifestyles and providing additional comfort andconvenience. With this in mind, Lawson recognizes the importance of
women in offsetting the decline in the working population to revitalize communities. Accordingly, we acknowledge the critical need to support womenin their efforts to remain in the workforce and to make their working lives
easier. On the other hand, increasing health care costs associated with theaging population are another social issue that requires immediate attention.
Lawson is therefore channeling its energies toward supporting society byhelping improve the health of the elderly and promote long, healthy lives. Asa familiar presence in the neighborhood, Lawson has engaged in a wide
range of activities aimed at resolving social issues since the turn of the century. Moving forward, we will continue to take up this challenge through the
pursuit of innovation and work diligently to live up to our corporate philosophyof “Creating Happiness and Harmony in Our Communities.”

Japan’s population composition by age
2010(10,000 people)

140,000

Population: 128.06 million,
23.1% are 65 or older

120,000

65 years old and above

100,000
Actual1967

80,000Population: 100.20 million(over 100 million for the first time)
60,000

Projected

2046

Population: 99.38 million(falls below 100 million)

15–64 years old

40,00020,000
0–14 years old
0(Year)

1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050

Materials used: Up to 2010: Ministry of Internal Affairs and Communications, “Population Census,”“Population Estimates,” “1945 Population Survey.”
After 2015: National Institute of Population and Social Security Research, “Population Projections forJapan (December 2006),” based on the figures estimated with medium-fertility and mediummortality assumptions.
Note: Figures for 1941 to 1943 are interpolated from the figures for 1940 and 1944. Figures for 1945 to1971 do not include Okinawa. People of uncertain age are evenly distributed in the figures for theyears in which the census is carried out.
Source: Cabinet Office, Government of Japan, White Paper on Children and Young People 20112

Lawson, Inc. Integrated Report 2014

Creating communities where womencan excel
Because its labor force has shrunken due to the declining
birth rate and aging population, for Japan’s economy tocontinue growing, the role that women can play in revitalizing the workforce is especially vital. Looking at the employment rate of women by age, we see an M-shaped curve.
Employment peaks for women between the ages of 25 and29 and then again between the ages of 45 and 49. The
employment rate of women during what is generally considered the childbirth and nursing period, between the ages of
30 to 44, is lower. At the same time, statistics also indicate asignificant pool of women between the ages of 25 and 44
who are currently unemployed but seeking work. As thebirth rate declines, creating a comfortable working environment for working mothers is becoming crucial. In addition to
upgrading and expanding such facilities as nursing andchildcare centers, providing a network of neighborhood
stores offering products and services that reduce the burden of housework is an absolute imperative. Lawson is
placing considerable emphasis on bolstering its lineup of
fresh foods and perishables to better support working mothers.

Labor force participation of women of
main child rearing ages (%)
Women’s labor force participation rate by age group by cohort
79.0

76.1
70.1 69.6
67.9

42.6

61.5

43.9

1975
1985
1995
2013

15–19 20–24 25–29 30–34 35–39 40–44 45–49 50–54 55–59 60–64 65–69 70– (Age)

Source: Gender Equality Bureau Cabinet Office, Cabinet Office, Governmentof Japan, White Paper on Gender Equality 2014

Lawson, Inc. Integrated Report 20143­ edridden. With this in mind, the importance of accessibilitybof perishable foods, including cut vegetables, for the elderly
at neighborhood stores cannot be overestimated.

Reason for abstaining from or being unable to obtain
perishable foods (vegetables, fruits, fish, meat, etc.)(Men and women, by age group)

20–29
30–39

Store istoo far

40–49
50–59
60–69

0

2

4

6

70 andabove
81012 (%)

Source: M inistry of Health, Labour and Welfare, National Health andNutrition Survey

As the population has become more affluent, Japan has witnessed dramatic changes in types and prevalence of disease. In the immediate aftermath of the Second World War,
infectious diseases such as tuberculosis were rife. Beginningin the 1950s, there was a sharp rise in adult disorders,
including cancer as well as cerebrovascular and cardiac disease. More recently, this onset of adult disease has been
increasingly attributed to lifestyles as opposed to advancing
age. We are now at the point where “metabolic syndrome”
has become a household term. With this trend, theapproach to medicine has shifted from seeking to merely
extend people’s lives as long as possible to disease prevention and enabling healthy lifestyles that naturally lead to living
longer. In this regard, we recognize that health is not a
closed domain centered solely on medical institutions.
Today, health is an issue that affects the whole of society
and must be tackled by the entire community.

Rising national health care expenditure(Trillions of yen)

(%)

40

12.0

35

10.5

30

9.0

25

7.5

National health care expenditure asa percentage of national income

20

6.0

15

4.5

10

3.0
National health care expenditure5

1.5

National health care expenditure as a percentage of national income

As Japan becomes a super-graying society, the nation’s
attention is shifting toward promoting long, healthy lives.
Steps are being taken to establish an environment in which
the elderly can lead active and vibrant lives while minimizing
the need for nursing care. While a wholesome diet is essential to maintaining good health, we are seeing an upswing in
the number of people over the age of 70 who are either
abstaining from or unable to purchase perishable foods dueto the constraints of distance (see the graph at right). This isparticularly true for the elderly individuals and couples livingon their own. Here, the concern is that the burdens of shopping and cooking are leading to deterioration in dietary habits. For the elderly, this trend triggers fears of malnutrition
rather than obesity and metabolic syndrome. A loss ofappetite or an unbalanced diet can lead to insufficient nutrient intake before the person in question realizes there is aproblem, increasing risks of heart disease or becoming

Working hand-in-hand with the community topromote improved healthNational health care expenditure

Building communities in which the elderly canlead active and vibrant lives

0.00(Year) 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 20052011

Source: Ministry of Health, Labour and Welfare, Overview of Estimates of
National Medical Care Expenditure, FY2011

4

Lawson, Inc. Integrated Report 2014

Lawson, Inc. Integrated Report 20145

Lawson Integrated Report 2014
Fiscal 2013 is the second year Lawson has prepared an integrated report incorporating both financial
and non-financial information. The purpose of the Lawson Integrated Report 2014 is to provide our
medium- to long-term stakeholders with an overview of the state of the Company and our direction for
the future. In addition to outlining our aspirations for business growth, which center on our mainstay
convenience store operations, we hope to provide each and every stakeholder with a better understanding of our ongoing efforts to become an essential lifeline for the community.

Contents
20	Special Feature: Thinking up new

01 Greetings
02	Tackling Issues in the Community,

innovations for our customers

32	Reflecting on the True Value of
Lawson after Natural Disasters

for the Community.

08	Challenges within the Local

Communities that breathe new life into
their residents
Japan’s population continues to decline. To maintain healthy
local communities, revitalizing local economies using communities’ own resources as well as increasing local employment and incomes through business are essential.
A drop in the population, for example, presents the risk ofdeterioration in the level of shopping and other services
available, making it increasingly difficult for people to lead
comfortable and convenient lives. This increases the need toaddress the requirements of local communities in small
commercial areas. It is vital that we help put in place thesocial infrastructure to provide local communities with easy
access to daily necessities, over-the-counter medicines toalleviate worrying minor ailments, important mechanisms toprotect children and women against crime, and essential
support in the event of a disaster.
At the same time, we must work with local residents increating added value to revitalize communities at large.
Collaborating with local governments and companies to utilize local specialty products, sightseeing spots and resources is an important role for us to play as a convenience store.
6

Lawson, Inc. Integrated Report 2014

Community and Corporate Value
Creation Cycle
Innovative
R&D

Regional differences in total consumption exacerbatedby population decline
110
Okinawa 107

Manufacturingretailer based onsmall commercial areas

CustomerdrivenEvolvedfranchisesystem33	Compliance and Risk Management37	Social and Environmental Activities

105

10	Eleven-Year Financial Summary
100
Tokyo metropolitan area 98

95
90
85

Tokai 9212	Taking Action and Delivering Value
14	President’s Message

Nationwide 90 Kansai 90
Kita-Kanto, Koshinetsu 86
Kyushu 86
Hokuriku 8541	Human Capital

Chugoku 84

80

Hokkaido 82

44	Corporate GovernanceNiigata 80

75(Year) 2010

Shikoku 79

Tohoku 79
2015 2020 2025 2030 2035 2040
Estimated total consumption (nationwide)
Estimated total consumption by region
Indexed with 2010 levels as 100; assumes zero growth and no change inaverage consumption habits
Bar graph shows national figures, lines show regional figures52	Lawson at a Glance54	Management’s Discussion andAnalysis☛ For detailed information, please refer to our website http://lawson.jp/en/

Source: Development Bank of Japan Inc., Final Report of the Population
Decline Study Group (June 2014)
Lawson, Inc. Integrated Report 20147

Challenges within the Local Community and Corporate Value Creation Cycle

Creating corporate value: optimal capital allocation anda customer-driven business model
Lawson’s ability to sustain growth in its corporate value isthe product of its corporate strategy combined with its business model. Guided by well-timed corporate strategy, we
work toward the proper allocation of tangible capital, goods
and finances appearing on financial statements, and intangible capital, most notably human resources, ensuring highcapital efficiency. At the same time, we push forward a customer-driven business model made up of three core

­ lements: innovative research and development; our posietion as a manufacturing retailer based on small commercial
areas; and an advanced franchise system. This businessmodel enables a cycle of corporate value creation wherein
we create added value in excess of the capital invested,
generating capital not only for use within the Group, but also
for distribution to society.

Corporate value creation cycle
Sustainable growth
Financial capital• Sufficient cash flow
• Solid balance sheet

Vision(Funds)Manufactured capital(IT, Infrastructure)

Human capital(Quantitative)

Intangible capital(Resources, Norms)

Intellectual capital(Employees)

Social capital(Technology, Brand)

Capital allocation based on ROI*

(Quantitative)

Tangible capital

Financial capital

Manufactured capital

Whatever you want, whenever andwherever you need it• Manufacturing/retailing integrated
supply chain• High-value added original productInnovative
R&D

Human capital• Capability to innovate

CustomerdrivenEvolvedfranchisesystemIntellectual capital• Lawson’s brand power• Multiple store formats• Ponta data analysis

Social capital• Environmental care along
our supply chain• Collaboration with local communities*ROI: Return On Investment

Corporate strategy

Lawson’s business model

The links between our business model and various forms of capital
Financial capital	We undertake investments based on a disciplined approach toward capital in order to address the expectationsof stock markets
Manufactured capital We work across the entire supply chain to create products that fulfill the needs of local communities
Human capital	We foster employees who take action based on their own initiative in order to accurately meet the needs of
local communities
Intellectual capital	We recognize the need to remain acutely aware of and sensitive to changes in the community and the role ofcontinuous innovation as a wellspring for growthSocial capital	We do our utmost to address environmental concerns and make the most of resources derived from the naturalenvironment8

Lawson, Inc. Integrated Report 2014

A Short History of the Convenience Store Industry
Convenience stores began appearing in the 1970s. Open
24/7 and occupying a relatively small retail space ofbetween 100 and 130 square meters in local neighborhood
locations, these stores offered a carefully selected lineup ofdaily necessities. Products including bread, cigarettes, alcoholic beverages, stationery, and sundries that had generally
been marketed by individual category in separate stores
were sold together with an eye toward promoting consumer
convenience. Over the years, a service component has
been added to steadily augment the function and role ofconvenience stores in society. This includes home delivery,
third-party bill settlement, concert ticket sales, ATM banking,and postal services. By addressing the small inconveniencesof life and solving difficulties faced by local communities, theconvenience store industry has continued to enjoy solid
growth. With the more recent growth in large-scale roadsidestores and decline in local shopping promenades as a resultof motorization, convenience stores took on a neighborhood
flavor, providing the backbone for small commercial areas.
Industry growth was particularly supported by single-personhouseholds, namely men in their 20s and 30s.
Against the backdrop of continued growth in the convenience store industry, Lawson undertook anticipatory­investments in order to build stores that match the needs ofcustomers, taking into consideration population trends andchanges in society. The Company has rolled out a succession of new formats. In 2001, we launched the health-oriented NATURAL LAWSON format. This was followed by the
fresh food-type convenience store, LAWSON STORE100, in
2005. The ability to develop these formats and the knowhow accumulated by broadening the Company’s customer
base to include women and the elderly provide Lawson with
its underlying strength. Making the most of its unique customer-driven research and development of products that
continue to enhance convenience, its position as a manufacturing retailer based on small commercial areas engagedin activities that extend across the entire supply chain, andits franchise system that produces store owners well versedin the needs of the community, Lawson is steadily expanding its nationwide network of stores.
Today, convenience stores are an essential part of thecommunity and a vital component of society’s infrastructure,
together with electricity, gas, and water. Going forward,
Lawson will continue to promote its corporate philosophy of“Creating Happiness and Harmony in Our Communities”
amid ongoing changes in society. At the same time, we willcontinue to confront each challenge faced by local communities head-on through the evolution of our business model.

• Personnel as autonomous thinkers

Outcomes

Input

Manufacturingretailer basedon smallcommercial
areas

Our business model and issues confronting local
communities

Lawson’s activities aimed at addressing challenges within the local community
Challenges within
the Local Community

Lawson’s Activities(Output)

The Impact of Lawson’s Activities(Outcomes)

Women:
Enabling women to excel
and promoting theirincreased participation insocietyP Upgrade and expand products and services targeting
female customers
P S upport working women by providing ready-mademeals and ingredients
P Reflect women’s experience and knowledge regardingchildbirth and childcare in product development

P Reenergizing society through the increased participation of womenP Promoting efficient use of time by reducing the timeneeded for housework
P Creating workplace environments that allow women tobalance childbirth and childcare with work commitments

P Upgrade and expand products and services targeting
elderly customers
P Provide continued employment for people over 60
P Promote home delivery services

P Helping the elderly maintain healthy dietary habits andresponding to the needs of the physically challenged
and elderly
P Preventing the need for nursing care and reducing thenumber of bedridden elderly

P Develop products and services that revitalize the local
community (local production for local consumption andlocal production for external consumption); conclude
comprehensive agreements with local governments
P Support franchise owners; foster and support MOs
P Cooperate in regional disaster prevention measures;
participate in Safety Station activities

P Creating new business and employment opportunities
in conjunction with local communities
P Increasing the profile of local and signature products
P Contributing to the safety and security of local communities
P Providing essential infrastructure in the event of largescale disasters

P Provide health-supporting products and services
P Support efforts aimed at promoting health throughout
local communities
P Support employee healthcare management

P Increasing awareness toward healthP Contributing to preventive measures
P Building platforms that contribute to sustainable growth

Energy conservation;
preventing global warming

P Introduce solar power generation systems
P Introduce energy-efficient equipmentPR educe CO2 emissions across the entire supply chain

P Contributing to energy conservation and reductions in
CO2 emissions in the retail industry
P Cultivating cutting-edge activities

Increasing waste;
depletion of natural
resources

P Adhere strictly to a policy of waste reduction
P Establish a recycling system
P Reduce the use of plastic shopping bags, disposable
chopsticks, and containers/packaging

P Increasing efficiency across the entire supply chain
P Reducing impacts on the natural environment
P Expanding the use of reusable eco bags

The elderly:
Responding to an aging
society and promoting
long, healthy lives

Local communities:
Strengthening community
foundations and revitalizing regional economies
and employment
Health:Curtailing national healthand medical expenses andaddressing lifestyle-relateddiseases

Lawson, Inc. Integrated Report 20149

Eleven-Year Financial Summary
Lawson, Inc. and consolidated subsidiaries
Years ended February 28 and 29

Thousands of
U.S. dollars 1

Millions of yen

For the year:
Operating revenues  Franchise commissions from
franchised stores  Net sales from company-operated stores 2  Other
Total operating revenues
Operating income
Net income
Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities
Capital expenditures 3
Depreciation and amortization 4
At year-end:
Total assets
Total equity
Equity ratio
Cash and cash equivalents
Total number of stores in Japan
Number of employees (full-time)
Per share data:
Net income (yen/ U.S. dollars 1)
Cash dividends (yen/ U.S. dollars 1)
Payout ratio
Financial data:
Return on equity (ROE)
Return on assets (ROA)
Net sales of all stores:
Net sales by store category  Franchised stores 5  Company-operated stores 2
Net sales by product category 5  Processed foods  Fast foods   Daily delivered foods  Non-food products
Net sales of all stores Ratio of operating income to
net sales of all stores

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2014

¥  242,079
133,976
109,193
485,248
68,12737,966
81,503(47,924)(39,650)
84,03247,889¥   230,003
157,627
99,815487,445
66,24633,18385,189(54,196)(31,980)
77,36143,886¥   215,574
174,116
89,267478,957
61,76924,88586,357(52,912)(27,545)
74,572
37,846¥   197,673
183,236
60,369441,278
55,541
25,387
72,210(30,522)(28,799)
50,32633,084¥   185,656
232,459
49,077467,192
50,276
12,562
40,696(42,596)(27,239)
71,39927,468¥   186,928
119,099
43,449349,476
49,18623,80751,717(15,647)(14,911)42,907
20,879¥   177,443
83,32140,413
301,177
46,61022,11955,771(36,525)(31,973)
64,413
21,469¥   174,325
75,151
33,577
283,053
44,513
20,98347,596(31,754)(736)
49,822
21,352¥   170,785
66,027
31,246
268,058
43,86722,02546,933(55,282)(7,795)54,417
20,896¥   162,963
63,802
27,630254,395
42,941
20,43547,329(33,297)(13,836)
46,873
19,641¥   153,910
67,47924,212
245,601
38,087
18,57137,424(40,621)(14,364)
48,303
18,499$ 2,374,720
1,314,263
1,071,150
4,760,133
668,305
372,435
799,519(470,120)(388,954)
824,323
469,776¥  620,993
250,498
39.5%
68,76011,606
6,336¥   579,810
230,182
39.1%
72,766
11,1306,404¥   531,454
214,663
39.7%
73,67010,4576,475¥   476,037
208,467
42.7%
67,712
9,994
5,703¥   448,132
198,13642.8%
54,843
9,761
5,236¥   436,096
201,16744.8%
83,982
9,527
5,186¥   397,108
188,574
46.6%
62,8238,587
3,735¥   398,258
199,49349.0%
75,5478,564
3,614¥   375,107
175,18446.7%
60,441
8,366
3,585¥   356,310
160,282
45.0%
76,5858,077
3,391¥   354,831
154,31743.5%
76,3897,967
3,402$ 6,091,750
2,457,308
39.5%
674,514
11,6066,336¥      380
220
57.9%

¥      332
200
60.2%

¥      249
180
72.2%

¥      255
170
66.8%

¥      127160126.3%¥      240
160
66.6%

¥      215
110
51.2%

¥      202
100
49.6%

¥      216
90
41.8%

¥      198
70
35.3%

¥      176
41
23.3%

$      3.73
2.16
57.9%

16.1%
6.3%

15.2%
6.0%

12.0%
4.9%

12.8%
5.5%

6.5%
2.8%

12.5%
5.7%

11.6%
5.6%

11.3%
5.4%

13.1%
6.0%

13.0%
5.7%

12.1%
5.3%

16.1%
6.3%

¥1,810,418
126,873¥1,747,915
156,339¥1,651,433
173,820¥1,499,576
183,205¥1,433,678
232,459¥1,434,166
124,614¥1,331,785
83,321¥1,311,479
75,151¥1,295,704
66,027¥1,265,257
63,802¥1,220,819
67,479$17,759,652
1,244,590

1,060,455
408,672
275,437
192,726¥1,937,292

1,063,120
372,706
271,920
196,506¥1,904,254

1,022,378
345,226
263,101
194,546¥1,825,253

897,415
321,851
264,166
199,348¥1,682,782

902,306
324,197
239,088
200,544¥1,666,136

844,324
332,894
186,109
195,453¥1,558,781

726,750
327,501
162,625
198,230¥1,415,106

705,155
324,993
155,575
200,907¥1,386,630

682,006
312,289
150,917
216,519¥1,361,731

665,687
297,369
148,134
217,887¥1,329,077

625,031302,568
139,506
221,192¥1,288,297

10,402,744
4,008,949
2,701,957
1,890,591$19,004,241

3.5%

3.5%

3.4%

3.3%

3.0%

3.2%

3.3%

3.2%

3.2%

3.2%

3.0%

3.5%

Notes: 1. The U.S. dollar amounts represent translations of Japanese yen at the approximate exchange rate at February 28, 2014, of ¥101.94=$1
2. Net sales from Company-operated stores includes only convenience store-related sales

Non-Financial Highlights
Per-store electricity use (index) and CO2 emissions*

Food recycling ratio

3. Effective from annual report 2006, the composition of capital expenditures has changed to include leases, investments and advances, and construction
assistance guarantees
4. Including depreciation and amortization of intangible fixed assets
5. These figures include sales figures reported by franchise stores and are unaudited

Ratio of working mothers to all female employees* The power-receiving end coefficient after adjustment identified by the Federation ofElectric Power Companies of Japan is used to measure CO2 emissions. Calculated in linewith the administrative year from April 1 to March 31.

100

We set the voluntary action
goal of reducing per-store
electricity use 20% from fis120 cal 2010 levels by fiscal
2020. By installing energyefficient equipment andreplacing equipment at
80
existing stores, we achieved
an 8.3% reduction in fiscal
2013.

(t-CO2)(%)

Base year
100.0

101.8
91.7

Target20%
reduction
88.8
80.0

68.2

(%)

To effectively use surplus
food and respond to the
Food Recycling Law, wehave worked to improve thisratio 2 percentage points ormore each year (using 22.5
percent in fiscal 2007 as abase). As a result, weachieved a ratio of 47.6% in
fiscal 2013 against a statutory
target of 34.5% or above.

47.6

50
40

Up
25.1%

30
22.5
20

40

10
0

10

2010

2013

2020

(FY)

Lawson, Inc. Integrated Report 20140

MM A
 nnual electricity consumption(index) (left scale)
P CO2 emissions (right scale)

0

2007

(base year)

2013

(FY)

(Persons)

(%)

100

25

80
16.0

20

16.7

60

15
8.4

40

67

4.6

91

10

20
0

As a result of our childcare
support policies, the ratio ofworking mothers to all
f emal e empl oy ees has
increased 12.1% over the
past 12 years. The ratio of
employees reinstated afterchildcare leave is also quite
high, at 98.3 percent (cumulative basis since fiscal 2000).

10
2001

2005

2010

2013

(FY)

0

(Persons)

(%)

200

40
32.8

M Number of working mothers (left scale)P Working mothers to all female
employees (right scale)

29.4

150
22.2

76

100

30

H a l f o f n e w h i re s a rewomen and 20% to 30%
are of non-Japanesenationalities. We promote
diversity by consciously
maintaining these ratios.

20.9
20

56
51

50

5
23

Number of men and women andratio of non-Japanese among new hires

0

94

31
27
2011

10

73

48
2012

2013

2014

(FY)

0

MMen M Women (left scale)P Non-Japanese to all new hires(right scale)Lawson, Inc. Integrated Report 201411

Taking Action and Delivering Value

Innovation throughteamwork

At Lawson, we have a tradition of using the corporate culture we have developed over timeto spark innovation. Going forward, we will continue to innovate as “Team Lawson” tosolve issues in communities from the customer’s viewpoint.

While sticking to our core corporate strategy, I will push forwardwith the realization of our corporate philosophy of “Creating
Happiness and Harmony in Our
Communities.”

Genichi Tamatsuka
President and CEO,
Representative Director

12

Lawson, Inc. Integrated Report 2014

I hope to improve corporate value
by continuously taking on bold initiatives unique to Lawson together
with our stakeholders.

Sadanobu Takemasu
Senior Executive Vice President,
Representative Director

Think for yourself before acting,finish what you start, and stay true
to the basics. These are the keys
to success in the harsh realm of
product development.

Lawson has consistently increased
dividend payments over time; wewill communicate with the stock
market, always keeping in mind
the importance of consistency anddiscipline in this and other areas.

Yuichi Wada

Yutaka Yoshitake

Senior Vice President(in charge of merchandising & logistics)

Executive Vice President, CFO(in charge of finance,accounting, etc.)

40 years since the inception of theconvenience store, it is now time
to reinvent the industry’s conventional business model and IT infrastructure.

We have seen a dramatic increasein human resources who seek out
innovation and who speak with
passion about what should be done
and how they should do it. Look
­forward to what happens next.

Masaharu Kamo

Seiko Osumi

Senior Executive Vice President(in charge of strategic IT, etc.)

Deputy Senior Vice President(in charge of human resources& diversity)

Lawson, Inc. Integrated Report 201413

President’s Message

To secure sustainable growth, I will lead Lawson under the following five key principles.

Building on our unwaveringcommitment to innovation,
we will make every effort toensure customer satisfaction
while continuing to create newvalue and thus realize sustainable growth in concert withall stakeholders.

Making a dramatic leap forward by
taking action and delivering value
Looking back on our time as a member of the Daiei Group
as our “first foundation,” I see the period since our public
listing in 2000 and our success since then in pushing forward a wide range of innovations that have contributed toconsiderable growth as a “second foundation.” I joined theLawson management team as COO in January 2011 andover the ensuing period have worked closely with our former
chairman, Takeshi Niinami, to continue on this path of innovation and ensure that the Company maintains its growthtrajectory. In this regard, for me, the past three years have
served as a period to sow seeds for the future.
Health and wellness in communities-oriented initiatives;
perishable foods; freshly-brewed coffee (MACHI cafe); andfast foods. These are just some of the seeds we haveplanted over the past few years through ongoing innovationthat have already sprouted and come to hand. I strongly
believe that our mission and responsibility is to deliver newvalue to customers, to fully satisfy customer needs, and toensure that these seeds blossom by strategically taking
action and delivering value. Naturally, this is not a responsibility that I can meet on my own. Placing the utmost emphasis on taking action in a timely manner, it is vital that we takeup the challenge as a team. The Group as a whole must
adopt a disciplined approach in carrying out its Corporate
Philosophy while nurturing human resources distinguishedby initiative and autonomy.

1. Ensure that Lawson’s Corporate Philosophy is instilled in our organization and its people,
respecting the values articulated, as everything we do is inspired by this Corporate Philosophy
2. Strengthen the relationship with the franchise owners and achieve mutual growth in addition to collaborative success3. Become the world’s No. 1 manufacturing retailer based on small commercial areas
4. Motivate each individual to take initiative, at the same time adhering to discipline, in orderto pursue success5. Foster and empower 100 young leaders of the next generation

Reflecting on Fiscal 2013

Achieved a year-on-year increase in operating income of
2.8% while focusing on raising the profits of franchiseownersIn fiscal 2013, the fiscal year ended February 28, 2014,
Japan’s economy took positive steps toward recovery.
Despite this favorable development, operating conditions
were impacted by poor weather conditions during the firsthalf and intense competition throughout the period due tosuch factors as the large-scale opening of stores by othercompanies. Lawson drew a sharp contrast with this largescale opening, placing emphasis instead on developing
products that address the needs of local communities andproviding an attractive assortment of merchandise. At thesame time, we accelerated the pace at which MACHI caféand Machikado Chubo (the provision of hand-made products in stores) were introduced across the store network.
Through these means, Lawson placed considerable weighton raising the profits of franchise owners. For the fiscal year
under review, sales at existing stores on a non-consolidated
basis edged down 0.2% compared with the previous year.
While the number of customers declined 1%, spending per
customer climbed 0.8%. On this basis, results were in linewith initial plans. Meanwhile, we continued to focus on profitability in rolling out new stores. As of February 28, 2014,
the total number of stores stood at 11,337, up 361 storesyear on year. As a result of these factors, net sales of all
stores climbed 2.0% compared with the previous fiscal year
to 1,945,394 million yen for the fiscal year under review.
From a profit perspective, operating income improved 2.8%
year on year to 68,127 million yen. While selling, ­general andLawson, Inc. Integrated Report 2014

FY2013

FY2014% Change¥   66.2¥   68.1+2.8

Net income

33.1

37.9

+5.8

ROE (%)

15.2

16.1

+0.8

1,906.5

1,945.3+2.0

Operating margin (%)1

3.5

3.5

+0.0

Gross profit margin atexisting stores (%)2

30.5

31.0

+0.5

Operating income

All stores’ net sales

Notes: 1. Based on all stores’ net sales
2. A sum of all LAWSON and NATURAL LAWSON storesadministrative (SG&A) expenses increased as a result ofexpenses incurred in raising the profits of franchise owners,
this improvement was largely attributable to the sales growthof over-the-counter fast food products, which boast a relatively
high profit margin, and the positive flow-on effect to grossprofit margins. Net income increased 14.4% compared withthe previous fiscal year to 37,966 million yen. This was 2.0 billion yen higher than initial full fiscal year plans and due mainly
to the decrease in deferred income taxes in accordance withthe business reorganization of Ninety-nine Plus, Inc.

YoY changes in existing store sales, number of customers, and spending per customer (consolidated)
(%)
110
105

100.5

100.2

100

99.0

97.5

95
90
0

1Q

2Q

3Q

4Q

FY2009Change in existing store sales

14

Consolidated performance highlights for the year ended
February 28, 2014
(Billions of yen, %)

1Q

2Q

3Q

4Q

FY2010
Number of customers

1Q

2Q

3Q

4Q

1Q

FY2011

2Q

3Q

FY2012

4Q

1Q

2Q

3Q

FY2013

4Q

1Q

2Q

3Q

4Q

FY2014

Spending per customer

Lawson, Inc. Integrated Report 201415

President’s Message

Lawson as a neighborhood store
Convenience store

Seniors

No homogeneouscompetition

Supermarkets
On foot
Men in their
20s and 30s
Onlineshopping

Housewives
Working
women

Drug store

Convenience Store Growth Potential

The industry maintains the capacity to grow mainly
through expansion that transcends conventional
business modes
The convenience store industry recorded 2013 calendaryear sales of 9,872.4 billion yen, a year-on-year increase of
4.2%. On this basis, the industry is in sight of the major
milestone of 10 trillion yen in sales. At the same time, thetotal number of stores climbed 5.0% year on year to 50,234.
Leveraging their underlying strength as neighborhood
stores that operate on a 24-hour basis, convenience stores
have continued to develop and grow by providing products
and services across a variety of formats. Against the backdrop of an increase in demand for ready-made meals and instore foods, for example, we are seeing a shift in demand
from eating out toward food services, lunch-boxes, preparedfoods, fast foods, and, more recently, freshly brewed coffee.
This trend reflects shifts in demographics, especially suchchanges in society as the growing number of women in theworkforce as well as the declining birthrate and aging population. There are indications that these trends will trigger amajor readjustment within the retail industry in three to five
years. As a case in point, there are currently 50,000 supermarkets and 60,000 drugstores and prescription-selling
pharmacies in Japan. If we successfully implement a finetuned response to changes in local communities, we anticipate the frequency of visits to neighborhood convenience
stores will increase, to the detriment of supermarkets in faroff locations and downtown drugstores. Taking into consideration this forecast industry reorganization and various
trends, including the expansion of the customer baseacross conventional business modes, I am confident that
there is ample room for convenience stores to grow.

Pursuing additional growth opportunities asa neighborhood store

16

Lawson, Inc. Integrated Report 2014

increase in the gross profits of existing stores. This in turn isa major factor in achieving significant improvements in franchised store earnings.
From a management and store operating perspective,
reinforcing relationships with franchised stores will be
increasingly important if we are to prevail over the competition. Historically, we have conducted Lawson Seminar andOwners’ Meeting events to convey and share with franchiseowners our Corporate Philosophy, strategies, and principles.
In order to build robust stores and forge a strong position
within each community, we have also held Area Meeting
events to share best practices and reinforce collaboration.
Looking ahead, we will endeavor to further reinforce these
relationships through a variety of initiatives. We will, forexample, expand mechanisms to support outstanding franchise owners who exhibit a strong entrepreneurial spirit byenhancing our Management Owner (MO) system.

Lawson’s SCM–CRM model
Supply Chain Management (SCM)

Customer Relationship Management (CRM)

Comprehensive management from procurement to marketing,for optimal efficiency of the whole process

Marketing approach to provide goods and services according to
specific needs of customers

Visualizationofopportunity
loss

Product
development
Analysis of purchasing
behavior of customers

Establishing a Presence as a Manufacturing Retailer based on Small Commercial Areas

The Great East Japan Earthquake served to reinforce
awareness of the social infrastructure function of convenience stores in providing essential items and services atthe local level. Against this backdrop, I strongly believe inthe potential of our business model, which focuses on our
status as a manufacturing retailer based on small

Looking first at our strategies for opening new stores, wehave worked to differentiate ourselves from other companies
by promoting our role as a neighborhood store and developing multiple formats at the earliest possible opportunity. Thisfocus on the aggressive development of multiple formats
has led to the launch of health-conscious NATURALLAWSON, fresh food-type LAWSON STORE100, and­n ext-generation LAWSON MART convenience stores.
Through a process of store development evolution, we havesuccessfully addressed the needs of women and the elderly,
which for the most part had been unmet by conventional
convenience stores. Following the announcement in
October 2013 of our strategy to extend our business modeland establish a presence as a provider of health and wellness in our communities, we have attracted keen interest
from these new customer segments. Recognizing thepotential for expansion in the health-related market, we aredramatically accelerating the pace of business development.
By ensuring that the format of newly opened stores matches
the needs of each community, we will expand our market
share as a neighborhood store.
Moving forward, we will make the most of our uniquestrengths as a manufacturing retailer by positioning original
products as the driving force behind our expansion. In
developing original products, Lawson utilizes a supply chain
management (SCM)-customer relationship management(CRM) model while working closely with raw material procurement and product development departments as well as
marketing departments that engage in Ponta multi-partner
loyalty point program data analysis. This model goes a long
way toward developing high-value added products from thecustomer’s perspective while helping to secure high profitability. At the same time, efforts to strengthen original products that boast high gross profit margins contribute to an­ ommercial areas and our ability to provide customers withcwhatever they want, whenever and wherever they need it. I
would like to take this opportunity to briefly outline how weare attempting to promote this business model from thethree perspectives of store opening, products, and store
management.

High-value
added rawmaterial
procurement

SCM
Supply Chain
Management

Ponta Card

CRM
Customer
RelationshipManagement

Manufacturing/ distribution

Optimalmerchandise
assortment

Improve Gross Profit Margin

Increase Sales and Profits

Planned orderplacement

Lawson, Inc. Integrated Report 201417

President’s Message

Lawson’s Capital Discipline

Striving for an ROE of 20% and consolidated operating
income of 100 billion yen to meet the expectations ofglobal investors
Road map to medium-term continuous growthand 20% ROE

Grossoperating profit
Gross profit atexisting stores

Short-term
0.3–0.5 percentage point
per year increase ingross profit marginNon-consolidated
LawsonConsolidated
operating incomeof ¥100 billion

Selling, general &administrative expenses

Mediumto longterm

M&A/alliance

Consolidated
subsidiaries

ROE 20%
Increased dividend/buy-back &cancellation

Entertainment businesses
Overseas businesses

Lawson, Inc. Integrated Report 2014

Changes in ROIC compared with our competitors for ten years

in local communities, Lawson is endeavoring to establish
a unique model as a manufacturing retailer based on small
commercial areas. We understand that organizational prowess and human resources will be essential to achieving thisend. In addition to promoting organizational diversity, we will
also work to foster and empower 100 young leaders of thenext generation. Moreover, we will position the return of profits as a key management mission and, while maintaining highstandards of capital discipline, strive to meet the expectationsof global investors through our share price and dividends.

Average ROIC for the period (%)

20
18
16
14
12
10
8
6
4
2
0

ROE: Comparison with retailers around the world

LawsonROIC+2.3% points

Percentage point change compared with the level of five years ago

(%)

25

Average of two
major competitors
ROIC-3.3% points

0.0％

1.0％

2.0％

3.0％

4.0％

5.0％

Lawson+3.6％
points20

Wal-Mart

Costco6.0％

Change in the number of storesNotes: 1. ROIC = operating income after taxes (assuming a 40% tax rate) ÷average invested capital during the period (total equity + interestbearing debt)
2. Growth rate of total number of stores (average annual rate fromfiscal 2003 to fiscal 2013)
3. Arrows indicate the direction of change in ROIC between fiscal
2004 and fiscal 2013

approximately 30 billion yen. In the future, cash used ininvesting activities is expected to total between 50 and 60
billion yen, assuming that the opening of stores continues at
its current pace. Cash used in financing activities (focusedlargely on the payment of dividends) of around 40 billion yen
is forecast to fall within the scope of free cash flows.
Along with an ROE of 20%, we have set the medium-term
quantitative target of 100 billion yen in consolidated operating income. In order to achieve this target, we will place considerable emphasis on expanding the gross profit of existing
stores, which is linked directly to the profits of franchise owners. In specific terms, we will upgrade and expand original
products with high profit margins, including over-the-counterfast foods; reduce procurement costs by improving supply
chain management; and review the pricing mainly of highvalue-added products, reflecting the ­transition from deflationary to inflationary market conditions. As a result of these
activities, our plan is to lift the gross profit margin from 31.0%

ROE (FY 2013)

Lastly, I would like to elaborate on our plan for sustainablegrowth from a finance strategy perspective.
In carrying out its operations, Lawson has laid out a roadmap based on an ROE target of 20%, the global standard
for capital efficiency. There are essentially two ways toachieve this target. One is to increase profit by increasing
operating cash flows in our core business. The other isthrough finance strategies to increase capital efficiency.
Lawson places profit growth through its core business as
its first priority. At the same time, we focus on distributing
cash flow in a manner that balances the need for optimal
medium-term reinvestment with the need to return profits toshareholders. In this regard, deciding how to allocate cash
flows is central to our business strategy.
Return on investment (ROI) is the criteria that we use todetermine how operating cash flows will be allocated to various activities, including the opening of stores, sales promotions, M&A, and new businesses. Lawson adheres strictly toa capital discipline that mandates an ROI of at least 20%
when determining the allocation of funds. The positive effectof adhering to this capital discipline is evident in the fact that
our return on invested capital (ROIC) has consistently
increased over the past decade while those of our competitors have decreased.
Turning to our plans to open new stores during the fiscal
year ending February 28, 2015, we will continue to focus on
profitability. Our plan is to open 1,100 stores, up from the869 stores opened during fiscal 2013. In terms of cash
flows, cash provided by operating activities is projected toreach around 100 billion yen due to such factors as theincrease in the number of stores and improvements in the
gross profit margin. Allowing that cash used in investing
activities will temporarily rise to around 70 billion yen due
mainly to efforts aimed at strengthening existing stores andinvestments in systems, we still forecast free cash flows of18

Annual net increasein number of stores:
5%in the fiscal year under review to 35.0% over the medium tolong term. Just as importantly, we are reducing SG&A
expenses through business process reengineering (BPR).
Buoyed by these business initiatives, we aim to increase theratio of operating income to the net sales of all stores from its
current level of 3.5% to 5.0% over the medium term.
In addition to pursuing growth based on our existing convenience store business, we will also search out opportunities that arise from the anticipated future reorganization of
the industry, taking into consideration M&As and alliancesacross conventional drugstore, supermarket, and otherbusiness formats. We will not, however, pursue M&As solely
for the purposes of increasing net sales and the number ofstores. We will adopt a strict approach that focuses on
return on investment and the ability to generate synergy.
Accordingly, we will continue to place the utmost importance on maintaining capital discipline.
With the change in the Company’s top management, wehave decided to change the structure of the Compensation
Committee to newly establish the Nomination andCompensation Advisory Committee. This four-member committee is comprised of two external directors and two external corporate auditors. With this initiative, we are seeking tofurther enhance management transparency.
Recognizing that there is currently no global standard forneighborhood stores that seek to fulfill the needs of customers

15
TargetJ Sainsbury

10

CVS Caremark

Seven & i

FamilyMart+3.9％ points+0.4％ points

5

Walgreen

Tesco

Metro
0

10,00020,00030,00040,00060,00050,00070,000200,000

80,000(Millions of U.S. dollars)Market capitalization (As of February 28, 2014)

Cash dividends per share and payout ratio
(¥)

¥240

250

(%)

5.0

 Cash dividends per share (left scale) Payout ratio (right scale)
200

4.0

150

3.0

3.1%

100

2.0

50

1.0

0

2002

2003

2004

(Years ended February 28 and 29)

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015
(Forecast)Lawson, Inc. Integrated Report 2014

0.0

19

Special Feature
The driving forces behind our customer-centered product development and our merchandise assortment

Thinking up new innovations
for our customers
Lawson has successfully created innovative drivers of growth with original products, perishable foods, MACHI
café, over-the-counter fast foods, and its Management Owner (MO) system. This success is rooted in a business model as a manufacturing retailer based on small commercial areas featuring innovative R&D from thecustomers’ viewpoint and an advanced franchise chain system.
In this special feature, we explain how Lawson offers customers new value as an innovation driver thatplants the seeds of future growth.

