I N T E G R AT E D
REPORT

2 016

C O N T E N T S

View from the Top

02 Lawson in Data
04 CEO Interview
10 Message from the COO
11 Message from the CFO
12 Messages from an Outside Director

and Outside Auditor

Corporate Philosophy
Creating Happiness and Harmony in
Our Communities

14 Executives
16 Growing in Pursuit of “Happiness andHarmony in Our Communities”

17 Becoming an Essential Part of

Our Communities

Vision18 Expanding Business Based on Lawson’s

Corporate Value Creation Cycle

To be a leading company in execution
Think through customers’ needs and changes,
execute with speed and become an essential part ofour communities.

1,000-Day Action Plan
22 Becoming an Essential Part of

Our Communities

26 Store Productivity Innovation
28 Becoming a Full-fledged

Code of Conduct
1. Think as customers, communities and stores.
2. Master the basics and strive to innovate.
3. Improve the quality and speed of the Plan-Do-CheckAct cycle.
4. Act with discipline, take initiative and succeed as a team.
5. Grow as individuals and support the growth of ourteam members.

Manufacturing Retailer

30 Striving for Innovation as "One Lawson"
32 New systems for the Next-Generation

LAWSON Convenience Store

33 Lawson Group Challenge
34 Lawson Topics
35 Reinforcing Management Structures

to Assure Sustainable Operations

36 Compliance and Risk Management
40 Social and Environmental Activities
42 Developing Human Capital
43 Corporate Governance46 Corporate Data

To become an essential part ofour communities
Today’s convenience store industry is in a period of dramatic change. Not only are we witnessing
such changes in the community as a declining birthrate and aging population, an increasing numberof double-income households, and a decreasing number of locally-based retail shops, but we arealso experiencing a drastic change in our industry. In the midst of all this, we launched the 1,000-Day
Action Plan in the aim that the Company will reach some highly significant milestones in the next
three years. First, we will advance the evolution of our business model founded on the concept of a
Manufacturing Retailer Based on Small Commercial Area model and realize sophisticated, one-of-akind store productivity. At the same time, we will continue to pursue creation of a Next-Generation
LAWSON Convenience Store model that can satisfy customers’ overall lifestyle needs.
We have added a new Vision and a revised Code of Conduct to our enduring Corporate
Philosophy. Under a new, firmly founded CEO/COO framework, the Lawson Group is positioned asa singular force to become an essential part of our communities as a leading company in execution.
Lawson will increase its corporate value further while continuing to maintain a harmonious
relationship with society as an essential component of its communities’ social infrastructure.

Report Coverage

The information in this report concerns primarily
business activities conducted by Lawson, Inc. andsome of its affiliates as well as its franchise stores. It
also extends to operations of the Lawson Group’sbusiness partners in the logistics, food manufacturing
and waste-processing fields for which the partners
have consented to disclosure.

Lawson communication media

Community-Citizens
Harmony Project
ReportA simple, clearly written
report on our responses tosocial and environmental
challenges

Reporting period

This report covers the fiscal year from March 1,
2015 to February 29, 2016, with some reportingon activities before and after this period. For further
details, please visit our website:

INTEGRATED REPORT
An overview of the Lawson
Group’s business activities
in local communities and theoutlook for sustainable growth

Financial section
Report on industry trends
and the Group’s businessinitiatives and financial
position in relevant years, aswell as projected earnings
assessment/analysis andoutlook for next fiscal year

http://lawson.jp/en/

Future forecasts, projections and plans

This report’s coverage extends beyond current
information and data for the Lawson Group to futureforecasts based on its plans and perspectives at the timeof publication. These forecasts represent assumptionsand viewpoints arrived at based on information available
as of the report’s writing. The actual results may differ
from the forecasts due to various circumstances andexternal environmental factors.

Financial section

Genichi Tamatsuka

Sadanobu Takemasu

Chairman and CEO,
Representative Director

President and COO,
Representative Director

Lawson website

Presents information and data not covered by Lawson publications.

The data in the financial section of this English
language report constitute official information. The
Japanese-language version does not contain notes
to the financial statements. Please consult theJapanese-language Lawson, Inc. Securities Reportfor these materials.

01Lawson in Data

Rate of food recycling & number of participating stores

Financial data
Consolidated net sales
by all storesConsolidated operating
profitConsolidated net sales by all stores (left axis)
Consolidated operating profit ratio (right axis)(Billion yen)
2,000

19,6191,825.8
18,2582,049.5

1,906.5 1,945.3 1,961.9

1,500

3.5

3.4

4.0 (%)

3.5

3.6

3.5

3.5

60

66.2

61.7

72.5
70.4

68.1

R O E

ROE (return on equity)

Payout ratio

Net income per share

Cash dividends applicable to the year (left axis)
Payout ratio (right axis)
(%)
20.0

(Yen)
250

15.2

16.0

50

245

240

(%)
100

200

13.0

12.0

12.0

150

180
72.2

200
60.2

80

73.4

78.1

Approx.
2011

2

trillion yen

2012 2013

2014

2.0
2015 (Fiscal year)

20
10
0

72.5
2011

8.0

billion yen

2012 201320142015 (Fiscal year)

12.0

4.0

0

2011

2012 2013

57.9

2014

100

78.1

50

%
2015 (Fiscal year)

0

40

%

2011

2012 2013

(%)
100
80

Annual electricity use index (left axis)
CO2 emissions (right axis)
20%
reduction
targeted
Base year

98.8

86.4

68.2

2014

20

0
2015 (Fiscal year)

60
40
20
0

100.0

2010

Number of stores implementing (right axis)
Waste oil recycling
Conversion to animal feed and fertilizer
Heat recovery
Rate of implementation of activities
such as food recycling (left axis)(t-CO 2)
120
(%)

80

40

60

30
20

20

10

0
2020 (Fiscal year)

0

80.0

2015

41.1

%

40

91.5

7,820 8000

326

6,890

313

6000

4,780
4,025

313

100

0

4000

2011

2012 2013

20
100

%

Consolidated operating profit

billion yen

2000

yen
0

2014

2015 (Fiscal year)*1 The Lawson stock prices are closing prices ofthe end of February of each year.

Rate of food recycling &number of participating stores

100

7,060

249

60

Non-financial data
Electricity use (index)
and CO 2 emissions
per store

(Yen)

380

300

200
30

2.5

(Yen)
400

332

3.0

500

Cash dividends applicable to the year (left axis)
Lawson Inc. share price*1 (right axis)

220

16.1

12.0

40

1,000

0

(Billion yen)
70

Medium- andlong-term targets

41.1

Base year

22.5
8,309

14,02520072015 (Fiscal year)

Total customer donations
received since 1992

(including disaster relief funds)

Approx.
(Stores)(Billion yen)

20,0008

15,000

6

10,000

4

5,000

2

0

0

8.0

Number of working
mothers & their proportion
among female employees

Number of working mothers (left axis)
Percentage of working mothers among(Persons) female employees (right axis)
140

billion yen
8.0

6.6

80

0.02
1992

2002

2012

2015 (Fiscal year)

16.0

60

20
0

30

%

100

40

2.0

21.2

120

8.4
67

4.6
10
2001

25
20

70.4

%

21.2 15
128

Percentage ofindependent directors
among directors

3
8

10
5

23
2005

(%)
35

Percentage of male
employees taking
paternity leave

2010

02015 (Fiscal year)

Numbers related to LAWSON stores*2
Number of domestic stores
Approx.

12,000

Number of customers(per day, all stores)

Approx.

stores10

millonNumber of franchise owners
Approx.

6,000

Number of store crew
Approx.

200,000

Store size

Number of items

Approx.

120

m2

Approx.

3,500*2 The figures for LAWSON stores are rounded off as of end February 2016.

0203

We will continue to build a NextGeneration LAWSON Convenience
Store model that satisfies the
everyday needs of our customers.

Genichi Tamatsuka
Chairman and CEO,
Representative Director

Would you please begin by sharing yourobservations regarding fiscal 2015, the term
ended February 29, 2016?
First, we sought to reinforce the foundation for Lawson’s
convenience store business in the face of an unforgiving
industry environment in fiscal 2015 by strengthening our store
capabilities; improving our product offering; and providing
better support for franchise owners. We reinforced ourmerchandising potential by launching the Passionate andDelicious project, for example, and holding a 40th-anniversary
festival. We also installed a semi-automatic ordering system
based on Ponta card membership data. We accelerated thecontract signing of the new franchise package, moreover,a contract under which headquarters bears a portion of
the franchise stores’ electricity bills and disposal losses.
We also made more proactive proposals in our advertisingand promotional operations. These and other efforts led
to a recovery trend in customer traffic and a year-on-year
improvement of 1.4% in net sales by existing stores. Franchiseowners’ profits turned upward as a result. Despite a surge inadvertising and promotional expenses associated with these
efforts, the addition in fiscal 2014 of Seijo Ishii and United
Cinemas to the Lawson Group as consolidated subsidiaries
FY2015 (ended February 29, 2016) (Consolidated)(Unit: Million yen)2016.2

YoY

2015.2Gross operating
revenues

583,452+17.2％

497,913

Operating profit

72,541+2.9％

70,482

Net income

31,381-4.0％

32,68604

bore fruit in a substantial contribution to profits. As a result,
we recorded consolidated operating profit of 72.5 billion
yen, our best result to date and our 13th consecutive annual
increase. Following a drawdown of deferred tax assets andan increase in extraordinary losses, however, consolidated net
profit registered 31.3 billion yen, down 1.3 billion yen from theprevious year, and our ROE (return on equity) was 12.0%.

What future course do you envision for yourbusiness?
Today’s convenience store industry is undergoing a majortransformation. The social changes that impact our industry
directly include worsening conditions related to the declining
birthrate and aging population and an increase in the numberof double-income households. Other issues include rising
healthcare costs and a decline in the number of communitybased retail shops. As owners of community-based retail storesthemselves, Lawson’s individual franchise owners have also beencaught in the downward spiral. Finally, we face a serious labor
shortage and industrial changes led by M&A activities. I might
add, moreover, that competition seems to be growing more
intense each year, not only among convenience stores but alsowith stores in other sectors, such as supermarkets, drugstoresand fast-food chains. Our responses over the coming three tofive years will determine how successful we can be.
As a neighborhood store, our goal is to become an
essential part of our communities. Looking to the future,
we launched the 1,000-Day Action Plan in the current fiscal
year. This means that everyone affiliated with the Lawson
Group, which includes franchise owners as well as Lawson
employees, will participate in its evolution toward beinga “leading company in execution.” We will build a NextGeneration LAWSON Convenience Store model that will
satisfy our customers’ changing lifestyle needs.

Could you please describe your 1,000-Day
Action Plan?
This action plan is the basis for our efforts to become an essential
part of our communities. Our core business has its origins in the
franchise and retail stores where business actually takes place.
Continuing last year’s efforts, we will continue to strengthen ourstore capabilities; improve our product offering; and provide
better support for franchise owners. We will be unable to keep
pace with customer needs that change daily, if we simply staythe course. Instead, we will take advantage of our competitiveedge to evolve into a new Lawson with a one-of-a-kind brandthat adapts fluidly to the rapid changes in society.
However, just articulating a message changes nothing. We
must reinvent our operational frameworks, working styles and,
finally, our corporate culture itself. Over the next three years,
we will pursue evolution of a business model founded on the
Manufacturing Based on a Small Commercial Area model andactualize unconventional yet sophisticated store productivity.
We will follow up by constructing a Next-Generation LAWSONConvenience Store model that can satisfy our customers’changing lifestyle needs.
We will start by restructuring the frameworks supporting
Lawson over the next three years. The transformation willcommence with the framework for store operations, followed
by structural reforms in the areas of new product development
and new store location. These will be followed, in turn, by
restructuring of our connections with outsourcing plants—
strengthening cooperation—and, finally, by optimizing the
distribution flow. Dramatic leaps forward in digital technology
have turned the unimaginable into reality in just the past 10 or 20
years. These are the times we live in. Our resolve to execute acomplete makeover from the bottom up is unshakeable.
In the end, however, it is human beings who operate withinthese frameworks. We may have built a respectable systemthat is fully digitalized, but it is the franchise owners and, infact, individual employees who actually put the frameworks weconstruct to work. That is to say, we are committed to operatinga human-centered business. Going forward, we will initiate
operational reforms for supervisors who are positioned to provide
guidance for franchise stores. Breaking into our training structure
and thoroughly revising our operation and working style , we willcontinue to revolutionize our way of doing business.
Finally, let me say a few words about our corporate
culture. In the midst of fast-paced environmental changes,
individual actions are of paramount importance. Organizations
can be truly revitalized only when those on the upper andlower strata can confront each other directly, expressing

differences of opinions and conducting candid discussions.
It is in this way that the individual strength of each employee
and affiliated member of the Lawson Group will coalesce into atransformative force that will see the next-generation businessmodel through to fruition. Only then will we truly become an
essential part of our communities.
1,000-Day Action Plan

To become an essential part of our communities
Constructing a Next-Generation LAWSON Convenience Store model

Digital:Restructuring ouroperationalframeworks

Mastering the basics
Responding to change
Rising to the challenge for
future growth
Strengthening
the storecapabilities

Improving
the productoffering

Humancentered:
Changing ourworking styles

Providing bettersupport for
franchise owners“One Lawson”

Changing the corporate culture

You assumed the positions of Chairman and
CEO on June 1. What are your thoughts on
the new CEO/COO management structure?
Yes. I have been the Chairman and CEO, Representative
Director since June 1. Former Senior Executive Vice
President Takemasu assumed the role of President and COO,
Representative Director at the same time. The environment
surrounding us is undergoing dramatic change. To respondto the widely varied needs emerging from this societal
transformation, we are continuing to augment our business
operations exponentially. I believe our business domains
will continue to grow. In the midst of all this, we will need tocomplete implementation of our 1,000-Day Action Plan if weare to actualize the Next-Generation LAWSON Convenience
Store model without further delay. This is why we reinforced
our management to drive leadership by shifting to a CEO/COO management structure.
I will continue to shoulder responsibility for Lawson’s
overall management, including the convenience store
operations in Japan, our core business. I will also take the leadin implementing our 1,000-Day Action Plan. In doing so, I willcontinue to take a direct, hands-on approach to operations.
In this sense, my style has not changed. At the same time,
President and COO Takemasu will not only continue toprovide me with support, but he will play a more active role inareas with expanding operations. I have high expectations, forexample, that he will demonstrate exceptional leadership andresults in the overseas, Seijo Ishii and entertainment businessspheres. It is important, moreover, that we further reinforce ourties in various fields with our largest shareholder, Mitsubishi
Corporation. This is another area in which I am convinced
President Takemasu will display strong leadership.
We will work as one under the new CEO/COO
management structure to optimize and accelerate Lawson’sreformation.

05

What does Lawson mean by the expression“to become an essential part of ourcommunities” stated in the Vision?
The conventional convenience store has achieved growth asa 24-hour neighborhood store offering easy access throughproximity and efficiency. In this era of social change, however,
the role and significance of the convenience store as aneighborhood store have continued to grow as well. Today’s
convenience stores are expected to serve as places to visit
on a daily basis to obtain overall lifestyle support. This takes
on special relevance when we consider working women who
have little time for shopping; senior citizens who want to shop
within walking distance of home; and the declining numbersof community-based retail stores accompanying the closureof local commercial areas. This is why the convenience store
product offering is no longer limited to rice balls, sandwiches,
beverages, cigarettes and newspapers. It now extends toa wide array of products, from food items such as fresh
produce, warm side dishes, milk and eggs for breakfast,
and frozen foods that can be packed in boxed lunches todaily necessities such as detergents, kitchen utensils andbeauty care products. Demand is growing every year for
freshly cooked foods that are prepared on site, including pork
cutlet sandwiches and rice balls. With more people using theconvenience store as a window to pick up Internet shoppingorders, meanwhile, we plan to expand the range of services
we provide in cooperation with parcel delivery services. We
now offer home delivery of products such as the boxedlunches on our display shelves, and we have introduced
door-to-door order-taking services as well. With healthcare
costs on the rise, meanwhile, more people are feeling a needfor a nearby family pharmacy. This has generated demand
for a new kind of store combining the characteristics of aconvenience store with those of a pharmacy and drugstore.
By extending our activities beyond our normal
convenience store function, we are responding to thediversifying range of needs arising in customers’ daily lives.
Lawson intends to transform itself in this way into an essential
presence in everyday community life.

LAWSON as a “neighborhood store”

What are some of the specific undertakings
you plan to pursue in fiscal 2016?
To begin with, all LAWSON stores will expand and improvetheir product offering. The product offering in every store will
increase by 10% compared with the previous year, raising thetotal to some 3,500 items. Realizing this goal will require us to
implement a number of special measures. First, we will invest
in store fixtures. Second, we plan to make improvements in the
products themselves and invest resources in advertising andpromotional efforts to enhance customer awareness.
Next, we will make further improvements in thestores’ ability to sell out their stocks. While continuing theestablishment and activation of the semi-automatic orderingsystem and planned orders we introduced last year, we will
also standardize the supervisors’ function. This will help tominimize inconsistencies among different stores as well as
among supervisors. Thus, the LAWSON chain as a whole aims
to improve the stores’ sellout and sales capabilities.
We are also initiating construction of a new generationof IT systems. This means introducing systems that facilitate
comprehensive, real-time information-sharing across the range
from raw materials procurement to product manufacturing,
distribution and in-store sales. We are implementing a cloudbased system employing both Big Data and artificial intelligence (AI),while at the same time continuing to renew our stores’ hardware.
We never forget, however, that it is people who operatethese sophisticated systems. We cannot get results simply
by converting analog systems to a digital platform. Unless wechange our operating frameworks, working styles and culture as
human operators, the final output will remain unchanged. We areresponding by reexamining all the supervisors’ job responsibilities
with a focus on the things that really need doing after clarifying
the things we can discontinue. At the same time, we are identifying
areas in which greater efficiency is required and areas that should
be handled by headquarters. We have completely discontinued
all theoretical training, switching instead to an approach basedon practical content that can be applied immediately at theworkplace. Similarly, we are streamlining and standardizing
product development and in-store sales development as a basis
for completely restructuring our work procedures. Finally, we willremain committed to our fundamentals, think outside the box
and change our working styles.
Improving our product offerings at all LAWSON stores

Supermarket

3,500StoresInternet shopping

Within walking
distance

350 m

items

Elderly
residents

2016 (Plan)

Males in their
20s to 30s
Homemakers
Working
women

2014
Drugstore

Home ordering anddelivery services

06

2015

Item number

Tell us about the expanded and improved
product offering you are achieving throughthe concerted efforts of all the stores.
In the past, LAWSON has confronted the issue of disparities
in the product range depending on the store. Most notably,
customers could not always find the items they required tomeet their everyday needs. This is why we are expanding our
product offering. We are installing new refrigeration cases
to increase our offering of perishable foods and deli items in
addition to such daily delivered foods as milk, eggs and tofu.
Besides increasing the variety of frozen meals available byinstalling flatbed freezers, meanwhile, we are raising the store
shelf heights to broaden the range of packaged foods anddaily necessities on display. We are focusing on conducting
these fixture investments in about 5,000 LAWSON stores in
the first half of the fiscal year in order to bolster our productoffering throughout the chain simultaneously. We will not stopwith adding new display fixtures, either, but will also promoteuse of the planned order-placement system to make highly
accurate recommendations of merchandise assortments forindividual stores.
We will thus realize sales venues that support customers’
overall lifestyles in all the stores by combining these facility
upgrades with the above-mentioned enhancement of our
product offering by applying the semi-automatic orderingsystem. Our expanded merchandise selection is alreadyencouraging a trend toward repeat customers as well as
toward an increase in the number of purchased items per
customer, thanks to the elimination of opportunity loss atstores where remodeling has been completed.

Please share some details of yourmerchandising strategy with us.
First, we are reinforcing our offering of such convenience store
staples as boxed lunches. Food items such as hamburgers
will be standardized in different categories, such as the boxedlunch and prepared food categories, and Niigata koshihikari
rice will be used for both rice balls and boxed lunches.
We will capitalize on LAWSON’s strengths in raw materials
procurement to reinforce our merchandise potential.
As a store that customers visit daily, moreover, we are
improving our selection of main dishes such as torikara (friedchicken) and genkotsu croquettes (fist-shaped croquettes)
that are sold over the counter for easy purchasing by busy
women and elderly customers. We are also reinforcing our lineof Lawson Select deli items, beverages and frozen meals.
In our role as a community health hub, we remaincommitted to selling merchandise that takes customers’
health into consideration. Seeking to offer products that areboth “delicious and healthy,” we will continue to reinforce
our health-related merchandise category with items such theGreen Smoothie, which became a hit product last year for the
NATURAL LAWSON brand.

Lawson supply chain

StoresRaw materials
purchasing

Manufacturing
plants

DeliveryvehiclesDistribution
centers

Please say a few words about your evolution
as a manufacturing retailer and theimportance of supply chain reform.
Reform of the supply chain is essential to realization of the
Next-Generation LAWSON Convenience Store model. We
have made steady progress in integrating our businessflow, from raw materials purchasing to final sales. In thearea of raw materials purchasing, our efforts have focusedon transparency and efficiency, including the formation of a
specialized department in the Company and establishment of
SCI, a wholly owned Lawson subsidiary. With the introductionof the 1,000-Day Action Plan, moreover, we have reinforced
our direct involvement in the manufacturing process anddistribution flow. Our goal is to complete the process of
becoming a manufacturing retailer serving small commercial
areas. We will push forward with our efficiency drive by
eliminating unseen losses occurring at various stages in theworkflow — between manufacturing and distribution, forexample, and between distribution and sales. This will not only
increase the profitability of the supply chain as a whole, but
it will reduce the burden our operations place on society andthe environment at the same time.
We produce our boxed lunches, rice balls, desserts andother items in outsourcing manufacturing facilities nationwide.
To improve our merchandising capabilities and products,
we will reinforce our current partnerships with these foodprocessing facilities as well as with their parent companies,
who are major food producers.
As for distribution, we not only plan to lower the overall
cost of goods but also to enhance productivity in the stores.
We will rethink our approaches to distribution and, forinstance, reorganize such elements as our temperature zone
management and distribution frequency.
Thus, we are moving ahead with building the NextGeneration LAWSON Convenience Store model by making
the entire supply chain process visible at every point along
the line, from raw materials purchasing to manufacturing,
distribution and sales.

07Please share us your thoughts on going
forward with the IT infrastructure as the next
generation system.
The performance of computers and Internet-related technologies
has evolved dramatically over the past 10 to 20 years. Things
that were impossible yesterday are somehow realized tomorrow.
We live in a world in which innovations in IT occur overnight.
Lawson has been analyzing sales data collected from
Ponta card members as well as sales trends for each productand store for some time now and applying its findings effectively
in its business. Last year, we took another step forward by
installing a semi-automatic ordering system that uses demand
forecasts for each store and item to support franchise owners’
ordering operations. We have since acquired the ability to apply
the forecasts to achieve a further expanded and improved
product offering. We are now pursuing development of asystem in which demand forecast data of this type can beshared on a real-time basis with Lawson Group members
throughout the supply chain, including boxed lunch producers
and delivery centers in addition to headquarters and thestores. Without creating this typeof systemized platform, it would be
difficult to realize a more efficient
overall supply chain and to improve
individual stores’ productivity.

So, how will the stores’ productivity improvein reality? What are some of the specificmeasures Lawson is introducing?
One of the serious issues we face today is a manpower
shortage. The trends toward a declining birthrate and aging
population in Japan are expected to continue for the medium tolong term, and this is exerting a substantial impact on Lawson’s
store operations. One way to counter this is to assign moretasks to machines that do not require the human hand. With
the number of in-store operations increasing, a recognized
LAWSON strength that includes over-the-counter fast food andMachikado Chubo in-store kitchen services, it has become
essential that we implement store productivity reforms.
We will respond by reforming our store work procedures
under the 1,000-Day Action Plan. There are two parts tothis undertaking. The first is to simplify tasks to the extent

that anyone can perform them. The second is to achieve ahigh level of efficiency with as few people as possible. We
are starting by replacing the hardware. Over the next three
years, we will install tablets to serve as operations devices,
replace the old POS cash registers with new ones equippedwith automatic change machines; and update the store PCs
to handle cloud-based computing. As part of the distribution
reforms I mentioned earlier, meanwhile, we will change ourdelivery style and optimize the delivery frequency. We will
also standardize and simplify work procedures and work
proactively toward paperless operation. Our aim is to reduce
the store workload by 25% over the next three years throughthese and other initiatives.

Please describe the human capital that
supports Lawson’s business.
In this unforgiving industry environment, it is important that
employees with diverse ideas be able to think as a team andwork together to create an innovative organization. Lawson
is proactive in hiring employees with diverse backgrounds.
We are equipped to provide an environment in which female
and foreign employees can succeed, benefiting from ample
opportunities for training and promotions. We are also
responding to demand for working style reform. We want
employees who need time off to provide childcare or nursing
care to be able to continue working without resigning. Besides
enhancing our human resources system, we are continuing
our efforts to create a working environment based on mutual
understanding. I believe, for example, that men should sharechildcare responsibilities. In this climate, Lawson has achieveda rate of 70% of fathers of babies or young children taking
childcare leave, which suggests that this attitude is taking hold.
Employee health is another area of considerable importance.
A healthy mind and body are prerequisites for employees toachieve optimal performance in the workplace. I have assumed
the position of CHO (Chief Health Officer) at Lawson, and I will
pursue improvement of Lawson Group employees’ health asa vital management strategy. We will improve our productivity
to make efficient use of the limited time available each day,and to balance work with a gratifying life. We are pursuing
reformation of our work procedures to bring this kind of working
environment into being.
Lawson University, an educational institution operating
under Lawson’s Education Department, has integrated its
classes for franchise owners and headquarters employees.
The resulting curriculum provides education in a diverse arrayof disciplines designed to transmit specialized skill sets. Our
ultimate objective is to enable all the individual members of theLawson Group to achieve growth independently by equippingthem to think and act on their own.

Could you also discuss your corporate
governance and returns to shareholders?

Contribute as infrastructure to regional society

Lawson has led the industry in constructing a responsive,highly transparent corporate governance system. There are
only eight directors on the Board of Directors, for example, andthree of these are outside directors who are independent of theCompany. We have an established structure with a Nomination
and Compensation Committee, moreover, comprising only
outside officers who offer opinions regarding the compensationof the directors as well as the selection of candidates for Board
membership. Two new independent officers were elected at a
recent General Meeting of Shareholders. Outside Director Hayashi
brings a rich fund of managerial experience and entrepreneurial
expertise acquired through founding and operating a successfulcompany, while Outside Auditor Takahashi has experience asa standing corporate auditor for a major IT firm and extensive
knowledge of finance and accounting. We believe they will make a
substantial contribution, along with the other independent officers
with their diverse backgrounds, to the supervision of Lawson’s
management as well as to its auditing operations.
In order to achieve an ROE (return on equity) of 20%,
moreover, which is the global standard for capital efficiency,
Lawson seeks to strike a balance between earnings growth by its
main businesses and the most appropriate returns to shareholders.
As concerns earnings growth, we have targeted consolidated
operating profit of 100 billion yen in the medium to long term. We
will achieve this by combining our domestic convenience store
business, which we are reinforcing under our 1,000-Day Action
Plan, with contributions to earnings from our overseas operations
and Seijo Ishii business and others. With regard to returns toshareholders, meanwhile, our commitment to balancing the mostappropriate reinvestment in the business with steady increases in
dividends remains unchanged. We are planning to increase thefiscal 2016 dividend by 250 yen, marking our seventh consecutive
year of increases. Thus, we will continue to maintain a strict capitaldiscipline, and to meet the expectations of our investors at home
and abroad for returns through our share price and dividend.

Would you mind saying a few words inclosing about CSV (creating shared value)
management?
Today’s corporate managers are expected to apply CSV
management, which seeks to solve social issues throughbusiness activities by balancing the value shared between acompany and society. We have also taken up many challenges
to create a sustainable society. First, we have enacted theLawson Group Environmental Policy to promote our efforts
Road map to sustainable medium-term
growth and an ROE of 20%

ROE 20%Consolidated
operating profit
100 billion yen

Unconsolidated
LawsonConsolidated
subsidiaries

Gross
operating profit

Childcare
supportLifeline
in times ofdisasterCrime
prevention
center

Attached
nursing
care
centerHome
deliveryservices andmobilesales

Response tosocial issues

HealthsupportAgricultural
undertakings
Energyconservation
andproduction

Greening
activities

Socialinfrastructure

Environmental
conservation

for society and the environment. In our desire to pass down
the abundant blessings of planet Earth to future generations,
we have declared our commitment to environmentally friendly
business activities and a mutually beneficial relationship with
regional society. Among our accomplishments, we consider
our environmental consideration in the development and salesof products and services most significant, since this is directly
connected to our business. Our efforts to conserve energy
and resources and reduce both food and container waste aredemonstrated by our deployment of the latest technologies toachieve numerical targets. In the area of energy conservation
with respect to climate change, we are implementing the
10 articles of energy conservation and promoting energy
conservation at every store. We aim to achieve a 20%
reduction in electricity per store by fiscal 2020 as compared tofiscal 2010. We also provide social and environmental training
for all the Group employees, owners and crew.
Identified today as the fourth component of infrastructure
after electricity, gas and water, the convenience store isrecognized as an essential presence in every region. The
lights are always on at Lawson, a situation with significancefor community safety. In the event of a major disaster, we
will partner with the local government to serve as a lifeline.
We also want to contribute to securing a safe, stable supplyof fruits and vegetables as well as to help nurture and train
new generations of agriculturalists, which is our purpose inoperating 23 Lawson farms.
We are seeking to become an essential part of ourcommunities. Going forward, Lawson will continue its efforts
to contribute to society as a vital social lifeline.
Gross profit ofexisting stores

Net increase bystores of 5% per year
Selling, general andadministrative expense
M&A/alliances

Increased dividends/
share buy-back &cancellation

08

09

Message from the

COO

Message from the

CFO

Targeting improved capitalefficiency and an ROE of 20%

Sadanobu Takemasu

Yutaka Yoshitake

President and COO,
Representative Director

Executive Vice President,
Chief Financial Officer

A friendly neighborhood store and an essential
member of the community.
We are all working together to build a Next-Generation
LAWSON Convenience Store model.
It is a pleasure to have this opportunity to address our stakeholders since assuming
the position of President and COO at the start of this fiscal year.
I first joined Lawson in May 2014 as Senior Executive Vice President withresponsibility for the Lawson Group’s store development, LAWSON STORE100
business, Seijo Ishii business, international operations and entertainment
businesses, among other businesses. Prior to joining Lawson, I worked at Mitsubishi
Corporation, where my career included a number of years in a retail department
supplying foodstuffs to convenience stores, including LAWSON stores, as well as tosupermarkets and other retailers in Japan. During my first two years with Lawson,
my confidence only grew stronger that LAWSON stores have fostered deep rootsin their communities through the franchise owners’ and store crews’ friendly dailyinteractions with customers. The stores assume the significant responsibility ofsatisfying customers’ expectations of them as an essential component of the social
infrastructure that supports them in their daily lives and even in times when a disasteroccurs.
Remembering the warm friendliness that greeted me on my local shopping
street as a child, I want Lawson to express that same friendliness toward residents
of its communities. This means welcoming customers to the stores with ample
merchandise, clean interiors and bright smiles. We will continue to meet customer
needs, while increasing our stores’ competitiveness, by developing appealing
merchandise, improving our services and introducing more efficient systems. This is
the essence of our 1,000-Day Action Plan.
Everyone in the Lawson Group will strive for success under the leadership of
our Chairman and CEO Tamatsuka in perfecting a unique business model for the
Next-Generation LAWSON Convenience Store based on our Corporate Philosophy,“Creating Happiness and Harmony in Our Communities.”

10

President and COO Takemasu discusses
disaster responses with a franchiseowner during a visit to Kumamoto after
the 2016 Kumamoto earthquakes (while
Senior Executive Vice President).

President and COO Takemasu
exchanges ideas with the store crewof a neighborhood LAWSON store in
Hokkaido (while Senior Executive Vice
President).

Review of fiscal 2015 and plans for fiscal 2016

Financial discipline and ROE

We were generally successful in achieving our performance
objectives for fiscal 2015. Although our non-consolidated
results did not live up to expectations, our consolidated resultsreceived a considerable contribution from our subsidiaries. The
effect of increased expenses for advertising and promotions
to improve franchise owners’ profits and recover existing
store customers led to a decline from the previous year in
non-consolidated operating profit. We recorded consolidated
operating profit of 72.5 billion yen, however, an upturn of 2
billion yen from the previous year, due in part to higher profits
recorded by consolidated subsidiaries such as Seijo Ishii.
We experienced a considerable impact from an increase inconsolidated special losses, meanwhile, due to elaborated
criteria for stores targeted for impairment losses against the
backdrop of accelerated changes in the business environment.
The result was consolidated net profit of 31.3 billion yen, down
1.3 billion yen from the year before. Return on equity (ROE) also
fell to 12%.
Turning now to fiscal 2016, we foresee growth in nonconsolidated operating profit (to 59 billion yen), consolidated
operating profit (to 76 billion yen) and consolidated net profit (to35.5 billion yen). The ROE is also expected to recover to 13.2%.
As the first year of our 1,000-Day Action Plan, fiscal 2016 will
see the implementation of measures to improve our productoffering and expand our merchandise assortment, among
other moves. Our target is a year-on-year increase of 1% in net
sales by existing LAWSON stores in Japan and a year-on-year
improvement of 0.3 % point in gross profit margin for our store
base. As concerns investment, in addition to opening a total of
1,200 new Lawson Group stores nationwide (a net increase of
700 stores), we are planning a number of capital expenditures
for such purposes as adding refrigeration cases and otherfixtures to improve our product offering and purchasing tablet
terminals to optimize store operations.

Lawson is targeting an ROE of 20% as a management
benchmark for the medium term in order to optimize use ofshareholders' equity. We have at the same time set a mediumterm goal, moreover, of achieving consolidated operating
profit of 100 billion yen. Our objective is to raise our ROE by
increasing operating cash flows and net income centered on
our core business. In the three years of the 1,000-Day Action
Plan, we will not only be investing in new stores, but we also
expect to make investments amounting to tens of billionsof yen for restructuring our IT systems to create a model for
the Next-Generation LAWSON Convenience Store. We will
be conducting this type of strategic investment aimed at
medium- to long-term improvement in our corporate value
after judiciously assessing the return on investment (ROI)of each individual investment and the state of our balance
sheets. In doing so, we will consider the advantages anddisadvantages of borrowing on a case-by-case basis.

Shareholders' returns
There has been no change in our policy regarding our
objective of achieving sustainable medium- to long-term
increases in shareholders' dividends. As concerns annual
dividends for fiscal 2016, we expect to pay 250 yen per
share, an increase of 5 yen from the previous year, based on acomprehensive consideration of business investment related
to the 1,000-Day Action Plan and other projects.
The Lawson Group, acting as one, seeks “to become
an essential part of our communities.” Along with increasing
corporate value, we will achieve stable, attractive dividends
while maintaining financial soundness for our shareholders.

11Messages from an Outside Director and Outside Auditor

I believe we will realize a newgeneration of convenience
stores by leveraging Lawson’s
strengths.

Sakie Akiyama

Eiko Tsujiyama

CEO & Founder
Saki Corporation

Professor
Graduate School of Commerce, Facultyof Commerce, Waseda University

Outside Director

Outside Director Akiyama was formerly
employed by a U.S. accounting firm. She iscurrently CEO of a company she founded
to manufacture robots. She has served on
Lawson’s Board of Directors as Outside
Director since 2014.

Creating a beneficial tension in theworkplace through constructive discussions
at Board of Directors meetings
I believe our role as outside directors is to investigate proposals
presented to the Board of Directors to determine whether they arereasonable from an objective perspective and to make sure they
do not reflect only internal considerations. The Board welcomesdissenting opinions, and the other independent officers and I
feel free to bring up tough questions that might never be raisedinternally. When we do, the executives answer us squarely without
dodging them. Discussions can naturally become lively, but thedecision-making process eventually proceeds in a constructive
direction. Decisions are reached through a confirmation processthat includes divergent views, rather than simply giving opinions agreen light. Extending this practice to the workplace produces ahealthy tension throughout the Company.

Leveraging the Company’s strengths acrossthe board
Even considering the number of stores alone, the convenience
store is clearly an essential part of the social infrastructure
supporting Japanese people’s daily lives. As people’s lives
change, their requirements of the convenience store change
as well. Convenience stores are attracting new customers,
including women and elderly people. Welcome as thesechanges may be to Lawson, it is not always easy to keep pace
and to respond appropriately to rapidly emerging circumstances
in today’s tough competitive environment. But these difficulties
are accompanied by the very real thrill of creating new social
value. This thrill might inspire a desire to meet every demand12

I am convinced that Lawson is
becoming a model of essentialsocial infrastructure as it challenges
development of dream businesses
that are supported by all sorts ofpeople in their daily lives.

of society. Trying to meet them all would undermine the appealof the Lawson Group’s various services, however, by requiring
its personnel to handle too much, making their jobs overly
complicated. If they feel overwhelmed, their productivity will
decline. This pattern is the same for manufacturers and retailers
alike. We must always ask ourselves how we can reach aproper understanding of our company’s strengths and makethe most effective use of our valuable resources.

Solidifying our foundation while pursuinginnovation
The “1,000-Day Action Plan” introduced this year can beconsidered an initiative for building lower body strength. Under
the plan, Lawson will fortify its foundation, its core business of
chain-store development and operation, to assure its continued
successes. Everyone in the Lawson Group must join forces inconstructing an appropriate foundation for action. This begins by
ensuring that the product offering meets customer needs and that
customers always receive courteous service. It is painstaking workthat requires considerable energy and time. If it is not conducted
properly down to the final detail, confusion leading to a falloff in
productivity may arise in the working environment. Lawson will
move forward carefully and consistently, correcting its course
appropriately along the way, to overcome these challenges.
On the other hand, drastic challenges such as IT systeminnovation and logistical reformation are also required. The
conventional formula for success in which profit is expanded simply
by adding more stores will not work in the current convenience
store industry, where alliances flourish.
I feel certain that maintaining a solid foundation and pushingahead with innovation will enable Lawson to realize a next
generation of convenience stores.

