Our Overriding Goal
Annual Report 2008
Year ended February 29, 2008

Contents

01 The Chain of Choice
02 Consolidated Financial Highlights
03 Topics
04 A Message to LAWSON Stakeholders
The Chain of Choice

LAWSON aspires to be the chain of choice for stakeholders.
The main thrust of LAWSON’s fiscal 2008 business plan is to further motivate
franchise owners. We are confident that this plan will lay the foundations for
medium- and long-term growth at LAWSON, as we aspire to be the chain of
choice for franchise owners.

12 LAWSON Feature: Q &A Regarding Management Strategy
Being the Chain of Choicefor Franchise Owners
The feature section of this year’s annual report uses a Q&A format to answer someof the questions we commonly field from investors about the direction of
LAWSON’s management strategy.

18 Corporate Governance
21 Compliance and Risk Management System
22 Directors’ Profiles and Messages From
Outside Directors and Corporate Auditors

24 Corporate Social Responsibility (CSR)
26 Initiatives to Develop Quality Products
That Are Safe, Healthy and Delicious

27 Financial Section
71 Directors, Corporate Auditors and Executive Officers
72 Corporate Data
73 Investor Information
Forward-looking Statements Regarding Forecasts and Figures
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 number of risks, uncertainties and assumptions,which, without limitation, include economic trends, competition in the Japanese convenience store industry, personal consumption,market demand, the tax system and other legislation. As such, actual results may differ materially from those projected.
Figures in this annual report are rounded to the nearest unit.

LAWSON, INC. Annual Report 2008

The Chain of Choice
LAWSON, Inc. aims to be the preferred convenience store (CVS)chain. Our goal is to create a chain that franchise owners want
to be part of. In the near future, the CVS industry is expected to
face the issue of franchise owners switching their allegiance if
existing store earnings stagnate amid intensifying competition.
­LAWSON ­believes that the creation of merchandise assortmentsthat match local catchment areas will be driven forward by the
independent business owner mindset of franchise owners tomake their stores better. We are convinced that such assortments
will attract the support of locals and that this strong support
will then elevate LAWSON to the number-one standing in the
CVS industry in terms of quality. That’s why in the fiscal year
ending March 31, 2009 we will redouble past efforts to further
motivate franchise owners to create a chain they find attractive.
This should also translate into higher corporate value.

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Annual Report 2008

Consolidated Financial Highlights
LAWSON, INC. and Subsidiaries
Years Ended February 29, 2008, and February 28, 2007 and 2006

Millions of Yen

Percent
ChangeThousands of
U.S. Dollars*

2008

2007

2006

2008/20072008

For the Year:Net sales of all stores¥1,415,106¥1,386,630¥1,361,731

2.1%$13,505,497

Total operating revenues

301,177

283,053

268,058

6.4%

2,874,374

Operating income
Income before income taxes andminority interests
Net income

46,61044,51343,8674.7%

444,837

38,135
22,11936,84820,98338,72322,0253.5%
5.4%

363,953
211,099

216

6.4%

Per Share Data (yen and dollars):
Net income¥

215

Cash dividends

¥

202

¥

$

2.05

110

100

90

10.0%

1.05

Total assets¥ 397,108¥ 398,258¥ 375,107–0.3%$ 3,789,922

Total equity

188,574

199,493

175,184–5.5%

1,799,714

At Year-end:

Financial Data:
Return on equity (ROE)

11.6%

11.3%

13.1%

0.3% point

Payout ratio

51.2%

49.6%

41.8%

1.6% point

8,587

8,564

8,366

0.3%

8,148

8,093

7,958

0.7%

439

471

408

–6.8%

Store Network:
Total number of stores in Japan
Franchised storesCompany-owned stores* The U.S. dollar amounts represent translations of Japanese yen at the approximate exchange rate at February 29, 2008, of ¥104.78=$1.

Operating income andOperating income ratio

Net income and ROE

Cash dividends per share
and Payout ratio(Millions of Yen)

(Millions of Yen)

(Yen)

50,000120

25,00040,000100

20,000
3.2

3.2

49.6

51.2

2007

2008

41.8

3.3
80

30,00015,00020,00010,000

13.1
11.3

11.6

60
40

10,000
0

5,000

2006

2007

2008

Operating income
Operating income ratio (%)* Operating income ratio = Operating income /Net sales of all stores

02

LAWSON, INC. Annual Report 20080
Net income
ROE (%)

20
2006

2007

2008

0

2006

Cash dividends per share
Payout ratio (%)

Topics	Initiatives to Expand the Customer BaseLAWSON developed health-oriented products made using ingredients such as okra, nameko mushrooms, mekabu seaweed, glutinous yam and natto (fermented soybeans) and conducted promotional campaigns for these products to support
their introduction. We also worked to expand the customer base such as by conducting a campaign featuring the Miffy
character, which is popular with women. This campaign involved the collection of labels printed with promotional points bypurchasing designated products and exchanging them for promotional goods.

	The Introduction of Multimedia Terminals and Acceptance of New Forms of
Electronic Money (QUICPay™ and Edy)LAWSON has installed at most LAWSON and NATURAL LAWSON stores nationwide multimedia terminals that accommodate a number of major electronic payment systems. This has made it possible for customers to make payments using
three types of e-money from a single electronic payment terminal: iD™1, QUICPay™2, and Edy3; customers have previously
only been able to use iD™ at LAWSON stores.
1
2
3

iD™ is a postpaid e-money service provided by NTT DoCoMo, Inc. and a trademark of that company.
QUICPay™ is a non-contact smart card postpaid payment service promoted by the Mobile Payment Promotion Association (MOPPA).
Edy is a prepaid electronic money service managed by bitWallet, Inc.

	Introduction of the Chief Operating Officer System
In the second half of fiscal 2007, LAWSON established the position of Chief Operating Officer (COO), an executive who is
responsible for store operation, store development and product development as well as the seven regional headquarters.
The COO oversees the implementation of cross-organizational operational measures involving stores.

	Promoting the Use of Reusable Shopping Bags and Chopsticks—“Bring Your Own” Initiative
LAWSON distributes self-developed Konbini Eco-Bags to customers to reduce the use of disposable plastic shopping bags.
We are also promoting the use of “Bring Your Own” reusable chopsticks in order to reduce the use of disposable chopsticks.

Full-Scale Rollout of LAWSON PLUS
In addition to the conventional LAWSON store format, we are implementing a full-scale rollout of the LAWSON PLUS
format, stores designed to expand the customer base by introducing product and merchandise assortment expertise
gained from the NATURAL LAWSON and LAWSON STORE100 formats.

LAWSON Becomes the Largest Shareholder of Ninety-nine Plus Inc.
In January 2008, LAWSON subscribed to a capital increase through private placement by Ninety-nine Plus Inc., which
operates the SHOP99 chain and other stores. This increased ­LAWSON’s equity stake in Ninety-nine Plus to 34.2%, making
us the largest shareholder.

Promotion of a Comprehensive Business Alliance Agreement With Japan Post
In February 2008, LAWSON agreed to a comprehensive business alliance with Japan Post Holdings Co., Ltd. The aim of theagreement is to accelerate cooperation in areas such as the full-scale opening of joint stores. Since the announcement of abusiness alliance with the former Postal Services Agency in December 2002, we have established mailboxes within LAWSON
stores, opened LAWSON stores within post offices, and offered the You-Pack parcel service.

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Annual Report 2008

A Message to LAWSON Stakeholders

The Chain of
LAWSON aspires to be the chainof choice for stakeholders.

May 2008 marked the start of my seventh year at the helmof LAWSON. Over the past six years, I have consistently
asserted that the core competence of convenience store
operators in Japan is the franchise business and havetherefore made the pillar of my management strategy the
belief that the power of franchise owners is the source ofcorporate value. Accordingly, we have taken steps geared
toward increasing the profits of franchise owners as we
worked to enhance LAWSON’s corporate value.

LAWSON Challenge 2004

ChoiceDuring my first three years as CEO (fiscal 2002 to 2004), we implemented the LAWSON Challenge
2004 medium-term management plan. Under this plan, we undertook Head Office-driven reform of thebusiness structure. This included strengthening product appeal and raising gross profit margin throughrestructuring of the ready-made meal vendor network, striving for greater asset efficiency through therestructuring of unprofitable stores, and developing and reinforcing human resources through the
opening of training centers. We also focused on back-to-basics store operations in terms of quality,
service, and cleanliness for franchise owners on the basis of the “Three Challenge Practices1.”1

 he Three Challenge Practices are points that franchised store owners, employees, and store crew (part-time workers)
Tmust pay particular attention to in the operation of LAWSON stores. They are (1) ensuring merchandise assortments arematched to individual locations, (2) serving customers courteously, and (3) keeping stores and surrounding areas clean.

LAWSON Challenge 2007
During the three-year LAWSON Challenge 2004 period, we were able to dispose of negative legacies of the past and lay the foundation for better guiding franchise owners in operational terms.
During the three-year period from fiscal 2005 to fiscal 2007, we implemented LAWSON Challenge
2007, under which we carried out management policies to achieve profit improvement for franchiseowners. The watchword for this medium-term management plan was “Store formats and merchandise assortments matched to individual store locations2.”
Specific management policies in LAWSON Challenge 2007 were as follows.
(1) W e promoted the introduction and utilization at all stores of “store charts3,” customer analysis forthe catchment areas of individual stores, which are researched and prepared jointly by franchiseowners and LAWSON supervisors (management guidance staff). We also implemented on afull-scale basis the “Mystery Shopper4” program for developing franchise owners.

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Annual Report 2008

(2) As an initiative to provide impetus for increasing the number of customers through customer
segment expansion, we developed and rolled out several new store formats: NATURAL LAWSON
targeting women and highly health-oriented customers; LAWSON STORE100 aimed at housewives and the middle-aged and seniors; and LAWSON PLUS, which incorporates into the conventional LAWSON format elements to expand customer segments (products and store
configuration). In this way, we have accumulated the product development and store planningand design expertise required for expanding the customer base.
“Location” is the geographical area (catchment area) occupied by an individual LAWSON store, defined as the area ofresidence of customers who may visit a particular store due to the presence of a LAWSON store in the community.
3
A “store chart” is an important tool for franchised store owners to make decisions as it includes analysis of marketing andmanagement on an individual store basis. Through the use of these “store charts,” each store is able to promote merchandise assortments and ordering that is matched to the individual characteristics of each store location.
4
The “Mystery Shopper” program is a system where an “undercover” researcher who is a company employee with athorough knowledge of convenience store operations and merchandise assortments, objectively and quantitatively
evaluates LAWSON stores from a customer’s perspective. The results are fed back to LAWSON’s Head Office andfranchise owners. In fiscal 2004, LAWSON established subsidiary BestPractice Inc. and commissioned it to carry out
these surveys.
2

LAWSON Challenge 2007: Final Year Results
2.7% average
consolidated EPS
growth over 3 years

CVS businessgross profit at existing
stores over 3 years
Net increase in stores

FY2007 consolidated

ROE of 11.6%–1.5% average growth in

CVS-related businesses
LAWSON TICKET/LAWSON ATM NETWORKS

125 store average over
3 years
Subsidiaries
Upfront investments(NATURAL LAWSON/VALUE LAWSON)

Total of 135 stores over 3 years
Treasury stock cancellations

Total of ¥20 billion over
3 years
Dividend¥70 R ¥110 (FY2007)

M&As
TOHOKU SPAR CO., LTD.
Ninety-nine Plus Inc.
Shinsengumi Honbu K.K.

Invested ¥8.5 billion

Upfront investments in NATURAL LAWSON (NL), VALUE LAWSON (VL) and otherbusinesses produced positive results in fiscal 2007.
Improving existing store earnings is a pressing issue due to the external operating
environment, particularly regional economies, being worse than expected.

The management policies and measures we have implemented during the past six years in theareas of reinforcing the appeal of private brand products, primarily ready-made meals, and improving management capabilities of franchise owners have yielded major results. Meanwhile, withregards to our store format strategy—which we have positioned as an important means of expanding customer segments as the source of medium- to long-term growth—we have developed the
NATURAL LAWSON, LAWSON STORE100, and LAWSON PLUS formats. Having these formats
enables us to better provide products and services to meet the varied needs of customers in different age groups and geographical areas. As we move forward, we will continue to focus efforts on
expanding our merchandise assortment and promoting our store format strategy.

06

LAWSON, INC. Annual Report 2008

Worsening Business Environment in the CVS Industry
In recent years, the business environment facing the CVS industry in Japan has been more adverse
than LAWSON anticipated. Various factors have had a negative impact on the profitability not only of
the CVS industry, but of the entire retail industry in Japan. Some of those factors are the growing
economic disparity between major cities and regional areas due to government policy changes andpopulation dynamics, increases in consumer prices due to soaring prices of raw materials and crudeoil, unease about the future due to the pension problem and other social issues, and declining consumer confidence due to these factors.

CVS Industry Operating Environment

Pensionproblems/
mootedconsumption
tax hike

Soaring raw
material andcrude oil prices

Regional
economicmalaiseCabinet Office, Government of Japan:
Economy Watchers Survey

(Di)

60

Stagnant
consumerincomes

Concerns overfood safety
and quality

40

20

Jan.
2006

Jul.
2006

U.S. economic
recession andsubprime loan
problem

Jan.
2007

Jul.
2007

Jan.
2008

Concerns
about Chinese
economic
growthThe adverse external environment facing Japan’s CVS industry notwithstanding, major CVS operators show no sign of curbing the practice of opening and closing stores in large numbers. Stiff
competition among homogenized convenience stores is a factor behind sluggish earnings for existing franchise owners and this has affected their level of motivation. Moreover, in recent years, the
CVS industry as a whole has found it difficult to attract new franchise owners, and there is anincreasing risk of a fall in the contract renewal rate of franchise owners. In cases where a new franchise owner cannot be found, Head Office has no choice but to close stores or to continue operating franchised stores itself, which entails the inherent risk of fixed cost increases. I believe that thehigh ROE generated by the CVS business in Japan stems from the consulting provided to franchiseowners who have a highly developed independent business owner mindset. For this reason, an
increase in the number of Company-owned stores, other than experimental or training stores, could
lead to the downfall of the highly profitable business that is Japan’s CVS industry. Accordingly, weare striving to hold down the number of Company-operated stores.

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Annual Report 2008

The Japanese CVS Industry Today
Shortage ofpart-timers, risinghourly wages

Lackluster existing
store earnings due
to competition from
opening new stores

Contracting
market as thebirthrate declines

Image as a laborintensive industry
involving hard work

At LAWSON, we use return on investment (ROI) as the basis for deciding on whether to open storesor start a new business. We have also established improving return on equity (ROE) as an importantmanagement performance indicator. In LAWSON Challenge 2007, we set our ROE target at 15%.
Our view is that large-scale store opening programs in the sole pursuit of network scale lowers thequality of new stores. This in turn can have negative consequences for corporate profit and forrecruiting franchise owners. For these reasons, we have decided to focus on store quality and not
become embroiled in competition to open stores.

Trends in the No. of Domestic Stores (Incl. Directly ­Operated
Stores) and Store Openings and Closures at LAWSON
Years Ending February 28 or 29

No. of stores in Japan
No. of directly operated stores(No. of directly operated
regular LAWSON stores)(No. of directly operated
NATURAL LAWSON stores)(No. of directly operated
VALUE LAWSON stores)
Store openings
Store closures

2005

2006

2007

2008

2009 Plan

8,077
346

8,366
408

8,564
471

8,587
439

8,687

318

323

296

290

28

50

95

77

–
711
455

35
717
428

80
700
502

72
452
429

530
430

LAWSON believes that if the trend toward increased emphasis on capital efficiency continues in
the medium to long term and ROI-driven management decision-making becomes prevalent among
Japanese retail companies, the current CVS industry problem of an excessive number of homogenized
stores competing for the same core target customers may abate. Also, we expect that ­capital efficiencyoriented management will become mainstream in the CVS industry in Japan and that increasing theattractiveness of the industry will facilitate the recruitment of excellent franchise owner candidates.

Aspiring to Be the Chain of Choice for Franchise Owners
We believe that the power of the CVS industry lies in the sense of ownership and passion franchiseowners have for their stores. This motivation of independent business operators is the driving force

08

that creates merchandise assortments matched to individual store locations and gives rise to

LAWSON, INC. Annual Report 2008

powerful loyalty among customers who live in the communities where stores are located. We areconvinced that the accumulation of customer loyalty in these communities will propel LAWSON
ahead of competitors to the position of No. 1 convenience store operator in Japan.
As I mentioned previously, the CVS industry faces an adverse external environment. The industry ison the threshold of an era in which franchise owners with highly developed management capabilities
will pick the CVS chain, not the other way around. Our aim is to be the CVS chain of choice when thisera arrives. To that end, we must directly and indirectly support franchise owners to help them copewith deterioration in the external environment. It is important in this context that we create store formats and merchandise assortments suited to the needs of customers in individual store catchment
areas by utilizing the LAWSON PLUS, NATURAL LAWSON, LAWSON STORE100, and SHOP99
formats as a means to expand customer segments—which we see as crucial for ­sustained growth.

Fiscal 2008 Investments Will Lay the Foundation for Medium- to Long-term Growth
When drafting our fiscal 2008 business plan, we assumed that certain factors will have a negative
impact on our business performance in the short term. These assumptions include deterioration in
consumer sentiment caused by low business confidence and anxiety about the public pension problem, and sharp increases worldwide in prices of raw materials, notably grains, fish, meat, and crude oil.

FY2008 Business Environment Outlook
Worst-case Scenario
Assumption

Declining Consumer Sentiment
Cabinet Office, Government of Japan:
Economy Watchers Survey

(DI)

60

¥3.0 billion negative
impact on operating
income4020

1.5% decrease inexisting store sales due
to sluggish consumer
spending

Jan.
2006

Jul.
2006

Jan.
2007

Jul.
2007

FY2008
profit plan
(8% decreasein operating
income)Jan.
2008

Source: Cabinet Office, Government of Japan

Soaring raw
material prices

Soaring crude
oil prices

Rising Cost of Food Raw Materials

National brands
Processed foods: a lready reflected in retail prices
Private brands
Ready-made meals: a
 lead time of several
months is required toreflect in retail prices

Plan to invest ¥3.0
­billion in operating
expenses to maintainand improve markups in
response to soaring raw
material prices

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Annual Report 2008

In our fiscal 2008 business plan, we have provided for aggressive sales promotion expenditure
to stimulate demand by publicizing the powerful appeal of our merchandise. Furthermore, as timeis required to increase sales prices to directly reflect higher raw material costs, we plan to provide
support to ready-made meal vendors to strengthen products to help them cope with soaring raw
material prices. This support will focus on ready-made meals, namely boxed lunches, rice balls,
bread, cooked noodles, and fast food bought at the cash register such as Karaage-kun crispy
Japanese-style fried chicken. Through these measures, we intend to maintain and increase quality
and satisfy needs specific to customer age segments and regions. Should the sharp worldwide
increases in raw material prices, in large measure attributable to speculative factors, abate and therisk of stagflation decrease, we expect the need for indirect support to franchised stores in fiscal
2009 and subsequent years to decrease.
As Japan’s society ages, we think it will be increasingly important to expand our customer base toensure future growth. I believe that the efforts we have made to develop the NATURAL LAWSON,LAWSON STORE100 and LAWSON PLUS formats position us to do just that. We are now in aposition to provide products adapted to diverse customer needs at regular LAWSON stores.
The main thrust of our fiscal 2008 business plan is to increase franchise owner motivation. I am
convinced that this will set the stage for LAWSON’s medium- to long-term growth as a franchiseowner-oriented company.

LAWSON Emphasizes Corporate Governance and Seeks to Actively Return Profits to Shareholders
LAWSON receives equity investment from Japanese and foreign investors. An increase in the foreign
stockholding ratios of listed companies in Japan reveals that investor globalization is advancing. As
a result of this trend, we believe that the management of listed companies in Japan will increasingly
be judged and evaluated against global standards.
LAWSON considers management that reflects awareness of the cost of capital to be the foundation of global management. We place the utmost importance on the efficient use of capital, and, inview of global standards, we aim to deliver ROE of 15% as soon as possible. Our most importantmanagement priority is to increase ROE by securing sustainable business growth through grossprofit improvement at existing stores. With the external environment remaining challenging, we plan
to curb reinvestment. We aim to increase capital efficiency by implementing active shareholder returnmeasures, including purchasing our own shares and cancelling treasury stock, and increasing­dividends. As a general rule, LAWSON promptly cancels treasury stock after share buybacks.
Corporate governance is another area LAWSON treats seriously. The seven-member Board of
Directors seeks to make quick decisions and increase the sense of management responsibility on

10

LAWSON, INC. Annual Report 2008

the part of each director. LAWSON strives to fulfill its social responsibility by incorporating objective
outside perspectives into management by maintaining a high outside director ratio; three of­LAWSON’s seven directors come from outside the Company.
Although the number of Japanese companies that have adopted takeover defense measures isincreasing, LAWSON has not introduced such measures. This is because we see the best takeover
defense measures as enhancing corporate value and maintaining active dialog with shareholders
and information disclosure.

Outside Corporate Officers at Major Convenience
Store Companies
Directors
InsideLAWSONSeven & i Holdings
FamilyMart
Circle K Sunkus

4
10
11
6

% Outside

57
77
100
86

3
3
0
1

Corporate Auditors
%

Total

Inside

43
23
0
14

7
13
11
7

1
2
2
2

% Outside

%

Total

25
40
50
50

75
60
50
50

4
5
4
4

3
3
2
2

Source: Annual securities reports of the respective companies (submitted May 2008)

Introduction of Takeover Defense Measures
LAWSONSeven & i Holdings
FamilyMart
Circle K SunkusNoNo
Yes (Advance warning-type takeover defense)No

We take pride in the fact that our corporate governance measures are highly advanced for Japan’s
CVS industry and retail industry as a whole. We will continue to reinforce corporate governancemeasures and press ahead with business development with the aim of delivering ROE of 15% at an
early date. Along with this, we will work to actively return profits to shareholders to reward them fortheir support.

August 2008

Takeshi Niinami
President and Chief Executive Officer

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Annual Report 2008

LAWSON Feature: Q&A Regarding Management Strategy

Being the Chain of Choicefor Franchise Owners
QuestionYour stated policy is to focus on­franchised stores and hold down thenumber of ­Company-operated stores.
Why is an increase in Company-operated
stores a cause for concern in terms of
CVS b­ usiness profitability?

Answer12

recent times, while the number of franchise owners
with no experience in the retail industry has
increased. But this isn’t necessarily a bad thing as
these inexperienced franchise owners can apply
their experiences in different business settings tomanage store crews (part-time and casual workers)
and the stores themselves, often producing a high

LAWSON believes that the fundamental nature of alevel of productivity in store operations. Regardless,headquarters-run CVS franchise chain is that of a

it is certainly preferable to have franchised stores tomanagement consulting business in which we

Company-operated stores. An increasing number

provide guidance to independent business owners.

of employees of CVS companies join with theThis structure is one of the main reasons that the

career aspiration of becoming a supervisor

Japanese CVS industry boasts the high level of­(management guidance staff) and providing man-profitability that it has to date. LAWSON provides

agement guidance to franchised stores. Conse-

infrastructure, systems and the latest management

quently, an increase in Company-operated storesknow-how to motivated and knowledgeable fran-means that employees will then have to spendchise owners who typically have experience runningmore time than they had hoped as store managers

liquor stores or other businesses by themselves

or store employees, and this runs the risk of under-

before becoming franchisees. The LAWSON storesmining their motivation.

run by these experienced owners tend to be able toCompetition is fierce in the Japanese CVS indus-

produce earnings faster after opening than ­ordinary

try as all companies open the same type of stores.

retail businesses run by salaried employees who

Because of this intense competition, one can’t

lack their experience. Now, the number of thesehope to increase existing store earnings without

experienced franchise owners has decreased inincreasing market share in a store’s catchment

LAWSON, INC. Annual Report 2008

area. To grow existing store earnings by increasing

themselves locally. We therefore believe that lever-market share, it is imperative to create stores andaging the business mindset of the typical businessmerchandise assortments matched to the needs ofowner and helping them blend constructively into

local customers. It is also becoming increasingly

their local communities is one of the prerequisites

important to position the stores themselves as

for success in the face of an extremely competitive

members of the local community. This in turn raises

operating environment. It is on this point thatthe necessity for franchise owners and store man-LAWSON believes franchised stores are theagers to become a part of the community they­lynchpin of the CVS business and this is why it aims

serve. Unlike franchise owners who operate stores

to increase the motivation of franchisees while

under 10-year contracts, store managers who are

holding down the number of stores that LAWSONCompany employees are often rotated after aitself operates.

short time, making it difficult for them to establish

Question
AnswerWhat effect are soaring raw materials
prices having on your earnings?