Lawson’s business model as
an innovation driverMarketing

Honing our understanding of communities
The point of sale (POS) systems that have supported strong
growth in the convenience store industry are beginning toshow their limitations. POS systems are an effective tool for
constantly refining product lineups by managing individual
products in order to efficiently turn over inventory in small
store spaces. However, POS systems are unable to grasp
diversifying individual customer needs. A deep understanding of our communities is essential. We believe there isalways something more we can learn about our communities in order for Lawson to win the approval of its customers.
Lawson has introduced a multi-partner loyalty point program called Ponta, enabling us to better grasp trends incustomer shopping patterns. With Ponta, in addition to simple information such as what products are selling well, we
are able to discern, for example, whether many customers
are buying a certain product once each, or whether a few
customers are buying the product more than once. In analyzing frequent customers who buy a lot at individual stores,
Ponta data can clearly reveal that men in their 30s andwomen in their 40s are the most common such users,
instead of merely conjecturing that young men are probably
the most frequent buyers. This data analysis helps individualstores identify their strengths and unique characteristics. It

has also allowed us to unearth potential needs for productdevelopment by connecting customer traits to repeat rates.
As of the end of July 2014, the number of Ponta members
was around 64 million, and sales to Ponta members represented roughly 50% of total sales. The precision of Ponta
data analysis has been improving every year.
Since March 2013, Lawson has compiled reports analyzing Ponta data on purchases for individual stores and distributed them to franchise chain stores throughout Japan.
These reports reduce opportunity loss by helping individualstores optimize their assortment of merchandise and realize
their full potential. Referring to this data when determining
shelving allocation makes order placement more efficientwhile reducing labor. Property information in the hands ofstore development managers is paired with reports analyzingcommercial areas based on Ponta data, thereby helping tocreate more precise regional store development strategies.
We aim to take this data analysis to the next level by
studying the mindsets of individual customers based on theoutcome of individual customer and store data analysis.
Lawson is working hard to win the support of more customers by developing new products, identifying key customers,
and enhancing its assortment of merchandise.

Data analysis
Health-conscious
merchandise

Development oforiginal
products

MACHI café
Machikado Chubo

Business modelMultipleformats

Manufacturingretailer basedon smallcommercial
areasEntertainment
services

CustomerdrivenEvolvedfranchisesystemValue of information

SNS

Healthcare

Individual customer andstore analysis

Analysis of POS data
Uncertainties
about
customers:
first-time orrepeat buyers?

Starting fiscal 2014
Analysis of individual customer mindsets

Limits of
POS
systems

Innovative
R&D

Perishable food

Now
H

Advances in CRM at Lawson

Salesmanagement

Understanding
individual
customers(buyingbehavior)

Understanding
individualstores (locationand customer
profiles)What kind of customer buys
with what frequency?
P Individual store Ponta member report
P Opportunity loss ledger

How many of what weresold when and where?
P Individual product sales rankings

Management Owner
system

POS data

Understanding
individual
customers(mindsets)

Maximize
impact ofmeasurestaken

Enhancehypothesis
testing

Why did a customer decide to buy?
P What kind of store should we open, and where?
P What kind of product should we develop?
P What kind of merchandise assortment should we create?
P What kind of advertisements should we use?

External qualitative andquantitative data(social networks, surveys, etc.)

Ponta data

Ponta data

POS data

POS data

Use more
sophisticatedanalysis
methods

Greatly
increaseanalysisspeed

Use cutting-edge
marketingtechnology

Data analysis sophistication
IT system
Raw material
procurement

Home
convenience
services
Diversified
personnel

20

Lawson, Inc. Integrated Report 2014

Intellectual assets: Customer viewpoints, social networks
Every day, around 10 million people walk into a Lawson convenience store. Roughly half of our sales can be linked to data on the buying
habits of Ponta members, and this in itself is a precious resource for management. In addition to customer traffic in our stores, our brandcharacter, Akiko-chan, has more than 13 million followers on Line, Facebook Twitter and other social networks (as of July 2014). Ourpresence on social media has been expanding.
At Lawson, we analyze shopping data and keywords used on social networks to grasp customer needs and broader trends in society
in order to deepen our understanding of communities.

Lawson, Inc. Integrated Report 201421

Special Feature: Thinking up new innovations for our customers
Responding to social trends based on the keyword “Health” from customer viewpoints

Pursuing innovative R&D from the customers’ viewpoint

Evolving convenience stores

Product development

Aiming to contribute to health and wellness in our communities
As lifestyles in our communities change, we aim to be amore helpful convenience store, and “Health” is a keyword
that symbolizes how we can do this.
In Japan, birthrates have been declining and the elderly
population and social security costs increasing. Against thisbackdrop, awareness has been increasing about what society can do, instead of leaving it up to individuals, by offering
a wider range of lifestyle assistance services to help prevent
lifestyle-related ailments (including symptoms of impending
ailments) or help the elderly retain greater independence.
Lawson wants to help people manage their health as part oftheir normal lifestyles by offering even more delicious andnutritious foods. With this objective in mind, Lawson wants
to advance the reputation of convenience stores as being
not only “easy and convenient” but also “easy and healthy”
as an agent for health and wellness in communities.
In 2001, Lawson launched the NATURAL LAWSON convenience store model with a health-conscious assortment of
products. Since then, we have continued to make upfront
investments with a greater consciousness of health in developing store formats, creating products and strengthening
our merchandise assortment. With this accumulated expertise, Lawson aims to create convenience stores that contribute to the health of communities based on two approaches:meal solutions that nourish the body through daily eating
habits, and support for self-medication that helps customers
help themselves in times of need.
The meal solution approach entails offering delicious andhealthy foods for our customers. Traditionally, healthy foods
have been strongly associated with small portions and flavorlessness. Lawson aims to develop delicious and healthy
products by leveraging its strengths as a manufacturingretailer based on small commercial areas. Such products
include vegetables rich in minerals grown using the

Deliciousandhealthy

Meal solutions(healthy foods that address symptoms ofpossible lifestyle-related ailments)

P Mineral farming: Nakashima Farming Method
P Products for people worried about carbohydrates:
Bread made with bran
P Reduced sodium, low-calorie menus: Healthy snacks
under the NATURAL LAWSON brandP Nutritious menu items: Health-conscious boxed lunches
P J oint development with ingredient makers/foodprocessors: Innovation laboratory
Convenience stores

22

Lawson, Inc. Integrated Report 2014

Online homedelivery service

Focusing on the development of products that provide newvalue to society

Nakashima Farming Method of caring for the soil; breads
made with bran jointly developed with bakeries for people
worried about carbohydrate intake; and reduced-sodium,low-calorie confectioneries sold under the NATURALLAWSON brand.
Drug sales are an integral part of offering support for selfmedication. Lawson has been developing store formats thatincorporate dispensing pharmacies since 2003. Lawson has
formed partnerships with Qol Co., Ltd., a major dispensing
pharmacy chain, and MIZ-Pharmacy Co., Ltd., a dispensing
pharmacy and drug store operator in Saga Prefecture andFukuoka Prefecture. As of the end of July 2014, Lawson
had opened 40 convenience stores with dispensing pharmacies, most located in the Tokyo metropolitan area.
Lawson plans to aggressively expand the number of convenience stores that also sell drugs through partnerships withlocal dispensing pharmacies and drug store chains. In July
2014, we began offering order placement services forapproximately 280 over-the-counter (OTC) medicines, suchas for cold medicines, fever reducers, and stomach medications, via our multimedia terminal (“Loppi”) in stores for customers that do not have internet access at home. We are examining
ways to improve customer convenience even further.
One of our more unique initiatives is bringing medical
checkups to Lawson stores. A prerequisite for healthy lives
is the early discovery of diseases through regular medical
checkups. Getting more people to undergo medical checkups has become a social issue. Lawson is collaborating with
Amagasaki City in Hyogo Prefecture, Matsumoto City in
Nagano Prefecture, and Saga City in Saga Prefecture toprovide health checkups and consultation services for local
residents at their nearest Lawson store.
Lawson will continue to pursue innovation to contribute tohealth and wellness in communities.

Self-medication support(providing services that help customers
maintain their own health)Collaboration withlocal governments

Regular exercise

bran to t­raditional dough, we succeeded in creating a softer,
moister bread in May 2014. By offering customers newvalue in terms of a delicious staple food that they can buy
locally without worrying about carbohydrates, we have introduced a product with social impact in the sense that it benefits customers who have to limit their carbohydrate intake.
Based on Ponta purchase data, the repeat rate for branbread is higher than 40%, even higher than other originalLawson products. Over the two years through May 2014,
we have sold a total of 35 million bran bread products.
In May 2014, we also began selling healthy treats, suchas cookies that use wheat bran, snacks low in sodium,marshmallows with lactobacillus added, and chips made outof konjak. Lawson will continue to focus its energies on creating products and services that anticipate customer needs
and are in tune with social trends so that its convenience
stores always have what customers in the community want,whenever and wherever they need it.

What is Bran? Bran is a grain’s outer husk. It is higher in dietary fiber and lower in carbohydrates than ordinary wheat flour. Lawson
offers bran bread across several product categories, such as sandwich bread, confectionery bread, and snack bread.
We also use bran in other products, such as cookies, snacks, and roll cake.

Outer
husk
Wheat

Bran bread rolls

Bran breadBran moist
melon breadBran soy milk
cookies

Bran black
sesame cookies

Bran hard-baked
snacksConstant change and effort leads to new value

Bringing
health tocommunities

P Handle prescription drugs
P Handle OTC medicines
P 24-hour drug consultation services via video chat
P Health checkups and consultations at Lawson
storesP Partner with sports-related businesses

Regional healthcareorganizations

Taking the customer’s point of view, it is essential that wedevelop delicious and compelling products that customers
prefer in order to offer an assortment of merchandise in tune
with the needs of communities. Lawson concentrates on thedevelopment of original products with new added value thatsatisfies the needs and expectations of its customers.
It is said that one in four people in Japan are at risk of
becoming diabetic, and health-conscious women arestrongly interested in foods low in carbohydrates. Suchfoods, however, have a reputation for being expensive yet
not flavorful, and many are sold only by direct order. In June
2012, Lawson began offering a series of bran breads in collaboration with a major bread bakery and THE-TORIGOE
CO., LTD., which has patented technologies in Japan, theUnited States and Europe for making bread low in carbohydrates that incorporate the outer husk of grains. To makethe bread more enjoyable, Lawson made several improvements to the mixture of bran and the production process.
Thanks to these improvements, including the addition of rice

Yoshiyuki Suzuki
Deputy Division Director,
Merchandising Division andGeneral Manager, Bakery
Products & Desserts
Department

Lawson’s desserts are quite popular among women in their 20s and
30s, outselling the competition. The first dessert that particularly
struck a chord was our Premium Whipped Cream Roll, which
was launched in September 2009. Desserts that men buy as
an afterthought became a primary reason for women to visit
our convenience stores. Starting with product planning,
Lawson has unique strength in the process of procuring thePremium Whipped Creamfinest ingredients itself, making desserts with the cooperation
Roll (above),
Pure Shortcake (left)of vendors and delivering them to customers.
For example, we created our Pure Series products that do not, inprinciple, contain additives by first putting aside the success we had with Premium Whipped Cream Roll.
We turned the conventional approach of “adding” on its head, instead “subtracting” ingredients as a concept for simple yet delicious foods that do not contain additives when at all possible.
Not using any additives was a concept that ran counter to common practices in food production, so we
had to dive deep into our supply chain in order to make this concept a reality. The fruit of these efforts is
the Pure Series products, which have won the approval of mothers in their 30s and 40s with small children. By tapping into a different customer category than that of the Premium Whipped Cream Roll, wewere able to unearth a new market with potential for growth.

Lawson, Inc. Integrated Report 201423

Special Feature: Thinking up new innovations for our customers
Visibility in the supply chain is a differentiating point for a manufacturing retailers based on small commercial areas

Supply chain

Focusing on high quality, low cost, and the environment byenhancing visibility in the supply chain
One of Lawson’s strengths lies in the procurement of ingredients. To improve SCM, we eliminate inefficiencies and waste byincreasing the visibility of quality and the cost structure throughthe integration and optimization of our entire supply chain. In
2003, Lawson created the Raw Materials Procurement
Department, where experts carefully select ingredients. In 2012,
Lawson established SCI, Inc. as a functional subsidiary and built
relationships with producers nationwide. We then turned ourattention to redundant and duplicated processes in logistics

prior to the production stage, giving us a better view of ingredient processing. We methodically increase efficiency all the way
up the supply chain.
Lawson takes pride in its Raw Materials Procurement
Department, which supports product development by starting with high-value-added ingredients that are strategically procured in large volumes in collaboration with themerchandising departments, helping to find best foods.
Through these initiatives, we are able to attain the opposing

Creating visibility in the supply chain through structural reform

Aiming to control the supply/demand balance
Visualization of

Operations

Analyzing
and usingPonta purchasedata and othercustomer information

Procuring high-quality ingredients at low
cost by selling all raw materials procured
Lawson procures whole trout farmed in Chile anduses it as a common ingredient in boxed lunches,
rice balls, sushi, sandwiches and other products,
not wasting any part of the fish.

Product development

Back

Belly

Ingredient procurement

Manufacturing(Factories for boxed lunches, rice balls,
prepared food, bakery items)

Society andthe environment

Lawson strives to reduce CO2 emissions by using plantderived plastics in containers for its original products. At thesame time, Lawson also promotes the use of lighter materials as a way of more effectively using limited natural resources. Through these efforts, we have cut CO2 emissions by
31.3% compared with the fiscal 2006 level, based on calculations of emissions when containers are incinerated.

Containers made with plant-derived plastics

At plants that produce rice dishes, Lawson
has put in place its own Hazard Analysis andCritical Control Point (HACCP) system for foodsanitation management in order to prevent
accidental food poisoning and foreign matter
mixing into food. Records are kept for every
critical control point in the production process, such as cooking times
and food temperature management. In the event of a problem, we areable to quickly identify the issue and implement countermeasures.

External evaluations
24

Food Action Nippon Awards 2013 recognizes outstanding efforts to
help increase consumption of agricultural products made in Japan.
On December 3, 2013, Lawson was selected for three of theseawards, including the Award of Excellence in Logistics. Lawson wasrecognized for its contribution to revitalizing communities and for helping to spread the use of domestically produced foods through its salesof vegetables grown by Lawson Farm, a farming corporation, and­creating and selling products made with ingredients grown in Japan,such as the “Delicious! Local Specialties” series of boxed lunches.

Marketing(Stores)

Efficient deliveries andeco-driving

In order to cut waste at the production
stage, we have introduced theProduction Process Management
System to carefully measure ingredients used, product volume, and servings down to the gram.

Lawson aims to efficiently deliverproducts by promoting multi-drop
deliveries and optimizing delivery
frequencies. Eco-tires are put ontrucks to improve their fuel economy, and drivers are trained in ecofriendly ways of operating vehicles.

Lawson, Inc. Integrated Report 2014

Lawson was commended by the Minister of the Environment for
promotion of measures to cope with global warming by deploying
advanced technologies in 2013, in recognition of the introductionof CO2 coolant in refrigeration systems in new, experimental energy-saving stores. This award recognizes the benefits of using cutting-edge energy-saving equipment in our experimental
energy-saving stores and the use of freezers and refrigeratorsthat use CO2 as coolant since fiscal 2010.

Using IT systems, Ponta data is analyzed forconvenience stores and hypotheses are drawn
up based on day of the week, weather patterns,
regional events, and other factors in order to findan optimal assortment of merchandise to matchcustomer needs. We aim to reduce the wasteful loss of products and cut
down on opportunity losses that arise when customers are unable to findwhat they want in our stores.

Distribution

Creating a zero-waste production
systemDaily number of delivery
trucks per store*
16.0 trucks

7.0 trucks
Eco-tire2013 (FY)* Delivering goods, except fornewspapers and cigarettes

Commendation received from Minister of the Environment for
promotion of measures to cope with global warming using CO2
coolant and expanding energy-saving experimental stores

Optimizing the merchandise assortment by analyzing customers
and stores(Distribution centers)

1989

Lawson selected for three awards in Food Action Nippon
Awards 2013

To provide products and services, such natural resources
as electricity, gasoline, other forms of energy, and water areused in operations throughout the supply chain that emit
CO2 and waste byproducts. In order to minimize the impactof these factors on the environment, Lawson measures CO2
emissions at each stage of its supply chain, from ingredientprocurement to product production, distribution and sale atits convenience stores. Based on this data, Lawson implements various measures to reduce CO2 emissions.

by integrating and optimizing our supply chain
all processes
Meticulous sanitation management with own HACCP system(managed by the Raw Materials
Procurement Department)

Proactive use of lighter, plant-derived packaging

objectives of reducing costs and procuring high-quality
ingredients, thereby realizing a high gross margin on our
original products.
As a part of our food safety management, we only conduct business with food production plants that clear our own
standards for quality management. Plants that make riceballs, boxed lunches and other original products are subject
to stringent quality management standards through cooperative unions, and are inspected every six months. In addition,
the merchandising section in each region of Japan conducts
thorough on-site inspections of the plants in their region.

Examining energy-saving benefits and applying results inconvenience stores
Since fiscal 2008, Lawson has
operated experimental energysaving stores around Japan to
examine the benefits of using
energy-conserving equipmentwith cutting-edge technologies.
Leveraging the knowledge
Lawson convenience store in front of Panasonic(Moriguchi City, Osaka)gained from these experiments,
we plan to roll out energy-saving equipment at all of our locations in Japan and develop even better
equipment to slash CO2 emissions further.

Manufactured capital

Enhancing value added along the supply chain
Traditionally, convenience stores outsource the production of original products, such as boxed lunches, rice balls and sandwiches. Lawson visualizes the entire production process while leveraging its network of 12,000 stores and its low-cost, efficient logistics network. We aim to safely andreliably provide high-value-added products to our customers all over Japan through our supply chain designed to eliminate waste and minimize
our environmental footprint.

Lawson, Inc. Integrated Report 201425

Special Feature: Thinking up new innovations for our customers
Creating a framework unmatched by rivals as a manufacturing retailer based on small commercial areas

P Maximizing our strengths to create original Lawson products

Strengthening perishable food sales

Lawson’s original products leverage its advantages in ingredient procurement and product development. These
original products are a key part of its strategy for growth over the medium and long term from the standpoint of
improving existing store gross profits. As an example of a related initiative, we introduce below the “Delicious!
Local Specialties” series of products, which exemplifies our competitive advantages.

The challenges we have boldly taken on are now a framework unmatched by rivals.
Our strengths in rice-based foods originated with “Onigiriya” rice balls, which werelaunched in November 2002 and quickly established a brand as a regular product inour convenience stores. The “Delicious! Local Specialties” series of products featuringlocally made ingredients also played a key role.
Competition among convenience stores is extremely intense, and popular products
are quickly imitated by other chains. For example, there was a bout of intense pricecompetition for boxed lunches after the 2008 financial crisis, in which practically all
boxed lunches were priced at 398 yen. When I returned to the Rice Foods Department
in 2011 after four years away, the first thing I did was try to absorb all the opinions of
our customers. In the wake of food mislabeling scandals, many customers at the time
said that they wanted products with reliable information about the origin of ingredients.
Other customers had clear opinions about additives and nutrients. If we offer rice balls
made only with ingredients grown in Japan, why not do the same with boxed lunches?
Initially, merchandisers thought this idea would not work because a sufficient volume ofdomestically produced ingredients could not be sourced for boxed lunches soldnationwide. However, we paid heed to this customer need and talked with all of our
suppliers in order to create the “Delicious! Local Specialties” series of products. Even
though prices are 50 or 100 yen higher than regular boxed lunches, customers appreciated their higher value and the series became a hit.
Taking advantage of its pioneer status, Lawson has been putting together a framework including forward purchasing for procuring domestically produced ingredients.
At the same time, the “Delicious! Local Specialties” brand has attracted increasing
sales offers from producing areas around the country. We are building an ingredientprocurement framework by promoting the sale of locally grown ingredients in ourbrands. We aim to establish a superior, highly differentiated position by focusing on
seasonal ingredients and freshness.

Koichi Fukuda
Deputy Division Director,
Merchandising Division

P Extending our lead in over-the-counter fast foods

P Maximizing benefits with partners to develop “Uchina*” products

Lawson has sold fried foods for the 35 years since it installed fryers
in convenience stores in March 1979, an industry first. Lawson’s
fried foods are sold as prepared foods fried to perfection, including“Kara-age Kun” (crispy Japanese-style fried chicken) and “L-chiki”(fried chicken pieces) snack foods that can be eaten right away, as
well as “Tori-kara” (Japanese-style fried chicken) and “Genkotsu
Menchi” (fried minced meat balls) that are great as side dishes. In
2014, Lawson secured enough volume of Kitaakari potatoes grownin Hokkaido to launch nationwide sales of high-quality “Genkotsu
Croquette,” even though only about 2% of arable land in Hokkaido
is used for potatoes. Reflecting changes in communities, namely theincreasing number of women in the workforce and rising number ofhouseholds with fewer people, Lawson’s sales of fried foods in fiscal
2013 were five times higher than in fiscal 2010, when it began inearnest to offer more fried prepared foods to meet customer needs.

In 2009, Lawson established Lawson Okinawa as a joint venturewith SAN-A CO., LTD., the largest supermarket retailer in
Okinawa. As of May 31, 2014, we had 168 Lawson convenience
stores in Okinawa. In 2012, we began selling Lawson Selectproducts, which are available around Japan, at SAN-A stores in
Okinawa, boosting sales at not only SAN-A, but also at Lawson.
In 2013, we began selling Lawson Select products featuring
ingredients from Okinawa in a collaboration between Lawson
merchandisers and SAN-A buyers. We created a range of products that reflect the unique food culture of Okinawa, such as
Okinawa Soba, Okinawa Soki, and Taco Rice. Per-store sales ofthese Lawson Select products were 1.5 times higher than thenational average. By partnering with leading local companies thatare in tune with their communities, we are able to develop products and operate stores that suit the traits of these communities.
* A local word for “Okinawan”

Kara-age Kun

26

Genkotsu Croquette

Lawson, Inc. Integrated Report 2014

Helping revitalize and change industry structures up the supply chain as a manufacturing retailer based on small commercial areas

Okinawa exclusive product label

Supplying our stores with safe, high-quality fresh foods
Fresh foods are one of the products unique to Lawson thatdrive customers to our convenience stores.
In 2005, Lawson began offering perishable foods. After
creating procurement channels for nationwide deployment,
we developed a new format called the fresh food convenience store, which handles fruits and vegetables. This
made it possible for our customers to buy perishable foods
as a staple of their daily eating habits at their nearest
Lawson convenience store. Our Cut Vegetables products
use vegetables grown using the Nakashima Farming
Method in mineral-fortified soil and appeal to elderly shoppers that tend to avoid shopping in supermarkets andwomen with little time for shopping.
Lawson’s efforts to strengthen perishable foods have led
to innovation up the supply chain at farms, helping to provide customers with a safe and reliable supply of high-quality food products. In June 2010, Lawson decided to enter
the agriculture business by helping to establish a farming
corporation, Lawson Farm, owned 75% by local producers,
15% by Lawson, and 10% by produce wholesalers. As ajointly owned farming corporation with leading local farmers,
Lawson Farm operates 19 farms around Japan (as of July2014), and plans call for increasing this number to 40 farms
in 2015. We ultimately aim to create a structure able to procure perishable foods throughout the year from Lawson
Farms in various production regions. We also aim to expand
the volume of vegetables produced by increasing the number of contracted farmers. To do so, we will invest in the
produce home delivery services DAICHI wo MAMORU KAI(Earth Environment Preservation Society, an organic fooddelivery organization) and Radish Boya.
What is the Nakashima Farming Method?
The Nakashima Farming Method is an assembly of technologies
for creating healthy soil based on soil analysis and technologies
for controlling growth aimed at the sustainable production ofnutrient-rich agricultural products. The method supplies cultivated plants with an optimal balance of nutrients based on theirstage of growth while maintaining the balance of mineral nutrients in the soil. The objective of the method is to produce highquality fruits and vegetables in a safe and reliable manner.

Lawson Green Project
The Lawson Green Project aims to deliver delicious
vegetables to everyone in the community, starting
literally from the ground up with soil cultivation.
Lawson Farm
Lawson Green
Project label
Working with professional farmers, Lawson
develops products that match the needs of its convenience store
customers while helping foster the next generation of farmers anddevelop regional agriculture through Lawson Farm.
Cut Vegetables
Lawson’s Cut Vegetables products
are packaged vegetables that havebeen cut, sterilized and washed incold water. Customers love the convenience of being able to eat the cut
vegetables right out of the bag without having to wash them first.
Oden daikon grown on Lawson Farms
Daikon (Japanese radish) used inoden (Japanese hot pot) sold at
Lawson convenience stores issourced entirely from Lawson Farms,
with radishes grown at Lawson Farm
Hokkaido Iwanai from August to
early October, and radishes grown at
Lawson Farm Tottori after October.

Social capital Contributing to social capital through our business
Perishable foods are the greatest bounty from the natural environment. When convenience stores began offering perishable foods, it wasquite significant from a social perspective, because it gave people the option of easily buying fresh vegetables in individual portions at theirnearest convenience store. This option also helps the elderly maintain healthier eating habits.
Meanwhile, with their considerable buying power, convenience stores offering fresh fruits and vegetables have created new business
opportunities for farmers and increased employment opportunities in rural areas. The emphasis on quality by convenience stores inselecting suppliers has encouraged farmers to improve their operations, which is expected to have the ripple-down effect of boosting thecompetitiveness of Japan’s agricultural sector.
Lawson is involved in agriculture through the agricultural corporation Lawson Farm and the promotion of the Nakashima Farming
Method. As a result, Lawson contributes to the revitalization of Japan’s agricultural industry through its engagement in the creation of a
new form of industry (a sixth sector of the economy) combining farmers (the primary sector), food processors (the secondary sector), anddistributors and resellers (the tertiary sector).

Lawson, Inc. Integrated Report 201427

Special Feature: Thinking up new innovations for our customers
Advanced franchise system is key to creating stores in tune with communities

Strengthening individual stores and relationships with franchise locations

Lawson’s Franchise System

Aiming to fulfill our Corporate Philosophy together withentrepreneurs who deeply understand their communities

In traditional chain store management, it has been desirable to create
the same store across the nation. Now and in the future, however, it isbetter to have franchise owners who deeply understand their diverse
communities and their residents. Employees at headquarters support
franchise stores and are essential resources for franchise owners
thanks to the creative support and advice they provide.

In order to stay in tune with the needs of its customers and communities, Lawson has transitioned over the past decade from acentral-command chain store operation to an organization thatdelegates authority. First, Lawson introduced a branch office system divided into seven areas of coverage across Japan andincreased this number to eight in fiscal 2012. Next, Lawson integrated its store development and franchise store management
lines of business at the branch level, and accelerated decisionmaking for regional store opening strategies and operational measures to create a more nimble store management system. Then,
beginning in fiscal 2012, Lawson created area teams as its smallest unit, comprising a total of threepeople, two supervisors (SVs) andone assistant supervisor (ASV),
who provide guidance to franchiseowners. From fiscal 2014 onward,
the composition was changed tothree SVs.
Business operationas management owner (MO)Expectation for
headquarters
employees

In addition to Area Meeting events, our management
owner (MO) system plays a major role in reinforcing ourbusiness foundation. Launched as a unique initiative at
Lawson in 2010, the MO system helps nurture excellent
franchise owners of multiple stores. At the MO meeting held
once a year, members of management from headquarters
exchange opinions and information about opening stores,
helping franchise owners with their business plans. At product tasting events held every month, participants write down
their opinions about new products before they are released,
and these opinions have been reflected in some desserts
and fast foods prior to launch.
Amid intensifying competition in the convenience store
industry, it has become extremely important that franchiseowners gain an intimate knowledge of their communities inorder to manage their stores instead of waiting for instructions
from headquarters. Lawson distributes Ponta reports for eachstore location with an analysis of shopping patterns based on
Ponta data to fortify the competitiveness of each store.

M Lawson’s evolution (2): Delegating authority within
the organization (decentralized operation)

Ideal
franchise
storesThe Lawson franchise system is a cooperative business system that aims for growth by sharing our corporate philosophy of “Bringing happiness to communities” as the basis ofpartnership between headquarters and franchise owners. At
Lawson, we concentrate on building relationships with franchise owners based on the awareness that our growth rests
largely on the entrepreneurial mindset of franchise owners
and our franchise system. We hold Lawson Seminar eventsto spread our companywide principles and vision as well as
Owners Meeting events to openly exchange opinions.
Moreover, our Area Meeting events held around Japan are
designed to share the business plans and successful experiences of franchise owners.
At Area Meeting events, franchise owners discuss trends
in consumption in their regions and share their thoughts on
issues facing their businesses, thereby forming stronger
connections among themselves and a greater awareness ofways to strengthen their respective areas. We believe franchise owners must form bonds in order to serve communities during emergencies as a fourth critical resource after
electricity, gas and water.

M Lawson’s evolution (1): An organization that understands communities better

Conventional
convenience stores

Expected directions for
Lawson to take for innovation

Franchise owners who
execute common
operational proceduresfor chain storesFranchise owners who think
deeply and take actions tomeet community needs

Drive home to franchiseowners the need to follow
common operational
procedures for franchise
storesSupport franchise owners
with data analysis to understand community and customer, and with innovative
marketing strategies
Support franchise owners,
advising on their businessexpansion strategies

Lawson’s step-up model

Lawson Seminar

Area Meeting

Owners Meeting

Lawson Seminar events are held every
spring in eight locations around Japan forthe purpose of spreading companywide
principles and our vision. Top management gives a detailed explanation ofbusiness strategy to the roughly 20,000
attendees representing 10,000 stores.

Area Meeting events are held monthly inabout 260 locations around Japan within
the business areas of Lawson’s eight
branch offices, from Hokkaido to Kyushu
and Okinawa. Franchise owners share
their success stories and exchange opinions to enhance their ability to manage
individual convenience stores.

Owners Meeting events are held every
autumn around Japan, with approximately 15,000 people participating on
behalf of 10,000 store locations. The
events are an opportunity for franchiseowners to exchange opinions.

Single store
operation

20 store crew

2 storeoperation

Multi-store
operation

80 store crew

SC

SC

Store consultant

Store consultant

Regular visits toeach store for guidance

Regular visits toeach store for guidance

members

40 store crew
members

members

The Three Essential Practices of Lawson store management

Aiming to be a “hundred-year company”

Akira Maeda

Management Owner, Progress, Inc.

I started working part-time at Lawson and then became an employee after the ownercalled me aside. After eight years, I launched my own store. A major turning point was
the MO training I received as an owner of four stores. It was the impetus I needed tostep up from a family-run business to a company-run business. Now I run 17 stores.
Even when a rival store enters the area, we have the ability to compete effectively andtake measures to make things happen.
I think Lawson’s strength is the closeness of owners and top management. When
product deliveries stopped due to a heavy snowfall recently, I received a phone call fromPresident Tamatsuka himself, who was gathering information about the situation directlyfrom the source. When opening a new store, preparations are made while talking withthe area branch office about how to best proceed in solidifying our presence in the area. Store consultants and store managers arelearning to view their own store operations from the perspective of regional characteristics and the big picture at area branch offices.
More store managers are needed to sustain the current pace of store openings. We are making preparations, such as by developing ourown trainers. By helping our employees grow as if they were members of our own families, we aim to be a “hundred year company.”28

Lawson, Inc. Integrated Report 2014

In order to win the approval of communities and customers, Lawson has established Three Essential
Practices for store management: 1) serving customers courteously, 2) providing a merchandise
assortment that meets community needs, and 3) keeping our stores and communities clean.
Lawson convenience stores have undergone changes as these Three Essential Practices are followed. MACHI café, for example, emphasizes face-to-face sales where store staff personally handproducts to customers and heartfelt customer interactions that feel as good as our products taste. As
the number of stores featuring MACHI café has grown, store staff have come to better understandthe true meaning of courteous service and customer interactions. This has created a virtuous cycle
where clear goals for customer interactions have fostered store staff into leaders, who then raise thelevel of their stores an additional notch.

Three Essential Practices
Serving
customers
courteously

Keeping ourstores andcommunities
clean

Providinga merchandise
assortmentthat meets
community
needs

Human capital: Understanding issues affecting communities and taking organizational action to address them with novel ideas
What do communities want? During its transformation into a manufacturing retailer based on small commercial areas, Lawson concentrated on nurturing human capital. For this business model to function well, we need people able to think and act on their own, who are sensitive to trends in communities, able to make decisions, and who quickly respond to customers. To instill the necessary knowledge and skills
these people need make the best business decisions, we created Lawson University as an internal educational institution in 2003. Lawson
University’s curriculum is aimed at training new employees, candidates for upper management positions, and franchise store staff.
As a company that advocates health, Lawson has been stepping up efforts to help employees with their health, such as by strictly
enforcing employee health management measures since 2013. We plan to spread this initiative across the entire chain of Lawson convenience stores, including to franchise store owners.
Lawson is transforming itself into an organization of individuals able to think and act on their own to identify and solve issues facing communities.
Lawson, Inc. Integrated Report 201429

Special Feature: Thinking up new innovations for our customers
Reinforcing the business model as a manufacturing retailer based on small commercial areas

Foundations being laid for overseas business development

Building a new business model

In overseas operations, Lawson has been opening stores in Shanghai, Chongqing, Dalian, and Beijing through a subsidiary inUsing fresh thinking to build new businesses able to contributeto communities

charge of business in China. We have been gradually solidifying our management foundation since switching to a consensusbased management structure. In Indonesia and Thailand, we have been collaborating with local partners to improve profitabil­ity. In the United States, we have been opening stores in Hawaii. In 2014, we plan to open our flagship store in the Philippines
through a joint venture with a major retailer there.

LAWSON MART, a next-generation convenience store

Strategic steps overseas

In February 2014, Lawson opened its first LAWSON MART store, basedon the LAWSON STORE100 format, as a part of its new store format
strategy. LAWSON MART is a next-generation convenience store with

Distinguish products and services
while adapting to local needs andincreasing brand awarenessATMs and services found in convenience stores, such as utility bill payment services, in addition to an assortment of merchandise on par with asupermarket. The sales floor area of Lawson Mart is 1.5 to 2 times larger
than the LAWSON STORE100 format, allowing for the presentation of abroader assortment of merchandise at various price points in addition to
the uniformly priced, small-portion products LAWSON STORE100 offers.
Lawson advances store development with the objective of creating stores

Establish a model for entering newmarkets while identifying patterns ofsuccess in existing markets

Aim to be an essential part of communities in the region as a manufacturing retailer based on small
commercial areas

China>> Build business models for Shanghai, Chongqing, Dalian, and Beijing, and promote area franchise licensing in neighboring cities inthese four regions

Southeast Asia>> S eek out partnerships with leading local companies>> Make either Thailand or Singapore into a hub for product development and training for Southeast Asia to provide optimal support
for partners

Other regions>> E xamine investments in existing retailers or M&As in promising growth markets

that are convenient for working women who want to finish their shoppingwith little hassle on the way home from work, and for elderly customers

509 overseas stores

who like to shop within walking distance of their residences.

As of July 31, 2014

Stores with more healthcare offerings, such as over-the-counter drugs
In October 2013, we created a store concept with better healthcare offerings, featuring a self-medication support function as a provider of healthand wellness in communities. In addition to the traditional assortment of

Shanghai: 298 stores
Shanghai Hualian Lawson, Inc.
Established in February 1996

Dalian: 21 stores
Dalian Lawson, Inc.
Established in September 2011

Chongqing: 87 stores
Chongqing Lawson, Inc.
Established in April 2010

Hawaii: 4 stores
Lawson USA Hawaii, Inc.
Established in January 2012

Thailand: 32 stores
Saha Lawson, Co., Ltd.
Established in November 2012

Indonesia: 59 stores
PT Midi Utama Indonesia Tbk
License agreement in June 2011

merchandise in convenience stores, healthcare-oriented LAWSON stores
carry around 900 OTC medicines as well as 1,200 beauty care products(cosmetics, etc.) and household items. In all, about 5,000 items are available, roughly double the number at a traditional Lawson convenience
store. By stationing a registered seller in the store, we are able to sell type
2 and type 3 drugs. At some stores with enhanced healthcare offerings,

Healthcare-oriented
LAWSON stores

Philippines
Stores planned to open in 2014
PG Lawson Company, Inc.
Established in May 2013

Beijing: 8 stores
Beijing Lawson, Inc.
Established in May 2013

customers are able to ask pharmacists questions via video conferencing
in the stores, such as inquiries regarding the use of drugs in conjunction

Helping customers lead rich lifestyles as an integrated entertainment logistics company

with other prescription medicines or drug allergies.

Lawson seeks to help its customers lead richer lifestyles by offering entertainmentrelated services in addition to managing stores in tune with their communities.

Lawson Fresh home delivery service for healthy and delicious foodCentered on consolidated subsidiary Lawson HMV Entertainment, Inc., our concert

Leveraging insight gained through our regular home delivery service,and other event ticket business is number one in terms of sales volume, and the CD/

Smart Kitchen, we launched Lawson Fresh as a new service in July 2014.

DVD sales business at HMV stores has grown into a core business of the Group. We

We aim to develop Lawson Fresh into an open platform that is both con-

aim to develop operations in such a way that we can provide a one-stop entertainment

venient and profitable by partnering with other retailers of products outside

solution for customers, whether it be for CDs, DVDs, books, or event tickets.

the lineup of foods offered by the Lawson Group, such as the popular
10-minute Simple Cooking Kit, and fresh foods from DAICHI wo

Financial capital: Stringent rules for investing capital in sustainable growth
Lawson must reinvest profits to continue growing as a company and generate further profits. Cash generated by existing operations isinvested in a manner consistent with our stringent rules, with the ultimate objective of increasing capital that can be returned to shareholders, group companies, and society in general.
Should Lawson decide to embark on building a new business in the future to fortify its business model, management will not simply
pursue growth in business scale, but make every effort to allocate investments effectively with an eye on future returns.

