ANNUAL REPORT 2012

ANNUAL REPORT 2012
Year ended February 29, 2012

VISION
BUILDING A SUSTAINABLE FUTURE

Corporate Planning Office
East Tower, Gate City Ohsaki, 11-2, Osaki 1-chome,
Shinagawa-ku, Tokyo 141-8643, Japan
http://lawson.jp/en/
Published in August 2012
©1975-2012 Lawson, Inc. All rights reserved.

Printed in Japan

Lawson, Inc. (“the Company”) assures that all corporate activities conform to its Corporate
Philosophy, and that the Company’s management and employees work together as a team to realize
its goals. To this end, we ensure that all of our actions are grounded in our shared values, no matter
what changes may take place in the operating environment. Our Code of Conduct requires
employees to be responsible for reflecting our values and standards through their actions.

Lawson’s long-term vISIon is the achievement of its corporate philosophy,
CoRpoRAte phILoSophy
Creating happiness and harmony in our Communities
Code oF ConduCt
Act with utmost consideration for others
Challenge with innovative ideas and actions
have a strong will to attain the objectives“Creating happiness and harmony in our Communities.” our medium-term

StRAtegy is to become the “world’s top small commercial area manufacturingretailer.” We believe SuStAInABILIty will be important for us to continue
to grow. to do so, the Company must continue to exist in harmony with society
in its role of being an essential infrastructure and lifeline of the community.
We believe that fulfilling our commitment to offering customers “whatever you
want, whenever and wherever you need it” will result in the maximization of
corporate value.

ContentS
IntRoduCtIon

FInAnCIAL SeCtIon

01 Vision

40 Management’s Discussion and Analysis

02 Strategy

58 Consolidated Balance Sheets

04 Sustainability

60 Consolidated Statements of Income

06 Building a Sustainable Future

61 Consolidated Statements of Comprehensive Income

08 Eleven-Year Financial Summary

62 Consolidated Statements of Changes in Equity
64 Consolidated Statements of Cash Flows

StRAtegy

65 Notes to Consolidated Financial Statements

10 Message from the President

87 Independent Auditors’ Report

SuStAInABILIty

ABout LAWSon

22 Achieving Sustainability in Lawson’s Value Chain

88 Market Data

31 Human Capital Management

90 Lawson at a Glance

33 Lawson’s Activities Related to the Great East Japan
Earthquake

92 Directors, Corporate Auditors, andExecutive Officers

34 Corporate Governance

93 Corporate Data and Shareholder Information

FoRWARd-LookIng StAteMentS RegARdIng FoReCAStS And FIguReS
This annual report contains forward-looking statements about the future plans, strategies, beliefs, andperformance of the Lawson Group. These forward-looking statements are not historical facts. They are
expectations, estimates, forecasts, and projections based on information currently available to theCompany and are subject to a number of risks, uncertainties, and assumptions, which, without
limitation, include economic trends, competition in the Japanese convenience store industry, personal
consumption, market demand, the tax system, and other legislation. As such, actual results may differ
materially from those projected.
In September 2008, Lawson made Ninety-nine Plus, Inc., and its subsidiaries into consolidated
subsidiaries. Accordingly, Lawson booked equity-method earnings in this company in the fiscal year

StRAtegy
SuStAInABILIty

vISIonCreating happinessand harmony in
our Communities

ended February 28, 2009, for the six months through the end of the company’s second quarter because
Ninety-nine Plus has a March 31 fiscal year-end. Ninety-nine Plus’s earnings were completely
consolidated for its third quarter. Moreover, Ninety-nine Plus changed its fiscal year-end from March 31
to February 28 at its ordinary general meeting of shareholders in June 2009. The fourth quarter offiscal 2008 and fiscal 2009 results (11-month fiscal year due to a fiscal year-end change) of the
Ninety-nine Plus group have been consolidated in Lawson's fiscal 2009 results.
Figures in this annual report are rounded to the nearest unit. Lawson's fiscal year-end is the endof February.

Lawson, Inc. AnnuAL RepoRt 201201

Medium-term performance targets*

20%

StRAtegy

1 Return on equity (Roe) of

our goal is to become the “world’s top small commercial area
manufacturing retailer.”

A manufacturing retailer is the type of business model we seek to implement. This indicates we offer
customers merchandise and products tailored to needs of the local communities that we serve. We doso by adding value unique to Lawson in its roles as both a manufacturer and a retailer. Our tools for
attaining these goals are the utilization of multiformats for stores and customer purchasing datafrom the Ponta card used under the multi-partner loyalty point program. The three medium-term
performance targets indicated above reflect our commitment to become a global corporation. Goingforward, we intend to collaborate as a Group in reaching these targets.

¥100 Billion
3 Consolidated operating profit margin of 5% for net sales of all stores

2 Consolidated operating income of* Lawson is aiming to achieve its performance targets previously set for FY2020 as soon as possible.

For details, please see the “Message from the president” on page 10.

02

Lawson, Inc. AnnuAL RepoRt 2012

Lawson, Inc. AnnuAL RepoRt 201203

envIRonMent
SoCIAL
goveRnAnCe

SuStAInABILIty

elements of
our Business
Activities

Lawson believes its ultimate contribution to society is
to provide customers with “whatever you want, whenever
and wherever you need it.” In seeking to fulfill thiscommitment, we also maximize corporate value.

At Lawson, we believe the greatest social contribution we can possibly make is to provide customers with“whatever you want, whenever and wherever you need it,” based on our corporate philosophy of“Creating Happiness and Harmony in Our Communities.” Our corporate value can only be achieved by
maximizing both our social contributions and our economic return in seeking to attain this corporate
philosophy. More specifically, we think Lawson can earn its stakeholders’ trust by achieving sustained
profit growth while endeavoring to improve the environment, social, and governance (ESG) elements of
its business activities.
For details, please refer to “Achieving Sustainability in Lawson’s value Chain” on page 22.

04

Lawson, Inc. AnnuAL RepoRt 2012

Lawson, Inc. AnnuAL RepoRt 201205

“Creating Happiness and Harmony in Our Communities”—
this is Lawson’s corporate philosophy. Each and every oneof our employees devote themselves to accomplishing ourrole as a lifeline of the community that is indispensable topeople’s daily lives by collaborating with franchise owners
and suppliers in following our corporate philosophy. Thisinitiative represents our mission and the very reason for
the existence of convenience stores.
The significance of our corporate philosophy was once
again reaffirmed especially after last year’s Great East
Japan Earthquake. With people struggling to survive thedevastation caused by the earthquake, I told our employees, “Don’t worry about costs; just use every method you
have to get water, food, and the necessities to thedisaster areas.” Everyone in the Lawson family throughout the nation immediately responded to my call, holdingtrue to our corporate mission. As a result, we were able tosupply a large amount of goods to the disaster region andreopen our stores very quickly. This is a manifestationthat our corporate philosophy had pervaded every cornerof the Lawson community and presented an opportunity
to reconfirm that our business is built squarely on our
relationship of trust with the community.
Lawson’s medium-term strategy is to become the“world’s top small commercial area manufacturingretailer.” In targeting this goal, I am determined to pushforward in pursuit of our vision—offering customers“whatever you want, whenever and wherever you needit.” We will strive to accomplish this vision from the dual
aspects of being an essential lifeline of the communityand growing earnings through our core operations. I am
convinced that we can significantly enhance Lawson’s corporate value to achieve sustainable growth in harmony
with the surrounding community by establishing ourselves as one of its essential components.
In meeting these challenges, I would like to ask ourshareholders and other stakeholders for their continued
support and understanding.

BuILdIng A SuStAInABLe FutuRe
We will push forward in the pursuit of our vision of
the ideal convenience store from the dual aspects ofbeing an essential lifeline of the community andgrowing earnings through our core operations.
August 2012

takeshi niinami
President and Chief Executive Officer

06

Lawson, Inc. AnnuAL RepoRt 2012

Lawson, Inc. AnnuAL RepoRt 201207

eLeven-yeAR FInAnCIAL SuMMARy
Lawson, Inc. and Consolidated Subsidiaries
Years Ended February 28 and 29
Millions of Yen

Thousands of U.S. Dollars*1

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2012

¥215,574¥197,673¥185,656¥186,928¥177,443¥174,325¥170,785¥162,963¥153,910¥149,032¥141,621$2,671,963

174,116
89,267478,957

183,236
60,369441,278

232,459
49,077467,192

119,099
43,449349,476

83,32140,413
301,177

75,151
33,577
283,053

66,027
31,246
268,058

63,802
27,630254,395

67,47924,212
245,601

80,954
20,348250,334

101,353
13,142
256,116

2,158,106
1,106,433
5,936,502

61,76924,88586,357(52,912)(27,545)
74,572
37,84655,541
25,387
72,210(30,522)(28,799)
50,32633,08450,276
12,562
40,696(42,596)(27,239)
71,39927,46849,18623,80751,717(15,647)(14,911)42,907
20,87946,61022,11955,774(36,525)(31,973)
64,413
21,46944,513
20,98347,596(31,754)(736)
49,822
21,352

43,86722,02546,933(55,282)(7,795)54,417
20,89642,941
20,43547,329(33,297)(13,836)
46,873
19,641

38,087
18,57137,424(40,621)(14,364)
48,303
18,49934,107
8,861
33,860(3,787)(7,247)75,82816,07136,363
16,12344,804(44,031)(58,236)
59,81016,328765,605
308,441
1,070,364(655,825)(341,411)
924,294
469,088¥531,454
214,663
39.7%
500
0.2%
73,67010,4576,475¥476,037
208,467
42.7%
500
0.2%
67,712
9,994
5,703¥448,132
198,13642.8%——
54,8439,761
5,236¥436,096
201,16744.8%——
83,9829,527
5,186¥397,108
188,574
46.6%——
62,8238,587
3,735¥398,258
199,49349.0%——
75,5478,564
3,614¥375,107
175,18446.7%——
60,4418,366
3,585¥356,310
160,282
45.0%——
76,5858,077
3,391¥354,831
154,31743.5%——
76,3897,967
3,402¥342,599
151,86444.3%——
93,994
7,721
3,462¥342,934
149,827
43.7%
3,140
0.9%
71,2697,824
3,817$6,587,185
2,660,673
39.7%
6,197
0.2%
913,114per share data:
Net income (Yen/U.S. Dollars*1)
Cash dividends (Yen/U.S. Dollars*1)
Payout ratio

¥249
180
72.2%

¥255
170
66.8%

¥127
160
126.3%

¥240
160
66.6%

¥215
110
51.2%

¥202
100
49.6%

¥216
90
41.8%

¥198
70
35.3%

¥176
41
23.3%

¥82
41
49.8%

¥146
41
28.2%

$3.09
2.23
72.2%

Financial data:
Return on equity (ROE)
Return on assets (ROA)

12.0%
4.9%

12.8%
5.5%

6.5%
2.8%

12.5%
5.7%

11.6%
5.6%

11.3%
5.4%

13.1%
6.0%

13.0%
5.7%

12.1%
5.3%

5.9%
2.6%

9.8%
4.4%

12.0%
4.9%

¥1,651,693
174,116¥1,499,576
183,236¥1,433,678
232,459¥1,434,166
124,614¥1,331,785
83,321¥1,311,479
75,151¥1,295,704
66,027¥1,265,275
63,802¥1,220,819
67,479¥1,213,088
80,954¥1,184,204
101,353$20,472,149
2,158,106

1,022,619
345,424
263,179
194,586¥1,825,809

897,426
321,865
264,169
199,350¥1,682,812

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

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

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

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

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

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

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

600,508
303,098
138,353
252,083¥1,294,042

583,712
297,030
150,862
253,953¥1,285,557

12,675,000
4,281,408
3,262,010
2,411,824$22,630,255

For the year:
Operating revenues
Franchise commissions from
franchised stores
Net sales from Company-operated
stores*2
Other
total operating revenues
Operating income
Net income
Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities
Capital expenditures*3
Depreciation and amortization*4
At year-end:
Total assets
Total equity
Equity ratio
Interest-bearing debt*5
Ratio of interest-bearing debt
Cash and cash equivalents
Total number of stores*6
Number of employees (full-time)

net sales of all stores:
Net sales by store category
Franchised stores*7
Company-operated stores*2
Net sales by product category*7
Processed foods
Fast foods
Daily delivered foods
Non-food products
net sales of all stores*1. The U.S. dollar amounts represent translations of Japanese yen at the approximate exchange rate at February 29, 2012, of ¥80.68=$1.
*2. Net sales from Company-operated stores includes only convenience store-related sales.
*3. Effective from annual report 2006, the composition of capital expenditures has changed to include leases, investments and advances, and construction assistance guarantees.
Please refer to page 49 for details.
*4. Including depreciation and amortization of intangible fixed assets.
*5. Interest-bearing debt is the total of the Company’s borrowings.
*6. Because Shanghai Hualian Lawson, Inc. was an affiliate accounted for by the equity method during the period from May 2004 to August 2011, its stores are not included in the numberof stores from fiscal 2004 to fiscal 2010.
*7. These figures include sales figures reported by franchise stores and are unaudited.

earnings per Share (epS) and Return on equity (Roe)operating Income

net Sales of All Stores and operating profit Margin*

Yen%

Billions of yen

Billions of yen

%

Yen

%

300

15

70

2,000

4

200

200

1,500

3

150

150

200

10
1,000

2

100

100

500

1

50

50

0

0

60

Cash dividends per Share and payout Ratio

50
40
100

5
30

0

0
2002/2 2003/2 2004/2 2005/2 2006/2 2007/2 2008/2 2009/2 2010/2 2011/2 2012/2

Left scale:
Right scale:

08

EPS
ROE

Lawson, Inc. AnnuAL RepoRt 201200
2002/2 2003/2 2004/2 2005/2 2006/2 2007/2 2008/2 2009/2 2010/2 2011/2 2012/2

2002/2 2003/2 2004/2 2005/2 2006/2 2007/2 2008/2 2009/2 2010/2 2011/2 2012/2

Left scale:
Net Sales of All Stores
Right scale: Operating Profit Margin* Operating Profit Margin = (Operating Income ÷ Net Sales of All Stores) × 100

02002/2 2003/2 2004/2 2005/2 2006/2 2007/2 2008/2 2009/2 2010/2 2011/2 2012/2

Left scale:
Right scale:

Cash Dividends per Share
Payout Ratio

Lawson, Inc. AnnuAL RepoRt 201209

MeSSAge FRoM the pReSIdent
We are aiming to create corporate value suitable
to a global corporation.

MeSSAge theMeS
1 Fiscal 2011 Performance

5 Strategies in the Changing Healthcare Market

2 Lawson’s Targeted Corporate Image

6 Map for Long-Term Growth

3 Advantages Not Found among
Competitors

7 Driving Force of Lawson’s Growth

4 Lawson’s Franchise (FC) Model

8 Business Outlook and Capital and
Dividend Policy

1 FISCAL 2011 peRFoRMAnCe
during the fiscal year under review, we proceeded with the broadening of our customer baseahead of our competitors utilizing our ponta card-based customer relationship management(CRM) and our multiple store formats. the success of this differentiation strategy led us toachieving high profit growth of 11.2% year on year in our operating income.
In fiscal 2011, ended February 29, 2012, Lawson registered significant growth in sales and profits. Net sales ofall stores increased 8.5% year on year, net sales atexisting store sales climbed 5.4% from the previous
year, and consolidated operating income rose 11.2%
year on year, to ¥61,769 million. We now have recordednine consecutive years of growth in operating income,and the compound average growth rate (CAGR)
amounted to approximately 7% for the period fromfiscal 2002 to fiscal 2011. Because the proportion ofcigarette sales in overall sales moved up along with ahike in the cigarette tax, our gross profit margin declined
from the previous year, to 30.1%. However, cigarettes
are not part of our priority product lineup, and if we lookat our core product sales the gross profit margin actuallyrose 0.5 percentage points. As a result, the gross profit
margin of existing stores, which is an important factor in
franchise sales, achieved the high growth rate of 4.0%
from a year earlier. On the other hand, consolidated net
income edged down 2.0%, to ¥24,885 million, under the
impact of such one-time factors as asset retirement obligations and the major earthquake. Nevertheless, we still

exceeded our net income target by about ¥1.4 billion.
Excluding the extraordinary factors I have mentioned
above, return on earnings (ROE), one of our most important management indicators, was 15.1%.
Our stores are convenience stores that act as nearby
suppliers of highly useful goods and services to customers—in other words, our stores have the function of beinga lifeline to the community. After the recent Great East
Japan Earthquake, we did not seek to capitalize on shortterm business opportunities but did our best to achieve
the recovery and revitalization of the disaster areas.
Nowadays, the value of a convenience store as a usefulneighborhood store is being reaffirmed, particularly
among women and seniors. For over five years, we havebeen working to expand our customer base throughmultiple store formats and innovations and abiding by
our corporate philosophy of “Creating Happiness andHarmony in Our Communities.” In addition to these continuous efforts, such actions in recent years as leveraging
Ponta card-based CRM have placed us on the road tomedium- to long-term growth.

2 LAWSon’S tARgeted CoRpoRAte IMAge
We are aiming to become the “world’s top small commercial area manufacturing retailer” andcreate corporate value that meets the expectations for a global corporation. We will attain thisgoal by enhancing our earnings capabilities through value chain restructuring and integration.
Japanese-style convenience store
I believe a Japanese-style convenience store business is amodel that can be successful globally in the sense of accurately meeting the needs of customers and pursuing
greater convenience for them. By using the advantages ofthis distinctive business model and implementing global
management standards represented by capital efficiency—a concept that Japan’s traditional retail industry
has paid little attention to—I believe Lawson can growfurther as a global corporation. As a company, we areaiming to be the “world’s top small commercial area manufacturing retailer” by undertaking a fundamental
enhancement of our earnings capability through therestructuring of our value chain.
What is a small commercial area format?
Japan’s convenience store industry developed with retailservices for young adults as its major competitive advantage. Aligning merchandise with the lifestyle patterns ofyoung people, particularly men in their 20s and 30s, thestores had lineups of such items as boxed lunches, riceballs, and bottled drinks and were open 24 hours. The

number of such conventional type of stores that served
primarily young men in Japan has reached close to 50,000
stores. However, to achieve sustained growth in the
future, it will be essential to adapt to changes in our social
structure, such as women entering the workforce and theaging of society; after all, half of Japan’s population is
women and about 40% of people are 50 years old orolder. With this in mind, Lawson was the first in theindustry to invest in developing female and senior
customer bases by creating NATURAL LAWSON, LAWSONSTORE100, and fresh food-type LAWSON stores. Not surprisingly, the ratio of women in our customer baseclimbed from approximately 27% in fiscal 2004 to
approximately 36% in fiscal 2011, and the percentage of
people 50 years or older rose from about 20% to 33%
over the same period.
Recently, competitors that had adhered to the conventional type of store concept have finally started to talkabout broadening their customer bases. I believe thistrend benefits not only the industry but also Lawson.
Having multiple major convenience store chains taking
action rather than just one company will raise customers’

Lawson’s Image of a neighborhood Store

Small Commercial Areas
Competitor A

Supermarkets

to avoid homogeneous competition,
Lawson opens stores with formats thatmatch their locations.

SupeRMARket

Working women

Avoiding
homogeneouscompetition

Housewives

Avoiding
homogeneous Competitor B
competition

Men in their
20s and 30s
Seniors10

Lawson, Inc. Annual Report 2012

Lawson, Inc. Annual Report 201211

MeSSAge FRoM the pReSIdent

awareness of the need for change. As the first in theindustry to start diversifying our customer base, I believe
Lawson will enjoy an enduring advantage over othercompetitors in this next growth phase of the industry.
Going forward, we will strive to reinforce our strength inaccessibility and the convenience of a neighborhood

store by pursuing further differentiation in the market
through innovation and thoroughly implementing Ponta
card analysis-based supply chain management (SCM)
and CRM. Based on this strategy, we plan to expand ourshare of customers in individual small commercial areas.

SCM and CRM

CRM (Customer Relationship Management)
Marketing method that provides merchandise andservices in accordance with individual customer needs

SCM (Supply Chain Management)
Management method for optimizing the efficiency ofoverall processes by comprehensively managing allprocesses from procurement to sales

Quantify sales
opportunity
loss

Understandcustomerneeds

Card data Analysis
Procurevalue-added
raw materials

SCM

poration is responsible for using equity effectively, whichis the valuable funds provided by our shareholders to
produce cash flow. For this particular reason, we havechosen a business model of a small commercial area
manufacturing retailer—this model meets both global
standards and high earnings potential. Our top priority
among our major targets is becoming No. 1 in the worldin this market for business performance quality rather
than for sales amounts.
What is a manufacturing retail convenience store?
You cannot build the earning power appropriate for a
global corporation merely by procuring goods and sellingthem. Therefore, it is essential for Lawson to evolve intoa manufacturing retail convenience store that is deeply
involved with research and development (R&D), procurement, manufacturing, and distribution by pursuing integrated SCM. Lawson draws on three strengths that will
enable it to achieve this evolution.

Place orders
systematicallyCRM

ponta Card

Criteria for being No. 1 in the world
In setting our three medium-to-long-term goals, we did
not aim for growth in sales or number of stores, butinstead we prioritized quality-based growth. Our first
medium-to-long-term goal is to raise our ROE, which iseffectively about 15%, to the global standard of 20%,thus attaining a capital efficiency ratio that will impress
global investors. Our second goal is to achieve sustained
growth in gross profits by improving our profit margins
and expanding sales to reach consolidated operating
income of ¥100 billion. Our third medium-to-long-termgoal is to reduce SG&A expenses by business process
reengineering (BPR) to boost Lawson’s operating profit
ratio, from 3.5%, to 5.0%. Originally, we set fiscal 2020as the final year for reaching these goals but have
moved the timeline forward.
As economies have become globalized, so has money,
and we are constantly thinking of investors around theworld in our business activities. I believe that every cor-Rebuilding the Supply Chain
Processes utilizing external functions
Processes in which Lawson is partially involved

pRiSM
Reduce sales
opportunity
loss

Developproducts

Improve gross Margin

grow Sales and profits

Walgreen

ROE(Fiscal 2011)

Manufacturing

distribution

Sales

POS data

Wholesaler

Boxed lunch factories
and vendors

Distribution centerFranchise stores

Wal-Mart

Targetprocurement

Ponta data Establishment of the Raw Materials
analysis
Procurement Department;
staffed with competitive people

CostcoJ Sainsbury
10

Metro

FamilyMart*

Operating profit
margin: 3.5%

Manufacturing

distribution

Sales

Boxed lunch factories
and vendors

Distribution center

PRiSM

ponta card

Wal-Mart Mexico
Tesco

Lawson*15

procurement

R&d

25

20

R&d

value Chain of Current Lawson

Roes of Retailers around the World%

Processes supervised by Lawson

Supply Chain of Conventional Convenience Store

Seven & i*R&d5

procurement

Manufacturing0
10,00020,00030,00040,00050,000Market capitalization (As of February 29, 2012)

60,000

distribution

Sales
PRiSM

Ponta data
analysis0Operating profit
margin: 5.0%

value Chain of Manufacturing Retailer (Lawson’s goal Image)CVS Caremark

200,000
Millions of U.S. Dollars

ponta card

* ROE figures for Lawson, Seven & i, and FamilyMart exclude the impact of the one-time factors of adopting asset retirement obligation accounting standards
as well as the Great East Japan Earthquake disaster.

12

Lawson, Inc. Annual Report 2012

Lawson, Inc. Annual Report 201213

MeSSAge FRoM the pReSIdent

First, we have accumulated knowledge and experiencein the upstream flow of goods. In 2003, we became thefirst in the industry to establish a Raw Materials Procurement Department. By hiring outside specialists, we
increased our direct involvement in the procurement of
raw materials for ready-made meals and other originalitems. The accumulation of experience and knowledge
from these operations made it possible to appropriately
manage raw materials procurement and other risks.
Next, we have the ability to gain insights into our preferences and needs of customers based on their use of
the multi-partner loyalty point program of the Ponta
card. Through the analysis of card data, we can manage
both the upstream and downstream circulation of goods
in an integrated manner, thus enabling the proper
control of intermediate distribution inventory and theachievement of efficient SCM.
Finally, through a network of more than 10,000 storesand the Group’s sales channels, we have total chain store
sales in excess of ¥1.8 trillion. In other words, Lawson isable to incorporate all the raw materials it has procured
into its merchandise and market it without any waste.
People have been claiming the convenience store
market has been saturated for a long time, but actuallyconvenience stores currently hold only about a 5% shareof the retail and food service market. I believe it is certainly possible to capture market share from inefficientretailers, supermarkets, and other types of businesses
and expand this share to over 10%. Lawson aims tobecome a leading company in this growing market for
convenience stores.

Changes in Return on Invested Capital (RoIC) in Comparison with Competitors (nine years)
%

16.0
14.0
12.0

Average
ROIC forthe Period

10.0
8.0
6.0

3 AdvAntAgeS not Found AMong CoMpetItoRS
pushing further ahead with innovations implemented well ahead of its competitors in theindustry, Lawson is pursuing differentiation in the market based on two strengths: the Company
is the only one in the convenience store industry that offers multiple store formats and is the no. 1
convenience store chain when it comes to highly refined card data analysis and perishable foods.
Since the industry’s top players have now started broadening their customer bases, I believe this expansion willlead to market growth and have a positive influence on
our own efforts. In addition, we have several advantages
over other companies.
One such advantage is we were ahead of our competition in developing multiple store formats designed tomatch different types of locations and customer bases.
For example, in addition to conventional Lawson stores,
we have the health-oriented NATURAL LAWSON and the
fresh food convenience store LAWSON STORE100. One of
our inherent strengths is the ability to choose the mostprofitable type of store to open. When deciding ourstore-opening strategy, we look at our own original
location analysis produced by our geographic information system (GIS) and select the optimum store format
for that location in terms of achieving the highest returnon investment (ROI). We have set an ROI standard of
20% or higher for all Lawson’s capital investment decisions. The impact of this requirement is evident in the
improvement in return on invested capital (ROIC) during
the period from fiscal 2002 to fiscal 2011.
Second, we make thorough use of SCM and CRM
systems that utilize data from our Ponta card multi-

14

Lawson, Inc. Annual Report 2012

partner loyalty point program, which boasted approximately 40 million members at February 29, 2012 ( seecolumn 1 on page 15). No other convenience store cancompete with our Ponta card customer purchase data interms of the sheer volume of data generated by somany members or the precision analysis of the data. By
allowing us to integrate information on consumer categories and the purchasing behaviors of customers inways that are not possible with traditional point-of-sale(POS) data, the card data enables us to make much moredetailed analyses. Thus, the Ponta card data is the mostpowerful foundation for our ongoing business reform
plan, which is called PRiSM ( see column 2 on page 16).
Moreover, the Ponta card is indispensable for achieving
merchandise development that matches customer
needs, raw materials procurement linked to our downstream sales power, and an optimum merchandise
assortment in our stores.
Third, including perishable foods in our product mix has
resulted in steady progress in differentiating Lawson fromcompetitors by attracting housewives and seniors to ourstores, resulting in an increase in the number of customers. In 2005, when we were starting up our fresh foodconvenience store, LAWSON STORE100, we formed athis reason, being first in this market unarguably contributes to differentiating Lawson from its competitors.
In addition to the above strengths, with an eye onbuilding customer bases among housewives, seniors, andfamilies, we developed Lawson select, a private brand(PB) of merchandise. In the area of the development of
PB products, we are in hot pursuit of the No. 1 positionbusiness alliance with a major fresh food retailer andestablished a nationwide supply route. Next, in 2007, weconcluded a business tie up with Ninety-nine Plus, Inc., apioneer in the fresh food convenience store business. We
later acquired this company, gaining its sales know-how.
Unlike regular merchandise, there is a high entrance
barrier in the perishable foods procurement market. For00.0

Lawson
ROIC: +1.4% Points

Average of
Two Competitors
ROIC: –3.6% Points

Almost 10 years of emphasizing ROI has been reflectedin an improvement in ROIC.

1.0

2.0

3.0

4.0

5.0

6.0

Increase in Number of Stores*1. ROIC = After-Tax Operating Profit (@40%
Tax Rate) / Averaged Invested Capital for
the Period (Equity + Interest-Bearing Debts)*2. The horizontal axis indicates changes in
number of stores (CAGR from the fiscal
year ended February 2003 to the fiscal
year ended February 2012).
*3. The arrows indicate changes in ROIC fromthe fiscal year ended February 2003 to thefiscal year ended February 2012%

CoLuMn 1 MuLtI-pARtneR LoyALty poInt pRogRAM’S ponta CARd dIFFeRS FRoM otheR CARdS
Lawson launched the Ponta card in March 2010. At that time,
the Company stopped issuing its previous in-house card Lawson
Pass and combined its members with the approximately 20
million loyalty card members of GEO HOLDINGS CORPORATION
and those of a few other companies. Since then, the number ofPonta card members has almost doubled, reaching a total of
39.12 million members at the end of February 2012, including
Lawson’s members and those of other participating companies.
Moreover, sales made to Ponta card members accounted forapproximately 40% of sales. Lawson intends to eventually raise
this percentage to over 50%.
The most outstanding feature of the Ponta card is the ability
to acquire information on the characteristics of card members
associated with a store location. In other words, such consumer
category information as the gender, ages, and addresses of customers and their purchasing behaviors can be analyzed using abase of about 40 million people. Among Lawson’s competitors in
the industry, some companies do not have any interest in determining customer categories, choosing instead to focus on theelectronic money and point card functions. Other competitors
form alliances with companies from other industries to increaseissuance under their programs but concentrate their data
analysis on the cards they offer themselves. Therefore, it can besaid that the superior quality of card data analysis backed by theabundant member base of the Ponta card is an advantage
inherent only to Lawson.

With its ability to provide a
detailed analysis of customers’
categories of consumption andpurchasing behaviors, the Ponta
card is both the source of Lawson’s
sales power and the origin of Lawson-style CRM. The Company feels awarding loyalty points solely
for the purposes of sales promotion or customer patronage
provides insufficient return on the point costs.
The insights gained from this purchasing data have beenvaluable in Lawson’s merchandise development. Using the collaborative relationship between its “first in the industry” Raw
Materials Procurement Department, and the Company’s top
shareholder, Mitsubishi Corporation, Lawson has been able todevelop merchandise that more precisely matches consumers’
needs. A prime example of this capability is the major hit item
Premium Whipped Cream Roll, which has contributed strongly
to expanding the Company’s customer base of women andimproving profit
margins.

The major hit item Premium
Whipped Cream Roll

Lawson, Inc. Annual Report 201215

MeSSAge FRoM the pReSIdent

CoLuMn 2 BuSIneSS ReFoRM pLAn pRiSMAt the pace of about once every seven years, Lawson renews
the backbone IT systems that connect headquarters with individual stores. When Lawson introduced its IT system in March
2010, the Company thoroughly reviewed transactions between
FC owners and headquarters staff and launched a fundamental
business reform plan called PRiSM. The plan aims to increase
man-hour productivity and existing store profits, determinedusing sales multiplied by existing stores’ gross profit margin.
Specifically, the plan includes measures to augment productivity using IT, deepen direct involvement with raw materials procurement, expand purchasing volume, and achieve greater
efficiency in distribution.
The most important point of these reforms is the visualizationand elimination of opportunity loss, or the gap between
customer demand and stores’ merchandise assortment, thereby

expanding sales. We will attain these goals using a cyclical mechanism to raise sales.
While we are only halfway through our PRiSM business reform
plan, at this point a particularly strong impact on the management of dry goods, such as processed foods and non-foodproducts, is already evident. The stage has been clearly set forenhancing the profitability of headquarters and FC stores.
Next, we plan to increase the degree that PRiSM is used inordering ready-made meals and fast food, both of which arearguably the merchandise with the greatest differentiating
power, and build these efforts into a dramatic surge in profits
through the reduction of opportunity loss.

Cyclical Mechanism for Increasing Sales

Beneficial effects of pRiSM

1 Purchasing data obtained from Ponta cards is reflected in the merchandise assortment of individual stores to achieve lineups in accordance with customer demand.
In addition, the opportunity loss is quantified, or visualized, for such products asboxed lunches and rice balls that have a short shelf life.** The period of time for which the item is deemed to remain fresh taking into consideration the amount of time normallytaken by the customer to consume the item after purchase.

2 The visualization of opportunity loss heightens the motivation of FC owners to makeorders as well as eliminates opportunity and product disposal loss and boosts sales.
3 Along with growth in sales, the degree of customer satisfaction rises and the numberof customers increases.
4 Because of a greater number of customers, the opportunity loss figure rises once again.
5 The store takes steps to eliminate any additional opportunity loss and satisfy theheightened expectations of customers by developing high-quality merchandise thatmatches differing customer needs according to store location, gender, and age as
indicated through the analysis of Ponta card data.

• It has become possible to narrow
down the number of merchandise
items ordered and make orders
systematically, which in turn has
led to an improvement in productivity at manufacturers’ factories,
reduced intermediate distribution
warehousing, and expanded thepercentage of direct procurement.
• FC owners are able to spend thetime that was previously requiredfor ordering on training and educating their store crews as well as planning meal-related orders.
• Using the profits gained fromthese enhancements, stores are
pursuing further progress withaccuracy in placing orders and reducing opportunity loss.

timeline of the pRiSM Business Reform plan
Full-scale start-up of
the new ordering system

Launch

2008

2009

2010

2011

2012

Decision made tocompletely renew
traditional methods andthinking to achieveordering that originateswith customers.

