Annual Report 2009
Year ended February 28, 2009

We
Have
the
Answers

Contents
01

08

WE HAVE THE ANSWErS
02

HOW HAS THE CVS INdUSTRy GROWn?

04

WHY has LAWSON grown?

06

WHAT will it take to grow further?

Consolidated Financial Highlights

09	Topics
10

A Message to LAWSON Stakeholders

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

69	Directors, Corporate Auditors and Executive Officers
70

Corporate Data

71

Shareholder 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.
In September 2008, LAWSON made Ninety-nine Plus Inc. and its subsidiaries consolidated subsidiaries. Accordingly, LAWSON booked equitymethod earnings in this company in the fiscal year ended February 28, 2009 for the six months through the end of the company’s second quarterbecause Ninety-nine Plus has a March 31 fiscal year-end. Ninety-nine Plus’ earnings were completely consolidated for its third quarter.
Figures in this annual report are rounded to the nearest unit.
LAWSON, INC.
Annual Report 2009

Investors frequently ask us if the Japanese
CVS market has become saturated, or if
there is no more room for expansion within
Japan. However, we feel there is still plentyof room for growth.
The key is expanding the customer base.
When it comes to saturation in the CVS
industry in Japan, even as Japan’s
demographics are changing, due to an
aging population and declining birth rate,
we believe that the conventional CVS
format—mainly targeting men in their 20s
and 30s—is approaching saturation due tohomogeneous competition. Accordingly,
we believe that there is ample room for
growth even in Japan by creating store
formats and merchandise assortments thatare attractive to non-traditional customers
such as seniors and women. We are
pursuing a business strategy that has
innovation as its core tenet to realize
sustainable growth over the medium tolonger term.

We
Have
the
Answers
LAWSON, INC.
Annual Report 200901

©google

HOW
Has tHe
Cvs Industry
grOWn?
n stores of other chainsa Japanese convenience store typically serves
a commercial area of about 2-3,000 persons.
By taking advantage of this small size,
operators have developed close relationships
with local communities and this has helped
the industry grow.

02

LaWsOn, InC.
annual report 2009

up to now, convenience stores have offered customers “timeconvenience.” the industry has been able to produce growththat far outpaces other business models by putting together aportfolio of ready-made meals such as boxed lunches and riceballs, and processed foods centered on new products in orderto address the needs of hardworking customers in their 20s
and 30s.
roughly 3,000 items are arrayed in compact stores thathave only about 30 tsubo (1,070 square feet) of sales space,and each day about 8 million customers visit LaWsOn storesthroughout the chain. We database the purchasing histories ofour customers to make ordering more precise, and this allows
us to create merchandise assortments that suit the needs of thecustomers in a particular commercial area. this expertise in
narrowing down the products in a store’s selection while
avoiding stockouts is one of the defining strengths of Japan’s
convenience stores.
Besides just selling products, convenience stores have alsocome to address other customer needs by adding new services
such as accepting utility and other payments, providing
parcel delivery services, and handling entertainment tickets.
But in a country where the population is aging like Japan, seniors who represent a new clientele for convenience stores have a growing need for distance convenience and the convenience of products packaged in smaller, appropriately sized portions, so stores will be asked
to meet these needs in the future.

COnvenIenCe stOre numBers and net saLes(STORES)50,000no. of stores (Left)net sales (right)(¥ BILLION)
10,00040,0008,000

30,0006,000

20,0004,000

10,0002,000

0 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

0

Source: Japan Franchise Association

LaWsOn, InC.
annual report 200903

We have grown thanks to our businessmodel, under which we outsource store
operation after providing franchiseowners with the store
brand and store
operating expertise.

WHy
Has
LaWsOngrOWn?

04

LaWsOn, InC.
annual report 2009

most franchise owners are people with a strong entrepreneurial drive who have a wealth of life experiences, and who haverun one-man businesses like liquor stores or who used to becompany employees. along with seizing the opportunity to
become independent by running their own businesses, thesepeople take advantage of their experiences in the wider world
in hiring and training store employees and in managing
labor. In this way, we have been able to sharply reduce boththe time and cost needed for training store employees whencompared with directly operated businesses in which storesare run by regular full-time employees.
Our solid chain-store infrastructure is built upon a distribution network that provides for the smooth transmission of information between stores and corporate headquarters and thesmooth exchange of order data with our vendors, allowing thefrequent and accurate delivery of products to take place with
optimal efficiency. We have made massive investments in
information technology systems at our headquarters in orderto support this system.
In the short span of just about 35 years the number of storeshas grown sharply, and by taking advantage of economies ofscale we have been able to improve purchasing terms. Furthermore, by accumulating andsharing expertise in store operation and product development we have been able to create
merchandise assortments that address our customers’ needs, make ordering more precise,and treat our customers with courtesy. Finally, by entrusting store operation, including themanagement of store employees (including part-timers) to franchise owners based on ourequitable franchise contract relationship with them, we have grown in a short amount of time.
FranCHIse systemn Leveraged economies of scale created by franchising stores to reduce costs
n the more franchised stores, the more money and information headquarters gathers, enabling it to provide
know-how and customer-centric products to franchised stores

Headquarters

n Provision of store brand (trademark)n store operation know-how
n development of products and services

Franchised stores

Large investment(It systems, etc.)

store operation

settlement service

store employee
hiring and training,labor managementn Contract fee
n Franchise commissionn sales information

LaWsOn, InC.
annual report 2009

05

WHat
WILL Ittake tO
grOW
FurtHer?

We believe that there is room to grow in theJapanese Cvs market if we create store
formats and merchandise assortments thatsuit customers and expand our customer
base to include seniors and women.

06

LaWsOn, InC.
annual report 2009to address Japan’s changing demographics, LaWsOn took
the lead over its rivals in developing new store formats suchas naturaL LaWsOn, that caters to health conscious
customers, and LaWsOn stOre100, that caters to the needs ofhousewives and seniors by offering fresh items.
We see women and health conscious consumers as the main
customer base for our naturaL LaWsOn stores, so we aredeveloping and offering products that emphasize health andbeauty. at the same time, we see housewives and seniors as
mainstays of our LaWsOn stOre100 chain, so these stores are
selling products in smaller, more appropriately sized portions
at the easily recognizable price of ¥105 (tax included). thesestores carry more fresh items and daily delivered foods thanconventional convenience stores and we are also focusing ourefforts on developing products under our value Line private
brand label.
not only will we be able to respond flexibly to changing
demographics by having other store formats besides theregular LaWsOn format, we will also be able to develop
products that address the specific needs of customers living
in a particular commercial area. We believe that competitionin the retail industry, including convenience stores and supermarkets, will intensify in the
future. nevertheless, we believe that there is ample room for growth by taking advantage ofthe distance convenience that we provide to win new customers. We will continue working
to maximize profits by selecting the right store format for a community and by offering convenience to our customers on various levels.

LaWsOn stOre FOrmats
regular LaWsOnnaturaL LaWsOn

LaWsOn stOre100/sHOP99LaWsOn PLus

Launch of format

april 1975

July 2001

may 2005/Jan. 2001

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(fresh foods and daily delivered foods) for housewives,
middle-aged and senior
customers

Introduction of products
to expand the customer
base matched to the main
customer segments anddistinctive features of thecommercial area

Percentage of female
customers (estimate)

Approx. 30%

Approx. 45%

Approx. 40%–

area targeted for store
openings

Nationwide

Office and residential
districts in major
metropolitan areas

Residential districts andareas in front of stations inlarge urban areas

Large cities as well asurban and residential
districts in regional areas

number of items
handledApprox. 2,800

Approx. 2,500

Approx. 4,500–

ratio of common
products with regular
LaWsOn–Approx. 60%

Approx. 10%–

total number of stores(February 28, 2009)

8,509

93

925

747

LaWsOn, InC.
annual report 200907

COnsOLIdated FInanCIaL HIgHLIgHts
LAWSON, INC. and Subsidiaries
Years Ended February 28, 2009, February 29, 2008 and February 28, 2007

Millions of Yen

Percent
ChangeThousands of
U.S. Dollars*

2009

2008

2007

2009/20082009

Net sales of all stores¥1,558,781¥1,415,106¥1,386,630

10.2%$15,936,827

For the year:
Total operating revenues

349,476

301,177

283,053

16.0%

3,573,009

Operating income
Income before income taxes and minority
interests

49,186

46,61044,513

5.5%

502,873

42,207

38,13536,84810.7%

431,520

Net income

25,306

22,11920,983

14.4%

258,726

Per share data (yen and dollars):¥

Net income

255

¥

215

¥

$

2.61

202

18.9%

160

110

100

45.5%

1.64

Total assets¥ 436,172¥ 397,108¥ 398,258

9.8%$ 4,459,380

Total equity

203,179

188,574

199,493

7.7%

2,077,282

Return on equity (ROE)

13.3%

11.6%

11.3%

1.7% point

Payout ratio

62.7%

51.2%

49.6%

11.5% point

9,527

8,587

8,564

10.9%

Franchised stores

8,362

8,148

8,093

2.6%

Company-owned stores**

1,165

439

471

165.3%Cash dividends
at year-end:

Financial data:store network:
Total number of stores in Japan* The U.S. dollar amounts represent translations of Japanese yen at the approximate exchange rate at February 28, 2009, of ¥97.81=$1.
** Includes NATURAL LAWSONOperating income

net income per sharereturn on equity (rOe)(Millions of Yen)

(Yen)

(%)

255

49,186

46,610215

5.5% up

Consolidated operating income increased¥2.5 billion year on year to ¥49.1 billion,
due mainly to higher operating revenues
from strong sales at existing stores.

2008

08

LaWsOn, InC.
annual report 20092009

18.9% up

Consolidated net income per share rose
¥40 year on year to ¥255, due to a strong
CVS business on a parent-only basis, aswell as contributions from a fresh foodconvenience store subsidiary and a
subsidiary running ATM operations.

2008

13.3
11.6

2009

1.7 pts up

ROE was 13.3%, the highest since
LAWSON listed. This record level was due
to a strong performance in fiscal 2008 andthe buyback and cancellation of treasury
stock in fiscal 2007. LAWSON’s mediumterm management target is ROE of 15%.

2008

2009

tOPICs

Customers Can now use
shopping Points to Pay for
Purchases
LAWSON offers customers a variety ofways to make use of points accumulatedwith the MY LAWSON POINT card andthe LAWSON PASS card, such as forpromotional items and donations toenvironmental and social activities. Since
December 2008, customers have beenable to apply their points toward purchases at the register at the rate of 1 yen
per point, enhancing the convenience of
these loyalty cards.

ninety-nine Plus Inc. Becomesa Consolidated subsidiary
In September 2008, LAWSON madeNinety-nine Plus Inc., operator of the
SHOP99 chain of single-price convenience stores, a consolidated subsidiary
via a tender offer bid (TOB). LAWSON is
working to raise synergies with thiscompany. Cooperation includes joint
development of LAWSON Group ValueLine private brand products, and conversion of SHOP99 stores into LAWSONSTORE100 stores. For details about
results and other information, pleasesee page 34.

a ninety-nine Plus “sHOP99” store“value Line” Private Brand
extended to regular LaWsOnstores nationwide

expanding Initiatives to spur
Consumption of Locally
Produced Items
LAWSON is focused on offering products tailored to regional customer needs.
As part of these efforts, LAWSON has
formed cooperative pacts with local
governments and others to sell special
products both locally in the area of
production and in neighboring areas. It
has also launched initiatives to sellregional products nationally. In March
2009, LAWSON established the“Tokushima Antenna Shop” in a store in
Tomoe-cho in Tokyo’s Toranomon area.
As of April 30, 2009, LAWSON had
formed cooperative agreements with 25
Japanese prefectures.

LAWSON has introduced Value Lineproducts based on the concept ofproviding safe, reliable and convenient
products in appropriately sized small
quantities to Regular LAWSON* stores
according to location and customer
needs. In addition to processed foods
and daily delivered foods, since April
2009 LAWSON stores have also been
selling delicatessen items.
* Regular LAWSON stores carry LAWSON’s
well-known blue signage.

the kayaku gohan makunouchi dish uses
meat from tokushima Prefecture’s famous
awaodori breed of chicken.

LaWsOn Opens eco-store in
kure City, Hiroshima Prefecture

LaWsOn Forms allianceWith san-a CO., Ltd.
In January 2009, LAWSON formed abusiness alliance in Okinawa Prefecturewith SAN-A CO., LTD. Since May 2009,
the two companies have been jointly
developing boxed lunches, cooked noodles and other products using local
ingredients. These products are being
jointly marketed at the stores of bothcompanies. LAWSON and SAN-A are also
sharing sales information for store development purposes. Please refer to page
43 for details of the alliance.

In October 2008, LAWSON opened a
two-story eco-store inside Kure-Hiro Parkin Kure City. The store is designed toharmonize with the landscape and tosymbolize LAWSON’s environmental
efforts. Safety and reliability were otheraspects taken into account in designing
this store, which makes use of various
energy-saving technologies to reduce
CO2 emissions. Please refer to page 24
for details.

a selection of products developedin association with san-a

LaWsOn, InC.
annual report 200909

a message tO LaWsOn stakeHOLders

LaWsOn’s operating environment is being
defined by an increasingly difficult economic
environment and cooling consumer sentiment.
However, we regard this as a perfectopportunity to differentiate our operations bycreating merchandise assortments and stores,
such as a fresh food format, that cater tocustomer needs. a new It system and ourdetermination to innovate will be key.
takesHI nIInamI
President and Chief executive Officer

10

LaWsOn, InC.
annual report 2009

vending machines to convenience stores. But
even after adjusting for the impact of thisnew system, existing store sales were up
year on year. This is mainly attributable to the
popularity of fast foods like our Karaage-kun
crispy Japanese-style fried chicken and promotional campaigns with a stronger emphasis on entertainment, such as the Rilakkuma
Fair. Furthermore, we strove to develop
highly profitable stores, by strictly adhering to
our ROI-based standards for opening newstores and concentrating new stores in major
metropolitan centers in the Kanto, Chubu,
and Kinki regions. As a result, daily sales at
new stores rose from ¥436,000 in fiscal 2007
to ¥505,000. Our MY LAWSON POINT and
LAWSON PASS point programs have beenwell-supported by customers, and thanks tointensive promotion, the number of membersrose from 6.22 million at the end of the priorfiscal year to about 8.5 million members.

tHe COnvenIenCe stOre Industry BusIness envIrOnment
The business environment surrounding theconvenience store industry improved due toa LOOk BaCk at FIsCaL 2008

the increase in customers that accompanied

In fiscal 2008, the introduction of the taspo

the introduction of taspo, but I recognize that

proof-of-age card for buying cigarettes fromthe effects of this will be only temporary. A

vending machines, as well as our efforts innumber of factors put a damper on consumer

areas where we have made upfront invest-

confidence. These factors included the finan-

ments, such as convenience stores (CVS)cial crisis that was triggered by the subprime

offering fresh items, had a positive impact onloan problem and the decline in incomes andresults. Consolidated net sales of LAWSON

job uncertainty that were caused by fallingstores grew 10.2% from a year earlier, oper-

corporate earnings. Faltering consumer confi-

ating income rose 5.5%, and net income per

dence had a negative impact on the entire

share increased ¥40 (18.9%). ROE improved

Japanese retail industry, not just the conve-

from 11.6% in the prior fiscal year to 13.3%.

nience store industry. Japan’s low birthrate

Operating income has grown for six straight

and widening regional disparities are also

years, beginning in fiscal 2003.

having an effect. Under these circumstances,

The introduction of the taspo proof-of-age
card has caused customers to shift fromthere was a major shift in our customers’
behavior patterns as they tightened their

LaWsOn, InC.
annual report 200911

belts, and this led to unprecedented interest

a result, a company cannot achieve stablein the potential of private brand products inand continuous growth by sticking to thethe retail industry.

conventional convenience store model (thatThe perceived value of convenience stores

sells close proximity and convenient hours, asthat is derived from their close proximity andwell as a lineup of products and services

the convenience of their business hours has

catering mainly to younger male customers)

also changed dramatically. For example, over-because this model does not address chang-time work has decreased due to the eco-ing consumer behavior.

nomic slowdown, so customers have more
free time, and this has diminished the value

LayIng tHe grOundWOrk tOof convenience store business hours. On theaddress neWFOund FrugaLIty

other hand, customers can spend more timeand an agIng POPuLatIOn

shopping, so they are focusing more on theForeseeing this, LAWSON took the lead overbalance between product price and quality

its rivals in developing its LAWSON PLUS andwhen making purchases. At the same time,

LAWSON STORE100 formats in order topeople are becoming more frugal, so they are

address changing consumer behavior.

going back to eating at home, buying ready-LAWSON PLUS was initially developed as amade meals at nearby convenience storesstore format for regions where the populationand preparing meals at home, rather thanis already aging. In 2005, Japan became theeating out at places like family restaurants. As

world’s oldest society, with 20% of themaJOr CHanges In COnsumer BeHavIOr
the time value of
convenience stores

20s to 40s(CVS core customers)

the distance value of
convenience stores

sluggish economy/
job insecurity
Less disposable income
more price sensitiveaging society

time value

shopping
time

Psychologicalvaluedecrease

Increase

Increase(at home)seniors

value of small
commercial
area
Increasemajor changes in consumer behavior
existing
convenience store
merchandise

12

LaWsOn, InC.
annual report 2009

dining inBalance between
price and quality

Increased multiitem purchases

resPOndIng tO CHange
major changes in consumer behavior
Balance between
price and quality

dining in

Began building
membership basewith 2002
introduction of
loyalty point cards

Fresh foods Cvs
formatreached8.5 million
point card members

Improved ordering
process with Prism(Next-generation
information system)

From 2005

LaWsOn stOre100
From 2007

LaWsOn PLus

2008

2008

Increased multiitem purchases

Improved productdevelopment andordering precision
through analysis ofpoint card data

Products to help
household budgets
From 2005

value LineCan provide merchandise assortments that meet
individual store needs

population aged 65 or older. In some regions

shopping districts where they buy their freshthe population is already fairly old. Conven-food items and daily necessities are on thetional convenience stores mainly target

decline, and the closure of big stores due toyounger people, so the stores are not very

weak consumer spending has also madeaccommodating for seniors. We determined

shopping for groceries even harder forthat with the proportion of seniors growing inseniors. For seniors who can’t walk far andevery region, it is necessary to keep an eye

who are struggling to do their shopping, theon this demographic group when thinking

stores that we are developing across theabout what convenience stores should be likecountry could become a convenient locationin the future. As a result, we have widened

for them to buy their food nearby.

aisles and put shopping carts in stores. Turn-

We are also developing the LAWSON

ing to merchandise assortment, these stores

STORE100 format as convenience stores

offer an array of items that are popular in thetargeting housewives and seniors that offer

community, such as locally produced veg-

mainly fresh food items and processed foods

etables and seasonings, and Japanesein smaller packaging. These convenience

sweets. Some stores even have a place tostores offer fruit and vegetables at a ¥105

rest where neighbors can gather and chat.