MAMORU KAI and Radish Boya. We hope to create an online home delivery service built on relationships and good communications among people, thus deepening connections with Lawson stores while delivering fresh
foods to our customers in a safe and reliable manner.
Homepage of the website

30

Lawson, Inc. Integrated Report 2014

Lawson, Inc. Integrated Report 201431

Reflecting on the True Value of Lawson after Natural Disasters

Thinking and acting independently out of necessity

Compliance and Risk Management

Pursuing Business Continuity
M Basic policy and aims of business continuity (BC)In the event of an emergency that involves extensive damage, Lawson places the utmost importance on people’s lives
and safety. Every effort is also made to ensure that essential
services remain uninterrupted. When the suspension ofoperations is unavoidable, the Company works diligently toresume operations as quickly as possible with the aim of
avoiding any deterioration of customer satisfaction or corporate value.

Masakatsu Gonai
Japanese brochure reporting what Lawson did after the 3.11 Great East Japan Earthquake

Lawson suffered considerable damage from the Great
Hanshin-Awaji Earthquake in 1995. Based on this experience, we created a manual for earthquake emergencies. We
then updated our Business Continuity Plan (BCP) in 2005, a
year after the Chuetsu Earthquake struck Niigata Prefecture.
We also held drills several times a year to prepare for amajor earthquake. When the Great East Japan Earthquake
hit Japan, we not only had emergency manuals for reference, but our corporate mindset was prepared for a natural
disaster, because our employees and franchise owners
knew what to do should an earthquake strike. We believethese factors were key to our emergency responsiveness.
We have three basic priorities to pursue in the event of anearthquake or other natural disaster:• Ensure the safety and well-being of our customers andemployees• Continue business as long as we can deliver products tocustomers• Work together to help the people in our communities andto fulfill our social mission as a company
We took action based on these three principles in thewake of the Great East Japan Earthquake. However, due tothe unprecedented scale and scope of the damage, compounded by the tsunami, our emergency manuals and preparations were inadequate.
We realized how important it is for each and every person
to think and act independently while also following the spiritof our Corporate Philosophy when a disaster of this scale
strikes. Despite panic-worthy conditions, we were able totake extremely useful steps by immediately setting up

32

Lawson, Inc. Integrated Report 2014

Executive Vice President,
Member of the Board—
Compliance & Risk Managementand Human Resourcesa disaster response headquarters, while employees at thebranch offices most affected by the natural disaster managed to put together a response center. Franchise owners
also took actions in accordance with the emergency manual.
People were imaginative and creative at every turn. For
example, when gathering information after the disasterstruck, one employee who had experienced the Great
Hanshin-Awaji Earthquake came up with the idea of putting
motorcycles onto the back of a truck, driving to the site ofthe disaster, and riding these motorcycles around to ascertain what convenience stores needed in order to get themup and running again. Branch offices and franchise owners
tirelessly worked together to secure and deliver scarce fuelto areas heavily affected by the disaster.
The most effective response to a disaster is often the creative thinking done by those closest to it. Creative thinking
and resourcefulness is possible only in a corporate culture
open to the ideas and actions of its employees. By creating
an even more open corporate culture, we aim to be moresensitive in identifying risks and swifter in addressing risks
should they emerge. Being more attuned to changing customer preferences and being more sensitive to risks arebasically one and the same.
We believe it is essential for regional communities to forge
closer connections with local governments and companies.
Lawson has entered into agreements with local governments and public organizations to deliver needed supplies intimes of emergency. In these and other ways, Lawson iscommitted to fulfilling its mission as a key part of the social
infrastructure.

Three main aims of business continuity (BC)P Fulfillment of Lawson’s mission as a community lifeline	We will operate stores to the best of our ability and aim tocontinue providing products and services to our customers.

P Continuation of the franchise (FC) business	Define the period of time and methods needed to resume
franchise business operations and maintain the necessary business level at the FC headquarters.
P Ensuring suitable profits	To ensure the profit necessary for the Company’s survival, we are setting out measures that take into accountsuch factors as the impact an emergency could have on
profit and social conditions.
To realize this basic policy and achieve its aims, we arecompiling specific procedures into a Business Continuity
Plan (BCP), putting in place a business continuity structurein accordance with the Plan, and maintaining and improving
the BCP as an important management issue.

M Formulation of BCP guidelines
Based on its BCP, Lawson has put in place BCP guidelines
to set out specific procedures that should be followed in theevent of an emergency. At the present time, the emergency
situations we are planning for include an earthquake with its
epicenter in the Tokyo area, an outbreak of a new strain of
influenza, an ocean trench earthquake, an accident at

a nuclear power station, a volcanic
eruption, and large-scale flood damage. The BCP guidelines clearly summarize how people in positions ofresponsibility should be involved.

M System for improving business continuity capabilities
Maintaining an organizational climate that can respond precisely to various crises requires efforts to improve response
capabilities. Lawson endeavors to improve its Companywide
crisis response capabilities by constantly reviewing andimproving them with respect to each aspect of its business,
namely, the hardware aspects that include office buildings
and its role as a community lifeline; the organizational
aspects that include the BCP and manuals; and the capability aspects of its employees and franchised stores.

System for improving business continuity capabilities
Organizational climate attuned to crisis response
Organization that recognizes the importance of crisis control and conducts ongoing improvement activities

Business continuity capabilities(continue important operations and business)

HardwareOrganization

Capability

Preliminary measures

Action plan

Preliminary measures

Take preventive anddisaster mitigation
measures

System implementation
and role assignment
Codes of conduct
and procedures

Improve crisis control
capabilities of people
and organizations
through drills

Manual revisions,
BCP redrafting

Training and seminars,
skill improvement

M Collaboration with municipalities in the event of a disasterTo enable mutual cooperation with affected municipalities
and enable the Company to fulfill its function as a commu­
nity lifeline, Lawson is signing agreements to supply goods
and help people unable to return home in the event of a natural disaster.

Agreements with municipalities in case of disasters(As of August 31, 2014)

M Disaster goods supply agreements and agreements to help people unable toreturn home
M Disaster goods supply agreements

Lawson, Inc. Integrated Report 201433

Compliance and Risk Management

Internal Control

Lawson’s Compliance and Risk Management System

M Basic policy regarding the internal control system

6. We shall take an active approach to environmental protection andproactively carry out social contribution activities as a member ofthe local community.
7. We shall maintain no ties with anti-social organizations and maintainhealthy and proper relations with elected officials and public employees.
8. We shall adhere to internal regulations and various rules while
undertaking our daily work to ensure that we do not lose any valuable assets of the Lawson Group.

Company publishes a compilation of its compliance and risk
policies as the Lawson Group C&R
Handbook and works to make themwidely known by distributing copiesof the handbook to all employees.

M Assigning responsible officers

Compliance & Risk Management Committee
Mutual understanding/information exchange

Affiliatedcompanies

Review and improve measures

CR management
personnel 1

Emergency
circumstancesInternal
control audits

Close communications/basic management policy

Lawson appoints compliance/risk (CR) management personnel as officers responsible for facilitating the promotionand establishment of compliance as well as risk management. We have assigned a compliance and risk management officer (CRO) and a person in charge of compliance toeach department at our corporate headquarters and all

Compliance & Risk Management
OfficeNormalcircumstances• Food Safety and Hygiene
Management Subcommittee• BC Subcommittee• Regional Office Crime Prevention andDisaster Defense Subcommittee• Information Security Subcommittee• CSV Subcommittee 3

Internal Audit Office

Check status of and monitor measures

CEO

Risk Management Committee meetingfor Emergency

Review after emergency

Education, training, and drills

Basic disciplines
1. We shall act with consideration toward all customers.
2. We shall support Lawson franchise stores, which represent ourlargest partner.
3. We shall conduct fair and transparent business transactions withevery business partner.
4. We shall create a friendly workplace environment for all employees.
5. We shall disclose necessary information to all shareholders andinvestors.

In addition to developing internal rules with regard to theCode of Ethics, compliance and risk management, Lawson
established its Personal Information Protection Policy andGroup Purchasing Policy in September 2010 and works toproperly conduct business throughout the Group. The

Reports on important issues

Compliance & Risk Management Office

Preparation for, and responseto emergency

M Formulation of codes of conduct/rules

Board of Directors

Corporate Auditors
OfficeEstablish
consultation
counters

Internal control audits/regular meetings

Departmental
educational
activities by the
person in chargeof promotion

Board of Corporate
Auditors

Basic declaration
We believe that fulfilling our corporate social responsibilities while
responding to the requests of the Lawson Group stakeholders willlead to the enhanced corporate value of the Lawson Group. With asolid understanding of the Charter’s contents, we pledge to always
act sincerely and considerately with a high sense of corporate ethics while adhering to all laws.

Operate according to codes ofconduct (implement measures)

Lawson’s internal control system (As of September 1, 2014)

Corporate Conduct Charter

Corporate philosophy/Code of ethics/
Codes of conduct
Formulate compliance andrisk management measures ineach department

The following are the main changes in the Basic Policy infiscal 2014.
Deepening knowledge about important laws and regulations
Of the wide-ranging laws and regulations with which
Lawson must comply, the Company decided to stipulate theAnti-Monopoly Act and the Subcontract Act as laws thatshould be particularly well understood by its employees.
Response to expanding e-commerce and overseas­businesses
To guard against cyber incidents and in particular to
respond to e-commerce business expansion and the active
promotion of overseas development, the Company appointed persons to be in charge of information security, set up a
department to oversee information security, and developed
relevant systems.

The Lawson Group operates centered on the convenience
store business, and also in wide-ranging business areas
including ticket sales, financial services, e-commerce, consulting, and food services, with numerous stores in every
prefecture of Japan and overseas as well. This means weneed to comply with different laws and regulations as perwhere and what we operate or provide, as well as torespond to diverse risks.
With all these factors in mind, and aiming at sound andsustained corporate growth, we have established the Basic
Policy for Maintaining the Internal Control System, and conduct periodic reviews to moderate it to changes in businessenvironment and other factors and maintain an effective andrational internal control system.

Lawson has developed a compliance and risk management
system based on its Corporate Conduct Charter and Codeof Ethics. By organically linking our codes of conduct, education, training and communication functions, and implementing a Plan-Do-Check-Act (PDCA) cycle, we aim to
conduct our business as a good corporate citizen that actsthoughtfully and with high ethical standards and integrity.

Information Security Management
OfficeCorporate divisions of
the headquarters

CRO 2

Divisions

CRO

OfficesCRO

regional offices. As the flag bearers for the promotion ofrelated measures, these personnel formulate and makeknown the compliance measures and risk responses in theirown departments and facilitate the creation of a culture ofcompliance with social norms.

M Enhancement of education/training

Guidance/support

Franchise
storesConducting annual compliance and risk management training sessions directed at all employees, Lawson aims to further improve ethical awareness and crisis response
capabilities. By conducting training when employees firstjoin the Company and when personnel are promoted to
management positions as well as occupation-based training

and biannual compliance training led by outside instructors,
the Company has developed a training system that allows
structured, systematic learning. By continuing to implement
these training sessions, Lawson is working to help employees in every position and type of occupation share in problem solving to create business improvements.

Affiliated Company Compliance Officers meeting

M Establishment of consultation/reporting points
Notes: 1. CR management personnel: The executives who have overall responsibility for the development and execution of frameworks for recognizing misconduct and problems in legal
compliance and preventing risk from arising
2. CRO (compliance and risk management officer): A person in charge of compliance in each group who supports CR management personnel and has overall responsibility for thedevelopment and execution of frameworks for recognizing misconduct and problems in legal compliance and preventing risk from arising
3. CSV: Creating Shared Value

34

Lawson, Inc. Integrated Report 2014

Lawson maintains dedicated consultation counters for sex­
ual harassment and bullying, at which human resources
departments provide advice and assistance, and a hotline
through which legal departments provide business dutiesrelated legal consultation. Furthermore, the Company has
put in place consultation counters to provide advice related

to other compliance and risk management issues and internal reporting. In addition to setting up the Lawson Group
Outside Consultation/Whistleblower Hotline, the Company
has upgraded the system to enable employees at its business partners to receive consultation anonymously.

Lawson, Inc. Integrated Report 201435

Compliance and Risk Management

Social and Environmental Activities

M Strengthening operational management/monitoring

Lawson’s Social and Environmental Activities

Lawson has established a Compliance & Risk Management
Office as well as an Information Security Management Officewith full-time staff under the CR management personnel.
Serving as the departments in charge of the promotion andestablishment of compliance as well as of risk management,
cross-organizational compliance and risk management secretariats manage the progress of measures implemented ineach department. Five subcommittees (the Food Safety andHygiene Management Subcommittee, the BC
Subcommittee, the Regional Office Crime Prevention andDisaster Defense Subcommittee, the Information Security
Subcommittee, and the CSV Subcommittee) have been
separately established under the Compliance & Risk

Management Committee and work to prevent risk from arising while managing the progress of important measures.
Collaborating with the auditing departments, the subcommittees also receive reports on the results of compliance
audits on an as-needed basis, provide thorough guidanceon measures, and make suggestions for improvements.
Besides awareness surveys of all employees, the Company’s
monitoring activities include reviews of the compliance systemfrom a broad perspective. One means employed in such
reviews is the ongoing use of questionnaires directed at business partners covering areas that include the delivery of store
merchandise and store construction.

M Strengthening collaboration between Group companies
Officers responsible for compliance and risk management
have also been appointed at Group companies, andLawson holds meetings of affiliated company complianceofficers. In addition to formulating and providing training on
the Code of Ethics to improve employee awareness, we also
conduct the employee awareness surveys and business
partner questionnaires undertaken at Lawson at Group

companies. The Company also offers guidance and assistance in the development and improvement of complianceand risk management in the Lawson Group as a wholethrough such means as business audits of Group companies conducted by audit departments and Group corporate
auditors’ meetings.

Responses to Risks
Risk factors for Lawson
1. Risks relating to changes in the business environment
2. Risks relating to food safety, hygiene management,
and labeling
3. Risks relating to the handling of personal information
4. Legal and regulatory risks
5. Risks relating to franchise operations
6. Risks relating to disasters
7. Risks relating to problems with IT systems
8. Risks relating to sharp rises in raw materials prices

M Response to emergency situations
Placing emphasis on safety and hygiene management, information security, and disaster relief, the Company makes
preparations for emergency situations and develops systems that allow flexible problem solving.
Under normal circumstances, the Company convenes theCompliance & Risk Management Committee and the five
subcommittees, plans and promotes risk assessments andrisk avoidance measures, and prevents risks from occurring.
In the event of a major risk arising, the Emergency Risk
Management Committee forms, pursues flexible problem
solving, and endeavors to minimize any damage. After thesituation has returned to normal, the Company analyzes

36

Lawson, Inc. Integrated Report 2014f­actors that contributed to the occurrence of risk and implement reviews of and improvements to measures to preventa recurrence.

M Improvements to the information security
systemThe Company is formulating the Lawson Group Personal
Information Protection Guidelines to facilitate the protectionof personal information. For these to be specifically understood and implemented, the Company works to improveawareness and knowledge of each type of store manual andspecific ways of dealing with specific errors and complaints
that arise at stores. In the case of headquarters employees,
regular checks are made of compliance with the LAWSON
Office Security Manual.

M Measures to prevent in-store theft
Giving the utmost priority to personal safety in stores, we
conduct training to ensure that employees constantly act
with an awareness of crime prevention, giving cheerfulgreetings, for example. Working in conjunction with thepolice and the Japan Franchise Association, the convenience store industry as a whole is engaged in crime prevention measures.

M The Lawson Group Environmental Policy
Contributing to society and the environment through our core business operations
Guided by its Corporate Philosophy, the Lawson Group
engages vigorously in business activities that take into consideration social and environmental concerns. The Group iscommitted to securing sustainable growth and development
by “Creating Happiness and Harmony in Our Communities.”
In this sense, the Group’s environmental policy serves as boththe underlying platform for and driving force behind all business activities. Based on its environmental policy, the Lawson

Group strives to help realize a sustainable society. As a member of the local community, we also work to sustain the blessings of the earth for future generations through our social
contribution and other activities. We take steps to share ourcorporate and environmental philosophies with each andevery member of the Lawson Group as well as suppliers andbusiness partners to help enhance corporate value.

The Lawson Group Environmental Policy
Our commitment	To sustain the blessings of the earth for future generations, the Lawson Group will consider the environment in every
Our principles

aspect of our business activities and strive to achieve sustainable development and coexistence with local communities.
1. Creation of a low-carbon society
4. Continuous improvements
2. Considerations in the development of products
5. Observing laws and regulations
and services
6. Promotion of communication
3. Active participation in social contribution activities

M Social and environmental activities based on two distinct approaches
Two approaches to realizing a sustainable society
The Lawson Group utilizes two approaches in its social andenvironmental contribution activities to help realize a sustainable society.
The first approach entails engaging directly in social and environmental contribution activities. In particular, we are endeavoring to ascertain details regarding the amount of CO2 emissions
throughout the supply chain and installing cutting-edge energyefficient equipment at our stores as a part of efforts to reduce
CO2 emissions produced in the course of our business activities.
The second approach involves actively supporting the social andenvironmental contribution activities of our customers by providing eco-friendly products and services.
In order to promote eco- and community-friendly businessactivities, we use an ISO 14001 environmental management

system and a Plan-Do-Check-Act (PDCA) cycle, ensuringharmonious coexistence with the community and reducing
our environmental impact. In addition to internal audits conducted several times each year, we undergo an annual thirdparty audit by the Japan Quality Assurance Organization.
Through these means, we are continuously confirming thestatus of our activities while improving our endeavors.
The Lawson Group’s environmental management

Our own
environmental
preservation
efforts

Realizinga sustainable
society

Activities
conducted
with customers

M Promoting social and environmental education
Conducting training across the group to raise awareness and understanding
Raising awareness and deepening understanding are essential to contributing to society and the environment. At theLawson Group, we conduct social environmental educationand training for headquarters employees, franchise owners,
store managers, and store crews. Beginning with training for
newly recruited employees as well as employees appointed
to the position of assistant merchandise developer (AMD) at
our headquarters, training encompasses all Lawson employees and includes annual general environmental training via
e-learning. For franchise owners, store managers, and store
crews, training is provided at the time of store openings.
Moreover, we take steps to regularly share information
through in-house magazines and our Environmental Report.
Since fiscal 2012, we have encouraged officers representing
each department and responsible for promoting CSV* to takethe Certification Test for Environment Specialists (the Eco Test).
* CSV: Creating Shared Value

The CSV Subcommittee
This subcommittee is made up
representatives of 37 departments, including headquarters,
offices, and affiliated companies. The Energy Con­servationand Environmental Management
Promotion Depart­ment serves as
the subcommittee’s secretariat,
with meetings held every second month. In working to promotesocial and environmental education, this subcommittee mainly
reviews progress toward achieving social and environmental targets,
promotes the sharing of management skills and information, takes
steps to instruct and support stores, and addresses issues that arise
during internal and external audits.

Lawson, Inc. Integrated Report 201437

Social and Environmental Activities

M Lawson’s supply chain material flow and CO2 emissions

M Social and environmental targets and results

Reducing environmental impact, from the procurement of raw materials to the disposal of products

Fiscal 2013 social and environmental targets and results (as of February 28, 2014)

In providing products and services at stores, the Lawson
Group consumes energy and a variety of resources, including
electric power, gasoline, and water. This leads to such wideranging emissions as CO 2 and waste. To minimize our

Category­ nvironmental impact as much as possible, we assess theeimpact on the environment of every stage in our supply chain.
At the same time, we adhere strictly to a policy of energy andresource conservation and work to cut back waste.

Material flow in our supply chain• Electricity • Water• Gasoline & diesel oil• Fuel oil• Foods, etc.

• Electricity • Water• Propane • Fuel oil• Raw materials
including packaging
materials, etc.

• Electricity• Gasoline, diesel oil& natural gas• Packaging materials• Diesel oil &natural gas• Electricity • Water• Containers &packaging, etc.

• Gasoline• Electricity• Electricity • Water• Paper,office supplies, etc.

• CO2 (1) * • Waste
products • Wastewater

Manufacturing plant

Delivery center• CO2 (2) • Waste
products • Wastewater• CO2 (3)
• Waste products

Delivery trucks• CO2 (4)Store

• CO2 (5) • Waste
products • Wastewater

Company cars

• CO2 (6)

0.15% [6.5]Electricity
consumption
by franchise
stores (5)* CO2 emissions volume in brackets(Thousand tons)

20.24%[878.6]

Procured raw materials (1) (2)(including private and national
brand products,
plastic shopping bags)
Business trips

0.01% [0.5]74.39%[3,229.8]*

Waste material and industrial waste dueto the refurbishing and closing of stores (5)0.57% [24.8]
1.10% [47.6]

Power used in electricity procurement

1.45% [63.1]

Storemanagement

Supplychain(%)

Scope ofCompany cars and 10,621 LAWSON
inspection and NATURAL LAWSON stores.
However, usage for stores where
power usage could not be tracked
was estimated using data from otherstores.

80.0

68.2
40

TargetMedium-termgoal forfiscal 2020
Reduce per-store
electricity consumption
by20% comparedwith fiscal 2010
0

2010

2013

2020

(FY )
2

0

Notes: 1. The power-receiving end coefficient after adjustment identified by the Federationof Electric Power Companies of Japan is used to measure CO 2 emissions.
Figures for fiscal 2020 is calculated using the coefficient for fiscal 2013.
2. Calculated in line with the administrative year from April 1 to March 31.

38

Lawson, Inc. Integrated Report 2014

Test
periodApril 1, 2013 to March 31, 2014
(administrative year)

Targetgases

CO2 generated from electricity use bystores that fall within the scope of Greenhouse Gas Emission
inspection and the use of gasoline- Verification Statement
powered Company cars.

55
6Legal compliance/
Risk management

Improving and spreadingawareness of Group complianceand risk management frameworks

Risk management

Establishing a Groupwide
disaster prevention framework
Promoting diversity and social
contribution initiatives

Social contribution

Overall

1. Collect data on energy use
2. Calculate CO2 emissions and verify results

Calculating fiscal 2012 supply
chain CO2 emissions

Social contribution

CO2 emissions calculation rules

Established 7 new Lawson Farms

Selling socially and eco-friendly
1. Sell eco-friendly products
1. Continued sales of eco-friendly products
products at NATURAL LAWSON 2. P romote disposable chopsticks made of wood from
2. Continued use of disposable chopsticks made of wood fromdomestic forest thinningdomestic forest thinning
3. Continue to promote products of Swan Bakery,3. Continued to promote products of Swan Bakery, an employer
an employer of persons with disabilitiesof persons with disabilities
Reducing container andMake containers and packaging thinner to reduce CO2
Reduced CO2 emissions upon incineration of containers andpackaging weight
emitted upon incineration 12% compared with fiscal 2006 packaging 31.3% compared with fiscal 2006
Using containers and packaging Promote the use of non-petroleum plastics
Continued use of non-petroleum plastics in chilled noodle andthat reduce environmental impact
salad containers
Promoting government proxy
1. Begin initiatives with government services
1. Began initiatives with government services
services
2. Expand municipalities where we offer government services 2. Expanded municipalities where we offer government services
1. Implemented CO2 offset through MACHI café
Promote environmental initiatives 1. Explore new CO2 offset projects
2. Continue sales of products with attached CO2 offset credits 2. Continued initiatives involving products with attached CO2
with customers by expanding
Offset CO2: 1,500 tons
offset credits
the CO2 Offset Program
Fiscal 2013 result: 2,934 tons (195.6% of target)
Promoting eco-driving at
Reduce per-store delivery truck CO2 emissions 24% com- Reduced per-store delivery truck CO2 emissions 22.8%
pared with fiscal 2007 levels
compared with fiscal 2007 levels
distribution centers
Promoting switch to latest
1. Promote installation of energy-efficient freezers
1. Freezer target achievement rate: 99%energy-efficient equipment
2. Promote replacement of air conditioners
2. Air conditioner target achievement rate: 167%
3. Install anti-frost heater controllers
3. Anti-frost heater controller achievement rate: 102%
4. Install solar power generation systems
4. Solar power generation system achievement rate: 57.9%
Promoting reuse of store fixtures Reuse targeted fixtures less than six years old at new andTotal fixtures reused in fiscal 2013: 2,061
remodeled stores
1. Reduced plastic shopping bag use by 7.36 million bags from
Promoting cooperation with local Implement measures to reduce plastic shopping bag use
March to November through eco-bag points
governments among offices and 1. Implement eco-bag point campaign
branches to reduce plastic
2. Take part in campaigns to reduce plastic shopping bag
2. Implemented plastic shopping bag reduction campaigns withshopping bag use
use with JFA and local governments
seven prefectures and three cities
Plastic shopping bag handout rate: 78.3%
1. Recycled used cooking oil
Increasing the food recycling ratio 1. Promote recycling of used cooking oil
Fiscal 2013: 10,105 stores (10,468 Group stores)
Fiscal 2013 target: 9,600 stores (10,000 Group stores)
2. Recycled food
2. Promote food recycling
Fiscal 2013: 2,240 stores (2,292 Group stores)
Fiscal 2013 target: 1,900 stores (2,350 Group stores)
Food recycling ratio: 47.6%
Statutory target food recycling ratio: 34.5% or more

Energy saving

1.72% [74.8]

Per-store electricity use (index) and CO2 emissions1

80

Waste reduction

Achievementlevel*

5

6
5
5
6
4
4
6

3

3

*Fiscal 2012 result: 50.3%

Energy consumption at delivery centers (3) (4)of such equipment as standard practice across our entire
network. Through these endeavors, we are working to
reduce per-store electricity consumption by 20% comparedwith levels recorded in fiscal 2010 by fiscal 2020.
In order to more accurately determine the amount of CO2
emissions due to stores, we have undergone inspections by
the Japan Quality Assurance Organization (JQA). A reporton greenhouse gas emissions was published in fiscal 2013,
offering an indication of the accuracy of our efforts to ascertain the amount of our CO2 emissions.

88.8

Energy saving

Disposal of packaging, disposable chopsticks
and plastic shopping bags (5)Excluding CO2 emissions related to the procurement of raw
materials, emissions caused by the consumption of electri­
city at stores make up the vast majority of CO2 emissions
generated across the entire supply chain. In order to reduce
the amount of electricity used by stores, we are installing
cutting-edge energy-efficient equipment. Since this initiative
was first launched in fiscal 2010, refrigeration and cold storage equipment that use natural refrigerants (CO2) have been
installed at a total of 138 stores, with installation completed
at 63 stores in fiscal 2013. We are promoting the adoption

91.7

Local production for local
Use Lawson Farm produce to provide safe, reliable prodconsumption fast foods,
ucts
expanding Lawson Farm products
Expanding Lawson Farm
Launch new Lawson Farms
initiatives

0.37% [16.0]

Reducing store power consumption by installing cutting-edge energy-saving equipment

100

Energy saving/Social
contribution

1. Increased usage rate of beans from Rainforest Alliance
CertifiedTM growers
2. Promoted initiatives with partner growers
3. Sold tumblers and CD sets
Stores with MACHI café: Approx. 7,800
Used Lawson Farm radishes and potatoes in oden (Japanese
hot pot)

Resource saving/
Waste reduction
Resource saving

M Building energy-efficient stores120

1. Use beans from Rainforest Alliance CertifiedTM growers
2. Expand initiatives with grower partners
3. Promote sales of tumblersStorefacilities

Electricity consumption of headquarters,
branches, and directly-managed stores (5) (7)101.8

Brand building with MACHI café(Promoting social andeco friendliness)

Raising awareness• CO2 (7) • Waste
products • Wastewater

Gasoline usage of company vehicles (6)4,342 thousand tons

Base year
100.0

Resource saving/
Waste reduction/
Raising awareness/
Social contribution

Energy saving

Total annual CO2 emissions(t-CO2)

Results

Energy saving/
Resource saving
Energy saving/
Resource saving
Social contribution

Logistics

Supply chain CO2 emissions in FY2013

Greenhouse gas emissions calculation method forthe whole supply chain operations:
Calculated as per industry-classified interpretation
regarding Basic Guidelines on Greenhouse gas
emissions calculation, for retailers Ver.1.0

Fiscal 2013 Targets

Products& services

Corporate
headquarters & offices* The numbers placed after CO2 correspond to those in the pie chart below

Actions

Social contribution/
Waste reduction/
Energy saving
Social contribution

INPUT

Procurement of
raw materials
OUTPUT

Issue

Social contribution

Promoting the health of
FC owners and employees
Promoting Groupwide social
contribution initiatives

Social contribution

Promoting Groupwide social
contribution initiatives

Social contribution

Promoting community
contribution initiatives

Raising awarenessImplementing environmental
education

1. Implemented fiscal 2012 surveys of vendors and distribution
centers, aggregated results
2. Calculated CO2 emissions, responded to GHG verification audits
Reinforce organizational responsiveness and improve• Evaluated risks of new services and initiatives prior to launch
employee awareness through the CRO systemand formulated recurrence prevention measures through theCompliance & Risk Management Committee• Implemented risk management training• Revised internal reporting system based on results of monitoring
Improve business continuity/disaster response measures• Conducted Group emergency drills three times during the year
and increase disaster prevention awareness• Updated BCP guidelines
1. Promote advancement of women to management positions 1. Women: Lawson was selected as a Nadeshiko Brand
2. Promote hiring of persons with disabilities
2. Group hiring ratio of persons with disabilities: 2.10%(compliant with statutory rate)
Improve rate of comprehensive and ordinary medical• Rate of comprehensive health checkups in latter half of fiscal
checkups and promote health-related initiatives
2013 (compared with fiscal 2012): 120%
• Health seminar participation rate (compared with fiscal 2012):
162%
Operate in-store fundraising under a new framework• Launched the Lawson Group “Happiness in Communities”
fund and began distributing funds through the new system• Regularly reported monthly collection amounts on our website
and POS displays
Promote volunteer participation in Lawson Green Fund for- Fiscal 2013 participation results: 403 volunteers in 29 projects.
estry projects.
Year-on-year participation: 131.1%
Year-on-year participation: 100%
1. Support children and scholarship recipients
1. Operated the Support Dreams Fund
2. Promote cleanup/greening activities and initiatives
2. Operated the KYOTO Student City
3. Implemented Mount Fuji Forestation Project,Tokyo Umi-no-Mori Project, and Arakawa Clean Aid, etc.
1. Implement training for CSV officers, FC owners,
1.Implemented environmental training for officers in charge of
new hires, product development assistants,
CSV promotion, FC owners, new hires, product development
affiliate companies, etc.
assistants, affiliate companies, etc.
2. Promote certification under the Certification Test for2. Promote and followed up on certification under theEnvironmental Specialists (the Eco Test)
Certification Test for Environmental Specialists

5

5

5
5

5

5

6

4

5

*Achievement level:
Evaluation of numerical targets: More than 100%: 6, 100%: 5, 90% or more: 4, 80% or more: 3, 70% or more: 2, less than 70%: 1
Evaluation of qualitative goals: Better than expected: 6, as expected: 5, mostly as expected: 4, partially achieved but requires improvement: 3, behind schedule: 2, very little achieved: 1

Social and environmental conservation costs
Activities aimed at protecting theenvironment incur costs. We takesteps to identify the amount ofinvestment and expenses withrespect to our environmental
conservation endeavors acrossevery phase of our business
operations. We use the results ofour findings to put in placeappropriate solutions.

Period covered: March 1, 2013 to Feb. 28, 2014
Organization covered: Lawson headquarters and franchise stores 1
Category

Main Activities(1)-1 Pollution prevention
Maintenance of new stores’ waste
costs
water treatment tanks(1)-2 Global environmental
Introduction of energy efficientconservation costs
equipment, CO2 Offset Program(1)-3 Resource recycling costs Waste-related expenses 2(2) Upstream/downstream costs
Costs related to the Container andPackaging Recycling Law(3) Administration costs
Preparation of CSR reports,
ISO 14001 inspections(4) Research & development costs
Research costs for energy-efficient
stores(5) Community engagement activity costs Greening activities, neighborhoodcleanup activities, donations to NPOs
Total(1) Businessarea costs

Investment Expenses

07,854,204(Thousands of yen)

Benefits

3,002 Water pollution control
98,732 CO2 reduction

0 5,806,473 Legal compliance0438,506 Legal compliance00014,091 Raising awareness and promoting environmental activities
8,670 CO2 reduction
64,226 Biodiversity conservation, local
community beautification

7,854,204 6,433,700

Notes: 1. Includes area franchise stores and LAWSON STORE100 stores in Japan
2. The cost of waste disposal and resource recycling is an estimate calculated based on the figures of a standard store as a sample

Lawson, Inc. Integrated Report 201439

Social and Environmental Activities

Human Capital

M Some of Lawson’s social/environmental activities

Attitudes toward Lawson’s Human Capital

P CO2 Offset Program: Total CO2 offset: approx. 23,450t; Number of participants: 29.93 million
Customers can exchange shopping reward points using
their Ponta multi-partner loyalty point cards for CO2 offsets,or purchase CO2 offsets with cash using Loppi multimedia
terminals in our stores. Through the CO2 Offset Program,customers can help offset CO2 emissions. We also sell products with attached CO2 emission credits available for a limited time only.
In February 2014, Lawson sold its MACHI café hot coffee
and café lattes with attached CO2 emissions credits. Having

calculated the amount of CO2 emitted through each product’s entire life cycle, we offset a total of around 1,500 tons
(approximately 300g–600g per cup).

Training human capital that autonomously thinks and takes action to help Lawson grow
What is Lawson’s value to its customers? Our corporate philosophy of “Creating Happiness andHarmony in Our Communities” sums up the answer to this question. At Lawson, our Corporate
Philosophy and Code of Conduct are clearly structured, and we are endeavoring to train the corehuman capital that will be responsible for their implementation.
Lawson seeks human capital who work together and express value in the form of teamwork, people
who are able to adapt to consistently create value, and people who persevere to achieve their goals. It
is important that autonomously thinking and taking action be a regular habit. While endeavoring to train
human capital that autonomously thinks and takes action, over the past decade, Lawson has been delegating authority in stages from headquarters to offices, and then branches and area teams, thereby
broadening the forums in which such human capital plays an active part. We set up Lawson University
to equip human capital that autonomously thinks and takes action with specialist skills, and have also
been devoting efforts to the training of senior management.
In addition, to enhance our diversity and increase our flexibility as an organization, we have been hiring women and non-Japanese employees. The promotion of diversity has at times led to friction andfrustration. Despite these challenges, results have gradually begun to appear.
Having reached the stage where it is now corporate policy to “train 100 next-generation managers andleaders,” the next innovation in terms of human capital is to broaden management echelons. Lawson isincreasing its number of Group companies and will thus require an increasing quantity of this kind of humancapital. Lawson believes that this broadening of management echelons will lead to corporate strength.

Sign advertising
CO2 offset campaign

P Reduction and recycling of food waste
In one day a store generates 7.8 kg of lunchbox-type foods
that have exceeded their sell-by dates1 (surplus food) and2.1 kg of oil (used cooking oil) used in the preparation of fast
foods, a total of 9.9 kg2 of food waste. Our efforts to reducethese types of food waste are centered on curbing the generation of waste and on recycling (the recycling of usedcooking oil and converting surplus food into livestock feedor compost).
As a result of such initiatives, we achieved a food recycling ratio of 47.6% in fiscal 2013, against the statutory target of 34.5% or above.
1. Sell-by date: A date voluntarily set before the use-by date so that customers can buy
safer products with confidence
2. The amount of food waste generated by the approximately 2,300 Lawson stores that
conduct food recycling

Lawson Group stores that conduct food recycling
L

R
M(Stores)B

15,000conL

12,000
9,000
6,000
3,000

145
2,012
906
7,403

9,142
47.6

155

164

conR
conM
conB

2,292

2,248
9,875

10,468

50.3

47.6

(%)

100
80
60
40
20

22.5

0

0
2007
2011
2012
2013 (FY) 2(Base year) Used cooking oil recycling Food used in livestock feed and compost
 Thermal energy recovered (left scale) Food recycling ratio (right scale)Notes: 1. The food recycling ratio does not include Lawson Okinawa, Inc. and Lawson
Minami-Kyushu Inc.
2. Calculated in line with the administrative year from April 1 to March 31

P Per-store use of plastic shopping bags down by 24.1% from fiscal 2000

* Plastic shopping bag handout rate = N
 umber of bags purchased by stores
÷ Number of customers

P Cumulative donations at stores nationwide (including Lawson headquarters donations):
7.1 billion yen
children who will be the leaders of tomorrow and through greening contribution
projects. We also donate contributions
from Lawson headquarters, Ponta reward
point donations, the contribution portion ofsales from donation-linked products, andthe funds raised by our Group companies
to relevant organizations.

C Fundraising boxes are
installed in stores of
the Lawson Groupnationwide (approx.
12,000 stores)* In the event of a major earthquake or other disaster, the donations from fundraising atstores can be converted to disaster relief funds.

P Participation in greening contribution projects: 1,078 times (as of the end of February 2014)
Franchise owners, store managers, store crews as well as
headquarters employees participate in greening contribution
projects that make use of the Lawson Green Fund. Empoweredby customers through the donation of funds, each and every
member of the Lawson family shares in the desire to give backto the Earth directly. In this manner, every effort is being made topromote ongoing activities in Japan and other countries.
40

Lawson, Inc. Integrated Report 2014

Cumulative total participation in greening contribution projects

1,078 times (594 forest improvement projects and 484
school afforestation projects from May 1994 to February
28, 2014)
Total number of participants: approx. 4,500(since March 2009)

Lawson University, our unique educational program, integrates education for franchise owners and headquarter
employees. The program is based on Lawson’s corporate
strategies and business strategies, and delivers high-levelskills needed for various job types and positions. The­ ltimate goal of Lawson University is to facilitate franchiseuowners and headquarters employees to be able to autonomously think and act, enhancing the development of self-sufficiency. To this end, we provide support to the entire staff ofthe Lawson Group in a continuous and systematic way.

Outline of Lawson University
Continuous and systematic support
Before store
opening

After store opening

Basic II

Support for
multistore
development

Operational support for
management owners (MO)FranchiseownersTraining provided
after employment(1 year, 2 years,
and 5 years)

Multi-store
operations training

Training for management
owners (MO)Full-time
staff

Training for store
consultant (SC)candidates

Multi-store
manager training

Training for store manager
candidates

Basic I

Basic
management
course(BMC)
training

Re-signing

Training prior toresigning

Various training
provide various training in a timely manner, such as customer service
Other staff We
skill training for store crews, and training at the time of new operation
implementation.

