**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

----

**FORM 10-K**

**x**                               ANNUAL REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934

**FOR THE FISCAL YEAR ENDED MAY 31, 2007**

**OR**

**o**                                  TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

**FOR THE TRANSITION PERIOD FROM                TO                **

**Commission file number: 000-51942**

----

**LAWSONSOFTWARE, INC.**

(Exactname of registrant as specified in its charter)

| **DELAWARE**                                                    |   | **20-3469219**                           |
|-----------------------------------------------------------------|--------|------------------------------------------|
| (State or other jurisdiction of  incorporation or organization) |   | (I.R.S. Employer  Identification Number) |

 

**380ST. PETER STREETST. PAUL, MINNESOTA 55102**

(Addressof principal executive offices)

**(651) 767-7000**

(Registrant’stelephone number, including area code)

----

SECURITIES REGISTEREDPURSUANT TO SECTION 12(b) OF THE ACT:

**CommonStock, $0.01 Par Value Per Share**

**Preferred Stock Purchase Rights**

SECURITIESREGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: **None**

----

Indicateby check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405of the Securities Act. Yes o  No x

Indicateby check mark if the registrant is not required to file reports pursuant to Section 13or Section 15(d) of the Act. Yes o  No x

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. Yes x  No o

Indicateby check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to thebest of Registrant’s knowledge, in definitive proxy or information statementsincorporated by Reference in Part III of this Form 10-K or anyamendment to this Form 10-K. x

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of “acceleratedfiler and large accelerated filer” in Rule 12b-2 of the ExchangeAct. (Check one):

| Large accelerated  filer  x | Accelerated filer  o | Non-accelerated  filer  o |
|---------------------------------------|--------------------------------|-------------------------------------|

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Act). Yes o  No x

Theaggregate market value of the voting and non-voting common stock held bynon-affiliates of the registrant, based upon the closing sale price of CommonStock on November 30, 2006 as reported on the Nasdaq National Market,was approximately $1,112,952,873.

Thenumber of shares of the registrant’s common stock outstanding on July 25, 2007was 183,489,564.

**DOCUMENTS INCORPORATED BY REFERENCE**

Portions of the Proxy Statement for the Registrant’s2007 Annual Meeting of Stockholders to be held October 18, 2007 areincorporated by reference in Part III of this Form 10-K Report.

 

----

**LAWSONSOFTWARE, INC.Form 10-KIndex**
| **PART I.**   |   |                                                                                                                     |   |   |
|--------------------|--------|--------------------------------------------------------------------------------------------------------------------------|--------|--------|
| Item 1.       |   | Business                                                                                                                 |   | 3      |
| Item 1A.           |   | Risk Factors                                                                                                             |   | 16     |
| Item  1B.          |   | Unresolved  Staff Comments                                                                                               |   | 24     |
| Item 2.       |   | Properties                                                                                                               |   | 25     |
| Item 3.       |   | Legal  Proceedings                                                                                                       |   | 25     |
| Item 4.       |   | Submission  of Matters to a Vote of Security Holders                                                                     |   | 25     |
| **PART II.**  |   |                                                                                                                     |   |   |
| Item 5.       |   | Market  for Registrant’s Common Equity, Related Stockholder Matters and  Issuer Purchases of Equity Securities |   | 26     |
| Item 6.       |   | Selected  Consolidated Financial Data                                                                                    |   | 27     |
| Item 7.       |   | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                              |   | 29     |
| Item 7A.      |   | Qualitative  and Quantitative Disclosures About Market Risk                                                              |   | 49     |
| Item 8.       |   | Consolidated  Financial Statements and Supplementary Data                                                                |   | 49     |
| Item 9.       |   | Changes  in and Disagreements With Accountants on Accounting and Financial Disclosure                                    |   | 49     |
| Item 9A.      |   | Controls  and Procedures                                                                                                 |   | 50     |
| Item 9B.      |   | Other Information                                                                                                        |   |   |
| **PART III.** |   |                                                                                                                     |   |   |
| Item 10.      |   | Directors  and Executive Officers of the Registrant                                                                      |   | 52     |
| Item 11.      |   | Executive  Compensation                                                                                                  |   | 53     |
| Item 12.      |   | Security  Ownership of Certain Beneficial Owners and Management and Related Stockholder  Matters                         |   | 53     |
| Item 13.      |   | Certain  Relationships and Related Transactions                                                                          |   | 53     |
| Item 14.      |   | Principal  Accounting Fees and Services                                                                                  |   | 53     |
| **PART IV.**  |   |                                                                                                                     |   |   |
| Item 15.      |   | Exhibits,  Financial Statement Schedules                                                                                 |   | 53     |
|               |   | SIGNATURES                                                                                                               |   | 57     |

 

2

----

**Forward-LookingStatements**

In addition to historicalinformation, this Annual Report on Form 10-K containsforward-looking statements. The forward-looking statements are made in relianceupon the safe harbor provisions of the Private Securities Litigation Reform Actof 1995. The words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “forecast,”“project,” “should” and similar expressions are intended to identify “forward-lookingstatements” within the meaning of the Private Securities Litigation Reform Actof 1995. Forward looking statements include, among others, statements about ourfuture performance, the continuation of historical trends, the sufficiency ofour sources of capital for future needs, the effects of acquisitions and theexpected impact of recently issued accounting pronouncements. Theforward-looking statements are subject to certain risks and uncertainties thatcould cause actual results to differ materially from those reflected in theforward-looking statements. Factors that might cause such a difference include,but are not limited to, those discussed in Item 1A “Risk Factors.” Readers arecautioned not to place undue reliance on these forward-looking statements,which reflect management’s opinions only as of the date hereof. The Companyundertakes no obligation to revise or publicly release the results of anyrevision to these forward-looking statements. Readers should carefully reviewthe risk factors described in this Annual Report on Form 10-K and inother documents the Company files from time to time with the Securities andExchange Commission (SEC).

**Part I**

**Item 1.**                        Business

**GENERAL**

Lawson Software is a global provider of enterprisesoftware. We provide business application software, services and maintenance tocustomers primarily in the services sector, trade industries, andmanufacturing/distribution sectors. Within these broad sectors, we specializein specific markets including healthcare, public services, retail, financialservices, fashion, food and beverage, and wholesale distribution. In themanufacturing sector we serve both process manufacturing and discretemanufacturing customers. In the service sector we serve both asset-intensiveand labor-intensive services enterprises. Our goal is to be the leading globalenterprise resource planning (ERP) software provider in our target markets,with a particular focus on meeting the needs of resource-strained andmid-market customers.

On April 25, 2006, Lawson acquired IntentiaInternational AB (Intentia), a Stockholm, Sweden-based provider of enterprisesoftware, in an all-stock transaction valued at $460.9 million. Thecombination with Intentia provided a greater operational scale, a broaderproduct portfolio, and broader geographic reach with which to compete in theglobal enterprise application market. For additional information regarding thistransaction, see Note 4 of Notes to Consolidated Financial Statements.

Lawson serves customers in three geographic regions:the Americas; Europe, Middle East, and Africa (EMEA); and the Asia-Pacificregion including Australia and New Zealand (APAC). We provide software in 20languages, have sold to more than 4,000 customers in 40 countries and haveapproximately 3,800 employees located throughout the world.

Our software solutions include enterprise financialmanagement, human capital management, business intelligence, asset management,enterprise performance management, supply chain management, service management,manufacturing operations, business project management and industry-tailored applications.Lawson solutions assist customers in simplifying their businesses ororganizations by helping them streamline processes and reduce costs resultingin enhanced business or operational performance for our customers. Lawsonsolutions help automate and integrate critical business processes, aiding incollaboration among our customers and their partners, suppliers and employees.Through our consulting 

3

----

services we primarily helpour customers implement Lawson applications. Through our maintenance serviceswe provide ongoing support, upgrades, and assistance to our customers.

We generate revenue through software license fees,fees for consulting, including training and implementation services, and feesfor customer support and maintenance. We market and sell our software andservices primarily through a direct sales force, which is augmented by channelpartners and resellers.

Lawson was founded and incorporated in 1975. In February 2001,we reincorporated in Delaware through a merger with our predecessor, LawsonAssociates, Inc., a Minnesota corporation. We established a new Delawarecorporation as our parent company as part of the acquisition of Intentia in April 2006.

Lawson has offices in over30 countries around the world. Our principal executive offices are located at380 Saint Peter Street, St. Paul, Minnesota 55102-1302. Ourmain telephone number at that location is 651-767-7000. Ourwebsite is at www.lawson.com. Other than the information expressly set forth inthis annual report, the information contained or referred to on our website isnot part of this annual report.

**ENVIRONMENT**

We face a competitive andchallenging environment for sales of our software and services. Industryconsolidation continues to be a primary factor shaping the selling environment.Our vertical market focus and low total cost of ownership continue to bedifferentiators on which we compete in the market.

**Consolidation**

In recent years, the enterprise software industry hasseen numerous consolidations, mergers and acquisitions. This activity hasincluded acquisitions made by larger companies seeking to acquire customers orto fill out their product line as well as consolidations of companies ofsimilar size joining forces in order to better compete in the market. Forexample, in 2003, J.D. Edwards & Company was acquired by PeopleSoftInc. Subsequently in 2005, PeopleSoft was acquired by Oracle Corporation.Oracle also acquired Retek Inc. in 2005 and Seibel Systems, Inc. in 2006.In July 2006, Infor Global Solutions acquired SSA Global and has becomeanother major provider of enterprise software in the industry.

While this consolidationhas resulted in larger competitors with broader product lines, it has alsoresulted in fewer competitors and less choice for customers. We believe theindustry consolidation has created a void in the market, particularly forcustomers with information technology resource or budget constraints, whichgenerates an opportunity for Lawson. We believe that many of our targetcustomers are interested in more software choices than two or three vendors andthat we are a competitive choice compared with the large horizontal players onone end of the industry spectrum and the smaller niche players on the otherend.

**Vertical Market andCustomer Focus**

For the past decade, we have focused on specializingin several vertical industry markets including healthcare, public services,retail, financial services, food and beverage, manufacturing and wholesaledistribution. We believe an industry-specific focus is fundamental to ourability to help our customers achieve their desired results from theirenterprise application investments. Expanding our vertical market capabilityand worldwide customer base was a driving force behind our combination withIntentia.

While we have developed specific expertise in themarkets we serve, we manage our company as a single business unit with leaderswho are knowledgeable in the sale of our products and services, and support ofcustomers of all sizes across all industry verticals. Many of our products haveapplications across multiple industries and are well-suited for customersoutside our targeted verticals. For example, our human capital management,enterprise financial management, business intelligence and asset managementsolutions have broad application across many industries. We have customers bothinside and outside our 

4

----

targeted verticals withbusiness needs that are well addressed by our products and solutions. We haveexperienced sales account executives and consultants that focus on thesecustomers, and a significant part of our business is conducted outside of ourtargeted verticals. To achieve greater operational scale and leverage costs weoperate as one business segment and we have integrated the operations of theformer Intentia and the legacy Lawson under one leadership structure for allverticals.

We believe we have established a respected expertisein the markets and with the customer segments we serve. Because many businessesin our target markets are mid-to-large-size, we also have developed anexpertise serving the mid-market, which comprises the vast majority of ourcustomer base. We consider the mid-market to have strong growth potential forERP vendors during the next five years. Increasingly, businesses within this categoryare looking to buy, add to or replace the systems that they are using to helpmanage their financial, human resources, procurement, distribution or otherbusiness management processes.

Lawson’s industry-specificfocus and flexible product design enable quicker and easier deployment of oursoftware. We believe our expertise within our markets allows our services teamsto simplify the process of deploying our applications. As a result, ourcustomers are able to save time, effort and expense in implementing,maintaining and using Lawson applications. In addition, Lawson’s professionalservices organization provides industry-specific implementation advice focusedon the best uses of our software and value delivery for our customers. Ourindustry-specific orientation, flexible product design and customer focus helpsdifferentiate Lawson in the competitive enterprise applications market fromlarger competitors.

**COMPETITION**

The enterpriseapplications software industry is intensely competitive, rapidly changing andsignificantly affected by new product offerings and other market activities.Some of our competitors have an advantage over us due to their larger customerbases, larger technical staffs, greater brand name recognition andsubstantially greater financial and marketing resources. We believe that theprincipal competitive factors affecting our market include:

·       Product features,functionality, performance and price

·       Knowledge of a customer’sindustry and tailored solutions

·       Company stability, resourcesand reputation

·       Ease of integration andspeed of implementation

·       Level of customer service

·       Sales and marketing efforts

·       New product and technologyintroductions

We believe Lawsonhas competitive advantages over a number of our competitors. Some of theseadvantages include:

·       32 years of experienceserving mid-market customers

·       Low total cost of ownership

·       Industry-specificexperience

·       Industry-focused solutions

·       Openness and flexibility ofour software’s architecture

5

----

Lawson’s most frequently encountered to competitorsare SAP AG and Oracle Corporation. Both are large, global ERP vendors that areincreasingly targeting mid-sized businesses as their traditionallarger-customer market becomes saturated. We believe there is market demand foran alternative vendor that can offer scalable applications that are simpler toimplement and operate than the more complex applications of SAP and Oracle. Ourfocus is on delivering simpler solutions with lower total ownership costs.

As a larger, stronger company after the combinationwith Intentia in April 2006, Lawson is better positioned to compete andwin against SAP and Oracle in all customer engagements, but especially forresource-constrained mid-sized organizations. Our product portfolio now spansall core enterprise applications, and mid-sized organizations account for themajority of our installed customer base. By increasing our scale and the rangeof our products, we believe that Lawson will also provide a compellingalternative to attempts by Microsoft, another significant competitor, to moveinto the middle-market segment. We are pursuing this same strategy when wecompete with Infor Global Solutions GmbH (Infor). Infor has become a largeglobal competitor through acquisitions of several enterprise softwarecompanies.

Lawson has alsostrengthened its competitive position by launching Lawson System Foundation,our open-standards based technology platform; launching applications that aregenerated by Landmark, a new Lawson proprietary application design tool; andimproving our consulting and maintenance offerings.

**PRODUCTS ANDSOLUTIONS**

Lawson’s enterprise software solutions focus ondelivering competitive advantage and business flexibility. Lawson customersdemand sophisticated, global business applications and services to manage theirbusiness processes more efficiently—all at a low total cost of ownership.Lawson’s solutions fall within two main product lines: “Lawson S3” and “LawsonM3,” with many of the solutions in each product line having broad,cross-industry application.

**LawsonS3 Products and Solutions—****Applications**in theLawson S3 product line (legacy Lawson applications) help customers “staff,source and serve” in their respective markets. Lawson S3 applications includehuman capital management, enterprise financial management, supply chainmanagement, enterprise performance management, and overall system foundation.The Lawson S3 Enterprise Management System is specifically designed forservices-centric industries.

**Lawson M3 Products and Solutions—****Applications**in theLawson M3 product line (the former Intentia applications) provide solutions forcustomers who “make, move and maintain” goods or equipment in their markets.The Lawson M3 application suites include financial management, manufacturingoperations, enterprise asset management, supply chain management, customersales and service, enterprise performance management, business processmanagement, and overall system foundation. The Lawson M3 product line is gearedfor product-centric and trade-oriented businesses facing resource constraintsand whose processes are often complex and industry-specific.

**Benefits of OurSolutions**

We provide business application software in over 40countries that helps automate and improve our customers’ business processes.The open architecture of our software gives customers a choice to deploy apre-configured application or to customize the application in order to conformto unique business processes. The benefits of our software include:

*Automation,Collaboration, and Analysis.**  *Our software automates business processes, enablescollaboration among process participants and delivers detailed analyses ofprocess results. In addition, in many situations, our back-office softwaresuites can be implemented with our front-office solutions and tools to deliverbroader organizational benefits. For example, our service automation softwarecan enable authorized staff to assess critical information on service projects.The system can be configured to enable 

6

----

managers to identify andassign the appropriate personnel to projects based on skills and availability.The service automation software has been designed to work in conjunction withour other software application suites to allow personnel to enter their timeand expenses associated with a project into our software, which allows theseentries to be processed through our financial management software to assistwith project accounting; our payroll application to update time records; ouraccounts payable application to reimburse employee expenses; and our enterpriseperformance management application to deliver financial, project and resourceperformance reports to appropriate managers.

*Industry-TailoredSolutions.**  *Weuse our expertise in targeted vertical industries to provide pre-configuredfunctionality that addresses the specific business needs of these industries,thus increasing the “out-of-the-box” utility of our applications. For example,our healthcare supply chain software helps streamline and optimize the supplychain operations from start to finish for one hospital or an entire network andour fashion and apparel solution is designed for companies that need to managegoods identified by such attributes as style, size, and color.

*Flexible,Web-Based Architecture.**  *Our software can be deployed into a customer’s systemwith pre-configured functionality or customized to conform to the customer’sbusiness processes using our software extension tools. Our flexiblearchitecture enables our software to run on most leading hardware and operatingsystem platforms and to operate with the leading relational database managementsystems. This allows our customers to choose the most appropriate platformsindependently from selecting our applications. Furthermore, our applicationscan interface with most legacy systems through standard interfaces andintegration protocols. The only required non-Lawson software is IBM Websphere.Because many of our applications do not require software to reside on thedesktop computer and are accessed directly through a standard Web-browser or asupported wireless device, we believe many of our applications can be deployedand used without extensive training. Our software enables deployment in large,global enterprises and in small and medium-sized businesses.

*Rapid and Cost-EffectiveImplementation.**  *Ourindustry focus and flexible software can enable fast, efficient deployment. Webelieve our knowledge of our targeted industries allows our industry-focusedconsulting services teams to implement our software with an in-depthunderstanding of the business needs of the customer, thereby in many casesreducing time, effort and expense.

**Types of Software**

The Lawson S3 and LawsonM3 software product lines are composed of core business applications,enterprise performance management applications and software extension tools.

**Lawson S3 Software**

*LawsonEnterprise Financial Management.**  *The Lawson S3 Financials Suite helpsorganizations drive enterprise value with enhanced information and a platformfor sustainable compliance. All financial suite applications are integrated andshare common master data where appropriate. The Lawson S3 Financials Suite providessolutions for the full cycle of finance from budgeting and forecasting throughthe management of projects and activities to the reporting of results.

*LawsonHuman Capital Management.**  *The Lawson S3 Human Capital Management Suite isa full suite of products to help transform the role of the Human Resourcesprofessional from an administrative and policy enforcing role to that of astrategic business partner. Within the Human Capital Management Suite, theLawson HR product group is designed to deliver simple and comprehensiveproducts that offer an alternative to large complex ERP and stand-alone HRsolutions. Lawson offers a stand-alone Human Capital Management solution or anintegrated ERP to mid- and upper mid-market companies that seek alignment ofpeople and processes with low total ownership cost. Lawson Human CapitalManagement On-Demand is a new software as a service offering that offerscustomers a monthly price and single point 

7

----

of contact for theirLawson Human Capital Management installation. Hosting services are provided byIBM Hosting in its world-class certified data centers.

*LawsonSupply Chain Management.**  *The Lawson S3 Supply Chain Management Suite is afull suite of integrated procurement and distribution solutions with low totalcost of ownership to mid- and upper-mid-market companies who seek reduced coststhrough enhanced supply chain processes and more effective supply management.

*LawsonSoftware for Retailers.**  *Lawson’s retail-specific software applications arebuilt for high-volume retail enterprises to manage item information, categoryplanning and review, assortment, pricing, promotions, warehouse replenishment,multi-channel ordering, store replenishment, forecasting and orderdetermination. Lawson retail applications can help retailers select storelocations, find the right product mix, and run successful promotions.

*LawsonServices Management.**  *TheLawson S3 Services Management Suite includes Services Automation, whichprovides professional services organizations with tools to manage work,resources, time, expenses, and finances; Portfolio Manager, which analyzesactive and prospective engagements to help determine which ones will deliverthe best returns; and Time and Expense, which captures time and expense data inone place for employees, non-employees, offsite workers, and internationalstaff.

*LawsonEnterprise Performance Management (EPM).**  *The Lawson S3 EnterprisePerformance Management Suite is a suite of capabilities and applicationsdesigned to optimize corporate performance and corporate governance. It canaccess a variety of common data sources including both Lawson and non-Lawsonapplications. Lawson EPM can be set up to provide actionable, role-basedself-service information from a single data source to aid decisions throughoutan enterprise. Within the EPM Suite, the Lawson Business Intelligence productcan help streamline the way organizations gather, analyze, share, and act onbusiness data.

*LawsonBusiness Process Management.**  *The Lawson S3 Business Process Management Suite canbe added to almost any Lawson application to tailor the application to acustomer’s specific needs. These tools include User Productivity Tools, whichprovide additional information sharing, collection, and process/analysiscapabilities; Data Integration Tools, which connect Lawson softwareapplications with legacy systems, transaction systems, custom applications, andhandheld devices; Development Tools, which allow developers to customize Lawson’sinterface, and deploy Lawson software in new ways; System Tools, which allow anIT team to monitor and manage an organization’s Lawson system; and WorkflowTools, which allows organizations to notify employee’s of action in the systemthat needs their approval based on their business processes.

*LawsonSystem Foundation.**  *TheLawson S3 System Foundation is the technical foundation that determines, to asubstantial degree, the performance and value of the customer’s businesssoftware. Lawson System Foundation is an open, standards-based technology thatconsolidates Lawson technology with world-class technology and middleware fromIBM to help address customers’ expectations for ease of implementation,application performance, investment protection, security, scalability, totalcost of ownership, and return on investment.

*Industry-TailoredSolutions.**  *LawsonS3 has also used our industry-expertise in targeted industries to providefunctionality that addresses the specific business needs of these industries.Examples of these industry-tailored applications for the Lawson S3 product lineindustry solutions include: Surgical Instrument Management, Par and CycleCounting, Receiving and Delivery, Performance Management for Healthcare, RetailOperations, and Grant Management.

8

----

**Lawson M3 Software**

*LawsonFinancial Management.**  *TheLawson M3 Finance Suite enables customers to capture, analyze and managefinancial information related to their companies’ operations. Lawson M3 financeincludes accounting, costing, cash management, budgeting, consolidation andtransaction management functionality. Its flexible accounting structures andprocesses are designed to operate in multiple currencies and to help managelocal legal and tax requirements.

*LawsonManufacturing Operations.**  *The Lawson M3 Manufacturing Operations Suite enablesorganizations to centrally manage product data and control the manufacturingexecution process. It can help manage complex configured andattribute-controlled products and directly supports costing, planning andexecution. Advanced functions support a company’s best practices such as leanmanufacturing and meeting complex regulatory requirements (such as traceabilityand shelf life).

*LawsonSupply Chain Management.**  *The Lawson M3 Supply Chain Management Suite isdesigned to increase visibility and improve material flow through the supplychain, in order to optimize the use of resources and inventory. Supply Chainencompasses sophisticated planning and optimization tools, configurablewarehouse execution functions, advanced procurement applications, andcomprehensive fulfillment and scheduling options.

*LawsonEnterprise Asset Management.**  *The Lawson M3 Enterprise Asset Management (EAM) Suite isa preconfigured maintenance solution that provides asset data management,preventive maintenance, work order control, diagnostics management andstatistical analysis which can significantly enhance the management ofoperational assets.

*LawsonEnterprise Performance Management.**  *The Lawson M3 EnterprisePerformance Management Suite is a set of applications that crossfunctional and process boundaries to consolidate and administrate data in anorganization and make this data available in an appropriate format to those whoneed it. The suite extracts and can be set up to consolidate data generated bydispersed systems and uses pre-built information models to speed up both thedesign and delivery time of key measurements to information users.

*LawsonCustomer Sales and Service.**  *The Lawson M3 Customer Sales and Service Suite offersa solution for market development, sales and after-sales service processes,particularly in multi-channel sales environments. Applications include salesand marketing automation, e-sales, sales management, service management, rentalmanagement, maintenance order management, and project management.

*LawsonBusiness Process Management.**  *The Lawson M3 Business Process Management Suite providescompanies the means to connect, configure and customize their enterpriseapplication system. This suite permits the customization of role-based portalsand user interaction, application-to-application integration andbusiness-to-business communication, thereby ensuring that customers’ enterpriseneeds for business process modeling are fully supported.

*Lawson M3 SystemFoundation.**  *TheLawson M3 System Foundation Suite provides and manages the essentialapplications and functions necessary to run and operate the Lawson M3Enterprise Management System. The technology layer is composed of Lawson M3System Foundation and Lawson M3 Business Process Management and includesupdated technology stacks that combine Lawson’s best technology, Web servicesand document archiving capabilities with IBM WebSphere Application Server NDv6.1 and IBM DB2 Content Manager technology.

**Maintenance and CustomerSupport**

Given Lawson’s focus on seeking to provide the lowestcost of ownership for our customers, we offer a comprehensive customer careprogram called Lawson Total Care. This includes software upgrades, 

9

----

updates, and correctionsfor the software under maintenance, as well as various levels of supportincluding access to our knowledge base and the Lawson support team, technicaladvice, and application management.

Lawson’s maintenance andcustomer support is delivered through Lawson’s Support & Deliveryorganization of approximately 400 employees and contractors operating fromproduct support centers and regional support centers located around the world,supporting our global customers in more than 20 languages.State-of-the-art infrastructure provides for efficient collaboration with thecustomers’ internal support centers as well as with partners.

**Consulting Services**

Lawson offers a broad range of services to ourcustomers in some 40 countries throughout the world. From the initialassessment and planning, to the implementation, through an upgrade and evenproviding extended support, we leverage Lawson applications to best enable ourcustomer’s desired business outcomes. Our consulting services focus on quickimplementation that lowers the total cost of ownership. We do this throughsimplified delivery methods including pre-configured solutions and deliverythrough global solution centers.

Lawson Learning providesthe training and tools required to quickly and cost-effectively train on Lawsonapplications. Software users can access a large library of training solutionsdelivered via e-learning, attend a class, or take role-based training.

**TECHNOLOGYARCHITECTURE**

**New TechnologyPlatform**

Lawson provides flexible,open, standards-based software solutions. We believe that the open architectureof Lawson’s solutions provides superior quality, a low total cost of ownership,and a path to a Services Oriented Architecture (SOA). Launched in 2006, Lawson’stechnology platform—“Lawson System Foundation”—combines Lawson’s newesttechnology with middleware from IBM for a high-performance, standards-basedsolution that provides comprehensive security, scalability, and usability. Italso preserves customers’ choice of hardware platform while providing afoundation for next-generation Lawson applications designed for use within SOAenvironments.

**New ApplicationArchitecture**

In 2006, we launched a new standards-based technologyapplication platform called “Landmark,” which will be used for productsdeveloped and released in the future. The new platform was designed to deliverbusiness applications that are simple, adaptable and manageable. A Lawsoninnovation, Landmark is our new technology and pattern-driven applicationsconstruction model designed to help customers mitigate application complexityby reducing the lines of instructions required to design and build Lawsonsoftware applications. In addition to reducing development time, Landmarkgenerates Java code, which should help reduce the risk of errors. ThisJava-based code delivers interoperability that protects and extends Lawsoncustomers’ existing IT investments while working to ensure compatibility withfuture applications and technologies.

This new business applications platform is designed toincrease overall application quality and improve the product lifecycleexperience for Lawson customers, from construction to deployment,implementation, integration, maintenance, and upgrades. Based on a ServiceOriented Architecture (SOA), Landmark is designed to enable Lawson and itscustomers to quickly and easily modify and customize business processes forrapidly changing business needs. The significant reduction in lines of code 

10

----

errors and the move to anentirely open and standards-based technology will also help reduce implementationtimes and further lower total cost of ownership.

Landmark-developed applications and Web services willshare the same data repository as customers’ existing Lawson applications whichwill enable customers to more easily transition to the new platform with fewercosts.

We plan to develop futureLawson products using Landmark, for both Lawson M3 and Lawson S3 products.Those products are expected to run on an industry standard J2EE applicationsserver. Under our expanded partnership with IBM, we plan to optimize ourapplications to work with IBM’s WebSphere Application Server. Lawson will offera backbone of standards-based Web Services for SOA environments built on IBMmiddleware. Landmark supports key standards such as simple object access protocol(SOAP), web-service description language (WSDL), and extensible markup language(XML).

**Principles**

Lawson’s technology architecture is based on theconcept of “Separation of Concerns,” in which there is a clear separation ofthe application and technology layers: the user interface, Web services,application components, database services, and connections to external systems.This approach gives Lawson the flexibility to deliver releases for thetechnology or application layers on different schedules, adopt new technologiesand standards more readily, and develop industry-specific applications. Lawsonhelps protect customer investment and reduce the risks of transition to newreleases. Lawson’s technology architecture adheres to the following principles:

*Simplicity.**  *We believe most of the problems inthe software industry are caused by the overwhelming complexity ofapplications. We seek to solve the complex problems of our customers with thesimplest possible solution. Lawson’s applications are designed for simplicityof use from implementation through life cycle management; in the userinterfaces, in business processes, and through support and maintenance.

*OpenStandards-Based Architecture.**  *Lawson pursues open standards and aservice-oriented architecture for applications. Services such as InternetObject Services and Business Component Integrator (BCI) can help our customersconnect their other systems to Lawson, allowing our customers to work with thecomputing platforms and technologies they prefer or must maintain, such ascustom-built legacy systems. With Lawson’s open architecture, there is no needfor customers to abandon other technology investments or rebuild infrastructureto fit Lawson. Lawson’s systems operate on most industry standard hardware platformsincluding IBM, Sun, and Hewlett-Packard, and industry standard operatingsystems, including IBM i5, UNIX, and Windows on Intel servers.

*RichUser Experience.**  *Lawsonprovides a consistent, easy-to-use, self-evident user experience. Many ofLawson’s products use thin-client architecture, which means that a customer’sinternet, intranet, or extranet connection gives quick, easy, and secure accessto those applications. Thin-client architecture may reduce staff training time,speed implementation, ease administration costs, and can give customers a morerapid return on their Lawson investment.

*Scalability.**  *Our architecture is designed togrow with our customers and meet their evolving strategic needs. Lawsonapplications are designed to be personalized, extended, and integrated to meetthe changing needs of an organization.

*Security.**  *Lawson’s application and technologyinfrastructure can allow customers to build security policies as simple orcomplex as needed to meet the organization’s security requirements. Securitypolicies can be created that authorize end users to access only the Lawsonapplications required to get their job done. Once an end user is authorized toaccess a Lawson application, even more restrictive security policies can becreated that limit the end user to specific functions required to perform theirjob.

11

----

**Architecture Model**

Lawson’s architecture isbased on scalable industry standard J2EE environments. Our solutions areoffered across multiple configurations, giving customers choices for theirplatform, operating system, and database.

**User Access Layer**

*ThinClient.**  *Providesuser access via a PC, desktop, laptop, or mobile device. Browsers and thinclients that connect via an Internet/intranet connection, accesses the LawsonPortal and application components.

*Smart Client.**  *Lawson Smart Client is a new userinterface that is a core element of the Lawson M3 7.1 applications. SmartClient is an easily deployed and managed client application that sits on acentral server. It delivers an intuitive user interface that allowsuser-specific customization and personalization to put the right tools andinformation on every user’s screen. Smart Client can incorporate features suchas documents, two- and three-dimensional graphics, and video. With itsintuitive design, Smart Client can help companies achieve greater datadiscipline, because the interface will help ensure that people use the systemand work with data in the right manner.

**Web Server Layer**

*WebServices.**  *Lawsonsupports industry standards-based connectivity to application components. TheWeb server, Internet Object Services and the Lawson Portal are key componentsfor deploying Lawson applications via the Internet. By using multipleconfigurations of Lawson System Foundation which uses IBM’s WebSphereApplication Server, Lawson delivers scalability for high volume processing.

*Lawson Portal.**  *Provides a single place for usersto access all Lawson applications, Lawson extensions, non-Lawson applications,and other sources of information such as Web sites.

**Application/DatabaseServer Layer**

*InternetObject Services.**  *Providesthe connection between Lawson and the World Wide Web and manages thecommunication between Lawson’s browser-based interfaces and Lawson applicationsand databases. The three main services are: Application Gateway Services, DataMining Engine, and Drill Around®—a key feature that allows drilling down tosub-detail information related to certain Lawson applications.

*BusinessLogic.**  *Providesa set of integrated business rules for Lawson core applications. Theseapplications can be deployed separately or together as integrated solutions.

*Database.**  *Provides customers the flexibilityto select their optimal relational database. Current databases supportedinclude IBM DB2, Oracle and Microsoft SQL Server.

*ActiveObject Repository.**  *Adynamic enterprise data model that includes Interface Form Definitions,Information Relationships, Process Definitions, Logic Definitions, SecurityDefinitions, Transaction Management Definitions, and Open ApplicationInterfaces.

*LawsonSystem Foundation.**  *Thefoundation of Lawson’s architecture and critical to system performance,scalability, availability, and reliability; oversees all activities on theLawson application server, including security, system resources, transactions,data access, and job schedules.

*Application Server.**  *Gives customers flexibility to usewhatever platform fits their size, budget or strategic direction. Lawsonproducts use industry standard middleware from IBM to run on a variety ofhardware platforms such as Compaq, Dell, Hewlett Packard, IBM, Microsoft, andSun.

12

----

**SALES AND MARKETING**

We market and sell our software and services solutionsthrough a combination of a direct sales force, strategic alliances with systemsintegrators, and resellers. Our direct sales force and services organization isaligned with our strategy of providing industry-tailored applications. Withineach services industry, we have a sales team dedicated to prospective customersand another team dedicated to sales to existing customers. We also haveregional sales teams that focus on specific geographic territories. Our salesand service offices are located in three geographic regions: the Americas(including the United States, Latin America, and Canada); Europe, Middle East,and Africa (EMEA); and Asia Pacific (APAC).

In addition to our direct sales teams, we enter intostrategic alliances with systems integrators and resellers to benefit from ourpartners’ resources, expertise and customer base. Business partner alliancesallow us to expand our market presence through increased awareness of oursoftware applications within our partners’ organizations and customer bases,and through their personnel who are trained to implement our software. Ourchannel partners market and promote our software products and typically provideimplementation services to their end-users. Channel partners generate salesleads, make initial customer contacts, and assess needs prior to our introduction.In addition, some of our channel partners engage in customer support andlocalization of our products. We also engage in joint marketing programs,presentations of seminars, attendance at trade shows, and the hosting ofconferences with many of our business partners.

We also use applicationservice providers (ASPs) to distribute our products in a hosted environment.ASPs allow us to reach small-to medium-sized businesses that prefer a hostedsolution. Our software’s architecture is easily distributed over the Internetand is highly scalable to serve many customers. It also supports multi-tenancy,which lets ASPs securely host multiple customers on a single set of ourapplications.

**RESEARCH ANDDEVELOPMENT**

Since our inception, we have made substantialinvestments in software product development. We believe that timely developmentof new software applications, enhancements to existing software applicationsand the acquisition of rights to sell or incorporate complementary technologiesand products into our software offerings are essential to maintain ourcompetitive position in the market. The business application software market ischaracterized by rapid technological change, frequent introductions of newproducts, changes in customer demands, and rapidly evolving industry standards.

We are committed to continued investment in R&D toenhance our existing products as well as new applications using our Landmarkdevelopment for both the Lawson M3 and Lawson S3 product lines.

Our total research anddevelopment expenses were $85.3 million, $60.7 million, and$62.2 million in fiscal 2007, 2006 and 2005, respectively. As ofMay 31, 2007, our research and development organization consisted ofapproximately 600 employees. See Item 7, Management’s Discussion and Analysisof Financial Condition and Results of Operations for further discussion ofR&D expenses.

**TRADEMARKS**

“Lawson” and “LawsonSoftware” are registered trademarks in the United States and the EuropeanUnion. Other trademarks and trade names appearing in this document are theproperty of their respective holders.

**IntellectualProperty and Product Liability**

We regard certain aspects of our internal operations,software and documentation as proprietary, and rely on a combination ofcontract, copyright, patent, trademark and trade secret laws and othermeasures, 

13

----

including confidentialityagreements, to protect our proprietary information. Existing copyright lawsafford only limited protection. We believe that, because of the rapid pace oftechnological change in the computer software industry, trade secret andcopyright protection is less significant than factors such as the knowledge,ability and experience of our employees, frequent software productenhancements, and the timeliness and quality of support services. We cannotguarantee that these protections will be adequate, or that our competitors willnot independently develop technologies that are substantially equivalent orsuperior to our technology. Historically, we have provided our customers sourcecode for many of our products. We may elect to distribute only object code inthe future. In either case, we will permit clients to obtain access to ourother source code through a source code escrow arrangement. Access to oursource code delivered in object format may increase the likelihood ofmisappropriation or other misuse of our intellectual property. In addition, thelaws of certain countries in which our software products are, or may belicensed, do not protect our software products and intellectual property rightsto the same extent as the laws of the United States and Sweden.

Software companies have increasingly applied for, andrelied on, the protection of patents. To date, we hold one United States patentand have filed several patent applications. These applications may not resultin issued patents and, even if issued will not provide assurance of acompetitive advantage.

We do not believe our software products, third-partysoftware products we offer under sublicense agreements, our trademarks, orother Lawson proprietary rights infringe the property rights of third parties.However, we cannot guarantee that third parties will not assert infringementclaims against us with respect to current or future software products or thatany such assertion may not require us to enter into royalty arrangements orresult in costly litigation.

Our license agreementswith our clients contain provisions designed to limit the exposure to potentialproduct liability claims. It is possible, however, that the limitation ofliability provisions contained in these license agreements may not be valid as aresult of certain local country laws or unfavorable judicial decisions.

**Employees**

As of May 31, 2007, we had approximately3,800 employees, including approximately 700 in sales and marketing,approximately 600 in research and development, approximately 2,000 in servicesand customer support and approximately 500 in administration. None of ouremployees in the United States is represented by a labor union; however, incertain international subsidiaries workers councils represent our employees.

Ourcurrent executive officers are:

| Name                  | ** ** | ** ** | ** ** | **Age**                                               | ** ** | **Position** |
|-----------------------|------------|------------|------------|-------------------------------------------------------|------------|--------------|
| Harry Debes           |       | 56         |       | President, Chief  Executive Officer, Director         |
| Robert A. Schriesheim |       | 46         |       | Executive Vice  President, Chief Financial Officer    |
| James Anderson        |       | 46         |       | Executive Vice President,  Global Services            |
| Dean J. Hager         |       | 40         |       | Senior Vice President,  Product Management            |
| Bruce B. McPheeters   |       | 52         |       | Senior Vice President,  Secretary and General Counsel |
| Guenther Tolkmit      |       | 55         |       | Senior Vice President,  Product Development           |
| Kristin Trecker       |       | 42         |       | Senior Vice President, Human Resources                |

 

14

----

*HarryDebes* has served as our president and chief executiveofficer and as a director since June 2005. From November 2003 until June 2005,Mr. Debes was president and chief executive officer of SPL Worldgroup, aleading provider of enterprise software to the electric utility industry. From May 2001until joining SPL Worldgroup, he was employed by JD Edwards & Co., anenterprise software company, where he served as senior vice president Americasuntil JD Edwards was acquired by Peoplesoft, Inc. in August 2003.From 1990 until May 2001, Mr. Debes was employed by GEAC ComputerCorporation, an enterprise software company. While working for GEAC, Mr. Debesheld a variety of positions including managing director of GEAC Asia-Pacificand president of GEAC Enterprise Solutions for the Americas.

*RobertA.Schriesheim*****hasserved as a director since May 2006 and as executive vice president andchief financial officer since October 2006. From 2002 until October 2006,he was a venture partner and general partner of ARCH Development Partners LLC,a Chicago-based technology venture capital fund. From 1999 to 2002, he wasexecutive vice president of corporate development, chief financial officer, anda director for London, England-based Global Telesystems, Inc., a $1billion revenue publicly traded provider of telecommunications services tobusinesses throughout Western and Central Europe and Russia, backed by GeorgeSoros and affiliates, where he led the financial restructuring and sale of thecompany. Previously, he held various executive positions at SBC EquityPartners, Ameritech, AC Nielsen, and Brooke Group Ltd. He also serves on theboards of publicly-traded Alyst Corp., Dobson Communications Corp., SkyworksSolutions Inc. and several private technology companies.

*JamesAnderson* has served as executive vice president ofglobal services since April 2006. He joined Lawson through the merger withIntentia where he was senior vice president of global services for Intentiasince October 2005. From March 2005 until joining Intentia, Mr. Andersonworked as a consultant. From 1994 until August 2003, he worked at J.D.Edwards & Co, an enterprise software company, and was serving as groupvice president of North American services when J.D. Edwards was acquired byPeopleSoft, Inc in August 2003. He then served as a group vice presidentof services for PeopleSoft until they were acquired by Oracle in March 2005.Prior to working at J.D. Edwards, Mr. Anderson worked for AndersenConsulting for nine years.

*DeanJ. Hager* has served as senior vice president ofproduct management since April 2006. Mr. Hager served as our chiefproduct officer from June 2004 until April 2006, executive vicepresident emerging markets from June 2003 until June 2004, executivevice president global products division from February 2001 until May 2002,executive vice president worldwide marketing from June 2000 to February 2001,vice president, e-business marketing from June 1999 until June 2000,and director of marketing for our former AS/400 business unit from May 1998until June 1999. From March 1989 to May 1998, Mr. Hager wasemployed by IBM, where he held several management positions, with his lastposition held as senior program manager with its server products division.

*BruceB. McPheeters* has served as corporate secretary since October 1999,general counsel since April 2000 and senior vice president since June 2002.Mr. McPheeters served as vice president administration from April 2000until May 2002 and corporate counsel from September 1999 until April 2000.From 1981 until joining Lawson in September 1999, Mr. McPheeters wasa business lawyer in private practice, focusing primarily in the areas ofintellectual property, securities, and mergers and acquisitions of privatelyand publicly held companies. From December 1995 until September 1999,he was employed by the law firm of Gray, Plant, Mooty, Mooty &Bennett, P.A.

*GuentherTolkmit* has served as senior vice president of productdevelopment since April 2006. Mr. Tolkmit served as the chieftechnology officer of Intentia from September 2005 until the time of themerger with Lawson in April 2006, and vice president support and deliveryfor Intentia from March 2005 until August 2005. Before joiningIntentia, Mr. Tolkmit served as chief operating officer and chieftechnology officer for Parsytec AG from 2001 until February 2005. Mr. Tolkmithas also served in a number of senior roles at SAP AG including vice presidentof technology management, worldwide chief 

15

----

marketing officer, andsenior vice president of SAP Ventures. He had formerly held managementpositions at Software AG, Cullinet Inc., and Siemens AG.

*Kristin Trecker*has served as senior vice president of human resources since April 2006and vice president of human resources from June 2004 until April 2006.Prior to assuming that position, Ms. Trecker held a variety of roleswithin the Lawson human resources organization since 1994. Prior to joiningLawson in 1994, Ms. Trecker was employed in a variety of roles in thehealthcare and gaming industries.

**Available Information**

We make available, free ofcharge, on our website (www.lawson.com) our annual reports on Form 10-K,quarterly reports on Form 10-Q, current reports on Form 8-K, and anyamendments to those reports filed or furnished pursuant to Section 13(a) or15(d) of the Securities Exchange Act of 1934 as soon as reasonablypracticable after we have electronically filed or furnished such materials tothe Securities and Exchange Commission. The information posted on our websiteis not incorporated into this Annual Report on Form 10-K.

**Financial Information about Geographic Areas**

For financial informationabout geographic areas see Note 14 of Notes to Consolidated FinancialStatements filed as part of this Annual Report on Form 10-K.

