LAWSON, INC.

Tokyo Headquarters:
4-9-25 Shibaura, Minato-ku, Tokyo 108-8563
TEL +81-3-5476-6800
URL http://www.lawson.co.jp/

ANNUAL REPORT 2001
Year ended February 28, 2001

Annual Report 2001

Scaling
New
Heights

This annual report is printed on recycled paper.

Printed in Japan

Since our establishment in 1975, Lawson has developed its convenience store chain
operations with the view to becoming “the ‘hot’ station in the neighborhood,” admired by
local communities the length and breadth of Japan. The word “hot” embodies two of ourcore mantras. Firstly, we are dedicated to providing the “hottest” products and services.
Secondly, it means that we try to make our stores “warm,” welcoming locations that servea town square role in the community. That’s in addition to offering convenience andsuperior levels of service around the clock.
At present, the convenience store industry presents a wealth of growth opportunities.
There is huge scope for opening stores throughout regional Japan and for cultivating
new customers. Dramatic change is also defining the market.
Against this backdrop, we added the finishing touches to our nationwide network of
Lawson stores in 1997. This unique presence in all 47 prefectures in Japan——we are theonly chain that can boast this——gives us a significant competitive edge. We are also apacesetter in IT in the industry. Capitalizing on these strengths, we are seeking to create
more corporate value through growth in sales and greater efficiency in every aspect of
our operations from store management, products and services through logistics andinformation systems.

Contents
President’s Message

1

Scaling New Heights——In Efficiency

6

Scaling New Heights——In New Business Initiatives

12

Scaling New Heights——In Product Lineups

16

Directors and Corporate Auditors

20

Five-Year Summary

21

Management’s Discussion and Analysis

22

Consolidated Balance Sheets

28

Consolidated Statements of Income

30

Consolidated Statements of Shareholders’ Equity

31

Consolidated Statements of Cash Flows

32

Notes to Consolidated Financial Statements

33

Independent Auditors’ Report

42

Corporate Data

43

Investor Information

44

Forward-Looking Statements
This annual report contains forward-looking statements about the future plans, strategies, beliefs and performance of
Lawson and its subsidiaries. These forward-looking statements are not historical facts. They are expectations, estimates, forecasts and projections based on information currently available to the company and are subject to a numberof risks, uncertainties and assumptions, which, without limitation, include economic trends, competition in the Japaneseconvenience store industry, personal consumption, market demand, the tax system and other legislation. As such,actual results may differ materially from those projected.

Becoming the industry leader is our overriding
target. We are fully aware of what we must do
to achieve this. While ouroperating environment ischanging dramatically,presenting a host ofchallenges, we have aclear strategy in hand
and we have made asolid start toward
our goal.

ANNUAL REPORT 2001 1

President’s Message

Summary of Operating Environment and Fiscal 2000 Operating Results
Fiscal 2000, ended February 28, 2001, was a watershed in the history of
Lawson. In July 2000, we listed on the first sections of the Tokyo Stock
Exchange and the Osaka Securities Exchange. These listings increased our
profile and opened up a new source of funding. The year also saw us shift
our focus from our traditional strategy of quantitative expansion to a new
ideal——the pursuit of quality.
The Japanese economy in fiscal 2000 was marred by continued stagnation
as a path to recovery failed to present itself. With a downturn in consumer
spending also evident, the future of the economy remained cloaked in
uncertainty. It was also a tough year for the convenience store industry.
Supermarkets, the foodservice industry and other sectors are a growing
threat, and competition among the major convenience store chains
including Lawson, who are monopolizing the market, is intensifying.
In this climate, Lawson adopted an aggressive strategy of opening andrelocating stores. We also enhanced product development capabilities andimproved product and service quality. At the same time, we worked tomaintain sufficient stock at stores and to upgrade the lineup of products andservices offered through our Loppi multimedia terminals. As a result, total
net sales of Lawson stores including franchised stores amounted to ¥1,277,638
million, an increase of 4.5% year on year. Net income increased by 9.0% to¥16,368 million, despite higher expenses in opening new stores. The result
was attributable to greater efficiency in store operations, including logistics.

2 ANNUAL REPORT 2001

Mitsubishi Corporation has become the principal shareholder in Lawson. What impact
will this have on your future business strategy?
We continue to engage in a close, friendly relationship with Mitsubishi Corporation, andwe are earnestly engaged in open dialogue on Lawson’s strategic direction. Focusing
primarily on new businesses, we have been making extensive use of the resources
provided by Mitsubishi Corp. to boost Lawson’s corporate value. We will step up thisdrive to create greater efficiency and generate higher earnings across the Lawson store
network. Areas under the spotlight will include logistics, product development, store
expansion and information systems.
Lawson seems to have scope for improving the efficiency of its operations. What areas
are you tackling?
We have identified three areas where efficiency must be improved: stores with low
average daily sales; the high ratio of Company-operated stores; and regions where wehaven’t as yet established Lawson as the dominant force. Regarding the first of theseareas, we will relocate underperforming stores to locations where we are confident that
we can achieve high average daily sales. This will lead to improved profits for franchised
storeowners, and ultimately to greater benefits for Lawson. Inefficient Company-operated
stores will be closed, allowing us to cut back on expenses, and highly efficient ones will
be franchised. By aggressively pushing ahead with this strategy, we will both increase
the number of Lawson stores and substantially enhance our efficiency through market
dominance. At the same time, we are looking into strategically allying with industry
counterparts to share bento-box production facilities and distribution centers. The aim
here too is to increase efficiency.
What are Lawson’s strengths in venturing into new businesses?
In e-commerce and mobile commerce, which include the Internet and NTT DoCoMo’s i-mode
mobile phone service, our store network facilitates Lawson’s existing services——settlement
services and product pick-up at stores. We aim to provide these services for a fee to retailers
and service providers that sell online. The key element differentiating Lawson from otherchains is our nationwide presence. Clients using Lawson services will thus have access toconsumers throughout Japan, unlocking a host of new Net business opportunities. Leading
companies have already honed in on our strengths. We have, for example, launched joint
ventures with NTT DoCoMo, Inc., Matsushita Electric Industrial Co., Ltd. and Mitsubishi
Corp. Indeed, Lawson’s competitive advantage also lies in being able to tap into thesecompanies’ wealth of resources.
What are the specific indicators for assessing Lawson’s corporate value?
ROA and ROE are the prime indicators we use for evaluating performance. We place theutmost priority on two themes. One is raising earnings by dealing with inefficient assets.
The highest level of asset quality possible underpins our drive to lift earnings. The othertheme is making optimal use of funds with which we have been entrusted by shareholders.
Our current mid-term business plan sets the targets of improving ROE to at least 12%,and ROA to at least 6%. From the perspective of setting Lawson apart from rivals, we areparticularly focused on earnings growth. All departments are subject to this indicator andwe have set quantitative and qualitative targets for each. In terms of quantitative targets,
the Development Division will raise average daily sales at new stores and improve productivity in store development. The Operations Division will improve store efficiency andgrow sales by minimizing opportunity loss. And the Products Division will develop
higher-selling products and reduce costs through supply chain management.

ANNUAL REPORT 2001 3

Financial Highlights
Lawson, Inc. and Consolidated Subsidiaries
Years ended February 2001 and 2000

Millions of Yen

For The Year
Total net sales of Lawson stores including
franchised stores . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes
and minority interest . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Per Share Data (Yen and dollars):
Net income(2) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . .
At Year-End
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total shareholders’ equity . . . . . . . . . . . . . . . .

Thousands of
U.S. Dollars(1)

2001

2000

Percent change
2001/2000¥1,277,638
41,279¥1,222,880
40,185

4.5%
2.7$10,976,271
354,631

29,846
16,36833,86915,011(11.9)
9.0

256,409140,619

¥

¥

143
850

3.5%
105.9

$

¥ 339,413
95,93214.1%
86.0$3,326,770
1,533,058

148
35¥ 387,236
178,448

2001

1.27
0.30

Notes: 1. The U.S. dollar amounts represent translations of Japanese yen at the approximate exchange rate at February 28, 2001, of ¥116.40=$1.
2. The data has been restated to reflect the 1 to 50 stock split on April 14, 2000.

Leading the Industry
In recent years, many have taken the view that the convenience store
industry has matured, and thus there is scant possibility that it willachieve high growth in the future. My belief in the growth potential of theindustry, however, is unwavering. I see potential in expanding into new
regions to open stores and in unlocking new customer segments. I am
convinced that Lawson will continue to grow as we implement appropriate
business strategies.
Six themes will guide Lawson to further growth and take us to the top of
the industry.
(1) We will open new stores only where we are confident of high average
daily sales, and will close and relocate underperforming stores.
(2) We will strive for superior levels of efficiency in store management andlogistics.
(3) We will develop value-added products and enhance product lineups
responsive to local communities and cultures.
(4) We will slash costs by adhering to supply chain management principles.

4 ANNUAL REPORT 2001

(5) We will improve customer convenience and set ourselves apart fromother industry chains by promoting e-commerce and financial services.
(6) We will effectively utilize the resources provided by our most important
strategic partner, Mitsubishi Corporation, across our entire business
operations.
We are currently pushing ahead with our mid-term business plan. The plan
articulates our concept of steadily executing strategies that will define
Lawson into the future. We will establish a powerful organizational structureand deliver products and services that imbue value. These actions will help
establish Lawson as the new de facto industry standard. Sales growth andimproved efficiency will be central themes for bolstering our corporate
value. These will enable us to achieve the highest rate of profits in theindustry and thereby gain the trust, confidence and appraisal of all Lawson
stakeholders.
May 2001

Kenji Fujiwara
President and CEO

ANNUAL REPORT 2001 5

Scaling New Heights——In Efficiency

Lawson is the only true nationwide convenience
store chain in Japan. We have roughly 7,700 stores
across Japan, in all 47 prefectures. To enhance thequality of our network, we are pursuing three core
initiatives. One is raising average daily sales. The
second is relocating and closing stores, thereby
crafting a stronger network of higher quality stores.
The third precept aims at enhancing the quality offranchisee management.
By creating new stores with high average daily
sales and replacing underperforming stores, we willraise the quality of chain management and stabilize
the management of franchisees. Two departments
are at the forefront of these initiatives: the Development Division, which develops new stores, andthe Operations Division, which supports existingand new stores and is pushing ahead with therelocation and closure of unprofitable stores.
SPURRING TOP–LINE GROWTH
Raising the average daily sales at new stores is oneof our most pressing issues. With this in mind, newstores must pass a rigid screening process andsatisfy certain conditions. Our first action is tosurvey and analyze the movement of people in andaround areas where we plan to open a new store,
and to identify specific regional characteristics.
Based on this analysis, we run multiple sales
simulations. The opening of a new store also
hinges upon obtaining tobacco and liquor licenses,
as these contribute significantly to raising turnover.