Guidance and support
Headquarters
employees

Combining its existing Lawson Green Fund, Support
Dreams Fund (a scholarship system for victims of the Great
East Japan Earthquake), and TOMODACHI Fund (supporting students in the Tohoku region through U.S.-Japan educational and cultural activities), the Lawson Group has been
conducting fundraising activities in the form of the Lawson
Group “Happiness in Communities” fund since June 2013.*
Fundraising at stores leverages the Group’s infrastructure ofaround 12,000 stores and works in partnership with Lawson
customers to create a sustainable society by supporting theM Lawson University: Integrating franchise owner and headquarters employee education to
enable personnel to learn specialized skills

Basic knowledge

Basic knowledgeof MBA

Staff’s management
consultant standard

Basic management
skillsRaisingawareness

Entry level
management

Basicmanagement

Training for newlyappointed MCs andMC candidates

Management
courseExecutive
management
courseSkill training to provide customers with higher value

shopping bag handout rate* was 78.3%. In fiscal 2014, we
will continue to reduce the use of plastic shopping bags by,for example, proactively participating in local municipality
campaigns to reduce plastic shopping bag use.

Deputy Senior Vice
President, Division
Director, Human
Resources OfficeFranchise stores

We work to reduce the use of plastic shopping bags in ourstores by having staff ask customers whether they need abag, using in-store broadcasting, putting up posters, andhanding out reusable “Bring Your Own” bags. In fiscal 2013,
the per-store use of plastic shopping bags decreased by
24.1% (683 kg) compared with fiscal 2000, and the plastic

Takeji Hino

*MC: Management consultant

M Recognizing and encouraging employees who tackle tasks that transcend conventional
departmental boundaries
We need to encourage each employee to spontaneously challenge conventional boundaries if we seek new customer value.
We launch various projects and task forces that cross departmental boundaries to collect ideas and opinions of employees indifferent positions and create innovative products and s­ ervices.

In fiscal 2013, we launched New Value Creator of the Year, an
employee awards program to create a corporate climate thatencourages challenging the status quo, and to find new ways tocreate value. The award is for self-formed teams, and weappraise new ideas and inter-departmental measures.
Lawson, Inc. Integrated Report 201441

Human Capital

Promoting Diversity

Efforts related to Employee and Franchise Owner Health

M Fostering and utilizing diversified personnel

M Health-oriented management helps first improve the health of employees and owners

We promote diversity to enable individual staff to realize theirfull potential. We have maintained a 50% ratio of womenamong all hires of new graduates since 2005, and have been
hiring non-Japanese employees since 2008. We also foundeda special subsidiary to promote the employment of people
with disabilities and are implementing a system to continue
employment of people over sixty. We actively work to achieve
a diversified body of employees to continuously develop thetypes of human capital that create corporate value.
Implementing executive training for female candidates
Through Lawson University, we provide education for female
executive candidates and create opportunities for top management to directly meet with female employees on a regular basis as part of our actions to foster diversity.
Labor-management meeting
For a corporation to grow continuously, it is essential that
employees can work to their full potential. We seek to continuously improve employee satisfaction through efforts toimprove working environments. In regular labor-management meetings, we hold in-depth discussions to improve
work efficiency and working environments.
In particular, to promote diversity, we implemented a committee to discuss challenges on a regular basis. We hope to
see diverse employees developing new skills to advancetheir careers while bringing new value to Lawson and tothemselves. We invite such employees to participate inefforts to improve the corporate environment, including cultural reform and system utilization.

Supporting employees raising children
We support employees who are raising small children, especially female employees. We offer support measures including reduced working hours for childcare, telecommuting,and baby-sitting service support, so that employees canchoose to have children without anxiety for the future. Our
efforts have resulted in a 98.3% rate of reinstatement afterchildcare leave. One out of five female employees at Lawson
is now a working mother. Further, we launched the Smart
Women Project in April 2013 to promote the career development of female employees after childcare leave. Participants
work within this project for a limited time period to bring theirperspectives as working mothers to product and store
development.
As a part of our support for younger employees in their
20s to 40s, especially those raising children, we made special efforts to raise their salaries in fiscal 2013.

M Childcare support policies
P Reduced working hours
P Shorter working weeks*
P Guaranteed holidays*
P Telecommuting*P Use of sports club membership rates
P System enabling convenient travel andP Baby-sitting service support

accommodation use

P Loan of computers to employees on
P Transfer to accompany spouse

Launched Happy Lawson
Nursery in July 2014

* Until the child finishes third grade

Aggressive recruitment of non-Japanese personnel
We hired 27 non-Japanese personnel through periodic
recruitment in spring 2014, resulting in more than 100 nonJapanese personnel on the corporate staff, including SVs,
MDs (merchandisers, in charge of product development),
treasury staff, and logistics staff. Non-Japanese employees
comprise the foundation of our human capital strategy to create innovative products and services to be launched in Japan.

M Reinstatement ratio from childcare
On a cumulative basis, since fiscal 2000, 98.3%, or
almost all employees who took childcare leave returnedto their former positions. The ratio of working mothers to
all female employees has marked more than a four-foldincrease since fiscal 2001.
Fiscal 2000–2013 cumulative total

98.3%(118 out of 120 female
employees who tookchildcare leave
returned to work)

42

Lawson, Inc. Integrated Report 2014

­ ssistance among franchisedastores. The Company provides arange of welfare programs,
resourced from monthly fees,
directed at franchise owners andtheir families as well as store
c re w s . T h e O w n e r We l f a re
Association has enabled a subsidy
system for health checkups for
franchised stores and access to arange of health support options.
As the company behind the
Neighborhood Health Station app,
Lawson is advancing these health
Neighborhood Health
Station app
management initiatives so that
employees and franchised store owners first become accustomed to maintaining their own health.
While collaborating with local municipalities on these initiatives, the Company is preparing more extensive businessdevelopments involving community health.

The Lawson Owner Welfare Association
Based on the three principles of comfort, health, and peace of mind, the Lawson Owner Welfare Association is an organization that provides welfare systems directed at franchised stores. Besides a system that supports health, the association
offers a range of services:for childcare*childcare leave

As a company that supports the healthy lifestyles of its customers, Lawson is engaged in efforts to promote the healthof its employees and has been conducting an Employee
Health Promotion Program since October 2012. In the past,
employees were responsible for identifying personal healthrisks and taking all appropriate remedial measures. The decision was then made for the organization as a whole to attend
to the care of employees’ health. Disincentives were directed
toward employees, including their superiors, who, for example, did not want to undergo a medical checkup, giving themeasures new teeth. The Company then determined which
employees faced high risk, distributed Individualized Action
Plans, and took measures that included having targeted
employees receive guidance from health nurses. In January
2013, we sent the Neighborhood Health Station smartphone
app to targeted employees and since then have been building a framework to enable easy participation in the Health
Action Plan. The app is used by 90% of targeted employees,
and we are proactively working on improvements.
At Lawson, we also have the Lawson Owner Welfare
Association, an organization run in the spirit of mutual

P Seminars that support exchanges
between franchised stores and headquarters

P Subsidy systems for distance learning,

P Discounts and benefit programs for lifestyle-related facility use, such as finedining and leisure

P Congratulatory and condolence payment system

Lawson Owner
Welfare Association booklet

P Voluntary insurance plan for franchised
stores, etc.

A seminar at the Owner Welfare
Association in support of health­promotion

health management, etc.

Financial health of Lawson Health Insurance Society
In recent years, impacted by such factors as thegraying of society and the protracted sluggishnessof the economy, health insurance associations have
faced financial difficulties. This has led to numerous
cases of insurance premium hikes, and companies
regarding the financial situation of health insurance
associations as another financial risk.
Under these circumstances, the Lawson Health
Insurance Society has, in collaboration with Lawson,raised health awareness among its overall membership and focused its efforts as a group entity on initiatives that can limit risk. The Society has also been
selected for the Excellence Award at the Second
Smart Life Project Awards, which have as their banner “Let’s extend healthy life expectancy!”*
To maintain the association’s finances, we will continue such independent efforts in the years to come.

Insurance premium rate of the Japan Health Insurance Association
(%)

10.0
9.3

9.5

10.0

10.0

10.0

9.0
8.2
8.0

7.0

6.0

8.2

8.2

8.2

8.2

8.2

8.0

8.3
8.6

7.8

8.9
7.8

7.5

2004

7.4

2005

7.3

7.3

2006

2007

7.4

7.5

2008

2009

7.7

2010

2011

2012

2013

2014 (FY) National average  Primary, local prefectural governments  Lawson Health Insurance Society* Excellent education and other activities that contribute to health promotion and the prevention of lifestylerelated diseases are honored by the Smart Life Project, a national movement under the Ministry of Health,Labour and Welfare.

Lawson, Inc. Integrated Report 201443

Corporate Governance

The Lawson Group’s Corporate Governance(As of September 1, 2014)

General Meeting of Shareholders
Appointment/dismissal

M Characteristics of Lawson’s corporate governance
Ahead of our competitors, Lawson has established a corporate governance system with agility and transparency. We
have separated the execution and administrative functions
according to the executive officer system in order to clarify
executive officers’ responsibilities. We have also reduced thenumber of directors drastically, making business judgments
more prompt. Out of twelve directors and corporate auditors, we appointed eight from outside, of whom six are independent officers.* Also we appointed four female directors
and auditors to the Boards.
This change in composition reinforces our corporate governance system with diverse viewpoints. Seeking to further

Appointment/dismissalenhance management transparency, we have changed thestructure of the Compensation Committee, newly establishing the Nomination and Compensation Advisory Committee
based on the resolution of the Board of Directors held after
the ordinary general meeting of shareholders on May 27,
2014. This four-member committee is comprised of two
outside directors and two outside corporate auditors. As a
Company with a Board of Corporate Auditors, Lawson has
double-checking mechanisms, with the Board of Directors
overseeing business execution and corporate auditors
supervising the execution of the duties of the directors.
* Lawson implemented an independent officer system in fiscal 2010

Nomination andCompensation
Advisory Committee

Outside directors: 5(Incl. 3 independent
directors)
In-house directors: 3
Total: 8

Consultation
ProposalAppointment/dismissal/supervision

Operational Organization

Audit

Outside auditors: 3(Incl. 3 independent auditors)
In-house auditor: 1
Total: 4

Proposal/report(2) M ore outside officers formore independent governance8

Outside andindependent
18%

Directors

Compliance andRisk Management*

CEO meeting

Internal Audit OfficeInternal audit and guidance
for improvement

2014

Since 2002, we have maintained thenumber of directors at less than 10
and kept administration separate frombusiness execution, in order to makemore agile business judgments.

2014

2000

With a greater ratio of outside officers
with specialized knowledge fromdiverse backgrounds, we strengthened
our supervisory system, making it more
independent and providing more objective viewpoints to maintain appropriate
and compliant business execution.

2014

We focused on diversity and took
action to significantly increase theratio of female officers on the Boards.
The viewpoints of women are essential for expanding our customer base.
We will proactively involve women in
future business development.

Evolution of Lawson’s corporate governance2000

Separation ofmanagement fromexecution
Securetransparency
and diversity ofmanagement

18

2001

20

directors*

2002

2003

The number of directors was reduced
to less than half in 2002		

8

9

2010

2011

2012

2013

Since 2007

7 directors				

2014

Aug. 1, 2014

Proposal and promotion of complianceand risk management measures

Investment* Please refer to page 35 for details.

Subsidiaries andaffiliates

98 directors

We regard the internal control system as the key componentof sustainable and robust business growth. We revise the
Basic Policy on Internal Control System yearly in accordance with the provisions of the Companies Act, theOrdinance for Enforcement of the Companies Act and
Financial Instruments and Exchange Act (refer to page 34).

Besides this yearly revision, we make regular efforts to
update our internal control system to maintain effectiveness,
efficiency and adequacy of operations, as well as to adapt
to changes in the business environment.

M Special factors with an important bearing on corporate governance
Mitsubishi Corporation (Mitsubishi) holds 32.5% of theCompany’s voting rights, including indirectly held rights.
Consequently, Mitsubishi treats Lawson as an equity-method
affiliate on its financial statements (as of February 28, 2014).
Under a comprehensive business alliance, Mitsubishi

exchanges personnel and conducts joint raw materials procurement businesses with the Lawson Group and also introduces potential store locations. Despite this relationship, as
an independent publicly listed corporation, Lawson makes
its own management decisions.

The executive officer system wasintroduced in 2002

4 outside directors		
6
8
6			7
									2independent directors 45			

8 outside
directors
6 independent

Record of meetings and attendance: Board of Directors and Board of Corporate Auditors (FY2013)*

directors

4 female
1 female			2 female auditors		
officers on
director			joined in 20113		
the Boards
Established Compensation Committee in 2002

Securetransparency
in directors’compensation

Comments

M Evolution of Lawson’s internal control system

50%
Independent

2000

Legal
counselCompliance andRisk Management Committee

33

Women
0%
2000

Account auditing

Financial Reporting Internal
Control Committee

Women
%

67

Dismissal

President and CEO(3) Promoted women on the Boards

Outside%18
Directors

Certified Public
Accountant

Audit

Audit

Corporate divisions/Operating divisions(1) R educed the number of
directors by more than half

Appointment/dismissal

Board of Corporate
Auditors

Board of Directors

Established Nomination and Compensation Advisory Committee in 2014
Abolished allowance for directors’ severance benefits in 2005

Meetings
Attendance

Board of Directors

Board of Corporate Auditors

15 (Including 3 extraordinary meetings)

16 (Including 3 extraordinary meetings)

Outside directors

Approx. 91%—

Outside corporate auditors

Approx. 96%

100%* Attendance includes that for extraordinary meetings.

Introduced stock option for directors’ compensation in 2005
Abolished allowance for corporate auditors’ severance benefits in 2012
Disclosure of the compensation of the representative director since 2012

* The number of directors and corporate auditors shown above is as of the shareholders’ meeting unless otherwise specified.

44

Lawson, Inc. Integrated Report 2014

Lawson, Inc. Integrated Report 201445

Corporate Governance

M Compensation policy for board members
We designed our compensation system to link shareholders’value with directors’ compensation. With incentives for promoting corporate value and sustainable growth and profitability, we
compensate the execution of duties at a sufficient and reasonable level. Directors’ compensation consists of basic compensation, which is a fixed amount, and variable compensation, aflexible amount. Performance evaluation indices, such as earnings per share (EPS), are linked to the compensation system sothat directors’ contributions to maximizing shareholder value areclearly reflected. Moreover, by incorporating stock options as apart of compensation, directors’ and shareholders’ interests are
now more closely related.
Director compensation
Compensation for directors consists of (A) basic compensation paid in cash, and (B) stock-price-linked variable compensation paid in stock options.

Fee for corporate auditors
We make it our policy to pay corporate auditors at a sufficient and reasonable level for their duties executed in a fixedcash amount. The amount for each auditor is decided intheir (auditors’) discussion within the extent of the total fee
amount determined by resolution of the shareholders meeting. Factors such as working full-time or part-time and typesof assignments are considered to decide the amounts. In
addition, by a resolution at the 37th ordinary shareholder
meeting held on March 29, 2012, we abolished the severance payment system and paid the equivalent amount forthe period of time prior to the discontinuation.
Compensation disclosure
The total amount of compensation for all directors as well as
the compensation for the Chief Executive Officer are listed in
the Company’s securities and business reports respectively.

A + B = Director compensation

Compensation for directors and corporate auditors (FY2013)
Category

A Basic compensation
Fixed cash amount (60%)+ Variable cash amount (40%)

NumberTotal Compensation

Directors (outside directors)

8 (4)¥217 million (¥28 million)

Corporate auditors(outside corporate auditors)

4 (3)¥70 million (¥46 million)

Total

12

¥287 million

Fixed cash amount: Established amounts by position ranking
Variable cash amount: Introduced performance-based compensation
which reflects performance assessment such as EPS of each term (to link
directors’ compensation to shareholders’ interests)

Reference: In addition to the above, in a meeting held on March 24, 2014, theBoard of Directors resolved to pay seven directors (including 4
outside directors) an additional 148 million yen in total (including 8
million for outside directors) in stock options.

B Stock-price-linked compensation

M Independent officers’ contribution to theBoard of Directors and the Board of
Corporate Auditors

Paid in stock options, as compensation linked tomedium- to long-term corporate value growth
P Share option value per share: ¥1
P Number of shares: determined by position ranking
P Option term: Option can be exercised for a specified period of timeafter retirement only (cannot be executed while in the office)The five non-executive directors—Reiko Okutani, Takehiko
Kakiuchi, Emi Osono, Yutaka Kyoya and Sakie Akiyama—do
not receive any compensation linked with business performance because of their specialized supervisory and advisory
roles for the Chief Executive Officer and the Board of Directors.
Decision-making process of director compensation
For better transparency, the Nomination and Compensation
Advisory Committee, comprising only outside officers, submits
a compensation package to the Board of Directors for approval.
Nomination and Compensation Advisory Committee
members
Nomination and Compensation Advisory Committee
Emi Osono (Vice-Chairman)
Sakie Akiyama
Outsidecorporate
auditors

Tetsuo Ozawa (Chairman)
Eiko Tsujiyama(Three meetings in FY2013)46

Lawson, Inc. Integrated Report 2014

SubmitFix directors’ compensation

Takehiko Kakiuchi
Reiko Okutani

Board of Directors

Outsidedirectors

Independent officers
Directors Reiko
Okutani

Ms. Okutani poses questions and offers opinions
based on her abundant experience and knowledge asa business manager. She is also a member of theNomination and Compensation Advisory Committee.

Emi
Osono

As an academic with in-depth expertise in global corporate management, business strategy and organizational behavior, Ms. Osono provides questions andideas. She is also a member of the Nomination andCompensation Advisory Committee.

Sakie
Akiyama

Ms. Akiyama poses questions and offers opinions
based on her abundant experience and knowledge asa business manager. She is also a member of theNomination and Compensation Advisory Committee.

Corporate Shinichi
auditors Hokari

As a full-time corporate auditor, Mr. Hokari oversees
execution of the duties of directors and inspects operational and asset management. With his experience at
the Board of Audit of Japan, he provides questionsand views based on his expertise in finance andaccounting.

TetsuoOzawa

With his diverse experience and technical expertise asa lawyer, Mr. Ozawa provides questions and opinions.
He is also a member of the Nomination andCompensation Advisory Committee.

Eiko
Based on her deep insight as an academic in manTsujiyama agement, especially accounting, Ms. Tsujiyama provides questions and opinions. She is also a memberof the Nomination and Compensation Advisory
Committee.

Criteria for independence
To improve our corporate governance, we appoint thoseoutside directors or outside corporate auditors as
Independent Officers who fulfill the requirements describedin the Guidelines Concerning Listed Company Compliance,
etc. established by the Tokyo Stock Exchange. Further, wefully examine them at the time of appointment to check thatthey are not at risk of having conflicts of interest with generalshareholders.
Required qualifications for Independent Officers(An independent officer must not be described by any of the following items)(1) A person executing the operations (hereinafter “executing person”) of theholding company of Lawson(2) An executing person of affiliate companies of Lawson(3) A party for whom the Lawson Group is a principal business partner or an
executive person of such a party(4) A principal business partner of the Lawson Group or an executing personof such a party(5) A consultant, an accounting professional such as a certified public
accountant or a legal professional such as an attorney-at-law who hasreceived a significant amount of money or other property from Lawson,
other than as compensation for being a director or a corporate auditor.
(6) A major shareholder of Lawson or an executing person of such party in acase when said person is a juridical person(7) A n immediate family member, etc. of a key executing person of theLawson Group(8) An immediate family member, etc. of a non-executive director or an
accounting advisor of the Lawson Group (in case the independent officer
in question is an outside corporate auditor)

What may deserve special mention about our requirements
is their strictness. In items (3) and (4), we define the term “aprincipal business partner” as “a business partner group (parties which belong to the consolidated group to which theLawson Group’s direct business partner belongs), offering
products and/or services to the Lawson Group, whose total
amount of transactions with the Lawson Group in the last fiscal
year exceeds 2% of the consolidated gross operating revenuesof the Lawson Group or gross sales of such business partnergroup.” Also in item (5), we define “a significant amount ofmoney” as “an amount or money which exceeds five million
yen annually in the previous two fiscal years.”
Contracts for limitation of liability
Lawson has entered into an agreement with outside directors and outside corporate auditors to limit their liabilities, as
provided in Article 423, paragraph 1 of the Companies Act,to the extent in the aggregate amount as provided in itemsof Article 425, paragraph 1 of the Companies Act.

M Shareholder meeting
We regard shareholder meetings as an excellent opportunity
to help shareholders understand more about Lawson, as
part of our groundbreaking efforts at better disclosure.
After the public listing in 2000, we started earlier dispatchof invitations in 2001, in English as well as Japanese, andadded non-mandatory disclosure through our website.
In 2002, we added disclosure of the total amount of
retirement benefits, which were then still in our system. We
also started on-demand online distribution of the content ofshareholder meetings for those unable to attend in person.
This was also the year we received an award from the Tokyo
Stock Exchange for our efforts in disclosure practices.

In 2009, we computerized voting, adopting the Tokyo
Stock Exchange’s electronic voting platform. Ahead of legislation and our competitors, we disclosed voting results on a
non-mandatory basis.
In 2012, we included independence requirements for our
independent officers in the invitation. Also, to highlight it as
our key business index, we provided ROE trends over timeas an agenda aid for proposals on the appropriation of surplus. Additionally, we distributed a questionnaire on voting toshareholders who attended, disclosing the results in an
extraordinary report on the web.
In 2013, we posted the invitation on our website six days
prior to sending it out.
Year

Content

2001

P S tarted earlier dispatch of the notice and non-mandatory
disclosure on the website

2002

P Disclosure of total amount of retirement benefits
P On-demand distribution of shareholder meeting content, received
TSE Disclosure Award2009

P Computerized voting adopting TSE voting platform
P Started disclosing voting results (non-mandatory)

2011

P Changed the shareholder meeting venue (to Tokyo International
Forum)

2012

P Disclosed independence requirements for Independent Officers
and ROE trends over timeP Implemented questionnaire on voting with attending shareholders
and disclosed the results in an extraordinary report on the web.

2013

P Started posting invitations on the web (6 days prior to postal dispatch)

M Enhancing investor relations
Lawson established the IR department, which is exclusively
dedicated to dialogue with investors and shareholders. We
help these parties deepen their understanding of our goals forsustainable growth and greater corporate value and our roadmap to these, with information on business strategies as wellas our performance. Exclusively for analysts and institutional
investors, we implement semiannual results meetings, as wellas quarterly results briefings through a teleconference presided over by the CFO. With management’s leadership, we work
hard to ensure timely disclosure. Fair disclosure is also a
focus. For foreign investors, we proactively work to promptly
post information on our website in English, such as results,
meetings and other disclosed information. Our Basic
Principles Concerning Information Disclosure are posted on
our website (http://lawson.jp/en/ir/disclose.html).
Lawson’s IR activity is highly rated by capital markets for our
positive stance on disclosure aimed at creating and enhancing
shareholders’ value. It is also appreciated as message of our
focus in business strategies on sustainability and capital efficiency. In fiscal 2013, we were given the 18th annual IR GrandPrix Award in the 2013 Annual IR Grand Prix by Japan Investor
Relations Association, as well as the 2013 Award for
Excellence in Corporate Disclosure by the Securities Analysts
Association of Japan, ranked the highest among retailers (theseventh time we received the award). We also received thebest integrated reporting award from the World Intellectual
Capital Initiative Japan (WICI-J) and an Honorable Mention at
the Nikkei Annual Report Awards 2013 hosted by Nikkei Inc.
Lawson, Inc. Integrated Report 201447

Corporate GovernanceDirectors, corporate auditors, and executive officers(As of September 1, 2014*)
1985
1998
2002
2005
2010
2011
2012
2013
2014

Genichi Tamatsuka
Representative Director,
President and CEO
Years as a director: 2
Number of Lawson shares held:
3,300

Joined Asahi Glass Co., Ltd.
Joined IBM Japan Ltd.
Joined Fast Retailing Co., Ltd.
President, Representative Director and COO, Fast Retailing Co., Ltd.
Established Revamp Corporation
President, Representative Director and COO, Revamp
Corporation
Corporate Advisor, Lawson, Inc.
Senior Executive Vice President and COO,
Group CEO, CVS Operating Group, Lawson, Inc.

1993
2002
2005
2010

2014

Member of the Board, Senior Executive Vice President and COO,
Group CEO, CVS Operating Group, Lawson, Inc.
Member of the Board, Representative Executive Officer, COO,
and President of CVS Company and Overseas Operations
Company, Lawson, Inc.
Member of the Board, Representative Executive Officer, COO,
and President of CVS Company, Lawson, Inc.
Representative Director, President and CEO, and President of
CVS Company, Lawson, Inc.
Representative Director, President and CEO, Lawson, Inc.
(Current position)

Joined Mitsubishi Corporation
Transferred to Indiana Packers Corporation Indiana, U.S.A.
Corporate Communications Department, Mitsubishi
Corporation
Executive Assistant to Senior Executive Vice President,
Corporate Administration Department and Corporate
Strategy & Planning Department, Mitsubishi Corporation
Executive Assistant to President & Chief Executive Officer,
Corporate Administration Department and Corporate
Strategy & Planning Department, Mitsubishi Corporation
Senior Executive Vice President, Representative Director,
and Division Director of Corporate Sales Division,Lawson, Inc.
Senior Executive Vice President, Representative Director,
and Division Director of Corporate Sales and Store
Development Division, Lawson, Inc. (Current position)

Sadanobu Takemasu
Senior Executive Vice President, Representative
Director and Division Director of Corporate
Sales and Store Development DivisionYears as a director: Assumed position May 27, 2014
Number of Lawson shares held: 0

Masakatsu Gonai

Reiko Okutani

Takehiko Kakiuchi

Emi Osono

Yutaka Kyoya

Sakie Akiyama

Atsuhiko Seki

Shinichi Hokari

Tetsuo Ozawa

Eiko Tsujiyama

Executive Vice President, Member ofthe Board—Compliance & Risk
Management and Human Resources

Member of the Board (Outside)

Member of the Board (Outside)

Member of the Board (Outside)

Member of the Board (Outside)

Member of the Board (Outside)Standing Corporate Auditor

Standing Corporate Auditor (Outside)

Corporate Auditor (Outside)

Corporate Auditor (Outside)

Years as a director: 12
Number of Lawson shares held: 0Years as a director: 9Number of Lawson shares held: 200

Years as a director: 2
Number of Lawson shares held: 100

Years as a director: 1
Number of Lawson shares held: 0Years as a director:
Assumed position May 27, 2014
Number of Lawson shares held: 0Years as a corporate auditor: 4
Number of Lawson shares held:
1,200

Years as a corporate auditor: 2
Number of Lawson shares held: 0Years as a corporate auditor: 11
Number of Lawson shares held: 200

Years as a corporate auditor: 3
Number of Lawson shares held: 200

1979 Joined Mitsubishi Corporation
2001 Unit Manager, Foods(Commodity) Division,
Mitsubishi Corporation2005 Member of the Board (Outside),
Lawson, Inc. (Current position)
2006 General Manager, Living
Essentials Group CEO Office,Mitsubishi Corporation
2008 Division COO, Foods(Commodity) Division,
Mitsubishi Corporation2010 Senior Vice President, Division
COO, Foods (Commodity)
Division, Mitsubishi Corporation2013 Executive Vice President,Group CEO, Living Essentials
Group, Mitsubishi Corporation(Current position)2014 Member of the Board (Outside),
Mitsubishi Shokuhin Co., Ltd.
(Current position)

1988 Joined Sumitomo Bank
(Currently Sumitomo Mitsui
Banking Corporation)
1998 Assistant Professor, Institute of
Asia-Pacific Studies, Waseda
University
2000 Assistant Professor, Graduate
School of International
Corporate Strategy,
Hitotsubashi University
2002 Associate Professor, Graduate
School of International
Corporate Strategy,
Hitotsubashi University
2010 Professor, Graduate School ofInternational Corporate
Strategy, Hitotsubashi
University (Current position)2011 Outside Director, Resona
Holdings, Inc. (Current position)2012 Member of the Board (Outside),
Lawson, Inc. (Current position)

1984 Joined Mitsubishi Corporation
2008 General Manager, Grain Unit,
Foods (Commodity) Div.,
Mitsubishi Corporation2011 Deputy General Manager, Living
Essentials Group CEO Office,Mitsubishi Corporation2012 General Manager, Global
Consumer Business
Development Unit, Mitsubishi
Corporation2013 Division COO, Foods(Commodity) Div., Mitsubishi
Corporation
Member of the Board (Outside),
Lawson, Inc.
(Current position)2014 Senior Vice President, Division
COO, Living Essential
Resources Div., Mitsubishi
Corporation (Current position)

1987 Joined Arthur Andersen & Co.
1994 Founded Saki Corporation andassumed the position ofRepresentative Director andCEO (Current position)2013 Member of the Fiscal System
Committee, Fiscal System
Council, Ministry of Finance(Current position)2013 Private-sector Member of theIndustrial CompetitivenessCouncil, Headquarters forJapan’s Economic Revitalization2014 Member of the Board (Outside),
Lawson, Inc. (Current position)

1977 Joined The Daiei, Inc.
1999 Joined Lawson, Inc.
2000 General Manager, General
Affairs Dept., Office of Business
Planning, Lawson, Inc.
2002 Deputy General Manager,
General Affairs Office,Lawson, Inc.
2007 Deputy Senior Vice President,
Division Director, Franchisee
Support Office, Lawson, Inc.
2010 Assistant to Standing
Corporate Auditor, Lawson, Inc.
Standing Corporate Auditor,
Lawson, Inc. (Current position)

1975 Joined the Board of Audit ofJapan
1990 Supervisory Manager of 2nd
Bureau, Board of Audit ofJapan
2002 Deputy Secretary General (incharge of 4th Bureau), Board ofAudit of Japan
2005 Director General of 4th Bureau,
Board of Audit of Japan
2007 Chief Audit Commissioner, Gifu
Prefecture Government
2011 Rejoined the Board of Audit ofJapan2012 Retired from the Board of Audit
of JapanStanding Corporate Auditor(Outside), Lawson, Inc.
(Current position)

1973 Registered as Lawyer andjoined Tokyo Fuji Law Office(Current position)
2003 Corporate Auditor (Outside),
Lawson, Inc. (Current position)2007 Outside Corporate Auditor,
CEMEDINE CO., LTD. (Current
position)
2014 Outside Corporate Auditor,
Sekisui Chemical Co., Ltd.
(Current position)

1974 Registered as a Certified Public
Accountant
1980 Assistant Professor, College of
Humanities, Ibaraki University
1985 Assistant Professor, Faculty of
Economics, Musashi University
1991 Professor, Faculty of
Economics, Musashi University
2003 Professor, School of Commerceand Graduate School ofCommerce, Waseda University(Current position)2008 Outside Corporate Auditor,
Mitsubishi Corporation (Current
position)2010 Outside Director of ORIX
Corporation (Current position)2011 Corporate Auditor (Outside),
Lawson, Inc. (Current position)
Outside Corporate Auditor,
NTT DOCOMO, INC.
(Current position)2012 External Corporate Auditor,
Shiseido Company, Limited(Current position)

Years as a director:
Assumed position May 27, 2014
Number of Lawson shares held: 1,100

1974 Joined Japan Airlines
1980 Joined Lawson, Inc.
International Co., Ltd.
1998 General Manager, Third Kanto Dept.,
Operations Div., Lawson, Inc.
1982 President, The R Co., Ltd.
2001 General Manager, Sales Support(Current position)
Section, Operations Div.,
2002 Member of the Board (Outside),
Lawson, Inc.
Lawson, Inc. (Current position)
2002 General Manager, Sales Planning
Dept., Marketing Div., Lawson, Inc.
2005 Division Director of Marketing Div.,
Lawson, Inc.
2007 Region Director, Kanto LAWSON
Office, Deputy Senior Vice
President, Lawson, Inc.
2010 Division Director, Natural HealthCare Business Div., Deputy SeniorVice President, Lawson, Inc.
2012 Executive Officer, Assistant to Chief
Compliance Officer (CCO),
Lawson, Inc.
Executive Officer, CCO in charge ofCSR Division, Director ofCompliance & Risk Management
Office, Lawson, Inc.
2014 Executive Officer, Compliance andRisk, Lawson, Inc.
Senior Vice President, Complianceand Risk, Lawson, Inc.
Senior Vice President, Member ofthe Board—Compliance & Risk
Management, Lawson, Inc.
Executive Vice President, Memberof the Board—Compliance & Risk
Management and Human Resources,
Lawson, Inc. (Current position)*Number of the Company’s shares held is as of February 28, 2014.

Executive officers
Senior Executive Vice President Masahiro Oyama

Merchandising and Group Innovation Officer, Merchandising Management Group

Senior Vice President

Hisashi Yasuhira

Division Director of Lawson Mart and Lawson Store100 Business Division, and President of Lawson Mart, Inc.

Senior Executive Vice President Masaharu Kamo

Information Systems and Home CVS Business, Division Director of Entertainment & Consumer Service Division, Division Director of BPR &Information Systems Division, Deputy Division Director of Corporate Planning Office, and President of Lawson HMV Entertainment, Inc.

Senior Vice President

Kei Murayama

Division Director of Franchisee Support OfficeSenior Vice President

Hajime Kawamura

Division Director of Quality Control OfficeSenior Vice President

Akira Ushijima

COO of Lawson (China) Holdings, Inc., and Chief Representative and General Manager of Beijing Lawson, Inc.

Senior Vice President

Yasuhiko Hirokane

Deputy Division Director of Store Operations Division, and Division Director of Management Owner Promotion Division

Senior Vice President

Kazuya Nobe

Division Director of Home CVS Business Division

Senior Vice President

Tatsushi Sato

Deputy Division Director of BPR & Information Systems Division

Senior Vice President

Hajime Nakai

Deputy Division Director of International Business Division

Senior Vice President

Motonobu Miyake

Deputy Division Director of International Business Division, and Chief Representative and General Manager of Lawson (China)
Holdings, Inc.

Executive Vice President

Yutaka Yoshitake

CFO, and Division Director of Corporate Management Office

Executive Vice President

Katsuyuki Imada

Division Director of Corporate Planning Office

Executive Vice President

Jun Miyazaki

Division Director of Corporate Communications OfficeSenior Vice President

Masayuki Sawada

Division Director of Marketing Division

Senior Vice President

Norikazu Nishiguchi Division Director of Healthcare Business Division, and Deputy Division Director of BPR & Information Systems Division

Senior Vice President

Yuichi Wada

Division Director of Merchandising Division

Senior Vice President

Tetsu Yamada

Division Director of International Business Division

Senior Vice President

Kenji Goto

Assistant to Human Resources, Assistant to President of Lawson University, and President of Lawson Will, Inc.

Senior Vice President

Kazuo Togasa

Deputy Division Director of Corporate Sales and Store Development Division (in charge of store development training)

Senior Vice President

Shuichi Imagawa

Region Director of Minami-Kanto LAWSON Branch

Senior Vice President

Shigeaki Kawahara

Deputy Division Director of Marketing Division

Senior Vice President

Takaki Mizuno

Region Director of Kinki LAWSON Branch

Senior Vice President

Atsushi Maeda

Deputy Division Director of Merchandising Division (in change of agriculture promotion)

Senior Vice President

Masaki Yamamoto

Division Director of Store Operations Division, Deputy Division Director of BPR & Information Systems Division,and Deputy Division Director of CVS Business Management OfficeSenior Vice President

Akihito Watanabe

Deputy Division Director of Entertainment & Consumer Service Division, and Deputy Division Director of Marketing Division

Senior Vice President

Yasuhiro Iseki

Deputy Division Director of Corporate Sales and Store Development Division (in charge of store development)

48

Lawson, Inc. Integrated Report 2014

Lawson, Inc. Integrated Report 201449

Corporate Governance
Messages from outside directors

Messages from outside corporate auditors

With its new president and new
corporate structure, Lawson needs
to show its future vision

Taking on the creation of new value,
Lawson’s readiness to blaze the trailin Japan is its core value

In the Board of Directors’ lively meetings, I expect leadership from the newpresident, Genichi Tamatsuka, and­further enhancements in governanceAmid a competitive environment of
increasing intensity, I commend theCompany’s anticipation of society’s
needs and stance of continuingboldness

Reiko Okutani

Sakie Akiyama

Tetsuo Ozawa

Eiko Tsujiyama

President, The R Co., Ltd.

Chief Executive Officer, Saki Corporation

Lawyer (Tokyo Fuji Law Office)With abundant experience and knowledge as a business manager, Ms.
Okutani also has customer service expertise based on her work experience as a Japan Airlines flight attendant servicing international routes.
Ms. Okutani has served as an outside director since 2002.

Ms. Akiyama possesses a wealth of experience and knowledge as thefounder and top executive of a company that manufactures industrial
inspection robots. She has served as an outside director since 2014.

As a lawyer specializing in lawsuits, including representative suits related to the Companies Act, Mr. Ozawa is in charge of internal investigations into director misconduct, corporate compliance, and risk
management. Mr. Ozawa also plays a leading role in establishing corporate governance, while overseeing compliance and internal control.
He has served as an outside corporate auditor since 2003.

Professor, School of Commerce and Graduate School of Commerce,
Waseda University

Lawson has to respond to external and internal expecta-

It is my belief that Lawson’s core value is its unwavering

Recently, there have been a greater number of projects

Three years have passed since I was appointed an outside

tions with regard to the new face of the Company andcommitment to creating new value. Lawson, on the basis

directed at such difficult management decisions as M&A,

corporate auditor. In that time, Lawson has launched aneeds to continue sending out information, consideringof its senior management’s strong leadership, is advancing

and it has become increasingly important that the Board ofseries of measures to survive among the increasingly

how best to convey it inside and outside the Company.

to the next stage in its new management structure. This

Directors carefully consider these decisions. Compared

intense competition in the convenience store industry, andThis information needs to include Lawson’s management

structure has realized growth by confronting new businesswith the time when I was first appointed as an auditor andhas always anticipated changes in society and the needs

policies and ways of thinking under its new president, whocategories, new services, and new business models as afrom a lawyer’s perspective, the materials brought intoof the people living in it. With the convenience store busi-

is forming a new corporate structure. Key issues include:

convenience store. Being newly involved in Lawson man-

Board of Directors’ meetings have been greatly enhanced.

ness as its core, Lawson has promoted diversity towhat will follow the same route as before, what will beagement as an independent outside director at such a

These materials always form the basis of very lively discus-

respond to those needs. Lawson has been particularly

revamped, and the organizational and operational con-time has been an eye-opening experience for me.