**Item1A.**                Risk Factors

**Factors That May Affect Our Future Results or theMarket Price of Our Stock**

We operate in a rapidlychanging environment that involves numerous uncertainties and risks. Investorsevaluating our company and its business should carefully consider the factorsdescribed below and all other information contained in this report on Form 10-K.This section should be read in conjunction with the Consolidated FinancialStatements and Notes thereto and Management’s Discussion and Analysis ofFinancial Condition and Results of Operations included in this report on Form 10-K. Any of the following factors could materially harm our business, operatingresults and financial condition. Additional factors and uncertainties notcurrently known to us or that we currently consider immaterial could also harmour business, operating results and financial condition. We may makeforward-looking statements from time to time, both written and oral. Weundertake no obligation to revise or publicly release the results of anyrevisions to these forward-looking statements based on circumstances or eventswhich occur in the future. The actual results may differ materially from thoseprojected in any such forward-looking statements due to a number of factors,including those set forth below and elsewhere in this report on Form 10-K.

***The enterprise software business is highly competitive***.

We compete with OracleCorporation, SAP AG, Infor Global Solutions GmbH, Microsoft Corporation,McKesson Corporation and other larger software companies that have advantagesover us due to their larger customer bases, greater name recognition, longoperating and product development history, greater international presence andsubstantially greater financial, technical and marketing resources. Ifcustomers or prospects want to reduce the number of their software vendors,they may elect to purchase competing products from Oracle, SAP, Infor orMicrosoft since those larger vendors offer a wider range of products. Furthermore,Oracle is capable of bundling its software with its database applications,which underlie a significant portion of our installed applications. We alsocompete with a variety of more specialized software and services vendors,including:

·       single-industrysoftware vendors;

16

----

·       humanresource management software vendors;

·       financialmanagement software vendors;

·       manufacturingsoftware vendors;

·       merchandisingsoftware vendors;

·       servicesautomation software vendors;

·       softwareintegrators and outsourced services providers; and

·       Internet(on demand) software vendors.

We believe that Oracle,SAP and other competitors are discounting their products and services on anincreasing basis to attempt to gain market share in the markets where wecompete. Some competitors are also increasingly aggressive with offeringpayment terms, contractual warranties, implementation terms or guarantees thatare more favorable to customers and prospects. Competitors may entice ourcustomers and prospects to switch software vendors by offering those customersor prospects free or heavily discounted products or services, and other morefavorable contract terms. We may be unable to continue to compete successfullywith new and existing competitors without lowering prices or offering otherfavorable terms to customers that lower our margins and increase our risks. Weexpect competition to persist and intensify, which could negatively impact ouroperating results and market share.

***Ourrevenues, and in particular our software license revenue, vary each quarter andare difficult to predict.***

Revenues fromlicense fees in any quarter depend substantially upon our licensing activitywith new and existing customers, and our ability to recognize revenues in thatquarter under our revenue recognition policies. If we do not continue todevelop or acquire new products, licensing activity with existing customerswill decline. Licensing activity for our products drives maintenance andservices revenues because we sell maintenance and services for only ourproducts. A decrease in licensing activity will typically lead to a decrease inservices revenue in the same or subsequent quarters. If we do not havesufficient licensing activity with new customers each year, our maintenancerevenue for the following year will decline because new customers are needed tooffset the percentage of existing customers who scale back their businesses,reduce licenses and maintenance contracts, are acquired, or otherwise choosenot to renew annual maintenance. Our sales force and marketing team mustcontinue to generate sales leads among existing customers and prospectivecustomers. When we “qualify” a lead, that lead becomes part of our sales “pipeline.”If our pipeline does not continue to grow in our different markets andgeographies, our revenues will eventually decline. The rate at which we convertour pipeline into actual sales can vary greatly from year to year for thefollowing reasons:

·       Theperiod between initial customer contact and a purchase by a customer may varyand can be more than one year. During the sales cycle, prospective customersmay decide not to purchase or may scale down purchases because of competingoffers, budgetary constraints or changes in the prospect’s management,strategy, business or industry. Increasingly, customer or prospect organizationsare taking more steps to approve the purchase of our products and services. Oftentimes, we must wait for a customer or prospect’s board of directors to approvea purchase. These added approval requirements can delay the sales cycle andjeopardize the likelihood of completing the sale.

·       Asubstantial number of our existing and prospective customers make theirpurchase decision within the last few weeks or days of each quarter. A delay ordeferral in a small number of large new software license transactions couldcause our quarterly license revenue to fall significantly short of ourpredictions.

17

----

·       Prospectivecustomers may decline or defer the purchase of new products if we do not havesufficient customer references for those products.

·       Newproducts or technologies, software industry mergers and other software industrynews may create uncertainty and cause customers and prospective customers tocancel, postpone or reduce capital spending for our products.

Because a substantialportion of our software license revenue contracts are completed in the latterpart of a quarter, and our cost structure is largely fixed in the short term,unexpected revenue shortfalls and deferrals have a disproportionately negativeimpact on our profitability.

***We have experienced fluctuations in our profit marginfor consulting services and may not be able to achieve our profit margin goals.***

For fiscal 2007,consulting services represented 47.0% of our total revenues. Since ouracquisition of Intentia in April 2006, we have taken measures to improve ourprofit margin for consulting services, including improving utilization ofservices personnel and moving portions of our consulting services to our lowercost operations in Manila. While we have experienced margin improvements in mostquarters during fiscal 2007, our margins declined to 9.2% in the fourth quarterof fiscal 2007. Several factors led to this decline including high demand forconsulting services that was addressed through outsourcing a portion of ourconsulting services to third parties which had the effect of lowering theconsulting services margin. Since the consulting services business is highlysensitive to customer demands and other external and internal forces, themargin improvement actions taken by us can be reduced within certain periods oftime.

***We mustattract and retain account executives in our sales organization to achieve ourrevenue goals.***

Revenue growth, and inparticular software license revenue growth, requires that we have a sufficientnumber of trained account executives in our sales organization to develop leadsand call on prospective customers. Competition in our industry for experiencedaccount executives is intense. Competitors and other software companies maylure away our account executives through signing bonuses and other specialincentives. The failure to attract and retain account executives willnegatively impact our revenue growth. When we hire a new account executive, thetime period required for that person to become productive will vary, dependingon their experience and training and the customer pipeline and length of salescycle.

***If we are unable to attract and retain senior management,software developers, services consultants, finance and accounting specialists,and other qualified personnel, we will be unable to develop new products andincrease our revenue and profitability.***

We also rely on the continued service of our seniormanagement, software developers, services consultants, finance and accountingspecialists, and other key employees. In the software industry, there issubstantial and continuous competition for highly skilled business, productdevelopment, technical, financial and other personnel. The failure to attract,train, retain and effectively manage employees could negatively impact ourdevelopment and efforts and cause a degradation of our customer service. If weare unable to attract and retain finance and accounting personnel who haveexperience with the software industry and United States accountingrequirements, we will have to continue to rely on more costly contractors tofill the roles necessary for us to meet our governance and regulatoryrequirements.

***Economic,political and market conditions, can adversely affect our revenue growth andoperating results***.

Our revenue andprofitability depend on the overall demand for enterprise software and relatedmaintenance and services, particularly in the industries and geographies inwhich we sell our products and services. Demand for enterprise software anddemand for our solutions are affected by general economic conditions,competition, product acceptance and technology lifecycles. Regional and globalchanges in the 

18

----

economy,governmental budget deficits and political instability in certain geographicareas have resulted in businesses, government agencies and educationalinstitutions reducing their spending for technology projects generally anddelaying or reconsidering potential purchases of our products and relatedservices. The uncertainty posed by the long-term effects of the war in theMiddle East, terrorist activities, potential pandemics, natural disasters andrelated uncertainties and risks and other geopolitical issues may impact thepurchasing decisions of current or potential customers. Because of thesefactors, we believe the level of demand for our products and services, andprojections of future revenue and operating results, will continue to bedifficult to predict. These geopolitical risks could also impede employeetravel and our business operations in any affected regions.

***We are required to delay revenue recognition intofuture periods for portions of our license fee activity.***

Our entire worldwide business issubject to United States generally accepted accounting principles, commonlyreferred to as “U.S. GAAP.” Under those rules, we are required to defer revenuerecognition for license fees in situations that include the following:

·       thecustomer agreement includes products that are under development or has otherundelivered elements;

·       thecustomer agreement includes essential services, including significantmodifications, customization or complex interfaces, (this is more prevalentwith our M3 products);

·       thecustomer agreement includes acceptance criteria;

·       thecustomer agreement includes extended or contingent payment terms or fees;

·       athird-party vendor, whose technology is incorporated into our products, delaysdelivery of its product to the customer;

·       thecustomer agreement includes a fixed-fee service arrangement for which we do nothave “vendor specific objective evidence” (VSOE) of fair value; or

·       weare not able to establish historical pricing and maintenance renewal rates tomeet the VSOE requirements of these accounting rules.

We expect that we willcontinue to defer portions of our license fee activity because of thesefactors, with deferrals more likely for (a) our M3 products because ofproduct customization (often required due to the nature of the manufacturingand distribution industries) that is frequently included with new sales, (b) salesto governmental entities because those often include fixed fee arrangements forwhich we do not have VSOE of fair value and (c) sales of large license feecontracts because it is more difficult to use standard contract terms. Theamount of license fees deferred may be significant and will vary each quarter,depending on the mix of products sold in each market and geography, and theactual contract terms.

***We may take additional restructuring actions thatresult in financial charges in the period taken.***

Since the closing of our acquisition of Intentia in April 2006,we have been integrating our two companies and executing on our business plan. Beforethe acquisition, Lawson focused primarily on targeted service industries inNorth America, with our S3 products, and Intentia focused primarily onmanufacturing and distribution industries in Europe, with its M3 products.

We have consolidatedLawson and Intentia facilities and taken other restructuring actions to reducecombined company costs. We are also continuing to expand our operations in thePhilippines, and reduce certain higher cost employee positions in the UnitedStates and Europe. If we decide to take additional restructuring actions toimprove operational efficiencies, we may be required to incur financial chargesin 

19

----

theperiod when we make that decision, which could have a material adverse impacton our results of operations for that period.

***Charges to earnings resulting from past acquisitionsmay adversely affect our operating results.***

Under purchase accounting, we allocate the totalpurchase price to an acquired company’s net tangible assets, intangible assetsand in-process research and development based on their fair values as of thedate of the acquisition and record the excess of the purchase price over thosefair values as goodwill. Management’s estimates of fair value are based uponassumptions believed to be reasonable but which are inherently uncertain. Goingforward, the following factors could result in material charges that wouldadversely affect our results: 

·       impairmentof goodwill or intangible assets;

·       identificationof assumed contingent liabilities subsequent to the finalization of thepurchase price allocation; and

·       charges to income toeliminate certain Lawson pre-merger activities that duplicate those of theacquired company or to reduce our cost structure.

***We may not retainor attract customers if we do not develop new products and enhance our currentproducts in response to technological changes and competing products.***

The enterprise softwaremarket is faced with rapid technological change, evolving standards in computerhardware, software development and communications infrastructure, and changingneeds and expectations of customers. Building new products and serviceofferings requires significant investment in development. A substantial portionof our research and development resources are devoted to regulatory andmaintenance requirements and product upgrades that address new technologysupport. These demands put significant constraints on our resources availablefor new product development. We also face uncertainty when we develop oracquire new products because there is no assurance that a sufficient marketwill develop for those products.

***Business disruptions may interfere with our ability toconduct business.***

Our operating results andfinancial condition could be adversely affected in the event of a securitybreach, major fire, earthquake, war, terrorist attack, pandemic or othercatastrophic event. Travel restrictions or impaired access or significantdamage to our data center due to such an event could cause a disruption ofbusiness, which could adversely impact results of operations and financialconditions.

***Deterioration in our relationships with resellers, systemsintegrators and other third parties that market and sell our products couldreduce our revenues.***

Our revenue growth will depend, in part, on adding newpartners to expand our sales channels, as well as leveraging our relationshipswith existing partners. If our relationships with these resellers, systemintegrators and strategic and technology partners deteriorate or terminate, wemay lose sales and marketing opportunities. Some current and potentialcustomers rely on third-party systems integrators to implement and manage newand existing applications. These systems integrators may increase theirpromotion of competing enterprise software applications, or may otherwisediscontinue their relationships with us. We also license third-party softwareproducts that we incorporate into, or resell with, our own software products.For example, we incorporate Micro Focus International, Inc.’s software inmany of our products and have reseller and alliance relationships with IBM,Business Software Incorporated, Business Objects, Hyperion SolutionsCorporation and other businesses that allow us to resell their offerings withour products and services. These relationships and other technology licensesare subject to periodic 

20

----

renewal and may include minimumsales requirements. A failure to renew or early termination of theserelationships or other technology licenses could adversely impact our business.

***We currently have amaterial weakness in our internal control over financial reporting under Section 404of the Sarbanes-Oxley Act of 2002.***

Before we acquiredIntentia in April 2006, Intentia (as a Swedish company) was not requiredto comply with Section 404 of the Sarbanes-Oxley Act of 2002 concerningthe design and operating effectiveness of internal control over financialreporting. Consequently, Intentia did not have the staff, experience, trainingor procedures to comply with Sarbanes-Oxley. During the first quarter ended August 31,2006, we identified that a material weakness in our internal control overfinancial reporting exists relating to the lack of a sufficient number ofqualified accounting personnel with the required proficiency to apply theCompany’s accounting policies in accordance with generally accepted accountingprinciples of the United States of America (U.S. GAAP). Although we haveintensified our hiring efforts for qualified accounting personnel, thismaterial weakness has not been remediated as of May 31, 2007. Theexistence of an internal control deficiency which has been assessed as amaterial weakness can increase the risk that the Consolidated FinancialStatements included in this report and other periodic reports do not fairlypresent, in all material respects, the financial condition, results ofoperations and cash flows for the periods presented. As a result of theexistence of this material weakness, we could encounter delays in our abilityto complete our financial reporting on a timely basis and lose investorconfidence in the accuracy and completeness of our financial reporting which,in turn, could have a negative market reaction. If in the future we acquireother companies that are not subject to Sarbanes-Oxley, we could face similarrisks relating to the integration of the acquired companies and our compliancewith Sarbanes-Oxley.

***We may have exposure to additional tax liabilities.***

As a multinationalorganization, we are subject to income taxes as well as non-income based taxes,in both the United States as well as in various foreign jurisdictions. Significantjudgment is required in determining our worldwide income tax provision andother tax liabilities. In the ordinary course of a global business, there aremany intercompany transactions and calculations where the ultimate taxdetermination is uncertain. Although we believe that our tax estimates arereasonable, there is no assurance that the final determination of tax audits ortax disputes will not be different from what is reflected in our historicalincome tax provisions and accruals. We are also subject to non-income taxes,such as payroll, sales, use, value-added, net worth, property and goods andservices taxes, both in the United States and various foreign jurisdictions. Weare regularly under audit by tax authorities with respect to these non-incometaxes and may have additional exposure to additional non-income taxliabilities.

***Our effective taxrate may increase or fluctuate, which could increase our income tax expense andreduce our net income.***

We have had anunusually high effective tax rate and are taking steps to bring our effectivetax rate more in line with our industry. However, there is no assurance that wewill be successful because our effective tax rate can be adversely affected byseveral factors, many of which are outside of our control, including:

·       Changesin the relative proportions of revenues and income before taxes in the variousjurisdictions in which we operate that have differing statutory tax rates;

·       Changingtax laws, regulations, and interpretations in multiple jurisdictions in whichwe operate;

·       Changesto the financial accounting rules for income taxes;

21

----

·       Unanticipatedchanges in tax rates;

·       Changesin accounting and tax treatment of stock-based compensation;

·       Thetax effects of purchase accounting for acquisitions and restructuring chargesthat may cause fluctuations between reporting periods;

·       Changesto the valuation allowance on net deferred tax assets; or

·       Theassessments, or any related tax interest or penalties, could significantlyaffect our income tax expense for the period in which the settlements takeplace.

We report our results ofoperations based on our determinations of the amount of taxes owed in thevarious tax jurisdictions in which we operate. Periodically, we receive noticesthat a tax authority to which we are subject has determined that we owe agreater amount of tax than we have reported to such authority, and we regularlyengage in discussions, and sometimes disputes with these tax authorities. Weare engaged in disputes of this nature from time to time. If the ultimatedetermination of our taxes owed in any of these jurisdictions is for an amountin excess of the tax provision we have recorded or reserved for, our operatingresults, cash flows, and financial condition could be adversely affected.

***International sales and operations subject us to risksthat can adversely affect our operating results.***

We derive a substantialportion of our revenues, and have significant operations, outside of the UnitedStates. Our international operations include software development, sales,customer support and administration. We face challenges in managing anorganization operating in various countries, which can entail longer paymentcycles and difficulties in collecting accounts receivable, fluctuations incurrency exchange rates, overlapping tax regimes, difficulties in transferringfunds from certain countries and reduced protection for intellectual propertyrights in some countries. We must comply with a variety of international lawsand regulations, including trade restrictions, local labor ordinances, andimport and export requirements.

***We may experience foreign currency gains and losses.***

We conduct a significantportion of our business in currencies other than the United States dollar. Ourrevenues and operating results are adversely affected when the dollarstrengthens relative to other currencies and are positively affected when thedollar weakens. Changes in the value of major foreign currencies, particularlythe Euro, Swedish Krona and British Pound relative to the United States dollarcan significantly affect revenues and our operating results. Recognized balancesheet exposures are partially offset by forward currency contracts. Net foreigncurrency transaction gains and losses, resulting primarily from recognizedbalance sheet exposures, are recorded within earnings in the period incurred.

***Our products are deployed in large and complex systemsand may contain defects or security flaws.***

Because our products aredeployed in large and complex systems, they can only be fully tested forreliability when deployed in networks for long periods of time. Our softwareprograms may contain undetected defects when first introduced or as newversions are released, and our customers may discover defects in our products,experience corruption of their data or encounter performance or scalingproblems only after our software programs have been deployed. As a consequence,from time to time we have received customer complaints following installationof our products. We are currently a defendant in several lawsuits wherecustomers have raised these types of issues with our products and services. Inaddition, our products are combined with products from other vendors. As aresult, should problems occur, it may be difficult to identify the source ofthe problem. Software and data security are becoming increasingly importantbecause of regulatory restrictions on data privacy and the significant legalexposures and business disruptions stemming from computer viruses and otherunauthorized entry or use of 

22

----

computersystems. We may not be able to avoid or limit liability for disputes relatingto product performance, software security or the provision of services. Productdefects and security flaws could expose us to product liability and warrantyclaims and harm our reputation, which could impact our future sales of productsand services.

***Competitors may take advantage of our limitedintellectual property protection.***

We consider certainaspects of our internal operations, software and documentation to beproprietary, and rely on a combination of contract, copyright, trademark andtrade secret laws to protect this information. In addition, we currently holdone patent in the United States and have filed several patent applications. Outstandingapplications may not result in issued patents and, even if issued, the patentsmay not provide any competitive advantage. Copyright laws afford only limitedprotection because those laws do not protect product ideas. In addition, whenwe license our products to customers, we provide source code for many of ourproducts. Customers may also access source code through a source code escrowarrangement. Access to our source code could provide an opportunity forcompanies to offer competing maintenance and product modification services toour customers. Defending our intellectual property rights is time consuming andcostly.

***Others may claim that we infringe their intellectualproperty rights.***

Many participants in thetechnology industry have an increasing number of patents and have frequentlydemonstrated a readiness to take legal action based on allegations of patentand other intellectual property infringement. These types of claims are timeconsuming and costly to defend. If a successful claim is made against us and wefail to develop or license a substitute technology, our business, results ofoperations, financial condition or cash flows could be adversely affected.

***Litigation may adversely affect our business,financial condition and results of operations.***

We are subject to legaland regulatory requirements applicable to our business and industry throughoutthe world. We are subject to various legal proceedings and the risk oflitigation by employees, customers, suppliers, stockholders or others throughprivate actions, class actions, administrative proceedings or other litigation.Subsequent to our acquisition of Intentia in April 2006, we have beenworking with various Intentia customers to resolve litigation and disputes thatarose before the acquisition. Litigation can be lengthy, expensive, anddisruptive to our operations and results cannot be predicted with certainty. Theremay also be adverse publicity associated with litigation, regardless of whetherthe allegations are valid or whether we are ultimately found liable. As aresult, litigation may adversely affect our business, financial condition andresults of operations.

***We may be unable toidentify or complete suitable acquisitions and investments; and anyacquisitions and investments we do complete may create business difficulties ordilute earnings.***

As part of our businessstrategy, we intend to pursue strategic acquisitions in the future. We may beunable to identify suitable acquisitions or investment candidates. Even if weidentify suitable candidates, we cannot provide assurance that we will be ableto make acquisitions or investments on commercially acceptable terms. If weacquire a company, we may incur losses in the operations of that company and wemay have difficulty integrating its products, personnel and operations into ourbusiness. In addition, its key personnel may decide not to work for us. Thesedifficulties could disrupt our on-going business, distract our management andworkforce, increase our expenses and adversely affect our operating results. Wemay also incorrectly judge the value or worth of an acquired company orbusiness. Furthermore, we may incur significant debt to issue equity securitiesto pay for future acquisitions or investments. The issuance of equitysecurities may be dilutive to our stockholders. If the products of an acquiredcompany are not 

23

----

successful,those remaining assets could become impaired, which may result in an impairmentloss that could materially adversely impact our financial position and resultsof operations.

***Open source software may diminish our license fees andimpair the ownership of our products.***

The open source communityis comprised of many different formal and informal groups of softwaredevelopers and individuals who have created a wide variety of software and havemade that software available for use, distribution and modification, often freeof charge. Open source software, such as the Linux operating system, has beengaining in popularity among business users. If developers contribute enterpriseapplication software to the open source community, and that software hascompetitive features and scale to business users in our markets, we will needto change our product pricing and distribution strategy to compete. If one ofour developers embedded open source components into one of our products,without our knowledge or authorization, our ownership and licensing of thatproduct could be in jeopardy. Depending on the open source license terms, theuse of an open source component could mean that all products delivered withthat open source component become part of the open source community. In thatcase, we would not own those delivered products and could not charge licensefees for those products. We currently take steps to train our developers andmonitor the content of products in development, but there is no assurance thatthese steps will always be effective***.***

***We have adoptedanti-takeover defenses that could make it difficult for another company toacquire control of Lawson or limit the price investors might be willing to payfor our stock.***

Provisions in ouramended and restated certificate of incorporation and bylaws, our stockholderrights plan and under Delaware law could make it more difficult for otherbusinesses to acquire us, even if doing so would benefit our stockholders. Ouramended and restated certificate of incorporation and bylaws contain thefollowing provisions, among others, which may inhibit an acquisition of ourcompany by a third-party:

·       advancenotification procedures for matters to be brought before stockholder meetings;

·       alimitation on who may call stockholder meetings;

·       aprohibition on stockholder action by written consent; and

·       theability of our board of directors to issue shares of preferred stock without astockholder vote.

The issuance of stockunder our stockholder rights plan could delay, deter or prevent a takeover attemptthat stockholders might consider in their best interests. We are also subjectto provisions of Delaware law that prohibit us from engaging in any businesscombination with any “interested stockholder,” meaning generally that astockholder who beneficially owns more than 15% of our stock cannot acquire usfor a period of three years from the date this person became an interestedstockholder unless various conditions are met, such as approval of thetransaction by our board of directors. Any of these restrictions could have theeffect of delaying or preventing a change in control.

***Control by existing shareholders could significantlyinfluence matters requiring stockholder approval***.

As of May 31, 2007,our executive officers, directors, and affiliated entities, in the aggregate,beneficially owned 20.3% of our outstanding common stock. Hedge fund investorshave accumulated large positions in our stock. Groups of the stockholders, ifacting together, would be able to significantly influence all matters requiringapproval by stockholders, including the election of directors and the approvalof mergers or other business combinations. Sale of a portion of these shares inthe public market, or the perception that such sales are likely to occur, coulddepress the market price of our common stock and could impair our ability toraise capital through the sale of additional equity securities.

24

----

***Ourstock price could become more volatile and our stock could decline in value.***

All of the factors discussed above could affect ourstock price, as well as speculation in the press and the analyst community,changes in recommendations or earnings estimates by financial analysts, changesin analysts’ valuation measures for our stock, and market trends. A significantdrop in our stock price could also expose us to the risk of securities classactions lawsuits, which could result in substantial costs and divert management’sattention and resources, which could adversely affect our business***.***

***ProposedAccounting Rule Changes for Certain Convertible Debt Instruments Could AlterTrends Established in Previous Periods***

On July 25, the FASB approved a proposal that wouldalter the accounting treatment for convertible debt instruments that allow foreither mandatory or optional cash settlements. If adopted, this proposal couldsignificantly increase the non-cash interest expense associated with ourexisting $240 million convertible debt, including interest expense in priorperiods as a result of the proposed retrospective accounting treatment. Theexact impact of this proposal to the Company's financial statements will not beknown for some time, but the Company will monitor the developments of thisproposal and will comply with any new requirements.

**Item 1B.**               UnresolvedStaff Comments

None.

**Item 2.**                        Properties

Our corporate headquarters and executive offices arein St. Paul, Minnesota, USA where we lease approximately 307,000 squarefeet of space. The lease on this facility expires July 31, 2015. We alsolease approximately 110,000 square feet of space, primarily for regional salesand support offices, elsewhere in the United States. Additionally, Lawsonthrough its international headquarters in Stockholm, Sweden, leasesapproximately 873,700 square feet of office space in approximately 30 countriesused primarily as sales and services offices. Expiration dates of leases onthese offices range from 2007 to 2029. We believe that our currentdomestic and international facilities will be sufficient to meet our needs forat least the next 12 months and that, if required, suitable additional oralternative space will be available on commercially reasonable terms toaccommodate expansion of our operations. The Company implemented arestructuring plan as a result of the acquisition of Intentia which involvescertain leased properties. See Note 4 Business Combinations for furtherdiscussion of restructuring activities.

**Item 3.**                        LegalProceedings

Weare subject to various legal proceedings and the risk of litigation byemployees, customers, suppliers, stockholders or others through privateactions, class actions, administrative proceedings or other litigation. Subsequentto our acquisition of Intentia in April 2006, we have been working withvarious Intentia customers to resolve litigation and disputes that arose beforethe acquisition. See Note 4 for further discussion of the Intentia litigationand disputes.

While the outcome of these claims cannot be predictedwith certainty, we do not believe that the outcome of any one of these legalmatters will have a material adverse effect on our consolidated financialposition, results of operations or cash flows. However, depending on the amountand the timing, an unfavorable resolution of some or all of these matters couldmaterially affect our future results of operations or cash flows in aparticular period.

**Item 4.**                        Submissionof Matters to a Vote of Security Holders

Nomatters were submitted to a vote of security holders during the fourth quarterof the fiscal year ended May 31, 2007.

25

----

**Part II**

**Item 5.**                        Marketfor Registrant’s Common Equity, Related Stockholder Matters and IssuerPurchases of Equity Securities

(a)   Our common stock is traded in the NasdaqNational Market (Nasdaq) under the symbol LWSN. The following table lists thehigh and low closing sale prices by quarter as reported by Nasdaq.

| ** **     | ** ** | **High** | ** ** | **Low** | ** ** |
|----------------|------------|----------|------------|---------|------------|
| Fiscal 2007:   |       |     |       |    |       |
| Fourth Quarter |       | $        | 9.29       |    | $          | 7.56 |   |
| Third Quarter  |       | $        | 8.62       |    | $          | 6.75 |   |
| Second Quarter |       | $        | 8.19       |    | $          | 6.68 |   |
| First Quarter  |       | $        | 7.11       |    | $          | 5.65 |   |
| Fiscal 2006:   |       |     |       |    |       |
| Fourth Quarter |       | $        | 8.05       |    | $          | 6.56 |   |
| Third Quarter  |       | $        | 8.00       |    | $          | 7.08 |   |
| Second Quarter |       | $        | 7.91       |    | $          | 6.07 |   |
| First Quarter  |       | $        | 6.49       |    | $          | 5.02 |   |

 

We have never declared or paid any cash dividends onour common stock and do not anticipate paying cash dividends in the foreseeablefuture.

As of July 25, 2007, the approximate number ofregistered stockholders of record was 159.

(b)   As of May 31,2007, we held $40.6 million of net proceeds from our initial public offering(IPO) in interest-bearing, investment grade securities. During the three monthsended May 31, 2007, we used approximately $6.9 million for capitalexpenditures and $0.4 million for repayment of debt and payment of capitallease obligations.

(c)   Purchasesof Equity Securities by the Issuer and Affiliated Purchasers

Thefollowing table summarizes repurchases of our stock in the three months ended May 31,2007: 

| ** **                                | ** ** | **(a)**    | ** ** | **(b)**                                       | ** ** | **(c)**                                                  | ** ** | **(d)**                                                                                                                                                  | ** ** |
|-------------------------------------------|------------|------------|------------|-----------------------------------------------|------------|----------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| **Period**                                | ** ** | ** ** | ** ** | **Total   Number   of Shares** | ** ** | **Average   Price Paid   per Share** | ** ** | **Total Number of   Shares Purchased   as Part of Publicly   Announced   Plans or Programs** | ** ** | **Maximum Dollar   Value of Shares that   May Yet Be Purchased   Under the Plans   or Programs(1)** | ** ** |
| March 1,  2007 - March 31, 2007 |       | —     |       |                                          | $          | 0.00                                                     |       |                                                                                                                                                     |       | — |   |   |   | $ | 94,100,527 |   |   |
| April 1, 2007 - April 30, 2007  |       | 5,386,966  |       |                                          | $          | 8.90                                                     |       |                                                                                                                                                     |       | 5,386,966 |   |   |   | $ | 146,156,550 |   |   |
| May 1, 2007 - May 31, 2007      |       | 120,720    |       |                                          | $          | 8.50                                                     |       |                                                                                                                                                     |       | 120,720 |   |   |   | $ | 145,129,905 |   |   |
| Total Fiscal 2007  Fourth Quarter         |       | 5,507,686  |       |                                          | $          | 8.89                                                     |       |                                                                                                                                                     |       | 5,507,686 |   |   |   | $ | 145,129,905 |   |   |
|                                           |            |            |            |                                               |            |                                                          |            |                                                                                                                                                          |            |  |  |  |  |  |  |  |  |  |  |

 

----

(1)          On November 13,2006, the Company announced that the board of directors approved a sharerepurchase of up to $100 million of common stock. The board of directorsincreased this maximum to $200 million in April 2007.

26

----

**Item6.**                        SelectedConsolidated Financial Data

| ** **                                             | ** ** | **Year ended May 31,**                              | ** ** |
|--------------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                             | ** ** | **2007(1)**                                                        | ** ** | **2006(1)** | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                             | ** ** | **(in thousands, except per share data)** | ** ** |
| **Consolidated Statements of  Operations Data:**       |       |                                                               |       |   |   |   |   |   |   |   |   |
| Revenues:                                              |       |                                                               |       |   |   |   |   |   |   |   |   |
| License fees                                           |       | $                                                                  | 105,861    |   | $ | 71,076 |   | $ | 57,743 |   | $ | 92,338 |   | $ | 77,614 |   |
| Maintenance                                            |       | 291,657                                                            |       | 188,155 |   | 170,723 |   | 154,938 |   | 142,645 |   |
| Consulting                                             |       | 352,870                                                            |       | 131,545 |   | 106,718 |   | 116,307 |   | 124,059 |   |
| Total revenues                                         |       | 750,388                                                            |       | 390,776 |   | 335,184 |   | 363,583 |   | 344,318 |   |
| Total cost of revenues                                 |       | 399,320                                                            |       | 171,542 |   | 150,584 |   | 152,247 |   | 156,084 |   |
| Gross profit                                           |       | 351,068                                                            |       | 219,234 |   | 184,600 |   | 211,336 |   | 188,234 |   |
| Operating  expenses:                                   |       |                                                               |       |   |   |   |   |   |   |   |   |
| Research and development                               |       | 85,325                                                             |       | 60,711 |   | 62,158 |   | 64,888 |   | 59,115 |   |
| Sales and marketing                                    |       | 160,551                                                            |       | 83,193 |   | 75,637 |   | 93,138 |   | 102,963 |   |
| General and administrative(2)                          |       | 98,263                                                             |       | 54,827 |   | 36,443 |   | 37,721 |   | 29,972 |   |
| Restructuring                                          |       | 15,483                                                             |       | 1,825 |   | 5,028 |   | 2,210 |   | 6,035 |   |
| Amortization of acquired intangibles                   |       | 10,089                                                             |       | 2,122 |   | 1,545 |   | 1,274 |   | 877 |   |
| Total operating expenses                               |       | 369,711                                                            |       | 202,678 |   | 180,811 |   | 199,231 |   | 198,962 |   |
| Operating (loss)  income                               |       | (18,643                                                            | )          | 16,556 |   | 3,789 |   | 12,105 |   | (10,728 | ) |
| Total other income,  net(3)                            |       | 12,106                                                             |       | 11,111 |   | 4,328 |   | 3,209 |   | 4,457 |   |
| Income (loss)  before income taxes                     |       | (6,537                                                             | )          | 27,667 |   | 8,117 |   | 15,314 |   | (6,271 | ) |
| Provision  (benefit) for income taxes                  |       | 14,400                                                             |       | 11,708 |   | 2,855 |   | 7,323 |   | (2,446 | ) |
| Net income (loss)                                      |       | (20,937                                                            | )          | 15,959 |   | 5,262 |   | 7,991 |   | (3,825 | ) |
| Net income (loss)                                      |       | (20,937                                                            | )          | 15,959 |   | 5,262 |   | 7,991 |   | (3,825 | ) |
| Net income (loss)  per share:                          |       |                                                               |       |   |   |   |   |   |   |   |   |
| Basic                                                  |       | $                                                                  | (0.11      | ) | $ | 0.14 |   | $ | 0.05 |   | $ | 0.08 |   | $ | (0.04 | ) |
| Diluted                                                |       | $                                                                  | (0.11      | ) | $ | 0.14 |   | $ | 0.05 |   | $ | 0.07 |   | $ | (0.04 | ) |
| Shares used in  computing net (loss) income per share: |       |                                                               |       |   |   |   |   |   |   |   |   |
| Basic                                                  |       | 186,363                                                            |       | 110,995 |   | 99,068 |   | 98,462 |   | 98,165 |   |
| Diluted                                                |       | 186,363                                                            |       | 115,350 |   | 104,623 |   | 107,000 |   | 98,165 |   |

----

(1)          On April 25, 2006the company completed the acquisition of Intentia. Fiscal 2007 data includesthe Intentia results for a full year. Fiscal 2006 data includes Intentiaresults for the five week period from April 25, 2006 to May 31, 2006.

(2)          In fiscal 2006, generaland administrative expenses included $5.7 million of Intentia expenses for thefive weeks following the acquisition, $6.3 million in stock compensation chargerelating to an executive separation agreement and approximately $3.9 million ofintegration related costs associated with Intentia.

(3)          In fiscal 2006, our averageinvested balances increased by $53.6 million, while average yield increasedfrom 2.1% in 2005 to 4.0% during 2006, increasing interest earned by $6.4million. In fiscal 2007, our average invested balances increased by $69.3million, while average yield increased from 4.0% in 2006 to 4.8% during 2007,increasing interest earned by $4.7 million.

27

----

 

| ** **                                        | ** ** | **Year ended May 31,**                              | ** ** |
|---------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                        | ** ** | **2007(1)**                                                        | ** ** | **2006(1)** | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                        | ** ** | **(in thousands, except per share data)** | ** ** |
| **Consolidated  Balance Sheet Data**              |       |                                                               |       |   |   |   |   |   |   |   |   |
| Cash, cash equivalents  and marketable securities |       | $                                                                  | 553,836    |   | $ | 306,581 |   | $ | 234,613 |   | $ | 208,982 |   | $ | 260,512 |   |
| Working capital                                   |       | 324,616                                                            |       | 168,201 |   | 178,410 |   | 165,336 |   | 213,258 |   |
| Total assets                                      |       | 1,479,107                                                          |       | 1,170,652 |   | 420,718 |   | 423,598 |   | 432,209 |   |
| Long-term debt—non-current(2)                |       | 245,228                                                            |       | 4,275 |   | — |   | 990 |   | 255 |   |
| Total stockholders’  equity(3)               |       | 755,228                                                            |       | 791,659 |   | 293,055 |   | 282,886 |   | 289,399 |   |
|                                                   |            |                                                                    |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

----

(1)          On April 25, 2006,we completed our acquisition of Intentia in an all-stock transaction valued at$460.9 million. Increases in the balance sheet line items reflect theacquisition.

(2)          On April 23, 2007we completed the issuance of $240 million of 2.50% senior subordinatedconvertible notes (see Note 7).

(3)          As part of our sharerepurchase program, we repurchased 6.4 million shares of our common stock for$54.9 million in fiscal 2007.

28

----

**Item 7.**                        Management’sDiscussion and Analysis of Financial Condition and Results of Operations

*The following should be read in conjunction with ourConsolidated Financial Statements, the notes to those statements and otherfinancial information appearing elsewhere in this Annual Report on Form 10-K.*

**Business Overview**

Lawson Software, Inc. (the “Company”) providesbusiness application software, consulting and maintenance to customersprimarily in the services sector, trade industries and manufacturing/distributionsectors. In the manufacturing sector we serve both process manufacturing anddiscrete manufacturing. In the service sector we serve both asset-intensive andlabor-intensive services. We operate as one business segment focused on broadsectors. We specialize in specific markets including healthcare, publicservices, retail, financial services, food and beverage, manufacturing andwholesale distribution. Our software includes enterprise financial management,human capital management, business intelligence, asset management, enterpriseperformance management, supply chain management, service management,manufacturing operations, business project management and industry-tailoredapplications. Our applications help automate and integrate critical business processes,which enables our clients to collaborate with their partners, suppliers andemployees. We support our clients’ use of our applications through consultingservices which primarily help our clients implement their Lawson applications,and through our maintenance program which provides on-going support and productupdates for our clients’ continued use of our applications.

We license two lines ofenterprise software solutions referred to as S3 and M3 as well as maintenanceand consulting services associated with these products. S3 solutions consist oflegacy Lawson software applications and M3 solutions consist of applicationshistorically licensed by Intentia International AB that are geared formanufacturing, distribution and trade businesses who face resource constraintsand whose processes are often complex and industry-specific.

**Acquisitions**

The Company’s acquisitions were accounted for underthe purchase method of accounting. Accordingly, the assets and liabilitiesacquired were recorded at their estimated fair values at the effective date ofthe acquisitions and the results of operations have been included in theConsolidated Statements of Operations since the acquisition dates. Inaccordance with Statement of Financial Accounting Standards (SFAS) No. 142,*Goodwill and Other Intangible Assets,*goodwill recorded as a result of these acquisitions is subject to an annualimpairment test and is not amortized. These acquisitions are intended toenhance our focus on targeted vertical markets and to provide additionalvalue-added products and services to our clients.

On April 25, 2006, the Company completed theacquisition of Intentia. We believe that the combination provides opportunitiesto leverage sales channels and sell expanded product lines across the combinedbusiness’ customer base. The acquisition was accomplished through Lawson’soffer to exchange Intentia’s shares and warrants for newly issued shares ofLawson common stock. We also completed a reorganization in connection with thecombination. See Note 4 *Business Combinations*of the Notes to the Consolidated Financial Statements for additionalinformation.

On July 20, 2006, we acquired all of theoutstanding equity of Competency Assessment Solutions for $2.0 million in cash.The acquisition was completed to augment the Company’s human capital managementsolutions. A final contingent payment of $0.3 million in cash was made on December 4,2006. In the allocation of the excess purchase price over the fair value ofassets acquired $1.3 million was allocated to goodwill and $1.3 million wasallocated to amortizable intangible assets which included acquired technologyand a non-compete agreement. These amounts and the net liabilities assumed of$0.3 million equal the total purchase price of $2.3 million.

29

----

On December 14, 2006,we entered into a purchase agreement with Sigma Enterprise Applications AB(Sigma) whereby Lawson acquired from Sigma for approximately $1.0 million incash, $0.3 million of assumed liabilities and a contingent additional payment ofup to $0.6 million, Sigma’s business pertaining to the maintenance andservicing of the Lawson S3 products. The acquisition was completed to augmentsales of S3 products in the Nordic region. The allocation of the purchase priceof $1.3 million along with transaction costs of $0.1 million was allocated asfollows: $1.3 million to existing technology, to be amortized over a five yearperiod, and $0.1 million to a non-compete agreement, to be amortized over athree year period.

**Outlook**

As we enter our secondyear after the merger, we anticipate that many of the initiatives undertaken byLawson in fiscal 2007 will provide revenue growth and margin expansion. Duringfiscal 2007, we grew our sales force by approximately 33% and enhanced ourservices capacity through headcount growth in the markets served by Lawson andin our solutions center in Manila. With these investments, we expect ouroverall fiscal 2008 total revenue to grow between 9% and 11% over fiscal 2007total revenue. By expanding our Manila resources, we not only increased ourservices capacity, but we will also increase our capacity in other areas suchas our research and development and general and administrative areas. Whilemuch of this investment in research and development and general andadministrative areas will continue throughout fiscal 2008, we expect ouroverall expenses, including cost of revenues to marginally increase over fiscal2007 overall, we expect to improve our gross and operating margins and improveour EPS in fiscal 2008. Our fiscal 2008 EPS is currently expected to fallbetween $0.17 and $0.22 per share. Updates to these estimates, to the extentthere are any updates, are made through our quarterly earnings releaseannouncements.

**Critical AccountingPolicies and Estimates**

Our discussion and analysis of financial condition andresults of operations are based upon our audited Consolidated FinancialStatements, which have been prepared in accordance with U.S. GAAP. Thepreparation of these financial statements requires us to make estimates andassumptions that affect the reported amounts of assets and liabilities at thedate of the financial statements, the reported amounts of revenues and expensesduring the reporting periods, and related disclosures of contingent assets andliabilities. The Notes to the Consolidated Financial Statements containedherein describe our significant accounting policies used in the preparation ofthe Consolidated Financial Statements. On an on-going basis, we evaluate ourestimates, including, but not limited to, those related to bad debt, intangibleassets and contingencies. We base our estimates on historical experience and onvarious other assumptions that we believe to be reasonable under thecircumstances, the results of which form the bases for making judgments aboutthe carrying values of assets and liabilities that are not readily apparent fromother sources. Actual results could differ from these estimates.

We believe the critical accounting policies listedbelow reflect our more significant judgments, estimates and assumptions used inthe preparation of our Consolidated Financial Statements.

*RevenueRecognition.**  *Revenuerecognition rules for software businesses are very complex. We followspecific and detailed guidelines in determining the proper amount of revenue tobe recorded; however, certain judgments affect the application of our revenuerecognition policy. Revenue results are difficult to predict, and any shortfallin revenue or delay in recognizing revenue could cause our operating results tovary significantly from year to year.

The significant judgments for revenue recognitiontypically involve whether collectibility can be considered probable and whetherfees are fixed or determinable. In addition, our transactions often consist ofmultiple element arrangements, which typically include license fees,maintenance and support fees and 

30

----

consulting service fees.These multiple element arrangements must be analyzed to determine the relativefair value of each element, the amount of revenue to be recognized uponshipment, if any, and the period and conditions under which deferred revenueshould be recognized.