(tax included) price that appeals to thrifty

The environment that our senior customers

consumers. For example, we worked withlive in has also undergone big changes. The

our contract growers to come up with a

LaWsOn, InC.
annual report 200913

exIstIng stOre saLes COmParIsOn year On year
(%)
120

115

LaWsOn stOre100*
110

105

100

95

Japanese supermarket
industry

Japanese Cvs industry

90

85

80
12

1

2

3

4

5

2007

6

7

8

9

10

11

12

1

2008

2
2009

* Number of LAWSON STORE100 stores run by VALUE LAWSON

smaller daikon (a Japanese radish) instead ofmonth basis thanks to the development of

cutting an ordinary radish in half so that wethe Value Line series of products and thecan sell daikon for ¥105 (tax included). This isexpertise it has accumulated in marketing

how we have become innovative in productfresh food items.

development. We also developed a private

In September 2008, fresh-food conve-

brand (Value Line) series of products thatnience store pioneer Ninety-nine Plus Inc.

strikes a balance between price and quality

became a subsidiary, and we began convert-

thanks to persistent negotiations with produc-

ing its SHOP99 stores into LAWSON

ers. Value Line products are characterized by

STORE100 outlets. The average daily sales

smaller portions, simple pricing, and single-

for a LAWSON STORE100 outlet are about

portion sizing. There were roughly 350 prod-¥600,000 and the average number of custom-

ucts in the series as of the end of fiscal 2008.

ers per day is about 1,400 persons, comparedWe aim to expand the line-up to 1,000 prod-

with about ¥500,000 and 870 persons for aucts during fiscal 2009. The products will be

regular LAWSON store. The main customers

put into LAWSON stores depending on store

are housewives and seniors, and along withlocation and customer needs.

keeping up with newfound consumer frugal-

Wholly owned subsidiary VALUE LAWSON,

14

LaWsOn, InC.
annual report 2009

ity, LAWSON STORE100 promises toInc., which operates the LAWSON STORE100

become one of pillars of the LAWSON Group

stores, had been in the red due to heavy

as a format that will keep pace with Japan’s

initial start-up costs, but it swung to a profit indemographic changes (low birthrate) over thethe second half of fiscal 2008 on a single

medium to long term.

InItIatIves FOr mOre grOWtH

card and LAWSON PASS card programs so

By linking products, sales and marketingthat we can understand our customers evenbased on card data, we are working tobetter, and so that we can enjoy the contin-

improve franchise owner (FC) gross profit. We

ued patronage of our new customers as well

are implementing the following measures

as our existing customers. The combined

based on changing consumer buying behavior

number of card members has reached about

to create merchandise assortments and stores

8.5 million, making it the largest card mem-that match areas where customers live.

bership base in the convenience store indus-

Instead of taking the conventionaltry. As the number of members has grown,company-centered “product-out” approach ofso has the usage rate and the number oftrying to figure out how to sell what is pur-customers using the cards, and this haschased, LAWSON aims to take a “market-in”

become an important business advantage forapproach in which the company offers prod-

LAWSON. Now that people have more time

ucts based on the purchasing behavior offor shopping, there is more demand for prod-

individual customers. Using point-of-sale

uct combinations that suit the needs of each

(POS) technology, we have databased our

individual customer. From the data we havecustomers and their purchasing histories tocollected from card usage we have learnedbuild a customer relationship managementthat in addition to conventional purchase(CRM*) system that is even more customer-

combinations such as a boxed lunch and acentric. We have been aggressively promot-

soft drink, there is also demand for new com-

ing membership in our MY LAWSON POINT

binations such as a Value Line product, a fast

ImPrOvements LInkIng PrOduCts WItH saLes
raise gross profit for FC owners
Boost merchandise
markupseliminate
lost opportunities

Improve sales
and merchandise link

Form marketing strategy groupmerchandise div.

marketing div.

developmerchandise that FC
owners want to selln Leverage member card data tocreate products that will selln secure advantageous purchasing terms for planned orders
n Further improve logistics
efficiency

sales div.
ability to completely
sell products

marketing strategy
that leverages
member card datan From supplementary orders toplanned orders
n assemble merchandise
assortments through analysisof member card data

LaWsOn, InC.
annual report 200915

food item and a dessert item. Accumulating

When it comes to sales promotions,and analyzing the data about purchases madeinstead of running nationwide advertising andby card members allows us to better under-

sales promotion campaigns targeting all ofstand the customers in a particular geo-

our customers, we are putting more empha-

graphic area, and because of this we cansis on sales promotions that suit the custom-

uncover new needs and develop products

ers in each geographic area. For example, we

depending on the preferences, ages, andare conducting individually targeted sales

gender of our customers.

promotions and providing services based on a

We can also create merchandise assort-card member’s purchasing history and store

ments that meet the needs of customers atvisit frequency.

individual stores by analyzing card data and* CRM refers to building long-term relationships withcustomers by analyzing customer needs in detail,using a customer database that takes advantage of
information technology.

shifting from supplementary ordering toplanned ordering.
Under the supplementary order systemthat has been used up to now, purchasing

Emphasizing the Balance

amounts are largely determined based on

Between Internal Growth

past sales, and this gave rise to waste andand Return to Shareholders

lost opportunities. By using card data, we can

We at LAWSON recognize that an awarenesssee when what customers are buying howof the cost of capital is the basis for globallymuch of what. This helps us to understandexcellent management. Therefore, the effi-

our customers and makes us think constantly

cient use of capital is our highest priority andabout merchandise assortments that suit ourbearing in mind global standards we havecustomers. In other words, we can create

established the quantitative goal of ROE ofmerchandise assortments based on the con-

15%, which we aim to achieve as soon as

cept of “ordering precision with the customer

possible. I believe that our most importantas the starting point.”

task is to raise ROE by lifting the level ofIn order to make “ordering precision withsustainable growth by improving gross profits

the customer as the starting point” a reality,

at existing stores. Turning to dividends, we

in fiscal 2009 we will be introducing our next-

have increased our payout for five straight

generation information technology systemfiscal years beginning in the year ended(PRiSM), which will reform the order process.

­February 2005, and we distributed dividends

Along with allowing us to ensure that mer-of ¥160 per share for fiscal 2008.

chandise assortments meet the needs ofGoing forward, unless there is some major

regional customers even better than before,change in our business environment, we

this system should make planned ordering

intend to maintain our dividend at this levelpossible and improve order accuracy. By

through fiscal 2010. We will also consider

focusing on our customers, we will be able tobuying back and cancelling our own shares

reduce waste and lost opportunities bydepending on share price and liquidity. Even

ending the vicious cycle of making supple-

in this challenging business environment, we

mentary orders when we run out of stock,

will also continue to examine capital invest-

and this should improve gross profits forments and M&A proposals intended to fuelfranchise owners.

growth, bearing in mind our desire to improve
capital efficiency.

16

LAWSON, INC.
Annual Report 2009

sHareHOLder returns
High capital efficiency
High shareholder returns
rOe and dividend per share
(Yen)

15

rOe target

200%

rOe (Right)

(%)
14

160

12

120

10

80

8

dividend per share (Left)

40

6

0

4
2003

2004

2005

enHanCIng COrPOrate vaLue

2006

2007

2008

2009

We are confident that through these efforts

LAWSON is tackling a number of issues. We

our customers will appreciate LAWSON’s

strongly believe that our efforts should bepresence in their communities, and this willbased on the notion of creating “Happinessfurther enhance corporate value.

and Harmony in Our Community.” To makethis vision a reality, as the industry’s innovation

We look forward to receiving your continued support in the future.

leader we will continue to take on new challenges aimed at enhancing corporate value.
Furthermore, we realize that convenience

August 2009

stores will be increasingly expected to fulfill
obligations to society in areas such as providing safe, quality food products and addressing
environmental issues like global warming.
Therefore, at LAWSON we are proactively
working to strengthen our quality management system, reduce CO2 emissions, and

TAKESHI NIINAMI

recycle waste food.

President and Chief Executive Officer

LaWsOn, InC.
annual report 200917

COrPOrate gOvernanCe

LaWsOn’s COrPOrate PHILOsOPHy and COde OF COnduCt
LAWSON assures that all corporate activities conform to its Corporate Philosophy, and that theCompany’s management and employees work together as a team to realize its goals. To this end,
we ensure that all of our actions are grounded in our shared values, no matter what changes may
take place in the operating environment. Our Code of Conduct requires employees to accept
responsibility for reflecting our unwavering values and standards through their actions.

COrPOrate PHILOsOPHy
Happiness and Harmony in Our Community
COde OF COnduCt
acting 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:

FranCHIse
OWnersCan achieve selffulfillment and enjoy
their achievements

sOCIety

stOre CreW

Feels safer
and more secure

Can grow and develop
as individuals

CustOmers
Feel they can dropin anytimesHareHOLders

BusIness
Partners

Can contributeto society indirectly
and achieve theirfinancial goals

Can turn their dreams
into reality

emPLOyees
Can have pridein their work and besocially aware

LaWsOn believes that honoring these commitments
to its seven stakeholder groups will translate into higher corporate value.

18

LaWsOn, InC.
annual report 2009

BasIC POLICy On COrPOrate gOvernanCe
In 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 thatmaximize our corporate value. For this, besides promoting Directors’ and employees’ compliancewith laws, regulations, the Articles of Incorporation and the like, we believe that it is essential tostrengthen corporate governance by enhancing the soundness and transparency of our management processes. This is done through action with consideration for others, based on our Corporate Philosophy, LAWSON Corporate Conduct Charter, and the Lawson Code of Ethics, as well as
via the active 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 27, 2009)

General Meeting of Shareholders
Appointment / dismissal
Consultation

Compensation
Committee

Proposal

Board of Directors
Outside directors 3
In-house directors 4
Total
7

Appointment /dismissal /supervision

Operational Organization

Internal Audit OfficeAppointment / dismissal

Audit

Proposal /reportBoard of Corporate
Auditors
Outside auditors 3
In-house auditors 1
Total
4

Audit

Appointment / dismissal

Audit /
dismissal

Certified Public
Accountant(independent auditor)

Account auditing

CEO

Executive Committee
Meeting

Internal audit and guidance for
improvement

CCO(Chief Compliance Officer)
Compliance and Risk
Management Committee

Executive Officers
Serving concurrently
as directors
2
Executive officers
14
Total
16

Headquarters

Comments

Legal
CounselProposal and promotion ofcompliance and risk management
measures

Regional headquarters
Investment

Subsidiaries and affiliates

LaWsOn, InC.
annual report 200919

Corporate Governance System (As of May 27, 2009)
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 FY08:

16 (including 4 extraordinary meetings)

Outside Directors’ attendance rate
at Board of Directors’ meetings in FY08:

Approximately 79% (including extraordinary meetings)

Number of Corporate Auditors:

4 (including 3 Outside Corporate Auditors)

Outside Corporate Auditors’ attendance
rate at Board of Directors’ meetings
in FY08:

Approximately 94% (including extraordinary meetings)

Major committee meetings attended by
Corporate Auditors:

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

Number of Board of Corporate Auditors’
meetings in FY08:

14 (including 2 extraordinary meetings)

Attendance rate at Board of Corporate
Auditors’ meetings in FY08:

100% (including extraordinary meetings)

Average age of Directors and Corporate
Auditors:

56

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 2009 Basic Policy

Compliance system:on Development and Operation of Internal Control System, as revised in February 2009:1] 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 legal counsel, respectively
4] Compliance and risk management via a dedicated compliance system5] The establishment of the necessary systems to ensure proper financial reportingn	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,

and quarterly meeting of the Affiliated Company Compliance Officers Committee, to identify
LAWSON Group compliance issues and assess risk exposure and to deliberate on ways toprevent 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 inCompensation for Directors:n	The Compensation Committee, which is made up entirely of Outside Directors and Outside

Special factors with an important bearing
on corporate governance:n	Mitsubishi Corporation holds 32.7% of the Company’s voting rights, including indirectly held

Disclosure policy:n	Basic Principles for Information Disclosure are presented on our IR site:

advance of Board meetings, and is also responsible for other support measures.

n	The same secretariat reports, as necessary, important events or incidents.

Corporate Auditors and met three times in fiscal 2008, 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 andBusiness Report.
n	Other compensation includes stock-compensation-type stock options that can be exercised(exercise price: ¥1) after a Director retires.

rights. LAWSON is treated as an equity-method affiliate by Mitsubishi Corporation. (As of
February 28, 2009)n	Subsidiaries Ninety-nine Plus Inc., which runs a fresh foods convenience store business, andticket sales business operator LAWSON TICKET INC. are publicly owned companies listedon the JASDAQ market. While respecting the independence of the management of bothcompanies, LAWSON maintains a close working relationship with these subsidiaries in order
to increase the corporate value of the entire Group by capturing business synergies.
http://www.lawson.co.jp/company/e/corporate/disclose.html

n	The Company discloses material information, including presentation materials used inmeetings 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 with relation

to business objectives and analyzes the possibility of particular risk factors occurring and theextent 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	Two dedicated committees, the Compliance and Risk Management Committee and theAffiliated Company Compliance Officers Committee, meet to discuss risk.

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

20

LAWSON, INC.
Annual Report 2009

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
the practice 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 LAWSON Corporate Conduct Charter, the Corporate Philosophy, the Code of Conduct, the
LAWSON vision, and the LAWSON Code of Ethics 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 responding to 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 complianceawareness across the entire 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/LAWSON Code of Ethics/Code 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.
annual report 200921

dIreCtOrs’ PrOFILes and messages
FrOm OutsIde dIreCtOrs and COrPOrate audItOrs(As of May 27, 2009)

[1]

[2]

[3]

[4]

[1]

[2]

[3]

manaBu asanO

tOru mOrIyama

takesHI nIInamI

member of the Board
executive vice President
Chief Compliance Officer (CCO)

member of the Board

President and CeO[5]

OutsIde dIreCtOrs and COrPOrate audItOrs

22

[6]

[7]

[8]

tetsuO OzaWa

takeHIkO kakIuCHI

HIrOsHI tasaka

Corporate auditor

member of the Board

member of the Boarda message to LaWsOn stakeholders

a message to LaWsOn stakeholders

a message to LaWsOn stakeholders

At LAWSON, directors with operational
responsibilities pay due respect to theviews of outside directors in carrying out
their duties. In addition, they also quickly
address matters pointed out by corporate
auditors and provide detailed reports on
their responses. For these reasons, I
believe that the oversight function ofoutside directors and corporate auditors is
being carried out as it should and that thecorporate governance system is functioning. I actively express my opinion from myvantage point as both a lawyer and an
ordinary user of convenience stores, andwhen the directors make management
decisions, I pay attention in particular towhether the information that forms thebasis for those decisions is properly
presented. I am determined to continue
helping LAWSON develop and increase its
corporate value.

In order to win customer support, it isimperative that LAWSON stay abreast of
market changes and respond quickly tocustomer needs. My background in the
consumer goods business has included
providing value that meets customer
expectations while maintaining and raisingproduct safety and quality, so in my capacity as an outside director I intend to draw
on my experience to express my opinions.
Addressing environmental problems is also
an important issue in corporate activities,
and I intend to actively support LAWSON’s
efforts to conserve energy and resources,
make areas greener and conduct otherenvironmental preservation activities.

I lecture in “social entrepreneurshiptheory” at a graduate school and I’mactive as a representative of the Japan
Social Entrepreneur Forum. I have also
continued to offer advice on the evolutionof corporate social enterprise through anumber of newspapers, magazines andbooks. I feel that it is my duty as an
outside director of LAWSON to advise
management from these perspectives. I
am glad to be able to say that LAWSON’s
business activities, which place emphasis
on serving society, have earned it a reputation as an outstanding social enterprise.

LaWsOn, InC.
annual report 2009

[6]

[7]

[8]

[9]

[10]

[11]

[4]

[5]

yOsHIyukI yaHagI

kenJI yamakaWa

member of the Board
senior executive vice President
CFO

standing Corporate auditor

[9]

[10]

[11]

reIkO OkutanI

muneHIkO nakanO

HIrOsHI kuWata

member of the Board

standing Corporate auditor

Corporate auditor

a message to LaWsOn stakeholders

a message to LaWsOn stakeholders

a message to LaWsOn stakeholders

I manage a human resources development company, and I have been
impressed with the diversity of people in
LAWSON and its active efforts to recruit
foreign nationals. Going forward, I’d like to
see LAWSON step up training for womenand elevate more women to higher
management positions. LAWSON is an
opinion leader on environmental problems
and the future evolution of the convenience store format. I think management
does a good job of constantly addressing
topical issues.

Through my audits I have a strong senseof the steady evolution of LAWSON’s
internal control system, which is essential
for sound and sustainable corporate
growth. This evolution includes its
response to internal control over financial
reporting. Going forward, it will be important to entrench LAWSON’s internal
control system, including legal complianceand risk management, throughout all
Group companies in conformity with the
PDCA (Plan-Do-Check-Action) cycle. Also
key will be improving LAWSON’s
response to environmental changes both
inside and outside the company. I am
determined to work to meet the expectations of shareholders both from the standpoint of an independent and free outside
corporate auditor and as a standing corporate auditor who is close to the front linesof the Company’s operations.

I have been involved with corporate risk
management for many years. As an outside
corporate auditor, I will use my experienceto look at whether LAWSON is managing
risk properly. Underpinning LAWSON’s risk
management are its emphasis on basic
actions and its corporate culture that quickly
communicates information at the first signof trouble.

LaWsOn, InC.
annual report 200923

COrPOrate sOCIaL resPOnsIBILIty (Csr)

LaWsOn is working to help create a low-carbon society to leave a safe andhospitable world for future generations. LaWsOn has set a voluntary target of
reducing per-store CO2 emissions from electricity consumption by 10% comparedwith fiscal 2006 by fiscal 2012. to achieve this goal, LaWsOn is introducing
energy-saving equipment at stores among other initiatives. We are also working topreserve the environment, through activities such as the LaWsOn green Fund,“CO2 Offset Campaign,” and “Bring your Own” campaign.
CO2 OFFset CamPaIgn
In less than a year since its launch, a total of around 11.8 million customers have taken part in the
CO2 Offset Campaign, resulting in CO2 offsets in excess of 7,000 tons. Under this campaign, customers can exchange points accumulated on LAWSON loyalty cards for emission credits, or purchaseemission credits directly with cash through in-store Loppi multimedia terminals. Soft drinks and daily
necessities available at LAWSON stores come with emissions credits attached. Customers can alsoearn emissions credits by using ATMs at LAWSON stores in Fukuoka Prefecture. By participating inthese activities and other activities, customers can help reduce Japan’s CO2 emissions.

these products sold at LaWsOnstores come with CO2 emission
credits attached.

Products with CO2 emission
credits attached
geOrgIa green Planet
Café au Lait (Left)real spark (right)

CO2 emIssIOn reduCtIOns
LAWSON is taking ongoing steps to reduce electricity consumption, which accounts for a large
amount of store CO2 emissions. In May 2008, LAWSON began joint research with the Yashiro Laboratory of the Institute of Industrial Science at the University of Tokyo. Research is being conducted to cut
store CO2 emissions by between 10% and 40%. Moreover, LAWSON has opened the Kure-Hiro ParkStore in Kure City, Hiroshima Prefecture, as a pilot store forcutting electricity consumption; the store uses a host ofenvironmental technologies. LAWSON will look at introducing successful measures from the laboratory research andpilot store in new stores. LED lighting is an example ofextending a successful trial in the past to other stores.
Since January 2009, LAWSON has used electric vehicles on a trial basis. This has coincided with the start ofinitiatives to promote the greater use of electric vehicles,
including exploring the possibility of establishing recharging stations on store property. The Company owns approximately 1,600 vehicles. Of these, around 80% are either
hybrid vehicles or have been fitted with an automatic
idling cut-off system.

24

LaWsOn, InC.
annual report 2009

LaWsOn eco-store (Outside view)
the kure-Hiro Park store employs newbuilding materials, solar power generation,and external thermal insulation, and uses
rainwater, optical fiber, Led lighting andother means to save energy.

