INTEGRATED REPORT 2013
Creating Happiness and Harmony
in Our Communities

Message from CEO

Lawson Integrated Report 2013
Starting this year, we report in one Integrated Report, combining previous Annual
Report, Corporate Citizenship Report, to incorporate financial and non-financial
information in one volume. This Lawson Integrated Report delivers to all our midto long-term stakeholders our overall current performance as well as a glimpse at
the direction we are taking. We hope this report also illustrates our aspirations forbusiness growth, which center on our convenience store business, and its
continuing evolution into a part of community infrastructure and lifeline.

We will strive to increase our corporate value
while existing in harmony with society
Lawson's business goes hand-in-hand with local communities. The convenience store is thebusiness model that best serves community needs. We aspire to realize our Corporate
Philosophy, “Creating Happiness and Harmony in Our Communities.”
In order to respond to dynamically diversified needs in the local communities, continuous
innovation is essential. To make this happen, we actively promote diversity in our organization,

Corporate Philosophy

Creating Happiness and Harmony
in Our Communities

while fostering our staff to embrace different values and take appropriate actions.
Addressing and responding to the changes in our society such as the aging populationand more women in the workforce, we have worked especially to offer merchandise thatmeet the needs of senior and female customers. As a result, we achieved sustainable profit

Lawson's multi-stakeholders

growth, far surpassing our competitors.
Lawson's strength to grow further resides in combining our brand value and the scale

Suppliers/
Business
partners

Store crews(part-time andtemporary workers)

economy of our franchise system, with entrepreneurial franchise owners who precisely
understand the needs of their community.

FranchiseownersEmployees
Shareholders

Customers

Further, we leverage our multi-partner loyalty program, Ponta and its data analysis, tooffer in each Lawson store “whatever you want, whenever and wherever you need it.”
We have also launched online service that enables delivery directly to homes,
for more convenience. We aim to continue providing more innovative products

Local communities
We operate our business with seven stakeholders including local communities. Visualizing what Lawson needs to befor each stakeholder, as described in Corporate Conduct Charter, we keep working to increase corporate value tobenefit everyone.

CONTENTS

01
10
12
16
32
40
48
50

and services to our valuable customers.
Lawson will move forward, creating differentiated additional value which noother can offer. We aspire to serve as a lifeline for “our communities,” existing inharmony with society.

Message from CEO
Financial summary/ Non-financial highlights
Message from COO
Lawson's strategy — to achieve continuous growth
Frameworks for our continuous corporate growth
Lawson's corporate governanceLawson at a glanceManagement's Discussion and Analysis

For detailed information, please refer to our website http://lawson.jp/en/

Takeshi Niinami
Chief Executive Officer,
Representative Director

Message from CEO

We offer solutions to issues in communites
to realize harmony with society

Corporate value creation through optimal capital allocation
and business model that is customer-driven

The convenience store business model has potential to cope with various social challenges
because of its accessibility within local communities. Keeping this in mind, Lawson has
contributed for years, taking advantage of our decentralized business operation. We haveaddressed community issues in numerous projects, leveraging our personnel training tofoster autonomous thinking, as well as implementing a branch system combined with local
empowerment. In the aftermath of the Great East Japan Earthquake of 2011, Lawson'spresence was indispensable in local communities. People's lives were thrown into disaster.
Our business operations formed an important part of community infrastructure, not only
serving as a lifeline, but helping communities to recover and rebuild. This also served as asignificant opportunity for both our stakeholders and me to see our presence in a fresh light.
Other critical challenges in an ever-changing society demand our response. In 2013, theratio of working women in their twenties to thirties reached a record high. On the other hand,the birth rate keeps dwindling and the population is aging at an accelerating rate. In order tomitigate atmospheric conditions, we need to reduce carbon dioxide emissions. Using lesselectricity helps us prepare for a potential energy crisis. We will keep sharing our corporate
philosophy with our stakeholders, deepening mutual trust, and innovating business models
to respond to the needs of a more sophisticated and diversified society.

Our corporate strategy and business model are what sustain growth in corporate value. We
will realize optimal allocation of visible and invisible capital to deliver the highest capitalefficiency. Visible capital is goods and money depicted in financial statements. Invisible
capital is what is not shown, such as human capital. We also strive for on-going improvementof our business model, which enables us to add value, continuously enriching intracompany
capital and social capital. Instrumental to this process are innovative R&D (research anddevelopment), manufacturing retailer based on small commercial areas, and an advanced
franchise system. We call this process of shaping the business model around the corporate
strategy, “Corporate Value Creation Cycle.”• St
Strengthen product and service lines targeting female customers• Pr
Product lines to support working women:reready-made meals and ingredients for easier meal preparation• Su
Support our employees on childcare leave•D
Develop product and service lines to revitalize local communities•D
Disaster procurement agreement with municipalities• Pa
aParticipate
in community Safety Station activities

Ph i ll challenged
Physically
h ll
d and
d elderly
ld lhave difficulty going out to shop

• Promote home delivery service• Food vans deliver orders to marginal villages

Escalation of national
medical costs and increase inlifestyle-related diseases• Enhance health-supporting product lines• Promote the idea that “food is medicine”• Support employee health management

GlobalGl b l environmentalit l changehPower shortages• Im
Implement solar power system• Im
Implement energy saving devices• Prr
Promotepower saving in stores and offices

Global warming• Implement energy saving devices• Unfolding carbon dioxide offset activity• Improve fuel efficiency of delivery vans
• Support Lawson Green Fund and tree-planting activities

Increasing
g waste• Ordering system which enables waste reduction• Establish recycling system

Long-term depletion ofnatural resources including oil• Bring Your Own Bag, Chopsticks campaigns to reduce plastic shopping bag,disposable chopsticks use• Conscious choice of eco-friendly containers

Response to large-scale disaster• Implement Business Continuity Plan (BCP)• Disaster procurement agreement with municipalities• Implement disaster relief fund

(Quantitative)

Decreasing vitality of
local communities

2 Lawson, Inc. INTEGRATED REPORT 2013

Invisible capital• Strengthen product and service lines for senior customers• Continued employment of people over sixty• SSa
Salary upgrade for younger employees• En
Entrepreneur incubator for eligible store workers

VisionFinancial capital(Funds)Manufactured capital(IT, Infrastructure)

Human capital(Employees)

Intellectual capital(Technology, Brand)

Social capital(Resources and Norms)

Capital allocation based on ROI*

Lawson's actions
La

Shrinking employment
opportunities for young people• Sufficient cash flow
• Solid balance sheet(Quantitative)

Aging societyyFinancial capital

Visible capital

IIssues arising
i i ffrom changeshiin society
i tMore women in
the workforce

Sustainable growth“Whatever you want, whenever andwherever you need it”

Lawson's actions addressing challenges in local communities
Challenges
allengges in local communities

Corporate Value Creation Cycle

Manufactured capital• Production - retail integrated supply chain• High-value added original product

Human capital

Innovative R&D• Personnel as autonomous thinkers• Capability to innovate

Input

Outcomes
Manufacturingretailer based on
small commercial
areas

Customerdriven

AdvancedfranchisesystemIntellectual capital• Lawson's brand power• Multiple store formats• Ponta data analysis

Social capital

Realizing sustainablebusiness growth• Environmental care along
our supply chain• Collaboration with local communities
on socially contributing activities

Corporate Philosophy

Creating
Happiness and Harmony
in Our Communities

Corporate strategy

Lawson's business model*ROI: Return On Investment

In this chart, we see accumulated value within Lawson as “capital.” For comprehensive
understanding of capital owned by the company, we categorized capital into five classifications
as follows:
Financial capital
Manufactured capital
Human capitalIntellectual capitalSocial capitalFunds raised from sales of stock and borrowings for business activities
Tangible assets that is available to a corporation for its business activities,
or infrastructure such as land, buildings, machines and IT
All individual skills, competency, motivation, as well as organizations' wealth of experience and knowledge
Organizational, knowledge-based intangibles assets, including the brand and reputation,
intellectual property, and software
Resources obtained from natural environment, shared norms, and trusted relationship with stakeholders

The above is Lawson’s definition, referring to International Integrated Reporting Council’s (IIRC)“Consultation Draft of the International <IR> Framework” and other references

Lawson, Inc. INTEGRATED REPORT 2013 3

Message from CEO

Lawson's business model

The convenience store growthrequires customer base expansion which can beachieved by meeting community needs

Convenience stores in Japan have targeted mainly malecustomers in their 20s to 30s, serving as the all-hours
handy store in their neighborhood. Convenience for thesecustomers mainly resides in optimized merchandise
assortment of fresh ready-made meal products delivered
just in time, accomplished by leveraging information
technology. For further development of the convenience
store model, quality store management, as well as
merchandise assortment, have been imperative, especiallyto operate in small commercial areas. Lawson focuses on
this with the “Three Essential Practices”: Be customerfriendly, and provide a quality merchandise assortment,
and keep the store clean. Convenience stores are quite
unique in the retail industry in style as well as in the size of

We will lead the convenience store industry
through innovative R&D
to expand customer basethe commercial areas where they operate.
The number of convenience stores targeting young
men is over 50,000, saturating that target market. To
continue such exclusivity would ignore the need ofincreasingly diversified local communities. On the other
hand, there are two major issues we have yet to address inour changing society: the aging population and more
women in workforce. If we can respond to them properly,
customers will more frequently visit convenience stores
rather than supermarkets or drugstores. We believe we canincrease convenience stores' share of total sales of theretailer and food-service industries from the current 6
percent to over 10 percent in the mid- to long-term.

Small Commercial Areas
Working womenwith family
Conveniencestore

No homogeneouscompetition

Supermarkets

Looking ahead at demographic movement and thechanging society, we made a considerable prior investmentin the creation our store formats to expand our customer
base, getting a head start on our competitors. The healthoriented NATURAL LAWSON and the fresh food LAWSONSTORE100 launched in 2001 and 2005 respectively andare among the multiple store formats we have developed.
These new formats made our stores attractive to women andsenior customers, with new product lines and store layouts.
Applying the expertise accumulated in these new formats
to conventional stores, we have conducted a comprehensive
R&D, incubating projects for our future direction. For
example, the new fresh food-type LAWSON evolved from
LAWSON STORE100, with expanded lineups of perishable
food and daily delivered food. Health-oriented lunch-boxes
and other prepared food items utilize expertise accumulated
in NATURAL LAWSON. We incubate expertise, bringing
a broader and firmer customer base, while developing
multiple store formats simultaneously. This is another of
Lawson's outstanding strengths among its competitors.
Keywords for our mid-to-long term growth are health,

Lawson's conventional
convenience store format
evolving into hybrids

Men in their
20s and 30s

No homogeneouscompetition
Convenience
store

Seniors

Incorporating multiple formats inconventional store format to create
hybrids, for example, fresh foodtype LAWSON, Pharmacy LAWSON

4 Lawson, Inc. INTEGRATED REPORT 2013

EvolvedfranchisesystemPlateau

Re-growth

Growth in conventional store format

Innovation throughmultiple formats

Growth as manufacturing retailer
based on small commercial areas

Share growthS
in 10 years

6%(2012)

10 %Growth of convenience
store share in Japan inretailer industry(2022)(including food service)

1975

Three Essential Practices

Customerdriven

GrowthNATURALLAWSON■ Related item

Manufacturingretailer based on
small commercial
areas

home delivery, overseas expansion in the light of social
issues and challenges. In the health-related segment, weare expanding Lawson Farm, our exclusive contract farmfor steady supply of quality vegetables. To meet healthconscious customer needs for healthy food, we provide
value-added agricultural product, partnering with DAICHI
wo MAMORU KAI (meaning Earth Environment Preservation
Society, an organic food delivery organization) and RadishBoya, as well as adopting Nakashima farming method in ourcontracted farms. Further, we launched Pharmacy LAWSON
stores combining the NATURAL LAWSON format with aprescription-selling pharmacy since 2003. As our population
ages, we expect to see this store format serve more and morecustomers beneficially, providing prescription medicine andhealthy food at one stop. Regarding door-to-door delivery,
we started a regular food delivery business, Smart Kitchen,with a set of foodstuffs for simple cooking, geared towardbusy women. In rapidly developing countries as well as
developed countries, we will promote our efficient supply
chain and our store operation format, which begins withcustomers.

Net sales of existing stores

On foot

Innovative R&D

2000

LAWSONSTORE100

Business Reform In-store kitchen!
Healthcare
PRiSM
MACHI café
Ponta

LawsonFarmOverseas
expansion

Home delivery
service2009■ Related item
Page 13

Customer base expansion responds to more
women in workforce and the aging society

Page 17

Stable supply of fresh vegetables

Page 24

Home delivery service

Page 27

Our efforts for HealthPage 25

Overseas businesses

Page 27

Lawson, Inc. INTEGRATED REPORT 2013 5

Message from CEO

Lawson's business model

Lawson's SCM-CRM model
is a driving engine
to become a “Manufacturing Retailer”

The “small-commercial-area style manufacturing retail” hasbeen established with the help of the Lawson SCM-CRM
model, which enables merchandise assortment that meetsthe needs and wants of communities.
In the conventional convenience store business
operation, the production process of our original products,
such as lunch-boxes, rice balls and sandwiches, wasoutsourced to third parities in order to improve capitalefficiency in multi-store operations. However, byilluminating the cost structure and identifying inefficiency
and waste in outsourcing, we redirected our involvement
to the supply chain to better manage the whole process production development, raw material procurement,
production, distribution and marketing. We aim at
improving gross profit margin through the Business
Reform PRiSM, rationalizing order placement by beginningwith customers, while restructuring the whole supply
chain management process.
What helps our SCM restructuring is that we have a

Human capital is the source of innovation— empowerment and diversity

Innovative R&D

Manufacturingretailer based on
small commercial
areas

Customerdriven

Lawson's SCM — CRM model
Supply Chain Management (SCM)

Customer Relationship Management (CRM)

Comprehensive Management from procurement tomarketing, for optimal efficiency of the whole process

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

Product
development

Visualization ofopportunity
loss

Ponta Card

High-value added
raw material
procurement

SCM

CRM

Supply Chain
Management

Business Reform
PRiSM

Customer RelationshipManagement

Manufacturingretailer based on
small commercial
areas

Evolvedfranchisesystemdepartment specializing in raw material procurement. The
department's accumulated expertise in procurement
under favorable conditions contributes to value-added
original product development.
Another of Lawson's strengths is the multi-partner
loyalty point program called Ponta and its data analysis
capabilities. This enables us to grasp needs of individual
customers in small commercial areas. Using the program
members' attribute information (gender, age, andresidential area), we can statistically analyze purchasing
behavior of Ponta members. This is more than 56 million
members' data points, which is unrivaled by any of ourcompetitors in terms of information quantity and quality.
This is our Customer Relationship Management (CRM)
system, which brings us knowledge of communities andstore operations, while visualizing sales opportunity
losses, serving as our engine to increase profit while
helping reduce losses.

Analysis of purchasing
behavior of customers

Innovative R&D

Human capital is essential for the Manufacturing Retailer
business model based on small commercial areas and forinnovation as well. Since I took the chair as CEO in 2005, I
have spent considerable time and expense on personnel
training, while decentralizing our organization andempowering regional branch offices. To respond todiversified customer needs in small commercial areas, weneed individual spontaneous ideas and autonomous
decision making in the organization. This is what we callhuman capital. We create Lawson University, a uniqueeducation program integrating education for franchise
store staff and education for headquarters employees. This
program resourcefully educates them to contribute to ourhuman capital, taking action as autonomous thinkers
within their communities. In the aftermath of the Great
East Japan Earthquake of 2011, franchise owners and our
employees, mainly from Tohoku Branch, took spontaneousand prompt action, and contributed greatly toreconstruction and revival of disaster-hit areas. This
exemplifies our in-depth human capital shaped within our
Lawson Family [franchise owners, store crews (part-timeand temporary workers), and headquarters employees]
through our empowerment and education programs.
For business operations based in small commercial
areas, franchise owners' entrepreneurial spirit is essential
for success. We position each franchise owner as a business
partner, creating an environment for them to speak freely,
while fine-tuning headquarters' organizational structure
to take in their voices. Our Management Owner (MO)Customerdriven

Evolvedfranchisesystemsystem was implemented in 2010 for our franchise owners.
This system certifies franchise owners as Management
Owners when they successfully fostered their staff anddeveloped comprehensive knowledge of their community.
While incorporating their understanding of communitychanges and customer needs, they must also embrace themultiple store operation model. We are planning toprovide more support to franchise owners, especially MOs,in order to inspire competitiveness in their commercial
areas.
Further, we focus on diversity in our organization inorder to respond to the needs of diversified customers. For
this goal, we are working to raise the proportion of womenhires to 50 percent since 2005 through periodic recruitmentof new college graduates, while increasing the proportionof non-Japanese employees since 2008 to 30 percent of all
employees. We train these non-Japanese with Japanese
recruits in the same program, not putting them on adifferent track to staff them overseas, but offering themthe same opportunity to experience Japanese-style
convenience store operations, working as store staff or
supervisors (SVs), who coach store operations. Additionally,
we are strengthening recruitment of science students who
are more skilled with high IT literacy for future innovation.
As human capital is what Lawson stands on for its
sustainable growth, we keep encouraging our people tohave spontaneous ideas and to act autonomously whereappropriate, thus moving us forward.

Planned orderplacement

Optimalmerchandise
assortment

Manufacturing/ distribution

Improve Gross Margin

The Smart Women Project (refer to thepage 31) was set up as part of diversity
promotion initiatives. The team isdeveloping products leveraging their
distinctive female perspectives.

Increase Sales and Profits■ Related item

■ Related item

Lawson's SCM— CRM model

Page 18

Supply chain process management

Page 22

Promoting local empowerment

Page 28

Fostering staff as autonomous thinkers
for their contribution to human capital

Page 28

Multi-partner loyalty card called “Ponta”

Page 18

Business Reform PRiSM

Page 18

Lawson University

Page 30

Taking the initiative for diversity

Page 31

Management Owner (MO) system

Page 29

6 Lawson, Inc. INTEGRATED REPORT 2013

Lawson, Inc. INTEGRATED REPORT 2013 7

Message from CEO

Lawson's business model

Capital allocation based on ROI

Targeting 20 percent in ROE,
a criteria in capital efficiency
for global investors

Innovative R&D

Manufacturingretailer based on
small commercial
areas

Customerdriven

EvolvedfranchisesystemGrossoperating profit

Consolidated
operating profit ofYearly net increasein stores:

Selling, general &administrative
expenses

100 billion yen

500 storesConsolidated
subsidiaries

ROE 20%Home convenience store business (Please refer to page 26)
Overseas businesses

Increased dividend/buy-back &cancellation■Changes in ROIC compared with our competitors for ten years(%)

M&A Alliance■ROE: retailers of retailers around the world(%)

Percentage change compared with the level of five years ago

25

16.0

Wal-Mart
Lawson14.0

Existing store
gross profit

4 percentage point
i iincreasein cumulative total ofgross profit marginNon-consolidated
Lawson20

ROIC+1.2% point
12.0

TargetLawsonAverage of two
major competitors

ROE (FY 2012)■Operational cash flow allocation: accumulated profit over 6 years (FY2007-2012)■Road map to medium-term continuous growthto achieve ROE 20 percent

Average ROIC for the period

growth through core business. We have also implemented
buy-back and cancellation, to achieve more efficiency of
capital. We particularly focus on distributing cash-flow tobalance between optimal medium-term reinvestment andshareholder return, by choosing the right timing to
implement a new capital policy. We regard decisionmaking about cash-flow allocation as central to ourbusiness strategy.
What we depend on in such decision-making is capitaldiscipline as depicted in return on investment (ROI). ROI
over 20 percent is our criteria in making every investment
decision to allocate operating cash flow on such activities
as new store opening, sales promotion, M&A, andlaunching new businesses. The effect of this strategy
manifests in the fact that our rate of return on invested
capital (ROIC) has increased over the past 10 years, whilethat of our competitors is decreasing.
Also, along with ROE of 20 percent, we set mediumterm numeral target of 100 billion yen in consolidated
operating profit. To achieve this, we worked on increasing

In globalized economies today, money flows withoutborders. Lawson as a listed company needs to meet global
investors' expectations, not just those of domestic
investors. A major part of our financial capital isshareholders equity, and they expect a higher rate of
return than capital cost. Thus, management needs toperform optimal investment allocation that realizes highcapital efficiency. Our business strategy optimizes funds
distribution in our unique business model, in order tocreate value and increase return to shareholders efficiently
as a listed corporation.
Lawson fulfills its mission, meeting global investor
expectations through realization of high capital efficiency,
far exceeding capital cost. Concretely, in the medium term,
we intend to increase return on equity (ROE) to the level of
20 percent at the global standard from the current 15
percent. There are two ways to achieve our target: one is toincrease profit, by increasing operating cash flow in ourcore business. The other is, through finance strategies, toincrease capital efficiency. We put the first priority on profit

ROIC-3.7% point

10.0

15

CostcoWalgreen+3.0% point

10

J Sainsbury+1.4% point

FamilyMart

CVS Caremark
Seven & i
+0.9% point

5
Metro

approx. 230 billion yen

Investment cash flow

ROE =Operating cash flow

Profitapprox.
400 billion yen

CapitalShareholder return

Dividends paid

approx. 93 billion yen

approx.
118 billion yen

Share buy-back& cancellation

approx. 25 billion yen

15.2

15.3%

■Changes in ROE
(%)

20
15

12.1

13.0

13.1
11.3

11.6

12.8

12.5

*

(FY2013 Plan)

12.0

10

* Estimated ROE:
15.1 percent,excluding impact ofasset retirement
obligations andmajor earthquake

6.5

5.9
5

0

2002

2003

2004

8 Lawson, Inc. INTEGRATED REPORT 2013

2005

2006

2007

2008

2009

2010

2011

2012

0

2.0

3.0

4.0

5.0

6.0 (%)

Changes in the number of storesgross profit margin, along with gross profit, throughrevenue growth of existing stores. Just as importantly, weare decreasing SG&A Expenses (selling, general &administrative expenses) through business process reengineering (BPR). Combining these, we aim at increasing
operating margin for net sales of all stores by 5 percent, up
from the current 3.5 percent.
We believe we can achieve these numeral targets,
not so much through short-term policy for increasing
sales or stores, but long-term, grounded efforts in local
communities to meet their particular needs with precise
selection of goods. These efforts manifest in our new
development such as multiple store formats and perishable
food implementation, bringing more customers to stores.
In future, by unfolding Pharmacy LAWSON and the home

0

10,00020,00030,00040,000Tesco
50,000 60,000

200,000(Millions of U.S. dollars)Market capitalization (As of February 28, 2013)delivery service, we will focus on increasing our share in
day-to-day spends of customers. Through these various
efforts, we work in our signature business model ofmanufacturing retailer based on small commercial areas.
On the leading edge globally, in the domestic as well as
the overseas food retail industry, we are setting thestandard no other competitors can set, becoming No.1
worldwide in this type of business.

2013 (FY)

Lawson, Inc. INTEGRATED REPORT 2013 9

Eleven-year financial summary
Lawson, Inc. and consolidated subsidiaries
Years ended February 28 and 29

Millions of yen

Thousands of U.S. dollars*1

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2013

Franchise commissions from franchised
stores¥230,003¥215,574¥197,673¥185,656¥186,928¥177,443¥174,325¥170,785¥162,963¥153,910¥149,032$2,486,250

Net sales from company-operated stores*2

157,627

174,116

183,236

232,459

119,099

83,32175,151

66,02763,802

67,47980,954

1,703,892

Other99,81589,26760,36949,07743,44940,41333,577

31,246

27,63024,212

20,3481,078,964

Total operating revenues

487,445478,957

441,278

467,192

349,476

301,177

283,053

268,058

254,395

245,601

250,334

5,269,106

Operating income

66,246

61,76955,54150,27649,186

46,61044,51343,86742,941

38,087

34,107716,096

Net income

33,18324,88525,387

12,56223,807

22,11920,98322,02520,435

18,571

8,861

358,696

Cash flows from operating activities

85,18986,357

72,21040,696

51,71755,77147,596

46,93347,32937,42433,860920,863

Cash flows from investing activities( 54,196 )( 52,912 )( 30,522 )( 42,596 )( 15,647 )( 36,525 )( 31,754 )( 55,282 )( 33,297 )( 40,621 )( 3,787 )( 585,839 )For the year:
Operating revenues

Cash flows from financing activities( 31,980 )( 27,545 )( 28,799 )( 27,239 )( 14,911 )( 31,973 )( 736 )

( 7,795 )( 13,836 )( 14,364 )( 7,247 )( 345,692 )Capital expenditures*3

77,361

74,57250,326

71,39942,90764,41349,822

54,417

46,87348,30375,828836,245

Depreciation and amortization*4

43,886

37,84633,084

27,46820,87921,46921,352

20,896

19,641

18,49916,071

474,392

Total assets¥579,810¥531,454¥476,037¥448,132¥436,096¥397,108¥398,258¥375,107¥356,310¥354,831¥342,599$6,267,539

Total equity

230,182

214,663

208,467

198,136

201,167

188,574

199,493

175,184

160,282

154,317

151,864

2,488,186

Equity ratio

39.1%

39.7%

42.7%

42.8%

44.8%

46.6%

49.0%

46.7%

45.0%

43.5%

44.3%

39.1%

Cash and cash equivalents

72,76673,67067,712

54,84383,98262,82375,54760,441

76,58576,38993,994

786,574

Total number of stores*5

11,13010,457

9,994

9,761

9,527

8,587

8,564

8,366

8,077

7,967

7,721

11,130

Number of employees (full-time)

6,404

6,475

5,703

5,236

5,186

3,735

3,614

3,585

3,391

3,402

3,462

6,404

Net income (yen/ U.S. dollars*1)

¥332

¥249

¥255

¥127

¥240

¥215

¥202

¥216

¥198

¥176

¥82

$3.59

Cash dividends (yen/ U.S. dollars*1)

200

180

170

160

160

110

100

90

70

41

41

2.16

60.2%

72.2%

66.8%

126.3%

66.6%

51.2%

49.6%

41.8%

35.3%

23.3%

49.8%

60.2%

Return on equity (ROE)

15.2%

12.0%

12.8%

6.5%

12.5%

11.6%

11.3%

13.1%

13.0%

12.1%

5.9%

15.2%

Return on assets (ROA)

6.0%

4.9%

5.5%

2.8%

5.7%

5.6%

5.4%

6.0%

5.7%

5.3%

2.6%

6.0%

¥1,748,920¥1,651,693¥1,499,576¥1,433,678¥1,434,166¥1,331,785¥1,311,479¥1,295,704¥1,265,257¥1,220,819¥1,213,088$18,905,199

157,627

174,116

183,236

232,459

124,614

83,32175,151

66,02763,802

67,47980,954

1,703,891

At year-end:

Per share data:

Payout ratio
Financial data:

Net sales of all stores:
Net sales by store category
Franchised stores*6
Company-operated stores*2
Net sales by product category*6

1,064,133

1,022,619

897,426

902,306

844,324

726,750

705,155

682,006

665,687

625,031

600,508

11,502,897

Fast foods

373,385

345,424

321,865

324,197332,894

327,501

324,993

312,289

297,369

302,568

303,098

4,036,158

Daily delivered foods

272,312263,179

264,169

239,088

186,109

162,625

155,575

150,917

148,134

139,506

138,353

2,943,595

Non-food products

196,716

194,586

199,350

200,544

195,453

198,230

200,907

216,519

217,887

221,192

252,083

2,126,430¥1,906,547¥1,825,809¥1,682,812¥1,666,136¥1,558,781¥1,415,106¥1,386,630¥1,361,731¥1,329,077¥1,288,297¥1,294,042$20,609,091

Processed foods

Net sales of all stores*1. The U.S. dollar amounts represent translations of Japanese yen at the approximate exchange rate at February 28, 2013, of ¥92.51=$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*4. Including depreciation and amortization of intangible fixed assets*5. 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 number of stores fromfiscal 2004 to fiscal 2010
*6. These figures include sales figures reported by franchise stores and are unaudited

Non-financial highlights
Per store CO2 emissions from power usage*

Food recycling ratio* CO2 emission coefficient is based on FY2006 3.68t-CO2 /10,000 kWh for comparison

To reduce CO2 emissions, we
set a 10 percent reduction
from FY2006 for CO2
emissions from power usage
per store, as a voluntaryaction goal to be achieved
by FY2012. We achieved a
9.6 percent reduction in
FY2012.
(Please refer to page 35.)

(t )

70

70.6t
65

reduction

63.5t

60

0

Target10 %2006 (base year)

2012

Achieved

9.6 %reduction

63.8t

2012

(FY)

10 Lawson, Inc. INTEGRATED REPORT 2013

Ratio of working mothers of female employees
To effectively use surplus
food and respond to the
Food Recycling Law, wetargeted more than 32.5
percent of Food recycling
ratio to achieve by FY2012(FY2007 as base year). We
worked over years
improving 2 percent ormore yearly. As a result,
we achieved 50.3 percent
in FY2012.

(%)

60

Achieved

50.3 %

50
Target set
by law:

40

32.5 %
30

Increased
by

10%

20
0

Increased
by

27.8%

22.5%
2007 (base year)

2012

2012

(FY)

(%)

100

18.9

80

20

16.0

15

60

8.4

40
20
0

25

87
67

4.6

10
2001

23
2005

2010

2012 (FY)10

Implementing Childcare
Support Policy, working
mother's ratio of female
employees increased by
14.3 percent over 11
years. A reinstatement
ratio from a childcare
leave (on a cumulativebasis since FY2000) is ashigh as 99.1 percent.

Number of men and women,
and ratio of non-Japanese to new hires
180
160
140

(%)
Men
Women
Non-Japanese to new hires(%)

120
100
80
60

5

40

0

20
0

18.9

32.8

22.2

27
2011

30
20

94

31
2010

29.4

51

44
46

40

76

Among new hires, half ofthem are women and 20
to 30 percent of them are
non-Japanesenationalities. We promote
diversity by consciously
maintaining this ratio.

10

48
2012

2013 (FY)0

Lawson, Inc. INTEGRATED REPORT 2013 11

Message from COO

We will respond to customer needs in our communities
driven by our “Three Essential Practices”

Three Essential
Practices

Three Essential Practices
focus on efforts to improve customer satisfaction

Our fundamental dedication to the LAWSON store brand strength,
focuses us on the Three Essential Practices, the basics in our day-to-day operation.

Serving customers courteouslythat conveys the value of products to themServing
customers
courteously“Three Essential Practices” in our store operations
to enhance customer satisfaction
With our Corporate Philosophy, we aspire to become the favorite store of customers, to shop
for “whatever you want, whenever and wherever you need it” which is the vision we work
to materialize. To make this happen, we focus on “Three Essential Practices”: Be customer-

Product
Competitivenessfriendly, provide a high quality merchandise assortment, and keep the store clean. This is
how we improve customer satisfaction, along with choosing convenient locations in small
commercial areas for new stores and developing product lines that meet customer needs.
The Three Essential Practices are the ground rules of our store operations. For our franchise
stores to improve these three practices, we at headquarters make various efforts including
supervisor (SV)* guidance and Mystery Shopper visits for evaluation and feedback.

Merchandise
assortment
responding tocommunity needs

Keeping clean
our stores andcommunities

Convenient location

Ponta data analysis for precision ordering brings* Supervisor (SV): a coach for store operations

Keeping clean our stores and communities

Merchandise assortment responding
to community needs

Interior and exterior cleanliness of the store makes the store
attractive, and helps bring customers back, while contributing
to the cleanliness of the neighborhood. We believe efforts ofindividual stores, when put together, eventually help achieveenvironmental integrity of the whole society. We work to realize
such store environments where we can enhance thoughtful
action toward society and the environment, involving franchiseowners, store crews, our employees and even customers. That iswhat our store operations are meant to be.
(For detail, please see pages 32-33.)

Our franchise stores number more than 11,000 nationwide,
responding diversely to specific needs of customers who livein their respective local communities. Ponta loyalty card data
analysis is vital to developing products and creating merchandise
assortments that meet customer needs. Which particularcustomer buys what, when they buy it, and how much they buy- this data illuminates customer purchasing behavior, enabling
stores to place orders precisely and timely. As ordering becomes
more customized and specific, merchandise assortment becomes
more responsive to and satisfying for customers, decreasing
opportunity losses while increasing customer satisfaction.

working together with communities“Three Essential Practices” overseas— our world-class store creation and operation
We see abundant room for our Japanese-style convenience store business model to grow indeveloping countries in Asia and other regions, as well as in developed countries
where this unique business model is not yet established. Careful selection of
goods responding to particular customer needs in specific local communities,
cordiality and friendliness with customers, and cleanliness of the store andits neighborhood — these are what we abide by in our business model,

Goods that sit on store shelves cannot convey to customers
the full value of the store experience. We think what matters
is a touch of friendliness, enhancing the value of goods tocustomers, which goes hand-in-hand with our overall attitude
toward society. In addition, for over-the-counter sales of fast
food, such as the out-of-the-oven delicatessen and freshly
brewed coffee, store staff need customer service skills such as
making conversation with customers. While over-the-counterfast food makes staff busier with extra work including customer
service, gross profit increases because sales surpass input costs.
The high level customer service increases profitability for bothfranchise owners and headquarters.

and which comprise the Three Essential Practices. Centering on, andbringing “Selfless Hospitality” to the world, we keep breaking new ground forconvenience store business abroad to succeed, while further strengthening
our product lines and ROI-oriented store opening strategy. (For detail, pleasesee page 27.)

To improve store operations, we implemented the Mystery Shopper program in 2004. This program uses third-party
undercover researchers to inspect stores from a customer's perspective, and quantitatively assess them on the qualityof their merchandise assortments, service, cleanliness and customer satisfaction. Feedback is provided to headquarter
supervisors (SVs) who relay it to franchise owners on a regular basis. Objective evaluation of their store operations comparedwith competitors in their neighborhood helps franchise owners strengthen their store operating capabilities.