We recognize revenue in accordance with the provisionsof the American Institute of Certified Public Accountants (AICPA) Statement ofPosition (SOP) 97-2, *Software RevenueRecognition (SOP 97-2)*, as amended, and SOP 98-9, *Modification of SOP 97-2, Software Revenue Recognition, WithRespect to Certain Transactions (SOP 98-9)*, as well asTechnical Practice Aids issued from time to time by the AICPA, and inaccordance with the SEC Accounting Bulletin (SAB) No. 104, *Revenue Recognition (SAB 104)*. We license software undernon-cancelable license agreements and provide related consulting services,including training, and implementation services, as well as on-going customersupport and maintenance.

When ourconsulting, training and implementation services 1) are not consideredessential to the functionality of our software products, 2) are sold separatelyand also 3) are available from a number of third-party service providers, ourrevenues from these services are generally recorded separately from licensefees and recognized as the services are performed. License fees within softwarearrangements including services that do not meet any one or a combination ofthe three criteria listed above, are recognized in accordance with SOP 81-1,*Accounting for Performance of Construction-Type andCertain Production-Type Contracts (SOP 81-1)*, using contractaccounting and the percentage-of-completion methodology based on labor hoursinput. Software arrangements which include certain fixed-fee service componentsare usually recognized as the services are performed while corresponding coststo provide these services are expensed as incurred. The amounts of revenue andrelated expenses reported in the Consolidated Financial Statements may vary,due to the amount of judgment required to address significant assumptions,risks and uncertainties in applying the application of thepercentage-of-completion methodology. Our specific revenue recognition policiesare as follows:

·       Software License Fees—Licensefee revenues from end-users are recognized when the software product has beenshipped, provided a non-cancelable license agreement has been signed, there areno uncertainties surrounding product acceptance, the fees are fixed ordeterminable and collection of the related receivable is considered probable.Provided the above criteria are met, license fee revenues from resellers arerecognized when there is a sell-through by a reseller to an end-user. Asell-through is determined when we receive an order form from a reseller for aspecific end-user sale. We do not generally offer rights of return, acceptanceclauses or price protection to our customers. In situations where softwarelicense contracts include rights of return or acceptance clauses, revenue isdeferred until the clause expires. Typically, our software license fees are duewithin a 12-month period from the date of shipment. If the fee due fromthe customer is not fixed or determinable, or includes payment terms greaterthan twelve months from shipment, revenue is recognized as payments become dueand all other conditions for revenue recognition have been satisfied. Insoftware arrangements that include rights to multiple delivered elements suchas software products or specified upgrades and undelivered elements such assupport or services, we allocate the total arrangement fee according to thefair value of each element using vendor-specific objective evidence.Vendor-specific objective evidence of fair value is determined using the pricecharged when that element is sold separately. In software arrangements in whichwe have fair value of all undelivered elements but not of a delivered element,we use the residual method to record revenue. Under the residual method, thefair value of the undelivered elements is deferred and the remaining portion ofthe arrangement fee is allocated to the delivered element and is recognized asrevenue. In software arrangements in which we do not have vendor-specificobjective evidence of fair value of all undelivered elements, revenue isdeferred until fair value is determined or all elements for which we do nothave vendor-specific objective evidence of fair value, have been delivered.

31

----

·       Maintenance and Support—Revenuesfrom customer maintenance and support contracts are deferred and recognizedratably over the term of the agreements. Revenues for maintenance and supportthat are bundled with license fees are deferred based on the vendor specificobjective evidence of fair value of the bundled maintenance and support and recognizedover the term of the agreement. Vendor specific objective evidence of fairvalue is based on the renewal rate for continued maintenance and supportarrangements.

·       Consulting Services—Revenuesfrom consulting services (including training and implementation services) arerecognized as services are provided to customers. Revenues for consultingservices that are bundled with license fees are deferred based on thevendor-specific objective evidence of fair value of the bundled services andrecognized when the services are performed. Vendor-specific objective evidenceof fair value is based on the price charged when training and consultingservices are sold separately.

*Allowancefor Doubtful Accounts.**  *Wemaintain an allowance for doubtful accounts at an amount we estimate to besufficient to provide adequate protection against losses resulting fromextending credit to our customers. In judging the adequacy of the allowance fordoubtful accounts, we consider multiple factors including historical bad debtexperience, the general economic environment, the need for specific customerreserves and the aging of our receivables. This provision is included inoperating expenses as a general and administrative expense. A considerableamount of judgment is required in assessing these factors. If the factorsutilized in determining the allowance do not reflect future performance, then achange in the allowance for doubtful accounts would be necessary in the periodsuch determination has been made, affecting future results of operations.

*SalesReturns and Allowances.*   Although we do notgenerally provide a contractual right of return, in the course of arriving atpractical business solutions to various warranty and other claims, we haveallowed sales returns and allowances. We record a provision against revenue forestimated sales returns and allowances on licenses in the same period therelated revenues are recorded or when current information indicates additionalamounts are required. These estimates are based on historical experiencedetermined by analysis of return activities, specifically identified customersand other known factors. If the historical data we utilize does not reflectfuture performance, then a change in the allowances would be necessary in theperiod such determination has been made, affecting future results ofoperations.

*Valuationof Long-Lived and Intangible Assets and Goodwill.**  *Substantially allof our intangible assets and goodwill resulted from our April 2006acquisition of Intentia. Wereview identifiable intangible and other long-lived assets for impairment** **in accordance with SFAS No. 144,*Accounting for the Impairment or Disposal ofLong-Lived Assets*, whenever events or changes in circumstancesindicate the carrying amount may not be recoverable. Events or changes incircumstances that indicate the carrying amount may not be recoverable include,but are not limited to, a significant decrease in the market value of thebusiness or asset acquired, a significant adverse change in the extent to ormanner in which the business or asset acquired is used or a significant adversechange in the business climate. If such events or changes in circumstances arepresent, the undiscounted cash flows method is used to determine whether thelong-lived asset is impaired. Cash flows would include the estimated terminalvalue of the asset and exclude any interest charges. If the carrying value ofthe asset exceeds the undiscounted cash flows over the estimated remaining lifeof the asset, the asset is considered impaired, and the impairment is measuredby reducing the carrying value of the asset to its fair value using thediscounted cash flows method. The discount rate utilized is based on management’sbest estimate of the related risks and return at the time the impairmentassessment is made.

If events or changes in circumstances indicate thecarrying amount of goodwill may not be recoverable, in accordance with SFAS No. 142,*Goodwill and Other Intangible Assets* (SFAS142), the first step of the goodwill impairment test, used to identifypotential impairment, compares the fair value of a 

32

----

reporting unit with itscarrying amount, including goodwill. We operate as one reporting unit andtherefore compare our carrying amount to market value. Market value isdetermined utilizing our market capitalization plus a control premium. If ourmarket value exceeds our carrying amount, goodwill is considered not impaired,thus the second step of the impairment test is not necessary. If our carryingamount exceeds our market value, the second step of the goodwill impairmenttest is performed to measure the amount of impairment loss, if any. The secondstep of the goodwill impairment test, used to measure the amount of impairmentloss, compares the implied fair value of the goodwill with the carrying amountof the goodwill. If the carrying amount of the goodwill exceeds the impliedfair value of the goodwill, an impairment loss would be recognized in an amountequal to the excess. Any loss recognized cannot exceed the carrying amount ofgoodwill. After a goodwill impairment loss is recognized, the adjusted carryingamount of goodwill is the new accounting basis. A subsequent reversal of apreviously recognized goodwill impairment loss is prohibited once themeasurement of that loss is completed and the loss has been recognized.

*IncomeTaxes.**  *The provisionfor income taxes consists of provisions for federal, state, and foreign incometaxes. The Company operates in an international environment with significantoperations in various locations outside of the United States. Accordingly, theconsolidated income tax rate is a composite rate reflecting the earnings invarious locations and the applicable rates.

Significant judgment is required in determining ourworldwide income tax provision. In the ordinary course of a global business,there are many transactions and calculations where the ultimate tax outcome isuncertain. Our judgments, assumptions, and estimates relative to the provisionfor income tax take into account current tax laws, our interpretation ofcurrent tax laws, and possible outcomes of current and future audits conductedby foreign and domestic tax authorities. Although we believe that our estimatesare reasonable, the final tax outcome could be different from that which isreflected in our historical income tax provision and accruals. Such differencescould have a material effect on the amounts provided in our ConsolidatedBalance Sheets and Consolidated Statements of Operations.

In conjunction with preparing the global taxprovision, we must assess temporary differences resulting from the differenttreatment of specific items for tax and financial reporting purposes. Thesedifferences result in deferred tax assets and liabilities, which are includedwithin our Consolidated Balance Sheets. As part of this process, we must alsoassess the likelihood that deferred tax assets will be realized from futuretaxable income and, based on this assessment establish a valuation allowance,if required. Our determination of our valuation allowance is based upon anumber of assumptions, judgments, and estimates, including historical operatingresults, forecasted earnings, future taxable income, and the relativeproportions of revenue and income before taxes in the various domestic andinternational jurisdictions in which we operate. To the extent we establish avaluation allowance or change the valuation allowance in a period, except asdiscussed below for pre-acquisition deferred tax assets that had apre-acquisition valuation allowance, we reflect the change with a correspondingincrease or decrease to our tax provision in our Consolidated Statements ofOperations.

Under the provisions of SFAS No. 109, *Accounting for Income Taxes*, and related interpretations,future period reductions to the valuation allowance related to Intentia’sdeferred tax assets that existed as of the date of the acquisition of Intentiaare first credited against goodwill, then to the other identifiable assetsexisting at the date of acquisition, and then, once these assets have beenreduced to zero, credited to the income tax provision. A provision benefit willnot be realized for amounts credited against goodwill and other identifiableassets.

*Contingencies.**  *The Company is subject to the possibility of variousloss contingencies in the normal course of business. The Company accrues forloss contingencies when a loss is probable and able to be estimated inaccordance with No. 5, *Accounting forContingencies* (SFAS 5).

33

----

*Litigationreserves.*   The establishment of litigationreserves requires judgments concerning the ultimate outcome of pendinglitigation against the Company and its subsidiaries. Reserves established inthe normal course of business are based on the application of SFAS 5, whichrequires us to record a reserve if we believe an adverse outcome is probableand we are able to make a reasonable estimation of the probable loss. Reservesestablished in purchase accounting are based on fair value under SFAS No. 141,*Business Combinations* (SFAS 141) so longas fair value can be determined within the purchase allocation period, otherwisethese are determined under SFAS 5. All reserves exclude legal costs which aretreated as a period expense as incurred.

In applying judgment, management utilizes, among otherthings, opinions and estimates obtained from internal and outside legal counsel.For purposes of assessing purchase accounting information, management alsoutilizes information obtained from independent valuation experts. Litigation byits nature is uncertain and the determination of whether any particular caseinvolves a probable loss and then quantifying the amount of loss for purposesof adjusting initial estimates requires the exercise of considerable judgment,which is applied as of a certain date. The required reserves may change in thefuture due to new matters, developments in existing matters or if we determineto change our strategy with respect to the resolution of any particular matter.

*Equity-BasedCompensation.**  *EffectiveJune 1, 2006, the Company adopted SFAS No. 123 (revised 2004), *Share-Based Payment* (SFAS 123(R)) which replaced SFAS No. 123,*Accounting for Stock-Based Compensation*(SFAS 123) and superseded Accounting Principles Board (APB) Opinion No. 25,*Accounting for Stock Issued to Employees*(APB 25). Under SFAS 123(R), stock-based employee compensation cost isrecognized using the fair value based method for all new awards granted after June 1,2006 and unvested awards outstanding at June 1, 2006. Compensation costsfor unvested stock options and awards that are outstanding at June 1,2006, will be recognized over the requisite service period based on thegrant-date fair value of those options and awards as previously calculatedunder the pro forma disclosures under SFAS 123, using a straight-line method. TheCompany elected the modified-prospective method of adopting SFAS 123(R), underwhich prior periods are not retroactively restated. Stock-based compensationexpense for non-vested awards granted prior to the effective date is beingrecognized over the remaining service period using the fair value basedcompensation cost estimated for SFAS 123 pro forma disclosures.

SFAS 123(R) requirescompanies to estimate the fair value of stock-based payment awards on the dateof grant using an option-pricing model. The Company uses the Black-Scholesoption-pricing model which requires the input of significant assumptionsincluding an estimate of the average period of time employees will retainvested stock options before exercising them, the estimated volatility of theCompany’s common stock price over the expected term, the number of options thatwill ultimately be forfeited before completing vesting requirements and therisk-free interest rate. Changes in the assumptions can materially affect theestimate of fair value of equity-based compensation and, consequently, therelated expense recognized. The assumptions used in calculating the fair valueof stock-based payment awards represent management’s best estimates, whichinvolve inherent uncertainties and the application of management judgment. As aresult, if factors change and we use different assumptions, our equity-basedcompensation expense could be materially different in the future. See Note 5 tothe Consolidated Financial Statements for a further discussion of stock-basedcompensation.

34

----

**Results ofOperations**

Thefollowing table sets forth certain line items in our Consolidated Statements ofOperations as a percentage of total revenues and the percentage ofperiod over period growth for the periods indicated:

| ** **                           | ** ** | **Year Ended May 31,**       | ** ** | **Percent of Dollar Change** | ** ** |
|--------------------------------------|------------|---------------------------------------------|------------|---------------------------------------------|------------|
| ** **                           | ** ** | **Percent of Total Revenue** | ** ** | **Year over Year**                | ** ** |
| ** **                           | ** ** | **2007**                                    | ** ** | **2006**                                    | ** ** | **2005** | ** ** | **     2007     ** | ** ** | **     2006     ** | ** ** |
| Revenues:                            |       |                                        |       |                                        |       |   |   |   |   |   |   |   |   |   |   |
| License fees                         |       | 14.1                                        | %          | 18.2                                        | %          | 17.2 | % |   | 48.9 | % |   |   | 23.1 | % |   |
| Maintenance                          |       | 38.9                                        |       | 48.1                                        |       | 50.9 |   |   | 55.0 |   |   |   | 10.2 |   |   |
| Consulting                           |       | 47.0                                        |       | 33.7                                        |       | 31.9 |   |   | 168.3 |   |   |   | 23.3 |   |   |
| Total revenues                       |       | 100.0                                       |       | 100.0                                       |       | 100.0 |   |   | 92.0 |   |   |   | 16.6 |   |   |
| Cost of revenues:                    |       |                                        |       |                                        |       |   |   |   |   |   |   |   |   |   |   |
| Cost of license fees                 |       | 3.5                                         |       | 3.4                                         |       | 3.0 |   |   | 98.8 |   |   |   | 34.0 |   |   |
| Cost of maintenance                  |       | 7.9                                         |       | 7.8                                         |       | 9.4 |   |   | 94.7 |   |   |   | (3.4 | ) |   |
| Cost of consulting                   |       | 41.8                                        |       | 32.7                                        |       | 32.5 |   |   | 145.4 |   |   |   | 17.1 |   |   |
| Total cost of revenues               |       | 53.2                                        |       | 43.9                                        |       | 44.9 |   |   | 132.8 |   |   |   | 13.9 |   |   |
| Gross profit                         |       | 46.8                                        |       | 56.1                                        |       | 55.1 |   |   | 60.1 |   |   |   | 18.8 |   |   |
| Operating expenses:                  |       |                                        |       |                                        |       |   |   |   |   |   |   |   |   |   |   |
| Research and development             |       | 11.4                                        |       | 15.5                                        |       | 18.5 |   |   | 40.5 |   |   |   | (2.3 | ) |   |
| Sales and marketing                  |       | 21.4                                        |       | 21.3                                        |       | 22.6 |   |   | 93.0 |   |   |   | 10.0 |   |   |
| General and administrative           |       | 13.1                                        |       | 14.1                                        |       | 10.9 |   |   | 79.2 |   |   |   | 50.4 |   |   |
| Restructuring                        |       | 2.1                                         |       | 0.5                                         |       | 1.5 |   |   | 748.4 |   |   |   | (63.7 | ) |   |
| Amortization of acquired intangibles |       | 1.3                                         |       | 0.5                                         |       | 0.5 |   |   | 375.4 |   |   |   | 37.3 |   |   |
| Total operating expenses             |       | 49.3                                        |       | 51.9                                        |       | 54.0 |   |   | 82.4 |   |   |   | 12.1 |   |   |
| Operating (loss) income              |       | (2.5                                        | )          | 4.2                                         |       | 1.1 |   |   | (212.6 | ) |   |   | 336.9 |   |   |
| Total other  income, net             |       | 1.6                                         |       | 2.9                                         |       | 1.3 |   |   | 9.0 |   |   |   | 156.7 |   |   |
| Income (loss)  before income taxes   |       | (0.9                                        | )          | 7.1                                         |       | 2.4 |   |   | (123.6 | ) |   |   | 240.8 |   |   |
| Provision for  income taxes          |       | 1.9                                         |       | 3.0                                         |       | 0.8 |   |   | 23.0 |   |   |   | 310.1 |   |   |
| Net (loss) income                    |       | (2.8                                        | )%         | 4.1                                         | %          | 1.6 | % |   | (231.2 | )% |   |   | 203.3 | % |   |

 

In our discussion of changes in results of operationsfrom the fiscal years ended May 31, 2007, 2006 and 2005, we provideinformation regarding the results of the newly acquired Intentia (or M3solutions) as a component of the consolidated results and also discuss resultsof legacy Lawson (or S3 solutions) separately where applicable. While thebusinesses have begun to integrate, and separate identification is becomingincreasingly difficult between legacy Lawson and Intentia data, we haveprovided these separate metrics in the areas where we could reasonably calculatean impact. All references to the effect of the distinction between  legacy Lawson and Intentia are thereforeapproximate. Although we operate as one business segment, due to the size ofthe Intentia acquisition on Lawson’s historical operations, we believe thisdistinction, while not exact, provides relevant insight into the changes inresults of operations.

35

----

***Revenues***

| ** **     | ** ** | **Year Ended May 31,**       | ** ** | **2007 vs. 2006** | ** ** | **2006 vs. 2005** | ** ** |
|----------------|------------|---------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **     | ** ** | **2007**                                    | ** ** | **2006**                    | ** ** | **2005**                    | ** ** | **Dollars** | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** |
| ** **     | ** ** | **(in thousands, except %)** | ** ** |
| Revenues:      |       |                                        |       |                        |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |
| License fees   |       | $                                           | 105,861    |                        | $          | 71,076                      |       | $ | 57,743 |   | $ | 34,785 |   |   | 48.9 | % |   | $ | 13,333 |   |   | 23.1 | % |   |
| Maintenance    |       | 291,657                                     |       | 188,155                     |       | 170,723                     |       | 103,502 |   |   | 55.0 | % |   | 17,432 |   |   | 10.2 | % |   |
| Consulting     |       | 352,870                                     |       | 131,545                     |       | 106,718                     |       | 221,325 |   |   | 168.3 | % |   | 24,827 |   |   | 23.3 | % |   |
| Total revenues |       | $                                           | 750,388    |                        | $          | 390,776                     |       | $ | 335,184 |   | $ | 359,612 |   |   | 92.0 | % |   | $ | 55,592 |   |   | 16.6 | % |   |

 

*TotalRevenues.**  *Wegenerate revenues from licensing software, providing maintenance for previouslylicensed products and providing consulting services. We generally utilizewritten contracts as the means to establish the terms and conditions by whichour products, maintenance and consulting services are sold to our customers.Because our maintenance and consulting services are primarily attributable toour licensed products, growth in our maintenance and consulting services isdirectly tied to the success of our license contracting activity.

The growth in total revenues in fiscal 2007 overfiscal 2006 was primarily attributable to the addition of the Intentia business.A total of $308.8 million or 79.0% of this increase was attributable to theIntentia revenue streams and the remaining $50.8 million or 13.0% wasattributable to growth in the legacy Lawson revenue streams.

Our total revenues increased 16.6% in fiscal 2006 overfiscal 2005 of which 9.4% was attributable to Intentia’s five week totalrevenues. Excluding Intentia’s five week total revenues, we experiencedincreases in license fees and maintenance. Consulting revenue increased infiscal 2006 over fiscal 2005 slightly as well.

*LicenseFees.**  *Ourlicense fees primarily consist of fees resulting from products licensed tocustomers on a perpetual basis. Product license fees result from a customer’slicensing of a given software product for the first time or with a customer’slicensing of additional users for previously licensed products.

License fees increased $34.8 million or 48.9% infiscal 2007 over fiscal 2006 of which $36.8 million or 51.8% related toIntentia’s revenues. Intentia’s increase related to fiscal 2007 having includedan entire year of license revenue as compared to fiscal 2006 which includedonly five weeks. Excluding Intentia’s license revenues, license fees for legacyLawson slightly decreased by $2.0 million or 2.8% in fiscal 2007 as compared tototal 2006 license revenues. In fiscal 2007, deals greater than $1 milliondecreased to seven from ten in fiscal 2006, which led to lower contractedlicense amounts, which in turn has led to lower license fee revenue. Anincrease in the amount of deferred revenue, including the full deferral ofcertain contracts, also attributed to the lower license fee revenue for S3products. The number of licensing transactions with new clients decreased to60  in the current year period down from67 in the prior year. Despite the slight decrease in license fee revenue, froma product perspective, Lawson System Foundation product line had a growth ofapproximately $13.5 million.

License fees increased 23.1% in fiscal 2006 overfiscal 2005 of which 1.5% related to Intentia’s five week license revenues.Excluding Intentia’s five weeks license revenues, license fees increased 21.6%in fiscal 2006 which represented a rebound from the decline experienced infiscal 2005. License fees were particularly stronger within our retail andindustry market customers in fiscal 2006 as compared to fiscal 2005. From aproduct perspective, license fees for our Human Resources, Financials andBudgeting and Planning product lines represented the largest portion of growthover fiscal 2005. The number of licensing transactions with new clientsincreased to 67 in the current year period up from 59 in the prior year. Theincrease in new client sales is due in part because of a return to traditionalbuying patterns that were slowed in fiscal 2005 due to industry consolidation.Additionally, many of our targeted public company 

36

----

clients completed theirinitial year of Sarbanes-Oxley compliance in fiscal 2005, which freed up theirtime and resources to facilitate some of the increase during fiscal 2006 salesactivity.

License fee revenue as a percentage of total revenuesfor fiscal 2007, 2006 and 2005 was 14.1%, 18.2% and 17.2%, respectively.

*Maintenance.**  *Our maintenance revenues representthe ratable recognition of fees to enroll and renew licensed products in ourmaintenance program. This program entitles our customers to productenhancements, technical support services, and on-going compatibility with third-partyoperating systems, databases and hardware. These fees are typically chargedannually and are based on the license fees initially paid by the customer.Maintenance revenues can have fluctuations based on the timing of contracts,renewal rates, price increases and the number of new license contracts.

Maintenance revenue increased by $103.5 million or55.0% for fiscal 2007 due mostly to maintenance revenue of $81.3 million or43.2% added with the purchase of Intentia that was not included within ourmaintenance revenue in fiscal 2006. Maintenance revenues for the M3 productline from Intentia continued to be adversely impacted by the fair valuepurchase accounting adjustments as a result of the acquisition. This fair valuepurchase accounting adjustment had the expected effect of lowering themaintenance revenue from M3 maintenance services by $8.1 million or 4.3% forfiscal 2007. The remaining $22.2 million or 11.8% of the total increase is dueto our legacy Lawson maintenance revenue increases. The higher maintenancerevenue was influenced by an increase in renewal rates from 94.2% in 2006 to95.5% in 2007. Price increases and maintenance agreements associated with newcustomers also contributed to the higher maintenance revenue.

In fiscal 2006, our maintenance revenues increased by10.2% over fiscal 2005. Of this increase, 4.3% was attributable to Intentia’sfive weeks of maintenance revenues included within our fiscal 2006 maintenancerevenues. Without the addition of Intentia’s maintenance revenues in fiscal2006, annual price increases to renewals along with the addition of newcustomers in fiscal 2006 led to the increase over fiscal 2005. The maintenancerevenues for Intentia in fiscal 2006 were generated primarily from the deferredmaintenance revenue balance acquired in April 2006. Accordingly, therevenues recorded during this period also reflect the pro-rata portion of thefair value purchase accounting reductions made to the deferred maintenancebalance acquired in April 2006. The impact of the fair value purchaseaccounting adjustments to maintenance revenues relating to the deferredbalances acquired in April 2006 resulted in a reduction in deferredrevenue and largely impacted the first 12 months after the acquisition date.

Maintenance revenue as a percentage of total revenuesfor fiscal 2007, 2006 and 2005 was 38.9%, 48.1% and 50.9%, respectively.

*Consulting.**  *Our consulting revenues consist ofservices related to software installations, software implementations,customized development, and training services to customers who have licensedour products.

Consulting revenue for fiscal 2007 almost tripled withan increase of $221.3 million or 168.3% from fiscal 2006. Intentia hashistorically experienced higher consulting revenues when compared to Lawson’straditional consulting revenues. In fiscal 2007, the consulting revenue derivedfrom M3 consultants was $190.6 million or 54.0% of total consulting revenuesand 144.9% of the total increase over 2006. The fair value purchase accountingadjustment associated with the Intentia acquisition had the effect of loweringthe expected consulting revenue by $3.3 million or 2.5% for fiscal 2007. Infiscal 2007, excluding the impact of M3 consulting, the remaining $30.7 millionor 23.4% increase pertained to consulting revenue from legacy Lawson. A 3% improvementin utilization of resources resulted in increased consulting revenue. Revenueprovided by third-parties as a result of service opportunities exceeding thecurrent capacity of Lawson consultants, also contributed to the increase inconsulting revenue.

37

----

Consulting revenues increased by 23.3% in fiscal 2006over fiscal 2005 levels. Of this increase, 21.8% resulted from the addition ofIntentia’s five weeks of consulting revenue. Increased contracting activity in2006 lead to increases in our consulting revenue towards the end of the fiscalyear. Much of this increase resulted from an increase in third-party consultingservices. Lawson’s consulting revenuesin fiscal 2006 were partially generated from the deferred consulting revenuebalance acquired from Intentia in April 2006. Accordingly, some of theconsulting revenue amounts recorded during this period also reflect fair valuepurchase accounting reductions made to the deferred consulting balance acquiredin April 2006.

Consultingrevenue as a percentage of total revenues for fiscal 2007, 2006and 2005 was 47.0%, 33.7% and 31.8%, respectively.

***Cost of Revenues***

| ** **              | ** ** | **Year Ended May 31,**       | ** ** | **2007 vs. 2006** | ** ** | **2006 vs. 2005** | ** ** |
|-------------------------|------------|---------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **              | ** ** | **2007**                                    | ** ** | **2006**                    | ** ** | **2005**                    | ** ** | **Dollars** | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** |
| ** **              | ** ** | **(in thousands, except %)** | ** ** |
| Cost of revenues:       |       |                                        |       |                        |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Cost of license fees    |       | $                                           | 26,530     |                        | $          | 13,344                      |       | $ | 9,961 |   | $ | 13,186 |   |   | 98.8 | % |   | $ | 3,383 |   |   | 34.0 | % |   |
| Cost of maintenance     |       | 59,108                                      |       | 30,365                      |       | 31,419                      |       | 28,743 |   |   | 94.7 | % |   | (1,054 | ) |   | -3.4 | % |   |
| Cost of consulting      |       | 313,682                                     |       | 127,833                     |       | 109,204                     |       | 185,849 |   |   | 145.4 | % |   | 18,629 |   |   | 17.1 | % |   |
| Total cost of  revenues |       | $                                           | 399,320    |                        | $          | 171,542                     |       | $ | 150,584 |   | $ | 227,778 |   |   | 132.8 | % |   | $ | 20,958 |   |   | 13.9 | % |   |
| Gross Profit:           |       |                                        |       |                        |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |
| License fees            |       | $                                           | 79,331     |                        | $          | 57,732                      |       | $ | 47,782 |   | $ | 21,599 |   |   | 37.4 | % |   | $ | 9,950 |   |   | 20.8 | % |   |
| Maintenance             |       | 232,549                                     |       | 157,790                     |       | 139,304                     |       | 74,759 |   |   | 47.4 | % |   | 18,486 |   |   | 13.3 | % |   |
| Consulting              |       | 39,188                                      |       | 3,712                       |       | (2,486                      | )          | 35,476 |   |   | 955.7 | % |   | 6,198 |   |   | 249.3 | % |   |
| Total                   |       | $                                           | 351,068    |                        | $          | 219,234                     |       | $ | 184,600 |   | $ | 131,834 |   |   | 60.1 | % |   | $ | 34,634 |   |   | 18.8 | % |   |
| Gross Margin:           |       |                                        |       |                        |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |
| License fees            |       | 74.9                                        | %          | 81.2                        | %          | 82.7                        | %          |   |   |   |   |   |   |   |   |   |   |   |   |
| Maintenance             |       | 79.7                                        | %          | 83.9                        | %          | 81.6                        | %          |   |   |   |   |   |   |   |   |   |   |   |   |
| Consulting              |       | 11.1                                        | %          | 2.8                         | %          | (2.3                        | )%         |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                   |       | 46.8                                        | %          | 56.1                        | %          | 55.1                        | %          |   |   |   |   |   |   |   |   |   |   |   |   |

 

*Costof License Fees.**  *Costof license fees includes royalties to third parties, amortization of acquiredsoftware and software delivery expenses. Our software solutions may includeembedded components of third-party vendors, for which a fee is paid to thevendor upon the sale of our products. In addition, we resell third-partyproducts in conjunction with the license of our software solutions, which alsoresults in a fee. The cost of license fees is higher when we resell products ofthird-party vendors. As a result, gross margins will vary depending on theproportion of third-party product sales in our revenue mix.

Cost of license fees increased $13.2 million or 98.8%in fiscal 2007 as compared to fiscal 2006. The increase in cost of licenseresulted primarily from the addition of $11.8 million or 88.4% of expenses fromIntentia which included $8.5 million or 63.7% of amortization of intangibleassets associated with the acquisition. The additional increase of $1.4 millionor 10.4% related to legacy Lawson and was primarily the result of higherthird-party costs of $3.3 million or 24.7% due to high LSF sales, which waspartially offset by lower amortization costs of $0.9 million or 6.7%. The costof license fees as a percentage of license fee revenue increased from 18.8% infiscal 2006 to 25.1% in fiscal 2007.

Cost of license fees increased 34.0% in fiscal 2006over fiscal 2005 of which 12.3% was attributable to Intentia’s five weeks costof license fees. Excluding Intentia’s five weeks cost of license fees, cost oflicense fees increased 21.7% over fiscal 2005 as a result of increased licensefee revenue. The cost of license fees as 

38

----

a percentage of licensefees increased from 17.3% in fiscal 2005 to 18.8% in fiscal 2006. This increaseis the result of a higher level of third-party royalties incurred in fiscal2006, primarily from embedded third-party components.

Cost of license fees as a percentage of total revenuesfor fiscal 2007, 2006 and fiscal 2005 were 3.5%, 3.4% and 3.0%, respectively.

*Costof Maintenance.**  *Costof maintenance includes salaries, employee benefits and related travel, and theoverhead costs of providing support services to clients, as well as intangibleasset amortization on support contracts purchased in April 2004. Cost ofmaintenance does not include costs categorized as research and development,consistent with industry practice.

Cost of maintenance increased $28.7 million or 94.7%for fiscal 2007 from fiscal 2006 and primarily resulted from the addition of$25.2 million or 83.0% of expenses from Intentia. The remaining $3.5 million or11.5% for legacy Lawson was primarily the result of an increase of $2.1 millionor 6.9% relating to higher employee expenses as a result of a higher headcountand salary increases. Maintenance margin decreased from the prior year due tothe addition of the results of Intentia, which had historically produced lowermargins than legacy Lawson. Cost of maintenance as a percentage of maintenancerevenue for fiscal 2007 and 2006 was 20.3% and 16.1%, respectively. LegacyLawson maintenance margins were consistent between fiscal 2006 and fiscal 2007.

Cost of maintenance decreased 3.4% from fiscal 2005 tofiscal 2006. Excluding the impact of Intentia’s five weeks cost of maintenanceamounts, the decrease would have been 9.5%. The cost of maintenance decline isprimarily attributable to the full-year effect of workforce reductionsprimarily related to restructuring initiatives and attrition that occurredduring fiscal 2005. This decline coupled with the maintenance revenue growthgenerated the improvement to maintenance gross margin. In fiscal 2005, cost ofmaintenance increased by 14.9% as a result of a $3.7 million increase inamortization related to support contracts purchased in April 2004.

Cost of maintenance, as a percentage of totalrevenues, for fiscal 2007, 2006 and 2005 was 7.9 %, 7.8% and 9.4%,respectively.

*Costof Consulting.**  *Costof consulting includes salaries, employee benefits, third-party consultingcosts and related travel, and the overhead costs of providing implementation,installation, training and education services to clients. Cost of consultingalso includes costs associated with our hardware business.

In fiscal 2007, the cost of consulting increased$185.8 million or 145.4% over fiscal 2006. The increase in cost of consultingresulted from the addition of $169.5 million or 132.6% of expenses fromIntentia, which included $5.1 million or 3.9% of amortization of intangibleassets acquired in the acquisition. Excluding the addition of Intentia, cost ofconsulting increased $16.3 million or 12.8% associated with the $30.7 millionincrease in S3 consulting revenue discussed above. The S3 expense increase wasdue to increased employee costs of $9.3 million or 7.3%. The increased employeecosts related to higher headcount resulting in a $6.4 million or 5.0% increaseand higher sales incentives of $3.5 million or 2.7%. In addition, third partyconsulting costs were up $3.2 million due to a lack of resources as a result ofan increase in LSFA implementations and an already high utilization rate. Consultingmargins benefited from the addition of Intentia, as Intentia’s margins werehistorically higher than those generated by legacy Lawson.

In fiscal 2006, the cost of consulting increased 17.1%over fiscal 2005. Excluding the impact of Intentia’s five weeks cost ofconsulting amounts, cost of consulting would have decreased by 3.5%. Thisdecline was primarily attributable to the full-year effect of workforcereductions primarily related to restructuring initiatives and attrition thatoccurred during fiscal 2005. Additionally, a shift to third party resourcesoverseas resulted in lower costs associated with services performed in fiscal2006. In fiscal 2005, cost of consulting increased by third-party consultingcosts that were offset by lower personnel costs 

39

----

resulting from workforcereductions related to restructuring initiatives. Services margins in fiscal2006 and 2005 were below management’s expectations. Lower utilization rates forservices professionals during these periods have caused these lower margins.

Costof consulting, as a percentage of total revenues, for fiscal 2007, 2006 and2005 was 41.8%, 32.7% and 32.6%, respectively.

***Operating Expenses***

| ** **                           | ** ** | **Year Ended May 31,**       | ** ** | **2007 vs. 2006** | ** ** | **2006 vs. 2005** | ** ** |
|--------------------------------------|------------|---------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **                           | ** ** | **2007**                                    | ** ** | **2006**                    | ** ** | **2005**                    | ** ** | **Dollars** | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** |
| ** **                           | ** ** | **(in thousands, except %)** | ** ** |
| Operating Expenses:                  |       |                                        |       |                        |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Research and development             |       | $                                           | 85,325     |                        | $          | 60,711                      |       | $ | 62,158 |   | $ | 24,614 |   |   | 40.5 | % |   | $ | (1,447 | ) |   | (2.3 | )% |   |
| Sales and marketing                  |       | 160,551                                     |       | 83,193                      |       | 75,637                      |       | 77,358 |   |   | 93.0 | % |   | 7,556 |   |   | 10.0 | % |   |
| General and administrative           |       | 98,263                                      |       | 54,827                      |       | 36,443                      |       | 43,436 |   |   | 79.2 | % |   | 18,384 |   |   | 50.4 | % |   |
| Restructuring                        |       | 15,483                                      |       | 1,825                       |       | 5,028                       |       | 13,658 |   |   | 748.4 | % |   | (3,203 | ) |   | (63.7 | )% |   |
| Amortization of acquired intangibles |       | 10,089                                      |       | 2,122                       |       | 1,545                       |       | 7,967 |   |   | 375.4 | % |   | 577 |   |   | 37.3 | % |   |
|                                 |       | $                                           | 369,711    |                        | $          | 202,678                     |       | $ | 180,811 |   | $ | 167,033 |   |   | 82.4 | % |   | $ | 21,867 |   |   | 12.1 | % |   |

 

*Researchand Development.**  *Researchand development expenses consist primarily of salaries, employee benefits,related overhead costs, and consulting fees associated with productdevelopment, enhancements and upgrades provided to existing customers undermaintenance plans and to new customers, testing, quality assurance anddocumentation.

Research and development expenses for fiscal 2007increased $24.6 million or 40.5% from fiscal 2006. Excluding the addition of$32.5 million from the acquisition of Intentia, research and developmentexpenses decreased $7.9 million or 13.0%, of which $5.8 million is due to lowerhuman resource expenses resulting from transitioning employees to off-shorefacilities and a headcount reduction and lower bonus expense.

Research and development expenses decreased 2.3% fromfiscal 2005 to fiscal 2006. Excluding the impact of Intentia’s five weeks ofresearch and development expenses, the decrease would have been 8.0%. Thisdecrease was primarily due to a $4.5 million reduction in contract personneland a $2.2 million decrease in employee costs resulting from workforcereductions primarily related to prior year restructuring initiatives. Thesedecreases were partially offset by an increase of $2.6 million in costsassociated with outsourcing research and development activities through ourglobal sourcing partner relationship.

Research and development expenses as a percentage oftotal revenues for fiscal 2007, 2006 and 2005 were 11.4%, 15.5% and 18.5%,respectively.

*Salesand Marketing.**  *Salesand marketing expenses consist primarily of salaries and incentivecompensation, employee benefits, travel and overhead costs related to our salesand marketing personnel, as well as trade show activities, advertising costsand other costs associated with marketing our company.

Sales and marketing expenses for fiscal 2007 increased$77.4 million or 93.0% from fiscal 2006 primarily due to the addition of salesand marketing expenses associated with the acquisition of Intentia. Our salesand marketing expenses increase as we increase our sales personnel to addressthe market opportunity for both S3 and M3 products. Excluding the addition of$62.7 million or 75.4% of sales and marketing expenses from the acquisition ofIntentia, sales and marketing expenses increased $14.7 million or 17.6% due toincreases in employee expenses. Of the increase in employee expenses, $8.0million or 

40

----

9.6% related to headcountgrowth, $2.9 million or 3.5% related to increased sales incentives, $2.0million or 2.4% related to increased benefits and $1.5 million or 1.8% relatedto increased stock compensation expense.

In fiscal 2006, sales and marketing expenses increased10.0% over fiscal 2005. Excluding the impact of Intentia’s five week sales andmarketing amounts, sales and marketing expenses would have decreased by 0.8%.This decrease in sales and marketing expenses was primarily due to a $6.0million reduction in advertising costs, a reduction in consulting fees and areduction for travel expenses due to reduced headcount and cost reductioninitiatives. Partially offsetting these decreases was a net increase of$5.3 million in employee and related costs due to sales incentives.

Sales and marketing expenses as a percentage of totalrevenues for fiscal 2007, 2006 and 2005 were 21.4% and 21.3% and 22.6%,respectively.

*Generaland Administrative.**  *Generaland administrative expenses consist primarily of salaries, employee benefitsand related overhead costs for administrative employees, as well as legal andaccounting expenses, consulting fees and bad debt expense.

General and administrative expenses for fiscal 2007increased $43.4 million or 79.2% over fiscal 2006 of which $36.0 million or65.7% was due to the addition of Intentia. The remaining increase of $7.4million or 13.5% pertains to legacy Lawson and was the result of $2.6 millionor 4.7% higher salaries as a result of additional headcount and merit increases.Higher professional service and consulting fees of $2.6 million or 4.7% andincreased bad debt expense of $2.4 million or 4.4% also contributed to highergeneral and administrative expenses.

General and administrative expenses increased by 50.4%in fiscal 2006 over fiscal 2005. Excluding the impact of Intentia’s five weeksgeneral and administrative expenses, the increase was 34.7%. The increaseexcluding Intentia’s five weeks was primarily driven by a $6.3 million non-cashcharge for option expense relating to the former president and CEO’s negotiatedseparation agreement. Additionally, an increase of $6.9 million in accountingand finance personnel and related contract personnel primarily contributed tothe remaining increase in general and administrative expenses in fiscal 2006.These increases were offset by a $3.1 million decrease in bad debt expenseprimarily driven by improved aging of receivables due to strong collectionefforts and lower specific reserves.

General and administrative expenses as a percentage oftotal revenues for fiscal 2007, 2006 and 2005 were 13.1% and 14.1% and 10.9%,respectively.

*Restructuring.**  *During 2007, we recorded $15.5 million inrestructuring charges compared with $1.8 million and $5.0 million inrestructuring charges for fiscal 2006 and 2005, respectively.

On February 28, 2007, the Company’s managementcompleted a roadmap for optimizing the Company’s productivity by enhancingglobal sourcing capabilities and resources. This roadmap calls for therebalancing of the Company’s resources between various locations primarily inthe United States, Europe and the Company’s global support center in thePhilippines. Management envisions the reduction of approximately 350 employeesprimarily in the Company’s U.S. and European operations over the course of thenext 12 months ending May 31, 2008. This reduction will include employeesworking in all areas of the Company, predominantly in consulting and researchand development. In conjunction with this roadmap and in accordance with SFAS No. 112,*Employers’ Accounting for Postemployment Benefits*(SFAS112)*,*the Company recorded a charge of $11.9million. As management takes actions in pursuing these goals, additionalcharges related to this roadmap which are not in the scope of SFAS 112 may berecorded in future periods, but the timing and extent of these charges are notcurrently determinable.

On April 26, 2006, in conjunction with thebusiness combination we approved a plan designed to eliminate employeeredundancies in both Intentia and legacy Lawson. The plan for legacy Lawsonincludes 

41

----

the reduction of 60employees in the United States and United Kingdom that resulted in a charge forseverance and related benefits of $1.8 million in fiscal 2006. For fiscal 2007,there was an additional charge of $3.3 million for lease exit costs.  The reduction included employees who worked inoperations, marketing, sales, research and development, maintenance andservices of which actions took place during fiscal 2007. The plan for Intentiaincludes the reduction of approximately 110 employees through APAC and EMEA andincludes employees in all functional areas of the company and resulted in acharge for severance and related benefits of $12.7 million in fiscal 2006. Theplan for Intentia also includes certain facility closings resulting in a chargefor lease exit costs of $16.8 million in fiscal 2006. These charges were notreflected in the Consolidated Statements of Operation but instead werereflected as part of the purchase price related to the business combination. Infiscal 2007, the accrual for severance and related benefits decreased $2.1million as a result of a change to the plan and the accrual for the lease exitcosts increased $0.3 million. These changes were not reflected in theConsolidated Statements of Operations but instead were reflected as adjustmentsto goodwill. The Company anticipates that the restructuring plans will be finalby the end of the first quarter of fiscal 2008. The Company expects to see costsavings as a result of the restructuring plans with a reduction in cost ofrevenue and operating expenses in future periods resulting from lower facilitylease expense and reduced headcount.

See Note 3 of Notes to Consolidated FinancialStatements for additional information on restructuring activity.

*Amortization of AcquiredIntangibles.**  *Amortizationof acquired intangibles for fiscal 2007 was $10.1 million compared withthe $2.1 million for 2006 and $1.5 million for 2005. The increase of the fiscal2007 over fiscal 2006 and fiscal 2006 over fiscal 2005 amortization isprimarily due to the on-going results from the amortization of intangiblesacquired in the Intentia merger.