FY2008 Environmental Targets and Results
Area

Activities

Targets

Introduced in 1,768 stores; cumulative:
3,253 stores

Attained

Introduce energy-saving units in 90% of
new stores

Introduced in 430 of the 452 new stores
opened, representing an introduction rateof 95%

AttainedCut emissions of CO2 and hazardous
substances from delivery trucks bypromoting eco-driving and the introduction of low-pollution vehicles/eco-tires

Reduce CO2 emissions per store by 1.0%
(91 kg-CO2 per store) compared with
FY2007

Reduced per-store CO2 emissions by 3.2%
(291 kg-CO2 per store) compared with
FY2007

Attained

Promote eco-driving and safety-driving ofCompany-owned cars

Set targets and formulate action plans

Established a structure for promoting
eco-driving and safe-driving and improved
fuel costs

NearlyPromote Companywide prevention of
global warming (reduce CO2)

Reduce unit CO2 emissions (operation
hours x floor space) by 22.3% comparedwith FY1990 levels

Unit CO2 emissions of 60.3g-CO2/m2.h
down 22.7% compared with FY1990

AttainedCut store air conditioner and cooler
electricity use

Saving energy

Saving resources

Assessment

Achievement Status

Introduce energy-saving units in approximately 1,500 existing stores (cumulative:
approximately 3,000 stores)

Reduce the use of plastic shopping bags
(Ask customers if they want a bag)

Reduce the weight used per store by
17.2% compared with FY2006

Reduce the use of disposable chopsticks(Ask customers if they want chopsticks)
1) Promote the reduction of packaging
weight2) Promote the use of non-plastic
materials (paper, green plastics)

Reduce the number of chopsticks used per
store by 10.0% compared with FY2006
Reduce CO2 emissions from incineration of
packaging by 5.0% compared with FY2006

Reduce waste by effective creation anddistribution of sales promotion materials

Reduce the volumes of materials deliveredand extra materials disposed per store by
5% compared with FY2007

Reducing waste

Reduce food product waste, recycle

Recycling of food waste: 26% or more
(yearly average in FY2008)1) Waste-oil recycling: 7,750 stores2) Recycling into feed and fertilizer:
1,400 stores3) Introduction of organic waste­processors: 61 units

Regional social
contributions

Continue collecting donations throughLAWSON Green Fund

1) Fundraising activities in all stores
2) Participation in greenery operations* Assessment of quantitative targets:
100% attained: (Attained), 70% or higher attained: (Nearly), Less than 70% attained: (No)* Assessment of qualitative targets: Implementation (execution) completed: (Attained),
Implementation (execution) in progress: (Nearly), Not implemented (executed): (No)

Reduced the weight used per store by
4.0% compared with FY2006(Reference) Use of plastic shopping bags per store
reduced by 22.7% compared to FY2000(Japan Franchise Association’s target is a
35% reduction by 2010 compared with
2000)
Distribution rate: 76.9% (Number ofbags/Number of customers)
Reduced the number of chopsticks used
per store by 6.9% compared to FY2006
Reduced CO2 emissions from incinerationof packaging by 12.6% compared with
FY2006
Reduced the volume of materials d­ elivered
per store by 1.5% comparedwith FY2007
Reduced the volume of materials disposedof by 13.7% compared with FY2007
Achieved a recycling rate for food waste of
24.6%*
1) Waste-oil recycling: 7,599 stores2) Recycling into feed and fertilizer:
1,013 stores3) Introduction of organic waste processors:
50 units
4) Thermal recycling: 124 stores1) FY2008 collections: ¥0.25 billion
Collections to date: ¥2.78 billion
2) Participated in 137 greenery operations

No

No
Attained

NearlyNearlyAttained*1The food recycling rate, including waste reduction, based on the
Food Recycling Law of Japan, was 28.5%.
*2FY2008 result excludes LAWSON STORE100.

FY2009 Environmental Targets
Area

Activities
Cut store air conditioner, cooler and lighting equipment
electricity use

Saving energy

Cut emissions of CO2 from delivery trucks by promoting
eco-driving and the introduction of eco-tires
1) P romote eco-driving and safe-driving of
Cut emissions
Company-owned carsof CO2
2) Introduce electric vehicles
Cut store electricity consumption by lowering the power c­ onsumed
by store equipment
Promote Companywide prevention of global warming(reduce CO2)

Introduce adjustable lighting systems and LED lighting fixtures in 90% of newstoresReduce CO2 emissions per store by 4% (364 kg-CO2 per store) compared with
FY20071) Reduce Company-owned car fuel expenses by 10% compared with FY2008
2) Introduce 40 electric vehicles

1) Promote the reduction of packaging weight2) Promote the use of non-plastic materials (paper, green plastics)

Introduce new store equipment during the fiscal year
Reduce electricity consumption by 326 kW per store/month
1) Establish CO2 emissions database2) Create energy-efficient store model
1) Reduce by asking customers to bring their own and expanding point system
2) Promote “Bring Your Own” campaign
Reduce distribution rate per store by 3 percentage points compared to FY2008(Reduce the use of plastic shopping bags by 32% compared to FY2000)
1) Reduce by asking customers to bring their own
2) Promote “Bring Your Own” campaign
Reduce the number of sets used per store by 20.0% compared with FY2006
Reduce CO2 emissions from incineration of packaging by 7.0% compared with
FY2006

Reduce store paper receipts and vouchers

Reduce paper by 80 million sheets annuallyEffectively create sales promotion materials and comply with thelaw on disposal

Develop materials based on emissions standards, comply with law on disposal

Reduce the use of plastic shopping bags

Saving resources

Targets
Introduce energy-saving units in 90% of new stores

Reduce the use of disposable chopsticks

Reducing waste

Reduce food product waste, recycle

Regional social
contributions

Continue collecting donations through LAWSON Green Fund

Promotion andeducation

Combat global warming through activities with customers(Promote CO2 Offset Campaign)

Improve food recycling rate by more than 4 percentage points compared to
FY2007 (to at least 26.5%)
1) Fundraising activities in all stores
2) Participation in greenery operations
1) Promote CO2 Offset Campaign (Use points, Loppi)
2) Continue selling products with CO2 emission credits
3) Study carbon footprint

LAWSON, INC.
Annual Report 200925

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 aresafe and of a high quality.

n The diagram below shows the flow of products from menu creation to the stocking of products
on store shelves. To create healthy and delicious products that are safe and of a high quality,
LAWSON complies with laws and regulations related to the environment and safety at every
stage in the process, from product development to production and sale, and rigorously manages
product quality.
n LAWSON pays careful attention to ingredients in its efforts to create healthy products that aresafe and of a high quality. One example is the Niigata Koshihikari Rice Ball series. In October
2008, LAWSON began using only rice grown by specific growers with the aim of raising productquality further. Furthermore, NATURAL LAWSON is strengthening its development and merchandise assortment of health-conscious products such as healthy, low-calorie delicatessen
items and boxed lunches.
* In order to inform consumers of the type of rice used in an easily understandable way, LAWSON labels applicable
rice products as tokubetsusaibaimai (literally “specially grown rice”), based on Ministry of Agriculture, Forestry and
Fisheries’ labeling guidelines.

n In Japan, labels on private brand and other products must by law contain certain information,
including product name, expiration date, and allergens. LAWSON goes beyond this by voluntarily including calories and other nutritional information. Label contents are strictly checked by
the Quality Control Office, and also confirmed a number of times by external specialists andthrough production stages. In addition, on its website LAWSON provides allergy information
relating to fast food sold at its stores.

PuttIng QuaLIty PrOduCts tHat are saFe, HeaLtHy anddeLICIOus On stOre sHeLves
m Provide healthy productsm Confirm safety through document inspections when deciding product specifications and at the trial production stagem Monitor cargo temperature during transportation
with traffic management system

Head Office/regional
Headquarters(Product division/
Quality Control)

Head Office(IngredientProcurement
section)vendors(Production
Facilities)

distribution

m Eliminate artificial colorings and preservatives of
LAWSON original products*
m Build LAWSON’s HACCP**m Introduce a Manufacturing Process Control System
to ensure uniform product quality***m Established an ingredient procurement section as a specialist division to strictly selectraw materials
m Conduct periodic checks to confirm ingredients received conform to standards
m Visit factories regularly to confirm manufacturing processes and quality assurance, etc.
n Create menus thatmatch customer needs
n Procure ingredientsn Produce products

n Deliver products

storesm Control freshness,
temperature andhygiene levelsm Conduct store hygiene
inspections• Carry out selfinspections (monthly)• Undergo external
inspections (annually)n Sell productsn Collect sales data

* LAWSON original (private brand) products include boxed lunches, rice balls, sushi, bread, delicatessen items, salads, cooked
noodles and pasta that carry the LAWSON mark on the price label. Products prepared in-store are excluded.
** HACCP (Hazard Analysis and Critical Control Point) is a system for managing food safety and hygiene.
*** The Manufacturing Process Control System is a system that prescribes standard amounts and preparation methods, how dishes
should be assembled and other matters relating to product production processes.

26

LaWsOn, InC.
annual report 2009

Financial Section

28

Overview of the CVS Sector and Selected Financial Data

30

Consolidated Ten-Year Summary

32

Management’s Discussion and Analysis

46

Consolidated Balance Sheets48

Consolidated Statements of Income

49

Consolidated Statements of Changes in Equity

51

Consolidated Statements of Cash Flows

52

Notes to Consolidated Financial Statements

68

Independent Auditors’ Report

LAWSON, INC.
Annual Report 200927

oVeRVieW oF the cVS SectoR anD SelecteD Financial DatacVS Share of the total Retail Market(Trillions of Yen, %)

150

4.5

100

4.8

5.9

5.3

5.4

5.5

5.4

5.5

5.5

2002
¥132
7.0
5.3%

2003
¥132
7.1
5.4%

2004
¥134
7.3
5.5%

2005
¥135
7.4
5.4%

2006
¥135
7.4
5.5%

2007
¥135
7.5
5.5%

2008
¥135
7.9
5.9%

5.0

50

0

Years ended December 31

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

1999
¥142
6.4
4.5%

2000
¥139
6.7
4.8%

2001
¥137
6.8
5.0%

Share of cVS Market held by top Four* chains (net sales at all stores)(Billions of Yen, %)

8,000

6,000

75.4

76.4

77.0

77.8

78.7

79.2

81.3

74.5

79.7

73.6

2000
¥1,223
1,964
783
391
342
4,701
73.6%
¥6,383

2001¥1,278
2,047
843
447
366
4,978
74.5%
¥6,6802002¥1,286
2,114
899
467
393
5,159
75.4%
¥6,8462003¥1,294
2,213
932
485
406
5,330
76.4%
¥6,9802004¥1,288
2,343
954
480
403
5,468
77.0%
¥7,0962005¥1,329
2,441
998
503
403
5,674
77.8%
¥7,2892006¥1,362
2,499
1,032
505
394
5,792
78.7%
¥7,3602007¥1,387
2,534
1,069
497
376
5,863
79.2%
¥7,3992008¥1,415
2,574
1,122
495
365
5,971
79.7%
¥7,4902009¥1,559
2,763
1,246
517
374
6,458
81.3%
¥7,943

4,000

2,000

0

February 28 and 29

 LAWSON Seven-Eleven Japan FamilyMart
 Circle K
 Sunkus
Total(Estimated market share of top 4 chains)
CVS industry

Note: 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 and average Purchase
Value per customer in existing Stores (laWSon)
(%)

110

105

100

95

2000

2001

2002

2003

2004

2005

99.6
98.3
98.4
98.1
97.5*
99.7
YoY rate on existing store sales
Average number of customers and average purchase value per customer in existing stores**
–
–
–
98.2
99.0
100.1
Number of customers
–
–
–
99.9
100.2
99.7
Average purchase value per customer






2006
97.5

2007
98.2

2008
99.2

2009
106.5

99.1
98.3

98.2
100.0

98.9
100.4

105.7
100.8

* 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

laWSon, inc.
annual Report 2009

operating income, operating income Ratio and net income (laWSon)(Millions of Yen, %)50,00040,000

3.3

3.2

2.8

30,000

2.9

3.2

3.2

3.2

3.3

3.2

2005
¥42,941
3.2%¥20,435

2006¥43,867
3.2%¥22,025

2007¥44,513
3.2%¥20,9832008¥46,610
3.3%¥22,1192009¥49,186
3.2%¥25,306

11.3

11.6

2007
¥202
11.3%

2008
¥215
11.6%

2.6

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



2000¥40,185
3.3%¥15,011

2001¥41,279
3.2%¥16,368

2002¥36,3632.8%¥16,123

2003¥34,107
2.6%¥8,861

2004¥38,087
2.9%¥18,571* Operating income ratio = Operating income/Net sales of all storesnet income per Share and Roe (laWSon)(Yen, %)

300
16.8

200

12.1

11.9
9.8

 Net Income per Share
ROE


13.0

13.3

5.9

100

0

13.1

2000
¥143
16.8%

2001
¥148
11.9%

2002
¥146
9.8%

2003
¥82
5.9%

2004
¥176
12.1%

2005
¥198
13.0%

2006
¥216
13.1%

2009
¥255
13.3%

cash Dividends per Share and Payout Ratio (laWSon)(Yen, %)

200

62.7

150
49.8
100

23.7

41.8

49.6

51.2

2006
¥90
41.8%

2007
¥100
49.6%

2008
¥110
51.2%

35.3
23.3

28.2

50
11.9
0

 Cash Dividends per Share
Payout Ratio


2000
¥17
11.9%

2001
¥35
23.7%

2002
¥41
28.2%

2003
¥41
49.8%

2004
¥41
23.3%

2005
¥70
35.3%

2009
¥160
62.7%

laWSon, inc.
annual Report 200929

Consolidated Ten-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 ���������������������������������������

2009

2008

2007

2006

¥  186,928
119,099
43,449349,476
49,18625,306
51,717(15,647)(14,911)42,907
20,879¥ 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¥  436,172
203,179
45.1%––
83,982
9,527
5,186¥ 397,108
188,574
46.6%––
62,8238,587
3,735¥ 398,258
199,49349.0%––
75,5478,564
3,614¥ 375,107
175,18446.7%––
60,4418,366
3,585¥      255
160
62.7%

¥

¥

¥

215
110
51.2%

202
100
49.6%

216
90
41.8%

13.3%
6.1%

11.6%
5.6%

11.3%
5.4%

13.1%
6.0%

¥1,434,166
124,614¥1,331,785
83,321¥1,311,479
75,151¥1,295,704
66,027¥  844,324
332,894
186,109
195,453¥1,558,781¥ 726,750
327,501
162,625
198,230¥1,415,106¥ 705,155
324,993
155,575
200,907¥1,386,630¥ 682,006
312,289
150,917
216,519¥1,361,731

Notes: 1. The U.S. dollar amounts represent translations of Japanese yen at the approximate exchange rate at February 28, 2009, of ¥97.81=$1.
2.	Effective from annual report 2006, the composition of capital expenditure has changed to also include leases, investments and advances,and construction assistance guarantees. Please refer to page 42 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 during
the fiscal year ended February 28, 2005.
5. These figures, as reported by franchised stores, are unaudited.

30

LAWSON, INC.
Annual Report 2009

Thousands of
U.S. Dollars(1)
2009

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$ 1,911,134
1,217,657
444,218
3,573,009
502,873
258,726
528,750(159,973)(152,449)
438,677
213,465¥ 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

$ 4,459,380
2,077,282

Yen

U.S. Dollars(1)

143
17
11.9%

$       2.61
1.64

¥

198
70
35.3%

¥

176
41
23.3%

¥

82
41
49.8%

¥

146
41
28.2%

¥

148
35
23.7%

¥

–
–
858,624

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$14,662,775
1,274,042¥ 665,687
297,369
148,134
217,887¥1,329,077¥ 625,031
302,568
139,506
221,192¥1,288,297¥ 600,508
303,098
138,353
252,083¥1,294,042¥ 583,712
297,030
150,862
253,953¥1,285,557¥ 562,777362,979
90,569261,313¥1,277,638¥ 528,188
350,70289,248
254,742¥1,222,880$ 8,632,287
3,403,476
1,902,760
1,998,293$15,936,827

LAWSON, INC.
Annual Report 200931

Management’s Discussion and Analysis

n Industry Overview
For the Japanese retail industry, the past fiscal year (fiscal
2008) was one of major change in consumer sentiment amid
the rapid economic deterioration during the period. The first halfof fiscal 2008 saw gentle inflation, but unease grew about the
future from the third quarter onward as the ­September 2008
collapse of Lehman Brothers triggered a worldwide financial
crisis. Consumer sentiment fell and along with it there weresigns of deflation again. Amid this trend, there was also greaterinterest in the retail industry in private brand (PB) products.
Companies are looking to pursue a PB strategy based onstrengthening buying power. On the other hand, the PB strategy faces issues associated with diverse and regional preferences of Japanese consumers and the strongly rooted trust

consumers have in national brands. In this context, LAWSON
regards 2009 as an increasingly important year for food retailers
in terms of how well retail chains can pinpoint consumer needs
and to what extent chains’ private brands take hold with
­Japanese consumers.
In the convenience store (CVS) industry, although fierce
competition persisted in terms of both store openings andmerchandise development, all CVS companies posted strong
existing-store sales. Among other factors, more customers
visited stores, driven by the introduction of ­cigarette vending
machines that require taspo cards (adult identification IC cards)
to make a purchase. Favorable weather conditions wereanother factor that benefited sales.

Retail Industry Market Size and CVS Share

(Billions of Yen)
2008

2007

2006

2005

2004

¥135,477
7,943
5.9%

¥135,081
7,490
5.5%

¥135,257
7,399
5.5%

¥135,055
7,360
5.4%

¥133,712
7,289
5.5%

Years ended December 31

Total retail industry annual sales �����������������������������������������
CVS sector annual sales �����������������������������������������������������
CVS share ���������������������������������������������������������������������������
Source: “Survey of Commerce,” Ministry of Economy, Trade and Industry

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) ���������������������������

(Billions of Yen)

2009

2008

2007

2006

2005

¥1,559
2,763
1,246
517
374
6,458
81.3%

¥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%

* Circle K and Sunkus are regarded as being in the same chain.

n Management Measures in Fiscal 2008
LAWSON executed the following management initiatives in theyear ended February 28, 2009 with the goal of strengthening
existing stores.
1.	To create merchandise assortments matched to individualstore locations, we strengthened the development of personnel who are well-versed in using “store charts”* and pushedahead with developing products designed to broaden thecustomer base.
	  In addition to increasing the number of LAWSON supervisors (management guidance staff), we developed products
targeted at a broad customer base. This involved developing
private brand “products in appropriately sized small quantities,” and “fresh foods and daily delivered foods.”**	  In other news, we conducted a tender offer bid (TOB) for
the shares of Ninety-nine Plus Inc. to strengthen our relationship with this company, and made it a consolidated subsidiary.
2.	We implemented measures to promote sales and bolster ourmerchandise assortment. This included utilizing our MY
LAWSON POINT and LAWSON PASS members’cards.
	  We worked to sign up more members by continuing to rollout point card initiatives in order to develop stronger merchandise assortments at individual stores via customer relationship management (CRM). These efforts saw the
cardholder base reach approximately 8.5 million members at
the end of F
­ ebruary 2009. Sales to these cardholders

32

LAWSON, INC.
Annual Report 2009accounted for an average of approximately 14% of all oursales during the fiscal year.
	  In December 2008, we began allowing MY LAWSONPOINT and LAWSON PASS members to exchange shopping
points on their cards for discounts on purchases at thecheck-out counter, at the rate of ¥1 for every shopping point.
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 fresh foods. LAWSONPLUS stores were first opened in fiscal 2006.
4.	On the organizational front, we continued to create and execute organic operational initiatives in support of franchised
stores, with the COO overseeing the three organizational lines
of merchandise, management and development. We established the senior management post of COO in fiscal 2007.
	  In March 2009 we abolished the COO position and established a Marketing Strategy Group in a move designed to more
flexibly respond to changes in the operating environment.
*	A decision-making tool created from analyses of marketing and management at the individual store level.
**	Includes 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.

