Year ended February 28, 2010

The Japanese convenience store (CVS) industry is saturated with storesof the same type, leading people to question the industry’s growthpotential. But LAWSON believes that it still has room to grow by
expanding customer bases and developing overseas. We will pursue ourtrue potential through innovation to achieve this growth.

LAWSON’S CORPORATE PHILOSOPHY
AND CODE OF CONDUCTLAWSON assures that all corporate activities conform to its Corporate Philosophy,
and that the Company’s management and employees work together as a team torealize its goals. To this end, we ensure that all of our actions are grounded in ourshared values, no matter what changes may take place in the operating environment.
Our Code of Conduct requires employees to be responsible for reflecting our values
and standards through their actions.

CORPORATE PHILOSOPHY
Happiness and Harmony in Our Community

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

Forward-looking Statements Regarding Forecasts and Figures
This annual report contains forward-looking statements about the future plans, strategies, beliefs and performance of the LAWSON Group. These forward-looking statements are not historicalfacts. 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 equity-method earnings in this company in the fiscal
year ended February 28, 2009 for the six months through the end of the company’s second quarter because Ninety-nine Plus has a March 31 fiscal year-end. Ninety-nine Plus’s earnings
were completely consolidated for its third quarter. Moreover, Ninety-nine Plus changed its fiscal year-end from March 31 to February 28 at its ordinary general meeting of shareholders in June
2009. The fourth-quarter of fiscal 2008 and fiscal 2009 results (11-month fiscal year due to a fiscal year-end change) of the Ninety-nine Plus Group have been consolidated in LAWSON’s
fiscal 2009 results.
Figures in this annual report are rounded to the nearest unit.
LAWSON’s fiscal year-end is the end of February. Due to the discovery of misconduct by two former directors at LAWSON consolidated subsidiary LAWSON ENTERMEDIA, INC. (LEM),LAWSON has retrospectively amended consolidated operating results for the fiscal year ended February 2009, taking into consideration minority interests in net income of consolidated
subsidiaries.

LAWSON, INC.
Annual Report 2010

Contents
02
03
04
10

Consolidated Financial Highlights
TopicsA Message to LAWSON Stakeholders
LAWSON FEATURE:
Frequently Asked QUestions From Investors

16 Corporate Social Responsibility (CSR)
18	Directors and Corporate Auditors
20 Corporate Governance
22	Misconduct by Two Former Directors of
LAWSON ENTERMEDIA, INC.

23 Financial Section
69	Directors, Corporate Auditors andExecutive Officers

70
71

Corporate Data
Shareholder Information

The feature section of this year’s annual report explains LAWSON’s
growth scenarios in the form of answers to questions we often receivefrom investors. We explain trends in the CVS industry, our performance,
our distinctive strategies, and the fields we are focusing on to realize
our aspirations for LAWSON and raise its corporate value.

LAWSON, INC.
Annual Report 2010

Consolidated Financial Highlights
LAWSON, INC. and Subsidiaries
Years Ended February 28, 2010, 2009 and February 29, 2008

Millions of Yen

Percent
ChangeThousands of
U.S. Dollars*

2010

2009

2008

2010/20092010

Net sales of all stores¥1,666,136¥1,558,781¥1,415,106

6.9%$18,630,616

Total operating revenues

467,192

349,476

301,17733.7%

5,224,108

Operating income

50,27649,186

46,6102.2%

562,183

Income before income taxes andminority interests

29,87540,271

38,135–25.8%

334,060

Net income

12,56223,807

22,119–47.2%

140,467

Net income¥127¥      240¥      215

–47.1%$      1.42

Cash dividends

160

160

110

–%

1.79

Total assets¥  448,132¥  436,096¥  397,108

2.8%$ 5,010,981

Total equity

198,136

201,167

188,574–1.5%

2,215,543

For the year:

Per share data (yen and dollars):

At year-end:

Financial data:
6.5%

12.5%

11.6%

–6% points

126.3%

66.6%

51.2%

59.7% points

Return on equity (ROE)
Payout ratio
Store network:

9,625

9,527

8,587

1.0%

Franchised stores

8,527

8,362

8,148

2.0%

Company-owned stores

1,098

1,165

439

–5.8%

Total number of stores in Japan* The U.S. dollar amounts represent translations of Japanese yen at the approximate exchange rate at February 28, 2010, of ¥89.43=$1.

Operating income

Net income per share

Return on equity (ROE)(Millions of Yen)

(Yen)

(%)

49,18650,276

240

12.5

6.5
127

2.2% Up20092010

47.1% Down
2009

2010

6.0pts Down
2009

2010

Consolidated operating income rose 2.2% year on year to ¥50.2 billion, with an improvement in gross profit margin from structuralreforms and curbs on selling, general and administrative expenses countering sluggish existing store sales. However, net income pershare and ROE dropped sharply due to extraordinary losses stemming from the alleged misappropriation of funds by former directors ofsubsidiary LAWSON ENTERMEDIA, INC. As a management goal, LAWSON aims to achieve 15–20% ROE by FY2020.

LAWSON, INC.
Annual Report 2010

Topics
Launch of Surprise ProductDevelopment Project
LAWSON launched its Surprise Product Development Project in July 2009
for creating innovative new products infour areas: boxed lunches, rice balls,
pastas, and desserts. The aim of the
project is to surprise customers by
elevating product value. Innovations
used in the project to boost productvalue include purchasing ingredients inbulk to keep foreign exchange risks
under control and using new technologies in the production process.

New Uchi Café SWEETS Branda Major Hit
With our original Uchi Café SWEETS
dessert brand created as part of the
Surprise Product Development Project
we set out to redefine conceptions ofdesserts sold at convenience stores.
One of the brand’s main products,
Premium Whipped Cream Roll, won agold award in the confectionery­category at the 2010 Monde Selection
competition held in Europe to recognize fine foods from around the world.
This was the first original chilled convenience store dessert from Japan toreceive a Monde Selection award.

Unveiling New Pasta Ya Brand

Card Memberships
Top 11 Million

For Pasta Ya, our new pasta brand, wechanged the way we source ingredients, introduced special pasta
machines featuring a new production
process at our processing plants
throughout Japan, and adopted other
innovations to give our ingredients andsauces more volume and allow us to
use delicious fresh pasta. We areproud to offer our customers thisproduct, confident that it meets thestandards of restaurant pastas.

In Tune with Local
Communities
LAWSON promotes initiatives that arein tune with the needs of local communities. We select merchandise thatsuits the tastes of each region, anddevelop products that use locallyprocured ingredients. Some stores are
set up as special “Antenna Shops” thatfeature assortments of well-known
regional products from their local prefectures as a way of expanding sales
channels and disseminating information. We had reached comprehensive
agreements to offer products from 31
prefectures and 2 cities in these storesby the end of April 2010.

MY LAWSON POINT and LAWSONPASS card memberships passed 11
million by the end of February 2010, a
testament to strong customer support
for the programs. We aim to foster
customer loyalty through sales promotions for card-holding customers andother strategies. In March 2010, we
joined the Ponta multi-partner shopping
points program in conjunction withother firms to offer even more convenient services to customers.

Further Steps to Protect theEnvironment
Environmental preservation is one of
our leading priorities. New stores thathave opened since June 2009 use
light-emitting diode (LED) bulbs andlight fixtures for interior lighting andsignboards. We have also started
introducing electric vehicles for use by
supervisors and staff making therounds to visit stores, and haveequipped some stores with battery
rechargers. These initiatives are justsome of the active steps we are taking
to protect the environment and coexist
with communities.

LAWSON, INC.
Annual Report 2010

A Message to LAWSON Stakeholders
Pursuing Innovation for Sustainable Medium- to Long-Term GrowthFiscal 2010 will be a crucial year for LAWSON. It will shape our future by preparing
us for a great leap forward. We will continue to apply the Three Challenge Practices*that are the foundation of our franchised store operating strengths, while revamping
operations by utilizing our point card data and our next-generation IT system(PRiSM). We will also focus our resources on business segments such as fresh
foods, healthcare, in-store food preparation, and overseas operations, where we havethe potential to achieve industry leadership. Our aim is to attainsustainable growth over the medium to long term.
* The Three Challenge Practices are points that franchised store owners, employees
and store crews (part-time and casual workers) must pay particular attention to inrunning LAWSON stores. They are (1) ensuring merchandise assortments arematched to individual locations, (2) serving customers courteously, and (3)keeping stores and surrounding areas clean.

Takeshi Niinami
President and Chief Executive Officer

LAWSON, INC.
Annual Report 2010

A Look Back at Fiscal 2009

strengthen their operations, and to increase profits for fran-In fiscal 2009, consolidated operating income increased

chise owners. To this end, we have been making ongoing

2.2% year on year to ¥50,276 million, marking the seventh

upfront investment for sustainable medium-term growth.

consecutive year of operating income growth on a consoli-

Our efforts to strengthen existing stores are based on

dated basis.

improving the store operating capabilities of franchise owners

Waning consumer sentiment, price competition between

with the important goal of creating product assortments thatretail formats, and competition between major convenience

match the needs of local customers. We equip franchise

store (CVS) operators opening stores with similar attributes

owners for this task by organically weaving together card

depressed existing store sales by 4.1%. However, the grossdata analysis for better understanding customer needs,

profit margin rose 0.3 points to 30.4%, thanks to reactionary

development of value-added products through the use ofgains after input prices surged in fiscal 2008 and to thespecialty ingredients, and our next-generation IT systemeffect of structural improvements from the second half of(PRiSM) which allows users to see clearly where sales

fiscal 2009.

opportunities are being lost.

Selling, general & administrative (SG&A) expenses wereless than we planned because we successfully cut costs by

We will also pursue growth as a company by developing
new store formats and opening stores outside of Japan.

streamlining our existing IT system, which reduced IT costs,
cutting back on low-performing advertising channels. Robust

Strengthening Store Operating Capabilities ofFranchise Owners

performances by LAWSON ATM Networks Inc., Ninety-nine

Our “Mystery Shopper” program has been in place since

Plus Inc., and other consolidated subsidiaries also boosted

fiscal 2003 for objectively and quantitatively evaluating store

consolidated operating income.

operations from a customer perspective. The program isand applying a return on investment-driven approach to

LAWSON incurred significant extraordinary losses in fiscal

now firmly established among franchise owners. Setting the2009 stemming from the alleged misappropriation of com-

“Mystery Shopper” evaluation as the standard for store oper-

pany funds by two former directors of LAWSON

ation has helped to enhance franchise owners’ store operat-­ENTERMEDIA, INC., a consolidated subsidiary, that were

ing abilities by fostering a constant awareness of the Three

made public in February 2010. We sincerely apologize to

Challenge Practices that I have continually stressed sinceshareholders, investors, and all of our stakeholders for the

becoming president.

problems this has caused. We take such actions very seri-

Store owners that receive high marks from the “­Mysteryously and are further strengthening corporate governance

Shopper” program have a keen understanding of the next-

and compliance at LAWSON and all Group companies andgeneration IT system (PRiSM) and actively use it. They areaffiliates to ensure that the problem does not reoccur. Pleasewell able to operate stores in multiple formats, including

see page 22 of this report for our investigation of the incident

LAWSON STORE100, Fresh Food-type LAWSON formats,and the countermeasures that we have taken.

and ­NATURAL LAWSON store formats. Enhancing the store
operating capabilities of franchise owners is crucial to pro-Important Policy Initiatives in Fiscal 2009

moting franchise store development under multiple formatsm	Supported franchise (FC) owners and strengthened theiras a strategy for differentiating ourselves from competitors.

store operating capabilitiesm	Developed products in response to polarization in

consumptionm	Improved gross profit margins through structural reformm	Installed next-generation IT system (PRiSM)
m Promoted CVS businesses offering fresh items

Since all of these policies will continue to be key policy initia-

Using Card Data
More than 11 million of our original point cards had been
issued by the end of February 2010. Transactions bymember cardholders have grown to account for about 20%
of sales. The data gleaned from these sales is instrumental
for ascertaining customer needs in the catchment areas
where our stores are located. We analyze purchasing data

tives in fiscal 2010, I will describe them in more detail here.

for product development and for devising merchandise

Key Policy Initiatives in
Fiscal 2010

assortments at stores. In addition, we joined the Ponta

Rather than focusing resources on the number of conven-been issued for this program in total, including those of thetional CVS store openings, our primary goal is to increaseother participating companies. Through this program wegross profits at our existing stores through measures to

can provide additional services for customers, broaden ourmulti-partner shopping points program in conjunction withother firms in March 2010. More than 20 million cards have

LAWSON, INC.
Annual Report 2010

marketing analysis, and facilitate sales promotion

opportunities, as well as increase sales of these high-grossstrategies.

margin products. We believe that franchise owners willregister improved profits as a result.

Developing Value-Added Products
To create value from the procurement of raw materials for our
original ready-made meals (lunch boxes, rice balls, and othercarry-out foods), we established the Raw Material Purchasing
Dept. as a specialist division and stepped up our involvementin procurement. We have also focused on securing and* When a product desired by customers is out of stock.
** Losses incurred by franchise owners disposing of unsold stock.
*** A system that anticipates products wanted by customers and orders
sufficient stock to supply the anticipated need.

Aggressive Development of Fresh Food CVS Formats
LAWSON STORE100 stores operated by subsidiary Ninety-

training personnel for this field. In fiscal 2009, we further

nine Plus Inc. are geared toward meeting the needs ofstrengthened our ties with partners including Mitsubishi

housewives, the middle-aged and seniors, who want to buy­Corporation and took steps to control risks in raw material

fresh food within walking distance of their homes. The storesprocurement. As a result we can now procure high-quality
ingredients at low prices, and have been able to establish the
Surprise Product Development Project. (See the Topics

have been performing strongly. We began full-fledged development of franchise stores in this format in the second half offiscal 2009. In fiscal 2010, we will accelerate franchise store

section of this report on page 3.)

development as we open new stores and actively invest in

Looking ahead, we will involve ourselves in a broader

the fresh food CVS businesses.

range of raw materials and parlay the value added by our
procurement activities into the quality and prices of the products we develop.

As of February 2010, we had refurbished more than 800
of our conventional LAWSON stores to carry an assortmentof fresh foods. In fiscal 2010, we plan to continue suchrefurbishments at suitable store locations and work to

Innovating Our Ordering Process

improve profits at existing stores.

Our problem in the past has been an inability to fully understand buying trends among customers visiting our stores.

New Innovations and Overseas Store Development

Our FC owners often used a supplementary order systemthat determined how much stock we should purchase basedon past sales records. This led to lost sales opportunities*.
Until now our core IT system has often been unable to quantify these losses. It tended to be overly predisposed to

We are developing innovative new store formats, ­including
LAWSON stores with in-store kitchens and LAWSON storeswith a greater focus on healthcare. Also, we are looking into
new expansion overseas. In China, we currently have around

reducing product disposal losses**, which
are relatively easy to calculate, and this

Structural Reform for Stores

prevented us from offering the merchandise
assortments that customers wanted.

m Limit productnumbers

The next-generation IT system (PRiSM),(Apply conditions
for restocking, etc.)

installed in the second half of fiscal 2009,m Optimize order

allows us to use card data analysis tofrequency

create the best possible merchandise
assortments. It also allows us to clearly
see lost sales opportunities and effectively
creates merchandise assortments that
better match customer needs. In fiscal

m Use card datam Increase
gross profit
m Shorten timerequired forordering

to verify thatmerchandise
assortments matchthe needs of local
customers

2010, we will use PRiSM to promote achange in our franchise owners’ approachto ordering, by switching from a supplementary order system to a planned ordersystem***. For processed food and non-m Improve profits offranchise owners

food products, this will stop the unfortunate cycle of product orders being
prompted by product shortages, and inready-made meals it should reduce both
disposal losses and lost sales

LAWSON, INC.
Annual Report 2010

m Reduce lost
opportunities anddisposal losses
through moreaccurate orderingsho Utilize multi-partner mpping paoints progrmm

Utilize P

RiSM system

The LAWSON Value Chain

Raw material
procurement

Product
development

Merchandisesales

Raising grossprofitAccumulate expertisein procurement risk
management

Increasevalue-added

Ability to sell out
products

Shift to
SPA****-typebusiness model

Scale benefits

Fresh food CVS
Develop products
for housewives, themiddle-aged andsenior consumers

10,000-store
sales channel

Card data and
PRiSM

Improve store
operation
capabilities

Multiple formats**** SPA = Specialty store
retailer of private label
apparel. In this case
we use SPA in a
general sense todescribe a businessmodel where a single
corporation carriesout both production
and retail operations
for its products.

300 stores in ­Shanghai, and we will open stores in Chong­reached 10,000 group stores. With these attributes in place,qing starting in fiscal 2010.

we can treat raw materials as the starting point for our prod-

Medium- to Long-Term Growth
Vision for Fiscal 2020
We aim to achieve sustainable growth over the medium and

uct development. Initiatives in upstream and downstream
areas will create a virtuous cycle that will allow us as a SPAtype retailer to achieve greater profitability gains than we canunder our existing retailer model.

long term. This will require having merchandise assortments
tailored to the needs of local (regional) customers and differ-

Multiple Formats

entiating ourselves from competitors. We are focusing on1) LAWSON STORE100 and Fresh Food-type LAWSON

three key strategies in order to set ourselves apart from ourstorescompetitors: (1) shift to a SPA-type business model, (2)There is still considerable scope for opening LAWSON

develop multiple store formats attuned to local (regional)

STORE100 stores (a fresh food CVS) in places where con-needs, and (3) enhance the operating capabilities of fran-ventional CVS couldn’t be located and in residential areas

chise owners.

with large needs for fresh items, delicatessen items and daily
delivered foods. We are accelerating store openings, princi-

Shifting to a SPA-type Business Model

pally in Japan’s three largest metropolitan areas and ordi-

Increasing our product development capabilities while also

nance-designated cities.

improving gross profit margins requires that we secure as

Fresh Food-type LAWSON stores are a format created bymuch added value as possible on the upstream area of therefurbishing conventional CVS stores. We plan to continue

retail value chain–that is, in procurement. In the downstream

refurbishing conventional CVS stores that are suitably locatedarea, it will be crucial to analyze purchase data from thefor introducing fresher food, starting with those that havesteadily increasing number of cardholders in the multi-partner

favorable Mystery Shopper critiques and show strong man-shopping points program, and to have the ability to sell out

agement capabilities.

merchandise through our sales channel, which has almost

LAWSON, INC.
Annual Report 2010

2) Healthcare-type LAWSON storescontinue opening stores in addition to those in Shanghai andThrough an alliance with MatsumotoKiyoshi Holdings Co.,

start opening stores in Chongqing, the largest commercial

Ltd., a drugstore chain operator, we are not only marketingarea in southwestern China. We will leverage our experience

over-the-counter (OTC) drugs using a system of licensed

accumulated during 14 years in operating stores in Shanghai

sales personnel, but we are also gaining valuable sales

to expand in other areas using the vendor networks and FC

expertise in preparation for establishing our own sales net-systems know-how that are the cornerstones of our Japa-

work ahead of further deregulation. We are also developing anese CVS model.

new retail format that combines drugstore and CVS operaIn addition, we are developing a Pharmacy LAWSON

Persistent Focus on Sustainable
Medium-Term Growthformat along with Qol Co., Ltd., which operates a chain for

LAWSON has attained growth in consolidated operating

drug-dispensing pharmacies. The format integrates drug-

income for seven consecutive fiscal years by pursuing its

dispensing pharmacies with NATURAL LAWSON stores thatown independent strategies rather than following competitors

cater to health-conscious consumers.

to open stores with similar attributes. Under our last two

tions in conjunction with MatsumotoKiyoshi.

medium-term plans, LAWSON Challenge 2004 and3) In-store Kitchen-type LAWSON stores

LAWSON Challenge 2007, we aggressively invested inConvenience stores, located close to built-up areas, are wellstrengthening management at existing stores by revamping

positioned to tap into robust needs for freshly made boxed

operations, setting up the Mystery Shopper program, andlunches among consumers. We plan to introduce a systemother means. We also invested in developing and expandingfor offering customers boxed lunches and delicatessen items

the multiple store formats that will position us for future

freshly prepared in-store with the aim of further differentiating

growth; and developing personnel to drive the Company in

us from our peers.

its next growth phase.

Overseas Store Development

sources for future earnings and making additional forward-

Overseas, while focusing on store profitability, we are setting

looking investments for training personnel will be the keys toour sights on expansion in China and other Asian countries

sustainable growth over the long term. These growth strate-that are poised for market growth. In fiscal 2010, we will

gies and policies differ from our competitors because we

Looking ahead, clearly ascertaining growth fields as

The Path to Value Creation by 2020

Becoming the World’s Top Catchment-Area Retail Chain as a SPA-Type Retailer
Japan: Broadening customer base(more middle-aged and senior
customers)

Sales growthm Fresh food items, healthcarem In-store kitchen, etc.

Overseas development

Structural reform of raw materials,
logistics

ROE Target 15–20%
Operating income
over ¥100 billion

Improving profitability
Operating margin 5%
from all chain store sales

Structural reform of storesm PRiSM, cards, MS evaluations

Structural reform of headquarters

Increase dividends

Strict equity disciplines
Purchase and cancellation oftreasury stock

LAWSON, INC.
Annual Report 2010

Cash Flow Allocation

Investment for
growth fields

Shareholder
returnsm Refurbishing existing stores to sell
fresh foods, etc.
m Healthcarem Overseasm M&A and other strategiesm Increase dividends(+¥10 planned for fiscal 2010)m Purchase and cancellation oftreasury stock

ROE 15–20%

believe that the conventional CVS market targeting males inper store compared to our conventional CVS stores. Our aim

their twenties and thirties is already saturated and that com-

is to invest for future growth and to generate cash flow thatpeting against stores that all have the same traits would not

can be applied for shareholder returns. We plan to increase

be an effective way to use resources or win acceptance fromshareholder compensation by raising our dividend by ¥10society. We can attain leading positions in the industry incompared with last year to ¥170 per share.

areas such as fresh foods, healthcare, and in-store foodpreparation that are not covered by the conventional CVS

Hand-in-Hand with the Community

format. We can also lead the industry in expanding into new

We believe that working together hand-in-hand with commu-

markets overseas. These are the areas where we will con-nities is extremely important. Coexistence requires that we

centrate our business resources.

maintain a virtuous cycle of contributing to society throughApplying Strict Disciplines for
Capital Allocation, Promoting
Shareholder Returns

our core businesses and receiving the profit we need tocontinue as evidence that society values our contribution.
This is also connected with increasing corporate value. Companies are required to realize these twin concepts of maxi-

LAWSON has set a management target to achieve ROE of

mizing economic return and maximizing social contributions

15-20% over the long term. To raise ROE, we earnestly con-in order to raise their corporate value.

sider how to best use free cash flow based on strict

LAWSON will strive to increase its corporate value by­disciplines for applying our capital resources. When investingworking together with communities to achieve sustainable

management resources for opening and refurbishing stores,

growth. We will also work actively in the environmental field.

entering into new business fields, and applying businessresources for M&As and other purposes, we give much

We thank our shareholders and other stakeholders for yourcontinuing support.

weight to standards for return on investment (ROI), andalways seek to maximize the efficiency of our investments.