Renewed the store
ordering system. To start
with, Ponta card data
analysis was reflected in
the store orderingsystem for food (rice andbakery items).

Implemented a visualization of opportunity loss.

Expanded store orderingsystem for food toinclude cooked noodles,
bakery items, salads,
chilled boxed lunches,and chilled Japanese
confectioneries.

Introduced store
ordering system fordaily delivered foods.

16

Lawson, Inc. Annual Report 2012

Launched store orderingsystem for dry goods.

in the market. In October 2011, we completely renewed
our packaging and product lineup and added a frozen
foods category. At the same time, we expanded the
product line to approximately 200 items, resulting infirm sales growth. However, we do not just want toincrease the proportion of PB items in our sales composition—we plan to use our Ponta card data analysis toachieve an optimum portfolio balance of PB and national
brand (NB) items with the goal of further improving ourgross profit ratio.

4 LAWSon’S FRAnChISe (FC) ModeL
the FC system is necessary for operating a convenience store business in small commercial areas
because it combines the power of local entrepreneurship with the comprehensive capabilities ofa chain store.
Under the FC business model, the store owner who is amember of the local community utilizes the chain store’s
brand value and advantages of scale in procuring merchandise to contribute to improving convenience in acommunity through the sale of goods and services. The
model enables business activities and a harmonious
coexistence with society, which matches our corporate
philosophy. Also, the FC model is the best model forachieving high profitability in a small commercial area
for three important reasons.
First, no other model exists that is so community
oriented. Closing the gap between yourself and thecustomer as much as possible is the main proposition ofa small commercial business. Because it is easier for astore owner to nurture a community-oriented mind-set
compared with a company-operated store model, the FC
model is the model suited for businesses seeking to
expand their share in a small commercial area.
Second, whether or not the managers of stores thinkof themselves as self-employed has a large impact onstore performance. The entrepreneurial mind-set of FC
owners that invest decades of their lives to launching
their own business and their wealth of knowledge in different types of businesses and life experience are all
useful assets in operating a community-oriented store.
Third, FC owners represent a huge driving force for“bottom-up” improvement. At Lawson, we create a relationship of equals between the franchise owners and theconvenience store headquarters. The FC model canreflect the direct feedback of store owners who are nonemployee stakeholders in the management of thebusiness by the convenience store headquarters.
In recognition of these benefits, we are pursuing two
strategies to further strengthen Lawson’s relationshipwith FC owners.

1. Revision of Franchise Package
At the start of fiscal 2012, we revised our franchisepackage for the first time in 13 years.
From the perspective of supporting rational but
aggressive orders from individual stores, headquarters is
preparing to assume a certain amount of the productdisposal losses. In addition, considering that store electricity costs are expected to increase along with the
installation of new fixtures and in-store kitchens, theheadquarters will bear half of the electricity costs up to acertain amount. Along with these measures, we revised
our royalty rates on gross profit balances with the goalof establishing a high earnings structure in which both
the FC headquarters and FC stores can co-prosper. The
new franchise package applies to all new contracts concluded in fiscal 2012 and from fiscal 2013 will apply tocontract renewals as well.
2. Utilizing the Management Owner (MO) System
We introduced this system in fiscal 2010 to support FC
owners who wanted to manage multiple stores. Under
the MO system, these FC owners do not receive guidance
for individual stores under the regular supervisor
system, but instead they receive guidance in managing
multiple stores through management consultants (MCs)provided by the FC headquarters. By using this system,
we are aiming to further enhance our competitiveness inan area by supporting franchise owners who have anentrepreneurial mind-set, the capacity to manage stores,
and the ability to develop human capital, as well as aclose familiarity with the changing conditions in theiroperating area and the individual needs of customers.

Lawson, Inc. Annual Report 201217

MeSSAge FRoM the pReSIdent

5 StRAtegIeS In the ChAngIng heALthCARe MARket

6 MAp FoR Long-teRM gRoWthWith the opening of nAtuRAL LAWSon stores and future hospital LAWSon and pharmacy
LAWSon stores,* we established a presence the healthcare business ahead of competitors andaccumulated considerable experience. Currently, we are preparing thoroughly for the expansionof the market.
Our network of NATURAL LAWSON stores, which we havebeen developing since 2002, has reached 100 stores.
These stores are well patronized by women for theirhealth-conscious lineup of ready-made meals, preparedfoods, food supplements, and other items. The
know-how cultivated at our NATURAL LAWSON stores
can also be utilized to attract a senior customer basesince seniors often share the same preferences as
women, such as small portions and health-conscious
merchandise. For our other health-related store formats,much interest has been generated regarding Hospital
LAWSON, our store format for inside large hospitals,
which has made a strong impression even in the convenience market as a whole.
The next frontier in the health-related market is inmarketing medicine. Since 2003, we have been experimenting with opening Pharmacy LAWSON stores thatcombine the NATURAL LAWSON format with a prescription-selling pharmacy. As a result, we have developed
our own pharmacy system. In addition, after the introduction of the registered distributor system under the2009 enforcement of the revised Pharmaceutical Affairs
Act, we began expanding the number of our stores sellingover-the-counter (OTC) drugs. The OTC drug is expected to
be a marketable item thanks to a progressive expansion ofsales channels for switch-OTC products—prescription

drugs that have been reclassified as OTC drugs—toreduce public healthcare costs. I think further deregulation of this market will likely occur in the future. Fromthe perspective of preventative healthcare as well, there
are growing expectations for convenience stores offering
OTC drugs that provide around-the-clock sales of a combination of healthy meals and food supplements.
At the same time, independently owned drugstores, orthe so-called mom and pop drugstores that compose thegreater portion of pharmacies in Japan, are sufferingfrom deteriorating business performances and undergoing a weeding-out period. These drugstores are staffedwith pharmacists who completed university with a specialized education. I believe for these pharmacists who
acquired sophisticated knowledge, an entrepreneurial
career as a convenience store owner is an attractive
alternative to working for a mass-market drugstore
chain. In the past, along with the deregulation of liquor
store licenses, many owners of liquor stores crossed overto becoming convenience store owners. In the same way,
I believe mom and pop drugstores will provide us with asupply of store owners in the future.
As you can see, there is likely to be substantial growthin the healthcare-related market from both the demandand supply sides. Lawson will have many advantages inthis market as a pioneer.

Lawson will proceed with its strategy of entering Asian and other new overseas growth markets.
We will also start the full-scale development of the e-commerce businesses, aiming for a greater
share of the wallets of our ponta card members.
In response to changing lifestyles in growing Asian economies, reliance on convenience for saving time is increasing. I believe the Japanese-style convenience store has
the capability to succeed in the major cities of emerging
countries as well as the United States and Europe, wherea superior small commercial area business model has yet
to be established.
Since 1996, Lawson has been expanding its store
network in major cities in China, beginning with
Shanghai. As of February 29, 2012, we had 314 storesin Shanghai, 38 stores in Chongqing, and 3 stores in
Dalian. In the near future, we will be adding Beijing tothis list and accelerating our store openings in four
major cities. In addition to China, we have opened 15
stores in Indonesia and will expand this network to 100
stores during fiscal 2012. Eventually, we plan to extend
our store network throughout countries in East Asia.
Similar to our Japanese operations, we will not only focus
on growth in network size and sales but also givepriority to balancing such growth with profitability
based on our ROI standard.
Our second new source of growth is e-commerce. The
high degree of trust that customers have in Lawson’s
brand power as a major convenience store chain withmore than 10,000 real stores and for quality goods andservices represents our major business asset. Lawson’s
assurance and guarantee service is an example of ourquality services. This service enables our customers toreturn defective items, which alleviates any inconvenience for them when using online services. Goingforward, we will further enhance and expand our online
product lineups and integrate and increase the numberof real and online store customers jointly by enablingthem to accumulate Ponta points for both online andreal store shopping. In June 2011, we concluded abusiness tie-up with Yahoo JAPAN through which weplan to greatly increase the number of items on its
e-commerce mall Loppi that Lawson offers throughMutual utilization of Customers through the ponta Card (online to offline / offline to online*)* Signifies the mutual utilization of information on customers and theirpurchasing activities by virtual and real stores for marketing purposes.

Settlement Services / Receiving Merchandise at the Convenience Stores

home Convenience(online Store)

Mutual Movement of Customers

Loppi (eC mall)
Expand the number of SKU

SNS

40 million
Ponta card
members

Applicationneighborhood Store(Real Store)

Strongbrand power/
High quality

Wi-Fi
3,000SKU

Hospital LAWSON

Hospital LAWSON* Pharmacy indicates drug-dispensing outlets as stipulated by the Health Insurance Act

Pharmacy LAWSON store*

data Analysis

Checked by Lawson(Merchandising Function)18

Lawson, Inc. Annual Report 2012

Lawson, Inc. Annual Report 201219

MeSSAge FRoM the pReSIdent

online stores that are Yahoo! Shopping members.
Moreover, we are aiming to gain a greater share of thewallets of our approximately 40 million Ponta card
members by strengthening our delivery services foronline customers.
Lawson has also positioned the entertainment businessas an important growth field, for which we are developing

our all-round services in the field of entertainment
business. Our ability to package CDs, DVDs, books,
magazines, ticket events, goods, and other items intoa one-stop shopping service for customers offeredthrough all types of sales channels is a major contributor
to differentiating Lawson from its competitors.

7 dRIvIng FoRCe oF LAWSon’S gRoWth
Lawson adheres to a corporate philosophy that encourages store owners and employees to keep
close ties with the local community as well as respect and express their individual ideas. Basedon our efforts to train and educate the Lawson Family (FC owners, store crews, headquarters
staff) over the years, I proudly say these qualities are now steadily emerging.
Our business goes as the community goes—Lawson’s
corporate value is directly linked with the community’ssustainability. If the existence of the local communitythat the FC owner and store employees serve is at risk,then the store cannot stay in business. With this in mind,
we invested sizable amounts in the Tohoku region after
the Great East Japan Earthquake. Moreover, our employees took the initiative in making such investments. My
responsibility as president is to decide priorities in ourbusiness, but after that the employees in charge use theirown discretion for other decisions. This policy shapes
Lawson’s corporate culture and our corporate philosophy.
At Lawson, there is a corporate culture that allows
employees to take risks. However, we need to have acommonly shared method within the organization of
deciding whether or not to take a chance and whatdefines an acceptable risk. In Lawson’s case, this method
is judgment based on the criteria of an ROI of 20% or

higher, or, in other words, we must be able to recoup ourinvestment within five years.
Nonetheless, failure is a valuable learning experience,
and we do not consider failure to be absolutely unacceptable. Since I became president, we have invested considerable time and expense on in-house training and education
programs, such as Lawson University, to nurture this typeof corporate culture and its human capital.
The FC business is the optimum business model for acompany with this type of corporate culture. This means
the convenience store business that we develop provides
those who work at our stores with the opportunity to
use their own autonomous dynamism to bring happinessand peace of mind to the people in the community. In
other words, this model provides store owners andemployees with a precious opportunity to feel on a daily
basis that their significance always parallels with thecommunity’s progress.

8 BuSIneSS outLook And CApItAL And dIvIdend poLICy
Lawson aims to attain sustained growth through the appropriate allocation of cash flow
while actively returning profits to shareholders by constantly increasing total shareholder
returns (tSR).
In fiscal 2012, Lawson plans to continue to enhanceand expand its merchandise assortment and services,develop its fresh food convenience and healthcarerelated stores and entertainment and e-commercebusinesses as well as strengthen its presence overseas.
Furthermore, we are building a robust business viability
system so we are better positioned to handle such risks
as major disasters, information leaks, and legal noncompliance incidents. Looking at our business performance forecast, we expect consolidated operating
income will be ¥66.0 billion, a 6.8% increase from theyear under review, and net income of ¥33.4 billion, a34.2% rise year on year.

Lawson reinvests its cash flow from operating activities with an emphasis on ROI while allocating funds toreturn profits to shareholders. In doing so, we strive
to maintain continued growth in our ROE. Our basic
policy for attracting investors to hold shares for thelong term is to increase TSR in terms of dividends andour stock price appreciation. From the same standpoint, we have a policy of buying back and retiring
shares when appropriate.
For fiscal 2012, Lawson plans to raise its annual
dividend by ¥10 per share, to ¥190 per share, continuing the upward climb in dividends Lawson has maintained since the ¥41 per share dividend offered when I
first became president.

operating profit growth of three Major Convenience
Store Companies

total Shareholder Returns (tSR)(%; FY 2002 = base of 100)

%

200

30

180

25

160

20

140

15

120

10

100

5

0

24.5
16.9
6.4

0
2003/2

Lawson2004/2

A

2005/2

2006/2

2007/2

2008/2

2009/2

2010/2

2011/2

2012/2B

LawsonAverage of
2 majorcompetitors

Tokyo Stock
Exchange
1st Section

Notes: Provisional calculation (March 2009 to February 2012)
Three-year TSR = Total return of a stock (capital gain plus dividends) over three years
Average of 2 major competitors = Simple average of Seven & i Holdings and FamilyMart(Company estimates)

Cash dividends per ShareYen
200

180 190

150

100

50

0
2003/2 2004/2 2005/2 2006/2 2007/2 2008/2 2009/2 2010/2 2011/2 2012/2 2013/2
Plan

20

Lawson, Inc. Annual Report 2012

Lawson, Inc. Annual Report 2012

21

AChIevIng SuStAInABILIty In
LAWSon’S vALue ChAIn

SALeS

MAnuFACtuRIng
At Lawson, we approach our business in the belief that providing customers with“whatever you want, whenever and wherever you need it” will lead to the maximizationof Lawson’s corporate value, namely actions that will achieve our greatest social
contribution. In this sustainability section, we explain the measures Lawson is taking
to continue to exist in harmony with society throughout our value chain.

eliminating opportunity loss
and product disposal losses
using business reform
plan pRiSM
Page 29

pRoCuReMentthorough quality control
using Lawson’s originalhACCp method
Page 26

R&d

eS
AL売
S販
Raw materials procurement
utilizing the ability to“sell out” products
utilizing ponta card data todevelop products originatingwith customers
Page 24

Ion

Page 25

u

t

en
M
達
e
R
u調

pRoC

MAn

Ing
R
造
u
製
t
FAC

ut
流
B
I
物
R
ISt

d

dIStRIButIon

d
R&D
a CA

pont

LySIS

nA
Rd A

For more details on the Ponta card,
please see page 15.

22

Lawson, Inc. AnnuAL RepoRt 2012

Reducing Co2 emissions through greaterdelivery efficiency
Page 28
Lawson, Inc. AnnuAL RepoRt 2012

23

AChIevIng SuStAInABILIty In LAWSon’S vALue ChAIn

R&d

pRoCuReMent

MAnuFACtuRIng

dIStRIButIon

SALeS

R&d

pRoCuReMent

MAnuFACtuRIng

dIStRIButIon

SALeS

utilizing ponta card data to develop products originating with customers

Raw materials procurement leveraging the ability to “sell out” products

The Ponta card data enables Lawson to collect detailed
information on such customer characteristics as gender,
age, and address as well as the amount and type of
items the customer bought. As a result, it has become
possible for the Company to predict demand more accurately than in the past. Using the Ponta card data, wework to develop original products* and provide theitems that customers want on our store shelves.

Lawson has the ability to “sell out” products thanks to its
analysis of Ponta card data. In its ordinary procurementtransactions, Lawson purchases raw materials in large lots
on a bulk basis that contain some below-standard raw
materials in terms of size or color that are otherwise difficult
to sell because of poor demand. However, Lawson is able touse these raw materials in various products throughout its

In recognition of the heightened health-consciousness
of consumers, Lawson is taking steps to eliminate theuse of food additives in its original products. For
example, we do not include any preservatives or artificial
coloring in the development of original products that aresafe, reliable, and healthy.
* Lawson original products: boxed lunches, rice balls, sushi, sandwiches, prepared foods, salads,
cooked pasta, bakery items, and desserts. In-store kitchen products are not included.

operations. This procurement method enables raw materials
manufacturers and suppliers to reduce their business risk
while allowing Lawson to purchase these raw materials
under favorable conditions. We convert the raw materials
obtained through the use of this “purchasing power” into
products with quality that differentiates them in the market
and also facilitate high gross profit margins.

Utilizing a Common Inventory of Raw Materials

Lawson Tei, Chilled Boxed Lunches Developed Based on Feedback from Women

By using a fixed amount of procured raw materials in a
procurement ofhigh-value-Added Raw Materials
variety of products, Lawson is able to generate a substantially large amount of demand for raw materials,
Milk
which in turn leads to higher gross profit margins basedon a better negotiating position with suppliers. For
Skim Milk
Production
FreshRegionMilk
example, we procure raw milk on an annual contract
basis and use it entirely without waste to make suchCreamproducts as milk, nonfat milk, cream, and butter. Our
Butteracross-the-board use of such raw materials in our various
products leads to improvement in profit margins because
Annual Contract (volume and price)of the use of this common inventory of raw materials.

Left: Healthy mix vegetable rice
Right: Oyako-don, Chicken-and-Egg rice bowl
(Yodo Ran eggs)

Genuine Sweets Premium Whipped Cream Roll

Lawson is actively pursuing regional-oriented store operations and activities that contribute to the immediate
community. One of the joint collaboration projects inwhich Lawson cooperates with local municipalities is thesale of regional products from prefectures. Lawson
stores market regional products and food materials for
local consumption as well as products with a strong local
color and taste outside the prefecture to promote
greater name brand recognition for the region. Both of24

Lawson, Inc. AnnuAL RepoRt 2012

Chilled drinks
Chilled Japanese and Western
confectioneries
Japanese and Western confectioneries

Yodo Ran Eggs are Featured in Lawson Tei Boxed Lunches
Lawson procures its Yodo Ran* eggs in a bulk amountprocurement ofhigh-value-Added Raw Materials
that includes some eggs that may fall outside size andother specifications. Our annual purchases amount toFeed
Poultry
yodo Ranapproximately 20% of the manufacturer’s total produc- Manufacturer
Farm
eggs
tion, which enables the raw materials manufacturer toreduce its business risk. The procured Yodo Ran eggs areused in Oyako-don, Chicken-and-Egg rice bowl dishes
equivalent to 20%
in Lawson Tei boxed lunches as well as Hiyashi cookedof total yodo Ranegg production
noodles, western confectioneries, and various otherproducts. The high-quality brand image of Yodo Raneggs enhances customer demand for Lawson’s products.
* Yodo Ran is a brand of eggs that features a much higher amount ofminerals, particularly iodine, than ordinary brands as a result of raisingchickens on a special diet of nutrients.

LoCAL ConSuMptIon And exteRnAL ConSuMptIon

CoffeepB/nB product development(example)
Hiyashi cooked noodles
Lawson Tei boxed lunches(such as Oyako-don,Chicken-and-Egg rice bowl dishes)

Okonomiyaki pancakes
Japanese and Western
confectioneries
Raw eggs (six-pack)New productPonta card data analysis

Premium Whipped Cream Roll

GratinIncluding nonstandardsized eggs

Premium Whipped Cream Roll is a roll cake series that has sold approximately 160
million units since its launch in September 2009. To expand its customer base of
women, who shopped at convenience stores infrequently, Lawson sought to develop a
product with quality that went far beyond the consumer’s image of convenience store
sweets. We use only the best ingredients—fresh cream is made with milk from
Hokkaido and the sponge cake features Takaragasa brand flour used by professional
Western confectionery bakeries. Also, we have introduced methods used by confectionery specialists from Japan and Europe. Lawson intends to continue to develop new
high-quality sweets, aiming to become the local confectionery shop that offers affordable and easily accessible genuine Western confectioneries to the community.

pB product development(example)

Ponta card data analysis

Lawson launched its chilled boxed lunches in January 2011, discovering from its sales
data that most of the customers were female and they tended to buy a dessert at thesame time. The Lawson Tei series of chilled boxed lunches was developed using theresults of this analysis employed such feedback from women as “I want a healthy
boxed lunch filled with many colorful vegetables,” and “I’d like a boxed lunch withaffordable and small portions that I can have along with a dessert.” Efforts to emphasize food full of color and taste and a variety of food textures resulted in a new typeof chilled boxed lunch. The product design combined smaller portions to incorporate
preferences of female and health-conscious customers who place a high value on
quality. Since the product was introduced, it has received high marks from women,
enabling Lawson to further expand its customer base of women.

nonstandard-sized eggs also included in bulk purchase

LAWSon FARM—An AgRICuLtuRAL pRoduCtIon CoRpoRAtIon

these activities help invigorate the local economy anddeepen Lawson stores’ bond with the community.

Kinnou pancake (Akita Prefecture)

Shikoku delicious boxed lunches

Lawson Farm is an agricultural production corporation
established to provide a stable supply of fresh foods to thestores of the Lawson Group. At February 29, 2012, Lawson
Farm had farms in 4 locations in Japan.
From September 2010, Lawson Farm Chiba, in Japan’s
Kanto district, has been supplying komatsuna (a vegetablesimilar to spinach), daikon (Japanese radish), and otherfresh foods to certain Lawson stores for sale. In comparison
with the traditional fresh food supply route, Lawson Farmsystematically provides agricultural products to Lawson

throughout the year, thus ensuring a stable supply. In
addition, no need exists for an intermediate garden-produce collection center between harvesting and offering the
produce for sale on the shelves of stores. This shortens distribution times and enables the supply of fresher vegetables. In addition, Lawson takes ingenious steps to assure
customers that its fresh foods are safe and trustworthy.
One of these methods is to utilize point-of-purchase (POP)advertising to display the production history of the fresh
foods or a photo of the farmer who produced them.
Lawson, Inc. AnnuAL RepoRt 2012

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thorough quality control using Lawson’s original hACCp method
Lawson has established its own original system to prevent
such incidents as food poisoning and the discovery of
foreign objects in food in its original products, including
boxed lunches, rice balls, prepared foods, sandwiches,and cooked noodles. The HACCP* system anticipates
health hazards at each stage of the manufacturing
process for products and manages the critical points
related to those potential health hazards. The systemthoroughly manages production to ensure a high level ofsafety that cannot be achieved by simply carrying out

sampling inspections. Lawson also reviews and revises
the system annually.
Records are kept of all the critical control points of the
production process, such as cooking times and temperatures. Therefore, should a problem arise, Lawson isprepared to immediately ascertain the cause of the
problem and handle it.
* This problem-solving system anticipates all the health hazards that could occur in eachproduction process, from raw material procurement to manufacturing, packaging, andshipment, and identifies the critical control points for preventing their occurrence. The
system constantly monitors and records data on those critical points and is prepared to
instantly implement countermeasures when an abnormal situation is recognized.

Production Process for Oyako-don, Chicken-and-Egg Rice Bowl

1 Sanitary Management
Employees remove hair and lint fromtheir uniforms using adhesive-tape rollers
and air showers. They also carefully washand disinfect their hands.

Food-SAFety MeASuReS At CoMMISSIoned FACtoRIeS
Lawson thoroughly inspects and provides guidance to factories commissioned for the manufacture of its original
products. The manager in charge of Lawson’s regional
quality control office carries out the Company’s main
inspection method by visiting all factories and regularly
conducting inspections of production processes. Should
these processes not satisfy the quality control standards
set by Lawson under its HACCP, the manager requires thefactories to make immediate improvements and otherwise provides the factories with thorough instructions.
Moreover, whenever new factories are starting up,
new facilities are being installed, or the production of

new categories of products is commencing, the manager
of Lawson’s regional quality control office visits the site
to check whether any problems exist with regard tosafety and health management. In addition, to ensure
the same quality for the products manufactured by all
the factories throughout Japan, Lawson sets standards
for the production processes of each of its products. For
all activities in the manufacturing process, specifications
are determined, such as the amount of ingredients,
cooking methods, and visual presentation, and Lawson
ensures commissioned factories are thoroughly aware ofand follow these specifications.

pRoduCt InFoRMAtIon LABeLS And tRACeABILIty
Lawson attaches labels that provide such information as
the product name, expiration date, raw materials, andother information on all its original products. In addition
to the items required under the Japanese AgriculturalStandard (JAS),* Food Sanitation, and Containers/Packaging Recycling acts, Lawson voluntarily includes supplementary information to enable customers with smallchildren or allergies, for example, to consume the productwith confidence. Our labeling system is double and triple
proofed against mistaken labeling. Quality-control offices
strictly check information on labels with additional inspec1
1* Act for Standardization and Proper Labeling of Agricultural and Forestry Products
Note: Effective July 1, 2011, Lawson changed its display of production region information
for rice and processed rice products in compliance with the Rice Traceability Act of Japan.

Expiration Date

Period during which the consumer can consume the productwith confidence

4
5

2

2
3

tions that are carried out by commissioned factories at
the manufacturing stage. Moreover, we employ an IT
system to control labeling at all commissioned factories.
Lawson keeps records of all handling of its original
products, including the materials’ origin and the temperatures at which the products were cooked. Therefore,
we can trace the processing of Lawson original products
back to the raw materials.

Ingredients Label

Ingredients used in the product in order of greatest amount6

3

Food Additives

Food additives listed in accordance with Japan’s Food
Sanitation Act

26

Lawson, Inc. AnnuAL RepoRt 20124

Packaging Classification Label

Packaging materials are marked as plastic or other materials
for recycling purposes.
5

Nutrition Facts LabelThis label shows the nutritional breakdown in terms ofenergy, protein, fat, carbohydrates, and sodium.
6

2 Cooking Rice
Using an original method,
the rice is cooked and cooled
so the grains remain plump
and soft even after cooling.

3-1 Cooking Ingredients
The ingredients arecooked carefully every
time according to adetailed manual thatindicates cooking temperatures and times toachieve standard
quality.

3-2 Checking Cooking Temperatures
The cooking temperature is monitored
at all times to ensure
the prescribed temperature is reached.
All pots and pans andother cooking utensils
are washed before eachround of cooking.

4 Refrigeration

5 Storage

Food is refrigerated
immediately after
cooking. In addition tochecking the temperature of the refrigeration unit, the internal
temperature of thefood is monitored.

Ingredients are
kept in a refrigerator until justbefore their use.

6 Food Preparation
Food preparation is performed
quickly to keep the increase infood temperature to aminimum.
To ensure the soft and rich texture of the egg topping thatmakes Oyako-don delicious, theyolks and egg whites are mixed
with a special sauce in the final
preparation.

7 Metal Detectors
Metal detectors
are used tomake sure no
metal objects
have contaminated the food.

8 Cooling in

Refrigerator

After placing the
prepared food in arefrigerator and coolingit to the required temperature, it is transported to individualstores.

Allergen LabelThis label indicates whether the product contains allergenic
ingredients. According to law, producers are required to list anyof seven specific allergens and may voluntarily list another 18.

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dIStRIButIon

Reducing Co2 emissions through greater delivery efficiency

eliminating opportunity loss and product disposal losses using business reform plan pRiSM

Lawson strives to achieve eco-friendly driving by its
truck fleet through the use of eco-tires, a driving management system that monitors driving performance, andother measures.
As a result, in fiscal 2011 the Company attained a
21.4% reduction in CO2 emissions by delivery trucks per
store in comparison with fiscal 2007.
Since October 2009, as part of our comprehensive
business tie-up with Japan Post Holdings Co., Ltd., ourtrucks have been delivering Japan Post mail andpackages in addition to their regular store deliveries
throughout Kochi Prefecture. As well as increasing efficiency, this joint delivery system has led to a 21.4%
reduction in annual CO2 emissions. Furthermore, from
April 2011, we began the same joint delivery system in
the Kushiro and Kitami areas of Hokkaido, thus continuing to pursue greater delivery efficiency to further
reduce CO2 emissions.

When Lawson implemented its once-every-seven-years
renewal of its backbone IT systems in March 2010, it
launched a fundamental business reform plan called
PRiSM. Under the plan, the goal is to eliminate opportunity
loss and product disposal losses by using state-of-the-art
IT systems and Ponta card data analysis. Through thiscombination, Lawson can achieve efficient merchandise
assortment by placing orders that originate with customers.

ReCyCLIng unSoLd Food
Temperature-controlled containers have been installed in Japan Post service trucks, which
are used to deliver products refrigerated at different temperatures

Since May 2006, Lawson has been recycling unsold foodthat has exceeded its shelf life.* As of March 31, 2012, theunsold food from 2,012 LAWSON and NATURAL LAWSON
stores was recycled into pig and chicken feed and fertilizer. By making arrangements with food recycling factories and cooperating with waste collection and transportcompanies, Lawson has made efforts to solve processing
costs issues while expanding the district covered by its
recycling program. Lawson extended these food recycling

distribution-related Co2 emissions (Comparison with Fy2007)
FY2010 Result

15.0% Reduction

By extracting customer demand from the analysis ofPonta card data, we can reflect these results in our merchandise assortment, eliminating the opportunity losses
that occur when a customer wants to make a purchase
but the item is not in stock. The system also enables us toreduce product disposal losses by keeping merchandisethat does not match customer needs
off the shelves.

FY2011 Result

21.4% Reduction

FY2012 Target

22.0% Reduction

operations to Takamatsu in July 2011, Aichi Prefecture,
excluding Nagoya, in August 2011, and Chiba Prefecture in
March 2012. In addition, we expanded our food recycling
operations in Naha, Okinawa, to include all sections of thecity in June 2012.
Lawson’s food waste recycling rate as stipulated by
Japan’s Food Recycling Law for fiscal 2011 (April 2011
to March 2012) was 47.6%.
* The period of time for which the item is deemed to remain fresh taking into consideration theamount of time normally taken by the customer to consume the item after purchase.

Food Recycling Loop
Our food recycling loop is a system for recycling food waste from our stores and factories into livestock feed and fertilizer for livestock or agricultural products that are in turn used in products that are sold in our stores.
Lawson was the first convenience store company to sell eggs from chickens raised on eco-feed recycled from food waste.
LAWSON store

Eco-friendly Chiba eggs

LAWSON store foodrecycling resources(food waste)Six-pack

Collection

CoLuMnIntRoduCIng envIRonMent-FRIendLy CoMpAny vehICLeS

Lawson has a nationwide Company fleet of approximately 1,800
vehicles that are used by supervisors (SVs), who are store sales
advisors, and store development managers. Excluding fourwheel drive vehicles, the remaining approximately 1,350 vehicles
are fitted with idling-stop systems* or are hybrid vehicles.
Commencing in August 2009, we started to introduce electricvehicles (EVs) for our supervisors to use on their store routes. At
February 29, 2012, we had a total of 62 EVs. In conjunction with
their introduction, we set up battery recharging stations for EVs
in the parking lots of our stores, which are contributing to the
popularization of EVs in Japan.
* A system that automatically stops the engine when the driver starts to halt the vehicle
and automatically restarts it when the driver steps on the gas pedal again. The system
reduces fuel consumption and CO2 emissions.

28

Ten-pack

Lawson, Inc. AnnuAL RepoRt 2012

example of a Food Recycling Loop Creation
Promote local consumption (safe and trustworthy)

Manufacture
recycled-waste
feed (eco-feed)

Use of eco-feed
Poultry farm(used as part of diet)Fast-recharging units:
Double-speed recharging
stands:200V electrical outlets:(At February 29, 2012)

Recycling plant

Recycling Used Cooking Oil

7
2
58

Recycled-waste
feed

We have installed EV battery
recharging stations at some ofour stores.

Lawson expanded its used cooking oil recycling program, which began in January 2006, to a nationwide basis in that same year.
At March 31, 2012, the number of participating stores amounted to 9,142 stores, equivalent to approximately 95% of all LAWSON
stores. An industrial waste collection and transport company collects the used cooking oil from stores. Recycling factories thenconvert the oil into feed additives (raw material for livestock feed), architectural coatings, fuel for public buses with biodiesel
engines, natural soap, and other items.