Outside Corporate Auditor

Professor Tsujiyama has a wealth of expertisein both accounting and corporate auditing. She
serves as outside corporate auditor for a numberof corporations. She has been an outside
corporate auditor for Lawson since 2011.

Observing management as an expert inaccounting and finance
Guided by Chairman & CEO Tamatsuka’s strong commitment toexcellent corporate governance, Lawson is a company whose
governance is functioning properly. The Board of Directors does not exist
simply as a forum whose members are accustomed merely to agreeing
with each other as in conventional Japanese companies. Instead, its
members engage in exchanges of opinion until they reach appropriate
conclusions. Decisions reached through this process are then put into
practice by management. As a Lawson auditor with specialization inaccounting and finance, I pay particularly careful attention to Lawson’s
investment projects. Because IT investments are among the decisions
with the greatest impact on the future, for example, I examine themfrom such perspectives as cost-effectiveness, development processtransparency and the degree to which they reflect learning frompast failures. The same is true for mergers and acquisitions and new
businesses. While the executives and departments responsible tend topromote them enthusiastically, I consider it my role to identify situations
where optimism concerning future prospects is excessive and to bringcool consideration to the table.

I anticipate a future Lawson with womenparticipating at the forefront of businessOf the 12 Lawson directors and auditors serving as executive officers,
six of us are independent officers. Our Nomination and Compensation
Committee, which is centered on independent officers, also holds
significant discussions. It provides opportunities for the independent
officers to gather outside the Board of Directors meetings. I believe ourcommunication is extremely valuable. Four of the independent officers are
women, and I hope to see female employees from inside the company

appointed to the position of director in the future as well.
Lawson is focusing on strategies for improving the workplaceenvironment to invite active participation by women – by hiring women
to fill half its new employee positions, for example, and proactively
introducing a childcare support system. Another positive aspect of theLawson workplace is a pervasive desire to foster female employees
as top managers. Female management candidates are working
energetically to realize this desire. I am hopeful that Lawson will notstop at simply creating a workplace where women can work in relative
comfort, but will instead become a company in which growing numbersof women play roles on the frontlines of business.

Remembering to show consideration foreach and every stakeholder
With its network of over 12,000 stores across Japan, Lawson has the
support of immense numbers of stakeholders, including individual store
customers, franchise store owners and crews, and workers at boxedlunch processing facilities and distribution centers. For this reason,
Lawson does not pursue economic value alone, but it also emphasizes
social and environmental values in all its operations. As a company
operating in widely dispersed locations, it must consider all i ts various
stakeholders, not only its customers but everyone supporting its daily
operations, when making major decisions. These include such decisions
as conducting mergers and acquisitions, engaging in new businesses
and undertaking any other challenges that involve risk. Convenience
stores are integrated into the social infrastructure. Well-positioned tomonitor people’s movements directly, they can respond accurately tochange by drawing on knowledge of local activities. Finally, as great as
Lawson’s social responsibilities may be, it is also a business with evengreater dreams. I want to see Lawson continuing to take up challenges,
showing full appreciation for its present circumstances.

13

Executives — The management team that leads Lawson forward(As of June 1, 2016)* Number of Company's shares held as of February 29, 2016

Masakatsu
Gonai
Member of the Board
Executive Vice
President, Compliance& Risk Management

Genichi Tamatsuka

Sadanobu Takemasu

Chairman and CEO,
Representative Director

President and COO,
Representative Director

Years on Board: 4Company's shares held: 3,700

Years on Board: 2Company's shares held: 400

Emi Osono

Yutaka Kyoya

Sakie Akiyama

Outside Director

Outside Director

Outside Director

Years on Board: 4Company's
shares held: 200

Years on Board: 3Company's
shares held: 0Years on Board: 2Company's
shares held: 200

KeikoHayashiKazunori
NishioOutside Director

Outside Director

Years on Board: 0Company's
shares held: 0Years on Board: 0Company's
shares held: 0Years on Board: 2Company's
shares held: 1,300

OutsideIndependent

OutsideAtsuhikoSeki

ToshioTakahashiStanding Corporate
AuditorStanding Corporate
Auditor (Outside)

Years as auditor: 6Company's
shares held: 1,200

Years as auditor: 0Company's
shares held: 0

Newly
appointed

OutsideOutsideNewly
appointed

Independent

Tetsuo Ozawa

Eiko Tsujiyama

Outside Corporate
AuditorOutside Corporate
AuditorYears as auditor: 13
Company's
shares held: 500

Years as auditor: 5Company's
shares held: 500

Independent

Under the leadership of Chairman and CEO Tamatsuka
and President and COO Takemasu, Lawson is building amanagement team that combines diversity with expertise.
Lawson has a strong, flexible management team comprising the Chairman and CEO, President and
COO, six Board members and four corporate auditors. The Executive Officer System separates andclarifies the responsibilities of the members responsible for executing business and those responsible
for managing the corporation. Lawson limits the size of the Board to facilitate speedy business decisionmaking. Its commitment to diversity is reflected in its membership — three of the five outside directors are
independent directors, and four of the eight outside directors (including corporate auditors) are female.
The high percentage of outside directors, all with high levels of expertise and representing a broad rangeof backgrounds, enables the team to consider and confirm the validity and legitimacy of each executive
decision objectively.

OutsideMembers of
the Board

Newly
appointed

OutsideIndependent

Masakatsu Gonai

Genichi Tamatsuka has served as representative director for a number of companies based on his extensive experience andabundant know-how in corporate management.
Sadanobu Takemasu has contributed to improving Lawson's performance and corporate value by orchestrating the businessrecovery of LAWSON STORE100, among other achievements.
Masakatsu Gonai has experience in reducing and predicting risks for the Lawson Group, promoting women's participation in theworkplace and developing human resources.

Emi Osono

Emi Osono is an academic with in-depth knowledge of global corporate management, corporate strategies and organizational behavior.

Sakie Akiyama

Yutaka Kyoya has a broad understanding of the life industries field, primarily as related to foods, acquired while working for Lawson
partner Mitsubishi Corporation.
Founder and CEO of Saki Corporation, Sakie Akiyama has extensive experience and expertise in corporate management acquired as
an entrepreneur and manager.

Keiko Hayashi

Founder of DoCLASSE, Keiko Hayashi has experience and expertise in corporate management and an in-depth knowledge of marketing.

Kazunori Nishio

Kazunori Nishio has extensive knowledge of the consumer products industry with specialization in retail, gained through experience inthe employ of Lawson partner Mitsubishi Corporation.

Yutaka Kyoya

Atsuhiko Seki
Toshio Takahashi
Tetsuo Ozawa
Eiko Tsujiyama

14

OutsideIndependent

Name
Genichi Tamatsuka
Sadanobu Takemasu

Corporate
Auditors

Independent

OutsideAtsuhiko Seki has expertise in retail and franchising and experience in supervising administrative departments as well as otherknowledge and capabilities essential to the position of standing corporate auditor.
Toshio Takahashi has years of experience as an employee of a major bank and as a standing corporate auditor for a major IT
company as well as extensive knowledge in the fields of corporate finance and accounting.
Tetsuo Ozawa is an attorney with specialization in the fields of corporate law and risk management and extensive knowledge in theareas of corporate finance and accounting.
Eiko Tsujiyama is an academic with in-depth knowledge of corporate finance and accounting and experience working for the BusinessAccounting Council of the Japanese Financial Services Agency as well as for the National Tax Council of the Japanese National Tax Agency.

15

Growing in Pursuit of “Happiness and Harmony in Our Communities”

Becoming an Essential Part of Our Communities

The neighborhood store that is closest to customers,
Lawson is evolving continuously as we tackle thechallenges facing our communities.

Lawson seeks to become a new kind of
convenience store.
● Contributing to extension of a healthy life expectancy

Next-Generation
LAWSON Convenience
Store model

It all began in 1975, just over a decade after the Tokyo Summer Olympics of 1964, which had accelerated
the development of railways, roads and other components of infrastructure. It was in this year, a time whenpeople were seeking greater convenience in every facet of their lives, that Lawson came into being.
With the rapid development and changes that followed, the challenges facing society diversified as well.
Lawson grew quickly on the foundation of its chain-store development andoperation business as it took on the challenges facing various regions.
We will maintain this growth through a continuous pursuit of“Happiness and Harmony in Our Communities”
as the closest store to community residents.

● Encouraging healthy eating habits● Reducing time and labor spent on housework■ Meeting daily life needs• Transitioning from a convenience store (24-hour
operation, meeting urgent needs) to an essential
part of the community (meeting daily demand)• Realizing communities where everyone can leada vibrant, healthy, convenient life every day■ Achieving high store productivity• Developing simplified operations that anyone
can handle easily• Making full use of the latest digital technologies anddiversified human capital■ A Manufacturing Retailer Based on a Small

Commercial Area model• Creating an integrated supply chain;visualization of manufacturing and distribution• Improving efficiency by reforming
operating procedures● Creating a work environment that
supports employees who give birth andraise children● Revitalizing regions through thepromotion of agriculture● Contributing as a component of social
infrastructure in times of disaster● Improving conveniences for elderly
and disadvantaged shoppers● Mitigating climate change● Popularizing and expanding
cutting-edge environmental
technologies● Contributing to energy conservation● Reducing waste● Raising environmental awarenessThe “fourthcomponent”

of infrastructure
The first Lawson store in Osaka Prefecture

Contributing tocommunities as aneighborhood store

Innovation
Evolution as a
Manufacturing Retailer
Based on a Small
Commercial Area

24-hour
Growth as a conventional
convenience store

Lawson had its start as a “store that stays open 24
hours a day all year round,” providing both food anddaily necessities that had previously been handled byseparate stores. Enhancing its services—by installing
ATMs and postboxes and accepting public utility
payments, for example—LAWSON took root in its
communities as a “neighborhood store.”

Lawson responded to social changes such as theaging of society and advancement of women by
establishing NATURAL LAWSON, a health-conscious
convenience store, and LAWSON STORE100, a fresh
food convenience store. These new-style stores
led to expansion of the LAWSON store customer
base by meeting the needs of women and elderly
residents, which differed from those of its young
male customers. Lawson’s business model has
since evolved through repeated experiments of thiskind into a Manufacturing Retailer Based on a Small
Commercial Area model that conducts customerdriven research and development (R&D) of products
and services.

After the Great East Japan Earthquake, Lawson
came to be recognized as the fourth componentof infrastructure following electricity, gas andwater supply services. In tune with the rise inhealth consciousness, it began to open storeswith a stronger focus on health care and original
merchandise development, designating its storesas “community health hubs.” It has also introduced
unique services, such as the Machikado Chubo instore kitchen and MACHI café fresh-brewed coffeeservice. Having entered into the entertainment
industry, meanwhile, Lawson engages in ticket andDVD sales, and even movie theater management.
We will continue to contribute to our communities
as vital neighborhood stores that meet the needs ofcustomers.

Becoming a Next-Generation
LAWSON Convenience Store
1,000-Day Action Plan
Communities are changing every day as the number of double-income households
increases, the population ages at an accelerated rate and the number ofneighborhood retailers decreases, among other phenomena. Lawson is responding tothese changes and transitioning from a store that offers convenience into an essential
part of our communities. We will continue to push forward by expanding our offeringof products and services and making other advances. Besides continuing to meetcustomers’ needs, we will tackle the important challenge of improving profitability
through innovation to achieve sustainable growth.
Meanwhile, Lawson began implementing its 1,000-Day Action Plan in 2016. In
our efforts to become an essential part of our communities, we are changing ouroperating frameworks, working styles and culture with the aim of becoming a leading
company in execution by striving for innovation as “One Lawson.” We will build a
Next-Generation LAWSON Convenience Store model by making full use of cuttingedge IT technologies and Ponta card member purchase data, and developing store
operations to incorporate diversified human capital and achieve further evolution of
the Manufacturing Retailer Based on a Small Commercial Area model.

Optimizing the product offering tomeet daily life needs

P. 22

Developing new merchandise andenhancing services

P. 24

Reforming warm-hearted services andstore productivity

P. 26

Constructing a manufacturing retailer modelthat is a positive presence in society

P. 28

Transforming not only our structures, but also
our work procedures and culture
P. 30
Making full use of cutting-edge IT
technologies and big data

P. 32

▶ Social changes

Equal Employment Opportunity
Act for Men and Women

16

Growth in number of doubleincome households

1975

Acceleration of theadvancement of women

Adoption of the Paris Agreement

Impact of the declining birthrate

Rapidly aging society

2016

Increasing consumption ofrenewable energy

Increasing frequency of extreme
weather events

17

Expanding Business Based on Lawson’s Corporate Value Creation Cycle

Lawson contributes to local communities by creating added
value through its customer-oriented business model.
Lawson will continue to increase its corporate value by leveraging its unique customer-oriented businessmodel as a Manufacturing Retailer Based on a Small Commercial Area. This means meeting daily life needs
and achieving high store productivity while executing appropriate management strategies. Lawson’s businessmodel is designed to increase both its visible capital, including physical assets and funds specified in thefinancial statements, and its invisible but tangible capital, such as human capital and information, throughappropriate investment in these areas. Lawson will continue to contribute to its customers’ local communities
as an essential company through continued application of its corporate value creation cycle.

Social challenges Lawson is tackling
A number of worries persist about the effects on people’s lives of
future developments, such as global environmental issues and theserious challenges facing Japan due to its low birthrate and aging
population.

Inputs30%

Human capital (human resources)

Empowermentof women
Increase in number ofdouble-income households:
compared to 1996

Rapidly aging society

115%

Increase in the population ofresidents aged 75 or older:
Projected growth by 2025
compared to 1996

374%

Employees’ collective skills and capabilities, personal
motivation and organizational experience that
contribute to sustainable corporate growthIntellectual capital (technologies and brands)
General intangible assets including brands,
reputation, intellectual property and software

Social capital (resources and social norms)

Outputs
Investment determined according to capital discipline
to meet the expectations of the equity market

Customeroriented
Capital allocation based on return on
investment (ROI)

Decline in the number of retailers:compared to 1996

Meeting daily
life needs

Capital raised to fund business activities throughsales of shares and borrowing

Necessary tangible assets for conducting
business activities, generally referred to as“infrastructure,” including land, buildings,
machinery and IT

Achievinghigh store
productivity

Developing
human capital• Creating sufﬁcient cash ﬂow• Establishing a ﬁrm ﬁnancial footing

A Manufacturing
Retailer Based on a
Small Commercial
Area model

Innovation

Leveraging the full supply chain to develop products thatmeet local community needs• Optimizing of the supply chain through integrated production and sales• Manufacturing original products with high added value

Nurturing human resources who are self-motivated andinnovative to satisfy local community needs appropriately

Franchise(FC) system• Nurturing next-generation management candidates and leaders• Development of human resources under supportive personnel management systems• Success of franchise owners

Compliance and risk
Corporate governance
Environmental management system (EMS)

Corporate
strategy

Cultivating innovation based on prompt perception ofchanges in local communities.
• Enhancing the Lawson brand• Pursuing store development that responds to community needs• Analyzing Ponta data

Contributing to communities as social infrastructure in
careful consideration of society and the environment

Natural resources, social norms, and relationships of trust established with stakeholders• Considering the environment throughout the supply chain• Revitalizing communities through enhanced social infrastructure functions

Rise in healthconsciousness
Medical expenses: Projected
growth by 2025 compared to 1996

Rise in average
global temperatures
Long-term global goals determined by theParis Agreement of December 2015

2 ˚C or lesscompared with thepre-industrial era

18

272%

Developing human capital
Lawson operates a supportive personnel management
system for the realization of its Corporate Philosophy.
This encourages each individual to become selfmotivated and innovative, and to acquire anunderstanding of the proper behavior of employees
and of the appropriate approaches to fulfilling theirduties to achieve their mission for the fiscal year.
Seeking to create a corporate culture in which
individuals can act independently, Lawson has
introduced an employee behavior and skill levelevaluation program into its personnel system in
addition to clarifying the roles and responsibilities tobe fulfilled in accordance with individual duties.

Innovation
Continuing to operate in consideration of the changing society,Lawson has conducted numerous advanced investments andexperimental innovations, such as introducing healthcare-focused
LAWSON stores, and LAWSON stores with on-site nursing carefacilities. In 2015, moreover, Lawson introduced a semi-automaticordering system based on analyses of Ponta card member
purchasing data, which has led to realization of product offerings
that match the needs of individual stores as well as reductions
in order times. In the future, Lawson plans to go further in thisdirection by tackling construction of a new system that leverages
the latest IT technologies to share highly accurate demand
forecasts throughout the supply chain in real-time.

“Creating Happiness and Harmony
in Our Communities”

Corporate value creation cycle

Contributing to local communities
as a neighborhood store and acomponent of social infrastructure

Next-Generation
LAWSON Convenience
Store model

Financial capital (funds)

Manufacturing capital (IT and infrastructure)

Decreasing numberof nearby stores

Becoming an essential part ofour communities

Franchise (FC) system
Lawson’s franchise (FC) system is configured toenhance cooperation to enable the franchise stores,
which are most familiar with their communities,
and headquarters to grow together in a spirit ofcooperative business. The system builds winwin relationships between franchise stores andheadquarters through such activities as promotionof the management owner (MO) system. The MO
system supports entrepreneurial franchise owners,
who have a deep understanding of their communities,
with training to give them the expertise they need to
manage multiple stores.

Compliance and risk
In a society facing numerous challenges, including adeclining birthrate, aging population and decrease in
the number of retailers as well as various environmental
challenges, new risks are emerging for the Lawson
Group as it expands its sphere of business. The Groupis responding by enhancing its internal controls andconstructing a robust compliance and risk management
framework. Besides establishing the Compliance and Risk
Management Office and Information Security Management
Office, the Group has assigned a CRO (compliance andrisk management officer) to each department at corporate
headquarters and in every area. This has provided aframework for rapid risk information assessment andcountermeasure implementation.

Corporate governanceLawson has led the competition in Japan byconstructing a corporate governance systemcharacterized by high mobility and transparency.
The system separates the executive and managerial
functions to clarify management responsibilities andintroduces an executive officer system that enables asmaller number of directors to make quick, efficientbusiness decisions. Eight of the 12 directors andauditors are from outside the Company, moreover, andsix of the outside officers are independent officers.
Lawson also considers the composition of the Board of
Directors from the perspective of promoting diversity,
which is reflected in the appointment of four women as
directors and auditors.

Environmental management system (EMS)
Lawson seeks to create happiness and harmony in its
communities (sustainable growth) through proactive
business activities based on its Corporate Philosophy
with its strong emphasis on consideration for society
and the environment. We have implemented the ISO
14001 environmental management system based on
our Environmental Policy. We employ the PDCA (plan,do, check, act) management method in promoting
initiatives for realization of a sustainable society andpursuing regional community revitalization activities
through our core business. Lawson is seeking toensure that future generations inherit an abundant,
bounteous Earth.

The Company is building neighborhood
LAWSON stores, where elderly customers
without the means to travel long distances
to shop and busy customers with time
constraints can purchase food and otherdaily necessities conveniently. LAWSON
stores have also introduced home delivery
services for fresh food items and boxedlunches to provide customers with easieraccess. The stores also support theircommunities in other ways as components
of social infrastructure. They are designed,
for example, to serve as emergency
evacuation sites in times of disaster.

Support for senior citizens anddevelopment of related
environments
LAWSON stores have added nutritionallybalanced pre-cut vegetables and preparedfoods to their product offering to meetelderly customers’ need for small but
healthful meals. LAWSON has also
introduced an initiative to expand thenumber of stores that sell pharmaceuticalproducts and provide informal healthconsultation services. We are continuing
efforts to keep personnel employed past
the age of 60, meanwhile, as a contribution
to creation of a social environment inwhich senior citizens are not isolated.

Consideration for the environment
from every perspective, including
our store, manufacturing anddistribution operations

Lawson’s business is supported by seven core stakeholders,
including the community as a whole (local society).
We will continue to provide unique new value by leveraging our stores’
accessibility to local community residents to address a variety of challenges
facing society and our customers.

Responding to the lifestyle
diversification through theadvancement of women and otherinitiatives

Outcomes

At a time when customers’ lifestyles arediversifying as increasing numbers of
women remain in the workforce after
marriage and childbirth, Lawson identifies
changing trends and emerging needs andresponds with appropriate products andservices. We support the lives of a diverse
range of customers, including singleperson households and working women,
by providing daily-life essentials throughour neighborhood stores.

Value provision for
Lawson’s multiple
stakeholders

Suppliers/
business
partners

Developing stores and product lines
dedicated to promoting health
Placing the highest priority on helping
customers manage their daily diet tomaintain health, Lawson continues todevelop stores and product offerings with afocus on customer health. These efforts
include introducing product offerings thatenable customers to select healthful items
quickly and easily as well as stores with ahealth and wellness focus. We are working
at the same time to promote customers’
health by stocking pharmaceutical products,
opening stores with dispensing pharmacies
on the premises and reinforcing ourcooperation with local municipalities.

Store crew

Local
communities(Part-time andtemporaryworkers)

FranchiseownersEmployees
Shareholders

Customers

LAWSON’s efforts to address environmental
challenges from every angle include adoption ofenergy-efficient store equipment, use ofinnovative, lightweight containers and packaging
materials, construction of waste-minimizing
manufacturing platforms, introduction of highly
efficient delivery methods, and expansion of ouroffering of environmentally friendly merchandise.
We will continue to promote the introduction of
new environmental and energy technologies,
such as refrigeration and freezer systems
employing natural refrigerants (CO2), tocontribute to realization of a sustainable society.

21

1,000 -Day
Action Plan

Becoming an Essential Part of Our Communities

From boxed lunches and side dishes to a wide rangeof daily necessities, Lawson’s product line includes
everything essential for everyday life.
Today’s society is seeing an increase in senior households, single-person and two-personhouseholds and double-income households. At the same time, shopping near home has become
more difficult as the number of neighborhood stores has decreased. Our customers’ lifestyles arechanging, and their requirements for the convenience store are changing along with them.
With our product offering of 3,500 daily necessities, we aim to become an essential part of ourcommunities.

A product offering for everyday needs
Lawson is a "neighborhood store" that responds to community needs, including theneeds of people who have little time for housework because of their career or childrearing responsibilities and people who want to shop more easily within walking
distance of home. The peak hours have always been in the morning and noontime,
when busy customers buy boxed lunches and soft drinks for breakfast or lunch,but increasing numbers of people have begun visiting the stores in the evening andnighttime hours to buy dinner or the next day's breakfast. We are required to stock awide assortment of products for a diverse range of customers, from foodstuffs suchas boxed lunches and rice balls, ready-to-eat pre-cut vegetables, side dishes, eggs,
milk and frozen foods to detergents and many other non-food daily necessities. Since
today’s customers want options, moreover, we can no longer simply stock one typeof soy sauce, for example, but must also offer dark, light, reduced-sodium and locallysourced varieties as well. This is why Lawson is increasing its product offering by
10% to 3,500 items. Our goal is to become an essential part of our communities, notonly with our 24-hour operation but with our extensive selection of products as well.

Lawson Select, a commitment totaste and quality
We realize, however, that simply increasing our product offering will not givecustomers full satisfaction. We must also improve the taste and quality of every
product from the consumer’s perspective. We plan to create a full product lineup
under our private Lawson Select brand, for example, ranging from side dishes
packaged in small portions to Japanese foods using high-quality dashi broth andingredients. We are working with food producers to develop delicious, superior-quality
Lawson Select products.

Improved fixtures for an expanded
product offering
Introducing our expanded lineup of 3,500 products to over 5,000 convenience storeswith limited space will require Lawson to make capital expenditures exceeding 5billion yen. We will add refrigerators and freezers to hold daily delivered foods such as
milk and eggs for breakfast and frozen foods that are essential when preparing boxedlunches at home. We will also increase the height of the store shelves stocked withdaily necessities.

Expanding our productoffering

3,500

items

Commitment tohigh-quality pre-cut
vegetables
Lawson's pre-cut vegetables(excluding some products andregions) are made from produce
harvested according to the
Nakashima-method, which involves
growing healthful vegetables inhealthy soil with a good mineralbalance. Lawson is currently
incorporating the Nakashimamethod at its own "Lawson Farms."

Serving a compact cityin Miyagi prefecture
The town of Yamamoto in Miyagi
prefecture is currently constructing
a new "compact city" to provide aconvenient, comfortable community
for the many citizens whose lives
were impacted by the earthquake
and tsunami. In February 2016, theSakamoto Eki-mae LAWSON store
became the first commercial facility
to open in the community, of which
it intends to become the center.

Capital investment toexpand the productoffering in fiscal 2016

Approx.

5,000 Stores
Over

22

5

billion yen

23

1,000 -Day
Action Plan

Becoming an Essential Part of Our Communities

Lawson is continually developing new products andservices to satisfy its communities’ needs.

Trouble-free health protection withdelicious products

Our responses to customer demands include fresh in-store preparation of boxed lunches,
which are in high demand among senior citizens, for example, as well as providing theconvenience of door-to-door order-taking services and 24-hour medicine sales.

As "community health hubs," LAWSON stores contribute to customers’ physical andemotional health by providing safe, reliable foods without compromising taste. This
is why Lawson led the convenience store industry in developing health-conscious
products. We collaborated with manufacturers in developing a bran bread series
comprising a wide range of low-carbohydrate products, including dinner breads,
chocolate rolls and sesame sticks. In 2015, our Green Smoothie, which packs
the vegetable content of a full meal (118 g*1) into a single tasty drink, became a hit
product. The NATURAL LAWSON Smoothie Series,*2 which includes the Green
Smoothie, Purple Smoothie Maqui Berries and others, has proved enormously
popular, racking up cumulative sales in excess of 42 million items since its launch.
We are currently developing other original products, such as salads and vegetables
for daily consumption and NATURAL LAWSON-branded healthful sweets. We expect
sales of these health-conscious products to continue to grow.

Extra in-store efforts for great-tasting food
Machikado Chubo

More than 3,000 LAWSON stores operate Machikado Chubo in-store kitchens, aservice offering foods such as curry with rice, sandwiches and rice balls prepared instore using white rice and pork cutlets. We also sell fast-food items such as Genkotsu
croquettes and charcoal-broiled chicken, nice additions to a home-cooked meal,
across the counter. These warm, freshly prepared fast-food items are popular withsingles, seniors and housewives who want another tasty item on the table. We willcontinue our active development of products for customers who want to enjoy freshly
prepared foods, a pleasure conventional convenience stores do not provide.

3,160

stores*1 The recommended vegetable intake is at least 350 g a day, according to the Ministry of Health, Labour andWelfare’s Health Japan 21 Campaign (Kenko Nippon 21).
*2 Green Smoothie, Vegetable and Fruit Smoothie with Chia Seeds and Purple Smoothie with Maqui Berries

Carbohydrates in bran bread

Joint development with
manufacturers

Reduction of over80%

Comparison with regular dinner rolls

Total Smoothie Series*2
items sold42

millionMay 2015 – end February 2016

As of end February 2016

Mobile sales service

A Machikado Chubo pork cutlet sandwich

Door-to-door order-taking, a delivery service
for small commercial areas
Lawson established the Machi no Kurashi Support (SG Lawson) service incollaboration with SG Holdings, the parent company of the Sagawa Express Co.,
Ltd. delivery service, for three main types of customer: those who do not live near astore; those who find it difficult to shop in the rain; and those who cannot find time
to shop. Machi no Kurashi Support (support for community life) is a service in which
personal advisors take (and subsequently fill) customers' orders at their homes from aselection of over 14,000 items, including products sold at
LAWSON, Lawson Fresh, NATURAL LAWSON, Daichi wo
Mamoru Kai and Radish Boya. We also provide agency
and delivery of life-support services. We are continuing topromote this business to enable more people to benefit
from the services, including people who have little time toshop or who find it difficult to travel far from home.

Lawson cooperates with the
Yoshinogari Council of Social Welfare
in offering a mobile sales service
for foods and daily necessities
in Yoshinogari, Saga prefecture.
Delivery staff visit senior citizen
households to check on their healthcondition as part of the "Community
Mimamori” elderly citizen support
service. Lawson is seeking to createa mobile shopping community
in which senior citizens cancommunicate with others while theyshop, both in villages with shrinking
and aging populations and in areas
and facilities where opening a store
is not an option.

Bran BreadGreen Smoothie

Supporting community health as aneighborhood store
Demand for medicines is rising at convenience stores, whose nearby locations and24-hour operation enable them to respond to customers’ sudden fevers and otherphysical ailments. With over 80,000 stores in Japan, pharmacies and drugstores
outnumber convenience stores. Many are privately operated individual stores orsmall regional chain stores. Lawson has opened 136 stores in partnership withthese dispensing pharmacies and pharmacy chains to sell over-the-counter (OTC)
pharmaceuticals. We plan to increase this number to create essential community
health-support bases of a type only possible for convenience stores. We also wantto support the lives and health of senior citizens, from active seniors to seniors
requiring care, and their families. In 2015, this desire led to our opening of storeswith nursing-care consultation windows. Lawson is building a unique convenience
store model that supports the health of customers with a range of health-conscious
foods, OTC pharmaceuticals, cooperative relationships with long-term careproviders and other efforts.

Number of items available
through home deliveryOver

Lawson was selected for the Health& Productivity Stock Selection,
which is awarded jointly by the
Ministry of Economy, Trade andIndustry (METI) and the Tokyo Stock
Exchange, for two consecutive
years in 2015 and 2016. The
Selection recognizes companies
that integrate
employee healthmanagement into
their corporate
management andstrategies.

Number of stores stocking
pharmaceuticals

136

14,000

As of end February 2016
Store with a dispensing pharmacy
on the premises

24

Lawson as a Health &Productivity StockStore with a nursing-careconsultation window25

1,000 -Day

Store Productivity Innovation

Action Plan

We will establish systems that "anyone can operate
easily," so that crews can provide heartfelt services
while multitasking in stores whose operations are
becoming increasingly complex.
Store crews play a crucial role in the Machikado Chubo in-store kitchen, which offers a selectionof foods prepared right in the store, and MACHI café, in which customers receive personal coffeeservice. Lawson hires a diverse range of crew members, including large numbers of women,
senior citizens and foreign citizens. We will reform our store operating systems to make full use ofdigital technologies and reexamine our logistics systems, among other improvements.

Systems that "anyone can operate easily,"a prerequisite for expanding services
Lawson is adding more services in order to respond to a variety of lifestyle needs,
including in-store prepared boxed lunches, home delivery services and door-to-doororder-taking services. These make the store crews’ jobs more complex, but we arealso committed to offering heartfelt services such as MACHI café, in which crew
members serve customers personally. The contraction of the working populationmeans our crews are diversifying, moreover, to include homemakers, senior citizens
and foreign nationals. This is why we require productivity reforms. We need tofundamentally reconsider the complex tasks involved and create store systems that"anyone can operate easily" while finding fulfillment in their jobs.

Optimization making full use of digitaltechnology and logistics reforms
We employ digital technologies to optimize our operations so that store crews canconcentrate on services that can only people can provide. Our semi-automaticordering system, which supports ordering of ready-made food such as boxedlunches and rice balls, for example, can eliminate 40 minutes of labor every day
by predicting demand based on sales trends and customer information gathered
at individual stores. We will complete our installation of new system machines andwork process reforms within the next three years. This will involve introducing tablets
so that crews can perform tasks on the sales floor, shifting to cloud-computing toobtain real-time information, and optimizing cash register work with next-generation
point-of-sales registers equipped with change-dispensing machines. We will also
reform our logistics operations. This will include rationalizing delivery and shelfstocking work by reducing the number of deliveries per day through such changes
as implementing multiple-temperature deliveries and packaging products according
to shelf layouts.

Support for crew skill
development
Lawson uses in-house testing to
identify crew members who areknowledgeable about MACHI café
and capable of communicating thecommitment and joys of MACHI café.
These employees receive recognition
as “Fantasistas.” There are currently
7,400 Fantasistas nationwide (asof end February 2016), all wearing
black aprons and offering customers
special, heartfelt cups of coffee.
Lawson went a step further infiscal 2014 by introducing a Grand
Fantasista certification program.
We certified 70 crew members tothis special category in fiscal 2015,
and 120 Grand Fantasistas are
now cultivating stronger customer
relations in their communities
through their work at MACHI café.

System-related investments

Next-generation
point-of-sales system

Change-giving
machines

Replacement ofoperation terminals

Next-generation store
operation systems to
improve store productivity

Logistics
reform25%
optimization
Semi-automaticordering system

26

Supporting diversified crews to let themwork with peace of mind
Optimizing and simplifying store operating systems will not be enough to enable
every member of the LAWSON crews to work with vitality. Proper crew training is alsoessential. Lawson Staff (the Lawson Group's temporary staffing agency) offers cultural
workshops and pre-employment in-store training for foreign exchange students whoare struggling with language and cultural differences as well as for senior citizens who
find complex tasks daunting. It also provides follow-up training for crews after they
begin work. With the support of Lawson Staff, potential employees who want to work
but feel uneasy can work for the Lawson Group "with a smile and peace of mind formany years," regardless of their age, gender or nationality.

15.8

billion yen

Performance as of fiscal 2015 year-end

Semi-automatic orderingsystem40-minute working
time reduction

Paperless27

1,000 -Day
Action Plan

Becoming a Full-fledged Manufacturing Retailer

We are constructing a business model as amanufacturing retailer that interacts symbioticallywith society in everything from procurement of raw
materials to manufacturing and distribution.
By becoming deeply involved in the manufacturing and distribution processes, including raw
materials procurement with superior cost performance and high safety levels, Lawson can not
only ensure the quality of the products it develops but also construct a supply chain that benefitssociety and contributes to environmental protection.

Developing and manufacturing high-quality
products in an integrated supply chain
Customer needs are highly diverse. Senior citizens and women, two growing
customer groups, for example, are looking for foods that are safe, reliable, healthfuland delicious. Lawson listens to its customers and develops high-quality, reasonably
priced original products from the consumer’s perspective. We are devoting efforts
to reforming our entire supply chain, moreover, from procurement of raw materials
and manufacturing to distribution and sales. Approximately one-third of the products
sold by LAWSON stores are our original products. SCI, INC., a Lawson subsidiary,
handles the raw materials purchasing. This reduces costs without compromisingquality and contributes to improving our product offering. Our production activities
are conducted with the support of suppliers nationwide, including the facilities that
produce our boxed lunches and rice balls. We are reinforcing our partnerships withthree major food producers that have subsidiary suppliers in order to increase ourinvolvement in the production process. We will also augment our involvement in
manufacturing through our partnership with Mitsubishi Corporation. Other means offorwarding the evolution of our business model as a manufacturing retailer based on
small commercial areas will include automation and optimization of our productionlines and introduction of Ponta member-based demand-prediction systems into the
production process. We intend to increase our profitability by achieving higher grossprofit margins and offering high-quality products that satisfy our customers.

Sixth-orderindustrialization efforts
making effective use of
irregular vegetables
Katori Process Center Co., Ltd.
is a sixth-order industrialization
facility with Lawson Farm Chiba,Inc. central to its operations. (Sixthorder: integrating 1) agriculture, 2)
processing, and 3) distribution andsales). The center and farm areworking together to use irregularvegetables efficiently by suchmeans as cutting up vegetablesof unusual shapes, sizes andappearance for use in salads
and side dishes and selling themthrough LAWSON stores.

Fundamental reform of distribution including
increased transparency

Serving Rainforest Alliance Certified™ coffee

Raw materials
procurement

28

Production
facility

Distribution
centerDelivery by
truck

Store

Distribution is an important link in the supply chain. Not only does it represent a
substantial portion of our overall production costs, but the frequency and formof deliveries exert a significant impact on store productivity. The conventional
convenience store distribution process prioritizes efficiency via high-frequency, smalllot distribution to small stores with small inventories. With a view to productivity,
however, we must discover unconventional methods, such as reducing delivery
frequency by delivering products of different temperatures in the same shipment,
which offers the added advantage of reducing CO2 emissions. Although we havegenerally looked for ways of shipping products efficiently from shipping centers tostores, moreover, we are starting to consider other approaches, such as e-commerce
partnerships and home delivery services. In March 2016 we opened a Companyoperated shipping center that handles products with three shipping temperatures:normal, refrigerated and frozen. We will make our processes transparent, something
we can do with Company-operated businesses, and continue to implement
fundamental reforms of the distribution process with the aim of constructing abusiness model as a manufacturing retailer based on small commercial areas.

CO2 emissions from supply
chain

4,868

thousand
tons

Performance from April 2015 to March 2016

Number of shipping
centers

100

Approx.
throughout Japan29

1,000 -Day
Action Plan

Striving for Innovation as "One Lawson"

We will become an essential presence in ourcommunities by changing our operational frameworks
as well as our working styles and corporate culture.
Lawson is supported by its people. All those with a shared commitment to our Corporate
Philosophy—our franchise owners, store crews and diversified employees—work and act asone. We are proactively reforming our operational frameworks as well as our working styles andcorporate culture.

Reforming our working styles andcorporate culture
Implementing our 1,000-Day Action Plan quickly and steadily with the aim of"becoming an essential part of our communities" will require us to change ouroperational frameworks, working styles and corporate culture. Even if we change
our operational frameworks with the help of digitalization and IT systems, however,everything will come down to our people in the end. This is why we are introducing
Companywide operational reforms to change our working styles. We examined
the supervisors’ areas of responsibility and optimized their work procedures — byeliminating or outsourcing certain tasks, for example — to allow them to focus on theirprimary tasks. We are also updating our manuals and providing learning opportunities
through practical training to provide opportunities for personnel to share successful
case studies. We have created a new Vision and revised our Code of Conduct as abasis for changing our corporate culture. Working together as "One Lawson," we willaccomplish our Corporate Philosophy of "Creating Happiness and Harmony in Our
Communities," starting with our customers, neighborhoods and stores.