Genichi Tamatsuka
Chief Operating Officer,
Member of the Board

12 Lawson, Inc. INTEGRATED REPORT 2013

Mystery Shopper Program to quantify operational capabilities for continuous improvement

Convenient location for high performance in new store opening
Choosing convenient locations for new stores greatly helps increase usefulness of LAWSON for customers. We analyze
community information such as the estimated number of customers, their attributes, and their behavior patterns to decidelocation and store format as well. Moreover, implementing the regional branch system to integrate store development andoperation, we structurally focus on store performance after opening, not just pursuing the number of new stores. All thesefactors bring us higher return on investment (ROI) in store openings.
Lawson, Inc. INTEGRATED REPORT 2013 13

Message from COO

We serve freshly brewed coffee in person
That is our style of “customer service”
The reason why we hold to “hand serving” style
MACHI café hand service style, launched in 2011, is the stylewhere store staff grind beans behind the counter, brew thecoffee freshly, and hand serve it to customers. This takes
much more time and effort compared with self-service which
operating in stores of our competitors. How we maintain costeffectiveness, and use this as a training platform for all staff inexcellent customer service will be explained later. We serve
coffee in this way, personalizing conversation and relationships
with customers, in perfect harmony with the Lawson attitude
toward customers. With MACHI café installed in stores, with highvalue added products and Three Essential Practices in place, we
remarkably improve customer satisfaction, bringing continuous
growth to both franchise stores and headquarters as well.

product development, raw material procurement, manufacturing
and sales, guaranteeing quality with strict attention to thebeans used, roasting methods, coffee making machines, milk
and other ingredients. Notably, we are in part using the beansfrom Ipanema Coffees, one of the world's biggest plantations in
Brazil. The coffee from Ipanema boasts its certified high quality,classified as finalist for Cup of Excellence in 2011. As the only
convenience store business in partnership with this renowned
plantation, we enjoy steady use of quality beans outside pricecutting competition, which enables us to highly differentiate
MACHI café. By adding a varied latte menu, we bring more female
customers and help expand customer base, while increasing
sales of sweets that go well with coffee. Serving quality coffee
that rivals authentic coffee shops enhances LAWSON's brandimage, as well as motivating store crews and employees.

“Unique experience of taste” realized withcustomer service
We qualify our stores to install MACHI café when they provetheir excellent store operations capability with a certain scorein the Mystery Shopper evaluation. Also, we certify store crews
with a good knowledge of coffee as well as excellent customer
service skills as Fantasistas, which motivates not only store crews
but franchise owners in charge of fostering them. Through
MACHI café, we provide delightful coffee tastes and aromas,
while cultivating people who strive to create happiness in ourcommunities.

by our sophisticated supply chain, and for which we see big
potential in terms of the Corporate-Value Creation Cycle. Selling
the product, and realizing personalized customer friendliness,
we improve customer satisfaction, expanding our customer
base and gross profit growth. Reducing environmental impactof our whole supply chain, we contribute to development ofsustainable society at the same time. The number of storesinstalled with MACHI café is expected to exceed 8,000 by theend of February 2014, rapidly increasing from 3,984 as of theend of July 2013. MACHI café has launched in operation partiallyin Shanghai and Indonesia. We plan to expand it in response toneeds of regional customers in other areas overseas as well.

Caring for society and environment
throughout production process
In MACHI café production, we make conscious, pro-environmental
choices. Trying to minimize impact on biodiversity, we choose 70
percent of our beans from Rainforest Alliance CertifiedTM farms.
In addition, we offer discounts to customers who bring theirown tumblers, and recycle used coffee grounds and coffee beanbags. We keep looking for new ways to reduce our impact on theenvironment in every phase of production.
MACHI café is a high-value added product, brought forth

Specialty ingredients
With the slogan “from plantation to cup,” MACHI café leverages
our strong supply chain through all its production processes -Three Essential Practices in MACHI café
OWNER’S

Hand delivery and conversation
Environmental sustainability
Rainforest Alliance certification is awarded to plantations only
when they satisfy rigorous standards in areas like environmental
preservation and improvement in plantation worker quality oflife. Rainforest Alliance CertifiedTM plantations supply 70 percent
of MACHI café coffee. We also encourage our customers to bring
their own tumblers offering 10 yen discount for MACHI café
goods, in order to reduce unnecessary waste.

Friendliness

MACHI café's coffee is made exclusively from specially-selected,
delicious Arabica beans, 20 percent of which comprises
pulped natural coffee. Blends are made after bringing out theunique characteristics of each bean through different roastingprocesses best suited for each kind (post-roast blending).
Milk is heated in a special way that gives less impact on its
components, leaving its natural richness and sweetness.

More than excellent customer service,
our cup of aromatic coffee emphasizes our human touch
owner
Mr. Ryousei Yanagida Franchise
LAWSON Kumamoto Yokote 4-chome StoreSpecialty coffee beans and milk

Three Essential
Practices

Creating cleanlinessin store andneighborhood

VOICE

The store staffs make coffee carefully by hand, andthey hand the cup over the counter to a customer
with making pleasant conversation. This is a high value
opportunity to meet customers. MACHI café represents
the relationship with customers to which we aspire.

Mr. Yanagida, Store owner (right)
Mr. Yasunaka, Store manager (left)

I am always telling my staff to create a happy atmosphere in our store, with
our smiles expressing gratitude to customers. MACHI café training is useful topractice this. In pair-work, taking turns to play the customer and store staff, we
practice handing the coffee over the counter, smiling and making eye-contact.
Although we have another convenience store 100 meters away serving coffee
self-service, we are increasingly hearing our customers say our store's coffee isthe best. I feel rewarded as I have encouraged our staff to promote MACHI caféin a heart-warming way.

FANTASISTA’S

VOICE

Varieties of beans and roasting method - naturally starts conversation with customers

Mr. Shuji Yasunaka Fantasista and store manager

High quality
merchandise
assortment

When I started to work as Fantasista at the store counter, to my surprise, I found myself effortlessly answering customers
questions, like what kind of beans and how we roast it. This natural conversation starter eventually covers much a wider
range of topics in many cases, which brings customers back to the store. As I am the first to be certified as Fantasista andalso the manager, I can share with my store crews customer service tips, fostering them to become more skilled staff andimprove our store's customer friendliness. In this way, I am helping them get certified as Fantasistas so they can join me.

(Contribution to society and environment)

14 Lawson, Inc. INTEGRATED REPORT 2013

Lawson, Inc. INTEGRATED REPORT 2013 15

Lawson's strategy — to achieve continuous growth

Creating customer-driven stores

Bring solutions to our aging society
with innovation that addresses
concrete community issues

It is about 40 years since the convenience store business started
in Japan. Looking back, Lawson have always had a head start over
our competitors, discerning customer needs as times change,
putting forward products and services to meet these needs, but
still focused mainly on male customers in their 20s to 30s.

Today, as we meet the challenges of a changing society, we
are accelerating our product and service development to provide
solutions faster, but always “customer-driven.” We especiallyaddress female and senior customer needs by creating stores
where they can shop in their neighborhood. We hope to help
create the society in which women can comfortably raisechildren, and senior citizens can live more easily with their healthconcerns, while expanding our customer base at the same time.

Actions to realize “customer-driven”“Whatever you want, whenever and wherever you need it”
Changing social environment
imperative for us to enable women to work comfortably whileraising children. Due to the rapidly increasing proportion ofelderly people, Japan's social security system could facechallenges in the future from rising medical expense. Our
business must deal with these changes in social environment.
Careful analysis of these trends, combined with leveraging ourhuman capital, allow us to provide innovative solutions in ourcommunities. This is how we achieve continuous growth handin-hand with our communities.

Facing social challenges
with decreasing population
The demographic structure of Japan was a pyramid shape in the
1970s, changing to a bell shape in the second millennium, as the
population aged. In 2011, the total population of Japan started
to decrease, and we expect this decline to gain momentum inthe 2020s, if these trends continue. With the number of workers
decreasing, and women staying at home to raise children, it is• Enhancing

health-supporting
product lines• Marketing medication
based on the idea of“food as medicine,”
meaning that both foodand medicine help
preserve the health

Male

Demographic composition (Time/ Million)
Total population: 112 million
8580-95
75-79
70-74
65-69
60-64
55-59
50-54
45-49
40-44
35-39
30-34
25-29
20-24
15-19
10-14
5-9
0-4

Male

6

4

2

1975

Total population: 128 million
8580-95
75-79
70-74
65-69
60-64
55-59
50-54
45-49
40-44
35-39
30-34
25-29
20-24
15-19
10-14
5-9
0-4

Female2

4Total population: 121 million (Estimate)

6

6

4

2

2011

2

4

8580-95
75-79
70-74
65-69
60-64
55-59
50-54
45-49
40-44
35-39
30-34
25-29
20-24
15-19
10-14
5-9
0-4

6

6

4

2

2

2025

4

6

Source: National Institute of Populationand Social Security Research

Increasing burden of medical expenses(Trillions of yen)

120
100

(%)

Total population (Left)
Ratio of elderly people(over 65 years old) to total population (Right)

50

50

60

30

40

20

30

0

0

The year 2060
Population aging rate: 40 percent 10
Workforce decreasing by 30 percent'50 '55 '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 '15 '20 '25 '30 '35 '40 '45 '50 ’55 '60

Younger

53.3

40

Lawson's strategy
37.4
20.6
1990

2010

2025

Source: Ministry of Health, Labour and Welfare

Source: Cabinet Office, Government of Japan, Annual Report on the Aging Society (2012)

1.

Customer-driven
merchandise
assortment

Ponta

Business
ReformPRiSM

2.

Business model for
manufacturingretailer in a small
commercial area

Product
development

SCM
reformPerishable
food

HealthsupportOrganizational
reformMOsystemHumancapitaldevelopment

Diversity

Actions addressing issues in society

Meeting new and diversified needs
we create products and services
With changing social environment and its impact on local
communities, what customers look for in convenience stores is
rapidly changing. To meet customer needs, Lawson established acustomer-driven business model. Thus we seek to walk hand-inhand with our communities. We are provisioning stores that offer“whatever you want, whenever and wherever you need it,” while
addressing issues that our society is facing.
16 Lawson, Inc. INTEGRATED REPORT 2013quality desserts andfreshly-brewed coffee

60

40

0

Female• Providing reasonably-priced

60

80

20

by promoting
perishable
food products andconvenient homedeliveryCurrent customer base

(Million)70• Supporting nutrition

through concert
ticket sales

Decreasing population and accelerating rapidly aging society
140• Providing fun

Older

Shrinkingemployment
opportunities
for youngpeopleDecreasing
vitality of local
communities

Aging
society

Issues inlocal
More womencommunities
in theworkforce

Physicallychallenged
and elderly
have difficulty
going out
to shop

Escalation ofnational medical
costs and increasein lifestyle-relateddiseasesfor
3. Foundations
innovation

P.18

Home
deliveryservice

Overseas

P.20

P.28

* Please refer to page 2 for details

Lawson, Inc. INTEGRATED REPORT 2013 17

Lawson's strategy — to achieve continuous growth

A store in the neighborhood where especiallyfemale and senior customers can purchasewhat they need

1. Customer-driven merchandise assortment
Store layout suited for customers

From item-to-item management based on POS data to full range analysis of customer data,
we realize our ordering and display goals in each store
Conventional operation of the convenience store

Product
development

Visualization ofopportunity
loss

Analysis of purchasing
behavior of customers
Ponta Card

What helps each Lawson store to offer “whatever you want,whenever and wherever you need it”? It is precise understandingof customers in local communities — who they are, what theyneed and when they need it. We leverage our multi-partner
loyalty program, the Ponta card, and analysis of that data.

SCM

High-value added
raw material
procurement

CRM

Supply Chain
Management

order
Customer Relationship PlannedCuplacement
Management

Business Reform
PRiSM

Manufacturing/ distribution

Optimalmerchandise
assortment

Improve Gross
MarginIncrease
Sales and Profits
For Lawson's SCM-CRM model, see page 6

The number of Ponta members has now surpassed 56 million, representing Lawson customers as well as
those of 69 partnered companies, 90 partnered brands. Members can use the card in 21,900 stores (as ofthe end of July 2013), including gas stations, travel agencies, publication companies and DVD rental
shops.
Lawson leverage an enormous amount of Ponta card data to create a framework to grasp precise
customer needs in each local community and to deliver an optimal merchandise assortment that is best
suited for local customers.

Target

60
50

2,000
2010

2011

2012

Homogenous store
operation andplanning sales space

Produce sales space with
headquarters instruction centering
on new products or campaigns

Produce sales
space to meet
individual
local needs

Store produce tailored to individual
local needs collected through Ponta
data analysis

Leveraging of Ponta data at stores

2013

Case example ofPonta Member
Report of Your Store

(FY)

10

Male

9.3

8

30

6

3.8

20

4

10

2

0

0

2.2

1.2
1.0

2010/3

4.1
2011/3

4.2

Not so many members despite excellent sales

4.5

The store has less Ponta members, but the number of “heavy
users” (frequent repeaters buying a lot) is outstanding.

2013/3

40
1st

0

2,000
1,500
500

Reduce opportunity losses by more precise orders
and merchandise assortment matching customer needs
When customers do not find what they need, they just stop coming to the store. Along with leveraging Ponta card data, we
promote work restructuring through IT utilization, PRiSM to realize customer-driven merchandise assortment. We strive torealize precise order placement, optimal selection of goods, and facilitating display of goods that meet customer needs.
This business reform through IT utilization, PRiSM is essential to quantify sales opportunity loss, and thereby meet ourcustomer-oriented goals.

3rd

2nd

1st

2nd

4 More health-conscious products
among bakery and beverages

1

2

3
4
5
6
7
Distance (From residence to store)

8
Far

Demographic composition of population andPonta members by age groups
Compared the age group of
members with the whole
population, the percentage
of females in their twenties in
the area is high, but Ponta
members in that age group is
not proportional.

20%

0%

0%

20%

80-89

Female

Male

70-79
60-69

Numberof members

Ratio ofstore visits

50-59
40-49

Population

30-39
20-29
10-19
500

18 Lawson, Inc. INTEGRATED REPORT 2013

More health-conscious bakery and beverage selections in themerchandise assortment can meet the at-home needs of young
women for their supper and breakfast.

3rd

Close

Realizing that the store was not so popular for young women,
the store owner decided to take action with a focus on them.
Data comparison with stores located in a similar type of area,
revealed bakery products sell well, along with beverages.

3 Hypothesis

200Work restructuring through IT utilization (PRiSM)

2 Awareness leads to making merchandise
assortment more attractive to women

10.3

5.8

5.1
2012/3This report revealed a small number of female customers
Adding health-conscious merchandise assortment increased
female customer base (A store in Hokkaido region)

1 Ponta Member Report brings awarenessFemaleNumberof members

2009

Order placement adjusted by change innumber of customers, merchandise
assortment which covers basic items, andoptimal store display with easy accessSales
composition
ratio (%)

3,000

(%)

12

7.9

40

4,000

20

0

(％)

5,200

30

10

50%

40%

40

Order
merchandise
assortment
based oncustomer needs* Data do not include information that specify individuals

Composition ratio of senior citizens over sixty
in Ponta card members

Number of Ponta card members and their ratio in sales

45%

Order based on recent sales,
those of previous year, andwaste volumes

As Ponta member ratio came closer to 50 percent of total sales, we further see the detailed purchasing patterns in each store.
In 2013, we started to provide franchise owners with information of customers' attributes and their purchasing behavior
compiled as Ponta Member Report of Your Store*. This is our unique tool, leveraging abundant data and statisticaladvantage, to support store creation optimized to particular customer and community needs.

Important tool that enable us to grasp precise customer needs in our community

50

Order based on
item-to-item
management

Analysis of Ponta purchase data enhanced franchise owners understanding of their customers

Multi-partner Loyalty Program “Ponta”

Number of members (Left)
Sales ratio of members (Right)

Ponta data

Item-based data to find
top-selling items

Item-based data to find top-selling items

Ponta data analysis of purchasing behavior
to precisely grasp customer needs(Million)
60

POS data

POS data

Grasp of customer needs

Lawson's strategic direction00Beverages goodfor healthand beauty

Increased items good for health andbeauty, such as vegetable juice, appealing
to customers with multi-faceted displays
and large quantity display.

Health-oriented
bakeryIncreased items of bakery using bran as
ingredient, displaying them on the top
shelf to attract attention

5 Positive response attracting customers with improved
health-oriented product lineup
Within two weeks of increasing beverages and bakery lineups,
we had 16% and 8% increases in beverages and bakery sales
respectively.

500

Lawson, Inc. INTEGRATED REPORT 2013 19

Lawson's strategy — to achieve continuous growth

Each store grasps customer needs
realizing optimal selection of goods
with precision ordering

2. Business model for manufacturing retailer in a small commercial area
A case of product development

When, where, to whom — analyzing Ponta data and customer input,
we develop specified products for each market segment
Lawson analyze Ponta data and customer input delivered by SNS to determine which particular products attract whichcustomer segments, to develop customized products in their preference.

Policy for original product development

Lawson focus on quality original product development withspecial attention to ingredients targeting new customer base of
women and senior segments, as well as our loyal male customers
in their 20s to 30s.
Product brand map is a tool to analyze customers whopurchase certain product brands by gender and age. We can seethat among the products that Lawson is developing, there are
more brands geared toward female and senior customers. Some

Product brand map

Older

Boxed lunchesof the products such as boxed lunches and onigiri (rice balls)
which have been historically preferred by customers in the 20s
and 30s are now underway in the development targeting female
and senior customers.
Trial and Repeat purchase analysis is a tool to analyze thesales of a new product for several days immediately after thelaunch. We look at the ratio of trial buyers and repeat buyers
and compare that data to a past similar product in an attempt
to capture a sign of a hit product early on. As this illustrates wedevelop an original product brand by repeatedly employing
multi-faceted analysis and merchandisers’ hypothesis testing.
The premise in product development is “safe, reliable, healthyand delicious.” For female and senior customer segments
who are likely to look for safety in food, we pay special care tocontrol quality. From choosing raw materials, to manufacturing,
distribution and marketing, we pursue “safe, reliable, healthyand delicious” in all operations in compliance with relevant laws
and regulations. We work to reduce the use of food additives,preservatives and artificial coloring.

We developed “Pasta-Ya Grilled Pasta, Lasagna
Bolognaise” by picking up keywords regarding
pasta product from customer input in social
networking media. “Chewy”, “speciality source”
helped us develop fresh pasta products thatsatisfy customer preferences unmet by existingproducts. As “Pasta-Ya Grilled Pasta, Lasagna
Bolognaise” showed a high repeat rate in theinitial trial and repeat analysis, we expanded
the sales space and found that the productsold more than a million units to women in
their 20s and 30s within the first three weeks.
The Pasta-Ya product line became a big hit,
more than doubling sales.

▲

FemaleMale(%)

Pasta-Ya Grilled Pasta, Lasagna Bolognaise▲

Ratio of first time buyer

15

Fresh Pasta, Carbonara

10

The first dayof the day-and-daterelease0

1

2▲Tsubu-an (left) and Koshi-an (right),
two different types of Ohagi, a Japanese sweet in sales

Day 7

Backed up by expertise in raw materials procurement
we develop high-value added products

Day 7
3

4

Ratio of repeat buyer

5

6 (%)

Social network service for two-way communication with customers

Official account with 13 million “friends”
Sales promotion by Lawson official social-networking
character Akiko-chan, a virtual Lawson crew
Lawson uses social network service to understand customers in local
communities and conduct two-way communication with them. We
produced Lawson's official social-networking character, Akiko-chan, avirtual Lawson staff member, in April 2010, posting her messages andtweets that included product information and campaigns with discountcoupons for a limited time. This virtual character became popular, having
more than 13 million “friends” in SNS including LINE, Facebook andTwitter.

Teriyaki Salmon
Hokkaido Delicious!
Lunch-box

Grilled Pasta, Lasagna
Bolognaise

The first dayof the sale

20

5Younger

20 Lawson, Inc. INTEGRATED REPORT 2013

In March, 2012 we launched the “Ankoya”
series of chilled Japanese sweets in response
to female customer input. They like to eat“small sized, not too sweet, Japanese sweets.”
We thoroughly surveyed popular Japanese
sweet shops and chose Tsubu-an, mashedbean paste with a rich and crispy taste,using best quality red beans. The items wedeveloped had exceptional sales results.
We also made follow-up surveys to acquire
customer input from social networking
media to determine their preferences aroundstrained bean paste, Koshi-an. In response,
we sell two different types of paste.

Used as criteria for successful products

25

Use of Social Network
Service (SNS)Delicious local cuisine and ingredients arewhat we provide in this product line. Our
expertise in procuring local ingredientsand our knowledge of hometown cooking
procedures brought specialty rice ballproducts, using hard-to-find ingredients suchas Kurose yellow tail from Miyazaki prefecture
and Ohmi Beef. With successful sales of riceballs, we expanded the line to include lunchboxes products in April 2013. These lunchboxes use monthly domestic ingredients.
Although prices are set a little higher, lunchboxes are especially popular among senior
customers. We conducted surveys during
the product development process to reflect
feedback from the targeted market for those
products.

Uchi Café SWEETS
Ankoya series

Delicious! from
MiyazakiTeriyaki Kurose
Yellowtail

Trial and repeat analysis
Loyal customers

Onigiriya, rice balls“Delicious! Local Specialities”
product line▲

Strengthening original product brand to respondto female and senior customer base expansion

Pasta-Ya Grilled Pasta,
Lasagna Bolognaise

Akiko Shirai, a manager ofAdvertising & Sales Promotion
Department of Lawson, won the10th Web Creation Award GrandPrix*, for her contribution to the useof websites through the creation of
Lawson's official social-networking
character Akiko-chan* The Web Creation Award is given to people who contributed to and influenced
the development of the web industry. It was launched in 2003 under the auspicesof JAPAN ADVERTISERS ASSOCIATION INC.

Total number of “friends”

13 million(As of July 31, 2013)• Twitter• Facebook• LINEWe develop quality products that deliver “safe, reliable, healthy and delicious” to our customers. Our highvalue added “Delicious! Local Specialities” product line, where we present rice ball products featuringlocal specialty pricing at 240 yen, attracts senior customers. The Uchi Café SWEETS Ankoya series attracts
female customers, backed by large volume procurement of the best quality raw materials, and delivering
more dessert value than expected for the price. Ankoya series desserts attract targeted female customers
bringing us customer base expansion.
These key abilities are instrumental in developing our high-quality food products:
determining customer needs through Ponta card data analysis, optimizing food productcirculation and selling out timely through our sales channel with over 11,000 stores. We
also leverage the expertise accumulated through our procurement experience. We
established the Raw Materials Procurement Department in 2003, taking the lead overcompetitors in the industry. This has enabled us to create an integrated value chain fromupstream to downstream, helping realize wide-ranging variety and differentiation in
our products. Looking further up and down the stream, we aim at reducing waste, being
more eco-friendly and innovating to bring new value to market.
CO-COO Senior Vice President
Merchandising & Logistics Division Director
President of SCI Inc.

Masayuki Sawada
Lawson, Inc. INTEGRATED REPORT 2013 21

Lawson's strategy — to achieve continuous growth

Leveraging Ponta data and quality raw materials
procurement enables customer-driven productdevelopment

2. Business model for manufacturing retailer in a small commercial area
Actions for streamlining

Product
development

As a Manufacturing Retailer, we are becoming more deeply involvedin our supply chain to add more value. By doing so, we strengthen
profitability, bringing thoughtfulness to society and the environment,

Ponta Card

High-value added
raw material
procurement

SCM

Supply Chain
Management

which compliments communities promoting our manufacturing

CRM

Business Reform
PRiSM

order
Customer Relationship PlannedCuplacement
Management

Manufacturing/ distribution

Optimalmerchandise
assortment

Improve Gross
MarginIncrease
Sales and Profits

retailer business model.

High quality at low costin procuring raw materials,
leveraging our ability to sell out timely

Sandwich

Salmon flakes

Business

Leveraging advantage of our business scale, we procure
raw materials in a lump sum, using them as basic
ingredients in different product lines. Taking salmon as
an example, we exhaust our supply in production of riceballs and sandwiches. Establishing this system toprocuring high quality materials at low cost both
reduces risks for raw material suppliers and increases
our gross profit margin.

Analysis andutilize ofpurchasebehavior of Ponta
Card members

Visualization ofopportunity
loss

Analysis of purchasing
behavior of customers

Changes in gross profit margin
excluding cigarette sales

Established SCI, Inc. in July 2012,
we further streamline our supply chain

Back

Front

(%)

0.5% point higher

39.0

As supply chains involve many business partners, complication and redundancyof work are likely to happen. We have addressed this issue by establishing a
dedicated division for raw material procurement, while seeking transparency
and efficiency in our supply chain processes. We took a further step with thelaunch of SCI, Inc. as a subsidiary, managing a wider range of supply chain
operations upstream for even more efficiency.

0.5% point higher
37.0

35.0

2006

2007

2008

2009

2010

2011

2012 (FY)

Continuous improvement in gross profit margin fromstreamlining supply chain, procuring quality items at low cost

Lawson’s unique HACCP system for strict
quality control over original products

Optimized product lineup with IT utilization

We established a unique HACCP system for food sanitation
control in rice dishes plants to prevent food poisoning andmixing of foreign matter. Focused control items such as
cooking time and temperature in production are all logged
for immediate tracing
when needed for promptand systematized response.

We realize optimal merchandise assortments that meet customer
needs timely by analyzing Ponta data with our information
technology. We quantify and illuminate sales opportunity losses the gaps that occur when customers cannot find what they need inour stores. We reduce these gaps, as well as waste from productdisposal losses, at the same time.

Belly meat, an ingredientin rice balls

Product development(Research and development)

Raw materials procurement(Managed in our department)

Manufacturing

Distribution(Factories for lunch-boxes, rice balls,
prepared food, bakery items)(Distribution centers)

Marketing(Stores)Accurate understanding of energy
consumption of supply chain(CO2 emission) and its reduction

Cost reduction
Use of eco-friendly materials forcontainers and packaging▲

Container using
bio-PET resin

Container using
polylactic acid (PLA)
materials▲

Society and Environment

To use limited resources more effectively, we adopted foamed materials
for containers and packaging, making them thinner and more efficient inshapes. We also adopt bio-PET derived from sugarcane. Consequently we
reduced CO2 emissions from the incineration of containers and packaging by
30.8 percent in FY2012 compared with FY2006.

22 Lawson, Inc. INTEGRATED REPORT 2013

We were commended by the
Minister of the Environment for
Promotion of Measures to Copewith Global Warming in 2012

Reduced CO2 emissions
in our distribution systemby promoting eco-driving
and efficiency of delivery
trucksWe promote efficiency in our delivery
system, by optimizing multi-drop delivery
coordination and frequency of delivery.
We also implemented eco-friendly tires
and a traffic control system to improvethe delivery process. By training drivers
to raise their environmental awareness,urging them to turn off a vehicle engine
when stopped and prevent noise, we
promote safe and eco-friendly driving.

Per store CO2 emissions from power usage
reduced by 9.6 percent* compared with FY 2006, with
implementation of energy saving equipment* CO2 emission coefficient as fixed in calculation

Daily number ofdelivery trucks
per store*
Deliverytrucks:

16.0

Deliverytrucks:7.0

1989

Eco-friendly tire2012

* Delivering goods except
for newspapers and cigarettes

As a voluntary action goal to be achieved by FY2012, we set a 10% reduction from
FY2006 for CO2 emissions generated in our store operations. Implementing energyefficient equipment in stores, we achieved a
9.6 percent reduction in FY2012.
We conducted joint research with the
University of Tokyo’s Institute of Industrial
Science on efficient reduction of store CO2
emissions. Implementing AI-programmed
A store in Ebina city conducts energyenergy monitoring and control systems in 8
saving experiments, targeting 30
stores, we jointly examine the smartest energy
percent reduction in power usage
usage for each store as part of our efforts tocompared with FY2010
reduce overall CO2 emissions.

Lawson, Inc. INTEGRATED REPORT 2013 23

Lawson's strategy — to achieve continuous growth

From raw materials procurement to marketing,
we continuously improve our supply chain structure2. Business model for manufacturing retailer in a small commercial area

Sales space for easy access for fresh vegetables,
supporting customer health through foodSupport healthy day-to-day life of customer— we are Health Station in the neighborhoodMarketing medication

Strengthening perishable food

Enhance stores that offer perishable food to gowith our newly developed delicious food products

Number of stores offering perishable food
(Stores)

We launched LAWSON STORE100 in FY2005, offering smaller-volume packages of
perishable food and other food products dominantly at a uniform price (105 yen),ahead of our competitors. Leveraging expertise we accumulated in this format, welaunched another fresh food-type LAWSON, targeting working women and seniors.
We find that stores offering strengthened perishable food product lines attract moreseniors, and customers buying perishable food spend 1.2 times more per purchase,
visiting the store more frequently by 2.1 times.
In October 2012, we made the “Proclamation to make all stores sell perishables,”announcing that we would expand the offering of perishable food in ourmerchandise assortment. In May 2013, we launched the “Delicious Veggies More in
Meals” campaign nationwide, while proactively developing food products to makevegetables more agreeable and delicious.

2,000
0

Lawson Farm is a farming corporation,founded to stably supply Lawson withperishable and safe food products. We havecurrently nine farms nationwide (as of the endof July 2013).

DAICHI wo MAMORU KAI
One of the pioneer membership organizations
with 37 years' expertise in organic foodbusiness, they networked approximately
2,500 contract producers, dealing only inorganic vegetables and additive-free foodproducts. Lawson holds a 33.4% stake from
April 2013.

20122013 (FY)(Based on average spend per store in FY2012)

(%)

35

65-89

30

50-64

15

26.0

27.1

28.8

30.3

24.0

25.1

5.7

6.6

9.4

5.5

8.2

4.9
19.1

19.6

20.3

20.5

20.6

20.9

20

▲

Lawson Farm

5,287
1,223
996
227
2009

Ratio of senior customers
in fresh food-type LAWSON

Enhance opening of Pharmacy LAWSON stores,
in collaboration with Qol Co., Ltd.

Lunch-boxes in collaboration with Tanita
and bran bakery

We have explored a store format, Pharmacy LAWSON, NATURALLAWSON with the pharmacy function where people canobtain prescription medication. Since 2003, we have opened
experimental Pharmacy LAWSON stores to verify the format.
Further, we made a 5 percent investment in Qol Co., Ltd., a major
pharmacy chain, to evolve the format. In collaboration with thecompany, we are increasing Pharmacy LAWSON stores as well asof people-to-people exchange.
We are also increasing the
LAWSON stores sellingnumber of our stores
OTC drugs
selling over-the-counter
78 stores nationwide(OTC) drugs because(As of July 31, 2013)
the PharmaceuticalPharmacy
Affairs Act was revised
LAWSON stores
favorably in 2009,34 stores in Tokyoand Kanagawa
introducing the(As of July 31, 2013)
registered distributor
system to the market.

We launched in February 2011 products developed in collaboration
with Tanita Corporation, known for its cafeteria which cares aboutcalorie count, salt intake and nutritional balance for employees.
We also launched the product line of bakery using branin June 2012. Bran, the hard outer layers of wheat have a low
sugar content, while is rich in dietary fiber, and other nutrients
including minerals like iron. Using ingredients that attract risingattention, we keep providing health-supporting products.

Stores not
When Less than Less than Less than More thanremodeled remodeled 1 year
2 years 3 years
3 years

Fresh food-type LAWSON (Period of time after remodeling)

Our efforts to stably supply perishable food

For a steady supply of perishable food nationwide, we needed toestablish a procurement network of raw materials. We founded
Farming Corporation Lawson Farm in partnership with contract
farmers all over Japan. We also hold a stake respectively in DAICHI

8,400

6,511
1,224

4,000

10

Offer safe, reliable, and high quality
through Lawson Farm

TargetFresh food-type LAWSON

6,000

25
Recommended intake of vegetables per
day and how many can be served by the
product clearly shown with a seal

LAWSON STORE100

8,000

wo MAMORU KAI and Radish Boya, forerunners in organic foodproducts, as well as Eisai Seikaken Co., Ltd. which owns thetrademark of the “Nakashima Farming Method*,”steadily providing
safe, reliable and high-quality agriculture products.
* The “Nakashima Farming Method” is a cultivation method that uses its own
unique meticulous diagnosis of soil conditions and techniques for developing
healthy soil with good balance of minerals in conjunction with preserving thehealth of crops.

VOICE

We want to serve customers,
promoting health withvegetables we grow.

We are growing Japanese mustard spinach, radish, spinachand carrot in 7 hectare field and hothouses totaling 1
hectare in area. Leveraging Nakashima Farming Method,and developing healthy soil, our Japanese mustard spinach
is rich in minerals as other delicious vegetables we produce.
We are proud to see our vegetables displayed in Lawson
stores, and happy as they benefit customer promoting
health. We also aspire to see Lawson Farm, a new format
of farming business, help
leading the futureof agriculture in
Japan.

Health-oriented products▲Lunch-box jointly
developed with Tanita
Corporation▲Bakery products
using bran

Flagship store opened to provide health support

Enhanced health-oriented products
services to support health— a role model for future convenience stores
In May 2013, we opened LAWSON Kugahara 1-Chome Store in
Ota-ku, Tokyo, as our flagship health-supporting store.
Leveraging our expertise accumulated in NATURAL LAWSON and
LAWSON STORE100 operations, we enhanced health-conscious
merchandise assortment in the store. We also implemented aservice, which enables customers to consult pharmacists, as well
as a body composition analyzer by Tanita Corporation forcustomer use in monitoring this important health metric. We
position this store as a model of future convenience store
operations.