Investing to Maintain Markups of Ready-made Meals
to Overcome Rising Raw Material Costs
Price Increase Rate

Crude oil prices have been rising steeply since thebeginning of 2007 while grain, meat and other raw

LAWSON aims to maintainmarkups by “investing”
operating expenses

material prices have marched upward sincesummer last year. These increases have impacted
Raw material costs

our business in four ways.
First, in macroeconomic terms, the risk of stagfla-

Product prices

tion1 is increasing and with it the likelihood of soft
Markup decreases would
lower FC store earnings

consumer spending. With prices of raw materials
soaring, gasoline prices rising and other changes

Timeoccurring, consumer sentiment is likely to take a• Increase communication with customers through advertisingand sales promotions.
• Offer added value.
• Innovate.

blow. This in turn could adversely affect consumption
because consumers will tighten their belts. Because

Operatingexpensesof this, companies cannot pass raw materials costs
Thirdly, LAWSON is looking cautiously at whether

onto product prices, and this then negatively affects
corporate profits. This ultimately leads to stagnation

to reflect the effects of escalating raw materials

in personal incomes. The upshot is thus a negative

costs in the prices of its private brand products,

cycle. Our fiscal 2008 earnings plan assumes that a

particularly ready-made meals such as boxed

stagflation-induced deterioration in the externallunches, rice balls, prepared bread (including sand-operating environment will depress earnings.

wiches) and counter fast foods such as Karaage-kun

The second point is that we believe national

crispy Japanese-style fried chicken. Unlike thebrands2, centered on processed foods in the CVS

national brand products and processed foods

business model, will continue to pass on higher raw

mentioned earlier, ready-made meals are positioned

material costs to product prices as long as there is

as a CVS mainstay product. The weight of non-no rapid cooling in consumption. Compared with

impulse buying is also high. Accordingly, we mustsupermarkets and general merchandisers, where

also consider the effect of competition not only fromprice is a key factor in buying decisions, consumers

other CVS chains but also the delicatessen sections

generally purchase national brand products atof supermarkets, restaurants and so forth.
Finally, as you can see from the graph above, it

convenience stores when an emergency needarises, or out of convenience, or as the result of an

takes some time for LAWSON to reflect higher raw

instantaneous decision. This means that the pricematerial prices in product prices. So in order to main-

elasticity of demand is low for these products. While

tain gross profit margin and the quality of ready-we don’t see a major impact at present, a further

made meals, we are forecasting up to ¥3.0 billion indrop in economic activity precipitated by rising gaso-

additional expenses to promote sales in our fiscalline prices, may adversely affect our business results.

2008 plan.
1
2

Refers to phenomenon of rising prices amid a stagnating economy.
Nationally recognized brands, or leading products manufactured bycompanies with a nationwide presence and their trademarks.

LAWSON, INC.

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Annual Report 2008

Question

LAWSON has developed several new
store formats for expanding the customer
base; NATURAL LAWSON, LAWSONSTORE100 and LAWSON PLUS.
Could you please tell us a little more
about these formats?

Answerand we grew the number of stores to around 100, a
figure that we believe is the threshold level for facilitating the development of private brand products
by a chain. We have now moved onto the second
phase, during which we will strengthen existing
NATURAL LAWSON stores and make progress
introducing health-conscious private brand prod-

Our conventional type of store is the LAWSON
format, whose core customers are mainly young men

ucts into conventional LAWSON stores.
LAWSON STORE100 stores are pushing aheadin their 20s and 30s. We have developed the newwith enhancing their merchandise assortments offormats so that we can expand our customer baseperishable foods such as fruit and vegetables andbeyond these traditional customers. N­ ATURAL

daily delivered foods such as natto, tofu and delica-

LAWSON targets health-conscious customers,

tessen items. We have also developed and areparticularly women, the middle-aged and seniors.

selling a private brand called Value Line; the con-

Meanwhile, LAWSON STORE100 stores are

cept of this brand is to provide products in appro-

designed as fresh food stores. LAWSON PLUS

priately sized small quantities.

stores, for their part, have been created by convertingand enhancing the conventional LAWSON format.

Regarding LAWSON PLUS, there were 652 ofthese stores as of February 29, 2008. Looking

NATURAL LAWSON stores adopted an entirely

ahead, we also intend to introduce perishable foodnew concept from the beginning from that used toand daily delivered foods originally developed fordevelop products for existing convenience stores.

LAWSON STORE100 into LAWSON PLUS stores

This format focuses on the development and sale of

to expand the customer base. This will better

health-conscious private brand products that are

enable these stores to cater to the needs of new

supported by women. It has built up considerable

customer segments, namely women, the middle-

expertise in this regards. In the first phase of devel-

aged and seniors.

oping this format, our goal was to increase scale

LAWSON Store Formats
Conventional LAWSONNATURAL LAWSONLAWSON STORE100

April 1975

July 2001

May 2005

Fiscal 2007

Target customers

Mainly young men in
their 20s and 30s

Enhanced merchandise
assortments for working
women in their 20s and 30s
and health-conscious
customers

Enhanced product lineup(perishable foods and daily
delivered foods) for
housewives, middle-aged
and senior customers

Introduction of products to
expand the customer basematched to the main
customer segments anddistinctive features of thecatchment area

Percentage of female
customers (estimate)

Approx. 30%

Approx. 45%

Approx. 40%

Area targeted for store
openings

Nationwide

Residential districts andOffice and residential districts
areas in front of stations
in major metropolitan areas
in metropolitan areas

Number of items handled

Approx. 2,800–
Large cities as well as urban
and residential districts inregional areas

Approx. 2,500

Approx. 4,500–

Ratio of common products–with regular LAWSONApprox. 60%

Approx. 10%–

Total number of stores(February 29, 2008)

91

72

652

7,772

Question
Answer

You obviously have high expectations forthe fresh food convenience store format?

has grown quickly, expanding its network of
SHOP99 stores to 800 in a short period of time.
Meanwhile, existing store sales at our LAWSONFresh food convenience stores are retail businesses

STORE100 stores have grown steadily every year.

with small catchment areas that offer a larger lineup

We have also seen the introduction of the perish-of perishable products, particularly vegetables andable foods category at LAWSON PLUS stores

fruit, at uniform prices. They offer affordable prod-

produce results. Looking at these positive results

ucts in appropriately sized small quantities that are

and the evident strong support for conveniencein step with the smaller size of the average house-stores with enhanced perishable foods lineups inhold in Japan these days, the result of the country’s

small business-catchment areas, we think there is

declining birthrate. N­ inety-nine Plus Inc., whichfurther room to grow this format.

pioneered the fresh food convenience store format,

14

LAWSON PLUS

Launch of format

LAWSON, INC. Annual Report 2008

Question
AnswerWhat is the current situation with
LAWSON PLUS?

also become clear to us is that existing LAWSON
stores that already have a good base of middleaged and senior customers can increase sales

We moved into full swing converting stores to thesimply by stocking fresh foods without the need for

LAWSON PLUS format at the beginning of fiscal

a full conversion. Fully converting stores into the2007. We have steadily accumulated expertise in

LAWSON PLUS format, including changing sign-

selecting the right locations for converting storesboards, costs at least ¥10 million per store. For thisand have seen an increase in the customers wereason, rather than blindly seeking to expand thewere targeting in these areas, namely, the middle-

network of these stores, we will proceed with con-aged, seniors and housewives. Something that hasversion efforts using capital efficiency as our benchmark. As per the diagram to the left, this will involve

LAWSON PLUS Conversion Will Proceed Using Capital
Efficiency Standards

determining whether ROI will exceed the capital

Store markup improvement(%)
ROI > Capital costability of each store.

15

10

Signboard replacement
Store refurbishment
Perishable foods, etc.
Minor conversions of stores
Perishable foods,
etc.

Stores where
major refurbishment produces
few benefits
No Good!

5

ROI < Capital Cost

5

10

15 (¥ million)

Focus of development so far:1) Benefits of expansion of LAWSONPLUS customer base2) Effectiveness in combating competition from homogenized CVS stores3) Acquiring know-how in choosing
the right locations for LAWSONPLUS storescost, in other words, strictly evaluating the profitFrom fiscal 2008 onwards, we will continue ourefforts to perfect LAWSON PLUS stores by increasing the accuracy of selecting locations for conversion and enhancing operational expertise inperishable foods, while examining the benefits offully converting stores, including signboards. We still
believe there is potential to generate more improvements in sales out of existing stores through our

Optimize investment for each store

conversion program in this way.

Use ROI as the evaluation standardof capital efficiency

Conversion Cost

Question

What impact are the formats designed to
expand the customer base having on theearnings of existing franchise owners?

Answergetting the product mix right. Through our store
formats designed to expand the customer base,
NATURAL LAWSON and LAWSON STORE100, we
have been able to do just that. This means that we

As I have mentioned, the CVS market is saturated

are now better positioned to develop products forwith conventional stores targeting young men in

expanding our customer base.

their 20s and 30s as core customers. In order toFurthermore, in locations where customer char-increase the earnings of existing franchise owners,

acteristics are much clearer, such as major metro-and LAWSON for that matter, in this sort of market,

politan areas, we are now able to open new format

we believe we must capture a greater share ofstores that mesh with these locations.

customers in existing store catchment areas. For

These efforts should differentiate us from rival

this, we must create stores that match the custom-

stores, due to customer base expansion in small

ers in their locations. Put another way, store formats

catchment areas. They are expected to result inneed to be matched to the characteristics of thegrowth at existing stores and to enable us to pres-catchment area of the existing store. This also

ent a growth scenario of higher earnings over theentails getting the merchandise assortment right for

medium- and long-term to franchise owners.
We present this growth scenario for the future to

the catchment area.
Obviously, it is important to understand the char-motivate franchise owners to renew their franchiseacteristics of each catchment area or location. In

agreements and to motivate prospective franchise

this regard, we conduct local area surveys, which

owners with outstanding operational capabilities to

we use as the basis for developing “store charts1”

join our franchise.

for all of our stores. Based on these store charts

1

and information gleaned from point card use, we
conduct customer relationship management (CRM)2
that sets out to assemble optimal ­merchandise
assortments. Developing products for the middleaged, seniors and women is an important part of n important tool for franchised store owners to make decisions,A“store charts” include analysis of marketing and management on
an individual store basis. Through the use of these “store charts,”
each store is able to promote merchandise assortments andordering that is matched to the individual characteristics of eachstore location.
2
CRM, or customer relationship management, involves using acustomer database to conduct detailed analysis of customer needs.
The results of this analysis are used to build long-term relationships
with customers.

LAWSON, INC.

15

Annual Report 2008

Question
AnswerPlease tell us about the next-generation
IT system you are introducing?

extending from system structure and procurement
methods through operations. This complete overhaul is expected to yield much greater cost sav-

The major CVS chains, LAWSON included, haveings than the last time we changed our system.

introduced large-scale IT systems to support value

Please see the diagram.
The new system is premised on the development

chains comprising several thousand stores. Thesesystems are upgraded and/or replaced once everyof all stores with always-on connectivity and is

few years—in our case, around every seven years.

expected to yield four key benefits.

As key infrastructure of CVS chains, IT systems are

1.	Next-generation Loppi multimedia terminals will

instrumental in increasing ordering accuracy andprovide an intuitive, easy-to-use interface that

individual store productivity. They are thus important

will enhance services for all customers, includ-for providing robust support to franchise owners.

ing seniors. These new terminals should enable
us to set ourselves apart from other companies.

The next-generation IT system we plan to intro-

2.	The revamp of POS registers and store com-duce in fiscal 2008 will see a complete revamp,

puters will produce improvements in productivIT Investment

ity in store operations.

3rd Generation IT Investment(FY2001 to FY2007)
Total depreciation: Approx.
¥60 billion
Operating expenses: Approx.
¥50 billion

3.	Revamped communication tools will dramatically

4th Generation IT Investment(FY2008 to FY2014)
Total depreciation: Approx.
¥40 billion
Operating expenses: Approx.
¥40 billion

improve the speed and quality with which information can be shared throughout the Company,
resulting in labor productivity improvements.
4.	Enhanced point card-based CRM will lead tobetter merchandise assortments for individual

Depreciation

locations and an even higher level of customer satisfaction.

Operatingexpenses

We plan to start introducing the next-generation
IT system in the latter half of fiscal 2008.
2008

Question
AnswerWhat is your approach to M&As
and alliances?
As I’ve said, the CVS market is saturated with con-

(FY)

Fusion of Corporate DNA From Repeated Successful
M&As an “Asset” to LAWSON(No. of stores)
Store integration from M&As and alliances has helped raise corporate value

ventional stores and domestic consumption is lan-

LAWSON has acquired a wealth ofknowledge from corporate integrations via­multiple M&As and alliances

guishing as the Japanese population declines due tolow birthrates. In order to sustain growth over the

Ninety-nine Plus Inc.
TOHOKU SPAR CO., LTD.
integration +84 stores(Iwate and Aomori)medium and long term, in addition to our fundamental strategy of growing existing stores, we must alsouse M&As and alliances in Japan and overseas.

Parcoal Co., Ltd.
integration +47
stores (Yamaguchi)

Historically, LAWSON has had successful experiences with M&As. The merger of LAWSON withanother major chain, Sun Chain Corporation, years

Japan Post
Holdings Co., Ltd.

Merger of LAWSONand Sun Chain
Corporation

ago was a success. And we have acquired small
chains with between 50 and 100 stores on a

Shinsengumi Honbu
K.K. integration +45
stores (Kanto area)

A and B Co., Ltd.
integration +45 stores(Shimane and Tottori)

number of occasions. These mergers and acquisitions have enabled us to build up expertise as wellas to benefit from other companies’ corporate

1980

philosophies. The same approach underpinned

post-privatization comprehensive alliance withthe friendly alliance we concluded recently withJapan Post Holdings Co., Ltd. We continue to be

fresh food convenience store pioneer Ninety-nine

one of the most active players in terms of M&As

Plus Inc. In addition, we recently announced ain the Japanese CVS industry.

16

LAWSON, INC. Annual Report 2008

2008

(FY)

Overseas, we have operated a joint businesswith a leading local retailing group in Shanghai.

partners and leveraging the outstanding CVS
system perfected in Japan.

Looking ahead, we will develop an alliance strategy
centered on emerging economies such as China
and Southeast Asian countries. This strategy ispremised on forming alliances with leading local
Refurbishment of Shinsengumi Honbu

Question
AnswerPlease summarize yourmedium-term plan.

fiscal 2008 plan and put off announcing a mediumterm plan with clear earnings growth targets. Our
fiscal 2008 plan is conservatively premised on this

As I’ve said, raw material prices have risen to levels

sort of external operating environment. As regards

not seen in the past decade. There are two possible

longer-term plans, we will look at how things go inoutcomes from this in the course of fiscal 2008.

fiscal 2008 and based on that decide on a manage-

One is a positive scenario of healthy inflation

ment plan for the medium and long terms, including

accompanying rising consumer income levels.

numerical targets.
We will push ahead with efforts to increase ROE

However, the run-up in prices could end up producing stagflation, where wages stagnate but prices

over the next 3 years through to March 2011 in line

rise. How things will turn out is anybody’s guess. It

with the model below for creating corporate value

is against this backdrop of uncertainty and uneaseover the medium term.

about the underlying economy that we devised ourModel for Creating Corporate Value Over Medium Term (FY2008-FY2010)

Consolidated EPS growth

Increase gross profit
at existing stores

CVS business+0.5% or more growth per year*E xcludes cigarette ID card impact in
FY2008

ROE target
15% (medium to long term)

CVS-related businesses
LAWSONTICKET

Net increase in stores
100 to 200 stores per year

LAWSON ATM
Networks

Regular LAWSON/LAWSON PLUS

Alliances

VALUE LAWSONNATURAL LAWSONSHOP 99
Overseas
Alliances

M&As* Incl. Japan and overseas

Higher shareholder returns

Question

Please explain your capital strategy forthe next three years (fiscal 2008 to
fiscal 2010).

Answer	Higher dividend
Share buybacks and cancellations

generate over the next 3 years from fiscal 2008
through the end of fiscal 2010 (between ¥40 billionand ¥50 billion). Specifically, we plan to raise thedividend per share applicable to fiscal 2008 by ¥50

In light of the considerable uncertainty regardingfrom the ¥110 in fiscal 2007 to ¥160 in fiscal 2008,

the external environment that I have just alluded

and to maintain this level through fiscal 2010,

to, we intend to curb the net increase in stores, asassuming there is no dramatic change in our oper-

we are conscious of there being too many conve-

ating environment. Our medium- to long-term target

nience stores of essentially the same type. Ouris 15% ROE, and to achieve this we will grow ourfocus in this age of uncertainty is on opening

core businesses and at the same time buy back ourquality stores in terms of ROI. While we are fore-

own shares with some of our surplus cash. Our

casting a drop in earnings in fiscal 2008, we wantbasic stance is to cancel treasury stock as we work

to surpass our fiscal 2007 consolidated operating

to increase capital efficiency.

income by fiscal 2010.
Management plans to appropriate for dividends
the lion’s share of free cash flows we expect to
LAWSON, INC.

17

Annual Report 2008

Corporate Governance

LAWSON’s Corporate Philosophy and Code of Conduct
LAWSON assures that all corporate activities conform to its corporate philosophy, and that the Company’s management and employees work together as a team to realize its goals. In seeking to live up
to our corporate philosophy, we ensure that all of our actions are grounded in our shared values, nomatter what changes may take place in the operating environment. Our code of conduct requires
employees to accept responsibility for reflecting our values and standards through their actions.

CORPORATE PHILOSOPHY
Happiness and Harmony in Our Community

CODE OF CONDUCTActing with utmost consideration for others
Challenging with innovative ideas and actions
Having a strong will to attain the objectives

We promise to make LAWSON a place where:

FRANCHISEOWNERSCan achieve selffulfillment and enjoy
their achievements
STORE CREW
Can grow anddevelop as
individuals

COMMUNITIESFeel safer
and more secure

CUSTOMERS
Feel they can dropin anytime

SHAREHOLDERS
Can contributeto society indirectly
and achieve theirfinancial goals

BUSINESSPARTNERS
Can turn their
dreams into reality
EMPLOYEESCan have pride in
their work and besocially aware

LAWSON believes that honoring these commitments to its stakeholders willtranslate into higher corporate value.

18

LAWSON, INC. Annual Report 2008

Basic Policy on Corporate GovernanceIn order to be recognized as a company that has meaning for each of our seven stakeholder
groups—namely, customers, franchise owners, store crew (part-time and casual workers), business
partners, employees, shareholders and society—we engage in business activities that maximize ourcorporate value. For this, besides promoting Directors’ and employees’ compliance with laws,­regulations, the Articles of Incorporation and the like, we believe that it is essential to strengthen
corporate governance by enhancing the soundness and transparency of our management­processes. This is done through action with consideration for others, based on our Corporate­Philosophy, LAWSON Corporate Conduct Charter, and the Lawson Code of Ethics, as well as via theactive disclosure of information.
A diagram of our operational organization, management supervision systems and internal control
system is presented below.

Corporate Governance System (As of May 23, 2008)

General Meeting of Shareholders
Appointment / dismissal
Consultation

Compensation
Committee

Appointment / dismissal

Board of Directors

Proposal Outside directors

In-house directors
Total

Appointment /dismissal /supervision

3
4
7

Audit

Proposal /reportAppointment / dismissal

Board of Corporate
Auditors
Audit/
Outside auditors
3
In-house auditors
1 dismissal
Total
4
Audit

Certified Public
Accountant(independent auditor)

Account auditing

Operational Organization
CEO

Director in charge of audit
Internal Audit OfficeComments

CCO

Executive Committee Meeting

Compliance and Risk
Management Committee

Internal audit and guidance for
improvement

Proposal and promotion ofcompliance and risk
management measures

Executive Officers
Serving concurrently
as directors
Executive officers
Total
Headquarters

Legal Counsel

3
11
14
Regional headquarters

Investment

Subsidiaries and affiliates

LAWSON, INC.

19

Annual Report 2008

Corporate Governance System (As of May 23, 2008)
Item

Description

Corporate organization:

Company with a Board of Corporate Auditors

Chairman of the Board of Directors:

Outside Director

Number of Directors:

7 (including 3 Outside Directors)

Number of Board of Directors’ meetings
in FY07:15 (including 3 extraordinary meetings)

Outside Directors’ attendance rate at Boardof Directors’ meetings in FY07:

Approximately 82% (including extraordinary meetings)

Number of Corporate Auditors:

4 (including 3 Outside Corporate Auditors)

Outside Corporate Auditors’ attendance rate
at Board of Directors’ meetings in FY07:

Approximately 96% (including extraordinary meetings)

Major committee meetings attended by
Corporate Auditors:

Board of Directors’ meetings, Executive Committee meetings, Compliance and Risk
Management Committee meetings, Asset Management Committee meetings, other meetings

Number of Board of Corporate Auditors’
meetings in FY07:

14 (including 2 extraordinary meetings)

Attendance rate at Board of Corporate
Auditors’ meetings in FY07:

100% (including extraordinary meetings)

Average age of Directors and Corporate
Auditors:

55

Independent Auditor:

Deloitte Touche Tohmatsu

Internal Audit Division:

Internal Audit Office

Overview of the internal control system:n We are focusing on the following five areas, in accordance with the Fiscal 2008 Basic Policy
on Development and Operation of Internal Control System, as revised in February 2008:1] Corporate governance and control supervised by the Board of Directors and Board of
Corporate Auditors
2] Internal audits by the Internal Audit Office3] Outside audits and legal advice by the independent auditor and law office, respectively
4] Compliance and risk management via a dedicated compliance system
5] The establishment of an internal system to eliminate anti-social forces

Compliance system:n Appointment of an executive responsible for compliance and risk management (Chief
Compliance Officer (CCO))n Appointment of compliance officers at all headquarters departments and seven regional
headquartersn Monthly meeting of Compliance and Risk Management Committee, chaired by the CCO, toidentify compliance issues and assess risk exposure and to deliberate on ways to prevent
illegal or improper actions.

Support system provided for Outside
Directors and Corporate Auditors:n As a rule, the secretariat of the Board of Directors distributes the agenda one week inadvance of Board meetings, and is also responsible for other support measures.
n The same secretariat reports, as necessary, important events or incidents.

Compensation for Directors:n The Compensation Committee, which is made up entirely of Outside Directors and Outside
Corporate Auditors, determines compensation for Directors and presents its recommendations to the Board of Directors for final approval.
n Approximately 30% of annual compensation is linked to business results.
n Compensation paid to all Directors is reported in the annual securities report and Business Report.
n Other compensation includes stock-compensation-type stock options that can be­exercised (exercise price: ¥1) after a Director retires.

Special factors with an important bearing
on corporate governance:n Mitsubishi Corporation holds 32.7% of the Company’s voting rights, including indirectly held
rights. LAWSON is treated as an equity-method affiliate by Mitsubishi Corporation. (As of
February 29, 2008)n Our consolidated subsidiary LAWSON TICKET INC. is listed on the JASDAQ market. While
respecting LAWSON TICKET’s independence as a publicly listed company, LAWSON
maintains a close working relationship with this subsidiary in order to increase the corporate
value of the entire Group by capturing business synergies.

Disclosure policy:n Basic Principles for Information Disclosure are presented on our IR site:
http://www.lawson.co.jp/company/e/corporate/disclose.html
n The Company discloses material information, including presentation materials used in meetings
to announce business results, in both Japanese and English, on the IR site, without delay.

Risk management system:n The Company identifies risks that could have a material impact on management withrelation to business objectives and analyzes the possibility of particular risk factors occurringand the extent of the potential impact.
n Regulations concerning risk management have been established, thus putting in place asystem for ordinarily preventing risks from materializing and for quickly dealing with them ifthey do.
n A dedicated committee, the Compliance and Risk Management Committee,
meets once a month.

Note: Some of the information in the above table is based on LAWSON’s corporate governance report.

20

LAWSON, INC. Annual Report 2008

Compliance and Risk Management Systemn LAWSON’s compliance and risk management system is grounded on the Company’s view thatcompliance not only entails the observance of laws, regulations and social standards but also thepractice of acting with consideration for others based on the LAWSON Code of Ethics.
n LAWSON aims to be a “good corporate citizen” by acting with high ethical values, sincerity andconsideration for others, and organically linking education and training, communication functions
and monitoring activities based on the standards of conduct for all employees.
n The Corporate Philosophy, the Code of Conduct, the LAWSON vision, the LAWSON Code of
Ethics and the LAWSON Corporate Conduct Charter are contained in the LAWSON Group C&R
Handbook, which is distributed to all LAWSON Group employees.
n LAWSON also encourages franchised stores to operatewith a compliance mindset by providing information on
relevant laws and ordinances and frequently asked questions in an in-house newsletter for franchised stores. In
these and other ways, LAWSON is working on activities
that raise the level of compliance awareness across theentire LAWSON chain.
LAWSON Group C&R Handbook: Contains
standards of conduct so as to ensure that theCompany’s Corporate Philosophy and Code of
Conduct are practiced in the ordinary courseof business on a daily basis.

LAWSON Compliance and Risk Management System

Corporate Philosophy/Code of Ethics/Standard of Conduct

Setting compliance policy for each division

Business execution based on standards of conduct

Divisional development activities
by promoter

Hotline establishment

Confirmation and monitoring of policy progress

Policy revisions and amendments

Emergency preparation
and response

Revision following an emergency

Education and training

LAWSON, INC.