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

n Product Strategy
LAWSON’s merchandise strategy centers on original readymade meals, such as boxed lunches and rice balls that can be
carried easily. In addition to focusing on developing merchandise assortments that appeal to a wide range of customer
groups, the Company also developed several dishes with generous servings that are aimed at young men, the traditionalcore customer base of regular LAWSON stores. These dishes
included Genki Na Omori Katsudon (super-size pork cutlet ricebowl) and Niku-tappuri Hiyashi Chuka (cold Chinese egg noodles with extra white meat topping).
In sales promotions, the Company conducted campaigns
with a stronger emphasis on entertainment based on the“Lawson Genki Plan” (in Japanese Genki means to be vibrant,
cheerful, and vigorous). The Fall Rilakkuma Fair campaign,
which ran from September through November 2008, helped
immensely in expanding new customer groups, including
women. Furthermore, the Company launched sales of Lemon
Flavor Karaage-kun to a strong customer response. The launchof this new lemon-seasoned Japanese-style fried chicken was
based on the results of a customer survey.
On the services front, our stores handled over 156 million billsettlement transactions, including public utility charges; thechain handled transactions amounting to ¥1,506.5 billion on
behalf of third-party companies in this way. Furthermore, ATM
machines were installed in Akita Prefecture for the first time
during the past fiscal year, bringing the number of prefectureswith LAWSON stores that have ATMs to 37.
During the year under review, we installed multifunctionalterminals at cash registers in almost all of our stores that arecapable of handling the major forms of e-money used in Japan.
One terminal can handle “iD™,”* “QUICPay™” and “Edy.”**In April 2009, we also began accepting “Visa Touch (Smartplus)” and “Suica.”****	iD™ is a trademark and registered trademark of NTT DOCOMO, INC.
**	Edy is a prepaid electronic money service managed by bitWallet, Inc.
***	Suica can now be used in the area serviced by East Japan Railway­Company, excluding some areas in Niigata, Yamanashi, Nagano and
Shizuoka prefectures. Customers can also use PASMO and ICOCA atstores that accept Suica. Suica is a registered trademark of East Japan
Railway Company. PASMO is a registered trademark of PASMO Co., Ltd.
ICOCA is a registered trademark of West Japan Railway Company.

n Store Operations
In store operations, the Company continued providing guidance
to franchise owners in order to ensure merchandise assortments match customer needs in each location. Guidance iscontinuously provided to individual stores based on a thoroughunderstanding of the customers in each area so as to create
merchandise assortments that will satisfy these customers. In
specific terms, the Company endeavored to refine and makegreater use of store charts. The aim is to minimize lost sales
opportunities,* and to reduce product disposal losses.**
Furthermore, the Company has commenced store guidance
activities designed to promote ordering based on customergenerated data (via a new ordering system planned for deployment in fiscal 2009).
The Three Challenge Practices***—the enhancement ofquality (Q), service (S), and cleanliness (C)—are the keystone
for LAWSON store operations. We promoted these practices infiscal 2008 with the aim of raising customer satisfaction. The
Company continued to implement the “Mystery Shopper”
program, which helps to strengthen store operation capabilities.
In this program, researchers visit individual LAWSON storesposing as ordinary shoppers and objectively and quantitatively
evaluate them from a customer’s perspective.
*	When a store is out of stock when a product is needed by customers.
**	Incurred by franchise owners when disposing of unsold products.
***	The Three Challenge Practices are points that franchised store owners,
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.

n Store Development and Store Formats
Development of LAWSON Stores

The Company worked to develop stores that it expects togenerate high earnings, by rigorously adhering to proprietary
standards for opening stores. This entailed concentrating on
opening new stores mainly in major metropolitan areas in the
Kanto, Chubu and Kinki regions. As a result, daily sales at new
stores grew steadily. 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 byworking with leading companies in candidate areas.

Corporate Franchising Agreement With
Shinsengumi Honbu
In February 2008, LAWSON signed a Memorandum of Understanding regarding a business alliance with Shinsengumi Honbu
K.K. Under this agreement, 44 convenience stores operated by
Shinsengumi as either “Shinsengumi” or “Just Spot” stores
have been rebranded as LAWSON stores. The stores are still
operated by Shinsengumi Honbu, with LAWSON providing
operational guidance.

LAWSON PLUS Stores
In fiscal 2006, aiming to develop existing regular LAWSON
stores into a format that will better meet the needs of certain
areas, we created a new format called LAWSON PLUS thatfeatures sales spaces and product mixes particularly for the
newer customer groups of the middle-aged, seniors andwomen. By offering stronger merchandise assortments catering to the needs of these customers, we aimed at expanding
the customer base. As of February 28, 2009, there were 747
LAWSON PLUS stores.

NATURAL LAWSONNATURAL LAWSON is a CVS format targeting mainly working
women and 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 the
Head Office was spun off as NATURAL LAWSON, Inc., a wholly
owned subsidiary of LAWSON. As a subsidiary, ­NATURALLAWSON succeeded in developing a product concept and corporate culture that are distinct from the Head Office. NATURALLAWSON has therefore been able to develop products thatbreak the conventional CVS mold. With NATURAL LAWSON
having achieved its initial goal of establishing a new brand
LAWSON, INC.
Annual Report 200933

private brand merchandise into existing LAWSON stores whereappropriate.
As of February 28, 2009, there were 438 SHOP99 stores and
487 LAWSON STORE100 stores, giving a total of 925 fresh
food convenience stores.

strongly supported by female customers, LAWSON in October2007 decided to integrate this company back into the LAWSONHead Office. As the next stage of developing this health-­
conscious format to meet the needs of female customers,
LAWSON is currently accelerating efforts to franchise stores, byimproving the efficiency of operations and effectively utilizing
human resources. As of February 28, 2009, there were 93­NATURAL LAWSON stores, including 22 franchised stores.

Future Store-Opening Strategy

Initiatives in Fresh Food Convenience Stores(LAWSON STORE100 and SHOP99)
Subsidiary VALUE LAWSON, Inc. has been developing
LAWSON STORE100 fresh food convenience stores in a bid toestablish this CVS format, which targets housewives, the­middle-aged and the elderly, customer segments whose needs
weren’t fully met by our core LAWSON format stores. We havefound that this fresh food format has garnered the support ofprecisely these customers, with customer numbers muchhigher on average than our LAWSON stores.
LAWSON sees sufficient market and growth potential for the
fresh foods format. In light of the time and cost that would be
required for the LAWSON Group to develop this format on its
own, we forged an equity-based business alliance with industry
leader Ninety-nine Plus with the goal of becoming the overwhelming number-one in this market segment before othercompanies. In September 2008, we made Ninety-nine Plus a
consolidated subsidiary by way of tender offer.
Looking ahead, at the same time as aiming to grow further tomake the fresh food convenience store business that can satisfy the needs of housewives, the middle-aged and elderly acore business, we will introduce fresh foods and Value LineLAWSON 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 regular LAWSON format is
highly likely to expose us to stiff competition from other major
convenience store chains, we will open “NATURAL LAWSON”
and “LAWSON STORE100” stores to differentiate ourselvesfrom other chains.
We believe that one of LAWSON’s defining strengths lies ina flexible and dynamic store development system that makes
possible alliances with diverse partners such as Japan Post
Holdings Co., Ltd. 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.
Domestic store openings* in fiscal 2008 numbered 501,
while store closures were 414, including relocated stores. At
February 28, 2009, LAWSON’s domestic network comprised
9,527 stores, including 93 NATURAL LAWSON, 438 SHOP99,
and 487 LAWSON STORE100 stores, a net increase of 940
stores from a year earlier. The network of SHANGHAI ­HUALIANLAWSON CO., LTD., an affiliate in the People’s Republic ofChina accounted for by the equity method, increased by 3
stores year on year to 300 stores as of December 31, 2008.

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

Number of stores* �������������������������������������������������������������
Openings* �����������������������������������������������������������������������
Closings* �����������������������������������������������������������������������
Net increase (decrease) �����������������������������������������������������

2009

2008

2007

2006

2005

9,527**
501
414
940

8,587
452
429
23

8,564
700
502
198

8,366
717
428
289

8,077
711
455
256

*	Openings and closings do not include stores run by Ninety-nine Plus.
**	Ninety-nine Plus was consolidated from the fiscal year ended February 28, 2009.

Number of Stores by FC Contract Type
February 28 and 29

B �������������������������������������������������������������������������������������
   Share (%) ���������������������������������������������������������������������
G �������������������������������������������������������������������������������������
   Share (%) ���������������������������������������������������������������������
C* �����������������������������������������������������������������������������������
   Share (%) ���������������������������������������������������������������������
LAWSON STORE100 / SHOP99** �������������������������������������
Share (%) �����������������������������������������������������������������������
Franchised stores ���������������������������������������������������������������
Share (%) �����������������������������������������������������������������������
Company-operated stores*** �������������������������������������������
Share (%) �����������������������������������������������������������������������
LAWSON STORE100 / SHOP99** �������������������������������������
Share (%) �����������������������������������������������������������������������
Total �����������������������������������������������������������������������������������
Share (%) �����������������������������������������������������������������������

2009

2008

2007

2006

2005

1,322
13.9
2,041
21.4
4,885
51.3
114
1.2
8,362
87.8
354
3.7
811
8.5
9,527
100.0

1,369
15.9
2,123
24.7
4,656
54.2
–
–
8,148
94.9
367
4.3
72
0.8
8,587
100.0

1,512
17.7
2,209
25.8
4,372
51.1
–
–
8,093
94.5
391
4.6
80
0.9
8,564
100.0

1,674
20.0
2,272
27.2
4,012
48.0
–
–
7,958
95.1
373
4.5
35
0.4
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

* Includes NATURAL LAWSON franchised stores.
** LAWSON STORE100 and SHOP99 includes stores run by Ninety-nine Plus from fiscal 2008.
*** Includes NATURAL LAWSON34LAWSON, INC.
Annual Report 2009

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 contract*

FC-C5

Borne by LAWSONFranchise fee

Investment
Guarantee deposit provided by
franchisee
Head Office income**
Burden of utility expenses
Minimum guarantee (annual)**(thousands of yen)

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 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 merchandise purchased 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*	The above amount is paid by the franchisee to Head Office at the time of the franchising contract. In addition, the franchisee needs to separately prepare atotal 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.

Ninety-nine Plus Inc. (Consolidated Subsidiary)n Scope of Consolidation
The consolidated results for fiscal 2008 include the performanceof eight members of the LAWSON Group—seven ­consolidated
subsidiaries and one affiliate accounted for under the equity
method—and the parent company. These subsidiaries and affiliates are broadly involved in four categories of business: CVS
operations, financial services, other services, and overseas services. The business operations and fiscal results of companies
included within the scope 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.
­Furthermore, Ninety-nine Plus became a consolidated subsidiary in fiscal 2008.

VALUE LAWSON, Inc. (Consolidated Subsidiary)This consolidated subsidiary operates “LAWSON STORE100”
fresh food convenience stores, which wed the CVS and minisupermarket formats. “LAWSON STORE100” stores target
women, the middle-aged and seniors with the concept of “supporting time savings, simplicity, and convenience in everyday
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 comprisehigh-quality, domestically grown fruit and vegetables, andboxed lunches and side dishes based on the LAWSON Group’s
know-how. VALUE LAWSON, Inc. was founded in April 2005 asa wholly owned subsidiary to establish the “LAWSONSTORE100” business format, as well as to perform productplanning and development for these stores. The company
opened its first store in May 2005. As of February 28, 2009,
there were 72 stores in this format.
(Millions of Yen)
2009

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

¥(131)
173
72

2008

2007

2006

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

LAWSON concluded an equity-based alliance in February 2007
with Ninety-nine Plus Inc., which operates the “SHOP99” chainof convenience stores known for their fresh foods. Ninety-nine
Plus was established in October 2000 and since then has grown
rapidly as a pioneer in Japan of a new fresh foods store format
that provides everything from daily food items, including fresh
foods, to sundry goods at a single, everyday low price of ¥99(excluding tax). As of March 31, 2008, the company had a network of 837 stores. SHOP99 stores have won strong acceptance from housewives and older shoppers for a fresh food CVS
format strategy of strengthening the merchandise assortmentof fresh and daily delivered foods at stores in residential areas.
This is highlighted by a higher percentage of these groups in its
customer mix than at conventional convenience stores.
Through this alliance with Ninety-nine Plus, LAWSON believes
it can improve the quality of fresh and daily delivered foods soldin suitably sized small portions by making use of the two companies’ complementary know-how and strengths in fresh foods andother areas. By doing so, LAWSON believes that it can broaden
its customer base of housewives and seniors and attract morecustomers. Based on the agreement between the two companies, Ninety-nine Plus allotted 31,500 shares of common stock to
LAWSON in March 2007 through an increase in capital by way ofa 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 a view to maximizing
the benefits of its alliance with Ninety-nine Plus and as a result
became the company’s leading shareholder with an equity
interest of 34.2%. In September 2008, LAWSON conducted atender offer for Ninety-nine Plus’ shares, raising its equity
interest to 76.8%.
LAWSON has set the goal of being the overwhelming­number-one in the fresh food convenience store sector. To
generate even more alliance benefits such as in the form of
sharing expertise in the sale of fresh foods and daily delivered
foods and the joint development of uniform private brand products in appropriately small quantities and conveniently sized
LAWSON, INC.
Annual Report 200935

packages for housewives, the middle-aged and elderly, VALUELAWSON and Ninety-nine Plus merged on May 1, 2009, withthe latter the surviving company.
Ninety-nine Plus is listed on the JASDAQ market (stock code:3338). Since it has a March 31 fiscal year-end, LAWSON’s equitymethod earnings in this company in fiscal 2007 included earnings
for the nine months through the end of the company’s third
quarter. In fiscal 2008, six months of earnings through the end of
Ninety-nine Plus’ second quarter were recorded as equity-method
earnings by LAWSON and Ninety-nine Plus was then completely
consolidated from the company’s third quarter in 2009.


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

(Millions of Yen)
2009

2008

2007

¥261
(504)
856

¥401
47
837

¥955
(886)
780

Note: The above figures are Ninety-nine Plus’ results for the fiscal years ended
March 31.

Financial Services
LAWSON ATM Networks, Inc.
(Consolidated Subsidiary)This consolidated subsidiary was established in May 2001 withinvestments by LAWSON, Mitsubishi Corporation and several
banks to run ATM operations for LAWSON stores. The company began installing ATMs and started ATM services at some
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 reachedwith partner banks. It has formed alliances with the major citybank groups and regional banks; partner banks currently
number 30. 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 28, 2009, the number of ATMs
installed stood at 5,970 and the number of prefectures whereATMs are installed was 37. LAWSON held a 53.0% stake in thiscompany as of February 28, 2009.



Operating revenues �����������������������������������������������������������
Operating income ���������������������������������������������������������������
Net income �������������������������������������������������������������������������

(Millions of Yen)
2009

2008

2007

2006

2005

¥16,964
1,439
589¥14,900
1,201
718¥11,907866
509¥11,311654
675¥10,003
144
266

Number of ATMs Installed
Number of ATMs installed �������������������������������������������������

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
was established as a ticket sales company in 1992 andbecame a consolidated subsidiary of LAWSON in 1997. In
October 2004, LAWSON TICKET listed on the JASDAQ
market (stock code: 2416).

2009

2008

2007

2006

2005

5,970

5,643

4,245

3,812

3,570

LAWSON TICKET ranks second in sales in the ticket sales
industry behind PIA Corporation. and is particularly strong insales of tickets for J-POP*, sporting events and the theater.
In fiscal 2008, LAWSON TICKET posted higher operating
income year on year mainly on the back of strong ticket sales.
As of February 28, 2009, LAWSON held a 75.1% equity stakein LAWSON TICKET.

Operating revenues �����������������������������������������������������������
Operating income ���������������������������������������������������������������
Net income �������������������������������������������������������������������������

(Millions of Yen)
2009

2008

2007

2006

2005

¥7,620791
550¥6,960636
423¥6,533836
507¥6,259821
487¥6,288719
412*	Japanese popular music generally popular among the relatively younger generation.

36

LAWSON, INC.
Annual Report 2009

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. (nowPanasonic Corporation) (18%), and NTT DOCOMO, INC. (13%).
It operates the official “LAWSON Mobile” Internet site formobile 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
Matsushita Electric Industrial and NTT DOCOMO, bringing its

stake in i-Convenience to 49%. In fiscal 2008, LAWSON purchased Mitsubishi Corporation’s shareholding, to makei-­Convenience a wholly owned subsidiary.
On March 1, 2009, LAWSON TICKET and i-Conveniencemerged, with the former the surviving company. Moving­forward, a growth strategy will be promoted that takes fulladvantage of LAWSON TICKET’s customer contacts andi-­Convenience’s know-how and frameworks in e-commerce.
At the same time, efforts will be made to improve operating
efficiency and strengthen competitiveness. The goal of these
efforts is to raise corporate value.



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)
2009

2008

2007

2006

2005

¥698
(29)
(57)

¥711
64
66

¥686
46
43

¥ 427
(64)
(137)

¥ 308
(114)
(155)

program, an undercover researcher who is an employee of
BestPractice and has a thorough knowledge of convenience
store operations and merchandise assortments, objectively andquantitatively 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) ���������������������������������������������������������������

Overseas Business
SHANGHAI HUALIAN LAWSON CO., LTD.
(Equity-method Affiliate)This company has been developing a chain of LAWSON storesin Shanghai, the People’s Republic of China, since July 1996. In
May 2004, LAWSON relinquished 21.0% of its 70.0% equity(Millions of Yen)
2009

2008

2007

2006

2005

¥982
50
(1)

¥919
8
1

¥885
82
45

¥892
62
34

¥628
(2)
(2)

interest in the company to partner Hualian Group Corporation**,leaving LAWSON with a current stake of 49.0%, to foster
expansion through operation by local partners. At the end of
December 2008, there were 300 stores in operation, of which
236 were franchised stores.

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

(Millions of Yen)
2008

2007

2006

2005

2004

¥ 13
22
300

¥ 77
8
287

¥ 20
8
291

¥   (7)3283¥ (13)
0210*	SHANGHAI HUALIAN LAWSON CO., LTD. closes its accounts in December. It also changed from a consolidated subsidiary to an equity-method affiliate infiscal 2004.
**	Hualian Group Corporation transferred its 51% stake to Shanghai Bailian Group Co., Ltd. in December 2008 along with the cancellation of Hualian Group
Corporation’s corporate registration.

LAWSON, INC.
Annual Report 200937

n Overview of Results
1. Sales Figures

Consolidated Total Net Sales
Consolidated net sales of LAWSON stores in fiscal 2008, ended
February 28, 2009, rose 10.2% year on year, in line with plans,to ¥1,558,781 million. There was also a large increase in thenumber of customers, in part because of the introduction of
taspo nationwide from July 2008.

Existing Store Sales
Existing store sales in fiscal 2008 were 6.5% higher year on
year, and 0.8% above plan. In addition to the taspo effect previously discussed, sales of products other than cigarettes werealso strong. By region, the gap in sales closed between thethree major cities of Tokyo, Osaka and Nagoya, and otherregions of Japan. However, sales fell visibly in Tokyo andNagoya from the third quarter due to macroeconomic effects
and other factors.



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

(%)
2009

2008

2007

2006

2005

106.5

99.2

98.2*

97.5

99.7

105.7
100.8

98.9
100.4

98.2
100.0

99.1
98.3

100.1
99.7

*	Excluding the effect of terminating Highway Card sales, existing store sales were 99.2% YoY.