(1) Fresh and safevegetables and fruits
on sale(3) Health support services

We expanded the sales space fororganic vegetables and fruits
produced by DAICHI wo
MAMORU KAI and quality
products from Lawson Farm.

(2) Enhanced healthoriented products
We are enhancing our lowcalorie, low-carbon food lineup
in the store, while conducting
pilot-sales of our private brandhealth-oriented products.

We sell over-the-counter drugs
assisted by a video phone, whichenables customers to consult
pharmacists around-the-clock.
We also provide customers witha professional-use bodycomposition analyzer by Tanita
Corporation.

(4) Collaboration withnational-brandmanufacturers
We are providing our store spacefor different national-brandmanufacturers to test-market
their new health-oriented
products.

Radish Boya
The leading company delivering organic/organically grown fruits and vegetables
nationwide, with largest number of members.
Lawson formed a capital and business alliancewith NTT DOCOMO, INC. and two othercorporations as of December 2012 and madea 10% investment in the company.

24 Lawson, Inc. INTEGRATED REPORT 2013

President
Lawson Farm Chiba

Mr. Toshihiko
Shinozuka
Lawson, Inc. INTEGRATED REPORT 2013 25

Lawson's strategy — to achieve continuous growth

2. Business model for manufacturing retailer in a small commercial area

2. Business model for manufacturing retailer in a small commercial area

Actual store

Promote home convenience business*

OFF
line

O-to-O Strategy links online Store
to actual stores in the neighborhood
We promote Online to Offline, or O-to-O Strategy, by providing huge
online shopping mall in collaboration with our business partners, andlinking it to actual stores in local communities. Leveraging the multipartner loyalty program “Ponta” and its data analysis capabilities, we
determine customer needs in detail, promoting visits to both actualand online stores in our O-to-O strategy.
We also launched a website where customers can easily order
goods from their smartphones and other devices, while implementing
the Lawson Reassurance, a service to exchange online-purchased
items when defects are found. Making actual stores and online mallcomplement each other, we increase overall customer spends at
Lawson, while enhancing convenience in day-to-day life.

Promote entertainment business

LAWSON
Wi-Fi

Official
applicationof Lawson
Ponta card

Brand power &Quality products
SNS

ON
line
Online store

Food

Entertainment

Mall, Medicine

Three values of Smart Kitchen presents

Service started to offer ease, convenienceand quality for busy working women

5 minutes
to selectmenu

We teamed up with Yahoo Japan corporation in March 2013 tolaunch a joint project, Smart Kitchen, to deliver home perishable
food regularly. We offer the 10-minute easy-cooking kit andother original product lines through the exclusive website toeasily order the delivery from smartphones and other devices.
Applying our expertise in procurement and productdevelopment to the home delivery service, we provide ease,convenience and quality, tosupport women at homeraising children and in theworkforce.

Menu example

23,000 items

No shipping fee
within areas
around Tokyo and7 surrounding
prefectures

Easy ordering fromyour computer or
smartphone

Menu and recipe
tips included

We regard entertainment business as focus growing sector, providing customers with CDs, DVDs, books, magazines, event
tickets and goods, through all channels we have. This one-stop shopping functionality contributes significantly todifferentiate Lawson from e-commerce services of our competitors.
In actual stores, we install Multimedia terminals “Loppi,” for the use of customers who have no access to online shopping,enabling them to purchase items like concert tickets. We also produce virtual characters to attract customers. Leveraging
these characters, as well as through sales activities such as campaigns, we create the LAWSON store, a place where
customers keep visiting to find something new, something fun.

Linking stores to online
experience enhances
convenience for customers,
offering more options
CO-COO, President ofEntertainment & Home
Convenience Company,
and Smart Kitchen, Inc.

Masaharu Kamo

• Online entry and changedelivery information• Open ID(accessible with Lawson
Web Member ID
or Yahoo! Japan ID)

Expand a Japanese-style small-commercial-areabusiness model overseas

In growing Asian countries, there is an increasing need for “timeconvenience” that enables time saving, on the back of changing
life styles. The Japanese-style convenience store business modelhas great potential to grow in developing countries, as well as inEurope and the United States.
Since 1996, we have expanded our store network in China,
centering on big cities. We keep expanding in Indonesia, as well as

opening two new stores in Hawaii, the United States, in July 2012
and three stores in Bangkok,Thailand, at the end of March, 2013.
In the future, we will strengthen LAWSON store overseas,
by understanding local needs, creating LAWSON stores in local
communities that attract customers there, while grounding in, andholding to, our business model for small commercial areas.

Overseas stores 466 stores
Providing both online and actual stores enables customer to have more options
for shopping. They can buy needed items immediately in actual stores andplace items needed later in the online shopping cart from their smartphones
and other devices.
Smart Kitchen is regarded as time-saving service to support more womenin workforce. Our vision manifests here in product development starting fromdemand-side customers' perspective. The 10-minute easy-cooking kit we
provide in Smart Kitchen is designed with room for different finishing touches.
We carefully consider different tastes so that each family could add what it likes
to cooking.
These first-hand services for various customers' needs can only be provided
in stores. On the other hand, online services can complement them withadvanced information technology and shipping expertise. Linking the two
together, we are hoping to make a breakthrough, expanding and shifting ourcustomer base.
We have long served male customers, which we hope to expand including
more female and senior customers as well. For senior customers especially, we
believe feeling human touch is what they want and what we can provide. We
proactively talk to them, recommending our products.
We believe such well-rounded approach enables us to better understandour customers. IT systems such as online purchasing can only complement
the first-hand customer relationships in actual stores. We understand that theheadquarters is to provide the background system to make this human touch
service possible. We enhance Lawson's presence as the preferred convenience
store for working women and senior customers providing wider-shopping
purchase opportunities in our home convenience business.

As of July 31, 2013

Skip delivery
when notneeded(optional)

Subscription* Home convenience business provides convenience of shopping athome, using internet and computers, smartphones or tablets, enablingcustomers to buy anything from their living rooms at home

Overseas
expansion

Change orderuntil 10 am ofprevious day(optional)

Delivery on
designated day
and time"Safe, reliable,
healthy"
in merchandise
assortment

Attractive characters help realize stores where people can always find something new

10 minutes
for authentic
cooking

5 minutes
to buy what
you need

Dalian 12 stores

Shanghai 298 stores

Chongqing 61 stores

Hawaii 3 stores
DalianShanghai

ChongqingJapan

Thailand 9 stores
Thailand
BangkokIndonesia 83 stores*

HawaiiIndonesia* The number of Indonesian stores is based on the flash report released in August, 201326 Lawson, Inc. INTEGRATED REPORT 2013

Lawson, Inc. INTEGRATED REPORT 2013 27

Lawson's strategy — to achieve continuous growthHome convenience means convenience store in your home
Creating fun with entertainment

Smart Kitchen, a regular home delivery service

3. Foundations for innovation

Support franchise owners to create value
and enhance personnel training

Features of the Lawson franchise system

Lawson's strategic direction of innovation

Expectation for
headquarters
employees

In conventional chain store operations,homogeneity of stores nationwide
were stressed. However, to meet thediversifying customer needs in local
communities of today, we need toencourage franchise owners to deeply
understand their community needs. For
headquarters employees in turn, it isimperative to become someone who canprovide creative support and advice tosuch franchise owners.

Ideal
franchise
storesFoster franchise owners
and educate headquarters
personnel to think deeply
over the local communities

Conventional
convenience stores

Expected directions for Lawson totake for innovation

Franchise owners who
execute common
operational proceduresfor chain storesFranchise owner who thinks deeply
and take actions to meet community
needs
Support franchise owners
with data analysis to understandcommunity and customer, and with
innovative marketing strategies

Drive home franchise toowners the need tofollow common
operational proceduresfor franchise storesSupport franchise owners, advising on
their business expansion strategies

Promote local empowerment

Empower offices, branches and areas to make decisions closer to communities
We are now making a stepwise approach to restructure our chain store operational organization from centralized todecentralized within 10 years, in order to better respond to customer needs in local communities. First, we implemented aregional office system, dividing the nation into seven blocks (eight blocks as of FY2012). Then we integrated two
headquarters responsibilities for store development and guidance of franchise store operations at the branch system levelto make operational decision making more agile. In FY2012, we implemented area team consisting of two Supervisors (SVs)and one Assistant Supervisor (ASV), as the smallest unit for providing guidance on franchise store operations.

“Creating Happiness and Harmony in Our Communities.” is thephilosophy we share in the Lawson franchise system. It is a joint
business with franchise owners and headquarters as business
partners prospering together, playing respective roles in thiscollaboration. Headquarters provides various services including
distribution, information, brand, and continuous guidance andsupport of store operations. Franchise owners in return, pursue
the maximum profit through optimizing customer satisfaction as
independent business operators, paying franchise fees andloyalties.

Enhance Management Owner (MO) system

Socialcontribution
activities

Variousproduct lines

Mutually
beneficial

Franchise
stores
Efforts for new
services

Local
community

Joint business

Lawsonheadquarters

Environmental
preservation
activities

Number of stores operated by MOs

Support community-based entrepreneurs
to launch multi-store franchise operations

Target(Stores)

1,000

We are promoting the Management Owner (MO) system tosupport franchise owners who have entrepreneurial spirit anddeeply understand local communities and their needs in theirefforts of expanding their business.
The MO basic business skills, and training in skills that foster
franchise owners who launch multi-store operations. MOs foster
Store Consultants (SCs) as well as store managers and crews,
aiming at further business expansion and multi-store operations
with excellent customer satisfaction.

Doubledin two years(expected)
5000Approx.
900 stores

Approx.
500 stores
2011

2013

(FY)

Step-up model of Lawson

Business operation

as Management Owner (MO)Single store
operation

Foster Lawson's culture of deeply thinking, supported by area team system

2 storeoperation
40 store crews

Multi-store
operation
80 store crews

SC

SC

Store consultant

Store consultant

Regular visits toeach store for
guidance

Regular visits toeach store for
guidance

20 store crews

Supervisor and franchise owner team-work for better solutions
An area team does not provide one-way guidance with the franchise owner, but forms ateam to think together. This promotes our stores to discover customer needs in the local
community. Thus, our store becomes an integral part of each community.

VOICE▲Area team meeting to share bestpractices and exchange information
among franchise owners

Restructure operational organization of Lawson
Delegate authority to Region Director
in managing store development
and store operations

Regiondirector

8 regions
10 local communities
for each region

Area team to promote
operational measures that meetsneeds of each community

Regiondirector(Line of guidance for FC stores)

Franchise owner（20-24 stores）

Store
development
5 communities
line

for eachcommunity

Branch System holding branch
directors accountablefor profit and loss

Franchiseownertraining line

Till FY2002

28 Lawson, Inc. INTEGRATED REPORT 2013

Storedevelopment
line

Franchiseownertraining line

FY2003

Branch director(80 branches)

Collaborate
together

Area teamStore
Franchisedevelopment Integrate ownerline
training line

（2 SVs and 1 ASV）

FY2011FY2012

From store operation to business management:
steadily implementing business plans as Management Owner (MO)I decided to take on a challenge and conclude a Management Owner (MO) agreement immediately when it was
first introduced three years ago, when I ran into a stone wall in the efforts of expanding business beyond the ninestores that I was already operating. The MO system was a welcome offer as it has been designed to provide active
support to owners aiming at multiple store operation. Now I run 18 stores as ofManagement Owner
August, this year.
President
Looking back these three years that I have worked with the MO system,
Shusei Inc.
what impresses me is the shift in my mindset from store operation to businessMr. Hideki
management, in fostering people and creating organizations to maintain stores in
Yomodatheir best state. Headquarters provides us with various strategic information, forexample, to protect each store's commercial area, or to examine locations for new
stores. I admit it is challenging: greater freedom goes with more competitivenessneeded as a self-driven manager to solve our own problems. However, myaspirations for growth matter. My company created a 5-year business plantargeting “20 stores with 3 billion in annual sales,” which we expect to achieve
within this fiscal year at the end of the planning period.

Lawson, Inc. INTEGRATED REPORT 2013 29

Lawson's strategy — to achieve continuous growth

Collaborate with franchise owners as ourpartners to realize our Corporate Philosophy

3. Foundations for innovation
Promoting diversity

Recruitment of diversified personnel
to foster an organization that is continuously
renewing and moving forward
We promote diversity to enable individual staff to realize theirfull potential. We raised the proportion of women hires to 50
percent since 2005 through recruitment of new graduates, whilehiring non-Japanese employees since 2008. We also founded a
special subsidiary company to promote employment of people
with disabilities, while implementing a system to continue
employment of people over sixty. We actively work to achieve
diversified employee composition to continuously develop thetype of human capital that creates corporate value.

“Lawson University,” a unique education program

Integrate franchise owner program and headquarters employee education
to enable personnel to learn specialized skills“Lawson University,” our unique educational program, integrates education for franchise owners and headquarter
employees. The program is based on Lawson's corporate strategies and business strategies, delivering high-level skills
needed according to job types and positions. The ultimate goal of “Lawson University” is to facilitate franchise owners andheadquarters employees to be able to autonomously think and act, enhancing the development of self-sufficiency. We
provide support to the entire staff of the Lawson Group in a continuous and systematic way.

Implementing executive education of female candidates
In “Lawson University,” we provide education for female executive
candidates and create opportunities for top management to directly
meet with female employees on a regular basis, as a part of our actions tocreate more diversity.

Outline of “Lawson University”
Continuous and systematic support

BasicⅠ

Franchise stores

BMC (Basicmanagement course)
training

Support for multistore development

BasicⅡ

Operational support forManagement Owners (MO)FranchiseownersTraining provided
after employment(1 year, 2 yrs,
and 5 yrs)

Multi-store
operations training

Training for Management
Owners (MO)Full-time
staff

Training for store
manager candidates

Multi-store
manager training

Training for Store
Consultant (SC) candidates

Other
staff

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

Re-signing

Training prior toresigning

Guidance and support
Headquarters
employees

Basic knowledgeof consultation

Basic knowledgeof MBA

Staff's management
consultant standard

Basic management
skillsRaisingawareness

Entry level
management

Basicmanagement

Training for those
newly-appointed to MCs
Training for MC
candidates

Management
courseExecutive
management
courseEmployee awards program, to reward significant contributions that transcend conventional departmental boundaries• Reduced working hours forchildcare*• Shorter working weeks*• Assured holidays*• Telecommuting*• Baby-sitting service support• Loan of computers to employees
on childcare leave• Transfer to accompany spouse

Next-Generation Certification Mark
“Kurumin” was given by a related
authority for our achievements inimproved work-life balance

cumulative total over FY2000-2012▲ Education of female executive candidates

Labor-management meeting
For continuous growth of a corporation, it is essential that employees canwork to their full potential. We look at employee satisfaction (ES) for
continuous improvement, while making efforts at better working
environments. In regular labor-management meetings, we hold in-depth
discussions to improve work efficiency and working environments.
Especially for promoting diversity, we implemented a committee todiscuss challenges on a regular basis. Diverse employees developing
new skills, while advancing their careers, is what we want to see, as they
will bring new value to Lawson and tothemselves. We invite them to participate
in efforts to improve the environment,
including cultural reform and systemutilization.

Committee

Aggressive recruitment of non-Japanese personnel

Promote significant contributors who
tackle a task that transcends
conventional departmental boundaries

30 Lawson, Inc. INTEGRATED REPORT 2013

■ Childcare support policy menu

■ Reinstatement ratio from childcare▲ Diversity Promotion

We need to encourage each employee to spontaneously
challenge conventional boundaries if we seek new customer
value. We launch various projects and task forces crossing
department boundaries collecting different ideas and opinionsof employees in different positions to create innovative products
and services. In FY2013, we started the New Value Creator of theYear, an employee awards program to create a corporate climateof challenging the status quo, and to find new ways to create
value. The award is for self-formed teams and we appraise newideas and inter-departmental measures.

We support employees who are family members with small children,
especially female employees. We implement measures for themincluding reduced working hours for childcare, telecommuting, andbaby-sitting service support, to let them have children without anxiety
for the future. Our efforts result in a 99.1 percent come-back rate after
taking childcare leave. Now one out of five female employees at Lawson
is a working mother.
Further, we launched Smart Women Project in April 2013 for careerdevelopment of female employees after childcare leave. They work inthis project for a limited time period, to bring a working mother's
perspective to product development and store creation. As a part of our
support for younger employees in their 20s to 40s, especially those inparental care, we raised their salary in FY2013.

* Until the child finishes third grade

After store opening

Skill training to provide customers with higher value

Before store opening

Support employees raising children

We employed 50 non-Japanese people through periodic recruitment in
Spring 2013, resulting in more than 100 non-Japanese active personnel
on the corporate staff, including SVs, MDs (Merchandisers, who are in
charge of product development), treasury staff, and logistics staff,
sustaining a 75 percent of retention rate. Non-Japanese employees
comprise the foundation of our human capital strategy, to create
innovative projects and services to be launched in Japan.

On a cumulative basis, since
FY2000 almost all employees,
99.1% of them were reinstated intheir former positions after achildcare leave. A working
mother ratio among female
employees marked more than afour-fold increase from FY2001.

VOICE

99.1%

(112 out of 113 female
employees who tookchildcare leave cameback to work)

Smart Women Project

Leveraging our female employees’
experience after their childcare leave
Smart Women Project facilitates female employees on baby break tocome back to their previous posts by letting them address corporate
issues such as product development and store improvement.
Female employees in Japan tend to quit their job, thinking
they would burden those around them with extra work. However,they can contribute their uniqueness if they can share with us theirworking mothers' perspective, which is quite similar to customers'.
This can motivate them to return to their job, as well as help us havemore diversity by adding their unique perspective.
By launching this project, we could provide evidence that female
employees can successfully return after childcare
leave, while communicating our commitment toimprove work-life balance of both genders. Taking
these “baby steps,” we hope to develop
another unique framework in our
tradition.

Project leader
Smart Women Propulsion Project
General Manager, Marketing Office▲Poster of New Value Creator of the Year, an employee awards program

Hitomi Suzuki
Lawson, Inc. INTEGRATED REPORT 2013 31

Lawson's strategy — to achieve continuous growtheducation for franchise ownerand employee strengthened ability toautonomously think and take action

Frameworks for our continuous corporate growth

Food recycling (recycling food into feed and compost)/ promoting recycling waste oil Food recycling ratio: 50.3% (FY2012)
Resources fromfood waste

Lawson store• Eco-friendly Chiba Eggs
(6 pack, 10 pack)• Waste collectors and transporters

Creating the Food Recycling Loop
Promoting local production
for local consumption(along with safety and peace of mind)• Eco-feed production
facilities• Chicken farmers

Eco-feed*certification#23-13▲As the first in the convenience store industry, we began selling eggs from chickens raised partially on recycled feed

* Eco-feed: certified recycled feed satisfying certain conditions and standards regarding percentage of content
from food waste and the feed production process management• Measures / preparation for large-scale disasters• Local production for local consumption/
Local production for nationwide consumption▼

see pp.38 - 39 for details• Crime prevention

Local production for local consumption:framework to consume products that use local produce in thesame local area
Local production for nationwide consumption:framework to market products that use local produce outside of
the areasee p.39 for details▼• Organ donor cards• Ponta loyalty program of Environment andSocial Contribution course• Plant-derived packaging
see p.22 for details▼

We aspire to keep serving society, going hand-in-hand with our
local communities, providing solutions to social issues throughour business operations, and growing sustainably together. We
work with consideration for society and the environment,
through our frameworks of business in terms of compliance, risk
management and environmental management.

• Prevention of alcohol and cigarettes
from being sold to minors• Solar power generation system
Installed on the roofs of 1,000 stores in FY2012
Targeted to expand to 2,000 stores in FY2013• 62 EVs (electric vehicles)• 11 high-speed rechargers
deployed nationwide• Energy-efficient equipment(Integrated cooling and air conditioning systems)• Uniform recycling

Number of participants: 25.29 million

Customers can exchange shopping reward
points of Ponta multi-partner loyalty point
card for CO2 offsets, or purchase CO2 offsetswith cash using the Loppi multimedia
terminals in our stores. Through the CO2
Offset Program, customers can help offset
CO2 emissions.

• MACHI café(using coffee beans 70% of
which are from Rainforest
Alliance Certified™ farms)• LED use for shop signs and in-store

see p.14 for details▼

CO2 Offset Program CO2 Offset accumulated volume: 20,512 t• Designing for accessibility▲

Products with attached emissions credits:
Suntory Liquors Limited's Kin-Mugi"Stop! Global Warming Can" (2 sizes)

Cumulative amount of donations
from fundraising activities at stores nationwide(including Lawson headquarters donations) : 6.6 billion yen• Neighborhoodcleanup activities• Multi-drop deliveries• Eco tires

Reduction in the use of plastic shopping bags
& disposable chopstick use▼

see pp.22 - 23 for details

Total number of Bring Your Own bags diffusion: 3.26 million

We work on reducing unnecessary useof plastic shopping bags & disposable
chopsticks by asking customers at theregister whether they need them ornot, along with posters, in-store
broadcasting.

Lawson contributes to creating a safe andsecure community. We take measures toprevent in-store theft and provide a place
for women and children to escapeattackers.

▲

Bring Your Own Lawson original bag that best
fits boxed lunches and plastic bottles

Safety Station activities▲

32 Lawson, Inc. INTEGRATED REPORT 2013

Safety Station activities poster

We launched Lawson Green Fund in 1992,
and Support Dreams Fund in 2011. Further inJune 2013, we started the TOMODACHI Fund.
For all these funds, we perform the Lawson
Group's fund-raising activity, which we call"Happiness in Communities." We implement
fundraising activities at stores, to contributeto creating sustainable society throughsupporting children, who are the next
generation, as well as tree planting. In
addition, we also donate the contribution
from Lawson, and also Ponta reward point
donation, the contribution part of the salesof products that come with donation, andthe fund raised in our group companies torelevant organizations.

Participation in greening contribution projects: over 1,000 times

Franchise owners, store managers,
store crews as well as
headquarters employees haveparticipated in some of the Green
contribution projects, leveraging
Lawson Green Fund.
Green contribution projects we started
in May 1994 and this year marks its
20th year. We celebrated our 1000th
tree-planting in Minoh, Osaka▲ Fundraising boxes are

installed in all storesof the Lawson Groupnationwide (approx.
11,000 stores)

Total number of tree planting projects in FY2012:

90

( 37

forest improvement projects andprojects 53 school afforestation projects

Total number of participants:

772)

Lawson, Inc. INTEGRATED REPORT 2013 33

Frameworks for our continuous corporate growth

Consideration for society and the environment— as the company goes hand-in-handwith our communities

We work to reduce food waste, actively
recycling. Used cooking oil isprocessed into feed additive (fowl andswine feed ingredient) and naturalsoap. Also, lunchbox-type foods thatexceed sell-by dates are recycled into
livestock feed and compost.

Environmental management system

Sustain the blessings of the earth for future generations
Contribute to society and the environment through core business operations
Abiding by our corporate philosophy, the Lawson Group works proactively on a continuous basis, for sustainable
development, to Create Happiness and Harmony in Our Communities. Based on the Lawson Group Environmental Policy,
we work to sustain the blessings of the earth for future generations, committing to action for creating a low-carbon society,as well as social contribution activities as a member of local communities.

The Lawson Group Environmental Policy
Our commitment

Our principles

From raw materials procurement to product disposal,
we work to reduce environmental impact
We strive to grasp our impact on the environment at each stage in our supply chain and reduce waste through in-depth
energy saving and resource saving measures to minimize environmental footprint.

Material flow in our supply chain
INPUT

Procurement of
raw materials

To sustain the blessings of the earth for future generations, the Lawson Group will consider theenvironment in every aspect of our business activities and strive to achieve sustainable
development and coexistence with local communities.
1. Creation of a low-carbon society
2. Considerations in the development of products
and services
3. Active participation in social contribution activities

4. Continuous improvements
5. Observing laws and regulations
6. Promotion of communication• Electricity • Water• Propane • Fuel oil• Raw materials including• Electricity • Water• Gasoline & diesel oil• Fuel oil • Foods, etc.

• Electricity • Gasoline,

packaging materials, etc.

Diesel oil & natural gas• Packaging materials

Manufacturing plant

Delivery center• Diesel oil &natural gas

Delivery trucks

Environmental education

For realizing sustainable society,we leverage ISO14001

Raising awareness, deepening understanding
we train the whole Lawson Group

The Lawson Group is taking two key approaches to environmental
management. One is reducing CO2 emissions resulting fromour business activities. One other is supporting our customers'
environmental conservation and societal contribution activities,
providing eco-friendly products and related services. Throughthese two approaches, and involving customers, we work tocreate a sustainable society.
In order to promote eco-friendly and community-friendly
business activities, we use an ISO14001 environmental management
system, especially its Plan-Do-Check-Act (PDCA) cycle, in order toreduce the effects on the environment/ to reduce environmental
impacts.

The Lawson Group educates its employees, franchise owners,
store managers, and store crews, in an effort to enhance theawareness of environmental conservation. For the headquarters
employees, training is given to new employees and newlyappointed Assistant Merchandise Developers (AMDs).
Moreover, general environmental training via e-learning is given
annually to all the employees. Further, for franchise owners,
store managers, and store crews, we provide environmental
education incorporated in a Basic Management Course (BMC)
prior to opening their stores, and share the environment-related
knowledge through our publication such as communication
magazine and Environmental Report as well. From FY2012, we
encourage representative members of the Social & Environment
Subcommittee meeting to take the Certification Test forEnvironmental Specialists (Eco Test).

The Lawson Group's
environmental
management

Realizingsustainable
society

Our effort forenvironmental
preservation

The Social & Environment Subcommittee meeting
Activities
conducted
with customers

Thirty representative members fromheadquarters divisions, stations,branch offices, and affiliatedcompanies meet to manage
progress with environmental goals
and to share information. They also
provides stores with guidance andsupport for internal audits andexternal reviews, promoting
environmental education as well.

• Electricity • Water• Paper, ofice supplies,

etc.

Corporate
headquarters & officesStore
any carsCompany• CO2 (1) *• Waste products• Wastewater• CO2 (2)
• Waste products• Wastewater• CO2 (3)
• Waste products• CO2 (5)
• Waste products• Wastewater• CO2 (4)

• CO2 (6)

• CO2 (7)
• Waste products• Wastewater* The numbers placed after CO2 correspond to those in the pie chart below

Gasoline usage of company vehicles (6)0.2% [ 6 ]Supply chain CO2 emissions in FY2012

3,616 thousand tons

Electricity
consumption
by franchise stores (5)* CO2 emissions volume in parentheses(Unit: thousand tons)

21.6%
21
6% [ 780 ]Greenhouse gas emissions
calculation method for the wholee
supply chain operations
Calculated as per industry-classifiededinterpretation regarding Basic
Guidelines on Greenhouse gas
emissions calculation, for retailers Ver.1.0(including private and national brand products,
plastic shopping bags)

Changes in per store CO2 emissions*1
from electric power usage

The power required to take power usage[ 60 ]

1.6%

69.8t 70.4t

Storestargetedforinspection

Targeted reduction of per store
CO2 emissions:
10% compared with FY2006

60

50

65.2t 63.8t(- 9.6%)

65

2006

2007

2008

2009

2010

usage, we achieved 9.6 percent reduction in FY2012 comparedwith FY2006.
To more accurately ascertain the amount of CO2 emissions
from LAWSON stores, we asked the Japan Quality Assurance
Organization to conduct inspections in July 2013. The results
led to Lawson being issued The Third Party Verification for GHG
Emissions on CSR report in FY2012.

CO2 Emissions calculation rules

80 ｔ
()

71.2t

0.6%

2.6% [ 93 ]We set the voluntary action goal and endeavor to achieve a 10
percent reduction of CO2 emissions from electric power usage instore operation by FY2012 from the FY2006 level. We work hardfor this, introducing energy-efficient equipment, such as outdoor
units for integrated cooling and air-conditioning, LED lighting
and other such equipment. Though it was on a voluntary basis,and newly launched products and services brought more power

70.6t 71.4t

Waste material, and industrial waste
at refurbishing and closing of stores (5)[ 23 ]

Energy consumption at delivery center (3)(4)Reduce store power consumption by installing
cutting-edge energy-saving technology

70

0.4%

1.0% [ 35 ]606
6]*72.0% [ 2,606

Build energy-efficient stores

75

Electricity consumption of headquarters,
branches, and directly-managed stores (5)(7)[ 13 ]

Disposal of packages, disposable chopsticks
and plastic shopping bags (5)Procured raw materials (1) (2)55

34 Lawson, Inc. INTEGRATED REPORT 2013

• Gasoline• Electricity

packaging, etc.

OUTPUT

Total annual CO2 emissions

Environmental management system• Electricity • Water• Containers &20112012 (FY*2)*1 CO2 emission coefficient is based on FY2006 3.68t-CO2/10,000 kWh*2 Calculated by administrative year: from April 1, 2012 to March 31, 201310,115 LAWSON and NATURAL LAWSON
convenience stores. For stores thatcannot track power usage, usage wasestimated using data from other stores.

Test
periodApril 1, 2012 - March 31, 2013
(administrative year)

Targetgas

CO2 (carbon dioxide) generated fromstores' electricity usage
The Third Party
Verification for GHG
Emissions on CSR report

Lawson, Inc. INTEGRATED REPORT 2013 35

Frameworks for our continuous corporate growth

The Lawson Group Environmental Policy

Lawson's supply chain material flow and CO2 emissions

Compliance & risk management

We promote environmental preservation activities
to the whole supply chain

Establish a compliance & risk management structure
responding to expanding business of the Lawson Group

Target and achievement of our environmental preservation activities in FY2012
Items

Actions

Targets of FY2012

Achievement

Reduce CO2 emissions byinstalling energy-saving
equipment in store forcooling, air-conditioning
and lighting• New stores
Adopt energy-saving equipment for targeted
stores• Existing store
Adopt energy-saving equipment for targeted
stores• New stores
Energy-saving equipment as below installed in
all targeted stores• Existing store
Energy-saving equipment for targeted stores

Implementing solar power generation system
1,000 stores in FY2012

Solar power generation system
Implemented in 1,002 stores in FY2012

5

Promote eco-driving oftrucks at delivery centers

Reducing delivery truck CO2 emissions per store
Reduced by 22.0% compared with FY2007

Delivery Truck CO2 Emissions per store:
6,921kg, reduced by 23.8% compared with FY2007

5

Use packaging
materials that reduce
environmental impact

Spurring adoption of non-petroleum- based
plastics

Adopted containers and packaging using bio-PET
derived from sugarcane, and those derived fromused PET bottle plastic

5

Reduce packaging weight

Reduce CO2 emissions from the incineration ofcontainers and packaging
Reduced by 12.0% compared with FY2006

Reduced CO2 emissions from the incineration ofcontainers and packaging by 30.8% compared with
FY2006

5

Improve operational
efficiency while reducing
paper using digitalization

Reduce use of paper media by digitizing
routine work including daily sales reports

Reduced use of paper media by approx. 4.21
million sheets (in A4 size) yearly

Reduce use of plastic
shopping bags

Promote coordination among regional offices,branches, and local governments regarding
reducing disposable plastic shopping bag
usage

1. Bring Your Own Bag point program to unfold
nationwide
2.Active participation in local government
campaigns to cut down on plastic shopping bag
usage
3. Production of the new Bring Your Own bags andits dissemination campaign

Promote food recycling

Improvement in recycling, including foodrecycling
Statutory target: 32.5% in FY 2012

Food recycling ratio: 50.3％

Promote CO2 Offset
Program

CO2 Offset volume 3,000 tons

• FY2012
CO2 Offset volume 3,593 tons
• Accumulated total
20,512 tons

5

Promote social
contribution activities inthe Lawson Group

Lawson Green Fund forestry volunteer
Participation encouraged and increased to110.0% compared with FY2011

Forestry volunteer program participants increased
to 118.4% compared with FY2011
37 projects: Total number of participants is 400
members of the Lawson Group

5

Energy saving

Energy saving/
Resource
savingResource
savingWaste
reduction

Publicity
activities

Contribution
to localcommunities

The basic policy for maintaining the internal control system
Achievementlevel*

55

5Categories(1) Businessarea costs(1)-1 Global environmental
conservation costs

Main Activities

Investment

Introduction of energy
efficient equipment,
CO2 Offset program

8,086,154

Expenses(Thousands of yen)
Benefits

101,153 CO2 reduction

0

4,851,732 Legal compliance(2) Upstream/ downstream costs

0449,569 Legal compliance(3) Administration costs

Preparation of CSR reports,
ISO14001 inspections

0

13,617 Publicity activities(4) Research & development costs

Energy-efficient store research

07,830 CO2 reduction(5) Community engagement activity costs

Greening activities,
Neighborhood cleanup
activities, donations to NPOs

0

Biodiversity
conservation,
67,560local community
beautification

Total

8,086,154 5,491,461*1 Includes area franchise stores in Japan*2 The cost of waste disposal and resource recycling is an estimate calculated based on the figures of a standard store as a sample

36 Lawson, Inc. INTEGRATED REPORT 2013

Consultation clearly addressing whistle-blowing
We stated clearly the objective of our consultation services
including internal reporting as whistle-blowing, while taking
thorough measures to protect reporters. We have respective
consultation counters operating separately for our employees,
for external, cross-Group use, and for employees and staff offranchise stores and business partners, in order to find out thesign of misconducts within the Lawson Group as soon as
possible, and prevent them from occurring.

Response to expanding e-commerce businessand overseas businessWe added agendas for development of the Lawson Group
information security system to respond to expanding businessdomain and particular risks accordingly. Also, we are taking
actions to familiarize overseas employees with our Corporate
Conduct Charter as we appoint persons in charge of risk
management and its promotion, in order to build the brandvalue of Lawson.