July 2010

Moreover, we aim to strike a balance between investment
in growth fields and shareholder returns in using the free
cash flow we generate and manage our balance sheet toensure that resources are allocated in the best way possible.
Looking ahead, as efficient capital investment generates
greater free cash flow we will consider raising dividends andpurchasing and cancelling treasury stock.
In fiscal 2010, we are shifting from opening conventional

Takeshi Niinami
President and Chief Executive Officer

LAWSON stores to LAWSON STORE100 stores. These fresh
food CVS stores require only about half the investment cost

LAWSON, INC.
Annual Report 2010

LAWSON FEATURE:
Frequently Asked Questions from Investors

Some say that the Japanese CVS market is reaching the saturation
point. What is your view on this issue?
Through innovation, we think we can broaden our customer baseand attain growth by switching to formats capable of attracting newcustomers.
Convenience store numbers have reached about 45,000 in Japan, and most of them target
men in their 20s and 30s. Our competitors tend to focus on tapping into the potential for
opening stores in areas where none have been opened so far, but most of these remaining
areas are in regional cities, where the population has been declining. Also, supermarkets,general merchandise stores, and stores in other retail sub-sectors have a presence in theseareas. In our view there is little scope for opening conventional convenience stores that can
attain high profitability, even if we concentrate new stores in an area.
Thus, given the limitations of the conventional CVS format, we think the market is becoming
saturated because stores have not adapted to changing demographics in Japan, namely the
declining birthrate and the aging of society, and companies are competing to open homogenous CVS stores in an environment with limited room for opening new stores. Nevertheless,through innovation, we think we can broaden our customer base and attain growth by switching to formats that are capable of attracting new customers, including women, the middleaged and seniors.

Convenience Store Numbers and Net Sales*(Stores)

50,000(Billions of Yen)

No. of Stores (Left)
Net Sales (Right)

10,00040,0008,000

30,0006,000

20,0004,000

10,0002,000

01983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Source: 2008 FC Statistics, Japan Franchise Association* Number of stores and net sales are based on calendar years.

LAWSON, INC.
Annual Report 20100

In fiscal 2009, your existing store sales decreased. Why?
Reactionary effects from taspo, cold summer weather, deflation, and heatedcompetition among CVS industry players to open homogenous stores wereto blame.
Looking back before fiscal 2009, existing store sales growth was brisk in fiscal 2008 for several reasons.
Taspo (a proof-of-age card required for buying cigarettes from vending machines) was introduced infiscal 2008. As a result we saw consumers without taspo coming to stores to buy cigarettes. Once there,
they tended to buy soft drinks and fast food on the counter in passing. Also, some unusual external factors, including growth in soft drinks sales because of unusually hot summer weather, contributed to risingsales. This led to robust 6.5% growth in existing store sales in fiscal 2008.
In fiscal 2009, reactionary effects
after the taspo launch in fiscal 2008,
cool summer weather that
depressed sales of summer merchandise, the economic slowdown
after the Lehman shock that further

Existing Store Sales (Year on Year) and Gross Profit Margin
（％）

31.5
31.0

（％）

110

Existing Store Sales (Year on Year) (Right)
Gross Profit Margin (Left)

105

exacerbated deflation and hurt sales,

30.5

100

competition among our peers open-

30.0

95

ing homogenous stores, and othernegatives combined to push down
existing store sales.

0 2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

0

But your gross profit margin increased in 2009. Why was that?
Structural reform lifted the gross margin by 0.3 percentage-point
year on year to 30.4%, which is a strong improvement within the
CVS industry.
One factor in lifting the gross profit margin was reactionary gains because raw material costs
had surged and depressed the margin in fiscal 2008. The main factor, however, was a structural reform of the processes we use for transporting merchandise to stores. I’ll cite someexamples. We increased the ratio of direct suppliers for procurement of the ingredients we
use for our private brand ready-made meals, which increased value added. For processedfood and non-food items, which consist mostly of national brand merchandise, we promoted
planned ordering to cut intermediary distribution inventory. Also, we reduced the frequency ofroom-temperature deliveries, which further improved efficiency. As a result of these restructuring measures, the gross profit margin increased 0.3 percentage-point to 30.4% in fiscal
2009, a significant gain within the CVS industry. In fiscal 2010, we plan to increase the grossprofit margin by over 0.5 percentage-point to 30.9% on the back of additional structuralreforms that will further boost the gross profit margin.

LAWSON, INC.
Annual Report 2010

How does improving earnings for franchise owners improve
LAWSON’s earnings?
Our franchise system distributes gross profits generated at stores
between franchise owners and headquarters.
Our franchise system distributes gross profit that is generated at the store level between
franchise owners and headquarters. Consequently, increasing gross profit at the store leveltranslates into higher earnings for franchise owners and for headquarters. At LAWSON (theparent company), the franchise store ownership rate is about 97%, so profits among franchise owners have a major impact on the Company’s own profits. For this reason, we help
strengthen the operating capabilities of franchise stores through our “Mystery Shopper” program, and managers from the Head

Example of a LAWSON C-Type* Contract

Office meet with franchise owners
around 60 times annually to keep

Averagedaily sales

their motivation up. We provide theunderlying support for improving
franchise store profits in a numberof ways. For example, our next-Grossprofitgeneration IT system (PRiSM)
enhances structural reform for stores.
Point cards are used to support
sales promotions, and we provide

FC
SG&A costs

Headquarters
SG&A costs­support for owners who are ranked

Personnel

Rent accounts

uations to replace their stores.

Utilities
Disposal losses

Depreciation(Tangible assets)

Other costs

Other costs

Franchiseownerearnings

Head­quarters
earnings* Please see page 31 for an explanation of contract types.

LAWSON, INC.
Annual Report 2010high under “Mystery Shopper” eval-What is LAWSON’s position in the CVS industry, and how do you
differentiate yourselves from other chains?
We are confident that we will differentiate ourselves by carrying out
innovative management strategies.
We rank second in the Japanese CVS industry in both store numbers and net sales of all
stores, and we are noted for being the first company in the industry to expand nationwide.
Cash flow allocations are geared toward creating return on equity (ROI). Rather than investing in opening conventional CVS stores, our priority is on making forward-looking investments such as creating stores in multiple formats and establishing new businesses as ameans of expanding our customer base. We also focus on personnel training and R&D ininnovative new fields. We lead the industry in buying back and canceling shares, and wehave consistently increased dividends. These innovative business strategies put us at theforefront of the CVS industry, and as strategies for standing apart from our competitors they
are clearly reaping rewards.

Premium Whipped Cream Roll has been hugely successful with
consumers. What is the reason for its success?
Innovations heighten product value, leaving customers pleasantly
surprised. We think this is what made the product successful.
Complementing our product lines satisfying the needs of price-conscious customers, westarted the Surprise Product Development Project to address the needs of customer thatvalue quality more than price. For this project, we buy ingredients in bulk to control foreignexchange risks, and employ new technologies in the production process and other innovations heighten product value. Our goal is for customers to be pleasantly surprised by a product’s value. Our initiatives here have been well received by customers, as evidenced by the
success of Premium Whipped Cream Roll. For this product, the ingredients were the primary
focus. For example, we cooperated with dairy companies to develop a pure, fresh cream
blend made up of three types of cream from milk. Although we buy our ingredients in bulk,
the risks of being saddled with surplus ingredients are minimal because our sales channels
encompassing more than 9,500 Group stores can sell out all production. We will further hone
our skills through the project and shift to a SPA-type retailer business model*.
* Please see page 7.

Double Pork Steak Meal

Premium Whipped Cream Roll

Stamina Grilled Beef Bento

LAWSON, INC.
Annual Report 2010

Other CVS companies are increasing their store numbers overseas.
Why has LAWSON only opened stores in Shanghai?
We are stressing ROI in opening stores overseas. We do plan todevelop on a franchise basis in areas outside of Shanghai.
Since opening its first store overseas in Shanghai in 1996, LAWSON has opened 300 storesthrough joint ventures with the local partners. Our overseas operations turned profitable at theoperating income in fiscal 2006. Instead of increasing store numbers haphazardly overseas,
we are stressing ROI and we do plan to grow operations on a franchise basis. With this inmind, we are setting our sights on the growing markets of China and Asia. In April 2010, weestablished a company in Chongqing, China, and we are taking concrete steps to expand into
Asian countries.
We will rely on the vendor networks and our expertise in franchise systems—the cornerstones of our Japanese CVS operations that have been applied in Shanghai—to expand into
other major Chinese cities and Asian countries. We are looking into forming alliances withlocal partners and analyzing ways to promote overseas businesses.
Moreover, as part ofour response to theincreasing diversity ofthe society in which we
operate, we now aim tohire foreign students
studying in Japan forabout one-third of our
new hires.

LAWSON, INC.
Annual Report 2010

What are the special features and strengths of your stores offering a broader
assortment of fresh foods?
The LAWSON STORE100 fresh food CVS format serves as a mini-supermarket
offering single-class (mostly ¥105) daily delivered foods such as fresh foods
and delicatessen items and products in appropriately-sized small quantities. It
meets the needs of housewives, the middle-aged and senior consumers, andhouseholds with few inhabitants.
The LAWSON STORE100 fresh food CVS format offers a number of advantages to consumers. Stores combine the wide-ranging merchandise assortment of a supermarket with the easily recognizable uniform pricing
of one-hundred yen shops (¥105 including tax), and the conveniences of a convenience store. Single
people and housewives are the focus, but the stores cater to customers of all ages from children to theelderly. Quality goods, many under our Value Line private brand, are offered at single prices in smaller, more
appropriately-sized portions for customer safety and peace of mind. Also, steady growth in store numbers
and favorable sales and earnings are contributing to sharply higher consolidated operating income.
With the Fresh Food-type LAWSON format, we find that conventional LAWSON stores competing withrival company stores in the samecatchment area can be differentiatedand revitalized by introducing wider
product assortments of fresh foods
and other items geared toward a
broader range of customers.
LAWSON STORE100

Tell us about your next-generation IT system (PRiSM).
By installing PRiSM, we can operate stores based on concepts forordering products from the customer’s perspective. We can limit
product numbers and use planned ordering to minimize lost sales
opportunities and disposal losses based on analysis of purchase datafrom the multi-partner shopping points program.
A backbone IT system forms a core infrastructure that transmits data between stores and headquarters and facilitates smooth transactions of order data and other information between
LAWSON and its suppliers. It has enabled us to build a logistics network with optimal efficiency
for frequent and accurate deliveries.
Major CVS operators replace their IT systems about once every seven years. In the second halfof fiscal 2009, we completely renovated our backbone IT system, introducing a next-generation
IT system that we call PRiSM. It enables us to operate stores based on concepts for ordering
products from the customer’s perspective. We can limit product numbers and use planned ordering to minimize lost sales opportunities and disposal losses based on analysis of purchase datafrom the multi-partner shopping points program. It is innovating business processes among ourfranchise store owners.

LAWSON, INC.
Annual Report 2010

Corporate Social Responsibility (CSR)
LAWSON is working to help create a low-carbon society in order to leave a rich world
for future generations. For example, we conduct various trials at stores to reduce
electricity use. Other activities include the introduction of electric vehicles in the
Company-owned cars. Moreover, as part of our efforts to preserve the environment,
we have formulated the LAWSON Group Environmental Policy.
Basic Commitment
The LAWSON Group is committed to leaving a rich world for future generations. We will consider theenvironment in every aspect of our business activities and strive to achieve sustainable development andcoexistence with local communities.

Policies
1. Helping build a low-carbon society
To help combat global warming, we will work in our business activities to conserve energy and resources,
and to reduce waste.

2. Considerations in the development of products and services
We will give proper consideration to the effect on the natural environment and local communities at
every stage in the cycle of products and services, from procurement of raw materials, through to sales
and disposal.

3. Active participation in social contribution activities
We will actively participate in social contribution activities, getting involved as a member of local communities in efforts to promote greenery and beautification of local areas, and other initiatives.

4. Continuous improvements
We will strive to preserve the environment by utilizing our environmental management systems to makecontinuous improvements, which will be measured against objectives and targets.

5. Observing laws and regulations
We will observe laws and internal rules relating to environmental preservation activities.

6. Promotion of communication
We will foster greater awareness about environmental preservation by promoting education, and will also
promote communication with stakeholders.
June 2010

FY2009 Environmental Targets and Results
Area

Activities

Targets

Achievement Status

Assessment

Introduce energy-saving units in 90% of
new stores

Introduced 486 units in 527 new stores
opened (Introduction rate of 92.2%)

Attained

Introduce adjustable lighting systems or
LED lighting fixtures in 90% of
new stores

Introduced in 500 of the 527 new stores
opened. (LED lighting introduced at 270
stores; introduction rate of 94.9%)

Attained

Delivery trucks
Cut emissions of CO2 by promoting
eco-driving and the introduction of
eco-tires

Reduce CO2 emissions per store by
4.0% (364 kg-CO 2 per store) comparedwith FY2007

Reduced per-store CO 2 emissions by
10.9% (991 kg-CO 2 per store)compared with FY2007

Attained

Company-owned cars
1) Promote eco-driving and safe-driving2) Introduce electric vehicles to cut
emissions of CO 21) R educe Company-owned car fuelexpenses by 10% compared with
FY20082) Introduce 40 electric vehicles

1) R educed annual expenses by 7.1%
(96.7% vs. target)2) Introduced 38 electric vehicles(40 by the end of March 2010)

NearlyCut store electricity consumption bylowering the power consumed bystore equipment

Introduce new store equipment during
the fiscal year
Reduce electricity consumption by
326 kW per store/monthCompleted switch to new store
equipment at all stores(8,607 stores in total)

Attained

Promote Company-wide prevention of
global warming (reduce CO2)

1) Establish CO 2 emissions database2) Create energy-efficient store model

1) D ecided to commission constructionof a database2) A ssessed benefits in winter,
considered additional measures

NearlyCut store air conditioner, cooler andlighting equipment electricity use

Saving energy

LAWSON, INC.
Annual Report 2010

Area

Targets

Achievement Status

Assessment

Reduce the use of plastic shoppingbags1) R educe by asking customers if theywant a bag2) P romote “Bring Your Own” campaign
Reduce distribution rate per store by
3 percentage points compared to
FY2008 (Reduce the use of plastic
shopping bags per store by 32%
compared to FY2000)

Achieved a distribution rate per store of
74.3% vs. 73.9% target(Use of plastic shopping bags per store
reduced by 27.7% compared to
FY2000)NearlyReduce the use of disposable
chopsticks1) R educe by asking customers if theywant chopsticks2) Promote “Bring Your Own” campaign
Reduce the number of sets used per
store by 20.0% compared with FY2006

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

Reduce CO2 emissions from incineration Reduced CO 2 emissions fromof packaging by 7.0% compared withincineration of packaging by 23.0%
FY2006compared with FY2006

Attained

Reduce store paper receipts andvouchers

Reduce paper by 80 million sheets
annually

Reduced paper by 90.04 million sheets

Attained

Effectively create sales promotion
materials and comply with the law ondisposal

Develop materials based on advertising
display standards, comply with law ondisposal

1) R educed the volume of materials
used by 1.4% compared with FY2008
2) C onfirmed manifest receipt upon
disposalAttained

Reducing waste

Improve food recycling rate

Improve food recycling rate by morethan 4 percentage points compared to
FY2007 (to at least 26.5%)

Achieved a food recycling rate of
25.6%*2
1) Waste-oil recycling: 7,817 stores2) R ecycling into feed and fertilizer:
1,266 stores
3) T hermal recycling: 136 stores

NearlyRegional social
contributions

Continue collecting donations throughLAWSON Green Fund

1) Fundraising activities in all stores
2) Participation in greenery operations3) P romote and educate, and support
regional headquarters’ operations

1) F Y2009 collections: ¥0.23 billion
Collections to date: ¥3.01 billion
2) P articipated in 97 greenery
operations

Attained

Promotion and education

Combat global warming throughactivities with customers(Promote CO2 Offset Campaign)

1) P romote CO 2 Offset Campaign(Use points, Loppi)2) C ontinue selling products with CO2emission credits

FY2009 CO2 offset volume: 5,647 tons
(Total to date: 12,839 tons)

NearlySaving resources

Activities* 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 number of chopsticks
used per store by 11.0% compared to
FY2006 (Reduced total number was
52,767 pairs)

Nearly* 1 E xcludes LAWSON STORE100* 2 T he food recycling rate, including waste reduction, basedon the Food Recycling Law of Japan, was 26.5%.

FY2010 ENVIRONMENTAL TARGETS
Area

Activities

Targets

Cut store air conditioner, cooler and lighting equipment electricity use

Introduce energy-saving measures at 100% of new stores
1) L ED lighting or automatic adjustment systems for controlling
lighting levels2) Combined refrigeration and air conditioning systems
3) Energy-saving sign boards4) Toilet sensors
Implement energy-saving measures at existing stores
1) Replace freezers
2) Replace air conditioners3) Install anti-condensation heaters

Saving energy
Cut emissions of CO2 from delivery trucks by promoting eco-driving
and the introduction of eco-tires

Reduce CO2 emissions per store by 15% compared with FY2007

Company-owned cars
1) Promote eco-driving and safe-driving2) Introduce electric vehicles

1) R educe Company-owned car fuel expenses by 3% compared with
FY20092) Introduce 30 electric vehicles

to cut emissionsof CO2

Promote Company-wide prevention of global warming (reduce CO2)

1) Establish energy database2) Create energy-efficient stores

Reduce the use of plastic shopping bags1) R educe by asking customers if they want a bag and expanding
point system
2) P romote “Bring Your Own” campaign
Reduce distribution rate per store by 3 percentage points comparedto FY2009 (70%)(Reduce the use of plastic shopping bags by 35% compared to
FY2000)1) Promote the reduction of packaging weight2) P romote the use of non-petroleum-derived packaging(paper, green plastics) to reduce CO2 emissions

Reduce CO 2 emissions from incineration of packaging by 8%compared with FY2006

Gradual elimination of paper for use in materials distributed by stores

Reduce paper by 3 million sheets annually by incorporating store
distributed materials into the information system

Adhere to advertising display standards for sales promotion materials
and comply with the law on disposal

1) Develop materials based on advertising display standards
2) Confirm disposal volume and comply with law on disposal

Reducing waste

Improve food recycling rate

Improve food recycling rate by more than 6 percentage points
compared to FY2007 (when it was 22.5%)

Regional social
contributions

Continue collecting donations through LAWSON Green Fund

1) Fundraising activities in all stores
2) Participation in greenery operations3) P romote and educate, and support regional headquarters’
operations

Promotion and education

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

FY2010 CO 2 offsets of 7,000 tons
1) Promote CO 2 Offset Campaign (Use points, Loppi)
2) Continue selling products with CO 2 emission credits

Saving resources

LAWSON, INC.
Annual Report 2010

Directors and Corporate Auditors(As of May 26, 2010)

Takeshi Niinami

Toru MoriyamaYears as a director
8 years
Number of LAWSON shares held		
6,000 shares
1981 Joined Mitsubishi Corporation
2002	President, Representative Directorand Executive Officer,
LAWSON, INC.
2005	President, Representative Director
and CEO, LAWSON, INC. (Current
position)

Years as a director
4 years
Number of LAWSON shares held		900 shares
1977	Joined Mitsubishi Corporation2005	Executive Assistant to CEO, LAWSON, INC.
2006	Director, Senior Executive Vice President; General
Manager, Merchandising & Logistics Division,
LAWSON, INC.
2009	Director, LAWSON, INC. (Current position)2010	Executive Vice President,Group COO, Living Essentials Group, Mitsubishi
Corporation (Current position)

Representative Director and CEO

Director

Outside Directors and Corporate Auditors

Tetsuo Ozawa

Takehiko Kakiuchi

Hiroshi Tasaka

Years as a corporate auditor 7 years
Number of LAWSON shares held		0 shares
1973	Admitted to the Japan Bar,joined Tokyo Fuji Law Office(Current position)
2003	Outside corporate auditor, LAWSON,
INC. (Current position)
2004	Outside corporate auditor, Monex
Group, Inc. (Current position)2007	Outside corporate auditor,
CEMEDINE CO., LTD.
(Current position)

Years as a director
5 years
Number of LAWSON shares held		0 shares
1979	Joined Mitsubishi Corporation2005	Director, LAWSON, INC.
(Current position)	Director, Kentucky Fried Chicken
Japan, Ltd. (Current position)2008	Director, The Nisshin OilliO Group,Ltd. (Current position)2009	Director, MARUICHI Co., Ltd. (Current
Position)2010	Senior Vice President,
Division COO, Foods (Commodity)
Division, Mitsubishi Corporation(Current position)

Years as a director
10 years
Number of LAWSON shares held		0 shares
1990	Joined the Japan Research Institute
Limited2000	Fellow, The Japan Research Institute
Limited (Current position)
	Professor, Graduate School of Tama
University (Current position)	Director, LAWSON, INC.
(Current position)	President, SophiaBank Limited(Current position)2005	Director, Softbank Investment
Corporation (now SBI Holdings, Inc.)(Current position)

Corporate Auditor (Outside)

LAWSON, INC.
Annual Report 2010

Director

Director

Yoshiyuki Yahagi

Manabu Asano

Years as a director
3 years
Number of LAWSON shares held		200 shares
1979	Joined Mitsubishi Corporation
2006	Senior Vice President and Executive
Assistant to CEO, LAWSON, INC.
2007	Executive Vice President and CFO, incharge of Corporate Planning Office,
LAWSON, INC.
2009	Director, Senior Executive Vice
President and CFO(Current position)2010	Senior Vice President,
Mitsubishi Corporation(Current position)