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eliminating opportunity loss and product disposal losses using business reform plan pRiSM

hAnd-In-hAnd WIth FRAnChISe oWneRS And CReWS

envIRonMentALLy ConSCIouS StoRe deSIgn

The franchise business is Lawson’s core business. As
such, we believe not only employees but also franchiseowners and store crews (part-time and temporary
workers) must share our corporate philosophy and dem-

Of the approximately 700,000 metric tons of CO2 emissions produced by Lawson annually, about 85% is generated as a result of electricity used by its stores. The
Company has taken several steps to reduce its stores’ electricity consumption; for example, it has installed integrated
cooling and air conditioning systems in a total of 3,245
stores. These systems combine refrigerators, freezers, andair conditioning equipment into a single system for greater
efficiency. Similarly, the Company has installed low-power
consumption light-emitting diode (LED) lighting in thesigns of 537 new stores and in the lighting fixtures of 535
new stores. As an electricity savings measure, Lawson has
now installed LED lighting in all its stores.
Among other energy-saving efforts, Lawson has
opened eco-friendly model stores in districts throughout
Japan. These model stores use the latest environmentfriendly energy-saving equipment and serve as testing
grounds to prove its efficiency. In addition to LED lighting,the model store opened in Minami-Sanrikucho, Miyagi
Prefecture, in December 2011 has reduced electricity consumption by introducing an energy-saving fryer and achlorofluorocarbon-free refrigerator and freezer systemthat uses a CO2 coolant. Also, the model store has installed
a lithium-ion storage battery emergency power supply
system. Lawson is aiming to reduce electric power consumption in these eco-friendly stores by 20% comparedwith its regular stores and plans to steadily increase thenumber of these stores in its network.
eLeCtRICIty ConSuMptIon-ReLAted Co2
eMISSIonS peR StoRe: 65.1 MetRIC tonS
electricity Consumption-related Co2 emissions per Store*
Tons
80

70.6

71.4

71.2

69.8

70.4

65.1

60

40

20

63.5

CoLuMn30

Lawson, Inc. AnnuAL RepoRt 2012

Role of the FC ownerRole of headquarters• Procure merchandise, manage merchandise (lineup, freshness,and inventory), serve customers, and maintain cleanliness(sanitation, safety, and comfort)• Provide guidance on managing stores through supervisors• Hire, train, and manage store crew
(part-time and temporary workers)• Carry out product development• Supply infrastructure(store operations equipment, distribution, and IT systems)• Offer sales promotion support

Store Sales Advice from Supervisors
0
FY

2006

2007

2008

2009

2010

2011

2012
Target* Electricity consumption-related CO2 emissions per store in FY2006 was 3.68 t/10,000 kWh.

Based on their familiarity with store operations, supervisors support franchise owners by providing knowledge andtaking the initiative in solving issues.
Guiding Store Pre-Opening Preparations

under its Building a Safe and Trustworthy Lifestyle Basefor Communities and Creating a Sound Environment for
Youth program. To fulfill its social responsibilities as aconvenience store, Lawson participates in a variety ofindustry-based activities to strengthen crime prevention
measures for robberies and other crimes and to respondto requests for help by women and children who enter
the stores in fear for their safety.

oFFeRIng SeRvICeS thAt AppeAL to SenIoRS

Lawson is taking initiatives to support the lives of people living
in small rural communities where progressive depopulation andaging has made shopping and other daily activities difficult. Collaborating with local municipalities, we are building a new infrastructure for these communities. In August 2011, we concluded
a franchise agreement with Sanwa 182 Station, Ltd., the third
sector company invested in by the town of Jinsekikogen, in Hiroshima Prefecture. Based on this agreement, we opened the
LAWSON Jinsekikogen store to support the shopping needs ofFranchise Store

Lawson, Inc.
headquarters

Since FY2006, we have been working to reduce CO2
emissions from electricity consumption by 10% perstore compared with FY2006.

SAFety StAtIon ACtIvItIeS FoR CRIMe pReventIon
In recent years, society has given convenience stores avariety of responsibilities through their operations, suchas implementing crime and fire prevention and safetymeasures and contributing to the sound development ofyouth. To fulfill those responsibilities, Lawson participates in the Japan Franchise Association’s Safety Station
activities. With the support of the relevant government
ministries and agencies, the Company conducts activities

Joint operations• Manage sales and operating expenses

voluntary target for Co2 emission reduction

onstrate a high level of motivation in their work. These
qualities are our basis for creating corporate value.
Guided by these principles, Lawson’s headquarters
supports store management in various ways.

From management strategies and sales to administrative procedures, Lawson
provides careful and detailed advice in the build up to a new store’s launch. We
support a successful store opening by dealing with any doubts or confusion thestore owner may have.

Support After a Store Opening
Following the opening of the store, Lawson supports smooth store operations
with a range of training services and advice. Such support includes instructing
staff how to serve customers and use the store’s IT system and equipment andproviding advice on the training and education of the store crew (part-time andtemporary workers).

Advice on Merchandise Assortment and Shelf-Space Management

the district. In the future, we plan to offer home visits by foodvans and set up satellite stores* using closed schools and otherunused facilities to assist such small rural communities.
* A small-scale store with flexible storage space andbusiness hours. This format enables Lawson to open
stores in locations that previously could not be usedbecause the purchasing power of the surrounding commercial area did not meet traditional standards for
opening a convenience store.
LAWSON Jinsekikogen store

Utilizing its know-how, Lawson provides stores with detailed guidance on store
operations. This guidance includes such aspects as selecting a merchandise
assortment suited to the region and special characteristics of customers andplanning sales spaces to make it easy for customers to find and purchase items.

Formulating Strategies to Boost Sales
Together with franchise owners, Lawson regularly checks on the sales performances of individual stores. When issues arise, we explore solutions that fit theparticular situation with the goal of improving sales and profitability.

Lawson, Inc. AnnuAL RepoRt 201231

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LAWSon’S ACtIvItIeS ReLAted to the gReAt eASt JApAn eARthquAke

hAnd In hAnd WIth CoRpoRAte eMpLoyeeS

More than one year has passed since the Great East Japan Earthquake that occurred on March 11, 2011.
Thanks to Groupwide recovery efforts to rebuild, our operations in the disaster-struck region had almost returned
to pre-disaster conditions by the start of summer 2011. However, we are continuing to practice the lessons learned
from the disaster and provide support for the restoration efforts in the disaster-struck region. In this section, we
introduce a few of the measures Lawson is taking in preparation for future disasters and some of our support activities for the disaster-struck region.

Lawson University
To provide comprehensive education and training for its
human capital, Lawson operates Lawson University, aunique education and training program. The program isbased on an integrated training system for personnel ofvarious missions, ranks, and aims. Our objective is to cultivate a professional team of personnel with a high ability
in business development sharing our corporate philosophy. The Lawson Learning Center (LLC), one of the departments of the Lawson University, was established near

our headquarters and offers various programs. The nextgeneration leader training program is regarded as one of
the most important programs, and management frequently appears in the classrooms as instructors. We havealso introduced an e-learning system. The headquarters
employee education program targets personnel ranging
from new hires to management following different kindsof career paths and at different points in their careers.
The objective of this program is to foster autonomous
thinkers and an organization that continues to learn.

Our “Think Clearly and Take Action” Team Sold Handmade Rice Balls in The Disaster Area
After the Great East Japan Earthquake, regular procurement
routes were interrupted and operations at factories in thedisaster area were stopped, leaving our stores in the region
temporarily without supplies of merchandise. During that
period, one of the Tohoku branch managers took the initiative without waiting for instructions from headquarters anddirected stores to begin selling rice balls that were handmade in their stores. Employees sought out supplies of ricefor the stores, and the staff of the stores in the disaster area
made the rice balls one by one themselves.
Why was Lawson able to take this initiative amid all the
confusion immediately after the disaster? Such quick action

is derived from lessons learned through training received at
Lawson University. All employees with titles of manager orhigher have taken the Lawson corporate philosophy awareness (mission statement training) course, while senior
managers and above have completed the next-generation
leader (leader training) program. All of these employees
have accumulated training in thinking clearly about situations. In this manner, training at Lawson University enables
personnel to make calm and collected decisions in any situation, aiming to foster autonomous thinkers and an organization that continues to learn.

Encouraging Communications Within Lawson
The Lawson Genki Project*
was introduced in fiscal
2008. The program publishes in-house informationand plans and holds such
Companywide events as
sports meets and parties. The intent of these activities is
to encourage greater communications between franchise
stores and headquarters.
Since 2012, the program has operated Lawson
Channel!, a website targeting store crews. The website
has increased the interaction between store crews andheadquarters by enabling simple surveys and the rapid
provision of information.

our annual hiring of graduating students from among
foreign exchange students. Under this policy, we hired 22
graduating foreign exchange students in fiscal 2012. Asof May 2012, Lawson had a total of 86 foreign employees working in its Japanese operations.

* A project to implement the Lawson Genki Plan that the Company launched in fiscal 2008
to invigorate the communities it serves. Through the plan, activities are conducted toboost relationships among the members of the Lawson Family (FC owners, store crews,
and headquarters staff). Genki means “to be vibrant and cheerful” in Japanese.

Employing WomenAt May 31, 2012, the percentage of women in Lawson’s
workforce stood at 13.7%. Hiring women is an important
issue for Lawson. We have increased the ratio of womenserving as directors and corporate auditors to 27%, from
18% in the previous fiscal year. Since fiscal 2005, it has been
our policy for 50% of our newly graduating student hires tobe women. Moreover, we are steadily introducing measures
to support women who wish to both work and raise a family.
new graduates hired by Lawson in Fy 2012
Non-Japanese

22

Employing Foreign Exchange Students
Based on our belief that Lawson’s future depends on thediversity of character and sense of values of our humancapital, we established a policy of obtaining one-third of32

Lawson, Inc. AnnuAL RepoRt 2012

Ratio ofnon-Japanese

22.2%

Japanese

77

Men

51

Ratio of
women

48.5%

Women

48

StRengthenIng the BuSIneSS ContInuIty pLAn FoR LARge-SCALe dISASteRSTaking into consideration our experiences with the recent major earthquake,
we have revised our business continuity
plan (BCP) and strengthened ourbusiness continuity management (BCM)
system. The top priorities of the BCP areto confirm the safety of all personnel inthe event of a large-scale disaster,
including store owners, managers, andcrew; keep our stores open in the disaster-struck region; and immediately
restore damaged stores.
To be fully prepared in the event anearthquake of the same magnitude
would strike again, we have revised themanuals for our personnel safety confirmation system and emergency
measures in a disaster. The emergency
measures manual is divided into a basic
measures section and separate sections
for each of our branches, offices, andheadquarters organizations. The manualclarifies a code of action for each phaseof operations following the disaster foreach of the organizations. Moreover, wehave taken steps on a store andcorporate section basis to ensure all
personnel are aware of and will observe
the code of action.
We have also strengthened our organizational system for a disaster. We areprepared to immediately set up an
emergency measures headquarters following the occurrence of a large-scaledisaster to promptly and appropriately
implement emergency measures.
Not only have we prepared emergency manuals, but as of fiscal 2012 wehave increased the number of times

that all Lawson personnel participate inemergency drills, from two times tothree times annually. We carry out thesedrills with an emphasis on determining
whether in a real incident there would
be problems with our emergency orbusiness continuity measures or areasthat need improvement.
Going forward, we plan to continue totest and review our BCP and strengthen
our systems to enable Lawson to fulfill
its responsibility to be a lifeline to society
even when large-scale disasters occur.

Sorezore-no-3.11, a Record of Our Activities
after the Earthquake
To preserve our experiences and memories of the Great East Japan
Earthquake for posterity, Lawson created an in-house record titled
Sorezore-no-3.11. Later, we thought this record, which was originallyintended for the Lawson family, should be available to the generalpublic. As a result, as of March 2012, we have posted the record on
our website. Unfortunately, this material is only available in Japanese.

http://www.lawson.co.jp/campaign/static/shinsaitaiou/36_37.html

SuppoRtIng youth In the dISASteR-StRuCk RegIon thRough the eMpoWeRIng
dReAMS Fund
Lawson believes the power of youth—
who carry the future—will be importantto the recovery of the region struck by
the Great East Japan Earthquake. Therefore, on April 14, 2011, we establishedthe scholarship fund, Empowering
Dreams, to assist students who will facefinancial difficulties in graduating fromschool because they and their families
have been victimized by this disaster.
Along with customers and suppliers,
Lawson is supporting the education ofhigh school and other students from
Fukushima, Miyagi, and Iwate prefectures with the hope that students do
not give up to graduate, enter the work-force, gain useful knowledge and technology, and work toward their dreams.
The scholarship fund was createdwith donations from customers made at
the checkout counters of approximately
10,000 Lawson Group stores and a¥400 million contribution by Lawson.
Commencing in September 2011, thescholarship program began making
monthly payments of ¥30,000 to 1,097
high school students (grants receivable
for a maximum of seven years). In
addition, we are conducting various
activities to support these students until
they graduate. In February 2012, we
held an event for these students

entitled Special Lecture & Live 2012. At
this event, four people who share thesame sentiments behind the scholarship
fund—music producer Takeshi
Kobayashi, singer Yo Hitoto, Lawson
President Takeshi Niinami, and Lawson
Senior Executive Vice President Genichi
Tamatsuka—held a talk session during
which they discussed and tried to workout with high school students their
doubts and frustrations regarding their
futures.
Lawson is committed to continuing
activities that support the youth of thedisaster-struck region.

Lawson, Inc. AnnuAL RepoRt 201233

CoRpoRAte goveRnAnCe

BASIC poLICy on CoRpoRAte goveRnAnCe

ReASonS FoR AdoptIng the CoRpoRAte AudItoR SySteM

The Lawson Group is dedicated to maximizing its corporate value to become a valued corporate citizen, thereby
meeting the expectations of its stakeholders—customers, franchise owners, store crews (temporary and parttime employees), suppliers, employees, shareholders,and society as a whole.
To that end, we are committed to not only full compliance with laws, our Group regulations and rules, andsocial norms but also acting sincerely and considerately
in the spirit of the Group’s Mission Statement, Corporate Conduct Charter, and Code of Ethics. We believe in
the importance of enhancing the soundness and transparency of our management through proactive disclosure and continuing to reinforce our corporate
governance system.

oRgAnIzAtIon (AS oF MAy 30, 2012)

Uses an executive officer system to separate the execution and supervisory functions and clarify management responsibilities.
Limits the size of the Board of Directors to sevendirectors to speed up decision making.
Maintains a ratio of greater than 50% of outside directors
and corporate auditors.
Appoints a total of three women as directors or corporate
auditors from the perspective of promoting diversity.

Corporate organization

Company with a Board of Corporate Auditors

Chairman of the Boardof Directors

Outside director

Number of directors

7 (including 3 outside directors)

Number of corporate auditors 4 (including 3 outside corporate auditors)
Independent officers

2 outside directors and 3 outside auditors

Proportion of female officers

Approx. 27%

Average age of officers

56.9 years old

Number of Board of Directors’
13 (including 2 extraordinary meetings)
Meetings in FY2011
Number of Board of Corporate
15 (including 3 extraordinary meetings)
Auditors’ Meetings in FY2011

Board Meeting Attendance by outside directors andCorporate Auditors in Fy2011
Board of Directors’Meetings

Board of Corporate
Auditors’ Meetings

Outside directors

Approx. 74% (including
extraordinary meetings)—

Outside corporate
auditors

100% (including extraordinary meetings)

100% (including
extraordinary meetings)

Corporate governance System
As of May 30, 2012

general Meeting of Shareholders
Appointment / dismissal

Compensation Committee
Proposal

Board of Directors
Outside directors:3(incl. 2 independent officers)
In-house directors:4
Total:7

Appointment / dismissal / supervision

Operational Organization

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

CVS GroupEntertainment & e-Commerce GroupInternational Group
Investment

Decision method

The Compensation Committee (comprising only outside directors and corporate auditors; met three times in FY2011) submits acompensation package to the Board of Directors for approval.

Compensation package

Basic compensation plus stock price-linked compensation based on the granting of stock options.
• Basic compensation: comprising a fixed amount and a flexible amount (about 40% of total basic compensation)* that is linked tobusiness performance through EPS and other performance indicators.
• Stock options: stock options exercisable at ¥1 per share only after retiring from the position of director.

Disclosure method

The amount of compensation received by all directors and the amount for the representative director are listed in the Company’s
securities and business reports respectively.

* The above is the current compensation plan as of May 30, 2012. The four non-executive directors—Toru Moriyama, Hiroshi Tasaka, Reiko Okutani, and Takehiko Kakiuchi—do not receive anycompensation linked with business performance because of their specialized oversight and advisory roles regarding the representative director and the Board of Directors. Furthermore, in a
meeting held on March 29, 2012, the Board of Directors abolished the severance payment system for corporate auditors and integrated corporate auditor compensation into a monthly
compensation system based on annual compensation amounts.

Board Members’ Compensation Amounts in Fy2011
NumberTotal Compensation

Directors(number of outside directors)

7(3)¥267 million(¥37 million)

Corporate auditors (number ofoutside corporate auditors)

5(4)¥66 million(¥45 million)

Total

12

¥334 million

CCO (Chief Compliance Officer)
Compliance and Risk
Management Committee
Proposal and promotion ofcompliance and risk
management measures

Lawson is focusing on the following five areas in accordance with its Fiscal 2012 Basic Policy on Development andOperation of the Internal Control System, as revised in February 2012:
Improving supervisory and audit functions through the continuous appointment of outside directors and outside
corporate auditors (independent officers)

Account auditing

Enhancing internal audit capabilities in line with growth in sales operations and business activities of subsidiaries
and affiliates

Financial Reporting Internal Control Committee

Internal audit and guidance for improvement

Headquarters

Certified Public Accountant(Independent auditor)

Audit
Dismissal

Audit

Executive Committee Meeting

clearly reflect directors’ contributions to shareholders’value by linking its flexible compensation plan for directors to such business performance indicators as earnings
per share (EPS).

InteRnAL ContRoL SySteM

Board of Corporate Auditors
Audit

In the past, Lawson has actively introduced flexible compensation plans for its directors that link compensation
to business performance or stock price through stock
options. Commencing with the fiscal year ended
February 29, 2012, the Company has decided to more

Appointment / dismissal

Appointment / dismissal

Proposal / report

CEOInternal Audit Officeedge of the board members. Moreover, the Board of Corporate Auditors utilizes its auditing of businessadministration to ensure the transparency, objectivity,and correctness of business management. From thepoint of view of increasing the efficiency of corporate
governance, Lawson believes that, at the present time,
the Board of Corporate Auditors system is the mostappropriate system for the Company.

BoARd MeMBeRS’ CoMpenSAtIon

Under the Companies Act of Japan, Lawson has chosen to
be a company with a corporate governance system basedon a Board of Corporate Auditors. This system puts inplace a double-checking mechanism under which theBoard of Directors supervises business execution while theBoard of Auditors analyzes business administration.
Lawson has implemented the following measures tofurther strengthen its corporate governance organization.

Consultation

Lawson has strengthened and enhanced its corporate
auditor system by employing a Board of Corporate
Auditors, in which three of the four corporate auditors
are outside (all three are independent officers). In
addition, the Board of Directors, including outside directors who are independent and have diverse businessexperience, enables the board to make proper businessdecisions based on the wide-ranging insight and knowl-

Comment

Legal Counsel

Ensuring subsidiaries and affiliates are thoroughly familiar with the Lawson Group's Corporate Conduct Charter andappointing persons responsible for promoting compliance and risk management at major subsidiaries and affiliates
Establishing the necessary systems to ensure proper financial reporting
Achieving the early discovery of risk information regarding operations across the entire Lawson chain via the expansion of the internal whistle-blower and consulting system to franchise stores and suppliers

Subsidiaries and Affiliates

34

Lawson, Inc. AnnuAL RepoRt 2012

Lawson, Inc. AnnuAL RepoRt 201235

CoRpoRAte goveRnAnCe

CoRpoRAte goveRnAnCe

MeSSAge FRoM outSIde dIReCtoR

oRgAnIzAtIonS dedICAted to CoMpLIAnCe MAnAgeMent (Fy2012)
Lawson’s Chief Compliance Officer (CCO) is responsible
for compliance and risk management throughout theLawson Group. The CCO oversees a network of compliance officers appointed in all headquarters divisions andall branches.

Looking Back on 12 years as an outside director
I was appointed an outside director in the year 2000, when Lawson was still a member ofChaired by the CCO, the Compliance and Risk Management Committee meets monthly, and the AffiliatedCompany Compliance Officers Committee meets quarterly to identify Group compliance issues and assess risk
exposure as well as deliberate on ways to prevent illegal
or improper actions.

the Daiei Group, and have been involved with Lawson’s management for 12 years. While
there is no need to make a case for the great strides the Company has made during those
12 years—most shareholders, employees, and other stakeholders are very aware of
Lawson’s success—I would like to take the opportunity on my retirement from my position
to offer up some of the reasons behind this success.
Simply stated, Lawson’s success lies in the Company’s perseverance in implementing amanagement style that integrates seemingly contradictory opposites.

overall view of Lawson’s Internal Control System
Internal control audits

Board of Corporate Auditors

Regular meetings

Board of Directors

Reports on important issues

President and CEO

Corporate Audit Office

Set internal controls
system policy

hiroshi tasaka
Professor,
Graduate School ofTama University

CCO
Mutual understanding /information exchange

Compliance andRisk Management Committee

Food Safety and
Accident
Crime Prevention Prevention andHygieneSubcommittee
Management
BCP*
Subcommittee
Subcommittee

Environment
Subcommittee

Control

Division Director
ControlInternal Audit OfficeInternal controls monitoring
Affiliated Companies

Ordinary precautions
Emergency system

Close communications

ment style that empowers and promotes creativity in the workplace.
Second, there is the blending of strategic thinking and humanism. While Lawson’s management actions are always based on scientific and rational strategic thinking, Lawson is aware

Compliance and Risk Control OfficeCompliance Officers

Information
Security
Subcommittee

First, we have the combination of strong leadership and bottom-up management. President Niinami demonstrates unrivaled leadership while endeavoring to practice a manage-

strategic thinking carries with it the danger of the manipulation of customers. The management team and employees counteract this pitfall by paying close attention to their humanism.
Third, Lawson unifies corporate vision with practices in the workplace. By avoiding an

Monitoring

immersion in the day-to-day struggles with its competitors in the industry, Lawson paints a

Region Directorbold vision of future innovations and the evolution of the entire industry. While striving to

Monitoring

General Managers

Branch Director

Managers

Managers

Person in Charge

Person in Charge

achieve that vision, the Company pursues an emphasis on customer-oriented operations in

Guidance / support

the workplace.
Further leaps forward by Lawson will depend on whether or not it can continue with thisFranchise Storescontradictory management style. However, when I look at the top caliber of the current

Basic management policy

Affiliated Company
Compliance Officers
Committee

management team supporting President Niinami, I am convinced Lawson’s future is secure.
Heartened by this belief, I can happily relinquish my position as an outside director andthink back on what a great 12 years it has been.

* BCP: Business Continuity Planon Becoming an outside director
SpeCIAL FACtoRS WIth An IMpoRtAnt BeARIng on CoRpoRAte goveRnAnCe

As of May 2012, I became one of Lawson’s outside directors. I see my role as supporting
many facets of the business. Naturally, this includes legal compliance, a consideration of the• Mitsubishi Corporation (Mitsubishi) holds 32.4% of the Company’s voting rights, including indirectly held rights. Consequently, Mitsubishi treats Lawson as an equity-method affiliate on its financial statements (as of February 29,2012). Under a comprehensive business alliance, Mitsubishi exchanges personnel and conducts joint raw materials
procurement businesses with the Lawson Group and also introduces potential store locations. Despite this relationship, as an independent publicly listed corporation, Lawson makes its own management decisions.

environment, and achieving diversity. My role also means assisting Lawson, a company with
its priorities focused on contributing to people’s lives to produce even greater value byoffering even more wonderful goods and services.
My actual job involves research in business management at a graduate school andlearning more about the topic along with my graduate students through our debates. I haveparticular interest in the two fields of the genesis and shaping of unique competitive strate-

dISCLoSuRe poLICy
emi osono• Lawson has posted its basic disclosure policy on the “Investor Relations” section of its website.
http://www.lawson.co.jp/company/ir/disclose.html• In principle, the Company discloses financial, corporate, and other important information, in both Japanese andEnglish, on the “Investor Relations” section of its website as soon as possible.
• Lawson also uploads notices of shareholders’ meetings to the “Investor Relations” section of its website.
http://lawson.jp/en/ir/stock/meeting.html

Professor,
Graduate School ofInternational Corporate Strategy,
Hitotsubashi University

gies and innovative and self-renewing organizations. Lawson’s efforts in both of thesefields are extremely interesting. To begin with, I think Lawson is aiming to become a uniqueforce in the convenience store industry. As evidenced by its example of the branch system,
the Company is working to nurture a culture under which the workplace is striving to dosomething new. Utilizing my perception as a researcher, I plan to support Lawson in its
efforts to move forward.
I should mention that I myself am a Lawson customer. As the mother of a one-year,
10-month-old child, I regularly depend on Lawson for its merchandise and services. It is myhope to use my energies to further enhance Lawson’s safe, trustworthy, and healthy
merchandise and services that give customers so much pleasure.

36

Lawson, Inc. AnnuAL RepoRt 2012

Lawson, Inc. AnnuAL RepoRt 201237

CoRpoRAte GoveRnAnCe

dIReCtoRS And CoRpoRAte AudItoRS
As of May 30, 2012

From left: Atsuhiko Seki, Toru Moriyama, Genichi Tamatsuka, Takeshi Niinami, Yoshiyuki Yahagi

From left: Tetsuo Ozawa, Takehiko Kakiuchi, Reiko Okutani, Emi Osono, Eiko Tsujiyama, Shinichi Hokari

MeMbeRS of tHe boARd And CoRpoRAte AudItoR

MeMbeRS of tHe boARd (outSIde) And CoRpoRAte AudItoRS (outSIde)takeshi niinami

Genichi tamatsuka

Reiko okutani

takehiko Kakiuchi

emi osono

President and CEO; Group CEO, International Group

Member of the Board, Senior Executive Vice President and COO, Group CEO,CVS Operating Group and Division Director, CRM Promotion Office andMarketing OfficeMember of the Board (Outside)

Member of the Board (Outside)

Member of the Board (Outside)

Years as a director: 10 years
Number of Lawson shares held: 8,400 shares
1981 Joined Mitsubishi Corporation
1995 Representative Director, Sodex Corporation (Currently LEOC Co., Ltd.)
1999 General Manager, Restaurant Business Team, Living Essentials Logistics Planning Department, Mitsubishi Corporation
2000 General Manager, Lawson Project Integration Office; General Manager,
Restaurant Business Office, Mitsubishi Corporation
2001 Manager, Lawson Business Unit; Manager, Restaurant Business Unit,
Consumer Business Division, Mitsubishi Corporation
2002 Corporate Advisor, Lawson, Inc.
President, Representative Director and Executive Officer, Lawson, Inc.
2005 President, Representative Director and CEO, Lawson, Inc.
(Current position)
2006 Outside Director, ACCESS, CO., LTD. (Current position)2010 Outside Director, ORIX Corporation (Current position)

Years as a director: Assumed from May 30, 2012
Number of Lawson shares held: 900 shares1985 Joined Asahi Glass Co., Ltd.
1998 Joined IBM Japan Ltd.
Joined Fast Retailing Co., Ltd.
2002 President, Representative Director and COO, Fast Retailing Co., Ltd.
2005 Established Revamp Corporation
President, Representative Director and COO, Revamp Corporation2010 Corporate Advisor, Lawson, Inc.
2011 Senior Executive Vice President and COO, Group CEO, CVS OperatingGroup, Lawson, Inc.
2012 Member of the Board, Senior Executive Vice President and COO, Group
CEO, CVS Operating Group (Current position)

Years as a director: 10 years
Number of Lawson shares held: 0 shares

Years as a director: 7 years
Number of Lawson shares held: 0 shares

Years as a director: Assumed from May 30, 2012
Number of Lawson shares held: 0 shares

1974 Joined Japan Airlines International Co., Ltd.
1982 President, The R Co., Ltd. (Current position)
1986 President, Will Co., Ltd. (Saison Group)(Concurrent post: President, The R Co., Ltd.)
1991 Chairman, Will Co., Ltd. (Concurrent post:
President, The R Co., Ltd.)
1992 Retired from the position of Chairman,
Will Co., Ltd.
2002 Member of the Board (Outside),
Lawson, Inc. (Current position)

1979 Joined Mitsubishi Corporation2005 Outside Director, Kentucky Fried Chicken
Japan, Ltd. (Current position)
Member of the Board (Outside),
Lawson, Inc. (Current position)2011 Senior Vice President, General Manager,
Living Essentials Group CEO Office, andDivision COO, Foods (Commodity) Division,
Mitsubishi Corporation(Current position)

1988 Joined Sumitomo Bank (Currently
Sumitomo Mitsui Banking Corporation)
1998 Assistant Professor, Institute of AsiaPacific Studies, Waseda University
2004 Outside Director, Nisshin Fire andMarine Insurance, Co., Ltd.
2006 Outside Director, Resona Bank, Ltd.
2010 Professor, Graduate School of International Corporate Strategy, Hitotsubashi
University (Current position)2011 Outside Director, Resona Holdings, Inc.
(Current position)2012 Member of the Board (Outside),
Lawson, Inc. (Current position)

Yoshiyuki Yahagi

toru Moriyama

Atsuhiko Seki

Shinichi Hokari

tetsuo ozawa

eiko tsujiyama

Member of the Board, Senior Executive Vice
President and CFO; Division Director, Corporate
Planning OfficeMember of the Board

Standing Corporate Auditor

Standing Corporate Auditor (Outside)

Corporate Auditor (Outside)

Corporate Auditor (Outside)

Years as a director: 5 years
Number of Lawson shares held: 700 shares
1979 Joined Mitsubishi Corporation
2004 Deputy General Manager, Audit Department, Mitsubishi Corporation
2006 Senior Vice President and Executive Assistant to CEO, Lawson, Inc.
2007 Member of the Board, Executive Vice President and CFO, in charge of Corporate Planning Office, Human Resources Office,Lawson, Inc.
2009 Member of the Board, Senior Executive
Vice President and CFO, Lawson, Inc.
(Current position)

38

Lawson, Inc. AnnuAL RepoRt 2012

Years as a director: 6 years
Number of Lawson shares held: 1,500 shares

Years as a director: 2 years
Number of Lawson shares held: 1,200 shares

Years as an auditor: Assumed from May 30, 2012
Number of Lawson shares held: 0 shares

1977 Joined Mitsubishi Corporation
2004 General Manager, Food Textiles & General
Merchandise Dept., Chubu Branch,
Mitsubishi Corporation2005 Senior Vice President; Executive Assistantto CEO, Lawson, Inc.
Executive Vice President; Division Director,
Merchandising & Logistics Division,Lawson, Inc.
2006 Member of the Board, Senior Executive
Vice President; Division Director, Merchandising & Logistics Division, Lawson, Inc.
2009 Member of the Board, Lawson, Inc.
(Current position)2011 Executive Vice President, Group CEO,
Living Essentials Group, Mitsubishi
Corporation (Current position)
Outside Director, RYOSHOKU LIMITED(Currently Mitsubishi Shokuhin Co., Ltd.)(Current position)

1977 Joined The Daiei, Inc.
1999 Joined Lawson, Inc.
2007 Deputy Senior Vice President, Division
Director, Franchisee Support Office,Lawson, Inc.
2010 Standing Corporate Auditor, Lawson, Inc.
(Current position)

1975 Joined the Board of Audit of Japan
1990 Supervisory Manager of 2nd Bureau,
Board of Audit of Japan
2005 Director General of 4th Bureau, Board ofAudit of Japan
2007 Chief Audit Commissioner, Gifu Prefecture
Government
2011 Rejoined the Board of Audit of Japan
2012 Retired from the Board of Audit of Japan
Standing Corporate Auditor (Outside),
Lawson, Inc. (Current position)

Years as an auditor: 9 years
Number of Lawson shares held: 0 shares
1973 Registered as Lawyer and joinedTokyo-Fuji Law Firm (Current position)
2003 Corporate Auditor (Outside), Lawson, Inc.
(Current position)
2004 Outside Corporate Auditor, Monex Beans
Holdings, Inc. (currently Monex Group, Inc.)(Current position)2007 Outside Corporate Auditor, CEMEDINE CO.,LTD. (Current position)

Years as an auditor: 1 year
Number of Lawson shares held: 0 shares
1974 Registered as a Certified Public Accountant
1980 Assistant Professor, College of Humanities,
Ibaraki University
1991 Professor, Faculty of Economics, Musashi
University
2003 Professor, School of Commerce andGraduate School of Commerce,
Waseda University (Current position)2008 Outside Corporate Auditor of Mitsubishi
Corporation (Current position)2010 Outside Director of ORIX Corporation(Current position)2011 Corporate Auditor (Outside), Lawson, Inc.
(Current position)
Outside Corporate Auditor,
NTT DOCOMO, INC. (Current position)

Lawson, Inc. AnnuAL RepoRt 2012

39

MAnAgeMent’s DIscussIon AnD AnALysIs

InDustRy oveRvIew
In fiscal 2011, Japan’s economy was affected by the impact of thetargeting women and seniors through the aggressive development

Great East Japan Earthquake that occurred in March 2011. In theof perishable food and private-brand (PB) products.