In addition to being qualified as an accountant, Ms. Tsujiyama possesses a wealth of knowledge as a finance/accounting expert accumulated during her many years as a university professor and outside
director at other companies. She has served as an outside corporate
auditor since 2011.

sions. While maintaining strong leadership, former CEO

highly rated by society for its efforts in food safety andcepts to be employed to those ends. It will also be neces-

In aiming to create value in such growth areas as agri-

Takeshi Niinami placed considerable emphasis on the dis-security. I would like to continue these kinds of initiatives

sary to have ways of disseminating information and styles

culture and health, Lawson is taking the lead in implement-

cussions at Board of Directors’ meetings and used themunder the new management structure.

of communication that are different from before, and to

ing the government’s growth strategies. In terms ofeffectively in management.

combine these when building a fresh, new Lawson, for the

corporate governance, these strategies include having theNow, outside directors are in the majority, and the num-

there remains a danger of inhibiting the company’s healthy

Company to communicate its vision for the future.

majority of its directors come from outside the Company

ber of directors who are women has increased to three. I

and sustainable growth. On behalf of all the shareholders

In boldly taking on challenges, however, in some cases

In addition to above-mentioned points, I also feel that there

and the appointment of women as directors, who now

hope to see President Tamatsuka exercise strong leader-

who have little direct access to Lawson’s day-to-day internal

is an urgent need for the Company to respond to the laboraccount for more than 30% of Lawson’s Board members.

ship as well, and, even under the new corporate structure,operations, outside auditors fulfill the role of monitoring man-shortage, as has been discussed previously. This response

Lawson is also a company that is expected to maintain its

I expect us to extend our existing advantages, having evenagement from an independent standpoint to safeguard theincludes securing and training human capital at the store

readiness to blaze the trail forward in Japan.

livelier discussions and making further enhancements toCompany’s healthy and sustainable growth. Through a vari-

the corporate governance system.

ety of opportunities that include frank discussions with Board

frontline and addressing store operating concepts. Other

As an outside director, I would like to continue contribut-changes in the social environment include the importance ofing to the further improvement of corporate value formaking improvements to workplace environments to employ

Lawson’s multi-stakeholders.

women, training global human capital for overseas development,

In these efforts, I hope to be of assistance in my capacity as a corporate auditor.

members, I hope to utilize my expertise in finance andaccounting while monitoring management and continuing
efforts to help Lawson secure sustainable growth.

strengthening management, and promoting e-commerce,
which will further require strategy going forward.

50

Lawson, Inc. Integrated Report 2014

Lawson, Inc. Integrated Report 201451

Lawson at a GlanceStore network expansion area

Corporate data
As of February 28, 2014/Consolidated (Chief Executive Officer as of May 1, 2014)

Total number of stores (Worldwide total)
Company name

Lawson, Inc.

Head Office Address

East Tower, Gate City Ohsaki,
11-2, Osaki 1-chome, Shinagawa-ku,
Tokyo 141-8643, Japan

President and CEO
Representative Director

Genichi Tamatsuka

Established

April 15, 1975

Capital¥58,506.644 million

Number of employees

6,336

Business activities

Franchise chain development of LAWSON,
NATURAL LAWSON, LAWSON STORE100,
and LAWSON MART

12,089 stores

Net sales of all stores¥1,945.4 billion

Overseas stores

Number of stores

11,606 (Stores in Japan)

483

Operating areas

All 47 prefectures in Japan, China (Shanghai,Chongqing, Dalian, Beijing), Indonesia, Hawaii,
Thailand

As of February 28, 2014

11,606*

Note: The total number of stores in Japan is the total of LAWSON, NATURAL LAWSON and LAWSON MART/ LAWSON STORE100 operated under Lawson, Inc., and LAWSON operated
under Lawson Okinawa, Inc., Lawson Minami-Kyushu, Inc., and Lawson Kumamoto, Inc.

P China Shanghai

289 stores
Chongqing 77 stores
Dalian18 stores
Beijing 	  5 stores

P Indonesia
61 stores
P U.S.A. Hawaii 4 stores
P Thailand
29 stores* The total number of stores includes stores operated underLawson Mart, Inc., Lawson Okinawa, Inc., Lawson MinamiKyushu, Inc., and Lawson Kumamoto, Inc.

Shares issued

100,300,000

Shareholders

30,527

Tohoku region

Chubu region

915 stores

Kinki region

As of February 28, 2014/Non-consolidated

409,300,000

595 stores

1,381 stores

Shareholder information

Authorized shares

Hokkaido region

2,238 stores
Shikoku region

Stock exchange listings Tokyo Stock Exchange (1st Section)

471 stores

Mitsubishi UFJ Trust and Banking Corporation
4-5, Marunouchi 1-chome,
Chiyoda-ku, Tokyo 100-8212, Japan

Stock transfer agent

Kanto / Koshinetsu region

Chugoku region

4,046 stores

638 stores

Distribution of shareholders by type
Number of shareholders

Financial institutions
Securities companies
Other domestic entities
Foreign entities
Individuals, Others
JASDEC
Treasury stock
Total

Number of shares (Thousands) Percentages of total shares (%)

132
31
429
477
29,4561
130,527

17,277
3,035
35,63836,0047,946
0395
100,300

17.2
3.0
35.6
35.9
7.9
0.0
0.4
100.0

Kyushu and Okinawa
total 1,322 stores
Kyushu region

Okinawa region

1,159 stores 163 stores
Lawson store formats
As of February 28, 2014

Major shareholders
1. Mitsubishi Corporation
2. The Master Trust Bank of Japan, Ltd. (Trust account)
3. STATE STREET BANK AND TRUST COMPANY 505223
4. Japan Trustee Services Bank, Ltd. (Trust account)
5. NTT DOCOMO, INC.
6. National Mutual Insurance Federation of Agricultural Cooperatives
7. STATE STREET BANK AND TRUST COMPANY
8. Nomura Securities Co., Ltd.
9. BBH FOR MATTHEWS ASIAN GROWTH AND INCOME FUND
10. MELLON BANK N.A. AS AGENT FOR ITS CLIENT MELLON OMNIBUS US PENSION

Number of shares
held (Thousands)

Percentages of
total shares held*

32,089
3,105
2,964
2,746
2,092
1,646
1,573
1,471
1,333
1,276

32.1
3.1
3.0
2.7
2.1
1.6
1.6
1.5
1.3
1.3

ローソン
ローソン
LAWSON

July 2001

May 2005 / February 2014

Features

Lawson is transitioning from a conventional convenience store format targeting
mainly men in their 20s and 30s, to aneighborhood store with a merchandise
assortment attuned to the particular customer demographics of each store’scommercial area. In fiscal 2013, Lawson
launched efforts to promote health andwellness in communities to promote long,
healthy lives for Japan’s graying population.

Launched as a health-oriented convenience store that offers support for lifestyles that embrace beauty, health, andcomfort through an assortment of merchandise geared toward working womenin their 20s to 40s as well as health-conscious customers. Responding to thegrowth in health consciousness throughout society, this format is now being
developed to meet the needs of a wider
range of customers.

LAWSON STORE100 offers an assortmentof merchandise assembled with housewives
and senior citizens in mind and centered on
perishable foods. This fresh food-type convenience store is characterized by small,convenient portion sizes and uniform pricing. Building on this format, LAWSONMART is a next-generation convenience
store that combines the convenience of aconvenience store with the merchandise
assortment of a supermarket.

Percentage offemale Ponta customers

Approx. 45%

Approx. 60%

Approx. 45%–50%

Networkregional-orientation

Nationwide

Office and residential districts inthe metropolitan Tokyo area

Residential districts and nearby train
stations in the major metropolitan areas

Items handled

Approx. 2,800 items

Approx. 2,500 items

Approx. 4,000 items / Approx. 5,500 items

Total stores in Japan

10,299 stores

105 stores

Stock price on the Tokyo Stock Exchange

6,000
4,000

Number of stores
2,000
0

8,676
2005/2

2006/2

2007/2

2008/2

2009/2

2010/2

2011/2

2012/2

2013/2

Interim dividend
Year-end dividend
Annual dividend
Stock price as ofFebruary 28 or 29

52

2006/2

2007/2

2008/2

2009/2

2010/2

2011/2

2012/2

2013/2

2014/2

45
45
90

50
50
100

55
55
110

80
80
160

80
80
160

85
85
170

87
93
180

100
100
200

110
110
220

4,350

4,540

4,000

4,250

3,885

4,025

4,780

6,890

7,060

Lawson, Inc. Integrated Report 2014

8,827

9,185

9,796

1,202 stores

10,299
100
89

88.3%

87.8%

88.0%

2010/2

2011/2

2012/2

2013/2

105
996

1.0%
88.9%

110

90

2014/2(Yen)

ローソンストア100
ローソンストア100
LAWSON STORE100
LAWSON MART

April 1975

* The above shareholding ratios exclude 395,953 shares of treasury stock

(Yen)
8,000

ナチュラルローソン
ナチュラルローソン
NATURAL LAWSONOperations begun

88.7%

0.9%

0.9%

2014/2

2010/2

2011/2

2012/2

1,077

1.0%

2013/2

10.8%

0.9%

10.2%

2014/2

2010/2

2011/2

1,172

11.2%

2012/2

1,224

11.0%

2013/2

1,202

10.4%

2014/2

M Number of stores P Composition ratio (%)
Lawson, Inc. Integrated Report 201453

Financial Section
Management’s Discussion and Analysis
Industry trends

Management policies for fiscal 2013
Looking back on the performance of the convenience
store industry during calendar 2013 (January 2013 to
December 2013), industry-wide sales came within sight of
10 trillion yen, reaching 9,872.4 billion yen, up 4.2% year on
year. Against this backdrop, the share of major convenience
store chains continues to expand, with the top four industry
players accounting for 85.4% of the market as a whole in2013. Reflecting newly opened stores, the total number ofstores hit the 50,000 mark as of the end of 2012. Buffeted
by fierce competition within the industry, sales of existing
stores were down 1.2% year on year.

In fiscal 2013, the fiscal year ended February 28, 2014,
Japan enjoyed a period of overall recovery. This was largely
attributable to the underlying strength of the economy, supported by the positive flow-on effects of pump-priming measures implemented by the government. Against the
backdrop of firm commodity prices, domestic demand
exhibited a favorable turnaround, particularly in such areas
as personal consumption and housing investment. At thesame time, exports experienced a modest pickup due mainly to the weak yen.

Retail industry market size and convenience store share 1
2012

2013

Total retail industry annual sales

2011(Billions of yen)

2010

2009

2008

2007

2006

2005

2004

2003

2

138,897 137,585 135,157 136,479 132,961 136,019 135,417 134,911 134,828 133,649 132,446

Convenience store sector
annual sales

9,872

9,477

8,775

8,114

7,981

7,943

7,490

7,399

7,360

7,289

7,096

Convenience store share

7.1%

6.9%

6.5%

5.9%

6.0%

5.8%

5.5%

5.5%

5.5%

5.5%

5.4%

Source: “Current Survey of Commerce,” Ministry of Economy, Trade and Industry
Notes: 1. Annual sales amounts of the retail industry and the convenience store sector are on a calendar-year basis.
2. The figures above reflect the revision of the figures in 2004 and onwards that Ministry of Economy, Trade and Industry made in March, 2013.

The aggregate sales of all stores of the top four chains in the convenience store industry 2

(Billions of yen)

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

Lawson

1,945

1,907

1,826

1,683

1,666

1,559

1,415

1,387

1,362

1,329

1,288

Seven-Eleven Japan

3,781

3,508

3,281

2,948

2,785

2,763

2,574

2,534

2,499

2,441

2,343

FamilyMart

1,722

1,585

1,535

1,440

1,274

1,246

1,122

1,069

1,032

998

954

980

947

980

923

902

940

902

911

920

934

902

Total

8,428

7,947

7,622

6,994

6,627

6,508

6,013

5,901

5,813

5,702

5,487

Total market share of
top 4 chains

85.4%

83.9%

86.9%

86.2%

83.0%

81.9%

80.3%

79.8%

79.0%

78.2%

77.3%

Circle K Sunkus*1

Source: Data published by each company
Notes: 1. Consolidated under C&S Co., Ltd. for fiscal 2003
2. The figures for the top four chains are on a fiscal-year basis, while the total market share of the top four chains is the proportion of convenience store
sector annual sales on a calendar-year basis.

Convenience store numbers (Stores)
Convenience store numbers

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

50,20647,59345,76945,00644,391

43,22843,08742,643

41,34041,11440,644

Source: “2011 JFA Franchise Chain Statistics,” Japan Franchise Association. The number of convenience stores is on a calendar-year basis.

Non-consolidated operating results

(Millions of yen)

2013/2

2014/2

2012/2

2011/2

2010/2

Net sales of all convenience stores 1,758,656 100.0% 1,693,435 100.0% 1,621,328 100.0% 1,502,754 100.0% 1,472,415 100.0%
Gross operating revenue

298,779

17.0%

282,752

16.7%

272,498

16.8%

263,20917.5%

271,513

18.4%

Gross operating profit

275,44215.7%

258,061

15.2%

244,46215.1%

230,15615.3%

224,467

15.2%

Selling, generaland administrative expenses

213,99912.2%

198,730

11.7%

188,199

11.6%

179,945

12.0%

179,469

12.2% Advertising andpromotional expenses

9,023

0.5%

10,691

0.6%

11,144

0.7%

9,033

0.6%

11,2090.8%

Personnel expenses

35,8522.0%

34,931

2.1%

35,891

2.2%

35,736

2.4%

36,947

2.5%

Facility expenses

123,444

7.0%

113,3216.7%

104,215

6.4%

100,111

6.7%

96,736

6.6%

Other SG&A expenses

45,6802.6%

39,784

2.3%

36,9482.3%

35,137

2.3%

36,671

2.5%

Operating income

61,443

3.5%

59,331

3.5%

56,263

3.5%

50,2103.3%

44,997

3.1%

Recurring profit

62,171

3.5%

59,4593.5%

56,1103.5%

49,312

3.3%

44,5773.0%

Net income

33,6251.9%30,314

1.8%

22,462

1.4%

24,643

1.6%

20,665

1.4%

54

Lawson, Inc. Integrated Report 2014

Positioned efforts to promote Health and Wellness
in Our Communities at the heart of our medium-termbusiness strategy
During the fiscal year under review, Lawson pledged its
commitment to provide Health and Wellness in Communities
to society at large. In this manner, the Company has positioned efforts to promote long, healthy lives at the heart ofits medium-term business strategy. Throughout fiscal 2013,
Lawson continued to focus on the development of productsthat are not only pleasing to the palate, but also help toimprove health. Among a host of new offerings, theCompany’s series of bran products have been well-received
by customers who seek to limit their intake of carbohydrates. Under these circumstances, we are expanding ourlineup of products that use rare sugar in a bid to control
blood glucose levels after meals. By showcasing the healthconsciousness of our products and increasing awarenessthrough in-store presentations, we have worked diligently tostrengthen the Company’s brand image as a convenience
store that promotes customer health.
Bolstered the MACHI café and over-the-counterfast food initiatives
We continued to introduce MACHI cafés, a driving force
behind efforts to expand our customer base, throughout our
network of stores. Under the MACHI café initiative, freshly
ground and brewed coffee is served in person by store staff,
helping to set us apart from our competitors. The number ofstores that offer MACHI café climbed to 7,776 as of the endof February 2014. In addition to increasing profitability while
deepening communication with customers and improving
customer service, this initiative is helping to cultivate
demand in the dessert category, where products are often
purchased in combination with such beverages as coffee.
In the over-the-counter fast foods category, new products
such as Genkotsumenchi (fried minced meat balls) and
Ohgon-Chicken (tender and juicy fried chicken with a golden
crispy breading) were well received by customers.
Throughout the fiscal year under review, we also installed
Machikado Chubo, an in-store kitchen facility, with the­intention of offering freshly cooked dishes including

Atsugirikatsusand (a thickly sliced pork cutlet sandwich) at
more stores. The number of Machikado Chubo storesclimbed to 2,076 as of the end of February 2014. Moving
forward, we will continue to develop and expand sales of
products with high gross profit margins, including over-thecounter fast foods and prepared foods.
Initiated the roll-out of LAWSON MART,
the next level of store format development
In fiscal 2013, we took steps to promote the next level ofstore development by opening the first LAWSON MART
store in February 2014. Building on the LAWSONSTORE100 format, LAWSON MART looks to further
enhance management functions across a wide range ofareas, including store operations and product development.
By providing a host of functions commonly found at convenience stores, including ATM and public utility bill payment
services, LAWSON MART delivers value that cannot befound at supermarkets. Looking ahead, we will maintain our
focus on store development that emphasizes profitability.
We will continue to follow our established proprietary store
opening standards that are based on return on investment(ROI) while maximizing the strengths of the LAWSON,
NATURAL LAWSON, and LAWSON MART formats.
Placed additional weight on CRM and particularly
on promoting the Ponta Card program
We took steps to apply store-by-store analysis reports
based on the purchasing data of Ponta members, which webegan distributing to franchised stores in March 2013. Whileencouraging stores to share details of their individual initiatives and successes, we used this data and analysis to­provide an assortment of merchandise and features tailoredto each store. Moreover, we initiated measures aimed atapplying Ponta member data to create a layout of merchandise that best fits each store as well as an assortment ofmerchandise that accurately matches the needs of the­visitors to each store. As of the end of February 2014, morethan 60 million Ponta Cards had been issued, with Ponta
Card sales accounting for around 50% of total sales.

Overview of merchandise and services
Looking at merchandise and services, every effort has been
made to strengthen the appeal of our products, including
over-the-counter fast foods and perishables, in a bid to
expand our entire customer base, which encompasses theelderly and females. Representing a unique initiative within
the industry, we have established a department that specializes in the procurement of high-quality raw materials as
a part of efforts to ensure high-value-added product development. In addition to setting ourselves apart from competitors by delivering a product lineup focused on customers’
health, we have also continued to promote synergy with ourentertainment business in such areas as ticket sales while
taking a more direct approach toward loyal customers
based on an analysis of Ponta Card purchasing data.
• In our mainstay rice category, our lineup of high-valueadded Furusato-no-umai! (Delicious local specialties) lunchboxes and rice balls, which use ingredients specific to­different regions across Japan, was tremendously popular.
• We strengthened our evening and nighttime assortmentof merchandise throughout the year by expanding our lineup of ready-made meals, including main dishes suchas lunch boxes, rice balls, and sandwiches, as well as

Lawson, Inc. Integrated Report 201455

over-the-counter fast foods, in order to enhance customer
satisfaction.
• In the dessert category, we launched pancakes and­w affle-cone ice cream products under our UCHI café
SWEETS brand, as well as the Frozen Sweets series offrozen cupped desserts served by thawing in a microwave
oven.
• In addition to strengthening our assortment of perishable
foods, centered on pre-cut vegetables, we took steps toupgrade and expand our lineup of products that address
customers’ needs related to home-cooked meals, including seasonings, which are often purchased together withfresh foods. Moreover, we are expanding our affiliatedfarms with the aim of ensuring the stable supply of vegetables and fruits to Group-wide stores and to securea source of raw materials for use in original Lawson­products. As of the end of February 2014, there were15 Lawson Farm locations.

• Lawson HMV Entertainment, Inc., a subsidiary, saw steadyprogress in the volume of concert, event, and leisure activity tickets handled. Lawson maintained its top-class position within the ticketing industry in terms of its revenue
from Group-wide ticketing services.
• In our sales promotion activities, we implemented a pointreward campaign targeting Ponta Card members, focusing on measures with the potential to generate a highreturn on investment. Among a host of measures, we­carried out Point Collection Campaigns where members
could receive such items as mugs in exchange for points
collected by purchasing certain products.
• In the area of services, we handled 196 million third party
bill settlement service transactions for public utilities, up
3.0% year on year. The total amount of these transactions
also climbed 5.3% to 1,979,383 million yen.

Overview of store management
In store operations, we continued to adhere strictly to theThree Essential Practices, which emphasize (1) serving customers courteously; (2) providing a merchandise assortmentthat meets community needs; and (3) keeping our storesand communities clean. At the same time, we worked diligently to expand our lineup of health-conscious productsthat are safe, reliable, and delicious. Notably, with the growing number of stores offering MACHI café, employees are
becoming increasingly well-versed at offering products andservices in a caring manner through better communication
with customers. During the fiscal year under review, we
endeavored to further improve the quality of stores by clarifying customer service goals and fostering staff who cantake a leading role in raising the level of customer service.

By using store-by-store analysis reports based on Ponta
Card members’ purchasing data, which we began distributing to franchised stores in March 2013, we encouraged our
network of stores to share details of individual initiatives aswell as examples of success in a bid to ensure an assortment of merchandise and features that match each store.
Furthermore, we also continued to streamline our orderplacement procedures and to reduce opportunity loss.
Looking ahead, we will further push forward efforts aimed atachieving an assortment of merchandise that best suits thecustomers visiting each store by leveraging Ponta Card
member data and arranging shelves to match the locational
characteristics of each store.

Store development and overview by store format
Store development by the GroupIn opening new stores, the Group prioritized profitability
based on its proprietary ROI-focused store development
standard. As a result, the total number of stores in Japan
operated by the Group reached 11,337 as of the end of the
fiscal year under review.
In order to avoid like-kind competition with other convenience stores, we are taking steps to promote multiple­formats, including LAWSON, NATURAL LAWSON, and
LAWSON STORE100, while at the same time advancing the
fresh food-type LAWSON format, which we believe is capable of enduring the challenges posed by residential areas. In
this manner, we are adopting a flexible approach toward
opening new stores in a bid to address the unique demographic conditions of each given neighborhood and customer attributes. In February 2014, we launched our first
LAWSON MART store, a next-generation convenience store
that combines the benefits of a convenience store with the56

Lawson, Inc. Integrated Report 2014

assortment of merchandise provided by a supermarket. Ourability to open stores in areas where conventional convenience stores are considered inappropriate stems from ourvariety of formats. Making the most of this inherent strength,
we will provide a format strategy that takes into consideration the needs of customers and each particular neighborhood. A brief description of our efforts by format ispresented as follows.
Fresh food-type convenience stores
Fresh food-type LAWSON
Aiming to reorient conventional convenience stores more
toward the needs of customers and in an effort to promote
their evolution into a neighborhood store, we are rolling out
fresh food-type LAWSON, a remodeled format that places
additional emphasis on perishable and daily delivered foods.
Moving forward, we are looking to tailor these stores to theneeds of female and elderly customers in a bid to expand

our customer base. Accordingly, we have made the decision
to open fresh food-type LAWSON stores predominantly inresidential areas.
As of the end of February 2014, the number of fresh foodtype LAWSON stores was 6,515, an increase of 1,228
stores compared with the end of the previous fiscal year.
LAWSON STORE100 and LAWSON MARTTo meet the needs of housewives and senior citizens, whohave not been catered to by conventional convenience
stores, we are rolling out LAWSON STORE100 and
LAWSON MART stores in addition to the aforementioned
fresh food-type LAWSON stores. The LAWSON STORE100
format is a fresh food-type convenience store that was firstlaunched in 2005. In addition to a lineup of fresh foods,
stores under this format offer smaller-volume packages of
perishable and other foods predominantly at the uniform
price of 100 yen before tax. LAWSON MART stores build on
the LAWSON STORE100 format, but, in addition to sales
areas that are between 1.5 and two times the size of
LAWSON STORE100 stores, LAWSON MART stores offer
an assortment of merchandise with a broader range of prices. By providing additional ATM, third party bill settlement,
and other service functions, LAWSON MART stores alsodeliver value that cannot be found at conventional supermarkets. As of the end of February 2014, the combined
number of LAWSON MART and LAWSON STORE100
stores stood at 1,202.
Convenience stores with reinforced health care features
Launched in 2001, the NATURAL LAWSON health-oriented
convenience store format offers support for lifestyles thatembrace beauty, health, and comfort to working women andhealth-conscious customers. Currently, we are placing greater
emphasis on health care functions and reorienting the­format to better meet the needs of health-conscious customers. In addition, we are actively developing products for
women as well as health-oriented products for sale throughthe Group’s other store formats and the e-commerce­business. As of the end of February 2014, the number of
NATURAL LAWSON stores stood at 105.
Initiatives aimed at reinforcing the health care business
The deregulation of drug sales has continued since the revision of the Pharmaceutical Affairs Law in June 2009.

Against this backdrop, we anticipate that opportunities forthe sale of pharmaceutical products through convenience
stores will expand even further.
In order to handle ethical pharmaceuticals, we opened
Pharmacy LAWSON in 2003. This particular format is ahybrid that combines the function of a dispensing pharmacy
with NATURAL LAWSON stores. Thereafter, we created acapital alliance by acquiring 5% of the total outstanding
shares of Qol Co., Ltd., a company that operates a pharmacy chain, in 2012. As of the end of February 2014, the number of Pharmacy LAWSON stores stood at 36.
As for over-the-counter (OTC) drugs, our number of registered pharmacists (sellers) increased to 120 and our numberof stores selling OTC drugs reached 87 as of the end of the
fiscal year under review.
The introduction of a new FC contract package
Beginning in March 2012, we revisited the Group’s system
of FC contracts, which was first put into practice inDecember 1998, and introduced a new FC-Cn contract system. In addition to reviewing the charge rate scheme, we
also agreed to bear part of the disposal loss and utility bills
that had been borne by FC owners. The decision to makethese changes was aimed at motivating owners to more
actively engage in efforts that would help expand the customer base by selling more perishable foods and over-thecounter fast foods, thereby accelerating an improvement in
top line revenues. Major changes from conventional FC-C
and FC-G contracts include: (1) the payment of a portion of
expenses related to waste disposal by headquarters withthe aim of thoroughly reducing opportunity loss and the provision of assistance with order placing to FC stores; (2) the
payment of 50% of utility costs by headquarters, which had
previously been borne entirely by FC owners (this was largely attributable to the introduction of new fixtures for the saleof perishable foods, over-the-counter fast foods, and prepared food, as well as the projected increase in utility costs);and (3) changes in charge rates, presented on the next
page, reflecting the enhanced role played by headquartersin promoting and strengthening sales. In the fiscal year
ended February 28, 2014, this revised system was mainly
applied to new contracts. In the fiscal year ending February
28, 2015, the revised system will be extended in earnest to
include the rollover of existing contracts.

Number of stores in Japan (Group total)

(Number of stores)

2014/2

Number of stores1

2013/2

2

2012/2

2

2011/2

2

2010/2 2

11,606

11,13010,457

9,994

9,761

Openings

869

938 3

766

550

607

Closings

393

265

303

317

373

Net increase

476

673

463

233

234

Notes: 1. T he total number of stores in Japan is the total of stores operated under Lawson, Inc., Lawson Mart, Inc., Lawson Okinawa, Inc., Lawson
Minami-Kyushu, Inc. and Lawson Kumamoto, Inc.
2. The stores managed by Lawson Okinawa, Inc. are included; these are 154 stores in FY2012, 147 stores in FY2011, 141 stores in FY2010, 136 storesin FY2009.
3. New store openings in FY2012 include the stores of CVS Bay Area Inc. that were converted into Lawson brand stores.

Lawson, Inc. Integrated Report 201457

Number of stores by FC contract type (Group total, Stores in Japan)
2013/2

2014/2

2012/2(Number of stores)(New contracts)

2010/2Contract type2011/2Cn

Contract term

B4

10 years from store opening day

StoresShare

StoresShare

StoresShare

StoresShare

Stores

Share

B

1,207

10.4%

1,292

11.6%

1,176

11.2%

1,216

12.2%

1,258

12.9%

Land and buildings

Provided by Lawson

Prepared by franchisee

G

2,081

17.9%

2,236

20.1%

2,223

21.3%

2,057

20.6%

2,001

20.5%

C

6,630

57.1%

6,008

54.0%

5,455

52.2%

5,284

52.9%

5,074

52.0%

Investment in store construction
and interior decoration expenses

Borne by Lawson

Borne by franchisee

NATURAL LAWSON

73

0.6%

69

0.6%

41

0.4%

35

0.4%

27

0.3%

Signage and business fixtures

LAWSON STORE100

1,202

10.4%

495

4.4%

356

3.4%

268

2.7%

167

1.7%

—

—

—

—

61

0.6%

—

—

—

—

11,193

96.4%

10,100

90.7%

9,312

89.1%

8,860

88.7%

8,527

87.4%

StoresShare

Franchise stores

Requirements for FC owners)1

Lawson Toyama 2
SubtotalCompany-operated stores

StoresShare

StoresShare

StoresShare

StoresShare

LAWSON

112

1.0%

106

1.0%

111

1.0%

129

1.3%

207

2.1%

NATURAL LAWSON

32

0.3%

41

0.4%

59

0.6%

55

0.6%

62

0.6%

LAWSON STORE100

—

—

729

6.5%

816

7.8%

809

8.1%

829

8.5%

Lawson Toyama 2

—

—

—

—

12

0.1%

—

—

—

—

Subtotal

144

1.3%

876

7.9%

998

9.5%

993

9.9%

1,098

11.2%

)1

Lawson Okinawa

163

1.4%

154

1.4%

147

1.4%

141

1.4%

136

1.4%

Lawson

82

0.7%

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

10,457 100.0%

9,994

100.0%

9,761

100.0%

Lawson
Total

24

0.2%

11,606100.0%

11,130 100.0%

Types of Lawson’s contracts(Previous contracts)
C

G

Contract termB

10 years from store opening day

Requirements for FC owners
Land and buildings

Provided by Lawson

Prepared by franchisee

Investment in store construction
and interior decoration expenses

Borne by Lawson

Borne by franchisee

Payment by franchisee Franchise fee
Investment
at time of contract 1
Guarantee deposit provided
by franchisee
Head Office income

2¥1.5 million (Contract fee, training expenses, and store opening preparation commission,
each ¥500,000) (excluding tax)
¥1.5 million (Including payment for some merchandise purchased on behalf of the store)
Not required

Average monthly sales
x 2 months

Not required

Gross profit x 50%

Gross profit x 45%

Gross profit x 34%

Minimum guarantee (annual)(thousands of yen)Franchisee
2Partial guarantee for expenses
associated with product disposal
lossesHead Office income 2

Headquarters’ percentage of gross profit• Less than ¥3.0 million:
45%• From ¥3.0 million to under ¥4.5 million: 70%• Greater than ¥4.5 million:
60%

Burden of utility expenses

50% 3 of electricity expenses and store air conditioning energy
expenses are borne by Lawson

Minimum guarantee (annual) 2(thousands of yen)

21,000—Gross profit x 34%

Franchisee

18,60022,200LAWSON STORE100 contracts
Contract type

Contract stores
Contract term

Provided by Lawson

Burden of utility expenses¥1.5 million (Including payment for some merchandise purchased on behalf of the store)
Headquarters will bear the following percentage of clearance anddisposal costs according to their proportion of merchandise sales• Greater than 2.0%, but less than 3.0%: 20%• Greater than 3.0%, but less than 4.0%: 30%• Greater than 4.0%:
55%

Land and buildings

At least 20 years old, 2 full-time store workers

Signage and business fixtures

Provided by Lawson¥1.5 million (Contract fee, training expenses, and store opening preparation commission,
each ¥500,000) (excluding tax)

Notes: 1. T he amount is paid by the franchisee to the Head Office at the time of the franchising contract. In addition, the franchisee needs to separately provide
a total of ¥500,000, including the cash register float, at the time of store opening.
2. The Head Office income and minimum guarantee apply to stores operating on a 24-hour basis.
3. The ceiling on the monthly amount borne by headquarters is ¥250,000.

Notes: 1. Change due to the absorption-type merger of Ninety-nine Plus with Lawson
2. Lawson Toyama, Inc. was merged into Lawson, Inc. in FY2012.

Contract type

Payment by franchisee Franchise fee
at time of contract 1
Investment

At least 20 years old, 2 full-time store workers

22,200

Necessary
expenditure

Other expenses
Investment

22,200

Payment by franchisee
at time of contract 4Store construction
and interior decoration
Business fixtures

Minimum guarantee 5

VL-J

VL-B

Provided by Ninety-nine Plus

Use land and buildings
owned by franchiseeStores already being operated by Ninety-nine Plusas LAWSON STORE100

Land and buildings owned
by franchisee

10 years from the opening day

10 years from the opening day¥2.55 million (consumption tax included)
Breakdown Franchise fee ¥1.05 million (consumption tax included)
Contract fee ¥262,500
Training expenses ¥262,500
Store opening preparation commission ¥525,000
Investment ¥1.5 million (including payment for some merchandise purchased on behalf of the store)
Store opening expenses: Approx. ¥500,000 (i.e., change, licensing fee for operation)
Borne by Ninety-nine Plus

Borne by franchisee

Borne by Ninety-nine Plus
¥20.4 million per year

¥22.2 million per year

Head Office income 2

Headquarters’ percentage of gross profit (monthly)¥1–¥3,000,000: Gross profit x 27%¥3,000,001–¥3,500,000 : Gross profit x 68%¥3,500,001–¥4,500,000 : Gross profit x 62%
Over ¥4,500,001: Gross profit x 48%

Support to franchise stores(The headquarters bearing part offranchise store operating expenses)

The headquarters pay for the amount equivalent to the cost ofclearance goods and disposed goods multiplied by the prescribed
headquarters’ burden rate determined by applying the percentagesof the sales price of those goods against the total monthly sales
shown below.
• Above 1.5% up to 2.0%: 30%• Above 2.0%:60%
The headquarters pays a maximum of 100,000 yen a month.

Gross profit x 27%—

Notes: 4. T he amount is paid by the franchisee to the Head Office at the time of the franchising contract. In addition, the franchisee needs to separately provide a
total of ¥500,000, including the cash register float, at the time of store opening.
5. T he Head Office income and minimum guarantee apply to stores operating on a 24-hour basis.

58

Lawson, Inc. Integrated Report 2014

Lawson, Inc. Integrated Report 201459

Overview of performance figures

Sales by product category (Consolidated, total net sales)

Sales figures
Net sales of all stores (consolidated basis)
In the fiscal year ended February 28, 2014, consolidated net
sales of all Lawson stores amounted to 1,945,394 million
yen, 42,606 million yen below the plan* of 1,988,000 million
yen. The main reasons for not achieving the planned level ofsales included a drop in sales of cigarettes and the downturn in sales attributable to poor weather conditions during
the first half of the fiscal year. On a non-consolidated basis,
net sales totaled 1,758,656 million yen, an increase of 3.9%
compared with the previous fiscal year.

Sales of existing stores (consolidated basis)
Sales of existing stores on a consolidated basis for the fiscal
year under review declined 0.6% compared with the previous fiscal year. On a non-consolidated basis, net sales ofexisting stores (excluding the LAWSON MART format) were
0.2 of a percentage point below those of previous fiscal year
and the plan.

Fast foods
Share
Daily delivered foods
Share
Processed foods
Share  Cigarettes  ShareTotal food sales
Share
Non-food products*The figure for planned net sales is the revised figure announced in October
2013.

Share
Net sales of all stores
Share

YoY changes in existing store sales, number of customers, and spending per customer (Consolidated)(Millions of yen, %)2014/2

2013/2

2012/2

2011/2

2010/2

408,672

373,385

345,424

321,866

324,198

21.1%

19.6%

18.9%

19.1%

19.5%

275,437

272,312263,180

264,169

239,088

14.2%

14.3%

14.4%

15.7%

14.3%

1,060,455

1,064,133

1,022,619

897,427

902,306

54.7%

55.8%

56.0%

53.3%

54.2%

459,100

496,971

470,666

382,167

358,600

23.7%

26.1%

25.8%

22.7%

21.5%

1,744,564

1,709,830

1,631,223

1,483,462

1,465,592

90.1%

89.7%

89.3%

88.2%

88.0%

192,726

196,716

194,587

199,350

200,544

9.9%

10.3%

10.7%

11.9%

12.0%

1,937,292

1,906,547

1,825,810

1,682,812

1,666,137

100.0%

100.0%

100.0%

100.0%

100.0%(%)
110

Sales by product category (Consolidated, total net sales)
105

100.5

100.2

100

99.0

97.5

95
90
0

1Q

2Q

3Q

4Q

1Q

2009/2

2Q

3Q

4Q

1Q

2Q

2010/2

YoY changes in existing store sales

3Q

4Q

1Q

2011/2

Number of customers

2Q

3Q

4Q

1Q

2012/2

2Q

3Q

4Q

1Q

2013/2

2Q

3Q

4Q

2014/2

Spending per customer

Growth rate of existing store sales, average number of customers, and average spending per customer at existing stores(Non-consolidated)
2014/2

2013/2

2012/2

2011/2

2010/299.8%

100.0%

105.4%

100.8%

95.9%

Number of customers

99.0%

99.4%

101.0%

100.4%

99.0%

Average spending per customer

100.8%

100.6%

104.3%

100.4%

96.9%

Growth rate of existing store sales
Growth rate of average number of customers and average spending
per customer at existing stores

Net sales by product category(all stores, consolidated basis)
Looking at consolidated results by product category, salesof fast foods increased substantially, climbing 9.6% year on
year. Sales of daily delivered foods also contributed to theGroup’s overall performance, improving 1.3% comparedwith the previous fiscal year.
In the fast food category, new over-the-counter items
were particularly popular. Such items included the freshly
ground and brewed MACHI café coffee brand, which we
continued to aggressively expand across our network of
stores, as well as a host of original prepared foods, including
Genkotsumenchi and Ohgon-Chicken. At the same time,sales in the fast food category were led by delicatessen
items including prepared foods and salads together withsuch desserts as UCHI café SWEETS.

60

Lawson, Inc. Integrated Report 2014

Results in the daily delivered food category were bolstered by substantial contributions from perishable foodsales. This largely reflected the increase in fresh food-type
LAWSON outlets as well as successful efforts to upgradeand expand the Group’s assortment of pre-cut vegetables
that employ produce harvested using the Nakashima
Farming Method.
Turning to the Group’s processed food category activities,
overall sales increased. Despite a drop in cigarette sales,
this was mainly attributable to initiatives aimed at bolstering
our lineup of processed foods, which led to higher sales ofseasoning as well as bottled and canned foods purchased
together with perishable foods.
As far as the non-food category is concerned, sales ofbooks and magazines continued to decline as a result of theslump across the industry as a whole.

(Millions of yen)

Category

Products included

Fast foods

Rice dishes, noodles, sandwiches, delicatessen items, over-the-counter fast foods, etc.

Daily delivered foods

Bakery items, desserts, ice cream, perishable foods, etc.

Processed foods

Soft drinks, alcoholic beverages, cigarettes, processed foods, confectionery, etc.

Non-food products

Daily necessities, books, magazines, etc.

Gross profit margin by product category(non-consolidated basis) 1
The gross profit margin was 31.0%, up 0.5 of a percentage
point compared with the previous fiscal year. Excluding cigarettes, the gross profit margin improved 0.4 of a percentage
point year on year. This was mainly thanks to improvementsin the gross profit margins of such categories as fast foods
and processed foods as well as the increased proportion of
fast foods with typically high profit margins as a percentage
of total product category sales. Taking each of these factors
into consideration, the gross profit of existing stores, which is
directly linked to the profit of franchised stores, climbed 1.5
percentage points compared with the previous fiscal year.
In the fast food category, the gross profit margin improved
0.5 of a percentage point year on year. This result reflected
contributions most notably from improvements in over-thecounter fast foods and, in particular, new products, whichwere extremely well received, as well as the increase in thenumber of stores offering MACHI café.
Gross profit margins in the daily delivered foods category
declined 0.3 of a percentage point compared with the previous fiscal year, owing mainly to the introduction of low grossprofit margin perishable foods that were used to attract
more customers to stores.
The processed food category saw a slight year-on-year
upswing of 0.1 of a percentage point in its gross profit­margin. This was mainly due to the downturn in the share ofcigarette sales to total category sales.
In the non-food category, the gross profit margin grew
substantially, rising 2.1 percentage points year on year. In
addition to contributions from ticket and gift card sales, thislargely reflected growth in the commission business, including third party bill settlement services.