Lawson’s original management
owner systemBroadproduct
offering

Society andcommunities

Franchise
storesIntroducing
newservices

Lawson headquarters maintains close communication with the franchise storesand respects the franchise owners’ independence. This framework contributes tostrengthening headquarters’ relationship with Management Owners (MOs), who
operate multiple stores as small corporations. The MO system provides substantial
support for Lawson’s business expansion. Headquarters provides MOs with
consulting to give them the know-how and management expertise they require formultiple-store management, and the MOs, in turn, provide ordinary franchise owners
with advice on managing more than one store. As of end February 2016, there were147 MOs operating a total of 1,436 Lawson stores in their respective communities.
Socialcontribution
activities

Joint businessContributing toenvironmental
preservation

Lawsonheadquarters

Self-motivated and innovative human capital
supporting the Company
A corporate culture is as important as a business model, which involves suchfactors as store IT systems and the supply chain. It is people who support and form
the corporate culture, and Lawson knows that its people are its most important
asset. To achieve continuous growth, a company requires a diverse range of
personnel who are "self-motivated and innovative," and whose parameters are
not limited to conventional thinking. Lawson actively employs a wide range of
people, including women and foreign nationals, and provides supportive personnel
management systems to assist them in their activities. Lawson University offers avaried curriculum to cultivate a culture in which people, including franchise owners,
can take on new challenges.

Supervisors

1,017
As of end February 2016

Management Owners

147
1,436
MOs

operatingstores

As of end February 2016

Action Plan based on
the Act Concerning
Promotion of Women's
Career Activities
To ensure a work environment inwhich women can thrive, Lawson
established an Action Plan based onthe "Act Concerning Promotion of
Women's Career Activities." Lawson
is proactively promoting women’ssocial advancement.

Workplace Initiatives
Awards for promotion ofself-motivated innovation
These awards recognize selfmotivated, innovative individuals(or teams) who conceive
innovations, however minor, thatlead to improved efficiency in theworkplace. Lawson wants every
employee tobe preparedto actautonomously.

Percentage of women
returning to work aftermaternity leave

95.6

%

Cumulative Performance fromMarch 2000 to February 201630

31

1,000 -Day
Action Plan

New Systems for the Next-Generation LAWSON Convenience StoreWe are implementing unprecedented, completely new
systems employing cutting-edge IT technologies andPonta cardmember purchasing data.

“LAWSON STORE100” providing real value at 100 yen

Semi-automatic ordering system

5

Logistics system

Store system

Application of approximately billion
purchasing data points withinapproximatelyparameters.
Recommendations for times/day

100

4Targeting products such as boxed lunches
in the ready-made food category

Ponta cardmember
purchasing data

Information
analysis
systemReal-time information-sharing throughout
the supply chain
Cloud-based

Demand forecasts for individual stores and products based on“Seijo Ishii” food-lifestyle supermarkets serving
customers who seek diversity in their lives“NATURAL LAWSON” offering customers beauty andhealth products for use in daily life

Lawson will eliminate waste and improve efficiency throughout the supply chain by taking fulladvantageof the latest digital technologies, including cloud computing and artificial intelligence,
情報分析
based onPonta
システム cardmember purchasing data and other big data at the Company’s disposal.

Manufacturingsystem

We will continue to marshal the concerted efforts of
our Group to enrich customers’ lives further.

New products and measures
Products suited to the individualstores’ customer baseLawson is developing “neighborhood stores” that meet community
needs. Seijo Ishii has a particularly strong focus on promoting good
taste. Developing safe food throughout the world, it opens uniqueretail outlets in station buildings and other such venues that set themapart from convenience stores. Seijo Ishii is also known, moreover,as a manufacturing retailer with centralized kitchen facilities and an
import company. NATURAL LAWSON, meanwhile, features a uniquemerchandise assortment focusing on the keywords health and beauty,
seasonal items and safety and peace of mind. It has produced such
hit products as Green Smoothies and healthful confectioneries, and it
is making progress in collaboration with Seijo Ishii, which has a similarmerchandising concept. LAWSON STORE100 is clearly differentiatedfrom conventional convenience stores by its focus on meeting the needsof the elderly and small households. In addition to stocking a large
selection of fruits and vegetables in its commitment to freshness andquality, LAWSON STORE100 seeks to provide value by offering products
in both normal portions and small packages at a uniform price of 100 yen.

Tickets

recent sales, opportunity loss, stock information and other factors.

Lawson delivers fun to the community fromthe neighborhood LAWSON store.

Products purchased frequently by
individual stores’ regular customers
Top-selling products at individual stores

POS

Analysis and use of Ponta cardmember purchasingdata and other big data

Lawson has adopted cutting-edge IT technologies to improve efficiency in its
store operations and throughout the supply chain. The Ponta point card program
implemented at LAWSON stores, for example, has over 70 million cardmembers
accounting for approximately 50% of Lawson’s total sales. Analyses of this big
data are employed in determining the product offering. The “semi-automaticordering system” introduced in 2015, meanwhile, predicts demand for such target
categories as boxed lunches, and proposes order sizes based on sales data for
individual stores. Orders of the recommended sizes are delivered to the stores fourtimes a day after the sales potential is taken into consideration. We are beginningto see such positive results as product offerings that match the needs of individual
communities more closely and shorter ordering times. In the future, Lawson plansto share demand forecasts in real-time with its boxed lunch producers and shipping
centers and construct unprecedented new systems. These systems will contributeto such improvements as reduced waste of raw materials and unsold products andlower energy consumption as well as to enhanced operating efficiency throughout
the supply chain.

32

Ponta cardmembers

Over

70

millioncustomers

Cardmembers' purchase50%

As of end February 2016

Lawson began directing energy into its entertainment-related products
and services in the 1990s with the aim of making customers’
lives more fun. Today, it has developed its own comprehensive
entertainment business, largely through its consolidated subsidiary
Lawson HMV Entertainment, Inc., and become a leader in theentertainment distribution industry. Lawson’s concert and sporting
event ticket business maintains a top share in the ticket agency
industry. Its music and video software sales also rank among Japan’slargest in scale. The Company is involved in the movie businessthrough its United Cinemas, moreover, which operates movie theaters
across the country, as well as in planning and management of music
distribution and production of various events. All these services areprovided to make the lives of Lawson customers richer and moreenjoyable.

Creating happiness and harmony acrossborders in communities worldwide
Ongoing changes in Asian lifestyles have engendered a growing needfor timesaving convenience. We believe the Japanese convenience
store can overcome challenges stemming from national and local
differences and play a significant role in emerging Asian nations aswell as in Europe and North America. Lawson will design stores to
win the hearts of customers in every local community by grasping
the needs of small areas. Lawson will create happiness and harmony
across borders in communities worldwide.

Books
Magazines

CDs
DVDs

Entertainment 360°
Games

The Lawson Group
Goods
provides a full 360°
response tocustomers’ entertainment
needs.

MoviesTravelOther
Store
Products

Number ofoverseas stores (As of end February 2016)
Beijing 34 stores

758

Dailan 53 stores

Chongqing 110 stores

Thailand 47 stores

Shanghai 458 stores

Philippines 16 stores
Wuhan(3 stores opened in May 2016)

Hawaii 2 storesIndonesia 38 stores33

Lawson Topics

Opening of the latest eco-friendly model store with abiomass energy-generation system, an industry first
Lawson has opened its most recent eco-friendly model store,
the LAWSON Yumesaki Smart Interchange-mae store, in
Himeji, Hyogo prefecture. This is Japan’s first convenience store
equipped with a biomassenergy-generation system. The
store is expected to consume
approximately 70% (67.9%)
less externally sourced energy
as compared to fiscal 2010,
the largest reduction in history.

Reinforcing Management Structures to Assure Sustainable Operations

Responding responsibly to risks
while creating business opportunities
in a changing society

Selection for GAP Initiative Award 2016
In order to construct an adequate Lawson Farm management
system, Lawson is pursuing efforts to obtain certification for the
JGAP agricultural production process management technique.
In July 2016, Lawson and thePresident and CEO of Lawson Farm
were awarded the GAP Initiative
Award 2016 for their contribution
to dissemination of GAP (goodagricultural practices).

Masakatsu Gonai
Executive Vice President and Member, Board of Directors
CR Executive Officer and Personnel Officer

Participation in Rainforest Alliance Consortiumplanning
Lawson uses only coffee beans* grown on Rainforest Alliance
Certified™ farms for its MACHI café fresh-ground coffee service.
Motivated by a desire to popularize this certification, Lawson
participated in planning the Rainforest Alliance Consortium, which
was founded through cooperation
among corporations that market
coffee, tea, bananas and other certified
products and Rainforest AllianceJapanese market representatives.
*Excluding the Single Original series and drip bags

Commendation from the Minister of the Environment’s
Commendation for Global Warming Prevention Activity for
introduction of a CO2 refrigeration system in Indonesia
Lawson received a commendation in the Global Contribution
category of the 2015 Commendation for Global Warming Prevention
Activity sponsored by the Ministry of the Environment. This award
recognizes Lawson’s considerable contributions to global warming
prevention and energy conservation
as well as to reduced emissions of air
pollutants through the introduction of
CO2 refrigeration systems to its storesin Indonesia, which make full use of
cutting-edge technologies.

Main risks recognized by Lawson
1. Risks related to changes in the businessenvironment
Risks arising from changes in domestic orinternational economic conditions, economic trends
and social structures, changes in consumer behavior
in response to abnormal weather, and changes
in competitive conditions with respect to othercompanies in the convenience store industry andretailers in other business categories

2. Risks related to food safety, hygiene
management and labeling

Receipt of the Special Award in the Ikumen
Company Award competition

Selection as a Nadeshiko Brand for third
consecutive year

Lawson became the first convenience store to be honored with theSpecial Award in the 2015 Ikumen Company Award competition by
the Ministry of Health, Labor and Welfare.
The Company received the award for its
active support of male employees who areraising children, including its use of internal
campaigns to foster a culture of respect forthese employees.

Since fiscal 2012, the Ministry of Economy, Trade and Industry(METI) and the Tokyo Stock Exchange have joined each other indesignating listed companies that excel in promoting the successof female employees as Nadeshiko Brands. Lawson has been
designated a Nadeshiko Brand forthree years in a row, becoming thefirst company in the retail industry toachieve this distinction.

Risks of the unlikely occurrence of such serious
causes for concern as food poisoning, contamination
or erroneous representations of food products

3. Risks related to the handling of personal
information
Risks of personal information leaks as well as ofunauthorized access to personal information

4. Legal and regulatory risks
Risks arising from amendments to various laws andregulations as well as changes in administrative
guidance policies in the stores’ local communities

5. Risks related to franchise operations
Risks of franchise contract cancellations due todeterioration of the relationship of trust between the
Company and its franchise owners.

6. Risks related to disasters

Appointment of three new directors and auditors
Lawson has established a system that enables its 12 directors
and auditors to make sound, speedy business decisions as a
unified group. Effective May 2016, Keiko Hayashi (President &CEO, DoCLASSE) and Kazunori Nishio (Senior Vice President,
Division COO, Retail Division, Mitsubishi Corporation) were newly
appointed as directors, and Toshio Takahashi, who has experiencein the employ of a major bank, was newly appointed as an auditor.
The appointments were approved by the 41st General Meeting of
Shareholders.

34

Introduction of family-friendly Machi-Ene
community energy service
MC Retail Energy Co., Ltd., a joint venture between Lawson and
Mitsubishi Corporation, introduced the Machi-Ene service in April
2016 to provide Kanto region households with “safe,” “happy” and“easily understandable” electric power. This marks the first entry
by a convenience store into
the retail residential energy
industry as an operator.

Risks of physical damage to Group stores, manufacturing
plants, shipping centers and other facilities as well as
disruptions occurring due to natural disasters such as
earthquakes, tsunami, typhoons or blizzards

7. Risks related to problems with IT systems
Risks of disruption of merchandise delivery orsuspension of store operations due to IT system failures
resulting from earthquakes or other natural disasters orfrom events such as infection by computer viruses

8. Risks related to fluctuations in raw
materials prices
Risks of rising raw materials prices due to suchoccurrences as surges in the price of crude oil,abnormal weather associated with climate change orother unpredictable events.

The Lawson Group has responded to customer needs by diversifying and reinforcing its businesscentered on convenience stores. At the same time, it is facing growing challenges, including an
accelerated decline in the birthrate and an aging population, decreasing numbers of retailers,more frequent occurrences of extreme weather and other emerging risks. As the CR Executive
Officer*1 confronting these circumstances, I am taking the lead in further enhancing the Group’s
internal control and in promoting development of a framework for rapid risk information assessment
and countermeasure implementation, with an emphasis on attaining the requisite sensitivity toassure awareness of even the most minute details. This involves establishing a Compliance & Risk
Management Office and an Information Security Management Office as well as assigning CROs*2 toeach headquarters division and area to assist me in performing my duties. We have made considerable
progress over the past two years, but we intend to continue working to strengthen our systems.
Among the wide range of risks facing us, we are particularly concerned with “food safety andhygiene management,” “information security” and “disaster relief.” We recognize providing safe
food, the foundation of our business, protecting our valued customers’ information, supporting
our network of stores across Japan and continuing to deliver merchandise and services to local
communities, even in the event of disaster, as our primary missions.
This year witnessed the occurrence of the 2016 Kumamoto earthquakes. We are continuing
to support reconstruction efforts in the disaster areas today. At the same time, we have madeproposals for improvement of deficiencies in preparedness that the earthquakes brought to light andare drawing on them to develop disaster prevention measures and increase future preparedness.
Turning now to issues on the global stage, countries around the world embraced the goal of
reducing greenhouse gases that cause global warming by signing the Paris Agreement at COP 21
in Paris last year. This agreement to combine forces to limit the long-term rise in temperatures to
1.5-2.0°C is a significant achievement. It will also impose a substantial obligation on corporations.
As a member of the convenience store industry, we view responding to environmental issues as afundamental responsibility, especially in light of the burden placed on the environment by our 24hour/day operation as a social lifeline. While working to resolve social issues, however, we mustalso continue our efforts to realize new opportunities to generate profits in our core businesses.
As one of many examples, we have established a specialized subsidiary with responsibility forstabilizing procurement to prepare for the risk of shortages or sudden surges in raw materials
prices due to extreme weather or economic trends. This offers the advantage of supplying safe,
high-quality raw materials efficiently and reliably, thus supporting development of merchandise
with higher added value.
The Lawson Group seen here will seek to achieve its Corporate Philosophy of “Creating
Happiness and Harmony in Our Communities,” not only responding to risks but also seeking
creative solutions to social issues and boldly taking up challenges for generating business
opportunities. In this way, we intend to realize our identity as a leading Company in both solution
execution and new business creation.
*1: CR Executive Officer (executive officer of the Compliance and Risk Management Office): The executive
with overall responsibility for the development and implementation of a framework for identifying
misconduct and problems concerning legal compliance and preventing risks from arising*2: CROs (Compliance and Risk Management Officers): Employees assigned to each department who
support the CR executive officer and assume overall responsibility for the development and execution ofa frameworks for identifying misconduct and problems concerning legal compliance and preventing risks
from arising

35

Compliance and Risk Management

Risk preparedness and responses
Responses to emergencies
Lawson places particular emphasis on “food safety and hygiene
management,” “information security” and “disaster relief,” andit has prepared a structure for responding to emergencies andresolving problems rapidly.
Meetings of the Compliance and Risk Management
Committee as well as of the five subcommittees are convened
under ordinary circumstances to assess risks and formulate andpromote measures to avoid them in an effort to prevent theiroccurrence.
Should a serious risk situation arise, an Emergency Risk
Management Committee is organized to resolve issues swiftlyand minimize damage. Once the problems have been resolved,
the Company analyzes the factors contributing to the occurrence
and reviews and improves the relevant measures to prevent any
recurrence.

Disaster preparedness and response
In cases of large-scale disasters, our initial response is to conductsafety checking of customers, crew, managers, franchiseowners and employees at every store and corporate office.
Lawson conducts Companywide training three times a year inwhich participants acquire experience in implementing a variety
of measures, including responding by telephone, email, anddisaster message dialing and applying the safety check system.
This prepares every individual to respond smoothly should
emergencies arise. Manuals elucidating the requisite disaster
preparedness and responses are distributed to the stores.
When disasters occur, disaster relief headquarters are set
up immediately at Corporate Headquarters, area offices andlocal sites. Lawson takes advantage of a disaster information
map system designed to enable personnel to respond while thedisaster situation is being confirmed in real-time to conduct safety
checks, ascertain the nature of the damage, and implement
support measures for shops, factories and shipping centers.
At the same time, we seek to continue conducting businesswithout suspending critical services (or to resume business quickly
after a temporary suspension) to fulfill our mission of serving as an
essential lifeline for society.

Assuring continuity of business operations
Rules,” in which matters to be observed are compiled.
We have established a system for specifying methods ofgathering and storing information as well as information storage
periods and for designating persons responsible for handlingcustomers’ valuable information in each instance after advancechecking by specialist departments.
When consigning responsibility for storing personal
information to outside organizations, we require that a detailed
investigation of the organization’s security framework be
conducted in advance and that consignment of the responsibility
be made only to organizations that satisfy Lawson’s conditions.
An onsite or documented inspection is conducted annually,moreover, to ensure that the conditions are maintained.
We are also evaluating our information security frameworkfrom a variety of other perspectives to ensure that it remains
robust by implementing information security audits by our internal
audit departments and employing specialized outside companies
to carry out unannounced surveys of office security and diagnose
any vulnerabilities in our information systems.

Crime prevention at stores
We conduct education to ensure that store personnel act with thehighest priority placed on personal safety and with crime prevention
in mind, in ways such as greeting customers in a cheerful andspirited manner. We are cooperating with the police and the Japan
Franchise Association in efforts to prevent crimes against theconvenience store industry as a whole.
Actions taken as crime prevention measures
1. Promotion of security camera installation
Security cameras are installed at every store to discourage potential
perpetrators from committing crimes and to support investigations
that may lead to the arrest of perpetrators in the unlikely event an
incident should occur.
2. Creation of an environment for store crew education
Reminders pertaining to crime prevention are distributed for display
on POS registers and store computers, and manuals and usefultools for crew education such as crime prevention self-check lists
have been prepared as well.
3. Enhancing guidance provision during patrols
Crime prevention guidance is also provided during store patrols toraise awareness at franchise stores.

	Fundamental policies and objectives formaintaining business continuity (BC)Interruption of important business activities shall be avoided, evenwhen emergency situations involving serious damage occur, while
maintaining a priority on securing people’s safety and wellbeing.
Even if business operations are unavoidably interrupted, critical
functions shall be resumed quickly in order to avoid undermining
our customers’ satisfaction or corporate value.
Three main goals for maintaining business continuity (BC)Fulfilling Lawson’s mission as a “community lifeline”
We will endeavor to ensure uninterrupted provision of products andservices to customers by keeping stores open whenever possible.
Continuation of the franchise (FC) businessWe will determine specific periods and methods for resuming
operations and maintain the requisite level of FC headquarters
operations.
Securing appropriate earnings
We have implemented measures in consideration of the impact
emergencies could exert on earnings and of social conditions inorder to secure an appropriate level of earnings necessary to theCompany’s survival.
Practical procedures are compiled in the Business Continuity Plan
(BCP), and we are pursuing efforts to establish a BC framework inline with the BCP, and to sustain and enhance it, as important issues
for management.

Formulation of BCP guidelines
Lawson has formulated the “BCP Guidelines” as a practical action
manual describing responses to emergency situations based on
the Business Continuity Plan. The current guidelines summarize
in an easy-to-understand manner appropriate responses by the
responsible personnel to such hypotheticalemergency situations as the occurrence ofan earthquake under the Tokyo Metropolitan
Area, the appearance of a new strain of
influenza, and such events as deep offshore
earthquakes, nuclear power plant accidents,
volcanic eruptions and heavy flooding.
BCP Guidelines“Resilience certification”
Lawson is certified as an enterprise that contributes to thebuilding of national resilience against disasters

Disaster relief manual

Improvement of the information security
framework
The “Lawson Group Privacy Policy” has been formulated topromote protection of personal information. To ensure that therelevant personnel understand specific details of the contents
and are prepared to implement them, the Company publishes
potential mistakes and complaints that may arise at the stores,
accompanied by practical responses to them, in various
manuals produced for the stores in an effort to raise awareness.
Headquarters employees are tested periodically to ensure thatthey are all acting reliably based on the “Lawson Office Security

36

A DVD on measures to prevent
robberies and other crimes

A crime prevention self-check list

Disaster relief following the 2016 Kumamoto
earthquakes
Immediately after the 2016 Kumamoto earthquakes, Lawson
checked on the safety of its customers, franchise owners,
managers, crew and others as well on the nature of the damage.
We dispatched support staff to the affected stores and distribution
centers, and worked to continue our business operations as acommunity lifeline. Lawson also provided relief supplies at therequest of the local government’s disaster relief headquarters andorganized a fundraising program.

In the spirit of building national resilience against disasters, thegovernment’s National Resilience Promotion Office, Cabinet Secretariat
established a system for “certifying groups contributing to the buildingof national resilience against disasters (resilience certification).” Thissystem certifies businesses that are actively engaged on a regularbasis in efforts related to business continuity in preparation for largescale natural disasters and so on as “organizations contributing to
the building of national resilience against disasters.” The February
2016 “Guidelines relating to certification of groups
contributing to the building of national resilienceagainst disasters” were enacted by this office.
Lawson has received confirmation from the
National Resilience Promotion Office, Cabinet
Secretariat to the effect that it conforms to the“requirements of a certified organization” stipulatedby the above guidelines. Lawson was recognizedby the Association for Resilience Japan as the first
convenience store to contribute to the building of
national resilience against disasters.

	Mechanism for enhancing BC capabilities
Activities conducted to improve response capabilities are
essential for sustaining a corporate climate adapted to responding
sensitively to a variety of crises. Lawson is continually reviewing
such business components as “hardware” factors involving officebuildings and lifelines, “software” factors involving its BCP andmanuals, and “skills” factors involving employees and FC stores.
The Company uses its findings to implement improvements incrisis response capabilities throughout the Group.

Mechanism for enhancing BC capabilities
Corporate climate sensitive to crisis response
Awareness of the importance of and structures for continuous improvement activities

BC capabilities
Maintenance of important business duties and uninterrupted store operation

Hardware

SoftwareAdvancemeasures

SkillsAction plan
Framework establishment /upgrading anddistribution of roles
Assignment of roles
and procedures

Implementation of
preventive measuresand disaster mitigation
measures

A diagnosis and measures of the vulnerability
Reflection to standard and procedure

Proactive
measures

Training to improvethe crisis response
capabilities of personnel
and organizations

Training and lecture sessions
Skills enhancement

Cooperation with local governments at times of disaster
In its capacity as a community lifeline, Lawson is making
progress toward concluding agreements with local governments
concerning cooperation in the provision of goods and assistanceto stranded commuters in times of disaster.

Status of disaster agreements concluded
with local governments*(As of August 1, 2016)<Entities concluding agreements on provision of
goods in times of disasters>
Local governments: 47 prefectures,
16 cities and wards
Others: Tokyo Fire Department andJapan Ground Self-Defense Force
Mass transit systems: 8 systems
Electric power companies: 2 companies<Entities concluding agreements
on assistance to stranded commuters>
Local governments: 41 prefectures,
10 ordinance-designated cities

Conclusion of agreements forprovision of goods and assistanceto people stranded by disasters
Conclusion of agreement for supply
of goods in case of disasters* The conclusion status is shown on the map only in prefectural units.

37

Internal control

Further details

Lawson’s compliance and risk management system

http://lawson.jp/en/about/governance/

Basic policy regarding the internal control system

Thorough dissemination of information concerning
important laws and regulations
Among the wide-ranging laws and regulations requiring
compliance, including the Antimonopoly Act, Subcontract
Proceeds Act and Act against Unjustifiable Premiums andMisleading Representations, labor laws require clarification anddissemination, in particular.
Raising the profile of the Consultation and Report OfficeLawson has clarified appropriate actions to improve disseminationof reports to improve awareness and understanding of thepreviously established Consultation and Report Office (internalreport office).

Chairman andPresident & CEO

Reports on important issues

Auditors

Emergency preparedness
and response

Review and improvement of measures

Board of Directors

Post-emergency review

CR executive
officer*1

Education, training, practiceMutual understanding / information exchange

Compliance & Risk Management Committee

Compliance & Risk Management Meeting

Formulation of action guidelines and standards
Normalcircumstances

In addition to the Code of Ethics and various internal rules withrespect to compliance and risk management issues, we haveestablished the Lawson Group Privacy Policy and the Lawson
Group Purchasing Policy toensure proper conduct ofbusiness throughout the Group.
We have compiled these in
the “Lawson Group C&R
Handbook” and distributed it toall our employees to attain theirunderstanding of the policies.

Compliance & Risk Management Office• Food Safety and Hygiene
Management Subcommittee• BC Subcommittee• Regional Office Crime Prevention
and Disaster Defense Subcommittee• Information Security Subcommittee• CSV (Creating Shared Value)*3
Subcommittee

Information Security Management Office

Divisions and Areas

CRO*2

Emergency

Emergency Risk Management Committee Meeting circumstancesInternal
control audits

Lawson Group C&R Handbook

Internal Audit Division

Guidance /supportAffiliatedcompanies

Close communications / basic management policy

Affiliated Company Compliance Officers Meeting*1 CR executive officer: The executive with overall responsibility for the development andimplementation of a framework for identifying misconduct and problems concerning legal
compliance and preventing risks from arising*2 CROs (compliance and risk management officers): Persons responsible for compliance in thevarious divisions who support the CR executive officer and assume overall responsibility for thedevelopment and execution of a frameworks for identifying misconduct and problems
concerning legal compliance and preventing risks from arising

Appointment of CR promotion officers

Franchise stores

We have appointed an executive officer responsible for CR(compliance and risk) with responsibility for promoting complianceand risk management. Compliance and risk management
officers (CROs) assigned to each department at headquarters
and the regional offices are tasked with establishing and raisingawareness of compliance measures and risk countermeasures intheir respective departments and with contributing to creation of aculture that emphasizes compliance with social norms.

Full implementation of education and training*3 CSV (Creating Shared Value)

Lawson conducts compliance and risk management training for all
its employees each year for the purpose of improving their ethical38

awareness and risk response capabilities. It has developed a training
system to support structured, systematic learning, moreover, thatbegins with training of newly recruited employee and extends totraining of newly appointed management personnel and specialized
occupational training as well as biannual compliance training for
management members provided by outside instructors. Our ongoing
implementation of these training programs is designed to encourage
personnel in every position and with every job description to share in
the problem-solving process leading to business enhancement.

Consultation and notification system establishment

Verification of progress/
monitoring of implemented measures

Internal control audits / regular meetings

Departmental
enlightenment
activities conductedby leaders

Corporate Auditors

Establishmentof contacts for
consultations

Formulation of compliance and risk
management measures by therespective departments

Board
Lawson’s internal control system (as of June
1, of
2016)

Board ofCorporate Auditors

Management organization
Behavioral standards formulation (including the
Corporate Philosophy, Code of Ethics, others)

Conduct of duties based on
behavioral standards(implementing measures)

The Lawson Group has established the “Basic Policy for
Maintaining the Internal Control System” to support its efforts toachieve healthy, sustainable growth as an entity with businesscharacteristics that require observation of a diverse range of laws
and regulations and responses to wide-ranging risks.
We are promoting maintenance of our internal control
system based on this policy, while responding to changes inour management environment, conducting periodical reviews of
the policy itself, and endeavoring to maintain and enhance aneffective, practical internal control system.
The main points of the revisions of the “Basic Policy for
Maintaining the Internal Control System” implemented in fiscal
2016 are described at below.

Lawson has established a compliance and risk management
framework based on its Corporate Conduct Charter and Codeof Ethics. We seek to conduct business as a good corporate
citizen, acting honestly and considerately according to high ethicalstandards, implementing the PDCA (Plan-Do-Check-Action)
cycle, and organically linking our behavioral standards with our
education and training programs, communication functions andmonitoring activities.

In addition to Human Resources Department personnel who specialize
in consulting concerning sexual harassment and abuse of power andlegal department personnel who provide consultations on legal matters,
Lawson has established consultation contacts to provide consultations
and receive internal notifications with respect to compliance and risk
management issues. In addition to establishing the Lawson Group
Outside Consultation/Whistleblower Hotline involving law firms andother external organizations, the Company has created a framework forproviding business partners’ employees with consultations anonymously.

Reinforced operational management and monitoring
Lawson has established the Compliance and Risk Management Officeand the Information Security Management Office and staffed them withspecialized personnel under the direction of the officer in charge of CR. As
the entities responsible for promoting and assuring compliance as well as
for conducting risk management, these offices serve as cross-departmental
secretariats for the compliance and risk management committees
and manage the progress of measures implemented by the individual
departments throughout the Group. Five separate subcommittees (the Food
Safety and Hygiene Management Subcommittee, the BC Subcommittee,
the Regional Office Crime Prevention and Disaster Defense Subcommittee,
the Information Security Subcommittee, and the CSV Subcommittee) havebeen established under the Compliance and Risk Management Committee
and tasked with managing the progress of important measures while
preventing the emergence of risks.
The subcommittees collaborate with the Corporate Auditors Office,moreover, receiving reports on the results of compliance audits as needed
while also providing detailed guidance for implementing measures andoffering proposals for improvements.
Besides awareness surveys involving all the employees, themonitoring activities extend to circulation of questionnaires among
business partners concerning such matters as delivery of merchandise tostores and store construction as part of efforts to review the compliancesystems from a broad perspective.

Enhanced cooperation among Group companies
Officers responsible for compliance and risk management have also
been appointed at the Group companies, and Lawson holds meetingsof affiliated companies’ compliance officers. Besides formulating theCode of Ethics and providing training to heighten employee awareness,
we conduct the same employee awareness surveys and questionnaires
as for business partners at our Group companies. In addition, theCorporate Auditors Office conducts audits of operational duties at Group
companies, and the companies’ boardsof auditors convene meetings to provide
guidance and assistance in establishingand improving their compliance and risk
management frameworks.
A meeting of affiliated company
compliance officers

39Social and Environmental Activities

Lawson’s social and environmental initiatives

Further details
http://lawson.jp/en/csr/environmental_management/

Social and environmental initiatives in our core business
Operating in accordance with its Corporate Philosophy,
the Lawson Group pursues positive business activities withconsideration always given to society and the environment withthe aim of “Creating Happiness and Harmony in Our Communities”(sustainable growth). Our Environmental Policy serves as thefoundation for these activities as well as their driving force. Basedon this policy, we are seeking to pass on the blessings of ourabundant Earth to future generations by conducting efforts in ourcore business aimed at realizing a sustainable society and throughsocial contribution activities conducted in our local communities.
We employ the ISO 14001 Environmental Management System
to promote business activities that are considerate of society
and the environment and implement the PDCA (Plan-Do-CheckAction) cycle to promote a harmonious relationship with society
and reduce the environmental burden. In addition to conducting
internal audits several times a year, we invite third-party audits by
an external organization as part of ongoing efforts to verify thestatus of our activities and identify ways to improve them.
In pursuing these activities, we share our philosophy
not only among our Group companies, but also with business
partners with the aim of enhancing our corporate value.

Lawson Group Environmental Policy
Our basic principles
Committed to sustaining the blessings of Earth for future generations,the Lawson Group will not only pursue business activities in anenvironmentally sound manner at all times, but it will act energeticallyto achieve sustainable development and harmonious interaction withlocal communities.

Our principles
1. Creation of a low-carbon society
2. Consideration in the development of products and services
3. Active participation in social contribution activities
4. Continuous improvements
5. Observance of laws and regulations
6. Promotion of communication

Lawson is working to reduce electricity consumption by its stores
to conserve energy and reduce CO2 emissions. We have declared
a medium-term energy-efficiency goal of reducing per-store
electricity consumption by 20% in fiscal 2020 compared withfiscal 2010. We are therefore actively introducing energy-saving
facilities such as cooling equipment and air conditioners and LED

Per-store electricity consumption (index) and CO2 emissions*1(%)

Annual electricity consumption index (left axis)

CO2 emissions volume (right axis)

120

120

100
80

68.2

86.4

98.8

60
40
20
0

*1 Sell-by date: A date determined voluntarily in advance on which products are
removed from the shelves to ensure that customers purchase them while they
are still assured safe.
*2 The weights for food waste are the actual results of food-recycling efforts
conducted by approximately 2,400 stores.

CSV (Creating Shared Value) Subcommittee
With the CSR Promotion Department of the Business Operations
Support Division serving as a secretariat, the CSV Subcommittee
convenes bi-monthly meetings (monthly meetings as of fiscal
2016) attended by representatives of Headquarters, the various
areas and the Group companies responsible for CSV promotion.
Its principal activities include managing progress and sharing
information concerningsocial and environmental
objectives, providing
guidance and assistancefor stores, responding tointernal and third-party audits,and promoting social andenvironmental education.

Transitions in number of stores implementing Lawson Group’s food-recycling activities(Number of stores)(%)

15,000164

12,000

2,292

9,000

906

6,000

7,403

3,000
0

22.5

10,468

47.6

170

174

2,475

2,381

11,05911,470

44.7

41.1

36.5

38.5

100

80

91.5

Base year

100.0

40

80.0

20

Target2010

2015

2020 ( FY * )

0

2

*1:	
COCO2
2 emissions derived using adjusted coefficients for receiving-end terminals※1
排出量は電気事業連合会で出している受電端の調整後係数を使用。2015 年度、publishedby the2014
Federationof Electric Power Companies of Japan. The figures for2020 年度は年度の係数で試算。
fiscal2015 andare estimatedbased
on coefficients for fiscal 2014.
※2 行政年度
4 月 2020
1 日から翌年
3 月 31日で算定*2:	Calculated for the year from April 1 to March 31 to coincide with the administrative
fiscal year.

Further details
http://lawson.jp/en/csr/supply/of CO2 emissions throughout the supply chain. External
investigative bodies examined local sites and documents basedon ISO14064-3 to determine electricity consumption by the storesand gasoline use by Company cars as well as CO2 emissions
from procured raw materials. The results were published in a
Greenhouse Gas Emission Verification Statement.

Lawson’s supply chain
Raw materials procurement ❶Manufacturing plants ❷

60

34.5

2007
2013
2014
(Base year)
Conversion to animal feed and fertilizer (left axis)
Waste oil recycling (left axis)
Rate of implementation of activities
Regulatory target (right axis)
such as food recycling*1 (right axis)

2015 (FY)*2

20

Distribution centers ❸Delivery vehicles ❹Stores ❺Company vehicles ❻Corporate
Headquarters
and offices ❼* Numbers ❶ – ❼ correspond to those in the pie chart below.

CO2 emissions from our supply chain in fiscal 2015

Approximately

4,868.4 thousand tons
Method of calculating greenhouse gas emissions in
supply chain
Calculations based on “Explanations by Industry(Retail Industry) for the Basic Guidelines on
Accounting for Greenhouse Gas Emissions
Throughout the Supply Chain,” Ver. 1.0.

Electricity consumption by Headquarters, areas, regional offices,branch offices and Company-operated stores ❺❼ (Scope 2)
0.45%［21.8］

Electricity
consumption by
franchise stores ❺Stocked raw
materialss

Waste materials generated by stores and industrial waste
generated at times of store closures and remodeling ❺ (Scope 3) 0.54%［26.5］(Scope 3)❶❷

Use of Company vehicles, LAWSON,

services for store sales

TargetperiodFrom April 1, 2015 to March 31, 2016
(administrative year)

Targetitems

Gasoline consumption by Company
vehicles, electricity consumption
by stores and CO2 emissions frompurchased goods and services

0

Heat recovery (left axis)

22.42%(Private and national
brand products, plastic ［1,091.3］
shopping bags, etc.) (Scope 3)72.60%

Disposal of containers, disposable chopsticks andplastic shopping bags ❺ (Scope 3)

0.70%［34.2］

Electricity consumption associated with procurementof electric power (Scope 3)

1.46%［71.1］
1.71%［83.2］

Energy consumption by delivery centers ❸❹ (Scope 3)［3,534.3］*1*2 Scope 1-3: Greenhouse gas emissions in the supply chain are classified by source.
• Scope 1 (direct emissions): Direct emissions from the Company’s production facilities, ofﬁces, etc.
• Scope 2 (energy source indirect emissions): Electric power and other energy consumed by the Company• Scope 3 (other indirect emissions): Emissions associated with all corporate business activities

Social and environmental preservation costs
Test period: March 1, 2015 - February 29, 2016
Classification

Scope of compilation: Lawson Headquarters and franchise stores*1 (Thousand yen)

Descriptions of principal activities(1) Businessarea costs(1)-1 Pollution prevention Maintenance and management of
costs
septic tanks at new stores(1)-2 Global environmental Implementation of energy-efficient
preservation costs
equipment, CO2 offsetting activities
仕入れた(1)-3 Resources recycling Waste materials-related expenses*2
原材料①② costs（PB
・NB製品、(2)
Upstream
andレジ袋など）
downstream costs
Containers and Packaging Recycling
Law-related expenses（Scope3）(3) Management
operations
costs
72.60%
Preparation of environmental reports,
ISO 14001 assessment expenses［3,534.3］※(4) Research and development costs(5) Social activity costs
Greenhouse Gas Emission
Verification Statement

0.01%［0.5］Business trips ❼ (Scope 3)CO2 emissions calculation rules
LAWSON, LAWSON
Scope of NATURALSTORE100 and LAWSON MART
inspection (13,067 stores), purchased goods and

0.11%［5.5］Gasoline consumption by Company vehicles ❻ (Scope 1*2)

Total CO2 emissions

80

40*1 Figures for the implementation rate of food recycling activities exclude figures for Lawson
Okinawa, Inc., Lawson Minami-Kyushu, Inc., and Lawson Kochi, Inc.
*2 Calculated for April 1 to March 31 to coincide with the administrative fiscal year.