Years as a director
4 years
Number of LAWSON shares held		3,300 shares
1977 Joined T.V.B Sun Chain Co., Ltd.
2002	Senior Vice President; General
Manager, Store Development Division,
LAWSON, INC.
2006	Director, Senior Vice President andCCO in Charge ofGeneral Affairs and Internal Audit,
LAWSON, INC.
2010	Director, Executive Vice President andCCO in Charge of CSR (Current
position)

Reiko Okutani

Munehiko Nakano

Kazuyuki Masu

Years as a director
8 years
Number of LAWSON shares held		0 shares
1974	Joined Japan Airlines Corporation
1982	President, The R Co., Ltd.
(Current position)
2002	Director, LAWSON, INC.
(Current position)

Years as a corporate auditor 4 years
Number of LAWSON shares held		0 shares
1974	Joined Mitsubishi Corporation
2006	Corporate auditor, LAWSON, INC.
(Current position)

Years as a corporate auditor Newly appointed
Number of LAWSON shares held		0 shares
1982 Joined Mitsubishi Corporation2010	General Manager, Administration
Dept. of Corporate Section, Mitsubishi
Corporation(Current position)
	Corporate auditor, LAWSON, INC.
(Current position)

Director, Senior Executive Vice President and
CFO

Director

Director, Executive Vice President and CCO
in Charge of CSR

Standing Corporate Auditor (Outside)

Atsuhiko Seki

Standing Corporate Auditor
Years as a corporate auditor Newly appointed
Number of LAWSON shares held		
1,100 shares
1977 Joined The Daiei, Inc.
2007	Executive Officer (Other),
General Manager, Line Support
Division, LAWSON, INC.
2010	Corporate auditor, LAWSON, INC.
(Current position)

Corporate Auditor (Outside)

LAWSON, INC.
Annual Report 2010

Corporate Governance
Basic Policy on Corporate GovernanceIn order to be recognized as a company that has meaning for each of our seven stakeholder groups—
namely customers, franchise owners, store crew (part-time and casual workers), business partners,
employees, shareholders and society—we engage in business activities that maximize our corporate
value. For this, besides promoting Directors’ and employees’ compliance with laws, regulations, the Articles of Incorporation and the like, we believe that it is essential to strengthen corporate governance byenhancing the soundness and transparency of our management processes. This is done through action
with consideration for others, based on our Corporate Philosophy, the 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 26, 2010)
General Meeting of Shareholders
Appointment / dismissal
Consultation

Compensation
Committee

ProposalAppointment / dismissal

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

Appointment /dismissal /supervision

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

Operational Organization
CEOInternal Audit Office

Executive Committee
Meeting

Internal audit and guidance for
improvement

Compliance and Risk
Management Committee
Executive Officers
Serving concurrently
as directors
2
Executive officers
14
Total
16

Headquarters

Proposal and promotion ofcompliance and risk management
measures

Regional headquarters

Investment

Subsidiaries and affiliates

LAWSON, INC.
Annual Report 2010

CCO
(Chief Compliance Officer)

Comments

Legal
CounselCorporate Governance System (As of May 26, 2010)
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 FY09:16 (including 5 extraordinary meetings)

Outside Directors’ attendance rate at Boardof Directors’ meetings in FY09:

Approximately 77% (including extraordinary meetings)

Number of Corporate Auditors:

4 (including 3 Outside Corporate Auditors)

Outside Corporate Auditors’ attendance
rate at Board of Directors’ meetings
in FY09:

Approximately 88% (including extraordinary meetings)

Major committee meetings attended by
Corporate Auditors:

Board of Directors’ meetings, Executive Committee meetings, Financial Reporting Internal
Control Committee meetings, Compliance and Risk Management Committee meetings, Boardof Corporate Auditors’ meetings, other meetings

Number of Board of Corporate Auditors’
meetings in FY09:

16 (including 5 extraordinary meetings)

Attendance rate at Board of Corporate
Auditors’ meetings in FY09:

Approximately 98%

Appointment of Independent Officers:

Appointed 1 Outside Director and 1 Outside Auditor

Average age of Directors and Corporate
Auditors:

56

Independent Auditor:

Deloitte Touche Tohmatsu LLC

Internal Audit Division:

Internal Audit Office

Overview of the internal control system:m	We are focusing on the following six areas, in accordance with the Fiscal 2010 Basic Policy

Compliance system:m	A ppointment of an executive responsible for compliance and risk management

on Development and Operation of the Internal Control System, as revised in February 2010:1]	C orporate 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 system
5] The establishment of the necessary systems to ensure proper financial reporting6] The establishment of a system to appropriately disclose important company information(Chief Compliance Officer (CCO))m	A ppointment of compliance officers at all headquarters divisions and seven regional

headquartersm	M onthly 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:m	A s a rule, the secretariat of the Board of Directors distributes the agenda one week inCompensation for Directors:m	T he Compensation Committee, which is made up entirely of Outside Directors and Outsideadvance of Board meetings, and is also responsible for other support measures.

m	T he same secretariat reports, as necessary, important events or incidents.

Corporate Auditors, and which met four times in fiscal 2009, determines compensation for
Directors and presents its recommendations to the Board of Directors for final approval.

m Approximately 30% of annual compensation is linked to business results.
m	C ompensation paid to all Directors is reported in the annual securities report and Business

Report.

m	O ther compensation includes stock-compensation-type stock options that can be exercised(exercise price: ¥1) after a Director retires.

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

Disclosure policy:m	B asic Principles for Information Disclosure are presented on our IR site:

rights. LAWSON is treated as an equity-method affiliate by Mitsubishi Corporation. (As of
February 28, 2010)m	S ubsidiaries Ninety-nine Plus Inc., which runs a fresh foods convenience store business,and ticket sales business operator LAWSON ENTERMEDIA, INC. are publicly owned
companies listed on the Osaka Securities Exchange and the JASDAQ market. Furthermore,in order to realize more integrated organizational operation and faster decision-making
processes in business operations, LAWSON made both Ninety-nine Plus and LAWSONENTERMEDIA into wholly-owned subsidiaries on July 1, 2010 by exchange of shares.
http://www.lawson.co.jp/company/e/corporate/disclose.html

m	T he 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:m	T he 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 andthe extent of the potential impact.

m	R egulations 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.
m	Two dedicated committees, the Compliance and Risk Management Committee and theAffiliated Company Compliance Officers Committee, meet to discuss risk.
Other initiatives:

Disclosure of voting results from the General Meeting of Shareholders
http://www.lawson.co.jp/company/e/ir/library/pdf/ketsugi/ketsugi_35r_e.pdf

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

LAWSON, INC.
Annual Report 2010

Misconduct by Two Former Directors of
LAWSON ENTERMEDIA, INC.
LAWSON wishes to offer its sincerest apologies for any inconvenience caused to shareholders and investors and all other stakeholders for recording approximately ¥14.5 billion in extraordinary losses in fiscal
2008 and fiscal 2009 combined, which stemmed from the misappropriation of funds by two former directors of LAWSON consolidated subsidiary LAWSON ENTERMEDIA, INC. (LEM).
Following discovery of this problem on January 24, 2010, LAWSON immediately set up an internal
investigating committee, which was chaired by LAWSON president Takeshi Niinami, and began investigations with the cooperation of outside legal counsel and an accounting firm. The committee made public
the details of its investigation on February 9, 2010. Furthermore, in order to investigate and confirm thefacts surrounding the misconduct and to look at business improvements at LEM, LAWSON formed a third
party investigating committee on February 9, 2010 made up of outside specialists. The third party investigating committee looked at the course of events leading to and reasons for the problem, and evaluatedresponsibility, conducted a legal evaluation, and proposed improvement measures. The results of theseinvestigations were made public to stakeholders on April 12, 2010 in a press release titled “Third Party
Investigating Committee Issues Final Report Concerning Alleged Misconduct by Two Former Directors of
LAWSON ENTERMEDIA” (http://www.lawson.co.jp/company/e/news/detail/detail_158.html).
The committee found that the reason for the misappropriation of funds lay in the concentration of
authority in the two former directors. For an overview of the misappropriation of funds, please refer to the
February 9, 2010 press release titled “Discovery of Misconduct by Two Directors of LAWSON­ENTERMEDIA” (http://www.lawson.co.jp/company/e/news/detail/detail_151.html).
LEM will implement the following preventative measures based on the report of the third party investigating committee.

Emergency Countermeasuresm	Elimination of concentration of authoritym	More extensive supervision of payments

Fundamental Countermeasuresm	Enhancement of legal compliancem	Recognition and prevention of transaction risksm	Emphasizing an organizational over individual approachm	Enhanced management of the Sales Divisionm	Stronger supervisionm	Encourage use of internal whistleblower systemm	Monitoring of preventative measure implementation

When this incident was discovered, LAWSON conducted inspections of accounting at Group companies as an emergency measure, confirming that no other misappropriation of funds had occurred. Looking
ahead, the LAWSON Group as a whole will rigorously enforce risk ­management in order to prevent corporate misconduct from recurring, with two main ­measures—dispersion of authority, and a stronger risk
management system.

LAWSON, INC.
Annual Report 2010

Financial Section

24	Overview of the CVS Sector and Selected Financial Data
26	Consolidated Eleven-Year Summary
28	Management’s Discussion and Analysis
42	Consolidated Balance Sheets
44	Consolidated Statements of Income
45	Consolidated Statements of Changes in Equity
47	Consolidated Statements of Cash Flows
48	Notes to Consolidated Financial Statements
64	Independent Auditors’ Report
65	Management’s Report on Internal Control
Supplementary Explanation
Audits of Internal Controls Over Financial Reporting
In the fiscal year ended February 28, 2010, Japan introduced an internal control reporting system based on the Financial Instruments and Exchange Act. In evaluating the LAWSON Group’s
internal controls over financial reporting, LAWSON follows this internal control reporting system based on the Financial Instruments and Exchange Act of Japan, and not the Sarbanes-Oxley Act
of the United States. LAWSON is also audited by independent auditors in accordance with auditing standards generally accepted in Japan for internal controls over financial reporting.

LAWSON, INC.
Annual Report 2010

Overview of the CVS Sector and Selected
Financial Data
CVS Share of the Total Retail Market(Trillions of Yen, %)

150

4.8

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%

5.0

5.9

6.0

2008
¥135
7.9
5.9%

2009
¥132
8.0
6.0%

100

50

0

Years ended December 31

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

2000
¥139
6.7
4.8%

2001
¥137
6.8
5.0%

Source: “Survey of Commerce,” Ministry of Economy, Trade and Industry

Share of CVS Market Held by Top Four Chains (Net Sales of All Stores)(Billions of Yen, %)

8,000

6,000

75.4

76.4

77.0

77.8

78.7

79.2

79.7

81.3

83.0

74.5

2001
¥1,278
2,047
843
814
4,978

2002
¥1,286
2,114
899
860
5,159

2003
¥1,294
2,213
932
892
5,330

2004
¥1,288
2,343
954
902
5,468

2005
¥1,329
2,441
998
934
5,674

2006
¥1,362
2,499
1,032
920
5,792

2007
¥1,387
2,534
1,069
911
5,863

2008
¥1,415
2,574
1,122
902
5,971

2009
¥1,559
2,763
1,246
940
6,458

2010
¥1,666
2,785
1,274
902
6,627

74.5%

75.4%

76.4%

77.0%

77.8%

78.7%

79.2%

79.7%

81.3%

83.0%

¥6,680¥6,846¥6,980¥7,096¥7,289¥7,360¥7,399¥7,490¥7,943¥7,981

4,000

2,000

February 28 and 29

0 LAWSON Seven-Eleven Japan FamilyMart
 Circle K Sunkus*
	  Total	 (Estimated market share of top
4 chains)
CVS industry**Source: Data published by each company* Data for the year ended February 28, 2001 shows the figure for Circle K and Sunkus combined and C&S Co., Ltd. for the fiscal years ended February 28, 2002, February
28, 2003 and February 29, 2004.
** CVS industry figures are based on the calendar year.

YoY Rate on Existing Store Sales, Average Number of Customers and Average Purchase Value per Customer(%)
in Existing Stores
110(LAWSON)
105

100

95

2001

2002

2003

2004

2005

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

2010
95.9



99.1

98.2

98.9

105.7

99.0



98.3

100.0

100.4

100.8

96.9

* Excluding the effect of terminating Highway Card sales, sales were down 0.8%.

LAWSON, INC.
Annual Report 2010

Operating Income, Operating Income Ratio and Net Income (LAWSON)(Millions of Yen, %)60,00040,000

3.2

2.8

2.6

3.2

2.9

3.2

3.2

3.3

3.2
3.0

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

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

¥41,279¥36,363¥34,107¥38,087¥42,941¥43,867¥44,513¥46,610¥49,186¥50,276

3.2%

2.8%

2.6%

2.9%

3.2%

3.2%

3.2%

3.3%

3.2%

3.0%

¥16,368¥16,123¥8,861¥18,571¥20,435¥22,025¥20,983¥22,119¥23,807¥12,562* Operating income ratio = Operating income / Net sales of all stores

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

300

200

12.1

11.9

13.0

13.1

11.3

11.6

12.5

9.8
5.9

100

0

 Net Income per Share
ROE


6.5

2001
¥148

2002
¥146

2003
¥82

2004
¥176

2005
¥198

2006
¥216

2007
¥202

2008
¥215

2009
¥240

2010
¥127

11.9%

9.8%

5.9%

12.1%

13.0%

13.1%

11.3%

11.6%

12.5%

6.5%

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

126.3

200

150

100

49.8
35.3

50

23.7
0

 Cash Dividends per Share
Payout Ratio


28.2

41.8

49.6

66.6
51.2

23.3

2001
¥35

2002
¥41

2003
¥41

2004
¥41

2005
¥70

2006
¥90

2007
¥100

2008
¥110

2009
¥160

2010
¥160

23.7%

28.2%

49.8%

23.3%

35.3%

41.8%

49.6%

51.2%

66.6%

126.3%LAWSON, INC.
Annual Report 2010

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

2010

2009

2008

2007

2006

¥  185,656¥  186,928¥ 177,443¥ 174,325¥ 170,785

232,459

119,099

83,32175,151

66,02749,077467,192
50,276
12,562
40,696(42,596)(27,239)
71,39927,46843,449349,476
49,18623,80751,717(15,647)(14,911)42,907
20,87940,413
301,177
46,61022,11955,774(36,525)(31,973)
64,413
21,46933,577
283,053
44,513
20,98347,596(31,754)(736)
49,822
21,352

31,246
268,058
43,86722,02546,933(55,282)(7,795)54,417
20,896¥  448,132
198,13642.8%––
54,8439,761
5,236¥  436,096
201,16744.8%––
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¥      127160126.3%¥      240
160
66.6%

¥      215
110
51.2%

¥      202
100
49.6%

¥      216
90
41.8%

6.5%
2.8%

12.5%
6.1%

11.6%
5.6%

11.3%
5.4%

13.1%
6.0%

¥1,433,678
232,459¥1,434,166
124,614¥1,331,785
83,321¥1,311,479
75,151¥1,295,704
66,027¥  902,306
324,197
239,088
200,544¥1,666,136¥  844,324
332,894
186,109
195,453¥1,558,781¥  726,750
327,501
162,625
198,230¥1,415,106¥  705,155
324,993
155,575
200,907¥1,386,630¥  682,006
312,289
150,917
216,519¥1,361,731

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 �����������������

Notes: 1. The U.S. dollar amounts represent translations of Japanese yen at the approximate exchange rate at February 28, 2010, of ¥89.43=$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 36 for details.
3. Including depreciation and amortization of intangible fixed assets.
4.	S hanghai 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.

LAWSON, INC.
Annual Report 2010

2005

2004

2003

2002

2001

2000

Thousands of
U.S. Dollars(1)2010¥  162,963¥  153,910¥  149,032¥  141,621¥  135,237¥  124,587$ 2,075,992

63,802

67,47980,954

101,353

132,921

149,4582,599,340

27,630254,395
42,941
20,43547,329(33,297)(13,836)
46,873
19,641

24,212
245,601
38,087
18,57137,424(40,621)(14,364)
48,303
18,49920,348250,334
34,107
8,861
33,860(3,787)(7,247)75,82816,071

13,142
256,116
36,363
16,12344,804(44,031)(58,236)
59,81016,32812,061
280,218
41,27916,36852,793(54,696)
18,70732,651
16,021

17,808291,853
40,18515,011
67,790121,758(92,521)30,70315,017548,776
5,224,108
562,183
140,467
455,060(476,305)(304,585)
798,379
307,145¥  356,310
160,282
45.0%––
76,5858,077
3,391¥  354,831
154,31743.5%––
76,3897,967
3,402¥  342,599
151,86444.3%––
93,994
7,721
3,462¥  342,934
149,827
43.7%
3,140
0.9%
71,2697,824
3,817¥  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

$ 5,010,981
2,215,543

Yen

U.S. Dollars(1)$      1.42
1.79

Millions of Yen––
613,251¥      198
70
35.3%

¥      176
41
23.3%

¥       82
41
49.8%

¥      146
41
28.2%

¥     14835
23.7%¥      143
17
11.9%

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$16,031,276
2,599,340¥  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¥  562,777
362,979
90,569261,313¥1,277,638¥  528,188
350,70289,248
254,742¥1,222,880$10,089,523
3,625,148
2,673,465
2,242,469$18,630,616

LAWSON, INC.
Annual Report 2010

MANAGEMENT’S DISCUSSION AND ANALYSIS
m Industry Overview
In fiscal 2009, personal consumption remained weak due toconcerns about employment and incomes. Coupled with deflationary trends, the Japanese retail industry experienced adifficult operating environment. The retail industry also saw
price-based competition intensify as general merchandise
stores (GMS) and supermarkets developed low-pricing strategies centered on private brands. Meanwhile, in the department
store sector, further industry realignment and along with thisstore restructuring failed to fully offset dwindling demand.
Amid these industry trends, the sales system for over-thecounter (OTC) medications, such as cold and stomach remedies, underwent a major change with the June 2009
enforcement of amendments to the Pharmaceuticals Affairs
Law. The establishment of a new qualification, “Registered

Pharmaceuticals Salesperson,” means that it is now possible tosell some OTC drugs (Type 2 and 3) with this type of salesperson without the need to have a pharmacist in store, thus opening the way for OTC drugs to be sold in the CVS industry.
In the CVS industry, existing store sales at all convenience
store chains dropped year on year for several reasons. One
was that the boosting effect of taspo, which lifted sales in fiscal
2008, ran its course. Secondly, the summer months, traditionally the highest period of demand throughout the year, weremarked by unseasonable weather. Third was the impact ofcompetition created by major convenience store chains opening
stores of the same type. In the face of these conditions, there
were signs of industry restructuring taking place. For its part,
LAWSON made Ninety-nine Plus Inc. a subsidiary. Meanwhile,
FamilyMart Co., Ltd. acquired am/pm Japan Co., Ltd.

Retail Industry Market Size and CVS Share

(Billions of Yen, %)
2009

2008

2007

2006

2005

¥132,328
7,981
6.0%

¥135,477
7,943
5.9%

¥135,081
7,490
5.5%

¥135,257
7,399
5.5%

¥135,055
7,360
5.4%

2010

2009

2008

2007

2006

¥1,666
2,785
1,274
902
6,627
83.0%

¥1,559
2,763
1,246
940
6,458
81.3%

¥1,415
2,574
1,122
902
5,971
79.7%

¥1,387
2,534
1,069
911
5,863
79.2%

¥1,362
2,499
1,032
920
5,792
78.7%

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 of 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, %)Source: Data published by each company* C&S Co., Ltd. for the fiscal years ended February 28, 2002, February 28, 2003 and February 29, 2004

CVS Store Numbers
Years ended December 31

CVS store numbers ������������������������������������������������

2008

2007

2006

2005

2004

44,391

43,22843,08742,643

41,340Source: Annual FC Statistics, Japan Franchise Associationm Management Measures in Fiscal 2009
LAWSON executed the following management measures in theyear ended February 28, 2010 with the goal of strengthening
existing stores.
1.	We implemented structural reforms in order to generate
gross profit at existing stores in a difficult external
environment.
	  Specifically, we optimized intermediary distribution inventory, reviewed distribution efficiency, and created appealing
products beginning from scratch with raw materials. As aresult of these efforts, the gross profit margin improved 0.3
of a percentage point.

The “Plan” in pages 28 through 41 is the revised plan that was announced at
the time of the second quarter earnings report for fiscal 2009.

LAWSON, INC.
Annual Report 2010

2.	We implemented measures to promote sales and bolster
our merchandise assortment. This included utilizing our MY
LAWSON POINT and LAWSON PASS members’ cards.
	  We worked to sign up more members and improve thefrequency of members’ visits to stores. We continued toroll out loyalty card initiatives and developed stronger merchandise assortments at individual stores via customer
relationship management (CRM). In March 2010, LAWSON
joined the Ponta multi-partner shopping points program.
Loyalty Marketing, Inc., a wholly owned subsidiary of­M itsubishi Corporation, issues the cards, and operates andmanages the program.