Our recently formulated mid-term management
plan calls for new stores to achieve average daily
sales in fiscal 2003 of approximately ¥500,000, up
from the daily average of around ¥420,000 in fiscal
2000. We will scale new heights under the banner:“From Quantity to Quality.” If our rigorous screening
process determines that a smaller number of storesare opened than the previous year, we are preparedto let this happen to achieve our goal of raising daily
sales. In fact, in fiscal 2001 we expect to open 650
stores, a roughly 10% decline compared to the 725
new openings in fiscal 2000. Thereafter, we will adhere
to our policy of not overextending ourselves by
opening new stores where the numbers don’t justify
it. What’s more, we have introduced an incentive
plan as a central element of our strategy to align theinterests of persons in charge of store developmentwith this cause. The result will be to improve theefficiency with which we invest in stores.
STORE RELOCATION AND CLOSURE
Replacement and closure of stores with low daily
sales, and enfranchisement of Company-operated
stores, is our second theme. Rapid changes in ouroperating environment necessitate the closing ofstores with sluggish daily sales. Of course, wetake the care to consult with franchise owners. In
such situations, we ask franchise owners, where
possible, to manage other stores that have brighter
prospects. This approach accomplishes two goals:
we keep franchise owners happy, and we enhance
the quality of the chain as a whole.

Store Network
Lawson is the only true nationwide
convenience store chain in Japanand has approximately 7,700
stores. Our aim is to enhance thequality of this extensive network.

China
Shanghai
69

Kyushu Region
837
Fukuoka270
Saga
52
Nagasaki
71
Kumamoto
78
Oita
86
Miyazaki75
Kagoshima 102
Okinawa
103(As of February 28, 2001)
6 ANNUAL REPORT 2001

Chugoku Region
445
Tottori
49
Shimane48
Okayama
116
Hiroshima 121
Yamaguchi 111

Shikoku Region
336
Tokushima 96
Kagawa
95
Ehime
112
Kochi
33

Koshinetsu Region
340
Niigata
115
Yamanashi
67
Nagano158(Stores)

Hokkaido

Hokuriku Region
216
Toyama87
Ishikawa
65
Fukui
64

Kinki Region
1,841
Shiga
102
Kyoto
182
Osaka
879
Hyogo
459
Nara
118
Wakayama 101

462

Tohoku Region
600
Aomori89
Iwate
88
Miyagi
176
Akita
80
Yamagata
59
Fukushima 108
Tokai Region
649
Shizuoka
180
Aichi
325
Gifu
83
Mie
61

Kanto Region
1,957
Ibaraki
94
Tochigi
98
Gunma
65
Saitama
258
Chiba
251
Tokyo
709
Kanagawa 482

AN EMPHASIS ON THE QUALITY OF
FRANCHISEE MANAGEMENT
We are promoting the construction of a networkthat strikes the perfect chord between franchised
and Company-operated stores. This involves lowering
the proportion of Company-operated stores with astrategy aimed at cutting costs. As of the end of
fiscal 2000, we had 711 Company-operated stores.
We are planning to bring that number down toapproximately 300 by the end of fiscal 2003. We will
use Company-operated stores as training grounds
for franchisees and as forums to trial newservices and products.
To raise the average daily sales ofexisting and new stores, we are executing a simple, yet crucial initiative. Our
1,000-strong team of store supervisors are being equipped withgreater leadership skills to encourage and support the operations of franchisees. The goal ofstore supervisors is to raise thesales of each and every store in theirjurisdiction. Store supervisors offer

Koji Wada
Executive Vice President
General Manager, Development Division

Number of Stores
Lawson’s basic strategy with regard to
new store development is summed upby the phrase “From Quantity to Quality.”
To enhance the daily sales of new stores,
we are prepared to have the number of
new stores added decrease from year
to year. Current plans call for 650 new
stores to be opened in the fiscal year
ending February 2002, 75 fewer thanin fiscal 2000.

FY98

FY99

FY00

FY01 (Est.)

Store openings

651

712

725

650

Store closures

284

350

420

450

Increase

367

362

305

200

Note: Shanghai Hualian Lawson Co., Ltd. not included.

ANNUAL REPORT 2001 7

suggestions on product lineup based on data from
Lawson’s sophisticated information system, andprovide services such as detailed operational analysis
and consultation. The quality of these services is
steadily improving as we strengthen our training
system to build the skills of store supervisors andenhance our information system. We are also delegating more authority to store supervisors. Complementing these activities is Lawson’s Head Office, which
provides comprehensive support to franchise owners,by supplying them with information on consumer
behavior and purchasing habits, and runningeffective, integrated advertising campaigns.
LETSS——THIRD-GENERATION INFORMATIONSYSTEM
Information systems are also at the heart of ourefficiency drive. To revamp store-centered operational
systems and bolster the network infrastructure to
support Net businesses, Lawson is creating athird-generation information system called LETSS(Lawson’s Epoch-making Total Strategic Systems).
Budgeted at a little over ¥68.7 billion, LETSS is
expected to come fully online by 2003. The specificgoals of this advanced new system are to:(1) Improve store operational efficiency by revamping
store systems(2) Enhance the speed and capacity of the network
between stores and Head Office by using bothsatellite and terrestrial links(3) Improve the Head Office administrative system(4) Facilitate information exchange with vendors
through a store-centered supply chain
management system(5) Strengthen the Net-business infrastructure
to grow new businesses
DOMINANCE AND ALLIANCES
Lawson is promoting a strategy of raising efficiency
by establishing a dominant presence in all ofJapan’s 47 prefectures. But this doesn’t just involve
increasing the number of stores through our own
efforts. We intend to spur improvement in efficiency
by sharing production and distribution facilities instrategic alliances with other convenience store
chains. And, we plan to streamline distribution
centers to raise logistics efficiency. Distribution
centers handling general merchandise and processed
foods will be integrated, thereby reducing their
number, and using them in a different capacity. Thisaction will curtail operational costs and transportation
expenses. Until now our distribution centers havebeen used as temporary points through which goods
from vendors passed before being sent to stores.
Moving forward, distribution centers will serve as
storehouses to improve distribution efficiency.
We are championing supply chain management(SCM) to eliminate waste and inefficiencies in all
steps, from the procurement of ingredients andmanufacturing through distribution to stores ofbento-boxes, snacks and other foods. This will
lower procurement, inventory and distribution

LETSS——Third-Generation Information System
LETSS will raise thequality of Lawson
management byenabling us to deliver
more efficient andeffective support toLawson stores thanever before.

Customer
Goal 3:
Stronger New
Store Strategy

LAWSON

Development
support system

Production
controlsystemNew storecomputer

New orderingterminal

New POSregister

Individual store sales information
WEB-EDIsystemGoal 5:Creating Value from IT Networks

8 ANNUAL REPORT 2001

Ordering
supportsystem

Lawsonlawson shop
store

Goal 4:
Simpler StoreOperations
VendorManufacturer

Goal 1:
Increasing Sales

Customer information

LAWSON
Lawson headquarters
New accounting system(ERP)
Information sharing system

Stocking
supportsystemLoppi

Goal 2:
New Business
ExpansioneContext@LAWSON
iConveniencecosts, and shorten lead-times. The end result will
be enhanced competitiveness and greater customer
satisfaction. At the end of August this fiscal year,
we will start a pilot project at two bento-box
factories to configure a standard process, which weplan to phase in to around 100 factories nationwide
by the end of fiscal 2002.
TRANSCENDING CONVENTIONAL THINKING
The convenience stores of the future will transcend
conventional thinking. As lifestyles change, it is
only natural that needs will change. Now more thanever that change is dramatic. That’s why we areexperimenting with new store formats based on
identification and analysis of emerging needs. We
have already opened trial stores in universities,
research institutes and hospitals. More of thesestores will be opened if they prove successful.
Other areas where new store formats are plannedon a trial basis are in hotels and expressway
service stations.

Takao Endo
Senior Managing Director,
General Manager, Store Operation Division

By integrating distribution centers andusing them to store inventory, Lawson
will dramatically cut logistics costs.

Manufacturer

VendorDDP

Store(Information processing)Now (DDP)

Vendor cost

Delivery cost

Manufacturer

DDP cost

DDC (stock)

Store

Vendor(Information processing)Future (DDC)

DDC cost

Reduces total cost

ANNUAL REPORT 2001 9

Scaling New Heights—In Efficiency

10

ANNUAL REPORT 2001

ANNUAL REPORT 2001

11

Scaling New Heights——In New Business Initiatives

Convenience store chains now compete forcustomers by broadening IT-based services. Here,
Lawson is the frontrunner. We pre-empted rivals by
installing Loppi multimedia terminals nationwide,in March 1998. They won solid support from
customers——around ¥40 billion in sales, primarily ofconcert tickets, are generated through the terminals.
We are broadening Loppi services to meet consumer
needs. We have added a download service forNintendo’s GameBoy software, a medical examination service, regional information services, local
government information, a printing service, credit
card services and we act as agents for consumer
finance companies, providing a service whereby
loan customers can repay their loans at any time.
Loppi terminals are so successful that we estimatetransactions made through them account for around
10% of all e-commerce in Japan. Through trial
and error over the last three years, we havealready trumped other convenience stores inJapan, gathering information on what sells
online and what doesn’t, and determining whatis needed to run a successful IT-based business.
E-commerce will form an integral part of all
business. It is especially important to Lawson for
two reasons. It enhances customer convenience andit gives us the edge needed to stay ahead of the pack.

Teruo Aoki
Managing Director
General Manager, New Business Strategy Division

Transaction Volumes(Billions of Yen)

140

Lawson pre-empted competitors byinstalling Loppi multimedia terminals
nationwide. These terminals are showing
a steady increase in transaction volumes,
particularly in concert ticket sales. In
future, we intend to enhance Lawson’s
dominance in e-commerce ande-business by offering products ofhigher added value.

120
100
80
60
40
20
FY98

FY99

Note: 2001 and thereafter are forecasts

12

ANNUAL REPORT 2001

FY00

FY01
(Est.)

FY02(Est.)

FY03(Est.)

Our alliance with Mitsubishi Corp., our principal
shareholder, will open up new opportunities.
@LAWSON—THE ONLINE CONVENIENCE STORE
An online service launched in November 1999,@Lawson showcases how we have scaled newheights in new businesses. @Lawson was designed
to increase Lawson’s brand recognition among PC
users. We now see its potential and are positioning
it as a comprehensive entertainment site with agrowing lineup of killer content. @Lawson also
gives customers direct access to all of the entertainment content on our Loppi multimedia terminals.
Several partnership alliances enable us to deliver
content in an ever-widening array. These alliances
include subsidiary Lawson Tickets Co., Ltd., now theNo. 2 player in Japan in concert ticket sales; JTB,
Japan’s largest travel agent, which devises originalLawson travel packages; and Nintendo, in gamemachines and software sales. Our aim is to grow@Lawson into a premier entertainment site thatappeals to young adults.
eCONTEXT—PLATFORM BUSINESSECONTEXT, INC., established in May 2000, enables
companies to sell products and services on theInternet using an open platform that offers
settlement and pick-up facilities at Lawson stores.
To advance our open platform strategy, we plan tohave 20,000 bases nationwide, adding otherconvenience store chains, gas stations and otherplaces of business to the locations where customers
can pick-up and pay for goods.

iCONVENIENCE—USING YOUR MOBILE PHONETO SHOP ONLINE
iConvenience, Inc. pioneered mobile commerce byenabling DoCoMo i-mode users——of which there weremore than 20 million as of March 2001——to shop
using mobile phones. iConvenience is developing
new services that will allow users to:• order products for delivery to Lawson stores;• print out and download information at Lawson
stores; and• connect their mobile phones to our cash registers
to settle payments.
In addition, iConvenience offers Lawson’s entertainment products and services to i-mode users.
FINANCIAL SERVICES—A NEW DIMENSION
The provision of financial services is designed toincrease the frequency of visits to Lawson stores.
Our proprietary debit card service, launched in
October 2000, increases customer convenience.
Credit cards now accepted include JCB, Visa,
MasterCard, American Express and Diner’s Club.
We have agreements with financial institutions tobegin installing ATMs in stores this fiscal year.
CREATING VALUE
We have advanced into communities under thebanner of becoming “the ‘hot’ station that satisfies
all customer needs.” We will now champion that rolefor each individual. By providing the new services
profiled above and other new businesses within
our stores, we will deepen ties with customers andcreate new value throughout all our businesses——offline and online.