40

100

60

*1 Figures in brackets [ ] indicate CO2 emissions(thousand tons)

Food waste discarded daily by individual LAWSON stores includes 7.8 kgof boxed lunches with expired sell-by dates*1 (surplus food) and 2.3 kg of
cooking oil (waste oil) used in fast-food preparation, a total of 10.1 kg*2.
Lawson’s activities are intended primarily to suppress waste generationand encourage recycling (recycling of waste oil, conversion of surplus
food into animal feed and fertilizer) to reduce the volume of waste foods.
These efforts led to a food-recycling ratio of 41.1% in fiscal 2015, well
above the regulatory target of 38.5%.

(t-CO2)In order to reduce its impact on the environment to the greatest
extent possible, the Lawson Group is working to conserve energy,
limit resources consumption and reduce waste at every stage inthe supply chain.
Among our efforts, we adopted a third-party verification
program in fiscal 2011 to acquire a more accurate understanding* CSV (Creating Shared Value)

Reduction and recycling of food waste

lighting to the stores. Of particular note, we are installing freezing
and refrigeration systems that use CFC-free refrigerants (CO2refrigerants) boasting a global warming coefficient about 1/4,000
that of chlorofluorocarbons (CFCs). Having achieved a high 12%
reduction in electricity consumption and excellent energy-saving
effects at all the stores, Lawson has proactively promoted theinstallation of these facilities in stores opened since August 2014.
As of end February 2015, they were installed in a total of 1,300
stores, including existing stores.
We will continue to open experimental stores with new
facilities and equipment installed, verify energy conservation
effects and pursue further energy conservation and CO2
reductions. We comply with the Ten Energy-saving Rules,
meanwhile, cleaning the filters,
maintaining recommended heating
and cooling temperature settings, andimproving the operating efficiency of
our main cooling and climate-control
equipment to reduce wasteful overall
electricity consumption by stores.

CO2 emissions in the supply chain

Promotion of social and environmental education
High levels of awareness, knowledge and information are
essential for contributing to society and the environment. The
Lawson Group provides social and environmental educationfor Headquarters’ employees as well as for franchise owners
and store managers and crew. For Headquarters employees,
education begins with new employee training and extends toannual general environmental training of all employees throughe-learning. Training is provided at the time of store openings for
franchise owners and store managers and crew, who also receive
a continuous flow of information through in-house magazines andthe Company’s environmental reports.
Lawson encourages the representatives responsible forpromoting CSV* activities in the various departments to deepen
their knowledge by acquiring both internal and external training
and taking the Certification Test for Environmental Specialists(Eco Test).

Constructing energy-efficient stores

Total

Energy-conserving stores’ research expenses
Afforestation activities, cleaning
activities, donations to non-profit
organizations

Investment
amount010,457,169

ExpenseamountEffectsof water
169,217 Prevention
contamination
131,323 CO2 reduction

0

with laws
6,347,944 Complianceand regulations
with laws
589,239 Complianceand regulations
Promotion, dissemination
6,399 and education related toenvironmental activities
5,161 CO2 reduction

0

preservation,
28,475 Biodiversity
regional beautification

00010,457,169

7,277,758*1 Includes domestic area franchise and LAWSON STORE100 and LAWSON MART stores*2 Expenses for waste disposal and recycling at stores are estimated based on values for standard stores employed as sample figures.

41

Developing Human Capital

Corporate Governance

Promoting diversity

Lawson’s corporate governanceFurther details
http://lawson.jp/en/about/governance/

Contributing to the success of diversified human capital, including female employees and employees offoreign nationalities; encouraging male employees to take paternity leaveLawson promotes diversity in order to create an organization inwhich employees with a wide range of values can reach their fullpotential. Besides conducting active hiring of women and people offoreign nationalities, Lawson has established a special subsidiary to
promote employment of people with disabilities. The Company has
also created a venue for labor-management consultations concerning
improvement of operating efficiency and work environments.
Discussion meetings are organized nationwide with the aim of
deepening understanding of diversity.
Seeking to become a company whose female employees canremain active while raising children, Lawson is implementing initiatives
to support their success. These include career development training

for young employees, distribution of information from the Company
to employees on maternity leave, group training sessions for careerformation after they return to work and training sessions to enable
selected employees improve their business skills. Since 2014,
moreover, Lawson has operated onsite childcare facilities. Throughthese initiatives, Lawson seeks to attain a ratio of 30% women in
management positions by fiscal 2020.
Lawson does not concentrate its efforts for change on womenalone. We are also committed to raising awareness in male employees.
One example is an initiative for encouraging male employees to takepaternity leave, which contributed to raising the ratio of paternity leavetaking to 70%. We have now set a new target of 80%.

Characteristic features of the corporate governance
Since 2002, Lawson’s Board of Directors has comprised 10 or
fewer members. Notably, eight of the total of 12 directors andauditors are from outside the company, and six of these are
independent officers. In consideration of diversity, moreover, four
women have been appointed to the position of director or auditor,a reflection of Lawson’s commitment to reinforcing its corporate
governance system from various perspectives.
The Compensation Committee was reorganized into

Board of Directors
member(inside)Corporate governance system

Appointment/
removalNomination andCompensation
Committee

HR officer
Human Resources
Division
Diversity promotion
officerMarketing teamDiversity team

Fixed compensation: A fixed amount commensurate with the position determinedbased on internal rules
Variable compensation: Performance-based remuneration linked to theCompany’s performance in each fiscal period, including EPS, etc. (to ensure
linkage between directors’ compensation and shareholder returns)

Honored with
Ministry of Health,
Labor and Welfare
Ikumen Company
Award Special
Award

Board ofDirectors

Consultation

Audit

Business
execution organization

Discussion / report

Acting from a conviction that becoming a business that contributes
to the health of its customers begins by promoting health internally,
we are implementing actions to promote employee health. The
completion of agreements between labor and management toenhance work efficiency and eliminate excessive working hours
and the establishment of a cooperative health union have created amechanism for sustaining the long-term health of our employees.
As part of its efforts to promote health, Lawson established
Lawson Healthcare Points in April 2015 as a health business tomanage day-to-day health. This program awards members withup to 10,000 Ponta points (worth 10,000 yen) for achieving healthrelated goals. Within three months of its introduction, 95% of all
Lawson employees had registered and begun participating in
the program, whose effects included an increase in the ratio of
employees making exercise a habit. Lawson
is continuing to conduct this program as
one initiative to promote health among its
employees in 2016.
Lawson also considers promoting thehealth of franchise owners important. It provides
an assistance program for medical examinations
and health support through the Lawson Owner
Welfare Association, which is operated in a spiritof mutual aid by franchise owners.

42

The Lawson Owner Welfare Association
This organization provides franchise stores with a range of welfare
benefits centered on the three principles of “comfort,” “health” and“peace of mind.” It offers a range of benefits for member franchiseowners and their families as well as for store crew and staff. These
include subsidies to encourage medical checkups and the use ofpreferred discounts for health promotion activities.
• Subsidies for use of sports facilities• Assistance program for correspondence education and healthmanagement• Convenient travel and accommodation services• Assistance programs for child-rearing and nursing care
• Health promotion and parent/child events, seminars for women, etc.
• Celebration and condolence allowance programs• Insurance programs for franchise stores• Discounts and preferential treatment at daily life-related facilities,
including dining, leisure, entertainment, childcare and nursing carefacilities

Outside auditor(independent)

Appointment/
removalBoard ofCorporate
Auditors

Audit
RemovalCertified public
accountant

Audit

Chairman and CEO
President and COO
Compliance & Risk
Management Committee

Activities contributing to the health of employees and franchise owners
Lawson’s efforts begin with promotion of healthy
operations for employees and franchise owners.

InsideauditorFinancial audit

Appointment/removal/
supervision

Ikumen promotion
posters displayed inevery officeOutside director(independent)

Appointment/
removalRecommendation

Sales Strategy andMarketing Division

Outsidedirector

General Meeting of Shareholders<System for promoting diversity>
Chairman & CEO andPresident & COO

the Nomination and Compensation Committee in accordancewith a resolution passed at a meeting of the Board of Directors
following the General Meeting of Shareholders on May 27,
2014. The Committee comprises four outside directors andtwo outside auditors. As a company with a board of auditors,
Lawson has a dual checking function involving supervision ofbusiness execution by the Board of Directors and auditing of
the directors’ business execution by the auditors.

Management
meeting

Internal Audit DivisionInternal audit and guidance
for improvements

Business/corporate divisions

Funding

CR Executive Officer*
Formulation and promotionof compliance and risk
management measures

Opinions

Lawyers

Planning and promotion of compliance andrisk management policies, etc* Compliance and Risk Executive Officer (See page 35.)

Affiliated companies

Corporate Governance Code
The Corporate Governance Code (CG Code) is a set of guidelines
applied to listed companies as of June 2015. Lawson implements
all five basic rules specified by the Code. Lawson’s efforts arealso published in various reports, including corporate governancereports, meeting notices to shareholders and securities reports.
Please visit the following URL to see the content of disclosure
items related to the individual rules in the CG Code.

[Five general principles]
1. Rights and equality of shareholders
2. Appropriate collaboration with stakeholders otherthan shareholders
3. Ensuring appropriate information disclosure andtransparency
4. Board of Directors’ responsibilities
5. Dialog with shareholders

A Lawson Owner Welfare Association pamphlet (left) anda seminar convened by the Welfare Association to promote health (right)

43

Corporate GovernanceLawson’s corporate governance
Basic policy for determining directors’ compensation
Lawson’s policy is to design its remuneration system in a mannerthat links directors’ compensation with returns to shareholders,
while retaining its function as an incentive for enhancement ofcorporate value, continuous growth and improvement of corporate
performance and ensuring an appropriate level of remuneration to
reward individual directors for the duties they perform. The basecompensation includes a “variable compensation” component
linked to the Company’s performance, moreover, as well as a fixedcompensation component. To reflect the directors’ contribution
to improving shareholder value more accurately, variable
compensation is linked to such earnings indicators as EPS (earnings
per share). Share-based stock options—share price-linked
compensation—are also incorporated as part of the remuneration
to strengthen the linkage with returns to shareholders.

Status of internal control system development
Details of auditors' compensation
Auditors’ compensation is determined according to a basic policyof paying compensation at a sufficient and appropriate level inconsideration of the duties performed by individual auditors. It
comprises base compensation (fixed compensation) paid in cash.
The amount is determined through consultation with the auditors,
with consideration given to such factors as full-time or part-timestatus and share of the auditing work, within a range approved by
the General Meeting of Shareholders.

Disclosure method for directors’ compensation
Total amounts of officers’ compensation are listed in the
Company's securities reports and business reports.

Special circumstances with the potential toseriously impact corporate governance

Details of directors' compensation

Details of officers’ compensation (Fiscal 2015)

Directors’ compensation paid by Lawson consists of (A) basecompensation through cash payments and (B) share price-linked
compensation through stock option allocations.

Total compensation, total amounts by type of compensationand number of eligible directors per company director category

A

B

A

Fixed compensation (about 60%)

Directors'
compensation

Category

Base compensation+ Variable compensation (about 40%)

Fixed compensation: A fixed amount commensurate with the position
determined based on internal rules
Variable compensation: Performance-based remuneration linked to theCompany’s performance, including EPS (earnings per share), in the fiscal
period concerned. (To ensure linkage between directors’ compensation andshareholders’ interests)
B

Share price-linked compensation
Stock options offered through allocation of shares(Recognized as compensation linked to medium and long-term
improvement in corporate value)

Exercise price per share: 1 yen
Number of shares allocated: Determined according to the director’s
position
Exercise period: Exercisable only within a predetermined period after
leaving the company(Not exercisable during tenure in office)Note that no performance-linked variable compensation is paid
to outside directors, who support the representative directors andBoard of Directors in a specialized supervisory and advisory capacity.

Total by type of compensation Number
Total
eligiblecompensation Basic compensation Stock options ofofficers

Directors (excluding
outside directors)

205

137

68

3

Auditors (excluding
outside auditors)

24

24

–

1

Outside officers

101

86

15

8

Total

331

247

84

12

(millions of yen)

(Note) There were 8 directors and 4 auditors
as of end February 2016.

The construction and maintenance of an internal control system isconsidered an important issue for management to ensure healthy,
sustainable business growth. In accordance with the provisionsof the Financial Instruments and Exchange Act, in addition to theCompanies Act and Ordinance for Enforcement of the Companies
Act, a Basic Policy for Maintaining the Internal Control System isdetermined each fiscal year (see page 38).
These policies are subject to frequent revision in accordancewith changes in the business environment in order to ensure theeffectiveness, efficiency and appropriateness of business. Efforts
to develop an effective, rational internal control system contributeto maintaining and increasing corporate value.

Mitsubishi Corporation holds 33.5% of Lawson’s total
voting rights, making Lawson an equity method affiliate of
Mitsubishi Corporation (as of end February 2016). Based on
a comprehensive business alliance, Mitsubishi Corporationcooperates with Lawson in human resources exchanges and raw
materials procurement as well as sharing of information on retailproperties and others. As a listed company, however, Lawson
makes management decisions independently.

Board of Directors and Board of Auditors
meetings held and attendance rates

Total consolidated compensation paid to a director in amounts
totaling 100 million yen or above
Total
Director Company Amount by type of consolidated compensation consolidated
Full name category
category Basic compensation Stock options compensation
GenichiTamatsuka Director

Reportingcompany

68

42

111

(millions of yen)

Board of Directors
Number of meetings held
Attendancerate

Board of Corporate
Auditors

14

16

Outside directors

89%–

Outside auditors

93%

100%

General Meeting of Shareholders
Director nomination policy and procedures/appointment standards/independence standards
Lawson has established officer appointment standards as criteria
for appointing directors or auditors.
The Nomination and Compensation Committee serves as
an advisory body that makes recommendations to the Board of
Directors concerning the nomination of candidates for the positionof director.
The six members of this committee, which has a highdegree of independence, are all outside officers (five of whom are
independent officers).
Note that candidates for auditor are individuals with thefinancial, accounting, risk management and/or legal knowledge
and expertise required to fulfill auditors’ duties whose candidacy
is approved by the Board of Corporate Auditors.

Appointment criteria for outside officers
Persons with a wealth of experience and expertise in corporate
management or specialized fields who can ensure sufficient time tofulfill the duties involved are invited to serve as directors or auditors.
(1) Possessed of a wealth of experience and expertise in corporate
management or specialized fields(2) Able to ensure sufficient time to conduct the duties of a director or auditor

Judgment criteria regarding independence
We enhance corporate governance by appointing outside
directors and auditors who meet our judgment criteria. Selections
not only comply with the judgment criteria regarding independent
officers specified in the Tokyo Stock Exchange’s “Guidelines
concerning listing management, etc.,” but they also reflect
rigorous vetting of the candidates to assure their freedom fromany “potential conflict of interest with the general shareholders.”

Overview of liability limitation agreement
Lawson concludes agreements with its directors (excluding
operational executive directors) and auditors to limit liability as
stipulated in Article 423, paragraph 1 of the Companies Act.
The amount of the compensation liability limitation based on thisagreement is considered to be the total amount stipulated in
Article 425, paragraph 1 of the Act.

Recognizing the opportunity afforded by the General Meetingof Shareholders to raise shareholders’ understanding of theCompany, Lawson has been a leader in promoting disclosure.
Since 2001, shortly after its public listing in 2000, Lawson has
conducted early mailings of notices of shareholders’ meetings inboth Japanese and English and introduced voluntary disclosure
on its website. Lawson began on-demand Internet distribution
the following year. Also in this connection, Lawson always
responds quickly to system introduction and reform, as seen in its
digitization of voting and timely disclosures of voting results on its
own initiative in an effort to deepen shareholders’ understandingof its management.
In 2013, we announced the contents of the notification of theGeneral Meeting of Shareholders early by posting the notificationon the website six days before mailing it.

Promotion of IR activities
Lawson has established an IR Department that engages inconstant dialog with investors concerning its management
strategies and financial performance. In addition to conducting
semiannual financial results briefings for analysts and institutional
investors, the department announces fourth-quarter results intelephone conferences with the CFO and works to conduct timely
disclosure. It emphasizes fairness throughout, posting disclosure
information, other important information and financial results
briefing materials promptly on the website, while working quickly
to disclose information in English for foreign investors. These
disclosure policies are also published on the website as “Basic
Principles Concerning Information Disclosure.”
Lawson has received positive evaluations from the capital
markets for its clear presentation of its corporate strategyemphasizing sustainability and capital efficiency as well as for theproactive disclosure approach it has developed in accordancewith the concept of “creation and improvement of shareholders’value.”
Major awards:○ FY 2015: Companies Selected by Securities Analysts for Superior

Disclosure Policies
The Securities Analysts Association of Japan
No. 1 retailer evaluation (4th consecutive year, 9th award)○ FY 2014: WICI, 2nd WICI Japan Award for Excellence in Integrated

Reporting, Top Company Award (2nd consecutive year)○ FY 2013: Japan Investor Relations Association, 18th Excellent Company Award

Nikkei, Inc., 2013 Nikkei Annual Report Awards, honorable mention

Executive Officers
Senior Executive
Vice President
Senior Executive
Vice President
Executive Vice
President
Executive Vice
President
Executive Vice
President
Senior Vice
President
Senior Vice
President
Senior Vice
President
Senior Vice
President
Senior Vice
President
Senior Vice
President

Masahiro Oyama
Masaharu Kamo
Yutaka Yoshitake
Katsuyuki Imada
Jun Miyazaki
Norikazu Nishiguchi
Yuichi Wada
Tetsu Yamada
Shuichi Imagawa
Takaki Mizuno
Shigeaki Kawahara

As of March 1, 2016

Senior Vice
President
Senior Vice
President
Senior Vice
President
Senior Vice
President
Senior Vice
President
Senior Vice
President
Senior Vice
President
Senior Vice
President
Senior Vice
President
Senior Vice
President
Senior Vice
President

Ken Sakamoto
Yasuhiko Hirokane
Kazuya Nobe
Tatsushi Sato
Hajime Kawamura
Motonobu Miyake
Atsushi Maeda
Akihito Watanabe
Yasuhiro Iseki
Taiki Hasegawa
Takuya Shiraishi(Excluding directors' additional posts)

Related sites
For details of basic principles concerning information disclosure
http://lawson.jp/en/ir/disclose.html

For details concerning trade policies
http://lawson.jp/en/about/purchasing_policy/

For details concerning investor relations
http://lawson.jp/en/ir/

44

45

Corporate Data

Lawson Group Overview

As of February 29, 2016/Consolidated(Representative as of June 1, 2016)

Capital¥58,506.644 million
Number of employees 8,294
Business activities
Franchise chain development of LAWSON,
NATURAL LAWSON and LAWSON STORE100
Net sales for all stores ¥2,049.5 billion
Number of stores
12,515 (stores in Japan)
Operating areas
All 47 prefectures in Japan, China (Shanghai,Chongqing, Dalian, Beijing), Indonesia, Hawaii,
Thailand, Philippines

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

Company name
Headquarters

Chairman and CEO,
Genichi Tamatsuka
Representative Director
President and COO,
Sadanobu Takemasu
Representative Director
Established
April 15, 1975

Store network expansion area

As of February 29, 2016

Total number of stores (worldwide)

13,273 stores

Beijing 34 stores

Stores in Japan

Dalian 53 stores

12,515 stores
Overseas stores

758 stores

Chongqing 110 storesNote:	Net sales for all stores is the sum of total sales by the domestic convenience store business, overseas business and Seijo Ishii stores (consolidated subsidiaries only). For the Seijo
Ishii business, only the total for its company-operated stores is included.
	The total number of stores in Japan is the total of LAWSON, NATURAL LAWSON and LAWSON STORE100 stores operated by Lawson, Inc., LAWSON stores operated by Lawson
Okinawa, Inc., Lawson Minami-Kyushu, Inc. and Lawson Kochi, Inc. and Seijo Ishii stores operated directly by SEIJO ISHII, CO., LTD.

Share information
Authorized shares
Shares issued
Shareholders
Stock exchange
listings

As of February 29, 2016/Non-consolidated

409,300,000
100,300,000
25,934

Major shareholders (Top 10)

Tokyo Stock Exchange (1st Section)

1 Mitsubishi Corporation

33,50033.4

Japan Trustee Services Bank, Ltd.
(Trust account)

4,134

4.1

The Master Trust Bank of Japan, Ltd.
3
(Trust account)

3,457

3.4

4 Nomura Securities Co., Ltd.

2,150

2.1

5 NTT DOCOMO, INC.

2,092

2.1

STATE STREET BANK WEST
6
CLIENT - TREATY 505234

1,675

1.7

STATE STREET BANK AND TRUST,
7 BOSTON AS TRUSTEE FOR MAWER
INVESTMENT MANAGEMENT LTD.

1,564

1.6

National Mutual Insurance Federationof Agricultural Cooperatives

1,001

1.0

HSBC BANK PLC STATE OF KUWAIT
9 INVESTMENT AUTHORITY,KUWAIT INVESTMENT OFFICE

905

0.9

10 THE BANK OF NEW YORK MELLON SA/NV 10905

2

Distribution of shareholders by type
Financial
institutions

20.0%

Securities companies

3.6%

Individuals, others 6.7%

8

Other domestic entities

37.1%

Foreign entities Treasury shares

32.3%

0.3%

Main Lawson Group companies
Category

0.9

As of February 29, 2016/Consolidated

Name of company

Domestic convenience store business Lawson, Inc.
Lawson Store100, Inc.*
SCI, Inc
Lawson Okinawa, Inc.
Lawson Minami-Kyushu, Inc.
Lawson Kochi, Inc.

Consolidated subsidiary
Equity-method affiliate
Equity-method affiliate

Financial services business

Lawson ATM Networks, Inc.

Consolidated subsidiary

Consulting business

BestPractice, Inc.

Consolidated subsidiary

SEIJO ISHII business

Lawson (China) Holdings, Inc.
Shanghai Hualian Lawson, Inc.
Chongqing Lawson, Inc.
Dalian Lawson, Inc.
Saha Lawson Co., Ltd.
SEIJO ISHII CO., LTD.

Hawaii 2 stores
Wuhan

Indonesia 38 stores(First store opend May 2016)*	The total number of stores and stores in Japan includes stores operated
under Lawson Mart, Inc., Lawson Okinawa, Inc., Lawson Minami-Kyushu,
Inc., Lawson Kochi, Inc. and SEIJO ISHII, CO., LTD. For SEIJO ISHII, CO.,LTD., only company-operated Seijo Ishii stores are included.

Main businesses and services
A nearby “neighborhood store” that seeks torealize its Corporate Philosophy of “Creating
Happiness and Harmony in Our Communities” byconducting business as a manufacturing retailer
based on a small commercial area model

As of February 29, 2016

A nearby store, observing a “daily
and reliably” concept, that supports
customer lifestyles embracing“beauty, health, and comfort”

Operating companies

Operating company

Lawson, Inc.
Lawson Okinawa, Inc.
Lawson Minami-Kyushu, Inc.
Lawson Kochi, Inc.

Lawson, Inc.

A food-lifestyle supermarket forpeople who care about food,providing food from around theworld at affordable prices

Sales of music and film productions
such as CDs/DVDs, related goods
and books, both online and througha nationwide network of 53 stores

A store that contributes tosavings and an easy, convenientdaily life by selling a range of
products such as perishable
foods, prepared foods and daily
necessities at a uniform price of
100 yen (108 yen, including tax)
Operating company

Lawson Store100, Inc. (Company
name was changed March 1, 2016)
Sales of the full range ofentertainment tickets, including
tickets to concerts, sports events,
plays and movies

Operating company

Operating company

Operating company

SEIJO ISHII CO., LTD.

Lawson HMV Entertainment, Inc.

Lawson HMV Entertainment, Inc.

One of Japan’s largest online
bookstores selling books, magazinesand comics

A business that provides installation,
management and operation ofATMs installed at LAWSON stores incooperation with banks

Operation of multiplex movie
theaters offering not only film
entertainment but also such
enriching experiences as 4DX®
(experiential viewing) and various
contents other than movies

Equity-method affiliate

Consolidated subsidiary

Overseas business

Phillippines 16 storesConsolidated subsidiary

Lawson HMV Entertainment, Inc.
United Cinemas Co., Ltd.

Entertainment business

Thailand 47 stores

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

Shareholder name

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

Shanghai 458 stores(Consolidated subsidiary of Lawson HMV Entertainment, Inc.)

Consolidated subsidiary(Consolidated subsidiary of Lawson (China) Holdings, Inc.)(Consolidated subsidiary of Lawson (China) Holdings, Inc.)(Consolidated subsidiary of Lawson (China) Holdings, Inc.)
Consolidated subsidiary
Consolidated subsidiary

Operating company

Operating company

Lawson HMV Entertainment, Inc.

Lawson ATM Networks, Inc.

Operating company

United Cinemas Co., Ltd.
A home-delivery service providing
healthful and delicious food. An allround home delivery site on whichcustomers can purchase not only
Lawson Fresh products but also food,daily necessities and other items
handled by the Lawson Group.
Operating company

Lawson, Inc.
Twenty-three farms nationwide
producing fresh fruit and vegetables
for Lawson Group stores
Operating company

Individual LAWSON farms

A business that sells safe, delicious
foodstuffs as ingredients for homecooking, such as organic vegetables
and natural foods, as well as otheritems for the home through direct
home delivery or shops

One of Japan’s largest individual
home-delivery services fororganic and inexpensive
agrochemical farm produce andother daily-life products

Operating company

Radishbo-ya Co., Ltd.

DAICHI wo MAMORU KAI Co., Ltd.

Operating company

Delivery of products handled by the Lawson
Group and home-delivery items handled by
Sagawa Express Co., Ltd. and other services
related to shopping and housing/living with
Lawson stores as the starting point.
Operating company

SG Lawson Co., Ltd.

*Company name changed from Lawson Mart, Inc. on March 1, 201646

47

Eleven-Year Financial Summary(Millions of yen)

2015

(Fiscal year)

2014(Thousands of
U.S. dollars 1)(Millions of yen)

2013

2012

2011

2010

2009

2008

2007

2006

2005

2015

For the year:
Gross operating revenues
		 Franchise commissions from franchise stores¥

Net sales
Other

Total operating revenues
Operating profit
Net profit
Net cash provided by operating activities¥

261,681
227,606
94,166
583,453
72,542
31,381
112,205（68,657）（50,201）
106,747
49,293

Net cash used in investing activities
Net cash used in financing activities
Capital expenditures
Depreciation and amortization 2

247,681
174,044
76,188497,91370,482
32,687
110,568¥（100,434）（3,289）141,251
41,826

242,079
168,159
75,010485,248
68,12737,966
81,503¥230,003
192,942
64,500487,445
66,24633,18385,189（47,924）（39,650）
84,03247,889¥（54,196）（31,980）
77,36143,886

215,574
208,063
55,320478,957
61,76924,88586,357¥

197,673（52,912）（27,545）
74,572
37,846¥

185,656¥

186,928¥

177,443¥

174,325¥

170,785$

2,303,124

192,330

233,694

119,944

84,26675,85866,646

51,27547,84242,604

39,46832,87030,627

828,781441,278

467,192

349,476

301,177

283,053

268,058

5,135,126

55,54150,27649,186

46,61044,51343,867

638,462

25,387

12,56223,807

22,11920,98322,025276,193

72,21040,696

51,71755,77147,596

46,933

987,546（30,522）（42,596）（15,647）（36,525）（31,754）（55,282）(604,269)（28,799）
50,326（27,239）
71,39933,084（14,911）42,907

27,468（31,973）
64,413

20,879（736）
49,822

21,4692,003,221（7,795）54,417(441,832)

20,896433,841

21,352

939,509

At year-end:¥

Total assets
Net assets
Shareholders’ equity ratio
Cash and cash equivalents
Total number of stores in Japan
Number of employees (full-time)

803,212272,997
32.9%
69,793
12,395
8,294

¥

314
245
78.1%

¥

764,614
263,798
33.5%
76,755
12,276
7,606

¥

327
240
73.4%

¥

620,993
250,498
39.5%
68,76011,606
6,336

¥

380
220
57.9%

¥

579,810230,182
39.1%
72,766
11,130
6,404

¥

332
200
60.2%

¥

531,454214,663
39.7%
73,67010,457
6,475

¥

249
180
72.2%

¥

476,037¥

448,132¥

436,096¥

397,108¥398,258¥

375,107

208,467

198,136

201,167

188,574

199,493

175,184

42.7%

42.8%

44.8%

46.6%

49.0%

46.7%

67,712

54,84383,98262,82375,54760,441

9,994

9,761

9,527

8,587

8,564

8,366

5,703

5,236

5,186

3,735

3,614

3,585

$

7,069,284
2,402,720
614,267

Per share data:
Net profit (yen/ U.S. dollars 1)¥

Cash dividends (yen/ U.S. dollars 1)
Payout ratio

255

¥

127

¥

240

¥

215

¥

202

¥

216

170

160

160

110

100

90

66.8%

126.3%

66.6%

51.2%

49.6%

41.8%

12.8%

6.5%

12.5%

11.6%

11.3%

13.1%

5.5%

2.8%

5.7%

5.6%

5.4%

6.0%

$

2.76
2.14

Financial data:
13.0%
4.7%

12.0%
4.0%

Return on equity (ROE)
Return on assets (ROA)

16.1%
6.3%

15.2%
6.0%

12.0%
4.9%

Net sales of all stores(Domestic convenience store business ):Net sales by store format
		 Franchise stores 3¥

Company-operated stores

1,880,395
79,872¥

1,827,779
105,019¥

1,810,418
126,873¥

1,747,915
156,339¥

1,651,433
173,820¥

1,499,576

1,295,704$ 16,549,859

183,205¥

1,433,678
232,459¥

1,434,166
124,614¥1,331,785
83,321¥

1,311,479
75,151¥

66,027

702,975

897,415902,306

844,324

726,750

705,155

682,006

9,095,661

321,851

324,197332,894

327,501

324,993

312,289

4,078,759

264,166

239,088

186,109

162,625

155,575

150,9172,426,948

199,348

200,544

195,453

198,230

200,907

216,519

1,641,436

1,361,731$ 17,252,834

Net sales by product category 3
		 Processed foods
		 Fast foods
		 Daily delivered foods
		 Non-food products

Net sales of all stores¥

Ratio of operating profit to net sales of all stores

1,033,449
463,432
276,886
186,500
1,960,267
3.5%¥

1,034,355
429,212277,210
192,020
1,932,798
3.6%¥

1,060,455
408,672
275,437
192,726
1,937,292
3.5%

1,063,120
372,706
271,920
196,506
1,904,254
3.5%

¥

¥

1,022,378
345,226
263,101
194,546
1,825,253
3.4%¥

1,682,782¥

1,666,136

3.3%

3.0%

¥

1,558,781¥

1,415,106

3.2%¥

1,386,630

3.3%

¥

3.2%

3.2%

Notes: 1. The U.S. dollar amounts represent Japanese yen exchange rate against the US dollar as of February 29, 2016 ($1 = ¥113.62).
2. These figures include depreciation and amortization of intangible assets.
3. These figures include sales reported by franchise stores and are unaudited.

Net sales of all stores(Domestic convenience store business)(billions of yen)
2,000

1,904.2

1,937.2 1,932.7

Operating profit

Net profit

Total assets(billions of yen)
80(billions of yen)
40

(billions of yen)300

1,960.2

66.2

68.1

70.4

72.5

37.9
33.1

32.6

61.7

1,825.2

60

1,800

250.4

31.3

240

15.0

13.0

12.0

100

6.0

10

48

2012

2013

2014

2015

(Fiscal year)

Lawson, Inc. Integrated Report 2016

0

2011

2012

2013

2014

2015

(Fiscal year)

0

245
80

220

78.1
73.4

180

60

60.2

12.0

6.3

4.9

2011

180

(%)
100

57.9
120

40

60

20

5.0

200

0

240
72.2
200

10.0

20

Annual dividends per share (left axis)
Payout ratio (right axis)

(yen)
300

16.1

200

1,400

ROA

15.2

20

40

Payout ratio and dividends

ROE

(%)
20.0

214.6
24.8

1,600

263.7

272.9

230.1

30

555

Return on equity (ROE)
Return on assets (ROA)

2011

2012

2013

2014

2015
(Fiscal year)

0

2011

2012

2013

2014

2015

(Fiscal year)

0.0

2011

4.7

2012

2013

2014

4.0
2015

(Fiscal year)

0

2011

2012

2013

2014

2015

0

(Fiscal year)

Lawson, Inc. Integrated Report 201649

Financial Section

Management’s Discussion and Analysis
Industry Trends

Management Policies for Fiscal 2015

The Japanese economy enjoyed a moderate recovery

chain operators opened new stores aggressively. Industry-

We continued to pursue business activities with the aim

owners. At the same time, we pursued Lawson s truein fiscal 2015 partly thanks to economic policies by thewide sales were buoyant, amounting to 10,995.7 billionof realizing the Lawson Group s corporate philosophy ofnature in areas such as over-the-counter fast foods, health,Japanese government. However, sharp falls in stockyen, up 5.5% from the previous year. The total number ofCreating Happiness and Harmony in Our Communities.

home convenience, and entertainment while responding tomarket prices after the turn of the year to 2016, coupledstores as of the end of December 2015 stood at 54,505,

In particular, we bolstered the foundation of oursocial (community) changes including low birth rate, aging
population, and labor participation by women.

with future uncertainty about downside risk for the world

up 3.4% year on year. Net sales of existing stores for 2015

convenience store business such as store capabilities,

economy, put a brake on consumer spending, keeping therose 0.9% compared to the previous year, the first year-

product offering, and our relationship with franchise store

retail industry mired in challenging situations.

on-year gain in four years, with leading chain operators

Amidst these developments, the country s

posting a sales recovery, helped partly by a favorable

convenience store industry achieved a market expansion incomparison base effect as demand slumped after thethe calendar year 2015 (January to December) as three top

consumption tax hike in April 2014.

Overview of Merchandise and Services
In June 2015, Lawson marked the 40th anniversary of

Retail industry market size and convenience store share 1(Billions of yen)

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005 2

Total retail industry annual sales

140,666

141,219

138,897

137,585

135,157

136,479

132,961

136,019

135,417

134,911

134,828

Convenience store sector
annual sales

10,995

10,423

9,872

9,477

8,775

8,114

7,981

7,943

7,490

7,399

7,360

Convenience store share

7.8%

7.3%

7.1%

6.9%

6.5%

5.9%

6.0%

5.8%

5.5%

5.5%

5.5%

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 the Ministry of Economy, Trade and Industry compiled in March, 2013.

The net sales of all stores among the top four chains in the convenience store industry 1(Billions of yen)

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

Lawson

2,049

1,961

1,945

1,907

1,826

1,683

1,666

1,559

1,415

1,387

1,362

Seven-Eleven Japan

4,291

4,008

3,781

3,508

3,281

2,948

2,785

2,763

2,574

2,534

2,499

FamilyMart

2,006

1,860

1,722

1,585

1,535

1,440

1,274

1,246

1,122

1,069

composed mainly of female and highly health-conscious

its founding, in commemoration of which we rolled out

consumers. As a result, Green Smoothie became a hitcommemorative merchandise consisting chiefly of those

product posting a series sales volume of over 27 million

in major categories. Moreover, taking this opportunity,

units within 10 months from launch, on a cumulative basis.

we fundamentally reviewed our merchandise creation

Meanwhile, Lawson Farms, in which we made equity

processes, launching the the Passionate and Delicious

participation, reach 23 in number across Japan, and playproject , an initiative to develop merchandise attaching

the role of supplying safe, fresh fruits and vegetables toparticular importance to raw materials, production

Lawson Group stores as well as factories for our original

methods, and taste. In this project, we continued to launch

products.

merchandise items attaching importance to such elements,

In addition to these merchandise-upgrading efforts,

including Niigata Koshihikari Red Salmon Bento, gaining

Lawson began to accept the UnionPay credit card forthe support of many customers.

over-the-counter payment, starting from September

Starting from April 2015, we commenced sales of2015. Moreover, in November 2015, we launched the

donuts over the counter with approx. 9,700 stores offering

Osaifu Ponta service, based on a Ponta card equipped

1,032

this service as of the end of fiscal 2015. Meanwhile, in awith a prepaid payment function. Starting from December
2015, collaboration with the d Point Card and WAON

975

944

951

947

980

923

902

940

902

911

920

move to respond to everyday needs of customers, we

Total of the top 4 chains

9,321

8,773

8,399

7,947

7,622

6,994

6,627

6,508

6,013

5,901

5,813

upgraded the assortment of merchandise such as ready-was initiated, among other steps to deliver improved

Total market share of the
top 4 chains

84.8%

84.2%

85.1%

83.9%

86.9%

86.2%

83.0%

81.9%

80.3%

79.8%

79.0%

made meals and frozen foods under the private Lawson

convenience to customers.

Circle K Sunkus

Source: Data published by each company
Note: 1.	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 in convenience store sector annual sales on acalendar-year basis.

Number of convenience stores

Number of convenience stores(Stores)

Select brand.

The sales promotion initiatives we carried out during

We also put efforts into providing merchandise

fiscal 2015 comprised those highly capable of attracting

friendly to customer health as Community Health Hubs.

customers such as the Rice Ball 100 Yen Sale event andIn particular, Green Smoothie, a Natural Lawson brandthe Speed Lottery, a lottery program in which Lawson
leveraged its strength in the entertainment field.