***Other Income, net***

Other income, net, which is composed primarily ofinterest income less interest expense, increased to $12.1 million in fiscal2007 from $11.1 million in fiscal 2006 and $4.3 million in fiscal 2005. Interestincome increased to $15.5 million in fiscal 2007 from $10.8 million in fiscal2006 primarily due to higher average investment balances and higher overallinterest rates. Average investment balances increased by $69.3 million infiscal 2007 due mainly to the remaining net cash proceeds of our seniorconvertible notes offering and the cash infusion of our annual maintenancebillings. Average yields increased to 4.8% in fiscal 2007 from 4.0% in fiscal2006 due to general trends in the market. Interest expense increased to $4.1 millionin fiscal 2007 from $0.1 million in fiscal 2006 primarily due to interestexpense associated with our senior convertible notes offering which closed on April 23,2007 and interest expense related to Intentia customer reserves (see Note 4 foradditional discussion).

The $6.8 million increasein other income, net in fiscal 2006 was due primarily to a $53.6 millionincrease in average invested balances and an increase in average yields, whichwere 4.0% and 2.1% for fiscal 2006 and 2005, respectively, and $0.4 million ininterest income received on a tax refund.

***Provision for Income Taxes***

Our global provision for income taxes for fiscal 2007is $14.4 million as compared to $11.7 million for fiscal 2006. The increase inthe global provision is related to the mix of income in the variousjurisdictions where the Company operates and continual losses in certainjurisdictions where valuation allowances are required. Furthermore, in 2007 weincreased our tax reserves for uncertain tax matters while in 2006 ourincreases to global tax reserves were largely offset due to the favorableresolution of certain issues.

Our global effective income tax rate for fiscal 2007is not meaningful due to the overall pre-tax consolidated book loss. Theeffective income tax rate for fiscal 2006 was 42.3%.

42

----

In April 2006, the Company acquired Intentia. Asof the date of the acquisition, many of the Intentia legal entities had netoperating loss carryforwards with full valuation allowances applied againstthem. Under the provisions of SFAS 109, if acquired net operating losses areultimately realized this will not result in a tax benefit but rather a non-cashtax expense and a reduction to goodwill.

During fiscal 2007, we recorded income tax benefits of$3.1 million for options expensed prior to fiscal 2007, related to deductionsfor employee stock option exercises. These tax benefits, which decreasedcurrent income taxes payable and increased additional paid-in capital by equalamounts, had no effect on our provision for income taxes; however, it didresult in a significant decrease in the amount of cash tax outlay. In fiscal2007, with the adoption of SFAS 123(R), stock compensation and the relatedtax deductions were included in our Consolidated Statement of Operations.

Our global provision for income taxes for fiscal 2006was $11.7 million, compared to $2.9 million for fiscal 2005. During fiscal year2006, the Company decreased deferred tax valuation allowances by $1.3 millionand also decreased the tax reserve by $2.3 million, which both caused adecrease to the tax provision; however, for the year, there was an overallincrease in income tax expense due to an increase in pre-tax consolidated bookincome, including accounting for the impact on the global tax provision relatedto the acquisition of Intentia.

Our global effective income tax rate for fiscal 2006was 42.3%, compared to 35.2% for fiscal 2005. This increase in our effectivetax rate was due primarily to the acquisition of Intentia. As of the date ofacquisition, many of the Intentia legal entities had net operating losscarryforwards with full valuation allowances applied against them.

During fiscal years 2006 and 2005, we recorded incometax benefits of $3.9 million and $4.2 million, respectively, related todeductions for employee stock option exercises. This tax benefit, whichdecreased current income taxes payable and increased additional paid-in capitalby equal amounts, had no effect on our provision for income taxes; however, itdid result in a significant decrease in the amount of cash tax outlay.

In July 2006,the FASB issued FASB Interpretation No. 48 *Accounting for Uncertainty in Income Taxes*—*an interpretation of FASB Statement 109*(FIN 48).See our discussion under Recent Accounting Pronouncements for the impact to ourfinancial statements in future periods.

***Liquidity andCapital Resources***

| ** **                                           | ** ** | **As of and for the Fiscal Year Ended May 31,** | ** ** | **Change**                                                                       | ** ** | **Change**                                                                       | ** ** |
|------------------------------------------------------|------------|----------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------|------------|
| ** **                                           | ** ** | **      2007      **             | ** ** | **      2006      ** | ** ** | **      2005      ** | ** ** | **2007 vs. 2006** | ** ** | **2006 vs. 2005** | ** ** |
| ** **                                           | ** ** | **(in thousands, except %)**                                                  | ** ** |
| **Cash Flow**                                        |       |                                                                                         |       |                                                                             |       |                                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash provided by  operating activities               |       |                                                                                         | $          | 98,543                                                                           |       |                                                                             |       | $ | 76,486 |   |   |   | $ | 32,898 |   |   |   | 28.8 | % |   |   | 132.5 | % |   |
| Cash (used in)  provided by investing activities     |       |                                                                                         | $          | (11,488                                                                          | )          |                                                                             |       | $ | (23,758 | ) |   |   | $ | 82,222 |   |   |   | (51.6 | )% |   |   | (128.9 | )% |   |
| Cash (used in)  provided by financing activities     |       |                                                                                         | $          | 173,766                                                                          |       |                                                                             |       | $ | (32,645 | ) |   |   | $ | 228 |   |   |   | * |   |   |   | * |   |   |
| **Capital  Resources**                               |       |                                                                                         |       |                                                                             |       |                                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Working capital                                      |       |                                                                                         | $          | 324,616                                                                          |       |                                                                             |       | $ | 168,201 |   |   |   | $ | 178,410 |   |   |   | 93.0 | % |   |   | (5.7 | )% |   |
| Cash and cash  equivalents and marketable securities |       |                                                                                         | $          | 553,836                                                                          |       |                                                                             |       | $ | 306,581 |   |   |   | $ | 234,613 |   |   |   | 80.6 | % |   |   | 30.7 | % |   |

----

*                    Percentage notmeaningful

43

----

As of May 31, 2007, we had$553.8 million in cash, cash equivalents and marketable securities and $324.6 millionin working capital. Our most significant source of operating cash flows isderived from license fees, maintenance and consulting fees related to servicesprovided to our clients. Days sales outstanding (DSO), which is calculated onnet receivables at period-end divided by revenue for the quarter times90 days in the quarter, was 69 and 50 as of May 31, 2007 and May 31, 2006,respectively  The DSO as of May 31,2006 does not include DSO for Intentia as a combined DSO would not have beenmeaningful as the acquisition occurred late in the fourth quarter of fiscal2006. The acquisition of Intentia increased our accounts receivable outside theU.S. and has led to higher consolidated accounts receivable with longer termsand higher DSO’s. Our primary uses of cash from operating activities are foremployee costs, third-party costs for licenses and services, and facilities.

We believe that cash flowsfrom operations, together with our cash, cash equivalents and marketablesecurities, will be sufficient to meet our cash requirements for workingcapital, capital expenditures, restructuring activities and investments for theforeseeable future. As part of our business strategy, we may acquire companiesor products to enhance our product lines.

***Cash flows from operating activities:***

Net cash provided by operating activities was $98.5million for fiscal 2007 compared with $76.5 million for fiscal 2006.Offsetting our net loss of $20.9 million in 2007 was $58.3 million in networking capital changes and non-cash charge adjustments to net income of $39.5million of depreciation and amortization, $7.7 million related to stock-basedcompensation, and $6.0 million of provision for doubtful accounts and warrantyprovisions.

The $58.3 million increase in cash provided by workingcapital in 2007 primarily related to an increase in deferred revenue of $85.2million primarily related to continued efforts to move maintenance contracts toa common renewal date of June 1, offset by a decrease in accrued and otherliabilities of $32.1 million related to the pay down of certain accruedliabilities including variable compensation which existed at the date of theIntentia acquisition as well as payment of integration related reserves. Otherworking capital changes were an increase in prepaid expenses and other assetsof $0.5 million, a decrease in accounts payable of $5.8 million, a decrease of$14.1 million in trade accounts receivable and a decrease in income tax payableof $2.5 million.

In fiscal 2006 net cash provided by operatingactivities was $76.5 million as the effect our net income of $16.0 million wasincreased by $26.4 of non-cash charges and $34.1 million in working capitalchanges. Non-cash charges primarily consist of $16.2 million of depreciationand amortization, a $6.8 million stock compensation charges primarily relatedto a negotiated separation agreement with the Company’s former president andCEO, and a $4.0 million tax benefit from stockholder transactions for optionactivity. The $34.1 increase in net cash provided by working capital, excludingthe impact of the Intentia acquired working capital balances, was primarilydriven by a $10.2 million decrease in accounts receivable, a $22.0 milliondecrease in prepaid expenses and other assets and an $8.7 million increase indeferred revenue and customer deposits.

The $10.2 million decrease in cash received fromaccounts receivable was primarily due to a $17.1 million reduction of Intentia receivable that was partiallyoffset by an increase in legacy Lawson receivable resulting from strong fourth quartersales. The $22.0 million decrease in prepaid expenses and other assets islargely due to the collection of an income tax refund. The $8.7 millionincrease in deferred revenue and customer deposits is primarily due to theswitch to a June 1st common renewal date for maintenance. These increasesto cash from operating activities were partially offset by a decrease inaccrued and other liabilities of $6.6 million and a decrease in accountspayable of $1.3 million.

44

----

***Cash flows from investing activities:***

Net cash used in investing activities was $11.5million for fiscal 2007 compared with $23.8 million of cash used in fiscal2006. The decrease in cash used in investing activities for fiscal 2007primarily related to $17.5 million of capital expenditures offset by a netincrease of $16.6 million from net marketable security activity. Other changesincluded an increase in restricted cash of $7.4 million and $3.6 million paidin conjunction with acquisition activities.

The decrease in cash frominvesting activities for fiscal 2006 of $23.8 primarily related to $49.3million of cash used in net purchases of marketable securities as well as $4.9million of cash paid for property and equipment purchases. This was partially offsetby $30.1 million of net cash received in conjunction with the acquisition ofIntentia. Refer to Note 4 of Notes to Consolidated Financial Statements foradditional information

***Cash flows from financing activities:***

Net cash provided by financing activities was $173.8million for fiscal 2007 compared with net cash used in financing activities of$32.6 million for fiscal 2006. The financing activities for fiscal 2007included $244.5 million received from the issuance of long-term debt, of which$240.0 million was cash proceeds received from the issuance of our 2.50%convertible notes (net cash proceeds were $233.7 million after $6.3 million ofdebt issuance costs) $34.2 million received from the sale of stock warrantsassociated with the convertible notes. Those increases were partially offset by$54.9 million used to repurchase our common stock as part of a board authorizedshare repurchase program and $57.7 million to purchase call options associatedwith the convertible notes.

Cash used in financing activities was $32.6 millionfor fiscal 2006 primarily related to $40.5 million in cash payment of long termdebt which was assumed in the acquisition of Intentia. This was partiallyoffset by $7.1 million in cash received from the exercise of stock options and$3.6 million in cash received from employee contributions to our Employee StockPurchase Plan (ESPP).

***Effect of exchange rate changes***

Exchange rate changesincreased our cash and cash equivalents by $3.0 million as compared to anincrease of $2.3 million in 2006.

***Repurchase of common shares***

In June 2003, ourBoard of Directors authorized us to repurchase up to $50.0 million of ourcommon shares. Shares were repurchased as market conditions warranted eitherthrough open market transactions, block purchases, private transactions orother means. No time limit had been set for the completion of the program.During fiscal 2004, a total of 4.9 million shares were repurchasedfor $40.0 million in cash and $0.1 million in non-cash transactions.During fiscal 2005 we completed the authorized stock repurchase plan bypurchasing 1.4 million shares for $10.0 million in cash.

Cash proceeds obtainedfrom maturities of marketable securities, the exercise of employee stockoptions, and contributions to the ESPP largely funded the share repurchases.The repurchased shares are recorded as treasury stock and result in a reductionto stockholders equity. The shares will be used for general corporate purposes.

On November 13, 2006, the Company announced thatthe board of directors approved a share repurchase of up to $100 million ofcommon stock, which was subsequently increased to $200 million by the board in April of2007. The share repurchase will be funded using the Company’s existing cashbalance and future cash flows, and will occur through open market purchases,privately negotiated transactions and/or transactions structured throughinvestment banking institutions as permitted by securities laws and 

45

----

otherlegal requirements. Market conditions will influence the timing of the buybackand the number of shares repurchased. Through May 31, 2007, we used $54.9million to repurchase 6.4 million shares at an average price of $8.61.

***Contingent cash commitments***

In fiscal 2005, the Company and International BusinessMachines Corporation (IBM) entered into an Original Equipment Manufacturer(OEM) Software Agreement that was modified in the second quarter of 2006 andagain in the third quarter of 2007 and a Master Relationship Agreement (MRA).Under these agreements, the Company resells its business applications inconjunction with IBM’s open standards-based software, and the companies jointlymarket these software solutions. The MRA governs the joint marketing activitiesand has a three-year term. During the term of the modified OEM SoftwareAgreement, the Company pays royalties to IBM for the licensing of IBM programsto each applicable existing and new customer of the Company, and pays IBMannual maintenance fees for each applicable Lawson customer. The modified OEMSoftware Agreement has an initial term of three years, commencing September 2005,and may be extended by the Company for two additional one-year terms. Duringthe initial three-year term, the Company has agreed to pay certain minimumquarterly and annual royalties to IBM. Total commitments under the modified OEMSoftware Agreement approximate $9.5 million over the three-year term. TheCompany may elect to terminate the OEM Software Agreement for convenience upon90 days advance notice to IBM. If the Company elects early termination at anytime during the three-year term, the terms of the Agreement require theCompany to pay IBM any unpaid minimum royalties through the date of terminationplus a prorated share of the guaranteed annual minimum payment due for the yearin which the termination occurred. The Company has made cash payments of $5.7million according to terms of the modified OEM Software Agreement during thefiscal year ended May 31, 2007. The payments were recorded as other assets—long-term,which under SFAS No. 86 *Accounting for the Costsof Computer Software to Be Sold, Leased, or Otherwise Marketed* (FAS86) are being amortized to costs of license fees over the earlier of the timeperiod in which units are sold or the useful life. As of May 31, 2007, theCompany amortized $1.2 million of royalties to cost of revenues. In addition,the Company recorded $7.1 million of expenses in fiscal 2007 representing thirdparty license fees.

In May 2005, former Intentia entered into aMaster Offshoring Agreement (the Agreement) with Symphony Service Corp.,referred to as Symphony Services, an affiliate of Symphony Technology Group,LLC, a shareholder of Lawson and Symphony Technology II-A,L.P., pursuant towhich Symphony Services agreed to provide Intentia both product development andcustomer support resources for an initial five year term. The agreement was notaffected by the consummation of the business combination with Lawson. It isbelieved that the Agreement will enable the Company to achieve significantquality improvements and better customer service without increasing totalspending on product development and customer support and was part of a businesstransformation plan approved by Intentia in July 2004. Under terms of theAgreement, The Company is contractually obligated to pay for a stated minimumlevel of resources employed to provide services for the first three years ofthe Agreement, after which either party may terminate the Agreement by deliveryof a six-month advanced written notification. If the Company elects toterminate the Agreement after the first three years, it would be required topay a buyout fee equal to six months of resource costs under the Agreement. Asof May 31, 2007, the remaining minimum obligation level is approximately$3.7 million through the original three year term, which ends in May 2008.Symphony has been paid $7.1 million since the Agreement’s inception through May 31,2007. Romesh Wadwani is a member of the Board of Directors of Lawson and is apartner of Symphony Technology Group, LLC.

In May 2005, LawsonInternational (former Intentia) entered into a Master Offshoring Agreement (theIBM AB Agreement) with IBM Svenska AB (IBM AB) in which IBM AB agreed toprovide Lawson International cost efficient, high quality software developmentservices and governs the joint development 

46

----

activities.The IBM AB Agreement has an initial term of five years, and may be extended inone or more additional eighteen month period(s), provided that the partiesmutually agree to such renewal in writing at least six month prior to theexpiration of the then-current term. TheIBM AB Agreement was not affected by the consummation of the businesscombination with Lawson. For the duration of the term of the IBM ABAgreement, the Company is obligated for minimum staffing levels and resourcesdefined by the IBM AB Agreement at an annual cost of approximately $1.2million. After completion of two and a half years from the IBM AB AgreementDate, the Company may terminate the IBM AB Agreement for convenience with sixmonth advance written notice. However, if the IBM AB Agreement is terminatedfor convenience before the completion of five years, the Company remainsobligated to pay IBM AB any unpaid amounts due for services performed up to thetermination or the minimum staffing levels, whichever is greater. As of May 31,2007 the Company’s total remaining minimum obligation under the IBM ABAgreement is $2.5 million. IBM AB has been paid $4.1 million since the IBMAB Agreement’s inception through May 31, 2007.

**Disclosures aboutContractual Obligations and Commercial Commitments**

The following summarizes our contractual obligationsat May 31, 2007, and the effect these contractual obligations areexpected to have on our liquidity and cash flows in future periods (inthousands):

| ** **                                  | ** ** | ** ** | ** ** | **1 Year or** | ** ** | ** **         | ** ** | ** **         | ** ** | **More than** | ** ** |
|---------------------------------------------|------------|------------|------------|-------------------------|------------|--------------------|------------|--------------------|------------|--------------------|------------|
| ** **                                  | ** ** | **Total**  | ** ** | **Less**                | ** ** | **1-3 Years** | ** ** | **3-5 Years** | ** ** | **5 Years**   | ** ** |
| **Balance Sheet Contractual  Obligations:** | ** ** | ** ** | ** ** | ** **              | ** ** | ** **         | ** ** | ** **         | ** ** |               | ** ** | ** ** |   |
| Long-term debt                              |       | $          | 246,010    |                    | $          | 2,131              |       | $                  | 3,879      |               | $          | 240,000 |   |   | $ | — | ** ** |   |
| Interest on  long-term debt                 |       | $          | 30,380     |                    | $          | 6,147              |       | $                  | 12,233     |               | $          | 12,000 |   |   |   | ** ** |   |
| Capital leases                              |       | 3,216      |       | 1,666                   |       | 1,524              |       | 26                 |       |               | —     | ** ** |   |
| Strategic partner  commitments              |       | 1,200      |       | 600                     |       | 600                |       | —             |       |               | —     | ** ** |   |
| Total                                       |       | $          | 280,806    |                    | $          | 10,544             |       | $                  | 18,236     |               | $          | 252,026 |   |   | $ | — | ** ** |   |
| **Other Contractual Obligations:**          | ** ** | ** ** | ** ** | ** **              | ** ** | ** **         | ** ** | ** **         | ** ** |               | ** ** | ** ** |   |
| Operating leases                            |       | $          | 108,909    |                    | $          | 12,033             |       | $                  | 47,626     |               | $          | 25,329 |   |   | $ | 23,921 | ** ** |   |
| Purchase  obligations                       |       | 17,065     |       | 12,945                  |       | 4,120              |       | —             |       |               | —     | ** ** |   |
| Total                                       |       | $          | 125,974    |                    | $          | 24,978             |       | $                  | 51,746     |               | $          | 25,329 |   |   | $ | 23,921 | ** ** |   |
| **Total  Contractual Obligations**          |       | $          | 406,780    |                    | $          | 35,522             |       | $                  | 69,982     |               | $          | 277,355 |   |   | $ | 23,921 | ** ** |   |

----

(1)          Ourpurchase obligations represent those commitments greater than $50,000.

**Off-Balance-SheetArrangements**

We do not use off-balance-sheet arrangements withunconsolidated entities, related parties or other forms of off-balance-sheetarrangements such as research and development arrangements. Accordingly, ourliquidity and capital resources are not subject to off-balance-sheet risks fromunconsolidated entities. As of May 31, 2007, we did not have anyoff-balance-sheet arrangements, as defined in Item 303(a)(4)(ii) of SECRegulation S-K.

We have entered intooperating leases for most U.S. and international sales and support offices andcertain equipment in the normal course of business. These arrangements areoften referred to as a form of off-balance-sheet financing. As of May 31, 2007,we leased facilities and certain equipment under non-cancelable operatingleases expiring between 2007 and 2017. Rent expense under operating leasesfor fiscal 2007, 2006 and 2005 was $27.0 million,$16.4 million and $14.2 million, respectively. Future minimum leasepayments under our operating leases as of May 31, 2007 are detailedabove in “Disclosures about Contractual Obligations and Commercial Commitments.

47

----

**Recent AccountingPronouncements**

In February 2007, the FASB issues SFAS No. 159,*The Fair Value Option for Financial Assets andFinancial Liabilities—Including an Amendment of FASB Statement No. 115*(SFAS 159), which becomes effective for fiscal periods beginning after November 15,2007. Under SFAS 159, companies may elect to measure specified financialinstruments and warranty and insurance contracts at fair value on acontract-by-contract basis, with changes in fair value recognized in earningseach reporting period. This election, called the “fair value option”, willenable some companies to reduce volatility in reported earnings caused bymeasuring related assets and liabilities differently. The Company is currentlyevaluating the potential impact of adopting SFAS 159 has on its ConsolidatedFinancial Statements.

In September 2006, the FASB issued SFAS No. 158,*Employers’ Accounting for Defined Benefit Pensionand Other Postretirement Plans* (SFAS 158). SFAS 158 amends SFAS 87, *Employers’ Accounting for Pension* (SFAS 87), SFAS 88, *Employers’ Accounting for Settlements and Curtailments of DefinedBenefit Plans and for Benefits and for Termination Benefits* (SFAS88), and SFAS 132R, *Employers’ Disclosuresabout Pensions and Other Postretirement Benefits.* Effective forfiscal years ending after December 15, 2006, SFAS 158 requires balancesheet recognition of the funded status for all pension and postretirementbenefit plans. The impact of adoption will be recorded as an adjustment of otheraccumulated comprehensive income. Subsequent changes in funded status will berecognized as a component of other comprehensive income to the extent they havenot yet been recognized as a component of net periodic benefit cost pursuant toSFAS 87 or SFAS 88. Prior to the acquisition of Intentia, the Company didnot maintain any plans subject to SFAS 87 or SFAS 158. The Intentia Plans areimmaterial and therefore SFAS 158 did not have an impact on the results ofoperations or financial position.

In September 2006, the FASB issued SFAS No. 157,*Fair Value Measurements* (SFAS 157). SFAS157 establishes a common definition for fair value to be applied to GAAPguidance requiring use of fair value, establishes a framework for measuringfair value, and expands disclosure about such fair value measurements. SFAS 157is effective for fiscal years beginning after November 15, 2007. TheCompany is currently evaluating the expected impact of the provisions of SFAS157 on its results of operations and its financial position.

In September 2006, the SEC issued StaffAccounting Bulletin No, 108 *Considering the Effects ofPrior Year Misstatements when Quantifying Misstatements in Current YearFinancial Statements (SAB 108).* SAB 108 provides interpretiveguidance on how the effects of the carryover or reversal of prior yearmisstatements should be considered in quantifying a current year misstatement. TheSEC staff believes that registrants should quantify errors using both a balancesheet and income statement approach and evaluate whether either approachresults in quantifying a misstatement that, when all relevant quantitative andqualitative factors considered, is material. SAB 108 is effective for fiscalyears ending on or after November 15, 2006 and we have complied as offiscal 2007. The implementation did not have a material affect on the company’sconsolidated results of operations or financial condition.

In July 2006, theFASB issued FIN 48. FIN 48 prescribes a comprehensive model forrecognizing, measuring, presenting and disclosing in the financial statementstax positions taken or expected to be taken on a tax return, including adecision whether to file or not to file a tax return in a particularjurisdiction. FIN 48 is effective for fiscal years beginning after December 15,2006. If there are changes in net assets as a result of the application ofFIN 48, these will be accounted for as an adjustment to retained earnings.Lawson has substantially completed its analysis and does not expect thecumulative effect of the adoption to be material.

48

----

**Item 7A.**                Qualitativeand Quantitative Disclosures About Market Risk

*ForeignCurrency.*   The Company’s market risk includes thepotential loss arising from adverse changes in foreign currency exchange rates.As of the fiscal year ended May 31, 2007 approximately 47% of our revenuewas denominated in a foreign currency.

We manage foreign currency market risk, from time totime, using forward contracts to offset the risk associated with the effects ofcertain foreign currency exposures. Increases or decreases in our foreigncurrency exposures are expected to be offset by gains or losses on forwardcontracts. This is expected to mitigate the possibility of significant foreigncurrency transaction gains or losses in future periods. For the fiscal yearended May 31, 2007, our foreign currency exposures were primarily relatedto non-functional currency intercompany loans and advances to/from ourinternational subsidiaries. As of July 1, 2007, we changed the operatingstructure of our European subsidiaries whereby we expect our non-functionalcurrency exposure to increase significantly for other balance sheet accounts,particularly accounts receivable, accounts payable and certain accrualaccounts. We, therefore, expect the volume of our hedging activities toincrease.

We do not use forward contracts for trading purposes.All foreign currency forward contracts generally are short term in nature andmature within 90 days or less. We mark to market all contracts at the end ofthe period and unrealized gains and losses are included in the ConsolidatedStatement of Operations for that period. Our ultimate realized gain or losswith respect to currency fluctuations will depend on the currency exchangerates and other factors in effect as the contracts mature. Net foreign exchangetransaction gains and losses related to forward contracts recorded in theaccompanying Consolidated Statements of Operations as of May 31, 2007 was$0.6 million. At May 31, 2007 the fair value of foreign currency forwardcontracts that were in a gain position totaled $1.7 million and the fair valueof foreign currency forward contracts that were in a loss position totaled $1.1million.

*InterestRates.*   Our investments consist of financialinstruments, primarily money market funds and highly liquid debt securities ofcorporations, the United States Government and Agencies and state and localmunicipalities. As of May, 31, 2007, these investments were primarilydenominated in U.S. dollars. Investments with original maturities of threemonths or less are classified as cash and cash equivalents. As of May 31, 2007,the average maturity of our investment securities was less than three monthsand all investment securities had maturities less than 24 months. As of May 31, 2007,we consider the reported amounts of these investments to be reasonableapproximations of fair values. Changes in the market interest rates will nothave a material impact on our financial position.

We are also exposed tointerest rate risk with respect to our senior convertible notes due April 15,2012. The fair value of our convertible senior notes may be adversely impacteddue to a rise in interest rates. Our senior convertible notes bear interest ata fixed rate of 2.50% per year. As of May 31, 2007, the carrying value ofour convertible senior notes was $233.7 million, including $6.3 million ofdeferred debt issuance costs (see Note 2) and the fair value was approximately$246.0 million.

**Item 8.**                        ConsolidatedFinancial Statements and Supplementary Data

The information requiredby this Item is included in Part IV Item 14(a)(1) and (2).

**Item 9.**                        ChangesIn and Disagreements With Accountants on Accounting and Financial Disclosure

None.

49

----

**Item 9A.**                Controlsand Procedures

*Disclosure Controlsand Procedures*

Rules adopted by the SEC to implement the provisionsof Section 302 of the Sarbanes-Oxley Act of 2002 require the Chief ExecutiveOfficer and the Chief Financial Officer of the Company, in connection with theCompany’s periodic reports filed with the SEC, to evaluate the Company’sdisclosure controls and procedures and to disclose their conclusions based onthis evaluation.

Disclosure controls andprocedures refer to the controls and other procedures of an issuer that aredesigned to ensure that information required to be disclosed by the issuer inthe reports that it files or submits under the Securities Exchange Act of 1934is recorded, processed, summarized and reported, within the time periodsspecified in the SEC’s rules and forms. Disclosure controls and proceduresinclude, without limitation, controls and procedures designed to ensure thatinformation required to be disclosed by an issuer in the reports it files orsubmits under the Securities Exchange Act of 1934 is accumulated andcommunicated to the issuer’s management, including its principal executive andprincipal financial officers, or persons performing similar functions, asappropriate, to allow for timely decisions regarding required disclosures.

*Evaluation ofDisclosure Controls and Procedures*

As required by Rule13a-15(b) under the Securities Exchange Act of 1934, as amended, we conductedan evaluation under the supervision and with the participation of our management,including our Chief Executive Officer and Chief Financial Officer, of theeffectiveness of our disclosure controls and procedures as of the end of theperiod covered by this Report. Based on that evaluation, includingconsideration of the material weakness in our internal control over financialreporting discussed within Management's Report on Internal Control overFinancial Reporting below, the Chief Executive Officer and Chief FinancialOfficer concluded that our disclosure controls and procedures were ineffectiveas of May 31, 2007. 

*Management's Reporton Internal Control over Financial Reporting*

The Company's management is responsible forestablishing and maintaining adequate internal control over financialreporting. Internal control over financial reporting (as defined in Rules13a-15(f) and 15d(f) under the Exchange Act) is a process designed to providereasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance withgenerally accepted accounting principles in the United States of America("U.S. GAAP"). The Company's internal control over financialreporting includes those policies and procedures that (i) pertain to themaintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the Company; (ii)provide reasonable assurance that transactions are recorded, as necessary, topermit preparation of financial statements in accordance with U.S. GAAP, andthat receipts and expenditures of the Company are being made only in accordancewith authorizations of management and directors of the Company; and (iii)provide reasonable assurance regarding prevention or detection of unauthorizedacquisition, use or disposition of the Company's assets that could have amaterial effect on the financial statements.

Management assessed the effectiveness of our internalcontrol over financial reporting as of May 31, 2007. In making thisassessment, management used the criteria set forth by the Committee ofSponsoring Organizations of the Treadway Commission (COSO) in *Internal Control—Integrated Framework*. Based on management'sassessment using the COSO criteria, management has concluded that the Companydid not maintain effective internal control over financial reporting as of May 31,2007 as a result of the material weakness described below.

50

----

A material weakness is a control deficiency, orcombination of control deficiencies, that results in more than a remotelikelihood that a material misstatement of the annual or interim financialstatements will not be prevented or detected. 

Management determined that a material weakness in ourinternal control over financial reporting exists as of May 31, 2007 relating tothe lack of a sufficient number of qualified accounting personnel with therequired proficiency to apply the Company’s accounting policies in accordancewith U.S. GAAP. This control deficiency resulted in adjustments, includingaudit adjustments in order for the Company to comply with U.S. GAAP related tothe Company's adoption of SFAS No. 123(R). Additionally, this controldeficiency could result in a material misstatement of our annual or interimfinancial statements that would not be prevented or detected on a timely basis.

Management's assessment ofthe effectiveness of our internal control over financial reporting as of May 31,2007 has been audited by PricewaterhouseCoopers LLP, an independent registeredpublic accounting firm, as stated in their report which appears on page on F-1and F-2.

*Management’sActions and Plans for Remediation*

In order to compensate for a lack of adequate financeand accounting staff at Intentia, management implemented transitional controlsthat utilized existing staff at the Company’s corporate headquarters based inSt. Paul, Minnesota to perform the U.S. GAAP accounting requirements forIntentia. The transitional controls put in place in the first quarter of fiscal2007 surrounding Intentia caused additional strain on our financial reportingfunction resulting in the operating effectiveness of the St. Paul, Minnesotafinance and accounting personnel to become inadequate in the first quarter offiscal 2007 and remain inadequate as of May 31, 2007.

As a result of thematerial weakness in our internal control over financial reporting, managementhas implemented, or will implement, the following changes in our internalcontrol over financial reporting relating to the lack of a sufficient number ofqualified accounting personnel needed to apply the Company’s accountingpolicies in accordance with U.S. GAAP. These changes were partially implementedduring the last three quarters of fiscal 2007 and are expected to positivelyaffect the effectiveness of Lawson’s internal control over financial reporting.We intend to continue our efforts to remediate the aforementioned materialweakness in our internal control over financial reporting which still exists atMay 31, 2007. In particular, management will be implementing thefollowing:

·       Hiring additional andpermanent accounting and finance personnel, including key leadership roleswhich include the following in the first quarter of fiscal 2008:

·        CorporateController

·        Directorof Financial Reporting

·       Establishingshared service centers in Europe and the Asia Pacific region to reduce thenumber of accounting and finance processing centers around the world.**Many of the people that have been newly hired are newemployees of these shared service centers and are completing their training.**In the first quarter of fiscal 2008, we will begin movingportions of the locally processes to our shared service centers.**By the end of fiscal 2008, we expect to be largely completewith this transition.

·       Conducttraining and improve processes associated with journal entry postings, fullmonth-end close processes and Sarbans-Oxley compliance.

Management believes that it has made progress towardsremediating the material weakness in our internal control over financialreporting.**However, the material weakness identifiedin the fiscal quarter ended August 31, 2006 still exists as remediation of thismaterial weakness cannot be fully achieved until 

51

----

further actions arecompleted by management with respect to each of the areas for improvement notedabove.**Management intends to complete theremediation of this material weakness as soon as possible.

All internal control systems, no matter how welldesigned, have inherent limitations. Therefore, even those systems determinedto be effective can provide only reasonable assurance with respect to financialstatement preparation and presentation. We intend to continue to improve thedesign and effectiveness of our disclosure controls and procedures and internalcontrol over financial reporting to the extent necessary to remediate deficienciesthat currently exist as well as those that we may identify in the future.

In light of the materialweakness in our internal control over financial reporting as of May 31, 2007,the Company has performed additional analyses and other post-closing proceduresin an effort to ensure that our Condensed Consolidated Financial Statementsincluded in this Report as of and for the year ended May 31, 2007 have beenprepared in accordance with U.S. GAAP.**We willcontinue to perform the additional analyses and other post-closing proceduresto mitigate the risk of potential material misstatements of the Company’sfinancial statements in future periods.

*Changes in InternalControl over Financial Reporting*

As a result of thematerial weakness described above, we have implemented the following changes inour internal control in the most recently completed fiscal quarter:

·       Hiredadditional and permanent finance department leadership and personnel for ourInternal Audit and Sarbanes-Oxley compliance functions with audit and controlsexpertise that have appropriate accounting backgrounds and understand U.S. GAAPreporting requirements. 

·       Expandedthe legacy Lawson financial controls and processes to the legacy Intentiafinancial reporting organization, including changes to the record keepingprocesses that support U.S. GAAP reporting requirements. 

·       Reallocatedresponsibilities within the legacy Lawson St. Paul, Minnesota based Financeorganization to properly address financial reporting and technical accounting mattersencountered in International locations.**Theseresponsibilities will be allocated back to our international shared servicescenters as the teams are built and trained.

**Part III**

The information requiredby Items 10 through 13 is incorporated by reference from our definitiveProxy Statement pursuant to general instruction G (3), with theexception of the executive officers section of Item 10, which isincluded in Part I of this Form 10-K. We will fileour definitive 2007 Proxy Statement pursuant to Regulation 14A nolater than 120 days after the end of the fiscal year covered by this AnnualReport on Form 10-K.

**Item 10.**                 Directorsand Executive Officers of the Registrant

The information concerning our officers required bythis item is included in Part I hereof under the heading “Employees.” Theinformation called for by Item 10, as to compliance with Section 16(a) ofthe Securities Exchange Act of 1934, is incorporated by reference inthe 2007 Proxy Statement to be filed with the Securities and ExchangeCommission pursuant to Regulation 14A under the heading “Section 16(a) BeneficialOwnership Reporting Compliance.” The information called for by Item 10, asto the audit committee and the audit committee financial expert, isincorporated by reference to that Proxy Statement under the headings “Item 1:Election of Directors” and “Audit Committee Report.”

We have adopted a Global Business Code of Conduct thatapplies to our principal executive officer, principal financial officer,principal accounting officer or controller, or persons performing similar 

52

----

functions, and all of ourother employees and non-employee directors. This Global Business Code ofConduct is posted on our website (www.lawson.com). We intend to satisfy thedisclosure requirement under Item 10 of Form 8-K regarding anamendment to, or waiver from, a provision of the Global Business Code ofConduct that applies to our principal executive officer, principal financialofficer, principal accounting officer or controller, or persons performingsimilar functions, by posting such information on our website, at the addressspecified above.

Our Corporate Governance Policy and charters for eachCommittee of our Board of Directors are also available on our website. OurGlobal Business Code of Conduct, Corporate Governance Policy and charters arealso available in print to any stockholder who submits a request to: LawsonSoftware, Inc., Attn: Corporate Secretary, 380 St. Peter Street,St. Paul, Minnesota 55102.

Information on our websiteis not deemed to be incorporated by reference into this Annual Report on Form 10-K.

**Item 11.**                 ExecutiveCompensation

Information required underthis item is contained in the sections entitled “Executive Compensation andother Information” and “Employment Agreements” in our 2007 Proxy Statementand is incorporated herein by reference.

**Item 12.**                 SecurityOwnership of Certain Beneficial Owners and Management and Related StockholderMatters

Information required underthis item is contained in the sections entitled “Securities Authorized forIssuance Under Equity Compensation Plans” and “Security Ownership of PrincipalStockholders, Directors and Management” in our 2007 Proxy Statement and isincorporated herein by reference.

**Item 13.**                 CertainRelationships and Related Transactions

Information required underthis item is contained in the section entitled “Certain Transactions” inour 2007 Proxy Statement and is incorporated herein by reference.

**Item 14.**                 PrincipalAccounting Fees and Services

The information requiredby this item is incorporated by reference to the Proxy Statement under theheading “Ratification of Selection of Independent Registered Public AccountingFirm.”

**Part IV**

**Item 15.**                 Exhibits,Financial Statement Schedules

(a)           Consolidated FinancialStatements, Consolidated Financial Statement Schedules and Exhibits.

1.     *Financial Statements.  *The followingConsolidated Financial Statements, and the related Notes thereto, and theReport of Independent Registered Public Accounting Firm are filed as a part ofthis Annual Report on Form 10-K.

2.     *Financial Statement Schedules.  *Scheduleshave been omitted because they are not applicable or are not required or the informationrequired to be set forth in those schedules is included in the financialstatements or related notes.

3.     *Exhibits.  *The exhibits filed orincorporated by reference in response to Item 601 of Regulation S-Kare listed in the Index to Exhibits.

53

----

**Indexto Financial Statements and Financial Statement Schedules (Item 15-(a1))**
| Report of Independent  Registered Public Accounting Firm                                                                                                   |   | F-1  |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------|--------|
| Consolidated Balance Sheets at  May 31, 2007 and 2006                                                                                       |   | F-3  |   |
| Consolidated Statements of  Operations for the years ended May 31, 2007, 2006 and 2005                                                      |   | F-4  |   |
| Consolidated Statements of  Stockholders’ Equity and Comprehensive Income (Loss) for the years ended  May 31, 2007, 2006 and 2005 |   | F-5  |   |
| Consolidated Statements of  Cash Flows for the years ended May 31, 2007, 2006 and 2005                                                      |   | F-6  |   |
| Notes to Consolidated  Financial Statements                                                                                                                |   | F-7  |   |
| Supplemental  Quarterly Financial Information                                                                                                              |   | F-51 |   |

 

54

----

**Indexto Exhibits (Item 15(a3))**
| Number    | ** ** | ** **                                                                                                                                                                  | ** ** | **Description** |
|-----------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------|
| 3.1(1)    |       | Amended and Restated  Certificate of Incorporation of the Company.                                                                                                          |
| 3.2(1)    |       | Bylaws of the Company.                                                                                                                                                      |
| 4.1(1)    |       | Form of Certificate  of Common Stock of the Company.                                                                                                                   |
| 4.2(2)    |       | Rights Agreement dated  July 28, 2004.                                                                                                                            |
| 4.3(3)    |       | First Amendment to the  Rights Agreement dated June 2, 2005.                                                                                                      |
| 4.4(1)    |       | Certificate of  Designations of Series B Junior Participating Preferred Stock of the  Company.                                                                         |
| 4.5(14)   |       | Indenture between the  Company and The Bank of New York, as trustee, dated as of April 23, 2007  (including Form of 2.50% Senior Convertible Note due 2012)       |
| 4.6(14)   |       | Registration Rights  Agreement between the Company and Lehman Brothers Inc. and Citigroup Global  Markets Inc., dated as of April 23, 2007                             |
| 4.7(5)    |       | Registration Rights  Agreement, dated February 23, 2001, between the Company and the  stockholders, investors and founders named therein                               |
| 10.1(5)   |       | Amended and Restated  1996 Stock Incentive Plan                                                                                                                             |
| 10.2(6)   |       | Amended and Restated  2001 Stock Incentive Plan                                                                                                                             |
| 10.3(8)   |       | Form of Stock  Option Agreement under 1996 or 2001 Stock Incentive Plan                                                                                                |
| 10.4(8)   |       | Form of Stock  Option Agreement under 1996 or 2001 Stock Incentive Plan (with additional  terms regarding acceleration of vesting)                                     |
| 10.5(1)   |       | Form of Restricted  Stock Unit Award Agreement under 1996 Stock Incentive Plan                                                                                         |
| 10.6(7)   |       | Form of Manifesto  Stock Option Agreement under 2001 Stock Incentive Plan                                                                                              |
| 10.7(3)   |       | Notice of Amendment of  “Out-Of-The-Money” Stock Options Held by Officers Subject to Section 16  of the Securities Exchange Act as of June 1, 2005 |
| 10.8(8)   |       | 2001 Employee Stock  Purchase Plan (Amended and Restated as of October 26, 2006)                                                                                       |
| 10.9(7)   |       | Executive Change in  Control Severance Pay Plan for Tier 1 Executives (Effective January 17,  2005)                                                                    |
| 10.10(3)  |       | Employment Agreement  dated June 2, 2005 between the Company and Harry Debes.                                                                                          |
| 10.11(3)  |       | Stock Option Agreement  dated June 2, 2005 between the Company and Harry Debes.                                                                                        |
| 10.12(3)  |       | Restricted Stock Award  Agreement dated June 2, 2005 between the Company and Harry Debes.                                                                              |
| 10.13(1)  |       | Addendum to Employment  Agreement with Harry Debes.                                                                                                                         |
| 10.14(9)  |       | Amendment to Option  Agreement dated October 11, 2006 between the Company and Harry Debes,  amending the Option Agreement dated June 2, 2005                      |
| 10.15(16) |       | Employment Agreement  dated October 5, 2006 between the Company and Robert A. Schriesheim                                                                              |
| 10.16(16) |       | Stock Option Agreement  dated October 5, 2006 between the Company and Robert A. Schriesheim                                                                            |
| 10.17(10) |       | Separation and  Non-compete Agreement and Mutual Release by and between the Company and  Robert G. Barbieri                                                                 |
| 10.18(5)  |       | Lease of real property  located at 380 St. Peter St., St. Paul, MN 55102                                                                                               |
| 10.19(4)  |       | Modified Master  Relationship Agreement and an OEM Software Agreement between the Company and  International Business Machines Corporation.                                 |
| 10.20(11) |       | Value Added Reseller  Agreement, effective January 29, 2004, between the Company and  Micro Focus International Holdings LTD, Inc. and its Affiliates.       |
| 10.21(1)  |       | Reseller Agreement  between the Company and Business Objects S.A. (formerly Crystal Decisions,  Inc).                                                                       |
| 10.22(1)  |       | Amended and Restated  Reseller Agreement between StreamServ, Inc. and Intentia International  AB.                                                                      |

55

----

 
| 10.23(5)  |   | Application Partner  Agreement, dated December 31, 1996, between the Company and Arbor Software  Corporation (n/k/a Hyperion Solutions Corporation), as amended to date |
|-----------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.24(12) |   | Non-Exclusive India  Reseller Agreement, dated April 27, 2007, between Lawson International  AB and Symphony Service Corp. (India) Pvt Ltd.                             |
| 10.25(13) |   | Consulting Agreement  between the Company and Symphony Technology Group, LLC dated May 15,  2006.                                                                       |
| 10.26(1)  |   | Master Offshoring  Agreement dated May 5, 2005 between Intentia International AB and  Symphony Service Corporation.                                                     |
| 10.27(14) |   | Purchase Agreement among  the Company, and Lehman Brothers Inc. and Citigroup Global Markets Inc.,  dated as of April 19, 2007                                          |
| 10.28(14) |   | Confirmation of  Convertible Note Hedge Transaction, dated April 17, 2007                                                                                               |
| 10.29(14) |   | Confirmation of Warrant  Transaction, dated April 17, 2007                                                                                                              |
| 10.30(15) |   | Amendment No. 1  (adopted June 26, 2007) to the Lawson Software, Inc. Executive  Change in Control Severance Pay Plan for Tier 1 Executives                   |
| 12.1(17)  |   | Statement of Computation  of Ratio of Earnings to Fixed Charges.                                                                                                             |
| 21.1(17)  |   | Subsidiaries of Lawson  Software, Inc.                                                                                                                                  |
| 23.1(17)  |   | Consent of  PricewaterhouseCoopers LLP.                                                                                                                                      |
| 23.2(1)   |   | Consent of Appraisal  Firm.                                                                                                                                                  |
| 24.1      |   | Powers of Attorney  (included on signature page).                                                                                                                            |
| 31.1(17)  |   | Certification Pursuant  to Section 302 of Sarbanes-Oxley Act—Harry Debes.                                                                                          |
| 31.2(17)  |   | Certification Pursuant  to Section 302 of Sarbanes-Oxley Act—Robert A. Schriesheim.                                                                           |
| 32.1(17)  |   | Certification Pursuant  to Section 906 of Sarbanes-Oxley Act—Harry Debes.                                                                                          |
| 32.2(17)  |   | Certification Pursuant to Section 906 of  Sarbanes-Oxley Act—Robert A. Schriesheim                                                                            |

----

       (1) Incorporated by reference to the Form 10-K filed on August 29,2006.