21

Annual Report 2008

Directors’ Profiles and Messages From
Outside Directors and Corporate Auditors(As of May 23, 2008)

Takeshi Niinami

Toru Moriyama

Yoshiyuki Yahagi

Manabu Asano

President and CEO

Member of the Board
and Senior Executive
Vice President

Member of the Board andExecutive Vice President,
Chief Financial Officer (CFO)

Member of the Board andExecutive Vice President,
Chief Compliance Officer (CCO)

Takeshi Niinami became President of
LAWSON in May 2002. Before
coming to LAWSON, Mr. Niinami wasinvolved with restaurant businesses
and has been a representative
director of SODEX CORPORATION(currently LEOC Japan Co., Ltd.), a­company specializing in the foodservice business, and an outside directorof Kentucky Fried Chicken Japan Ltd.

Toru Moriyama was appointed
General Manager, Merchandizing &Logistics Division, Senior Executive
Vice President and Member of theBoard in May 2006. In this capacity,
he is the executive in charge ofmerchandizing and logistics, and core
operations of the Company. Prior tojoining LAWSON, Mr. Moriyama had
a long career centered on the marine
products business.

After a career mainly in businessadministration, investments and loans
management and risk management
elsewhere, Mr. Yahagi was appointed
a Member of the Board, Executive
Vice President and Chief Financial
Officer (CFO), as well as put in chargeof the Corporate Planning Office andHuman Resources Office at LAWSONin May 2007. As CFO, he is responsible for LAWSON’s capital andfinancial policy. He is also in charge ofmanagement planning, businessadministration and human resources.

After joining LAWSON, Mr. Asano
worked as General Manager, Store
Development Department; General
Manager, Chubu LAWSON Branch;
and as assistant Chief Risk Management Officer (CRO). He was subsequently appointed a Member of theBoard, Senior Vice President andChief Compliance Officer (CCO) in
May 2006, and is also in charge ofGeneral Affairs and Internal Audit.
As the executive responsible forcompliance and risk management
and for audit operations, Mr. Asano
supervises the Company’s internal
control systems.

Munehiko Nakano

Kenji Yamakawa

Tetsuo Ozawa

Standing Corporate Auditor(Outside)Standing Corporate Auditor

Corporate Auditor (Outside)

In my position as a standing outside
corporate auditor for the past two
years, I have carried out audits
principally focused on the status of
the Company’s internal control
systems. Through my activities, I feelthat LAWSON is beginning to see the
PDCA (Plan-Do-Check-Action) cycle
steadily produce results. Looking
ahead, I will work to conduct preventative audits close to the front lines of
the Company’s operations and in thisway contribute to LAWSON’s soundsustained growth.

LAWSON has four corporate auditors, three of whom come fromoutside the Company. Corporate
auditors conduct audits with a focus
on LAWSON’s “Basic Policy on
Development and Operation ofInternal Control System” so as toensure the Company continues todevelop in a sound manner while
earning the public’s trust.

LAWSON’s Board of Directors’
meetings are always very animated;
outside directors actively offer theiropinions and I also make my views
known from my perspectives both asa lawyer and as an ordinary consumer. I do this because the President and directors with o­ perational
responsibilities are prepared to listen
seriously to these opinions andtranslate them into action. I am
determined to continue helping
LAWSON develop and increase its
corporate value.

22

LAWSON, INC. Annual Report 2008

Hiroshi Tasaka

Reiko Okutani

Takehiko Kakiuchi

Member of the Board(Outside Director)

Member of the Board(Outside Director)

Member of the Board(Outside Director)

I’m currently lecturing in “social
entrepreneurship theory” at a graduate school and I’m active as a representative of Japan Social Entrepreneur Forum. I have also been involvedin educational activities concerning
corporate social responsibility througha number of newspapers, magazinesand books. Accordingly, I feel that it is
my responsibility as an outside
director of LAWSON to candidly
advise management from this perspective. Fortunately, it is my considered opinion that LAWSON’s current
activities in respect of CSR, including
environmental protection and productsafety, are among the best in theJapanese corporate sector.

I manage a human resources development company and from thisstandpoint my focus is on LAWSON’s
approach to customer satisfaction,
and also how LAWSON trains anddevelops its people, which is fundamental to ensuring customer satisfaction. Furthermore, from a consumer’s
perspective, I’m interested in theroundness of the Company’s­merchandise assortment, its productdisplays, the manner in which­employees serve customers, store
operations and other matters.
LAWSON ordinarily stresses theimportance of relationships withcustomers and society, as evidenced
by the specific actions it is taking toaddress environmental problems. I
think one can determine a senior
management team’s level of awareness by how active their stance iswith regards to CSR.

Companies are being called uponthese days to redouble efforts relating
to food safety and quality. Drawing on
my years of experience in the consumer goods business, I offer myopinion as an outside director so as
to ensure that LAWSON is able tomaintain the confidence and supportof consumers.
I will also do as much as I can tosupport the Company’s proactive
efforts in relation to environmental
protection and social contribution
activities. This includes the Company’s equally proactive efforts to
support areas affected by disaster,afforestation activities, and energy
and resource conservation measures.

Hiroshi Kuwata
Corporate Auditor (Outside)

Legal compliance is a vital part ofearning the trust of various stakeholders. Besides that, proper corporate activities that respond to the
public’s demands and needs are also
important. By ensuring legal compliance and proper corporate activities,
LAWSON will always live up to its
corporate philosophy—realizing“Happiness and Harmony in Our
Community.” I want to play my partas an outside corporate auditor in
making this happen.

LAWSON, INC.

23

Annual Report 2008

Corporate Social Responsibility (CSR)

LAWSON aims to operate stores that are friendly to people and theenvironment. To ensure we pass on a healthy natural environment tofuture generations, we constantly incorporate environmental
considerations in our business activities. We seek to operate in harmony
with the natural e­ nvironment and participate actively in social
contribution activities, thereby helping develop a sustainable society.
Major Initiatives in Fiscal 2007
Greenification Activities
LAWSON has been conducting LAWSON Green Fund activities since 1992, with the goal of supporting greenification activities. Donations to the LAWSON Green Fund, the total of customer donations
and contributions from LAWSON headquarters, totaled ¥2.52 billion as of the end of February 2008.
Funds donated at our stores throughout Japan are provided to the National Land Afforestation Promotion Organization, which promotes tree planting, thinning, undergrowth clearance and other forestry activities. In fiscal 2007, franchise owners, store managers, crews and LAWSON headquarter
staff participated in over 460 events. Our afforestation activities, including planting, arboriculture anddonations, in 1,763 locations in Japan and overseas, covering 4,984 hectares, have involved morethan 12.46 million trees.** The figures for the area covered and number of trees are estimates based on total LAWSON Green Fund activities.

LAWSON Green Fund collection boxes
can be found in all LAWSON stores.

Fund Donations(Millions of Yen)

A total of 83 people helped clean-up the
Arakawa Riverside in Edogawa-ku,
Tokyo, on November 11, 2007.

 Green Fund Disaster Relief Fund

500
400
300
200
100
0 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 FY* LAWSON replaces its LAWSON Green Fund collection boxes with a special disaster fund appeal when a large-scaledisaster occurs.

24

LAWSON, INC. Annual Report 2008

“Bring Your Own” Initiative
LAWSON has set the target of reducing its plastic shopping bag use by 20% from fiscal 2005 levels
by fiscal 2008. Toward achievement of this target, LAWSON asks customers when they pay for purchases whether they need a plastic shopping bag. In fiscal 2007, we handed out LAWSON-­developed Konbini Eco-Bags to customers to bring with them when they shop at our stores. A totalof 540,000 of these bags were given to customers. In a trial designed to further reduce the use ofplastic shopping bags, in fiscal 2008 LAWSON will give LAWSON PASS and MY LAWSON POINT
points to customers who decline plastic shopping bags in certain areas.
One LAWSON store on average currently hands out approximately 60,000 sets of chopsticks
annually with purchases of boxed lunches, side dishes and other food items, which equates toaround 500 million sets across the chain every year. With the goal of helping preserve forests,
LAWSON is trying to reduce the use of disposable chopsticks. As a new initiative launched in fiscal
2007, in conjunction with MIZUNO TECHNICS CORPORATION and OAK VILLAGE Co., Ltd., we areworking to promote the use of “Bring Your Own” reusable chopsticks.

The HAPPY LAWSON Yamashita Koen
store sells original eco-bags.

LAWSON has turned wood of the­domestic ash tree that fails to passmuster for use in baseball bats into
reusable chopsticks.

The LAWSON NLS Kyoto University
store only hands out plastic shoppingbags to those who request them and also
rents out shopping bags.

Cutting CO2 Emissions
LAWSON has set a voluntary target of reducing CO2 emissions per store by 10% from 2006 levels by
2012. The total targeted reduction from 2006 levels will equate to approximately 60,000 tons of CO2 on
an annual basis. Furthermore, LAWSON’s target would equate to a 30% reduction from 1990 levels(calculated by total floor area times store operating hours), the base year for the Japanese convenience
store industry’s voluntary CO2 reduction plan for meeting Japan’s Kyoto Protocol targets. By way of reference, the Japanese convenience store industry has set a 23% reduction target from 1990 levels.
LAWSON has already taken steps to meet its voluntary target. These ongoing steps include installing various energy-saving equipment and improving fuel consumption for delivery trucks and­Company-owned cars.
In another initiative themed on carbon offsetting, LAWSON customers can contribute to CO2
reductions by exchanging points accumulated in the LAWSON PASS and MY LAWSON POINT programs for carbon offsets, or simply via purchases of eligible products through Loppi terminals and inother ways. LAWSON intends to continue involving customers in environmental protection activities,
in addition to its existing LAWSON Green Fund activities.

The introduction of Eco-Pack automatic
control systems is expected to cut CO2
emissions by 11%. LAWSON had­installed these “packs” in 1,605 storesby the end of fiscal 2007.

LAWSON is using joint distribution anddelivery as well as introducing a new
operational management system.

LAWSON is encouraging customers toparticipate in a carbon offset programby exchanging points accumulated as
members of the LAWSON PASS and MY
LAWSON POINT programs or bymaking purchases of eligible products
via Loppi terminals.
LAWSON, INC.

25

Annual Report 2008

Initiatives to Develop Quality Products
That Are Safe, Healthy and Delicious
LAWSON believes that one of its key responsibilities to customers is to
respond to the need for healthy and delicious products that are safe and of
a high quality.

n Providing safe products: With private brand products, LAWSON does not use preservatives or
artificial colorings and is working to reduce food additives. The Company has also established an
in-house ingredient procurement section, which implements raw material procurement-related
safety measures.
n Measures to ensure quality: With private brand products, we strictly manage the stages from procurement of raw materials through to production as well as provide guidance to contract manufacturers.
Our rigorous approach to quality management extends to the handling and hygiene management of
products overall at stores. We also voluntarily provide information such as calorie content and nutritional value, in addition to mandatory information on labels affixed to private brand products.
n Measures in regard to health: With customers increasingly demanding healthy products, LAWSON
makes new food proposals at its convenience stores by paying careful attention to ingredients,
considering the nutritional balance in its product menus, and including often-neglected vegetables.
NATURAL LAWSON, in particular, is strengthening its merchandise assortment of health-conscious
products and has won strong support from customers for its efforts. Some of the products thatwere only available at NATURAL LAWSON stores are now also sold at normal LAWSON stores.
* Private brand products: Products planned, developed and manufactured by LAWSON centered on ready-made meals
such as boxed lunches, rice balls, bread and fast foods.

Approach to private brand productsn Pay careful attention to ingredients

Healthy
products

Safe andreliable products

26

LAWSON, INC. Annual Report 2008

n Consider nutritional balance in menus
n Include often-neglected vegetable content

n Eliminate artificial colorings and preservatives
n Control freshness, temperature and hygiene levels

Financial Section

28 Overview of the CVS Sector and Selected Financial Data
30 Consolidated Nine-Year Summary
32 Management’s Discussion and Analysis
48 Consolidated Balance Sheets
50 Consolidated Statements of Income
51 Consolidated Statements of Changes in Equity
53 Consolidated Statements of Cash Flows
54 Notes to Consolidated Financial Statements
70 Independent Auditors’ Report

LAWSON, INC.

27

Annual Report 2008

Overview of the CVS Sector and Selected Financial Data

CVS Share of the Total Retail Market(Trillions of Yen, %)

150

4.5

5.3

5.4

5.5

5.4

5.5

5.5

5.0

4.8

100

50

0

Years ended December 31

n Total retail industry annual sales
n CVS sector annual sales
CVS share
n

1999

2000

2001

2002

2003

2004

2005

2006

2007

¥142
6.4
4.5%

¥139
6.7
4.8%

¥137
6.8
5.0%

¥132
7.0
5.3%

¥132
7.1
5.4%

¥134
7.3
5.5%

¥135
7.4
5.4%

¥135
7.4
5.5%

¥135
7.5
5.5%

Share of CVS Market Held by Top Four* Chains (Net sales at all stores)(Billions of Yen, %)

7,500
73.6

75.4

74.5

76.4

77.8

77.0

79.2

78.7

79.7

5,000

2,500

0

February 28 and 29

2000

2001

2002

2003

2004

2005

2006

2007

2008

¥1,221n LAWSON
1,964
n Seven-Eleven Japan783
n FamilyMart
391
n Circle K
342
n Sunkus   Total
4,701  (Estimated market share of top 4 chains) 73.6%
CVS industry¥6,383¥1,275
2,047
843
447
366
4,978
74.5%
¥6,680¥1,286
2,114
899
467
393
5,159
75.4%
¥6,846¥1,294
2,213
932
485
406
5,330
76.4%
¥6,980¥1,288
2,343
954
480
403
5,468
77.0%
¥7,096¥1,329
2,441
998
503
403
5,674
77.8%
¥7,289¥1,362
2,499
1,032
505
394
5,792
78.7%
¥7,360¥1,387
2,534
1,069
497
376
5,863
79.2%
¥7,399¥1,415
2,574
1,122
495
365
5,971
79.7%
¥7,490nNote: CVS industry figures are for previous calendar years ended December 31.
* Circle K and Sunkus are regarded as being in the same chain.

YoY Rate on Existing Store Sales, Average Number of Customers andAverage Purchase Value per Customer in Existing Stores (LAWSON)
(%)

105

100

95

2004

2005

2006

2007

2008

99.6
98.3
98.4
98.1
97.51
YoY rate on existing store sales
Average number of customers and average purchase value per customer in existing stores2
–
–
–
98.2
99.0
Number of customers
–
–
–
99.9
100.2
Average purchase value per customer

99.7

97.5

98.2

99.2

100.1
99.7

99.1
98.3

98.2
100.0

98.9
100.4

n

n

n

1

2001

2002

2003

Excluding the effect of terminating Highway Card sales, sales were down 0.8%.
Average number of customers and average purchase value per customer in existing stores are non-consolidated figures.

28
2

2000

LAWSON, INC. Annual Report 2008

Operating Income, Operating Income Ratio and Net Income (LAWSON)(Millions of Yen, %)50,00040,0003.3

3.2

30,000

2.8

3.2

2.9

3.2

3.2

3.3

2.6

20,00010,0000n Operating Income
Operating Income Ratio*n Net Income
n

2000

2001

2002

2003

2004

2005

2006

2007

2008

¥40,185
3.3%¥15,011¥41,279
3.2%¥16,368¥36,3632.8%¥16,123¥34,107
2.6%¥8,861¥38,087
2.9%¥18,571¥42,941
3.2%¥20,435¥43,867
3.2%¥22,025¥44,513
3.2%¥20,983¥46,610
3.3%¥22,119

13.0

13.1
11.3

11.6

* Operating income ratio = Operating income / Net sales of all stores

Net Income per Share and ROE (LAWSON)(Yen, %)

250
16.8
200
12.1

11.9
150

9.8

100

5.9

50

0

n Net Income per Share
ROE
n

2000

2001

2002

2003

2004

2005

2006

2007

2008

¥143
16.8%

¥148
11.9%

¥146
9.8%

¥82
5.9%

¥176
12.1%

¥198
13.0%

¥216
13.1%

¥202
11.3%

¥215
11.6%

Cash Dividends per Share and Payout Ratio (LAWSON)(Yen, %)

120

51.2
49.6

49.8
41.8
90
35.3
28.2
60

23.3

23.7
11.9

30

0

n Cash Dividends per Share
Payout Ratio
n

2000

2001

2002

2003

2004

2005

2006

2007

2008

¥17
11.9%

¥35
23.7%

¥41
28.2%

¥41
49.8%

¥41
23.3%

¥70
35.3%

¥90
41.8%

¥100
49.6%

¥110
51.2%

LAWSON, INC.

29

Annual Report 2008

Consolidated Nine-Year Summary
LAWSON, INC. and Consolidated Subsidiaries
Years Ended February 28 and 29

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

Per share data:
Net income  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Cash dividends  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Payout ratio  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Financial data:
ROE  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
ROA  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Net sales of all stores:
Net sales by store category   Franchised stores(5)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
   Company-operated stores  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Net sales by product category(5)   Processed foods  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
   Fast foods  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
   Daily delivered foods  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
   Non-food products  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
    Net sales of all stores  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

2008

2007

2006

¥ 177,443
83,32140,413
301,177
46,61022,11955,774(36,525)(31,973)
64,413
21,469¥ 174,325
75,151
33,577
283,053
44,513
20,98347,596(31,754)(736)
49,822
21,352¥ 170,785
66,027
31,246
268,058
43,86722,02546,933(55,282)(7,795)54,417
20,896¥ 397,108
188,574
46.6%––
62,8238,587
3,316¥ 398,258
199,49349.0%––
75,5478,564
3,614¥ 375,107
175,18446.7%––
60,441
8,366
3,585

¥

¥

¥

215
110
51.2%

202
100
49.6%

216
90
41.8%

11.6%
5.6%

11.3%
5.4%

13.1%
6.0%

¥1,331,785
83,321¥1,311,479
75,151¥1,295,704
66,027¥ 726,750
327,501
162,625
198,230¥1,415,106¥ 705,155
324,993
155,575
200,907¥1,386,630¥ 682,006
312,289
150,917
216,519¥1,361,731

Notes: 1.	The U.S. dollar amounts represent translations of Japanese yen at the approximate exchange rate at February 29, 2008, of ¥104.78=$1.
2.	Effective from annual report 2006, the composition of capital expenditure has changed to also include leases, investments and advances, and­construction assistance guarantees. Please refer to page 44 for details.
3.	Including depreciation and amortization of intangible fixed assets.
4.	Shanghai stores are not included because SHANGHAI HUALIAN LAWSON CO., LTD. was excluded from the scope of consolidation from April 2005.
5.	These figures, as reported by franchised stores, are unaudited.

30

LAWSON, INC. Annual Report 2008

Thousands of
U.S. Dollars(1)
2008

2005

2004

2003

2002

2001

Millions of Yen
2000¥ 162,963
63,802
27,630254,395
42,941
20,43547,329(33,297)(13,836)
46,873
19,641¥ 153,910
67,47924,212
245,601
38,087
18,57137,424(40,621)(14,364)
48,303
18,499¥ 149,032
80,954
20,348250,334
34,107
8,861
33,860(3,787)(7,247)75,82816,071¥ 141,621
101,353
13,142
256,116
36,363
16,12344,804(44,031)(58,236)
59,81016,328¥ 135,237
132,921
12,061
280,218
41,27916,36852,793(54,696)
18,70732,651
16,021¥ 124,587
149,458
17,808291,853
40,18515,011
67,790121,758(92,521)30,70315,017$ 1,693,482
795,199385,6932,874,374
444,837
211,099532,296(348,588)(305,144)
614,745
204,896¥ 356,310
160,282
45.0%––
76,5858,077
3,391¥ 354,831
154,31743.5%––
76,3897,967
3,402¥ 342,599
151,86444.3%––
93,9947,721
3,462¥ 342,934
149,827
43.7%
3,140
0.9%
71,2697,824
3,817¥ 387,236
178,448
46.1%
23,530
6.1%
128,655
7,749
4,170

¥ 339,413
95,932
28.3%
71,81721.1%
111,753
7,432
4,234

$ 3,789,922
1,799,714

Yen

U.S. Dollars(1)

¥

198
70
35.3%

¥

176
41
23.3%

¥

82
41
49.8%

¥

146
41
28.2%

¥

148
35
23.7%

¥

143
17
11.9%

–
–
599,571

$

2.05
1.05

13.0%
5.7%

12.1%
5.3%

5.9%
2.6%

9.8%
4.4%

11.9%
4.5%

16.8%
4.0%

¥1,265,275
63,802¥1,220,819
67,479¥1,213,088
80,954¥1,184,204
101,353¥1,144,717
132,921¥1,073,422
149,458$12,710,298
795,199¥ 665,687
297,369
148,134
217,887¥1,329,077¥ 625,031
302,568
139,506
221,192¥1,288,297¥ 600,508
303,098
138,353
252,083¥1,294,042¥ 583,712
297,030
150,862
253,953¥1,285,557¥ 562,777362,979
90,569261,313¥1,277,638¥ 528,188
350,70289,248
254,742¥1,222,880$ 6,935,961
3,125,606
1,552,061
1,891,869$13,505,497

LAWSON, INC.

31

Annual Report 2008

Management’s Discussion and Analysis

n Industry Overview

retailing “groups” are pursuing a private brand (PB) strategy
based on strengthening their buying power. On the other hand,
the PB strategy faces issues associated with the diverse andregional preferences of Japanese consumers and the strongly
rooted trust consumers have in national brands. In this context,
LAWSON regards 2008 as an extremely important year forfood retailers in terms of how well retail chains can pinpoint
consumer needs and to what extent the private brands of retailchains take hold with Japanese consumers.
In the midst of this retail industry upheaval, in the CVS
sector, major chains continue to open stores in large numbers. This is increasing the saturation of conventional CVS
formats targeting young men in their 20s and 30s as corecustomers. The CVS business of the sector’s largest chain
recorded a decrease in consolidated operating income for thesecond consecutive year in fiscal 2007 for the first time sincegoing public. As suggested by this result, the slump in existing store earnings in the CVS sector caused by competition
with stores being opened is beginning to have a negative
impact on the earnings of franchised store owners as well as
corporate earnings. If the trend of mass openings of conventional CVS stores continues despite this decline in earnings,
the resulting increase in low-profit stores will increase the riskof a further decline in earnings of franchised store owners aswell as of the capital efficiency of companies, and ultimately of
lower ROE. LAWSON believes that we are no longer living in
the time when we can make up for declines in existing store
earnings by opening new stores as a means to drive corporate growth.

The Japanese retail industry was characterized by increasing
uncertainty during the past fiscal year (fiscal 2007). There
were a number of alliances as well as mergers and acquisitions in the industry. At the same time, escalating raw material
prices brought an end to deflation, increasing interest in foodsafety led to cost increases, and competition to open stores
escalated.
The 2000 abolition of the Large-Scale Retail Store Law andenforcement of the Large-Scale Retail Store Location Law,both of which made it easier for companies to set up largescale retail stores in suburban areas, triggered a rush toconstruct large-scale shopping centers in Japan. This trend
led to growing concerns about hollowing out of central city
areas, particularly in regional areas. These concerns
prompted a governmental review of commerce and distribution policy, which culminated in the legislature passing andenacting revisions in May 2006 to the Three New Acts about
Harmonization of City Planning and Commercial Policy (City
Planning Law, Central City Revitalization Law and Large-store
Establishment Law). This signaled a move to curb the excessive opening of major retail properties in suburban areas,
which has proven to be effective in restraining the proliferation of these types of properties.
Meanwhile, in 2007, the Japanese department store industry
entered a period of major restructuring. This has seen an
alliance involving AEON Co., Ltd. and The Daiei, Inc. and The
Maruetsu Inc., and another centered on Seven & i Holdings
Co., Ltd. creating two major retailing “groups”. These two

Retail Industry Market Size and CVS Share
Years ended December 31

Total retail industry annual sales  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
CVS sector annual sales  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
CVS share  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .

(Billions of Yen)
2007

2006

2005

2004

2003

¥135,081
7,490
5.5%

¥135,257
7,399
5.5%

¥135,055
7,360
5.4%

¥133,712
7,289
5.5%

¥132,446
7,096
5.4%

Source:	“Survey of Commerce,” Ministry of Economy, Trade and Industry
Note: CVS industry figures are for previous calendar years ended December 31.

Share of CVS Market Held by Top Four* Chains (Net Sales at all Stores)
February 28 and 29

LAWSON  . .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
Seven-Eleven Japan .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
FamilyMart .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
Circle K . .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
Sunkus .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
Total .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
(Estimated market share of top 4 chains) . . . . . . . . . .
Note: Total figures are for the years ended February 28 and 29.
* Circle K and Sunkus are regarded as being in the same chain.