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

item allowing the customer to easily consume a meal s

54,50552,72550,23447,801

43,37342,347

41,72440,74540,40540,18339,600worth of vegetables, was received well by many customers

Source: “2015 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)

Overview of Store Operations

2015

As a percentage
of all stores

1,960,267

100.0%

1,932,798

100.0%

1,758,656

100.0%

1,693,435

100.0%

1,621,328

100.0%

reforms in order to realize a store environment loved byto almost all LAWSON stores. Moreover, we continued

Gross operating revenues

333,85617.0%

316,340

16.4%

298,779

17.0%

282,752

16.7%

272,498

16.8%

Gross operating profit

308,88915.7%

293,93815.2%

275,44215.7%

258,061

15.2%

244,462

15.1%

customers, including a move to offer enhanced store

to frontload the introduction to existing stores of a new

Selling, general and administrative expenses

251,64212.8%

232,97212.1%

213,99912.2%

198,730

11.7%

188,199

11.6%

guidance to franchise stores and revise their merchandise

franchise contract designed to offer greater assistance toAdvertising and promotional expenses

14,705

0.7%

8,227

0.4%

9,023

0.5%

10,691

0.6%

11,144

0.7%

Personnel expenses

39,2482.0%

36,6911.9%

35,8522.0%

34,931

2.1%

35,891

Facility expenses

142,073

7.2%

132,941

6.9%

123,444

7.0%

113,3216.7%

104,215

Other SG&A expenses

55,616

2.8%

55,1122.9%

45,6802.6%

39,784

2.3%

36,948Operating profit

57,2472.9%

60,966

3.2%

61,443

3.5%

59,331

3.5%

56,263

3.5%

By the end of fiscal 2015, a semi-automatic ordering

Recurring profit

54,9832.8%

61,6493.2%

62,171

3.5%

59,4593.5%

56,1103.5%

Net profit

21,802

1.1%

26,2001.4%

33,6251.9%30,314

1.8%

22,462

1.4%(Fiscal year)

Net sales of all stores

50

Lawson, Inc. Integrated Report 2016

2014

2013

2012

2011

In store operations, Lawson implemented businesssystem for the ready-made meal category was introducedorder placement procedure, based principally on the Threefranchise stores, a move that began to bring about benefits

2.2%

Essential Practices of (1) serving customers courteously; (2)such as rising sales. We will continue with our endeavors

6.4%

providing a quality product offering that meets community

to create a store environment that stimulates latent2.3%

needs; and (3) keeping our stores and communities clean.

customer needs and offers a merchandise assortment
always meeting customer needs.

Lawson, Inc. Integrated Report 201651

Financial Section

Overview of Store Development

Number of convenience stores in Japan

In developing (opening) new stores, the Group prioritizedcounter and salon space, a store category launched in

profitability based on its proprietary ROI-focused store

fiscal 2015, reached five as of the end of February 2016.
As for LAWSON STORE100, we continued to shut

opening standard.

(Stores)(Fiscal year)

2015 4
Storesalliance contract between Lawson, Inc. and Poplar Co.,

with the number of shutdowns for fiscal 2015 totaling 345

Ltd., two Poplar brand stores run by the latter were(including conversions into LAWSON stores). Concerning

opened as LAWSON-Poplar stores. Moreover, in February

the remaining 809 stores under the LAWSON STORE100

Type B

1,191

2016, Lawson, Inc. entered into a mega-franchise contract

brand, we: 1) sought to meet customer needs for goodType G

1,821

with SAVE ON Corp. to convert approx. 50 SAVE ON

value by offering a product assortment containing an

Type C

7,759

stores, among those currently in operation in Yamagata,

increased proportion of adequate-volume and small-lot

NATURAL LAWSON

Fukushima, and Ibaraki Prefectures, into LAWSON storesproducts priced at 100 yen excluding tax; and 2) stepped

LAWSON STORE100 1from April 2016 onwards, on a step-by-step basis.

up sales of fruits and vegetables, a category much loved

Lawson Kochi, Inc.

Through partnerships with prescription drugby customers. As a result, net sales of existing storesCompany-operated stores

pharmacy and drug store chains, we continued tounder the brand for fiscal 2015 under review grew year on

Franchise stores

1.3%

43

123

1.0%

112

1.0%

0.2%

-2

32

0.3%

32

0.3%

9.6%

-95

1,286

10.5%

1,207

10.4%

14.7%

-167

1,988

16.2%

2,081

17.9%

62.6%

523

7,236

58.9%

6,630

57.1%

104

0.8%

20

84

0.7%

73

0.6%

809

6.5%

-342

1,151

9.4%

1,202

10.4%

11,88095.8%-2011,90096.9%

11,337

97.7%

Franchise stores

Subtotalprescription drugs, cosmetics, and daily necessities. The

Japan during the fiscal year under review stood at 967 andnumber of LAWSON stores offering non-prescription

859 stores, respectively, with the total number of stores

Lawson Okinawa, Inc.

drugs, including such healthcare-focused stores, reachedin the country reaching 11,880 as of the end of February

Company-operated stores2016. Furthermore, as of the same date, LAWSON chain

Franchise stores
Subtotal

Meanwhile, we strived to build a Next-Generation

totaled 132 with 192 LAWSON chain stores run by

LAWSON Convenience Store model that meets customer

equity-method affiliate Lawson Minami-Kyushu, Inc. inneeds associated with social changes such as an aging

Kagoshima Prefecture and 191 LAWSON chain stores bypopulation and rising health consciousness. The number

equity-method affiliate Lawson Okinawa, Inc. in Okinawaof LAWSON stores equipped with a care (nursing care)

Prefecture as of the end of February 2016.

5

0.0%

5

—

—

—

—

127

1.0%

127

—

—

—

—

132

1.1%

132

—

—

—

—

Lawson Minami-Kyushu, Inc.

The total number of LAWSON, NATURAL LAWSON,

affiliated company accounted for by the equity method,

Share

30

and LAWSON STORE100 stores opened and closed indispensing pharmacies).

Stores166

assortment of around 5,500 items, twice as many as instores run in Kochi Prefecture by Lawson Kochi, Inc., an

Share

LAWSON

Subtotal

were Pharmacy Lawson stores equipped with drug-

StoresNATURAL LAWSON

ordinary LAWSON stores, by adding such items as non-

136 as of the end of February 2016 (of which 38 stores

Stores2013 2Company-operated stores

down unprofitable stores under the business revival plan

year.

Share

2014 3

Lawson, Inc.

In November 2015, under a capital and businessexpand healthcare-focused stores offering a merchandise

Net increasein the term 3

1

0.0%

—

1

0.0%

3

0.0%

Franchise stores

191

1.5%

-10

201

1.6%

79

0.7%

Subtotal

192

1.5%

-10

202

1.6%

82

0.7%

2

0.0%

—

2

0.0%

1

0.0%

189

1.5%

17

172

1.4%

162

1.4%

191

1.5%

17

174

1.4%

163

1.4%

12,395100.0%

119

12,276100.0%

11,606100.0%

Company-operated stores

Total number of convenience stores in Japan

Notes: 1. The number of stores of LAWSON STORE 100 includes that of LAWSON STORE 100 and Lawson Mart
2. “Total number of convenience stores in Japan” includes the number of stores operated by Lawson Kumamoto, Inc. that was absorbed into the parent company in March 2014.
3.	Reflecting the change in the store counting standard from fiscal 2014, the 2014 data in this table also include small stores (82 stores as of March 1, 2014). Due to the abovechange, these 82 stores are excluded in the net increase (decrease) figure. Moreover, 24 stores operated by Lawson Kumamoto, Inc. were absorbed by Lawson, Inc., and 120
stores operated by Lawson, Inc. in Kagoshima Prefecture were transferred to Lawson Minami-Kyushu, Inc. in March 2014.
4. In April 2015, Lawson, Inc. transferred 128 stores to Lawson Kochi, Inc.

service facility incorporating a nursing care consultation

Our Home Convenience Service Initiative
Number of stores in the convenience store business in Japan(Stores)With regard to our home convenience service initiative,

the At-Convenience Store Receipt Service that allows

2015

2014

2013

2012

2011

Lawson, Inc. in June 2015 established a joint venture

merchandise bought via online shopping mall Rakuten to

Total number of stores

12,395

12,276

11,606

11,13010,457company with SG HOLDINGS, CO., LTD., whose

be received by the customer at LAWSON stores acrossOpenings

1,007

1,010

869

938

766

core company is SAGAWA EXPRESS CO., LTD. This

the country.

Closings

888

422

393

265

303

Net increase

119

588

476

673

463

joint venture, at some LAWSON stores in Setagaya-

Through partnering with a wider scope of companies,

ku, Tokyo, Japan, launched the service of delivering

we will continue to build the Open Platform utilizing the(Fiscal year)

Note:	Including the number of stores operated by Ninety-nine Plus, Inc., Lawson Mart, Inc., Lawson Kochi, Inc., Lawson Okinawa, Inc., Lawson Minami-Kyushu, Inc., and Lawson
Kumamoto, Inc.

52

Lawson, Inc. Integrated Report 2016

goods to customers homes while taking orders

service network for LAWSON store-based order intake,with each store serving as the delivery starting point.

merchandise receipt, and home delivery, and provide

Meanwhile, in September 2015, Lawson, Inc. rolled out

improved convenience to customers.

Lawson, Inc. Integrated Report 201653

Financial Section

Overview of Sales Figures

Types of Lawson contracts(Previous contracts)
Contract typeC

G

Contract termB

10 years from store opening day

Requirements for FC owners

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

Land and buildings

Provided by headquarters

Prepared by a franchise store

Investment in store construction and interior
decoration expenses

Borne by headquarters

Borne by a franchise store

Signs and business fixtures

Provided by headquarters

Payment by a franchise store
at time of contract 1

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

Investment¥1.5 million (Including payment for some merchandise purchased on behalf of the store)

Guarantee deposit provided by a franchise store
Headquarters income 2

Not required

Average monthly sales x 2 months

Not required

Gross profit x 50%

Gross profit x 45%

Gross profit x 34%

Burden of utility expenses
21,00022,200Net sales of all LAWSON stores (consolidated) for fiscal 2015
amounted to 2,049,500 million yen (up 4.5% from the previous
fiscal year). This year-on-year sales growth was achieved as
the number of LAWSON stores in Japan increased to 12,515(including the stores of all Group companies and those of the
Seijo Ishii business), a gain of 132 compared to the previous
fiscal year, among other factors.
Sales of existing stores for fiscal 2015 (consolidated basis)grew 1.4% from the previous fiscal year due to the fact that: 1)

22,200(New contracts)
Contract typeCn

Contract term

B4

YoY changes in net sales of existing stores, average number of customers and average spending per customer (Consolidated)(%)

10 years from store opening day

Requirements for FC owners

110

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

Land and buildings

Provided by headquarters

Prepared by a franchise store

Investment in store construction and interior
decoration expenses

Borne by headquarters

Borne by a franchise store

Signs and business fixtures

105

101.9

Partial guarantee for expenses associated withproduct disposal losses

Headquarters income 2

Burden of utility expenses

100.3¥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)
Headquarters will bear the following percentage of clearance anddisposal costs according to their proportion in merchandise sales:• Greater than 2.0% up to 3.0%: 20%• Greater than 3.0% up to 4.0%: 30%• Greater than 4.0%: 55%
The following percentage of gross profit:• ¥3.0 million or less: 45%• Greater than ¥3.0 million up to ¥4.5 million: 70%• Greater than ¥4.5 million: 60%
50% 3 of electricity expenses and store air conditioning energy expenses
are borne by headquarters

2

Minimum guarantee (annual) (thousands of yen)

18,600—Gross profit x 34%

A franchise store
22,200LAWSON STORE100 contracts
VL-J

Land and buildings

VL-B

Provided by headquarters

Contract stores

New opening stores or stores already being operated by the company

Contract term

10 years from the opening day

A franchise store uses its own landand building
Land and building owned by afranchise store

Payment by afranchise store attime of contract 4¥2.5 million (excluding tax)
Breakdown Franchise fee ¥1.0 million (excluding tax)
Contract fee ¥250,000/Training expenses ¥250,000/Store opening preparation commission ¥500,000
Investment¥1.5 million (including payment for some merchandise purchased on behalf of the store)

Other expenses

Store opening preparation expenses: Approx. ¥500,000 (e.g., change, licensing fee for operation)

Store construction andinterior decoration

Borne by headquarters

Business fixtures

Borne by a franchise store

Provided by headquarters

Minimum guarantee 5¥20.4 million per year

Headquarters income 5[Sliding scale] The following 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%¥4,500,001 or greater: Gross profit x 48%

Support to franchise stores (Operating
expenses of a franchise store partially borne byheadquarters)

Headquarters will bear the following percentage of clearance and disposal
costs according to their proportion in monthly merchandise sales:• Greater than 1.5% up to 2.0%: 30%• Greater than 2.0%: 60%
Headquarters will pay up to ¥100,000 a month.

95
90
0

1Q

2Q

3Q

4Q

1Q

2010

Notes: 1.	The amount is paid by the franchise store to headquarters at the time of the franchising contract. In addition, the franchise store needs to separately provide a total of about¥500,000, including the cash register float, at the time of store opening.
2. The headquarters 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.

Contract type

102.7
100.5

100

Provided by headquarters

Payment by a franchise store at Franchise feetime of contract 1
Investment

Investment

combined total existing store sales of LAWSON and NATURALLAWSON rose 1.4% year on year as the number of customers
recovered thanks to aggressive advertising; and 2) existing store
sales of LAWSON STORE 100, for which a business revival plan
was implemented, increased 1.8% year on year.
Regarding consolidated results by product category, salesof fast foods increased by 9.2% from the previous fiscal year.
Sales of daily delivered foods also contributed to the Group’s
overall performance, growing by 3.6% from the previous fiscal
year.

A franchise store

Minimum guarantee (annual) 2 (thousands of yen)

Necessary expenses

Net Sales¥22.2 million per year

Gross profit x 27%

2Q

3Q

4Q

1Q

2011

Net sales of existing stores

2Q

3Q

4Q

2012

Average number of customers

1Q

2Q

3Q

4Q

2013

1Q

2Q

3Q

4Q

2014

1Q

2Q

3Q

4Q

2015

Average spending per customer

Growth rate of net sales of existing stores, average number of customers, and average spending per customer (Non-consolidated) *
2015

2014

2013

2012

2011

Net sales of existing stores (YoY)

101.4%

99.0%

99.8%

100.0%

105.4%

Average number of customers

100.9%

98.0%

99.0%

99.4%

101.0%

Average spending per customer

100.4%

101.0%

100.8%

100.6%

104.3%(Fiscal year)* The total of LAWSON and NATURAL LAWSON.

Sales of rice-based foods in the fast food category increased
from the previous fiscal year, helped by new products rolled
out under the Passionate and Delicious project as well as sales
promotion measures such as the Rice Ball 100 Yen Sale event
and TV commercials. Sales of over-the-counter fast foods in thesame category grew markedly from the previous fiscal year as
sales of MACHI Cafe products, for which the café latte price wasrevised, remained strong throughout the fiscal year and over-thecounter donut sales service was introduced to almost all Group
stores.
Sales of delicatessen items in the fast food category
and daily delivered foods in the daily delivered food category
increased significantly from the previous fiscal year as we

stepped up efforts on these products throughout fiscal 2015 ina move to bolster our initiative to assist consumers’ living. These
efforts took the form of: 1) revising salad packages for improved
buyer convenience; 2) enlarging the sales space for Lawson
Select products; and 3) implementing sales promotion measuresin an aggressive manner.
Sales of chilled beverages in the daily delivered foodcategory grew from the previous fiscal year, driven by cup
beverage items under the NATURAL LAWSON brand, for which
cumulative sales of smoothie series such as Green Smoothie
exceeded 27 million units.

—

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

54

Lawson, Inc. Integrated Report 2016

Lawson, Inc. Integrated Report 201655

Financial Section

Sales by product category (Consolidated, total net sales in Japan)(Fiscal year)
Fast foods (share)

2015(Millions of yen)

2014

463,432

23.6%

2013

429,212

22.2%

2012

408,672

21.1%

2011

373,38519.6%

345,42418.9%

276,886

14.1%

277,21014.4%

275,437

14.2%

272,31214.3%

263,180

14.4%

1,033,449

52.7%

1,034,355

53.5%

1,060,455

54.7%

1,064,133

55.8%

1,022,619

56.0%(Cigarettes) (share)

476,17624.3%

482,75025.0%

459,100

23.7%

496,97126.1%

470,666

25.8%

Total food sales (share)

1,773,767

90.4%

1,740,778

90.1%

1,744,564

90.1%

1,709,830

89.7%

1,631,223

89.3%

Non-food products (share)

186,500

9.5%

192,0209.9%

192,7269.9%

196,716

10.3%

194,587

10.7%

Net sales of all stores (share)

1,960,267

100.0%

1,932,798

100.0%

1,937,292

100.0%

1,906,547

100.0%

1,825,810

100.0%

Daily delivered foods (share)
Processed foods (share)

Product categories
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, fresh foods, etc.

Processed foods

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

Non-food products

Daily necessities, books, magazines, gift cards,etc.

Gross profit margin by product category(Non-consolidated basis)*
The gross profit margin stood at 31.3%, flat compared tothe previous fiscal year and in line with plan. However, thegross profit margin for non-cigarette products declined by 0.5
percentage points from the previous fiscal year, which was
attributable to the fact that: 1) post-price revision sales of cafélatte remained strong throughout fiscal 2015; 2) the gross profit
margin for the over-the-counter fast food category declined as
donut sales service was introduced to a higher number of stores;and 3) sale and campaign events were held frequently with afocus on flagship product categories.
Notes: * The total of LAWSON and NATURAL LAWSON.

Gross profit margin by product category (Non-consolidated) *
2015

2014

2013

2012

2011

Fast foods

38.4%

38.9%

38.9%

38.4%

38.2%

Daily delivered foods

34.0%

34.1%

34.1%

34.4%

34.5%

Processed foods

24.0%

24.1%

24.0%

23.9%

23.8%

Non-food products

49.7%

48.9%

47.7%

45.6%

43.4%

Gross profit margin

31.3%

31.3%

31.0%

30.5%

30.1%

(Fiscal year)

Third party bill settlement services (Non-consolidated)(Fiscal year)
Bill settlements (millions of yen)

2015

2014

2013

2012

2011

2,088,693

2,073,049

1,979,384

1,879,679

1,725,788

Number of transactions (millions)

198.3

198.9

196.1

190.4

177.7

Commission revenues (millions of yen)

10,671

10,77910,585

10,192

9,488

Other Businesses
In addition to the domestic convenience store business, theGroup is also involved in other businesses, including: theentertainment-related business, Seijo Ishii business, overseas
business, and financial services-related business.
With regard to entertainment-related business, Lawson
HMV Entertainment, which forms the core of the business,posted a solid performance led by an increase in ticket sales andcontinued to secure the top position in the ticketing industry. The
number of HMV stores that sell music CDs and DVDs totaled 53
as of the end of February 2016 following the November 2015
launch in Shibuya, Tokyo of HMV&BOOKS TOKYO as HMV’slargest entertainment store complex integrating book and music
services. Furthermore, United Cinema Co., Ltd. operates a totalof 342 screens at its cinemas nationwide (including screens
operated on commission). We will strive to offer an even wider
selection of products and services to better respond to customer
needs by, for example, expanding our ticketing business.
Regarding the Seijo Ishii business, Seijo Ishii, operated by
SEIJO ISHII CO., LTD., is a chain of small supermarkets thatstrives to develop and manufacture high-value-added products.
The company-operated stores of Seijo Ishii totaled 120 as ofthe end of February 2016. During fiscal 2015, Seijo Ishii posted
strong sales of coconut oil and chia seed items whose healtheffects were featured in TV programs and through other media.
We promoted the collaboration between domestic convenience
store business and the Seijo Ishii business in the form ofarranging for wine products on sale at Seijo Ishii supermarkets
to be offered at NATURAL LAWSON stores, and of having bothbusinesses import confectionery items and develop nut and cup
soup products, each on a joint basis.
We will further strive to enhance the brand appeal andcorporate value of SEIJO ISHII CO., LTD. At the same time,

Items of the Consolidated Statement of Income
Gross Operating Revenues
For the year ended February 29, 2016, gross operating revenues
consisting of net sales, franchise commissions from franchise
stores, and “Other” stood at 583.4 billion yen, an increase of
85.5 billion yen, or 17.2%, compared to the year-ago period,and 4.4 billion yen in excess of the plan. Of these items, net
sales amounted to 227.6 billion yen, higher year on year, which
was attributable to the fact that revenues of company-operated
store-centric SEIJO ISHII CO., LTD., of which only fourth-quarteraccounts were consolidated for the previous fiscal year, andUnited Cinema Co., Ltd., of which only four-month accounts
were consolidated for the previous fiscal year, were fully
included in the consolidated statement of income of Lawson,
Inc. Franchise commissions from franchise stores totaled 247.6
billion yen, increased from the year-ago period , thanks to thestrong sales of LAWSON stores.
For the fiscal year under review, “Other” stood at 94.1
billion yen.
Selling, General, and Administrative Expenses
For the year under review, consolidated selling, general, and56

Lawson, Inc. Integrated Report 2016

we will leverage its strengths, including product development
capabilities, knowhow as a manufacturing retailer, and sales
techniques, in order to strengthen the domestic convenience
store business.
With regard to the overseas business, the Group operates
LAWSON stores in Shanghai, Chongqing, Dalian, and Beijing in
the People’s Republic of China. In Thailand, Saha Lawson Co.,
Ltd., a joint venture with such companies as the SAHA Group,a leading distributor of consumer goods in Thailand, operates
stores under the store brand of LAWSON 108 and 108SHOP. In
Hawaii in the United States, Lawson USA Hawaii, Inc. operates
LAWSON stores. In Indonesia, PT MIDI UTAMA INDONESIA Tbk
also operates LAWSON stores. Moreover, in the Philippines, thefirst LAWSON store was opened in March 2015 upon Lawson,
Inc. completing equity participation in PG Lawson Company,
Inc., a joint venture with Puregold Price Club, Inc., a leading
retailer in the country.
Lawson ATM Networks, Inc., which operates the financial
services-related business, continued contributing to consolidated
results owing to an increase in the number of ATMs installed at
LAWSON stores. In the fiscal year under review, we expanded
new partnerships with financial institutions, bringing the total
number of our financial institution partners, including online
banks, to 80 nationwide (up nine from the end of the previous
fiscal year), and the number of ATMs installed nationwide to
11,201 (up 434 from the end of the previous fiscal year) as ofthe end of February 2016. Starting from September 2015, we
introduced, on a step-by-step basis, new-model ATMs enabling
the customer to withdraw Japanese yen cash with the UnionPay
card with the result that use of the card became allowed at all
LAWSON ATMs.

administrative expenses stood at 354.9 billion yen, an increaseof 55.6 billion yen compared to the year-ago period, and approx.
1.3 billion yen in excess of the plan. Of the increase of 55.6
billion yen, 18.6 billion yen is accounted for by non-consolidated
accounts. The remainder totaling 37.0 billion yen is attributable
to the fact that selling, general, and administrative expenses of
SEIJO ISHII CO., LTD., of which only fourth-quarter accounts
were consolidated for the previous fiscal year, and United
Cinema Co., Ltd., of which only four-month accounts wereconsolidated for the previous fiscal year, were fully included in
the consolidated selling, general, and administrative expenses of
Lawson, Inc. for the year under review.
Non-consolidated selling, general, and administrative
expenses amounted to 251.6 billion yen, an increase of 18.6
billion yen, or 8.0%, compared to the year-ago period, andapprox. 0.5 billion yen short of the plan.
Non-consolidated advertising and promotional expenses
stood at 14.7 billion yen, an increase of 6.4 billion yen comparedto the year-ago period. The cost to support franchise storesto sustain the amount of inventory, a component of our new
franchise contract package, was not included in advertising

Lawson, Inc. Integrated Report 201657

Financial Section

and promotional expenses for accounting purposes, and grew
by 0.7 billion yen compared to the year-ago period. Separately,of the revenues of SCI, Inc., the amount used as cooperation
money for assisting franchise owners increased by 1.9 billion yen
compared to the year-ago period.
Non-consolidated personnel expenses amounted to 39.2
billion yen, an increase of 2.5 billion yen compared to the yearago period and 0.3 billion yen above of the plan, which was
attributable to a growth in the number of employees, among
other factors. Non-consolidated information technology (IT) costs
stood at 11.3 billion yen, a decrease of 1.4 billion yen comparedto the year-ago period and 0.7 billion yen short of the plan. Non-consolidated facilities costs totaled 135.6 billion yen, an increaseof 8.2 billion yen compared to the year-ago period on the backof the rising number of stores, yet came in 1.6 billion yen shortof the plan due to the fact that the targeted number of new store
openings fell short of the plan.
The remainder of non-consolidated costs and expenses
grew by 2.9 billion yen compared to the year-ago period, yetcame in 2.5 billion yen short of the plan, which was attributable
to the fact that the targeted number of new store openings fell
short of the plan and that expenses for new franchise contracts
were low as unit electricity rates declined.

Breakdown of Selling, General, and Administrative expenses(Fiscal Year)
Personnel expenses
Percentage composition
Advertising and promotional expenses
Percentage composition
Rent
Percentage composition
Equipment lease(Millions of Yen)

2015

2014

2013

2012

2011

68,99460,84758,99060,01360,887

19.4%

20.3%

20.3%

21.7%

23.3%

29,461

16,71817,734

16,607

14,146

8.3%

5.6%

6.1%

6.0%

5.4%

108,795

96,87789,48584,57878,483

30.6%

32.3%

30.8%

30.6%

30.1%

2,763

3,579

4,494

5,914

8,205

Percentage composition

0.8%

1.2%

1.5%

2.1%

3.1%

Depreciation and amortization

49,157

41,78847,88943,886

37,846Percentage composition

13.8%

14.0%

16.5%

15.9%

14.5%

	Depreciation of property and store
equipment*

40,27032,95937,872

34,03028,999		Percentage composition

11.3%

11.0%

13.0%

12.3%

11.1%

Amortization of intangible assets

8,886

8,830

10,017

9,856

8,847

		

Percentage composition

Other
Percentage composition
Total
Percentage composition

2.5%

3.0%

3.5%

3.6%

3.4%

95,791

79,506

71,89265,31561,375

27.0%

26.6%

24.8%

23.7%

23.5%

354,961

299,315

290,483

276,314260,942100.0%

100.0%

100.0%

100.0%

100.0%*	Due to the application of new lease accounting standards, the depreciation of property and store equipment for the year ended February 28, 2011 onwards includes depreciation ofleased properties to be sold.

Operating Profit
Operating profit for fiscal 2015 stood at 72.5 billion yen, an
increase of 2.0 billion yen, or 2.9%, compared to the year-ago
period, despite higher advertising and promotional expenses
and other expenses as: 1) net sales of existing stores grew by
1.4% compared to the year-ago period; 2) the non-consolidated
number of stores grew by 108 year on year; and 3) good
contribution was made by consolidated subsidiaries that joined
the Group in fiscal 2014, such as SEIJO ISHII CO., LTD. andUnited Cinema Co., Ltd. The operating profit margin for all
Lawson chain stores was at 3.5%, flat compared to the year-ago
period.
Recurring Profit
Recurring profit for the year under review stood at 69.6 billion
yen, a decrease of 2.0 billion yen, or 2.9%, compared to theyear-ago period, albeit 0.7 billion yen in excess of the plan as
non-operating loss amounted to 2.9 billion yen (compared to
non-operating income of 1.2 billion yen for the year-ago period),which was attributable to foreign exchange loss caused by58

Lawson, Inc. Integrated Report 2016

the yen’s appreciation and to increased loss on lease contract
termination stemming from store shutdowns.
Income before Income Taxes and Minority Interests
Income before income taxes and minority interests for fiscal
2015 amounted to 55.4 billion yen, a decrease of 2.9 billion yen,or 5.1%, compared to the year-ago period as the Company
recorded 14.2 billion yen in extraordinary losses mainly due
to greater impairment of stores. In view of the operating
environment changing recently at an accelerating pace, webegan to apply more precise standards for stores subject toimpairment, starting from the fourth quarter of fiscal 2015.
Consequently, impairment of stores for the year under review
grew compared to the year-ago period since we recorded
impairment losses under the new and old standards.
Net Income
As a result, net income for the year under review stood at 31.3
billion yen, a decrease of 1.3 billion yen, or 4.0%, compared to
the year-ago period. Net income per share amounted to 313.81
yen.

Items of the Consolidated Balance Sheet
Consolidated Balance Sheet
Current Assets
Current assets as of February 29, 2016 stood at 224.2 billion yen,
an increase of 0.5 billion yen, or 0.2%, compared to the end of theprevious fiscal year. This was attributable mainly to the fact that
accounts receivable-other increased by 9.0 billion yen, or 15.4%,
year on year to 67.7 billion yen as transactions by SCI, Inc. grewin value and that cash and deposits decreased by 6.9 billion yen,or 9.0%, year on year to 69.7 billion yen
Non-current assets
Non-current assets as of February 29, 2016 amounted to 579.0
billion yen, an increase of 38.0 billion yen, or 7.0%, compared tothe end of the previous fiscal year, which was mainly attributable
to the fact that property and store equipment grew by 28.3 billion
yen, or 10.3%, compared to the end of the previous fiscal year. As
a result, total assets as of February 29, 2016 stood at 803.2 billion
yen, an increase of 38.5 billion yen, or 5.0%, compared to the endof the previous fiscal year.
Current Liabilities
Current liabilities as of February 29, 2016 stood at 319.6 billion
yen, an increase of 18.5 billion yen, or 6.1%, compared to the endof the previous fiscal year, which was mainly attributable to the factthat accounts payable-other grew by 13.6 billion yen, or 31.4%,
as transactions by SCI, Inc. increased in value.
Long-term Liabilities
Long-term liabilities as of February 29, 2016 amounted to 210.6
billion yen, an increase of 10.8 billion yen, or 5.4%, compared tothe end of the previous fiscal year, which was mainly attributable tothe fact that lease obligations grew by 11.8 billion yen, or 15.6%,
compared to the end of the previous fiscal year. As a result, total
liabilities as of February 29, 2016 stood at 530.2 billion yen, an
increase of 29.3 billion yen, or 5.8%, compared to the end of theprevious fiscal year.
Net Assets
Net assets as of February 29, 2016 amounted to 272.9 billion
yen, an increase of 9.1 billion yen, or 3.5%, compared to the endof the previous fiscal year. Retained earnings totaled 154.6 billion
yen, an increase of 7.4 billion yen as the Company recorded 31.3
billion yen in net income and paid out 24.2 billion yen in dividends.
As a result, the shareholders’ equity ratio as of February 29, 2016
stood at 32.9% (compared to 33.5% at the end of the previous
fiscal year).
	A ccounts Specific to the Company’s Consolidated
Balance Sheet
Shown below are accounts that are specific to the Company’sbalance sheet.
Accounts Receivable-Due from Franchise Stores
Merchandise ordered by individual franchise stores are procuredby the Company in a centralized manner, which in turn calculates
the amount of payments to individual suppliers on behalf offranchise stores before performing proxy payment service forthem. This is followed by the franchise headquarters collecting
the payment amount from each franchise store as “accounts
receivable-due from franchise stores,” which essentially constitutes
their obligation to the franchise headquarters. As of February 29,
2016, accounts receivable-due from franchise stores stood at
30.5 billion yen, a decrease of 6.5 billion yen compared to the endof the previous fiscal year.
Accounts Receivable-Other“Accounts receivable-other” include accounts receivablefrom business partners, such as certain accounts receivablefrom franchise stores (franchise store credit card-based sales
proceeds). Accounts payable are composed of accounts payabletrade, an account for directly operated stores, and accounts
payable-due to franchise stores, an account for franchise stores.
However, accounts receivable-other include all credit cardrelated accounts receivable relating to both directly operated andfranchise stores. This is because, being party to agreements withcredit card companies, Lawson, Inc. is the holder of all accounts
receivable from them.
As of February 29, 2016, accounts receivable-otheramounted to 67.7 billion yen, an increase of 9.0 billion yen
compared to the end of the previous fiscal year.
Long-term Loans Receivable
Long-term loans receivable consist mainly of store construction
cooperation money for landlords (store land and building owners)
and of headquarters loans to franchise stores. Money deposited
with the landlord at the time of a new store opening was previously
recorded in lease deposits, yet it is currently recorded in longterm loans receivable. Long-term loans receivable as of February
29, 2016 stood at 40.8 billion yen, an increase of 3.6 billion yen
compared to the end of the previous fiscal year.
Lease Deposits
When entering into a lease agreement with the landlord, theCompany deposits with the former a security deposit worth
several months’ rent for the property. Lease deposits as ofFebruary 29, 2016 totaled 92.4 billion yen, a decrease of 7.1 billion
yen compared to the end of the previous fiscal year.
Accounts Payable-Due to Franchise Stores
Accounts payable-due to franchise stores refer to theheadquarters’ obligation to franchise stores. All franchise stores’
daily sales proceeds are sent to the headquarters, and exceed,on occasion, “accounts receivable-due from franchise stores.”In such event, the Company records the amount in “accounts
payable-due to franchise stores” on the consolidated balance
sheet, as part of outstanding liabilities. Accounts payable-due tofranchise stores as of February 29, 2016 totaled 1.9 billion yen,
an increase of 0.4 billion yen compared to the end of the previous
fiscal year.
Money Held as Agent
Money held as agent is composed chiefly of money received for
utility bill agent payment service and money received as the priceof tickets for concerts and so forth. The agency payment service

Lawson, Inc. Integrated Report 201659

Financial Section

handling amount stood at 2,088.6 billion yen, an increase of 0.8%
compared to a year-ago period, supported by the rising number oftransactions and payee companies, in continuation of the growthtrend. Money held as agent as of February 29, 2016 amounted
to 101.9 billion yen, a decrease of 1.7 billion yen compared to theend of the previous fiscal year.
Guarantee Deposits Received from Franchise Stores and Other
Guarantee deposits received from franchise stores and otherrepresent guarantee money deposited to the headquarters by

franchise owners in the type G agreement with Lawson, Inc. On
March 1, 2012, the Company’s new franchise contract package
type Cn agreement came into effect, causing it to cease toconclude any type G agreement anew. As of February 29, 2016,
guarantee deposits received from franchise stores and othertotaled 27.5 billion yen, a decrease of 2.4 billion yen comparedto the end of the previous fiscal year, which was attributable toreimbursements made to franchise stores as a result of agreement
renewals and terminations.

Capital Expenditures (Including Investments/Advances and Lease Asset Acquisition Costs)
Total capital expenditures for the year ended February 29,
2016 stood at 106.7 billion yen, an increase of 34.5 billion yen
compared to a year-ago period. Investments in new storesamounted to 40.4 billion yen, a decrease of 8.5 billion yen
compared to a year-ago period as the number of store openings
was lower year-on-year and due to an unfavorable comparisonbase effect after a period of our initiative to encourage owners ofother convenience store chains to migrate to the LAWSON store
format. Investments in existing stores totaled 6.7 billion yen, an
increase of 0.8 billion yen compared to a year-ago period. ITrelated investments came to 15.8 billion yen, an increase of 7.6

billion yen compared to a year-ago period due mainly to theintroduction of a semi-automatic ordering system, an overhaul of
our ticketing system and the introduction of new model ATMs.
Lease transactions stood at 38.0 billion yen, an increase of 5.2
billion yen compared to a year-ago period. New investments andadvances amounted to 4.1 billion yen, a decrease of 38.4 billion
yen compared to a year-ago period, due primarily to the fact
that, in FY2014, the Company acquired shares in SEIJO ISHII
CO., LTD.
Shown below is the breakdown of the main capital
expenditures.

Capital Expenditures(Millions of Yen)

2015

2014

2013

2012

2011

40,46049,01432,23033,133

21,596

Existing store investments

6,727

5,840

7,078

8,769

10,241IT-related investments

15,882

8,218

5,362

5,907

7,744

Other investments

1,466

2,752

2,067

3,238

630

Sub-total investments

64,53565,823

46,73651,047

40,211

Investments and advances

4,122

42,610

5,189

1,550

12,401

Leases*38,08932,81832,107

24,76521,960

Total

106,747

141,251

84,03277,361

74,572(Fiscal Year)

New store investments*	Leases are shown in an amount equivalent to the acquisition costs for the lease assets acquired during each accounting period. For the year ended February 28, 2014, expenditures for
repayment of lease obligations stood at 13,769 million yen.

Breakdown of depreciation and amortization(Fiscal Year)

2015

2014

2013

2012

2011

40,39632,97737,872

34,03028,999Amortization of intangible assets

8,897

8,849

10,017

9,856

8,847

Total depreciation and amortization

49,293

41,82647,88943,886

37,846*	Due to the application of new lease accounting standards, depreciation of property and store equipment for the year ended February 28, 2011 onwards include depreciation of leaseassets to be subjected to a sale transaction.

Net cash provided by operating activities for the year ended
February 29, 2016 stood at a cash inflow of 112.2 billion yen, acash increase of 1.6 billion yen compared to a year-ago period,
due mainly to an increase in liability for employees’ retirement
benefits.
Net cash used in investing activities for the year ended
February 29, 2016 amounted to a cash outflow of 68.6 billion
yen, a cash increase of 31.7 billion yen compared to a yearago period, which was due, among others, to the absence ofexpenditure for subsidiary stock acquisition involving change to

The Company’s dividend policy does not have any specificdividend payout ratio target. Through the process of making
investments necessary for its sustainable growth, the Company
aims to increase its dividend payments consistently as a meansof distributing its ample free cash flows to shareholders. The
fundamental concept of its capital policy is that such process
will allow the organization to improve return on capital without
needlessly holding surplus cash internally. For the year ending
February 28, 2017, the Company intends to pay a per-share
dividend of 250 yen, an increase of 5 yen compared to the fiscal
year 2015.
The Company purchased its own shares worth approx.
43.0 billion yen as treasury stock to retire them during a periodof four years from the year ended February 28, 2002 to the year
ended February 28, 2005. Moreover, it purchased its own sharesworth approx. 21.0 billion yen (approx. 5.3 million shares) as
treasury stock during the period from October 2007 to January
2008 before retiring a total of 5.0 million of such shares in
February 2008. The Company will continue to consider acquiring
its own shares as treasury stock to retire them in the future as ameans of achieving higher ROE.