2. The Company targeted sales promotions and reductions in opportu-

franchise owners who wished to operate multiple stores. MOs arenity loss utilizing the Ponta card multi-partner loyalty point program.

franchise owners that headquarters has recognized from among

By analyzing in detail the customer characteristics anda group of franchise owners that operate a certain number ofpurchasing trends collected through the Ponta card systemstores or more and possess richly entrepreneurial mind-sets,household sector, the disaster caused consumer expenditures to tem-

Regarding the performance of the convenience store industry in(Lawson-style CRM), we targeted reductions in opportunity loss

superior store management and capabilities in nurturing humanporarily drop sharply. In the convenience store industry, however, thefiscal 2011, from the second quarter on—after merchandise supply

on an individual store basis. At the end of fiscal 2011, the num-

capital, and a high level of familiarity of conditions in their oper-

disaster prompted the reassessment of the value of the nationwidelines had recovered from the shock of the disaster—the number ofber of Ponta card program members was approximately 40 mil-ating area. Headquarters support MOs by sending its manage-

network of convenience store chains as a social infrastructure offer-customers stabilized supported by heightened demand for trust-lion. Sales to Ponta card program members accounted for about

ment consultants (MCs), who advise on the management ofing consumers access to daily necessities at any time in locations

worthy and safe products. Moreover, based on the trend among

40% of Lawson’s net sales. As the proportion of sales to Ponta

multiple stores. At February 29, 2012, there were a total of 66

near them. The reassessment occurred as a result of convenience

consumers to eat at home rather than dine out, sales of fresh foodcard program members to net sales increases, the precision ofMOs. The Company plans to increase this number to 100 by thestore operators’ focus on the rapid reopening of damaged stores andand prepared foods were favorable. In addition, sales of ciga-

our analysis of customer data improves; this system enables

end of fiscal 2012.

the recovery of merchandise supply chains. Consequently, annual net

rettes—the prices of which had risen along with a tax hike in Octo-

Lawson to achieve a merchandise assortment that better

sales by the convenience store industry amounted to ¥8.7 trillion,ber 2010—were robust throughout the year. As a result, spend per

matches customer needs thanks to greater accuracy in placing

entertainment & e-commerce Businessexpanding a substantial 8.2% from a year earlier. Among industry

customer grew notably. Overall, net sales by existing stores of theorders. Among related measures, we offered Ponta card program

We took steps to expand our e-commerce business based on our

trends, the movement toward convenience stores as neighborhood

top 10 convenience store companies during calendar year 2011

members bonus points on their purchases and took other steps

collaborations with Yahoo Japan Corporation that began in Junestores started to become well established. In particular, major conve-(January to December 2011) rose a significant 6.1% from the pre-to operate an attractive frequent shoppers program (FSP).

2011. We launched our total entertainment mall, LAWSON HOT

nience store chains sought to expand their customer bases by

vious calendar year.
3. Lawson utilized Ponta card data analysis in merchandise devel-in September 2011. As of November 2011, we substantially

STATION Lpaca, in August 2011 and our online shopping mall Loppi

Retail Industry Market size and convenience store share*
2011

Total retail industry annual sales

2010(Billions of yen)

2009

2008

2007

2006

2005

2004

2003

2002

2001

134,042 135,666 132,328 135,477 135,081 135,257 135,055 133,712 132,446 132,280 136,808

Convenience store sector annual sales

8,775

8,114

7,981

7,943

7,490

7,399

7,360

7,289

7,096

6,980

6,846

Convenience store share

6.5%

6.0%

6.0%

5.9%

5.5%

5.5%

5.4%

5.5%

5.4%

5.3%

5.0%

Source: “Current Survey of Commerce,” Ministry of Economy, Trade and Industry* Annual sales amounts of the retail industry and the convenience store sector are on a calendar-year basis.

opment and raw materials procurement to effectively improve

expanded the number of items available on Loppi, principally in theits gross profit margin.

daily necessities and food categories. Also, we promoted the use of

The purchasing data collected on Ponta cards is utilized for the

Ponta points. Through these measures, we sought to increase cus-segment analysis of local customers by preferences, age, gender,

tomer convenience and achieve a mutual flow of customers

and other characteristics and is useful in merchandise develop-

between our real and online stores.

ment. Moreover, we utilize customer observation based on theshare of convenience store Market Held by top Four chains*2 (net sales of all stores)(Billions of yen)card data analysis in predicting demand, thus enhancing theoverseas operations

accuracy of our procurement of raw materials. Our Raw Materials

In our Chinese operations, we raised our stake in Shanghai Hualian

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

LAWSON

1,826

1,683

1,666

1,559

1,415

1,387

1,362

1,329

1,288

1,294

1,286

Procurement Department, which Lawson was the first in the

Lawson, Inc., from 49%, to 85%, in September 2011, converting it

Seven-Eleven Japan

3,281

2,948

2,785

2,763

2,574

2,534

2,499

2,441

2,343

2,213

2,114

industry to establish, draws on these predictions in demand in its

from an equity-method affiliate to a consolidated subsidiary. In

FamilyMart

1,535

1,440

1,274

1,246

1,122

1,069

1,032

998

954

932

899

system for procuring high-quality raw materials on a bulk basis.

addition to our store network development in Shanghai and

980

923

902

940

902

911

920

934

902

892

860

In addition, as a result of our pursuit of supply chain manage-

Chongqing, we began opening stores in Dalian from November

Total

7,622

6,994

6,627

6,508

6,013

5,901

5,813

5,702

5,487

5,331

5,159

ment (SCM) that uniformly manages inventories for all steps,

2011. As of February 29, 2012, we had a total of 355 stores in

Total market share of top 4 chains

86.9%

86.2%

83.0%

81.9%

80.3%

79.8%

79.0%

78.2%

77.3%

76.4%

75.4%

from upstream to downstream, Lawson has been able to con-

China, comprising 314 stores in Shanghai, 38 stores in Chongqing,

Source: Data published by each company*1. C&S Co., Ltd.; for the fiscal years from 2001 to 2003
*2. The figures for the top four chains are on a fiscal-year basis, while the total market share of the top four chains is the proportion of sales of the convenience store industry on acalendar-year basis.

tinue improving the gross profits of existing stores as well as

and 3 stores in Dalian. In other countries, we concluded a license

their gross profit margins. Through these measures, gross profits

contract with PT Midi Utama Indonesia Tbk in June 2011. A mem-in fiscal 2011 advanced 4.0% from a year earlier. The grossber of the Alpha Group—a distribution and retail group in Indone-

convenience store numbers

profit margin for all merchandise except cigarettes improved 0.5

sia—by the end of the previous fiscal year, the company was

percentage points year on year.

operating 15 stores in the special capital city district of Jakarta andCircle K Sunkus*1

Convenience store numbers(Number of stores)
2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

45,76945,00644,391

43,22843,08742,643

41,34041,11440,64439,80938,274

Source: “2010 JFA Franchise Chain Statistics,” Japan Franchise Association. The number of convenience stores is on a calendar-year basis.

surrounding area.
4. Further progress was made in implementing the management
owner (MO) system.

MAjoR MAnAgeMent InItIAtIves In FIscAL 2011
A major change in Lawson’s management measures in the fiscal

convenience store Businessyear ended February 2012 was the pursuit of faster decision mak-

1. Lawson aggressively developed its fresh food-type LAWSON

ing and stronger business execution capabilities under the January
2011 reorganization of the Company’s operating divisions into

Specific measures for each segment are described below.

In fiscal 2010, Lawson introduced an MO system to support

store network.
Fresh food convenience stores represent Lawson’s strategicpRoDucts AnD seRvIces oveRvIew
In the fiscal year under review, Lawson’s product strategies tar-

• In our over-the-counter fast foods category, we introduced new

three groups: the CVS Group, the International Group, and themethod of broadening its customer base. In fiscal 2011, in

geted the development and supply of products that would be par-products to our traditional and highly popular Kara-age Kun

Entertainment & e-Commerce Group. During the fiscal year under

addition to the LAWSON STORE100 stores operated by consoli-

ticularly supported by women and seniors. We based thoseand other fried chicken nugget products. We also expanded ourreview, Lawson implemented the following management measures

dated subsidiary Ninety-nine Plus, Inc., we accelerated thestrategies on the analysis of customer purchasing data from thelineup of such prepared food items as croquettes and groundunder the new organization, primarily guided by the CEO of eachdevelopment of our network of fresh food-type LAWSON stores

Ponta card system.

meat cutlets.

group. Following up on the previous fiscal year, our goal continued

with expanded lineups of perishable foods and daily delivered• In our cooked rice category (rice balls, boxed lunches, and sushi),

to be realizing stores that enabled customers to experience “what-foods. At the end of fiscal 2011, the number of fresh food-type

we aimed to enhance the quality of our boxed lunches throughselect, concentrating on lifestyle necessities, such as preparedever you want, whenever and wherever you need it.”

LAWSON stores totaled 3,913 stores. In fiscal 2012, we plan to

our Lawson Tei chilled boxed lunch series launched in January

foods, processed foods, and daily sundries. As a result of rein-raise this number to 5,000 stores.

2011. We catered to the preferences of our female customers,

forcing our sales promotions as well as expanding the number ofpaying close attention to colorful presentation as well as taste

product items, sales were up approximately threefold in compari-and food textures.

son with levels at the end of the previous fiscal year.

40

Lawson, Inc. AnnuAL RepoRt 2012

• In October 2011, we renewed our private brand (PB) Lawson

Lawson, Inc. AnnuAL RepoRt 2012

41

MAnAgeMent’s DIscussIon AnD AnALysIs• In the dessert category, our original brand Uchi Café SWEETS

broad range of companies, such as GEO CORPORATION, which

At February 29, 2012, there were a total of 3,913 fresh food-this number to 50 stores by the end of February 2013. We havecontinued to perform favorably with the addition of such new

operates a video and music software rental business, in thetype LAWSON stores, an increase of approximately 2,700 stores

been taking steps to expand business in the OTC drug market. In

items as Gyutto Cream Cheese (a small cream cheese cake.)

Ponta multi-partner loyalty point program. During the fiscal year,

year on year. We plan to reach a total of more than 5,000 stores

July 2010, we opened a joint LAWSON STORE100 store with Matsu-

In sales promotion activities, we concentrated on programs

Lawson reinforced its sales strategies targeting Ponta card mem-by the end of fiscal 2012.

motokiyoshi Holdings Co., Ltd., a Japanese drugstore chain, andthat were projected to yield a higher return on investment (ROI).

bers by expanding the number of sales items eligible for bonus

We carried out campaigns primarily on tie-ups with well-known

points and taking other measures. As a result, at February 29,

2. Healthcare-type convenience stores

this business relationship, we increased our number of registeredanimation characters, including the Rilakkuma Fair, the Miffy

2012, there were 40 million Ponta card members, whose sales

nAtuRAL LAwson for Health-conscious customers

pharmaceuticals salespersons to 86 and expanded the number ofBowl/Plate Present Campaign, and the K-ON!! Fair. Moreover, we

accounted for more than 40% of Lawson’s net sales.

NATURAL LAWSON is a convenience store format targeting mainly

stores handling OTC drugs to 50 stores.

began a personnel exchange program. Taking the opportunity of

conducted a HAPPY 10,000 Campaign to commemorate our

In our services operations, our stores handled 178 million billworking women and health-conscious customers by offering goods

achievement of breaking the 10,000-mark in the number ofsettlement transactions, including public utility charges. Overalland services to support beauty, health, and comfort in their lives.

3. In-store Kitchen Initiatives

domestic stores.

transactions handled amounted to ¥1,725.8 billion. At the end

The first store opened in 2001. In 2004, a business division at

In recent years, Lawson has sought to utilize the advantage that aManaged by the Mitsubishi Corporation subsidiary LOYALTY

of fiscal 2011, our network of stores with automated teller

headquarters was spun off as Natural Lawson, Inc., a wholly owned

convenience store has of its close proximity to customers’ living

MARKETING, INC., the Ponta card program has been in operation

machines (ATMs) covered 46 of Japan’s 47 prefectures.

subsidiary of Lawson. As a subsidiary, Natural Lawson succeeded inareas. We have been leveraging this advantage by supplying cus-developing a product concept and unique corporate culture thattomers with boxed lunches and delicatessen items prepared in-were distinct from headquarters. Natural Lawson has therefore

store. Moreover, we began offering customers freshly ground drip

since March 2010. The system hinges on the participation of a

stoRe opeRAtIons

been able to develop products that break the conventional type ofcoffee in fiscal 2011 with the development of our Machi café ser-store mold. With the achievement by Natural Lawson of its initialvice. At February 29, 2012, we had introduced Machi café services

goal of its phase I plan of establishing a new brand strongly sup-at 740 stores and plan to expand the service to 2,500 stores in thecurrent fiscal year.

By utilizing customer purchasing data collected from Ponta cards

whenever and wherever you need it.” Our business reform plan, or

ported by female customers, Lawson integrated this company backfor ordering merchandise for individual stores, Lawson stores aim

PRiSM, is focused on the operating methods of these stores. During

into headquarters in 2007. For the second stage, Lawson is further

to achieve merchandise assortment and store spaces that meet thethe fiscal year, we worked to improve the accuracy of placing

developing NATURAL LAWSON as a format that meets the needs ofIntroduction of a new Franchise (Fc) contract

needs of local customers. Our goal in these efforts is to realizeorders at individual stores and reducing opportunity loss by pro-health-conscious consumers. The Company is using the format as a

As of March 2012, we revised the franchise contract package that

stores that enable customers to experience “whatever you want,ceeding with the implementation of PRiSM.

trailblazing force for highly original products by actively experi-

has been in effect since December 1998, introducing a new FC-Cn

menting with the development of new Lawson products. There

contract. One of the purposes of the new contract is to enable thewere 100 NATURAL LAWSON stores at the end of February 2012,

FC owners and headquarters to share such business risks as prod-

including 41 franchise stores.

uct disposal losses and rising electricity expenses. The other goal is

stoRe DeveLopMent AnD stoRe FoRMAts
Development of Lawson storesto accelerate sales growth by more aggressively implementing
Our plans for fiscal 2012 call for opening approximately 100

Initiatives for pharmacy Lawson

measures to broaden the customer base by expanding and enhanc-

We focused our efforts on opening stores that are projected to gener-

LAWSON STORE100 stores and converting about 150 Company-

Following the June 2009 enforcement of revisions to the Pharma-

ing fresh foods, over-the-counter fast foods, and other productate high earnings relative to investment based on ROI and the strict

operated stores to franchise stores.

ceutical Affairs Act, we are taking the following measures to capi-

lineups. The new contract chiefly differs from the FC-C and FC-G

talize on the growing opportunities for convenience stores incontracts in that 1) headquarters is assuming some of the productadherence to the Group’s unique store opening standards. To avoid
homogeneous competition, or competition with other convenience

Fresh Food-type LAwson stores

pharmaceutical sales. Lawson has been experimenting with over-disposal losses to reduce opportunity loss and support more

stores of an identical nature, we use multiple store formats, such as

Our goal is for LAWSON stores to evolve into neighborhood stores inthe-counter (OTC) and prescription drug sales since 2003 throughaggressive orders from FC stores, 2) headquarters is assuming 50%

LAWSON, NATURAL LAWSON, and LAWSON STORE100 formats, to flex-

tune with customers in their community. To that end, we are devel-

its Pharmacy Lawson format, which combines a pharmacy with aof lighting costs, such as electricity expenses, from the installation

ibly open stores that match the special characteristics and customer

oping a fresh food-type LAWSON store that is a remodeled format

NATURAL LAWSON store. Since fiscal 2008, we have been furtherof new fixtures that formerly the FC owners would have to bearbase of the local community in the location. The greatest advantage ofwith expanded lineups of perishable foods, daily delivered foods,

strengthening our efforts in this field through a business allianceand that are expected to increase to boost sales of fresh foods,

the multiple format strategy is the ability to open stores in locations

and other items. Similar to the concept for LAWSON STORE100 freshwith the drug-dispensing pharmacy chain Qol Co., Ltd. In August

over-the-counter fast foods, and prepared foods, 3) headquarters

where conventional convenience stores would not be successful.

food convenience stores, this format aims to broaden the customer

2010, we opened a Pharmacy Lawson store that combined a Qol

has revised Lawson’s royalty rates to reinforce sales promotions

Measures regarding formats other than LAWSON stores arebase by serving the needs of women and seniors, with a strong

pharmacy with a NATURAL LAWSON store. At the end of February

carried out with the guidance of headquarters, as can be seen indescribed below. (Please see “LAWSON AT A GLANCE” on pages 90

preference toward store openings in residential districts. However,

2012, we had 7 Pharmacy Lawson stores, and plans call to raise

the chart below.

and 91 of this report for further information.)

the two formats have the following differences.
• The concept for fresh food-type LAWSON stores is a LAWSON store

1. Fresh Food-type convenience stores

been added. On the other hand, the concept for LAWSON

We have been developing LAWSON STORE100 fresh food conve-

STORE100 stores is a model that is a combination of the conve-

nience stores to meet the needs of housewives and seniors, which

nience store and mini-supermarket formats—with appropriately

are not fully captured by conventional convenience stores. These

sized small-portion packages and simple prices as special features.
• For the LAWSON STORE100 format, store openings cater tonine Plus, Inc. (Ninety-nine Plus). In fiscal 2011, we opened 154

Japan’s three major metropolises or cities designated by govern-

and closed 59 of these stores, for a net increase of 95 stores. The

ment ordinance. Furthermore, the stores must be within small

number of stores converted from the conventional LAWSON tocommercial areas in which many housewives and seniors live. In

LAWSON STORE100 format fell below our initial plan in fiscal 2011

contrast, the fresh food-type LAWSON store format is not limited

because the number of closings of conventional LAWSON stores

to store openings in urban areas and can be opened in residen-

lagged behind planned figures. Also, we converted 129 Company-

tial locations anywhere in Japan.

(Number of stores)

2012/2*2

2011/2*2

2010/2*2

2009/2*1

2008/2

Number of stores

10,457

9,994

9,761

9,527

8,587

Openings*1

766

550

607

501

452

Closings*1

303

317

373

414

429

463

233

234

940

23

model to which perishable foods and daily delivered foods haveLAwson stoRe100, Fresh Food convenience stores

LAWSON STORE100 stores are operated by our subsidiary Ninety-

number of stores in the Lawson network in japan (group stores)

Net increase (decrease)*1. Since Ninety-nine Plus, Inc. was made into a consolidated subsidiary from the year ended February 28, 2009, stores operated by Ninety-nine Plus from the year ended February 28,
2009, onwards are included in the data above.
*2. Figures for the years ended February 29, 2012, February 28, 2011, and February 28, 2010, include 147, 141, and 136 stores, respectively, operated by Lawson Okinawa, Inc., in therespective fiscal years.

operated stores to franchise stores. As a result, at February 29,
2012, we had 1,172 LAWSON STORE100 stores.

42

Lawson, Inc. AnnuAL RepoRt 2012

Lawson, Inc. AnnuAL RepoRt 201243

Management’s Discussion and Analysis

Number of Stores by FC Contract Type (Group Stores, Stores in Japan)
2012/2

Franchise stores(Number of stores)
2011/2

2010/2

2009/2*

2008/2

StoresShare

StoresShare

StoresShare

StoresShare

Stores

Share

B

1,176

11.2%

1,216

12.2%

1,258

12.9%

1,322

13.9%

1,369

15.9%

G

2,223

21.3%

2,057

20.6%

2,001

20.5%

2,041

21.4%

2,123

24.7%

C

5,455

52.2%

5,284

52.9%

5,074

52.0%

4,863

51.0%

4,641

54.0%

NATURAL LAWSON

41

0.4%

35

0.4%

27

0.3%

22

0.2%

15

0.2%

LAWSON STORE100 / SHOP99

356

3.4%

268

2.7%

167

1.7%

114

1.2%

—

—

61

0.6%

—

—

—

—

—

—

—

—

9,312

89.1%

8,860

88.7%

8,527

87.4%

8,362

87.8%

8,148

94.9%

StoresShare

StoresShare

StoresShare

StoresShare

Stores

Share

111

1.0%

129

1.3%

207

2.1%

283

3.0%

291

3.4%

NATURAL LAWSON

59

0.6%

55

0.6%

62

0.6%

71

0.7%

76

0.9%

LAWSON STORE100 / SHOP99

816

7.8%

809

8.1%

829

8.5%

811

8.5%

72

0.8%

Lawson Toyama

12

0.1%

—

—

—

—

—

—

—

—

Subtotal

998

9.5%

993

9.9%

1,098

11.2%

1,165

12.2%

439

5.1%

Lawson Toyama
SubtotalCompany-operated stores
LAWSON

147

1.4%

141

1.4%

136

1.4%

—

—

—

—

10,457100.0%

9,994

100.0%

9,761

100.0%

9,527

100.0%

8,587

100.0%

Lawson Okinawa
Total

Outline of LAWSON STORE100 Contracts
Contract type

VL-C

Contract term

Necessary
expenditure

Provided by Ninety-nine PlusStores already being operated by Ninety-nine Plus as LAWSON STORE100

Land and buildings owned
by franchisee

10 years from the opening day

Investment

5 years from the opening day

Store opening expenses: Approx. ¥500,000 (i.e., supply of change for cash registers, licensing fee for operation)

Store construction andinterior decoration

Borne by Ninety-nine Plus

Business fixtures

Head Office income*5

Borne by franchisee

Borne by Ninety-nine Plus
¥21.0 million per year

Minimum guarantee*5* Since Ninety-nine Plus was made into a consolidated subsidiary from the year ended February 28, 2009, stores operated by Ninety-nine Plus are included in the data above from the year
ended February 28, 2009, onwards.

10 years from the opening day¥2.55 million (consumption tax included)
Breakdown Franchise fee ¥1.05 million (consumption tax included)
		Contract fee ¥262,500
		Training expenses ¥262,500		Store opening preparation commission ¥525,000
Investment ¥1.5 million (including payment for some merchandise purchased on behalf of the store)

Payment by franchisee
at time of contract*4

Other expenses

VL-B

Use land and buildings
owned by franchiseeLand and buildings
Contract stores

VL-S[Franchisee’s percentage of sales fees]
On gross profit (monthly)¥1–¥3,000,000
Gross profit x 34%¥3,000,001–¥4,500,000 Gross profit x 43%¥4,500,001–¥5,400,000 Gross profit x 55%
Over ¥5,400,001
Gross profit x 68%¥22.2 million per year

[Franchisee’s percentage of sales fees]
On gross profit (monthly)¥1–¥2,500,000
Gross profit x 26%¥2,500,001–¥3,000,000 Gross profit x 48%¥3,000,001–¥3,500,000 Gross profit x 58%
Over ¥3,500,001
Gross profit x 68%

Gross profit X 27%*4.	The amount is paid by the franchisee to the Head Office at the time of the franchising contract. In addition, the franchisee needs to separately provide a total of ¥500,000, including the
cash register float, at the time of store opening.
*5. The Head Office income and minimum guarantee apply to stores operating on a 24-hour basis.

Outline of Store Contracts (LAWSON Stores)
(Previous)
Contract typeC

G

Contract termB

10 years from store opening day

Owner conditions

Overview of Results

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

Land and buildings

Provided by Lawson

Prepared by franchisee

Investment in store construction andinterior decoration expenses

Borne by Lawson

Borne by franchisee

Payment by franchisee at timeof contract*1

Investment

Guarantee deposit provided by franchisee
Head Office income*2

Total Net Sales of All Stores (Consolidated)

Consolidated net sales at existing stores (including sales at Ninety-

Consolidated net sales at Lawson stores in fiscal 2011, ended

nine Plus) increased 4.9% year on year. On a non-consolidated¥1.5 million (Contract fee, training expenses, and store opening preparation commission, each ¥500,000)(excluding tax)

February 29, 2012, exceeded the revised plan of ¥1,807,000

basis, net sales at existing stores exceeded the revised plan by 1.5

million announced in October 2011 by ¥18,809 million, advancing

percentage points and rose 5.4% from a year earlier.

¥1.5 million (Including payment for some merchandise purchased on behalf of the store)
Not required

Average monthly sales x 2 months

Not required

Gross profit x 50%

Gross profit x 45%

Gross profit x 34%

Burden of utility expenses
Minimum guarantee (annual)* (thousands of yen)
2

(New Contracts)
Contract type
Contract term

21,000sales in the Tohoku area remained strong and continued to enjoy

Franchisee

thanks to robust sales at existing stores. On a non-consolidated

demand from recovery efforts following the major earthquake,

22,200basis, sales climbed 7.9%, to ¥1,621,328 million.

posting greater than double-digit growth.

22,200B4

10 years from store opening day

Land and buildings

Provided by Lawson

Prepared by franchisee

Investment in store construction andinterior decoration expenses

Borne by Lawson

Borne by franchisee

Payment by franchisee at timeof contract*1

Provided by Lawson
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)

Partial guarantee for expenses associatedwith product disposal losses

Head Office income*2

Burden of utility expenses
Minimum guarantee (annual)*2 (thousands of yen)

Headquarters will bear the following percentage of clearance anddisposal costs according to their proportion of merchandise sales• Greater than 2.0%, but less than 3.0%: 20%• Greater than 3.0%, but less than 4.0%: 30%• Greater than 4.0%: 55%
Headquarters’ percentage of gross profit• Less than ¥3.0 million: 45%• From ¥3.0 million to under ¥4.5 million: 70%• Greater than ¥4.5 million: 60%—

Lawson, Inc. Annual Report 20122012/2

2011/2

2010/2

2009/2

2008/2105.4%

100.8%

95.9%

106.5%

99.2%

Number of customers

101.0%

100.4%

99.0%

105.7%

98.9%

Average spending per customer

104.3%

100.4%

96.9%

100.8%

100.4%Growth rate of average number of customers andaverage spending per customer at existing stores

Net Sales by Product Category (All Stores, Consolidated)

Gross profit x 34%

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

Franchisee

18,60022,200

Sales of daily delivered foods increased along with the growth in

On a consolidated basis, the fast foods and processed foods productthe number of fresh food-type Lawson stores. Sales of perishable

categories recorded substantial year-on-year sales growth. On afoods contributed favorably to that growth, rising 77.4% from thenon-consolidated basis, all product categories posted increases

previous fiscal year.

from fiscal 2010; above all, fast foods, daily delivered foods, and*1.	The amount is paid by the franchisee to the Head Office at the time of the franchising contract. In addition, the franchisee needs to separately provide a total of ¥500,000, including the
cash register float, at the time of store opening.
*2. The Head Office income and minimum guarantee apply to stores operating on a 24-hour basis.
*3. The ceiling on the amount borne by headquarters monthly is ¥250,000.

44

Growth Rate of Existing Store Sales, Average Number of Customers, and Average Spending per Customer at Existing Stores (Non-Consolidated)
Growth rate of existing store sales

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

Signage and business fixtures

By region, sales in the Kinki area were comparatively weak, while

8.5% year on year, to ¥1,825,809 million. As discussed in further
detail later, net sales outperformed the revised plan primarily

Cn

Owner conditions

Net Sales at Existing Stores (Consolidated)

Provided by Lawson

Signage and business fixtures
Franchise fee

1. Sales Figures

Sales of processed foods swelled from the previous year, mainly

processed foods registered particularly strong growth, at 7.1%,

because of strong cigarette sales jumping 22.7% along with the

4.8%, and 10.5%, respectively. The remainder of this discussion on

cigarette tax hike.

sales by product category is on a non-consolidated basis.
In the fast foods category, sales jumped sharply from theIn the non-food category, sales of books and magazines
continued to decline because of structural problems in theprevious year. Sales of the Pasta-ya brand remained firm following

publishing industry. Nevertheless, sales of the daily necessities

its renewal in October 2010. Sales of Lawson Tei chilled boxed

lineup of health drinks and healthcare-related products as well aslunches were also favorable. In addition, sales of over-the-countermerchandise linked to entertainment events drove the non-foodfast foods greatly exceeded sales in the previous year, supported

category’s sales, supporting a 0.4% year-on-year increase in sales.

by successive launches of new Kara-age Kun products.
Lawson, Inc. Annual Report 2012

45

MAnAgeMent’s DIscussIon AnD AnALysIs

sales by product category (consolidated, total net sales)
Fast foods
Share
Daily delivered foods
Share
Processed foods
Share(Cigarettes)
Total food sales
Share
Non-food products
Share
Net sales of all stores
Share (%)

Bill settlement services (non-consolidated)

2011/2

2010/2

2009/2

2008/2

2012/2

2011/2

2010/2

2009/2

2008/2

345,424

321,865

324,197332,894

327,501

Bill settlements (millions of yen)

1,725,788

1,639,203

1,553,832

1,506,531

1,412,335

18.9%

19.1%

19.5%

21.4%

23.1%

Number of transactions (millions)

177.7

169.8

162.2

156.6

149.9

263,179

264,169

239,088

186,109

162,625

Commission income (millions of yen)

9,487

9,027

8,651

8,415

8,275

14.4%

15.7%

14.3%

11.9%

11.5%

1,022,619

897,426

902,306

844,324

726,750

56.0%

53.3%

54.2%

54.2%

51.4%

470,666

382,167

358,600

342,450

249,745

25.8%(Share)(Millions of yen)

2012/2

22.7%

21.5%

22.0%

17.6%

2. consolidated Income statement Items

selling, general and Administrative (sg&A) expenses

operating Revenues

SG&A expenses rose ¥18,306 million, or 7.5%, from the previous

Operating revenues comprise “Net sales from Company-operated

year, to ¥260,942 million, approximately ¥1,800 million higher thanstores,” “Franchise commissions from franchised stores,” andplanned. One of the reasons behind the year-on-year increase was an

1,631,222

1,483,462

1,465,592

1,363,328

1,216,876

89.3%

88.2%

88.0%

87.5%

86.0%

“Other.” In the year under review, operating revenues increased

additional ¥2,866 million in personnel expenses, up 4.9%, because of

194,586

199,350

200,544

195,453

198,230¥37,679 million, or 8.5%, to ¥478,957 million, and exceeded theperformance-linked bonuses resulting from Lawson’s strong results.

10.7%

11.9%

12.0%

12.5%

14.0%

initial plan by ¥5,957 million. Two principal factors were behind

1,825,809

1,682,812

1,666,136

1,558,781

1,415,106

100.0%

100.0%

100.0%

100.0%

100.0%Breakdown of product category
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, processed foods, confectionery, cigarettes, etc.

Non-food products

Daily necessities, books, magazines, online merchandise sales and services

gross profit Margin by product segment (non-consolidated)

Advertising and promotional expenses climbed ¥3,169 million,

this increase. Entertainment and e-commerce-related sales

or 28.9% from a year earlier, because of aggressive promotional

expanded about ¥23,700 million because of the acquisition of HMV

activities. Among other activities, Lawson held a Lawson Group

Japan K.K., a previously non-consolidated subsidiary. The other

10,000 Stores Campaign, provided recovery support for thefactor was the robust performance of the convenience store

disaster-stricken area, reinforced its Lawson select promotion

business, which supported a ¥9,289 million gain in non-program, and conducted a Ponta Card 40 Million Members

consolidated operating revenues.

Campaign. Further, rents rose ¥5,251 million, or 7.2%, because of

By sales breakdown, “Net sales from Company-operated stores”

an increase in the opening of mainly C-type franchise stores.

amounted to ¥174,116 million. Of that amount, Ninety-nine PlusIn the daily delivered foods category, the gross profit margin slid

IT-related costs comprise facility rental expenses, tangible fixed

contributed ¥134,061 million. “Franchise commissions fromassets depreciation expenses, and incidental other expense items.

franchised stores” were ¥215,574 million, with Ninety-nine Plus

On a non-consolidated basis, IT-related costs stood at ¥15,700

accounting for ¥5,773 million. “Other” were ¥89,267 million.

million, up ¥1,000 million from the previous year and about ¥400

The overall gross profit margin was 30.1%, declining 0.5 percentage

0.1 percentage point year on year. This slight weakening was due

points from fiscal 2010. This decrease can be attributed to deterio-

to the increased use of low-margin perishable foods to attract amillion less than planned because of a revision of maintenanceration in the product mix caused by a cigarette price increase, which

greater number of customers.

expenses and efforts to rationalize existing IT systems.

The larger share of cigarette sales in the product mix wasreflected an additional cigarette tax hike on October 1, 2010. The
gross profit margin declined because sales of low-margin cigarettes

responsible for the gross profit margin’s decline of 0.7 percentage

exceeded initial estimates and the positive impact of the unit pricepoints from fiscal 2010 in the processed foods category. The sales

hike outweighed the negative impact of a reduction in sales volume.

contribution of cigarettes stepped up from 24.9% to 28.3%, rising

However, the gross profit margin for all products excluding ciga-

3.4 percentage points. Gross profit margins on processed foods

rettes exceeded the initial plan, rising 0.5 percentage points from aother than cigarettes, such as confectioneries and drinks, improved

year earlier. Reasons behind this increase included planning orders

year on year thanks to the optimization of manufacturer invento-

for processed foods and non-food products and reducing the num-ries, resulting from more systematic ordering linked to productber of new products. In addition, the gross profit margin for ready-development (linking the merchandise assortment at stores withmade meals, mainly over-the-counter fast foods, contributed to

product development).

Personnel expenses
Share
Advertising and promotional expenses
Share
Rents
Share
Equipment leasing charges
Share

In the non-food products category, the gross profit margin

margin growth thanks to the improvement in value added through

Breakdown of Main sg&A expenses

Depreciation and amortization(Millions of yen)
2012/2

2011/2

2010/2

2009/2

2008/260,88658,02060,833

46,20339,927

23.3%

23.9%

25.0%

21.8%

20.6%

14,146

10,977

12,166

13,781

9,385

5.4%

4.5%

5.0%

6.5%

4.9%

78,48373,231

70,57062,32358,562

30.1%

30.2%

29.0%

29.4%

30.3%

8,204

10,22913,443

14,98818,414

3.1%

4.2%

5.5%

7.1%

9.5%

37,84533,084

27,46820,87921,469raw materials procurement. (For details on value added by raw

improved significantly, rising 1.2 percentage points from a year

Share

14.5%

13.6%

11.3%

9.9%

11.1%

materials procurement, please refer to pages 13 and 25.)

earlier. Reasons for this improvement included efforts to improve

Depreciation expenses*

28,99824,52921,053

16,752

16,630

11.1%

10.1%

8.7%

7.9%

8.6%

8,846

8,554

6,414

4,126

4,838

The previously mentioned measures to enhance value throughShare

the gross profit margin of daily necessities using the previously

raw materials procurement supported a 0.4 percentage point

mentioned measures and an increase in commission business,increase in the gross profit margin for the fast foods category. The

mainly ticket sales and bill settlement.