Concert Ticket Sales(Billions of Yen)60

In concert and event ticket sales,
Lawson Tickets has secured a strong
number two position nationally. The
forecast calls for more growth and ahigher market share.

30

50

Lawson Tickets Co., Ltd.
PIA CORPORATION
25
Lawson’s share (%)

40

20

30

15

20

10

10

5
FY97

FY98

FY99

FY00

FY01
(Est.)

ANNUAL REPORT 2001

13

Scaling New Heights—In New
Business
Initiatives

14

ANNUAL REPORT 2001

INTERNET

From the house or office,it’s within reach anytime, anywhere

STORES

Killer Net Content——coming soon

ANNUAL REPORT 2001

15

Scaling New Heights——In Product Lineups

The Merchandising Division’s focus is on twothemes: raising daily sales and lowering costs.
RAISING DAILY SALES
Our objective is to bolster our ability to develop
original products and broaden our lineup. Around
70% of Lawson’s customers are males in their teens
to mid-30s. Many are repeat customers who visit
our stores twice or more a day. To drive growth, wemust hold on to our repeat customers and attract
other shoppers more often.
We have thus defined the roles of Head Office asfollows:(1) To identify social trends on a quantitative andqualitative basis(2) To gather information on the production
technologies and facilities of manufacturers(3) To develop products for nationwide sale(4) To provide information to each region
The Merchandising Division is looking to identify
consumer lifestyle trends and the scenarios theyinspire and assess what products would be a perfect
fit for them. The results are then sent to each region.
To bolster product strength we must create
products tuned to market needs. We have divided
our business in Japan into seven regions and are
drastically reforming our organizational structure
to expedite decision-making. This includes greater
delegation of authority. To deliver products withstrong product loyalty in every region, we are
analyzing unique regional preferences and otherdata, the results of which are then fed into the
product development network.

FFS——CREATING VALUE-ADDED PRODUCTS
Established in 1999, the Fresh Foods Supply
Cooperative (FFS) consists mainly of Lawson’svendors of main and side dishes, prepared noodles
and breads. FFS procures ingredients, develops
products and assures the quality of original Lawson
products. FFS is a lynchpin of Lawson’s drive tostrengthen product development.
FFS oversees product development and procurement of ingredients for the whole country. By working
together, Lawson and FFS can coordinate sales
activities and undertake bulk purchasing to keep
costs down. Their cooperation makes it possible
to develop products offering the best value.
In order to respond actively to the needs of regions,Lawson has also commenced regional operations
by means of its regional product departments and
FFS member companies working directly together.
Complementary strengths——the real-time customer
information gathered by Lawson combined with FFS
member companies’ development and technologicalstrengths——have upped the pace and quality of
product development. In addition, Lawson and FFS
are implementing a supply chain management (SCM)
system to oversee the entire process from procurement of ingredients through manufacturing andsales. This offers an additional means by whichcosts can be reduced.
PARTNER MERCHANDISING
To deliver products that raise customer satisfaction,
we are engaging in partner merchandising. We
leverage the brand strength and product develop-

Net Sales by Product Category
Lawson’s product strategy is focusedon two themes: raising daily sales andlowering costs. The former will beachieved by developing original
products and broadening our lineup.
SCM holds the key to achieving
the latter.

7.7%

7.1%

Fast foods

15.1%

15.1%
41.9%

7.5%

14.8%
42.1%

7.1%

28.0%

FY99

Note: Services includes tickets and home delivery.
Processed foods includes tobacco sales.

ANNUAL REPORT 2001

Fresh foods

42.8%

7.0%

Non-food
products
Services

28.4%

FY98

16

Processed
foods

7.7%

27.7%

FY00

ment expertise of major manufacturers to produce ahost of products. With Wacoal Corp., we created theunderwear brand raptina, an industry first. With
Shiseido Co., Ltd., we developed a new lineup for skincare and cosmetics made from natural ingredients. We
also sell Fancl face powder, a top-selling mail orderproduct. We will develop such products as the basisof new businesses. And, in preparation for the
deregulation of liquor licensing in 2003, we aredeveloping original wines, spirits and local sake.
STRIKING THE RIGHT BALANCE
In tandem with product development, we are working
to optimize our product lineup. The Merchandising
Division has created planograms for franchisees thatconsider regional characteristics, geographical factors
and price zones of products selected from among
our own, and from national brands. Productlifecycles are short and the market changes
constantly, so we change the planograms
frequently, and ensure that this new information is shared on a timely and accurate
basis with the Store Operation Division.
To raise the efficiency with which thelimited 100 square meters of floor spacein stores is utilized, we are radicallyreassessing space allocation.

Yoshio Shinozaki
Director
Deputy General Manager
Merchandising Division

Lawson is concentrating its energies
into the development of original
products. The quality and pace of
product development is being steppedup through analysis and applicationof real-time customer information,
combined with the product development strengths of FFS’ member
companies and major manufacturers.

ANNUAL REPORT 2001

17

Scaling New Heights—In ProductLineups

18

ANNUAL REPORT 2001

ANNUAL REPORT 2001

19

Directors and Corporate Auditors

From Left (Front): Executive Vice President, Koji Wada; President & CEO, Kenji Fujiwara;
Chairman, Yasuo Matsuoka; Senior Managing Director, Takashi Sekiguchi
From Left (Back): Managing Director, Yoshinori Harigae; Senior Managing Director, Takao Endo;Managing Director, Makoto Takayama; Managing Director, Teruo Aoki
ChairmanYasuo Matsuoka*
President & CEO
Kenji Fujiwara*
General Manager,
Merchandising Division
Executive Vice President
Koji Wada*
General Manager,
Development Division
Senior Managing Directors
Takashi Sekiguchi
General Manager, Office ofBusiness Planning
Takao Endo
General Manager, StoreOperation Division & Overseas
Project Planning &Development
Managing Directors
Makoto Takayama
General Manager, Office ofLine Support
Yoshinori Harigae
General Manager, Office ofCorporate Planning & Control
Teruo Aoki
General Manager, New
Business Strategy Division
Susumu Hasegawa
General Manager, Office ofInformation Systems*Representative director

20

ANNUAL REPORT 2001

Directors
Kenji Yamakawa
General Manager, Office ofFinance & Accounting
Katsuhiko Yamasaki
General Manager, Logistics
Division
Shigeru Kiyota
Deputy General Manager,
New Business Strategy
Division
Ichiro Okuda
Deputy General Manager,
Development Division
Isamu Ochiai
Director, Shanghai Hualian
Lawson Co., Ltd.
Shunji Tani
Deputy General Manager,
Office of Business Planning
Yoshio Shinozaki
Deputy General Manager,
Merchandising Division
Takao Kojima
General Manager, Office ofInternal Auditing

Eiichi Tanabe
Deputy General Manager,
Office of Corporate Planning &Control
Yoshimitsu Futai
Deputy General Manager,
Merchandising Division
Hiroshi Tasaka
Professor, Tama University
Full-time Corporate
Auditors
Sadao Suzuki
Masaaki Kojima
Part-time Corporate
Auditors
Yoshiyuki Sanada
Itsuo Jitosho

Managing Director
Susumu Hasegawa(As of May 24, 2001)

Five-Year Summary
Lawson, Inc. and Consolidated Subsidiaries
Years Ended February

Thousands of
U.S. Dollars

Millions of Yen
2001

2000

1999

1998

1997

2001

For the year:
Operating revenues:
Franchise commission
from franchised stores . . . . . . . . . .
Net sales from
Company-operated stores . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . .

¥ 135,237¥ 124,587¥ 115,087¥106,829¥ 95,324$ 1,161,830

133,178
11,803

155,613
11,653177,070
10,559180,995
16,087

178,076
13,301

1,144,141
101,400

303,911286,701

2,407,371

Total operating revenues . . . . . .

280,218

291,853

302,716

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

362,979
90,569562,777
261,313350,70289,248528,188
254,742

333,580
87,818494,090
243,309

3,118,376
778,084
4,834,854
2,244,957

Total store sales . . . . . . . . . . . . .

1,277,638

1,222,880

1,158,797

10,976,271

Operating income . . . . . . . . . . . . . . . . .
Income (loss) before income taxes
and minority interest . . . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . .

41,27940,18537,07338,66635,241

354,631

29,846
16,36833,86915,011

26,411
10,675(83,105)(40,586)

29,22013,163

256,409140,619

At year-end:
Total assets . . . . . . . . . . . . . . . . . . . . . . .
Total shareholders’ equity . . . . . . . . . . .

¥ 387,236
178,448¥ 339,413
95,932¥ 411,994
83,124¥448,704
72,449¥434,661
56,287$ 3,326,770
1,533,058

Total number of stores(1) . . . . . . . . . . . .
Number of employees (Full-time) . . . . .

7,749
4,170

7,432
4,234

7,066
4,418

6,686
4,482

6,266
4,096

Yen

Per share data:
Net income (loss)(2) . . . . . . . . . . . . . . . .
Cash dividends . . . . . . . . . . . . . . . . . . . .
ROE . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ROA . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

¥

148
35
11.9%
4.5%

¥

143
850
16.8%
4.0%

¥

U.S. Dollars

102
700
13.7%
2.5%

¥

(473)
—
(63.1)%(9.2)%

¥

157
1,979

$

1.27
0.30

26.5%
3.1%

Notes: 1. The “Total number of stores” includes stores belonging to Shanghai Hualian Lawson Co., Ltd., as of its December 31, 2000 balance date.
2. The data has been restated to reflect the 1 to 50 stock split on April 14, 2000.

ANNUAL REPORT 200121

Management’s Discussion and Analysis

Number of Stores(non-consolidated)

OVERVIEW
Personal consumption in Japan in fiscal 2000, ended February 28, 2001, was lackluster(Stores)on account of a bleak employment market and stagnant household income levels. Japan’s

8,000

convenience store industry also faced challenges. Although the number of stores increased,sales at existing stores fell below year-ago levels, as a whole. This reflected intensifying

7,000

competition with other industries, notably eating establishments and fast food chains,which continued to lower prices.