Overall view of Lawson’s internal control system

Board of Corporate
Auditors
Corporate Auditors
OfficeCosts related to the Containerand Packaging Recycling Law(1)-2 Resource recycling costs Waste-related expenses*2

The Lawson Group operates centered on the convenience store
business, and also in wide-ranging business areas including
ticket sales, financial services, e-commerce, consulting, and foodservices, with numerous stores in every prefecture of Japan andoverseas as well. This means we need to comply with different
laws and regulations as per what and where we operate orprovide, as well as to respond to diverse risks accordingly.
With all these factors, and aiming at sound and sustained
corporate growth, we have the Basic Policy for Maintaining
the Internal Control System, and conduct periodic reviews tomoderate it to changes in business environment and otherfactors to maintain an effective and rational internal control
system.

Internal control audits/ regular meetings

Reports on important issues

Board of Directors
CEO
CCRO*

Mutual understanding/ information exchange

We grasp investment amounts
and expenses needed forenvironmental conservation
efforts in each phase of ourbusiness operation, in order tofind cost-effective solutions.

Period: March 1, 2012 - Feb. 28, 2013/ Lawson headquarters and franchise stores*1

The Following are the main changes in the Basic Policy in FY2013:4* Degree of achievement
Evaluation of numerical goals: 100% or more: 5, 90% or more: 4, 80% or more:3, 70% or more:2, less than 70%:1
Evaluation of qualitative goals: Better than expected: 5, as expected: 4, achieved to a certain degree/ implementation in progress: 3, behind schedule: 2, very little
implemented: 1

Environmental
conservation costs

Tuning our internal control systemin changes and development

Ordinary
precautions

Compliance Officers meeting• Food Safety and Hygiene
Management Subcommittee meeting• BCP Subcommittee meeting• Crime Prevention and Disaster
Defense Subcommittee meeting• Information Security
Subcommittee meeting• Social & Environment Subcommittee
meeting
Risk Management Committee meetingfor Emergency
Internal Audit Office

Affiliatedcompanies

Compliance &Risk Management OfficeCompliance & Risk Management Committee

Emergency
systemInternal control audits

Close communications/ basic management policy

Corporate divisionsof the headquarters

CRO

Merchandising
Management GroupCRO

CVS Operations
Company

CRO

Regional officers

CRO

Entertainment & Home
Convenience Company

CRO

Overseas Operations Company

CRO
Guidance/ support

Franchise
storesAffiliated Company Compliance Officers meeting* CCRO: Chief compliance and risk management officer is an executive who has overall responsibility for the development and execution of framework to recognize and prevent misconduct andproblems in terms of legal complianceLawson, Inc. INTEGRATED REPORT 2013 37

Frameworks for our continuous corporate growthTarget and achievement of our environmental preservation activities

Compliance and risk management
Priority targets in FY2013
Compliance and risk management system

We regard compliance as not only following laws and regulations and respecting social norms but also as implementing
our Corporate Conduct Charter, by taking thoughtful action in accordance with it. We create an environment in align withethics and social rules. By organically linking our Code of conduct, education, training, communication functions, andimplementing a Plan-Do-Check-Act (PDCA) cycle, we aim to conduct our business as a good corporate citizen.

Corporate philosophy/ Code of ethics/ Code of conduct

Formulate planningcompliancemeasures in eachdepartment

Operate according
to Code of conduct(implementation of
measures)Establish consultation counters

In-department educational activities
by the person in charge of promotion

Preparation for, and response in the state of emergency/ code of conduct

Check status andmonitoring of
measures

Review andimproving of
measures

Review after emergency

Education, training, and drills

Corporate Conduct CharterBasicdeclaration

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

Basicdisciplines

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

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

(1) Training on compliance and risk management(3) Disaster control drills

We conduct systematic and continuous training for our employees
and staff of all job types and positions to share issues, so that they
can leverage learned knowledge and skills to improve operations.

Effective disaster control needs practical drills, not only plans
and code of conduct. We run disaster control drills, and the main
focus is:• Regular annual training, by e-learning and group training for all• Practicing the use of disaster message board service and safety

employees• New employee training, training for those newly appointed toadministrative positions• Training for those newly-appointed to specialist jobs for area &store, or merchandising development• Semiannual training for management team provided by visiting
lecturers

38 Lawson, Inc. INTEGRATED REPORT 2013

Compliance with the Basic Policy, as well as responding to risks
we perceive (listed as below), are becoming more and more
important. Our focus in FY2013 is on the following action items
to raise awareness and deepen understanding of complianceand risk management within our group:

To serve the community as a part of its lifeline in the event oflarge-scale natural disasters and other emergencies, we need tobuild resilient systems to continue our business operation. For
this purpose, we prepared a Business Continuity Plan (BCP)
Guideline and Disaster Control Manual, to clarify the initialactions in disasters for all employees. We also continue toimprove our disaster response capability while maintainingcrisis-sensitivity in our organizational climate.

(1) Development and instillation of compliance and risk
management frameworks(2) Instillation and leveraging of information security system(3) Improving our disaster response capacity as part of lifeline toprotect community(4)Re-development and evaluation of crime prevention anddisaster defense measures in storesof communication

1. Risks relating to changes in the business environment
2. Risks relating to food safety, hygiene management, andlabeling
3. Risks relating to the handling of personal information
4. Legal and regulatory risks
5. Risks relating to franchise operations
6. Risks relating to disasters
7. Risks involving problems with IT systems
8. Risks relating to sharp rises in raw materials prices(1) Development and instillation of complianceand risk management frameworks
Based on the findings of questionnaire survey conducted with all
employees, we decided to further strengthen management
framework for regional offices and branches. We promote clearer
systematization of Compliance & Risk Management Committee
and implemented Compliance and Risk Management Officer(CRO) system, for developing and executing a system to takecontrol of issues relating to compliance with laws and regulations
and to prevent misconduct. Also for better communication withbusiness partners, we meet them more often in the AffiliatedCompany Compliance Officers meeting, changing the previous
quarterly meetings to every other month.

(2) Instillation and leveraging
of information security system
We increased the number of Information Security Subcommittee
meetings, changing from meeting quarterly to every month,promoting instillation of the information security system. Also,
we scrutinize contractors that we entrust services involving
personal data for their adequacy and privacy protection
measures they take.

We conduct disaster control drills
three times a year so that all Lawson
employees can be clear on the initialactions in disasters

System for improving business continuity capability
Organizational climate tuned to crisis control
The Lawson Group knows the importance of crisis control
and continually works to improve it

Business continuity capability

Risk factors for Lawson

confirmation system• Running a simulation of Disaster countermeasures office• Checking emergency contact system utilizing multiple means(2) Publication of the Lawson Group C&R Handbook
We distribute to all employees the Lawson Group C&R Handbook,which summarizes these standards including Corporate
philosophy, the Corporate Conduct Charter, the Lawson Group
Environmental Policy, the Lawson Group Purchasing Policy, Codeof Ethics, as well as Initial actions in disasters and Correspondence
criteria in serious events and accidents.

(3) Improving our disaster response capacity as
part of lifeline to protect the community

Continue important operations and business

HardwareOrganization

Capability

Preliminary measures

Action plan

Preliminary measures

Take preventive anddisaster mitigation
measures

System implementation
and role assignment
Codes of conduct andprocedures

Improve crisis control
capability of people
and organizations
through drills

Manual revisions
BCP redrafting

Training and seminar
Skill improvement(4) Re-development andevaluation of crime prevention anddisaster defense measures in stores
Promoting crime prevention and disaster defense measures instores and also in the whole Lawson Group, we hold Crime
Prevention and Disaster Defense Subcommittee meeting at
regional offices every month. As we go through trainings, wecheck manuals to make them more workable. While we prepare
ourselves for eventualities, we make ourselves available forcommunities as well. We are signing Disaster Goods Supply
Agreements as well as Agreements to Help People Unable toReturn Home, in order to function as a part of lifeline to protect
the community in the time of eventualities and disasters.

Agreement with municipalities in case of disasters(As of March 31, 2013)

Disaster Goods Supply Agreements andAgreements to Help People Unable toReturn Home
Disaster Goods Supply Agreements

We also work to get more people toattend the workshops on AED,
automated external defibrillator, whichhelps save lives

Lawson, Inc. INTEGRATED REPORT 2013 39

Frameworks for our continuous corporate growth

Going beyond just compliance: we conduct with consideration for others

More penetration of complianceand risk management practices

Lawson's corporate governanceCorporate governance system (As of May 22, 2013)

Agility, transparency and diversity
in our governance system
to assure ever-increasing corporate value

Appointment / dismissal

Appointment / dismissal
Appointment / dismissal

Board of Directors

Consultation

Compensation
Committee
Proposal

Outside directors: 4(Incl. 2 independent officers)
In-house directors: 3
Total: 7

Audit

Board of Corporate
Auditors
Outside auditors: 3(Incl. 3 independent officers)
In-house auditor: 1
Total: 4

Audit

Certified Public Accountant(Independent auditor)

Dismissal

Account auditing
Appointment / dismissal / supervision

Characteristics of Lawson's corporate governance
Ahead of our competitors, Lawson has established a corporate
governance system with agility and transparency.
We separated the execution and administrative functions
according to the executive officer system, in order to clarify
executive officers' responsibility. We also reduced the numberof directors drastically, making business judgements more
prompt. Out of eleven directors and auditors, we appointed
seven from outside, of whom five are independent officers.* Also
we appointed three female directors and auditors to the Boards.

(1) Reduced the number of
directors by over 60 percent

This change in composition reinforces our corporate governancesystem with diverse viewpoints. As a Company with Board ofCompany Auditors, Lawson has double-checking mechanisms,
the Board of Directors overseeing business execution, andcorporate auditors supervising the execution of the duties of the
Directors.
* Lawson implemented an independent officer system in FY2010

18

Financial Reporting Internal Control Committee

Legal
counselComment

Internal Audit Office

CCRO*

CEO meeting

Internal audit and guidance for improvement

Headquarters(3) Promoted female on the Boards

CVS Operations Company
Entertainment & Home Convenience Company
Overseas Operations Company

Proposal and promotion ofcompliance and risk
management measures

64%

Outsideandindependent

Directors

Investment

Female

27%

45%

18%

Independent

Female

2000

2013

2000

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

2013

We focused on diversity and took action tohighly increase the ratio of female officers
on the Boards. The viewpoint of female
is essential for expanding our customer
base. We proactively involve female infuture business development.

Evolution of Lawson's corporate governance
2000

18

directors** Chief Compliance and Risk Management Officer
Please refer to page 37 for details

Subsidiaries and Affiliates

0%

2013

Since 2002, we have maintained thenumber of directors at less than 10 and
separated administration from executionof business, in order to make more agile
business judgements.

Securetransparency anddiversity ofmanagement

Chief Executive Officer

Outside7

Separation ofmanagement fromexecution

Audit

Compliance and Risk
Management Committee(2) More outside officers for more
independent governanceDirectors

2000

Operational Organization

Proposal / report

2001

20

4

outside officers

Securetransparency indirectors'
compensation

2002

2003

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

8

9

2010

2011

2012

7 directors since 20072013
Currently 7 directors

The officer system was introduced in 2002

61

female directors

862

independent officers

642

female auditor joined in 20116
5
3

The internal control system
We regard the internal control system as the key component of
our sustainable and robust business growth. We revise yearly the
Basic Policy on Internal Control System in accordance with theprovision of the Companies Act, the Ordinance for Enforcementof the Companies Act and Financial Instruments and Exchange
Act (refer to page 37).
Besides this yearly revision, we make regular efforts to
update our internal control system to maintain effectivenessand efficiency of operations, as well as to adapt to changes inbusiness environment.

Currently 7 outside officers
Currently 5 independent officers
Currently 3 female officers

Established Compensation
Review Board in 2002

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

Special factors with an important bearing
on corporate governance
Mitsubishi Corporation (Mitsubishi) holds 32.5 percent 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 28, 2013).
Under a comprehensive business alliance, Mitsubishi exchanges
personnel and conducts joint raw materials procurementbusinesses 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.

Record of Meetings and Attendance - Board of Directors and Board of auditors (FY2012)*
Board of Directors’ Meetings

Board of Corporate Auditors’ Meetings

12 (Including 1 extraordinary meetings)

15 (Including 3 extraordinary meetings)

Outside directors

Approx. 91%−

Outside corporate auditors

Approx. 94%

Approx. 98%

Frequency (Extraordinary)Attendance* Attendance includes that for extraordinary meetings* The number of directors and corporate directors shown above is as of after an annual shareholders' meeting

40 Lawson, Inc. INTEGRATED REPORT 2013

Lawson, Inc. INTEGRATED REPORT 2013 41

Lawson's corporate governance

General Meeting of Shareholders

Compensation policy for board members

Director compensation
Compensation for directors consists of (A) basic compensation
paid in cash, and (B) stock-price-linked variable compensation
paid in stock options.

A

B

Director compensation

A Basic compensation
comprises Fixed cash amount (60%) ＋ Variable cash amount (40%)
Fixed cash
amount:Variable cash
amount:Established amounts by position ranking.
Introduced “performance-based compensation”whichreflects performance assessment such as EPS ofeach term (to link the directors' compensation toshareholders' interests)

B Stock-price-linked compensation
Paid in stock options, as compensation linked tomedium- to long-term corporate value growth.
• Share option value per share: ￥1• Number of shares: determined by position ranking• Option term: Option can be exercised for a specified period of timeafter retirement only. (While in the office, it cannot be
executed.)

The four non-executive directors―Toru Moriyama, Reiko Okutani,
Takehiko Kakiuchi, and Emi Osono―do not receive any compensation
linked with business performance because of their specialized
supervisory and advisory roles for the Chief Executive Officer and theBoard of Directors.

Criteria for independence

We make it our policy to pay corporate auditors at a sufficientand reasonable level for their executed duties in a fixed amountin cash. The amount for each auditor is decided in their (auditors')
discussion within the extent of the total fee amount determinedby the resolution of the shareholders meeting. The factors suchas working full-time or part-time and types of assignment areconsidered to decide the amount. In addition, we abolished theseverance payment system and we paid the equivalent amountfor the period of time prior to the discontinuation by the
resolution in the 37th ordinary shareholder meeting held on
March 29, 2012.

To improve our corporate governance, we appoint those outside
directors or outside corporate auditors as Independent Officers who
fulfill the requirements as described in the Guidelines Concerning Listed
Company Compliance, etc. established by Tokyo Stock Exchange. Further,
we fully examine them at the time of appointment, to check that they“are not at risk of having conflicts of interests with general shareholders.”

Compensation disclosure(3) A party for whom the Lawson Group is a principal business partner
or an executive person of such a party

The total amount of compensation for all directors as well as thecompensation for Chief Executive Officer are listed in the
Company’s securities and business reports respectively.
Compensation for directors and corporate auditors (FY2012)
Category

NumberTotal Compensation

Directors(number of outside directors)

9 (4)¥213 million (¥24 million)

Corporate auditors (number ofoutside corporate auditors)

5 (4)¥76 million (¥52 million)

Total

14

¥290 million［Reference］In addition to the above, in a meeting held on March 27, 2013, theBoard of Directors resolved to pay the Directors additional a 148
million yen in total (including 8 million for outside directors) in stock
options

Compensation for Takeshi Niinami, Chief Executive Officer (FY2012)
Categories
ofcompanies

Representative
director

Lawson,Inc.

¥107 million-

Chairman,member of the
Board

Ninety-nine
Plus, Inc.

¥3 million-

Independent officers
Directors

Corporate
auditors

Outsidecorporate auditors

SubmitTetsuo Ozawa(Three meetings in FY2012)

Fix directors’compensation

Emi Osono

Board of Directors’Meetings

Reiko Okutani¥111 million

Independent officers' contribution to theBoard of Directors and the Board of Auditors
Reiko
Okutani

She poses questions and offers opinions basedon her abundant experience and knowledge asbusiness manager. She is also a member of theCompensation Committee.

Emi
Osono

As an academic with her in-depth expertise on
global corporate management, business strategy
and organizational behavior, she provides
questions and ideas. She is also a member of theCompensation Committee.

Shinichi
HokariAs a full-time corporate auditor, he oversees
execution of duties of directors including updatingof the internal control system, inspects documents
and visits our offices and affiliates' to check
operation and asset managements.
With his experience at the Board of Audit of Japan,
he provides questions and views based on his
expertise on finance and accounting.

TetsuoOzawa

With his diverse experience and technicalexpertise as a lawyer, he provides questions andviews. He is a member of the Compensation
Committee.

Compensation Committee

Outside directors

Based on her deep insight as an academic on
EikoTsujiyama management especially accounting, she provides
questions and opinions.

42 Lawson, Inc. INTEGRATED REPORT 2013

Stock
options(An independent officer must not be described by any of the following items)(1) A person executing the operations (hereinafter “executing person”) of
the holding company of Lawson(2) An executing person of affiliate companies of Lawson

Year(4) A principal business partner of the Lawson Group or an executing
person of such a party

2001(5) A consultant, an accounting professional such as a certified public
accountant or a legal professional such as an attorney-at-law who hasreceived a significant amount of money or other property from
Lawson, other than as compensation for being a director or a
corporate auditor.

2002(6) A large shareholder of Lawson or an executing person of such party ina case when said person is a juridical person;

2009
2010
2011

Content
Started earlier dispatch of the notice and non-mandatory
disclosure on the website• Disclosure of total amount of retirement benefits• On-demand distribution of shareholder meeting content,
received TSE Disclosure Award
Computerized voting adopting TSE voting platform
Started disclosing voting results (non-mandatory)
Changed the shareholder meeting venue(to Tokyo International Forum)(7) An immediate family member, etc. of a key executing person of theLawson Group2012(8) An immediate family member, etc. of a non-executive director or an
accounting advisor of the Lawson Group (in case the independent
officer in question is an outside corporate auditor);• Disclosed independence requirements for Independent
Officers and ROE trends over time
• Implemented questionnaire on voting with attending
shareholders and disclosed the result in an extraordinary
report on the web.

2013

Started posting invitation on the web(6 days prior to postal dispatch)

What may deserve special mention about our requirements is theirstrictness. In items (3) and (4), we define the term “a principal business
partner” as “a business partner group (parties which belong to theconsolidated group to which the Lawson Group's direct business partner
belongs, offering products and/or services to the Lawson Group, whose
total amount of transactions with the Lawson Group in the last fiscal year
exceeds 2% of the consolidated gross operating revenues of the Lawson
Group or gross sales of such business partner group.” Also in item (5), we
define “a significant amount of money” as “an amount or money which
exceeds the greater of JPY five million annually in the previous two fiscal
years.”

Contracts for Limitation of Liability

For better transparency, the Compensation Committee comprising
only outside officers, submits a compensation package to theBoard of Directors for approval.

Takehiko Kakiuchi(Chairman)

Basiccompensation

Total
consolidated
compensation［Reference］In addition to the above, in a meeting held on March 27, 2013, theBoard of Directors resolved to pay the Directors additional a 82 million
yen in total in stock options

Decision-making process of director compensation

Compensation Committee members

Compensation/benefits
amounts

Categories ofofficers

Qualification requirements for Independent Officers

Exchange's electronic voting platform.
In 2010, ahead of legislation and our competitors, we
disclosed voting results on a non-mandatory basis.
In 2012, we included independence requirements for our
independent officers in the invitation. Also, to highlight as our
focused business index, we provided ROE trends over time as
an agenda aid for the part of the proposal on appropriation of
surplus. Additionally, we distributed a questionnaire on voting
to shareholders who attended, disclosing the result in an
extraordinary report on the web.
In 2013, we posted the invitation on our website six days prior
to sending it out.

Lawson has entered into an agreement with outside directors andoutside corporate auditors to limit their liabilities, as provided in Article
423, paragraph 1 of the Companies Act, to the extent in the aggregate
amount as provided in items of Article 425, paragraph 1 of the Companies
Act.

Shareholder meeting
We regard shareholder meetings as an excellent opportunity tohelp shareholders understand more about Lawson, as part ofour groundbreaking efforts at better disclosure (ahead of all ourcompetitors).
After the listing in 2000, we started earlier dispatch ofinvitations in 2001, in English as well, and added non-mandatory
disclosure through our website.
In 2002, we added disclosure of the total amount of retirement
benefits, which were still in our system then. We also started
on-demand online distribution of the content of shareholder
meetings for those unable to attend in person. This year, we also
received an award from the Tokyo Stock Exchange for our efforts
at disclosure practices.
In 2009, we computerized voting, adopting Tokyo Stock

Enhancing Investor Relations
Lawson established the IR department exclusively dedicated tothe dialogue with investors and shareholders. We help them
deepen their understanding of our goals of sustainable growthand greater corporate value, the roadmap to it with businessstrategies as well as our performance. Exclusively for analysts
and institutional investors, we implement half-yearly resultsmeetings, as well as quarterly results briefings through a teleconference presided over by CFO. With management's lead, wework hard for timely disclosure. Fair disclosure is also our focus.
For foreign investors, we proactively work to promptly post on
our website information in English, such as results meetings andother disclosed information. Our Basic Principles Concerning
Information Disclosure are posted on our website.
(http://lawson.jp/en/ir/disclose.html)
Lawson's IR activity is highly rated by capital markets for our
positive stand about disclosure, to create and enhanceshareholders' value. It is also appreciated as message of our focus
in business strategies on sustainability and capital efficiency. In
FY2012, we were given the 17th Best IR Award in the 2012 Annual
IR Grand Prix by Japan Investor Relations Association, as well as2012 Award for Excellence in Corporate Disclosure by heSecurities Analysts Association of Japan, ranked the highest
among retailers (the award received for sixth time).

Won the 17th Excellent IR Company
Award

Security analysts choose excellent
disclosure companies

Lawson, Inc. INTEGRATED REPORT 2013 43

Lawson's corporate governanceWe designed our compensation system to link shareholders’value with directors' compensation. With incentives for greater
corporate value and sustainable growth and profitability, we
compensate at a sufficient and reasonable level for the executionof duties. Directors' compensation consists of basic compensation,
which is a fixed amount, and “variable compensation,” a flexible
amount. Performance evaluation indices, such as Earnings
Per Share (EPS), are linked within the compensation system sothat Directors' contribution to maximizing shareholder value isclearly reflected. Moreover, by incorporating stock options as apart of compensation, directors' and shareholders' interests are
now more closely related to each other.

Fee for corporate auditors

Directors, corporate auditors, and executive officers As of May 22, 2013

Takehiko Kakiuchi
Yutaka Kyoya

Years as a director: 8 years
Number of Lawson shares held: 100 shares

Takeshi Niinami

Lawson's corporate governanceMember of the Board (Outside)

Member of the Board (Outside)

Representative Director,
Chief Executive Officer andPresident of Lawson University

Genichi Tamatsuka
Member of the Board,
Representative Executive Officer, COO,
and President of CVS Company andOverseas Operations Company

Years as a director: 11 years
Number of Lawson shares held: 9,200 shares

1981 Joined Mitsubishi Corporation
1995 Representative Director, Sodex Corporation (Currently LEOC Co., Ltd.)
1999 General Manager, Restaurant Business Team,

1979 Joined Mitsubishi Corporation2005 Outside Director,

Years as a director: Assumed from May 22, 2013
Number of Lawson shares held: 0 shares

Kentucky Fried Chicken Japan, Ltd.
(Current position)
Member of the Board (Outside),
Lawson, Inc. (Current position)

1984 Joined Mitsubishi Corporation2010 Outside corporate auditor,

2013 Executive Vice President,

Kadoya Sesame Mills inc. (Current position)

Group CEO, Living Essentials Group,
Mitsubishi Corporation (Current position)2013 General manager,

Years as a director: 1 year
Number of Lawson shares held: 2,600 shares

Shinichi Hokari

Living Essentials Logistics Planning Department, Mitsubishi Corporation

2000 General Manager, Lawson Project Integration Office;2001 Manager, Lawson Business Unit;

1985 Joined Asahi Glass Co., Ltd.
1998 Joined IBM Japan Ltd.

2002 Corporate Advisor, Lawson, Inc.

2002 President, Representative Director and COO, Fast Retailing Co., Ltd.
2005 Established Revamp Corporation

General Manager,Restaurant Business Office, Mitsubishi Corporation

Standing Corporate Auditor (Outside)

Joined Fast Retailing Co., Ltd.

Manager, Restaurant Business Unit,
Consumer Business Division, Mitsubishi Corporation

Years as a director: 1 year
Number of Lawson shares held: 0 shares

President, Representative Director and COO, Revamp Corporation

President, Representative Director and CEO, Lawson, Inc.

Standing Corporate Auditor

Board of Audit of Japan

Group CEO, CVS Operating Group, Lawson, Inc.

Years as a director: 3 years
Number of Lawson shares held: 1,200 shares2005 Director General of 4th Bureau, Board ofAudit of Japan

2012 Member of the Board, Senior Executive Vice President and COO,

Chief Executive Officer, Lawson, Inc. (Current position)

Atsuhiko Seki

1975 Joined the Board of Audit of Japan
1990 Supervisory Manager of 2nd Bureau,2010 Corporate Advisor, Lawson, Inc.
2011 Senior Executive Vice President and COO,

2006 Outside Director, ACCESS, CO., LTD. (Current position)2010 Outside Director, ORIX Corporation (Current position)2013 Representative Director,

Foods (Commodity) Division,
Mitsubishi Corporation (Current position)
Member of the Board (Outside),
Lawson, Inc. (Current position)

Group CEO, CVS Operating Group, Lawson, Inc.

2007 Chief Audit Commissioner,

1977 Joined The Daiei, Inc.
1999 Joined Lawson, Inc.
2007 Deputy Senior Vice President,

Gifu Prefecture Government

2013 Member of the Board,

Representative Executive Officer, COO,
and President of CVS Company
and Overseas Operations Company,
Lawson, Inc. (Current position)2011 Rejoined the Board of Audit of Japan
2012 Retired from the Board of Audit of Japan

Division Director,
Franchisee Support Office, Lawson, Inc.

Standing Corporate Auditor (Outside),
Lawson, Inc. (Current position)2010 Standing Corporate Auditor,

Lawson, Inc. (Current position)

Yoshiyuki Yahagi

Eiko Tsujiyama

Member of the Board,
Representative Executive Officer,
and Chief Corporate Officer

Years as an auditor: 2 years
Number of Lawson shares held: 100 shares

Member of the Board (Outside)

Years as a director: 6 years
Number of Lawson shares held: 900 shares

1979
2004
2006
2007

Corporate Auditor (Outside)

Reiko Okutani
Years as a director: 11 years
Number of Lawson shares held: 0 shares

1974 Registered as a Certified Public Accountant
1980 Assistant Professor, College of Humanities,
Ibaraki University

Joined Mitsubishi Corporation
Deputy General Manager, Audit Department, Mitsubishi Corporation

1974 Joined Japan Airlines International Co., Ltd.
1982 President, The R Co., Ltd. (Current position)
1986 President, Will Co., Ltd. (Saison Group)

Senior Vice President and Executive Assistant to CEO, Lawson, Inc.
Member of the Board, Executive Vice President and CFO, in charge ofCorporate Planning Office, Human Resources Office, Lawson, Inc2013 Member of the Board, Representative Executive Officer,

and Chief Corporate Officer, Lawson, Inc. (Current position)

Years as a director: 1 year
Number of Lawson shares held: 0 shares

1998 Assistant Professor,

Institute of Asia-Pacific Studies, Waseda University

2004 Outside Director,

Nisshin Fire and Marine Insurance, Co., Ltd.

2006 Outside Director, Resona Bank, Ltd.

44 Lawson, Inc. INTEGRATED REPORT 20132008 Outside Corporate Auditor of Mitsubishi Corporation(Current position)
Outside Director of ORIX Corporation (Current position)

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)

Senior Executive Vice President and CFO, Lawson, Inc.

1988

Graduate School of Commerce,
Waseda University (Current position)(Concurrent post: President, The R Co., Ltd.)2009 Member of the Board,

Joined Sumitomo Bank
(Currently Sumitomo Mitsui Banking Corporation)

1991 Professor, Faculty of Economics, Musashi University
2003 Professor, School of Commerce and2010

Emi Osono

2010
2011 Corporate Auditor (Outside),2011 Outside Director, Resona Holdings, Inc.
(Current position)2012 Member of the Board (Outside),
Lawson, Inc. (Current position)

Corporate Auditor (Outside)
Years as an auditor: 10 years
Number of Lawson shares held: 100 shares

1973 Registered as Lawyer and joinedTokyo Fuji Law Office (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)

Lawson, Inc. (Current position)
Outside Corporate Auditor,
NTT DOCOMO, INC. (Current position)▼ Members of executive officer

Member of the Board (Outside)
Professor, Graduate Schoolof International Corporate Strategy,
Hitotsubashi University (Current position)

Tetsuo Ozawa

Senior Executive
Vice President
Executive Vice President

Takatoshi Kawamura
Masaharu Kamo
Masahiro Oyama

Senior Vice President

Masayuki Sawada
Norikazu Nishiguchi
Katsuyuki Imada
Syuichi Imagawa
Takaki Mizuno
Jun Miyazaki
Ichiro Kijima
Hisashi Yasuhira
Tetsu Yamada
Kenichi Kato
Shigeaki Kawahara

Senior Vice President

Tatsushi Satou
Masakatsu Gounai
Kenji Gotou
Kei Murayama
Hajime Nakai
Kazuo Tougasa
Hajime Kawamura
Motonobu Miyake
Yuichi Wada
Hiroyuki Endo
Atsushi Maeda
Akira Ushijima

Lawson, Inc. INTEGRATED REPORT 2013 45

Message from outside director

Message from outside corporate auditors

Outside directors and auditors,
vigorously evaluates management, detect excellent governanceOver twelve years since I was appointed as an outside director, I witnessed Lawson
gain more and more presence and personality in the convenience store industry inJapan. In the Entertainment segment, for example, the Lawson store network is now
boasting the top ticket sales in the industry, constantly making use of its strength ofstore network. Top management has shown outstanding energy and communication,
especially as revealed in the time of the East Japan Earthquake. Lawson quickly
responded to the need of the society for an infrastructure, radically using its store
network, regional mobility and other advantages. Also, with aggressive M&A strategy,
Lawson's store network, as well as related business segments, have been enhanced.
Imperatives for future growth are streamlining of store operation with further IT
implementation to respond to the rapidly aging society, in addition to improving
working environment for female employees. Further plans might include architecting
the online marketing channel with websites or mobile terminals, developing humanresources, and leveraging management for strategic global business operations.

Lawson is operating with well-designed strategies under the strong leadership ofmanagement with Mr. Niinami as CEO. Mr. Niinami, as I observe, is a thorough andcareful planner. The members of the Board of Directors are more than half outsiders
and auditors. Management gives clear and detailed explanations of matters to be
discussed. Reciprocally, members actively speak at Board meetings, sometimes
having heated discussions to talk through everything. I can proudly state thegovernance of Lawson is excellent.
Additionally, Board meeting agendas are improving remarkably compared toearlier days. From my perspective as a lawyer, I assign high value to the thoughtful
management decisions seen in the agenda, which are made in accordance withbusiness judgement rules.
Future tasks for Lawson in my view are securing human resources for moreaggressive overseas expansion as well as creating means for female workers to shinewith their various talents.

Tetsuo Ozawa

Reiko Okutani
President, The R Co., Ltd.
She has abundant experience and knowledge as a business manager. She also has customer
service expertise with her work experience as a Japan Airlines' flight attendant servicing
international routes. She has served as an outside director since 2002.

Lawson's strength - various ideas and energy fromwide-ranging people: management to front-line workers
As an academic, I am specializing the organizations with competitive strategies andinnovation on a continual basis. Excellent companies, when seen through these twolenses, have several common characteristics: 1) having a clear vision of the value it
wants to provide; 2) assuring the vision is understood throughout the organization,and 3) challenging management to realize it in a new way, creating new footsteps,
not just following what exists.
Lawson is trying to provide tasty, safe, enjoyable and convenient commodities
and services. During this one year when I came to know better about Lawson as an
outside director, I have witnessed a number of new developments addressed,
discussed and launched. These new developments range from cross-industrial efforts
to detailed in-store action rules. They reveal that ideas and actions within Lawson are
coming from wide-ranging people from the management to store staff. This is where
I believe the strength of Lawson resides.
I also believe there are more changes they can make. I expect a lot from Lawson
and also want to continue to support them.

Emi Osono
Professor, Graduate School of International Corporate Strategy, Hitotsubashi University
As an academic, she has in-depth expertise in global corporate management, business strategy
and organizational behavior.
She has served as an outside director since 2012.

46 Lawson, Inc. INTEGRATED REPORT 2013

Lawyer (Tokyo Fuji Law Office)As a lawyer, specializing in lawsuits, including representative suits in relation to Companies
Act, he is in charge of in-house research of directors' misconduct, corporate compliance andrisk management. He also plays a leading role in establishing corporate governance, while
overseeing compliance, internal control. He has served as an outside corporate auditor since
2003.

Incorporating to changes and needs
in society - Lawson is always looking ahead
Two years have passed since I was designated as an outside corporate auditor in May
2011. For these two years, the environment of Japan has greatly changed. We have
had falling birth rate with rapidly aging population, along with social advancementof women, as well as issues like energy disputes and food safety. And we had theaftermath of the Great East Japan Earthquake and Tsunami which is unforgettable.
Looking back, it is impressive to see that Lawson keeps looking ahead to the future,
responding to social change and its needs, serving people with its core business of
convenience store operation and more. The convenience store industry is much morecompetitive today, compared to two years ago. With “serve day-to-day life of people,”
Lawson's Corporate Philosophy, robust in the Group, I strongly believe Lawson willkeep winning in the industry.
Certainly there are some business challenges, especially regarding overseas
development. Corporate compliance and governance in overseas operation are also
big issues. Lawson needs to strike the balance between their inner strength and thedifferent national characters and business cultures. As an outside corporate auditor, I
would keep an eye on all this, with positive regard for further development of Lawson.