Amortization expenses
Share
Other

gross profit margin improvement was particularly striking in over-Sharethe-counter fast foods and cooked noodles.

Total
Share

gross profit Margin by product segment (non-consolidated)
2012/2

2011/2

2010/2

2009/2

2008/2

Fast foods

38.2%

37.8%

37.3%

36.1%

36.3%

Daily delivered foods

34.5%

34.6%

34.3%

33.7%

33.6%

Processed foods*1

23.8%

24.5%

24.6%

24.8%

26.3%

Non-food products*2

43.4%

42.2%

40.8%

39.5%

38.5%

Gross profit margin

30.1%

30.6%

30.4%

30.1%

31.2%

3.4%

3.5%

2.6%

1.9%

2.5%

61,37557,09358,71153,75545,633

23.5%

23.5%

24.1%

25.4%

23.6%

260,941

242,636

243,194

211,932

193,390

100.0%

100.0%

100.0%

100.0%

100.0%* Due to the application of new accounting standards for leases, depreciation expenses for fiscal 2010 and fiscal 2011 include depreciation and amortization of lease assets treated as
sale-and-purchase transactions.

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

46

Lawson, Inc. AnnuAL RepoRt 2012

Lawson, Inc. AnnuAL RepoRt 2012

47

MAnAgeMent’s DIscussIon AnD AnALysIs

operating Income

adjustment for adoption of accounting standard for asset retirement

contracted party with the credit card companies. Therefore, credit

headquarters. If franchise store remittances of cash proceeds from“Operating income” grew ¥6,228 million, or 11.2%, year on year, toobligations”* was ¥8,293 million, while loss on disaster related tosales are disclosed in a single “Other” account under accounts

daily sales to Lawson exceed the balance of “Accounts receivable—¥61,769 million, and was ¥270 million, or 0.4%, higher thanthe major earthquake and tsunami registered ¥3,461 million.

receivable.

due from franchised stores,” the excess is shown on the balance

initially planned. Operating income relative to net sales by all stores
was 3.4%, improving from the previous fiscal year.
Income before Income taxes and Minority Interests“Income before income taxes and minority interests” rose ¥1,874
million, or 4.2%, to ¥46,285 million. For fiscal 2011, Lawson
recorded extraordinary losses of ¥17,502 million. This included a* Asset retirement obligations arise with the purchase, construction, development, or normal use of a tangible fixed asset and are booked as the discounted present value of the
future cash flows required to dispose of the asset. At the time of booking the asset
retirement obligation, which is a liability, an asset retirement cost in an amount equivalent to the present value of the asset retirement obligation is also booked as a tangible
fixed asset. The asset retirement cost is then depreciated over the remaining useful lifeof the asset and expensed each accounting period. During the same period, the asset
retirement obligation increases each accounting period, eventually reaching the originally calculated amount of future cash flows required to dispose of the asset.

The constituent elements of this item stood at ¥32,645 million

sheets as “Accounts payable—due to franchised stores.” At February 29, 2012, this account stood at ¥1,390 million, up ¥211 million

at February 29, 2012, an increase of ¥3,359 million.

from a year earlier.
Long-term Loans Receivable
In this account, funds paid to landlords, or owners of land andMoney Held as Agentbuildings for stores, to assist with construction and investments inThis account mainly comprises money held on behalf of third party

and loans to franchise stores by headquarters are recorded. Funds

companies for which Lawson provides bill settlement services, includ-¥3,319 million charge for “Impairment of long-lived assets,” which

net Income

pledged to landlords for opening stores were previously booked as

ing public utility charges. In fiscal 2011, the total bill settlement

declined ¥1,671 million in response to the jump in impairment

As a result of the above, “Net income” declined ¥502 million, orlease deposits but are now booked under “Long-term loans receiv-

amount continued to increase, climbing 5.3% year on year, tolosses in the prior year related to the existing IT system of Ninety-

2.0%, to ¥24,885 million. This decrease can be attributed to aable.” As of February 29, 2012, this account totaled ¥32,139 mil-

¥1,725.8 billion. This growth was attributed to the rising number ofnine Plus accompanying its introduction of the PRiSM system. “Losschange in the corporate tax rate that resulted in a reversal oflion, ¥313 million higher than the previous fiscal year-end.

transactions and number of companies for which settlement services

on disposal of property and store equipment” because of store¥1,568 million in “Deferred income taxes,” causing income tax

closings and other events amounted to ¥2,069 million. “Loss on

adjustments to diminish to ¥2,321 million. Earnings per share

Lease Deposits(EPS) was ¥249.17.

This account includes leasehold deposits paid to landlords by Law-

FInAncIAL posItIon

are provided. At February 29, 2012, there was ¥75,005 million inthis account, an increase of ¥12,664 million year on year.

son equivalent to several months’ rent under lease agreements. As

guarantee Deposits Received from Franchised stores and otherof February 29, 2012, this account was ¥83,666 million, expanding

Comprising guarantee deposits received by Lawson from FC owners¥2,011 million from the previous fiscal year-end along with theoperating under FC-G contracts, as of February 29, 2012, thisincrease in store openings.

account stood at ¥35,735 million, ¥1,404 million less than the

1. consolidated Balance sheets

decrease in the number of G-type franchise stores, which operatecurrent Assets

under franchise agreements requiring the payment of a guarantee“Total current assets” amounted to ¥160,158 million, growing

deposit. In contrast, “Asset retirement obligations” registered

Amounts Due to Franchised stores

FC-G contract stores by 166 stores because of the repayment of¥15,148 million, or 10.4%, from the end of fiscal 2010. The main

¥15,161 million, while “Long-term lease obligations” increased

This account registers headquarters’ obligations to franchise stores,

guarantee deposits to franchise stores associated with contract

reason for the expansion in assets was a ¥5,958 million, or 8.8%, year

¥9,648 million.

all of which make remittances of cash proceeds from daily sales torenewals or terminations.

prior year; this decline occurred despite the rise in the number ofon year increase in “Cash and cash equivalents,” to ¥73,670 million,
supported by an improvement in operating cash flow related to a

total equity

strong business performance, especially by existing stores.

“Total equity” amounted to ¥214,663 million, representing a¥6,196 million, or 3.0%, year-on-year increase. “Net income” stoodcApItAL expenDItuRes AnD ReLAteD AMounts

property and store equipment, Investments and other Assets

at ¥24,885 million and cash dividends of ¥17,177 million wereIn fiscal 2011, capital expenditures on a consolidated basis totaled

store investments rose ¥1,306 million, to ¥10,240 million, reflect-“Net property and store equipment” increased ¥25,001 million, or

paid, resulting in growth of ¥7,641 million in “Retained earnings,”¥74,572 million, increasing ¥24,246 million from fiscal 2010. In

ing an increase in conversions to fresh food-type LAWSON stores.

15.7%, from a year earlier, to ¥183,835 million. This increase canto ¥107,249 million.

addition to property, plant and equipment, capital expenditures

IT-related investments expanded ¥265 million, to ¥7,744 million,

include equity investments, loans, and amounts equivalent to thebased on IT-related investments by headquarters. Leases increased

purchase price of leased assets.

¥5,269 million, to ¥21,960 million, mainly because of the installa-

be mainly attributed to growth in “Lease assets,” such as fixturesassociated with store openings and IT capital investments.
“Investments and other assets” rose ¥12,386 million, or 9.1%,

2. special Account Items on the Balance sheets
The following account items are special features of Lawson’s finan-

New store investments stepped up ¥7,921 million, to ¥21,596

to ¥148,483 million. The primary factors involved in this rise werecial statements.

million, because of additional store openings. (Group store open-a ¥3,618 million increase in long-term “Deferred tax assets”

Amounts Due from Franchised storesings were up from 550 in the previous fiscal year, to 766.) Existing

because of the tax impact of the booking of asset retirement obli-

Lawson makes bulk purchases of merchandise ordered by all fran-gations and a ¥4.2 billion equity investment in PT Midi Utama Indo-chise stores and calculates and pays amounts payable for these tonesia Tbk, a company operating stores in Indonesia. (For more

the vendors on these stores’ behalf. Lawson records the cost of thedetails on PT Midi Utama Indonesia, please refer to page 54.)

merchandise under the “Due from franchised stores” account underaccounts receivable on the balance sheets until such costs aretion of LED lighting after the major disaster and of equipment formaking fresh coffee.
Details of major capital expenditures are as follows:

Breakdown of capital expenditures(Millions of yen)
2012/2

2011/2

2010/2

2009/2

2008/2

New store investments

21,596

13,67519,887

15,635

12,387

Existing store investments

10,240

8,934

8,101

6,747

7,493

recovered from franchise stores. “Due from franchised stores” rep-

IT-related investments

7,744

7,479

9,409

12,064

7,733“Total current liabilities” expanded ¥25,383 million, or 13.2%, toresents principally the obligations of franchise stores to headquar-

Other

630

1,003

629

3,886

2,260

¥217,979 million. Several factors were involved in this upturn. First,

ters for these amounts at the balance sheet date. As of February

40,21131,091

38,02638,331

29,873

there was a surge of ¥12,664 million, or 20.3%, to ¥75,005 million in

29, 2012, this current asset account totaled ¥19,521 million, an“Money held as agent” because of the robustness of the bill settle-

increase of ¥3,362 million from a year earlier.

current Liabilities

ment services business. Also, an advance of ¥6,864 million, or 8.4%,

Investments subtotal
Investments and advances

12,401

2,544(3,004)(14,564)

19,690

Leases*21,96016,69136,37619,14014,850Total

74,57250,326

71,39942,90764,413* The amount equivalent to the acquisition cost of leased property acquired during each fiscal year. The amount of repayments of lease obligations was ¥10,382 million in fiscal 2011.

to ¥88,263 million, was registered in “Accounts payable—trade”

Accounts Receivable—otherbecause of growth in total net sales resulting from a net increase in the

Other accounts receivable amounts, such as income due from ven-

number of stores and favorable expansion in sales by existing stores.

dors, are incorporated in “Other” under accounts receivable on the

Breakdown of Depreciation(Millions of yen)
2012/2

2011/2

2010/2

2009/2

2008/2

16,630balance sheets. This account includes income receivable by fran-Depreciation expenses*

28,99824,52921,053

16,752chise stores, such as credit card sales by franchise stores. While

Amortization expenses

8,846

8,554

6,414

4,126

4,838

“Total long-term liabilities” rose ¥23,838 million, or 31.8%, tocredit sales for Company-operated stores and franchise stores are

Total depreciation and amortization

37,84533,084

27,46820,87921,469¥98,812 million. There was a ¥1,404 million contraction in “Guar-accounted for as separate account items, all accounts receivable* Due to the application of new accounting standards for leases, depreciation expenses for fiscal 2010 and fiscal 2011 include depreciation and amortization of lease assets treated as
sale-and-purchase transactions.

antee deposits received from franchised stores and other” due to afrom credit card issuing companies are payable to Lawson as theLong-term Liabilities

48

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Lawson, Inc. AnnuAL RepoRt 2012

49

MAnAgeMent’s DIscussIon AnD AnALysIs

On May 1, 2009, Value Lawson, Inc., a Lawson subsidiary thatcAsH FLows

2009. Consequently, Ninety-nine Plus’s fiscal 2009 was andeveloped the LAWSON STORE100 format and steered a fresh food

11-month transitional fiscal year. Moreover, Lawson’s consolidated

convenience store operation, merged with Ninety-nine Plus with theresults for fiscal 2009 included three months’ results of Ninety-ninemillion higher than in the previous fiscal year. The increase in cash

cash flows from operating and investing activities expanded

latter as the surviving company. The goal of the merger was to gen-

Plus for the fourth quarter of fiscal 2008, for a total of 14 months.

flows was mainly attributable to substantial growth in operating¥8,243 million, to ¥33,445 million.

erate even greater business alliance benefits and become the unri-

Operating activities provided net cash of ¥86,357 million, ¥14,147

As a result of changes in free cash flow, the difference between

Ninety-nine Plus was listed on the JASDAQ market but was del-valed leader in the fresh food convenience store sector. The

isted in June 2010 and became a wholly owned subsidiary of Law-million less than in the prior year. The contraction in net cash usedstrategies involved with this merger were to share expertise in theson through a share exchange in July 2010.

was in response to fiscal 2010 payments of ¥3,510 million for thesale of perishable foods and daily delivered foods and jointly

purchase of the Company’s own shares in association with convert-

develop the Value Line, which features products in appropriately

million higher than in fiscal 2010. The main reasons for additional

ing Ninety-nine Plus and LAWSON ENTERMEDIA, INC. (currently,

sized small portions and conveniently sized packages.

outlays were the acquisition of associated companies in Indonesia;

Lawson HMV Entertainment, Inc.), into wholly owned subsidiaries.

Ninety-nine Plus’s conversion to a wholly owned consolidated

up only 0.1%, failing to reach business plan targets. This limitedin Shanghai, China; and other companies as well as greater expendi-

Consequently, cash and cash equivalents, end of year, increased

subsidiary required some complicated transitional accounting for

growth can be principally attributed to the major disaster, which

both companies. Since Ninety-nine Plus changed its March 31 fiscal

interrupted the supply of Value Line PB products. The disaster also

year-end in fiscal 2008, Lawson’s equity-method earnings frompostponed the planned introduction of a new IT system, which in

Ninety-nine Plus in fiscal 2007 included earnings for the nine

turn delayed the start-up of the PRiSM system of improving themonths through the end of Ninety-nine Plus’s third quarter. In fiscal

accuracy of placing orders. As a result, Ninety-nine Plus recorded

2008, Lawson recorded as equity-method earnings nine months ofoperating income of ¥1,883 million, up 6.3% year on year, but fall-earnings from Ninety-nine Plus’s fourth quarter in fiscal 2007 toing short of the initial plan. Because of the ¥963 million loss on theincome, thanks to the strong sales performance in fiscal 2011 andFinancing activities used net cash of ¥27,545 million, ¥1,254

higher levels of money held as agent brought about by growth inbill settlement services.
Investing activities used net cash of ¥52,912 million, ¥22,390

tures for purchases of property and store equipment because of¥5,958 million from a year earlier, to ¥73,670 million.

the increase in store openings.

cApItAL poLIcy: DIvIDenDs AnD puRcHAse oF tReAsuRy stocK

Lawson’s cumulative investments in Ninety-nine Plus since fiscal
2007 have amounted to ¥16,700 million.
In fiscal 2011, sales by Ninety-nine Plus’s existing stores edged

Lawson regards returning profits to shareholders as one of its mostUnder our dividend policy, we have not set a specific target for

the end of its second quarter in fiscal 2008. Ninety-nine Plus was

adoption of asset retirement obligations accounting standards

important management policies and operates its business with thethe payout ratio. Rather, the fundamental concept of our capitalthen consolidated from its third quarter in fiscal 2008. Ninety-ninerecorded in fiscal 2011, Ninety-nine Plus posted an overall net loss

recognition that the level of capital cost should reflect the profit

strategy is to improve capital efficiency by efficiently managing thePlus changed its fiscal year-end from March 31 to the end of Febru-of ¥747 million.

expectations of investors. We therefore seek to select and develop

ample free cash flow we are creating by returning surplus funds toary at its ordinary general meeting of shareholders held in Junebusinesses that achieve earnings above the cost of capital, using

shareholders following necessary investments to achieve sustained

return on earnings (ROE), an indicator of capital efficiency, as our

growth. Through this process, we improve capital efficiency bymost important management indicator. We ensure financial sound-avoiding the retention of excess surplus funds.

ness by securing the necessary level of internal reserves for invest-

During the four-year period from fiscal 2001 to fiscal 2004,

ninety-nine plus, Inc.

(Millions of yen)
2012/2

2011/2

2010/2*

2009/3

2008/3

141,801

142,228

135,410

134,246

122,997

Operating income

1,883

1,772

1,792

261

401

Net income (loss)

(747)

(840)

1,673

(504)

47

Number of stores

1,172

1,077

996

856

837

Total operating revenues

ment aimed at achieving sustained corporate growth over the

Lawson retired approximately ¥43.0 billion of treasury stock. In fis-medium to long term to maintain high profitability. Also, we pursue

cal 2007, we bought back additional stock by repurchasing approx-

optimal capital efficiency by distributing profits through dividends

imately 5.3 million shares for approximately ¥21.0 billion fromand the purchase and cancellation of treasury stock based on what

October 2007 to January 2008. We canceled a total of 5.0 million

we consider to be an appropriate capital composition. Our medium-shares of treasury stock in February 2008. Going forward, we willterm goal is an ROE of 20%.

flexibly consider repurchasing and retiring treasury stock as aBestpractice, Inc. (consolidated subsidiary)by ensuring stores pursue Lawson’s Triple Emphasis* policy, themethod of improving ROE.

BestPractice was established in 2004 as a wholly owned subsidiary.

continued implementation of the Mystery Shopper program con-refer to pages 8 and 9 for details on our cash dividends per share.)

The company provides Mystery Shopper on-site inspections of con-tributes to strengthening store management capabilities. Lawson

For fiscal 2012, we plan to increase cash dividends by ¥10 per

venience stores to determine the condition of their operations andhas positioned the Triple Emphasis policy, which focuses on mer-share, to ¥190 per share.

offers recommendations and proposals to improve Lawson stores

chandise assortment, customer service, and cleanliness, as theat the operational level. Under the Mystery Shopper program, anbackbone of store management.

Our dividend yield as of February 29, 2012 was 3.8%. (Please* Fiscal 2009 was an 11-month transitional fiscal year due to a change in the fiscal year closing to the end of February.
Lawson’s consolidated operating profit for fiscal 2009 included 14-months of operating profit for Ninety-nine Plus, amounting to ¥2,160 million, the sum of the fourth quarter for fiscal
2008 and 11 months for fiscal 2009.

employee of BestPractice serves as an undercover researcher tooveRvIew oF consoLIDAteD suBsIDIARIes AnD equIty-MetHoD AFFILIAtes

objectively and quantitatively evaluate convenience store operations and merchandise assortment from a customer’s perspective.

Consolidated results for fiscal 2011 include the performances of 13

and equity alliance agreement with Ninety-nine Plus in 2007. Fresh

The results are given to Lawson’s headquarters and franchise own-

members of the Lawson Group—10 consolidated subsidiaries andfood-type convenience stores have won strong acceptance fromers. Through support of the improvement of customer satisfaction

3 affiliates accounted for by the equity method. These subsidiaries

housewives and seniors thanks to an enhanced merchandise

and affiliates are broadly engaged in three categories of business:

assortment of perishable and daily delivered foods at stores inconvenience store operations, entertainment and e-commercesmall commercial areas. As a result, there is a higher percentage ofrelated operations, and overseas operations. The business opera-

these target groups in the customer mix compared with conven-tions and fiscal results of companies included within the scope oftional type of stores. In 2007, Ninety-nine Plus carried out a capitalconsolidation are presented below.

increase through a third-party allotment of shares to Lawson. In* The Triple Emphasis policy lists items that franchise owners, employees, and crews (temporary and part-time employees) must pay attention to in the operation of stores,
including: 1) a merchandise assortment suited to the community, or the local area, specifically the small commercial area around each store, 2) sincere customer service, and3) keeping the store and community clean.

Bestpractice, Inc.

(Millions of yen)
2012/2

2011/2

2010/2

2009/2

2008/2

Total operating revenues

898

1,131

991

982

919

Operating income (loss)

(14)

235

91

50

8

Net income (loss)

85

130

59

(1)

1

January 2008, Ninety-nine Plus stepped up its capital throughconvenience store operations

another such allotment of shares to Lawson to bolster its businessninety-nine plus, Inc. (consolidated subsidiary)

alliance with Lawson and raise funds to open more stores. ThroughEstablished in October 2000, Ninety-nine Plus operates the freshthese investments, Lawson became the leading shareholder infood convenience store format LAWSON STORE100. The subsidiary

Ninety-nine Plus with an equity interest of 34.2%. In September

has grown rapidly as a pioneer in Japan of a fresh food store for-2008, Lawson took the next step in the relationship, conducting a

mat that provides everything from perishable food and other dailytender offer for Ninety-nine Plus’s shares to expand its equity

food items to sundries at a single price. Lawson signed a businessinterest to 76.8%.

50

Lawson, Inc. AnnuAL RepoRt 2012

Lawson, Inc. AnnuAL RepoRt 2012

51

MAnAgeMent’s DIscussIon AnD AnALysIs

Lawson toyama, Inc. (consolidated subsidiary)

At February 29, 2012, Lawson Toyama was operating 73

Lawson Toyama was established as a wholly owned subsidiary inconvenience stores in Toyama Prefecture. Because of the costs of

September 2010. The subsidiary acquired the Toyama Prefecture

renovations in converting the stores to Lawson formats, Lawson

convenience store business of Sunkus and Associates Toyama Co.,

Toyama posted an operating loss of ¥87 million in fiscal 2011.

Ltd., a subsidiary of Nanoha Agricultural Cooperative, in July 2011.

Total operating revenues

1,793

Operating income (loss)(87)

Net income (loss)(410)

Number of stores

73(Millions of yen)
2012/2

2011/2

2010/2

2009/2

2008/2

6,960

Total operating revenues

25,545

9,864

10,022

7,620

Operating income

1,650

1,111

1,099

791

636

Net income (loss)

2,073

1,870

(11,887)(1,445)*423* Prior-year results were adjusted following the booking of an impropriety-related loss due to alleged misappropriation of funds by two former directors.

Lawson toyama, Inc.
2012/2

Lawson HMv entertainment, Inc.

2011/2

2010/2

2009/2(Millions of yen)

Lawson AtM networks, Inc. (consolidated subsidiary)

expenses are operating center outsourcing fees, ATM line charges,

2008/2

Lawson ATM Networks was established in 2001 with investments

and ATM-leasing charges.

by Mitsubishi Corporation, several banks, and Lawson to carry out

Lawson ATM Networks’ performance in fiscal 2011 scaled up

ATM operations for Lawson stores. The subsidiary began installing

sharply, with operating income rising 15.2%, to ¥3,639 million.

ATMs and started ATM services at certain Lawson stores from

Benefits from the installation of more than 2,000 ATMs over the

2001. Through its ATM business, jointly operated ATMs areprevious two years to enhance the consumer’s recognition of Law-

At the end of fiscal 2011, Lawson Okinawa was operating 147

installed in Lawson stores in regions where agreements have beenson’s ATM services, which are available in almost all stores, contrib-

In January 2009, Lawson and SAN-A CO., LTD., a leading retailingstores. Operating income surged 29.6% compared with the previ-

reached with partner banks. As of February 29, 2012, Lawson ATM

uted to profit growth.

group in Okinawa, agreed to form a business alliance in Okinawa

ous fiscal year, to ¥779 million. The primary contributors to thisNetworks had formed business alliances with a total of 39 partner

Prefecture. Through this alliance with SAN-A, which is a highly rec-strong performance were the active introduction of the PB Lawsonbanks, encompassing the major commercial bank groups andtotal size of the network to 9,002 ATMs in 46 of Japan’s 47 prefec-

ognized name in Okinawa, Lawson aims to create products andselect into the merchandise assortment and robust sales of Lawson

regional banks. The subsidiary’s main source of revenue is fees

tures. To boost its commitment to the ATM business, Lawson

stores better suited to Okinawa, which is known for its unique way

ready-made meals.

from banks for the commissioned operation of ATMs that are

increased its stake in Lawson ATM Networks from 44.0%, to 70.9%,

included in the Other account under operating revenues on Law-at the end of fiscal 2011.

<Established in September 2010>

Lawson okinawa, Inc. (equity-method affiliate)of life and food preferences. To this end, we established Lawson Okinawa, Inc., as a wholly owned subsidiary in October 2009.
In December 2009, we converted Lawson Okinawa into a joint ven-

We will continue to develop the Lawson chain in Okinawa Prefecture through Lawson Okinawa by creating stores that better meet

Lawson AtM networks, Inc.

Lawson okinawa, Inc.

Operating income
Net income
Number of stores

son’s consolidated statements of income. The company’s main

the needs of the local community.

ture by transferring 51% of its total outstanding shares to SAN-A.

Total operating revenues

In fiscal 2011, the subsidiary installed 476 ATMs, bringing the(Millions of yen)
2012/2

2011/2

2010/2

2009/2

2008/2(Millions of yen)

Total operating revenues

23,062

20,825

18,57016,964

14,9002008/2

1,201

2012/2

2011/2

2010/2

Operating income

3,639

3,159

2,444

1,439

3,658

3,347

733

Net income

1,993

1,788

1,412

589

718

779

601

109

Number of ATM machines installed (Units)

9,002

8,526

6,978

5,970

5,643

1,048

611

101

147

141

136

2009/2<Established in October 2009>

entertainment and e-commerce operations

will provide one-stop shopping for concert tickets and music CDs

Lawson HMv entertainment, Inc. (consolidated subsidiary)that were previously sold through separate channels. The subsid-

Lawson HMV Entertainment was originally established as a ticket

iary expects HMV’s brand power in the music CD industry and Law-sales company in 1992 as RIZA JAPAN and, in 1996, was renamed

son’s reputation in the event tickets industry to a synergistic

LAWSON TICKET INC., becoming a consolidated subsidiary of Lawson

impact on the business.

in 1997. In terms of number of tickets handled, the company is one

Regarding Lawson HMV Entertainment’s earnings structure, theof the largest players in the ticket sales industry in Japan. The com-

major source of revenues derives from sales commissions on ticketpany sells tickets to concerts, sporting events, theaters, movies,

sales. The total operating revenue account, which mainly comprises

and other attractions, primarily through Loppi multimedia terminals

commissions, is included in Other under operating revenues in

at Lawson stores and through the total entertainment mall LAW-

Lawson’s consolidated statements of income.

SON HOT STATION Lpaca, and is particularly strong in sales of tick-In fiscal 2011, the degree of voluntary restraint in holding con-ets for J-Pop*1 and sporting events. In March 2009, LAWSON TICKET

certs out of respect for the victims of the major disaster was far

carried out an absorption-type merger, incorporating Lawson’s

less than expected, and sales quickly recovered. Operating income

wholly owned subsidiary i-Convenience, Inc. The aim of the merger

jumped 48.5%, to ¥1,650 million. Contributors to the sharp

was to make fullest use of the combination of LAWSON TICKET’s

increase in profits included the aggressive use of high-profitability

customer base and i-Convenience’s expertise in the e-commerce

sales routes, such as Loppi multimedia terminals and Lawson’s totalbusiness. In July 2009, LAWSON TICKET was renamed LAWSON

entertainment mall, and the impact of the merger with HMV Japan.

ENTERMEDIA, INC. The company was listed on the JASDAQ market
but was delisted in June 2010 and became a wholly owned subsidiary of Lawson by means of a share exchange in July 2010. In September 2011, Lawson merged LAWSON ENTERMEDIA and HMV
Japan*2 to more fully demonstrate synergies in the entertainment
and e-commerce businesses in the future. The surviving company
was renamed Lawson HMV Entertainment, Inc. Taking advantage of*1. Japanese music generally popular among the relatively younger generation.
*2. HMV Japan, a consolidated subsidiary until August 2011, is a music/video software
retailer under the HMV brand. It was established in 1990, opened its first store in
Shibuya, Tokyo, in the same year, and became the current Internet-based HMV Online
electronic commerce business in 1999. In 2007, HMV Japan Holdings Co., Ltd., which
was wholly owned by Daiwa Securities SMBC Principal Investments Co., Ltd., including
indirect holdings, acquired all the shares of the company. Lawson acquired all theshares of HMV Japan from HMV Japan Holdings in December 2010. The acquisition
was undertaken to strengthen Lawson’s entertainment-related business and takeadvantage of synergies with LAWSON ENTERMEDIA.

overseas operations

Having strengthened and expanded its operations in China, Lawson

shanghai Hualian Lawson, Inc. (consolidated subsidiary)

reached an agreement with Shanghai Bailian Group Co., Ltd., toIn 1996, Lawson became the first Japanese convenience store

accelerate the development of a differentiated store model.

company to enter the Chinese market, establishing a joint company

Shanghai Hualian Lawson will be developing Japanese-style(Lawson, 70.0%; Hualian Group, 30.0%) in Shanghai with Hualianconvenience stores with superior product development, customer

Group Corporation,* a Shanghai municipal government affiliate. In

service, and cleanliness. Going forward, the subsidiary will enhance

2004, in the interests of acquiring better store locations andthe quality level of stores in Shanghai, a core city in China’s

heightening employee motivation, Lawson sold 21.0% of its 70.0%

economy, targeting network expansion using the same ROI

equity stake in the subsidiary to the partner, Hualian Group,* leaving

standards practiced by Lawson in Japan.
At the end of February 2012, there were 314 stores in operation,

Lawson with a 49.0% stake. In September 2011, in response to achange in the economic environment in China, particularly Shanghai,
Lawson acquired additional shares to take back the management of
the chain of stores in Shanghai to build the network based onJapanese-style convenience stores. As a result, Lawson increased itsof which 248 were franchise stores.
* In accordance with the Chinese government’s reorganization policy for the retail industry, Hualian Group transferred all its stake in Shanghai Hualian Lawson to Shanghai Bailian Group, in December 2008 when it was absorbed by Shanghai Bailian Group.

stake to 85%, converting the company to a consolidated subsidiary.
shanghai Hualian Lawson, Inc.

(Millions of yen)
2011/122010/12

2009/12

2008/12

2007/12

Total operating revenues

4,917

5,402

6,313

6,670

7,265

Operating income (loss)

(283)

14

2

13

77

Net income (loss)

(443)

25

5

21

8

Number of stores

314

317

300

300

287

its solidified e-commerce business base, Lawson HMV Entertainment

52

Lawson, Inc. AnnuAL RepoRt 2012

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53

MAnAgeMent’s DIscussIon AnD AnALysIs

ntt DocoMo, Inc.

qol co., Ltd.

Chongqing is one of the largest cities in the world, with a popula-inland China, Lawson established this company in April 2010 at the

In 2006, Lawson signed a business alliance agreement, including a

In December 2008, Lawson signed a business alliance agreementtion of 32 million inhabitants, and is the fourth-largest directly

invitation of the Chongqing municipal government. The subsidiary

capital alliance, with NTT DOCOMO, INC. Lawson sold 2,092,000with drug-dispensing pharmacy chain Qol Co., Ltd. Through person-

governed city in China after Beijing, Shanghai, and Tianjin. Chongq-

opened its first Chongqing store, equipped with a training facility, inshares of treasury stock, representing 2.0% of total issued shares

nel exchanges, Lawson is working to develop its number of regis-

ing’s economy has enjoyed nine consecutive years of double-digit

July 2010. At the end of February 2012, there were a total of 38(at the time), to NTT DOCOMO for about ¥9.0 billion. In 2007, thistered pharmaceuticals salespersons* and, in August 2010, began

growth, outperforming the overall growth rate for China and that

stores. The subsidiary plans to expand its network to 100 stores by

alliance led to the introduction of iD* electronic money services pro-opening stores that combined a drug-dispensing pharmacy with aof such coastal centers as Shanghai. Latent demand for conve-

the end of fiscal 2012 and after that to 200 stores within four years.

vided by NTT DOCOMO in all Lawson stores and the launch of theconvenience store. At February 29, 2012, Lawson was operating

nience stores is mounting in Chinese inland cities as they continue

Lawson Pass iD service (currently called Lawson Ponta iD). The latterseven such stores.

their remarkable growth.

service allows holders of the Lawson Pass VISA (currently called

chongqing Lawson, Inc. (consolidated subsidiary)With the aim of opening the first Japanese convenience store in

Lawson Ponta Card VISA) credit card issued by Credit Saison Co., Ltd.
chongqing Lawson, Inc.

(Millions of yen)
2011/122010/12

Total operating revenues

257

30

Operating income (loss)

(242)

(47)

Net income (loss)

(248)

(59)

Number of stores

38

4

2009/12

2008/12

2007/12(at the time issued by Lawson CS Card), to use the iD service.
* iD is a mobile phone-based credit card payment service enabling shopping, etc., via NTT
DOCOMO’s Osaifu-Keitai wallet services.

<Established in April 2010>* A newly established qualification following the June 2009 enforcement of revisions to
the Pharmaceutical Affairs Act, the “registered pharmaceuticals salesperson” qualification allows the holder to sell OTC medications (types 2 and 3). The act requires holders
to have a minimum of one year of experience.

cvs Bay Area Inc.
In January 2012, Lawson concluded a franchise agreement withCVS Bay Area Inc. (“Bay Area”). The company operates convenience
stores in Tokyo and Chiba Prefecture and is listed on the First Sec-

Dalian Lawson, Inc. (consolidated subsidiary)

Dalian Acasia Fast Foods Co., a leading regional company, intion of the Tokyo Stock Exchange. Based on this agreement,

With a population of in excess of six million people, Dalian is the

September 2011. Dalian Lawson opened its first store in November

Lawson began converting all of Bay Area’s convenience stores tolargest seaport in Northeast China. Following up on an invitation by

2011. The subsidiary is 95% owned by Lawson and had three

Lawson stores in March 2012 and completed the process by thethe city of Dalian, Lawson established the joint company withstores at the end of fiscal 2011.

end of May 2012.