Sales by Product Category(consolidated, total net sales)
During the fiscal year under review, processed foods and daily
delivered foods sold well.
In the fast foods category, sales rose 1.6%, to ¥332,894
million. Sales of rice dishes fell year on year, but sales of breadwere firm, thanks in part to some shopping point campaigns.
Furthermore, new product launches and other factors spurredsales of counter fast foods.
In the daily delivered foods category, sales increased 14.4%
to ¥186,109 million, lifted by buoyant sales of desserts andbakery items thanks to new products and a strong response to
shopping point campaigns.

In the processed foods category, net sales increased 16.2%
to ¥844,324 million. Cigarette sales rose 36.7% year on year onan all-store basis due in part to taspo’s introduction. Other main
contributors to the higher sales in the processed foods­category were new products belonging to national brands andother factors that boosted sales of snacks, including instantnoodles, rice snacks and baked goods.
In the non-food products category, sales declined 1.4% year
on year to ¥195,453 million, despite strong demand for services. The overall decline was primarily attributable to sluggish
magazine sales.

Net Sales by Product Segment (consolidated, total net sales) (Millions of Yen)

2009

2008

2007

2006

2005

Fast foods �������������������������������������������������������������������������� ¥  332,894
Daily delivered foods ��������������������������������������������������������
186,109
Processed foods ����������������������������������������������������������������
844,324
Cigarettes ����������������������������������������������������������������������
341,573
Total food sales ������������������������������������������������������������������
1,363,328
Non-food products ������������������������������������������������������������
195,453
Net sales of all stores �������������������������������������������������������� ¥1,558,781¥  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

Years ended February 28 and 29

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 �����������������������������������������������������������

38

LAWSON, INC.
Annual Report 2009

(%)

2009

2008

2007

2006

2005

21.4%
11.9
54.2
22.5
87.5
12.5

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

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

Gross Profit Margin by Product Segment (parent
company, total net sales)
The overall gross profit margin decreased by about 1.1 percentage points as a whole, and about 0.2 of a percentage point lessthan planned. This was mainly attributable to a poorer sales mix
because of the higher cigarette sales. Margins on products
other than cigarettes were on a par with the previous fiscal year
and largely in line with plans.
In the fast foods category, the margin on counter fast foods
dropped year on year due to a higher price for frying oil,reflecting higher prices for basic ingredients. In the processed
foods category, the gross profit margin declined substantially
due to the greater share of sales from cigarettes in the productmix. However, as mentioned earlier, margins on products otherthan cigarettes were unchanged for the most part. In the nonfood products category, there was an improvement in themarkup from the previous fiscal year. This was due to a lower
share of sales of low markup products such as books and magazines in the sales mix, and increased sales of services.

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

Fast foods �������������������������������������������������������������������������
Daily delivered foods �������������������������������������������������������
Processed foods* �������������������������������������������������������������
Non-food products** �������������������������������������������������������
Gross profit margin �����������������������������������������������������������

(%)

2009

2008

2007

2006

2005

36.1%
33.7
24.8
39.5
30.1

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

* 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 Services (parent company)
2009

2008

2007

2006

2005

¥1,506,531
156.6
8,415

¥1,412,335
149.9
8,275

¥1,294,004*
140.9
8,141

¥1,165,255
130.6
7,507

¥1,035,936
118.9
6,768

Years ended February 28 and 29

Bill settlements (millions of yen) �������������������������������������
No. of transactions (millions) �������������������������������������������
Commission income (millions of yen) �������������������������������

*	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 ¥48,299 million to¥349,476 million, or 16.0%. This result was ¥2,524 million lessthan planned*. While franchise commission increased due toimproved existing store sales, the number of operating days

declined due to delays opening stores. 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 thenumber of stores, 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 rateof franchise commissions, was approximately 80%.
*	Revised plan announced with operating results for the first six months of
the fiscal year under review (Same below).

LAWSON, INC.
Annual Report 200939

Selling, General and Administrative(SG&A) Expenses

addition, advertising and promotional expenses increased¥4,395 million, or 46.8%, due to measures to counter higher
costs of basic materials and to help franchise owners, as wellas instant refunds on shopping point cards. Nevertheless, thiswas largely as planned. IT-related costs fell due to efforts torationalize expenses. In addition, slower-than-planned store
openings and delays refurbishing stores, meant that SG&A
expenses were ¥2,069 million lower than planned.

SG&A expenses rose ¥18,542 million, or 9.6%, to ¥211,932
million. This increase was mainly due to a ¥3,761 million, or6.4%, rise in rents associated with an increase in the openingof mainly C-type franchised stores, and a ¥6,275 ­million, or
15.7%, increase in personnel expenses due to increased
bonuses in line with performance-linked evaluations. In

Breakdown of Main SG&A Expenses (Millions of Yen)
2009

2008

2007

2006

2005

¥ 46,203
13,781
62,323
14,98816,752
4,126
53,755¥211,932¥ 39,927
9,385
58,562
18,414
16,6304,815
45,653¥193,390¥ 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

Years ended February 28 and 29

Personnel expenses* ��������������������������������������������������������
Advertising and promotional expenses ����������������������������
Rents ��������������������������������������������������������������������������������
Equipment leasing charges ����������������������������������������������
Depreciation expenses ������������������������������������������������������
Amortization expenses ������������������������������������������������������
Other ��������������������������������������������������������������������������������
Total ����������������������������������������������������������������������������������

*	Effective from the fiscal year ended February 28, 2007, expenses for temporary employees have been included in “Personnel expenses,” whereas they werepreviously 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.

Composition of SG&A Expenses
Years ended February 28 and 29

Personnel expenses ���������������������������������������������������������
Advertising and promotional expenses ���������������������������
Rents �������������������������������������������������������������������������������
Equipment leasing charges ���������������������������������������������
Depreciation expenses �����������������������������������������������������
Amortization expenses �����������������������������������������������������
Other �������������������������������������������������������������������������������
Total ���������������������������������������������������������������������������������

2008

2007

2006

2005

21.8%
6.5
29.4
7.1
7.9
1.9
25.4
100.0%

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%

Operating Income

Net Income

Operating income rose ¥2,576 million, or 5.5%, to ¥49,186
million. This result was ¥1,186 million, or 2.5%, above plan.

Net income increased ¥3,187 million, or 14.4%, to ¥25,306
million. Net income per share increased 18.9% to ¥255.22.

Income Before Income Taxes
and Minority Interests
Income before income taxes and minority interests
increased ¥4,073 million, or 10.7%, to ¥42,207 million.
Impairment of long-lived assets declined ¥436 million fromthe previous fiscal year to ¥2,014 million.

40

(%)
2009

LAWSON, INC.
Annual Report 2009

n Financial Position
1. Consolidated Balance Sheet Items
Current Assets

Total current assets increased ¥16,510 million, or 11.9%, to¥154,761 million. “Due from franchised stores” increased¥9,426 million due to the fiscal year-end falling on a bank holiday. Furthermore, cash and cash equivalents increased ¥21,159
million due to the collection of ¥20.0 billion in short-term loans
following the April 2008 sale of LAWSON CS Card and received¥5,793 million boost from the consolidation of Ninety-nine Plus.

Property and Store Equipment, Investments andOther Assets
Net property and store equipment rose ¥8,567 million, or 8.0%,
to ¥114,999 million, the result of a rise of ¥18,198 million inbuildings, owing to an increase in the opening of C-type storesprepared by LAWSON among newly opened franchise stores.
Investments and other assets increased ¥13,987 million, or
9.2%, to ¥166,412 million.

Current Liabilities
Total current liabilities increased ¥25,825 million, or 16.6%, to¥181,804 million. There was a ¥13,165 million increase in otheraccounts payable due to the fiscal year-end falling on a bankholiday. Money held as agent such as in bill settlement services
increased ¥2,550 million. The consolidation of Ninety-nine Plus
had an ¥8,657 million impact on accounts payable (trade).
Income taxes payable decreased ¥1,971 million due to the saleof LAWSON CS Card.

Long-term Liabilities
Total long-term liabilities decreased ¥1,366 million, or 2.6%, to¥51,189 million, the result mainly of a ¥3,390 million decreasein guarantee deposits received from franchised stores andlease deposits from lessees due to a decrease in the number ofG-type franchised stores, which operate under franchise agreements requiring the payment of a guarantee deposit.

Total Equity
Total equity, including minority interests, amounted to ¥203,179
million at the end of February 2009. Retained earnings
increased ¥11,919 million to ¥99,310 million, reflecting mainly
net income of ¥25,306 million and cash dividends of ¥13,386
million. Minority interests increased due to the third-party placement to increase capital by Ninety-nine Plus. As a result of theaforementioned and other factors, the equity ratio dropped 1.5
points to 45.1%.

2. Special Account Items on the
Balance Sheet
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 payable forsuch to the vendors on the stores’ behalf. LAWSON records
the cost of the merchandise in the “Accounts receivable—Duefrom franchised stores” account since such costs are recovered from franchised stores. “Due from franchised stores”
represents mainly the obligations of franchised stores to Head
Office for these amounts at the balance sheet date. As of
February 28, 2009, this asset account was ¥21,376 million,¥9,426 million higher than a year ago because the fiscal yearend fell on a bank holiday.

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 ¥26,692
million at February 28, 2009, a decrease of ¥292 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 to franchised stores. As of February 28, 2009, this account was¥1,776 million higher than a year ago at ¥27,423 million, due toan 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 28, 2009, this account was ¥85,357
million, an increase of ¥2,602 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 the Company
exceed the balance of “Accounts receivable—Due from franchised stores,” the excess will be shown on the balance sheet
as “Accounts payable—Due to franchised stores.” As of­February 28, 2009, this account was ¥822 million, down ¥1,379
million from a year ago.

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 number of

LAWSON, INC.
Annual Report 200941

transactions and the number of companies for which settlement s­ ervices were provided. As a reflection of this, the balance of payments to third-party companies increased, leading
to a rise of ¥2,550 million to ¥58,844 million in this account at
February 28, 2009.

Guarantee Deposits Received FromFranchised Stores
This represents guarantee deposits received by LAWSON fromstore owners operating under FC-G contracts. As of February 28,
2009, this account was ¥41,610 million, ¥3,344 million less thanthe previous year due to a decline in the number of FC-G contract
stores.

n Capital Expenditure, Etc.
In fiscal 2008, capital expenditure totaled ¥42,907 million, down
¥21,506 million year on year. New store investments increased¥3,248 million to ¥15,635 million due to increased store openings compared to the previous fiscal year. Existing store investments decreased ¥746 million to ¥6,747 million, reflecting
underachievement of plans to convert existing stores into
LAWSON PLUS stores. IT-related investments increased¥4,331 million to ¥12,064 million, principally due to investments
in a next-generation IT system. Leases increased ¥4,290 million
to ¥19,140 million due to an increase in leased assets. A breakdown of capital expenditure is as follows.

Capital Expenditure

(Millions of Yen)
2009

2008

2007

2006

2005

¥ 15,635
6,747
12,064
3,886(14,564)
19,140¥ 42,907¥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

Years ended February 28 and 29

New store investments ���������������������������������������������������
Existing store investments �����������������������������������������������
IT-related investments �����������������������������������������������������
Other �������������������������������������������������������������������������������
Investments and advances �����������������������������������������������
Leases* ���������������������������������������������������������������������������
Total ���������������������������������������������������������������������������������

* The amount equivalent to the acquisition cost of leased property acquired during each fiscal year.

n Cash Flows
Operating activities provided net cash of ¥51,717 million,¥4,057 million less than in the previous fiscal year. While otheraccounts payable to suppliers increased, there was an increase
in income taxes paid and an increase in accounts receivable.
Investing activities used net cash of ¥15,647 million, ¥20,877
million less than in the previous fiscal year. This mainlyreflected a fall in proceeds from redemption of marketablesecurities, which was outweighed by decrease in short-termloan accompanying the sale of LAWSON CS Card.
As a result of changes in cash flows from operating andinvesting activities, free cash flow—the difference between thetwo figures—increased ¥16,821 million to ¥36,070 million.
Financing activities used net cash of ¥14,911 million, ¥17,062
million less than the previous fiscal year. Although cash wasused to pay dividends, the decrease reflects the absence ofstock buybacks.
As a result, cash and cash equivalents at the end of the
fiscal year totaled ¥83,982 million, ¥21,159 million more than ayear earlier.

42

LAWSON, INC.
Annual Report 2009n Capital Policy: Dividends and Purchase ofTreasury Stock
LAWSON regards returning profits to shareholders as one of its
most important management policies, and the Company is run
with sufficient recognition that the level of capital cost reflects
the profit expectations of investors toward the Company. To
select and develop businesses that achieve earnings above thecost of capital, LAWSON uses ROE, an indicator of capital efficiency, as its most important management indicator. We secure
the necessary level of internal reserves for investment aimed atachieving sustained corporate growth over the medium and longterms so as to maintain high profitability and secure our financial
soundness. We also pursue optimal capital efficiency by looking
at the appropriate balance between the distribution of profits
through dividends and the purchase and cancellation of treasury
stock. 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 in­February 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 wasincreased by a further ¥10 to ¥100 per share, followed byanother ¥10 increase to ¥110 for fiscal 2007, as we actively
returned profits to shareholders. We further increased shareholder returns for fiscal 2008 by raising the dividend by ¥50 to¥160 per share. Although we expect a difficult operating environment in fiscal 2009, we regard shareholder returns as of theutmost importance and therefore plan to maintain the dividend
at a minimum of ¥160 per share through the fiscal year ended
February 28, 2011.

n Business Cooperation and Alliances
The main business cooperation and alliances are as follows.
Please refer to “Scope of Consolidation” on page 35 of thisreport for information concerning the equity-based alliance with
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 28, 2009. The two
firms have built a cooperative relationship in the areas of personnel resources, store development, new businesses, productdevelopment 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, thetwo 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 to theintroduction 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 enabling­shopping, etc., via NTT DOCOMO’s Osaifu-Keitai® wallet services. iD™ is atrademark and registered trademark of NTT DOCOMO.

SAN-A CO., LTD.
In January 2009, LAWSON and SAN-A CO., LTD. agreed toform a business alliance in Okinawa Prefecture, Japan. SAN-A
is a leading retailing group in Okinawa, operating mainly supermarkets. Through this alliance with SAN-A, which has overwhelming customer support in Okinawa, LAWSON aims tocreate products and stores better meshing with this region ofJapan, which is known for its unique way of life and food preferences. In specific terms, the two companies will explore thepossibilities of working together across various fields, including
jointly developing boxed lunches and delicatessen items using
local ingredients, proposing new products and other offerings,
sharing sales information, and conducting joint sales promotions and store development. A special committee has been
formed by the two companies to study these possibilities. As
the first step in cooperative efforts, the two companies
launched 22 products to mark the alliance in May 2009. Looking
ahead, the two companies will also look at the possibility ofjoint venture CVS operations in Okinawa or the possibility of
SAN-A operating as an area franchisee.

LAWSON, INC.
Annual Report 200943

n Outlook

Next-generation IT system

In fiscal 2009, Japan’s economy is expected to continue worsening based on the strong yen resulting from economic stagnationin the U.S. and Europe, and other factors. It is therefore unlikelythat we will see any improvement in consumer spending, which
has been weakened by concerns about job security and declining
personal income due to sluggish corporate results.
With regard to the CVS sector, if LAWSON focuses on opening conventional format stores, which predominantly provide
merchandise assortments and services for the core target ofyoung male customers, addressing only customers’ need to savetime and convenience, it will be forced into a war of attrition withother homogenized CVS stores in a mature market. This will inturn make it increasingly difficult to achieve stable and sustainable growth in an aging society with a falling birthrate.
In this environment, the LAWSON Group is pursuing a strategy
aimed at creating stores that bring joy to customers, as outlinedin the management policy for fiscal 2009, “Your Choice of CVS
LAWSON—Cheerful and Happy Communities.” In line with thispolicy, the Company will carry out the following measures.

In fiscal 2009, we will begin introducing a next-generation IT
system with the goal of improving merchandise assortmentsfrom the customer’s perspective. 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 store-related systems suchas Loppi multimedia terminals, POS systems, store computersand store operational equipment as well as systems for merchandise development, store development, financial accounting
and integration master code systems, which manage products,
business partners and other operational aspects. The new
system is expected to lead to a reduction in lost sales opportunities at stores and losses from product disposals as well as
improve ordering precision and enhance product development.

Enhance existing customer satisfaction
In order to offer merchandise assortments and develop shopsthat suit the needs of customers in each store location, the­Company is making use of data gathered from the approximately
8.5 million MY LAWSON POINT and LAWSON PASS card members to create customer-oriented merchandise assortments.
Concerning merchandise, LAWSON will base its productdevelopment efforts on market analysis, particularly on data
gathered from the card member programs, in order to develop
products that reflect customers’ opinions. In addition, the Company will pass the benefits of the lower cost of fuel and raw
materials and the strong yen on to customers. Moreover, in orderto enhance ties with local communities, the Company will work
together with local governments to promote initiatives targeting
local and non-local consumption of locally produced products.
With regard to sales promotions, the Company will seek toutilize the MY LAWSON POINT and LAWSON PASS cards in an
effective manner.
These measures are also expected to lead to a greaternumber of customers and generate higher earnings, thereby
raising the satisfaction levels of franchised store owners.

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 decreasing the number of store
closures to reduce associated extraordinary losses.

Strengthening personnel development
In accordance with our corporate philosophy and action guidelines, we are determined to nurture people who can think forthemselves and not rely on direction from the top. In addition,
personnel rotations are implemented to prepare future management candidates.

44

LAWSON, INC.
Annual Report 2009

Developing internal controls
Regarding internal controls over financial reporting, effectivefrom fiscal 2009, companies in Japan will be subject to theinternal control reporting system stipulated by the Japanese
Financial Instruments and Exchange Law. LAWSON will establish a dedicated internal organization to ascertain and document the status of internal controls throughout the Company
and the various business processes that occur at the major
operating bases. Through this process, the Company will put inplace internal and third-party evaluation systems and related
improvements, and implement them appropriately. The­Company will follow its “Fiscal 2009 Basic Policy on Development and Operation of Internal Control System” 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, andultimately lead to improved corporate earnings from an increasein customers as well as higher profits for franchised owners
and greater corporate value.
For fiscal 2009, we are forecasting consolidated operating
income of ¥50.5 billion, up 2.7% year on year, and net incomeof ¥25.5 billion, up 0.8% year on year.

n Business Risk Factors
The eight main risks that may impact on the LAWSON Group’s
performance and financial position are described below. Sufficiently aware that these risks may occur, the LAWSON Group
conducts risk management and has also put in place an internal
control system so as to be able to respond in the best manner
possible should a risk materialize. Nevertheless, these risks are
only within the range of what can be forecast based on information currently available to the Company, and we do notbelieve that they cover all potential risks relating to the
LAWSON Group’s business operations.

Risks relating to changes in thebusiness environment
Because the LAWSON Group’s main business is the operationof convenience stores, changes in consumer expenditure produced by changes in the economic environment, businesscycle trends, or the social structure in Japan and overseas
countries where the Company operates, as well as changes incompetition with other companies in the CVS sector or different retail sectors, may impact the LAWSON Group’s earnings
and financial condition.