Eiko Tsujiyama
Professor, School of Commerce and Graduate School of Commerce, Waseda University
As an accountant, she has diverse experience and technical expertise.
She has served as an outside corporate auditor since 2011.

Lawson, Inc. INTEGRATED REPORT 2013 47

Lawson's corporate governanceLawson's growing presence in convenience store industry
Response to rapidly aging society awaits further IT implementation

Lawson at a glance
Corporate data

Store network expansion area

As of February 28, 2013; consolidated basis

Company name
Address

Lawson, Inc.

Number of employees 6,404

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

Business activities

Total number of stores (Worldwide total)

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

Net sales of all stores ¥1,906.5 billion
11,774 (As of July 31, 2013)
Number of stores

Chief Executive Officer
Takeshi Niinami
Representative Director
April 15, 1975
Established¥58,506.644 million
CapitalOperating areas

11,774 stores
Stores in JapanAll 47 prefectures in Japan,
China (Shanghai, Chongqing, Dalian),Indonesia, Hawaii, Thailand (As of July 31, 2013)

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 Okinawa, Inc.,
and LAWSON STORE100 stores operated by Ninety-nine Plus, Inc.

11,308 stores
Overseas stores

Shares issued

100,300,000

Shareholders

33,629

Hokkaido region

Indonesia
83 stores*
Hawaii (America) 3 stores
Thailand9 stores588 storesTohoku region

Chubu region

1,351 stores

Chugoku region

886 stores

621 stores

As of February 28, 2013; non-consolidated basis409,300,000

China Shanghai 298 stores
Chongqing 61 stores
Dalian
12 stores

466 stores

Shareholder information
Authorized shares

As of July 31, 2013

Stock exchange listings

Tokyo Stock Exchange (1st Section)
Osaka Securities Exchange (1st Section)

Stock transfer agent

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

Number ofshareholders

Distribution of shareholders by type

Number of shares(Thousands)

Percentages of
total shares

Financial institutions
Securities companies

102

14,387

14.3

28

3,191

3.2

Other domestic entities

479

35,59235.5

464

38,222

38.1

32,554

8,498

8.5

1

0

0.0

1

406

0.4

33,629100,300

100.0

Foreign entities
Individuals, Others
JASDEC
Treasury stock
Total

Major shareholders

Kyushu and Okinawa
total

Kanto / Koshinetsu region

4,000 stores

1,183 stores

Shikoku region

Kyushuregion458 stores

Kinki region

2,221 stores

1,026 stores

Okinawaregion* The number of Indonesian stores is based on the
flash report released in August, 2013157 stores

Lawson store formats

Number of shares
held (Thousands)

Percentages of
total shares held*

As of February 28, 20131.

Mitsubishi Corporation

32,08932.1

2.

STATE STREET BANK AND TRUST COMPANY 505223

2,877

2.9

3.

Japan Trustee Services Bank, Ltd. (Trust account)

2,462

2.5

Operations begun

April 1975

July 2001

May 2005

4.

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

2,228

2.2

Features

The Lawson store concept is shifting fromthe traditional convenience store format
that targets men in their 20s and 30s to
a format where individual stores match
their merchandise assortment with theirown catchment areas. This store format
is aiming to become a highly convenientneighborhood store. Recently, taking into
consideration locations, the Company isincreasing the number of stores that offer
perishable 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 perishable
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.

5.

NTT DOCOMO, INC.

2,092

2.1

6.

STATE STREET BANK AND TRUST COMPANY

1,856

1.9
1.9

7.

The Chase Manhattan Bank NA, London SL, Omnibus Account

1,853

8.

STATE STREET BANK AND TRUST COMPANY 505202

1,653

1.7

9.

STATE STREET BANK AND TRUST COMPANY 505225

1,638

1.6

1,580

1.6

10. MELLON BANK N.A. AS AGENT FOR ITS CLIENT MELLON OMNIBUS US PENSION* The above shareholding ratios exclude treasury stock 406,853（Yen）

Percentage of female
customers (Estimate)

Approx. 30%

Approx. 45%

Approx. 40%

6,000

Networkregional-orientation

Nationwide

Office and residential districtsin the metropolitan Tokyo area

Residential districts and nearby train
stations in the major metropolitan areas

Items handled

Approx. 2,800 items

Approx. 2,500 items

Approx. 4,000 items

Percentage ofmerchandise items
shared with Lawson
storesーApprox. 60%

Approx. 10%

Total stores in Japan

9,796 stores

110 stores

1,224 stores

Stock price on the Tokyo Stock Exchange

4,000

2,000
2004/2

2005/2

2006/2

2007/2

2008/2

2009/2

2010/2

2011/2

2012/2

2013/2(Yen)

2005/2

2006/2

2007/2

2008/2

2009/2

2010/2

2011/2

2012/2

2013/2

Interim dividend

35

45

50

55

80

80

85

87

100

Year-end dividend

35

45

50

55

80

80

85

93

100

Annual dividend
7,000
Stock price as ofFebruary 28 or 29
6,000

70

90

100

110

160

160

170

180

200

3,980

4,350

4,540

4,000

4,250

3,885

4,025

4,780

6,890

INTEGRATED REPORT 201348 Lawson, Inc. 5,000
4,000

Number of stores■■■ Number of stores(Stores)Composition
ratio (%)

8,509

8,676

8,827

9,185

9,796

89.3% 88.9%
88.3% 87.8% 88.0%

2009/2 2010/2 2011/2 2012/2 2013/2

93
1.0%

89

90

0.9%

0.9%

100
1.0%

110
1.0%

925
9.7%

996
10.2%

1,077

1,172

1,224

10.8% 11.2% 11.0%

2009/2 2010/2 2011/2 2012/2 2013/2
2009/2 2010/2 2011/2 2012/2 2013/2* As of September 2008, Ninety-nine Plus, Inc. became a consolidated subsidiary

Lawson, Inc. INTEGRATED REPORT 2013 49

MANAGEMENT’S DISCUSSION AND ANALYSIS
Trend in industry
While the Japanese economy enjoyed a short-lived strong
performance thanks to the continued high demand for the
restoration of the Great East Japan Earthquake in the first halfof the fiscal year of 2012, it rapidly lost its momentum since the
mid year, when the effect of eco-car subsidy peaked out. It wascoincided by the sudden decrease of exports due to the sluggish
overseas economy.
Let us look back and review the performance of theconvenience store industry as a whole for 2012 (January December). Aggregate annual sales of all stores of 10 top
franchise companies was 926.4 billion yen, up by 8.0% YoY, but

the sales of existing stores was down by 0.3% YoY. In the firsthalf of the year sales grew, driven by the aggressive efforts of
opening new stores. It was also propped up by the increase ofcustomer traffic for the earthquake of the previous year has
had them recognize that convenience stores are part of thesocial infrastructure. In the second half, however, due to thebacklash of the earthquake recovery demand, declining trendof cigarettes and slow personal spending, both the average
number of customers and average spending per customer fell
short of the level of the previous year since June.

Retail Industry Market Size and Convenience Store Share*1
2012
Total retail industry annual sales

2011

2010

(Billions of yen)

2009

2008

2007

2006

2005

2004*2

2003

2002

137,585 135,157 136,479 132,961 136,019 135,417 134,911 134,828 133,649 132,446 132,280

Convenience store sector
annual sales

9,477

8,775

8,114

7,981

7,943

7,490

7,399

7,360

7,289

7,096

6,980

Convenience store share

6.9%

6.5%

5.9%

6.0%

5.8%

5.5%

5.5%

5.5%

5.5%

5.4%

5.3%

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

2011

2010

2009

2008

2007

2006

(Billions of yen)

2005

2004

2003

2002

Lawson

1,907

1,826

1,683

1,666

1,559

1,415

1,387

1,362

1,329

1,288

1,294

Seven-Eleven Japan

3,508

3,281

2,948

2,785

2,763

2,574

2,534

2,499

2,441

2,343

2,213

FamilyMart

1,585

1,535

1,440

1,274

1,246

1,122

1,069

1,032

998

954

932

947

980

923

902

940

902

911

920

934

902

892

Circle K Sunkus*1
Total

7,947

7,622

6,994

6,627

6,508

6,013

5,901

5,813

5,702

5,487

5,331

Total market share of top 4 chains

83.9%

86.9%

86.2%

83.0%

81.9%

80.3%

79.8%

79.0%

78.2%

77.3%

76.4%

Source: Data published by each company*1. C&S Co., Ltd.; for the fiscal years from 2002 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
a calendar-year basis.

Convenience Store Numbers (Number of stores)

Convenience store numbers(Number of stores)

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

47,59345,76945,00644,391

43,22843,08742,643

41,34041,11440,64439,809Source: “2011 JFA Franchise Chain Statistics,” Japan Franchise Association. The number of convenience stores is on a calendar-year basis.

The management policy for the term of February, 2013
Proliferation of MACHI café
Building upon our strength of stores being physically close
to customers’ neighborhood communities (where they live),
we have strengthened our recent efforts of offering what was
just “freshly prepared.” In the term of February, 2013, we rolled
out “MACHI café” at existing stores throughout Japan in whichcoffee beans are ground right before brewing coffee. Our freshly
brewed coffee is not offered in a self-serve type service. The
staffers make and serve customers. This way of service prompts
more opportunities for conversation with customers and thereby
50 Lawson, Inc. INTEGRATED REPORT 2013

The establishment of SCI, Inc.
SCI, a subsidiary with a function of supply chain management(SCM) was established in July, 2012 to promote more structuralreform of SCM, which makes up the core of principal strategy.
The details are found in the subsidiary article (p. 62).

The proliferation and promotion of a MO system andintroduction of a new FC contract package
To support franchise (FC) owners who wish to run multiple
stores, we have introduced a management owner (MO)system beginning in February, 2011. MOs are certified by theheadquarter among FC owners who embrace our corporate
philosophy and run more than a prespecified number of stores.
The criteria for MOs are to have vibrant entrepreneurship spirits,
caliber of operations and resource development, and thoroughknowledge about the area they serve. The headquarter provides
MOs, through a management consultant (MC), with advice
that could facilitate multiple store management. At the end of
February, 2013, 72 owners are certified as MOs and we plan toincrease the number to 100 by the end of February, 2014.
Also we introduced a new FC contract package in March,2012. The details are found on page 53. It is a tool to let FC storesand the headquarter work as a team and it is designed to boost
the sales and gross profit significantly more than before. As ofthe end of February, 2013, we have concluded a new FC contract
with some 752 stores.

Overview on merchandises and services

The aggregate sales of all stores of the top four chains in the convenience store industry. *2
2012

Ninety-nine Plus, Inc. a consolidated subsidiary. In addition
we operate “Fresh food-type LAWSON” where more diversity isprovided to the assortment of perishables and daily delivered
foods. In October 30, 2012, “Proclamation to make all stores sell
perishables” was issued. Not only “Fresh food-type LAWSON,” all
LAWSON stores have begun selling perishables. We anticipate
customers look for seasoning as well, so such merchandises canbe found near the perishables. As customers see their shopping
experience is more convenient, it helps to increase the sales
steadily. At the end of February, 2013, the number of “Fresh foodtype LAWSON” counts 5,287.

enhances customer satisfaction and differentiates us from thecompetition. For this aim, we have established the criteria for the
installation of machines and introduce one to high performancelevel stores before others. At the end of February, 2013, 2,860
stores have machines installed.

Reinforcement of the sale of perishables

As for merchandises and services, we have been promoting
product development leveraging high quality raw materials, andsynergy effects brought together by entertainment business. We
have taken more direct approach to loyal customers by usingpurchase data analysis of the Ponta Card, multi-partner loyalty
program results in an effort of expansion of customers in thesegments of the elderly and females through strategies with thereinforcement on perishables and others.
• We developed an important strategic theme of the sales
expansion of perishables. We reinforced the assortments ofperishables including cut vegetables and the extension of
products that are expected to support domestic cooking suchas seasoning. As of the end of February, 2013, we have nine
farms, produce of which are dedicated to Lawson only. The aimof concluding the agreement with these farms is to ensure thestable supply of vegetables and fruits for the sales in the storesand to use to make Lawson original products.
• As for rice category, customers appreciate rice balls of the“local delight!” series which are highly value added productsof “Onigiriya” brand with emphasis on high quality ingredients.
• For over-the-counter fast foods, we added more fried foodcentering around “Tori-kara” which is Japanese style friedchicken and was released in June. The MACHI café belong tothis category.

• “Machikado Chubo” or in-store kitchen is equipped withcooking space inside the store and offer freshly prepared andhome cooking type foods, such as “sandwiches containing
thick slices of pork cutlet” and rice balls incorporating inside“a whole cooked egg” and “Hokkaido salmon” as well as outof-the-over delicatessen sold by weight. As of the end of
February, 2013, 400 stores installed “Machikado Chubo” or instore kitchen and plan to roll it out to some other stores to thetotal of up to 1,200 stores in the term of February, 2014.
• A subsidiary, Lawson HMV entertainment, Inc. successfully
secured tickets for large scale concerts by popular musicians
which were enthusiastically received. They posted the record
high ticket sales among our group stores exceeding 100 billion
yen best ever so far, and helped us to establish the number
one sales in the industry.
As for the sales promotion, we prioritized our efforts on
potentially high return on investment (ROI) policies and carriedout point collect campaigns using popular characters such as“Rilakkuma” and “Miffy.”
As for service, we handled approximately 190 million proxy
public utility bill payment transactions amounting to 1,879,679
million yen.

• On the dessert front, we launched new Japanese confectionary
products “Ankoya” (sweet beans products) under the “UchiCafé SWEETS.” This brand is derived from customers asking for“small Japanese sweets that are not too sweet.”

Our fresh foods convenience stores operations, which constitutea major part of a strategy for the expansion of our customer
base, includes the operation of “LAWSON STORE100” run by
Lawson, Inc. INTEGRATED REPORT 2013 51

MANAGEMENT’S DISCUSSION AND ANALYSIS

Overview on store management
Our initiatives to reinforce the “Three Essential Practices” continued
in our store management: 1) serving customers courteously,2) keeping clean our stores and communities, 3) merchandise
assortment responding to community needs. As we are rollingout MACHI café extensively, we have made conscious efforts toclarify goals for store staff in their interaction with customers anddevelop leadership to improve the overall quality of all the stores.

As of the end of July, 2013, the number of Ponta card holders
exceeded 56 million and they account for as high as over 45% of
the total sales. Making the most of the customer analysis based on
the purchase data, we endeavored to improve ordering precisionand product development, targeting to reduce the loss of sales
opportunity.

Store development and overview by store format• Store development of our group
We rigorously adhere to our unique return on investment(ROI)-principle-based store opening criteria and continued to
employ an opening policy that could potentially bring highreturns on investment. To avoid in kind competition withother convenience stores, we are utilizing multiple formats
such as LAWSON, NATURAL LAWSON, LAWSON STORE100.
In addition, we are promoting “Fresh food-type LAWSON”
which can endure challenges of residential areas. Thus we are
flexible in the operations of opening stores addressing uniquedemographic conditions of a given neighborhood and customer
attributes. Our ability to open stores in areas where conventional
convenience stores could not is stemmed in our greatest
advantage of multiple formats. The following explains our efforts
at each format.

The following is the difference between “Fresh food-type
LAWSON” and “LAWSON STORE100.”• “Fresh food-type LAWSON” is based on LAWSON concept
and has been carrying perishables and daily delivered foods
also, whereas LAWSON STORE100 is a hybrid model between
a convenience store and a mini supermarket store with
distinct features of small portion package and simple pricing
where the majority of products are sold for 105 yen with theconsumption tax included.
• LAWSON STORE100 is rolled out targeting at housewives
and senior citizens in our commercial areas in three major
metropolitan areas and government ordinance cities. On theother hand “Fresh food-type LAWSON” is being opened not
only in big cities but residential areas throughout Japan.

Fresh food-type convenience stores

Health care reinforced stores• Fresh food-type LAWSON• Health oriented convenience store“NATURAL LAWSON”

Aiming to reorient conventional convenience stores more
towards meeting needs of customers in an effort of having
them evolve into a neighborhood store, we are rolling out“Fresh food-type LAWSON,” a remodeled format with moreemphasis on product offering of perishable foods and daily
delivered foods. It is our hope to better tailor to needs of female
and elderly customers to expand our customer base. We havemade conscious decisions to open these stores predominantly
in residential areas.
As of the end of February, 2013, the number of “Fresh foodtype LAWSON” is 5,287, up from 1,374 last year.

• Fresh food convenience store“LAWSON STORE100”
To meet needs of housewives and senior citizens which havenot been catered to by conventional convenience stores, wehave been rolling out convenience stores with functions of mini
super market added on to sell fresh perishables. 84 “LAWSONSTORE100” have been opened as of the February term of 2013,
with the attrition of 32. It represents 52 net increase and totals
1,224 (495 of which are FC stores) at the end of February, 2013.

52 Lawson, Inc. INTEGRATED REPORT 2013

“NATURAL LAWSON,” health oriented convenience store is aformat to offer “a beautiful, healthy, and comfortable” lifestyle
to working women and health conscious customers, and its
introduction began in 2001. In recent years there are efforts to
put more emphasis on health care functions and reorient theformat to better fit to the needs of health conscious customers.
In addition, we are actively developing products for womenand health promotion for other store formats of our groupand E-commerce business. As of the end of February, 2013, thenumber of NATURAL LAWSON is 110 (69 of which are FC stores).

• Reinforcement of health care businessDeregulations on drug sales continue after the revision of thePharmaceutical Law in June, 2009. We expect that business
opportunity of selling pharmaceutical products will expand
further for convenience stores.
To handle ethical pharmaceuticals, we opened “Pharmacy
LAWSON” in the February term of 2004, which is a hybrid
between dispensing pharmacy and NATURAL LAWSON. Building
upon the partnership with Qol Co., Ltd. who operates a pharmacy
chain, we opened “Pharmacy LAWSON,” fusion between Qol
and Lawson in August, 2010. In August, 2012, with intent todevelop the stronger partnership and to accelerate businessline revenues. The major changes from the conventional FC-C
and FC-G contracts include: 1) the headquarters will bear partof expenses related to disposals, aiming to thoroughly reduce
opportunity loss and assisting the FC stores with order placing,2) 50% of utility costs will be paid for by the headquarters,
while conventionally it was entirely borne by the FC owners. It
was due to new fixture introduction for the sales promotion of
perishable food, over-the-counter fast food and prepared food,as their utility costs are expected to rise, 3) as the headquarters
will take stronger initiatives to promote and strengthen sales,charge rates have been revised as shown in the following page.
In the term of February, 2013, it was primarily employed for thecontracts for new store openings but from the February term of
2014, we will apply it to extending the existing contracts in a fullfledged manner.
Please refer to page 54 for details.

development, Lawson acquired 5% of the total outstanding
shares of Qol. As of the end of July, 2013, Pharmacy LAWSON
numbered 34.
As for OTC (over-the-counter) drugs, the number of registeredpharmacists (sellers) increased to 116 and the number of store
selling OTC drugs has reached 78 as of the end of July, 2013.

The introduction of a new FC contract package
Beginning in March, 2012, we have revisited the FC contractthat has been put into practice since December, 1998 andintroduced a new FC-Cn contract. In the process we reviewed
the charge rate design. We will bear part of disposal loss andutility bills that have been borne by FC owners up to this point.
We hope that this change will motivate the owners to be more
actively engaged in initiatives to expand customer base by
selling more perishable food and over-the-counter fast foodand the like, and thereby accelerate the improvement of top
Number of Stores in the Lawson Network in Japan (Group Stores)(Number of stores)

2013/2*1

2012/2*1

2011/2*1

2010/2*1

2009/2

Number of stores

11,13010,457

9,994

9,761

8,674

Openings

2

938*

766

550

607

501

Closings

265

303

317

373

414

673

463

233

234

940

Net increase (decrease)*1. The outlets managed by Lawson Okinawa, Inc. are included. 154 stores in FY2012, 147 stores in FY2011, 141 stores in FY2010, 136 stores in FY2009.
*2. New store opening in FY2012 includes the stores of CVS Bay Area Inc. that switch to a Lawson sign.

Number of Stores by FC Contract Type (Group Stores, Stores in Japan)
2013/2
Franchise stores2012/2(Number of stores)

2011/2

2010/2

2009/2

StoresShare

StoresShare

StoresShare

StoresShare

Stores

Share

B

1,292

11.6%

1,176

11.2%

1,216

12.2%

1,258

12.9%

1,322

13.9%

G

2,236

20.1%

2,223

21.3%

2,057

20.6%

2,001

20.5%

2,041

21.4%

C

6,008

54.0%

5,455

52.2%

5,284

52.9%

5,074

52.0%

4,863

51.0%

NATURAL LAWSON

69

0.6%

41

0.4%

35

0.4%

27

0.3%

22

0.2%

LAWSON STORE100

495

4.4%

356

3.4%

268

2.7%

167

1.7%

114

1.2%

̶

̶

61

0.6%

̶

̶

̶

̶

̶

̶

10,100

90.7%

9,312

89.1%

8,860

88.7%

8,527

87.4%

8,362

87.8%

StoresShare

StoresShare

StoresShare

StoresShare

StoresShare

Lawson Toyama*
SubtotalCompany-operated stores
LAWSON

106

1.0%

111

1.0%

129

1.3%

207

2.1%

283

30.0%

NATURAL LAWSON

41

0.4%

59

0.6%

55

0.6%

62

0.6%

71

0.7%

LAWSON STORE100

729

6.5%

816

7.8%

809

8.1%

829

8.5%

811

8.5%

̶

̶

12

0.1%

̶

̶

̶

̶

̶

̶

876

7.9%

998

9.5%

993

9.9%

1,098

11.2%

1,165

12.2%

154

1.4%

147

1.4%

141

1.4%

136

1.4%

̶

̶

11,130100.0%

10,457100.0%

9,994

100.0%

9,761

100.0%

9,527

100.0%

Lawson Toyama*
Subtotal
Lawson Okinawa
Total* Lawson Toyama, Inc. was merged into Lawson, Inc. in FY2012.

Lawson, Inc. INTEGRATED REPORT 2013 53

MANAGEMENT’S DISCUSSION AND ANALYSIS

Types of Lawson’s contracts

Outline of LAWSON STORE100 Contracts(Previous)

Contract type

Contract typeC

G

Contract termB

10 years from store opening day

Requirements for FC owners

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

Prepared by franchisee

Investment in store construction andinterior decoration expenses

Borne by Lawson

Borne by franchisee

Signage and business fixtures
Payment by franchisee Franchise fee
at time of contract*1
Investment

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

Head Office income*2

Not required

Average monthly sales x 2 months

Not required

Gross profit x 50%

Gross profit x 45%

Gross profit x 34%

Burden of utility expenses

Franchisee

Minimum guarantee (annual)*2(thousands of yen)

21,00022,200Contract typeCn

Contract term

22,200

B4Land and buildings

Provided by Lawson

Prepared by franchisee

Investment in store construction andinterior decoration expenses

Borne by Lawson

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

Head Office income*2

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

Burden of utility expenses

50%* of electricity expenses and store air conditioning energy
expenses are borne by Lawson
318,600Land and buildings owned
by franchisee

Other expenses
Store construction andinterior decoration

Investment

Borne by Ninety-nine Plus

Borne by franchisee

Borne by Ninety-nine Plus

Minimum guarantee*5¥20.4 million per year

¥22.2 million per year

Head Office income*5[Franchisee’s percentage of sales fees] On gross profit (monthly)¥1–¥3,000,000
Gross profit x 27%¥3,000,001–¥3,500,000 Gross profit x 68%¥3,500,001–¥4,500,000 Gross profit x 62%
Over ¥4,500,001
Gross profit x 48%

Gross profit x 27%

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

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

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

Partial guarantee for expenses associatedwith product disposal losses

Minimum guarantee (annual)*2(thousands of yen)

Payment by franchisee
at time of contract*4

Necessary
expenditure

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

Signage and business fixtures

Stores already being operated by Ninety-nine Plus as LAWSON STORE100

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

10 years from store opening day

Requirements for FC owners

Provided by Ninety-nine Plus

Business fixtures(New Contracts)

Payment by franchisee Franchise fee
at time of contract*1
Investment

Contract term

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

Guarantee deposit provided by franchisee

VL-B

Use land and buildings
owned by franchiseeLand and buildings
Contract storesLand and buildings

VL-J*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.

̶

The overview of performance figures
Gross profit x 34%

Franchisee
22,200*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.

Sales figures• The sales of existing stores (consolidated basis)• Net sales of all stores(consolidated basis)

The sales of existing stores on the consolidated basis in the
February term of 2013 including Ninety-nine Plus was 99.8% YoY.
That on the non-consolidated basis was 100.0%, 0.5% below thetarget.

Consolidated net stores of all Lawson stores in the February termof 2013 was 1,906,548 million yen, 43,453 million yen below theplan* of 1,950,000 million yen, but 4.4% up YoY. Main reasonsof not achieving the plan were contraction of the earthquake
triggered demand that was on the ascending trend and thecigarette sales ending lower than anticipated. The sales of nonconsolidated basis was 1,693,435 million yen, up by 4.4% YoY.
*It is the revised plan announced in October, 2012.

YoY Changes in Existing Store Sales, Number of Customers, and Spending per Customer (Consolidated)
%
110

104.4

105
100
95

97.5

98.2 98.9

90
0

1Q

2Q

3Q

2008/2

4Q

1Q

2Q

YoY Changes in Existing Store Sales

54 Lawson, Inc. INTEGRATED REPORT 2013

3Q

2009/2

4Q

1Q

2Q

3Q

2010/2

Number of Customers

4Q

1Q

2Q

3Q

2011/2

4Q

1Q

2Q

3Q

2012/2

4Q

1Q

2Q

3Q

4Q

2013/2

Spending per Customer

Lawson, Inc. INTEGRATED REPORT 2013 55

MANAGEMENT’S DISCUSSION AND ANALYSIS

Growth Rate of Existing Store Sales, Average Number of Customers, and Average Spending per Customer at Existing Stores(Non-Consolidated)
2013/2

2012/2

2011/2

2010/2

2009/2100.0%

105.4%

100.8%

95.9%

106.5%

Number of customers

99.4%

101.0%

100.4%

99.0%

105.7%

Average spending per customer

100.6%

104.3%

100.4%

96.9%

100.8%

Growth rate of existing store sales
Growth rate of average number ofcustomers and average spending per
customer at existing stores• The net sales by product category(all stores, consolidated basis)

to make all stores sell perishables.”In the processed food category, as a result of the moreemphasis on perishables, customer bought seasoning andbottled and canned food together when buying fresh fruit andvegetables, and thus their sales increased, as well.
As for non-food category, the sales of books, magazines
continue to decline because of slow business throughout of theindustry as a whole. Despite this, the sales of daily necessities was
slightly improved from the previous year thanks to the strong
sales of products for family use such as paper/sanitary/hygiene
products, detergents and household articles that leverage our
private brand (PB) Lawson select.

The sales of fast food (up by 8.1% YoY) and processed food (upby 4.1% YoY) significantly increased from the previous year.
For the fast food category, over-the-counter fast food categorythat has been developed aiming to expand the customer base,including “Tori-kara” (Japanese-style fried marinated chicken)
and delicatessen category including prepared food and salads
contributed to the sales growth.
As for daily delivered food, the contribution came from theincrease of the number of outlets of Fresh-food type LAWSON
and the sales increase of perishables boosted by “Proclamation
Sales by Product Category (Consolidated, total net sales)(Millions of yen)

• Gross Profit Margin by product category(non-consolidated basis)
Gross profit margin by product category (on the nonconsolidated basis) was 30.5%, 0.4% up YoY. This was thanks to
the improved gross profit margin of fast food, processed foodand non-food products such as daily necessities. The gross profit
margin excluding cigarette sales improved by 0.5% YoY.
The fast food category met with 0.2% improvement YoY.
In particular, in-store cooked over-the-counter fast foodexperienced marked improvement, thanks to the penetrationof MACHI café and robust sales of fried food and delicatessen
items.
The daily delivered food category declined by 0.1% as our
strategy was introducing low gross profit margin perishable
Gross Profit Margin by Product Segment (Non-Consolidated)
2013/2

2012/2

2011/2

2010/2

2009/2

Fast foods

38.4%

38.2%

37.8%

37.3%

36.1%

Daily delivered foods

34.4%

34.5%

34.6%

34.3%

33.7%

Processed foods*

23.9%

23.8%

24.5%

24.6%

24.8%

Non-food products*2

45.6%

43.4%

42.2%

40.8%

39.5%

Gross profit margin

30.5%

30.1%

30.6%

30.4%

30.1%

1

*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.

2013/2

2012/2

2011/2

2010/2

2009/2

Fast foods

373,385

345,424

321,866

324,198

332,895

Share

19.6%

18.9%

19.1%

19.5%

21.4%

272,312263,180

264,169

239,088

186,109

Bill settlements (millions of yen)

Daily delivered foods
Share
Processed foods
Share(Cigarettes)(Share)Total food sales
Share
Non-food products
Share
Net sales of all stores
Share (%)

14.3%

14.4%

15.7%

14.3%

11.9%

1,064,133

1,022,619

897,427

902,306

844,324

55.8%

56.0%

53.3%

54.2%

54.2%

496,971

470,666

382,167

358,600

342,450

26.1%

25.8%

22.7%

21.5%

22.0%

1,709,830

1,631,223

1,483,462

1,465,592

1,363,328

89.7%

89.3%

88.2%

88.0%

87.5%

196,716

194,587

199,350

200,544

195,453

10.3%

10.7%

11.9%

12.0%

12.5%

1,906,547

1,825,810

1,682,812

1,666,137

1,558,781

100.0%

100.0%

100.0%

100.0%

100.0%Breakdown of Product Category
Category
Fast foods

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

Daily delivered foods

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

Processed foods

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

Non-food products

Daily necessities, books, magazines, etc.

56 Lawson, Inc. INTEGRATED REPORT 2013

food as magnet that should lure more customers to stores.
The processed food category improved by 0.1% YoY. We
have promoted synchronization of retail product offering andproduct development (coupling the point-of-sales merchandise
assortment and product development efforts) for suchproducts as beverages, processed food, and confectionaries
and succeeded in data-based ordering implementation andnarrowing merchandise assortments, which helped to improve
the YoY gross profit margin.
For non-food category, the synchronization of retail productoffering and product development pushed the gross profit
margin up in daily necessities. The gross profit margin in thiscategory had pronounced increase of 2.2% YoY, compoundedby the growth of commission business such as ticket sales andproxy utility payment transactions.

Bill Settlement Services (Non-Consolidated)
2013/2

2012/2

2011/2

2010/2

2009/2

1,879,679

1,725,788

1,639,203

1,553,832

1,506,531

Number of transactions (millions)

190.4

177.7

169.8

162.2

156.6

Commission income (millions of yen)

10,191

9,487

9,027

8,651

8,415

In regards to each line item of the consolidated balance sheet• Gross operating revenues• Selling, General and Administrative expenses

The gross operating revenues that comprise the net sales ofcompany-operated stores, franchise commissions from FC storesand others was 487,445 million yen that was 13,555 million
below the plan but was up by 8,488 million (1.8% increase YoY).
The primary drivers of this improvement were: 1) Lawson HMVEntertainment contributed to additional 20,296 million yen byrobust ticket sales, 2) the growth in the number of convenience
stores that opened during this period represent the revenue
increase of 10 billion 255 million yen on the non-consolidated
basis, and 3) a subsidiary, SCI started its operation this term.
The sales of the company-operated stores was 157,627
million yen (including 121,167 million yen of Ninety-nine Plus),
the income from FC stores was 230,003 million yen (including
7,453 million yen from Nine-nine Plus) and that from others was
99,815 million yen.

The Selling, General and Administrative expenses was 276,314
million yen, up by 15,372 million (5.9% increase YoY) on the
consolidated base which fell below the plan by approximately
2,600 million yen. While the advertisement and promotion
expenses went through scrutinization from a ROI perspective,
we conducted active sales promotion initiatives such as a pointcollection campaign and support to FC owners, which resulted
in an increase of 2,461 million (17.4% up YoY). With regard to
the personnel expenses, our cost reduction efforts such as the
improvement of personnel efficiency yielded 874 million yen
reduction YoY (negative 1.4% YoY). The significant net increaseof the number of FC stores predominantly of the Cn type pushed
up rent by 6,095 million over the previous year level (7.8%
increase YoY ).
The non-consolidated IT related expenses (the total ofequipment lease fee, depreciation of property and store
equipment, and some other items) reduced by 600 million yen
YoY to 15,100 million yen, thanks to cost reduction efforts suchas the review of the system maintenance fee.
Lawson, Inc. INTEGRATED REPORT 2013 57

MANAGEMENT’S DISCUSSION AND ANALYSIS

Breakdown of Main SG&A Expenses(Millions of yen)In regard to each line item of the consolidated balance sheet

2013/2

2012/2

2011/2

2010/2

2009/260,01360,88758,02060,834

46,203

21.7%

23.3%

23.9%

25.0%

21.8%

16,607

14,146

10,977

12,166

13,781

6.0%

5.4%

4.5%

5.0%

6.5%

84,57878,48373,231

70,571

62,323

30.6%

30.1%

30.2%

29.0%

29.4%

5,914

8,205

10,23013,444

14,989The current assets increased by 20,138 million yen (up by 12.6%)
over the previous year to 180,297 million yen. It was because
accounts receivable-other was posted for the transactions
between SCI and their vendors*, amounting to 46,009 million
yen, an increase of 13,363 million yen (40.9% improvement).