3.	In the second half of fiscal 2009, we completed introduction of PRiSM at all stores. PRiSM is our next-generation IT
system and with its introduction we have completely
revamped our backbone system.
	  The introduction of PRiSM has made cash register
screens easier to view, improved the ease-of-use of Loppi
multimedia terminals and increased operating speed. In
addition, it has enabled individual stores to use sales datacollected from point cards for ordering purposes. Moving
forward, we will utilize PRiSM to further raise ordering accuracy at franchise stores with a view to creating merchandise assortments matched to local customer needs.
4.	We began franchising the LAWSON STORE100 fresh foodconvenience store format.
	  Ninety-nine Plus Inc, which operates fresh food convenience stores as a LAWSON consolidated subsidiary, is
responding to increased frugality among consumers byoffering appealing products at a single price. As we did infiscal 2008, we continued converting SHOP99 stores to
LAWSON STORE100 brand stores, and also began franchising LAWSON STORE100 stores.

m Products and Services Overview
The consumer market in fiscal 2009 was defined by increasingpolarization of consumption, with major changes in consumer
needs in terms of product value and product price. LAWSON
responded quickly by launching products that accurately
addressed these diverging customer needs.
For customers placing priority on product value, we continued rolling out products offering a positive “surprise” with theirhigh added value relative to price by sourcing high-quality
ingredients in large quantities through bulk purchasing to lower
costs. We focused in particular on the following categories.
• In the rice dishes category, we launched Stamina Grilled Beef
Bento, which is made using high-quality cuts of beef, after
which we continued to develop and sell other boxed lunches
to surprise customers.
• In the dessert category, we launched a new brand called
Uchi Café SWEETS, developing such products as Premium
Whipped Cream Roll, which uses real whipped cream. These
products were well supported by customers.
• In the cooked noodles category, we launched a new brandcalled Pasta Ya. As part of this brand launch, we introduced
pasta-making equipment featuring a new technique at allprocessing facilities throughout Japan. Furthermore, we
provided quality products to rival any specialist pasta restaurant, increasing the volume of ingredients and sauce, andusing chewy fresh pasta.
For price-sensitive customers, we began selling L Chiki friedchicken, which offers a healthy serving at a reasonable price.
In addition, we pushed ahead with introducing Value Line private brand merchandise, which was developed mainly for
LAWSON STORE100 stores, into regular LAWSON stores.
In sales promotions, we implemented campaigns leading tohigher earnings for franchise owners, prioritizing campaigns

which produced a high return on investment, such as the Spring
Rilakkuma Fair and Ponyo Ramen Bowl Present campaigns.
On the services front, our stores handled 162 million billsettlement transactions, including public utility charges; thechain handled transactions amounting to ¥1,553.8 billion on
behalf of third parties in this way. Furthermore, ATM machines
were installed in 3 more prefectures, bringing the number ofprefectures with LAWSON stores that have ATMs to 40.
Regarding MY LAWSON POINT and LAWSON PASS loyalty
cards, we focused on sales initiatives for members, such as
expanding the range of products eligible for bonus points, andgiving more points for purchases made on a certain day of theweek. As a result of these efforts, the number of card members
at February 28, 2010 exceeded 11 million people. Sales to thesemembers accounted for approximately 20% of all our sales.

m Store Operations
In store operations, the Company continued providing guidance to franchise owners in order to ensure merchandise
assortments that match customer needs in each location. The
guidance is provided continuously to individual stores basedon a thorough understanding of the customers in each area.
Furthermore, through the introduction of our next-generation
IT system (PRiSM), we used members’ card data to orderproducts to suit customers’ needs, thereby operating stores so
as to create merchandise assortments matching customer
needs in each location.
In fiscal 2009, we continued to implement the “Mystery
Shopper*” program with the aim of raising customer satisfaction, which we are doing by promoting the Three Challenge
Practices**—the enhancement of quality (Q), service (S), andcleanliness (C). The Three Challenge Practices are the keystone for LAWSON store operations. These efforts helped tostrengthen store operation capabilities.
* In this program, researchers visit individual LAWSON stores posing as
ordinary shoppers and objectively and quantitatively evaluate them from acustomer’s perspective.
** 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) ensuring­merchandise assortments are matched to individual locations, (2) serving
customers courteously, and (3) keeping stores and surrounding areas clean.

m S tore Development and Store
Formats
Development of LAWSON Stores
The Company took steps to open stores that it expects togenerate high earnings relative to its investment, adhering toproprietary store opening standards. This entailed concentrating on opening new stores mainly in major metropolitan areasin the Kanto, Chubu and Kinki regions.
Regarding conventional convenience stores, the scope for
opening new stores is limited due to fierce competition withhomogeneous convenience stores opened by other companies. Given this situation, LAWSON pushed ahead with the
opening of formats suited to each location, leveraging its
strength in having multiple formats.
Initiatives with formats other than regular LAWSON stores
during the past fiscal year were as follows.

LAWSON, INC.
Annual Report 2010

LAWSON STORE100 Fresh Food Convenience Stores
LAWSON is developing a fresh food convenience store format
in order to meet the needs of housewives, the middle-aged
and seniors, customer segments whose needs weren’t fully
met by conventional convenience stores.
By continuing to open new LAWSON STORE100 fresh foodconvenience stores and franchising these stores, LAWSON isaiming to drive further growth. Where the location justifies it,
the Company will also introduce fresh foods and Value Lineprivate brand merchandise at regular LAWSON stores.

Fresh Food-type LAWSON StoresWith the aim of developing store formats that meet local­c ustomer needs, we are converting and enhancing existing
LAWSON stores into Fresh Food-type LAWSON stores withstronger fresh food assortments. These enhanced LAWSON
stores offer products for new customer segments (women, themiddle-aged and seniors), centered on fresh foods and daily
delivered foods. The concept behind these enhanced
LAWSON stores is the same as fresh food LAWSONSTORE100 stores, that is, to strengthen the merchandise
assortment for women, the middle-aged and senior customers
to expand LAWSON’s customer base. However, the difference
from LAWSON STORE100 stores is that these are basicallyconventional LAWSON stores that have been enhanced.

NATURAL LAWSON for Health-Conscious Customers
NATURAL 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 2001. In 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 andunique corporate culture that are distinct from the Head Office.
NATURAL LAWSON has therefore been able to develop products that break the conventional CVS mold. With NATURALLAWSON having achieved its initial goal of establishing a new
brand strongly supported by female customers, LAWSON in
October 2007 decided to integrate this company back into the
LAWSON Head Office. As the next stage, LAWSON is­c ontinuing to develop the format to meet the needs of health­c onscious consumers. As a result of these efforts, LAWSON isestablishing some stores with a dispensing pharmacy.

Future Store-Opening Strategy
LAWSON will open the optimal format for an area, fully leveraging the distinctive features of four formats to meet area needs:“LAWSON,” “NATURAL LAWSON,” “LAWSON STORE100,” and“Fresh Food-type LAWSON” Stores. Armed with multiple formats, LAWSON will be able to avoid competition to open sametype stores with other market players and to cater to areas
where conventional convenience stores could not be opened in
the past, thus allowing it to respond flexibly based on the conditions of a candidate location.
Furthermore, in overseas operations, LAWSON plans tomake use of its 14 years of experience in Shanghai, China, toopen stores in Chongqing from July 2010.

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

2010**

2009*

2008

2007

2006

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

9,761
607
373
234

9,527
501
414
940

8,587
452
429
23

8,564
700
502
198

8,366
717
428
289

* S ince Ninety-nine Plus Inc. was made into a consolidated subsidiary from the year ended February 28, 2009, stores operated by Ninety-nine Plus Inc. are
included in the data above from the year ended February 28, 2009 onwards.
** Figures for the year ended February 28, 2010 include 136 stores operated by LAWSON Okinawa, Inc.

Number of Stores by FC Contract Type (Consolidated, Japan)
2010**

February 28 and 29

2009*

2008

2007

2006

Franchised stores

StoresShare (%)

StoresShare (%)

StoresShare (%)

StoresShare (%)

StoresShare (%)

B �����������������������������������������
G �����������������������������������������C �����������������������������������������
NATURAL LAWSON ���������������
LAWSON STORE100 /   SHOP99 �����������������������������
Subtotal �������������������������������

1,258
2,001
5,074
27

13.1
20.8
52.7
0.3

1,322
2,041
4,863
22

13.9
21.4
51.0
0.2

1,369
2,123
4,641
15

15.9
24.7
54.0
0.2

1,512
2,209
4,367
5

17.7
25.8
51.0
0.1

1,674
2,272
4,011
1

20.0
27.2
47.9
0.0

167
8,527

1.7
88.6

114
8,362

1.2
87.8

–
8,148

–
94.9

–
8,093

–
94.5

–
7,958

–
95.1

Company-operated stores

StoresShare (%)

StoresShare (%)

StoresShare (%)

StoresShare (%)

StoresShare (%)

LAWSON ������������������������������
NATURAL LAWSON ���������������
LAWSON STORE100 /   SHOP99 �����������������������������
Subtotal �������������������������������
Total �����������������������������������������

207
62

2.2
0.6

283
71

3.0
0.7

291
76

3.4
0.9

296
95

3.5
1.1

323
50

3.9
0.6

829
1,098
9,625

8.6
11.4
100.0

811
1,165
9,527

8.5
12.2
100.0

72
439
8,587

0.8
5.1
100.0

80
471
8,564

0.9
5.5
100.0

35
408
8,366

0.4
4.9
100.0

* S ince Ninety-nine Plus Inc. was made into a consolidated subsidiary from the year ended February 28, 2009, stores operated by Ninety-nine Plus Inc. are
included in the data above from the year ended February 28, 2009 onwards.
** Figures for the year ended February 28, 2010 exclude the number of stores operated by LAWSON Okinawa, Inc.

LAWSON, INC.
Annual Report 2010

Outline of Store Contracts (Conventional LAWSON Stores)
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

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

Borne by franchisee

Prepared by LAWSON¥1.5 million (Contract fee, training expenses,
and store opening preparation commission, each ¥500,000) (excluding tax)
¥1.5 million (Including payment for some merchandise purchasedon 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

Franchise fee
Investment

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

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.

Outline of LAWSON STORE100 Contracts
Contract type
Contract term
Owner conditions
Land and buildings
Contract stores
Investment in store construction andinterior decoration expenses
Signage and business fixtures

VL-C

VL-B
10 years from store opening day
At least 20 years old, 1 full-time store worker
Prepared by LAWSON
Prepared by franchiseeStores already being operated
Land and buildings owned
by Ninety-nine Plus as LAWSON STORE100
by franchisee
Borne by LAWSON

Borne by franchisee

Prepared by LAWSON¥1.0 million (Contract fee ¥250,000, training expenses ¥250,000,
Payment by franchisee Franchise fee
and store opening preparation commission ¥500,000) (excluding tax)
at time of contract*
Investment¥1.5 million (Including payment for some merchandise purchased on behalf of the store)¥1–3,000,000 Gross profit x 34%¥3,000,001–4,500,000 Gross profit x 43%
Head Office income
Gross profit x 27%¥4,500,001–5,400,000 Gross profit x 55%
Over ¥5,400,001 Gross profit x 68%
Burden of utility expenses
Franchisee
Minimum guarantee (annual)**21,00022,200(thousands of yen)
* 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.

LAWSON, INC.
Annual Report 2010

m Overview of Results

Existing Store Sales (consolidated)

1. Sales Figures

Existing store sales on a non-consolidated basis in fiscal 2009were down 4.1% year on year, and were 1.1 percentage points
below plan, reflecting a worsening external environment. By
region, the Chubu area was comparatively weak because of
the effects of a lackluster manufacturing sector, while the
Tohoku area was strong. Existing store sales on a consolidated
basis, including sales of Ninety-nine Plus Inc., in fiscal 2009were 3.7% lower year on year.

Total Net Sales (consolidated)
Consolidated net sales of LAWSON stores in fiscal 2009,
ended February 28, 2010, while slightly under plan, rose 6.9%
year on year, to ¥1,666,136 million. The main reason for theincrease was the conversion of Ninety-nine Plus Inc. into a
consolidated subsidiary. On a non-consolidated basis, sales
declined 2.3%, ¥1,472,415 million.

YoY Rate on Existing Store Sales, Average Number of Customers and Average Purchase Value per Customer in Existing Stores(Non-Consolidated)
YoY rate on existing store sales ������������������������������
Average number of customers and average purchasevalue per customer at existing stores
Number of customers ������������������������������������������
Average purchase value per customer ������������������

2010

2009

2008

2007

2006

95.9%

106.5%

99.2%

98.2*%

97.5%

99.0
96.9

105.7
100.8

98.9
100.4

98.2
100.0

99.1
98.3

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

Sales by Product Category (consolidated, total net sales)
Sales of processed foods, daily delivered foods and non-foodproducts were higher year on year, mainly reflecting the fullyear contribution to sales of Ninety-nine Plus Inc.

Fast foods sales were down year on year, however, due tolower sales of rice dishes.

Sales by Product Category (consolidated, total net sales)
Years ended February 28 and 29

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

(Millions of Yen)
2010

2009

2008

2007

2006

¥  324,197
19.5%
239,08814.3
902,306
54.2
358,600
21.5
1,465,592
88.0
200,54412.0¥1,666,136
100.0¥  332,894
21.4%
186,109
11.9
844,324
54.2
342,45022.0
1,363,328
87.5
195,453
12.5¥1,558,781
100.0¥  327,501
23.1%
162,625
11.5
726,75051.4
249,74517.6
1,216,876
86.0
198,230
14.0¥1,415,106
100.0¥  324,993
23.4%
155,575
11.2
705,15550.9
238,406
17.2
1,185,724
85.5
200,90714.5¥1,386,630
100.0¥  312,289
22.9%
150,91711.1
682,006
50.1
221,957
16.3
1,145,212
84.1
216,51915.9¥1,361,731
100.0

Breakdown of Product Category
Category

Fast foods
Daily delivered foods
Processed foods
Non-food products

LAWSON, INC.
Annual Report 2010

Products Included

Rice dishes, noodles, sandwiches, delicatessen items,
fast foods on the counter, etc.
Bakery items, desserts, ice cream, fresh foods, 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 was 30.4%, 0.3 of a percentage
point higher than fiscal 2008 and 0.1 of a percentage point
higher than planned. The main reason was a higher-thanexpected contribution from structural reform initiatives, including streamlining raw materials procurement and distribution.
(For details of structural reforms, please refer to page 11.)In the fast foods category, the margin improved 1.2 percentage points year on year, due to a decrease from the high raw

materials prices in the previous fiscal year, as well as the aforementioned raw materials procurement initiatives (refer to page13). In the processed foods category, the gross profit margin
declined due to the greater share of sales from cigarettes in
the product mix, which increased as a share by 1.4 percentage points. Margins on processed foods other than cigarettes
and non-food products improved year on year due to the rightsizing of manufacturer inventories, resulting from more systematic ordering linked to product development, and the benefitsof improved distribution efficiency.

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

2010

2009

2008

2007

2006

37.3%
34.3
24.6
40.8
30.4

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

* 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)
2010

2009

2008

2007

2006

¥1,553,832
162.2
8,651

¥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

Years ended February 28 and 29

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

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 ¥117,716 million, or
33.7%, to ¥467,192 million. However, total operating revenues

were ¥11,808 million less than planned, mainly on account oflower franchise commission accompanying the year-on-year fallin existing store sales on a non-consolidated basis. The
amount included due to the conversion of Ninety-nine Plus Inc.
into a consolidated subsidiary was ¥167,813 million.

LAWSON, INC.
Annual Report 2010

Selling, General and Administrative (SG&A) Expenses
SG&A expenses rose ¥31,262 million, or 14.8%, year on year,to ¥243,194 million. SG&A expenses were approximately¥3,600 million less than planned. The main reason for the
year-on-year increase was the inclusion of ¥33,605 million fromthe consolidation of Ninety-nine Plus Inc. Rents rose ¥8,247­million, or 13.2%, due to an increase in the opening of mainly
C-type franchised stores. Personnel expenses decreased ¥933
­million, or 2.5%, on a non-consolidated basis due to a decline
in performance-linked bonuses and 85 fewer Company-­
operated stores than the previous fiscal year. On a consolidated
basis, however, personnel expenses increased ¥14,630 ­million,or 31.7%, year on year, reflecting the consolidation of Ninety-nine

Plus Inc. Regarding advertising and promotional expenses,
LAWSON spent the same amount as the previous fiscal year
for supporting franchise owners. Regarding conventional advertising activities, in addition to concentrating expenditure on
highly effective methods in terms of return on investment,
LAWSON did not have to incur expenses for countering higher
costs of raw materials to support suppliers as it did in fiscal
2008. As a result, advertising and promotional expenses
decreased ¥1,615 million, or 11.7%, year on year. IT-related
costs declined ¥1,362 million, or 9.1%, year on year, despite
the introduction of a next-generation IT system in the second
half of the fiscal year. The decline reflected efforts to rationalize
expenses for existing IT systems.

Breakdown of Main SG&A Expenses
2010

2009

2008

2007

2006

¥ 60,833
25.0%
12,166
5.0
70,57029.0
13,443
5.5
21,053
8.7
6,414
2.6
27,468
11.3
58,71124.1¥243,194
100.0%¥ 46,20321.8%
13,781
6.5
62,323
29.4
14,9887.1
16,752
7.9
4,126
1.9
20,8799.953,75525.4¥211,932
100.0%¥ 39,927
20.6%
9,385
4.9
58,562
30.3
18,414
9.5
16,630
8.6
4,815
2.5
21,44511.1
45,65323.6¥193,390
100.0%¥ 37,888
20.7%
9,693
5.3
55,31830.2
17,475
9.5
16,185
8.8
5,163
2.8
21,348
11.7
41,44622.6¥183,169
100.0%¥ 35,450
20.2%
9,177
5.2
51,23629.1
16,734
9.5
15,859
9.0
5,034
2.9
20,893
11.9
42,402
24.1¥175,894
100.0%

Years ended February 28 and 29

Personnel expenses* ����������������������������������������������
Share (%) ����������������������������������������������������������
Advertising and promotional expenses ��������������������
Share (%) ����������������������������������������������������������
Rents ��������������������������������������������������������������������
Share (%) ����������������������������������������������������������
Equipment leasing charges ������������������������������������
Share (%) ����������������������������������������������������������
Depreciation expenses** ��������������������������������������
   Share (%) ��������������������������������������������������������
Amortization expenses ����������������������������������������
   Share (%) ��������������������������������������������������������
Depreciation and amortization ����������������������������������
Share (%) ����������������������������������������������������������
Other ��������������������������������������������������������������������
Share (%) ����������������������������������������������������������
Total ����������������������������������������������������������������������
Share (%) ����������������������������������������������������������

* 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.
** Due to the application of new accounting standards for leases, depreciation expenses for fiscal 2009 and fiscal 2010 include depreciation and amortization oflease assets treated as sale-and-purchase transactions.

Operating Income

Net Income

Operating income increased ¥1,090 million, or 2.2%, to¥50,276 million. However, this figure was ¥225 million, or
0.4%, less than planned. It also included ¥2,168 million inincome from Ninety-nine Plus Inc. Operating income relative tototal sales was 3.0%.

As a result of the above, net income declined ¥11,245 million,or 47.2%, to ¥12,562 million. This included ¥1,787 million
belonging to Ninety-nine Plus Inc. Net income per share was¥126.67.

Income Before Income Taxes and Minority Interests
Income before income taxes and minority interests decreased¥10,396 million, or 25.8%, to ¥29,875 million. This decrease
was mainly attributable to an impropriety-related loss of¥12,616 million related to the alleged misappropriation of funds
by two former directors of consolidated subsidiary LAWSONENTERMEDIA, INC. (LEM), in addition to a ¥3,899 million
charge for loss on disposal of property and store equipment,
and a ¥3,904 million charge for impairment of long-lived assets.

LAWSON, INC.
Annual Report 2010

m Financial Position

1. Consolidated Balance Sheets
Current Assets
Total current assets decreased ¥22,562 million, or 14.6%, to¥132,199 million. This mainly reflected the repayment ofmonies to concert and other promoters following the alleged
misappropriation of funds by two former directors of LAWSONENTERMEDIA, INC. as well as the advance repayment of
Ninety-nine Plus Inc. loans, which resulted in a ¥29,139­million, or 34.7%, year-on-year decline to ¥54,843 million in
cash and cash equivalents.

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, 2010, this asset account was ¥20,791 million,¥585 million lower than a year ago.

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 ¥26,446
million at February 28, 2010, a decrease of ¥246 million.

Long-term Loans Receivable
Property and Store Equipment, Investments
and Other Assets
Net property and store equipment rose ¥30,310 million, or26.4%, to ¥145,309 million. Investments and other assets
increased ¥4,288 million, or 2.6%, to ¥170,624 million.

Current Liabilities
Total current liabilities increased ¥757 million, or 0.4%, to¥184,497 million. The main factors were a ¥5,078 million, or8.4%, increase to ¥65,858 million in money held as agent suchas in bill settlement services, and a ¥4,641 million increaseaccompanying the application of new lease accounting standards.

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, 2010, this account was¥2,301 million higher than a year ago at ¥29,724 million, due
to an increase in money paid to landlords to help with construction for store openings.

Lease Deposits
This account represents leasehold deposits paid to landlordsequivalent to several months’ rent under lease agreements at
LAWSON. As of February 28, 2010, this account was ¥83,206
million, a decrease of ¥2,151 million.

Long-term Liabilities
Total long-term liabilities rose ¥14,310 million, or 28.0%, to¥65,499 million. There was a ¥3,729 million decrease in guarantee deposits received from franchised stores and leasedeposits 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. On
the other hand, there was a ¥19,410 million increase stemmingfrom the application of new lease accounting standards.

Total Equity
Total equity, including minority interests, amounted to ¥198,136
million at the end of February 28, 2010, representing a ¥3,031
million, or 1.5%, year-on-year decrease. Retained earnings
decreased ¥3,639 million to ¥94,172 million due to the payment of cash dividends of ¥15,866 million, although net
income amounted to ¥12,562 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 from­franchised stores,” the excess will be shown on the balance
sheet as “Accounts payable—Due to franchised stores.” As of
February 28, 2010, this account was ¥1,025 million, up ¥203
million from a year ago.

Money Held as Agent

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

This 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 oftransactions and the number of companies for which settlement services were provided. As a reflection of this, the balance of payments to third-party companies increased, leading
to a year-on-year rise of ¥5,078 million to ¥65,858 million inthis account at February 28, 2010.

Due From Franchised Stores

Guarantee Deposits Received 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 areThis represents guarantee deposits received by LAWSON fromstore owners operating under FC-G contracts. As of February
28, 2010, this account was ¥38,711 million, ¥3,729 million
less than the previous year due to a decline in the number of
FC-G contract stores.

2. Special Account Items on the Balance
SheetsLAWSON, INC.
Annual Report 2010m Capital Expenditure, Etc.
In fiscal 2009, capital expenditure on a consolidated basis totaled¥71,399 million, up ¥28,492 million year on year. New store
investments increased ¥4,252 million to ¥19,887 million due toincreased store openings compared to the previous fiscal year.
Existing store investments increased ¥1,354 million to ¥8,101
million, reflecting an increase in conversions accompanying

contract renewals. IT-related investments decreased ¥2,655
million to ¥9,409 million, principally due to partial postponementof system development following investment in a next-generation
IT system and further streamlining in other IT investment. Leases
increased ¥17,236 million to ¥36,376 million as investment
peaked in a next-generation IT system and lease assets related to
new stores and to ATMs increased.