       (2) Incorporated by reference to the Form 8-A filed on July 28, 2004.

       (3) Incorporated by reference to the Form 8-K filed on June 7, 2005.

       (4) Incorporated by reference to the Form 10-Q filed on April 9,2007.

       (5) Incorporated by reference to the predecessor’s Form S-1Registration Statement (File No. 333-63394) filed on June 20,2001.

       (6) Incorporated by reference to the predecessor’s Amendment No. 2to the Form S-1 Registration Statement filed on October 26,2001.

       (7) Incorporated by reference to the Form 8-K filed on January 19, 2005.

       (8) Incorporated by reference to the Form 10-Q filed onJanuary 7, 2005.

       (9) Incorporated by reference to the Form 8-K filed on October 17,2006.

(10) Incorporated by reference to the Form 8-K filed on July 31,2006

(11) Incorporated by reference to the Form 10-Q filed on April 12, 2004.

(12) Incorporated by reference to the Form 8-K filed on May 3,2007.

(13) Incorporated by reference to the Form 8-K filed on May 17,2006.

(14) Incorporated by reference to the Form 8-K filed on April 23,2007.

(15) Incorporated by reference to the Form 8-K filed on June 28,2007.

(16) Incorporated by reference to the Form 10-Q filed on October 10,2006.

(17) Filed herewith.

56

----

**SIGNATURES**

Pursuantto the requirements of Section 13 or 15(d) of the Securities andExchange Act of 1934, the Registrant has duly caused this Report to be signedon its behalf by the undersigned, thereunto duly authorized.

|        |     |     | LAWSON  SOFTWARE, INC. |
|--------|----------|----------|-----------------------------|
|   |     |     | By:                         | /s/ ROBERT  A. SCHRIESHEIM |
|   |     |     |                        | Robert A. Schriesheim |
|   | * * | * * |                        | *Executive Vice President and   Chief Financial Officer  (principal financial officer)* |

 

Dated:July 30, 2007

|     | By:      | /s/ STEFAN  B. SCHULZ                                                           |
|----------|----------|---------------------------------------------------------------------------------|
|     |     | Stefan B. Schulz                                                                |
| * * | * * | *Senior Vice President and   Global Controller  (principal accounting officer)* |

 

Dated: July 30, 2007

**POWER OF ATTORNEY**

KNOW ALL PERSONS BY THESE PRESENTS, that each personwhose signature appears below hereby constitutes and appoints Harry Debes andRobert A. Schriesheim, and each of them, his true and lawful attorney-in-factand agents, with full powers of substitution and resubstitution, for him and inhis name, place and stead, in any and all capacities, to sign any and allamendments to this Form 10-K and to file the same, with exhibitsthereto and other documents in connection therewith, with the Securities andExchange Commission, and hereby grants to such attorneys-in-fact and agentsfull power and authority to do and perform each and every act and thingrequisite or necessary to be done, as fully to all intents and purposes as hemight or could do in person, hereby ratifying and confirming all that saidattorneys-in-fact and agents or his substitute or substitutes may lawfully door cause to be done by virtue hereof.

Pursuantto the requirements of the Securities Act of 1934, the following persons in thecapacities and on the dates indicated have signed this Annual Report on Form 10-K.

|                       | **Signature** | ** **                                 | ** ** | ** **         | **Title** | ** ** | ** ** | ** ** | **Date** | ** ** |
|-----------------------|---------------|--------------------------------------------|------------|--------------------|-----------|------------|------------|------------|----------|------------|
| /s/ H. RICHARD LAWSON |          | Director, Co-Chairman                      |       | July 30, 2007 |
| H. Richard Lawson     |          |                                       |       |               |
| /s/ ROMESH WADHWANI   |          | Director, Co-Chairman                      |       | July 30, 2007 |
| Romesh Wadhwani       |          |                                       |       |               |
| /s/ HARRY DEBES       |          | President and Chief  Executive Officer and |       | July 30, 2007 |
| Harry Debes           | * *      | Director *(principal executive  officer)*  |       |               |

57

----

 

| /s/ STEVEN CHANG          |   | Director                                    |   | July 30, 2007 |
|---------------------------|--------|---------------------------------------------|--------|--------------------|
| Steven Chang              |   |                                        |   |               |
| /s/ DAVID R. HUBERS       |   | Director                                    |   | July 30, 2007 |
| David R. Hubers           |   |                                        |   |               |
| /s/ MICHAEL A. ROCCA      |   | Director                                    |   | July 30, 2007 |
| Michael A. Rocca          |   |                                        |   |               |
| /s/ PAUL WAHL             |   | Director                                    |   | July 30, 2007 |
| Paul Wahl                 |   |                                        |   |               |
| /s/ PETER GYENES          |   | Director                                    |   | July 30, 2007 |
| Peter Gyenes              |   |                                        |   |               |
| /s/ ROBERT A. SCHRIESHEIM |   | Executive Vice President  and Chief         |   | July 30, 2007 |
| Robert A. Schriesheim     |   | Financial Officer and Director (*principal* |   |               |
|                      |   | *financial officer)*                        |   |               |

 

58

----

**Report ofIndependent Registered Public Accounting Firm**

To the Board of Directors and Stockholders of LawsonSoftware, Inc.:

We have completedintegrated audits of Lawson Software Inc.’s consolidated financial statementsand of its internal control over financial reporting as of May 31, 2007 inaccordance with the standards of the Public Company Accounting Oversight Board(United States).  Our opinions, based onour audits, are presented below.

*Consolidatedfinancial statements*

In our opinion, the accompanying consolidated balancesheets and the related consolidated statements of operations, stockholders'equity and comprehensive income (loss) and cash flows present fairly, in allmaterial respects, the financial position of Lawson Software, Inc. and itssubsidiaries at May 31, 2007 and 2006, and the results of their operations andtheir cash flows for each of the three years in the period ended May 31, 2007in conformity with accounting principles generally accepted in the UnitedStates of America.  These financialstatements are the responsibility of the Company’s management.  Our responsibility is to express an opinionon these financial statements based on our audits.  We conducted our audits of these statementsin accordance with the standards of the Public Company Accounting OversightBoard (United States).  Those standardsrequire that we plan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement.  An audit of financial statements includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements, assessing the accounting principles used andsignificant estimates made by management, and evaluating the overall financialstatement presentation.  We believe thatour audits provide a reasonable basis for our opinion.

As discussed in Note 2 tothe consolidated financial statements, the Company changed the manner in whichit accounts for share-based compensation in fiscal 2007. 

*Internal controlover financial reporting*

Also, we have audited management's assessment,included in Management's Report on Internal Control Over Financial Reportingappearing under Item 9A, that Lawson Software, Inc. did not maintain effectiveinternal control over financial reporting as of May 31, 2007, because theCompany did not maintain a sufficient number of qualified accounting personnelwith the required proficiency to apply the Company’s accounting policies inaccordance with U.S. GAAP, based on criteria established in Internal Control -Integrated Framework issued by the Committee of Sponsoring Organizations of theTreadway Commission (COSO).  TheCompany's management is responsible for maintaining effective internal controlover financial reporting and for its assessment of the effectiveness ofinternal control over financial reporting. Our responsibility is to express opinions on management's assessment andon the effectiveness of the Company's internal control over financial reportingbased on our audit.

We conducted our audit of internal control overfinancial reporting in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtainreasonable assurance about whether effective internal control over financialreporting was maintained in all material respects.  An audit of internal control over financial reportingincludes obtaining an understanding of internal control over financialreporting, evaluating management's assessment, testing and evaluating thedesign and operating effectiveness of internal control, and performing suchother procedures as we consider necessary in the circumstances. We believe thatour audit provides a reasonable basis for our opinions.

A company’s internal control over financial reportingis a process designed to provide reasonable assurance regarding the reliabilityof financial reporting and the preparation of financial statements for 

F-1

----

external purposes inaccordance with generally accepted accounting principles.  A company’s internal control over financialreporting includes those policies and procedures that (i) pertain to themaintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (ii)provide reasonable assurance that transactions are recorded as necessary topermit preparation of financial statements in accordance with generallyaccepted accounting principles, and that receipts and expenditures of thecompany are being made only in accordance with authorizations of management anddirectors of the company; and (iii) provide reasonable assurance regardingprevention or timely detection of unauthorized acquisition, use, or dispositionof the company’s assets that could have a material effect on the financialstatements. 

Because of its inherent limitations, internal controlover financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls maybecome inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate. 

A material weakness is a control deficiency, orcombination of control deficiencies, that results in more than a remotelikelihood that a material misstatement of the annual or interim financialstatements will not be prevented or detected. The following material weakness has been identified and included inmanagement's assessment as of May 31, 2007. There is lack of a sufficient number of qualified accounting personnelwith the required proficiency to apply the Company’s accounting policies inaccordance with U.S. GAAP. This control deficiency resulted in adjustments,including audit adjustments in order for the Company to comply with U.S. GAAPrelated to the Company's adoption of Statement of Financial AccountingStandards No. 123(R), Share-Based Payment (SFAS No. 123(R)). Additionally, thiscontrol deficiency could result in a material misstatement of the Company’sannual or interim financial statements that would not be prevented or detectedon a timely basis.  This materialweakness was considered in determining the nature, timing, and extent of audittests applied in our audit of the 2007 consolidated financial statements, andour opinion regarding the effectiveness of the Company’s internal control overfinancial reporting does not affect our opinion on those consolidated financialstatements.

In ouropinion, management's assessment that Lawson Software, Inc. did not maintaineffective internal control over financial reporting as of May 31, 2007, isfairly stated, in all material respects, based on criteria established inInternal Control - Integrated Framework issued by the COSO.  Also, in our opinion, because of the effectof the material weakness described above on the achievement of the objectivesof the control criteria, Lawson Software, Inc. has not maintained effectiveinternal control over financial reporting as of May 31, 2007, based on criteriaestablished in Internal Control - Integrated Framework issued by the COSO.
| /s/ PRICEWATERHOUSECOOPERS LLP |   |
|--------------------------------|--------|
| Minneapolis,  Minnesota        |   |
| July 29, 2007             |   |

 

F-2

----

**LAWSON SOFTWARE, INC.CONSOLIDATED BALANCE SHEETS(in thousands, except per share data)**

| ** **                                                                                                                                                                                                     | ** ** | **May 31, 2007** | ** ** | **May 31, 2006** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------|------------|----------------------------|------------|
| ASSETS                                                                                                                                                                                                         |       |                       |       |                       |       |   |   |   |   |
| Current assets:                                                                                                                                                                                                |       |                       |       |                       |       |   |   |   |   |
| Cash and cash equivalents                                                                                                                                                                                      |       |                       | $          | 473,963                    |       |   |   | $ | 210,154 |   |   |
| Restricted cash, current                                                                                                                                                                                       |       |                       | 555        |                       |       |   | — |   |   |
| Marketable securities                                                                                                                                                                                          |       |                       | 74,995     |                       |       |   | 90,348 |   |   |
| Trade accounts  receivable, net                                                                                                                                                                                |       |                       | 162,947    |                       |       |   | 159,933 |   |   |
| Income taxes receivable                                                                                                                                                                                        |       |                       | 5,183      |                       |       |   | 4,577 |   |   |
| Deferred income taxes—current                                                                                                                                                                             |       |                       | 17,431     |                       |       |   | 21,465 |   |   |
| Prepaid expenses and  other assets                                                                                                                                                                             |       |                       | 28,196     |                       |       |   | 28,085 |   |   |
| Total current assets                                                                                                                                                                                           |       |                       | 763,270    |                       |       |   | 514,562 |   |   |
| Long-term  marketable securities                                                                                                                                                                               |       |                       | 4,878      |                       |       |   | 6,079 |   |   |
| Restricted cash,  non-current                                                                                                                                                                                  |       |                       | 6,889      |                       |       |   | — |   |   |
| Property and  equipment, net                                                                                                                                                                                   |       |                       | 30,879     |                       |       |   | 26,189 |   |   |
| Goodwill                                                                                                                                                                                                       |       |                       | 483,060    |                       |       |   | 454,550 |   |   |
| Other intangible  assets, net                                                                                                                                                                                  |       |                       | 133,456    |                       |       |   | 154,695 |   |   |
| Deferred income  taxes—non-current                                                                                                                                                                        |       |                       | 36,889     |                       |       |   | 9,294 |   |   |
| Other assets                                                                                                                                                                                                   |       |                       | 19,786     |                       |       |   | 5,283 |   |   |
| Total assets                                                                                                                                                                                                   |       |                       | $          | 1,479,107                  |       |   |   | $ | 1,170,652 |   |   |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                                                                      |       |                       |       |                       |       |   |   |   |   |
| Current liabilities:                                                                                                                                                                                           |       |                       |       |                       |       |   |   |   |   |
| Long-term debt—current                                                                                                                                                                                    |       |                       | $          | 3,322                      |       |   |   | $ | 3,475 |   |   |
| Accounts payable                                                                                                                                                                                               |       |                       | 21,475     |                       |       |   | 26,137 |   |   |
| Accrued compensation and  benefits                                                                                                                                                                             |       |                       | 85,144     |                       |       |   | 88,245 |   |   |
| Income taxes payable                                                                                                                                                                                           |       |                       | 3,535      |                       |       |   | 3,195 |   |   |
| Deferred income taxes—current                                                                                                                                                                             |       |                       | 4,605      |                       |       |   | 4,221 |   |   |
| Deferred revenue                                                                                                                                                                                               |       |                       | 247,587    |                       |       |   | 146,206 |   |   |
| Other accrued liabilities                                                                                                                                                                                      |       |                       | 72,986     |                       |       |   | 74,882 |   |   |
| Total current liabilities                                                                                                                                                                                      |       |                       | 438,654    |                       |       |   | 346,361 |   |   |
| Long-term debt—non-current                                                                                                                                                                                |       |                       | 245,228    |                       |       |   | 4,275 |   |   |
| Deferred income  taxes—non-current                                                                                                                                                                        |       |                       | 12,558     |                       |       |   | 9,039 |   |   |
| Long-term deferred  revenue                                                                                                                                                                                    |       |                       | 15,817     |                       |       |   | 10,840 |   |   |
| Other long-term  liabilities                                                                                                                                                                                   |       |                       | 11,622     |                       |       |   | 8,478 |   |   |
| Total liabilities                                                                                                                                                                                              |       |                       | 723,879    |                       |       |   | 378,993 |   |   |
| Commitments and contingencies                                                                                                                                                                                  |       |                       |       |                       |       |   |   |   |   |
| Stockholders’ equity:                                                                                                                                                                                     |       |                       |       |                       |       |   |   |   |   |
| Preferred stock; $0.01  par value; 42,562 shares authorized; no shares issued or outstanding                                                                                                                   |       |                       | —     |                       |       |   | — |   |   |
| Common stock; $0.01 par  value; 750,000 shares authorized; 199,389 and 196,105 shares issued,  respectively; 182,979 and 185,651 shares outstanding, at May 31, 2007  and May 31, 2006, respectively |       |                       | 1,994      |                       |       |   | 1,961 |   |   |
| Additional paid-in  capital                                                                                                                                                                                    |       |                       | 822,740    |                       |       |   | 800,168 |   |   |
| Treasury stock, at cost;  16,410 and 10,454 shares at May 31, 2007 and May 31, 2006,  respectively                                                                                                   |       |                       | (123,207   | )                          |       |   | (69,237 | ) |   |
| Deferred stock-based  compensation                                                                                                                                                                             |       |                       | —     |                       |       |   | (131 | ) |   |
| Retained earnings                                                                                                                                                                                              |       |                       | 17,755     |                       |       |   | 38,692 |   |   |
| Accumulated other  comprehensive income                                                                                                                                                                        |       |                       | 35,946     |                       |       |   | 20,206 |   |   |
| Total stockholders’  equity                                                                                                                                                                               |       |                       | 755,228    |                       |       |   | 791,659 |   |   |
| Total liabilities and stockholders’ equity                                                                                                                                                                |       |                       | $          | 1,479,107                  |       |   |   | $ | 1,170,652 |   |   |

 

The accompanying notes are an integral part of the Consolidated Financial Statements.

F-3

----

**LAWSON SOFTWARE, INC.CONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except per share data)**

| ** **                                             | ** ** | **Year Ended May 31,** | ** ** |
|--------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                             | ** ** | **2007**                              | ** ** | **2006** | ** ** | **2005** | ** ** |
| Revenues:                                              |       |                                  |       |   |   |   |   |
| License fees                                           |       | $                                     | 105,861    |   | $ | 71,076 |   | $ | 57,743 |   |
| Maintenance                                            |       | 291,657                               |       | 188,155 |   | 170,723 |   |
| Consulting                                             |       | 352,870                               |       | 131,545 |   | 106,718 |   |
| Total revenues                                         |       | 750,388                               |       | 390,776 |   | 335,184 |   |
| Cost of revenues:                                      |       |                                  |       |   |   |   |   |
| Cost of license fees                                   |       | 26,530                                |       | 13,344 |   | 9,961 |   |
| Cost of maintenance                                    |       | 59,108                                |       | 30,365 |   | 31,419 |   |
| Cost of consulting                                     |       | 313,682                               |       | 127,833 |   | 109,204 |   |
| Total cost of revenues                                 |       | 399,320                               |       | 171,542 |   | 150,584 |   |
| Gross profit                                           |       | 351,068                               |       | 219,234 |   | 184,600 |   |
| Operating  expenses:                                   |       |                                  |       |   |   |   |   |
| Research and development                               |       | 85,325                                |       | 60,711 |   | 62,158 |   |
| Sales and marketing                                    |       | 160,551                               |       | 83,193 |   | 75,637 |   |
| General and administrative                             |       | 98,263                                |       | 54,827 |   | 36,443 |   |
| Restructuring (Note 3)                                 |       | 15,483                                |       | 1,825 |   | 5,028 |   |
| Amortization of acquired intangibles                   |       | 10,089                                |       | 2,122 |   | 1,545 |   |
| Total operating expenses                               |       | 369,711                               |       | 202,678 |   | 180,811 |   |
| Operating income (loss)                                |       | (18,643                               | )          | 16,556 |   | 3,789 |   |
| Other income:                                          |       |                                  |       |   |   |   |   |
| Interest income                                        |       | 15,500                                |       | 10,769 |   | 4,377 |   |
| Interest expense                                       |       | (4,134                                | )          | (53 | ) | (49 | ) |
| Other income, net                                      |       | 740                                   |       | 395 |   | — |   |
| Total other income, net                                |       | 12,106                                |       | 11,111 |   | 4,328 |   |
| Income (loss) before income taxes                      |       | (6,537                                | )          | 27,667 |   | 8,117 |   |
| Provision for  income taxes                            |       | 14,400                                |       | 11,708 |   | 2,855 |   |
| Net income (loss)                                      |       | $                                     | (20,937    | ) | $ | 15,959 |   | $ | 5,262 |   |
| Net income (loss)  per share:                          |       |                                  |       |   |   |   |   |
| Basic                                                  |       | $                                     | (0.11      | ) | $ | 0.14 |   | $ | 0.05 |   |
| Diluted                                                |       | $                                     | (0.11      | ) | $ | 0.14 |   | $ | 0.05 |   |
| Shares used in  computing net income (loss) per share: |       |                                  |       |   |   |   |   |
| Basic                                                  |       | 186,363                               |       | 110,995 |   | 99,068 |   |
| Diluted                                                |       | 186,363                               |       | 115,350 |   | 104,623 |   |

 

The accompanying notes are an integral part of the Consolidated Financial Statements

F-4

----

**LAWSONSOFTWARE, INC.CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY**

**ANDCOMPREHENSIVE INCOME (LOSS)**

**(in thousands)**
|                                                                                      | ** ** | ** ** | ** ** | ** **  | ** **   | ** **     | ** ** | ** **              | ** **   | ** **       | ** ** | ** **        | ** ** | **Accumulated**        | ** ** | ** **        | ** **   | ** **             | ** ** |
|--------------------------------------------------------------------------------------|------------|------------|------------|-------------|--------------|----------------|------------|-------------------------|--------------|------------------|------------|-------------------|------------|------------------------|------------|-------------------|--------------|------------------------|------------|
| ** **                                                                           | ** ** | ** ** | ** ** | ** **  | ** **   | **Additional** | ** ** | ** **              | ** **   | **Deferred**     | ** ** | ** **        | ** ** | **Other**              | ** ** | **Total**         | ** **   | ** **             | ** ** |
| ** **                                                                           | ** ** | **Common** | ** ** | **Paid-In** | ** **   | ** **     | ** ** | **Stock-Based**         | ** **   | **Retained**     | ** ** | **Comprehensive** | ** ** | **Stockholders’** | ** ** | **Comprehensive** | ** **   |
| ** **                                                                           | ** ** | **Shares** | ** ** | **Amount**  | ** **   | **Capital**    | ** ** | **Treasury Stock** | ** **   | **Compensation** | ** ** | **Earnings**      | ** ** | **Loss (Income)** | ** ** | **Equity**        | ** **   | **(Loss) Income** | ** ** |
| **Balance  at May 31, 2004**                                                    |       | 98,346     |       |        | $            | 1,099          |       |                    |         | $                | 327,715    |              |       |                   | $          | (65,555           | )            |                   |       | $ | (774 | ) |   |   | $ | 17,471 |   |   |   | $ | 2,930 |   |   |   | $ | 282,886 |   |   |   | $ | 9,756 |   |   |
| Deferred  stock-based compensation                                                   |       | —     |       |        | —       |           |       |                    | (471         | )                |       |              | —     |                   |       |              | 472          |                   |       |   | — |   |   |   | — |   |   |   | 1 |   |   |   | — |   |   |
| Amortization of  stock-based amortization                                            |       | —     |       |        | —       |           |       |                    | —       |             |       |              | —     |                   |       |              | 261          |                   |       |   | — |   |   |   | — |   |   |   | 261 |   |   |   | — |   |   |
| Exercise of stock  options                                                           |       | 3,055      |       |        | 25           |           |       |                    | 4,807        |             |       |              | 1,661      |                   |       |              | —       |                   |       |   | — |   |   |   | — |   |   |   | 6,493 |   |   |   | — |   |   |
| Tax benefit from  stockholder transactions                                           |       | —     |       |        | —       |           |       |                    | 4,215        |             |       |              | —     |                   |       |              | —       |                   |       |   | — |   |   |   | — |   |   |   | 4,215 |   |   |   | — |   |   |
| Employee stock  purchase plan                                                        |       | 667        |       |        | —       |           |       |                    | 2,400        |             |       |              | 1,546      |                   |       |              | —       |                   |       |   | — |   |   |   | — |   |   |   | 3,946 |   |   |   | — |   |   |
| Repurchase of  common stock                                                          |       | (1,449     | )          |        | —       |           |       |                    | —       |             |       |              | (10,000    | )                      |       |              | —       |                   |       |   | — |   |   |   | — |   |   |   | (10,000 | ) |   |   | — |   |   |
| Change in net  unrealized gains/losses on investements, net of taxes                 |       | —     |       |        | —       |           |       |                    | —       |             |       |              | —     |                   |       |              | —       |                   |       |   | — |   |   |   | 20 |   |   |   | 20 |   |   |   | 20 |   |   |
| Translation  adjustment                                                              |       | —     |       |        | —       |           |       |                    | —       |             |       |              | —     |                   |       |              | —       |                   |       |   | — |   |   |   | (29 | ) |   |   | (29 | ) |   |   | (29 | ) |   |
| Net income                                                                           |       | —     |       |        | —       |           |       |                    | —       |             |       |              | —     |                   |       |              | —       |                   |       |   | 5,262 |   |   |   | — |   |   |   | 5,262 |   |   |   | 5,262 |   |   |
| **Balance  at May 31, 2005**                                                    |       | 100,619    |       |        | 1,124        |           |       |                    | 338,666      |             |       |              | (72,348    | )                      |       |              | (41          | )                      |       |   | 22,733 |   |   |   | 2,921 |   |   |   | 293,055 |   |   |   | 5,253 |   |   |
| Issuance of common  stock related to a business combination                          |       | 80,124     |       |        | 801          |           |       |                    | 443,088      |             |       |              | —     |                   |       |              | —       |                   |       |   | — |   |   |   | — |   |   |   | 443,889 |   |   |   |   |   |   |
| Issuance of  restricted stock                                                        |       | 100        |       |        | —       |           |       |                    | 293          |             |       |              | 232        |                   |       |              | (525         | )                      |       |   | — |   |   |   | — |   |   |   | — |   |   |   |   |   |   |
| Amortization of  stock-based compensation                                            |       | —     |       |        | —       |           |       |                    | —       |             |       |              | —     |                   |       |              | 435          |                   |       |   | — |   |   |   | — |   |   |   | 435 |   |   |   |   |   |   |
| Exercise of stock  options and warrants                                              |       | 4,070      |       |        | 36           |           |       |                    | 5,896        |             |       |              | 1,166      |                   |       |              | —       |                   |       |   | — |   |   |   | — |   |   |   | 7,098 |   |   |   |   |   |   |
| Stock-based  compensation for former executive                                       |       | —     |       |        | —       |           |       |                    | 6,368        |             |       |              | —     |                   |       |              | —       |                   |       |   | — |   |   |   | — |   |   |   | 6,368 |   |   |   |   |   |   |
| Tax benefit from  stockholder transactions                                           |       | —     |       |        | —       |           |       |                    | 4,016        |             |       |              | —     |                   |       |              | —       |                   |       |   | — |   |   |   | — |   |   |   | 4,016 |   |   |   |   |   |   |
| Employee stock  purchase plan                                                        |       | 738        |       |        | —       |           |       |                    | 1,841        |             |       |              | 1,713      |                   |       |              | —       |                   |       |   | — |   |   |   | — |   |   |   | 3,554 |   |   |   |   |   |   |
| Change in net unrealized gains/losses on investments, net of taxes                   |       | —     |       |        | —       |           |       |                    | —       |             |       |              | —     |                   |       |              | —       |                   |       |   | — |   |   |   | (31 | ) |   |   | (31 | ) |   |   | (31 | ) |   |
| Translation  adjustment                                                              |       | —     |       |        | —       |           |       |                    | —       |             |       |              | —     |                   |       |              | —       |                   |       |   | — |   |   |   | 17,316 |   |   |   | 17,316 |   |   |   | 17,316 |   |   |
| Net income                                                                           |       | —     |       |        | —       |           |       |                    | —       |             |       |              | —     |                   |       |              | —       |                   |       |   | 15,959 |   |   |   | — |   |   |   | 15,959 |   |   |   | 15,959 |   |   |
| **Balance  at May 31, 2006**                                                    |       | 185,651    |       |        | 1,961        |           |       |                    | 800,168      |             |       |              | (69,237    | )                      |       |              | (131         | )                      |       |   | 38,692 |   |   |   | 20,206 |   |   |   | 791,659 |   |   |   | 33,244 |   |   |
| Issuance of Restricted  Stock                                                        |       | (16        | )          |        |  — |           |       |                    |  — |             |       |              | (110       | )                      |       |              |  — |                   |       |   |  — |   |   |   |  — |   |   |   | (110 | )  |   |   |   |   |   |
| Amortization of  Stock based compensation                                            |       | —     |       |        | —       |           |       |                    | 7,651        |             |       |              | —     |                   |       |              | —       |                   |       |   | — |   |   |   | — |   |   |   | 7,651 |   |   |   |   |   |   |
| Reclassification  of deferred stock-based compensation to Additional Paid-In Capital |       | —     |       |        | —       |           |       |                    | (131         | )                |       |              | —     |                   |       |              | 131          |                   |       |   | — |   |   |   | — |   |   |   | — |   |   |   |   |   |   |
| Exercise of stock  options and warrants                                              |       | 3,283      |       |        | 33           |           |       |                    | 11,416       |             |       |              | —     |                   |       |              | —       |                   |       |   | — |   |   |   | — |   |   |   | 11,449 |   |   |   |   |   |   |
| Tax benefit from  stockholder transactions                                           |       | —     |       |        | —       |           |       |                    | 3,123        |             |       |              | —     |                   |       |              | —       |                   |       |   | — |   |   |   | — |   |   |   | 3,123 |   |   |   |   |   |   |
| Repurchase of  common stock                                                          |       | (6,375     | )          |        | —       |           |       |                    | —       |             |       |              | (54,870    | )                      |       |              | —       |                   |       |   | — |   |   |   | — |   |   |   | (54,870 | ) |   |   |   |   |   |
| Employee stock  purchase plan                                                        |       | 436        |       |        | —       |           |       |                    | 1,705        |             |       |              | 1,010      |                   |       |              | —       |                   |       |   | — |   |   |   | — |   |   |   | 2,715 |   |   |   |   |   |   |
| Sale of stock  warrants                                                              |       | —     |       |        | —       |           |       |                    | 34,176       |             |       |              | —     |                   |       |              | —       |                   |       |   | — |   |   |   | — |   |   |   | 34,176 |   |   |   |   |   |   |
| Purchase of call  options                                                            |       | —     |       |        | —       |           |       |                    | (57,696      | )                |       |              | —     |                   |       |              | —       |                   |       |   | — |   |   |   | — |   |   |   | (57,696 | ) |   |   |   |   |   |
| Tax benefit on  purchase of call options                                             |       |       |       |        |         |           |       |                    | 22,328       |             |       |              |       |                   |       |              |         |                   |       |   |   |   |   |   |   |   |   |   | 22,328 |   |   |   |   |   |   |
| Change in net unrealized gains/losses on investments, net of taxes                   |       | —     |       |        | —       |           |       |                    | —       |             |       |              | —     |                   |       |              | —       |                   |       |   | — |   |   |   | 27 |   |   |   | 27 |   |   |   | 27 |   |   |
| Translation  adjustment                                                              |       | —     |       |        | —       |           |       |                    | —       |             |       |              | —     |                   |       |              | —       |                   |       |   | — |   |   |   | 15,713 |   |   |   | 15,713 |   |   |   | 15,713 |   |   |
| Net (loss) income                                                                    |       | —     |       |        | —       |           |       |                    | —       |             |       |              | —     |                   |       |              | —       |                   |       |   | (20,937 | ) |   |   | — |   |   |   | (20,937 | ) |   |   | (20,937 | ) |   |
| **Balance  at May 31, 2007**                                                    |       | 182,979    |       |        | $            | 1,994          |       |                    |         | $                | 822,740    |              |       |                   | $          | (123,207          | )            |                   |       | $ | — |   |   |   | $ | 17,755 |   |   |   | $ | 35,946 |   |   |   | $ | 755,228 |   |   |   | $ | (5,197 | ) |   |

 

The accompanying notes are an integral part of the ConsolidatedFinancial Statements

F-5

----

**LAWSON SOFTWARE, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands)**

| ** **                                                                                | ** ** | **Year Ended May 31,** | ** ** |
|-------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                                                | ** ** | **2007**                              | ** ** | **2006** | ** ** | **2005** | ** ** |
| **Cash flows from operating activities:**                                                 |       |                                  |       |   |   |   |   |
| Net income (loss)                                                                         |       | $                                     | (20,937    | ) | $ | 15,959 |   | $ | 5,262 |   |
| Adjustments to reconcile net income (loss) to net  cash provided by operating activities: |       |                                  |       |   |   |   |   |
| Minority interest                                                                         |       | —                      |       | (176 | ) | — |   |
| Write-off intangible  assets                                                              |       | —                                |       | 268 |   | — |   |
| Depreciation and  amortization                                                            |       | 39,502                                |       | 16,231 |   | 16,065 |   |
| Amortization of debt  issuance costs                                                      |       | 133                                   |       |   |   |   |   |
| Deferred income taxes                                                                     |       | 8,076                                 |       | (1,602 | ) | (3,044 | ) |
| Provision for doubtful  accounts                                                          |       | 3,501                                 |       | (1,147 | ) | 1,141 |   |
| Warranty provision                                                                        |       | 2,537                                 |       | 2,610 |   | 1,614 |   |
| Loss on the disposal of  assets                                                           |       | 131                                   |       | — |   | 104 |   |
| Excess tax benefit from  stock transactions                                               |       | (2,457                                | )          | — |   | — |   |
| Tax benefit from  stockholder transactions for option activity                            |       | 2,569                                 |       | 4,016 |   | 4,215 |   |
| Stock-based compensation  expense                                                         |       | 7,652                                 |       | 6,803 |   | 262 |   |
| Amortization of discounts  on notes payable                                               |       | —                                |       | 13 |   | 88 |   |
| Amortization of discounts  (premiums) on marketable securities                            |       | (443                                  | )          | (590 | ) | 145 |   |
| Changes in operating assets and liabilities, net of  effect from acquisitions:            |       |                                  |       |   |   |   |   |
| Trade accounts receivable                                                                 |       | 14,084                                |       | 10,208 |   | 21,188 |   |
| Prepaid expenses and  other assets                                                        |       | 2,391                                 |       | 22,042 |   | 748 |   |
| Accounts payable                                                                          |       | (5,849                                | )          | (1,290 | ) | (2,388 | ) |
| Accrued and other  liabilities                                                            |       | (32,111                               | )          | (6,560 | ) | (4,371 | ) |
| Income taxes payable/receivable                                                           |       | (5,457                                | )          | 1,046 |   | 419 |   |
| Deferred revenue                                                                          |       | 85,221                                |       | 8,655 |   | (8,550 | ) |
| Net cash provided by  operating activities                                                |       | 98,543                                |       | 76,486 |   | 32,898 |   |
| **Cash flows from investing activities:**                                                 |       |                                  |       |   |   |   |   |
| Cash received (paid) in  conjunction with acquisitions, net of cash acquired              |       | (3,575                                | )          | 30,137 |   | (3,654 | ) |
| Change in restricted cash                                                                 |       | (7,444                                | )          | — |   | — |   |
| Purchases of marketable  securities                                                       |       | (195,162                              | )          | (157,126 | ) | (536,717 | ) |
| Maturities of marketable  securities                                                      |       | 211,709                               |       | 107,801 |   | 590,562 |   |
| Sale of marketable  securities                                                            |       | 500                                   |       | 337 |   | 35,755 |   |
| Purchases of property and  equipment                                                      |       | (17,516                               | )          | (4,907 | ) | (3,724 | ) |
| Net cash (used in)  provided by investing activities                                      |       | (11,488                               | )          | (23,758 | ) | 82,222 |   |
| **Cash flows from financing activities:**                                                 |       |                                  |       |   |   |   |   |
| Principal payments on  long-term debt                                                     |       | (1,778                                | )          | (43,185 | ) | (1,358 | ) |
| Cash proceeds from  issuance of long-term debt                                            |       | 244,493                               |       | — |   | — |   |
| Payment for debt issuance  costs                                                          |       | (6,289                                | )          | — |   | — |   |
| Cash proceeds from sale  of stock warrants                                                |       | 34,176                                |       | — |   | — |   |
| Payment for call options                                                                  |       | (57,697                               | )          | — |   | — |   |
| Payments on capital lease  obligations                                                    |       | (1,828                                | )          | (112 | ) | — |   |
| Cash proceeds from  exercise of stock options                                             |       | 12,387                                |       | 7,098 |   | 7,640 |   |
| Excess tax benefit from  stock transactions                                               |       | 2,457                                 |       | — |   | — |   |
| Cash proceeds from  employee stock purchase plan                                          |       | 2,715                                 |       | 3,554 |   | 3,946 |   |
| Repurchase of common  stock                                                               |       | (54,870                               | )          | — |   | (10,000 | ) |
| Net cash (used in)  provided by financing activities                                      |       | 173,766                               |       | (32,645 | ) | 228 |   |
| **Effect  of exchange rate changes on cash and cash equivalents**                         |       | 2,988                                 |       | 2,327 |   | — |   |
| Increase in cash  and cash equivalents                                                    |       | 263,809                               |       | 22,410 |   | 115,348 |   |
| Cash and cash  equivalents at the beginning of the period                                 |       | 210,154                               |       | 187,744 |   | 72,396 |   |
| Cash and cash  equivalents at the end of the period                                       |       | $                                     | 473,963    |   | $ | 210,154 |   | $ | 187,744 |   |
| Supplemental disclosures:                                                                 |       |                                  |       |   |   |   |   |
| Interest paid                                                                             |       | $                                     | 7,577      |   | $ | 19 |   | $ | 11 |   |
| Income taxes paid  (refunded), net                                                        |       | $                                     | 12,412     |   | $ | (9,482 | ) | $ | (57 | ) |

 

 

The accompanying notes are an integral part of the consolidated financial statements.

F-6

----

**LAWSON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data)**

**1.**                 BusinessDescription

The Company providesbusiness application software, consulting and maintenance to customersprimarily in the services sector, trade industries andmanufacturing/distribution sectors specializing in a variety of specificmarkets within these sectors including healthcare, public services, retail,financial services, food and beverage, manufacturing and wholesale distribution.The Company’s software includes a variety of applications to help automate andintegrate critical business processes, aiding in collaboration among itsclients and their partners, suppliers and employees. Through the Company’sconsulting services we primarily help our clients implement their Lawsonapplications and through our maintenance we provide product updates, on-goingsupport and technical assistance to clients using our products.

**2.**                 Summaryof Significant Accounting Policies

***Basis of Presentation***

The Consolidated FinancialStatements include the accounts of the Company and its branches andmajority-owned subsidiaries operating in the United States of America, Europeand Asia. All significant intercompany accounts and transactions have beeneliminated. The Company’s subsidiaries that are not majority-owned areaccounted for under the equity method. The accompanying Consolidated FinancialStatements for prior fiscal years contain reclassifications to conform prioryear’s data to the current presentation. On the May 31, 2006 ConsolidatedBalance Sheet the reclassifications included $18.9 million of unbilled accountsreceivable from the newly acquired Intentia to accounts receivable from prepaidand other assets, where Intentia had previously classified this balance, toconform to the current presentation of classifying unbilled accounts receivablein accounts receivable and a balance sheet reclassification of certain employeecompensation liabilities to be included in the accrued compensation andbenefits line item reclassified from other accrued liabilities. Thereclassifications had no effect on previously reported net earnings orstockholders’ equity.

***Fiscal Year***

Our fiscal year is from June 1to May 31. Unless otherwise stated, references to the years 2007 and 2006relate to the fiscal years ended May 31, 2007 and 2006, respectively. Referencesto future years also relate to our fiscal year ended May 31.

***Use of Estimates***

The preparation offinancial statements in conformity with U.S. GAAP requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expensesduring the reporting period. On an on-going basis, the Company evaluates itsestimates, including those related to revenue recognition, provision fordoubtful accounts and sales returns, fair value of investments, fair value ofacquired intangible assets and goodwill, useful lives of intangible assets andproperty and equipment, income taxes, restructuring obligations and contingenciesand litigation, among others. The Company bases its estimates on historicalexperience and on various other assumptions that are believed to be reasonableunder the circumstances, the results of which form the basis for makingjudgments about the carrying values of assets and liabilities. Actual resultscould differ from those estimates.

F-7

----

**LAWSON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in thousands, except share and per share data)**

***Fair Value of Financial Instruments***

The Company’s financialinstruments consist primarily of cash, marketable securities, trade accountsreceivable and accounts payable for which the current carrying amountsapproximate fair market value. The Company’s long-term debt is carried at cost.The estimated fair value of our 2.5% senior convertible notes, includingcurrent maturities, was $246.0 million as of May 31, 2007 based on quotedmarket prices. The remainder of our long-term debt has fair values that are notmaterially different from the carrying values.

***Cash Equivalents***

All highly liquidinvestments with an original maturity of three months or less are considered tobe cash equivalents. The Company’s cash equivalents consist primarily of moneymarket instruments and highly liquid securities of corporations the U.S.Government and Agencies and state and local municipalities. The carrying amountof cash equivalents approximates fair value due to the short maturity of theseinstruments.

***Accounts Receivable and Allowance for DoubtfulAccounts***

Accounts receivable areinitially recorded at fair value upon the sale of software licenses andservices to customers. We maintain an allowance for doubtful accounts at anamount we estimate to be sufficient to provide adequate protection againstlosses resulting from extending credit to our customers. In judging theadequacy of the allowance for doubtful accounts, we consider multiple factorsincluding historical bad debt experience, the general economic environment, theneed for specific customer reserves and the aging of our receivables. Thisprovision is included in operating expenses as a general and administrativeexpense. A considerable amount of judgment is required in assessing thesefactors. If the factors utilized in determining the allowance do not reflectfuture performance, then a change in the allowance for doubtful accounts wouldbe necessary in the period such determination has been made affecting futureresults of operations.

***Marketable Securities***

The Company accounts for marketable securities inaccordance with provisions of Statement of Financial Accounting Standards SFAS No. 115,*Accounting for Certain Investments in Debt andEquity Securities* (SFAS 115). SFAS 115 addresses the accounting andreporting for investments in fixed maturity securities and for equitysecurities with readily determinable fair values. Management determines theappropriate classification of debt securities at the time of purchase andreevaluates such designation as of each balance sheet date. Currently, allmarketable securities held by the Company are classified as available-for-sale.Available-for-sale securities are carried at fair value as determined by quotedmarket prices, with unrealized gains and losses, net of tax, reported as aseparate component of stockholders’ equity. If an unrealized loss for anyinvestment is considered to be other-than-temporary, the loss will berecognized in the Consolidated Statements of Operations in the period thedetermination is made. The cost basis of securities sold is determined usingthe specific identification method. Interest and dividends on securitiesclassified as available-for-sale are included in interest income. As of May 31, 2007,$75.0 million of total investments mature within one year and$4.9 million mature beyond one year and 

F-8

----

**LAWSON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in thousands, except share and per share data)**

within two years. Grossrealized and unrealized gains and losses for the years ended May 31, 2007,2006, and 2005 were not material.