2.1%

3.1%

4.2%

5.5%

7.1%

* Venders: Affiliated companies producing Lawson original dishes, noodles

43,886

37,84633,084

27,46820,879

Share

15.9%

14.5%

13.6%

11.3%

9.9%

Depreciation expenses*

34,03028,99924,52921,053

16,752

12.3%

11.1%

10.1%

8.7%

7.9%

9,856

8,847

8,555

6,414

4,126

3.6%

3.4%

3.5%

2.6%

1.9%

65,31561,37557,09358,71153,755

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

Share
Amortization expenses
Share
Other
Share
Total
Share

23.7%

23.5%

23.5%

24.1%

25.4%

276,314260,942

242,636

243,194

211,932

100.0%

100.0%

100.0%

100.0%

100.0%* With the application of new lease-accounting standards, since FY2010, the depreciation of property, facility and equipment has included the depreciation of lease assets thatare to be purchased.

Balance sheet

Characteristic ledger account of our balance sheet• Current assets

The following are ledger accounts unique to our financial
statements.

and deli type bread.

• Property and store equipment,
investment and other assets
Property and store equipment is 209,139 million yen, an
increase over the previous year by 25,304 million yen (up by
13.8%), primarily due to the increase of lease assets including
fixture, that was driven by new store opening and IT investment.
The investment and other assets is 190,374 million, up by
2,914 million from the previous year (up by 1.6%). This was dueto the increase of long term loans receivables and guarantee
deposits derived from aggressive new store opening.

• Current liabilities• Operating profit
The operating profit was 66,246 million yen, an increase by 4 ,476
million yen (7.2% increase YoY) and 246 million (0.4%) above thetarget. The operating margin for all stores’ net sales was 3.5%, 0.1
percentage point improvement YoY.

• Income before income taxes
and minority interests
As for the income before income tax and minority interests, weposted a loss of 4,571 million in the non-operating profit andloss account, which was caused by impairment loss and theclosing of non-performing stores. Asset retirement obligations*generated due to the change of the accounting system in theprevious year and extraordinary loss related to the earthquake
both amounting to the total of 11,754 million yen was written off.
Thereby the loss was compressed to 6,657 million yen by 8,827
million yen from the previous year. As a result, the consolidated
income before income tax and minority interest increased by
13,304 million yen (up by 28.7% YoY) to 59,589 million yen.

58 Lawson, Inc. INTEGRATED REPORT 2013

* Asset retirement obligations are generated through acquisition, construction,
development or normal use of tangible property. It is estimated as value
after a discount (discount value) of future cash flow that will be potentiallyneeded to retire tangible property and this estimate is posted as obligations.
Regarding the retirement expenses corresponding to the asset retirement
obligations, when the asset retirement obligations are posed as debt, theamount equivalent to said debt is added to the book value of relevant tangible
property and is allocated as expense to each term over the remaining service
years of said tangible property in a way of depreciation. In addition, the debt
increases every term over time.

• Net profit
The deferred income taxes were 749 million yen. As a result,consolidated net income increased by 8,298 million yen (up by
33.3% YoY) to 33,183 million yen. The net income per share was332.20 yen.

The current liabilities increased from the previous year by
21,814 million (up by 10.0%) to 239,794 million yen. The major
underlying factors were: 1) Deposits payable increased to 87,529
million yen by 12,524 million yen (up by 16.7%) due to the strong
ticket sales and 2) SCI’s accounts payable-other to suppliers
increased to 26,106 million yen, up by 8,565 million yen.

• Long-term liabilities
The long-term liabilities is 109,834 million yen, up by 11,022
million yen (+ 11.2%) above the previous year. While therepayment to FC stores of the G type (guarantee deposit type)reduced the guarantee deposits received from franchised storesand other by 931 million yen, long-term debt including longterm lease obligations increased by 9,448 million yen.

• Net assets
The net assets increased by 15,519 million yen (+7.2%) to 230,182
million yen. 33,183 million yen of net profit was posted and thedividend was paid amounting to 19,278 million yen, therefore
the retained earnings increased by 13,905 million yen to 121,154
million yen.

• Accounts receivable — due from franchised stores
We purchase all products that each FC store orders, calculate
the payment amount to each supplier and pay for them. The
headquarters collects this money as accounts receivable — duefrom franchised stores. This line item primarily refers to this kindof obligations of FC stores to the headquarters. At the end of
February, 2013, they were 25,374 million yen, up by 5,853 million
yen YoY.

• Accounts receivable — Other
Accounts receivable from customers are included in “Accounts
receivable – Other.” This includes that of FC stores (such as
credit card sales at FC stores). Accounts payable are divided
into 1) accounts receivable for company-operated stores and2) accounts receivable — due from franchised stores. However,accounts receivable on credit card sales due from credit cardcompanies are all posted under “Accounts receivable — Other”
as we are a party to the contracts with credit card companies on
credit card sales and we are entitled to any accounts receivable.
It was 46,009 million yen, up by 13,363 million yen in the
February term of 2013.

• Long-term loans receivable
What is included in this line item are primarily construction aid
loans to owners (of the land or the building of a store) and loans
from the headquarters to FC stores. Capital deposited for (land/building) owners for store opening was journalized as leasedeposits before but now as long-term loans receivable. As ofthe end of February of 2013, it is 34,581 million yen, up by 2,442
million yen from the previous year.

• Lease deposits
Based on the rental agreement with a store, Lawson provides aland/building owner with a deposit that is equivalent to rentsof a few months. With more store opening, lease deposits
increased by 2,443 million yen YoY to 86,109 million yen in theterm February, 2013.

• Accounts payable — due to franchised stores
This is obligations of the headquarters to FC stores. Every store
remits daily sales to the headquarters and there are times that
this exceeds “Accounts receivable — due from franchised stores.”
When that happens, outstanding obligation is posted under“Accounts payable — due to franchised stores.” It increased 14
million yen from the end of the previous year to 1,404 millionyen.

Lawson, Inc. INTEGRATED REPORT 2013 59

MANAGEMENT’S DISCUSSION AND ANALYSIS• Deposits payable
Mostly it is the account that were received on behalf of public
utility companies and ticket money for concerts and the like. For
the number of transactions and the number of companies weprovide service for increased, transaction amount is 1,879,679
million yen, an increase of 8.9% YoY and it keeps growing. As ofthe end of February, 2013, it was 87,529 million yen, up by 12,524
million yen YoY.

• Guarantee Deposits Received
from Franchised Stores and Other

Cash flow

It is guarantee deposits that were received by Lawson from FC
owners with a G type contract. With the introduction of a new FC
contract package, which is a Cn type contract, we are no longer
concluding new G type contracts. As we repay FC stores uponconcluding a new contract or the expiration of existing contracts,
guarantee deposits received from franchised stores and other is
34,805 million, 931 million decrease from the previous year.

Net cash provided by operating activities was 85,189 million yen,down by 1,168 million yen YoY, primarily due to the extraordinary
loss on adjustment for the last year’s changes of accounting
standard for asset retirement obligations and the decline that isreactionary to earthquake related extraordinary loss.
For net cash provided by investing activities the outlay
increased by 1,284 million yen YoY to 54,196 million yen. Thiswas mainly due to the acquisition of property for more store
opening.
Calculating free cash flow based on the net cash provided byoperating activities and investing activities, it was 30,992 million
yen, down by 2,452 million yen YoY.
Net cash provided by financing activities resulted in theoutlay of 31,980 million yen, up by 4,435 million yen YoY due
primarily to the repayments of lease obligations related toaccelerated store opening.
All these activities resulted in 72,766 million yen cash andcash equivalents at the end of February, 2013, down by 904
million yen YoY.

Capital expenditure
The total capital expenditure on the consolidated basis in the
February term, 2013 (including investments and advances andacquisition costs of leases) was 77,361 million yen, up by 2,788
million yen YoY.
As the number of stores increased (the total came from 766
to 938 stores in our group), the capital expenditure grew 11, 536
million yen YoY to 33,132 million yen. As for the existing stores,
the backlash from the investment on LED lighting for electricity
saving last year kept the capital expenditure this year at 8,768
million yen, down from the last year by 1,472 million yen. A

large scale investment on IT related equipment peaked out and
now the company is moving toward more efficient investment,
therefore we spent 1,837 million yen less than last year, totaling
5,907 million yen. For lease, the installation of photovoltaic
power generation systems primarily drove the expenditure
upward and it was 24,764 million yen, up by 2,804 million yen
YoY.
The below is the breakdown of the capital expenditure.

Breakdown of Capital Expenditures(Millions of yen)

2013/2

2012/2

2011/2

2010/2

2009/2

New store investments

33,133

21,596

13,67519,887

15,635

Existing store investments

8,769

10,241

8,934

8,101

6,747

IT-related investments

5,907

7,744

7,479

9,409

12,064

Other

3,238

630

1,003

629

3,886

Investments subtotal

51,047

40,21131,091

38,02638,331

Investments and advances

1,550

12,401

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

24,76521,96016,69136,37619,140Total

77,361

74,57250,326

71,39942,907* The amount equivalent to the acquisition cost of leased property acquired during each fiscal year. The amount of repayments of lease obligations was ¥13,769 million in fiscal
2012.

Breakdown of Depreciation

Capital policies: dividend and the share buyback and cancellation
We recognize return to shareholders is one of the mostcritical policies thus manage businesses always conscious ofmaintaining cost of capital at a level that reflects the expectationsof investors for their return on investment. To obtain an ability toproperly select businesses that would potentially bring returnon investment (ROI) that exceeds capital cost, we employ returnon equity (ROE) as one of the most important management
metrics as it indicates capital efficiency. We secure retained
earnings for mid-to-long term sustainable corporate growth tomaintain the financial health. We screen through scrutinizationand implement those investment ideas that are likely to provide
high profitability. We improve net cash by operating activities
in a sustainable manner and create free cash flow. We also pay
dividend and share buyback and cancellation based on a capital
structure we deem appropriate. By endeavoring toward capitalefficiency that exceeds costs of capital, we will target to achieve
Cash Dividends per Share and Payout Ratio
%

Yen

¥200

200

¥160

2012/2

2011/2

2010/2

2009/2

Depreciation expenses*

34,03028,99924,52921,053

16,752

Amortization expenses

9,856

8,847

8,555

6,414

4,126

Total depreciation and amortization

43,886

37,84633,084

27,46820,879* With the application of new lease-accounting standards, since FY2010, the depreciation of property, facility and equipment has included the depreciation of lease assets thatare to be purchased.

¥170

150

¥90

100

50

0

¥35

¥41

¥41

28.2%

2001/2

2002/2

Cash Dividends per Share

¥110

100

126.3%¥70

23.3%
2003/2

¥100

¥41

49.8%

23.7%

Left scale:

60 Lawson, Inc. INTEGRATED REPORT 2013

¥160

200

¥180

150

(Millions of yen)

2013/2

20% of ROE in the medium term.
We do not have any specific target payout ratio for dividend.
First we will make sufficient investment for sustainable future
growth to generate sizable free cash flow so that we willcontinuously increase dividend. Our basic policy directs us that
we should not retain surplus funds without making best use ofit, rather we should improve capital efficiency. We plan to pay
210 yen (up by 10 yen) of dividend per share for February, 2014.
We have acquired approximately 43 billion yen of sharebuyback and cancellation for four years from February, 2002
through February, 2005. Once again from October, 2007 throughJanuary, 2008 for one year we executed share buyback forapproximately 21 billion yen (some 5.3 million shares) to cancel
the total of 5 million treasure shares in February, 2008. We willconsider possible share buyback and cancellation as a way to
improve ROE.

2004/2

35.3%

41.8%

49.6%

51.2%

2007/2

2008/2

66.6%

66.8%

72.2%

2011/2

2012/2

60.2%

50

0
2005/2Right scale:

2006/2

2009/2

2010/2

2013/2

Payout Ratio

Lawson, Inc. INTEGRATED REPORT 2013 61

MANAGEMENT’S DISCUSSION AND ANALYSIS

Overview of major consolidated subsidiaries and equity method affiliated companies• Lawson Okinawa, Inc. (Equity method affiliate)

The consolidated final results for February, 2013 reflect thoseof 11 consolidated subsidiaries and 2 equity method affiliatedcompanies, the total of 13 companies. Our subsidiaries
are categorized into three: convenience store business,entertainment and home convenience related business, andoverseas businesses. The following is the overview of thebusinesses and performance of our major ones in our groupconsolidated companies.

In January, 2009, we signed a business alliance agreement forthe operations in Okinawa with San-A, Inc., who runs the largest
retail business in Okinawa. It was our belief that the alliance with
San-A should help us to adapt our services and operations to
distinctive lifestyles and food preferences of people in Okinawa,
as San-A has gained overpowering confidence from customers
in that local area. We want to create products and stores that
fit local customers’ needs and wants. For that goal, we haveestablished Lawson Okinawa, Inc., as our 100% owned subsidiaryand expertise of the sales of perishable food and daily delivered
food and to upgrade their business alliance by carrying out joint
development of a private brand “Value Line” which is for small
portion. For that goal, two of them merged on May 1, 2009 with
Ninety-Nine Plus remaining as a surviving company.
As for the book keeping until the fiscal year 2008, since theirfiscal year ended on March 31, their revenue of the fiscal year 2007
was posted for nine months up until the third quarter in 2007
into our profit and loss statement based on the equity method.
In the fiscal year 2008, their revenue for nine months from thefourth quarter of FY2007 to the second quarter of FY2008 was
posted into our profit and loss statement based on the equity
method and their third quarter of FY 2008 results were reflectedin our consolidated results. During the shareholders’ meetingin June, 2009, their closing date for a fiscal year changed to theend of February, which resulted in irregular 11-month financial
statements for FY 2009. For our consolidated results of FY 2009,
their results of the fourth quarter of FY 2008 and 11 months in FY
2009, the total of 14 months were reflected.
Ninety-Nine Plus was listed in Osaka Securities Exchange
JASDAQ market but in June, 2010 it was delisted and in July, it
became 100% LAWSON owned subsidiary through stock swap.
Consequently the amount of our contribution to thecompany was cumulatively about 16.7 billion yen since FY2007.
The February term of 2013 experienced deterioration of
consumer sentiment and was affected by a sluggish perishable
food market as a whole, thus the top line struggled. Against
this backdrop we strived to improve a gross profit margin, andconvert more stores into franchised stores as well as reducecost. We ended the year with the operating income of 2,085
million yen, up by 10.7% from the previous year. The reductionof extraordinary loss in reaction to the adjustment for changesof accounting standard for asset retirement obligations in theprevious year, the net profit for the full year was 556 million yen,significantly improved from the previous year.

Convenience store business• Ninety-nine Plus, Inc. (consolidated subsidiary)
Ninety-nine Plus operates fresh food convenience store“LAWSON STORE100.” It was established in October, 2000 andgrew very rapidly as a fresh food convenience format pioneerin the industry with a business model of selling a wide rangeof products from food that consumers buy on a day-to-day
basis including perishable food to sundries for a single price.
Fresh food convenience stores offer substantial assortmentsof perishable food and daily delivery food and are well
supported by housewives and elderly customers. Comparing
to conventional convenience store, they account for a larger
percentage in customer makeup. In 2007, Lawson decided tomake a capital and business alliance with Ninety-nine Plus Inc.
Ninety-nine Plus implemented a third-party share allotment
for Lawson. In January, 2008, they implemented a third-party
share allotment to strengthen the business alliance with Lawson
and finance for store opening and Lawson became the largest
shareholder holding 34.2% of shares. In September of the same
year we implemented a takeover bid and raised our equity staketo 76.8%.
Furthermore, we have developed a LAWSON STORE100
format as our subsidiary. Value Lawson who was operating
fresh food convenience stores and Ninety-Nine Plus decided
to work together for the colossal number one in the fresh foodconvenience store industry. They wished to share know-how
Ninety-nine Plus, Inc.

(Millions of yen)

2013/2

2012/2

2011/2

2010/2*

2009/3

131,869

141,801

142,228

135,410

134,247

Operating income

2,086

1,883

1,772

1,793

262

Net income (loss)

557( 747 )

( 840 )

1 ,67 3( 505 )

Number of stores

1,224

1,172

1,077

996

856

Total operating revenues* 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 quarterfor fiscal 2008 and 11 months for fiscal 2009.

in October, 2009.
Later in December, 2009, we transferred 51% of theoutstanding stocks of Lawson Okinawa to San-A to run as a joint
venture business.
In the term of February, 2013, the number of stores was 154
at the end of the fiscal year and the operating income was 923
million yen, improved by 18.5%.
We will continue our efforts through this company to keep
our stores well tuned to local needs, thereby further develop the
Lawson chain in Okinawa Prefecture.

Lawson Okinawa, Inc.

Total operating revenues(Millions of yen)

2013/2

2012/2

2011/2

2010/2

3,954

3,659

3,347

733

Operating income

924

780

601

109

Net income

799

1,049

612

101

Number of stores

154

147

141

136

Aspiring to be a “small commercial areas’ manufacturing retailer,”
we established SCI, in July, 2012, a subsidiary specialized insupply chain management (SCM) innovation & enhancement
so that we can take more initiatives in improving efficiency of
manufacturing and distribution throughout the supply chain. We
aim to develop a coherent manufacturing retail model in whichwaste and redundant work will be reduced that are generated
62 Lawson, Inc. INTEGRATED REPORT 2013

throughout a supply chain starting from the procurement of
raw materials, to manufacturing, distribution and operations
at stores. Values created through our SCM structural reform
efforts will be leveraged to improve products’ competitivenessand sales promotion support for FC owners. In the medium
term, making the most of this expertise and know-how, we will
expand the sales of raw materials and products to customers
outside our group companies.

<Established in
October 2009>

Going forward, leveraging our solid base in the E-commercebusiness, we can offer enhanced convenience of one-stop
shopping experience to customers who used to buy a concert
ticket of an artist at one time and a CD by the same artist at a
separate time. Combining the competitive edge of the HMV
brand in the CD music industry and Lawson Ticket’s status of theticket industry is expected to create more synergy.
As for the revenue structure of this company, the major
source of income is commission from ticket sales. The grossoperating revenue with commission as a major component ofrevenue source is posted in “Operating revenue: other” in the
consolidated profit and loss statement.
The performance of the February term of 2013 was goodthanks to strong ticket sales centering around large scaleconcerts. The operating profit was 2,445 million yen, marked asignificant increase by 48.2% YoY.

Entertainment and Home convenience related business• Lawson HMV Entertainment, Inc.
(consolidated subsidiary)
Lawson HMV Entertainment was established in 1992 as RIZA
JAPAN as a company to sell tickets as its main business. Itchanged the name to Lawson Ticket in 1996, and became aconsolidated subsidiary of Lawson in 1997.
The ticket transactions in 2012 among group companies
hit a record sales of over 100 billion yen, hence established thenumber one position in the industry. Tickets for concerts, sports,
and theaters and cinemas are sold primarily at a multimedia
terminal “Loppi” or “LAWSON HOT STATION L-paca,” a website
comprehensive entertainment mall. Our forte is on the sales of
J-POP*1 and sports.
To make the most of customer interface of Lawson Ticket
and expertise and mechanism of E-commerce business thati-convenience has developed, who used to be our 100% owned
subsidiary, two of these companies merged in March, 2013, with
Lawson Ticket remaining as a surviving company. In July, 2009,
the company name changed to Lawson Entertainment Media.
It was listed on Osaka Securities Exchange JASDAQ Market but
was delisted in June, 2010 and became one of our 100% owned
subsidiaries in July through stock swap.
In September, 2011, Lawson Entermedia and our subsidiary
HMV Japan*2 were merged to be Lawson HMV Entertainment
to realize more synergy in future entertainment E-commerce.

*1. It is one of genres among popular music with singing in the Japanese
language, which is generally loved by a relatively young generation.
*2. HMV Japan (which was a consolidate subsidiary up until the end of August,2011) is selling CD and DVD under the “HMV” brand. It was establishedin 1990 and opened the first store in Shibuya, Tokyo. It opened the “HMV
Online” in 1999 and started the current E-commerce business. In 2007,
Limited Company HMV Japan Holdings, which is 100% owned by Daiwa
Securities SMBC Principal Investments including their indirect ownership,acquired all stocks. To reinforce our entertainment business, in December
2010, we acquired all shares from HMV Japan Holdings to realize moresynergy with Lawson Entermedia.

Lawson HMV Entertainment, Inc.

• SCI (consolidated subsidiary)

2009/2(Millions of yen)

2013/2

2012/2

2011/2

2010/2

2009/2

Total operating revenues

45,481

25,545

9,864

10,022

7,620

Operating income

2,446

1,650

1,111

1,099

791

Net income (loss)

2,450

2,073

1,870

( 11,887 )( 1,445 )Lawson, Inc. INTEGRATED REPORT 2013 63

MANAGEMENT’S DISCUSSION AND ANALYSIS• Lawson ATM Networks, Inc. (LANs)(consolidated subsidiary)

For the performance of the February term of 2013, theoperating profit was 4,753 million yen, a significant increaseof 30.6% YoY, with the more associated banks that we haveconcluded agreement with, which offer more bank service andconsequently favorably pushed the utilization upward.
In this term additional eight banks initiated service, and thetotal of 58 financial institutions throughout Japan including
leading city bank groups, local banks and internet banks provide
service and 9,672 ATM machines are installed in 46 Prefectures,up by 670 machines YoY. We have raised our capital contribution
to 76.5% at the end of February, 2013, from 70.9% in the previous
year to commit ourselves more to the ATM business.

In 2001 Mitsubishi Corporation, associated banks and Lawson
made capital contributions to set up this company to operate
ATM (automated teller machine) at Lawson stores. Since then,ATM machines were installed at some stores and ATM service
started. The ATM business of this company is to install a multibank ATM machine at a Lawson store in a local community that
was agreed upon with each associated bank. A major income
source for the company is commission from the banks for
operating ATM machines and the revenue is posted in “Operating
revenue: other” in the consolidated profit and loss statement.
Principal expenses include operation center commission, ATMline costs and ATM lease costs.
Lawson ATM Networks, Inc.

• Chongqing Lawson, Inc. (consolidate subsidiary)
Chongqing, the People’s Republic of China, is the fourth largest
city with the population of over 33 million, following Beijing,
Shanghai, and Tianjin. Its double-digit economic grow has been
continuing for 10 consecutive years. Its double-digit economic
growth rate exceeds that of a national average and coastal cities
such as Shanghai. Potential demands for convenience stores are
Chongqing Lawson, Inc.

(Millions of yen)

2012/122011/122010/12

Total operating revenues

977

258

30

Operating income (loss)( 671 )

( 243 )( 47 )Net income (loss)( 775 )

( 249 )

( 59 )

Number of stores

49

38

4

2012/2

2011/2

2010/2

2009/2

Total operating revenues

23,97523,063

20,826

18,57016,965

Operating income

4,753

3,640

3,159

2,444

1,439

Net income

2,712

1,993

1,788

1,412

590

Number of ATM machines installed(Units)

9,672

9,002

8,526

6,978

5,970

• Dalian Lawson, Inc. (consolidate subsidiary)<Established in April 2010>

Dalian Lawson, Inc.
place driven by a national government policy and Hualian Groupwas merged into Bailian Group. In this course of process 100% of
the shares of Hualian Group were transferred to Bailian Groupin December, 2008. In our drive to strengthen and expand theChinese business, we concluded an agreement with BailianGroup who was working on restructuring their retail division
within the group. The agreement was for us to accelerate ourdevelopment efforts of Japanese style convenience stores thatexcel in product development capability, customer interaction
and cleanliness. We will carefully watch how economic situations
change in the Shanghai market. At the same time we will
upgrade store quality in Shanghai, the economic center in China,
thereby to improve store brand equity, while placing emphasis
on ROI as a criteria for store opening.
At the end of February, 221 of the total of 305 stores arefranchised stores.

Overseas businesses• Shanghai Hualian Lawson, Inc.
(consolidated subsidiary)
We were the first Japanese convenience store company thatgained a foothold in China in 1996. We established shanghai
Hualian Lawson in Shanghai with us holding 70.0% stake andHualian Group 30.0%, a Shanghai city government relatedcompany. Aspiring to acquire land/building in good locations andmotivate local employees, we transferred 21.0% (our ownership
ratio being 70.0%) to Hualian Group and our ownership ratio
was reduced to 49.0%. The economic environment of China(Shanghai) changed and that prompted us to realize that weneeded to reinforce a Japanese-style convenience store concept,
so we acquired incremental shares in September, 2011 to regain
the management control of the company. Hence our equity
ratio became 85.0% and the company became our consolidated
subsidiary. In the meantime, retail industry restructuring took
Shanghai Hualian Lawson, Inc.

(Millions of yen)

2011/12

Total operating revenues

176

4

Operating income (loss)( 163 )

( 21 )Net income (loss)( 196 )

( 27 )

Number of stores

83• Lawson Asia Pacific Holdings Pte. Ltd.
(consolidate subsidiary)
Outside China, we established our 100% owned consolidated
subsidiary in Singapore in May, 2011 to manage all overseas
operations excluding China. We signed a license agreement inJune, 2011 with PT MIDI UTAMA INDONESIA Tbk (hereinafter

2010/12

2009/12

2008/12<Established in September 2011>

MIDI) which is a company under Alfa Group. Lawson Asia Pacific
Holdings Pte. Ltd. acquired 30% of MIDI shares in July, 2011.
MIDI, as of the end of February, 2013, operates 574 stores of asmall format “Alfamidi” that they developed themselves and two
store brands of “Alfaexpress” and 83 Lawson stores mainly inGreater Jakarta. MIDI is our equity method affiliated company.

(Millions of yen)

2012/122011/122010/12

2009/12

2008/12

903

4,917

5,402

6,313

6,670

( 574 )

( 283 )

15

2

13

Net income (loss)( 2,034 )( 443 )

25

5

22

Number of stores

305

314

317

300

300

64 Lawson, Inc. INTEGRATED REPORT 20132008/12enterprise, Dalian Acasia Fast Foods Co. in September, 2011 andopened the first store in November. Our equity stake is 95% andthere are eight stores at the end of February, 2013.

Dalian is one of leading port cities in the north eastern area ofChina with the population of over 6 million. Upon the invitationby the city of Dalian, we established Dalian Lawson with a local

2012/12

Operating income (loss)

2009/12(Millions of yen)

2013/2

Total operating revenues

heightening in inland cities in China.
We were invited by the city of Chongqing to operate. To gaina foothold in inland China, we established Chongqing Lawson,
Inc. in April, 2010, and opened the first store equipped with a
training facility in July. At the end of February, 2013 the company
now operates 49 stores.

Lawson, Inc. INTEGRATED REPORT 2013 65

MANAGEMENT’S DISCUSSION AND ANALYSIS

Outlook for the term February 2014
The second Abe administration that came into being at the end of2012 advocates Abenomics that has brought forth depreciationof the Japanese yen. In the term February, 2014 manufacturing
and other industries are getting back on track with recovery
and personal spending is gradually improving. This could work
positively for our performance, whereas there are concerns
about the ability of its “third arrow strategy” of encouraging
private investment and people are unsure if it could be realized.
As a consumption tax increase is looming around the corner, its
affects on consumers’ mindset remains uncertain. We have totake into account risks in that economy may not recover in a way
expected.
In regards to the convenience store industry, leading
companies are planning to roll out a large scale store opening.
Store opening may take place faster than a growth rate triggeredby the expansion of customer base and the industry may bewound up in intense competition.
Against this backdrop, we will take a strategy different fromthe competition who are more inclined to large scale store
opening. We will place adequate attention to the existing storesand beef up our efforts of tapping in un-catered customers
ahead of the competition. To make this happen, we will
implement the following management strategies and make surethat our corporate mission of “Creating Happiness and Harmony
in Our Communities” come true. Through these strategies we will
fortify the competitive edge of the existing stores and expand
revenues for both the company and FC owners, thereby improvethe corporate value.
We forecast 70 billion yen for the consolidated operating
profit (up by 5.7% YoY) for the term February, 2014, that will
mark the profit improvement for the 11th consecutive year, and35.9 billion yen consolidated net profit (up by 8.2%YoY).

• Product assortment with high gross profit margin
MACHI café has been implemented as a driving force to expand
customer base where freshly brewed coffee is served in personby store staff, this sets us apart from the competitors. The numberof stores that have implemented this scheme was 740 at the endof February, 2012, and steadily increased to 2,860 in February,
2013. In FY2013 while upgrading the quality of stores, we will
accelerate the implementation speed of MACHI café and plan toachieve the 8,000-stores mark at the end of February, 2014. In
parallel, we will develop and promote more sales of such foodsof high gross profit margin as over-the-counter fast foods, anddelicatessen items.

66 Lawson, Inc. INTEGRATED REPORT 2013

• Full scale roll-out of entertainment and home
convenience related business• The promotion of fresh foods
convenience store businessWe are enjoying the steady increase of the number of Fresh foodtype convenience stores from 3,913 stores at the end of February,
2012, to 5,287 at the end of February, 2013. While working forthe expansion of fresh food-type convenience stores, we will
also reinforce the fresh food offering at regular stores in parallel.
This way we can expect to expand high profit margin products
when they buy perishables. We target to achieve 8,400 stores
between fresh food-type LAWSON and LAWSON STORE100 at
the end of February, 2014.

We will develop a portfolio of entertainment products thatcan meet diversifying needs of customers who we would
meet in person or on the internet. We will start new services
in the home convenience segment including “Smart Kitchen”
targeting customers who did not bother to come to brick-andmortar stores so far. “Smart Kitchen” is a regular food homedelivery service that was rolled out in March, 2013.

• Overseas businesses
We will explore more store opening opportunities not only inthe countries we already have operations but those countries
and regions that have potential to grow economically, while
making accurate assessment of their political and economic
landscape. If we identify opportunities in Europe and the US
in which we might be able to implement a business model ofJapanese style convenience stores in such ways of developing
FC system, infrastructure or highly value added products ofunique and original design, as this is where our strength lies, wewill positively explore those paths.

• The promotion of CRM by leveraging
Ponta card holders’ data
As of the end of July, 2013, more than 56 million Ponta cards havebeen issued and the sales of the Ponta card holders make up for
more than 45% of the total sales. We will continue to analyze
their purchase data to be utilized for product development sothat their preference and needs differing based on their age andsex can be met. In addition, in the FY2013, we will leverage Ponta
data at an individual store level to develop product assortmentthat meet their needs in a hope that they are lured to our stores
more frequently.

• Operation efficiency and profitability
improvement by a supply chain structural reform
As analysis technology for Ponta data is advancing, we will
promote our unique structural reform of the supply chain with
SCI leading the efforts. By optimizing the supply chain, we will
strengthen the competitiveness of products and provide sales
promotion support to FC owners, and thereby achieve highly
efficient operation and higher profitability.

• Drug sales and addressing health care demands
We will endeavor to expand drug sales and at the same time wewill develop and sell health oriented food leveraging know-how
accumulated through the operations of NATURAL LAWSON sothat we will assist customers for their healthy and comfortable
life. We will roll out more Pharmacy LAWSON stores so that OTC
drugs can be sold there in addition to the sales at regular stores.
We will implement the health care business in a full-fledged
way. Pharmacists at Pharmacy LAWSON can gain credibility from
customers particularly from the elderly. In accordance with thephilosophy of “food is medicine,” we will contribute to a healthy
and affluent life of each customer.

Lawson, Inc. INTEGRATED REPORT 2013 67

Consolidated Balance Sheet
Lawson, Inc. and Consolidated Subsidiaries
February 28, 2013
Thousands of
U.S. Dollars( Note 1 )Millions of Yen

ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Time deposits

2013

2012

2013

¥ 72,766
12,004¥ 73,670
10,404$ 786,574
129,759

Due from franchised stores ( Notes 3 and 8 )OtherAllowance for doubtful accounts
Inventories
Deferred tax assets ( Note 14 )Prepaid expenses and other current assets
Total current assets

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

19,52132,645( 149 )
8,076
4,800
11,191
160,158

274,284
497,341( 13,847 )
96,89850,330127,607
1,948,946

Buildings
Furniture, fixtures, and equipment
Lease assets ( Notes 2.o and 16 )Total
Accumulated depreciation
Net property and store equipment

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

6,815
221,344
63,56472,538364,261( 180,426 )
183,835

89,6662,646,687
728,559
1,040,450
4,505,362( 2,244,644 )2,260,718

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

528
7,175
32,13910,872
27,552
83,666
16,871
24,510( 15,852 )
187,461¥531,454

29,08980,489373,808
104,670258,513930,807175,289
118,376( 13,166 )2,057,875$6,267,539

INVESTMENTS AND OTHER ASSETS:
Investment securities ( Note 4 )Investments in associated companies
Long-term loans receivable
Goodwill
SoftwareLease deposits
Deferred tax assets ( Note 14 )Other assets ( Note 2.u )Allowance for doubtful accounts
Total investments and other assets
TOTAL

2013

2012

2013

¥ 87,188
1,404
27,082
1,431
14,496
14,47587,5296,189
239,794¥ 88,263
1,390
19,05011,75415,30575,005
7,212
217,979$ 942,471
15,177292,747
15,468
156,697
156,469
946,157
66,9012,592,087

Liability for employees' retirement benefits ( Note 10 )

9,899

8,745

107,005

Allowance for retirement benefits to executive officers
and audit & supervisory board members

332

308

3,589

34,80547,356
16,683759
109,834

35,73537,90815,161
955
98,812376,230
511,901
180,3378,204
1,187,266

58,50747,718427
121,154

58,50747,707443
107,249

632,440
515,815
4,616
1,309,631( 1,594 )( 1,628 )( 17,231 )Accounts payable:
Trade ( Notes 7 and 19 )Other
Short-term bank loans ( Note 9 )Current portion of long-term debt ( Note 9 )Income taxes payable
Money held as agent
Accrued expenses and other current liabilities
Total current liabilities

LONG-TERM LIABILITIES:PROPERTY AND STORE EQUIPMENT ( Note 5 ) :Land ( Note 6 )Millions of Yen

LIABILITIES AND EQUITYCURRENT LIABILITIES:Due to franchised stores ( Note 8 )Accounts receivable:

Guarantee deposits received from franchised stores and other
Long-term debt ( Note 9 )Asset retirement obligations ( Notes 2.m and 11 )Other ( Note 2.u )Total long-term liabilities

EQUITY ( Note 12 ) :Common stock—authorized, 409,300,000 shares in 2013 and 2012;
issued, 100,300,000 shares in 2013 and 2012
Capital surplus
Stock acquisition rights
Retained earnings
Treasury stock—at cost, 406,853 shares in 2013
and 416,166 shares in 2012
Accumulated other comprehensive income:Net unrealized gain ( loss ) on available-for-sale securities
Land revaluation difference ( Note 6 )Foreign currency translation adjustments
Total

See notes to consolidated financial statements.