Gross profit margin by product segment (Non-consolidated)
Fast foods

2014/2

2013/2

2012/2

2011/2

2010/2

38.9%

38.4%

38.2%

37.8%

37.3%

Daily delivered foods

34.1%

34.4%

34.5%

34.6%

34.3%

Processed foods 1

24.0%

23.9%

23.8%

24.5%

24.6%

Non-food products 2

47.7%

45.6%

43.4%

42.2%

40.8%

Gross profit margin

31.0%

30.5%

30.1%

30.6%

30.4%

Notes: 1. T he processed foods category includes cigarettes.
2. The calculation of the gross profit margin for non-food products includes bill settlement and other commission income.

Lawson, Inc. Integrated Report 2014

61

Bill settlement services (Non-consolidated)
Bill settlements (millions of yen)

2014/2

2013/2

2012/2

2011/2

2010/2

1,979,383

1,879,679

1,725,788

1,639,203

1,553,832

Number of transactions (millions)

196.1

190.4

177.7

169.8

162.2

Commission revenues (millions of yen)

10,584

10,191

9,487

9,027

8,651

Statement of income by line item (consolidated basis)
Gross operating revenues
Gross operating revenues, which are made up of sales from
Company-operated stores, franchise commissions from FC
stores, and others, came to 485,248 million yen. This result
was 15,753 million yen below plans and 2,198 million yen,or 0.5%, lower than the previous fiscal year. The primaryreason for this decline was the drop in net sales from
Company-operated stores, owing mainly to the continued
transition of Ninety-nine Plus, Inc. company-operated stores
to FC stores.
In specific terms, Company-operated store sales were133,976 million yen, while commissions from FC storescame to 242,079 million yen, and others amounted to109,193 million yen.
Selling, general and administrative expenses
Selling, general and administrative (SG&A) expenses
climbed 14,169 million yen, or 5.1%, compared with theprevious fiscal year to 290,483 million yen on a consolidated

basis. This was approximately 1,400 million yen lower thanplans. While the Company took steps to thoroughly scrutinize advertising and promotional expense from an ROI­perspective, expenditure in this area grew 1,127 million yen,or 6.8%, year on year due mainly to aggressive sales­p romotion initiatives and efforts to support FC owners.
Personnel expenses declined 1,023 million yen, or 1.7%,
compared with the previous fiscal year. This was primarily
attributable to successful cost reduction endeavors andefforts to enhance personnel efficiency. The significant
increase in mainly Cn-type FC stores pushed up rents by
4,906 million yen, or 5.8%, year on year.
Non-consolidated IT-related expenses (the total of equipment lease fees, depreciation of property and store equipment, and a portion of other items) decreased 300 million
yen compared with the previous fiscal year to 14,700 million
yen on the back of efforts to reduce costs, including areview of system maintenance fees.

Breakdown of main SG&A expenses
Personnel expenses
Share
Advertising and promotional expenses
Share
Rents
Share
Equipment leasing charges
Share
Depreciation and amortization

2014/2

2013/2

2012/2

2011/2

2010/258,99060,01360,88758,02060,834

20.3%

21.7%

23.3%

23.9%

25.0%

17,734

16,607

14,146

10,977

12,166

6.1%

6.0%

5.4%

4.5%

5.0%

89,48584,57878,48373,231

70,571

30.8%

30.6%

30.1%

30.2%

29.0%

4,494

5,914

8,205

10,23013,444

1.5%

2.1%

3.1%

4.2%

5.5%

47,88943,886

37,84633,084

27,468

16.5%

15.9%

14.5%

13.6%

11.3%

Depreciation expenses*

37,872

34,03028,99924,52921,053

13.0%

12.3%

11.1%

10.1%

8.7%

10,017

9,856

8,847

8,555

6,414

Amortization expenses  Share

3.5%

3.6%

3.4%

3.5%

2.6%

Other

71,89265,31561,37557,09358,711

Share
Total
Share

24.8%

23.7%

23.5%

23.5%

24.1%

290,483

276,314260,942

242,636

243,194

100.0%

100.0%

100.0%

100.0%

100.0%*With the application of new lease accounting standards, effective from the fiscal year ended February 28, 2011, the depreciation of property, facility and­equipment has included the depreciation of lease assets purchased and sold.

62

Lawson, Inc. Integrated Report 2014

Income before income taxes and minority interests
Income before income taxes and minority interests came to59,786 million yen on a consolidated basis, a slight increaseof 197 million yen, or 0.3%, year on year. In the fiscal year
under review, Lawson incurred expenses of 8,392 million
yen under other income and expenses attributable to theimpairment of long-lived assets and loss on disposal ofproperty and store equipment, largely due to losses incurred
as a result of the closure of non-performing stores. These
expenses exceeded levels recorded in the previous fiscal
year by 3,821 million yen, owing mainly to business restructuring at consolidated subsidiary Ninety-nine Plus, Inc. As aresult, net other expenses increased 1,684 million yen year
on year to 8,341 million yen.
Net income
Lawson reported an income tax effect on subsidiary sharesin connection with the absorption-type merger of Ninetynine Plus, Inc. As a result, income taxes declined 5,136 million yen. Accounting for this and other factors, consolidated
net income climbed 4,783 million yen, or 14.4%, comparedwith the previous fiscal year to 37,966 million yen. Net
income per share was 380.04 yen.

Balance sheet by line item (consolidated basis)
Balance sheet
Current assets
As of February 28, 2014, current assets stood at 195,784
million yen, up 15,487 million yen compared with the end of
the previous fiscal year. The principal factors in this upswing
were year-on-year increases in accounts receivable—otherof 8,184 million yen, or 17.8%, to 54,193 million yen, andprepaid expenses and other current assets of 9,152 million
yen, or 77.5%, to 20,957 million yen.

(Millions of yen)

Share  ShareOperating income
Against the backdrop of a harsh operating environment, we
accelerated the pace of MACHI café and Machikado Chuboroll-out in a bid to enhance the competitiveness of individualstores. Despite efforts aimed at sustaining the amount of
inventory and other operating expenditure, operating income
increased 1,881 million yen, or 2.8%, compared with theprevious fiscal year to 68,127 million yen due mainly to theaforementioned substantial improvement in the gross profit
margin. The ratio of operating income to net sales across allstores was 3.5%, unchanged from the previous fiscal year.

Property and store equipment, investments
and other assets
Property and store equipment amounted to 233,437 million
yen, 24,298 million yen, or 11.6%, higher than the previous
fiscal year-end. This was largely attributable to the increasein lease assets reflecting the opening of new stores as well
as aggressive renovations to existing stores, including thecontinued roll-out of MACHI café.
Investments and other assets stood at 191,772 million
yen, up 1,398 million yen, or 0.7%, year on year. This wasprimarily due to the increase in deferred tax assets as aresult of the income tax effect on subsidiary shares.
Current liabilities
As of the end of February 2014, current liabilities stood at
246,707 million yen, 6,913 million yen, or 2.9%, higher thanthe balance as of February 28, 2013. The major movements
comprised year-on-year increases in accounts payable for
franchised stores included in accounts payable—trade of
3,426 million yen, or 4.5%, to 79,444 million yen, accounts
payable—other of 3,238 million yen, or 12.4%, to 29,344
million yen, and lease obligations included in the current
portion of long-term debt of 2,097 million yen, or 14.5%, to16,586 million yen.

Long-term liabilities
Long-term liabilities amounted to 123,788 million yen as ofthe end of February 2014. This was 13,954 million yen, or
12.7%, higher than the balance as of the end of the previous fiscal year. The major component was long-term leaseobligations, which climbed 14,460 million yen, or 30.6%,
year on year.
Total equity
As of February 28, 2014, total equity stood at 250,498 million yen, an increase of 20,316 million yen, or 8.8%, compared with the end of the previous fiscal year. Accounting fornet income of 37,966 million yen and the payment of dividends totaling 20,978 million yen, retained earnings came to138,142 million yen, up 16,988 million yen compared withthe previous fiscal year-end.
Balance sheet by accounting line items of a distinctive
nature
The following are balance sheet accounting line items thatare unique to the Company.
Accounts receivable—due from franchised stores
Lawson purchases all products that are ordered by each FC
store, calculates the payment amount to each supplier andundertakes payment. The headquarters collects this moneyas accounts receivable—due from franchised stores. Thisaccounting line item encompasses the obligation of FC
stores to the headquarters. As of the end of February 2013,
the balance of accounts receivable—due from franchised
stores was 32,186 million yen, up 6,812 million yen compared with the previous fiscal year-end.

Lawson, Inc. Integrated Report 201463

Accounts receivable—otherAccounts receivable from customers are included inaccounts receivable—other. This also includes the accounts
receivable of FC stores (such as credit card sales at FC
stores). Accounts payable are classified into (1) accounts
payable for company-operated stores and (2) accounts­payable—due to franchised stores. In contrast, all accounts
receivable on credit card sales due from credit card companies are posted under accounts receivable—other, as theCompany is a party to the contracts with credit card companies on credit card sales and is entitled to any accounts
receivable.
The balance of accounts receivable—other was 54,193
million yen as of the end of February 2014, up 8,185 million
yen year on year.
Long-term loans receivable
Long-term loans receivable are primarily made up of construction aid loans to owners (of the land or the building of astore) and loans from the headquarters to FC stores.
Previously, capital deposited for owners for the opening ofstores (land and buildings) was recorded as lease deposits.
It is now recorded as long-term loans receivable. As of theend of February 2014, the balance of long-term loans
receivable stood at 33,728 million yen, down 853 million yen
compared with the end of the previous fiscal year.
Lease deposits
Based on rental agreements with stores, Lawson provides
the owners of land and buildings with a deposit that isequivalent to several months’ rent. The balance of leasedeposits stood at 86,150 million yen as the end of February
2014, up 41 million yen year on year.

Accounts payable—due to franchised stores
This accounting line item reflects the obligation of the headquarters to FC stores. Each store remits its daily sales to theheadquarters and there are times when the amount exceeds
the balance of accounts receivable—due from franchised
stores. When this happens, the outstanding obligation isposted under accounts payable—due to franchised stores.
As of February 28, 2014, the balance of accounts payable—
due to franchised stores was 1,405 million yen, 1 million yen
higher than the balance as of the previous fiscal year-end.
Money held as agent
Money held as agent is mainly comprised of amounts
received on behalf of public utility companies and ticket
money for concerts and the like. Buoyed by an increase in
the number of transactions as well as the number of companies to whom we provide services, the transaction
amount continues to grow. As a result, the transaction
amount amounted to 1,979,383 million yen, an increase of
5.3% year on year. As of the end of February 2014, the­balance of money held as agent was 87,586 million yen, up
57 million yen year on year.
Guarantee deposits received from franchised storesand other
This accounting line item is comprised of guarantee deposits that were received by Lawson from G-type contract FCowners. With the introduction of the new Cn-type FC contract package in March 2012, we no longer conclude new
G-type contracts. Owing mainly to repayments to FC stores
upon the execution of new contracts or the expiration ofexisting contracts, the balance of guarantee deposits
received from franchised stores and other as the end of
February 2014 stood at 32,253 million yen, down 2,552 million yen compared with the end of the previous fiscal year.

Capital expenditure
Total capital expenditure (including investments and advances as well as leased asset acquisition costs) amounted to
84,032 million yen on a consolidated basis. This was 6,671
million yen higher than the previous fiscal year.
Turning to new stores, the amount of capital expenditure
declined 903 million yen year on year to 32,230 million yen.
This reflected corrections in investment following investment
undertaken to convert stores owned by CVS Bay Area Inc.
to Lawson brand stores during fiscal 2012. Investments in

64

Lawson, Inc. Integrated Report 2014

existing stores also fell 1,691 million yen compared with theprevious fiscal year to 7,078 million yen. From an IT-related
investment perspective, we cut back expenditure by 546
million yen to 5,362 million yen. In connection with our leasing activities, capital expenditures climbed 7,343 million yen
year on year to 32,107 million yen, owing mainly to the continued roll-out of MACHI café and Machikado Chubo.
A breakdown of the Company’s principal capital expenditure activities is presented as follows.

Breakdown of capital expenditures

(Millions of yen)

2014/2

2013/2

2012/2

2011/2

2010/2

New store investments

32,23033,133

21,596

13,67519,887

Existing store investments

7,078

8,769

10,241

8,934

8,101
9,409

IT-related investments

5,362

5,907

7,744

7,479

Other

2,067

3,238

630

1,003

629

Investments subtotal

46,73651,047

40,21131,091

38,026

Investments and advances

5,189

1,550

12,401

2,544(3,004)

Leases*32,107

24,76521,96016,69136,376

Total

84,03277,361

74,57250,326

71,399*T he amount equivalent to the acquisition cost of lease assets acquired during each fiscal year. The amount of lease obligation repayment was 13,769 million yen
for the fiscal year ended February 28, 2014.

Breakdown of depreciation and amortization

(Millions of yen)

2014/2

2013/2

2012/2

2011/2

2010/2

Depreciation expenses*

37,872

34,03028,99924,52921,053

Amortization expenses

10,017

9,856

8,847

8,555

6,414

Total depreciation and amortization

47,88943,886

37,84633,084

27,468*E ffective from the fiscal year ended February 28, 2011, Lawson adopted the new lease accounting standards. Accordingly, depreciation of property and store
equipment has included depreciation of lease assets purchased and sold.

Cash flow
Net cash provided by operating activities amounted to81,503 million yen for the fiscal year ended February 28,
2014, down 3,686 million yen compared with the previous
fiscal year. This was mainly attributable to the decline of
12,474 million yen in increase in money held as agent andthe 1,624 million yen greater decrease in guarantee deposits
received from franchised stores and other.
Net cash used in investing activities totaled 47,924 million
yen, down 6,272 million yen year on year. The major component was purchases of property and store equipment,
which declined 2,406 million yen.
Looking at net cash provided by operating activities after
deducting net cash used in investing activities, free cash

flow amounted to 33,579 million yen, an increase of 2,586
million yen compared with the previous fiscal year.
Net cash used in financing activities came to 39,650 million yen, up 7,670 million yen year on year. The main cash
outflow was repayments of lease obligations, which fell
3,708 million yen, impacted by the expenditures related
to the opening of new stores and the repayment of leaseobligations.
As a result of all these factors, cash and cash equivalents
at the end of year stood at 68,760 million yen. This was
4,006 million yen lower than the balance as of the previous
fiscal year-end.

Capital policies: dividends as well as share buyback and cancellation
Lawson has positioned the return of profits to shareholders
as one of its most important policies. In managing its­businesses, the Company is therefore always conscious of
the need to maintain the cost of capital at a level thatreflects the expectations of investors toward return on theirinvestments. In order to ensure that we properly select businesses that have the potential to realize a return on investment (ROI) that exceeds capital costs, we employ return on
equity (ROE) as one of our most important management
benchmarks and an indicator of capital efficiency. We work
to secure retained earnings as a platform for medium-tolong term sustainable corporate growth and to ensure ourfinancial health. We scrutinize and screen those investment

plans that are likely to generate high profitability. We look toincrease net cash provided by operating activities in a sustainable manner and create free cash flow. We also pay dividends and undertake the buyback and cancellation of ourown shares based on a capital structure that we deem
appropriate. By endeavoring to promote capital efficiency
that exceeds the cost of capital, we target an ROE of 20%
in the medium term.
We do not have any specific target dividend payout ratio.
We will first undertake sufficient investment to allow us tosecure sustainable future growth and then look to generate
sizable free cash flows so that we can continuously increase
dividends. Our basic policy directs us to make the best use

Lawson, Inc. Integrated Report 201465

Cash dividends per share and payout ratio
(Yen)
250

(%)
250

220
200

200

160

160

170

Ninety-nine Plus, Inc.
150

100

90

0

2002/2

23.3
2003/2

126.3

100

2004/2

Cash dividends per share (Left scale)

66.8

66.6

41
49.8

28.2

Total operating revenues

70

41
41

100

110

35.3

41.8

2005/2

2006/2

49.6

51.2

2007/2

2008/2

2009/2

2010/2

2011/2

72.2

2012/260.2

2013/2

57.9

2014/250

0

we purchased approximately 21 billion yen’s worth, oraround 5.3 million shares, of treasury stock. In February
2008, we then cancelled a total of five million of our own
shares. Looking ahead, we will continue to consider the
possible purchase and cancellation of our own shares as away to improve ROE.

Overview of major consolidated subsidiaries and equity-method affiliates
Consolidated operating results of the Lawson Group for the
fiscal year ended February 28, 2014 include the performance of 12 consolidated subsidiaries and two equitymethod affiliated companies, for a total of 14 subsidiaries
and affiliated companies. The Company’s subsidiaries andaffiliated companies are categorized into three broad business categories: the ­convenience store business, the entertainment- and home ­convenience-related business, andoverseas businesses. Major changes in the scope of consolidation during the fiscal year under review comprised theinclusion of Lawson Mart, Inc., a newly established company. Moreover, Ninety-nine Plus, Inc. was excluded from thescope of consolidation effective February 1, 2014, due to its
liquidation following the company’s absorption and merger
with Lawson, Inc. (the surviving company).
Details of the business activities and performance ofmajor companies that fell within the scope of consolidation
are presented as follows.
Ninety-nine Plus, Inc. (consolidated subsidiary)
Ninety-nine Plus operated fresh food convenience stores
under the “LAWSON STORE100” brand. Established in
October 2000, Ninety-nine Plus adopted a business modelentailing the sale of a wide range of products that consumers buy on a day-to-day basis, including perishable foods
and sundry items, at a single price. As a pioneer of the fresh
food convenience store format, the company’s activities
enjoyed rapid growth and attracted the patronage of housewives and elderly customers. In 2007, Lawson decided toLawson, Inc. Integrated Report 2014

(Millions of yen)

2014/2

2013/2

2012/2

2011/2

2010/2*100,226

131,869

141,801

142,228

135,410

Operating income

1,704

2,086

1,883

1,772

1,793

Net income (loss)

2,696

557

(747)

(840)

1,673

Number of stores

1,202

1,224

1,172

1,077

996

Note:Fiscal 2009 was an 11-month transitional fiscal year due to a change in the fiscal year closing to the end of February.
Lawson’s consolidated operating profit for fiscal 2009 included 14 months of operating profit for Ninety-nine Plus, amounting to ¥2,160 million, the sum of
the fourth quarter for fiscal 2008 and 11 months for fiscal 2009.

Payout ratio (Right scale)of retained earnings, to refrain from retaining unnecessary
surplus, and improve capital efficiency. We plan to pay a dividend of 240 yen per share, up 20 yen per share, for the­fiscal year ending February 28, 2015.
We acquired and cancelled approximately 43 billion yen of
our own shares during the four-year period from fiscal 2001
to fiscal 2004. Between October 2007 and January 2008,

66

including store asset management and franchise promotion,
thus enabling it to further advance efficient area-targeted
strategies that are tailored more closely to the needs of local
customers.

200

180

150

50

of Ninety-nine Plus’ store-related assets, including its franchise agreements with LAWSON STORE100 fresh foodconvenience stores. Through this initiative, the Group has
centralized all Lawson chain store administrative functions,enter into a capital and business alliance with Ninety-nine
Plus. Ninety-nine Plus then took steps to increase its capitalthrough a third-party allotment of its shares. Later, inJanuary 2008, Ninety-nine Plus again undertook a third-­
party allotment of its shares to the Company as a part ofefforts to strengthen the business alliance and procure thenecessary funds to open new stores. As a result, Lawson
became the company’s largest shareholder, with an equity
interest of 34.2%. In September of the same year, we took
steps to secure a majority share of Ninety-nine Plus, lifting
our equity interest to 76.8%.
Moving forward, we worked diligently through a subsidiarycompany to develop the LAWSON STORE100 format. At
the same time, Value Lawson, Inc., a subsidiary engaged in
the operation of fresh food convenience stores, decided towork with Ninety-nine Plus to secure a dominant share of
the fresh food convenience store market. Building on thiscollaboration, the two companies merged on May 1, 2009,
with Ninety-nine Plus remaining as the surviving company.
Ninety-nine Plus was listed on the Osaka Securities
Exchange JASDAQ market, but its shares were delisted inJune 2010. Ninety-nine Plus then became a wholly owned
subsidiary of Lawson through an exchange of shares in July
2010. Consequently, Lawson’s cumulative contribution to
the company totals around 16.7 billion yen since fiscal 2007.
While Ninety-nine Plus was included in the Company’s
scope of consolidation until January 31, 2014, the company
was dissolved after an absorption-type merger with Lawson
on February 1, 2014. As a result, the Company acquired all

Lawson Mart, Inc. (consolidated subsidiary)
Lawson Mart, Inc. was established on November 14, 2013,
taking over the operational functions of Ninety-nine Plus afterthat company was dissolved in line with its absorption andmerger with the Company. Lawson Mart is responsible forthe product development and store management functionsof the LAWSON STORE100 and LAWSON MART formats.
SCI (consolidated subsidiary)
Aspiring to become a small commercial area manufacturingretailer, we established SCI, a subsidiary that specializes insupply chain management (SCM) innovation and enhancement, in July 2012 in order to improve the efficiency of manufacturing and distribution throughout the supply chain. We
aim to develop a coherent manufacturing retail model thateliminates waste as well as redundant work at all stages ofthe supply chain, from the procurement of raw materials
through manufacturing, distribution and store operations.
We will harness the additional value created through SCM
structural reform and this comprehensive upstream–todownstream manufacturing retail business model to improvethe competitiveness of products and provide sales promotion support to FC owners. By making the most of thisexpertise and know-how over the medium term, we will
expand sales of raw materials and products to customers
outside the Group.

Lawson Okinawa, Inc. (equity-method affiliate)
In January 2009, we signed a business alliance agreementwith San-A, Inc., the largest retailer in Okinawa, to conductbusiness within the prefecture. By building on the experience that San-A has nurtured over many years and theoverwhelming support that it receives from local customers,
it was our belief that this alliance would help us to adapt ourservices and operations to the distinctive lifestyles and foodpreferences of the people in Okinawa. With the aim of creating products and stores that fit local customers’ needs andwants, we established Lawson Okinawa, Inc. as a wholly
owned subsidiary in October 2009.
Later, in December 2009, we transferred 51% of the outstanding stock of Lawson Okinawa to San-A with a view to
conducting business on a joint-venture basis.
As of February 28, 2014, the number of stores stood at163. Turning to performance, operating income in the fiscal
year ended February 28, 2014 was 1,051 million yen, up
13.9% year on year.
Through Lawson Okinawa, we will continue to fine-tune
our stores to match local needs, thereby working to further
develop the Lawson chain in Okinawa Prefecture.

Lawson Okinawa, Inc.

(Millions of yen)

2014/2

2013/2

2012/2

2011/2

2010/2

Total operating revenues

4,199

3,954

3,659

3,347

733

Operating income

1,051

924

780

601

109

Net income

792

799

1,049

612

101

Number of stores

163

154

147

141

136

Lawson, Inc. Integrated Report 201467

Lawson HMV Entertainment, Inc.
(consolidated subsidiary)
Established in 1992 as RIZA JAPAN, the company’s principal activity was the sale of tickets. RIZA JAPAN changed its
name to Lawson Ticket in 1996, and was included in
Lawson’s scope of consolidation as a subsidiary company in
1997.
In the fiscal year ended February 28, 2014, the company
posted solid performance led by an increase in ticket sales
for concerts, events, and leisure activities. Based on revenues from the entire Group’s ticketing services, Lawson
continues to hold a top-class position in the ticketing industry. Tickets for concerts, sporting events as well as theaters
and cinemas are sold primarily at Loppi multimedia terminals
or LAWSON Net Shopping Loppi, an online comprehensive
entertainment mall. The company is particularly strong in thearea of J-pop 1 and sporting event tickets sales.
To make the most of the customer interface that Lawson
Ticket provides as well as the expertise and e-commercebusiness mechanism developed by i-convenience, formerlya Lawson wholly owned subsidiary, these two companies
merged in March 2009, with Lawson Ticket as the surviving
company. In July 2009, the company changed its name to
Lawson Entermedia. It was listed on the Osaka Securities
Exchange JASDAQ Market but was delisted in June 2010.
The company then became a wholly owned subsidiary in
July 2010 through an exchange of shares.
In September 2011, Lawson Entermedia and our subsidiary HMV Japan 2 merged to form a new company, Lawson
HMV Entertainment. The goal of the merger was to realize

synergies in the entertainment e-commerce business going
forward. Leveraging our solid base in the e-commerce business, we can now offer enhanced convenience through a
one-stop shopping experience. Customers, who used tobuy concert tickets and CDs for a particular artist separately,
can now make purchases simultaneously. Combining thecompetitive edge of the HMV brand in the CD music industry and Lawson Ticket’s status within the ticket industry, we
anticipate significant additional synergies.
Looking at the company’s revenue structure, the major
source of income is commissions from ticket sales. Gross
operating revenue, mainly comprising commissions, is posted as “operating revenues: other” in the consolidated statement of income.
Results in the fiscal year ended February 28, 2014 werestrong thanks to robust ticket sales mainly for large-scaleconcerts. Operating income for the period under review was
2,818 million yen, an increase of 15.3% compared with theprevious fiscal year.
Notes: 1. A popular music genre in the Japanese language that mainly
attracts the younger generation.
2. HMV Japan (which was a consolidated subsidiary until the end of
August 2011) sells CDs and DVDs under the HMV brand. The­company was established and opened its first store in Shibuya,
Tokyo, in 1990. The company launched HMV Online and commenced its current e-commerce business in 1999. In 2007, Limited
Company HMV Japan Holdings, a wholly owned subsidiary of
Daiwa Securities SMBC Principal Investments including indirectownership, acquired all of the company’s shares. We acquired allof the shares from HMV Japan Holdings in December 2010 in abid to reinforce our entertainment business by realizing increased
synergies with Lawson Entermedia.

Lawson ATM Networks, Inc.
2014/2

2013/2

2012/2

2011/2

2010/2

Total operating revenues

24,18823,97523,063

20,826

18,570Operating income

6,089

4,753

3,640

3,159

2,444

Net income

3,689

2,712

1,993

1,788

1,412

Number of ATM machines installed (Units)

10,118

9,672

9,002

8,526

6,978

Shanghai Hualian Lawson, Inc.
(consolidated subsidiary)
We were the first Japanese convenience store company togain a foothold in China, our first store opening in 1996. We
established Shanghai Hualian Lawson in Shanghai, with theCompany taking a 70.0% equity stake and Hualian Group, aShanghai city government-related company, the remaining
30.0%. With the aim of acquiring land and buildings in good
locations and motivating local employees, we transferred
21.0% of our 70.0% interest to Hualian Group, reducing ourownership to 49.0%. Due to changes in China’s (Shanghai’s)
economic environment, we recognized the need to reinforce
the Japanese-style convenience store concept. Accordingly,
we began to again acquire incremental shares in September
2011 to regain management control of the company. After
we brought our interest in Shanghai Hualian Lawson to
85.0%, the company was included in our scope of consolidation as a subsidiary. Meanwhile, through a restructuring of
the retail industry in China driven by the national govern-ment, Hualian Group was merged into Bailian Group. In thecourse of this restructuring, 100% of the shares of HualianGroup were transferred to Bailian Group in December 2008.
To strengthen and expand our business in China, we concluded an agreement with Bailian Group, which was looking
to restructure its retail division. The agreement called for us
to accelerate the pace of business development and toactively push forward the Japanese-style convenience store
concept that places considerable emphasis on productdevelopment, customer interaction, and cleanliness.
Looking ahead, we will pay close attention to changes in
economic conditions as well as the Shanghai market. At thesame time, we will upgrade the quality of stores in Shanghai,
the economic center of China, thereby improving store
brand equity while also focusing on ROI as a criterion for the
opening of new stores.
As of the end of February 2014, we maintained a total of
289 stores, of which 192 are FC stores.

Shanghai Hualian Lawson, Inc.
Total operating revenues

Lawson HMV Entertainment, Inc.

(Millions of yen)

2013/2

2012/2

2011/2

2010/2

1,289

903

4,917

5,402

6,313
2

(404)

(574)

(283)

15

2014/2

2013/2

2012/2

2011/2

2010/2

Net income (loss)(1,568)(2,034)

(443)

25

5

Total operating revenues

45,31345,481

25,545

9,864

10,022

Number of stores

289

305

314

317

300

Operating income

2,818

2,446

1,650

1,111

1,099

Net income (loss)

2,450

2,450

2,073

1,870

(11,887)(Millions of yen)

Lawson ATM Networks, Inc. (LANs)(consolidated subsidiary)
In 2001, Mitsubishi Corporation, associated banks, and theCompany provided the capital necessary to set up LANs to
operate automated teller machines (ATMs) at Lawson
stores. In the ensuing period, ATM machines were installedat certain stores, and LANs commenced ATM services. In
carrying out these ATM services, LANs is responsible for
installing multibank ATMs at Lawson stores throughout local
communities that have been agreed upon with each associated bank. A major source of income is the commission
paid by the banks to the company for operating ATMs. This
revenue is posted as “operating revenues: other” in the consolidated statement of income. Principal expenses mainlycomprise operation center commission as well as ATM line
and lease costs.

68

Lawson, Inc. Integrated Report 2014

In the fiscal year ended February 28, 2014, operating
income saw a substantial increase of 28.1% compared withthe previous fiscal year to 6,089 million yen. This was largely
attributable to the steady increase in the number of ATMs
installed as well as usage and successful efforts to reduce
operating expenses, which included a review of ATM operating costs.
In the year ending February 28, 2015, an additional sevenbanks have initiated similar services. As of February 28,
2014, the number of financial institutions providing services
throughout Japan, including leading city bank groups, local
banks and Internet banks, stood at 65, with 10,118
ATMs installed, a year-on-year increase of 446, across 47
prefectures.

Operating income (loss)(Millions of yen)

2014/2Chongqing Lawson, Inc. (consolidated subsidiary)
Chongqing is China’s fourth largest city, with a population ofover 33 million, following Beijing, Shanghai, and Tianjin. The
city has continued to enjoy double-digit economic growthfor 10 consecutive years. This double-digit economic growthrate exceeds the national average and that of coastal cities
such as Shanghai. Against this backdrop, potential demandfor convenience stores in inland cities in China is increasing.

Lawson was invited by the city to operate stores. To gaina foothold as the first Japanese convenience store in inland
China, we established Chongqing Lawson, Inc. in April
2010, and opened the first store, equipped with a training
facility, in July 2010. As of the end of February 2014, thecompany maintained a network of 77 stores.

Chongqing Lawson, Inc.

(Millions of yen)

2014/2

2013/2

2012/2

2011/2

Total operating revenues

1,843

977

258

30

Operating income (loss)

(840)

(671)

(243)

(47)

Net income (loss)

(832)

(775)

(249)

(59)

Number of stores

77

49

38

4

2010/2

Establishedin April 2010

Lawson, Inc. Integrated Report 201469

Dalian Lawson, Inc. (consolidated subsidiary)
Dalian is a leading port city in northeastern China, with apopulation of over six million. Following an invitation by thecity of Dalian to commence convenience store operations,
we established Dalian Lawson together with the local enterprise Dalian Acasia Fast Foods Co. in September 2011. The
first store then opened in November 2011. Our equity stakein the company is 95%. Dalian Lawson maintained a­network of 18 stores as of the end of February 2014.
In the city of Beijing, we established Beijing Lawson, Inc.,a non-consolidated company, in May 2013. The company
opened its second store in August 2013 and maintained
a network of five stores as of the end of February 2014.

Dalian Lawson, Inc.

(Millions of yen)

2014/2

2013/2

2012/2

Total operating revenues

515

176

4

Operating income (loss)

(226)

(163)

(21)

Net income (loss)

(210)

(196)

(27)

Number of stores

18

8

3

Lawson Asia Pacific Holdings Pte. Ltd.
(consolidated subsidiary)
In May 2011, we established Lawson Asia Pacific Holdings,
a wholly owned consolidated subsidiary, in Singapore to
manage all overseas operations excluding China. We signed
a license agreement in June 2011 with PT MIDI UTAMAINDONESIA Tbk (MIDI), which is a member of the Alfa
Group, a major player in the distribution and retail market inIndonesia. Lawson Asia Pacific Holdings acquired a 30%
equity stake in MIDI in July 2011. As of the end of February
2014, MIDI operated 574 stores under the proprietary small

2011/2

2010/2

Established in September 2011

format Alfamidi and two stores under the Alfaexpress brand.
At the same time, the company operates 61 Lawson stores,
mainly in Greater Jakarta. MIDI is an equity-method affiliateof the Lawson Group.
In Thailand, Lawson Asia Pacific Holdings, together with
the SAHA Group, Thailand’s leading distributor of consumer
goods, established Saha Lawson Co., Ltd. in November
2012. The company then began opening convenience
stores under the LAWSON 108 brand. As of the end of
February 2014, Saha Lawson maintained a network of 29
stores.

Outlook for fiscal 2014
Looking at the Japanese economy throughout the fiscal
year ending February 28, 2015, we recognize the need tofactor in the downside risk that any improvement in economic conditions will fall short of expectations. While wehave not seen a major downturn in consumer sentiment­following the consumption tax rate hike on April 1, 2014,
this need to factor in downside risk is largely attributable toa host of issues including uncertainties surrounding any
increase in disposable incomes.
Turning to the convenience store industry, the scale of theoverall market is expected to expand on the back of customer base growth. Meanwhile, the large-scale roll-out of
new stores by competitors is projected to have a significant
impact, prompting fears of intense competition throughout
the industry.
Against this backdrop, we will adopt a strategy that differsfrom our competitors, who are more inclined to focus on thelarge-scale opening of stores. In contrast, we will channel
our energies toward beefing up existing stores while continuing to cement our position as a provider of Health andWellness in Our Communities. To this end, we will work toenhance the competitiveness of individual stores. Getting
the jump on the competition, we will redouble our efforts to
expand our customer base. We will expand profits for both

70

Lawson, Inc. Integrated Report 2014

the Company and FC owners by fortifying the competitive
advantage of existing stores. In addition to realizing our corporate philosophy of “Creating Happiness and Harmony in
Our Communities,” we will work to enhance our corporate
value. As far as the opening of new stores is concerned, we
will look to increase the number of new stores on a scalecommensurate with our store development and store operation capabilities, maintaining our basic focus on profitability.
Taking each of the aforementioned factors into consideration, we project that consolidated operating income willreach 75 billion yen in the fiscal year ending February 28,
2015. On this basis, profit is expected to improve for the
12th consecutive year, climbing 10.1% compared with theprevious fiscal year. Effective from the current fiscal year,
Lawson has changed its method of depreciation for property and store equipment excluding lease assets from thedeclining-balance method to the straight-line method. As aresult, operating income is anticipated to increase by 5 billion yen compared with the previous method. Excluding thisfactor from our forecasts, consolidated operating income isforecast to increase 2.7% year on year.

Developing products with high gross profit margins
Serving as a driving force to expand our customer base, our
MACHI café initiative, where freshly brewed coffee is servedin person by store staff, is setting us apart from competitors.
The number of stores that have introduced MACHI caféstood at 7,776 as of the end of February 2014. Our plan is
to ensure that MACHI café is available at 10,000 stores by
the end of February 2015. We will also bolster our
Machikado Chubo (in-store kitchen) initiative. Measures will
include developing a variety of menu options and extending
Machikado Chubo to a growing number of stores. Everyeffort will be made to strengthen the competitiveness ofexisting stores and to maximize FC owner profits by developing and increasing sales of products with high gross profit
margins, such as over-the-counter fast and prepared foods.
Promoting the fresh foods convenience
store business
The Company continues to record steady growth, with
6,515 fresh food-type LAWSON stores as of the end of
February 2014. Moving forward, we will maintain our focus
on providing high quality fresh foods produced at Lawson
Farm utilizing the Nakashima Farming Method. Building on
our LAWSON STORE100 platform, we will also promote thenext level of development by advancing the LAWSON MART
store format. The Lawson Group is working to seamlessly
combine the benefits of convenience stores with an assortment of merchandise that is comparable to a supermarket.
Accordingly, we anticipate an upswing in demand as we
provide store formats that are tailored more closely to each
locality.
Promoting CRM through the use of Ponta Card
holder data
As of the end of February 2014, more than 60 million Ponta
Cards have been issued. Accounting for around 50% of
total sales, contributions from Ponta Card holders continue
to show steady progress. By enhancing the precision ofcustomer data analysis, we will pursue the development ofhigh-value-added products and further increase gross profit
margins. We will also ensure that the opening of new storesis undertaken in an efficient manner while reinforcing the­efficacy of our advertising and promotions.

Increasing operating efficiency and improving
profitability through supply chain structural reform
In line with advances in the technologies used to analyze
Ponta data, we will follow SCI’s lead in promoting uniquestructural reforms throughout the supply chain. Looking
ahead, we will push forward a variety of initiatives including
efforts to optimize the supply chain while making processes
at each stage more visible. We will also strengthen the competitiveness of products and provide sales promotion support to FC owners by procuring value-added raw materials
and reducing costs, thereby achieving highly efficient operations and improved profitability.
Full-scale roll-out of home convenience-related
businesses
In the area of home convenience-related businesses, we willtake advantage of our network of over 10,000 brick-andmortar stores to address a wide range of customer needs
through the online sales of such items as entertainment-­
related products including tickets, CDs, and DVDs as wellas perishable foods in cooperation with Group companies.
In the “Smart Kitchen” business, we purchased shares heldby Yahoo Japan Corporation in order to bolster collaboration
with our network of convenience stores. Smart Kitchen
became a full-fledged member of the Group through a process of corporate separation and absorption effective July 1,
2014. Looking ahead, the Lawson Group will work in unison
to strengthen its home convenience store business.
Overseas business development
We will explore more store opening opportunities not only inthe countries in which we already have operations, but
those countries and regions that we deem have the potential to grow economically based on a careful assessment of
their political and economic landscape. If we identify opportunities in Europe or the United States in which we are able
to implement a Japanese-style convenience store businessmodel as a part of efforts, for example, to harness ourstrengths in such areas as the development of a FC system,
infrastructure, or high value added products of a unique andoriginal design, we will proactively explore those paths.