6,000

Against this backdrop, Lawson focused on strengthening product development, improving its lineup and establishing a close rapport with customers. The company made5,000

headway with its store expansion strategy of becoming the dominant convenience store
4,000

FY98

FY99

FY00

■ Franchised stores■ Company-operated stores

chain in each of Japan’s 47 prefectures. At the same time, Lawson aggressively engaged
in e-businesses, leveraging its nationwide store network and proprietary logistics framework. These and other actions were designed to take full advantage of Lawson’s strength
as the industry’s only true nationwide chain. The result was a 4.5% year-on-year increasein net sales to ¥1,277,638 million (US$10,976 million) throughout the Lawson chain.
Operating income increased 2.7% to ¥41,279 million (US$354,631 thousand) and net
income rose 9.0% to ¥16,368 million (US$140,619 thousand).
STORE NETWORK
Number of Stores

Number of Stores(consolidated)

Lawson is the only Japanese convenience store chain with a presence in all of Japan’s 47(Stores)

prefectures. In fiscal 2000, there was a net increase of 305 in the number of Lawson stores,

8,000

57 stores lower than the previous fiscal year’s net increase of 362 stores, on account of
aggressive relocation and closure of stores with low average daily sales. In contrast to

7,000

725 new stores opened, Lawson closed 420 stores, including those that were relocated.
Accordingly, the Lawson chain consisted of 7,683 stores as of year-end. In addition, there

6,000

are 66 Lawson convenience stores in Shanghai, China. The company worked actively toconvert its Company-operated stores into highly efficient franchised stores and to close

5,000

underperforming ones. This led to a year-on-year decrease of 141 Company-operated
stores to 711.

4,000

FY98

FY99

FY00

■ Franchised stores■ Company-operated stores

Lawson’s future store development policy will focus on a “quality first” approach thatsets strict criteria for opening stores. To achieve this, Lawson will reduce the annual numberof new stores to around 650. At the same time, the company will redouble its efforts torelocate or close underperforming stores. The cumulative effect will be an approximate
annual net increase of 200 stores. Company-operated stores will be closed for strategic
reasons or converted into franchised stores. Lawson plans to reduce the number of thesestores by 250 during fiscal 2001. By fiscal 2003, Lawson expects to operate only around
300 Company-operated stores primarily for training for franchise owners and trial introductionof new products.

22

ANNUAL REPORT 2001

Total Net Sales

Becoming a Dominant Force: Regional Store Trends
As it shifts focus from quantitative to qualitative expansion, Lawson is streamlining(Billions of Yen)

operations by bolstering its position as a dominant force as Japan’s only truly nationwide

1,300

convenience store chain. This involves reinforcing Lawson’s dominance in all of Japan’s
1,200

47 prefectures. In fiscal 2000, Lawson reached the 100-store mark in 5 prefectures ——Fukushima, Shiga, Wakayama, Kagoshima and Okinawa. This brings the total number of

1,100

prefectures with 100 or more Lawson stores to 24.
By region, Lawson’s 7,683 stores nationwide break down as follows: Kanto 25.5%,

1,000

Kinki 24.0%, Kyushu 10.9%, Tokai 8.4%, Tohoku 7.8%, Hokkaido 6.0%, Chugoku &
900

800

Shikoku 10.2%, Koshinetsu 4.4% and Hokuriku 2.8%. In fiscal 2000, Lawson stores saw
FY98

FY99

FY00

a net increase mainly in Kyushu, Tohoku and Kanto. In Tokyo and Osaka, the number of
Lawson stores decreased by 16 and 47, respectively, on account of relocation and*Including franchised-store sales

closure of underperforming stores.
STORE OPERATION ANALYSISNet Sales
Total net sales of Lawson stores including franchised stores were ¥1,277,638 million(US$10,976 million) in fiscal 2000, up 4.5% year on year. Sales increased in all four main
product areas—processed foods, fast foods, daily delivered foods and non-food products.

Average Daily Sales(a) Existing Store Sales
Despite the 4.5% sales increase across the chain, net sales at existing stores fell 1.7%,
the third year of consecutive decline. The primary factors were slow consumer spending(Thousands of Yen)

500

and intensified competition among convenience store chains.
(b) Average Daily Sales

400

Average daily sales are a key performance indicator for the management of convenience
stores. In the year under review, average daily sales at Lawson stores were ¥486 thousand,300

up ¥3 thousand year on year. This was attributable to serving an average of 783 customers
200

per day, slightly above the previous year, testifying to improved Lawson store recognitionand store loyalty. One way in which Lawson bolstered its ability to attract consumers to100

stores was expanding services such as bill settlement services, including for public utilities
FY98■ All stores■ New stores

FY99

FY00

bills. Average daily sales at new stores were ¥421 thousand, ¥14 thousand lower than the¥435 thousand a year earlier. Lawson will work to increase average daily sales for new
stores with a range of measures. These will include strengthening the screening system
for new stores at Head Office and revising incentive programs for store management.

ANNUAL REPORT 2001

23

Average Number of Customers
Average Transaction Value(People, Yen)

Breakdown of Sales by Product Category
Sales of processed food products increased 6.5% year on year to ¥562,777 million(US$4,835 million) owing to an increase in the number of stores with tobacco and liquor

800

licenses. Sales of processed food products accounted for 44.1% of total net sales. Fast
food sales increased 3.5% to ¥362,979 million (US$3,118 million), mainly reflecting continu-

600
616

620

614

ing strong sales of prepared noodles, including Nama Pasta. Sales of daily delivered foods,
such as ice cream and desserts, increased 1.5% to ¥90,569 million (US$778 million).

400

Overall, net sales of food products rose 5.0% to ¥1,016,325 million (US$8,731 million).
Sales of non-food products increased 2.6% to ¥261,313 million (US$2,245 million) due

200

to robust sales of toys and health drinks.
FY98

FY99

FY00

Millions of Yen
Year ended February 28, 2001

■ Customers
Transaction value per
customer

Net sales

Breakdown of Sales by
Product Category(%)

Year ended February 29, 2000

% of net sales

Net sales% of net sales

Processed foods . . . . . . . . . . . . . ¥ 562,777
Fast foods . . . . . . . . . . . . . . . . . . .
362,979
Daily delivered foods . . . . . . . . . .
90,569

44.1%
28.4%
7.1%

¥ 528,188
350,70289,248

43.2%
28.7%
7.3%

Food total . . . . . . . . . . . . . . . . . . .

1,016,325

79.6%

968,138

79.2%

Non-food products . . . . . . . . . . . .

261,31320.4%

254,74220.8%

Chain total . . . . . . . . . . . . . . . . . . . ¥1,277,638

100.0%¥1,222,880

100.0%

Bill Settlement Services
Lawson initiated bill settlement services in October 1989. In the year under review, thetotal value of transactions handled by Lawson, mainly consisting of public utilities bills, was100¥652.5 billion, up 23.3% over the previous fiscal year. Handling commissions were ¥5.3
80

billion, up 11.9% year on year.
Sales through Lawson’s Loppi multimedia terminals increased 16.5% over the previous

60

year to ¥39.6 billion on the back of higher concert and travel ticket sales. Loppi sales are
forecast to rise 21.2% in fiscal 2001, ending February 28, 2002. During the year under40

review, Lawson also worked to set itself apart from other convenience store chains by
20

pioneering new business models. For example, Lawson linked a service using NTT
FY98

FY99

FY00

■ Processed foods■ Fast foods■ Non-food products■ Daily delivered foods

24

ANNUAL REPORT 2001

DoCoMo i-mode mobile phones to @Lawson, the company’s e-commerce site.

Operating Income

INCOME AND EXPENSES
Total net sales of Lawson stores including franchised stores increased 4.5% to(Millions of Yen)

¥1,277,638 million (US$10,976 million), but operating revenues declined ¥11.6 billion

50,000(4.0%) to ¥280,218 million. This decline mainly reflected a ¥22,435 million (14.4%) de40,000

crease in net sales from Company-operated stores as a result of conversion to franchised
stores and closures. Franchise commissions from franchised stores increased 8.5% to30,000¥135,237 million (US$1,162 million) in line with a 6.6% rise in sales at franchised stores.
Other operating revenues increased 1.3% to ¥11,803 million due to an increase in

20,000ticket transaction volumes at subsidiary Lawson Tickets Co., Ltd.
10,000The cost of sales for Company-operated stores decreased 14.6% to ¥98,501 million
FY98

FY99

FY00

(US$846,228 thousand). The gross profit ratio for Company-operated stores improvedby 0.1 of a percentage point to 26.0%.
Selling, general and administrative expenses increased ¥4,085 million (3.0%) to¥140,438 million (US$1,206,512 thousand), despite efforts to reduce expenses by relocating or closing underperforming stores. This increase mainly reflects a ¥586 million (4.2%)

Net Income

increase in advertising expenses, primarily related to initiatives to mark the Company’s
initial public offering, and a ¥1,281 million (8.0%) rise in operating expenses. In addition,(Millions of Yen)

20,000the Company recorded a charge of ¥962 million for pension cost, and leasing costs
increased ¥3,050 million (9.7%) due to a higher number of properties leased to house

15,000new stores.
As a result of the above, operating income increased ¥1,094 million (2.7%) to

10,000¥41,279 million (US$354,631 thousand) and the operating income ratio rose by 0.9 ofa percentage point to 14.7%.

5,000

Other expenses amounted to ¥11,433 million (US$98,222 thousand), up ¥5,117
million year on year, despite a ¥1,659 million improvement in net interest expense due to
FY98

FY99

FY00

the repayment of debt. The increase in other expenses reflected a ¥494 million charge
for IPO-related expenses in July 2000, and a one-time charge of ¥7,011 million for thewrite-off of unamortized service cost, which resulted from a change in the accounting
method for retirement benefit obligations.
Income before income taxes and minority interests decreased ¥4,023 million (11.9%)

Return on Equity
Return on Assets

to ¥29,846 million (US$256,409 thousand). Net income, however, increased ¥1,357 million(%)(9.0%) to ¥16,368 million (US$140,619 thousand) due to a decrease in the statutory tax

20

rate in Japan and an increase in profits at Lawson Tickets. Net income per share, whichtakes into account the effects of stock splits, increased ¥5 (3.5%) to ¥148 (US$1.27).