Minority interests
Total equity
TOTAL

68 Lawson, Inc. INTEGRATED REPORT 2013

Thousands of
U.S. Dollars( Note 1 )78( 12 )

843( 567 )

( 567 )

( 6,128 )1,180
226,903
3,279
230,182¥579,810( 101 )

12,7552,452,741
35,4452,488,186$6,267,539

211,598
3,065
214,663¥531,454

Lawson, Inc. INTEGRATED REPORT 2013 69

Consolidated Statement of Income

Consolidated Statement of Comprehensive Income

Lawson, Inc. and Consolidated Subsidiaries
Year Ended February 28, 2013

Lawson, Inc. and Consolidated Subsidiaries
Year Ended February 28, 2013
Thousands of
U.S. Dollars( Note 1 )Millions of Yen

2013

2012

OPERATING REVENUES:Franchise commissions from franchised stores
Net sales from Company-operated stores
Other
Total operating revenues¥230,003
157,627
99,815487,445¥215,574
174,116
89,267478,957

Millions of Yen

2013$2,486,250
1,703,892
1,078,964
5,269,106

NET INCOME BEFORE MINORITY INTERESTSOTHER COMPREHENSIVE INCOME:
Unrealized loss on available-for-sale securities

Share of other comprehensive income in associates

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

Total other comprehensive income

144,885
276,314421,199
66,246

156,246
260,942
417,188
61,7691,566,155
2,986,855
4,553,010
716,0962013¥33,4942012¥25,6432013$362,058

90

973

1,926
( 639 )
1,377
¥34,871(7)67( 116 )
16
( 40 )¥25,603

20,819( 6,907 )14,885$376,943¥34,553318¥24,843760$373,506
3,437Land revaluation difference ( Note 6 )Foreign currency translation adjustments

COMPREHENSIVE INCOME
TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO ( Note 17 ) :Owners of the parent
Minority interests

Thousands of
U.S. Dollars( Note 1 )See notes to consolidated financial statements.

OTHER ( EXPENSES ) INCOME:
Interest expense—net
Equity in earnings of associated companies
Gain on negative goodwill
Loss on disposal of property and store equipment
Provision of allowance for doubtful accounts
Impairment of long-lived assets ( Note 5 )Other—net ( Note 2.u )Other expenses—net

INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS( 462 )

( 447 )

( 4,994 )394
153( 1,641 )( 1,128 )( 2,930 )( 1,043 )( 6,657 )381
291( 2,069 )( 15,484 )

4,259
1,654
( 17,740 )( 12,193 )( 31,672 )( 11,274 )( 71,960 )

59,58946,285644,136

25,346749
26,09522,963( 2,321 )
20,642273,981
8,097
282,078

33,49425,643362,058( 311 )

( 758 )

( 3,362 )¥ 33,183¥ 24,885$ 358,696( 3,319 )( 10,321 )INCOME TAXES ( Note 14 ) :Current
Deferred
Total income taxes

NET INCOME BEFORE MINORITY INTERESTSMINORITY INTERESTS IN NET INCOME
NET INCOMEYen

PER SHARE OF COMMON STOCK ( Notes 2.s and 21 ) :Net income—basic
Net income—diluted
Cash dividends applicable to the year2013
¥332.20331.69200.00U.S. Dollars

2012¥249.17248.80180.00

2013
$3.59
3.59
2.16

See notes to consolidated financial statements.

70 Lawson, Inc. INTEGRATED REPORT 2013

Lawson, Inc. INTEGRATED REPORT 2013 71

Consolidated Statement of Changes in Equity
Lawson, Inc. and Consolidated Subsidiaries
Year Ended February 28, 2013
Thousands of U.S. Dollars ( Note 1 )Thousands of Shares/Millions of Yen
Common Stock

BALANCE, MARCH 1, 2011

SharesAmountCapitalSurplus100,300¥58,507¥47,696

Stock
Acquisition
Rights¥406

Retained
Earnings

Net income
Year-end cash dividends, ¥85 per share
Interim cash dividends, ¥87 per share
Reversal of revaluation reserve for land
Purchase of treasury stock
Exercise of stock acquisition rights to shares( delivery of treasury stock )SharesAmount¥ 99,608 ( 433 )
24,885( 8,489 )( 8,688 )( 67 )(1)¥ ( 1,694 )

18

69

11
37
443

Others—net

BALANCE, FEBRUARY 29, 2012

Treasury Stock

100,300

58,50747,707

107,249 ( 416 )
33,183( 9,289 )( 9,989 )(1)Year-end cash dividends, ¥93 per share
Interim cash dividends, ¥100 per share
Purchase of treasury stock

11

10

BALANCE, FEBRUARY 28, 2013

¥58,507¥47,718$ 632,440$ 515,696$4,789Year-end cash dividends, $1.01 per share
Interim cash dividends, $1.08 per share

¥427

(3)

( 1,628 )BALANCE, FEBRUARY 28, 2013

119

BALANCE, MARCH 1, 2011¥(5)

¥ ( 634 )

¥1

Net income
Year-end cash dividends, ¥85 per share
Interim cash dividends, ¥87 per share11( 173 )

$632,440$515,815

1

BALANCE, FEBRUARY 29, 2012

Net Unrealized
Gain ( Loss ) on
Available-forSale Securities

Land
Revaluation
Difference$ ( 130 )$ ( 6,128 )Net income
Year-end cash dividends, $1.01 per share
Purchase of treasury stock¥203,885
24,885( 8,489 )( 8,688 )Total
Equity¥4,582¥208,467
24,885( 8,489 )( 8,688 )

(3)

(3)

80

80

(7)
( 12 )( 567 )

( 102 )( 72 )( 1,517 )( 1,589 )( 101 )

211,598
33,183( 9,289 )( 9,989 )
(7)

3,065

214,663
33,183( 9,289 )( 9,989 )(7)

Net income
Year-end cash dividends, ¥93 per share
Interim cash dividends, ¥100 per share
Purchase of treasury stock
Exercise of stock acquisition rights to shares( delivery of treasury stock )51

Disposal of treasury stock

BALANCE, FEBRUARY 28, 201372 Lawson, Inc. INTEGRATED REPORT 2013

$1,309,631

Others—net

BALANCE, FEBRUARY 28, 2013

973
$843

$ ( 6,128 )Total$ ( 1,092 ) $2,287,300
358,696( 100,411 )( 107,977 )( 76 )

Disposal of treasury stock

Minority
Interests

Exercise of stock acquisition rights to shares( delivery of treasury stock )Others—net

Foreign
Currency
Translation
Adjustments

Exercise of stock acquisition rights to shares(delivery of treasury stock)

Purchase of treasury stock

BALANCE, FEBRUARY 29, 2012

$4,616$ ( 17,231 )

13,847$12,755

Minority
Interests

Total
Equity$33,132$2,320,432
358,696( 100,411 )( 107,977 )( 76 )

551

551

11
14,647$2,452,741

11
16,960$2,488,186

2,313$35,445

See notes to consolidated financial statements.

67

Reversal of revaluation reserve for land

Others—net

432

Accumulated Other Comprehensive Income

40¥121,154 ( 407 ) ¥ ( 1,594 )

Total$ ( 17,598 )Disposal of treasury stock(7)

Thousands of Shares/Millions of Yen

Land
Revaluation
Difference$ 1,159,323
358,696( 100,411 )( 107,977 )Thousands of U.S. Dollars ( Note 1 )Accumulated Other Comprehensive Income
Foreign
Currency
Translation
Adjustments

TreasuryStock( 76 )

Exercise of stock acquisition rights to shares(delivery of treasury stock)

Interim cash dividends, $1.08 per share

Net Unrealized
Gain ( Loss ) on
Available-forSale Securities

Retained
Earnings

Purchase of treasury stock( 16 )

100,300

Stock
Acquisition
Rights

Net income

0

Disposal of treasury stock
Others—net

CapitalSurplus

Others—net

Net income

Exercise of stock acquisition rights to shares( delivery of treasury stock )BALANCE, FEBRUARY 29, 2012

Common
Stock

90
¥78

¥ ( 567 )

1,281¥1,1801
1,355¥226,90351
214¥3,2791
1,569¥230,182

Lawson, Inc. INTEGRATED REPORT 2013 73

Consolidated Statement of Cash Flows

Notes to Consolidated Financial Statements

Lawson, Inc. and Consolidated Subsidiaries
Year Ended February 28, 2013

Lawson, Inc. and Consolidated Subsidiaries
Year Ended February 28, 2013
Thousands of
U.S. Dollars( Note 1 )Millions of Yen

2013

2012

2013

¥59,589¥46,285$644,136

Income taxes paid

( 26,225 )( 18,405 )( 283,483 )Depreciation and amortization

43,8862,930( 13,511 )
1,642
(9)
718

37,8463,319( 384 )
2,065
( 291 )
7,218

474,392
31,672( 146,049 )
17,749( 97 )
7,761

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

Impairment of long-lived assets
Reversal of allowance for doubtful accounts
Loss on disposal of property and store equipment
Equity in earnings of associated companies
Other—net ( Note 2.u )Changes in assets and liabilities:

1. BASIS OF PRESENTING CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements have been prepared in accordance with the provisions set forthin the Japanese Financial Instruments and Exchange Act and its related accounting regulations, and in accordancewith accounting principles generally accepted in Japan (“Japanese GAAP”), which are different in certain respects as toapplication and disclosure requirements from International Financial Reporting Standards.
In preparing these consolidated financial statements, certain reclassifications and rearrangements have been madeto 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 the 2012 financial statements toconform to the classifications used in 2013.
The consolidated financial statements are stated in Japanese yen, the currency of the country in which Lawson, Inc.
(the “Company”) is incorporated and operates. The translations of Japanese yen amounts into U.S. dollar amounts areincluded solely for the convenience of readers outside Japan and have been made at the rate of ¥92.51 to $1, theapproximate rate of exchange at February 28, 2013. 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.

Decrease in claims in bankruptcy and reorganization

14,547236

157,248

Increase in accounts receivable( 19,104 )( 2,794 )( 206,507 )Increase in prepaid expenses and other current assets( 453 )

( 1,252 )( 4,897 )Increase in inventories( 861 )

( 921 )

( 9,307 )

8,498
12,524775

1,328
12,656( 242 )

91,860135,380
8,378

1,178

1,289

12,734( 935 )

( 1,596 )( 10,107 )

25,60085,18940,07286,357

276,727
920,863a. Consolidation—The consolidated financial statements include the accounts of the Company and its eleven (tenin 2012) subsidiaries (collectively, the “Companies”). Consolidation of the remaining subsidiary would not have amaterial effect on the accompanying consolidated financial statements.

( 23,900 )( 20,404 )( 258,350 )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 have the ability to
exercise significant influence are accounted for by the equity method.

Increase in accounts payable
Increase in money held as agent
Increase ( decrease ) in accrued expenses and other liabilities
Increase in allowance for retirement benefits toemployees and executive officers and corporate auditors
Decrease in guarantee deposits received from
franchised stores and otherTotal adjustments
Net cash provided by operating activities

INVESTING ACTIVITIES:Payments into time deposits
Proceeds from withdrawal of time deposits

22,30020,104

241,055

Purchases of property and store equipment( 37,263 )( 28,867 )( 402,800 )Purchases of software and other intangible assets( 5,659 )( 7,449 )( 61,172 )Increase in lease deposits—net( 2,430 )( 1,933 )( 26,267 )Increase in long-term loans( 2,442 )( 298 )

( 26,397 )Acquisition of associated companies( 1,327 )( 6,335 )( 14,344 )Other—net ( Note 2.u )Net cash used in investing activities( 7,730 )( 37,564 )( 52,912 )( 585,839 )All significant intercompany balances and transactions have been eliminated in consolidation. All material
unrealized profit included in assets resulting from transactions within the Companies is eliminated.
The excess of the cost of the Company’s investments in consolidated subsidiaries and associated companies overthe fair value of the net assets at the dates of acquisition is being amortized over a period not exceeding 20 years.

Repayments of long-term debt

( 14,298 )( 10,434 )( 154,556 )( 19,278 )( 17,177 )( 208,388 )Other—net

1,596( 31,980 )66( 27,545 )

17,252( 345,692 )

83

8

896

( 904 )

5,908
67,712( 9,772 )

796,34650

796,346¥73,670$786,574

INCREASE IN CASH AND CASH EQUIVALENTS RESULTINGFROM CHANGE OF CONSOLIDATIONCASH AND CASH EQUIVALENTS, END OF YEAR
See notes to consolidated financial statements.

74 Lawson, Inc. INTEGRATED REPORT 2013

Investments in two (three in 2012) 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 tothe investments in these entities, the effect on the accompanying consolidated financial statements would not bematerial.

( 3,475 )Cash dividends paid

FOREIGN CURRENCY TRANSLATION ADJUSTMENTS
ON CASH AND CASH EQUIVALENTS
NET ( DECREASE ) INCREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES( 54,196 )FINANCING ACTIVITIES:Net cash used in financing activities

Mitsubishi Corporation (“Mitsubishi”) owns 32,399 thousand shares of common stock of the Company (including
indirect holdings) as of February 28, 2013, which represent 32.5% of the total voting rights of the Company. Accordingly,
Mitsubishi is a principal shareholder.

73,670¥72,766b. Unification of Accounting Policies Applied to Foreign Associated Companies for the Equity Method—The
current accounting standard requires to unify accounting policies within the consolidation group. However, thecurrent 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, “AccountingStandard for Equity Method of Accounting for Investments.” The new standard requires adjustments to be made toconform the associate’s accounting policies for similar transactions and events under similar circumstances to thoseof the parent company when the associate’s financial statements are used in applying the equity method, unless
it is impracticable to determine adjustments. In addition, financial statements prepared by foreign associatedcompanies in accordance with either International Financial Reporting Standards or the generally accepted
accounting principles in the United States tentatively may be used in applying the equity method if the following
Lawson, Inc. INTEGRATED REPORT 2013 75

Notes to Consolidated Financial Statements

items are adjusted so that net income is accounted for in accordance with Japanese GAAP unless they are notmaterial: (a) amortization of goodwill; (b) scheduled amortization of actuarial gain or loss of pensions that has been
directly recorded in the equity; (c) expensing capitalized development costs of R&D; (d) cancellation of the fair value
model accounting for property, plant, and equipment and investment properties and incorporation of the costmodel accounting; and (e) exclusion of minority interests from net income, if contained.
The Companies applied this accounting standard effective March 1, 2011. There was no effect on applying thischange.
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 No. 7, “AccountingStandard for Business Divestitures,” and ASBJ Guidance No.10, “Guidance for Accounting Standard for Business
Combinations and Business Divestitures.” The accounting standard for business combinations allowed companies
to apply the pooling of interests method of accounting only when certain specific criteria are met such that thebusiness combination is essentially regarded as a uniting‍‑‍of‍‑‍interests. For business combinations that do not meetthe uniting‍‑‍of‍‑‍interests criteria, the business combination is considered to be an acquisition and the purchasemethod of accounting is required. This standard also prescribes the accounting for combinations of entities undercommon control and for joint ventures.
In December 2008, the ASBJ issued a revised accounting standard for business combinations, ASBJ Statement
No. 21, “Accounting Standard for Business Combinations.” Major accounting changes under the revised accounting
standard are as follows: (1) The revised standard requires accounting for business combinations only by the purchasemethod. As a result, the pooling of interests method of accounting is no longer allowed. (2) The current accounting
standard accounts for the research and development costs to be charged to income as incurred. Under the revised
standard, in‍‑‍process research and development (IPR&D) acquired in the business combination are capitalized as anintangible ‌asset. (3) The previous accounting standard provided for a bargain purchase gain (negative goodwill)
to be systematically amortized over a period not exceeding 20 years. Under the revised standard, the acquirer
recognizes the bargain purchase gain in profit or loss immediately on the acquisition date after reassessing andconfirming that all of the assets acquired and all of the liabilities assumed have been identified after a review of theprocedures used in the purchase price allocation.
The Companies applied this accounting standard for business combinations undertaken on or after April 1, 2010.
d. Franchise Agreement and Basis of Recognizing Franchise Commission—The Company operates principally ina single industry commonly classified as the convenience store business with its own stores and franchised stores.
The Company allows each independent franchisee to operate relatively small‍‑‍sized convenience stores using
specific designs and the LAWSON brand names, and provides related managerial or technical know‍‑‍how under afranchise agreement. Under the agreement, all franchised stores are provided with a variety of services and advice
on the operation of convenience stores from the Company as the franchisor. In return, such franchised stores are
required to pay continuing franchise commissions to the Company based on certain percentages of the respective
franchised store’s gross margin. As the franchisor, the Company accounts for franchise commissions on an accrualbasis by reference to the gross margin earned by each franchised store and the applicable commission percentage.
According to the franchise agreement, a franchised store may pay additional guarantee deposits equal to twice theaverage monthly sales amounts of the respective store and pay a lower commission percentage.

also be provided with the land or buildings for the stores. However, the Company does not require the franchisees
to make lease payments related to the stores. Instead, a higher percentage applicable to the gross margin would be
used as the basis for determining the franchise commissions. The portion of franchise commission attributable toproperty and store equipment leases is not separately accounted for by the Company.
e. Cash and Cash Equivalents—Cash and cash equivalents include cash on hand, demand deposits, and short‍‑‍term
investments, which mature or become due within three months of the date of acquisition and which are readily
convertible into cash and are exposed to insignificant risk of changes in value.
f. Inventories—Substantially all inventories are stated at the lower of cost, determined by the retail method as
generally applied in the retail industry, or net selling value. Inventories of certain consolidated subsidiaries arestated at the lower of cost, determined by the specific identification method, or net selling value.
g. Marketable and Investment Securities—Marketable and investment securities are classified and accounted
for, depending on management’s intent, as follows: (1) held‍‑‍to‍‑‍maturity debt securities, which are expected tobe held to maturity with the positive intent and ability to hold to maturity are reported at amortized cost and(2) available‍‑‍for‍‑‍sale securities, which are not classified as the aforementioned securities, are stated at fair value
based on market quotation. Unrealized gains and losses, net of applicable taxes, are reported in a separate
component of equity. The cost of securities sold is determined based on the moving‍‑‍average method.
Nonmarketable available‍‑‍for‍‑‍sale securities are stated at cost determined by the moving‍‑‍average method.
For other‍‑‍than‍‑‍temporary declines in fair value, nonmarketable available‍‑‍for‍‑‍sale securities are reduced to net
realizable value by a charge to income.
h. Property and Store Equipment—Property and store equipment are stated at cost except for land (see Note 6).
Depreciation is computed mainly by the declining‍‑‍balance method at rates based on the estimated useful lives of
the assets. The range of useful lives is principally from 10 to 34 years for buildings and structures and from 5 to 8
years for furniture, fixtures, and equipment.
The useful lives for lease assets are the terms of the respective leases.
i. Long‍‑‍Lived Assets—The Companies review their long‍‑‍lived assets for impairment whenever events or changes incircumstance indicate the carrying amount of an asset or asset group, mainly by each store, may not be recoverable.
An impairment loss would be recognized if the carrying amount of an asset or asset group exceeds the sum of theundiscounted future cash flows expected to result from the continued use and eventual disposition of the asset or
asset group. The impairment loss is measured as the amount by which the carrying amount of the asset exceeds
its recoverable amount, which is the higher of the discounted cash flows from the continued use and eventual
disposition of the assets or the net selling price at disposition.
j. Software—Software used by the Companies is amortized using the straight‍‑‍line method based on the estimateduseful life (mainly five years).
k. 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 fundfor its lump‍‑‍sum severance indemnity plan.

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 to renegotiation ofcontract terms between the Company and the franchisee.
The franchise agreement usually provides that the franchised store shall make a cash payment to the Company inthe amount of ¥3 million upon commencement. Upon receipt of such payment, ¥1.5 million is credited to incomeof the Company as “Operating revenues—franchise commissions from franchised stores” for services related tothe opening of the LAWSON store. The remaining amount received by the Company is credited to the “Due tofranchised stores” account and then applied to working capital for purchases of merchandise and supplies for the
franchised store.
As part of the contractual obligations of the franchisor under the agreement, the Company generally provides
franchisees with furniture, fixtures, and equipment designed for the LAWSON stores. In some cases, franchisees may
76 Lawson, Inc. INTEGRATED REPORT 2013

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 for severance
payments. The Company recognizes expenses in the period when the contribution was called for.
l.

Allowance for Retirement Benefits to Executive Officers and Audit & Supervisory Board Members—The
provisions are calculated as a liability at 100% of the amount that would be required if all executive officers andaudit & supervisory board members resigned as of each balance sheet date.

m. Asset Retirement Obligations—In March 2008, the ASBJ published a new accounting standard for asset retirement
obligations, ASBJ Statement No. 18, “Accounting Standard for Asset Retirement Obligations,” and ASBJ GuidanceLawson, Inc. INTEGRATED REPORT 2013 77

Notes to Consolidated Financial Statements

No. 21, “Guidance on Accounting Standard for Asset Retirement Obligations.” Under this accounting standard, an
asset retirement obligation is defined as a legal obligation imposed either by law or contract that results from theacquisition, construction, development, and the normal operation of a tangible fixed asset and is associated withthe retirement of such tangible fixed asset.
The asset retirement obligation is recognized as the sum of the discounted cash flows required for the future asset
retirement and is recorded in the period in which the obligation is incurred if a reasonable estimate can be made.
If a reasonable estimate of the asset retirement obligation cannot be made in the period the asset retirement
obligation is incurred, the liability should be recognized when a reasonable estimate of asset retirement obligation
can be made. Upon initial recognition of a liability for an asset retirement obligation, an asset retirement cost is
capitalized by increasing the carrying amount of the related fixed asset by the amount of the liability. The asset
retirement cost is subsequently allocated to expense through depreciation over the remaining useful life of theasset. Over time, the liability is accreted to its present value each period. Any subsequent revisions to the timingor the amount of the original estimate of undiscounted cash flows are reflected as an adjustment to the carrying
amount of the liability and the capitalized amount of the related asset retirement cost. The Companies applied thisaccounting standard effective March 1, 2011.
n. Stock Options—In December 2005, the ASBJ issued ASBJ Statement No. 8, “Accounting Standard for Stock Options,”
and related guidance. The standard and guidance are applicable to stock options granted on and after May 1,
2006. This standard requires companies to measure the cost of employee stock options based on the fair value
at the date of grant and recognize compensation expense over the vesting period as consideration for receiving
goods or services. The standard also requires companies to account for stock options granted to non‍‑‍employees
based on the fair value of either the stock option or the goods or services received. In the balance 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 cash‍‑‍settled, share‍‑‍based paymenttransactions. In addition, the standard allows unlisted companies to measure options at their intrinsic value if theycannot reliably estimate fair value. The Company has applied this accounting standard for stock options to those
granted on and after May 1, 2006.

“Foreign currency translation adjustments” and “Minority interests” in a separate component of equity. Revenue andexpense accounts of an affiliated company denominated in foreign currencies are translated into yen at the current
exchange rate.
s. Per Share Information—Basic net income per share is computed by dividing net income available to commonshareholders by the weighted‍‑‍average number of common shares outstanding for the period.
The number of shares used in computing net income per share was 99,887 thousand shares for 2013 and99,871 thousand shares for 2012.
Diluted net income per share for the years ended February 28, 2013 and February 29, 2012, is computed by using
the weighted‍‑‍average number of common shares outstanding adjusted to include the potentially dilutive effect ofstock options that were outstanding during the year.
Cash dividends per share presented in the accompanying consolidated statement of income are dividends
applicable to the respective years including dividends to be paid after the end of year.
t. Accounting Changes and Error Corrections—In December 2009, the ASBJ issued ASBJ Statement No. 24,“Accounting Standard for Accounting Changes and Error Corrections” and ASBJ Guidance No. 24, “Guidance on
Accounting Standard for Accounting Changes and Error Corrections.” Accounting treatments under this standard
and guidance are as follows:(1)

Changes in accounting policies
When a new accounting policy is applied following revision of an accounting standard, the new policy isapplied retrospectively unless the revised accounting standard include specific transitional provisions, inwhich case the entity shall comply with the specific transitional provisions.

(2)

Changes in presentation
When the presentation of financial statements is changed, prior‑period financial statements are reclassified inaccordance with the new presentation.

(3)

Changes in accounting estimates
A change in an accounting estimate is accounted for in the period of the change if the change affects that
period only, and is accounted for prospectively if the change affects both the period of the change and future
periods.

(4)

Corrections of prior‑period errors
When an error in prior‑period financial statements is discovered, those statements are restated.

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. The revised accounting standard for leasetransactions was effective for fiscal years beginning on or after April 1, 2008.
Under the previous accounting standard, finance leases that were deemed to transfer ownership of the leased
property to the lessee were capitalized. However, other finance leases were permitted to be accounted for as
operating lease transactions if certain “as if capitalized” information was disclosed in the notes to the lessee’s
financial statements. The revised accounting standard requires that all finance lease transactions be capitalized
to recognize lease assets and lease obligations in the balance sheet. In addition, the 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 Companies
continue to account for leases which existed at the transition date and which do not transfer ownership of theleased property to the lessee as operating lease transactions.
All other leases are accounted for as operating leases.
p. Income Taxes—The Companies provide for income taxes applicable to all items included in the consolidated
statements of income regardless of when such taxes are payable. Deferred income taxes are recorded to reflect the
impact of temporary differences between assets and liabilities recognized for financial reporting purposes and suchamounts recognized for tax purposes. These deferred taxes are measured by applying currently enacted tax laws to
the temporary differences.
q. Appropriations of Retained Earnings—Appropriations of retained earnings at each year‍‑‍end are reflected in the
consolidated financial statements for the following year upon shareholders’ approval.
r. Foreign Currency Financial Statements—The balance sheet accounts of an associated company denominatedin foreign currencies are translated into Japanese yen at the current exchange rate as of the balance sheet date
except for equity, which is translated at the historical rate. Differences arising from such translation are shown as
78 Lawson, Inc. INTEGRATED REPORT 2013This accounting standard and the guidance are applicable to accounting changes and corrections of prior-period
errors which are made from the beginning of the fiscal year that begins on or after March 1, 2012.
u. Reclassification of Prior Year’s Consolidated Financial Statements —The Company has made reclassifications ofamounts in the consolidated balance sheets and consolidated income statements and the consolidated cash flows
statements for the year ended February 28, 2013. In order to conform with the presentation for the year ended
February 28, 2013, the Company has reclassified the related amounts in the consolidated balance sheets and theconsolidated income statements and the consolidated cash flows statements for the year ended February 29, 2012,
respectively, as stated below.
The Company has reclassified the “claims in bankruptcy and reorganization” in the Investments and Other Assets
section of the consolidated balance sheets for the year ended February 29, 2012, to “other assets” among theInvestments and Other Assets section of the consolidated balance sheets for the year ended February 28, 2013. The
amount included in the other assets as of February 29, 2012 was ¥15,136 million.
The Company has reclassified the “allowance for impairment loss on leased property” in the Long‑Term Liabilities
section of the consolidated balance sheets for the year ended February 29, 2012, to “other liabilities” among theLong‑Term Liabilities section of the consolidated balance sheets for the year ended February 28, 2013. The amountincluded in the other liabilities as of February 29, 2012 was ¥679 million.
Lawson, Inc. INTEGRATED REPORT 2013 79

Notes to Consolidated Financial Statements

The Company has reclassified the “loss on sales of property and store equipment” , “Gain on step acquisitions”, “Losson adjustment for adoption of accounting standard for asset retirement obligations” and “Loss on disaster” in the
Other (Expenses) Income section of the consolidated income statements for the year ended February 29, 2012, to“other-net” among the Other (Expenses) Income section of the consolidated income statements for the year ended
February 28, 2013. The amount included in the other-net as of February 29, 2012 were ¥ (41) million, ¥1,571 million,¥(8,293) million and ¥(3,461) million, respectively.
The Company has reclassified the “Payments for loss on disaster”, “Loss on adjustment for adoption of accounting
standard for asset retirement obligations”, “Gain on step acquisitions”, and “Loss on disaster” in the Operating
Activities section of the consolidated cash flows statements for the year ended February 29, 2012, to “Other-net”
among the Operating Activities section of the consolidated cash flows statements for the year ended February 28,
2013. The amount included in the other-net as of February 29, 2012 were ¥(3,373) million, ¥8,293 million, ¥(1,571)
million and ¥3,461 million, respectively.
The Company has reclassified the “Acquisition of a subsidiary, net of cash paid” and ”Payments for transfer ofbusiness” in the Investing Activities section of the consolidated cash flows statements for the year ended February
29, 2012, to “Other-net” among the Investing Activities section of the consolidated cash flows statements for theyear ended February 28, 2013. The amount included in the other-net as of February 29, 2012 was ¥(982) million and¥(3,415)million, respectively.

3. ACCOUNTS RECEIVABLE—DUE FROM FRANCHISED STORES
Under the franchise agreement, the Company is responsible for providing architectural and design services withrespect to the franchised stores’ facilities, for training of the franchisees’ personnel, and for the centralized processingof invoices from suggested vendors of merchandise and subsequent payments of amounts payable to such vendors.
The EDP system of the Company generates a record of merchandise purchased by each franchised store and accumulates
the amounts payable to respective vendors. Under the franchise agreement, the Company, as a representative for
all franchised stores, pays amounts payable to the vendors on the stores’ behalf. When the merchandise is received
by each franchised store, the Company records the cost of the merchandise in the “Accounts receivable—due from
franchised stores” account since such costs shall be subsequently recovered from the respective franchised stores.
The “Accounts receivable—due from franchised stores” account represents net amounts recoverable from thefranchised stores.

4. MARKETABLE AND INVESTMENT SECURITIESMarketable and investment securities as of February 28, 2013 and February 29, 2012, consisted of the following:v. New Accounting Pronouncements
Accounting Standard for Retirement Benefits —On May 17, 2012, the ASBJ issued ASBJ Statement No. 26“Accounting Standard for Retirement Benefits” and ASBJ Guidance No. 25, “Guidance on Accounting Standard for
Retirement Benefits,” which replaced the Accounting Standard for Retirement Benefits that had been issued by
the Business Accounting Council in 1998 with an effective date of April 1, 2000, and the other related practicalguidance, and followed by partial amendments from time to time through 2009.
Major changes are as follows:(a) Treatment in the balance sheet—Under the current requirements, actuarial gains and losses and past service
costs that are yet to be recognized in profit or loss are not recognized in the balance sheet, and the difference
between retirement benefit obligations and plan assets (hereinafter, “deficit or surplus”), adjusted by suchunrecognized amounts, is recognized as a liability or asset.
Under the revised accounting standard, actuarial gains and losses and past service costs that are yet to be recognizedin profit or loss shall be recognized within equity (accumulated other comprehensive income), after adjusting fortax effects, and the deficit or surplus shall be recognized as a liability (liability for retirement benefits) or asset (asset
for retirement benefits).
(b) Treatment in the statement of income and the statement of comprehensive income [or the statement of income
and comprehensive income]—The revised accounting standard does not change how to recognize actuarial gains
and losses and past service costs in profit or loss. Those amounts would be recognized in profit or loss over a certain
period no longer than the expected average remaining working lives of the employees. However, actuarial gains
and losses and past service costs that arose in the current period and have not yet been recognized in profit or loss
shall be included in other comprehensive income and actuarial gains and losses and past service costs that wererecognized in other comprehensive income in prior periods and then recognized in profit or loss in the current
period shall be treated as reclassification adjustments.

Thousands of
U.S. Dollars

Millions of Yen

2013¥2,691

Non-current—Marketable and other equity securities

2012
¥528

2013
$29,089

The costs and aggregate fair values of marketable and investment securities at February 28, 2013 and February 29,
2012, were as follows:
Millions of Yen
Cost

Unrealized
Gains¥1,129¥62

February 29, 2012

Cost

Unrealized
Gains

Securities classified as available-for-sale—
Equity securities¥169

February 28, 2013

Securities classified as available-for-sale—
Equity securities

Unrealized
LossesFair Value¥1,191Millions of Yen
Unrealized
LossesFair Value

¥54

¥115

Thousands of U.S. Dollars
February 28, 2013

Securities classified as available-for-sale—
Equity securities

Cost

Unrealized
Gains$12,204$670

Unrealized
LossesFair Value$12,874

This accounting standard and the guidance are effective for the end of annual periods beginning on or after April
1, 2013, with earlier application being permitted from the beginning of annual periods beginning on or after April
1, 2013. However, no retrospective application of this accounting standard to consolidated financial statements inprior periods is required.
The Company expects to apply the revised accounting standard from the end of the annual period beginning on
March 1, 2014 and is in the process of measuring the effects of applying the revised accounting standard for theyear ending February 28, 2015.