32

LAWSON, INC. Annual Report 2008

(Billions of Yen)

2008

2007

2006

2005

2004

¥1,415
2,574
1,122
495
365
5,971
79.7%

¥1,387
2,534
1,069
497
376
5,863
79.2%

¥1,362
2,499
1,032
505
394
5,792
78.7%

¥1,329
2,441
998
503
403
5,674
77.8%

¥1,288
2,343
954
480
403
5,468
77.0%

n Management Measuresin Fiscal 2007
LAWSON executed the following management initiatives inthe year ended February 29, 2008 with the goal of strengthening existing stores.
1.	To create merchandise assortments matched to individualstore locations, we strengthened the development ofpeople who are well-versed in using “store charts” andpushed ahead with developing products designed tobroaden the customer base.
		 In addition to increasing the number of LAWSON supervisors (management guidance staff), we developed products
targeted at non-traditional customers, namely women andmiddle-aged and elderly customers. This involved developing “health-oriented products,” “products in appropriately
sized small quantities,” and “perishable foods and daily
delivered foods.”1		 LAWSON is developing a perishable food convenience
store format with the view to further expanding its customer
base. To strengthen this business, we advanced our alliance with Ninety-nine Plus Inc.
2.	We implemented measures to promote sales and bolster
our merchandise assortment. This included utilizing our
proprietary shopping point cards LAWSON PASS and MY
LAWSON POINT.
		 Continuing on from fiscal 2006, we stepped up sales
promotions geared at increasing our customer base andultimately the number of customers. In this vein, we ran
such events as LAWSON Fair and a campaign allowing
customers to exchange shopping points for Miffy-themed
picture plates.
		 Point cards are highly popular with women and enable us
to develop stronger merchandise assortments at individualstores via customer relationship management (CRM). To
this end, we worked to sign up more members to the
LAWSON PASS credit card, which is also used as a shopping point card, and to MY LAWSON POINT, a shopping
point card which was rolled out in January 2007 on anationwide basis for those customers who dislike owning
credit cards. These efforts saw the combined cardholder
base for the 2 cards reach 6.22 million members at the endof February 2008.
3.	As an initiative to strengthen existing LAWSON stores, we
continued to convert stores into LAWSON PLUS format
stores, which carry a wider range of perishable foods.
LAWSON PLUS stores were first opened in fiscal 2006.

4.	In an organizational move in the past fiscal year, we established the new senior management post of COO. As theexecutive that oversees the three organizational lines ofmerchandise, management and development, the COO is
responsible for creating and executing organic operational
initiatives in support of franchised stores.
		 In September 2007, we divided the president’s responsibilities between two separate positions with the creation of
the new COO post. The CEO is responsible mainly foralliances, IT and R&D as well as communication with the“LAWSON family”2. The COO, meanwhile, coordinates theefforts of the seven regional headquarters nationwide andthree organizational lines: merchandise, management anddevelopment. In this capacity, the COO promotes operational initiatives. At the same time as establishing the postof COO, we promoted people we view as future leaders of
LAWSON to regional headquarter head and executive
officer positions. This move should ensure we have a strong
pool of managers in the future.
Includes tofu, natto (fermented soy beans) and other side dishes anddelicatessen items as well as cooked noodles and other food productswith a relatively short sales period after manufacture. Basically, productsthat are ordered and delivered every day.
2
The LAWSON family comprises franchised store owners, crews (part-timeand casual workers), and employees of LAWSON’s Head Office (headquarters and regional headquarters) as well as of subsidiaries and affiliatedcompanies. These people are at the heart of the LAWSON Group.
1

The following sections explain details of the aforementioned
initiatives by organizational line (merchandise, managementand development).

n Product Strategy
LAWSON’s merchandise strategy centers on original readymade meals. Aiming to expand our customer base, we
pushed ahead with developing products targeted at newcustomers, namely middle-aged and elderly customers aswell as women. At the same time, we supplied products forour core customers, young men, who tend to want substantial meals.
Sushi is popular with middle-aged, senior and health-­
conscious customers. In this area, we launched a new brandcalled Norimakijiroshoten, aiming to establish sushi as a product category commonly purchased at convenience stores. To
this end, we actively developed a range of sushi products,
including hand-rolled sushi and irodori maki sushi.
We also continued to promote products specially targetedat the health-conscious. One is Neba-neba Menu featuring

LAWSON, INC.

33

Annual Report 2008

cold noodles, salads and other offerings based on 11 types ofhighly nutritional food ingredients such as okra, tororo potato,
glutinous yam, natto and mekabu seaweed.
Various campaigns supported sales of these and otherproducts. In June 2007, we ran LAWSON Fair, a major sales
promotion campaign that had as its central planks limitedtime products and on-the-spot prize draws for coupons whencustomers purchased products. In summer (June and July2007) and winter (December 2007 and January 2008), we ran
a shopping point collection campaign allowing customers to
exchange their points for Miffy-themed picture plates. This
campaign tied in with the Happy Child-Raising Project* andwas designed to attract more customers to our stores during
the key summer and winter sales periods.
Part of our product strategy also involves the provision ofservices. Our stores handled over 149 million bill settlementtransactions, including public utility charges; the chain han­dled transactions amounting to ¥1,412.3 billion on behalf ofthird-party companies in this way. Furthermore, ATM
machines were installed at stores in another 6 prefecturesduring the past fiscal year, bringing the number of prefectures(including Tokyo and Osaka) with LAWSON stores that haveATMs to 36.
Raising convenience for customers is at the heart of ourcorporate activities. During the year under review, we installed
multifunctional terminals at cash registers in almost all of ourstores that are capable of handling the major forms ofe-money used in Japan. One terminal can handle “iD™,”“QUICPay™” and “Edy.”* The Happy Child-Raising Project was launched in July 2006 and was
inspired by the winning entry in an essay competition staged to mark
LAWSON’s 30th anniversary. Through this project, LAWSON has taken up
the challenge presented in the essay of helping families to raise children.

n Store Operations
The Three Challenge Practices1—the enhancement of quality(Q), service (S), and cleanliness (C)—are the keystone for
LAWSON store operations. We continued to promote thesepractices in fiscal 2007 with the aim of raising customer satis­
faction. Furthermore, we made greater use of “store charts”(analysis of individual store information) that have been intro­
duced nationwide. These charts underpinned ongoing efforts
to assemble merchandise assortments and create store dis­
plays matched to regional preferences of customers ofindividual stores. Another current LAWSON store operational
initiative is to foster management by individual stores2. Here
we enhanced training and guidance for franchised store
owners and crews (part-time and casual workers) and34

LAWSON, INC. Annual Report 2008

increased the number of LAWSON supervisors, at the sametime as offering them more training.
 he Three Challenge Practices are points that franchised store owners,
T
employees and store crews (part-time and casual workers) must pay
particular attention to in running LAWSON stores. They are (1) ensuring
merchandise assortments are matched to individual locations, (2) serving
customers courteously, and (3) keeping stores and surrounding areas
clean.
2
To ensure that individual stores have a deep understanding of the customers in their areas, franchised store owners and LAWSON supervisors
survey and analyze the local area and use the results as the basis for
preparing store charts. These charts are in turn used to create portfolios
of products that will satisfy each and every customer in the area. Thisapproach should reduce lost sales opportunities from products being outof stock when needed by customers, and losses in terms of productwaste which are borne by franchised store owners when they have todispose of products that have passed their use-by date. Ultimately, thereduction of these two types of losses should improve the earnings ofboth franchised store owners and LAWSON.
1n Store Development andStore Formats
Development of LAWSON Stores
During the past fiscal year, LAWSON worked to develop
stores that it expects to generate high earnings by rigorously
adhering to its proprietary store opening standards, centeredon return on investment (ROI), when opening stores mainly inand around large cities in the Kanto, Kinki and Chubu regions.
Furthermore, we worked to secure quality franchised store
owners and focused on gathering information on prime locations for new stores by fostering closer cooperation between
store operation and development divisions and by working
with leading companies in candidate areas.
LAWSON PLUS Stores
In fiscal 2006, aiming to develop existing LAWSON stores into
a format that will better meet the needs of certain areas, wecreated a new format called LAWSON PLUS that is focusedon sales spaces and product mixes, particularly for the newer
customer types of the middle-aged, seniors and women. To
ensure that the targeted customers recognized these newstores as different to conventional LAWSON stores, wechanged the outside and inside appearance, including thecolor of the sign boards, as well as the store fixtures andfittings. Together with a stronger merchandise assortment for
middle-aged, senior and women customers, these efforts
were aimed at expanding the customer base. In fiscal 2007,
we shifted into full gear in developing these stores across thecountry based on the results of trials conducted through theend of the previous fiscal year. As of February 29, 2008, there
were 652 LAWSON PLUS stores.

NATURAL LAWSONNATURAL LAWSON is a CVS format targeting mainly working
women and very health-conscious customers, based on the
key words of “beauty,” “health” and “convenience.” The first
store opened in July 2001. In April 2004, one business division in Head Office was spun off as NATURAL LAWSON, Inc.,a wholly owned subsidiary of LAWSON. As a subsidiary,
NATURAL LAWSON succeeded in developing a productdevelopment concept and corporate culture that are separate
from the Head Office. NATURAL LAWSON has been able todevelop products that broke the conventional CVS mold. With
NATURAL LAWSON having achieved its initial goal of establishing a new brand strongly supported by female customers,
LAWSON in October 2007 decided to integrate this company
back into the LAWSON Head Office. As the next stage ofdeveloping this format for women and health-conscious consumers, LAWSON intends to accelerate the franchising ofstores, by improving the efficiency of operations and effectively utilizing human resources. As of February 29, 2008,
there were 91 NATURAL LAWSON stores, including 14 franchised stores.
Initiatives in Fresh Food Convenience Stores(LAWSON STORE100 and SHOP99)
Subsidiary VALUE LAWSON, Inc. has been developing
LAWSON STORE100 perishable food convenience stores ina bid to establish this sort of CVS format targeted at housewives, the middle-aged and elderly, customer segments
whose needs weren’t fully met by our core LAWSON format
stores. We have found that this perishable food format has
garnered the support of precisely these customers, withcustomer numbers around 30% higher on average than our
LAWSON stores. It also became clear to us, however, that it
would take some time to catch up to the industry leader inthis type of CVS format, Ninety-nine Plus Inc. Considerable
trial and error would be required before we established thenecessary know-how about the perishable food format, andwe would also incur costs for assembling a private brandmerchandise assortment and quickly opening stores tosecure markups.
LAWSON sees sufficient market and growth potential forthe perishable foods format. Considering the time and costrequired to develop this format by the LAWSON Group on its
own, we decided to invest in and form a business alliancewith industry leader Ninety-nine Plus. Our goal is to be thedominant number-one player in this industry sector ahead ofother companies.
Please refer to profiles of VALUE LAWSON, Inc. and Ninetynine Plus Inc. under “Scope of Consolidation” on page 37 of
this report for details of specific activities.
Opening Stores in Special Locations
Part of LAWSON’s strategy is to open stores in diverse locations. In October 2007, we opened a second LAWSON+toks

store, a new type of convenience store for train stations. This
format was developed in conjunction with Tokyu Corporation
under a business alliance inked in the fiscal year ended­February 28, 2006. These two stores are operated by wholly
owned Tokyu subsidiary Tokyu Station Retail Service Co., Ltd.
as a LAWSON franchisee.
Along the same lines, LAWSON has opened stores in special
captive commercial spaces, namely hospitals. During the pastfiscal year, LAWSON opened another 14 Hospital LAWSON
stores, bringing the number of these stores to 33 at the end of
the fiscal year. We intend to expand this business model as aformat that we expect to grow in an aging society in Japan.

Alliance With Japan Post
We also made steady progress during the past year preparing
to capitalize on business opportunities likely to occur frompost office privatization with respect to Postal LAWSON
stores, based on our alliance with Japan Post Holdings Co.,
Ltd. As of February 29, 2008, there were five of these stores
inside post offices in Japan. In a new initiative, in October
2006 we began trialing joint delivery in Kochi Prefecture,
thereby raising the possibility of opening stores in areas we
had withdrawn from due to poor distribution efficiency. In
related news, in February 2008, we inked an agreement for acomprehensive business alliance with Japan Post. The idea of
this alliance is to develop initiatives that effectively leverage thebusiness resources of both companies with the goals of raising convenience for customers across the country and contributing to local communities.
Corporate Franchising Agreement
With Shinsengumi Honbu
In January 2008, LAWSON agreed to conclude a corporate
franchising agreement by the end of February 2008 with
­Shinsengumi Honbu K.K. and signed a Memorandum ofUnderstanding regarding a business alliance. Under this agreement, 45 convenience stores operated by Shinsengumi as
either “Shinsengumi” or “Just Spot” stores will progressively
take the LAWSON name by the end of February 2009. The
stores will still be operated by Shinsengumi Honbu, with
LAWSON providing operational guidance. One store had beenrebranded under the LAWSON name as of February 29, 2008.
Future Store-Opening Strategy
LAWSON will continue to focus on picking the right format for
the needs of the area from its three main formats: “LAWSON,”“NATURAL LAWSON” and “LAWSON STORE100.” In candidate locations where use of the conventional LAWSON format
is highly likely to expose us to stiff competition from othermajor convenience store chains, we will open “NATURALLAWSON” and “LAWSON STORE100” stores to differentiate
ourselves from other chains.

LAWSON, INC.

35

Annual Report 2008

Number of Stores in the LAWSON Network
Years ended February 28 and 29

Number of stores  . .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
Openings  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
Closings  . .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
Net increase (decrease)  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .

2008

2007

2006

2005

2004

8,587
452
429
23

8,564
700
502
198

8,366
717
428
289

8,077
711
455
256

7,821
625
429
196

Number of Stores by FC Contract Type
February 28 and 29

B  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
   Share (%)  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
G  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
   Share (%)  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
C1  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
   Share (%)  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
Franchised stores  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
Share (%)  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
Company-operated stores2  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
Share (%)  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
Total  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
Share (%)  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
1
2

2008

2007

2006

2005

2004

1,369
15.9
2,123
24.7
4,656
54.2
8,148
94.9
439
5.1
8,587
100.0

1,512
17.7
2,209
25.8
4,372
51.1
8,093
94.5
471
5.5
8,564
100.0

1,674
20.0
2,272
27.2
4,012
48.0
7,958
95.1
408
4.9
8,366
100.0

1,836
22.7
2,335
28.9
3,560
44.1
7,731
95.7
346
4.3
8,077
100.0

1,992
25.4
2,415
30.9
3,065
39.2
7,472
95.5
349
4.5
7,821
100.0

Includes NATURAL LAWSON franchised stores.
Includes NATURAL LAWSON and LAWSON STORE100

We believe that one of LAWSON’s defining strengths lies
in a flexible and dynamic store development system thatmakes possible alliances with diverse partners such as
Japan Post and Shinsengumi. Moving forward, based on
mold-breaking concepts, we will rise to the challenge of
opening stores in various locations as we pursue the potential of new business opportunities.
As a result of the aforementioned measures, domestic store
openings in fiscal 2007 numbered 452, while store closures

were 429, including relocated stores. At February 29, 2008,
LAWSON’s domestic network comprised 8,587 stores, including 91 NATURAL LAWSON and 72 LAWSON STORE100
stores, a net increase of 23 stores from a year earlier.
The network of SHANGHAI HUALIAN LAWSON CO., LTD.,an affiliate in the People’s Republic of China accounted for by
the equity method, declined by 4 stores year on year to 287
stores as of December 31, 2007.

Outline of Store Contracts
Contract type
Contract term
Owner conditions
Land and buildings
Investment in store construction andinterior decoration expenses
Signage and business fixtures
Payment by franchisee
at time of contract1

Franchise fee
Investment

Guarantee deposit provided by
franchisee
Head Office income2
Burden of utility expenses
Minimum guarantee (annual)2(thousands of yen)
1

2

FC-C5

FC-G
FC-B4
10 years from store opening day
At least 20 years old, 2 full-time store workers
Prepared by LAWSON
Prepared by franchisee
Borne by LAWSON

Borne by franchisee

Prepared by LAWSON¥1.5 million (Contract fee, training expenses,
and store opening preparation commission, each ¥500,000)¥1.5 million (Including payment for some merchandisepurchased on behalf of the store)
Average monthly sales
Not required
Not requiredx 2 months
Gross profit x 50%
Gross profit x 45%
Gross profit x 34%
Franchisee
21,00022,20022,200 he above amount is paid by franchisee to Head Office at the time of the franchising contract. In addition, the franchisee needs to separately prepare aTtotal of ¥500,000, including cash register float at time of store opening.
Head Office income and minimum guarantee are in the case of stores operating on a 24-hour basis.

36

LAWSON, INC. Annual Report 2008

n Scope of Consolidation
The consolidated results for fiscal 2007 include the performance of nine members of the LAWSON Group—five consolidated subsidiaries and four affiliates accounted for under theequity method—and the parent company. These subsidiaries
and affiliates are broadly involved in five categories of business: CVS operations, financial services, other services, overseas services and restaurant services. The business
operations and fiscal results of companies included within thescope of consolidation are presented below.

CVS Operations
The LAWSON Group is developing four CVS formats:
LAWSON, INC. is developing the “LAWSON” and “NATURALLAWSON” formats, VALUE LAWSON, Inc. is developing the“LAWSON STORE100” format, and some existing LAWSON
stores are being converted into LAWSON PLUS stores.
NATURAL LAWSON, Inc. was developing the “NATURALLAWSON” format, but as these operations were absorbed by
the Head Office in the past fiscal year, this company was
liquidated in February 2008.
VALUE LAWSON, Inc. (Consolidated Subsidiary)This consolidated subsidiary operates “LAWSON STORE100”
perishable food convenience stores, which wed the CVS andmini-supermarket formats. “LAWSON STORE100” storestarget women, the middle-aged and seniors with the conceptof “supporting time saving, simplicity, and convenience ineveryday life.” These stores provide a wide range of products
spanning processed foods and daily necessities at a uniform
price of ¥100 (excluding consumption tax). The main products
comprise high-quality, home-grown fruit and vegetables, andboxed lunches and side dishes based on the LAWSONGroup’s know-how. VALUE LAWSON, Inc. was founded in
April 2005 as a wholly owned subsidiary to establish the“LAWSON STORE100” business format, as well as to perform
product planning and development for these stores. The
company opened its first store in May 2005. As of February
29, 2008, there were 72 stores in this format.
Operating income (loss)  .  .  .  .
Net income (loss)  . .  .  .  .  .  .  .  .
No. of stores  .  .  .  .  .  .  .  .  .  .  .  .

(Millions of Yen)
2008

2007

2006

¥(535)(688)
72¥ (980)(1,311)80¥(623)(709)
35

Ninety-nine Plus Inc. (Equity-method Affiliate)
LAWSON concluded an equity-based alliance in February
2007 with Ninety-nine Plus Inc., which operates the“SHOP99” chain of convenience stores known for their fresh
foods. Ninety-nine Plus was established in October 2000 andsince then has grown rapidly as a pioneer in Japan of a new
perishable foods store format that provides everything fromdaily food items, including perishable foods, to sundry goods
at a single price—it created the concept of an everyday low
price of ¥99 (excluding tax). As of March 31, 2008, the company had a network of 837 stores. SHOP99 stores have wonstrong acceptance from housewives and older shoppers for a
fresh food CVS format strategy of strengthening the merchandise assortment of perishable and daily delivered foods atstores in residential areas. This is highlighted by a higher
percentage of these sorts of customers in its customer mix
than at conventional convenience stores.
Through this alliance with Ninety-nine Plus, LAWSON
believes it can improve the quality of perishable and daily
delivered foods sold in suitably sized small portions, by complementing each other’s know-how and strengths, including in
the area of perishable foods. By doing so, LAWSON believes
that it can broaden its customer base of housewives andseniors and attract more customers. Based on the agreement
between the two companies, Ninety-nine Plus allotted 31,500
shares of common stock to LAWSON in March 2007 throughan increase in capital by way of a private placement of shares.
In January 2008, Ninety-nine Plus made another third-party
allotment of shares to strengthen its business alliance with
LAWSON and to raise funds to open more stores. LAWSON
subscribed to this increase in capital with the view to maximizing the benefits of its alliance with Ninety-nine Plus and as
a result became the company’s leading shareholder with anequity interest of 34.2%. LAWSON has set the goal of being
the dominant number-one in the fresh food convenience store
sector and believes that this latest move will generate evenmore alliance benefits such as in the form of sharing expertisein the sale of perishable foods and daily delivered foods andthe joint development of uniform private brand products inappropriately small quantities and conveniently sized packages for housewives, the middle-aged and elderly.
Ninety-nine Plus has a March fiscal year-end and LAWSON
began applying the equity method of accounting to this company from the fiscal year ended February 29, 2008. Accordingly, LAWSON’s equity-method earnings in this company
include earnings for the nine months through the end of thecompany’s third quarter.
(Millions of Yen)

Operating income  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
Net income (loss)  . .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
No. of stores  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .

2008

2007

¥401
47
837

¥955
(886)
780

Note: T he above figures are Ninety-nine Plus’ results for the fiscal year
ended March 31.

LAWSON, INC.

37

Annual Report 2008

Financial Services
Two Group companies have in the past conducted financialservices-related businesses: consolidated subsidiary
LAWSON ATM Networks, Inc. and equity-method affiliate
LAWSON CS Card, INC. However, we decided to sell all ourshares in the latter in April 2008.
LAWSON ATM Networks, Inc.
(Consolidated Subsidiary)This consolidated subsidiary was established in May 2001
with investments by LAWSON, Mitsubishi Corporation andseveral banks to run ATM operations for LAWSON stores. The
company began installing ATMs and started ATM services atsome LAWSON stores from October 2001.

The company’s ATM business installs jointly operated ATMs
on a leased basis in LAWSON stores in regions where agreement has been reached with partner banks. It has formed
alliances with the major city bank groups and regional banks;
partner banks currently number 24.
The company’s main source of revenue is ATM commissions from banks. Its main expenses are operating center
outsourcing fees, ATM line charges and ATM leasing charges.
As of February 29, 2008, the number of ATMs installedstood at 5,643 and the number of prefectures where ATMs
are installed was 36. LAWSON held a 58.0% stake in thiscompany as of February 29, 2008 having purchased shares
held by Mitsubishi Corporation in the fiscal year under review.



Operating revenues  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
Operating income (loss)  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
Net income (loss)  . .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .

(Millions of Yen)
2008

2007

2006

2005

2004

¥14,900
1,201
718¥11,907866
509¥11,311654
675¥10,003144
266¥8,352(348)(350)

Number of ATMs Installed
Number of ATMs Installed  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .

LAWSON CS Card, INC. (Equity-method Affiliate)This equity-method affiliate was established in February 2002
by Credit Saison Co., Ltd. (30% shareholding), Mitsubishi
Corporation (20% shareholding), and LAWSON (50% shareholding). It issues the LAWSON PASS credit card, which isalso used as a shopping point card by LAWSON customers,
and provides services through Loppi multimedia terminals andother channels. As of February 29, 2008, LAWSON PASS, forwhich services began in August 2002, had a cardholder baseexceeding 2.8 million members. Credit Saison undertakes
card issuance and credit screening for LAWSON PASS on
behalf of LAWSON CS Card.
The company’s main revenues come from commissions fromthe use of shopping and cash advance services, while themain expenses are those related to the operation of the card.

2008

2007

2006

2005

2004

5,643

4,245

3,812

3,570

3,127

In fiscal 2007, revenue growth was lackluster from cash
advances, one of the company’s key revenue streams, due tothe impact of changes in the finance industry, including revisions to the Money-Lending Business Control and Regulation
Law. Given the changes in the credit card industry businessenvironment, the LAWSON Group decided to focus on CRM
activities and in April 2008 sold its shareholding in LAWSONCS Card to Credit Saison. LAWSON and LAWSON CS Card
will continue to offer services to cardholders and conduct
other CRM activities as before, having reaffirmed their
LAWSON PASS business alliance agreement.


Operating revenues  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
Operating income (loss)  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
Net income (loss)  . .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .

38

LAWSON, INC. Annual Report 2008

(Millions of Yen)
2008

2007

2006

2005

2004

¥8,646(30)(194)¥8,250189
200¥7,157270
568¥4,261(1,230)(1,218)¥2,551(2,255)(2,256)Other Services
LAWSON TICKET INC. (Consolidated Subsidiary)This consolidated subsidiary sells tickets to concerts, sporting
events, the theater, movies and other attractions, primarily
through Loppi multimedia terminals at LAWSON stores. It wasestablished as a ticket sales company in 1992 and became asubsidiary of LAWSON in 1997. In October 2004, LAWSONTICKET listed on the JASDAQ market (stock code: 2416).
LAWSON TICKET ranks second in sales in the ticket sales
industry behind PIA Corp. and is particularly strong in sales oftickets for J-POP (Japanese popular music generally popularamong the relatively younger generation), sporting events andthe theater. In January 2008, the company completely
revamped its Internet and mobile phone websites with theintroduction of a new system that dramatically increases theability to process Internet reservations. This upgrade isdesigned to enhance user convenience and targets increasedtransaction volume.
In fiscal 2007, LAWSON TICKET’s operating income
declined ¥201 million year on year due to the impact of sales
promotion expenses for expanding transaction volume andwinning new customers.
LAWSON used the opportunity presented by the termination of a business alliance between LAWSON TICKET and
Rakuten to conduct a tender offer for the shares of LAWSONTICKET between May and June 2007 to acquire Rakuten’sshares in the company. The aim of this tender offer was tostrengthen the LAWSON Group’s entertainment business by
reinforcing its partnership with one of the leaders in the ticket
sales industry. As a result of this tender offer, LAWSON raised
its shareholding in LAWSON TICKET from 50.8% to 75.1%.

Operating revenues  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
Operating income  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
Net income  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .

(Millions of Yen)
2008

2007

2006

2005

2004

¥6,960636
423¥6,533836
507¥6,259821
487¥6,288719
412¥6,218644
387

i-Convenience, Inc. (Consolidated Subsidiary)This subsidiary was established in October 2000 with the aimof expanding business in the e-commerce sector, based on
joint investment by LAWSON (51% shareholding), Mitsubishi
Corporation (18%), Matsushita Electric Industrial Co., Ltd.
(18%), and NTT DoCoMo, Inc. (13%). It operates the official“LAWSON Mobile” Internet site for mobile phones, and in

addition to providing online merchandise sales and related
services and information, it manages the LAWSON website.
During the fiscal year ended February 28, 2007, Mitsubishi
Corporation purchased the shareholdings of Matsushita­Electric Industrial and NTT DoCoMo, bringing its stake in
i-Convenience to 49%.



Operating revenues  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
Operating income (loss)  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
Net income (loss)  . .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .

BestPractice Inc. (Consolidated Subsidiary)This company was established in March 2004 as a wholly
owned subsidiary. BestPractice implements “Mystery Shopper” on-site inspections of convenience stores to determine
the status of operations and offers advice and proposals toimprove LAWSON stores at the operational level. Through this(Millions of Yen)
2008

2007

2006

2005

2004

¥711
64
66

¥686
46
43

¥427
(64)
(137)

¥308
(114)
(155)

¥333
(241)
(663)

program, an undercover researcher who is an employee of
BestPractice and has a thorough knowledge of convenience
store operations and merchandise assortments, objectively
and quantitatively evaluates LAWSON stores from a customer’s perspective. The results are fed back to LAWSON’s
Head Office and franchise owners.

Operating revenues  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
Operating income (loss)  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
Net income (loss)  . .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .

(Millions of Yen)
2008

2007

2006

2005

¥919
8
1

¥885
82
45

¥892
62
34

¥628
(2)
(2)

LAWSON, INC.

Annual Report 200839

70.0% equity interest in the company to partner HualianGroup Corporation, leaving LAWSON with a current stake of
49.0%, to foster expansion through operation by local partners. At the end of December 2007, there were 287 stores inoperation, of which 223 were franchised stores.

Overseas Business
SHANGHAI HUALIAN LAWSON CO., LTD.
(Equity-method Affiliate)This company has been developing a chain of LAWSON
stores in Shanghai, the People’s Republic of China, since July
1996. In May 2004, LAWSON relinquished 21.0% of its
(Millions of Yen)

Operating income (loss)  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
Net income (loss)  . .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
No. of stores  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .

2007

2006

2005

2004

2003

¥77
8
287

¥ 20
8
291

¥(7)
3
283

¥(13)
0
210

¥(81)
(71)
146

*SHANGHAI HUALIAN LAWSON CO., LTD. closes its accounts in December. It also changed from a consolidated subsidiary to an equity-method affiliate infiscal 2004.

Restaurant BusinessnaturalBeat Co., Ltd. (Equity-method Affiliate)This company was established in March 2004 by the Lotte
Group and other companies. It is developing a chain of storesthat provide natural food as part of daily life based on a concept of quickly serving customers. These include sandwiches,delicatessen items and other foods that are individually andcarefully handmade from ingredients with an emphasis on
natural taste and without using artificial additives as much as
possible. In February 2007, LAWSON formed an equitybased business alliance with naturalBeat. LAWSON paid
approximately ¥0.34 billion to acquire a 33.4% equity interestin naturalBeat. naturalBeat had a chain of 12 stores as ofMarch 31, 2008.

n Overview of Results
1. Sales Figures

Consolidated Total Net Sales
Aggregate net sales of LAWSON stores in fiscal 2007, ended
February 29, 2008, rose 2.1% to ¥1,415,106 million. In thefirst half of fiscal 2007, sales were depressed by unseasonable
weather, with fine days a rarity as a whole and a protractedend to the rainy season. From July, sales moved onto a recovery footing thanks to the success of a Miffy-themed shopping
point campaign. This, however, fell short of compensating forlackluster growth in customer numbers up to July. In thesecond half, LAWSON ran the Miffy-themed campaign again

in November and an on-the-spot prize campaign* in February
2008, which helped put sales on a firm recovery track. For thefull year, sales were ¥38.9 billion less than initially planned, as
we were unable to overcome the negative effects caused by astructural aspect of the CVS industry, namely competition to
open stores of essentially the same type.
* A campaign where lucky customers won vouchers that they could
exchange for products free of charge. We ran the campaign twice during
fiscal 2007, in June 2007 and February 2008.

Existing Store Sales
Existing store sales in fiscal 2007 were 0.8% lower year on
year, falling for the 10th consecutive year since fiscal 1998.
While there was a recovery in consumer sentiment in the
major cities of Tokyo, Osaka and Nagoya, the absence of a
firm economic recovery in other regions of Japan had a slightnegative impact on a company like LAWSON with a nationwide chain. In addition to macroeconomic effects, existing
store sales struggled for the following reasons. One was theongoing effect of competition with peer companies due to the
opening of large numbers of conventional convenience stores.
Another factor was that we are still in the process of creating
new store formats and sales areas matched to local customers based on store charts due to it taking time to respond todemographic changes in terms of products and store formats.



Existing store sales (year on year)  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
No. of customers and amount spent per customer(year on year)
No. of customers  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
Amount spent per customer  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .

(%)
2008

2007

2006

2005

2004

99.2

98.2

97.5

99.7

97.5*

98.9
100.4

98.2
100.0

99.1
98.3

100.1
99.7

99.0
100.2

Excluding the effect of terminating Highway Card sales, Existing store sales were 99.2% YoY.

40

LAWSON, INC. Annual Report 2008

Sales by Product Category(consolidated, total net sales)
During the fiscal year under review, strong growth in sales ofprocessed foods and daily delivered foods compensated forlower sales of non-food products.
In the processed foods category, net sales increased 3.1%
year on year to ¥726,750 million. Cigarette sales rose 4.7%
year on year on an all-store basis due in part to the effect on
the first half of a tax hike from July 2006. Other main contributors to the higher sales in the processed foods category were
new products belonging to national brands, and rice snacks
and baked goods, as LAWSON offered a fuller lineup of products matched to regional preferences for middle-aged andsenior customers.
In the fast foods category, sales edged up 0.8% to¥327,501 million. Sales of rice dishes fell year on year, withstrong sushi sales not enough to offset slightly weak

performances from boxed lunches and rice balls. On the other
hand, overall category sales were boosted by robust sales ofdelicatessen items due to the launch of health-conscious
products such as salads.
In the daily delivered foods category, sales increased 4.5%
to ¥162,625 million, lifted by buoyant sales of desserts andbakery items thanks to new product launches and a strong
response to shopping point campaigns aimed at expanding
the customer base.
The non-food products category, however, saw sales fall
1.3% year on year to ¥198,230 million despite firm sales ofenergy drinks, health care products, books and certain otherproducts. The overall decline was primarily attributable tosluggish magazine sales and lower sales of sanitary goods
following strong sales in fiscal 2006 of products for countering hay fever.

Net Sales by Product Segment* (consolidated, total net sales)
Years ended February 28 and 29

Fast foods  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
Daily delivered foods  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
Processed foods  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
Cigarettes  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
Total food sales  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
Non-food products  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
Net sales of all stores  . .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .

(Millions of Yen)

2008

2007

2006

2005

2004

¥ 327,501
162,625
726,750
249,745
1,216,876
198,230¥1,415,106¥ 324,993
155,575
705,155
238,406
1,185,724
200,907¥1,386,630¥ 312,289
150,917682,006
221,957
1,145,212
216,519¥1,361,731¥ 297,369
148,134
665,687
208,258
1,111,190
217,887¥1,329,077¥ 302,568
139,506
625,031
187,084
1,067,105
221,192¥1,288,297* Figures in the above table are for the fiscal year ended February in each year.

Breakdown of Net Sales by Product Segment (consolidated, total net sales)
Years ended February 28 and 29

Fast foods  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
Daily delivered foods  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
Processed foods  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
Cigarettes  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
Total food sales  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
Non-food products  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .

(%)

2008

2007

2006

2005

2004

23.1%
11.5
51.4
17.6
86.0
14.0

23.4%
11.2
50.9
17.2
85.5
14.5

22.9%
11.1
50.1
16.3
84.1
15.9

22.4%
11.1
50.1
15.7
83.6
16.4

23.5%
10.8
48.5
14.5
82.8
17.2

* Figures in the above table are for the fiscal year ended February in each year.

Breakdown of Product Segment
Category

Fast foods
Daily delivered foods
Processed foods
Non-food products

Products Included

Rice dishes, noodles, bread, delicatessen items, fast foods, etc.
Daily foods, desserts, etc.
Soft drinks, alcoholic beverages, processed foods, confectionery, cigarettes, etc.
Daily necessities, books, magazines, online merchandise sales and services

LAWSON, INC.

41

Annual Report 2008

Gross Profit Margin by Product Segment(parent company, total net sales)
The overall gross profit margin decreased by about 0.1 of apercentage point as a whole, but was roughly in line with our
initial target. The main reason was the higher sales of lowmargin cigarettes due to a tax hike.
In the fast foods category, lackluster sales of oden brought
down high-margin counter products. In the processed foods

category, improved markups for drinks largely offset the negative effect of a higher share of cigarette sales in the productmix, limiting the extent of the decline in gross profit margin. In
the non-food products category, there was an improvement in
the markup from the previous fiscal year. This was due to alower share of sales of low markup products such as books
and magazines in the sales mix, and increasing markups ofdaily necessities.

Gross Profit Margin by Product Segment1 (parent company)
Years ended February 28 and 29

Fast foods  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
Daily delivered foods  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
Processed foods2  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
Non-food products3  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
Gross profit margin  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
1
2
3

(%)

2008

2007

2006

2005

2004

36.3%
33.6
26.3
38.5
31.2

36.5%
33.8
26.4
38.0
31.3

36.8%
33.6
26.7
35.8
31.2

36.4%
33.3
26.7
34.0
30.8

35.6%
32.5
26.9
33.4
30.7

Figures in the above table are for the fiscal year ended February in each year.
The processed foods category includes cigarettes.
Calculation of the gross profit margin for non-food products includes bill settlement and other commission income.

Bill Settlement Services1 (parent company)
Years ended February 28 and 29

Bill settlements (millions of yen)  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
No. of transactions (millions)  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
Commission income (millions of yen)  .  .  .  .  .  .  .  .  .  .  .  .  .
1
2

2008

2007

2006

2005

2004

¥1,412,335
149.9
8,275

¥1,294,0042
140.9
8,141

¥1,165,255
130.6
7,507

¥1,035,936
118.9
6,768

¥919,205
108.4
6,368

Figures in the above table are for the fiscal year ended February in each year.
Bill settlements for the fiscal year ended February 28, 2007 have been corrected from the 2007 annual report where they were incorrectly reported as¥1,204,004 million.

2. Consolidated Income Statement Items
Total Operating Revenues
Total operating revenues comprise net sales from Companyoperated stores, franchise commission from franchised
stores, and other operating revenues.
Total operating revenues increased ¥18,124 million, or6.4%, to ¥301,177 million. The result mainly reflected higher
franchise commission from an increase in franchised storesand higher ATM fee income at consolidated subsidiary
LAWSON ATM Networks. Additionally, the rate of total operating revenue growth was higher than total net sales growth.
This was because franchise commission from franchised
stores has risen at a faster pace than growth in the number ofstores, as the percentage of Company-operated stores has
declined and the share of C-type stores (contract whereby
LAWSON prepares the store), which pay a high rate of franchise commissions, was approximately 80%.

Selling, General and Administrative(SG&A) Expenses
SG&A expenses rose ¥10,220 million, or 5.6%, to ¥193,390
million. This increase was mainly due to a ¥3,243 million, or
5.9%, rise in store rents associated with an increase in the
opening of mainly C-type franchised stores; and a ¥2,039
million, or 5.4%, increase in personnel expenses stemmingfrom an increase in employees to provide improved store
operational guidance. Advertising and promotional expenses
declined ¥307 million, or 3.2%, despite the Company runninghigh-profile sales campaigns such as the one featuring Miffy.
The decrease was due to the Company managing to curb
point expenses thanks to cooperation from manufacturers
with sales promotions.

Breakdown of Main SG&A Expenses 
Personnel expenses1  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
Advertising and promotional expenses . . . . . . . . . . . . .
Store rents  . .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
Equipment leasing charges  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
Depreciation expenses  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
Amortization expenses  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
Other  . .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
Total  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
1

(Millions of Yen)
2008

2007

2006

2005

2004

¥ 39,927
9,385
58,562
18,414
16,6304,815
45,653¥193,389¥ 37,888
9,693
55,31817,475
16,185
5,163
41,446¥183,169¥ 35,450
9,177
51,236
16,73415,8595,034
42,402¥175,894¥ 34,114
9,704
46,785
16,263
15,0594,574
38,136¥164,635¥ 33,803
11,18842,67915,726
18,4994,287
31,274¥157,456

 ffective from the fiscal year ended February 28, 2007, expenses for temporary employees have been included in “Personnel expenses,” whereas theyEwere previously recorded under “Other.” Expenses for temporary employees included in “Personnel expenses” in fiscal 2006 were ¥1,375 million, while
expenses for temporary employees included in “Other” in fiscal 2005 were ¥750 million.

42

LAWSON, INC. Annual Report 2008

Composition of SG&A Expenses 
Personnel expenses  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
Advertising and promotional expenses . . . . . . . . . . . . .
Store rents  . .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
Equipment leasing charges  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
Depreciation expenses  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
Amortization expenses  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
Other  . .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
Total  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .

(%)
2008

2007

2006

2005

2004

20.6%
4.9
30.3
9.5
8.6
2.5
23.6
100.0%

20.7%
5.3
30.2
9.5
8.8
2.8
22.6
100.0%

20.2%
5.2
29.1
9.5
9.0
2.9
24.1
100.0%

20.7%
5.9
28.4
9.9
9.1
2.8
23.2
100.0%

21.5%
7.1
27.1
10.0
11.7
2.7
19.9
100.0%

Operating Income
Operating income rose ¥2,097 million, or 4.7%, to ¥46,610
million. Existing stores sales declined 0.8% and growth was
1.3 points below target. As a result, franchise commission
from franchised stores, which accounts for the majority of
total operating revenues, was below target, meaning that total
revenues fell ¥7,824 million short of target. SG&A expenses
were held slightly below target due to curbs on IT-related
costs and sales promotion costs, which offset the shortfall insales against plan. As a result, operating income was ¥710
million above plan.
Income Before Income Taxes
and Minority Interests
Income before income taxes and minority interests increased¥1,286 million, or 3.5%, to ¥38,135 million due to the higher
operating income. This increase came despite a ¥302 million
decrease in equity in earnings (losses) of associated companies, the result of a year-on-year decline in earnings at equitymethod affiliate LAWSON CS Card, INC. owing to lower operating revenues stemming from new regulations on interest
rates and higher bad debt expenses associated with moves
to eliminate “grey-zone” interest rates in Japan. There wasalso a ¥638 million increase in impairment loss due to stricter
evaluation of Company-operated stores.
Net Income
Net income was ¥22,119 million, an increase of ¥1,136­million, or 5.4%. Net income per share increased 6.5% to¥214.69.

n Financial Position

1. Consolidated Balance Sheet Items
Current Assets
Total current assets decreased ¥10,772 million, or 7.2%, to¥138,251 million. This mainly reflected a ¥24,820 million
decrease in cash and cash equivalents, and marketable­securities combined. The main reason for the decrease wasan approximate ¥21.0 billion share buyback. There was an¥11,150 million increase in the short-term loan to associatedcompany, mainly relating to the Company taking over a bankguarantee for a loan to LAWSON CS Card.

Property and Store Equipment, Investments andOther Assets
Net property and store equipment rose ¥2,176 million, or
2.1%, year on year to ¥106,432 million, the result of a rise of¥11,451 million in buildings, owing to an increase in the opening of C-type stores prepared by LAWSON among newly
opened franchise stores.
Investments and other assets increased ¥7,444 million, or
5.1%, to ¥152,425 million. This reflected a ¥5,047 million
increase in investment securities and investments in associated companies due to the purchase of equity-method affiliate
Ninety-nine Plus shares and other factors, as well as a ¥2,156
million increase in software purchases due to increased upfront
software development for the next-generation IT system.
Current Liabilities
Total current liabilities increased ¥12,465 million, or 8.7%, to¥155,979 million. This increase was mainly on account of a¥7,539 million increase in money held as agent such as in billsettlement services, and a ¥6,673 million increase in income
taxes payable in line with higher taxable income.
Long-term Liabilities
Total long-term liabilities decreased ¥2,696 million, or 4.9%,
to ¥52,555 million, the result mainly of a ¥3,497 million
decrease in guarantee deposits received from franchised
stores due to a decrease in the number of G-type franchised
stores, which operate under franchise agreements requiring
the payment of a guarantee deposit.
Total Equity
Total equity, including minority interests, amounted to¥188,574 million at the end of February 2008. Retained earnings declined ¥7,953 million to ¥87,391 million despite net
income of ¥22,119 million. This decrease reflected cash dividends paid of ¥10,964 million and the cancellation of 5 million
shares of treasury stock. As a result, the equity ratio dropped
2.4 points to 46.6%.

LAWSON, INC.

43

Annual Report 2008

2. Special Account Items on the
Balance Sheetstores.” As of February 29, 2008, this account was ¥2,202
million, down ¥556 million from a year ago.

The following items are special features of LAWSON’s financial
statements.

Due From Franchised Stores
LAWSON makes bulk purchases of products ordered by all
franchised stores and calculates and pays amounts payablefor such to the vendors on the stores’ behalf. LAWSON
records the cost of the merchandise in the “Accounts receivable—Due from franchised stores” account since such costs
are recovered from franchised stores. “Due from franchised
stores” represents mainly the obligations of franchised storesto Head Office for these amounts at the balance sheet date.
As of February 29, 2008, this asset account was ¥11,950
million, ¥239 million higher than a year ago. There was thus
no substantial change in this account.
Accounts Receivable — Other
Other accounts receivable such as income due from vendors
is included in “Other” in “Accounts receivable” on the balance
sheet. The constituent elements of this item stood at ¥26,984
million at February 29, 2008, an increase of ¥982 million.
Long-Term Loans Receivable
This account mainly represents money paid to landlords(owners of land and buildings for stores) to help with construction, and investments and finance from Head Office tofranchised stores. As of February 29, 2008, this account was¥1,267 million higher than a year ago at ¥25,647 million, due
to an increase in money paid to landlords to help with construction for store openings.
Lease Deposits
This account represents leasehold deposits paid to landlordsequivalent to several months’ rent under lease agreements at
LAWSON. As of February 29, 2008, this account was¥82,755 million, a decrease of ¥5,149 million.
Due to Franchised Stores
This account represents Head Office obligations to franchised
stores. All franchised stores make remittances of cash proceeds from daily sales to the Head Office. If franchised store
remittances of cash proceeds from daily sales to the­Company exceed the balance of “Accounts receivable — Duefrom franchised stores,” the excess will be shown on thebalance sheet as “Accounts payable—Due to franchised

Money Held as AgentThis account mainly comprises money held on behalf of thirdparty companies for which LAWSON provides bill settlement
services, including public utility charges. There was anincrease in money held as agent due to a rise in the numberof transactions and the number of companies for which settlement services were provided. As a reflection of this, the balance of payments to third-party companies increased, leading
to a rise of ¥7,539 million to ¥56,294 million in this account at
February 29, 2008.
Guarantee Deposits Received FromFranchised Stores
This represents guarantee deposits received by LAWSON
from store owners operating under FC-G contracts. As of
February 29, 2008, this account was ¥44,954 million, ¥3,497
million less than a year ago due to a decline in the number of
FC-G contract stores.

n Capital Expenditure, Etc.
In fiscal 2007, capital expenditure totaled ¥64,413 million, up¥14,591 million year on year. New store investments declined¥11,057 million to ¥12,387 million due to constraints on store
openings compared to the previous fiscal year and anincrease in the recovery of deposits accompanying the closure of stores that were leased. Existing store investments
increased ¥1,606 million to ¥7,493 million due mainly to progress converting existing stores into LAWSON PLUS stores.
Systems-related investments increased by ¥3,071 million to¥7,733 million, principally due to upfront investments in anext-generation IT system. Leases increased ¥639 million to¥14,850 million as LAWSON made greater use of lease contracts for sign boards and other improvements. A breakdown
of capital expenditure is as follows.

n Cash Flows
Operating activities provided net cash of ¥55,774 million,¥8,178 million more than in the previous fiscal year. Whileother accounts payable to suppliers decreased, there was adecrease in income taxes paid and an increase in money held
as agent for bill settlement services.
Investing activities used net cash of ¥36,525 million, ¥4,771
million more than in the previous fiscal year. While there was adecrease in purchases of marketable securities, the increased

Capital Expenditure 
New store investments  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
Existing store investments  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
Systems-related investments  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
Other  . .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
Investments and advances  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
Leases*  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
Total  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .

(Millions of Yen)
2008

2007

2006

2005

2004

¥12,387
7,493
7,733
2,260
19,69014,850¥64,413¥23,444
5,887
4,662(1,395)
3,013
14,211¥49,822¥26,047
6,592
9,084
1,615
1,250
9,829
¥54,417¥21,695
8,175
2,765
4,186
(1,000)11,052¥46,873¥19,614
10,432
2,191
377
6,250
9,439
¥48,303* The amount equivalent to the acquisition cost of leased property acquired during each fiscal year.

44

LAWSON, INC. Annual Report 2008

use of cash reflects the purchase of shares in Ninety-nine Plusand an increase in short-term loans to LAWSON CS Card.
As a result of changes in cash flows from operating andinvesting activities, free cash flow—the difference between thetwo figures — increased ¥3,406 million to ¥19,249 million.
Financing activities used net cash of ¥31,973 million,¥31,237 million more than one year earlier. In addition to a
¥1,142 million increase in cash used for the payment of cash
dividends, the Company used ¥21,001 million for the purchase of its own shares.
As a result, cash and cash equivalents at the end of the
fiscal year totaled ¥62,823 million, ¥12,724 million less than ayear earlier.

n Capital Policy: Dividends andPurchase of Treasury Stock
LAWSON regards returning profits to shareholders as one of its
most important management policies and properly acknowledges that the level of capital cost reflects the profit expectations of investors toward the Company. To select and develop
businesses that achieve earnings above the cost of capital,
LAWSON uses ROE, an indicator of capital efficiency, as its
most important management indicator. Accordingly, we pursue
optimal capital efficiency by looking at the appropriate balance
between the distribution of profits through dividends and thepurchase and cancellation of treasury stock, and securing thenecessary level of internal reserves for investment aimed atachieving sustained corporate growth over the medium andlong terms so as to maintain high profitability and secure ourfinancial soundness. Our medium-term goal is ROE of 15%.
During the four-year period from fiscal 2001 to fiscal 2004,
LAWSON cancelled approximately ¥43.0 billion of treasury
stock. In fiscal 2007, the Company bought back more of its
own shares, repurchasing approximately 5.3 million shares forapproximately ¥21.0 billion from October 2007 to January
2008. It cancelled a total of 5 million shares of treasury stock
in February 2008.
As regards cash dividends, in fiscal 2004, we increased theannual cash dividend per share by ¥29 to ¥70, and in fiscal
2005 we raised it by ¥20 to ¥90. In fiscal 2006, the dividend
was increased by a further ¥10 to ¥100 per share, followed byanother ¥10 increase to ¥110 for fiscal 2007, as we actively
returned profits to shareholders. To further increase shareholder returns, we plan to increase the dividend by ¥50 to¥160 per share for the fiscal year ended February 2009.
In principle, we are aiming for a dividend payout ratio ofaround 40%, a level which takes into account the global standard. However, we are projecting lower earnings in fiscal 2008
due to upfront investments for driving future growth and tosupport franchised store owners in a difficult and uncertain
operating environment characterized by economic concerns
and an excess number of stores. Because we don’t expect togenerate earnings above the ¥46.6 billion in consolidated
operating income recorded in fiscal 2007 until the year ending
February 2011, we plan to maintain the annual dividend pershare at a minimum level of ¥160 over the next 3 years, which
would exceed our dividend payout ratio basic rule. (Pleaserefer to the feature section on page 17).

n Business Cooperation and Alliances
The main business cooperation and alliances are as follows.
Please refer to “Scope of Consolidation” on page 37 of thisreport for information concerning the equity-based alliancewith Ninety-nine Plus Inc.