15

ROA increased 0.5 of a percentage point to 4.5%, but ROE decreased by 4.9 percentage points to 11.9% due to an increase in shareholders’ equity from the issue of

10

common stock.
5

FY98

FY99

FY00

ROE
ROA

ANNUAL REPORT 200125

Total Assets

FINANCIAL POSITION
Current assets rose ¥39,025 million to ¥177,681 million (US$1,526,469 thousand) due(Millions of Yen)

to a ¥36,355 million combined increase in cash and cash equivalents and marketable

500,000

securities. This reflected the investment of some of the funds from the Company’s initial
400,000

public offering in marketable securities.
In fixed assets, property and store equipment increased ¥4,332 million to ¥89,065

300,000

million (US$765,163 thousand) on account of capital expenditures for new stores and
200,000

other assets. Investments and other assets increased ¥4,466 million to ¥120,490 million(US$1,035,138 thousand). This was mainly attributable to a ¥6,793 million rise in lease

100,000

deposits to ¥91,169 million (US$783,239 thousand), as the Company leased more
FY98

FY99

FY00

properties for new stores, and a ¥2,832 million combined increase to ¥9,008 million in
long-term prepaid expenses and other assets due to the purchase of software to bolster
Lawson’s store support system.
Accordingly, total assets stood at ¥387,236 million (US$3,326,770 thousand) as ofFebruary 28, 2001, up ¥47,823 million from a year ago.
Current liabilities decreased ¥25,717 million to ¥134,328 million (US$1,154,022
thousand) owing largely to a ¥27,897 million year-on-year combined decrease to¥20,390 million (US$175,172 thousand) in short-term borrowings and current portion of
long-term debt as the Company took steps to reduce its borrowings. Consequently, theShareholders’ Equity& Equity Ratio

to ¥43,353 million, up ¥64,742 million.
Long-term liabilities decreased ¥10,143 million to ¥72,979 million (US$626,967(Millions of Yen, %)200,000

current ratio improved 45.7 percentage points to 132.3%, and working capital amounted

46.1

thousand), mainly on account of a ¥20,390 million decrease in long-term debt to ¥3,140
million, as the Company worked to reduce borrowings. On the other hand, the Company

150,000

recorded a cumulative effect of ¥7,973 million liability for employees’ retirement benefits.

28.3

This stemmed from the change in the method of accounting for retirement benefit obliga100,000

20.2

tions. Total liabilities decreased ¥35,860 million (14.7%) to ¥207,307 million (US$1,781
million). Of this amount, interest-bearing debt——short-term borrowings and long-term

50,000debt, including the current portion——amounted to ¥23,530 million (US$202 million),a ¥48,287 million (67.2%) decrease from a year ago.
FY98

FY99

FY00

■ Shareholders’ equity
Equity ratio

26

ANNUAL REPORT 2001

Cash Flows

Shareholders’ equity increased ¥82,516 million to ¥178,448 million (US$1,533,058
thousand). This comprised ¥69,150 million in capital procured from the issuance of new(Millions of Yen)

shares and net income of ¥16,368 million, offset by ¥3,002 million in cash dividends. The

150,000

shareholders’ equity ratio thus improved 17.8 percentage points from 28.3% to 46.1%.
100,000

Taking into account the effect of stock splits, shareholders’ equity per share increased
from ¥914.51 to ¥1,553.07, up ¥638.56 (69.8%).

50,0000CASH FLOWS
Lawson’s financial policy is to procure sufficient capital and maintain a sufficient level-50,000-100,000 FY98

of liquidity for its operating activities. Fundamentally, investment to expand operations,
FY99■ Operating activities■ Investing activities■ Financing activities

FY00

including new stores and renovations, is carried out within the limits of cash provided byoperating activities.
Operating activities provided net cash of ¥52,793 million (US$453,548 thousand), a
decrease of ¥14,997 million (22.1%) compared to the previous year. Factors contributing
to this decline included a ¥5,754 million increase in income taxes paid, and a ¥2,591 million
deterioration in cash turnover, the net result of an increase in accounts receivable of¥8,171 million and a decrease in accounts payable.
Investing activities used cash of ¥54,696 million (US$469,897 thousand). This reflected¥19,453 million for the purchase of marketable securities, as the Company utilized someof the funds procured from its IPO. In addition, ¥21,058 million was used to acquire property
and store equipment, and ¥6,785 million represented an increase in lease deposits fromthe opening of new stores. The main elements of capital expenditures were ¥21.3 billion
for investment in new stores, ¥5.9 billion for renovation and other work on existing stores,and ¥4.8 billion in a new store system. Free cash flow——the difference between net cash
provided by operating activities and net cash used in investing activities——was ¥17,550
million (US$151 million), excluding investments in financial assets.
Financing activities provided net cash of ¥18,707 million (US$160,713 thousand).
This chiefly consisted of ¥68,656 million in proceeds from issuance of common stock,
net of stock issuance cost, offset by ¥48,301 million in the repayment of borrowings and¥3,002 million for cash dividends paid.
As a result of these cash flows, cash and cash equivalents at the end of the year totaled¥128,655 million (US$1,105,283 thousand), up ¥16,902 million (15.1%) from a year ago.

ANNUAL REPORT 200127

Consolidated Balance Sheets
Lawson, Inc. and Consolidated Subsidiaries
February 28, 2001 and February 29, 2000

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

ASSETS

2001

2000

2001

¥128,655
1,013
19,453¥111,753
30$1,105,283
8,703
167,122

6,075
12,873
(74)
2,577
1,404
5,705

5,929
12,221
(68)
2,991
1,099
4,701

52,191
110,593(636)
22,13912,06249,012

Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

177,681

138,656

1,526,469

PROPERTY AND STORE EQUIPMENT—At cost (Note 5):
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture, fixtures and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

20,93374,18090,095

20,48964,96185,745

179,837
637,285
774,012

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

185,208(96,143)

171,195(86,462)

1,591,134(825,971)

Net property and store equipment . . . . . . . . . . . . . . . . . . . . . . . . . .

89,06584,733765,163

INVESTMENTS AND OTHER ASSETS:
Investments in securities (Notes 6 and 8) . . . . . . . . . . . . . . . . . . . . . . . .
Investments in affiliated company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term loans receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease deposits (Notes 7, 8 and 15) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets (Note 13) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

7,408
84
2,928
1,201
91,16910,265
7,807
(372)

7,306

63,643722
25,155
10,318783,239
88,187
67,070(3,196)CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketable securities (Note 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable:
Due from franchised stores (Notes 4 and 10) . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets (Note 13) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . .

1,711
4,217
84,376
16,832
1,959(377)

Total investments and other assets . . . . . . . . . . . . . . . . . . . . . . . . .

120,490

116,024

1,035,138

TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

¥387,236¥339,413$3,326,770

See notes to consolidated financial statements.

28

ANNUAL REPORT 2001

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

LIABILITIES AND SHAREHOLDERS’ EQUITYCURRENT LIABILITIES:
Short-term borrowings (Note 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of long-term debt (Note 8) . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable:
Trade for Company-operated and franchised stores(Notes 9 and 15) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due to franchised stores (Note 10) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (Note 15) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable (Note 13) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Money held as agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other current liabilities . . . . . . . . . . . . . . . . . . . .

2000

2001

¥ 20,390

124
48,163$ 175,172

60,2604,617
13,797
5,833
24,831
4,600

62,776
4,182
13,5304,617
21,495
5,158

517,698
39,665
118,53150,112
213,325
39,519134,328

160,045

1,154,022

3,140
13,74623,5304,881

26,976
118,093203
55,020870

13053,640941

1,744
472,680
7,474

Total long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

72,97983,122626,967

MINORITY INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,481

314

12,723SHAREHOLDERS’ EQUITY (Notes 12 and 16):
Common stock, ¥50 par value—authorized, 419,600,000 sharesin 2001 and ¥500 par value—authorized, 8,392,000 sharesin 2000; issued and outstanding, 114,900,000 shares in 2001
and 2,098,000 shares in 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

58,507
41,52078,42130,877

502,637
356,701
673,720

Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LONG-TERM LIABILITIES:Long-term debt (Note 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liability for employees’ retirement benefits (Notes 3 and 11) . . . . . . . .
Liability for directors’ and corporate auditors’ retirement benefits(Note 11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Guarantee deposits received from franchised stores . . . . . . . . . . . . . . .
Lease deposits from lessees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

¥

2001

65,055

Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

178,448

95,932

1,533,058

TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

¥387,236¥339,413$3,326,770

ANNUAL REPORT 200129

Consolidated Statements of Income
Lawson, Inc. and Consolidated Subsidiaries
Years Ended February 28, 2001 and February 29, 2000

Thousands of
U.S. Dollars(Note 1)Millions of Yen
2001

2000

2001

NET SALES REPORTED BY FRANCHISED STORES . . . . . . . . .

¥1,144,717¥1,073,422$9,834,338

OPERATING REVENUES:Franchise commission from franchised stores . . . . . . . . . . . . . . . . .
Net sales from Company-operated stores . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

¥ 135,237
133,178
11,803¥ 124,587
155,613
11,653$1,161,830
1,144,141
101,400

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

280,218

291,853

2,407,371

98,501

115,315846,228

COST AND OPERATING EXPENSES:
Cost of sales for Company-operated stores (Note 15) . . . . . . . . . .
Selling, general and administrative expenses(Notes 11, 14 and 15) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

140,438

136,353

1,206,512

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

238,939

251,668

2,052,740

Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

41,27940,185354,631(888)(2,723)(7,011)(2,547)(2,769)(7,629)(23,393)(60,232)

OTHER INCOME (EXPENSES):Interest expense—net (Note 15) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on disposal of property and store equipment . . . . . . . . . . . . . .
Write-off of unamortized service cost (Note 3) . . . . . . . . . . . . . . . . .
Gain on sales of investments in securities . . . . . . . . . . . . . . . . . . . . .
Loss on sales of investments in affiliated companies . . . . . . . . . . . .
Loss on write-off of investments in securities . . . . . . . . . . . . . . . . . .
Other—net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(811)

886
(1,269)(742)
125(6,968)Other expenses—net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(11,433)(6,316)(98,222)

INCOME BEFORE INCOME TAXESAND MINORITY INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

29,84633,869256,409

INCOME TAXES (Note 13):
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

7,226
6,262

4,236
14,686

62,07953,797

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

13,48818,922

115,876

MINORITY INTEREST IN EARNINGS OFCONSOLIDATED SUBSIDIARIES . . . . . . . . . . . . . . . . . . . . . . . . .

10

64

86

15,011$ 140,619

NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

¥¥16,368Yen

U.S. Dollars
2000

2001

PER SHARE OF COMMON STOCK (Notes 2.n and 16):
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
See notes to consolidated financial statements.

30 ANNUAL REPORT 2001

¥

148
35

¥

143
850

2001

$

1.27
0.30

Consolidated Statements of Shareholders’ Equity
Lawson, Inc. and Consolidated Subsidiaries
Years Ended February 28, 2001 and February 29, 2000

Thousands

Millions of Yen

Number of
Shares ofCommonStockCommonStock

BALANCE, MARCH 1, 1999 . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends, ¥1,050 per share . . . . . . . . . . . . . . . . . .

2,098¥30,877¥52,247
15,011(2,203)BALANCE, FEBRUARY 29, 2000 . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock split (Note 12) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Public offering of common stock (Note 12) . . . . . . . . . . .
Cash dividends, ¥517 per share . . . . . . . . . . . . . . . . . . .

2,098

30,87765,055
16,368102,802
10,00027,630

BALANCE, FEBRUARY 28, 2001 . . . . . . . . . . . . . . . . . . .

Additional
Paid-in
CapitalRetained
Earnings¥41,520(3,002)

114,900¥58,507¥41,520¥78,421

Thousands of U.S. Dollars (Note 1)
CommonStock

BALANCE, FEBRUARY 29, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Public offering of common stock (Note 12) . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends, $4.44 per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$265,266

BALANCE, FEBRUARY 28, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$502,637

237,371

Additional
Paid-in
CapitalRetained
Earnings$558,891
140,619$356,701(25,790)$356,701$673,720

See notes to consolidated financial statements.