Annual dividends per share & payout ratio
(Yen)

(%)

150

500

126.3
120

400

300

240
66.6
66.8

200

35.3
100

23.3

70

49.6
41.8
90

100

2005

2006

51.2

160

160

170

72.2

200

180

60.2

220

73.4

245

90

78.1
60

57.9

110

30

41
0

2003

2004

Annual dividends per share (left axis)

2007

2008

2009

2010

2011

2012

2013

2014

2015

0

(Fiscal Year)

Payout ratio (right axis)

Overview of major consolidated subsidiaries and equity method affiliates

Cash Flows

Lawson, Inc. Integrated Report 2016

To return profits to shareholders is deemed by the Company
to be one of its top priority business management policies.
Thus, management runs the organization with due regard to thelevels of capital cost reflecting what investors expect from theCompany in terms of investment returns.
For this reason, we use ROE (Return on Equity), one of
the return on capital metrics, as the Company’s top priority
business management indicator in an effort to selectively pursue
businesses offering ROI above the cost of capital.
The Company holds internal reserves required to makeinvestments towards achieving corporate growth that issustainable in the medium- to long-term, and continues topreserve the stability of its financial position. Based on a rigorous
selection process, we will make investments offering theprospect of superior investment returns, and strive to grow cash
flows from operating activities in a sustainable manner while
continuing to generate free cash flows. Moreover, based on acapital composition deemed appropriate by management, theCompany will distribute dividends of surplus, purchase its own
shares as treasury stock and retire them while striving to achieve
return on capital above the cost of capital, thereby aiming toattain ROE of 20% in the medium-term.

(Millions of Yen)

Depreciation of property and store
equipment*

60

Capital Policy: Dividend and Treasury Stock Retirement

the scope of consolidation.
Net cash used in financing activities for the year ended
February 29, 2016 amounted to a cash outflow of 50.2 billion
yen, a cash decrease of 46.9 billion yen compared to a yearago period, which was due to the absence of a cash inflow fromlong-term loans.
As a result, cash and cash equivalents as of February 29,
2016, stood at 69.7 billion yen, a decrease of 6.9 billion yen
compared to February 28, 2015.

Consolidated financial results for the year ended February
29, 2016 include the financial results of 21 group companies
comprising 18 consolidated subsidiaries and three equity method
affiliates. The principal business activities of Lawson, Inc.'s
subsidiaries and affiliates consist of the domestic convenience
store business, Seijo Ishii business, entertainment business,overseas business and financial service business. The following
paragraphs outline the business activities and financial results of
Lawson, Inc.’s major consolidated subsidiaries and affiliates.

Lawson Mart, Inc. (consolidated subsidiary)
Established on November 14, 2013, Lawson Mart, Inc. (“Lawson
Mart”) succeeded to the operational functions of Ninety-nine
Plus, Inc., including its store operation and product development,
on February 1, 2014 through an absorption-type company split.
The former succeeded to the latter’s store-related assets
including franchise agreements for the LAWSON STORE 100(including Lawson Mart). During the year ended February
29, 2016, Lawson Mart planned and steadily implemented
a business revival plan to close down approx. 300 stores,
concentrate its store areas and overhaul its product strategy,

Lawson, Inc. Integrated Report 201661

Financial Section

among other steps. LAWSON STORE 100 will meet the needs ofa wide range of customers from children to senior citizens, witha focus on single person and homemaker customers, by offering
three types of value, the “diverse merchandise assortment” of asupermarket, the “convenience” of a convenience store and theeasy-to-understand “standardized prices” of a 100-yen shop.
Effective March, 2016, Lawson Mart changed its corporate nameto Lawson Store100, Inc.
Lawson Mart, Inc.

(Millions of Yen)

(Fiscal Year)2016.2

2015.2

2014.2Gross operating revenues

December 2009, 51% of the total shares outstanding in Lawson
Okinawa, Inc. were sold to SAN-A for the former to be run asa joint venture. For the year ended February 29, 2016, Lawson
Okinawa, Inc. had a total of 191 stores at the period-end date,and operating profit stood at 1.4 billion yen, an increase of
18.9% compared to a year-ago period. We will continue to haveLawson Okinawa, Inc. strive to build a store environment meeting
local needs appropriately, thus growing Lawson chain stores in
Okinawa in the coming years.
Lawson Okinawa, Inc.

(Millions of Yen)

50,67578,232

6,667(Fiscal Year)2016.2

2015.2

2014.2

2013.2

2012.2

Operating profit

375

1,763

100

Gross operating revenues

5,605

4,674

4,199

3,954

3,659

Net income

286

985

52

Operating profit

1,407

1,183

1,051

924

780

954

738

792

799

1,049

*Consolidated starting from February 2013

Net income

SCI, Inc. (consolidated subsidiary)
SCI, Inc. (“SCI”) was established by Lawson, Inc. in July 2012as a supply chain management function subsidiary aimed atenabling Lawson, Inc. to involve itself in supply chain businessactivities as an influential player and to help streamline the
manufacturing and logistics operations, with the objective of
becoming the “manufacturing retailer based on small commercial
areas.” The Company aims to build a manufacturing retailer
business model that coherently covers the entire supply chain
from the upstream to the downstream, reducing inefficiencies
such as waste and redundant work that occur in the supply
chain from raw materials procurement to manufacturing tologistics to the store. Added value generated through this supply
chain management reform initiative will be leveraged by Lawson,
Inc. for attaining greater product competitiveness and assisting
the sales promotion efforts of franchise owners. In the medium
term, the Company will use the know-how in this area to growthe business of supplying raw materials and merchandise to
non-group customers.
For the year ended February 29, 2016, SCI’s handlingamount stood at 191.2 billion yen, an increase of 103.6 billion yen
compared to a year-ago period, as the company broadened its
handling domains. Operating profit amounted to 2.3 billion yen, an
increase of 109.5% compared to a year-ago period.

Lawson Minamikyushu, Inc. (equity method affiliate)
Lawson Minamikyushu, Inc. (“Lawson Minamikyushu”) wasestablished in May 2013 as a wholly-owned subsidiary of Lawson,
Inc. before launching Lawson store operations in Kagoshima in
August the same year. Subsequently, in March 2014, Nangoku
Corporation took a 51% equity participation in Lawson
Minamikyushu (Lawson, Inc.’s equity interest ratio became 49%)
to acquire Lawson, Inc.’s Kagoshima operations before starting to
run Lawson stores in the prefecture in the form of a joint venturewith it. For the year ended February 29, 2016, Lawson
Minamikyushu had a total of 192 stores at the period-end date,and operating profit stood at a negative 500 million yen. We willcontinue to have Lawson Minamikyushu strive to build a store
environment meeting
Lawson Minamikyushu, Inc.
(Millions of Yen)l o c a l n e e d s(FiscalYear)
appropriately, thus
2016.2
2015.2Gross operating revenues
growing Lawson
3,756
3,595
chain stores in
Operating profit (loss)
（422）
（183）
Kagoshima in the
Net income (loss)
（472）
（591）
coming years.
*	Income began to be reflected in the consolidated

SCI, Inc.

(Millions of Yen)

(Fiscal Year)2016.2

2015.2

2014.2

2013.2Gross operating revenue

191,299

87,63874,46033,842

Operating profit

2,365

1,128

509

325

Ordinary profit

2,369

1,128

510

325

Net income

1,423

687

300

197

*Consolidated starting from September 2012

Lawson Okinawa, Inc. (equity-method affiliate)
In January 2009, Lawson, Inc. entered into a business allianceagreement with SAN-A CO., LTD. (“SAN-A”), the largest
integrated retailer in Okinawa, concerning operations in theprefecture. Through this alliance with SAN-A, an unrivalled
player there with a loyal customer following, we desire to deliver
services better suiting local needs and to offer a merchandiseand store environment befitting local consumer tastes, in aprefecture that has unique lifestyle and food preferences. To thisend, we established Lawson Okinawa, Inc. in October 2009as a wholly-owned subsidiary of Lawson, Inc. Subsequently, in

62

Lawson, Inc. Integrated Report 2016accounts, starting from March 2014

Lawson Kochi, Inc. (equity-method affiliate)
In December 2014, Lawson, Inc. entered into a corporate
franchise contract with SUNNY MART Co., Ltd. (“SUNNY MART”),
which was a supermarket operator serving chiefly Kochi Prefecture
and was the parent of Three-F Chu-Shikoku Co., Ltd. This wasfollowed by SUNNY MART converting Three-F stores operated
by the company into LAWSON stores on a step-by-step basis. In
April 2015, Lawson Kochi, Inc. was established as a joint venture
between SUNNY MART and Lawson, Inc. (with the former andthe latter holding 51% and 49% equity stakes in the joint venture,
respectively). Thus, all LAWSON stores in Kochi Prefecture began
to be operated by Lawson Kochi, Inc. This turned LAWSON
stores in Kochi Prefecture into its biggest convenience store chain
in the number of stores. For the year ended February 29, 2016,
the number of LAWSON stores in the prefecture stood at 132 at
the period-end date, and theLawson Kochi, Inc.
operating profit of Lawson(Millions of Yen)
Kochi, Inc. amounted to 400(Fiscal Year) 2016.2
million yen.
Gross operating revenues
4,208
We will continue to have
Operating profit
430
Lawson Kochi strive to build
Net income286
a store environment meeting* Income began to be reflected inlocal needs appropriately, thus
the consolidated accounts, startingfrom April 2015

growing Lawson chain stores in Kochi in the coming years.
SEIJO ISHII CO., LTD. (consolidated subsidiary)Supermarket operator SEIJO ISHII CO., LTD. (“Seijo Ishii”) is a
firm that has achieved outstanding brand appeal by using its
superior merchandising skills to deliver high added value, withthe aim of becoming a company that is “committed to ensuring
food quality excellence and helping create a better world to livein.” Its existing network of “SEIJO ISHII” brand supermarkets,
renowned for quality, consists of 120 stores located mainly in the
Kanto area (as of February 29, 2016).
At a time when we aspire to become a “manufacturingretailer based on small commercial areas,” it is the manufacturingretailer function that Lawson, Inc. has in common with Seijo
Ishii, a player committed to “delicious food offerings,” basedon its unique platform, while developing and manufacturing
safe and reliable merchandise. Lawson decided to acquire all
shares in Seijo Ishii in the belief that significant potential would
be offered by a partnership with the supermarket operator,
a player delivering services that are highly differentiated fromthose of general and luxury supermarket chains. Based on thispartnership, we will leverage its manufacturing retailer knowhow, such as in central kitchen operations, for further bolstering
our domestic convenience store business.
For the year ended December 31, 2015, Seijo Ishii recorded
strong sales, driven by coconut oil and chia seed items the healtheffects of which were featured in TV programs and through othermedia, posting an operating profit of 5.7 billion yen, an increaseof 274.5% compared to
SEIJO ISHII CO., LTD. (Millions of Yen)a y e a r- a g o p e r i o d ,(Fiscal Year) 2015.12 2014.12
which reflects the fact
Gross operating revenues 68,993
17,881that the previous fiscal
Operating profit
5,795
1,547
year’s results included
Net
income2,625
1,086
only the three month*
Consolidated
starting
from
October
2014
operating profit.
Lawson HMV Entertainment, Inc. (consolidated subsidiary)
Lawson HMV Entertainment, Inc. (“Lawson HMV Entertainment”)
distributes tickets for concerts, sporting events, theaters andcinemas mainly through the multimedia information terminal“Loppi” in Lawson stores and the “L-Tike.com” website. The
company is particularly strong in the areas of J-pop and sporting
event ticket sales. Holding a top-class position in the industry
in ticket sales quantity, Lawson HMV Entertainment has been
expanding its operations in a steady manner.
Established in 1992 as RIZA JAPAN, primarily a ticket
distributor, the company changed its name to Lawson Ticketin 1996 before being included in Lawson, Inc.’s scope of
consolidation as a subsidiary in 1997.
In order to make the most of the customer interface
provided by Lawson Ticket as well as the e-commerce businessknow-how and mechanism developed by i-Convenience,
Inc., then a wholly-owned Lawson, Inc. subsidiary, these two
subsidiaries merged in March 2009, with Lawson Ticket as thesurviving company. In July 2009, the company changed its nameto Lawson Entermedia, Inc. It was listed on the Osaka Securities
Exchange JASDAQ Market but was delisted in June 2010. The
company then became a wholly-owned subsidiary of Lawson,
Inc. in July 2010 through a share swap transaction.
In September 2011, Lawson Entermedia, Inc. and our

subsidiary HMV Japan K.K.* merged to form Lawson HMVEntertainment with the aim of achieving increased synergy
between the entertainment and e-commerce businesses of theLawson Group, going forward. Lawson HMV Entertainment in
the future will be able to leverage the Group’s solid e-commercebusiness platform to provide one-stop shopping convenience tocustomers by, for instance, enabling those now buying concert
tickets and CDs for a given artist separately to make purchases
in one single location. The company is likely to generate goodsynergy between the HMV brand’s competitive edge in the
CD music industry and Lawson Ticket’s prowess in the ticket
distribution industry.
As for Lawson HMV Entertainment’s revenue structure,commission revenues on ticket sales currently account for thebulk of its revenues. Its operating revenues mainly comprisingcommissions are recorded as “operating revenues-other” in the
consolidated statement of income of Lawson, Inc.
For the year ended February 29, 2016, Lawson HMVEntertainment’s operating profit stood at 2.4 billion yen, a decreaseof 20.2% compared to a year-ago period, mainly because its
profitability deteriorated due to an intensifying competition for
winning ticketing mandates for major concerts in spite of strong
sales of tickets such as theme park admission tickets.
* 	HMV Japan K.K. (a consolidated subsidiary of Lawson, Inc. until August 31, 2011) wasa retailer selling CDs and DVDs under the “HMV” brand. Established in 1990, the firm
opened its first store in Shibuya, Tokyo that year. The company in 1999 launched the“HMV Online” service to commence its current e-commerce business. In 2007, HMV
Japan Holdings Co., Ltd., all shares of which were owned directly or indirectly by Daiwa
Securities SMBC Principal Investments Co., Ltd., acquired all shares in HMV Japan K.K.
In December 2010, Lawson, Inc. acquired all of the shares from HMV Japan Holdings
Co., Ltd. in an effort to reinforce its entertainment business and achieve increased
synergies with Lawson Entermedia, Inc.

Lawson HMV Entertainment, Inc.

(Millions of Yen)

(Fiscal Year)2016.2

2015.2

2014.2

2013.2

2012.2Gross operating revenues

50,20546,01845,31445,481

25,545

Operating profit

2,469

3,094

2,819

2,446

1,650

Net income

1,644

2,918

2,450

2,450

2,073

Lawson ATM Networks, Inc. (consolidated subsidiary)
Lawson ATM Networks, Inc. (“Lawson ATM Networks”)
was established in 2001 with investments from Mitsubishi
Corporation, partner banks and Lawson, Inc., as a provider of
automated teller machine (ATM) services for Lawson stores. The
company installed ATMs at certain Lawson stores that year tolaunch an ATM service. It engages in the installation of multibank
ATMs at Lawson stores in areas for which ATM installationagreement is reached with individual partner banks. Revenues,
consisting mainly of an ATM operation service fee from suchbanks, are recorded as “operating revenues-other” in Lawson,
Inc.’s consolidated statement of income. Principal expenses arecomposed chiefly of operation center contract service fees, ATMline costs and ATM equipment lease fees.
Operating income for the year ended February 29, 2016,
stood at 6.1 billion yen, an increase of 4.2% compared to a yearago period, as the company installed a growing number of ATMs
at Lawson stores.
During the year, Lawson ATM Networks continued to add
to its list of ATM service partner banks, bringing the total to 80
banks based in Japan, including online banks, as of February
29, 2016, an increase of nine banks compared to a year ago.
The number of ATMs in operation at Lawson stores nationwide
totaled 11,201, an increase of 434 year-on-year.

Lawson, Inc. Integrated Report 201663

Financial Section

Lawson ATM Networks, Inc.

(Millions of Yen)

(Fiscal Year)2016.2

2015.2

2014.2

2013.2

2012.2Gross operating revenues

24,68823,56724,18823,97523,063Operating profit

6,188

5,935

6,089

4,753

3,640

Net income

3,877

3,605

3,690

2,712

1,993

United Cinemas Co., Ltd. (consolidated subsidiary)
In August 2014, Lawson, Inc. acquired all shares in UnitedEntertainment Holdings, Inc., a holding company of cinema
operator United Cinemas Co., Ltd. (“UC”), in a deal conducted
via Lawson HMV Entertainment United Cinemas Holdings, Inc., afirm newly established by Lawson HMV Entertainment, Inc.
UC is Japan’s third-largest cinema operator running 38
cinemas in the country (including partner cinemas) with 342
screens in combined total as of February 29, 2016. Thus, adding
the firm to the Lawson Group steps up its contents holder
service as an integrated entertainment distributor and boosts
its existing business lines’ customer drawing power throughcollaborating with movie contents holders and encouraging its
Lawson, HMV, e-commerce and cinema operations to guidecustomers to each other’s service.
Operating profit of UC for the year ended February 29,
2016 stood at 2.3 billion yen, an increase of 1,507% compared
to a year-ago period. This sharp year-on-year gain resulted fromthe fact that the previous year’s financial results included only thefour-month operating profit and that the financial results for theyear under review included the 14-month operating profit as
UC’s fiscal year was
United Cinemas Co., Ltd.
revised into one(Millions of Yen)
ending on the last day(Fiscal Year) 2016.2 2014.12
of February of each
Gross operating revenues 24,960
5,773
year, in a move toOperating profit
2,338
156
make the period
Net income (loss)
（112）
2,260
identical to the fiscal* Consolidated starting from September 2014
year of Lawson, Inc.
Shanghai Hualian Lawson, Inc. (consolidated subsidiary)
We were the first Japanese convenience store company togain a foothold in China with our first store opening in 1996.
We established a joint venture, Shanghai Hualian Lawson, Inc.
(“Shanghai Hualian Lawson”) in Shanghai, with Lawson, Inc.
taking a 70.0% equity stake in the firm and China Hualian Group
Co., Ltd. (“Hualian Group”)*, a Shanghai city government-relatedcompany, the remaining 30.0% equity stake in it.
With the aim of acquiring land and buildings in good
locations and motivating local employees better, we transferred, in
2004, to the Hualian Group 21.0% of equity interest in Shanghai
Hualian Lawson, out of our 70.0% equity interest in the firm,
reducing our ownership in it to 49.0%. Subsequently, in responseto changes in China’s (Shanghai’s) economic environment, werecognized the need to reinforce the Japanese-style convenience
store concept. Accordingly, in September 2011, we began toagain acquire incremental shares in Shanghai Hualian Lawson toregain management control of the company. After we brought
our equity interest in Shanghai Hualian Lawson to 85.0%, thecompany was included in Lawson, Inc.’s scope of consolidation
as a subsidiary. Lawson, Inc. carried out the above-mentioned
incremental share acquisition program in order to accelerate its
efforts to pursue the Japanese-style convenience store business

64

Lawson, Inc. Integrated Report 2016

model that is superior in product development, customer
interaction, and cleanliness. This program, aimed at strengthening
and expanding our China business, was performed by concluding
a share transfer agreement with Bailian Group Co., Ltd. (“BailianGroup”)*, whose retail division restructuring was underway. Ourequity interest in Shanghai Hualian Lawson was raised evenfurther since, standing at 94.0% as of February 28, 2015.
From now on, the company aims to upgrade the quality of
Lawson stores in Shanghai, the economic center of China, andachieve increased store brand appeal while focusing on ROI, acriterion used for new store openings in the country, as in Japan.
The total number of Lawson stores in operation stood at
458 as of February 29, 2016.
*	Through a restructuring of China’s retail industry driven by the national government, theHualian Group was merged into the Bailian Group. In the course of this restructuring, allshares in the Hualian Group were transferred to the Bailian Group in December 2008.

Shanghai Hualian Lawson, Inc.
(Fiscal Year) 2015.12(Millions of Yen)

2014.12 2013.12 2012.12 2011.12

Gross operating revenues

8,532

1,360

1,290

903

4,917

Operating profit (loss)

（756）

（646）

（404）

（574）

（283）

（925） （1,568） （2,034）（443）

Net income (loss)（1,100）*	Starting from the year ended December 31, 2015, the profits (losses) of Shanghai Le
Song Trading Co., Ltd., Shang Hai Gong Hui Trading Co., Ltd. and Zhejiang Lawson,
Inc., each located in Shanghai and surrounding area, were added to the profit (loss) of
Shanghai Hualian Lawson, Inc.

Chongqing Lawson, Inc. (consolidated subsidiary)
Populated by 33 million people (2014 JETRO survey), Chongqing
is one of the world’s biggest cities, and is the fourth directcontrolled municipality of China after Beijing, Shanghai and
Tianjin. The city has continued to enjoy double-digit economic
growth for 10 consecutive years (2014 JETRO survey). This
double-digit economic growth rate exceeds the national averageand that of coastal cities such as Shanghai. It is against thisbackdrop that potential demand for convenience stores in
China’s fast-growing inland cities is increasing.
We established Chongqing Lawson, Inc. in April 2010 togain a foothold in inland China as the first Japanese convenience
store company to operate there at the invitation of the city. The
first local Lawson store was opened in July the same year asa store equipped with a staff training facility. The Lawson store
network has continued to grow steadily since, bringing the total
store count to 110 as of February 29, 2016.
Chongqing Lawson, Inc.
(Fiscal Year) 2015.12(Millions of Yen)

2014.12 2013.12 2012.12 2011.12

Gross operating revenues

4,400

3,474

1,843

977

258

Operating profit (loss)

（778）

（904）

（840）

（671）

（243）

Net income (loss)（973） （1,047）

（833）

（775）

（249）

Dalian Lawson, Inc. (consolidated subsidiary)With a population of some six million (2014 JETRO survey),
Dalian is the biggest port city in Northeast China. Following
an invitation by the city of Dalian to commence convenience
store operations there, we established Dalian Lawson, Inc. in
September 2011 as a joint venture with local enterprise Dalian
Acasia Fast Foods Co., Ltd. before opening the first local
Lawson store in November the same year. Currently, our equity
stake in the company is 98.3%. The number of its Lawson storesstood at 53 as of February 29, 2016.
In the city of Beijing, we established Beijing Lawson, Inc.
(non-consolidated company) in May 2013. The company opened

15 stores in the year ended February 29, 2016, bringing the total
number of stores to 34 as of the date.
Dalian Lawson, Inc.
(Fiscal Year) 2015.12(Millions of Yen)

2014.12 2013.12 2012.12 2011.12

Gross operating revenues

1,503

995

516

176

4

Operating profit (loss)

（313）

（313）

（227）

（163）

（21）

Net income (loss)

（345）

（338）

（211）

（196）

（27）

Saha Lawson Co., Ltd. (consolidated subsidiary)
In Thailand, we established Saha Lawson Co., Ltd. in November

2012 as a joint venture principally with the SAHA Group, Thailand’s
leading consumer goods distributor. In March 2013, this joint
venture launched Lawson convenience stores under the “LAWSON
108” br and■Saha Lawson Co., Ltd.
(Millions of Yen)in Bangkok.
(Fiscal Year) 2015.12 2014.12 2013.12
The number ofGross operating revenues 6,963
7,800
5,959
stores stood
Operating profit (loss)（251） （655） （338）at 47 as of
Net income (loss)（309） （831） （525）February 29,* Consolidated starting from January 20132016.

Outlook for Fiscal 2016
With the aim of becoming an essential part of our communities,
we launched the 1000-Day Action Plan viewing three years fromfiscal 2016, ending February 28, 2017, as a significant periodthat will greatly influence our future, at a time when the external
environment is changing markedly. We will evolve our businessmodel as the Manufacturing Retailer Based on Small Commercial
Areas, achieving unprecedented superior store productivity,
thereby building a Next-Generation LAWSON Convenience Storemodel that meets customers’ needs in all aspects of their living.
Merchandise assortment expansion through capital expenditure
To meet daily customer needs, we in fiscal 2016 will engage incapital expenditure programs for LAWSON stores with a strong
focus on the first half of the year, expanding our merchandise
assortment to 3,500 items, an increase of about 10% comparedto the previous level. Specifically, we will conduct large-scalerenovations involving the installation of more refrigerated
showcases as well as the introduction of flatbed freezers andhigher shelves. Covering merchandise assortment assistanceto franchise stores as well, we plan to spend relevant expenses
mainly during the first half of fiscal 2016. For the year, we aim
to achieve a 1.0% year-on-year growth in net sales of existing
stores by having an increased number of items bought bycustomers, based on our merchandise assortment enhancement
efforts.
Initiative towards Next-Generation LAWSON Convenience StoreIn fiscal 2016, we will put a three temperature-range logistics
center into operation and begin to develop an unprecedented
cloud computing-based system. While evolving our platformcreating initiatives launched in fiscal 2015 such as semiautomatic ordering systems, we will proceed with the 1000Day Action Plan towards building the Next-Generation LAWSONConvenience Store model.
New store opening plan focusing on location and profitability prospect
During fiscal 2016, the Company plans to open 1,200 new
LAWSON stores, including those run by merchants migrating to
the LAWSON store format under a new partnership agreement.
While working harder to promote store relocation to better
locations, we will close down 500 LAWSON stores in the year,
bringing our net store increase to 700 for fiscal 2016. To stably
secure high-quality franchise store owners, we put in place the
LAWSON Store Manager System, starting from fiscal 2015.
The 1,200 new LAWSON stores planned to be opened include

approximately 100 to 200 openings as company-operated stores
intended to be converted into franchise stores in the future.
Optimization of gross profit margin and costs
For fiscal 2016, we aim to achieve a gross profit margin of
31.6%, an increase of 0.3 percentage points compared toa year-ago period. We intend to attain improved gross profit
margin by expanding sales of ready-made food category items,
merchandise with a higher gross profit margin, through having
the semi-automatic ordering system take hold in the organization
and bolstering our customer living-related assistance service.
Selling, general and administrative expenses for fiscal 2016
will likely grow approximately 10% to 15% year-on-year mainly
due to projected increases in: 1) facility costs resulting from newstore openings; 2) franchise store assisting costs, designed tohelp realize a merchandise assortment that meets customers'
everyday needs; and 3) advertising costs. This will be coupledwith the effects of higher pro forma standard tax.
Income contribution by consolidated subsidiaries
For fiscal 2016, LAWSON STORE 100, in a shift from its businessrevival to growth stages, is projected to achieve profitability,
posting 600 million yen in operating profit on an entire businessbasis, including the Business Division. Meanwhile, SEIJO ISHII
CO., LTD. will likely record an operating profit gain of 1.7 billion
yen year-on-year as its sales and profit growth trend continues
as in a year-ago period, coupled with the fact that the company’s
fiscal 2016 will be a 14-month period due to its financial closing
month being changed from December to February of each year.
Business performance outlook for fiscal 2016
For fiscal 2016 ending February 28, 2017, consolidated
operating profit is projected at 76.0 billion yen, an increase of
4.8% year on year. Costs to be assumed in the year’s first half
will likely be heavy as the period in which the initiative to stepup our customer living assisting service will be implemented
in a concentrated manner. This will presumably cause nonconsolidated operating profit for this period to decline year-onyear before rising year-on-year in the second half of fiscal 2016,a period in which the benefits of the measures involved will likely
materialize. For fiscal 2016, net profit is projected at 35.5 billion
yen, an increase of 13.1% year-on-year, and ROE at 13.2%, anincrease of 1.2 percentage points year-on-year.

Lawson, Inc. Integrated Report 201665

Financial Section

Consolidated Balance Sheet
Lawson, Inc. and Consolidated Subsidiaries
February 29, 2016

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

ASSETS

2016

2016

2015

Cash and cash equivalents
Time deposits

Millions of Yen

LIABILITIES AND EQUITYCURRENT ASSETS：

Thousands of
U.S. Dollars(Note 1)

2016

2015

2016

CURRENT LIABILITIES:¥69,793¥76,755$614,267

4

435

Accounts receivable:

Accounts payable:¥112,225¥103,459$987,722

Due to franchised stores (Note 9)

1,998

1,508

17,585

Other59,407

48,990522,857

Trade (Notes 8 and 19)

Due from franchised stores (Notes 4)30,54737,052

268,852

Other

67,736

58,667596,163(8)(2,579)(70)

Inventories

17,977

17,044

158,220

Income taxes payable

8,501

13,301

74,820

Deferred tax assets (Note 15)

4,525

5,300

39,826

Money held as agent

101,909

103,634

896,928

Other

Allowance for doubtful accounts

Other
Total current assets

33,63531,400296,031224,209

223,643

1,973,324

9,794

9,640

86,200

Buildings (Note 6)

331,133

318,679

2,914,390

Furniture, fixtures, and equipment (Note 6)

73,627

74,271

648,011

Lease assets

179,244

154,932

1,577,574

Other (Note 6)

619

572

5,448

594,417558,094

5,231,623(291,655)(283,657)(2,566,934)

302,762

274,437

2,664,689

Total
Accumulated depreciation
Net property and store equipment

1,990

1,740

17,515Current portion of long-term debt (Note 10)

24,473

20,523

215,393

Total current liabilities

9,104

7,914

80,127

319,607

301,069

2,812,947

12,187

12,959107,261

413

368

3,635

145,623

134,599

1,281,667

LONG-TERM LIABILITIES：PROPERTY AND STORE EQUIPMENT：Land (Notes 6 and 7)

Short-term bank loans (Note 10)

Net defined benefit liability (Note 11)
Allowance for retirement benefits to executive officers
and audit and supervisory board members
Long-term debt (Note 10)
Asset retirement obligations (Note 12)24,665

21,530217,083

Other

27,72030,291

243,971

210,608

199,747

1,853,617

Common stock̶authorized, 409,300,000 shares in 2016
and 2015; issued, 100,300,000 shares in 2016 and 2015

58,50758,507514,936

89,069

Capital surplus

47,697

47,697419,794

307

223

2,702

154,609147,177

1,360,755(1,280)(1,272)(11,266)

801

(394)

7,050

Total long-term liabilities

EQUITY (Note 13)：INVESTMENTS AND OTHER ASSETS:
Investment securities (Note 5)

10,1208,334

Investments in associated companies

15,60011,447

137,300

Stock acquisition rights

Long-term loans receivable

40,88637,233359,849

Retained earnings

Goodwill (Note 6)

46,31048,189407,587

Software (Note 6)

26,37718,800232,151

Treasury stock̶at cost, 301,897 shares in 2016
and 301,084 shares in 2015

Trademark right

11,381

11,990100,167

Accumulated other comprehensive income:Lease deposits

92,49593,206

814,073

Net unrealized loss on available-for-sale securities

Deferred tax assets (Note 15)

22,017

26,252

193,778

Land revaluation difference (Note 7)

(566)

(566)

(4,982)Other (Note 6)

11,915

12,204

104,866

Foreign currency translation adjustments

5,531

5,493

48,680Allowance for doubtful accounts
Total investments and other assets
TOTAL
See notes to consolidated financial statements.

(860)(1,121)(7,569)276,241

266,534

2,431,271¥803,212¥764,614$7,069,284

Defined retirement benefit plans
Total

Lawson, Inc. Integrated Report 2016

(519)

(7,974)

256,346

2,329,695

Minority interests

8,297

7,452

73,025

Total equity

272,997263,798

2,402,720¥803,212¥764,614$7,069,284

TOTAL

66

(906)
264,700

Lawson, Inc. Integrated Report 201667

Financial Section

Consolidated Statement of Income

Consolidated Statement of Comprehensive Income

Lawson, Inc. and Consolidated Subsidiaries
Year Ended February 29, 2016

Lawson, Inc. and Consolidated Subsidiaries
Year Ended February 29, 2016

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

2016

2016

¥261,681¥247,681$2,303,124

Net sales

227,606

174,044

2,003,221

Total operating revenues

94,16676,188

828,781

583,453497,913

5,135,126

Cost of sales (Note 19)

155,949

128,116

1,372,549

Selling, general, and administrative expenses

354,962

299,315

3,124,115

Total costs and operating expenses

510,911427,4314,496,664

Operating income

72,54270,482

638,462Interest expense̶net(1,072)(658)(9,436)Compensation income

646

366

5,686

Foreign exchange gains (losses)

(914)

1,585

(8,044)

Loss on cancellation of leases(1,953)(1,168)(17,189)

Store equipment related income

318

118

2,799

Equity in earnings of unconsolidated subsidiaries andassociated companies

293

365

2,579

Loss on sales of non-current assets

(229)

(250)

(2,016)(2,967)(38,215)OTHER (EXPENSES) INCOME:

Loss on disposal of property and store equipment(4,342)(10,542)(8,263)(300)

10,518Foreign currency translation adjustments

(16)

962

Remeasurements of defined benefit plans(387)

Unrealized gain (loss) on available-for-sale securities
Land revaluation difference1

Total other comprehensive income
COMPREHENSIVE INCOME(141)(3,406)

1,441
792

2,104

6,971

¥32,928¥35,224$289,809¥32,227¥34,762$283,639

701

462

6,170

TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO(Note 17):
Minority interests
See notes to consolidated financial statements.

(92,783)

655

281

5,765

(17,140)(12,111)(150,854)

55,40258,371

487,608

Current

19,23424,939169,284

Deferred

4,032

312

35,48623,26625,251

204,770

32,13633,120282,838

(755)

(433)

(6,645)¥31,381¥32,687$276,193

INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS

1,195

OTHER COMPREHENSIVE INCOME:(1,520)

Other̶net
Other expenses̶net$282,838

Owners of the parent

Loss on liquidation of businessImpairment of long-lived assets (Note 6)¥33,120

Share of other comprehensive income in associated companies

COSTS AND OPERATING EXPENSES:

2016

2015

¥32,136NET INCOME BEFORE MINORITY INTERESTSFranchise commissions from franchised stores
Other

Millions of Yen

2016

2015

OPERATING REVENUES:

Thousands of
U.S. Dollars(Note 1)

INCOME TAXES (Note 15):

Total income taxes
NET INCOME BEFORE MINORITY INTERESTSMINORITY INTERESTS IN NET INCOME
NET INCOME

Yen

2016

U.S. Dollars

2015

2016

PER SHARE OF COMMON STOCK (Notes 2.u and 21):
Net income̶basic¥313.82¥327.08$2.76

Net income̶diluted

313.57326.65

2.76

Cash dividends applicable to the year

245.00240.002.14

See notes to consolidated financial statements.

68

Lawson, Inc. Integrated Report 2016

Lawson, Inc. Integrated Report 201669

Financial Section

Consolidated Statement of Changes in Equity
Lawson, Inc. and Consolidated Subsidiaries
Year Ended February 29, 2016

Thousands of Shares/Millions of Yen
Common Stock

BALANCE, MARCH 1, 2014
Net income
Year-end cash dividends, ¥110 per share
Interim cash dividends, ¥120 per share
Change of scope of equity method
Reversal of land revaluation difference
Purchase of treasury stock
Exercise of stock acquisition rights to shares (delivery of treasury stock)
Disposal of treasury stock
Others̶net
BALANCE, FEBRUARY 28, 2015 (MARCH 1, 2015, as previously reported)
Cumulative effects of changes in accounting policies
BALANCE, MARCH 1, 2015 (as restated)
Net income
Year-end cash dividends, ¥120 per share
Interim cash dividends, ¥122.5 per share
Change of scope of consolidation
Reversal of land revaluation difference
Purchase of treasury stock
Exercise of stock acquisition rights to shares (delivery of treasury stock)
Disposal of treasury stock
Others̶net
BALANCE, FEBRUARY 29, 2016

Stock
Acquisition
RightsSharesAmountCapitalSurplus100,300¥58,507¥47,741

¥557

(45)
1

Retained
Earnings

Shares¥138,142
32,687(10,989)(11,990)
(608)
(1)
(64)

100,300

58,507

47,697(334)
223

100,300

58,507

47,697

223

147,177
1,412
148,589
31,381(12,000)(12,250)(1,111)

0100,300

Accumulated Other Comprehensive Income

Treasury Stock¥58,507¥47,69784¥307¥154,609

AmountNet Unrealized
Loss onAvailable-forSale Securities

Land
Revaluation
Difference

Foreign
Currency
Translation
Adjustments¥ (94)¥ (567)¥3,118

DefinedRetirement
Benefit Plans

Total

Total
Equity¥4,650¥250,498
32,687(10,989)(11,990)
(608)
(1)
(290)
464
2
4,025
263,798
1,412
265,210
31,381(12,000)(12,250)(1,111)(396)¥ (1,556)

(40)
135
0

(290)
573
1

(301)

(1,272)

(300)
(394)

1
(566)

2,375
5,493

¥ (519)
(519)

(301)

(1,272)

(394)

(566)

5,493

(519)

(1)

(8)

(8)

(8)

0

0

(302)

¥ (1,280)

0
1,775¥272,997

1,195
¥801

¥ (566)¥245,848
32,687(10,989)(11,990)
(608)
(1)
(290)
464
2
1,223
256,346
1,412
257,758
31,381(12,000)(12,250)(1,111)

Minority
Interests

38¥5,531(387)¥ (906)0930¥264,700

Total

Minority
Interests

Total
Equity

2,802
7,452
7,452

845
¥8,297

Thousands of U.S. Dollars (Note 1)
Accumulated Other Comprehensive Income

BALANCE, FEBRUARY 28, 2015 (MARCH 1, 2015, as previously reported)
Cumulative effects of changes in accounting policies
BALANCE, MARCH 1, 2015 (as restated)
Net income
Year-end cash dividends, $1.06 per share
Interim cash dividends, $1.08 per share
Change of scope of consolidation
Reversal of land revaluation difference
Purchase of treasury stock
Exercise of stock acquisition rights to shares (delivery of treasury stock)
Disposal of treasury stock
Others̶net
BALANCE, FEBRUARY 29, 2016

Stock
Acquisition
RightsCommonStockCapitalSurplus$514,936$419,794

514,936

419,794

Retained
Earnings$1,963 $1,295,344
12,427
1,963 1,307,771
276,193(105,615)(107,816)(9,778)Net Unrealized
Loss onAvailable-for- Sale
Securities

Treasury
Stock

Land
Revaluation
Difference

Foreign
Currency
Translation
Adjustments$ (11,195)$ (3,468)$ (4,982)$48,345$ (4,568)(11,195)(3,468)(4,982)

48,345(4,568)(71)
0$514,936$419,794$ (11,266)$2,256,169
12,4272,268,596
276,193(105,615)(107,816)(9,778)$65,587
65,587(71)

0739$2,702 $1,360,755

DefinedRetirement
Benefit Plans

10,518$7,050$ (4,982)

335$48,6800(3,406)
8,186$ (7,974) $2,329,695$2,321,756
12,4272,334,183
276,193(105,615)(107,816)(9,778)(71)

7,438$73,0250
15,624$2,402,720

See notes to consolidated financial statements.