Mitsubishi Corporation
LAWSON formed a comprehensive tie-up, including a capitalalliance, with Mitsubishi Corporation in February 2000.
­Mitsubishi Corporation is LAWSON’s leading shareholder withan equity interest of 32.4% as of February 29, 2008. The two
firms have built a cooperative relationship in the areas of
personnel resources, store development, new businesses,
product development and other areas.
Japan Post Holdings Co., Ltd.
LAWSON formed a business alliance in December 2002 with
the Postal Services Agency (as it was at that time). After thisannouncement, the two worked on various initiatives, including
installing mailboxes in LAWSON stores (January 2003), opening convenience stores inside post offices (the first store was
opened inside the Yoyogi Post Office on August 1, 2003) andhandling You-Pack parcels (November 2004). In February 2008,
LAWSON signed an agreement for a comprehensive businessalliance with Japan Post Holdings Co., Ltd. Moving forward,
the two companies will develop initiatives that effectively utilize
their respective business resources to jointly open stores andexpand joint distribution and deliveries, for example. The goals
are to improve the level of convenience for customers andcontribute to regional communities across Japan.
NTT DoCoMo, Inc.
In March 2006, LAWSON signed a business alliance agreement, including capital alliance, with NTT DoCoMo, Inc.
LAWSON sold 2,092,000 shares of treasury stock, representing 2.0% of total issued shares (at the time), to NTT DoCoMo
for about ¥9.0 billion. By March 2007, this alliance had led tothe introduction of iD™ electronic money services provided by
NTT DoCoMo in all LAWSON stores. Furthermore, in March
2007, the LAWSON PASS iD™ service was launched. This
service allows holders of the LAWSON PASS Visa credit card
issued by LAWSON CS Card to use the iD™ service.
* iD™ is a mobile phone-based credit card payment service enabling
shopping, etc., via NTT DoCoMo’s Osaifu-Keitai® wallet services. iD™ is atrademark and registered trademark of NTT DoCoMo.

n Outlook
LAWSON believes that the Japanese economy will require
more time until it sees a recovery in personal consumption,
given consumer concerns about the future, arising from soaring raw material prices and pension problems. Moreover,competition transcending the boundaries of the retail industry
is becoming increasingly fierce, and customer needs are
becoming increasingly diverse.
With regard to the CVS sector, if LAWSON focuses only on
opening a large number of conventional format stores, which
predominantly provide merchandise assortments and services
for the core target of young male customers, pursuing only
the need to save time and convenience, it will be forced into a
LAWSON, INC.

45

Annual Report 2008

war of attrition with other homogenized CVS stores in amature market. As a consequence it would risk a drop in
existing store sales, undermining the motivation of existing
franchised store owners. The CVS business is underpinned by
the motivation of franchised store owners. But if the future
expectations of franchised store owners don’t improve, it will
be increasingly difficult for a company operating in the industry to achieve stable, sustained growth.
To achieve stable, sustained growth over the medium to longterm in such a changing operating environment, we believe
LAWSON needs to become a more advanced company bypursuing innovation in all kinds of areas, without being bound by
conventional ideas about the CVS sector. Based on this rationale, we initiated the medium-term management plan LAWSON
Challenge 2007 in fiscal 2005. We implemented management
initiatives based on this plan, which ended in fiscal 2007.
In qualitative terms, we have derived considerable benefits
from developing new format stores such as NATURALLAWSON and LAWSON STORE100, which have attracted
customers beyond the reach of the conventional format, and
LAWSON PLUS, which leverages the know-how garnered fromthe two new formats. In quantitative terms, however, as a resultof excessive competition created by major rival chains opening
conventional stores, we failed to achieve our medium-term
management target for growth in existing store sales. Moreover,start-up and sales promotion costs for launching the new formats to break the conventional convenience store mold werehigher than expected. For these and other reasons, we wereunable to achieve the LAWSON Challenge 2007 final-year
management targets in fiscal 2007 of an average growth in
EPS of 10% over the 3 years of the plan, and ROE of 15%.
Based on the lessons learned from LAWSON Challenge
2007, we aim to increase the motivation of franchised store
owners, who are key to powering the Company’s growth, toconfront a deteriorating external operating environment. To thisend, the LAWSON Group has shifted the focal point of its
management policy for fiscal 2008 from vitalizing existing stores
to being the chain of choice for franchised store owners as it
executes its strategy focused on existing stores. We will implement the following management initiatives based on this policy.

Increasing customer numbers via
initiatives matched to stores
Our fundamental approach is based on creating merchandise
assortments and store displays that match the needs of local
customers. We plan to develop more attractive merchandise
assortments better suited to the needs of each region bymaking greater use of “store charts.”
In terms of products, we will work to improve our selection,
particularly of mainstay rice dishes and the fast food range.
Our efforts will also focus on developing merchandise thatmatches local preferences.
Sales promotions, meanwhile, will endeavor to effectively
utilize LAWSON PASS and MY LAWSON POINT to vitalize
existing stores. We will also run advertising campaigns toimprove the LAWSON Group’s brand image.
In areas where we expect to expand our customer base of
women, the middle-aged and elderly, we will continue efforts

46

LAWSON, INC. Annual Report 2008

from fiscal 2007 to actively convert existing stores into the
LAWSON PLUS format.
We are determined to convert the expected increase incustomer numbers through these initiatives into higher earnings. In turn, this should help increase franchised store ownersatisfaction.

Improve asset efficiency by opening high-quality
new stores and curbing store closures
The Group aims to improve asset efficiency as a whole bydeveloping high-quality stores in accordance with proprietary
store opening guidelines and reducing extraordinary losses
from store closures by reducing store closures.
In particular, through the aforementioned measures tostrengthen existing stores, we will enhance the motivation of
franchised store owners, convert stores to the LAWSONPLUS format and actively propose initiatives designed torestore the sales capabilities of franchised owners. In this way,
we aim to reduce store closures.
Strengthen the management base through­personnel development, next-generation IT­systems and internal controls
In accordance with our management policy and action guidelines, we are determined to nurture people who can think forthemselves and not rely on direction from the top. In addition,
through the regional headquarters management system,
consisting of seven headquarters nationwide, we intend topromote detailed management suited to regional characteristics. Such management is necessary to foster management
by individual store.
From fiscal 2008 to fiscal 2009, we plan to introduce anext-generation IT system. We will begin laying the foundationsin the current fiscal year for the introduction of this system. The
backbone for this new system will be an optical fiber network.
The new system will involve both an upgrade and extension of
our total company information system encompassing storerelated systems such as Loppi multimedia terminals, POS
systems, store computers and store operational equipment aswell as systems for merchandise development, store development, financial accounting and integration master code systems, which manage products, business partners and otheroperational aspects. The new system is expected to lead to an
improvement in productivity at stores and alleviate the shortage of store crew. It should also yield other benefits in terms of
reducing lost sales opportunities at stores and losses fromproduct disposals as well as improve ordering precision andenhance product development.
From the fiscal year beginning March 1, 2009, companies
in Japan will be obliged to prepare internal control reports andsubmit audit reports on these in accordance with the Financial
Instruments and Exchange Law regarding internal controls
governing financial reporting. Accordingly, the Company willcontinue ongoing efforts to build and enhance its internal
control systems. The Company will follow its “2008 Basic
Policy for Maintaining Internal Control Systems” to implement
the necessary frameworks for ensuring legal compliance,
information storage and control and risk management.

We believe that steady implementation of these and othermanagement initiatives will enhance customer satisfaction,and ultimately lead to improved corporate earnings from anincrease in customers as well as higher profits for franchisedowners and greater corporate value.
For fiscal 2008, we are forecasting consolidated operating
income of ¥42.5 billion, down 8.8% year on year, and net
income of ¥20.8 billion, down 6.0% year on year.

n Business Risk Factors
The eight main risks that may impact on LAWSON’s performance and financial position are described below. Sufficiently
aware that these risks may occur, LAWSON conducts risk
management and has also put in place an internal control
system so as to respond in the best manner possible should arisk materialize. Nevertheless, these risks are only within therange of what can be forecast based on information currently
available to the Company, and we do not believe that they cover
all potential risks relating to LAWSON’s business operations.

Risks relating to changes in the businessenvironment
Because LAWSON’s main business is the operation of convenience stores, changes in consumer expenditure produced bychanges in the economic environment, business cycle trends,
or the social structure in Japan and overseas countries where
the Company operates, as well as changes in competition withother companies in the CVS sector or different retail sectors,
may impact LAWSON’s earnings and financial condition.
Risks relating to food safety
and hygiene management
In the CVS business, LAWSON’s main business, the Company
sells food products to customers. From the manufacturing process to sales in stores, in cooperation with suppliers, LAWSON
strictly observes quality standards by performing thorough management and also performs rigorous hygiene management
within stores. However, loss of customer trust in the event of aserious incident such as food poisoning or contamination byforeign matter could have an impact on the Company’s performance and financial position. Should such an incident occur, theCompany intends to make the utmost effort to minimize theeffect on customers by making a public announcement as
quickly as possible through the mass media and other channels.
Risks relating to handling of personal
information
In the process of business operations, LAWSON handles
personal information of customers, shareholders, suppliers,
franchise owners and other parties. The Company recognizes
that the leakage of personal information or improper accessto personal information are serious risks. Consequently, we
have devised the best possible information security measuresand formulated a policy to protect personal information. We
have also ensured that personnel within the Company arethoroughly aware of these matters. However, should personal
information be leaked or divulged outside the Company underwhatever circumstances, LAWSON’s performance or financial
position may be affected.

Legal and regulatory risks
LAWSON operates numerous stores in various regions
throughout Japan and in Shanghai, China, and the majority ofstores operate 24 hours a day. Because of this, in operating
its business, the Company must comply with various laws
and regulations regarding store development, store operations, hygiene management, product transactions, environmental protection, and other matters in Japan and Shanghai,
China, and must obtain various permits and licenses. Therefore, should events arise such as an unforeseen change inlaws or regulations or a change in the enforcement methodsof administrative authorities, new compliance costs could
arise, which could have an impact on LAWSON’s performance or financial position.
Risks relating to franchise operations
In the CVS business, LAWSON’s main business, the­Company has adopted the franchise system. Based on­franchise agreements concluded with franchised stores,
LAWSON operates a chain of stores via store brand namesthat are owned by LAWSON. Therefore, if the brand image ofthe overall chain is affected by illegal or improper actions at afranchised store, there may be an impact on LAWSON’s
performance or financial position.
Furthermore, the franchise system is designed to encourage improved business performance for both franchised
stores and the Company, based on a relationship of mutual
trust. If this relationship of trust between LAWSON and franchised stores is damaged for any reason, and, as a consequence, many franchise agreements are cancelled, there may
be an impact on LAWSON’s performance or financial position.
Risks relating to unseasonable weather ordisasters
Substantial differences in climate and temperatures from theaverage year could have an impact on LAWSON’s performance. Moreover, LAWSON is a national chain with stores
located throughout Japan’s 47 prefectures, as well as inShanghai, China. Therefore, an earthquake could physicallydamage LAWSON stores or other facilities, hampering business operations. In addition, there is a risk that performance
will fluctuate due to natural disasters in regions where snowfalls are heavy or typhoons often occur.
Risks involving damage to IT systems
There is a risk that operation of the Group’s IT system might
be impeded by a computer virus, or affected by natural disasters such as an earthquake, which could cause interference
to the distribution network, creating delays in the delivery of
products to stores and causing the suspension of store services. Such developments could impact on LAWSON’s performance or financial position.
Risks involving soaring materials prices
LAWSON’s performance or financial position could be materially affected by further increases in raw materials prices due
to unpredictable developments, such as rising oil and otherraw materials prices, an outbreak of avian influenza, or
unusual weather.
LAWSON, INC.

47

Annual Report 2008

Consolidated Balance Sheets
LAWSON, INC. and Subsidiaries
February 29, 2008 and February 28, 2007

Millions of Yen

Thousands of
U.S. Dollars(Note 1)

2008

2007

2008

Cash and cash equivalents  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 62,823¥ 75,547

ASSETS

CURRENT ASSETS:
Marketable securities (Note 5)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,900

14,996$

599,571
27,677

Accounts receivable:   Due from franchised stores (Notes 3 and 10)  . . . . . . . . . . . . . . . . . . . .

11,95011,710114,048   Other  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

26,98426,002257,530   Allowance for doubtful accounts  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(103)

(115)

(983)

Inventories  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,724

1,789

16,454

Short-term loan to associated company (Note 17)  . . . . . . . . . . . . . . . . . .

20,0008,850

190,876

Deferred tax assets (Note 14)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3,633

2,795

34,673

Prepaid expenses and other current assets  . . . . . . . . . . . . . . . . . . . . . . .

8,340

7,448

79,595    Total current assets  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

138,251

149,022

1,319,441

Land (Note 7)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5,845

4,709

55,784

Buildings  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

155,869

144,418

1,487,584

PROPERTY AND STORE EQUIPMENT (Notes 4 and 6):

Furniture, fixtures and equipment  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

59,04058,978563,466    Total  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

220,754

208,105

2,106,834

Accumulated depreciation  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(114,322)(103,850)(1,091,068)    Net property and store equipment  . . . . . . . . . . . . . . . . . . . . . . . . . .

106,432

104,255

1,015,766

826

1,560

7,883

INVESTMENTS AND OTHER ASSETS:
Investment securities (Note 5)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments in associated companies  . . . . . . . . . . . . . . . . . . . . . . . . . . .

7,334

1,553

69,994Long-term loans receivable  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

25,647

24,380244,770

Lease deposits (Note 8)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

82,75587,904

789,798

Deferred tax assets (Note 14)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

12,80911,551

122,247

Deferred tax assets for land revaluation (Note 7)  . . . . . . . . . . . . . . . . . . . .

468

468

4,467

Software  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

16,942

14,786

161,691

Other assets  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

8,047

6,797

76,799Allowance for doubtful accounts  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(2,403)(4,018)(22,934)    Total investments and other assets  . . . . . . . . . . . . . . . . . . . . . . . . . .

152,425

144,981

1,454,715

TOTAL  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 397,108¥ 398,258$ 3,789,922

See notes to consolidated financial statements.

48

LAWSON, INC. Annual Report 2008

Millions of Yen

Thousands of
U.S. Dollars(Note 1)

2008

2007

2008

   Trade (Notes 9 and 17)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

¥ 65,587¥ 65,000$ 625,950   Due to franchised stores (Note 10)  . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,202

2,757

21,015   Other  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

14,765

16,611140,914

Income taxes payable (Note 14)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

11,427

4,755

109,057

LIABILITIES AND EQUITYCURRENT LIABILITIES:
Accounts payable:

Money held as agent  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

56,29448,755537,259

Accrued expenses and other current liabilities  . . . . . . . . . . . . . . . . . . . . .

5,704

5,636

54,438    Total current liabilities  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

155,979

143,514

1,488,633

4,175

3,527

39,845

183

249

1,747

44,95448,451

429,032

Lease deposits from lessees  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

877

875

8,370

Allowance for impairment loss on leased property (Note 16)  . . . . . . . . . . .

314

95

2,997

LONG-TERM LIABILITIES:
Liability for employees’ retirement benefits (Note 11)  . . . . . . . . . . . . . . . .
Allowance for retirement benefits to executive officers   and corporate auditors  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Guarantee deposits received from franchised stores  . . . . . . . . . . . . . . . .

Other  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,052

2,054

19,584    Total long-term liabilities  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

52,55555,251

501,575

EQUITY (Notes 12 and 20):
Common stock—authorized, 409,300,000 shares in2008 and 2007; issued, 99,600,000 shares in 2008
and 104,600,000 shares in 2007  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital surplus  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

58,507
41,52058,50742,254558,379
396,259

Stock acquisition rights  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

160

78

1,527

Retained earnings  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

87,391

95,344

834,043

320

1,288

CONTINGENT LIABILITIES (Note 18)

Net unrealized gain on available-for-sale securities  . . . . . . . . . . . . . . . . . .

135

Deferred gain (loss) on the derivatives under hedge accounting  . . . . . . . .

(1)Land revaluation difference (Note 7)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(682)

(682)

(6,509)Foreign currency translation adjustments  . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock—at cost, 463,629 shares in 2008   and 186,918 shares in 2007  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
    Total  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

140

135

1,338

(1,838)185,332(739)
195,217(17,542)
1,768,773(10)

Minority interests  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3,242

4,276

30,941    Total equity  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

188,574

199,493

1,799,714

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

¥397,108¥398,258$3,789,922

LAWSON, INC.

49

Annual Report 2008

Consolidated Statements of Income
LAWSON, INC. and Subsidiaries
Years Ended February 29, 2008 and February 28, 2007

Millions of Yen

Thousands of
U.S. Dollars(Note 1)

2008

2007

2008

¥177,443¥174,325$1,693,482

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

83,32175,151

795,199

Other  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

40,41333,577

385,693    Total  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

301,177

283,053

2,874,374

61,17755,371

583,861

COST AND OPERATING EXPENSES:
Cost of sales for Company-operated stores  . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses (Notes 11 and 16)  . . . . . . . .

193,390

183,169

1,845,676    Total  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

254,567

238,540

2,429,537    Operating income  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

46,61044,513444,837

Interest income—net  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

908

628

8,666

Equity in (losses) earnings of associated companies . . . . . . . . . . . . . . . .

(201)

102

(1,918)OTHER INCOME (EXPENSES):

Loss on disposal of property and store equipment  . . . . . . . . . . . . . . . . . .

(5,011)(4,638)(47,824)

Impairment of long-lived assets (Note 6)  . . . . . . . . . . . . . . . . . . . . . . . . . .

(2,450)(1,811)(23,382)

Loss on replacement of computer system (Note 15)  . . . . . . . . . . . . . . . .

(2,202)Other—net  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(1,721)

256(16,426)    Other expenses—net  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(8,475)(7,665)(80,884)

INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS  . .

38,13536,848363,953

INCOME TAXES (Note 14):
Current  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

17,494

12,378

166,959

Deferred  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(1,971)

3,011(18,811)    Total  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

15,523

15,389148,148

MINORITY INTERESTS IN NET INCOME  . . . . . . . . . . . . . . . . . . . . . . .

(493)

(476)

(4,706)NET INCOME  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

¥ 22,119¥ 20,983$ 211,099

Yen

U.S. Dollars

2008

2007

2008

PER SHARE OF COMMON STOCK (Notes 2.q and 19):
Net income—basic  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

¥214.69¥201.50$2.05

Net income—diluted  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

214.57201.40

2.05

Cash dividends applicable to the year  . . . . . . . . . . . . . . . . . . . . . . . . . . .

110.00100.001.05

See notes to consolidated financial statements.

50

LAWSON, INC. Annual Report 2008

Consolidated Statements of Changes in Equity
LAWSON, INC. and Subsidiaries
Years Ended February 29, 2008 and February 28, 2007

Common Stock

BALANCE, MARCH 1, 2006  . . . . . . . . . . . . 
Reclassified balance as of February 28,   2006 (Note 2.l)  . . . . . . . . . . . . . . . . . . . . 
Net income  . . . . . . . . . . . . . . . . . . . . . . . 

SharesAmountCapitalSurplus104,600¥58,507¥41,520

Thousands of Shares/Millions of Yen
Net
Unrealized
DeferredGain on Gain (Loss) on
AvailableDerivatives
Retainedfor-sale under Hedge
Earnings
Securities
Accounting

Stock
Acquisition
Rights¥ 88,356¥696

20,983

Year end cash dividends, ¥45 per share  . . 

(4,603)

Interim cash dividends, ¥50 per share  . . . 

(5,219)

Reversal of land revaluation difference  . . . 

(4,173)

Treasury stock—at cost:   Purchase of treasury stock  . . . . . . . . . . 
   Sale of treasury stock  . . . . . . . . . . . . . . 

753   Exercise of stock options  . . . . . . . . . . . 
Others—net  . . . . . . . . . . . . . . . . . . . . . . . 

(19)

BALANCE, FEBRUARY 28, 2007  . . . . . . . . 

¥ 78
104,600

58,50742,254(376)

78

95,344

Net income  . . . . . . . . . . . . . . . . . . . . . . . 

22,119Year end cash dividends, ¥50 per share  . . 

(5,220)Interim cash dividends, ¥55 per share  . . . 

(5,743)320

Treasury stock—at cost:   Purchase of treasury stock  . . . . . . . . . . 
   Retirement of treasury stock  . . . . . . . . . 

(5,000)(710)   Exercise of stock options . . . . . . . . . . . . 
Others—net  . . . . . . . . . . . . . . . . . . . . . . . 
BALANCE, FEBRUARY 29, 2008  . . . . . . . . 

(19,109)(24)
82
99,600¥58,507Land
Revaluation
Difference

Foreign
Currency
Translation
Adjustments¥(4,855)¥105¥41,520¥160 ¥ 87,391

(185)

¥(1)

¥ 135

¥(1)

Thousands of Shares/Millions of Yen

BALANCE, MARCH 1, 2006  . . . . . . . . . . . . 
Reclassified balance as of February 28,   2006 (Note 2.l)  . . . . . . . . . . . . . . . . . . . . 
Net income  . . . . . . . . . . . . . . . . . . . . . . . 

Treasury Stock
SharesAmount(2,314) ¥(9,145) ¥175,184

Total

Minority
Interests

Total
Equity¥175,184

20,983¥ 3,823

3,823
20,983

Year end cash dividends, ¥45 per share  . . 

(4,603)(4,603)

Interim cash dividends, ¥50 per share  . . . 

(5,219)(5,219)

Reversal of land revaluation difference  . . . 

(4,173)(4,173)

Treasury stock—at cost:   Purchase of treasury stock  . . . . . . . . . . 

(1)

(1)

(1)

(1)

   Sale of treasury stock  . . . . . . . . . . . . . . 

2,093

8,268

9,021

9,021

   Exercise of stock options  . . . . . . . . . . . 

35

139

120

120

3,905

453

4,358

(187)

(739)

195,217
22,1194,276

199,493
22,119Others—net  . . . . . . . . . . . . . . . . . . . . . . . 

4,173

30

BALANCE, FEBRUARY 28, 2007  . . . . . . . . 
Net income  . . . . . . . . . . . . . . . . . . . . . . . 

(682)

135

Year end cash dividends, ¥50 per share  . . 

(5,220)(5,220)Interim cash dividends, ¥55 per share  . . . 

(5,743)(5,743)(21,001)(21,001)

Treasury stock—at cost:   Purchase of treasury stock  . . . . . . . . . . 

(5,298)(21,001)   Retirement of treasury stock  . . . . . . . . . 

5,000

19,81921

83   Exercise of stock options . . . . . . . . . . . . 
Others—net  . . . . . . . . . . . . . . . . . . . . . . . 
BALANCE, FEBRUARY 29, 2008  . . . . . . . . 

¥ (682)

59

5

(99)

¥140

(464) ¥ (1,838) ¥185,332

LAWSON, INC.

59
(1,034)(1,133)¥ 3,242 ¥188,574

51

Annual Report 2008

Thousands of U.S. Dollars (Note 1)

BALANCE, FEBRUARY 28, 2007  . . . . . . . . 

CommonStockCapitalSurplus$ 558,379$ 403,264

Retained
Earnings

Net
Unrealized Gainon Availablefor-sale
Securities$ 744 $ 909,945$ 3,054

Stock
Acquisition
Rights

Net income  . . . . . . . . . . . . . . . . . . . . . . . 
Year end cash dividends,   $0.48 per share  . . . . . . . . . . . . . . . . . . . 
Interim cash dividends, $0.52 per share  . . 

DeferredGain (Loss) on
Derivatives
under Hedge
Accounting

211,099(49,819)(54,810)

Treasury stock—at cost:   Purchase of treasury stock  . . . . . . . . . . 
   Retirement of treasury stock  . . . . . . . . . 

(6,776)   Exercise of stock options  . . . . . . . . . . . 

(229)

(182,372)

Others—net  . . . . . . . . . . . . . . . . . . . . . . . 
BALANCE, FEBRUARY 29, 2008  . . . . . . . . 

783
$558,379$396,259

Land
Revaluation
Difference

Foreign
Currency
Translation
Adjustments$(6,509)$1,290$1,527 $ 834,043(1,766)$(10)$ 1,288$(10)

Thousands of U.S. Dollars (Note 1)

BALANCE, FEBRUARY 28, 2007  . . . . . . . . 

Treasury
Stock

$

Total

Minority
Interests

Total
Equity(7,053)$ 1,863,114$40,809 $1,903,923

211,099

211,099(49,819)(54,810)(49,819)(54,810)(200,429)(200,429)

Net income  . . . . . . . . . . . . . . . . . . . . . . . 
Year end cash dividends,   $0.48 per share  . . . . . . . . . . . . . . . . . . . 
Interim cash dividends, $0.52 per share  . . 
Treasury stock—at cost:   Purchase of treasury stock  . . . . . . . . . . 

(200,429)   Retirement of treasury stock  . . . . . . . . . 

189,148   Exercise of stock options  . . . . . . . . . . . 

792

Others—net  . . . . . . . . . . . . . . . . . . . . . . . 
BALANCE, FEBRUARY 29, 2008  . . . . . . . . 
See notes to consolidated financial statements.

52

LAWSON, INC. Annual Report 2008

48$(6,509)

563
(945)

$1,338 $ (17,542) $1,768,773

563(9,868)(10,813)$30,941 $1,799,714

Consolidated Statements of Cash FlowsLAWSON, INC. and Subsidiaries
Years Ended February 29, 2008 and February 28, 2007

Millions of Yen

Thousands of
U.S. Dollars(Note 1)

2008

2007

2008

¥ 38,135¥ 36,848$ 363,953   Income taxes paid  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(10,865)(17,947)(103,694)   Depreciation and amortization  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

21,46921,352

204,896   Impairment of long-lived assets  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,450

1,811

23,382OPERATING ACTIVITIES:
Income before income taxes and minority interests  . . . . . . . . . . . . . . . . .
Adjustments for:   Loss on replacement of computer system  . . . . . . . . . . . . . . . . . . . . . .