ANNUAL REPORT 200131

Consolidated Statements of Cash Flows
Lawson, Inc. and Consolidated Subsidiaries
Years Ended February 28, 2001 and February 29, 2000

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

OPERATING ACTIVITIES:
Income before income taxes and minority interest . . . . . . . . . . . . . . . . .
Adjustments for:
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for employees’ and directors’
and corporate auditors’ retirement benefits . . . . . . . . . . . . . . . . . . .
Provision for (reversal of) allowance for doubtful accounts . . . . . . . .
Loss on disposal of property and store equipment . . . . . . . . . . . . . . .
Loss on write-off of investments in securities . . . . . . . . . . . . . . . . . . .
Loss on sales of investments in securities
and in affiliated companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other—net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in assets and liabilities:(Increase) decrease in accounts receivable . . . . . . . . . . . . . . . . . .
Decrease in inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase in prepaid expenses and other current assets . . . . . . . . .
(Decrease) increase in accounts payable . . . . . . . . . . . . . . . . . . . .
Increase in money held as agent . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Decrease) increase in accrued expenses
and other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase in guarantee deposits received from franchised stores . . .
Decrease in lease deposits from lessees . . . . . . . . . . . . . . . . . . . .

2001

2000

2001

¥ 29,846¥ 33,869$ 256,409(6,009)14,812(255)
15,136(51,624)
127,251

8,938
1
1,892

894
(1,320)2,073
742

76,787
916,254

2,244

383
3,013

19,278

(800)
423
(702)
(1,828)
3,336

7,371
113
(245)
763
3,034

(6,873)
3,634(6,031)(15,704)
28,660

(668)
1,380
(72)

590
1,655
(26)

(5,739)11,856(619)

Total adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

22,94733,921

197,139

Net cash provided by operating activities . . . . . . . . . . . . . . . . . .

52,79367,790453,548

INVESTING ACTIVITIES:
Purchases of marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of investment in a subsidiary . . . . . . . . . . . . . . . . . .
Acquisitions of investments in securities and affiliated company . . . . .
Proceeds from sales of investments in securities . . . . . . . . . . . . . . . . . .
Purchases of property and store equipment . . . . . . . . . . . . . . . . . . . . . .
Collection of short-term loans receivable . . . . . . . . . . . . . . . . . . . . . . . . .
Increase in lease deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash (used in) provided by investing activities . . . . . . . . . . .
FINANCING ACTIVITIES:
Decrease in short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of common stock,
net of stock issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from minority shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) financing activities . . . . . . . . . . .

(19,453)(167,122)
6,590

(249)

(2,139)(6,785)(7,151)

16,371(20,047)
131,373(8,365)(4,164)(54,696)

121,758(469,897)(138)(48,163)(40,916)(49,402)(1,186)(413,771)

68,656(3,002)
1,354(2,203)589,828(25,790)
11,632

18,707(92,521)

160,713(21,058)(180,911)(58,290)(61,435)

EFFECTS OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

98

(41)

842

NET INCREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . .
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR . . . . . . . .

16,902
111,753

96,986
14,767145,206
960,077

CASH AND CASH EQUIVALENTS, END OF YEAR . . . . . . . . . . . . . . .

¥128,655¥111,753$1,105,283

See notes to consolidated financial statements.

32

ANNUAL REPORT 2001

Notes to Consolidated Financial Statements
Lawson, Inc. and Consolidated Subsidiaries
Years Ended February 28, 2001 and February 29, 2000

1. BASIS OF PRESENTINGCONSOLIDATEDFINANCIALSTATEMENTS

The accompanying consolidated financial statements have been prepared in accordance withthe provisions set forth in the Japanese Securities and Exchange Law and its related accounting
regulations, and in conformity with accounting principles and practices generally accepted inJapan, which are different from International Accounting Standards in certain respects as to application and disclosure requirements. The consolidated financial statements are not intended topresent the financial position, results of operations and cash flows in accordance with accounting
principles and practices generally accepted in countries and jurisdictions other than Japan.
In preparing these consolidated financial statements, certain reclassifications and rearrangements have been made to the consolidated financial statements issued domestically in orderto present them in a form which is more familiar to readers outside Japan.
Effective July 26, 2000, The Daiei, Inc. (“Daiei”) is no longer the parent company as a resultof the issuance of new shares of Lawson, Inc. (“Company”)’s common stock through a public
offering in connection with the listing of stock on the Tokyo Stock Exchange and Osaka Securities
Exchange as well as sale of shares held by Daiei and its subsidiaries.
Daiei owned 31,199 thousand shares of common stock of the Company (representing 27.2%of the Company’s total shares) at February 28, 2001 and 1,139 thousand shares of common
stock of the Company (representing 54.3% of the Company’s total shares) at February 29, 2000.
The consolidated financial statements are stated in Japanese yen, the currency of the country
in which the Company is incorporated and operates. The translations of Japanese yen amounts
into U.S. dollar amounts are included solely for the convenience of readers outside Japan andhave been made at the rate of ¥116.40 to $1, the approximate rate of exchange at February
28, 2001. 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.

2. SUMMARY OF
SIGNIFICANTACCOUNTING POLICIESa. Consolidation—The consolidated financial statements include the accounts of the Company
and its subsidiaries (together the “Companies”).
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 forby the equity method.
The excess of the cost of the Company’s investments in consolidated subsidiaries and affiliatedcompanies over its equity in the net assets at the dates of acquisition is being amortized overa period of five years.
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.
b. Franchise Agreement and Basis of Recognizing Franchise Commission—The Company
operates principally in a single industry commonly classified as the convenience store businesswith 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 a franchise agreement. Under the agreement, all franchised stores are provided with a variety of services andadvice 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 annual gross margin. As the
franchisor, the Company accounts for franchise commissions on an accrual basis by reference
to the annual 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 of twice the average monthly sales amounts of respective stores andpay a lower commission percentage.
The term of a franchise agreement is effective for 10 years from the commencement date ofa new store’s operation as a franchised store, and may be extended or renewed upon expiration
subject to renegotiation of contract terms between the Company and the franchisee.

ANNUAL REPORT 2001

33

The franchise agreement provides that the franchised store shall make a cash payment to
the Company in the amount of ¥3 million upon commencement. Upon receipt of such payment,¥1.5 million is credited to income of the Company as “Operating revenues—franchise commission
from franchised stores” for services related to the opening of the Lawson store. The remaining
amount received by the Company is credited to “Due to franchised stores” account and thenapplied 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 also be provided with the land or buildings of the stores.
However, the Company does not require the franchisees to make lease payments related to thestores. 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 attributableto property and store equipment leases is not separately accounted for by the Company.
c. Cash and Cash Equivalents—Cash and cash equivalents include cash on hands, demand
deposits and short-term investments, which mature or become due within three months of thedate of acquisition and which are readily convertible into cash and are exposed to insignificant
risk of changes in value.
d. Inventories—Inventories are stated at cost determined by the retail method as generally
applied in the retail industry.
e. Marketable and Investment Securities—Current and non-current marketable securities
are stated at the lower of cost or market. Other investments are stated at cost less a valuation
allowance representing impairment of certain investments that is deemed to be other than
temporary. Cost is determined by the moving-average method.
f. Property and Store Equipment—Property and store equipment are stated at cost. Depreciationis computed by the declining-balance method at rates based on the estimated useful lives of theassets. The range of useful lives is principally from 10 to 50 years for buildings and structuresand from 2 to 20 years for furniture, fixtures and equipment in accordance with the Japanese
tax laws.
g. Amortization—Amortization of intangible assets and deferred charges included in “Other
assets” in the accompanying consolidated balance sheets is computed on the straight-line
method over the period set forth in the Japanese Commercial Code (the “Code”) and Japanese
tax laws. Stock issuance costs are charged to income as incurred.
h. Liability for Employees’ Retirement Benefits—With regard to the unfunded retirement
benefits plan, the Company provides for employees’ retirement benefits at 100% of the amountwhich would be required if all employees voluntarily terminated their services at the balance
sheet date and with regards to the funded contributory trusted pension plan, the costs of such
retirement benefits obligations are recorded based on the projected benefit obligations determinedby an accepted actuarial method less the fair value of the related plan assets (see Note 3).
i. Liability for Directors’ and Corporate Auditors’ Retirement Benefits—The provisions arecalculated to state the liability at 100% of the amount that would be required if all directors
and corporate auditors resigned as of each balance sheet date.
j. Leases—All leases are accounted for as operating leases. Under Japanese accounting
standards for leases, finance leases that deem to transfer ownership of the leased property to
the lessee are to be capitalized, while other finance leases are permitted to be accounted for
as operating lease transactions if certain “as if capitalized” information is disclosed in thenotes to the consolidated financial statements.

34 ANNUAL REPORT 2001

k. 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. Deferredincome taxes are recorded to reflect the impact of temporary differences between assets andliabilities recognized for financial reporting purposes and such amounts recognized for tax
purposes. These deferred taxes are measured by applying currently enacted tax laws to thetemporary differences.
l. Appropriations of Retained Earnings—Appropriations of retained earnings at each year
end are reflected in the financial statements for the following year upon shareholders’ approval.
m. Foreign Currency Financial Statements—The balance sheet accounts of the consolidated
foreign subsidiary are translated into Japanese yen at the current exchange rates as of the balance
sheet date except for shareholders’ equity, which is translated at the historical exchange rate.
Differences arising from such translation are included in other current liabilities in the accompanying
consolidated balance sheets.
n. Per Share Information—The computation of net income per share is based on the weighted
average number of shares of common stock outstanding during each year, retroactively adjusted
for stock splits. The average number of common shares used in the computation were 110,873
thousand shares for 2001 and 104,900 thousand shares for 2000.
Cash dividends per share presented in the accompanying consolidated statements of income
are dividends applicable to the respective years including dividends to be paid after the end of
the year.
Fully diluted net income per share is not disclosed because the Company did not have any
convertible bonds, bonds with warrants or stock option which resulted in a dilutive effect.
3. ACCOUNTING CHANGE

Prior to March 1, 2000, with regard to the unfunded retirement benefits plan, the Company
provides for employees’ retirement benefits at 100% of the amount which would be required if
all employees voluntarily terminated their services at the balance sheet date and also with regards
to the funded contributory trusted pension plan, the amounts contributed to the fund werecharged to income when paid. Effective March 1, 2000, however, the Company changed its
method of accounting for the costs of such retirement benefits obligations, which are recorded
based on the projected benefit obligations determined by an accepted actuarial method less thefair value of the related plan assets. The effect of this change was to decrease income before
income taxes and minority interests for the year ended February 28, 2001, by ¥7,973 million($68,497 thousand) which included a cumulative effect of ¥7,011 million ($60,232 thousand).
This cumulative effect was presented as “write-off of the unamortized service cost” in the2001 consolidated statement of income.