70

Lawson, Inc. Integrated Report 2016

Lawson, Inc. Integrated Report 201671

Financial Section

Consolidated Statement of Cash Flows
Lawson, Inc. and Consolidated Subsidiaries
Year Ended February 29, 2016

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

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

2016

2015

2016

¥55,402¥58,371$487,608

FOREIGN CURRENCY TRANSLATION ADJUSTMENTS ON CASH AND
CASH EQUIVALENTS
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS(7,106)

7,995(62,541)

Income taxes paid

(23,984)(26,176)(211,090)

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR

76,75568,760675,541

Depreciation and amortization

49,293

41,826433,841

Impairment of long-lived assets

10,542

8,263

92,783

CASH AND CASH EQUIVALENTS IN SUBSIDIARIES RESULTING
IN CHANGE IN SCOPE OF CONSOLIDATION

Reversal of allowance for doubtful accounts

(312)

(171)

(2,746)

CASH AND CASH EQUIVALENTS, END OF YEAR

Loss on disposal of property and store equipment

4,342

2,967

38,215

See notes to consolidated financial statements.

OPERATING ACTIVITIES:
Income before income taxes and minority interests
Adjustments for:

2016

2015

(453)

1,150

144
¥69,793

2016(3,986)

1,267¥76,755$614,267

Changes in assets and liabilities:
Increase in accounts receivable(6,312)(8,025)(55,554)

Increase in accounts payable

21,952

26,289193,205(Decrease) Increase in money held as agent(1,725)

15,610(15,182)

742

1,684

6,531

2,265

(10,070)

19,93556,80352,197499,938

Net cash provided by operating activities¥112,205¥110,568$987,546

Net cash provided by operating activities̶(Forward)¥112,205¥110,568$987,546

Payments into time deposits(1,301)(11,204)(11,450)

Proceeds from withdrawal of time deposits

1,301

19,204

11,450Purchases of property and store equipment(40,884)(41,053)(359,831)

Purchases of software and other intangible assets(15,609)(7,902)(137,379)

Increase in long-term loans receivable(3,632)(4,633)(29,590)

Increase in allowance for retirement benefits to employees
and executive officers and audit and supervisory board members
Other̶net
Total adjustments

INVESTING ACTIVITIES:

Purchase of investments in subsidiaries resulting in change inscope of consolidation(41,381)

Acquisition of associated companies(3,362)(3,335)(31,966)

Other̶net(5,170)(10,130)(45,503)(68,657)(100,434)(604,269)

Repayments of long-term debt

(26,165)(42,122)(230,285)

Cash dividends paid

(24,250)(22,979)(213,431)

Net cash used in investing activities
FINANCING ACTIVITIES:

Proceeds from stock issuance to minority shareholders

2,000

Proceeds from long-term debt

59,000

Other̶net
Net cash used in financing activities

72

Lawson, Inc. Integrated Report 2016

214

812

1,884

(50,201)(3,289)(441,832)

Lawson, Inc. Integrated Report 201673

Financial Section

Notes to Consolidated Financial Statement
Lawson, Inc. and Consolidated Subsidiaries
Year Ended February 29, 2016

1 BASIS OF PRESENTING CONSOLIDATED FINANCIAL STATEMENTS

Co., Ltd. is December 31. In order to prepare the consolidated financial statements, the Company used

The accompanying consolidated financial statements have been prepared in accordance with the provisions

these companies financial statements prepared as of such fiscal year end and significant transactions

set forth in the Japanese Financial Instruments and Exchange Act and its related accounting regulations and inwhich occur between the fiscal year end and the consolidated fiscal year end are adjusted as required foraccordance with accounting principles generally accepted in Japan ( Japanese GAAP ), which are different inconsolidation.

certain respects as to application and disclosure requirements from International Financial Reporting Standards.
Effective February 29, 2016 Lawson HMV Entertainment United Cinema Holdings, Inc., United
In preparing these consolidated financial statements, certain reclassifications and rearrangements have been

Entertainment Holdings Co., Ltd. and United Cinemas Co., Ltd. changed their fiscal year end from Marchmade to the consolidated financial statements issued domestically in order to present them in a form which is31, 2016 to February 29, 2016. Thus, their accounting period is 14 months (from January 1, 2015 tomore familiar to readers outside Japan. In addition, certain reclassifications have been made in the 2015 financial

February 29, 2016) in this current consolidated fiscal year. The impact of this change on gross operatingstatements to conform to the classifications used in 2016.

revenue, operating income, ordinary income, and income before income taxes and minority interests forthis consolidated fiscal year is immaterial.

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

The fiscal year end date for the other consolidated subsidiaries is the same as that of the Company.

amounts are included solely for the convenience of readers outside Japan and have been made at the rate of¥113.62 to $1, the approximate rate of exchange at February 29, 2016. 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.

c. Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial
Statements̶ In May 2006, the Accounting Standards Board of Japan (ASBJ) issued ASBJ Practical
Issues Task Force (PITF) No. 18, Practical Solution on Unification of Accounting Policies Applied to Foreign

Mitsubishi Corporation ( Mitsubishi ) owns 33,500 thousand shares of common stock of the Company (including

Subsidiaries for the Consolidated Financial Statements. PITF No. 18 prescribes that the accounting policies

indirect holdings) as of February 29, 2016, which represents 33.4% of the total voting rights of the Company.

and procedures applied to a parent company and its subsidiaries for similar transactions and events

Accordingly, Mitsubishi is a principal shareholder.

under similar circumstances should in principle be unified for the 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 United States

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESof America tentatively may be used for the consolidation process, except for the following items that shoulda. Consolidation̶ The consolidated financial statements include the accounts of the Company and its eighteen

be adjusted in the consolidation process so that net income is accounted for in accordance with Japanese(fifteen in 2015) subsidiaries (collectively, the Companies ). Consolidation of the remaining subsidiary would

GAAP, unless they are not material: (a) amortization of goodwill; (b) scheduled amortization of actuarial gain

not have a material effect on the accompanying consolidated financial statements.

or loss of pensions that has been directly recorded in 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

Under the control and influence concepts, those entities in which the Company, directly or indirectly, is able toproperties and incorporation of the cost model of accounting; and (e) exclusion of minority interests from net

exercise control over operations are fully consolidated, and those entities over which the Companies have theincome, if contained in net income.

ability to exercise significant influence are accounted for by the equity method.
d. Unification of Accounting Policies Applied to Foreign Associated Companies for the Equity
Investments in three (two in 2015) associated companies are accounted for by the equity method. Investments

Method̶ In March 2008, the ASBJ issued ASBJ Statement No. 16, Accounting Standard for Equity

in the remaining unconsolidated subsidiaries and associated companies are stated at cost. If the equity

Method of Accounting for Investments. The new standard requires adjustments to be made to conform

method of accounting had been applied to the investments in these entities, the effect on the accompanying

the associate s accounting policies for similar transactions and events under similar circumstances toconsolidated financial statements would not be material.

those of the parent company when the associate's financial statements are used in applying the equity
method, unless it is impracticable to determine adjustments. In addition, financial statements prepared

All significant intercompany balances and transactions have been eliminated in consolidation. All material

by foreign associated companies in accordance with either International Financial Reporting Standards or

unrealized profit included in assets resulting from transactions within the Companies is eliminated.

the generally accepted accounting principles in the United States tentatively may be used in applying theequity method if the following items are adjusted so that net income is accounted for in accordance with

The excess of the cost of the Company's investments in consolidated subsidiaries and associated companies

Japanese GAAP, unless they are not material: (a) amortization of goodwill; (b) scheduled amortization ofover the fair value of the net assets at the dates of acquisition is being amortized over a period not exceeding

actuarial gain or loss of pensions that has been directly recorded in the equity; (c) expensing capitalized

20 years.

development costs of R&D; (d) cancellation of the fair value model of accounting for property, plant, andequipment and investment properties and incorporation of the cost model of accounting; and (e) exclusionb. Fiscal year end of the consolidated subsidiaries̶ The fiscal year end of SEIJO ISHII CO., LTD., Chongqingof minority interests from net income, if contained in net income.

Lawson, Inc., Shanghai Hualian Lawson, Inc., Dalian Lawson, Inc., Lawson (China) Holdings, Inc., Shanghai
Le Song Trading Co., Ltd., Shang Hai Gong Hui Trading Co., Ltd., Zhejiang Lawson, Inc. and Saha Lawson
74

Lawson, Inc. Integrated Report 2016e. Business Combination ̶ In October 2003, the Business Accounting Council issued a Statement of
Lawson, Inc. Integrated Report 201675

Financial Section

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,

Company is credited to the Due to franchised stores account and then applied to working capital forpurchases of merchandise and supplies for the franchised store.

Guidance for Accounting Standard for Business Combinations and Business Divestitures. The

As part of the contractual obligations of the franchisor under the agreement, the Company generally

accounting standard for business combinations allowed companies to apply the pooling-of-interests

provides franchisees with furniture, fixtures, and equipment designed for the LAWSON stores. In somemethod of accounting only when certain specific criteria are met such that the business combination iscases, franchisees may also be provided with the land or buildings for the stores. However, the Company

essentially regarded as the uniting-of-interests criteria. For business combinations that do not meet thedoes not require the franchisees to make lease payments related to the stores. Instead, a higher

uniting-of-interests criteria, the business combination is considered to be an acquisition and the purchasepercentage applicable to the gross margin would be used as the basis for determining the franchisemethod of accounting is required. This standard also prescribes the accounting for combinations ofcommissions. The portion of franchise commission attributable to property and store equipment leases is

entities under common control and for joint ventures.

not separately accounted for by the Company.

In December 2008, the ASBJ issued a revised accounting standard for business combinations, ASBJ

g. Cash and Cash Equivalents̶ Cash and cash equivalents include cash on hand, demand deposits, andStatement No. 21, Accounting Standard for Business Combinations. Major accounting changes undershort-term investments, which mature or become due within three months of the date of acquisition andthe revised accounting standard are as follows: (1) The revised standard requires accounting for business

which are readily convertible into cash and are exposed to insignificant risk of changes in value.

combinations only by the purchase method. As a result, the pooling of interests method of accounting is
no longer allowed. (2) The previous accounting standard required the R&D costs to be charged to income
as incurred. Under the revised standard, in-process research and development costs (IPR&D) acquired

h. Inventories̶ Substantially all inventories are stated at the lower of cost, determined by the retail method
as generally applied in the retail industry and by the gross average method, or net selling value.

in the business combination are capitalized as an intangible asset. (3) The previous accounting standard
provided for a bargain purchase gain (negative goodwill) to be systematically amortized over a period not

i. Marketable and Investment Securities ̶ Marketable and investment securities are classified andexceeding 20 years. Under the revised standard, the acquirer recognizes the bargain purchase gain in

accounted for, depending on management s intent, as follows: (1) held-to-maturity debt securities, which

profit or loss immediately on the acquisition date after reassessing and confirming that all of the assets

are expected to be held to maturity with the positive intent and ability to hold to maturity are reported

acquired and all of the liabilities assumed have been identified after a review of the procedures used in theat amortized cost and (2) available-for-sale securities, which are not classified as the aforementioned

purchase price allocation. The revised standard was applicable to business combinations undertaken on

securities, are stated at fair value based on market quotation. Unrealized gains and losses, net ofor after April 1, 2010.

applicable taxes, are reported in a separate component of equity. The cost of securities sold is determinedbased on the moving-average method.

f. Franchise Agreement and Basis of Recognizing Franchise Commission̶ The Company operates
principally in a single industry commonly classified as the convenience store business with its own stores

Nonmarketable available-for-sale securities are stated at cost determined by the moving-average method.

and franchised stores. The Company allows each independent franchisee to operate relatively small-For other than-temporary declines in fair value, nonmarketable available-for-sale securities are reduced tosized convenience stores using specific designs and the LAWSON brand names, and provides related

net realizable value by a charge to income.

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 fromj. Property and Store Equipment̶ Property and store equipment are stated at cost except for land (seethe Company as the franchisor. In return, such franchised stores are required to pay continuing franchise

Note 7). Depreciation is computed mainly by the straight-line method at rates based on the estimatedcommissions to the Company based on certain percentages of the respective franchised store's grossuseful lives of the assets. The range of useful lives is principally from 10 to 34 years for buildings andmargin. As the franchisor, the Company accounts for franchise commissions on an accrual basis

structures and from 5 to 8 years for furniture, fixtures, and equipment.

by reference to the gross margin earned by each franchised store and the applicable commission
percentage. According to the franchise agreement, a franchised store may pay additional guarantee

The useful lives for lease assets are the terms of the respective leases.

deposits equal to twice the average monthly sales amounts of the respective store and pay a lower
commission percentage.

k. Long Lived Assets̶ The Companies review their long-lived assets for impairment whenever events orchanges in circumstance indicate the carrying amount of an asset or asset group, mainly by each store,

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

may not be recoverable. An impairment loss would be recognized if the carrying amount of an asset or

new store's operation as a franchised store and may be extended or renewed upon expiration subject toasset group exceeds the sum of the undiscounted future cash flows expected to result from the continued

renegotiation of contract terms between the Company and the franchisee.

use and eventual disposition of the asset or asset group. The impairment loss is measured as the amountby which the carrying amount of the asset exceeds its recoverable amount, which is the higher of the

The franchise agreement usually provides that the franchised store shall make a cash payment to thediscounted cash flows from the continued use and eventual disposition of the assets or the net selling

Company in the amount of ¥3 million upon commencement. Upon receipt of such payment, ¥1.5 million

price at disposition.

is credited to income of the Company as Operating revenues̶franchise commissions from franchised
stores for services related to the opening of the LAWSON store. The remaining amount received by the76

Lawson, Inc. Integrated Report 2016

l. Software̶Software used by the Companies is amortized using the straight line method based on the
Lawson, Inc. Integrated Report 201677

Financial Section

estimated useful life (mainly five years).

vesting period as consideration for receiving goods or services. The standard also requires companies toaccount for stock options granted to non-employees based on the fair value of either the stock option or

m. Trademark right̶ Trademark right is amortized using the straight line method based on the estimateduseful life (mainly twenty years).

the goods or services received. In the balance sheet, the stock option is presented as a stock acquisitionright in a separate component of equity until exercised. The standard covers equity-settled, share-based
payment transactions, but does not cover cash-settled, share-based payment transactions. In addition,

n. Net defined benefit liability̶ In calculating the retirement benefit obligation, in order to attribute theestimated amount of retirement benefits in the period up to the end of the current fiscal year, the obligation

the standard allows unlisted companies to measure options at their intrinsic value if they cannot reliably
estimate fair value.

is based on the benefit formula method.
r. Income Taxes ̶ The Companies provide for income taxes applicable to all items included in the
Prior service cost is amortized starting from the fiscal year incurred mainly on a straight-line basis overconsolidated statement of income regardless of when such taxes are payable. Deferred income taxes

a certain period (10 years) within an average remaining service period of employees at the time of

are recorded to reflect the impact of temporary differences between assets and liabilities recognized foroccurrence.

financial reporting purposes and such amounts recognized for tax purposes. These deferred taxes are

Actuarial differences are mainly amortized from the following fiscal year on a straight-line basis overmeasured by applying current income tax rates to the temporary differences.

a certain period (10 years) within an average remaining service period of employees at the time ofoccurrence.

s. Foreign Currency Financial Statements̶ The balance sheet accounts of associated companies

Certain consolidated subsidiaries apply the simplified method to estimate the amount required fordenominated in foreign currencies are translated into Japanese yen at the current exchange rate as ofvoluntary resignations at the end of the fiscal year as the retirement benefit liability in order to calculate net

the balance sheet date except for equity, which is translated at the historical rate. Differences arising fromdefined benefit liability and retirement benefit expenses.

such translation are shown as Foreign currency translation adjustments and Minority interests in a
separate component of equity. Revenue and expense accounts of affiliated companies denominated ino. Allowance for Retirement Benefits to Executive Officers and Audit and Supervisory Board

foreign currencies are translated into yen at the current exchange rate.

Members̶ The provisions are calculated as a liability at 100% of the amount that would be required if all
executive officers and audit and supervisory board members resigned as of each balance sheet date.

t. Per Share Information̶ Basic net income per share is computed by dividing net income available tocommon shareholders by the weighted-average number of common shares outstanding for the period.

p. 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

The number of shares used in computing net income per share was 99,998 thousand shares for 2016

Accounting Standard for Asset Retirement Obligations. Under this accounting standard, an asset

and 99,931 thousand shares for 2015.

retirement obligation is defined as a legal obligation imposed either by law or contract that results fromthe acquisition, construction, development, and the normal operation of a tangible fixed asset and isassociated with the retirement of such tangible fixed asset.

Diluted net income per share for the years ended February 29, 2016 and February 28, 2015, is computedby using the weighted average number of common shares outstanding adjusted to include the potentiallydilutive effect of stock options that were outstanding during the year.

The asset retirement obligation is recognized as the sum of the discounted cash flows required for the
future asset retirement and is recorded in the period in which the obligation is incurred if a reasonable

Cash dividends per share presented in the accompanying consolidated statement of income are dividends

estimate can be made. If a reasonable estimate of the asset retirement obligation cannot be made in theapplicable to the respective years including dividends to be paid after the end of the year.

period the asset retirement obligation is incurred, the liability should be recognized when a reasonableestimate of asset retirement obligation can be made. Upon initial recognition of a liability for an asset

u. Accounting Changes and Error Corrections̶ In December 2009, the ASBJ issued ASBJ Statement

retirement obligation, an asset retirement cost is capitalized by increasing the carrying amount of theNo. 24, Accounting Standard for Accounting Changes and Error Corrections and ASBJ Guidance No.

related fixed asset by the amount of the liability. The asset retirement cost is subsequently allocated to24, Guidance on Accounting Standard for Accounting Changes and Error Corrections. Accounting

expense through depreciation over the remaining useful life of the asset. Over time, the liability is accreted

treatments under this standard and guidance are as follows:

to its present value each period. Any subsequent revisions to the timing or the amount of the original
estimate of 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.

(1) Changes in accounting policies
When a new accounting policy is applied following the revision of an accounting standard, the newpolicy is applied retrospectively unless the revised accounting standard includes specific transitionalq. Stock Options̶ In December 2005, the ASBJ issued ASBJ Statement No. 8, Accounting Standard

provisions, in which case the entity shall comply with the specific transitional provisions.

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 at the date of grant and recognize compensation expense over the78

Lawson, Inc. Integrated Report 2016

(2) Changes in presentation
When the presentation of financial statements is changed, prior-period financial statements are
Lawson, Inc. Integrated Report 201679

Financial Section

reclassified in accordance with the new presentation.

fiscal year, Loss on sales of non-current assets is now separately presented. To reflect this change inthe method of presentation, the consolidated statement of income for the previous fiscal year has been

(3) Changes in accounting estimates
A change in an accounting estimate is accounted for in the period of the change if the change affects

reclassified.
As a result, in the

OTHER (EXPENSES) INCOME section, the 250 million yen that had previouslythat period only, and is accounted for prospectively if the change affects both the period of the change

been presented as Other in the Consolidated Statement of Income for the previous fiscal year is now

and future periods.

presented as Loss on sales of non-current assets.

(4) Corrections of prior-period errors
When an error in prior-period financial statements is discovered, those statements are restated.

(Consolidated Statement of Cash Flows)
In the Cash flow from operating activities section, Increase in inventories was presented
separately in the previous fiscal year. Due to a decline in financial materiality, Increase in inventories is

v. Reclassification of Prior Year s Consolidated Financial Statements̶ The Company has madechanges to the classification of amounts in the consolidated balance sheet, consolidated statement of

now included in Other. To reflect this change in the method of presentation, the consolidated statementof cash flows for the previous fiscal year has been reclassified.

income and the consolidated statement of cash flows for the year ended February 29, 2016. In order

As a result, in the Cash flow from operating activities section, the (2,589) million yen that had previously

to conform with the presentation for the year ended February 29, 2016, the Company has reclassified

been presented as Increase in inventories in the Consolidated Statement of Cash Flows for thethe related amounts in the consolidated balance sheet, the consolidated statement of income and theprevious fiscal year is now included in Other.

consolidated statement of cash flows for the year ended February 28, 2015, as stated below.
In the Cash flow from operating activities section, Decrease in guarantee deposits received from(Consolidated Balance Sheet)franchised stores and other was presented separately in the previous fiscal year. In order to clarify the

In the LONG-TERM LIABILITIES section, Guarantee deposits received from franchised stores andconsolidated statement of cash flows in the current fiscal year, Decrease in guarantee deposits received

other was presented separately in the previous fiscal year. Due to a decline in financial materiality, Long-

from franchised stores and other is now included in Other. To reflect this change in the method ofterm guarantee deposited is now presented in Other. To reflect this change in method of presentation,

presentation, the consolidated statement of cash flows for the previous fiscal year has been reclassified.

the consolidated balance sheet for the previous fiscal year have been reclassified.

As a result, in the Cash flow from operating activities section, the (2,308) million yen that had previously

As a result, in the LONG-TERM LIABILITIES section, the 29,993 million yen that had previously been

been presented as Decrease in guarantee deposits received from franchised stores and other in thepresented as Long-term guarantee deposited in the Consolidated Balance Sheet for the previous fiscal

Consolidated Statement of Cash Flows for the previous fiscal year is now included in Other.

year is now included in Other.
In the Cash flow from investing activities section, Purchase of investment securities was presented(Consolidated Statement of Income)separately in the previous fiscal year. Due to a decline in financial materiality, Purchase of investment

In the OTHER (EXPENSES) INCOME section, Share of profit of entities accounted for using equity

securities is now included in

Other. To reflect this change in the method of presentation, themethod was included in Other in the previous fiscal year. Due to an increase in financial materiality, Shareconsolidated statement of cash flows for the previous fiscal year has been reclassified.

of profit of entities accounted for using equity method is now separately presented. To reflect this change

As a result, in the Cash flow from investing activities section, the (6,507) million yen that had previously

in the method of presentation, the consolidated statement of income for the previous fiscal year has been

been presented as Purchase of investment securities in the Consolidated Statement of Cash Flows forreclassified.

the previous fiscal year is now included in Other.

As a result, in the

OTHER (EXPENSES) INCOME section, the 365 million yen that had previously

been presented as Other in the Consolidated Statement of Income for the previous fiscal year is now
presented as Share of profit of entities accounted for using equity method.

In the Cash flow from investing activities section, Decrease (increase) in short-term loans receivable
was presented separately in the previous fiscal year. Due to a decline in financial materiality, Decrease(increase) in short-term loans receivable is now included in Other. To reflect this change in the method

In the OTHER (EXPENSES) INCOME section, Store equipment related income was included in Otherof presentation, the consolidated statement of cash flows for the previous fiscal year has been reclassified.

in the previous fiscal year. Due to an increase in financial materiality, Store equipment related income

As a result, in the Cash flow from investing activities section, the 3,135 million yen that had previously

is now separately presented. To reflect this change in the method of presentation, the consolidated

been presented as Decrease (increase) in short-term loans receivable in the Consolidated Statement ofstatement of income for the previous fiscal year has been reclassified.

Cash Flows for the previous fiscal year is now included in Other.

As a result, in the OTHER (EXPENSES) INCOME section, the 118 million yen that had previously
been presented as Other in the Consolidated Statement of Income for the previous fiscal year is now

In the Cash flow from investing activities section, Purchase of long-term prepaid expenses waspresented as Store equipment related income.

presented separately in the previous fiscal year. Due to a decline in financial materiality, Purchase of longterm prepaid expenses is now included in Other. To reflect this change in the method of presentation,

80

In the OTHER (EXPENSES) INCOME section, Loss on sales of non-current assets was included in

the consolidated statement of cash flows for the previous fiscal year has been reclassified.

Other in the previous fiscal year. In order to clarity the consolidated statement of income in the current

As a result, in the Cash flow from investing activities section, the (3,806) million yen that had previously

Lawson, Inc. Integrated Report 2016

Lawson, Inc. Integrated Report 201681

Financial Section

been presented as Purchase of long-term prepaid expenses in the Consolidated Statement of Cash
Flows for the previous fiscal year is now included in Other.

The above accounting standards and guidance for (a) transactions with noncontrolling interest, (b)presentation of the consolidated balance sheet, (c) presentation of the consolidated statement of income,and (e) acquisition-related costs are effective for the beginning of annual periods beginning on or after

w. New Accounting Pronouncements

April 1, 2015. Earlier application is permitted from the beginning of annual periods beginning on or after

Accounting Standards for Business Combinations and Consolidated Financial Statements̶ In

April 1, 2014, except for (b) presentation of the consolidated balance sheet and (c) presentation of

September, 2013, the ASBJ issued revised ASBJ Statement No. 21, "Accounting Standard for Businessthe consolidated statement of income. In the case of earlier application, all accounting standards andCombinations," revised ASBJ Guidance No. 10, "Guidance on Accounting Standards for Businessguidance above, except for (b) presentation of the consolidated balance sheet and (c) presentation of the

Combinations and Business Divestitures," and revised ASBJ Statement No. 22, "Accounting Standard forconsolidated statement of income, should be applied simultaneously.

Consolidated Financial Statements." Major accounting changes are as follows:
Either retrospective or prospective application of the revised accounting standards and guidance for (a)(a) Transactions with noncontrolling interest - A parent's ownership interest in a subsidiary might change if

transactions with noncontrolling interest and (e) acquisition-related costs is permitted. In retrospective

the parent purchases or sells ownership interests in its subsidiary. The carrying amount of minority interest

application of the revised standards and guidance, the accumulated effects of retrospective adjustments

is adjusted to reflect the change in the parent's ownership interest in its subsidiary while the parent retains

for all (a) transactions with noncontrolling interest and (e) acquisition-related costs which occurred in theits controlling interest in its subsidiary. Under the current accounting standard, any difference between thepast shall be reflected as adjustments to the beginning balance of capital surplus and retained earnings forfair value of the consideration received or paid and the amount by which the minority interest is adjusted

the year of the first-time application. In prospective application, the new standards and guidance shall beis accounted for as an adjustment of goodwill or as profit or loss in the consolidated statement of income.

applied prospectively from the beginning of the year of the first-time application.

Under the revised accounting standard, such difference shall be accounted for as capital surplus as longas the parent retains control over its subsidiary.

The revised accounting standards and guidance for (b) presentation of the consolidated balance sheet(b) Presentation of the consolidated balance sheet - In the consolidated balance sheet, "minority interest"

financial statements containing the first-time application of the revised standards and guidance.

and (c) presentation of the consolidated statement of income shall be applied to all periods presented inunder the current accounting standard will be changed to "noncontrolling interest" under the revised
accounting standard.

The revised standards and guidance for (d) provisional accounting treatments for a business combination
are effective for a business combination which occurs on or after the beginning of annual periods beginning(c) Presentation of the consolidated statement of income - In the consolidated statement of income,on or after April 1, 2015. Earlier application is permitted for a business combination which occurs on or"income before minority interest" under the current accounting standard will be changed to "net income"after the beginning of annual periods beginning on or after April 1, 2014.

under the revised accounting standard, and "net income" under the current accounting standard will bechanged to "net income attributable to owners of the parent" under the revised accounting standard.

The Company expects to apply the revised accounting standards and guidance for (a), (b), (c) and (e)above from March 1, 2016, and for (d) above for a business combination which will occur on or after March(d) Provisional accounting treatments for a business combination - If the initial accounting for a business

1, 2016, and is in the process of measuring the effects of applying the revised accounting standards andcombination is incomplete by the end of the reporting period in which the business combination occurs,

guidance in future applicable periods.

an acquirer shall report in its financial statements provisional amounts for the items for which theaccounting is incomplete. Under the current accounting standard guidance, the impact of adjustments toTax Effect Accounting̶ On December 28, 2015, the ASBJ issued ASBJ Guidance No. 26, Guidance

provisional amounts recorded in a business combination on profit or loss is recognized as profit or loss

on Recoverability of Deferred Tax Assets , which included certain revisions of the previous accounting andin the year in which the measurement is completed. Under the revised accounting standard guidance,

auditing guidance issued by JICPA. While the new guidance continues to follow the basic framework of theduring the measurement period, which shall not exceed one year from the acquisition, the acquirer

previous guidance, it provides new guidance for the application of judgment in assessing the recoverability

shall retrospectively adjust the provisional amounts recognized at the acquisition date to reflect newof deferred tax assets.

information obtained about facts and circumstances that existed as of the acquisition date and that would
have affected the measurement of the amounts recognized as of that date. Such adjustments shall be

The previous guidance provided a basic framework which included certain specific restrictions onrecognized as if the accounting for the business combination had been completed at the acquisition date.

recognizing deferred tax assets depending on the company s classification in respect of its profitability,(e) Acquisition-related costs - Acquisition-related costs are costs, such as advisory fees or professional

The new guidance does not change such basic framework but, in limited cases, allows companies tofees, which an acquirer incurs to effect a business combination. Under the current accounting standard,

recognize deferred tax assets even for deductible temporary differences for which it was specificallytaxable profit and temporary difference, etc.

82

the acquirer accounts for acquisition-related costs by including them in the acquisition costs of theprohibited to recognize deferred tax assets under the previous guidance, if the company can justify, withinvestment. Under the revised accounting standard, acquisition-related costs shall be accounted for as

reasonable grounds, that it is probable that the deductible temporary difference will be utilized against

expenses in the periods in which the costs are incurred.

future taxable profit in some future period.

Lawson, Inc. Integrated Report 2016

Lawson, Inc. Integrated Report 201683

Financial Section

The new guidance is effective for the beginning of annual periods beginning on or after April 1, 2016. Earlier

Accounts receivable̶due from franchised stores account since such costs shall be subsequently recovered

application is permitted for annual periods ending on or after March 31, 2016. The new guidance shall notfrom the respective franchised stores.

be applied retrospectively and any adjustments from the application of the new guidance at the beginningof the reporting period shall be reflected within retained earnings or accumulated other comprehensive

The Accounts receivable̶due from franchised stores account represents net amounts recoverable from theincome at the beginning of the reporting period.

franchised stores.

The Company expects to apply the new guidance on recoverability of deferred tax assets effective March
1, 2017, and is in the process of measuring the effects of applying the new guidance in future applicable
periods.

5 MARKETABLE AND INVESTMENT SECURITIESMarketable and investment securities as of February 29, 2016 and February 28, 2015, consisted of thefollowing:

2016

Changes in accounting policies
Non-current̶Marketable and other equity securities

The Company adopted

Accounting Standard for Retirement Benefits (ASBJ Statement No. 26 issued

Thousands of
U.S. Dollars

Millions of Yen

3 CHANGES IN ACCOUNTING POLICIES

2016

2015

¥9,848¥8,101$86,675

272

233

2,394

Non-current̶Corporate bonds

on May 17, 2012, hereinafter Accounting Standard Retirement Benefits ) and Guidance on AccountingStandard for Retirement Benefits (ASBJ Guidance No. 25 issued on March 26, 2015, hereinafter Guidance

The costs and aggregate fair values of marketable and investment securities as of February 29, 2016 andRetirement Benefits ) from this fiscal year including stipulations stated in the main clause of paragraph 35

February 28, 2015, were as follows:of Accounting Standard Retirement Benefits, and the main clause of paragraph 67 of Guidance Retirement

Millions of Yen

Benefits. The Company reviewed the calculation method of retirement benefit liabilities and service cost andchanged the method of attributing the expected benefit to periods from a straight-line basis to benefit formula

February 29, 2016

Costbasis. The method for calculating the discount rate was changed from the method in which bond duration,

Securities classified as available-for-sale̶Equity securities¥6,267

Unrealized
Gains

Unrealized
Losses¥1,049Fair Value¥7,316a base used for calculating the discount rate, was decided based on the number of years that approximates
the average remaining service period of the employees, to the method in which multiple discount rates are

Millions of Yen

calculated in accordance with the expected payment period of retirement benefits.
The application of such as accounting standards for retirement benefits has followed the transitional treatment

February 28, 2015

Cost

Securities classified as available-for-sale̶Equity securities¥6,355

Unrealized
Gains

Unrealized
Losses¥780

Fair Value¥5,575stipulated in paragraph 37 of Accounting Standard Retirement Benefits, and the impact due to change of
calculation method of retirement benefit liabilities and service cost was charged to Retained earnings at theThousands of U.S. Dollars

beginning of this consolidated fiscal year.
As a result, net defined benefit liability as of the beginning of this fiscal year decreased by ¥2,130 million,

February 29, 2016

Cost

Securities classified as available-for-sale̶Equity securities$55,158

Unrealized
Gains

Unrealized
Losses$9,232

Fair Value$64,390

while retained earnings increased by ¥1,411 million. The impact of this change on operating income, ordinary
income, and income before income taxes and minority interests for this fiscal year was immaterial.

The proceeds, realized gains and realized losses of the available-for-sale securities which were sold during theyears ended February 29, 2016, and February 28, 2015, were as follows:

4 ACCOUNTS RECEIVABLE̶DUE FROM FRANCHISED STORES

February 29, 2016

Under the franchise agreement, the Company is responsible for providing architectural and design services
with respect to the franchised stores facilities, for training of the franchisees personnel, and for the

Not applicable.

centralized processing of invoices from suggested vendors of merchandise and subsequent payments ofMillions of Yenamounts payable to such vendors.
February 28, 2015

The EDP system of the Company generates a record of merchandise purchased by each franchised store andaccumulates the amounts payable to respective vendors. Under the franchise agreement, the Company, as a

Available-for-sale:
Equity securities

Realized
Gain

Proceeds¥369

Realized
Loss

¥369

representative for all franchised stores, pays amounts payable to the vendors on the stores behalf. When themerchandise is received by each franchised store, the Company records the cost of the merchandise in the84

Lawson, Inc. Integrated Report 2016

Lawson, Inc. Integrated Report 201685

Financial Section

6 LONG LIVED ASSETS

7 LAND REVALUATIONThe Companies mainly identify each store as the smallest cash generating unit. The Companies recognize

Under the Law of Land Revaluation, promulgated on March 31, 1998, and revised on March 31, 1999

an impairment loss in the case where the value of long-lived assets has declined, primarily as a result ofand 2001, the Company opted for a one-time revaluation of its own-use land to a value based on real estatecontinuous operating losses. The carrying amounts of those assets are written down to the recoverable

appraisal information as of February 28, 2002.

amounts and an impairment loss is recorded in other expenses in the consolidated statement of income.
The resulting land revaluation difference represents unrealized depreciation of land and is stated, net of income
The Companies recognized an impairment loss in the following asset categories for the years ended February

taxes, as a component of equity. There was no effect on the consolidated statement of income. Continuous

29, 2016, and February 28, 2015:

readjustment is not permitted unless the land value subsequently declines significantly.
Thousands of
U.S. Dollars

Millions of Yen
Category

Stores

Other

2016

Location

Buildings andFurniture, fixtures,and equipment

Tokyo¥1,905

Osaka
Others$16,766

1,621

771

14,267

6,509

4,240

57,28829
507

Software17

Goodwill

4,462

1,898
¥10,542¥8,263As at February 29, 2016, the carrying amount of the land after the above one-time revaluation exceeded themarket value by ¥308 million ($2,711 thousand).

¥1,308

Land

Total

2016

2015

Related Assets$92,783

The above noted assets which incurred impairment losses for the years ended February 29, 2016, and

8 ACCOUNTS PAYABLE̶TRADE
The balances of Accounts payable̶trade represent the amounts payable to vendors for merchandisepurchased by the Company-operated stores and franchised stores. The Company centralizes all merchandisepurchasing procedures both for the Company-operated stores and franchised stores and makes collective
payments to vendors (see Note 4).
Accounts payable̶trade as of February 29, 2016, and February 28, 2015, were summarized below:

February 28, 2015, consisted of the following:Thousands of
U.S. Dollars

Millions of Yen

2016
Buildings
Furniture, fixtures, and equipment
Lease assets
Land

2015

2016

Accounts payable̶trade for franchised stores
Accounts payable̶trade for the Company-operated stores¥5,977¥3,659$52,605

608

464

5,351

3,131

2,172

27,557

57

29

502

Goodwill

1,898

Software

680

17

5,985

Other

89

24

783

Total

¥10,542¥8,263$92,783

Thousands of
U.S. Dollars

Millions of Yen

Total

2016

2015

2016

¥92,265¥83,386$812,049

19,96020,073

175,673¥112,225¥103,459$987,722

9 ACCOUNTS PAYABLE̶DUE TO FRANCHISED STORESThe cost of merchandise supplied to franchised stores is recorded as

Accounts receivable̶due from

franchised stores as described in Note 4.
All franchised stores make remittances of cash proceeds from daily sales to the Company. In certain instances,

The recoverable amount of these assets was measured based on net selling price or value in use. The net

the remittance from a franchised store exceeds the balance of Accounts receivable̶due from franchised

selling price of land was calculated based on the appraised value by a real estate appraiser or an expected

stores. In the accompanying consolidated balance sheets, such excess balances are presented as Accounts

contract price. The value in use was calculated by discounting estimated future cash flows. The discount rate

payable̶due to franchised stores.

used was mainly 4.8% for the years ended February 29, 2016, and February 28, 2015.