Breakdown of Capital Expenditure
2010

2009

2008

2007

2006

¥19,887
8,101
9,409
629
38,026(3,004)36,376¥71,399¥ 15,635
6,747
12,064
3,886
38,331(14,564)
19,140¥ 42,907¥12,387
7,493
7,733
2,260
29,873
19,69014,850¥64,413¥23,444
5,887
4,662(1,395)32,5983,013
14,211¥49,822¥26,047
6,592
9,084
1,615
43,3381,250
9,829¥54,417

Years ended February 28 and 29

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

* The amount equivalent to the acquisition cost of leased property acquired during each fiscal year. The amount of repayments of lease obligations is ¥9,149
million in fiscal 2009.

Breakdown of Depreciation
2010

2009

2008

2007

2006

¥21,053
6,414
27,468¥16,752
4,126
20,879¥16,630
4,838
21,469¥16,185
5,167
21,352¥15,859
5,037
20,896

Years ended February 28 and 29

Depreciation expenses** ����������������������������������������
Amortization expenses ��������������������������������������������
Total depreciation and amortization ��������������������������

** D ue to the application of new accounting standards for leases, depreciation expenses for fiscal 2009 and fiscal 2010 include depreciation and amortization oflease assets treated as sale-and-purchase transactions.

m Cash Flows
Operating activities provided net cash of ¥40,696 million,¥11,021 million less than in the previous fiscal year. This was
mainly attributable to a significantly lower year-on-year result forincome before income taxes and minority interests due to thebooking of an impropriety-related loss caused by the alleged
misappropriation of funds by two former directors of consolidated subsidiary LAWSON ENTERMEDIA, INC.
Investing activities used net cash of ¥42,596 million, ¥26,949
million more than in the previous fiscal year. This mainlyreflected a fall in proceeds from redemption of marketablesecurities, and the absence of a decrease in short-term loans
accompanying the sale of LAWSON CS Card in fiscal 2008.
As a result of changes in cash flows from operating and investing activities, free cash flow—the difference between the two
figures—decreased ¥37,970 million to negative ¥1,900 million.
Financing activities used net cash of ¥27,239 million,¥12,328 million more than the previous fiscal year. This reflects
an increase in cash dividends paid of ¥2,480 million, and cash
payments of ¥9,149 million to repay lease obligations following
the application of new lease accounting standards.
As a result, cash and cash equivalents at the end of the
fiscal year totaled ¥54,843 million, down ¥29,139 million froma year earlier.

LAWSON, INC.
Annual Report 2010m Capital Policy: Dividends and Purchaseof Treasury Stock
LAWSON regards returning profits to shareholders as one of its
most important management policies, and the Company is run
with recognition that the level of capital cost should reflect the
profit expectations of investors toward the Company. We therefore seek to select and develop businesses that achieve earnings above the cost of capital, using ROE, an indicator of
capital efficiency, as the most important management indicator.
We ensure financial soundness by securing the necessary levelof internal reserves for investment aimed at achieving sustained
corporate growth over the medium and long terms so as tomaintain high profitability. We also pursue optimal capital efficiency by distributing profits through dividends and the purchase and cancellation of treasury stock based on what we
consider to be an appropriate capital composition. Our medium
and long term goal is ROE of 15% to 20%.
Our dividend yield on February 28, 2010 was 4.1%. (Pleaserefer to pages 26 and 27 for details on our cash dividends per
share.) For fiscal 2010, we plan to increase the cash dividend
per share by ¥10 to ¥170.
During the four-year period from fiscal 2001 to fiscal 2004,
LAWSON cancelled approximately ¥43.0 billion of treasury
stock. In fiscal 2007, we bought back more treasury stock,repurchasing approximately 5.3 million shares for approximately ¥21.0 billion from October 2007 to January 2008. We
cancelled a total of 5 million shares of treasury stock in­F ebruary 2008.

m Scope of Consolidation
The consolidated results for fiscal 2009 include the performance of six members of the LAWSON Group—four consolidated subsidiaries and two affiliates accounted for under theequity method—and the parent company. These subsidiaries
and affiliates are broadly involved in four categories of business: CVS operations, financial services, other services, andoverseas services. The business operations and fiscal resultsof companies included within the scope of consolidation arepresented below.

CVS Operations
Ninety-nine Plus Inc. (Consolidated Subsidiary)
Established in October 2000, Ninety-nine Plus operates the
fresh food CVS formats “LAWSON STORE100” and “SHOP99,”
and has grown rapidly as a pioneer in Japan of a fresh foods
store format that provides everything from daily food items,
including fresh foods, to sundries at a single price. LAWSON
signed a business and equity alliance with Ninety-nine Plus in
February 2007. Fresh food CVS stores have won strong
acceptance from housewives, the middle-aged and seniors bystrengthening the merchandise assortment of fresh and daily
delivered foods at stores in catchment areas. This is highlighted by a higher percentage of these groups in the customer
mix compared with conventional convenience stores. In 2007,
Ninety-nine Plus carried out an increase in capital by way of athird-party allotment of shares to LAWSON. In January 2008,
Ninety-nine Plus carried out another increase in capital by
third-party allotment of shares to LAWSON, to strengthen its
business alliance with LAWSON and to raise funds to open
more stores. As a result, LAWSON became the leading

shareholder in Ninety-nine Plus with an equity interest of
34.2%. In September 2008, LAWSON conducted a tender
offer for Ninety-nine Plus’ shares, raising its equity interest to
76.8%.
On May 1, 2009, VALUE LAWSON, INC., a LAWSON subsidiary running a fresh food CVS operation, and Ninety-nine
Plus merged, with the latter the surviving company. The goal ofthe merger was to generate even greater alliance benefits andbecome the unrivalled leader in the fresh food CVS sector bysharing expertise in the sale of fresh foods and daily delivered
foods, and jointly developing the private brand Value Line,featuring products in appropriately-sized small quantities andconveniently sized packages.
Since Ninety-nine Plus had a March 31 fiscal year-end until
fiscal 2008, LAWSON’s equity-method earnings in Ninety-nine
Plus in fiscal 2007 included earnings for the nine months
through the end of Ninety-nine Plus’s third quarter. In fiscal
2008, LAWSON recorded as equity-method earnings ninemonths of earnings from Ninety-nine Plus’s fourth quarter infiscal 2007 to the end of its second quarter in fiscal 2008.
Ninety-nine Plus was then completely consolidated from its
third quarter in fiscal 2008. Ninety-nine Plus changed its fiscal
year-end from March 31 to February 28 at its ordinary general
meeting of shareholders in June 2009. As a result of thischange, Ninety-nine Plus’s fiscal 2009 was an 11-month transitional fiscal year. Moreover, LAWSON’s consolidated results
for fiscal 2009 also include three months’ results of Ninety-nine
Plus for the fourth quarter of fiscal 2008, to make 14 months.
Ninety-nine Plus was listed on the JASDAQ market, but itdelisted in June 2010 and became a wholly consolidated
subsidiary of LAWSON by share exchange in July 2010.
(Millions of Yen)

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

2010*

2009

2008

2007

¥1,792
1,673
996

¥ 261
(504)
856

¥401
47
837

¥ 955
(886)
780

Note: The above figures are Ninety-nine Plus’s results for the fiscal years ended March 31.
* Following a change in the fiscal year-end to February 28, fiscal 2009 was a transitional fiscal year of 11 months. The amount included in LAWSON consolidated financial statements was ¥2,160 million for a 14-month period, including the fourth quarter of fiscal 2008 as well as this 11-month transitional period.

LAWSON Okinawa, Inc. (Equity-method Affiliate)
In January 2009, LAWSON and SAN-A CO., LTD., a leading
retailing group in Okinawa, agreed to form a business alliancein Okinawa Prefecture, Japan. Through this alliance with
SAN-A, which is well supported by customers in Okinawa,
LAWSON aims to create products and stores better meshingwith Okinawa, which is known for its unique way of life andfood preferences. To this end, we established LAWSON

Okinawa, Inc. as a wholly owned subsidiary in ­O ctober 2009.
In December 2009, we made LAWSON ­O kinawa into a joint
venture by transferring 51% of its total outstanding shares to
SAN-A. Going forward, we will continue to develop the
LAWSON chain in Okinawa Prefecture through LAWSON Okinawa by creating stores that better meet the needs of the local
community.

(Millions of Yen)

Operating revenues ����������������������������������������������������������������������
Operating income ������������������������������������������������������������������������
No. of stores �������������������������������������������������������������������������������

2010

2009

2008

2007

733
109
136

–
–
–

–
–
–

–
–
–

LAWSON, INC.
Annual Report 2010

Financial Services
LAWSON ATM Networks, Inc. (Consolidated Subsidiary)This consolidated subsidiary was established in 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 2001. The company’s ATM businessinstalls jointly operated ATMs in LAWSON stores in regions
where agreement has been reached with partner banks. As of

February 28, 2010, LAWSON ATM Networks had formed alliances with a total of 33 partner banks, including the major citybank groups and regional banks. The company’s main sourceof revenue is fees from banks for the commissioned operationof ATMs. Its main expenses are operating center outsourcing
fees, ATM line charges and ATM leasing charges.
As of February 28, 2010, LAWSON ATM Networks had
installed 6,978 ATMs in 40 prefectures. LAWSON holds a
49.0% stake in LAWSON ATM Networks.
(Millions of Yen)

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

2010

2009

2008

2007

2006

¥18,570
2,444
1,412

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

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

Other Services
LAWSON ENTERMEDIA, INC. (Consolidated Subsidiary)This subsidiary was established as a ticket sales company in1992 as RIZA JAPAN, and in 1996 was renamed LAWSONTICKET INC., becoming a consolidated subsidiary of LAWSON
in 1997. In terms of number of tickets handled, the company is
one of the largest players in the ticket sales industry in Japan.
The company sells tickets to concerts, sporting events, thetheater, movies and other attractions, primarily through Loppi
multimedia terminals at LAWSON stores, and is particularly
strong in sales of tickets for J-POP* and sporting events. In
March 2009, LAWSON TICKET carried out an absorption-typemerger, absorbing LAWSON’s wholly owned subsidiaryi-Convenience, Inc. The aim of the merger was to make fullest
use of the combination of LAWSON TICKET’s customer

2010

2009

2008

2007

2006

6,978

5,970

5,643

4,245

3,812

contacts and i-Convenience’s expertise in the e-commercebusiness. In July 2009, LAWSON TICKET was renamed
LAWSON ENTERMEDIA, INC.
While operating income for LAWSON ENTERMEDIA rose year
on year in fiscal 2009 on the back of strong sales in its core
concert ticket business, net income fell sharply due to booking
of extraordinary losses following alleged misappropriation offunds by two former directors. As of February 28, 2010,
LAWSON held a 75.5% stake in LAWSON ENTERMEDIA.
LAWSON ENTERMEDIA was listed on the JASDAQ market,
but it delisted in June 2010, becoming a wholly consolidated
subsidiary of LAWSON by share exchange in July 2010.
* Japanese popular music generally popular among the relatively younger
generation(Millions of Yen)
2010

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

¥10,022
1,099(11,887)

2009¥7,620791(1,445)**

2008

2007

2006

¥6,960636
423¥6,533836
507¥6,259821
487** Prior-year results were adjusted following the booking of an impropriety-related loss due to alleged misappropriation of funds by two former directors.

BestPractice Inc. (Consolidated Subsidiary)This company was established in 2004 as a wholly owned
subsidiary. BestPractice implements “Mystery Shopper” on-site
inspections of convenience stores to determine the status ofoperations and offers advice and proposals to improve
LAWSON stores at the operational level. Under the “Mystery

Shopper” program, an employee of BestPractice objectively
and quantitatively evaluates convenience store operations andmerchandise assortments from a customer’s perspective as anundercover researcher. The results are fed back to LAWSON’s
Head Office and franchise owners.

(Millions of Yen)

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

LAWSON, INC.
Annual Report 2010

2010

2009

2008

2007

2006

¥991
91
59

¥982
50
(1)

¥919
8
1

¥885
82
45

¥892
62
34

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 1996. In
2004, LAWSON relinquished 21.0% of its 70.0% equity interestin 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
2009, there were 300 stores in operation, of which 242 were
franchised stores.

(Millions of Yen)

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

2009

2008

2007

2006

2005

¥6,3132
300¥6,67013300¥7,26577
287¥6,35520
291¥5,304(7)283* S HANGHAI HUALIAN LAWSON CO., LTD. closes its accounts in December.
** H ualian 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.

m Business Cooperation and Alliances

Qol Co., Ltd.

The main business cooperation and alliances are as follows.
Please refer to the item on CVS operations under “Scope ofConsolidation” on page 37 of this report for information concerning the equity-based alliance with Ninety-nine Plus Inc.

In December 2008, LAWSON signed a business allianceagreement with drug-dispensing pharmacy operator Qol Co.,
Ltd. Through personnel exchanges, LAWSON is working todevelop Registered Pharmaceuticals Salespersons*, and in
fiscal 2010 will begin opening stores that combine a drugdispensing pharmacy with a convenience store.

Mitsubishi Corporation
LAWSON formed a comprehensive tie-up, including a capitalalliance, with Mitsubishi Corporation in February 2000. ­Mitsubishi
Corporation is LAWSON’s leading shareholder with an equity
interest of 32.4% as of February 28, 2010. The two firms havebuilt a cooperative relationship in several areas including personnel resources and store development, new businesses, andproduct development, including procurement of raw materials.

Japan Post Holdings Co., Ltd.
LAWSON formed a business alliance in 2002 with the then
Postal Services Agency. After this announcement, the twoworked on various initiatives, including installing mailboxes in
LAWSON stores (2003), opening convenience stores inside
post offices (2003) and handling You-Pack parcels (2004). In
2008, LAWSON signed an agreement for a comprehensive
business alliance with Japan Post Holdings Co., Ltd. Moving
forward, the two companies will develop initiatives that effectively utilize their respective business resources to jointly open
stores and expand joint distribution and deliveries, for example.
The goals are to improve the level of convenience for customers and contribute to regional communities across Japan.

NTT DOCOMO, INC.
In 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. In 2007, this alliance led to the introduction of iD™
electronic money services provided by NTT DOCOMO in all
LAWSON stores and the launch of the LAWSON PASS iD™
service. The latter service allows holders of the LAWSON PASS
Visa credit card issued by Credit Saison Co., Ltd. (at the timeissued by LAWSON CS Card), to use the iD™ service.
* iD™ is a mobile phone-based credit card payment service enabling shopping, etc., via NTT DOCOMO’s Osaifu-Keitai® wallet services. iD™ is atrademark and registered trademark of NTT DOCOMO.

* A newly established qualification following the June 2009 enforcement of
amendments to the Pharmaceutical Affairs Law, the “Registered Pharmaceuticals Salesperson” qualification allows the holder to sell over-the-counter
medications (Type 2 and 3). The law requires holders to have a minimum of
one year’s experience.

MatsumotoKiyoshi Holdings Co., Ltd.
LAWSON entered a business alliance with MatsumotoKiyoshi
Holdings Co., Ltd. in August 2009. MatsumotoKiyoshi Holdings
operates urban and suburban drugstores, pharmacies, andcombination drugstore/pharmacies throughout Japan in avariety of store formats according to regional characteristics
and location. In fiscal 2009, the LAWSON and MatsumotoKiyoshi groups began examining options for mutually leveraging
their respective management resources, including buying
power, and infrastructure. The two groups also carried out
personnel exchanges, assigning their staff to each other withthe objective of acquiring each other’s specialist knowledge.
LAWSON has accepted MatsumotoKiyoshi personnel who holdRegistered Pharmaceuticals Salesperson qualifications in order
to conduct trial pharmaceutical sales at convenience stores.
Looking ahead, the two companies plan to begin opening pilot
stores in a new format that combines a drugstore with a convenience store.

KOBE BUSSAN CO., LTD.
In April 2009, LAWSON and KOBE BUSSAN CO., LTD. established a joint venture, KOBE HOT DELI Co., LTD., as a way to
combine the expertise of both companies in sales of in-store
cooking boxed lunches and delicatessen items in convenience
stores. KOBE BUSSAN is the headquarters of the “BusinessSupermarket” supermarket chain franchise with stores throughout Japan, and is also a manufacturer of food products with its
own plants in and outside Japan. KOBE BUSSAN’s supply
chain management involves cultivating produce at its own
agricultural facilities, processing these at its own factories, and

LAWSON, INC.
Annual Report 2010

delivering them to stores using its own logistics system.
LAWSON will leverage synergies with its own strengths insales, namely its expertise in operating convenience stores andsales capabilities, to establish a business model for preparing
food in-store. Plans call for full-scale development of thismodel from fiscal 2010.

meet these needs, LAWSON will promote the fresh food CVS
business, concentrating on residential areas, and expand its
customer base.

m Outlook

Through its alliances with MatsumotoKiyoshi Holdings Co., Ltd.
and Qol Co., Ltd., LAWSON is expanding its sales of pharmaceutical products. At the same time, to help customers realize
the healthy, comfortable lives they seek, we are providing highvalue-added specialist products and services, and creating newstores guided by our healthcare theme, “food is medicine.”

In fiscal 2010, the Japanese economy is expected to see arecovery against a backdrop of improving economies in othercountries and government measures to stimulate the economy.
However, there is also a downside risk for the economy posedby worsening employment and the effects of deflation. In lightof this, a full-fledged recovery in consumer spending is considered unlikely.
With regard to the CVS sector operating environment, if
LAWSON focuses on opening conventional format stores,
which predominantly provide merchandise assortments andservices for the core target of young male customers, addressing only customers’ need to save time and convenience, it will
be forced into a war of attrition with other homogenized CVS
stores in a mature market. This will in turn make it increasingly
difficult to achieve stable and sustainable growth in an environment of changing customer needs and in an aging society witha falling birthrate.
In this environment, LAWSON is aiming to realize its corporate philosophy, “Happiness and Harmony in our Community.”
To this end, we will promote the following management measures to improve customer satisfaction. We believe this will
result in improved corporate earnings through maintenance andexpansion of our customer base, increased earnings for franchise owners, and higher corporate value.
By carrying out the following management measures, infiscal 2010 we plan to improve consolidated operating income
0.4% year on year to ¥50,500 million, and to increase consolidated net income by 89.5% year on year to ¥23,800 million.

Enhance Customer Satisfaction
In order to offer merchandise assortments and develop shopsthat meet the needs of customers in each store location,
LAWSON will continue to utilize shopping point program data
to create customer-oriented merchandise assortments. We will
make full use of the next-generation IT system that we introduced in fiscal 2009 to reduce lost sales opportunities* anddisposal losses** and to improve ordering accuracy and product development capabilities. In March 2010, LAWSON joined
the Ponta multi-partner shopping points program. Loyalty Marketing, Inc., a wholly owned subsidiary of Mitsubishi Corporation, issues the cards, and operates and manages the
program. We will strive to provide convenient and appealing
services for customers through this program, working withother participating companies to broaden our marketing analysis and facilitate sales promotion strategies.
* When a product desired by customers is out of stock** Losses incurred by franchise owners disposing of unsold stock

Promote Fresh Food-type CVS
As Japanese society ages and households grow smaller, customers needs relating to dining in*** are expected to rise. To

LAWSON, INC.
Annual Report 2010*** Cooking and eating at home

Promote Healthcare-type CVS

Improve Asset Efficiency
LAWSON aims to improve asset efficiency by developing highquality stores in accordance with unique store opening guidelines and decreasing the number of store closures to reduce
associated losses. Looking ahead, we will focus on growthfields such as our LAWSON STORE100 fresh food CVS, andour NATURAL LAWSON stores that cater to health-conscious
consumers. We also plan to increase the ratio of investment inour existing stores, focusing on converting stores so they havestrong fresh food lineups; this requires lower investment than
opening regular LAWSON stores.

Strengthen 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.

Full-scale Operation of the Next-Generation IT System
In fiscal 2010, we will begin full-scale operation of our nextgeneration IT system, PRiSM, with the goal of innovating ourmerchandise assortments from the customer’s perspective. We
will utilize PRiSM, which relates to store systems and­c ompany-wide information systems, to reduce lost sales
opportunities and product disposal losses in store operations,and to continue to improve ordering accuracy and productdevelopment capabilities.

Developing Internal Controls
Regarding internal controls over financial reporting, in order toproperly implement the internal control reporting system of theJapanese Financial Instruments and Exchange Act, LAWSON
has established a dedicated internal organization to ascertainand document the status of internal controls throughout
LAWSON and the various business processes that occur at the
major operating bases. Through this process, LAWSON will put
in place internal and third-party evaluation systems and related
improvements.
LAWSON will report regularly to the Board of Directors on
evaluations and improvements at LAWSON and major subsidiaries. Furthermore, LAWSON will follow its “Fiscal 2010 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.

Strengthen Group Governance
LAWSON has reflected seriously and sincerely on the bookingof large losses relating to the alleged misappropriation of funds
by two former directors of LAWSON consolidated subsidiary
LAWSON ENTERMEDIA, which was announced in February
2010. LAWSON is working to prevent a reoccurrence bystrengthening the internal management systems and internal
controls at LAWSON and its subsidiaries, doing its utmost to
regain the trust of shareholders.

m Business Risk Factors
The seven 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 responds 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 LAWSON, and we do not believethat they cover all potential risks relating to the LAWSONGroup’s business operations.

Risks Relating to Changes in the Business Environment
Because the LAWSON Group’s main business is the operationof convenience stores, changes in consumer expenditureproduced by changes in the economic environment, businesscycle trends, or the social structure in Japan and overseas
countries where LAWSON 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, Hygiene Managementand LabelingIn the CVS business, the LAWSON Group’s main business, wesell 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 within stores, at thesame 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 such as food poisoning or contamination by foreign matter, or food mislabeling,
the resulting loss of customer trust could have an impact on
the Group’s performance and financial position. Should suchan incident occur, the Group intends to make the utmost effort
to minimize the effect on customers and maintain customer
trust by making a public announcement as quickly as possible
through the mass media and other channels.

thoroughly aware of these matters. However, should personal
information be leaked or divulged outside LAWSON under any
circumstances, the LAWSON Group’s performance or financial
position may be affected.