2,202   Provision for (reversal of) allowance for doubtful accounts  . . . . . . . . . .

137

(410)

1,308

   Loss on disposal of property and store equipment  . . . . . . . . . . . . . . . .

2,383

2,881

22,743   Equity in losses (earnings) of associated companies  . . . . . . . . . . . . . . .

201

(102)

1,918

   Other—net  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,266

472

21,626    Increase in accounts receivable  . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(1,224)(5,345)(11,682)   Changes in assets and liabilities:    Increase in prepaid expenses and other current assets  . . . . . . . . . . .

(1,167)(283)(11,138)    Decrease (increase) in inventories  . . . . . . . . . . . . . . . . . . . . . . . . . . .

65

(216)

620

    (Decrease) increase in accounts payable  . . . . . . . . . . . . . . . . . . . . . .

(2,206)

3,438(21,054)    Increase in money held as agent  . . . . . . . . . . . . . . . . . . . . . . . . . . . .

7,539

4,140

71,951    (Decrease) increase in accrued expenses and other liabilities  . . . . . .
    Increase in allowance for retirement benefits to employees     and executive officers and corporate auditors  . . . . . . . . . . . . . . . . .
    Decrease in guarantee deposits received from franchised stores  . . .

(497)

125

(4,742)582(3,496)641(2,016)

5,554(33,364)    Increase in lease deposits from lessees . . . . . . . . . . . . . . . . . . . . . .

2

5

19

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

17,63910,748168,343     Net cash provided by operating activities  . . . . . . . . . . . . . . . . . . .

55,77447,596532,296

Purchases of marketable securities  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(28,750)(57,193)(274,385)

Proceeds from redemption of marketable securities  . . . . . . . . . . . . . . . . .
Purchases of property and store equipment  . . . . . . . . . . . . . . . . . . . . . . .
Decrease in lease deposits  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase in short-term loan  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

40,893(21,392)
1,485(11,150)

61,850(28,760)
2,024(2,600)390,274(204,161)
14,173(106,413)

Increase in long-term loan  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(1,267)(3,749)(12,092)(335)

INVESTING ACTIVITIES:Acquisition of associated companies  . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(5,976)

Additional investment in a subsidiary  . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(2,131)Other  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(8,237)(2,991)(78,612)     Net cash used in investing activities  . . . . . . . . . . . . . . . . . . . . . . .

(36,525)(31,754)(348,588)(10,964)(9,822)(104,638)(57,034)(20,338)FINANCING ACTIVITIES:Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sales of treasury stock  . . . . . . . . . . . . . . . . . . . . . . . . . . .

9,021

Proceeds from issuance of share upon exercise of stock option . . . . . . .

59

120

563

Purchase of treasury stock  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(21,001)(1)(200,430)

Cash dividends paid to minority shareholders  . . . . . . . . . . . . . . . . . . . . .

(67)

(54)

(639)

     Net cash used in financing activities  . . . . . . . . . . . . . . . . . . . . . . .
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR  . . . . . . . . .

(31,973)(736)(305,144)(12,724)
75,547

15,10660,441(121,436)
721,007

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

¥ 62,823¥ 75,547$ 599,571

See notes to consolidated financial statements.
LAWSON, INC.

53

Annual Report 2008

Notes to Consolidated Financial Statements
LAWSON, INC. and Subsidiaries
Years Ended February 29, 2008 and February 28, 2007

1. Basis of Presenting Consolidated Financial Statements
The accompanying consolidated financial statements have been prepared in accordance withthe provisions set forth in the Japanese Financial Instruments and Exchange Law (formerly,
the Japanese Securities and Exchange Law) and its related accounting regulations, and in
conformity with accounting principles generally accepted in Japan, which are different incertain respects as to application and disclosure requirements of International Financial
Reporting Standards.
In preparing these consolidated financial statements, certain reclassifications and rearrangements have been made to the consolidated financial statements issued domestically inorder to present them in a form which is more familiar to readers outside Japan. In addition,certain reclassifications have been made in the 2007 financial statements to conform to the2008 presentation.
The consolidated financial statements are stated in Japanese yen, the currency of the country in which LAWSON, INC. (the “Company”) is incorporated and operates. The translations ofJapanese yen amounts into U.S. dollar amounts are included solely for the convenience ofreaders outside Japan and have been made at the rate of ¥104.78 to $1, the approximate rateof exchange at February 29, 2008. Such translations should not be construed as representations
that the Japanese yen amounts could be converted into U.S. dollars at that or any other rate.
Mitsubishi Corporation (“Mitsubishi”) owned 32,399 thousand shares of common stock of theCompany (including indirect holdings) as of February 29, 2008 which represented 32.7% of thetotal voting rights of the Company. Accordingly, Mitsubishi is a principal shareholder.

2. Summary of Significant Accounting Policies
a. 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 overwhich the Companies have the ability to exercise significant influence are accounted for by theequity method.
The excess of the cost of the Company’s investments in consolidated subsidiaries and associated companies over the fair value of the net assets at the dates of acquisition is being amortized over a period of not exceeding 20 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.
On February 21, 2008, NATURAL LAWSON, INC. was liquidated, which resulted indeconsolidation.
Ninety-nine Plus Inc. became an affiliate company of the Company and accounted for by theequity method after its capital increase through third party allocation on March 16, 2007.
b. Franchise Agreement and Basis of Recognizing Franchise Commission — The
Company operates principally in a single industry commonly classified as the convenience store
business with its own stores and franchised stores. The Company allows each independent
franchisee to operate relatively small-sized convenience stores using specific designs and the
LAWSON brand names, and provides related managerial or technical know-how under a franchise agreement. Under the agreement, all franchised stores are provided with a variety ofservices and advice on the operation of convenience stores from the Company as the franchisor. In return, such franchised stores are required to pay continuing franchise commissions to
the Company based on certain percentages of the respective franchised store’s annual gross

54

LAWSON, INC. Annual Report 2008

margin. As the franchisor, the Company accounts for franchise commissions on an accrualbasis 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 equal to twice of the average monthly sales amounts of therespective store and pay a lower commission percentage.
The term of a franchise agreement is effective primarily for 10 years from the commencement
date of a new store’s operation as a franchised store, and may be extended or renewed upon
expiration subject to renegotiation of contract terms between the Company and the franchisee.
The franchise agreement usually provides that the franchised store shall make a cash payment to the Company in the amount of ¥3 million upon commencement. Upon receipt of suchpayment, ¥1.5 million is credited to income of the Company as “Operating revenues—franchisecommission 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 then applied to working capital for purchases of merchandise and supplies for the
franchised store.
As part of the contractual obligations of the franchisor under the agreement, the Company
generally provides franchisees with furniture, fixtures and equipment designed for the
LAWSON stores. In some cases, franchisees may also be provided with the land or buildings
for the stores. However, the Company does not require the franchisees to make lease payments related to the stores. Instead, a higher percentage applicable to the gross margin would
be used as the basis for determining the franchise commissions. The portion of franchisecommission attributable to 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 hand,demand deposits and short-term investments, which mature or become due within threemonths of the date 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 — Marketable and investment securities areclassified and accounted for, depending on management’s intent, as follows: (1) held-to-­maturity debt securities, which are expected to be held to maturity with the positive intent andability to hold to maturity are reported at amortized cost and (2) available-for-sale securities,
which are not classified as the aforementioned securities, are stated at fair value based onmarket quotation. Unrealized gains and losses net of applicable taxes are reported in a separate component of equity. The cost of securities sold is determined based on the moving-­
average method.
Non-marketable available-for-sale securities are stated at cost determined by the movingaverage method. For other than temporary declines in fair value, non-marketable available-forsale securities are reduced to net realizable value by a charge to income.
f. Property and Store Equipment — Property and store equipment are stated at cost
except for land (see Note 7). Depreciation is computed by the declining-balance method at
rates based on the estimated useful lives of the assets. The range of useful lives is principallyfrom 10 to 34 years for buildings and structures and from 5 to 8 years for furniture, fixturesand equipment.

LAWSON, INC.

55

Annual Report 2008

g. Long-lived Assets — The Companies review its long-lived assets for impairment whenever events or changes in circumstance indicate the carrying amount of an asset or asset
group, mainly by each store, may not be recoverable. An impairment loss would be recognized if the carrying amount of an asset or asset group exceeds the sum of the undiscounted
future cash flows expected to result from the continued use and eventual disposition of theasset or asset group. The impairment loss would be measured as the amount by which thecarrying amount of the asset exceeds its recoverable amount, which is the higher of the
discounted cash flows from the continued use and eventual disposition of the assets or the
net selling price at disposition.
h. Software — Software used by the Companies is amortized using the straight-line method
based on the estimated useful life (mainly 5 years).
i. Employees’ Retirement Benefits — The Company and a certain domestic subsidiary
have defined benefit lump-sum severance indemnity plans which cover substantially all of theiremployees. The Company established a trust fund for its lump-sum severance indemnity plan.
The Companies account for the liability for retirement benefits based on the projected benefit
obligations and plan assets at the balance sheet date.
In addition to the lump-sum severance indemnity plan, the Company has a defined contribution plan for severance payments. The Company recognizes expenses in the period when thecontribution was called for.
j. Allowance for Retirement Benefits to Executive Officers and Corporate­Auditors — The provisions are calculated to state the liability at 100% of the amount thatwould be required if all executive officers and corporate auditors resigned as of each balance
sheet date.
k. Stock Options — On December 27, 2005, the ASBJ issued ASBJ Statement No. 8,“Accounting Standard for Stock Options” and related guidance. The standard and guidance areapplicable to stock options granted on and after May 1, 2006. This standard requires companies to recognize compensation expense for employee stock options based on the fair value atthe date of grant and over the vesting period as consideration for receiving goods or services.
The standard also requires companies to account for stock options granted to non-employees
based on the fair value of either the stock option or the goods or services received. In the balance sheet, the stock option is presented as a stock acquisition right as a separate componentof equity until exercised. The standard covers equity-settled, share-based payment transactions, but does not cover cash-settled, share-based payment transactions. In addition, thestandard allows unlisted companies to measure options at their intrinsic value if they cannot
reliably estimate fair value.
The Company has applied the accounting standard for stock options to those granted on
and after May 1, 2006.
l. Presentation of Equity — On December 9, 2005, the ASBJ published a new accounting
standard for presentation of equity. Under this accounting standard, certain items which werepreviously presented as liabilities or assets, as the case may be, are now presented as components of equity. Such items include stock acquisition rights, minority interests, and any deferredgain or loss on derivatives accounted for under hedge accounting. This standard was effective
for fiscal years ending on or after May 1, 2006. The balances of such items as of February 28,
2006 were reclassified as separate components of equity as of March 1, 2006 in the consolidated statement of changes in equity.

56

LAWSON, INC. Annual Report 2008

m. Leases — Under Japanese accounting standards for leases, finance leases that deem totransfer ownership of the leased property to the lessee are to be capitalized, while other financeleases are permitted to be accounted for as operating lease transactions if certain “as if capitalized” information is disclosed in the notes to the consolidated financial statements. All otherleases are accounted for as operating leases.
n. Income Taxes — The Companies provide for income taxes applicable to all items includedin 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 the temporary differences.
o. Appropriations of Retained Earnings — Appropriations of retained earnings at eachyear end are reflected in the consolidated financial statements for the following year uponshareholders’ approval.
p. Foreign Currency Financial Statements — The balance sheet accounts of an associated company denominated in foreign currencies are translated into Japanese yen at the current exchange rate as of the balance sheet date except for equity, which is translated at thehistorical rate. Differences arising from such translation are shown as “Foreign currency translation adjustments” in a separate component of equity. Revenue and expense accounts of anaffiliated company denominated in foreign currencies are translated into yen at the current
exchange rate.
q. Per Share Information — Basic net income per share is computed by dividing net income
available to common shareholders by the weighted-average number of common shares outstanding for the period.
The number of shares used in computing net income per share was 103,027 thousand
shares for 2008 and 104,134 thousand shares for 2007.
Diluted net income per share for the years ended February 29, 2008 and February 28, 2007
is computed by using the weighted-average number of common shares outstanding adjusted
to include the potentially dilutive effect of stock options that were outstanding during the year.
Cash dividends per share presented in the accompanying consolidated statements ofincome are dividends applicable to the respective years including dividends to be paid after theend of year.
r. New Accounting Pronouncement
Lease Accounting — On March 30, 2007, the ASBJ issued ASBJ Statement No. 13,“Accounting Standard for Lease Transactions,” which revised the existing accounting standard
for lease transactions issued on June 17, 1993. The revised accounting standard for leasetransactions is effective for fiscal years beginning on or after April 1, 2008 with early adoption
permitted for fiscal years beginning on or after April 1, 2007.
LesseeThe revised accounting standard requires that all finance lease transactions shall be capitalized
recognizing lease assets and lease obligations in the balance sheet.

LAWSON, INC.

57

Annual Report 2008

3. Accounts Receivable—Due From Franchised 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 merchandise and 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 fromrespective franchised stores.
The “Accounts receivable—due from franchised stores” account represents net amounts
recoverable from the franchised stores.

4. Property and Store Equipment
Property and store equipment as of February 29, 2008 and February 28, 2007, consisted of
the following:
Millions of Yen

Thousands of
U.S. Dollars

2007

2008

2008

Used by franchised stores:
Land  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Buildings  . . . . . . . . . . . . . . . . . . . . . . . . . . 
Furniture, fixture and equipment  . . . . . . . . . 
    Total  . . . . . . . . . . . . . . . . . . . . . . . . . . 
Accumulated depreciation  . . . . . . . . . . . . . 
    Net  . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Used by Company-operated stores and other:
Land  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Buildings  . . . . . . . . . . . . . . . . . . . . . . . . . . 
Furniture, fixture and equipment  . . . . . . . . . 
    Total  . . . . . . . . . . . . . . . . . . . . . . . . . . 
Accumulated depreciation  . . . . . . . . . . . . . 
    Net  . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Net property and store equipment—total  . . 

¥

3,382
140,484
50,278194,144
102,115
92,029¥2,202
130,492
50,701
183,395
92,44890,947$32,2771,340,753
479,843
1,852,873
974,566
878,3072,463
15,385
8,762
26,61012,207
14,403¥106,432

2,507
13,926
8,277
24,71011,402
13,308¥104,255

23,507
146,831
83,623
253,961
116,502137,459$1,015,766

5. Marketable and Investment Securities
Marketable and investment securities as of February 29, 2008 and February 28, 2007, consisted of the following:
Millions of Yen

Current—Bonds  . . . . . . . . . . . . . . . . . . . . . . 
Non-current—Marketableand other equity securities  . . . . . . . . . . . . . . 
Non-current—Bonds  . . . . . . . . . . . . . . . . . . . 

58

LAWSON, INC. Annual Report 2008

Thousands of
U.S. Dollars

2008

2007

2008

¥2,900¥14,996$27,677

526
300

763
797

5,020
2,863

The costs and aggregate fair values of marketable and investment securities at February 29,
2008 and February 28, 2007, were as follows:
Millions of Yen
February 29, 2008

Cost

Unrealized
Gains

Securities classified as:
Held-to-maturity  . . . . . . . . . . . . . . . . . . . . . . .  ¥ 2,000
Available-for-sale:   Equity securities  . . . . . . . . . . . . . . . . . . . . . 
76   Bonds  . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
1,199

¥

Unrealized
LossesFair Value2¥ 2,002

226
1

302
1,200

February 28, 2007

Securities classified as:
Held-to-maturity  . . . . . . . . . . . . . . . . . . . . . . . 
Available-for-sale:   Equity securities  . . . . . . . . . . . . . . . . . . . . . 
   Bonds  . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

February 29, 2008

¥13,997

¥

77
1,799

Cost

Securities classified as:
Held-to-maturity  . . . . . . . . . . . . . . . . . . . . . . .  $19,088
Available-for-sale:   Equity securities  . . . . . . . . . . . . . . . . . . . . . 
725   Bonds  . . . . . . . . . . . . . . . . . . . . . . . . . . . .  11,443

3540

Unrealized
Gains

$

¥14,000
¥1
3

616
1,796

Thousands of U.S. Dollars
Unrealized
LossesFair Value

19$19,107

2,157
9

2,882
11,452Available-for-sale securities whose fair value is not readily determinable as of February 29,
2008 and February 28, 2007, were as follows:
Carrying AmountMillions of Yen

Available-for-sale—Equity securities  . . . . . . . . . . . 

Thousands of
U.S. Dollars

2008

2007

2008

¥224

¥147

$ 2,138

The carrying values of debt securities by contractual maturities for securities classified asavailable-for-sale and held-to-maturity at February 29, 2008 are as follows:
Millions of Yen
Available
Held tofor Sale
Maturity

Due in one year or less  . . . . . . . . . . . . . . . . . . . 
Due in one to five years  . . . . . . . . . . . . . . . . . . . 
   Total  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

¥ 900
300
¥1,200Thousands of
U.S. Dollars
Available
Held tofor Sale
Maturity¥2,000 $ 8,589 $19,088
2,863¥2,000 $11,452 $19,088

Proceeds from sales of available-for-sale securities for the years ended February 29, 2008
and February 28, 2007 were ¥0 million ($0 thousand) and ¥185 million, respectively. Grossrealized gains on these sales, computed on the moving average cost basis, were ¥0 million ($0thousand) for the year ended February 29, 2008, and ¥44 million for the year ended February
28, 2007.

LAWSON, INC.

59

Annual Report 2008

6. Long-Lived Assets
The Companies mainly group each store as the smallest cash generating unit. The Companies
recognized an impairment loss in the case where declined in value of long-lived assets due
mainly to continuous operating losses. The carrying amount of those assets was written down
to the recoverable amount and an impairment loss was recorded in other expenses in the consolidated statements of income.
The Companies recognized impairment loss on the following asset category for the years
ended February 29, 2008 and February 28, 2007:

2008

Millions of Yen
2007

Thousands of
U.S. Dollars
2008Tokyo  . . . . . . . . . . . . . ¥ 131
Stores Buildings andfurniture, fixtures Osaka  . . . . . . . . . . . . .
428
and equipment Others  . . . . . . . . . . . . . 1,891   Total  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥2,450

¥ 111
303
1,397
¥1,811$ 1,250
4,085
18,047$23,382

Category Related Assets

Location

The above assets, which incurred impairment losses for the years ended February 29, 2008
and February 28, 2007, consisted of the following:
Millions of Yen

Thousands of
U.S. Dollars

2008

2007

2008

Fixed assets and leased property:
Building  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  ¥1,773
Leased property  . . . . . . . . . . . . . . . . . . . . . . . . 
425
Others  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
252   Total  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  ¥2,450¥1,47558
278¥1,811$16,921
4,056
2,405$23,382

The recoverable amount of those assets were measured based on net selling price or value
in use. The net selling price of land was calculated based on appraised value by real estateappraiser or expected contract price. The value in use was calculated by discounting estimatedfuture cash flows to which the discount rate was applied. The discount rate used was 6.8%
and 6.9% for the years ended February 29, 2008 and February 28, 2007, respectively.

7. Land Revaluation
Under the “Law of Land Revaluation,” promulgated on March 31, 1998 and revised on March
31, 1999 and 2001, the Company chose a one-time revaluation of its own-use land to a value
based on real estate appraisal information as of February 28, 2002.
The resulting land revaluation difference represents unrealized depreciation of land and isstated, net of income taxes, as a component of equity. There was no effect on the consolidated
statements of income. Continuous readjustment is not permitted unless the land value subsequently declines significantly.
As at February 29, 2008, the carrying amount of the land after the above one-time revaluation exceeded the market value by ¥298 million ($2,844 thousand).

60

LAWSON, INC. Annual Report 2008

8. Lease Deposits
Under certain circumstances, the Company leases land and/or buildings, as a lessee, for its
offices and Company-operated stores or for franchisees to operate as franchised stores. The
leases are based on long-term, cancelable lease agreements with owners. In connection withsuch agreements, the lessor requires to the Company leasehold deposits equivalent to approximately several months’ rent, which are non-interest bearing and refundable only when theleases are terminated.
Lease deposits as of February 29, 2008 and February 28, 2007, consisted of the following:
Millions of Yen

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

Thousands of
U.S. Dollars

2008

2007

2008

¥72,985¥72,870$696,555

9,770¥82,755

15,034¥87,904

93,243$789,798

9. Accounts Payable — Trade
The balances of “Accounts payable — trade” represent the amounts payable to vendors formerchandise purchased by Company-operated stores and franchised stores. The Company
centralizes all merchandise purchasing procedures both for Company-operated stores andfranchised stores and makes collective payments to vendors (see Note 3).
Accounts payable — trade as of February 29, 2008 and February 28, 2007, were summarized below:

Accounts payable—trade for
franchised stores  . . . . . . . . . . . . . . . . . . . . . . 
Accounts payable—trade forCompany-operated stores  . . . . . . . . . . . . . . . 
   Total  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

Millions of Yen

Thousands of
U.S. Dollars

2008

2007

2008

¥61,234¥60,817$584,406

4,353¥65,587

4,183¥65,000

41,544$625,950

10. Accounts Payable — Due to Franchised Stores
The cost of merchandise supplied to the franchised stores is recorded as “Accounts receivable — due from franchised stores” as described in Note 3.
All franchised stores make remittances of cash proceeds from daily sales to the Company. In
certain instances, the remittance from a franchised store exceeds the balance of “Accounts
receivable—due from franchised stores.” In the accompanying consolidated balance sheets,
such excess balances are presented as “Accounts payable—due to franchised stores.”11. Employees’ Retirement Benefits
The Company and a certain domestic subsidiary have each of defined benefit lump-sum severance indemnity plan.
Under the plans, employees terminating their employment are entitled to retirement benefits
determined based on the rate of pay, years of service and certain other factors at the time oftermination. Such retirement benefits are made in the form of a lump-sum severance payment
from the Company or from a certain subsidiary. Employees are entitled to larger payments if thetermination 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.

LAWSON, INC.

61

Annual Report 2008

The funded status of these plans as of February 29, 2008 and February 28, 2007 was as follows:
Millions of Yen

Projected benefit obligation  . . . . . . . . . . . . . 
Fair value of plan assets  . . . . . . . . . . . . . . . 
Unrecognized prior service cost  . . . . . . . . . . 
Unrecognized actuarial loss  . . . . . . . . . . . . . 
   Net liability  . . . . . . . . . . . . . . . . . . . . . . 

Thousands of
U.S. Dollars

2008

2007

2008

¥11,223(5,567)(1,054)(427)¥ 4,175¥10,736(5,548)(1,230)(431)¥ 3,527$107,109(53,130)(10,059)(4,075)$ 39,845

The costs of defined benefit pension plans are accrued based on amounts determined principally using actuarial method. The Company and a certain subsidiary also have each of defined
contribution plan. The costs of defined contribution plans are charged to expense when incurred.
The components of net periodic benefit costs for the years ended February 29, 2008 andFebruary 28, 2007 were as follows:

Service cost  . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Interest cost  . . . . . . . . . . . . . . . . . . . . . . . . . . 
Amortization of prior service cost  . . . . . . . . . . . 
Recognized actuarial loss  . . . . . . . . . . . . . . . . 
Contribution to defined contribution plan  . . . . . 
   Net periodic benefit costs  . . . . . . . . . . . . . 

Millions of Yen

Thousands of
U.S. Dollars

2008

2007

2008

¥1,137
213
176
89
249
¥1,864¥1,105
213
176
128
246
¥1,868$10,852
2,033
1,680
849
2,376
$17,790

Assumptions used for the years ended February 29, 2008 and February 28, 2007, wereas follows:
2008

2007

Discount rate  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.0%
Expected rate of return on plan assets . . . . . . . . . . . . . . . . . . .
0%
Amortization period of prior service cost  . . . . . . . . . . . . . . . . . . 10 years
Recognition period of actuarial gain/loss  . . . . . . . . . . . . . . . . . . 10 years

2.0%0%
10 years
10 years

12. Equity
Since May 1, 2006, Japanese companies have been subject to the Corporate Law of Japan(the “Corporate Law”), which reformed and replaced the Commercial Code of Japan. The­significant provisions in the Corporate Law that affect financial and accounting matters are
summarized below:
a. Dividends
Under the Corporate Law, companies can pay dividends at any time during the fiscal year in
addition to the year-end dividend upon resolution at the shareholders meeting. For companies
that meet certain criteria such as; (1) having the Board of Directors, (2) having independent
auditors, (3) having the Board of Corporate Auditors, and (4) the term of service of the directors
is prescribed as one year rather than two years of normal term by its articles of incorporation,
the Board of Directors may declare dividends (except for dividends in kind) at any time during
the fiscal year if the company has prescribed so in its articles of incorporation. The Company
meets all the above criteria.
The Corporate Law permits companies to distribute dividends-in-kind (non-cash assets) toshareholders subject to a certain limitation and additional requirements.