86

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Financial Section

10 SHORT-TERM BANK LOANS AND LONG TERM DEBT

11 EMPLOYEES' RETIREMENT BENEFITS

Short-term bank loans at February 29, 2016, and February 28, 2015, consisted of notes to banks.

For employees retirement benefits, the Company and some consolidated subsidiaries adopt a funded or
unfunded defined benefit type lump-sum retirement allowance plan and a defined contribution type pension

The annual interest rates applicable to the short-term bank loans were 0.53% and 0.33% at February 29,

plan.

2016, and February 28, 2015, respectively.
The lump-sum retirement allowance plan (generally unfunded, with some plans being funded in accordanceLong-term debt at February 29, 2016, and February 28, 2015, consisted of the following:with an employee pension trust) pays a lump sum as a retirement benefit based on salary and length of service
Thousands of
U.S. Dollars

Millions of Yen

2016

2015

2016

Loans from banks, due serially to 2020 with aweighted-average interest rate of 0.26% (2016)¥58,137¥59,000$511,679

Obligations under finance leases

111,959

96,122985,381Less current portion(24,473)(20,523)(215,393)¥145,623¥134,599$1,281,667

Long-term debt, less current portion

The aggregate annual maturities of the current portion of long-term debt and long-term debt, excluding
finance leases, at February 29, 2016, were as follows:Year Ending February 28 or 29

Millions of Yen

Thousands of
U.S. Dollarsof the employee.
The lump-sum retirement allowance plan employed by some consolidated subsidiaries calculates liabilities
related to retirement benefits and retirement benefit expenses by the simplified method.
Year Ended February 29, 2016
(1) The changes in defined benefit obligation for the year ended February 29, 2016, were as follows:
Thousands of
U.S. Dollars

Millions of Yen

Balance at beginning of year (as previously reported)
Cumulative effects of changes in accounting policies
Balance at beginning of year (as restated)¥18,348$161,486(2,131)(18,756)

16,217

142,730

1,503

13,2282017¥575$5,061

Current service cost

2018

575

5,061

Interest cost

93

819

Actuarial losses

663

5,835

(931)

(8,194)

4

35

2019

575

5,061

2020

56,412496,496

Benefits paid

$511,679

Prior service cost

Total

¥58,137

OthersBalance at end of year

The aggregate annual maturities of finance lease obligations at February 29, 2016, were as follows:Year Ending February 28 or 29

Millions of Yen

Thousands of
U.S. Dollars

2017¥23,898$210,333

2018

22,106

194,5612019

19,723

173,587

2020

16,651

146,5502021 and thereafter

29,581

260,350¥111,959$985,381

Total

3

27

¥17,552$154,480(2) The changes in plan assets for the year ended February 29, 2016, were as follows:
Thousands of
U.S. Dollars

Millions of Yen

Balance at beginning of year
Actuarial gains
Balance at end of year

¥5,589$49,1901

9¥5,590$49,199

As of February 29, 2016, the carrying amounts of assets pledged as collateral for short-term bank loans andthe current portion of long-term debt of ¥1,575 million ($13,862 thousand) and long-term debt of ¥7,563
million ($66,564 thousand), were as follows:

88

Millions of Yen

Thousands of
U.S. Dollars

2016

2016

Cash and cash equivalents¥2,399$21,114

Shares of consolidated subsidiaries (Amount before elimination)

16,615

146,233

Total¥19,014$167,347

Lawson, Inc. Integrated Report 2016

Lawson, Inc. Integrated Report 201689

Financial Section(3) Reconciliation between the liability recorded in the consolidated balance sheet and the balances of defined
benefit obligation and plan assets

a. Components of plan assets
Millions of Yen

Funded defined benefit obligation
Plan assets
Unfunded defined benefit obligation
Net liability arising from defined benefit obligation(7) Plan assets

Thousands of
U.S. Dollars¥16,241$142,941(5,590)(49,199)

10,651

93,742

1,312

11,548¥11,963$105,290

Plan assets consisted of the following:
Cash and cash equivalents

100%

Total

100%

b. Method of determining the expected rate of return on plan assets
The expected rate of return on plan assets is determined considering the long-term rates of return
which are expected currently and in the future from the various components of the plan assets.

Millions of Yen

Thousands of
U.S. Dollars

Liability for retirement benefits¥11,963$105,290

Net liability arising from defined benefit obligation¥11,963$105,290

Thousands of
U.S. Dollars

Service cost

¥1,503$13,228

Interest cost

93

819

Recognized actuarial losses

91

801

Amortization of prior service cost

13

114

Others96845¥1,796$15,807

Net periodic benefit costs

Discount rate

0.5% (mainly)

Expected rate of return on plan assets0%(9) Contributions to the defined contribution pension plan for the year ended February 29, 2016,(4) The components of net periodic benefit costs for the year ended February 29, 2016, were as follows:
Millions of Yen(8) Assumptions used for the year ended February 29, 2016, were set forth as follows:

were as follows:
Millions of Yen

Periodic benefit costThousands of
U.S. Dollars¥436$3,837

Year Ended February 28, 2015
(1) The changes in defined benefit obligation for the year ended February 28, 2015, were as follows:(5) Amounts recognized in other comprehensive income (before income tax effect) in respect of defined
retirement benefit plans for the year ended February 29, 2016
Millions of Yen

Prior service cost
Actuarial losses
Total

Thousands of
U.S. Dollars

Millions of Yen

Balance at beginning of year

¥17,417

Current service cost

1,405

$79

Interest cost

(571)

(5,025)

Actuarial losses

86¥ (562)$(4,946)

Benefits paid

(804)

¥9

209

Others(6) Amounts recognized in accumulated other comprehensive income (before income tax effect) in respect of35

Balance at end of year

¥ 18,348

defined retirement benefit plans as of February 29, 2016
Millions of Yen

Unrecognized prior service cost
Unrecognized actuarial losses
Total

¥21

Thousands of
U.S. Dollars(2) The changes in plan assets for the year ended February 28, 2015, were as follows:

$185

1,283

11,292¥ 1,304$11,477

Millions of Yen

Balance at beginning of year
Balance at end of year90

Lawson, Inc. Integrated Report 2016

¥5,588Actuarial gains

1¥5,589Lawson, Inc. Integrated Report 201691

Financial Section(3) Reconciliation between the liability recorded in the consolidated balance sheet and the balances of defined
benefit obligation and plan assets

a. Components of plan assets
Plan assets consisted of the following:

Millions of Yen

Funded defined benefit obligation
Plan assets¥17,053(5,589)11,464

Unfunded defined benefit obligation
Net liability arising from defined benefit obligation(6) Plan assets

1,295¥12,759

Cash and cash equivalents

100%

Total

100%

b. Method of determining the expected rate of return on plan assets
The expected rate of return on plan assets is determined considering the long-term rates of return
which are expected currently and in the future from the various components of the plan assets.
(7) Assumptions used for the year ended February 28, 2015, were set forth as follows:

Millions of Yen

Liability for retirement benefits¥12,759

Net liability arising from defined benefit obligation¥12,759

Discount rate

1.2% (mainly)

Expected rate of return on plan assets0%(8) Contributions to the defined contribution pension plan for the year ended February 28, 2015,
were as follows:(4) The components of net periodic benefit costs for the year ended February 28, 2015, were as follows:

Millions of Yen

Millions of Yen

Service cost

¥1,405Interest cost

209

Recognized actuarial losses

114

Amortization of prior service cost

5

Others(9)

Net periodic benefit costs

Periodic benefit cost

¥331

¥1,724(5) Amounts recognized in accumulated other comprehensive income (before income tax effect) in respect ofdefined retirement benefit plans as of February 28, 2015
Millions of Yen

Unrecognized prior service cost

92

¥29

Unrecognized actuarial losses

712

Total

¥741

Lawson, Inc. Integrated Report 2016

Lawson, Inc. Integrated Report 201693

Financial Section

12 ASSET RETIREMENT OBLIGATIONS

b. Increases/Decreases and Transfer of Common Stock, Reserve, and Surplus

The changes in asset retirement obligations for the years ended February 29, 2016 and February 28, 2015,

The Companies Act requires that an amount equal to 10% of dividends must be appropriated as awere as follows:legal reserve (a component of retained earnings) or as additional paid-in capital (a component of capitalThousands of
U.S. Dollars

Millions of Yen

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 ofasset retirement obligations

Total
Less current portio
Asset retirement obligations, less current portion

aggregate amount of legal reserve and additional paid-in capital equals 25% of the common stock. Under

2016

2015

2016

the Companies Act, the total amount of additional paid-in capital and legal reserve may be reversed¥21,553¥17,885$189,694

without limitation. The Companies Act also provides that common stock, legal reserve, additional paid-in

1,961

1,711

17,259

400

343

3,520

(1,836)(832)(16,159)

Additional provisions associated with the newly
consolidated subsidiary
Additional provisions associated with changes inaccounting estimatessurplus) depending on the equity account charged upon the payment of such dividends until the total of

conditions upon resolution of the shareholders.
c. Treasury Stock and Treasury Stock Acquisition Rights
The Companies Act also provides for companies to purchase treasury stock and dispose of such treasury
stock by resolution of the Board of Directors. The amount of treasury stock purchased cannot exceed

2,445
2,643

capital, other capital surplus, and retained earnings can be transferred among the accounts under certain

the amount available for distribution to the shareholders which is determined by a specific formula. Under
23,262

24,721

21,552

217,576

(56)

(22)

(493)

¥24,665¥21,530$217,083

the Companies Act, stock acquisition rights are presented as a separate component of equity. The
Companies Act also provides that companies can purchase both treasury stock acquisition rights andtreasury stock. Such treasury stock acquisition rights are presented as a separate component of equity or
deducted directly from stock acquisition rights.

Changes in accounting estimates were recorded as it became evident that the estimate of the discounted cash
flows required for future asset retirement would change, which resulted from certain events. A reconciliation

14 STOCK OPTIONS

has been prepared for the change, which resulted in an increase of the asset retirement obligation for the year

The Company has stock option plans as an incentive for directors, executive officers, and selected employees.

ended February 29, 2016, by ¥2,643 million ($23,262 thousand).

The stock options outstanding as of February 29, 2016, were as follows:
Stock Option

13 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 the normal Directors, (2) having independent auditors, (3) having an
Audit & Supervisory Board, and (4) the term of service of the directors being prescribed as one year rather
than two year term by its articles of incorporation, the Board of Directors may declare dividends (except
for dividends in kind) at any time during the fiscal year if the company has prescribed so in its articles ofincorporation.
The Companies Act permits companies to distribute dividends-in-kind (noncash assets) to shareholders
subject to a certain limitation and additional requirements.
Semiannual interim dividends may also be paid once a year upon resolution by the Board of Directors if

Persons Granted

Number of
Options Granted

Date of Grant

ExercisePrice

22,400 shares2005.10.12¥1($0.01)

From October 13,
2005 to May 31, 2025

9 directors

21,300 shares2006.10.26¥1($0.01)

From October 27,
2006 to May 26, 2026

7th (a) Stock
Option7 directors

18,000 shares2007.9.5¥1($0.01)

From September 6,
2007 to August 20, 2027

8th (a) Stock
Option7 directors

26,400 shares2009.1.16¥1($0.01)

From January 17,
2009 to December 15, 2028

9th Stock
Option7 directors

21,500 shares2010.2.17¥1($0.01)

From February 18,
2010 to February 1, 2030

10th Stock
Option7 directors

18,900 shares2011.2.25¥1($0.01)

From February 26,
2011 to February 10, 2031

11th Stock
Option7 directors

27,000 shares2012.2.17¥1($0.01)

From February 18,
2012 to February 1, 2032

12th Stock
Option7 directors

26,900 shares2013.4.12¥1($0.01)

From April 12,2013 to March 26, 2033

13th Stock
Option7 directors

25,400 shares2014.4.10¥1($0.01)

From April 10,2014 to March 23, 2034

14th Stock
Option8 directors

12,400 shares2015.4.10¥1($0.01)

From April 10,2015 to March 24, 2035

15th Stock
Option1 director

1,100 shares2015.6.10¥1($0.01)

From June 10,2015 to May 25, 2035

5th Stock
Option9 directors

6th (a) Stock
OptionExercise Period

the articles of incorporation of the company so stipulate. The Companies Act provides certain limitations
on the amounts available for dividends or the purchase of treasury stock. The limitation is defined as theamount available for distribution to the shareholders, but the amount of net assets after dividends must be
maintained at no less than ¥3 million.
94

Lawson, Inc. Integrated Report 2016

Lawson, Inc. Integrated Report 201695

Financial Section

15 INCOME TAXESThe stock option activity is as follows:
5th
Stock
Option6th (a)Stock
Option7th (a)Stock
Option8th (a)Stock
Option9th
Stock
Option10th
Stock
Option11th
Stock
Option12th
Stock
Option13th
Stock
Option14th
Stock
Option15th
Stock
OptionYear Ended February 28, 2015

The Company and its domestic subsidiaries are subject to a number of different taxes based on income,which in the aggregate, resulted in a normal statutory tax rate of approximately 38.0% and 35.6% for theyears ended February 29, 2016 and February 28, 2015,respectively.

Non-vested
February 28, 2014̶Outstanding

The tax effects of significant temporary differences and tax loss carryforwards, which resulted in deferred tax

25,400Grantedassets and liabilities at February 29, 2016 and February 28, 2015, are as follows:

Canceled

25,400

Vested2016
15,00021,30018,00026,40021,50018,90027,00026,900

VestedExercised

2016

¥727

Accrued enterprise taxes¥1,063$6,39925,400Accrued employees' bonuses

1,244

1,031

10,949

Excess of depreciation

13,388

14,839117,831

11,20011,40011,40017,20015,20013,00019,90018,40018,100

3,800

9,900

6,600

9,200

6,300

5,900

7,100

8,500

7,300

Canceled
February 28, 2015̶Outstanding

2015

Deferred tax assets:

VestedFebruary 28, 2014̶Outstanding

Thousands of
U.S. Dollars

Millions of Yen

February 28, 2015̶Outstanding

Excess of amortization of software
Employees' retirement benefits

517

348

4,550

5,761

6,584

50,704

Year Ended February 29, 2016

Allowance for doubtful accounts

285

1,011

2,508

Non-vested

Impairment loss

4,149

3,560

36,517Tax loss carryforwards

14,073

13,520123,860

February 28, 2015̶Outstanding

12,400Granted

1,100

Canceled

12,400

Vested1,100

33,867(121,598)

30,17635,775265,587

3,634

4,223

31,983¥26,542¥31,552$233,604

Total
Deferred tax liabilities̶Trademark rightNet deferred tax assets

Vested

3,800

9,900

6,600

9,200

6,300

5,900

7,100

8,500

7,300
12,400

Vested1,100

Exercised

A reconciliation between the normal effective statutory tax rates and the actual effective tax rates reflected in
the accompanying consolidated statement of income for the years ended February 29, 2016 and February 28,

Canceled
February 29, 2016̶Outstanding

7,578(13,759)

Less valuation allowance

February 29, 2016̶Outstanding

February 28, 2015̶Outstanding

3,848(13,816)

Other

3,800

9,900

6,600

9,200

6,300

5,900

7,100

8,500

7,300

12,400

1,100

2015, is as follows:
2016

¥1

¥1

¥1

¥1

¥1

¥1

¥1

¥1

¥1

¥1

¥1

($0.01)($0.01)($0.01)($0.01)($0.01)($0.01)($0.01)($0.01)($0.01)($0.01)($0.01)

Exercise price
Average stock price at exercise
Fair value price at grant date

¥3,178¥2,852¥3,477¥2,652¥2,689¥3,339¥5,516¥5,146¥6,251¥ 6,310($27.97) ($25.10) ($30.60) ($23.34) ($23.67) ($29.39) ($48.55) ($45.29) ($55.02) ($55.54)

The assumptions used to measure the fair value of the 14th and 15th stock options were as follows:

96

2015

Normal effective statutory tax rate

35.6%

38.0%

Change in valuation allowance

(0.9)

1.9

Expenses not deductible for income tax purposes

0.5

0.4

Per-capita inhabitant tax

0.6

0.5

Difference in tax rates of foreign consolidated subsidiaries

0.8

1.3

Reduction of ending deferred tax balance due to change in statutory tax rate

4.1

1.1

Amortization of goodwill

1.7

0.9

Impairment loss of goodwill

1.2

14th Stock Option

15th Stock Option

Estimate method

Black-Scholes option pricing model

Black-Scholes option pricing model

Effect of net operating loss carried forward
resulting from liquidation of consolidated subsidiaries

Volatility of stock price23.61%

23.64%

Other̶net

(0.4)

(0.6)

Estimated remaining outstanding period

10 years

10 years

Actual effective tax rate

42.0%

43.3%

Estimated dividend¥230 per share¥230 per share

Risk-free interest rate

0.33%

0.49%

Lawson, Inc. Integrated Report 2016

(1.4)

Lawson, Inc. Integrated Report 201697

Financial Section

New tax reform laws enacted in 2015 in Japan changed the normal effective statutory tax rate for the fiscal
year beginning on or after April 1, 2015. 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

16 SUPPLEMENTAL INFORMATION FOR CASH FLOWS(1) Finance lease assets and finance lease obligations regarded as noncash transactions incurred for the year
ended February 29, 2016, amounted to ¥38,159 million ($335,848 thousand).

fiscal years beginning on or after March 1, 2016, changed from 35.6% to 33.1%, and in the fiscal years(2) Asset retirement obligations regarded as noncash transactions incurred for the year ended February 29,

beginning on or after March 1, 2017, changed from 35.6% to 32.3%.
The effect of these changes was to decrease deferred tax assets, net of deferred tax liabilities, by ¥2,332

2016, amounted to ¥4,604 million ($40,521 thousand).

million ($20,525 thousand), to increase income taxes̶deferred in the consolidated statement of income forthe year then ended by ¥2,310 million ($20,331 thousand) and to decrease accumulated other comprehensive

17 OTHER COMPREHENSIVE INCOME

income defined retirement benefit plans by ¥21 million ($185 thousand).

The components of other comprehensive income for the years ended February 29, 2016 and February 28,
New tax reform laws enacted in 2016 in Japan changed the normal effective statutory tax rate for the fiscal

2015, were as follows:

year beginning on or after April 1, 2016. As a result, the normal effective statutory tax rate to recognize
2016

fiscal years beginning on or after March 1, 2017, in the fiscal years beginning on or after March 1, 2018,changed from 32.3% to 30.9%, and in the fiscal years beginning on or after March 1, 2019, changed from

¥1,587¥ (432)$13,968

239

(23)

2,103

Amount before income tax effect

1,826

(455)

16,071

Income tax effect

(631)

155

(5,553)¥1,195¥(300)$10,518

Gains(Losses) arising during the year

The effect of these changes was to decrease deferred tax assets, net of deferred tax liabilities, by ¥1,041

Reclassification adjustments to profit or loss

million ($9,162 thousand), to increase income taxes̶deferred in the consolidated statement of income forincome defined retirement benefit plans by ¥20 million ($176 thousand).

Total
Land Revaluation Difference

At February 29, 2016, certain domestic subsidiaries have tax loss carryforwards aggregating approximately¥26,363 million ($232,028 thousand) which are available to be offset against taxable income of such
subsidiaries in future years. These tax loss carryforwards, if not utilized, will expire as follows:Year Ending February 28 or 29

Millions of Yen

Adjustments arising during the year
Total

2019

¥367

$3,230

2020

9,969

87,740

2021

4,975

43,786

2022

8,510

74,899

2023

442

3,890

2024

1,638

14,416

2025

462

4,067

Total

¥26,363$232,028¥1

Foreign currency translation adjustments
Adjustments arising during the year

Thousands of
U.S. Dollars¥1¥ (16)

Reclassification adjustments to profit or loss
Total

$ (141)¥ (16)¥962$ (141)Remeasurements of defined benefit plans¥ (662)$ (5,826)

Reclassification adjustments to profit or loss

100

880

Amount before income tax effect(562)(4,946)

Losses arising during the year

Income tax effect

Total

175

1,540

¥ (387)$ (3,406)

Share of other comprehensive loss in associated companies
Losses arising during the year

¥ (31)

Reclassification adjustments to profit or loss
Total other comprehensive income

Lawson, Inc. Integrated Report 2016

¥2,089(1,127)

1,472¥1,441

Total

98

2016

2015

Unrealized loss on available-for-sale securities

32.3% to 30.6%.

the year then ended by ¥1,020 million ($8,977 thousand) and to decrease accumulated other comprehensive

Thousands of
U.S. Dollars

Millions of Yen

deferred tax assets and liabilities for the expected future tax consequences of temporary differences in the¥792¥2,104$6,971

Lawson, Inc. Integrated Report 201699

Financial Section

18 SEGMENT INFORMATIONAs described in Note 3, due to the change of calculation method for retirement benefit liabilities and service

In March 2008, the ASBJ revised ASBJ Statement No. 17, Accounting Standard for Segment Information

cost, the calculation method for retirement benefit liabilities and service cost for reporting segments has

Disclosures and issued ASBJ Guidance No. 20, Guidance on Accounting Standard for Segment Information

been changed from the current fiscal year.

Disclosures. Under the standard and guidance, an entity is required to report financial and descriptive

The impact of this change on segment profit for the current fiscal year is immaterial.

information about its reportable segments. Reportable segments are operating segments or aggregations ofoperating segments that meet specified criteria. Operating segments are components of an entity about which(c)Information about sales, profit (loss), assets, and other items is as follows:

separate financial information is available and such information is evaluated regularly by the chief operating

Millions of Yen

decision maker in deciding how to allocate resources and in assessing performance. Generally, segment2016

information is required to be reported on the same basis as is used internally for evaluating operating segment

Reportable Segments

performance and deciding how to allocate resources to operating segments.
(a) Description of reportable segments

Domestic
Convenience
Store BusinessEntertainment
relatedBusiness

Seijo Ishii
Business

Other

Total

Reconciliations

Consolidated

Sales:The Company s financial information is provided separately by reporting segment and is subject to regular

Sales to external customers

review by the board of directors with regard to the allocation of managerial resources and performance

Intersegment sales or transfers¥395,057

68,994¥73,639

3,580

1,401

¥45,763 ¥583,453
1,158

6,139

¥583,453¥(6,139)

evaluation. The Company primary operates primary Domestic Convenience Store Business, Seijo Ishii

Total¥398,637

68,994¥75,040¥46,921 ¥589,592

Business and Entertainment-related Business while incorporating other related businesses.

Segment profit¥59,994¥5,037¥4,076¥3,427¥72,534¥8¥72,542

Segment assets

738,876

65,01664,55953,680922,131 (118,919)

803,212

Therefore, the Company has made the Domestic Convenience Store Business, Seijo Ishii Business and¥(6,139) ¥583,453

Other:

Entertainment-related Business its reportable segments based on consideration of financial characteristics

Depreciation

40,769

1,756

1,375

2,591

46,49146,491and the nature of the services provided.

Amortization of goodwill

596

1,437

665

104

2,802

2,802

Regarding the Domestic Convenience Store Business, Lawson. Inc. operates a franchise system as well

Payment for associatedcompanies

4,746

4,746

4,746

Increase in property, plant, andequipment and intangible assets

48,46856,49356,493as undertaking the direct management of stores in Japan as the parent company of LAWSON, NATURALLAWSON, and LAWSON STORE100. Lawson Mart, Inc. undertakes the direct management of LAWSON

521

4,347

STORE100 stores. SCI, Inc. is a subsidiary that serves the function of rationally managing the process from

3,157
Millions of Yen

procurement to sale, and aims to improve the efficiency of and optimize the process.

2015

Regarding the Seijo Ishii Business, SEIJO ISHII CO., LTD. operates SEIJO ISHII supermarket.

Reportable Segments

Regarding the Entertainment-related Business, Lawson HMV Entertainment, Inc. manages the sale ofDomestic
Convenience
Store Businessconcert tickets at LAWSON stores and others, music and video at HMV stores and others. In addition,
United Cinemas Co., Ltd. operates multiplex movie theatres.

Entertainment
relatedBusiness

Seijo Ishii
Business

Other

Total

Reconciliations

Consolidated

Sales:

Due to its increase in importance, Seijo Ishii Business, which was included in Others, has been reclassified

Sales to external customers¥392,463¥17,879¥50,688¥36,883 ¥497,913

as a reporting segment from the current consolidated fiscal year. Based on this change, for segment

Intersegment sales or transfers

2,917

2

1,413

information of previous fiscal year, it stated by classification after the change and (c) Information about

Total¥395,380¥17,881¥52,101¥38,051 ¥503,413

sales, profit (loss), assets and other items of previous fiscal year.

Segment profit¥63,864¥1,358¥2,588¥2,663¥70,473¥9¥70,482

Segment assets

707,340

69,56958,323

46,395

881,627(117,013)

764,61436,927

448

839

2,219

40,43340,433

359

433

192

1,393

1,393

3,806

3,806

48,955

48,955(b) Methods of measurement for the amounts of sales, profit (loss), assets, and other items for each reportablesegment
The accounting policies of each reportable segment are basically consistent with those disclosed in Note 2,
Summary of Significant Accounting Policies.

1,168

5,500

¥497,913¥ (5,500)¥ (5,500) ¥497,913

Other:
Depreciation
Amortization of goodwill

409

Payment for associatedcompanies

3,806

Increase in property, plant, andequipment and intangible assets

45,039

307

1,085

2,524

Segment profit is determined in the same manner as operating income. Intersegment sales or transfers
are calculated based on market price.

100

Lawson, Inc. Integrated Report 2016

Lawson, Inc. Integrated Report 2016101

Financial Section

Thousands of U.S. Dollars

Thousands of U.S. Dollars

2016

2016
Reportable Segments

Reportable Segments
Domestic
Convenience
Store Business

Seijo Ishii
Business

Entertainment
relatedBusiness$3,477,002$607,235$648,117

Other

Total

Reconciliations

Consolidated

Sales:
Sales to external customers
Intersegment sales or transfers

31,50912,330$402,772 $5,135,126
10,192$5,135,126

Loss on impairment oflong-lived assets$607,235$660,447$412,964 $5,189,157 $ (54,031) $5,135,126

Segment profit$528,023$44,332$35,874$30,162$71$638,462

Segment assets

6,503,045

572,223568,201

472,452 8,115,921 (1,046,637)

7,069284$638,391

Amortization of goodwill

358,819

15,455

12,10222,804409,180

409,180

5,246

12,647

5,853

915

24,661

24,661

Payment for associatedcompanies

41,771

Increase in property, plant, andequipment and intangible assets

426,580

4,585

38,25927,786Entertainment
relatedBusiness

$704

Other

Total

$6,486$92,783$5,017

Reconciliations

Consolidated$92,783(e) Information regarding amortization of goodwill and carrying amount of reportable segments
Millions of Yen

2016

Other:
Depreciation$80,576

Seijo Ishii
Business

54,031 $ (54,031)$3,508,511

Total

Domestic
Convenience
Store
Business

41,771

41,771

497,210497,210

Reportable Segments
Domestic
Convenience
Store
Business

Goodwill at February 29, 2016

¥8,589Seijo Ishii
Business

Entertainment
relatedBusiness¥26,947

Other

Total

¥1,582¥46,310¥9,192

Reconciliations

Consolidated¥46,310

Millions of Yen

Notes: 1. The name of the Entertainment & Home Convenience Business has been changed to the Entertainment-related Business.

2015

2. The others category refers to business segments that do not fall under the main reporting segments and includes Financial Services-related Business
operated by Lawson ATM Networks, Inc., Overseas Business operated by Shanghai Hualian Lawson, Inc. and others.

Reportable Segments

3. Reconciliation to segment profit and segment assets is the balance of elimination of intra-segment transactions

Domestic
Convenience
Store
Business

4. The segment profit is adjusted against the consolidated operating income.

(d) Information regarding loss on impairment of long-lived assets of reportable segments

Goodwill at February 28, 2015

Millions of Yen¥8,789Seijo Ishii
Business

Entertainment
relatedBusiness¥28,384¥9,857

Other

Total

¥1,159¥48,189

Reconciliations

Consolidated¥48,189

2016
Reportable Segments
Domestic
Convenience
Store
Business

Loss on impairment oflong-lived assets¥9,155

Seijo Ishii
Business

Thousands of U.S. Dollars

Entertainment
relatedBusiness

¥80

¥570

2016
Other

¥737

Total

Reconciliations¥10,542

Reportable Segments
Consolidated

Domestic
Convenience
Store
Business¥10,542
Goodwill at February 29, 2016

Seijo Ishii
Business$75,594 $237,168

Entertainment
relatedBusiness$80,901

Other

Total

$13,924 $407,587

Reconciliations

Consolidated$407,587

Millions of Yen

The amount under Other is attributable to the overseas business.

2015
Reportable Segments
Domestic
Convenience
Store
Business

Loss on impairment oflong-lived assets

102

Lawson, Inc. Integrated Report 2016

¥5,832

Seijo Ishii
Business

Entertainment
relatedBusiness

¥238

Other

Total

¥2,193¥8,263

Reconciliations

Consolidated¥8,263

Lawson, Inc. Integrated Report 2016103

Financial Section

19 RELATED PARTY TRANSACTIONS

payment due dates within six months.

Balances and transactions of the Company with a subsidiary of Mitsubishi Corporation as of and for the years
Long-term loans from banks payable are mainly for the purpose of funding necessary for M&A, and are due

ended February 29, 2016 and February 28, 2015, were as follows:

within four years.
(1) Transactions between the Company and related parties
Thousands of
U.S. Dollars

Millions of Yen

The primary purpose of lease obligations related to finance lease transactions is securing the funds requiredfor capital investments and the maximum redemption period is 15 years after the consolidated balance

2016

2015

2016

Accounts payable̶trade¥50,022¥45,736$440,257

With regard to the liquidity risk associated with fundraising (risk that payments cannot be executed on thePurchases

614,452

582,268

5,407,956

payment due dates), the Company prepares and updates financial plans on a timely basis and manages

sheet date.

Mitsubishi Shokuhin Co., Ltd.:liquidity risk by measures including maintaining adequate liquidity on hand.
Purchase prices and other conditions are determined on an arm s-length basis.
(3) Fair Values of Financial Instruments
Fair values of financial instruments are based on quoted prices in active markets. If quoted price is not(2) Transactions between subsidiary and related parties
Thousands of
U.S. Dollars

Millions of Yen

2016

2015

available, other rational valuation techniques are used instead. Since multiple factors are considered in theestimation of fair value, the results of the estimation might differ if other valuation techniques were used.

2016

Millions of Yen

Mitsubishi Shokuhin Co., Ltd.:
Accounts receivable-Other¥8,015¥341$70,542

February 29, 2016

Carrying
AmountSales of processed food,etc.

67,163

1,385

591,120

Cash and cash equivalents¥69,793

20 FINANCIAL INSTRUMENTS AND RELATED DISCLOSURES(1) Policy for Financial Instruments
The Company primarily uses short-term deposits, etc., to manage its funds and raises funds as necessary
through borrowings from financial institutions and leasing according to the financing plan.
(2) Nature, Extent of Risk, and Risk Management System for Financial Instruments¥69,79344

Accounts receivable

98,276

98,276Long-term loans receivable

40,83140,817

Investments securities

7,316

7,316

Time deposits

Sales prices and other conditions are determined on an arm s-length basis.

Unrealized
Gain/Loss

Fair Value¥ (14)

92,12189,375(2,746)

Total¥308,341¥305,581¥ (2,760)

Accounts payable¥173,630¥173,630

Money held as agent

101,909

101,909

Long-term debt (include current portion of long-term debt)

170,096

170,711

¥615

Total

¥445,635¥446,250¥615

Lease deposits

Trade receivables, such as accounts receivable-other are exposed to credit risk from businesscounterparties.

Millions of Yen

Long-term loans receivable (mainly construction assistance fund receivables and loans to franchised

February 28, 2015

Carrying
Amountstores) and lease deposits are exposed to credit risks of borrowers and landlords, etc. With regard to thisCash and cash equivalents¥76,755¥76,755

risk, the Company manages credit on a daily basis at the relevant division and aims to identify and minimize

Time deposits

44collection concerns arising from deterioration in the financial situation, etc, in the early stages.

Accounts receivable

93,222

93,222

Investments securities

5,575

5,575

Investment securities are primarily shares of companies with which the Company was business
relationships and listed shares which are exposed to the risk of market price fluctuation. With regard to thisrisk, the Company monitors the financial conditions of business counterparties on a regular basis.
Among trade payables, most of the accounts payable-trade, accounts payable-trade for franchised stores,
accounts payable-other and money held as agent as a result of bill settlement services have payment due

Lease deposits

Unrealized
Gain/Loss

Fair Value

92,71989,755¥ (2,964)

Total¥268,275¥265,311¥ (2,964)

Accounts payable¥153,957¥153,957

Money held as agent

103,634

103,634

Long-term debt (include current portion of long-term debt)

155,122155,006¥(116)

Total¥412,713¥412,597¥(116)

dates within one month, while most deposits received held as a result of ticket sales transactions have104

Lawson, Inc. Integrated Report 2016

Lawson, Inc. Integrated Report 2016105

Financial Section(4) Financial Instruments Whose Fair Value Cannot Be Reliably Determined

Thousands of U.S. Dollars
February 29, 2016

Carrying
AmountFair Value

Cash and cash equivalents$614,267$614,267

35

35

Accounts receivable

864,953864,953

Long-term loans receivable

359,365359,241

Time deposits

Carrying Amount

Unrealized
Gain/Loss

Thousands of
U.S. Dollars

Millions of Yen

2016

2015

2016

$ (124)

Investments in equity instruments that do nothave a quoted market price in an active market¥1,412¥1,313$12,428

Investments in unconsolidated subsidiaries and affiliated companies

15,60011,447

137,300

Others

1,392

1,446

12,251

Investments securities

64,39064,390

Lease deposits

810,782786,614(24,168)

Total$2,713,792$2,689,500$(24,292)

Accounts payable$1,528,164$1,528,164

Money held as agent

896,928

896,928

Long-term debt (include current portion of long-term debt)

1,497,060

1,502,473$5,413Total$3,922,152$3,927,565$5,413(5) Maturity Analysis for Financial Assets and Securities with Contractual Maturities
Millions of Yen

2016
Due in1 Yearor Less

Cash and cash equivalents, time deposits, and accounts receivable
The carrying values of cash and cash equivalents, time deposits, and accounts receivable (including allowancefor doubtful accounts) approximate fair value because of their short maturities.
Long-term loans receivable
The fair values of long-term loans receivable (including allowance for doubtful accounts) are determined bydiscounting the cash flows related to the obligations at the Companies assumed corporate discount rate.

Cash and cash equivalents

Long-term loans receivable
Lease deposits
Total

Due after
5 Years through10 Years

Due after
10 Years¥69,793
4Time deposits
Accounts receivable

Due after
1 Year through5 Years

98,283351¥14,427¥12,829¥13,279

5,335

20,98722,15844,015¥173,766¥35,414¥34,987¥57,294

Investment securities
The fair values of investment securities are measured at the quoted market price on the stock exchange

Millions of Yen

for the equity instruments, and at the quoted price obtained from the financial institution for certain debt

2015

instruments.
Lease deposits
The fair values of lease deposits (including allowance for doubtful accounts) are determined by discounting
future cash flows, which reflect the collectability, using the yield rate of government bonds for the remaining
period.
Accounts payable and money held as agent

Due in1 Yearor Less

Cash and cash equivalents

Due after
1 Year through5 Years

Due after
5 Years through10 Years

Due after
10 Years¥76,755

Time deposits

4

Accounts receivable

95,719Lease deposits

4,859¥19,402¥24,240¥44,705¥177,337¥19,402¥24,240¥44,705

Total

The carrying values of accounts payable and money held as agent approximate fair value because of theirshort maturities.

Thousands of U.S. Dollars

2016Long-term debt (including current portion of long-term debt)

Due in1 Yearor Less

The fair values of long-term debt are determined by discounting the cash flows related to the debt at theCompanies assumed corporate discount rate.

Cash and cash equivalents
Time deposits
Accounts receivable
Long-term loans receivable
Lease deposits

Total

106

Lawson, Inc. Integrated Report 2016

Due after
1 Year through5 Years

Due after
5 Years through10 Years$126,976$112,912

Due after
10 Years$614,26735
865,015
3,089$116,872

46,955

184,712

195,018

387,388$1,529,361$311,688$307,930$504,260

Lawson, Inc. Integrated Report 2016107

Financial Section

Independent Auditor’s Report

21 NET INCOME PER SHARE
Reconciliation of the differences between basic and diluted net income per share (EPS ) for the years

ended February 29, 2016 and February 28, 2015, is as follows:Year Ended February 29, 2016

Basic EPS̶Net income available to commonshareholders

Millions of Yen

Thousandsof Shares

Net Income

WeightedAverage Shares¥31,381

99,998¥31,381

100,076

Effect of dilutive securities̶Stock options
Diluted EPS̶Net income for computation

Year Ended February 28, 2015

Basic EPS̶Net income available to commonshareholders

U.S. Dollars
EPS¥313.82$2.76¥313.57$2.76

78

Millions of Yen

Thousandsof Shares

Yen

Net Income

WeightedAverage Shares

EPS¥32,686

Effect of dilutive securities̶Stock options
Diluted EPS̶Net income for computation

Yen

99,932¥327.08134¥32,686

100,066¥326.65

22 SUBSEQUENT EVENT
Appropriation of Retained Earnings
The following appropriation of retained earnings was approved at the general shareholders meeting held on
May 24, 2016:
Millions of Yen

Cash dividends, ¥122.5 ($1.08) per share108

Lawson, Inc. Integrated Report 2016¥12,250

Thousands of
U.S. Dollars$107,816

Lawson, Inc. Integrated Report 2016109

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

http://lawson.jp/en/
Published September 2016
©1975-2016 Lawson, Inc. All rights reserved.
Printed in Japan