Dalian Lawson, Inc.

(Millions of yen)
2011/12

Total operating revenues

4

Operating income (loss)(20)

Net income (loss)(27)

Number of stores3

2010/12

2009/12

2008/12

2007/12<Established in September 2011>

outLooK FoR FIscAL 2012
In fiscal 2012, Japan’s economy is showing signs of a recovery

Harmony in Our Communities.” We will also strive to improve cus-trend against the backdrop of recovery demand after the major

tomer satisfaction and, through growth in the customer base,disaster as well as other positive factors. In addition, personal con-

expand corporate earnings and the earnings of franchise owners,

Lawson Asia pacific Holdings pte. Ltd. (consolidated subsidiary)in Indonesia. In addition, the subsidiary acquired a 30% stake insumption is increasing slightly; however, there are many factors

thereby increasing our corporate value. Regarding Lawson’s perfor-

In May 2011, Lawson established this consolidated subsidiary in

MIDI in July 2011. At the end of February 2012, MIDI operated 523

that could possibly put downward pressure on the economy thatmance forecast for fiscal 2012, we expect consolidated operating

Singapore to regionally manage overseas operations in countries

stores under its proprietary small-format store brands, Alfamidi andneed to be carefully monitored. Outside Japan, economic conditions

income to grow 6.8% year on year, to ¥66,000 million—with theother than China. In June 2011, Lawson Asia Pacific Holdings con-

Alfaexpress. The company also manages 15 Lawson stores in theremain precarious surrounding the European sovereign debt crisis.

Company achieving 10 consecutive years of profit growth. We are

cluded a licensing agreement with PT Midi Utama Indonesia Tbk

special capital city district of Jakarta and surrounding area. MIDI is

In Japan, the economy faces many uncertainties, such as the poten-

forecasting consolidated net income of ¥33,400 million, a 34.2%(MIDI), a member of the Alpha Group, a distribution and retail groupaccounted for by Lawson as an equity-method affiliate.

tial for electric power shortages in July and August 2012 and theimprovement from the previous fiscal year.

state of consumer sentiment following the decision to increase theconsumption tax.

BusIness coopeRAtIon AnD ALLIAnces

create customer-driven Merchandise Assortment

In the convenience store industry, Lawson’s competitors that

Utilizing our backbone IT system PRiSM, which is based on a funda-

had previously adhered to the conventional type of store format ofmental business reform plan PRiSM, we will work to reduce oppor-

Lawson’s principal business tie-ups and alliances are as follows.

japan post Holdings co., Ltd.

targeting young men changed their tune following the major disas-

tunity loss by improving the accuracy of placing orders for

Please refer to Convenience Store Operations under “Overview of

Lawson formed a business alliance in 2002 with the former Postal

ter. Currently, they are serious about broadening their customer

merchandise. We will seek to design sales floor spaces that meet

Consolidated Subsidiaries and Equity-Method Affiliates” on pages

Services Agency. After this announcement, the two partners

bases and expanding and enhancing their merchandise assortment

the needs of customers in each local community by continuing to

50 and 51 of this report for information concerning the equity-

worked on various initiatives, including installing mailboxes in Law-and services for women and seniors by introducing perishable

analyze the data from the multi-partner loyalty point program

based alliance with Ninety-nine Plus.

son stores (2003), opening convenience stores inside post offices

foods. Moreover, the retail industry as a whole is reconsidering the

Ponta. Also, we will utilize the analysis of data from the Ponta card

(2003) and handling Japan Post’s Yu-Pack parcels (2004). In 2008,

function of the neighborhood store that provides highly convenient

to further enhance our capabilities for customer-driven productMitsubishi corporation

Lawson signed an agreement for a comprehensive business alliancegoods and services for customers in their immediate surroundings.

development.

Lawson formed a comprehensive business tie-up, including a capi-with Japan Post Holdings. Moving forward, the two companies will

This rethinking has prompted supermarkets, general merchandise

tal alliance, with Mitsubishi Corporation in February 2000. Mitsubi-

develop initiatives that effectively utilize their respective businessstores, and other types of retailers that previously distinguishedprovide Appealing services through the ponta programshi is Lawson’s leading shareholder, with an equity interest ofresources to jointly open stores and expand joint distribution andthemselves apart from the small commercial area business to begin

With the number of companies in the Ponta multi-partner loyalty

32.4% (including indirect holdings) as of February 29, 2012. The

deliveries, for example. The goals are to improve the level of conve-

developing mini-supermarkets that specialize in serving small com-point program expected to rise, we will collaborate in broader-

two firms have built a cooperative relationship in such areas as per-nience for customers and contribute to regional communities

mercial areas.

based marketing analysis and sales promotion measures to provide

sonnel resources and store development, new businesses, andacross Japan.

product development, including the procurement of raw materials.

Under these business conditions, Lawson will carry out the fol-

more appealing services for customers. Furthermore, strengthening

lowing business initiatives, driving forward with a strategy of

our e-commerce business, we plan to achieve a mutual flow of cus-broadening the customer base that the Company began ahead of

tomers between our real and online stores through the inter-its competitors. In the implementation of these initiatives, we willchangeable Ponta point system.

aim to realize our corporate philosophy of “Creating Happiness and54

Lawson, Inc. AnnuAL RepoRt 2012

Lawson, Inc. AnnuAL RepoRt 2012

55

MAnAgeMent’s DIscussIon AnD AnALysIs

promote fresh food-type convenience storesstores because they will have an in-store pharmacist. Based on theIndonesia. The majority of the Group stores operate 24 hours a day.

Risks relating to disasters

In the growth business of fresh food-type convenience stores, Law-concept of “food is medicine,” meaning that food and medicine

Because of this, in operating its business, Lawson must comply with

Lawson is a national chain with stores located throughout Japan’s

son will continue to expand LAWSON STORE100 and fresh food-mutually benefit our health, we will keep contributing to custom-

various laws and regulations regarding store development, store

47 prefectures as well as in Shanghai, Chongqing, and Dalian in

type convenience store operations, primarily to serve residential

ers’ healthy and enriched living.

operations, hygiene management, product transactions, environ-

China and the special capital city district of Jakarta and surrounding

mental protection, and other matters in Japan, Shanghai, Chongq-

area in Indonesia. Therefore, an earthquake, tsunami, typhoon, or

areas. In particular, we will introduce more perishable foods andstrengthen our private brand Lawson select, which focuses on life-

Full-scale development of entertainment

ing, and Dalian in China and the special capital city district ofother natural disaster that physically damages Group stores, sup-style necessities, such as prepared foods, processed foods, daily

and e-commerce related businessJakarta and surrounding area in Indonesia and must obtain various

plier factories, distribution centers, or other facilities could have ansundries, and other items. Through these measures, we will meet

We aim to provide entertainment-related merchandise assortment

permits and licenses.

impact on the Group’s performance or financial position.

customers’ needs for cooking and eating at home. The measuresand other merchandise lineups that meet customer needs both in

Therefore, should events arise such as an unforeseen change in laws

Furthermore, to fulfill its role as a lifeline to the community, Lawson

will also enable Lawson to continue its expansion of the customer

real and online stores. Leveraging business alliances with otheror regulations or a change in the enforcement methods of administra-is committed to continuing to operate its convenience stores based

base through the inclusion of more women and seniors as well ascompanies, we will provide new services in the e-commerce area.

tive authorities, new compliance costs could arise, which could have an

on a business continuity plan in the event of a disaster or even if

impact on the Group’s performance or financial position.

there is an outbreak of a new strain of influenza or other infectious

men in their 20s and 30s, who are the main customers in conventional convenience stores.

continuing overseas expansion

disease. However, any unanticipated temporary closure of stores

The Lawson Group has been opening LAWSON stores in Shanghai,

Risks relating to franchise (Fc) operations

Respond to demand for pharmaceuticals and healthcare

Chongqing, and Dalian in China as well as in the special capital city

In the convenience store business, the Group’s main business,

We will expand sales of pharmaceuticals and fortify development

district of Jakarta and surrounding area in Indonesia. In the future,

Lawson has adopted the franchise system. Based on franchise

Risks involving problems with It systems

and sales of health-oriented foods by utilizing know-how accumu-

we will consider additional store openings in countries or regions

agreements concluded with franchise owners, Lawson operates a

Malfunctions or interruptions of the Group’s IT system because of alated at NATURAL LAWSON in helping customers enjoy a healthy

with high economic growth prospects while carefully monitoring

chain of stores via store brand names that are owned by the Group.

computer virus or a natural disaster such as an earthquake in theand pleasant lifestyle. We will also press ahead with the full-scale

their economic and political conditions. Further, should opportuni-

Therefore, if the brand image of the overall chain is affected by ille-

Tokyo metropolitan area are expected to delay the delivery of prod-development of our healthcare business by not only selling OTC

ties arise to introduce our business model in developed countries,

gal or improper actions at a franchise store, there may be an impact

ucts to stores and cause the suspension of store services. The result

drugs in convenience stores but also developing a network of drug-

such as the United States or in European countries, we will proac-on the Group’s performance or financial position.

of such a malfunction or interruption of the IT system could have adispensing convenience stores. Seniors in particular will be able totively consider them.

Furthermore, the franchise system is designed to encourage

could affect the Group’s performance or financial position.

negative impact on the Group’s performance or financial position.

improved business performance for both franchise stores andplace a high degree of trust in these drug-dispensing convenience

Lawson, based on a relationship of mutual trust. If this relationshipof trust between franchise owners and Lawson is damaged for any
reason, and, as a consequence, many franchise agreements are can-BusIness RIsK FActoRs

celed, there may be an impact on the Group’s performance or finan-

The major risks that may influence the Group’s performance andcontamination by foreign matter or food mislabeling, the resulting

financial position are described below. Sufficiently aware that theseloss of customer trust could influence the Group’s performance andrisks may occur, the Group conducts risk management andfinancial position.

cial position.

responds in the best manner possible in case a risk materializes.
Nevertheless, these risks are only within the range of what can be

Risks relating to sharp rises in raw materials prices

forecast based on information currently available to Lawson, andIf the prices of raw materials should rise sharply because of unpre-

we do not believe they cover all potential risks relating to the

dictable events, such as a surge in the price of oil or abnormal

Group’s business operations.

weather, the Group’s performance or financial position could be
adversely affected.

Risks relating to changes in the business environment
Because the Group’s main business is the operation of convenience

Risks relating to the handling of personal information

stores, changes in consumer expenditure produced by fluctuations inIn the process of business operations, the Group handles the per-the domestic or overseas economic environment, business cycle

sonal information of customers, shareholders, suppliers, franchisetrends, or shifts in consumer behavior triggered by trends in social

owners, and other parties. The Group recognizes that the leakage

structure or weather conditions, as well as changes in competition withof personal information and improper access to personal informa-other companies in the convenience store sector or different retailtion are serious risks. Consequently, we have devised what we

sectors, may impact the Group’s earnings and financial condition.

believe to be the best possible information security measures andformulated a policy to protect personal information. We have also

Risks relating to food safety, hygiene management, and labelingensured that personnel within Lawson are thoroughly aware of

In the Group’s core business of convenience stores, we sell foodthese matters. However, should personal information be leaked or

products to customers. From the manufacturing process to sales indivulged outside Lawson under any circumstances, the Group’s per-stores, in cooperation with suppliers, the Group implements strict

formance or financial position may be affected.

quality control and properly labels items in terms of consumption
date, expiry date, production region, ingredients or raw materials

Legal and regulatory risks

used, and other information. The Group also performs rigorous

The Group operates numerous stores in all of Japan’s 47 prefec-

hygiene management and sales data management within stores.

tures as well as in Shanghai, Chongqing, and Dalian in China and the

However, in the event of a serious incident such as food poisoning,

special capital city district of Jakarta and surrounding area in

56

Lawson, Inc. AnnuAL RepoRt 2012

Lawson, Inc. AnnuAL RepoRt 201257

consoLIDAteD BALAnce sHeets
Lawson, Inc. and Consolidated Subsidiaries
February 29, 2012 and February 28, 2011
Thousands of
U.S. Dollars(Note 1)Millions of Yen

Assets

2012

2012

2011

cuRRent Assets:
Cash and cash equivalents
Time deposits¥ 73,670¥ 67,712

10,404

10,104$

913,114
128,954

Due from franchised stores (Notes 3 and 8)

19,521

16,159241,956

Other

32,64529,286404,623

Inventories
Deferred tax assets (Note 14)
Prepaid expenses and other current assets
Total current assets

Millions of Yen

LIABILItIes AnD equIty

2012

2011

2012

cuRRent LIABILItIes:

Accounts receivable:

Allowance for doubtful accounts

Thousands of
U.S. Dollars(Note 1)

Accounts payable:¥ 88,263¥ 81,399$1,093,989

Due to franchised stores (Note 8)

1,390

1,179

17,229Other

Trade (Notes 7 and 20)

19,05021,135

236,118

Current portion of long-term debt (Note 9)

11,754

8,017

145,687

15,305

10,673

189,700
929,660

(149)

(98)

(1,847)

Income taxes payable

8,076

7,012

100,099

Money held as agent

75,00562,34159,494

Accrued expenses and other current liabilities

7,212

7,852

89,389217,979

192,5962,701,772

8,745

7,530

108,391

4,800

4,944

11,191

9,891

138,709160,158

145,010

1,985,102

Total current liabilities
Long-teRM LIABILItIes:
Liability for employees’ retirement benefits (Note 10)

pRopeRty AnD stoRe equIpMent (Note 5):

Allowance for retirement benefits to executive officers andcorporate auditors

308

235

3,818

35,735

37,139442,923

6,815

6,610

84,470

Guarantee deposits received from franchised stores and other

Buildings

221,344

193,5122,743,480

Allowance for impairment loss on leased property (Note 17)

679

667

8,416

Furniture, fixtures, and equipment

63,564

61,156

787,853

Long-term debt (Note 9)37,90828,778469,856

Asset retirement obligations (Notes 2.m and 11)

15,161

Land (Note 6)

Lease assets (Notes 2.o and 17)
Total
Accumulated depreciation
Net property and store equipment

72,53851,055899,083

364,261

312,333

4,514,886(180,426)(153,499)(2,236,316)

183,835

158,834

2,278,570

187,915

276

625

3,421

98,812

74,974

1,224,740

Common stock—authorized, 409,300,000 shares in 2012 and 2011;
issued, 100,300,000 shares in 2012 and 2011

58,50758,507725,174

Capital surplus

47,707

47,696591,311

443

406

5,491

107,249

99,6081,329,313(1,628)(1,694)(20,178)

Other
Total long-term liabilities
equIty (Note 12):InvestMents AnD otHeR Assets:
Investment securities (Note 4)

528

642

6,544

Stock acquisition rights

Investments in associated companies

7,175

2,943

88,932Long-term loans receivable

32,13931,826398,352

Goodwill

10,872

7,717

134,755

Treasury stock—at cost, 416,166 shares in 2012 and 433,040 sharesin 2011

Software27,552

27,902

341,497

Accumulated other comprehensive income:Lease deposits

83,66681,655

1,037,010

Net unrealized loss on available-for-sale securities

(12)

(5)

(149)

Deferred tax assets (Note 14)

16,871

13,253

209,110Land revaluation difference (Note 6)

(567)

(634)

(7,027)

Claims in bankruptcy and reorganization

15,136

15,372

187,605

Foreign currency translation adjustments

(101)

1

(1,252)Other assets

9,374

6,930

116,188

Total

211,598

203,885

2,622,683(15,852)(16,047)(196,480)

Minority interests

3,065

4,582

37,990187,461

172,193

2,323,513

Total equity

214,663

208,467

2,660,673¥ 531,454¥ 476,037$ 6,587,185¥531,454¥476,037$6,587,185

Allowance for doubtful accounts
Total investments and other assets
TOTAL

Retained earnings

TOTAL

See notes to consolidated financial statements.

58

Lawson, Inc. AnnuAL RepoRt 2012

Lawson, Inc. AnnuAL RepoRt 201259

consoLIDAteD stAteMents oF IncoMe

consoLIDAteD stAteMents oF coMpReHensIve IncoMe

Lawson, Inc. and Consolidated Subsidiaries
Years Ended February 29, 2012 and February 28, 2011

Lawson, Inc. and Consolidated Subsidiaries
Years Ended February 29, 2012 and February 28, 2011
Thousands of
U.S. Dollars(Note 1)Millions of Yen

2012

2011

Millions of Yen

2012

net IncoMe BeFoRe MInoRIty InteRests

opeRAtIng Revenues:

Thousands of
U.S. Dollars(Note 1)

2012

2012

¥25,643$317,836

otHeR coMpReHensIve IncoMe:

Franchise commissions from franchised stores¥215,574¥197,673$2,671,963

Net sales from Company-operated stores

174,116

183,236

2,158,106

Unrealized loss on available-for-sale securities

(7)

(87)

Other

89,26760,3691,106,433

Land revaluation difference (Note 6)

67

831

478,957

441,278

5,936,502

Foreign currency translation adjustments(116)(1,439)Total operating revenues

Share of other comprehensive income in associates

costs AnD opeRAtIng expenses:
Cost of sales (Note 20)

156,246

143,101

1,936,614

Selling, general, and administrative expenses

260,942

242,636

3,234,283

Total costs and operating expenses

417,188385,737

5,170,897

Operating income

61,76955,541

765,605

Interest expense—net

(447)

(322)

(5,540)Equity in earnings of associated companies

381

312

4,722

Gain on negative goodwill

291

Gain on step acquisitions

1,571(2,069)(3,018)(25,645)

Loss on sales of property and store equipment(41)(1,304)(508)

Impairment of long-lived assets (Note 5)(3,319)(4,990)(41,138)

Loss on adjustment for adoption of accounting standard for asset
retirement obligations(8,293)

Loss on disaster (Note 15)(3,461)¥25,603$317,339¥24,843$307,920

760

9,419

totAL coMpReHensIve IncoMe AttRIButABLe to (Note 18):
Owners of the parent
Minority interests

19,472(102,789)(42,898)(97)(1,808)(1,202)(15,484)(11,130)(191,919)

46,28544,411

573,686

Current

22,963

16,552

284,618

Deferred(2,321)

1,668(28,768)

20,642

18,220255,850

25,643

26,191

317,836

(758)

(804)

(9,395)¥ 24,885¥ 25,387$ 308,441

IncoMe BeFoRe IncoMe tAxes AnD MInoRIty InteRests

(497)

3,607

Loss on disposal of property and store equipment

Other expenses—net

coMpReHensIve IncoMe

198

(40)

See notes to consolidated financial statements.

otHeR (expenses) IncoMe:

Other—net

Total other comprehensive income

16

IncoMe tAxes (Note 14):

Total income taxes
net IncoMe BeFoRe MInoRIty InteRests
MInoRIty InteRests In net IncoMe
net IncoMe

YenpeR sHARe oF coMMon stocK (Notes 2.s and 22):

U.S. Dollars

2012

2011

2012

$3.09

Net income—basic¥249.17¥254.61

Net income—diluted

248.80254.31

3.08

Cash dividends applicable to the year

180.00170.002.23

See notes to consolidated financial statements.

60

Lawson, Inc. AnnuAL RepoRt 2012

Lawson, Inc. AnnuAL RepoRt 201261

consoLIDAteD stAteMents oF cHAnges In equIty
Lawson, Inc. and Consolidated Subsidiaries
Years Ended February 29, 2012 and February 28, 2011
Thousands of Shares/Millions of Yen

SharesAmountCapitalSurplus

Stock
Acquisition
Rights99,600¥58,507¥41,520¥346

Common Stock

BALANCE, MARCH 1, 2010

Thousands of U.S. Dollars (Note 1)

Common Stock

CapitalSurplus

Stock
Acquisition
RightsRetained
Earnings

Treasury Stock$725,174$591,175$5,032$1,234,606$(20,997)

Treasury Stock

Retained
Earnings

SharesAmount¥ 94,172(432)¥(1,714)BALANCE, FEBRUARY 28, 2011

Net income

25,387

Net income

308,441

Year-end cash dividends, ¥80 per share(7,933)Year-end cash dividends, $1.05 per share(105,218)(8,489)Interim cash dividends, $1.08 per share(107,685)

Reversal of revaluation reserve for land

(831)

Interim cash dividends, ¥85 per share
Increase by share exchanges

1,602

6,176

Treasury stock—at cost:(903)

Purchase of treasury stock(3,510)1

Disposal of treasury stock
Retirement of treasury stock(902)(3,529)3,529

100,300

58,507

47,696406

99,60824,885Year-end cash dividends, ¥85 per share(8,489)Interim cash dividends, ¥87 per share(8,688)

Reversal of revaluation reserve for land

(67)

(433)

11
100,300¥58,507¥47,707¥443¥107,249

(3)

18

69

(416)

¥(1,628)

Thousands of Shares/Millions of Yen

BALANCE, MARCH 1, 2010

¥14

Land
Revaluation
Difference¥(634)

Foreign
Currency
Translation
Adjustments¥ 66

Minority
Interests¥192,277$591,311$5,491¥5,859$1,329,313$(20,178)

Thousands of U.S. Dollars (Note 1)

BALANCE, FEBRUARY 28, 2011

Net Unrealized
Loss onAvailable-forSale Securities

Land
Revaluation
Difference

Foreign
Currency
Translation
Adjustments$ (62)$(7,858)

$

12

Total
Equity¥198,136

25,38725,387Year-end cash dividends, ¥80 per share(7,933)(7,933)

Interim cash dividends, ¥85 per share(8,489)(8,489)

Increase by share exchanges

6,176

6,176

Purchase of treasury stock(3,510)(3,510)

Disposal of treasury stock

1

1

Minority
Interests

Total
Equity$2,527,082$ 56,792$2,583,874

308,441

308,441

Year-end cash dividends, $1.05 per share(105,218)(105,218)

Interim cash dividends, $1.08 per share(107,685)(107,685)

(37)

(37)

831

Reversal of revaluation reserve for land
Purchase of treasury stock

BALANCE, FEBRUARY 29, 2012

Net income

Total

Net income

Others—net
Total$725,174

Exercise of stock acquisition rights to shares(delivery of treasury stock)

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

856
459

Accumulated Other Comprehensive Income

37

Others—net

136

Others—net(1,694)(1)

Purchase of treasury stock
Exercise of stock acquisition rights to shares(delivery of treasury stock)

Exercise of stock acquisition rights to shares(delivery of treasury stock)
BALANCE, FEBRUARY 29, 2012

Net income

BALANCE, FEBRUARY 29, 2012

902

60

Others—net
BALANCE, FEBRUARY 28, 2011

(37)

Purchase of treasury stock

992
(87)
$(149)(1,264)$(7,027)(892)$(1,252) $2,622,683

992(18,802)(19,694)$ 37,990 $2,660,673

See notes to consolidated financial statements.

Treasury stock—at cost:

Retirement of treasury stock
Others—net(19)

BALANCE, FEBRUARY 28, 2011

(5)

(634)

(65)

(24)

(1,277)(1,301)

1

203,885

4,582

208,467

Net income

24,88524,885Year-end cash dividends, ¥85 per share(8,489)(8,489)Interim cash dividends, ¥87 per share(8,688)(8,688)

(3)

(3)

67

Reversal of revaluation reserve for land
Purchase of treasury stock
Exercise of stock acquisition rights to shares(delivery of treasury stock)
Others—net
BALANCE, FEBRUARY 29, 201262

Lawson, Inc. AnnuAL RepoRt 2012

80
(7)
¥(12)

¥(567)

80

(102)

(72)

(1,517)(1,589)¥(101)¥211,598¥3,065¥214,663

Lawson, Inc. AnnuAL RepoRt 201263

consoLIDAteD stAteMents oF cAsH FLows

notes to consoLIDAteD FInAncIAL stAteMents

Lawson, Inc. and Consolidated Subsidiaries
Years Ended February 29, 2012 and February 28, 2011

Lawson, Inc. and Consolidated Subsidiaries
Years Ended February 29, 2012 and February 28, 2011
Thousands of
U.S. Dollars(Note 1)Millions of Yen

opeRAtIng ActIvItIes:
Income before income taxes and minority interests
Adjustments for:
Income taxes paid
Payments for loss on disaster
Depreciation and amortization
Impairment of long-lived assets(Reversal of) provision for allowance for doubtful accounts
Loss on disposal of property and store equipment
Equity in earnings of associated companies
Loss on adjustment for adoption of accounting standard for asset
retirement obligations
Loss on disaster
Gain on step acquisitions
Other—net
Changes in assets and liabilities:
Decrease (increase) in claims in bankruptcy and reorganization(Increase) decrease in accounts receivable
Increase in prepaid expenses and other current assets(Increase) decrease in inventories
Increase in accounts payable
Increase (decrease) in money held as agent
Decrease in accrued expenses and other liabilities
Increase in allowance for retirement benefits to employees andexecutive officers and corporate auditors
Decrease in guarantee deposits received from franchised storesand other
Total adjustments
Net cash provided by operating activities
InvestIng ActIvItIes:
Payments into time deposits
Proceeds from withdrawal of time deposits
Proceeds from redemption of marketable securities
Acquisition of a subsidiary, net of cash paid
Purchases of property and store equipment
Purchases of software and other intangible assets(Increase) decrease in lease deposits—net
Increase in long-term loans
Acquisition of associated companies
Payments for transfer of business
Other—net
Net cash used in investing activities
FInAncIng ActIvItIes:
Repayments of long-term debt
Cash dividends paid
Purchase of treasury stock
Other—net
Net cash used in financing activities
FoReIgn cuRRency tRAnsLAtIon ADjustMents on cAsH AnD cAsH
equIvALents
net IncReAse In cAsH AnD cAsH equIvALents
cAsH AnD cAsH equIvALents, BegInnIng oF yeAR
IncReAse In cAsH AnD cAsH equIvALents ResuLtIng FRoM cHAnge oF
consoLIDAtIon
cAsH AnD cAsH equIvALents, enD oF yeAR
See notes to consolidated financial statements.

64

Lawson, Inc. AnnuAL RepoRt 2012

2012

2011

2012

¥ 46,285¥ 44,411$ 573,686(18,405)(3,373)37,846
3,319
(384)
2,065
(291)

(15,677)
33,084
4,990
1,352
1,468
(312)

(228,123)(41,807)
469,088
41,138(4,760)25,595(3,607)

8,293
3,461
(1,571)
408

2,686

102,789
42,898(19,472)
5,057

236(2,794)(1,252)(921)
1,328
12,656(242)(1,789)
3,394
(215)
57
3,678
(3,560)
(744)

2,925
(34,631)(15,519)(11,415)
16,460156,867(3,000)

1,289

959

15,977(1,596)40,07286,357(1,572)
27,79972,210(19,782)496,678
1,070,364

1. BAsIs oF pResentIng consoLIDAteD FInAncIAL stAteMents
The accompanying consolidated financial statements have been prepared in accordance with the provisions set
forth in the Japanese Financial Instruments and Exchange Act and its related accounting regulations, and in
conformity with accounting principles generally accepted in Japan (“Japanese GAAP”), which are different incertain respects as to application and disclosure requirements from International Financial Reporting Standards.
Under Japanese GAAP, a consolidated statement of comprehensive income is required from the fiscal year
ended March 31, 2011, and has been presented herein. Accordingly, accumulated other comprehensive income is presented in the consolidated balance sheet and the consolidated statement of changes in equity.
Information with respect to other comprehensive income for the year ended February 28, 2011, is disclosed in
Note 18. In addition, “net income before minority interests” is disclosed in the consolidated statement of income from the year ended February 29, 2012.
In preparing these consolidated financial statements, certain reclassifications and rearrangements havebeen made to the consolidated financial statements issued domestically in order to present them in a form
which is more familiar to readers outside Japan. In addition, certain reclassifications have been made in the2011 financial statements to conform to the classifications used in 2012.
The consolidated financial statements are stated in Japanese yen, the currency of the country in which
Lawson, Inc. (formerly, LAWSON, INC., the “Company”) is incorporated and operates. The translations ofJapanese yen amounts into U.S. dollar amounts are included solely for the convenience of readers outside
Japan and have been made at the rate of ¥80.68 to $1, the approximate rate of exchange at February 29,
2012. Such translations should not be construed as representations that the Japanese yen amounts could be
converted into U.S. dollars at that or any other rate.
Mitsubishi Corporation (“Mitsubishi”) owns 32,399 thousand shares of common stock of the Company (including indirect holdings) as of February 29, 2012, which represent 32.4% of the total voting rights of theCompany. Accordingly, Mitsubishi is a principal shareholder.

2. suMMARy oF sIgnIFIcAnt AccountIng poLIcIes(20,404)
20,104(982)(28,867)(7,449)(1,933)(298)(6,335)(3,415)(3,333)(52,912)(26,304)
25,3742,500(809)(22,883)(7,511)
2,299(2,069)(650)(469)(30,522)(252,900)
249,182(12,172)(357,796)(92,328)(23,959)(3,694)(78,520)(42,328)(41,310)(655,825)

a. consolidation—The consolidated financial statements include the accounts of the Company and its ten(seven in 2011) subsidiaries (collectively, the “Companies”). Consolidation of the remaining subsidiarywould not have a material effect on the accompanying consolidated financial statements.
Under the control or influence concept, those entities in which the Company, directly or indirectly, is able
to exercise control over operations are fully consolidated, and those entities over which the Companies havethe ability to exercise significant influence are accounted for by the equity method.
Investments in three (two in 2011) associated companies are accounted for by the equity method.
Investments in the remaining associated companies are stated at cost. If the equity method of accounting
had been applied to the investments in these entities, the effect on the accompanying consolidated financial statements would not be material.
All significant intercompany balances and transactions have been eliminated in consolidation. All material
unrealized profit included in assets resulting from transactions within the Companies is eliminated.

(10,434)(17,177)(8,867)(16,422)(3,510)(129,326)(212,903)

66(27,545)(28,799)818(341,411)

8
5,908
67,712(20)
12,86954,843100
73,228839,266

The excess of the cost of the Company’s investments in consolidated subsidiaries and associated companies over the fair value of the net assets at the dates of acquisition is being amortized over a period notexceeding 20 years.

b. unification of Accounting policies Applied to Foreign Associated companies for the equity
Method—The current accounting standard requires to unify accounting policies within the consolidationgroup. However, the current guidance allows to apply the equity method for the financial statements of its
foreign associated companies which have been prepared in accordance with generally accepted accounting
principles in their respective jurisdictions without unification of accounting policies.
In March 2008, the Accounting Standards Board of Japan (the “ASBJ”) issued ASBJ Statement No. 16,“Accounting Standard for Equity Method of Accounting for Investments.” The new standard requires ad-

50¥ 73,670¥ 67,712

620$ 913,114

justments to be made to conform the associate’s accounting policies for similar transactions and events
under similar circumstances to those of the parent company when the associate’s financial statements areused in applying the equity method unless it is impracticable to determine adjustments. In addition,

Lawson, Inc. AnnuAL RepoRt 201265

notes to consoLIDAteD FInAncIAL stAteMents

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

Company is credited to the “Due to franchised stores” account and then applied to working capital for pur-Financial Reporting Standards or the generally accepted accounting principles in the United States tenta-

chases of merchandise and supplies for the franchised store.

tively may be used in applying the equity method if the following items are adjusted so that net income is

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

accounted for in accordance with Japanese GAAP unless they are not material: (1) amortization of goodwill;

provides franchisees with furniture, fixtures, and equipment designed for the LAWSON stores. In some cas-(2) scheduled amortization of actuarial gain or loss of pensions that has been directly recorded in the eq-

es, franchisees may also be provided with the land or buildings for the stores. However, the Company doesuity; (3) expensing capitalized development costs of R&D; (4) cancellation of the fair value model account-

not require the franchisees to make lease payments related to the stores. Instead, a higher percentage ap-

ing for property, plant, and equipment and investment properties and incorporation of the cost model

plicable to the gross margin would be used as the basis for determining the franchise commissions. The

accounting; (5) recording the prior years’ effects of changes in accounting policies in the income statement

portion of franchise commission attributable to property and store equipment leases is not separately ac-

where retrospective adjustments to the financial statements have been incorporated; and (6) exclusion ofcounted for by the Company.

minority interests from net income, if contained.
The Companies applied this accounting standard effective March 1, 2011. There was no effect on applying this change.

e. cash and cash equivalents—Cash and cash equivalents include cash on hand, demand deposits andshort-term investments, which mature or become due within three months of the date of acquisition andwhich are readily convertible into cash and are exposed to insignificant risk of changes in value.

c. Business combination—In October 2003, the Business Accounting Council issued a Statement of
Opinion, “Accounting for Business Combinations,” and in December 2005, the ASBJ issued ASBJ Statement

f. Inventories—Substantially all inventories are stated at the lower of cost, determined by the retail method

No. 7, “Accounting Standard for Business Divestitures,” and ASBJ Guidance No. 10, “Guidance foras generally applied in the retail industry, or net selling value. Inventories of certain consolidated subsidiar-

Accounting Standard for Business Combinations and Business Divestitures.” The accounting standard fories are stated at the lower of cost, determined by the specific identification method, or net selling value.

business combinations allows companies to apply the pooling of interests method of accounting only whencertain specific criteria are met such that the business combination is essentially regarded as a uniting-of-

g. Marketable and Investment securities—Marketable and investment securities are classified and ac-interests. For business combinations that do not meet the uniting-of-interests criteria, the business combi-

counted for, depending on management’s intent, as follows: (1) held-to-maturity debt securities, which arenation is considered to be an acquisition and the purchase method of accounting is required. This standard

expected to be held to maturity with the positive intent and ability to hold to maturity are reported at am-also prescribes the accounting for combinations of entities under common control and for joint ventures.

ortized cost and (2) available-for-sale securities, which are not classified as the aforementioned securities,

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

are stated at fair value based on market quotation. Unrealized gains and losses, net of applicable taxes, areStatement No. 21, “Accounting Standard for Business Combinations.” Major accounting changes under thereported in a separate component of equity. The cost of securities sold is determined based on the moving

revised accounting standard are as follows: (1) The revised standard requires accounting for business com-average method.

binations only by the purchase method. As a result, the pooling of interests method of accounting is no

Non-marketable available-for-sale securities are stated at cost determined by the moving-average meth-

longer allowed. (2) The current accounting standard accounts for the research and development costs to beod. For other-than-temporary declines in fair value, non-marketable available-for-sale securities are reduced

charged to income as incurred. Under the revised standard, in-process research and development (IPR&D)

to net realizable value by a charge to income.

acquired in the business combination is capitalized as an intangible asset. (3) The previous accounting
standard provided for a bargain purchase gain (negative goodwill) to be systematically amortized over ah. property and store equipment—Property and store equipment are stated at cost except for land (seeperiod not exceeding 20 years. Under the revised standard, the acquirer recognizes the bargain purchase

Note 6). Depreciation is computed mainly by the declining balance method at rates based on the estimatedgain in profit or loss immediately on the acquisition date after reassessing and confirming that all of theuseful lives of the assets. The range of useful lives is principally from 10 to 34 years for buildings and struc-assets acquired and all of the liabilities assumed have been identified after a review of the procedures usedtures and from 5 to 8 years for furniture, fixtures and equipment.

in the purchase allocation.