4. DUE FROMFRANCHISED STORES

Under the franchise agreement, the Company is responsible for providing architectural anddesigning services with respect to the franchised stores’ facilities, for training of the franchisees’
personnel, and for the centralized processing of invoices from suggested vendors of merchandiseand subsequent payments of amounts payable to such vendors.
The EDP system of the Company generates a record of merchandise purchased by eachfranchised 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 respective
franchised stores.
The “Due from franchised stores” account represents net amounts recoverable from thefranchised stores.

ANNUAL REPORT 2001

35

5. PROPERTY AND
STORE EQUIPMENT

Property and store equipment at February 28, 2001 and February 29, 2000, consisted of
the following:
Millions of Yen
2000

2001

Used by franchised stores:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture, fixture and equipment . . . . . . . . . . .

6. MARKETABLE ANDINVESTMENTS
SECURITIESThousands of
U.S. Dollars
2001

1,836
60,13971,667¥

1,368
49,68367,582$

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated depreciation . . . . . . . . . . . . . . .

133,642
74,904

118,633
65,957

1,148,127
643,505

Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

58,73852,676504,622

Used by Company-operated stores and other:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture, fixture and equipment . . . . . . . . . . .

19,097
14,041
18,42819,121
15,27818,163164,064
120,627
158,316

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated depreciation . . . . . . . . . . . . . . .

51,566
21,23952,562
20,505443,007
182,466¥

15,773516,658
615,696

Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

30,32732,057

260,541

Net property and store equipment—total . . . .

¥ 89,065¥ 84,733$ 765,163

Marketable securities consisted of one-year discount debentures, Japanese national government
bonds and others.
Carrying amounts and aggregate market values of non-current marketable securities atFebruary 28, 2001 and February 29, 2000, were as follows:
Millions of Yen

Carrying amount . . . . . . . . . . . . . . . . . . . . . . . . . . .
Aggregate market value . . . . . . . . . . . . . . . . . . . . .

Thousands of
U.S. Dollars

2001

2000

2001

¥ 7,333
13,412¥ 7,296
14,583$ 62,998
115,223

The differences between the above carrying amounts and the amounts shown in theaccompanying consolidated balance sheets principally consists of non-marketable equity
securities for which there is no readily-available market from which to obtain or calculate themarket value thereof.
7. LEASE DEPOSITS

Under certain circumstances, the Company leases land and/or buildings for its owned Lawson
stores or for franchisees to operate as franchised stores. The leases are based on long-term,
cancelable lease agreements with owners. In connection with such agreements, the lessor
requires leasehold deposits equivalent to approximately several months’ rent, which are
non-interest bearing and refundable only when the leases are terminated.
Lease deposits at February 28, 2001 and February 29, 2000, consisted of the following:
Millions of Yen

36 ANNUAL REPORT 2001

Thousands of
U.S. Dollars

2001

2000

2001

Lease deposits for franchised stores . . . . . . . . . .
Lease deposits for Company-operated storesand other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

¥70,200¥62,222$603,093

20,96922,154

180,146

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

¥91,169¥84,376$783,239

8. SHORT-TERM
BORROWINGS AND
LONG-TERM DEBT

Short-term borrowings at February 29, 2000, consisted of loans payable to a bank by a consolidated
foreign subsidiary and the annual interest rate was 7.03%.
Long-term debt at February 28, 2001 and February 29, 2000, consisted of the following:
Millions of Yen

Thousands of
U.S. Dollars

2001

2000

2001

Loans from banks, other financial institutions,due serially through 2003 with interest rates
ranging from 1.79% to 3.15%(2001 and 2000) . . . . . . . . . . . . . . . . . . . . . . . .
Less current portion . . . . . . . . . . . . . . . . . . . . . . . .

¥23,530(20,390)¥71,693(48,163)$202,148(175,172)

Long-term debt, less current portion . . . . . . . . . .

¥ 3,140¥23,530$ 26,976

Annual maturities of long-term debt at February 28, 2001, were as follows:
Millions of Yen

Thousands of
U.S. Dollars

2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

¥20,390
3,140$175,172
26,976

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

¥23,530$202,148

Year Ending February 28

The following assets were pledged as collateral for a portion of long-term debt amounting to¥2,500 million ($21,478 thousand) at February 28, 2001.
Carrying Amounts at
February 28, 2001
Millions of Yen

Thousands of
U.S. Dollars

Investments in securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

¥2,994985$25,722
8,462

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

¥3,979$34,184

As is customary in Japan, the Company maintains deposit balances with banks with which it
has borrowings. Such deposit balances are not legally or contractually restricted as to withdrawal.
General agreements with respective banks provide, as is customary in Japan, that additional
collateral must be provided under certain circumstances if requested by such banks and thatcertain banks have the right to offset cash deposited with them against any long-term or short-term
debt or obligation that becomes due and, in case of default and certain other specified events,
against all other debt payable to the banks. The Company has never been requested to provide
any additional collateral.
9. ACCOUNTS PAYABLE——TRADE FORCOMPANY-OPERATEDAND FRANCHISEDSTORES AND OTHER

The balances of “Accounts payable—trade for Company-operated and franchised stores”
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 tovendors (see Note 4 above).
Accounts payable—trade for Company-operated and franchised stores and others at February
28, 2001 and February 29, 2000, were summarized below:
Millions of Yen

Thousands of
U.S. Dollars

2001

2000

2001

Accounts payable—trade for franchised stores . .
Accounts payable—trade for Company-operated
stores and other . . . . . . . . . . . . . . . . . . . . . . . . .

¥54,736¥55,832$470,241

19,321

20,474

165,988

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

¥74,057¥76,306$636,229

ANNUAL REPORT 2001

37

10. ACCOUNTS PAYABLE——DUE TO FRANCHISEDSTORES

The cost of merchandise supplied to the franchised stores is recorded as “Accounts receivable—
due from franchised stores” as described in Note 4 above.
All franchised stores make remittances of cash proceeds from daily sales to the Company.
In certain instances, the remittance from a franchised store exceeds the balance of “Accounts
receivable—due from franchised stores.” In the accompanying consolidated balance sheets,
such excess balances are presented as “Accounts payable—due to franchised stores.”11. RETIREMENT ANDPENSION PLANS

Under most circumstances, employees terminating their employment are entitled to retirement
benefits determined based on the rate of pay at the time of termination, years of service andcertain other factors. Such retirement benefits are made in the form of a lump-sum severance
payment from the Company or from certain consolidated subsidiaries and annuity payment
from a trustee. Employees are entitled to larger payments if the termination is involuntary, by
retirement at the mandatory retirement age, by death, or by voluntary retirement at certain
specific ages prior to the mandatory retirement age.
Directors and corporate auditors are not covered by the above plan. The amounts of theliability for directors’ and corporate auditors’ retirement benefits represent management’s
estimates of the amounts which would be payable to them if they were to retire at each balance
sheet date. The amounts payable to directors and corporate auditors upon retirement is subject
to the approval of the shareholders in accordance with the Code.
Total expenses for the retirement plans were ¥1,880 million ($16,151 thousand) and¥1,718 million for the years ended February 28, 2001 and February 29, 2000, respectively,
including the provisions for retirement benefits for directors and corporate auditors.

12. SHAREHOLDERS’
EQUITYOn April 14, 2000, the Company made a stock split by way of a par value split (from ¥500 to¥50) and of a free share distribution at the rate of 5 shares for each outstanding share, resulting
in an increase in the number of issued shares from 2,098 thousand shares to 104,900 thousand
shares, by resolution of the shareholders meeting held on December 16, 1999.
At the general shareholders meeting held on May 26, 2000, the Company’s shareholders
approved a stock option plan for the Company’s directors and key employees, and the issuingof new shares for such stock options.
The plan provides for granting options to purchase up to 1,792 thousand shares of theCompany’s common shares in the period from May 27, 2002 to May 25, 2007. The options will
be granted at the price of ¥7,500. The Company plans to issue the new shares for proceedsof ¥13,440 million ($115,464 thousand) upon exercise of all stock options.
On July 25, 2000, the Company completed a public offering of 10,000 thousand sharesof common stock at the price of ¥7,200 per share. The amount of ¥27,630 million ($237,371
thousand) was credited to common stock and the remaining amount of ¥41,520 million ($356,701
thousand) was credited to additional paid-in capital in accordance with the Code requirements.
The Code requires at least 50% of the issue price of new shares, with a minimum of the parvalue thereof, to be designated as stated capital as determined by resolution of the Board of
Directors. Proceeds in excess of amounts designated as stated capital are credited to additional
paid-in capital.
The Code also requires companies to appropriate from retained earnings to a legal reserve
an amount equal to at least 10% of all cash payments which are made as an appropriation ofretained earnings until such reserve equals 25% of stated capital. The Company’s reserveamount, which is included in retained earnings, totals ¥520 million ($4,467 thousand) as ofFebruary 28, 2001 and ¥220 million as of February 29, 2000, and is not available for dividends
but may be used to reduce a deficit by resolution of the shareholders.
The Company may transfer portions of additional paid-in capital and legal reserve to statedcapital by resolution of the Board of Directors. The Company may also transfer portions of
unappropriated retained earnings, available for dividends, to stated capital by resolution of
the shareholders.
The Company may transfer portions of legal reserve to reduce the deficit upon resolutionof the shareholders. If the total amount of legal reserve is transferred, additional paid-in capital
may then be transferred to reduce the deficit also by resolution of the shareholders under
the Code.

38 ANNUAL REPORT 2001

Under the Code, the Company may issue new common shares to existing shareholders
without consideration as a stock split pursuant to a resolution of the Board of Directors. The
Company may make such a stock split to the extent that the aggregate par value of the shares
outstanding after the stock split does not exceed the stated capital. However, the amountcalculated by dividing the total amount of shareholders’ equity by the number of outstanding
shares after the stock split cannot be less than ¥500.
Dividends are approved by the shareholders at a meeting held subsequent to the fiscal year
to which the dividends are applicable. Semi-annual interim dividends may also be paid upon
resolution of the Board of Directors, subject to certain limitations imposed by the Code.
13. INCOME TAXESThe Company and its domestic subsidiaries are subject to Japanese national and local income taxes
which, in the aggregate, resulted in normal effective statutory tax rates of approximately 42.0%
for the year ended February 28, 2001 and 47.7% for the year ended February 29, 2000. On
March 31, 1999, a tax reform law was enacted in Japan which decreased the normal effective
statutory tax rate from approximately 47.7% to 42.0% for the year ended February 28, 2001
for the Company. The change resulted in a decrease in deferred tax assets and an increase inincome taxes—deferred by approximately ¥2,433 million for the year ended February 29, 2000.
The tax effects of significant temporary differences and loss carryforwards which resulted indeferred tax assets at February 28, 2001 and February 29, 2000, are as follows:
Thousands of
U.S. Dollars

Millions of Yen
2001

2000

2001

Deferred tax assets:
Marketable securities . . . . . . . . . . . . . . . . . . . . .
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employees’ retirement benefits . . . . . . . . . . . . .
Tax loss carryforward . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

¥ 2,823
1,168
4,974
541
2,589

¥13,260
1,168
1,292
1,045
2,215

$ 24,253
10,03442,732
4,648
22,242

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowances . . . . . . . . . . . . . . . . . . . . . . .