Risks relating to food safety
and hygiene management
In the CVS business, the LAWSON Group’s main business, theCompany sells food products to customers. From the manufacturing process to sales in stores, in cooperation with suppliers,
the LAWSON Group strictly observes quality standards by
performing thorough management and also performs rigorous
hygiene management and sales data management withinstores, at the same time as properly labeling items in terms of
consumption date, expiry date, place produced, raw materials
and so forth. However, in the event of a serious incident suchas food poisoning or contamination by foreign matter, or foodmislabeling, the resulting loss of customer trust could have an
impact on the Group’s performance and financial position.
Should such an incident occur, the Group intends to make theutmost effort to minimize the effect on customers and maintaincustomer trust 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, the LAWSON Grouphandles personal information of customers, shareholders,
suppliers, franchise owners and other parties. The Group recognizes that the leakage of personal information or improper
access to personal information are serious risks. Consequently,
we have devised the best possible information security measures and 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 under
any circumstances, the LAWSON Group’s performance or
financial position may be affected.

environmental protection, and other matters in Japan andShanghai, China, and must obtain various permits and licenses.
Therefore, should events arise such as an unforeseen change
in laws or regulations or a change in the enforcement methodsof administrative authorities, new compliance costs could arise,
which could have an impact on the LAWSON Group’s performance or financial position.

Risks relating to franchise operations
In the CVS business, the LAWSON Group’s main business, theCompany has adopted the franchise system. Based on franchise agreements concluded with franchised stores, LAWSON
operates a chain of stores via store brand names that are
owned by the LAWSON Group. Therefore, if the brand imageof the overall chain is affected by illegal or improper actions at afranchised store, there may be an impact on the LAWSONGroup’s performance or financial position.
Furthermore, the franchise system is designed to encourage
improved business performance for both franchised stores andthe Company, based on a relationship of mutual trust. If thisrelationship of trust between LAWSON and franchised stores isdamaged for any reason, and, as a consequence, many franchise agreements are cancelled, there may be an impact on the
LAWSON Group’s performance or financial position.

Risks relating to unseasonable weather or disasters
Substantial differences in climate and temperatures from theaverage year could have an impact on the LAWSON Group’s
performance or financial position.
Moreover, LAWSON is a national chain with stores locatedthroughout Japan’s 47 prefectures, as well as in Shanghai,
China. Therefore, an earthquake, typhoon or other natural disaster that physically damages LAWSON Group stores or otherfacilities, could have an impact on the LAWSON Group’s performance or financial position.

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 in the Tokyo area, which could causeinterference to the information network, creating delays in thedelivery of products to stores and causing the suspension of
store services. Such developments could impact on the
LAWSON Group’s performance or financial position.

Legal and regulatory risks
The LAWSON Group operates numerous stores in various
regions throughout Japan and in Shanghai, China, and the
majority of stores operate 24 hours a day. Because of this, inoperating its business, the Company must comply with various
laws and regulations regarding store development, store­operations, hygiene management, product transactions,Risks involving soaring materials prices
The LAWSON Group’s performance or financial position could
be materially affected by 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.
Annual Report 200945

Consolidated Balance Sheets
LAWSON, INC. and Subsidiaries
February 28, 2009 and February 29, 2008

Millions of Yen

Thousands of
U.S. Dollars(Note 1)

2009

2008

2009

Cash and cash equivalents ������������������������������������������������������������������

¥ 83,982¥ 62,823$ 858,624

Marketable securities (Note 5) ������������������������������������������������������������

3,800

2,900

38,851   Due from franchised stores (Notes 3 and 10) ����������������������������������

21,376

11,950218,546   Other ������������������������������������������������������������������������������������������������

26,692

26,984

272,896

ASSETS
CURRENT ASSETS:

Accounts receivable:   Allowance for doubtful accounts ������������������������������������������������������

(141)

(103)

(1,442)Inventories ������������������������������������������������������������������������������������������

5,293

1,724

54,115

Short-term loan to associated company (Note 17) ������������������������������

20,000

Short-term loan to other ����������������������������������������������������������������������

300

3,067

Deferred tax assets (Note 15) ��������������������������������������������������������������

4,061

3,633

41,519Prepaid expenses and other current assets ����������������������������������������

9,398

8,340

96,086    Total current assets ����������������������������������������������������������������������

154,761

138,251

1,582,262

Land (Note 7) ��������������������������������������������������������������������������������������

6,899

5,845

70,534

Buildings ����������������������������������������������������������������������������������������������

174,067

155,869

1,779,644

Furniture, fixtures and equipment ��������������������������������������������������������

61,92059,040633,064

PROPERTY AND STORE EQUIPMENT (Notes 4 and 6):    Total ����������������������������������������������������������������������������������������������

242,886

220,7542,483,242

Accumulated depreciation ������������������������������������������������������������������

(127,887)(114,322)(1,307,504)    Net property and store equipment ����������������������������������������������

114,999

106,432

1,175,738

INVESTMENTS AND OTHER ASSETS:
Investment securities (Note 5) ������������������������������������������������������������

700

826

7,157

Investments in associated companies ������������������������������������������������

532

7,334

5,439

Long-term loans receivable ������������������������������������������������������������������

27,42325,647

280,370

Goodwill ����������������������������������������������������������������������������������������������

3,699

518

37,818

Software ����������������������������������������������������������������������������������������������

26,586

16,942271,813

Lease deposits (Note 8) ����������������������������������������������������������������������

85,35782,755

872,682

Deferred tax assets (Note 15) ��������������������������������������������������������������

14,54512,809148,707

Deferred tax assets for land revaluation (Note 7) ��������������������������������

181

468

1,851

Other assets ����������������������������������������������������������������������������������������

9,795

7,529

100,142

Allowance for doubtful accounts ��������������������������������������������������������

(2,406)(2,403)(24,599)    Total investments and other assets ����������������������������������������������

166,412

152,425

1,701,380

TOTAL �����������������������������������������������������������������������������������������������������

¥436,172¥397,108$4,459,380

See notes to consolidated financial statements.

46

LAWSON, INC.
Annual Report 2009

Millions of Yen

Thousands of
U.S. Dollars(Note 1)

2009

2008

2009

   Trade (Notes 9 and 17) ��������������������������������������������������������������������

¥ 77,216¥ 65,587$ 789,449   Due to franchised stores (Note 10) ��������������������������������������������������

822

2,202

8,404

   Other ������������������������������������������������������������������������������������������������

27,681

14,765

283,008

Current portion of long-term debt (Note 11) ����������������������������������������

937

154

9,580

Income taxes payable (Note 15) ����������������������������������������������������������

9,456

11,427

96,677

Money held as agent ��������������������������������������������������������������������������

58,84456,294

601,615

LIABILITIES AND EQUITYCURRENT LIABILITIES:
Accounts payable:

Accrued expenses and other current liabilities ������������������������������������

6,848

5,550

70,014    Total current liabilities ������������������������������������������������������������������

181,804

155,979

1,858,747

5,051

4,175

51,641

LONG-TERM LIABILITIES:
Liability for employees' retirement benefits (Note 12) ������������������������
Allowance for retirement benefits to executive officers   and corporate auditors ����������������������������������������������������������������������

201

183

2,055

Guarantee deposits received from franchised stores ��������������������������

41,61044,954425,417

Lease deposits from lessees ��������������������������������������������������������������

830

877

8,485

Allowance for impairment loss on leased property (Note 16) ��������������

481

314

4,918

Long-term debt (Note 11) ��������������������������������������������������������������������

1,371

403

14,017

Other ����������������������������������������������������������������������������������������������������

1,645

1,649

16,818    Total long-term liabilities ��������������������������������������������������������������

51,18952,555523,351

Common stock—authorized, 409,300,000 shares in   2009 and 2008; issued, 99,600,000 shares in 2009   and 2008 ��������������������������������������������������������������������������������������������

58,50758,507598,170

Capital surplus ��������������������������������������������������������������������������������������

41,52041,520424,496

EQUITY (Notes 13 and 20):

Stock acquisition rights ������������������������������������������������������������������������

275

160

2,812

Retained earnings ��������������������������������������������������������������������������������

99,31087,391

1,015,336

Net unrealized gain (loss) on available-for-sale securities ��������������������

(28)

135

(286)

Deferred gain (loss) on the derivatives under hedge accounting ��������

(1)

Land revaluation difference (Note 7) ����������������������������������������������������

(969)

(682)

(9,907)

Foreign currency translation adjustments ��������������������������������������������

59

140

603

Treasury stock—at cost, 432,015 shares in 2009   and 463,629 shares in 2008 ��������������������������������������������������������������

(1,713)(1,838)(17,514)    Total ����������������������������������������������������������������������������������������������

196,961

185,332

2,013,710

Minority interests ��������������������������������������������������������������������������������

6,218

3,242

63,572    Total equity ����������������������������������������������������������������������������������

203,179

188,574

2,077,282

TOTAL �����������������������������������������������������������������������������������������������������

¥436,172¥397,108$4,459,380

LAWSON, INC.
Annual Report 200947

Consolidated Statements of Income
LAWSON, INC. and Subsidiaries
Years Ended February 28, 2009 and February 29, 2008

Millions of Yen

Thousands of
U.S. Dollars(Note 1)

2009

2008

2009

Franchise commission from franchised stores ��������������������������������������

¥186,928¥177,443$1,911,134

Net sales from Company-operated stores ��������������������������������������������

119,099

83,321

1,217,657

OPERATING REVENUES:

Other ������������������������������������������������������������������������������������������������������

43,44940,413444,218    Total ������������������������������������������������������������������������������������������������

349,476

301,177

3,573,009

COST AND OPERATING EXPENSES:
Cost of sales for Company-operated stores ������������������������������������������

88,35861,177903,364

Selling, general and administrative expenses (Notes 12 and 16) ����������

211,932

193,390

2,166,772    Total ������������������������������������������������������������������������������������������������

300,290

254,567

3,070,136    Operating income ��������������������������������������������������������������������������

49,186

46,610502,873

OTHER INCOME (EXPENSES):Interest income—net ����������������������������������������������������������������������������

912

905

9,324

Equity in losses of associated companies ��������������������������������������������

(631)

(201)

(6,451)

Loss on disposal of property and store equipment ��������������������������������

(4,053)(5,011)(41,437)

Impairment of long-lived assets (Note 6) ����������������������������������������������

(2,014)(2,450)(20,591)

Other—net ��������������������������������������������������������������������������������������������

(1,193)(1,718)(12,198)    Other expenses—net ��������������������������������������������������������������������

(6,979)(8,475)(71,353)

INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS ������

42,207

38,135431,520

17,675

17,494

180,707

INCOME TAXES (Note 15):
Current ��������������������������������������������������������������������������������������������������
Deferred ������������������������������������������������������������������������������������������������

(1,183)(1,971)(12,094)    Total ������������������������������������������������������������������������������������������������

16,492

15,523

168,613MINORITY INTERESTS IN NET INCOME ����������������������������������������������

(409)

(493)

(4,181)NET INCOME ������������������������������������������������������������������������������������������

¥ 25,306¥ 22,119$   258,726

Yen

U.S. Dollars

2009

2008

2009

Net income—basic ��������������������������������������������������������������������������������

¥255.22¥214.69$2.61

Net income—diluted ������������������������������������������������������������������������������

254.99214.57

2.61

Cash dividends applicable to the year ����������������������������������������������������

160.00110.001.64

PER SHARE OF COMMON STOCK (Notes 2.p and 18):

See notes to consolidated financial statements.

48

LAWSON, INC.
Annual Report 2009

Consolidated Statements of Changes in Equity
LAWSON, INC. and Subsidiaries
Years Ended February 28, 2009 and February 29, 2008

Thousands of Shares/Millions of Yen

Common Stock
SharesAmountBALANCE, MARCH 1, 2007 �����������������������������

104,600¥58,507

CapitalSurplus

Stock
Acquisition
RightsRetained
Earnings¥42,254¥  78¥95,344

Net income ���������������������������������������������������

22,119Year end cash dividends, ¥50 per share �������

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

(5,743)

Net
Unrealized
DeferredGain on Gain (Loss) on
AvailableDerivatives
for-sale under Hedge
Securities
Accounting¥ 320

Treasury stock—at cost:   Purchase of treasury stock �����������������������
   Retirement of treasury stock ���������������������

(5,000)(710)   Exercise of stock options �������������������������

(19,109)(24)

Others—net �������������������������������������������������
BALANCE, FEBRUARY 29, 2008 ���������������������

82
99,60058,507

41,520160

87,391

Net income ���������������������������������������������������

25,306

Year end cash dividends, ¥55 per share �������

(5,453)

Interim cash dividends, ¥80 per share ���������

(7,933)

(185)

¥(1)

135

(1)

(163)

1

Treasury stock—at cost:   Purchase of treasury stock �����������������������
(1)   Exercise of stock options �������������������������
115

Others—net �������������������������������������������������
BALANCE, FEBRUARY 28, 2009 ���������������������

99,600¥58,507¥41,520¥275

LandRevaluation
Difference

Foreign
Currency
Translation
Adjustments

Shares¥(682)

¥135

(187)

¥99,310¥ (28)

Thousands of Shares/Millions of Yen

BALANCE, MARCH 1, 2007 �����������������������������

Treasury Stock¥

Amount

Total

Minority
Interests

Total
Equity(739)¥195,217¥ 4,276¥199,493

Net income ���������������������������������������������������

22,11922,119Year end cash dividends, ¥50 per share �������

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

(5,743)(5,743)(21,001)(21,001)
59

Treasury stock—at cost:   Purchase of treasury stock �����������������������

(5,298)(21,001)   Retirement of treasury stock ���������������������

5,000

19,819   Exercise of stock options �������������������������

21

83

59
(99)

(1,034)(1,133)(464)(1,838)185,332

3,242

188,574

Others—net �������������������������������������������������
BALANCE, FEBRUARY 29, 2008 ���������������������

5
(682)

140

Net income ���������������������������������������������������

25,30625,306

Year end cash dividends, ¥55 per share �������

(5,453)(5,453)

Interim cash dividends, ¥80 per share ���������

(7,933)(7,933)

Treasury stock—at cost:   Purchase of treasury stock �����������������������
32   Exercise of stock options �������������������������

(1)

(1)

(1)

126

125

125

Others—net �������������������������������������������������

(287)

(81)

(415)

2,976

2,561

BALANCE, FEBRUARY 28, 2009 ���������������������

¥(969)¥ 59(432) ¥ (1,713) ¥196,961¥ 6,218¥203,179

LAWSON, INC.
Annual Report 200949

Thousands of U.S. Dollars (Note 1)

BALANCE, FEBRUARY 29, 2008 ����������������������

CommonStockCapitalSurplus

Stock
Acquisition
Rights$598,170$424,496$1,636

Net
Unrealized Gainon AvailableRetained
for-sale
Earnings
Securities$ 893,477

Net income ��������������������������������������������������

258,726

Year end cash dividends,   $0.56 per share ������������������������������������������

(55,751)

Interim cash dividends, $0.82 per share ����

(81,106)

DeferredGain (Loss) on
Derivatives
under Hedge
Accounting$1,380$(10)(1,666)

10

Treasury stock—at cost:   Purchase of treasury stock ����������������������
   Exercise of stock options ������������������������

(10)
1,176

Others—net ��������������������������������������������������
BALANCE, FEBRUARY 28, 2009 ��������������������

$598,170$424,496$2,812$1,015,336$ (286)

Land
Revaluation
Difference

Foreign
Currency
Translation
Adjustments

Treasury
Stock

Total

Minority
Interests

Total
Equity$(6,973)$1,431$(18,792)$1,894,815$33,146$1,927,961

Thousands of U.S. Dollars (Note 1)

BALANCE, FEBRUARY 29, 2008 ����������������������
Net income ��������������������������������������������������

258,726

258,726

Year end cash dividends,   $0.56 per share ������������������������������������������

(55,751)(55,751)

Interim cash dividends, $0.82 per share ����

(81,106)(81,106)

(10)

(10)

Treasury stock—at cost:   Purchase of treasury stock ����������������������

(10)   Exercise of stock options ������������������������
(2,934)(828)

BALANCE, FEBRUARY 28, 2009 ��������������������

$(9,907)$  603

See notes to consolidated financial statements.

50

1,288

Others—net ��������������������������������������������������

LAWSON, INC.
Annual Report 2009$(17,514)

1,278

1,278

(4,242)30,42626,184$2,013,710$63,572$2,077,282

Consolidated Statements of Cash FlowsLAWSON, INC. and Subsidiaries
Years Ended February 28, 2009 and February 29, 2008

OPERATING ACTIVITIES:
Income before income taxes and minority interests ��������������������������
Adjustments for:   Income taxes paid ����������������������������������������������������������������������������
   Depreciation and amortization����������������������������������������������������������
   Impairment of long-lived assets��������������������������������������������������������
   (Reversal of) provision for allowance for doubtful accounts��������������
   Loss on disposal of property and store equipment ��������������������������
   Equity in losses of associated companies����������������������������������������
   Other—net����������������������������������������������������������������������������������������
   Changes in assets and liabilities:    Increase in accounts receivable����������������������������������������������������
    Increase in prepaid expenses and other current assets����������������
    (Increase) decrease in inventories ������������������������������������������������
    Increase (decrease) in accounts payable ��������������������������������������
    Increase in money held as an agent����������������������������������������������
    Decrease 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 ������������������������������������������������������������������������
    (Decrease) increase in lease deposits from lessees����������������������
     Total adjustments����������������������������������������������������������������������
     Net cash provided by operating activities����������������������������������INVESTING ACTIVITIES:
Purchases of marketable securities������������������������������������������������������
Proceeds from redemption of marketable securities����������������������������
Proceeds from sales of investment securities��������������������������������������
Acquisition of a subsidiary, net of cash acquired (Note 19)������������������
Purchases of property and store equipment����������������������������������������
Purchases of software and other intangible assets������������������������������
Decrease in lease deposits—net����������������������������������������������������������
Decrease (increase) in short-term loan ������������������������������������������������
Increase in long-term loan��������������������������������������������������������������������
Acquisition of associated companies����������������������������������������������������
Purchase of subsidiaries’ stocks from minority shareholders��������������
Other—net��������������������������������������������������������������������������������������������
     Net cash used in investing activities������������������������������������������
FINANCING ACTIVITIES:
Repayments of long-term debt ������������������������������������������������������������
Decrease in short-term debt ����������������������������������������������������������������Cash dividends paid������������������������������������������������������������������������������
Proceeds from issuance of share upon exercise of stock option ��������
Purchase of treasury stock ������������������������������������������������������������������Cash dividends paid to minority shareholders��������������������������������������
     Net cash used in financing activities������������������������������������������NET INCREASE (DECREASE) IN CASH
 AND CASH EQUIVALENTS������������������������������������������������������������������
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ����������������
CASH AND CASH EQUIVALENTS, END OF YEAR������������������������������

Millions of Yen

Thousands of
U.S. Dollars(Note 1)

2009

2008

2009

¥ 42,207¥ 38,135$ 431,520(19,763)
20,879
2,014
(19)
2,039
631
2,151

(10,865)
21,446
2,450
137
2,383
201
2,289

(202,055)
213,465
20,591(194)
20,847
6,451
21,992(8,299)(597)(277)
11,4572,456(662)(1,224)(1,167)65(2,206)
7,539
(497)

(84,848)(6,104)(2,832)
117,135
25,110(6,768)

894

582

9,140

(3,344)(50)
9,510
51,717(3,496)2
17,63955,774(34,189)(511)
97,230528,750(25,957)
25,900111
2,228(22,440)(14,925)769
19,700(1,698)
(50)
(78)
793
(15,647)(28,750)
40,893(21,392)(8,520)1,485(11,150)(1,267)(5,976)(2,131)
283(36,525)(265,382)
264,799
1,135
22,779(229,424)(152,592)
7,862
201,411(17,360)
(511)
(797)
8,107
(159,973)(308)(1,293)(13,386)
125
(1)
(48)
(14,911)(10,964)59(21,001)(67)(31,973)(3,149)(13,220)(136,857)
1,278
(10)
(491)
(152,449)

21,15962,823¥ 83,982(12,724)
75,547¥ 62,823

216,328
642,296$ 858,624

See notes to consolidated financial statements.