As of May 31, 2007and 2006, the Company’s debt and marketable securities were as follows (inthousands):

| ** **                                | ** ** | **May 31, 2007** | ** ** | **May 31, 2006** | ** ** |
|-------------------------------------------|------------|----------------------------|------------|----------------------------|------------|
| ** **                                | ** ** | ** **                 | ** ** | **Aggregate**              | ** ** | **Net  Unrealized** | ** ** | ** ** | ** ** | **Aggregate** | ** ** | **Net  Unrealized** | ** ** |
| ** **                                | ** ** | ** **                 | ** ** | **Fair**                   | ** ** | **Gains** | ** ** | ** ** | ** ** | **Fair** | ** ** | **Gains** | ** ** |
| ** **                                | ** ** | **Cost**                   | ** ** | **Value**                  | ** ** | **(Losses)** | ** ** | **Cost** | ** ** | **Value** | ** ** | **(Losses)** | ** ** |
| ** **                                | ** ** | **in thousands**      | ** ** |
| State and local  municipalities debt |       | $                          | 18,080     |                       |       | $ | 18,080 |   |   |   | $ | — |   |   | $ | — |   |   | $ | — |   |   |   | $ | — |   |   |
| US Agency                                 |       | 7,749                      |       |                       | 7,745      |   |   |   | (4 | ) |   | 38,267 |   |   | 38,471 |   |   |   | 204 |   |   |
| Corporate debt                            |       | 54,060                     |       |                       | 54,048     |   |   |   | (12 | ) |   | 57,821 |   |   | 57,956 |   |   |   | 135 |   |   |
| Total                                     |       | $                          | 79,889     |                       |       | $ | 79,873 |   |   |   | $ | (16 | ) |   | $ | 96,088 |   |   | $ | 96,427 |   |   |   | $ | 339 |   |   |
| Current                                   |       | $                          | 74,995     |                       |       | $ | 74,995 |   |   |   | $ | — |   |   | $ | 90,107 |   |   | $ | 90,348 |   |   |   | $ | 241 |   |   |
| Non-current                               |       | $                          | 4,894      |                       |       | $ | 4,878 |   |   |   | $ | (16 | ) |   | $ | 5,981 |   |   | $ | 6,079 |   |   |   | $ | 98 |   |   |

 

***Property and Equipment***

Property and equipmentincludes equipment, office furniture and automobiles and is stated at cost lessaccumulated depreciation. Depreciation is computed using the straight-lineapproach over the estimated useful lives of the assets, which generally rangefrom one to seven years. Property and equipment also includes leaseholdimprovements which are stated at cost less accumulated amortization.Amortization is computed over the shorter of the economic life or the term ofthe underlying facility lease, which generally ranges from 3 to 16 years.Depreciation and amortization expense related to property, plant and equipmentwas $9.9 million, $5.8 million, and $7.3 million for the yearsended May 31, 2007, 2006, and 2005, respectively.

***Lease Obligations***

The Company recognizeslease obligations with scheduled rent increases over the term of the lease on astraight-line basis in accordance with Financial Accounting Standards BoardTechnical Bulletin 85-3 *Accounting for OperatingLeases with Scheduled Rent Increases*. Accordingly, the total amountof base rentals over the term of the Company’s leases is charged to expense ona straight-line method, with the amount of rental expense in excess of leasepayments recorded as a deferred rent liability. As of May 31, 2007 and 2006,the Company has deferred rent liabilities of $2.9 million and$3.0 million, respectively, all of which are classified in other long-termliabilities. The Company also recognizes capital lease obligations and recordsthe underlying assets and liabilities in the Consolidated Balance Sheets. SeeNote 13 for disclosure of capital lease obligations.

***Revenue Recognition***

Revenue recognition rules for software businessesare very complex. We follow specific and detailed guidelines in determining theproper amount of revenue to be recorded; however, certain judgments affect theapplication of our revenue recognition policy. Revenue results are difficult topredict, and any shortfall 

F-9

----

**LAWSON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in thousands, except share and per share data)**

in revenue or delay inrecognizing revenue could cause our operating results to vary significantlyfrom year to year.

The significant judgments for revenue recognitiontypically involve whether collectibility can be considered probable and whetherfees are fixed or determinable. In addition, our transactions often consist ofmultiple element arrangements, which typically include license fees,maintenance and support fees and consulting service fees. These multipleelement arrangements must be analyzed to determine the relative fair value ofeach element, the amount of revenue to be recognized upon shipment, if any, andthe period and conditions under which deferred revenue should be recognized.

We recognize revenue in accordance with the provisionsof the AICPA SOP 97-2 and SOP 98-9, as well as Technical Practice Aids issuedfrom time to time by the AICPA, and in accordance with SAB 104. We licensesoftware under non-cancelable license agreements and provide related consultingservices, including training, and implementation services, as well as on-goingcustomer support and maintenance.

When ourconsulting, training and implementation services 1) are not consideredessential to the functionality of our software products, 2) are sold separatelyand also 3) are available from a number of third-party service providers, ourrevenues from these services are generally recorded separately from licensefees and recognized as the services are performed. License fees within softwarearrangements including services that do not meet any one or a combination ofthe three criteria listed above, are recognized in accordance with SOP 81-1,using contract accounting and the percentage-of-completion methodology based onlabor hours input. Software arrangements which include certain fixed-feeservice components are usually recognized as the services are performed whilecorresponding costs to provide these services are expensed as incurred. Theamounts of revenue and related expenses reported in the Consolidated FinancialStatements may vary, due to the amount of judgment required to addresssignificant assumptions, risks and uncertainties in applying the application ofthe percentage-of-completion methodology. Our specific revenue recognitionpolicies are as follows:

·       SoftwareLicense Fees—License fee revenues from end-users are recognized when the softwareproduct has been shipped, provided a non-cancelable license agreement has beensigned, there are no uncertainties surrounding product acceptance, the fees arefixed or determinable and collection of the related receivable is consideredprobable. Provided the above criteria are met, license fee revenues fromresellers are recognized when there is a sell-through by a reseller to anend-user. A sell-through is determined when we receive an order form from areseller for a specific end-user sale. We do not generally offer rights ofreturn, acceptance clauses or price protection to our customers. In situationswhere software license contracts include rights of return or acceptanceclauses, revenue is deferred until the clause expires. Typically, our softwarelicense fees are due within a 12-month period from the date of shipment. If thefee due from the customer is not fixed or determinable, or includes paymentterms greater than twelve months from shipment, revenue is recognized aspayments become due and all other conditions for revenue recognition have beensatisfied. In software arrangements that include rights to multiple deliveredelements such as software products or specified upgrades and undeliveredelements such as support or services, we allocate the total arrangement feeaccording to the fair value of each element using vendor-specific objectiveevidence. Vendor-specific objective evidence of fair value is determined usingthe price charged when that element is sold separately. In software arrangementsin which we have fair value of all undelivered elements but not of a deliveredelement, we use the residual method to record 

F-10

----

**LAWSON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in thousands, except share and per share data)**

revenue. Under theresidual method, the fair value of the undelivered elements is deferred and theremaining portion of the arrangement fee is allocated to the delivered elementand is recognized as revenue. In software arrangements in which we do not havevendor-specific objective evidence of fair value of all undelivered elements,revenue is deferred until fair value is determined or all elements for which wedo not have vendor-specific objective evidence of fair value, have beendelivered.

·       Maintenanceand Support—Revenues from customer maintenance and support contracts aredeferred and recognized ratably over the term of the agreements. Revenues formaintenance and support that are bundled with license fees are deferred basedon the vendor specific objective evidence of fair value of the bundledmaintenance and support and recognized over the term of the agreement. Vendorspecific objective evidence of fair value is based on the renewal rate forcontinued maintenance and support arrangements.

·       Consulting Services—Revenuesfrom consulting services (including training and implementation services) arerecognized as services are provided to customers. Revenues for consultingservices that are bundled with license fees are deferred based on thevendor-specific objective evidence of fair value of the bundled services andrecognized when the services are performed. Vendor-specific objective evidenceof fair value is based on the price charged when training and consultingservices are sold separately.

***Deferred Debt Issuance Costs***

Deferred debt issuancecosts of $6.3 million are included in Other Assets, net of amortization, as of May 31,2007. Deferred debt issuance costs are being amortized using the straight-linemethod over the estimated remaining maturity of the related convertible debtand are included in interest expense on the Consolidated Statement ofOperations.

***Sales Returns and Allowances***

Although we do not generally provide a contractualright of return, in the course of arriving at practical business solutions tovarious warranty and other claims, we have allowed sales returns andallowances. We record a provision against revenue for estimated sales returnsand allowances on licenses in the same period the related revenues are recordedor when current information indicates additional amounts are required. Theseestimates are based on historical experience determined by analysis of returnactivities, specifically identified customers and other known factors. If thehistorical data we utilize does not reflect future performance, then a changein the allowances would be necessary in the period such determination has beenmade affecting future results of operations.

F-11

----

**LAWSON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in thousands, except share and per share data)**

Followingis a roll forward of our product warranty reserve:

| ** **                       | ** ** | **(in thousands)** | ** ** |
|----------------------------------|------------|-------------------------|------------|
| Balance, May 31,  2004           |       |                    | $          | 2,412 |   |   |
| Provision                        |       |                    | 1,614      |   |   |
| Write-offs                       |       |                    | (2,291     | ) |   |
| Recoveries                       |       |                    | (25        | ) |   |
| Translation adjustment           |       |                    | 7          |   |   |
| Balance, May 31,  2005           |       |                    | 1,717      |   |   |
| Acquired in business combination |       |                    | —     |   |   |
| Provision                        |       |                    | 2,610      |   |   |
| Write-offs                       |       |                    | (2,333     | ) |   |
| Recoveries                       |       |                    | (1         | ) |   |
| Translation adjustment           |       |                    | (5         | ) |   |
| Balance, May 31,  2006           |       |                    | 1,988      |   |   |
| Provision                        |       |                    | 2,537      |   |   |
| Write-offs                       |       |                    | (1,285     | ) |   |
| Recoveries                       |       |                    | —     |   |   |
| Translation adjustment           |       |                    | (8         | ) |   |
| Balance, May 31, 2007            |       |                    | $          | 3,232 |   |   |

 

***Research and Development***

Expenditures for softwareresearch and development are expensed as incurred. These expenses consistprimarily of salaries, employee benefits, related overhead costs, andconsulting fees associated with product development, enhancements and upgradesfor existing customers under maintenance and for new customers, testing,quality assurance, and documentation. Such costs are required to be expenseduntil the point that technological feasibility of the software is established.To date, the time period between the establishment of technological feasibilityand completion of software development has been short, and no significantdevelopment costs have been incurred during that period. Accordingly, theCompany has not capitalized any internal software development costs to date.The Company’s software research and development costs primarily relate tosoftware development during the period prior to technological feasibility andare charged to operations as incurred.

***Advertising Expense***

The Company expensesadvertising costs as incurred. Advertising expenses of $12.4 million,$10.4 million, and $11.3 million were charged to sales and marketingexpenses during the years ended May 31, 2007, 2006,and 2005, respectively.

***Income Taxes***

The provision for income taxes consists of provisionsfor federal, state, and foreign income taxes. The Company operates in aninternational environment with significant operations in various locationsoutside of the United States. Accordingly, the consolidated income tax rate isa composite rate reflecting the earnings in various locations and theapplicable rates.

F-12

----

**LAWSON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in thousands, except share and per share data)**

Significant judgment is required in determining ourworldwide income tax provision. In the ordinary course of a global business,there are many transactions and calculations where the ultimate tax outcome isuncertain. Our judgments, assumptions, and estimates relative to the provisionfor income tax take into account current tax laws, our interpretation ofcurrent tax laws, and possible outcomes of current and future audits conductedby foreign and domestic tax authorities. Although we believe that our estimatesare reasonable, the final tax outcome of matters could be different from thatwhich is reflected in our historical income tax provision and accruals. Suchdifferences could have a material effect on the amounts provided in ourConsolidated Balance Sheets and Consolidated Statements of Operations.

In conjunction with preparing the global taxprovision, we must assess temporary differences resulting from the differenttreatment of specific items for tax and financial reporting purposes. Thesedifferences result in deferred tax assets and liabilities, which are included withinour Consolidated Balance Sheets. As part of this process, we must also assessthe likelihood that deferred tax assets will be realized from future taxableincome and, based on this assessment establish a valuation allowance, ifrequired. Our determination of our valuation allowance is based upon a numberof assumptions, judgments, and estimates, including historical operatingresults, forecasted earnings, future taxable income, and the relativeproportions of revenue and income before taxes in the various domestic andinternational jurisdictions in which we operate. To the extent we establish avaluation allowance or change the valuation allowance in a period, except asdiscussed below for pre-acquisition deferred tax assets that had apre-acquisition valuation allowance, we reflect the change with a correspondingincrease or decrease to our tax provision in our Consolidated Statements ofOperations.

Under the provisions of SFAS 109 and relatedinterpretations, future period reductions to the valuation allowance related toIntentia’s deferred tax assets that existed as of the date of the acquisitionof Intentia are first credited against goodwill, then to the other identifiableassets existing at the date of acquisition, and then, once these assets have beenreduced to zero, credited to the income tax provision. A non-cash provisionwill be credited against goodwill for the utilization of pre-acquisition netoperating losses that had been fully reserved in purchase accounting.

In connection with our adoption of SFAS 123(R), wehave elected the “long form” method for calculating the tax effects ofstock-based compensation pursuant to SFAS 123(R), paragraph 81. Under the “longform” method, we determined the beginning balance of the additional paid-incapital pool (APIC pool) related to the tax effects of the employee stock-basedcompensation as if we had adopted the recognition provisions of SFAS 123 sinceits effective date of January 1, 1995. We also determined the subsequentimpact on the APIC pool and Consolidated Statement of Cash Flows of the taxeffect of employee stock-based compensation awards that were issued after ouradoption of SFAS 123(R) and were outstanding at the adoption date.

When assessing whether atax benefit relating to share-based compensation has been realized, we followthe tax law ordering method, under which current year share-based compensationdeductions are assumed to be utilized before net operating loss carryforwardsand other tax attributes.

***Concentrations of Credit Risks***

Financial instruments that potentially subject theCompany to concentrations of credit risk consist primarily of cash and cashequivalents and trade accounts receivable. Cash equivalents consist primarilyof 

F-13

----

**LAWSON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in thousands, except share and per share data)**

money market instrumentsand highly liquid debt securities of corporations and municipalities, with anoriginal maturity of three months or less at the dated of purchase and arereadily convertible into cash.

The Company grants creditto clients in the ordinary course of business. Concentrations of credit riskwith respect to trade accounts receivable are limited due to the large numberof clients comprising the Company’s client base and their dispersion acrossdifferent industries and geographic areas. No single client accounted for 10%or more of revenues for fiscal 2007, 2006 or 2005 or of tradeaccounts receivable at May 31, 2007 or 2006.

***Contingent Liabilities***

The Company from time to time may have unresolvedregulatory, legal and tax matters, as discussed further inNote 13. The Company provides for contingent liabilities inaccordance with SFAS 5. In accordance with SFAS 5, a loss contingency ischarged to income when it is probable that an asset has been impaired or aliability has been incurred at the date of the financial statements and theamount of the loss can be reasonably estimated. Disclosure in the Notes to thefinancial statements is required for loss contingencies that do not meet both thoseconditions if there is a reasonable possibility that a loss may have beenincurred. Gain contingencies are not recorded until realized. The Companyexpenses all legal costs incurred to resolve regulatory, legal and tax mattersas incurred.

Periodically, the Companyreviews the status of each significant matter to assess the potential financialexposure. If a potential loss is considered probable and the amount can bereasonably estimated as defined by SFAS 5, the Company reflects the estimatedloss in its results of operations. Significant judgment is required todetermine the probability that a liability has been incurred and whether suchliability can be reasonably estimated. Because of uncertainties related tothese matters, accruals are based on the best information available at thetime. Further, estimates of this nature are highly subjective, and the finaloutcome of these matters could vary significantly from the amounts that havebeen included in the accompanying Consolidated Financial Statements. Asadditional information becomes available, the Company reassesses the potentialliability related to its pending claims and litigation and may revise itsestimates accordingly. Such revisions in the estimates of the potentialliabilities could have a material impact on the Company’s results of operationsand financial position.

***Litigation Reserves***

The establishment of litigation reserves requiresjudgments concerning the ultimate outcome of pending litigation against theCompany and its subsidiaries. Reserves established in the normal course ofbusiness are based on the application of SFAS 5, which requires us to record areserve if we believe an adverse outcome is probable and the amount of theprobable loss is capable of reasonable estimation. Reserves established inpurchase accounting are based on fair value under SFAS 141 so long as fairvalue can be determined, otherwise these are determined under SFAS 5. Allreserves exclude legal costs which are treated as a period expense as incurred.

In applying judgment,management utilizes, among other things, opinions and estimates obtained frominternal and outside legal counsel. For purposes of assessing purchaseaccounting information, management also utilizes information obtained fromindependent valuation experts. Litigation by its nature is uncertain and thedetermination of whether any particular case involves a probable loss and thenquantifying the amount of loss for purposes of adjusting initial estimatesrequires the exercise of 

F-14

----

**LAWSON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in thousands, except share and per share data)**

considerablejudgment, which is applied as of a certain date. The required reserves maychange in the future due to new matters, developments in existing matters or ifwe determine to change our strategy with respect to the resolution of anyparticular matter.

***Goodwill and Other Intangible Assets***

Thechanges in the carrying amount of goodwill for the year ended May 31, 2007and 2006 are as follows (in thousands):

|                                          | ** ** | **May 31,**      | ** ** |
|------------------------------------------|------------|-----------------------|------------|
| ** **                               | ** ** | **2007**              | ** ** | **2006** | ** ** |
| ** **                               | ** ** | **in thousands** | ** ** |
| Balance as of the  beginning of the year |       | $                     | 454,550    |   | $ | 43,407 |   |
| Goodwill acquired during the year        |       | 1,327                 |       | 397,931 |   |
| Goodwill adjusted during the year        |       | 7,727                 |       | — |   |
| Contingent consideration earned          |       | —                |       | 184 |   |
| Currency translation effect gain (loss)  |       | 19,456                |       | 13,028 |   |
| Balance as of the end of  the year       |       | $                     | 483,060    |   | $ | 454,550 |   |

 

The $7.7 million of adjustments to goodwill relate tothe acquisition of Intentia. This principally includes increases to goodwill ofapproximately $12.8 million for the preacquisition litigation reserve and arevision to our estimated additional purchase price settlement with formerIntentia shareholders of $2.2 million. These increases were partiallyoffset by reductions to reserves, the largest of which related to an adjustmentof $10.2 million related to an intercompany transaction more fully described inNote 12 and to the restructuring reserve of $1.8 million. See Note 4Business Combinations for more information.

The remaining adjustments to goodwill pertain to otherpurchase accounting true-ups that were recorded throughout the year.

Acquiredintangible assets subject to amortization are as follows (in thousands):

| ** **              | ** ** | **May 31, 2007** | ** ** | **May 31, 2006** | ** ** | ** ** | ** ** |
|-------------------------|------------|----------------------------|------------|----------------------------|------------|------------|------------|
| ** **              | ** ** | **Gross**                  | ** ** | ** **                 | ** ** | ** ** | ** ** | **Gross** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **              | ** ** | **Carrying**               | ** ** | **Accumulated**            | ** ** | ** ** | ** ** | **Carrying** | ** ** | **Accumulated** | ** ** | ** ** | ** ** | **Estimated** | ** ** |
| ** **              | ** ** | **Amounts**                | ** ** | **Amortization**           | ** ** | **Net**    | ** ** | **Amounts** | ** ** | **Amortization** | ** ** | **Net** | ** ** | **useful lives** | ** ** |
| Maintenance  contracts  |       | $                          | 22,940     |                       |       | $          | 11,822     |   |   | $ | 11,118 |   | $ | 22,940 |   |   | $ | 8,266 |   |   | $ | 14,674 |   | Term |   |
| Technology              |       | 91,555                     |       |                       | 22,541     |       |       | 69,014 |   | 85,348 |   |   | 11,452 |   |   | 73,896 |   | 3-10  years |   |
| Client lists            |       | 10,765                     |       |                       | 5,937      |       |       | 4,828 |   | 10,634 |   |   | 4,736 |   |   | 5,898 |   | 4-10  years |   |
| Customer  relationships |       | 49,492                     |       |                       | 5,371      |       |       | 44,121 |   | 47,393 |   |   | 372 |   |   | 47,021 |   | 12  years |   |
| Trademarks              |       | 5,281                      |       |                       | 2,514      |       |       | 2,767 |   | 5,063 |   |   | 181 |   |   | 4,882 |   | 2  years |   |
| Order backlog           |       | 5,861                      |       |                       | 5,861      |       |       | — |   | 5,627 |   |   | 469 |   |   | 5,158 |   | 1  year |   |
| Non-compete  agreements |       | 3,834                      |       |                       | 2,226      |       |       | 1,608 |   | 3,518 |   |   | 352 |   |   | 3,166 |   | 5  years |   |
|                    |       | $                          | 189,728    |                       |       | $          | 56,272     |   |   | $ | 133,456 |   | $ | 180,523 |   |   | $ | 25,828 |   |   | $ | 154,695 |   |   |   |

 

The company amortizes its intangible assets, usingaccelerated and straight-line methods which approximates the proportion offuture cash flows estimated to be generated in each period over the estimateduseful life of the applicable asset. See Note 4 of Notes to ConsolidatedFinancial Statements.

F-15

----

**LAWSON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in thousands, except share and per share data)**

Amortization expense for the fiscal years ended May 31, 2007, 2006and 2005 was $29.6 million, $10.4 million and $8.8 million,respectively. Amortization expense is reported in cost of revenues andamortization of acquired intangibles, in the accompanying ConsolidatedStatements of Operations.

Theestimated future annual amortization expense for identified intangible assetsis as follows (in thousands):

| 2008       |   | $      | 28,031  |   |
|------------|--------|--------|---------|--------|
| 2009       |   | 21,368 |    |
| 2010       |   | 18,076 |    |
| 2011       |   | 15,409 |    |
| 2012       |   | 12,263 |    |
| Thereafter |   | 38,309 |    |
|       |   | $      | 133,456 |   |

 

The Company accounts forgoodwill and other intangible assets in accordance with the provisions of SFAS142. Under SFAS 142, goodwill and intangible assets with indefinite livesare not amortized to expense and must be reviewed for impairment annually ormore frequently if events or changes in circumstances indicate that the assetmight be impaired. The first step of the goodwill impairment test, used toidentify potential impairment, compares the fair value of a reporting unit withits carrying amount, including goodwill. The Company operates as one reportingunit and therefore compares the carrying amount to the market value. Marketvalue is determined utilizing our market capitalization plus a control premium.If the market value exceeds the carrying amount, goodwill is considered notimpaired, thus the second step of the impairment test is not necessary. If theCompany’s carrying amount exceeds the market value, the second step of thegoodwill impairment test shall be performed to measure the amount of impairmentloss, if any. The second step of the goodwill impairment test, used to measurethe amount of impairment loss, compares the implied fair value of the goodwillwith the carrying amount of the goodwill. If the carrying amount of thegoodwill exceeds the implied fair value of the goodwill, an impairment losswould be recognized in an amount equal to the excess. Any loss recognizedcannot exceed the carrying amount of goodwill. After a goodwill impairment lossis recognized, the adjusted carrying amount of goodwill is its new accountingbasis. Subsequent reversal of a previously recognized goodwill impairment lossis prohibited once the measurement of that loss is completed and the loss hasbeen recognized. The Company completed the annual goodwill impairmentassessment as of May 31, 2007 and 2006, upon which no impairmentwas recorded. As of May 31, 2007 and 2006, approximately $9.1 millionand $21.5 million of the Company’s goodwill relates to acquisitions where thegoodwill is expected to be deductible for tax purposes.

***Stock-Based Compensation***

Effective June 1, 2006, the Company adopted SFAS123(R) which replaced SFAS 123 and superseded APB 25. Under SFAS 123(R),stock-based employee compensation cost is recognized using the fair value basedmethod for all new awards granted after June 1, 2006 and unvested awardsoutstanding at June 1, 2006. Compensation costs for unvested stock optionsand awards that are outstanding at June 1, 2006, will be recognized overthe requisite service period based on the grant-date fair value of thoseoptions and awards as previously calculated under the pro forma disclosuresunder SFAS 123, using a straight-line 

F-16

----

**LAWSON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in thousands, except share and per share data)**

method. The Companyelected the modified-prospective method of adopting SFAS 123(R), under whichprior periods are not retroactively restated. Stock-based compensation expensefor non-vested awards granted prior to the effective date is being recognizedover the remaining service period using the fair value based compensation costestimated for SFAS 123 pro forma disclosures.

SFAS 123(R) requirescompanies to estimate the fair value of stock-based payment awards on the dateof grant using an option-pricing model. The Company uses the Black-Scholesoption-pricing model which requires the input of significant assumptionsincluding an estimate of the average period of time employees will retainvested stock options before exercising them, the estimated volatility of theCompany’s common stock price over the expected term, the number of options thatwill ultimately be forfeited before completing vesting requirements and therisk-free interest rate. Changes in the assumptions can materially affect theestimate of fair value of equity-based compensation and, consequently, the relatedexpense recognized. The assumptions used in calculating the fair value ofstock-based payment awards represent management’s best estimates, which involveinherent uncertainties and the application of management judgment. As a result,if factors change and we use different assumptions, our equity-basedcompensation expense could be materially different in the future. See Note 5for a further discussion of stock-based compensation.

***Foreign Currency Translation***

All assets and liabilitiesof the Company’s foreign branches and subsidiaries are translated from localcurrencies to United States dollars at period end rates of exchange, whilerevenues and expenses are translated at the average exchange rate during theperiod. The functional currency for each of the Company’s foreign branches andsubsidiaries is the respective local currency. Translation adjustments arisingfrom the translation of net assets located outside of the United States intoUnited States dollars are recorded as a separate component of stockholders’equity. The amounts included in the Consolidated Statements of Operationsrelated to foreign currency transactions for the years ended May 31, 2007, 2006,and 2005 were a net gain of $0.9 million, a net gain of$0.7 million, and a net gain of $0.1 million, respectively.

***Derivatives***

We account for derivativeinstruments, consisting of foreign currency forward contracts, pursuant toStatement of Financial Accounting Standards No. 133, *Accountingfor Derivative Instruments and Hedging Activities*(SFAS 133), asamended. SFAS 133 requires that derivative instruments be recorded in thebalance sheet as either an asset or liability measured at its fair value. Weemploy derivative financial instruments to offset recognized non-functionalcurrency transaction exposures. All foreign currency forward contractsgenerally are short term in nature and mature within 90 days or less. Gains andlosses resulting from changes in the fair value of our derivative portfolio arerecorded in each accounting period. These gains and losses largely offset gainsand losses from non-functional currency balance sheet exposures previouslyrecognized and are recorded as an offset to such gains and losses in otherincome in the Consolidated Statement of Operations. We do not use derivativeinstruments for trading purposes and do not employ hedge accounting. Alloutstanding foreign currency forward contracts are marked to market at the endof the period with unrealized gains and losses included in the CondensedConsolidated Statements of Operations. As of May 31, 2007, the net fairvalue of our derivatives was $0.6 million, and is included in prepaid expensesand other assets.

F-17

----

**LAWSON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in thousands, except share and per share data)**

***Comprehensive Income (Loss)***

Comprehensive income (loss) as defined by SFASNo. 130, *Reporting Comprehensive Income*(SFAS 130), includes net income and items defined as other comprehensiveincome (loss). SFAS 130 requires that items defined as other comprehensiveincome (loss), such as foreign currency translation adjustments and unrealizedgains and losses on certain marketable securities, be separately classified inthe financial statements. The foreign currency translation adjustment forfiscal 2007 reflects the acquisition of Intentia. Such items are reported inthe Consolidated Statements of Stockholders’ Equity as comprehensiveincome (loss).

Thefollowing table summarizes the components of accumulated other comprehensiveincome, net of income taxes (in thousands):

| ** **                                                                                               | ** ** | **Year ended May 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                                                               | ** ** | **2007**                              | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                                                                               | ** ** | **in thousands**                 | ** ** |
| Net income (loss)                                                                                        |       | $                                     | (20,937    | ) | $ | 15,959 |   | $ | 5,262 |   |
| Unrealized gain  (loss) on available-for-sale investments, net of taxes (benefit) of $14,  $(20) and $13 |       | 27                                    |       | (31 | ) | 20 |   |
| Foreign currency  translation adjustment                                                                 |       | 15,713                                |       | 17,316 |   | (29 | ) |
| Other  comprehensive income (loss)                                                                       |       | 15,740                                |       | 17,285 |   | (9 | ) |
| Compreshensive income  (loss)                                                                            |       | $                                     | (5,197     | ) | $ | 33,244 |   | $ | 5,253 |   |

 

Totalaccumulated other comprehensive income and its components at May 31, 2007 and2006 are as follows (in thousands):

| ** **                                                | ** ** | **May 31,**      | ** ** |
|-----------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                | ** ** | **2007**              | ** ** | **2006** | ** ** |
| ** **                                                | ** ** | **in thousands** | ** ** |
| Foreign currency  translation adjustment                  |       | $                     | 35,958     |   | $ | 20,245 |   |
| Unrealized gain  (loss) on available-for-sale investments |       | (12                   | )          | (39 | ) |
| Accumulated other  comprehensive income                   |       | $                     | 35,946     |   | $ | 20,206 |   |

 

***Per Share Data***

Net income (loss) per share is computed under theprovisions of SFAS No. 128, *Earnings Per Share*.Basic earnings per share is computed using net income (loss) and the weightedaverage number of common shares outstanding. Diluted earnings per share reflectthe weighted average number of common shares outstanding plus any potentiallydilutive shares outstanding during the period. Potentially dilutive sharesconsist of shares issuable upon the exercise of stock options and warrants and the vesting ofrestricted stock units.

F-18

----

**LAWSON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in thousands, except share and per share data)**

Thefollowing table sets forth the computation of basic and diluted net income(loss) per share (in thousands, except per share data):

| ** **                                  | ** ** | **Year Ended May 31,** | ** ** |
|---------------------------------------------|------------|---------------------------------------|------------|
| ** **                                  | ** ** | **2007**                              | ** ** | **2006** | ** ** | **2005** | ** ** |
| Basic earnings per share  computation:      |       |                                  |       |   |   |   |   |
| Net (loss) income                           |       | $                                     | (20,937    | ) | $ | 15,959 |   | $ | 5,262 |   |
| Weighted average common shares—basic   |       | 186,363                               |       | 110,995 |   | 99,068 |   |
| Basic net (loss)  income per share          |       | $                                     | (0.11      | ) | $ | 0.14 |   | $ | 0.05 |   |
| Diluted earnings  per share computation:    |       |                                  |       |   |   |   |   |
| Net (loss) income                           |       | $                                     | (20,937    | ) | $ | 15,959 |   | $ | 5,262 |   |
| Shares  calculation:                        |       |                                  |       |   |   |   |   |
| Weighted average common shares              |       | 186,363                               |       | 110,995 |   | 99,068 |   |
| Effect of dilutive stock options            |       | —                                |       | 4,234 |   | 5,338 |   |
| Effect of restricted stock                  |       | —                                |       | 100 |   | — |   |
| Effect of dilutive warrants                 |       | —                                |       | 21 |   | 217 |   |
| Weighted average common shares—diluted |       | 186,363                               |       | 115,350 |   | 104,623 |   |
| Diluted net (loss)  income per share        |       | $                                     | (0.11      | ) | $ | 0.14 |   | $ | 0.05 |   |

 

Potential dilutive shares of common stock related tostock options and warrants that were excluded from the diluted net income pershare computations were 33.3 million, 1.9 million and5.6 million for the years ended May 31, 2007, 2006and 2005, respectively. Certain potential dilutive shares of common stockwere excluded from the diluted earnings per share computation because theirexercise prices were greater than the average market price of the common sharesduring the period and were therefore not dilutive. In addition, for 2007 allpotential dilutive shares of common stock were excluded due to the net loss forthe year. The potential dilutive shares also increased from 2006 to 2007 as aresult of the warrants sold in connection with the issuance of the convertiblenotes (see Note 7).

The 2.5% seniorconvertible notes are convertible, at the holder’s option, into cash and, ifapplicable, shares of common stock based on an initial conversion rate of83.2293 shares of common stock per $1,000 principal amount of notes, which isequivalent to an initial conversion price of approximately $12.02 (which reflectsa 35% conversion premium based on the closing sale price of $8.90 per share ofcommon stock on the Nasdaq Global Select Market on April 17, 2007). Theconversion rate may be adjusted from time to time in certain instances. Thenotes are convertible only under the following certain circumstances:

(1)   based onthe price of the Company’s common stock;

(2)   at any timeon or after January 15, 2012;

(3)   uponspecified distributions to holders of common stock or specified corporatetransactions; and

(4)   upon satisfactionof a trading price condition.

The notes are not currently dilutive to earnings pershare as they are only dilutive when the common stock price exceeds theconversion price.

F-19

----

**LAWSON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in thousands, except share and per share data)**

We use the treasury stockmethod to calculate the weighted-average shares used in the diluted earningsper share computation. Under the treasury stock method, the assumed proceedscalculation includes: (a) the actual proceeds to be received from theemployee upon exercise, (b) the average unrecognized compensation costduring the period and (c) any tax benefits that will be credited uponexercise to additional paid-in capital. We determine whether our windfall poolof available excess tax benefits is sufficient to absorb the shortfall. If so,the effect of the hypothetical deferred tax asset write-off reduces the assumedproceeds in the treasury stock calculation. If there is no pool of availableexcess tax benefits, or if the amount of the pool is insufficient to absorb theentire hypothetical deficient tax deduction, the amount of the deficiency thatis charged to income tax expense is not considered to be a reduction of theassumed proceeds. Currently, we have determined that we have sufficientwindfall pool available.

***New AccountingPronouncements***

In February 2007, the FASB issued SFAS No. 159,*The Fair Value Option for Financial Assets andFinancial Liabilities—Including an Amendment of FASB Statement No. 115*(SFAS 159), which becomes effective for fiscal periods beginning after November 15,2007. Under SFAS 159, companies may elect to measure specified financialinstruments and warranty and insurance contracts at fair value on acontract-by-contract basis, with changes in fair value recognized in earningseach reporting period. This election, called the “fair value option”, willenable some companies to reduce volatility in reported earnings caused bymeasuring related assets and liabilities differently. The Company is currentlyevaluating the potential impact of adopting SFAS 159 has on its consolidatedfinancial statements.

In September 2006, the FASB issued SFAS No. 158,*Employers’ Accounting for Defined Benefit Pensionand Other Postretirement Plans* (SFAS 158). SFAS 158 amends SFAS 87, *Employers’ Accounting for Pension (SFAS 87), SFAS 88, Employers’Accounting for Settlements and Curtailments of Defined Benefit Plans and forBenefits and for Termination Benefits* (SFAS 88), and SFAS 132R, *Employers’ Disclosures about Pensions and Other Postretirement Benefits*.Effective for fiscal years ending after December 15, 2006, SFAS 158 requiresbalance sheet recognition of the funded status for all pension andpostretirement benefit plans. The impact of adoption will be recorded as anadjustment of other accumulated comprehensive income. Subsequent changes infunded status will be recognized as a component of other comprehensive incometo the extent they have not yet been recognized as a component of net periodicbenefit cost pursuant to SFAS 87 or SFAS 88. Prior to the acquisition ofIntentia, the Company did not maintain any plans subject to SFAS 87 or SFAS 158.The Intentia plans are immaterial and therefore, SFAS 158 did not have animpact on the results of operations or financial position.

In September 2006, the FASB issued SFAS No. 157,*Fair Value Measurements* (SFAS 157). SFAS157 establishes a common definition for fair value to be applied to GAAPguidance requiring use of fair value, establishes a framework for measuringfair value, and expands disclosure about such fair value measurements. SFAS 157is effective for fiscal years beginning after November 15, 2007. TheCompany is currently evaluating the expected impact of the provisions of SFAS157 on its results of operations and its financial position.

In September 2006, the SEC issued StaffAccounting Bulletin No, 108 *Considering the Effects ofPrior Year Misstatements when Quantifying Misstatements in Current YearFinancial Statements (SAB 108).* SAB 108 provides interpretiveguidance on how the effects of the carryover or reversal of prior year 

F-20

----

**LAWSON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in thousands, except share and per share data)**

misstatements should beconsidered in quantifying a current year misstatement. The SEC staff believesthat registrants should quantify errors using both a balance sheet and incomestatement approach and evaluate whether either approach results in quantifyinga misstatement that, when all relevant quantitative and qualitative factorsconsidered, is material. SAB 108 is effective for fiscal years ending on orafter November 15, 2006 and the Company has complied as of fiscal 2007. Theimplementation did not have a material affect on the results of operations orfinancial condition.

In July 2006, theFASB issued FIN 48. FIN 48 prescribes a comprehensive model forrecognizing, measuring, presenting and disclosing in the financial statementstax positions taken or expected to be taken on a tax return, including adecision whether to file or not to file a tax return in a particularjurisdiction. FIN 48 is effective for fiscal years beginning after December 15,2006. If there are changes in net assets as a result of the application ofFIN 48, these will be accounted for as an adjustment to retained earnings.Lawson has substantially completed its analysis and does not expect thecumulative effect of the adoption to be material.

**3.   Restructuring**

Thefollowing table sets forth the reserve activity for the fiscal year, related toeach of the restructuring plans and the remaining balances, which are includedin accrued compensation and benefits in the Consolidated Balance Sheet as of May 31,2007 (in thousands):

| ** **                  | ** ** | ** **            | ** ** | ** ** | ** ** | **Fiscal 2006** | ** ** | **Fiscal** | ** ** |
|-----------------------------|------------|-----------------------|------------|------------|------------|----------------------|------------|------------|------------|
| ** **                  | ** ** | ** **            | ** ** | **Fiscal** | ** ** | ** **           | ** ** | **legacy** | ** ** | **2005** | ** ** |
| ** **                  | ** ** | **Total**             | ** ** | **2007**   | ** ** | **Intentia**         | ** ** | **Lawson** | ** ** | **Phase I & II** | ** ** |
| ** **                  | ** ** | **in thousands** | ** ** |
| Balance,  May 31, 2006 |       | $                     | 30,771     |       | $          | —               |       | $          | 29,480     |   | $ | 1,189 |   |   | $ | 102 |   |   |
| Provision for restructuring |       | 15,416                |       | 11,866     |       | —               |       | 3,550      |       |   | — |   |   |
| Cash payments               |       | (19,958               | )          | (1,392     | )          | (16,472              | )          | (1,904     | )          |   | (190 | ) |   |
| Adjustments to provision    |       | (1,935                | )          | —     |       | (1,751               | )          | (272       | )          |   | 88 |   |   |
| Balance, May 31,  2007 |       | $                     | 24,294     |       | $          | 10,474               |       | $          | 11,257     |   | $ | 2,563 |   |   | $ | — |   |   |

 

***Fiscal 2007 Restructuring***

On February 28, 2007,the Company’s management completed a roadmap for optimizing the Company’sproductivity by enhancing global sourcing capabilities and resources. Thisroadmap calls for the rebalancing of the Company’s resources between variouslocations primarily in the United States, Europe and the Company’s globalsupport center in the Philippines. Management envisions the reduction ofapproximately 350 employees primarily in the Company’s U.S. and Europeanoperations over the course of the next four quarters ending May 31, 2008. Thisreduction will include employees working in all areas of the Company,predominantly in consulting and research and development. In conjunction withthis roadmap and in accordance with SFAS 112*,*the Companyrecorded a charge of $11.9 million. As management takes actions in pursuingthese goals, additional charges related to this roadmap which are not in thescope of SFAS 112 may be recorded in future periods, but the timing and extentof these charges are not currently determinable. For the fiscal year ended May 31,2007, $1.4 million of cash severance payments were made, which resulted in abalance of $10.5 million remaining as of May 31, 2007. The Company expectscash payments to be made through November 30, 2008.

F-21

----

**LAWSON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in thousands, except share and per share data)**

***Fiscal 2006 Restructuring***

On April 26, 2006, in conjunction with theacquisition of Intentia, the Company approved a plan designed to eliminateemployee redundancies and exit or reduce leased facilities in both legacyLawson and Intentia.

*Fiscal2006 Legacy Lawson.**  *The planfor legacy Lawson includes the reduction of approximately 60 employees inthe United States and United Kingdom and the exit or reduction in space forleases in certain facilities. The reduction of employees include employees whowork in operations, marketing, sales, research and development, maintenance andconsulting. As of May 31, 2006 the Company had a reserve of $1.2 millionfor severance and related benefits recorded and no reserve recorded for theexit of leased facilities. For the fiscal year ended May 31, 2007, therewas no change to severance and related benefits and $3.3 million of additionalcosts to exit leased facilities were recorded. For the fiscal year ended May 31,2007, $1.2 million of cash payments were made for severance and relatedbenefits and $0.7 million of cash payments were made for the exit of leasedfacilities. This resulted in an ending balance as of May 31, 2007 for bothseverance and related benefits and the reserve for the exit or reduction ofleased facilities of $2.6 million. The company expects cash payments forseverance and related benefits to be made through the first quarter of fiscal2008 and cash payments for the exit of leased facilities to be made up toapproximately two years subsequent to the end of fiscal 2007.

*Fiscal 2006 Intentia.**  *The plan for Intentia includes the reduction of approximately125 employees in the EMEA and APAC regions and the exit or reduction in spacefor leases in certain facilities. The reduction of employees include employeeswho work in all functional areas of the Company. As of May 31, 2006 theCompany had a reserve of $12.7 million for severance and related benefitsrecorded and $16.8 million of reserve recorded for the exit of leasedfacilities for a total reserve of $29.5 million. For the fiscal year ended May 31,2007, $9.5 million of cash payments were made for severance and relatedbenefits and $6.9 million of cash payments were made for the exit of leasedfacilities. In fiscal 2007, the accrual for severance and related benefitsdecreased $2.1 million as a result of a change to the plan and the accrual forthe lease exit costs increased $0.3 million. These changes were not reflectedin the Consolidated Statements of Operations but instead were reflected asadjustments to goodwill. This resulted in an ending balance as of May 31,2007 for both severance and related benefits and the reserve for the exit orreduction of leased facilities of $11.3 million. The company expects cashpayments for the exit of leased facilities to be made up to approximately twoyears subsequent to the end of fiscal 2007.

***Fiscal 2005 Restructuring***

On September 28, 2004, the Company approveda plan designed to enhance the Company’s operating effectiveness andprofitability. Under the restructuring plan (Phase I), the Company streamlinedstructure, consolidated leadership and reduced long-term costs to realignprojected expenses with anticipated revenue levels. The plan included thereduction of 107 employees in fiscal 2005 in the United States and theUnited Kingdom, which resulted in a charge for severance and related benefits of$2.9 million. The reduction included employees who worked in operations,marketing, sales, research and development, maintenance and consulting. All ofthe employee reductions and related cash payments were completed as of May 31,2007. The cash payments during the fiscal year ended May 31, 2007 were notmaterial.