Legal and Regulatory Risks
The LAWSON Group operates numerous stores in all ofJapan’s 47 prefectures and in China, and the majority of storesoperate 24 hours a day. Because of this, in operating its business, LAWSON must comply with various laws and regulations
regarding store development, store operations, hygiene management, product transactions, environmental protection, andother matters in Japan and 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 theenforcement methods of 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,
LAWSON has adopted the franchise system. Based on franchise agreements concluded with franchise owners, 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
a franchised 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 and
LAWSON, based on a relationship of mutual trust. If this relationship of trust between LAWSON and franchised owners 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 Disasters
LAWSON is a national chain with stores located throughout
Japan’s 47 prefectures, as well as in China. Therefore, anearthquake, typhoon or other natural disaster that physicallydamages LAWSON Group stores or other facilities, could havean impact on the LAWSON Group’s performance or financial
position.
Furthermore, in order to continue to fulfill its social function,
LAWSON will continue to run convenience stores based on abusiness continuity plan even if there is an outbreak of a newstrain of influenza or other infectious disease. However, any
unanticipated temporary closure of stores could have an impact
on the LAWSON Group’s performance or financial position.

Risks Relating to Handling of Personal Information

Risks Involving Damage to IT Systems

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 LAWSON are

Failure of the Group’s IT system or information network system
due to a computer virus, or natural disasters such as an earthquake in the Metropolitan area could delay the delivery of
products to stores and cause the suspension of store services. Such developments could impact on the LAWSONGroup’s performance or financial position.

LAWSON, INC.
Annual Report 2010

Consolidated Balance Sheets
LAWSON, INC. and Subsidiaries
February 28, 2010 and 2009

Millions of Yen

Thousands of
U.S. Dollars(Note 1)

2010

2009

2010

¥  54,843¥  83,982$   613,251

Marketable securities (Note 4) �������������������������������������������������

2,500

3,800

27,955Time deposits �����������������������������������������������������������������������

9,174

4

102,583   Due from franchised stores (Notes 3 and 8) �������������������������

20,791

21,376

232,484   Other ���������������������������������������������������������������������������������

26,446

26,692295,717   Allowance for doubtful accounts �������������������������������������������

(156)

(141)

(1,744)ASSETS
CURRENT ASSETS:
Cash and cash equivalents �����������������������������������������������������

Accounts receivable:

Inventories �����������������������������������������������������������������������������

4,447

5,293

49,726

Deferred tax assets (Note 13)���������������������������������������������������

4,587

4,061

51,292

Prepaid expenses and other current assets�������������������������������

9,567

9,694

106,976    Total current assets ���������������������������������������������������������

132,199

154,761

1,478,240

Land (Note 6)�������������������������������������������������������������������������

6,527

6,899

72,984

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

184,446

174,067

2,062,462

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

57,241

61,920640,065

PROPERTY AND STORE EQUIPMENT (Note 5):

Lease assets (Notes 2.l and 15)�����������������������������������������������

31,435    Total �������������������������������������������������������������������������������

279,649

242,886

3,127,015

351,504

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

(134,340)(127,887)(1,502,180)    Net property and store equipment �������������������������������������

145,309

114,999

1,624,835

512

700

5,725

INVESTMENTS AND OTHER ASSETS:
Investment securities (Note 4) �������������������������������������������������
Investments in associated companies �������������������������������������

2,042

532

22,834Long-term loans receivable �����������������������������������������������������

29,72427,423332,372

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

4,249

4,852

47,512

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

29,674

26,586331,813

Lease deposits ���������������������������������������������������������������������

83,20685,357930,404

Deferred tax assets (Note 13) �������������������������������������������������

15,274

14,469170,793

Deferred tax assets for land revaluation (Note 6) �����������������������

181

Claims in bankruptcy and reorganization �����������������������������������

13,631

1,033

152,421

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

6,948

9,546

77,691

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

(14,636)(4,343)(163,659)    Total investments and other assets �����������������������������������

170,624

166,336

1,907,906

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

¥ 448,132¥ 436,096$ 5,010,981

See notes to consolidated financial statements.

LAWSON, INC.
Annual Report 2010

LIABILITIES AND EQUITYCURRENT LIABILITIES:Millions of Yen

Thousands of
U.S. Dollars(Note 1)

2010

2009

2010

Accounts payable:   Trade (Notes 7 and 16) �������������������������������������������������������

¥ 73,189¥ 77,216$  818,394   Due to franchised stores (Note 8) �����������������������������������������

1,025

822

11,461   Other ���������������������������������������������������������������������������������

22,423

27,681

250,733

Current portion of long-term debt (Note 9) �������������������������������

4,730

937

52,891

Income taxes payable �������������������������������������������������������������

9,852

9,456

110,164

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

65,85860,780736,420

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

7,420

6,848

82,970    Total current liabilities �������������������������������������������������������

184,497

183,740

2,063,033

6,207

5,051

69,406

LONG-TERM LIABILITIES:
Liability for employees’ retirement benefits (Note 10) �����������������
Allowance for retirement benefits to executive officers   and corporate auditors ���������������������������������������������������������

217

201

2,426

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

38,71142,440432,864

Allowance for impairment loss on leased property (Note 15) �������

471

481

5,267

Long-term debt (Note 9) ���������������������������������������������������������

19,492

1,371

217,958

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

401

1,645

4,484

    Total long-term liabilities ���������������������������������������������������

65,49951,189732,405

EQUITY (Notes 11 and 18):
Common stock—authorized, 409,300,000 shares in   2010 and 2009; issued, 99,600,000 shares in 2010   and 2009 ���������������������������������������������������������������������������

58,50758,507654,221

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

41,52041,520464,274

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

346

275

3,869

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

94,172

97,811

1,053,025

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

14

(41)

157

Land revaluation difference (Note 6) �����������������������������������������

(634)

(969)

(7,089)Foreign currency translation adjustments ���������������������������������

66

59

737

Treasury stock—at cost, 432,190 shares in 2010   and 432,015 shares in 2009 �������������������������������������������������

(1,714)(1,713)(19,166)    Total �������������������������������������������������������������������������������

192,277

195,449

2,150,028

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

5,859

5,718

65,515    Total equity ���������������������������������������������������������������������

198,136

201,167

2,215,543

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

¥448,132¥436,096$5,010,981

LAWSON, INC.
Annual Report 2010

Consolidated Statements of Income
LAWSON, INC. and Subsidiaries
Years Ended February 28, 2010 and 2009

Millions of Yen

Thousands of
U.S. Dollars(Note 1)

2010

2009

2010

Franchise commissions from franchised stores �������������������������

¥185,656¥186,928$2,075,992

OPERATING REVENUES:
Net sales from Company-operated stores �������������������������������

232,459

119,0992,599,340

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

49,07743,449548,776    Total �������������������������������������������������������������������������������

467,192

349,476

5,224,108

173,72288,358

1,942,547

COSTS AND OPERATING EXPENSES:
Cost of sales (Note 16) �����������������������������������������������������������
Selling, general and administrative expenses ���������������������������������

243,194

211,932

2,719,378    Total �������������������������������������������������������������������������������

416,916

300,290

4,661,925    Operating income �����������������������������������������������������������

50,27649,186562,183

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

303

912

3,388

Equity in earnings (losses) of associated companies �����������������

62

(631)

693

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

(3,899)(4,053)(43,598)

Impairment of long-lived assets (Note 5) �����������������������������������

(3,904)(2,014)(43,654)

Provision for allowance for doubtful accounts (Note 14) �������������
Impropriety-related loss (Note 14) �������������������������������������������

(1,936)(12,616)(141,071)

Gain on sale of investment in subsidiaries �������������������������������

1,629

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

(1,976)(1,193)(22,096)

18,215    Other expenses—net �������������������������������������������������������

(20,401)(8,915)(228,123)

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

29,87540,271

334,060

INCOME TAXES (Note 13):
Current ���������������������������������������������������������������������������������

18,393

17,675

205,669

Deferred �������������������������������������������������������������������������������

(1,152)(1,124)(12,881)    Total �������������������������������������������������������������������������������

17,241

16,551

192,788

MINORITY INTERESTS IN NET (LOSS) INCOME ���������������������

(72)

87

(805)

NET INCOME �������������������������������������������������������������������������

¥ 12,562¥ 23,807$  140,467

Yen

U.S. Dollars

2010

2009

2010

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

¥126.67¥240.10$1.42

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

126.54239.89

1.41

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

160.00160.001.79

PER SHARE OF COMMON STOCK (Notes 2.p and 17):

See notes to consolidated financial statements.

LAWSON, INC.
Annual Report 2010

Consolidated Statements of Changes in Equity
LAWSON, INC. and Subsidiaries
Years Ended February 28, 2010 and 2009

Thousands of Shares/Millions of Yen

Common Stock

BALANCE, MARCH 1, 2008

SharesAmountCapitalSurplus99,600¥58,507¥41,520

Stock
Acquisition
Rights¥160

Net
Unrealized
DeferredGain (Loss) on Gain (Loss) on
AvailableDerivatives
Retainedfor-sale under Hedge
Earnings
Securities
Accounting¥87,391

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

23,807Year-end cash dividends, ¥55 per share ��������

(5,453)

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

(7,933)

¥ 135

¥(1)

(176)

1

Treasury stock—at cost:   Purchase of treasury stock ������������������������
(1)   Exercise of stock options ����������������������������
Others—net ��������������������������������������������������
BALANCE, FEBRUARY 28, 2009 ����������������������

115
99,60058,507

41,520275

97,811

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

12,562Year-end cash dividends, ¥80 per share ��������

(7,933)

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

(7,933)

Reversal of revaluation reserve for land ����������

(335)

(41)

Treasury stock—at cost:   Purchase of treasury stock ������������������������
71

Others—net ��������������������������������������������������
BALANCE, FEBRUARY 28, 2010 ����������������������

¥41,520¥346

55

99,600¥58,507¥94,172

¥  14

–

Land
Revaluation
Difference

Foreign
Currency
Translation
Adjustments

SharesAmount

Total

Minority
Interests

Total
Equity¥(682)

¥140

(464)

¥(1,838)¥185,332¥3,242¥188,574

Thousands of Shares/Millions of Yen

BALANCE, MARCH 1, 2008

Treasury Stock

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

23,80723,807Year-end cash dividends, ¥55 per share ��������

(5,453)(5,453)

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

(7,933)(7,933)

Treasury stock—at cost:
(1)

(1)

(1)

32

126

125

125

(428)

2,476

2,048

(432)

(1,713)

195,449

5,718

201,167   Purchase of treasury stock ������������������������
   Exercise of stock options ����������������������������
Others—net ��������������������������������������������������

(287)

(81)

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

(969)

59

12,562

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

12,562Year-end cash dividends, ¥80 per share ��������

(7,933)(7,933)

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

(7,933)(7,933)

Reversal of revaluation reserve for land ����������

(335)

(335)

Treasury stock—at cost:(1)   Purchase of treasury stock ������������������������
Others—net ��������������������������������������������������

335

7

BALANCE, FEBRUARY 28, 2010 ����������������������

¥(634)

¥ 66

(432)

¥(1,714)

(1)

(1)

468

141

609

¥192,277¥5,859¥198,136

LAWSON, INC.
Annual Report 2010

Thousands of U.S. Dollars (Note 1)

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

CommonStockCapitalSurplus

Stock
Acquisition
RightsRetained
Earnings

Net Unrealized
Gain (Loss) on
Availablefor-sale
Securities$654,221$464,274$3,075$1,093,716$(458)$(10,835)

615

3,746

$ 157

$ (7,089)

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

140,467

Year-end cash dividends, $0.89 per share ������

(88,706)

Interim cash dividends, $0.89 per share ����������

(88,706)

Reversal of revaluation reserve for land ����������

(3,746)

Land
Revaluation
Difference

Treasury stock—at cost:   Purchase of treasury stock ������������������������
794

Others—net ��������������������������������������������������
BALANCE, FEBRUARY 28, 2010 ����������������������

$654,221$464,274$3,869$1,053,025

Thousands of U.S. Dollars (Note 1)

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

Foreign
Currency
Translation
Adjustments

Treasury
Stock

Total

Minority
Interests

Total
Equity$660$(19,155)$2,185,498$63,938$2,249,436

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

140,467

140,467

Year-end cash dividends, $0.89 per share ������

(88,706)(88,706)

Interim cash dividends, $0.89 per share ����������

(88,706)(88,706)

Reversal of revaluation reserve for land ����������

(3,746)(3,746)

Treasury stock—at cost:(11)   Purchase of treasury stock ������������������������
Others—net ��������������������������������������������������

77

BALANCE, FEBRUARY 28, 2010 ����������������������

$737

See notes to consolidated financial statements.

LAWSON, INC.
Annual Report 2010$(19,166)

(11)

(11)

5,232

1,577

6,809

$2,150,028$65,515$2,215,543

Consolidated Statements of Cash FlowsLAWSON, INC. and Subsidiaries
Years Ended February 28, 2010 and 2009

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 (earnings) of associated companies �������������
   Other—net �������������������������������������������������������������������������
   Changes in assets and liabilities:    (Increase) decrease in claims in bankruptcy     and reorganization ���������������������������������������������������������
    Decrease (increase) in accounts receivable �����������������������
    Decrease (increase) in prepaid expenses     and other current assets �������������������������������������������������
    Decrease (increase) in inventories �������������������������������������
    (Decrease) increase in accounts payable ���������������������������
    Increase in money held as agent ���������������������������������������
    Increase (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 and other �������������������������������������������
     Total adjustments ���������������������������������������������������������
     Net cash provided by operating activities �����������������������INVESTING ACTIVITIES:Payments into time deposits ���������������������������������������������������
Proceeds from withdrawal of time deposits �������������������������������
Purchases of marketable securities �����������������������������������������
Proceeds from redemption of marketable securities �������������������
Acquisition of a subsidiary, net of cash acquired �����������������������
Purchases of property and store equipment �����������������������������
Purchases of software and other intangible assets �������������������
Decrease in lease deposits—net ���������������������������������������������
Decrease in short-term loan ���������������������������������������������������
Increase in long-term loan �������������������������������������������������������
Acquisition of associated companies ���������������������������������������
Proceeds from sale of investment in subsidiaries �����������������������
Purchase of subsidiaries’ stock 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 shares upon exercise of   stock options �����������������������������������������������������������������������
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)

2010

2009

2010

¥ 29,875¥ 40,271$ 334,060(17,723)
27,4683,904
10,309
1,981
(62)
109

(19,763)
20,879
2,014
1,917
2,039
631
2,151

(198,177)
307,145
43,654
115,275
22,151(693)
1,219(12,637)651

27(8,299)(141,306)
7,279

1,451
840
(9,133)
5,197

(624)
(277)
11,457
4,393

16,227
9,393(102,125)
58,112609(2,599)

6,810

1,172

894

13,105(3,315)
10,821
40,696(3,394)
11,446
51,717(37,069)
121,000
455,060(12,584)
3,414(2,800)
4,100(3,004)
3,104(25,957)
25,9002,228(22,440)(12,457)769
19,700(1,698)
(50)
629
(78)
(2,293)(15,647)(140,713)
38,175(31,309)45,846(126,479)(15,866)(308)(1,293)(13,386)(62)(27,239)

125
(1)
(48)
(14,911)(694)(304,585)(29,139)
83,982¥ 54,843

21,15962,823¥ 83,982(325,830)
939,081$ 613,251(26,144)(9,042)290(2,041)
(110)
3,224
(903)
(42,596)(11,311)(292,340)(101,107)
3,243(22,822)(1,230)36,051(10,099)(476,305)(177,412)

Finance lease assets and finance lease obligations regarded as non-cash transactions incurred for the year ended February, 28, 2010 amounted to¥31,500 million ($352,231 thousand) and ¥33,200 million ($371,240 thousand), respectively.
See notes to consolidated financial statements.

LAWSON, INC.
Annual Report 2010

Notes to Consolidated Financial Statements
LAWSON, INC. and Subsidiaries
Years Ended February 28, 2010 and 2009

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 Act and its
related accounting regulations, and in conformity with accounting principles generally
accepted in Japan (“Japanese GAAP”), which are different in certain respects as to application and disclosure requirements from International Financial Reporting Standards.
In preparing these consolidated financial statements, certain reclassifications and rearrangements have been made to the consolidated financial statements issued domestically inorder to present them in a form which is more familiar to readers outside Japan. In addition,certain reclassifications have been made in the 2009 financial statements to conform to theclassifications used in 2010.
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 ¥89.43 to $1, theapproximate rate of exchange at February 28, 2010. 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 32,120 thousand shares of common stock of
the Company (including indirect holdings) as of February 28, 2010, which represent 32.4%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 the­Company and its four (seven in 2009) subsidiaries (collectively, 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.
Investments in two (one in 2009) associated companies are accounted for by the equity method.
Investments in the remaining associated companies are stated at cost. If the equity
method of accounting had been applied to the investments in these entities, the effect on
the accompanying consolidated financial statements would not be material.
All significant intercompany balances and transactions have been eliminated in consolidation. All material unrealized profit included in assets resulting from transactions within the
Companies is eliminated.
The excess of the cost of the Company’s investments in consolidated subsidiaries andassociated companies over the fair value of the net assets at the dates of acquisition is
being amortized over a period not exceeding 20 years.
b. Franchise Agreement and Basis of Recognizing Franchise Commission—The­Company operates principally in a single industry commonly classified as the convenience
store business with its own stores and franchised stores. The Company allows each independent franchisee to operate relatively small‑sized convenience stores using specific designs
and the LAWSON brand names, and provides related managerial or technical know‑how
under a franchise agreement. Under the agreement, all franchised stores are provided with avariety of services and advice on the operation of convenience stores from the Company as
the franchisor. In return, such franchised stores are required to pay continuing franchise commissions to the Company based on certain percentages of the respective franchised store’s
gross margin. As the franchisor, the Company accounts for franchise commissions on an
accrual basis by reference to the gross margin earned by each franchised store and the applicable commission percentage. According to the franchise agreement, a franchised store may

LAWSON, INC.
Annual Report 2010

pay additional guarantee deposits equal to twice of the average monthly sales amounts of therespective store and pay a lower commission percentage.
The term of a franchise agreement is effective primarily for 10 years from the commencement date of a new store’s operation as a franchised store, and may be extended or
renewed upon expiration subject to renegotiation of contract terms between the Company
and the franchisee.
The franchise agreement usually provides that the franchised store shall make a cash
payment to the Company in the amount of ¥3 million upon commencement. Upon receipt ofsuch payment, ¥1.5 million is credited to income of the Company as “Operating revenues—
franchise commissions from franchised stores” for services related to the opening of the
LAWSON store. The remaining amount received by the Company is credited to the “Due tofranchised stores” account and then applied to working capital for purchases of merchandise and supplies for the franchised store.
As part of the contractual obligations of the franchisor under the agreement, the Company
generally provides franchisees with furniture, fixtures and equipment designed for the
LAWSON stores. In some cases, franchisees may 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 threemonths of the date of acquisition and which are readily convertible into cash and are
exposed to insignificant risk of changes in value.
d. Inventories—Prior to March 1, 2009, inventories were stated at cost determined by theretail method as generally applied in the retail industry. In July 2006, the Accounting Standards Board of Japan (“ASBJ”) issued ASBJ Statement No. 9, “Accounting Standard for
Measurement of Inventories,” which was effective for fiscal years beginning on or after April
1, 2008 with early adoption permitted. This standard requires that inventories held for sale in
the ordinary course of business be measured at the lower of cost or net selling value, which
is defined as the selling price less additional estimated manufacturing costs and estimateddirect selling expenses. Replacement cost may be used in place of the net selling value,
if appropriate.
The Companies applied this new accounting standard for measurement of inventories
effective March 1, 2009. There was no effect on the consolidated financial statements fromthis change.
e. Marketable and Investment Securities—Marketable and investment securities areclassified and accounted for, depending on management’s intent, as follows:(1) held‑to‑maturity debt securities, which are expected to be held to maturity with the positive intent 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 5). Depreciation is computed by the declining‑balance method at

LAWSON, INC.
Annual Report 2010

rates based on the estimated useful lives of the assets. The range of useful lives is principally from 10 to 34 years for buildings and structures and from 5 to 8 years for furniture,
fixtures and equipment.
The useful lives for lease assets are the terms of the respective leases.
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 the undiscounted future cash flows expected to result from the continued use and eventual disposition of the asset or asset group. The impairment loss would be measured as the amount bywhich the carrying amount of the asset exceeds its recoverable amount, which is the higherof the discounted cash flows from the continued use and eventual disposition of the assets
or the net selling price at disposition.
h. Software—Software used by the Companies is amortized using the straight‑line method
based on the estimated useful life (mainly 5 years).
i. Employees’ Retirement Benefits—The Company and a certain domestic subsidiary
have defined benefit lump‑sum severance indemnity plans which cover substantially all of
their employees. The Company established a trust fund for its lump‑sum severance­indemnity 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 Auditors—
The provisions are calculated to state the liability at 100% of the amount that 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 in a separate component of equity until exercised. The standard covers equity‑settled,share‑based payment transactions, but does not cover cash‑settled, share‑based paymenttransactions. In addition, the standard allows unlisted companies to measure options at theirintrinsic value if they cannot reliably estimate fair value. The Company has applied theaccounting standard for stock options to those granted on and after May 1, 2006.
l. Leases— In March 2007, the ASBJ issued ASBJ Statement No. 13, “Accounting Standard for Lease Transactions,” which revised the previous accounting standard for leasetransactions issued in June 1993. The revised accounting standard for lease transactions iseffective for fiscal years beginning on or after April 1, 2008, with early adoption permitted forfiscal years beginning on or after April 1, 2007.
Under the previous accounting standard, finance leases that deem to transfer ownership ofthe leased property to the lessee were to be capitalized. However, other finance leases werepermitted to be accounted for as operating lease transactions if certain “as if capitalized”

LAWSON, INC.
Annual Report 2010

information is disclosed in the notes to the lessee’s financial statements. The revised
accounting standard requires that all finance lease transactions be capitalized to recognize
lease assets and lease obligations in the balance sheet. In addition, the accounting standard
permits leases which existed at the transition date and which do not transfer ownership of theleased property to the lessee to be accounted for as operating lease transactions.
The Companies applied the revised accounting standard effective March 1, 2009. In
addition, the Companies accounted for leases which existed at the transition date andwhich do not transfer ownership of the leased property to the lessee as operating leasetransactions. As a result, compared with the previous method, the Companies recordedlease assets of ¥31,435 million ($351,504 thousand) under fixed assets, and lease obligations of ¥4,641 million ($51,895 thousand) and ¥19,410 million ($217,041 thousand) undercurrent liabilities and long-term liabilities, respectively, on the consolidated balance sheets.
The impact on earnings was not material.
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.
n. Appropriations of Retained Earnings—Appropriations of retained earnings at eachyear end are reflected in the consolidated financial statements for the following year uponshareholders’ approval.
o. Foreign Currency Financial Statements—The balance sheet accounts of an associated company denominated in foreign currencies are translated into Japanese yen at thecurrent exchange rate as of the balance sheet date except for equity, which is translated at
the historical rate. Differences arising from such translation are shown as “Foreign currencytranslation adjustments” in a separate component of equity. Revenue and expense accountsof an affiliated company denominated in foreign currencies are translated into yen at thecurrent 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 commonshares outstanding for the period.
The number of shares used in computing net income per share was 99,167 thousand
shares for 2010 and 99,155 thousand shares for 2009.
Diluted net income per share for the years ended February 28, 2010 and 2009 is computed by using the weighted‑average number of common shares outstanding adjusted toinclude 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
Asset Retirement Obligations—On March 31, 2008, the ASBJ published a new accounting standard for asset retirement obligations, ASBJ Statement No. 18, “Accounting Standard
for Asset Retirement Obligations,” and ASBJ Guidance No. 21, “Guidance on AccountingStandard for Asset Retirement Obligations.” Under this accounting standard, an asset retirement obligation is defined as a legal obligation imposed either by law or contract that resultsfrom the acquisition, construction, development and the normal operation of a tangible fixed
asset and is associated with the retirement of such tangible fixed asset.