LAWSON, INC.
Annual Report 200951

Notes to Consolidated Financial Statements
LAWSON, INC. and Subsidiaries
Years Ended February 28, 2009 and February 29, 2008

1. Basis of Presenting Consolidated Financial Statements
The accompanying consolidated financial statements have been prepared in accordancewith the 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 in certain 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 domesticallyin order to present them in a form which is more familiar to readers outside Japan. In addition, certain reclassifications have been made in the 2008 financial statements to conformto the 2009 presentation.
The consolidated financial statements are stated in Japanese yen, the currency of thecountry in which LAWSON, INC. (the “Company”) is incorporated and operates. The translations of Japanese yen amounts into U.S. dollar amounts are included solely for the convenience of readers outside Japan and have been made at the rate of ¥97.81 to $1, theapproximate rate of exchange at February 28, 2009. Such translations should not be construed as representations that the Japanese yen amounts could be converted into U.S.
dollars at that or any other rate.
Mitsubishi Corporation (“Mitsubishi”) owns 32,399 thousand shares of common stock of
the Company (including indirect holdings) as of February 28, 2009 which represent 32.7% of
the total 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 over which the Companies have the ability to exercise significant influence areaccounted for by the equity method.
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.
Ninety‑nine Plus Inc. and Ninety‑nine Plus Kansai Inc. became consolidated subsidiaries
from associated companies effective this fiscal year, after increase in shares by public tender
finalized on September 5, 2008. Because of sales of the shares of LAWSON CS Card, INC.
and NaturalBeat, Inc. respectively, these two companies are no longer group companies.
The excess of the cost of the Company’s investments in consolidated subsidiaries, 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.
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 andthe LAWSON brand names, and provides related managerial or technical know‑how under afranchise agreement. Under the agreement, all franchised stores are provided with a variety
of services and advice on the operation of convenience stores from the Company as the
franchisor. In return, such franchised stores are required to pay continuing franchise commissions to the Company based on certain percentages of the respective franchised store’s
annual gross margin. As the franchisor, the Company accounts for franchise commissions
on an accrual basis by reference to the annual gross margin earned by each franchised store

52

LAWSON, INC.
Annual Report 2009

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 the respective store and pay a lower commission percentage.
The term of a franchise agreement is effective primarily for 10 years from the commencement date of a new store’s operation as a franchised store, and may be extended or
renewed upon expiration subject 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 ofsuch payment, ¥1.5 million is credited to income of the Company as “Operating revenues—
franchise commission from franchised stores” for services related to the opening of the
LAWSON store. The remaining amount received by the Company is credited to “Due tofranchised stores” account and then applied to working capital for purchases of merchandise and supplies for the franchised store.
As part of the contractual obligations of the franchisor under the agreement, the Company
generally provides franchisees with furniture, fixtures and equipment designed for the
LAWSON stores. In some cases, franchisees may also be provided with the land or buildings for the stores. However, the Company does not require the franchisees to make lease
payments related to the stores. Instead, a higher percentage applicable to the gross margin
would be used as the basis for determining the franchise commissions. The portion of franchise commission attributable 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 three months ofthe 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 the­positive intent and ability to hold to maturity are reported at amortized cost and(2) ­available‑for‑sale securities, which are not classified as the aforementioned securities,
are stated at fair value based on market quotation. Unrealized gains and losses net of applicable taxes are reported in a separate component of equity. The cost of securities sold isdetermined based on the moving‑average method.
Non‑marketable available‑for‑sale securities are stated at cost determined by the­moving‑average method. For other than temporary declines in fair value, non‑marketableavailable‑for‑sale 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 principally from 10 to 34 years for buildings and structures and from 5 to 8 years for furniture,
fixtures and equipment.
g. Long‑lived Assets —The Companies review their 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 be­recognized if the carrying amount of an asset or asset group exceeds the sum of the­undiscounted future cash flows expected to result from the continued use and eventual
LAWSON, INC.
Annual Report 200953

disposition of the asset or asset group. The impairment loss would be measured as theamount by which the carrying amount of the asset exceeds its recoverable amount, whichis the higher of the discounted cash flows from the continued use and eventual dispositionof 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 havedefined 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
the contribution was called for.
j. Allowance for Retirement Benefits to Executive Officers and Corporate­ uditors —The provisions are calculated to state the liability at 100% of the amount thatA
would 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
are applicable to stock options granted on and after May 1, 2006. This standard requires
companies to recognize compensation expense for employee stock options based on thefair value at the 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 orservices received. In the balance sheet, the stock option is presented as a stock acquisitionright as a separate component of equity until exercised. The standard covers equity‑settled,share‑based payment transactions, but does not cover cash‑settled, share‑based paymenttransactions. In addition, the standard allows unlisted companies to measure options at theirintrinsic 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. 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 otherfinance leases 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 other leases are accounted for as operating leases.
m. Income Taxes —The Companies provide for income taxes applicable to all items
included in the consolidated statements of income regardless of when such taxes are payable. Deferred income taxes are recorded to reflect the impact of temporary differences
between assets and liabilities recognized for financial reporting purposes and such amounts
recognized for tax purposes. These deferred taxes are measured by applying currently
enacted tax laws to the temporary differences.

54

LAWSON, INC.
Annual Report 2009

n. Appropriations of Retained Earnings —Appropriations of retained earnings at each year
end are reflected in the consolidated financial statements for the following year upon shareholders’ approval.
o. Foreign Currency Financial Statements —The balance sheet accounts of an associatedcompany 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 currencytranslation adjustments” in a separate component of equity. Revenue and expense
accounts of an affiliated company denominated in foreign currencies are translated into yen
at the current exchange rate.
p. 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 99,155 thousand
shares for 2009 and 103,027 thousand shares for 2008.
Diluted net income per share for the years ended February 28, 2009 and February 29,
2008 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
the end of year.
q. 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 forlease transactions 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 all finance lease transactions to be capitalized
recognizing lease assets and lease obligations in the balance sheet.

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 ofmerchandise 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 from the respective franchised stores.
The “Accounts receivable—due from franchised stores” account represents net amounts
recoverable from the franchised stores.

LAWSON, INC.
Annual Report 200955

4. Property and Store Equipment
Property and store equipment as of February 28, 2009 and February 29, 2008, consisted of
the following:

2009

Used by franchised stores:
Land ��������������������������������������������������������������� ¥   4,581
Buildings ��������������������������������������������������������� 150,703
Furniture, fixture and equipment ������������������� 49,891    Total ��������������������������������������������������������� 205,175
Accumulated depreciation ����������������������������� 110,193    Net ����������������������������������������������������������� 94,982
Used by Company-operated stores and other:
Land ���������������������������������������������������������������
2,318
Buildings ��������������������������������������������������������� 23,364
Furniture, fixture and equipment ������������������� 12,029    Total ��������������������������������������������������������� 37,711
Accumulated depreciation ����������������������������� 17,694    Net ����������������������������������������������������������� 20,017
Net property and store equipment—total ������� ¥114,999

Millions of Yen

Thousands of
U.S. Dollars

2008

2009

¥   3,382
140,484
50,278194,144
102,115
92,029$    46,835
1,540,773
510,0812,097,689
1,126,602
971,087

2,463
15,385
8,762
26,61012,207
14,403¥106,432

23,699238,871
122,983
385,553
180,902
204,651$1,175,738

5. Marketable and Investment Securities
Marketable and investment securities as of February 28, 2009 and February 29, 2008, consisted of the following:Thousands of
U.S. Dollars

Millions of Yen
2009

2008

2009

Current—Bonds ��������������������������������������������������� ¥3,800
Non-current—Marketableand other equity securities ���������������������������������
700
Non-current—Bonds ���������������������������������������������

¥2,900$38,851

526
300

7,157

The costs and aggregate fair values of marketable and investment securities at February
28, 2009 and February 29, 2008, were as follows:
Millions of Yen
February 28, 2009

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

Unrealized
LossesFair Value¥3,000¥ 1¥2,999

61
800

16

45
800

Cost

Unrealized
Gains

February 29, 2008

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

56

LAWSON, INC.
Annual Report 2009

¥2,000¥   2¥2,002

76
1,199

226
1

302
1,200

Thousands of U.S. Dollars
February 28, 2009

Cost

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

Unrealized
Gains

Unrealized
Losses$30,672

Fair Value$30,672

624
8,179

$164

460
8,179

Available‑for‑sale securities whose fair value is not readily determinable as of February 28,
2009 and February 29, 2008, were as follows:

Available-for-sale—Equity securities �����������������������

2009

Millions of Yen
2008

Carrying AmountThousands of
U.S. Dollars
2009

¥655

¥224

$6,697The carrying values of debt securities by contractual maturities for securities classified asavailable‑for‑sale and held‑to‑maturity at February 28, 2009 are as follows:
Millions of Yen
Available
Held tofor Sale
Maturity

Due in one year or less ����������������������������������������
   Total ��������������������������������������������������������������

¥800
¥800

¥3,000¥3,000Thousands of
U.S. Dollars
Available
Held tofor Sale
Maturity$8,179$8,179$30,672$30,672

Proceeds from sales of available‑for‑sale securities for the years ended February 28, 2009
and February 29, 2008 were ¥111 million ($1,135 thousand) and ¥0 million, respectively.
Gross realized gains on these sales, computed on the moving average cost basis, were
¥91 million ($930 thousand) for the year ended February 28, 2009 and gross realized losseson these sales were ¥0 million for the year ended February 29, 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 the value of long‑lived assets
declined, mainly due to continuous operating losses. The carrying amounts of those assets
written down to the recoverable amounts and an impairment loss was recorded in otherexpenses in the consolidated statements of income.
The Companies recognized an impairment loss on the following asset category for theyears ended February 28, 2009 and February 29, 2008:

Category Related Assets

Location

2009

Stores Buildings andTokyo ������������������������� ¥  205furniture, fixtures Osaka �������������������������
165
and equipment Others ������������������������� 1,644   Total ����������������������������������������������������������������� ¥2,014

Millions of Yen
2008

Thousands of
U.S. Dollars
2009

¥ 131
428
1,891
¥2,450$  2,096
1,687
16,808$20,591

LAWSON, INC.
Annual Report 200957

The above assets, which incurred impairment losses for the years ended February 28,
2009 and February 29, 2008, consisted of the following:

2009

Millions of Yen
2008

Thousands of
U.S. Dollars
2009

Fixed assets and leased property:
Buildings ������������������������������������������������������������� ¥1,458
Leased property �������������������������������������������������
341
Others �����������������������������������������������������������������
215   Total ����������������������������������������������������������������� ¥2,014¥1,773425
252¥2,450$12,8213,486
4,284$20,591

The recoverable amount of those assets was measured based on net selling price orvalue in use. The net selling price of land was calculated based on the appraised value by areal estate appraiser or an expected contract price. The value in use was calculated bydiscounting estimated future cash flows. The discount rate used was mainly 5.3% and6.8% for the years ended February 28, 2009 and February 29, 2008, 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 toa 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 28, 2009, the carrying amount of the land after the above one‑time revaluation exceeded the market value by ¥264 million ($2,699 thousand).

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
with such agreements, the lessor requires the Company to pay leasehold deposits equivalent to several months’ rent, which are non‑interest bearing and refundable only when theleases are terminated.
Lease deposits as of February 28, 2009 and February 29, 2008, consisted of the following:

2009

Lease deposits for franchised stores ������������������ ¥71,869
Lease deposits for Company-operated storesand other ������������������������������������������������������������ 13,488   Total �������������������������������������������������������������� ¥85,357

58

LAWSON, INC.
Annual Report 2009

Millions of Yen
2008

Thousands of
U.S. Dollars
2009¥72,985$734,782

9,770¥82,755

137,900$872,682

9. Accounts Payable —Trade
The balances of “Accounts payable—trade” represent the amounts payable to vendors
for merchandise purchased by Company‑operated stores and franchised stores. The
Company centralizes all merchandise purchasing procedures both for Company‑operated
stores and franchised stores and makes collective payments to vendors (see Note 3).
Accounts payable—trade as of February 28, 2009 and February 29, 2008, weresummarized below:

2009

Accounts payable—trade for
franchised stores������������������������������������������������ ¥64,326
Accounts payable—trade forCompany-operated stores���������������������������������� 12,890   Total�������������������������������������������������������������� ¥77,216

Millions of Yen
2008

Thousands of
U.S. Dollars
2009¥61,234$657,663

4,353¥65,587

131,786$789,449

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 theCompany. In certain instances, the remittance from a franchised store exceeds the balanceof “Accounts receivable—due from franchised stores.” In the accompanying consolidatedbalance sheets, such excess balances are presented as “Accounts payable—due tofranchised stores.”11. Current Portion of Long‑Term Debt and Long‑Term Debt
The current portion of long‑term debt consisted of notes to banks and lease obligations at
February 28, 2009 and lease obligations at February 29, 2008.
The current portion of long‑term debt at February 29, 2008 consisted of lease obligations.
The annual interest rates applicable to the current portion of long‑term debt ranged from
1.47% to 1.65% at February 28, 2009 and was 1.37% at February 29, 2008.
Long‑term debt less the current portion at February 28, 2009 and February 29, 2008
consisted of the following:

2009

Millions of Yen
2008

Thousands of
U.S. Dollars
2009

Loans from banks and leasing companies,
due serially to 2013 with interest rates
ranging from 1.53% to 1.67% (2009) and
1.37% (2008)—Unsecured ��������������������������������� ¥2,308(937)
Less current portion ���������������������������������������������
Long-term debt, less current portion ������������������� ¥1,371

¥ 557
(154)
¥ 403

$23,597(9,580)$14,017

LAWSON, INC.
Annual Report 200959

Annual maturities of long‑term debt as of February 28, 2009 for the next five years
thereafter are as follows:Year Ending February 28 or 29

2010 �������������������������������������������������������������������������������������
2011 �������������������������������������������������������������������������������������
2012 �������������������������������������������������������������������������������������
2013 �������������������������������������������������������������������������������������
2014 and thereafter �������������������������������������������������������������
   Total �������������������������������������������������������������������������������

Millions of Yen

Thousands of
U.S. Dollars¥  937943
410
16
2¥2,308$   9,580
9,641
4,192
164
20
$23,597

12. Employees’ Retirement Benefits
The Company and a certain domestic subsidiary each have a defined benefit lump‑sum
severance indemnity plan.
Under the plans, employees terminating their employment are entitled to retirement
benefits determined based on the rate of pay, years of service and certain other factors at
the time of termination. Such retirement benefits are made in the form of a lump‑sum
severance payment from the Company or from a certain subsidiary. Employees are entitledto larger payments if the termination is involuntary, by retirement at the mandatory
retirement age, by death, or by voluntary retirement at certain specific ages prior to the
mandatory retirement age.
The funded status of these plans as of February 28, 2009 and February 29, 2008 was
as follows:

2009

Millions of Yen
2008

Thousands of
U.S. Dollars
2009

Projected benefit obligation ������������������������������� ¥   12,227
Fair value of plan assets ������������������������������������� (5,575)(878)
Unrecognized prior service cost �������������������������
(723)
Unrecognized actuarial loss �������������������������������
   Net liability ��������������������������������������������������� ¥ 5,051¥11,223(5,567)(1,054)(427)¥ 4,175$125,008(56,998)(8,977)(7,392)$ 51,641

The costs of defined benefit pension plans are accrued based on amounts determinedprincipally using an actuarial method. The Company and a certain subsidiary also each havea 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 28, 2009 andFebruary 29, 2008 were as follows:

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

2009

Millions of Yen
2008

Thousands of
U.S. Dollars
2009¥    872
223
176
98
265
¥1,634¥1,137
213
176
89
249
¥1,864$   8,916
2,280
1,799
1,002
2,709
$16,706

Assumptions used for the years ended February 28, 2009 and February 29, 2008, wereas follows:

60

LAWSON, INC.
Annual Report 2009

2009

2008

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

2.0%0%
10 years
10 years

13. 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. The
significant 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. For­companies 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 ofservice 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 Corporate Law permits companies to distribute dividends‑in‑kind (non‑cash assets) toshareholders subject to a certain limitation and additional requirements.
Semiannual interim dividends may also be paid once a year upon resolution by the Boardof 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 oftreasury stock. The limitation is defined as the amount available for distribution to theshareholders, but the amount of net assets after dividends must be maintained at no lessthan ¥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 appropriated as a legal reserve (a component of retained earnings) or as additional paid‑in capital (acomponent of capital surplus) depending on the equity account charged upon the paymentof such dividends until the total of aggregate amount of legal reserve and additional paid‑in
capital equals 25% of the common stock. Under the Corporate Law, the total amount ofadditional 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 capitalsurplus and retained 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 isdetermined by specific formula. Under the Corporate Law, stock acquisition rights, whichwere previously presented as a liability, are now presented as a separate component ofequity. The Corporate Law also provides that companies can purchase both treasury stockacquisition rights and treasury stock. Such treasury stock acquisition rights are presented asa separate component of equity or deducted directly from stock acquisition rights.