Lawson, Inc. Integrated Report 201471

Consolidated Balance Sheet
Lawson, Inc. and Consolidated Subsidiaries
February 28, 2014
Thousands of
U.S. Dollars(Note 1)Millions of Yen

AssetsCURRENT ASSETS:
Cash and cash equivalents
Time deposits
Accounts receivable:   Due from franchised stores (Notes 3 and 8)  Other   Allowance for doubtful accounts
Inventories
Deferred tax assets (Note 14)
Prepaid expenses and other current assets   Total current assets

PROPERTY AND STORE EQUIPMENT (Note 5):
Land (Note 6)
Buildings
Furniture, fixtures, and equipment
Lease assets (Notes 2.p and 16)   Total
Accumulated depreciation    Net property and store equipment

INVESTMENTS AND OTHER ASSETS:
Investment securities (Note 4)
Investments in associated companies
Long-term loans receivable
Goodwill
SoftwareLease deposits
Deferred tax assets (Note 14)
Other assets
Allowance for doubtful accounts    Total investments and other assets
TOTAL

2014

2013

2014

¥ 68,760
8,004¥ 72,766
12,004$  674,514
78,51732,18654,193(2,393)
9,596
4,481
20,957
195,784

25,37446,009(1,281)
8,964
4,656
11,805
180,297

315,735
531,617(23,475)
94,134
43,957
205,582
1,920,581

8,774
268,930
65,945126,056
469,705(236,268)
233,437

2,276
10,98233,7289,719
18,26386,15021,628
9,992(966)
191,772¥620,993

8,295
244,845
67,39996,252416,791(207,652)
209,139

2,691
7,446
34,581
9,683
23,915
86,10916,216
10,951(1,218)190,374¥579,810

86,0702,638,120
646,900
1,236,571
4,607,661(2,317,716)
2,289,945

22,327
107,730
330,861
95,340179,154845,105
212,164
98,019(9,476)
1,881,224$6,091,750

Thousands of
U.S. Dollars(Note 1)Millions of Yen

LIABILITIES AND EQUITYCURRENT LIABILITIES:
Accounts payable:   Trade (Notes 7 and 19)   Due to franchised stores (Note 8)  Other
Short-term bank loans (Note 9)
Current portion of long-term debt (Note 9)
Income taxes payable
Money held as agent
Accrued expenses and other current liabilities   Total current liabilities
LONG-TERM LIABILITIES:
Liability for employees’ retirement benefits (Note 10) Allowance for retirement benefits to executive officers
and audit & supervisory board members
Guarantee deposits received from franchised stores and other
Long-term debt (Note 9)
Asset retirement obligations (Notes 2.n and 11)
Other   Total long-term liabilities
EQUITY (Note 12):
 Common stock—authorized, 409,300,000 shares in 2014
and 2013; issued, 100,300,000 shares in 2014 and 2013
Capital surplus
Stock acquisition rights
Retained earnings Treasury stock—at cost, 395,953 shares in 2014
and 406,853 shares in 2013
Accumulated other comprehensive income:   Net unrealized (loss) gain on available-for-sale securities   Land revaluation difference (Note 6)   Foreign currency translation adjustments   Total
Minority interests   Total equity
TOTAL

2014

2013

2014

¥ 89,171
1,405
31,214680
16,586
14,33087,586
5,735
246,707¥ 87,188
1,404
27,082
1,431
14,496
14,47587,5296,189
239,794$  874,740
13,783306,200
6,670
162,704
140,572
859,192
56,2592,420,120

11,083

9,899

108,721408
32,253
61,667
17,875
502
123,788332
34,80547,356
16,683759
109,834

4,002
316,392
604,934
175,348
4,925
1,214,322

58,50747,741
557
138,142

58,50747,718427
121,154573,936
468,325
5,464
1,355,130(1,556)(1,594)(15,264)

(94)
(567)
3,118
245,848
4,650
250,498¥620,993

78
(567)
1,180
226,903
3,279
230,182¥579,810(922)(5,562)30,586
2,411,693
45,6152,457,308$6,091,750

See notes to consolidated financial statements.

72

Lawson, Inc. Integrated Report 2014

Lawson, Inc. Integrated Report 201473

Consolidated Statement of Income

Consolidated Statement of Comprehensive Income

Lawson, Inc. and Consolidated Subsidiaries
Year Ended February 28, 2014

Lawson, Inc. and Consolidated Subsidiaries
Year Ended February 28, 2014
Thousands of
U.S. Dollars(Note 1)Millions of Yen

2013

2014

Millions of Yen

2013

2014

NET INCOME BEFORE MINORITY INTERESTSOTHER COMPREHENSIVE INCOME:
Unrealized (loss) gain on available-for-sale securities
Foreign currency translation adjustments
Share of other comprehensive income in associates    Total other comprehensive income
COMPREHENSIVE INCOME¥38,163¥33,494$374,367

(172)
2,655
(839)
1,644
¥39,807

90
1,926
(639)
1,377
¥34,871(1,687)26,045(8,230)16,128$390,495

TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO (Note 17):
Owners of the parent
Minority interests¥39,73374¥34,553318$389,769
726

2014

OPERATING REVENUES:Franchise commissions from franchised stores
Net sales from Company-operated stores
Other   Total operating revenues¥242,079
133,976
109,193
485,248¥230,003
157,627
99,815487,445$2,374,720
1,314,263
1,071,150
4,760,133

COSTS AND OPERATING EXPENSES:
Cost of sales (Note 19)
Selling, general, and administrative expenses    Total costs and operating expenses   Operating income

126,638
290,483
417,121
68,127

144,885
276,314421,199
66,246

1,242,280
2,849,548
4,091,828
668,305

Thousands of
U.S. Dollars(Note 1)

2014

See notes to consolidated financial statements.

OTHER (EXPENSES) INCOME:
Interest expense—net
Compensation income (Note 2.u)
Equity in earnings of associated companies
Gain on sales of noncurrent assets (Note 2.u)
Loss on disposal of property and store equipment
Impairment of long-lived assets (Note 5)
Other—net (Note 2.u)   Other expenses—net

(405)
795
394
51
(2,648)(5,744)(784)(8,341)

(462)
162
394
1
(1,641)(2,930)(2,181)(6,657)(3,973)
7,799
3,865
500
(25,976)(56,347)(7,691)(81,823)

INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS

59,78659,589586,482

INCOME TAXES (Note 14):
Current
Deferred   Total income taxes

26,759(5,136)
21,62325,346749
26,095

262,498(50,383)
212,115NET INCOME BEFORE MINORITY INTERESTS

38,16333,494374,367

(197)

(311)

(1,932)¥ 37,966¥ 33,183$  372,435

MINORITY INTERESTS IN NET INCOME
NET INCOMEYen

PER SHARE OF COMMON STOCK (Notes 2.s and 21):
Net income—basic
Net income—diluted
Cash dividends applicable to the year

U.S. Dollars

2014

2013

2014

¥380.04379.35220.00¥332.20331.69200.00

$3.73
3.72
2.16

See notes to consolidated financial statements.

74

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Lawson, Inc. Integrated Report 201475

Consolidated Statement of Changes in Equity
Lawson, Inc. and Consolidated Subsidiaries
Year Ended February 28, 2014
Thousands of Shares/Millions of Yen
Common Stock

BALANCE, MARCH 1, 2012
Net income
Year-end cash dividends, ¥93 per share
Interim cash dividends, ¥100 per share
Purchase of treasury stock Exercise of stock acquisition rights toshares (delivery of treasury stock)
Disposal of treasury stock
Others—net
BALANCE, FEBRUARY 28, 2013
Net income
Year-end cash dividends, ¥100 per share
Interim cash dividends, ¥110 per share
Purchase of treasury stock Exercise of stock acquisition rights toshares (delivery of treasury stock)
Disposal of treasury stock
Others—net
BALANCE, FEBRUARY 28, 2014

SharesAmountCapitalSurplus100,300¥58,507¥47,707

Stock
Acquisition
Rights¥443

Retained
Earnings¥107,249
33,183(9,289)(9,989)11

100,300

58,507(16)
427

47,718

121,154
37,966(9,989)(10,989)22
1
100,300¥58,507¥47,741130¥557

Thousands of U.S. Dollars (Note 1)¥138,142

SharesAmount(416)¥(1,628)

(1)

(7)

10
0

40
1

(407)

(1,594)

(1)

(11)

12
0

48
1

(396)

¥(1,556)

Thousands of Shares/Millions of Yen

BALANCE, MARCH 1, 2012
Net income
Year-end cash dividends, ¥93 per share
Interim cash dividends, ¥100 per share
Purchase of treasury stock Exercise of stock acquisition rights toshares (delivery of treasury stock)
Disposal of treasury stock
Others—net
BALANCE, FEBRUARY 28, 2013
Net income
Year-end cash dividends, ¥100 per share
Interim cash dividends, ¥110 per share
Purchase of treasury stock Exercise of stock acquisition rights toshares (delivery of treasury stock)
Disposal of treasury stock
Others—net
BALANCE, FEBRUARY 28, 201476

Lawson, Inc. Integrated Report 2014

Land
Revaluation
Difference

Foreign
Currency
Translation
Adjustments¥ (12)¥(567)¥ (101)

90
78

(172)
¥ (94)(567)¥(567)

1,281
1,180

1,938
¥3,118

CapitalSurplus

Stock
Acquisition
RightsTotal¥211,598
33,183(9,289)(9,989)
(7)
51
1
1,355
226,90337,966(9,989)(10,989)
(11)
70
2
1,896
¥245,848

BALANCE, FEBRUARY 28, 2013
Net income
Year-end cash dividends, $0.98 per share
Interim cash dividends, $1.08 per share
Purchase of treasury stock Exercise of stock acquisition rights toshares (delivery of treasury stock)
Disposal of treasury stock
Others—net
BALANCE, FEBRUARY 28, 2014

$573,936$468,099$4,189Retained
Earnings

Treasury
Stock$1,188,483
372,435(97,989)(107,799)$(15,637)

(108)
216
10
$573,936$468,325

471
10
1,275
$5,464$1,355,130$(15,264)

Thousands of U.S. Dollars (Note 1)

Accumulated Other Comprehensive Income
Net Unrealized
Gain (Loss) on
Available-forSale Securities

CommonStockTreasury Stock

Minority
Interests¥3,065

214
3,279

1,371
¥4,650Total Equity¥214,663
33,183(9,289)(9,989)(7)

Accumulated Other Comprehensive Income

BALANCE, FEBRUARY 28, 2013
Net income
Year-end cash dividends, $0.98 per share
Interim cash dividends, $1.08 per share
Purchase of treasury stock Exercise of stock acquisition rights toshares (delivery of treasury stock)
Disposal of treasury stock
Others—net
BALANCE, FEBRUARY 28, 2014

Net Unrealized
Gain (Loss) on
Available-forSale Securities

Land
Revaluation
Difference

Foreign
Currency
Translation
Adjustments$  765$(5,562)$11,575(1,687)$ (922)$(5,562)

19,011$30,586

Total$2,225,848
372,435(97,989)(107,799)
(108)
687
20
18,599$2,411,693

Minority
Interests

Total
Equity$32,166$2,258,014
372,435(97,989)(107,799)(108)

13,449$45,615687
20
32,048$2,457,308

See notes to consolidated financial statements.

51
1
1,569
230,182
37,966(9,989)(10,989)
(11)
70
2
3,267
¥250,498

Lawson, Inc. Integrated Report 201477

Consolidated Statement of Cash Flows

Notes to Consolidated Financial Statements

Lawson, Inc. and Consolidated Subsidiaries
Year Ended February 28, 2014

Lawson, Inc. and Consolidated Subsidiaries
Year Ended February 28, 2014
Thousands of
U.S. Dollars(Note 1)Millions of Yen

OPERATING ACTIVITIES:
Income before income taxes and minority interests
Adjustments for:   Income taxes paid   Depreciation and amortization   Impairment of long-lived assets   Provision for (reversal of) allowance for doubtful accounts   Loss on disposal of property and store equipment   Gain on sales of investment securities (Note 2.u)   Equity in earnings of associated companies   Other—net (Note 2.u)   Changes in assets and liabilities:    Decrease in claims in bankruptcy and reorganization    Increase in accounts receivable    Increase in prepaid expenses and other current assets   Increase in inventories    Increase in accounts payable    Increase in money held as agent    Increase in accrued expenses and other liabilities   Increase in allowance for retirement benefits to employees
and executive officers and corporate auditors   Decrease in guarantee deposits received from franchised
stores and other    Total adjustments    Net cash provided by operating activities
INVESTING ACTIVITIES:Payments into time deposits
Proceeds from withdrawal of time deposits
Purchases of property and store equipment
Purchases of software and other intangible assets
Purchase of long-term prepaid expenses (Note 2.u)
Increase in short-term loans receivable (Note 2.u)
Increase in long-term loans
Acquisition of a subsidiary, net of cash acquired (Note 2.u)Acquisition of associated companies
Other—net (Note 2.u)    Net cash used in investing activities

2014

2013

2014

¥59,786¥59,589$586,482(26,956)
47,889
5,744
565
2,648
(404)
(119)
1,821

(26,225)
43,886
2,930(13,511)
1,642
(145)
(9)
863

(264,430)
469,776
56,347
5,542
25,976(3,963)(1,167)
17,864

123(14,256)
(424)
(211)
5,569
50
977

14,547(19,104)
(453)
(861)
8,498
12,524775

1,207(139,847)(4,159)(2,070)54,630
490
9,584

1,260

1,178

12,360(2,559)21,71781,503(935)
25,60085,189(25,103)
213,037
799,519

1. BASIS OF PRESENTING CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements have been prepared in accordance with the provisions set forth in
the Japanese Financial Instruments and Exchange Act and its related accounting regulations and in accordance withaccounting principles generally accepted in Japan (“Japanese GAAP”), which are different in certain respects as to application and disclosure requirements from International Financial Reporting Standards.
In preparing these consolidated financial statements, certain reclassifications and rearrangements have been made to theconsolidated financial statements issued domestically in order to present them in a form which is more familiar to readers
outside Japan. In addition, certain reclassifications have been made in the 2013 financial statements to conform to theclassifications used in 2014.
The consolidated financial statements are stated in Japanese yen, the currency of the country in which Lawson, Inc. (the“Company”) is incorporated and operates. The translations of Japanese yen amounts into U.S. dollar amounts are included solely for the convenience of readers outside Japan and have been made at the rate of ¥101.94 to $1, the approximate
rate of exchange at February 28, 2014. Such translations should not be construed as representations that the Japanese
yen amounts could be converted into U.S. dollars at that or any other rate.
Mitsubishi Corporation (“Mitsubishi”) owns 32,399 thousand shares of common stock of the Company (including indirect
holdings) as of February 28, 2014, which represent 32.5% of the total voting rights of the Company. Accordingly,
Mitsubishi is a principal shareholder.

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESa. Consolidation—The consolidated financial statements include the accounts of the Company and its twelve (eleven in2013) subsidiaries (collectively, the “Companies”). Consolidation of the remaining subsidiary would not have a material
effect on the accompanying consolidated financial statements.
Under the control and influence concepts, those entities in which the Company, directly or indirectly, is able to exercise
control over operations are fully consolidated, and those entities over which the Companies have the ability to exercise(22,000)
26,000(34,857)(5,499)(2,373)(4,145)(2,000)
1,733(4,052)(731)(47,924)(23,900)
22,300(37,263)(5,659)(2,706)(37)(2,442)480(1,327)(3,642)(54,196)(215,813)
255,052(341,937)(53,943)(23,278)(40,661)(19,619)
17,000(39,749)(7,172)(470,120)significant influence are accounted for by the equity method.
Investments in two (two in 2013) associated companies are accounted for by the equity method. Investments in theremaining associated companies are stated at cost. If the equity method of accounting had been applied to the investments in these entities, the effect on the accompanying consolidated financial statements would not be material.
All significant intercompany balances and transactions have been eliminated in consolidation. All material unrealized
profit included in assets resulting from transactions within the Companies is eliminated.
The excess of the cost of the Company’s investments in consolidated subsidiaries and associated companies over thefair value of the net assets at the dates of acquisition is being amortized over a period not exceeding 20 years.
b.	Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial Statements—

FINANCING ACTIVITIES:
Repayments of long-term debt
Cash dividends paid
Other—net    Net cash used in financing activities
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS ON CASH AND CASH EQUIVALENTS
NET DECREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS, END OF YEARIn May 2006, the Accounting Standards Board of Japan (the “ASBJ”) issued ASBJ Practical Issues Task Force (PITF)(17,663)(20,978)(1,009)(39,650)(14,298)(19,278)
1,596(31,980)(173,269)(205,788)(9,897)(388,954)

No. 18, “Practical Solution on Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated
Financial Statements.” PITF No. 18 prescribes that the accounting policies and procedures applied to a parent company and its subsidiaries for similar transactions and events under similar circumstances should in principle be unified forthe preparation of the consolidated financial statements. However, financial statements prepared by foreign subsidiaries
in accordance with either International Financial Reporting Standards or generally accepted accounting principles in the

2,065(4,006)
72,766¥68,760

83(904)
73,670¥72,766

20,257(39,298)
713,812$674,514

United States of America tentatively may be used for the consolidation process, except for the following items thatshould be adjusted in the consolidation process so that net income is accounted for in accordance with Japanese
GAAP, unless they are not material: (a) amortization of goodwill; (b) scheduled amortization of actuarial gain or loss ofpensions that has been directly recorded in equity; (c) expensing capitalized development costs of R&D; (d) cancellation

See notes to consolidated financial statements.

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of the fair value model of accounting for property, plant and equipment and investment properties and incorporation of

The term of a franchise agreement is effective primarily for 10 years from the commencement date of a new store’s

the cost model of accounting; and (e) exclusion of minority interests from net income, if contained in net income.

operation as a franchised store, and may be extended or renewed upon expiration subject to renegotiation of contractc.	Unification of Accounting Policies Applied to Foreign Associated Companies for the Equity Method—In Marchterms between the Company and the franchisee.

2008, the ASBJ issued ASBJ Statement No. 16, “Accounting Standard for Equity Method of Accounting for

The franchise agreement usually provides that the franchised store shall make a cash payment to the Company in theInvestments.” The new standard requires adjustments to be made to conform the associate’s accounting policies foramount of ¥3 million upon commencement. Upon receipt of such payment, ¥1.5 million is credited to income of thesimilar transactions and events under similar circumstances to those of the parent company when the associate’sCompany as “Operating revenues—franchise commissions from franchised stores” for services related to the opening

financial statements are used in applying the equity method, unless it is impracticable to determine adjustments. Inof the LAWSON store. The remaining amount received by the Company is credited to the “Due to franchised stores”

addition, financial statements prepared by foreign associated companies in accordance with either International

account and then applied to working capital for purchases of merchandise and supplies for the franchised store.

Financial Reporting Standards or the generally accepted accounting principles in the United States tentatively may be
used in applying the equity method if the following items are adjusted so that net income is accounted for in accordance with Japanese GAAP unless they are not material: (a) amortization of goodwill; (b) scheduled amortization of
actuarial gain or loss of pensions that has been directly recorded in the equity; (c) expensing capitalized development
costs of R&D; (d) cancellation of the fair value model of accounting for property, plant, and equipment and investment
properties and incorporation of the cost model of accounting; and (e) exclusion of minority interests from net income,
if contained.
d. Business Combination—In October 2003, the Business Accounting Council issued a Statement of Opinion,“Accounting for Business Combinations,” and in December 2005, the ASBJ issued ASBJ Statement No. 7,“Accounting Standard for Business Divestitures,” and ASBJ Guidance No. 10, “Guidance for Accounting Standard forBusiness Combinations and Business Divestitures.” The accounting standard for business combinations allowed companies to apply the pooling-of-interests method of accounting only when certain specific criteria are met such that thebusiness combination is essentially regarded as a uniting-of-interests. For business combinations that do not meet theuniting-of-interests criteria, the business combination is considered to be an acquisition and the purchase method of
accounting is required. This standard also prescribes the accounting for combinations of entities under common­control and for joint ventures.
In December 2008, the ASBJ issued a revised accounting standard for business combinations, ASBJ Statement
No. 21, “Accounting Standard for Business Combinations.” Major accounting changes under the revised accounting
standard are as follows: (1) The revised standard requires accounting for business combinations only by the purchasemethod. As a result, the pooling of interests method of accounting is no longer allowed. (2) The current accounting

As part of the contractual obligations of the franchisor under the agreement, the Company generally provides franchisees with furniture, fixtures, and equipment designed for the LAWSON stores. In some cases, franchisees may also be
provided with the land or buildings for the stores. However, the Company does not require the franchisees to makelease payments related to the stores. Instead, a higher percentage applicable to the gross margin would be used as
the basis for determining the franchise commissions. The portion of franchise commission attributable to property andstore equipment leases is not separately accounted for by the Company.
f. Cash and Cash Equivalents—Cash and cash equivalents include cash on hand, demand deposits, and short-term
investments, which mature or become due within three months of the date of acquisition and which are readily convertible into cash and are exposed to insignificant risk of changes in value.
g. Inventories—Substantially all inventories are stated at the lower of cost, determined by the retail method as generally
applied in the retail industry, or net selling value. Inventories of certain consolidated subsidiaries are stated at the lowerof cost, determined by the gross-average method, or net selling value.
h. Marketable and Investment Securities—Marketable and investment securities are classified and accounted for,depending on management’s intent, as follows: (1) held-to-maturity debt securities, which are expected to be held tomaturity with the positive intent and ability to hold to maturity are reported at amortized cost and (2) available-for-salesecurities, which are not classified as the aforementioned securities, are stated at fair value based on market quotation.
Unrealized gains and losses, net of applicable taxes, are reported in a separate component of equity. The cost of securities sold is determined based on the moving-average method.

standard accounts for the research and development costs to be charged to income as incurred. Under the revised

Nonmarketable available-for-sale securities are stated at cost determined by the moving-average method. For other-standard, in-process research and development (IPR&D) acquired in the business combination are capitalized as anthan-temporary declines in fair value, nonmarketable available-for-sale securities are reduced to net realizable value by

intangible ‌asset. (3) The previous accounting standard provided for a bargain purchase gain (negative goodwill) to bea charge to income.

systematically amortized over a period not exceeding 20 years. Under the revised standard, the acquirer recognizes thebargain purchase gain in profit or loss immediately on the acquisition date after reassessing and confirming that all ofi.	Property and Store Equipment—Property and store equipment are stated at cost except for land (see Note 6).

the assets acquired and all of the liabilities assumed have been identified after a review of the procedures used in the

Depreciation is computed mainly by the declining-balance method at rates based on the estimated useful lives of thepurchase price allocation.

assets. The range of useful lives is principally from 10 to 34 years for buildings and structures and from 5 to 8 years forfurniture, fixtures, and equipment.

e.	Franchise Agreement and Basis of Recognizing Franchise Commission—The Company operates principally ina single industry commonly classified as the convenience store business with its own stores and franchised stores. The
Company allows each independent franchisee to operate relatively small-sized convenience stores using specificdesigns and the LAWSON brand names, and provides related managerial or technical know-how under a franchise
agreement. Under the agreement, all franchised stores are provided with a variety of services and advice on the operation of convenience stores from the Company as the franchisor. In return, such franchised stores are required to pay
continuing franchise commissions to the Company based on certain percentages of the respective franchised store’s
gross margin. As the franchisor, the Company accounts for franchise commissions on an accrual basis by reference tothe gross margin earned by each franchised store and the applicable commission percentage. According to the franchise agreement, a franchised store may pay additional guarantee deposits equal to twice the average monthly sales
amounts of the respective store and pay a lower commission percentage.

The useful lives for lease assets are the terms of the respective leases.
j.	Long-Lived Assets—The Companies review their long-lived assets for impairment whenever events or changes in­circumstance indicate the carrying amount of an asset or asset group, mainly by each store, may not be recoverable.
An impairment loss would be recognized if the carrying amount of an asset or asset group exceeds the sum of theundiscounted future cash flows expected to result from the continued use and eventual disposition of the asset or
asset group. The impairment loss is measured as the amount by which the carrying amount of the asset exceeds its
recoverable amount, which is the higher of the discounted cash flows from the continued use and eventual dispositionof the assets or the net selling price at disposition.
k.	Software—Software used by the Companies is amortized using the straight-line method based on the estimated­useful life (mainly five years).

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l.	Employees’ Retirement Benefits—The Company and a certain domestic subsidiary have defined benefit lump-sum

The Companies applied the revised accounting standard effective March 1, 2009. In addition, the Companies continue

severance indemnity plans which cover substantially all of their employees. The Company established a trust fund forto account for leases that existed at the transition date and which do not transfer ownership of the leased property to

its lump-sum severance indemnity plan.

the lessee as operating lease transactions.

The Companies account for the liability for retirement benefits based on the projected benefit obligations and plan

All other leases are accounted for as operating leases.

assets at the balance sheet date.

q. Income Taxes—The Companies provide for income taxes applicable to all items included in the consolidated state-

In addition to the lump-sum severance indemnity plan, the Company has a defined contribution plan for severance

ments of income regardless of when such taxes are payable. Deferred income taxes are recorded to reflect the impact­payments. The Company recognizes expenses in the period when the contribution was called for.

of temporary differences between assets and liabilities recognized for financial reporting purposes and such amountsm.	Allowance for Retirement Benefits to Executive Officers and Audit & Supervisory Board Members—The provisions are calculated as a liability at 100% of the amount that would be required if all executive officers and audit &supervisory board members resigned as of each balance sheet date.
n. Asset Retirement Obligations—In March 2008, the ASBJ issued ASBJ Statement No. 18, “Accounting Standard for
Asset Retirement Obligations,” and ASBJ Guidance No. 21, “Guidance on Accounting Standard for Asset Retirement
Obligations.” Under this accounting standard, an asset retirement obligation is defined as a legal obligation imposed
either by law or contract that results from the acquisition, construction, development, and the normal operation of atangible fixed asset and is associated with the retirement of such tangible fixed asset.
The asset retirement obligation is recognized as the sum of the discounted cash flows required for the future asset

recognized for tax purposes. These deferred taxes are measured by applying currently income tax rates to the temporary differences.
r.	Foreign Currency Financial Statements—The balance sheet accounts of an associated company denominated inforeign currencies are translated into Japanese yen at the current exchange rate as of the balance sheet date except for
equity, which is translated at the historical rate. Differences arising from such translation are shown as “Foreign currency translation adjustments” and “Minority interests” in a separate component of equity. Revenue and expense accountsof an affiliated company denominated in foreign currencies are translated into yen at the current exchange rate.
s.	Per Share Information—Basic net income per share is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding for the period.

retirement and is recorded in the period in which the obligation is incurred if a reasonable estimate can be made. If a

The number of shares used in computing net income per share was 99,898 thousand shares for 2014 andreasonable estimate of the asset retirement obligation cannot be made in the period the asset retirement obligation is

99,887 thousand shares for 2013.

incurred, the liability should be recognized when a reasonable estimate of asset retirement obligation can be made.
Upon initial recognition of a liability for an asset retirement obligation, an asset retirement cost is capitalized by increasing the carrying amount of the related fixed asset by the amount of the liability. The asset retirement cost is subsequently allocated to expense through depreciation over the remaining useful life of the asset. Over time, the liability is
accreted to its present value each period. Any subsequent revisions to the timing or the amount of the original estimateof undiscounted cash flows are reflected as an adjustment to the carrying amount of the liability and the capitalized
amount of the related asset retirement cost.
o.	Stock Options—In December 2005, the ASBJ issued ASBJ Statement No. 8, “Accounting Standard for Stock
Options,” and related guidance. The standard and guidance are applicable to stock options granted on and after May
1, 2006. This standard requires companies to measure the cost of employee stock options based on the fair value atthe date of grant and recognize compensation expense over the vesting period as consideration for receiving goods orservices. The standard also requires companies to account for stock options granted to non-employees based on the

Diluted net income per share for the years ended February 28, 2014 and 2013, is computed by using the weightedaverage number of common shares outstanding adjusted to include the potentially dilutive effect of stock options thatwere outstanding during the year.
Cash dividends per share presented in the accompanying consolidated statement of income are dividends applicableto the respective years including dividends to be paid after the end of the year.
t. Accounting Changes and Error Corrections—In December 2009, the ASBJ issued ASBJ Statement No. 24,“Accounting Standard for Accounting Changes and Error Corrections” and ASBJ Guidance No. 24, “Guidance on
Accounting Standard for Accounting Changes and Error Corrections.” Accounting treatments under this standard andguidance are as follows:(1) Changes in accounting policies

fair value of either the stock option or the goods or services received. In the balance sheet, the stock option is presented		When a new accounting policy is applied following the revision of an accounting standard, the new policy is applied

as a stock acquisition right in a separate component of equity until exercised. The standard covers equity-settled,

retrospectively unless the revised accounting standard includes specific transitional provisions, in which case theshare-based payment transactions, but does not cover cash-settled, share-based payment transactions. In addition, theentity shall comply with the specific transitional provisions.

standard allows unlisted companies to measure options at their intrinsic value if they cannot reliably estimate fair value.
(2) Changes in presentationp.	Leases—In March 2007, the ASBJ issued ASBJ Statement No. 13, “Accounting Standard for Lease Transactions,”		When the presentation of financial statements is changed, prior-period financial statements are reclassified in accor-

which revised the previous accounting standard for lease transactions. The revised accounting standard for leasedance with the new presentation.

transactions was effective for fiscal years beginning on or after April 1, 2008.
(3) Changes in accounting estimates
Under the previous accounting standard, finance leases that were deemed to transfer ownership of the leased property		A change in an accounting estimate is accounted for in the period of the change if the change affects that period

to the lessee were capitalized. However, other finance leases were permitted to be accounted for as operating lease

only, and is accounted for prospectively if the change affects both the period of the change and future periods.

transactions if certain “as if capitalized” information was disclosed in the notes to the lessee’s financial statements. The
revised accounting standard requires that all finance lease transactions be capitalized to recognize lease assets andlease obligations in the balance sheet. In addition, the accounting standard permits leases that existed at the transition(4) Corrections of prior-period errors
		When an error in prior-period financial statements is discovered, those statements are restated.

date and which do not transfer ownership of the leased property to the lessee to be accounted for as operating leasetransactions.

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u. Reclassification of Prior Year’s Consolidated Financial Statements—The Company has made reclassifications oflosses and past service costs that arose in the current period and have yet to be recognized in profit or loss shall beamounts in the consolidated balance sheets and consolidated income statements and the consolidated cash flows

included in other comprehensive income and actuarial gains and losses and past service costs that were recog-

statements for the year ended February 28, 2014. In order to conform with the presentation for the year ended

nized in other comprehensive income in prior periods and then recognized in profit or loss in the current period shall

February 28, 2014, the Company has reclassified the related amounts in the consolidated balance sheets and the con-be treated as reclassification adjustments.

solidated income statements and the consolidated cash flows statements for the year ended February 28, 2013,
respectively, as stated below.

This accounting standard and the guidance are effective for the end of annual periods beginning on or after April 1,

The Company has reclassified the “Compensation income” and “Gain on sales of noncurrent assets” in the Other

However, no retrospective application of this accounting standard to consolidated financial statements in prior periods(Expenses) Income section of the consolidated income statements for the year ended February 28, 2014. The amounts

is required.

included in the other—net as of February 28, 2013, were ¥162 million and ¥1 million, respectively.

2013, with earlier application being permitted from the beginning of annual periods beginning on or after April 1, 2013.

The Company expects to apply the revised accounting standard from the end of the annual period beginning on March

The Company has reclassified the “Provision of allowance for doubtful accounts” in the Other (Expenses) Income sec-

1, 2014, and is in the process of measuring the effects of applying the revised accounting standard for the year endingtion of the consolidated income statements for the year ended February 28, 2013, to “Other—net” among the Other

February 28, 2015.

(Expenses) Income section of the consolidated income statements for the year ended February 28, 2014. The amountincluded in the other—net as of February 28, 2013, was ¥(1,128) million.

Accounting Standards for Business Combinations and Consolidated Financial Statements—On September 13,

The Company has reclassified the “Gain on sales of investment securities” in the Operating Activities section of the

ASBJ Guidance No. 10, “Guidance on Accounting Standards for Business Combinations and Business Divestitures,”consolidated cash flows statements for the year ended February 28, 2014. The amount included in the other—net as

and revised ASBJ Statement No. 22, “Accounting Standard for Consolidated Financial Statements.”

of February 28, 2013, was ¥(145) million.
The Company has reclassified the “Increase in lease deposits-net” in the Investing Activities section of the consolidated
cash flows statements for the year ended February 28, 2013, to “Other—net” among the Investing Activities section of
the consolidated cash flows statements for the year ended February 28, 2014. The amount included in the other—net

2013, the ASBJ issued revised ASBJ Statement No. 21, “Accounting Standard for Business Combinations,” revised

Major accounting changes are as follows:
Transactions with noncontrolling interest
A parent’s ownership interest in a subsidiary might change if the parent purchases or sells ownership interests in its

as of February 28, 2013, was ¥(2,430) million.

subsidiary. The carrying amount of minority interest is adjusted to reflect the change in the parent’s ownership interest

The Company has reclassified the “Increase in short-term loans receivable”, “Acquisition of a subsidiary, net of cash

any difference between the fair value of the consideration received or paid and the amount by which the minority inter-acquired”, and “Purchase of long-term prepaid expenses” in the Investing Activities section of the consolidated cash

est is adjusted is accounted for as an adjustment of goodwill or as profit or loss in the consolidated statement offlows statements for the year ended February 28, 2014. The amounts included in the other—net as of February 28,

income. Under the revised accounting standard, such difference shall be accounted for as capital surplus as long as

2013, were ¥(37) million, ¥480 million, and ¥2,706 million, respectively.

the parent retains control over its subsidiary.

v.	New Accounting Pronouncements

in its subsidiary while the parent retains its controlling interest in its subsidiary. Under the current accounting standard,Presentation of the consolidated balance sheet

Accounting Standard for Retirement Benefits—On May 17, 2012, the ASBJ issued ASBJ Statement No. 26

In the consolidated balance sheet, “minority interest” under the current accounting standard will be changed to “non-“Accounting Standard for Retirement Benefits” and ASBJ Guidance No. 25, “Guidance on Accounting Standard forcontrolling interest” under the revised accounting standard.

Retirement Benefits,” which replaced the Accounting Standard for Retirement Benefits that had been issued by theBusiness Accounting Council in 1998 with an effective date of April 1, 2000, and the other related practical guidances,

Presentation of the consolidated statement of income

and followed by partial amendments from time to time through 2009.

In the consolidated statement of income, “income before minority interest” under the current accounting standard will

Major changes are as follows:

standard will be changed to “net income attributable to owners of the parent” under the revised accounting standard.

(a)	Treatment in the balance sheet—Under the current requirements, actuarial gains and losses and past service costs

Provisional accounting treatments for a business combination

be changed to “net income” under the revised accounting standard, and “net income” under the current accountingthat are yet to be recognized in profit or loss are not recognized in the balance sheet, and the difference between

If the initial accounting for a business combination is incomplete by the end of the reporting period in which the busi-

retirement benefit obligations and plan assets (hereinafter, “deficit or surplus”), adjusted by such unrecognized

ness combination occurs, an acquirer shall report in its financial statements provisioned amounts for the items foramounts, are recognized as a liability or asset.

which the accounting is incomplete. Under the current accounting standard guidance, the impact of adjustments to		Under the revised accounting standard, actuarial gains and losses and past service costs that are yet to be recognized in profit or loss shall be recognized within equity (accumulated other comprehensive income), after adjustingfor tax effects, and the deficit or surplus shall be recognized as a liability (liability for retirement benefits) or asset(asset for retirement benefits).
(b)	Treatment in the statement of income and the statement of comprehensive income (or the statement of income andcomprehensive income)—The revised accounting standard would not change how to recognize actuarial gains andprovisional amounts recorded in a business combination on profit or loss is recognized as profit or loss in the year inwhich the measurement is completed. Under the revised accounting standard guidance, during the measurement period, which shall not exceed one year from the acquisition, the acquirer shall retrospectively adjust the provisionalamounts recognized at the acquisition date to reflect new information obtained about facts and circumstances thatexisted as of the acquisition date and that would have affected the measurement of the amounts recognized as of that
date. Such adjustments shall be recognized as if the accounting for the business combination had been completed at
the acquisition date.

losses and past service costs in profit or loss. Those amounts would be recognized in profit or loss over a certain
period no longer than the expected average remaining working lives of the employees. However, actuarial gains and84

Lawson, Inc. Integrated Report 2014

Lawson, Inc. Integrated Report 201485

Acquisition-related costs

3. ACCOUNTS RECEIVABLE—DUE FROM FRANCHISED STORES

Acquisition-related costs are costs, such as advisory fees or professional fees, which an acquirer incurs to effect abusiness combination. Under the current accounting standard, the acquirer accounts for acquisition-related costs by

Under the franchise agreement, the Company is responsible for providing architectural and design services with respect toincluding them in the acquisition costs of the investment. Under the revised accounting standard, acquisition-related

the franchised stores’ facilities, for training of the franchisees’ personnel, and for the centralized processing of invoices

costs shall be accounted for as expenses in the periods in which the costs are incurred.

from suggested vendors of merchandise and subsequent payments of amounts payable to such vendors.

The above accounting standards and guidance for “transactions with noncontrolling interest,” “acquisition-related

The EDP system of the Company generates a record of merchandise purchased by each franchised store and accumu-

costs” and “presentation changes in the consolidated financial statements” are effective for the beginning of annual

lates the amounts payable to respective vendors. Under the franchise agreement, the Company, as a representative for all

periods beginning on or after April 1, 2015. Earlier application is permitted from the beginning of annual periods begin-franchised stores, pays amounts payable to the vendors on the stores’ behalf. When the merchandise is received by eachning on or after April 1, 2014, except for the presentation changes in the consolidated financial statements. In case of

franchised store, the Company records the cost of the merchandise in the “Accounts receivable—due from franchised

earlier application, all accounting standards and guidance above, except for the presentation changes, should be

stores” account since such costs shall be subsequently recovered from the respective franchised stores.

applied simultaneously. Either retrospective or prospective application of the revised accounting standards and guidance for “transactions with noncontrolling interest” and “acquisition-related costs” is permitted. In retrospective application of the revised standards and guidance for “transactions with noncontrolling interest” and “acquisition-related
costs,” accumulated effects of retrospective adjustments for all “transactions with noncontrolling interest” and “acquisition-related costs” which occurred in the past shall be reflected as adjustments to the beginning balance of capital surplus and retained earnings for the year of the first-time application.

The “Accounts receivable—due from franchised stores” account represents net amounts recoverable from the franchised
stores.

4. MARKETABLE AND INVESTMENT SECURITIESMarketable and investment securities as of February 28, 2014 and 2013, consisted of the following:

In prospective application, the new standards and guidance for “transactions with noncontrolling interest” and “acquisies in presentation shall be applied to all periods presented in financial statements containing the first-time application of
the revised standards and guidance.

Thousands of
U.S. Dollars

Millions of Yention-related costs” shall be applied prospectively from the beginning of the year of the first-time application. The changNon-current—Marketable and other equity securities

2014

2013

2014

¥2,276¥2,691$22,327

The revised standards and guidance for “provisional accounting treatments for a business combination” is effective for

The costs and aggregate fair values of marketable and investment securities at February 28, 2014 and 2013, werea business combination which will occur on or after the beginning of annual periods beginning on or after April 1, 2015.

as follows:

Earlier application is permitted for a business combination which will occur on or after the beginning of annual periods

Millions of Yen

beginning on or after April 1, 2014.
February 28, 2014

The Company expects to apply the revised accounting standards and guidance from the beginning of the annual­period beginning on March 1, 2016, and is in the process of measuring the effects of applying the revised accounting

Securities classified as available-for-sale—
Equity securities

Cost

Unrealized
Gains¥1,128

Unrealized
LossesFair Value

¥211

¥917

standards and guidance in future applicable periods.
Millions of Yen
February 28, 2013

Securities classified as available-for-sale—
Equity securities

Cost

Unrealized
Gains¥1,129¥62

Cost

Unrealized
Gains

Unrealized
LossesFair Value¥1,191Thousands of U.S. Dollars
February 28, 2014

Securities classified as available-for-sale—
Equity securities

86

Lawson, Inc. Integrated Report 2014

$11,065

Unrealized
LossesFair Value$2,070$8,995

Lawson, Inc. Integrated Report 2014

87

The proceeds, realized gains and realized losses of the available-for-sale securities which were sold during the years

The recoverable amount of these assets was measured based on net selling price or value in use. The net selling price ofended February 28, 2014 and 2013, were as follows:

land was calculated based on the appraised value by a real estate appraiser or an expected contract price. The value in
use was calculated by discounting estimated future cash flows. The discount rate used was mainly 4.3% and 4.0% for theMillions of Yen
February 28, 2014

Proceeds

Realized Gain

Available-for-sale:
Equity securities

¥494

¥403

Realized Loss

6.	LAND REVALUATION
Under the “Law of Land Revaluation,” promulgated on March 31, 1998 and revised on March 31, 1999 and 2001, theMillions of Yen
February 28, 2013

Proceeds

Realized Gain

¥5

¥1

Available-for-sale:
Equity securities

years ended February 28, 2014 and 2013, respectively.