On November 30, 2004,the Company also accrued for a restructuring plan (Phase II) that includedinitiatives to further reduce costs and realign projected expenses withanticipated revenue levels. It 

F-22

----

**LAWSON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in thousands, except share and per share data)**

includeda reduction of 68 employees in the United States and the United Kingdom, andbecause the Company was able to determine probability at the end of the secondquarter of fiscal 2005, the restructuring resulted in a charge ofapproximately $2.2 million, net of a reversal of $0.3 millionsubsequent to the initial charge for severance and related benefits. Thereduction included employees who worked in sales, research and development andconsulting. All of the employee reductions and related cash payments werecompleted as of May 31, 2007. The Company made cash payments of $0.1million for the fiscal year ended May 31, 2007 for Phase II.

**4.   BusinessCombinations**

***Intentia International AB***

On April 25, 2006, the Company completed theacquisition of Intentia. The Company believes that the combination providesopportunities to leverage sales channels and to sell expanded product linesacross the combined business’ customer base. The acquisition was accomplishedthrough Lawson’s offer to exchange Intentia’s shares and warrants for newlyissued shares of Lawson common stock. The results of operations of Intentia areincluded in the statement of operations of the Company from the date of theacquisition.

Thetotal purchase price was $460.9 million, which consisted of $443.9 million forthe fair value of common stock issued in exchange for shares and warrants inIntentia, $7.2 million for the cash purchase of the remaining common stock ofIntentia (see Note 6), and $9.8 million in cash for transaction costs. Inallocating the purchase price based on estimated fair values, the Companyrecorded approximately $419.3 million of goodwill, $128.5 million of identifiableintangible assets and $80.2 million of deferred revenue. These amounts and thenet liabilities assumed of $45.4 million as well as cash acquired of $38.7million equal the total purchase price of $460.9 million.
| Value of common stock issued  in exchange for shares and warrants in Intentia: 80,124,336 shares at  $5.54 per share |   | $     | 443,889 |   |
|---------------------------------------------------------------------------------------------------------------------------|--------|-------|---------|--------|
| Cash purchase of  shares not tendered                                                                                     |   | 7,201 |    |
| Transaction costs  (net of tax benefits of $2,559)                                                                        |   | 9,799 |    |
| Total preliminary  purchase price                                                                                         |   | $     | 460,889 |   |

 

Since our acquisition of Intentia in April 2006,the Company has been accumulating information regarding Intentia customerclaims and disputes that arose in Europe and APAC several months or yearsbefore the acquisition. This has been a time consuming process because theformer Intentia managed most of these claims and disputes at the local countylevel. The initial purchase accounting accrual estimates previously recordedfor these claims and disputes were disclosed as preliminary in our AnnualReport on Form 10-K for the fiscal year ended May 31, 2006 andin subsequent Quarterly reports on Form10-Q. After completing a thoroughassessment of these claims and disputes, we obtained sufficient information forpurposes of adjusting the preliminary estimates of fair value for these claimsand disputes. In the fourth quarter, management engaged a third-party valuationfirm to verify this reserve. The Company finalized these estimates in thefourth fiscal quarter of 2007 upon receipt of the independent third-partyvaluation. These reserves are recorded at present value and are expected to beconsumed through a combination of cash payments, write-off of receivables andfree services over the next 12 to 24 months. During the year 

F-23

----

**LAWSON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in thousands, except share and per share data)**

ended May 31, 2007and 2006, the Company recorded reserves of approximately $12.8 million and $15.9 million,respectively with associated increases to goodwill. Since the reserves arerecorded at present value, approximately $1.7 million of interest expense wasrecorded in fiscal 2007.

*Rollforward of litigationreserve:*

| **(in thousands)**     | ** ** | ** ** | ** ** | ** ** | ** ** |
|-----------------------------|------------|------------|------------|------------|------------|
| Balance,  May 31, 2005 |       | —     |       |
| Acquired reserve            |       | 15,946     |       |
| Settlements                 |       | (113       | )          |
| Translation adjustment      |       | 488        |       |
| Balance,  May 31, 2006 |       | 16,321     |       |
| Additional reserve          |       | 12,844     |       |
| Settlements                 |       | (12,694    | )          |
| Interest                    |       | 1,668      |       |
| Translation adjustment      |       | 157        |       |
| Balance, May 31,  2007 |       | $          | 18,296     |       |
|                             |            |            |            |            |            |  |

* *

*RestructuringActivities.**  *Inconjunction with the acquisition, the Company approved a plan designed toeliminate employee redundancies and terminate certain lease agreements. Theplan for reduction of Intentia employees and exit of Intentia leased facilitieswas included as part of the purchase price as of the acquisition date. See Note3 for further discussion of this reserve.

*Proforma Financial Information.***  **Theunaudited financial information in the table below summarizes the combinedresults of operations of Lawson and Intentia, on a pro forma basis, as thoughthe companies had been combined as of the beginning of each of the periodspresented as described further below. Pro forma financial information ispresented for informational purposes only and is not indicative of the resultsof operations that would have been achieved if the acquisition had taken placeat the beginning of each of the periods presented. In addition, the pro formafinancial information does not include the realization of any cost savings fromoperating efficiencies, synergies or other restructuring costs or benefits as aresult of the business combination. The pro forma financial informationpresented includes the combined historical revenues, amortization of acquiredintangible assets, adjustments to interest expense, certain other purchaseaccounting entries and related tax effects. The pro forma financial informationdoes not reflect the elimination of deferred license revenue. The Company’sactual purchase accounting eliminated deferred license fee revenues, at thepurchase date, in excess of $200 million, although the pro forma periodspresented do not include this decrease in deferred revenue and the relatedroll-in because it is not recurring. Had this been included there would havebeen a significant negative impact to the revenues and net income reflectedbelow. The information presented in the pro forma financial information belowdoes not represent what the Company expects current or future earnings to beunder U.S. GAAP.

F-24

----

**LAWSON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in thousands, except share and per share data)**

Thefollowing table summarizes the pro forma financial information of combinedLawson and Intentia (in thousands, except per share data). 

| ** **                                | ** ** | **Fiscal Year Ended   May 31,** | ** ** |
|-------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                | ** ** | **2006**                                            | ** ** | **2005** | ** ** |
| Total revenues                            |       | $                                                   | 874,203    |   | $ | 795,968 |   |
| Net income (loss)                         |       | $                                                   | 49,607     |   | $ | (23,363 | ) |
| Net income (loss)  per share—basic   |       | $                                                   | 0.26       |   | $ | (0.13 | ) |
| Net income (loss) per  share—diluted |       | $                                                   | 0.25       |   | $ | (0.13 | ) |

 

***Competency Assessment Solutions***

On July 20, 2006, theCompany acquired all of the outstanding equity of Competency AssessmentSolutions (CAS) for $2.0 million in cash. The acquisition was completed toaugment the Company’s human capital management solutions. A final contingentpayment of $0.3 million in cash was made on December 4, 2006. In theallocation of the excess purchase price over the fair value of assets acquired$1.3 million was allocated to goodwill and $1.3 million was allocated toamortizable intangible assets which included acquired technology and anon-compete agreement. These amounts and the net liabilities assumed of $0.3million equal the total purchase price of $2.3 million. The financial resultsof CAS are included in the Company’s Consolidated Statements of Operations fromthe date of acquisition. Pro forma information is not presented as it is notmaterial to the Company’s Consolidated Statements of Operations for the fiscalyear ended May 31, 2007.

***Sigma***

On December 14, 2006,the Company and Sigma entered into a purchase agreement whereby the Companyacquired from Sigma for approximately $1.0 million in cash, $0.3 million ofassumed liabilities and a contingent additional payment of up to $0.6 million,Sigma’s business pertaining to the maintenance and servicing of the Company’sLawson S3 products. The acquisition was completed to augment sales of S3 productsin the Nordic region. The allocation of the purchase price of $1.3 millionalong with transaction costs of $0.1million was allocated accordingly: $1.3million to existing technology, to be amortized over a five year period, and$0.1 million to a non-compete agreement, to be amortized over a three yearperiod. The financial results for Sigma are included in the ConsolidatedStatements of Operations from the date of acquisition. Pro forma information isnot presented as it is not material to the Consolidated Statements ofOperations for the fiscal year ended May 31, 2007.

**5.   Stock-basedCompensation**

On June 1, 2006, theCompany adopted the provisions of SFAS 123(R) which replaced SFAS 123 andsuperseded APB 25. Under SFAS 123(R) stock-based employee compensationcost is recognized using the fair value based method for all new awards grantedafter June 1, 2006 and unvested awards outstanding at June 1, 2006. Compensationcosts for unvested stock options and awards that are outstanding at June 1, 2006,will be recognized over the requisite service period based on the grant-datefair value of those options and awards as previously calculated under the proforma disclosures under SFAS 123(R), using a straight-line method. The Companyelected the modified-prospective method of adopting SFAS 123(R), under whichprior periods are not retroactively restated. Stock-based compensation expensefor 

F-25

----

**LAWSON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in thousands, except share and per share data)**

non-vestedawards granted prior to the effective date is being recognized over theremaining service period using the fair value based compensation cost estimatedfor SFAS 123 pro forma disclosures. Total stock-based compensation expenseincluded in the Consolidated Statements of Operations for the fiscal year endedMay 31, 2007, is $7.7 million, or $4.9 million net of tax. This had animpact of $0.03 on the Company’s earnings per share for the fiscal year ended May 31,2007. For the fiscal year ended May 31, 2006, prior to the adoption ofSFAS 123(R), the Company recognized $6.6 million, or $4.2 million of after taxstock-based employee compensation expense, that included a $6.3 million, or$3.8 million non-cash after tax charge resulting from the negotiated separationagreement with its former president and Chief Executive Officer (CEO).

***Stock Options***

The Company’s 1996Stock Incentive Plan provides for the granting of non-qualified stock options,restricted stock units, performance awards and other stock-based awards. Therewere 27.7 million shares of the Company’s common stock reserved forissuance under the plan. Under the 1996 Stock Incentive Plan, as of May 31,2007, there were outstanding awards for the issuance of 9,008,183 shares ofcommon stock and 174,904 shares of common stock available for future awardsgranted under that plan. The Company’s 2001 Stock Incentive Plan providesfor the granting of incentive stock options, non-qualified stock options, orrestricted stock. There were 35 million shares of the Company’s commonstock reserved for issuance under the plan. Under the 2001 Stock IncentivePlan, as of May 31, 2007, there were outstanding awards for the issuanceof 3,454,574 shares of common stock and 29,076,122 shares of common stockavailable for future awards granted under that plan. Generally, stock optionsgranted to employees vest over a four-year to six-year period subject toacceleration under certain events and expire seven to ten years after the dateof grant. The Company determines the exercise price based on the closing marketprice at the time of grant. Newly issued shares are used in settlement of stockoption exercises.

***Amendments to Stock Option Agreements***

Effective on June 1, 2005, the Company amendedthe stock options held by each of its non-employee directors to: (1) fullyvest and eliminate the Company’s call right to purchase shares issued afterexercise and (2) allow those options to be exercised until the earlier oftwo years after resignation as a director or ten years after the date of grant.This change resulted in recognizing $0.1 million in compensation expense forthe year ended May 31, 2006 due to the fact that these options were “in-the-money”at the time they were modified. There was no impact to the ConsolidatedStatement of Operations for the fiscal year ended May 31, 2007 as a resultof this amendment.

Effective on June 1, 2005, the Company amendedthe stock options that had an exercise price per share greater than or equal to$5.95 (the closing price on Nasdaq on June 1, 2005) and that were held byeach officer who is currently subject to the reporting requirements of Section 16of the Securities Exchange Act of 1934, to allow that officer to exercise theoptions that are unexercised and vested as of that officer’s employmenttermination date until the earlier of two years after termination employment orten years after the date of grant. Stock options previously granted to any Section 16reporting person with an exercise price per share less than $5.95 were notamended. This amendment had no impact to the Consolidated Statement ofOperations for the fiscal year ended May 31, 2007. Under APB 25, there wasno charge required in the Consolidated Statement of Operations. In the proforma calculation, there was a charge of $0.1 million, net of tax, for thefiscal year ended May 31, 2006.

F-26

----

**LAWSON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in thousands, except share and per share data)**

Effective June 2, 2005, as part of the separationagreement with its former CEO, the Company amended the stock optionscompensation such that the outstanding stock options held by the former CEOthat had an exercise price greater than the closing price for shares of theCompany’s common stock on June 1, 2005, were amended to cease vestingafter termination of full-time employment and extend the exercise period to twoyears from the end of full-time employment. This change resulted incompensation expense for the fiscal year ended May 31, 2006 of $6.3million, or $3.8 million net of tax. There was no impact to the Company’sStatement of Operations for the fiscal year ended May 31, 2007 as a resultof this amendment. As these options were 100% vested, under the fair valuebased method, the Company recognized $0.4 million, net of tax, relating to theincremental value on the modified options as compared to the options beforemodification in the pro forma calculation for the fiscal year endedMay 31, 2006.

Effective October 11,2006, the Company amended the stock option agreement entered into with theCompany’s CEO on June 2, 2005 pertaining to the grant on June 2, 2005of non-qualified stock options for the purchase of 2.5 million shares of the Company’scommon stock. Under the terms of the amendment, on October 11, 2006 thestock option agreement was modified so that the vesting of those stock optionsaccelerate 100%: (1) if the CEO is terminated without cause or resigns forgood reason (as defined in the stock option agreement) within two years of achange in control of the Company (as defined in the stock option agreement),(2) if the stock options were terminated as part of a change in control ofthe Company, or (3) upon the CEO’s death, disability or retirement (asdefined in the stock option agreement). The Compensation Committee approvedthis amendment so that the conditions for acceleration of vesting for the CEO’sstock options would be the same as the stock options granted to the Company’snew Chief Financial Officer on October 5, 2006 and the stock optionspreviously granted to other executive officers. Because the nature of thisamendment does not change the assumptions used under SFAS 123(R) whenestimating the value of these stock options before and after the amendment,there is no additional expense under SFAS 123(R) and thus there was noimpact to the Consolidated Statement of Operations for the fiscal year endedMay 31, 2007.

***Valuation Assumptions***

The Company uses the Black-Scholes option pricing model(Black-Scholes model) to determine the fair value of stock options as of thegrant date. The fair value of stock options under the Black-Scholes modelrequires management to make assumptions regarding projected employee stockoption exercise behaviors, risk-free interest rates, volatility of theCompany’s stock price and expected dividends.

F-27

----

**LAWSON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in thousands, except share and per share data)**

Thefollowing table provides the weighted average fair value of options granted toemployees and the related assumptions used in the Black-Scholes model (fairvalue of options granted are in thousands):

| ** **                              | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
|-----------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Fair value of  options granted          |       | $        | 9,589      |     | $          | 14,244   |       | $ | 7,686 |   |
| Weighted average  per option fair value |       | $        | 3.51       |     | $          | 3.58     |       | $ | 3.17 |   |
| Assumptions used for  option grants:    |       |     |       |     |       |     |       |
| Expected life (years)                   |       | 4.7      |       | 5.4      |       | 5.0      |       |
| Risk-free interest rate                 |       | 4.7      | %          | 4.4      | %          | 3.6      | %          |
| Volatility                              |       | 49.4     | %          | 52.0     | %          | 56.0     | %          |
| Dividend yield                          |       | —   |       | —   |       | —   |       |
| Forfeiture rate                         |       | 6.1      | %          | N/A      |       | N/A      |       |

 

(a)           *Expected life*:   Prior to June 1,2006, the Company calculated expected life based on historical observations.After adoption of SFAS 123(R), the Company calculates expected life based onhistorical observations, taking into account the contractual life of the optionand expected time to post-vesting forfeiture and exercise.

(b)          *Risk-free interest rate*:   The rate isbased on the U.S. Treasury zero-coupon yield curve on the grant date for amaturity that correlates to the expected life of the options. For fiscal 2007the range was 4.39% to 5.03%. The interest rate range for fiscal 2006 was 3.53%to 4.87%.

(c)           *Volatility*:   The Company is using acombination of historical and implied volatility (blended method) to calculatethe volatility. In the Black-Scholes model, volatility is calculated over theoptions expected term. Currently the Company’s historical volatilitycalculation uses a look back period equal to the estimated life of the grantand for grants with estimated lives of five years or more the Company uses alook back period up to and including the Company’s IPO period which isapproximately five years.

(d)          *Dividend yield*:   The Company does notexpect to issue dividends for the foreseeable future.

(e)           *Forfeiture rate:  *The pre-vesting forfeiture rate iscalculated based on historical actual forfeitures of options compared to grantsand the rate used in fiscal 2007 was 6.1%.

***Stock-Based Compensation Expense***

SFAS 123(R) requires companies to estimate thefair value of stock-based payment awards on the date of grant using anoption-pricing model. The Company uses the Black-Scholes option-pricing modelwhich requires the input of significant assumptions including an estimate ofthe average period of time employees will retain vested stock options beforeexercising them, the estimated volatility of the Company’s common stock priceover the expected term and the number of options that will ultimately beforfeited before completing vesting requirements. Changes in the assumptionscan materially affect the estimate of fair value of equity-based compensationand, consequently, the related expense recognized. The value of the portion ofthe award that is ultimately expected to vest is recognized as expense over therequisite vesting period in the Company’s Consolidated Statements of Operations.Prior to adopting SFAS 123(R), the Company elected the option ofdisclosure only under SFAS 123. In its disclosures, the Company hashistorically used the Black-Scholes option pricing model to determine the fairvalue of its 

F-28

----

**LAWSON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in thousands, except share and per share data)**

share based compensationarrangements. Upon the adoption of SFAS 123(R), the Company continued toutilize the Black-Scholes model and adopted the modified-prospective method.

The amount of stock-based compensation expenserecognized in the Company’s Consolidated Statements of Operations for the yearended May 31, 2007, included compensation expense for stock-based paymentawards granted on or prior to June 1, 2006, but not yet vested as of thatdate. Prior to June 1, 2006, the Company accounted for these awards inaccordance with the provisions of APB 25. Stock-based employee compensationcost was recognized using the fair value based method for all new awardsgranted after June 1, 2006. Compensation costs for unvested stock optionsand awards that are outstanding at June 1, 2006 will be recognized overthe requisite service period based on the grant-date fair value of thoseoptions and awards as previously calculated under the pro forma disclosuresunder SFAS 123. Because stock-based compensation expense recognized in theCompany’s Consolidated Statements of Operations for the fiscal year ended May 31,2007, is based on awards ultimately expected to vest, the expense was reducedfor estimated forfeitures. SFAS 123(R) requires forfeitures to beestimated at the time of grants and revised, if necessary, in subsequentperiods if actual forfeitures differ from those estimates. Changes toforfeiture rates are accounted for as a cumulative effect of change in theperiod of change. In the Company’s pro forma information required under SFAS123, the Company accounted for forfeitures by applying a 6.1% forfeiture rateto the estimated expense.

Prior to the adoption of SFAS 123(R), the Companypresented all tax benefits resulting from the exercise of stock options andsettlement of restricted stock awards as operating cash inflows in theConsolidated Statements of Cash Flows in accordance with the provisions of theEmerging Issues Task Force (EITF) No. 00-15, *Classificationin the Statement of Cash Flows of the Income Tax Benefit Received by a Companyupon Exercise of a Nonqualified Employee Stock Option*. SFAS 123(R) requiresthe benefits of tax deductions in excess of the compensation cost recognizedfor those options and stock awards to be classified as financing cash inflowsrather than operating cash inflows, on a prospective basis. Although total cashflows under SFAS 123(R) remain unchanged from what would have beenreported under prior accounting standards, net operating cash flows are reducedand net financing cash flows are increased due to the adoption of SFAS 123(R). Thisamount is shown as “Excess tax benefit from stock transactions” in the Company’sConsolidated Statements of Cash Flows.

Thefollowing table presents the Consolidated Statements of Operationsclassification of pre-tax stock-based compensation expense, for options andrestricted stock awards and ESPP, recognized for the fiscal years ended May 31,2007, 2006 and 2005 (in thousands):

| ** **                                                 | ** ** | **Year ended May 31,** | ** ** |
|------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                 | ** ** | **2007**                              | ** ** | **2006** | ** ** | **2005** | ** ** |
| Cost of revenues                                           |       | $                                     | 1,011      |   | $ | 2 |   | $ | 15 |   |
| Research and  development                                  |       | 635                                   |       | 8 |   | 47 |   |
| Sales and  marketing                                       |       | 1,509                                 |       | 14 |   | 87 |   |
| General and  administrative                                |       | 4,497                                 |       | 6,779 |   | 113 |   |
| Stock-based  compensation expense before income taxes      |       | $                                     | 7,652      |   | $ | 6,803 |   | $ | 262 |   |
| Income tax  benefit                                        |       | (2,961                                | )          | (2,639 | ) | (103 | ) |
| Total stock-based  compensation expense after income taxes |       | $                                     | 4,691      |   | $ | 4,164 |   | $ | 159 |   |

 

F-29

----

**LAWSON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in thousands, except share and per share data)**

EPS was reduced by $0.03 per share in fiscal 2007 as aresult of applying the provisions of FAS 123(R).

Thefollowing table illustrates the effect on net income and net income per sharefor the fiscal years ended May 31, 2006 and 2005, if the Company hadapplied the fair value recognition provisions of SFAS 123 to itsstock-based employee compensation (in thousands, except per share data):

| ** **                                                                                                            | ** ** | **Year Ended May 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                                                                            | ** ** | **2006**                              | ** ** | **2005** | ** ** |
| Net income                                                                                                            |       |                                  |       |   |   |
| As reported                                                                                                           |       | $                                     | 15,959     |   | $ | 5,262 |   |
| Add: Stock-based  employee compensation expense included in reported net income, net of taxes                         |       | 4,164                                 |       | 159 |   |
| Deduct: Total  stock-based compensation expense determined under fair value based method for  all rewards, net of tax |       | (6,102                                | )          | (6,768 | ) |
| Pro forma net  income                                                                                                 |       | $                                     | 14,021     |   | $ | (1,347 | ) |
| Net income per  share:                                                                                                |       |                                  |       |   |   |
| Basic:                                                                                                                |       |                                  |       |   |   |
| As reported                                                                                                           |       | $                                     | 0.14       |   | $ | 0.05 |   |
| Pro forma                                                                                                             |       | $                                     | 0.13       |   | $ | (0.01 | ) |
| Diluted:                                                                                                              |       |                                  |       |   |   |
| As reported                                                                                                           |       | $                                     | 0.14       |   | $ | 0.05 |   |
| Pro forma                                                                                                             |       | $                                     | 0.12       |   | $ | (0.01 | ) |

 

***Tax Impacts of Stock-Based Compensation***

On November 10, 2005,the FASB issued FASB Staff Position (FSP) No. FAS 123(R)-3 *Transition Election Related to Accounting for Tax Effects ofShare-Based Payment Awards* (FSP 123(R)-3). FSP 123(R)-3provides an alternative method of calculating the excess tax benefits availableto absorb tax deficiencies recognized after the adoption of SFAS 123(R). Thecalculation of excess tax benefits reported as an operating cash outflow and afinancing inflow in the Company’s Consolidated Statements of Cash Flows allowedby FSP 123(R)-3 differs from that allowed by SFAS 123(R). The Company had untilMay 31, 2007 to make a one-time election to adopt the transition methoddescribed in FSP 123(R)-3. The Company did not make the one-time election, butused the long-form method of calculating the excess tax benefits available toabsorb tax deficiencies recognized after the adoption of SFAS 123(R). For thefiscal year ended May 31, 2007, there were excess tax benefits from stocktransactions of $2.5 million, which are classified as a financing cash inflowper the requirements of FSP 123(R)-3. Prior to the adoption of SFAS 123(R),the Company presented all tax benefits resulting from the exercise of stockoptions and settlement of restricted stock awards as operating cash flows inthe Consolidated Statements of Cash Flows. As such, excess tax benefits fromstock transactions of $4.4 million for the fiscal year ended May 31, 2006,are classified as operating cash inflows.

F-30

----

**LAWSON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in thousands, except share and per share data)**

***Stock Options***

Thefollowing table summarizes employee stock option activity for the years ended May 31,2005, 2006 and 2007 (in thousands except per share data):

| ** **                      | ** ** | ** **      | ** ** | ** **        | ** ** | **Weighted** | ** **             |
|---------------------------------|------------|-----------------|------------|-------------------|------------|--------------|------------------------|
| ** **                      | ** ** | ** **      | ** ** | **Range of** | ** ** | **Average**  | ** **             |
| ** **                      | ** ** | **Options**     | ** ** | **Exercise**      | ** ** | **Exercise** | ** **             |
| ** **                      | ** ** | **Outstanding** | ** ** | **Prices**        | ** ** | **Price**    | ** **             |
| Outstanding,  May 31, 2004 |       |            | 19,409     |              |       | $            | 0.54-$16.26            |   |   | $ | 3.77 |   |   |
| Expired/Forfeited/Canceled      |       |            | (1,782     | )                 |       | $            | 2.25-$16.26            |   |   | $ | 6.54 |   |   |
| Granted at fair market value    |       |            | 2,574      |              |       | $            | 5.72-$  9.77 |   |   | $ | 6.17 |   |   |
| Exercised                       |       |            | (3,229     | )                 |       | $            | 0.54-$  6.49 |   |   | $ | 2.37 |   |   |
| Outstanding,  May 31, 2005 |       |            | 16,972     |              |       | $            | 0.54-$14.00            |   |   | $ | 4.11 |   |   |
| Expired/Forfeited/Canceled      |       |            | (1,815     | )                 |       | $            | 2.25-$14.00            |   |   | $ | 6.62 |   |   |
| Granted at fair market value(1) |       |            | 4,270      |              |       | $            | 5.15-$  7.95 |   |   | $ | 6.59 |   |   |
| Exercised                       |       |            | (4,755     | )                 |       | $            | 0.54-$  7.20 |   |   | $ | 2.76 |   |   |
| Outstanding,  May 31, 2006 |       |            | 14,672     |              |       | $            | 1.23-$14.00            |   |   | $ | 4.96 |   |   |
| Expired/Forfeited/Canceled      |       |            | (1,612     | )                 |       | $            | 2.25-$14.00            |   |   | $ | 7.20 |   |   |
| Granted at fair market value    |       |            | 2,745      |              |       | $            | 6.66-$  8.86 |   |   | $ | 7.44 |   |   |
| Exercised                       |       |            | (3,342     | )                 |       | $            | 1.24-$  8.10 |   |   | $ | 3.64 |   |   |
| Outstanding,  May 31, 2007 |       |            | 12,463     |              |       |         |                   |   | $ | 5.57 |   |   |

 

----

(1)          1.2 million stockoptions were granted to employees as a result of the acquisition of Intentia.

Stock options exercisable at May 31, 2007, 2006and 2005 were 7.4 million, 8.9 million and 12.1 million, respectively.

As of May 31, 2007, there was $15.5 million ofunrecognized compensation expense related to outstanding stock options that isexpected to be recognized over a period of 3.25 years.

Asummary of stock options as of May 31, 2007, is as follows (in thousandsexcept per share data):

| ** **                                  | ** ** | ** **         | ** ** | **Weighted-**   | ** ** | ** **          | ** ** | ** **         | ** ** | **Weighted-**   | ** ** | ** **          | ** ** |
|---------------------------------------------|------------|--------------------|------------|-----------------|------------|---------------------|------------|--------------------|------------|-----------------|------------|---------------------|------------|
| ** **                                  | ** ** | ** **         | ** ** | **Average**     | ** ** | **Weighted-**       | ** ** | ** **         | ** ** | **Average**     | ** ** | **Weighted-**       | ** ** |
| ** **                                  | ** ** | **Number**         | ** ** | **Remaining**   | ** ** | **Average**         | ** ** | **Number**         | ** ** | **Remaining**   | ** ** | **Average**         | ** ** |
| ** **                                  | ** ** | **of Shares** | ** ** | **Contractual** | ** ** | **Exercise**        | ** ** | **of Shares** | ** ** | **Contractual** | ** ** | **Exercise**        | ** ** |
| **Range of Exercise Prices** | ** ** | ** **         | ** ** | **Outstanding** | ** ** | **Life (Yrs)** | ** ** | **Price**          | ** ** | **Vested**      | ** ** | **Life (Yrs)** | ** ** | **Price** | ** ** |
| $  1.23-$  1.87         |       |               | 12         |            |       |                | 1.17       |               |       |            | $          | 1.87                |       |   |   | 12 |   |   |   | 1.17 |   |   |   | $ | 1.87 |   |   |
| $  2.25-$  2.32         |       |               | 2,320      |            |       |                | 2.74       |               |       |            | $          | 2.26                |       |   |   | 2,320 |   |   |   | 2.74 |   |   |   | $ | 2.26 |   |   |
| $  2.97                           |       |               | 793        |            |       |                | 4.00       |               |       |            | $          | 2.97                |       |   |   | 793 |   |   |   | 4.00 |   |   |   | $ | 2.97 |   |   |
| $  3.99-$  7.19         |       |               | 5,672      |            |       |                | 7.31       |               |       |            | $          | 5.95                |       |   |   | 3,149 |   |   |   | 6.60 |   |   |   | $ | 5.79 |   |   |
| $  7.20-$  9.77         |       |               | 3,649      |            |       |                | 7.72       |               |       |            | $          | 7.63                |       |   |   | 1,115 |   |   |   | 6.53 |   |   |   | $ | 7.53 |   |   |
| $14.00                                      |       |               | 17         |            |       |                | 4.29       |               |       |            | $          | 14.00               |       |   |   | 17 |   |   |   | 4.29 |   |   |   | $ | 14.00 |   |   |
| $  1.23-$14.00                    |       |               | 12,463     |            |       |                | 6.36       |               |       |            | $          | 5.57                |       |   |   | 7,406 |   |   |   | 5.09 |   |   |   | $ | 4.65 |   |   |
|                                             |            |                    |            |                 |            |                     |            |                    |            |                 |            |                     |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

The aggregate intrinsic value of options (the amountby which the market price of the stock on the date of exercise exceeded theexercise price of the option) exercised during the fiscal year ended May 31,2007, 2006 and 2005 was $12.3 million, $20.7 million and $10.8 million. Thetotal fair value of shares vested 

F-31

----

**LAWSON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in thousands, except share and per share data)**

during the years ended May31, 2007, 2006 and 2005 was $5.4 million, $4.1 million and $11.3 million,respectively. Cash received from the exercise of stock options for the fiscalyear ended May 31, 2007 was $12.4 million. The total tax benefit realizedfor the tax deductions from options exercised for the fiscal year ended May 31,2007 was $3.1 million.

The total intrinsic valueof unexercised and in-the-money options at May 31, 2007 (the amount bywhich the market price of the stock on the date of exercise exceeded theexercise price of the option) for options outstanding was $45.1 million and thetotal intrinsic value of vested options was $33.6 million.

***Stock Warrants Issued to Non-Employees***

At May 31, 2005,the Company had one outstanding fully vested stock warrant. The warrant, issuedin fiscal 2000 with a five-year life, expired July 18, 2005 andallowed the holder to purchase 1.0 million shares of the Company’s commonstock at an exercise price of $4.64 per share. On July 18, 2005, thewarrant issued was exercised on a net basis, resulting in the issuance of0.1 million shares of common stock from treasury, which resulted in a$0.3 million reduction to additional paid-in capital in the first quarterof fiscal 2006.

***Restricted Stock Awards***

Thefollowing table summarizes restricted stock award activity during the fiscalyear ended May 31, 2007 (in thousands, except per share data):

| ** **                    | ** ** | ** ** | ** ** | **Weighted**   | ** ** |
|-------------------------------|------------|------------|------------|----------------|------------|
| ** **                    | ** ** | ** ** | ** ** | **Average**    | ** ** |
| ** **                    | ** ** | ** ** | ** ** | **Grant-Date** | ** ** |
| ** **                    | ** ** | **Awards** | ** ** | **Fair-Value** | ** ** |
| Nonvested,  May 31, 2005 |       |       | —     |           |       |   | — |   |   |
| Granted                       |       |       | 100        |           |       |   | $ | 5.25 |   |   |
| Vested                        |       |       | —     |           |       |   | — |   |   |
| Nonvested,  May 31, 2006 |       |       | 100        |           |       |   | $ | 5.25 |   |   |
| Granted                       |       |       | 725        |           |       |   | $ | 7.75 |   |   |
| Vested                        |       |       | (50        | )              |       |   | $ | 5.25 |   |   |
| Nonvested, May 31,  2007 |       |       | 775        |           |       |   | $ | 7.57 |   |   |

 

On June 2, 2005, the Company granted a restrictedstock award of 100,000 shares of common stock to its then newly appointedPresident and CEO. The shares, with a $0.5 million market value at date ofgrant, vest in two 50,000 share increments on June 1, 2006 and 2007,subject to acceleration upon certain events. The market value of the restrictedstock was recorded in additional paid in capital, a component of stockholders’equity, and is being amortized over the respective vesting periods.

During the current fiscal year the Company grantedrestricted stock unit awards of 724,500 shares of common stock to variousexecutives. The shares, with a combined $5.5 million market value at date ofgrant, cliff vest three years from the date of grant, subject to accelerationupon certain events. The market value of the restricted stock units is beingamortized over the respective vesting periods.

For the fiscal years ended May 31, 2007 and 2006,amortization of the unearned compensation related to restricted stock andrestricted stock units was $1.0 million and $0.4 million, respectively.

F-32

----

**LAWSON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in thousands, except share and per share data)**

Unrecognized compensationexpense related to restricted stock awards as of May 31, 2007, was $4.7million, pre-tax, and is expected to be recognized over a weighted averageperiod of 2.61 years and will be adjusted for any future changes in estimatedforfeitures. Total fair value of vested shares of restricted stock was $0.3million as of May 31, 2007.

***Employee Stock Purchase Plan***

In February 2001, the stockholders of the Companyapproved the 2001 ESPP, which was effective as of the Company’s initial publicoffering. The purchase plan is intended to qualify as an ESPP within themeaning of Section 423 of the Internal Revenue Code of 1986, as amended. Priorto April 2006, the Company’s plan allowed eligible employees to purchasecommon stock at a price equal to 85% of the lower of the fair market value ofthe common stock at the beginning or end of the offering period, whichcommenced each January 1 and July 1. On April 1, 2006, the planwas amended to allow eligible employees to purchase common stock at a priceequal to 85% of the fair market value of the common stock at the end of eachquarter of the offering period. The plan originally terminated when all of theshares reserved under the plan were purchased or five years from the effectivedate unless the Board of Directors resolved to extend the purchase plan for oneor more additional periods of five years each. In June 2006, the Board ofDirectors approved a five-year amendment to the plan which was approved bystockholders. There are 20.8 million shares of the Company’s common stockreserved for issuance under the plan, of which 17.0 million shares wereavailable for issuance as of May 31, 2007. There have been 3.8 millionshares issued under this plan through May 31, 2007.

Prior to April 2006,ESPP expense was calculated using the Black-Scholes method (similar to stockoption grants) using a six month expected life, and for the fiscal year ended May 31,2006, a volatility of 42.8%, a risk-free interest rate of 4.8%, a term of .50years and a dividend rate of zero percent. As of April 1, 2006, with theESPP plan amendment resulting from SFAS 123(R), ESPP expense is now calculatedas the 15% difference between the price paid by employees and the fair marketvalue of the common stock at the end of each quarter of the offering period.

**6.**                 FinancialStatement Components

Supplementaldisclosures of non-cash investing and financing transactions (in thousands):

| ** **                                             | ** ** | **May 31,** | ** ** |
|--------------------------------------------------------|------------|------------------|------------|
| ** **                                             | ** ** | **2007**         | ** ** | **2006** | ** ** | **2005** | ** ** |
| Stock option  exercise using common stock              |       | $                | 938        |   | $ | 4,857 |   | $ | 1,147 |   |
| Notes payable  issued in conjunction with acquisitions |       | —           |       | — |   | 863 |   |
| Assets acquired  under capital leases                  |       | 295              |       | 183 |   | — |   |
| Issuance of  common shares for acquisition             |       | —           |       | 443,889 |   | — |   |
| Issuance of restricted  stock                          |       | —           |       | 232 |   | — |   |
|                                                        |            |                  |            |  |  |  |  |  |  |  |

 

***Acquisition Related Costs***

During fiscal year ended May 31,2007 and 2006, the Company incurred acquisition costs of $0.1 million and$8.5 million, respectively, related to the business combination with Intentia.The Company has included these costs within cash flows from investingactivities as cash paid in conjunction with acquisitions in the accompanyingConsolidated Statements of Cash Flows for fiscal 2007 and 2006.

F-33

----

**LAWSON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in thousands, except share and per share data)**

***Restricted Cash***

The Company has $7.4million held as restricted cash as of May 31, 2007 related to variousguarantees (See Note 7). Of the $7.4 million, we expect $0.6 million to bespent within one year. The remaining restricted cash has been classified as anon-current asset on the balance sheet.

**Accounts Receivable, net**

| ** **                            | ** ** | **May 31,**        | ** ** |
|---------------------------------------|------------|-------------------------|------------|
| ** **                            | ** ** | **2007**                | ** ** | **2006** | ** ** |
| ** **                            | ** ** | **(in thousands)** | ** ** |
| Trade accounts receivable             |       | $                       | 147,771    |   | $ | 146,891 |   |
| Unbilled accounts receivable          |       | 25,083                  |       | 32,990 |   |
| Less: allowance for doubtful accounts |       | (9,907                  | )          | (19,948 | ) |
| Trade accounts  receivable, net       |       | $                       | 162,947    |   | $ | 159,933 |   |

 

Unbilled accountsreceivable represents revenue recognized on contracts for which billings havenot yet been presented to the customer because the amounts were earned but notcontractually billable as of the balance sheet date.

**Rollforward of the allowance for doubtful accounts**

| ** **                       | ** ** | **(in thousands)** | ** ** |
|----------------------------------|------------|-------------------------|------------|
| Balance, May 31, 2004       |       |                    | $          | 5,633 |   |   |
| Provision                        |       |                    | 1,141      |   |   |
| Write-offs                       |       |                    | (4,083     | ) |   |
| Recoveries                       |       |                    | 475        |   |   |
| Translation adjustment           |       |                    | 17         |   |   |
| Balance,  May 31, 2005      |       |                    | 3,183      |   |   |
| Acquired in business combination |       |                    | 17,940     |   |   |
| Provision                        |       |                    | (1,147     | ) |   |
| Write-offs                       |       |                    | (624       | ) |   |
| Recoveries                       |       |                    | 26         |   |   |
| Translation adjustment           |       |                    | 570        |   |   |
| Balance,  May 31, 2006      |       |                    | 19,948     |   |   |
| Provision                        |       |                    | 3,501      |   |   |
| Write-offs                       |       |                    | (14,544    | ) |   |
| Recoveries                       |       |                    | 20         |   |   |
| Translation adjustment           |       |                    | 982        |   |   |
| Balance, May 31,  2007      |       |                    | $          | 9,907 |   |   |

 

F-34

----

**LAWSON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in thousands, except share and per share data)**

***Property andEquipment, Net***

| ** **                                      | ** ** | **May 31,**        | ** ** | ** ** | ** ** |
|-------------------------------------------------|------------|-------------------------|------------|------------|------------|
| ** **                                      | ** ** | **2007**                | ** ** | **2006**   | ** ** | **Useful Lives** | ** ** |
| ** **                                      | ** ** | **(in thousands)** | ** ** | ** ** | ** ** |
| Buildings                                       |       | $                       | 339        |       | $          | 322 |   | 50 years |   |
| Automobiles                                     |       | 9,335                   |       | 4,554      |       | 3-5 years |   |
| Equipment                                       |       | 56,217                  |       | 49,429     |       | 1-5 years |   |
| Office furniture                                |       | 17,334                  |       | 16,302     |       | 5-7 years |   |
| Leasehold  improvements                         |       | 15,872                  |       | 11,356     |       | 3-16 years |   |
| Equipment under  capital leases                 |       | 5,277                   |       | 2,881      |       | 3-7 years |   |
|                                            |       | 104,374                 |       | 84,844     |       |   |   |
| Less accumulated  depreciation and amortization |       | (73,495                 | )          | (58,655    | )          |   |   |
|                                            |       | $                       | 30,879     |       | $          | 26,189 |   |   |   |

 

Depreciation expense forequipment under capital leases is $1.9 million for the year endedMay 31, 2007. Accumulated depreciation for equipment under capital leases is$3.1 million as of May 31, 2007. Depreciation expense and accumulateddepreciation for equipment under capital leases is not material for fiscal 2006and 2005.

***Deferred Revenue***

| ** **                             | ** ** | **May 31,**        | ** ** |
|----------------------------------------|------------|-------------------------|------------|
| ** **                             | ** ** | **2007**                | ** ** | **2006** | ** ** |
| ** **                             | ** ** | **(in thousands)** | ** ** |
| License fees                           |       | $                       | 35,497     |   | $ | 11,098 |   |
| Maintenance                            |       | 215,480                 |       | 138,144 |   |
| Consulting                             |       | 12,427                  |       | 7,804 |   |
| Total deferred  revenue                |       | $                       | 263,404    |   | $ | 157,046 |   |
| Less current portion                   |       | (247,587                | )          | (146,206 | ) |
| Long-term portion of  deferred revenue |       | $                       | 15,817     |   | $ | 10,840 |   |

 

Included in the deferredrevenue balances at May 31, 2007 is $1.2 million and $10.0 million inremaining deferred revenue for services and maintenance, respectively that wasacquired through the acquisition of Intentia. In connection with purchase priceallocations related to the acquisition of Intentia, we have estimated the fairvalues of our deferred revenue associated with service and maintenanceobligations. The estimated fair value of the service and maintenanceobligations was determined utilizing a top down approach. In applying the topdown approach we started with the initial carrying value of the obligationsadjusted for collectibility assumptions. We then applied an adjustment forthird party sales commissions net of third party training costs required toassume responsibility of the obligations. For additional information on theacquisition of Intentia refer to Note 4 of Notes to Consolidated FinancialStatements.

F-35

----

**LAWSON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in thousands, except share and per share data)**

**7.**                 Long-TermDebt and Credit Facilities

Long-termdebt consists of the following (in thousands):

| ** **                                                                                                                    | ** ** | **May 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------|------------|------------------|------------|
| ** **                                                                                                                    | ** ** | **2007**         | ** ** | **2006** | ** ** |
| Senior  Convertible Notes, 2.5% due 2012                                                                                      |       | $                | 240,000    |   | $ | — |   |
| Notes payable  associated with Numbercraft acquisition, interest at variable rate due in  installments payable July 2006 |       | —           |       | 201 |   |
| Car loans,  interest at average rate of 3.2% due in 2 to 3 years                                                              |       | 6,010            |       | 4,554 |   |
| Capital lease  obligations, interest at 7.9%, due in 5 to 9 years                                                             |       | 2,540            |       | 2,995 |   |
|                                                                                                                          |       | 248,550          |       | 7,750 |   |
| Less current  maturities                                                                                                      |       | (3,322           | )          | (3,475 | ) |
| Total Long-term debt                                                                                                          |       | $                | 245,228    |   | $ | 4,275 |   |

 

Theaggregate maturities of long-term debt for each of the five years subsequent toMay 31, 2007 are as follows (in thousands):

| 2008                  |   | $       | 3,322   |   |
|-----------------------|--------|---------|---------|--------|
| 2009                  |   | 3,725   |    |
| 2010                  |   | 1,481   |    |
| 2011                  |   | 22      |    |
| 2012                  |   | 240,000 |    |
| Thereafter            |   | —  |    |
| Total long-term  debt |   | $       | 248,550 |   |

 

In April, 2007, the Company issued $240 million inaggregate principal amount of 2.50% Senior Convertible Notes (the “Notes”)  with net proceeds, after expenses, ofapproximately $233.5 million. The Notes mature on April 15, 2012. TheNotes bear interest at a rate of 2.50% per annum, which is payablesemi-annually in arrears, on April 15 and October 15 of each year,beginning October 15, 2007. The Notes do not contain any restrictivefinancial covenants. The Notes are convertible, at the holder’s option, intocash and, if applicable, shares of Common Stock based on an initial conversionrate of 83.2293 shares of Common Stock per $1,000 principal amount of Notes,which is equivalent to an initial conversion price of approximately $12.02(which reflects a 35% conversion premium based on the closing sale price of$8.90 per share of Common Stock on the Nasdaq Global Select Market on April 17,2007). The company effectively raised the conversion price to approximately$15.58 per share (which reflects a 75% premium when compared to the closingsale price of $8.90 per share) by simultaneously entering into separateagreements to purchase call options and sell warrants. These transactions arefurther discussed below. The conversion rate may be adjusted from time to timein certain instances. The Notes are convertible only under the followingcertain circumstances:

(1)   conversionbased on the price of the Common Stock;

(2)   at any timeon or after January 15, 2012;

F-36

----

**LAWSON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in thousands, except share and per share data)**

(3)   conversionupon specified distributions to holders of Common Stock or specified corporatetransactions; and

(4)   conversionupon satisfaction of a trading price condition.