LAWSON, INC.
Annual Report 200961

14. Stock Options
The Company has stock option plans as an incentive for directors, executive officers andselected employees.
The following is a summary of the Company’s stock option plans:
Number of
Options Granted

Date of Grant

Exercise Price

Exercise Period

9 directors and
17 executive officers

92,000 shares2003.7.3¥3,517($35.96)

From July 3, 2005
to July 2, 2008

3rd Stock Option

9 directors and
20 executive officers

99,000 shares2004.6.10¥4,320($44.17)

From June 10, 2006
to June 9, 2009

4th Stock Option

9 directors and
24 executive officers

114,000 shares2005.10.12¥4,160($42.53)

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($41.44)

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($40.37)

From September 7, 2009
to August 20, 2012

8th(a) Stock Option

7 directors

26,400 shares2009.1.16¥1($0.01)

From January 17, 2009
to December 15, 2028

8th(b) Stock Option

11 executive officers

36,000 shares2009.1.16¥5,174($52.90)

From January 18, 2011
to December 15, 2013

Stock Option

Persons Granted

2nd Stock Option

The following is a summary of Ninety‑nine Plus Inc.’s stock option plans:
Stock Option

Persons Granted

2nd Stock Option

9 directors and auditors
226 managers(including store manager)
58 Ninety-nine Plus
Kansai Inc.’s managers(including store manager)

Number of
Options Granted

3,824 shares

Date of Grant

Exercise Price

Exercise Period

2003.10.31¥90,000($920.15)

From September 4, 2005
to September 3, 2010

The stock option activity is as follows:
2nd
Stock Option

3rd
Stock Option

For the Year Ended February 29, 2008
Non-vested:
February 28, 2007— outstanding ����������������������
   Granted ����������������������������������������������������������
   Canceled ��������������������������������������������������������
   Vested ������������������������������������������������������������
February 29, 2008— outstanding ����������������������
Vested:February 28, 2007— outstanding ����������������������
   Vested ������������������������������������������������������������
   Exercised ��������������������������������������������������������
   Canceled ��������������������������������������������������������
February 29, 2008— outstanding ����������������������

For the Year Ended February 29, 2008
Non-vested:
February 28, 2007— outstanding ����������������������
   Granted ����������������������������������������������������������
   Canceled ��������������������������������������������������������
   Vested ������������������������������������������������������������
February 29, 2008— outstanding ����������������������
Vested:February 28, 2007— outstanding ����������������������
   Vested ������������������������������������������������������������
   Exercised ��������������������������������������������������������
   Canceled ��������������������������������������������������������
February 29, 2008— outstanding ����������������������

62

LAWSON, INC.
Annual Report 2009

4th
Stock Option

5th
Stock Option

6th (a)Stock Option

114,000

83,000(114,000)

43,60043,60099,00099,0007th (a)Stock Option

7th (b)Stock Option

18,00045,000(18,000)

18,00018,00045,000114,000
114,000
8th (a)Stock Option

6th (b)Stock Option(Shares)

83,00020,00021,300(5,000)15,00021,300Ninety-nine
8th (b) Plus Inc.’s 2nd
Stock Option Stock Option(Shares)

The assumptions used to measure the fair value of the stock options were as follows:
2nd
Stock Option

3rd
Stock Option

4th
Stock Option

5th
Stock Option

6th (a)Stock Option

For the Year Ended February 28, 2009Non-vested:
February 29, 2008—outstanding ������������������������
   Granted ����������������������������������������������������������
   Canceled ��������������������������������������������������������
   Vested ������������������������������������������������������������
February 28, 2009—outstanding
Vested:February 29, 2008—outstanding ������������������������
   Vested ������������������������������������������������������������
   Exercised ��������������������������������������������������������
   Canceled ��������������������������������������������������������
February 28, 2009—outstanding ������������������������
Exercise price ��������������������������������������������������������
Average stock price at exercise ����������������������������
Fair value price at grant date ��������������������������������

83,000(3,000)(80,000)

43,60099,000114,000

15,00021,300(13,400)(30,200)(8,100)90,900(10,400)(3,000)100,600

15,00021,30080,000¥3,517($35.96)¥5,180($52.96)¥4,320($44.17)¥5,356($54.76)¥4,160($42.53)¥4,885($49.94)¥1($0.01)¥1($0.01)¥4,053($41.44)¥3,178($32.49)¥618($6.32)

7th (a)Stock Option

7th (b)Stock Option

8th (a)Stock Option

For the Year Ended February 28, 2009Non-vested:
February 29, 2008—outstanding ������������������������
   Granted ����������������������������������������������������������
   Canceled ��������������������������������������������������������
   Vested ������������������������������������������������������������
February 28, 2009—outstanding ������������������������
Vested:February 29, 2008—outstanding ������������������������
   Vested ������������������������������������������������������������
   Exercised ��������������������������������������������������������
   Canceled ��������������������������������������������������������
February 28, 2009—outstanding ������������������������
Exercise price ��������������������������������������������������������
Average stock price at exercise ����������������������������
Fair value price at grant date ��������������������������������

6th (b)Stock Option(Shares)

45,000(3,000)42,00018,00026,400(26,400)

Ninety-nine
8th (b) Plus Inc.’s 2nd
Stock Option Stock Option(Shares)

36,00036,0001,000

26,40018,00080,000(24)

26,400976¥1($0.01)¥3,949($40.37)¥1($0.01)¥5,174($52.90)¥2,852($29.16)¥397($4.06)¥3,477($35.55)¥582($5.95)¥90,000($920.15)

The assumptions used to measure the fair value of the stock options were as follows:
7th (a)Stock Option

7th (b)Stock Option

8th (a)Stock Option

Estimate method ���������������������������������� Black-Scholes Black-Scholes Black-Scholes
option pricing option pricing option pricing
model
model
model
Volatility of stock price �������������������������� 35.19%
21.82%
35.59%
Estimated remaining
outstanding period ������������������������������ 10 years
3.5 years
10 years
Estimated dividend �������������������������������� ¥100 per share ¥100 per share ¥135 per share
Interest rate with risk free �������������������� 1.58%
0.99%
1.22%

8th (b)Stock Option

Black-Scholes
option pricing
model
28.09%
3.5 years¥135 per share
0.52%

LAWSON, INC.
Annual Report 200963

15. Income Taxes
The Company and its domestic subsidiaries are subject to a number of different taxes basedon income, which in the aggregate, resulted in a normal effective statutory tax rate of
approximately 40.7% for the years ended February 28, 2009 and February 29, 2008.
The tax effects of significant temporary differences and tax loss carryforwards, which
resulted in deferred tax assets and liabilities at February 28, 2009 and February 29, 2008,
are as follows:
Millions of Yen

Thousands of
U.S. Dollars

2009

2008

2009

Deferred tax assets:
Accrued enterprise tax ���������������������������������� ¥    902Accrued employees’ bonuses ������������������������
1,302
Excess of depreciation ����������������������������������
4,969
Excess of amortization of software ��������������
794
Employees’ retirement benefits ��������������������
4,324
Allowance for doubtful accounts ������������������
626
Tax loss carryforward ������������������������������������
2,216
Impairment loss ��������������������������������������������
2,165
Loss on replacement of computer system ����
841
Other ��������������������������������������������������������������
2,435
Less valuation allowance ������������������������������
(1,968)   Total ������������������������������������������������������������ 18,606¥    954
1,084
4,218
688
3,964
1,102
1,616
1,618
896
2,015
(1,621)
16,534$   9,222
13,31250,8038,118
44,2086,400
22,656
22,135
8,598
24,895(20,121)
190,226

Deferred tax liabilities—Unrealized gain on
available-for-sale securities �����������������������������
Net deferred tax assets �����������������������������������

92¥16,442$190,226¥18,606

At February 28, 2009, certain subsidiaries have tax loss carryforwards aggregating toapproximately ¥5,445 million ($55,669 thousand) which are available to be offset against
taxable income of such subsidiaries in future years. These tax loss carryforwards, if not
utilized, will expire as follows:Year Ending February 28 or 29

2010 ������������������������������������������������������������������������������������
2011�������������������������������������������������������������������������������������
2012�������������������������������������������������������������������������������������
2013�������������������������������������������������������������������������������������
2014�������������������������������������������������������������������������������������
2015�������������������������������������������������������������������������������������
2016 and thereafter��������������������������������������������������������������
   Total������������������������������������������������������������������������������

Millions of Yen

Thousands of
U.S. Dollars¥  422
415
287
920
1,671
744
986
¥5,445$   4,314
4,243
2,934
9,406
17,084
7,607
10,081$55,669

16. Leases
The Companies lease certain store facilities, machinery, computer equipment, office spaceand other assets.
Total lease payments under finance leases for the years ended February 28, 2009 andFebruary 29, 2008, were ¥14,434 million ($147,572 thousand) and ¥18,103 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 28, 2009 and February 29, 2008 was as follows:

64

LAWSON, INC.
Annual Report 2009

Leased property used by franchised stores:

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

2009

Millions of Yen
2008

Thousands of
U.S. Dollars
2009¥48,860
28,046690¥20,124¥68,232
47,407511¥20,314$499,540
286,740
7,054$205,746

2009

Millions of Yen
2008

Thousands of
U.S. Dollars
2009¥  6,452
14,766¥21,218¥  7,702
13,543¥21,245$  65,965
150,966$216,931

Obligations under finance leases:

Due within one year ������������������������������������������
Due after one year ��������������������������������������������
   Total ������������������������������������������������������������

An allowance for impairment loss on leased property of ¥351 million ($3,589 thousand) asof February 28, 2009 is included in obligations under finance leases.
Leased property used by Company‑operated stores and other:
Millions of Yen
2009
Furniture,
Fixtures andEquipment

Acquisition cost �����������������������������������������������
Accumulated depreciation �������������������������������
Accumulated impairment loss �������������������������
   Net leased property �����������������������������������

¥27,192
11,69786¥15,409

Software

Total

¥734
636

¥27,926
12,333
86¥15,507¥ 98

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

Thousands of U.S. Dollars
2009
Furniture,
Fixtures andEquipment

Acquisition cost ����������������������������������������������� $278,008
Accumulated depreciation���������������������������������
119,589
879
Accumulated impairment loss���������������������������
   Net leased property����������������������������������� $157,540

SoftwareTotal$7,504
6,502$285,512
126,091879$158,542$1,002

Obligation under finance leases:
Millions of Yen

Due within one year ������������������������������������������
Due after one year ��������������������������������������������
   Total ������������������������������������������������������������

Thousands of
U.S. Dollars

2009

2008

2009

¥   4,834
11,324¥16,158¥ 3   ,455
7,213
¥10,668$  49,422
115,775$165,197

Allowance for impairment loss on leased property of ¥333 million ($3,405 thousand) as ofFebruary 28, 2009 is included in obligations under finance leases.
LAWSON, INC.
Annual Report 200965

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:

2009

Millions of Yen
2008

Thousands of
U.S. Dollars
2009¥16,785
1,011
18,103$139,638
12,371
147,572

207
425

3,854
3,486

Depreciation expense ������������������������������������������ ¥13,658
1,210Interest expense ��������������������������������������������������
Lease payments �������������������������������������������������� 14,434
Reversal of allowance for impairment loss
on leased property ��������������������������������������������
377
341
Impairment loss ��������������������������������������������������

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.
The minimum rental commitments under noncancelable operating leases at February 28,
2009 were as follows:

Due within one year �������������������������������������������������������������������
Due after one year ���������������������������������������������������������������������
   Total �������������������������������������������������������������������������������������

Millions of
Yen
2009

Thousands of
U.S. Dollars
2009¥   560462¥1,022$   5,726
4,723$10,449

17. Related Party Transactions
Transactions with LAWSON CS Card, INC. for the year ended February 28, 2009 wereas follows:
Millions of
Yen
2009

Thousands of
U.S. Dollars
2009

Decrease in short-term loan receivable ������������������������������������� ¥20,000
37Interest received �������������������������������������������������������������������������

$204,478
378

Amounts presented between the Company and LAWSON CS Card, INC. are related totransactions from March 1, 2008 through April 30, 2008 because the Company sold allshares on April 30, 2008. All short‑term loan receivables were repaid on April 30, 2008.
Mitsubishi has been treated as an associated company of the Company because it owns,
including indirect holdings, 32.7% of the total voting rights of the Company. Therefore, theCompany discloses transactions with subsidiaries of Mitsubishi, including those transactions
related to the franchised stores.
Balances and transactions with subsidiaries of Mitsubishi as of and for the year ended
February 28, 2009 were as follows:
Millions of
Yen
2009

Thousands of
U.S. Dollars
2009

RYOSHOKU LIMITED:
Accounts payable—trade�������������������������������������������������������� ¥    6,572
Purchases ������������������������������������������������������������������������������
91,630$    67,191
936,816

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

16,442
227,597

168,101
2,326,930

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

2,930
33,46529,956342,143

Purchase prices and other conditions are determined at arm’s length basis.

66

LAWSON, INC.
Annual Report 2009

18. Net Income Per ShareA reconciliation of the differences between basic and diluted net income per share (“EPS”)
for the years ended February 28, 2009 and February 29, 2008 is as follows:
Millionsof YenNet
IncomeThousandsof Shares
Weightedaverage
SharesBasic EPS—Net income available
to common shareholders �������������������������������� ¥25,306
Effect of dilutive securities—Stock options ������
Diluted EPS —Net income for computation ������ ¥25,306

99,155
88
99,243¥255.22$2.61¥254.99$2.61

103,02756
103,083¥214.69

Year Ended February 28, 2009

Yen

U.S. Dollars

EPS

Year Ended February 29, 2008

Basic EPS—Net income available
to common shareholders �������������������������������� ¥22,119
Effect of dilutive securities—Stock options ������
Diluted EPS —Net income for computation ������ ¥22,119¥214.57

19. Supplement Cash Flows Information
Ninety‑nine Plus Inc. and Ninety‑nine Plus Kansai Inc. became consolidated subsidiaries
from associated companies effective this year, after an increase in the number of shares
owned on September 5, 2008.
The breakdown of assets and liabilities of the acquired companies, at the time of acquisition was as follows:
Millions of
Yen
2009

Thousands of
U.S. Dollars
2009

Current assets ���������������������������������������������������������������������������� ¥  13,529
Non-current assets ���������������������������������������������������������������������� 13,661
3,283
Goodwill ��������������������������������������������������������������������������������������
Current liabilities �������������������������������������������������������������������������� (14,565)
Non-current liabilities ������������������������������������������������������������������ (2,039)
Minority interests ������������������������������������������������������������������������ (2,459)
Equity acquired before August 31, 2008 ������������������������������������ (5,562)
5,848
Acquired price of stock ����������������������������������������������������������������
8,076
Cash and cash equivalents of acquired companies ��������������������
Difference: Acquisition of a subsidiary, net of cash acquired ������ ¥          2,228$   138,319
139,669
33,565(148,911)(20,847)(25,141)(56,865)
59,78982,568$   22,779

20. Subsequent Events
The following appropriation of retained earnings was approved at the general shareholders
meeting held on May 26, 2009:

Cash dividends, ¥80 ($0.82) per share ���������������������������������������

Millions ofYen

Thousands of
U.S. Dollars¥7,933$81,106

LAWSON, INC.
Annual Report 200967

INDEPENDENT AUDITORS’ REPORT68

LAWSON, INC.
Annual Report 2009

Directors, Corporate Auditors and Executive Officers(As of May 27, 2009)

President and CEO

Takeshi Niinami

CEO

Member of the Board
and Senior Executive
Vice President

Yoshiyuki Yahagi

CFO, General Manager, Management Services OfficeMember of the Board andExecutive Vice President

Manabu Asano

Chief Compliance Officer (CCO)

Member of the Board

Toru Moriyama

Senior Vice President, Assistant to Group CEO,
Living Essentials Group, Mitsubishi Corporation

Members of the Board(Outside)

Hiroshi Tasaka
Reiko Okutani
Takehiko Kakiuchi

Professor, Graduate School of Tama University
President, The R Co., Ltd.
Division COO, Foods (Commodity) Div., Mitsubishi Corporation

Standing Corporate
Auditor (Outside)Standing Corporate
Auditor

Munehiko Nakano

Corporate Auditors(Outside)

Tetsuo Ozawa
Hiroshi Kuwata

Senior Executive Vice
President

Takatoshi Kawamura In charge of Corporate Business Strategy Division

Executive Vice President

Yoichi Yokomizo

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

Norikazu Nishiguchi
Shigeaki Kawahara

General Manager, Store Development Planning Division

Takaki Mizuno
Jyun Miyazaki
Noriyuki Nobayashi
Hajime Nakai
Syuichi Imagawa
Kei Murayama
Ichiro Kijima
Atsushi Maeda

General Manager, Chubu LAWSON Branch

Kazuo Togasa
Masahiro Oyama

Deputy General Manager, Store Development Planning Division

Kenji Yamakawa

Lawyer
General Manager, Risk Management Department,
Mitsubishi Corporation

Executive Assistant to CEO, Senior Executive Vice President,
Ninety-nine Plus Inc.
General Manager, PR, Corporate Communications Office
General Manager, Entertainment & Service Development Division
General Manager, Merchandizing & Logistics Division
General Manager, Marketing Strategy Group
General Manager, Human Resources Office
General Manager, Corporate Business Strategy Division
Director, Ninety-nine Plus Inc. Assistant to General Manager,
Merchandizing & Logistics Division
Deputy General Manager, Merchandizing & Logistics Division

LAWSON, INC.
Annual Report 200969

Corporate Data
(As of February 28, 2009)

Company NameNet Sales of All Stores

LAWSON, INC.

¥1,558.7 billion (Consolidated)

Address

Operating Area

Head Office:East Tower, Gate City Ohsaki, 11-2, Osaki 1-chome,
Shinagawa-ku, Tokyo 141-8643, JapanAll 47 prefectures in Japan;
Shanghai, PRC (Joint Venture)

Established
Number of Employees

April 15, 1975

5,186 (Consolidated)

CapitalBusiness Activities¥58.5 billion

Development of LAWSON convenience store franchise
chain and NATURAL LAWSON stores, etc.

Number of Stores

9,527 (Consolidated)

Chubu

1,359

*1=LAWSON (Non-consolidated)*2=SHOP99 and LAWSON STORE100 stores*3=LAWSON Group Total

Kyushu1,012

Chugoku*1

Fukuoka 331
Saga
58
Nagasaki84
Kumamoto 90
Oita
126
Miyazaki84
Kagoshima 106
Okinawa 133
1,012

*2

*3

–
331
–
58
–
84
–
90
–
126
–
84
–
106
–
133
– 1,012

531

*1

*2

*3

Niigata
100–
100
Toyama106–
106
Ishikawa
78
–
78
Fukui
92
–
92
Yamanashi 66–
66
Nagano
133
–
133
Gifu
104
6
110
Shizuoka 154 13
167
Aichi
328 95
423
Mie
84
–
84
1,245 114 1,359

*1

*2

*3

Tottori
87
Shimane82
Okayama 122
Hiroshima 132
Yamaguchi 108
531

–
–
–
–
–
–

87
82
122
132
108
531

Hokkaido

498

*1

*2

*3

Hokkaido 498
498

–
–

498
498

Tohoku

807

*1

*2

*3

Aomori
162
Iwate
166
Miyagi
158
Akita
142
Yamagata 56
Fukushima 93
777

–
–
25
–
–
5
30

162
166
183
142
56
98
807

Kanto

2,866
Shikoku

417

Kinki
*1

*2

*3

Tokushima 109
Kagawa98
Ehime
150
Kouchi
60
417

–
–
–
–
–

109
98
150
60
417

2,037

Store Information
SHANGHAI HUALIAN LAWSON CO., LTD.: 300 (as of December 31, 2008)

70

LAWSON, INC.
Annual Report 2009

*1

*2

*3

Shiga
123
–
123
Kyoto
201 35
236
Osaka
816 119935
Hyogo
497 32
529
Nara
102
2
104
Wakayama 110–
110
1,849 188 2,037

*1

*2

*3

Ibaraki
101
5106
Tochigi
105
–
105
Gunma
68
–
68
Saitama 329 43
372
Chiba
282 60342Tokyo
901 332 1,233
Kanagawa 487 153
640
2,273 593 2,866

Note: LAWSON non-consolidated figures include 93 NATURALLAWSON stores as of February 28, 2009.

Shareholder Information(As of February 28, 2009)

Authorized Shares

Stock Exchange Listings

409,300,000

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

Shares Issued
Stock Transfer Agent

99,600,000

Mitsubishi UFJ Trust and Banking Corporation

Shareholders

4-5, Marunouchi, 1-chome, Chiyoda-ku,

33,358

Tokyo 100-8212, Japan

Major Shareholders
1. Mitsubishi Corporation
2. Japan Trustee Services Bank, Ltd. (Trust Account)
3. The Master Trust Bank of Japan, Ltd. (Trust Account)
4. Japan Trustee Services Bank, Ltd. (Trust Account 4G)
5. Marubeni Foods Investment Co., Ltd.
6. NTT DoCoMo, Inc.
7. Trust & Custody Services Bank, Ltd. (Securities Investment Trust Company)
8. STATE STREET BANK AND TRUST COMPANY 505223
9. The Nomura Trust & Banking Co., Ltd. (Trust Account)
10. STATE STREET BANK AND TRUST COMPANY 505225

Number of Shares
Held (Thousands)

Percentage of Total
Shares Held*

32,089
6,613
6,031
5,035
4,786
2,092
1,185
1,178
1,038
979

32.4
6.7
6.1
5.1
4.8
2.1
1.2
1.2
1.0
1.0

* The above shareholding ratios exclude treasury stock (432,015).

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

Stock price (Yen)

4,000

2,000

0
21,000,000

Trading volume (Shares)

14,000,000

7,000,000

0Years Ended

February 28 and 29

2005

2006

2007

2008

2009

High

4,560
3,510
3,980

5,130
3,800
4,350

4,830
3,800
4,540

4,750
3,440
4,000

5,750
3,820
4,250

Low
At Year-End

LAWSON, INC.
Annual Report 200971

Annual Report 2009

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 2009.
©1975–2009 LAWSON, INC. All rights Reserved.

B-(2)-060001

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including 10% clear-cut lumber.

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