LAWSON, INC.
Annual Report 2010

The asset retirement obligation is recognized as the sum of the discounted cash flows
required for the future asset retirement and is recorded in the period in which the obligation
is incurred if a reasonable estimate can be made. If a reasonable estimate of the asset
retirement obligation cannot be made in the period the asset retirement obligation isincurred, the liability should be recognized when a reasonable estimate of the asset retirement obligation can be made. Upon initial recognition of a liability for an asset retirement
obligation, an asset retirement cost is capitalized by increasing the carrying amount of therelated fixed asset by the amount of the liability. The asset retirement cost is subsequently
allocated to expense through depreciation over the remaining useful life of the asset. Overtime, the liability is accreted to its present value each period. Any subsequent revisions to
the timing or the amount of the original estimate of undiscounted cash flows are reflected as
an increase or a decrease in the carrying amount of the liability and the capitalized amountof the related asset retirement cost. The Companies will adopt the new standard for asset
retirement obligations newly incurred after March 1, 2011.

3. Accounts Receivable—Due From Franchised Stores
Under the franchise agreement, the Company is responsible for providing architectural anddesign 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 byeach 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.

4. Marketable and Investment Securities
Marketable and investment securities as of February 28, 2010 and 2009, consisted of thefollowing:

Current—Bonds ���������������������������������������
Non-current—Marketable and other
equity securities ���������������������������������������

LAWSON, INC.
Annual Report 2010

2010

Millions of Yen
2009

Thousands of
U.S. Dollars
2010¥2,500¥3,800$27,955

512

700

5,725

The costs and aggregate fair values of marketable and investment securities at February
28, 2010 and 2009, were as follows:
Millions of Yen
February 28, 2010

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

Cost

Unrealized
Gains¥2,500¥1

Unrealized
LossesFair Value¥2,501

56

¥13

43

¥3,000¥ 1¥2,9991745800

February 28, 2009

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

February 28, 2010

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

61
800

¥1

Cost

Unrealized
Gains

Thousands of U.S. Dollars
Unrealized
LossesFair Value$27,955$11$27,966

626

$145

481

Available‑for‑sale securities whose fair value is not readily determinable as of February 28,
2010 and 2009 were as follows:

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

2010

Millions of Yen
2009

Carrying AmountThousands of
U.S. Dollars
2010

¥469

¥655

$5,244The carrying values of debt securities by contractual maturities for securities classified asheld‑to‑maturity at February 28, 2010 are as follows:

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

Millions of Yen
Held toMaturityThousands of
U.S. Dollars
Held toMaturity¥2,500¥2,500$27,955$27,955

Proceeds from sales of available‑for‑sale securities for the years ended February 28,
2010 and 2009 were ¥0 million ($0 thousand) and ¥111 million, respectively. Gross realized
losses on these sales, computed on the moving-average cost basis, were ¥2 million($22 thousand) for the year ended February 28, 2010 and gross realized gains on thesesales were ¥91 million for the year ended February 28, 2009.

5. Long‑Lived Assets
The Companies mainly identify 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.

LAWSON, INC.
Annual Report 2010

The Companies recognized an impairment loss the following asset categories for theyears ended February 28, 2010 and 2009:

Category

Related Assets

Location

Tokyo ���������������
Stores Buildings andFurniture, fixtures Osaka �������������
and equipment
Others �������������
Other Goodwill ���������������������������������������
   Total �������������������������������������������������

2010¥  427
191
2,786
500
¥3,904

Millions of Yen
2009¥  205165
1,644¥2,014

Thousands of
U.S. Dollars
2010$ 4,775
2,136
31,152
5,591$43,654

The above-noted assets, which incurred impairment losses for the years ended February
28, 2010 and 2009, consisted of the following:

2010

Fixed assets and lease assets:
Land �����������������������������������������������������
Buildings �����������������������������������������������
Lease assets �����������������������������������������
Goodwill �����������������������������������������������
Others ��������������������������������������������������
   Total �������������������������������������������������

¥  395
2,125
442
500
442
¥3,904

Millions of Yen
2009¥1,458341
215¥2,014

Thousands of
U.S. Dollars
2010$ 4,417
23,762
4,942
5,591
4,942
$43,654

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 4.9% and 5.3%
for the years ended February 28, 2010 and 2009, respectively.

6. Land Revaluation
Under the “Law of Land Revaluation,” promulgated on March 31, 1998 and revised on
March 31, 1999 and 2001, the Company chose a one‑time revaluation of its own‑use land
to a value based on real estate appraisal information as of February 28, 2002.
The resulting land revaluation difference represents unrealized depreciation of land and isstated, net of income taxes, as a component of equity. There was no effect on the consolidated statements of income. Continuous readjustment is not permitted unless the land value
subsequently declines significantly.
As at February 28, 2010, the carrying amount of the land after the above one‑time revaluation exceeded the market value by ¥232 million ($2,594 thousand).

7. Accounts Payable—Trade
The balances of “Accounts payable—trade” represent the amounts payable to vendors formerchandise purchased by Company‑operated stores and franchised stores. The Company
centralizes all merchandise purchasing procedures both for Company‑operated stores andfranchised stores and makes collective payments to vendors (see Note 3).
Accounts payable—trade as of February 28, 2010 and 2009, were summarized below:

Accounts payable—trade for
franchised stores �������������������������������������
Accounts payable—trade forCompany-operated stores �����������������������
   Total �������������������������������������������������

LAWSON, INC.
Annual Report 2010

2010

Millions of Yen
2009

Thousands of
U.S. Dollars
2010¥61,765¥64,326$690,652

11,424¥73,189

12,890¥77,216

127,742$818,394

8. Accounts Payable—Due to Franchised Stores
The cost of merchandise supplied to franchised stores is recorded as “Accounts receivable—due from franchised stores” as described in Note 3.
All franchised stores make remittances of cash proceeds from daily sales to the ­Company.
In certain instances, the remittance from a franchised store exceeds the balance of“Accounts receivable—due from franchised stores.” In the accompanying consolidatedbalance sheets, such excess balances are presented as “Accounts payable—due to franchised stores.”9. 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, 2010 and 2009.
The annual interest rates applicable to the current portion of long‑term debt ranged from
1.51% to 3.59% at February 28, 2010 and ranged from 1.47% to 1.65% at February 28, 2009.
Long‑term debt less the current portion at February 28, 2010 and 2009 consisted of
the following:

Loans from banks and leasing companies,
due serially through 2017 with interest rates
ranging from 1.63% to 3.35% (2010)
and from 1.53% to 1.67% (2009)—Unsecured �������������������������������������������
Less current portion �����������������������������������
Long-term debt, less current portion �����������

2010

Millions of Yen
2009

Thousands of
U.S. Dollars
2010¥24,222(4,730)¥19,492¥2,308(937)¥1,371$270,849(52,891)$217,958

Annual maturities of long‑term debt as of February 28, 2010 for the following five years(and thereafter) are as follows:Year Ending February 28 or 29

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

Millions of Yen

Thousands of
U.S. Dollars¥ 4,730
4,860
4,988
4,878
4,766
¥24,222$ 52,891
54,34455,77554,54553,294$270,849

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

LAWSON, INC.
Annual Report 2010

The funded status of these plans as of February 28, 2010 and 2009 was as follows:

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

2010

Millions of Yen
2009

Thousands of
U.S. Dollars
2010¥12,528(5,576)(702)(43)¥ 6,207¥12,227(5,575)(878)(723)¥ 5,051$140,087(62,350)(7,850)(481)$ 69,406

The costs of defined benefit pension plans are accrued based on amounts determinedprincipally using an actuarial method. Additionally the Company and a certain subsidiaryeach have a 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, 2010 and2009 were as follows:

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

2010

Millions of Yen
2009

Thousands of
U.S. Dollars
2010¥  972
242
176
137
272
¥1,799¥  872
223
176
98
265
¥1,634$10,869
2,706
1,968
1,532
3,041
$20,116

Assumptions used for the years ended February 28, 2010 and 2009, were as follows:
Discount rate ����������������������������������������������������������������
Expected rate of return on plan assets ����������������������������
Amortization period of prior service cost ��������������������������
Recognition period of actuarial gain/loss ��������������������������

2010

2009

2.0%
0%
10 years
10 years

2.0%
0%
10 years
10 years

11. Equity
Japanese companies are subject to the Companies Act of Japan (the “Companies Act”).
The significant provisions in the Companies Act that affect financial and accounting matters
are summarized below:
a. Dividends
Under the Companies Act, companies can pay dividends at any time during the fiscal year
in addition to the year‑end dividend upon resolution at the shareholders meeting. For companies that meet certain criteria such as; (1) having the Board of Directors, (2) having independent auditors, (3) having the Board of Corporate Auditors, and (4) the term of service ofthe directors is prescribed as one year rather than two years of normal term by its articles ofincorporation, the Board of Directors may declare dividends (except for dividends in kind) at
any time during the fiscal year if the company has prescribed so in its articles of incorporation.
The Companies Act permits companies to distribute dividends‑in‑kind (non‑cash assets)
to shareholders subject 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 Companies Act
provides certain limitations on the amounts available for dividends or the purchase of treasury stock. The limitation is defined as the amount available for distribution to the shareholders, but the amount of net assets after dividends must be maintained at no less than
¥3 million.

LAWSON, INC.
Annual Report 2010

b. Increases/Decreases and Transfer of Common Stock, Reserve and Surplus
The Companies Act requires that an amount equal to 10% of dividends must be appropriated as a legal reserve (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 Companies Act, the total amount ofadditional paid‑in capital and legal reserve may be reversed without limitation. The Companies Act also provides that common stock, legal reserve, additional paid‑in capital, othercapital surplus 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 Companies Act 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 Companies Act, stock acquisition rights are­presented as a separate component of equity. The Companies Act also provides that­c ompanies can purchase both treasury stock acquisition rights and treasury stock. Suchtreasury stock acquisition rights are presented as a separate component of equity or
deducted directly from stock acquisition rights.

12. Stock Options
The Company and a certain domestic subsidiary have stock option plans as an incentive fordirectors, executive officers and selected employees.
The following is a summary of the Company’s stock option plans:
Stock Option

Persons Granted

Number of
Options Granted

Date of Grant

Exercise Price

Exercise Period

3rd Stock Option 9 directors and
20 executive officers

99,000 shares2004.6.10¥4,320($48.31)

From June 10, 2006
to June 9, 2009

4th Stock Option

9 directors and
24 executive officers

114,000 shares2005.10.12¥4,160($46.52)

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($45.32)

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($44.16)

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($57.86)

From January 18, 2011
to December 15, 2013

9th Stock Option

7 directors

21,500 shares2010.2.17¥1($0.01)

From February 18, 2010
to February 1, 2030

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

Persons Granted

Number of
Options Granted

2nd Stock Option 9 directors and auditors 3,824 shares
226 managers(including store manager)
58 Ninety-nine Plus
Kansai Inc.’s managers(including store manager)

Date of Grant

Exercise Price

2003.10.31¥90,000
From September 4, 2005($1,006.37) to September 3, 2010

Exercise Period

LAWSON, INC.
Annual Report 2010

The stock option activity is as follows:
3rd
Stock Option

4th
Stock Option

5th
Stock Option

6th (a)Stock Option

6th (b)Stock Option

7th (a)Stock Option(Shares)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 ����������������

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

99,000114,000

15,00021,30018,00080,000(8,100)90,900(10,400)(3,000)100,600

15,0007th (b)Stock Option

8th (a)Stock Option

8th (b)Stock Option

21,30080,00018,000Ninety-nine
9th Plus Inc.’s 2nd
Stock Option
Stock Option(Shares)Year Ended February 28, 2009Non-vested:
February 29, 2008—outstanding ����������������
   Granted ������������������������������������������������
   Canceled ����������������������������������������������
   Vested ��������������������������������������������������
February 28, 2009—outstanding ����������������

45,00026,40036,000(3,000)(26,400)
42,000

Vested:February 29, 2008—outstanding ����������������
   Vested ��������������������������������������������������
   Exercised ����������������������������������������������
   Canceled ����������������������������������������������
February 28, 2009—outstanding ����������������

36,0001,000
26,400(24)
26,400
3rd
Stock Option

4th
Stock Option

976
5th
Stock Option

6th (a)Stock Option

6th (b)Stock Option

7th (a)Stock Option(Shares)

For the Year Ended February 28, 2010
Non-vested:
February 28, 2009—outstanding ��������������������
   Granted ��������������������������������������������������
   Canceled ������������������������������������������������
   Vested ����������������������������������������������������
February 28, 2010—outstanding ��������������������
Vested:February 28, 2009—outstanding ��������������������
   Vested ����������������������������������������������������
   Exercised ������������������������������������������������
   Canceled ������������������������������������������������
February 28, 2010—outstanding ��������������������
Exercise price ������������������������������������������������

90,900100,600

15,00021,30080,00018,000100,600

15,00021,30080,00018,000¥4,160($46.52)¥1($0.01)¥1($0.01)¥4,053($45.32)¥1($0.01)¥3,178($35.54)¥618($6.91)¥2,852($31.89)(90,900)¥4,320($48.31)

Average stock price at exercise ��������������������������
Fair value price at grant date ������������������������������

LAWSON, INC.
Annual Report 2010

7th (b)Stock Option

8th (a)Stock Option

Ninety-nine
9th Plus Inc.’s 2nd
Stock Option
Stock Option

8th (b)Stock Option(Shares)

For the Year Ended February 28, 2010
Non-vested:
February 28, 2009—outstanding ��������������������
   Granted ��������������������������������������������������
   Canceled ������������������������������������������������
   Vested ����������������������������������������������������
February 28, 2010—outstanding ��������������������
Vested:February 28, 2009—outstanding ��������������������
   Vested ����������������������������������������������������
   Exercised ������������������������������������������������
   Canceled ������������������������������������������������
February 28, 2010—outstanding ��������������������
Exercise price ������������������������������������������������

42,00036,00021,500(42,000)(21,500)
36,00026,400976

42,00021,50042,00026,40021,500¥3,949($44.16)¥1($0.01)¥5,174($57.86)¥397($4.44)¥3,477($38.88)¥582($6.51)

Average stock price at exercise ��������������������������
Fair value price at grant date ������������������������������

(848)
(24)
104

¥1
¥90,000($0.01) ($1,006.37)¥129,817($1,451.60)¥2,652($29.65)

The assumptions used to measure the fair value of the 8th stock options (2009) and 9thstock option (2010) were as follows:
8th (a)Stock Option

8th (b)Stock Option

9th Stock Option

Estimate method ��������������������������������������� Black-Scholes
option pricing
model
Volatility of stock price ������������������������������� 35.59%
Estimated remaining outstanding period ������� 10 years
Estimated dividend ����������������������������������� ¥135 per share
Risk-free interest rate ��������������������������������� 1.22%

Black-Scholes
option pricing
model
28.09%
3.5 years¥135 per share
0.52%Black-Scholes
option pricing
model
34.43%
10 years¥160 per share
1.35%

13. Income Taxes
The Company and its domestic subsidiaries are subject to a number of different taxes
based on income, which in the aggregate, resulted in a normal effective statutory tax rate of
approximately 40.7% for the years ended February 28, 2010 and 2009.
The tax effects of significant temporary differences and tax loss carryforwards, which
resulted in deferred tax assets and liabilities at February 28, 2010 and 2009, are as follows:

Deferred tax assets:
Accrued enterprise tax ���������������������������
Accrued employees’ bonuses �����������������
Excess of depreciation ���������������������������
Excess of amortization of software �����������
Employees’ retirement benefits ���������������
Allowance for doubtful accounts �������������
Tax loss carryforwards ���������������������������
Impairment loss �������������������������������������
Loss on replacement of   computer system ���������������������������������
Other ���������������������������������������������������
Less valuation allowance �����������������������
Net deferred tax assets �����������������������������

2010

Millions of Yen
2009

Thousands of
U.S. Dollars
2010¥   906
1,135
5,371
919
4,797
5,807
1,523
2,396

¥   902
1,302
4,969
794
4,324
1,414
2,216
2,165

$ 10,131
12,69160,058
10,27653,64064,933
17,03026,792412
3,671(7,076)¥19,861841
2,435(2,832)¥18,530

4,607
41,049(79,122)$222,085

LAWSON, INC.
Annual Report 2010

A reconciliation between the normal effective statutory tax rate and the actual effective tax
rate reflected in the accompanying consolidated statement of income for the year ended
February 28, 2010 was as follows:2010

Normal effective statutory tax rate �����������������������������������������������������������
Increase in valuation allowance ���������������������������������������������������������������
Tax loss carryforwards ���������������������������������������������������������������������������
Per capita portion of resident tax �������������������������������������������������������������
Permanently non-deductible expenses ���������������������������������������������������
Other—net �������������������������������������������������������������������������������������������
Actual effective tax rate �������������������������������������������������������������������������

40.7%
20.5
(5.8)
1.3
0.6
0.4
57.7%

At February 28, 2010, certain subsidiaries have tax loss carryforwards aggregating toapproximately ¥3,743 million ($41,854 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

2012 ����������������������������������������������������������������������������
2013 ����������������������������������������������������������������������������
2014 ����������������������������������������������������������������������������
2015 ����������������������������������������������������������������������������
2016 ����������������������������������������������������������������������������
   Total ����������������������������������������������������������������������

Millions of Yen

Thousands of
U.S. Dollars¥   88
1,598
1,164
220
673
¥3,743$   984
17,86913,0162,460
7,525$41,854

14. Impropriety-Related Loss
The Companies recorded an impropriety-related loss of ¥12,616 million ($141,071­thousand) at February 28, 2010 and a provision to the allowance for doubtful accounts of¥1,936 million at February 28, 2009, relating to the alleged misappropriation of funds by twoformer directors of consolidated subsidiary LAWSON ENTERMEDIA, INC. (“LEM”)

15. Leases
The Companies lease certain store facilities, machinery, computer equipment, office spaceand other assets.
As discussed in Note 2.l, the Companies account for leases which existed at the transition date and which do not transfer ownership of the leased property to the lessee as operating lease transactions.
Pro forma information of such leases existing at the transition date, such as acquisition
cost, accumulated depreciation, accumulated impairment loss, obligations under financeleases, 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, 2010 and 2009 was as follows:

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

LAWSON, INC.
Annual Report 2010

2010

Millions of Yen
2009

Thousands of
U.S. Dollars
2010¥53,955
29,057
1,149¥23,749¥76,786
40,379776¥35,631$603,321
324,913
12,848$265,560

Obligations under finance leases:

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

2010

Millions of Yen
2009

Thousands of
U.S. Dollars
2010¥ 8,944
16,909¥25,853¥11,286
26,090¥37,376$100,011
189,075$289,086

Allowance for impairment loss on leased property of ¥452 million ($5,054 ­thousand) and¥684 million as of February 28, 2010 and 2009 is included in obligations under finance leases.
The imputed interest expense portion which is computed using the interest method is
excluded from the above obligations under finance leases.
Depreciation expense, interest expense and other information under finance leases:

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

2010

Millions of Yen
2009

Thousands of
U.S. Dollars
2010¥11,161
912
11,697¥13,658
1,210
14,434$124,802
10,198130,795

512
439

377
341

5,725
4,909

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,
2010 and 2009 were as follows:

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

2010

Millions of Yen
2009

Thousands of
U.S. Dollars
2010¥  782
1,606¥2,388¥  560462¥1,022$ 8,744
17,958$26,702

16. Related Party Transactions
Balances and transactions of the Company with subsidiaries of Mitsubishi as of and for theyears ended February 28, 2010 and 2009 were as follows:
Thousands of
U.S. Dollars
2010

2010

Millions of Yen
2009

RYOSHOKU LIMITED:
Accounts payable—trade �����������������������
Purchases ���������������������������������������������

¥   5,810
85,960¥   6,572
91,630$   64,967
961,199

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

16,455
221,588

16,442
227,597

183,9992,477,782

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

2,803
31,2172,903
33,46531,343
349,066

LAWSON, INC.
Annual Report 2010

Purchase prices and other conditions are determined at an arm’s length basis.
Balances and transactions of Ninety-nine Plus Inc., a consolidated subsidiary of the­Company, with subsidiaries of Mitsubishi as of and for the year ended February 28, 2010
were as follows:

RYOSHOKU LIMITED:
Accounts payable—trade ��������������������������������������������
Purchases ������������������������������������������������������������������

Millions of Yen
2010

Thousands of
U.S. Dollars
2010¥ 4,553
72,569$ 50,911
811,461

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

17. Net Income Per ShareA reconciliation of the differences between basic and diluted net income per share (“EPS”)
for the years ended February 28, 2010 and 2009 is as follows:
Millionsof YenYear Ended February 28, 2010

Basic EPS—Net income available
to common shareholders �������������������������
Effect of dilutive securities—
Stock options �����������������������������������������
Diluted EPS—Net income for computation ���Net
IncomeThousandsof Shares
WeightedAverage
Shares¥12,562

99,167¥126.67$1.42¥12,562102
99,269¥126.54$1.41¥23,807

99,155¥240.10¥23,80788
99,243¥239.89

Yen

U.S.
Dollars

EPS

Year Ended February 28, 2009

Basic EPS—Net income available
to common shareholders �������������������������
Effect of dilutive securities—
Stock options �����������������������������������������
Diluted EPS—Net income for computation ���18. Subsequent Eventsa.	Appropriation of Retained Earnings
	The following appropriation of retained earnings was approved at the general shareholders meeting held on May 25, 2010:

Cash dividends, ¥80 ($0.89) per share ����������������������������

Millions of Yen

Thousands of
U.S. Dollars¥7,933$88,706b.	Share Exchange
1.	In accordance with a Board of Directors’ resolution on April 14, 2010, the Company
concluded a share exchange agreement on the same day that would make it the wholly
owning parent company and Ninety-nine Plus Inc. a wholly owned subsidiary, with theaims of further improving the operational efficiency and strengthening the competitiveness of the LAWSON Group as a whole. Ninety-nine Plus Inc. subsequently obtained
approval for this agreement through a resolution at the annual meeting of shareholders
on May 21, 2010.
		 An overview of the share exchange is as follows:(1)	Details of share exchange	The share exchange will make Ninety-nine Plus Inc. a wholly owned subsidiary of theCompany, the wholly owning parent company.
(2) Effective date of share exchange
July 1, 2010 (scheduled)

LAWSON, INC.
Annual Report 2010

(3) Share exchange method	The Company will issue new common stock for allotment to shareholders registered orrecorded in Ninety-nine Plus Inc.’s shareholders register on the day before the effective
date of the share exchange in exchange for all Ninety-nine Plus Inc. common stock heldby said shareholders.