80 Lawson, Inc. INTEGRATED REPORT 2013

Lawson, Inc. INTEGRATED REPORT 2013 81

Notes to Consolidated Financial Statements

The proceeds, realized gains and realized losses of the available-for-sale securities which were sold during the years
ended February 28, 2013 and February 29, 2012, were as follows:
Millions of Yen
February 28, 2013

Available-for-sale:
Equity securities

Proceeds

Realized Gains¥5¥1

The recoverable amount of these assets was measured based on net selling price or value in use. The net selling priceof land was calculated based on the appraised value by a real estate appraiser or an expected contract price. The value
in use was calculated by discounting estimated future cash flows. The discount rate used was mainly 4.0% and 4.3% for
the years ended February 28, 2013 and February 29, 2012, respectively.

Realized Loss

6. LAND REVALUATION
Millions of Yen

February 29, 2012

Proceeds

Realized Gains

Realized Loss

Available-for-sale:
Equity securities
Thousands of U.S. Dollars
February 28, 2013

Available-for-sale:
Equity securities

Proceeds

Realized Gains

$54

$11

Realized Loss

Under the “Law of Land Revaluation,” promulgated on March 31, 1998 and revised on March 31, 1999 and 2001, theCompany chose a one‍‑‍time revaluation of its own‍‑‍use land to a value based on real estate appraisal information as ofFebruary 28, 2002.
The resulting land revaluation difference represents unrealized depreciation of land and is stated, net of income taxes,
as 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.
As at February 28, 2013, the carrying amount of the land after the above one‍‑‍time revaluation exceeded the market
value by ¥307 million ($3,319 thousand).

5. LONG‍‑‍LIVED ASSETSThe 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 of due to continuous operating
losses. The carrying amounts of those assets are written down to the recoverable amounts and an impairment loss isrecorded 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 28, 2013
and February 29, 2012:
Millions of Yen
Category

Related Assets

Location

StoresBuildings andFurniture, fixtures,and equipment
Software
OthersTokyo
Osaka
Others

Other
Total

2013
¥ 421
472
2,010
26
1
¥2,930

2012
¥ 547
558
2,214

¥3,3197. ACCOUNTS PAYABLE—TRADE
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 to vendors (see Note 3).
“Accounts payable—trade” as of February 28, 2013 and February 29, 2012, were summarized below:

Thousands of U.S.
Dollars2013$ 4,551
5,102
21,727281
11$31,672

Millions of Yen

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

2013
¥76,018
11,170¥87,188

2012¥74,501
13,762¥88,263

Thousands of U.S.
Dollars

2013$821,727
120,744$942,471

8. ACCOUNTS PAYABLE—DUE TO FRANCHISED STORESThe above‍‑‍noted assets, which incurred impairment losses for the years ended February 28, 2013 and February 29,
2012, consisted of the following:
Millions of Yen

Thousands of U.S.
Dollars

2013

2012

2013

¥1,923204
759¥2,102251674
155$20,787
2,205
8,204

Fixed assets and lease assets:
Buildings
Furniture, fixtures, and equipment
Lease assets
Land
Software
OthersTotal

82 Lawson, Inc. INTEGRATED REPORT 201326
18
¥2,930137¥3,319The 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, theremittance 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 tofranchised stores.”281
195$31,672

Lawson, Inc. INTEGRATED REPORT 2013 83

Notes to Consolidated Financial Statements

9. SHORT‍‑‍TERM BANK LOANS AND LONG‍‑‍TERM DEBT

The costs of defined benefit pension plans are accrued based on amounts determined principally using an actuarial
method. Additionally, the Company and a certain subsidiary each have a defined contribution plan. The costs ofdefined contribution plans are charged to expense when incurred.

Short‍‑‍term bank loans at February 28, 2013 consisted of notes to banks.
The annual interest rates applicable to the short-term bank loans were 4.90% at February 28, 2013.

The components of net periodic benefit costs for the years ended February 28, 2013 and February 29, 2012, were as
follows:

Long‍‑‍term debt at February 28, 2013 and February 29, 2012, consisted of the following:
Millions of Yen

2013

2012

Thousands of
U.S. Dollars

2013

Loans from banks and leasing companies,

Amortization of prior service cost

ranging from 1.59% to 6.44% ( 2013 ) andfrom 1.00% to 5.01% ( 2012 ) —Unsecured
Less current portionLong-term debt, less current portion

Service cost
Interest costdue serially through 2019 with interest rates¥61,852( 14,496 )¥47,356¥49,662( 11,754 )¥37,908$668,598( 156,697 )$511,901

Annual maturities of long‍‑‍term debt as of February 28, 2013, for the following five years (and thereafter) are as follows:Year Ending February 28 or 29

2014
2015
2016
2017
2018 and thereafter
Total

Millions of Yen

Thousands of
U.S. Dollars¥14,496
12,416
10,377
8,957
15,606¥61,852$156,697
134,213112,171
96,822
168,695$668,598

Thousands of U.S.
Dollars

Millions of Yen

Recognized actuarial loss
Contribution to defined contribution plan
Net periodic benefit costs

2013¥1,274
290
171
54
289
¥2,0782012¥1,076
265
173
92
278
¥1,884

Assumptions used for the years ended February 28, 2013 and February 29, 2012, were as follows:

2013
1.2%
0%
10 years
10 years

Discount rate
Expected rate of return on plan assets
Amortization period of prior service cost
Recognition period of actuarial gain/loss

11. ASSET RETIREMENT OBLIGATIONS

Thousands of
U.S. Dollars

Millions of Yen

The Company and a certain domestic subsidiary each have a defined benefit lump‍‑‍sum severance indemnity plan.
Under the plans, employees terminating their employment are entitled to retirement benefits determined based on
the rate of pay, years of service, and certain other factors at the time of termination. Such retirement benefits are madein the form of a lump‍‑‍sum severance payment from the Company or from a certain subsidiary. Employees are entitledto larger payments if the termination is involuntary, by retirement at the mandatory retirement age, by death, or byvoluntary retirement at certain specific ages prior to the mandatory retirement age.

Balance at beginning of year
acquisition of property, plant, and equipment
Reconciliation associated with passage of time

Unrecognized prior service cost
Unrecognized actuarial loss
Net liability

84 Lawson, Inc. INTEGRATED REPORT 20132013¥16,659( 5,578 )( 175 )
( 1,007 )¥ 9,8992012¥14,890( 5,577 )( 351 )
( 217 )
¥ 8,745

Thousands of U.S.
Dollars

2012¥14,3052013$164,987

1,667
306

1,151
214

18,0203,308( 445 )

( 407 )

( 4,810 )16,791( 108 )
¥16,683

15,263( 102 )
¥15,161

181,505( 1,168 )$180,337

Reduction associated with settlement of asset
retirement obligations
Less current portion

Millions of Yen

2013¥15,263

Additional provisions associated with theTotal

The funded status of these plans as of February 28, 2013 and February 29, 2012, was as follows:

Fair value of plan assets

2012
2.0%
0%
10 years
10 years

The changes in asset retirement obligations for the years ended February 28, 2013 and February 29, 2012, were as
follows:

10. EMPLOYEES’ RETIREMENT BENEFITS

Projected benefit obligation2013$13,771
3,135
1,848
584
3,124
$22,462

Asset retirement obligations, less current portion

2013$180,078( 60,296 )( 1,892 )( 10,885 )$107,005

Lawson, Inc. INTEGRATED REPORT 2013 85

Notes to Consolidated Financial Statements

12. EQUITY

13. STOCK OPTIONSJapanese 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:

The Company has stock option plans as an incentive for directors, executive officers, and selected employees.
The stock options outstanding as of February 28, 2013, are as follows: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 such as(1) having the Board of Directors, (2) having independent auditors, (3) having the Audit & Supervisory Board, and(4) the term of service of the directors is prescribed as one year rather than two years of normal term by its articles
of incorporation, the Board of Directors may declare dividends (except for dividends in kind) at any time during the
fiscal year if the company has prescribed so in its articles of incorporation.
The Companies Act permits companies to distribute dividends‍‑‍in‍‑‍kind (non‍‑‍cash assets) to shareholders subject toa certain limitation and additional requirements.
Semiannual interim dividends may also be paid once a year upon resolution by the Board of Directors if the articles
of incorporation of the company so stipulate. The Companies Act provides certain limitations on the amounts
available for dividends or the purchase of treasury stock. The limitation is defined as the amount available for
distribution to the shareholders, but the amount of net assets after dividends must be maintained at no less than
¥3 million.
b. Increases/Decreases and Transfer of Common Stock, Reserve, and Surplus
The Companies Act requires that an amount equal to 10% of dividends must be appropriated as a legal reserve (acomponent of retained earnings) or as additional paid‍‑‍in capital (a component of capital surplus) depending on theequity account charged upon the payment of such dividends until the total of aggregate amount of legal reserve
and additional paid‍‑‍in capital equals 25% of the common stock. Under the Companies Act, the total amount ofadditional paid‍‑‍in capital and legal reserve may be reversed without limitation. The Companies Act also provides
that common stock, legal reserve, additional paid‍‑‍in capital, other capital surplus, and retained earnings can betransferred among the accounts under certain conditions upon resolution of the shareholders.

Stock Option

Persons Granted

Number of
Options Granted

Date of Grant

Exercise
Price

Exercise Period

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

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( $42.69 )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( $55.93 )From January 18, 2011
to December 15, 2013

9th Stock
Option7 directors

21,500 shares2010.2.17¥1( $0.01 )From February 18, 2010
to February 1, 2030

10th Stock
Option7 directors

18,900 shares2011.2.25¥1( $0.01 )From February 26, 2011
to February 10, 2031

11th Stock
Option7 directors

27,000 shares2012.2.17¥1( $0.01 )From February 18, 2012
to February 1, 2032

c. Treasury Stock and Treasury Stock Acquisition Rights
The Companies Act also provides for companies to purchase treasury stock and dispose of such treasury stockby resolution of the Board of Directors. The amount of treasury stock purchased cannot exceed the amountavailable 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 provides thatcompanies can purchase both treasury stock acquisition rights and treasury stock. Such treasury stock acquisitionrights are presented as a separate component of equity or deducted directly from stock acquisition rights.

86 Lawson, Inc. INTEGRATED REPORT 2013

Lawson, Inc. INTEGRATED REPORT 2013 87

Notes to Consolidated Financial Statements

The stock option activity is as follows:

14. INCOME TAXES

5th Stock
Option6th ( a )Stock
Option6th ( b )Stock
Option7th ( a )Stock
Option7th ( b )Stock
Option8th ( a )Stock
Option8th ( b )Stock
Option9th Stock
Option10th
Stock
Option11th
Stock
OptionYear Ended February 29, 2012
Non-vested
February 28, 2011—Outstanding
Granted27,000Canceled

The Company and its domestic subsidiaries are subject to a number of different taxes based on income, which in theaggregate, resulted in a normal statutory tax rate of approximately 40.7% for the years ended February 28, 2013 andFebruary 29, 2012.
The tax effects of significant temporary differences and tax loss carryforwards, which resulted in deferred tax assets andliabilities at February 28, 2013 and February 29, 2012, are as follows:( 27,000 )Vested15,00021,30080,00018,00042,00026,40036,00021,500Accrued enterprise taxes

18,900

Vested27,000Exercised( 8,700 )Canceled( 71,300 )February 29, 2012—Outstanding

15,00021,300( 9,000 )18,00033,00026,40036,00021,50018,90027,000

Other

GrantedLess valuation allowance

Canceled

Total

VestedDeferred tax liabilities—Affiliates' stock( paid-in capital decrease )February 28, 2013—Outstanding

Net deferred tax assets

Vested15,00021,30018,00033,00026,40036,00021,50018,90027,000

VestedExercised( 6,000 )Canceled( 27,000 )
18,000( 4,600 )15,00021,30026,40031,40021,50018,90027,000¥1¥1¥4,053¥1¥3,949¥1¥5,174¥1¥1¥1( $0.01 )( $0.01 )( $43.81 )( $0.01 )( $42.69 )( $0.01 )( $55.93 )( $0.01 )( $0.01 )( $0.01 )Average stock price at exercise
Fair value price at grant date

Allowance for doubtful accounts
Tax loss carryforwards

February 29, 2012—Outstanding

Exercise price

Employees' retirement benefits
Impairment loss

Non-vested

February 28, 2013—Outstanding

Accrued employees' bonuses
Excess of depreciation
Excess of amortization of software

Year Ended February 28, 2013

February 29, 2012—Outstanding

2013

2012

2013

¥ 1,132
968
10,022
567
5,602
674
3,123
7,096
2,782
( 9,044 )
22,922¥ 1,282
1,304
9,052
740
5,231
3,503
2,930
5,609
3,503
( 9,433 )
23,721$ 12,237
10,464
108,334
6,129
60,556
7,286
33,75876,70530,072( 97,762 )
247,779

2,050

2,050

22,160¥20,872¥21,671$225,619

Deferred tax assets:

VestedFebruary 28, 2011—Outstanding

Thousands of
U.S. Dollars

Millions of Yen

February 29, 2012—Outstanding¥5,680¥6,635( $61.40 )( $71.72 )At February 28, 2013, certain domestic subsidiaries have tax loss carryforwards aggregating to approximately ¥17,185
million ($185,764 thousand) which are available to be offset against taxable income of such subsidiaries in future years.
These tax loss carryforwards, if not utilized, will expire as follows:Year Ending February 28 or 29

2014
2015
2016

¥3,178¥2,852¥397¥3,477¥582¥2,652¥2,689¥3,339( $34.35 )( $30.83 )( $4.29 )( $37.59 )( $6.29 )( $28.67 )( $29.07 )( $36.09 )

2017
2018
2019
2020
Total

Millions of Yen

¥

637
220
752
1,072
8,791
235
5,478
¥17,185

Thousands of
U.S. Dollars

$

6,886
2,378
8,129
11,58895,0282,540
59,215$185,764

15. SUPPLEMENTAL INFORMATION FOR CASH FLOWS
Finance lease assets and finance lease obligations regarded as non‍‑‍cash transactions incurred for the year ended
February 28, 2013, amounted to ¥24,945 million ($269,647 thousand).

88 Lawson, Inc. INTEGRATED REPORT 2013

Lawson, Inc. INTEGRATED REPORT 2013 89

Notes to Consolidated Financial Statements

16. LEASES

Depreciation expense, interest expense, and other information under finance leases:

Obligations under finance leases and future minimum payments under noncancelable operating leases at February 28,
2013 and February 29, 2012, were as follows:
Millions of Yen

2013

Due within one year
Due after one year
Total

Thousands of U.S. Dollars

2013

2012

Finance
LeasesOperating
LeasesFinance
LeasesOperating
LeasesFinance
LeasesOperating
Leases¥14,489
47,207¥61,696¥¥11,224
37,902¥49,126

¥ 910
1,527
¥2,437$156,621
510,291$666,912$10,550
18,247$28,797976
1,688¥ 2,664

Pro forma Information of Leased Property Whose Lease Inception Was before February 28, 2009
ASBJ Statement No.13, “Accounting Standard for Lease Transactions” requires that all finance lease transactions becapitalized to recognize lease assets and lease obligations in the balance sheet. However, 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 No.13 effective March 1,
2009, and accounted for such leases as operating lease transactions. Pro forma information of leased property whose
lease inception was before February 28, 2009, was as follows:
Millions of Yen
Furniture, Fixtures, and Equipment and Other Assets

Acquisition cost
Accumulated depreciation
Accumulated impairment loss
Net leased property

2013¥21,035
16,007662¥ 4,366

2012¥30,181
21,058755¥ 8,368

Thousands of
U.S. Dollars

2013$227,381
173,030
7,156$ 47,195

Thousands of
U.S. Dollars

Millions of Yen

The Companies lease certain store facilities, machinery, computer equipment, office space, and other assets.
Depreciation expense
Interest expense
Lease payments
Reversal of allowance for impairment loss on leased property
Impairment loss

2013
¥4,077
215
4,374
187
69

2012
¥6,627
389
6,940
444
388

2013
$44,071
2,324
47,281
2,021
746

Depreciation expense and interest expense, which are not reflected in the accompanying consolidated statements ofincome, are computed by the straight‍‑‍line method and the interest method, respectively.

17. COMPREHENSIVE INCOME
The components of other comprehensive income for the year ended February 28, 2013, were the following:
Millions of Yen

Thousands of U.S.
Dollars

2013

2013

¥ 143
(1)
142
( 52 )$ 1,546( 11 )
1,535( 562 )¥$

Unrealized gain on available-for-sale securities:
Gains arising during the year
Reclassification adjustments to profit or loss
Amount before income tax effect
Income tax effect
Total

90

973

Foreign currency translation adjustments:
Adjustments arising during the year

¥1,926$20,819¥ ( 639 )¥1,377$ ( 6,907 )$14,885

Share of other comprehensive loss in associates
Losses arising during the year

Obligations under finance leases:

Total other comprehensive income
Millions of Yen

Due within one year
Due after one year
Total

2013
¥2,9502,475¥5,4252012¥4,324
5,411¥9,735

Thousands of
U.S. Dollars

2013$31,888
26,754$58,642

Allowance for impairment loss on leased property of ¥533 million ($5,762 thousand) and ¥667 million as of February
28, 2013, and February 29, 2012, is included in obligations under finance leases.
The imputed interest expense portion which is computed using the interest method is excluded from the above
obligations under finance leases.

90 Lawson, Inc. INTEGRATED REPORT 2013

The corresponding information for the year ended February 29, 2012, was not required under the accounting standard
for presentation of comprehensive income as an exemption for the first year of adopting that standard and is notdisclosed herein.

18. SEGMENT INFORMATIONIn March 2008, the ASBJ revised ASBJ Statement No. 17, “Accounting Standard for Segment Information Disclosures”
and issued ASBJ Guidance No. 20, “Guidance on Accounting Standard for Segment Information Disclosures.” Under
the standard and guidance, an entity is required to report financial and descriptive information about its reportablesegments. Reportable segments are operating segments or aggregations of operating segments that meet specified
criteria. Operating segments are components of an entity about which separate financial information is available andsuch information is evaluated regularly by the chief operating decision maker in deciding how to allocate resources
and in assessing performance. Generally, segment information is required to be reported on the same basis as isused internally for evaluating operating segment performance and deciding how to allocate resources to operating
segments.

Lawson, Inc. INTEGRATED REPORT 2013 91

Notes to Consolidated Financial Statements(a) Description of reportable segments
The Company’s financial information is provided separately by reporting segment and is subject to regular review
by the Board of Directors with regard to the allocation of managerial resources and performance evaluation. The
Companies’ primary business is the operation of convenience stores, which is undertaken by the incorporation ofrelated businesses.
Therefore, the Companies have made the convenience store unit its main reporting segment, based on considerationof financial characteristics and the nature of the services provided.

Millions of Yen

2012
Reportable
Segments(b) Methods of measurement for the amounts of sales, profit (loss), assets, and other items for each reportable segment
The accounting policies of each reportable segment are basically consistent to those disclosed in Note 2, “Summary of
Significant Accounting Policies.”
Operating income is applied in “Segment profit.” “Intersegment sales or transfers” are calculated based on market price.

Other

Total

¥ 413,899
1,976¥415,875¥ 57,371
520,992¥ 65,058
2,129¥67,187¥ 4,445
46,607¥478,957
4,105¥483,062¥ 61,816
567,599

34,376
677
2,786

2,520
306
4,241

36,896983
7,027

35,2881,027

36,315Reconciliations

Consolidated

Sales:
Sales to external customers
Intersegment sales or transfers

Lawson, Inc.; Ninety‍‑‍nine Plus, Inc.; and Lawson Toyama, Inc. running the LAWSON, NATURAL LAWSON, LAWSONSTORE100, and other chains—The convenience store unit operates a franchise system as well as undertaking the direct
management of stores in Japan. SCI, Inc. performs the increase in efficiency and optimization of the whole process asa subsidiary which manages the process from supply to sale synthetically.

Convenience
Store

Total
Segment profit
Segment assets¥478,957¥ ( 4,105 )¥ ( 4,105 )¥ ( 47 )( 36,145 )¥478,957¥ 61,769
531,454

Other:
Depreciation
Amortization of goodwill
Payment for associated companies
Increase in property, plant, andequipment and intangible assets( 34 )

36,896949
7,027
36,315(c) Information about sales, profit (loss), assets, and other items is as follows:
Thousands of U.S. Dollars
Millions of Yen

2013

2013

Reportable
Segments

Reportable
Segments
Convenience
Store

Other

Total

¥ 416,935¥ 70,510¥487,445

2,159¥419,094¥ 61,336
562,237

2,493¥73,003¥ 4,872
69,7594,652¥492,097¥ ( 4,652 )¥ ( 4,652 )¥487,445¥ 66,208
631,996¥38( 52,186 )¥ 66,246
579,810

Reconciliations

Consolidated

Sales:
Sales to external customers¥487,445

Intersegment sales ortransfers
Total
Segment profit
Segment assets
Depreciation
Amortization of goodwill
Payment for associated companies
Increase in property, plant, andequipment and intangible assets

92 Lawson, Inc. INTEGRATED REPORT 2013

40,050
671
2,181

2,780
419
4,228

42,8301,090
6,409

40,194

2,728

42,922( 34 )

42,8301,056
6,409
42,922

Other

Total

Reconciliations$4,506,918
23,338$4,530,256$ 663,020
6,077,581$762,188
26,948$789,136$ 52,665
754,070$5,269,106
50,286$5,319,392$ ( 50,286 )$ ( 50,286 )$5,269,106$ 715,685
6,831,651$
411( 564,112 )$ 716,096
6,267,539

432,926
7,253
23,57630,051
4,530
45,703462,977
11,783
69,279( 368 )

462,977
11,41569,279434,483

29,488463,971

Consolidated

Sales:
Sales to external customers
Intersegment sales or transfers
Total

Other:

Convenience
Store

Segment profit
Segment assets$5,269,106

Other:
Depreciation
Amortization of goodwill
Payment for associated companies
Increase in property, plant, andequipment and intangible assets

463,971

Notes: 1. “Other” is operating segments that are not included in reportable segments, consisting of entertainment/home convenience business(formerly, 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.

Lawson, Inc. INTEGRATED REPORT 2013 93

Notes to Consolidated Financial Statements

19. RELATED PARTY TRANSACTIONS(d) Information regarding loss on impairment of long-lived assets of reportable segments
Millions of Yen

Balances and transactions of the Company with subsidiaries of Mitsubishi as of and for the years ended February 28,
2013 and February 29, 2012, were as follows:

2013
Reportable
Segments

Loss on impairment oflong-lived assets

Convenience
Store

Other

Total

¥2,780¥150¥2,930Reconciliations

Millions of Yen

Consolidated¥2,930Purchases

2012

2012

2013

¥ 36,370
428,342¥ 7,851
104,340$ 393,147
4,630,224

Food Service Network Co., Ltd.:

Reportable
Segments

Loss on impairment oflong-lived assets

2013
Mitsubishi Shokuhin Co., Ltd.:
Accounts payable—trade

Millions of Yen

22,280276,918

Accounts payable—trade
Purchases

Convenience
Store

Other

Total

¥3,276¥43¥3,319Thousands of
U.S. Dollars

Reconciliations

Consolidated¥3,319Purchase prices and other conditions are determined at an arm’s-length basis.
Balances and transactions of Ninety-nine Plus Inc., a consolidated subsidiary of the Company, with subsidiaries ofMitsubishi as of and for the years ended February 28, 2013 and February 29, 2012, were as follows:

Thousands of U.S. Dollars

2013
Reportable
Segments

Loss on impairment oflong-lived assets

Millions of Yen

Convenience
Store

Other

Total

$30,051$1,621$31,672

Reconciliations

Consolidated$31,672

Thousands of
U.S. Dollars

2013

2012

2013

¥ 6,173
80,324¥ 5,959
72,459$ 66,728
868,274

Mitsubishi Shokuhin Co., Ltd.:
Accounts payable—trade
Purchases

Purchase prices and other conditions are determined at an arm’s-length basis.

(e) Information regarding amortization of goodwill and carrying amount of reportable segments
Millions of Yen

20. FINANCIAL INSTRUMENTS AND RELATED DISCLOSURES

2013
Reportable
Segments

Goodwill at February 28, 2013

Convenience
Store

Other

Total

Reconciliations

Consolidated¥6,995¥3,273¥10,268¥ ( 585 )¥9,683(1) Policy for Financial Instruments
The Companies primarily use short-term deposits, etc., to manage their funds and raise funds as necessary throughborrowings from financial institutions and leasing according to the financing plan. The Companies do not engage
in derivative transactions.

Millions of Yen(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.

2012
Reportable
Segments

Goodwill at February 29, 2012

Convenience
Store

Other

Total

Reconciliations

Consolidated¥7,666¥3,825¥11,491¥ ( 619 )¥10,872

Thousands of U.S. Dollars

2013
Reportable
Segments
Convenience
Store

Goodwill at February 28, 2013

$75,613

Other$35,380

Total

Reconciliations

Consolidated$110,993$ ( 6,323 )$104,670

Long-term loans receivable (primarily referring to construction cooperation funds which are loaned to the owners
when a store opens and loans to franchised stores) and lease deposits are exposed to credit risk from the owners,
etc. The responsible department monitors these risks on receivables on a daily basis with the aim of early detection
and reduction of concerns associated with the collectibility of debt due to deterioration in the financial conditionsof the owners.
Investment securities are primarily shares of companies with business relationships and listed shares of which
are exposed to the risk of market price fluctuations. With regard to this risk, the Company monitors the financial
conditions of business counterparties on a regular basis.

The amount under “Other” is for the entertainment/home convenience business and overseas business.

Among trade payables, most of the accounts payable—trade and deposits held as a result of bill settlement services
have payment due dates within one month, while most deposits held as a result of ticket sales transactions havepayment due dates within six months.

Amortization of goodwill has been omitted, as similar information is disclosed in “(c) Information about sales, profit(loss), assets, and other items.”

The primary purpose of long-term debt and lease obligations related to finance lease transactions is securing funds
required for capital investments, and their maximum redemption dates are ten years after the balance sheet date.

94 Lawson, Inc. INTEGRATED REPORT 2013

Lawson, Inc. INTEGRATED REPORT 2013 95

Notes to Consolidated Financial Statements

Deposits received from franchisees and lessees are primarily operational deposits received from franchised storesbased on franchise contracts and are returned to franchised stores after the expiry of the franchise contract term
(contract term is 10 years in principle).
With regard to the liquidity risk associated with fund raising (risk for which payment cannot be executed on thepayment due date), the Company prepares and updates financial plans on a timely basis and manages liquidity riskby measures, including maintaining liquidity on hand.
(3) Fair Values of Financial Instruments
Fair values of financial instruments are based on the quoted price in active markets. If quoted price is not available,
other rational valuation techniques are used instead. The result of estimation might differ if other valuation
techniques were taken.
Millions of Yen
February 28, 2013

Cash and cash equivalents
Time deposits
Accounts receivable
Investment securities
Investments in associated companies
Long-term loans receivable
Lease deposits
Total
Accounts payable
Money held as agent
Long-term debt ( include current portion of long-term debt )Guarantee deposits received from franchised stores and other
Total

Carrying
amountFair Value¥ 72,766
12,004
70,102
1,191
4,228
34,48485,548¥280,323¥115,674
87,52961,85234,805¥299,860¥ 72,766
12,004
70,102
1,191
6,659
34,536
79,141¥276,399¥115,674
87,52962,26932,115¥297,587

Cash and cash equivalents
Time deposits
Accounts receivable
Investment securities
Investments in associated companies
Long-term loans receivable
Lease deposits
Claims in bankruptcy and reorganization
Total
Accounts payable
Money held as agent
Long-term debt ( include current portion of long-term debt )Guarantee deposits received from franchised stores and otherTotal

96 Lawson, Inc. INTEGRATED REPORT 2013

Carrying
AmountFair Value¥ 73,670
10,40452,040115
4,880
32,044
83,06436¥256,253¥108,703
75,00549,66235,735¥269,105¥ 73,670
10,40452,040115
4,374
32,10975,66236¥248,410¥108,703
75,00549,95532,484¥266,147

February 28, 2013

Cash and cash equivalents
Time deposits
Accounts receivable
Investment securities
Investments in associated companies
Long-term loans receivable
Lease deposits
Total
Accounts payable
Money held as agent

Unrealized
Gain/Loss

Long-term debt ( include current portion of long-term debt )Guarantee deposits received from franchised stores and otherTotal¥ 2,43152( 6,407 )¥ ( 3,924 )¥417( 2,690 )¥ ( 2,273 )Millions of Yen
February 29, 2012

Thousands of U.S. Dollars

Unrealized
Gain/Loss

Carrying
AmountFair Value$ 786,574
129,759
757,767
12,87445,703372,760
924,743$3,030,180$1,250,395
946,157
668,598376,230$3,241,380$ 786,574
129,759
757,767
12,874
71,981
373,322855,486$2,987,763$1,250,395
946,157
673,106
347,152$3,216,810

Unrealized
Gain/Loss$ 26,278
562( 69,257 )$ ( 42,417 )

$

4,508
( 29,078 )$ ( 24,570 )Cash and cash equivalents, time deposits, and accounts receivable
The carrying values of cash and cash equivalents, time deposits, and accounts receivable (include allowance for
doubtful accounts) approximate fair values because of their short maturities.
Investment securities and investments in associated companies
The fair values of investment securities are measured at the quoted market price on the stock exchange for the equity
instruments and at the quoted price obtained from the financial institution for certain debt instruments.
Long-term loans receivable
The fair values of long-term loans receivable (include allowance for doubtful accounts) are determined by discounting
the cash flows related to the loans at the interest rate deemed to be applied for similar loans.
Lease deposits
The fair values of lease deposits (include allowance for doubtful accounts) are determined by discounting future cash
flows which reflect the collectibility with the yield rate of government bonds during the remaining period.
Accounts payable and money held as agent
The carrying values of accounts payable and money held as agent approximate fair value because of their shortmaturities.

¥ ( 506 )65( 7,402 )¥ ( 7,843 )¥293

Long-term debt (include current portion of long-term debt)
The fair values of long-term debt are determined by discounting the cash flows related to the debt at the Companies’
assumed corporate discount rate.
Guarantee deposits received from franchised stores and other
The fair values of guarantee deposits received from franchised stores and other are determined by discounting future
cash flows based on the estimated repayment amount with the yield rate of government bonds during the remaining
period.

( 3,251 )¥ ( 2,958 )Lawson, Inc. INTEGRATED REPORT 2013 97

Notes to Consolidated Financial Statements

21. NET INCOME PER SHARE(4) Financial Instruments Whose Fair Value Cannot Be Reliably Determined
Carrying AmountThousands of
U.S. Dollars

Millions of Yen

Investments in equity instruments that do nothave a quoted market price in an active market
Investments in unconsolidated subsidiaries andaffiliated companies

2013

2012

2013

¥1,038¥273$11,220

3,218

2,295

34,786
4,995

462

Others140

Reconciliation of the differences between basic and diluted net income per share (“EPS”) for the years ended February
28, 2013 and February 29, 2012 is as follows:
Millions of Yen

Thousandsof Shares

Year Ended February 28, 2013

Net Income

Weighted-Average
SharesBasic EPS—Net income available
to common shareholders¥33,182

99,887¥332.20$3.59¥33,182

152
100,039¥331.69$3.59¥24,885

99,871¥249.17¥24,885

149
100,020¥248.80

Yen

U.S. Dollars
EPS

Effect of dilutive securities—
Stock options(5) Maturity Analysis for Financial Assets and Securities with Contractual Maturities

Diluted EPS—Net income for computation

Millions of Yen
Year Ended February 29, 20122013
Due in 1 Yearor Less

Cash and cash equivalents
Time deposits
Accounts receivable
Long-term loans receivable
Lease deposits
Total¥ 72,766
12,004
71,383
3,270
5,177¥164,600

Due after 1 Yearthrough 5 Years

Due after 5 Years
through 10 Years

Due after
10 Years

Stock options¥12,176
19,266¥31,442¥10,444
20,371¥30,815¥ 8,691
41,295¥49,986

2012

Cash and cash equivalents
Time deposits
Accounts receivable
Long-term loans receivable
Lease deposits
Total¥ 73,670
10,404
52,166
3,125
4,769¥144,134

Effect of dilutive securities—
Diluted EPS—Net income for computation

Millions of Yen

Due in 1 Yearor Less

Basic EPS—Net income available
to common shareholders

Due after 1 Yearthrough 5 Years

Due after 5 Years
through 10 Years

Due after
10 Years

22. SUBSEQUENT EVENT
Appropriation of Retained Earnings
The following appropriation of retained earnings was approved at the general shareholders meeting held on May 21,
2013:

Cash dividends, ¥100 ( $1.08 ) per share¥11,234
18,957¥30,191¥10,575
19,781¥30,356

Millions of Yen

Thousands of
U.S. Dollars¥9,989$107,977¥ 7,205
40,159¥47,364

Thousands of U.S. Dollars

2013

Cash and cash equivalents
Time deposits
Accounts receivable
Long-term loans receivable
Lease deposits
Total

98 Lawson, Inc. INTEGRATED REPORT 2013

Due in 1 Yearor Less

Due after 1 Yearthrough 5 Years

Due after 5 Years
through 10 Years

Due after
10 Years$ 786,574
129,759
771,625
35,34755,961$1,779,266$131,618
208,259$339,877$112,896
220,203$333,099$ 93,947
446,384$540,331

Lawson, Inc. INTEGRATED REPORT 2013 99

INDEPENDENT AUDITOR’S REPORT

100 Lawson, Inc. INTEGRATED REPORT 2013

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

http://lawson.jp/en/

Published in September 2013
© 1975-2013 Lawson, Inc. All rights reserved.
Printed in Japan