Realized Loss

Company chose a one-time revaluation of its own-use land to a value based on real estate appraisal information as ofFebruary 28, 2002.
The resulting land revaluation difference represents unrealized depreciation of land and is stated, net of income taxes, as

Thousands of U.S. Dollars
February 28, 2014

Proceeds

Realized Gain

Available-for-sale:
Equity securities$4,846$3,953

a component of equity. There was no effect on the consolidated statements of income. Continuous readjustment is not

Realized Losspermitted unless the land value subsequently declines significantly.
As at February 28, 2014, the carrying amount of the land after the above one-time revaluation exceeded the market valueby ¥319 million ($3,129 thousand).

5.	LONG-LIVED ASSETSThe Companies mainly identify each store as the smallest cash generating unit. The Companies recognize an impairment

7. ACCOUNTS PAYABLE—TRADE

loss in the case where the value of long-lived assets has declined, primarily as a result of continuous operating l­osses. The

The balances of “Accounts payable—trade” represent the amounts payable to vendors for merchandise purchased bycarrying amounts of those assets are written down to the recoverable amounts and an impairment loss is recorded inCompany-operated stores and franchised stores. The Company centralizes all merchandise purchasing procedures bothother expenses in the consolidated statements of income.

for Company-operated stores and franchised stores and makes collective payments to vendors (see Note 3).

The Companies recognized an impairment loss in the following asset categories for the years ended February 28, 2014

“Accounts payable—trade” as of February 28, 2014 and 2013, were summarized below:

and 2013:
Millions of Yen

Thousands of
U.S. Dollars

Category

Related Assets

Location

2014

2013

2014

StoresBuildings andFurniture, fixtures,and equipment

Tokyo
Osaka
Others¥  729598
2,566¥  421472
2,010$ 7,151
5,866
25,172Other

Buildings andFurniture, fixtures,and equipment
Software
Others

Total

608
1,236
7
¥5,74426
1¥2,9305,964
12,125
69$56,347

the following:

Lawson, Inc. Integrated Report 2014

2014

2013

2014

¥79,444
9,727¥89,171¥76,018
11,170¥87,188$779,321
95,419$874,740

The cost of merchandise supplied to franchised stores is recorded as “Accounts receivable—due from franchised stores”
as described in Note 3.
All franchised stores make remittances of cash proceeds from daily sales to the Company. In certain instances, the remittance from a franchised store exceeds the balance of “Accounts receivable—due from franchised stores.” In the accompanying consolidated balance sheets, such excess balances are presented as “Accounts payable—due to franchised
stores.”Millions of Yen

88

Accounts payable—trade for franchised stores
Accounts payable—trade for Company-operated stores
Total

Thousands of
U.S. Dollars

8. ACCOUNTS PAYABLE—DUE TO FRANCHISED STORESThe above-noted assets, which incurred impairment losses for the years ended February 28, 2014 and 2013, c­ onsisted of

Fixed assets and lease assets:
Buildings
Furniture, fixtures, and equipment
Lease assets
Software
Others
Total

Millions of Yen

Thousands of
U.S. Dollars

2014

2013

2014

¥2,868
359
1,251
1,236
30
¥5,744¥1,923
204
759
26
18
¥2,930$28,134
3,522
12,272
12,125294$56,347

Lawson, Inc. Integrated Report 201489

The costs of defined benefit pension plans are accrued based on amounts determined principally using an actuarial meth-

9.	Short-TERM Bank Loans and Long-term Debt

od. Additionally, the Company and a certain subsidiary each have a defined contribution plan. The costs of defined contriShort-term bank loans at February 28, 2014 and 2013, consisted of notes to banks.

bution plans are charged to expense when incurred.

The annual interest rates applicable to the short-term bank loans were 0.05% and 4.90% at February 28, 2014 and 2013,

The components of net periodic benefit costs for the years ended February 28, 2014 and 2013, were as follows:

respectively.
Long-term debt at February 28, 2014 and 2013, consisted of the following:
Millions of Yen

Loans from banks and leasing companies, due serially through 2020 with interest rates ranging from 1.69% to 2.06% (2014)
and from 1.59% to 6.44% (2013)—Unsecured
Less current portionLong-term debt, less current portion

Thousands of
U.S. Dollars

Millions of Yen

Thousands of
U.S. Dollars

2014

2013

2014

¥78,253(16,586)¥61,667¥61,852(14,496)¥47,356$767,638(162,704)$604,934

Service cost
Interest cost
Amortization of prior service cost
Recognized actuarial loss
Contribution to defined contribution plan
Net periodic benefit costs

2014

2013

2014

¥1,383
200
179
136
295
¥2,193¥1,274
290
171
54
289
¥2,078$13,567
1,962
1,756
1,334
2,894
$21,513

Assumptions used for the years ended February 28, 2014 and 2013, were as follows:
Annual maturities of long-term debt as of February 28, 2014, for the following five years (and thereafter) are as follows:Year Ending February 28 or 29

Millions of Yen

Thousands of
U.S. Dollars

2015
2016
2017
2018
2019 and thereafter
Total¥16,586
14,741
13,40011,81021,716¥78,253$162,704
144,605
131,450
115,852
213,027$767,638

Discount rate
Expected rate of return on plan assets
Amortization period of prior service cost
Recognition period of actuarial gain/loss

2013

1.2%
0%
10 years
10 years

1.2%
0%
10 years
10 years

11. ASSET RETIREMENT OBLIGATIONS
The changes in asset retirement obligations for the years ended February 28, 2014 and 2013, were as follows:

10.	EMPLOYEES’ RETIREMENT BENEFITS

Millions of Yen

The Company and a certain domestic subsidiary each have a defined benefit lump-sum severance indemnity plan.
Under the plans, employees terminating their employment are entitled to retirement benefits determined based on the rateof pay, years of service, and certain other factors at the time of termination. Such retirement benefits are made in the formof a lump-sum severance payment from the Company or from a certain subsidiary. Employees are entitled to larger payments if the termination is involuntary, by retirement at the mandatory retirement age, by death, or by voluntary retirement
at certain specific ages prior to the mandatory retirement age.
The funded status of these plans as of February 28, 2014 and 2013, was as follows:
Millions of Yen

Projected benefit obligation
Fair value of plan assets
Unrecognized prior service cost
Unrecognized actuarial loss
Net liability

2014

Thousands of
U.S. Dollars

2014

2013

2014

¥17,417(5,589)¥16,659(5,578)(175)(1,007)¥ 9,899$170,855(54,826)(745)¥11,083(7,308)$108,721

Balance at beginning of year
 Additional provisions associated with the acquisition of property,
plant, and equipment
Reconciliation associated with passage of time
Reduction associated with settlement of asset retirement obligations   TotalLess current portion
Asset retirement obligations, less current portion

Thousands of
U.S. Dollars

2014

2013

2014

¥16,791¥15,263$164,715

1,373
321
(600)
17,885(10)¥17,875

1,667
306
(445)
16,791(108)¥16,683

13,4693,149(5,887)
175,446(98)$175,348

12.	EQUITY
Japanese companies are subject to the Companies Act of Japan (the “Companies Act”). The significant provisions in the
Companies Act that affect financial and accounting matters are summarized below:
a. Dividends
Under the Companies Act, companies can pay dividends at any time during the fiscal year in addition to the year-end
dividend upon resolution at the shareholders’ meeting. For companies that meet certain criteria such as (1) having a
Board of Directors, (2) having independent auditors, (3) having an Audit & Supervisory Board, and (4) the term of serviceof the directors is prescribed as one year rather than two years of normal term by its articles of incorporation, the Boardof Directors may declare dividends (except for dividends in kind) at any time during the fiscal year if the company has­prescribed so in its articles of incorporation.

90

Lawson, Inc. Integrated Report 2014

Lawson, Inc. Integrated Report 201491

The Companies Act permits companies to distribute dividends-in-kind (noncash assets) to shareholders subject to

The stock option activity is as follows:a ­certain limitation and additional requirements.
Semiannual interim dividends may also be paid once a year upon resolution by the Board of Directors if the articles ofincorporation of the company so stipulate. The Companies Act provides certain limitations on the amounts available fordividends or the purchase of treasury stock. The limitation is defined as the amount available for distribution to theshareholders, but the amount of net assets after dividends must be maintained at no less than ¥3 million.
b. Increases/Decreases and Transfer of Common Stock, Reserve, and Surplus
The Companies Act requires that an amount equal to 10% of dividends must be appropriated as a legal reserve(a component of retained earnings) or as additional paid-in capital (a component of capital surplus) depending on the

5th
Stock
Option6th (a)Stock
Option7th (a)Stock
Option7th (b)Stock
Option8th (a)Stock
Option8th (b)Stock
Option9th
Stock
Option10th
Stock
Option11th
Stock
Option15,00021,30018,00033,00026,40036,00021,50018,90027,00021,50018,90027,00012th
Stock
OptionYear Ended February 28, 2013
Non-vested
February 29, 2012—Outstanding
GrantedCanceled
VestedFebruary 28, 2013—Outstanding

equity account charged upon the payment of such dividends until the total of aggregate amount of legal reserve andadditional paid-in capital equals 25% of the common stock. Under the Companies Act, the total amount of additional
paid-in capital and legal reserve may be reversed without limitation. The Companies Act also provides that common
stock, legal reserve, additional paid-in capital, other capital surplus, and retained earnings can be transferred among
the accounts under certain conditions upon resolution of the shareholders.
c.	Treasury Stock and Treasury Stock Acquisition Rights

VestedFebruary 29, 2012—Outstanding
VestedExercised
Canceled
February 28, 2013—Outstanding(6,000)(27,000)
15,00021,30018,000(4,600)26,40031,400

The Companies Act also provides for companies to purchase treasury stock and dispose of such treasury stock by­resolution of the Board of Directors. The amount of treasury stock purchased cannot exceed the amount available for
distribution to the shareholders which is determined by a specific formula. Under the Companies Act, stock acquisitionrights are presented as a separate component of equity. The Companies Act also provides that companies can purchase both treasury stock acquisition rights and treasury stock. Such treasury stock acquisition rights are presented asa separate component of equity or deducted directly from stock acquisition rights.

13. STOCK OPTIONSThe Company has stock option plans as an incentive for directors, executive officers, and selected employees.
The stock options outstanding as of February 28, 2014, are as follows:
Stock Option

5th Stock
Option6th (a) Stock
Option7th (a) Stock
Option8th (a) Stock
Option8th (b) Stock
Option9th Stock
Option10th Stock
Option11th Stock
Option12th Stock
Option92

Persons Granted

Number of
Options Granted

Date of Grant

9 directors

22,400 shares2005.10.12

9 directors

21,300 shares2006.10.26

7 directors

18,000 shares2007.9.5

7 directors
11 executive
officers

26,400 shares2009.1.16

36,000 shares2009.1.16

7 directors

21,500 shares2010.2.17

7 directors

18,900 shares2011.2.25

7 directors

27,000 shares2013.2.17

7 directors

26,900 shares2013.4.12

Lawson, Inc. Integrated Report 2014

Exercise Price

Exercise Period¥1($0.01)¥1($0.01)¥1($0.01)¥1($0.01)¥5,174($50.76)¥1($0.01)¥1($0.01)¥1($0.01)¥1($0.01)

From October 13, 2005
to May 31, 2025
From October 27, 2006
to May 26, 2026
From September 6, 2007
to August 20, 2027
From January 17, 2009
to December 15, 2028
From January 18, 2011
to December 15, 2014
From February 18, 2010
to February 1, 2030
From February 26, 2011
to February 10, 2031
From February 18, 2013
to February 1, 2032
From April 12, 2013
to March 26, 2033

Year Ended February 28, 2014
Non-vested
February 28, 2013—Outstanding
GrantedCanceled
VestedFebruary 28, 2014—Outstanding
VestedFebruary 28, 2013—Outstanding
VestedExercised
Canceled
February 28, 2014—Outstanding
Exercise price
Average stock price at exercise
Fair value price at grant date

26,90026,90015,00021,30018,00026,40031,40021,50018,90027,00026,900(12,300)(19,100)
15,00021,30018,00026,40021,50018,90027,00026,900¥    1 ¥    1 ¥    1 ¥3,949 ¥    1 ¥5,174 ¥    1 ¥    1 ¥    1 ¥    1($0.01) ($0.01) ($0.01) ($42.69) ($0.01) ($50.76) ($0.01) ($0.01) ($0.01) ($0.01)¥7,690($75.44)¥3,178 ¥2,852¥3,477 ¥  582 ¥2,652 ¥2,689 ¥3,339 ¥5,516($31.18) ($27.98)($34.11) ($5.71) ($26.02) ($26.38) ($32.76) ($54.11)

The assumptions used to measure the fair value of the 12th stock option (2014) were as follows:
12th Stock Option

Estimate method
Volatility of stock price
Estimated remaining outstanding period
Estimated dividend
Risk-free interest rate

Black-Scholes option pricing model
25.22%
10 years¥193 per share
0.62%

Lawson, Inc. Integrated Report 201493

The following is a breakdown of assets and liabilities at the time Saha Lawson Co., Ltd. was newly consolidated through14. INCOME TAXES

purchase of shares, and the difference between the cost of purchase of Saha Lawson shares and proceeds from the
The Company and its domestic subsidiaries are subject to a number of different taxes based on income, which in the­purchase.

aggregate, resulted in a normal statutory tax rate of approximately 38.0% and 40.7% for the years ended February 28,
2014, and 2013.
The tax effects of significant temporary differences and tax loss carryforwards, which resulted in deferred tax assets andliabilities at February 28, 2014 and 2013, are as follows:
Millions of Yen

Deferred tax assets:
Accrued enterprise taxes
Accrued employees’ bonuses
Excess of depreciation
Excess of amortization of software
Employees’ retirement benefits
Allowance for doubtful accounts
Impairment loss
Tax loss carryforwards
Other
Less valuation allowance   Total
Deferred tax liabilities—Affiliates’ stock (paid-in capital decrease)
Net deferred tax assets

Thousands of
U.S. Dollars

2014

2013

2014

¥ 1,254880
12,164
808
6,018
1,055
3,072
7,261
3,190
(9,593)
26,109¥ 1,132
968
10,022
567
5,602
674
3,123
7,096
2,782
(9,044)22,922
2,050¥20,872$ 12,301
8,633
119,325
7,926
59,035
10,34930,13571,22831,293(94,104)
256,121¥26,109

2014

2014

¥3,225
699
8
1,526
1,223
1,183
112
2,804
¥1,733$31,636
6,857
78
14,96911,997
11,605
1,099
27,506$17,000

16.	LEASESThe Companies lease certain store facilities, machinery, computer equipment, office space, and other assets.
Obligations under finance leases and future minimum payments under noncancelable operating leases at February 28,
2014 and 2013, were as follows:
Millions of Yen

on or after April 1, 2014. As a result, the normal effective statutory tax rate to recognize deferred tax assets and liabilities
for the expected future tax consequences of temporary differences in the fiscal years beginning on or after March 1, 2015,changed from 38.01% to 35.64%. The effect of this change is immaterial.
At February 28, 2014, certain domestic subsidiaries have tax loss carryforwards aggregating approximately ¥14,878 million ($145,949 thousand) which are available to be offset against taxable income of such subsidiaries in future years. Thesetax loss carryforwards, if not utilized, will expire as follows:

2020
2021
2022
2023
Total

Current assets
Non-current assets
Goodwill
Current liabilities
Minority interests
Acquired price of stock
Acquisition cost of shares prior to acquisition
Cash and cash equivalents of acquired company
Difference: Acquisition of a subsidiary, net of cash acquired$256,121

New tax reform laws enacted in 2014 in Japan changed the normal effective statutory tax rate for the fiscal year beginningYear Ending February 28 or 29

Thousands of
U.S. Dollars

Millions of Yen

2013

2014

Due within one year
Due after one year
Total

Thousands of U.S. Dollars

2014

Finance
LeasesOperating
LeasesFinance
LeasesOperating
LeasesFinance
LeasesOperating
Leases¥16,586
61,667¥78,253¥  914
1,295¥2,209¥14,489
47,207¥61,696¥  976
1,688¥2,664$162,704
604,934$767,638$ 8,966
12,704$21,670

Pro forma Information of Leased Property Whose Lease Inception Was before February 28, 2009
ASBJ Statement No. 13, “Accounting Standard for Lease Transactions” requires that all finance lease transactions be­capitalized to recognize lease assets and lease obligations in the balance sheet. However, ASBJ Statement No. 13 permits
leases without ownership transfer of the leased property to the lessee and whose lease inception was before March 31,

Millions of Yen

Thousands of
U.S. Dollars¥ 7,878$ 77,281

5,500
1,500
¥14,878

53,953
14,715$145,949

2008, to continue to be accounted for as operating lease transactions if certain “as if capitalized” information is disclosed
in the notes to the financial statements. The Companies applied ASBJ Statement No. 13 effective March 1, 2009,
and accounted for such leases as operating lease transactions. Pro forma information of leased property whose lease
inception was before February 28, 2009, was as follows:
Millions of Yen
Furniture, Fixtures, and Equipment and Other Assets

15.	SUPPLEMENTAL INFORMATION FOR CASH FLOWS(1) Finance lease assets and finance lease obligations regarded as noncash transactions incurred for the year ended
February 28, 2014, amounted to ¥32,291 million ($316,765 thousand).

Acquisition cost
Accumulated depreciation
Accumulated impairment loss
Net leased property

Thousands of
U.S. Dollars

2014

2013

2014

¥13,773
11,490673¥ 1,610¥21,035
16,007662¥ 4,366$135,109
112,713
6,602$ 15,794(2) Breakdown of assets and liabilities of a newly consolidated subsidiary acquired through purchase of shares in this­consolidated fiscal year.

94

Lawson, Inc. Integrated Report 2014

Lawson, Inc. Integrated Report 201495

Obligations under finance leases:

18.	SEGMENT INFORMATION
Millions of Yen

Due within one year
Due after one year
Total

Thousands of
U.S. Dollars

2014

2013

2014

¥1,793629¥2,422¥2,9502,475¥5,425$17,589
6,170$23,759

In March 2008, the ASBJ revised ASBJ Statement No. 17, “Accounting Standard for Segment Information Disclosures”
and issued ASBJ Guidance No. 20, “Guidance on Accounting Standard for Segment Information Disclosures.” Under the
standard and guidance, an entity is required to report financial and descriptive information about its reportable segments.
Reportable segments are operating segments or aggregations of operating segments that meet specified criteria.
Operating segments are components of an entity about which separate financial information is available and such information is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing

Allowance for impairment loss on leased property of ¥375 million ($3,679 thousand) and ¥533 million as of February 28,
2014 and 2013, is included in obligations under finance leases.
The imputed interest expense portion which is computed using the interest method is excluded from the above obligations
under finance leases.

ing operating segment performance and deciding how to allocate resources to operating segments.
(a) Description of reportable segments
The Company’s financial information is provided separately by reporting segment and is subject to regular review by the
Board of Directors with regard to the allocation of managerial resources and performance evaluation. The Companies’­primary business is the operation of domestic convenience stores, which is undertaken by the incorporation of related

Depreciation expense, interest expense, and other information under finance leases:
Millions of Yen

Depreciation expense
Interest expense
Lease payments
Reversal of allowance for impairment loss on leased property
Impairment loss

performance. Generally, segment information is required to be reported on the same basis as is used internally for evaluat-

Thousands of
U.S. Dollars

2014

2013

2014

¥2,662
103
3,016
178
32

¥4,077
215
4,374
187
69

$26,113
1,010
29,586
1,746
314

Depreciation expense and interest expense, which are not reflected in the accompanying consolidated statements ofincome, are computed by the straight-line method and the interest method, respectively.

businesses.
Therefore, the Companies have made the domestic convenience store unit their main reporting segment, based on consideration of financial characteristics and the nature of the services provided.
Lawson, Inc. and Lawson Mart, Inc. running the LAWSON, NATURAL LAWSON, LAWSON STORE 100, and otherchains—The domestic convenience store unit operates a franchise system as well as undertaking the direct ­managementof stores in Japan. SCI, Inc. performs to develop a coherent manufacturing retail model in which waste and redundant
work will be reduced that are generated throughout a supply chain starting from the procurement of raw materials, to­manufacturing, distribution and operations at stores.
(b) Methods of measurement for the amounts of sales, profit (loss), assets, and other items for each reportable segment
The accounting policies of each reportable segment are basically consistent with those disclosed in Note 2, “Summary of

17. COMPREHENSIVE INCOME

Significant Accounting Policies.”

The components of other comprehensive income for the years ended February 28, 2014 and 2013, were as follows:

Operating income is applied in “Segment profit.” “Intersegment sales or transfers” are calculated based on market price.
(c) Information about sales, profit (loss), assets, and other items is as follows:

Millions of Yen

2014

Unrealized gain on available-for-sale securities(Losses) gains arising during the year
Reclassification adjustments to profit or loss
Amount before income tax effect
Income tax effectTotal
Foreign currency translation adjustments
Adjustments arising during the year
Share of other comprehensive loss in associates
Losses arising during the year
Total other comprehensive income¥ (263)
(9)
(272)
100
¥ (172)2013¥  143(1)
142(52)¥   90Thousands of
U.S. Dollars$ (2,580)(88)(2,668)981$ (1,687)¥2,655¥1,926$26,045¥ (839)¥1,644¥ (639)¥1,377$ (8,230)$16,128

The corresponding information for the year ended February 28, 2013, was not required under the accounting standard forpresentation of comprehensive income as an exemption for the first year of adopting that standard and is not disclosed
herein.

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Lawson, Inc. Integrated Report 2014

Millions of Yen

2014

2014
Reportable
Segments

Sales:
Sales to external customers
Intersegment sales or transfers
Total
Segment profit
Segment assets
Other:
Depreciation
Amortization of goodwill
Payment for associated companies Increase in property, plant, andequipment and intangible assets

Domestic
Convenience
Store

Other

Total

Reconciliations¥408,018
2,305¥410,323¥ 63,299
601,710¥77,230
2,505¥79,735¥ 4,782
81,047¥485,248
4,810¥490,058¥ 68,081
682,757¥ (4,810)¥ (4,810)¥    46(61,764)

44,008
419
2,295

2,954
542
3,876

46,962961
6,171

37,171

3,186

40,357

Consolidated¥485,248(34)¥485,248¥ 68,127
620,993
46,962927
6,171
40,357

Lawson, Inc. Integrated Report 201497

Millions of Yen

Millions of Yen

2013

Sales:
Sales to external customers
Intersegment sales or transfers
Total
Segment profit
Segment assets
Other:
Depreciation
Amortization of goodwill
Payment for associated companies Increase in property, plant, andequipment and intangible assets

2013

Reportable
Segments

Reportable
Segments

Domestic
Convenience
Store

Domestic
Convenience
Store

Other

Total

¥2,780¥150¥2,930

Other

Total

Reconciliations

Consolidated

Loss on impairment of long-lived assets¥416,935
2,159¥419,094¥ 61,336
562,237¥70,5102,493¥73,003¥ 4,872
69,759¥487,445
4,652¥492,097¥ 66,208
631,996

40,050
671
2,181

2,780
419
4,228

42,8301,090
6,409

40,194

2,728

42,922

Reconciliations

Consolidated¥2,930¥487,445¥   (4,652)¥   (4,652)¥    38(52,186)(34)

Thousands of U.S. Dollars¥487,445¥ 66,246
579,81042,8301,056
6,409
42,922

2014
Reportable
Segments

Loss on impairment of long-lived assets

Domestic
Convenience
Store

Other

Total

Reconciliations

Consolidated$57,269$4,483$61,752$(5,405)$56,347

Reconciliations

Consolidated(e) Information regarding amortization of goodwill and carrying amount of reportable segments
Millions of Yen

2014

Thousands of U.S. Dollars
Reportable
Segments

2014
Reportable
Segments

Sales:
Sales to external customers
Intersegment sales or transfers
Total
Segment profit
Segment assets
Other:
Depreciation
Amortization of goodwill
Payment for associated companies Increase in property, plant, andequipment and intangible assets

Domestic
Convenience
Store

Other

Total

Reconciliations$4,002,531
22,611$4,025,142$  620,944
5,902,590$757,602
24,574$782,176$ 46,910
795,046$4,760,133
47,185$4,807,318$  667,854
6,697,636$ (47,185)$ (47,185)$    451(605,886)

431,705
4,110
22,513

28,9785,318
38,023

460,683
9,428
60,536

Consolidated

Goodwill at February 28, 2014

¥9,719(334)¥9,719Millions of Yen
Reportable
Segments$4,760,133$  668,305
6,091,750
460,683
9,094
60,536

Goodwill at February 28, 2013

Domestic
Convenience
Store

Other

Total

Reconciliations

Consolidated¥6,995¥3,273¥10,268¥(585)¥9,683

Reconciliations

Consolidated

Thousands of U.S. Dollars

2014

364,636

31,254

395,890

Reportable
Segments

395,890

Goodwill at February 28, 2014

Domestic
Convenience
Store

Other

Total

$59,123$36,217$95,340$95,340

The amount under “Other” is for the entertainment/home convenience business and overseas business.

Millions of Yen

2014

Amortization of goodwill has been omitted, as similar information is disclosed in “(c) Information about sales, profit (loss),

Reportable
Segments

Lawson, Inc. Integrated Report 2014

Total

¥3,6922013(d) Information regarding loss on impairment of long-lived assets of reportable segments

98

Other

¥6,027$4,760,133

Notes: 1. “Other” is operating segments that are not included in reportable segments, consisting of entertainment/home convenience business, financial­services-related business, overseas business, and so on.
2. Reconciliations for segment profit, segment assets, and amortization of goodwill are due to the elimination of intersegment transactions.

Loss on impairment of long-lived assets

Domestic
ConvenienceStore

assets, and other items.”

Domestic
Convenience
Store

Other

Total

Reconciliations

Consolidated¥5,838¥457¥6,295¥(551)¥5,744

Lawson, Inc. Integrated Report 201499

19.	RELATED PARTY TRANSACTIONSInvestment securities are primarily shares of companies with business relationships and listed shares of which are exposedto the risk of market price fluctuations. With regard to this risk, the Company monitors the financial conditions of business

Balances and transactions of the Company with subsidiaries of Mitsubishi as of and for the years ended February 28,

counterparties on a regular basis.

2014 and 2013, were as follows:
Millions of Yen

Mitsubishi Shokuhin Co., Ltd.:
Accounts payable—trade
Purchases

Thousands of
U.S. Dollars

2014

2013

2014

¥ 43,961
502,344¥ 36,370
428,342$  431,244
4,927,840

payment due dates within one month, while most deposits held as a result of ticket sales transactions have payment due
dates within six months.
The primary purpose of long-term debt and lease obligations related to finance lease transactions is securing the funds
required for capital investments, and their maximum redemption dates are fifteen years after the balance sheet date.
Deposits received from franchisees and lessees are primarily operational deposits received from franchised stores based

Purchase prices and other conditions are determined at an arm’s-length basis.

on franchise contracts and are returned to franchised stores after the expiry of the franchise contract term (contract term isBalances and transactions of Ninety-nine Plus Inc., a consolidated subsidiary of the Company, with subsidiaries ofMitsubishi as of and for the years ended February 28, 2014 and 2013, were as follows:

2014

10 years in principle).
With regard to the liquidity risk associated with fund-raising (risk for which payment cannot be executed on the payment

Millions of Yen

Mitsubishi Shokuhin Co., Ltd.:
Accounts payable—trade
Purchases

Among trade payables, most of the accounts payable—trade and deposits held as a result of bill settlement services haveThousands of
U.S. Dollars

2013

due date), the Company prepares and updates financial plans on a timely basis and manages liquidity risk by measures,
including maintaining liquidity on hand.

2014(3) Fair Values of Financial Instruments¥61,217¥ 6,173
80,324

Fair values of financial instruments are based on the quoted price in active markets. If a quoted price is not available, other$600,520

rational valuation techniques are used instead. The result of estimation might differ if other valuation techniques were used.
Millions of Yen

Purchase prices and other conditions are determined at an arm’s-length basis.
February 28, 2014

Balances and transactions of SCI, Inc., a consolidated subsidiary of the Company, with subsidiaries of Mitsubishi as of andfor the year ended February 28, 2014, were as follows:

FINELIFE Corporation:
Accounts payable—trade
Purchases

Millions of Yen

Thousands of
U.S. Dollars

2014

2014

¥ 8,161
54,213$ 80,057
531,813Purchase prices and other conditions are determined at an arm’s-length basis.

20.	FINANCIAL INSTRUMENTS AND RELATED DISCLOSURES

Cash and cash equivalents
Time deposits
Accounts receivable
Investments securities
Investments in associated companies
Long-term loans receivable
Lease deposits
Total
Accounts payable
Money held as agent
Long-term debt (include current portion of long-term debt)
Guarantee deposits received from franchised stores and other
Total

Carrying
AmountFair Value¥ 68,760
8,004
84,025917
3,876
33,66085,699¥284,941¥121,790
87,58678,25332,253¥319,882¥ 68,760
8,004
84,025917
3,881
33,702
81,026¥280,315¥121,790
87,58678,58030,436¥318,392

Unrealized
Gain/Loss¥     542
(4,673)¥(4,626)¥   327(1,817)¥(1,490)(1) Policy for Financial Instruments
The Companies primarily use short-term deposits, etc., to manage their funds and raise funds as necessary through borrowings from financial institutions and leasing according to the financing plan. The Companies do not engage in derivativetransactions.
(2) Nature, Extent of Risk, and Risk Management System for Financial Instruments
Trade receivables, such as accounts receivable due from franchised stores and other accounts receivable, are exposed tocredit risk from business counterparties.
Long-term loans receivable (primarily referring to construction cooperation funds which are loaned to the owners whena store opens and loans to franchised stores) and lease deposits are exposed to credit risk from the owners, etc. The
responsible department monitors these risks on receivables on a daily basis with the aim of early detection and reductionof concerns associated with the collectibility of debt due to deterioration in the financial conditions of the owners.

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Lawson, Inc. Integrated Report 2014101

Long-term debt (including current portion of long-term debt)

Millions of Yen
February 28, 2013

Cash and cash equivalents
Time deposits
Accounts receivable
Investments securities
Investments in associated companies
Long-term loans receivable
Lease deposits
Total
Accounts payable
Money held as agent
Long-term debt (include current portion of long-term debt)
Guarantee deposits received from franchised stores and other
Total

Carrying
AmountFair Value¥ 72,766
12,004
70,102
1,191
4,228
34,48485,548¥280,323¥115,674
87,52961,85234,805¥299,860¥ 72,766
12,004
70,102
1,191
6,659
34,536
79,141¥276,399¥115,674
87,52962,26932,115¥297,587

Unrealized
Gain/Loss

February 28, 2014

Cash and cash equivalents
Time deposits
Accounts receivable
Investments securities
Investments in associated companies
Long-term loans receivable
Lease deposits
Total
Accounts payable
Money held as agent
Long-term debt (include current portion of long-term debt)
Guarantee deposits received from franchised stores and other
Total

Fair Value$  674,514
78,517824,259
8,995
38,022
330,194
840,682$2,795,183$1,194,723
859,192
767,638
316,392$3,137,945$  674,514
78,517824,259
8,995
38,071
330,607794,841$2,749,804$1,194,723
859,192
770,845
298,567$3,123,327

assumed corporate discount rate.
Guarantee deposits received from franchised stores and other
The fair values of guarantee deposits received from franchised stores and other are determined by discounting future cash

¥ 2,43152(6,407)¥(3,924)flows based on the estimated repayment amount with the yield rate of government bonds during the remaining period.
(4) Financial Instruments Whose Fair Value Cannot Be Reliably Determined
Carrying AmountThousands of
U.S. Dollars

Millions of Yen¥   417(2,690)¥(2,273)

Thousands of U.S. Dollars
Carrying
Amount

The fair values of long-term debt are determined by discounting the cash flows related to the debt at the Companies’

Unrealized
Gain/Loss

Investments in equity instruments that do nothave a quoted market price in an active market
Investments in unconsolidated subsidiaries
and affiliated companies
Others

2014

2013

2014

¥  971¥1,038$ 9,525

7,106
388

3,218
462

69,7093,807(5) Maturity Analysis for Financial Assets and Securities with Contractual Maturities
Millions of Yen

2014$     49413
(45,841)$(45,379)$   3,207(17,825)$(14,618)

Cash and cash equivalents
Time deposits
Accounts receivable
Long-term loans receivable
Lease deposits
Total

Due in1 Yearor Less

Due after
1 Year through5 Years

Due after
5 Years through10 Years

Due after
10 Years¥ 68,760
8,004
86,379295
4,902¥168,340¥14,941
19,361¥34,302¥10,165
20,717¥30,882¥ 8,327
41,170¥49,497

Millions of Yen

2013

Cash and cash equivalents, time deposits, and accounts receivable
The carrying values of cash and cash equivalents, time deposits, and accounts receivable (including allowance for doubtful
accounts) approximate fair values because of their short maturities.
Investment securities and investments in associated companies
The fair values of investment securities are measured at the quoted market price on the stock exchange for the equity
instruments, and at the quoted price obtained from the financial institution for certain debt instruments.
Long-term loans receivable

Cash and cash equivalents
Time deposits
Accounts receivable
Long-term loans receivable
Lease deposits
Total

Due in1 Yearor Less

Due after
1 Year through5 Years

Due after
5 Years through10 Years

Due after
10 Years¥ 72,766
12,004
71,383
3,270
5,177¥164,600¥12,176
19,266¥31,442¥10,444
20,371¥30,815¥ 8,691
41,295¥49,986

The fair values of long-term loans receivable (including allowance for doubtful accounts) are determined by discounting theThousands of U.S. Dollars

cash flows related to the loans at the interest rate deemed to be applied for similar loans.

2014

Lease deposits
The fair values of lease deposits (including allowance for doubtful accounts) are determined by discounting future cash
flows which reflect the collectibility with the yield rate of government bonds during the remaining period.
Accounts payable and money held as agent
The carrying values of accounts payable and money held as agent approximate fair value because of their short maturities.

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Lawson, Inc. Integrated Report 2014

Cash and cash equivalents
Time deposits
Accounts receivable
Long-term loans receivable
Lease deposits
Total

Due in1 Yearor Less

Due after
1 Year through5 Years

Due after
5 Years through10 Years

Due after
10 Years$  674,514
78,517
847,352
2,894
48,087$1,651,364$146,567
189,925$336,492$ 99,716
203,227$302,943$ 81,684
403,866$485,550

Lawson, Inc. Integrated Report 2014103

21.	NET INCOME PER SHARE(2) Absorption-type merger between Ninety-nine Plus, Inc. and the Company
a. Outline of transaction

Reconciliation of the differences between basic and diluted net income per share (“EPS”) for the years ended February 28,
2014 and 2013, is as follows:Year Ended February 28, 2014

Basic EPS—
Net income available to common shareholders
Effect of dilutive securities—
Stock options
Diluted EPS—
Net income for computation

Year Ended February 28, 2013

Basic EPS—
Net income available to common shareholders
Effect of dilutive securities—
Stock options
Diluted EPS—
Net income for computation

Millions of Yen

Thousandsof Shares

Net Income

Weighted-Average
Shares¥37,965

99,898Yen

U.S. Dollars
EPS¥380.04(i) Name of the merged company and its line of business		

Name of the business combination: Lawson, Inc.

		Business outline:

Convenience store business		

Name of combined company:

Ninety-nine Plus, Inc.

		Business outline:

Fresh foods convenience store business(ii) Date of business combination
$3.73

		

February 1, 2014(iii) Legal form of business combination
181

		

¥37,965

100,079¥379.35

Millions of Yen

Thousandsof Shares

Yen

Net Income

Weighted-Average
Shares

EPS¥33,182

99,887¥332.20$3.72

100,039

		Lawson, Inc.
(v) Other matters concerning the transaction

152¥33,182

Absorption-type merger with Lawson, Inc. as the surviving company(iv) Name of the company after the business combination		By allowing the Company to acquire store-related assets, including the franchise agreements of LAWSON STORE
100 and centralizing all Lawson chain store administrative functions, including store asset management and franchise promotion, the business combination aims to enable the Group to implement efficient area-targeted strategies.
b. Outline of the accounting process applied
	The business combination was processed as a common control transaction pursuant to the Accounting Standard for¥331.69

Business Combinations (ASBJ Statement No. 21 of December 26, 2008) and Revised Guidance on AccountingStandard for Business Combinations and Accounting Standard for Business Divestitures (ASBJ Guidance No. 10 ofDecember 26, 2008).

22. BUSINESS COMbINATIONS
23.	SUBSEQUENT EVENT
Transactions under common control for the year ended February 28, 2014
Appropriation of Retained Earnings(1) Absorption-type company split of Ninety-nine Plus, Inc. with Lawson Mart, Inc. as the successor company
The following appropriation of retained earnings was approved at the general shareholders’ meeting held on May 27,

a. Outline of transaction(i) Name of the absorbed business and its outline
		

2014:

Name of business: A part of fresh foods convenience store business		Business outline:	Store operation, merchandising function, product supply, etc. of “LAWSON MART” and“LAWSON STORE 100”

Cash dividends, ¥110 ($1.08) per share

Millions of Yen

Thousands of
U.S. Dollars¥10,989$107,799(ii) Date of business combination		February 1, 2014(iii) Legal form of business combination
		Absorption-type company split with Ninety-nine Plus, Inc. as the split company and Lawson Mart, Inc. as the­successor company (spin-off type)(iv) Name of company after the business combination
		

Lawson Mart, Inc.

(v) Other matters concerning the transaction		The operational functions of Ninety-nine Plus, Inc., including store management and product development, weresucceeded by Lawson Mart, Inc., and will be further enhanced to lead the Group’s fresh foods business.
b. Outline of the accounting process applied
	The business combination was processed as a common control transaction pursuant to the Accounting Standard forBusiness Combinations (ASBJ Statement No. 21 of December 26, 2008) and Revised Guidance on AccountingStandard for Business Combinations and Accounting Standard for Business Divestitures (ASBJ Guidance No. 10 ofDecember 26, 2008).

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Lawson, Inc. Integrated Report 2014105

Independent Auditor’s Report106

Lawson, Inc. Integrated Report 2014

Lawson, Inc.
INTEGRATED REPORT 2014

INTEGRATED REPORT 2014
Creating Happiness and Harmony
in Our Communities

East Tower, Gate City Ohsaki, 11-2, Osaki 1-chome,
Shinagawa-ku, Tokyo 141-8643, Japan

http://lawson.jp/en/
Published in November 2014

© 1975-2014 Lawson, Inc. All rights reserved.
Printed in Japan