62

LAWSON, INC. Annual Report 2008

Semiannual interim dividends may also be paid once a year upon resolution by the Board of
Directors if the articles of incorporation of the company so stipulate. The Corporate Law provides certain limitations on the amounts available for dividends or the purchase of treasury
stock. The limitation is defined as the amount available for distribution to the shareholders, but
the amount of net assets after dividends must be maintained at no less than ¥3 million.
b. Increases/Decreases and Transfer of Common Stock, Reserve and Surplus
The Corporate Law requires that an amount equal to 10% of dividends must be appropriatedas a legal reserve (a component of retained earnings) or as additional paid-in capital (a component of capital surplus) depending on the equity account charged upon the payment of such
dividends until the total of aggregate amount of legal reserve and additional paid-in capitalequals 25% of the common stock. Under the Corporate Law, the total amount of additional
paid-in capital and legal reserve may be reversed without limitation. The Corporate Law also
provides that common stock, legal reserve, additional paid-in capital, other capital surplus andretained earnings can be transferred among the accounts under certain conditions upon resolution of the shareholders.
c. Treasury Stock and Treasury Stock Acquisition Rights
The Corporate Law also provides for companies to purchase treasury stock and dispose ofsuch treasury stock by resolution of the Board of Directors. The amount of treasury stock purchased cannot exceed the amount available for distribution to the shareholders which is determined by specific formula. Under the Corporate Law, stock acquisition rights, which werepreviously presented as a liability, are now presented as a separate component of equity. The
Corporate Law also provides that companies can purchase both treasury stock acquisitionrights and treasury stock. Such treasury stock acquisition rights are presented as a separate
component of equity or deducted directly from stock acquisition rights.

13. Stock Options
The Company has stock option plans as incentive for directors, executive officers and selected
employees.
A summary of information for the Company’s stock option plans is as follows:
Number of
Options Granted

Date of Grant

Exercise Price

Exercise Period

1,773,000 shares

2000.6.12¥7,500($71.58)

From May 27, 2002
to May 25, 2007

8 directors,
14 executive officers and561 employees

313,000 shares

2002.6.25¥3,680($35.12)From December 1, 2002
to May 31, 2007

2nd Stock Option

9 directors and
17 executive officers

92,000 shares2003.7.3¥3,517($33.57)

From July 3, 2005
to July 2, 2008

3rd Stock Option

9 directors and
20 executive officers

99,000 shares2004.6.10¥4,320($41.23)

From June 10, 2006
to June 9, 2009

4th Stock Option

9 directors and
24 executive officers

114,000 shares2005.10.12¥4,160($39.70)

From October 12, 2007
to December 31, 2010

5th Stock Option

9 directors

22,400 shares2005.10.12¥1($0.01)

From October 13, 2005
to May 31, 2025

6th(a) Stock Option

9 directors

21,300 shares2006.10.26¥1($0.01)

From October 27, 2006
to May 26, 2026

6th(b) Stock Option

9 directors and
14 executive officers

83,000 shares2006.10.26¥4,053($38.68)

From October 28, 2008
to October 26, 2011

7th(a) Stock Option

7 directors

18,000 shares2007.9.5¥1($0.01)

From September 6, 2007
to August 20, 2027

7th(b) Stock Option

14 executive officers

45,000 shares2007.9.5¥3,949($37.69)

From September 7, 2009
to August 20, 2012

LAWSON, INC.

Annual Report 2008

Stock Option

Persons Granted

Stock subscription
rights18 directors and574 employees

1st Stock Option

63

The stock option activity is as follows:
Stock
Subscription
Rights

1st
Stock
Option

2nd
Stock
Option

3rd
Stock
Option4th
Stock
Option5th
Stock
Option6th (a)Stock
Option6th (b)Stock
Option7th (a)Stock
Option7th (b)Stock
Option(Shares)

For the Year Ended February 28, 2007
Non-vested:
February 28,   2006—outstanding  . . . . . . . . . . 
   Granted  . . . . . . . . . . . . . . . . . . 
   Canceled  . . . . . . . . . . . . . . . . . 

99,000 114,000
21,300   Vested  . . . . . . . . . . . . . . . . . . . 

(99,000)

February 28,   2007—outstanding  . . . . . . . . . . 

(21,300)
114,000

Vested:February 28,   2006—outstanding  . . . . . . . . . .  1,017,000 124,300   Vested  . . . . . . . . . . . . . . . . . . . 
   Exercised  . . . . . . . . . . . . . . . . . 
(28,200)   Canceled  . . . . . . . . . . . . . . . . .  (169,000) (8,400)
February 28,   2007—outstanding  . . . . . . . . . .  848,000 87,700

Stock
Subscription
Rights48,20083,00022,40099,00021,300(4,600)(2,400)43,60099,000

2nd
Stock
Option

3rd
Stock
Option

1st
Stock
Option83,00020,00021,3005th
Stock
Option6th (a)Stock
Option4th
Stock
Option6th (b)Stock
Option7th (a)Stock
Option7th (b)Stock
Option(Shares)

For the Year Ended February 29, 2008
Non-vested:
February 28,   2007—outstanding  . . . . . . . . . . 

114,000

83,000   Granted  . . . . . . . . . . . . . . . . . . 
   Canceled  . . . . . . . . . . . . . . . . . 

18,000   Vested  . . . . . . . . . . . . . . . . . . . 

(114,000)

45,000(18,000)

February 29,   2008—outstanding  . . . . . . . . . . 

83,00045,000

Vested:February 28,   2007—outstanding  . . . . . . . . . .  848,000 87,700 43,600   Vested  . . . . . . . . . . . . . . . . . . . 
   Exercised  . . . . . . . . . . . . . . . . . 
(16,100)   Canceled  . . . . . . . . . . . . . . . . .  (848,000) (71,600)
February 29,
43,600   2008—outstanding  . . . . . . . . . . 
Exercise price  . . . . . . . . . . . . . . . . . 
Average stock price at exercise  . . . . 

99,00020,00021,300114,000

18,000(5,000)99,000 114,000

15,00021,30018,000¥7,500 ¥3,680 ¥3,517 ¥4,320 ¥4,160 ¥1 ¥1 ¥4,053 ¥1 ¥3,949($71.58) ($35.12) ($33.57) ($41.23) ($39.70) ($ 0.01) ($ 0.01) ($38.68) ($ 0.01) ($37.69)¥4,448($42.45)¥3,890($37.13)

Fair value price at grant date  . . . . . . 

¥3,178 ¥ 618 ¥2,852 ¥ 397($30.33) ($ 5.90) ($27.22) ($ 3.79)

The assumptions used to measure fair value of Stock Option were as follows:64

6th (a) Stock
Option6th (b) Stock
Option7th (a) Stock
Option7th (b) Stock
OptionEstimate method  . . . . . . . . . . . . . . .  Black-Scholes
option pricing
model

Black-Scholes
option pricing
model

Black-Scholes
option pricing
model

Black-Scholes
option pricing
model

Volatility of stock price  . . . . . . . . . . .  37.06%

25.80%

35.19%

21.82%

Estimated remaining
outstanding period  . . . . . . . . . . . . .  9.8 years

3.5 years

10 years

3.5 years

Estimated dividend . . . . . . . . . . . . . . ¥95 per share¥95 per share¥100 per share¥100 per share

Interest rate with risk free  . . . . . . . . . .  1.74%

0.98%

1.58%

0.99%

LAWSON, INC. Annual Report 2008

14. Income Taxes
The Company and its domestic subsidiaries are subject to a number of different taxes based on
income, which in the aggregate, resulted in a normal effective statutory tax rate of approximately 40.7% for the years ended February 29, 2008 and February 28, 2007.
The tax effects of significant temporary differences and tax loss carryforwards which resulted
in deferred tax assets and liabilities at February 29, 2008 and February 28, 2007, are as follows:
Millions of Yen

Thousands of
U.S. Dollars

2007

2008

2008

Deferred tax assets:
Accrued enterprise tax  . . . . . . . . . . . . . . . . .  ¥954
Accrued employees’ bonuses  . . . . . . . . . . . 
1,084
Excess of depreciation  . . . . . . . . . . . . . . . . . 
4,218
Excess of amortization of software  . . . . . . . . 
688
Employees’ retirement benefits  . . . . . . . . . . 
3,964
Allowance for doubtful accounts  . . . . . . . . . 
1,102
Tax loss carryforward  . . . . . . . . . . . . . . . . . . 
1,616
Impairment loss  . . . . . . . . . . . . . . . . . . . . . . 
1,618
Loss on replacement of computer system  . . 
896
Other  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
2,015
Less valuation allowance  . . . . . . . . . . . . . . . 
(1,621)   Total  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
16,534
Deferred tax liabilities—Unrealized gain on
available-for-sale securities  . . . . . . . . . . . . . . 
92
Net deferred tax assets  . . . . . . . . . . . . . . . . . .  ¥16,442

¥

498
1,100
3,445
648
3,673
1,671
1,758
1,129
896
1,575
(1,827)
14,566$220¥14,346878$156,920

9,105
10,34540,256
6,566
37,832
10,517
15,423
15,442
8,551
19,232(15,471)
157,798

At February 29, 2008, certain subsidiaries have tax loss carryforwards aggregating approximately ¥3,971 million ($37,583 thousand) which are available to be offset against taxable
income of such subsidiaries in future years. These tax loss carryforwards, if not utilized, will
expire as follows:
Millions of Yen

Thousands of
U.S. Dollars

¥ 484
415
287
920
1,250
615
¥3,971$ 4,619
3,961
2,424
8,780
11,9305,869$37,583

LAWSON, INC.

Annual Report 2008

Year Ending February 28 or 29

2010  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 and thereafter  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
   Total  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

65

15. Replacement of Computer System
The Company decided to replace its computer system and upgrade to the next generation,
including core information systems, based on an optical fiber network in 2008 and 2009. The
Company recognized loss on replacement of systems, as special depreciation of the related
equipment and software and equivalent of those related to lease cancellation of existing system.
Millions of
Yen
2007

Loss on replacement of computer system:
Lease property (cancellation)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equipment  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Software  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
   Total  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

¥1,624542
36¥2,202

The amount of the lease cancellation loss, equivalent to special depreciation, was included inother under long-term liabilities.

16. Leases
The Companies lease certain store facilities, machinery, computer equipment, office space andother assets.
Total lease payments under finance leases for the years ended February 29, 2008 and­February 28, 2007, were ¥18,103 million ($172,772 thousand) and ¥17,485 million, respectively.
Pro forma information of leased property such as acquisition cost, accumulated depreciation,
accumulated impairment loss, obligations under finance leases, depreciation expense, interest
expense and impairment loss 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 29, 2008 andFebruary 28, 2007 was as follows:
Leased property used by franchised stores:

Furniture, Fixtures and Equipment:
Acquisition cost  . . . . . . . . . . . . . . . . . . . . . . 
Accumulated depreciation  . . . . . . . . . . . . . . 
Accumulated impairment loss  . . . . . . . . . . . 
   Net leased property  . . . . . . . . . . . . . . . . . 

Millions of Yen

Thousands of
U.S. Dollars

2008

2007

2008

¥68,232
47,407511¥20,314¥65,163
40,122
204¥24,837$651,193
452,443
4,877$193,873

Millions of Yen

Thousands of
U.S. Dollars

Obligations under finance leases:

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

2008

2007

2008

¥ 7,702
13,543¥21,245¥11,976
13,607¥25,583$ 73,506
129,252$202,758

An allowance for impairment loss on leased property of ¥283 million ($2,701 thousand) as ofFebruary 29, 2008 is included in obligations under finance leases.

66

LAWSON, INC. Annual Report 2008

Leased property used by Company-operated stores and other:
Millions of Yen
2008
Furniture,
Fixtures andEquipment

Acquisition cost  . . . . . . . . . . . . . . . . . . . . . . . . 
Accumulated depreciation  . . . . . . . . . . . . . . . . 
Accumulated impairment loss  . . . . . . . . . . . . . 
   Net leased property  . . . . . . . . . . . . . . . . . 

¥19,1149,480
58¥ 9,576

Software

Total

¥734
489

¥19,848
9,969
58¥ 9,821¥245

Millions of Yen
2007
Furniture,
Fixtures andEquipment

Acquisition cost  . . . . . . . . . . . . . . . . . . . . . . . . 
Accumulated depreciation  . . . . . . . . . . . . . . . . 
Accumulated impairment loss  . . . . . . . . . . . . . 
   Net leased property  . . . . . . . . . . . . . . . . . 

¥18,848
11,31030¥ 7,508

Software

Total

¥734
342

¥19,582
11,65230¥ 7,900¥392

Thousands of U.S. Dollars
2008
Furniture,
Fixtures andEquipment

Acquisition cost  . . . . . . . . . . . . . . . . . . . . . . . .  $182,420
Accumulated depreciation  . . . . . . . . . . . . . . . . 
90,475
Accumulated impairment loss  . . . . . . . . . . . . . 
554   Net leased property  . . . . . . . . . . . . . . . . .  $ 91,391

SoftwareTotal$7,005
4,667$189,425
95,142554$ 93,729$2,338

Obligation under finance leases:
Millions of Yen

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

Thousands of
U.S. Dollars

2008

2007

2008

¥ 3,455
7,213¥10,668¥3,432
4,851¥8,283$ 32,974
68,839$101,813

Allowance for impairment loss on leased property of ¥32 million ($305 thousand) as of­February 29, 2008 is included in obligations under finance leases.
The imputed interest expense portion which is computed using the interest method is
excluded from the above obligations under finance leases.
Depreciation expense, interest expense and other information under finance leases:
Millions of Yen

Depreciation expense  . . . . . . . . . . . . . . . . . . . 
Interest expense  . . . . . . . . . . . . . . . . . . . . . . . 
Lease payments  . . . . . . . . . . . . . . . . . . . . . . . 
Reversal of allowance for impairment loss
on leased property  . . . . . . . . . . . . . . . . . . . . . 
Impairment loss  . . . . . . . . . . . . . . . . . . . . . . . . 

Thousands of
U.S. Dollars

2008

2007

2008

¥16,785
1,011
18,103¥16,342
1,004
17,485$160,193
9,649
172,772

207
425

82
58

1,976
4,056

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

LAWSON, INC.

67

Annual Report 2008

The minimum rental commitments under noncancelable operating leases at February 29,
2008 were as follows:
Millions ofYen

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

Thousands of
U.S. Dollars

2008

2008

¥ 688
841
¥1,529$ 6,566
8,026$14,592

17. Related Party Transactions
Balances to LAWSON CS Card, INC. (an associated company) as of February 29, 2008 wereas follows:
Millions ofYen

Short-term loan receivable  . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Guarantee for bank loans  . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Thousands of
U.S. Dollars

2008

2008

¥20,000
1,650$190,876
15,747

Mitsubishi has been treated as an associated company of the Company as it owns, including
indirect holding, 32.7% of the total voting rights of the Company. Therefore, the Company
discloses transactions with subsidiaries of Mitsubishi, including those transactions related to thefranchised stores.
Balances and transactions with subsidiaries of Mitsubishi as of and for the year ended­February 29, 2008 were as follows:
Millions of Yen

Thousands of
U.S. Dollars

2008

2008

RYOSHOKU LIMITED:
Accounts payable—trade  . . . . . . . . . . . . . . . . . . . . . . . . . .  ¥ 6,283
Purchases  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
90,27959,964
861,605

Food Service Network Co., Ltd.:
Accounts payable—trade  . . . . . . . . . . . . . . . . . . . . . . . . . . 
Purchases  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

16,934
224,366

161,615
2,141,306

SAN-ESU INC.:
Accounts payable—trade  . . . . . . . . . . . . . . . . . . . . . . . . . . 
Purchases  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

2,936
32,001

28,021
305,411Purchase prices and other conditions are determined at arm’s length basis.

68$

LAWSON, INC. Annual Report 2008

18. Contingent Liabilities
As of February 29, 2008, the Company guaranteed an associated company’s bank loan in theamount of ¥1,650 million ($15,747 thousand).

19. Net Income Per ShareA reconciliation of the differences between basic and diluted net income per share (“EPS”) for
the years ended February 29, 2008 and February 28, 2007 is as follows:
Millionsof YenYear Ended February 29, 2008

Basic EPS—Net income available
to common shareholders  . . . . . . . . . . . . . . . .
Effect of dilutive securities—Stock options  . . . .
Diluted EPS—Net income for computation  . . .

Thousandsof Shares
Weightedaverage
SharesNet
Income¥22,119

Yen

U.S. Dollars

EPS¥214.69$2.05¥22,119

103,02756
103,083¥214.57$2.05¥20,983

104,134¥201.50¥20,98352
104,186¥201.40

Year Ended February 28, 2007

Basic EPS—Net income available
to common shareholders  . . . . . . . . . . . . . . . .
Effect of dilutive securities—Stock options  . . . .
Diluted EPS—Net income for computation  . . .

20. Subsequent Eventsa. 	The following appropriation of retained earnings was approved at the general shareholders
meeting held on May 23, 2008:

Cash dividends, ¥55 ($0.52) per share  . . . . . . . . . . . . . . . . . .

Millions of Yen

Thousands of
U.S. Dollars¥5,453$52,042b. Sales of shares of LAWSON CS Card, INC. (“LCS”)
	On April 18, 2008, the Board of Directors of the Company decided to sell all its holding sharesof LCS to Credit Saison Co., Ltd. (“CSC”). The Company owned 80,000 shares, or 50% of
LCS shares, and accounted for its investment by equity method. The sale contract with CSC
was concluded on April 23, 2008 and the transaction was completed on April 30, 2008.
	  The Company sold the shares for ¥477 million and recognized a loss of ¥100 million onsales of the shares. The Company’s short-term loan of ¥20,000 million to LCS was repaid infull and its guarantee of ¥1,650 million for LCS’s bank borrowing was extinguished on April
30, 2008.
	  The Company and LCS completed a business alliance agreement with respect to services
to LAWSON PASS cardholders, and will continue the similar services to its card holders.
	  The Company and other parties established LCS in 2002, and since then LCS has mainly
issued the LAWSON PASS, a point card with a credit card function, to LAWSON customers.
Thereafter, the Company began issuing MY LAWSON POINT standard point cards in­January 2007. As of February 29, 2008, LAWSON PASS had approximately 2.84 million
cardholders, while MY LAWSON POINT had approximately 3.39 million cardholders. The
combined cardholder base of roughly 6.23 million members for these two cards constitutes
one of the largest convenience store membership bases in Japan. The Company has
decided to sell its entire shareholding in credit card provider LCS to CSC so that it can focus
on customer relationship management (CRM) activities.

LAWSON, INC.

69

Annual Report 2008

Independent Auditors’ Report

To the Board of Directors of
LAWSON, INC.:
We have audited the accompanying consolidated balance sheets of LAWSON, INC. (the“­Company”) and subsidiaries as of February 29, 2008 and February 28, 2007, and the related
consolidated statements of income, changes in equity, and cash flows for the years thenended, all expressed in Japanese yen. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan.
Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all­material respects, the consolidated financial position of LAWSON, INC. and subsidiaries as ofFebruary 29, 2008 and February 28, 2007, and the consolidated results of their operations andtheir cash flows for the years then ended in conformity with accounting principles generally
accepted in Japan.
Our audits also comprehended the translation of Japanese yen amounts into U.S. dollar
amounts and, in our opinion, such translation has been made in conformity with the basis
stated in Note 1. Such U.S. dollar amounts are presented solely for the convenience of readers
outside Japan.

May 23, 2008

70

LAWSON, INC. Annual Report 2008

Directors, Corporate Auditors and Executive Officers (As of May 23, 2008)

President and CEO

Takeshi Niinami

Member of the Board
and Senior Executive
Vice President

Toru Moriyama

General Manager, Merchandizing & Logistics Division

Member of the Board
and Executive Vice
President

Yoshiyuki Yahagi

Chief Financial Officer (CFO); in charge of Corporate Planning
Office; in charge of Human Resources Office; General Manager,
Management Services Office; General Manager,
Corporate Planning OfficeMember of the Board
and Executive Vice
President

Manabu Asano

Chief Compliance Officer (CCO); in charge of General Affairs;in charge of Internal Audit

Members of the Board

Hiroshi Tasaka
Reiko Okutani
Takehiko Kakiuchi

Professor, Graduate School of Tama University

Standing Corporate
Auditors

Munehiko Nakano
Kenji Yamakawa

Corporate Auditors

Tetsuo Ozawa
Hiroshi Kuwata

President, The R Co., Ltd.
Division COO, Foods (Commodity) Div., Mitsubishi Corporation

Lawyer
General Manager, Risk Management Department,
Mitsubishi Corporation

Senior Executive Vice
President

Takatoshi Kawamura COO (In charge of Operating Division)

Executive Vice
President

Yoichi Yokomizo

Chief Information Officer (CIO); General Manager, Information
Systems OfficeSenior Vice Presidents

Shigeru Niikura

Executive Assistant to CEO; In Charge of Store Operation
Support Office

Norikazu Nishiguchi
Shigeaki Kawahara
Takaki Mizuno
Yoshio Shinozaki
Jyun Miyazaki
Noriyuki Nobayashi

General Manager, Store Development Planning Division

Hajime Nakai
Atsushi Maeda

Deputy General Manager, Merchandizing & Logistics Division

President and CEO, VALUE LAWSON, Inc.
General Manager, Chubu LAWSON Branch
General Manager, CSR Promotion Office
General Manager, PR, Corporate Communications Office
General Manager, Services Development Division; Assistant toGeneral Manager, Merchandizing & Logistics Division
Executive Vice President VALUE LAWSON Inc.; Assistant toGeneral Manager, Merchandizing & Logistics Division

LAWSON, INC.

71

Annual Report 2008

Corporate Data (As of February 29, 2008)

Company NameLAWSON, INC.

Net Sales of All Stores¥1,415.1 billion (Consolidated)

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

Operating Area
All 47 prefectures in Japan; Shanghai, PRC(Joint Venture)
Established
April 15, 1975

Number of Employees
3,735 (Consolidated)

Capital¥58,506,644,000

Business Activities
Development of LAWSON convenience store
franchise chain and NATURAL LAWSON stores
Number of Stores
Hokkaido

8,587 (Consolidated)

496

Chubu

1,235
KyushuChugoku

996

Fukuoka
Saga
Nagasaki
Kumamoto
Oita
MiyazakiKagoshima
Okinawa

525
320
60
82
92
118
83
106
135
996

Tottori
Shimane
Okayama
Hiroshima
Yamaguchi

85
77
123
128
112
525

NiigataToyamaIshikawa
Fukui
Yamanashi
NaganoGifu
Shizuoka
Aichi
Mie

103
105
73
88
64
139
102
148
329
84
1,235

Tohoku771

Aomori
Iwate
Miyagi
Akita
Yamagata
Fukushima

Kanto

2,295
Kinki

1,845

Shikoku

424

Tokushima
KagawaEhime
Kouchi

109
98
155
62
424

Store Opening Information
SHANGHAI HUALIAN LAWSON CO., LTD.: 287 (as of December 31, 2007)
Ninety-nine Plus Inc.: 837 (as of March 31, 2008)

72

LAWSON, INC. Annual Report 2008

Shiga
Kyoto
Osaka
Hyogo
Nara
Wakayama

126
194
818
487
105
115
1,845

IbarakiTochigi
Gunma
Saitama
Chiba
Tokyo
Kanagawa

105
104
71
343
286
896
490
2,295

156
166
158
141
55
95
771

Investor Information (As of February 29, 2008)

Authorized Shares409,300,000

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

Shares Issued
99,600,000

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

Shareholders
39,944
Major Shareholders

1. Mitsubishi Corporation
2. Japan Trustee Services Bank, Ltd. (Trust Account)
3. The Master Trust Bank of Japan, Ltd. (Trust Account)
4. Marubeni Foods Investment Co., Ltd.
5. NTT DoCoMo, Inc.
6. Trust & Custody Services Bank, Ltd.
(Securities Investment Trust Company)
7. The Nomura Trust & Banking Co., Ltd. (Trust account)
8. STATE STREET BANK AND TRUST COMPANY
9. STATE STREET BANK AND TRUST COMPANY 505103
10. The Sumitomo Trust & Banking Co., Ltd. (Trust account B)

Number of Shares
Held

Percentage of Total
Shares Held*

32,089
6,288
6,012
5,939
2,092
1,646

32.4
6.3
6.1
6.0
2.1
1.7

1,152
1,002
992
946

1.2
1.0
1.0
1.0

* The above shareholding ratios exclude treasury stock.

Stock Price and Trading Volume on the Tokyo Stock Exchange
6,000

Stock price (Yen)

4,000

2,000

0
15,000,000

Trading volume (Shares)

10,000,000

5,000,000

0Years Ended
February 28 and 29

2004

2005

2006

2007

2008

High
Low
At Year-End

4,450
2,860
3,780

4,560
3,510
3,980

5,130
3,800
4,350

4,830
3,800
4,540

4,750
3,440
4,000

LAWSON, INC.

73

Annual Report 2008

Annual Report 2008

Corporate Planning Office,East Tower, Gate City Ohsaki,
11-2, Osaki 1-chome, Shinagawa-ku,
Tokyo 141-8643, Japan
http://www.lawson.co.jp/
Published in August 2008.
©1975–2008 LAWSON, INC. All rights Reserved.

B-(2)-060001

This annual report was produced using “Kanbatsu
White,” which contains 70% Japan-made pulp,
including 10% clear-cut lumber.

Printed in Japan