Company
Details of allotment
for share exchange
Number of new shares to beissued for share exchange:

LAWSON, INC.
(Wholly Owning Parent
Company)

Ninety-nine Plus Inc.
(Wholly Owned Subsidiary)1

33

Common stock— 1,318,647 shares (planned)

2.	In accordance with a Board of Directors’ resolution on April 14, 2010, the Company concluded a share exchange agreement on the same day that would make it the wholly
owning parent company and LEM a wholly owned subsidiary, with the aims of further
improving the operational efficiency and strengthening the competitiveness of the LAWSONGroup as a whole. LEM subsequently obtained approval for this agreement through a
resolution at the annual meeting of shareholders on May 24, 2010.
		 An overview of the share exchange is as follows:(1)	Details of share exchange	The share exchange will make LEM a wholly owned subsidiary of the Company, thewholly owning parent company.
(2) Effective date of share exchange
July 1, 2010 (scheduled)(3) Share exchange method	The Company will issue new common stock for allotment to shareholders registered orrecorded in LEM’s shareholders register on the day before the effective date of the shareexchange in exchange for all LEM common stock held by said shareholders.

Company
Details of allotment
for share exchange
Number of new shares to beissued for share exchange:

LAWSON, INC.
(Wholly Owning Parent
Company)

LEM(Wholly Owned Subsidiary)1

21

Common stock— 287,238 shares (planned)(4) Performance of LEM
Year ended February 28, 2010

Net sales ����������������������������������������������������������������������
Net loss ������������������������������������������������������������������������
Total assets ������������������������������������������������������������������
Total liabilities ����������������������������������������������������������������
Total capital deficiency ����������������������������������������������������

Millions of Yen

Thousands of
U.S. Dollars¥10,022(11,887)
6,323
13,932(7,609)$112,065(132,920)
70,703
155,786(85,083)

LAWSON, INC.
Annual Report 2010

INDEPENDENT AUDITORS’ REPORTTo the Board of Directors of
LAWSON, INC.:
We have audited the accompanying consolidated balance sheets of LAWSON, INC. (the “Company”) and subsidiaries as ofFebruary 28, 2010 and 2009, and the related consolidated statements of income, changes in equity, and cash flows for theyears then ended, all expressed in Japanese yen. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards require that weplan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated
financial position of the Company and subsidiaries as of February 28, 2010 and 2009, and the consolidated results of theiroperations and their cash flows for the years then ended in conformity with accounting principles generally accepted in Japan.
As discussed in Note 18.b.2 to the consolidated financial statements, on April 14, 2010, the Company concluded a shareexchange agreement that would make it the wholly owning parent company and LAWSON ENTERMEDIA, INC. (“LEM”), a wholly
owned subsidiary company, in accordance with the Board of Directors’ resolution of the same date. LEM subsequently
obtained the approval of this agreement by a resolution at the annual shareholders meeting on May 24, 2010.
We have also audited management’s report on internal control over financial reporting of the consolidated financial statementsof the Company and subsidiaries as of February 28, 2010. The Company’s management is responsible for designing and operating effective internal control over financial reporting and for preparing its report on internal control. Our responsibility is toexpress an opinion on management’s report on internal control based on our audit. There is a possibility that misstatements
may not be completely prevented or detected by internal control over financial reporting.
We conducted our internal control audit in accordance with auditing standards for internal control over financial reporting generally accepted in Japan. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether management’s report on internal control is free of material misstatement. An internal control audit includes examining,
on a test basis, representations on the scope, procedures and results of the assessment of internal control over financial
reporting made by management, as well as evaluating the overall presentation of management’s report on internal control. We
believe that our internal control audit provides a reasonable basis for our opinion.
In our opinion, management’s report on internal control referred to above, which represents that the internal control over financial
reporting of the consolidated financial statements of the Company and subsidiaries as of February 28, 2010 is not effectively
maintained because of a material weakness, presents fairly, in all material respects, the assessment of internal control over financial reporting in conformity with assessment standards for internal control over financial reporting generally accepted in Japan.
As discussed in management’s report on internal control, the Company identified a material weakness in company-level controlsof LEM, a consolidated subsidiary. The Company restated its consolidated financial statements for the year ended February 28,
2009, and reexamined its accounting for the year ended February 28, 2010. As a result, necessary adjustments were allreflected in the accompanying consolidated financial statements, and as such, this matter had no effect on our audit of theconsolidated financial statements.
Our audits also comprehended the translation of Japanese yen amounts into U.S. dollar amounts and, in our opinion, suchtranslation has been made in conformity with the basis stated in Note 1. Such U.S. dollar amounts are presented solely for theconvenience of readers outside Japan.

May 25, 2010

LAWSON, INC.
Annual Report 2010

Management’s Report on Internal Control
1. [Matters Relating to the Basic Framework for Internal Control Over Financial Reporting]Takeshi Niinami, Representative Director, President and CEO, and Yoshiyuki Yahagi, Memberof the Board, Senior Executive Vice President and CFO are responsible for designing andoperating effective internal control over financial reporting of our company (the “Company”)
and have designed and operated internal control over financial reporting in accordance withthe basic framework for internal control set forth in “On the Setting of the Standards andPractice Standards for Management Assessment and Audit concerning Internal Control Over
Financial Reporting (Council Opinions)” published by the Business Accounting Council.
Internal control aims at achieving its objectives to the extent reasonable through the­e ffective function and combination of its basic elements. Therefore, there is a possibility thatmisstatements may not be completely prevented or detected by internal control over financial reporting.

2. [Matters Relating to the Scope of Assessment, the Basis Date of Assessment
and the Assessment Procedures]
The assessment of internal control over financial reporting was performed as of February
28, 2010, which is the end of the Company’s fiscal year. The assessment was performedin accordance with assessment standards for internal control over financial reporting generally accepted in Japan.
In conducting this assessment, we evaluated internal controls which may have a material
effect on our entire financial reporting on a consolidated basis (“company-level ­controls”).
Furthermore, we reasonably selected business processes to be assessed. We analyzed
these selected business processes, identified key controls that may have a material impact
on the reliability of the Company’s financial reporting, and assessed the design and operation of these key controls. These procedures have allowed us to evaluate the effectivenessof the internal controls of the Company.
We determined the required scope of assessment of internal control over financial reporting for the Company, as well as its consolidated subsidiaries and equity-method affiliatedcompanies, from the perspective of the materiality of the impact on the reliability of our
financial reporting. The materiality of the impact on the reliability of financial reporting isdetermined taking into account the materiality of quantitative and qualitative impacts onfinancial reporting. Consolidated subsidiaries and equity-method affiliated companies that do
not have a material quantitative or qualitative impact are not included in the scope ofassessment of company-level controls. In light of the results of assessment of companylevel controls conducted for the Company and consolidated subsidiaries, we reasonably
determined the scope of assessment of process-level controls.
Regarding the scope of assessment of process-level controls, we selected “significant
locations and/or business units,” which are those locations and/or business units to beassessed, in descending order of total operating revenues, total assets, and income before
income taxes for the previous period, until their combined amount of one of the three factors
reaches approximately two-thirds of the respective total amount on a consolidated basis.
We included in the scope of assessment, at the selected significant locations and/or business units, business processes which impact the accounts that are closely associated with
the Company’s business objectives, namely those leading to operating revenues and net
sales as well as franchisee accounts and inventories, and business processes relating toother accounts with a high degree of monetary materiality. Further, regardless of the­selection of significant locations and/or business units, we also selected for assessment,
as business processes with a significant effect on financial reporting, those business processes that have a high risk of material misstatements relating to (i) significant accounts
involving estimates and management’s judgment and/or (ii) a business or operation dealing
with high-risk transactions.

LAWSON, INC.
Annual Report 2010

3. [Matters Relating to the Results of the Assessment]
We have concluded that it is reasonably possible that the following deficiency of internal
control over financial reporting at a consolidated subsidiary, LAWSON ENTERMEDIA, INC.
(“LEM”), has the definition of a material effect on financial reporting, and therefore falls undera material weakness in internal control over financial reporting. As a result, as of the end of
February 2010, we concluded that internal control over financial reporting of the Group was
not effective.
The Company discovered on January 24, 2010 that the former senior managing andrepresentative director and the former director in charge of accounting of LEM had misappropriated large sums of money without authority and without following internal corporate
procedures.
In connection with the misconduct and unauthorized accounting processes, LEM
recorded extraordinary losses of ¥1.9 billion for the fiscal year ended February 28, 2009,and ¥12.6 billion for the fiscal year ended February 28, 2010. LEM and the ­Company haveamended the following financial reports: Annual securities report for fiscal 2008, which was
the year ended February 28, 2009, and reports for the first quarter, first half, and third quarter of fiscal 2009, the year ended February 28, 2010.
The Group assessed internal control in accordance with the basic framework for internal
control. It turned out, however, there was a material weakness in company-level controls at
LEM in responding to the risk of inappropriate accounting practices by management, andtherefore, inappropriate accounting was made, and the discovery and correction of thisimpropriety was delayed.
The reason the material weakness was not remedied by February 28, 2010 was because
the misconduct was not discovered until close to the period-end, and therefore, there was
not enough time to confirm the effectiveness of countermeasures as of the end of the business year, although LEM promptly carried out countermeasures following discovery of the
misconduct, including eliminating the concentration of authority and strengthening the risk
management system.
However, the Company recognizes the importance of design and operation of internal
controls over financial reporting, and immediately responded to the discovery of this misconduct by launching an investigation by a third-party investigating committee. Based on the
results of the committee’s investigation, the Group has started implementing the following
preventative measures to ensure that this kind of incident does not reoccur.

4. [Supplementary Information]
In order to remedy the deficiency in internal control discussed in Section 3 above, the Grouphas been implementing the following countermeasures since the discovery of the misconduct through the submission of Management’s Report on Internal Control. The Group
believes that by continuing to thoroughly implement these measures, it can prevent inappropriate accounting from occurring in the future.
Response of LEM(1) Emergency Countermeasures
After discovering the misappropriation of money, LEM implemented the following emergency
countermeasures.
1) Elimination of Concentration of Authority
LEM decentralized authority in view of the fact that the concentration of authority in one
division or the directors in charge was identified as having facilitated the misconduct.
­S pecifically, the Management Division was split into four divisions: the Finance

LAWSON, INC.
Annual Report 2010and Accounting Division, the General Affairs Division, the Internal Audit Division, and theManagement Planning Office; and a person with responsibility was appointed in each­division. This created a system of checks and balances among the newly-formed divisions.
2) Stronger Supervision of Payments
LEM established a new system for checking payment applications in the General Affairs
Division, in addition to the Finance and Accounting Division. The system relates to advancepayments and other irregular transactions.
(2) Fundamental Countermeasures
LEM also decided to take the following fundamental countermeasures based on the final
report of the third-party investigating committee.
1) Enhancement of Legal ComplianceTop management announces its commitment to preventing a reoccurrence of this incident.
LEM will maintain and strengthen the existing compliance training for all executives andemployees in order to ensure that awareness of legal compliance is thoroughly instilled.
Furthermore, starting from the fiscal year ending February 28, 2011, LEM will conduct aregular annual awareness survey of all executives and employees to gauge their understanding and awareness of legal compliance.
2) Identification and Prevention of Transaction Risks
LEM will identify risks relating to trading partners and transactions, and reflect preventative
measures in business manuals as well as ensure that all executives and employees understand them. These measures will be implemented before the end of the first six months of
the fiscal year ending February 28, 2011.
3) Emphasizing an Organizational over Individual Approach
One of the characteristics of LEM’s industry is the emphasis on individual connections,which tends to result in individualized work practices. Beginning from the fiscal year ending
February 28, 2011, LEM will therefore work to ensure that individual work practices are more
visible within the organization and encourage regular personnel rotation in order to ensurethat business is handled in a more systematic manner.
4) Enhanced Management of the Sales Division
The General Affairs Division and the Finance and Accounting Division already conduct credit
screening of trading partners and regular verification of transactions. Going forward, however,
over the medium term, LEM plans to strengthen management functions in the Sales Division inline with organizational growth, installing control functions in the Division.
5) Enhanced Audit Function
Along with establishment of the Internal Audit Division as an emergency response measure,
LEM also increased the number of dedicated internal audit staff to two, creating a system forcomprehensive evaluation of inherent risk.
Going forward, LEM will rebuild its systems, including the finance and accounting systems, inorder to promote more visible work practices and conduct continuous and effective monitoring.
6) Encourage Use of Internal Whistleblower System
Through compliance training and other programs, LEM encourages active use of the internal
whistleblower system. Going forward, the management themselves will directly encourage
employees to use the system at morning meetings and via in-house communications.

LAWSON, INC.
Annual Report 2010

7) Monitoring of Preventative Measure Implementation
LEM will thoroughly monitor the implementation status of the aforementioned preventative
measures.
Specifically, it will designate the Risk Management and Compliance Committee as thegroup in charge of promoting implementation of preventative measures. This committee will
regularly report the results of its monitoring work to the Board of Directors.
Countermeasures in the LAWSON Group(3) Group-wide Countermeasures
When this incident was discovered, the Company conducted inspections of accounting atother Group companies (Ninety-nine Plus Inc. and LAWSON ATM Networks, Inc.) as an
emergency measure, confirming that no other misappropriation of funds had occurred. The
Company also evaluated risk management at Group companies based on the factors thatfacilitated the alleged misconduct at LEM (concentration of authority and insufficient risk
awareness) and confirmed that no similar issues were present. Looking ahead, the Group asa whole will enforce risk management in order to prevent such an incident from recurring.
1) Decentralization of Authority• T he Company has confirmed that individuals with responsibilities in a given division do nothold concurrent positions that could hinder the functioning of checks and balancesamong divisions.
• T he Company confirmed its system of double checks on payment procedures.
• T he Company will strengthen monitoring of the systems described above.
2) Stronger Risk Management System
Committees to oversee risk management and compliance have been established at Group
companies, and these committees will work with the Company’s Compliance and Risk
Office to enforce risk management.

5. Special Items
No other items to report.

TAKESHI NIINAMI
Representative Director, President and CEO
LAWSON, INC.

LAWSON, INC.
Annual Report 2010

Directors, Corporate Auditors andExecutive Officers(As of May 26, 2010)

President and CEO

Takeshi Niinami

CEO, President, LAWSON University

Member of the Board
and Senior Executive
Vice President

Yoshiyuki Yahagi

Chief Financial Officer (CFO)

Member of the Board andExecutive Vice President

Manabu Asano

Chief Compliance Officer (CCO), In charge of CSR,
General Manager, Administration Department,
LAWSON ENTERMEDIA, INC.

Member of the Board

Toru Moriyama

Executive Vice President, Group COO, Living Essentials Group,
Mitsubishi Corporation

Members of the Board(Outside)

Hiroshi Tasaka

Professor, Graduate School of Tama University

Reiko Okutani

President, The R Co., Ltd.

Takehiko Kakiuchi

Senior Vice President, Division COO, Foods (Commodity) Div.,
Mitsubishi Corporation

Standing Corporate Auditor Munehiko Nakano(Outside)Standing Corporate Auditor Atsuhiko Seki
Corporate Auditors(Outside)

Tetsuo Ozawa

LawyerKazuyuki Masu

General Manager, Administration Dept. of Corporate Section,
Mitsubishi Corporation

Senior Executive Vice
President

Takatoshi Kawamura In charge of Healthcare Business

Executive Vice President

Syuichi Imagawa

General Manager, Marketing Strategy Group
Division Director, Entertainment & Service Development Division
Division Director, Regional Headquarters Support Division

Senior Vice President

Norikazu Nishiguchi

General Manager, CEO Office

Shigeaki Kawahara

Executive Assistant to CEO
Senior Executive Vice President, Ninety-nine Plus Inc.

Takaki Mizuno

Region Director, Chubu LAWSON Branch

Hajime Nakai

Division Director, Merchandizing & Logistics Division

Jyun Miyazaki

Division Director, Corporate Communications Office

Masahiro Oyama

Deputy Division Director, Merchandizing & Logistics Division

Tatsushi Sato

CIO (Chief Information Officer)
Division Director, Information Systems Office

Kei Murayama

Division Director, Human Resources Office

Ichiro Kijima

Division Director, Corporate Business Strategy Division

Hisashi Yasuhira

Region Director, Tohoku LAWSON Branch

Atsushi Maeda

Deputy Division Director, Merchandizing & Logistics Division
Director, Ninety-nine Plus Inc.

Kazuo Togasa

Deputy Region Director, Kanto LAWSON Branch

LAWSON, INC.
Annual Report 2010

Corporate Data

(As of February 28, 2010)

Company NameNet Sales of All Stores

LAWSON, INC.

¥1,666.1 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

Established
Number of Employees

April 15, 1975

5,236 (Consolidated)

CapitalBusiness Activities¥58.5 billion

Development of LAWSON, NATURAL LAWSON and
LAWSON STORE100 franchise chains, etc.

Number of Stores

9,761 (Consolidated)
Chubu

1,421
*1

KyushuChugoku

1,036

548
*1

Fukuoka 339
Saga60
Nagasaki 85
Kumamoto 91
Oita
136
Miyazaki82
Kagoshima 107
Okinawa 136
1,036

*2

*2

*3

Niigata
104–
104
Toyama111–
111
Ishikawa
85
–
85
Fukui
96
–
96
Yamanashi 66–
66
Nagano
133
–
133
Gifu
111
6
117
Shizuoka 159 14
173
Aichi
340 106
446
Mie
90
–
90
1,295 126 1,421*1=LAWSON and NATURAL LAWSON*2=LAWSON STORE100 and SHOP 99 stores*3=LAWSON Group Total (including LAWSON
Okinawa)

*3

*1

*2

*3

–
339
–
60
–
85
–
91
–
136
–
82
–
107
–
136
– 1,036

Tottori89
Shimane87
Okayama 123
Hiroshima 140
Yamaguchi 109
548

–
–
–
–
–
–

89
87
123
140
109
548

Hokkaido

518

*1

*2

*3

Hokkaido 518
518

–
–

518
518

Tohoku

828

*1

*2

*3

Aomori
167
Iwate
161
Miyagi
166
Akita
148
Yamagata 59
Fukushima 95
796

–
–
27
–
–
5
32

167
161
193
148
59
100
828

Kanto

2,920
*1

Shikoku

Kinki

416

Store Information

*2

*3

*1

Tokushima 105
Kagawa97
Ehime
156
Kouchi
58
416

–
–
–
–
–

105
97
156
58
416

Shiga
123
–
123
Kyoto
207 38245
Osaka
818 136954
Hyogo
508 33
541
Nara
99
3
102
Wakayama 109–
109
1,864 210 2,074

SHANGHAI HUALIAN LAWSON CO., LTD.:
300 (as of December 31, 2009)

LAWSON, INC.
Annual Report 2010

2,074
*1

*2

*3

*2

*3

Ibaraki
100
5105
Tochigi
106
–
106
Gunma
65
–
65
Saitama 327 47
374
Chiba
290 61351
Tokyo
903 352 1,255
Kanagawa 501 163
664
2,292 628 2,920

Shareholder Information(As of February 28, 2010)

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,

35,691

Tokyo 100-8212, Japan

Major Shareholders
Number of Shares
Held (Thousands)

Percentage of Total
Shares Held*

1. Mitsubishi Corporation

32,08932.4

2. Marubeni Foods Investment Co., Ltd.

4,786

4.8

3. Japan Trustee Services Bank, Ltd. (Trust account)

3,765

3.8

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

3,363

3.4

5. STATE STREET BANK AND TRUST COMPANY 505223

2,543

2.6

6. NTT DOCOMO, Inc.

2,092

2.1

7. The Chase Manhattan Bank NA, London SL, Omnibus Account

1,856

1.9

8. STATE STREET BANK AND TRUST COMPANY 505225

1,337

1.3

9. Trust & Custody Services Bank, Ltd. (Securities investment trust account)

1,184

1.2

10. Mizuho Securities Co., Ltd.

1,087

1.1

* The above shareholding ratios exclude treasury stock (432,190).

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

2006

2007

2008

2009

2010

High
Low
At Year-End

5,130
3,800
4,350

4,830
3,800
4,540

4,750
3,440
4,000

5,750
3,820
4,250

4,380
3,580
3,885

LAWSON, INC.
Annual Report 2010

Annual Report 2010

Corporate Planning Office,East Tower, Gate City Ohsaki,
11-2, Osaki 1-chome, Shinagawa-ku,
Tokyo 141-8643, Japan
http://www.lawson.co.jp/company/e/Published in August 2010.
©1975–2010 LAWSON, INC. All rights Reserved.

Printed in Japan