12,095426

18,9801,049

103,909
3,660

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

¥11,669¥17,931$100,249

The actual effective tax rates differed from the normal effective statutory tax rate for thefollowing reasons:Year Ended
2001

2000

Normal effective statutory tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase (decrease) in tax rate resulting from:
Permanently nondeductible expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inhabitants taxes—per capita . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of tax rate change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other—net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

42.0%

47.7%

2.4
1.0
(0.2)

0.7
0.9
7.2
(0.6)

Actual effective tax rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

45.2%

55.9%

ANNUAL REPORT 2001

39

14. LEASESThe Company leases certain store facilities, machinery, computer equipment, office space andother assets.
Total lease payments under finance leases for the years ended February 28, 2001 andFebruary 29, 2000, were ¥6,452 million ($55,430 thousand) and ¥6,324 million, respectively.
Pro forma information of leased property such as acquisition cost, accumulated depreciation,
obligations under finance leases, depreciation expense and interest expense for finance leases
that do not transfer ownership of the leased property to the lessee on an “as if capitalized”
basis for the years ended February 28, 2001 and February 29, 2000, was as follows:
Thousands of
U.S. Dollars

Millions of Yen
2001

2000

2001

Leased to franchised stores:
Furniture, fixtures and equipment:
Acquisition cost . . . . . . . . . . . . . . . . . . . . . . .
Accumulated depreciation . . . . . . . . . . . . . .

¥27,746
14,149¥26,520
14,281$238,368
121,555

Net leased property . . . . . . . . . . . . . . . . . .

¥13,597¥12,239$116,813

Obligations under finance leases:
Due within one year . . . . . . . . . . . . . . . . . . . .
Due after one year . . . . . . . . . . . . . . . . . . . . .

¥ 4,685
9,342¥ 4,320
8,444$ 40,249
80,258

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

¥14,027¥12,764$120,507

Used by Company-operated stores and other:
Furniture, fixtures and equipment:
Acquisition cost . . . . . . . . . . . . . . . . . . . . . . .
Accumulated depreciation . . . . . . . . . . . . . .

¥ 4,501
3,412¥ 5,389
3,728$ 38,669
29,313Net leased property . . . . . . . . . . . . . . . . . .

¥ 1,089¥ 1,661

$

9,356

¥

¥

812
934

$

5,412
4,416

¥ 1,746$

9,828

Obligation under finance leases:
Due within one year . . . . . . . . . . . . . . . . . . . .
Due after one year . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

630
514

¥ 1,144

The imputed interest expense portion which is computed using the interest method is excluded
from the above obligations under finance leases.
Depreciation expense, which is not reflected in the accompanying consolidated statements
of income, computed by the straight-line method was ¥5,831 million ($50,095 thousand) and¥5,614 million for the years ended February 28, 2001 and February 29, 2000, respectively.
Interest expense, which is not reflected in the accompanying consolidated statements ofincome, computed by the interest method was ¥598 million ($5,137 thousand) and ¥681 million
for the years ended February 28, 2001 and February 29, 2000, respectively.
The minimum rental commitments under noncancelable operating leases at February 28,
2001, were as follows:

40 ANNUAL REPORT 2001

Millions of Yen

Thousands of
U.S. Dollars

2001

2001

Due within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due after one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

¥ 596
6,668

$ 5,120
57,285

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

¥7,264$62,405

15. RELATED PARTY
TRANSACTIONSTransactions of the Companies with Daiei, affiliates of Daiei (20% or greater equity ownership),directors and principal shareholders for the years ended February 28, 2001 and February 29,
2000, were as follows:
Millions of Yen

Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rental expenses . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease payments . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses—other . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . .

Thousands of
U.S. Dollars

2001

2000

2001

¥210,603
396
738
708

¥211,451
442
998
526
1,099

$1,809,304
3,402
6,340
6,082

Purchases include amounts related to purchases by the franchised stores.
Effective January 30, 2001, Isao Nakauchi, representative director, retired, and transaction
with his companies are no longer considered as related party transactions and the above
amounts are aggregated from March 1, 2000 to January 30, 2001.
The balances due to or from Daiei, affiliates of Daiei (20% or greater equity ownership),directors and principal shareholders at February 29, 2000, was as follows:
Millions of Yen
2000

Lease deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable—trade for Company-operated and franchised stores . . . . . .
Accounts payable—other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

16. SUBSEQUENT EVENTS¥ 4,859
15,831
58

a. The following appropriation of retained earnings at February 28, 2001, were approved at
the shareholders meeting held on May 24, 2001:

Transfer to legal reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends, ¥18 ($0.15) per share . . . . . . . . . . . . . . . . .

Millions of Yen

Thousands of
U.S. Dollars

¥ 207
2,068

$ 1,778
17,766b. At the general shareholders meeting held on May 24, 2001, the Company’s shareholders
approved a proposal to amend the Articles of Incorporation to allow management, by resolutionof the Board of Directors, to repurchase and cancel the Company’s common stock. The
Company is authorized to repurchase, at management’s discretion, up to 9 million shares of
the Company’s common stock for the purpose of canceling the shares and charging suchamounts to retained earnings.

ANNUAL REPORT 2001

41

Independent Auditors’ Report

To the Board of Directors and Shareholders of Lawson, Inc.:
We have examined the consolidated balance sheets of Lawson, Inc. and consolidated subsidiaries as of February 28, 2001 andFebruary 29, 2000, and the related consolidated statements of income, shareholders’ equity, and cash flows for the years then ended,
all expressed in Japanese yen. Our examinations were made in accordance with auditing standards, procedures and practices
generally accepted and applied in Japan and, accordingly, included such tests of the accounting records and such other auditing
procedures as we considered necessary in the circumstances.
In our opinion, the consolidated financial statements referred to above present fairly the financial position of Lawson, Inc. andconsolidated subsidiaries as of February 28, 2001 and February 29, 2000, and the results of their operations and their cash flows
for the years then ended, in conformity with accounting principles and practices generally accepted in Japan consistently applied
during the period except for the change, with which we concur, in the accounting for retirement benefits obligations, as discussed
in Note 3.
Our examinations also comprehended the translation of Japanese yen amounts into U.S. dollar amounts and, in our opinion, suchtranslation has been made in conformity with the basis stated in Note 1 to the consolidated financial statements. Such U.S. dollar
amounts are presented solely for the convenience of readers outside Japan.

May 24, 2001

42

ANNUAL REPORT 2001

Corporate Data

Company name
Lawson, Inc.
Address
Tokyo Headquarters:
4-9-25 Shibaura, Minato-ku, Tokyo 108-8563
Tel: +81-3-5476-6800
Osaka Headquarters:
9-1 Toyotsu-cho, Suita-shi, Osaka 564-0051
Tel: +81-6-6380-4491
Representative directors
Chairman, Yasuo Matsuoka
President & CEO, Kenji Fujiwara
Executive Vice President, Koji Wada
Employees
4,170 (Consolidated)
Business activities
Franchise chain development of Lawson convenience stores
Total net sales¥1,277.6 billion (Consolidated) (Fiscal 2000)
Number of stores
7,683 (in Japan, as of February 28, 2001)
Operating region
All 47 Japanese prefectures; Shanghai, PRC (joint venture)

ANNUAL REPORT 2001

43

Investor Information

Established
April 15, 1975
Capital¥58,506,644,000
Authorized shares419,600,000
Shares outstanding
114,900,000
Shareholders
66,989Major Shareholders
Shareholder

The Daiei, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Halcon Cayman Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management Securities Trust Depository
Nomura Trust and Banking Co., Ltd. . . . . . . . . . . . . . . . . . . .
M.C. Retail Investment Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . .
Japan Trustee Services Bank, Ltd. (trust account) . . . . . . . . . .
Higashi Washinomiya Chuo Kaihatsu Co., Ltd. . . . . . . . . . . . . .
Mitsubishi Trust and Banking
Corporation (trust account) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Daiei Holding Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Boston Safe Deposit PSDT Treaty Clients Omnibus . . . . . . . .
State Street Bank and Trust Company . . . . . . . . . . . . . . . . . . .

Stock Exchange Listings
Tokyo Stock Exchange (1st Section)
Osaka Securities Exchange (1st Section)
Stock transfer agent
The Chuo Mitsui Trust and Banking Company, Limited
1-7-1 Kyobashi, Chuo-ku, Tokyo 104-8345, Japan(As of February 28, 2001)

44 ANNUAL REPORT 2001

Shareholdings(Shares)

Shareholdings(%)

24,306,800
22,980,000

21.15
20.00

11,490,000
9,109,300
2,673,200
2,480,000

10.00
7.92
2.32
2.15

2,406,100
2,053,500
1,283,800
1,247,200

2.09
1.78
1.11
1.08

Since our establishment in 1975, Lawson has developed its convenience store chain
operations with the view to becoming “the ‘hot’ station in the neighborhood,” admired by
local communities the length and breadth of Japan. The word “hot” embodies two of ourcore mantras. Firstly, we are dedicated to providing the “hottest” products and services.
Secondly, it means that we try to make our stores “warm,” welcoming locations that servea town square role in the community. That’s in addition to offering convenience andsuperior levels of service around the clock.
At present, the convenience store industry presents a wealth of growth opportunities.
There is huge scope for opening stores throughout regional Japan and for cultivating
new customers. Dramatic change is also defining the market.
Against this backdrop, we added the finishing touches to our nationwide network of
Lawson stores in 1997. This unique presence in all 47 prefectures in Japan——we are theonly chain that can boast this——gives us a significant competitive edge. We are also apacesetter in IT in the industry. Capitalizing on these strengths, we are seeking to create
more corporate value through growth in sales and greater efficiency in every aspect of
our operations from store management, products and services through logistics andinformation systems.

Contents
President’s Message

1

Scaling New Heights——In Efficiency

6

Scaling New Heights——In New Business Initiatives

12

Scaling New Heights——In Product Lineups

16

Directors and Corporate Auditors

20

Five-Year Summary

21

Management’s Discussion and Analysis

22

Consolidated Balance Sheets

28

Consolidated Statements of Income

30

Consolidated Statements of Shareholders’ Equity

31

Consolidated Statements of Cash Flows

32

Notes to Consolidated Financial Statements

33

Independent Auditors’ Report

42

Corporate Data

43

Investor Information

44

Forward-Looking Statements
This annual report contains forward-looking statements about the future plans, strategies, beliefs and performance of
Lawson and its subsidiaries. These forward-looking statements are not historical facts. They are expectations, estimates, forecasts and projections based on information currently available to the company and are subject to a numberof risks, uncertainties and assumptions, which, without limitation, include economic trends, competition in the Japaneseconvenience store industry, personal consumption, market demand, the tax system and other legislation. As such,actual results may differ materially from those projected.

LAWSON, INC.

Tokyo Headquarters:
4-9-25 Shibaura, Minato-ku, Tokyo 108-8563
TEL +81-3-5476-6800
URL http://www.lawson.co.jp/

ANNUAL REPORT 2001
Year ended February 28, 2001

Annual Report 2001

Scaling
New
Heights

This annual report is printed on recycled paper.

Printed in Japan