The Notes are the Company’s senior unsecuredobligations and are not guaranteed by any of the Company’s subsidiaries. TheNotes rank equally in right of payment with the Company’s existing and anyfuture senior debt and senior in right of payment to the Company’s futuresubordinated debt. The Notes are effectively junior to the Company’s existingand any future secured debt to the extent of the value of the relatedcollateral. The Notes are also effectively subordinated to all existing andfuture debt and other liabilities (including trade payables) of the Company’ssubsidiaries. If a Fundamental Change (as defined in the governing indenturedated April 23, 2007) occurs at any time prior to the maturity date, theneach holder of Notes shall have the right, at such holder’s option, to requirethe Company to repurchase all of such holder’s Notes for cash, or any portionof the principal amount thereof that is equal to $1,000 or an integral multiplethereof, on the date specified by the Company at a repurchase price equal to100% of the principal amount thereof, plus accrued and unpaid interest thereonto, but excluding, the repurchase date.

In connection with the issuance of the Notes, theCompany entered into a Registration Rights Agreement with the initialpurchasers of the Notes. The Company has agreed to file a shelf registrationstatement with respect to the resale of the Notes and the Common Stock issuableupon conversion of the Notes within 180 calendar days after the originalissuance of the Notes. The Company has agreed to use its reasonable bestefforts to cause the Shelf Registration Statement to become effective within270 calendar days after the original issuance of the Notes. If the Companyfails to satisfy its obligations with respect to the registration of the resaleof the Notes and shares of Common Stock issuable upon conversion within thetime periods specified in the Registration Rights Agreement, the Company willbe obligated to pay additional interest on the Notes at a rate per year equalto: (1) 0.25% of the principal amount of Notes to and including the 90th day following a registration default and 0.50%of the principal amount of Notes from and after the 91st day following such registration default.

In connection with the issuance of the Notes, theCompany simultaneously entered into agreements with an affiliate of one of theinitial purchasers to purchase call options and sell warrants on its commonstock. The Company may exercise the call options it purchased at any time toacquire approximately 20 million shares of its common stock, subject toanti-dilutive adjustments. The initial strike price of the purchased options isthe same as the initial conversion price of the Notes and is similarly subjectto anti-dilutive adjustments. The warrants holder may exercise its warrants atany time to acquire approximately 20 million shares of the Company’scommon stock, subject to anti-dilutive adjustments, at an initial price 75%higher than the closing price of the Company’s common stock on the date ofpricing of the Notes and is similarly subject to adjustments. The Company paid$57.7 million ($35.7 million net of tax benefit) to acquire the calloptions and received $34.2 million as a result of the sale of thewarrants. The purchase of the call options was recorded as a reduction tostockholders’ equity and the sale of the warrants was recorded as an increaseto stockholders’ equity in accordance with EITF Issue No. 00-19, *Accounting for Derivative Financial Instruments Indexed to, andPotentially Settled in, a Company’s Own Stock*. Subsequent changes inthe fair value of the call options and warrants will not be recognized. On acombined basis, the call options and the warrants are expected to reduce thepotential dilution upon conversion of the Notes in the event that the marketvalue per share of the Company’s common stock at the time of conversion of theNotes is greater than the strike price of the warrants. If, however, thevolume-weighted average price per 

F-37

----

**LAWSON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in thousands, except share and per share data)**

share of common stockexceeds the strike price of the warrants when they are exercised, there wouldbe dilution from conversion of the Notes to the extent that the thenvolume-weighted average price per share of common stock exceeds the strikeprice of the sold warrants. The call options are anti-dilutive and aretherefore excluded from the calculation of diluted shares outstanding. The calloptions and the warrants are separate and legally distinct instruments thathave no binding effect on the holders of the convertible notes. The initialstrike price of the sold warrants is 75% higher than the closing price of theCompany’s common stock on the date of the sale.

We have a credit facility that was entered into by theformer Intentia on November 1, 2004 and assumed by Lawson. The facilityconsists of a guarantee line with Skandinaviska Enskilda Banken (SEB) in theamount of $5.8 million (Swedish Kroner (SEK) 40 million). The facility issecured by a corporate letter of guaranty by Lawson Software, Inc. As of May 31,2007, no amount was outstanding under the guarantee line and $5.8 million wasavailable for use. We also have various other outstanding guarantees totaling$0.4 million with various financial institutions.

We also have $7.4 held as restricted cash, of whichapproximately $5.8 million relates to collateral to secure a bank guarantee forthe settlement of the purchase of the remaining shares of Intentia. Thearbitration process dictates that the Company is required to hold this amountalthough the amount may not be indicative of the purchase price of theremaining shares. The balance of $1.7 million relates to various guarantees ofthe Company’s properties worldwide.

Interest paid was $7.6million, $0.02 million and $0.01 million in fiscal years ended May 31,2007, 2006 and 2005, respectively.

**8.**                 MinorityInterest and Investment in Unconsolidated Subsidiaries

*MinorityInterest*   The Company has an 89% and 75% interestin its subsidiaries in Norway and Poland, respectively that were acquired inthe acquisition of Intentia. The minority interest as of May 31, 2007 isin a deficit position for both Norway and Poland and therefore there is noamount recorded on the balance sheet.

*Investment inUnconsolidated Subsidiaries*   The Companyreflected $0.1 million of equity in earnings from investments in unconsolidatedsubsidiaries in fiscal 2007 with the acquisition of Intentia and all of Intentia’ssubsidiaries. Net sales recorded were not material. The equity method ofaccounting is used for companies and other investments in which the Company hassignificant influence, which generally represents common stock ownership orpartnership equity of at least 20% and not more than 50%. As of the fiscal yearended May 31, 2007, the Company’s investment in unconsolidatedsubsidiaries included a 30% interest in Intentia Thailand Co. Ltd. and a 38%interest in Scase A/S. Both of these companies are involved in the sale ofMovex, Intentia’s legacy software, and the supporting services associated withthe software. As the Company has only one reporting segment, all of the revenueand equity investments are reported in the one segment. Investments in unconsolidatedsubsidiaries are included in the Consolidated Balance Sheet.

**9.**                 CommonStock

In June 2003, the Company’s Board of Directorsauthorized the repurchase of up to $50.0 million of its common shares.Shares were repurchased from time to time as market conditions warranted either

F-38

----

**LAWSON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in thousands, except share and per share data)**

through open markettransactions, block purchases, private transactions or other means. No timelimit was set for the completion of the program. During fiscal 2004, atotal of 4.9 million shares were repurchased for $40.0 million incash and $0.1 million in non-cash transactions. During fiscal 2005,the Company completed the authorized stock purchase plan by purchasing1.4 million shares for $10.0 million in cash.

Cash proceeds obtained from the maturities ofmarketable securities, the exercise of employee stock options and contributionsto the ESPP, largely funded the share repurchases. The repurchased commonshares are recorded as treasury stock and result in a reduction of stockholders’equity. The shares will be used for general corporate purposes.

On November 13, 2006, the Company announced thatthe board of directors approved a share repurchase of up to $100 million ofcommon stock, which was subsequently increased to $200 million by the board in April of2007. The share repurchase will be funded using the Company’s existing cashbalance and future cash flows, and will occur through open market purchases,privately negotiated transactions and/or transactions structured throughinvestment banking institutions as permitted by securities laws and other legalrequirements. Market conditions will influence the timing of the buyback andthe number of shares repurchased. Through May 31, 2007, we used $54.9million to repurchase 6.4 million shares at an average price of $8.61.

In connection with theissuance of the convertible notes (see Note 7), the Company simultaneouslyentered into agreements with an affiliate of one of the initial purchasers topurchase call options and sell warrants on its common stock.

**10.**          ShareholderRights Plan

On July 26, 2004, the Company’s Board ofDirectors adopted a Shareholder Rights Plan in which preferred stock purchaserights were distributed as a non-taxable dividend at the rate of one Right foreach share of Common Stock held as of the close of business on July 28, 2004.Each Right will entitle stockholders to buy one-one hundredth of a newly issuedshare of Series B Junior Participating Stock of the Company at an exerciseprice of $29.00. The Rights will be exercisable only if a person or group,other than an exempted person, acquires beneficial ownership of, or makes atender for, 15 percent or more of the Company’s outstanding Common Stock.

If any person, other than an exempted person becomesthe beneficial owner of 15 percent or more of the Company’s outstandingCommon Stock, each Right not owned by such person or certain related partieswill entitle its holder to purchase at the Right’s then current exercise priceshares of the Company’s Common Stock having a market value equal to twice thethen current exercise price. In addition, if after a person becomes thebeneficial owner of 15 percent or more of the Company’s outstanding CommonStock, the Company is involved in a merger or other business combinationtransaction with another person after which its Common Stock does not remainoutstanding, or sells 50 percent or more of its assets or earning power toanother person, each Right will entitle its holder to purchase at the Right’sthen current exercise price shares of common stock of such other person havinga market value equal to twice the then current exercise price.

The Company’s Board of Directors will be entitled toredeem the Rights at $0.01 per Right at any time prior to a person or groupacquiring 15 percent or more of the Company’s Common Stock. Otherwise, theRights will expire on July 28, 2014.

F-39

----

**LAWSON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in thousands, except share and per share data)**

In conjunction with thebusiness combination with Intentia International AB. The Company amended theShareholder Rights Plan on June 2, 2005 so that the announcedtransactions with Intentia and its affiliates will be exempt and will not causeany distribution of Rights under the plan.

**11.**          ProfitSharing and 401(k) Retirement Plan

The Company has a defined contribution profit sharingplan, which conforms to IRS provisions for 401(k) plans. Employees areeligible to participate in the plan upon employment and are eligible for theCompany match after completing one year of service. Participants may contributeup to 15% of their gross earnings to the plan. The Company matches 50% of thefirst 4% of employee contributions and may make additional contributions asdetermined by the Board of Directors.

As a result of the Intentiaacquisition, the Company has additional defined contribution and definedbenefit pension plans for certain of its employees. These plans generallyprovide pension benefits based on years of service and compensation level. Thedefined benefit plans are not material to the Company’s financial statements.

The Company recordedcontribution expense related to defined contribution plans of approximately$13.1 million, $2.3 million and $2.2 million for the years ended May 31, 2007,2006 and 2005, respectively.

**12.**          IncomeTaxes

Theprofit before taxes consists of the following components (in thousands):

| ** **                | ** ** | **Year Ended May 31,** | ** ** |
|---------------------------|------------|---------------------------------------|------------|
| ** **                | ** ** | **2007**                              | ** ** | **2006** | ** ** | **2005** | ** ** |
| United States             |       | $                                     | 33,693     |   | $ | 39,724 |   | $ | 8,117 |   |
| International  Operations |       | (40,230                               | )          | (12,057 | ) | — |   |
|                      |       | $                                     | (6,537     | ) | $ | 27,667 |   | $ | 8,117 |   |

 

Theprovision (benefit) for income taxes consists of the following components (inthousands):

| ** **                          | ** ** | **Year Ended May 31,** | ** ** |
|-------------------------------------|------------|---------------------------------------|------------|
| ** **                          | ** ** | **2007**                              | ** ** | **2006** | ** ** | **2005** | ** ** |
| Current:                            |       |                                  |       |   |   |   |   |
| Federal                             |       | $                                     | 11,240     |   | $ | 12,081 |   | $ | 5,376 |   |
| State                               |       | 2,014                                 |       | 2,077 |   | 466 |   |
| Foreign                             |       | (6,930                                | )          | (848 | ) | 57 |   |
| Total current provision             |       | 6,324                                 |       | 13,310 |   | 5,899 |   |
| Deferred:                           |       |                                  |       |   |   |   |   |
| Federal                             |       | 2,395                                 |       | (257 | ) | (3,050 | ) |
| State                               |       | (97                                   | )          | (986 | ) | 6 |   |
| Foreign                             |       | 5,778                                 |       | (359 | ) | — |   |
| Total deferred provision  (benefit) |       | 8,076                                 |       | (1,602 | ) | (3,044 | ) |
| Total provision  for income taxes   |       | $                                     | 14,400     |   | $ | 11,708 |   | $ | 2,855 |   |

 

F-40

----

**LAWSON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in thousands, except share and per share data)**

Areconciliation of the expected income tax provision (benefit) at the U.S.statutory rate with the provision for income taxes is as follows:

| ** **                                                      | ** ** | **Year Ended  May 31,** | ** ** |
|-----------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                      | ** ** | **2006**                          | ** ** | **2005** | ** ** |
| Taxes computed at  statutory rate                               |       | 35.0                              | %          | 35.0 | % |
| Valuation  allowance                                            |       | 8.8                               |       | 4.6 |   |
| Foreign  withholding taxes                                      |       | 0.1                               |       | 0.4 |   |
| Foreign earnings  at other than U.S. statutory rates            |       | 2.0                               |       | — |   |
| Non-deductible  expenses                                        |       | 1.4                               |       | 6.8 |   |
| State taxes, net  of federal benefit                            |       | 5.3                               |       | 3.8 |   |
| Tax exempt  income, including extraterritorial income exclusion |       | (0.8                              | )          | (9.7 | ) |
| Tax credits                                                     |       | (1.4                              | )          | (5.7 | ) |
| Other, net                                                      |       | (8.1                              | )          | — |   |
|                                                            |       | 42.3                              | %          | 35.2 | % |

 

| ** **                                                      | ** ** | **Year Ended  May 31, 2007** | ** ** |
|-----------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                      | ** ** | **%**                                       | ** ** | **Amount** | ** ** |
| Taxes computed at  statutory rate                               |       | 35.0                                        | %          | $ | (2,288 | ) |
| Unbenefitted  foreign losses                                    |       | (234.6                                      | )          | 15,339 |   |
| Foreign earnings  at other than U.S. statutory rates            |       | 42.5                                        |       | (2,779 | ) |
| Non-deductible  expenses                                        |       | (17.3                                       | )          | 1,129 |   |
| State taxes, net  of federal benefit                            |       | (19.1                                       | )          | 1,248 |   |
| Tax exempt  income, including extraterritorial income exclusion |       | 2.6                                         |       | (170 | ) |
| Tax credits                                                     |       | 9.4                                         |       | (615 | ) |
| Other, net                                                      |       | (38.8                                       | )          | 2,536 |   |
|                                                            |       | (220.3                                      | )%         | $ | 14,400 |   |

 

F-41

----

**LAWSON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in thousands, except share and per share data)**

Temporarydifferences comprising net deferred tax assets are as follows (in thousands):

| ** **                                       | ** ** | **May 31,** | ** ** |
|--------------------------------------------------|------------|------------------|------------|
| ** **                                       | ** ** | **2007**         | ** ** | **2006** | ** ** |
| Current:                                         |       |             |       |   |   |
| Allowance for doubtful accounts                  |       | $                | 1,654      |   | $ | 1,422 |   |
| Accrued compensation                             |       | 1,495            |       | 9,024 |   |
| Accrued liabilities and other                    |       | 14,250           |       | 9,402 |   |
| Deferred revenue                                 |       | 3,698            |       | (1,586 | ) |
| Net operating loss carryforwards                 |       | 371              |       | 7,160 |   |
| Tax credit carryforwards                         |       | 2,952            |       | 3,135 |   |
| Total gross current deferred tax assets          |       | 24,420           |       | 28,557 |   |
| Less valuation allowance                         |       | (11,594          | )          | (11,313 | ) |
| Total net current deferred tax asset             |       | 12,826           |       | 17,244 |   |
| Noncurrent:                                      |       |             |       |   |   |
| Depreciation and amortization                    |       | 4,000            |       | 6,942 |   |
| Identified intangible amortization               |       | (14,732          | )          | (18,523 | ) |
| Stock-based compensation                         |       | 1,483            |       | 3,250 |   |
| Original issue discount on convertible debt, net |       | 21,945           |       | — |   |
| Long-term lease and other                        |       | 1,030            |       | (1,904 | ) |
| Deferred revenue                                 |       | 4,955            |       | (49 | ) |
| Deferred rent                                    |       | 1,091            |       | 740 |   |
| Net operating loss carryforwards                 |       | 86,064           |       | 85,163 |   |
| Tax credit carryforwards                         |       | 360              |       | — |   |
| Total gross noncurrent deferred tax assets       |       | 106,196          |       | 75,619 |   |
| Less valuation allowance                         |       | (81,865          | )          | (75,364 | ) |
| Total net non-current deferred tax assets        |       | 24,331           |       | 255 |   |
| Total net  deferred tax asset                    |       | $                | 37,157     |   | $ | 17,499 |   |

 

F-42

----

**LAWSON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in thousands, except share and per share data)**

Thefollowing summarizes the rollforward of the deferred tax asset valuationallowance (in thousands):

| Balance,  May 31, 2004                     |   | $       | 971    |   |
|-------------------------------------------------|--------|---------|--------|--------|
| Provisions for  valuation allowance:            |   |    |   |
| Domestic                                        |   | 364     |   |
| Balance, May 31, 2005                      |   | $       | 1,335  |   |
| Acquired in  business combinations              |   | 78,459  |   |
| Release of  domestic valuation allowance        |   | (1,335  | )      |
| Provisions for  valuation allowance:            |   |    |   |
| Foreign                                         |   | 8,218   |   |
| Balance, May 31, 2006                      |   | $       | 86,677 |   |
| Change due to  revisions to purchase accounting |   | 2,248   |   |
| Provision for  domestic valuation allowance     |   | 360     |   |
| Provisions for  foreign valuation allowance     |   | 15,339  |   |
| Utilization due  to intercompany transfer       |   | (10,219 | )      |
| Currency  adjustment to opening balance         |   | (946    | )      |
| Balance,  May 31, 2007                     |   | $       | 93,459 |   |

 

As of May 31, 2007, the Company had U.S.federal and state net operating loss carryforwards of approximately $1.2million and $0.2 million, respectively. The federal and state losses expire in2007 through 2025 if not utilized. The net operating loss carryforwards aresubject to an annual limitation under Internal Revenue Code Section 382,but are expected to be fully realized.

In addition, the Company has approximately $2.9million of federal and state research and development credits that expire in2007 through 2025 and alternative minimum tax credit carryforwards that do notexpire. There was no valuation allowance related to these deferred tax assetsas of May 31, 2007. The Company also has a foreign tax creditcarryforward available in the amount of $0.4 million, which has a fullvaluation allowance against it.

As of May 31, 2007, the Company has approximately$84.7 million of foreign net operating losses some of which expire in variousyears and some of which will carry forward indefinitely depending on thejurisdiction. The valuation allowance has been provided against a majority ofthe foreign net operating losses. During the course of the year, in conjunctionwith a component of a global legal restructuring plan, the company realized a$37.0 million gain for an intercompany transfer of intellectual property.This tax gain was offset by pre-acquisition net operating losses for which afull valuation allowance had been established as of the date of theacquisition. As the net operating loss carryforwards utilized were fullyreserved pre-acquisition losses, their utilization resulted in a decrease togoodwill of $10.2 million as discussed in the rollforward of goodwill in Note2. This intercompany gain was not recognized for financial reporting purposes.

Under the provisions of SFAS No. 109, *Accounting for Income Taxes*(SFAS 109), and related interpretations,future period reductions to the valuation allowance related to Intentia’sdeferred tax assets that existed as of the date of acquisition of Intentia arefirst credited against goodwill, then to other 

F-43

----

**LAWSON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in thousands, except share and per share data)**

identifiable intangibleassets existing at the date of acquisition, and then, once the assets have beenreduced to zero, credited to the income tax provision.

In fiscal 2006, Lawson reversed to the tax provisionits domestic valuation allowance of $1.3 million, as it became more likely thannot that its historical deferred tax assets would be realized.

The Company has in effect a temporary favorable taxruling for its Swiss finance company. The tax ruling provides for a reducedincome tax rate which approximates 9.0% and a reduced rate on capital taxes.

Lawson has not providedU.S. income taxes on the excess of its book basis in the shares of its foreignsubsidiaries which is attributed primarily to purchase accounting andundistributed earnings of subsidiaries. U.S. tax has not been provided on this basisdifference as it is considered permanent in nature and is not expected toreverse in the foreseeable future. This basis difference could be subject toadditional U.S. tax upon the sale or liquidation of these subsidiaries,dividend repatriation, or other events.

**13.**          Commitmentsand Contingencies

The Company is involved invarious other claims and legal actions in the normal course of business.Management is of the opinion that the outcome of such legal actions will nothave a significant adverse effect on the Company’s financial position, resultsof operations or cash flows. Notwithstanding management’s belief, anunfavorable resolution of some or all of these matters could materially affectthe Company’s future results of operations and cash flows.

***Employment Agreements***

The Company has enteredinto various employment agreements with certain executives and employees of theCompany, which provide for severance payments subject to certain conditions andevents.

***Operating and Capital Leases***

TheCompany rents office space and certain office equipment under operating andcapital leases. In addition to minimum lease payments, the office leasesrequire payment of a proportionate share of real estate taxes and buildingoperating expenses. Certain lease agreements include escalation clauses. Thetotal amount of base rentals over the term of the Company’s leases is chargedto expense on a straight-line method, with the amount of the rental expense inexcess of lease payments recorded as a deferred rent liability. Rent expenseunder operating leases was approximately $27.0 million,$16.4 million, and $14.2 million for the years ended May 31, 2007, 2006,and 2005, respectively.

Futureminimum lease payments are summarized as follows (in thousands):

| 2008                          |   | $      | 12,033  |   |
|-------------------------------|--------|--------|---------|--------|
| 2009                          |   | 25,496 |    |
| 2010                          |   | 22,130 |    |
| 2011                          |   | 16,332 |    |
| 2012                          |   | 8,997  |    |
| Thereafter                    |   | 23,921 |    |
| Total minimum  lease payments |   | $      | 108,909 |   |

 

F-44

----

**LAWSON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in thousands, except share and per share data)**

Future minimum leasepayments under capital leases are as follows (in thousands):

| 2008                                      |   | $      | 1,620  |   |
|-------------------------------------------|--------|--------|--------|--------|
| 2009                                      |   | 1,141  |   |
| 2010                                      |   | 429    |   |
| 2011                                      |   | 26     |   |
| 2012                                      |   | — |   |
| Thereafter                                |   | — |   |
| Total minimum lease  payments             |   | 3,216  |   |
| Less amounts  representing interest       |   | (676   | )      |
| Present value of net  minimum obligations |   | 2,540  |   |
| Less current portion                      |   | (1,191 | )      |
| Long-term capital lease  obligations      |   | $      | 1,349  |   |

 

***Indemnification and Guarantee Agreements***

The Company licenses its software products tocustomers under end user license agreements and to certain resellers or otherbusiness partners under business partner agreements. These agreements generallyinclude certain provisions for indemnifying the customer or business partneragainst losses, expenses and liabilities from damages that may be awardedagainst them if our software, or the third-party-owned software the Companyresells, is found to infringe a patent, copyright, trademark or otherproprietary right of a third-party. These agreements generally limit theCompany’s indemnification obligations based on industry-standards andgeographical parameters, and give the Company the right to replace an infringingproduct. The maximum potential amount of future payments the Company could berequired to make under these indemnification agreements is unlimited; however,the Company believes its internal development processes and other practiceslimit its exposure under these indemnification provisions. In addition, theinvention and nondisclosure agreements signed by the Company’s employees,assign to it various intellectual property rights. There is no pendinglitigation for which the Company is required to provide indemnification underthese agreements. As a result, management believes the estimated fair value ofthese agreements is minimal. Accordingly, there are no liabilities recorded forthese agreements as of May 31, 2007.

The Company enters into services agreements withcustomers for the implementation of its software. The Company also maysubcontract those services to its business partners. From time to time, theCompany includes in those services agreements, certain provisions forindemnifying the customer against losses, expenses and liabilities from thoseservices, including, for example, personal injury or tangible property damage.Lease agreements and other contracts with the Company’s vendors may also imposesimilar indemnification obligations on the Company for personal injury,tangible property damage or other claims. The maximum potential amount offuture payments the Company could be required to make under theseindemnification agreements is unlimited; however, the Company has generalliability and umbrella insurance policies that enable it to recover a portionof certain amounts paid. This is no pending litigation for which the Company isrequired to provide indemnification under these agreements. As a result,management believes the estimated fair value of these agreements is minimal.Accordingly, there are no liabilities recorded for these agreements as of May 31, 2007.

F-45

----

**LAWSON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in thousands, except share and per share data)**

The Company has arrangements with certain vendorswhereby it guarantees the expenses incurred by certain of its employees. The termis from execution of the arrangement until cancellation and payment of anyoutstanding amounts. Unless otherwise limited in the contract, the Companywould be required to pay any unsettled employee expenses upon notification fromthe vendor. The maximum potential amount of future payments the Company couldbe required to make under these indemnification agreements is not significant.As a result, management believes the estimated fair value of these agreementsis minimal. Accordingly, there are no liabilities recorded for these agreementsas of May 31, 2007.

The Company has arrangements with certain customerswhereby it guarantees the products and services purchased will operatematerially and substantially as described in the documentation that is provided.

When a customer purchasessupport for the Company’s software products, the Company generally warrantsthat those products then eligible for maintenance will operate materially andsubstantially as described in the documentation that is provided with thatsoftware. The Company also generally warrants that its services will beprovided by trained personnel and in a professional manner using commerciallyreasonable efforts. If necessary, the Company provides for the estimated costof product and service warranties based on specific warranty claims and claimhistory.

***Legal***

We are subject to various legal proceedings and therisk of litigation by employees, customers, suppliers, stockholders or othersthrough private actions, class actions, administrative proceedings or otherlitigation. Since our acquisition of Intentia in April 2006, we have beenaccumulating information regarding Intentia customer claims and disputes thatarose before the acquisition. The former Intentia managed most of these claimsand disputes at the local county level. Since the acquisition, we have alsoworked proactively to resolve several of these disputes. The initial purchaseaccounting accrual estimates previously recorded for these claims and disputeswere disclosed as preliminary in our Annual Report on Form 10-K for thefiscal year ended May 31, 2006 and in subsequent Quarterly Reports on Form 10-Q.After completing a thorough assessment of these claims and disputes, weobtained sufficient information for purposes of adjusting the preliminaryestimates of fair value for these claims and disputes. This resulted in anincremental accrual of $12.8 million with an associated increase togoodwill, recorded as of May 31, 2007 (see Note 4). These reservesare recorded at present value and are expected to be consumed through acombination of cash payments, accounts receivable write-offs and free servicesover the next 12 to 24 months. Because the reserves are recorded atpresent value, an aggregate $1.7 million of interest accretion was recorded infiscal 2007.

We expense our defensecosts during the period when incurred. If the aggregate settlement costs orjudgments exceed the fair value estimate established as part of the purchaseprice adjustment, the overage would be expensed in the period when incurred. Weare, and from time to time may become, involved in other litigation in thenormal course of business concerning our products and services. While theoutcome of these claims cannot be predicted with certainty, we do not believethat the outcome of any one of these legal matters will have a material adverseeffect on our consolidated financial position, results of operations or cashflows. However, depending on the amount and the timing, an unfavorableresolution of some or all of these matters could materially affect our futureresults of operations or cash flows in a particular period.

F-46

----

**LAWSON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in thousands, except share and per share data)**

***IBM Agreement***

In fiscal 2005, theCompany and International Business Machines Corporation (IBM) entered into anOEM Software Agreement that was modified in the second quarter of 2006 andagain in the third quarter of 2007 and a Master Relationship Agreement (MRA).Under these agreements, the Company resells its business applications inconjunction with IBM’s open standards-based software, and the companies jointlymarket these software solutions. The MRA governs the joint marketing activitiesand has a three-year term. During the term of the modified OEM SoftwareAgreement, the Company pays royalties to IBM for the licensing of IBM programsto each applicable existing and new customer of the Company, and pays IBMannual maintenance fees for each applicable Lawson customer. The modified OEMSoftware Agreement has an initial term of three years, commencing September 2005,and may be extended by the Company for two additional one-year terms. Duringthe initial three-year term, the Company has agreed to pay certain minimumquarterly and annual royalties to IBM. Total commitments under the modified OEMSoftware Agreement approximate $9.5 million over the three-year term. TheCompany may elect to terminate the OEM Software Agreement for convenience upon90 days advance notice to IBM. If the Company elects early termination at anytime during the three-year term, the terms of the Agreement require the Companyto pay IBM any unpaid minimum royalties through the date of termination plus aprorated share of the guaranteed annual minimum payment due for the year inwhich the termination occurred. The Company has made cash payments of $5.7million according to terms of the modified OEM Software Agreement throughoutthe life of the agreement through May 31, 2007. The payments were recordedas other assets—long-term which under SFAS 86 will be amortized to costs oflicense fees over the earlier of the time period in which units are sold or theuseful life. As of May 31, 2007, the Company has amortized $1.2 million ofroyalties to cost of license fees. In addition, the Company recorded $7.1 millionof expenses in fiscal 2007 representing third party license fees.

***Symphony Agreement (former Intentia)***

In May 2005, formerIntentia entered a Master Offshoring Agreement (the Agreement) with SymphonyService Corp., referred to as Symphony Services, an affiliate of SymphonyTechnology Group, LLC, a shareholder of Lawson and Symphony TechnologyII-A,L.P., pursuant to which Symphony Services agreed to provide Intentia bothproduct development and customer support resources for an initial five yearterm. The agreement was not affected by the consummation of the businesscombination with Lawson. It is believed that the Agreement will enable theCompany to achieve significant quality improvements and better customer servicewithout increasing total spending on product development and customer supportand was part of a business transformation plan approved by Intentia in July 2004.Under terms of the Agreement, The Company is contractually obligated to pay fora stated minimum level of resources employed to provide services for the firstthree years of the Agreement, after which either party may terminate theAgreement by delivery of a six-month advanced written notification. If theCompany elects to terminate the Agreement after the first three years, it wouldbe required to pay a buyout fee equal to six months of resource costs under theAgreement. As of May 31, 2007, the remaining minimum obligation level isapproximately $3.7 million through the original three year term, which ends in May 2008.Symphony has been paid $7.1 million since the Agreement’s inception through May 31,2007. Romesh Wadwani is a member of the Board of Directors of Lawson and is apartner of Symphony Technology Group, LLC.

F-47

----

**LAWSON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in thousands, except share and per share data)**

***IBM Agreement (former Intentia)***

In May 2005, LawsonInternational (former Intentia) entered into a Master Offshoring Agreement (theIBM Agreement) with IBM Svenska AB (IBM) in which IBM agreed to provide LawsonInternational cost efficient, high quality software development services andgoverns the joint development activities. The IBM Agreement has an initial termof five years, and may be extended in one or more additional eighteen monthperiod(s), provided that the parties mutually agree to such renewal in writingat least six month prior to the expiration of the then-current term. The IBM agreement was not affected by theconsummation of the business combination with Lawson. For the durationof the term of the IBM Agreement, the Company is obligated for minimum staffinglevels and resources defined by the IBM Agreement at an annual cost ofapproximately $1.2 million. After completion of two and a half years from thedate of the agreement, the Company may terminate the IBM Agreement forconvenience with six month advance written notice. However, if the IBMAgreement is terminated for convenience before the completion of five years,the Company remains obligated to pay IBM any unpaid amounts due for servicesperformed up to the termination or the minimum staffing levels, whichever isgreater. As of May 31, 2007 the Company’s total remaining minimumobligation under the IBM Agreement is $2.5 million. IBM has been paid $4.1million since the IBM Agreement’s inception through May 31, 2007.

F-48

----

**LAWSON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in thousands, except share and per share data)**

**14.**          Segmentand Geographic Areas

TheCompany views its operations and manages its business as one reportablesegment, the development and marketing of computer software and relatedservices including consulting and maintenance and customer support. Factorsused to identify the Company’s single operating segment include the financialinformation available for evaluation by the chief operating decision maker inmaking decisions about how to allocate resources and assess performance. In aneffort to achieve greater operational scale and leverage costs with theacquisition of Intentia, the Company has and will continue to integrate theoperations that support the Intentia M3 products and the legacy Lawson S3products under one leadership structure. As a result, the financial informationutilized to evaluate the business operations combines M3 and S3 initiatives forall vertical markets for product sales, consulting services and maintenance andcustomer support. The Company markets its products and services through theCompany’s offices in the United States and its wholly-owned branches andsubsidiaries operating in the Americas, EMEA, and APAC. The following tablepresents revenues summarized by geographic region (in thousands):

| ** **        | ** ** | **Geographic Region** | ** ** |
|-------------------|------------|----------------------------|------------|
| ** **        | ** ** | **Americas**               | ** ** | **APAC** | ** ** | **EMEA** | ** ** | **Total** | ** ** |
| **Revenues**      |       |                       |       |   |   |   |   |   |   |
| **Fiscal 2007:**  |       |                       |       |   |   |   |   |   |   |
| License fees      |       | $                          | 68,218     |   | $ | 2,104 |   | $ | 35,539 |   | $ | 105,861 |   |
| Services:         |       |                       |       |   |   |   |   |   |   |
| Maintenance       |       | 199,924                    |       | 6,685 |   | 85,048 |   | 291,657 |   |
| Consulting        |       | 141,814                    |       | 15,004 |   | 196,052 |   | 352,870 |   |
| Total services    |       | 341,738                    |       | 21,689 |   | 281,100 |   | 644,527 |   |
| Total revenues    |       | $                          | 409,956    |   | $ | 23,793 |   | $ | 316,639 |   | $ | 750,388 |   |
| **Fiscal  2006:** |       |                       |       |   |   |   |   |   |   |
| License fees      |       | $                          | 69,248     |   | $ | 77 |   | $ | 1,751 |   | $ | 71,076 |   |
| Services:         |       |                       |       |   |   |   |   |   |   |
| Maintenance       |       | 176,267                    |       | 561 |   | 11,327 |   | 188,155 |   |
| Consulting        |       | 106,764                    |       | 1,771 |   | 23,010 |   | 131,545 |   |
| Total services    |       | 283,031                    |       | 2,332 |   | 34,337 |   | 319,700 |   |
| Total revenues    |       | $                          | 352,279    |   | $ | 2,409 |   | $ | 36,088 |   | $ | 390,776 |   |
| **Fiscal  2005:** |       |                       |       |   |   |   |   |   |   |
| License fees      |       | $                          | 56,838     |   | $ | — |   | $ | 905 |   | $ | 57,743 |   |
| Services:         |       |                       |       |   |   |   |   |   |   |
| Maintenance       |       | 165,723                    |       | — |   | 5,000 |   | 170,723 |   |
| Consulting        |       | 102,335                    |       | — |   | 4,383 |   | 106,718 |   |
| Total services    |       | 268,058                    |       | — |   | 9,383 |   | 277,441 |   |
| Total revenues    |       | $                          | 324,896    |   | $ | — |   | $ | 10,288 |   | $ | 335,184 |   |

 

Total revenues for the U.S. were $391.7 million,$343.3 million and $317.9 million for the fiscal years ended May 31, 2007,2006 and 2005, respectively. Sweden had $98.3 million in revenues for thefiscal year 

F-49

----

**LAWSON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in thousands, except share and per share data)**

ended May 31, 2007. Besidesthe United States and Sweden, no other countries had revenues exceeding 10% ofconsolidated revenues.

Thefollowing table presents tangible long-lived assets summarized by geographicregion (in thousands):

| ** **                           | ** ** | **Geographic Region** | ** ** |
|--------------------------------------|------------|----------------------------|------------|
| ** **                           | ** ** | **Americas**               | ** ** | **APAC** | ** ** | **EMEA** | ** ** | **Total** | ** ** |
| **Tangible long-lived assets**       |       |                       |       |   |   |   |   |   |   |
| Fiscal year ended  May 31, 2007 |       | $                          | 9,873      |   | $ | 4,149 |   | $ | 16,857 |   | $ | 30,879 |   |
| Fiscal year ended  May 31, 2006 |       | $                          | 10,634     |   | $ | 1,992 |   | $ | 13,563 |   | $ | 26,189 |   |

 

Tangible long-lived assets consist of property andequipment.

The tangible long-livedassets for the U.S. were $9.8 million and $10.3 million for the fiscal yearsended May 31, 2007 and 2006 respectively, and the long-lived assets forSweden were $11.5 million and $7.1 million for the fiscal years ended May 31,2007 and 2006, respectively.

**15.**          RelatedParties

On May 15, 2006, the Company and SymphonyTechnology Group, LLC (Symphony), a principal stockholder of the Company,entered into a three—month consulting agreement, under which an employee ofSymphony provided part time project management services. Lawson paid allout-of-pocket expenses but did not pay any fees for the employee services.Amounts paid to Symphony during fiscal 2007 under the agreement were nominal.Romesh Wadwani is a member of the Board of Directors of Lawson and is a partnerof Symphony. Mr. Wadhwani did not personally perform any of the servicesunder the consulting agreement.

In May 2005, Intentia entered an agreement withSymphony Service Corp., referred to as Symphony Services, an affiliate ofSymphony Technology Group, LLC, pursuant to which Symphony Services agreed toprovide Intentia both product development and customer support resources for aninitial five year term. Intentia believed this agreement will help enable it toachieve significant quality improvements and better customer service withoutincreasing total spending on product development and customer support and waspart of a business transformation plan approved by Intentia in July 2004. Theagreement was not affected by the consummation of the business combination withLawson. During fiscal 2007, the Company paid Symphony Services $7.0 million.

Effective April 27,2007, Lawson International AB, a subsidiary of Lawson, entered into a two-yearnonexclusive reseller agreement with Symphony Service Corp. (India) Pvt Ltd(Symphony Services India) for the territory of India (the Non-Exclusive IndiaReseller Agreement). Under the Non-Exclusive India Reseller Agreement, SymphonyServices India may distribute, sublicense and service products of Lawson andits subsidiaries to customers of Symphony Services India in India, inconsideration of payment of the applicable reseller fees to Lawson. TheNon-Exclusive India Reseller Agreement supersedes and replaces an exclusivereseller agreement for India that was signed in 1998 between IntentiaInternational AB and Intentia South Asia Pct. Ltd. India (Intentia India), andassigned by Intentia India to Symphony Services India in March 2005. RomeshWadhwani is a member of the Board of Directors of Lawson and is principalstockholder of Symphony Services India and Lawson (indirectly through othercompanies affiliated with 

F-50

----

**LAWSON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in thousands, except share and per share data)**

SymphonyServices India and separately disclosed under Schedule 13D/G). TheNon-Exclusive India Reseller Agreement is based on the standard form ofnon-exclusive reseller agreement used by Lawson with non-affiliated resellers. TheNon-Exclusive India Reseller Agreement was approved by management of Lawson, theAudit Committee, and by the Board of Directors of Lawson (with Mr. Wadhwaniabstaining), because it was determined that the new agreement (i) eliminatedexclusivity and is for a shorter term than the former agreement, (ii) reflectsLawson’s current standard terms for non-affiliated resellers and (iii) doesnot represent a conflict of interest. Lawson believes that the terms of theNon-Exclusive India Reseller Agreement are no less favorable to Lawson than theterms of other reseller agreements entered into by Lawson with unaffiliatedresellers. During fiscal 2007, the Company paid Symphony Services India $0.2million for services under the agreement.

**16.**          SupplementalQuarterly Financial Information (Unaudited):

Summarizedquarterly supplemental consolidated financial information for fiscal 2007and 2006 are as follows (in thousands):

| ** **                                    | ** ** | **Quarter Ended** | ** ** |
|-----------------------------------------------|------------|------------------------|------------|
| ** **                                    | ** ** | **August 31**     | ** ** | **November 30** | ** ** | **February 28** | ** ** | **May 31** | ** ** |
| **Fiscal 2007**                               |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Total revenues                                |       | $                      | 161,837    |   |   | $ | 184,493 |   |   |   | $ | 191,207 |   |   | $ | 212,851 |   |
| Gross profit                                  |       | 72,373                 |       |   | 84,357 |   |   |   | 91,486 |   |   | 102,852 |   |
| Restructuring                                 |       | 3,392                  |       |   | (32 | ) |   |   | 11,540 |   |   | 583 |   |
| Operating  expenses (excluding restructuring) |       | 85,596                 |       |   | 87,043 |   |   |   | 88,303 |   |   | 93,286 |   |
| (Loss) income  before income taxes            |       | (13,249                | )          |   | 678 |   |   |   | (6,934 | ) |   | 12,968 |   |
| Net (loss) income                             |       | $                      | (15,792    | ) |   | $ | (3,509 | ) |   |   | $ | (9,768 | ) |   | $ | 8,132 |   |
| Net (loss) income per  share:                 |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Basic                                         |       | $                      | (0.08      | ) |   | $ | (0.02 | ) |   |   | $ | (0.05 | ) |   | $ | 0.04 |   |
| Diluted                                       |       | $                      | (0.08      | ) |   | $ | (0.02 | ) |   |   | $ | (0.05 | ) |   | $ | 0.04 |   |
| **Fiscal  2006**                              |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Total revenues                                |       | $                      | 87,914     |   |   | $ | 89,037 |   |   |   | $ | 87,695 |   |   | $ | 126,130 |   |
| Gross profit                                  |       | 52,773                 |       |   | 52,346 |   |   |   | 52,392 |   |   | 61,723 |   |
| Restructuring                                 |       | 10                     |       |   | (5 | ) |   |   | — |   |   | 1,820 |   |
| Operating  expenses (excluding restructuring) |       | 50,718                 |       |   | 43,911 |   |   |   | 41,970 |   |   | 64,254 |   |
| Income (loss)  before income taxes            |       | 4,344                  |       |   | 10,788 |   |   |   | 13,235 |   |   | (700 | ) |
| Net (loss) income                             |       | $                      | 4,177      |   |   | $ | 6,556 |   |   |   | $ | 10,007 |   |   | $ | (4,781 | ) |
| Net (loss) income per  share:                 |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Basic                                         |       | $                      | 0.04       |   |   | $ | 0.06 |   |   |   | $ | 0.10 |   |   | $ | (0.03 | ) |
| Diluted                                       |       | $                      | 0.04       |   |   | $ | 0.06 |   |   |   | $ | 0.09 |   |   | $ | (0.03 | ) |

 

No cash dividends have been declared or paid in anyperiod presented. The quarter ended May 31, 2006 includes operatingresults of Intentia from April 25, 2006, the date of merger.

F-51

----