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

The Companies applied this accounting standard for business combinations undertaken on or after April 1, 2010.

i. Long-Lived Assets—The Companies review their long-lived assets for impairment whenever events or
d. Franchise Agreement and Basis of Recognizing Franchise commission—The Company operates

changes in circumstance indicate the carrying amount of an asset or asset group, mainly by each store, may

principally in a single industry commonly classified as the convenience store business with its own stores

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

and franchised stores. The Company allows each independent franchisee to operate relatively small-sizedgroup exceeds the sum of the undiscounted future cash flows expected to result from the continued use

convenience stores using specific designs and the LAWSON brand names, and provides related managerial

and eventual disposition of the asset or asset group. The impairment loss would be measured as theor technical know-how under a franchise agreement. Under the agreement, all franchised stores are pro-amount by which the carrying amount of the asset exceeds its recoverable amount, which is the higher ofvided with a variety of services and advice on the operation of convenience stores from the Company as thethe discounted cash flows from the continued use and eventual disposition of the assets or the net sellingfranchisor. In return, such franchised stores are required to pay continuing franchise commissions to theprice at disposition.

Company based on certain percentages of the respective franchised store’s gross margin. As the franchisor,
the Company accounts for franchise commissions on an accrual basis by reference to the gross margin
earned by each franchised store and the applicable commission percentage. According to the franchise

j. software—Software used by the Companies is amortized using the straight-line method based on theestimated useful life (mainly five years).

agreement, a franchised store may pay additional guarantee deposits equal to twice the average monthly
sales amounts of the respective store and pay a lower commission percentage.
The term of a franchise agreement is effective primarily for 10 years from the commencement date of a
new store’s operation as a franchised store, and may be extended or renewed upon expiration subject torenegotiation of contract terms between the Company and the franchisee.
The franchise agreement usually provides that the franchised store shall make a cash payment to theCompany in the amount of ¥3 million upon commencement. Upon receipt of such payment, ¥1.5 million iscredited to income of the Company as “Operating revenues—franchise commissions from franchisedk. employees’ Retirement Benefits—The Company and a certain domestic subsidiary have defined benefit
lump-sum severance indemnity plans which cover substantially all of their employees. The Company established a trust fund for its lump-sum severance indemnity plan.
The Companies account for the liability for retirement benefits based on the projected benefit obligations
and plan assets at the balance sheet date.
In addition to the lump-sum severance indemnity plan, the Company has a defined contribution plan forseverance payments. The Company recognizes expenses in the period when the contribution was called for.

stores” for services related to the opening of the LAWSON store. The remaining amount received by the66

Lawson, Inc. AnnuAL RepoRt 2012

Lawson, Inc. AnnuAL RepoRt 201267

notes to consoLIDAteD FInAncIAL stAteMents

l. Allowance for Retirement Benefits to executive officers and corporate Auditors—The provisions

p. Income taxes—The Companies provide for income taxes applicable to all items included in the consoli-

are calculated to state the liability at 100% of the amount that would be required if all executive officers

dated statements of income regardless of when such taxes are payable. Deferred income taxes are recorded

and corporate auditors resigned as of each balance sheet date.

to reflect the impact of temporary differences between assets and liabilities recognized for financial reporting purposes and such amounts recognized for tax purposes. These deferred taxes are measured by apply-

m. Asset Retirement obligations—In March 2008, the ASBJ published a new accounting standard for asset

ing currently enacted tax laws to the temporary differences.

retirement obligations, ASBJ Statement No. 18, “Accounting Standard for Asset Retirement Obligations,” andASBJ Guidance No. 21, “Guidance on Accounting Standard for Asset Retirement Obligations.” Under this ac-

q. Appropriations of Retained earnings—Appropriations of retained earnings at each year-end arecounting standard, an asset retirement obligation is defined as a legal obligation imposed either by law or

reflected in the consolidated financial statements for the following year upon shareholders’ approval.

contract that results from the acquisition, construction, development, and the normal operation of a tangible
fixed asset and is associated with the retirement of such tangible fixed asset.
The asset retirement obligation is recognized as the sum of the discounted cash flows required for the

r. Foreign currency Financial statements—The balance sheet accounts of an associated company denominated in foreign currencies are translated into Japanese yen at the current exchange rate as of the

future asset retirement and is recorded in the period in which the obligation is incurred if a reasonable esti-balance sheet date except for equity, which is translated at the historical rate. Differences arising from suchmate can be made. If a reasonable estimate of the asset retirement obligation cannot be made in the periodtranslation are shown as “Foreign currency translation adjustments” and “Minority interests” in a separate

the asset retirement obligation is incurred, the liability should be recognized when a reasonable estimate ofcomponent of equity. Revenue and expense accounts of an affiliated company denominated in foreign cur-asset retirement obligation can be made. Upon initial recognition of a liability for an asset retirement obli-

rencies are translated into yen at the current exchange rate.

gation, an asset retirement cost is capitalized by increasing the carrying amount of the related fixed asset
by the amount of the liability. The asset retirement cost is subsequently allocated to expense through de-s. per share Information—Basic net income per share is computed by dividing net income available topreciation over the remaining useful life of the asset. Over time, the liability is accreted to its present valuecommon shareholders by the weighted-average number of common shares outstanding for the period.

each period. Any subsequent revisions to the timing or the amount of the original estimate of undiscounted
cash flows are reflected as an increase or a decrease in the carrying amount of the liability and the capitalized amount of the related asset retirement cost.
The Companies applied this accounting standard effective March 1, 2011. The effect of this change wasto decrease operating income by ¥967 million ($11,986 thousand) and income before income taxes andminority interests by ¥9,157 million ($113,498 thousand).

The number of shares used in computing net income per share was 99,871 thousand shares for 2012
and 99,705 thousand shares for 2011.
Diluted net income per share for the years ended February 29, 2012 and February 28, 2011, 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.
Cash dividends per share presented in the accompanying consolidated statements of income are dividends applicable to the respective years including dividends to be paid after the end of year.

n. stock options—In December 2005, the ASBJ issued ASBJ Statement No. 8, “Accounting Standard forand after May 1, 2006. This standard requires companies to recognize compensation expense for employeet. new Accounting pronouncements
Accounting changes and error corrections—In December 2009, ASBJ issued ASBJ Statement No. 24,

stock options based on the fair value at the date of grant and over the vesting period as consideration for“Accounting Standard for Accounting Changes and Error Corrections” and ASBJ Guidance No. 24, “Guidance

receiving goods or services. The standard also requires companies to account for stock options granted toon Accounting Standard for Accounting Changes and Error Corrections.” Accounting treatments under thisnon employees based on the fair value of either the stock option or the goods or services received. In thestandard and guidance are as follows:

Stock Options,” and related guidance. The standard and guidance are applicable to stock options granted onbalance sheet, the stock option is presented as a stock acquisition right in a separate component of equity
until exercised. The standard covers equity-settled, share-based payment transactions, but does not cover(1) changes in accounting policies

cash-settled, share-based payment transactions. In addition, the standard allows unlisted companies toWhen a new accounting policy is applied with revision of accounting standards, the new policy is ap-

measure options at their intrinsic value if they cannot reliably estimate fair value. The Company has applied

plied retrospectively unless the revised accounting standards include specific transitional provisions.

this accounting standard for stock options to those granted on and after May 1, 2006.

When the revised accounting standards include specific transitional provisions, an entity shall comply
with the specific transitional provisions.

o. Leases—In March 2007, the ASBJ issued ASBJ Statement No. 13, “Accounting Standard for Lease
Transactions,” which revised the previous accounting standard for lease transactions issued in June 1993. The(2) changes in presentations

revised accounting standard for lease transactions was effective for fiscal years beginning on or after April 1,

When the presentation of financial statements is changed, prior period financial statements are reclas-

2008.

sified in accordance with the new presentation.

Under the previous accounting standard, finance leases that were deemed to transfer ownership of theleased property to the lessee were capitalized. However, other finance leases were permitted to be account-(3) changes in accounting estimates

ed for as operating lease transactions if certain “as if capitalized” information was disclosed in the notes to

A change in an accounting estimate is accounted for in the period of the change if the change affects

the lessee’s financial statements. The revised accounting standard requires that all finance lease transac-

that period only, and is accounted for prospectively if the change affects both the period of the changetions be capitalized to recognize lease assets and lease obligations in the balance sheet. In addition, theand future periods.

accounting standard permits leases which existed at the transition date and which do not transfer ownership of the leased property to the lessee to be accounted for as operating lease transactions.
The Companies applied the revised accounting standard effective March 1, 2009. In addition, the(4) corrections of prior period errors
When an error in prior period financial statements is discovered, those statements are restated.

Companies continue to account for leases which existed at the transition date and which do not transfer
ownership of the leased property to the lessee as operating lease transactions.
All other leases are accounted for as operating leases.

68

Lawson, Inc. AnnuAL RepoRt 2012

The Companies will adopt the new standard and guidance for accounting changes and corrections of priorperiod errors which are made from the beginning of the fiscal year that begins on or after March 1, 2012.

Lawson, Inc. AnnuAL RepoRt 201269

notes to consoLIDAteD FInAncIAL stAteMents

The above-noted assets, which incurred impairment losses for the years ended February 29, 2012 and3. Accounts ReceIvABLe—Due FRoM FRAncHIseD stoRes

February 28, 2011, consisted of the following:

Under the franchise agreement, the Company is responsible for providing architectural and design services

Thousands of
U.S. Dollars

Millions of Yen

with respect to the franchised stores’ facilities, for training of the franchisees’ personnel, and for the central-2012

ized processing of invoices from suggested vendors of merchandise and subsequent payments of amounts

2011

2012

Fixed assets and lease assets:payable to such vendors.
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 arepresentative 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 the

Land

¥ 155

Buildings

2,102$ 1,921¥2,04326,054

Furniture, fixtures, and equipment

251

381

3,111

Lease assets

674

1,095

8,354

1,439

Software“Accounts receivable—due from franchised stores” account since such costs shall be subsequently recovered

Othersfrom the respective franchised stores.

Total

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

137

32

1,698

¥3,319¥4,990$41,138

The recoverable amount of these assets was measured based on net selling price or value in use. The net
selling price of land was calculated based on the appraised value by a real estate appraiser or an expected
contract price. The value in use was calculated by discounting estimated future cash flows. The discount rateused was mainly 4.3% and 3.3% for the years ended February 29, 2012 and February 28, 2011, respectively.

4. MARKetABLe AnD InvestMent secuRItIes
Marketable and investment securities as of February 29, 2012 and February 28, 2011, consisted of the following:Thousands of
U.S. Dollars

Millions of Yen

Non-current—Marketable and other equity securities

2012

2011

2012

¥528

¥642

$6,544The costs and aggregate fair values of marketable and investment securities at February 29, 2012 andFebruary 28, 2011, were as follows:
Cost

Unrealized Gains

Under the “Law of Land Revaluation,” promulgated on March 31, 1998 and revised on March 31, 1999 and2001, the Company chose a one-time revaluation of its own-use land to a value based on real estate appraisal
information as of February 28, 2002.
The resulting land revaluation difference represents unrealized depreciation of land and is stated, net ofMillions of Yen
February 29, 2012

6. LAnD RevALuAtIon

Unrealized Losses

Fair Value

income taxes, as a component of equity. There was no effect on the consolidated statements of income.
Continuous readjustment is not permitted unless the land value subsequently declines significantly.

Securities classified as—
Available-for-sale—
Equity securities¥169

February 28, 2011

Cost

Securities classified as—
Available-for-sale—
Equity securities¥166

As at February 29, 2012, the carrying amount of the land after the above one-time revaluation exceeded
¥54

¥115

Unrealized Losses

Fair Value

¥22

¥144

the market value by ¥287 million ($3,557 thousand).

Millions of Yen
Unrealized Gains

7. Accounts pAyABLe—tRADe
Thousands of U.S. Dollars

February 29, 2012

Cost

Unrealized Gains

Unrealized Losses

Fair Value

The balances of “Accounts payable—trade” represent the amounts payable to vendors for merchandise purchased by Company-operated stores and franchised stores. The Company centralizes all merchandise purchasing procedures both for Company-operated stores and franchised stores and makes collective payments toSecurities classified as—
Available-for-sale—
Equity securities

vendors (see Note 3).
$2,094$669$1,425“Accounts payable—trade” as of February 29, 2012 and February 28, 2011, were summarized below:
Thousands of
U.S. Dollars

Millions of Yen

5. Long-LIveD Assets
The Companies mainly identify each store as the smallest cash generating unit. The Companies recognize an
impairment loss in the case where the value of long-lived assets has declined, primarily as a result due to con-

2012

2011

2012

Accounts payable—trade for franchised stores¥74,501¥68,384$ 923,413

Accounts payable—trade for Company-operated stores

13,76213,015

170,576

Total¥88,263¥81,399$1,093,989

tinuous operating losses. The carrying amounts of those assets written down to the recoverable amounts andan impairment loss is recorded in other expenses in the consolidated statements of income.
The Companies recognized an impairment loss in the following asset categories for the years ended
February 29, 2012 and February 28, 2011:
Thousands of
U.S. Dollars

Millions of Yen
Category

Related Assets

Location

2012

2011

2012

StoresBuildings andFurniture, fixtures,and equipment
Software
OthersTokyo
Osaka
Others

¥ 547
558
2,214

¥1,223
192
2,130
1,439
6
¥4,990$ 6,780
6,916
27,442

Other
Total

70

Lawson, Inc. AnnuAL RepoRt 2012

¥3,3198. Accounts pAyABLe—Due to FRAncHIseD stoRes
The cost of merchandise supplied to franchised stores is recorded as “Accounts receivable—due from franchised stores” as described in Note 3.
All franchised stores make remittances of cash proceeds from daily sales to the Company. In certain instances, the remittance from a franchised store exceeds the balance of “Accounts receivable—due from franchised
stores.” In the accompanying consolidated balance sheets, such excess balances are presented as “Accounts
payable—due to franchised stores.”$41,138

Lawson, Inc. AnnuAL RepoRt 201271

notes to consoLIDAteD FInAncIAL stAteMents

The components of net periodic benefit costs for the years ended February 29, 2012 and February 28,

9. cuRRent poRtIon oF Long-teRM DeBt AnD Long-teRM DeBt

2011, were as follows:

The current portion of long-term debt consisted of notes to banks and lease obligations at February 29, 2012
and February 28, 2011.
The annual interest rates applicable to the current portion of long-term debt ranged from 1.00% to 5.01%
at February 29, 2012 and ranged from 2.24% to 3.28% at February 28, 2011.
Long-term debt less the current portion at February 29, 2012 and February 28, 2011 consisted of the following:Thousands of
U.S. Dollars

Millions of Yen

2012

2011

2012

Loans from banks and leasing companies, due seriallythrough 2019 with interest rates ranging from 1.00%
to 5.01% (2012) and from 1.00% to 3.28% (2011)—
Unsecured¥ 49,662¥36,795$ 615,543

Less current portion(11,754)(8,017)(145,687)

Long-term debt, less current portion¥ 37,908¥28,778$ 469,856

2012

2011

2012

Service cost

¥1,076¥1,029$13,337

Interest cost

265

249

3,285

Amortization of prior service cost

173

175

2,144

Recognized actuarial loss

92

85

1,140

Contribution to defined contribution plan
Net periodic benefit costs

Thousands of
U.S. Dollars

2013¥11,754$145,687

2014

11,197

138,783

2015

8,902

110,337

2016

6,957

86,2302017 and thereafter

10,852

134,506

Total¥49,662$615,543

271

3,446

¥1,809$23,352

2012

2011

2.0%

2.0%

0%

0%

Amortization period of prior service cost

10 years

10 years

Recognition period of actuarial gain/loss

10 years

10 years

Discount rate
Expected rate of return on plan assets

are as follows:
Millions of Yen

278¥1,884

Assumptions used for the years ended February 29, 2012 and February 28, 2011, were as follows:

Annual maturities of long-term debt as of February 29, 2012, for the following five years (and thereafter)

Year Ending February 28 or 29

Thousands of
U.S. Dollars

Millions of Yen

11. Asset RetIReMent oBLIgAtIons
The changes in asset retirement obligations for the year ended February 29, 2012, were as follows:
Millions of Yen

Balance at beginning of year:
Additional provisions associated with the acquisition of property,
plant, and equipment

10. eMpLoyees’ RetIReMent BeneFIts
The Company and a certain domestic subsidiary each have a defined benefit lump-sum severance indemnity plan.
Under the plans, employees terminating their employment are entitled to retirement benefits determined

1,151

14,266
2,652

Reduction associated with settlement of asset retirement obligations(407)(5,044)

15,263

189,179

Asset retirement obligations, less current portion

subsidiary. Employees are entitled to larger payments if the termination is involuntary, by retirement at the2012$177,305

214

Less current portion

ment benefits are made in the form of a lump-sum severance payment from the Company or from a certain

2012¥14,305

Reconciliation associated with passage of time
Total

based on the rate of pay, years of service, and certain other factors at the time of termination. Such retire-

Thousands of
U.S. Dollars(102)(1,264)¥15,161$187,915

mandatory retirement age, by death, or by voluntary retirement at certain specific ages prior to the mandatory retirement age.
The funded status of these plans as of February 29, 2012 and February 28, 2011, was as follows:
Thousands of
U.S. Dollars

Millions of Yen

Projected benefit obligation

2012

2011

2012

¥14,890¥13,676$184,556(5,577)(5,577)(69,125)

Unrecognized prior service cost

(351)

(527)

(4,351)

Unrecognized actuarial loss

(217)

(42)

(2,689)¥ 8,745¥ 7,530$108,391

Fair value of plan assets

Net liability

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

12. equIty
Japanese companies are subject to the Companies Act of Japan (the “Companies Act”). The significant provisions in the Companies Act that affect financial and accounting matters are summarized below:

a. Dividends
Under the Companies Act, companies can pay dividends at any time during the fiscal year in addition to theyear-end dividend upon resolution at the shareholders’ meeting. For companies that meet certain criteria suchas; (1) having the Board of Directors, (2) having independent auditors, (3) having the Board of Corporate
Auditors, and (4) the term of service of the directors is prescribed as one year rather than two years of normal

actuarial method. Additionally, the Company and a certain subsidiary each have a defined contribution plan.

term by its articles of incorporation, the Board of Directors may declare dividends (except for dividends in

The costs of defined contribution plans are charged to expense when incurred.

kind) at any time during the fiscal year if the company has prescribed so in its articles of incorporation.
The Companies Act permits companies to distribute dividends-in-kind (non-cash 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 thearticles of incorporation of the company so stipulate. The Companies Act provides certain limitations on theamounts available for dividends or the purchase of treasury stock. The limitation is defined as the amountavailable for distribution to the shareholders, but the amount of net assets after dividends must be maintained at no less than ¥3 million.

72

Lawson, Inc. AnnuAL RepoRt 2012

Lawson, Inc. AnnuAL RepoRt 201273

notes to consoLIDAteD FInAncIAL stAteMents

b. Increases/Decreases and transfer of common stock, Reserve, and surplus

The following is a summary of Ninety-nine Plus, Inc.’s stock option plans:

The Companies Act requires that an amount equal to 10% of dividends must be appropriated as a legal reserve(a component of retained earnings) or as additional paid-in capital (a component of capital surplus) dependingon the equity account charged upon the payment of such dividends until the total of aggregate amount of legal

Stock Option

Persons Granted

2nd Stock
Option9 directors and auditors

reserve and additional paid-in capital equals 25% of the common stock. Under the Companies Act, the total

Date of Grant

3,824
shares2003.10.31 ¥90,000
From September 4, 2005($1,115.52) to September 3, 2010

Exercise Price

Exercise Period

226 managers(including store manager)

amount of additional paid-in capital and legal reserve may be reversed without limitation. The Companies Act
also provides that common stock, legal reserve, additional paid-in capital, other capital surplus, and retained

58 Ninety-nine Plus
Kansai Inc.’s managers(including store manager)

earnings can be transferred among the accounts under certain conditions upon resolution of the shareholders.

c. treasury stock and treasury stock Acquisition Rights

Number of
Options Granted

The stock option activity is as follows:

The Companies Act also provides for companies to purchase treasury stock and dispose of such treasury stock

4th Stock
Optionby resolution of the Board of Directors. The amount of treasury stock purchased cannot exceed the amount5th Stock
Option6th (a)Stock
Option6th (b)Stock
Option7th (a)Stock
Optionvides that companies can purchase both treasury stock acquisition rights and treasury stock. Such treasury
stock acquisition rights are presented as a separate component of equity or deducted directly from stock acquisition rights.

8th (a)Stock
Option8th (b)Stock
Option9th Stock
OptionNinety-nine
10th Stock 11th Stock Plus, Inc.’s 2nd
OptionOptionStock Option(Shares)available for distribution to the shareholders which is determined by specific formula. Under the Companies
Act, stock acquisition rights are presented as a separate component of equity. The Companies Act also pro-

7th (b)Stock
OptionYear Ended February 28,
2011
Non-vested
February 28, 2010—
Outstanding

36,00018,900GrantedCanceled

13. stocK optIons(36,000)

VestedThe Company has stock option plans as an incentive for directors, executive officers, and selected employees.

(18,900)

February 28, 2011—
Outstanding

The stock options outstanding as of February 29, 2012, are as follows:
Number of
Options Granted

Date of Grant

Exercise
Price

Exercise Period

VestedStock Option

Persons Granted

4th Stock
Option9 directors and 24
executive officers

114,000 shares2005.10.12 ¥4,160($51.56)

From October 12, 2007
to December 31, 2010

5th Stock
Option9 directors

22,400 shares2005.10.12 ¥1($0.01)

From October 13, 2005
to May 31, 2025

6th (a) Stock
Option9 directors

21,300 shares2006.10.26 ¥1($0.01)

From October 27, 2006
to May 26, 2026

6th (b) Stock
Option9 directors and 14
executive officers

83,000 shares2006.10.26 ¥4,053($50.24)

From October 28, 2008
to October 26, 2011

7th (a) Stock
Option7 directors

18,000 shares2007.9.5¥1($0.01)

From September 6, 2007
to August 20, 2027

7th (b) Stock
Option

14 executive
officers

45,000 shares2007.9.5¥3,949($48.95)

From September 7, 2009
to August 20, 2012

8th (a) Stock
Option7 directors

26,400 shares2009.1.16¥1($0.01)

From January 17, 2009
to December 15, 2028

8th (b) Stock
Option

11 executive
officers

36,000 shares2009.1.16¥5,174($64.13)

From January 18, 2011
to December 15, 2013

Canceled

9th Stock
Option7 directors

21,500 shares2010.2.17¥1($0.01)

From February 18, 2010
to February 1, 2030

February 29, 2012—
Outstanding

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

February 28, 2010—
Outstanding

100,600

15,00021,30080,00018,00042,00026,40021,50036,000

Vested104
18,900Exercised
Canceled(100,600)

February 28, 2011—
Outstanding(104)
15,00021,30080,00018,00042,00026,40036,00021,50018,900Year Ended February 29,
2012

Non-vested
February 28, 2011—
Outstanding
27,000Granted(27,000)

VestedVestedFebruary 28, 2011—
Outstanding

15,00021,30080,00018,00042,00026,40036,00021,50018,90027,000

VestedExercised(8,700)Canceled(71,300)

February 29, 2012—
Outstanding
Exercise price¥4,160($51.56)

15,00021,30018,000¥1($0.01)¥1¥4,053($0.01) ($50.24)¥1 ¥3,949($0.01) ($48.95)¥4,478($55.50)¥4,636($57.46)¥618 ¥2,852($7.66) ($35.35)¥397 ¥3,477($4.92) ($43.10)

Average stock priceat exercise
Fair value price at
grant date74

Lawson, Inc. AnnuAL RepoRt 2012

(9,000)¥3,178($39.39)

33,00026,40036,00021,50018,90027,000¥1¥5,174($0.01) ($64.13)¥1($0.01)¥1($0.01)¥1¥90,000($0.01) ($1,115.52)¥582¥2,652¥2,689¥3,339($7.21) ($32.87) ($33.33) ($41.39)

Lawson, Inc. AnnuAL RepoRt 201275

notes to consoLIDAteD FInAncIAL stAteMents

The assumptions used to measure the fair value of the 10th stock option (2011) and 11th stock option(2012) were as follows:

15. Loss on DIsAsteR
Loss on disaster is attributable to the Great East Japan Earthquake, and the details are as described below:

10th Stock Option

11th Stock Option

Estimate method

Black-Scholes option pricing
model

Black-Scholes option pricing
model

Volatility of stock price31.33%

28.19%

Estimated remaining outstanding period

10 years

10 years

Estimated dividend¥165 per share¥172 per share

Risk-free interest rate

1.25%

0.97%

Millions of Yen

Loss relating to support activities for franchisees

Thousands of
U.S. Dollars

2012

2012

¥1,793$22,224

644

7,982

Other losses

1,024

12,692

Total¥3,461$42,898

Loss on fixed assets

14. IncoMe tAxes
The Company and its domestic subsidiaries are subject to a number of different taxes based on income, whichin the aggregate, resulted in a normal effective statutory tax rate of approximately 40.7% for the years ended
February 29, 2012 and February 28, 2011.

16. suppLeMentAL InFoRMAtIon FoR cAsH FLows(1) Finance lease assets and finance lease obligations regarded as non-cash transactions incurred for the year
ended February 29, 2012, amounted to ¥21,969 million ($272,298 thousand).

The tax effects of significant temporary differences and tax loss carryforwards, which resulted in deferred
tax assets and liabilities at February 29, 2012 and February 28, 2011, are as follows:
Millions of Yen

2012(2) Increase of the asset retirement obligations for the year ended February 29, 2012:
Thousands of
U.S. Dollars

2011

2012

Deferred tax assets:
Accrued enterprise taxes¥ 1,282¥935$ 15,890¥15,263 million ($189,179 thousand).
(3) Shanghai Hualian Lawson, Inc., became a consolidated subsidiary this year. The breakdown of assets andliabilities of the acquired company at the time of acquisition was as follows:

Accrued employees’ bonuses

1,304

1,562

16,163

Millions of Yen

Thousands of
U.S. Dollars

Excess of depreciation

9,052

6,832

112,196

2012

2012

740

788

9,172

Current assets¥ 1,241$ 15,382

64,836

Non-current assets

Excess of amortization of software
Employees’ retirement benefits

5,231

5,333

590

7,313

2,675

33,156

Allowance for doubtful accounts

3,503

3,377

43,419Goodwill

Impairment loss

2,930

3,288

36,316

Current liabilities(1,226)(15,196)

69,522

Non-current liabilities

(36)

(446)

Foreign currency translation adjustments

29

359

Tax loss carryforwards

5,609

5,421

Other

3,503

3,305

43,418Less valuation allowance(9,433)(10,304)(116,919)

Minority interests(85)(1,054)

294,013

Acquired price of stock

3,188

39,514Gain on step acquisitions(1,571)(19,472)(278)(3,446)

11

136

Total
Deferred tax liabilities—affiliates’ stock(paid-in capital decrease)
Net deferred tax assets

23,721

20,537

2,050

2,340

25,409¥21,671¥ 18,197$268,604

On December 2, 2011, new tax reform laws were enacted in Japan, which changed the normal effective
statutory tax rate from approximately 41% to 38% effective for the fiscal years beginning on or after March
1, 2013 through February 29, 2016, and to 35% afterwards. The effect of this change was to decrease

Consolidated book value prior to additional acquisitions ofcapital investments
Foreign currency translation adjustments
Cash and cash equivalents of acquired company
Difference: Acquisition of a subsidiary, net of cash acquired

¥

(368)

(4,560)982$(12,172)“Deferred taxes” in the consolidated balance sheet as of February 29, 2012, by ¥1,586 million ($19,658
thousand) and to increase “Income taxes—deferred” in the consolidated statement of income for the year(4) The breakdown of assets and liabilities of the transferred business at the time of acquisition was as follows:then ended by ¥1,586 million ($19,658 thousand).

Millions of Yen

At February 29, 2012, certain domestic subsidiaries have tax loss carryforwards aggregating to approximately ¥14,282 million ($177,020 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:76

Thousands of
U.S. Dollars

2012

2012

Current assets¥ 281$ 3,483

Non-current assets

2,665

33,032

Goodwill

1,546

19,162Current liabilities(359)(4,450)Year Ending February 28 or 29

Millions of Yen

Thousands of
U.S. Dollars

2013¥ 1,020$ 12,643

2014

1,164

14,427

Non-current liabilities(526)(6,520)

2015

220

2,727

Consideration for transferred business

3,607

44,707

2016

752

9,321

Cash and cash equivalents of the business(192)(2,379)2017

942

11,676

Difference: Payments for transfer of business¥3,415$ 42,328

2018

9,158

113,509

2019

1,026

12,717

Total¥14,282$177,020

Lawson, Inc. AnnuAL RepoRt 2012

Lawson, Inc. AnnuAL RepoRt 201277

notes to consoLIDAteD FInAncIAL stAteMents

17. LeAses

18. coMpReHensIve IncoMe
The Companies lease certain store facilities, machinery, computer equipment, office space and other assets.

Total comprehensive income for the year ended February 28, 2011, was the following:

Obligations under finance leases and future minimum payments under noncancelable operating leases atMillions of Yen

February 29, 2012 and February 28, 2011 were as follows:

2011

Millions of Yen

Thousands of U.S. Dollars

2012

Due within one year

2012

2011

Total comprehensive income attributable to:¥25,303

Owners of the parent

Finance Leases

Operating Leases

Finance Leases

Operating Leases

Finance Leases

Operating Leases¥11,224¥ 910¥ 7,953¥ 785$139,117$11,279

Due after one year

37,902

1,527

28,254

1,321

469,782

18,927

Total¥49,126¥2,437¥36,207¥2,106$608,899$30,206

803

Minority interests¥26,106

Total comprehensive income

Other comprehensive income for the year ended February 28, 2011, consisted of the following:
Millions of Yen

2011

pro forma Information of Leased property whose Lease Inception was before February 28, 2009
ASBJ Statement No. 13, “Accounting Standard for Lease Transactions” requires that all finance lease transactions
be capitalized to recognize lease assets and lease obligations in the balance sheet. However, the ASBJ Statement
No. 13 permits leases without ownership transfer of the leased property to the lessee and whose lease inception
was before March 31, 2008 to continue to be accounted for as operating lease transactions if certain “as if capitalized” information is disclosed in the note to the financial statements. The Companies applied ASBJ Statement

Other comprehensive income:Unrealized loss on available-for-sale securities¥(19)

Foreign currency translation adjustments(20)

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

(44)
¥(83)

Total other comprehensive income

No. 13 effective March 1, 2009 and accounted for such leases as operating lease transactions. Pro forma information of leased property whose lease inception was before February 28, 2009, was as follows:
Thousands of
U.S. Dollars

Millions of Yen

19. segMent InFoRMAtIon

2012

2011

2012

In March 2008, the ASBJ revised ASBJ Statement No. 17, “Accounting Standard for Segment Information

Acquisition cost

¥30,181¥44,128$374,083

Disclosures” and issued ASBJ Guidance No. 20, “Guidance on Accounting Standard for Segment Information

Accumulated depreciation

21,05827,881

261,006

Disclosures.” Under the standard and guidance, an entity is required to report financial and descriptive infor-

755

1,128

9,359

mation about its reportable segments. Reportable segments are operating segments or aggregations of oper-¥ 8,368¥15,119$103,718

Furniture, Fixtures, and Equipment and Other Assets

Accumulated impairment loss
Net leased property

ating segments that meet specified criteria. Operating segments are components of an entity about which
separate financial information is available and such information is evaluated regularly by the chief operating

Obligations under finance leases:
Thousands of
U.S. Dollars

Millions of Yen

2012

2011

2012

Due within one year

¥4,324¥ 6,970$11,279

Due after one year

5,411

10,07718,927

Total¥9,735¥17,047$30,206

Allowance for impairment loss on leased property of ¥667 million ($8,267 thousand) and ¥760 million as
of February 29, 2012 and February 28, 2011 is included in obligations under finance leases.
The imputed interest expense portion which is computed using the interest method is excluded from theabove obligations under finance leases.

mation is required to be reported on the same basis as is used internally for evaluating operating segment
performance and deciding how to allocate resources to operating segments.
The segment information for the year ended February 28, 2011, under the revised accounting standard isalso disclosed hereunder as required.
(a) Description of reportable segments
The Company’s financial information is provided separately by reporting segment and is subject to regularreview by the board of directors with regard to the allocation of managerial resources and performance evaluation. The Companies’ primary business is the operation of convenience stores, which is undertaken by theincorporation of related businesses.

Depreciation expense, interest expense, and other information under finance leases:
Thousands of
U.S. Dollars

Millions of Yen

decision maker in deciding how to allocate resources and in assessing performance. Generally, segment infor-

Therefore, the Companies have made the convenience store unit its main reporting segment, based on consideration of financial characteristics and the nature of the services provided.

2012

2011

2012

Lawson, Inc.; Ninety-nine Plus, Inc.; and Lawson Toyama, Inc. running the LAWSON, NATURAL LAWSON,¥6,627¥8,973$82,139LAWSON STORE100, and other chains—the convenience store unit operates a franchise system as well as un-

Interest expense

389

631

4,822

Lease payments

6,940

9,290

86,019

Reversal of allowance for impairment loss on leased
property

444

553

5,503

Impairment loss

388

861

4,809

Depreciation expensedertaking the direct management of stores in Japan.

Depreciation expense and interest expense, which are not reflected in the accompanying consolidated
statements of income, are computed by the straight-line method and the interest method, respectively.

78

Lawson, Inc. AnnuAL RepoRt 2012

Lawson, Inc. AnnuAL RepoRt 201279

notes to consoLIDAteD FInAncIAL stAteMents(b) Methods of measurement for the amounts of sales, profit (loss), assets, and other items for each report-

Thousands of U.S. Dollars

able segment

2012

The accounting policies of each reportable segment are basically consistent to those disclosed in Note 2,

Reportable segments“Summary of Significant Accounting Policies.”

Convenience store

Other

Total

$5,130,131$806,371$5,936,502

Operating income is applied in “Segment profit.” “Intersegment sales or transfers” are calculated based on

Intersegment sales ortransfers(c) Information about sales, profit (loss), assets, and other items is as follows:
Millions of Yen

2012
Reportable segments
Convenience store

Other

Total

Reconciliations

Consolidated

Intersegment sales ortransfers¥65,058¥478,957¥478,957

2,129

4,105

¥ (4,105)

Total¥415,875¥67,187¥483,062¥ (4,105)¥478,957

Segment profit¥ 57,371¥ 4,445¥ 61,816¥(47)¥ 61,769

Segment assets

520,992

46,607567,599(36,145)

531,454

Other:
34,3762,520

36,896

Amortization of goodwill

677

306

983

Payment for associatedcompanies

2,786

4,241

7,027

Increase in property,
plant, and equipment
and intangible assets

24,492

26,38850,880$ (50,880)

Total$5,154,623$832,759$5,987,382$ (50,880)$5,936,502

Segment profit$ 711,093$ 55,094$ 766,187

$

(583)

$ 765,604

Segment assets

6,457,511

577,677

7,035,188(448,003)

6,587,185

426,078

31,235457,313

Amortization of goodwill

8,391

3,793

12,184

Payment for associatedcompanies

34,531

52,56687,09787,097

Increase in property,
plant, and equipment
and intangible assets

437,382

12,730450,112450,112

Depreciation¥413,899
1,976

Depreciation

36,896(34)949(d) Information regarding loss on impairment of long-lived assets of reportable segments:
Millions of Yen

2012

35,2881,027

36,31536,315
Loss on impairment oflong-lived assets

Convenience store

Other

Total

¥3,276¥43¥3,319Convenience store

Other

Total

Reconciliations

Consolidated¥3,3192012

Consolidated

Sales:

Reportable segments¥403,647¥37,631¥441,278¥441,278

1,651

2,073

3,724

¥ (3,724)

Total¥405,298¥39,704¥445,002¥ (3,724)¥441,278

Segment profit¥ 51,396¥ 4,108¥ 55,504¥37¥ 55,541

Segment assets

459,902

30,638490,540(14,503)

476,037

Loss on impairment oflong-lived assets

Convenience store

Other

Total

Reconciliations$40,605$533$41,138

Consolidated$41,138(e) Information regarding amortization of goodwill and carrying amount of reportable segments:
Millions of Yen

2012

Other:

Reportable segments

30,7001,684

32,384

Amortization of goodwill

558

175

733

Payment for associatedcompanies

1,724

Increase in property,
plant, and equipment
and intangible assets

Reconciliations

Thousands of U.S. Dollars

Reportable segments

Depreciation

11,763

Reportable segments

2011

Intersegment sales ortransfers

457,313(421)

Notes: 1. “Other” is operating segments that are not included in reportable segments, consisting of entertainment/e-commerce business, financial
services-related business, overseas business, and so on.
2. Reconciliations for segment profit, segment assets, and amortization of goodwill are due to the elimination of intersegments transactions.

7,027

Millions of Yen

Sales to externalcustomers$5,936,502

Other:

Sales:
Sales to externalcustomers

Consolidated

Sales:
Sales to externalcustomers

market price.

Reconciliations

1,724

32,384(34)

699

Goodwill at February 29,
2012

Convenience store

Other

Total

Reconciliations

Consolidated¥7,666¥3,825¥11,491¥(619)¥10,872

1,724

Thousands of U.S. Dollars

2012

29,854540

30,394

Reportable segments

30,394
Goodwill at February 29,
2012

Convenience store

Other

Total

Reconciliations

Consolidated$95,017$47,410$142,427$(7,672)$134,755

The amount under “Other” is for the entertainment/e-commerce business and overseas business.
Amortization of goodwill has been omitted, as similar information is disclosed in “(c) Information aboutsales, profit (loss), assets, and other items.”

80

Lawson, Inc. AnnuAL RepoRt 2012

Lawson, Inc. AnnuAL RepoRt 201281

notes to consoLIDAteD FInAncIAL stAteMents(3) Fair values of Financial Instruments

20. ReLAteD pARty tRAnsActIons

Fair values of financial instruments are based on the quoted price in active markets. If quoted price is not

Balances and transactions of the Company with subsidiaries of Mitsubishi as of and for the years ended

available, other rational valuation techniques are used instead. The result of estimation might differ if

February 29, 2012 and February 28, 2011, were as follows:other valuation techniques were taken.
Thousands of
U.S. Dollars

Millions of Yen

2012

2012

2011

Mitsubishi Shokuhin Co., Ltd.:
Accounts payable—trade
Purchases

¥

7,851

¥

5,560

104,340

77,994$

97,3101,293,257

Food Service Network Co., Ltd.:
Accounts payable—trade22,28020,11973,860Purchases

276,918

237,5813,432,300

Millions of Yen
February 29, 2012

Carrying Amount

Fair Value

Cash and cash equivalents¥ 73,670¥ 73,670

Time deposits

10,404

10,404

Accounts receivable

52,04052,040

Unrealized Gain/Loss

528

528

Long-term loans receivable

32,044

32,109¥Lease deposits

83,06475,662(7,402)

Investment securities

65

36

36

Purchase prices and other conditions are determined at an arm’s-length basis.

Total¥251,786¥244,449

Balances and transactions of Ninety-nine Plus, Inc., a consolidated subsidiary of the Company, with subsid-

Accounts payable¥108,703¥108,703

Money held as agent

75,00575,005Long-term debt (incl. current portion of long-term debt)

49,662

49,955¥

Guarantee deposits received from franchised stores and other

35,73532,484(3,251)

Total¥269,105¥266,147¥(2,958)

February 28, 2011

Carrying Amount

Fair Value¥ 67,712¥ 67,712

Time deposits

10,104

10,104

Accounts receivable

45,36345,363

Investment securities

642

642

Long-term loans receivable

31,706

31,783¥

Lease deposits

81,13071,795(9,335)

19

19

Total

¥236,676¥227,418

Accounts payable¥103,713¥103,713

Money held as agent

62,341

62,341Long-term debt (incl. current portion of long-term debt)

36,79536,969iaries of Mitsubishi as of and for the years ended February 29, 2012 and February 28, 2011, were as follows:
Thousands of
U.S. Dollars

Millions of Yen

2012

2011

2012

Mitsubishi Shokuhin Co., Ltd.:
Accounts payable—trade¥ 5,959¥ 5,002$ 73,860

Purchases

72,45959,324

898,104

Purchase prices and other conditions are determined at an arm’s-length basis.

21. FInAncIAL InstRuMents AnD ReLAteD DIscLosuRes(1) policy for Financial Instruments
The Companies primarily use short-term deposits, etc., to manage their funds and raise funds as necessary through borrowings from financial institutions and leasing according to the financing plan. The
Companies do not engage in derivative transactions.

(2) nature, extent of Risk, and Risk Management system for Financial Instruments
Trade receivables, such as other accounts receivable are exposed to credit risk from business counterparties.
Long-term loans receivable (primarily referring to construction cooperation funds which are loaned tothe owners when a store opens and loans to franchised stores) and lease deposits are exposed to credit

Claims in bankruptcy and reorganization

Cash and cash equivalents

Claims in bankruptcy and reorganization

Guarantee deposits received from franchised stores and other
Total

174

(4,378)¥(4,204)

Thousands of U.S. Dollars
Fair Value

Cash and cash equivalents

tlement services have payment due dates within one month, while most deposits held as a result of tick-¥

32,761due to deterioration in the financial conditions of the owners.

Among trade payables, most of the accounts payable—trade and deposits held as a result of bill set-¥(9,258)¥235,784

Carrying Amountmonitors the financial conditions of bond issuers and business counterparties on a regular basis.

77

37,139February 29, 2012

shares of which are exposed to the risk of market price fluctuations. With regard to this risk, the Company

Unrealized Gain/Loss¥239,988

sis with the aim of early detection and reduction of concerns associated with the collectability of debt

liquidity. Investment securities are primarily shares of companies with business relationships and listed

293

Millions of Yen

risk from the owners, etc. The responsible department monitors these risks on receivables on a daily ba-

Marketable securities are government bonds which are financial instruments with low risk and high¥(7,337)$ 913,114$ 913,114

Time deposits

128,954

128,954

Accounts receivable

645,017645,017

Investment securities
Long-term loans receivable
Lease deposits

Unrealized Gain/Loss

6,544

6,544

397,174

397,980$

1,029,549

937,804(91,745)

806

446

446

Total

$3,120,798$3,029,859

securing the operating capital and funds required for capital investments, and their maximum redemp-

Accounts payable$1,347,336$1,347,336

tion dates are two years and seven years after the balance sheet date, respectively.

Money held as agent

929,660

929,660

Long-term debt (incl. current portion of long-term debt)

615,543

619,174

chised stores based on franchise contracts that are returned to franchised stores after the expiry of the

Guarantee deposits received from franchised stores and other442,923

402,627(40,296)

franchise contract term (contract term is 10 years in principle.).

Total$3,335,462$3,298,797$(36,665)

et sales transactions have payment due dates within six months.
The primary purpose of long-term debt and lease obligations related to finance lease transactions is

Deposits received from franchisees and lessees are primarily operational deposits received from fran-Claims in bankruptcy and reorganization$(90,939)

$

3,631

With regard to the liquidity risk associated with fund-raising (risk for which payment cannot be executed on the payment due date), the Company prepares and updates financial plans on a timely basis
and manages liquidity risk by measures including maintaining liquidity on hand.

82

Lawson, Inc. AnnuAL RepoRt 2012

Lawson, Inc. AnnuAL RepoRt 201283

notes to consoLIDAteD FInAncIAL stAteMents

cash and cash equivalents, time deposits, and accounts receivable(5) Maturity Analysis for Financial Assets and securities with contractual Maturities

The carrying values of cash and cash equivalents, time deposits, and accounts receivable (including allowance

Millions of Yen

for doubtful accounts) approximate fair values because of their short maturities.

2012
Due in 1 Year or Less

Investment securities
The fair values of investment securities are measured at the quoted market price of the stock exchange forthe equity instruments, and at the quoted price obtained from the financial institution for certain debt
instruments.

Cash and cash equivalents

Due after 1 Yearthrough 5 Years

Due after 5 Years
through 10 Years

Due after 10 Years¥ 7,205¥ 73,670

Time deposits

10,404

Accounts receivable

52,166Long-term loans receivable

3,125¥11,234¥10,575

Long-term loans receivable

Lease deposits

4,769

18,957

19,781

40,159The fair values of long-term loans receivable (including allowance for doubtful accounts) are determined by

Total¥144,134¥30,191¥30,356¥47,364

discounting the cash flows related to the loans at the interest rate deemed to be applied for similar loans.

Millions of Yen

2011

Lease deposits
Due in 1 Year or Less

The fair values of lease deposits (including allowance for doubtful accounts) are determined by discounting future
cash flows which reflect the collectibility with the yield rate of government bonds during the remaining period.

Cash and cash equivalents

Due after 1 Yearthrough 5 Years

Due after 5 Years
through 10 Years

Due after 10 Years¥10,781¥11,027¥ 6,738¥ 67,712

Time deposits

10,104claims in bankruptcy and reorganization

Accounts receivable

45,445

The fair values of claims in bankruptcy and reorganization (including allowance for doubtful accounts) are

Long-term loans receivable

3,280

stated at book value because the estimated amount of bad debt is calculated based on collectibility, and fair

Lease deposits

values are close to the amount which can be calculated by deducting the estimated amount of current bad

Total

4,529

18,047

20,55938,520¥131,070¥28,828¥31,586¥45,258

debt from the carrying value on the consolidated balance sheets on the balance sheet date.

Thousands of U.S. Dollars

2012

Accounts payable and money held as agent
The carrying values of accounts payable and money held as agent approximate fair value because of theirDue in 1 Year or Less

Cash and cash equivalents

short maturities.

Time deposits

128,954

Accounts receivable

646,579

The fair values of long-term debt are determined by discounting the cash flows related to the debt at theLong-term loans receivable

38,733Companies’ assumed corporate discount rate.

Lease deposits

guarantee deposits received from franchised stores and other

Due after 5 Years
through 10 Years

Due after 10 Years$139,242$131,073$ 89,304$ 913,114

Long-term debt (including current portion of long-term debt)

Total

Due after 1 Yearthrough 5 Years

59,110234,965

245,178497,757$1,786,490$374,207$376,251$587,061

The fair values of guarantee deposits received from franchised stores and other are determined by discounting future cash flows based on the estimated repayment amount with the yield rate of government bonds
during the remaining period.

(4) Financial Instruments whose Fair value cannot Be Reliably Determined
Carrying AmountThousands of
U.S. Dollars

Millions of Yen

2012

2011

2012

Investments in equity instruments that do not havea quoted market price in an active market

¥ 273

¥ 391

$ 3,384

Investments in unconsolidated subsidiaries andaffiliated companies

2,295

1,875

28,446

140

106

1,735

Others84

Lawson, Inc. AnnuAL RepoRt 2012

Lawson, Inc. AnnuAL RepoRt 201285

InDepenDent AuDItoRs’ RepoRt

notes to consoLIDAteD FInAncIAL stAteMents

22. net IncoMe peR sHARe
A reconciliation of the differences between basic and diluted net income per share (“EPS”) for the years ended
February 29, 2012 and February 28, 2011 is as follows:
Millions of Yen

Thousands of
U.S. Dollars

Year Ended February 29, 2012

Net Income

Weighted-Average
SharesBasic EPS—Net income available
to common shareholders¥24,885

99,871

Effect of dilutive securities—
Stock options
Diluted EPS—Net income forcomputation

Yen

U.S. Dollars
EPS¥249.17

$3.09

$3.08

149
¥24,885

100,020¥248.80¥25,387

99,705¥254.61

Year Ended February 28, 2011

Basic EPS—Net income available
to common shareholders
Effect of dilutive securities—
Stock options
Diluted EPS—Net income forcomputation

121¥25,387

99,826¥254.31

23. suBsequent events
Appropriation of Retained earnings
The following appropriation of retained earnings was approved at the general shareholders’ meeting held on
May 29, 2012:

Cash dividends, ¥93 ($1.15) per share86

Lawson, Inc. AnnuAL RepoRt 2012

Millions of Yen

Thousands of
U.S. Dollars¥9,289$115,134

Lawson, Inc. AnnuAL RepoRt 201287

MARket dAtA

RetAIL MARket envIRonMent

ConvenIenCe StoRe InduStRy dAtA

population of Major Asian Countries

people Aged 65 years and older in Major Asian Countries

number of Stores in Japan by Convenience Store Chain

Million%Stores

1,800

40

1,500

1,341

1,296

38.8%

23.0%

240
127

300

294
109

10

2050

(CY)

0
(CY)

19.2%

8.2%
5.6%

0
1950

1960

1970

1980

1990

2000

2010

2020

2030 2040
Forecast

Japan
China
Indonesia
Source: United Nations, “World Population Prospects: The 2010 Revision”

1950

1960

1970

1980

1990

2000

2010

per Capita gdp of Major Asian Countries

Trillions of yen

U.S. Dollars

283

282

50,000200

40,000

0
(CY)

2050

53,61547,96030,000150502030 2040
Forecast

60,000

278

250

100

2020

Japan
China
Indonesia
Source: United Nations, “World Population Prospects: The 2010 Revision”

Japanese household Final Consumption expenditure
300

25.6%

20

600

11
20
32

11
18
30

12
18
29

51

47

45

2001

2002

2003

2004

2005

2006

2007

2008

2009

10,000

(CY)

5,429

3,848

0

Food
Entertainment
Eating Out
Medical Care and Health-related Expenses
Others
Source: National Accounts (Economic and Social Research Institute, Cabinet Office)

6400

9600

12800 16000

Seven-Eleven Japan

2009

2010

2011

2012

2013

2014
2015
Forecast

2016

Japan
China
Indonesia
Source: International Monetary Fund, “World Economic Outlook”

2,105

Mini Stop

355,525

DAILY YAMAZAKI

1,647

DAILY YAMAZAKI

229,294

Seicomart

1,134

Seicomart

181,987

Cocostore

767

Cocostore

108,987

POPLAR

700

Three F106,355

Three F

639

POPLAR

92,432

SAVEON

577

SAVEON

66,351

Notes: FamilyMart’s number of stores includes am/pm stores. Their sales amount is on a non-consolidated basis.
Lawson’s number of stores includes 147 stores operated by Lawson Okinawa, Inc.
Circle K Sunkus’s number of stores includes stores operated by area franchisers but excludes those operated by 99 ICHIBA Co., Ltd.
Mini Stop’s number of stores includes area franchise stores. Their sales amount is on a non-consolidated basis.
Figures for DAILY YAMAZAKI and Seicomart are as of December 2011, while those for Cocostore (total of Cocostore East and West) are as of May 2012. All other figures are as ofFebruary 2012.
Sources: Publicly announced fiscal data for each company as of February 29, 2012, and the August 2012 issue of the monthly trade magazine Konbini.

growth in Convenience Store in JapanStores
50,00029,144

Annual Sales¥139.4 trillion

17,408(FY)

5.5%¥8.8 trillion
2011

Annual Sales¥135.1 trillion

2.7 people

Annual Sales¥134.0 trillion

2.6 people

1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Source: Japan Franchise Association, FC Statistics

6.6%¥7.4 trillion
AverageHousehold Size

7,419

0

Convenience Store Sales’ Share of the Japanese Retail Market and Average household Size

2005

45,76942,64338,27410,000

AverageHousehold Size

979,815

Circle K Sunkus

40,000

JApAneSe RetAIL InduStRy dAtA

2000

1,825,809
1,534,652

Mini Stop

20,000¥6.7 trillion

3,280,512

FamilyMart

8,834
6,169

30,0004.8%

60000120000180000240000300000360000

Lawson10,457

Circle K Sunkus

0Millions of yen

Seven-Eleven Japan

14,005

FamilyMart

net Sales of All Stores by Convenience Store Chain

8,523
5,716

5,000

2010

3200

Lawson

30

1,200
900

0

year-on-year Changes in existing Store Sales, number of Customers, and Spending per Customer

AverageHousehold Size%

2.5 people

110

120

Notes: Annual sales do not include restaurant, catering, fast food, or take-out delivery food.
Average number of households for 2005 and prior years are actual numbers. Numbers for 2011 are estimates.
Sources: Ministry of Economy, Trade and Industry, “Current Survey of Commerce,” and National Institute of Population and Social Security Research, estimated in March 2008 “Household
Projections for Japan”

100

90

0

year-on-year Changes in existing Store Sales by Major types of Retailers

(FY)

%

1Q

2Q

3Q

4Q

1Q

2007

Year-on-Year Changes in Existing Store Sales
Source: Japan Franchise Association, FC Statistics

110

2Q

3Q

4Q

2008

Number of Customers

1Q

2Q

3Q

2009

4Q

1Q

2Q

3Q

2010

4Q

1Q

2Q

3Q

4Q

2011

Spending per Customer

100

90

0
(FY)

1Q

2Q

3Q

4Q

1Q

2007

2Q

3Q

4Q

2008

1Q

2Q

3Q

2009

4Q

1Q

2Q

3Q

2010

4Q

1Q

2Q

3Q

4Q

2011

Convenience StoreSupermarket
Department Store
Source: Ministry of Economy, Trade and Industry, “Current Survey of Commerce”

88

Lawson, Inc. AnnuAL RepoRt 2012

Lawson, Inc. AnnuAL RepoRt 201289

LAWSon At A gLAnCe
As of February 29, 2012

StoRe netWoRk expAnSIon AReA

StoRe-ReLAted dAtA

total number of Stores (worldwide total)

Lawson Store Formats

10,827 Stores
LAWSonnAtuRAL LAWSon

Operations begun

April 1975

July 2001

May 2005

Features

The Lawson store concept is shifting from thetraditional convenience store format that targets men in their 20s and 30s to a format
where individual stores match their merchandise
assortment with their own catchment areas.
This store format is aiming to become a highly
convenient neighborhood store. Recently, taking
into consideration locations, the Company isincreasing the number of stores that offer fresh
food (fresh food-type stores).

This store format promotes a beautiful,healthy, and comfortable lifestyle. Its
merchandise assortment mainly targets
health-conscious working women in
their 20s, 30s, and 40s.

These convenience stores feature fresh
foods in their merchandise and productlineup. With housewives and seniors in
mind, the LAWSON STORE100 format
focuses on small and appropriately
sized portions, simple pricing, and bargain value to attract customers.

Percentage of female
customers (estimate)

Approx. 30%

Approx. 45%

Approx. 40%

Networkregional-orientation

Nationwide

Items handled

Approx. 2,800 items

Office and residential districts inmajor metropolitan areas
Approx. 2,500 items

Residential districts and nearby
train stations in metropolitan Tokyo
Approx. 4,000 items

Percentage of merchandise items shared with
Lawson stores—

Approx. 60%

Approx. 10%

Total stores(At February 29, 2012)

9,038 stores

100 stores

1,172 stores

Dalianoverseas Stores

3 Stores

370 Stores

China

Japan

Shanghai 314 Stores
Chongqing
38 Stores

Indonesia 15 Stores

Number of stores

8,424 8,509 8,540 8,686

Number of Stores(Stores)Composition Ratio
(%)

9,038
93

91

98.1%

1.1%
89.3%
87.5%86.9%86.4%

Stores in Japan

10,457 Stores

The pie charts represent market share
LawsonOther Convenience Stores

925
10.8%11.2%
9.7% 10.2%

0.9% 0.9%

1.0%

Lawson’s Store Composition by Company-operated andFranchise Stores (non-consolidated)

%

%
100

1.4%

1.4%

80

80

60

60

94.9%

40

87.8%

87.4%

88.7%

89.1%

40

20

kanto Region
3,213 Stores

5.1%

0

12.2%

2008/2

2009/2Company-Operated Stores

Chubu Region
1,604 Stores

16.3%

94.9%

87.8%

5.1%

12.2%

96.9%

97.9%

98.1%

3.1%

2.1%

1.9%

20

25.3%

kyushuRegion963 Stores2008/2 2009/2* 2010/2 2011/2 2012/2

Lawson’s Store Composition by Company-operated andFranchise Stores (Consolidated)
1.4%

23.4%

11.2%

2010/2

Franchise Stores

9.9%

2011/29.5%

02012/2

2008/2

2009/2Company-Operated Stores

Lawson Okinawa

2010/2

2011/2

2012/2

Franchise Stores

year-on-year Changes in existing Store Sales, number of Customers, and Spending per Customer%
110

Shikoku Region
422 Storesokinawa
Region147 Stores*

1,172

1,077

* As of September 2008, Ninety-nine Plus, Inc. became a consolidated subsidiary.

100

31.9%

tohoku Region
832 Stores

24.1%

996

2008/2 2009/2 2010/2 2011/2 2012/2

hokkaido Region
550 Stores

20.6%

kyushu and okinawa
total
1,110 Stores

89

1.0%

100

90

72 0.8%
2008/2 2009/2 2010/2 2011/2 2012/2

kinki Region
2,161 Stores

Chugoku Region
565 Stores

LAWSon StoRe100

31.5%

105
100
95

34.6%

90

* Operated by Lawson Okinawa

Source: Ministry of Economy, Trade and Industry, “Current Survey of Commerce”

0

1Q

2Q

3Q

2008/2

4Q

1Q

2Q

3Q

2009/2

4Q

1Q

2Q

3Q

2010/2

4Q

1Q

2Q

3Q

4Q

2011/2

1Q

2Q

3Q

4Q

2012/2Year-on-Year Changes in Existing Store Sales
Number of Customers
Spending per Customer
Note: Quarterly year-on-year figures are the simple average of the year-on-year figures for each of the three months in the quarterly period.

90

Lawson, Inc. AnnuAL RepoRt 2012

Lawson, Inc. AnnuAL RepoRt 201291

dIReCtoRS, CoRpoRAte AudItoRS, And exeCutIve oFFICeRS

CoRpoRAte dAtA

As of May 30, 2012

As of February 29, 2012; consolidated basis

President and CEO

Takeshi Niinami

President and CEO; Group CEO, International Group; President, LAWSONUniversity

Company Name

Lawson, Inc.

Address

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

Member of the Board,
Genichi Tamatsuka
Senior Executive Vice President
and COO

Member of the Board, Senior Executive Vice President and COO;
Group CEO, CVS Operating Group and Division Director,
CRM Promotion Office and Marketing OfficeMember of the Board, Senior
Executive Vice President

Yoshiyuki Yahagi

Member of the Board, Senior Executive Vice President and CFO; Division Director,
Corporate Planning Office

President & CEO

Takeshi Niinami

Established

April 15, 1975

Member of the Board

Toru Moriyama

Executive Vice President; Group CEO, Living Essentials Group, Mitsubishi
Corporation

Capital¥58,506.644 million

Members of the Board(Outside)

Reiko Okutani

President, The R Co., Ltd.

Takehiko Kakiuchi

Senior Vice President; General Manager, Living Essentials Group CEO Office,and Division COO, Foods (Commodity) Division, Mitsubishi Corporation

Emi Osono

Professor, Graduate School of International Corporate Strategy,
Hitotsubashi University

Atsuhiko Seki

Standing Corporate Auditor(Outside)

Shinichi Hokari

Corporate Auditors(Outside)

Tetsuo Ozawa

LawyerEiko Tsujiyama

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

All Store Sales¥1,825.8 billion

Number of Stores

10,457 (in Japan)

Operating Areas

All 47 prefectures in Japan;
China (Shanghai, Chongqing, Dalian),Indonesia

Number of Employees 6,475
Note: The number of stores is a sum of the total number of LAWSON and NATURAL LAWSON stores operated by Lawson, Inc., LAWSON stores operated by Lawson Toyama, Inc., LAWSON storesoperated by Lawson Okinawa, Inc., and LAWSON STORE100 stores operated by Ninety-nine Plus, Inc.

As of February 29, 2012; consolidated basis

Senior Executive Vice President Takatoshi Kawamura Executive Assistant to CEO; in charge of Healthcare Business; Division Director,
Healthcare Division

Senior Vice Presidents

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

ShARehoLdeR InFoRMAtIon

Standing Corporate Auditor

Executive Vice Presidents

Business Activities

Syuichi Imagawa

Group COO, CVS Operating Group; Division Director, Regional Offices Support
Division; Division Director, Fresh Food Business Division

Masaharu Kamo

Group CEO, Entertainment & e-Commerce Group; President and CEO,Lawson HMV Entertainment, Inc.

Stock Exchange Listings Tokyo Stock Exchange (1st Section)
Osaka Securities Exchange (1st Section)

Authorized Shares 409,300,000
Shares Issued

100,300,000

Shareholders

37,300Stock Transfer Agent

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

Major Shareholders
Number of Shares
Percentages ofHeld (Thousands) Total Shares Held*

Norikazu Nishiguchi Executive Assistant to CEO; in charge of Innovation and BPR; Division Director,
SCM Innovation Office

1. Mitsubishi Corporation

32,08932.1

2. Japan Trustee Services Bank, Ltd. (Trust account)

2,794

2.8

Takaki Mizuno

3. STATE STREET BANK AND TRUST COMPANY 505223

2,726

2.7

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

2,447

2.5

5. STATE STREET BANK AND TRUST COMPANY

2,348

2.4

Region Director, Kinki LAWSON Branch, CVS Operating GroupJun Miyazaki

Division Director, Corporate Communications Office

Ichiro Kijima

Division Director, New Business Initiative Division

6. NTT DOCOMO, INC.

2,092

2.1

Hisashi Yasuhira

Region Director, Tohoku LAWSON Branch, CVS Operating Group; Deputy Division
Director, Merchandizing & Logistics Division

7. STATE STREET BANK AND TRUST COMPANY 505225

1,787

1.8

8. The Chase Manhattan Bank NA, London SL, Omnibus Account

1,643

1.6

9. STATE STREET BANK AND TRUST COMPANY 505202

1,610

1.6

10. MELLON BANK N.A. AS AGENT FOR ITS CLIENT MELLON OMNIBUS US PENSION

1,451

1.5

Masayuki Sawada

Division Director, Merchandizing & Logistics Division, CVS Operating Group;
Deputy Division Director, SCM Innovation Office

Masahiro Oyama

Deputy Division Director, Merchandizing & Logistics Division,
CVS Operating Group* The above percentages of total shares held exclude treasury stock (416,166 shares).

Kiyoteru Suzuki

Executive Assistant to CEO; in charge of Human Resources

Stock price on the tokyo Stock exchange

Tetsu YamadaGroup COO, International Group

Shigeaki Kawahara

Executive Assistant to CEO; Assistant to Group CEO, CVS Operating Group;
President and CEO, Ninety-nine Plus, Inc.

Tatsushi Satou

Chief Information Officer (CIO); Division Director, Information Systems Office

Kei Murayama

Chief Human Resources Officer (CHO); Division Director, Human Resources Office

Masakatsu Gounai

CCO; in charge of CSR; Division Director, Compliance & Risk Management OfficeYasuhiro Iseki

Division Director, Management Owner Promotion Division, CVS Operating Group

Hajime Nakai

Executive Assistant to CEO, International Group

Atsushi Maeda

Deputy Division Director, Merchandizing & Logistics Division,
CVS Operating Group

Kazuo Tougasa

Assistant to Group CEO, CVS Operating Group

Yen

92

Lawson, Inc. AnnuAL RepoRt 2012

6,000

4,000

2,000
2003/2

2004/2

2005/2

2006/2

2007/2

2008/2

2009/2

2010/2

2011/2

2012/2

2012/2

2004/2

2005/2

2006/2

2007/2

2008/2

2009/2

2010/2

2011/2

Interim dividend

20

35

45

50

55

80

80

85

87

Year-end dividend

21

35

45

50

55

80

80

85

93

Annual dividend

41

70

90

100

110

160

160

170

180

Stock price as ofFebruary 28 or 29

3,780

3,980

4,350

4,540

4,000

4,250

3,885

4,025

4,780

Lawson, Inc. AnnuAL RepoRt 201293

ANNUAL REPORT 2012

ANNUAL REPORT 2012
Year ended February 29, 2012

VISION
BUILDING A SUSTAINABLE FUTURE

Corporate Planning Office
East Tower, Gate City Ohsaki, 11-2, Osaki 1-chome,
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Published in August 2012
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